This notice provides guidance to corporations on changes made by recent legislation to federal income tax rates for corporations under § 11(b) of the Internal Revenue Code (Code) and the alternative minimum tax for corporations under § 55 and the application of § 15 in determining the federal income tax (including the alternative minimum tax) of a corporation for a tax year that begins before January 1, 2018 and ends after December 31, 2017.

This procedure modifies and supersedes sections 3.08 and 3.10 of Rev. Proc. 2018–18, 2018–10 I.R.B. 392. Section 3.08 is amended to reflect an increase in the state housing credit ceiling enacted pursuant to Division T, of the Consolidated Appropriations Act, 2018, P.L. 115–141. Section 3.10 is amended to correct an error concerning the alternative minimum tax phaseout threshold amount for estates and trusts.

This revenue procedure provides: (1) tables of limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2018; and (2) a table of amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2018. For purposes of this revenue procedure, the term “passenger automobiles” includes trucks and vans.

This procedure provides general rules and specifications from the IRS for paper and computer–generated substitutes for Form 941, Schedule B (Form 941), Schedule D (Form 941), Schedule R (Form 941) and Form 8974. This procedure will be reproduced as the next revision of Publication 4436. 2017–32, 2017–17 I.R.B. 1109, dated April 24, 2017, is superseded.

This procedure modifies and supersedes sections 3.08 and 3.10 of Rev. Proc. 2018–18, 2018–10 I.R.B. 392. Section 3.08 is amended to reflect an increase in the state housing credit ceiling enacted pursuant to Division T, of the Consolidated Appropriations Act, 2018, P.L. 115–141. Section 3.10 is amended to correct an error concerning the alternative minimum tax phaseout threshold amount for estates and trusts.

This notice provides transitional guidance relating to advance payments under Rev. Proc. 2004–34, 2004–1 C.B. 991, as modified and clarified by Rev. Proc. 2011–18, 2011–5 I.R.B. 443, and Rev. Proc. 2013–29, 2013–33 I.R.B. 141, and as modified by Rev. Proc. 2011–14, 2011–4 I.R.B. 330. Section 13221 of “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” Pub. L. 115–97, amended section 451 of the Internal Revenue Code. This notice provides that taxpayers, with or without applicable financial statements, receiving advance payments may continue to rely on Rev. Proc. 2004–34 until future guidance is effective.

This notice announces that the Department of the Treasury and the Internal Revenue Service intend to issue regulations providing clarification of the application of the effective date provisions concerning the repeal of section 682 of the Internal Revenue Code enacted on December 22, 2017, by “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution of the budget for fiscal year 2018,” P.L. 115–97 (Act). The regulations will provide that section 682, as in effect prior to December 22,2017, will continue to apply with regard to trust income payable to a former spouse who was divorced or legally separated under a divorce or separation instrument (as defined in section 71(b)(2)) executed on or before December 31, 2018, unless such instrument is modified after that date and the modification provides that the changes made by the Act apply to the modification. The notice also requests comments on whether guidance is needed with respect to the application of sections 672(e)(1)(A), 674(d), and 677 of the Code to trusts for the benefit of a spouse following a divorce or separation.

This procedure modifies and supersedes sections 3.08 and 3.10 of Rev. Proc. 2018–18, 2018–10 I.R.B. 392. Section 3.08 is amended to reflect an increase in the state housing credit ceiling enacted pursuant to Division T, of the Consolidated Appropriations Act, 2018, P.L. 115–141. Section 3.10 is amended to correct an error concerning the alternative minimum tax phaseout threshold amount for estates and trusts.

This procedure provides general rules and specifications from the IRS for paper and computer–generated substitutes for Form 941, Schedule B (Form 941), Schedule D (Form 941), Schedule R (Form 941) and Form 8974. This procedure will be reproduced as the next revision of Publication 4436. 2017–32, 2017–17 I.R.B. 1109, dated April 24, 2017, is superseded.

This revenue procedure provides certain remedial actions that issuers of State and local tax-exempt bonds and other tax-advantaged bonds (as defined in § 1.150–1(b) of the Income Tax Regulations) may take to preserve the tax-advantaged status of the bonds when certain nonqualified uses of the bond proceeds occur.

The revenue ruling provides the dollar amounts, increased by the 2018 adjustment for inflation, to determine whether a debt instrument is a qualified debt instrument or a cash method debt instrument under section 1274A of the Internal Revenue Code.

This revenue ruling provides the dollar amounts, increased by the 2018 adjustment for inflation, for § 1274A of the Internal Revenue Code.

In general, §§ 483 and 1274 determine the principal amount of a debt instrument given in consideration for the sale or exchange of nonpublicly traded property. In addition, any interest on a debt instrument subject to § 1274 is taken into account under the original issue discount provisions of the Code. Section 1274A, however, modifies the rules under §§ 483 and 1274 for certain types of debt instruments.

In the case of a “qualified debt instrument,” the discount rate used for purposes of §§ 483 and 1274 may not exceed nine percent, compounded semiannually. Section 1274A(b) defines a qualified debt instrument as any debt instrument given in consideration for the sale or exchange of property (other than new § 38 property within the meaning of § 48(b), as in effect on the day before the date of enactment of the Revenue Reconciliation Act of 1990) if the stated principal amount of the instrument does not exceed the amount specified in § 1274A(b). For debt instruments arising out of sales or exchanges before January 1, 1990, this amount is $2,800,000.

In the case of a “cash method debt instrument,” as defined in § 1274A(c), the borrower and lender may elect to use the cash receipts and disbursements method of accounting. In particular, for any cash method debt instrument, § 1274 does not apply, and interest on the instrument is accounted for by both the borrower and the lender under the cash receipts and disbursements method of accounting. A cash method debt instrument is a qualified debt instrument that meets the following additional requirements: (A) in the case of a debt instrument arising out of a sale or exchange before January 1, 1990, the stated principal amount does not exceed $2,000,000; (B) the lender does not use an accrual method of accounting and is not a dealer with respect to the property sold or exchanged; (C) § 1274 would have applied to the debt instrument but for an election under § 1274A(c); and (D) an election under § 1274A(c) is jointly made with respect to the debt instrument by the borrower and the lender. Section 1.1274A–1(c)(1) of the Income Tax Regulations provides rules concerning the time for, and manner of, making this election.

For taxable years beginning on or before December 31, 2017, § 1274A(d)(2) provided that, for any debt instrument arising out of a sale or exchange during any calendar year after 1989, the dollar amounts stated in § 1274A(b) and § 1274A(c)(2)(A) were increased by the inflation adjustment for the calendar year. Any increase due to the inflation adjustment was rounded to the nearest multiple of $100 (or, if the increase was a multiple of $50 and not of $100, the increase was increased to the nearest multiple of $100). The inflation adjustment for any calendar year was the percentage (if any) by which the CPI for the preceding calendar year exceeded the CPI for calendar year 1988. Section 1274A(d)(2)(B) defined the CPI for any calendar year as the average of the Consumer Price Index as of the close of the 12-month period ending on September 30 of that calendar year.

For taxable years beginning after December 31, 2017, section 11002(d)(10) of An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, Pub. L. 115–97 (the Act), amended § 1274A(d)(2) to change the calculation of the adjustments for inflation. As amended by the Act, § 1274A(d)(2) provides that the dollar amounts stated in § 1274A(b) and (c)(2)(A) are each increased by an adjustment for inflation determined by multiplying the stated amount by the cost-of-living (COL) adjustment determined under § 1(f)(3) for the calendar year in which the taxable year begins, by substituting “calendar year 1988” for “calendar year 2016” in § 1(f)(3)(A)(ii). Thus, for purposes of § 1274A(d)(2), the COL adjustment for any calendar year is the percentage (if any) by which (i) the C-CPI-U for the preceding calendar year exceeds (ii) the CPI for calendar year 1988, multiplied by the amount determined in § 1(f)(3)(B). The amount determined in § 1(f)(3)(B) is the C-CPI-U for calendar year 2016 divided by the CPI for calendar year 2016. Section 1(f)(4) defines the CPI for any calendar year as the average of the Consumer Price Index for All Urban Consumers as of the close of the 12-month period ending on August 31 of that calendar year. Section 1(f)(6)(B) defines the C-CPI-U for any calendar year as the average of the Chained Consumer Price Index for All Urban Consumers as of the close of the 12-month period ending on August 31 of such calendar year. Under § 1274A(d)(2), any increase in an adjustment for inflation is rounded to the nearest multiple of $100 (or, if such increase is a multiple of $50, such increase shall be increased to the nearest multiple of $100).

For debt instruments arising out of sales or exchanges after December 31, 1989, the inflation-adjusted amounts under § 1274A are shown in Table 1.

Rev. Rul. 2016–30, 2016–52 I.R.B. 876, is supplemented and superseded.

The author of this revenue ruling is Jason Eisenberg of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue ruling, contact Jason Eisenberg at (202) 317-7053 (not a toll-free number).

This notice provides transitional guidance relating to advance payments under Rev. Proc. 2004–34, 2004–1 C.B. 991, as modified and clarified by Rev. Proc. 2011–18, 2011–5 I.R.B. 443, and Rev. Proc. 2013–29, 2013–33 I.R.B. 141, and as modified by Rev. Proc. 2011–14, 2011–4 I.R.B. 330. Section 13221 of “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” Pub. L. No. 115–97 (December 22, 2017) (the “Act”) amended § 451 of the Internal Revenue Code. The amendments included a new section 451(c), which allows accrual method taxpayers to elect a limited deferral of the inclusion of income associated with certain advance payments. The rules in new § 451(c) largely track the approach in Rev. Proc. 2004–34. The Department of the Treasury (Treasury Department) and the Internal Revenue Service (the Service) expect to issue future guidance regarding the treatment of advance payments to implement this legislative change. Taxpayers, with or without applicable financial statements, receiving advance payments may continue to rely on Rev. Proc. 2004–34 until future guidance is effective.

Section 451(a) provides that the amount of any item of gross income is included in gross income for the taxable year in which received by the taxpayer, unless, under the method of accounting used in computing taxable income, the amount is to be properly accounted for as of a different period.

Section 1.451–1(a) of the Income Tax Regulations provides that, under an accrual method of accounting, income is includible in gross income when all the events have occurred that fix the right to receive the income and the amount can be determined with reasonable accuracy. All the events that fix the right to receive income generally occur when: (1) the payment is earned through performance, (2) payment is due to the taxpayer, or (3) payment is received by the taxpayer, whichever happens earliest. See Rev. Rul. 2003–10, 2003–1 C.B. 288.

Rev. Proc. 2004–34 provides a full inclusion method (the Full Inclusion Method) and a deferral method (the Deferral Method) of accounting for the treatment of advance payments for goods, services, and other items. Under the Full Inclusion Method, advance payments are included in income in the year of receipt. Under the Deferral Method, an advance payment is included in gross income for the taxable year of receipt to the extent recognized in revenue in a taxpayer’s applicable financial statement for that taxable year or earned (for taxpayers without an applicable financial statement) in that taxable year, and the remaining amount of the advance payment is included in the next succeeding taxable year after the taxable year in which the payment is received.

Section 13221 of the Act amends § 451 by redesignating subsections (b) through (i) as (d) through (k), respectively, and by inserting new subsections (b) and (c), effective generally for taxable years beginning after December 31, 2017. Section 451(b)(1)(A)(i) provides that for an accrual method taxpayer, the all events test for any item of gross income shall not be treated as met any later than when the item is taken into account as revenue in an applicable financial statement of the taxpayer. Section 451(c)(1)(A) generally provides that an accrual method taxpayer shall include an advance payment in gross income in the taxable year of receipt. Alternatively, under § 451(c)(1)(B), an accrual method taxpayer may elect to defer the recognition of all or a portion of an advance payment to the taxable year following the taxable year in which the payment is received, except any portion of such advance payment that is required under § 451(b) to be included in gross income in the taxable year in which the payment is received.

Section 451(c)(4)(A) defines an advance payment as any payment: (1) the full inclusion of which in the gross income of the taxpayer for the taxable year of receipt is a permissible method of accounting, (2) any portion of which is included in revenue by the taxpayer in an applicable financial statement, or such other financial statement as the Secretary may specify, for a subsequent taxable year, and (3) which is for goods, services, or such other items as may be identified by the Secretary. Section 451(c) generally contains rules similar to Rev. Proc. 2004–34. See H.R. Rep. No. 115–466, at 429 (2017) (Conf. Rep.).

The Treasury Department and the Service expect to issue guidance for the treatment of advance payments to implement the changes made to § 451 by the Act. Until further guidance for the treatment of advance payments is applicable, taxpayers may continue to rely on Rev. Proc. 2004–34 for the treatment of advance payments. During this time, the Service will not challenge a taxpayer’s use of Rev. Proc. 2004–34 to satisfy the requirements of § 451, although the Service will continue to verify on examination that taxpayers are properly applying Rev. Proc. 2004–34. In addition, the Service intends to modify section 16.07 of Rev. Proc. 2017–30, 2017–18 I.R.B. 1131, to provide a waiver of the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015–13, 2015–5 I.R.B. 419, to enable taxpayers to make a change to a method of accounting that is permitted under Rev. Proc. 2004–34.

The Treasury and Service invite comments containing suggestions for future guidance under § 451(b) and (c). In particular, comments are requested concerning the following issues under § 451(c): (1) whether taxpayers without an applicable financial statement may continue to use the Deferral Method, as provided in Rev. Proc. 2004–34; (2) whether clarity is needed for the definition of an applicable financial statement under § 451(b)(3); (3) whether the definition of applicable financial statement under § 451(b) and (c) should be the same as the definition in section 4.06 of Rev. Proc. 2004–34; (4) whether other items in addition to those listed in section 4.01(3) of Rev. Proc. 2004–34 should be included in the definition of an advance payment; (5) whether certain payments other than those listed in section 4.02 of Rev. Proc. 2004–34 should be excluded from the definition of an advance payment; (6) whether any new procedural rules for changing a method of accounting for advance payments would be appropriate and helpful; and (7) the extent, if any, to which the Service may provide procedures expanding the rules of § 451(c) to apply to additional taxpayers and types of income.

Comments must be submitted by May 14, 2018. Comments, identified by Notice 2018–35, may be sent by one of the following methods:

All submissions will be available for public inspection and copying in room 1621, 1111 Constitution Avenue, NW, Washington, DC, from 9 a.m. to 4 p.m.

The principal author of this notice is Peter E. Ford of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this notice, contact Peter E. Ford, at (202) 317-7011 (not a toll-free number).

This notice announces that the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) intend to issue regulations providing clarification of the application of the effective date provisions concerning the repeal of § 682 of the Internal Revenue Code (Code) enacted on December 22, 2017, 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 (Act). This notice also requests comments on whether guidance is needed with respect to the application of §§ 672(e)(1)(A), 674(d), and 677 of the Code to trusts for the benefit of a spouse following a divorce or separation.

Section 71 of the Code as in effect prior to the Act provides rules regarding the tax treatment of alimony and separate maintenance payments, with § 71(a) providing that gross income includes amounts received as alimony or separate maintenance payments. Along with certain restrictions, § 71(b)(1) defines the term “alimony or separate maintenance payment” to mean any payment in cash if such payment is received by (or on behalf of) a spouse under a divorce or separation instrument. Section 71(b)(2) defines the term “divorce or separation instrument” to mean (A) a decree of divorce or separate maintenance or a written instrument incident to such a decree, (B) a written separation agreement, or (C) a decree (not described in former § 71(b)(2)(A)) requiring a spouse to make payments for the support and maintenance of the other spouse.

Section 682 of the Code as in effect prior to the Act provides rules regarding the tax treatment of the income of certain trusts payable to a former spouse who was divorced or legally separated. Section 682(a) provides that there shall be included in the gross income of a wife who is divorced or legally separated under a decree of divorce or of separate maintenance (or who is separated from her husband under a written separation agreement) the amount of the income of any trust which such wife is entitled to receive and which, except for former § 682, would be includible in the gross income of her husband, and such amount shall not, despite any other provision of subtitle A of the Code, be includible in the gross income of such husband. Section 682(a), however, does not apply to any trust income payable under the terms of such decree or agreement or the trust instrument for the support of the husband’s minor children.

Section 682(b) provides that, for purposes of computing the taxable income of the trust and the taxable income of a wife to whom § 682(a) applies, such wife shall be considered as the beneficiary specified in part I of subchapter J of chapter 1 of the Code.

Section 7701(a)(17) as in effect prior to the Act provides that, as used in § 682, if the husband and wife therein referred to are divorced, wherever appropriate to the meaning of former § 682, the term “wife” shall be read “former wife” and the term “husband” shall be read “former husband;” and, if the payments described in former § 682 are made by or on behalf of the wife or former wife to the husband or former husband instead of vice versa, wherever appropriate to the meaning of former § 682, the term “husband” shall be read “wife” and the term “wife” shall be read “husband.”

Section 11051(b)(1)(B) and (C) of the Act prospectively repeal §§ 71 and 682, and § 11051(b)(4)(A) makes conforming amendments to § 7701(a)(17). Section 11051(c) of the Act provides that the amendments made by § 11051 shall apply to: (1) any divorce or separation instrument (as defined in former § 71(b)(2)) executed after December 31, 2018, and (2) any divorce or separation instrument (as so defined) executed on or before such date and modified after such date if the modification expressly provides that the amendments made by such section apply to such modification.

The regulations will provide that § 682, as in effect prior to December 22, 2017, will continue to apply with regard to trust income payable to a former spouse who was divorced or legally separated under a divorce or separation instrument (as defined in § 71(b)(2)) executed on or before December 31, 2018, unless such instrument is modified after that date and the modification provides that the changes made by § 11051 of the Act apply to the modification.

Section 672(e)(1)(A) of the Code provides that the grantor of a trust shall be treated as holding any power or interest in such trust held by any individual who was the spouse of the grantor at the time of the creation of such power or interest.

Section 674(a) of the Code provides, in general, that the grantor shall be treated as the owner of any portion of a trust in respect of which the beneficial enjoyment of the corpus or the income therefrom is subject to a power of disposition, exercisable by the grantor or a nonadverse party (as defined in § 672(b)), or both, without the approval or consent of any adverse party (as defined in § 672(a)). However, § 674(d) provides that § 674(a) shall not apply to a power solely exercisable (without the approval or consent of any other person) by a trustee or trustees, none of whom is the grantor or spouse living with the grantor, to distribute, apportion, or accumulate income to or for a beneficiary or beneficiaries, or to, for, or within a class of beneficiaries, whether or not the conditions of § 674(b)(6) or (7) are satisfied, if such power is limited by a reasonably definite external standard which is set forth in the trust instrument.

Section 677(a) of the Code provides that the grantor of a trust shall be treated as the owner of any portion of a trust, whether or not the grantor is treated as such owner under § 674, whose income without the approval or consent of any adverse party is, or, in the discretion of the grantor or a nonadverse party, or both, may be distributed to the grantor or the grantor’s spouse, or held or accumulated for future distribution to the grantor or the grantor’s spouse.

The Treasury Department and IRS request comments on whether guidance is needed regarding the application of §§ 672(e)(1)(A), 674(d), and 677 following a divorce or separation in light of the repeal of former § 682.

Written comments may be submitted by July 11, 2018 to Internal Revenue Service, CC:PA:LPD:PR (Notice 2018–37), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044, or electronically to Notice.Comments@irscounsel.treas.gov (please include “Notice 2018–37” in the subject line). Alternatively, comments may be hand delivered between the hours of 8:00 a.m. and 4:00 p.m. Monday to Friday to CC:PA:LPD:PR (Notice 2018–37), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, D.C. Comments will be available for public inspection and copying.

The principal author of this notice is Jennifer N. Keeney of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice contact Jennifer N. Keeney at (202) 317-6850 (not a toll-free number).

This notice provides guidance on the changes made 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 (the Act), to federal income tax rates for corporations under § 11(b) of the Internal Revenue Code (Code) and to the alternative minimum tax for corporations under § 55 and on the application of § 15 in determining the federal income tax (including the alternative minimum tax) of a corporation for a taxable year that begins before January 1, 2018, and ends after December 31, 2017.

Section 11(a) of the Code imposes a tax on the taxable income of every corporation (corporate tax). Prior to changes made by the Act, § 11(b) provided that the amount of tax imposed was based on a graduated rate structure starting at 15 percent of the corporation’s taxable income and increasing to 35 percent of taxable income. In addition, § 55(a) imposed a tax (the “alternative minimum tax” or AMT) equal to the excess, if any, of the tentative minimum tax (TMT) for the taxable year, over the corporate tax for the taxable year. Section 55(b)(1)(B) provided that in the case of a corporation, the TMT for the taxable year is 20 percent of so much of the alternative minimum taxable income (AMTI) for the taxable year as exceeds the exemption amount, reduced by the alternative minimum tax foreign tax credit for the taxable year.

Section 13001(a) of the Act amended § 11(b) of the Code to provide that the amount of tax imposed by § 11(a) shall be 21 percent of a corporation’s taxable income. Section 13001(c)(1) provides generally that this change in the tax rate for corporations is effective for taxable years beginning after December 31, 2017.

Section 12001(a) of the Act amended § 55(a) of the Code by limiting the application of the AMT to non-corporate taxpayers, thereby repealing the AMT for corporations. Section 12001(c) of the Act provides that the changes made by § 12001 apply to taxable years beginning after December 31, 2017.

Section 15(a) of the Code provides that if any rate of tax imposed by chapter 1 of the Code changes, and if the taxable year includes the effective date of the change (unless that date is the first day of the taxable year), then –

(1) tentative taxes shall be computed by applying the rate for the period before the effective date of the change, and the rate for the period on and after such date, to the taxable income for the entire taxable year; and

(2) the tax for such taxable year shall be the sum of that proportion of each tentative tax which the number of days in each period bears to the number of days in the entire taxable year.

Section 15(b) of the Code provides that for purposes of § 15(a), if a tax is repealed, the repeal shall be considered a change of rate, and the rate for the period after the repeal shall be zero. Section 15(c) provides in part that for purposes of § 15(a) and (b), if the rate changes for taxable years “beginning after” or “ending after” a certain date, the following day shall be considered the effective date of the change.

The following example illustrates the application of § 15(a) of the Code in determining the tax under §§ 11 and 55 of a corporation using a fiscal year as its taxable year for the taxable year that includes January 1, 2018.

Example. Corporation X, a subchapter C corporation, uses a June 30 taxable year. For its taxable year beginning July 1, 2017, and ending June 30, 2018, X’s taxable income is $1,000,000, and its AMTI in excess of its AMT exemption amount is $2,000,000.

This notice applies to taxable years of corporations that begin before January 1, 2018, and end after December 31, 2017.

For further information regarding this notice, contact Bill Jackson at (202) 317-4731 or Forest Boone at (202) 317-4904 (not a toll-free number).

This revenue procedure modifies and supersedes section 3.08 of Rev. Proc. 2018–18, 2018–10 I.R.B. 392, to reflect the statutory amendment by section 102, of Division T, of the Consolidated Appropriations Act, 2018, P.L. 115–141 (H.R. 1625) to increase the state housing credit ceiling. This revenue procedure also modifies and supersedes section 3.10 of Rev. Proc. 2018–18 to correct the alternative minimum tax phaseout threshold amount for estates and trusts.

Section 3.08 of Rev. Proc. 2018–18 is modified and superseded to read as follows:

.08 Low-Income Housing Credit. For calendar year 2018, the amount used under § 42(h)(3)(C)(ii) to calculate the State housing credit ceiling for the low-income housing credit is the greater of (1) $2.70 multiplied by the State population, or (2) $3,105,000.

Section 3.10 of Rev. Proc. 2018–18 is modified and superseded to read as follows:

.10 Exemption Amounts for Alternative Minimum Tax. For taxable years beginning in 2018, the exemption amounts under § 55(d)(1) are:

For taxable years beginning in 2018, under § 55(b)(1), the excess taxable income above which the 28 percent tax rate applies is:

For taxable years beginning in 2018, the amounts used under § 55(d)(3) to determine the phaseout of the exemption amounts are:

This revenue procedure modifies and supersedes sections 3.08 and 3.10 of Rev. Proc. 2018–18, which modified and superseded certain sections of Rev. Proc. 2017–58, 2017–45 I.R.B. 489.

Sections 3.08 and 3.10 of Rev. Proc. 2018–18 are modified and superseded for taxable years beginning in 2018.

The principal author of this revenue procedure is William Ruane of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this revenue procedure, contact Mr. Ruane at (202) 317-4718 (not a toll-free number).

This revenue procedure provides: (1) tables of limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2018; and (2) a table of amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2018. For purposes of this revenue procedure, the term “passenger automobiles” includes trucks and vans.

.01 For owners of passenger automobiles, § 280F(a), as modified by § 13202(a)(1) of “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”, Pub. L. No. 115–97 (Dec. 22, 2017) (the “Act”), imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year. The dollar limitation amounts in this revenue procedure reflect the new limits provided in § 13202(a)(1) of the Act and are applicable to passenger automobiles placed in service during calendar year 2018.

.02 Section 13201 of the Act amended § 168(k) to extend and modify the additional first year depreciation deduction for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2027. Section 168(k)(1) provides that, in the case of qualified property, the depreciation deduction allowed under § 167(a) for the taxable year in which the property is placed in service includes an allowance equal to the applicable percentage of the property’s adjusted basis (hereinafter, referred to as “§ 168(k) additional first year depreciation deduction”). Pursuant to § 168(k)(6)(A), the applicable percentage is 100 percent for qualified property acquired and placed in service after September 27, 2017, and placed in service before January 1, 2023, and is phased down 20 percent each year for property placed in service through December 31, 2026. However, if a taxpayer elects to apply § 168(k)(10) in the case of qualified property placed in service by the taxpayer during the first taxable year ending after September 27, 2017, the depreciation deduction allowed under § 167(a) for the taxable year includes an allowance equal to 50 percent of the property’s adjusted basis. Pursuant to § 168(k)(8)(B)(i), the applicable percentage is 40 percent for qualified property acquired before September 28, 2017, and placed in service in 2018. For qualified property acquired and placed in service after September 27, 2017, § 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A)(i) by $8,000. For qualified property acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer during 2018, § 168(k)(2)(F)(iii) increases the first year depreciation allowed under § 280F(a)(1)(A)(i) by $6,400.

.03 Tables 1 through 3 of this revenue procedure provide depreciation limitations for passenger automobiles placed in service during calendar year 2018. Table 1 provides depreciation limitations for passenger automobiles acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer during calendar year 2018, for which the § 168(k) additional first year depreciation deduction applies. Table 2 provides depreciation limitations for passenger automobiles acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during calendar year 2018, for which the § 168(k) additional first year depreciation deduction applies. Table 3 provides depreciation limitations for passenger automobiles placed in service during calendar year 2018 for which no § 168(k) additional first year depreciation deduction applies. The § 168(k) additional first year depreciation deduction does not apply for 2018 if the taxpayer: (1) did not use the passenger automobile during 2018 more than 50 percent for business purposes; (2) elected out of the § 168(k) additional first year depreciation deduction pursuant to § 168(k)(7) for the class of property that includes passenger automobiles; or (3) acquired the passenger automobile used and the acquisition of such property did not meet the acquisition requirements in § 168(k)(2)(E)(ii).

.04 Section 280F(c)(2) requires a reduction to the amount of deduction allowed to the lessee of a leased passenger automobile. Pursuant to § 280F(c)(3), the reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Under § 1.280F–7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an amount determined by applying a formula to the amount obtained from a table. Table 4 applies to lessees of passenger automobiles. This table shows income inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased.

.01 The limitations on depreciation deductions in section 4.01(2) of this revenue procedure apply to passenger automobiles, other than leased passenger automobiles, that are placed in service by the taxpayer in calendar year 2018, and continue to apply for each taxable year that the passenger automobile remains in service.

.02 The table in section 4.02 of this revenue procedure applies to leased passenger automobiles for which the lease term begins during calendar year 2018. Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. See Rev. Proc. 2013–21, 2013–12 I.R.B. 660, for passenger automobiles first leased during calendar year 2013; Rev. Proc. 2014–21, 2014–11 I.R.B. 641, as amplified and modified by section 4.03 of Rev. Proc. 2015–19, 2015–8 I.R.B. 656, for passenger automobiles first leased during calendar year 2014; Rev. Proc. 2015–19, as amplified and modified by section 4.03 of Rev. Proc. 2016–23, 2016–16 I.R.B. 581, for passenger automobiles first leased during calendar year 2015, Rev. Proc. 2016–23 for passenger automobiles first leased during calendar year 2016, and Rev. Proc. 2017–29, 2017–14 I.R.B. 1065, for passenger automobiles first leased during calendar year 2017.

This revenue procedure applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2018.

The principal author of this revenue procedure is Bernard P. Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this revenue procedure, contact Mr. Harvey at (202) 317-7005 (not a toll-free number).

This revenue procedure provides certain remedial actions that issuers of State and local tax-exempt bonds and other tax-advantaged bonds (as defined in § 1.150–1(b) of the Income Tax Regulations) may take to preserve the tax-advantaged status of the bonds when nonqualified uses (as defined in section 4.04 of this revenue procedure) of the bond proceeds occur.

.01 Various provisions of the Internal Revenue Code (the “Code”) provide tax benefits to facilitate lower borrowing costs for State and local governments and other qualified issuers if certain requirements are met. These benefits are in the form of a tax exemption under § 103 on the interest paid to holders of eligible State and local bonds (“tax-exempt bonds”), refundable tax credits under § 6431 payable to issuers of certain qualified bonds (“direct pay bonds”), or tax credits under § 54A and similar provisions to holders of qualified tax credit bonds (“tax credit bonds”).^[1] Eligibility requirements for these tax benefits include prescribed uses of the proceeds of the bonds.

.02 For some types of tax-advantaged bonds, existing regulations provide remedial actions to cure certain nonqualified uses. For example, for tax-exempt governmental bonds (as defined in § 1.150–1(b)), § 1.141–12 provides remedial actions (including bond redemption or defeasance, alternative qualified use of disposition proceeds, and alternative qualified use of facilities) to cure violations of the private business use and private loan restrictions under § 141. Similarly, for certain types of tax-exempt private activity bonds (as defined in § 141), § 1.142–2 provides remedial actions (including bond redemption or defeasance) to cure violations of particular requirements for qualified private activity bonds under §§ 142, 144, and 147. In addition, for qualified zone academy bonds (“QZABs”) as defined in § 1397E, § 1.1397E–1(h)(8) provides remedial actions (including bond redemption or defeasance and alternative qualified use of disposition proceeds) to cure violations of requirements for QZABs under § 1397E.

.03 The existing remedial actions for tax-exempt governmental bonds do not include a remedial action to cure the nonqualified uses that generally result from longer-term leases of financed property to private businesses, other than the remedial action of bond redemption or defeasance. Taxpayers have recommended adding a remedial action for this purpose similar to the existing remedial action that allows curing nonqualified uses that result from sales of financed property to private businesses through alternative qualified uses of the disposition proceeds of those sales. Section 1.141–12(h) permits the Commissioner, by publication in the Internal Revenue Bulletin, to provide additional remedial actions for purposes of the private business use and private loan restrictions. Section 5 of this revenue procedure provides such a remedial action.

.04 For direct pay bonds, no existing remedial action allows adjustment of the refundable Federal tax credit for nonqualified uses. Such a remedial action would provide a simple and administrable method of preserving the tax-advantaged status of direct pay bonds. Section 6 of this revenue procedure provides this remedial action.

.05 Finally, for certain types of tax credit bonds and for direct pay bonds, none of the existing remedial actions described in section 2.02 of this revenue procedure are available. Extending the availability of existing remedial actions to these types of bonds would allow issuers similarly to cure nonqualified uses of these bonds. Section 7 of this revenue procedure provides remedial actions for these bonds.

This revenue procedure applies to tax-advantaged bonds to allow issuers to take certain remedial actions to protect the tax-advantaged status of the bonds when nonqualified uses of bond proceeds occur if the requirements of particular remedial actions under this revenue procedure are met.

The definitions in this section 4 apply for purposes of this revenue procedure.

.01 Applicable Code section means the Code section that sets forth the qualification requirements for a particular type of bond.

.02 Defeasance escrow means an irrevocable escrow established to redeem nonqualified bonds on the earliest call date after the date on which a nonqualified use occurs in an amount that, together with investment earnings, is sufficient to pay all the principal of, interest on, and call premium, if any, on the nonqualified bonds from the date the escrow is established to that call date. No amount in a defeasance escrow may be invested in an investment the obligor of which is a user (or a related party (as defined in § 1.150–1(b)) to a user) of proceeds of the bonds. All purchases or sales of investments in a defeasance escrow must be made at the fair market value of the investment within the meaning of § 1.148–5(d)(6).

.03 Disposition proceeds means, except as otherwise provided in this section 4.03, disposition proceeds (as defined in § 1.141–12(c)(1)), plus investment earnings on those amounts. For property financed with different sources of funding, disposition proceeds are allocated among the sources under § 1.141–12(c)(3). For purposes of section 5 of this revenue procedure, the definition of disposition proceeds in § 1.141–12(c)(1) applies.

.04 Nonqualified use means a failure to spend proceeds of tax-advantaged bonds within any required expenditure period specified in the applicable Code section and any use of expended proceeds of tax-advantaged bonds for a purpose other than a qualified use (as defined in section 4.06 of this revenue procedure). A nonqualified use under § 141 occurs on the date of the deliberate action (as defined in § 1.141–2(d)(3)). For dates on which other nonqualified uses occur, see section 7.03 of this revenue procedure.

.05 Nonqualified bonds means the portion of the outstanding bonds in an amount that, if the remaining bonds were issued on the date on which nonqualified use of proceeds occurs, the proceeds of the remaining bonds would be used in a timely manner for a qualified use. Allocations of nonqualified bonds are made in accordance with § 1.142–2(e).

.06 Qualified use means a use required or permitted by the applicable Code section. For example, qualified uses include a qualified purpose under § 54A(d)(2)(C) for tax credit bonds under § 54A, capital expenditures for direct pay build America bonds under § 54AA(g), and a prescribed amount of governmental use for tax-exempt governmental bonds under § 141 and build America bonds under § 54AA.

.01 Modified alternative use of disposition proceeds remedy for eligible leases. In the case of a deliberate action (as defined in § 1.141–2(d)(3)) that consists of an eligible lease (as defined in section 5.02 of this revenue procedure) to a nongovernmental person (as defined in § 1.141–1(b)) of property financed with tax-advantaged bonds subject to the private activity bond restrictions under § 141 or § 145(a), provided the requirements of § 1.141–12(a) are met, the issuer may cure the nonqualified use resulting from the lease by applying the alternative use of disposition proceeds remedial action under § 1.141–12(e) in the same manner as to a disposition with the following modifications—

(1) Treating the eligible lease as a disposition for which the consideration is exclusively cash;

(2) Treating funds (excluding proceeds of tax-advantaged bonds) in an amount equal to the lease amount (as defined in section 5.03 of this revenue procedure) as disposition proceeds;

(3) Treating the leased property as transferred property; and

(4) Allocating proceeds of the issue that, under § 1.141–12(c)(2), are allocable to the funds treated as disposition proceeds, to those funds during the term of the lease only (and to the leased property thereafter).

.02 Eligible lease. A lease is an eligible lease if—

(1) The consideration for the lease consists exclusively of cash lease payments (regardless of when paid) that are not financed with proceeds of another issue of tax-advantaged bonds; and

(2) The term of the lease—

(a) Is at least equal to the lesser of 20 years or 75 percent of the weighted average reasonably expected economic life of the leased property (determined in the same manner as under section 147(b)) as of the start of the term of the lease; or

(b) Runs through the end of the measurement period (as defined in § 1.141–3(g)(2)) during which the private business use restrictions are measured for compliance under section 141.

.03 Lease amount. The lease amount is an amount equal to the present value of all of the lease payments required to be made under the lease. For this purpose, present value is determined as of the start of the term of the lease by using the yield on the issue as of the start of the term of the lease as the discount rate.

In the case of direct pay bonds, an issuer may cure a nonqualified use by reducing the amount of the refundable Federal tax credit to eliminate the amount allocable to the nonqualified bonds. Further, the issuer must treat any disposition proceeds as described in section 7.02(3) of this revenue procedure. To effect this remedial action, beginning with the first Form 8038–CP (Return for Credit Payment to Issuers of Qualified Bonds) or successor form filed for any interest payment date for the bonds after the nonqualified use occurs, the issuer, in reporting the amount of the interest payable, must exclude the portion of that interest allocable to the nonqualified bonds that accrues on or after the date of the nonqualified use. For the first such Form 8038–CP (or successor form), the issuer must print or type across the top of the form “Remedial Action under Section 6 of Rev. Proc. 2018–26” and attach the required explanation for the difference in scheduled credit payment. The explanation must state that a nonqualified use occurred and the date of the nonqualified use and include a revised debt service schedule reflecting the exclusion of amounts allocable to the nonqualified bonds beginning with the date of the nonqualified use.

.01 In general. In the case of tax-credit bonds or direct pay bonds, except as otherwise provided in section 7.06 of this revenue procedure, an issuer may cure a nonqualified use by taking a remedial action of redemption or defeasance of nonqualified bonds under section 7.02 of this revenue procedure or alternative use of disposition proceeds under section 7.05 of this revenue procedure. In the case of tax-exempt bonds, issuers may apply section 7.02(2) of this revenue procedure to defeasance escrows established under § 1.141–12(d) or § 1.142–2(c).

.02 Redemption or defeasance of nonqualified bonds. The requirements for redemption or defeasance of nonqualified bonds under this section 7.02 are met if the issuer complies with sections 7.02 (1), (2), and (3).

(1) Amount and timing of redemption or defeasance. Within 90 days after the date on which the nonqualified use occurs, the issuer redeems the nonqualified bonds of the issue or establishes a defeasance escrow for any nonqualified bonds that are not so redeemed.

(2) Yield restriction or rebate requirement. The issuer either restricts the investments in the defeasance escrow to investments that are not higher yielding investments (as defined in § 148(b)) or the issuer makes rebate payments to the United States, at the same time and in the same manner as arbitrage rebate amounts are required to be paid, in amounts equal to any earnings on investments in the defeasance escrow that are higher than the yield on the issue with respect to which the defeasance escrow was established. For this purpose, the first computation period begins on the date on which the defeasance escrow is established. Further, for purposes of this section 7.02(2), § 148 and the regulations thereunder (as modified by the applicable Code section and this section 7.02(2)) apply, and compliance with the rebate requirement in this section 7.02(2) is treated as satisfying applicable arbitrage investment restrictions under § 148 for the defeasance escrow.

(3) Treatment of disposition proceeds. The issuer treats the disposition proceeds as gross proceeds for purposes of § 148 as modified by the applicable Code section (the arbitrage requirements) and as proceeds for purposes of the applicable Code section. For purposes of applying the temporary period and spending exceptions to the arbitrage requirements, the issuer may treat the date of the receipt of the disposition proceeds as if it were the issue date of the nonqualified bonds and disregard the receipt of disposition proceeds for the spending exceptions under § 1.148–7 for which the requirements were met before the receipt of the disposition proceeds.

.03 When a nonqualified use occurs. For unspent proceeds of bonds, a nonqualified use occurs on the earlier of the first date on which the issuer fails to have a reasonable expectation to spend the proceeds for a qualified use (within the required expenditure period, if any) or the last day of the required expenditure period, if any. For proceeds of bonds that have been spent, a nonqualified use occurs on the first date on which an action causes proceeds to be used for other than a qualified use.

.04 Reissuance. For purposes of determining whether the establishment of a defeasance escrow under section 7.02 of this revenue procedure results in an exchange under § 1.1001–1(a), the defeased bonds are treated as tax-exempt bonds for purposes of § 1.1001–3(e)(5)(ii)(B)(1).

.05 Alternative use of disposition proceeds. The requirements for alternative use of disposition proceeds under this section 7.05 are met if—

(1) Disposition for cash. The nonqualified use consists of a disposition for which the consideration is exclusively cash;

(2) Reasonably expected use of disposition proceeds. The issuer reasonably expects to spend the disposition proceeds within two years after the date of the disposition on alternative qualified uses or, to the extent the issuer does not expect to so spend the disposition proceeds, the issuer takes a remedial action under section 7.02 of this revenue procedure for such disposition proceeds within 90 days after the date of disposition;

(3) Unspent disposition proceeds. If the issuer fails to spend all of the disposition proceeds that it reasonably expected to spend within the prescribed two-year period in the manner described in section 7.05(2) of this revenue procedure, the issuer takes a remedial action under section 7.02 of this revenue procedure for the remaining disposition proceeds within 90 days after the end of that two-year period; and

(4) Treatment of disposition proceeds. The issuer treats the disposition proceeds as described in section 7.02(3) of this revenue procedure.

.06 Certain special rules on applicability. For QZABs under § 1397E, the remedial actions under § 1.1397E–1(h)(8) apply in lieu of this section 7. For tax-advantaged bonds subject to § 141, the remedial action provisions under § 1.141–12 apply in lieu of this section 7 for purposes of curing violations of the private business use and private loan restrictions; however, for defeasance escrows established under § 1.141–12(d), section 7.04 of this revenue procedure applies and issuers may apply section 7.02(2) of this revenue procedure.

This revenue procedure applies to a nonqualified use that occurs on or after April 11, 2018, and may be applied to a nonqualified use that occurs before April 11, 2018.

The principal authors of this revenue procedure are Timothy L. Jones, Johanna Som de Cerff, and Zoran Stojanovic of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure, contact Zoran Stojanovic at 202-317-6980 (not a toll-free number).