Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 897.—Disposition of Investment in United States Real Property

26 CFR 1.897–1: Taxation of foreign investment in United States real property interests; definition of terms.

Interests in notional principal con- tracts. This ruling holds that certain interests in notional principal contracts, the returns on which are calculated by reference to an index based on data from a geographically and numerically broad range of United States real estate, are not United States real property interests under section 897(c)(1) of the Code.

Rev. Rul. 2008–31

ISSUE

Is an interest in a notional principal contract, the return on which is calculated by reference to an index described below referencing data from a geographically and numerically broad range of United States real estate a United States real property interest (“USRPI”) under section 897(c)(1) of the Code?

FACTS

X maintains and widely publishes an index (the “Index”) that seeks to measure the appreciation and depreciation of residential or commercial real estate values within a metropolitan statistical area (“MSA”), a combined statistical area (“CSA”) (both as defined by the United States Office of Management and Budget), or a similarly large geographic area within the United States. The MSA, CSA or similarly large geographic area has a population exceeding one million people. The Index is calculated by reference to (1) sales prices (obtained from various public records), (2) appraisals and reported income, or (3) similar objective financial information, each with respect to a broad range of real property holdings of unrelated owners within the relevant geographic area during a relevant testing period. Using proprietary methods, this information is weighted, aggregated, and mathematically translated into the Index.

Because of the broad-based nature of the Index, an investor cannot, as a practical matter, directly or indirectly, own or lease a material percentage of the real estate, the values of which are reflected by the Index.

On January 1, Year 1, FC, a foreign corporation, enters into a notional principal contract (“NPC”), within the meaning of sections 1.446–3(c)(1) and 1.863–7(a)(1) of the Income Tax regulations, with unrelated counterparty DC, a domestic corporation. Neither FC nor DC is related to X. Pursuant to the NPC, FC profits if the Index appreciates (that is, to the extent the underlying United States real property in the particular geographic region appreciates in value) over certain levels. Conversely, FC suffers a loss if the Index depreciates (or fails to appreciate more than at a specified rate). During the term of the NPC, DC does not, directly or indirectly, own or lease a material percentage of the real property, the values of which are reflected by the Index.

LAW

Section 897(a) provides that gain or loss from the disposition of a USRPI of a nonresident alien individual or a foreign corporation shall be taken into account as effectively connected income under section 871(b)(1) or section 882(a)(1), respectively, as if the taxpayer were engaged in a trade or business within the United States during the taxable year and as if such gain or loss were effectively connected with such trade or business.

A USRPI is generally defined under section 897(c)(1)(A) as either an interest in real property located in the United States or the Virgin Islands, or any interest (other than an interest solely as a creditor) in any domestic corporation unless the taxpayer establishes that such corporation was at no time a USRPHC during certain periods.

The term “interest in real property” under section 897(c)(6)(A) includes fee ownership and co-ownership of land or improvements thereon, leaseholds of land or improvements thereon, options to acquire land or improvements thereon, and options to acquire leaseholds of land or improvements thereon.

Section 1.897–1(c)(1) of the regulations generally defines USRPIs to include any interest, other than an interest solely as a creditor, in real property located in the United States or the Virgin Islands. Section 1.897–1(d)(2)(i) provides that an interest in real property other than solely as a creditor includes a fee ownership, co-ownership, or leasehold interest in real property, a time sharing interest in real property, and a life estate, remainder, or reversionary interest in such real property. The term also includes any direct or indirect right to share in the appreciation in the value, or in the gross or net proceeds or profits generated by, the real property.

HOLDING

Because of the broad-based nature of the Index, the NPC does not represent a “direct or indirect right to share in the appreciation in the value ... [of] the real property” within the meaning of Treas. Reg. § 1.897–1(d)(2). Accordingly, FC’s interest in the NPC calculated by reference to the Index is not a USRPI under section 897(c)(1).

DRAFTING INFORMATION

The principal author of this revenue ruling is Sean W. Mullaney of the Office of Associate Chief Counsel (International). For further information regarding this revenue ruling, contact Mr. Mullaney at (202) 622–3860 (not a toll-free call).

Section 6621.—Determina- tion of Rate of Interest

26 CFR 301.6621–1: Interest rate.

Interest rates; underpayments and overpayments. The rates of interest determined under section 6621 of the Code for the calendar quarter beginning July 1, 2008, will be 5 percent for overpayments (4 percent in the case of a corporation), 5 percent for underpayments, and 7 percent for large corporate underpayments. The rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 2.5 percent.

2008–26 I.R.B. 1180 June 30, 2008

Rev. Rul. 2008–27

Section 6621 of the Internal Revenue Code establishes the rates for interest on tax overpayments and tax underpayments. Under section 6621(a)(1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points (2 percentage points in the case of a corporation), except the rate for the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the sum of the federal short-term rate plus 0.5 of a percentage point. Under section 6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points.

Section 6621(c) provides that for purposes of interest payable under section 6601 on any large corporate underpayment, the underpayment rate under section 6621(a)(2) is determined by substituting “5 percentage points” for “3 percentage points.” See section 6621(c) and section 301.6621–3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date. Section 6621(c) and section 301.6621–3 are generally effective for periods after December 31, 1990.

Section 6621(b)(1) provides that the Secretary will determine the federal

short-term rate for the first month in each calendar quarter.

Section 6621(b)(2)(A) provides that the federal short-term rate determined under section 6621(b)(1) for any month applies during the first calendar quarter beginning after that month. Section 6621(b)(3) provides that the federal short-term rate for any month is the federal short-term rate determined during that month by the Secretary in accordance with section 1274(d), rounded to the nearest full percent (or, if a multiple of ¹ /2 of 1 percent, the rate is increased to the next highest full percent).

Notice 88–59, 1988–1 C.B. 546, announced that, in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.

Rounded to the nearest full percent, the federal short-term rate based on daily compounding determined during the month of April 2008 is 2 percent. Accordingly, an overpayment rate of 5 percent (4 percent in the case of a corporation) and an underpayment rate of 5 percent are established for the calendar quarter beginning July 1, 2008. The overpayment rate for the por tion of a corporate overpayment exceeding $10,000 for the calendar quarter beginning July 1, 2008, is 2.5 percent. The underpayment rate for large corporate underpayments for the calendar quarter beginning July 1, 2008, is 7 percent. These rates apply to amounts bearing interest during that calendar quarter.

Interest factors for daily compound interest for annual rates of 2.5 percent, 4 percent, 5 percent, and 7 percent are published in Tables 58, 61, 63, and 67 of Rev. Proc. 95–17, 1995–1 C.B. 556, 612, 615, 617, and 621.

Annual interest rates to be compounded daily pursuant to section 6622 that apply for prior periods are set forth in the tables accompanying this revenue ruling.

DRAFTING INFORMATION

The principal author of this revenue ruling is Wendy Kribell of the Office of Associate Chief Counsel (Procedure & Administration). For further information regarding this revenue ruling, contact Ms. Kribell at (202) 622–4570 (not a toll-free call).

PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986

OVERPAYMENTS AND UNDERPAYMENTS

PERIOD RATE

In 1995–1 C.B. DAILY RATE TABLE

Before Jul. 1, 1975 6% Table 2, pg. 557 Jul. 1, 1975—Jan. 31, 1976 9% Table 4, pg. 559 Feb. 1, 1976—Jan. 31, 1978 7% Table 3, pg. 558 Feb. 1, 1978—Jan. 31, 1980 6% Table 2, pg. 557 Feb. 1, 1980—Jan. 31, 1982 12% Table 5, pg. 560 Feb. 1, 1982—Dec. 31, 1982 20% Table 6, pg. 560 Jan. 1, 1983—Jun. 30, 1983 16% Table 37, pg. 591 Jul. 1, 1983—Dec. 31, 1983 11% Table 27, pg. 581 Jan. 1, 1984—Jun. 30, 1984 11% Table 75, pg. 629 Jul. 1, 1984—Dec. 31, 1984 11% Table 75, pg. 629 Jan. 1, 1985—Jun. 30, 1985 13% Table 31, pg. 585 Jul. 1, 1985—Dec. 31, 1985 11% Table 27, pg. 581 Jan. 1, 1986—Jun. 30, 1986 10% Table 25, pg. 579 Jul. 1, 1986—Dec. 31, 1986 9% Table 23, pg. 577

June 30, 2008 1181 2008–26 I.R.B.

2008–26 I.R.B. 1182 June 30, 2008

TABLE OF INTEREST RATES

FROM JANUARY 1, 1999 - PRESENT

NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS

1995–1 C.B. RATE TABLE PG

Jan. 1, 1999—Mar. 31, 1999 7% 19 573 Apr. 1, 1999—Jun. 30, 1999 8% 21 575 Jul. 1, 1999—Sep. 30, 1999 8% 21 575 Oct. 1, 1999—Dec. 31, 1999 8% 21 575 Jan. 1, 2000—Mar. 31, 2000 8% 69 623 Apr. 1, 2000—Jun. 30, 2000 9% 71 625 Jul. 1, 2000—Sep. 30, 2000 9% 71 625 Oct. 1, 2000—Dec. 31, 2000 9% 71 625 Jan. 1, 2001—Mar. 31, 2001 9% 23 577 Apr. 1, 2001—Jun. 30, 2001 8% 21 575 Jul. 1, 2001—Sep. 30, 2001 7% 19 573 Oct. 1, 2001—Dec. 31, 2001 7% 19 573 Jan. 1, 2002—Mar. 31, 2002 6% 17 571 Apr. 1, 2002—Jun. 30, 2002 6% 17 571 Jul. 1, 2002—Sep. 30, 2002 6% 17 571 Oct. 1, 2002—Dec. 31, 2002 6% 17 571 Jan. 1, 2003—Mar. 31, 2003 5% 15 569 Apr. 1, 2003—Jun. 30, 2003 5% 15 569 Jul. 1, 2003—Sep. 30, 2003 5% 15 569 Oct. 1, 2003—Dec. 31, 2003 4% 13 567 Jan. 1, 2004—Mar. 31, 2004 4% 61 615 Apr. 1, 2004—Jun. 30, 2004 5% 63 617 Jul. 1, 2004—Sep. 30, 2004 4% 61 615 Oct. 1, 2004—Dec. 31, 2004 5% 63 617 Jan. 1, 2005—Mar. 31, 2005 5% 15 569 Apr. 1, 2005—Jun. 30, 2005 6% 17 571 Jul. 1, 2005—Sep. 30, 2005 6% 17 571 Oct. 1, 2005—Dec. 31, 2005 7% 19 573 Jan. 1, 2006—Mar. 31, 2006 7% 19 573 Apr. 1, 2006—Jun. 30, 2006 7% 19 573 Jul. 1, 2006—Sep. 30, 2006 8% 21 575 Oct. 1, 2006—Dec. 31, 2006 8% 21 575 Jan. 1, 2007—Mar. 31, 2007 8% 21 575 Apr. 1, 2007—Jun. 30, 2007 8% 21 575 Jul. 1, 2007—Sep. 30, 2007 8% 21 575 Oct. 1, 2007—Dec. 31, 2007 8% 21 575 Jan. 1, 2008—Mar. 31, 2008 7% 67 621 Apr. 1, 2008—Jun. 30, 2008 6% 65 619 Jul. 1, 2008—Sep. 30, 2008 5% 63 617

June 30, 2008 1183 2008–26 I.R.B.

TABLE OF INTEREST RATES FOR LARGE CORPORATE UNDERPAYMENTS

FROM JANUARY 1, 1991 - PRESENT

1995–1 C.B. RATE TABLE PG

Jan. 1, 1991—Mar. 31, 1991 13% 31 585 Apr. 1, 1991—Jun. 30, 1991 12% 29 583 Jul. 1, 1991—Sep. 30, 1991 12% 29 583 Oct. 1, 1991—Dec. 31, 1991 12% 29 583 Jan. 1, 1992—Mar. 31, 1992 11% 75 629 Apr. 1, 1992—Jun. 30, 1992 10% 73 627 Jul. 1, 1992—Sep. 30, 1992 10% 73 627 Oct. 1, 1992—Dec. 31, 1992 9% 71 625 Jan. 1, 1993—Mar. 31, 1993 9% 23 577 Apr. 1, 1993—Jun. 30, 1993 9% 23 577 Jul. 1, 1993—Sep. 30, 1993 9% 23 577

2008–26 I.R.B. 1184 June 30, 2008

TABLE OF INTEREST RATES FOR LARGE CORPORATE UNDERPAYMENTS

FROM JANUARY 1, 1991 - PRESENT - Continued

1995–1 C.B. RATE TABLE PG

Oct. 1, 1993—Dec. 31, 1993 9% 23 577 Jan. 1, 1994—Mar. 31, 1994 9% 23 577 Apr. 1, 1994—Jun. 30, 1994 9% 23 577 Jul. 1, 1994—Sep. 30, 1994 10% 25 579 Oct. 1, 1994—Dec. 31, 1994 11% 27 581 Jan. 1, 1995—Mar. 31, 1995 11% 27 581 Apr. 1, 1995—Jun. 30, 1995 12% 29 583 Jul. 1, 1995—Sep. 30, 1995 11% 27 581 Oct. 1, 1995—Dec. 31, 1995 11% 27 581 Jan. 1, 1996—Mar. 31, 1996 11% 75 629 Apr. 1, 1996—Jun. 30, 1996 10% 73 627 Jul. 1, 1996—Sep. 30, 1996 11% 75 629 Oct. 1, 1996—Dec. 31, 1996 11% 75 629 Jan. 1, 1997—Mar. 31, 1997 11% 27 581 Apr. 1, 1997—Jun. 30, 1997 11% 27 581 Jul. 1, 1997—Sep. 30, 1997 11% 27 581 Oct. 1, 1997—Dec. 31, 1997 11% 27 581 Jan. 1, 1998—Mar. 31, 1998 11% 27 581 Apr. 1, 1998—Jun. 30, 1998 10% 25 579 Jul. 1, 1998—Sep. 30, 1998 10% 25 579 Oct. 1, 1998—Dec. 31, 1998 10% 25 579 Jan. 1, 1999—Mar. 31, 1999 9% 23 577 Apr. 1, 1999—Jun. 30, 1999 10% 25 579 Jul. 1, 1999—Sep. 30, 1999 10% 25 579 Oct. 1, 1999—Dec. 31, 1999 10% 25 579 Jan. 1, 2000—Mar. 31, 2000 10% 73 627 Apr. 1, 2000—Jun. 30, 2000 11% 75 629 Jul. 1, 2000—Sep. 30, 2000 11% 75 629 Oct. 1, 2000—Dec. 31, 2000 11% 75 629 Jan. 1, 2001—Mar. 31, 2001 11% 27 581 Apr. 1, 2001—Jun. 30, 2001 10% 25 579 Jul. 1, 2001—Sep. 30, 2001 9% 23 577 Oct. 1, 2001—Dec. 31, 2001 9% 23 577 Jan. 1, 2002—Mar. 31, 2002 8% 21 575 Apr. 1, 2002—Jun. 30, 2002 8% 21 575 Jul. 1, 2002—Sep. 30, 2002 8% 21 575 Oct. 1, 2002—Dec. 30, 2002 8% 21 575 Jan. 1, 2003—Mar. 31, 2003 7% 19 573 Apr. 1, 2003—Jun. 30, 2003 7% 19 573 Jul. 1, 2003—Sep. 30, 2003 7% 19 573 Oct. 1, 2003—Dec. 31, 2003 6% 17 571 Jan. 1, 2004—Mar. 31, 2004 6% 65 619 Apr. 1, 2004—Jun. 30, 2004 7% 67 621 Jul. 1, 2004—Sep. 30, 2004 6% 65 619 Oct. 1, 2004—Dec. 31, 2004 7% 67 621 Jan. 1, 2005—Mar. 31, 2005 7% 19 573 Apr. 1, 2005—Jun. 30, 2005 8% 21 575 Jul. 1, 2005—Sep. 30, 2005 8% 21 575 Oct. 1, 2005—Dec. 31, 2005 9% 23 577 Jan. 1, 2006—Mar. 31, 2006 9% 23 577 Apr. 1, 2006—Jun. 30, 2006 9% 23 577 Jul. 1, 2006—Sep. 30, 2006 10% 25 579 Oct. 1, 2006—Dec. 31, 2006 10% 25 579 Jan. 1, 2007—Mar. 31, 2007 10% 25 579 Apr. 1, 2007—Jun. 30, 2007 10% 25 579 Jul. 1, 2007—Sep. 30, 2007 10% 25 579

June 30, 2008 1185 2008–26 I.R.B.

TABLE OF INTEREST RATES FOR LARGE CORPORATE UNDERPAYMENTS

FROM JANUARY 1, 1991 - PRESENT - Continued

1995–1 C.B. RATE TABLE PG

Oct. 1, 2007—Dec. 31, 2007 10% 25 579 Jan. 1, 2008—Mar. 31, 2008 9% 71 625 Apr. 1, 2008—Jun. 30, 2008 8% 69 623 Jul. 1, 2008—Sep. 30, 2008 7% 67 621

TABLE OF INTEREST RATES FOR CORPORATE

OVERPAYMENTS EXCEEDING $10,000

FROM JANUARY 1, 1995 - PRESENT

1995–1 C.B. RATE TABLE PG

Jan. 1, 1995—Mar. 31, 1995 6.5% 18 572 Apr. 1, 1995—Jun. 30, 1995 7.5% 20 574 Jul. 1, 1995—Sep. 30, 1995 6.5% 18 572 Oct. 1, 1995—Dec. 31, 1995 6.5% 18 572 Jan. 1, 1996—Mar. 31, 1996 6.5% 66 620 Apr. 1, 1996—Jun. 30, 1996 5.5% 64 618 Jul. 1, 1996—Sep. 30, 1996 6.5% 66 620 Oct. 1, 1996—Dec. 31, 1996 6.5% 66 620 Jan. 1, 1997—Mar. 31, 1997 6.5% 18 572 Apr. 1, 1997—Jun. 30, 1997 6.5% 18 572 Jul. 1, 1997—Sep. 30, 1997 6.5% 18 572 Oct. 1, 1997—Dec. 31, 1997 6.5% 18 572 Jan. 1, 1998—Mar. 31, 1998 6.5% 18 572 Apr. 1, 1998—Jun. 30, 1998 5.5% 16 570 Jul. 1, 1998—Sep. 30, 1998 5.5% 16 570 Oct. 1, 1998—Dec. 31, 1998 5.5% 16 570 Jan. 1, 1999—Mar. 31, 1999 4.5% 14 568 Apr. 1, 1999—Jun. 30, 1999 5.5% 16 570 Jul. 1, 1999—Sep. 30, 1999 5.5% 16 570 Oct. 1, 1999—Dec. 31, 1999 5.5% 16 570 Jan. 1, 2000—Mar. 31, 2000 5.5% 64 618 Apr. 1, 2000—Jun. 30, 2000 6.5% 66 620 Jul. 1, 2000—Sep. 30, 2000 6.5% 66 620 Oct. 1, 2000—Dec. 31, 2000 6.5% 66 620 Jan. 1, 2001—Mar. 31, 2001 6.5% 18 572 Apr. 1, 2001—Jun. 30, 2001 5.5% 16 570 Jul. 1, 2001—Sep. 30, 2001 4.5% 14 568 Oct. 1, 2001—Dec. 31, 2001 4.5% 14 568 Jan. 1, 2002—Mar. 31, 2002 3.5% 12 566 Apr. 1, 2002—Jun. 30, 2002 3.5% 12 566 Jul. 1, 2002—Sep. 30, 2002 3.5% 12 566 Oct. 1, 2002—Dec. 31, 2002 3.5% 12 566 Jan. 1, 2003—Mar. 31, 2003 2.5% 10 564 Apr. 1, 2003—Jun. 30, 2003 2.5% 10 564 Jul. 1, 2003—Sep. 30, 2003 2.5% 10 564 Oct. 1, 2003—Dec. 31, 2003 1.5% 8 562 Jan. 1, 2004—Mar. 31, 2004 1.5% 56 610 Apr. 1, 2004—Jun. 30, 2004 2.5% 58 612 Jul. 1, 2004—Sep. 30, 2004 1.5% 56 610 Oct. 1, 2004—Dec. 31, 2004 2.5% 58 612 Jan. 1, 2005—Mar. 31, 2005 2.5% 10 564 Apr. 1, 2005—Jun. 30, 2005 3.5% 12 566

2008–26 I.R.B. 1186 June 30, 2008

TABLE OF INTEREST RATES FOR CORPORATE

OVERPAYMENTS EXCEEDING $10,000

FROM JANUARY 1, 1995 - PRESENT - Continued

1995–1 C.B. RATE TABLE PG

Jul. 1, 2005—Sep. 30, 2005 3.5% 12 566 Oct. 1, 2005—Dec. 31, 2005 4.5% 14 568 Jan. 1, 2006—Mar. 31, 2006 4.5% 14 568 Apr. 1, 2006—Jun. 30, 2006 4.5% 14 568 Jul. 1, 2006—Sep. 30, 2006 5.5% 16 570 Oct. 1, 2006—Dec. 31, 2006 5.5% 16 570 Jan. 1, 2007—Mar. 31, 2007 5.5% 16 570 Apr. 1, 2007—Jun. 30, 2007 5.5% 16 570 Jul. 1, 2007—Sep. 30, 2007 5.5% 16 570 Oct. 1, 2007—Dec. 31, 2007 5.5% 16 570 Jan. 1, 2008—Mar. 31, 2008 4.5% 62 616 Apr. 1, 2008—Jun. 30, 2008 3.5% 60 614 Jul. 1, 2008—Sep. 30, 2008 2.5% 58 612

June 30, 2008 1187 2008–26 I.R.B.