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 May 2006.

Final regulations under section 368 of the Code amend final regulations (T.D. 9242, 2006-7 I.R.B. 422) concerning statutory mergers and consolidations under section 368(a)(1)(A). This amendment provides transitional relief for certain transactions initiated before January 23, 2006. Taxpayers can elect to apply the earlier temporary regulations (T.D. 9038, 2003-1 C.B. 524).

This document withdraws proposed regulations (REG-150313-01, 2002-2 C.B. 777) relating to redemptions taxable as dividend distributions.

This notice provides guidance as to the meaning of “gross receipts” for purposes of determining whether small insurance companies qualify as tax exempt under section 501(c)(15) of the Code.

This announcement advises taxpayers affected by Hurricane Katrina, Rita, or Wilma that the Treasury Department and the IRS have extended through December 31, 2006, the required placed-in-service date for certain property that is eligible for the additional first year depreciation deduction provided in section 168(k) of the Code and that is placed in service or manufactured in certain areas affected by Hurricane Katrina, Rita, or Wilma.

Internal Revenue Service (IRS), Treasury.

Final regulations.

This document amends final regulations concerning statutory mergers and consolidations under section 368(a)(1)(A) of the Internal Revenue Code. These regulations affect corporations engaging in statutory mergers and consolidations, and their shareholders. This amendment provides transitional relief for certain transactions initiated before January 23, 2006.

Effective Date: These regulations are effective January 23, 2006.

Applicability Date: For dates of applicability, see §1.368-2(b)(1)(v).

Richard M. Heinecke, (202) 622-7930 (not a toll-free number).

Accordingly, 26 CFR part 1 is amended as follows:

The principal author of these final regulations is Richard M. Heinecke of the Office of the Associate Chief Counsel (Corporate). However, other personnel from the IRS and Treasury Department participated in their development.

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This revenue ruling provides various prescribed rates for federal income tax purposes for May 2006 (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)(2) for buildings placed in service during the current month. Finally, 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.

This notice provides guidance as to the meaning of “gross receipts” for purposes of § 501(c)(15)(A) of the Internal Revenue Code.

Section 501(a) of the Code provides generally that an organization described in § 501(c) shall be exempt from federal income taxation. An insurance company (as defined in § 816(a)), other than a life insurance company, is described in § 501(c)(15), and is therefore exempt from income tax under § 501(a), if its gross receipts for the taxable year do not exceed $600,000 and more than 50 percent of those gross receipts consist of premiums. Section 501(c)(15)(A)(i). A non-life mutual insurance company not meeting the requirements of the previous sentence is nonetheless described in § 501(c)(15) if its gross receipts for the taxable year do not exceed $150,000 and more than 35 percent of those gross receipts consist of premiums. Section 501(c)(15)(A)(ii). Amounts received by all members of the insurance company’s controlled group (as defined in section 501(c)(15)(C)) are taken into account for purposes of these tests. Section 501(c)(15)(B).

The gross receipts and percentage of income from premium requirements described above were added to the Code in 2004 by § 206 of the Pension Funding Equity Act, Pub. L. No. 108-218 (the “Act”). The legislative history of the Act states that “it is intended that the provision not permit the use of small companies . . . to shelter investment income”. H.R. Conf. Rep. 108-457, at 48 (2004).

This notice advises taxpayers that the Service will include amounts received from the following sources during the taxable year in “gross receipts” for purposes of § 501(c)(15)(A):

Thus, gross receipts include both tax-free interest and the gain (but not the entire amount realized) from the sale or exchange of capital assets, because those items are described in § 834(b). Gross receipts do not, however, include amounts other than premium income or gross investment income unless those amounts are otherwise included in gross income. Accordingly, the term gross receipts does not include contributions to capital excluded from gross income under § 118, or salvage or reinsurance recovered accounted for as offsets to losses incurred under § 832(b)(5)(A)(i).

The principal author of this notice is Sarah R. Katz of TE/GE Division, Exempt Organizations. For further information regarding this notice, contact Ms. Katz at (202) 283-8934 (not a toll-free call).

This announcement advises taxpayers affected by Hurricane Katrina, Rita, or Wilma that the Treasury Department and the Internal Revenue Service have extended thru December 31, 2006, the required placed-in-service date for certain property that is eligible for the additional first year depreciation deduction provided in § 168(k) of the Internal Revenue Code and that is placed in service or manufactured in certain areas affected by Hurricane Katrina, Rita, or Wilma.

Section 167 allows as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear, and obsolescence of property used in a trade or business or held for the production of income. The depreciation allowable for tangible, depreciable property placed in service after 1986 generally is determined under § 168.

Section 168(k) allows an additional first year depreciation deduction for qualified property (as defined in § 168(k)(2)) and for 50-percent bonus depreciation property (as defined in § 168(k)(4)(B)). To be eligible for the additional first year depreciation deduction, § 168(k)(2)(A)(iv) (for qualified property) and § 168(k)(4)(B)(iii) (for 50-percent bonus depreciation property) provide that the property must be placed in service by the taxpayer before January 1, 2005, or, for property described in § 168(k)(2)(B) or § 168(k)(2)(C), before January 1, 2006.

In general, § 168(k)(2)(B) applies to certain property having longer production periods and § 168(k)(2)(C) applies to certain aircraft that is not transportation property (as defined in § 168(k)(2)(B)(iii)) other than for agricultural or firefighting purposes. These types of property are eligible for the extended placed-in-service date of December 31, 2005, provided the property, among other things, is acquired by the taxpayer pursuant to a written binding contract that was entered into before January 1, 2005.

Section 105 of the Gulf Opportunity Zone Act of 2005, Pub. L. 109-135, 119 Stat. 2577 (December 21, 2005) (GO Zone Act), provides that, for property described in § 168(k)(2)(B) or § 168(k)(2)(C) that is either placed in service or manufactured in the GO Zone (as defined in § 1400M(1)), the Rita GO Zone (as defined in § 1400M(3)), or the Wilma GO Zone (as defined in § 1400M(5)) by a taxpayer or person affected by Hurricane Katrina, Rita, or Wilma, the Secretary may, on a taxpayer by taxpayer basis, extend the required placed in service date under § 168(k) as necessary for a period not to exceed one year. See pages 2 and 3 of the IRS Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma, for the counties and parishes that comprise the GO Zone (Core Disaster Area), the Rita GO Zone, and the Wilma GO Zone.

Section 7508A provides the Secretary with authority to postpone the time for performing certain acts under the internal revenue laws for taxpayers affected by a Presidentially declared disaster as defined in section 1033(h)(3).

After considering the effect of Hurricanes Katrina, Rita, and Wilma on the ability of taxpayers to manufacture, or place in service, property described in § 168(k)(2)(B) or § 168(k)(2)(C) in the GO Zone, the Rita GO Zone, or the Wilma GO Zone before January 1, 2006, Treasury and the Service have determined that it is necessary to extend the required placed-in-service date in § 168(k)(2)(A)(iv) and § 168(k)(4)(B)(iii) to before January 1, 2007, for property that is described in § 168(k)(2)(B) or § 168(k)(2)(C) and that is either placed in service by the taxpayer or manufactured by a person in the GO Zone, the Rita GO Zone, or the Wilma GO Zone, provided the taxpayer was unable to meet the December 31, 2005, placed-in-service date deadline for such property as a result of Hurricane Katrina, Rita, or Wilma.

If a taxpayer applies this announcement to property described in the preceding paragraph, the taxpayer must write “Extension under Announcement 2006-29” across the top of its Form 4562, Depreciation and Amortization, for the placed-in-service year of the property. The taxpayer is not required to attach to the return information supporting the determination that the property satisfies the requirements described in the preceding paragraph. However, § 1.6001-1(a) of the Income Tax Regulations requires that taxpayers maintain such books and records as are sufficient to establish the entitlement to, and amount of, any deduction claimed by the taxpayer. Accordingly, a taxpayer claiming the additional first year depreciation deduction for property described in this announcement should retain information supporting that deduction as part of the taxpayer’s records for purposes of § 1.6001-1(a).

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

Internal Revenue Service (IRS), Treasury.

Withdrawal of notice of proposed rulemaking.

This document withdraws a notice of proposed rulemaking relating to redemptions of stock in which the redemption proceeds are treated as a dividend distribution. The proposed regulations were published on October 18, 2002 (67 FR 64331). After consideration of the comments received, the IRS and Treasury Department have decided to withdraw the proposed regulations.

These proposed regulations are withdrawn on April 19, 2006.

Theresa M. Kolish (202) 622-7530 (not a toll-free call).