Part I. Rulings — Internal Revenue Bulletin 2010-3

Section 301.—Distributions of Property

26 CFR 1.301–10: Rules applicable with respect to distributions of money and other property.

This revenue procedure provides temporary guidance regarding certain stock distributions by publicly traded regulated investment companies (RICs) and real estate investment trusts (REITs). See Rev. Proc. 2010-12, page 302.

Section 305.—Distributions of Stock and Stock Rights

26 CFR 1.305–1: Stock dividends.

Section 483.—Interest on Certain Deferred Payments

This ruling provides the dollar amounts, increased by the 2010 inflation adjustment, for section 1274A of the Code. Rev. Rul. 2008–52 supplemented and superseded. See Rev. Rul. 2010-2, page 272.

Section 1256.—Section 1256 Contracts Marked to Market

(Also: §§ 446, 481, 7805; 1.446–1, 301.7805–1.)

Section 1256 contracts market to market. This ruling holds that the London International Financial Futures and Options Exchange (LIFFE), which is a United Kingdom derivatives market, is a qualified board or exchange within the meaning of section 1256(g)(7)(C) of the Code.

Rev. Rul. 2010–3

ISSUE

Is London International Financial Futures and Options Exchange (“LIFFE”), which is a regulated exchange of the United Kingdom, a qualified board or exchange within the meaning of section 1256(g)(7)(C) of the Internal Revenue Code?

LAW AND ANALYSIS

Section 1256(g)(7) provides that the term “qualified board or exchange” means:

(A) a national securities exchange which is registered with the Securities and Exchange Commission,

(B) a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission, or

(C) any other exchange, board of trade, or other market which the Secretary determines has rules adequate to carry out the purposes of section 1256.

HOLDING

The Internal Revenue Service determines that LIFFE, which is a regulated exchange of the United Kingdom, is a qualified board or exchange within the meaning of section 1256(g)(7)(C).

EFFECTIVE DATE

Under the authority of section 7805(b)(8) of the Code, this revenue ruling is effective for LIFFE Contracts (futures contracts and futures contract options) entered into on or after January 1, 2010.

CHANGE IN METHOD OF ACCOUNTING

A change in the treatment of LIFFE Contracts to comply with this revenue ruling is a change in method of accounting within the meaning of sections 446 and 481 and the regulations thereunder. The Commissioner grants consent to taxpayers to change to the section 1256 mark to market method for the first taxable year during which the taxpayer holds a LIFFE Contract that was entered into on or after January 1, 2010. Such a taxpayer need not file a Form 3115, Application for Change in Accounting Method, and LIFFE Contracts that were entered into before January 1, 2010 will not be covered by the change in method for which consent is granted. Because the change is being made on a “cut-off” basis, there is no potential omission or duplication of income or deductions, and therefore no adjustment under section 481 is required.

DRAFTING INFORMATION

The principal author of this revenue ruling is Andrea Hoffenson of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue ruling, contact Andrea Hoffenson at (202) 622–3930 (not a toll-free call).

Section 1274.—Determi- nation of Issue Price in the Case of Certain Debt Instru- ments Issued for Property

This ruling provides the dollar amounts, increased by the 2010 inflation adjustment, for section 1274A of the Code. Rev. Rul. 2008–52 supplemented and superseded. See Rev. Rul. 2010-2, page 272.

Section 1274A.—Special Rules for Certain Transactions Where Stated Principal Amount Does Not Exceed $2,800,000

26 CFR 1.1274A–1: Special rules for certain trans- actions where stated principal amount does not ex- ceed $2,800,000. (Also §§ 483, 1274.)

Section 1274A — inflation adjusted numbers for 2010. This ruling provides the dollar amounts, increased by the 2010 inflation adjustment, for section 1274A of the Code. Rev. Rul. 2008–52 supplemented and superseded.

Rev. Rul. 2010–2

This revenue ruling provides the dollar amounts, increased by the 2010 inflation adjustment, for § 1274A of the Internal Revenue Code.

BACKGROUND

In general, §§ 483 and 1274 determine the principal amount of a debt instrument given in consideration for the sale or exchange of nonpublicly traded property. In addition, any interest on a debt instrument subject to § 1274 is taken into account under the original issue discount provisions of the Code. Section 1274A, however,

2010–3 I.R.B. 272 January 19, 2010

the inflation adjustment is rounded to the nearest multiple of $100 (or, if the increase is a multiple of $50 and not of $100, the increase is increased to the nearest multiple of $100). The inflation adjustment for any calendar year is the percentage (if any) by which the CPI for the preceding calendar year exceeds the CPI for calendar year 1988. Section 1274A(d)(2)(B) defines the CPI for any calendar year as the average of the Consumer Price Index as of the close of the 12-month period ending on September 30 of that calendar year.

INFLATION-ADJUSTED AMOUNTS UNDER § 1274A

For debt instruments arising out of sales or exchanges after December 31, 1989, the inflation-adjusted amounts under § 1274A are shown in Table 1.

modifies the rules under §§ 483 and 1274 for certain types of debt instruments.

In the case of a “qualified debt instrument,” the discount rate used for purposes of §§ 483 and 1274 may not exceed 9 percent, compounded semiannually. Section 1274A(b) defines a qualified debt instrument as any debt instrument given in consideration for the sale or exchange of property (other than new § 38 property within the meaning of § 48(b), as in effect on the day before the date of enactment of the Revenue Reconciliation Act of 1990) if the stated principal amount of the instrument does not exceed the amount specified in § 1274A(b). For debt instruments arising out of sales or exchanges before January 1, 1990, this amount is $2,800,000. In the case of a “cash method debt instrument,” as defined in § 1274A(c), the borrower and lender may elect to use the cash receipts and disbursements method of accounting. In particular, for any cash method debt instrument, § 1274 does not apply, and interest on the instrument is accounted for by both the borrower and the

lender under the cash method of accounting. A cash method debt instrument is a qualified debt instrument that meets the following additional requirements: (A) In the case of instruments arising out of sales or exchanges before January 1, 1990, the stated principal amount does not exceed $2,000,000; (B) the lender does not use an accrual method of accounting and is not a dealer with respect to the property sold or exchanged; (C) § 1274 would have applied to the debt instrument but for an election under § 1274A(c); and (D) an election under § 1274A(c) is jointly made with respect to the debt instrument by the borrower and lender. Section 1.1274A–1(c)(1) of the Income Tax Regulations provides rules concerning the time for, and manner of, making this election.

Section 1274A(d)(2) provides that, for any debt instrument arising out of a sale or exchange during any calendar year after 1989, the dollar amounts stated in § 1274A(b) and § 1274A(c)(2)(A) are increased by the inflation adjustment for the calendar year. Any increase due to

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EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2008–52, 2008–49 I.R.B. 1233, is supplemented and superseded.

DRAFTING INFORMATION

The author of this revenue ruling is Andrea M. Hoffenson of the Office of the Associate Chief Counsel (Financial Institu

tions and Products). For further information regarding this revenue ruling, please contact Ms. Hoffenson at (202) 622–3930 (not a toll-free call).

2010–3 I.R.B. 274 January 19, 2010