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 December 2010.

Section 1274A - inflation adjusted numbers for 2011. This ruling provides the dollar amounts, increased by the 2011 inflation adjustment, for section 1274A of the Code. Rev. Rul. 2010-2 supplemented and superseded.

This notice provides guidance on the determination of when state and local bonds (as defined in section 103(c)) are considered “issued” for purposes of deadlines on issuing bonds. The notice provides guidance on the relevant distinction between the “issue date” of a “bond” versus the “issue date” of an “issue” for purposes of this determination. One instance, among others in which this notice applies, is in determining when Build America Bonds, structured as “draw-down” bonds or loans in which draws are funded at different times are considered issued for purposes of statutory deadlines on issuing these bonds under section 54AA.

Cost limitations for expensing section 179 property. This procedure provides that for taxable years beginning in 2010, the aggregate cost of any section 179 property a taxpayer elects to treat as an expense cannot exceed $500,000. This amount is reduced by the amount by which the cost of the property placed in service during the year exceeds $2,000,000. Rev. Proc. 2009-50 modified and superseded. Rev. Proc. 2010-24 superseded.

Insurance companies; loss reserves; discounting unpaid losses. This procedure sets forth the loss payment patterns and discount factors for accident year 2010. Under section 846 of the Code, discount factors are determined by the Secretary based on the interest rate determined annually under section 846(c) and on loss payment patterns determined every five years under section 846(d). Section 846(d) directs the Secretary to use the most recent aggregate loss payment data of property and casualty insurance companies to determine and publish a loss payment pattern for each line of business every five years.

Insurance companies; discounting estimated salvage recoverable. This procedure sets forth the salvage discount factors for accident year 2010 for purposes of section 832 of the Code. Under section 832, discount factors are determined by the Secretary based on the interest rate determined annually under section 846(c) and on salvage recovery patterns determined every five years by the Secretary.

This procedure provides guidance to drafters and users of pre-approved IRAs. Section 3 provides guidance to drafters and users of prototype IRAs, including rules for when documents must be submitted to the Internal Revenue Service and for new user fees for individual retirement annuities. Section 4 provides guidance to users of the Service’s model IRAs and describes the availability of new model individual retirement annuities. Rev. Procs. 87-50 and 98-59 modified.

The IRS has revokded its determination that Debt Management Corporation of Orange Park, FL, qualifies as an organization described in sections 501(c)(3) and 170(c)(2) of the Code.

2011 social security contribution and benefit base; domestic employee coverage threshold. The Commissioner of the Social Security Administration has announced (1) the OASDI contribution and benefit base for remuneration paid in 2011 and self-employment income earned in taxable years beginning in 2011, and (2) the domestic employee coverage threshold amount for 2011.

This notice provides guidance on the annual fee imposed on covered entities engaged in the business of manufacturing or importing branded prescription drugs by section 9008 of the Patient Protection and Affordable Care Act (ACA), as amended by section 1404 of the Health Care and Education Reconciliation Act of 2010 (HCERA).

This document contains corrections to final regulations (T.D. 9340, 2007-2 C.B. 487) providing updated guidance on section 403(b) contracts of public schools and tax-exempt organizations described in section 501(c)(3). These regulations will affect sponsors of section 403(b) contracts, administrators, participants, and beneficiaries.

This revenue ruling provides various prescribed rates for federal income tax purposes for December 2010 (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%. 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.Finally, Table 6 contains contains the 2011 interest rate for sections 846 and 807.

In general, sections 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 section 1274 is taken into account under the original issue discount provisions of the Code. Section 1274A, however, modifies the rules under sections 483 and 1274 for certain types of debt instruments.

In the case of a “qualified debt instrument,” the discount rate used for purposes of sections 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 section 38 property within the meaning of section 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 section 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 section 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, section 1274 does not apply, and interest on the instrument is accounted for by both the borrower and the lender under the cash method of accounting. A cash method debt instrument is a qualified debt instrument that meets the following additional requirements: (A) In the case of instruments arising out of sales or exchanges 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) section 1274 would have applied to the debt instrument but for an election under section 1274A(c); and (D) an election under section 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.

Section 1274A(d)(2) provides that, for any debt instrument arising out of a sale or exchange during any calendar year after 1989, the dollar amounts stated in section 1274A(b) and section 1274A(c)(2)(A) are increased by the inflation adjustment for the calendar year. Any increase due to the inflation adjustment is rounded to the nearest multiple of $100 (or, if the increase is a multiple of $50 and not of $100, the increase is increased to the nearest multiple of $100). The inflation adjustment for any calendar year is the percentage (if any) by which the CPI for the preceding calendar year exceeds the CPI for calendar year 1988. Section 1274A(d)(2)(B) defines 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 debt instruments arising out of sales or exchanges after December 31, 1989, the inflation-adjusted amounts under section 1274A are shown in Table 1.

Rev. Rul. 2010-2, 2010-3 I.R.B. 272, is supplemented and superseded.

The author of this revenue ruling is Andrea M. Hoffenson of the Office of the Associate Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling, please contact Ms. Hoffenson at (202) 622-3920 (not a toll-free call).

This notice provides guidance on the annual fee imposed on covered entities engaged in the business of manufacturing or importing branded prescription drugs by section 9008 of the Patient Protection and Affordable Care Act (ACA), Public Law 111-148 (124 Stat. 119 (2010)), as amended by section 1404 of the Health Care and Education Reconciliation Act of 2010 (HCERA), Public Law 111-152 (124 Stat. 1029 (2010)). All references in this notice to section 9008 are references to section 9008 of the ACA, as amended by section 1404 of HCERA.

Part I of this notice describes a proposed methodology for calculating the section 9008 fee. Part II of this notice describes how the Internal Revenue Service (IRS) will use this proposed methodology to provide each covered entity with a preliminary 2011 fee calculation. The IRS and Treasury Department intend that a covered entity’s preliminary fee calculation for 2011 will serve as a basis for comments by the covered entity on the proposed methodology. Part III of this notice solicits public comments on all aspects of the notice.

Section 9008(b)(4) sets an applicable fee amount for each year, beginning with 2011, that will be allocated among covered entities with aggregate branded prescription drug sales of over $5 million to specified government programs or pursuant to coverage under such programs. Section 9008(e)(2) provides that “branded prescription drug” means (i) any prescription drug the application for which was submitted under section 505(b) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(b)), or (ii) any biological product the license for which was submitted under section 351(a) of the Public Health Service Act (42 U.S.C. 262(a)). The specified government programs are the Medicare Part B program, the Medicare Part D program, the Medicaid program, any program under which branded prescription drugs are procured by the Department of Veterans Affairs, any program under which branded prescription drugs are procured by the Department of Defense, and the TRICARE retail pharmacy program (collectively, the Programs). The applicable fee amount is allocated among the covered entities using a formula specified in section 9008(b) based on sales to the Programs, which sales data is to be provided by the Centers for Medicare and Medicaid Services of the Department of Health and Human Services (CMS), the Department of Veterans Affairs (VA), and the Department of Defense (DOD) (collectively, the Agencies).

There are two years relevant to the calculation of the section 9008 fee — the calendar year in which the fee must be paid (herein referred to as the fee year) and the calendar year of the branded prescription drug sales, which will be used to determine the amount of the fee (herein referred to as the sales year). As discussed more fully below, the IRS and Treasury Department are proposing to use the second calendar year preceding the fee year as the sales year for purposes of calculating the section 9008 fee. An adjustment amount will also be calculated as discussed below.

The IRS will use the proposed methodology described in Part I to provide each covered entity with a preliminary 2011 fee calculation. The notification of the preliminary fee calculation will include the following: (1) the covered entity’s fee; (2) the covered entity’s branded prescription drug sales, by NDC, for each Program; (3) the covered entity’s branded prescription drug sales taken into account after application of section 9008(a)(2); and (4) the aggregate branded prescription drug sales taken into account for all covered entities.

To facilitate the preliminary 2011 fee calculation, Form 8947 should be submitted to the IRS by January 20, 2011. From the data on the Forms 8947, the IRS will compile a list of NDCs and provide that list to the Agencies by March 1, 2011. The IRS will use the data submitted on the Forms 8947 and the sales data provided by the Agencies to calculate the preliminary fee and will send to each covered entity notification of its preliminary fee calculation by May 2, 2011.

If the IRS and Treasury Department subsequently promulgate regulations that modify the methodology for calculating each covered entity’s fee, the modified methodology will be adopted in determining the final fee amount for each covered entity for 2011. Thus, if the methodology changes, the amount of the final fee for 2011 may vary from the preliminary fee calculation. The IRS will send the final fee calculation to each covered entity by August 15, 2011.

The IRS and Treasury Department request comments on the procedures described in this notice for consideration when promulgating regulations setting forth procedures for 2011 and the following years. The deadline for submission of comments is June 2, 2011. This date will give covered entities the opportunity to consider the information received in their preliminary fee calculation when providing comments. All materials submitted will be available for public inspection and copying. Written comments should be submitted to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2010-71), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2010-71), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Comments may be transmitted electronically via the following e-mail address: Notice.Comments@irscounsel.treas.gov. Please include “Notice 2010-71” in the subject line of any electronic communications.

The principal author of this notice is Celia A. Gabrysh of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice, contact Celia A. Gabrysh at (202) 622-3130 (not a toll-free call). For further information regarding Form 8947, contact Lou Milano at (908) 301-2106 (not a toll-free call).

This notice provides guidance on the determination of when State and local bonds (as defined in § 103(c)) of the Internal Revenue Code (the “Code”) are considered “issued” for purposes of deadlines on issuing bonds. This notice provides guidance on the relevant distinction between the “issue date” of a “bond” versus the “issue date” of an “issue” for purposes of this determination. One instance, among others, in which this notice applies is in determining when Build America Bonds, structured as “draw-down” bonds or loans in which draws are funded at different times, are considered issued for purposes of statutory deadlines on issuing these bonds under § 54AA.

This notice does not apply for purposes of applying the qualified small issuer and de minimis exceptions to the tax-exempt carrying cost disallowance provision under § 265(b)(3) and § 265(b)(7) to draw-down loans.

Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, 123 Stat. 115 (2009) (“ARRA”) added § 54AA to the Code, which authorizes State and local governments, at their option, to issue Build America Bonds as taxable governmental bonds and receive Federal subsidies for a portion of their borrowing costs. Sections 54AA(d), 54AA(g), and 6431 require that Build America Bonds be issued before January 1, 2011.

In a related provision, § 1401 of ARRA added §§ 1400U-1 through 1400U-3 to the Code, which authorizes two types of “Recovery Zone Bonds,” including a type of Build America Bond known as “Recovery Zone Economic Development Bonds” and a type of traditional tax-exempt bond known as “Recovery Zone Facility Bonds.” These Recovery Zone Bonds have bond volume limitations and a statutory deadline that requires the bonds to be issued before January 1, 2011.

Section 1503(a) of ARRA amended § 57(a)(5)(C) to add new clause (vi), which provides, in part, that for purposes of the alternative minimum tax preference for interest on certain tax-exempt private activity bonds under § 57(a)(5)(C)(i), the term “private activity bond” shall not include any bond issued after December 31, 2008, and before January 1, 2011. Section 1503(b) of ARRA amended § 56(g)(4)(B) to add new clause (iv), which provides that the adjusted current earnings (ACE) adjustment under § 56(g)(4)(B)(i) for interest on certain tax-exempt bonds shall not include any interest on certain bonds issued after December 31, 2008, and before January 1, 2011.

In addition, other statutory provisions impose statutory time periods for issuing State and local bonds in both targeted circumstances and in more general circumstances. Another selected example of a targeted bond program that imposes a statutory time period on issuing bonds is the Gulf Opportunity Zone Bond program under § 1400N. One general provision that imposes statutory time periods on issuing bonds is the annual State private activity bond volume cap under § 146, which generally limits the amount of tax-exempt private activity bonds that may be issued in a State in a particular year. Similarly, certain types of qualified tax credit bonds under § 54A have volume caps and statutory time periods for issuing bonds. Another general provision is § 265(b)(3), which generally provides an exception to the carrying cost disallowance provision for financial institutions that purchase tax-exempt obligations from “qualified small issuers” that reasonably expect to issue no more than $10 million in tax-exempt bonds in a calendar year. ARRA raises the amount of this exception to $30 million for bonds issued in 2009 and 2010. Thus, the determination of when bonds are issued is relevant to the statutory limitations affecting Build America Bonds and many other State and local bond programs.

Recently, questions have arisen about which issue date rule applies for the statutory deadline on issuing Build America Bonds with respect to a financing structure known as “draw-down” loans in which funds are advanced at different times. The regulations provide issue date rules for “bonds” and for “issues” of bonds (with subsidiary special rules which treat bonds issued under draw-down loans or commercial paper programs as part of the same issue). Section 1.150-1(b) of the Income Tax Regulations includes a general definition for the “issue date” of a “bond,” that provides the issue date is the date on which the issuer receives the purchase price in exchange for that bond, provided that in no event is the issue date of a bond earlier than the first day on which interest begins to accrue on such bond for Federal income tax purposes. See also Harbor Bancorp v. Commissioner, 105 T.C. 260 (1995), aff’d 115 F.3d 722 (9^th Cir. 1997) (citing regulatory predecessors to this general definition in interpreting statutory deadlines for issuing bonds under the Tax Reform Act of 1986).

Section 1.150-1(b) defines a “bond” to mean any “obligation” of a State or political subdivision thereof under § 103(c)(1). Section 1.150-1(b) also defines an “obligation” to mean any valid evidence of indebtedness under general Federal income tax principles.

By comparison, § 1.150-1(c) defines the broader term bond “issue” under a general definition and various special rules that may include bonds as part of the same issue even if they are issued at different times under a common tax plan. Section 1.150-1(b) defines the “issue date” of an “issue” to mean the first date on which the issuer receives the purchase price in exchange for delivery of the evidence of indebtedness representing any bond included in the issue, provided that in no event is the issue date of an issue earlier than the first day on which interest begins to accrue on the first bond included in the issue for Federal income tax purposes. Section 1.150-1(c)(1) provides a general rule which treats bonds as part of the same issue if the bonds are sold (versus issued) at substantially the same time (meaning sold less than 15 days apart), the bonds are part of the same plan of financing, and the bonds are reasonably expected to be paid from the same source of funds.

Section 1.150-1(c)(4)(i) treats bonds issued pursuant to a “draw-down loan” as part of the same bond issue. This special rule further provides that the issue date of the issue is the first date on which the aggregate draws under the loan exceed the lesser of $50,000 or five percent of the issue price. Section 1.150-1(c)(4)(ii) allows commercial paper issued pursuant to the same commercial paper program to be treated as part of the same issue. This special rule further provides that the issue date of the issue is the first date on which the aggregate amount of commercial paper issued under the program exceeds the lesser of $50,000 or five percent of the issue price. This special rule generally allows commercial paper to be treated as part of the same issue if it is issued to finance or refinance the same governmental purposes pursuant to a single master legal document during an 18-month period or if it is issued to refinance such commercial paper for up to 30 years if there is no increase in the principal amount after the initial 18-month period. These special rules apply to the issue date of the issue. The regulations do not provide special issue date rules for the issue date of bonds issued as draws under draw-down loans or as commercial paper. In Rev. Rul. 89-70, 1989-1 C.B. 88, however, the IRS ruled that the entire stated principal amount of a draw-down loan was considered issued on the date on which more than a de minimis amount of the loan was first advanced.

This notice applies for determining compliance with deadlines for issuing State and local bonds such as Build America Bonds under §§ 54AA(d), 54AA(g) and 6431, and Recovery Zone Bonds under §§ 1400U-1 through 1400U-3. The analysis in this notice also applies for other deadlines for issuing bonds, such as, among others, the exceptions to the alternative minimum tax preferences and adjustments for interest on certain tax-exempt bonds under §§ 56(g)(4)(B)(iv) and 57(a)(5)(C)(vi), Gulf Opportunity Zone Bonds under § 1400N and various volume cap limitations on State and local bonds (as defined in § 103(c)).

This notice does not apply for purposes of applying the qualified small issuer and de minimis exceptions to the tax-exempt carrying cost disallowance provision under § 265(b)(3) and § 265(b)(7) to draw-down loans. For this purpose, Rev. Rul. 89-70 will continue in effect until further guidance is provided, which guidance will be prospective.

In general, for determining compliance with deadlines on issuing bonds covered by this notice, a bond is considered issued on the “issue date” of the “bond” under § 1.150-1(b). Section 1.150-1(b) defines the “issue date” of a “bond” to mean the date on which the issuer receives the purchase price in exchange for that bond, provided that in no event is the issue date of a bond earlier than the first day on which interest begins to accrue on such bond for Federal income tax purposes.

By contrast, the issue date of an “issue” under § 1.150-1(b) is the first date on which the issuer receives the purchase price in exchange for delivery of the evidence of indebtedness representing any bond included in the issue, provided that in no event is the issue date of an issue earlier than the first day on which interest begins to accrue on the first bond included within the issue for Federal income tax purposes. Bonds may be issued at different times and nonetheless be treated as part of the same bond “issue” under the various special provisions for single issues under § 1.150-1(c). Thus, to ensure that an entire issue of bonds meets a statutory deadline on issuing bonds, all of the bonds that are part of the issue should be issued by the applicable statutory deadline.

In the particular case of a “draw-down” loan under § 1.150-1(c)(4)(i) or a commercial paper program under § 1.150-1(c)(4)(ii), in which a bond is issued as a draw or as commercial paper at different times and interest begins to accrue on each draw or commercial paper when it is funded, each draw or commercial paper constitutes a separate bond that is issued on the issue date of that draw or commercial paper when the issuer receives the purchase price, and interest begins to accrue, on that draw or commercial paper for Federal income tax purposes. Thus, for Build America Bonds structured as draw-down loans or commercial paper programs, only those draws or commercial paper that are funded before January 1, 2011, and for which interest begins to accrue for Federal income tax purposes before January 1, 2011, may qualify as Build America Bonds for purposes of the statutory time deadlines for issuing Build America Bonds.

The principal authors of this notice are Vicky Tsilas and Timothy L. Jones of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this notice, contact Vicky Tsilas at (202) 622-3980 (not a toll-free call).

Under authority contained in the Social Security Act (Act), the Commissioner, Social Security Administration, has determined and announced (75 F.R. 65696, dated October 26, 2010) that the contribution and benefit base for renumeration paid in 2011, and self-employment income earned in taxable years beginning in 2011 is $106,800.

This revenue procedure modifies Rev. Proc. 2009-50, 2009-2 C.B. 617, as modified by Rev. Proc. 2010-24, 2010-25 I.R.B. 764, setting out the cost limitations for expensing property under § 179 of the Internal Revenue Code for taxable years beginning in 2010. This modification reflects a statutory amendment enacted subsequent to the publication of Rev. Proc. 2010-24.

Prior to the enactment of the Small Business Jobs Act of 2010, Pub. L. No. 111-240, 124 Stat. 2504 (2010) (the Small Business Jobs Act) and the Hiring Incentives to Restore Employment Act of 2010, Pub. L. No. 111-147, 124 Stat. 71 (2010) (the HIRE Act), § 179(b)(1) prescribed a $125,000 limitation (the $125,000 amount) on the aggregate cost of § 179 property that could be treated as an expense for taxable years beginning after 2006 and before 2011. For those same taxable years, § 179(b)(2) provided that the $125,000 amount is reduced by the amount by which the cost of § 179 property placed in service during the taxable years exceeds $500,000 (the $500,000 amount). Both the $125,000 amount and the $500,000 amount were adjusted for inflation annually under § 179(b)(5). For taxable years beginning in 2010, section 3.20 of Rev. Proc. 2009-50 provides that the $125,000 amount and the $500,000 amount, adjusted for inflation, are $134,000 and $530,000, respectively.

Section 102 of the Economic Stimulus Act of 2008, Pub. L. No. 110-185, 122 Stat. 613 (2008), changed the $125,000 amount and the $500,000 amount to $250,000 and $800,000, respectively, for taxable years beginning in 2008. Section 1202 of the American Recovery and Reinvestment Tax Act of 2009, Pub. L. No. 111-5, 123 Stat. 115 (2009), extended the $250,000 amount and the $800,000 amount to taxable years beginning in 2009.

Section 201 of the HIRE Act changed the $125,000 amount and the $500,000 amount to $250,000 and $800,000, respectively, for taxable years beginning in 2010.To reflect the HIRE Act changes, Rev. Proc. 2010-24 modified section 3.20 of Rev. Proc. 2009-50 to provide that the $125,000 amount and the $500,000 amount are $250,000 and $800,000, respectively, for taxable years beginning in 2010.

Subsequently, § 2021 of the Small Business Jobs Act extended and increased the $250,000 amount and the $800,000 amount to $500,000 and $2,000,000, respectively, for taxable years beginning in 2010 and 2011.

To reflect the statutory changes made to § 179 by § 2021 of the Small Business Jobs Act, section 3.20 of Rev. Proc. 2009-50, as modified by Rev. Proc. 2010-24, is modified to read as follows:

.20 Election to Expense Certain Depreciable Assets. For taxable years beginning in 2010, under § 179(b)(1)(B) the aggregate cost of any § 179 property a taxpayer may elect to treat as an expense cannot exceed $500,000. Under § 179(b)(2)(B), the $500,000 limitation is reduced (but not below zero) by the amount by which the cost of § 179 property placed in service during the 2010 taxable year exceeds $2,000,000.

Section 3.20 of Rev. Proc. 2009-50, as modified and superseded by Rev. Proc. 2010-24, is modified and superseded. Rev. Proc. 2010-24 is superseded.

This revenue procedure is effective for taxable years beginning in 2010.

The principal author of this revenue procedure is Winston H. Douglas of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this revenue procedure, contact Winston H. Douglas at (202) 622-4930 (not a toll-free call).

This revenue procedure provides guidance to drafters and users of pre-approved IRAs. Section 3 of this revenue procedure provides guidance to drafters and users of prototype IRAs, including rules for when documents must be submitted to the Internal Revenue Service and new user fees for individual retirement annuities. Section 4 provides guidance to users of the Service’s model IRAs and describes the availability of new model individual retirement annuities.

.01 Rev. Proc. 87-50, 1987-2 C.B. 647, as modified by Rev. Proc. 97-29, 1997-1 C.B. 698, and Rev. Proc. 98-59, 1998-2 C.B. 727, provides the procedures for a sponsoring organization or a mass submitter (a “prototype sponsor”) to apply to the Service for an opinion letter on whether a prototype traditional, SIMPLE or Roth IRA meets the requirements of Internal Revenue Code § 408(a) or (b), § 408(p) or § 408A, respectively. Rev. Proc. 87-50 also contains procedures for employers and employee associations to apply for a ruling on a § 408(c) IRA.

.02 Rev. Proc. 2002-10, 2002-1 C.B. 401, provided guidance on updating IRAs for new regulations on required minimum distributions and for changes made by the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), Pub. L. 107-16.

.03 Ann. 2007-55, 2007-1 C.B. 1384, provided guidance to sponsors of prototype Roth IRAs who wished to amend their documents to accept rollovers from designated Roth accounts described in § 402A.

.04 Notice 2009-82, 2009-41 I.R.B. 491, provides that IRAs do not have to be amended for new § 401(a)(9)(H) pending the issuance of further guidance.

.05 Model forms are available for taxpayers who want to use a pre-approved document to establish an IRA without using a prototype document. The model IRA forms are: Form 5305, Traditional Individual Retirement Trust Account; Form 5305-A, Traditional Individual Retirement Custodial Account; Form 5305-R, Roth Individual Retirement Trust Account; Form 5305-RA, Roth Individual Retirement Custodial Account; Form 5305-RB, Roth Individual Retirement Annuity Endorsement; Form 5305-S, SIMPLE Individual Retirement Trust Account; and Form 5305-SA, SIMPLE Individual Retirement Custodial Account. Also, two new model forms will soon be available: Form 5305-TB, Traditional Individual Retirement Annuity Endorsement; and Form 5305-SB, SIMPLE Individual Retirement Annuity Endorsement (see Section 4.02 below).

.06 Statutory changes since 2002. The following statutory changes relating to the qualification of IRAs became effective after mandatory amendments were announced in Rev. Proc. 2002-10 and Ann. 2007-55:

(1) Section 201 of the Gulf Opportunity Zone Act of 2005 (“GOZA”), Pub. L. 109-135, provided that certain distributions from retirement plans made on account of Hurricane Katrina, Rita or Wilma may be repaid to an eligible retirement plan (as defined in Code § 402(c)(8)(B)).

(2) Section 512 of the Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”), Pub. L. 109-222, eliminated the $100,000 modified adjusted gross income limit and the joint filing requirement for individuals wanting to make qualified rollover contributions (other than from a designated Roth account or from a Roth IRA) to Roth IRAs, effective for distributions after 2009.

(3) Section 2 of the Heroes Earned Retirement Opportunities Act (“HERO Act”), Pub. L. 109-227, provided that compensation earned by members of the armed forces for service in a combat zone is taken into account for purposes of making IRA contributions, effective for taxable years beginning after 2003.

(4) Section 824 of the Pension Protection Act of 2006 (“PPA”), Pub. L. 109-280, as amended by WRERA (see Section 2.06(15) of this revenue procedure), provided that Roth IRAs can accept rollovers from any eligible retirement plan (as defined in Code § 402(c)(8)(B)), effective for distributions after 2007.

(5) Section 827 of PPA, as amended by WRERA (see item (15) below), provided that qualified reservist distributions (as defined in Code § 72(t)(2)(G)) may be repaid to an IRA, effective for individuals called to active duty after September 11, 2001.

(6) Section 829 of PPA, as amended by WRERA (see item (15) below), provided that a nonspouse beneficiary of a deceased participant’s accrued benefit in an eligible retirement plan, other than an IRA, can roll over any portion of the benefit in a direct trustee-to-trustee transfer to an IRA established to receive such rollover, effective for distributions made after 2006.

(7) Section 831 of PPA provided that certain individuals who were participants in a § 401(k) plan maintained by certain indicted employers could make special catch-up contributions equal to three times the otherwise applicable IRA contribution limit, effective for taxable years beginning after 2006 and before 2010.

(8) Section 833 of PPA provided that the modified adjusted gross income limits for regular contributions to Roth IRAs are adjusted for inflation, effective for taxable years beginning after 2006.

(9) Section 105 of the Heroes Earnings Assistance and Relief Act of 2008 (“HEART Act”), Pub. L. 110-245, provides that compensation for purposes of making IRA contributions includes differential wage payments (as defined in Code § 3401(h)(2)), effective for years beginning after 2008.

(10) Section 107 of the HEART Act extended the application of the rules on qualified reservist distributions (see item (5) above).

(11) Section 109 of the HEART Act provided that certain military death gratuities are treated as qualified rollover contributions within the meaning of Code § 408A(e) and thus can be contributed to Roth IRAs, effective for deaths occurring after October 6, 2001.

(12) Section 15345 of the Food, Conservation, and Energy Act of 2008, Pub. L. 110-246, provided that certain distributions from retirement plans made on account of the Kansas May 4, 2007, severe storms and tornados may be repaid to an eligible retirement plan (as defined in Code § 402(c)(8)(B)).

(13) Section 504 of Division C of the Emergency Economic Stabilization Act of 2008 (“EESA”), Pub. L. 110-343, provides that certain amounts received in connection with the Exxon Valdez litigation may be contributed to an eligible retirement plan (as defined in Code § 402(c)(8)(B)).

(14) Section 702 of Division C of EESA provided that certain distributions from retirement plans made on account of severe storms, tornados and flooding that occurred in certain parts of the Midwest during May and June of 2008 may be repaid to an eligible retirement plan (as defined in Code § 402(c)(8)(B)).

(15) Section 108(d), (e) and (f) of the Worker, Retiree, and Employer Recovery Act of 2008 (“WRERA”), Pub. L. 110-458, made technical corrections to PPA §§ 824, 827 and 829, respectively. Section 2.06(4), (5) and (6) of this revenue procedure reflects these PPA sections as amended by WRERA.

(16) Section 125 of WRERA provided that certain bankruptcy payments made in settlement of claims against airline carriers are treated as qualified rollover contributions within the meaning of Code § 408A(e) and thus can be contributed to Roth IRAs, effective for contributions made after December 23, 2008, with respect to payments made any time.

(17) Section 201 of WRERA provided that required minimum distributions from IRAs are not required for 2009.

.07 Rev. Proc. 2010-8, 2010-1 I.R.B. 234, lists the user fees for opinion letters on prototype IRAs.

.01 Amendment not required. A prototype IRA may, but need not, be amended to reflect a statutory change listed in Section 2.06 of this revenue procedure in order for a trustee, custodian or issuer (hereinafter “trustee”) to take advantage of the change. Thus, a trustee may accept the additional IRA contributions listed in Section 2.06(1) through (16) of this revenue procedure and suspend 2009 required minimum distributions pursuant to Section 2.06(17) of this revenue procedure without specific authorizing language in the prototype IRA. Similarly, a § 408(c) IRA need not be amended.

.02 Permissive amendment. Prototype IRAs may be amended, solely to incorporate the statutory changes listed in Section 2.06 of this revenue procedure, without affecting reliance on a favorable opinion letter. Similarly, a § 408(c) IRA may be so amended without affecting reliance on a favorable ruling. Sample language for these changes is available on the Service’s Web Site (see Section 3.04 of this revenue procedure).

.03 Application for new opinion letters. A prototype sponsor may apply to the Service any time for an IRA opinion letter, including an opinion letter for an amendment solely to incorporate the statutory changes listed in Section 2.06 of this revenue procedure. The IRA document must be submitted using the appropriate application form and following the instructions on that form. Form 5306, Application for Approval of Prototype or Employer Sponsored Individual Retirement Arrangement (IRA), is used for prototype IRA submissions.

.04 Sample language. A Listing of Required Modifications, or LRMs, that the Service finds acceptable for prototype IRAs is available on the Service’s Web Site at www.irs.gov . (Search for “LRMs”.) In order to receive a favorable opinion letter, prototype documents must include language that addresses every issue addressed in the LRMs, unless clearly inapplicable. Identical language is not necessary, but issues addressed in an LRM may not be abbreviated by using references to Code sections or such phrases as “in accordance with the law.”

.05 Revised procedures and user fees for annuities. Beginning with applications submitted after December 13, 2010, prototype sponsors of individual retirement annuities described in § 408(b) that use one IRA endorsement with one or more annuity contracts may submit only the IRA endorsement (and not the contracts) to the Service for approval. Sponsors that take advantage of this new procedure will be issued an opinion letter referencing the IRA endorsement, thereby reducing the number of opinion letters issued and, correspondingly, the applicable user fees. The Service recently issued a revised Form 5306, reflecting the new procedures. The IRA endorsement must include all IRA qualification rules and must provide that the terms of the IRA endorsement supersede any conflicting terms in the annuity contracts to which the IRA endorsement applies. Sponsors that use different IRA endorsements for each contract, that use no endorsements or that simply want an opinion letter for each contract may submit applications to the Service, including with such applications the document or documents that constitute the IRA.

.06 Dual-purpose IRAs. Rev. Proc. 98-59 required applicants for opinion letters on prototype documents designed to be used as either a traditional IRA or a Roth IRA to write “Dual-purpose IRA” on Form 5306. Form 5306 has been revised to include a checkbox to identify a dual-purpose IRA application, so writing “Dual-purpose IRA” on the form will no longer be required.

.01 Amendment not required. Model IRAs need not be amended in order for trustees to operate in accordance with the statutory provisions listed in Section 2.06 above. The Service expects to issue revised model IRAs shortly, and although use of the new models is not required, the Service recommends adoption of the latest model IRAs.

.02 New model IRAs. The Service will issue two model IRAs for use by issuers and annuitants to establish a traditional individual retirement annuity or a SIMPLE individual retirement annuity. The forms — Form 5305-TB, Traditional Individual Retirement Annuity Endorsement; and Form 5305-SB, SIMPLE Individual Retirement Annuity Endorsement — are expected to be available shortly.

Rev. Procs. 87-50 and 98-59 are modified.

The principal author of this revenue procedure is Roger Kuehnle of the Employee Plans, Tax Exempt and Government Entities Division. Questions regarding this revenue procedure may be sent via e-mail to RetirementPlanQuestions@irs.gov.

This revenue procedure prescribes the loss payment patterns and discount factors for the 2010 accident year. These factors will be used for computing discounted unpaid losses under § 846 of the Internal Revenue Code. See Rev. Proc. 2008-10, 2008-1 C.B. 290, for background concerning the loss payment patterns and application of the discount factors.

This revenue procedure applies to any taxpayer that is required to discount its unpaid losses under § 846 for a line of business using discount factors published by the Secretary.

.01 The following tables present separately for each line of business the discount factors under § 846 for accident year 2010. All the discount factors presented in this section were determined using the applicable interest rate under § 846(c) for 2010, which is 3.81 percent, and by assuming all loss payments occur in the middle of the calendar year.

.02 If the groupings of individual lines of business on the annual statement change, taxpayers must discount the unpaid losses on the affected lines of business in accordance with the discounting patterns that would have applied to those unpaid losses based on their classification on the 2005 annual statement. See Rev. Proc. 2008-10, section 2, for additional background on discounting under § 846 and the use of the Secretary’s tables.

.03 Section V of Notice 88-100, 1988-2 C.B. 439, sets forth a composite method for computing discounted unpaid losses for accident years that are not separately reported on the annual statement. The tables separately provide discount factors for taxpayers who elect to use the composite method of section V of Notice 88-100. See Rev. Proc. 2002-74, 2002-2 C.B. 980.

.04 Tables.

The principal author of this revenue procedure is Sarah E. Swan of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure, contact Ms. Swan at (202) 622-8443 (not a toll-free call).

This revenue procedure prescribes the salvage discount factors for the 2010 accident year. These factors must be used to compute discounted estimated salvage recoverable under § 832 of the Internal Revenue Code.

Section 832(b)(5)(A) requires that all estimated salvage recoverable (including that which cannot be treated as an asset for state accounting purposes) be taken into account in computing the deduction for losses incurred. Under § 832(b)(5)(A), paid losses are to be reduced by salvage and reinsurance recovered during the taxable year. This amount is adjusted to reflect changes in discounted unpaid losses on nonlife insurance contracts and in unpaid losses on life insurance contracts. An adjustment is then made to reflect any changes in discounted estimated salvage recoverable and in reinsurance recoverable.

Pursuant to § 832(b), the amount of estimated salvage is determined on a discounted basis in accordance with procedures established by the Secretary.

This revenue procedure applies to any taxpayer that is required to discount estimated salvage recoverable under § 832.

.01 The following tables present separately for each line of business the discount factors under § 832 for the 2010 accident year. All the discount factors presented in this section were determined using the applicable interest rate under § 846(c) for 2010, which is 3.81 percent, and by assuming all estimated salvage is recovered in the middle of each calendar year. See Rev. Proc. 2008-11, 2008-1 C.B. 301, for background regarding the tables.

.02 These tables must be used by taxpayers irrespective of whether they elected to discount unpaid losses using their own historical experience under § 846.

.03 Section V of Notice 88-100, 1988-2 C.B. 439, provides a composite discount factor to be used in determining the discounted unpaid losses for accident years that are not separately reported on the annual statement approved by the National Association of Insurance Commissioners. The tables separately provide discount factors for taxpayers who elect to use the composite method. Rev. Proc. 2002-74, 2002-2 C.B. 980, clarifies that for certain insurance companies subject to tax under § 831 the composite method for discounting unpaid losses set forth in Notice 88-100, section V, is permitted but not required. This revenue procedure further provides alternative methods for computing discounted unpaid losses that are permitted for insurance companies not using the composite method, and sets forth a procedure for insurance companies to obtain automatic consent of the Commissioner to change to one of the methods described in Rev. Proc. 2002-74.

.04 Tables.

The principal author of this revenue procedure is Sarah E. Swan of the Office of the Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure, contact Ms. Swan at (202) 622-8443 (not a toll-free call).

Internal Revenue Service (IRS), Treasury.

Correcting amendment.

This document contains corrections to final regulations (T.D. 9340, 2007-2 C.B. 487) that were published in the Federal Register on Thursday, July 26, 2007 (72 FR 41128) providing updated guidance on section 403(b) contracts of public schools and tax-exempt organizations described in section 501(c)(3). These regulations will affect sponsors of section 403(b) contracts, administrators, participants, and beneficiaries.

The correction is effective October 26, 2010, and is applicable on July 26, 2007.

Concerning the regulations, John Tolleris at (202) 622-6060; concerning the regulations as applied to church-related entities, Sherri Edelman or Jason Levine at (202) 283-9634 (not toll-free numbers).

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 Service 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 Service 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 13, 2010, and would end on the date the court first determines that the organization is not described in section 170(c)(2) as more particularly set forth 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.