Part I. Rulings — Internal Revenue Bulletin 2005-43

Section 42.—Low-Income Housing Credit

Low-income housing credit; satisfac- tory bond; “bond factor” amounts for the period January through December 2005. This ruling provides the monthly bond factor amounts to be used by taxpayers who dispose of qualified low-income buildings or interests therein during the period January through December 2005.

Rev. Rul. 2005–67

In Rev. Rul. 90–60, 1990–2 C.B. 3, the Internal Revenue Service provided

guidance to taxpayers concerning the general methodology used by the Treasury Department in computing the bond factor amounts used in calculating the amount of bond considered satisfactory by the Secretary under § 42(j)(6) of the Internal Revenue Code. It further announced that the Secretary would publish in the Internal Revenue Bulletin a table of bond factor amounts for dispositions occurring during each calendar month.

Rev. Proc. 99–11, 1999–1 C.B. 275, established a collateral program as an alternative to providing a surety bond for taxpayers to avoid or defer recapture of the low-income housing tax credits under

§ 42(j)(6). Under this program, taxpayers may establish a Treasury Direct Account and pledge certain United States Treasury securities to the Internal Revenue Service as security.

This revenue ruling provides in Table 1 the bond factor amounts for calculating the amount of bond considered satisfactory under § 42(j)(6) or the amount of United States Treasury securities to pledge in a Treasury Direct Account under Rev. Proc. 99–11 for dispositions of qualified low-income buildings or interests therein during the period January through December 2005.

Table 1 Rev. Rul. 2005–67 Monthly Bond Factor Amounts for Dispositions Expressed As a Percentage of Total Credits
	Calendar Year Building Placed in Service or, if Section 42(f)(1) Election Was Made, the Succeeding Calendar Year
Month of Disposition	1991	1992	1993	1994	1995	1996	1997	1998	1999	2000	2001
Jan ’05 Feb ’05 Mar ’05 Apr ’05 May ’05 Jun ’05 Jul ’05 Aug ’05 Sep ’05 Oct ’05 Nov ’05 Dec ’05	14.99 14.99 14.99 15.85 15.85 15.85 15.85 15.85 15.85 16.68 16.68 16.68	27.92 27.92 27.92 29.52 29.52 29.52 29.52 29.52 29.52 31.06 31.06 31.06	39.03 39.03 39.03 41.27 41.27 41.27 41.27 41.27 41.27 43.42 43.42 43.42	48.55 48.55 48.55 51.33 51.33 51.33 51.33 51.33 51.33 54.01 54.01 54.01	56.77 56.77 56.77 60.03 60.03 60.03 60.03 60.03 60.03 63.16 63.16 63.16	56.71 56.59 56.47 60.18 60.05 59.93 59.81 59.70 59.58 63.18 63.06 62.94	56.86 56.74 56.63 60.95 60.83 60.71 60.59 60.48 60.36 64.65 64.54 64.42	57.15 57.04 56.93 61.89 61.77 61.65 61.54 61.42 61.31 66.33 66.21 66.10	57.52 57.41 57.30 62.92 62.80 62.69 62.57 62.46 62.36 68.14 68.02 67.91	58.00 57.89 57.79 64.10 63.98 63.87 63.76 63.65 63.55 70.14 70.02 69.92	58.83 58.72 58.61 65.66 65.54 65.42 65.32 65.21 65.11 72.58 72.47 72.36

2005–43 I.R.B. 771 October 24, 2005

Table 1 (cont’d) Rev. Rul. 2005–67 Monthly Bond Factor Amounts for Dispositions Expressed As a Percentage of Total Credits
	Calendar Year Building Placed in Service or, if Section 42(f)(1) Election Was Made, the Succeeding Calendar Year
Month of Disposition	2002	2003	2004	2005
Jan ’05 Feb ’05 Mar ’05 Apr ’05 May ’05 Jun ’05 Jul ’05 Aug ’05 Sep ’05 Oct ’05 Nov ’05 Dec ’05	59.92 59.80 59.69 67.52 67.40 67.28 67.17 67.06 66.96 75.38 75.27 75.16	61.22 61.09 60.97 69.62 69.48 69.36 69.24 69.12 69.02 78.45 78.34 78.23	62.49 62.33 62.19 71.64 71.49 71.35 71.23 71.12 71.02 81.49 81.38 81.29	62.68 62.68 62.68 72.55 72.55 72.55 72.55 72.55 72.55 83.98 83.98 83.98

For a list of bond factor amounts applicable to dispositions occurring during other calendar years, see: Rev. Rul. 98–3, 1998–1 C.B. 248; Rev. Rul. 2001–2, 2001–1 C.B. 255; Rev. Rul. 2001–53, 2001–2 C.B. 488; Rev. Rul. 2002–72, 2002–2 C.B. 759; Rev. Rul. 2003–117, 2003–2 C.B. 1051; and Rev. Rul. 2004–100, 2004–2 C.B. 718.

DRAFTING INFORMATION

The principal author of this revenue ruling is David McDonnell of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Mr. McDonnell at (202) 622–3040 (not a toll-free call).

Section 864.—Definitions and Special Rules

26 CFR 1.864–4: U.S. source income effectively con- nected with U.S. business.

T.D. 9226

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1

Stock Held by Foreign Insurance Companies

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to the determination of income of foreign insurance companies that is effectively connected with the conduct of a trade or business within the United States. The regulations provide that the exception to the asset-use test for stock shall not apply in determining whether the income, gain, or loss from portfolio stock held by foreign insurance companies constitutes effectively connected income.

DATES: Effective Date : These regulations are effective on October 3, 2005.

FOR FURTHER INFORMATION CONTACT: Sheila Ramaswamy, (202) 622–3870 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

On June 25, 2004, a notice of proposed rulemaking (REG–117307–04, 2004–2 C.B. 39) was published in the Federal Register (69 FR 35543). No requests for a public hearing were received, and no public hearing was held. The IRS received one written comment in response to the notice of proposed rulemaking. After consideration of the comment, the proposed regulation is adopted without change.

Explanation of Provisions and Summary of Comments

This Treasury decision adopts the language of the proposed regulation without change.

The IRS received one comment in response to the proposed regulation. The commentator requested further clarification regarding what constitutes an insurance company for federal income tax purposes. The IRS believes the issue of what

October 24, 2005 772 2005–43 I.R.B.

Authority: 26 U.S.C. 7805 * * * Par. 2. In §1.864–4, paragraph (c)(2)(iii)( b ) is revised to read as follows:

§1.864–4 U.S. source income effectively connected with U.S. business.

- - - (c) * - (2) - * (iii) * * ( b ) Stock held by foreign insurance companies . This paragraph (c)(2)(iii) shall not apply to stock of a corporation (whether domestic or foreign) held by a foreign insurance company unless the foreign insurance company owns 10 percent or more of the total voting power or value of all classes of stock of such corporation. For purposes of this section, section 318(a) shall be applied in determining ownership, except that in applying section 318(a)(2)(C), the phrase “10 percent” is used instead of the phrase “50 percent.”

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

Approved August 9, 2005.

Eric Solomon, Acting Deputy Assistant Secretary

for Tax Policy.

(Filed by the Office of the Federal Register on September 30, 2005, 8:45 a.m., and published in the issue of the Federal Register for October 3, 2005, 70 F.R. 57509)

constitutes an insurance company is outside the scope of this regulation, which solely relates to the application of the asset-use test to stock held by foreign insurance companies.

The commentator also expressed concern about the interaction of the proposed regulation with §1.864–5(a), which provides, generally, that foreign source income, such as a foreign-source dividend or gain, cannot constitute U.S. effectively connected income in circumstances in which a U.S.-source dividend or gain would not constitute U.S. effectively connected income. Accordingly, the commentator is concerned that the rule in the regulations will also expand the category of foreign-source dividends or gains that may constitute effectively connected income. That is true and the Treasury Department and the IRS believe this is the appropriate result.

The IRS invited comments whether the 10 percent threshold provided in the proposed regulation was an appropriate standard for determining whether stock is a portfolio investment. The commentator stated that it was possible for insurance companies to make a strategic investment in a corporation at a level below 10 percent of the vote or value of the corporation, such as by purchasing a special class of shares that conveyed the power to elect directors. The commentator recommended creating a rebuttable presumption of portfolio status.

We do not believe that treating the 10 percent threshold as a rebuttable presumption is appropriate. The 10 percent threshold provides a reasonable method for identifying portfolio stock held by a branch of a foreign life insurance company.

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) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information on small entities, the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. Pursuant to section 7805(f) of the Internal Revenue 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.

Drafting Information

The principal author of this regulation is Sheila Ramaswamy, Office of Associate Chief Counsel (International). However, other personnel from the IRS and Treasury Department participated in their development.

- - - -

Proposed Amendment to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

PART 1—INCOME TAXES

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

2005–43 I.R.B. 773 October 24, 2005