Part I. Rulings — Internal Revenue Bulletin 2005-33

Section 42.—Low-Income Housing Credit

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of August 2005. See Rev. Rul. 2005-54, page 289.

Section 105.—Amounts Received Under Accident and Health Plans

Does a medical reimbursement account for each participant that’s contained in a profit-sharing plan cause the profit-sharing plan to fail the vesting requirements of § 401(a)(7) of the Code? See Rev. Rul. 2005-55, page 284.

Section 280G.—Golden Parachute Payments

Federal short-term, mid-term, and long-term rates are set forth for the month of August 2005. See Rev. Rul. 2005-54, page 289.

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 August 2005. See Rev. Rul. 2005-54, page 289.

Section 411.—Minimum Vesting Standards

26 CFR 1.411(a)–1: Minimum vesting standards; general rules. (Also, §§105, 7805; 301.7805–1.)

Profit-sharing plan; retiree health accounts; nonforfeitability; prospec- tive application. This ruling holds that a sub-account within a profit-sharing plan that provides medical reimbursement expenses to each participant does not meet the provisions of section 411 of the Code on nonforfeitability because it imposes conditions on the use of the amounts held in the participants’ accounts. If certain criteria are met, the ruling will be applied prospectively.

Rev. Rul. 2005–55

ISSUE

Does a profit-sharing plan fail to satisfy the requirements of § 401(a)(7) of the Internal Revenue Code if it provides a medical reimbursement account for each participant from which payments may only be distributed to reimburse the participant for expenses for medical care?

FACTS

Employer M maintains Plan A, a nongovernmental profit-sharing plan that is intended to be a qualified plan under § 401(a). Plan A includes two separate accounts for each participant: a profit-sharing account and a medical reimbursement account. Plan A provides that 75% of Employer M’s annual contributions to Plan A on behalf of each participant is allocated to that participant’s profit-sharing account and the remaining 25% is allocated to the participant’s medical reimbursement account. Plan A does not provide for (after-tax) employee contributions.

Plan A provides that amounts in a participant’s medical reimbursement account may be used to reimburse the participant for any substantiated expenses for medical care (as defined by § 213(d)) incurred by the participant or the participant’s spouse and dependents (as defined in § 152, determined without regard to § 152(b)(1), (b)(2), and (d)(1)(B)). Plan A also expressly provides that under no circumstances may amounts held in the medical reimbursement account be distributed except to reimburse the participant for expenses for medical care incurred by the participant or the participant’s spouse or dependents. The restriction on use of the medical reimbursement account applies to all participants in the plan ( i.e., current and former employees, including retired employees). Plan A further provides that, upon the death of the participant, the account is available only to reimburse expenses for medical care of the participant’s spouse or, if unmarried or the spouse consents (in the manner required under § 417(a)(2)), the medical care expenses of the participant’s dependents, if

any, and is only available for that purpose as long as those individuals qualify as the participant’s spouse and dependents for purposes of § 105(b). If there is no surviving spouse or dependent(s), upon the participant’s death, or at such time when no individual qualifies as a surviving spouse or dependent for purposes of § 105(b), any remaining unused portion of the medical reimbursement account will be forfeited and will be applied to reduce future employer contributions to medical reimbursement accounts under the plan.

Plan A provides that amounts in the profit-sharing account of each participant (and not amounts in the medical reimbursement account of the participant) are available for distribution to the participant after severance from employment with Employer M.

LAW

Section 401(a) provides requirements for a trust forming part of a stock bonus, pension or profit-sharing plan to be qualified under § 401(a). A profit-sharing plan is a type of defined contribution plan. Section 414(j) provides that a defined contribution plan is a plan which provides an individual account for each participant and for benefits based solely on the amount contributed to the participant’s account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to the participant’s account.

Section 1.401–1(b)(1)(ii) of the Income Tax Regulations provides that a profit-sharing plan, within the meaning of § 401, must provide for distributing the funds accumulated under the plan after a fixed number of years, the attainment of a stated age, or upon the prior occurrence of some event such as layoff, illness, disability, retirement, death, or severance of employment. Section 1.401–1(b)(1)(ii) further provides that a profit-sharing plan is primarily a plan of deferred compensation but the amounts allocated to the account of a participant may be used to provide incidental life or accident or health insurance for him and his family.

2005–33 I.R.B. 284 August 15, 2005

during the year. See Rev. Rul. 2002–80, 2002–2 C.B. 925, and Rev. Rul. 2005–24, 2005–16 I.R.B. 892. Finally, Congress has specifically prescribed rules relating to the funding of future health benefits on a tax-favored basis. For example, such funding is addressed by the rules in §§ 419, 419A, 501(c)(9), and 512 for welfare benefit funds (including Voluntary Employees’ Beneficiary Associations) and by §§ 401(h) and 420 with respect to retiree health benefits provided through a qualified plan.

ANALYSIS

Under a profit-sharing plan, as a defined contribution plan, benefits to a participant must be based solely upon amounts contributed to the participant’s account and attributable income, gains, expenses and losses. Under the § 411(a)(7) definition of accrued benefit for a defined contribution plan, all amounts credited to a participant’s account under the plan are part of the accrued benefit and must satisfy the nonforfeiture requirements of § 411(a)(2).

Plan A provides that under no circumstances may any amounts held in a medical reimbursement account be distributed to any participant except to reimburse the participant for substantiated medical expenses incurred by the participant or the participant’s spouse and dependents. Plan A thereby imposes a condition on the entitlement of the participant (and the participant’s beneficiaries) to the amounts held in the medical reimbursement accounts and, as a result of that restriction, these amounts fail to be nonforfeitable.

However, if Plan A instead provided that amounts payable from the medical reimbursement account were available for distribution under the same terms as the amounts held in the profit-sharing account ( e.g. after severance of employment with Employer M), Plan A would not fail to satisfy § 411 merely because Plan A also permitted amounts held in the medical reimbursement account to be distributed both before and after severance of employment to reimburse medical expenses (or to pay the cost of major medical insurance as described in Rev. Rul. 61–164). However, in that case, no amounts paid from Plan A would be excludable under §105(b). Therefore, any distribution from

Section 402(a) generally provides that any amount distributed to any distributee from a plan qualified under § 401(a) is taxable to the distributee, in the taxable year in which distributed, under § 72.

Rev. Rul. 61–164, 1961–2 C.B. 99, provides that a profit-sharing plan does not violate the incidental benefit rule in § 1.401–1(b)(1)(ii) merely because, in accordance with the terms of the plan, each participant’s account under the plan is charged with the cost of the major medical benefits for the participant under the group hospitalization insurance for the employer’s employees, provided that the total amount used for life or accident or health insurance for him and his family is incidental. The revenue ruling further provides that such insurance will be treated as incidental if the amount expended for such benefits does not exceed 25% of the funds allocated to a participant’s account that have not been accumulated for the period prescribed by the plan for the deferment of distributions. However, Rev. Rul. 61–164 provides that the incidental benefit requirement does not limit the amount expended for such benefits from funds allocated to a participant’s account that have been accumulated for the period prescribed by the plan for the deferment of distributions. The revenue ruling also concludes that although the purchase of the major hospitalization insurance does not prevent the qualification of the plan if the insurance is deemed to be incidental, the use of the funds to pay for the employees’ medical insurance is a distribution within the meaning of § 402.

Section 401(a)(7) provides that a trust shall not constitute a qualified trust unless the plan of which such trust is a part satisfies the requirements of § 411.

Section 411(a) describes minimum vesting standards that a retirement plan subject to that section must satisfy in order for the plan to be qualified under § 401(a). These standards include § 411(a)(2), which requires that an employee’s accrued benefit derived from employer contributions become nonforfeitable in accordance with one of the two schedules specified in § 411(a)(2). Section 411(a)(7) and § 1.411(a)–7(a)(2) provide that, in the case of a defined contribution plan, an employee’s accrued benefit is the balance of the employee’s account under the plan.

Notwithstanding § 411(a)(2), § 411(a) (3) and § 1.411(a)–4(b) permit the forfeiture of an employee’s accrued benefit under certain circumstances. These permissible forfeitures include forfeitures on account of death.

Section 1.411(a)–4T(a) provides that, for purposes of § 411, a right to an accrued benefit is considered to be nonforfeitable at a particular time if, at that time and thereafter, it is an unconditional right. The regulation further provides that, subject to the permissible forfeitures of § 411(a)(3) and § 1.411(a)–4(b) and certain other prescribed situations, a right which, at a particular time, is conditioned under the plan upon a subsequent event, subsequent performance, or subsequent forbearance which will cause the loss of such right is a forfeitable right at that time.

Section 105(a) provides that, except as otherwise provided in § 105, amounts received by an employee through accident or health insurance for personal injuries or sickness are included in gross income to the extent such amounts (1) are attributable to contributions by the employer which were not includible in the gross income of the employee, or (2) are paid by the employer. Section 105(b) provides that, except in the case of amounts attributable to (and not in excess of) deductions allowed under § 213 for any prior taxable year, gross income does not include amounts described in § 105(a) if such amounts are paid, directly or indirectly, to the taxpayer to reimburse the taxpayer for expenses incurred by the taxpayer for the medical care (as defined in § 213(d)) of the taxpayer or the taxpayer’s spouse or dependents (as defined in § 152, determined without regard to § 152(b)(1), (b)(2), and (d)(1)(B)).

Section 1.105–2 of the regulations provides that only amounts that are paid specifically to reimburse the taxpayer for the expenses incurred by the taxpayer for medical care (as defined in § 213(d)) are excludable from gross income. Section 105(b) does not apply to amounts that the taxpayer would be entitled to receive irrespective of whether the taxpayer incurs expenses for medical care. Accordingly, if an employee is entitled to receive the payment irrespective of whether or not any medical expenses have been incurred, none of the payments are excludable from gross income under § 105(b), even if the employee has incurred medical expenses

August 15, 2005 285 2005–33 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 August 2005. See Rev. Rul. 2005-54, page 289.

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 August 2005. See Rev. Rul. 2005-54, page 289.

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 August 2005. See Rev. Rul. 2005-54, page 289.

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 August 2005. See Rev. Rul. 2005-54, page 289.

Section 642.—Special Rules for Credits and Deductions

Federal short-term, mid-term, and long-term rates are set forth for the month of August 2005. See Rev. Rul. 2005-54, page 289.

Section 807.—Rules for Certain Reserves

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of August 2005. See Rev. Rul. 2005-54, page 289.

Section 846.—Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of August 2005. See Rev. Rul. 2005-54, page 289.

Plan A would be includable in gross income under § 402(a).

HOLDING

Plan A fails to satisfy the vesting requirements of § 411 because it imposes conditions on the use of the amounts held in the participants’ accounts. Accordingly, the plan fails to satisfy § 401(a)(7).

In addition to the requirements of §§ 401(a)(7) and 411, a profit-sharing plan which only permits distribution of amounts held in a separate medical reimbursement account for reimbursement of substantiated medical care expenses, as described in the facts above, may fail to satisfy various other qualification requirements of § 401(a), including § 401(a)(9), § 401(a)(11), and § 401(a)(14).

CORRECTIVE PLAN AMENDMENTS

Pursuant to the authority contained in § 7805(b) and § 301.7805–1 of the Procedure and Administration Regulations, the Commissioner has determined that a profit-sharing plan or stock bonus plan will not fail to be qualified under § 401(a) for plan years beginning on or before August 15, 2005, merely because the plan provides for a separate medical reimbursement account for each participant and for the amounts in the participant’s medical reimbursement account to be only used to reimburse the participant for any substantiated expenses for medical care provided that (i) the plan (including the provisions of the plan relating to the medical reimbursement accounts) is the subject of a favorable determination letter (or in the case of a pre-approved plan, a favorable advisory or opinion letter) issued before August 15, 2005, and (ii) the plan is amended effective on the first day of the first plan year beginning after August 15, 2005, to provide that amounts in each participant’s medical reimbursement account are available for distribution under the same terms as amounts held in the participant’s other accounts under the plan ( e.g. upon severance from employment).

Further, any distributions made from a plan that is the same as or similar to the plan described under the FACTS section of this revenue ruling before the first day of the first plan year beginning after August 15, 2005, to reimburse the participant for any substantiated expenses for medical care (as defined by § 213(d)) incurred by the participant or the participant’s spouse or dependents (as defined in § 152, determined without regard to § 152(b)(1), (b)(2), and (d)(1)(B)) will not fail to be excluded from income under § 105(b) merely because, due to the publication of this revenue ruling, the plan is amended effective as of the first day of the plan year beginning on or after August 15, 2005, to allow distribution of the amounts held in the medical reimbursement account for reasons other than for reimbursement for any substantiated expenses for medical care.

DRAFTING INFORMATION

The principal author of this revenue ruling is Robert Walsh of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue ruling, contact the Employee Plans taxpayer assistance telephone service between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through Friday, by calling (877) 829–5500 (a tollfree number). Mr. Walsh may be reached at (202) 283–9888 (not a toll-free number). For further information regarding this revenue ruling as it pertains to § 105, please contact Barbara E. Pie of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities) at (202) 622–6080 (not a toll-free number).

Section 412.—Minimum Funding Standards

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of August 2005. See Rev. Rul. 2005-54, page 289.

2005–33 I.R.B. 286 August 15, 2005

Section 861.—Income From Sources Within the United States

26 CFR 1.861–8: Computation of taxable income from sources within the United States and from other sources and activities.

T.D. 9211

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1

Allocation and Apportionment of Deductions for Charitable Contributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to the allocation and apportionment of the deduction for charitable contributions allowed under sections 170, 873(b)(2), and 882(c)(1)(B) and the deduction for charitable contributions allowed under an income tax treaty. These regulations apportion the deduction for charitable contributions on the basis of income from sources within the United States. These regulations affect individuals and corporations that make contributions to charitable organizations and that have foreign source income and calculate their foreign tax credit limitations under section 904.

DATES: Effective Date : These regulations are effective July 28, 2004, except §1.861–8(e)(12)(ii), which is effective July 14, 2005.

Applicability Dates : For dates of applicability, see §§1.861–8(e)(12)(iv) and 1.861–14(e)(6)(ii). The regulations generally apply to charitable contributions made on or after July 28, 2004, although taxpayers generally may choose to apply these regulations to contributions made before July 28, 2004, but during a taxable year ending on or after July 28, 2004. Section 1.861–8(e)(12)(ii) applies to contributions made on or after July 14, 2005, although taxpayers may choose to apply that section to contributions made before July 14,

2005, but during a taxable year ending on or after July 14, 2005.

FOR FURTHER INFORMATION CONTACT: Teresa Burridge Hughes at (202) 622–3850 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to 26 CFR part 1. Section 1.861–8(e)(9)(iv) (the 1977 regulations) provided that deductions for charitable contributions generally were not definitely related to any gross income and therefore were ratably apportioned to the statutory and residual groupings on the basis of gross income. In 1991, the Treasury Department and the IRS issued proposed regulations (the 1991 proposed regulations) that would have changed the ratable apportionment rule of the 1977 regulations to a rule that, assuming certain requirements were met, generally would have apportioned the deduction for a charitable contribution based on where the contribution would have been used. Prop. Treas. Reg. §1.861–8(e)(12), 56 Fed. Reg. 10,395. On July 28, 2004, the Treasury Department and the IRS issued temporary regulations (T.D. 9143, 2004–36 I.R.B. 442) relating to the allocation and apportionment of the deduction for charitable contributions allowed under sections 170, 873(b)(2), and 882(c)(1)(B) of the Internal Revenue Code. A notice of proposed rulemaking by cross reference to the temporary regulations (REG–208246–90, 2004–36 I.R.B. 450) was also published in the Federal Register on the same date. That notice of proposed rulemaking also proposed rules governing the allocation and apportionment of the deduction for charitable contributions that is allowed under a U.S. income tax treaty (rather than under sections 170, 873(b)(2), and 882(c)(1)(B)). As part of the issuance of the temporary and proposed regulations, the Treasury Department and the IRS removed the 1977 regulations and withdrew the 1991 proposed regulations. REG–208246–90, 2004–36 I.R.B. 450. Although a public hearing on the proposed regulations was originally scheduled for December 2, 2004, the public hearing was cancelled because no person requested to provide an oral statement at the hearing.

Explanation of Provisions

These final regulations adopt the rules of the temporary and proposed regulations, which provide that the deduction for charitable contributions allowed under sections 170, 873(b)(2), and 882(c)(1)(B) is definitely related and allocable to all of the taxpayer’s gross income and is apportioned between the statutory grouping (or among the statutory groupings) of gross income and the residual grouping on the basis of the relative amounts of gross income from sources in the United States in each grouping. The corresponding temporary regulations are removed.

One written comment responding to the temporary and proposed regulations was received. The comment requested that taxpayers be permitted to elect to apply the new allocation and apportionment rules to deductions for charitable contributions previously claimed on timely filed tax returns for all open tax years. After consideration, the Treasury Department and the IRS concluded that adoption of the comment’s suggestion is not appropriate. The new allocation and apportionment rules apply to charitable contributions made on or after July 28, 2004. Although the temporary regulations permit taxpayers to apply the new rules to charitable contributions made before July 28, 2004, this election applies only to charitable contributions made in a taxable year that ends on or after July 28, 2004. The purpose of this election is to allow taxpayers to apply only one set of allocation and apportionment rules to charitable contributions made in the same taxable year. To permit taxpayers to apply the new rules to all open tax years would not provide such simplification and would raise concerns regarding fairness and administration.

The regulations also adopt, as proposed, the rules with respect to deductions for charitable contributions that are allowed under an income tax treaty (rather than by sections 170, 873(b)(2), and 882(c)(1)(B)). The regulations make one change to the effective date in the proposed regulations. As with the deduction for charitable contributions allowed under sections 170, 873(b)(2), and 882(c)(1)(B), the regulations give taxpayers the opportunity to apply the new rules for all charitable contributions made during the taxable year. Accordingly, the rule for

August 15, 2005 287 2005–33 I.R.B.

charitable contributions made before July 14, 2005, but during the taxable year ending on or after July 14, 2005.

- - - Par. 3. Section 1.861–8T is amended as follows:

Remove paragraph (e)(12).
Revise the second sentence of paragraph (h) introductory text.

The revision reads as follows:

§1.861–8T Computation of taxable income from sources within the United States and from other sources and activities (temporary).

- - - (h) - - - However, see §§1.861– 8(e)(12)(iv) and 1.861–14(e)(6) for rules concerning the allocation and apportionment of deductions for charitable contributions. - -
- - - Par. 4. Section 1.861–14 is amended by removing paragraphs (d)(3) through (j), adding new paragraphs (d)(3) through (e)(5), adding paragraph (e)(6), and adding new paragraphs (f) through (j) to read as follows:

§1.861–14 Special rules for allocating and apportioning certain expenses (other than interest expense) of an affiliated group of corporations.

- - - (d)(3) through (e)(5) [Reserved]. For further guidance, see §1.861–14T(d)(3) through (e)(5).

(e)(6) Charitable contribution ex- penses —(i) In general . A deduction for a charitable contribution by a member of an affiliated group shall be allocated and apportioned under the rules of §§1.861–8(e)(12) and 1.861–14T(c)(1).

(ii) Effective date . (A) The rules of this paragraph shall apply to charitable contributions subject to §1.861–8(e)(12)(i) that are made on or after July 28, 2004, and, for taxpayers applying the second sentence of §1.861–8(e)(12)(iv)(A), to charitable contributions made during the taxable year ending on or after July 28, 2004.

(B) The rules of this paragraph shall apply to charitable contributions subject to §1.861–8(e)(12)(ii) that are made on or after July 14, 2005, and, for taxpayers applying the second sentence of

the deduction for charitable contributions allowed under an income tax treaty is effective for taxable years beginning on or after July 14, 2005, with an election to apply the rule to contributions made before July 14, 2005, but during a taxable year that ends on or after July 14, 2005.

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 also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, the proposed regulations preceding these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small businesses.

Drafting Information

The principal author of these regulations is Teresa Burridge Hughes, Office of Associate Chief Counsel (International). 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:

PART 1 — INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * * Par. 2. Section §1.861–8 is amended as follows:

Remove the last sentence of paragraph (a)(5)(i).
Revise paragraph (e)(12). The revision and addition read as follows:

§1.861–8 Computation of taxable income from sources within the United States and from other sources and activities.

- - - (e) * * * (1) * * * (12) Deductions for certain charitable contributions —(i) In general . The deduction for charitable contributions that is allowed under sections 170, 873(b)(2), and 882(c)(1)(B) is definitely related and allocable to all of the taxpayer’s gross income. The deduction allocated under this paragraph (e)(12)(i) shall be apportioned between the statutory grouping (or among the statutory groupings) of gross income and the residual grouping on the basis of the relative amounts of gross income from sources in the United States in each grouping.

(ii) Treaty provisions . If a deduction for charitable contributions not otherwise permitted by sections 170, 873(b)(2), and 882(c)(1)(B) is allowed under a U.S. income tax treaty, and such treaty limits the amount of the deduction based on a percentage of income arising from sources within the treaty partner, the deduction is definitely related and allocable to all of the taxpayer’s gross income. The deduction allocated under this paragraph (e)(12)(ii) shall be apportioned between the statutory grouping (or among the statutory groupings) of gross income and the residual grouping on the basis of the relative amounts of gross income from sources within the treaty partner within each grouping.

(iii) Coordination with §§1.861–14 and 1.861–14T . A deduction for a charitable contribution by a member of an affiliated group shall be allocated and apportioned under the rules of this section, §1.861–14(e)(6), and §1.861–14T(c)(1).

(iv) Effective date . (A) The rules of paragraphs (e)(12)(i) and (iii) of this section shall apply to charitable contributions made on or after July 28, 2004. Taxpayers may apply the provisions of paragraphs (e)(12)(i) and (iii) of this section to charitable contributions made before July 28, 2004, but during the taxable year ending on or after July 28, 2004.

(B) The rules of paragraphs (e)(12)(ii) of this section shall apply to charitable contributions made on or after July 14, 2005. Taxpayers may apply the provisions of paragraph (e)(12)(ii) of this section to

2005–33 I.R.B. 288 August 15, 2005

§1.861–8(e)(12)(iv)(B), to charitable contributions made during the taxable year ending on or after July 14, 2005.

(f) through (j) [Reserved]. For further guidance, see §1.861–14T(f) through (j).

§1.861–14T [Amended]

Par. 5. Section 1.861–14T is amended by removing paragraph (e)(6).

Mark E. Matthews, Deputy Commissioner for Services and Enforcement.

Approved July 5, 2005.

Eric Solomon, Acting Deputy Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on July 13, 2005, 8:45 a.m., and published in the issue of the Federal Register for July 14, 2005, 70 F.R. 40661)

Section 1274.—Determi- nation of Issue Price in the Case of Certain Debt Instru- ments 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, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for August 2005.

Rev. Rul. 2005–54

This revenue ruling provides various prescribed rates for federal income tax purposes for August 2005 (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

REV. RUL. 2005–54 TABLE 1

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. Finally, 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.

Applicable Federal Rates (AFR) for August 2005

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR 3.58% 3.55% 3.53% 3.52% 110% AFR 3.95% 3.91% 3.89% 3.88% 120% AFR 4.31% 4.26% 4.24% 4.22% 130% AFR 4.67% 4.62% 4.59% 4.58%

Mid-term

AFR 3.92% 3.88% 3.86% 3.85% 110% AFR 4.32% 4.27% 4.25% 4.23% 120% AFR 4.71% 4.66% 4.63% 4.62% 130% AFR 5.10% 5.04% 5.01% 4.99% 150% AFR 5.90% 5.82% 5.78% 5.75% 175% AFR 6.91% 6.79% 6.73% 6.70%

Long-term

AFR 4.33% 4.28% 4.26% 4.24% 110% AFR 4.77% 4.71% 4.68% 4.66% 120% AFR 5.21% 5.14% 5.11% 5.09% 130% AFR 5.64% 5.56% 5.52% 5.50%

August 15, 2005 289 2005–33 I.R.B.

REV. RUL. 2005–54 TABLE 2

Adjusted AFR for August 2005

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjusted AFR 2.71% 2.69% 2.68% 2.68%

Mid-term adjusted AFR 3.11% 3.09% 3.08% 3.07%

Long-term adjusted AFR 4.12% 4.08% 4.06% 4.05%

REV. RUL. 2005–54 TABLE 3

Rates Under Section 382 for August 2005

Adjusted federal long-term rate for the current month 4.12%

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.) 4.20%

REV. RUL. 2005–54 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for August 2005

Appropriate percentage for the 70% present value low-income housing credit 7.96%

Appropriate percentage for the 30% present value low-income housing credit 3.41%

REV. RUL. 2005–54 TABLE 5

Rate Under Section 7520 for August 2005

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%

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 August 2005. See Rev. Rul. 2005-54, page 289.

Section 1363.—Effect of Election on Corporation

26 CFR 1.1363–2: Recapture of LIFO benefits.

T.D. 9210

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 602

LIFO Recapture Under Section 1363(d)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulation.

SUMMARY: This document contains final regulations regarding LIFO recapture

by corporations converting from C corporations to S corporations. The purpose of these regulations is to provide guidance on the LIFO recapture requirement when the corporation holds inventory accounted for under the last-in, first-out (LIFO) method (LIFO inventory) indirectly through a partnership. These regulations affect C corporations that own interests in partnerships holding LIFO inventory and that elect to be taxed as S corporations or that transfer such partnership interests to S corporations in nonrecognition transactions. These regulations also affect S corporations receiving such partnership interests from C corporations in nonrecognition transactions.

DATES: Effective Date : These regulations are effective July 12, 2005.

2005–33 I.R.B. 290 August 15, 2005

Summary of Comments and Explanation of Revisions

The proposed regulations provided that a C corporation that holds an interest in a partnership owning LIFO inventory must include the lookthrough LIFO recapture amount in its gross income where the corporation either elects to be an S corporation or transfers its interest in the partnership to an S corporation in a nonrecognition transaction. The proposed regulations defined the lookthrough LIFO recapture amount as the amount of income that would be allocated to the corporation, taking into account section 704(c) and §1.704–3, if the partnership sold all of its LIFO inventory for the FIFO value. A corporate partner’s lookthrough LIFO recapture amount must be determined, in general, as of the day before the effective date of the S corporation election or, if the recapture event is a transfer of a partnership interest to an S corporation, the date of the transfer (the recapture date). The proposed regulations provided that, if a partnership is not otherwise required to determine inventory values on the recapture date, the lookthrough LIFO recapture amount may be determined based on inventory values of the partnership’s opening inventory for the year that includes the recapture date.

The sole commentator suggested that the regulations provide that, if the lookthrough LIFO recapture amount is determined based on inventory values of the partnership’s opening inventory for the year that includes the recapture date, then the lookthrough LIFO recapture amount must be adjusted to take into account any adjustments to the partnership’s basis in its LIFO inventory that result from transactions occurring during the period from the start of the partnership’s tax year to the end of the recapture date. Thus, the lookthrough LIFO recapture amount would have to reflect any adjustments to the basis of LIFO inventory during that period under sections 734(b), 737(c), or 751(b). The final regulations adopt this suggestion.

The proposed regulations provided that a corporation owning LIFO inventory through a partnership must increase its basis in its partnership interest by the lookthrough LIFO recapture amount. The proposed regulations also allowed the partnership through which the LIFO in

Applicability Date : These regulations apply to S elections and transfers made on or after August 13, 2004.

FOR FURTHER INFORMATION CONTACT: Pietro Canestrelli, at (202) 622–3060 and Martin Schäffer, at (202) 622–3070 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545–1906. The collection of information in these final regulations is in § 1.1363–2(e)(3). This information is required to inform the IRS of partnerships electing to increase the basis of inventory to reflect any amount included in a partner’s income under section 1363(d). An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number assigned by the Office of Management and Budget.

Estimated total annual reporting burden: 200 hours.

The estimated annual burden per respondent varies from 1 to 3 hours, depending on individual circumstances, with an estimated average of 2 hours.

Estimated number of respondents: 100. Estimated annual frequency of responses: On occasion.

Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be sent to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224, and to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return

information are confidential, as required by 26 U.S.C. 6103.

Background

This document contains amendments to 26 CFR Part 1 under section 1363(d) of the Internal Revenue Code (Code). Section 1363(d)(1) provides that a C corporation that owns LIFO inventory and that elects under section 1362(a) to be taxed as an S corporation must include in its gross income for its final tax year as a C corporation the LIFO recapture amount. Under section 1363(d)(3), the LIFO recapture amount is the excess of the inventory amount of the inventory using the first-in, first-out (FIFO) method (the FIFO value) over the inventory amount of the inventory using the LIFO method (the LIFO value) at the close of the corporation’s final tax year as a C corporation (essentially, the amount of income the corporation has deferred by using the LIFO method rather than the FIFO method).

Final regulations (T.D. 8567, 1994–2 C.B. 199) under section 1363(d) were published in the Federal Register on October 7, 1994 (59 FR 51105) to describe the recapture of LIFO benefits when a C corporation that owns LIFO inventory elects to become an S corporation or transfers LIFO inventory to an S corporation in a nonrecognition transaction. The regulations did not explicitly address the indirect ownership of inventory through a partnership.

A notice of proposed rulemaking (REG–149524–03, 2004–39 I.R.B. 528) was published in the Federal Register on August 13, 2004 (69 FR 50109). The proposed regulations provided guidance for situations in which a C corporation that owns LIFO inventory through a partnership (or through tiered partnerships) converts to an S corporation or transfers its partnership interest to an S corporation in a nonrecognition transaction. One person submitted comments in response to the notice of proposed rulemaking. A public hearing was held on December 8, 2004. After consideration of the comments, the proposed regulations are adopted as final regulations with the modifications discussed below.

August 15, 2005 291 2005–33 I.R.B.

Drafting Information

The principal authors of these regulations are Pietro Canestrelli and Martin Schäffer, Office of Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and the Treasury Department participated in their development.

- - - -

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding an entry in numerical order to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * * Section 1.1363–2 also issued under 26 U.S.C. 337(d). - * *

Par. 2. Section 1.1363–2 is amended by:

Redesignating paragraphs (b), (c), and (d) as paragraphs (d), (e), and (g), respectively.
Adding new paragraphs (b), (c), (f), and (g)(3).
Revising newly designated paragraphs (d) and (e).

The revision and addition read as follows:

§1.1363–2 Recapture of LIFO benefits.

- - - (b) LIFO inventory held indirectly through partnership . A C corporation must include the lookthrough LIFO recapture amount (as defined in paragraph (c)(4) of this section) in its gross income—

(1) In its last taxable year as a C corporation if, on the last day of the corporation’s last taxable year before its S corporation election becomes effective, the corporation held a lookthrough partnership interest (as defined in paragraph (c)(3) of this section); or

(2) In the year of transfer by the C corporation to an S corporation of a lookthrough partnership interest if the corporation transferred its lookthrough partnership interest to the S corporation in a nonrecognition transaction (within the meaning of section 7701(a)(45)) in which the

ventory is owned to elect to adjust the basis of partnership inventory (or lookthrough partnership interests held by that partnership) to account for LIFO recapture. This adjustment to basis is patterned in manner and effect after the adjustment in section 743(b). Thus, the basis adjustment constitutes an adjustment to the basis of the LIFO inventory (or lookthrough partnership interests held by that partnership) with respect to the corporate partner only; no adjustment is made to the partnership’s common basis.

The Treasury Department and the IRS requested comments on whether the partnership should be required, in some or all circumstances, to increase the basis of partnership assets by the lookthrough LIFO recapture amount attributable to those assets. No comments were received on this question. Therefore, the final regulations follow the rule of the proposed regulations.

The sole commentator recommended that the regulations should extend the availability of a section 743(b)-type basis adjustment to the purchase of a lookthrough partnership interest by a C corporation that subsequently makes an S election (or subsequently disposes of the partnership interest in a nontaxable carryover basis transaction). It has been determined that this recommendation is beyond the scope of the regulations and, so, is not included in the final regulations.

The commentator recommended that the regulations provide for the retroactive revaluation of LIFO inventories under §1.704–1(b)(2)(iv)( f ) when a non-C corporation partner has been admitted to a partnership (or the non-C-corporation partner’s relative interest in the partnership has increased) within a period of two years ending on the date when a C corporation partner in the same partnership makes an S election (or transfers its partnership interest to an S corporation in a nontaxable carryover basis transaction). It has been determined that this recommendation is beyond the scope of the regulations and, so, is not included in the final regulations.

Regarding the payment of the LIFO recapture tax during an S year, the commentator made two suggestions. First, notwithstanding section 1371(c)(1), the regulations should provide that the S corporation’s earnings and profits be reduced upon such a payment. Second, notwithstand

ing section 1367(a)(2)(D), the regulations should provide that the stock basis of the shareholders of the S corporation not be reduced upon such a payment. The issues raised by the payment by an S corporation of taxes attributable to a taxable year in which the corporation was a C corporation are not unique to a payment of the LIFO recapture tax and are beyond the scope of these regulations.

Finally, the commentator questioned whether it is appropriate to issue these regulations under the authority of section 337(d). The Treasury Department and the IRS continue to believe that issuing these regulations under the authority of section 337(d) is appropriate, because Congress’s purpose in enacting section 1363(d) was to prevent taxpayers owning LIFO inventory from avoiding the built-in gain rules of section 1374. H.R. Rep. No. 100–391 (Parts 1 and 2), 1098 (1987).

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866; therefore, a regulatory assessment is not required. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that few corporations engage in the type of transactions that are subject to these regulations (the conversion from C corporation to S corporation status while holding an interest in a partnership that owns LIFO inventory or the transfer of an interest in such a partnership by a C corporation to an S corporation in a nonrecognition transaction). Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. These final regulations are necessary to prevent abusive transactions involving partnerships and S corporations. Accordingly, good cause is found for dispensing with a delayed effective date pursuant to 5 U.S.C. 553(d)(3). Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

2005–33 I.R.B. 292 August 15, 2005

amount included in income under paragraph (a) of this section.

(2) LIFO inventory owned through a partnership —(i) Basis of corporation’s partnership interest. Appropriate adjustments to the basis of the corporation’s lookthrough partnership interest are to be made to reflect any amount included in income under paragraph (b) of this section.

(ii) Basis of partnership assets . A partnership directly holding LIFO inventory that is taken into account under paragraph (b) of this section may elect to adjust the basis of that LIFO inventory. In addition, a partnership that holds, through another partnership, LIFO inventory that is taken into account under paragraph (b) of this section may elect to adjust the basis of that partnership interest. Any adjustment under this paragraph (e)(2) to the basis of inventory held by the partnership is equal to the amount of LIFO recapture attributable to the inventory. Likewise, any adjustment under this paragraph (e)(2) to the basis of a lookthrough partnership interest held by the partnership is equal to the amount of LIFO recapture attributable to the interest. A basis adjustment under this paragraph (e)(2) is treated in the same manner and has the same effect as an adjustment to the basis of partnership property under section 743(b). See §1.743–1(j). (3) Election . A partnership elects to adjust the basis of its inventory and any lookthrough partnership interest that it owns by attaching a statement to its original or amended income tax return for the first taxable year ending on or after the date of the S corporation election or transfer described in paragraph (b) of this section. This statement shall state that the partnership is electing under this paragraph (e)(3) and must include the names, addresses, and taxpayer identification numbers of any corporate partner liable for tax under paragraph (d) of this section and of the partnership, as well as the amount of the adjustment and the portion of the adjustment that is attributable to each pool of inventory or lookthrough partnership interest that is held by the partnership.

(f) Examples . The following examples illustrate the rules of this section:

Example 1 . (i) G is a C corporation with a taxable year ending on June 30. GH is a partnership with a calendar year taxable year. G has a 20 percent interest in GH. The remaining 80 percent interest is owned by an individual. On April 25, 2005, G contributed inventory that is LIFO inventory to GH, increasing G’s

transferred interest constitutes transferred basis property (within the meaning of section 7701(a)(43)).

(c) Definitions and special rules —(1) Recapture date . In the case of a transaction described in paragraph (a)(1) or (b)(1) of this section, the recapture date is the day before the effective date of the S corporation election. In the case of a transaction described in paragraph (a)(2) or (b)(2) of this section, the recapture date is the date of the transfer of the partnership interest to the S corporation.

(2) Determination of LIFO recapture amount . The LIFO recapture amount shall be determined as of the end of the recapture date for transactions described in paragraph (a)(1) of this section, and as of the moment before the transfer occurs for transactions described in paragraph (a)(2) of this section.

(3) Lookthrough partnership interest . A partnership interest is a lookthrough partnership interest if the partnership owns (directly or indirectly through one or more partnerships) assets accounted for under the last-in, first-out (LIFO) method (LIFO inventory).

(4) Lookthrough LIFO recapture amount —(i) In general . For purposes of this section, a corporation’s lookthrough LIFO recapture amount is the amount of income that would be allocated to the corporation, taking into account section 704(c) and §1.704–3, if the partnership sold all of its LIFO inventory for the inventory’s FIFO value. For this purpose, the FIFO value of inventory is the inventory amount of the inventory assets under the first-in, first-out method of accounting authorized by section 471, determined in accordance with section 1363(d)(4)(C).

(ii) Determination of lookthrough LIFO recapture amount . Except as provided in paragraph (c)(4)(iii) of this section, the lookthrough LIFO recapture amount shall be determined as of the end of the recapture date for transactions described in paragraph (b)(1) of this section, and as of the moment before the transfer occurs for transactions described in paragraph (b)(2) of this section.

(iii) Alternative rule . If the partnership is not otherwise required to determine the inventory amount of the inventory using the LIFO method (the LIFO value) on the recapture date, the partnership may determine the lookthrough LIFO

recapture amount as though the FIFO and LIFO values of the inventory on the recapture date equaled the FIFO and LIFO values of the opening inventory for the partnership’s taxable year that includes the recapture date. For this purpose, the opening inventory includes inventory contributed by a partner to the partnership on or before the recapture date and excludes inventory distributed by the partnership to a partner on or before the recapture date. A partnership that applies the alternative method of this paragraph (c)(4)(iii) to calculate the lookthrough LIFO recapture amount must take into account any adjustments to the partnership’s basis in its LIFO inventory that result from transactions occurring after the start of the partnership’s taxable year and before the end of the recapture date. For example, the lookthrough LIFO recapture amount must be adjusted to take into account any adjustments to the basis of LIFO inventory during that period under sections 734(b), 737(c), or 751(b).

(d) Payment of tax. Any increase in tax caused by including the LIFO recapture amount or the lookthrough LIFO recapture amount in the gross income of the C corporation is payable in four equal installments. The C corporation must pay the first installment of this payment by the due date of its return, determined without regard to extensions, for the last taxable year it operated as a C corporation if paragraph (a)(1) or (b)(1) of this section applies, or for the taxable year of the transfer if paragraph (a)(2) or (b)(2) of this section applies. The three succeeding installments must be paid—

(1) For a transaction described in paragraph (a)(1) or (b)(1) of this section, by the corporation that made the election under section 1362(a) to be an S corporation, on or before the due date for the corporation’s returns (determined without regard to extensions) for the succeeding three taxable years; and

(2) For a transaction described in paragraph (a)(2) or (b)(2) of this section, by the transferee S corporation on or before the due date for the transferee corporation’s returns (determined without regard to extensions) for the succeeding three taxable years.

(e) Basis adjustments —(1) General rule . Appropriate adjustments to the basis of inventory are to be made to reflect any

August 15, 2005 293 2005–33 I.R.B.

interest in the partnership to 50 percent. GH holds no other LIFO inventory, and there are no other adjustments to the partnership’s basis in its LIFO inventory between January 1, 2005, and the end of the recapture date. G elects to be an S corporation effective July 1, 2005. The recapture date is June 30, 2005, under paragraph (c)(1) of this section. GH elects to use the LIFO method for the inventory and determines that the FIFO and LIFO values of the opening inventory for GH’s 2005 taxable year, including the inventory contributed by G, are $200 and $120, respectively.

(ii) Under paragraph (c)(4)(iii) of this section, GH is not required to determine the FIFO and LIFO values of the inventory on the recapture date. Instead, GH may determine the lookthrough LIFO recapture amount as though the FIFO and LIFO values of the inventory on the recapture date equaled the FIFO and LIFO values of the opening inventory for the partnership’s taxable year (2005) that includes the recapture date. For this purpose, under paragraph (c)(4) of this section, the opening inventory includes the inventory contributed by G. The amount by which the FIFO value ($200) exceeds the LIFO value ($120) in GH’s opening inventory is $80. Thus, if GH sold all of its LIFO inventory for $200, it would recognize $80 of income. G’s lookthrough LIFO recapture amount is $80, the amount of income that would be allocated to G, taking into account section 704(c) and §1.704–3, if GH sold all of its LIFO inventory for the FIFO value. Under paragraph (b)(1) of this section, G must include $80 in income in its taxable year

CFR part or section where identified and described

ending on June 30, 2005. Under paragraph (e)(2) of this section, G must increase its basis in its interest in GH by $80. Under paragraphs (e)(2) and (3) of this section, and in accordance with section 743(b) principles, GH may elect to increase the basis (with respect to G only) of its LIFO inventory by $80.

Example 2 . (i) J is a C corporation with a calendar year taxable year. JK is a partnership with a calendar year taxable year. J has a 30 percent interest in the partnership. JK owns LIFO inventory that is not section 704(c) property. J elects to be an S corporation effective January 1, 2005. The recapture date is December 31, 2004, under paragraph (c)(1) of this section. JK determines that the FIFO and LIFO values of the inventory on December 31, 2004, are $240 and $140, respectively.

(ii) The amount by which the FIFO value ($240) exceeds the LIFO value ($140) on the recapture date is $100. Thus, if JK sold all of its LIFO inventory for $240, it would recognize $100 of income. J’s lookthrough LIFO recapture amount is $30, the amount of income that would be allocated to J if JK sold all of its LIFO inventory for the FIFO value (30 percent of $100). Under paragraph (b)(1) of this section, J must include $30 in income in its taxable year ending on December 31, 2004. Under paragraph (e)(2) of this section, J must increase its basis in its interest in JK by $30. Under paragraphs (e)(2) and (3) of this section, and in accordance with section 743(b) principles, JK may elect to increase the basis (with respect to J only) of its inventory by $30.

(g) - * (3) The provisions of paragraphs (b), (c), (d), (e)(2), (e)(3), and (f) of this section apply to S elections and transfers made on or after August 13, 2004. The rules that apply to S elections and transfers made before August 13, 2004, are contained in §1.1363–2 as in effect prior to August 13, 2004 (see 26 CFR part 1 revised as of April 1, 2005).

PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 3. The authority citation for part 602 continues to read as follows: Authority: 26 U.S.C. 7805. Par. 4. In §602.101, paragraph (b) is amended by adding an entry in numerical order to the table to read as follows:

§602.101 OMB Control numbers.

- - - (b)* -

Current OMB control No.

1.1363–2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1906

Mark E. Matthews, Deputy Commissioner for Services and Enforcement.

Approved June 23, 2005.

Eric Solomon, Acting Deputy Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on July 11, 2005, 8:45 a.m., and published in the issue of the Federal Register for July 12, 2005, 70 F.R. 39920)

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of August 2005. See Rev. Rul. 2005-54, page 289.

Section 7805.—Rules and Regulations

26 CFR 301.7805–1: Rules and regulations.

Whether a revenue ruling may be applied prospectively where a profit-sharing plan contains a medical

reimbursement account for each participant. See Rev. Rul. 2005-55, page 284.

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 August 2005. See Rev. Rul. 2005-54, page 289.

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