Part I. Rulings — Internal Revenue Bulletin 2008-36

Section 42.—Low-Income Housing Credit

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of September 2008. See Rev. Rul. 2008-46, page 572.

Section 54A.—Qualified Tax Credit Bonds

A notice soliciting applications and setting forth application requirements for the allocation of the qualified forestry conservation bond volume cap under section 54B of the Internal Revenue Code, and providing guidance with respect to certain other qualified forestry conservation bond requirements. See Notice 2008-70, page 575.

Section 54B.—Qualified Forestry Conservation Bonds

Section 105.—Amounts Received Under Accident and Health Plans

A revenue procedure describing the circumstances under which the Internal Revenue Service will treat a child of parents who are divorced, separated, or living apart as the dependent of both parents for purposes of sections 105(b), 106(a), 132(h)(2)(B), 213(d)(5), 220(d)(2), and 223(d)(2) of the Internal Revenue Code when the custodial parent has not released the claim to the exemption for the child under section 152(e)(2). See Rev. Proc. 2008-48, page 586.

Section 106.—Contri- butions by Employer to Accident and Health Plans

under section 152(e)(2). See Rev. Proc. 2008-48, page 586.

Section 132.—Certain Fringe Benefits

Section 152.—Dependent Defined

Section 213.—Medical, Dental, etc., Expenses

Section 220.—Archer MSAs

Section 223.—Health Savings Accounts

Section 280G.—Golden Parachute Payments

Federal short-term, mid-term, and long-term rates are set forth for the month of September 2008. See Rev. Rul. 2008-46, page 572.

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 September 2008. See Rev. Rul. 2008-46, page 572.

Section 412.—Minimum Funding Standards

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of September 2008. See Rev. Rul. 2008-46, page 572.

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 September 2008. See Rev. Rul. 2008-46, page 572.

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

2008–36 I.R.B. 569 September 8, 2008

of September 2008. See Rev. Rul. 2008-46, page 572.

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 September 2008. See Rev. Rul. 2008-46, page 572.

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 September 2008. See Rev. Rul. 2008-46, page 572.

Section 642.—Special Rules for Credits and Deductions

Federal short-term, mid-term, and long-term rates are set forth for the month of September 2008. See Rev. Rul. 2008-46, page 572.

Section 807.—Rules for Certain Reserves

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of September 2008. See Rev. Rul. 2008-46, page 572.

Section 846.—Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of September 2008. See Rev. Rul. 2008-46, page 572.

Section 860A.—Taxation of REMIC’s

Final regulations under section 860G of the Code relate to income that is associated with a residual interest in a Real Estate Mortgage Investment Conduit (REMIC) and that is allocated through certain entities to foreign persons who have invested in those entities. See T.D. 9415, page 570.

Section 860G.—Other Definitions and Special Rules

26 CFR 1.860G–3: Treatment of foreign persons.

T.D. 9415

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1

REMIC Residual Interests—Accounting for REMIC Net Income (Including Any Excess Inclusions) (Foreign Holders)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

SUMMARY: This document contains final regulations relating to income that is associated with a residual interest in a Real Estate Mortgage Investment Conduit (REMIC) and that is allocated through certain entities to foreign persons who have invested in those entities. The foreign persons covered by these regulations include partners in domestic partnerships, shareholders of real estate investment trusts, shareholders of regulated investment companies, participants in common trust funds, and patrons of subchapter T cooperatives. These regulations are necessary to prevent inappropriate avoidance of current income tax liability by foreign persons to whom income from REMIC residual interests is allocated.

DATES: Effective Date: These regulations are effective on July 14, 2008.

Dates of Applicability: For dates of applicability, see §§1.860A–1(b)(5), 1.863–1(f) and 1.1441–2(f).

FOR FURTHER INFORMATION CONTACT: Arturo Estrada, (202) 622–3900 (not a toll-free number).

Background

This document contains amendments to 26 CFR part 1 under sections 860A, 860G(b), 863, 1441, and 1442 of the

Internal Revenue Code (Code). On August 1, 2006, temporary regulations (T.D. 9272, 2006–2 C.B. 332) were published in the Federal Register (71 FR 43363). A notice of proposed rulemaking (REG–159929–02, 2006–2 C.B. 341) cross-referencing the temporary regulations was published in the Federal Reg- ister for the same day (71 FR 43398). The preamble to the temporary regulations contains an explanation of these provisions. No comments were received from the public in response to the notice of proposed rulemaking. Accordingly, this Treasury Decision adopts the proposed regulations without any substantive changes. No public hearing was requested or held.

Dates of Applicability

The regulations regarding the timing of REMIC income inclusions apply to REMIC net income of a foreign person with respect to REMIC residual interests with respect to which the first REMIC net income allocation to the foreign person under section 860C occurs on or after August 1, 2006. The regulations regarding the source of excess inclusions are applicable for taxable years ending after August 1, 2006.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) and (d) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to this regulation.

Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. §605(b), it has also been determined that the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply to these regulations because these regulations do not have a significant economic impact on a substantial number of small entities. According to the Small Business Administration definition of a “small business,” 13 C.F.R. 121.201, a REMIC is classified as an “Other Financial Vehicle,” NAICS code 525990, and is considered a small entity if it accumulates less than 6.5 million dollars in annual receipts. It has been determined that REMICs affected by these regulations generally will

September 8, 2008 570 2008–36 I.R.B.

in the partnership, or any other reduction in the foreign partner’s allocable share of the portion of the REMIC net income or deduction allocated to the partnership. See §1.871–14(d)(2) for the treatment of interest received on a regular or residual interest in a REMIC. For a partnership’s withholding obligations with respect to excess inclusion amounts described in this paragraph (b)(1), see §§1.1441–2(b)(5), 1.1441–2(d)(4), 1.1441–5(b)(2)(i)(A), and §§1.1446–1 through 1.1446–7.

(2) Excess inclusion income allocated by certain pass-through entities to a for- eign person. If an amount is allocated under section 860E(d)(1) to a foreign person that is a shareholder of a real estate investment trust or a regulated investment company, a participant in a common trust fund, or a patron of an organization to which part I of subchapter T applies and if the amount so allocated is governed by section 860E(d)(2) (treating it “as an excess inclusion with respect to a residual interest held by” the taxpayer), the amount shall be taken into account for purposes of sections 871(a), 881, 1441, and 1442 at the same time as the time prescribed for other income of the shareholder, participant, or patron from the trust, company, fund, or organization.

§1.860G–3T [Removed]

Par. 6. Section 1.860G–3T is removed. Par. 7. Section 1.863–0 is amended by adding an entry for 1.863–1(f) and removing the entries for §1.863–1T to read as follows:

§1.863–1 Allocation of gross income under section 863(a).

- - - (f) Effective/applicability date. Par. 8. Section 1.863–1 paragraphs (e)(2) and (f) are revised to read as follows:

§1.863–1 Allocation of gross income under section 863(a) .

- - - (e) * * * (1) * * * (2) Excess inclusion income and net losses . An excess inclusion (as defined in section 860E(c)) shall be treated as income from sources within the United States. To the extent of excess inclusion income previously taken into account with respect to

have greater than 6.5 million dollars in annual receipts and therefore will not generally be classified as small business entities. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal author of these regulations is Dale Collinson, formerly with the Office of the Associate Chief Counsel (Financial Institutions and Products). However, other personnel from the IRS and Treasury Department participated in their development.

- - - -

Adoption of 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 is amended by removing the entries for §§860A–1T and 860G–3T to read as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.860A–0 is amended by adding entries for §§1.860A–1(b)(5) and 1.860G–3(b) and removing the entries for §§1.860A–1T and 1.860G–3T to read as follows:

§1.860A–0 Outline of REMIC provisions .

§1.860A–1 Effective dates and transition rules.

- - - (b) - - (5) Accounting for REMIC net income of foreign persons.

§1.860G–3 Treatment of Foreign Persons .

- - - (b) Accounting for REMIC net income. (1) Allocation of partnership income to a foreign partner.

(2) Excess inclusion income allocated by certain pass-through entities to a foreign person.

Par. 3. Section 1.860A–1(b)(5) is revised to read as follows:

§1.860A–1 Effective dates and transition rules.

- - - (b) - * (5) Accounting for REMIC net income of foreign persons. Section 1.860G–3(b) is applicable to REMIC net income (including excess inclusions) of a foreign person with respect to a REMIC residual interest if the first net income allocation under section 860C(a)(1) to the foreign person with respect to that interest occurs on or after August 1, 2006.

§1.860A–1T [Removed]

Par. 4. Section 1.860A–1T is removed. Par. 5. Section 1.860G–3(b) is revised to read as follows:

§1.860G–3 Treatment of foreign persons.

- - - (b) Accounting for REMIC net in- come —(1) Allocation of partnership in- come to a foreign partner . A domestic partnership shall separately state its allocable share of REMIC taxable income or net loss in accordance with §1.702–1(a)(8). If a domestic partnership allocates all or some portion of its allocable share of REMIC taxable income to a partner that is a foreign person, the amount allocated to the foreign partner shall be taken into account by the foreign partner for purposes of sections 871(a), 881, 1441, and 1442 as if that amount were received on the last day of the partnership’s taxable year, except to the extent that some or all of the amount is required to be taken into account by the foreign partner at an earlier time under section 860G(b) as a result of a distribution by the partnership to the foreign partner or a disposition of the foreign partner’s indirect interest in the REMIC residual interest. A disposition in whole or in part of the foreign partner’s indirect interest in the REMIC residual interest may occur as a result of a termination of the REMIC, a disposition of the partnership’s residual interest in the REMIC, a disposition of the foreign partner’s interest

2008–36 I.R.B. 571 September 8, 2008

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 September 2008.

Rev. Rul. 2008–46

This revenue ruling provides various prescribed rates for federal income tax purposes for September 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.

a residual interest (reduced by net losses previously taken into account under this paragraph), a net loss (described in section 860C(b)(2)) with respect to the residual interest shall be allocated to the class of gross income and apportioned to the statutory grouping(s) or residual grouping of gross income to which the excess inclusion income was assigned.

(f) Effective/applicability date. Paragraph (e)(2) of this section applies for taxable years ending after August 1, 2006.

§1.863–1T [Removed]

Par. 9. Section 1.863–1T is removed. Par. 10. Section 1.1441–0 is amended by revising the entry for §1.1441–2(f) and removing the entries for §1.1441–2T to read as follows:

§1.1441–0 Outline of regulation provisions for section 1441.

§1.1441–2 Amounts subject to withholding .

- - - (f) Effective/applicability date. Par. 11. Section 1.1441–2(b)(5), (d)(4) and (f) are revised to read as follows:

§1.1441–2 Amounts subject to withholding .

- - - (b) - * (5) REMIC residual interests . Amounts subject to withholding include an excess inclusion described in §1.860G–3(b)(2) and the portion of an amount described in §1.860G–3(b)(1) that is an excess inclusion.
- - - (d) - - (4) Withholding exemption inapplica- ble . The exemption in §1.1441–2(d) from the obligation to withhold shall not apply to amounts described in §1.860G–3(b)(1) (regarding certain partnership allocations of REMIC net income with respect to a REMIC residual interest).
- - - (f) Effective/applicability date . This section applies to payments made after December 31, 2000. Paragraphs (b)(5) and (d)(4) of this section apply to payments made after August 1, 2006.

§1.1441–2T [Removed]

Par. 12. Section 1.1441–2T is removed.

Linda E. Stiff, Deputy Commissioner for Services and Enforcement.

Approved June 30, 2008.

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

(Filed by the Office of the Federal Register on July 11, 2008, 8:45 a.m., and published in the issue of the Federal Register for July 14, 2008, 73 F.R. 40171)

Section 863.—Special Rules for Determining Source

September 8, 2008 572 2008–36 I.R.B.

REV. RUL. 2008–46 TABLE 1

Applicable Federal Rates (AFR) for September 2008

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR 2.38% 2.37% 2.36% 2.36% 110% AFR 2.63% 2.61% 2.60% 2.60% 120% AFR 2.86% 2.84% 2.83% 2.82% 130% AFR 3.10% 3.08% 3.07% 3.06%

Mid-term

AFR 3.46% 3.43% 3.42% 3.41% 110% AFR 3.81% 3.77% 3.75% 3.74% 120% AFR 4.16% 4.12% 4.10% 4.09% 130% AFR 4.51% 4.46% 4.44% 4.42% 150% AFR 5.22% 5.15% 5.12% 5.10% 175% AFR 6.09% 6.00% 5.96% 5.93%

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%

REV. RUL. 2008–46 TABLE 2

Adjusted AFR for September 2008

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjusted 1.81% 1.80% 1.80% 1.79% AFR

Mid-term adjusted AFR 3.21% 3.18% 3.17% 3.16%

Long-term adjusted 4.53% 4.48% 4.46% 4.44% AFR

REV. RUL. 2008–46 TABLE 3

Rates Under Section 382 for September 2008

Adjusted federal long-term rate for the current month 4.53%

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. 2008–46 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for September 2008 Appropriate percentage for the 70% present value low-income housing credit 7.93%

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

2008–36 I.R.B. 573 September 8, 2008

REV. RUL. 2008–46 TABLE 5

Rate Under Section 7520 for September 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 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 September 2008. See Rev. Rul. 2008-46, page 572.

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 September 2008. See Rev. Rul. 2008-46, page 572.

Section 1441.—Withholding of Tax on Nonresident Aliens

Final regulations under section 860G of the Code relate to income that is associated with a residual in

terest in a Real Estate Mortgage Investment Conduit (REMIC) and that is allocated through certain entities to foreign persons who have invested in those entities. See T.D. 9415, page 570.

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of September 2008. See Rev. Rul. 2008-46, page 572.

September 8, 2008 574 2008–36 I.R.B.