Federal Register / Vol. 63, No. 4 / Wednesday, January 7, 1998 / Rules and Regulations 671

§ 40.68 Aliens subject to INA 222(g).

An alien who, under the provisions of

INA 222(g), has voided a nonimmigrant

visa by remaining in the United States

beyond the period of authorized stay is

ineligible for a new nonimmigrant visa

unless the alien complies with the

requirements in 22 CFR 41.101 (b) or (c)

regarding the place of application.

PART 41—[AMENDED]

1. The authority citation for Part 41

continues to read:

Authority: 8 U.S.C. 1104.

2. 22 CFR 41.101 is amended by

removing the period at the end of

paragraph (a)(1)(ii) and adding a

semicolon and ‘‘or’’, adding paragraph

(a)(1)(iii), amending paragraph (a)(2) by

removing ‘‘to the Visa Office’’ and

adding ‘‘for Visa Services’’ in its place,

and redesignating paragraph (b) as

paragraph (e) and adding new

paragraphs (b) through (d) to read as

follows:

§ 41.101 Place of application.

(a) * * *

(1) * * *

(iii) The alien is subject to INA 222(g)

and must apply as set forth in paragraph

(b) or (c) of this section.

(b) Place of application for persons

subject to INA 222(g). Notwithstanding

the requirements of paragraph (a) of this

section, an alien whose prior

nonimmigrant visa has been voided

pursuant to INA 222(g), who is applying

for a new nonimmigrant visa, shall

make application at a consular office

which has jurisdiction in or for the

country of the alien’s nationality unless

extraordinary circumstances have been

determined to exist with respect to that

alien as set forth in paragraph (c) of this

section.

(c) Exceptions based on extraordinary

circumstances. (1) An alien physician

serving in underserved areas of the

United States under the provisions of

INA 214(k) for whom an application for

a waiver of the 2-year foreign residence

requirement and/or a petition to accord

H–1B status was filed prior to the end

of the alien’s authorized period of stay

and was subsequently approved, but

whose authorized stay expired during

the adjudication of such application(s),

shall make application in accordance

with paragraph (a) of this section.

(2) Any other individual or group

whose circumstances are determined to

be extraordinary, in accordance with

paragraph (d)(1) of this section, by the

Deputy Assistant Secretary for Visa

Services upon the favorable

recommendation of an immigration or

consular officer, shall make application

in accordance with paragraph (a) of this

section.

(3) An alien who has, or immediately

prior to the alien’s last entry into the

United States had, a residence in a

country other than the country of the

alien’s nationality shall apply at a

consular office with jurisdiction in or

for the country of residence.

(4) An alien who is a national and

resident of a country in which there is

no United States consular office shall

apply at a consular office designated by

the Deputy Assistant Secretary for Visa

Services to accept immigrant visa

applications from persons of that

nationality.

(5) An alien who possesses more than

one nationality and who has, or

immediately prior to the alien’s last

entry into the United States had, a

residence in one of the countries of the

alien’s nationality shall apply at a

consular office in the country of such

residence.

(d) Definitions relevant to INA 222(g).

(1) Extraordinary circumstances—

Extraordinary circumstances may be

found where compelling humanitarian

or national interests exist or where

necessary for the effective

administration of the immigration laws.

Extraordinary circumstances shall not

be found upon the basis of convenience

or financial burden to the alien, the

alien’s relative, or the alien’s employer.

(2) Nationality—For purposes of

paragraph (b) of this section, a stateless

person shall be considered to be a

national of the country which issued the

alien’s travel document.

* * * * *

§ 41.121 [Amended]

3. 22 CFR 41.121(a) is amended by

removing ‘‘or’’ before ‘‘INA 22(g)’’ at the

end of the first sentence, and adding a

comma and ‘‘or INA 222(g)’’ after ‘‘INA

221(g)’’.

Dated: December 5, 1997.

Mary A. Ryan,

Assistant Secretary for Consular Affairs.

[FR Doc. 98–87 Filed 1–6–98; 8:45 am]

BILLING CODE 4710–06–M

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8755]

RIN 1545–AV74

Qualified Zone Academy Bonds

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains

temporary regulations relating to the

federal income tax treatment of

qualified zone academy bonds. The

regulations in this document provide

needed guidance to holders and issuers

of qualified zone academy bonds. The

text of the temporary regulations also

serves as the text of the proposed

regulations set forth in the notice of

proposed rulemaking on this subject in

the Proposed Rules section of this issue

of the Federal Register.

DATES: These regulations are effective

January 1, 1998.

FOR FURTHER INFORMATION CONTACT:

Timothy L. Jones, (202) 622–3980 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Background

Section 226(a) of the Taxpayer Relief

Act of 1997, Pub. L. No. 105–34, 111

Stat. 788 (1997), amended the Internal

Revenue Code (Code) by redesignating

section 1397E as section 1397F and

adding a new section 1397E. Section

1397E authorizes a new type of debt

instrument known as a qualified zone

academy bond.

Explanation of Provisions

In General

A qualified zone academy bond is a

taxable bond issued by a state or local

government the proceeds of which are

used to improve certain eligible public

schools. In lieu of receiving periodic

interest payments from the issuer, an

eligible holder of a qualified zone

academy bond is generally allowed

annual federal income tax credits while

the bond is outstanding. These credits

compensate the holder for lending

money to the issuer and function as

payments of interest on the bond.

These temporary regulations provide

rules for the federal income tax

treatment of qualified zone academy

bonds. These regulations generally treat

the allowance of the credit as if it were

a payment of interest on the bond.

These regulations also provide rules to

determine (1) the credit rate, (2) the

discount rate used to present value

private business contributions, and (3)

the discount rate used to determine the

maximum term of a qualified zone

academy bond.

These regulations generally do not

provide guidance on the statutory

requirements that must be met for a

bond to qualify as a qualified zone

academy bond. Section 1397E(d) sets

forth a number of detailed requirements

that must be met for a bond to qualify
672 Federal Register / Vol. 63, No. 4 / Wednesday, January 7, 1998 / Rules and Regulations

as a qualified zone academy bond. In

particular, section 1397E(d)(1)(C)

requires the issuer to certify (1) that it

has written assurances that private

entities have agreed to contribute a

certain level of goods or services to the

qualified zone academy, and (2) that it

has the written approval of the eligible

local education agency for the bond

issuance. The Treasury and the IRS

intend that these certifications will be

respected and may be relied on by

taxpayers if the certifications are

reasonably made.

In addition, section 1397E(d)(1)(A)

requires that 95 percent or more of the

proceeds of an issue of qualified zone

academy bonds are to be used for a

qualified purpose described in section

1397E(d)(5) with respect to a qualified

zone academy as defined in section

1397E(d)(4). The Treasury and the IRS

intend that the qualified purposes set

forth in section 1397E(d)(5) are to be

broadly interpreted. The Treasury and

the IRS also intend that, if an issuer is

unable to actually spend 95 percent or

more of the proceeds of a qualified zone

academy bond for a qualified purpose,

the issuer may apply remedial actions

similar to the remedial actions set forth

in § 1.142–2 to preserve the

qualification of a bond. Further, the

Treasury and the IRS intend that

taxpayers may rely on an issuer’s

determination that a public school (or

academic program within a public

school) is a qualified zone academy for

purposes of section 1397E(d)(4) if the

determination has a reasonable basis.

The Treasury and IRS request comments

on whether additional guidance is

needed with respect to the section

1397E(d) requirements.

Section 1397E(e) imposes a national

limitation on the amount of qualified

zone academy bonds that can be issued.

For 1998 and 1999, the IRS will publish

a revenue procedure allocating the

national limitation among the States and

the possessions.

The Credit Allowance

A qualified zone academy bond

provides an annual federal income tax

credit to certain holders. Under the

regulations, the credit is deemed paid

on the credit allowance date—the last

day of each one-year accrual period on

the bond. A taxpayer that receives a

credit on a credit allowance date may

use the credit to offset its income tax

liability for the taxable year that

includes the credit allowance date.

There are two limitations on the use

of the credit. First, only eligible

taxpayers holding the bond on the credit

allowance date may claim the credit.

Section 1397E(d)(6) defines an eligible

taxpayer as a bank, an insurance

company, or a corporation actively

engaged in the business of lending

money. Second, an eligible taxpayer

may claim the credit only to the extent

the taxpayer has a tax liability for the

taxable year that includes the credit

allowance date. See section 1397E(c).

The credit is nonrefundable.

Treatment of the Credit as Interest

The regulations treat the credit on a

qualified academy zone bond as if it

were a payment of qualified stated

interest. This treatment effectively

conforms the treatment of the credit

with the treatment of interest income on

debt instruments. Thus, for example, a

holder that uses an accrual method of

accounting accrues the credit amount

over the one-year accrual period that

ends on the credit allowance date.

Adjustment When Credit is Limited or

Disallowed

In two situations the holder of a

qualified zone academy bond on a credit

allowance date will not be able to use

some or all of the credit to offset its tax

liability. First, if the holder on a credit

allowance date is not an eligible

taxpayer (a bank, insurance company, or

corporation actively engaged in the

business of lending money), no credit is

allowed. Second, the amount of the

credit may exceed the income tax

liability of a holder that is an eligible

taxpayer. In this second case, because

the credit is nonrefundable, some or all

of the credit will not be used.

In these situations, the regulations

allow the holder to adjust its income by

deducting the amount of the unused

credit. This deduction is allowed for the

taxable year that includes the credit

allowance date. The Treasury and the

IRS request comments on whether this

adjustment works appropriately when

an eligible taxpayer holds a qualified

zone academy bond on the credit

allowance date but has an income tax

liability (determined without regard to

the credit) that is less than the amount

of the credit.

Credit Rate

Section 1397E(b)(2) authorizes the

Treasury to establish a single, uniform

credit rate that will permit the issuance

of qualified zone academy bonds

without discount and without interest

cost to the issuer. This section also

requires the Treasury to adjust the credit

allowance rate on a monthly basis to

reflect changes in market interest rates.

It is not possible to determine a

uniform credit rate that would permit

all qualified zone academy bonds to be

issued at par. Some borrowers are less

creditworthy than others and, therefore,

borrow at less favorable rates. In

addition, because section 1397E(b)(2)

requires the Secretary to set the credit

rate in the month before the bond is

issued, changes in market interest rates

between the time the rate is set and the

time a qualified zone academy bond is

issued can result in a bond being issued

at a price that is different than par.

The regulations provide a single

monthly rate that will minimize the

discount or premium on qualified zone

academy bonds. Specifically, the

regulations provide that the credit rate

is 110 percent of the long-term

applicable Federal rate (AFR),

compounded annually, for the month of

issuance. Tying the credit rate to the

AFR ensures that the rate will be

adjusted on a monthly basis to reflect

changes in market interest rates. In

addition, the Treasury and the IRS

believe the 10 percent spread over the

long-term AFR is appropriate, in part,

because qualified zone academy bonds

bear more credit and liquidity risk than

long-term Treasury bonds.

Maximum Term

Section 1397E(d)(3) sets out a formula

for determining the maximum term of a

qualified zone academy bond. The

formula requires the use of a discount

rate equal to the average annual interest

rate of tax-exempt obligations having a

term of ten years or more. Because there

is no readily available source for this

discount rate, the regulations provide

that the discount rate is 110 percent of

the long-term adjusted AFR,

compounded semi-annually. The longterm adjusted AFR is published on a

monthly basis and is designed to reflect

the current yield of a risk-free taxexempt obligation having a term of 9

years or more.

Taxable Obligation

It is possible that some qualified zone

academy bonds may either (1) provide

for payments of stated interest, or (2) be

issued at a discount. The Treasury and

the IRS have determined that qualified

zone academy bonds are not obligations

the interest on which is excluded from

gross income under section 103(a).

There are a number of reasons for

treating a qualified zone academy bond

as a taxable obligation. For example, the

requirement in section 1397E(g) that a

holder include the allowed amount of

the credit in gross income evidences an

intention to treat qualified zone

academy bonds as taxable, not taxexempt, obligations.
Federal Register / Vol. 63, No. 4 / Wednesday, January 7, 1998 / Rules and Regulations 673

Coordination With Estimated Tax Rules

The regulations do not address the

estimated tax consequences of holding a

qualified zone academy bond. The

Treasury and the IRS request comments

on whether there is a need to coordinate

the regulations with the estimated tax

rules and, if so, how they might be

coordinated.

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

12866. 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 Internal Revenue

Code, these temporary regulations will

be submitted to the Chief Counsel for

Advocacy of the Small Business

Administration for comment on their

impact on small business.

Drafting Information

Several persons from the Office of

Chief Counsel and the Treasury

Department participated in developing

these regulations.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 1 is

amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part

1 is amended by adding an entry in

numerical order to read as follows:

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

Section 1.1397E–1T also issued under

26 U.S.C. 1397E(b) and 1397E(d). * * *

Par. 2. Section 1.1397E–1T is added

to read as follows:

§ 1.1397E–1T Qualified zone academy

bonds (temporary).

(a) Overview. In general, a qualified

zone academy bond is a taxable bond

issued by a state or local government the

proceeds of which are used to improve

certain eligible public schools. An

eligible taxpayer that holds a qualified

zone academy bond generally is allowed

annual federal income tax credits in lieu

of periodic interest payments. These

credits compensate the eligible taxpayer

for lending money to the issuer and

function as payments of interest on the

bond. Accordingly, this section

generally treats the allowance of a credit

as if it were a payment of interest on the

bond. In addition, this section provides

rules to determine the credit rate, the

present value of qualified contributions

from private entities, and the maximum

term of a qualified zone academy bond.

(b) Credit rate. The credit rate for a

qualified zone academy bond is equal to

110 percent of the long-term applicable

Federal rate (AFR), compounded

annually, for the month in which the

bond is issued. The Internal Revenue

Service publishes this figure each

month in a revenue ruling that is

published in the Internal Revenue

Bulletin. See § 601.601(d)(2)(ii)(b) of

this Chapter.

(c) Private business contribution

requirement. To determine the present

value (as of the issue date) of qualified

contributions from private entities

under section 1397E(d)(2), the issuer

must use a reasonable discount rate. The

credit rate determined under paragraph

(b) of this section is a reasonable

discount rate.

(d) Maximum term. The maximum

term for a qualified zone academy bond

is determined under section 1397E(d)(3)

by using a discount rate equal to 110

percent of the long-term adjusted AFR,

compounded semi-annually, for the

month in which the bond is issued. The

Internal Revenue Service publishes this

figure each month in a revenue ruling

that is published in the Internal

Revenue Bulletin. See

§ 601.601(d)(2)(ii)(b) of this Chapter.

(e) Tax credit—(1) Eligible taxpayer.

An eligible taxpayer (within the

meaning of section 1397E(d)(6)) that

holds a qualified zone academy bond on

a credit allowance date is allowed a tax

credit against the federal income tax

imposed on the taxpayer for the taxable

year that includes the credit allowance

date. The amount of the credit is equal

to the product of the credit rate and the

outstanding principal amount of the

bond on the credit allowance date. The

credit is subject to a limitation based on

the eligible taxpayer s income tax

liability. See section 1397E(c).

(2) Ineligible taxpayer. A taxpayer that

is not an eligible taxpayer is not allowed

a credit.

(f) Treatment of the allowance of the

credit as a payment of interest—(1)

General rule. The holder of a qualified

zone academy bond must treat the bond

as if it pays qualified stated interest

(within the meaning of § 1.1273–1(c)) on

each credit allowance date. The amount

of the deemed payment of interest on

each credit allowance date is equal to

the product of the credit rate and the

outstanding principal amount of the

bond on that date. Thus, for example, if

the holder uses an accrual method of

accounting, the holder must accrue as

interest income the amount of the credit

over the one-year accrual period that

ends on the credit allowance date.

(2) Adjustment if the holder cannot

use the credit to offset a tax liability. If

a holder holds a qualified zone academy

bond on the credit allowance date but

cannot use all or a portion of the credit

to reduce its income tax liability (for

example, because the holder is not an

eligible taxpayer or because the

limitation in section 1397E(c) applies),

the holder is allowed a deduction for

the taxable year that includes the credit

allowance date. The amount of the

deduction is equal to the amount of the

unused credit deemed paid on the credit

allowance date.

(g) Not a tax-exempt obligation. A

qualified zone academy bond is not an

obligation the interest on which is

excluded from gross income under

section 103(a).

(h) Cross-references. See section 171

and the regulations thereunder for rules

relating to amortizable bond premium.

See § 1.61–7(c) for the seller s treatment

of a bond sold between interest payment

dates (credit allowance dates) and

§ 1.61–7(d) for the buyer s treatment of

a bond purchased between interest

payment dates (credit allowance dates).

(i) [Reserved]

(j) Effective date. This section applies

to a qualified zone academy bond issued

on or after January 1, 1998.

Michael P. Dolan,

Deputy Commissioner of Internal Revenue.

Approved: December 19, 1997.

Donald C. Lubick,

Acting Assistant Secretary of the Treasury.

[FR Doc. 98–21 Filed 1–6–98; 8:45 am]

BILLING CODE 4830–01–U

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Parts 9 and 721

[FRL–5943–6]

Technical Amendments to BenzidineBased Chemical Substances;

Significant New Uses of Certain

Chemical Substances: Correction of

Effective Date Under Congressional

Review Act (CRA)

AGENCY: Environmental Protection

Agency (EPA).

ACTION: Final rule; correction of

effective date under CRA.