Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 382.—Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change

The adjusted federal long-term rate is set forth for the month of December 1997. Rul. 97–50, page 5.

Section 412.—Minimum Funding Standards

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of December 1997. See Rev. Rul. 97–50, page 5.

Section 467.—Certain Payments for the Use of Property or Services

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of December 1997. See Rev. Rul. 97–50, page 5.

Section 468.—Special Rules for Mining and Solid Waste Reclamation and Closing Costs

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of December 1997. See Rev. Rul. 97–50, page 5.

Section 482.—Allocation of Income and Deductions Among Taxpayers

Federal short-term, mid-term, and long-term rates are set forth for the month of December 1997. See Rev. Rul. 97–50, page 5.

Section 483.—Interest on Certain Deferred Payments

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of December 1997. See Rev. Rul. 97–50, page 5.

Section 642.—Special Rules for Credits and Deductions

Federal short-term, mid-term, and long-term rates are set forth for the month of December 1997. See Rev. Rul. 97–50, page 5.

Section 807.—Rules for Certain Reserves

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of December 1997. See Rev. Rul. 97–50, page 5.

Section 38.—General Business Credit

Loan to community development corporation is eligible for general busi- ness credit. The full amount of the loan made to a community development corporation (CDC) is a “transfer of cash” to the CDC for purposes of the definition of a “qualified CDC contribution.”

Rev. Rul. 97–51

ISSUE

What amount of a loan may a community development corporation (CDC) treat as a “transfer of cash” for purposes of the definition of a “qualified CDC contribution”?

FACTS

Bank wishes to lend money to X, a CDC, that X will use to provide employment and business opportunities for lowincome residents in its operational area. In June 1994, the Secretary of Housing and Urban Development (HUD) designated X a “selected community development corporation” under § 13311 of the Omnibus Revenue Reconciliation Act of 1993, 1993–3 C.B. 144 (the Act). Bank and X have negotiated an agreement that Bank will lend X $2,000,000 on December 31, 1997, for 10 years at a stated rate of interest. Under the terms of the loan, X does not have to repay the loan before the end of 10 years.

LAW AND ANALYSIS

Section 13311 of the Act provides a business credit under § 38 of the Internal Revenue Code for a qualified CDC contribution made by a taxpayer to a CDC. A qualified CDC contribution is any transfer of cash (1) made to a CDC during the 5year period beginning June 30, 1994, (2) that is available for use by the CDC for at least 10 years, (3) that the CDC uses to provide employment and business opportunities for low-income individuals who are residents of the operational area of the CDC, and (4) that the CDC designates as a qualified CDC contribution. The Secretary of HUD selects the 20 qualifying CDCs and determines whether those

CDCs spend the money received appropriately.

A contributing taxpayer may claim an annual credit during a 10-year period equal to 5 percent of its contribution that is designated by the CDC as a qualified CDC contribution. The aggregate amount of contributions that a CDC can designate as eligible for the credit may not exceed $2,000,000. The credit period begins with the taxable year during which the taxpayer made the qualified CDC contribution.

A qualified contribution to a CDC need not be in the form of an outright gift. A qualified contribution may also be made in the form of a loan, the principal of which is to be returned to the lender taxpayer after the 10-year period. H.R. Rep. No. 2264, 103d Cong., 1st Sess. 801 n.196 (1993), 1993–3 C.B. 377.

In the present case, Bank is lending $2,000,000 to X for 10 years. To the extent of the amount of the loan designated by X as a qualified CDC contribution, Bank is eligible to claim the CDC credit.

HOLDING

The full amount of the loan made to a CDC is a “transfer of cash” to the CDC for purposes of the definition of a “qualified CDC contribution.”

DRAFTING INFORMATION

The principal author of this revenue ruling is Paul Handleman of the Office of the Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling contact Mr. Handleman on (202) 622-3040 (not a toll free number).

Section 42.—Low-Income Housing Credit

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of December 1997. See Rev. Rul. 97–50, page 5.

Section 280G.—Golden Parachute Payments

Federal short-term, mid-term, and long-term rates are set forth for the month of December 1997. See Rev. Rul. 97–50, page 5.

December 8, 1997 4 1997–49 I.R.B.

The principal author of this revenue ruling is Valerie Mark of the Office of the Associate Chief Counsel (International). For further information regarding this revenue ruling, contact Ms. Mark at (202) 622-3840 (not a toll-free call).

Section 1274.—Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property

(Also Sections 42, 280G, 382, 412, 467, 468, 482, 483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates; adjusted federal long-term rate, and the long-term exempt rate. For purposes of sections 1274, 1288, 382, and other sections of the Code, tables set forth the rates for December 1997.

Rev. Rul. 97–50

This revenue ruling provides various prescribed rates for federal income tax purposes for December 1997 (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)(2) for buildings placed in service during the current month. 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 the 1998 interest rate for sections 846 and 807.

Section 846.—Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of December 1997. See Rev. Rul. 97–50, on this page.

Section 954.—Foreign Base Company Income.

26 CFR 1.954-3: Foreign base company sales income. (Also sections 7805, 301.7805–1.)

This ruling revokes Rev. Rul. 75–7, 1975–1 C.B. 244, and holds that the activities of a contract manufacturer cannot be attributed to a controlled foreign corporation for purposes of either section 954(d)(1) or section 954(d)(2) of the Code to determine whether the income of a controlled foreign corporation is foreign base company sales income. The ruling, however, provides 7805(b) relief for taxable years of a controlled foreign corporation beginning before December 8, 1997.

Rev. Rul. 97–48

In Rev. Rul. 75–7, 1975–1 C.B. 244, a controlled foreign corporation entered into an arm’s length contract with an unrelated contract manufacturer located outside of its country of incorporation. Under the contract, the unrelated contract manufacturer agreed to perform manufacturing services for the controlled foreign corporation. Under the facts described in Rev. Rul. 75–7, the processing activities of the unrelated contract manufacturer were considered to be performed by the controlled foreign corporation outside its country of incorporation through a branch or similar establishment for purposes of section 954(d)(1) and (2) of the Internal Revenue Code.

In Ashland Oil Co. v. Commissioner, 95 T.C. 348 (1990), the Tax Court held that a manufacturing corporation unrelated to a controlled foreign corporation cannot be a branch or similar establishment of the controlled foreign corporation. See also, Vetco, Inc. v. Com- missioner, 95 T.C. 579 (1990) (wholly

owned subsidiary of a controlled foreign corporation cannot be a branch or similar establishment of the controlled foreign corporation).

The Service will follow the Ashland and Vetc - opinions. The activities of a contract manufacturer cannot be attributed to a controlled foreign corporation for purposes of either section 954(d)(1) or section 954(d)(2) of the Code to determine whether the income of a controlled foreign corporation is foreign base company sales income. Accordingly, Rev. Rul. 75–7 is revoked.

Pursuant to the authority of section 7805(b), for taxable years of a controlled foreign corporation beginning before December 8, 1997, the principles of Rev. Rul. 75–7 may be relied upon to attribute the activities of a contract manufacturer to the controlled foreign corporation. A taxpayer that relies on Rev. Rul. 75–7 to attribute the activities of a contract manufacturer to a controlled foreign corporation for purposes of section 954(d)(1), however, must treat the contract manufacturing activities as being performed through a branch or similar establishment of the controlled foreign corporation for purposes of section 954(d)(2). The Service has never been of the view that Rev. Rul. 75–7 allows the activities of a contract manufacturer performed outside the controlled foreign corporation’s country of incorporation to be attributed to the controlled foreign corporation without treating those activities as performed through a branch or similar establishment of the controlled foreign corporation.

With the revocation of Rev. Rul. 75–7, the Service’s position on the treatment of contract manufacturing for purposes section 954(d) is harmonized with its position on the treatment of contract manufacturing for purposes of section 863(b) (see § 1.863–3(c) of the Income Tax Regulations (production activity limited to activity conducted directly by taxpayer)).

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 75–7, 1975–1 C.B. 244, is revoked effective December 8, 1997.

1997–49 I.R.B. 5 December 8, 1997

REV. RUL. 97-50 TABLE 1 Applicable Federal Rates (AFR) for December 1997

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-Term

AFR 5.68% 5.60% 5.56% 5.54% 110% AFR 6.25% 6.16% 6.11% 6.08% 120% AFR 6.83% 6.72% 6.66% 6.63% 130% AFR 7.41% 7.28% 7.21% 7.17%

Mid-Term

AFR 6.02% 5.93% 5.89% 5.86% 110% AFR 6.63% 6.52% 6.47% 6.43% 120% AFR 7.25% 7.12% 7.06% 7.02% 130% AFR 7.86% 7.71% 7.64% 7.59% 150% AFR 9.10% 8.90% 8.80% 8.74% 175% AFR 10.65% 10.38% 10.25% 10.16%

Long-Term

AFR 6.31% 6.21% 6.16% 6.13% 110% AFR 6.95% 6.83% 6.77% 6.73% 120% AFR 7.59% 7.45% 7.38% 7.34% 130% AFR 8.23% 8.07% 7.99% 7.94%

REV. RUL. 97-50 TABLE 2 Adjusted AFR for December 1997

Period for Compounding

Annual Semiannual Quarterly Monthly Short-term adjusted AFR 3.92% 3.88% 3.86% 3.85% Mid-term adjusted AFR 4.37% 4.32% 4.30% 4.28% Long-term adjusted AFR 5.23% 5.16% 5.13% 5.11%

REV. RUL. 97-50 TABLE 3 Rates Under Section 382 for December 1997 Adjusted federal long-term rate for the current month 5.23%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long-term rates for the current month and the prior two months.) 5.27%

REV. RUL. 97-50 TABLE 4 Appropriate Percentages Under Section 42(b)(2) for December 1997 Appropriate percentage for the 70% present value low-income housing credit 8.45%

Appropriate percentage for the 30% present value low-income housing credit 3.62%

December 8, 1997 6 1997–49 I.R.B.

REV. RUL. 97-50 TABLE 5 Rate Under Section 7520 for December 1997

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest 7.2%

REV. RUL. 97-50 TABLE 6 Rate under Sections 846 and 807 Applicable rate of interest for 1998 for purposes of sections 846 and 807 6.31%

ers located in Grand Forks County, North Dakota, and Polk County, Minnesota. See Notice 97–62, page 8.

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of December 1997. See Rev. Rul. 97–50, page 5.

Section 7872.—Treatment of Loans with Below-Market Interest Rates

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of December 1997. See Rev. Rul. 97–50, page 5.

Section 1288.—Treatment of Original Issue Discount on Tax-Exempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of December 1997. See Rev. Rul. 97–50, page 5.

Section 6081.—Extension of Time for Filing Returns

26 CFR 301.6081–1: Extension of time for filing re- turns.

Up to a 6-month extension of time to file federal tax returns is provided to taxpayers located in Grand Forks County, North Dakota, and Polk County, Minnesota. See Notice 97–62, page 8.

Section 6161.—Extension of Time for Paying Tax

26 CFR 1.6161–1: Extension of time for paying tax or deficiency.

Up to a 6-month extension of time to pay federal tax is provided to taxpayers located in Grand Forks County, North Dakota, and Polk County, Minnesota. See Notice 97–62, page 8.

Section 6601.—Interest on Underpayment, Nonpayment, or Extension of Time for Payment, of Tax

26 CFR 301.6601–1: Interest on underpayments.

Interest is abated with respect to federal individual income tax returns for certain taxpayers located in Grand Forks County, North Dakota, and Polk County, Minnesota. See Notice 97–62, page 8.

Section 7508.—Time for Performing Certain Acts Postponed by Reason of Service in Combat Zone

The time for performing certain acts under the Internal Revenue laws is postponed for certain taxpay

1997–49 I.R.B. 7 December 8, 1997