SECTION 2. BACKGROUND

.01 The regulations under § 472 of the Internal Revenue Code provide special, elective pooling rules for LIFO inventory items accounted for under the IPIC method. See §§ 1.472–8(b)(4) (manufacturers and processors) and 1.472–8(c)(2) (wholesalers, retailers, jobbers and distributors) of the Income Tax Regulations. The special IPIC pooling rules provide two optional 5 percent rules for pooling miscellaneous items. Any change in pooling required or permitted as a result of one of these 5 percent rules is a change in method of accounting. The taxpayer must secure the consent of the Commissioner pursuant to § 446(e) and § 1.446–1(e) before combining or separating IPIC pools, and must combine or separate IPIC pools in accordance with the requirements of the applicable regulations. §§ 1.472–8(b)(4), 1.472–8(c)(2).

.02 A taxpayer using the IPIC method of accounting for a trade or business computes the inventory price index (IPI) for a pool using an appropriate price index for an appropriate month. § 1.472– 8(e)(3)(iii)(B)(1). A taxpayer not using the

the New York Liberty Zone. Qualified project costs also include the cost of acquisition, construction, reconstruction, and renovation of nonresidential real property (including fixed tenant improvements associated with the property) located outside the New York Liberty Zone but within The City of New York, New York, if the property is part of a project that consists of at least 100,000 square feet of usable office or other commercial space located in a single building or multiple adjacent buildings. Liberty Bonds may not be used to finance movable fixtures or equipment.

Section 1400L(d)(5) contains the following modifications to the general rule that Liberty Bonds are treated as exempt facility bonds: (1) Liberty Bonds are not subject to the private activity bond volume cap under section 146; (2) the 15-percent rehabilitation requirement in section 147(d) that applies to the acquisition of certain existing property is increased to 50-percent for Liberty Bonds; (3) Liberty Bonds are eligible for the two-year construction exception to the rebate requirement under section 148(f)(4)(C); (4) repayments of principal on financing provided by Liberty Bonds are subject to certain special rules; and (5) section 57(a)(5), which treats interest on specified private activity bonds as an item of tax preference for purposes of computing the alternative minimum tax, does not apply to Liberty Bonds.

QUESTIONS AND ANSWERS

Set forth below are questions and answers with regard to section 1400L(d).

Q–1. What types of costs are qualified project costs under section 1400L(d)(4)?

A–1. Section 1400L(d)(1) provides that Liberty Bonds are treated as exempt facility bonds. Accordingly, qualified project costs are costs that (a) are chargeable to the capital account of a facility described in section 1400L(d)(4), or (b) would be so chargeable either with a proper election by a taxpayer (for example, under section 266) or but for a proper election by a taxpayer to deduct the costs. Qualified project costs also include costs of functionally related and subordinate property within the meaning of § 1.103–8(a)(3) of the Income Tax Regulations.

Q–2. Does § 1.142–4 apply to Liberty Bonds?

A–2. Yes. Section 1.142–4 applies to exempt facility bonds. Section 1.142–4 con

tains certain requirements that generally are designed to ensure that exempt facility bonds are not issued to finance working capital expenditures. For example, § 1.142– 4(b) provides that, if an expenditure for a facility is paid before the issue date of the bonds to provide that facility, the facility is an exempt facility only if the expenditure meets the requirements of § 1.150–2 (relating to reimbursement allocations).

Q–3. How does § 1.150–2 apply to Liberty Bonds?

A–3. Section 1.150–2 applies to Liberty Bonds in the same manner as exempt facility bonds, except that all issuers of Liberty Bonds are treated as having adopted an official intent (as defined in § 1.150– 2(c)) that satisfies the requirements of § 1.150–2(e) with respect to expenditures paid after September 11, 2001, and before June 23, 2003. For expenditures paid on or after June 23, 2003, any official intent must be adopted not later than 60 days after payment of the expenditures. See § 1.150–2(d)(1).

Q–4. Do Liberty Bonds issued before January 1, 2005, to currently refund outstanding Liberty Bonds count against the $8 billion volume limitation on Liberty Bonds?

A–4. Liberty Bonds issued before January 1, 2005, to currently refund outstanding Liberty Bonds do not count against the $8 billion volume limitation to the extent that the amount of the refunding bonds does not exceed the outstanding amount of the bonds being refunded.

Q–5. May Liberty Bonds be issued after December 31, 2004, to refund outstanding Liberty Bonds?

A–5. Liberty Bonds may be issued after December 31, 2004, to refund outstanding Liberty Bonds originally issued before January 1, 2005, to the extent (a) the amount of the refunding bonds does not exceed the outstanding amount of the refunded bonds, and (b) the refunding is not an advance refunding.

Q–6. May Liberty Bonds be issued by entities that are acting on behalf of the State of New York or any political subdivision thereof?

A–6. Liberty Bonds may be issued on behalf of the State of New York or any political subdivision thereof if the issuance satisfies the requirements for determining whether a bond issued on behalf of a State or political subdivision constitutes an ob

2003–27 I.R.B. 11 July 7, 2003

quest is pending with the national office on June 18, 2003, the national office will process the application or ruling request under the procedures of Rev. Proc. 97–27, unless prior to the later of September 17, 2003, or the issuance of the letter ruling granting or denying consent to the change, the taxpayer notifies the national office that it wants to make the method change under Rev. Proc. 2002–9. If the taxpayer timely notifies the national office that it wants to make the method change under Rev. Proc. 2002–9, the national office may require the taxpayer to make any appropriate modifications to the application or ruling request to comply with the applicable provisions of this revenue procedure and Rev. Proc. 2002–9. The national office will notify the taxpayer if and when such adjustments are required. In addition, any user fee that was submitted with the application or ruling request will be returned to the taxpayer.