Part III. Administrative, Procedural, and Miscellaneous

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

Notice 2013–2

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), and the 24-month average 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

For Plan Years

Corporate Bond Weighted

beginning after 2007. These rates reflect certain changes implemented by the Moving Ahead for Progress in the 21st Century Act, Public Law 112–141 (MAP–21). MAP–21 provides that for purposes of § 430(h)(2), the segment rates are limited by the applicable maximum percentage or the applicable minimum percentage based on the average of segment rates over a 25 year period.

CORPORATE BOND WEIGHTED AVERAGE INTEREST RATE

Sections 412(b)(5)(B)(ii) and 412(l)(7)(C)(i) 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 December 2012 is 3.98 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%

January 2013 5.01 4.51 5.01

segment rates used to compute the target normal cost and the funding target. Pursuant to Notice 2007–81, the monthly corporate bond yield curve derived from December 2012 data is in Table I at the end of this notice. The spot first, second, and third segment rates for the month of December 2012 are, respectively, 1.00, 3.57, and 4.77. The three 24-month average corporate bond segment rates applicable for January 2013, without adjustment by the applicable percentage of the 25-year average segment rates, are as follows:

YIELD CURVE AND SEGMENT RATES

Generally, except for certain plans under sections 104 and 105 of the Pension Protection Act of 2006, § 430 of the Code specifies the minimum funding requirements that apply to single employer plans pursuant to § 412. Section 430(h)(2) specifies 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. To the extent provided under § 430(h)(2)(C)(iv), these segment rates are adjusted by the applicable percentage of the 25-year average segment rates for the period ending September 30 of the year preceding the calendar year in which the plan year begins. However, an election may be made under § 430(h)(2)(D)(ii) to use the monthly yield curve in place of the segment rates.

Notice 2007–81, 2007–2 C.B. 899, provides guidelines for determining the monthly corporate bond yield curve, and the 24-month average corporate bond

24-Month Segment Rates Without Adjustment by 25-Year Average Segment Rates

First Segment

Second Segment

Third Segment

1.62 4.40 5.45

2013–6 I.R.B. 473 February 4, 2013

rates applicable for January 2013, taking into account the applicable percentage of the 25-year average segment rates, are as follows:

For plan years beginning in 2012, the 24-month average segment rates determined under § 430(h)(2)(C)(iv) must be not less than 90% nor greater than 110% of the 25-year average segment rates. Pursuant to Notice 2012–55, 2012–36 I.R.B.

332, the first, second, and third 25-year segment rates applicable for plan years beginning in 2012 are 6.15, 7.61, and 8.35, respectively. Therefore, for plan years beginning in 2012, the three adjusted 24-month average corporate bond segment

Adjusted 24-Month Average Segment Rates, Using Applicable Percentage of 25-Year Average Segment Rates

For Plan

First Segment

Second Segment

Third Segment

Applicable

Month

Years Beginning

in

January 2013 2012 5.54 6.85 7.52

mum 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 25-year average segment rates for the period ending September 30, 2012 have not been determined yet. The Service will issue additional guidance on the January 2013 adjusted 24-month average segment rates applicable for plan years beginning in 2013 when those 25-year average segment rates are determined.

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 se

For Plan Years

curities for the month before the date 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 December 2012 is 2.88 percent. The Service has determined this rate as the average of the daily determinations of yield on the 30-year Treasury bond maturing in November 2042.

Generally for plan years beginning after 2007, § 431 specifies the mini

30-Year Treasury Weighted

Beginning in Permissible Range

Month Year

Average 90% to 105%

January 2013 3.60 3.24 3.78

Pursuant to that notice, the minimum present value transitional segment rates determined for December 2012, taking into account the December 2012 30-year Treasury rate of 2.88 stated above, are as follows:

MINIMUM PRESENT VALUE SEGMENT RATES

In general, 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 determining the minimum present value segment rates.

February 4, 2013 474 2013–6 I.R.B.

For Plan

Years Beginning in

First Segment

Second Segment

Third Segment

2011 1.38 3.43 4.39 2012 1.00 3.57 4.77 2013 1.00 3.57 4.77

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 .

2013–6 I.R.B. 475 February 4, 2013

Table I

Monthly Yield Curve for December 2012

Derived from December 2012 Data

Maturity Yield Maturity Yield Maturity Yield Maturity Yield Maturity Yield

February 4, 2013 476 2013–6 I.R.B.

Extension of Guidance in Notice 2011–14 and Rev. Proc. 2011–55 for Participants in the HFA Hardest Hit Fund, the Emergency Homeowners’ Loan Program, and Substantially Similar State Programs

Notice 2013–7

PURPOSE

This notice amplifies Notice 2011–14, 2011–11 I.R.B. 544, by extending through taxable year 2015 the safe harbor method for computing a homeowner’s deduction for payments made on a home mortgage. This notice also amplifies Notice 2011–14 by extending through calendar year 2015 the relief for mortgage servicers and state housing finance agencies (State HFAs) from penalties relating to information reporting, and by advising the Department of Housing and Urban Development (HUD) that it may rely on Notice 2011–14 through calendar year 2015 to report to homeowners and the Internal Revenue Service the payments it makes to mortgage servicers. In addition, this notice amplifies Notice 2011–14 by revising the safe harbor method for computing a homeowner’s deduction because of the extension of the deduction for mortgage insurance premiums that was enacted by section 204 of the American Taxpayer Relief Act of 2012, Pub. L. No. 112–240, 126 Stat. 2313 (ATRA).

This notice also amplifies Rev. Proc. 2011–55, 2011–47 I.R.B. 793, by extending its scope and effective date through calendar year 2015.

Finally, this notice supplements Notice 2011–14 and Rev. Proc. 2011–55 by updating the list of housing programs to which Notice 2011–14 and Rev. Proc. 2011–55 apply.

BACKGROUND

Notice 2011–14 provides guidance on the federal income tax consequences of, and information reporting obligations for, payments made to or on behalf of financially distressed homeowners under (1) programs designed by State HFAs (State

Programs) with funds allocated from the Treasury Department’s Housing Finance Agency Innovation Fund for the Hardest-Hit Housing Markets (HFA Hardest Hit Fund), and (2) HUD’s Emergency Homeowners’ Loan Program (EHLP) and any existing state program that is substantially similar to the EHLP and is eligible to administer an allocation of funds from the EHLP (the substantially similar state programs, or SSSPs).

The Appendix in Notice 2011–14 lists all of the State Programs that, as of the date Notice 2011–14 was released, the Treasury Department had approved for funding from the HFA Hardest Hit Fund. Subsequent to the publication of Notice 2011–14, the Treasury Department continues to approve funding for additional State Programs. An updated list of State Programs for which the Treasury Department approves funding is available at www.treasury.gov/HHF . All of these programs are covered by Notice 2011–14, Rev. Proc. 2011–55, and this notice.

For taxable years 2010, 2011, and 2012, Notice 2011–14 provides a safe harbor method for determining the amount that a homeowner may deduct on his or her federal income tax return. Under the safe harbor method, a homeowner may deduct the sum of all payments the homeowner actually makes during a taxable year to the mortgage servicer, HUD, or the State HFA on the home mortgage, but not in excess of the sum of the amounts shown on Form 1098 in box 1 (Mortgage interest received), box 4 (Mortgage insurance premiums) for years 2010 and 2011 only, and box 5 (real property taxes). This safe harbor method of computing the homeowner’s deduction applies for a taxable year if (1) the homeowner meets the requirements of §§ 163 and 164 to deduct all of the mortgage interest on the loan and all of the real property taxes on the principal residence, and (2) the homeowner participates in a State Program described in the Appendix to Notice 2011–14 in which the program payments could be used to pay interest on the home mortgage, or in the EHLP or an SSSP.

Section 204(a) of ATRA provides that § 163(h)(3)(E)(iv)(I) of the Internal Revenue Code is amended by striking December 31, 2011, and inserting in its place December 31, 2013. The effect of this amendment is to extend the deduction for quali

fied mortgage insurance premiums paid or accrued in, or properly allocable to, years 2012 and 2013. Notice 2011–14 provides that the Service will not assert penalties under §§ 6721 and 6722 of the Code against a mortgage servicer that reports on Forms 1098, Mortgage Interest Statement, payments received under a State Program, the EHLP, or an SSSP during calendar years 2011 or 2012 if the servicer notifies homeowners that the amounts reported on the Forms 1098 are overstated because they include government subsidy payments.

Notice 2011–14 also provides that the Service will not assert penalties under §§ 6721 and 6722 against any State HFA for failing to file and furnish Forms 1098 for calendar years 2011 and 2012 if the State HFA provides each homeowner and the IRS a statement setting forth (1) the homeowner’s name and taxpayer identification number (TIN), and (2) the amount of payments the State HFA made to a mortgage servicer under the State Program or the SSSP during that year (separately stating the amount the State HFA paid and the amount the homeowner paid). The statement the State HFA provides to the IRS must be a single statement that separately lists the names, TINs, and relevant payment amounts for each homeowner.

For calendar years 2011 and 2012, Notice 2011–14 advises HUD to provide each homeowner and the IRS a statement setting forth (1) the homeowner’s name and TIN, and (2) the amount of payments HUD made to the mortgage servicer under the EHLP during that year (separately stating the amount HUD paid and the amount the homeowner paid). The statement HUD provides to the IRS should be a single statement that separately lists the names, TINs, and relevant payment amounts for each homeowner.

Rev. Proc. 2011–55 modifies Notice 2011–14 to specify the IRS office to which State HFAs and HUD should send the statement required by Notice 2011–14, and provides that State HFAs and HUD may, at their option, use Form 1098–MA, Mortgage Assistance Payments, to provide the information required by Notice 2011–14. Rev. Proc. 2011–55 is effective for calendar years 2011 and 2012 and applies to (1) State HFAs that make payments to mortgage servicers under a State Program or an SSSP, and (2) HUD

2013–6 I.R.B. 477 February 4, 2013

(2) Rev. Proc. 2011–55 is amplified by extending its scope and effective date through calendar year 2015.

(3) Notice 2011–14 and Rev. Proc. 2011–55 are supplemented by identifying additional State Programs to which the notice and revenue procedure apply.

DRAFTING INFORMATION

The principal author of this notice is Shareen S. Pflanz of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this notice, contact Shareen S. Pflanz at (202) 622–4920 (not a toll-free call).

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability. (Also Part 1, § 280A.)

Rev. Proc. 2013–13