Interest rates: underpayments and overpayments. The rates for interest determined under Section 6621 of the code for the calendar quarter beginning January 1, 2023, will be 7 percent for overpayments (6 percent in the case of a corporation), 7 percent for underpayments, and 9 percent for large corporate underpayments. The rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 4.5 percent.

26 CFR 301.6621-1: Interest rate.

Announcement 2022-26 notifies taxpayers that payments by the County of Suffolk in the state of New York to residential property owners under Suffolk County’s Septic Improvement Program (SIP Program) are not required to be included in the gross income of the payment recipients for Federal income tax purposes. The Secretary of Agriculture has determined that the SIP Program payments are primarily for the purpose of conserving soil and water resources and protecting or restoring the environment. This announcement provides a determination that the SIP Program payments do not increase substantially the annual income derived from the property within the meaning of § 126(b)(1)(B) of the Code and meet the other requirements of section 126. Therefore, the payments are not required to be included in the gross income of the payment recipients. In addition, the announcement provides that Suffolk County does not have an information reporting obligation under § 6041 with respect to the payments under the SIP Program.

This revenue ruling provides tables of covered compensation under § 401(l)(5)(E) of the Internal Revenue Code and the Income Tax Regulations thereunder, for the 2023 plan year.

26 CFR 1.401(l)-1: Permitted disparity in employer-provided contributions or benefits

Revocation of IRC 501(c)(3) Organizations for failure to meet the code section requirements. Contributions made to the organizations by individual donors are no longer deductible under IRC 170(b)(1)(A).

Serves notice to potential donors of a stipulated decision by the United States Tax Court in declaratory judgment proceedings under Section 7428.

This announcement reminds State and local housing credit agencies of an impending deadline applicable to certain allocations of housing credit dollar amounts under § 42 of the Internal Revenue Code.

Section 6621 of the Internal Revenue Code establishes the interest rates on overpayments and underpayments of tax. Under section 6621(a)(1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points (2 percentage points in the case of a corporation), except the rate for the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the sum of the federal short-term rate plus 0.5 of a percentage point. Under section 6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points.

Section 6621(c) provides that for purposes of interest payable under section 6601 on any large corporate underpayment, the underpayment rate under section 6621(a)(2) is determined by substituting “5 percentage points” for “3 percentage points.” See section 6621(c) and section 301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date. Section 6621(c) and section 301.6621-3 are generally effective for periods after December 31, 1990.

Section 6621(b)(1) provides that the Secretary will determine the federal short-term rate for the first month in each calendar quarter. Section 6621(b)(2)(A) provides that the federal short-term rate determined under section 6621(b)(1) for any month applies during the first calendar quarter beginning after that month. Section 6621(b)(3) provides that the federal short-term rate for any month is the federal short-term rate determined during that month by the Secretary in accordance with section 1274(d), rounded to the nearest full percent (or, if a multiple of 1/2 of 1 percent, the rate is increased to the next highest full percent).

Notice 88-59, 1988-1 C.B. 546, announced that in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.

The federal short-term rate determined in accordance with section 1274(d) during October 2022 is the rate published in Revenue Ruling 2022-20, 2022-44 IRB 407, to take effect beginning November 1, 2022. The federal short-term rate, rounded to the nearest full percent, based on daily compounding determined during the month of October 2022 is 4 percent. Accordingly, an overpayment rate of 7 percent (6 percent in the case of a corporation) and an underpayment rate of 7 percent are established for the calendar quarter beginning January 1, 2023. The overpayment rate for the portion of a corporate overpayment exceeding $10,000 for the calendar quarter beginning January 1, 2023, is 4.5 percent. The underpayment rate for large corporate underpayments for the calendar quarter beginning January 1, 2023, is 9 percent. These rates apply to amounts bearing interest during that calendar quarter.

Sections 6654(a)(1) and 6655(a)(1) provide that the underpayment rate established under section 6621 applies in determining the addition to tax under sections 6654 and 6655 for failure to pay estimated tax for any taxable year. Thus, the 7 percent rate also applies to estimated tax underpayments for the first calendar quarter beginning January 1, 2023. Pursuant to section 6621(b)(2)(B), in determining the addition to tax under section 6654 for any taxable year for an individual, the federal short-term rate that applies during the third month following the taxable year also applies during the first 15 days of the fourth month following the taxable year. In addition, pursuant to section 6603(d)(4), the rate of interest on section 6603 deposits is 4 percent for the first calendar quarter in 2023.

Interest factors for daily compound interest for annual rates of 4.5 percent, 6 percent, 7 percent and 9 percent are published in Tables 14, 17, 19 and 23 of Rev. Proc. 95-17, 1995-1 C.B. 568, 571, 573, and 577.

Annual interest rates to be compounded daily pursuant to section 6622 that apply for prior periods are set forth in the tables accompanying this revenue ruling.

This revenue ruling provides tables of covered compensation under § 401(l)(5)(E) of the Internal Revenue Code and the Income Tax Regulations thereunder, for the 2023 plan year.

Section 401(l)(5)(E)(i) defines covered compensation with respect to an employee as the average of the contribution and benefit bases in effect under section 230 of the Social Security Act (“Act”) for each year in the 35-year period ending with the year in which the employee attains Social Security retirement age.

Section 401(l)(5)(E)(ii) states that the determination for any year preceding the year in which the employee attains Social Security retirement age shall be made by assuming that there is no increase in covered compensation after the determination year and before the employee attains Social Security retirement age.

Section 1.401(l)-1(c)(34) of the Income Tax Regulations defines the taxable wage base as the contribution and benefit base under section 230 of the Act.

Section 1.401(l)-1(c)(7)(i) defines covered compensation for an employee as the average (without indexing) of the taxable wage bases in effect for each calendar year during the 35-year period ending with the last day of the calendar year in which the employee attains (or will attain) Social Security retirement age. A 35-year period is used for all individuals regardless of the year of birth of the individual. In determining an employee’s covered compensation for a plan year, the taxable wage base for all calendar years beginning after the first day of the plan year is assumed to be the same as the taxable wage base in effect as of the beginning of the plan year. An employee’s covered compensation for a plan year beginning after the 35-year period applicable under § 1.401(l)-1(c)(7)(i) is the employee’s covered compensation for a plan year during which the 35-year period ends. An employee’s covered compensation for a plan year beginning before the 35-year period applicable under § 1.401(l)-1(c)(7)(i) is the taxable wage base in effect as of the beginning of the plan year.

Section 1.401(l)-1(c)(7)(ii) provides that, for purposes of determining the amount of an employee’s covered compensation under § 1.401(l)-1(c)(7)(i), a plan may use tables, provided by the Commissioner, that are developed by rounding the actual amounts of covered compensation for different years of birth.

For purposes of determining covered compensation for the 2023 year, the taxable wage base is $160,200.

The following tables provide covered compensation for 2023.

The Internal Revenue Service has revoked its determination that the organizations listed below qualify as organizations described in sections 501(c)(3) and 170(c)(2) of the Internal Revenue Code of 1986.

Generally, the IRS will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the IRS is not precluded from disallowing a deduction for any contributions made after an organization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation.

If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on December 19, 2022 and would end on the date the court first determines the organization is not described in section 170(c)(2) as more particularly set for in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation.

This announcement serves notice to potential donors that the organization listed below has recently filed a timely declaratory judgment suit under section 7428 of the Code, challenging revocation of its status as an eligible donee under section 170(c)(2).

Protection under section 7428(c) of the Code begins on the date that the notice of revocation is published in the Internal Revenue Bulletin and ends on the date on which a court first determines that an organization is not described in section 170(c)(2), as more particularly set forth in section 7428(c)(1).

In the case of individual contributors, the maximum amount of contributions protected during this period is limited to $1,000.00, with a husband and wife being treated as one contributor. This protection is not extended to any individual who was responsible, in whole or in part, for the acts or omissions of the organization that were the basis for the revocation. This protection also applies (but without limitation as to amount) to organizations described in section 170(c)(2) which are exempt from tax under section 501(a). If the organization ultimately prevails in its declaratory judgment suit, deductibility of contributions would be subject to the normal limitations set forth under section 170.

This announcement notifies taxpayers that payments made by the County of Suffolk in the State of New York (Suffolk County) to residential property owners in Suffolk County under Suffolk County’s Septic Improvement Program (SIP Program) are not included in the gross income of those property owners for Federal income tax purposes.

In addition, because the SIP Program payments to Suffolk County residents are not includible in the gross income of the recipients, Suffolk County does not have an information reporting obligation for the payments made to residential property owners in Suffolk County under the SIP Program.

Suffolk County is experiencing degraded water quality as a result of excess nitrogen and nitrogen pollution, the primary cause of which is cesspools and conventional septic systems. The New York State Department of Environmental Conservation and the U.S. Environmental Protection Agency have both determined that the Long Island Sound, the South Shore Estuary, and the Peconic Estuary are impaired bodies of water due to excess nitrogen pollution. Excess nitrogen and nitrogen pollution have contributed to beach closures, restrictions on shell fishing, toxic algae blooms, and massive fish kills within Suffolk County.

To address the adverse effects of nitrogen pollution from cesspools and septic systems, Suffolk County established the SIP Program pursuant to Suffolk County Local Law 15-2017 to encourage residents to upgrade their existing cesspools and septic systems to Innovative and Alternative On-site Wastewater Treatment Systems (I/A OWT systems). I/A OWT systems are designed to reduce the nitrogen contamination affecting Suffolk County’s watershed.

As part of the SIP Program, Suffolk County provides payments to qualified residential property owners in Suffolk County who must use the payments for the installation and maintenance of I/A OWT systems on their residential properties. Among other requirements to qualify for a payment under the SIP Program, a residential property owner’s home must be a single family, owner-occupied, year-round primary residence of the owner, not a rental property, and not a property in which an in-home business is located.

Section 126(a) of the Internal Revenue Code (Code) provides that gross income does not include the excludable portions of payments received under the programs specified in § 126(a)(1) through (a)(8). Section 126(a)(8) includes, in part, any program of a State or a political subdivision of a State under which payments are made to individuals primarily for the purpose of conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife.

Under § 126(b)(1) of the Code, the amount of the “excludable portion” of a payment that is excluded from a recipient’s gross income is that portion of the payment made to any person under a program described in § 126(a) that is determined—

(A) by the Secretary of Agriculture to be primarily for the purpose of conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife and

(B) by the Secretary of the Treasury or her delegate as not increasing substantially the annual income derived from the property.

Further, § 126(b)(2) provides that the term “excludable portion” does not include that portion of any payment allowable as a deduction in the taxable year the amount is paid or incurred.

On November 16, 2022, the Natural Resources Conservation Service of the U.S. Department of Agriculture provided public notice that the Secretary of Agriculture has determined that the SIP Program payments are primarily for the purpose of conserving soil and water resources and protecting or restoring the environment. See https://www.federalregister.gov/documents/2022/11/16/2022-24937/determination-of-the-primary-purpose-of-the-new-york-suffolk-county-septic-improvement-program-sip, 87 FR 68669 (Nov. 16, 2022). Consequently, the SIP Program payments meet the requirements of § 126(b)(1)(A) of the Code. In addition, because the SIP Program payments are made only in connection with property that is the primary residence of the owner, not a rental property, and not a property in which an in-home business is located, no income is derived from properties on which an I/A OWT system will be installed using funds provided by Suffolk County under the SIP Program. Accordingly, this announcement confirms that the SIP Program payments do not increase substantially the annual income derived from the property within the meaning of § 126(b)(1)(B). Finally, § 126(b)(2) does not operate to reduce the excludable portion of any SIP Program payment because no portion of the payment is allowable to Suffolk County as a deduction in the taxable year the amount is paid or incurred by Suffolk County.

Because the requirements of § 126(a) of the Code are met for Suffolk County’s payments under the SIP Program, the payments are not included in the gross income of the payment recipients for Federal income tax purposes. In addition, Suffolk County does not have an information reporting obligation under § 6041 with respect to the payments under the SIP Program.

Payments under the SIP Program have been ongoing and, therefore, some payment recipients may have reported the payments as gross income on their Federal income tax return for the year or years they received the payment(s). If so, those individuals should file an amended return https://www.irs.gov/forms-pubs/about-form-1040x for the year or years in which they reported the income and decrease their adjusted gross income by the appropriate amount. The Explanation of Changes on Form 1040-X should refer to Announcement 2022-26. Generally, § 6511(a) of the Code requires that amended returns claiming a refund of tax must be filed within 3 years from the date of filing the original return or within 2 years from the time the tax was paid, whichever is later. Individuals can file Form 1040-X electronically with tax filing software to amend 2019 or later Forms 1040 or 1040-SR. See https://www.irs.gov/filing/amended-return-frequently- asked-questions for more information.

For further information concerning this announcement, contact the Office of Associate Chief Counsel, Passthroughs and Special Industries, Branch 6 at (202) 317-6853 (not a toll-free number).

This announcement reminds State and local housing credit agencies (Agencies) of an impending deadline applicable to certain allocations of housing credit dollar amounts under § 42 of the Internal Revenue Code.

For each of calendar years 2021 and 2022, § 305 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Act), Public Law 116-260, div. EE, § 305, 134 Stat. 3038, 3080 (Dec. 27, 2020), conditionally increases a State’s housing credit ceiling under § 42(h)(3). Subject to certain additional requirements (including a dollar limitation),¹ a State’s housing credit ceiling under § 42(h)(3) is increased only if, and to the extent that, the State’s Agencies allocate housing credit dollar amounts in 2021 and 2022 for certain purposes. To qualify, these allocations must be for the construction or rehabilitation of buildings located in qualified disaster zones. Because § 305 of the Act applies only to allocations in 2021 and 2022, a State cannot carry over to years after 2022 any housing credit allocation authority under § 305 of the Act that was not used to make qualifying allocations in 2021 and 2022.