SECTION 4. TEMPORARY

EXTENSION OF PORTFOLIO INTEREST EXCEPTION TO FOREIGN-TARGETED REGISTERED OBLIGATIONS

As noted above, section 871(h)(2)(B) provides that the portfolio interest exception is generally available for holders of obligations in registered form only if a U.S. withholding agent receives a statement that the beneficial owner of the obligation is not a U.S. person. Under § 1.871–14(c)(2), a U.S. withholding agent generally is considered to have received a statement that satisfies this requirement if it receives a statement from the foreign beneficial owner, or it receives a statement from a withholding foreign partnership, a qualified intermediary, or a U.S. branch of a foreign bank or foreign insurance company indicating that the payment will be made to a foreign beneficial owner. A U.S. withholding agent may also rely upon a statement from a financial institution that holds customers’ securities in the ordinary course of its trade or business when the financial institution provides a statement that it has received a withholding certificate on Form W–8 (or an acceptable substitute form) from each beneficial owner and attaches each form to its statement (including certificates from beneficial owners holding through other financial institutions acting as intermediaries with respect to the obligation). In each such case, the U.S. withholding agent must also satisfy the information reporting requirements of § 1.1461–1(c)(2) with respect to interest paid on the obligation. See §§ 1.1461–1(c)(2)(i) and 1.1441–2(a).

Comments have noted that presently there may be difficulties obtaining statements satisfying the requirements of § 1.871–14(c)(2) in certain foreign markets in which issuers and intermediaries have relied on the foreign-targeting rules of § 1.163–5(c)(2)(i)(D) for issuances of debt. In response to these comments, this notice provides as a limited transition rule that, notwithstanding Notice 2006–99, a withholding agent (as defined in § 1.1441–7(a)) paying interest on an obligation issued in registered form after March 18, 2012, and before January 1, 2014, may apply the foreign-targeted registered obligation rules of § 1.871–14(e) if the obligation satisfies the requirements

holder; (ii) the right to principal and stated interest with respect to the obligation may be transferred only through a book entry system maintained by the issuer or its agent; or (iii) the obligation is registered as to both principal and stated interest with the issuer or its agent and can be transferred both by surrender and reissuance and through a book entry system. An obligation is considered transferable through a book entry system if the ownership of an interest in the obligation is required to be reflected in a book entry, whether or not physical securities are issued. A “book entry” is a record of ownership that identifies the owner of an interest in the obligation. An obligation that would otherwise be considered to be in registered form is not considered to be in registered form as of a particular time if it can be converted at any time in the future into an obligation that is not in registered form.

Notice 2006–99 addressed an arrangement in which no physical certificates are issued and under which ownership interests in bonds are required to be represented only by book entries in a dematerialized book entry system maintained by a clearing organization. Notice 2006–99 provided that an obligation issued under such an arrangement would be treated as in registered form notwithstanding the ability of holders to obtain physical certificates in nonregistered form upon the termination of the business of the clearing organization without a successor.

For obligations issued after March 18, 2012, section 163(f)(3) provides that for purposes of section 163(f), a dematerialized book entry system or other book entry system specified by the Secretary will be treated as a book entry system described in section 149(a)(3). Comments have expressed concern that the explicit reference in new section 163(f)(3) to a “dematerialized book entry system” may create uncertainty with respect to obligations issued in a manner not specifically described in Notice 2006–99. In particular, comments requested guidance with respect to the treatment of obligations represented by a physical global security that is nominally in bearer form, but that is “immobilized” in a clearing system. In addition, comments have requested guidance regarding whether an obligation will be considered to be in registered form if holders may obtain physical certificates in nonregistered

form in certain limited circumstances not described in Notice 2006–99.

Treasury and the IRS intend to issue regulations providing that an obligation will be considered to be in registered form if it is issued through: (i) a dematerialized book entry system in which beneficial interests are transferable only through a book entry system (as defined in § 5f.103–1(c)(2)) maintained by a clearing organization as defined in § 1.163–5(c)(2)(i)(B)( 4 ) (or by an agent of the clearing organization); or (ii) a clearing system in which the obligation is effectively immobilized. An obligation will be considered to be effectively immobilized if: (1) the obligation is represented by one or more global securities in physical form that are issued to and held by a clearing organization as defined in § 1.163–5(c)(2)(i)(B)( 4 ) (or by a custodian or depository acting as an agent of the clearing organization) for the benefit of purchasers of interests in the obligation under arrangements that prohibit the transfer of the global securities except to a successor clearing organization subject to the same terms; and (2) beneficial interests in the underlying obligation are transferable only through a book entry system maintained by the clearing organization (or an agent of the clearing organization).

An interest in an obligation will be considered to be transferable only through a book entry system if the interest would be considered transferable through a book entry system under § 5f.103–1(c)(2), except that holders may obtain physical certificates in bearer form in the following circumstances: (1) termination of the clearing organization’s business without a successor; (2) default by the issuer; or (3) issuance of definitive securities at the issuer’s request upon a change in tax law that would be adverse to the issuer but for the issuance of physical securities in bearer form. After the occurrence of one of the above circumstances, any obligation with respect to which a holder, or a group of holders acting collectively, has a right to obtain a physical certificate in bearer form will no longer be in registered form, regardless of whether any option to obtain a physical certificate in bearer form has actually been exercised. Treasury and the IRS request comments regarding whether any exceptions should be provided to this general rule.

2012–13 I.R.B. 575 March 26, 2012

DRAFTING INFORMATION

The principal author of this notice is Susan E. Massey of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact John Sweeney at (202) 622–3840 (not a toll-free call).

2012 Calendar Year Resident Population Figures

Notice 2012–22

This notice advises State and local housing credit agencies that allocate low-income housing tax credits under § 42 of the Internal Revenue Code, and States and other issuers of tax-exempt private activity bonds under § 141, of the population figures to use in calculating: (1) the 2012 calendar year population-based component of the State housing credit ceiling (Credit Ceiling) under § 42(h)(3)(C)(ii); (2) the 2012 calendar year volume cap (Volume Cap) under § 146; and (3) the 2012 volume limit (Volume Limit) under § 142(k)(5).

Generally, § 146(j) requires determining the population figures for the population-based component of both the Credit Ceiling and the Volume Cap for any calendar year on the basis of the most recent census estimate of the resident population of a State (or issuing authority) released by the U.S. Census Bureau before the beginning of the calendar year. Similarly, § 142(k)(5) bases the Volume Limit on the State population.

Sections 42(h)(3)(H) and 146(d)(2) require adjusting for inflation the population-based component of the Credit Ceiling and the Volume Cap. The adjustments for the 2012 calendar year are in Rev. Proc. 2011–52, 2011–45 I.R.B. 701. Section 3.08 of Rev. Proc. 2011–52 provides that, for calendar year 2012, the amount for calculating the Credit Ceiling under § 42(h)(3)(C)(ii) is the greater of $2.20 multiplied by the State population or $2,525,000. Further, section 3.15 of Rev. Proc. 2011–52 provides that the amount for calculating the Volume Cap under § 146(d)(1) for calendar year 2012 is the greater of $95 multiplied by the State population or $284,560,000.

of those rules. For this purpose, a financial institution may certify that the beneficial owner of a payment of interest has not been a U.S. person (as described in § 1.871–14(e)(3)(i)(A)( 1 )( i )) if the financial institution has determined the non-U.S. status of the beneficial owner of interest on the obligation(s) covered by the certificate by obtaining either (1) a Form W–8 (or substitute form) satisfying the requirements of § 1.1441–1(e)(4), or (2) documentary evidence satisfying the requirements of § 1.6049–5(c). A withholding agent receiving such a certificate after the time described in § 1.871–14(e)(4)(ii)(A) may rely on the certificate to the extent permitted under § 1.1441–1(b)(7). As provided in § 1.871–14(e)(4)(i)(G), a withholding agent who receives a valid certificate described in § 1.871–14(e)(3)(i) that applies to a payment of portfolio interest on a foreign-targeted registered obligation is not required to report the interest payment on Form 1042–S.