Part I. Rulings — Internal Revenue Bulletin 2008-31

Section 42.—Low-Income Housing Credit

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of August 2008. See Rev. Rul. 2008-43, page 258.

Section 62.—Adjusted Gross Income Defined

A ruling addresses whether a non materially participating partner’s distributive share of interest expense attributable to indebtedness allocable to property held for investment described in section 163(d)(5)(A)(ii) is taken into account when determining the limited partner’s adjusted gross income under section 62. See Rev. Rul. 2008-38, page 249.

Section 162.—Trade or Business Expenses

A revenue ruling addresses the characterization of the management fees paid by an upper-tier investment partnership and by lower-tier trader partnerships to their respective managers under sections 162 and 212 where the upper tier partnership’s activities consist solely of acquiring, holding, and disposing of interests in the lower tier trader partnerships and UTP’s management fee is not paid or incurred by UTP on behalf of any LTP in connection with the trades or businesses of the LTPs. See Rev. Rul. 2008-39, page 252.

Section 163.—Interest

partner’s adjusted gross income under section 62. See Announcement 2008-65, page 279.

Section 212.—Expenses for Production of Income

Section 280G.—Golden Parachute Payments

Federal short-term, mid-term, and long-term rates are set forth for the month of August 2008. See Rev. Rul. 2008-43, page 258.

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 August 2008. See Rev. Rul. 2008-43, page 258.

Section 412.—Minimum Funding Standards

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of August 2008. See Rev. Rul. 2008-43, page 258.

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 August 2008. See Rev. Rul. 2008-43, page 258.

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 August 2008. See Rev. Rul. 2008-43, page 258.

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 August 2008. See Rev. Rul. 2008-43, page 258.

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 August 2008. See Rev. Rul. 2008-43, page 258.

Section 642.—Special Rules for Credits and Deductions

Federal short-term, mid-term, and long-term rates are set forth for the month of August 2008. See Rev. Rul. 2008-43, page 258.

Section 671.—Trust Income, Deductions, and Credits Attributable to Grantors and Others as Substantial Owners

26 CFR 1.671–1: Grantors and others treated as sub- stantial owners; scope.

This notice sets forth a proposed revenue ruling concerning the income, gift, estate, and generationskipping transfer tax consequences in situations in which family members create a private trust company to serve as the trustee of trust in which family members are grantors and beneficiaries. See Notice 2008-63, page 261.

Section 702.—Income and Credits of Partner

(Also: §§ 62, 163.)

Limited partner’s distributive share. This ruling addresses whether a limited

2008–31 I.R.B. 249 August 4, 2008

Section 163(d)(3)(A) provides that the term “investment interest” means any interest allowable as a deduction under chapter 1 of subtitle A (determined without regard to paragraph (1) of § 163(d)) which is paid or accrued on indebtedness properly allocable to property held for investment.

Section 702(a)(8) provides that, in determining the partner’s income tax, each partner shall take into account the partner’s distributive share of the partnership’s taxable income or loss, exclusive of the items requiring separate computation under § 702(a)(1) through (7). Section 702(a)(1) through (6) lists specific items of income, gain, loss, deduction or credit that must be separately stated by a partnership. Section 702(a)(7) provides that other items of income, gain, loss, deduction or credit also must be separately stated if required by regulations prescribed by the Secretary.

Section 702(b) provides that the character of any item of income, gain, loss, deduction, or credit included in a partner’s distributive share under paragraphs (1) through (7) of § 702(a) shall be determined as if such item were realized directly from the source from which realized by the partnership, or incurred in the same manner as incurred by the partnership.

Section § 1.702–1(a)(8)(ii) of the Income Tax Regulations provides that each partner must take into account separately the partner’s distributive share of any partnership item that, if separately taken into account by the partner, would result in an income tax liability for that partner, or for any other person, different from that which would result if that partner did not take the item into account separately.

Section 706(a) provides that, in computing the taxable income of a partner for a taxable year, the inclusions required by § 702 and § 707(c) with respect to a partnership shall be based on the income, gain, loss, deduction, or credit of the partnership for any taxable year of the partnership ending within or with the taxable year of the partner.

Revenue Ruling 2008–12, 2008–10 I.R.B. 520, holds that, by virtue of the definition of the term “property held for investment” in § 163(d)(5)(A)(ii), a noncorporate limited partner’s distributive share of interest expense on indebtedness allocable to a partnership’s trade or business of trading securities for its own

partner’s distributive share of interest expense attributable to indebtedness allocable to property held for investment described in section 163(d)(5)(A)(ii) of the Code is taken into account when determining the limited partner’s adjusted gross income. See Announcement 2008–65, in this Bulletin, for additional information. Rev. Rul. 2008–12 amplified.

Rev. Rul. 2008–38

ISSUES

(1) In the case of an individual, is interest paid or accrued on indebtedness allocable to property described in § 163(d)(5)(A)(ii) of the Internal Revenue Code deductible (after the application of the § 163(d)(1) limitation) in determining the taxpayer’s adjusted gross income or does the interest (after the application of the § 163(d)(1) limitation) instead constitute an itemized deduction?

(2) If an individual has both investment interest expense attributable to indebtedness allocable to property described in § 163(d)(5)(A)(ii) and investment interest expense attributable to indebtedness allocable to property described in § 163(d)(5)(A)(i) and the individual’s aggregate investment interest expense is greater than the individual’s net investment income, how does the individual determine the portion of the allowed investment interest deduction that is deductible in determining the taxpayer’s adjusted gross income and the portion that constitutes an itemized deduction?

FACTS

Situation 1

PRS is a partnership that is engaged solely in the trade or business of trading securities for its own account and not for customers. LP, an individual, owns an interest in PRS as a limited partner. LP does not materially participate (as that term is used in § 469) in the activity in which PRS is engaged. The taxable year for PRS and LP is the calendar year.

PRS incurs indebtedness in its trade or business of trading securities. In Year 1, LP’s distributive share of PRS’ income, gain, loss, deduction, and credit includes $200x of interest expense incurred by PRS with respect to its indebtedness.

LP’s net investment income, as defined in § 163(d)(4), for Year 1 is equal to $150x. During Year 1, LP’s distributive share of PRS’ interest expense is the only interest paid or accrued by LP (either directly or through any flow-through entity) on indebtedness properly allocable to property held for investment (as defined in § 163(d)(5)(A)). LP’s distributive share of PRS’ interest expense is not subject to any limitation under § 465 or 704(d).

Situation 2

The facts are the same as in Situation 1 except that during Year 1 LP also pays $100x of interest expense on indebtedness properly allocable to stocks and bonds held by LP for investment (within the meaning of § 163(d)(5)(A)(i)). None of the $100x of interest expense is described in § 265(a).

LAW AND ANALYSIS

Section 62(a) provides that the term “adjusted gross income” means, in the case of an individual taxpayer, gross income minus the deductions specified in § 62(a)(1) through (21).

Section 62(a)(1) provides that deductions allowed by chapter 1 of subtitle A, other than by part VII of subchapter B, which are attributable to a trade or business carried on by the taxpayer, if such trade or business does not consist of the performance of services by the taxpayer as an employee, are taken into account in determining the adjusted gross income of the taxpayer.

Section 63(d) defines the term “itemized deductions” as including all deductions allowable under chapter 1 of subtitle A other than deductions allowable in arriving at adjusted gross income and the deduction for personal exemptions provided in § 151.

Section 163(d)(1) provides that, in the case of a noncorporate taxpayer, the amount allowed as a deduction under chapter 1 of subtitle A for investment interest for any taxable year shall not exceed the amount of the taxpayer’s net investment income for the taxable year. Section 163(d)(2) provides that any amount not allowed as a deduction for a given taxable year by reason of § 163(d)(1) shall be treated as investment interest paid or accrued by the taxpayer in the next succeeding taxable year.

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(property described in § 163(d)(5)(A)(ii)), and one-third ($100x/$300x) is attributable to stocks and bonds held by LP for investment (property described in § 163(d)(5)(A)(i)). Accordingly, using a pro rata method, two-thirds of LP’s $150x of net investment income is allocated to LP’s distributive share of the interest expense of PRS, while one-third of LP’s $150x of net investment income is allocated to LP’s other investment interest expense. Therefore, using this method of allocation, of LP’s allowed $150x investment interest deduction in Year 1 under § 163(d)(1), $100x is taken into account in arriving at LP’s adjusted gross income under § 62(a), while the remaining $50x constitutes an itemized deduction under § 63(d). The $150x of investment interest that is not allowed as a deduction under § 163(d)(1) in Year 1 is treated as investment interest paid or accrued in Year 2 pursuant to § 163(d)(2). The $150x of investment interest that is not allowed as a deduction under § 163(d)(1) in Year 1 is comprised of $100x of investment interest attributable to LP’s interest in PRS’ trade or business (an interest described in § 163(d)(5)(A)(ii)) and $50x of investment interest expense attributable to stocks and bonds held for investment (within the meaning of § 163(d)(5)(A)(i)).

HOLDINGS

Issue 1: In the case of an individual, interest paid or accrued on indebtedness allocable to property held for investment described in § 163(d)(5)(A)(ii) is (after the application of the § 163(d)(1) limitation) a deduction described in § 62(a)(1) and is therefore taken into account in determining the individual’s adjusted gross income.

Issue 2: If an individual has both investment interest expense attributable to indebtedness allocable to property described in § 163(d)(5)(A)(i) and investment interest expense attributable to indebtedness allocable to property described in § 163(d)(5)(A)(ii) and the individual’s aggregate investment interest expense is greater than the individual’s net investment income, the individual must allocate the individual’s net investment income between the two categories of investment interest expense using a reasonable method of allocation. One reasonable method of allocation is to allocate the individual’s

account constitutes investment interest described in § 163(d)(3) and is therefore subject to the limitation on the deduction of investment interest in § 163(d)(1), provided that the limited partner does not materially participate (as that term is used in § 469) in the trading activity. The ruling further holds that a partnership that engages in the trade or business of trading securities for its own account must separately state the amount of interest paid or accrued on indebtedness properly allocable to its trading activity because the degree of participation by each noncorporate partner of the partnership could limit the deductibility of such interest by the partner on his or her individual tax return.

Situation 1

LP’s only investment interest (as defined in § 163(d)(3)) for Year 1 is LP’s $200x distributive share of PRS’ interest expense in Year 1. This investment interest is subject to the limitation on investment interest in § 163(d)(1). Section 163(d)(1) limits LP’s deduction for investment interest in Year 1 to $150x, the amount of LP’s net investment income (as defined in § 163(d)(4)) for that year. Accordingly, in Year 1, LP may deduct $150x of LP’s $200x distributive share of the interest expense of PRS. Pursuant to § 163(d)(2), the $50x of interest expense not allowed as a deduction for Year 1 is treated as investment interest paid or accrued in Year 2.

LP’s distributive share of PRS’ Year 1 interest expense that is allowed under § 163(d)(1) is deductible in arriving at LP’s adjusted gross income pursuant to § 62(a)(1). Section 702(b) provides that the character of any item of deduction included in a partner’s distributive share under § 702(a) shall generally be determined as if such item were incurred in the same manner as incurred by the partnership. Because the interest expense of PRS is attributable to the carrying on of its trade or business of trading securities, LP’s share of that expense is described in § 62(a)(1). While LP’s distributive share of PRS’ interest expense is subject to the investment interest limitation in § 163(d)(1), the investment interest limitation does not affect the character of the interest expense for other purposes of the Code. Thus, except for purposes of applying the investment interest limitation, LP’s distributive share of

PRS’ interest expense deductions are characterized under § 702(b).

Accordingly, $150x of LP’s distributive share of the Year 1 interest expense of PRS is deductible in arriving at LP’s adjusted gross income. Therefore, such amount does not constitute an itemized deduction (as defined in 63(d)).

Situation 2

In Situation 2, in addition to LP’s $200x distributive share of PRS’ Year 1 interest expense, LP also pays $100x of interest expense on indebtedness properly allocable to stocks and bonds held by LP for investment (within the meaning of § 163(d)(5)(A)(i)). Accordingly, LP’s total investment interest expense for Year 1 is $300x. Pursuant to 163(d)(1), LP is allowed to deduct only $150x of this investment interest expense in Year 1.

To the extent that LP’s $150x of allowed investment interest deduction is attributable to indebtedness incurred in PRS’ trade or business of trading securities, the deduction is taken into account in arriving at LP’s adjusted gross income. To the extent the $150x of allowed investment interest deduction is attributable to the indebtedness attributable to the stock and bonds held for investment, the deduction is not taken into account in arriving at LP’s adjusted gross income and is instead reported as an itemized deduction.

When an individual has both investment interest expense attributable to property described in § 163(d)(5)(A)(i) and investment interest expense attributable to property described in § 163(d)(5)(A)(ii) and the individual’s aggregate investment interest expense is greater than the individual’s net investment income, the individual must allocate the taxpayer’s net investment income to the two categories of investment interest expenses using a reasonable method of allocation. One reasonable method is to allocate the net investment income to the two categories of investment interest in the same proportion that the amount of investment interest in each category bears to the total amount of investment interest (the pro rata method). In Situation 2, two-thirds ($200x/$300x) of LP’s aggregate investment interest expense is attributable to LP’s interest in the trade or business of trading securities of PRS

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Section 1.212–1(d) of the Income Tax Regulations provides that expenses, to be deductible under § 212, must be “ordinary and necessary.” Thus, such expenses must be reasonable in amount and must bear a reasonable and proximate relation to the production or collection of taxable income or to the management, conservation, or maintenance of property held for the production of income.

Section 1.212–1(g) provides that fees for services of investment counsel and similar expenses paid or incurred by a taxpayer in connection with investments held by the taxpayer are deductible under § 212 if they are paid or incurred for the production of income and they are ordinary and necessary under the circumstances.

Section 703(a) provides that the taxable income of a partnership shall be computed in the same manner as in the case of an individual, except that the items listed in § 702(a) shall be separately stated and the deductions listed in paragraph (2) of § 703(a) shall not be allowed.

Section 703(a)(2)(E) provides that the additional itemized deductions for individuals in part VII of subchapter B of the Code, including expenses described in § 212, are not allowed to the partnership.

Section 1.702–1(a)(1) through (a)(8)(i) lists specific items of income, gain, loss, deduction or credit that must be separately stated by a partnership. Specifically,

net investment income to the two categories of investment interest in proportion to the relative amounts of interest expense within each category.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 2008–12 is amplified.

DRAFTING INFORMATION

The principal author of this revenue ruling is Faith P. Colson of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this revenue ruling, contact Faith P. Colson at (202) 622–3060 (not a toll-free call).

26 CFR 1.702–1(b): Character of items constituting distributive share. (Also: §§ 162, 212, 703.)

Characterization of management fees. This ruling addresses the characterization of the management fees paid by an upper-tier investment partnership (UTP) and by lower-tier trader partnerships (LTPs) to their respective managers under sections 162 and 212 of the Code where the UTP’s activities consist solely of acquiring, holding, and disposing of interests in the LTPs and UTP’s management fee is not paid or incurred by UTP on behalf of any LTP in connection with the trades or businesses of the LTPs.

Rev. Rul. 2008–39

ISSUE

Under the facts described below, how are the management fees incurred by each of the lower tier partnerships (LTPs) and the management fee incurred by the upper tier partnership (UTP) taken into account in computing the tax liability of an individual who is a limited partner (LP) of UTP?

FACTS

LP, an individual, owns a limited partnership interest in UTP. UTP owns limited partnership interests in several LTPs. Each LTP is engaged in the business of trading in securities and such business constitutes a trade or business within the meaning of § 162 of the Internal Revenue Code

(Code). UTP’s activities consist solely of acquiring, holding, and disposing of interests in LTPs, and such activities, without regard to the activities of LTPs, do not constitute a trade or business within the meaning of § 162. Instead, UTP’s activities (without regard to the activities of LTPs) consist of holding limited partnership interests in LTPs for the production of income within the meaning of § 212. UTP and each LTP pay an annual management fee to their respective managers in consideration for management services performed for their benefit. Each management fee is computed as a specified percentage of the value of the net assets owned by UTP and each LTP, as the case may be.

The management fee paid or incurred by each LTP is an ordinary and necessary business expense within the meaning of § 162 in carrying on its trade or business. The management fee paid or incurred by UTP, without regard to the activities of LTP, is an ordinary and necessary expense in carrying on its investment activities. UTP’s management fee is not paid or incurred by UTP on behalf of any LTP in connection with an LTP’s trade or business. None of the management fees are properly capitalized under § 263.

Under the terms of the partnership agreement of each LTP, UTP receives a distributive share of the items of income, gain, loss, deduction and credit of each LTP. Under the terms of UTP’s partnership agreement, LP receives a distributive share of UTP’s items of income, gain, loss, deduction and credit.

LAW AND ANALYSIS

Section 162(a) provides, in part, that there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.

Section 212 provides that in the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year (1) for the production or collection of income, (2) for the management, conservation, or maintenance of property held for the production of income, or (3) in connection with the determination, collection, or refund of any tax.

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or incurred by UTP may be deducted under § 162 or § 212 must be resolved solely by reference to the activities of UTP. Because UTP itself is not engaged in a trade or business within the meaning of § 162 and because the management fee is not paid or incurred on behalf of any LTP in connection with an LTP’s trade or business, the management fee is not deductible under § 162. Instead, UTP’s annual management fees are ordinary and necessary expenses described in § 212 paid or incurred in connection with UTP’s investment activities. Accordingly, LP’s share of the UTP’s management fee is deductible under § 212. Pursuant to § 703(a)(2)(E), UTP does not take into account UTP’s management fees in computing UTP’s taxable income. Instead, § 1.702–1(8)(a)(i) requires that UTP separately state UTP’s management fees and that LP take into account separately LP’s distributive share of UTP’s management fees.

Because the management fee of each LTP is an ordinary and necessary expense paid or incurred in carrying on the trade or business of the LTP, the management fee is deductible under § 162. As a result, each LTP takes its management fee into account in computing its taxable income or loss described in § 702(a)(8), and UTP takes into account its distributive share of the taxable income or loss of each LTP in computing UTP’s own taxable income or loss described in § 702(a)(8). LP takes into account its distributive share of UTP’s taxable income or loss in computing LP’s tax liability.

HOLDING

UTP’s management fee is not an ordinary and necessary expense paid or incurred by UTP on behalf of the LTPs in carrying on their trading business. The management fee paid or incurred by UTP constitutes an expense described in § 212. This expense is not taken into account in computing UTP’s taxable income or loss described in § 702(a)(8). Instead, the management fee must be separately stated by UTP and separately taken into account by LP in computing LP’s tax liability.

The management fee paid or incurred by an LTP constitutes an expense described in § 162 and is taken into account in computing the LTP’s taxable income or loss described in § 702(a)(8). UTP’s dis

§ 1.702–1(a)(8)(i) provides, in part, that each partner shall take into account separately the partner’s distributive share of the partnership’s nonbusiness expenses that are described in § 212.

In Butler v. Commissioner, 36 T.C. 1097 (1961), acq., 1962–2 C.B. 4, the Tax Court held that, because loans made by a limited partner to a partnership were a vital factor in the existence and furtherance of the partnership’s business and were proximately related to the business activities of the partnership, the limited partner was entitled to a business bad debt deduction. The Tax Court noted its agreement with other cases that “[b]y reason of being a partner in a business petitioner was individually engaged in business.” 36 T.C. at 1106. Other courts have permitted a general partner to deduct as a trade or business expense amounts paid on behalf of the business of the partnership. In Ward v. Commissioner, 20 T.C. 332 (1953), acq., 1956–2 C.B. 9, aff’d, 224 F.2d 547 (9 ^th Cir. 1955), following the termination of a general partnership, a general partner paid medical expenses of a partnership employee. The court held that the partner was individually engaged in business by reason of being a partner. Because of the termination of the partnership, the fact that the partner was no longer in business at the time of the expense did not mean the deduction was denied. A similar result was reached in Flood v. United States, 133 F.2d 173 (1 ^st Cir. 1943).

In Goodwin v. Commissioner, 75 T.C. 424 (1980), aff’d, 691 F.2d 490 (3d Cir. 1982), the Tax Court concluded that, for the purpose of characterizing partnership expenses for purposes of § 162, a partnership must be viewed as a substantive economic entity clearly distinct from its partners. In Goodwin, the taxpayer was individually engaged in real estate activities and attempted to claim deductions under § 162(a) for his distributive share as a limited partner of certain startup costs incurred by two limited partnerships formed to construct housing projects. The taxpayer argued that his activities as a partner constituted an expansion or continuation of his existing trade or business. The Tax Court, citing Madison Gas and Elec- tric Co. v. Commissioner, 72 T.C. 521 (1979), aff’d, 633 F.2d 512 (7 ^th Cir. 1980), held that in the context of § 162, the character of deductions incurred by the part

nership, i.e ., whether the deductions are incurred in the course of a trade or business, must be resolved at the partnership level. The partnership was not yet carrying on a trade or business at the time the startup costs were paid or incurred. Accordingly, the Tax Court determined that the taxpayer’s share of the startup costs were not deductible under § 162 regardless of the taxpayer’s individual activities.

The Tax Court in Goodwin distinguished the question of whether a partnership expense was an ordinary and necessary expense incurred in carrying on the trade or business of a partnership from the question of whether a partner may deduct unreimbursed amounts paid by the partner on behalf of the partnership. It was the latter question that the Tax Court concluded was the issue in Butler, Ward, and Flood . In Goodwin, the Tax Court interpreted Butler, Ward, and Flood to stand for the proposition that, under certain facts, a partner may be entitled to individually deduct under § 162 as an ordinary and necessary expense an amount paid by the partner on behalf of the partnership for which the partner is not reimbursed. See also Cropland Chemical v. Commissioner, 75 T.C. 288 (1980); Klein v. Commis- sioner, 25 T.C. 1045 (1956), acq., 1956–2 C.B. 6; and Rev. Rul. 70–253, 1970–1 C.B. 31.

UTP’s management fee is not an ordinary and necessary expense paid or incurred by UTP on behalf of the LTPs in carrying on the trading business of the LTPs. Thus, the reasoning and conclusions in Butler, Ward, and Flood are inapposite to the facts presented in this ruling.

Further, the reasoning and conclusions in Rev. Rul. 98–15, 1998–1 C.B. 718, do not apply to the question presented in this ruling. Rev. Rul. 98–15 addresses whether, under the facts described in that ruling, an organization that operates an acute care hospital continues to qualify for exemption from federal income tax as an organization described in § 501(c)(3) when it forms a limited liability company (LLC) with a for-profit corporation and then contributes its hospital and all of its other operating assets to the LLC, which then operates the hospital. The question addressed in Rev. Rul. 98–15 is distinguishable from the question presented in this ruling.

Accordingly, under Goodwin, the question of whether the management fee paid

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tributive share of taxable income or loss of an LTP is taken into account in computing UTP’s taxable income or loss described in § 702(a)(8). In computing LP’s tax liability, LP takes into account LP’s distributive share of UTP’s taxable income or loss.

DRAFTING INFORMATION

Section 807.—Rules for Certain Reserves

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of August 2008. See Rev. Rul. 2008-43, page 258.

Section 846.—Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of August 2008. See Rev. Rul. 2008-43, page 258.

Section 860G.—Other Definitions and Special Rules

This revenue procedure describes the conditions under which changes to certain subprime mortgage loans will not cause the Internal Revenue Service to challenge the tax status of certain securitization vehicles holding the loans or to assert that those modifications create a liability for tax on a prohibited transaction. See Rev. Proc. 2008-47, page 272.

Section 956.—Investment of Earnings in United States Property

26 CFR 1.956–1: Shareholder’s pro rata share of a controlled foreign corporation’s increase in earnings invested in United States property.

T.D. 9402

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1

Guidance Under Section 956 for Determining the Basis of Property Acquired in Certain Nonrecognition Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final and temporary regulations under section 956 of the Internal Revenue Code (Code) regarding the determination of basis in certain United States property (within the meaning of section 956(c) of the Code) acquired by a controlled foreign corporation in certain nonrecognition transactions that are intended to repatriate earnings and profits of the controlled foreign corporation without United States income taxation. The final regulation adds a cross reference to the temporary regulations. These regulations affect United States shareholders of a controlled foreign corporation that acquires United States property in certain nonrecognition transactions. The text of the temporary regulations serves as the text of the proposed regulations (REG–102122–08) set forth in the notice of proposed rulemaking published in this issue of the Bulletin.

DATES: Effective Date: These regulations are effective June 24, 2008.

Applicability Date: These regulations apply to property acquired in exchanges occurring on or after June 24, 2008.

FOR FURTHER INFORMATION CONTACT: John H. Seibert at (202) 622–3860 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to 26 CFR Part 1 under section 956, which was added to the Code by the Revenue Act of 1962, Public Law 87–834 (76 Stat. 960 (1962)). The temporary regulations in this document are issued under the authority of sections 367(b) and 956(e). Section 367(b) was added to the Code by section 1042(a) of the Tax Reform Act of 1976, Public Law 94–455 (90 Stat. 1520 (1976)). Section 956(e) was added to the Code by section 13232(b) of the Omnibus Budget Reconciliation Act of 1993, Public Law 103–66, (107 Stat. 312 (1993)).

The temporary regulations in this document apply to determine the basis of certain United States property (as defined in section 956(c) of the Code) acquired by a controlled foreign corporation in certain nonrecognition transactions that are intended to repatriate earnings and profits of the controlled foreign corporation without an income inclusion by the United States shareholders of the controlled foreign corporation under section 951(a)(1)(B).

Explanation of Provisions

A. Transactions at Issue

The IRS and the Treasury Department are aware that certain taxpayers are engaging in certain nonrecognition transactions in which a controlled foreign corporation (CFC) acquires certain United States property (within the meaning of section 956(c)) without resulting in an income inclusion to the United States shareholders of the CFC under section 951(a)(1)(B).

In one such transaction, for example, USP, a domestic corporation and the common parent of an affiliated group that files a consolidated tax return, owns 100-percent of the outstanding stock of US1 and US2, both domestic corporations that join USP in the filing of a consolidated tax return. US1 owns 100 percent of the stock of CFC, a controlled foreign corporation. US2 issues $100x of its stock to CFC in exchange for $10x of CFC stock and $90x cash.

USP takes the position that: (i) US2’s transfer of its stock to CFC in exchange for $10x of CFC stock and $90x cash is an exchange to which section 351 applies;

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made to basis of stock or securities, and basis of assets.

Section 367(b) was enacted to ensure that international tax considerations are adequately addressed when the provisions of subchapter C of the Code apply to certain nonrecognition exchanges involving foreign corporations. In adopting section 367(b), Congress noted that “it is essential to protect against tax avoidance...upon the repatriation of previously untaxed foreign earnings.” H.R. Rep. No. 658, 94 ^th Cong., 1 ^st Sess. 241 (1975).

D. Determination of Basis in Certain Nonrecognition Exchanges

Section 358(a)(1) generally provides that the basis of property received pursuant to an exchange to which section 351, 354, 355, 356, or 361 applies is the same as that of the property exchanged, decreased by the fair market value of any other property (except money) received by the taxpayer, the amount of any money received by the taxpayer, and the amount of loss to the taxpayer which was recognized on such exchange, and increased by the amount which was treated as a dividend, and the amount of gain to the taxpayer which was recognized on such exchange (not including any portion of such gain which was treated as a dividend).

Section 362(a) provides that if property is acquired by a corporation in connection with a transaction to which section 351 applies, or as paid-in surplus or as a contribution to capital, then the basis of such property shall be the same as it would be in the hands of the transferor, increased in the amount of gain recognized to the transferor on such transfer.

Section 1032(a) provides that no gain or loss shall be recognized to a corporation on the receipt of money or other property in exchange for stock (including treasury stock) of such corporation.

E. Determination of Basis for Purposes of Section 956

These temporary regulations apply when a CFC acquires stock or obligations of a domestic issuing corporation, that constitute United States property under section 956(c), from such corporation pursuant to an exchange in which the controlled foreign corporation’s basis in such property is determined under section

(ii) US2 recognizes no gain on the receipt of $10x of CFC stock and $90x cash in exchange for its stock pursuant to section 1032(a); (iii) CFC recognizes no gain on the issuance of its stock to US2 under section 1032(a); (iv) CFC’s basis in the US2 stock is zero pursuant to section 362(a); and (v) US1 and US2 do not and will not have an income inclusion under section 951(a)(1)(B) as a result of CFC holding the US2 stock (which constitutes United States property under section 956(c)).

The IRS and the Treasury Department believe these transactions raise significant policy concerns because the transactions may have the effect of repatriating earnings and profits of a CFC without a corresponding dividend inclusion, or an income inclusion under section 951(a)(1)(B) by reason of the CFC’s investment in United States property.

B. Section 956 — In General

Section 956 was enacted to require an income inclusion by United States shareholders of a CFC that invests certain earnings and profits in United States property “on the grounds that [the investment] is substantially the equivalent of a dividend being paid to them.” S. Rep. No. 87–1881, 1962–3 C.B. 703, 794 (1962). (See §601.601(d)(2)(ii)( b )).

Under Section 951(a)(1)(B) each United States shareholder (as defined in section 951(b)) of a CFC (as defined in section 957(a)) must include in its gross income for its taxable year in which or with which the taxable year of the CFC ends, the amount determined under section 956 with respect to such shareholder for such year (but only to the extent not excluded from gross income under section 959(a)(2)). The amount determined under section 956 with respect to a United States shareholder of a CFC for any taxable year is the lesser of: (1) the excess, if any, of the shareholder’s pro rata share of the average amounts of United States property held (directly or indirectly) by the CFC as of the close of each quarter of such taxable year, over the amount of earnings and profits of the CFC described in section 959(c)(1)(A) with respect to such shareholder; or (2) the shareholder’s pro rata share of the applicable earnings of the CFC. In general, the amount taken into account with respect

to any United States property for this purpose is the adjusted basis of such property as determined for purposes of computing earnings and profits, reduced by any liability to which the property is subject. Earnings and profits described in section 959(c)(1)(A) are attributable to amounts previously included in gross income by the United States shareholder under section 951(a)(1)(B) (or which would have been included except for section 959(a)(2)).

Section 956(c)(1) defines United States property to generally include stock of a domestic corporation and an obligation of a United States person. However, section 956(c)(2) excludes from the definition of United States property, the stock or obligations of a domestic corporation which is neither a United States shareholder of the CFC, nor a domestic corporation 25 percent or more of the total combined voting power of which, immediately after the CFC’s acquisition of stock in such domestic corporation, is owned (or is considered as being owned) by the United States shareholders of the CFC in the aggregate.

Section 956(e) grants the Secretary authority to prescribe such regulations as may be necessary to carry out the purposes of section 956, including regulations to prevent the avoidance of section 956 through reorganizations or otherwise.

C. Section 367(b) — In General

Section 367(b)(1) provides that in the case of any exchange described in section 332, 351, 354, 355, 356 or 361, in connection with which there is no transfer of property described in section 367(a)(1), a foreign corporation shall be considered to be a corporation except to the extent provided in regulations prescribed by the Secretary which are necessary or appropriate to prevent the avoidance of Federal income taxes.

Section 367(b)(2) provides that the regulations prescribed pursuant to section 367(b)(1) shall include (but shall not be limited to) regulations dealing with the sale or exchange of stock or securities in a foreign corporation by a United States person, including regulations providing the circumstances under which gain is recognized, amounts are included in gross income as a dividend, adjustments are made to earnings and profits, or adjustments are

2008–31 I.R.B. 255 August 4, 2008

attributable to United States property acquired as the result of certain nonrecognition transactions.

- - - (e)(5) and (e)(6) [Reserved]. For further guidance, see §1.956–1T(e)(5) and (e)(6).

(f) Effective/applicability dates . (1) Paragraph (e)(5) of this section is effective June 14, 1988, with respect to investments made on or after June 14, 1988. Paragraph (e)(6) of this section applies to nonrecognition property acquired in exchanges occurring on or after June 24, 2008.

Par. 3. Section 1.956–1T is amended by:

Redesignating paragraph (e)(5)(i) as paragraph (e)(5) and revising the paragraph heading for the newly-designated paragraph (e)(5).
Adding paragraph (e)(6).
Redesignating paragraph (e)(5)(ii) as paragraph (f) and revising newly-designated paragraph (f).

The revisions and additions read as follows:

§1.956–1T Shareholder’s pro rata share of a controlled foreign corporation’s increase in earnings invested in United States property (temporary) .

- - - (e)(5) Exclusion for certain recourse obligations . - * *

(6) Adjusted basis of property ac- quired in certain nonrecognition trans- actions —(i) Scope and purpose . This paragraph (e)(6) provides rules for determining, solely for purposes of section 956, the basis of certain United States property acquired by a controlled foreign corporation pursuant to an exchange in which the controlled foreign corporation’s basis in such United States property is determined under section 362(a). This paragraph (e)(6) also applies if United States property, the basis in which has been determined under these temporary regulations, is transferred (in one or more subsequent exchanges) to a related person (within the meaning of section 954(d)(3)), pursuant to an exchange in which the related person’s basis in such property is determined, in whole or in part, by reference to the transferor’s basis in such property. The purpose of this paragraph

362(a). If these temporary regulations apply to such an exchange, then, solely for purposes of section 956, the CFC’s basis in such United States property shall be no less than the fair market value of the property transferred by the controlled foreign corporation in exchange for such property. For purposes of the temporary regulations, the term property has the meaning set forth in section 317(a), but includes any liability assumed by the CFC in connection with the exchange notwithstanding section 357(a). These temporary regulations also apply if United States property, the basis of which is determined under these temporary regulations, is transferred to a related person (related person transferee), or by a related person transferee to another related person, pursuant to an exchange in which the related person transferee’s basis in such property is determined, in whole or in part, by reference to the transferor’s basis in such property. This rule is intended to prevent taxpayers from attempting to avoid the general rule of the temporary regulations by subsequently transferring the United States property to a related person in another nonrecognition transaction.

The basis of United States property determined under the temporary regulations shall apply only for purposes of determining the amount of United States property acquired or held by a CFC under section 956, and accordingly the amount of a United States shareholder’s income inclusion under section 951(a)(1)(B) with respect to such CFC.

The temporary regulations apply only to determine the basis of United States property acquired by a CFC pursuant to an exchange that is within the scope of these temporary regulations. All other basis determinations are made under the rules provided under section 956(a) and §1.956–1(e)(1)(4).

Effective/Applicability Dates

These regulations apply to United States property acquired in exchanges occurring on or after June 24, 2008. No inference is intended as to the basis of United States property acquired by a controlled foreign corporation pursuant to a transaction described herein under current law, and the IRS may, where appropriate,

challenge such transactions under applicable provisions or judicial doctrines.

Special Analyses

These temporary and final regulations are necessary to prevent abusive transactions of the type described in the explanation of provisions in this preamble. Accordingly, good cause is found for dispensing with notice and public procedure pursuant to 5 U.S.C. 553(b) of the Administrative Procedures Act and for dispensing with a delayed effective date pursuant to 5 U.S.C. 553(d)(1) and (3) of such Act. For applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), please refer to the notice of proposed rulemaking published in this issue of the Bulletin. Pursuant to section 7805(f) of the Code, this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small entities.

Drafting Information

The principal author of these regulations is John H. Seibert, Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in their development.

- - - -

Amendments to the Regulations

Accordingly, 26 CFR part 1 is 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 1.956–1 is amended by adding a sentence to the end of paragraph (e)(1) and adding new paragraphs (e)(5), (e)(6) and (f) to read as follows:

§1.956–1 Shareholder’s pro rata share of a controlled foreign corporation’s increase in earnings invested in United States property .

- - - (e) * * * (1) * * * See §1.956–1T(e)(6) for a special rule for determining amounts

August 4, 2008 256 2008–31 I.R.B.

(e)(6) is to prevent the effective repatriation of earnings and profits of a controlled foreign corporation that acquires United States property in connection with an exchange to which this paragraph (e)(6) applies without a corresponding income inclusion under section 951(a)(1)(B) by claiming a basis in the United States property less than the amount of earnings and profits effectively repatriated.

(ii) Definition of United States prop- erty . For purposes of this paragraph (e)(6), United States property is stock of a domestic corporation described in section 956(c)(1)(B) or an obligation of a domestic corporation described in section 956(c)(1)(C) that is acquired by a controlled foreign corporation from the domestic issuing corporation. The exceptions provided under section 956(c)(2) shall apply for this purpose.

(iii) Basis of United States property . Solely for purposes of section 956, the basis of United States property acquired by a controlled foreign corporation in connection with an exchange to which this paragraph (e)(6) applies shall be no less than the fair market value of the property transferred by the controlled foreign corporation in exchange for such United States property. For purposes of this paragraph (e)(6), the term property has the meaning set forth in section 317(a), but also includes any liability assumed by the controlled foreign corporation in connection with the exchange notwithstanding the application of section 357(a). The fair market value of the property transferred by the controlled foreign corporation in exchange for the United States property shall be determined at the time of the exchange.

(iv) Timing . For purposes of §1.956–2(d)(1)(i)(a), a controlled foreign corporation that acquires United States property in an exchange to which this paragraph (e)(6) applies acquires an adjusted basis in such property at the time of the controlled foreign corporation’s exchange of property for such United States property.

(v) Transfers to related persons . If a controlled foreign corporation transfers United States property, the basis in which has been determined under this paragraph (e)(6), to a related person (within the meaning of section 954(d)(3)) (related person transferee) in an exchange pursuant to which the related person transferee’s basis

in such United States property is determined, in whole or in part, by reference to the controlled foreign corporation’s basis in such United States property, then, solely for purposes of section 956, the related person transferee’s basis in such United States property shall be no less than the basis of such United States property in the hands of the controlled foreign corporation immediately before the exchange as determined under paragraph (e)(6)(iii) of this section. This paragraph (e)(6)(v) shall also apply in the case of one or more successive transfers of the United States property by a related person transferee to one or more persons related to the controlled foreign corporation (within the meaning of section 954(d)(3)). This paragraph (e)(6)(v) shall apply regardless of whether a subsequent transfer was part of a plan (or series of related transactions) that includes the controlled foreign corporation’s acquisition of the United States property.

(vi) Examples . The rules of this paragraph (e)(6) are illustrated by the following examples:

Example 1 . (i) Facts . USP, a domestic corporation, is the common parent of an affiliated group that joins in the filing of a consolidated return. USP owns 100 percent of the stock of US1 and US2, both domestic corporations and members of the USP consolidated group. US1 owns 100 percent of the stock of CFC, a controlled foreign corporation. US2 issues $100x of its stock to CFC in exchange for $10x of CFC stock and $90x cash. US2’s transfer of its stock to CFC is described in section 351, US2 recognizes no gain in the exchange under section 1032(a), and CFC’s basis in the US2 stock acquired in the exchange is determined under section 362(a).

(ii) Analysis . The US2 stock acquired by CFC in the exchange constitutes United States property under paragraph (e)(6)(ii) of this section because CFC acquires the US2 stock from US2, the issuing corporation. Therefore, because CFC’s basis in the US2 stock is determined under section 362(a), then for purposes of section 956, CFC’s basis in the US2 stock shall, under paragraph (e)(6)(iii) of this section, be no less than $90x, the fair market value of the property exchanged by CFC for the US2 stock (the $10x of CFC stock issued in the exchange does not constitute property for purposes of paragraph (e)(6)(iii) of this section). Pursuant to paragraph (e)(6)(iv) of this section, for purposes of §1.956–2(d)(1)(i)(a) CFC shall be treated as acquiring its basis of no less than $90x in the US2 stock at the time of its transfer of property to US2 in exchange for the US2 stock. The result would be the same if, instead of CFC transferring $90x of cash to US2 in the exchange, CFC assumes a $90x liability of US2.

Example 2 . (i) Facts . USP, a domestic corporation owns 100 percent of the stock of USS, a domestic corporation. USP also owns 100 percent of the stock of CFC, a controlled foreign corporation. USP’s basis in its USS stock equals the fair market value of

the USS stock, or $100x. USP transfers its USS stock to CFC in exchange for $100x of CFC stock. USP’s transfer of its USS stock to CFC is described in section 351, USP recognizes no gain in the exchange under section 351(a), and CFC’s basis in the USS stock acquired in the exchange, determined under section 362(a), equals $100x. (ii) Analysis . The USS stock acquired by CFC in the exchange does not constitute United States property under paragraph (e)(6)(ii) of this section because CFC acquires the USS stock from USP. Therefore, CFC’s basis in the US2 stock, for purposes of section 956, is not determined under this paragraph (e)(6). Instead, CFC’s basis in the USS stock is determined under the general rule of section 956(a) and under §1.956–1(e)(1) - (4). As determined under section 362(a), CFC’s basis in the USS stock is $100x. Example 3 . (i) Facts . USP, a domestic corporation, owns 100 percent of the stock of CFC1, a controlled foreign corporation. CFC1 holds United States property (within the meaning of paragraph (e)(6)(ii) of this section) with a basis of $30x for purposes of section 956 that was determined under paragraph (e)(6)(iii) of this section. CFC1 owns 100 percent of the stock of CFC2, a controlled foreign corporation. CFC1 transfers the United States property to CFC2 in an exchange described in section 351. CFC2’s basis in the United States property is determined under section 362(a).

(ii) Analysis . In the section 351 exchange, CFC1 transferred United States property to CFC2 with a basis that was determined under paragraph (e)(6)(iii) of this section. Further, CFC2’s basis in the United States property is determined under section 362(a) by reference, in whole or in part, to CFC’s basis in such property. Therefore, for purposes of section 956, pursuant to paragraph (e)(6)(v) of this section CFC2’s basis in the United States property shall be no less than $30x. Paragraph (e)(6)(v) of this section would also apply if CFC2 subsequently transfers the United States property to another person related to CFC1 (within the meaning of section 954(d)(3)) if such related person’s basis in the United States property is determined by reference, in whole or in part, to CFC2’s basis in such property.

(f) Effective/applicability date . (1) Paragraph (e)(5) of this section is effective June 14, 1988, with respect to investments made on or after June 14, 1988. Paragraph (e)(6) of this section applies to nonrecognition property acquired in exchanges occurring on or after June 24, 2008.

(2) The applicability of paragraph (e)(6) of this section will expire on June 23, 2011.

Steven T. Miller, Acting Deputy Commissioner for Services and Enforcement.

Approved June 6, 2008.

Eric Solomon, Assistant Secretary of the Treasury (Tax Policy).

2008–31 I.R.B. 257 August 4, 2008

(Filed by the Office of the Federal Register on June 23, 2008, 8:45 a.m., and published in the issue of the Federal Register for June 24, 2008, 73 F.R. 35580)

Section 1001.—Determi- nation of Amount of and Recognition of Gain or Loss

26 CFR 1.1001–3: Modifications of debt instruments.

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 August 2008.

Rev. Rul. 2008–43

This revenue ruling provides various prescribed rates for federal income tax purposes for August 2008 (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.

Applicable Federal Rates (AFR) for August 2008

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR 2.54% 2.52% 2.51% 2.51% 110% AFR 2.79% 2.77% 2.76% 2.75% 120% AFR 3.04% 3.02% 3.01% 3.00% 130% AFR 3.31% 3.28% 3.27% 3.26%

Mid-term

AFR 3.55% 3.52% 3.50% 3.49% 110% AFR 3.91% 3.87% 3.85% 3.84% 120% AFR 4.26% 4.22% 4.20% 4.18% 130% AFR 4.63% 4.58% 4.55% 4.54% 150% AFR 5.35% 5.28% 5.25% 5.22% 175% AFR 6.25% 6.16% 6.11% 6.08%

Long-term

AFR 4.58% 4.53% 4.50% 4.49% 110% AFR 5.04% 4.98% 4.95% 4.93% 120% AFR 5.51% 5.44% 5.40% 5.38% 130% AFR 5.98% 5.89% 5.85% 5.82%

August 4, 2008 258 2008–31 I.R.B.

REV. RUL. 2008–43 TABLE 2

Adjusted AFR for August 2008

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjusted 2.09% 2.08% 2.07% 2.07% AFR

Mid-term adjusted AFR 3.48% 3.45% 3.44% 3.43%

Long-term adjusted 4.65% 4.60% 4.57% 4.56% AFR

REV. RUL. 2008–43 TABLE 3

Rates Under Section 382 for August 2008

Adjusted federal long-term rate for the current month 4.65%

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.) 4.65%

REV. RUL. 2008–43 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for August 2008 Appropriate percentage for the 70% present value low-income housing credit 7.94%

Appropriate percentage for the 30% present value low-income housing credit 3.40%

REV. RUL. 2008–43 TABLE 5

Rate Under Section 7520 for August 2008

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 4.2%

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 August 2008. See Rev. Rul. 2008-43, page 258.

Section 2036.—Transfers With Retained Life Estate

26 CFR 20.2036–1: Transfers with retained life es- tate.

Section 2038.—Revocable Transfers

26 CFR 20.2038–1: Revocable transfers.

Section 2041.—Powers of Appointment

26 CFR 20.2041–1: Powers of appointment; in gen- eral.

members are grantors and beneficiaries. See Notice 2008-63, page 261.

Section 2511.—Transfers in General

26 CFR 25.2511–1: Transfers in general.

Section 2601.—Tax Imposed

26 CFR 26.2601–1: Effective dates.

This notice sets forth a proposed revenue ruling concerning the income, gift, estate, and generation

2008–31 I.R.B. 259 August 4, 2008

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 August 2008. See Rev. Rul. 2008-43, page 258.

skipping transfer tax consequences in situations in which family members create a private trust company to serve as the trustee of trust in which family members are grantors and beneficiaries. See Notice 2008-63, page 261.

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of August 2008. See Rev. Rul. 2008-43, page 258.

Section 7701.—Definitions

26 CFR 301.7701–4: Trusts.

August 4, 2008 260 2008–31 I.R.B.