Part III. — Internal Revenue Bulletin 2005-26

Weighted Average Interest Rates Update

Notice 2005–46

This notice provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue Code. In addition, it provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II), and the weighted average interest rate and permissible ranges of interest rates based on the 30-year Treasury securities rate.

CORPORATE BOND WEIGHTED AVERAGE INTEREST RATE

Sections 412(b)(5)(B)(ii) and 412(l)(7) (C)(i), as amended by the Pension Funding Equity Act of 2004, provide that the interest rates used to calculate current liability and to determine the required contribution under § 412(l) for plan years beginning in 2004 or 2005 must be within a permissible range based on the weighted average of the rates of interest on amounts invested conservatively in long term investment grade corporate bonds during the 4-year period ending on the last day before the beginning of the plan year.

Notice 2004–34, 2004–1 C.B. 848, provides guidelines for determining the corporate bond weighted average interest rate

Corporate

and the resulting permissible range of interest rates used to calculate current liability. That notice establishes that the corporate bond weighted average is based on the monthly composite corporate bond rate derived from designated corporate bond indices.

The composite corporate bond rate for May 2005 is 5.41 percent. Pursuant to Notice 2004–34, the Service has determined this rate as the average of the monthly yields for the included corporate bond indices for that month.

The following corporate bond weighted average interest rate was determined for plan years beginning in the month shown below.

For Plan Years Bond 90% to 100%

Beginning in: Weighted Permissible Month Year Average Range

June 2005 5.94 5.35 to 5.94

imum amount of the deduction allowed under § 404(a)(1).

The rate of interest on 30-year Treasury securities for May 2005 is 4.49 percent. Pursuant to Notice 2002–26, 2002–1 C.B. 743, the Service has determined this rate as the monthly average of the daily determination of yield on the 30-year Treasury bond maturing in February 2031.

The following 30-year Treasury rates were determined for the plan years beginning in the month shown below.

30-YEAR TREASURY SECURITIES WEIGHTED AVERAGE INTEREST RATE

Section 417(e)(3)(A)(ii)(II) defines the applicable interest rate, which must be used for purposes of determining the minimum present value of a participant’s benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury securities for the month before the date of distribution or such other time as the Secretary may by regulations prescribe. Section 1.417(e)–1(d)(3) of the Income

Tax Regulations provides that the applicable interest rate for a month is the annual interest rate on 30-year Treasury securities as specified by the Commissioner for that month in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin.

Section 404(a)(1) of the Code, as amended by the Pension Funding Equity Act of 2004, permits an employer to elect to disregard subclause (II) of § 412(b)(5)(B)(ii) to determine the max

30-Year

For Plan Years Treasury 90% to 105% 90% to 110%

Beginning in: Weighted Permissible Permissible Month Year Average Range Range

June 2005 5.00 4.50 to 5.25 4.50 to 5.50

1–202–283–9703. Mr. Montanaro may be reached at 1–202–283–9714. The telephone numbers in the preceding sentences are not toll-free.

Drafting Information

The principal authors of this notice are Paul Stern and Tony Montanaro of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this notice,

please contact the Employee Plans’ taxpayer assistance telephone service at 1–877–829–5500 (a toll-free number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through Friday. Mr. Stern may be reached at

June 27, 2005 1372 2005–26 I.R.B.

Application of Circular 230 to State or Local Bond Opinions

Notice 2005–47

The purpose of this notice is to provide interim guidance and information concerning State or local bond opinions under Treasury Department Circular No. 230, 31 C.F.R. part 10 (Circular 230). Specifically, this notice provides (1) interim guidance relating to the definition of State or local bond opinion in section 10.35(b)(9) of Circular 230 and (2) information on changes to the requirements that are under consideration for State or local bond opinions.

BACKGROUND

On December 20, 2004, the Treasury Department and the IRS published in the Federal Register final regulations setting standards for practice before the IRS relating to written advice provided by tax practitioners (the Final Covered Opinion Regulations). The Treasury Department and the IRS simultaneously issued a notice of proposed rulemaking (the Proposed Regulations) proposing standards for practice before the IRS relating to State or local bond opinions. Section 10.35 of the Final Covered Opinion Regulations is effective for written advice rendered after June 20, 2005, and section 10.39 of the Proposed Regulations is proposed to be effective no sooner than 120 days after final regulations are published in the Federal Register.

Section 10.35 sets forth the requirements applicable to covered opinions. A covered opinion is written advice (including electronic communications) that concerns one or more Federal tax issues arising from: (1) a listed transaction; (2) any plan or arrangement, the principal purpose of which is the avoidance or evasion of any tax; or (3) any plan or arrangement, a significant purpose of which is the avoidance or evasion of tax if the written advice (A) is a reliance opinion, (B) is a marketed opinion, (C) is subject to conditions of confidentiality, or (D) is subject to contractual protection. Written advice regarding a plan or arrangement having a significant purpose of tax avoidance or evasion is excluded from the definition of covered opinion if the written advice (1) concerns the qualification of a qualified

plan, (2) is a State or local bond opinion, or (3) is included in documents required to be filed with the Securities and Exchange Commission. The Final Covered Opinion Regulations also adopt an exclusion for certain preliminary advice and allow practitioners to provide limited scope opinions in some circumstances.

A State or local bond opinion is not subject to the requirements of section 10.35, but will be subject to proposed section 10.39 when it is finalized. Under the Final Covered Opinion Regulations, a State or local bond opinion is defined as written advice with respect to a Federal tax issue included in any materials delivered to a purchaser of a State or local bond in connection with the issuance of the bond in a public or private offering, including an official statement (if one is prepared), that concerns only the excludability of interest on a State or local bond from gross income under section 103 of the Internal Revenue Code, the application of section 55 of the Internal Revenue Code to a State or local bond, the status of a State or local bond as a qualified tax-exempt obligation under section 265(b)(3) of the Internal Revenue Code, the status of a State or local bond as a qualified zone academy bond under section 1397E of the Internal Revenue Code, or any combination of the above. Under the Final Covered Opinion Regulations, written advice with respect to a Federal tax issue involving a State or local bond that does not meet this definition is subject generally to the standards in section 10.35. Written advice with respect to one of the four enumerated issues involving a State or local bond that is delivered other than at the time of issuance is subject generally to the standards in section 10.35.

INTERIM GUIDANCE

Commentators have requested clarification regarding the scope of the definition of State or local bond opinion and the treatment of opinions relating to State or local bonds that may be subject to the standards in section 10.35. In response to these comments, the Treasury Department and the IRS have determined that the definition of State or local bond opinion in section 10.35 should be amended. Accordingly, the IRS will apply the following interim definition of State or local bond opinion

under section 10.35(b)(9) until the Treasury Department and the IRS amend the regulations:

§ 10.35 Requirements for covered opin- ions .

- - - (b) - * (9) State or local bond opinion . A State or local bond opinion is written advice (including electronic communications) that concerns (i) The excludability of interest on a State or local bond from gross income under section 103 of the Internal Revenue Code;

(ii) The status of a State or local bond as a qualified zone academy bond under section 1397E of the Internal Revenue Code;

(iii) One or more other Federal tax issues reasonably related and ancillary to advice described in paragraph (b)(9)(i) or (ii) of this section. Such issues include, but are not limited to—

(A) The application of section 55 of the Internal Revenue Code to a State or local bond;

(B) Whether a State or local bond has been reissued for Federal tax purposes;

(C) The status of a State or local bond as a qualified tax-exempt obligation under section 265(b)(3) of the Internal Revenue Code;

(D) The treatment of original issue discount or premium on a State or local bond under the Internal Revenue Code; and

(E) Whether the organization that is borrowing the proceeds of the State or local bond is described in section 501(c)(3) of the Internal Revenue Code; or

(iv) Any combination of the above.

EFFECTIVE DATE FOR INTERIM GUIDANCE

This interim definition of State or lo- cal bond opinion is applicable to opinions rendered after June 20, 2005. Thus, when the Final Covered Opinion Regulations go into effect, the requirements in section 10.35 for covered opinions will not apply to an opinion that meets the interim definition of State or local bond opinion set forth in this notice. This relief applies regardless of whether the amendment to section 10.35 has been published prior to June 20, 2005.

2005–26 I.R.B. 1373 June 27, 2005

force in the United States, the IAA generally will apply to Convention adoptions (adoptions in which both the sending and the receiving countries are parties to the Convention).

.06 Section 301 of the IAA (42 U.S.C. § 14931) provides rules for certification of Convention adoptions. A Convention adoption subject to the IAA will be final for federal income tax purposes (1) in the taxable year for which the Secretary of State certifies as final an adoption subject to § 301(b), or (2) in the year in which the state court enters a final decree of adoption for an adoption subject to § 301(c).

.07 A discussion of the IAA and the Convention can be found in Hague Convention on Intercountry Adoption; Intercountry Adoption Act of 2000; Accreditation of Agencies; Approval of Persons; Preservation of Convention Records, 68 Fed. Reg. 54064 (September 15, 2003) (proposed rules to be codified at 22 C.F.R. pts. 96, 98). General information about foreign adoptions can be accessed through the Department of State web site at http://www.state.gov and the Department of Homeland Security web site at http://www.immigration.gov .