Part III. — Internal Revenue Bulletin 2007-34

2007 Section 43 Inflation Adjustment

Notice 2007–64

Section 43(b)(3)(B) of the Internal Revenue Code requires the Secretary to publish an inflation adjustment factor. The enhanced oil recovery credit under § 43 for any taxable year is reduced if the “reference price,” determined under § 45K(d)(2)(C), for the calendar year preceding the calendar year in which the

taxable year begins is greater than $28 multiplied by the inflation adjustment factor for that year. The credit is phased out in any taxable year in which the reference price for the preceding calendar year exceeds $28 (as adjusted) by at least $6.

The term “inflation adjustment factor” means, with respect to any calendar year, a fraction the numerator of which is the GNP implicit price deflator for the preceding calendar year and the denominator of which is the GNP implicit price deflator for 1990.

Notice 2007–64 TABLE 1

GNP IMPLICIT PRICE DEFLATORS

Because the reference price for the 2006 calendar year ($59.68) exceeds $28 multiplied by the inflation adjustment factor for the 2006 calendar year ($39.82) by $19.86, the enhanced oil recovery credit for qualified costs paid or incurred in 2007 is phased out completely.

Table 1 contains the GNP implicit price deflator used for the 2007 calendar year, as well as the previously published GNP implicit price deflators used for the 1991 through 2006 calendar years.

Calendar Year GNP Implicit Price Deflator

1990 112.9 (used for 1991) 1991 117.0 (used for 1992) 1992 120.9 (used for 1993) 1993 124.1 (used for 1994) 1994 126.0 (used for 1995)* 1995 107.5 (used for 1996) 1996 109.7 (used for 1997)** 1997 112.35 (used for 1998) 1998 112.64 (used for 1999)*** 1999 104.59 (used for 2000) 2000 106.89 (used for 2001) 2001 109.31 (used for 2002) 2002 110.63 (used for 2003) 2003 105.67 (used for 2004)**** 2004 108.23 (used for 2005) 2005 112.129 (used for 2006) 2006 116.036 (used for 2007)

Beginning in 1995, the GNP implicit price deflator was rebased relative to 1992. The 1990 GNP implicit price deflator used to compute the 1996 § 43 inflation adjustment factor is 93.6.

** Beginning in 1997, two digits follow the decimal point in the GNP implicit price deflator. The 1990 GNP price deflator used to compute the 1998 § 43 inflation adjustment factor is 93.63.

*** Beginning in 1999, the GNP implicit price deflator was rebased relative to 1996. The 1990 GNP implicit price deflator used to compute the 2000 § 43 inflation adjustment factor is 86.53.

**** Beginning in 2003, the GNP implicit price deflator was rebased, and the 1990 GNP implicit price deflator used to compute the 2004 § 43 inflation adjustment factor is 81.589.

Table 2 contains the inflation adjustment factor and the phase-out amount for taxable years beginning in the 2007

calendar year as well as the previously published inflation adjustment factors and phase-out amounts for taxable years be

ginning in the 1991 through 2006 calendar years.

August 20, 2007 385 2007–34 I.R.B.

Phase-out

Amount

Calendar

Year

Notice 2007–64 TABLE 2

INFLATION ADJUSTMENT FACTORS AND

PHASE-OUT AMOUNTS

Inflation Adjustment

Factor

1991 1.0000 0 1992 1.0363 0 1993 1.0708 0 1994 1.0992 0 1995 1.1160 0 1996 1.1485 0 1997 1.1720 0 1998 1.1999 0 1999 1.2030 0 2000 1.2087 0 2001 1.2353 0 2002 1.2633 0 2003 1.2785 0 2004 1.2952 0 2005 1.3266 0 2006 1.3743 100 percent 2007 1.4222 100 percent

DRAFTING INFORMATION

The principal author of this notice is Jaime C. Park of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Ms. Park at (202) 622–3110 (not a toll-free call).

2007 Marginal Production Rates

Notice 2007–65

This notice announces the applicable percentage under § 613A of the Internal Revenue Code to be used in determining percentage depletion for marginal properties for the 2007 calendar year.

Section 613A(c)(6)(C) defines the term “applicable percentage” for purposes of determining percentage depletion for oil and gas produced from marginal properties. The applicable percentage is the percentage (not greater than 25 percent) equal

Notice 2007–65 Table 1

to the sum of 15 percent, plus one percentage point for each whole dollar by which $20 exceeds the reference price (determined under § 45K(d)(2)(C)) for crude oil for the calendar year preceding the calendar year in which the taxable year begins. The reference price determined under § 45K(d)(2)(C) for the 2006 calendar year is $59.68.

Table 1 contains the applicable percentages for marginal production for taxable years beginning in calendar years 1991 through 2007.

APPLICABLE PERCENTAGE FOR MARGINAL PRODUCTION

Calendar Year Applicable Percentage

1991 15 percent 1992 18 percent 1993 19 percent 1994 20 percent 1995 21 percent 1996 20 percent 1997 16 percent 1998 17 percent 1999 24 percent 2000 19 percent 2001 15 percent 2002 15 percent 2003 15 percent

2007–34 I.R.B. 386 August 20, 2007

Notice 2007–65 Table 1

APPLICABLE PERCENTAGE FOR MARGINAL PRODUCTION - Continued

Calendar Year Applicable Percentage

2004 15 percent 2005 15 percent 2006 15 percent 2007 15 percent

those areas affected by Hurricane Katrina. Section 1400M(1) defines the GO Zone as that portion of the Hurricane Katrina disaster area determined by the President to warrant individual or individual and public assistance from the Federal Government under the Stafford Act by reason of Hurricane Katrina. Section 1400M(2) defines the term “Hurricane Katrina disaster area” as an area with respect to which a major disaster has been declared by the President before September 14, 2005, under section 401 of the Stafford Act by reason of Hurricane Katrina. Because of the widespread damage to housing caused by Hurricane Katrina and the difficulty in rebuilding, the Service has determined that it is appropriate to extend the restoration period provided under Rev. Proc. 95–28 for qualified low-income buildings located in the GO Zone.

III. AFFECTED PROJECTS

The reasonable restoration period for purposes of § 42(j)(4)(E) provided in this notice applies to qualified low-income buildings located in the GO Zone, as defined in § 1400M(1), that are (1) beyond the first year of the credit period, and (2) that, because of Hurricane Katrina and its aftermath, suffered a reduction in qualified basis that would cause it to be subject to recapture and loss of credit.

IV. RELIEF PROVIDED

For qualified low-income buildings subject to this notice, a housing credit agency may determine what constitutes a reasonable restoration period for purposes of § 42(j)(4)(E), but in no instance will it end later than 48 months after the end of calendar year 2005. In order to qualify for this period, the owner must have been engaged in the restoration of the building’s qualified basis during the restoration period provided in § 7.01 of Rev. Proc. 95–28. The term “engaged in

Relief From Certain Low-Income Housing Credit Requirements Due to Hurricane Katrina

Notice 2007–66

I. PURPOSE

This notice is to advise owners of qualified low-income buildings and State housing credit agencies located in the Gulf Opportunity Zone (GO Zone) of relief from certain requirements under § 42 of the Internal Revenue Code. This relief is being granted pursuant to the Service’s authority under § 42(n) and § 1.42–13(a) of the Income Tax Regulations.

II. BACKGROUND

Owners of qualified low-income buildings may claim a tax credit under § 42(a). For any taxable year in a 10-year credit period, the amount of credit is equal to the applicable percentage of the qualified basis of each qualified low-income building.

Under § 42(j)(1) and (2) if, at the close of any taxable year in the compliance period, the building’s qualified basis with respect to the taxpayer is less than the basis as of the close of the preceding taxable year, then the taxpayer is liable for additional tax (recapture) in an amount equal to the accelerated portion of credits allowed in earlier years with respect to the reduction in qualified basis, plus interest.

Section 42(j)(4)(E) provides that the increase in tax under § 42(j) shall not apply to a reduction in qualified basis by reason

of a casualty loss to the extent such loss is restored by reconstruction or replacement within a reasonable period established by the Secretary.

Rev. Proc. 95–28, 1995–1 C.B. 704, and Rev. Proc. 2007–54, 2007–31 I.R.B. 293, which supersedes Rev. Proc. 95–28, allow temporary relief from certain requirements under § 42 to owners of qualified low-income buildings and housing credit agencies of States or possessions of the United States in major disaster areas declared by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, Title 42 U.S.C. 5121–5206 (2000 and Supp. IV 2004) (Stafford Act).

Section 7.01 of Rev. Proc. 95–28, and § 7.01 of Rev. Proc. 2007–54, provide that an owner of a building that is beyond the first year of the credit period will not be subject to recapture or loss of credit if the building’s qualified basis suffered a reduction because of a disaster that caused the President to issue a major disaster declaration, provided the building’s qualified basis is restored within a reasonable period. Both revenue procedures provide that the housing credit agency may determine what constitutes a reasonable period for purposes of § 42(j)(4)(E), but in no instance will the period end later than 24 months after the end of the calendar year in which the President issued a major disaster declaration for the area where the building is located. If a building’s qualified basis is restored within the period determined by the housing credit agency, the building will not be subject to recapture, and the building may continue to earn credit during that restoration period.

Under § 1.42–13, the Secretary may provide guidance to carry out the purposes of § 42 through various publications in the Internal Revenue Bulletin.

The Gulf Opportunity Zone Act of 2005 (Public Law 109–135, 119 Stat. 25) (GOZA) added §§ 1400M and 1400N to the Code to provide certain tax benefits to

August 20, 2007 387 2007–34 I.R.B.

sure that individuals serving in or serving in support of the Armed Forces in a combat zone or contingency operation receive a postponement of time to perform these acts this revenue procedure now includes these acts.

Certain acts, such as filing Tax Court petitions in innocent spouse and other nondeficiency cases, and making certain distributions from, contributions to, recharacterizations of, and certain transactions involving qualified retirement plans (as defined in section 4974(c)), have been added to this revenue procedure even though they are also listed as acts postponed under section 301.7508A–1(c)(1).