Source: https://www.irs.gov/irb/2014-20_IRB
Timestamp: 2019-04-18 10:43:05+00:00

Document:
This announcement contains corrections to the final and temporary regulations (TD 9658) that were published in the Federal Register on March 6, 2014 (79 FR 12726). The instruction in the temporary regulations to amend § 1.6045–1T is incorrect. Instead, § 1.6045–1T is added.
This revenue procedure provides the 2015 inflation adjusted amounts for Health Savings Accounts (HSAs) under section 223 of the Internal Revenue Code.
This notice extends the guidance provided in Notice 2012–45 regarding the treatment of income from certain government bonds held by certain active banks for purposes of determining whether a foreign corporation is a passive foreign investment company (PFIC) to taxable years of foreign corporations beginning in 2014, 2015, and 2016.
This procedure provides issuers of qualified mortgage bonds (QMBs) and qualified mortgage credit certificates (MCCs) with average area purchase price safe harbors for statistical areas in the United States and with a nationwide average purchase price for residences in the United States for purposes of the QMB rules under section 143 of the Code and the MCC rules under section 25. Rev. Proc. 2013–28 is obsolete except as provided in section 6 of this revenue procedure.
This notice announces modifications to the regulations under section 367(b) of the Internal Revenue Code relating to the treatment of property used to acquire parent stock or securities in certain triangular reorganizations involving foreign corporations.
This notice extends the application of Notice 2012–45, 2012–29 I.R.B. 59 (July 1, 2012), which provides guidance regarding the treatment of certain government bonds for purposes of determining whether a foreign corporation is a passive foreign investment company (PFIC) under section 1297 of the Code, to taxable years of foreign corporations beginning in 2014, 2015, and 2016.
Recent economic conditions have resulted in a shift in the assets held by some non-U.S. financial institutions. As a result of these conditions, certain non-U.S. financial institutions continue to hold government bonds at higher than historical levels. These increased levels raise an issue concerning the treatment of these financial institutions, and specifically the treatment of government bonds, under the PFIC rules.
The Department of the Treasury and the Internal Revenue Service published Notice 2012–45, which provides that for certain taxable years and solely for purposes of section 1297, income from “Qualifying Government Bonds” held by an “Active Bank” qualifies for the active banking exception, as those terms are defined in the notice. Notice 2012–45 applies only to taxable years of foreign corporations beginning in 2011, 2012, and 2013.
Notice 2012–45 is extended to apply to taxable years of foreign corporations beginning in 2014, 2015, and 2016 in addition to taxable years of foreign corporations beginning in 2011, 2012, and 2013.
The principal author of this notice is Melinda E. Harvey of the Office of Associate Chief Counsel (International). For further information regarding this notice contact Melinda E. Harvey at (202) 317-6934 (not a toll-free number).
This notice announces that the Internal Revenue Service (IRS) and the Department of the Treasury (Treasury Department) will issue regulations under section 367 of the Internal Revenue Code (Code) relating to the treatment of property used to acquire parent stock or securities in certain triangular reorganizations involving one or more foreign corporations.
On May 27, 2008, the IRS and the Treasury Department published temporary and proposed regulations (T.D. 9400, 2008–1 C.B. 1139 [73 FR 30301]) (2008 regulations) under section 367 that applied to certain triangular reorganizations in which a subsidiary (S) acquires stock of its parent corporation (P) in exchange for property (the P acquisition), and S exchanges the P stock so acquired for stock or property of a target corporation (T), but only if P or S (or both) is a foreign corporation. On May 19, 2011, the IRS and the Treasury Department finalized the proposed 2008 regulations (T.D. 9526, 2011–24 I.R.B. 869 [76 FR 28890]), with certain modifications (final regulations).
In the case of a triangular reorganization subject to § 1.367(b)–10, the final regulations require that adjustments be made that are consistent with the adjustments that would have been made if S had in fact distributed property to P under section 301 (deemed distribution). § 1.367(b)–10(b)(1). For this purpose, the amount of the deemed distribution generally is the amount of property that was transferred by S to acquire the P stock and securities in the P acquisition. In addition, the final regulations require that adjustments be made that are consistent with the adjustments that would have been made if P had in fact contributed that same property to S (deemed contribution). § 1.367(b)–10(b)(2). The deemed contribution has the effect of increasing P’s basis in its S stock by the amount of the deemed distribution. § 1.367(b)–10(c)(2). For purposes of making the required adjustments, the deemed distribution and deemed contribution are treated as separate transactions that occur before the P acquisition or, if P does not control S at the time of the P acquisition, immediately after P acquires control of S, but before the triangular reorganization. § 1.367(b)–10(b)(3). Furthermore, the final regulations provide that P’s adjustment to the basis in its S stock under § 1.358–6 is determined consistent with treating S as having acquired the P stock or securities in exchange for property from P or a person other than P, as the case may be. § 1.367(b)–10(b)(4).
(iii) In an exchange under section 354 or 356, one or more U.S. persons exchange stock or securities of T and the amount of gain in the T stock or securities recognized by such U.S. persons under section 367(a)(1) is equal to or greater than the sum of the amount of the deemed distribution that would be treated by P as a dividend under section 301(c)(1) and the amount of such deemed distribution that would be treated by P as gain from the sale or exchange of property under section 301(c)(3) (together, section 367(b) income) if § 1.367(b)–10 would otherwise apply to the triangular reorganization (section 367(a) priority rule).
As the corollary to the section 367(a) priority rule, the final regulations under section 367(a) also provide a priority rule in § 1.367(a)–3(a)(2)(iv) (section 367(b) priority rule). The section 367(b) priority rule turns off the application of section 367(a)(1) to an exchange under section 354 or 356 that occurs in connection with a triangular reorganization described in § 1.367(b)–10 if the amount of gain that would otherwise be recognized under section 367(a)(1) (without regard to any exceptions thereto) is less than the amount of the section 367(b) income recognized under § 1.367(b)–10.
The final regulations provide that appropriate adjustments shall be made if, in connection with a triangular reorganization, a transaction is engaged in with a view to avoid the purpose of § 1.367(b)–10 (anti-abuse rule). § 1.367(b)–10(d). One example is given where the earnings and profits of S will be deemed to include the earnings and profits of a corporation related to P or S for purposes of determining the consequences of the adjustments provided in the final regulations, if S is created, organized, or funded to avoid the application of this section with respect to the earnings and profits of that related corporation.
The IRS and the Treasury Department are aware that taxpayers are engaging in transactions designed to avoid U.S. tax by exploiting the deemed contribution provided under the final regulations. The IRS and the Treasury Department believe that the deemed contribution is inconsistent with the purpose of § 1.367(b)–10, regardless of whether S acquires P stock or securities from P or from a person other than P.
The IRS and the Treasury Department also are aware that the priority rules may facilitate certain transactions designed to avoid recognizing gain under § 1.367(a)–3(c). For example, FP, a foreign corporation, intends to acquire all the stock of UST, a domestic corporation owned by U.S. persons, in exchange for FP stock in a reorganization described in section 368(a)(1)(B). FP forms USS, a domestic corporation. USS generates a small amount of earnings and profits. USS acquires FP stock from FP in exchange for a note and uses the FP stock to acquire all the stock of UST. The shareholders of UST receive 75 percent of the outstanding FP stock. The stock in USS is not a United States real property interest (within the meaning of section 897(c)), and FP would not be subject to U.S. tax under section 882 on a disposition of the stock of USS. The transaction is structured to result in a small amount of dividend income that would be subject to U.S. withholding tax on a distribution and in a significant amount of section 367(b) income in the form of section 301(c)(3) gain. The taxpayer takes the position that the transaction avoids the application of the no-U.S.-tax exception because of the small amount of dividend income. In addition, the taxpayer takes the position that the section 367(b) priority rule applies because the section 367(b) income recognized by FP by reason of the application of § 1.367(b)–10 exceeds the amount of gain that would be recognized by shareholders of UST under section 367(a)(1) with respect to the UST stock. This position is taken even though the section 301(c)(3) gain that FP recognizes by reason of the application of § 1.367(b)–10 (and therefore takes into account in determining section 367(b) income) is not subject to U.S. tax. Finally, the taxpayer takes the position that the anti-abuse rule does not apply with respect to the earnings and profits of UST (see further discussion of this position below).
Based on the policy underlying the priority rules, the IRS and the Treasury Department believe that section 367(b) income should include only dividend income and gain that are subject to U.S. tax or dividend income and gain that give rise to an income inclusion under section 951(a)(1)(A) that is subject to U.S. tax.
The IRS and the Treasury Department are also concerned that some taxpayers may be taking the position that the no-U.S.-tax exception is inapplicable when S (the stock of which is not a United States real property interest) has no current or accumulated earnings and profits based on the fact that if S instead did have current or accumulated earnings and profits, the resulting dividend would be subject to U.S. tax. The IRS and the Treasury Department disagree with this interpretation of the no-U.S.-tax exception.
Finally, the IRS and the Treasury Department are concerned that some taxpayers may be interpreting the anti-abuse rule too narrowly, including with respect to what constitutes a funding for purposes of invoking the anti-abuse rule. In addition, the IRS and the Treasury Department understand that taxpayers may be taking the position that the anti-abuse rule does not apply with respect to the earnings and profits of T, including in cases where T is unrelated to P and S before the triangular reorganization or where T is acquired pursuant to a triangular asset reorganization. The IRS and the Treasury Department disagree with these interpretations.
The IRS and the Treasury Department believe that these transactions raise significant policy concerns and will revise the final regulations in the manner described in Section 4 of this notice.
The rules in § 1.367(b)–10(b)(2) and –10(c)(2) (regarding deemed contributions) will be removed. Conforming changes will be made to other parts of the final regulations. For example, the rule in § 1.367(b)–10(b)(3) will be modified so that it refers only to a deemed distribution occurring as a separate transaction. In addition, the rule in § 1.367(b)–10(b)(4) will be modified to provide that P’s adjustment to the basis in its S stock under § 1.358–6 will be determined as if P provided the P stock or securities pursuant to the plan of reorganization, notwithstanding that S in fact acquired the P stock or securities in exchange for property in the P acquisition.
The section 367(a) priority rule under § 1.367(b)–10 will be modified by adjusting the amount of income or gain that is considered section 367(b) income for this purpose. Regulations will provide that section 367(b) income includes a section 301(c)(1) dividend or section 301(c)(3) gain that would arise if § 1.367(b)–10 applied to the triangular reorganization only to the extent such dividend income or gain would be subject to U.S. tax or would give rise to an income inclusion under section 951(a)(1)(A) that would be subject to U.S. tax. A conforming change will be made to the section 367(b) priority rule under § 1.367(a)–3(a)(2)(iv).
In addition, the no-U.S.-tax exception will be modified to provide that the exception will not be available if P is a controlled foreign corporation. Furthermore, where P is not a controlled foreign corporation, S is a domestic corporation, and P’s stock in S is not a United States real property interest, the regulations will clarify that the no-U.S.-tax exception will apply if the deemed distribution that would result from application of § 1.367(b)–10 to the triangular reorganization would not be treated as a dividend under section 301(c)(1) that would be subject to U.S. tax (for example, by reason of an applicable treaty or by reason of an absence of earnings and profits).
The anti-abuse rule in § 1.367(b)–10(d) will be clarified to provide that S’s acquisition of P stock or securities in exchange for a note may invoke the anti-abuse rule. In addition, § 1.367(b)–10(d) will be clarified to provide that the earnings and profits of a corporation (or a successor corporation) may be taken into account for purposes of determining the consequences of the adjustments provided in the final regulations, as modified by the rules announced in this notice, regardless of whether such corporation is related to P or S before the triangular reorganization. Thus, the earnings and profits of T (or a successor to T) or a subsidiary of S or T may be taken into account for purposes of determining the consequences of the adjustments provided in the final regulations, as modified by the rules announced in this notice. Section 1.367(b)–10(d) also will be clarified to provide that a funding of S may occur after the triangular reorganization and that a funding of S includes capital contributions, loans, and distributions.
(i) Facts. FP is a foreign corporation that wholly owns USS, a domestic corporation with no assets and no earnings and profits. FP transfers $100x of newly issued FP stock to USS in exchange for $10x of USS stock and a $90x note issued by USS. FP would be subject to U.S. tax under section 881 on a distribution from USS if, contrary to the facts here, USS had earnings and profits for purposes of applying section 301(c)(1) to the distribution. USS acquires all the stock of UST, an unrelated domestic corporation that is wholly owned by a foreign person, in exchange for the $100x of FP stock in a triangular reorganization described in section 368(a)(1)(B). At the time of the acquisition, UST has $100x of earnings and profits. USS’s purchase of the FP stock for its note in connection with the triangular reorganization is engaged in with a view to avoid the purpose of § 1.367(b)–10 because the parties seek to transfer property to FP without incurring U.S. tax.
(ii) Analysis. The triangular reorganization is described in § 1.367(b)–10(a) of the final regulations. Pursuant to § 1.367(b)–10(b)(1) of the final regulations, as modified by the rules announced in this notice, adjustments must be made that are consistent with the adjustments that would have been made if USS had in fact distributed the $90x note to FP in a distribution to which section 301 would apply. Because USS’s purchase of the FP stock for its note is engaged in with a view to avoid the purposes of § 1.367(b)–10, the anti-abuse rule applies and therefore appropriate adjustments are made. In particular, for purposes of determining the consequences of the adjustments provided in the final regulations, as modified by the rules announced in this notice, the earnings and profits of USS are deemed to include the earnings and profits of UST. The $90x deemed distribution is treated as separate from, and occurring immediately before, USS’s acquisition of the FP stock used in the triangular reorganization. Pursuant to this notice, § 1.367(b)–10(b)(2) and –10(c)(2) of the final regulations (regarding a deemed contribution) are removed. Therefore, no adjustments are made by FP to its USS stock except as provided in § 1.358–6. Pursuant to this notice, FP’s adjustment to the basis in its USS stock under § 1.358–6 is determined as if FP provided the FP stock pursuant to the plan of reorganization.
Except as otherwise provided in this section 5, the regulations described in section 4 of this notice will apply to a triangular reorganization that is completed on or after April 25, 2014. The regulations described in this notice will not apply if (i) T was not related to P or S (within the meaning of section 267(b)) immediately before the triangular reorganization; (ii) the triangular reorganization was entered into either pursuant to a written agreement that was (subject to customary conditions) binding before April 25, 2014 and all times afterward, or pursuant to a tender offer announced before April 25, 2014 that is subject to section 14(d) of the Securities and Exchange Act of 1934 (15 U.S.C. 78n(d)(1)) and Regulation 14(D) (17 CFR 240.14d–1 through 240.14d–101) or that is subject to comparable foreign laws; and (iii) to the extent the P acquisition that occurs pursuant to the plan of reorganization is not completed before April 25, 2014, the P acquisition was included as part of the plan before April 25, 2014.
No inference is intended regarding the treatment of transactions described in section 3 of this notice under current law, and the IRS may challenge such transactions under applicable Code provisions or judicial doctrines.
The principal author of this notice is Shane McCarrick of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in its development. For further information regarding this notice, contact Mr. McCarrick at (202) 317-6937 (not a toll-free number).
Annual contribution limitation. For calendar year 2015, the annual limitation on deductions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,350. For calendar year 2015, the annual limitation on deductions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $6,650.
High deductible health plan. For calendar year 2015, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,300 for self-only coverage or $2,600 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,450 for self-only coverage or $12,900 for family coverage.
The principal author of this revenue procedure is Bill Ruane of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding § 223 and HSAs, contact Karen Levin at (202) 317-5500 (not a toll free number). For further information regarding the calculation of the inflation adjustments in this revenue procedure, contact Mr. Ruane at (202) 317-4718 (not a toll free number).
This revenue procedure provides issuers of qualified mortgage bonds, as defined in section 143(a) of the Internal Revenue Code, and issuers of mortgage credit certificates, as defined in section 25(c), with (1) the nationwide average purchase price for residences located in the United States, and (2) average area purchase price safe harbors for residences located in statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam.
.01 Section 103(a) provides that, except as provided in section 103(b), gross income does not include interest on any state or local bond. Section 103(b)(1) provides that section 103(a) shall not apply to any private activity bond that is not a “qualified bond” within the meaning of section 141. Section 141(e) provides, in part, that the term “qualified bond” means any private activity bond if such bond (1) is a qualified mortgage bond under section 143, (2) meets the volume cap requirements under section 146, and (3) meets the applicable requirements under section 147.
.02 Section 143(a)(1) provides that the term “qualified mortgage bond” means a bond that is issued as part of a qualified mortgage issue. Section 143(a)(2)(A) provides that the term “qualified mortgage issue” means an issue of one or more bonds by a state or political subdivision thereof, but only if: (i) all proceeds of the issue (exclusive of issuance costs and a reasonably required reserve) are to be used to finance owner-occupied residences; (ii) the issue meets the requirements of subsections (c), (d), (e), (f), (g), (h), (i), and (m)(7) of section 143; (iii) the issue does not meet the private business tests of paragraphs (1) and (2) of section 141(b); and (iv) with respect to amounts received more than 10 years after the date of issuance, repayments of $250,000 or more of principal on mortgage financing provided by the issue are used by the close of the first semiannual period beginning after the date the prepayment (or complete repayment) is received to redeem bonds that are part of the issue.
.03 Section 143(e)(1) provides that an issue of bonds meets the purchase price requirements of section 143(e) if the acquisition cost of each residence financed by the issue does not exceed 90 percent of the average area purchase price applicable to such residence. Section 143(e)(5) provides that, in the case of a targeted area residence (as defined in section 143(j)), section 143(e)(1) shall be applied by substituting 110 percent for 90 percent.
.04 Section 143(e)(2) provides that the term “average area purchase price” means, with respect to any residence, the average purchase price of single-family residences (in the statistical area in which the residence is located) that were purchased during the most recent 12-month period for which sufficient statistical information is available. Under sections 143(e)(3) and (4), respectively, separate determinations are to be made for new and existing residences, and for two-, three-, and four-family residences.
.05 Section 143(e)(2) provides that the determination of the average area purchase price for a statistical area shall be made as of the date on which the commitment to provide the financing is made or, if earlier, the date of the purchase of the residence.
.06 Section 143(k)(2)(A) provides that the term “statistical area” means (i) a metropolitan statistical area (MSA), and (ii) any county (or the portion thereof) that is not within an MSA. Section 143(k)(2)(C) further provides that if sufficient recent statistical information with respect to a county (or portion thereof) is unavailable, the Secretary may substitute another area for which there is sufficient recent statistical information for such county (or portion thereof). In the case of any portion of a State which is not within a county, section 143(k)(2)(D) provides that the Secretary may designate as a county any area that is the equivalent of a county. Section 6a.103A–1(b)(4)(i) of the Temporary Income Tax Regulations (issued under section 103A of the Internal Revenue Code of 1954, the predecessor of section 143) provides that the term “State” includes a possession of the United States and the District of Columbia.
.07 Section 6a.103A–2(f)(5)(i) provides that an issuer may rely upon the average area purchase price safe harbors published by the Department of the Treasury for the statistical area in which a residence is located. Section 6a.103A–2(f)(5)(i) further provides that an issuer may use an average area purchase price limitation different from the published safe harbor if the issuer has more accurate and comprehensive data for the statistical area.
.08 Section 25(c) permits a state or political subdivision to establish a qualified mortgage credit certificate program. In general, a qualified mortgage credit certificate program is a program under which the issuing authority elects not to issue an amount of private activity bonds that it may otherwise issue during the calendar year under section 146, and in their place, issues mortgage credit certificates to taxpayers in connection with the acquisition of their principal residences. Section 25(a)(1) provides, in general, that the holder of a mortgage credit certificate may claim a federal income tax credit equal to the product of the credit rate specified in the certificate and the interest paid or accrued during the tax year on the remaining principal of the indebtedness incurred to acquire the residence. Section 25(c)(2)(A)(iii)(III) generally provides that residences acquired in connection with the issuance of mortgage credit certificates must meet the purchase price requirements of section 143(e).
.09 Section 143(f) imposes limitations on the income of mortgagors for whom financing may be provided by qualified mortgage bonds. In addition, section 25(c)(2)(A)(iii)(IV) provides that holders of mortgage credit certificates must meet the income requirement of section 143(f). Generally, under sections 143(f)(1) and 25(c)(2)(A)(iii)(IV), the income requirement is met only if all owner-financing under a qualified mortgage bond and all mortgage credit certificates issued under a qualified mortgage credit certificate program are provided to mortgagors whose family income is 115 percent or less of the applicable median family income. Section 143(f)(5), however, generally provides for an upward adjustment to the percentage limitation in high housing cost areas. High housing cost areas are defined in section 143(f)(5)(C) as any statistical area for which the housing cost/income ratio is greater than 1.2.
.10 Under section 143(f)(5)(D), the housing cost/income ratio with respect to any statistical area is determined by dividing (a) the applicable housing price ratio for such area by (b) the ratio that the area median gross income for such area bears to the median gross income for the United States. The applicable housing price ratio is the new housing price ratio (new housing average area purchase price divided by the new housing average purchase price for the United States) or the existing housing price ratio (existing housing average area purchase price divided by the existing housing average purchase price for the United States), whichever results in the housing cost/income ratio being closer to 1.
.11 Average area purchase price safe harbors for each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam were last published in Rev. Proc. 2013–28, 2013–27 I.R.B. 28.
.12 The nationwide average purchase price limitation was last published in section 4.02 of Rev. Proc. 2013–28. Guidance with respect to the United States and area median gross income figures that are to be used in computing the housing cost/income ratio described in section 143(f)(5) was last published in Rev. Proc. 2014–23, 2014–12 I.R.B. 684.
.13 This revenue procedure uses FHA loan limits for a given statistical area to calculate the average area purchase price safe harbor for that area. FHA sets limits on the dollar value of loans it will insure based on median home prices and conforming loan limits established by the Federal Home Loan Mortgage Corporation. In particular, FHA sets an area’s loan limit at 95 percent of the median home sales price for the area, subject to certain floors and caps measured against conforming loan limits.
.14 To calculate the average area purchase price safe harbors in this revenue procedure, the FHA loan limits are adjusted to take into account the differences between average and median purchase prices. Because FHA loan limits do not differentiate between new and existing residences, this revenue procedure contains a single average area purchase price safe harbor for both new and existing residences in a statistical area. The Treasury Department and the Internal Revenue Service have determined that FHA loan limits provide a reasonable basis for determining average area purchase price safe harbors. If the Treasury Department and the Internal Revenue Service become aware of other sources of average purchase price data, including data that differentiate between new and existing residences, consideration will be given as to whether such data provide a more accurate method for calculating average area purchase price safe harbors.
.15 The average area purchase price safe harbors listed in section 4.01 of this revenue procedure are based on FHA loan limits released December 6, 2013. FHA loan limits are available for statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam. See section 3.03 of this revenue procedure with respect to FHA loan limits revised after December 6, 2013.
.16 OMB Bulletin No. 03–04, dated and effective June 6, 2003, revised the definitions of the nation’s metropolitan areas and recognized 49 new metropolitan statistical areas. The OMB bulletin no longer includes primary metropolitan statistical areas.
.01 Average area purchase price safe harbors for statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam are set forth in section 4.01 of this revenue procedure. Average area purchase price safe harbors are provided for single-family and two to four-family residences. For each type of residence, section 4.01 of this revenue procedure contains a single safe harbor that may be used for both new and existing residences. Issuers of qualified mortgage bonds and issuers of mortgage credit certificates may rely on these safe harbors to satisfy the requirements of sections 143(e) and (f). Section 4.01 of this revenue procedure provides safe harbors for MSAs and for certain counties and county equivalents. If no purchase price safe harbor is available for a statistical area, the safe harbor for “ALL OTHER AREAS” may be used for that statistical area.
.02 If a residence is in an MSA, the safe harbor applicable to it is the limitation of that MSA. If an MSA falls in more than one state, the MSA is listed in section 4.01 of this revenue procedure under each state.
.03 If the FHA revises the FHA loan limit for any statistical area after December 6, 2013, an issuer of qualified mortgage bonds or mortgage credit certificates may use the revised FHA loan limit for that statistical area to compute (as provided in the next sentence) a revised average area purchase price safe harbor for the statistical area provided that the issuer maintains records evidencing the revised FHA loan limit. The revised average area purchase price safe harbor for that statistical area is computed by dividing the revised FHA loan limit by .92.
.04 If, pursuant to section 6a.103A–2(f)(5)(i), an issuer uses more accurate and comprehensive data to determine the average area purchase price for a statistical area, the issuer must make separate average area purchase price determinations for new and existing residences. Moreover, when computing the average area purchase price for a statistical area that is an MSA, as defined in OMB Bulletin No. 03–04, the issuer must make the computation for the entire applicable MSA. When computing the average area purchase price for a statistical area that is not an MSA, the issuer must make the computation for the entire statistical area and may not combine statistical areas. Thus, for example, the issuer may not combine two or more counties.
.05 If an issuer receives a ruling permitting it to rely on an average area purchase price limitation that is higher than the applicable safe harbor in this revenue procedure, the issuer may rely on that higher limitation for the purpose of satisfying the requirements of section 143(e) and (f) for bonds sold, and mortgage credit certificates issued, not more than 30 months following the termination date of the 12-month period used by the issuer to compute the limitation.
.06 Section 4.02 of this revenue procedure sets forth a single nationwide average purchase price for purposes of computing the housing cost/income ratio under section 143(f)(5).
.07 Issuers must use the nationwide average purchase price set forth in section 4.02 of this revenue procedure when computing the housing cost/income ratio under section 143(f)(5) regardless of whether they are relying on the average area purchase price safe harbors contained in this revenue procedure or using more accurate and comprehensive data to determine average area purchase prices for new and existing residences for a statistical area that are different from the published safe harbors in this revenue procedure.
.08 If, pursuant to section 6.02 of this revenue procedure, an issuer relies on the average area purchase price safe harbors contained in Rev. Proc. 2013–28, the issuer must use the nationwide average purchase price set forth in section 4.02 of Rev. Proc. 2013–28 in computing the housing cost/income ratio under section 143(f)(5). Likewise, if, pursuant to section 6.05 of this revenue procedure, an issuer relies on the nationwide average purchase price published in Rev. Proc. 2013–28, the issuer may not rely on the average area purchase price safe harbors published in this revenue procedure.
.01 Average area purchase prices for single-family and two to four-family residences in MSAs, and for certain counties and county equivalents are set forth below. The safe harbor for “ALL OTHER AREAS” (found at the end of the table below) may be used for a statistical area that is not listed below.
.02 The nationwide average purchase price (for use in the housing cost/income ratio for new and existing residences) is $245,500.
Rev. Proc. 2013–28 is obsolete except as provided in section 6 of this revenue procedure.
.01 Issuers may rely on this revenue procedure to determine average area purchase price safe harbors for commitments to provide financing or issue mortgage credit certificates that are made, or (if the purchase precedes the commitment) for residences that are purchased, in the period that begins on April 25, 2014, and ends on the date as of which the safe harbors contained in section 4.01 of this revenue procedure are rendered obsolete by a new revenue procedure.
.02 Notwithstanding section 5 of this revenue procedure, issuers may continue to rely on the average area purchase price safe harbors contained in Rev. Proc. 2013–28, with respect to bonds sold, or for mortgage credit certificates issued with respect to bond authority exchanged, before May 25, 2014, if the commitments to provide financing or issue mortgage credit certificates are made on or before June 24, 2014.
.03 Except as provided in section 6.04, issuers must use the nationwide average purchase price limitation contained in this revenue procedure for commitments to provide financing or issue mortgage credit certificates that are made, or (if the purchase precedes the commitment) for residences that are purchased, in the period that begins on April 25, 2014, and ends on the date when the nationwide average purchase price limitation is rendered obsolete by a new revenue procedure.
.04 Notwithstanding sections 5 and 6.03 of this revenue procedure, issuers may continue to rely on the nationwide average purchase price set forth in Rev. Proc. 2013–28 with respect to bonds sold, or for mortgage credit certificates issued with respect to bond authority exchanged, before May 25, 2014, if the commitments to provide financing or issue mortgage credit certificates are made on or before June 24, 2014.
The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1877.
This revenue procedure contains a collection of information requirement in section 3.03. The purpose of the collection of information is to verify the applicable FHA loan limit that issuers of qualified mortgage bonds and qualified mortgage certificates have used to calculate the average area purchase price for a given metropolitan statistical area for purposes of section 143(e) and 25(c). The collection of information is required to obtain the benefit of using revisions to FHA loan limits to determine average area purchase prices. The likely respondents are state and local governments.
The estimated total annual reporting and/or recordkeeping burden is: 15 hours.
The estimated annual burden per respondent and/or recordkeeper: 15 minutes.
The estimated number of respondents and/or recordkeepers: 60.
The principal authors of this revenue procedure are David White and James Polfer of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure contact David E. White on (202) 317-4562 (not a toll free number).
Disbarred from practice before the IRS—An individual who is disbarred is not eligible to practice before the IRS as defined at 31 C.F.R. § 10.2(a)(4).
Disbarred by decision, Suspended by decision, Censured by decision, Monetary penalty imposed, and Disqualified after hearing—An administrative law judge (ALJ) either 1) granted the government’s summary judgment motion or 2) conducted an evidentiary hearing upon OPR’s complaint alleging violation of the regulations; and 3) issued a decision imposing one of these sanctions. After 30 days from the issuance of the decision, in the absence of an appeal, the ALJ’s decision became the final agency decision.
Disbarred by consent, Suspended by consent, Censured by consent, Monetary penalty imposed by consent, and Disqualified by consent—In lieu of a disciplinary proceeding being instituted or continued, an individual offered a consent to one of these sanctions and OPR accepted the offer. Typically, an offer of consent will provide for: suspension for an indefinite term; conditions that the individual must observe during the suspension; and the individual’s opportunity, after a stated number of months, to file with OPR a petition for reinstatement affirming compliance with the terms of the consent and affirming current eligibility to practice (i.e., an active professional license or active enrollment status).
OPR has authority to disclose the grounds for disciplinary sanctions in these situations: (1) an ALJ or the Secretary’s delegate on appeal has issued a decision on or after September 26, 2007, which was the effective date of amendments to the regulations that permit making such decisions publicly available; (2) the individual has settled a disciplinary case by signing OPR’s “consent to sanction” form, which requires consenting individuals to admit to one or more violations of the regulations and to consent to the disclosure of the individual’s own return information related to the admitted violations (for example, failure to file Federal income tax returns); or (3) OPR has issued a decision in an expedited proceeding for indefinite suspension.
This document contains corrections to final and temporary regulations (TD 9658), which were published in the Federal Register on Thursday, March 6, 2014 (79 FR 12726). The regulations relate to the withholding of tax on certain U.S. source income paid to foreign persons, information reporting and backup withholding with respect to payments made to certain U.S. persons, portfolio interest paid to nonresident alien individuals and foreign corporations, and the associated requirements governing collection, refunds, and credits of withheld amounts under these rules.
This correction is effective on April 22, 2014 and is applicable on March 6, 2014.
Nancy J. Lee, (202) 317-6942 (not a toll-free number).
This document contains amendments to the Income Tax Regulations (26 CFR part 1) under section 6045 of the Code. The temporary regulation that is the subject of these corrections is § 1.6045–1T, promulgated under section 6045 of the Internal Revenue Code. This regulation affects persons that are brokers making certain returns of information with respect to their customers.
As published, the temporary regulation contains errors in the instructions that need to be corrected. First, the instructions indicate that § 1.6045–1T is amended. However, the temporary regulation is added, not amended. Second, the instructions do not add paragraphs (m) through (o), which should be included in the temporary regulation by cross-reference to the final regulation. The correcting amendments add the temporary regulation, including paragraphs (m) through (o).
§ 1.6045–1T Returns of information of brokers and barter exchanges (temporary).
(a) through (c)(3)(i) [Reserved]. For further guidance, see § 1.6045–1(a) through (c)(3)(i)(C)(2)(iv).
(B) A sale with respect to which a return is not required by applying the rules of § 1.6049–4(c)(4) (by substituting the term a sale subject to reporting under section 6045 for the term an interest payment).
(iii) through (xiii) [Reserved]. For further guidance, see § 1.6045–1(c)(3)(iii) through (xiii).
(D) The stock transfer agent is not also acting in its capacity as a custodian, nominee, or other agent of the payee with respect to the payment.
(c)(4) through (g)(1) [Reserved]. For further guidance, see § 1.6045–1(c)(4) through (g)(1).
(i) With respect to a sale effected at an office of a broker either inside or outside the United States, the broker may treat the customer as an exempt foreign person if the broker can, prior to the payment, reliably associate the payment with documentation upon which it can rely in order to treat the customer as a foreign beneficial owner in accordance with § 1.1441–1(e)(1)(ii), as made to a foreign payee in accordance with § 1.6049–5(d)(1), or presumed to be made to a foreign payee under § 1.6049–5(d)(2) or (3). For purposes of this paragraph (g)(1)(i), the provisions in § 1.6049–5(c) regarding rules applicable to documentation of foreign status shall apply with respect to a sale when the broker completes the acts necessary to effect the sale at an office outside the United States, as described in paragraph (g)(3)(iii)(A) of this section, and no office of the same broker within the United States negotiated the sale with the customer or received instructions with respect to the sale from the customer. The provisions in § 1.6049–5(c) regarding the definitions of U.S. payor, U.S. middleman, non-U.S. payor, and non-U.S. middleman shall also apply for purposes of this paragraph (g)(1)(i). The provisions of § 1.1441–1 shall apply by substituting the terms broker and customer for the terms withholding agent and payee and without regard for the fact that the provisions apply to amounts subject to withholding under chapter 3 of the Internal Revenue Code (Code). The provisions of § 1.6049–5(d) shall apply by substituting the terms broker and customer for the terms payor and payee. For purposes of this paragraph (g)(1)(i), a broker that is required to obtain, or chooses to obtain, a beneficial owner withholding certificate described in § 1.1441–1(e)(2)(i) from an individual may rely on the withholding certificate only to the extent the certificate includes a certification that the beneficial owner has not been, and at the time the certificate is furnished, reasonably expects not to be present in the United States for a period aggregating 183 days or more during each calendar year to which the certificate pertains. The certification is not required if a broker receives documentary evidence under § 1.6049–5(c)(1) or (4).
(ii) through (3)(iii) [Reserved]. For further guidance, see § 1.6045–1(g)(1)(ii) through (g)(3)(iii).
(iv) Special rules where the customer is a foreign intermediary or certain U.S. branches. A foreign intermediary, as defined in § 1.1441–1(c)(13), is an exempt foreign person, except when the broker has actual knowledge (within the meaning of § 1.6049–5(c)(3)) that the person for whom the intermediary acts is a U.S. person that is not exempt from reporting under paragraph (c)(3) of this section or the broker is required to presume under § 1.6049–5(d)(3) that the payee is a U.S. person that is not an exempt recipient. If a foreign intermediary, as described in § 1.1441–1(c)(13), or a U.S. branch that is not treated as a U.S. person receives a payment from a payor or middleman, which payment the payor or middleman can reliably associate with a valid withholding certificate described in § 1.1441–1(e)(3)(ii) or (iii) or § 1.1441–1(e)(3)(v), respectively, furnished by such intermediary or branch, then the intermediary or branch is not required to report such payment when it, in turn, pays the amount, unless, and to the extent, the intermediary or branch knows that the payment is required to be reported under this section and was not so reported. For example, if a U.S. branch described in § 1.1441–1(b)(2)(iv) fails to provide information regarding U.S. persons that are not exempt from reporting under paragraph (c)(3) of this section to the person from whom the U.S. branch receives the payment, the U.S. branch must report the payment on an information return. See, however, paragraph (c)(3)(ii) of this section for when reporting under section 6045 is coordinated with reporting under chapter 4 of the Code or an applicable IGA (as defined in § 1.6049–4(f)(7)). The exception of this paragraph (g)(3)(iv) for amounts paid by a foreign intermediary shall not apply to a qualified intermediary that assumes reporting responsibility under chapter 61 of the Code except as provided under the agreement described in § 1.1441–1(e)(5)(iii).
Example 1. FC is a foreign corporation that is not a U.S. payor or U.S. middleman described in § 1.6049–5(c)(5) that regularly issues and retires its own debt obligations. A is an individual whose residence address is inside the United States, who holds a bond issued by FC that is in registered form (within the meaning of section 163(f) and the regulations under that section). The bond is retired by FP, a foreign corporation that is a broker within the meaning of paragraph (a)(1) of this section and the designated paying agent of FC. FP mails the proceeds to A at A’s U.S. address. The sale would be considered to be effected at an office outside the United States under paragraph (g)(3)(iii)(A) of this section except that the proceeds of the sale are mailed to a U.S. address. For that reason, the sale is considered to be effected at an office of the broker inside the United States under paragraph (g)(3)(iii)(B) of this section. Therefore, FC is a broker under paragraph (a)(1) of this section with respect to this transaction because, although it is not a U.S. payor or U.S. middleman, as described in § 1.6049–5(c)(5), it is deemed to effect the sale in the United States. FP is a broker for the same reasons. However, under the multiple broker exception under paragraph (c)(3)(iii) of this section, FP, rather than FC, is required to report the payment because FP is responsible for paying the holder the proceeds from the retired obligations. Under paragraph (g)(1)(i) of this section, FP may not treat A as an exempt foreign person and must make an information return under section 6045 with respect to the retirement of the FC bond, unless FP obtains the certificate or documentation described in paragraph (g)(1)(i) of this section.
Example 2. The facts are the same as in Example 1 except that FP mails the proceeds to A at an address outside the United States. Under paragraph (g)(3)(iii)(A) of this section, the sale is considered to be effected at an office of the broker outside the United States. Therefore, under paragraph (a)(1) of this section, neither FC nor FP is a broker with respect to the retirement of the FC bond. Accordingly, neither is required to make an information return under section 6045.
Example 3. The facts are the same as in Example 2 except that FP is also the agent of A. The result is the same as in Example 2. Neither FP nor FC are brokers under paragraph (a)(1) of this section with respect to the sale since the sale is effected outside the United States and neither of them are U.S. payors (within the meaning of § 1.6049–5(c)(5)).
Example 4. The facts are the same as in Example 1 except that the registered bond held by A was issued by DC, a domestic corporation that regularly issues and retires its own debt obligations. Also, FP mails the proceeds to A at an address outside the United States. Interest on the bond is not described in paragraph (g)(1)(ii) of this section. The sale is considered to be effected at an office outside the United States under paragraph (g)(3)(iii)(A) of this section. DC is a broker under paragraph (a)(1)(i)(B) of this section. DC is not required to report the payment under the multiple broker exception under paragraph (c)(3)(iii) of this section. FP is not required to make an information return under section 6045 because FP is not a U.S. payor described in § 1.6049–5(c)(5) and the sale is effected outside the United States. Accordingly, FP is not a broker under paragraph (a)(1) of this section.
Example 5. The facts are the same as in Example 4 except that FP is also the agent of A. DC is a broker under paragraph (a)(1) of this section. DC is not required to report under the multiple broker exception under paragraph (c)(3)(iii) of this section. FP is not required to make an information return under section 6045 because FP is not a U.S. payor described in § 1.6049–5(c)(5) and the sale is effected outside the United States and therefore FP is not a broker under paragraph (a)(1) of this section.
Example 6. The facts are the same as in Example 4 except that the bond is retired by DP, a broker within the meaning of paragraph (a)(1) of this section and the designated paying agent of DC. DP is a U.S. payor under § 1.6049–5(c)(5). DC is not required to report under the multiple broker exception under paragraph (c)(3)(iii) of this section. DP is required to make an information return under section 6045 because it is the person responsible for paying the proceeds from the retired obligations unless DP obtains the certificate or documentary evidence described in paragraph (g)(1)(i) of this section.
Example 7. Customer A owns U.S. corporate bonds issued in registered form after July 18, 1984, and carrying a stated rate of interest. The bonds are held through an account with foreign bank, X, and are held in street name. X is a wholly-owned subsidiary of a U.S. company and is not a qualified intermediary within the meaning of § 1.1441–1(e)(5)(ii). X has no documentation regarding A. A instructs X to sell the bonds. In order to effect the sale, X acts through its agent in the United States, Y. Y sells the bonds and remits the sales proceeds to X. X credits A’s account in the foreign country. X does not provide documentation to Y and has no actual knowledge that A is a foreign person but it does appear that A is an entity (rather than an individual).
(i) Y’s obligations to withhold and report. Y treats X as the customer, and not A, because Y cannot treat X as an intermediary because it has received no documentation from X. Y is not required to report the sales proceeds under the multiple broker exception under paragraph (c)(3)(iii) of this section, because X is an exempt recipient. Further, Y is not required to report the amount of accrued interest paid to X on Form 1042-S under § 1.1461–1(c)(2)(ii) because accrued interest is not an amount subject to reporting under chapter 3 unless the withholding agent knows that the obligation is being sold with a primary purpose of avoiding tax.
(ii) X’s obligations to withhold and report. Although X has effected, within the meaning of paragraph (a)(1) of this section, the sale of a security at an office outside the United States under paragraph (g)(3)(iii) of this section, X is treated as a broker, under paragraph (a)(1) of this section, because as a wholly-owned subsidiary of a U.S. corporation, X is a controlled foreign corporation and therefore is a U.S. payor. See § 1.6049–5(c)(5). Under the presumptions described in § 1.6049–5(d)(2) (as applied to amounts not subject to withholding under chapter 3), X must apply the presumption rules of § 1.1441–1(b)(3)(i) through (iii), with respect to the sales proceeds, to treat A as a partnership that is a U.S. non-exempt recipient because the presumption of foreign status for offshore obligations under § 1.1441–1(b)(3)(iii)(D) does not apply. See paragraph (g)(1)(i) of this section. Therefore, unless X is an FFI (as defined in § 1.1471–1(b)(47)) that is excepted from reporting the sales proceeds under paragraph (c)(3)(ii) of this section, the payment of proceeds to A by X is reportable on a Form 1099 under paragraph (c)(2) of this section. X has no obligation to backup withhold on the payment based on the exemption under § 31.3406(g)–1(e) of this chapter, unless X has actual knowledge that A is a U.S. person that is not an exempt recipient. X is also required to separately report the accrued interest (see paragraph (d)(3) of this section) on Form 1099 under section 6049 because A is also presumed to be a U.S. person who is not an exempt recipient with respect to the payment because accrued interest is not an amount subject to withholding under chapter 3 and, therefore, the presumption of foreign status for offshore obligations under § 1.1441–1(b)(3)(iii)(D) does not apply. See § 1.6049–5(d)(2)(i).
Example 8. The facts are the same as in Example 7, except that X is a foreign corporation that is not a U.S. payor under § 1.6049–5(c).
(i) Y’s obligations to withhold and report. Y is not required to report the sales proceeds under the multiple broker exception under paragraph (c)(3)(iii) of this section, because X is the person responsible for paying the proceeds from the sale to A.
(ii) X’s obligations to withhold and report. Although A is presumed to be a U.S. payee under the presumptions of § 1.6049–5(d)(2), X is not considered to be a broker under paragraph (a)(1) of this section because it is a not a U.S. payor under § 1.6049–5(c)(5). Therefore X is not required to report the sale under paragraph (c)(2) of this section.
(5) Effective/applicability date—(i) [Reserved]. For further guidance, see § 1.6045–1(g)(5)(i).
(ii) The provisions of paragraphs (g)(1)(i), (g)(3)(iv), and (g)(4) of this section apply to payments made on or after July 1, 2014.
(h) through (p) [Reserved]. For further guidance, see § 1.6045–1(h) through (p).
(q) Expiration date. The applicability of this section expires on February 28, 2017.
Martin V. Franks, Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel (Procedure and Administration).

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