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 2012.

This notice provides guidance on current refunding issues (as defined in Treas. Reg. section 1.150-1(d)(3)) that refund outstanding prior issues of bonds that qualify for tax-exempt bond financing under certain disaster relief bond programs. The notice applies to current refunding issues that are used to refund original tax-exempt bonds that met the qualification requirements for one of the following programs: (1) “qualified Gulf Opportunity Zone Bonds” under section 1400N of the Code; (2) “qualified Midwestern disaster area bonds” under section 702(d)(1) of the Heartland Disaster Tax Relief Act of 2008 (the “Heartland Disaster Act”); and (3) “qualified Hurricane Ike disaster area bonds” under section 704(a) of the Heartland Disaster Act.

This notice provides a safe harbor reporting method that an eligible real estate mortgage investment conduit (REMIC) may use to satisfy its reporting obligations with respect to information regarding REMIC assets that the REMIC must report to residual interest holders.

Maximum vehicle values. This procedure provides the maximum vehicle values for use with the special valuation rules under regulations section 1.61-21(d) and (e). These values are adjusted for inflation and must be adjusted annually by reference to the Consumer Price Index.

Section 856 — REIT safe harbor for certain REMIC investments. Safe harbor providing the extent to which investments by a real estate investment trust (REIT) in a regular or a residual interest in certain real estate mortgage investment conduits (REMICs) are qualifying investments and generate qualifying income for REIT purposes under section 856(c) of the Code.

This notice extends and expands the transition relief provided under Rev. Rul. 2011-1, 2011-2 I.R.B. 251, and Rev. Rul. 2008-40, 2008-2 C.B. 166, for certain group trusts, certain retirement trusts that qualify under the Puerto Rico Internal Revenue Code, and that participate in group trusts, and certain qualified retirement plans that benefit Puerto Rico residents. This notice also provides additional time for governmental retiree benefit plans described in section 401(a)(24) of the Code (section 401(a)(24) plans) to be amended to satisfy the applicable requirements of Rev. Rul. 2011-1. Rev. Ruls. 2011-1 and 2008-40 modified.

This notice notifies tax-exempt organizations that the IRS Modernized eFile system will not be available from January 1, 2012 through February 29, 2012 for electronic filing for Form 990, Return of Organization Exempt From Income Tax, Form 990-EZ, Short Form Return of Organization Exempt From Income Tax, Form 990-PF, Return of Private Foundation, or Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations. In addition, this notice describes options available to organizations affected by this two month suspension period and provides relief under sections 6081, 6651 and 6652 of the Code with respect to certain filing requirements.

Maximum vehicle values. This procedure provides the maximum vehicle values for use with the special valuation rules under regulations section 1.61-21(d) and (e). These values are adjusted for inflation and must be adjusted annually by reference to the Consumer Price Index.

It is the policy of the Internal Revenue Service to announce at an early date whether it will follow the holdings in certain cases. An Action on Decision is the document making such an announcement. An Action on Decision will be issued at the discretion of the Service only on unappealed issues decided adverse to the government. Generally, an Action on Decision is issued where its guidance would be helpful to Service personnel working with the same or similar issues. Unlike a Treasury Regulation or a Revenue Ruling, an Action on Decision is not an affirmative statement of Service position. It is not intended to serve as public guidance and may not be cited as precedent.

Actions on Decisions shall be relied upon within the Service only as conclusions applying the law to the facts in the particular case at the time the Action on Decision was issued. Caution should be exercised in extending the recommendation of the Action on Decision to similar cases where the facts are different. Moreover, the recommendation in the Action on Decision may be superseded by new legislation, regulations, rulings, cases, or Actions on Decisions.

Prior to 1991, the Service published acquiescence or nonacquiescence only in certain regular Tax Court opinions. The Service has expanded its acquiescence program to include other civil tax cases where guidance is determined to be helpful. Accordingly, the Service now may acquiesce or nonacquiesce in the holdings of memorandum Tax Court opinions, as well as those of the United States District Courts, Claims Court, and Circuit Courts of Appeal. Regardless of the court deciding the case, the recommendation of any Action on Decision will be published in the Internal Revenue Bulletin.

The recommendation in every Action on Decision will be summarized as acquiescence, acquiescence in result only, or nonacquiescence. Both “acquiescence” and “acquiescence in result only” mean that the Service accepts the holding of the court in a case and that the Service will follow it in disposing of cases with the same controlling facts. However, “acquiescence” indicates neither approval nor disapproval of the reasons assigned by the court for its conclusions; whereas, “acquiescence in result only” indicates disagreement or concern with some or all of those reasons. “Nonacquiescence” signifies that, although no further review was sought, the Service does not agree with the holding of the court and, generally, will not follow the decision in disposing of cases involving other taxpayers. In reference to an opinion of a circuit court of appeals, a “nonacquiescence” indicates that the Service will not follow the holding on a nationwide basis. However, the Service will recognize the precedential impact of the opinion on cases arising within the venue of the deciding circuit.

The Actions on Decisions published in the weekly Internal Revenue Bulletin are consolidated semiannually and appear in the first Bulletin for July and the Cumulative Bulletin for the first half of the year. A semiannual consolidation also appears in the first Bulletin for the following January and in the Cumulative Bulletin for the last half of the year.

The Commissioner does ACQUIESCE in the following decision:

Ronald Andrew Mayo and
Leslie Archer Mayo v.
Commissioner,^[1]

136 T.C. 81 (2011)

This revenue ruling provides various prescribed rates for federal income tax purposes for January 2012 (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 2012 to pooled income funds described in section 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.

This notice provides guidance on “current refunding issues” (as defined in § 1.150-1(d)(3)) that refund outstanding prior issues of bonds that qualify for tax-exempt bond financing under certain disaster relief bond programs. In particular, this notice applies to current refunding issues that are used (directly or indirectly in a series of current refunding issues) to refund original tax-exempt bonds that met the qualification requirements for one of the following programs: (1) qualified Gulf Opportunity Zone Bonds under § 1400N (“GO Zone Bonds”) of the Internal Revenue Code (the “Code”); (2) qualified Midwestern disaster area bonds under § 702(d)(1) of the Heartland Disaster Tax Relief Act of 2008 (the “Heartland Disaster Act”), Subtitle A of Title VII of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, Division C of Public Law 110-343, 122 Stat. 3765 (2008) (“Midwest Disaster Area Bonds”); and (3) qualified Hurricane Ike disaster area bonds under § 704(a) of the Heartland Disaster Act (“Hurricane Ike Disaster Area Bonds”). These original qualified tax-exempt bonds are referred to collectively in this notice as “Qualified Bonds.”

Section 101 of the Gulf Opportunity Zone Act of 2005, Pub. L. No. 109-135, 119 Stat. 2577, 2578 (2005) (“GO Zone Act”) added §§ 1400M and 1400N to the Code to provide certain tax benefits in a defined portion of the Hurricane Katrina disaster area. Section 1400N(a)(2) authorizes the issuance of tax-exempt GO Zone Bonds. Section 1400N(a)(2) sets forth certain requirements for issuing these bonds, including a requirement that such bonds be “designated” as qualified GO Zone Bonds by a specified State or local governmental official or state bond commission. Section 1400N(a)(3) imposes a bond volume cap on the maximum aggregate face amount of bonds that may be designated as qualified GO Zone Bonds. Section 764 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, 124 Stat. 3296, 3324 (2010), extended the deadline for the issuance of GO Zone Bonds through December 31, 2011. For further guidance on GO Zone Bonds, see Notice 2006-41, 2006-1 C.B. 857 (May 1, 2006).

Sections 702(d)(1) and 704(a) of the Heartland Disaster Act provide generally that the special provisions for tax-exempt private activity bond financing in the GO Zone under § 1400N of the Code apply with certain modifications to tax-exempt private activity bond financing in the Midwestern Disaster Area and Hurricane Ike Disaster Area, respectively. Midwest Disaster Area bonds and Hurricane Ike Disaster Area bonds must be issued by December 31, 2012. For further guidance on Midwest Disaster Area Bonds and Hurricane Ike Disaster Area Bonds, see Notice 2010-10, 2010-3 I.R.B. 299 (January 19, 2010).

The statutory provisions relating to the Qualified Bonds are silent regarding the permissibility of current refundings of these bonds after the applicable bond issuance deadlines. Under a substantially similar predecessor provision for qualified New York Liberty Bonds, the Treasury Department and the IRS previously provided guidance on the allowability of current refundings within certain size limitations for purposes of bond issuance deadlines applicable to those bonds. See Notice 2003-40, 2003-2 C.B. 10, at Question 5 (July 7, 2003). Cf. Staff of Joint Committee on Taxation, Technical Explanation of the Revenue Provisions of H.R. 4440, The “Gulf Opportunity Zone Act of 2005,” as Passed by the House of Representatives and the Senate 5-6, JCX-88-05 (December 16, 2005) (including a description of the Liberty Bond provision in the discussion of present law and also stating that “[c]urrent refundings of outstanding [GO Zone] bonds issued under the provision do not count against the aggregate volume limit to the extent that the principal amount of the refunding bonds does not exceed the outstanding principal amount of the bonds being refunded”).

3.01. Guidance and Reliance. Pending the promulgation and effective date of future administrative or regulatory guidance, taxpayers may rely on the guidance provided in this notice.

3.02. Scope of Application. This notice applies to any current refunding issue that is used (directly or indirectly in a series of current refunding issues) to refund original Qualified Bonds described in Section 1 of this notice if the following requirements are met:

(1) The original Qualified Bonds were issued before the deadline for the issuance of such bonds under § 1400N(a)(2)(D) for GO Zone Bonds or under the modified version of such provision for Midwest Disaster Area Bonds or Hurricane Ike Disaster Area Bonds, as applicable, or any statutory extension of such deadline.

(2) Except as provided herein, the “issue price” (as defined in § 1.148-1(b)) of the current refunding issue is no greater than the outstanding stated principal amount of the refunded bonds. For refunded bonds originally issued with more than a de minimis amount of original issue discount or premium (as defined in § 1.148-1(b)) the present value of the refunded bonds (as determined under § 1.148-4(e)) must be used in lieu of the outstanding stated principal amount to determine the maximum issue price of the current refunding issue.

(3) The current refunding issue otherwise meets all applicable requirements for the issuance of tax-exempt private activity bonds as Qualified Bonds, including, without limitation, the requirement under § 147(b) that the average bond maturity be no longer than 120 percent of the average reasonably expected economic life of the facilities financed or refinanced with the net proceeds of such issue.

3.03. Guidance. A current refunding issue that meets the requirements of Section 3.02 of this notice may be issued after the specified deadline for the issuance of the original Qualified Bonds under § 1400N(a)(2)(D) for GO Zone Bonds (or under the modified version of such provision for Midwest Disaster Area Bonds or Hurricane Ike Disaster Area Bonds, as applicable) and be treated as an issue of Qualified Bonds. In addition, in the case of such a current refunding issue, a designation of the original Qualified Bonds by a specified State or local governmental official or state bond commission that meets the designation requirement of § 1400N(a)(2)(C) for GO Zone Bonds (or the modified version of such provision for Midwest Disaster Area Bonds or Hurricane Ike Disaster Area Bonds, as applicable) is treated as meeting this designation requirement for the current refunding issue without further designation or further official State or local governmental action.

3.04. No Inferences. Other than bonds issued to currently refund Qualified Bonds, to which this notice expressly applies, no inference should be drawn from this notice that bonds issued to refund other types of bonds, such as build America bonds under § 54AA, after their statutory deadline for issuance meet the qualifications for such types of bonds.

The principal authors of this notice are Timothy L. Jones and Vicky Tsilas of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this notice, contact Vicky Tsilas at (202) 622-3980 (not a toll-free call).

This notice notifies tax-exempt organizations (organizations) that the IRS Modernized eFile (MeF) system will not be available from January 1, 2012 through February 29, 2012 for electronic filing of Form 990, Return of Organization Exempt From Income Tax, Form 990-EZ, Short Form Return of Organization Exempt From Income Tax, Form 990-PF, Return of Private Foundation, or Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations (affected returns). In addition, this notice describes options available to organizations affected by this two month suspension period and provides relief under sections 6081, 6651, and 6652 of the Internal Revenue Code with respect to certain filing requirements. This notice also notifies tax-exempt hospital organizations that, beginning with the 2011 tax year, Form 990, Schedule H, Part V, Section B (Part V.B) is no longer optional, with the exception of lines 1 through 7.

In order to facilitate systems and programming changes, the IRS is suspending the availability of its MeF system for filing Forms 990, 990-EZ, 990-PF, and 1120-POL from January 1, 2012 through February 29, 2012 (the suspension period). Although no organizations will be able to file these forms electronically during the suspension period, only organizations with filing due dates (or extended due dates) for such returns in the suspension period are considered “affected organizations” for purposes of this notice. Paper forms may continue to be filed during the suspension period and affected organizations may take advantage of the relief provided in this notice including the ability to file electronically by March 30, 2012. Organizations that file Form 990-N (e-Postcard) may continue to file electronically during this period.

In order to minimize the impact on affected organizations, the IRS is granting an extension of time to file affected returns to March 30, 2012 to organizations whose original due date (or first three-month extended due date) for the affected return occurs during the suspension period. The extension of time to file applies to all such organizations with affected return filings due during this period, whether or not they are required to file electronically. Affected organizations required to file electronically may file electronically prior to January 1, 2012 or between March 1, 2012 and March 30, 2012. Affected organizations that are not required to file electronically may do the same or may file on paper by March 30, 2012. This extension of time to file is automatic; therefore, affected organizations need not file Form 8868, Application for Extension of Time To File an Exempt Organization Return, if they file their returns by March 30, 2012.

Because extensions of time to file, generally, may not exceed six months, the extension of time to file to March 30, 2012 provided by this notice is not available for affected organizations that have already obtained two three-month extensions of time to file (i.e., the full six-month extension allowed by statute). However, as discussed in more detail below, the IRS will provide relief from any late filing penalty to affected organizations that were previously granted two three-month extensions of time to file that expire during the suspension period, provided their returns are filed by March 30, 2012. In addition, as indicated in more detail below, this notice provides such organizations normally required to file electronically the option of filing on paper during the suspension period.

An affected organization that has not previously received an extension and wishes to extend its filing due date until after March 30, 2012, may request an automatic three-month extension of time to file by properly completing and filing Form 8868 by its original due date. For example, an organization with an original Form 990 due date of February 15, 2012 that properly completes and files Form 8868 by February 15, 2012 will receive a three-month extension of time to file that ends on May 15, 2012. In the case of an organization that has already obtained an automatic three-month extension that ends during the suspension period, the IRS will grant the organization an additional 3-month extension if the organization properly completes and files Form 8868 by its extended due date. For example, a February 15, 2012 extended due date will be further extended to May 15, 2012 if the organization properly completes and files Form 8868 by February 15, 2012. An affected organization that has already received two three-month extensions, the second of which ends during the suspension period, may not request a further extension (but as discussed below, no penalty for failure to file will apply if the organization files its return by March 30, 2012).

Organizations are reminded that an extension of time to file, including the automatic extension of time to file to March 30, 2012 provided in this notice, is not an extension of time to pay any tax liabilities that may be due for the year. Therefore, an organization that has a tax liability for a return that has a due date that falls within the suspension period must make a timely payment of the amount due either by making an estimated tax payment or by filing its return on paper, if permitted normally or under this notice as described below, and remitting payment with its return or by electronic funds transfer if required.

An affected organization with a second extended filing due date that falls during the suspension period is not eligible for an additional extension of time to file. However, if such an organization files its return by March 30, 2012, it will have reasonable cause for its late filing and, therefore, will not be subject to a late filing penalty. Such an organization that files by March 30, 2012 is not required to file a Reasonable Cause Statement in order to take advantage of this late filing penalty relief. However, in order to avoid receiving a system-generated penalty notice for late filing, each affected organization should attach a Reasonable Cause Statement to its return. Appendix A of this notice contains an example of a Reasonable Cause Statement that organizations can use. If an affected organization erroneously receives a system-generated penalty notice for late filing from the IRS, the organization should call the telephone number on the penalty notice to request that the IRS abate the penalty in accordance with Notice 2012-4.

The automatic extension and automatic penalty relief provisions of this notice are designed to ensure that any affected organization whose filing is delayed by reason of the suspension of the MeF system will not suffer adverse consequences and will be accorded the same results as if it filed a return by the normal filing deadline. The IRS recognizes, however, that some affected organizations generally required to file electronically that have already obtained two three-month filing extensions may be uncomfortable relying on the late filing penalty relief provided in this notice. In that circumstance, the affected organization may file its return on paper. Organizations that are normally required to file electronically and choose to file on paper pursuant to this notice may receive a system-generated form asking for an explanation of why they did not file electronically. It will be sufficient to respond “Paper Filing Pursuant to Notice 2012-4.”

Section 9007 of the Patient Protection and Affordable Care Act (Affordable Care Act), Pub. L. No. 111-148, 124 Stat. 119 (March 23, 2010), included new requirements for tax-exempt hospital organizations and their hospital facilities, including information return reporting requirements. To gather information on hospital organizations’ compliance with these requirements and on related policies and practices, the IRS revised the Form 990, Schedule H for tax year 2010 to add a new Part V.B. To give the hospital community more time to familiarize itself with the types of information the IRS is requesting, the IRS made Part V.B optional for tax year 2010. See Announcement 2011-37, 2011-27 I.R.B. 37. Beginning in tax year 2011, Part V.B is no longer optional, with the exception of lines 1 through 7, regarding community health needs assessments (CHNAs), as the CHNA requirements of the Affordable Care Act are only effective for tax years beginning after March 23, 2012. Accordingly, hospital organizations that are reqiired to file the 2011 Form 990 are required to complete all parts and sections of the 2011 Schedule H, including Part V.B, except lines 1 through 7 of Part V.B.

The IRS has considered public input on Part V.B, and has made revisions to Part V.B for tax year 2011. The IRS anticipates making further revisions to Part V.B for future years and welcomes further public input. To be considered for the tax year 2012 form revisions, input must be received by January 15, 2012. Input submitted after such date will be considered for future years. Input can be submitted to Form990Revision@irs.gov or the following address:

The principal author of this notice is Stephen Clarke of the Tax Exempt and Government Entities Division. For further information regarding this notice, please contact Mr. Clarke at (202) 283-9474 (not a toll-free number).

This return is being filed between March 1, 2012, and March 30, 2012, as directed by the IRS in Notice 2012-4, because electronic filing was not available January 1, 2012 through February 29, 2012. We request that penalties be waived because it would be inequitable to impose a penalty on us due to the unusual circumstances requiring us to delay the filing of this return.

This notice provides a safe harbor reporting method that an eligible real estate mortgage investment conduit (REMIC) may use to satisfy its reporting obligations under § 1.860F-4(e)(1)(ii) of the Income Tax Regulations with respect to information regarding REMIC assets that the REMIC must report to residual interest holders on a Schedule Q (Form 1066), Quarterly Notice to Residual Interest Holder of REMIC Taxable Income or Net Loss Allocation (Schedule Q).

In April 2009, the Federal Housing Finance Agency (FHFA) and the United States Department of the Treasury introduced the Home Affordable Refinance Program (HARP) as part of the United States Government’s Making Home Affordable Program. On October 24, 2011, FHFA, with Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), announced an expansion of HARP in an effort to serve additional eligible borrowers who can benefit from refinancing their home mortgages. Details of the expansion were announced on November 15, 2011.

HARP serves borrowers who may not otherwise qualify for refinancing, either because the value of their homes has declined or because they cannot obtain mortgage insurance. The program is available to borrowers who owe more on their mortgages than the value of their homes. HARP provides these homeowners with the ability to refinance their mortgages into more affordable and sustainable mortgages.

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

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. In general, the term “qualified mortgage” means an obligation that is principally secured by an interest in real property. See section 860G(a)(3)(A). That is, an obligation secured by an “interest in real property” is not a qualified mortgage unless the obligation is “principally secured” by such an interest.

An obligation is “principally secured” if the fair market value of the interest in real property securing the obligation equals at least 80 percent of the adjusted issue price of the obligation (the 80-percent test). See § 1.860G-2(a)(1). The regulations require the 80-percent test to be satisfied either at the time the obligation was originated or at the time the sponsor contributes the obligation to the REMIC. After the startup day, the regulations generally do not require retesting of the value of the interest in real property that secures the obligation.

The REMIC regulations cross-reference the real estate investment trust (REIT) regulations to define the term “interest in real property.” Specifically, § 1.860G-2(a)(4) provides that the definition of “interests in real property” in § 1.856-3(c) and the definition of “real property” in § 1.856-3(d) apply for purposes of section 860G(a)(3) and § 1.860G-2(a). In addition, a mortgage pass-thru certificate that is guaranteed by Fannie Mae or Freddie Mac is included as an obligation secured by an interest in real property for purposes of section 860G(a)(3)(A). See § 1.860G-2(a)(5).

Section 1.860F-4(e) provides that, at the close of each calendar quarter, a REMIC must provide to each person who held a residual interest in the REMIC during that quarter notice on Schedule Q of certain information, including information with respect to REMIC assets. Under § 1.860F-4(e)(1)(ii)(A), a REMIC must provide to each of its residual interest holders the following information: (1) the percentage of REMIC assets that are described in section 7701(a)(19) (Category 1); and (2) the percentage of REMIC assets that are real estate assets defined in section 856(c)(5)(B) (Category 2),^[2] computed by reference to the average adjusted basis (as defined in section 1011) of the REMIC assets during the calendar quarter.^[3] If the percentage of REMIC assets represented by either Category 1 or Category 2 is at least 95 percent, then the REMIC need only specify on Schedule Q that the percentage for that category was at least 95 percent (the 95-percent asset-reporting test).

Under § 1.860F-4(e)(1)(ii)(B), if, for any calendar quarter after 1988, the 95-percent asset-reporting test is not met with respect to assets in Category 2 (that is, real estate assets as defined in section 856(c)(5)(B)), then for that calendar quarter, the REMIC must provide the following additional information to any REIT that holds a residual interest:

(1) The percentage of REMIC assets described in section 856(c)(4)(A), computed by reference to the average adjusted basis of the REMIC assets during the calendar quarter (as described in § 1.860F-4(e)(1)(iii)),

(2) The percentage of REMIC gross income (other than gross income from prohibited transactions defined in section 860F(a)(2)) described in section 856(c)(3)(A) through (E), computed as of the close of the calendar quarter, and

(3) The percentage of REMIC gross income (other than gross income from prohibited transactions defined in section 860F(a)(2)) that is described in section 856(c)(3)(F) (which refers to income or gain from foreclosure property), computed as of the close of the calendar quarter. For this purpose, the term “foreclosure property” has the meaning specified in section 860G(a)(8) (which governs REMICs), rather than the closely related definition of “foreclosure property” in section 856(e) (which otherwise would determine the income or gain that is described in section 856(c)(3)(F)).

Section 1.860G-2(a)(1) generally treats a mortgage loan as an obligation “principally secured by an interest in real property” for purposes of section 860G(a)(3) if the loan is secured by an interest in real property that is worth at least 80 percent of the outstanding stated principal of the loan (in other words, the loan-to-value ratio of the loan—commonly referred to as “LTV”—is not greater than 125 percent).^[4] If, however, a REMIC holds one or more qualified mortgages that are less than 95-percent secured by an interest in real property, the REMIC may fail the 95-percent asset-reporting test and may be required to report additional information to residual interest holders with respect to the REMIC assets.

As a safe harbor for purposes of a REMIC’s reporting obligation to residual interest holders under § 1.860F-4(e)(1)(ii), if a REMIC is an “eligible REMIC” as defined below and if the percentage of its assets represented by either Category 1 or Category 2 is less than 95 percent but at least 80 percent, then the REMIC need only specify on Schedule Q that the percentage for that category was at least 80 percent.

To qualify as an “eligible REMIC” under this notice—

See also Rev. Proc. 2012-14, this bulletin, for guidance to REITs that hold a regular or residual interest in an eligible REMIC.

The safe harbor reporting method described in this notice applies to reporting for calendar quarters ending on or after December 31, 2011.

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 202-622-3920 (not a toll-free call).

This notice extends and expands the transition relief provided under Rev. Rul. 2011-1, 2011-2 I.R.B. 251, and Rev. Rul. 2008-40, 2008-2 C.B. 166, for certain group trusts, certain retirement trusts that qualify under the Puerto Rico Internal Revenue Code (Puerto Rico Code) and that participate in group trusts, and certain qualified retirement plans that benefit Puerto Rico residents. This notice also provides additional time for governmental retiree benefit plans described in § 401(a)(24) of the Internal Revenue Code (Code) (§ 401(a)(24) plans) to be amended to satisfy the applicable requirements of Rev. Rul. 2011-1.

Rev. Rul. 81-100, 1981-1 C.B. 326, provides that qualified retirement plans and individual retirement accounts are permitted to pool their assets for investment purposes in a group trust (“81-100 group trusts”) if certain specified requirements are satisfied. Rev. Rul. 81-100 was clarified and modified by Rev. Rul. 2004-67, 2004-2 C.B. 28. Rev. Rul. 2011-1 revises and restates the generally applicable rules for group trusts described in Rev. Rul. 81-100, 1981-1 C.B. 326, as clarified and modified by Rev. Rul. 2004-67. Rev. Rul. 2011-1 permits the participation in 81-100 group trusts of certain retiree benefit plans, such as governmental retiree benefit plans under § 401(a)(24), in addition to § 401(a) qualified retirement plans, if certain requirements are met.

Section 1022(i)(1) of the Employee Retirement Income Security Act of 1974, Pub. L. 93-406 (ERISA) provides a tax exemption under § 501(a) of the Code for certain plans that satisfy the qualification requirements under the Puerto Rico Code (“section 1022(i)(1) plans”).

Rev. Rul. 2008-40 holds that a transfer of amounts from a trust under a plan qualified under § 401(a) to a nonqualified foreign trust is treated as a distribution from the transferor plan. Rev. Rul. 2008-40 holds further that a transfer of assets and liabilities from a qualified plan to a plan that satisfies the plan qualification requirements under section 1165 of the Puerto Rico Code is also treated as a distribution from the transferor plan, even if the plan is a section 1022(i)(1) plan. Rev. Rul. 2008-40 provided transition relief for a transfer from a qualified plan to a section 1022(i)(1) plan that occurred before January 1, 2011.

Rev. Rul. 2011-1 provides temporary relief relating to investments of the assets of certain section 1022(i)(1) plans in 81-100 group trusts, and modifies the transition relief provided in Rev. Rul. 2008-40 relating to transfers from qualified plans to section 1022(i)(1) plans. Specifically, under the heading “Plans Described in Section 1022(i)(1) of ERISA,” Rev. Rul. 2011-1 provides that:

When Rev Rul. 2011-1 and 2008-40 were issued, the qualification provisions for retirement plans were contained in section 1165 of the Puerto Rico Code. On January 31, 2011, the retirement plan qualification provisions of the Puerto Rico Code were extensively amended.^[5] These provisions, which now appear at section 1081.01 of the Puerto Rico Code, apply to plans qualified under both U.S. and Puerto Rico law (sometimes referred to as “dual-qualified plans”), as well as to section 1022(i)(1) plans.

The Service anticipates issuing guidance responding to comments received in connection with Rev. Rul. 2011-1. Accordingly, the following relief is provided.

In general, if an entity that is not a group trust retiree benefit plan as defined in the holding of Rev. Rul. 2011-1 (an “ineligible entity”) participates in a group trust, the consequences described in the holdings of Rev. Rul. 2011-1, including the tax status of the group trust being derived from the tax status of the participating entities to the extent of their equitable interest in the group trust, would not apply to the group trust or to any of the entities that are invested in the trust. Comments are requested on whether the rule stating that the tax status of the group trust is derived from the tax status of the participating entities to the extent of their equitable interest in the group trust should be extended to cases where the equitable interest in the group trust is held by an ineligible entity that is an employee benefit plan if (a) the plan is tax exempt under § 501 or a similar rule and (b) in all other respects the requirements in paragraphs (1) through (8) of the holding of Rev. Rul. 2011-1 (including the exclusive benefit requirement in (5) and the separate account requirement in (6)) are satisfied. Comments should be submitted by April 16, 2012 (Notice 2012-6), Room 5203, Internal Revenue Service, POB 7604 Ben Franklin Station, Washington, D.C. 20044. Comments may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2012-6), Courier’s Desk, Internal Revenue Service, 1111 Constitution Ave., N.W., Washington D.C. Alternatively, comments may be submitted via the Internet at Notice.comments@irscounsel.treas.gov. Please include “Notice 2012-6” in the subject line of any electronic communication. All materials submitted will be available for public inspection and copying.

Rev. Ruls. 2011-1 and 2008-40 are modified.

The principal authors of this notice are Diane Bloom and Robert Walsh of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this notice, please call the Employee Plans’ taxpayer assistance telephone service at 1-877-829-5500 (a toll-free number) between the hours of 8:00 a.m. and 4:30 p.m. Eastern Time, Monday through Friday, or at RetirementPlanQuestions@irs.gov.

.01 This revenue procedure provides: (1) the maximum value of employer-provided vehicles first made available to employees for personal use in calendar year 2012 for which the vehicle cents-per-mile valuation rule provided under section 1.61-21(e) of the Income Tax Regulations may be applicable is $15,900 for a passenger automobile and $16,700 for a truck or van; (2) the maximum value of employer-provided vehicles first made available to employees for personal use in calendar year 2012 for which the fleet-average valuation rule provided under section 1.61-21(d) of the regulations may be applicable is $21,100 for a passenger automobile and $21,900 for a truck or van.

.01 If an employer provides an employee with a vehicle that is available to the employee for personal use, the value of the personal use must generally be included in the employee’s income and wages. Internal Revenue Code § 61; Treas. Reg. § 1.61-21.

.02 For employer-provided passenger automobiles (including trucks and vans) made available to employees for personal use that meet the requirements of section 1.61-21(e)(1) of the regulations, generally the value of the personal use may be determined under the vehicle cents-per-mile valuation rule of section 1.61-21(e). However, regulations section 1.61-21(e)(1)(iii)(A) provides that for a passenger automobile first made available after 1988 to any employee of the employer for personal use, the value of the personal use may not be determined under the vehicle cents-per-mile valuation rule for a calendar year if the fair market value of the passenger automobile (determined pursuant to regulations section 1.61-21(d)(5)(i) through (iv)) on the first date the passenger automobile is made available to the employee exceeds a specified dollar limit.

.03 For employer-provided vehicles available to employees for personal use for an entire year, generally the value of the personal use may be determined under the automobile lease valuation rule of section 1.61-21(d) of the regulations. Under this valuation rule, the value of the personal use is the Annual Lease Value. Provided the requirements of regulation section 1.61-21(d)(5)(v) are met, an employer with a fleet of 20 or more automobiles may use a fleet-average value for purposes of calculating the Annual Lease Values of the automobiles in the employer’s fleet. The fleet-average value is the average of the fair market values of all the automobiles in the fleet. However, section 1.61-21(d)(5)(v)(D) of the regulations provides that for an automobile first made available after 1988 to an employee of the employer for personal use, the value of the personal use may not be determined under the fleet-average valuation rule for a calendar year if the fair market value of the automobile (determined pursuant to regulations section 1.61-21(d)(5)(i) through (v)) on the first date the passenger automobile is made available to the employee exceeds a specified dollar limit.

.04 The maximum passenger automobile values for applying the vehicle cents-per-mile and the fleet-average value rules reflect the automobile price inflation adjustment of Code section 280F(d)(7). The method of calculating this price inflation amount for automobiles other than trucks and vans uses the “new car” component of the CPI “automobile component”. When calculating this price inflation adjustment for trucks and vans, the “new trucks” component of the CPI is used. This results in somewhat higher maximum values for trucks and vans. This change reflects the higher rate of price inflation that trucks and vans have been subject to since 1988, and is consistent with the change announced in Rev. Proc. 2003-75, 2003-2 C.B. 1018, for purposes of calculating depreciation deductions. See also Rev. Proc. 2011-21, 2011-12 I.R.B. 560. For purposes of this revenue procedure, the term “trucks and vans” refers to passenger automobiles that are built on a truck chassis, including minivans and sport utility vehicles (SUVs) that are built on a truck chassis.

.01 Maximum Automobile Value for Using the Cents-per-mile Valuation Rule. An employer providing a passenger automobile for the first time in calendar year 2012 for the personal use of any employee may determine the value of the personal use by using the vehicle cents-per-mile valuation rule in section 1.61-21(e) of the regulations if its fair market value on the date it is first made available does not exceed $15,900 for a passenger automobile other than a tuck or van, or $16,700 for a truck or van. If the fair market value of the passenger automobile exceeds this amount, the employer may determine the value of the personal use under the general valuation rules of regulation section 1.61-21(b) or under the special valuation rules of section 1.61-21(d) (Automobile lease valuation) or section 1.61-21(f) (Commuting valuation) if the applicable requirements are met. See Rev. Proc. 2010-10, 2010-3 I.R.B. 300, for guidance on determining the maximum value of passenger automobiles first made available during calendar year 2010, and Rev. Proc. 2011-11, 2011-4 I.R.B. 329, for guidance on determining the maximum value of passenger automobiles first made available during calendar year 2011.

.02 Maximum Automobile Value for Using the Fleet-Average Valuation Rule. An employer with a fleet of 20 or more automobiles providing an automobile for the first time in calendar year 2012 for the personal use of any employee for an entire year may determine the value of the personal use by using the fleet-average valuation rule in regulations section 1.61-21(d)(5)(v) to calculate the Annual Lease Values of the automobiles in the fleet. The fleet-average valuation rule may not be used to determine the Annual Lease Value of any automobile if its fair market value on the date it is first made available exceeds $21,100 for a passenger automobile other than a truck or van, or $21,900 for a truck or van. If all other applicable requirements are met, an employer with a fleet of 20 or more vehicles consisting of passenger automobiles other than trucks or vans as well as trucks and vans may use the fleet-average valuation rule as long as none of the vehicles exceed their respective maximum allowable values. If the fair market value of any passenger automobile in the fleet exceeds these amounts, the employer may determine the value of the personal use under regulations section 1.61-21(f) (Commuting valuation rule) or the general valuation rules of section 1.61-21(b) or may determine the Annual Lease Value of such automobile separately under the automobile lease valuation rule of section 1.61-21(d)(2) if the applicable requirements are met.

This revenue procedure applies to employer-provided passenger automobiles first made available to employees for personal use in calendar year 2012.

The principal author of this revenue procedure is Don M. Parkinson of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding the maximum automobile values for applying the valuation rules of regulations section 1.61-21(e)(1)(iii)(A) (the vehicle cents-per-mile valuation rule), and section 1.61-21(d)(5)(v)(D) (the fleet average valuation rule), contact Don M. Parkinson at (202) 622-6040 (not a toll-free call).

This revenue procedure sets forth a safe harbor that provides the extent to which an investment by a real estate investment trust (REIT) in a regular or a residual interest in certain real estate mortgage investment conduits (REMICs) may be treated as a real estate asset for purposes of sections 856(c)(4)(A) and 856(c)(5)(B) of the Internal Revenue Code and the extent to which interest from that investment may be treated as derived from interest on an obligation secured by a mortgage on real property or on an interest in real property for purposes of section 856(c)(3)(B).

.01 In April 2009, the Federal Housing Finance Agency (FHFA) and the United States Department of the Treasury introduced the Home Affordable Refinancing Program (HARP) as part of the United States Government’s Making Home Affordable Program. On October 24, 2011, FHFA, with Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), announced an expansion of HARP in an effort to serve additional eligible borrowers who can benefit from refinancing their home mortgages. Details of the expansion were announced on November 15, 2011.

HARP serves borrowers who may not otherwise qualify for refinancing, either because the value of their homes has declined or because they cannot obtain mortgage insurance. The program is available to borrowers who owe more on their mortgages than the value of their homes. HARP provides these homeowners with the ability to refinance their mortgages into more affordable and sustainable mortgages.

.02 It is expected that many mortgages refinanced under HARP will be held by REMICs.

.01 REMICs are widely used securitization vehicles for mortgages. REMICs are governed by sections 860A through 860G.

.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 In addition to being issued on the startup day with fixed terms, 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). See section 860G(a)(1).

.04 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. Section 1.860D-1(b)(3)(ii).

.05 A mortgage loan is a qualified mortgage only if it is principally secured by an interest in real property. Section 860G(a)(3)(A).

.06 In general, for purposes of section 860G(a)(3)(A), an obligation is principally secured by an interest in real property only if it satisfies the “80-percent test” set forth in § 1.860G-2(a)(1)(i).

.07 Under the 80-percent test, an obligation is principally secured by an interest in real property if the fair market value of the interest in real property securing the obligation—

(1) Was at least equal to 80 percent of the adjusted issue price of the obligation at the time the obligation was originated; or

(2) Is at least equal to 80 percent of the adjusted issue price of the obligation at the time the sponsor contributes the obligation to the REMIC.

.08 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).

.09 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, 99th Cong., 2d Sess. 791-92, 1986-3 (Vol. 3) C.B. 791-92.

.01 Section 1.860F-4(e)(1)(ii)(A) provides that for calendar quarters after 1988, a REMIC must provide to each of its residual interest holders information regarding (among other items) the percentage of REMIC assets that are real estate assets defined in section 856(c)(5)(B),^[6] computed by reference to the average adjusted basis (as defined in section 1011) of the REMIC assets during the calendar quarter (as described in § 1.860F-4(e)(1)(iii)). If the percentage of REMIC assets represented by real estate assets is at least 95 percent, then the REMIC need only specify that the percentage of real estate assets was at least 95 percent.

.02 Section 1.860F-4(e)(1)(ii)(B) provides that if, for any calendar quarter after 1988, less than 95 percent of the assets of the REMIC are real estate assets defined in section 856(c)(5)(B), then, for that calendar quarter, the REMIC must also provide to any REIT that holds a residual interest the following information—

(1) The percentage of REMIC assets described in section 856(c)(4)(A), computed by reference to the average adjusted basis of the REMIC assets during the calendar quarter (as described in § 1.860F-4(e)(1)(iii)),

(2) The percentage of REMIC gross income (other than gross income from prohibited transactions defined in section 860F(a)(2)) described in section 856(c)(3)(A) through (E), computed as of the close of the calendar quarter, and

(3) The percentage of REMIC gross income (other than gross income from prohibited transactions defined in section 860F(a)(2)) described in section 856(c)(3)(F) (which refers to income or gain from foreclosure property), computed as of the close of the calendar quarter. For this purpose, the term “foreclosure property” has the meaning specified in section 860G(a)(8) (which governs REMICs), rather than the closely related definition of “foreclosure property” in section 856(e) (which otherwise would determine the income or gain that is described in section 856(c)(3)(F)).

.03 Notice 2012-5, this bulletin, provides that for purposes of an eligible REMIC’s reporting obligation to residual interest holders under § 1.860F-4(e)(1)(ii), if the percentage of REMIC assets represented by real estate assets is less than 95 percent but at least 80 percent, then the REMIC need only specify on Schedule Q (Form 1066), Quarterly Notice to Residual Interest Holder of REMIC Taxable Income or Net Loss Allocation, that the percentage for that category was at least 80 percent.

.01 Many REITs invest in real estate loans that are secured by real property. REITs may also invest in REMIC regular or residual interests (see section 856(c)(5)(E)).

.02 Section 856(a) provides that an entity shall not be considered a REIT for any taxable year unless certain requirements are satisfied. Under section 856(c)(4)(A), at the close of each quarter of its taxable year, at least 75 percent of the value of a REIT’s total assets must be represented by real estate assets, cash and cash items (including receivables), and Government securities.

.03 Section 856(c)(5)(B) provides that the term “real estate assets” means real property (including interests in real property and interests in mortgages on real property) and shares (or transferable certificates of beneficial interest) in other REITs that meet the requirements of sections 856 through 859. Section 1.856-3(d) provides that the term “real property” means land or improvements thereon, such as buildings and that the term “real property” includes interests in real property. Section 1.856-3(d) further provides that local law definitions are not controlling for purposes of determining the meaning of the term “real property” as used in section 856 and the regulations thereunder.

.04 Section 856(c)(3)(B) provides that at least 75 percent of a REIT’s gross income must be derived from certain items, including interest on obligations secured by mortgages on real property or on interests in real property.

.05 Section 1.856-5(c)(1) provides that if a mortgage covers both real property and other property, an apportionment of the interest income must be made for purposes of the 75-percent requirement of section 856(c)(3). Section 1.856-5(c)(1)(i) provides that if the loan value of the real property is equal to or exceeds the amount of the loan, the entire amount of interest income shall be apportioned to the real property. Section 1.856-5(c)(2) provides that the loan value of the real property is the fair market value of the property, determined on the date the commitment by the trust to purchase the loan or to make the loan becomes binding on the trust.

.06 Section 856(c)(5)(E) provides that for purposes of Part II of subchapter M, a regular or residual interest in a REMIC shall be treated as a real estate asset, and any amount includible in gross income with respect to such an interest shall be treated as interest on an obligation secured by a mortgage on real property, except that a REIT shall be treated as holding and receiving directly its proportionate share of the assets and income of a REMIC if less than 95 percent of the assets of such REMIC are real estate assets (determined as if the REIT held such assets). For purposes of determining whether any interest in a REMIC qualifies under the preceding sentence, any interest held by such REMIC in another REMIC shall be treated as a real estate asset under principles similar to the principles of the preceding sentence, except that, if such REMICs are part of a tiered structure, they shall be treated as one REMIC for purposes of section 856(c)(5)(E).

.07 The REMIC provisions do not require REMICs to provide holders of regular interests with information regarding the percentage of REMIC assets that are real estate assets for purposes of Part II of subchapter M. Furthermore, if the percentage of an eligible REMIC’s assets that are real estate assets is less than 95 percent but at least 80 percent, then the REMIC need only inform a REIT holding a residual interest in that REMIC that the percentage of assets described in section 856(c)(5)(B) was at least 80 percent. See Notice 2012-5, this bulletin.

.08 To qualify as an “eligible REMIC” under Notice 2012-5, the REMIC must have a guarantee from Fannie Mae or Freddie Mac that will supplement amounts received by the REMIC as required to permit the payment of principal and interest, as applicable, on both the regular interests and residual interests issued by the REMIC; and all of the qualified mortgages (including mortgage pass-thru certificates) that are held by the REMIC must be secured by interests in single-family (one-to-four unit) dwellings.

.09 Although eligible REMICs are not required to provide more than limited information to REITs holding residual interests in those REMICs regarding the percentage of the REMICs’ assets described in section 856(c)(5)(B), it is important for those REITs to know—

(1) The extent to which both regular and residual interests may be treated as real estate assets for purposes of sections 856(c)(4)(A) and 856(c)(5)(B); and

(2) The extent to which gross income with respect to those investments may be treated for purposes of section 856(c)(3)(B) as derived from interest on obligations secured by a mortgage on real property or on an interest in real property.

.01 Section 7 of this revenue procedure applies to a regular interest that is held by a REIT in an eligible REMIC as defined in Notice 2012-5.

.02 Section 7 of this revenue procedure applies to a residual interest that is held by a REIT in an eligible REMIC as defined in Notice 2012-5, if, in accordance with Notice 2012-5, the REMIC informs the REIT holding the residual interest in that REMIC that the percentage of the REMIC’s assets described in section 856(c)(5)(B) was at least 80 percent.

If a REIT holds a regular or a residual interest in an eligible REMIC that meets the requirements of either section 6.01 or section 6.02 of this revenue procedure, then—

.01 The REIT may treat 80 percent of the value of the regular or residual interest as a real estate asset. If the REIT has information establishing that, as a result of holding the interest, its proportionate share of the eligible REMIC’s assets under section 856(c)(5)(E) produces a higher percentage for purposes of section 856(c)(4)(A), then the REIT may use that higher percentage.

.02 Any amount includible by the REIT in gross income with respect to the regular or residual interest may be treated as 80 percent derived from interest on an obligation secured by a mortgage on real property within the meaning of section 856(c)(3)(B). If the REIT has information establishing that, as a result of holding the interest, its proportionate share of the eligible REMIC’s income under section 856(c)(5)(E) produces a higher percentage for purposes of section 856(c)(3), then the REIT may use that higher percentage.

This revenue procedure is effective for regular or residual interests in an eligible REMIC that has a startup date after November 30, 2011.

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