Part I. Rulings — Internal Revenue Bulletin 2006-14

Section 42.—Low-Income Housing Credit

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of April 2006. See Rev. Rul. 2006-22, page 687.

Section 280G.—Golden Parachute Payments

Federal short-term, mid-term, and long-term rates are set forth for the month of April 2006. See Rev. Rul. 2006-22, page 687.

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 April 2006. See Rev. Rul. 2006-22, page 687.

Section 412.—Minimum Funding Standards

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of April 2006. See Rev. Rul. 2006-22, page 687.

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 April 2006. See Rev. Rul. 2006-22, page 687.

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 April 2006. See Rev. Rul. 2006-22, page 687.

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 April 2006. See Rev. Rul. 2006-22, page 687.

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 April 2006. See Rev. Rul. 2006-22, page 687.

Section 642.—Special Rules for Credits and Deductions

Federal short-term, mid-term, and long-term rates are set forth for the month of April 2006. See Rev. Rul. 2006-22, page 687.

Section 807.—Rules for Certain Reserves

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of April 2006. See Rev. Rul. 2006-22, page 687.

Section 846.—Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of April 2006. See Rev. Rul. 2006-22, page 687.

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 April 2006.

Rev. Rul. 2006–22

This revenue ruling provides various prescribed rates for federal income tax purposes for April 2006 (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. 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.

2006–14 I.R.B. 687 April 3, 2006

REV. RUL. 2006–22 TABLE 1

Applicable Federal Rates (AFR) for April 2006

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR 4.77% 4.71% 4.68% 4.66% 110% AFR 5.25% 5.18% 5.15% 5.12% 120% AFR 5.73% 5.65% 5.61% 5.58% 130% AFR 6.21% 6.12% 6.07% 6.04%

Mid-term

AFR 4.72% 4.67% 4.64% 4.63% 110% AFR 5.21% 5.14% 5.11% 5.09% 120% AFR 5.68% 5.60% 5.56% 5.54% 130% AFR 6.16% 6.07% 6.02% 5.99% 150% AFR 7.13% 7.01% 6.95% 6.91% 175% AFR 8.34% 8.17% 8.09% 8.03%

Long-term

AFR 4.79% 4.73% 4.70% 4.68% 110% AFR 5.27% 5.20% 5.17% 5.14% 120% AFR 5.76% 5.68% 5.64% 5.61% 130% AFR 6.24% 6.15% 6.10% 6.07%

REV. RUL. 2006–22 TABLE 2

Adjusted AFR for April 2006

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjusted 3.33% 3.30% 3.29% 3.28% AFR

Mid-term adjusted AFR 3.58% 3.55% 3.53% 3.52%

Long-term adjusted 4.25% 4.21% 4.19% 4.17% AFR

REV. RUL. 2006–22 TABLE 3

Rates Under Section 382 for April 2006

Adjusted federal long-term rate for the current month 4.25%

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.) 4.26%

REV. RUL. 2006–22 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for April 2006 Appropriate percentage for the 70% present value low-income housing credit 8.11%

Appropriate percentage for the 30% present value low-income housing credit 3.47%

April 3, 2006 688 2006–14 I.R.B.

REV. RUL. 2006–22 TABLE 5

Rate Under Section 7520 for April 2006

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 5.6%

In Notice 2001–4, 2001–1 C.B. 267, Notice 2001–11, 2001–1 C.B. 464, and Notice 2001–43, 2001–2 C.B. 72, the Treasury Department and the IRS announced the intention to amend the current regulations under sections 1441, 6049 and 6114 to address the matters discussed in those notices.

On March 30, 2005, the IRS and Treasury published a notice of proposed rulemaking (REG–125443–01, 2005–16 I.R.B. 912) in the Federal Register (70 FR 16189) (hereinafter the proposed regulations). The proposed regulations contained provisions to implement certain changes announced in those notices and other changes.

No public hearing regarding the proposed regulations was requested or held. However, certain written comments were received. After consideration of the comments, the proposed regulations are adopted as revised by this Treasury decision.

Summary of Comments

These final regulations finalize the provisions of the proposed regulations with only two areas of modification. The comments received and the modifications made in response to those comments are described below.

A. Taxpayer Identification Number (TIN) Requirement for Certain Foreign Grantor Trusts

Section 1.1441–1(e)(4)(vii)(G) provides that a TIN must be stated on a withholding certificate from a person representing to be a foreign grantor trust with 5 or fewer grantors. Generally, if no TIN is provided, the withholding certificate is considered invalid. See §1.1441–1(e)(2)(ii).

The proposed regulations eliminated this TIN requirement for withholding certificates provided by such persons to qualified intermediaries (QIs), but retained it for withholding certificates provided by

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 April 2006. See Rev. Rul. 2006-22, page 687.

Section 1441.—Withholding of Tax on Nonresident Aliens

26 CFR 1.1441–1: Requirement for the deduction and withholding of tax on payments to foreign per- sons.

T.D. 9253

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 301

Revisions to Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons and Revisions of Information Reporting Regulations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

SUMMARY: This document contains final regulations relating to the withholding of tax under sections 1441 and 1442 on certain U.S. source income paid to foreign persons and related requirements governing collection, deposit, refunds, and credits of withheld amounts under sections 1461 through 1463. Additionally, this document contains final regulations under sections 6049 and 6114. These regulations affect persons making payments of U.S. source income to foreign persons and foreign persons claiming benefits under a U.S. income tax treaty.

DATES: Effective Date: These regulations are effective March 14, 2006. The removal of §1.1441–1(e)(4)(vii)(G) is effective as of January 1, 2001.

FOR FURTHER INFORMATION CONTACT: Ethan Atticks, (202) 622–3840 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in this final rule have been previously 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 1545–1484. 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.

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

In Treasury Decision 8734, 1997–2 C.B. 109 [62 FR 53387], the Treasury Department and the IRS issued comprehensive regulations under chapter 3 (sections 1441–1464) and subpart B of Part III of Subchapter A of chapter 61 (sections 6041 through 6050T) of the Internal Revenue Code (Code). Those regulations were amended by T.D. 8804, 1999–1 C.B. 793

[63 FR 72183], T.D. 8856, 2000–1 C.B. 298 [64 FR 73408], T.D. 8881, 2000–1 C.B. 1158 [65 FR 32152], and T.D. 9023, 2002–2 C.B. 955 [67 FR 70310] (collectively the current regulations). The current regulations are generally effective as of January 1, 2001.

2006–14 I.R.B. 689 April 3, 2006

that the trade or business requirement described above with respect to pension funds is not “any condition” described in §301.6114–1(b)(4)(ii)(D). To clarify this point, the commentators requested that the final regulations waive reporting for pension funds.

Commentators also requested that §301.6114–1(c)(6), which waives reporting for amounts required to be reported under section 6038A on a Form 5472, “ In- formation Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corpora- tion Engaged in a U.S. Trade or Business (under sections 6038A and 6038(c) of the Internal Revenue Code), ” to the extent permitted under the form or accompanying instructions, be activated by including such permission in the form or instructions.

The IRS and Treasury considered the comments discussed above, as well as the general bases for requiring reporting under section 6114. The IRS and Treasury agree that reporting under section 6114 should not be required in certain circumstances where the payment is properly reported on Form 1042–S, “ Foreign Person’s U.S. Source Income Subject to Withholding, ” and the withholding agent is a U.S. person, or a foreign person that has entered into an agreement that provides for IRS audit. Thus, in response to the comments described above, the following amendments are made to the waiver provisions of §301.6114–1(c).

First, rather than activating the exception for amounts required to be reported under section 6038A on Form 5472, paragraph (c)(6) of the regulations is revised to replace this provision regarding Form 5472 with a provision waiving reporting for amounts properly reported on Form 1042–S by a withholding agent that is a reporting corporation within the meaning of section 6038A(a). Second, a new paragraph (c)(7) is added to provide that reporting is waived for amounts properly reported on Form 1042–S by a withholding agent that is a U.S. financial institution, a QI, or a withholding foreign partnership (WP) or withholding foreign trust (WT) if the beneficial owner is a direct account holder of the U.S. financial institution or QI or a direct beneficiary or owner of the WP or WT. Third, a new paragraph (c)(8) is added which replaces the provision in the proposed regulations (see Prop. Reg.

such persons to other withholding agents if the certificate was executed on or before December 31, 2003.

Commentators requested that these final regulations adopt the provisions of the proposed regulations that remove the TIN requirement but with an effective date that applies to certificates executed and provided to all withholding agents, not just QIs, on or after January 1, 2001, the effective date of the current regulations. The commentators state that the retroactive effective date for withholding certificates provided to the other withholding agents is consistent with the IRS and Treasury’s recognition that the TIN requirement in the current regulations is not serving to enhance enforcement objectives. Further, the commentators state that for administrative reasons the effective dates should be consistent whether or not the withholding certificate is provided to a QI or other withholding agent. The IRS and Treasury agree with this comment. Accordingly, under these final regulations, a withholding certificate executed on or after January 1, 2001, and provided to a QI or other withholding agent by a person representing to be a foreign grantor trust with five or fewer grantors does not need to state a TIN for such certificate to be valid.

B. Reporting of Treaty-based Return Positions

Section 301.6114–1(a) provides that, if a taxpayer takes a return position that a tax treaty overrules or modifies any provision of the Code and thereby effects a reduction of any tax at any time, the taxpayer must disclose that return position, either on a statement attached to the return or on a return filed for the purpose of making such disclosure. When applicable, §301.6114–1(d) generally requires a taxpayer to attach Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), to its U.S. Federal income tax return. Section 301.6114–1(b) states that reporting is required unless it is expressly waived and provides a nonexclusive list of particular positions for which reporting is required. Section 301.6114–1(c) then provides a list of specific exceptions from the general reporting requirements of §301.6114–1(a) and (b).

The proposed regulations provided that reporting under §301.6114–1(b)(4)(ii) is required only for the positions specifically described in paragraphs (b)(4)(ii)(A) and (B), or (C) or (D) of that section. Further, the proposed regulations provided that reporting under §301.6114–1(b)(4)(ii)(D) is waived for taxpayers that are not individuals or States and that receive amounts of income subject to withholding that do not exceed $10,000 in the aggregate for the taxable year. See Prop. Reg. §301.6114–1(c)(1)(i), and (7).

Commentators suggested that the $10,000 threshold applicable to taxpayers that are not individuals or States should be increased to $500,000, the threshold amount for reporting under §301.6114–1(b)(4)(ii)(C) (addressing payments to a related foreign person where benefits are claimed under a treaty that contains a limitation on benefits article). The commentators noted that entities typically have substantially higher levels of investment as compared to individuals and therefore a higher threshold is warranted. The commentators concluded that the administrative burden placed on these entities by the regulations is not appropriate when considering the benefit to the government by the disclosure. As a result, the commentators believed that the exception should be modified.

In addition, the commentators suggested that reporting be waived for pension funds and certain other persons required to report under §301.6114–1(b)(4)(ii)(D), which requires reporting whenever a treaty imposes “any condition” in addition to a person’s residence in the treaty country for entitlement to treaty benefits. The commentators stated that because, for example, an income tax treaty may condition a pension fund’s entitlement to a reduced rate of taxation on dividends on the pension fund not being engaged in a trade or business, and because a pension fund rarely will violate such a condition, from a practical standpoint the sole requirement for entitlement to treaty benefits is the residence of the pension fund. Therefore, the commentators suggested that requiring the pension fund to file an income tax return and make a treaty based disclosure of its position imposes an unnecessary administrative burden. Accordingly, the commentators believed that it was appropriate to interpret the regulations such

April 3, 2006 690 2006–14 I.R.B.

not be treated as a U.S. person for purposes of the withholding certificate it may provide to a withholding agent. Therefore, the U.S. branch must furnish a U.S. branch withholding certificate on Form W–8 as provided in paragraph (e)(3)(v) of this section and not a Form W–9. An agreement to treat a U.S. branch as a U.S. person must be evidenced by a U.S. branch withholding certificate described in paragraph (e)(3)(v) of this section furnished by the U.S. branch to the withholding agent. A U.S. branch described in this paragraph (b)(2)(iv)(A) is any U.S. branch of a foreign bank subject to regulatory supervision by the Federal Reserve Board or a U.S. branch of a foreign insurance company required to file an annual statement on a form approved by the National Association of Insurance Commissioners with the Insurance Department of a State, a Territory, or the District of Columbia. In addition, a financial institution organized in a possession of the United States will be treated as a U.S. branch for purposes of this paragraph (b)(2)(iv)(A). The Internal Revenue Service (IRS) may approve a list of U.S. branches that may qualify for treatment as a U.S. person under this paragraph (b)(2)(iv)(A) (see §601.601(d)(2) of this chapter). See §1.6049–5(c)(5)(vi) for the treatment of U.S. branches as U.S. payors if they make a payment that is subject to reporting under chapter 61 of the Internal Revenue Code. Also see §1.6049–5(d)(1)(ii) for the treatment of U.S. branches as foreign payees under chapter 61 of the Internal Revenue Code.

- - - (3) - * (iii) * * (E) Certain payments for services . A payment for services is presumed to be made to a foreign person if —

( 1 ) The payee is an individual; ( 2 ) The withholding agent does not know, or have reason to know, that the payee is a U.S. citizen or resident;

( 3 ) The withholding agent does not know, or have reason to know, that the income is (or may be) effectively connected with the conduct of a trade or business within the United States; and

( 4 ) All of the services for which the payment is made were performed by the payee outside of the United States.

§301.6114–1(c)(7)) waiving reporting for taxpayers that are not individuals or States and that receive amounts of income subject to withholding that do not exceed the $10,000 threshold. New paragraph (c)(8) contains a waiver for taxpayers that are not individuals or States that receive amounts that have been properly reported on Form 1042–S, do not exceed $500,000, and are not received through an intermediary or flow-through entity.

Notwithstanding the discussion above, the final regulations provide that the waivers from reporting in paragraph (c)(6), (7) and (8) do not apply to the extent that reporting is specifically required under the instructions to Form 8833.

Finally, these final regulations clarify that reporting under section 301.6114–1(b)(4)(ii) is required only for the positions specifically described in paragraphs (b)(4)(ii)(A) and (B), or (C) or (D).

Effect on Other Documents

Sections (V)(C), (D), and (E) of Notice 2001–4, 2001–1 C.B. 267, Notice 2001–11, 2001–1 C.B. 464, and Sections 2 and 3 of Notice 2001–43, 2001–2 C.B. 72, are superseded as of March 14, 2006.

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 the regulations do not impose a new 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 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 business.

Drafting Information

The principal author of these proposed regulations is Ethan Atticks, 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 parts 1 and 301 are amended as follows:

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 * * * Par. 2. Section 1.1441–1 is amended as follows:

Paragraph (b)(2)(iv)(A) is revised.
Paragraph (b)(3)(iii)(E) is added.
Paragraph (c)(30) is added.
Paragraph (e)(4)(vii)(G) is removed and paragraph (e)(4)(vii)(H) and (I) are redesignated as paragraph (e)(4)(vii)(G) and (H) respectively.

The revisions and additions read as follows:

§1.1441–1 Requirement for the deduction and withholding of tax on payments to foreign persons.

- - - (b) - - (2) - - (iv) Payments to a U.S. branch of cer- tain foreign banks or foreign insurance companies —(A) U.S. branch treated as a U.S. person in certain cases . A payment to a U.S. branch of a foreign person is a payment to a foreign person. However, a U.S. branch described in this paragraph (b)(2)(iv)(A) and a withholding agent (including another U.S. branch described in this paragraph (b)(2)(iv)(A)) may agree to treat the branch as a U.S. person for purposes of withholding on specified payments to the U.S. branch. Notwithstanding the preceding sentence, a withholding agent making a payment to a U.S. branch treated as a U.S. person under this paragraph (b)(2)(iv)(A) shall not treat the branch as a U.S. person for purposes of reporting the payment made to the branch. Therefore, a payment to such U.S. branch shall be reported on Form 1042–S under §1.1461–1(c). Further, a U.S. branch that is treated as a U.S. person under this paragraph (b)(2)(iv)(A) shall

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tax treaty only to the extent that such payment is treated as derived by a resident of an applicable treaty jurisdiction, such resident is a beneficial owner, and all other requirements for benefits under the treaty are satisfied. See section 894 and the regulations thereunder to determine whether a resident of a treaty country derives the income. Absent actual knowledge or reason to know otherwise, a withholding agent may rely on a claim that a beneficial owner is entitled to a reduced rate of withholding based upon an income tax treaty if, prior to the payment, the withholding agent can reliably associate the payment with a beneficial owner withholding certificate, as described in §1.1441–1(e)(2), that contains the information necessary to support the claim, or, in the case of a payment of income described in paragraph (c)(2) of this section made outside the United States with respect to an offshore account, documentary evidence described in paragraphs (c)(3), (4), and (5) of this section. See §1.6049–5(e) for the definition of payments made outside the United States and §1.6049–5(c)(1) for the definition of offshore account. For purposes of this paragraph (b)(1), a beneficial owner withholding certificate described in §1.1441–1(e)(2)(i) contains information necessary to support the claim for a treaty benefit only if it includes the beneficial owner’s taxpayer identifying number (except as otherwise provided in paragraph (c)(1) of this section and §1.1441–6(g)) and the representations that the beneficial owner derives the income under section 894 and the regulations thereunder, if required, and meets the limitation on benefits provisions of the treaty, if any. The withholding certificate must also contain any other representations required by this section and any other information, certifications, or statements as may be required by the form or accompanying instructions in addition to, or in place of, the information and certifications described in this section. Absent actual knowledge or reason to know that the claims are incorrect (and subject to the standards of knowledge in §1.1441–7(b)), a withholding agent may rely on the claims made on a withholding certificate or on documentary evidence. A withholding agent may also rely on the information contained in a withholding statement provided under §§1.1441–1(e)(3)(iv) and

(c) - - (30) Possessions of the United States . For purposes of the regulations under chapters 3 and 61 of the Internal Revenue Code, possessions of the United States means Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, and the Virgin Islands.

- - - Par. 3. Section 1.1441–3 is amended by revising paragraphs (c)(3) and (e)(2) to read as follows:

§1.1441–3 Determination of amounts to be withheld.

- - - (c) - * (3) Special rules in the case of dis- tributions from a regulated investment company —(i) General rule . If the amount of any distributions designated as being subject to section 852(b)(3)(C) or 5(A), or 871(k)(1)(C) or (2)(C), exceeds the amount that may be designated under those sections for the taxable year, then no penalties will be asserted for any resulting underwithholding if the designations were based on a reasonable estimate (made pursuant to the same procedures as described in paragraph (c)(2)(ii)(A) of this section) and the adjustments to the amount withheld are made within the time period described in paragraph (c)(2)(ii)(B) of this section. Any adjustment to the amount of tax due and paid to the IRS by the withholding agent as a result of underwithholding shall not be treated as a distribution for purposes of section 562(c) and the regulations thereunder. Any amount of U.S. tax that a foreign shareholder is treated as having paid on the undistributed capital gain of a regulated investment company under section 852(b)(3)(D) may be claimed by the foreign shareholder as a credit or refund under §1.1464–1.

(ii) Reliance by intermediary on rea- sonable estimate . For purposes of determining whether a payment is a distribution designated as subject to section 852(b)(3)(C) or (5)(A), or 871(k)(1)(C) or (2)(C), a withholding agent that is not the distributing regulated investment company may, absent actual knowledge or reason to know otherwise, rely on the designations that the distributing company represents have been made in accordance with paragraph (c)(3)(i) of this section.

Failure by the withholding agent to withhold the required amount due to a failure by the regulated investment company to reasonably estimate the required amounts or to properly communicate the relevant information to the withholding agent shall be imputed to the distributing company. In such a case, the IRS may collect from the distributing company any underwithheld amount and subject the company to applicable interest and penalties as a withholding agent.

- - - (e) - - (2) Payments in foreign currency . If the amount subject to withholding tax is paid in a currency other than the U.S. dollar, the amount of withholding under section 1441 shall be determined by applying the applicable rate of withholding to the foreign currency amount and converting the amount withheld into U.S. dollars on the date of payment at the spot rate (as defined in §1.988–1(d)(1)) in effect on that date. A withholding agent making regular or frequent payments in foreign currency may use a month-end spot rate or a monthly average spot rate. In addition, such a withholding agent may use the spot rate on the date the amount of tax is deposited (within the meaning of §1.6302–2(a)), provided that such deposit is made within seven days of the date of the payment giving rise to the obligation to withhold. A spot rate convention must be used consistently for all non-dollar amounts withheld and from year to year. Such convention cannot be changed without the consent of the Commissioner. The U.S. dollar amount so determined shall be treated by the beneficial owner as the amount of tax paid on the income for purposes of determining the final U.S. tax liability and, if applicable, claiming a refund or credit of tax.
- - - Par. 4. In §1.1441–6, paragraph (b)(1) is revised to read as follows:

§1.1441–6 Claim of reduced withholding under an income tax treaty.

- - - (b) Reliance on claim of reduced with- holding under an income tax treaty —(1) In general . The withholding imposed under section 1441, 1442, or 1443 on any payment to a foreign person is eligible for reduction under the terms of an income

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that possession. For purposes of this paragraph (c)(5)(ii), a U.S. payor may treat the beneficial owner as a bona fide resident of the possession of the United States from which the income is sourced if, prior to payment of the income, the U.S. payor can reliably associate the payment with valid documentation that supports the claim of residence in the possession of the United States from which the income is sourced. This paragraph (c)(5)(ii) shall not apply if the U.S. payor has actual knowledge or reason to know that the documentation is unreliable or incorrect or that the income does not satisfy the requirements for exemption under section 931, 932, or 933. For the rules determining whether income is from sources within a possession of the United States, see section 937(b) and the regulations thereunder.

PART 301 - PROCEDURE AND ADMINISTRATION

Par. 6. The authority citation for part 301 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * Par. 7. Section 301.6114–1 is amended as follows:

Paragraphs (c)(1)(i) through (c)(1)(vii) are redesignated as paragraphs (c)(1)(ii) through (c)(1)(viii), respectively.
New paragraph (c)(1)(i) is added.
Paragraph (c)(6) is revised.
Paragraphs (c)(7) and (8) are added. The additions and revision read as follows:

§301.6114–1 Treaty-based return positions.

- - - (c) * * * (1) * * * (i) For amounts received on or after January 1, 2001, reporting under paragraph (b)(4)(ii) is waived, unless reporting is specifically required under paragraphs (b)(4)(ii)(A) and (B) of this section, paragraph (b)(4)(ii)(C) of this section, or paragraph (b)(4)(ii)(D) of this section;
- - - (6)(i) For taxable years ending after December 31, 2004, except as provided in paragraph (c)(6)(ii) of this section, reporting under paragraph (b)(4)(ii) of this section is waived for amounts received by a related party, within the meaning of

1.1441–5(c)(3)(iv) and (e)(5)(iv) to determine whether the appropriate statements regarding section 894 and limitation on benefits have been provided in connection with documentary evidence. The Internal Revenue Service (IRS) may apply the provisions of §1.1441–1(e)(1)(ii)(B) to notify the withholding agent that the certificate cannot be relied upon to grant benefits under an income tax treaty. See §1.1441–1(e)(4)(viii) regarding reliance on a withholding certificate by a withholding agent. The provisions of §1.1441–1(b)(3)(iv) dealing with a 90-day grace period shall apply for purposes of this section.

- - - Par. 5. Section 1.6049–5 is amended as follows:

Paragraph (c)(1) is revised.
Paragraphs (c)(5)(i), (ii), (iii), (iv), (v) and (vi) are redesignated as paragraphs (c)(5)(i)(A), (B), (C), (D), (E), and (F), respectively.
A new heading is added to paragraph (c)(5)(i).
New paragraph (c)(5)(ii) is added. The revisions and additions read as follows:

§1.6049–5 Interest and original issue discount subject to reporting after December 31, 1982.

- - - (c) Applicable rules —(1) Documentary evidence for offshore accounts and for possessions accounts . A payor may rely on documentary evidence described in this paragraph (c)(1) instead of a beneficial owner withholding certificate described in §1.1441–1(e)(2)(i) in the case of a payment made outside the United States to an offshore account, in the case of a payment made to a U.S. possessions account or, in the case of broker proceeds described in §1.6045–1(c)(2), in the case of a sale effected outside the United States (as defined in §1.6045–1(g)(3)(iii)(A)). For purposes of this paragraph (c)(1), an offshore account means an account maintained at an office or branch of a U.S. or foreign bank or other financial institution at any location outside the United States ( i.e., other than in any of the fifty States or the District of Columbia) and outside of possessions of the United States. Thus, for example, an account maintained in a

foreign country at a branch of a U.S. bank or of a foreign subsidiary of a U.S. bank is an offshore account. For purposes of this paragraph (c)(1), a U.S. possessions ac- count means an account maintained at an office or branch of a U.S. or foreign bank or other financial institution located within a possession of the United States. For the definition of a payment made outside the United States, see paragraph (e) of this section. A payor may rely on documentary evidence if the payor has established procedures to obtain, review, and maintain documentary evidence sufficient to establish the identity of the payee and the status of that person as a foreign person (including, but not limited to, documentary evidence described in §1.1441–6(c)(3) or (4)); and the payor obtains, reviews, and maintains such documentary evidence in accordance with those procedures. A payor maintains the documents reviewed by retaining the original, certified copy, or a photocopy (or microfiche or similar means of record retention) of the documents reviewed and noting in its records the date on which and by whom the document was received and reviewed. Documentary evidence furnished for the payment of an amount subject to withholding under chapter 3 of the Internal Revenue Code must contain all of the information that is necessary to complete a Form 1042–S for that payment. A payor may also rely on documentary evidence associated with a flow-through withholding certificate for payments treated as made to foreign partners of a nonwithholding foreign partnership, as defined in §1.1441–1(c)(28), the foreign beneficiaries of a foreign simple trust, as defined in §1.1441–1(c)(24), or foreign owners of a foreign grantor trust, as defined in §1.1441–1(c)(26), even though the partnership or trust account is maintained in the United States.

- - - (5) * * * (i) Definition . - * * (ii) Reporting by U.S. payors in U.S. possessions . U.S. payors are not required to report on Form 1099 income that is from sources within a possession of the United States and that is exempt from taxation under section 931, 932, or 933, each of which sections exempts certain income from sources within a possession of the United States paid to a bona fide resident of

2006–14 I.R.B. 693 April 3, 2006

Rev. Rul. 2006–16

ISSUE

Whether the taxpayer is precluded from raising a request for relief from joint and several liability under section 6015 by virtue of a previous Chapter 7 bankruptcy case in which the Internal Revenue Service (Service) filed a proof of claim, but the bankruptcy court did not make an actual determination of tax liability.

FACTS

Married taxpayers, H and W, sign and timely file a joint return for Year 1. During an audit, the Service determines that the joint return substantially understates the income attributable to taxpayer W. The Service issues a notice of deficiency, on which taxpayers default. In January of Year 3, the Service assesses against taxpayers income tax deficiencies, for which they are jointly and severally liable. Neither taxpayer pays the deficiency assessment. In October of Year 3, taxpayers file a voluntary joint petition for bankruptcy under Chapter 7 of Title 11 of the United States Code (Bankruptcy Code). In November of Year 3, the Service files a proof of claim asserting an unsecured priority claim for the deficiency. Neither taxpayer, nor any other party in interest, objects to the proof of claim, which is not discharged and is deemed allowed under section 502(a) of the Bankruptcy Code. Neither taxpayer requests relief from joint and several liability under section 6015 during the bankruptcy case. Neither taxpayer requests the bankruptcy court to adjudicate the merits of the tax liability under section 505 of the Bankruptcy Code. After the bankruptcy case is closed, taxpayers H and W separate. Thereafter, H (requesting spouse) files a request for relief from joint and several liability under section 6015. No party in interest files a dischargeability proceeding.

LAW

The Bankruptcy Code provides rules for debtors to consolidate and resolve their debts to various creditors, including the Service, in various ways. Section 301 of the Bankruptcy Code allows debtors to commence a bankruptcy case by filing a voluntary petition with the bankruptcy

section 6038A(c)(2), from a withholding agent that is a reporting corporation, within the meaning of section 6038A(a), and that are properly reported on Form 1042–S. (ii) Paragraph (c)(6)(i) of this section does not apply to any amounts for which reporting is specifically required under the instructions to Form 8833.

(7)(i) For taxable years ending after December 31, 2004, except as provided in paragraph (c)(7)(iv) of this section, reporting under paragraph (b)(4)(ii) of this section is waived for amounts properly reported on Form 1042–S (on either a specific payee or pooled basis) by a withholding agent described in paragraph (c)(7)(ii) of this section if the beneficial owner is described in paragraph (c)(7)(iii) of this section.

(ii) A withholding agent described in this paragraph (c)(7)(ii) is a U.S. financial institution, as defined in §1.1441–1(c)(5) of this chapter, a qualified intermediary, as defined in §1.1441–1(e)(5)(ii) of this chapter, a withholding foreign partnership, as defined in §1.1441–5(c)(2)(i) of this chapter, or a withholding foreign trust, as defined in §1.1441–5(e)(5)(v) of this chapter.

(iii) A beneficial owner described in this paragraph (c)(7)(iii) of this section is a direct account holder of a U.S. financial institution or qualified intermediary, a direct partner of a withholding foreign partnership, or a direct beneficiary or owner of a simple or grantor trust that is a withholding foreign trust. A beneficial owner described in this paragraph (c)(7)(iii) also includes an account holder to which a qualified intermediary has applied section 4A.01 or 4A.02 of the qualified intermediary agreement, contained in Revenue Procedure 2000–12, 2000–1 C.B. 387 (as amended by Revenue Procedure 2003–64, 2003–2 C.B. 306; Revenue Procedure 2004–21, 2004–1 C.B. 702; Revenue Procedure 2005–77, 2005–51 I.R.B. 1176 (see § 601.601(b)(2) of this chapter) a partner to which a withholding foreign partnership has applied section 10.01 or 10.02 of the withholding foreign partnership agreement, and a beneficiary or owner to which a withholding foreign trust has applied section 10.01 or 10.02 of the withholding foreign trust agreement, contained in Revenue Procedure 2003–64, 2003–2 C.B. 306 (as amended by Revenue Procedure 2004–21, 2004–1 C.B. 702; Revenue

Procedure 2005–77, 2005–51 I.R.B. 1176 (see § 601.601(b)(2) of this chapter).

(iv) Paragraph (c)(7)(i) of this section does not apply to any amounts for which reporting is specifically required under the instructions to Form 8833.

(8)(i) For taxable years ending after December 31, 2004, except as provided in paragraph (c)(8)(ii) of this section, reporting under paragraph (b)(4)(ii) of this section is waived for taxpayers that are not individuals or States and that receive amounts of income that have been properly reported on Form 1042–S, that do not exceed $500,000 in the aggregate for the taxable year and that are not received through an account with an intermediary, as defined in §1.1441–1(c)(13), or with respect to interest in a flow-through entity, as defined in §1.1441–1(c)(23).

(ii) The exception contained in paragraph (c)(8)(i) of this section does not apply to any amounts for which reporting is specifically required under the instructions to Form 8833.

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

Approved February 27, 2006.

Eric Solomon, Acting Deputy Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on March 13, 2006, 8:45 a.m., and published in the issue of the Federal Register for March 14, 2006, 71 F.R. 13003)

Section 6015.—Relief From Joint and Several Liability on Joint Return

26 CFR 1.6015–1: Relief from joint and several lia- bility on a joint return.

Joint and several liability; relief un- der section 6015. This ruling discusses the issue of whether a taxpayer is precluded from raising a request for relief from joint and several liability under section 6015 by virtue of a previous Chapter 7 bankruptcy case in which the Service filed a proof of claim, but the bankruptcy court did not make an actual determination of tax liability.

April 3, 2006 694 2006–14 I.R.B.

merits of a tax liability, including relief from joint and several liability, during the course of determining whether the tax liability is dischargeable. See, e.g., In re Brackin, 148 B.R. 953 (Bankr. N.D. Ala. 1992). If the bankruptcy court were to make a determination on the merits of the tax liability, that determination generally would preclude the requesting spouse from later raising a request for relief under section 6015 if the requesting spouse was a debtor in the bankruptcy case and meaningfully participated in the dischargeability proceeding. See section 6015(g)(2).

ANALYSIS

Under the facts of this revenue ruling, the Service filed a proof of claim in the bankruptcy case and neither taxpayer, and no other party in interest, filed an objection to the proof of claim under 11 U.S.C § 502(a) or moved for the bankruptcy court to determine the liability under 11 U.S.C. § 505(a). Thus, the merits of the tax liability were not determined by the bankruptcy court and the requesting spouse is not precluded from raising a request for relief under section 6015 after the bankruptcy case is closed.

HOLDING

The taxpayer, H, is not precluded from raising a subsequent request for relief from joint and several liability under section 6015 by virtue of the prior bankruptcy case filed by H and W in which the Service filed a proof of claim, but the bankruptcy court did not make an actual determination of the liability.

DRAFTING INFORMATION

The principal author of this revenue ruling is G. William Beard of the Office of the Associate Chief Counsel (Procedure and Administration), Collection, Bankruptcy & Summonses Division. For further information regarding this revenue ruling, contact Branch 2 of Collection, Bankruptcy & Summonses at (202) 622–3620 (not a toll-free call).

court. Once a petition is filed, creditors have an opportunity to file proofs of claim. 11 U.S.C. § 501. A proof of claim asserts the right of a creditor to payment and can include rights that are fixed, contingent, liquidated, or unliquidated. See 11 U.S.C. § 101(5). A properly filed proof of claim is prima facie evidence of the validity and amount of the claim. Fed. R. Bankr. P. 3001(f). The proof of claim is deemed allowed, unless a party in interest objects. 11 U.S.C. § 502(a). If a party in interest objects, the bankruptcy court, after notice and a hearing, determines the validity and amount of the claim as of the date of the petition and allows the claim in the proper amount. 11 U.S.C. § 502(b).

Generally, the bankruptcy court may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed and whether or not paid. 11 U.S.C. § 505(a)(1). This includes the determination of the eligibility of a debtor for relief from joint and several liability under section 6015 in appropriate cases. See In re French, 242 B.R. 369 (Bankr. N.D. Ohio 1999). The determination of the bankruptcy court on the merits of a claim is a final judgment and, unless appealed, is binding on the parties to a contested matter. See Freytag v. Commis- sioner, 110 T.C. 35 (1998). The determination also precludes subsequent litigation by a debtor over the merits of the liability under principles of res judicata . See id. at 40. The Supreme Court in Commis- sioner v. Sunnen explained the rule of res judicata :

[W]hen a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound “not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.” 333 U.S. 591, 597 (1948) (quoting Cromwell v. County of Sac, 94 U.S. 351, 352 (1876)). Although filing a bankruptcy petition commences a case, “a bankruptcy case is simply an aggregation of controversies.” See In re Martin Bros. Toolmakers, Inc.,

796 F.2d 1435, 1437 (11th Cir. 1986). In order to bring a controversy before the bankruptcy court, a party generally moves for relief in a contested matter under Federal Rule of Bankruptcy Procedure 9014 or initiates an adversary proceeding under Rule 7001. The merits of a tax liability are generally raised in one of two ways. Either the debtor or the Service can seek a determination of a tax liability under section 505 of the Bankruptcy Code, or a party in interest can object to a proof of claim listing tax liabilities under section 502(a). See In re Taylor, 132 F.3d 256, 262 (5th Cir. 1998). Unless a party in interest moves for relief or initiates a proceeding, the merits of a tax liability are not before the bankruptcy court, and the bankruptcy court does not inquire into the merits of the tax liability or enter a final judgment fixing the tax liability.

Certain taxes are excepted from discharge in a Chapter 7 bankruptcy case. See 11 U.S.C. § 523(a)(1), 727(b). For example, income tax liabilities for tax years ending within three years of the bankruptcy petition are entitled to priority status and are excepted from the bankruptcy discharge under sections 523(a)(1)(A) and 507(a)(8)(A)(i). These tax liabilities are excepted from discharge under section 523(a)(1)(A) whether or not a claim was filed or allowed, and the principles of res judicata do not apply unless the merits of the tax liabilities were actually determined. Hambrick v. Commissioner, 118 T.C. 348 (2002).

A debtor or creditor may request the bankruptcy court to determine the dischargeability of a debt by initiating an adversary proceeding under Federal Rule of Bankruptcy Procedure 7001. A dischargeability proceeding is a proceeding to determine whether a bankruptcy discharge includes the discharge of liability for certain debts. A determination of the bankruptcy court in a discharge proceeding that is a final judgment on the merits bars relitigation of dischargeability. See Florida Peach Corp. v. Commissioner, 90 T.C. 678, 682 (1988). However, a discharge determination generally does not include consideration of the merits of the debt. In re Doerge, 181 B.R. 358, 364 (Bankr. S.D. Ill. 1995). There are cases in which bankruptcy courts consider the

2006–14 I.R.B. 695 April 3, 2006

Section 6103.—Confi- dentiality and Disclosure of Returns and Return Information

26 CFR 301.6103(j)(5)–1: Disclosures of return in- formation reflected on returns to officers and employ- ees of the Department of Agriculture for conducting the census of agriculture.

T.D. 9245

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301

Disclosure of Return Information to the Department of Agriculture

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations that incorporate and clarify the phrase “return information reflected on returns” in conformance with the terms of section 6103(j)(5) of the Internal Revenue Code (Code), which provides for limited disclosures of returns and return information in connection with the census of agriculture. These final regulations also remove certain items of return information that the Department of Agriculture no longer needs for conducting the census of agriculture.

DATES: Effective Date: These regulations are effective on February 22, 2006.

FOR FURTHER INFORMATION CONTACT: Deborah Lambert-Dean at (202) 622–4570 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to 26 CFR part 301 under section 6103(j) of the Code. On June 6, 2003, the Fed- eral Register published a temporary regulation (T.D. 9060, 2003–1 C.B. 1116) regarding disclosure of return information to the Department of Agriculture (68 FR 33857) and a notice of proposed rulemaking (NPRM) (REG–103809–03, 2003–1

C.B. 1132) cross-referencing the temporary regulations (68 FR 33887). There were no comments submitted in response to the NPRM. There was no request for a public hearing, and none took place. The proposed regulations are adopted and the corresponding temporary regulations are removed.

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, and 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 Code, the IRS submitted the NPRM preceding this Treasury decision 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 these regulations is Deborah Lambert-Dean, Office of the Associate Chief Counsel, Procedure & Administration (Disclosure & Privacy Law Division).

- - - -

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 301 is amended as follows:

PART 301— PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 is amended by removing the entry for “Section 301.6103(j)(5)–1T and adding an entry in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Section 301.6103(j)(5)–1 also issued under 26 U.S.C. 6103(j)(5). - * *

§301.6103(j)(5)–1T [Removed]

Par. 2. Section 301.6103(j)(5)–1T is removed.

Par. 3. Section 301.6103(j)(5)–1 is added to read as follows:

§ 301.6103(j)(5)–1 Disclosures of return information reflected on returns to officers and employees of the Department of Agriculture for conducting the census of agriculture.

(a) General rule . Pursuant to the provisions of section 6103(j)(5) of the Internal Revenue Code and subject to the requirements of paragraph (c) of this section, officers or employees of the Internal Revenue Service will disclose return information reflected on returns to officers and employees of the Department of Agriculture to the extent, and for such purposes, as may be provided by paragraph (b) of this section. “Return information reflected on returns” includes, but is not limited to, information on returns, information derived from processing such returns, and information derived from other sources for the purposes of establishing and maintaining taxpayer information relating to returns.

(b) Disclosure of return information re- flected on returns to officers and employ- ees of the Department of Agriculture . (1) Officers or employees of the Internal Revenue Service will disclose the following return information reflected on returns described in this paragraph (b) for individuals, partnerships and corporations with agricultural activity, as determined generally by industry code classification or the filing of returns for such activity, to officers and employees of the Department of Agriculture for purposes of, but only to the extent necessary in, structuring, preparing, and conducting, as authorized by chapter 55 of title 7, United States Code, the census of agriculture.

(2) From Form 1040 “ U.S. Individual Income Tax Return ”, Form 1041 “ U.S. In- come Tax Return for Estates and Trusts ”, Form 1065 “ U.S. Return of Partnership In- come ”, and Form 1065–B “ U.S. Return of Income for Electing Large Partnerships ” (Schedule F)—

(i) Taxpayer identity information (as defined in section 6103(b)(6) of the Internal Revenue Code);

(ii) Spouse’s Social Security Number; (iii) Annual accounting period; (iv) Principal Business Activity (PBA) code;

(v) Taxable cooperative distributions;

April 3, 2006 696 2006–14 I.R.B.

Section 6335.—Sale of Seized Property

Ct. D. 2082

SUPREME COURT OF THE

UNITED STATES

No. 04-603

GRABLE & SONS METAL PRODUCTS,

INC. v. DARUE ENGINEERING & MANUFACTURING

CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE SIXTH CIRCUIT

June 13, 2005

Syllabus

The Internal Revenue Service seized real property owned by petitioner (hereinafter Grable) to satisfy a federal tax delinquency, and gave Grable notice by certified mail before selling the property to respondent (hereinafter Darue). Grable subsequently brought a quiet title action in state court, claiming that Darue’s title was invalid because 26 U. S. C. §6335 required the IRS to give Grable notice of the sale by personal service, not certified mail. Darue removed the case to Federal District Court as presenting a federal question because the title claim depended on an interpretation of federal tax law. The District Court declined to remand the case, finding that it posed a significant federal-law question, and it granted Darue summary judgment on the merits. The Sixth Circuit affirmed, and this Court granted certiorari on the jurisdictional question.

Held: The national interest in providing a federal forum for federal tax litigation is sufficiently substantial to support the exercise of federal-question jurisdiction over the disputed issue on removal. Pp. 3–11.

(a) Darue was entitled to remove the quiet title action if Grable could have brought it in federal court originally, as a civil action “arising under the . . . laws . . . of the United States,” 28 U. S. C. §1331. Federal-question jurisdiction is usually invoked by plaintiffs pleading a cause of action created by federal law, but this Court has also long recognized that such jurisdiction will lie over some

(vi) Income from custom hire and machine work;

(vii) Gross income; (viii) Master File Tax (MFT) code; (ix) Document Locator Number (DLN); (x) Cycle posted; (xi) Final return indicator; (xii) Part year return indicator; and (xiii) Taxpayer telephone number. (3) From Form 943, “ Employer’s An- nual Federal Tax Return for Agricultural Employees ”—

(i) Taxpayer identity information; (ii) Annual accounting period; (iii) Total wages subject to Medicare taxes;

(iv) MFT code; (v) DLN; (vi) Cycle posted; (vii) Final return indicator; and (viii) Part year return indicator. (4) From Form 1120 series, “ U.S. Cor- poration Income Tax Return ”—

(i) Taxpayer identity information; (ii) Annual accounting period; (iii) Gross receipts less returns and allowances;

(iv) PBA code; (v) MFT Code; (vi) DLN; (vii) Cycle posted; (viii) Final return indicator; (ix) Part year return indicator; and (x) Consolidated return indicator. (5) From Form 1065 series, “ U.S. Re- turn of Partnership Income ” —

(i) Taxpayer identity information; (ii) Annual accounting period; (iii) PBA code; (iv) Gross receipts less returns and allowances;

(v) Net farm profit (loss); (vi) MFT code; (vii) DLN; (viii) Cycle posted; (ix) Final return indicator; and (x) Part year return indicator. (c) Procedures and Restrictions . (1) Disclosure of return information reflected on returns by officers or employees of the Internal Revenue Service as provided by paragraph (b) of this section will be made only upon written request designating, by name and title, the officers and employees of the Department of Agriculture to whom such disclosure is authorized, to the Commissioner of Internal Revenue by the Secretary of Agriculture and describing—

(i) The particular return information reflected on returns for disclosure;

(ii) The taxable period or date to which such return information reflected on returns relates; and

(iii) The particular purpose for the requested return information reflected on returns.

(2) (i) No such officer or employee to whom the Internal Revenue Service discloses return information reflected on returns pursuant to the provisions of paragraph (b) of this section shall disclose such information to any person, other than the taxpayer to whom such return information reflected on returns relates or other officers or employees of the Department of Agriculture whose duties or responsibilities require such disclosure for a purpose described in paragraph (b)(1) of this section, except in a form that cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer.

(ii) If the Internal Revenue Service determines that the Department of Agriculture, or any officer or employee thereof, has failed to, or does not, satisfy the requirements of section 6103(p)(4) of the Internal Revenue Code or regulations or published procedures, the Internal Revenue Service may take such actions as are deemed necessary to ensure that such requirements are or will be satisfied, including suspension of disclosures of return information reflected on returns otherwise authorized by section 6103(j)(5) and paragraph (b) of this section, until the Internal Revenue Service determines that such requirements have been or will be satisfied.

(d) Effective date . This section is applicable on February 22, 2006.

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

Approved February 11, 2006.

Eric Solomon, Acting Deputy Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on February 21, 2006, 8:45 a.m., and published in the issue of the Federal Register for February 22, 2006, 71 F.R. 8945)

2006–14 I.R.B. 697 April 3, 2006

bor between the state and federal courts, provided or assumed by Congress.

In 1994, the Internal Revenue Service seized Michigan real property belonging to petitioner Grable & Sons Metal Products, Inc., to satisfy Grable’s federal tax delinquency. Title 26 U. S. C. §6335 required the IRS to give notice of the seizure, and there is no dispute that Grable received actual notice by certified mail before the IRS sold the property to respondent Darue Engineering & Manufacturing. Although Grable also received notice of the sale itself, it did not exercise its statutory right to redeem the property within 180 days of the sale, §6337(b)(1), and after that period had passed, the Government gave Darue a quitclaim deed. §6339.

Five years later, Grable brought a quiet title action in state court, claiming that Darue’s record title was invalid because the IRS had failed to notify Grable of its seizure of the property in the exact manner required by §6335(a), which provides that written notice must be “given by the Secretary to the owner of the property [or] left at his usual place of abode or business.” Grable said that the statute required personal service, not service by certified mail.

Darue removed the case to Federal District Court as presenting a federal question, because the claim of title depended on the interpretation of the notice statute in the federal tax law. The District Court declined to remand the case at Grable’s behest after finding that the “claim does pose a significant question of federal law,” Tr. 17 (Apr. 2, 2001), and ruling that Grable’s lack of a federal right of action to enforce its claim against Darue did not bar the exercise of federal jurisdiction. On the merits, the court granted summary judgment to Darue, holding that although §6335 by its terms required personal service, substantial compliance with the statute was enough. 207 F. Supp. 2d 694 (WD Mich. 2002). The Court of Appeals for the Sixth Circuit affirmed. 377 F. 3d 592 (2004). On the jurisdictional question, the panel thought it sufficed that the title claim raised an issue of federal law that had to be resolved, and implicated a substantial federal interest (in construing federal tax law). The court went on to affirm the

state-law claims that implicate significant federal issues, see, e.g., Smith v. Kansas City Title & Trust Co., 255 U. S. 180. Such federal jurisdiction demands not only a contested federal issue, but a substantial one. And the jurisdiction must be consistent with congressional judgment about the sound division of labor between state and federal courts governing §1331’s application. These considerations have kept the Court from adopting a single test for jurisdiction over federal issues embedded in state-law claims between nondiverse parties. Instead, the question is whether the state-law claim necessarily stated a federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing a congressionally approved balance of federal and state judicial responsibilities. Pp. 3–6.

(b) This case warrants federal jurisdiction. Grable premised its superior title claim on the IRS’s failure to give adequate notice, as defined by federal law. Whether Grable received notice is an essential element of its quiet title claim, and the federal statute’s meaning is actually disputed. The meaning of a federal tax provision is an important federal-law issue that belongs in federal court. The Government has a strong interest in promptly collecting delinquent taxes, and the IRS’s ability to satisfy its claims from delinquents’ property requires clear terms of notice to assure buyers like Darue that the IRS has good title. Finally, because it will be the rare state title case that raises a federal-law issue, federal jurisdiction to resolve genuine disagreement over federal tax title provisions will portend only a microscopic effect on the federal-state division of labor. This conclusion puts the Court in venerable company, quiet title actions having been the subject of some of the earliest exercises of federal-question jurisdiction over state-law claims. E.g., Hopkins v. Walker, 244 U. S. 486, 490–491. Pp. 6–7.

(c) Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U. S. 804, is not to the contrary. There, in finding federal jurisdiction unavailable for a state tort claim resting in part on an allegation that the defendant drug company had violated a federal branding law, the Court noted that Congress had not provided a private federal cause of action for such violations. Merrell Dow cannot be read to make a federal cause of action a necessary con

dition for federal-question jurisdiction. It disclaimed the adoption of any bright-line rule and expressly approved the exercise of jurisdiction in Smith, where there was no federal cause of action. Accordingly, Merrell Dow should be read in its entirety as treating the absence of such cause as evidence relevant to, but not dispositive of, the “sensitive judgments about congressional intent,” required by §1331. Id., at 810. In Merrell Dow, the principal significance of this absence was its bearing on the consequences to the federal system. If the federal labeling standard without a cause of action could get a state claim into federal court, so could any other federal standards without causes of action. And that would mean an enormous number of cases. A comparable analysis yields a different jurisdictional conclusion here, because state quiet title actions rarely involve contested federal-law issues. Pp. 7–11.

377 F. 3d 592, affirmed. SOUTER, J., delivered the opinion for a unanimous Court. THOMAS, J., filed a concurring opinion.

SUPREME COURT OF THE

UNITED STATES

No. 04-603

GRABLE & SONS METAL PRODUCTS,

INC., PETITIONER v. DARUE ENGINEERING & MANUFACTURING

ON WRIT OF CERTIORARI

TO THE UNITED STATES

COURT OF APPEALS FOR THE SIXTH CIRCUIT

June 13, 2005

JUSTICE SOUTER delivered the opinion of the Court.

The question is whether want of a federal cause of action to try claims of title to land obtained at a federal tax sale precludes removal to federal court of a state action with non-diverse parties raising a disputed issue of federal title law. We answer no, and hold that the national interest in providing a federal forum for federal tax litigation is sufficiently substantial to support the exercise of federal question jurisdiction over the disputed issue on removal, which would not distort any division of la

April 3, 2006 698 2006–14 I.R.B.

and state authority and the proper management of the federal judicial system.” Id., at 8. Because arising-under jurisdiction to hear a state-law claim always raises the possibility of upsetting the state-federal line drawn (or at least assumed) by Congress, the presence of a disputed federal issue and the ostensible importance of a federal forum are never necessarily dispositive; there must always be an assessment of any disruptive portent in exercising federal jurisdiction. See also Merrell Dow, supra, at 810.

These considerations have kept us from stating a “single, precise, all-embracing” test for jurisdiction over federal issues embedded in state-law claims between non-diverse parties. Christianson v. Colt Industries Operating Corp., 486 U. S. 800, 821 (1988) (STEVENS, J., concurring). We have not kept them out simply because they appeared in state raiment, as Justice Holmes would have done, see Smith, supra, at 214 (dissenting opinion), but neither have we treated “federal issue” as a password opening federal courts to any state action embracing a point of federal law. Instead, the question is, does a state-law claim necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.

III

This case warrants federal jurisdiction. Grable’s state complaint must specify “the facts establishing the superiority of [its] claim,” Mich. Ct. Rule 3.411(B)(2)(c) (West 2005), and Grable has premised its superior title claim on a failure by the IRS to give it adequate notice, as defined by federal law. Whether Grable was given notice within the meaning of the federal statute is thus an essential element of its quiet title claim, and the meaning of the federal statute is actually in dispute; it appears to be the only legal or factual issue contested in the case. The meaning of the federal tax provision is an important issue of federal law that sensibly be

District Court’s judgment on the merits. We granted certiorari on the jurisdictional question alone, ¹ 543 U. S. (2005) to resolve a split within the Courts of Appeals on whether Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U. S. 804 (1986), always requires a federal cause of action as a condition for exercising federal-question jurisdiction. ² We now affirm.

Darue was entitled to remove the quiet title action if Grable could have brought it in federal district court originally, 28 U. S. C. §1441(a), as a civil action “arising under the Constitution, laws, or treaties of the United States,” §1331. This provision for federal-question jurisdiction is invoked by and large by plaintiffs pleading a cause of action created by federal law ( e.g., claims under 42 U. S. C. §1983). There is, however, another longstanding, if less frequently encountered, variety of federal “arising under” jurisdiction, this Court having recognized for nearly 100 years that in certain cases federal question jurisdiction will lie over state-law claims that implicate significant federal issues. E.g., Hopkins v. Walker, 244 U. S. 486, 490–491 (1917). The doctrine captures the commonsense notion that a federal court ought to be able to hear claims recognized under state law that nonetheless turn on substantial questions of federal law, and thus justify resort to the experience, solicitude, and hope of uniformity that a federal forum offers on federal issues, see ALI, Study of the Division of Jurisdiction Between State and Federal Courts 164–166 (1968).

The classic example is Smith v. Kansas City Title & Trust Co., 255 U. S. 180 (1921), a suit by a shareholder claiming that the defendant corporation could not lawfully buy certain bonds of the National Government because their issuance was unconstitutional. Although Missouri law provided the cause of action, the Court recognized federal-question jurisdiction because the principal issue in the case was the federal constitutionality of the bond issue. Smith thus held, in a somewhat generous statement of the scope of the doctrine, that a state-law claim could give rise to fed

eral-question jurisdiction so long as it “appears from the [complaint] that the right to relief depends upon the construction or application of [federal law].” Id., at 199.

The Smith statement has been subject to some trimming to fit earlier and later cases recognizing the vitality of the basic doctrine, but shying away from the expansive view that mere need to apply federal law in a state-law claim will suffice to open the “arising under” door. As early as 1912, this Court had confined federalquestion jurisdiction over state-law claims to those that “really and substantially involv[e] a dispute or controversy respecting the validity, construction or effect of

[federal] law.” Shulthis v. McDougal, 225 U. S. 561, 569 (1912). This limitation was the ancestor of Justice Cardozo’s later explanation that a request to exercise federal-question jurisdiction over a state action calls for a “common-sense accommodation of judgment to [the] kaleidoscopic situations” that present a federal issue, in “a selective process which picks the substantial causes out of the web and lays the other ones aside.” Gully v. First Nat. Bank in Meridian, 299 U. S. 109, 117–118 (1936). It has in fact become a constant refrain in such cases that federal jurisdiction demands not only a contested federal issue, but a substantial one, indicating a serious federal interest in claiming the advantages thought to be inherent in a federal forum. E.g., Chicago v. International College of Surgeons, 522 U. S. 156, 164 (1997); Merrell Dow, supra, at 814, and n. 12; Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U. S. 1, 28 (1983).

But even when the state action discloses a contested and substantial federal question, the exercise of federal jurisdiction is subject to a possible veto. For the federal issue will ultimately qualify for a federal forum only if federal jurisdiction is consistent with congressional judgment about the sound division of labor between state and federal courts governing the application of §1331. Thus, Franchise Tax Bd. explained that the appropriateness of a federal forum to hear an embedded issue could be evaluated only after considering the “welter of issues regarding the interrelation of federal

1 Accordingly, we have no occasion to pass upon the proper interpretation of the federal tax provision at issue here.

2 Compare Seinfeld v. Austen, 39 F. 3d 761, 764 (CA7 1994) (finding that federal-question jurisdiction over a state-law claim requires a parallel federal private right of action), with Ormet Corp. v. Ohio Power Co., 98 F. 3d 799, 806 (CA4 1996) (finding that a federal private action is not required).

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longs in a federal court. The Government has a strong interest in the “prompt and certain collection of delinquent taxes,” United States v. Rodgers, 461 U. S. 677, 709 (1983), and the ability of the IRS to satisfy its claims from the property of delinquents requires clear terms of notice to allow buyers like Darue to satisfy themselves that the Service has touched the bases necessary for good title. The Government thus has a direct interest in the availability of a federal forum to vindicate its own administrative action, and buyers (as well as tax delinquents) may find it valuable to come before judges used to federal tax matters. Finally, because it will be the rare state title case that raises a contested matter of federal law, federal jurisdiction to resolve genuine disagreement over federal tax title provisions will portend only a microscopic effect on the federal-state division of labor. See n. 3, infra .

This conclusion puts us in venerable company, quiet title actions having been the subject of some of the earliest exercises of federal-question jurisdiction over state-law claims. In Hopkins, 244 U. S., 490–491, the question was federal jurisdiction over a quiet title action based on the plaintiffs’ allegation that federal mining law gave them the superior claim. Just as in this case, “the facts showing the plaintiffs’ title and the existence and invalidity of the instrument or record sought to be eliminated as a cloud upon the title are essential parts of the plaintiffs’ cause of action.” ³ Id., at 490. As in this case again, “it is plain that a controversy respecting the construction and effect of the [federal] laws is involved and is sufficiently real and substantial.” Id., at 489. This Court therefore upheld federal jurisdiction in Hopkins, as well as in the similar quiet title matters of Northern Pacific R. Co. v. Soderberg, 188 U. S. 526, 528 (1903), and Wilson Cypress Co. v. Del Pozo y Marcos, 236 U. S. 635, 643–644 (1915). Consistent with those cases, the recognition of federal jurisdiction is in order here.

Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U. S. 804 (1986), on which Grable rests its position, is not to the contrary. Merrell Dow considered a state tort claim resting in part on the allegation that the defendant drug company had violated a federal misbranding prohibition, and was thus presumptively negligent under Ohio law. Id., at 806. The Court assumed that federal law would have to be applied to resolve the claim, but after closely examining the strength of the federal interest at stake and the implications of opening the federal forum, held federal jurisdiction unavailable. Congress had not provided a private federal cause of action for violation of the federal branding requirement, and the Court found “it would . . . flout, or at least undermine, congressional intent to conclude that federal courts might nevertheless exercise federal-question jurisdiction and provide remedies for violations of that federal statute solely because the violation . . . is said to be a . . . ‘proximate cause’ under state law.” Id., at 812.

Because federal law provides for no quiet title action that could be brought against Darue, ⁴ Grable argues that there can be no federal jurisdiction here, stressing some broad language in Merrell Dow (including the passage just quoted) that on its face supports Grable’s position, see Note, Mr. Smith Goes to Federal Court: Federal Question Jurisdiction over State Law Claims Post- Merrell Dow, 115 Harv. L. Rev. 2272, 2280–2282 (2002) (discussing split in Circuit Courts over private right of action requirement after Merrell Dow ). But an opinion is to be read as a whole, and Merrell Dow cannot be read whole as overturning decades of precedent, as it would have done by effectively adopting the Holmes dissent in Smith, see supra, at 5, and converting a federal cause of action from a sufficient condition for federal-question jurisdiction ⁵ into a necessary one.

In the first place, Merrell Dow disclaimed the adoption of any bright-line

rule, as when the Court reiterated that “in exploring the outer reaches of §1331, determinations about federal jurisdiction require sensitive judgments about congressional intent, judicial power, and the federal system.” 478 U. S., at 810. The opinion included a lengthy footnote explaining that questions of jurisdiction over state-law claims require “careful judgments,” id., at 814, about the “nature of the federal interest at stake,” id., at 814, n. 12 (emphasis deleted). And as a final indication that it did not mean to make a federal right of action mandatory, it expressly approved the exercise of jurisdiction sustained in Smith, despite the want of any federal cause of action available to Smith ’s shareholder plaintiff. 478 U. S., at 814, n. 12. Merrell Dow then, did not toss out, but specifically retained the contextual enquiry that had been Smith ’s hallmark for over 60 years. At the end of Merrell Dow, Justice Holmes was still dissenting.

Accordingly, Merrell Dow should be read in its entirety as treating the absence of a federal private right of action as evidence relevant to, but not dispositive of, the “sensitive judgments about congressional intent” that §1331 requires. The absence of any federal cause of action affected Merrell Dow ’s result two ways. The Court saw the fact as worth some consideration in the assessment of substantiality. But its primary importance emerged when the Court treated the combination of no federal cause of action and no preemption of state remedies for misbranding as an important clue to Congress’s conception of the scope of jurisdiction to be exercised under §1331. The Court saw the missing cause of action not as a missing federal door key, always required, but as a missing welcome mat, required in the circumstances, when exercising federal jurisdiction over a state misbranding action would have attracted a horde of original filings and removal cases raising other state claims with embedded federal issues. For if the federal labeling standard without

3 The quiet title cases also show the limiting effect of the requirement that the federal issue in a state-law claim must actually be in dispute to justify federal-question jurisdiction. In Shulthis v. McDougal, 225 U. S. 561 (1912), this Court found that there was no federal question jurisdiction to hear a plaintiff’s quiet title claim in part because the federal statutes on which title depended were not subject to “any controversy respecting their validity, construction, or effect.” Id., at 570. As the Court put it, the requirement of an actual dispute about federal law was “especially” important in “suit[s] involving rights to land acquired under a law of the United States,” because otherwise “every suit to establish title to land in the central and western states would so arise [under federal law], as all titles in those States are traceable back to those laws.” Id., at 569–570.

4 Federal law does provide a quiet title cause of action against the Federal Government. 28 U. S. C. §2410. That right of action is not relevant here, however, because the federal government no longer has any interest in the property, having transferred its interest to Darue through the quitclaim deed.

5 For an extremely rare exception to the sufficiency of a federal right of action, see Shoshone Mining Co. v. Rutter, 177 U. S. 505, 507 (1900).

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a federal cause of action could get a state claim into federal court, so could any other federal standard without a federal cause of action. And that would have meant a tremendous number of cases.

One only needed to consider the treatment of federal violations generally in garden variety state tort law. “The violation of federal statutes and regulations is commonly given negligence per se effect in state tort proceedings.” ⁶ Restatement (Third) of Torts (proposed final draft) §14, Comment a . See also W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Torts, §36, p. 221, n. 9 (5th ed. 1984) (“[T]he breach of a federal statute may support a negligence per se claim as a matter of state law” (collecting authority)). A general rule of exercising federal jurisdiction over state claims resting on federal mislabeling and other statutory violations would thus have heralded a potentially enormous shift of traditionally state cases into federal courts. Expressing concern over the “increased volume of federal litigation,” and noting the importance of adhering to “legislative intent,” Merrell Dow thought it improbable that the Congress, having made no provision for a federal cause of action, would have meant to welcome any state-law tort case implicating federal law “solely because the violation of the federal statute is said to

[create] a rebuttable presumption [of negligence] . . . under state law.” 478 U. S., at 811–812 (internal quotation marks omitted). In this situation, no welcome mat meant keep out. Merrell Dow ’s analysis thus fits within the framework of examining the importance of having a federal forum for the issue, and the consistency of such a forum with Congress’s intended division of labor between state and federal courts.

As already indicated, however, a comparable analysis yields a different jurisdictional conclusion in this case. Although Congress also indicated ambivalence in

this case by providing no private right of action to Grable, it is the rare state quiet title action that involves contested issues of federal law, see n. 3 supra . Consequently, jurisdiction over actions like Grable’s would not materially affect, or threaten to affect, the normal currents of litigation. Given the absence of threatening structural consequences and the clear interest the Government, its buyers, and its delinquents have in the availability of a federal forum, there is no good reason to shirk from federal jurisdiction over the dispositive and contested federal issue at the heart of the state-law title claim. ⁷

The judgment of the Court of Appeals, upholding federal jurisdiction over Grable’s quiet title action, is affirmed.

It is so ordered.

SUPREME COURT OF THE

UNITED STATES

No. 04-603

GRABLE & SONS METAL PRODUCTS,

INC., PETITIONER v. DARUE ENGINEERING & MANUFACTURING

ON WRIT OF CERTIORARI

TO THE UNITED STATES

COURT OF APPEALS FOR THE SIXTH CIRCUIT

June 13, 2005

JUSTICE THOMAS, concurring. The Court faithfully applies our precedents interpreting 28 U. S. C. §1331 to authorize federal-court jurisdiction over some cases in which state law creates the cause of action but requires determination of an issue of federal law, e.g., Smith v. Kansas City Title & Trust Co., 255 U. S. 180 (1921); Merrell Dow Pharmaceuti-

cals Inc. v. Thompson, 478 U. S. 804 (1986). In this case, no one has asked us to overrule those precedents and adopt the rule Justice Holmes set forth in American Well Works Co. v. Layne & Bowler Co., 241 U. S. 257 (1916), limiting §1331 jurisdiction to cases in which federal law creates the cause of action pleaded on the face of the plaintiff’s complaint. Id., at 260. In an appropriate case, and perhaps with the benefit of better evidence as to the original meaning of §1331’s text, I would be willing to consider that course. ^*

Jurisdictional rules should be clear. Whatever the virtues of the Smith standard, it is anything but clear. Ante, at 4 (the standard “calls for a ‘common-sense accommodation of judgment to [the] kaleidoscopic situations’ that present a federal issue, in ‘a selective process which picks the substantial causes out of the web and lays the other ones aside’” (quoting Gully v. First Nat. Bank in Meridian, 299 U. S. 109, 117–118 (1936))); ante, at 5 (“[T]he question is, does a state-law claim necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities”); ante, at 9 (“‘[D]eterminations about federal jurisdiction require sensitive judgments about congressional intent, judicial power, and the federal system’”; “the absence of a federal private right of action

[is] evidence relevant to, but not dispositive of, the ‘sensitive judgments about congressional intent’ that §1331 requires” (quoting Merrell Dow, supra, at 810)).

Whatever the vices of the American Well Works rule, it is clear. Moreover, it accounts for the “‘vast majority’” of cases that come within §1331 under our current case law, Merrell Dow, supra, at 808 (quoting Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U. S. 1, 9 (1983))—further indication that trying to sort out which

6 Other jurisdictions treat a violation of a federal statute as evidence of negligence or, like Ohio itself in Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U. S. 804 (1986), as creating a rebuttable presumption of negligence. Restatement (Third) of Torts (proposed final draft) §14, Comment c . Either approach could still implicate issues of federal law.

7 At oral argument Grable’s counsel espoused the position that after Merrell Dow, federal-question jurisdiction over state-law claims absent a federal right of action, could be recognized only where a constitutional issue was at stake. There is, however, no reason in text or otherwise to draw such a rough line. As Merrell Dow itself suggested, constitutional questions may be the more likely ones to reach the level of substantiality that can justify federal jurisdiction. 478 U. S., at 814, n. 12. But a flat ban on statutory questions would mechanically exclude significant questions of federal law like the one this case presents.

This Court has long construed the scope of the statutory grant of federal-question jurisdiction more narrowly than the scope of the constitutional grant of such jurisdiction. See Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U. S. 804, 807–808 (1986). I assume for present purposes that this distinction is proper—that is, that the language of 28 U. S. C. §1331, “[t]he district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States” (emphasis added), is narrower than the language of Art. III, §2, cl. 1, of the Constitution, “[t]he judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority . . . ” (emphases added).

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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 April 2006. See Rev. Rul. 2006-22, page 687.

cases fall within the smaller Smith category may not be worth the effort it entails. See R. Fallon, D. Meltzer, & D. Shapiro, Hart and Wechsler’s The Federal Courts and the Federal System 885–886 (5th ed. 2003). Accordingly, I would be willing in appropriate circumstances to reconsider our interpretation of §1331.

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of April 2006. See Rev. Rul. 2006-22, page 687.

April 3, 2006 702 2006–14 I.R.B.