SECTION 1. PURPOSE

This notice provides guidance on withholding and information reporting on foreign persons and includes guidance on certain book-entry systems in foreign countries.

This notice provides clarification on whether bonds held through certain book-entry systems are treated as in registered or in bearer form under Treas. Reg. §§ 5f.103–1(c) and 1.871–14. It concludes that a dematerialized bond that can be held and transferred only through a book-entry system is in registered form, when a holder may only obtain a physical certificate in bearer form if the clearing organization that maintains the book-entry system goes out of business without a successor. Notwithstanding the clarification set forth in this notice, obligations that are outstanding prior to January 1, 2007, and that were issued in compliance Treas. Reg. § 1.163–5(c)(2)(i)(D) (TEFRA D)

ally adjust these limits for cost-of-living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments. Many of the limitations will change for 2007. For most of the limitations, the increase in the costof-living index met the statutory thresholds that trigger their adjustment. For example, the limitation under § 402(g)(1) on the exclusion for elective deferrals described in § 402(g)(3) is increased from $15,000 to $15,500. This limitation affects elective deferrals to section 401(k) plans and to the Federal Government’s Thrift Savings Plan, among other plans.

Cost-of-Living limits for 2007

Effective January 1, 2007, the limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) is increased from $175,000 to $180,000. For participants who separated from service before January 1, 2007, the limitation for defined benefit plans under § 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2006, by 1.0334.

The limitation for defined contribution plans under § 415(c)(1)(A) is increased from $44,000 to $45,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of § 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows:

The limitation under § 402(g)(1) on the exclusion for elective deferrals described in § 402(g)(3) is increased from $15,000 to $15,500.

The annual compensation limit under §§ 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $220,000 to $225,000.

The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $140,000 to $145,000.

The dollar amount under § 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan sub

ject to a 5-year distribution period is increased from $885,000 to $915,000, while the dollar amount used to determine the lengthening of the 5-year distribution period is increased from $175,000 to $180,000.

The limitation used in the definition of highly compensated employee under § 414(q)(1)(B) remains unchanged at $100,000.

The dollar limitation under § 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in § 401(k)(11) or 408(p) for individuals aged 50 or over remains unchanged at $5,000. The dollar limitation under § 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in § 401(k)(11) or 408(p) for individuals aged 50 or over remains unchanged at $2,500.

The annual compensation limitation under § 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under § 401(a)(17) to be taken into account, is increased from $325,000 to $335,000.

The compensation amount under § 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $450 to $500.

The limitation on deferrals under § 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $15,000 to $15,500.

The compensation amounts under § 1.61–21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $85,000 to $90,000. The compensation amount under § 1.61–21(f)(5)(iii) is increased from $175,000 to $180,000.

The limitation under § 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $10,000 to $10,500.

November 13, 2006 907 2006–46 I.R.B.

and obtain a physical certificate in bearer form.

The cessation of operation of the bookentry system would be an extraordinary event. Holding through the book-entry system is mandatory for obligations in Foreign Country’s market while the book-entry system is in existence and while Foreign Country’s legal requirements remain in place. The provision for the issuance of physical certificates in bearer form in the event that the book entry system goes out of existence is not the equivalent of a provision conferring on the holder the ability to convert an obligation from registered form into bearer form in the ordinary course of business.

Notwithstanding that such obligations are in registered form, section 3.02 of this notice, below, provides a transition rule for certain obligations issued prior to January 1, 2007. .02 Obligations issued before January 1, 2007 An obligation in bearer form that was issued before January 1, 2007, and that was issued in compliance with section 1.163–5(c)(2)(i)(D) (TEFRA D) may continue to be treated as an obligation in bearer form until its maturity, whether or not it is held within Foreign Country Clearing Organization’s book-entry system described in section 2.01 of this notice.