Federal Register / Vol. 80, No. 40 / Monday, March 2, 2015 / Proposed Rules 11141 

promoting safe flight of civil aircraft in 

air commerce by prescribing regulations 

for practices, methods, and procedures 

the Administrator finds necessary for 

safety in air commerce. This regulation 

is within the scope of that authority 

because it addresses an unsafe condition 

that is likely to exist or develop on 

products identified in this rulemaking 

action. 

Regulatory Findings 

We determined that this proposed AD 

would not have federalism implications 

under Executive Order 13132. This 

proposed AD would not have a 

substantial direct effect on the States, on 

the relationship between the national 

Government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government. 

For the reasons discussed above, I 

certify this proposed regulation: 

(1) Is not a ‘‘significant regulatory 

action’’ under Executive Order 12866, 

(2) Is not a ‘‘significant rule’’ under 

the DOT Regulatory Policies and 

Procedures (44 FR 11034, February 26, 

1979), 

(3) Will not affect intrastate aviation 

in Alaska to the extent that it justifies 

making a regulatory distinction, and 

(4) Will not have a significant 

economic impact, positive or negative, 

on a substantial number of small entities 

under the criteria of the Regulatory 

Flexibility Act. 

List of Subjects in 14 CFR Part 39 

Air transportation, Aircraft, Aviation 

safety, Incorporation by reference, 

Safety. 

The Proposed Amendment 

Accordingly, under the authority 

delegated to me by the Administrator, 

the FAA proposes to amend 14 CFR part 

39 as follows: 

PART 39—AIRWORTHINESS 

DIRECTIVES 

■ 1. The authority citation for part 39 

continues to read as follows: 

Authority: 49 U.S.C. 106(g), 40113, 44701. 

§ 39.13 [Amended] 

■ 2. The FAA amends § 39.13 by adding 

the following new airworthiness 

directive (AD): 

Pratt & Whitney: Docket No. FAA–2014– 

1127; Directorate Identifier 2014–NE– 

16–AD. 

(a) Comments Due Date 

We must receive comments by May 1, 

2015. 

(b) Affected ADs 

None. 

(c) Applicability 

This AD applies to all Pratt & Whitney 

(PW) JT8D–217C and JT8D–219 turbofan 

engines with low-pressure turbine (LPT) 

shaft part numbers 783319, 783319–001, 

783319–003, 783319–004, 783320, 783320– 

001, 783320–003, 783320–004, 820514–001, 

820514–003, 820514–004, or 820514–005, 

installed. 

(d) Unsafe Condition 

This AD was prompted by reports of 

cracking in the LPT shaft. We are issuing this 

AD to prevent failure of the LPT shaft, which 

could lead to an uncontained engine failure 

and damage to the airplane. 

(e) Compliance 

Comply with this AD within the 

compliance times specified, unless already 

done. 

For engines with an LPT shaft part number 

listed in paragraph (c) of this AD: 

(1) If the LPT shaft has 15,000 or fewer 

cycles since new (CSN) on the effective date 

of this AD, remove it from service before it 

accumulates 20,000 CSN. 

(2) If the LPT shaft has more than 15,000 

CSN on the effective date of this AD, remove 

it from service before it accumulates 5,000 

additional cycles in service, or at the next 

piece-part exposure after accumulating 

20,000 CSN, whichever occurs first. 

(3) After the effective date of this AD, do 

not install any LPT shaft listed in paragraph 

(c) of this AD that is at piece-part exposure 

and exceeds the new life limit of 20,000 CSN, 

into any engine. 

(f) Definitions 

For the purpose of this AD, piece-part 

exposure is when the LPT shaft is completely 

disassembled from the engine. 

(g) Alternative Methods of Compliance 

(AMOCs) 

The Manager, Engine Certification Office, 

FAA, may approve AMOCs for this AD. Use 

the procedures found in 14 CFR 39.19 to 

make your request. You may email your 

request to: ANE-AD-AMOC@faa.gov. 

(h) Related Information 

(1) For more information about this AD, 

contact Jo-Ann Theriault, Aerospace 

Engineer, Engine Certification Office, FAA, 

Engine & Propeller Directorate, 12 New 

England Executive Park, Burlington, MA 

01803; phone: 781–238–7105; fax: 781–238– 

7199; email: jo-ann.theriault@faa.gov. 

(2) PW Service Bulletin No. JT8D 6504, 

dated November 5, 2014, which is not 

incorporated by reference in this proposed 

AD, can be obtained from PW using the 

contact information in paragraph (h)(3) of 

this proposed AD. 

(3) For service information identified in 

this proposed AD, contact Pratt & Whitney, 

400 Main St., East Hartford, CT 06108; 

phone: 860–565–8770; fax: 860–565–4503. 

(4) You may view this service information 

at the FAA, Engine & Propeller Directorate, 

12 New England Executive Park, Burlington, 

MA. For information on the availability of 

this material at the FAA, call 781–238–7125. 

Issued in Burlington, Massachusetts, on 

February 20, 2015. 

Colleen M. D’Alessandro, 

Assistant Directorate Manager, Engine & 

Propeller Directorate, Aircraft Certification 

Service. 

[FR Doc. 2015–04059 Filed 2–27–15; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–136018–13] 

RIN 1545–BM20 

Determination of Adjusted Applicable 

Federal Rates Under Section 1288 and 

the Adjusted Federal Long-Term Rate 

Under Section 382 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking 

and notice of public hearing. 

SUMMARY: This document contains 

proposed regulations that provide the 

method to be used to adjust the 

applicable Federal rates (AFRs) under 

section 1288 of the Internal Revenue 

Code (Code) (adjusted AFRs) for taxexempt obligations and the method to 

be used to determine the long-term taxexempt rate and the adjusted Federal 

long-term rate under section 382. For 

tax-exempt obligations, the proposed 

regulations affect the determination of 

original issue discount under section 

1273 and of total unstated interest under 

section 483. In addition, the proposed 

regulations affect the determination of 

the limitations under sections 382 and 

383 on the use of certain operating loss 

carryforwards, tax credits, and other 

attributes of corporations following 

ownership changes. This document also 

contains a request for comments and 

provides notice of a public hearing on 

these proposed regulations. 

DATES: Written or electronic comments 

must be received by June 1, 2015. 

Outlines of topics to be discussed at the 

public hearing scheduled for June 24, 

2015 must be received by June 1, 2015. 

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–136018–13), Room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. Submissions 

may be hand-delivered Monday through 

Friday between the hours of 8 a.m. and 

4 p.m. to CC:PA:LPD:PR (REG–136018– 

13), Courier’s Desk, Internal Revenue 

Service, 1111 Constitution Avenue NW., 

Washington, DC, or sent electronically, 


wreier-aviles on DSK5TPTVN1PROD with PROPOSALS
11142 Federal Register / Vol. 80, No. 40 / Monday, March 2, 2015 / Proposed Rules 

via the Federal eRulemaking portal at 

www.regulations.gov (IRS REG–136018– 

13). The public hearing will be held in 

the IRS Auditorium, Internal Revenue 

Building, 1111 Constitution Avenue 

NW., Washington, DC. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations 

under section 1288, Jason G. Kurth at 

(202) 317–6842; concerning the 

proposed regulations under section 382, 

William W. Burhop at (202) 317–6847; 

concerning submissions of comments, 

the hearing, and/or to be placed on the 

building access list to attend the 

hearing, Oluwafunmilayo (Funmi) 

Taylor at (202) 317–6901 (not toll-free 

numbers). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains proposed 

amendments to 26 CFR part 1 (Income 

Tax Regulations) under sections 382 and 

1288 of the Code. The proposed 

regulations provide the new method by 

which the Treasury Department and the 

IRS propose to determine the adjusted 

AFRs under section 1288 to take into 

account the tax exemption for interest 

on tax-exempt obligations (as defined in 

section 1275(a)(3) and § 1.1275–1(e)) 

and the long-term tax-exempt rate and 

the adjusted Federal long-term rate 

under section 382(f) to take into account 

differences between rates on long-term 

taxable and tax-exempt obligations. 

Section 1274(d) directs the Secretary 

to determine the AFRs that are used for 

determining the imputed principal 

amount of debt instruments to which 

section 1274 applies, computing total 

unstated interest on payments to which 

section 483 applies, and other purposes. 

Under section 1274(d)(1), the AFR is: (i) 

In the case of a debt instrument with a 

term not over three years, the Federal 

short-term rate; (ii) in the case of a debt 

instrument with a term over three years 

but not over nine years, the Federal 

mid-term rate; and (iii) in the case of a 

debt instrument with a term over nine 

years, the Federal long-term rate. 

Sections 1274(d)(2) and (3) provide 

special rules for selecting the 

appropriate AFR in specified 

circumstances. Section 1274(d)(2) 

provides that, in the case of a sale or 

exchange, the AFR shall be the lowest 

AFR in effect for any month in the 3- 

calendar-month period ending with the 

first calendar month in which there is 

a binding contract in writing for the sale 

or exchange. Section 1274(d)(3) requires 

that options to renew or extend be taken 

into account in determining the term of 

a debt instrument. During each month, 

the Treasury Department determines the 

AFRs that will apply during the 

following calendar month based on the 

average market yield of outstanding 

marketable obligations of the United 

States with appropriate maturities. See 

§ 1.1274–4(b). The IRS publishes the 

AFRs for each month in the Internal 

Revenue Bulletin (see 

§ 601.601(d)(2)(ii)). 

Section 1288(b)(1) provides that, in 

applying section 483 or section 1274 to 

a tax-exempt obligation, under 

regulations prescribed by the Secretary, 

appropriate adjustments shall be made 

to the AFR to take into account the tax 

exemption for interest on the obligation. 

The IRS publishes the adjusted AFRs for 

each month in the Internal Revenue 

Bulletin (see § 601.601(d)(2)(ii)). 

In the case of a corporation that has 

undergone an ownership change 

described in section 382(g): (i) Section 

382 places an annual limit (the section 

382 limitation) on the amount of the 

corporation’s taxable income that may 

be offset by certain net operating loss 

carryforwards and built-in losses; and 

(ii) section 383 places a limit, 

determined by reference to the section 

382 limitation, on the amount of the 

corporation’s income tax liability that 

may be offset by certain tax credits and 

other tax attributes. Under section 

382(b)(1), the section 382 limitation 

generally equals the product of (A) the 

value of the stock of the corporation 

immediately prior to the ownership 

change and (B) the long-term tax-exempt 

rate. 

Section 382(f)(1) defines the long-term 

tax-exempt rate as the highest of the 

adjusted Federal long-term rates in 

effect for any month in the threecalendar-month period ending with the 

calendar month in which the ownership 

change occurs. Section 382(f)(2) 

provides that the term ‘‘adjusted Federal 

long-term rate’’ means the Federal longterm rate determined under section 

1274(d), except that sections 1274(d)(2) 

and (3) shall not apply, and such rate 

shall be properly adjusted for 

differences between rates on long-term 

taxable and tax-exempt obligations. 

Section 382(f) was added to the Code 

by the Tax Reform Act of 1986, Public 

Law 99–514 (100 Stat. 2254). The Report 

of the Committee on Ways and Means 

on H.R. 3838, the Tax Reform Act of 

1985 (the title of the Act as it passed the 

House), states that the long-term taxexempt rate should be determined by 

adjusting the Federal long-term rate 

(determined under section 1274) 

pursuant to section 1288 to take into 

account tax exemption. H.R. Rep. No. 

99–426, 99th Cong., 1st Sess. 268 (1985) 

(1986–3 CB (Vol. 2) 1, 268). The 

Conference Report for the Tax Reform 

Act of 1986 states that the adjusted 

Federal long-term rate is to be computed 

as the yield on a diversified pool of 

prime, general obligation tax-exempt 

bonds with remaining periods to 

maturity of more than nine years. The 

report also explains that it is necessary 

to the purposes of section 382 that the 

long-term tax-exempt rate be lower than 

the Federal long-term rate. Further, the 

Committee anticipated that the longterm tax-exempt rate would ordinarily 

fall in a range between (i) the Federal 

long-term rate multiplied by a 

percentage equal to the difference 

between 100 percent and the corporate 

tax rate, and (ii) 100 percent of the 

Federal long-term rate. 2 H.R. Rep. No. 

99–841 (Conf. Rep.), 99th Cong., 2d 

Sess. II–188 (1986) (1986–3 CB (Vol. 4) 

1, 188). Under current tax rates, that 

would be between 65 percent and 100 

percent of the Federal long-term rate. 

Since November 1986, the adjusted 

Federal long-term rate published under 

section 382(f)(2) has been equal to the 

long-term adjusted AFR with annual 

compounding published under section 

1288(b) in the same month. See Rev. 

Rul. 86–133 (1986–2 CB 59) (see 

§ 601.601(d)(2)(ii)). For calendar months 

from November 1986 to February 2013, 

the Treasury Department determined 

the adjusted Federal long-term rate and 

each adjusted AFR described in section 

1288(b)(1) by multiplying the 

corresponding AFR by a fraction (the 

adjustment factor). The numerator of the 

adjustment factor was a composite yield 

of the highest-grade tax-exempt 

obligations available, which are prime, 

general obligation tax-exempt 

obligations. The denominator was a 

composite yield of U.S. Treasury 

obligations with maturities similar to 

those of the tax-exempt obligations. 

Each of the composite yields was 

measured over a one-month period. 

Since the beginning of 2008, market 

yields of prime, general obligation taxexempt obligations have sometimes 

exceeded market yields of comparable 

U.S. Treasury obligations, causing the 

adjusted Federal long-term rate and 

each adjusted AFR to exceed the 

corresponding AFRs. This relationship 

between the adjusted rates and the 

corresponding AFRs showed that the 

adjustment factor no longer served the 

purposes of sections 1288(b)(1) and 

382(f)(2), which require adjustments to 

reflect only tax exemption, not credit 

quality. These rates are also inconsistent 

with the express intention of Congress 

that the adjusted Federal long-term rate 

and the long-term tax-exempt rate be 

lower than the Federal long-term rate. 


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Federal Register / Vol. 80, No. 40 / Monday, March 2, 2015 / Proposed Rules 11143 

Request for Comments and Summary of 

Comments 

In response, the IRS published Notice 

2013–4 (2013–9 IRB 527) on February 

25, 2013, requesting comments on 

possible modifications to the method by 

which adjusted AFRs and the adjusted 

Federal long-term rate are determined. 

The notice solicited comments on 

several potential adjustment factors. 

One proposal was an adjustment factor 

based on tax rates, under which each 

adjusted AFR would be the product of 

(A) the appropriate AFR, and (B) the 

excess of (i) one hundred percent over 

(ii) a tax rate or a fixed percentage of a 

tax rate. Another proposal was an 

adjustment factor based on historical 

data, under which the adjustment factor 

would be fixed at an amount that would 

produce a spread between Federal longterm rates and adjusted Federal longterm rates equal to the average spread 

between those rates during the period 

from 1986 through 2007 (which is the 

period before changes in market 

conditions elevated the yields of many 

obligations in relation to U.S. Treasury 

obligations). The notice also requested 

comments on whether the adjusted 

Federal long-term rate described in 

section 382(f)(2) should continue to be 

determined in the same manner as the 

adjusted AFRs described in section 

1288(b)(1). 

Notice 2013–4 provided that, until the 

Treasury Department and the IRS issue 

further guidance, the adjusted AFRs and 

the long-term tax-exempt rate would 

continue to be calculated using the 

adjustment factor, except that the 

adjustment factor would equal one for 

any month in which the adjustment 

factor would otherwise be greater than 

one or in which the denominator of the 

adjustment factor would otherwise be 

less than or equal to zero. 

The IRS received two comments in 

response to Notice 2013–4. One 

commenter recommended an 

adjustment factor based on tax rates for 

purposes of section 1288, and made no 

recommendation regarding section 382. 

That commenter suggested that the 

proper tax rate to use to calculate the 

adjusted AFRs is the highest individual 

tax rate set forth in section 1, increased 

by the tax rate under section 1411 

applicable to the investment income of 

individuals. 

The other commenter recommended 

the use of historical data to determine 

the lowest individual marginal tax rate 

needed to attract sufficient investors to 

clear the market supply of tax-exempt 

obligations for purposes of section 1288. 

That commenter recommended that 

there be no change to the calculation of 

the long-term tax-exempt rate under 

section 382. In the alternative, the 

commenter recommended that the 

adjusted Federal long-term rate 

described in section 382(f) be subject to 

a floor because the commenter argued 

that section 382 is intended to defer 

rather than eliminate net operating 

losses, and the lower the long-term taxexempt rate, the greater the likelihood 

that net operating losses subject to 

section 382 limitation will expire before 

they are used. 

Explanation of Provisions 

The language and purposes of 

sections 382 and 1288 suggest that AFRs 

are to be adjusted in the same manner 

for purposes of both provisions. 

Implementation of each provision 

requires an adjustment to take into 

account the effect of tax exemption on 

market yields. Therefore, under these 

proposed regulations, the adjusted 

Federal long-term rate under section 

382(f) would continue to be determined 

in the same manner as the adjusted 

AFRs under section 1288. 

The Treasury Department and the IRS 

recognize that, to be entirely consistent 

with the language and legislative history 

of sections 382 and 1288, the adjusted 

Federal long-term rate and each 

adjusted AFR should be determined 

based on the current market yield on a 

pool of tax-exempt obligations that have 

terms, features, and credit quality 

matching those of U.S. Treasury 

obligations, which would result in an 

adjusted Federal long-term rate or 

adjusted AFR that is lower than the 

corresponding AFR. However, under 

recent market conditions tax-exempt 

obligations with perceived credit 

qualities approximating U.S. Treasury 

obligations arguably no longer exist. 

Because of the increasing spreads 

between the yields of U.S. Treasury 

obligations and other debt instruments, 

the yield of a pool of tax-exempt 

obligations will likely be higher than the 

yield of similar U.S. Treasury 

obligations and the AFR for the 

corresponding term. 

During the period from 1986 to 2007, 

certain tax-exempt obligations satisfied 

the criteria in the Code and the 

legislative history. As discussed in this 

preamble, the current adjustment factor 

is based on the ratio of yields on prime, 

general obligation tax-exempt 

obligations to yields of U.S. Treasury 

obligations with similar maturities. 

From 1986 to 2007, that ratio (and, as 

a result, the ratios of adjusted AFRs and 

adjusted Federal long-term rates to 

AFRs) was, on average, approximately 

equal to one minus 59 percent of the 

maximum individual tax rate under 

section 1. That relationship was 

relatively stable over the period; the 

ratio of the spread between the yields to 

the maximum individual tax rate under 

section 1 generally did not vary by more 

than a few percentage points. In the 

absence of current market data from taxexempt obligations and U.S. Treasury 

obligations with similar maturities and 

similar credit quality, the Treasury 

Department and the IRS believe this 

historical market data provides the best 

indication of the effect of a tax 

exemption on market yields. 

The Treasury Department and the IRS 

therefore propose use of this historical 

market data to create an appropriate 

adjustment factor based on individual 

tax rates. Consistent with a proposal in 

Notice 2013–4 and one commenter’s 

suggestion regarding section 1288, the 

proposed adjustment factor is one 

minus the product of a tax rate and a 

fixed percentage. The Treasury 

Department would therefore determine 

the adjusted AFRs and the adjusted 

Federal long-term rate for each month 

from the appropriate AFRs for that 

month using the proposed adjustment 

factor that results from the following 

calculation: 100 percent ¥ [(a combined 

tax rate) × (a fixed percentage)]. 

Consistent with both commenters’ 

suggestions regarding section 1288, the 

tax rate is the maximum individual tax 

rate. 

Specifically, the tax rate in the 

proposed adjustment factor is the sum 

of the maximum individual rate under 

section 1 and the maximum individual 

rate under section 1411 for the month to 

which the rate applies. Using current 

maximum individual tax rates under 

sections 1 and 1411, the combined tax 

rate in the calculation would be 43.4 

percent, the sum of 39.6 percent and 3.8 

percent. High-income individuals 

purchase a large percentage of 

municipal bonds because these 

purchasers benefit the most from the tax 

exemption. While individual and 

corporate tax rates were relatively stable 

from 1986 to 2007, data analyzed by the 

Treasury Department indicate that the 

differential between yields on taxexempt municipal bonds and 

comparable U.S. Treasury obligations 

was significantly more correlated with 

the highest individual income tax rates 

than with corporate tax rates. Thus, an 

adjustment factor based on the 

maximum individual tax rate allows a 

better approximation of the marketbased adjustment that Congress 

intended than would one based on a 

corporate tax rate. The tax on net 

investment income under section 1411 

is included in the proposed adjustment 

factor to account for the entire rate of 


wreier-aviles on DSK5TPTVN1PROD with PROPOSALS
11144 Federal Register / Vol. 80, No. 40 / Monday, March 2, 2015 / Proposed Rules 

federal tax imposed on high-income 

individuals who hold taxable 

obligations. 

The fixed percentage is the amount by 

which that combined tax rate must be 

multiplied to reflect the historical 

relationship between the maximum tax 

rate and the spread between yields of 

taxable and tax-exempt obligations. The 

spread is less than 100% of the 

maximum tax rate because, for example, 

issuers of tax-exempt bonds need to 

attract purchasers with effective tax 

rates lower than the maximum 

individual tax rate. The fixed percentage 

in the proposed adjustment factor is 59 

percent, because the yield on taxexempt obligations from February 1986 

to July 2007 was lower than that of 

comparable taxable obligations by, on 

average, 59 percent of the maximum 

individual rate in effect under section 1. 

Therefore, the adjustment factor 

under current tax rates would be 74.39 

percent, the result of subtracting 25.61 

percent (the product of 43.4 percent and 

59 percent) from 100 percent. If an AFR 

for a given month were 5 percent, under 

current tax rates, the corresponding 

adjusted AFR would be 3.72 percent: 

The product of 74.39 percent and 5 

percent. If that 5 percent AFR were the 

Federal long-term rate for debt 

instruments with annual compounding, 

the adjusted Federal long-term rate 

under section 382 would likewise be 

3.72 percent. 

The proposed regulations do not 

adopt the suggestion of one commenter 

that the adjusted Federal long-term rate 

described in section 382(f) be subject to 

a floor because that would be 

inconsistent with the primary purpose 

of section 382. The primary purpose of 

section 382 is to preserve the integrity 

of the carryover provisions by 

discouraging tax-motivated corporate 

acquisitions while allowing the 

carryover provisions to perform their 

intended averaging function. To 

accomplish this purpose, section 382 

seeks to limit the use of pre-change 

losses by an acquiring corporation to no 

more than the loss corporation’s ability 

to use such losses, with that limit being 

determined by multiplying the longterm tax-exempt rate—a rate below the 

Federal long-term rate—by the value of 

the loss corporation. The Conference 

Report for the Tax Reform Act of 1986 

explains: 

The use of a rate lower than the long-term 

Federal rate is necessary to ensure that the 

value of NOL carryforwards to the buying 

corporation is not more than their value to 

the loss corporation. Otherwise there would 

be a tax incentive for acquiring loss 

corporations. If the loss corporation were to 

sell its assets and invest in long-term 

Treasury obligations, it could absorb its NOL 

carryforwards at a rate equal to the yield on 

long-term government obligations. Since the 

price paid by the buyer is larger than the 

value of the loss company’s assets (because 

of the value of NOL carryforwards are taken 

into account), applying the long-term 

Treasury rate to the purchase price would 

result in faster utilization of NOL 

carryforwards by the buying corporation. 

2 H.R. Rep. No. 99–841 (Conf. Rep.), 

99th Cong., 2d Sess. II–188 (1986) 

(1986–3 CB (Vol. 4) 1, 188). 

Imposing a floor on the adjusted 

Federal long-term rate, and thereby on 

the long-term tax-exempt rate, would 

reduce the effect of the mechanism 

Congress established to ensure that the 

value of net operating loss 

carryforwards to the acquiring 

corporation is not more than the value 

of those carryforwards to the loss 

corporation. Moreover, as a matter of 

statutory interpretation, an upward 

adjustment of the adjusted Federal longterm rate to comply with a fixed 

minimum level would disregard the 

express direction of Congress to 

determine the adjusted Federal longterm rate based on the Federal long-term 

rate determined under section 1274(d), 

which is not subject to a floor, with 

adjustments to take into account the 

differences between rates on taxable and 

tax-exempt obligations. Further, the 

legislative history of section 382(f) 

suggests that Congress intended that the 

adjusted Federal long-term rate be 

determined in a manner similar to the 

adjusted AFR under section 1288. 

The tax rate used to determine 

adjusted AFRs under these proposed 

regulations differs from the tax rate used 

to determine the interest rate on 

demand deposit securities under the 

State and Local Government Series 

(SLGS). Demand deposit SLGS 

securities are one-day certificates of 

indebtedness that are automatically 

rolled over each day until the holder 

requests redemption. See 31 CFR 344.7. 

The interest rate on the securities is 

based on yields of 13-week Treasury 

bills, with a number of adjustments. 

Among the adjustments is multiplying 

the annualized Treasury bill yield by 

the excess of one over the estimated 

marginal tax rate of purchasers of taxexempt bonds. That estimated marginal 

tax rate is published from time to time 

in the Federal Register and is currently 

39.6 percent. The Treasury Department 

and the IRS request comments on 

whether the interest rate on SLGS 

should reflect the same correction for 

tax exemption as the adjusted AFRs (the 

product of the fixed percentage and the 

combined tax rate). 

Proposed Effective/Applicability Date 

These regulations are proposed to 

apply to calendar months beginning 

after the date of publication of the 

Treasury decision adopting these rules 

as final regulations in the Federal 

Register. 

Special Analyses 

It has been determined that this notice 

of proposed rulemaking is not a 

significant regulatory action as defined 

in Executive Order 12866, as 

supplemented by Executive Order 

13563. Therefore, a regulatory 

assessment is not required. It also has 

been determined that section 553(b) of 

the Administrative Procedure Act (5 

U.S.C. chapter 5) does not apply to these 

regulations, and because the regulations 

do not impose a collection of 

information on small entities, the 

Regulatory Flexibility Act (5 U.S.C. 

chapter 6) does not apply. Pursuant to 

section 7805(f) of the Code, this notice 

of proposed rulemaking has been 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comments on its 

impact on small business. 

Comments and Public Hearing 

Before these proposed regulations are 

adopted as final regulations, 

consideration will be given to any 

written (a signed original and eight (8) 

copies) or electronic comments that are 

submitted timely to the IRS as 

prescribed in this preamble under the 

ADDRESSES heading. The Treasury 

Department and the IRS request 

comments on all aspects of the proposed 

rules. All comments will be available for 

public inspection and copying at 

www.regulations.gov or upon request. 

A public hearing has been scheduled 

for June 24, 2015, at 10:00 a.m., in the 

IRS Auditorium, Internal Revenue 

Service, 1111 Constitution Avenue NW., 

Washington, DC. Due to building 

security procedures, visitors must enter 

through the Constitution Avenue 

entrance. In addition, all visitors must 

present photo identification to enter the 

building. Because of access restrictions, 

visitors will not be admitted beyond the 

immediate entrance area more than 30 

minutes before the hearing starts. For 

information about having your name 

placed on the building access list to 

attend the hearing, see the FOR FURTHER

INFORMATION CONTACT section of this 

preamble. 

The rules of 26 CFR 601.601(a)(3) 

apply to the hearing. Persons who wish 

to present oral comments at the hearing 

must submit written (signed original 

and eight (8) copies) or electronic 


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Federal Register / Vol. 80, No. 40 / Monday, March 2, 2015 / Proposed Rules 11145 

comments and an outline of the topics 

to be discussed and the time to be 

devoted to each topic by June 1, 2015. 

A period of 10 minutes will be allotted 

to each person for making comments. 

An agenda showing the scheduling of 

the speakers will be prepared after the 

deadline for receiving outlines has 

passed. Copies of the agenda will be 

available free of charge at the hearing. 

Drafting Information 

The principal authors of the proposed 

regulations are Jason G. Kurth, IRS 

Office of the Associate Chief Counsel 

(Financial Institutions and Products) 

and William W. Burhop, IRS Office of 

the Associate Chief Counsel (Corporate). 

However, other personnel from the 

Treasury Department and the IRS 

participated in their development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, 26 CFR part 1 is 

proposed to be amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by adding entries 

in numerical order to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

Section 1.382–12 also issued under 26 

U.S.C. 382(f) and 26 U.S.C. 382(m). 

* * * 

Section 1.1288–1 also issued under 26 

U.S.C. 1288(b). * * * 

■ Par. 2. Section 1.382–1 is amended by 

revising the introductory text and 

adding an entry for § 1.382–12 to read 

as follows: 

§ 1.382–1 Table of contents. 

This section lists the captions that 

appear in the regulations for §§ 1.382– 

2 through 1.382–12. 

* * * * * 

§ 1.382–12 Determination of adjusted 

Federal long-term rate. 

(a) In general. 

(b) Adjusted Federal long-term rate. 

(c) Adjustment factor. 

(d) Effective/applicability date. 

■ Par. 3. Section 1.382–12 is added to 

read as follows: 

§ 1.382–12 Determination of adjusted 

Federal long-term rate. 

(a) In general. The long-term taxexempt rate for an ownership change is 

the highest of the adjusted Federal longterm rates in effect for any month in the 

3-calendar-month period ending with 

the calendar month in which the change 

date occurs. For purposes of the 

previous sentence, the adjusted Federal 

long-term rate is the Federal long-term 

rate determined under section 1274(d) 

(without regard to paragraphs (2) and (3) 

thereof), adjusted for differences 

between rates on long-term taxable and 

tax-exempt obligations. The Secretary 

calculates the adjusted Federal longterm rate as provided in paragraph (b) 

of this section. The Internal Revenue 

Service publishes the long-term taxexempt rate and the adjusted Federal 

long-term rate for each month in the 

Internal Revenue Bulletin (see 

§ 601.601(d)(2)(ii) of this chapter). 

(b) Adjusted Federal long-term rate. 

The adjusted Federal long-term rate for 

a calendar month is the product of the 

Federal long-term rate determined 

under section 1274(d) for that month, 

based on annual compounding, 

multiplied by the adjustment factor 

described in paragraph (c) of this 

section. 

(c) Adjustment factor. The adjustment 

factor is a percentage equal to— 

(1) The excess of 100 percent, over 

(2) The product of— 

(i) 59 percent, and 

(ii) The sum of the maximum rate in 

effect under section 1 applicable to 

individuals and the maximum rate in 

effect under section 1411 applicable to 

individuals for the month to which the 

adjusted applicable Federal rate applies. 

(d) Effective/applicability date. The 

rules of this section apply to the 

determination of the long-term taxexempt rate and the adjusted Federal 

long-term rate during calendar months 

beginning after the date of publication 

of the Treasury decision adopting these 

rules as final regulations in the Federal 

Register. 

■ Par. 4. Section 1.1288–1 is added to 

read as follows: 

§ 1.1288–1 Adjustment of applicable 

Federal rate for tax-exempt obligations. 

(a) In general. In applying section 483 

or section 1274 to a tax-exempt 

obligation, the applicable Federal rate is 

adjusted to take into account the tax 

exemption for interest on the obligation. 

For each applicable Federal rate 

determined under section 1274(d), the 

Secretary computes a corresponding 

adjusted applicable Federal rate by 

multiplying the applicable Federal rate 

by the adjustment factor described in 

paragraph (b) of this section. The 

Internal Revenue Service publishes the 

applicable Federal rates and the 

adjusted applicable Federal rates for 

each month in the Internal Revenue 

Bulletin (see § 601.601(d)(2)(ii) of this 

chapter). 

(b) Adjustment factor. The adjustment 

factor is a percentage equal to— 

(1) The excess of 100 percent, over 

(2) The product of— 

(i) 59 percent, and 

(ii) The sum of the maximum rate in 

effect under section 1 applicable to 

individuals and the maximum rate in 

effect under section 1411 applicable to 

individuals for the month to which the 

adjusted applicable Federal rate applies. 

(c) Effective/applicability date. The 

rules of this section apply to the 

determination of adjusted applicable 

Federal rates during calendar months 

beginning after the date of publication 

of the Treasury decision adopting these 

rules as final regulations in the Federal 

Register. 

John M. Dalrymple, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2015–04213 Filed 2–27–15; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 165 

[Docket Number USCG–2015–0019] 

RIN 1625–AA00 

Safety Zone; Xterra Swim, Myrtle 

Beach, SC 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Coast Guard proposes to 

issue a temporary safety zone on the 

waters of the Intracoastal Waterway in 

Myrtle Beach, South Carolina. The 

Xterra Swim is scheduled to take place 

on Sunday, May 3, 2015. The temporary 

safety zone is necessary for the safety of 

the swimmers, participant vessels, 

spectators, and the general public 

during the event. The temporary safety 

zone will restrict vessel traffic in a 

portion of the Intracoastal Waterway, 

preventing non-participant vessels from 

entering, transiting through, anchoring 

in, or remaining within the regulated 

area unless authorized by the Captain of 

the Port Charleston or a designated 

representative. 

DATES: Comments and related material 

must be received by the Coast Guard on 

or before April 1, 2015. 

ADDRESSES: You may submit comments 

identified by docket number using any 

one of the following methods: 


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