Part I. Rulings — Internal Revenue Bulletin 2001-50

and one-month arrangements, respectively ( i.e ., arrangements with terms of use based on months that exceed 30 days). This Treasury decision adopts this suggested modification by amending § 1.141–3(c)(3), (d)(3) and (f) to change all references to 180 days, 90 days, and 30 days to 200 days, 100 days, and 50 days, respectively.

Effective Dates

The changes made by this Treasury decision apply to any bond sold on or after November 20, 2001. The changes made by this Treasury decision may be applied by issuers to any bond outstanding on November 20, 2001, to which § 1.141–3 applies.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) and (d) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and, because no notice of proposed rulemaking is required, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, this final regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal authors of these final regulations are Bruce M. Serchuk and Michael P. Brewer, Office of Chief Counsel (TE/GE), IRS. However, other personnel from the IRS and Treasury Department participated in their development.

- - - -

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

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 2001. See Rev. Rul. 2001–58, page 570.

Section 141.—Private Activity Bond; Qualified Bond

26 CFR 1.141–3: Definition of private business use.

T.D. 8967

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1

Definition of Private Business Use

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document amends the final regulations on the definition of private business use applicable to taxexempt bonds issued by State and local governments. The amendments provide that certain arrangements do not result in private business use if the term of the use does not exceed 50, 100 or 200 days, as applicable.

DATES: Effective Date: These regulations are effective November 20, 2001.

Applicability Date: For dates of applicability, see § 1.141–15.

FOR FURTHER INFORMATION CONTACT: Michael P. Brewer at (202) 622–3980 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

Section 103(a) of the Internal Revenue Code (Code) provides that, generally, interest on any State or local bond is not included in gross income. However, this

exclusion does not apply to any private activity bond that is not a qualified bond.

Under section 141, a bond is a private activity bond if it is issued as part of an issue that meets either the private business use test and the private security or payment test, or the private loan financing test.

The private business use test is met if more than 10 percent of the proceeds of an issue are to be used for any private business use. Section 141(b)(6)(A) defines the term private business use as use (directly or indirectly) in a trade or business carried on by any person other than a governmental unit. For this purpose, use as a member of the general public is not taken into account.

Section 1.141–3 provides guidance regarding the private business use test. Generally, the private business use test is met only if a nongovernmental person has special legal entitlements to use the financed property under an arrangement with the issuer. The existing regulations provide the following three special rules for use by nongovernmental persons under short-term arrangements:

Section 1.141–3(c)(3) states that an arrangement is not treated as general public use if the term of the use under the arrangement, including all renewal options, is greater than 180 days.
Section 1.141–3(d)(3)(i) provides that certain arrangements are not private business use if the term of the use under the arrangement, including all renewal options, is not longer than 90 days.
Section 1.141–3(d)(3)(ii) provides that certain arrangements are not private business use if the term of the use under the arrangement, including all renewal options, is not longer than 30 days.

Section 1.141–3(f) contains examples that illustrate these special rules.

Explanation of Provisions

Comments have been received requesting that the regulations provide for additional flexibility in structuring shortterm arrangements with nongovernmental persons. For example, commentators have requested that the 180–day, 90–day, and 30–day rules of § 1.141–3 be changed to accommodate six-month, three-month,

2001–50 I.R.B 568 December 10, 2001

Part 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 - -

§ 1.141–3 [Amended]

Par. 2. In the list below, for each paragraph indicated in the left column, remove the words indicated in the middle

column from wherever they appear in the paragraph, and add the words indicated in the right column:

Paragraph Remove Add 1.141–3(c)(3), first sentence 180 days 200 days of introductory text

1.141–3(d)(3)(i)(A) 90 days 100 days

1.141–3(d)(3)(ii)(A) 30 days 50 days

1.141–3(f) Example 10, penultimate sentence

1.141–3(f) Example 12, third sentence (twice)

1.141–3(f) Example 13, fifth sentence

1.141–3(f) Example 15, fourth sentence

1.141–3(f) Example 16(i), last sentence

180 days 200 days

90 days 100 days

30 days 50 days

Par. 3. Section 1.141–15 is amended as follows:

Paragraph (b) is redesignated (b)(1).
A paragraph heading for newly designated paragraph (b)(1) is added.
Paragraph (b)(2) is added. The additions read as follows:

§ 1.141–15 Effective dates.

(b) Effective Dates —(1) In general .

- (2) Certain short-term arrangements . The provisions of § 1.141–3 that refer to arrangements for 200 days, 100 days, or 50 days apply to any bond sold on or after November 20, 2001, and may be applied to any bond outstanding on November 20, 2001, to which § 1.141–3 applies.

David A. Mader, Assistant Deputy Commissioner

of Internal Revenue.

Approved November 14, 2001.

Mark Weinberger, Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on November 19, 2001, 8:45 a.m., and published in the issue of the Federal Register for November 20, 2001, 66 F.R. 58061)

Section 280G.—Golden Parachute Payments

Federal short-term, mid-term, and long-term rates are set forth for the month of December 2001. See Rev. Rul. 2001–58, page 570.

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

The adjusted applicable federal long-term rate is set forth for the month of December 2001. See Rev. Rul. 2001–58, page 570.

Section 412.—Minimum Funding Standards

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of December 2001. See Rev. Rul. 2001–58, page 570.

December 10, 2001 569 2001–50 I.R.B.

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 2001. See Rev. Rul. 2001–58, on this page.

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 2001. See Rev. Rul. 2001–58, on this page.

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 2001. See Rev. Rul. 2001–58, on this page.

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 2001. See Rev. Rul. 2001–58, on this page.

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 2001. See Rev. Rul. 2001–58, on this page.

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 2001. See Rev. Rul. 2001–58, on this page.

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 2001. See Rev. Rul. 2001–58, on this page.

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 382, 1274, 1288, and other sections of the Code, tables set forth the rates for December 2001.

Rev. Rul. 2001–58

This revenue ruling provides various prescribed rates for federal income tax purposes for December 2001 (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 2002 interest rate for purposes of sections 846 and 807.

2001–50 I.R.B 570 December 10, 2001

REV. RUL. 2001–58 TABLE 1

Applicable Federal Rates (AFR) for December 2001

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-Term

AFR 2.48% 2.46% 2.45% 2.45% 110% AFR 2.73% 2.71% 2.70% 2.69% 120% AFR 2.97% 2.95% 2.94% 2.93% 130% AFR 3.23% 3.20% 3.19% 3.18%

Mid-Term

AFR 3.97% 3.93% 3.91% 3.90% 110% AFR 4.37% 4.32% 4.30% 4.28% 120% AFR 4.78% 4.72% 4.69% 4.67% 130% AFR 5.18% 5.11% 5.08% 5.06% 150% AFR 5.99% 5.90% 5.86% 5.83% 175% AFR 7.00% 6.88% 6.82% 6.78%

Long-Term

AFR 5.05% 4.99% 4.96% 4.94% 110% AFR 5.57% 5.49% 5.45% 5.43% 120% AFR 6.08% 5.99% 5.95% 5.92% 130% AFR 6.60% 6.49% 6.44% 6.40%

REV. RUL. 2001–58 TABLE 2

Adjusted AFR for December 2001

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjusted AFR 2.30% 2.29% 2.28% 2.28%

Mid-term adjusted AFR 3.27% 3.24% 3.23% 3.22%

Long-term adjusted AFR 4.65% 4.60% 4.57% 4.56%

December 10, 2001 571 2001–50 I.R.B.

REV. RUL. 2001–58 TABLE 3

Rates Under Section 382 for December 2001

Adjusted federal long-term rate for the current month 4.65%

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.) 4.74%

REV. RUL. 2001–58 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for December 2001

Appropriate percentage for the 70% present value low-income housing credit 8.05%

Appropriate percentage for the 30% present value low-income housing credit 3.45%

REV. RUL. 2001–58 TABLE 5

Rate Under Section 7520 for December 2001

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 4.8%

REV. RUL. 2001–58 TABLE 6

Rate under Sections 846 and 807

Applicable rate of interest for 2002 for purposes of sections 846 and 807 5.71%

2001–50 I.R.B 572 December 10, 2001

have its own EIN, then the entity must acquire an EIN and not use the TIN of the single owner.

Section 301.7701–3(a) provides that a business entity that is not classified as a corporation under § 301.7701–2(b)(1), (3), (4), (5), (6), (7), or (8) (an eligible entity) can elect its classification for federal tax purposes. An eligible entity with at least two members can elect to be classified as either an association (and thus a corporation under § 301.7701–2(b)(2)) or a partnership, and an eligible entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner.

Section 301.7701–3(f)(2) provides that an eligible entity classified as a partnership becomes a disregarded entity when the entity’s membership is reduced to one member. A disregarded entity becomes classified as a partnership when the entity’s membership is increased to more than one member.

Notice 99–6 provides that the Service generally will accept reporting and payment of employment taxes with respect to the employees of a disregarded entity if made in one of two ways: (1) calculation, reporting, and payment of all employment tax obligations with respect to employees of a disregarded entity by its owner (as though the employees of the disregarded entity are employed directly by the owner) and under the owner’s name and TIN; or (2) separate calculation, reporting, and payment of all employment tax obligations by each state law entity with respect to its employees under its own name and TIN.

In Situation 1, X ’s change in federal tax classification from a partnership to a disregarded entity is a change described in § 301.7701–3(f)(2). Thus X is required to retain its EIN under § 301.6109– 1(h)(1) if it chooses to calculate, report, and pay its employment tax obligations under its own name and EIN pursuant to Notice 99–6 upon its federal tax classification changing to a disregarded entity. For all federal tax purposes other than employment obligations or except as otherwise provided in regulations or other

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

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of December 2001. See Rev. Rul. 2001–58, page 570.

Section 6109.—Identifying Numbers

26 CFR 301.6109–1: Identifying numbers. (Also § 301.7701–3.)

Employer Identification Numbers . This ruling provides guidance on the retention of an entity’s employer identification number upon changing under § 301.7701–3 from a partnership to a disregarded entity or from a disregarded entity to a partnership.

Rev. Rul. 2001–61

ISSUES

(1) If an entity classified as a partnership becomes disregarded as an entity separate from its owner (disregarded entity) for federal tax purposes and if the disregarded entity chooses to calculate, report, and pay its employment tax obligations under its own name and employer identification number (EIN) pursuant to Notice 99–6 (1999–1 C.B. 321) does the disregarded entity retain the same EIN it used as a partnership?

(2) If an entity classified as a disregarded entity for federal tax purposes calculates, reports, and pays its employment tax obligations under its own name and EIN pursuant to Notice 99–6 and if the federal tax classification of that entity changes to a partnership, does the partnership retain the same EIN it used as a disregarded entity?

FACTS

In each of the following situations, the eligible entity (as defined in § 301.7701– 3(a) of the Procedure and Administration Regulations) does not elect under

§ 301.7701–3(c) to be treated as an association for federal tax purposes at any time.

Situation 1 . X, an eligible entity classified as a partnership, becomes a disregarded entity for federal tax purposes when the entity’s ownership is reduced to one member. (See, for example, Rev. Rul. 99–6 (1999–1 C.B. 432.) X chooses to calculate, report, and pay its employment tax obligations under its own name and EIN pursuant to Notice 99–6.

Situation 2 . Y is a disregarded entity for federal tax purposes. Pursuant to Notice 99–6, Y calculates, reports, and pays its employment tax obligations under its own name and EIN. Y becomes a partnership for federal tax purposes when the entity’s ownership expands to include more than one member. (See, for example, Rev. Rul. 99–5 (1999–1 C.B. 434.)

LAW & ANALYSIS

Section 6109(a)(1) of the Internal Revenue Code provides that any person required to make a return, statement, or other document shall include in the return, statement, or other document the identifying number as may be prescribed for securing proper identification of the person.

Section 301.6109–1(h)(1) provides that any entity that has an EIN will retain that EIN if its federal tax classification changes under § 301.7701–3.

Section 301.6109–1(h)(2)(i) provides that except as otherwise provided in regulations or other guidance, a single owner entity that is disregarded as an entity separate from its owner under § 301.7701–3 must use its owner’s taxpayer identification number (TIN) for federal tax purposes.

Section 301.6109–1(h)(2)(ii) provides that if a single owner entity’s classification changes so that it is recognized as a separate entity for federal tax purposes, and that entity had an EIN, then the entity must use that EIN and not the TIN of the single owner. If the entity did not already

December 10, 2001 573 2001–50 I.R.B.

guidance, X must use the TIN of its owner pursuant to § 301.6109–1(h)(2)(i).

In Situation 2, because Y calculates, reports, and pays its employment tax obligations under its own name and EIN prior to its federal tax classification changing from a disregarded entity to a partnership, § 301.6109–1(h)(2)(ii) requires that Y retain its EIN for use for all federal tax purposes as a partnership.

HOLDINGS

(1) If an entity classified as a partnership becomes a disregarded entity for federal tax purposes and if the disregarded entity chooses to calculate, report, and pay its employment tax obligations under its own name and EIN pursuant to Notice 99–6, the disregarded entity must retain the same EIN for employment tax purposes it used as a partnership. For all federal tax purposes other than employment obligations or except as otherwise pro

vided in regulations or other guidance, a disregarded entity must use the TIN of its owner.

(2) If an entity classified as a disregarded entity for federal tax purposes calculates, reports, and pays its employment tax obligations under its own name and EIN pursuant to Notice 99–6 and if the federal tax classification of that entity changes to a partnership, the partnership must retain the same EIN it used as a disregarded entity.

DRAFTING INFORMATION

The principal author of this revenue ruling is Craig Gerson of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Craig Gerson at (202) 622–3050 (not a toll-free call).

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of December 2001. See Rev. Rul. 2001–58, page 570.

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 2001. See Rev. Rul. 2001–58, page 570.

2001–50 I.R.B 574 December 10, 2001