Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For purposes of sections 382, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for September 2012.

This notice provides guidance on the 25-year average segment rates that are applied to adjust the otherwise applicable 24-month average segment rates that are used to compute the funding target and other items under section 430 of the Code and section 303 of the Employee Retirement Income Security Act of 1974 (ERISA). The guidance reflects the changes made to the Code and ERISA by the Moving Ahead for Progress in the 21st Century Act (MAP-21), Pub. L. No.112-141.

This announcement makes permanent fast track settlement program for TE/GE taxpayers that is currently ongoing as a pilot program. Announcement 2008-105 modified and superseded.

This revenue ruling provides various prescribed rates for federal income tax purposes for September 2012 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(1) for buildings placed in service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, and before December 31, 2013, shall not be less than 9%. Finally, Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520.

This notice provides guidance on the 25-year average segment rates that are applied to adjust the otherwise applicable 24-month average segment rates that are used to compute the funding target and other items under § 430 of the Internal Revenue Code (Code) and § 303 of the Employee Retirement Income Security Act of 1974 (ERISA). The guidance reflects the changes made to the Code and ERISA by the Moving Ahead for Progress in the 21st Century Act (MAP-21), Pub. L. No.112-141, which was enacted July 6, 2012.

Section 430 specifies the minimum funding requirements that generally apply to single-employer defined benefit pension plans pursuant to § 412. Section 430(h)(2) specifies interest rates that are used for purposes of calculating the minimum required contribution. The interest rates that are used for this purpose are a set of three segment rates described in § 430(h)(2)(C)(i), (ii), and (iii), or, alternatively, a full yield curve as described in § 430(h)(2)(D)(ii).

Each segment rate described in § 430(h)(2)(C)(i), (ii), and (iii) is, for any month, the single rate of interest determined by the Secretary for the month on the basis of the applicable corporate bond yield curve for that month, taking into account only that portion of the yield curve applicable to that segment. Section 430(h)(2)(D)(i) provides that the Secretary shall prescribe a corporate bond yield curve applicable for each month. The applicable corporate bond yield curve is, with respect to any month, a yield curve which reflects a 24-month average (the average of the yield curve values for the preceding month and the prior 23 months) of the yields on investment grade corporate bonds with varying maturities that are in the top 3 quality levels available. Under § 430(h)(2)(D)(ii), an employer may elect to use the corporate bond yield curve determined without regard to the 24-month averaging, in lieu of the segment rates.

Section 40211(a) of MAP-21 adds § 430(h)(2)(C)(iv), generally effective for plan years beginning on or after January 1, 2012. Section 430(h)(2)(C)(iv) provides that, for a plan year, each of the three segment rates described in § 430(h)(2)(C)(i), (ii), and (iii) is adjusted as necessary to fall within a specified range that is determined based on a percentage of the average of the corresponding segment rates for the 25-year period ending on September 30 preceding the calendar year that includes the first day of that plan year. Under § 430(h)(2)(C)(iv)(II), for plan years beginning in 2012, each segment rate is adjusted so that it is no less than 90% and no more than 110% of the corresponding 25-year average segment rate. For later plan years, this range is gradually increased, so that the segment rates for plan years beginning after 2015 are no less than 70% and no more than 130% of the corresponding 25-year average segment rates. Section 430(h)(2)(C)(iv)(I) provides that the Secretary may prescribe equivalent rates for any years in the 25-year period for which segment rates are not available.

Section 430(h)(2)(F) (as amended by MAP-21) provides that each month the Secretary shall publish the corporate bond yield curve, the segment rates in § 430(h)(2)(C), and the 25-year average of the segment rates. Section 430(h)(2)(F) also provides that the Secretary shall publish a description of the methodology used to determine the yield curve and the segment rates in sufficient detail to enable plans to make reasonable predictions regarding the yield curve and rates for future months. Notice 2007-81, 2007-2 C.B. 899, provides guidelines for determining the monthly corporate bond yield curve and the 24-month average corporate bond segment rates.

Segment rates determined under § 430(h)(2)(C) (i), (ii) and (iii) are available as far back as October 2005. The October 2005 segment rates are the average of the “spot” segment rates for the 24 months beginning October 2003 and ending September 2005. In order to determine equivalent rates for earlier months, the Treasury Department used a statistical regression analysis to combine information about the relationship of the spot segment rates, zero-coupon yields for Treasury securities (“Treasury spot rates”), corporate bond index values, and Constant Maturity Treasury rates — using monthly average rates for the period October 2003 through July 2011 — in order to estimate spot segment rates for months back to October 1984.

Specifically, the spot segment rates for months before October 2003 were estimated using regressions that compared, for the period October 2003 through July 2011, the spreads between the spot segment rates and a corresponding average of Treasury spot rates with spreads between two corporate bond indices and Constant Maturity Treasury rates (“corporate bond spreads”). For the first segment regression, the corresponding average of Treasury spot rates was the average over the period of 1-5 years and the two corporate bond spreads were the difference between a Citigroup A bond index and the 7-year Constant Maturity Treasury rate and the difference between a Citigroup AA-AAA bond index and the 7-year Constant Maturity Treasury rate. For the second segment regression, the corresponding average of Treasury spot rates was the average of the Treasury spot rates for the period of 6-20 years and the corporate bond spreads were the same as those that were used in the first segment regression. For the third segment regression, the corresponding average of Treasury spot rates was the average of the Treasury spot rates for the period of 21-60 years, assuming that the spot rates for years after 30 was the same as for year 30, and the corporate bond spreads were the same as those that were used in the first and second segment regressions.

The result of the regressions was a series of coefficients that were applied to the corporate bond spreads for months before October 2003 in order to estimate a spread that can be added to the corresponding average of Treasury spot rates for those months in order to estimate monthly spot segment rates for each month before October 2003. The estimated monthly spot segment rates were combined with the actual monthly spot segment rates for October 2003 and later months in order to determine rates that are equivalent to the segment rates for months before October 2005.

Based on the calculation of equivalent rates for months before October 2005 and actual segment rates for later months, the averages, for the 25 years ending September 30, 2011, of the first, second, and third segment rates are 6.15, 7.61, and 8.35 percent, respectively.

In prior notices, the Treasury and the Service issued 24-month average segment rates that did not reflect the adjustment required by § 430(h)(2)(C)(iv) (as added by MAP-21). Table 1 contains previously issued 24-month average segment rates without adjustment, and, for plan years beginning in 2012, the adjusted 24-month average segment rates taking into account the 90-110% corridor around the 25-year average segment rates:

The methodology described in this notice that was used for determining equivalent rates for months prior to October 2005 reflects a balance between the goal of a timely determination and publication of the 25-year average segment rates and the goal of having the equivalent rates be as close as possible to the segment rates that would result from application of the method currently used to determine the monthly corporate bond yield curve and the related spot segment rates. The Treasury Department is considering replacing the methodology for determining the equivalent rates for months before October 2005, including possibly by applying the method — based on bond price data — that is currently used to determine the monthly corporate bond yield curve and the related spot segment rates. In no event would any such change in the methodology apply for purposes of plan years beginning in 2012.

The Treasury and the Service intend to issue additional guidance in the near future on other issues relating to the application of the MAP-21 amendments, including guidance relating to benefit restrictions and transition issues.

The principal author of this notice is Tony Montanaro of the Employee Plans, Tax Exempt and Government Entities Division. However, other personnel from the Service and the Treasury Department participated in preparing this notice. Mr. Montanaro may be e-mailed at RetirementPlanQuestions@irs.gov.

This announcement provides an opportunity for taxpayers (entities or individuals) with issues under examination by the Tax Exempt and Government Entities Division (TE/GE) to use Fast Track Settlement (FTS) to expedite case resolution within the TE/GE organization. The TE/GE FTS will enable TE/GE taxpayers that currently have unagreed issues in at least one open period under examination to work together with TE/GE and the Office of Appeals (Appeals) to resolve outstanding disputed issues while the case is still in TE/GE jurisdiction.

TE/GE and Appeals jointly administer the TE/GE FTS process. TE/GE FTS is used to resolve factual and legal issues, and it may be initiated at any time after an issue has been fully developed, but before the issuance of a 30-day letter (or its equivalent). TE/GE FTS is available to taxpayers nationwide.

The pilot program for TE/GE FTS was announced in Announcement 2008-105, 2008-2 C.B. 1219, to extend fast track settlement to TE/GE cases and provide for direct oversight of the program by TE/GE and Appeals. The pilot program officially expired on November 30, 2010; however, TE/GE and Appeals have continued to offer FTS on an unofficial basis. This announcement establishes TE/GE FTS as a permanent program based on the determination that it supports the Service-wide initiative of reducing the time and cost of examination and case resolution. TE/GE FTS is consistent with the pilot program with the exception of an additional level of review for TE/GE FTS applications to accommodate the management structure of TE/GE. The key features of TE/GE FTS are:

Generally, TE/GE FTS is available for cases involving income tax; exclusion of income from interest paid on municipal obligations; employment tax; estate and gift taxes; excise tax; exemption, foundation or qualification issues; or other such TE/GE functional issues as appropriate when:

If an issue is determined to be ineligible for the FTS program, all issues in the case are ineligible for the FTS program. TE/GE FTS may not be the appropriate dispute resolution process for all cases involving TE/GE taxpayers. The TE/GE Group Manager and the taxpayer will evaluate the individual circumstances of the case to determine if this process meets their needs.

A taxpayer that is interested in participating in TE/GE FTS, or that has questions about the program and its suitability for the taxpayer’s case, may contact the TE/GE Group Manager or the Examiner conducting the audit for the period(s) currently under examination. The taxpayer, the Examiner, or the TE/GE Group Manager may consider using the TE/GE FTS process at any time after an issue has been fully developed but before a 30-day letter (or its equivalent) is issued.

To apply for the TE/GE FTS program, the taxpayer should submit Form 14017, Application for Fast Track Settlement, available at http://www.irs.gov/pub/irs-pdf/f14017.pdf (TE/GE FTS Application). A Form 5701, Notice of Proposed Adjustment, or a preliminary report of findings, as appropriate, and a written response from the taxpayer must be included with the TE/GE FTS Application to facilitate the understanding of the parties’ opposing views. If the Form 5701 has not previously been prepared, the TE/GE Examiner should prepare one for submission with the Form 14017. The TE/GE FTS Application will be reviewed by both the TE/GE Group Manager and an operating division official before it is sent to the Appeals FTS Program Manager for final approval.

If the case is not accepted for inclusion in TE/GE FTS, the TE/GE or Appeals representative will discuss other dispute resolution opportunities with the taxpayer, including 30-day letter procedures contained in IRS Publication 1, Your Rights as a Taxpayer, or Publication 5, Your Appeal Rights and How To Prepare a Protest If You Don’t Agree. The decision not to accept a case into the TE/GE FTS program is not subject to administrative appeal or judicial review.

TE/GE FTS employs various alternative dispute resolution techniques to promote case or issue resolution. An FTS Appeals Official will serve as a neutral party. A TE/GE Appeals Officer trained in mediation or, in limited cases, a mediation-trained Appeals Team Case Leader, serves as the neutral FTS Appeals Official. The FTS Appeals Official does not perform in a traditional Appeals role, but uses dispute resolution techniques to facilitate settlement between the parties.

During TE/GE FTS, the taxpayer and TE/GE representatives meet with the FTS Appeals Official (the FTS Session). The taxpayer and TE/GE representatives at the FTS Session should include individuals with decision-making authority and the information and expertise necessary to assist the parties and the FTS Appeals Official during the settlement process. The FTS Appeals Official may ask the parties to limit the number of participants at the FTS Session to facilitate the process. A taxpayer is not required to have a representative to participate in TE/GE FTS. If the taxpayer is represented by a person engaged in practice before the Service, however, this individual must have a power of attorney from the taxpayer (Form 2848, Power of Attorney and Declaration of Representative).

The FTS Appeals Official will hold the FTS Session at the date and location agreed to by both parties. Prior to the FTS Session, the FTS Appeals Official will advise the participants of the procedures and establish ground rules. The FTS Appeals Official may modify the rules and procedures during the FTS Session to adapt to changes in circumstances. The FTS Session may include joint sessions with all parties, separate meetings, or both, as determined appropriate in the sole judgment of the FTS Appeals Official.

The FTS Appeals Official will use an FTS Session Report to assist in planning the FTS Session and to report on developments during the FTS Session. The FTS Session Report will include a list of all issues approved for the FTS program, a description of the issues, the amounts in dispute, conference dates, a plan of action for the FTS Session and other information useful to the process as determined by the parties and the FTS Appeals Official. The FTS Appeals Official will prepare and update an agenda to guide the communication, set the order of issue discussion, and pose questions to clarify the issues. During the FTS Session, the FTS Appeals Official will provide decision makers from both parties with copies of the agenda and the FTS Session Report.

Generally, the FTS Appeals Official will consider only those issues outlined in the FTS Session Report, except by mutual agreement of the parties. If the taxpayer presents information during the FTS Session that the taxpayer had not previously presented during the audit, the FTS Appeals Official will adjust the targeted completion date to give the appropriate IRS officials time to evaluate the information.

During the FTS Session, the FTS Appeals Official may propose settlement terms for any or all issues and may consider settlement terms proposed by either party. If the taxpayer accepts the FTS Appeals Official’s settlement proposal, but the TE/GE Group Manager rejects it, the TE/GE Area Manager with jurisdiction for the case must review the rejection of the settlement proposal and either concur in writing with the rejection or accept the settlement proposal on behalf of TE/GE. If the TE/GE Area Manager concurs with the rejection of the settlement proposal, and an acceptable alternative settlement cannot be reached, the issue will be closed out of the FTS program as unagreed.

If the parties resolve any of the disputed issues at the conclusion of the FTS Session, the parties and the FTS Appeals Official shall sign the FTS Session Report acknowledging acceptance of the terms of settlement for purposes of preparing computations or making other determinations. The signature of the parties on the FTS Session Report does not constitute a final settlement, nor does it waive restrictions on assessment, terminate consents to extend periods of limitation, start the running of any periods of limitation, or constitute agreement to close the case. Post-settlement procedures are described below.

The TE/GE FTS process is confidential. IRS employees involved in any way with the TE/GE FTS process are subject to the confidentiality and disclosure provisions of the Internal Revenue Code. To participate in TE/GE FTS, the taxpayer must consent, pursuant to section 6103(c), to the disclosure of the taxpayer’s returns and return information pertaining to the issues being considered in the TE/GE FTS process to those persons named on the Form 14017 as participants in the process. IRS employees, the taxpayer, and persons invited to participate by the IRS or the taxpayer shall not voluntarily disclose information regarding any communication made during the FTS Session, except as provided by statute.

The prohibition against ex parte communications between Appeals Officers and other IRS employees provided by § 1001(a) of the Internal Revenue Service Restructuring and Reform Act of 1998 does not apply to the communications arising in the TE/GE FTS process because the Appeals personnel are facilitating an agreement between the taxpayer and TE/GE and are not acting in their traditional Appeals settlement role. Rev. Proc. 2012-18, 2012-10 I.R.B. 455.

Any recommended settlement by the FTS Appeals Official of an issue in TE/GE FTS shall be subject to the procedures in the Internal Revenue Manual and published guidance existing at the time of the recommendation that would be applicable if the issue was being considered by Appeals. FTS therefore creates no special authority for settlement by the FTS Appeals Official. For example, if the FTS issue is coordinated in either the Technical Advisor Program or the Appeals Technical Guidance program, the proposed settlement of that issue is subject to established procedures, including submission of the proposed settlement to the Appeals Coordinator for review and concurrence.

If the parties fail to resolve any issue in TE/GE FTS, the taxpayer retains the option of requesting that the issue be heard through the traditional Appeals process.

Except as specifically provided above, both parties retain the right to withdraw throughout the entire TE/GE FTS process. A party wishing to withdraw should provide written notice to the FTS Appeals Official and the other party.

If the parties reach an agreement on all or some issues through the TE/GE FTS process, the TE/GE representative, or FTS Appeals Official, as appropriate, will use established issue or case closing procedures and applicable agreement forms, including preparation of a Form 906, Closing Agreement on Final Determination Covering Specific Matters, if appropriate.

If applicable, the IRS will report a proposed resolution reached as a result of TE/GE FTS to the Joint Committee on Taxation in accordance with section 6405. The IRS may reconsider a proposed settlement, as reflected in a signed FTS Session Report, upon receipt of comments on the proposed settlement from the Joint Committee on Taxation. If the taxpayer declines to agree with any changes by the IRS upon reconsideration, TE/GE will close the case unagreed, and the taxpayer will retain all the usual rights to request Appeals consideration of any unagreed issues.

With respect to TE/GE FTS cases that are returned for traditional Appeals consideration for any reason, ex parte restrictions will not be imposed on intra-Appeals communications. See Rev. Proc. 2012-18, 2012-10 I.R.B. 455. Appeals management will take appropriate measures to ensure these cases are handled impartially.

A resolution reached by the parties through the TE/GE FTS process will not bind the parties for taxable periods or issues not covered by the settlement, unless such taxable periods or issues are addressed expressly in a closing agreement reached as part of the TE/GE FTS process.

This announcement constitutes a delegation by the Commissioner of Internal Revenue of settlement authority to Grade 14, 13, and 12 Appeals Officers who are assigned to be FTS Appeals Officials for TE/GE FTS cases described in this announcement. This delegation of settlement authority includes the responsibility for arriving at the final disposition from the Government’s perspective, approving the final settlement in accordance with the delegated authority, and executing the appropriate closing documents. This authority may not be redelegated.

This program is effective beginning September 4, 2012.

Announcement 2008-105 is modified and superseded.

The principal author of this announcement is Debra Kohn, Office of Associate Chief Counsel (Procedure & Administration). For further information regarding this announcement, contact Joan T. Hirsch, Program Manager, TE/GE Entities at (562) 400-1801 (not a toll-free call), or by email at Joan.T.Hirsch@irs.gov.