Part III. Administrative, Procedural, and Miscellaneous

Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates

Notice 2007–91

This notice provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue Code. It also provides guidance on the corporate bond monthly yield curve (and the corresponding spot segment rates), the 24-month average segment rates, and the funding transitional segment rates under § 430(h)(2). In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, and the minimum present value segment rates under § 417(e)(3)(D) as in effect for plan years beginning after 2007.

For Plan Years

Corporate Bond Weighted

CORPORATE BOND WEIGHTED AVERAGE INTEREST RATE

Sections 412(b)(5)(B)(ii) and 412(l)(7)(C)(i), as amended by the Pension Funding Equity Act of 2004 and by the Pension Protection Act of 2006 (PPA), provide that the interest rates used to calculate current liability and to determine the required contribution under § 412(l) for plan years beginning in 2004 through 2007 must be within a permissible range based on the weighted average of the rates of interest on amounts invested conservatively in long term investment grade corporate bonds during the 4-year period ending on the last day before the beginning of the plan year.

Notice 2004–34, 2004–1 C.B. 848, provides guidelines for determining the corporate bond weighted average interest rate and the resulting permissible range of interest rates used to calculate current liabil

ity. That notice establishes that the corporate bond weighted average is based on the monthly composite corporate bond rate derived from designated corporate bond indices. The methodology for determining the monthly composite corporate bond rate as set forth in Notice 2004–34 continues to apply in determining that rate. See Notice 2006–75, 2006–36 I.R.B. 366. The composite corporate bond rate for October 2007 is 6.14 percent. Pursuant to Notice 2004–34, the Service has determined this rate as the average of the monthly yields for the included corporate bond indices for that month.

The following corporate bond weighted average interest rate was determined for plan years beginning in the month shown below.

Beginning in Permissible Range

Month Year

Average 90% to 100%

November 2007 5.89 5.30 5.89

24-month average corporate bond segment rates, and the funding transitional segment rates used to compute the target normal cost and the funding target. Pursuant to Notice 2007–81, the monthly corporate bond yield curve derived from October 2007 data is in Table I at the end of this notice. The spot first, second, and third segment rates for the month of October 2007 are, respectively, 5.17, 6.02, and 6.38. The three 24-month average corporate bond segment rates applicable for November 2007 under the election of § 430(h)(2)(G)(iv) are as follows:

Third Segment

YIELD CURVE AND SEGMENT RATES

Generally for plan years beginning after 2007 (except for delayed effective dates for certain plans under sections 104, 105, and 106 of PPA), section 430 of the Code specifies the minimum funding requirements that apply to single employer plans pursuant to § 412 of the Code. Section 430(h)(2) specifies the interest rates that must be used to determine a plan’s target normal cost and funding target. Under this provision, present value is generally determined using three 24-month average interest rates (“segment rates”), each

First Segment

of which applies to cash flows during specified periods. However, an election may be made under § 430(h)(2)(D)(ii) to use the monthly yield curve in place of the segment rates. For plan years beginning in 2008 and 2009, a transitional rule under § 430(h)(2)(G) provides that the segment rates are blended with the corporate bond weighted average as specified above. An election may be made under § 430(h)(2)(G)(iv) to use the segment rates without applying the transitional rule.

Notice 2007–81, 2007–44 I.R.B. 899, provides guidelines for determining the monthly corporate bond yield curve, the

Second Segment

5.31 5.88 6.40

2007–48 I.R.B. 1069 November 26, 2007

The transitional segment rates under § 430(h)(2)(G) applicable for November

For Plan Years

Beginning in

2007, taking into account the corporate bond weighted average of 5.89 stated above, are as follows:

First Segment

Second Segment

Third Segment

2008 5.70 5.89 6.06

are segment rates computed without regard to a 24 month average. For plan years beginning in 2008 through 2011, the applicable interest rate is the monthly spot segment rate blended with the applicable rate under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning in 2007. Notice 2007–81 provides guidelines for determining the minimum present value segment rates. Pursuant to that notice, the minimum present value transitional segment rates determined for October 2007, taking into account the October 2007 30-year Treasury rate of 4.77 stated above, are as follows:

Third Segment

30-YEAR TREASURY SECURITIES INTEREST RATE

Section 417(e)(3)(A)(ii)(II) (prior to amendment by PPA) defines the applicable interest rate, which must be used for purposes of determining the minimum present value of a participant’s benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury securities for the month before the date of distribution or such other time as the Secretary may by regulations prescribe. Section 1.417(e)–1(d)(3) of the Income Tax Regulations provides that the applicable interest rate for a month is the annual rate of interest on 30-year Treasury secu

For Plan Years

Beginning in

rities as specified by the Commissioner for that month in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin.

The rate of interest on 30-year Treasury securities for October 2007 is 4.77 percent. The Service has determined this rate as the monthly average of the daily determination of yield on the 30-year Treasury bond maturing in May 2037.

MINIMUM PRESENT VALUE SEGMENT RATES

Generally for plan years beginning after December 31, 2007, the applicable interest rates under § 417(e)(3)(D) of the Code

First Segment

Second Segment

2008 4.85 5.02 5.09

DRAFTING INFORMATION

The principal author of this notice is Tony Montanaro of the Employee Plans,

Tax Exempt and Government Entities Division. Mr. Montanaro may be e-mailed at RetirementPlanQuestions@irs.gov .

November 26, 2007 1070 2007–48 I.R.B.

Table I

Monthly Yield Curve for October 2007

Maturity Yield Maturity Yield Maturity Yield Maturity Yield Maturity Yield

2007–48 I.R.B. 1071 November 26, 2007

Interim Guidance Under Section 6404(g)

Notice 2007–93

PURPOSE

This notice describes how the amendment to section 6404(g) made by the Small Business and Work Opportunity Tax Act of 2007, Pub. L. No. 110–028, § 8242, 121 Stat. 190, 200 (May 25, 2007), applies to notices under section 6404(g)(1) that are provided on or after November 26, 2007.

SCOPE

This notice applies to notices under section 6404(g)(1) that are provided on or after November 26, 2007, with respect to individual Federal income tax returns that were timely filed before that date. This notice provides interim guidance and will remain in effect until further guidance or regulations are issued.

BACKGROUND

Effective for taxable years ended after July 22, 1998, if an individual taxpayer files a Federal income tax return on or before the due date for that return (including extensions), and if the Service does not timely provide a notice to that taxpayer specifically stating the taxpayer’s liability and the basis for that liability, then the Service shall generally suspend the imposition of any interest, penalty, addition to tax, or additional amount with respect to any failure relating to the return that is computed by reference to the period of time the failure continues and that is properly allocable to the suspension period. Prior to amendment by the Small Business and Work Opportunity Tax Act of 2007 (the Act), a notice is timely if provided before the close of the eighteen-month period beginning on the later of the date on which the return is filed or the due date of the return without regard to extensions. The suspension period begins on the day after the close of the eighteen-month period and ends twenty-one days after the Service provides the notice. This suspension rule applies separately with respect to each item or adjustment.

The Act amended section 6404(g) by striking “18-month period” in paragraphs

(1)(A) and (3)(A) and inserting “36-month period.” The Act states that the amendment “shall apply to notices provided by the Secretary of the Treasury or his delegate after the date that is six months after the date of enactment” of the Act — that is, on or after November 26, 2007. In a recent Notice of Proposed Rulemaking and Notice of Public Hearing on the Application of Section 6404(g) of the Internal Revenue Code Suspension Provisions, the Treasury Department and the Service acknowledged that questions have been raised regarding the effective date of the changes made by the Act, specifically how the amendment is intended to apply to notices provided on or after November 26, 2007, and stated that further guidance was under consideration. See Prop. Treas. Reg. § 301.6404–4, 72 Fed. Reg. 34199, 34200 (June 21, 2007). This notice provides that guidance.

DISCUSSION

The Act extends to thirty-six months the period within which the Service may issue a notice to an individual taxpayer specifically stating the taxpayer’s liability and the basis for that liability before the accrual of interest and certain penalties are suspended under section 6404(g). The Service will apply the following rules to notices issued on or after November 26, 2007, that relate to a return that was timely filed before that date.

1. If, as of November 25, 2007, the eighteen-month period has closed and the Service has not provided notice to the taxpayer, interest and applicable penalties will be suspended beginning on the day after the close of the eighteen-month period and ending on the date that is twenty-one days after the notice is provided.

2. In all other cases, interest and applicable penalties will be suspended beginning on the day after the close of the thirty-six month period and ending on the date that is twenty-one days after the notice is provided.

The following examples illustrate these rules. The examples assume that none of the exceptions in section 6404(g)(2) to the general rule for suspension applies. The dates in the examples are used to illustrate the effective date changes made by the Act and do not provide guidance as to the computation of interest generally.

Example 1 : An individual files a federal income tax return for 2006 by April 17, 2007 (the last day to timely file pursuant to section 7503). On January 2, 2009 (less than thirty-six months after the due date of the return), the Service provides a notice to the taxpayer specifically stating the taxpayer’s liability and the basis for the liability. Because the eighteen-month period has not closed as of November 25, 2007, interest and applicable penalties will not be suspended with respect to the taxpayer’s return.

Example 2 : An individual files a federal income tax return for 2005 by April 17, 2006 (the last day to timely file pursuant to section 7503). On December 26, 2007, the Service provides a notice to the taxpayer specifically stating the taxpayer’s liability and the basis for the liability. Because the eighteen-month period has closed as of November 25, 2007, interest and applicable penalties will be suspended with respect to the taxpayer’s return beginning on October 17, 2007 (the day after the close of the eighteen-month period), and ending on January 16, 2008 (the date that is twenty-one days after the notice is provided).

Example 3 : An individual files a federal income tax return for 2006 by April 17, 2007 (the last day to timely file pursuant to section 7503). The individual consents to extend the time within which the Service may assess any tax due on the return until June 30, 2011. On December 20, 2010, the Service provides a notice to the taxpayer specifically stating the taxpayer’s liability and the basis for the liability. Because the eighteen-month period has not closed as of November 25, 2007, interest and applicable penalties will be suspended beginning on April 17, 2010 (the day after the close of the thirty-six month period), and ending on January 10, 2011 (the date that is twenty-one days after the notice is provided).

DRAFTING INFORMATION

The principal author of this notice is Stuart Spielman of the Office of Associate Chief Counsel (Procedure and Administration). For further information regarding this notice, contact Stuart Spielman at (202) 622–3620 (not a toll-free call).

26 CFR 601.204: Changes in accounting periods and in methods of accounting. (Also Part 1, §§ 446, 481.)

Rev. Proc. 2007–67