2008 section 45K inflation adjustment factor. This notice announces the inflation adjustment factor, the reference price, and the credit amount for the nonconventional source fuel credit for coke or coke gas (other than from petroleum based products) for the 2008 calendar year.

This notice solicits applications for allocations of the present total national bond volume limitation authority of $2.4 billion to issue new clean renewable energy bonds (New CREBs) under section 54C(a) of the Code to finance certain qualified projects described in section 45(d). This notice also provides related guidance on the following: (1) eligibility requirements that a project must meet to be considered for a volume cap allocation; (2) application requirements and the application form for requests for volume cap allocations; (3) the method that the IRS will use to allocate the volume cap; and (4) certain aspects of the applicable law and interim guidance in this area.

This notice provides the face amount of qualified school construction bonds (QSCBs) allocated by the Department of the Treasury to each state and large local education agency for 2009 under section 54F(d) of the Code. This notice also provides other limited interim guidance with respect to QSCBs.

This notice states that pursuant to the administration’s Home Affordable Modification Program (HAMP), the United States Government may make certain payments to a real estate mortgage investment conduit (REMIC). It also states that if those payments are “ contributions” subject to the 100 percent contribution tax set forth in section 860G(d)(1) of the Code and if none of the exceptions set forth in section 860G(d)(2) apply, then regulations will be issued that will provide an exception for such payments pursuant to section 860G(d)(2)(E).

This procedure describes the conditions under which modifications to residential mortgage loans pursuant to the administration’s Home Affordable Modification Program (HAMP) will not cause the IRS to challenge the tax status of real estate mortgage investment conducts (REMICs) or fixed investment trusts or to assert that those modifications to mortgages held by a REMIC give rise to a prohibited transaction.

Automobile owners and lessees. This procedure provides owners and lessees of passenger automobiles (including trucks and vans) with tables detailing the limitations on depreciation deductions for passenger automobiles first placed in service during calendar year 2009 and the amounts to be included in income for passenger automobiles first leased during calendar year 2009.

This notice extends the time for making claims pertaining to biodiesel and biodiesel mixtures that was certified under the old ASTM D6751 standard from April 1, 2009, set forth in Notice 2008-110, 2008-51 I.R.B. 1298, to September 30, 2009. Notice 2008-110 modified.

This notice publishes the nonconventional source fuel credit, inflation adjustment factor, and reference price under § 45K of the Internal Revenue Code for coke or coke gas (other than from petroleum based products) for calendar year 2008. The inflation adjustment factor and the reference price are used to determine the credit allowable under § 45K for coke or coke gas. The calendar year 2008 inflation-adjusted credit applies to the sales of barrel-of-oil equivalent of coke or coke gas sold by a taxpayer to an unrelated person during the 2008 calendar year, the domestic production of which is attributable to the taxpayer.

Section 45K(a) provides for a credit for producing fuel from a nonconventional source, measured in barrel-of-oil equivalent of qualified fuel, the production of which is attributable to the taxpayer and is sold by the taxpayer to an unrelated person during the taxable year. For calendar year 2008, the credit is available only for coke or coke gas. The credit amount for coke or coke gas is equal to the product of $3.00 and the appropriate inflation adjustment factor.

Section 45K(d)(1) provides that the credit applies only to sales of qualified fuels the production of which is within the United States (within the meaning of § 638(1)) or a possession of the United States (within the meaning of § 638(2)).

Section 45K(d)(2)(A) requires that the Secretary, not later than April 1 of each calendar year, determine and publish in the Federal Register the inflation adjustment factor and the reference price for the preceding calendar year.

Section 45K(d)(2)(B) defines “inflation adjustment factor” for a calendar year as a fraction the numerator of which is the GNP implicit price deflator for the calendar year and the denominator of which is the GNP implicit price deflator for calendar year 1979. The term “GNP implicit price deflator” means the first revision of the implicit price deflator for the gross national product as computed and published by the Department of Commerce.

Section 45K(d)(2)(C) defines “reference price” to mean with respect to a calendar year the Secretary’s estimate of the annual average wellhead price per barrel for all domestic crude oil the price of which is not subject to regulation by the United States.

Section 45K(d)(5) provides that the term “barrel-of-oil equivalent” with respect to any fuel generally means that amount of the fuel that has a Btu content of 5.8 million.

Section 45K(g)(1) provides that in the case of a facility for producing coke or coke gas (other than from petroleum based products), which was placed in service before January 1, 1993, or after June 30, 1998, and before January 1, 2010, § 45K(g) shall apply with respect to coke or coke gas produced in such facility and sold during the period beginning on the later of January 1, 2006, or the date that such facility is placed in service, and ending on the date which is 4 years after the date such period began.

Section 45K(g)(2)(A) provides that the amount of coke or coke gas sold during any taxable year that may be taken into account to compute the credit under § 45K with respect to any facility shall not exceed an average barrel-of-oil equivalent of 4,000 barrels per day.

Section 45K(g)(2)(B) provides that in determining the amount of credit allowable to coke or coke gas sold after 2005, the credit shall be computed by substituting “2004” for “1979.” Accordingly, for purposes of § 45K(g), the inflation adjustment factor for a calendar year is a fraction the numerator of which is the GNP implicit price deflator for the calendar year and the denominator of which is the GNP implicit price deflator for calendar year 2004.

Section 45K(g)(2)(D) provides that the phase-out of the credit under § 45K(b)(1) does not apply in the case of facilities producing coke or coke gas.

The reference price for calendar year 2008 is $94.03.

The inflation adjustment factor for calendar year 2008 is 1.1183. The nonconventional source fuel credit is $3.36 per barrel-of-oil equivalent ($3.00 x 1.1183).

The principal author of this notice is Jennifer C. Bernardini of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice, contact Jennifer C. Bernardini at (202) 622-3110 (not a toll-free call).

This notice solicits applications for allocations of the present total national bond volume limitation authority (“volume cap”) of $2.4 billion to issue new clean renewable energy bonds (“New CREBs”) under § 54C(a) of the Internal Revenue Code (the “Code”) to finance certain qualified renewable energy facilities described in § 45(d) of the Code (also referred to in this notice as a qualified “project” or “projects”). This notice also provides related guidance on the following: (1) eligibility requirements that a project must meet to be considered for a volume cap allocation; (2) application requirements and the application form for requests for volume cap allocations; (3) the method that the Internal Revenue Service (“IRS”) and the Treasury Department will use to allocate the volume cap; and (4) certain aspects of the applicable law and interim guidance in this area.

Applications for New CREB volume cap allocations pursuant to this notice must be filed in accordance with this notice by the following application deadline: August 4, 2009.

This notice will use the term “CREBs” for clean renewable energy bonds issued under § 54 and the term “New CREBs” for new clean renewable energy bonds issued under § 54C. To the extent that this notice refers generally to the clean renewable energy bond program, the term “CREB program” will be used.

Each application for an allocation of the New CREBs volume cap under § 54C (“Application”) must be prepared and submitted in accordance with this section. In order for an Application to comply with this section, among other things, the Application must be prepared in substantially the form attached to this notice as Appendix A, subject to such minor changes or variations as the IRS and the Treasury Department may approve in their discretion. This notice, including Appendix A, may be found on the IRS web site at http://www.irs.gov/taxexemptbond/index.html or http://www.irs.gov/pub/irs-drop/. By submitting an Application, the applicant agrees to comply with the requirements of this notice.

a. Qualified issuer. An Application must be submitted by a qualified issuer within the meaning of § 54C(d)(6). A “qualified issuer” is: (1) a public power provider (as defined in § 54C(d)(2)); (2) a cooperative electric company (as defined in § 54C(d)(4)); (3) a governmental body (as defined in § 54C(d)(3)); (4) a New CREB lender (as defined in § 54C(d)(5)); or (5) a not-for-profit electric utility that has received a loan or loan guarantee under the Rural Electrification Act. An Application must identify the qualified issuer (including the qualified issuer’s Federal tax identification number) and must demonstrate that the entity constitutes a qualified issuer within the meaning of § 54C(d)(6).

b. Signatures. An Application must be signed and dated by, and must include the printed name and title of, an authorized official of the qualified issuer. For purposes of this notice, the term “authorized official of the qualified issuer” means an officer, board member, employee, or other official of the qualified issuer who is duly authorized to execute legal documents on behalf of the qualified issuer in connection with incurring debt of the qualified issuer ( e.g. , a mayor, chairperson of a city council, chairperson of a board of directors, county or city administrator or manager, chief executive officer or chief financial officer), similar to the kind of duly authorized official of an issuer who would be authorized to execute documents in connection with an issuer’s declaration of official intent to reimburse expenditures from the proceeds of a borrowing under § 1.150-2(e), Income Tax Regs.

c. Contact person. An Application must designate one or more persons with knowledge regarding the project that the qualified issuer duly authorizes to discuss with the IRS any information relating to the Application. The designation must include the designee’s name, title, telephone number, fax number, and mailing address. If a designee is not an official or officer of the issuer, the Application must include an executed Form 8821 (Taxpayer Information Authorization), authorizing the disclosure of taxpayer information specifically relating to the Application to the designee.

d. Addresses. An Application must be submitted by hard copy in duplicate accompanied by a copy of the Application in electronic format on compact disc (“CD”) by mail to the IRS, TEB CREBs Allocations, 1122 Town & Country Commons, St. Louis, Missouri 63017.

e. Due date. An Application must be filed with the IRS on or before the Application deadline of August 4, 2009.

f. Project description. Each Application must contain the information required by this subsection f.

(i) Qualified owner. Each Application must identify the public power provider, governmental body, or cooperative electric company expected to own the qualified renewable energy facility. A “public power provider” is a State utility with a service obligation, as such terms are defined in § 217 of the Federal Power Act (as in effect on October 3, 2008). A “governmental body” is any State or Indian Tribal government, or any political subdivision thereof (within the meaning of § 103 of the Code). A “cooperative electric company” is a mutual or cooperative electric company described in §§ 501(c)(12) or 1381(a)(2)(C) of the Code. The Application must demonstrate that the entity is a public power provider, governmental body, or cooperative electric company within the meaning of § 54C(d)(2), (3), and (4), respectively.

(ii) Qualified project. Each Application must describe in reasonable detail the qualified renewable energy facility or facilities constituting the project to be financed with the proceeds of the New CREBs. The Application must demonstrate that each project will constitute a “qualified renewable energy facility” under § 54C(d)(1). The Application must indicate the expected date that the acquisition and construction of each project will commence and the expected date that each project will be placed in service.

The Application must contain a certification by an independent, licensed engineer that each project will meet the requirements for a “qualified facility” under § 45(d) (but without regard to § 45(d)(8) and (10) and to any placed in service date), and that the project will be technically viable and will produce electricity.

If the project is a qualified hydropower facility under § 45(d)(9) producing incremental hydropower production (as defined under § 45(c)(8)(B)), then the certification also must state that the project consists only of efficiency improvements or additions to capacity that produce additional production as described in § 45(c)(8)(B) based on a methodology that would meet Federal Energy Regulatory Commission (FERC) standards. If the project is a qualified hydropower facility under § 45(d)(9) for qualified hydropower production at a nonhydroelectric dam under § 45(c)(8)(C), then the certification also must state that: (i) the facility, when constructed, will meet FERC licensing requirements and other applicable environmental, licensing and regulatory requirements; and (ii) the facility will be operated so that the water surface elevation at any given location and time that would have occurred in the absence of the hydroelectric project is maintained, subject to any license requirements imposed under applicable law that change the water surface elevation for the purpose of improving environmental quality of the affected waterway.

(iii) Prior allocations and related projects. Each Application must describe the amount of CREB volume cap previously allocated to each project under § 54 of the Code described in the Application and to any “related projects.” For purposes of this notice and the Application, the term “related projects” means projects that are owned by the same entity, or a “related party” as defined in § 1.150-1(b), that are of the same type under § 45(d), located on the same site, and integrated, interconnected, or directly or indirectly dependent on each other, based on all the facts and circumstances (“Related Projects”). For purposes of the allocation methodology described in section 6 of this notice, a facility the construction of which causes an increase in capacity (measured in units of power) of a project for which an Applicant previously received an allocation under § 54 will not be treated as a Related Project with respect to such project.

(iv) Location of project. The Application must indicate the location of the project.

(v) Regulatory approvals. The Application must describe a plan to obtain all necessary Federal, state and local regulatory approvals for the project.

g. Plan of financing. The Application must contain a reasonably detailed description of the plan of financing for the project, including all reasonably expected sources and uses of financing and other funds, the status of such financing, the anticipated date of bond issuance, the sources of security and repayment for the bonds, the aggregate face amount of bonds expected to be issued for the project, and the issuer’s reasonably expected schedule for spending proceeds of New CREBs. If the owner intends to use the proceeds of New CREBs to reimburse amounts paid with respect to a qualified project, the Application must demonstrate that the requirements under § 54A(d)(2)(D) will be met.

h. Dollar amount of allocation requested. The Application must specify the dollar amount of the volume cap requested for the project.

Each application submitted under this notice must include the following declaration signed and dated by an authorized official of the qualified issuer who has personal knowledge of the relevant facts and circumstances: “Under penalties of perjury, I declare that I have examined this document and, to the best of my knowledge and belief, all of the facts contained herein are true, correct, and complete.”

In order to provide the public with information on how the volume cap authorized by Congress has been allocated and to facilitate oversight of the CREB program, the IRS intends to publish the results of the allocation process. The information will be the most useful to the public if it identifies the specific allocations awarded. Pursuant to § 6103, consent is required in order for the IRS to disclose identifying information with respect to applicants awarded an allocation. Therefore, the IRS requests that each applicant submit with the Application a declaration consenting to the disclosure by the IRS of the name of the applicant (issuer), the name of the qualified renewable energy facility owner (if other than the issuer), the type and location of the qualified renewable energy facility that is the subject of the Application, and the amount of the New CREBs volume cap allocation for such facility in the event the facility receives an allocation. To provide valid consent, the declaration must be in the form set forth in Appendix B. An applicant is not required to provide a declaration consenting to disclosure in order to receive an allocation. The IRS will not publish identifying information with respect to applications that are not awarded an allocation of volume cap or while applications are pending.

a. In general. New CREB volume cap under § 54C will be allocated in accordance with this section for qualified projects for which Applications meeting the requirements of this notice have been filed with the IRS on or before the Application deadline set forth in this notice. For purposes of this section 6, all Related Projects, as defined in section 3(f)(iii), will be treated as a single project.

b. Allocation methodology for governmental bodies and cooperative electric companies. Up to one-third of the total national volume cap will be allocated to qualified projects owned by governmental bodies and up to an additional one-third of the total national volume cap will be allocated to qualified projects owned by cooperative electric companies. With respect to each such category of qualified owners, the full amount of volume cap requested will be allocated beginning with the project for which the smallest dollar amount of volume cap has been requested and continuing with the project for which the next-smallest dollar amount of volume cap has been requested until the total amount of volume cap set aside for that category of qualified owners has been exhausted or until all applications from that category of qualified owners have been granted, whichever occurs first. For this purpose, except for projects consisting of increases in capacity as described in section 3(f)(iii) of this notice, any amount of the CREB volume cap previously allocated to a project under § 54 (for CREBs) of the Code will be taken into account by increasing the amount requested for that project in the Application submitted pursuant to this notice by the amount previously allocated to the project. A project that causes an increase in capacity of an existing project or of a project that was previously allocated CREB volume cap under § 54 will be treated as a separate, new project for purposes of the allocation of New CREBs volume cap under this section.

c. Allocation methodology for public power providers. Up to one-third of the total national volume cap will be allocated to qualified projects owned by public power providers using the pro rata allocation method described below. The amount of volume cap allocated to a project for a public power provider will bear the same proportion to the national volume cap allocated to public power providers as the amount of volume cap requested for that project bears to the total amount of volume cap requested for all projects by public power providers.

Generally, any allocation of CREBs or New CREBs volume cap is valid for purposes of § 54 or § 54C, respectively, with respect to bonds issued pursuant to such allocation that are used to finance qualified renewable energy facilities described in the application. An allocation of CREBs or New CREBs under §§ 54 and 54C, respectively, is also valid notwithstanding insubstantial deviations with respect to the information submitted in the Application. Whether a deviation with respect to the information submitted in the Application is insubstantial is determined based on all the facts and circumstances using criteria similar to those used under § 5f.103-2(f)(2) and Prop. Reg. § 1.147(f)-1(b)(6), as amended from time to time, relating to the insubstantial deviation in the information required for public approval of an issue of governmental bonds under § 147(f) of the Code. Applications for approval of specific insubstantial deviations must be submitted by hard copy and in electronic format on compact disk (“CD”) by mail to IRS, TEB CREBs Determinations, 1122 Town & Country Commons, St. Louis, Missouri 63017. An application for approval of a specific insubstantial deviation must include (a) a detailed description of the proposed deviation, (b) facts establishing the continued technical viability of the project and that no other taxpayer or the Government will be prejudiced, (c) a copy of the allocation letter issued by the IRS, and (d) a declaration pursuant to section 4 of this notice signed by an authorized person in accordance with section 3.b. of this notice.

Section 54A(d)(3) requires issuers of New CREBs to submit information reporting returns to the IRS similar to those required to be submitted under § 149(e) for tax-exempt State or local governmental bonds. These information reporting returns are required to be submitted at the same time and in the same manner as those under § 149(e) on such forms as shall be prescribed by the IRS for such purpose. Pending further guidance from the IRS regarding the applicable forms to be used for such information reporting for New CREBs, in the case of an issue of New CREBs, the issuer must submit to the IRS an information return on Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues, at the same time and in the same manner as required under § 149(e), with modifications as described below. Issuers of New CREBs should complete Part II of Form 8038 by checking the box on Line 20c (Other), writing “New Clean Renewable Energy Bonds” or “New CREBs” in the space provided for the bond description, and entering the issue price of the New CREBs in the Issue Price column. For purposes of this notice, the term “issue” has the meaning used for tax-exempt bond purposes in § 1.150-1(c).

(a) Generally

Pending the promulgation and effective date of applicable future regulations or other published administrative guidance, taxpayers may rely on the interim guidance provided in this notice and, to the extent not inconsistent with §§ 54A and 54C and this notice, taxpayers may also rely on Notice 2006-7, 2006-1 C.B. 559 (March 6, 2006), and Notice 2007-26, 2007-1 C.B. 870 (April 2, 2007).

(b) Credit Rate

For New CREBs issued under § 54C, the credit rate is determined as of the date that the issue of New CREBs is sold. The New CREB credit rate is published for that date by the Bureau of Public Debt on its Internet site for State and Local Government Series securities at: https://www.treasurydirect.gov. The credit rates will be determined by the Treasury Department in accordance with Notice 2009-15, 2009-6 I.R.B. 449 (February 9, 2009).

(c) Maximum term

The maximum term for a New CREB is determined under § 54A(d)(5) 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 sold. For purposes of this notice, a bond is “sold” on the first day on which there is a binding written contract for the sale or exchange of the bond. The maximum term for a New CREB is published daily by the Bureau of Public Debt on its Internet site for State and Local Government Series securities at: https://www.treasurydirect.gov.

(d) Permitted sinking fund yield

Section 54A(d)(4)(C) provides that an issue shall not be treated as failing to meet the arbitrage requirements of § 148 by reason of any fund which is expected to be used to repay the issue if: (i) the fund is funded at a rate not more rapid than equal annual installments; (ii) the fund is funded in a manner reasonably expected to result in an amount not greater than an amount necessary to repay the issue; and (iii) the yield on such fund is not greater than the discount rate determined under § 54A(d)(5)(B) (the “permitted sinking fund yield”).

The permitted sinking fund yield is determined under § 54A(d)(5)(B) by using a rate equal to 110 percent of the long-term adjusted AFR, compounded semi-annually, for the month in which the bond is sold. The IRS publishes the long-term adjusted AFR, compounded semi-annually, each month in a revenue ruling published in the Internal Revenue Bulletin. The Bureau of Public Debt publishes the permitted sinking fund yield for each month on its Internet site for State and Local Government Series securities at: https://www.treasurydirect.gov.

(e) Joint ownership of qualified renewable energy facilities

Joint ownership of qualified renewable energy facilities financed with New CREBs will be recognized in a manner similar to the recognition of joint ownership of output projects under the private activity bond restrictions on tax-exempt bonds under § 141.

(f) Allocation and accounting

In determining whether all or a part of a facility will be eligible to be a qualified renewable energy facility for New CREBs purposes, allocation and accounting rules similar to those employed for mixed-use projects will be applied.

(g) Qualified expenditures

For purposes of the requirement under § 54C(a)(1) to use 100 percent of the available project proceeds of an issue of New CREBs for qualified costs to finance capital expenditures for qualified renewable energy facilities, available project proceeds used to finance a reserve, sinking, or replacement fund ( e.g. , a debt service reserve fund to secure the New CREBs), including a Qualified Tax Credit Bond sinking fund, will be treated as nonqualified costs. Except in limited circumstances involving reimbursements to which § 54A(d)(2)(D) applies, costs of acquiring existing facilities, including refinancing costs (as contrasted with costs of enhancements, repair, or rehabilitation of existing facilities), generally will be treated as nonqualified costs for purposes of the 100 percent use of proceeds test under § 54C(a)(1).

(h) Coordination with tax credit under § 45K

A qualified renewable energy facility under § 54C(d)(1) shall include a qualified facility under § 45(d)(6) without regard to the limitation under § 45(e)(9)(A) (which limitation disallows the renewable electricity production credit under § 45 for certain facilities which receive the nonconventional source production credit under § 45K), provided that the owner of the qualified renewable energy facility has not been allowed a credit under § 45K during any taxable year with respect to landfill gas to be used by the qualified renewable energy facility.

(i) Cooperative electric companies treated like state or local governmental entities

Cooperative electric companies under § 54C(d)(4) will be treated as “governmental persons” under § 1.141-1(b) for purposes of (1) applying the arbitrage investment restrictions under § 148, including the program investment definition under § 1.148-1(b), and (2) determining whether New CREBs are private activity bonds under § 141 in applying any particular arbitrage investment restriction that depends on whether bonds are private activity bonds.

(j) Expiration of allocation

An allocation of New CREBs volume cap is valid for 3 years after the date of the letter issuing the allocation (the “allocation date”). An allocation of unused volume cap will expire and revert back to the IRS on the first day following 3 years after the allocation date. Any bonds issued pursuant to such expired allocation will not be New CREBs for purposes of §§ 54A and 54C. Under a program to be announced, the IRS plans to reallocate any unallocated volume cap, and any allocated volume cap that has been relinquished or that has reverted to the IRS. For purposes of reallocation, relinquished volume cap means volume cap previously allocated to a qualified issuer to finance a qualified project for which the IRS has received written notice from a duly authorized official of the qualified issuer stating that the issuer will not issue CREBs pursuant to the allocation.

To facilitate reallocation of the unused New CREBs volume cap, a qualified issuer that determines it will not issue bonds within 3 years from the allocation date must notify the IRS of such determination in writing within 90 days after the determination is made. If no determination is made, a qualified issuer that fails to issue bonds pursuant to its allocation within the 3-year period must notify the IRS of such failure within 90 days after the end of the 3-year period. The notification must include a copy of the original allocation letter and must be submitted by hard copy and in electronic format on compact disk (“CD”) by mail to the IRS, TEB CREBs Forfeiture, 1122 Town & Country Commons, St. Louis, Missouri 63017.

Consistent with allocation requirements under § 54C(c)(2), any relinquished or reverted New CREB volume cap under § 54C will be reallocated only for a qualified project owned or to be owned by the same category of qualified owner as the owner that originally received the relinquished or reverted allocation. The IRS does not plan to reallocate any unused, relinquished, or unallocated portion of the CREB volume cap authorized under § 54 of the Code.

To the extent not amended by the 2008 Acts and 2009 Act, references to § 54 of the Code under Notice 2006-7 and Notice 2007-26 apply as if the references were to corresponding provisions of §§ 54A and 54C.

The principal authors of this notice are Zoran Stojanovic and Timothy L. Jones of the Office of Associate Chief Counsel (Financial Institutions and Products). However, other personnel from the IRS and the Treasury Department participated in its development. For further information regarding this notice and the Application, contact Janae Lemley at (636) 255-1202 (not a toll-free call).

This notice extends the transitional rule set forth in Section 2(c) of Notice 2008-110, 2008-51 I.R.B. 1298, to September 30, 2009.

(1) Sections 40A, 6426, and 6427(e) of the Internal Revenue Code (Code) provide tax incentives for the production, sale, and use of biodiesel and biodiesel mixtures. Section 40A(d)(1) of the Code defines biodiesel as monoalkyl esters of long chain fatty acids derived from plant or animal matter which meet (i) the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545), and (ii) the requirements of ASTM D6751.

(2) Effective on October 13, 2008, the American Society of Testing and Materials revised the requirements of ASTM D6751 by adding a cold soak filtration test for biodiesel (the October 13, 2008 revision).

(3) Section 2(c) of Notice 2008-110 provides a transitional rule to address this new ASTM D6751 requirement. Under the transitional rule, if a taxpayer’s claim for biodiesel incentives is related to the production, sale, or use of biodiesel or a biodiesel mixture before April 1, 2009, a certification that the biodiesel covered by the claim meets the requirements of ASTM 6751 is valid if the biodiesel meets the requirements of ASTM 6751 as in effect either before or after the October 13, 2008, revision. However, if the claim is related to the production, sale, or use on or after April 1, 2009, the certification of the biodiesel covered by the claim is valid only if the biodiesel meets the requirements of ASTM 6751 as in effect after the October 13, 2008 revision.

This guidance extends the transitional rule set forth in Section 2(c) of Notice 2008-110 through September 30, 2009. Therefore, if a taxpayer’s claim for biodiesel incentives relates to the production, sale, or use of biodiesel or a biodiesel mixture and the production, sale, or use occurs before October 1, 2009, a certification that the biodiesel covered by the claim meets the requirements of ASTM D6751 is valid if the biodiesel meets the requirements of ASTM D6751 as in effect either before or after the October 13, 2008 revision that added the cold soak filtration test for biodiesel. If a claim relates to the production, sale, or use of biodiesel or a biodiesel mixture and the production, sale, or use occurs on or after October 1, 2009, a certification that the biodiesel covered by the claim meets the requirements of ASTM D6751 is valid only if the biodiesel satisfies the requirements of ASTM D6751 as in effect after the October 13, 2008, revision that added the cold soak filtration test for biodiesel.

Notice 2008-110 is modified.

The principal author of this notice is Charles J. Langley, Jr. of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Charles J. Langley, Jr. at (202) 622-3130 (not a toll-free call).

This notice sets forth the maximum face amount of qualified school construction bonds (“QSCBs”) allocated by the Department of the Treasury (Treasury) to each State and large local educational agency for 2009 under § 54F(d) of the Internal Revenue Code (Code). For this purpose, § 54A(e)(3) provides that the term “State” includes the District of Columbia and any possession of the United States. This notice also provides interim guidance for QSCBs.

The 2009 national bond volume cap for QSCBs is $11 billion. This amount is allocated among the States and large local educational agencies as set forth in this notice. The 2009 allocations to 100 large local educational agencies reflects the determination by the Secretary of Education to decline to select 25 additional large local educational agencies under § 54F(d)(2)(E)(ii) for such year. The first chart below allocates $6.6 billion of the $11 billion 2009 calendar year volume cap for QSCBs to States to be further allocated to the issuers within such State. The second chart below allocates $4.4 billion of the $11 billion 2009 calendar year volume cap for QSCBs to large local educational agencies.

The allocations of the national bond volume cap for QSCBs in Section 4 are effective for QSCBs issued, pursuant to an allocation of 2009 calendar year volume cap, after February 17, 2009, and before January 1, 2010.

The Department of the Interior is exclusively responsible for making the allocations of the Indian tribal government volume cap and inquiries about the process and timing for those allocations of Indian tribal government volume cap should be directed to John Rever, Director, Office of Management Support Services, Bureau of Indian Affairs, at (703) 390-6314 or John.rever@bia.gov.

The principal author of this notice is Aviva M. Roth of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this notice, contact Aviva M. Roth at (202) 622-3980 (not a toll-free call.)

The Internal Revenue Service (Service) and the Department of the Treasury (Treasury) intend to issue regulations regarding the application of section 860G(d) of the Internal Revenue Code to certain amounts that may be paid to real estate mortgage investment conduits (REMICs) as part of the Home Affordable Modification Program (HAMP). The HAMP was announced on February 18, 2009, and many details of its operation were provided on March 4, 2009. See documents entitled “Home Affordable Modification Program Guidelines” and “Making Home Affordable, Summary of Guidelines.”

.01 Section 860G(d)(1) states that, except as provided in section 860G(d)(2), “if any amount is contributed to a REMIC after the startup day, there is hereby imposed a tax for the taxable year of the REMIC in which the contribution is received equal to 100 percent of the amount of such contribution.”

.02 Section 860G(d)(2) provides that this tax does not apply to any cash contributions that are—

(A) Contributions made to facilitate a clean-up call or a qualified liquidation;

(B) Payments in the nature of a guarantee;

(C) Contributions made during the 3-month period beginning on the startup day;

(D) Contributions made to a qualified reserve fund by any holder of a residual interest in the REMIC; or

(E) Other contributions permitted in regulations.

.03 The question has arisen whether some of the payments that may be made to REMICs under the HAMP are “contributions” that are described in section 860G(d)(1) and, if so, whether they are covered by the exceptions in section 860G(d)(2).

If a payment is made to a REMIC under the HAMP, if the payment is described in section 860G(d)(1), and if the payment is not covered by any of the exceptions in section 860G(d)(2), then regulations to be issued by the Service and Treasury will provide an exception for that payment. The regulations are expected to be effective for payments made on or after March 4, 2009. Pending the issuance of further guidance, taxpayers may rely on this notice and, accordingly, any payment made to a REMIC under the HAMP will not be subject to the 100 percent tax set forth in section 860G(d)(1).

The principal author of this notice is Diana Imholtz of the Office of Associate Chief Counsel (Financial Institutions and Products). For further information regarding this notice, contact Ms. Imholtz at 202-622-3930 (not a toll-free call).

This revenue procedure describes the conditions under which modifications to certain mortgage loans will not cause the Internal Revenue Service (Service) to challenge the tax status of certain securitization vehicles that hold the loans or to assert that those modifications give rise to prohibited transactions.

This revenue procedure provides certainty in the current economic environment with respect to certain potential tax issues that may be implicated by loan modifications made pursuant to the Home Affordable Modification Program (“HAMP”), described below. No inference should be drawn about whether similar consequences would obtain if a transaction falls outside the limited scope of this revenue procedure. Furthermore, there should be no inference that, in the absence of this revenue procedure, transactions within its scope would have impaired the tax status of securitization vehicles or would have given rise to prohibited transactions.

.01 The deep contraction in the economy and in the housing market has created distress for homeowners and communities throughout the country. Large numbers of homeowners are unable to afford their current monthly mortgage payments and are at risk of losing their homes. In response, on February 18, 2009, the United States Government announced the Homeowner Affordability and Stability Plan (the “Plan”). The Plan is intended to help at-risk homeowners to modify their mortgages to avoid foreclosure. On March 4, 2009, as a key component of the Plan, the United States Government released further details about the HAMP. See documents entitled “Home Affordable Modification Program Guidelines” and “Making Home Affordable, Summary of Guidelines.”

.02 The HAMP includes detailed protocols for identifying borrowers at risk of default. As is more fully set forth in the program documents, the HAMP is intended to reach borrowers with high mortgage debt service compared to income and other indications of being at risk of default. Delinquency is not a requirement for eligibility. Rather, because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the HAMP is also intended to reach borrowers for whom default is imminent despite the fact that those borrowers are current on their mortgage payments. In determining whether default is imminent for a particular borrower, the HAMP takes into account a broad range of information, including whether the borrower has had a change in circumstances that causes financial hardship, or is facing a recent or imminent increase in the monthly mortgage payment that would likely create a financial hardship.

.03 The HAMP applies both to loans that investors hold directly and to those that are held through securitization vehicles such as investment trusts and real estate mortgage investment conduits (REMICs).

.01 REMICs are widely used securitization vehicles for mortgages. REMICs are governed by sections 860A through 860G of the Internal Revenue Code.

.02 For an entity to qualify as a REMIC, all of the interests in the entity must consist of one or more classes of regular interests and a single class of residual interests, see section 860D(a), and those interests must be issued on the startup day, within the meaning of § 1.860G-2(k) of the Income Tax Regulations.

.03 A regular interest is one that is designated as a regular interest and whose terms are fixed on the startup day. Section 860G(a)(1). In addition, a regular interest must (1) unconditionally entitle the holder to receive a specified principal amount (or other similar amount), and (2) provide that interest payments, if any, at or before maturity are based on a fixed rate (or to the extent provided in regulations, at a variable rate).

.04 An interest issued after the startup day does not qualify as a REMIC regular interest.

.05 Under section 860D(a)(4), an entity qualifies as a REMIC only if, among other things, as of the close of the third month beginning after the startup day and at all times thereafter, substantially all of its assets consist of qualified mortgages and permitted investments. This asset test is satisfied if the entity owns no more than a de minimis amount of other assets. See § 1.860D-1(b)(3)(i). As a safe harbor, the amount of assets other than qualified mortgages and permitted investments is de minimis if the aggregate of the adjusted bases of those assets is less than one percent of the aggregate of the adjusted bases of all of the entity’s assets. § 1.860D-1(b)(3)(ii).

.06 With limited exceptions, a mortgage loan is not a qualified mortgage unless it is transferred to the REMIC on the startup day in exchange for regular or residual interests in the REMIC. See section 860G(a)(3)(A)(i).

.07 The legislative history of the REMIC provisions indicates that Congress intended the provisions to apply only to an entity that holds a substantially fixed pool of real estate mortgages and related assets and that “has no powers to vary the composition of its mortgage assets.” S. Rep. No. 99-313, 99^th Cong., 2^nd Sess. 791-92, 1986-3 (Vol. 3) C.B. 791-92.

.08 Section 1.1001-3(c)(1)(i) defines a “modification” of a debt instrument as any alteration, including any deletion or addition, in whole or in part, of a legal right or obligation of the issuer or holder of a debt instrument, whether the alteration is evidenced by an express agreement (oral or written), conduct of the parties, or otherwise. Section 1.1001-3(e) governs which modifications of debt instruments are “significant.” Under § 1.1001-3(b), for most federal income tax purposes, a significant modification produces a deemed exchange of the original debt instrument for a new debt instrument.

.09 Under § 1.860G-2(b), related rules apply to determine REMIC qualification. Except as specifically provided in § 1.860G-2(b)(3), if there is a significant modification of an obligation that is held by a REMIC, then the modified obligation is treated as one that was newly issued in exchange for the unmodified obligation that it replaced. See § 1.860G-2(b)(1). For this purpose, the rules in § 1.1001-3(e) determine whether a modification is “significant.” See § 1.860G-2(b)(2). Thus, even if an entity initially qualifies as a REMIC, one or more significant modifications of loans held by the entity may terminate the qualification if the modifications cause less than substantially all of the entity’s assets to be qualified mortgages.

.10 Certain loan modifications, however, are not significant for purposes of § 1.860G-2(b)(1), even if the modifications are significant under the rules in § 1.1001-3. In particular, under § 1.860G-2(b)(3)(i), if a change in the terms of an obligation is “occasioned by default or a reasonably foreseeable default,” the change is not a significant modification for purposes of § 1.860G-2(b)(1), regardless of the modification’s status under § 1.1001-3.

.11 Section 860F(a)(1) imposes a tax on REMICs equal to 100 percent of the net income derived from “prohibited transactions.” The disposition of a qualified mortgage is a prohibited transaction unless the “disposition [is] pursuant to—(i) the substitution of a qualified replacement mortgage for a qualified mortgage . . . , (ii) a disposition incident to the foreclosure, default, or imminent default of the mortgage, (iii) the bankruptcy or insolvency of the REMIC, or (iv) a qualified liquidation.” Section 860F(a)(2)(A).

.12 Under section 860C(b)(1), “The taxable income of a REMIC shall be determined under an accrual method of accounting . . . except that— . . . (C) there shall not be taken into account any item of income, gain, loss, or deduction allocable to a prohibited transaction, . . .”

.01 Section 301.7701-2(a) of the Procedure and Administration Regulations defines a “business entity” as any entity recognized for federal tax purposes (including an entity with a single owner that may be disregarded as an entity separate from its owner under § 301.7701-3) that is not properly classified as a trust under § 301.7701-4 or otherwise subject to special treatment under the Code.

.02 Section 301.7701-4(a) provides that an arrangement is treated as a trust if the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for profit.

.03 Section 301.7701-4(c) provides that an “investment” trust is not classified as a trust if there is a power under the trust agreement to vary the investment of the certificate holders.

This revenue procedure applies to a modification made pursuant to the HAMP of a mortgage loan that is held by a REMIC or by an investment trust.

If one or more modifications of mortgage loans are described in Section 5 of this revenue procedure—

.01 The Service will not challenge a securitization vehicle’s qualification as a REMIC on the grounds that the modifications are not among the exceptions listed in § 1.860G-2(b)(3);

.02 The Service will not contend that the modifications are prohibited transactions under section 860F(a)(2) on the grounds that the modifications result in one or more dispositions of qualified mortgages and that the dispositions are not among the exceptions listed in section 860F(a)(2)(A)(i)-(iv);

.03 The Service will not challenge a securitization vehicle’s classification as a trust under § 301.7701-4(c) on the grounds that the modifications manifest a power to vary the investment of the certificate holders; and

.04 The Service will not challenge a securitization vehicle’s qualification as a REMIC on the grounds that the modifications result in a deemed reissuance of the REMIC regular interests.

For the treatment of mortgage loans modified pursuant to certain foreclosure prevention programs, see Rev. Proc. 2008-47, 2008-31 I.R.B. 272, and Rev. Proc. 2008-28, 2008-23 I.R.B. 1054.

This revenue procedure is effective for loan modifications on or after March 4, 2009.

The principal author of this revenue procedure is Diana Imholtz of the Office of Associate Chief Counsel (Financial Institutions and Products). For further information, contact Ms. Imholtz at (202) 622-3930 (not a toll-free call).

.01 This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2009, including a separate table of limitations on depreciation deductions for trucks and vans; and (2) the amounts to be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2009, including a separate table of inclusion amounts for lessees of trucks and vans.

.02 The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code.

.01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year that the passenger automobile is placed in service by the taxpayer and each succeeding year. Section 280F(d)(7) requires the amounts allowable as depreciation deductions to be increased by a price inflation adjustment amount for passenger automobiles placed in service after 1988. The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. This change reflects the higher rate of price inflation that trucks and vans have been subject to since 1988.

.02 Section 168(k)(1)(A) provides a 50 percent additional first year depreciation deduction for certain new property acquired by a taxpayer after December 31, 2007, and before January 1, 2010, if no written binding contract for the acquisition of the property existed before January 1, 2008. Section 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A) by $8,000 for passenger automobiles to which the 50 percent additional first year depreciation deduction applies.

.03 Section 168(k)(2)(D)(i) provides that the 50 percent additional first year depreciation deduction does not apply to any property required to be depreciated under the alternative depreciation system of § 168(g), including property described in § 280F(b)(1). Section 168(k)(2)(D)(iii) permits a taxpayer to elect to not claim the 50 percent additional first year depreciation deduction for any class of property. Section 168(k)(4) permits a corporation to elect to not claim the 50 percent additional first year depreciation deduction for all eligible qualified property (that is extension property or that is not extension property, as applicable) and instead to increase the business credit limitation under § 38(c) or the alternative minimum tax credit limitation under § 53(c). Accordingly, this revenue procedure provides tables for passenger automobiles for which the 50 percent additional depreciation deduction applies and tables for passenger automobiles for which the 50 percent additional first year depreciation deduction does not apply, including passenger automobiles in a class of property for which the taxpayer “elects out” of the 50 percent additional first year depreciation deduction or passenger automobiles that are eligible qualified property to which the § 168(k)(4) election applies.

.04 For leased passenger automobiles, § 280F(c) requires a reduction in the deduction allowed to the lessee of the passenger automobile. The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Under § 1.280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an inclusion amount determined by applying a formula to the amount obtained from a table. One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased.

.01 The limitations on depreciation deductions in section 4.02(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2009, and continue to apply for each taxable year that the passenger automobile remains in service.

.02 The tables in section 4.03 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2009. Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. See Rev. Proc. 2002-14, 2002-1 C.B. 450, for passenger automobiles first leased before January 1, 2003, Rev. Proc. 2003-75, 2003-2 C.B. 1018, for passenger automobiles first leased during calendar year 2003, Rev. Proc. 2004-20, 2004-1 C.B. 642, for passenger automobiles first leased during calendar year 2004, Rev. Proc. 2005-13, 2005-1 C.B. 759, for passenger automobiles first leased during calendar year 2005, Rev. Proc. 2006-18, 2006-1 C.B. 645, for passenger automobiles first leased during calendar year 2006, Rev. Proc. 2007-30, 2007-1 C.B. 1104, for passenger automobiles first leased during calendar year 2007, and Rev. Proc. 2008-22, 2008-12 I.R.B. 658, for passenger automobiles first leased during calendar year 2008.

This revenue procedure applies to passenger automobiles (other than leased passenger automobiles) that are first placed in service by a taxpayer during calendar year 2009, and to leased passenger automobiles that are first leased by a taxpayer during calendar year 2009.

The principal author of this revenue procedure is Bernard P. Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this revenue procedure, contact Mr. Harvey at (202) 622-4930 (not a toll-free call).

The Office of Professional Responsibility (OPR) announces recent disciplinary sanctions involving attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled retirement plan agents, and appraisers. These individuals are subject to the regulations governing practice before the Internal Revenue Service (IRS), which are set out in Title 31, Code of Federal Regulations, Part 10, and which are published in pamphlet form as Treasury Department Circular No. 230. The regulations prescribe the duties and restrictions relating to such practice and prescribe the disciplinary sanctions for violating the regulations.

The disciplinary sanctions to be imposed for violation of the regulations are:

Disbarred from practice before the IRS—An individual who is disbarred is not eligible to represent taxpayers before the IRS.

Suspended from practice before the IRS—An individual who is suspended is not eligible to represent taxpayers before the IRS during the term of the suspension.

Censured in practice before the IRS—Censure is a public reprimand. Unlike disbarment or suspension, censure does not affect an individual’s eligibility to represent taxpayers before the IRS, but OPR may subject the individual’s future representations to conditions designed to promote high standards of conduct.

Monetary penalty—A monetary penalty may be imposed on an individual who engages in conduct subject to sanction or on an employer, firm, or entity if the individual was acting on its behalf and if it knew, or reasonably should have known, of the individual’s conduct.

Disqualification of appraiser—An appraiser who is disqualified is barred from presenting evidence or testimony in any administrative proceeding before the Department of the Treasury or the IRS.

Under the regulations, attorneys, certified public accountants, enrolled agents, enrolled actuaries, and enrolled retirement plan agents may not assist, or accept assistance from, individuals who are suspended or disbarred with respect to matters constituting practice (i.e., representation) before the IRS, and they may not aid or abet suspended or disbarred individuals to practice before the IRS.

Disciplinary sanctions are described in these terms:

Disbarred by decision after hearing, Suspended by decision after hearing, Censured by decision after hearing, Monetary penalty imposed after hearing, and Disqualified after hearing—An administrative law judge (ALJ) conducted an evidentiary hearing upon OPR’s complaint alleging violation of the regulations and 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 default decision, Suspended by default decision, Censured by default decision, Monetary penalty imposed by default decision, and Disqualified by default decision—An ALJ, after finding that no answer to OPR’s complaint had been filed, granted OPR’s motion for a default judgment and issued a decision imposing one of these sanctions.

Disbarment by decision on appeal, Suspended by decision on appeal, Censured by decision on appeal, Monetary penalty imposed by decision on appeal, and Disqualified by decision on appeal—The decision of the ALJ was appealed to the agency appeal authority, acting as the delegate of the Secretary of the Treasury, and the appeal authority issued a decision imposing one of these sanctions.

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). An enrolled agent or an enrolled retirement plan agent may also offer to resign in order to avoid a disciplinary proceeding.

Suspended by decision in expedited proceeding, Suspended by default decision in expedited proceeding, Suspended by consent in expedited proceeding—OPR instituted an expedited proceeding for suspension (based on certain limited grounds, including loss of a professional license and criminal convictions).

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 suspension.

Announcements of disciplinary sanctions appear in the Internal Revenue Bulletin at the earliest practicable date. The sanctions announced below are alphabetized first by the names of states and second by the last names of individuals. Unless otherwise indicated, section numbers (e.g., §10.51) refer to the regulations.