SECTION 6. INTERACTION

BETWEEN SECTION 909 AND OTHER CODE PROVISIONS

.01 Section 904(c)

Section 904(c) provides a 10-year carryforward period and a one-year carryback period for foreign income taxes in excess of a taxpayer’s foreign tax credit limitation in any separate category. Section 904(c) implements the carryover of excess foreign income taxes by providing that the excess taxes are “deemed paid or accrued” in the carryover year. Questions have arisen concerning whether section 909 applies to excess foreign income taxes carried forward from pre-2011 taxable years and deemed paid or accrued under section 904(c) in post-2010 taxable years. The Treasury Department and IRS intend to issue regulations providing that section 909 does not apply to excess foreign income taxes that were paid or accrued in pre-2011 taxable years and carried forward and deemed paid or accrued under section 904(c) in a post-2010 taxable year.

.02 Section 905(a)

Section 909 does not alter the general rules for determining when a creditable foreign tax is paid or accrued. Under §1.461–4(g)(6)(iii)(B), a creditable foreign tax accrues when all of the events have occurred that fix the fact and amount of foreign tax liability with reasonable accuracy, without regard to the economic performance (payment) requirement of section 461(h). See also Dixie Pine Products Co. v. Commissioner, 320 U.S. 516 (1944) (a contested foreign tax accrues in the year the contest is resolved). Under the “relation-back” doctrine, once a creditable foreign tax accrues, it “relates back” to the year with respect to which the tax was imposed. Cuba Railroad Co. v. United States, 124 F. Supp. 182 (SDNY 1954); Rev. Rul. 84–125, 1984–2 C.B. 125. However, section 909(c)(2) provides that notwithstanding the general rule, except for purposes of section 986(a) and as otherwise provided by the Secretary, suspended taxes are taken into account and treated as paid or accrued in the year the related income is taken into account. Thus, for purposes of determining in post-2010 taxable years the allowable deduction for foreign taxes paid or accrued under section

164(a), the carryover of excess foreign income taxes under section 904(c), and the extended period for claiming a credit or refund under section 6511(d)(3)(A), foreign income taxes to which section 909 applies are first taken into account and treated as paid or accrued in the year in which the related income is taken into account, and not in the earlier year to which the tax relates (determined without regard to section 909).

.03 Section 905(c)

Under section 905(c) and the regulations under that section, a taxpayer that claims a foreign tax credit for taxes paid or accrued under section 901 or deemed paid under section 902 or 960 generally must notify the IRS when there has been a change to the amount of foreign taxes paid or accrued. Generally, in the case of a redetermination of foreign taxes claimed as a direct credit under section 901, the taxpayer’s U.S. tax liability for the year to which the tax relates and other affected years must be redetermined. Section 905(c)(1). In the case of a redetermination of foreign taxes included in the computation of foreign taxes deemed paid under section 902 or 960, in lieu of recomputing the section 902 shareholder’s U.S. tax liability, the foreign corporation’s pools of post-1986 undistributed earnings and post-1986 foreign income taxes generally must be adjusted at the time of the foreign tax redetermination to reflect the effect of the foreign tax redetermination in calculating foreign taxes deemed paid with respect to subsequent distributions and inclusions (and the amount of such distributions and inclusions). Section 905(c)(2)(B)(i)(I). Under section 905(c)(1)(B) and section 905(c)(2)(B), a foreign tax redetermination includes a failure to pay accrued tax within two years of the close of the taxable year to which such taxes relate and any subsequent payment of such accrued tax.

If a redetermination of foreign taxes claimed as a direct credit under section 901 occurs in a post-2010 taxable year and the foreign tax redetermination relates to a pre-2011 taxable year, to the extent such foreign tax redetermination increased the amount of foreign taxes paid or accrued with respect to the pre-2011 taxable year ( e.g ., due to an additional assessment of foreign tax or a payment of a previously

2010–52 I.R.B. 922 December 27, 2010

transactions or arrangements should give rise to foreign tax credit splitting events in post-2010 taxable years. In particular, comments are requested on whether and to what extent the following transactions (or circumstances, as appropriate) should be treated as giving rise to foreign tax credit splitting events: (1) covered asset acquisitions described in section 901(m); (2) the incorporation of a disregarded entity or a hybrid partnership with respect to foreign income taxes paid in the year of the incorporation or attributable to a significant timing difference; (3) certain transfer pricing adjustments; (4) group relief structures not otherwise described in this notice; (5) sale and repurchase agreements in the related and unrelated counterparty contexts; (6) foreign anti-deferral regimes; and (7) foreign consolidated groups in which members have losses.

The Treasury Department and IRS also solicit comments concerning: (1) rules for associating foreign income taxes with related income; (2) ordering rules for dividends out of earnings and profits comprising both related income and other income; (3) the effect on related income of losses and deficits in earnings; and (4) additional rules for assigning foreign income taxes and related income to separate categories.

Written comments may be submitted to the Office of Associate Chief Counsel (International), Attention: Jeffrey L. Parry, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20224. Alternatively, taxpayers may submit comments electronically to Notice.comments@irscounsel.treas.gov . Comments will be available for public

For Plan Years

inspection and copying. For further information regarding this notice, contact Mr. Parry of the Office of Associate Chief Counsel (International) at (202) 622–3850 (not a toll-free call).

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

Notice 2010–93

This notice provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue Code as in effect for plan years beginning before 2008. It also provides guidance on the corporate bond monthly yield curve (and the corresponding spot segment rates), the 24-month average segment rates, and the funding transitional segment rates under § 430(h)(2). In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, the 30-year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I), and the minimum present value segment rates under § 417(e)(3)(D) as in effect for plan years beginning after 2007.

CORPORATE BOND WEIGHTED AVERAGE INTEREST RATE

Sections 412(b)(5)(B)(ii) and 412(l)(7)(C)(i), as amended by the Pension Funding Equity Act of 2004 and by

Corporate Bond Weighted

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

Notice 2004–34, 2004–1 C.B. 848, provides guidelines for determining the corporate bond weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability. That notice establishes that the corporate bond weighted average is based on the monthly composite corporate bond rate derived from designated corporate bond indices. The methodology for determining the monthly composite corporate bond rate as set forth in Notice 2004–34 continues to apply in determining that rate. See Notice 2006–75, 2006–2 C.B. 366. The composite corporate bond rate for November 2010 is 5.43 percent. Pursuant to Notice 2004–34, the Service has determined this rate as the average of the monthly yields for the included corporate bond indices for that month.

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

Beginning in Permissible Range

Month Year

Average 90% to 100%

December 2010 6.14 5.52 6.14

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

YIELD CURVE AND SEGMENT RATES

Generally for plan years beginning after 2007 (except for delayed effective dates for certain plans under sections 104, 105, and 106 of PPA), § 430 of the Code specifies the minimum funding requirements that apply to single employer plans pursuant to § 412. Section 430(h)(2) spec

ifies the interest rates that must be used to determine a plan’s target normal cost and funding target. Under this provision, present value is generally determined using three 24-month average interest rates (“segment rates”), each of which applies to cash flows during specified periods. However, an election may be made under § 430(h)(2)(D)(ii) to use the monthly yield

December 27, 2010 923 2010–52 I.R.B.

ber 2010 are, respectively, 1.65, 4.91, and 6.52. The three 24-month average corporate bond segment rates applicable for December 2010 under the election of § 430(h)(2)(G)(iv) are as follows:

Third Segment

Notice 2007–81, 2007–2 C.B. 899, provides guidelines for determining the monthly corporate bond yield curve, the 24-month average corporate bond segment rates, and the funding transitional segment rates used to compute the target normal

First Segment

cost and the funding target. Pursuant to Notice 2007–81, the monthly corporate bond yield curve derived from November 2010 data is in Table I at the end of this notice. The spot first, second, and third segment rates for the month of Novem

Second Segment

3.14 5.90 6.45

The transitional segment rates under § 430(h)(2)(G) applicable for December 2010, taking into account the corporate

For Plan Years

Beginning in

bond weighted average of 6.14 stated above, are as follows:

First Segment

Second Segment

Third Segment

2009 4.14 5.98 6.35

Generally for plan years beginning after 2007, § 431 specifies the minimum funding requirements that apply to multiemployer plans pursuant to § 412. Section 431(c)(6)(B) specifies a minimum amount for the full-funding limitation described in section 431(c)(6)(A), based on the plan’s current liability. Section 431(c)(6)(E)(ii)(I) provides that the interest rate used to calculate current liability for this purpose must be no more than 5 percent above and no more than 10 percent below the weighted average of the rates of interest on 30-year Treasury securities during the four-year period ending on the last day before the beginning of the plan year. Notice 88–73, 1988–2 C.B. 383, provides guidelines for determining the weighted average interest rate. The following rates were determined for plan years beginning in the month shown below.

The transitional rule of § 430(h)(2)(G) does not apply to plan years starting in 2010. Therefore, for a plan year starting in 2010 with a lookback month to December 2010, the funding segment rates are the three 24-month average corporate bond segment rates applicable for December 2010, listed above without blending for the transitional period.

30-YEAR TREASURY SECURITIES INTEREST RATES

Section 417(e)(3)(A)(ii)(II) (prior to amendment by PPA) defines the applicable interest rate, which must be used for purposes of determining the minimum present value of a participant’s benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury securities for the month before the date

For Plan Years

of distribution or such other time as the Secretary may by regulations prescribe. Section 1.417(e)–1(d)(3) of the Income Tax Regulations provides that the applicable interest rate for a month is the annual rate of interest on 30-year Treasury securities as specified by the Commissioner for that month in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin.

The rate of interest on 30-year Treasury securities for November 2010 is 4.19 percent. The Service has determined this rate as the average of the yield on the 30-year Treasury bond maturing in August 2040 determined each day through November 9, 2010, and the yield on the 30-year Treasury bond maturing in November 2040 determined each day for the balance of the month.

30-Year Treasury Weighted

Beginning in Permissible Range

Month Year

Average 90% to 105%

December 2010 4.25 3.83 4.46

termining the minimum present value segment rates. Pursuant to that notice, the minimum present value transitional segment rates determined for November 2010, taking into account the November 2010 30-year Treasury rate of 4.19 stated above, are as follows:

MINIMUM PRESENT VALUE SEGMENT RATES

Generally for plan years beginning after December 31, 2007, the applicable interest rates under § 417(e)(3)(D) are segment rates computed without regard to a

24-month average. For plan years beginning in 2008 through 2011, the applicable interest rates are the monthly spot segment rates blended with the applicable rate under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning in 2007. Notice 2007–81 provides guidelines for de

2010–52 I.R.B. 924 December 27, 2010

For Plan Years

Beginning in

First Segment

Second Segment

Third Segment

2010 2.67 4.62 5.59

2011 2.16 4.77 6.05

DRAFTING INFORMATION

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

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

December 27, 2010 925 2010–52 I.R.B.

Table I

Monthly Yield Curve for November 2010

Derived from November 2010 Data

Maturity Yield Maturity Yield Maturity Yield Maturity Yield Maturity Yield

2010–52 I.R.B. 926 December 27, 2010

Qualified Transportation Fringes

Notice 2010–94

This notice delays the effective date of Revenue Ruling 2006–57. Revenue Ruling 2006–57 provides guidance to employers on the use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringes under sections 132(a)(5) and (f) of the Code. This guidance is intended to provide relief to mass transit providers that have been unable to update their systems in order to comply with the Revenue Ruling guidelines prior to the current effective date of January 1, 2011. The effective date of Revenue Ruling 2006–57 is further delayed until January 1, 2012. Revenue Ruling 2006–57 is modified. Revenue Ruling 2006–57, 2006–2 C.B. 911, provides guidance to employers on the use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringes under Internal Revenue Code §§ 132(a)(5) and 132(f). The ruling’s effective date was set for January 1, 2008. In 2007, however, Treasury and the IRS became aware that certain transit systems needed additional time to modify their technology and make it compatible with the requirements for vouchers set forth in Revenue Ruling 2006–57. Consequently, Treasury and the IRS delayed the effective date of Revenue Ruling 2006–57 until January 1, 2009. See Notice 2007–76, 2007–2 C.B. 735. In 2008, Treasury and the IRS further delayed the effective date of Revenue Ruling 2006–57 until January 1, 2010. See Notice 2008–74, 2008–38 I.R.B. 718. And, in 2009, Treasury and the IRS delayed the effective date of Revenue Ruling 2006–57 until January 1, 2011. See Notice 2009–95, 2009–52 I.R.B. 968. Certain transit systems need additional time to complete the process of adapting their technology to achieve compatibility with the requirements for vouchers. Therefore, the ruling’s effective date is further delayed until January 1, 2012. Nevertheless, employers and employees may rely on Revenue Ruling 2006–57 with respect to transactions occurring prior to January 1, 2012.

The principal author of this notice is Syd Gernstein of the Office of

Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding this notice, contact Syd Gernstein at (202) 622–6040 (not a toll-free call).

Rev. Proc. 2010–52