This notice modifies the 338 approach and the 1374 approach as set forth in Notice 2003–65, 2003–2 C.B. 747, for determining recognized built-in gains or losses under section 382(h), to disallow using the additional first year depreciation deduction under § 168(k), which was amended by “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” Pub. L. No. 115–97.

Notice 2018–33, 2018–17 I.R.B. 508, was issued on April 23, 2018. That notice used an incorrect amount for the maximum foreign earned income exclusion to calculate the housing cost amount for 2018. Notice 2018–44 revokes Notice 2018–33 and provides the correct amount of the maximum housing expenses and the base housing amount for 2018. Notice 2018–44 also provides an updated table of adjusted limitations on housing expenses.

Generally, Notice 2018–44 provides for adjustments to the limitation on housing expenses for purposed of section 911 of the Internal Revenue Code. These adjustments are made on the basis of geographic differences in housing costs relative to housing costs in the United States. Further, if the limitation on housing expenses is higher for taxable year 2018 than the adjusted limitations on housing expenses provided in Notice 2017–21, qualified taxpayers may apply the adjusted limitations for taxable year 2018 to their 2017 taxable year.

This Notice advises State and local housing credit agencies that allocate low-income housing tax credits under section 42, and States and other issuers of tax-exempt private activity bonds under section 141, of the population figures to use in calculating: (1) the 2018 calendar year population-based component of the State housing credit ceiling (Credit Ceiling) under section 42(h)(3)(C)(ii); (2) the 2018 calendar year volume cap (Volume Cap) under section 146; and (3) the 2018 volume limit (Volume Limit) under section 142(k)(5).

Notice 2018–46 allows taxpayers to continue to rely on the exception to United States property in §1.956–2T(b)(1)(xi) past its May 7, 2018, sunset date and announces the intention to publish regulations that will provide, similar to the rule in section 956(c)(2)(J), an exception from the definition of U.S. property for an obligation of a United States person to the extent the principal amount of the obligation does not exceed the fair market value of cash and readily marketable securities posted or received as margin or collateral for the obligation in the ordinary course of its business by a United States or foreign person that is a dealer in securities or commodities.

Notice 2018–47 explains how a State or local government amends the nomination of an empowerment zone to provide for a new termination date of December 31, 2017.

This revenue procedure provides the 2019 inflation adjusted amounts for Health Savings Accounts as determined under section 223 of the Internal Revenue Code.

The purpose of this notice is to modify Notice 2003–65, 2003–2 C.B. 747. Specifically, section 3 of this notice provides that the hypothetical cost recovery deductions used in the 338 approach described in Notice 2003–65 to identify recognized built-in gain (RBIG) or recognized built-in loss (RBIL) under section 382 of the Internal Revenue Code (Code) are determined without regard to section 168(k) of the Code. Similarly, in computing the amount of cost recovery deductions that are not attributable to an asset’s built-in loss on the change date under the 1374 approach described in Notice 2003–65, the hypothetical deductions that would have been allowable had the loss corporation purchased the asset for its fair market value on the change date are determined without regard to section 168(k).

Section 382 generally provides that, after an ownership change (as defined in section 382(g)), the amount of taxable income of a loss corporation (as defined in section 382(k)) for any post-change year (as defined in section 382(d)(2)) that may be offset by pre-change losses (as defined in section 382(d)(1)) shall not exceed the section 382 limitation (as defined in section 382(b)) for that year.

Section 382(h) provides rules for the treatment of built-in gain or loss with respect to assets owned by the loss corporation at the time of its ownership change. Under that provision, if, at the time of an ownership change, a loss corporation has a net unrealized built-in gain (NUBIG), any RBIG for a taxable year within the 5-year recognition period following the ownership change increases the section 382 limitation for that year, but not above the amount of the NUBIG. Similarly, if a loss corporation has a net unrealized built-in loss (NUBIL), any RBIL for a taxable year within the 5-year recognition period is a pre-change loss subject to the section 382 limitation, but not above the amount of the NUBIL.

Notice 2003–65 provides two alternative safe harbor approaches to the determination of RBIG and RBIL: the “338 approach” and the “1374 approach”.

Under the 338 approach, items of RBIG and RBIL are identified—

Notice 2003–65, 2003–2 C.B. at 749. As described in section IV of Notice 2003–65, under the 338 approach, certain assets generate RBIG or RBIL even if not disposed of during the recognition period. Specifically, the 338 approach treats as RBIG or RBIL (as the case may be) the difference between the loss corporation’s actual allowable cost recovery deduction with respect to an asset and the hypothetical cost recovery deduction that would have been allowable with respect to the asset had an election under section 338 been made for a purchase of the loss corporation’s stock.

With respect to built-in gain assets of loss corporations with NUBIG, Notice 2003–65 explains the use of these hypothetical cost recovery deductions as follows:

Notice 2003–65, 2003–2 C.B. at 750. Notice 2003–65 applies the same methodology to the determination of RBIL by loss corporations with NUBIL:

This notice modifies the 338 approach and the 1374 approach set forth in Notice 2003–65.

Pursuant to Notice 2003–65 as modified by this notice, under the 338 approach, in determining RBIG or RBIL, the hypothetical cost recovery deductions that would have been allowable had an election under section 338 been made are determined without regard to section 168(k).

Pursuant to Notice 2003–65 as modified by this notice, under the 1374 approach, in computing the amount of cost recovery deductions that are not attributable to an asset’s built-in loss on the change date, the hypothetical cost recovery deductions that would have been allowable had the loss corporation purchased the asset for its fair market value on the change date are determined without regard to section 168(k).

Notice 2003–65, 2003–2 C.B. 747, is modified.

The Treasury Department and the IRS continue to request comments on the treatment of built-in items under section 382(h).

This notice is effective for any ownership changes (as defined in section 382(g)) that occur after May 8, 2018.

The principal author of this notice is Matt Tam of the Office of the Associate Chief Counsel (Corporate). Other personnel from the Treasury Department and the IRS also participated in its development. For further information regarding this notice, contact Matt Tam at (202) 317-5024 (not a toll-free number).

This notice provides adjustments to the limitation on housing expenses for purposes of section 911 of the Internal Revenue Code for specific locations for 2018. These adjustments are made on the basis of geographic differences in housing costs relative to housing costs in the United States.

Section 911(a) allows a qualified individual to elect to exclude from gross income the foreign earned income and housing cost amount of such individual. The term “housing cost amount” is generally the total of the housing expenses for the taxable year minus a base housing amount. See section 911(c)(1). For this purpose, the housing expenses taken into account are limited to an amount that is tied to the maximum foreign earned income exclusion. Specifically, the limit on such housing expenses equals 30 percent (adjusted as may be provided under the Secretary’s authority under section 911(c)(2)(B)) of the maximum exclusion amount (computed on a daily basis), multiplied by the number of days in the applicable period that fall within the taxable year. See section 911(c)(2)(A). Thus, under this general limitation, a qualified individual whose entire taxable year is within the applicable period is limited to maximum housing expenses of $31,170 ($103,900 x .30) for 2018.

Similarly, the computation of the base housing amount is also tied to the maximum foreign earned income exclusion. Specifically, the base housing amount is 16% of the maximum exclusion amount (computed on a daily basis), multiplied by the number of days in the applicable period that fall within the taxable year. See sections 911(c)(1)(B) and 911(d)(1). Assuming that the entire taxable year of a qualified individual is within the applicable period, the base housing amount for 2018 is $16,624 ($103,900 x .16). Section 911(c)(2)(B) authorizes the Secretary to issue regulations or other guidance to adjust the percentage under section 911(c)(2)(A)(i) (which determines the limit on housing expenses) based on geographic differences in housing costs relative to housing costs in the United States. Pursuant to this authority, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) have published annual notices concerning the limitation on the section 911 housing cost amounts since the 2006 taxable year.

Notice 2018–33, 2018–17 I.R.B. 508, was issued on April 23, 2018. That notice used an incorrect amount for the maximum foreign earned income exclusion to calculate the housing cost amount for 2018. This notice revokes Notice 2018–33 and provides the correct amount of the maximum housing expenses and the base housing amount for 2018. This notice also provides an updated table of adjusted limitations on housing expenses.

For more background on the foreign housing exclusion, see https://www.irs.gov/individuals/international-taxpayers/foreign-housing-exclusion-or deduction.

The following table provides adjusted limitations on housing expenses (in lieu of the otherwise applicable limitation of $31,170) for 2018.

For some locations, the limitation on housing expenses provided in Section 3 of this notice may be higher than the limitation on housing expenses provided in the “Table of Adjusted Limitations for 2017” in Notice 2017–21. A qualified individual incurring housing expenses in such a location during 2017 may apply the adjusted limitation on housing expenses provided in Section 3 of this notice for 2017 in lieu of the amounts provided in the “Table of Adjusted Limitations for 2017” in Notice 2017–21 (and as set forth in the Instructions to Form 2555, Foreign Earned Income, for 2017).

The Treasury Department and the IRS anticipate that future annual notices providing adjustments to housing expense limitations will make a similar option available to qualified individuals that incur housing expenses in the immediately preceding year. For example, when adjusted housing expense limitations for 2019 are issued, it is expected that taxpayers will be permitted to apply those adjusted limitations to the 2018 taxable year.

Notice 2011–8, 2011–8 I.R.B. 503; Notice 2012–19, 2012–10 I.R.B. 440; Notice 2013–31, 2013–21 I.R.B. 1099; Notice 2014–29, 2014–18 I.R.B. 991; Notice 2015–33, 2015–18 I.R.B. 934; Notice 2016–21, 2016–12 I.R.B. 465; and Notice 2017–21, 2017–13 I.R.B. 1026 are relisted to assist those individuals who are filing prior year or amended tax returns.

This notice revokes Notice 2018–33, 2018–17 I.R.B. 508. This notice also supersedes Notice 2006–87, 2006–43 I.R.B. 766; Notice 2007–25, 2007–12 I.R.B. 760; Notice 2007–77, 2007–40 I.R.B. 735; Notice 2008–107, 2008–50 I.R.B. 1265; Notice 2010–27, 2010–15 I.R.B. 531; Notice 2011–8, 2011–8 I.R.B. 503; Notice 2012–19, 2012–10 I.R.B. 440; Notice 2013–31, 2013–21 I.R.B. 1099; Notice 2014–29, 2014–18 I.R.B. 991; Notice 2015–33, 2015–18 I.R.B. 934; Notice 2016–21, 2016–12 I.R.B. 465; and Notice 2017–21, 2017–13 I.R.B. 1026.

This notice is effective for taxable years beginning on or after January 1, 2018. However, as provided in Section 4, a taxpayer may apply the 2018 adjusted housing limitations contained in Section 3 of this notice to his or her taxable year beginning in 2017.

The principal author of this notice is Kate Y. Hwa of the Office of Associate Chief Counsel (International). For further information regarding this notice contact Kate Y. Hwa on (202) 317-5001 (not a toll-free number).

This notice advises State and local housing credit agencies that allocate low-income housing tax credits under § 42 of the Internal Revenue Code, and States and other issuers of tax-exempt private activity bonds under § 141, of the population figures to use in calculating: (1) the 2018 calendar year population-based component of the State housing credit ceiling (Credit Ceiling) under § 42(h)(3)(C)(ii); (2) the 2018 calendar year volume cap (Volume Cap) under § 146; and (3) the 2018 volume limit (Volume Limit) under § 142(k)(5).

Generally, § 146(j) requires determining the population figures for the population-based component of both the Credit Ceiling and the Volume Cap for any calendar year on the basis of the most recent census estimate of the resident population of a State (or issuing authority) released by the U.S. Census Bureau before the beginning of the calendar year. Similarly, § 142(k)(5) bases the Volume Limit on the State population.

Sections 42(h)(3)(H) and 146(d)(2) require adjusting for inflation the population-based component of the Credit Ceiling and the Volume Cap. The Credit Ceiling adjustment for the 2018 calendar year is in Rev. Proc. 2018–22, 2018–18 I.R.B. 524. Section 2 of Rev. Proc. 2018–22 modifies and supersedes section 3.08 of Rev. Proc. 2018–18, 2018–10 I.R.B. 392, and provides that, for calendar year 2018, the amount for calculating the Credit Ceiling under § 42(h)(3)(C)(ii) is the greater of $2.70 multiplied by the State population, or $3,105,000. Further, section 3.20 of Rev. Proc. 2018–18 remains unchanged and provides that the amount for calculating the Volume Cap under § 146(d)(1) for calendar year 2018 is the greater of $105 multiplied by the State population, or $310,710,000.

For the 50 states, the District of Columbia, and Puerto Rico, the population figures for calculating the Credit Ceiling, the Volume Cap, and the Volume Limit for the 2018 calendar year are the resident population estimates released electronically by the U.S. Census Bureau on December 20, 2017, and described in Press Release CB17–210. For American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands, the population figures for the 2018 calendar year are the 2017 midyear population figures in the U.S. Census Bureau’s International Data Base (IDB). The U.S. Census Bureau electronically announced an update of the IDB on August 17, 2017, in Press Release CB17–TPS.64.

For convenience, these figures are reprinted below.

The principal authors of this notice are James A. Holmes, Office of the Associate Chief Counsel (Passthroughs and Special Industries), and Timothy L. Jones, Office of the Associate Chief Counsel (Financial Institutions and Products). For further information regarding this notice, please contact Mr. Holmes at (202) 317-4137 (not a toll-free number).

On May 11, 2012, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) published temporary and proposed regulations under section 956 in the Federal Register (TD 9589, 77 FR 27612, and REG-107548–11, 77 FR 27669, respectively) (the 2012 regulations). The 2012 regulations excepted from the definition of United States property (U.S. property) certain obligations arising from upfront payments on cleared notional principal contracts (NPCs) with respect to which full initial variation margin was posted. See § 1.956–2T(b)(1)(xi) (as promulgated by TD 9589). On May 8, 2015, temporary and proposed regulations under sections 446 and 956 were published in the Federal Register (TD 9719, 80 FR 26437, and REG-102656–15, 80 FR 26500, respectively) (the 2015 regulations). The 2015 regulations under section 956 extended the exception to the definition of U.S. property contained in the 2012 regulations to certain obligations of United States persons arising from upfront payments made with respect to uncleared NPCs, if certain conditions were met. See § 1.956–2T(b)(1)(xi) (the full margin or cash collateral exception) (as promulgated by TD 9719).

The Treasury Department and the IRS have received several comments on the 2015 regulations, including regarding uncertainty about the application of § 1.956–2T(b)(1)(xi). For example, commenters requested clarification regarding the application of the exception when a combination of cash and other property is posted as margin, particularly in light of the rule in section 956(c)(2)(J) that provides an exception from U.S. property to the extent that readily marketable securities are posted as collateral (qualifying collateral). Commenters requested that the exception apply (1) to the extent that qualifying collateral has been posted as margin in respect of an upfront payment regardless of whether the remainder of the payment is collateralized (similar to the exception in section 956(c)(2)(J)), and (2) without regard to whether the underlying derivative financial instrument is an NPC. The temporary 2015 regulations will expire on May 7, 2018.

In light of the foregoing, the Treasury Department and the IRS intend to publish regulations that will provide an exception from the definition of U.S. property (similar to the exception in section 956(c)(2)(J)) for an obligation (without regard to whether such obligation arises in connection with a derivative financial instrument that is or is not an NPC) of a United States person to the extent the principal amount of the obligation does not exceed the fair market value of cash and readily marketable securities posted or received as margin or collateral for the obligation in the ordinary course of its business by a United States or foreign person that is a dealer in securities or commodities. Before the issuance of the regulations, taxpayers may rely either on the provisions of this notice (including with respect to obligations arising before May 4, 2018) or on the full margin or cash collateral exception provided in the 2015 regulations.

The principal author of this notice is Kristine A. Crabtree of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Ms. Crabtree at (202) 317-6934 (not a toll-free number).

This notice explains how a State or local government is deemed to extend the termination date designated in an empowerment zone nomination until December 31, 2017. This notice is issued pursuant to § 1391 of the Internal Revenue Code, as amended by § 40311(a) of the Bipartisan Budget Act of 2018, Pub. L. No. 115–123, 132 Stat. 64 (February 9, 2018) (the “BBA”).

Section 1391 was enacted in 1993 to allow a State or local government (“entity”) to nominate an area or areas in its jurisdiction for designation as an empowerment zone. The Secretary of Housing and Urban Development, in the case of any nominated area that is located in an urban area, and the Secretary of Agriculture, in the case of any nominated area that is located in a rural area, have designated which nominated areas are empowerment zones. Unless an earlier termination date was provided by the nominating entity, a designation was originally effective for the period beginning on the date of designation and ending on the close of the 10^th taxable year beginning on or after the date of designation.

Section 112 of the Community Renewal Tax Relief Act of 2000, Pub. L. No. 106–554, 114 Stat. 2763A-587 (December 21, 2000) (CRTRA), amended § 1391(d)(1)(A) to extend the designation period for all empowerment zones through December 31, 2009, regardless of the original termination date. Subsequent amendments to § 1391(d)(1)(A) further extended the designation period through December 31, 2016. See § 753(a) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111–312, 124 Stat. 3296 (December 17, 2010), § 327(a) of the American Taxpayer Relief Act of 2012, Pub. L. No. 112–240, 126 Stat. 2313 (January 2, 2013), § 139(a) of the Tax Increase Prevention Act of 2014, Pub. L. No. 113–295, 128 Stat. 4010 (December 19, 2014), and § 171(a) of the Protecting Americans from Tax Hikes Act of 2015, enacted as part of the Consolidated Appropriations Act, 2016, Division Q, Pub. L. No. 114–113, 129 Stat. 2242 (December 18, 2015).

Based on these amendments to § 1391(d)(1)(A), the Treasury Department and the Internal Revenue Service (IRS) issued guidance treating any nomination for an empowerment zone as extended for a specified period unless the nominating entity declined the extension in a written notification to the IRS. Specifically, in Notice 2013–38, 2013–25 I.R.B. 1251, nominations were deemed extended to December 31, 2013; in Notice 2015–26, 2015–13 I.R.B. 814, nominations were deemed extended to December 31, 2014; and in Notice 2016–28, 2016–15 I.R.B. 576, nominations were deemed extended to December 31, 2016. The IRS received no written requests declining the extensions under Notice 2013–38, Notice 2015–26, or Notice 2016–28. Accordingly, the designations of all empowerment zones currently have a termination date of December 31, 2016.

In 2018, Congress further amended § 1391(d)(1) to extend the period for which an empowerment zone designation is in effect by an additional year. As amended by § 40311(a)(1) of the BBA, § 1391(d)(1) provides that any designation of an empowerment zone ends on the earliest of (A) December 31, 2017, (B) the termination date designated by the State and local governments as provided for in their nomination, or (C) the date the appropriate Secretary revokes the designation. Section 40311(a)(2) of the BBA provides that where a nomination of an empowerment zone includes a termination date of December 31, 2016, § 1391(d)(1)(B) shall not apply to the designation if, after the date of the enactment of the BBA, the nominating entity follows the procedures provided by the Secretary of the Treasury to extend the termination date to December 31, 2017. The amendments made by § 40311(a) of the BBA apply to taxable years beginning after December 31, 2016. Section III of this notice explains the process for extending the termination date designated in an empowerment zone nomination.

Any nomination for an empowerment zone designation with a current termination date (as amended by CRTRA, Notice 2013–38, Notice 2015–26, and Notice 2016–28) of December 31, 2016, is deemed to be amended to provide for a new termination date of December 31, 2017, unless the nominating entity sends written notification to the IRS by July 3, 2018. The written notification must affirmatively decline the December 31, 2017, designated termination date of the empowerment zone nomination. If the United States mail is used, the notification should be sent to the following address:

If a private delivery service is used, the notification should be sent to the following address:

If the entity that nominated an empowerment zone does not send written notification, the termination date designated in the empowerment zone nomination will be deemed extended from December 31, 2016, through December 31, 2017. Accordingly, § 1391(d)(1)(B) does not apply and, pursuant to § 1391(d)(1)(A)(i), the designation of that empowerment zone ends on December 31, 2017.

The principal author of this notice is Charles Magee of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this notice contact Mr. Magee at (202) 317-7005 (not a toll-free number).

This revenue procedure provides the 2019 inflation adjusted amounts for Health Savings Accounts (HSAs) as determined under § 223 of the Internal Revenue Code.

Annual contribution limitation. For calendar year 2019, the annual limitation on deductions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,500. For calendar year 2019, the annual limitation on deductions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $7,000.

High deductible health plan. For calendar year 2019, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,750 for self-only coverage or $13,500 for family coverage.

This revenue procedure is effective for calendar year 2019.

The principal author of this revenue procedure is Bill Ruane of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding § 223 and HSAs, contact Karen Levin at (202) 317-5500 (not a toll-free number). For further information regarding the calculation of the inflation adjustments in this revenue procedure, contact Mr. Ruane at (202) 317-4718 (not a toll-free number).