us-irs-revenue-rulings-irb-2015-34-pdf•Internal Revenue Bulletin 2015-34 (PDF rendition): IRS Revenue Rulings
Internal Revenue Bulletin 2015-34 (PDF rendition): IRS Revenue Rulings
us-irs-revenue-rulings-irb-2015-34-pdfInternal Revenue Bulletin 2015-34 (PDF rendition): IRS Revenue RulingsGuidance
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HIGHLIGHTS OF THIS ISSUE These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. INCOME TAX Notice 2015–54, page 210. This notice announces that the Treasury Department and the IRS intend to issue regulations under section 721(c) to ensure that, when a U.S. person transfers certain property to a part- nership that has foreign partners related to the transferor, income or gain attributable to the property will be taken into account by the transferor either immediately or periodically. This notice also announces that the Treasury Department and the IRS intend to issue regulations under sections 482 and 6662 applicable to controlled transactions involving partner- ships to ensure the appropriate valuation of such transactions. EMPLOYEE PLANS Notice 2015–55, page 217. This notice sets forth updates on the corporate bond monthly yield curve, the corresponding spot segment rates for August 2015 used under § 417(e)(3)(D), the 24-month average seg- ment rates applicable for August 2015, and the 30-year Trea- sury rates. These rates reflect the application of § 430(h)(2)(C)(iv), which was added by the Moving Ahead for Progress in the 21st Century Act, Public Law 112–141 (MAP– 21) and amended by section 2003 of the Highway and Trans- portation Funding Act of 2014 (HATFA). EXEMPT ORGANIZATIONS Announcement 2015–21, page 220. Revocation of IRC 501(c)(3) Organizations for failure to meet the code section requirements. Contributions made to the organizations by individual donors are no longer deductible under IRC 170(b)(1)(A). ESTATE TAX Rev. Rul. 2015–18, page 209. Special Use Value; Farms; Interest Rates. The 2015 interest rates to be used in computing the special use value of farm real property for which an election is made under section 2032A of the Code are listed for estates of decedents. Finding Lists begin on page ii. Bulletin No. 2015–34 August 24, 2015 The IRS Mission Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and en- force the law with integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conven- tions, legislation, court decisions, and other items of general interest. It is published weekly. It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, modify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless other- wise indicated. Procedures relating solely to matters of internal management are not published; however, statements of inter- nal practices and procedures that affect the rights and duties of taxpayers are published. Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts stated in the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices, identify- ing details and information of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory requirements. Rulings and procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations, but they may be used as precedents. Unpublished rulings will not be relied on, used, or cited as precedents by Service personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—1986 Code. This part includes rulings and decisions based on provisions of the Internal Revenue Code of 1986. Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions and Other Related Items, and Subpart B, Legisla- tion and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rul- ings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Sec- retary (Enforcement). Part IV.—Items of General Interest. This part includes notices of proposed rulemakings, disbar- ment and suspension lists, and announcements. The last Bulletin for each month includes a cumulative index for the matters published during the preceding months. These monthly indexes are cumulated on a semiannual basis, and are published in the last Bulletin of each semiannual period. The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. August 24, 2015Bulletin No. 2015–34 Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 Section 2032A.—Valuation of Certain Farm, Etc., Real Property 26 CFR 20.2032A– 4: Method of valuing farm real property. Rev. Rul. 2015–18 This revenue ruling contains a list of the average annual effective interest rates on new loans under the Farm Credit Sys- tem. This revenue ruling also contains a list of the states within each Farm Credit System Bank Territory. Under § 2032A(e)(7)(A)(ii) of the In- ternal Revenue Code, rates on new Farm Credit System Bank loans are used in computing the special use value of real property used as a farm for which an election is made under § 2032A. The rates in Table 1 of this revenue ruling may be used by estates that value farmland under § 2032A as of a date in 2015. Average annual effective interest rates, cal- culated in accordance with § 2032A(e)(7)(A) and § 20.2032A– 4(e) of the Estate Tax Regulations, to be used under § 2032A(e)(7)(A)(ii), are set forth in the accompanying Table of Interest Rates (Table 1). Thestates within each Farm Credit System Bank Territory are set forth in the accompanying Table of Farm Credit Sys- tem Bank Territories (Table 2). Rev. Rul. 81–170, 1981–1 C.B. 454, contains an illustrative computation of an average annual effective interest rate. The rates applicable for valuation in 2014 are in Rev. Rul. 2014 –21, 2014 –34 I.R.B. 381. For rate information for years prior to 2014, see Rev. Rul. 2013–19, 2013–39 I.R.B. 240, and other revenue rulings that are referenced therein. DRAFTING INFORMATION The principal author of this revenue ruling is Lane Damazo of the Office of the Associate Chief Counsel (Passthroughs and Special Industries). For further infor- mation regarding this revenue ruling, con- tact Lane Damazo at (202) 317-6859 (not a toll-free number). REV. RUL. 2015–18 TABLE 1 TABLE OF INTEREST RATES (Year of Valuation 2015) Farm Credit System Bank Servicing State in Which Property is LocatedRate AgFirst, FCB ......................................................................................................................................................................... 5.21 AgriBank, FCB ..................................................................................................................................................................... 4.56 CoBank, ACB ....................................................................................................................................................................... 4.17 Texas, FCB............................................................................................................................................................................ 4.73 REV. RUL. 2015–18 TABLE 2 TABLE OF FARM CREDIT SYSTEM BANK TERRITORIES Farm Credit System BankLocation of Property AgFirst, FCB...................................... Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, Pennsylvania, South Carolina, Virginia, West Virginia. AgriBank, FCB .................................. Arkansas, Illinois, Indiana, Lowa, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee, Wisconsin, Wyoming. CoBank, ACB .................................... Alaska, Arizona, California, Colorado, Connecticut, Hawaii, Idaho, Kansas, Maine, Massachusetts, Montana, New Hampshire, New Jersey, New Mexico, New York, Nevada, Oklahoma, Oregon, Rhode Island, Utah, Vermont, Washington. Texas, FCB ........................................ Alabama, Louisiana, Mississippi, Texas. Bulletin No. 2015–34August 24, 2015 209 Part III. Administrative, Procedural, and Miscellaneous Transfers of Property to Partnerships with Related Foreign Partners and Controlled Transactions Involving Partnerships Notice 2015–54 SECTION 1. OVERVIEW This noticeannounces that the De- partment of the Treasury (Treasury De- partment) and the Internal Revenue Ser- vice (IRS) intend to issue regulations under section 721(c) to ensure that, when a U.S. person transfers certain property to a partnership that has for- eign partners related to the transferor, income or gain attributable to the prop- erty will be taken into account by the transferor either immediately or period- ically. This notice also announces that the Treasury Department and the IRS intend to issue regulations under sec- tions 482 and 6662 applicable to con- trolled transactions involving partner- ships to ensure the appropriate valuation of such transactions. Section 2 ofthis notice provides rel- evant background. Section 3 of this no- tice outlines the reasons the Treasury Department and the IRS intend to exer- cise their regulatory authority to issue the regulations described in this notice. Section 4 of this notice describes regu- lations that the Treasury Department and the IRS intend to issue under section 721(c) that will override the general nonrecognition treatment provided by section 721(a) unless certain conditions are satisfied. Section 5 of this notice describes regulations that the Treasury Department and the IRS intend to issue that will address the application of sec- tions 482 and 6662 to controlled trans- actions involving partnerships. Section 6 of this notice provides the effective dates of the regulations described in this notice. Section 7 of this notice requests comments and provides contact infor- mation for purposes of submitting com- ments. SECTION 2. BACKGROUND .01 Repeal of Sections 1491 through 1494 Until they were repealed as part of the Taxpayer Relief Act of 1997 (the 1997 Act), sections 1491 through 1494 imposed an excise tax on certain transfers of ap- preciated property by a U.S. person to a foreign partnership, which generally was 35 percent of the amount of gain inherent in the property. Staff of the Joint Commit- tee on Taxation, General Explanation of Tax Legislation Enacted in 1997, Part Two: Taxpayer Relief Act of 1997 (H.R. 2014) (Dec. 19, 1997). As the Joint Com- mittee explained, Congress believed that the imposition of enhanced information reporting obligations (including sections 6038, 6038B, and 6046A) with respect to foreign partnerships would eliminate the need for sections 1491 through 1494.Id. Notwithstanding these enhanced infor- mation reporting requirements, the 1997 Act granted the Secretary regulatory au- thority in section 721(c) to override the application of the nonrecognition provi- sion of section 721(a) to gain realized on the transfer of property to a partnership (domestic or foreign) if the gain, when recognized, would be includible in the gross income of a person other than a U.S. person. In the 1997 Act, Congress also enacted section 367(d)(3), which provides the Secretary regulatory authority to apply the rules of section 367(d)(2) to transfers of intangible property to partnerships in circumstances consistent with the pur- poses of section 367(d).Id.Regulations have never been issued pursuant to section 721(c) or section 367(d)(3). .02 Sections 367 and 721 Congress enacted section 367 (and its predecessor) in order to prevent U.S. per- sons from avoiding U.S. tax by transfer- ringappreciated property to foreign corpo- rations using nonrecognition transactions. Staff of the Joint Committee on Taxation, General Explanation of the Revenue Provi- sions of the Deficit Reduction Act of 1984 (H.R. 4170) (Dec. 31, 1984). The outbound transfer of intangible property raises addi- tional issues that Congress also sought to address. Specifically, section 367(d) was en- acted to prevent U.S. persons from transfer- ring intangibles offshore in order to achieve deferral of U.S. tax on the profits generated by the intangibles. H.R. Rep. No. 98 – 432, at 1311–15 (1984). Under section 367(d), a U.S. person that transfers intangible property (within the meaning of section 936(h)(3)(B)) to a foreign corporation in an exchange described in section 351 or section 361 (a section 351 exchange or a section 361 exchange, respectively) is treated as having sold such property in exchange for payments that are contingent upon the productivity, use, or disposition of such property, and receiving amounts that reasonably reflect the amounts that would have been received annually in the form of such payments over the useful life of such property, or, in the case of a dispo- sition following such transfer (whether di- rect or indirect), at the time of the disposi- tion. Section 367(d)(2)(A). The amounts taken into account must be commensurate with the income attributable to the intangi- ble.Id. The regulations under sections 367(a) and 367(d) contain special rules for trans- fers to foreign corporations in a section 351 exchange or section 361 exchange under certain circumstances involving partnerships. Specifically, in the case of a transfer of property to a foreign corpora- tion by a partnership in which a U.S. personisapartner,§§1.367(a)– 1T(c)(3)(i)(A) and 1.367(d)–1T(a) treat the partnership’s transfer as if the U.S. partner had transferred its proportionate share of the partnership’s assets (deter- mined under sections 701 through 761) directly to the foreign corporation. In the case of a transfer of a partnership interest to a foreign corporation by a U.S. person, §§ 1.367(a)–1T(c)(3)(ii)(A) and 1.367(d)– 1T(a) treat the U.S. partner as if it had transferred its proportionate share of the property of the partnership (determined under sections 701 through 761) directly to the foreign corporation. In both cases, if section 367(a) requires gain recognition, the regulations provide rules for making basis adjustments to take into account the gain recognized. Section 721(a) provides a general rule that no gain or loss is recognized to a August 24, 2015Bulletin No. 2015–34 210 partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership. Because section 367 only applies to the transfer of property to a foreign corporation, absent regulations under section 721(c) or section 367(d)(3), a U.S. person generally does not recog- nize gain on the contribution of appreci- ated property to a partnership with foreign partners. .03 Section 704 Section 704(c)(1)(A) requires partner- ships to allocate income, gain, loss, and deduction with respect to property con- tributed by a partner to the partnership so as to take into account any variation be- tween the adjusted tax basis of the prop- erty and its fair market value at the time of contribution. Section 1.704 –3(a)(1) provides that the purpose of section 704(c) is to prevent the shifting of tax consequences among part- ners with respect to pre-contribution gain or loss. Section 704(c) allocations must be made using any reasonable method con- sistent with that purpose. § 1.704 –3(a)(1). Section 1.704 –3 describes three methods of making section 704(c) allocations that are generally reasonable, including the re- medial allocation method.Id. Under the remedial allocation method, a partnership may eliminate distortions caused by the ceiling rule (as described in § 1.704 – 3(b)(1)) by making remedial allocations of income, gain, loss, or deduction to the noncontributing partners equal to the full amount of the limitation caused by the ceiling rule, and offsetting those alloca- tions with remedial allocations of income, gain, loss, or deduction to the contributing partner. T.D. 8585, 1995–1 C.B. 120. If a partnership’s section 704(c) allocation method is unreasonable, the Secretary can make adjustments by exercising his au- thority under the anti-abuse rule at § 1.704 –3(a)(10); however, the IRS does not require a partnership to use the remedial allocation method. § 1.704 –3(d)(5)(ii). Section 704(a) and (b) provide that a partner’s distributive share of income, gain, loss, deduction, or credit shall be determined under thepartnership agree- ment unless the partnership agreement does not provide rules for such allocation or the allocation does not have substantial eco- nomic effect. Section 1.704 –1(b)(1)(iii) provides that an allocation that is respected under section 704(b) and the regulations promulgated thereunder may still be reallo- cated under other provisions, such as section 482.See also Rodebaugh v. Commissioner, T.C. Memo. 1974 –36 (holding that the Commissioner could make allocations un- der section 482 that differed from the for- mula set forth in the partnership agreement), aff’d,518 F.2d 73 (6th Cir. 1975). .04 Sections 482 and 6662 and the Regulations Thereunder Section 482 provides, in part, that the Secretary may make allocations between or among two or more organizations, trades, or businesses (whether or not in- corporated or affiliated and whether or not organized in the United States) that are owned or controlled directly or indirectly by the same interests in order to prevent evasion of taxes or clearly to reflect the income of any such organizations, trades, or businesses. Section 1.482–1(a)(2) pro- vides that the IRS may make allocations between or among the members of a con- trolled group if a controlled taxpayer has not reported its true taxable income. In such a case, the IRS may allocate income, deductions, credits, allowances, basis, or any other item or element affecting tax- able income. Section 1.482–1(b)(1) provides that, in determining the true taxable income of a controlled taxpayer, the standard to be applied in every case is that of a taxpayer dealing at arm’s length with an uncon- trolled taxpayer. A controlled transaction meets the arm’s length standard if the results of the transaction are consistent with the results that would have been re- alized if uncontrolled taxpayers had en- gaged in the same transaction under the same circumstances (arm’s length result). § 1.482–1(b)(1). For purposes of section 482, § 1.482–1(i)(7) and (8) provide that controlled transactions include contribu- tions. Section 1.482–1(c)(1) provides that the arm’s length result of a controlled transaction must be determined under the method (or application of a method) that, under the facts and circumstances, pro- vides the most reliable measure of an arm’s length result. Determining the degree of comparabil- ity between controlled and uncontrolled transactions includes the following analy- ses: (i) a functional analysis of the eco- nomically significant activities undertaken or to be undertaken; (ii) a consideration of the resources that are employed, or to be employed, in conjunction with the activi- ties undertaken; and (iii) a comparison of the significant contractual terms and risks of the two transactions. § 1.482–1(d)(3). The contractual terms, including the allo- cation of risks specified or implied by those terms, will be respected if such terms are consistent with the substance of the underlying transactions, including the actual conduct of the controlled taxpayers. § 1.482–1(d)(3)(ii)(B) and (iii)(B). In the absence of a written agreement between the controlled taxpayers or when the con- tractual terms are inconsistent with the substance of the underlying transaction, the IRS may impute a contractual agree- ment between the controlled taxpayers that is consistent with the substance of the transaction.Id. In determining true taxable income, the combined effect of two or more separate (controlled or uncontrolled) transactions (whether before, during, or after the tax- able year under review) may be consid- ered if such transactions, taken as a whole, are so interrelated that consideration of multiple transactions is the most reliable means of determining the arm’s length consideration for the controlled transac- tions. § 1.482–1(f)(2)(i). The IRS will evaluate the results of a trans- action as actually structured by the taxpayer unless the terms of the transaction lack economic substance. § 1.482–1(f)(2)(ii)(A). However, the IRS may consider the alter- native transactions available to the tax- payer in determining whether the terms of the controlled transaction would be ac- ceptable to an uncontrolled taxpayer faced with the same alternatives and operating under comparable circumstances.Id.The IRS may adjust the consideration charged in the controlled transaction based on the cost or profit of an alternative as adjusted to account for material differences be- tween the alternative and the controlled transaction, but will not restructure the transaction as if the alternative had been adopted by the taxpayer.Id. Section 1.482–7 provides the specific methods to be used to evaluate whether a cost sharing arrangement as defined in Bulletin No. 2015–34August 24, 2015 211 § 1.482–7 produces results consistent with an arm’s length result. § 1.482–1(b)(2)(i). Section 1.482–7(g)(1) provides for speci- fied and unspecified methods for purposes of evaluating the arm’s length amount charged in a platform contribution trans- action. Sections 1.482– 4 and 1.482–9, as appropriate, provide specified and unspec- ified methods to be used to determine arm’s length results of arrangements, other than cost sharing arrangements cov- ered by § 1.482–7, for sharing the costs and risks of developing intangibles. § 1.482–1(b)(2)(iii). These other arrange- ments expressly include partnerships.Id. In the case of such other arrangements, the principles, methods, comparability, and reliability considerations set forth in § 1.482–7 are relevant in determining the best method, including an unspecified method, as appropriately adjusted in light of the differences in the facts and circum- stances between such arrangements and a cost sharing arrangement. §§ 1.482– 4(g) and 1.482–9(m)(3). In the case of any transfer or license of intangible property (within the meaning of section 936(h)(3)(B)), the consideration charged by the transferor with respect to such transfer or license must be commen- surate with the income attributable to the intangible. Section 482 (second sentence); § 1.482– 4(a) (third sentence) and (f)(2) and (6); and § 1.482–7(i)(6). If such con- sideration does not satisfy the commensu- rate with income requirement, the Com- missioner may make periodic adjustments to such consideration in a subsequent tax- able year without regard to whether the taxable year of the original transfer re- mains open for statute of limitations pur- poses. §§ 1.482– 4(f)(2)(i) and 1.482– 7(i)(6)(i). If an intangible is transferred in a controlled transaction in exchange for annual royalty payments, the Commis- sioner may make periodic adjustments to such payments as necessary to ensure an arm’s length royalty amount is paid in each taxable year. § 1.482– 4(f)(2)(i). If an intangible is transferred in a controlled transaction for a lump sum, § 1.482– 4(f)(6) provides that the lump sum must be commensurate with the income attrib- utable to the intangible. Section 1.482– 4(f)(6) also explains how to determine a periodic adjustment for a particular tax- able year with respect to that lump sum. Section 6664(c) provides generally that a penalty may not be asserted under sec- tion 6662 with respect to a portion of an underpayment if it is shown that there was reasonable cause for such portion and that the taxpayer acted in good faith with re- spect to such portion. However, when the IRS determines that a penalty otherwise would apply as theresult of a net section 482 transfer price adjustment, as defined in section 6662(e)(3), or as the result of a gross valuation misstatement, as defined in sec- tion 6662(h)(2), section 6662(e)(3)(D) pro- vides that, for purposes of section 6664(c), the taxpayer is not treated as having reason- able cause for a portion of an underpayment attributable to a net section 482 adjustment unless the taxpayer meets the requirements of section 6662(e)(3)(B)(i), (ii), or (iii) with respect to such portion. Those requirements are further described in § 1.6662– 6(d) and generally require a taxpayer to select and apply a specified or unspecified method that the taxpayer could reasonably conclude met the relevant measure of reliability set forth in § 1.6662– 6(d). Those requirements also include a requirement to maintain sufficient contemporaneous documentation to estab- lish the taxpayer’s reasonable conclusion. SECTION 3. REASONS FOR EXERCISING REGULATORY AUTHORITY The Treasury Department and the IRS are aware that certain taxpayers purport to be able to contribute, consistently with sections 704(b), 704(c), and 482, property to a partnership that allocates the income or gain from the contributed property to related foreign partners that are not sub- ject to U.S. tax. Many of these taxpayers choose a section 704(c) method other than the remedial method and/or use valuation techniques that are inconsistent with the arm’s length standard. In 1997 Congress recognized that tax- payers might use a partnership to shift gain to a foreign person and consequently enacted sections 721(c) and 367(d)(3). Based on the experience of the IRS with the taxpayer positions described above, the Treasury Department and the IRS have determined that it is appropriate to exercise the regulatory authority granted in section 721(c) to override the applica- tion of section 721(a) to gain realized on the transfer of property to a partnership (domestic or foreign) in certain circum- stances in which the gain, when recog- nized, ultimately would be includible in the gross income of a foreign person. Al- though Congress also provided specific authority in section 367(d)(3) to address transfers of intangibles to partnerships, the Treasury Department and the IRS have concluded that acting pursuant to section 721(c) is more appropriate because the transactions at issue are not limited to transfers of intangible property. Although section 704(b) provides part- nerships a measure of flexibility to make special allocations of partnership income, the Treasury Department and the IRS be- lieve that in some cases partnership trans- actions involving special allocations lead to inappropriate results. The Treasury De- partment and the IRS also are aware that certain taxpayers may be valuing property contributed to partnerships, or the prop- erty or services involved in related con- trolled transactions, in a manner contrary to section 482. As a result, partnership interests or consideration received in re- lated controlled transactions also may be incorrectly valued, thereby reducing the amount of income or gain allocated to U.S. partners. For example, a partnership agreement might provide a domestic part- ner with a fixed preferred interest in ex- change for the contribution of an intangi- ble that is assigned a value that is inappropriately low, while specially allo- cating a greater share of the income from the intangible to a related foreign partner. Even though the IRS has broad authority under section 482 to make allocations to properly reflect the economics of a con- trolled transaction, administrative chal- lenges arise, for example, when the IRS must make adjustments years after a trans- action occurred. Because taxpayers have better access to information about their businesses and risk profiles, the IRS may be at a disadvantage in evaluating the transactions. Therefore, along with pro- viding rules under section 721(c), the Treasury Department and the IRS intend to augment the section 482 rules as they apply to controlled transactions involving partnerships. The Treasury Department and the IRS believe that remedial allocations can have the effect, in part, of ensuring that pre- contribution gain from contributed prop- August 24, 2015Bulletin No. 2015–34 212 erty is properly taken into account by the contributing partner. Further, allocating all section 704(b) book items (e.g., gain, income, loss, and deduction) associated with the contributed property in a consis- tent manner with respect to the contribut- ing partner and any related foreign partner can help to ensure that the built-in gain associated with contributed property is properly taken into account by the con- tributing partner and that income is not inappropriately separated from related de- ductions. Accordingly, the Treasury De- partment and the IRS have determined that it is appropriate to allow for the con- tinued application of section 721(a) to transfers to partnerships with related for- eign partners only when the conditions described in section 4.03 of this notice are satisfied. SECTION 4. REGULATIONS TO ADDRESS CERTAIN TRANSFERS OF PROPERTY TO PARTNERSHIPS WITH RELATED FOREIGN PARTNERS .01 Definitions (1) U.S. Transferor A U.S. Transferor is a United States person within the meaning of section 7701(a)(30) (U.S. person), other than a domestic partnership. (2) Built-in Gain With respect to an item of property contributed to a partnership, Built-in Gain is the excess section 704(b) book value of the property over the contributing part- ner’s adjusted tax basis in the property at the time of the contribution (and does not include gain created when a partnership revalues partnership property). (3) Section 721(c) Property Section 721(c) Property is property, other than Excluded Property, with Built-in Gain. (4) Excluded Property Excluded Property is (i) cash equiva- lents, (ii) any asset that is a security within the meaning of section 475(c)(2), without regard to section 475(c)(4), and (iii) any item of tangible property with Built-in Gain that does not exceed $20,000. (5) Section 721(c) Partnership A partnership (domestic or foreign) is a Section 721(c) Partnership if a U.S. Transferor contributes Section 721(c) Property to the partnership, and, after the contribution and any transactions related to the contribution, (i) a Related Foreign Person is a Direct or Indirect Partner in the partnership, and (ii) the U.S. Trans- feror and one or more Related Persons own more than fifty percent of the inter- ests in partnership capital, profits, deduc- tions or losses. (6) Related Person A Related Person is a person that is related (within the meaning of section 267(b) or section 707(b)(1)) to a U.S. Transferor. (7) Related Foreign Person A Related Foreign Person is a Related Person (other than a partnership) that is not a U.S. person. (8) Direct or Indirect Partner A Direct or Indirect Partner is a person (other than a partnership) that owns an interest in a partnership directly or indi- rectly through one or more partnerships. (9) Gain Deferral Method The Gain Deferral Method is the method described in section 4.03 of this notice. (10) Acceleration Event An Acceleration Event has the mean- ing provided in section 4.05 of this notice. .02 General Rule – Current Gain Recognition The Treasury Department and the IRS intend to issue regulations providing that section 721(a) will not apply when a U.S. Transferor contributes an item of Section 721(c) Property (or portion thereof) to a Section 721(c) Partnership, unless the Gain Deferral Method described in sec- tion 4.03 of this notice is applied with respect to the Section 721(c) Property. The regulations will include a de minimis rule providing that section 721(a) (if oth- erwise applicable) will continue to apply (without regard to whether the require- ments of the Gain Deferral Method are satisfied) if during the U.S. Transferor’s taxable year (1) the sum of the Built-In Gain with respect to all Section 721(c) Property contributed in that year to the Section 721(c) Partnership by the U.S. Transferor and all other U.S. Transferors that are Related Persons does not exceed $1 million, and (2) the Section 721(c) Partnership is not applying the Gain De- ferral Method with respect to a prior con- tribution of Section 721(c) Property by the U.S. Transferor or another U.S. Trans- feror that is a Related Person. .03 Gain Deferral Method The requirements for applying the Gain Deferral Method are as follows: (1)The Section 721(c) Partnership adopts the remedial allocation method de- scribed in § 1.704 –3(d) for Built-in Gain with respect to all Section 721(c) Property contributed to the Section 721(c) Partner- ship pursuant to the same plan by a U.S. Transferor and all other U.S. Transferors that are Related Persons. (2)During any taxable year in which there is remaining Built-In Gain with re- spect to an item of Section 721(c) Prop- erty, the Section 721(c) Partnership allo- cates all items of section 704(b) income, gain, loss, and deduction with respect to that Section 721(c) Property in the same proportion (for example, if income with respect to an item of Section 721(c) Prop- erty is allocated 60 percent to the U.S Transferor and 40 percent to a Related Foreign Person in a taxable year, then gain, deduction, and loss with respect to that Section 721(c) Property must also be allocated 60 percent to the U.S. Transferor and 40 percent to the Related Foreign Person). (3)The reporting requirements de- scribed in section 4.06 of this notice are satisfied. (4)The U.S. Transferor recognizes Built-in Gain with respect to any item of Section 721(c) property upon an Acceler- ation Event described in section 4.05 of this notice. (5)The Gain Deferral Method is ad- opted for all Section 721(c) Property sub- sequently contributed to the Section 721(c) Partnership by the U.S. Transferor and all other U.S. Transferors that are Related Persons until the earlier of: (i) the date that no Built-in Gain remains with respect to any Section 721(c) Property to which the Gain Deferral Method first ap- plied; or (ii) the date that is 60 months after the date of the initial contribution of Section 721(c) Property to which the Gain Deferral Method first applied. Bulletin No. 2015–34August 24, 2015 213 .04 Tiered Partnerships The regulations described in this notice will apply to transactions involving tiered partnerships in a manner consistent with the purpose of these rules as described in section 3 of this notice. Thus, for example, (i) if a U.S. Transferor is a Direct or Indirect Partner in a partnership and that partnership contributes Section 721(c) Property to a lower-tier partnership, or (ii) if a U.S. Transferor contributes an interest in a partnership that owns Section 721(c) Property to a lower-tier partnership, then the rules described in this notice will ap- ply as though the U.S. Transferor contrib- uted its share of the Section 721(c) Prop- erty directly. .05 Rules Regarding Acceleration Events (1) Acceleration Event defined Except as otherwise provided in this section 4.05, an Acceleration Event with respect to an item of Section 721(c) Prop- erty is any transaction that either would reduce the amount of remaining Built-in Gain that a U.S. Transferor would recog- nize under the Gain Deferral Method if the transaction had not occurred or could defer the recognition of the Built-in Gain. Furthermore, an Acceleration Event is deemed to occur with respect to all Sec- tion 721(c) Property of a Section 721(c) Partnership for the taxable year of the Section 721(c) Partnership in which any party fails to comply with all of the re- quirements for applying the Gain Deferral Method. (2) Gain recognized upon an Acceler- ation Event Upon an Acceleration Event with re- spect to an item of Section 721(c) Prop- erty, a U.S. Transferor must recognize gain in an amount equal to the remaining Built-in Gain that would have been allo- cated to the U.S. Transferor if the Section 721(c) Partnership had sold the item of Section 721(c) Property immediately be- fore the Acceleration Event for its fair market value. The regulations will provide for corresponding adjustments to the basis of the Section 721(c) Property and the U.S. Transferor’s partnership interest to reflect the recognition of the remaining Built-In Gain. An Acceleration Event with respect to an item of Section 721(c) Prop- erty may require a U.S. Transferor to rec- ognize only a portion of the remaining Built-in Gain. For example, if a U.S. Transferor sold only part of its interest in a Section 721(c) Partnership, the U.S. Transferor would have an Acceleration Event only to the extent of the Section 721(c) Property attributable to the partner- ship interest sold. (3) Transfer of partnership interest to a domestic corporation An Acceleration Event will not occur if (i) a U.S. Transferor transfers an interest in a Section 721(c) Partnership to a do- mestic corporation in a transaction to which either section 351(a) or section 381(a) applies, or (ii) a Section 721(c) Partnership transfers an interest in a lower-tier partnership that owns Section 721(c) Property to a domestic corporation in a transaction to which section 351(a) applies, provided that in both cases the parties continue to apply the Gain Defer- ral Method by treating the transferee do- mestic corporation as the U.S. Transferor for all purposes of this notice. (4) Special rules for certain transfers of Section 721(c) Property described in section 351(a) An Acceleration Event will not occur if a Section 721(c) Partnership transfers Section 721(c) Property to a domestic cor- poration in a transaction to which section 351(a) applies. If a Section 721(c) Partnership transfers Section 721(c) Property (or an interest in a partnership that owns Section 721(c) Prop- erty) to a foreign corporation in a transaction described in section 351(a), an Accelera- tion Event will not occur to the extent the Section 721(c) Property is treated as being transferred by a U.S. person (other than a domestic partnership) pursuant to § 1.367(a)–1T(c)(3)(i) or (ii). The stock in a transferee corporation received by a Section 721(c) Partnership in a transaction described in this section 4.05(4) will not be subject to the Gain Deferral Method. .06 Reporting Requirements (1) Reporting required for taxable years beginning in 2015 If a Section 721(c) Partnership is a foreign partnership, a U.S. Transferor (or a domestic partnership in which a U.S. Transferor is a Direct or Indirect Partner) must fulfill any reporting requirements imposed under sections 6038, 6038B, and 6046A and the existing regulations there- under with respect to the contribution of the Section 721(c) Property to the Section 721(c) Partnership. The IRS intends to modify Schedule O, Transfer of Property to a Foreign Partnership, of Form 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships), or its in- structions, for taxable years beginning in 2015 to require supplemental information for contributions of Section 721(c) Prop- erty to Section 721(c) Partnerships. (2) Reporting regulations to be issued The Treasury Department and the IRS intend to issue regulations describing ad- ditional reporting requirements for a U.S. Transferor for each taxable year in which the Gain Deferral Method applies. The regulations will not require any new fil- ings for taxable years that end before the date of publication of the regulations. The regulations will require taxpayers to report certain information concerning Section 721(c) Property subject to the Gain Deferral Method (regardless of whether the Section 721(c) Partnership is a domestic or foreign partnership). The Treasury Department and the IRS antici- pate that the requested information will include a description of the Section 721(c) Property; information regarding the amount of income, gain, deduction, or loss with respect to the Section 721(c) Property; and a description of any Acceleration Events. The new information reporting requirements will be coordinated with the information reporting requirements under sections 6038, 6038B, and 6046A, including amending the regulations under those sections or relevant IRS forms and instructions, as necessary. The regulations will require certain U.S. Transferors that contribute Section 721(c) Property to a Section 721(c) Part- nership that is a foreign partnership to comply with the information return filing requirements described in § 1.6038 –3 to the extent not required under current reg- ulations. (3) Extension of statute of limitations The Treasury Department and the IRS intend to issue regulations providing that, as an additional requirement for applying the Gain Deferral Method, a U.S. Trans- feror (and, in certain cases, a Section 721(c) Partnership) must extend the pe- riod on limitations of assessment of tax August 24, 2015Bulletin No. 2015–34 214 with respect to all items related to the Section 721(c) Property contributed to the Section 721(c) Partnership through the close of the eighth full taxable year fol- lowing the taxable year of the contribu- tion. The regulations will not require the extension of the period of limitations for taxable years that end before the date of publication of the regulations. .07 Examples The following examples illustrate the rules described in section 4 of this notice. For simplicity of presentation, assume that there are no other controlled transactions that are related to the transactions de- scribed in the examples. See section 5 of this notice. Example 1.(i) Facts.USP, a domestic corpora- tion, wholly owns FS, a foreign corporation. USP and FS form a new partnership, PRS. FS contributes cash of $1.5 million to PRS, and USP contributes the following three assets: a patent with an arm’s length price of $1.2 million and an adjusted basis of zero; a security (within the meaning of section 475(c)(2)) with an arm’s length price of $100,000 and an ad- justed basis of $20,000; and a machine with an arm’s length price of $200,000 and an adjusted basis of $600,000. (ii) Analysis.Because the patent has Built-in Gain, it is Section 721(c) Property. Although the security also has Built-in Gain, it is Excluded Prop- erty because it is an asset described in section 475(c)(2). The machine has a built-in loss and is therefore not Section 721(c) Property. Thus, because USP is a U.S. person and not a domestic partnership, USP is a U.S. Transferor that has contributed Section 721(c) Property. FS is related to USP under section 267(b) and is not a U.S. person. Accordingly, FS is a Related Foreign Person to USP. USP and FS col- lectively own more than 50% of the interests in the capital, profits, deductions, and losses of PRS. Therefore, PRS is a Section 721(c) Partnership. The de minimis rule described in section 4.02 of this notice does not apply because the sum of the Built-In Gain for all Section 721(c) Property is $1.2 million, which exceeds the $1 million de minimis threshold. The built-in loss in the machine does not factor into determining whether the contribution is below the de minimis threshold. As a result, under section 4.02 of this notice, section 721(a) does not apply to USP’s contribution of the patent to PRS, unless the Gain Deferral Method is applied. Example 2.(i) Facts. In Year 1, USP, a U.S. Transferor, contributes Section 721(c) Property (As- set 1) with Built-in Gain of more than $1 million to a Section 721(c) Partnership in which FS, a Related Foreign Person, is also a partner. The partnership allocates all items of income, gain, deduction, and loss with respect to Asset 1 60% to USP and 40% to FS and adopts the remedial allocation method with respect to Asset 1. The parties comply with the applicable reporting requirements under sections 6038, 6038B, and 6046A and the regulations there- under. The parties properly apply the Gain Deferral Method with respect to Asset 1 in Years 1 through 3. In an unrelated transaction in Year 4, USP con- tributes Section 721(c) Property (Asset 2) with a Built-in Gain of $100,000 to the partnership. The partnership allocates all items of income, gain, and loss with respect to Asset 2 20% to USP and 80% to FS, but allocates deductions with respect to Asset 2 90% to USP and 10% to FS. The partnership adopts the remedial allocation method with respect to Asset 2. (ii) Analysis.In Year 4, although Asset 2 has Built-in Gain of less than $1 million, the de minimis rule will not apply because the parties are applying the Gain Deferral Method with respect to Asset 1. Because the deductions with respect to Asset 2 are allocated in a different proportion than the other section 704(b) items with respect to Asset 2, the requirements for satisfying the Gain Deferral Method are not met with respect to Asset 2, and USP must recognize the Built-in Gain with respect to Asset 2. Furthermore, because the Gain Deferral Method does not apply to Asset 2, which was con- tributed within 60 months of Asset 1 (the Section 721(c) Property to which the Gain Deferral Method was first applied), an Acceleration Event is deemed to occur with respect to Asset 1 under section 4.05(1) of this notice, and USP must recognize any remain- ing Built-In Gain with respect to Asset 1. Example 3.The facts are the same as in Example 2 except that USP does not contribute Asset 2. In Year 3, the partners amend the partnership agree- ment so that all items of income, gain, deduction, and loss with respect to Asset 1 are now allocated 30% to USP and 70% to FS. Assume the amendment is accompanied by any consideration required by section 482 and has substantial economic effect as required by section 704(b). Because each section 704(b) item with respect to Asset 1 continues to be allocated in the same proportion to each partner, the Gain Deferral Method will continue to apply so long as the other requirements of the Gain Deferral Method are satisfied. Example 4. (i) Facts. In Year 1, USP, a U.S. Transferor, contributes Section 721(c) Property (As- set 1) with Built-in Gain of more than $1 million to a Section 721(c) Partnership (PRS) in which FS, a Related Foreign Person, and USX, an unrelated U.S. person, are also partners. The parties properly apply the Gain Deferral Method with respect to Asset 1. In Year 3, USP transfers all of its assets, including its interest in PRS, to USS, a domestic corporation, in a transaction to which section 381(a) applies. In Year 9 (a year in which there is remaining Built-In Gain with respect to Asset 1), PRS distributes Asset 1 to FS. (ii) Analysis - Section 381(a) transfer to a do- mestic corporation.Although USP will no longer recognize any remaining Built-In Gain with respect to Asset 1 under the Gain Deferral Method following the transfer to USS, USS is a successor U.S. Trans- feror. Therefore, provided the requirements of the Gain Deferral Method continue to be satisfied, in- cluding treating USS as the U.S. Transferor, the transfer of USP’s interest in PRS to USS is not an Acceleration Event. (iii) Analysis - Distribution of Section 721(c) Property.Although section 704(c)(1)(B) does not apply to the distribution, the distribution is an Ac- celeration Event because USS will not recognize any remaining Built-In Gain with respect to Asset 1 under the Gain Deferral Method following the dis- tribution. Therefore, USS must recognize gain in an amount equal to the remaining Built-in Gain that would have been allocated to USS if PRS had sold Asset 1 immediately before the distribution for its fair market value. Example 5.(i) Facts.The facts are the same as in Example 4 except that in Year 3, instead of USP transferring its assets to USS, PRS instead contrib- utes Asset 1 to FC, a foreign corporation, in a trans- fer described in section 351(a). There is no distribu- tion in Year 9. (ii) Analysis.For purposes of section 367(a) and (d), each partner in PRS that is a U.S. person is treated as having transferred its share of the Section 721(c) Property directly to FC (see § 1.367(a)–1T(c)(3)(i)). An Acceleration Event occurs, but not to the extent of USP’s and USX’s shares of the Section 721(c) Prop- erty. The FC stock received by PRS in the transaction is not subject to the Gain Deferral Method. .08 Anti-Abuse Rule If a U.S. Transferor engages in a trans- action (or series of transactions) with a principal purpose of avoiding the applica- tion of the regulations described in this notice, then, for purposes of those regula- tions, the transaction (or series of transac- tions) may be disregarded or the arrange- ment may be recharacterized (including disregarding an intermediate entity) in ac- cordance with its substance. SECTION 5. RULES REGARDING CONTROLLED TRANSACTIONS INVOLVING PARTNERSHIPS .01 Regulations to Be Issued Regarding Controlled Transactions Involving Partnerships The Treasury Department and the IRS intend to issue regulations regarding the application to controlled transactions in- volving partnerships of certain rules in § 1.482–7 that are currently applicable to cost sharing arrangements. In particular, the Treasury Department and the IRS in- tend to issue regulations that provide specified methods for such controlled transactions based on the specified meth- ods in § 1.482–7(g) as appropriately ad- justed in light of the differences in the facts and circumstances between such partnerships and cost sharing arrange- ments. Additionally, the regulations will provide periodic adjustment rules that are based on the principles of § 1.482–7(i)(6) for controlled transactions involving part- nerships. The regulations will provide Bulletin No. 2015–34August 24, 2015 215 that, in the event of a trigger based on a significant divergence of actual returns from projected returns for controlled transactions involving a partnership, the IRS may make periodic adjustments to the results of such transactions under a method based on § 1.482–7(i)(6)(v), as appropriately adjusted, as well as any nec- essary corresponding adjustments to sec- tion 704(b) or section 704(c) allocations. The Treasury Department and the IRS also are considering issuing regulations under § 1.6662– 6(d) to require additional documentationforcertaincontrolled transactions involving partnerships. These regulations may require, for example, documentation of projected returns for property contributed to a partnership (as well as attributable to related controlled transactions) and of projected partnership allocations, including projected remedial allocations covered by section 4 of this notice, for a specified number of years. .02 Application of Current Law to Transactions Described in this Notice Under existing law, section 482 and related penalties apply to controlled trans- actions involving partnerships, including the transactions described in this notice. For example, where U.S. and foreign per- sons under common control enter into a partnership, the amounts of their contribu- tions to, and distributions from, the part- nership are subject to adjustment in order to reflect arm’s length results. Also sub- ject to adjustment are partnership alloca- tions, including allocations under section 704(c), and the relative magnitudes of the partners’ partnership interests in light of their respective contributions and the re- lated controlled transactions. Accord- ingly, the amount of a remedial allocation pursuant to section 4 of this notice for controlled taxpayers that choose the Gain Deferral Method, or the amount of gain recognized if section 721(a) does not ap- ply, potentially will be subject to adjust- ment by the IRS under section 482. In addition, when the conduct of partners, a partnership, or related controlled taxpay- ers is not reflected in, or is inconsistent with, the terms of the partnership agree- ment or any related agreements of the controlled taxpayers, the IRS may for pur- poses of an adjustment impute terms in the partnership or related agreements that are consistent with the substance of the transaction. The imputation of terms may be appropriate, for example, when a part- ner provides services to the partnership but neither the partnership agreement nor any other agreement reflects the provision of such services. For purposes of the best method anal- ysis under § 1.482–1(c), the principles, methods, comparability, and reliability considerations set forth in § 1.482–7 are relevant to controlled transactions involv- ing partnerships, as appropriately adjusted in light of the differences in the facts and circumstances between such arrangements and a cost sharing arrangement. Thus, de- pending on the facts and circumstances, an unspecified method based on a method specified in § 1.482–7(g)(1), as appropri- ately adjusted, may provide the most reli- able measure of the arm’s length results of controlled transactions involving a part- nership. To the extent that controlled transac- tions involving a partnership, including contributions of tangible and intangible property and the provision of services by the controlled partners or their affiliates, are interrelated, an aggregate analysis of their combined effects is necessary under § 1.482–1(f)(2)(i) if the aggregate analysis provides the most reliable means of deter- mining the arm’s length results for the controlled transactions. When intangible property within the meaning of section 936(h)(3)(B) is con- tributed to a partnership, the IRS may consider making periodic adjustments un- der § 1.482– 4(f)(2) in years subsequent to thecontribution,withoutregardto whether the taxable year of the original transfer remains open for statute of limi- tations purposes. For purposes of making periodic adjustments in open years, the IRS may consider the consequences of what would have been appropriate adjust- ments to the commonly controlled part- ners’ interests in the partnership, or to any partnership allocations under section 704(b) or 704(c), in light of their respec- tive contributions and the associated con- trolled transactions, even when those oc- curred in closed years. Furthermore, the IRS may consider the application of the periodic adjustment rules regardless of whether, under the regulations described in section 4 of this notice, section 721(a) applies to the initial contribution of intan- gible property to the partnership. Where section 721(a) is inapplicable, the IRS may consider the application of the equiv- alent royalty rule under § 1.482– 4(f)(6) to determine periodic adjustments to the rec- ognition of gain on the contribution of the intangible property to the partnership. In the absence of a basis, including the requirement of contemporaneous docu- mentation, for establishing that the tax- payer reasonably concluded its valuation methods used for controlled transactions involving a partnership met the relevant measureofreliabilitysetforthin §1.6662– 6(d),penaltiespotentially would apply under section 6662(e) or (h). SECTION 6. EFFECTIVE DATES The regulations described in sections 4.01 through 4.06(1), 4.07, and 4.08 of this notice will apply to transfers occur- ring on or after August 6, 2015, and to transfers occurring before August 6, 2015, resulting from entity classification elec- tions made under § 301.7701–3 that are filed on or after August 6, 2015, and that are effective on or before August 6, 2015. The reporting requirements described in section 4.06(2) and (3) of this notice and the regulations described in section 5 of this notice will apply to transfers and con- trolled transactions occurring on or after the date of publication of the regulations described in those sections. No inference is intended regarding the treatment of transactions described in this notice under current law, and the IRS may challenge such transactions under applica- ble Code provisions, Treasury regulations, and judicial doctrines. For example, the IRS may challenge a partnership’s ad- opted section 704(c) method (for purposes of § 1.704 –3(a)(1)) under the anti-abuse rule in § 1.704 –3(a)(10). SECTION 7. REQUEST FOR COMMENTS AND CONTACT INFORMATION The Treasury Department and the IRS request comments on the regulations de- scribed in section 4.06 of this notice (con- cerning reporting requirements). Specifi- cally, comments are requested on whether the regulations should provide rules sim- ilar to those in the recently finalized reg- August 24, 2015Bulletin No. 2015–34 216 ulations under sections 367(a) and 6038B regarding failures to file gain recognition agreements or to satisfy other reporting obligations, including the standards for re- lief therein. See T.D. 9704, 2014 –50 I.R.B. 922. Comments also are requested on whether an Acceleration Event should exclude a distribution of Section 721(c) Property to an unrelated foreign partner beyond the seven-year limitation of sec- tion 704(c)(1)(B). Finally, comments are also requested regarding the regulations described in section 5 of this notice that will provide specified valuation methods and periodic adjustment rules for con- trolled transactions involving partnerships based on § 1.482–7(g) and (i)(6), and the extent to which the documentation re- quirementsdescribedin§1.6662– 6(d)(2)(iii) should be expanded to include specific requirements for transactions in- volving partnerships. Written comments may be submitted to the Internal Revenue Service, CC:PA: LPD (Notice 2015–54), Room 5207, P.O. Box 7604, Ben Franklin Station, Wash- ington, D.C. 20044. Comments also may be hand-delivered Monday through Friday between the hours of 8:00 a.m. to 4:00 p.m. to the Courier’s Desk, Internal Rev- enue Service, 1111 Constitution Avenue, NW, Washington, DC. Attn: CC:PA:LP- D:PR (Notice 2015–54). Comments also may be submitted electronically to notice. comments@irscounsel.treas.gov.Please include “Notice 2015–54” in the subject line of any electronic submission. Com- ments will be available for public inspec- tion and copying. The principal authors of this notice are Ryan A. Bowen and Ken- neth A. Jeruchim of the Office of Associ- ate Chief Counsel (International). How- ever, other personnel from the Treasury Department and the IRS also participated in its development. For further informa- tion regarding this notice contact Mr. Bo- wen (section 4) at (202) 317-6937 or Mr. Jeruchim (section 5) at (202) 317-6939 (not a toll-free number). Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates Notice 2015–55 This notice provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used un- der § 417(e)(3), and the 24-month average segment rates under § 430(h)(2) of the Internal Revenue Code. In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30- year Treasury weighted average rate un- der § 431(c)(6)(E)(ii)(I). YIELD CURVE AND SEGMENT RATES Generally, except for certain plans under sections 104 and 105 of the Pension Protec- tion Act of 2006 and CSEC plans under § 414(y), § 430 of the Code specifies the minimum funding requirements that apply to single-employer plans pursuant to § 412. Section 430(h)(2) specifies the interest rates that must be used to determine a plan’s target normal cost and funding target. Under this provision, present value is generally de- termined using three 24-month average in- terest rates (“segment rates”), each of which applies to cash flows during specified periods. To the extent provided under § 430(h)(2)(C)(iv), these segment rates are adjusted by the applicable percentage of the 25-year average segment rates for the period ending September 30 of the year preceding the calendar year in which the plan year begins. 1 However, an election may be made under § 430(h)(2)(D)(ii) to use the monthly yield curve in place of the segment rates. Notice 2007– 81, 2007– 44 I.R.B. 899, provides guidelines for determining the monthly corporate bond yield curve, and the 24-month average corporate bond seg- ment rates used to compute the target nor- mal cost and the funding target. Consis- tent with the methodology specified in Notice 2007– 81, the monthly corporate bond yield curve derived from July 2015 data is in Table I at the end of this notice. The spot first, second, and third segment rates for the month of July 2015 are, re- spectively, 1.63, 4.14, and 5.13. The 24-month average segment rates determinedunder§430(h)(2)(C)(i) through (iii) must be adjusted pursuant to § 430(h)(2)(C)(iv) to be within the appli- cable minimum and maximum percent- ages of the corresponding 25-year average segment rates. For plan years beginning before 2018, the applicable minimum per- centage is 90% and the applicable maxi- mum percentage is 110%. The 25-year average segment rates for plan years be- ginning in 2012, 2013, 2014 and 2015 were published in Notice 2012–55, 2012–36 I.R.B. 332, Notice 2013–11, 2013–11 I.R.B. 610, Notice 2013–58, 2013– 40 I.R.B. 294, and Notice 2014 –50, 2014 – 40 I.R.B. 590, respectively. 24-MONTH AVERAGE CORPORATE BOND SEGMENT RATES The three 24-month average corporate bond segment rates applicable for August 2015 without adjustment for the 25-year average segment rate limits are as follows: Applicable Month First Segment Second Segment Third Segment August 20151.324.065.09 pc;norm Based on § 430(h)(2)(C)(iv), the 24-month averages applicable for August 2015 adjusted to be within the applicable minimum and maximum percentages of the corresponding 25-year average segment rates, are as follows: 1 Pursuant to § 433(h)(3)(A), the 3 rd segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount of the full funding limitation under § 433(c)(7)(C)). Bulletin No. 2015–34August 24, 2015 217 For Plan Years Beginning In Adjusted 24-Month Average Segment Rates, Based on the HATFA Applicable Percentage of 25-Year Average Rates Applicable Month First Segment Second Segment Third Segment 2014August20154.996.326.99 2015August20154.726.116.81 30-YEAR TREASURY SECURITIES INTEREST RATES Generally for plan years beginning af- ter 2007, § 431 specifies the minimum funding requirements that apply to mul- tiemployer plans pursuant to § 412. Sec- tion 431(c)(6)(B) specifies a minimum amount for the full-funding limitation de- scribed in § 431(c)(6)(A), based on the plan’scurrentliability.Section 431(c)(6)(E)(ii)(I) provides that the inter- est rate used to calculate current liability for this purpose must be no more than 5 percent above and no more than 10 per- cent below the weighted average of the rates of interest on 30-year Treasury se- curities during the four-year period ending on the last day before the beginning of the plan year. Notice 88 –73, 1988 –2 C.B. 383, provides guidelines for determining the weighted average interest rate. The rate of interest on 30-year Treasury secu- rities for July 2015 is 3.07 percent. The Service determined this rate as the aver- age of the daily determinations of yield on the 30-year Treasury bond maturing in May 2045. For plan years beginning in the month shown below, the weighted aver- age of the rates of interest on 30-year Treasury securities and the permissible range of rate used to calculate current liability are as follows: For Plan Years Beginning in 30-Year Treasury Weighted Average Permissible Range MonthYear90%to105% August20153.172.853.33 MINIMUM PRESENT VALUE SEGMENT RATES In general, the applicable interest rates under § 417(e)(3)(D) are segment rates computed without regard to a 24-month average. Notice 2007– 81 provides guide- lines for determining the minimum pres- ent value segment rates. Pursuant to that notice, the minimum present value seg- ment rates determined for July 2015 are as follows: First Segment Second Segment Third Segment 1.634.145.13 DRAFTING INFORMATION The principal author of this notice is Tom Morgan of the Office of the Associ- ate Chief Counsel (Tax Exempt and Gov- ernment Entities). However, other person- nel from the IRS participated in the development of this guidance. For further information regarding this notice, contact Mr. Morgan at 202-317-8719 or Tony Montanaro at 202-317-8698 (not a toll- free number). August 24, 2015Bulletin No. 2015–34 218 Table I Monthly Yield Curve for July 2015 Derived from July 2015 Data MaturityYieldMaturityYieldMaturityYieldMaturityYieldMaturityYield 0.50.4820.54.8440.55.1760.55.2880.55.34 1.00.8021.04.8641.05.1761.05.2881.05.34 1.51.1021.54.8741.55.1761.55.2881.55.34 2.01.3722.04.8942.05.1862.05.2882.05.34 2.51.6122.54.9042.55.1862.55.2982.55.34 3.01.8223.04.9143.05.1963.05.2983.05.34 3.52.0123.54.9243.55.1963.55.2983.55.34 4.02.1924.04.9344.05.1964.05.2984.05.34 4.52.3724.54.9444.55.2064.55.2984.55.34 5.02.5425.04.9645.05.2065.05.2985.05.35 5.52.7125.54.9745.55.2065.55.3085.55.35 6.02.8726.04.9846.05.2166.05.3086.05.35 6.53.0326.54.9846.55.2166.55.3086.55.35 7.03.1827.04.9947.05.2167.05.3087.05.35 7.53.3227.55.0047.55.2267.55.3087.55.35 8.03.4628.05.0148.05.2268.05.3088.05.35 8.53.5928.55.0248.55.2268.55.3188.55.35 9.03.7129.05.0349.05.2269.05.3189.05.35 9.53.8229.55.0449.55.2369.55.3189.55.35 10.03.9330.05.0450.05.2370.05.3190.05.35 10.54.0230.55.0550.55.2370.55.3190.55.36 11.04.1131.05.0651.05.2471.05.3191.05.36 11.54.1931.55.0751.55.2471.55.3191.55.36 12.04.2732.05.0752.05.2472.05.3292.05.36 12.54.3332.55.0852.55.2472.55.3292.55.36 13.04.3933.05.0953.05.2573.05.3293.05.36 13.54.4533.55.0953.55.2573.55.3293.55.36 14.04.5034.05.1054.05.2574.05.3294.05.36 14.54.5434.55.1154.55.2574.55.3294.55.36 15.04.5835.05.1155.05.2675.05.3295.05.36 15.54.6235.55.1255.55.2675.55.3295.55.36 16.04.6536.05.1256.05.2676.05.3396.05.36 16.54.6836.55.1356.55.2676.55.3396.55.36 17.04.7137.05.1357.05.2677.05.3397.05.37 17.54.7337.55.1457.55.2777.55.3397.55.37 18.04.7538.05.1458.05.2778.05.3398.05.37 18.54.7738.55.1558.55.2778.55.3398.55.37 19.04.7939.05.1559.05.2779.05.3399.05.37 19.54.8139.55.1659.55.2879.55.3399.55.37 20.04.8340.05.1660.05.2880.05.34100.05.37 Bulletin No. 2015–34August 24, 2015 219 Part IV. Items of General Interest Deletions From Cumulative List of Organizations, Contributions to Which are Deductible Under Section 170 of the Code Announcement 2015–21 The Internal Revenue Service has re- voked its determination that the organiza- tions listed below qualify as organizations described in sections 501(c)(3) and 170(c)(2) of the Internal Revenue Code of 1986. Generally, the IRS will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the IRS is not pre- cluded from disallowing a deduction for any contributions made after an organiza- tion ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judg- ment under section 7428 and if the con- tributor (1) had knowledge of the revoca- tion 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 omis- sions of the organization that brought about this revocation. If on the other hand a suit for declara- tory judgment has been timely filed, con- tributions from individuals and organiza- tions described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on August 24, 2015 and would end on the date the court first determines the organization is not de- scribed in section 170(c)(2) as more par- ticularly set for in section 7428(c)(1). For individual contributors, the maximum de- duction protected is $1,000, with a hus- band and wife treated as one contributor. This benefit is not extended to any indi- vidual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation. NAME OF ORGANIZATIONEffective Date of RevocationLOCATION Foundation for Harmony and HappinessFebruary 1, 1999Santa Barbara, CA Kids Against Drugs of WV, Inc.January 1, 2011Martinsburg, WV Harbor Rose LodgeJanuary 1, 2012San Pedro, CA Somerset Home SchoolMarch 1, 2011Silverton, OR Summit FoundationSeptember 14, 2009Grand Rapids, MI Disabled Veterans Services, Inc.January 1, 2011Las Vegas, NV August 24, 2015Bulletin No. 2015–34 220 Definition of Terms Revenue rulings and revenue procedures (hereinafter referred to as “rulings”) that have an effect on previous rulings use the following defined terms to describe the effect: Amplifieddescribes a situation where no change is being made in a prior pub- lished position, but the prior position is being extended to apply to a variation of the fact situation set forth therein. Thus, if an earlier ruling held that a principle ap- plied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is amplified. (Compare with modified, below). Clarifiedis used in those instances where the language in a prior ruling is being made clear because the language has caused, or may cause, some confu- sion. It is not used where a position in a prior ruling is being changed. Distinguisheddescribes a situation where a ruling mentions a previously pub- lished ruling and points out an essential difference between them. Modifiedis used where the substance of a previously published position is being changed. Thus, if a prior ruling held that a principle applied to A but not to B, and the new ruling holds that it applies to both A and B, the prior ruling is modified because it corrects a published position. (Compare with amplified andclarified, above). Obsoleteddescribes a previously pub- lished ruling that is not considered deter- minative with respect to future transac- tions. This term is most commonly used in a ruling that lists previously published rul- ings that are obsoleted because of changes in laws or regulations. A ruling may also be obsoleted because the substance has been included in regulations subsequently adopted. Revokeddescribes situations where the position in the previously published ruling is not correct and the correct position is being stated in a new ruling. Supersededdescribes a situation where the new ruling does nothing more than restate the substance and situation of a previously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same position published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single ruling a series of situations, names, etc., that were previously published over a pe- riod of time in separate rulings. If the new ruling does more than restate the sub- stance of a prior ruling, a combination of terms is used. For example, modified and supersededdescribes a situation where the substance of a previously published ruling is being changed in part and is continued without change in part and it is desired to restate the valid portion of the previously published ruling in a new ruling that is self contained. In this case, the previously published ruling is first modified and then, as modified, is superseded. Supplementedis used in situations in which a list, such as a list of the names of countries, is published in a ruling and that list is expanded by adding further names in subsequent rulings. After the original ruling has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the additions, and supersedes all prior rul- ings in the series. Suspendedis used in rare situations to show that the previous published rulings will not be applied pending some future action such as the issuance of new or amended regulations, the outcome of cases in litigation, or the outcome of a Service study. Abbreviations The following abbreviations in current use and formerly used will appear in ma- terial published in the Bulletin. A—Individual. Acq.—Acquiescence. B—Individual. BE—Beneficiary. BK—Bank. B.T.A.—Board of Tax Appeals. C—Individual. C.B.—Cumulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Cooperative. Ct.D.—Court Decision. CY—County. D—Decedent. DC—Dummy Corporation. DE—Donee. Del. Order—Delegation Order. DISC—Domestic International Sales Corporation. DR—Donor. E—Estate. EE—Employee. E.O.—Executive Order. ER—Employer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduciary. FC—Foreign Country. FICA—Federal Insurance Contributions Act. FISC—Foreign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Federal Unemployment Tax Act. FX—Foreign corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grantee. GP—General Partner. GR—Grantor. IC—Insurance Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—Nonacquiescence. O—Organization. P—Parent Corporation. PHC—Personal Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Partnership. PTE —Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Real Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsidiary. S.P.R.—Statement of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Transferee. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpayer. TR—Trust. TT—Trustee. U.S.C.—United States Code. X—Corporation. Y—Corporation. Z—Corporation. Bulletin No. 2015–34August 24, 2015 i Numerical Finding List 1 Bulletins 2015–27 through 2015–34 Announcements: 2015-17, 2015-28 I.R.B.67 2015-18, 2015-33 I.R.B.198 2015-19, 2015-32 I.R.B.157 2015-21, 2015-34 I.R.B.220 Notices: 2015-43, 2015-29 I.R.B.73 2015-46, 2015-28 I.R.B.64 2015-47, 2015-30 I.R.B.76 2015-48, 2015-30 I.R.B.77 2015-49, 2015-30 I.R.B.79 2015-50, 2015-30 I.R.B.81 2015-51, 2015-31 I.R.B.133 2015-53, 2015-33 I.R.B.190 2015-54, 2015-34 I.R.B.210 2015-55, 2015-34 I.R.B.217 Proposed Regulations: REG-109370-10, 2015-33 I.R.B.198 REG-115452-14, 2015-32 I.R.B.158 REG-138526-14, 2015-28 I.R.B.67 REG-102648-15, 2015-31 I.R.B.134 REG-102837-15, 2015-27 I.R.B.43 Revenue Procedures: 2015-34, 2015-27 I.R.B.4 2015-36, 2015-27 I.R.B.20 2015-39, 2015-33 I.R.B.195 Revenue Rulings: 2015-15, 2015-27 I.R.B.1 2015-16, 2015-31 I.R.B.130 2015-18, 2015-34 I.R.B.209 Treasury Decisions: 9723, 2015-31 I.R.B.84 9726, 2015-31 I.R.B.98 9727, 2015-32 I.R.B.154 9728, 2015-33 I.R.B.169 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2015– 01 through 2015–26 is in Internal Revenue Bulletin 2015–26, dated June 29, 2015. August 24, 2015Bulletin No. 2015–34 ii Finding List of Current Actions on Previously Published Items 1 Bulletins 2015–27 through 2015–34 Notices: 2014-4 Modified by Notice 2015-51, 2015-31 I.R.B.133 Revenue Procedures: 2011-49 Modified by Rev. Proc. 2015-36, 2015-27 I.R.B.20 2011-49 Superseded by Rev. Proc. 2015-36, 2015-27 I.R.B.20 2015-14 Modified by Rev. Proc. 2015-39, 2015-33 I.R.B.195 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2015– 01 through 2015–26 is in Internal Revenue Bulletin 2015–26, dated June 29, 2015. Bulletin No. 2015–34August 24, 2015 iii INTERNAL REVENUE BULLETIN The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue Bulletins are available atwww.irs.gov/irb/. We Welcome Comments About the Internal Revenue Bulletin If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page (www.irs.gov) or write to the Internal Revenue Service, Publishing Division, IRB Publishing Program Desk, 1111 Constitution Ave. NW, IR-6230 Washington, DC 20224. Internal Revenue Service Washington, DC 20224 Official Business Penalty for Private Use, $300
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