(a) In general. Each donee organization described in section 170(c), except a private foundation (as defined in section 509(a)), other than a private foundation described in section 170(b)(1)(F), that receives or accrues net income during a taxable year from any qualified intellectual property contribution (as defined in section 170(m)(8)) must make an annual information return on the form prescribed by the IRS. The information return is required for any taxable year of the donee that includes any portion of the 10-year period beginning on the date of the contribution, but not for taxable years beginning after the expiration of the legal life of the qualified intellectual property.

(b) Information required to be provided on return. The information return required by section 6050L and paragraph (a) of this section shall include the following—

(1) The name, address, taxable year, and employer identification number of the donee making the information return;

(2) The name, address, and taxpayer identification number of the donor;

(3) A description of the qualified intellectual property in sufficient detail to identify the qualified intellectual property received by such donee;

(4) The date of the contribution to the donee;

(5) The amount of net income of the donee for the taxable year that is properly allocable to the qualified intellectual property (determined without regard to paragraph (10)(B) of section 170(m) and with the modifications described in paragraphs (5) and (6) of such section); and

(6) Such other information as may be specified by the form or its instructions.

(c) Special rule—statement to be furnished to donors. Every donee making an information return under section 6050L and this section with respect to a qualified intellectual property contribution shall furnish a copy of the information return to the donor of the property. The information return required by section 6050L and this section shall be furnished to the donor on or before the date the donee is required to file the return with the IRS.

(d) Place and time for filing information return—(1) Place for filing. The information return required by section 6050L and this section shall be filed with the IRS location listed on the prescribed form or in its instructions.

(2) Time for filing. A donee is required to file the return required by section 6050L and this section on or before the last day of the first full month following the close of the donee’s taxable year to which net income from the qualified intellectual property is properly allocable.

(e) Penalties. For penalties for failure to comply with the requirements of this section, see sections 6721 through 6724.

(f) Effective/applicability date. The rules of this section apply to qualified intellectual property contributions made after June 3, 2004.

* * * * *

(b) * * *

Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.

Approved March 31, 2008.

Eric Solomon,
Assistant Secretary of
the Treasury (Tax Policy).

* * * * *

(d) Personal property purchased in casual sale—(1) In general. Even though a notice of lien imposed by section 6321 is filed in accordance with §301.6323(f)-1, the lien is not valid against a purchaser (as defined in §301.6323(h)-1(f)) of household goods, personal effects, or other tangible personal property of a type described in §301.6334-1 (which includes wearing apparel, school books, fuel, provisions, furniture, arms for personal use, livestock, and poultry (whether or not the seller is the head of a family); and books and tools of a trade, business, or profession (whether or not the trade, business, or profession of the seller)), purchased, other than for resale, in a casual sale for less than $1,320, effective for 2008 and adjusted each year based on the rate of inflation (excluding interest and expenses described in §301.6323(e)-1).

* * * * *

(3) * * *

Example 1. A, an attorney’s widow, sells a set of law books for $200 to B, for B’s own use. Prior to the sale a notice of lien was filed with respect to A’s delinquent tax liability in accordance with §301.6323(f)-1. B has no actual notice or knowledge of the tax lien. In addition, B does not know that the sale is one of a series of sales. Because the sale is a casual sale for less than $1,320 and involves books of a profession (tangible personal property of a type described in §301.6334-1, irrespective of the fact that A has never engaged in the legal profession), the tax lien is not valid against B even though a notice of lien was filed prior to the time of B’s purchase.

* * * * *

Example 3. In an advertisement appearing in a local newspaper, G indicates that he is offering for sale a lawn mower, a used television set, a desk, a refrigerator, and certain used dining room furniture. In response to the advertisement, H purchases the dining room furniture for $200. H does not receive any information which would impart notice of a lien, or that the sale is one of a series of sales, beyond the information contained in the advertisement. Prior to the sale, a notice of lien was filed with respect to G’s delinquent tax liability in accordance with §301.6323(f)-1. Because H had no actual notice or knowledge that substantially all of G’s household goods were being sold or that the sale is one of a series of sales, and because the sale is a casual sale for less than $1,320, H does not purchase the dining room furniture subject to the lien. The household goods are of a type described in §301.6334-1(a)(2) irrespective of whether G is the head of a family or whether all such household goods offered for sale exceed $7,900 in value.

* * * * *

(g) Residential property subject to a mechanic’s lien for certain repairs and improvements—(1) In general. Even though a notice of a lien imposed by section 6321 is filed in accordance with §301.6323(f)-1, the lien is not valid against a mechanic’s lienor (as defined in §301.6323(h)-1(b)) who holds a lien for the repair or improvement of a personal residence if —

(i) The residence is occupied by the owner and contains no more than four dwelling units; and

(ii) The contract price on the prime contract with the owner for the repair or improvement (excluding interest and expenses described in §301.6323(e)-1) is not more than $6,600, effective for 2008 and adjusted each year based on the rate of inflation.

(iii) For purposes of paragraph (g)(1)(ii) of this section, the amounts of subcontracts under the prime contract with the owner are not to be taken into consideration for purposes of computing the $6,600 prime contract price. It is immaterial that the notice of tax lien was filed before the contractor undertakes his work or that he knew of the lien before undertaking his work.

(2) * * *

Example 1. A owns a building containing four apartments, one of which he occupies as his personal residence. A notice of lien which affects the building is filed in accordance with §301.6323(f)-1. Thereafter, A enters into a contract with B in the amount of $800, which includes labor and materials, to repair the roof of the building. B purchases roofing shingles from C for $300. B completes the work and A fails to pay B the agreed amount. In turn, B fails to pay C for the shingles. Under local law, B and C acquire mechanic’s liens on A’s building.Because the contract price on the prime contract with A is not more than $6,600 and under local law B and C acquire mechanic’s liens on A’s building, the liens of B and C have priority over the Federal tax lien.

Example 2. Assume the same facts as in Example 1, except that the amount of the prime contract between A and B is $7,100. Because the amount of the prime contract with the owner, A, is in excess of $6,600, the tax lien has priority over the entire amount of each of the mechanic’s liens of B and C, even though the amount of the contract between B and C is $300.

Example 3. Assume the same facts as in Example 1, except that A and B do not agree in advance upon the amount due under the prime contract but agree that B will perform the work for the cost of materials and labor plus 10 percent of such cost. When the work is completed, it is determined that the total amount due is $850. Because the prime contract price is not more than $6,600 and under local law B and C acquire mechanic’s liens on A’s residence, the liens of B and C have priority over the Federal tax lien.

* * * * *

(i) * * * (1) * * *

(iii) After the satisfaction of a levy pursuant to section 6332(b), unless and until the Internal Revenue Service delivers to the insuring organization a notice (for example, another notice of levy, a letter, etc.) executed after the date of such satisfaction, that the lien exists.

* * * * *

(j) Effective/applicability date. This section applies to any notice of Federal tax lien filed on or after the date these regulations are published as final regulations in the Federal Register.

Par. 3. Section 301.6323(c)-2 is amended as follows:

1. Paragraph (d), Example 1 through Example 5, is revised.

2. Paragraph (e) is added.

The revisions and addition read as follows:

* * * * *

(d) * * *

Example 1. A, in order to finance the construction of a dwelling on a lot owned by him, mortgages the property to B. The mortgage, executed January 4, 2006, includes an agreement that B will make cash disbursements to A as the construction progresses. On February 1, 2006, in accordance with §301.6323(f)-1, a notice of lien is filed and recorded in the public index with respect to A’s delinquent tax liability. A continues the construction, and B makes cash disbursements on June 15, 2006, and December 15, 2006. Under local law B’s security interest arising by virtue of the disbursements is protected against a judgment lien arising February 1, 2006 (the date of tax lien filing) out of an unsecured obligation. Because B is the holder of a security interest coming into existence by reason of cash disbursements made pursuant to a written agreement, entered into before tax lien filing, to make cash disbursements to finance the construction of real property, and because B’s security interest is protected, under local law, against a judgment lien arising as of the time of tax lien filing out of an unsecured obligation, B’s security interest has priority over the tax lien.

Example 2. (i) C is awarded a contract for the demolition of several buildings. On March 3, 2004, C enters into a written agreement with D which provides that D will make cash disbursements to finance the demolition and also provides that repayment of the disbursements is secured by any sums due C under the contract. On April 1, 2004, in accordance with §301.6323(f)-1, a notice of lien is filed with respect to C’s delinquent tax liability. With actual notice of the tax lien, D makes cash disbursements to C on August 13, September 13, and October 13, 2004. Under local law D’s security interest in the proceeds of the contract with respect to the disbursements is entitled to priority over a judgment lien arising on April 1, 2004 (the date of tax lien filing) out of an unsecured obligation.

(ii) Because D’s security interest arose by reason of disbursements made pursuant to a written agreement, entered into before tax lien filing, to make cash disbursements to finance a contract to demolish real property, and because D’s security interest is valid under local law against a judgment lien arising as of the time of tax lien filed out of an unsecured obligation, the tax lien is not valid with respect to D’s security interest in the proceeds of the demolition contract.

Example 3. Assume the same facts as in Example 2 and, in addition, assume that, as further security for the cash disbursements, the March 3, 2004, agreement also provides for a security interest in all of C’s demolition equipment. Because the protection of the security interest arising from the disbursements made after tax lien filing under the agreement is limited under section 6323(c)(3) to the proceeds of the demolition contract and because, under the circumstances, the security interest in the equipment is not otherwise protected under section 6323, the tax lien will have priority over D’s security interest in the equipment.

Example 4. (i) On January 3, 2006, F and G enter into a written agreement, whereby F agrees to provide G with cash disbursements, seed, fertilizer, and insecticides as needed by G, in order to finance the raising and harvesting of a crop on a farm owned by G. Under the terms of the agreement F is to have a security interest in the crop, the farm, and all other property then owned or thereafter acquired by G. In accordance with §301.6323(f)-1, on January 10, 2006, a notice of lien is filed and recorded in the public index with respect to G’s delinquent tax liability. On March 3, 2006, with actual notice of the tax lien, F makes a cash disbursement of $5,000 to G and furnishes him seed, fertilizer, and insecticides having a value of $10,000. Under local law F’s security interest, coming into existence by reason of the cash disbursement and the furnishing of goods, has priority over a judgment lien arising January 10, 2006 (the date of tax lien filing and recording in the public index) out of an unsecured obligation.

(ii) Because F’s security interest arose by reason of a disbursement (including the furnishing of goods) made under a written agreement which was entered into before tax lien filing and which constitutes an agreement to finance the raising or harvesting of a farm crop, and because F’s security interest is valid under local law against a judgment lien arising as of the time of tax lien filing out of an unsecured obligation, the tax lien is not valid with respect to F’s security interest in the crop even though a notice of lien was filed before the security interest arose. Furthermore, because the farm is property subject to the tax lien at the time of tax lien filing, F’s security interest with respect to the farm also has priority over the tax lien.

Example 5. Assume the same facts as in Example 4 and in addition that on October 2, 2006, G acquires several tractors to which F’s security interest attaches under the terms of the agreement. Because the tractors are not property subject to the tax lien at the time of tax lien filing, the tax lien has priority over F’s security interest in the tractors.

(e) Effective/applicability date. This section applies with respect to any notice of Federal tax lien filed on or after the date these regulations are published as final regulations in the Federal Register.

Par. 4. Section 301.6323(f)-1 is amended as follows:

1. Paragraph (d)(2) is revised.

2. Paragraph (f) is added.

The revision and addition read as follows:

* * * * *

(d) * * *

(2) Form 668 defined. The term Form 668 means either a paper form or a form transmitted electronically, including a form transmitted by facsimile (fax) or electronic mail (e-mail). A Form 668 must identify the taxpayer, the tax liability giving rise to the lien, and the date the assessment arose regardless of the method used to file the notice of Federal tax lien.

* * * * *

(f) Effective/applicability date. This section applies with respect to any notice of Federal tax lien filed on or after the date these regulations are published as final regulations in the Federal Register.

Par. 5. Section 301.6323(g)-1 is amended as follows:

1. Paragraphs (a)(1), (a)(4), (b)(3) introductory text, (b)(3) Example 1, (b)(3) Example 5, and (c)(1) are revised.

2. Paragraphs (a)(3), (a)(3)(i), and (a)(3)(ii) are redesignated as paragraphs (a)(3)(i), (a)(3)(i)(A), and (a)(3)(i)(B), respectively.

3. The undesignated text following newly-designated paragraph (a)(3)(i)(B) is designated as paragraph (a)(3)(ii).

4. Newly-designated paragraph (a)(3)(i) is revised.

5. Newly-designated paragraph (a)(3)(i)(A) is revised.

6. Newly-designated paragraph (a)(3)(ii) is revised.

7. Paragraphs (c)(1) through (c)(1)(ii) are revised.

8. Paragraph (c)(2) is removed.

9. Paragraph (c)(3) is redesignated as paragraph (c)(2) and revised.

10. Paragraph (d) is added.

The revisions and addition read as follows:

(a) In general—(1) Requirement to refile. In order to continue the effect of a notice of lien, the notice must be refiled in the place described in paragraph (b) of this section during the required filing period (described in paragraph (c) of this section). If two or more notices of lien are filed with respect to a particular tax assessment, and each notice of lien contains a certificate of release that releases the lien when the required refiling period ends, the failure to comply with the provisions of paragraphs (b)(1)(i) and (c) of this section in respect to one of the notices of lien releases the lien and renders ineffective the refiling of any other notice of lien.

* * * * *.

(3) Effect of failure to refile. (i) If the Internal Revenue Service fails to refile a notice of lien in the manner described in paragraphs (b) and (c) of this section, the notice of lien is not effective, after the expiration of the required filing period, as against any person without regard to when the interest of the person in the property subject to the lien was acquired. If a notice of lien contains a certificate of release that releases the lien at the end of the required refiling period and the notice of lien is not refiled during this period, the lien is extinguished and the notice of lien is ineffective with respect to—

(A) Property which is the subject matter of a suit, to which the United States is a party, commenced prior to the expiration of the required filing period; and

* * * * *

(ii) However, if a notice of lien does not contain a certificate of release that releases the lien at the end of the required refiling period, the failure to refile during the required refiling period will not affect the existence of the lien nor the effectiveness of the notice with respect to property which is the subject matter of a suit commenced prior to the expiration of the required refiling period, or property which has been levied upon prior to the expiration of such period.

(4) Filing of new notice. If a notice of lien is not refiled, and the notice of lien contains a certificate of release that automatically releases the lien when the required refiling period ends, the lien is released as of that date and is no longer in existence. The Internal Revenue Service must revoke the release before it can file a new notice of lien. This new filing must meet the requirements of section 6323(f) and §301.6323(f)-1 and is effective from the date on which such filing is made.

(b) * * *

(3) Examples. The following examples illustrate the provisions of this section:

Example 1. A, a delinquent taxpayer, is a resident of State M and owns real property in State N. In accordance with §301-6323-f(1), notices of lien are filed in States M and N. The notices of lien contain certificates of release that release the lien at the end of the required refiling period. In order to continue the effect of the notice of lien filed in either M or N, the IRS must refile, during the required refiling period, the notice of lien with the appropriate office in M as well as with the appropriate office in N.

* * * * *

Example 5. D, a delinquent taxpayer, is a resident of State M and owns real property in States N and O. In accordance with §301.6323(f)-1, the Internal Revenue Service files notices of lien in M, N, and O States. Nine years and 6 months after the date of the assessment shown on the notice of lien, D establishes his residence in P, and at that time the Internal Revenue Service receives from D a notification of his change in residence in accordance with the provisions of paragraph (b)(2) of this section. On a date which is 9 years and 7 months after the date of the assessment shown on the notice of lien, the IRS properly refiles notices of lien in M, N, and O which refilings are sufficient to continue the effect of each of the notices of lien. The Internal Revenue Service is not required to file a notice of lien in P because D did not notify the Internal Revenue Service of his change of residence to P more than 89 days prior to the date each of the refilings in M, N, and O was completed.

* * * * *

(c) Required filing period—(1) In general. For the purpose of this section, except as provided in paragraph (c)(2) of this section, the term required filing period means—

(i) The 1-year period ending 30 days after the expiration of 10 years after the date of the assessment of the tax; and

(ii) The 1-year period ending with the expiration of 10 years after the close of the preceding required refiling period for such notice of lien.

(2) Examples. The following examples illustrate the provisions of this paragraph:

Example 1. On March 10, 1998, an assessment of tax is made against B, a delinquent taxpayer, and a lien for the amount of the assessment arises on that date. On July 10, 1998, in accordance with §301.6323(f)-1, a notice of lien is filed. The notice of lien filed on July 10, 1998, is effective through April 9, 2008. The first required refiling period for the notice of lien begins on April 10, 2007, and ends on April 9, 2008. A refiling of the notice of lien during that period will extend the effectiveness of the notice of lien filed on July 10, 1998, through April 9, 2018. The second required refiling period for the notice of lien begins on April 10, 2017, and ends on April 9, 2018.

Example 2. Assume the same facts as in Example 1, except that the Internal Revenue Service fails to refile a notice of lien during the first required refiling period (April 10, 2007, through April 9, 2008). A notice of lien is filed on June 9, 2009, in accordance with §301.6323(f)-1. This notice is ineffective if the original notice contained a certificate of release, as the certificate of release would have had the effect of extinguishing the lien as of April 10, 2008. The Internal Revenue Service could revoke the release and file a new notice of lien, which would be effective as of the date it was filed.

(d) Effective/applicability date. This section applies with respect to any notice of Federal tax lien filed on or after the date these regulations are published as final regulations in the Federal Register.

Par. 6. Section 301.6323(h)-1 is amended as follows:

1. Paragraphs (a)(2)(ii) and (a)(3) are revised.

2. A new paragraph (h) is added.

The revisions and addition read as follows:

(a) * * *

(2) * * *

(ii) The following example illustrates the application of paragraph (a)(2):

Example. (i) Under the law of State X, a security interest in certificated securities, negotiable documents, or instruments may be perfected, and hence protected against a judgment lien, by filing or by the secured party taking possession of the collateral. However, a security interest in such intangible personal property is considered to be temporarily perfected for a period of 20 days from the time the security interest attaches, to the extent that it arises for new value given under an authenticated security agreement. Under the law of X, a security interest attaches to such collateral when there is an agreement between the creditor and debtor that the interest attaches, the debtor has rights in the property, and consideration is given by the creditor. Under the law of X, in the case of temporary perfection, the security interest in such property is protected during the 20-day period against a judgment lien arising, after the security interest attaches, out of an unsecured obligation. Upon expiration of the 20-day period, the holder of the security interest must perfect its security interest under local law.

(ii) Because the security interest is perfected during the 20-day period against a subsequent judgment lien arising out of an unsecured obligation, and because filing or the taking of possession before the conclusion of the period of temporary perfection is not considered, for purposes of paragraph (a)(2)(i) of this section, to be a requisite action which relates back to the beginning of such period, the requirements of this paragraph are satisfied. Because filing or taking possession is a condition precedent to continued perfection, filing or taking possession of the collateral is a requisite action to establish such priority after expiration of the period of temporary perfection. If there is a lapse of perfection for failure to take possession, the determination of when the security interest exists (for purposes of protection against the tax lien) is made without regard to the period of temporary perfection.

(3) Money or money’s worth. For purposes of this paragraph, the term money or money’s worth includes money, a security (as defined in paragraph (d) of this section), tangible or intangible property, services, and other consideration reducible to a money value. Money or money’s worth also includes any consideration which otherwise would constitute money or money’s worth under the preceding sentence which was parted with before the security interest would otherwise exist if, under local law, past consideration is sufficient to support an agreement giving rise to a security interest. A firm commitment to part with money, a security, tangible or intangible property, services, or other consideration reducible to a money value does not, in itself, constitute a consideration in money or money’s worth. A relinquishing or promised relinquishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights is not a consideration in money or money’s worth. Nor is love and affection, promise of marriage, or any other consideration not reducible to a money value a consideration in money or money’s worth.

* * * * *

(h) Effective/applicability date. This section applies as of the date these regulations are published as final regulations in the Federal Register.

Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.

(a) In general. Under section 2642(g)(1)(A), the Secretary has the authority to issue regulations describing the circumstances in which a transferor, as defined in section 2652(a), or the executor of a transferor’s estate, as defined in section 2203, will be granted an extension of time to allocate generation-skipping transfer (GST) exemption as described in sections 2642(b)(1) and (2). The Secretary also has the authority to issue regulations describing the circumstances under which a transferor or the executor of a transferor’s estate will be granted an extension of time to make the elections described in section 2632(b)(3) and (c)(5). Section 2632(b)(3) provides that an election may be made by or on behalf of a transferor not to have the transferor’s GST exemption automatically allocated under section 2632(b)(1) to a direct skip, as defined in section 2612(c), made by the transferor during life. Section 2632(c)(5)(A)(i) provides that an election may be made by or on behalf of a transferor not to have the transferor’s GST exemption automatically allocated under section 2632(c)(1) to an indirect skip, as defined in section 2632(c)(3)(A), or to any or all transfers made by such transferor to a particular trust. Section 2632(c)(5)(A)(ii) provides that an election may be made by or on behalf of a transferor to treat any trust as a GST trust, as defined in section 2632(c)(3)(B), for purposes of section 2632(c) with respect to any or all transfers made by that transferor to the trust. This section generally describes the factors that the Internal Revenue Service (IRS) will consider when an extension of time is sought by or on behalf of a transferor to timely allocate GST exemption and/or to make an election under section 2632(b)(3) or (c)(5). Relief provided under this section will be granted through the IRS letter ruling program. See paragraph (h) of this section.

(b) Effect of Relief. If an extension of time to allocate GST exemption is granted under this section, the allocation of GST exemption will be considered effective as of the date of the transfer, and the value of the property transferred for purposes of chapter 11 or chapter 12 will determine the amount of GST exemption to be allocated. If an extension of time to elect out of the automatic allocation of GST exemption under section 2632(b)(3) or (c)(5) is granted under this section, the election will be considered effective as of the date of the transfer. If an extension of time to elect to treat any trust as a GST trust under section 2632(c)(5)(A)(ii) is granted under this section, the election will be considered effective as of the date of the first (or each) transfer covered by that election.

(c) Limitation on relief. The amount of GST exemption that may be allocated to a transfer as the result of relief granted under this section is limited to the amount of the transferor’s unused GST exemption under section 2631(c) as of the date of the transfer. Thus, if, by the time of the making of the allocation or election pursuant to relief granted under this section, the GST exemption amount under section 2631(c) has increased to an amount in excess of the amount in effect for the date of the transfer, no portion of the increased amount may be applied to that earlier transfer by reason of the relief granted under this section.

(d) Basis for determination—(1) In general. Requests for relief under this section will be granted when the transferor or the executor of the transferor’s estate provides evidence (including the affidavits described in paragraph (h) of this section) to establish to the satisfaction of the IRS that the transferor or the executor of the transferor’s estate acted reasonably and in good faith, and that the grant of relief will not prejudice the interests of the Government. Paragraphs (d)(2) and (d)(3) of this section set forth nonexclusive lists of factors the IRS will consider in determining whether this standard of reasonableness, good faith, and lack of prejudice to the interests of the Government has been met so that such relief will be granted. In making this determination, IRS will consider these factors, as well as all other relevant facts and circumstances. Paragraph (e) of this section sets forth situations in which this standard has not been met and, as a result, in which relief under this section will not be granted.

(2) Reasonableness and good faith. The following is a nonexclusive list of factors that will be considered to determine whether the transferor or the executor of the transferor’s estate acted reasonably and in good faith for purposes of this section:

(i) The intent of the transferor to timely allocate GST exemption to a transfer or to timely make an election under section 2632(b)(3) or (c)(5), as evidenced in the trust instrument, the instrument of transfer, or other relevant documents contemporaneous with the transfer, such as Federal gift and estate tax returns and correspondence. This may include evidence of the intended GST tax status of the transfer or the trust (for example, exempt, non-exempt, or partially exempt), or more explicit evidence of intent with regard to the allocation of GST exemption or the election under section 2632(b)(3) or (c)(5).

(ii) Intervening events beyond the control of the transferor or of the executor of the transferor’s estate as the cause of the failure to allocate GST exemption to a transfer or the failure to make an election under section 2632(b)(3) or (c)(5).

(iii) Lack of awareness by the transferor or the executor of the transferor’s estate of the need to allocate GST exemption to the transfer, despite the exercise of reasonable diligence, taking into account the experience of the transferor or the executor of the transferor’s estate and the complexity of the GST issue, as the cause of the failure to allocate GST exemption to a transfer or to make an election under section 2632(b)(3) or (c)(5).

(iv) Consistency by the transferor with regard to the allocation of the transferor’s GST exemption (for example, the transferor’s consistent allocation of GST exemption to transfers to skip persons or to a particular trust, or the transferor’s consistent election not to have the automatic allocation of GST exemption apply to transfers to one or more trusts or skip persons pursuant to section 2632(b)(3) or (c)(5)). Evidence of consistency may be less relevant if there has been a change of circumstances or change of trust beneficiaries that would otherwise explain a deviation from prior GST exemption allocation decisions.

(v) Reasonable reliance by the transferor or the executor of the transferor’s estate on the advice of a qualified tax professional retained or employed by one or both of them and, in reliance on or consistent with that advice, the failure of the transferor or the executor to allocate GST exemption to the transfer or to make an election described in section 2632(b)(3) or (c)(5). Reliance on a qualified tax professional will not be considered to have been reasonable if the transferor or the executor of the transferor’s estate knew or should have known that the professional either—

(A) Was not competent to render advice on the GST exemption; or

(B) Was not aware of all relevant facts.

(3) Prejudice to the interests of the Government. The following is a nonexclusive list of factors that will be considered to determine whether the interests of the Government would be prejudiced for purposes of this section:

(i) The interests of the Government would be prejudiced to the extent to which the request for relief is an effort to benefit from hindsight. The interests of the Government would be prejudiced if the IRS determines that the requested relief is an attempt to benefit from hindsight rather than to achieve the result the transferor or the executor of the transferor’s estate intended at the time when the transfer was made. A factor relevant to this determination is whether the grant of the requested relief would permit an economic advantage or other benefit that would not have been available if the allocation or election had been timely made. Similarly, there would be prejudice if a grant of the requested relief would permit an economic advantage or other benefit that results from the selection of one out of a number of alternatives (other than whether or not to make an allocation or election) that were available at the time the allocation or election could have been timely made, if hindsight makes the selected alternative more beneficial than the other alternatives. Finally, in a situation where the only choices were whether or not to make a timely allocation or election, prejudice would exist if the transferor failed to make the allocation or election in order to wait to see (thus, with the benefit of hindsight) whether or not the making of the allocation of exemption or election would be more beneficial.

(ii) The timing of the request for relief will be considered in determining whether the interests of the Government would be prejudiced by granting relief under this section. The interests of the Government would be prejudiced if the transferor or the executor of the transferor’s estate delayed the filing of the request for relief with the intent to deprive the IRS of sufficient time to challenge the claimed identity of the transferor of the transferred property that is the subject of the request for relief, the value of that transferred property for Federal gift or estate tax purposes, or any other aspect of the transfer that is relevant for Federal gift or estate tax purposes. The fact that any period of limitations on the assessment or collection of transfer taxes has expired prior to the filing of a request for relief under this section, however, will not by itself prohibit a grant of relief under this section. Similarly, the combination of the expiration of any such period of limitations with the fact that the asset or interest was valued for transfer tax purposes with the use of a valuation discount will not by itself prohibit a grant of relief under this section.

(iii) The occurrence and effect of an intervening taxable termination or taxable distribution will be considered in determining whether the interests of the Government would be prejudiced by granting relief under this section. The interests of the Government may be prejudiced if a taxable termination or taxable distribution occurred between the time for making a timely allocation of GST exemption or a timely election described in section 2632(b)(3) or (c)(5) and the time at which the request for relief under this section was filed. The impact of a grant of relief on (and the difficulty of adjusting) the GST tax consequences of that intervening termination or distribution will be considered in determining whether the occurrence of a taxable termination or taxable distribution constitutes prejudice.

(e) Situations in which the standard of reasonableness, good faith, and lack of prejudice to the interests of the Government has not been met. Relief under this section will not be granted if the IRS determines that the transferor or the executor of the transferor’s estate has not acted reasonably and in good faith, and/or that the grant of relief would prejudice the interests of the Government. The following situations provide illustrations of some circumstances under which the standard of reasonableness, good faith, and lack of prejudice to the interests of the Government has not been met, and as a result, in which relief under this section will not be granted:

(1) Timely allocations and elections. Relief will not be granted under this section to decrease or revoke a timely allocation of GST exemption as described in §26.2632-1(b)(4)(ii)(A)(1), or to revoke an election under section 2632(b)(3) or (c)(5) made on a timely filed Federal gift or estate tax return.

(2) Timing. Relief will not be granted if the transferor or executor delayed the filing of the request for relief with the intent to deprive the IRS of sufficient time to challenge the claimed identity of the transferor or the valuation of the transferred property for Federal gift or estate tax purposes. (However, see paragraph (d)(3)(ii) of this section for examples of facts which alone do not constitute prejudice.)

(3) Failure after being accurately informed. Relief will not be granted under this section if the decision made by the transferor or the executor of the transferor’s estate (who had been accurately informed in all material respects by a qualified tax professional retained or employed by either (or both) of them with regard to the allocation of GST exemption or an election described in section 2632(b)(3) or (c)(5)) was reflected or implemented by the action or inaction that is the subject of the request for relief.

(4) Hindsight. Relief under this section will not be granted if the IRS determines that the requested relief is an attempt to benefit from hindsight rather than an attempt to achieve the result the transferor or the executor of the transferor’s estate intended when the transfer was made. One factor that will be relevant to this determination is whether the grant of relief will give the transferor the benefit of hindsight by providing an economic advantage that may not have been available if the allocation or election had been timely made. Thus, relief will not be granted if that relief will shift GST exemption from one trust to another trust unless the beneficiaries of the two trusts, and their respective interests in those trusts, are the same. Similarly, relief will not be granted if there is evidence that the transferor or executor had not made a timely allocation of the exemption in order to determine which of the various trusts achieved the greatest asset appreciation before selecting the trust that should have a zero inclusion ratio.

(f) Period of limitations under section 6501. A request for relief under this section does not reopen, suspend, or extend the period of limitations on assessment or collection of any estate, gift, or GST tax under section 6501. Thus, the IRS may request that the transferor or the transferor’s executor consent, under section 6501(c)(4), to an extension of the period of limitation on assessment or collection of any or all gift and GST taxes for the transfer(s) that are the subject of the requested relief. The transferor or the transferor’s executor has the right to refuse to extend the period of limitations, or to limit such extension to particular issues or to a particular period of time. See section 6501(c)(4)(B).

(g) Refunds. The filing of a request for relief under section 2642(g)(1) with the IRS does not constitute a claim for refund or credit of an overpayment and no implied right to refund will arise from the filing of such a request for relief. Similarly, the filing of such a request for relief does not extend the period of limitations under section 6511 for filing a claim for refund or credit of an overpayment. In the event the grant of relief under section 2642(g)(1) results in a potential claim for refund or credit of an overpayment, no such refund or credit will be allowed to the taxpayer or to the taxpayer’s estate if the period of limitations under section 6511 for filing a claim for a refund or credit of the Federal gift, estate, or GST tax that was reduced by the granted relief has expired. The period of limitations under section 6511 is generally the later of three years from the time the original return is filed or two years from the time the tax was paid. If the IRS and the taxpayer agree to extend the period for assessment of tax, the period for filing a claim for refund or credit will be extended. Section 6511(c). The taxpayer or the taxpayer’s estate is responsible for preserving any potential claim for refund or credit. A taxpayer who seeks and is granted relief under section 2642(g)(1) will not be regarded as having filed a claim for refund or credit by requesting such relief. In order to preserve a right of refund or credit, the taxpayer or the executor of the taxpayer’s estate also must file before the expiration of the period of limitations under section 6511 for filing such a claim any required forms for requesting a refund or credit in accordance with the instructions to such forms and applicable regulations.

(h) Procedural requirements—(1) Letter ruling program. The relief described in this section is provided through the IRS’s private letter ruling program. See Revenue Procedure 2008-1, 2008-1 I.R.B. 1, or its successor, (which are available at www.irs.gov. Requests for relief under this section that do not meet the requirements of §301.9100-2 of this chapter must be made under the rules of this section.

(2) Affidavit and declaration of transferor or the executor of the transferor’s estate—(i) The transferor or the executor of the transferor’s estate must submit a detailed affidavit describing the events that led to the failure to timely allocate GST exemption to a transfer or the failure to timely elect under section 2632(b)(3) or (c)(5), and the events that led to the discovery of the failure. If the transferor or the executor of the transferor’s estate relied on a tax professional for advice with respect to the allocation or election, the affidavit must describe—

(A) The scope of the engagement;

(B) The responsibilities the transferor or the executor of the transferor’s estate believed the professional had assumed, if any; and

(C) The extent to which the transferor or the executor of the transferor’s estate relied on the professional.

(ii) Attached to each affidavit must be copies of any writing (including, without limitation, notes and e-mails) and other contemporaneous documents within the possession of the affiant relevant to the transferor’s intent with regard to the application of GST tax to the transaction for which relief under this section is being requested.

(iii) The affidavit must be accompanied by a dated declaration, signed by the transferor or the executor of the transferor’s estate that states: “Under penalties of perjury, I declare that I have examined this affidavit, including any attachments thereto, and to the best of my knowledge and belief, this affidavit, including any attachments thereto, is true, correct, and complete. In addition, under penalties of perjury, I declare that I have examined all the documents included as part of this request for relief, and, to the best of my knowledge and belief, these documents collectively contain all the relevant facts relating to the request for relief, and such facts are true, correct, and complete.”

(3) Affidavits and declarations from other parties—(i) The transferor or the executor of the transferor’s estate must submit detailed affidavits from individuals who have knowledge or information about the events that led to the failure to allocate GST exemption or to elect under section 2632(b)(3) or (c)(5), and/or to the discovery of the failure. These individuals may include individuals whose knowledge or information is not within the personal knowledge of the transferor or the executor of the transferor’s estate. The individuals described in paragraph (h)(3)(i) of this section must include—

(A) Each agent or legal representative of the transferor who participated in the transaction and/or the preparation of the return for which relief is being requested;

(B) The preparer of the relevant Federal estate and/or gift tax return(s);

(C) Each individual (including an employee of the transferor or the executor of the transferor’s estate) who made a substantial contribution to the preparation of the relevant Federal estate and/or gift tax return(s); and

(D) Each tax professional who advised or was consulted by the transferor or the executor of the transferor’s estate with regard to any aspect of the transfer, the trust, the allocation of GST exemption, and/or the election under section 2632(b)(3) or (c)(5).

(ii) Each affidavit must describe the scope of the engagement and the responsibilities of the individual as well as the advice or service(s) the individual provided to the transferor or the executor of the transferor’s estate.

(iii) Attached to each affidavit must be copies of any writing (including, without limitation, notes and e-mails) and other contemporaneous documents within the possession of the affiant relevant to the transferor’s intent with regard to the application of GST tax to the transaction for which relief under this section is being requested.

(iv) Each affidavit also must include the name, and current address of the individual, and be accompanied by a dated declaration, signed by the individual that states: “Under penalties of perjury, I declare that I have personal knowledge of the information set forth in this affidavit, including any attachments thereto. In addition, under penalties of perjury, I declare that I have examined this affidavit, including any attachments thereto, and, to the best of my knowledge and belief, the affidavit contains all the relevant facts of which I am aware relating to the request for relief filed by or on behalf of [transferor or the executor of the transferor’s estate], and such facts are true, correct, and complete.”

(v) If an individual who would be required to provide an affidavit under paragraph (h)(3)(i) of this section has died or is not competent, the affidavit required under paragraph (h)(2) of this section must include a statement to that effect, as well as a statement describing the relationship between that individual and the transferor or the executor of the transferor’s estate and the information or knowledge the transferor or the executor of the transferor’s estate believes that individual had about the transfer, the trust, the allocation of exemption, or the election. If an individual who would be required to provide an affidavit under paragraph (h)(3)(i) of this section refuses to provide the transferor or the executor of the transferor’s estate with such an affidavit, the affidavit required under paragraph (h)(2) of this section must include a statement that the individual has refused to provide the affidavit, a description of the efforts made to obtain the affidavit from the individual, the information or knowledge the transferor or the executor of the transferor’s estate believes the individual had about the transfer, and the relationship between the individual and the transferor or the executor of the transferor’s estate.

(i) Effective/applicability date. Section 26.2642-7 applies to requests for relief filed on or after the date of publication of the Treasury decision adopting these proposed rules as final regulations in the Federal Register.

* * * * *

(g) Relief under section 2642(g)(1)—(1) Procedures. The procedures set forth in this section are not applicable for requests for relief under section 2642(g)(1). For requests for relief under section 2642(g)(1), see §26.2642-7.

(2) Effective/applicability date. Paragraph (g) of this section applies to requests for relief under section 2642(g)(1) filed on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register.

Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.

(a) In general—(1) Overview. This section sets forth rules for determining a plan’s minimum required contribution for a plan year under section 430(a). Section 430 and this section apply to single employer defined benefit plans (including multiple employer plans as defined in section 413(c)) that are subject to section 412 but do not apply to multiemployer plans (as defined in section 414(f)). Paragraph (b) of this section defines a plan’s minimum required contribution for a plan year. Paragraph (c) of this section provides rules for determining shortfall amortization installments. Paragraph (d) of this section provides rules for determining waiver amortization installments. Paragraph (e) of this section provides for early deemed amortization of shortfall and waiver amortization bases for fully funded plans. Paragraph (f) of this section provides definitions that apply for purposes of this section. Paragraph (g) of this section provides examples that illustrate the application of this section. Paragraph (h) of this section provides effective/applicability dates and transition rules.

(2) Special rules for multiple employer plans. In the case of a multiple employer plan to which section 413(c)(4)(A) applies, the rules of section 430 and this section are applied separately for each employer under the plan, as if each employer maintained a separate plan. Thus, the minimum required contribution is computed separately for each employer under such a multiple employer plan. In the case of a multiple employer plan to which section 413(c)(4)(A) does not apply (that is, a plan described in section 413(c)(4)(B) that has not made the election for section 413(c)(4)(A) to apply), the rules of section 430 and this section are applied as if all participants in the plan were employed by a single employer.

(b) Definition of minimum required contribution—(1) In general. In the case of a defined benefit plan that is not a multiemployer plan (within the meaning of section 414(f)), except as offset under section 430(f) and §1.430(f)-1, the minimum required contribution for a plan year is determined as the applicable amount determined under paragraph (b)(2) of this section or paragraph (b)(3) of this section, reduced by the amount of any funding waiver under section 412(c) that is granted for the plan year. See paragraph (b)(4) of this section for special rules for a plan maintained by a commercial passenger airline (or other eligible employer) for which an election under section 402 of the Pension Protection Act of 2006, Public Law 109-280 (120 Stat. 780) (PPA ’06), has been made, and see section 430(j) and §1.430(j)-1 for rules regarding the required interest adjustment for a contribution that is paid on a date other than the valuation date for the plan year.

(2) Plan assets less than funding target—(i) General rule. For any plan year in which the value of plan assets of the plan (as reduced to reflect the subtraction of certain funding balances as provided under §1.430(f)-1(c), but not below zero) is less than the funding target of the plan for the plan year, the minimum required contribution for that plan year is equal to the sum of—

(A) The target normal cost of the plan for the plan year;

(B) The total (not less than zero) of the shortfall amortization installments determined with respect to the shortfall amortization bases for the plan year and each of the 6 preceding plan years as described in paragraph (c) of this section; and

(C) The total of the waiver amortization installments determined with respect to the waiver amortization bases for each of the 5 preceding plan years as described in paragraph (d) of this section.

(ii) Special rule for short plan years—(A) Proration of amortization installments. In determining the minimum required contribution in the case of a plan year that is shorter than 12 months (and is not a 52-week plan year of a plan that uses a 52-53 week plan year), the shortfall amortization installments and waiver amortization installments that are taken into account under paragraphs (b)(2)(i)(B) and (C) of this section are determined by multiplying the amount of those installments that would be taken into account for a 12-month plan year by a fraction, the numerator of which is the duration of the short plan year and the denominator of which is 1 year.

(B) Effect on subsequent years. In plan years after the short plan year, installments with respect to a shortfall amortization base (or waiver amortization base) continue to be taken into account under paragraphs (b)(2)(i)(B) and (C) of this section until the total amount of those installments, as originally determined to be paid over 7 years (or 5 years in the case of waiver amortization installments), has been taken into account. Thus, for example, in the case of a plan that has a short plan year, an additional partial installment will be taken into account under paragraphs (b)(2)(i)(B) and (C) of this section during the plan year after the end of the original amortization period in an amount determined so that the total of the amortization installments (including the prorated installment payable for the short plan year and the additional partial installment) is equal to the total amount of the amortization installments as originally determined. Similarly, in the case of a plan that has a short plan year, the total number of plan years required to take into account the full amount of installments will exceed 7 plan years (or 5 plan years in the case of waiver amortization installments), and, accordingly, the number of preceding plan years taken into account in paragraphs (b)(2)(i)(B) and (C) of this section is correspondingly increased so that the total amount of the amortization installments as originally determined is taken into account. In addition, for plan years beginning after the close of the short plan year, the shortfall amortization installments and waiver amortization installments that are taken into account under paragraphs (b)(2)(i)(B) and (C) of this section are assumed to be paid on the valuation date for the new plan year (rather than on the valuation date for the short plan year and preceding plan years).

(3) Plan assets equal or exceed funding target. For any plan year in which the value of plan assets (as reduced to reflect the subtraction of certain funding balances as provided under §1.430(f)-1(c), but not below zero) equals or exceeds the funding target of the plan for the plan year, the minimum required contribution for that plan year is equal to the target normal cost of the plan for the plan year reduced (but not below zero) by that excess.

(4) Special rules for commercial passenger airlines—(i) In general. This paragraph (b)(4) provides special rules for a plan maintained by a commercial passenger airline (or an employer whose principal business is providing catering services to a commercial passenger airline) for which an election under section 402 of PPA ’06 has been made.

(ii) Frozen plans—(A) Determinations during 17-year amortization period. If an election described in section 402(a)(1) of PPA ’06 applies for the plan year with respect to an eligible plan described in section 402(c)(1) of PPA ’06, then the plan’s minimum required contribution for purposes of section 430 of the Code for the plan year is equal to the amount necessary to amortize (at an interest rate of 8.85 percent) the unfunded liability of the plan in equal installments over the remaining amortization period. For this purpose, the unfunded liability means the excess of the accrued liability under the plan determined using the unit credit funding method and an interest rate of 8.85 percent over the fair market value of assets, and the remaining amortization period is the 17-plan-year period beginning with the first plan year for which the election was made, reduced by 1 year for each plan year after the first plan year for which the election was made. In addition, the section 430(f)(3) election to apply funding balances against the minimum required contribution does not apply to a plan to which the election described in section 402(a)(1) of PPA ’06 applies for the plan year.

(B) Determinations following 17-year amortization period. If an election described in section 402(a)(1) of PPA ’06 applied to the plan for any preceding plan year but does not apply for the current plan year, then the plan’s minimum required contribution for purposes of section 430 of the Code for the plan year is determined without regard to that election. For the first plan year for which that election no longer applies to the plan, any prefunding balance or funding standard carryover balance is reduced to zero.

(iii) Other plans of commercial passenger airlines. If an election described in section 402(a)(2) of PPA ’06 has been made for an eligible plan described in section 402(c)(1) of PPA ’06, then the minimum required contribution for purposes of section 430 is determined under generally applicable rules, except that the shortfall amortization base for the first plan year for which section 430 applies to the plan is amortized over 10 years (rather than over 7 years as provided in paragraph (c)(1) of this section) in accordance with §1.430(h)(2)-1(e) and (f) using the interest rates that apply for the first plan year for which section 430 applies to the plan. In such a case, the shortfall amortization installments with respect to the shortfall amortization base for that plan year will continue to be included in determining the minimum required contribution for 10 years rather than 7 years. See also §1.430(h)(2)-1(b)(6) for a special rule for determining the funding target in the case of a plan for which an election under section 402(a)(2) of PPA ’06 has been made.

(c) Shortfall amortization installments—(1) In general. For purposes of this section, the shortfall amortization installments with respect to a shortfall amortization base established for a plan year are the annual amounts necessary to amortize that shortfall amortization base in level annual installments over the 7-year period beginning with that plan year. See §1.430(h)(2)-1(e) and (f) for rules regarding interest rates used for determining shortfall amortization installments and the date within each plan year on which the installments are assumed to be paid. The shortfall amortization installments are determined using the interest rates that apply for the plan year for which the shortfall amortization base is established and are not redetermined in subsequent plan years to reflect changes in interest rates under section 430(h)(2) for those subsequent plan years.

(2) Shortfall amortization base—(i) In general. For purposes of this section, unless the value of plan assets (as reduced to reflect the subtraction of certain funding balances as provided under §1.430(f)-1(c)(2), but not below zero) is equal to or greater than the funding target of the plan for the plan year, a shortfall amortization base is established for the plan year equal to—

(A) The funding shortfall of the plan for the plan year; minus

(B) The amount attributable to future installments determined under paragraph (c)(2)(ii) of this section.

(ii) Amount attributable to future installments. The amount attributable to future installments is equal to the sum of the present values (determined in accordance with §1.430(h)(2)-1(e) and (f) using the interest rates that apply for the current plan year) of—

(A) The shortfall amortization installments that have been determined for the plan year and any succeeding plan year with respect to the shortfall amortization bases of the plan for any plan year preceding the plan year; and

(B) The waiver amortization installments that have been determined for the plan year and any succeeding plan year with respect to the waiver amortization bases of the plan for any plan year preceding the plan year.

(iii) Transition rule. See paragraph (h)(4) of this section for a transition rule under which only a portion of the funding target is taken into account in determining whether a shortfall amortization base is established under this paragraph (c)(2).

(d) Waiver amortization installments—(1) In general. For purposes of this section, the waiver amortization installments with respect to a waiver amortization base established for a plan year are the annual amounts necessary to amortize that waiver amortization base in level annual installments over the 5-year period beginning with the following plan year. See §1.430(h)(2)-1(e) and (f) for rules regarding interest rates used for determining waiver amortization installments and the date within each plan year on which the installments are assumed to be paid. The waiver amortization installments established with respect to a waiver amortization base are determined using the interest rates that apply for the plan year for which the waiver is granted (even though the first installment with respect to the waiver amortization base is not due until the subsequent plan year) and are not redetermined in subsequent plan years to reflect changes in interest rates under section 430(h)(2) for those subsequent plan years.

(2) Waiver amortization base—(i) In general. For purposes of this section, a waiver amortization base is established for each plan year for which a waiver of the minimum funding standard has been granted in accordance with section 412(c). The amount of the waiver amortization base is equal to the amount of the minimum required contribution waived (or the waived funding deficiency) for the plan year.

(ii) Transition rule. See paragraph (h)(3) of this section for the treatment of funding waivers granted for plan years beginning before 2008.

(e) Early deemed amortization upon attainment of funding target. In any case in which the funding shortfall of a plan for a plan year is zero—

(1) The shortfall amortization bases for all preceding plan years (and all shortfall amortization installments determined with respect to those shortfall amortization bases) are reduced to zero; and

(2) The waiver amortization bases for all preceding plan years (and all waiver amortization installments determined with respect to such bases) are reduced to zero.

(f) Definitions—(1) In general. The definitions set forth in this paragraph (f) apply for purposes of this section.

(2) Funding shortfall. The term funding shortfall means the excess (if any) of—

(i) The funding target of the plan for a plan year; over

(ii) The value of plan assets for the plan year (as reduced to reflect the subtraction of the funding standard carryover balance and prefunding balance to the extent provided under §1.430(f)-1(c), but not below zero).

(3) Funding target. The term funding target means the plan’s funding target for a plan year determined under §1.430(d)-1(b)(2), §1.430(i)-1(c), or §1.430(i)-1(e)(1), whichever applies to the plan for the plan year.

(4) Target normal cost. The term target normal cost means the plan’s target normal cost for a plan year determined under §1.430(d)-1(b)(1), §1.430(i)-1(d), or §1.430(i)-1(e)(2), whichever applies to the plan for the plan year.

(g) Examples. The following examples illustrate the rules of this section. Unless otherwise indicated, these examples are based on the following assumptions: the plan is subject to section 430 starting in 2008; the plan year is the calendar year; the valuation date is January 1; and the plan’s funding standard carryover balance is $0.

Example 1. (i) Plan A has a funding target of $2,500,000 and assets totaling $1,800,000 as of January 1, 2008. The 2008 actuarial valuation is performed using the 24-month average segment rates applicable for September 2007 (determined without regard to the transitional rule of section 430(h)(2)(G)).

(ii) A $700,000 shortfall amortization base is established for 2008, which is equal to the $2,500,000 funding target less $1,800,000 of assets.

(iii) With respect to this shortfall amortization base of $700,000, there is a shortfall amortization installment of $116,852 (which is equal to the $700,000 shortfall amortization base amortized over 7 years) for each year from 2008 through 2014. The amount of this shortfall amortization installment is determined by discounting the first five installments using the first segment interest rate of 5.26%, and by discounting the sixth and seventh installments using the second segment rate of 5.82%.

Example 2. (i) The facts are the same as in Example 1, except that the plan was granted a funding waiver of $300,000 in 2006, as of December 31, 2006. The valuation interest rate for the January 1, 2007, actuarial valuation is 8.50% (which exceeds 150% of the applicable federal mid-term rate).

(ii) The waiver amortization installment for the plan year beginning January 1, 2007, is $70,166, which is equal to the $300,000 funding waiver base amortized over 5 years at the valuation interest rate of 8.50%.

(iii) As of January 1, 2008, the present value of the remaining waiver amortization installments is $260,318, which is determined by discounting the remaining four waiver amortization installments of $70,166 to January 1, 2008, using the first segment rate of 5.26%. See paragraph (h)(3) of this section.

(iv) A $439,682 shortfall amortization base is established for 2008, which is equal to the $2,500,000 funding target, less $1,800,000 of assets, less $260,318 (which is the present value of the remaining waiver amortization installments).

(v) With respect to this shortfall amortization base of $439,682, there is a shortfall amortization installment of $73,397 (which is equal to the $439,682 shortfall amortization base amortized over 7 years) for each year from 2008 through 2014.

Example 3. (i) The facts are the same as in Example 2. Plan A has a $100,000 target normal cost for the 2008 plan year and was granted a funding waiver for 2008 to the largest extent permitted under section 412(c).

(ii) The minimum required contribution is $243,563 as of January 1, 2008. This is equal to the $100,000 target normal cost, plus the $70,166 waiver amortization installment from the 2006 waiver, plus the $73,397 January 1, 2008, shortfall amortization installment.

(iii) In accordance with section 412(c)(1)(C), the portion of the minimum required contribution attributable to the amortization of the 2006 funding waiver cannot be waived. Therefore, the maximum amount of the January 1, 2008, minimum required contribution that can be waived is $173,397.

(iv) In accordance with paragraph (d) of this section, a waiver amortization base of $173,397 is established as of January 1, 2008, to be amortized over 5 years beginning with the 2009 plan year. Although the waiver amortization installments for the 2008 funding waiver are not included in the minimum required contribution until 2009, the amount of those installments is determined based on the interest rates used for the 2008 plan year.

(v) The waiver amortization installments are calculated using the first segment interest rate of 5.26% for the first four installments (calculated as of January 1, 2009, through January 1, 2012) and the second segment interest rate of 5.82% for the final installment payable as of January 1, 2013. Accordingly, the waiver amortization installments that are payable beginning January 1, 2009, are $40,530 each.

Example 4. (i) The facts are the same as in Example 3. As of January 1, 2009, Plan A has a funding target of $2,750,000 and assets totaling $1,900,000. The 2009 actuarial valuation is performed using the 24-month average segment rates applicable for September 2008 (determined without regard to the transitional rule of section 430(h)(2)(G)). For the 2009 plan year, the first segment rate is equal to 5.50%, the second segment rate is equal to 6.00%, and the third segment rate is equal to 6.50%.

(ii) As of January 1, 2009, the present value of the remaining three waiver amortization installments with respect to the 2006 waiver is $199,715, which is determined using the first segment rate of 5.50%.

(iii) As of January 1, 2009, the present value of the remaining five waiver amortization installments with respect to the 2008 waiver is $182,594, which is determined using the first segment rate of 5.50%.

(iv) As of January 1, 2009, the present value of the remaining six shortfall amortization installments with respect to the 2008 shortfall amortization base is $385,511, which is determined using the first segment rate of 5.50% for the first five installments and the second segment rate of 6.00% for the sixth installment.

(v) A shortfall amortization base of $82,180 is established for 2009, which is equal to the $2,750,000 funding target, less $1,900,000 of assets, less $199,715 (the present value of the remaining waiver amortization installments with respect to the 2006 waiver), less $182,594 (the present value of the remaining waiver amortization installments with respect to the 2008 waiver), less $385,511 (the present value of the remaining installments with respect to the 2008 shortfall amortization base).

(vi) With respect to this shortfall amortization base of $82,180, there is a shortfall amortization installment of $13,795 (which is equal to the $82,180 shortfall amortization base amortized over 7 years) for each year from 2009 through 2015.

Example 5. (i) The facts are the same as in Example 4, except that Plan A has assets totaling $2,000,000 as of January 1, 2009. Plan A has a target normal cost of $110,000 as of January 1, 2009.

(ii) A shortfall amortization base of -$17,820 is established for 2009, which is equal to the $2,750,000 funding target, less $2,000,000 of assets, less $199,715 (the present value of the remaining installments with respect to the 2006 waiver), less $182,594 (the present value of the remaining installments with respect to the 2008 waiver), less $385,511 (the present value of the remaining installments with respect to the 2008 shortfall amortization base).

(iii) The shortfall amortization installment for the 2009 shortfall amortization base is -$2,991, which is equal to the -$17,820 shortfall amortization base amortized over 7 years. The first five shortfall amortization installments are discounted using the first segment rate of 5.50% and the sixth and seventh shortfall amortization installments are discounted using the second segment rate of 6.00%.

(iv) The minimum required contribution for the 2009 plan year is $291,102. This is equal to the target normal cost of $110,000 plus the shortfall amortization charge of $70,406 (that is, $73,397 minus $2,991) plus the waiver amortization charge of $110,696 (that is, $70,166 plus $40,530).

Example 6. (i) The facts are the same as in Example 5, except that Plan A has assets totaling $2,800,000 as of January 1, 2009.

(ii) Because the assets of $2,800,000 exceed the funding target of $2,750,000 as of January 1, 2009, no new shortfall amortization base is established under paragraph (c)(2) of this section.

(iii) Furthermore, under paragraph (e) of this section, all shortfall amortization bases and waiver amortization bases (and all shortfall amortization installments and waiver amortization installments associated with those bases) are reduced to zero as of January 1, 2009.

(iv) The minimum required contribution for the 2009 plan year is $60,000, which is equal to the $110,000 target normal cost less the excess of the assets over the funding target ($2,800,000 minus $2,750,000).

Example 7. (i) The actuarial valuation for Plan B as of January 1, 2008, based on a 12-month plan year, determines a target normal cost of $110,000 and a shortfall amortization installment for 2008 of $185,000. The plan year for Plan B is changed to April 1 through March 31, effective April 1, 2008, resulting in a short plan year beginning January 1, 2008, and ending March 31, 2008.

(ii) The target normal cost for the short plan year is redetermined in order to reflect the fact that there is a short plan year. An actuarial valuation shows that the target normal cost is $25,000 for the short plan year based on the accruals for that short plan year (determined in accordance with 29 CFR §2530.204-2(e)).

(iii) In accordance with paragraph (b)(2)(ii)(A) of this section, the shortfall amortization base is prorated to reflect the three months covered by the short plan year. Accordingly, the shortfall amortization installment for the short plan year is $46,250 (that is, $185,000 multiplied by 3/12).

(iv) The total minimum required contribution for the short plan year (without offset for any carryover balance as of January 1, 2008) is $71,250 (that is, the sum of the target normal cost of $25,000 plus the shortfall amortization installment of $46,250).

Example 8. (i) The facts are the same as in Example 7. The first segment rate for the plan year beginning April 1, 2008, is 5.30%, and the second segment rate is 5.80%.

(ii) The present value of the remaining shortfall amortization installments with respect to the January 1, 2008, shortfall amortization base is equal to $1,074,937. This is determined by discounting the remaining installments (6 full-year installments due April 1, 2008 through April 1, 2013, and a final 9-month installment due April 1, 2014) using the first segment rate of 5.30% for the first five installments and the second segment rate of 5.80% for the remaining installments.

(h) Effective/applicability dates and transition rules—(1) In general. Section 430 generally applies to plan years beginning on or after January 1, 2008. In general, this section applies to plan years beginning on or after January 1, 2009. However, plans are permitted to apply this section in determining the minimum required contribution for plan years beginning in 2008.

(2) Plans with delayed effective date. In the case of a plan for which the effective date of section 430 is delayed in accordance with sections 104 through 106 of PPA ’06, this section applies to plan years beginning on or after the date section 430 first applies with respect to the plan.

(3) Treatment of pre-2008 funding waivers. In the case of a plan that has received a funding waiver under section 412 for a plan year for which section 430 was not yet effective with respect to the plan, the waiver is treated as giving rise to a waiver amortization base and the amortization charges with respect to that funding waiver are treated as waiver amortization installments as described in paragraph (d) of this section. With respect to such a preexisting funding waiver, the amount of the waiver amortization installment is equal to the amortization charge with respect to that waiver determined using the interest rate or rates that applied for the pre-effective plan year.

(4) Transition rule for determining whether shortfall amortization base is established—(i) In general. Except as provided in paragraphs (h)(4)(iii) and (iv) of this section, in the case of plan years beginning after 2007 and before 2011, only the applicable percentage of the funding target is taken into account in determining whether a shortfall amortization base is established for the plan year under paragraph (c)(2) of this section.

(ii) Applicable percentage. For purposes of paragraph (h)(4)(i) of this section, the applicable percentage is determined in accordance with the following table:

(iii) Transition rule not available if funding falls below applicable percentage. The transition rule of paragraph (h)(4)(i) of this section does not apply with respect to any plan year beginning after 2008 if a shortfall amortization base was required to be established under paragraph (c)(2) of this section for any preceding year.

(iv) Transition rule not available for new plans or deficit reduction plans. The transition rule of paragraph (h)(4)(i) of this section does not apply to a plan—

(A) That was not in effect for a plan year beginning in 2007; or

(B) That was subject to section 412(l) for the pre-effective plan year, determined after the application of sections 412(l)(6) and (9) (regardless of whether the deficit reduction contribution for the pre-effective plan year was equal to zero).

(v) Pre-effective plan year. For purposes of this section, the pre-effective plan year for a plan is the last plan year beginning before section 430 applies to the plan. Thus, except for plans with a delayed effective date under paragraph (h)(2) of this section, the pre-effective plan year for a plan is the last plan year beginning before January 1, 2008.

Par. 3. Section 1.430(j)-1 is added to read as follows:

(a) In general—(1) Overview. This section provides rules related to the payment of minimum required contributions, including the payment of quarterly contributions. Section 430(j) and this section apply to single employer defined benefit plans (including multiple employer plans as defined in section 413(c)) but do not apply to multiemployer plans (as defined in section 414(f)). Paragraph (b) of this section describes the general timing requirement for minimum required contributions. Paragraph (c) of this section describes the accelerated quarterly contribution schedule for plans with a funding shortfall in the preceding plan year. Paragraph (d) of this section provides rules regarding liquidity requirements. Paragraph (e) of this section provides definitions. Paragraph (f) of this section provides examples that illustrate the rules of this section. Paragraph (g) of this section sets forth effective/applicability dates and transition rules.

(2) Special rules for multiple employer plans. In the case of a multiple employer plan to which section 413(c)(4)(A) applies, the rules of section 430 and this section are applied separately for each employer under the plan, as if each employer maintained a separate plan. Thus, for example, required quarterly contributions are determined separately for each employer under such a multiple employer plan. In the case of a multiple employer plan to which section 413(c)(4)(A) does not apply (that is, a plan described in section 413(c)(4)(B) that has not made the election for section 413(c)(4)(A) to apply), the rules of section 430 and this section are applied as if all participants in the plan were employed by a single employer.

(3) Applicability of section 430(j) to plans of commercial passenger airlines—(i) In general. Except as otherwise provided in this section, the rules of section 430(j) and this section apply to a plan for which an election described in section 402 of the Pension Protection Act of 2006, Public Law 109-280 (120 Stat. 780) (PPA ’06), has been made in the same manner as those rules apply to any other plan subject to section 430.

(ii) Special rules for plans for which election was made pursuant to section 402(a)(1) of PPA ’06. For purposes of applying the rules of section 430(j) and this section to a plan with respect to which the election under section 402(a)(1) of PPA ’06 has been made, the effective interest rate for the plan is deemed to be 8.85% during the period for which the election applies. In addition, see paragraph (e)(4)(ii) of this section for a special determination of the funding shortfall for a plan for which the election in section 402(a)(1) of PPA ’06 has been made.

(b) General timing requirement for minimum required contributions—(1) Earliest date for contributions. A payment of the minimum required contribution under section 430 for a plan year can be made no earlier than the first day of the plan year.

(2) Deadline for contributions. The deadline for any payment of any minimum required contribution for a plan year is 8¹/₂ months after the close of the plan year. See section 4971 and the regulations thereunder regarding an excise tax that applies with respect to minimum required contributions not paid by this deadline. See also section 430(k) of the Code and section 101(d) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1021(d), for additional rules that apply in the case of a failure to pay minimum required contributions by this deadline.

(3) Adjustment for interest. Any payment of the minimum required contribution under section 430 for a plan year that is made on a date other than the valuation date for that plan year is adjusted for interest accruing for the period between the valuation date and the payment date, at the effective interest rate for the plan for that plan year determined pursuant to §1.430(h)(2)-1(f)(1). The direction of the adjustment depends on whether the contribution is paid before or after the valuation date for the plan year. If the contribution is paid after the valuation date for the plan year, the contribution is discounted to the valuation date using the plan’s effective interest rate. By contrast, if the contribution is paid before the valuation date for the plan year (which could only occur in the case of a small plan described in section 430(g)(2)(B)), the contribution is increased for interest using the plan’s effective interest rate.

(c) Accelerated quarterly contribution schedule for underfunded plans—(1) In general—(i) Plan subject to quarterly contribution requirement. In any case in which the plan has a funding shortfall for the preceding plan year, the employer maintaining the plan shall make the required installments described in paragraph (c)(3) of this section by the due dates described in paragraph (c)(4) of this section.

(ii) Satisfaction of installments through use of funding balances. In the case of a plan that is subject to the quarterly contribution requirement under this paragraph (c), if the plan sponsor makes an election to use the plan’s prefunding balance or funding standard carryover balance under section 430(f), then the plan sponsor is treated as satisfying the obligation to make a required installment under paragraph (c)(1)(i) of this section on the date of the election to the extent of the amount elected, as adjusted with interest. This interest adjustment is made at the plan’s effective interest rate under section 430(h)(2)(A) for the plan year from the valuation date through the due date of the installment.

(iii) Consequences of failure to make quarterly contribution—(A) Interest adjustment. If the full amount of a required installment is not paid by the due date for that installment, then an increased rate of interest applies in adjusting the payment to the valuation date. This increased rate of interest is equal to the rate otherwise used under paragraph (b) of this section plus 5 percentage points, and applies with respect to the underpayment of the required installment (determined pursuant to paragraph (c)(2) of this section) for the period of time that begins on the due date for the required installment and that ends on the date on which payment is made.

(B) Application to required installments due before the valuation date. The modified interest rate described in paragraph (c)(1)(iii)(A) of this section only applies to a required installment that is due on or after the valuation date for the plan year. See paragraph (c)(6) of this section for rules that apply to required installments that are due before the valuation date for the plan year.

(C) Additional consequences. See section 430(k) of the Code and section 101(d) of ERISA for examples of additional consequences of failure to make quarterly contributions.

(2) Determination of underpayment—(i) Underpayment for a quarter. For purposes of this section, the amount of the underpayment with respect to a required installment for a quarter is equal to the excess of—

(A) The required installment; over

(B) The amount (if any) of the installment contributed to or under the plan on or before the due date for the installment.

(ii) Order of crediting contributions. For purposes of this section, contributions are first credited against the earliest unpaid required installments.

(3) Amount of required installment—(i) In general. For purposes of this section, the amount of any required installment is equal to 25% of the required annual payment described in paragraph (c)(3)(ii) of this section.

(ii) Required annual payment. The required annual payment is equal to the lesser of—

(A) 90% of the minimum required contribution under section 430 for the plan year; or

(B) 100% of the minimum required contribution under section 430 (determined without regard to any funding waiver under section 412) for the preceding plan year.

(iii) Treatment of funding balances. For purposes of paragraph (c)(3)(ii) of this section, the minimum required contribution for a plan year is determined without regard to the use of the prefunding balance or funding standard carryover balance in the current year or any prior year. However, see paragraph (c)(1)(ii) of this section regarding a plan sponsor’s election to use the plan’s prefunding balance or funding standard carryover balance in the current year for the payment of quarterly installments.

(4) Due dates for installments. For purposes of this section, there is a required installment for each quarter of the plan year. The due dates for the four required quarterly installments with respect to a full plan year are set forth in the following table:

(5) Special rules for short plan years—(i) In general. In the case of a short plan year, the rules of this paragraph (c) are modified as provided in this paragraph (c)(5).

(ii) Current plan year is short plan year—(A) Amount of required annual payment. In determining the required annual payment pursuant to paragraph (c)(3)(ii) of this section for a short plan year, the amount otherwise determined under paragraph (c)(3)(ii)(B) (based on the prior year’s minimum required contribution) is multiplied by a fraction, the numerator of which is the duration of the short plan year and the denominator of which is 1 year.

(B) Number and due dates of installments. If the plan has a short plan year, then an installment is due 15 days after the close of that short plan year. In addition, an installment is required for each due date determined under paragraph (c)(4) of this section that falls within the short plan year. Thus, for example, if the short plan year ends before the 15^th day of the 4^th plan month of the plan year, there will be only one installment for that short plan year, and that installment will be due on the 15^th day after the close of the short plan year.

(C) Amount of installments. The amount of each installment required to be paid for the short plan year is equal to the required annual payment determined pursuant to paragraph (c)(3)(ii) of this section (as modified by paragraph (c)(5)(ii)(A) of this section) divided by the number of installments determined pursuant to paragraph (c)(5)(ii)(B) of this section.

(iii) Prior plan year is short plan year. If the prior plan year is a short plan year, then the rule of paragraph (c)(3)(ii)(B) regarding the use of 100% of the prior year’s minimum required contribution in determining the required annual payment does not apply. Accordingly, in such a case, the required annual payment is equal to 90% of the minimum required contribution under section 430 for the current plan year.

(6) Special rule for plans with valuation dates after the first day of the plan year. [Reserved]

(d) Liquidity requirement in connection with quarterly contributions—(1) In general—(i) Requirement to make additional quarterly contributions. Except as provided in paragraphs (d)(1)(ii) and (iii) of this section, if a plan is subject to the requirement to make quarterly contributions under paragraph (c) of this section, then the plan is treated as failing to pay the full amount of a required installment for a quarter to the extent that the value of the liquid assets contributed after the close of that quarter and on or before the due date for the installment is less than the liquidity shortfall for that quarter.

(ii) Limitation on increase. The amount by which any required installment is increased by reason of paragraph (d)(1)(i) of this section cannot exceed the amount that, when added to prior required installments for the plan year, would increase the funding target attainment percentage of the plan for the plan year (taking into account the expected increase in the funding target due to benefits accruing or earned during the plan year) to 100%.

(iii) Small plan exception. The liquidity requirement of this paragraph (d) does not apply to a small plan that is described in §1.430(g)-1(b)(2).

(2) Period of underpayment—(i) General rule. For purposes of applying the additional 5 percentage point interest adjustment pursuant to paragraph (c)(1)(iii) of this section, the liquidity increment with respect to a quarter as described in paragraph (d)(2)(ii) of this section continues to be treated as unpaid until the close of the quarter in which the due date for that installment occurs without regard to when that portion is paid. However, for purposes of adjusting the contribution to the valuation date at the effective interest rate under paragraph (b)(3) of this section, the adjustment is made from the contribution date (rather than the close of the quarter).

(ii) Liquidity increment. For purposes of this paragraph (d), the liquidity increment with respect to a quarter is the portion of the required installment for that quarter that is treated as not paid solely by reason of paragraph (d)(1)(i) of this section.

(iii) Ordering rule. If the employer makes a contribution for a quarter that, after application of paragraph (c)(2)(ii) of this section, is less than the total amount needed to satisfy the requirements of paragraph (c) of this section as increased by this paragraph (d) for a quarter, then the contribution is first attributed toward satisfying the requirements of paragraph (c) of this section (without regard to this paragraph (d)) and then to the liquidity increment.

(3) Consequences of failure to pay liquidity shortfall. See section 4971(f) for an excise tax on the failure to pay a liquidity shortfall. See also section 206(e) of ERISA.

(e) Definitions—(1) In general. The definitions set forth in this paragraph (e) apply for purposes of this section.

(2) Adjusted disbursements. The term adjusted disbursements means disbursements from the plan reduced by the product of—

(i) The plan’s funding target attainment percentage determined under section 430(d)(2) for the plan year; and

(ii) The sum of the purchases of annuities and payments of single sums.

(3) Disbursements from the plan. The term disbursements from the plan means all disbursements from the trust, including purchases of annuities, payments of single sums and other benefits, and administrative expenses.

(4) Funding shortfall—(i) In general. The term funding shortfall means the excess (if any) of—

(A) The funding target of the plan for a plan year; over

(B) The value of plan assets for the plan year (as reduced to reflect the subtraction of certain funding balances as provided under §1.430(f)-1(c), but not below zero).

(ii) Special rule for plans of commercial passenger airlines. In the case of a plan year for which an election described in section 402(a)(1) of PPA ’06 is in effect, the term funding shortfall means the unfunded liability for that plan year determined under §1.430(a)-1(b)(4)(ii).

(iii) Special rule for first effective plan year. See paragraph (g)(5)(ii) of this section for a calculation of the funding shortfall for the plan’s pre-effective plan year.

(iv) Special rule for plan spinoffs and mergers. [Reserved]

(5) Liquid assets—(i) In general. The term liquid assets means cash, marketable securities, and other assets described in this paragraph (e)(5)(i). For this purpose, marketable securities include financial instruments such as stocks and other equity interests, evidences of indebtedness (including certificates of deposit), options, futures contracts, and other derivatives, for which there is a liquid financial market, and other interests in entities (such as partnerships, trusts, or regulated investment companies) for which there is a liquid financial market. For purposes of the preceding sentence, a liquid financial market is an established financial market described in §1.1092(d)-1(b) (other than an interbank market or an interdealer market described in §1.1092(d)-1(b)(1)(v) and (vi), respectively). Any security that is issued or guaranteed by the government of the United States or an agency or instrumentality thereof for which there is an established financial market described in §1.1092(d)-1(b) is a marketable security. Finally, any financial instrument or other interest in an entity that, under its terms, contains a right by which the instrument or other interest may immediately be redeemed, exchanged, or converted into cash or a marketable security, is a marketable security, provided there are no restrictions on the exercise of that right.

(ii) Insurance and annuity contracts. Other assets that are treated as liquid assets of a plan are insurance, annuity, or other contracts issued by an insurance company that is licensed to do business under the laws of any State, but only if the insurance, annuity, or other contract—

(A) Would be treated as a marketable security under paragraph (e)(5)(i) of this section if it were a financial instrument;

(B) Provides for substantially equal monthly disbursements to the extent provided in paragraph (e)(5)(iii) of this section; or

(C) Is benefit responsive within the meaning of paragraph (e)(5)(iv) of this section.

(iii) Insurance and annuity contracts providing for substantially equal periodic payments. If the contract provides for substantially equal monthly disbursements (for example, an annuity contract in pay status), the only portion of the contract that may be treated as liquid assets for a quarter is the amount equal to 36 times the monthly disbursement (in the month containing the last day of the quarter) which is available under the terms of the contract, provided there are no restrictions (within the meaning of paragraph (e)(5)(v) of this section) on the disbursements.

(iv) Benefit responsive insurance and annuity contracts. A contract is considered benefit responsive if, under applicable law and contractual provisions, the plan has the right to receive disbursements from the contract in order to pay plan benefits for any participant in the plan, without restrictions (within the meaning of paragraph (e)(5)(v) of this section).

(v) Restrictions. For purposes of paragraphs (e)(5)(iii) and (iv) of this section, a restriction on a redemption, exchange or conversion right, or a restriction on a disbursement, may result not only from applicable law or contractual provisions, but also from rehabilitation, conservatorship, receivership, insolvency, bankruptcy or similar proceedings.

(6) Liquidity shortfall—(i) In general. The term liquidity shortfall means, with respect to any required installment, an amount equal to the excess (as of the last day of the quarter for which that installment is made) of—

(A) The base amount with respect to the quarter, over

(B) The value (as of the last day of the quarter) of the plan’s liquid assets.

(ii) Base amount—(A) In general. For purposes of this paragraph (e)(6)(ii), the term base amount means, with respect to any quarter, an amount equal to 3 times the sum of the adjusted disbursements from the plan for the 12 months ending on the last day of such quarter.

(B) Special rule. If the generally applicable base amount for a quarter determined under paragraph (e)(6)(ii)(A) of this section exceeds an amount equal to 2 times the sum of the adjusted disbursements from the plan for the 36 months ending on the last day of the quarter and the enrolled actuary for the plan certifies to the satisfaction of the Commissioner that such excess is the result of nonrecurring circumstances, the base amount with respect to that quarter is determined without regard to amounts related to those nonrecurring circumstances.

(7) Plan month—(i) Plan year begins on the first day of a calendar month. For a plan year that begins with the first day of a calendar month, the term plan month means any calendar month that begins during the plan year.

(ii) Plan year begins on a date other than the first day of a calendar month. For a plan year that begins on a date other than the first day of a calendar month, the first day of each plan month is the day of the calendar month that corresponds to the day of the calendar month that is the first day of the plan year. Thus, for example, if the first day of a plan year is January 15, then a plan month starts on the 15^th of each calendar month. However, if a calendar month does not contain a day that corresponds to the day of the calendar month which is the first day of the plan year (for example, if a calendar month has only 30 days and the first day of the plan year is the 31^st day of a calendar month), then the first day of the plan month that begins during that calendar month is the last day of that calendar month.

(8) Quarter. The term quarter means, with respect to any required installment, the 3-plan-month period preceding the plan month in which the due date for that installment occurs.

(9) Short plan year. The term short plan year means a plan year that is shorter than 12 months (and is not a 52-week plan year of a plan that uses a 52-53 week plan year).

(f) Examples. The following examples illustrate the rules of this section.

Example 1. (i) Plan A has a calendar year plan year and a January 1 valuation date. Plan A has a funding standard carryover balance of $15,000 as of January 1, 2008, and the plan’s funding ratio for 2007 (determined using the transition rule in §1.430(f)-1(h)(5)) was over 80%. The minimum required contribution for Plan A (prior to any offset for the carryover balance) is $100,000 for 2008 and is $125,000 for 2009. The effective interest rate for the 2009 plan year is 5.90%. Plan A is subject to the quarterly contribution requirements for 2009.

(ii) The required annual payment for 2009 is equal to the lesser of (a) 100% of the 2008 minimum required contribution ($100,000) or (b) 90% of the 2009 minimum required contribution (90% of $125,000, or $112,500). Therefore, each required quarterly installment for 2009 is 25% of $100,000, or $25,000.

(iii) Installments of $25,000 each are due by April 15, 2009, July 15, 2009, October 15, 2009, and January 15, 2010. The final contribution for the 2009 plan year is due by September 15, 2010. The amount of this contribution is equal to $125,000, less the contributions made prior to that date, with all contributions adjusted to the valuation date using the effective interest rate for the 2009 plan year. If the plan sponsor makes each required quarterly installment on the date due, the remaining amount due is determined as follows:

(A) The contribution paid April 15, 2009, is adjusted by discounting the contribution amount for 3¹/₂ months at the effective interest rate ($25,000 ÷ 1.0590^(3.5/12) = $24,585).

(B) The contribution paid July 15, 2009, is discounted for 6¹/₂ months at the effective interest rate ($25,000 ÷ 1.0590 ^(6.5/12) = $24,236).

(C) The contribution paid October 15, 2009, is discounted for 9¹/₂ months at the effective interest rate ($25,000 ÷ 1.0590^(9.5/12) = $23,891).

(D) The contribution paid January 15, 2010, is discounted for 12¹/₂ months at the effective interest rate ($25,000 ÷ 1.0590^(12.5/12) = $23,551).

(E) The sum of the above contributions for the 2009 plan year paid through January 15, 2010, adjusted for interest to the valuation date, is $96,263. The remaining amount due for the 2009 plan year is $125,000 minus $96,263, or $28,737, as of January 1, 2009.

(iv) If the final contribution is made on September 15, 2010, the remaining amount due must be increased for interest at the plan’s effective interest rate for the 20¹/₂ months between January 1, 2009, and September 15, 2010 (so that when it is discounted with interest for those 20¹/₂ months the resulting amount will equal $28,737). Therefore, the remaining contribution made on September 15, 2010, is $28,737 x 1.0590^(20.5/12) = $31,694.

Example 2. (i) The facts are the same as in Example 1, except that the plan sponsor elects to use the $15,000 carryover balance as of January 1, 2008, to offset the minimum required contribution for the 2008 plan year. The plan sponsor makes a contribution on January 1, 2008, of $85,000, which satisfies the minimum contribution requirement for 2008.

(ii) The required quarterly installment for 2009 is unaffected by the plan sponsor’s election to offset the minimum required contribution by the carryover balance for 2008. Therefore, the required annual payment is $100,000 (determined as the lesser of (a) 100% of $100,000 or (b) 90% of $125,000) and the amount of each required quarterly installment for 2009 is 25% of the required annual payment, or $25,000.

Example 3. (i) The facts are the same as in Example 1. Plan A’s funding standard carryover balance has increased to $17,000 as of January 1, 2009, based on the actual rate of return of plan assets for the 2008 plan year. Plan A’s funding ratio for 2008 (determined under §1.430(f)-1(d)(3)) is over 80%. On April 13, 2009, the plan sponsor elects to use the entire amount of the carryover balance to offset the minimum required contribution for 2009.

(ii) The plan sponsor’s election to use the carryover balance to offset the minimum required contribution is treated as satisfying the requirement to make a required installment to the extent of the amount elected, adjusted with interest. This adjustment is made at the plan’s effective interest rate for the 2009 plan year, and applies for the period between January 1, 2009, and April 15, 2009. Therefore, the $17,000 carryover balance as of January 1, 2009, offsets $17,000 x 1.0590^(3.5/12) or $17,287 of the $25,000 quarterly contribution installment due April 15, 2009, and the remaining contribution due on April 15, 2009, is $25,000 minus $17,287, or $7,713.

(iii) The interest adjustments in paragraph (ii) of this Example 3 are based on the effective interest rate even if that rate is not determined by the time that the quarterly contribution is due. If the plan’s effective interest rate for the plan year has not been determined at the time that the quarterly contribution is due, the actual amount of the required installment satisfied by the use of the carryover balance is determined after the effective interest rate is determined. If the extent to which the carryover balance satisfies the installment requirement is overestimated and the result is the full amount of the required quarterly installment is not paid by the due date, the plan is subject to the consequences for late or unpaid quarterly contributions as described in paragraph (c)(1)(iii) of this section.

Example 4. (i) The facts are the same as in Example 3. The plan sponsor makes a contribution of $7,713 (which is equal to the remaining portion of the first required quarterly installment) on April 15, 2009. For the 2009 plan year, the plan sponsor makes another contribution of $200,000 on June 30, 2009. No further contributions are made for the 2009 plan year.

(ii) The contributions made for the 2009 plan year are adjusted to the valuation date using the plan’s effective interest rate for the 2009 plan year. The contribution paid April 15, 2009, is discounted for the 3¹/₂ months between January 1, 2009, and the date of payment, using the effective interest rate of 5.90% ($7,713 / 1.0590^(3.5/12) = $7,585). The contribution paid June 30, 2009, is discounted for 6 months using the effective interest rate ($200,000 / 1.0590^(6/12) = $194,349), for a total interest-adjusted contribution of $201,934.

(iii) The minimum required contribution for 2009 (prior to any offset for the carryover balance) is $125,000 and, under §1.430(f)-1(b)(1)(ii)(B), this amount is used to determine the interest-adjusted excess contribution. Accordingly, the interest-adjusted excess contribution for 2009 is $201,934 minus $125,000, or $76,934, increased for interest to January 1, 2010, using the effective interest rate for 2009 of 5.90%. Thus, the interest-adjusted excess contribution as of January 1, 2010, is $76,934 multiplied by 1.059, or $81,473. All or a portion of this amount may be credited to the prefunding balance at the election of the plan sponsor.

Example 5. (i) The facts are the same as in Example 3. The plan sponsor pays the required quarterly installment of $7,713 on April 15, 2009, and installments of $25,000 each on July 15, 2009, and October 15, 2009. However, only $10,000 of the installment due on January 15, 2010, is paid. No additional contributions are made until the final contribution for the plan year of $55,000 is paid on September 15, 2010.

(ii) The 2009 Schedule SB shows that the contributions for the plan year exceed the minimum required contribution. This is determined by comparing the minimum required contribution of $108,000 ($125,000 offset by $17,000 for the amount of carryover balance used) and the interest-adjusted contributions made for the 2009 plan year, developed as shown below:

(A) The contribution paid April 15, 2009, is adjusted by discounting the contribution amount for 3¹/₂ months at the effective interest rate ($7,713 ÷ 1.0590^(3.5/12) = $7,585).

(B) The contribution paid July 15, 2009, is discounted for 6¹/₂ months at the effective interest rate ($25,000 ÷ 1.0590 ^(6.5/12) = $24,236).

(C) The contribution paid October 15, 2009, is discounted for 9¹/₂ months at the effective interest rate ($25,000 ÷ 1.0590^(9.5/12) = $23,891).

(D) The contribution paid January 15, 2010, is discounted for 12¹/₂ months at the effective interest rate ($10,000 ÷ 1.0590^(12.5/12) = $9,420).

(E) Pursuant to paragraph (c)(1)(iii)(A) of this section, the adjustment for interest on the $15,000 underpayment of the quarterly installment due January 15, 2010, is increased by 5 percentage points for the 8-month period of underpayment (January 15, 2010, through September 15, 2010). Accordingly, $15,000 of the contribution paid on September 15, 2010, is discounted using a rate of 10.90% for 8 months and at the 5.90% effective interest rate for the remaining 12¹/₂ months between the quarterly contribution due date of January 15, 2010, and the valuation date of January 1, 2009. This portion of the September 15, 2010, contribution results in an adjusted amount of $13,189 as of January 1, 2009 ($15,000 ÷ 1.1090^(8/12) ÷ 1.0590^(12.5/12)).

(F) The remaining $40,000 of the contribution paid on September 15, 2010, is discounted using the effective interest rate of 5.90% for the 20¹/₂-month period between the date of payment and the valuation date. This portion of the payment is therefore adjusted to $36,268 as of the valuation date (that is, $40,000 ÷ 1.0590^(20.5/12)).

(G) The sum of the above contributions for the 2009 plan year paid through January 15, 2010, adjusted for interest to the valuation date, is $114,589. This is greater than the minimum required contribution for the 2009 plan year of $108,000.

Example 6. (i) The facts are the same as in Example 5, except that the plan sponsor does not make a contribution on September 15, 2010. Another contribution is not made until December 15, 2010.

(ii) The 2009 Schedule SB shows an unpaid minimum required contribution of $42,868 as of January 1, 2009. This is equal to the difference between the minimum required contribution of $108,000 ($125,000 offset by $17,000 for the amount of carryover balance used) and $65,132 (the interest-adjusted contributions made for the 2009 plan year before the 8¹/₂ month deadline, as illustrated in paragraphs (ii)(A) through (ii)(D) of Example 5).

Example 7. (i) The facts are the same as in Example 1, except that the plan year is changed to an August 1 - July 31 plan year effective August 1, 2009. This results in a short plan year beginning January 1, 2009, and ending July 31, 2009. The minimum required contribution for the 7-month period covered by the plan year is calculated as $72,917 in accordance with §1.430(a)-1(b)(2)(ii).

(ii) As provided in paragraph (c)(5) of this section, a required installment is due 15 days after the close of the short plan year (August 15, 2009), and required installments are also due on the regularly scheduled due dates for quarterly installments that occur within the short plan year (April 15, 2009, and July 15, 2009).

(iii) The required installments are determined based on the lesser of (a) 90% of the minimum required contribution for the short plan year ending July 31, 2009 (90% of $72,917, or $65,625) or (b) 7/12 of 100% of the 2008 minimum required contribution ($100,000 x 7/12, or $58,333). The required installments are thus based on $58,333 since that is the smaller amount.

(iv) The amount of each required installment is determined by dividing the amount determined in paragraph (iii) of this Example 7 by the number of required installments for the short plan year. This calculation results in required installments of $19,444 each (that is, $58,333 divided by 3 installments).

(v) The deadline for the remaining payment is 8¹/₂ months after the end of the short plan year, or April 15, 2010. If the plan sponsor pays the minimum required amount at each installment date, does not elect to offset any amounts by any carryover or prefunding balance, and makes a final payment on April 15, 2010, then the remaining payment is $17,429, determined as follows:

(A) The contribution paid April 15, 2009, is adjusted by discounting the contribution amount for 3¹/₂ months at the effective interest rate ($19,444 ÷ 1.0590^(3.5/12) = $19,122).

(B) The contribution paid July 15, 2009, is discounted for 6¹/₂ months at the effective interest rate ($19,444 ÷ 1.0590 ^(6.5/12) = $18,850).

(C) The contribution paid August 15, 2009, is discounted for 7¹/₂ months at the effective interest rate ($19,444 ÷ 1.0590^(7.5/12) = $18,760).

(D) The sum of the above contributions for the 2009 plan year paid through August 15, 2009, adjusted for interest to the valuation date, is $56,732. The remaining amount paid April 15, 2010, for the 2009 plan year is ($72,917 - $56,732) x 1.059^(15.5/12) = $17,429.

Example 8. (i) Plan B has an August 10 to August 9 plan year. Quarterly installments are required for the plan year that begins August 10, 2009.

(ii) For the plan year that begins on August 10, 2009, a plan month begins on the 10th day of each calendar month. Accordingly, the due dates for the required installments for that plan year are November 24, 2009, February 24, 2010, May 24, 2010, and August 24, 2010. The deadline for the final contribution for the plan year is April 24, 2011.

Example 9. (i) Plan C has a calendar-year plan year and is not a small plan described in section 430(g)(2)(B). Plan C is subject to the requirement to pay quarterly contributions under paragraph (c) of this section for the 2009 plan year. The valuation date for Plan C is January 1, and Plan C’s funding target attainment percentage (“FTAP”) is 85% as of January 1, 2009. Before taking the liquidity requirement of paragraph (d) of this section into account, quarterly contributions are required for the 2009 plan year in the amount of $50,000 each. During the 12-month period ending March 31, 2009, periodic annuity payments of $350,000 and lump sum payments of $200,000 were made by Plan C. None of these payments were due to nonrecurring circumstances. In addition, administrative expenses of $100,000 were paid from the plan trust. The market value of Plan C’s assets is $1,500,000 as of March 31, 2008, of which $1,300,000 is in liquid assets. The amount needed to increase the plan’s FTAP (including the expected increase in the funding target due to benefits accruing or earned during the plan year) to 100% is $500,000.

(ii) The amount of the adjusted disbursements from Plan C for the 12-month period ending March 31, 2009, is calculated as the sum of the annuity benefits, lump sum payments, and administrative expenses paid during the 12-month period, reduced by the product of the lump sum payments and the plan’s FTAP. This results in adjusted disbursements for the period of $480,000 (that is, $350,000 plus $200,000 plus $100,000, reduced by 85% of $200,000 in lump sum payments).

(iii) The base amount is calculated in accordance with paragraph (e)(6)(ii) of this section as three times the adjusted disbursements determined in paragraph (ii) of this Example 9, or $1,440,000.

(iv) The liquidity shortfall is the difference between the base amount of $1,440,000 determined in paragraph (iii) of this Example 9 and the $1,300,000 in liquid assets as of March 31, 2008, or $140,000. The quarterly contribution due on April 15, 2009, is therefore $140,000, since this amount is larger than the $50,000 quarterly contribution requirement otherwise applicable but less than the $500,000 needed to increase the plan’s FTAP (including the expected increase in the funding target due to benefits accruing or earned during the plan year) to 100%. The liquidity increment is $90,000.

(v) Note that any contributions made through March 31, 2009, are included in Plan C’s assets as of March 31, 2009, and would therefore not be applied toward satisfying the liquidity shortfall contribution requirement due April 15, 2009. Similarly, any funding standard carryover balance or prefunding balance as of January 1, 2009, cannot be applied to offset the liquidity shortfall contribution requirement. Only contributions made in cash or other liquid assets made after March 31, 2009, and by April 15, 2009, can be used to timely satisfy this requirement.

Example 10. (i) The facts are the same as in Example 9. The plan sponsor makes a contribution of $30,000 on April 15, 2009, and makes an additional contribution of $110,000 on April 30, 2009. The effective interest rate for Plan C for the 2009 plan year is 5.90%.

(ii) The contribution paid on April 15, 2009, is applied first to the portion of the quarterly contribution that is required under paragraph (c) of this section (that is, the portion not attributable to the liquidity shortfall contribution). This results in an underpayment of this portion of the quarterly contribution due April 15, 2009, of $20,000 (that is, $50,000 minus $30,000). In accordance with paragraph (c)(1)(iii)(A) of this section, the interest rate used to adjust this portion of the late quarterly contribution is increased by 5 percentage points for the ¹/₂-month period of underpayment. Accordingly, $20,000 of the April 15, 2009, contribution is adjusted to the January 1, 2009, valuation date using an interest rate of 10.90% for the ¹/₂ month between the April 15, 2009, due date and the April 30, 2009, payment date, and by 5.90% for the 3¹/₂-month period between January 1, 2009, and the April 15, 2009, due date. This portion results in an interest-adjusted contribution of $19,584 as of January 1, 2009 ($20,000 ÷ 1.1090^(0.5/12) ÷ 1.059^(3.5/12)).

(iii) Under paragraph (d)(2) of this section, the interest rate used to adjust the portion of the underpayment attributable to the liquidity shortfall contribution is increased by 5 percentage points, and the contribution is treated as unpaid until the close of the quarter in which the due date occurs. Therefore, even though the full amount of the liquidity shortfall was paid by April 30, 2009, the increase in the interest rate is applied as if the late liquidity shortfall contribution was not made until June 30, 2009, 2¹/₂ months after the contribution was due.

(iv) However, in accordance with paragraph (d)(2) of this section, each payment is discounted for interest based on the date of the actual payment, despite the fact that the 5-percentage-point increase in the interest rate is calculated as if the payment was not made until the end of the quarter. Therefore, the portion of the underpayment due to the liquidity increment ($140,000 minus the $50,000 quarterly contribution requirement otherwise required, or $90,000) is adjusted for interest for the 4-month period between the January 1, 2009, valuation date and the April 30, 2009, date of payment. An interest rate of 10.90% is used for 2¹/₂ months (corresponding to the period between the April 15, 2009, due date and June 30, 2009, the end of the quarter in which the payment was due), and Plan C’s effective interest rate for the 2009 plan year (5.90%) is used for the remaining 1¹/₂ months. Therefore, the portion of the April 30, 2009, contribution attributable to the liquidity increment is adjusted to $87,452 as of January 1, 2009 ($90,000 ÷ 1.1090^(2.5/12) ÷ 1.0590^(1.5/12)).

Example 11. (i) The facts are the same as in Example 10, except that the plan sponsor does not make the second contribution of $110,000 until July 15, 2009.

(ii) The July 15, 2009, contribution is adjusted for interest for a total of 6¹/₂ months for the period between January 1, 2009, and the payment date of July 15, 2009. In accordance with paragraph (d)(2) of this section, the 5-percentage-point increase in the interest rate used to adjust the portion of the contribution attributable to the unpaid liquidity shortfall contribution is applied as if the contribution was made at the end of the quarter in which the payment was due. Therefore, the interest adjustment for the $90,000 attributable to the late liquidity shortfall contribution uses an interest rate of 10.90% for the 2¹/₂-month period corresponding to the period between the April 15, 2009, due date and June 30, 2009, the end of the quarter in which the payment was due, and the effective interest rate of 5.90% for the remaining 4 months.

(iii) The liquidity shortfall is recalculated as of June 30, 2009, and the larger of the resulting amount or the $50,000 quarterly contribution otherwise applicable is due on July 15, 2009. This amount is required to be paid in addition to the unpaid liquidity shortfall contribution due April 15, 2009. Note that the amount of liquid assets as of June 30, 2009 is smaller than it would have been had the April 15, 2009, liquidity shortfall payment been made. Therefore, the fact that the April 15, 2009, liquidity shortfall payment was not made before June 30, 2009, means that the plan sponsor is required to contribute more than the amount needed to increase the liquid assets to the base amount as of June 30, 2009. However, in accordance with paragraph (d)(1)(ii) of this section, the total amount of the required installments (including those due but not paid) is limited so that it is no larger than the amount that would increase the plan’s FTAP (taking into account the expected increase in the funding target due to benefits accruing or earned during the plan year) to 100%.

Example 12. (i) Plan D, which is a small plan described in section 430(g)(2)(B), has a calendar year plan year and a valuation date of December 31. The quarterly required installments for the 2009 plan year are $30,000 each and each of the required installments is paid on the due date. The effective interest rate for Plan D for the 2009 plan year is 5.90%.

(ii) The total contributions made for the plan year and before the valuation date, adjusted with interest to the valuation date, equal $92,402. This is developed as shown below:

(A) The contribution paid April 15, 2009, is adjusted by increasing the contribution amount for 8¹/₂ months at the effective interest rate ($30,000 x 1.0590^(8.5/12) = $31,243).

(B) The contribution paid July 15, 2009, is increased for 5¹/₂ months at the effective interest rate ($30,000 x 1.0590 ^(5.5/12) = $30,799).

(C) The contribution paid October 15, 2009, is increased for 2¹/₂ months at the effective interest rate ($30,000 x 1.0590^(2.5/12) = $30,360).

(iii) Pursuant to §1.430(g)-1(d)(2), the interest-adjusted value of the contributions for the 2009 plan year that are made before the valuation date is subtracted from the December 31, 2009, plan assets in determining the value of plan assets for the December 31, 2009 actuarial valuation.

(g) Effective/applicability dates and transition rules—(1) In general. Section 430 generally applies to plan years beginning on or after January 1, 2008. In general, this section applies to plan years beginning on or after January 1, 2009. However, plans are permitted to apply this section in applying the rules of section 430(j) for plan years beginning in 2008.

(2) Plans with delayed effective date. In the case of a plan for which the effective date of section 430 is delayed in accordance with sections 104 through 106 of PPA ’06, this section applies to plan years beginning on or after the first day of the first effective plan year.

(3) First effective plan year. For purposes of this section, the first effective plan year for a plan is the first plan year for which section 430 applies to the plan.

(4) Pre-effective plan year. For purposes of this section, the pre-effective plan year for a plan is the last plan year before the first effective plan year. Thus, except for plans with a delayed effective date under paragraph (g)(2) of this section, the pre-effective plan year for a plan is the last plan year beginning before January 1, 2008.

(5) Special rules relating to first effective plan year—(i) Determination of minimum required contribution for pre-effective plan year. In the case of the plan’s first effective plan year, the minimum required contribution for the preceding plan year for purposes of paragraph (c)(3)(ii)(B) of this section is equal to the minimum required contribution under section 412 for the pre-effective plan year (determined without regard to any funding waiver under section 412), which is determined as of the last day of the pre-effective plan year and is determined without regard to the use of the plan’s credit balance.

(ii) Determination of funding shortfall for pre-effective plan year. [Reserved]

(a) In general. This section sets forth definitions that apply for purposes of applying the rules of section 4971.

(b) Accumulated funding deficiency. With respect to a multiemployer plan, the term accumulated funding deficiency has the meaning given to that term by section 431. A plan’s accumulated funding deficiency for a plan year takes into account all charges and credits to the funding standard account under section 412 for plan years before the first plan year for which section 431 applies to the plan.

(c) Unpaid minimum required contribution—(1) In general. The term unpaid minimum required contribution means, with respect to any plan year, any minimum required contribution under section 430 for the plan year that is not paid on or before the due date for the plan year under section 430(j)(1).

(2) Accumulated funding deficiency for pre-effective plan year. For purposes of this section, a plan’s accumulated funding deficiency under section 412 for the pre-effective plan year is treated as an unpaid minimum required contribution for that plan year until correction is made under the rules of paragraph (d)(2) of this section.

(d) Correct—(1) Accumulated funding deficiency. The term correct means, with respect to an accumulated funding deficiency for a plan year, the contribution, to or under the plan, of the amount necessary to reduce the accumulated funding deficiency as of the end of that plan year to zero. To reduce the deficiency to zero, the contribution must include interest at the plan’s valuation interest rate for the period between the end of that plan year and the date of the contribution.

(2) Unpaid minimum required contribution—(i) Interest adjustments—(A) General rule. The term correct means, with respect to an unpaid minimum required contribution for a plan year, the contribution, to or under the plan, of an amount that, when discounted to the valuation date for the plan year for which the unpaid minimum required contribution is due at the appropriate rate of interest, equals or exceeds the unpaid minimum required contribution. For this purpose, the appropriate rate of interest is the plan’s effective interest rate for the plan year for which the unpaid minimum required contribution is due except to the extent that the payments are subject to additional interest as provided under section 430(j)(3) or (4).

(B) Pre-PPA accumulated funding deficiency. The term correct means, with respect to the accumulated funding deficiency under section 412 for the pre-effective plan year that is described in paragraph (c)(2) of this section, the contribution, to or under the plan, of the amount of that accumulated funding deficiency increased with interest from the end of the pre-effective plan year to the date of the contribution at the plan’s valuation interest rate for the pre-effective plan year.

(ii) Ordering rule. For purposes of section 4971 and this section, a contribution is attributable first to the earliest plan year of any unpaid minimum required contribution for which correction has not yet been made.

(3) Corrective action of certain retroactive plan amendments. Certain retroactive plan amendments that meet the requirements of section 412(d)(2) may reduce the minimum required contribution for a plan year, which would reduce the accumulated funding deficiency or the amount of the unpaid minimum required contribution for a plan year.

(e) Taxable period. The term taxable period has the same meaning given that term under §54.4971-1(e).

(f) Examples. The following examples illustrate the rules of this section.

Example 1. (i) Plan A, a single employer defined benefit plan, has a calendar year plan year and a January 1 valuation date. The sponsor of Plan A has a calendar taxable year. Plan A has no funding shortfall as of the end of 2008, and Plan A has no unpaid minimum required contributions for 2008 or any earlier plan year. The minimum required contribution for the 2009 plan year is $250,000. The plan sponsor makes one contribution for 2009 on July 1, 2009, in the amount of $200,000, and the sponsor does not make an election to use the prefunding balance or funding standard carryover balance to offset the minimum required contribution for 2009. The effective interest rate for Plan A for the 2009 plan year is 5.90%.

(ii) The interest-adjusted contribution for 2009 is $200,000 divided by 1.0590^(6/12), or $194,349, as of January 1, 2009. The unpaid minimum required contribution for the 2009 plan year is $250,000 minus $194,349, or $55,651. The excise tax due under section 4971(a) is 10% of the unpaid minimum required contribution, or $5,565.

Example 2. (i) The facts are the same as in Example 1. The plan sponsor makes a contribution of $175,000 on December 31, 2010.

(ii) Under the ordering rule in paragraph (d)(2)(ii) of this section, the contribution made on December 31, 2010, is applied first to correct the unpaid minimum required contribution for 2009. The portion of the contribution paid December 31, 2010, that is required to eliminate the unpaid minimum required contribution for 2009 (taking into account the 2009 effective interest rate for the 24 months between January 1, 2009, and the payment date of December 31, 2010), is $55,651 multiplied by 1.059^(24/12) or $62,412. The remaining payment of $112,588 ($175,000 minus $62,412) is applied to the contribution required for the 2010 plan year.

Example 3. (i) Plan B, a single employer defined benefit plan, has a calendar plan year. The sponsor of Plan B has a calendar taxable year. Plan B has an accumulated funding deficiency of $100,000 as of December 31, 2007, including additional interest due to late quarterly contributions during 2007. The valuation interest rate for the 2007 plan year is 7.5%.

(ii) In accordance with paragraph (c)(2) of this section, the accumulated funding deficiency under section 412 as of December 31, 2007, is considered an unpaid minimum required contribution until it is corrected. Pursuant to paragraph (d)(2)(i)(B) of this section, the amount needed to correct that accumulated funding deficiency is $100,000 plus interest at the valuation interest rate of 7.5% for the period between December 31, 2007, and the date of payment of the contribution.

(iii) The funding shortfall as of January 1, 2008, is calculated as the difference between the funding target and the value of assets as of that date. The assets are not adjusted by the amount of the accumulated funding deficiency; the fact that the contribution was not made for the 2007 plan year means that the January 1, 2008, funding shortfall is larger than it would have been otherwise.

Example 4. (i) The facts are the same as in Example 3. The minimum required contribution for the 2008 plan year is $125,000, but the plan sponsor does not make any required contributions for 2008.

(ii) The total unpaid minimum required contribution as of December 31, 2008, is the sum of the $100,000 accumulated funding deficiency under section 412 from 2007 and the $125,000 unpaid minimum required contribution for 2008, or $225,000. The section 4971(a) excise tax applies to the aggregate unpaid minimum required contributions for all plan years that remain unpaid as of the end of 2008. In this case, there is an unpaid minimum required contribution of $100,000 for the 2007 plan year and an unpaid minimum required contribution of $125,000 for the 2008 plan year. The section 4971(a) excise tax is 10% of the aggregate of those unpaid amounts, or $22,500.

Example 5. (i) The facts are the same as in Example 4, except that the plan sponsor makes a contribution of $150,000 on December 31, 2008. No additional contributions are paid through September 15, 2009. Quarterly contributions of $25,000 each are due April 15, 2008, July 15, 2008, October 15, 2008, and January 15, 2009. Plan B’s effective interest rate for the 2008 plan year is 5.75%.

(ii) In accordance with paragraph (c)(2) of this section, the accumulated funding deficiency under section 412 as of December 31, 2007, is treated as an unpaid minimum required contribution until it is corrected.

(iii) The December 31, 2008, contribution is first applied to the 2007 accumulated funding deficiency under section 412 that is treated as an unpaid minimum required contribution. Accordingly, the amount needed to correct the 2007 unpaid required minimum contribution ($100,000 multiplied by 1.075, or $107,500) is applied to eliminate this unpaid minimum required contribution for the 2007 plan year.

(iv) The remaining December 31, 2008, contribution ($150,000 minus $107,500, or $42,500) is then applied to the 2008 minimum required contribution. This amount is first allocated to the quarterly contribution due April 15, 2008. In accordance with §1.430(j)-1(c)(1)(iii)(A), the adjustment for interest on late quarterly contributions is increased by 5 percentage points for the period of underpayment. Therefore, $25,000 of the remaining December 31, 2008, contribution is discounted using an interest rate of 10.75% for the 8¹/₂-month period between the payment date of December 31, 2008 and the quarterly contribution due date of April 15, 2008, and at the 5.75% effective interest rate for the 3¹/₂ months between April 15, 2008, and January 1, 2008. This portion of the December 31, 2008, contribution results in an adjusted amount of $22,880 (that is, $25,000 ÷ 1.1075^(8.5/12) ÷ 1.0575^(3.5/12)) as of January 1, 2008.

(v) The remaining December 31, 2008, contribution is then applied to the quarterly contribution due July 15, 2008. The balance of the December 31, 2008, contribution ($150,000 minus $107,500 minus $25,000, or $17,500) is paid after the due date for the second required quarterly installment. Accordingly, the remaining $17,500 contribution is adjusted using an interest rate of 10.75% for the 5¹/₂-month period between the payment date of December 31, 2008 and the quarterly contribution due date of July 15, 2008, and at the 5.75% effective interest rate for the 6¹/₂ months between July 15, 2008, and January 1, 2008. This portion of the December 31, 2008, contribution results in an adjusted amount of $16,202 (that is, $17,500 ÷ 1.1075^(5.5/12) ÷ 1.0575^(6.5/12)) as of January 1, 2008.

(vi) The remaining unpaid minimum required contribution for 2008 is $125,000 minus the interest-adjusted amounts of $22,880 and $16,202 applied towards the 2008 minimum required contribution as determined in paragraphs (iv) and (v) of this Example 5. This results in an unpaid minimum required contribution of $85,918 for 2008. The section 4971(a) excise tax is 10% of the unpaid minimum required contribution, or $8,592.

Example 6. (i) Plan C, a single employer defined benefit plan, has a calendar year plan year and a January 1 valuation date, and has no funding standard carryover balance or prefunding balance as of January 1, 2008. Plan C’s sponsor has a calendar year taxable year. The minimum required contributions for Plan C are $100,000 for the 2008 plan year, $110,000 for the 2009 plan year, $125,000 for the 2010 plan year, and $135,000 for the 2011 plan year. No contributions for these plan years are made until September 15, 2012, at which time the plan sponsor contributes $273,000 (which is exactly enough to correct the unpaid minimum required contributions for the 2008 and 2009 plan years).

(ii) The excise tax under section 4971(a) is 10% of the aggregate unpaid minimum required contributions for all plan years remaining unpaid as of the end of any plan year ending within the 2008 taxable year. Accordingly, the excise tax for the 2008 taxable year is $10,000 (that is, 10% of $100,000). The excise tax for the 2009 taxable year is $21,000 (that is, 10% of the sum of $100,000 and $110,000) and the excise tax for the 2010 taxable year is $33,500 (that is, 10% of the sum of $100,000, $110,000, and $125,000).

(iii) The contribution made on September 15, 2012, is applied to correct the unpaid minimum required contributions for the 2008 and 2009 plan years by the deadline for making contributions for the 2011 plan year. Therefore, the excise tax under section 4971(a) for the 2011 taxable year is based only on the remaining unpaid minimum required contributions for the 2010 and 2011 plan years, or $26,000 (that is, 10% of the sum of $125,000 and $135,000).

(iv) The plan sponsor may also be required to pay an excise tax of 100% under section 4971(b), if the unpaid minimum required contributions are not corrected by the end of the taxable period.

(g) Effective/applicability dates and transition rules—(1) Statutory effective date—(i) In general. In general, the amendments made to section 4971 by section 114 of the Pension Protection Act of 2006, Public Law 109-280, 120 Stat. 780 (PPA ’06), apply to taxable years beginning on or after January 1, 2008, but only with respect to plan years that end with or within any such taxable year.

(ii) Plans with delayed PPA ’06 effective dates. In the case of a plan for which the effective date of section 430 is delayed in accordance with sections 104 through 106 of PPA ’06, the amendments made to section 4971 by section 114 of PPA ’06 apply to taxable years beginning on or after January 1, 2008, but only with respect to plan years beginning on or after the date section 430 first applies with respect to the plan.

(2) Effective date of regulations. This section is effective for taxable years beginning on and after the statutory effective date described in paragraph (g)(1) of this section, but in no event does this section apply to taxable years ending before April 15, 2008.

(3) Pre-effective plan year. For purposes of this section, the pre-effective plan year for a plan is the last plan year beginning before section 430 applies to the plan. Thus, except for plans with a delayed effective date under paragraph (g)(1)(ii) of this section, the pre-effective plan year for a plan is the last plan year beginning before January 1, 2008.

Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.