This notice sets forth updates on the corporate bond monthly yield curve, the corresponding spot segment rates for August 2018 used under § 417(e)(3)(D), the 24-month average segment rates applicable for September 2018, and the 30-year Treasury rates, as reflected by the application of § 430(h)(2)(C)(iv).

Notice 2018–74 modifies the two safe harbor explanations in Notice 2014–74, 2014–50 I.R.B. 937, that may be used to satisfy the requirement under § 402(f) of the Internal Revenue Code that certain information be provided to recipients of eligible rollover distributions. The safe harbor explanations as modified by this notice take into consideration certain legislative changes and recent guidance, including changes related to qualified plan loan offsets (as defined in section 13613 of the Tax Cuts and Jobs Act of 2017, P.L. 115–97) and guidance issued on self-certification of eligibility for a waiver of the deadline for completing a rollover (described in Rev. Proc. 2016–47, 2016–37 I.R.B. 346), and include other clarifying changes.

Fringe benefits aircraft valuation formula. For purposes of section 1.61–21(g) of the Income Tax Regulations, relating to the rule for valuing non-commercial flights on employer-provided aircraft, the Standard Industry Fare Level (SIFL) cents-per-mile rates and terminal charge in effect for the second half of 2018 are set forth.

This revenue procedure provides guidance for real estate investment trusts (REITs) regarding the treatment of certain foreign income inclusions for purposes of the 95 percent gross income qualification test of section 856(c)(2) of the Internal Revenue Code.

This Notice announces that Treasury and the IRS intent to amend regulations under section 871(m) to delay the effective/applicability date of certain rules in those final regulations. This Notice also extends the phase-in period provided in Notice 2017–42, 2017–34 I.R.B. 212, and Notice 2018–5, 2018–6 I.R.B. 341, for certain provides of the section 871(m) regulations.

For purposes of the taxation of fringe benefits under section 61 of the Internal Revenue Code, section 1.61–21(g) of the Income Tax Regulations provides a rule for valuing noncommercial flights on employer-provided aircraft. Section 1.61–21(g)(5) provides an aircraft valuation formula to determine the value of such flights. The value of a flight is determined under the base aircraft valuation formula (also known as the Standard Industry Fare Level formula or SIFL) by multiplying the SIFL cents-per-mile rates applicable for the period during which the flight was taken by the appropriate aircraft multiple provided in section 1.61–21(g)(7) and then adding the applicable terminal charge. The SIFL cents-per-mile rates in the formula and the terminal charge are calculated by the Department of Transportation and are reviewed semi-annually.

The following chart sets forth the terminal charge and SIFL mileage rates:

The principal author of this revenue ruling is Kathleen Edmondson of the Office of Associate Chief Counsel (Tax Exempt/Government Entities). For further information regarding this revenue ruling, contact Ms. Edmondson at (202) 317-6798 (not a toll-free number).

This revenue procedure provides guidance regarding how certain items of income are treated for purposes of determining whether a real estate investment trust (REIT) satisfies the gross income test in § 856(c)(2) of the Internal Revenue Code (Code). The types of income addressed are—

.01 To qualify as a REIT, a domestic corporation must, among other things, annually satisfy the gross income requirements of § 856(c)(2) and (c)(3). Under § 856(c)(2), at least 95 percent of the corporation’s gross income must be derived from certain enumerated sources, including dividends, interest, rents from real property, and gain from the sale or other disposition of stock, securities, and real property. Under § 856(c)(3), at least 75 percent of the corporation’s gross income must be derived from a similar but narrower set of enumerated sources, generally focused on income from real estate assets.

.02 The legislative history underlying the tax treatment of REITs indicates that a central concern behind the gross income restrictions is that a REIT’s gross income should largely be composed of passive income. For example, H.R. Rep. No. 86–2020, at 6 (1960), 1960–2 C.B. 819, at 822–23 states, “One of the principal purposes of your committee in imposing restrictions on types of income of a qualifying real estate investment trust is to be sure the bulk of its income is from passive income sources and not from the active conduct of a trade or business.”

.03 Section 856(c)(5)(J) provides that to the extent necessary to carry out the purposes of part II of subchapter M (§§ 856 through 859 of the Code), the Secretary is authorized to determine, solely for purposes of such part, (i) whether any item of income or gain that does not otherwise qualify under § 856(c)(2) or (c)(3) may be considered as not constituting gross income for purposes of § 856(c)(2) or (c)(3), and (ii) whether any item of income or gain that otherwise constitutes gross income not qualifying under § 856(c)(2) or (c)(3) may be considered as gross income that qualifies under § 856(c)(2) or (c)(3).

.04 Some REITs are United States shareholders, as defined in § 951(b), in one or more controlled foreign corporations (CFCs), as defined in § 957. REITs may also own stock in domestic partnerships or trusts that are United States shareholders of CFCs. Additionally, some REITs own (or are treated under § 1298 as owning) stock in one or more foreign corporations that are passive foreign investment companies (PFICs), as defined in § 1297. A United States person owning stock (or treated as owning stock) in a foreign corporation may be required under subpart F of part III of subchapter N (§§ 951 to 965 of the Code) or under part VI of subchapter P (§§ 1291 to 1298 of the Code) to include in gross income certain types of income or earnings of the foreign corporation. This inclusion may be required without regard to whether the foreign corporation makes a corresponding distribution of cash or property to the United States person.

.05 Section 986(c)(1) provides that foreign currency gain or loss with respect to distributions of previously taxed earnings and profits (as described in § 959 or § 1293(c)) attributable to movements in exchange rates between the times of the deemed and actual distribution shall be recognized and treated as ordinary income or loss from the same source as the associated income inclusion.

.06 Section 856(n)(1)(A) provides that passive foreign exchange gain (as defined in § 856(n)(3)) for any taxable year shall not constitute gross income for purposes of § 856(c)(2). In addition to the items specifically listed in § 856(n)(3)(A) and (B), under § 856(n)(3)(C), passive foreign exchange gain includes any other foreign currency gain as determined by the Secretary.

.07 The amounts that a REIT may be required to include in gross income under §§ 951(a)(1), 951A(a), 986(c), 1291(a), 1293(a)(1), or 1296(a) are not listed among the qualifying sources enumerated in § 856(c)(2) or (c)(3). However, § 965(m)(1)(A) provides that amounts required to be included in gross income under § 951(a) by reason of § 965(a) are not taken into account as gross income of a REIT for purposes of applying § 856(c)(2) and (3). Additionally, amounts included in gross income under § 986(c) are not listed in § 856(n)(3)(A) or (B).

.08 Previously, the Internal Revenue Service (IRS) received requests to exercise the authority under § 856(c)(5)(J) and (n)(3)(C) to treat certain amounts determined under §§ 951(a)(1), 986(c), 1291(a), and 1293(a)(1) either as not constituting gross income or as qualifying gross income, for purposes of § 856(c)(2).

.09 Since § 951A was added to the Code by “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” P.L. 115–97, 131 Stat. 2054 (2017), the IRS has received similar requests to exercise the authority under § 856(c)(5)(J) and (n)(3)(C) regarding REIT income inclusions and foreign currency gain with respect to global intangible low-taxed income (GILTI) under § 951A(a).

This revenue procedure applies to any REIT that is required to include in gross income amounts under §§ 951(a)(1) (except by reason of § 965), 951A(a), 986(c), 1291(a), 1293(a)(1), or 1296(a).

.01 Pursuant to § 856(c)(5)(J)(ii), any amounts required to be included in gross income by a REIT under §§ 951(a)(1) (except by reason of § 965), 951A(a), 1291(a), 1293(a)(1), or 1296(a) are treated as qualifying income for purposes of § 856(c)(2).

.02 Pursuant to § 856(n)(3)(C), any amounts required to be taken into account by a REIT under § 986(c) as foreign currency gain with respect to distributions of previously taxed earnings and profits (as described in § 959 or § 1293(c)) are considered passive foreign exchange gain (as defined in § 856(n)(3)) and, therefore, pursuant to § 856(n)(1)(A), do not constitute gross income for purposes of § 856(c)(2).

This revenue procedure is effective for taxable years beginning after September 13, 2018. However, a REIT described in section 3 of this revenue procedure may choose to apply the rules set forth in section 4 of this revenue procedure with respect to any prior taxable year(s).

The principal authors of this revenue procedure are Grace Cho and Anna Boyd of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure contact Ms. Cho at (202) 317-6945 (not a toll-free number).

This Notice provides taxpayers with additional guidance for complying with the final and temporary regulations under sections 871(m), 1441, 1461, and 1473 of the Internal Revenue Code (the Code) (collectively referred to as the section 871(m) regulations) in 2019,^[1] 2020, and 2021. Specifically, this Notice announces that the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) intend to amend the section 871(m) regulations to delay the effective/applicability date of certain rules in those final regulations. This Notice also extends the phase-in period provided in Notice 2016–76, 2016–51 I.R.B. 834, for certain provisions of the section 871(m) regulations and permits withholding agents to apply the transition rules from Notice 2010–46, 2010–24 I.R.B. 757, in 2020, as described in more detail below.

The anti-abuse rule provided in §1.871–15(o) will continue to apply during the phase-in years described in this Notice. As a result, a transaction that would not otherwise be treated as a section 871(m) transaction (including as a result of this Notice) may be a section 871(m) transaction under §1.871–15(o).^[2]

On June 14, 2010, the Treasury Department and the IRS published Notice 2010–46, which addresses potential overwithholding in the context of securities lending and sale repurchase agreements. Notice 2010–46 provides a two-part solution to the problem of overwithholding on a chain of dividends and dividend equivalents. First, it provides an exception from withholding for payments to a qualified securities lender (QSL). Second, it provides a proposed framework to credit forward prior withholding on a chain of substitute dividends paid pursuant to a chain of securities loans or stock repurchase agreements. The QSL regime requires a person that agrees to act as a QSL to comply with certain withholding and documentation requirements. The Treasury Department and the IRS permitted withholding agents to rely on transition rules described in Notice 2010–46, Part III, until guidance was developed that would include documentation and substantiation of withholding.

On September 18, 2015, the Federal Register published final regulations and temporary regulations (TD 9734, 80 FR 56866), which finalized a portion of a 2013 notice of proposed rulemaking (78 FR 73128), and introduced new temporary regulations based on comments received with respect to that notice of proposed rulemaking (80 FR 56415) (2015 final regulations and 2015 temporary regulations, respectively). The Treasury Department and the IRS stated in the preamble that the final qualified derivatives dealer (“QDD”) regulations would supplant the proposed regulatory framework described in Notice 2010–46. 80 FR at 56878.

On July 18, 2016, the Treasury Department and the IRS published Notice 2016–42, 2016–29 I.R.B. 67, which contained the proposed qualified intermediary agreement (QI Agreement) that included provisions relating to the QDD regime and reiterated the intent to replace the proposed regulatory framework described in Notice 2010–46 with the QDD regime.

On December 19, 2016, the Treasury Department and the IRS published Notice 2016–76, which provided for the phased-in application of certain provisions of the section 871(m) regulations to allow for the orderly implementation of those final regulations and announced that taxpayers may continue to rely on Notice 2010–46 until January 1, 2018.

On January 17, 2017, the Treasury Department and the IRS published Revenue Procedure 2017–15, 2017–3 I.R.B. 437, which sets forth the final QI Agreement (2017 QI Agreement), including the requirements and obligations applicable to QDDs, and provided that taxpayers may continue to rely on Notice 2010–46 during 2017.

On January 24, 2017, the Federal Register published final regulations and temporary regulations (TD 9815, 82 FR 8144) (the 2017 regulations), which finalized the 2015 notice of proposed rulemaking (80 FR 56415) that was issued in conjunction with the 2015 temporary regulations. The effective/applicability dates in the 2017 regulations reflect the phased-in application described in Notice 2016–76. See Treas. Reg. §1.871–15(r)(3). Also, consistent with Notice 2016–76 and other announcements, the “Effect on Other Documents” section of the preamble to the 2017 regulations obsoleted Notice 2010–46 as of January 1, 2018. In response to a comment requesting that the QSL regime remain, the preamble to the 2017 regulations noted that “[w]hile the Treasury Department and the IRS understand that the QSL regime was administratively more convenient for taxpayers than the QI regime, it created administrability problems, particularly with respect to verification, for the IRS. That regime is being replaced by incorporating the QDD rules into the existing QI framework, including the specific rules for pooled reporting on Form 1042–S, and the QI requirements for compliance review and certification.” 82 FR at 8153.

On August 21, 2017, the Treasury Department and the IRS published Notice 2017–42, 2017–34 I.R.B. 212, which extended certain transition relief.

On February 5, 2018, the Treasury Department and the IRS published Notice 2018–5, 2018–6 I.R.B. 341, which permits withholding agents to apply the transition rules from Notice 2010–46 in 2018 and 2019.

Consistent with Executive Order 13777 (82 FR 12285), the Treasury Department and the IRS continue to evaluate the section 871(m) regulations and consider possible agency actions that may reduce unnecessary burdens imposed by the regulations. Pending consideration of the section 871(m) regulations pursuant to Executive Order 13777, this Notice extends parts of the phase-in period described in both Notice 2017–42 and Notice 2018–5 through 2020. See sections III through VI of this Notice for more details.

Dealers, issuers, and other withholding agents have indicated that the phase-in period for delta-one transactions provided in prior guidance has provided them with valuable time to test and further develop their withholding and reporting systems. Furthermore, comments have requested that the transition relief described in both Notice 2017–42 and Notice 2018–5 should be extended on a permanent basis. Market participants have indicated that they will require additional time to refine their systems based on any amendments to the section 871(m) regulations. In addition, dealers, issuers, and other withholding agents continue to design, build, and test new withholding and reporting systems that will enable testing and withholding on non-delta-one transactions, and have requested additional time to complete those systems before being required to comply with the section 871(m) regulations with respect to non-delta-one transactions. Further, comments have requested that the QSL regime be extended for a longer transition period and have requested that the Treasury Department and the IRS consider simplifying the rules for securities lenders.

This section describes the extension to the phased-in application of the section 871(m) regulations to delta-one and non-delta-one transactions. This Notice does not apply to any transaction that is a section 871(m) transaction pursuant to §1.871–15(d)(1) (providing that before January 1, 2017, a notional principal contract (NPC) is a specified NPC if certain factors are present).

The Treasury Department and the IRS have determined that it is appropriate for taxpayers and withholding agents to delay certain provisions in the section 871(m) regulations for non-delta-one transactions, including transactions that are combined transactions under §1.871–15(n). Therefore, the Treasury Department and the IRS intend to revise the effective/applicability date for §1.871–15(d)(2) and (e) to provide that these rules will not apply to any payment made with respect to any non-delta-one transaction issued before January 1, 2021.

Notice 2016–76 provides that the IRS will take into account the extent to which the taxpayer or withholding agent made a good faith effort to comply with the section 871(m) regulations with respect to delta-one transactions in 2017 and non-delta-one transactions in 2018 when it enforces the section 871(m) regulations. Notice 2017–42 extended the period during which the good faith effort standard applied to (1) any delta-one transaction in 2017 and 2018, and (2) any non-delta-one transaction that is a section 871(m) transaction pursuant to §1.871–15(d)(2) or (e) in 2019. This Notice further extends the periods during which the enforcement standards provided by Notice 2016–76 and Notice 2017–42 will apply. Consistent with this extension, the IRS will take into account the extent to which the taxpayer or withholding agent made a good faith effort to comply with the section 871(m) regulations in enforcing the section 871(m) regulations for (1) any delta-one transaction in 2017 through 2020, and (2) any non-delta-one transaction that is a section 871(m) transaction pursuant to §1.871–15(d)(2) or (e) in 2021.

Similarly, for purposes of the IRS’s enforcement and administration of the QDD rules in the section 871(m) regulations and the relevant provisions of the 2017 QI Agreement, this Notice extends through 2020 the period during which the IRS will take into account the extent to which the QDD made a good faith effort to comply with the section 871(m) regulations and the relevant provisions of the 2017 QI Agreement. In addition, the IRS intends to revise the 2017 QI Agreement to provide that a QDD will be considered to satisfy the obligations that apply specifically to a QDD under that agreement for 2017 through 2020 provided that the QDD makes a good faith effort to comply with the relevant provisions of the 2017 QI Agreement.

Notice 2016–76 provided a simplified standard for withholding agents to determine whether transactions entered into in 2017 are combined transactions. Specifically, a withholding agent is required to combine transactions entered into in 2017 for purposes of determining whether the transactions are section 871(m) transactions only when the transactions are over-the-counter transactions that are priced, marketed, or sold in connection with each other. Withholding agents are not required to combine any transactions that are listed securities entered into in 2017.

Notice 2017–42 extended the period during which this simplified standard for combined transactions applies to include 2018. This Notice further extends the period during which this simplified standard for combined transactions applies to include 2019 and 2020. Transactions that are entered into in 2017 through 2020 that are combined under this simplified standard will continue to be treated as combined transactions for future years and will not cease to be combined transactions as a result of applying §1.871–15(n) or disposing of less than all of the potential section 871(m) transactions that are combined under this rule. Transactions that are entered into in 2017 through 2020 that are not combined under this simplified standard will not become combined transactions as a result of applying §1.871–15(n) to these transactions in future years, unless a reissuance or other event causes the transactions to be retested to determine whether they are section 871(m) transactions. See §1.871–15(g)(2) (providing that the delta of a potential section 871(m) transaction generally is determined on the earlier of when the transaction is (1) priced or (2) issued); see also §1.871–15(a)(6) (defining the term “issue” to include “an issuance as a result of a deemed exchange pursuant to section 1001”). This simplified standard applies only to withholding agents, and does not apply to taxpayers that are long parties to potential section 871(m) transactions.

Section 1.871–15T(q)(1) of the 2015 temporary regulations provided that when a QDD received a dividend or dividend equivalent payment and the QDD was contractually obligated to make an offsetting dividend equivalent payment on the same underlying security in an amount that was less than the dividend and dividend equivalent amount received, the QDD would be liable for tax under section 871(a) or section 881 for the difference. The 2015 final regulations provided that a withholding agent who made a payment of a dividend to a qualified intermediary acting as a QDD was not required to withhold on that payment if the withholding agent reliably associated the payment with a valid qualified intermediary withholding form containing a certification described in §1.1441–1(e)(3)(ii)(E). See §1.1441–1(b)(4)(xxii) of the 2015 final regulations.

Comments requested that the Treasury Department and the IRS adopt a different method of determining a QDD’s tax liability. Those comments generally requested that this method be based on the QDD’s net delta exposure for each underlying security. The Treasury Department and the IRS agreed that the net delta approach was an administrable and accurate method for a QDD to determine its residual exposure to underlying securities, and the 2017 final regulations adopted the net delta exposure method.

In adopting the net delta approach, the Treasury Department and the IRS were concerned that the exemption from withholding on dividends paid to a QDD, when combined with the net delta exposure method, could result in U.S. source dividends escaping U.S. tax completely in certain circumstances. Therefore, the 2017 final regulations revised §§1.871–15(q)(1) and 1.1441–1(b)(4)(xxii) to provide that a QDD remains liable for tax under section 881(a)(1) and subject to withholding under chapters 3 and 4 on dividends. However, to allow taxpayers time to implement the net delta approach, the 2017 QI Agreement and the 2017 final regulations provided that dividends and dividend equivalents received by a QDD in its equity derivatives dealer capacity in 2017 will not be subject to tax under section 881(a)(1) or subject to withholding under chapters 3 and 4.

Notice 2017–42 announced that the Treasury Department and the IRS intend to amend §§1.871–15(q)(1) and (r)(3), and 1.1441–1(b)(4)(xxii)(C) to provide that a QDD will not be subject to tax on dividends and dividend equivalents received in 2017 and 2018 in its equity derivatives dealer capacity or withholding on those dividends (including deemed dividends). This Notice announces that the Treasury Department and the IRS intend to amend those provisions to provide that a QDD will not be subject to tax on dividends and dividend equivalents received in 2019 and 2020 in its equity derivatives dealer capacity or withholding on those dividends (including deemed dividends) as well.

Section 4.01(1) of Rev. Proc. 2017–15 provides that a QDD will be required to compute its section 871(m) amount using the net delta approach beginning in 2018. Notice 2017–42 provided that a QDD would be required to compute its section 871(m) amount using the net delta approach beginning in 2019. This Notice provides that a QDD will be required to compute its section 871(m) amount using the net delta approach beginning in 2021.

A QDD will remain liable for tax under section 881(a)(1) on dividends and dividend equivalents that it receives in any capacity other than as an equity derivatives dealer, and on any other U.S. source FDAP payments that it receives (whether or not in its equity derivatives dealer capacity). In addition, a QDD is responsible for withholding on dividend equivalents it pays to a foreign person on a section 871(m) transaction, whether acting in its capacity as an equity derivatives dealer or otherwise.

Finally, section 10.01(C) of the 2017 QI Agreement provides that: “For calendar year 2017, a QDD is not required to perform a periodic review with respect to its QDD activities (as otherwise required by section 10.04 of this Agreement) or provide the factual information specified in Appendix I.” Notice 2017–42 provides that a QDD is not required to perform a periodic review with respect to its QDD activities for 2017 or 2018. This Notice provides that a QDD is not required to perform a periodic review with respect to its QDD activities for 2019 or 2020. Note that a QDD must use the same year for the periodic review of its QI activities and its QDD activities. A QI that is a QDD must choose 2021 or a later year within its certification period in which to perform its periodic review unless its applicable certification period ends in 2020 or an earlier year.

Notice 2018–5 provided that notwithstanding the preamble to the 2017 regulations, withholding agents may apply the transition rules described in Notice 2010–46, Part III, for payments made in 2018 and 2019. This Notice provides that withholding agents may also apply the transition rules described in Notice 2010–46, Part III, for payments made in 2020.

Before the promulgation of the amendments to the section 871(m) regulations and the 2017 QI Agreement, taxpayers may rely on the provisions of this Notice regarding the proposed amendments described in sections III and V. Withholding agents may rely on the simplified standard for determining whether transactions are combined transactions as described in section IV and may apply the QSL transition rules described in section VI.

The principal authors of this Notice are Karen Walny and Peter Merkel of the Office of Associate Chief Counsel (International). For further information regarding this Notice, contact Karen Walny or Peter Merkel at (202) 317-6938 (not a toll-free number).

This notice provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under § 417(e)(3), and the 24-month average segment rates under § 430(h)(2) of the Internal Revenue Code. In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I).

Section 430 specifies the minimum funding requirements that apply to single-employer plans (except for CSEC plans under § 414(y)) pursuant to § 412. Section 430(h)(2) specifies the interest rates that must be used to determine a plan’s target normal cost and funding target. Under this provision, present value is generally determined using three 24-month average interest rates (“segment rates”), each of which applies to cash flows during specified periods. To the extent provided under § 430(h)(2)(C)(iv), these segment rates are adjusted by the applicable percentage of the 25-year average segment rates for the period ending September 30 of the year preceding the calendar year in which the plan year begins.^[3] However, an election may be made under § 430(h)(2)(D)(ii) to use the monthly yield curve in place of the segment rates.

Notice 2007–81, 2007–44 I.R.B. 899, provides guidelines for determining the monthly corporate bond yield curve, and the 24-month average corporate bond segment rates used to compute the target normal cost and the funding target. Consistent with the methodology specified in Notice 2007–81, the monthly corporate bond yield curve derived from August 2018 data is in Table 2018–8 at the end of this notice. The spot first, second, and third segment rates for the month of August 2018 are, respectively, 3.10, 4.15, and 4.46.

The 24-month average segment rates determined under § 430(h)(2)(C)(i) through (iii) must be adjusted pursuant to § 430(h)(2)(C)(iv) to be within the applicable minimum and maximum percentages of the corresponding 25-year average segment rates. For plan years beginning before 2021, the applicable minimum percentage is 90% and the applicable maximum percentage is 110%. The 25-year average segment rates for plan years beginning in 2017 and 2018 were published in Notice 2016–54, 2016–40 I.R.B. 429 and Notice 2017–50, 2017–41 I.R.B. 280, respectively. For plan years beginning in 2019, based on the segment rates applicable for October 1993 to September 2018, the 25-year averages for the period ending September 30, 2018, of the first, second, and third segment rates are 4.15, 5.94, and 6.79 percent, respectively.

The three 24-month average corporate bond segment rates applicable for September 2018 without adjustment for the 25-year average segment rate limits are as follows:

Based on § 430(h)(2)(C)(iv), the 24-month averages applicable for September 2018, adjusted to be within the applicable minimum and maximum percentages of the corresponding 25-year average segment rates, are as follows:

Section 431 specifies the minimum funding requirements that apply to multiemployer plans pursuant to § 412. Section 431(c)(6)(B) specifies a minimum amount for the full-funding limitation described in § 431(c)(6)(A), based on the plan’s current liability. Section 431(c)(6)(E)(ii)(I) provides that the interest rate used to calculate current liability for this purpose must be no more than 5 percent above and no more than 10 percent below the weighted average of the rates of interest on 30-year Treasury securities during the four-year period ending on the last day before the beginning of the plan year. Notice 88–73, 1988–2 C.B. 383, provides guidelines for determining the weighted average interest rate. The rate of interest on 30-year Treasury securities for August 2018 is 3.04 percent. The Service determined this rate as the average of the daily determinations of yield on the 30-year Treasury bond maturing in May 2048 determined each day through August 8, 2018 and the yield on the 30-year Treasury bond maturing in August 2048 determined each day for the balance of the month. For plan years beginning in September 2018, the weighted average of the rates of interest on 30-year Treasury securities and the permissible range of rates used to calculate current liability are as follows:

In general, the applicable interest rates under § 417(e)(3)(D) are segment rates computed without regard to a 24-month average. Notice 2007–81 provides guidelines for determining the minimum present value segment rates. Pursuant to that notice, the minimum present value segment rates determined for August 2018 are as follows:

The principal author of this notice is Tom Morgan of the Office of the Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS participated in the development of this guidance. For further information regarding this notice, contact Mr. Morgan at 202-317-6700 or Paul Stern at 202-317-8702 (not toll-free numbers).

This notice modifies the two safe harbor explanations in Notice 2014–74, 2014–50 I.R.B. 937, that may be used to satisfy the requirement under § 402(f) of the Internal Revenue Code (“Code”) that certain information be provided to recipients of eligible rollover distributions. The safe harbor explanations as modified by this notice take into consideration certain legislative changes and recent guidance, including changes related to qualified plan loan offsets (as defined in section 13613 of the Tax Cuts and Jobs Act of 2017 (“TCJA”), P.L. 115–97) and guidance issued on self-certification of eligibility for a waiver of the deadline for completing a rollover (described in Rev. Proc. 2016–47, 2016–37 I.R.B. 346), and include other clarifying changes.

To assist with the implementation of the modified safe harbor explanations, this notice contains two appendices. Appendix A contains two model safe harbor explanations: one for distributions that are not from a designated Roth account, and a second for distributions from a designated Roth account. Appendix B provides instructions on how to amend the safe harbor explanations contained in Notice 2014–74 to reflect the revisions included in the modified safe harbor explanations in Appendix A.

There are two updated safe harbor explanations appended to this notice (see Appendix A). The safe harbor explanations modify the safe harbor explanations in Notice 2014–74 to reflect certain legislative changes and guidance issued after December 8, 2014, including: (1) the extended rollover deadline for qualified plan loan offset amounts under TCJA, (2) the exception to the 10% additional tax under § 72(t) for phased retirement distributions to certain federal retirees under MAP-21, (3) the expanded exception to the 10% additional tax under § 72(t) for specified federal employees who have reached age 50 under DPSERA, and (4) the self-certification procedures under Rev. Proc. 2016–47 for claiming eligibility for a waiver of the deadline for making rollovers. The safe harbor explanations also include other clarifying modifications, such as modifications clarifying that the 10% additional tax under § 72(t) for early distributions applies only to amounts includable in income, explaining how the rollover rules apply to governmental § 457(b) plans that include designated Roth accounts, clarifying that the general exception to the 10% additional tax under § 72(t) for payments from a governmental plan made after a qualified public safety employee separates from service (if the employee will be at least age 50 in the year of the separation) is not available for payments from IRAs, and recognizing the possibility that taxpayers affected by federally declared disasters and other events may have an extended deadline for making rollovers. For instructions on how to amend the safe harbor explanations in Notice 2014–74 to reflect these modifications, see Appendix B. The updated safe harbor explanations provided in this notice may be used by plan administrators and payors to satisfy § 402(f). However, the updated safe harbor explanations will not satisfy § 402(f) to the extent the explanations are no longer accurate because of a change in the relevant law occurring after September 18, 2018.

The first safe harbor explanation reflects the rules relating to distributions not from a designated Roth account. Thus, the first safe harbor explanation should only be used for a distribution that is not from a designated Roth account. The second safe harbor explanation reflects the rules relating to distributions from a designated Roth account. Thus, the second safe harbor explanation should only be used for a distribution from a designated Roth account. Both explanations should be provided to a participant if the participant is eligible to receive eligible rollover distributions both from a designated Roth account and from an account other than a designated Roth account.

The safe harbor explanation in this notice for distributions not from a designated Roth account meets the requirements of § 402(f) for an eligible rollover distribution that is not from a designated Roth account if provided to the recipient of the eligible rollover distribution within a reasonable period of time before the distribution is made. Similarly, the safe harbor explanation in this notice for distributions from a designated Roth account meets the requirements of § 402(f) for an eligible rollover distribution from a designated Roth account if provided to the recipient of the eligible rollover distribution within a reasonable period of time before the distribution is made.

Section 1.402(f)–1, Q&A–2, provides, in general, that a reasonable period of time for providing an explanation is no less than 30 days (subject to waiver) and no more than 90 days before the date on which the distribution is made. However, § 1.402(f)–1, Q&A–2(a), of the Proposed Income Tax Regulations, pursuant to section 1102(a)(1)(B) of the Pension Protection Act of 2006, P.L. 109–280, provides that a notice required to be provided under § 402(f) may be provided to a participant as much as 180 days before the date on which the distribution is made (or the annuity starting date). These proposed regulations further provide that, with respect to the extended period for notices, plans may rely on the proposed regulations for notices provided during the period beginning on the first day of the first plan year beginning on or after January 1, 2007 and ending on the effective date of final regulations. Thus, the § 402(f) notice may be provided as much as 180 days before the date on which the distribution is made (or the annuity starting date).

A plan administrator or payor may customize a safe harbor explanation by omitting any information that does not apply to the plan. For example, if the plan does not hold after-tax employee contributions, it would be appropriate to eliminate the section “If your payment includes after-tax contributions” in the explanation for payments not from a designated Roth account. Similarly, if the plan does not provide for distributions of employer stock or other employer securities, it would be appropriate to eliminate the section “If your payment includes employer stock that you do not roll over.” Other information that may not be relevant to a particular plan includes, for example, the sections “If your payment is from a governmental section 457(b) plan” and “If you are an eligible retired public safety officer and your payment is used to pay for health coverage or qualified long-term care insurance.” In addition, the plan administrator or payor may provide additional information with a safe harbor explanation if the information is not inconsistent with § 402(f).

Alternatively, a plan administrator or payor may satisfy § 402(f) by providing an explanation that is different from a safe harbor explanation. Any explanation must contain the information required by § 402(f) and must be written in a manner designed to be easily understood.

Notice 2014–74 is modified.

The principal author of this notice is Naomi Lehr of the Office of Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, contact Ms. Lehr at (202) 317-4102 (not a toll-free number).

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For Payments Not From a

Designated Roth Account

You are receiving this notice because all or a portion of a payment you are receiving from the [INSERT NAME OF PLAN] (the “Plan”) is eligible to be rolled over to an IRA or an employer plan. This notice is intended to help you decide whether to do such a rollover.

This notice describes the rollover rules that apply to payments from the Plan that are not from a designated Roth account (a type of account with special tax rules in some employer plans). If you also receive a payment from a designated Roth account in the Plan, you will be provided a different notice for that payment, and the Plan administrator or the payor will tell you the amount that is being paid from each account.

Rules that apply to most payments from a plan are described in the “General Information About Rollovers” section. Special rules that only apply in certain circumstances are described in the “Special Rules and Options” section.

You may wish to consult with the Plan administrator or payor, or a professional tax advisor, before taking a payment from the Plan. Also, you can find more detailed information on the federal tax treatment of payments from employer plans in: IRS Publication 575, Pension and Annuity Income; IRS Publication 590–A, Contributions to Individual Retirement Arrangements (IRAs); IRS Publication 590–B, Distributions from Individual Retirement Arrangements (IRAs); and IRS Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans). These publications are available from a local IRS office, on the web at www.irs.gov, or by calling 1-800-TAX-FORM.

For Payments From a

Designated Roth Account

You are receiving this notice because all or a portion of a payment you are receiving from the [INSERT NAME OF PLAN] (the “Plan”) is eligible to be rolled over to a Roth IRA or designated Roth account in an employer plan. This notice is intended to help you decide whether to do a rollover.

This notice describes the rollover rules that apply to payments from the Plan that are from a designated Roth account. If you also receive a payment from the Plan that is not from a designated Roth account, you will be provided a different notice for that payment, and the Plan administrator or the payor will tell you the amount that is being paid from each account.

Rules that apply to most payments from a designated Roth account are described in the “General Information About Rollovers” section. Special rules that only apply in certain circumstances are described in the “Special Rules and Options” section.

You may wish to consult with the Plan administrator or payor, or a professional tax advisor, before taking a payment from the Plan. Also, you can find more detailed information on the federal tax treatment of payments from employer plans in: IRS Publication 575, Pension and Annuity Income; IRS Publication 590–A, Contributions to Individual Retirement Arrangements (IRAs); IRS Publication 590–B, Distributions from Individual Retirement Arrangements (IRAs); and IRS Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans). These publications are available from a local IRS office, on the web at www.irs.gov, or by calling 1-800-TAX-FORM.

Some plan administrators that have been using the safe harbor explanations in Notice 2014–74 may wish to update those explanations by making amendments to them (rather than by simply replacing them with the revised safe harbor explanations in Appendix A). This appendix provides instructions on how to amend the safe harbor explanations in Notice 2014–74 to reflect the modifications made in the revised safe harbor explanations in Appendix A. Part 1 contains amendments to the safe harbor explanation for payments not from a designated Roth account and Part 2 contains amendments to the safe harbor explanation for payments from a designated Roth account.