SECTION 6. CLOSING AGREEMENT

AMOUNT

.01 In general . Except as provided in section 6.04 of this revenue procedure, the closing agreement amount is equal to an estimate of the federal income tax liability that is not required to be paid with respect to interest accruing on the nonqualified bonds commencing on the date of the subsequent action, as provided in this section. The closing agreement amount is computed as follows:

(1) Step 1. Determine the amount of interest accruing on the nonqualified bonds in each calendar year, commenc

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ing on the date on which the subsequent action occurs and ending on the next redemption date;

(2) Step 2. Multiply the amount determined in section 6.01(1) of this revenue procedure for each calendar year by 0.29;

(3) Step 3. Determine the present value of each amount determined in section 6.01(2) of this revenue procedure for each calendar year in accordance with section 6.02 of this revenue procedure by assuming it is paid on April 15 in the following calendar year;

(4) Step 4. Determine the sum of the present value amounts determined in section 6.01(3) of this revenue procedure for all calendar years.

.02 Computation of present value. Present value must be computed as of the date on which the payment is sent to the Service.

(1) In the case of a closing agreement providing that the interest on bonds will not be includible in gross income of bondholders, the discount rate used to determine present value is the taxable applicable federal rate (semiannual compounding), determined as of the date of the subsequent action, for a term equal to the period between the date of the subsequent action and the next redemption date.

(2) In the case of a closing agreement providing that the interest on bonds will not be treated as an item of tax preference for purposes of the alternative minimum tax, the discount rate used to determine present value is the taxable applicable federal rate (semiannual compounding), determined as of the date of the subsequent action, for a term equal to the period between the date of the subsequent action and the date specified in the closing agreement.

.03 Nonqualified bonds has the same meaning as in §§ 1.141–12(j) or 1.142– 2(e), as applicable. Nonqualified bonds that continue to be treated as tax-exempt because of a permissible remedial action under §§ 1.141–12(d), (e), or (f), 1.142– 2(c), 1.144–2, 1.145–2, or 1.147–2, as applicable, will not be treated as nonqualified bonds for purposes of this closing agreement program.

.04 Amount for closing agreement on item of tax preference. In the case of a closing agreement providing that the interest on bonds will not be treated as an item of tax preference for purposes of the alternative minimum tax, the closing agreement amount is equal to an estimate of the federal income tax liability that is not required to be paid

because of this treatment commencing on the date of the subsequent action, as provided in this section. The closing agreement amount is computed as follows:

(1) Step 1. Determine the principal amount of nonqualified bonds that will be outstanding on January 1 of each calendar year commencing the calendar year in which the subsequent action occurs and ending the first calendar year in which the nonqualified bonds will no longer be outstanding;

(2) Step 2. Multiply the amount determined in section 6.04(1) of this revenue procedure for each calendar year by .0014;

(3) Step 3. Determine the present value of each amount determined in section 6.04(2) of this revenue procedure for each calendar year in accordance with section 6.02 of this revenue procedure by assuming it is paid on April 15 in the following calendar year;

(4) Step 4. Determine the sum of the present value amounts determined in section 6.04(3) of this revenue procedure for all calendar years.