Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For purposes of sections 382, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for January 2010.

This notice provides that after a Code section 338(g) or 338(h)(10) election, new target and old target are treated as the same corporation for purposes of section 807(e)(4).

This notice provides additional guidance regarding the application of section 382 of the Code and other provisions of law to corporations whose instruments are acquired and disposed of by the Treasury Department pursuant to the Emergency Economic Stabilization Act of 2008, (EESA). Notice 2009-38 amplified and superseded.

This notice modifies Notice 2008-55 to extend the date by which an initial liquidity facility may be added to support certain auction rate preferred stock to December 31, 2010. Notice 2008-55 modified.

This notice provides guidance and limited penalty relief to middlemen and trustees for transition year reporting for widely held mortgage trusts (WHMTs). The notice also provides guidance on the preparation of Forms 1099 and written tax information statements and on furnishing tax information packages for certain non-mortgage widely held fixed investment trusts (NMWHFITs). The notice also provides guidance on trust interest holders’ (TIHs’) treatment of transition payments.

This notice provides for funds that otherwise qualify for the exception under sections 1.148(d)(1)(i) through (v) to guarantee bonds in an amount equal to 500% of the cost of the assets of the fund. The notice also solicits public comment with respect to this change.

Determination letters and rulings. This document sets forth procedures for issuing determination letters and rulings on the exempt status of organizations under sections 501 and 521 of the Code. The procedures also apply to the revocation and modification of determination letters or rulings, and provide guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under section 7428. Rev. Proc. 2009-9 superseded.

This document is a Competent Authority Agreement entered into on October 1, 2009, by the competent authorities of the United States of America and Germany with respect to the taxation of certain consular employees under the U.S.-Germany income tax treaty and protocol.

The purpose of this procedure is to modify the conditions established in Rev. Proc. 80-59, 1980-2 C.B. 855, under which a trustee of a blind trust meets the requirements of section 102(f)(3) of the Appendix to Title 5 of the United States Code (or any successor provision of the United States Code) may execute and file an income tax return on behalf of any individual described in section 101(f) of the Appendix to Title 5 of the United States Code (or any successor provision of the United States Code) (“eligible individual”). Rev. Proc. 80-59 modified and superseded.

This revenue ruling provides various prescribed rates for federal income tax purposes for January 2010 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(1) for buildings placed in service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, and before December 31, 2013, shall not be less than 9%. Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520. Finally, Table 6 contains the deemed rate of return for transfers made during calendar year 2010 to pooled income funds described in § 642(c)(5) that have been in existence for less than 3 taxable years immediately preceding the taxable year in which the transfer was made.

Section 1.338-1(b)(1) of the Income Tax Regulations provides that after an election under § 338(g) or § 338(h)(10) of the Internal Revenue Code, new target is generally treated as a new corporation unrelated to old target for purposes of subtitle A of the Code. Section 1.338-1(b)(2) provides exceptions for provisions in subtitle A under which new target and old target are treated as the same corporation. Sections 1.338-1(b)(2)(i) through (vii) enumerate seven such exceptions. Section 1.338-1(b)(2)(viii) authorizes the addition of other exceptions by designation of such in the Internal Revenue Bulletin. This notice designates such an exception.

Section 807(e)(4)(A) provides that in the case of a “qualified foreign contract,” the amount of the reserve under § 807 is not less than the minimum reserve required by the laws, regulations, or administrative guidance of the regulatory authority of the foreign country in which the foreign life insurance branch of the domestic life insurance company has its principal place of business. For this purpose, § 807(e)(4)(B) defines a “qualified foreign contract” as a contract issued by a foreign life insurance branch (which has its principal place of business in a foreign country) of a domestic life insurance company if (1) the contract is issued on the life or health of a resident of that country; (2) the domestic life insurance company was required by the foreign country (as of the time it began operations in the country) to operate in the country through a branch; and (3) the foreign country is not contiguous to the United States.

The Internal Revenue Service and Treasury believe it would be inappropriate to treat new target as a new corporation unrelated to old target for purposes of § 807(e)(4)(B). The fact that § 1.338-1(b)(1) would otherwise treat new target as a new corporation for Federal income tax purposes does not result in a change in the terms of the contracts that are qualified foreign contracts within the meaning of § 807(e)(4)(B), nor does it alter the requirements of the regulatory authority of the foreign country that were in effect when old target’s foreign life insurance branch began operations in that country. Cf. § 1.338-1(b)(2)(vii) (treating new target and old target as the same corporation for purposes of electing to use an insurance company’s historical loss payment pattern to compute discounted unpaid losses).

Accordingly, pursuant to the authority of § 1.338-1(b)(2)(viii), for purposes of § 807(e)(4), new target and old target, within the meaning of § 1.338-2(c)(17), are treated as the same corporation.

This notice is effective for qualified stock purchases occurring on or after December 10, 2009. In addition, taxpayers may elect to apply this notice to any qualified stock purchase with respect to which the election under § 338(g) or § 338(h)(10) is due on or after such date by treating new target and old target as the same corporation for purposes of § 807(e)(4).

The principal author of this notice is Jean Brenner of the Office of Associate Chief Counsel (Corporate). For further information regarding this notice, contact Ms. Brenner at (202) 622-4732 (not a toll-free call).

This notice provides additional guidance regarding the application of section 382 of the Internal Revenue Code and other provisions of law to corporations whose instruments are acquired and disposed of by the Treasury Department pursuant to the Emergency Economic Stabilization Act of 2008, P.L. 110-343 (EESA). This notice amplifies and supersedes Notice 2009-38, 2009-18 I.R.B. 901, to provide additional guidance.

The Internal Revenue Service (Service) and Treasury Department (Treasury) intend to issue regulations implementing certain of the rules as described below. Pending the issuance of further guidance, taxpayers may rely on the rules set forth in this notice to the extent provided herein.

Section 101(a)(1) of EESA authorizes the Secretary to establish the Troubled Asset Relief Program (TARP). Section 102(a) of EESA authorizes the Secretary to also establish a program to guarantee troubled assets. This notice provides guidance to corporate issuers with respect to Treasury’s acquisition of instruments pursuant to the following EESA programs: (i) the Capital Purchase Program for publicly-traded issuers (Public CPP); (ii) the Capital Purchase Program for private issuers (Private CPP); (iii) the Capital Purchase Program for S corporations (S Corp CPP); (iv) the Targeted Investment Program (TARP TIP); (v) the Asset Guarantee Program; (vi) the Systemically Significant Failing Institutions Program; (vii) the Automotive Industry Financing Program; and (viii) the Capital Assistance Program for publicly-traded issuers (TARP CAP). Unless otherwise specified below, a reference to “the Programs” shall include any of the various EESA programs described in the preceding sentence.

Section 382(a) of the Internal Revenue Code (Code) provides that the taxable income of a loss corporation for a year following an ownership change may be offset by pre-change losses only to the extent of the section 382 limitation for such year. An ownership change occurs with respect to a corporation if it is a loss corporation on a testing date and, immediately after the close of the testing date, the percentage of stock of the corporation owned by one or more 5-percent shareholders has increased by more than 50 percentage points over the lowest percentage of stock of such corporation owned by such shareholders at any time during the testing period. See section 1.382-2T(a)(1) of the Income Tax Regulations. Section 382(m) of the Code provides that the Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of sections 382 and 383. Section 7805(a) of the Code provides that except where such authority is expressly given to any person other than an officer or employee of Treasury, the Secretary shall prescribe all needful rules and regulations for the enforcement of Title 26, including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.

Section 101(c)(5) of EESA provides that the Secretary is authorized to issue such regulations and other guidance as may be necessary or appropriate to carry out the purposes of EESA.

Except as otherwise provided, any definitions and terms used in this notice have the same meaning as they do in section 382 of the Code (and the regulations thereunder) or in EESA, as applicable. Unless otherwise specified, a reference to “section” is to the particular section of the Code or regulations.

Taxpayers may rely on the rules described in this Section III to the extent provided below.

A. Characterization of instruments (other than warrants) issued to Treasury. Any instrument issued to Treasury pursuant to any of the Programs except TARP CAP, whether owned by Treasury or subsequent holders, shall be treated for all Federal income tax purposes as an instrument of indebtedness if denominated as such, and as stock described in section 1504(a)(4) if denominated as preferred stock. No instrument so denominated shall be treated as stock for purposes of section 382 while held by Treasury or by other holders, except that preferred stock described in section 1504(a)(4) will be treated as stock for purposes of section 382(e)(1). In the case of any instrument issued to Treasury pursuant to TARP CAP, the appropriate classification of such instrument shall be determined by applying general principles of Federal tax law.

B. Characterization of warrants issued to Treasury. For all Federal income tax purposes, any warrant to purchase stock issued to Treasury pursuant to any of the Programs except Private CPP and S Corp CPP, whether owned by Treasury or subsequent holders, shall be treated as an option (and not as stock). While held by Treasury, such warrant will not be deemed exercised under section 1.382-4(d)(2). For all Federal income tax purposes, any warrant to purchase stock issued to Treasury pursuant to the Private CPP shall be treated as an ownership interest in the underlying stock, which shall be treated as preferred stock described in section 1504(a)(4). For all Federal income tax purposes, any warrant issued to Treasury pursuant to the S Corp CPP shall be treated as an ownership interest in the underlying indebtedness.

C. Value-for-value exchange. For all Federal income tax purposes, any amount received by an issuer in exchange for instruments issued to Treasury under the Programs shall be treated as received, in its entirety, as consideration for such instruments.

D. Section 382 treatment of stock acquired by and redeemed from Treasury. For purposes of section 382, with respect to any stock (other than preferred stock described in section 1504(a)(4)) issued to Treasury pursuant to the Programs (either directly or upon the exercise of a warrant), the ownership represented by such stock on any date on which it is held by Treasury shall not be considered to have caused Treasury’s ownership in the issuing corporation to have increased over its lowest percentage owned on any earlier date. Except as provided in the following sentence, such stock is considered outstanding for purposes of determining the percentage of stock owned by other 5-percent shareholders on any testing date. For purposes of measuring shifts in ownership by any 5-percent shareholder on any testing date occurring on or after the date on which an issuing corporation redeems stock held by Treasury that had been issued to Treasury pursuant to the Programs (either directly or upon the exercise of a warrant), the stock so redeemed shall be treated as if it had never been outstanding.

E. Section 382 treatment of stock sold by Treasury to public shareholders. If Treasury sells stock that was issued to it pursuant to the Programs (either directly or upon the exercise of a warrant) and the sale creates a public group (“New Public Group”), the New Public Group’s ownership in the issuing corporation shall not be considered to have increased solely as a result of such a sale. A New Public Group’s ownership shall be treated as having increased to the extent the New Public Group increases its ownership pursuant to any transaction other than a sale of stock by Treasury, including pursuant to a stock issuance described in section 1.382-3(j)(2) or a redemption (see section 1.382-2T(j)(2)(iii)(C)). Such stock is considered outstanding for purposes of determining the percentage of stock owned by other 5-percent shareholders on any testing date, and section 382 (and the regulations thereunder) shall otherwise apply to the New Public Group in the same manner as with respect to other public groups.

F. Section 382(l)(1) not applicable with respect to capital contributions made by Treasury pursuant to the Programs. For purposes of section 382(l)(1), any capital contribution made by Treasury pursuant to the Programs shall not be considered to have been made as part of a plan a principal purpose of which was to avoid or increase any section 382 limitation.

G. Certain exchanges. Paragraphs (C), (D), (E), and (F), but not paragraphs (A) and (B), of this notice apply to “Covered Instruments” as though such instruments were issued directly to Treasury under the Programs. For purposes of this notice, the term “Covered Instrument” means any instrument acquired by Treasury in exchange for an instrument that was issued to Treasury under the Programs. In addition, the term also includes any instrument acquired by Treasury in exchange for a Covered Instrument. General principles of Federal tax law determine the characterization of all Covered Instruments.

Taxpayers may rely on the rules described in Section III of this notice. These rules will continue to apply unless and until there is additional guidance. Any future contrary guidance will not apply to any instrument (i) issued to Treasury pursuant to the Programs, or acquired by Treasury in an exchange described in Section III(G) of this notice, prior to the publication of that guidance, or (ii) issued to Treasury pursuant to the Programs, or acquired by Treasury in an exchange described in Section III(G) of this notice, under a binding contract entered into prior to the publication of that guidance. In exercising its authority under EESA in this notice, Treasury and the Service intend no implication regarding the Federal income tax results that would obtain with respect to instruments that are not specifically described in this notice. Accordingly, the Federal income tax consequences of instruments not described in this notice continue to be determined based upon the application of general principles of Federal tax law to the specific facts and circumstances of each case.

This notice amplifies and supersedes Notice 2009-38, 2009-18 I.R.B. 901.

The principal author of this notice is Rubin B. Ranat of the Office of Associate Chief Counsel (Corporate). For further information regarding this notice, contact Rubin B. Ranat at (202) 622-7530 (not a toll-free call).

This notice modifies Notice 2008-55, 2008-27 I.R.B. 11 (July 7, 2008), to extend the date by which an initial liquidity facility may be added to support certain auction rate preferred stock from December 31, 2009 to December 31, 2010.

In Notice 2008-55, the Internal Revenue Service (IRS) provided guidance regarding the effect of adding certain liquidity facilities to support certain auction rate preferred stock on the equity character of the stock for Federal income tax purposes. In Notice 2008-55, the IRS confirmed that the IRS will not challenge the equity characterization of the auction rate preferred stock as a result of adding a liquidity facility agreement if certain requirements are satisfied. Among other requirements under Notice 2008-55, the auction rate preferred stock must have been outstanding on February 12, 2008, or issued after that date to refinance, directly or indirectly, auction rate preferred stock that was outstanding on that date. In addition, the liquidity facility must be an initial liquidity facility with respect to the auction rate preferred stock that is entered into on or before December 31, 2009, or a liquidity facility that renews, replaces, or extends such an initial liquidity facility, either directly or in a series of liquidity facilities.

This notice extends the time period during which an initial liquidity facility can be entered into under § 3.2 of Notice 2008-55 from December 31, 2009 until December 31, 2010.

This notice modifies Notice 2008-55.

The principal author of this notice is Alfred C. Bishop of the Office of Associate Chief Counsel (Corporate). For further information regarding this notice, please contact Mr. Bishop at (202) 622-7930.

This notice provides guidance to trustees, middlemen and trust interest holders (TIHs) of widely held fixed investment trusts (WHFITs) regarding the WHFIT reporting rules in § 1.671-5 of the Income Tax Regulations. Specifically, this notice provides (1) guidance on transition payments (as defined in Section III below) and limited penalty relief for trustees and middlemen required to file Forms 1099 and furnish written tax information statements under the widely held mortgage trust (WHMT) safe harbor in § 1.671-5(g); (2) guidance regarding the TIHs’ treatment of the transition payments; (3) guidance regarding the inclusion of WHFIT interest, dividend, and miscellaneous income in the summary totals on Forms 1099; (4) guidance regarding the format of the written tax information statement provided to TIHs under § 1.671-5(e); and (5) guidance regarding the obligations of trustees and middlemen with respect to reporting under the WHFIT rules for certain non-mortgage WHFITs (NMWHFITs).

Section 1.671-5 provides the WHFIT reporting rules. A WHFIT is an arrangement classified as a trust under § 301.7701-4(c), provided that: (i) the trust is a United States person under § 7701(a)(30)(E); (ii) the beneficial owners of the trust are treated as owners under subpart E, part I, subchapter J, chapter 1 of the Code; and (iii) at least one interest in the trust is held by a middleman. See § 1.671-5(b)(22). A WHMT is a WHFIT, the assets of which consist only of mortgages, regular interests in a REMIC, interests in another WHMT, reasonably required reserve funds, amounts received with respect to these assets, and during a brief initial funding period, cash and short-term contracts to purchase these assets. See § 1.671-5(b)(23).

Trustees of fixed investment trusts frequently do not know the identities of the beneficial owners of the trust interests because the trust interests are often held in the name of a middleman. Thus, trustees are unable to communicate tax information directly to the beneficial owners of the trust interests. The WHFIT reporting rules in § 1.671-5 provide rules that specifically require the sharing of tax information among trustees, middlemen, and beneficial owners of the trust interests. To accomplish this, § 1.671-5 generally requires trustees to make trust tax information available to middlemen. Sections 1.671-5(d) and (e) require middlemen, and in some cases, trustees, to file a Form 1099 with the IRS and to furnish a written tax information statement to a TIH for the trust interests that the trustee or middleman holds on behalf of, or for the account of, the TIH.

Section 1.671-5(n) provides that the WHFIT reporting rules are applicable January 1, 2007. The preamble to the final regulations under § 1.671-5 (T.D. 9308, 2007-1 C.B. 523 [71 FR 78351] (December 29, 2006)) informed trustees and middlemen that the IRS would not impose any penalties that would otherwise apply as a result of a failure to comply with the WHFIT reporting rules with respect to the 2007 calendar year in cases where the trustee or middleman was unable to change its information reporting systems to comply with the WHFIT reporting rules. In September of 2008, the IRS and the Treasury Department issued Notice 2008-77, 2008-40 I.R.B. 814, which informed trustees and middlemen of WHFITs that the IRS would not assert penalties as a result of a failure to comply with the WHFIT reporting rules with respect to calendar year 2008.

Except as provided in Section III below, trustees and middlemen must comply with the WHFIT reporting rules for calendar year 2009.

The WHMT safe harbor in § 1.671-5(g) provides safe harbor reporting rules for trustees of certain WHMTs. If a trustee reports WHMT items in accordance with the safe harbor, the information provided by a middleman or trustee with respect to WHMT items on the Forms 1099 required to be filed with the IRS and on the written tax information statement furnished to the TIH must be determined as provided in § 1.671-5(g)(2).For the purpose of determining the timing of when an item of trust income that is attributable to a TIH is included on the Form 1099 filed for that TIH, the WHMT safe harbor looks to the record date for the payment rather than the actual payment date. See § 1.671-5(g)(2)(ii). Further, the regulations require that a TIH be provided with information regarding the amount of the gross income and separately provided with information regarding the amount of the expenses of a WHMT that are attributable to the TIH. See § 1.671-5(g)(1)(iii)(C).

Prior to the effective date of the WHFIT reporting rules, many trustees and middlemen reported income from a WHMT to a beneficial owner based on payment dates and amounts rather than based on record dates and amounts as required under the WHMT safe harbor. As a result, when a trustee or middleman transitions to the new reporting rules, some income might not be reported to the IRS on Forms 1099 and some income and expense information may not be furnished to TIHs. These omissions could occur where the record date for a payment falls in a year prior to the first year of reporting under the WHMT safe harbor and the payment date falls in the first year of reporting under the safe harbor. For example, income received by many WHMTs for December 2008 and payable to record holders as of December 31, 2008, was paid on January 15, 2009. The income and expenses which relate to the December 31^st record date and January 15^th payment date were not included on the Form 1099 or written tax information statement for 2008 under the reporting method used by the trustees and middlemen for 2008 if the trustees and middlemen were reporting based on the payment date, which occurred in 2009. If the trustees or middlemen transition to the WHMT safe harbor for 2009, absent the rules contained in this Section III, the income and expenses also would not be included by trustees and middlemen in calculating trust income for 2009 under the safe harbor because they would be reporting based on the record date, which occurred in 2008.

To address this problem, trustees and middlemen must report as provided in this Section III in the first year that the trustee or middleman transitions from reporting based on payment dates to reporting based on record dates under the WHMT safe harbor. For purposes of this notice, a Transition Payment is any payment (gross income less applicable expenses) that has (1) a payment date in the first year that the trustee or middleman transitions to reporting under § 1.671-5(g)(2) of the WHMT safe harbor (“transition year”); and (2) a record date in a year prior to the transition year. Trustees and middlemen that are transitioning to reporting under the WHMT safe harbor must include information with respect to Transition Payments on Forms 1099 filed with the IRS for the transition year, if information for these payments has not previously been included on a Form 1099 for a prior year. Additionally, the trustee or middleman must include information with respect to Transition Payments in the written tax information statement furnished to the TIH for the transition year. Although § 1.671-5(g)(1)(iii)(C) requires middlemen and trustees reporting under the WHMT safe harbor to provide TIHs with information regarding gross income and separately provide information regarding the expenses of the WHMT attributable to the TIH, trustees and middlemen may report net amounts with respect to Transition Payments. The trustee or middleman need not separately identify the information with respect to the Transition Payments on the Form 1099 or on the written tax information statement.

Trustees and middlemen also must provide the TIH with a statement that explains that (i) the WHFIT is transitioning from reporting based on payment dates to reporting based on record dates to comply with the newly applicable WHFIT reporting rules; (ii) to effect this transition, the information reported on the statement and to the IRS includes information with respect to Transition Payments and that a Transition Payment is a payment that had a record date in a prior year and payment date in the current year, which was not previously included on a prior Form 1099; and (iii) the TIH must include the Transition Payment in computing its taxable income for the transition year as a § 481(a) adjustment to prevent omission of income caused by the reporting transition (see Section IV below).

The IRS and the Treasury Department recognize that trustees and middlemen may not have adequate time to modify their reporting systems to report Transition Payments that span the 2008 and 2009 calendar years as required under this Section III. Accordingly, the IRS will not impose any penalties on trustees and middlemen for 2009 for a failure to comply with §§ 1.671-5(d), (e), and (g)(2) with respect to TIHs in a WHMT. However, trustees and middlemen must continue to comply with §§ 6041 through 6050W to the extent applicable, and this notice does not provide penalty relief with respect to a failure to comply with those reporting sections. In addition, a trustee or middleman must report Transition Payments as required under this Section III in the first year that the trustee or middleman transitions to reporting under the WHMT safe harbor, regardless of whether the trustee transitions for 2009 or 2010.

A change from recognizing trust income in the year of the payment date to the year of the record date in accordance with the transition to record date reporting under the WHMT safe harbor is a change in method of accounting under § 446(e) and § 1.446-1(e)(2)(ii)(a). A taxpayer generally must secure the consent of the Commissioner before changing a method of accounting for federal income tax purposes. Section 446(e) and § 1.446-1(e)(2)(i). Section 1.446-1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures setting forth the limitations, terms, and conditions deemed necessary to permit a taxpayer to obtain consent to change a method of accounting. Section 481(a) requires those adjustments necessary to prevent amounts from being duplicated or omitted when the taxpayer’s taxable income is computed under a method of accounting different from the method used to compute taxable income for the preceding taxable year.

In accordance with § 1.446-1(e)(3)(ii), the Commissioner hereby grants consent to a cash method TIH who included income on its individual income tax return consistent with the amount reported on a Form 1099 for the year prior to the transition year, to change its method of accounting for trust income from recognizing the income based on the payment date to recognizing the income based on the record date in accordance with the transition to record date reporting under the WHMT safe harbor. The Transition Payment reported on a TIH’s Form 1099 and written tax information statement for the transition year is an adjustment required under § 481(a). The entire amount of the § 481(a) adjustment (i.e., the Transition Payment) must be taken into account in computing a TIH’s taxable income for the transition year. A TIH who changes its method of accounting for the trust income in accordance with this section does not need to file a Form 3115, Application for Change in Accounting Method.

Middlemen and trustees have also indicated that they provide the IRS with a summary total for interest, dividends and miscellaneous payments made to a TIH during the calendar year on the relevant Form 1099. These middlemen and trustees have questioned whether including WHFIT items of income in these summary totals is permissible under § 1.671-5(d) or whether a separate Form 1099 must be filed to report WHFIT income to the IRS. This notice informs middlemen and trustees that WHFIT income that is appropriately reported on a Form 1099-INT, a Form 1099-DIV, or a Form 1099-MISC under § 1.671-5(d) may be included in the summary total on the Form 1099 filed with the IRS.

(a) Electronic statements.

Section 1.671-5(k) provides that the information reporting sections in subpart B, part III, subchapter A, chapter 61, of the Code (§§ 6041 through 6050W) and the regulations thereunder are incorporated into the WHFIT rules to the extent those provisions are not inconsistent with the WHFIT reporting rules.

Effective March 9, 2002, § 401 of the Job Creation and Worker Assistance Act of 2002, an off-Code provision, removed the paper delivery impediment by authorizing all payee statements required by §§ 6041 through 6050W to be furnished electronically. Additionally, § 4.5.1 of Rev. Proc. 2008-36, 2008-33 I.R.B. 340, provides that if a person is required to furnish a written statement (Copy B or acceptable substitute) to a recipient, then the statement may be furnished electronically instead of on paper. Provided that the trustee or middleman has followed the rules and procedures outlined in § 4.5.1 of Rev. Proc. 2008-36, a trustee or middleman may provide electronically the written tax information statement required to be furnished to a beneficial owner under § 1.671-5(e).

(b) Composite statements.

Section 4.2.1 of Rev. Proc. 2008-36 indicates that a composite recipient statement may be used for certain Forms 1099 and provides the rules for providing such a composite statement. Composite statements that meet the requirements of § 4.2.1 of Rev. Proc. 2008-36 may be used to provide the WHFIT information required to be furnished to beneficial owners under the WHFIT reporting rules, provided that the information required to be provided to the beneficial owner that is not required to be reported to the IRS on Forms 1099 also is included in an accompanying statement.

(c) Summary totals.

As noted above, it is permissible for middlemen and trustees to include income from a WHFIT in the summary totals on Forms 1099-INT, Forms 1099-DIV, and Forms 1099-MISC, when these forms are provided to the IRS. Middlemen and trustees may also include income from a WHFIT in a summary total provided to a beneficial owner, but only if the summary total is accompanied by sufficient information to enable the beneficial owner to properly report its items of income, deduction and credits from the WHFIT on its federal income tax return and such information satisfies the requirements of § 1.671-5(e) as modified by the reporting safe harbors in §§ 1.671-5(f) and (g) and for the transition year, satisfies Section III of this notice.

However, the deadline for furnishing WHFIT information to a TIH may differ from that for furnishing information with respect to other securities that the middleman may hold for the TIH. Where WHFIT information is included in a summary total with information regarding securities that are required to be reported at an earlier date, the inclusion of WHFIT information on the statement does not alter the earlier deadline. Additionally, if the amount of WHFIT income is determined to be different than what was reported on the earlier date, a corrected Form 1099 must be sent to the TIH.

There are a number of royalty trusts and commodity trusts that meet the definition of a WHFIT. The IRS and the Treasury Department have been asked to clarify the application of the WHFIT rules with respect to furnishing TIHs in a royalty trust or a commodity trust with information necessary to properly report the tax consequences of their ownership interest in the trust. Under the structure of the WHFIT reporting rules, trustees are to make trust information available to middlemen. See § 1.671-5(c). The middlemen are then required to provide Forms 1099 to the IRS and to furnish written tax information statements to TIHs on whose behalf or account the middleman holds an interest in the WHFIT or acts as an intermediary. See §§ 1.671-5(d) and (e).

TIHs in royalty and commodity trusts need certain information (e.g., cost depletion schedules) in order for them to properly report the tax consequences of ownership of a trust interest. Historically, some royalty trusts have distributed annual tax packages or booklets to TIHs that included this information. In some cases, the trustee of a royalty trust makes this information available on an Internet website.

Middlemen are concerned that the WHFIT rules now require them to publish and mail this information, which was formerly provided by the trustees of these trusts. Middlemen have inquired whether they can provide this additional information by providing a TIH with the address of an Internet website where the information can be found. Until further guidance is issued, the IRS and the Treasury Department have determined that providing the TIH of a royalty or commodity trust with the address of an Internet website where the information can be found is sufficient to meet the requirements of § 1.671-5(e) if the trustee or middleman also informs the TIH that a written tax information package will be provided if requested and the middleman or trustee does in fact furnish a written package if requested. This does not, however, relieve trustees and middlemen of any requirement to provide the IRS and TIHs with individualized calculation of the items of income that are required to be reported to the IRS on a Form 1099.

It has been suggested that the IRS and the Treasury Department clarify the application of the WHFIT reporting rules to royalty and commodity trusts. One suggested clarification is to limit the burden on middlemen to providing the IRS with appropriate Forms 1099 and providing TIHs with statements regarding the information provided on the Form 1099, and to require trustees to maintain an Internet website capable of providing investor-specific information for other items that are required to be provided to the TIH under § 1.671-5(e) but are not required to be included on the Form 1099. The IRS and the Treasury Department request comments regarding this suggestion and also welcome any alternative suggestions on how trustees and middlemen should share the reporting burden. The IRS and the Treasury Department also request comments on whether there are other types of NMWHFITs from which TIHs need significant information to report the tax consequences of ownership of an interest in the NMWHFIT on their individual tax returns and suggestions on how this information could best be provided.

Comments should include a reference to Notice 2010-4. Send submissions to CC:PA:LPD:RU (Notice 2010-4), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC:PA:LPD:RU (Notice 2010-4), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20224, or sent electronically via the following email address: Comments@irscounsel.treas.gov. Please include the notice number 2010-4 in the subject line of any electronic communication. All materials submitted will be available for public inspection and copying.

This notice is effective on December 17, 2009.

The principal author of this notice is Michala P. Irons of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice, contact Michala P. Irons at (202) 622-3050 (not a toll-free call).

This notice describes proposed rules that the Internal Revenue Service (IRS) and the Department of the Treasury expect to issue regarding whether certain perpetual trust funds created and controlled by States that are pledged as credit enhancement to guarantee tax-exempt bonds will be treated as replacement proceeds of the guaranteed bonds for purposes of the arbitrage investment restrictions on tax-exempt bonds under § 148 of the Internal Revenue Code (Code). (Unless noted, section references in this notice are to the Code and the Income Tax Regulations.) Such rules are intended to provide further flexibility to State and local governments to obtain credit enhancement for tax-exempt bonds in recognition of credit constraints in the municipal bond market. This notice affects certain state guarantee programs that support local public schools and other governmental purposes.

In addition, this notice solicits public comments regarding provisions of the regulations under § 148 that may impede an issuer’s ability to obtain credit enhancement for tax-exempt bonds.

In general, the interest on bonds issued by State and local governments is excludable from gross income under § 103(a) if certain requirements are met. Section 148 imposes arbitrage investment restrictions on tax-exempt bonds that limit the investment of proceeds of tax-exempt bonds in higher-yielding investments and that require issuers to rebate certain excess earnings above the yield on tax-exempt bonds to the Federal Government. The arbitrage restrictions apply to ordinary proceeds derived from the sale of tax-exempt bonds and investment earnings thereon. In addition, the arbitrage restrictions apply to a special type of tax-exempt bond proceeds, known as “replacement proceeds,” as a result of their use as security for tax-exempt bonds or other nexus to tax-exempt bonds. These special replacement proceeds include, among other things, certain “pledged funds” that are pledged to secure repayment of tax-exempt bonds with a reasonable assurance of availability for such purpose. One special exception to the treatment of pledged funds as replacement proceeds covers certain perpetual trust funds under certain parameters and under a specified size limitation, as described further herein.

In particular, § 148(a) defines an arbitrage bond as any bond issued as part of an issue any portion of the proceeds of which are reasonably expected (at the time of issuance of the bond) to be used directly or indirectly (1) to acquire higher yielding investments or (2) to replace funds which were used directly or indirectly to acquire higher yielding investments. Section 148(a) further provides that a bond is an arbitrage bond if an issuer intentionally uses any portion of the proceeds of the issue of which such bond is a part to acquire higher yielding investments or to replace funds which were used directly or indirectly to acquire higher yielding investments. In addition, § 148(f) requires that issuers rebate certain excess earnings on proceeds of tax-exempt bonds to the Federal Government. Under §§ 1.148-2(a) and 1.148-3(a) of the Income Tax Regulations, “proceeds” for these purposes means “gross proceeds”. Section 1.148-1(b) defines “gross proceeds” to include proceeds and replacement proceeds of an issue.

Section 1.148-1(c)(1) defines “replacement proceeds” as amounts that have a sufficiently direct nexus to a tax-exempt bond issue or to the governmental purpose of a tax-exempt bond issue to conclude that the amounts would have been used for that governmental purpose if the proceeds of the bond issue were not used or to be used for that governmental purpose. Section 1.148-1(c)(1) further provides that replacement proceeds include, but are not limited to, sinking funds, pledged funds, and other replacement proceeds described in § 1.148-1(c)(4) to the extent that those funds or amounts are held by or derived from a substantial beneficiary of the issue. Section 1.148-1(c)(1) defines a substantial beneficiary of an issue to include the issuer of such issue, any related party to the issuer and, if the issuer is not a State, the State in which the issuer is located. Section 1.148-1(c) further provides, however, that a person is not a substantial beneficiary of an issue solely because it is a guarantor under a qualified guarantee.

Section 1.148-1(c)(3)(i) defines a “pledged fund” as any amount that is directly or indirectly pledged to pay principal or interest on the issue. Although a pledge need not be cast in any particular form, it must, in substance provide reasonable assurance that the amount will be available to pay principal or interest on the issue even if the issuer encounter financial difficulties.

Section §1.148-11(d)(1) provides a special exception to the treatment of funds as pledged funds for arbitrage purposes for certain perpetual trust funds if the requirements and limitations enumerated in §§ 1.148-11(d)(1)(i) through (vi) are satisfied. Specifically, § 1.148-11(d)(1) provides that a guarantee by a fund created and controlled by a State and established pursuant to such State’s constitution does not cause the amounts in such fund to be pledged funds treated as replacement proceeds for purposes of § 148 if: (i) substantially all of the corpus of the fund consists of nonfinancial assets, revenues derived from these assets, gifts, and bequests, (ii) the fund corpus may be invaded only to support specifically designated essential governmental functions (the “designated functions”) carried on by a political subdivision with general taxing powers; (iii) substantially all of the available income of the fund is required to be applied annually to support the designated functions; (iv) the issue of bonds guaranteed consists of general obligation bonds that are not private activity bonds substantially all of the proceeds of which are to be used for the designated functions; (v) the fund satisfied all of requirements in §§ 1.148-11(d)(1)(i) through (iii) on August 16, 1986; and (vi) the guarantee is not attributable to a deposit to the fund after May 14, 1989, unless the deposit is attributable to the sale or other disposition of fund assets or unless prior to the deposit, the outstanding amount of the bonds guaranteed by the fund did not exceed 250 percent of the lower of the cost or fair market value of the fund.

The recent financial crisis has resulted in significant volatility in the fair market value of assets in these perpetual trust funds and has constrained the availability of credit enhancement in the municipal bond market. As a result, certain perpetual trust funds that otherwise could provide credit enhancement under the special exception to the arbitrage restrictions for eligible pledged funds under § 1.148-11(d)(1) have been limited in their capacity to provide guarantees for tax-exempt bonds at a time when there is a significant need for such guarantees.

The IRS and the Department of the Treasury intend to issue proposed regulations to amend § 1.148-11(d)(1)(vi) in its entirety to provide that, as of the sale date of the tax-exempt bonds to be guaranteed, the amount of the bonds to be guaranteed by the fund plus the then-outstanding amount of bonds previously guaranteed by the fund may not exceed a total amount equal to 500 percent of the total costs of the assets held by the fund as of December 16, 2009.

This notice may be relied upon for bonds sold on or after December 16, 2009 and before the effective date of future regulations or other public administrative guidance under § 148 addressing or otherwise affecting funds described in § 1.148-11(d)(1) and this notice.

Before any notice of proposed rulemaking is issued with respect to the guidance provided in this notice, consideration will be given to any written public comments on this notice that are submitted. In addition, the Treasury Department and the IRS specifically request comments regarding provisions of the regulations under § 148 that may impede an issuer’s ability to obtain credit enhancement and how those provisions should be amended. Comments should be submitted in writing and can be emailed to notice.comments@irscounsel.treas.gov (include “Notice 2010-5” in the subject line) or mailed to Office of Associate Chief Counsel (Financial Institutions and Products), Re: Notice 2010-5, CC:FIP:B5, Room 3547, 1111 Constitution Avenue, NW, Washington, DC 20224. Comments that are submitted will be made available to the public.

The principal authors of this notice are Aviva M. Roth and Johanna Som de Cerff, Office of the 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, contact Johanna Som de Cerff at (202) 622-3980 (not a toll-free call).

This revenue procedure sets forth procedures for issuing determination letters and rulings on the exempt status of organizations under §§ 501 and 521 of the Internal Revenue Code other than those subject to Rev. Proc. 2010-6, 2010-1 I.R.B. 193 (relating to pension, profit-sharing, stock bonus, annuity, and employee stock ownership plans). Generally, the Service issues these determination letters and rulings in response to applications for recognition of exemption from Federal income tax. These procedures also apply to revocation or modification of determination letters or rulings. This revenue procedure also provides guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under § 7428 of the Code.

Sections 6104 and 6110 of the Code provide rules for the disclosure of applications, including supporting documents, and determination letters and rulings.

A determination letter or ruling recognizing exemption may be revoked or modified by (1) a notice to the taxpayer to whom the determination letter or ruling was issued, (2) enactment of legislation or ratification of a tax treaty, (3) a decision of the United States Supreme Court, (4) the issuance of temporary or final regulations, or (5) the issuance of a revenue ruling, revenue procedure, or other statement published in the Internal Revenue Bulletin.

Rev. Proc. 2009-9 is superseded.

This revenue procedure is effective January 11, 2010.

The collection of information for a letter application under section 3.05 of this revenue procedure has been reviewed and approved by the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act (44 U.S.C. § 3507) under control number 1545-2080. All other collections of information under this revenue procedure have been approved under separate OMB control numbers.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The collection of this information is required if an organization wants to be recognized as tax-exempt by the Service. We need the information to determine whether the organization meets the legal requirements for tax-exempt status. In addition, this information will be used to help the Service delete certain information from the text of an adverse determination letter or ruling before it is made available for public inspection, as required by § 6110.

The time needed to complete and file a letter application will vary depending on individual circumstances. The estimated average time is 10 hours.

Books and records relating to the collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. The rules governing the confidentiality of letter applications are covered in § 6104.

The principal author of this revenue procedure is Matthew Giuliano of the Exempt Organizations, Tax Exempt and Government Entities Division. For further information regarding this revenue procedure, please contact the TE/GE Customer Service office at (877) 829-5500 (a toll-free call).

The purpose of this revenue procedure is to modify the conditions established in Rev. Proc. 80-59, 1980-2 C.B. 855, under which a trustee of a blind trust that meets the requirements of section 102(f)(3) of the Appendix to Title 5 of the United States Code (or any successor provision of the United States Code) may execute and file an income tax return on behalf of any individual described in section 101(f) of the Appendix to Title 5 of the United States Code (or any successor provision of the United States Code) (“eligible individual”).

This revenue procedure modifies and supersedes Revenue Procedure 80-59, by eliminating the requirement that an eligible individual receive advance permission from the Service for the trustee to make the income tax return on behalf of the eligible individual prior to filing of the eligible individual’s income tax return. This revenue procedure requires the eligible individual to submit with the relevant income tax return both the letter requesting permission for the trustee to make the income tax return on behalf of the eligible individual and a power of attorney. The revenue procedure further provides that permission will be granted automatically where the blind trust meets the requirements of section 102(f)(3) of the Appendix to Title 5 of the United States Code (or any successor provision of the United States Code).

.01 Section 102(f)(4)(B) of the Appendix to Title 5 of the United States Code provides that, in the case of a trust created for the benefit of an eligible individual, an asset placed in trust will not be considered a financial interest of the individual for purposes of section 208 of Title 18 of the United States Code, and any other conflict of interest statutes or regulations, if certain requirements are met, including giving the trustee the power to prepare on behalf of the individual the personal income tax return and similar returns which may contain information relating to the trust.

.02 Section 1.6012-1(a)(5) of the Income Tax Regulations, concerning returns made by agents, permits a return to be made by an agent if the taxpayer requests permission, in writing, and the appropriate IRS official determines that good cause exists for permitting an agent to make the return. That section provides that whenever a return is made by an agent it must be accompanied by a power of attorney (or copy thereof) authorizing the agent to represent the principal in making the return.

.03 Section 601.504(a) of the Conference and Practice Requirements, Statement of Procedural Rules, provides that a power of attorney is required when the taxpayer wishes to authorize a recognized representative to represent the taxpayer before the Internal Revenue Service or perform the following acts on behalf of the taxpayer: (1) Offer or execute either a waiver of restriction on assessment or collection of a deficiency in tax or a waiver of notice of disallowance of a claim for credit or refund on behalf of the taxpayer, (2) Execute a consent to extend the statutory period for assessment or collection of a tax on behalf of the taxpayer, (3) Execute a closing agreement on behalf of the taxpayer, (4) Receive (but not endorse or collect) a check in payment of any refund of taxes, penalties or interest on behalf of the taxpayer, or (5) Sign a tax return under certain conditions.

.04 Section 601.506(a) of the Conference and Practice Requirements, Statement of Procedural Rules, provides that any notice or communication (or a copy thereof) required or permitted to be given to a taxpayer in any matter before the Service shall be given to the taxpayer and, unless restricted by the taxpayer, to the taxpayer’s recognized representative.

.01 An eligible individual who has an interest in a blind trust that meets the requirements of section 102(f)(3) of the Appendix to Title 5 of the United States Code (or any successor provision of the United States Code) must request permission, in writing, for the trustee of the blind trust to execute and file the Federal income tax return of the eligible individual.

.02 Both the letter requesting permission and a power of attorney (or copy thereof) that grants the trustee authority to sign the return, to receive (but not endorse or collect) a refund check, to execute a waiver of restriction on assessment or collection, to execute a waiver of notice of disallowance, to execute a consent to extend the period for assessment or collection, and to execute a closing agreement must be submitted to the Internal Revenue Service with the eligible individual’s Federal income tax return when the tax return is filed.

.03 The eligible individual who has an interest in a blind trust that meets the requirements of section 102(f)(3) of the Appendix to Title 5 of the United States Code (or any successor provision of the United States Code), and who submits the written request for permission and power of attorney consistent with paragraph .02 above, will be considered to have shown good cause for having the return filed by the trustee, and will be deemed to have been granted such permission. The eligible individual must submit a separate request for permission for the trustee to execute and file the Federal income tax return each taxable year.

.04 Notwithstanding the provisions of section 601.506(a) of the Conference and Practice Requirements, Statement of Procedural Rules, all notices or other written communication required or permitted to be given to the eligible individual will be given only to the trustee.

Rev. Proc. 80-59 is modified and superseded.

This revenue procedure is effective for income tax returns due (including any extension of time to file) on or after the date of its publication in the Internal Revenue Bulletin.

The principal author of this revenue procedure is Richard Goldstein of the Office of Associate Chief Counsel (Procedure & Administration). For further information regarding this revenue procedure, contact Steve Coleman at (202) 622-4910 (not a toll-free call).

The following is a copy of the Competent Authority Agreement entered into on October 1, 2009, by the competent authorities of the United States of America and Germany with respect to the taxation of certain consular employees under the U.S.-Germany income tax treaty and protocol.

The text of the Competent Authority Agreement is as follows:

The Competent Authorities of the United States and Germany enter into the following agreement (“Agreement”) concerning the taxation of certain consular employees under the Convention Between the United States of America and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital and to Certain Other Taxes, signed at Bonn on August 29, 1989, as amended by the Protocol, signed at Berlin on June 1, 2006 (the “Tax Treaty”).

This Agreement is entered into pursuant to paragraph 3(a)(aa) of Article 1 and paragraph 3 of Article 25 (Mutual Agreement Procedure) of the Tax Treaty. Paragraph 3(a)(aa) of Article 1 provides that the Contracting States may agree that any question arising as to the interpretation or application of the Tax Treaty and, in particular, whether a taxation measure is within the scope of the Tax Treaty, shall be determined exclusively in accordance with the provisions of Article 25 of the Tax Treaty.

Paragraph 1(b) of Article 19 (Government Service) of the Tax Treaty provides that remuneration paid by the State for which the services are provided (the “sending State”) shall be taxable only in the Contracting State in which the services are rendered (the “receiving State”) if the individual is a resident of the receiving State who: (i) is a national of the receiving State, or (ii) did not become a resident of the receiving State solely for the purpose of rendering the services (i.e., the individual was a resident of the receiving State prior to being hired, even if the individual is a national of the sending State). By these terms, the remuneration of certain consular employees of the United States working in Germany who are U.S. nationals would be taxable in Germany, and the remuneration of certain consular employees of Germany working in the United States who are German nationals would be taxable in the United States.

Article XIX of the Treaty of Friendship, Commerce and Consular Rights between the United States and Germany, signed at Washington on December 8, 1923 (the “Consular Treaty”) provides: “All consular officers and employees, nationals of the State appointing them shall be exempt from the payment of taxes on the salary, fees, or wages received by them in compensation for their consular services.”

It has come to the attention of the Competent Authorities that, in light of the Consular Treaty, difficulties have arisen as to whether the taxation of the remuneration of consular employees of the United States and Germany who are nationals of the sending State but residents of the receiving State and who fall outside the scope of the Vienna Convention on Consular Relations (such consular employees hereinafter referred to as “resident consular employees”) is within the scope of the Tax Treaty.

Paragraph 2(b) of Article 1 (General Scope) of the Tax Treaty provides that the Tax Treaty shall not restrict in any manner any exemption accorded by any other agreement to which the Contracting States are a party.

Under the authority of Paragraph 3(a)(aa) of Article 1 of the Tax Treaty, the Competent Authorities agree that Article XIX of the Consular Treaty constitutes an “exemption” accorded by the Consular Treaty within the meaning of Paragraph 2(b) of Article 1 of the Tax Treaty. The Competent Authorities further note that it is the view of the Governments of Germany and the United States that Article XIX provides an exemption from income tax in the receiving State for resident consular employees, as that term is defined herein. Therefore, such resident consular employees are not subject to Paragraph 1(b) of Article 19 of the Tax Treaty. Thus, in accordance with Article 1 of the Tax Treaty, taxation of the remuneration of such employees is not within the scope of the Tax Treaty. Article XIX of the Consular Treaty applies and the remuneration of such resident consular employees of the United States working in Germany who are U.S. (or dual) nationals is exempt from tax in Germany, and the remuneration of such resident consular employees of Germany working in the United States who are German (or dual) nationals is exempt from tax in the United States.