Part I. Rulings — Internal Revenue Bulletin 2014-2

Section 42.—Low-Income Housing Credit

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of January 2014. See Rev. Rul. 2014–1, page 263.

Section 121.—Exclusion of gain from sale of principal residence

26 CFR 1.121–1: Exclusion of gain from sale or exchange of a principal residence. (Also: §§ 61, 165, 691, 1001; 1.61–6, 1.165–1, 1.691(a)–1, 1.1001–1.)

Rev. Rul. 2014–2

ISSUES

If a taxpayer receives a payment pursuant to the National Mortgage Settlement due to the foreclosure of the taxpayer’s principal residence (“NMS Payment”), what is the proper tax characterization of the payment?
If the NMS Payment is characterized as part of the amount realized on the foreclosure and if that characterization creates or increases a gain on the foreclosure of the principal residence, are there grounds for the taxpayer to exclude from gross income some or all of that gain?
If the property for which a taxpayer receives an NMS Payment contained one or more additional dwelling units that were not used as the taxpayer’s principal residence, how should the NMS Payment be allocated between the portion of the property that the taxpayer used as a principal residence and the rest of the property?
If a borrower who was eligible for an NMS Payment died before receiving it, what is the tax treatment of the person who receives that payment?

BACKGROUND

In 2012, the United States government and the attorneys general of 49 states and the District of Columbia entered into settle

ment agreements with five bank mortgage servicers to address mortgage loan servicing and foreclosure abuses (“National Mortgage Settlement”). ¹ One component of the National Mortgage Settlement is the Borrower Payment Fund (Fund), which the parties intend to be structured as a qualified settlement fund under § 1.468B–1 of the Income Tax Regulations. The terms of the settlement agreements provide that:

(1) The five mortgage servicers col lectively will pay approximately $1.5 billion into the Fund. (2) The Fund will make NMS Payments

to certain borrowers who lost their principal residences in foreclosure on or after January 1, 2008, and on or before December 31, 2011. (3) Each borrower’s transaction must

meet the following requirements for the borrower to receive an NMS Payment: ²

(i) The borrower’s first-lien mortgage loan was secured by a one-to-four-unit residential property that the borrower had indicated at the time of loan origination was to be used as the borrower’s principal residence; (ii) The borrower’s mortgage loan

was serviced by one of the five bank mortgage servicers; (iii) The borrower made at least

three payments on the firstlien mortgage loan; (iv) The loan went to foreclosure

sale on or after January 1, 2008, and on or before December 31, 2011; and (v) The unpaid principal balance

of the first-lien mortgage loan did not exceed the government sponsored enterprise (GSE) loan limit for the property securing the loan (for example, $729,750 for a one-unit residence).

(4) For each NMS Payment, there

must be certification by (or for) the borrower under penalties of perjury that—

(i) The borrower owned and occupied (or intended to own and occupy) the property (or a unit thereof) as his or her principal residence at the time the borrower obtained the mortgage loan; (ii) The borrower lost the princi pal residence in foreclosure on or after January 1, 2008, and on or before December 31, 2011; and (iii) The borrower lost the princi pal residence in foreclosure because— (a) The borrower was un able to make payments on the first-lien mortgage loan due to a financial hardship; and/or (b) The mortgage servicer

mishandled the borrower’s application for a loan modification or other foreclosure alternative or pursued foreclosure while the application was pending or after it was approved; and/or (c) The mortgage servicer,

foreclosure trustee, or their attorneys made errors in, or leading up to, the foreclosure process. The NMS Payment for each loan is the same amount (approximately $1,400). (If more than one of the co-borrowers on a loan filed claims, they share a single NMS Payment from the Fund.) A borrower could receive the NMS Payment without having to prove financial harm and without having to release any claims. However, under the terms of the National Mortgage Settlement, the NMS Payment

1Oklahoma did not join in the National Mortgage Settlement, and borrowers in Oklahoma are not eligible for its direct relief measures to borrowers. Borrowers with property in Puerto Rico and other American territories also are not eligible.

2The servicers provided lists of loans that met these five criteria.

Bulletin No. 2014–2 255 January 6, 2014

offsets and reduces any other obligation that a servicer has to the borrower to provide compensation or other payments.

The National Mortgage Settlement agreements provide that an NMS Payment is remedial and relates to the reduced proceeds a borrower is deemed to have realized in a foreclosure because of the servicers’ allegedly unlawful conduct. The agreements do not consider the NMS Payment to be forgiven debt.

The Fund began making the NMS Payments to eligible borrowers in the summer of 2013. ³ In the case of a deceased eligible borrower, the Fund generally issues payment for the claim in the name of the borrower. ⁴

FACTS

Situation 1—Loss on a single-unit home. In 2006, Borrower A purchased a property for its fair market value of $230,000. A financed $200,000 of the purchase price with a recourse first-lien mortgage loan that was secured by the property, and A used the property as A’ s principal residence. During 2011, A ’s principal residence was foreclosed on when its fair market value was $125,000. The lender subsequently sold the principal residence and applied the proceeds in final satisfaction of the principal balance of the first-lien mortgage loan, which was $185,000. A ’s adjusted basis in the principal residence at the time of the foreclosure was $230,000. In 2013, A received an NMS Payment of $1,400 from the Fund. Situation 2—Loss on a multiple-unit home. The facts are the same as in Situation 1, except that the borrower was B, and the property has two identical dwelling units. B used one unit as a principal residence and leased the other to a third party at fair rental value. B ’s entire property was foreclosed on and subsequently sold by the lender. B ’s adjusted basis in the entire property at the time of the foreclosure was $200,000, of which $115,000 was allocable to the portion of the property B used as a principal residence. Half of the property’s fair market value at the time of the foreclosure

($62,500) was allocable to the portion of the property that B used as a principal residence. In 2013, B received an NMS Payment of $1,400 from the Fund.

Situation 3—Gain on a multiple-unit home . The facts are the same as in Situa- tion 2, except that the purchase price was $155,000; and, at the time of the foreclosure—

The property’s fair market value was $160,000;
Half of the property’s fair market value ($80,000) was allocable to the portion of the property that B used as a principal residence;
B ’s adjusted basis in the entire property was $125,000; and
$77,500 of the total adjusted basis was allocable to the portion of the property that B used as a principal residence.

Situation 4—Gain on a single-unit home. In 1980, Borrower C purchased a property for $155,000. C financed $130,000 of the purchase price with a recourse first-lien mortgage loan secured by the property. C continuously used the property as C ’s principal residence. C refinanced the mortgage loan for an amount in excess of its outstanding principal balance with a new recourse first-lien mortgage loan secured by the principal residence, and used the proceeds to pay for educational expenses of C’s children and to purchase a boat for personal use.

In 2009, C’s principal residence was foreclosed on when its fair market value was $160,000. The lender subsequently sold the principal residence and applied the proceeds in final satisfaction of the principal balance of the new loan, which was $215,000. C ’s adjusted basis in the principal residence at the time of the foreclosure was $155,000. In 2013, C received an NMS Payment of $1,400 from the Fund.

Situation 5—Single-unit home with gain less than prior depreciation. In 2000, Borrower D purchased a property for $155,000. D financed $130,000 of the purchase price with a recourse first-lien mort

gage loan secured by the property. D used a portion of the principal residence as an office in D’s business and claimed depreciation deductions of $10,000.

In 2009, D ’s principal residence was foreclosed on when its fair market value was $149,000. The lender subsequently sold the principal residence and applied the proceeds in final satisfaction of the principal balance of the loan, which was $175,000 due to subsequent refinancings. D’s adjusted basis in the principal residence at the time of the foreclosure was $145,000. D did not sell any other property during 2009. In 2013, D received an NMS Payment of $1,400 from the Fund.

Situation 6—Single-unit home with gain greater than prior depreciation. The facts are the same as in Situation 5, except that the fair market value of the property at the time of the foreclosure was $154,500.

Situation 7—Deceased borrower. The facts are the same as in Situation 5, except that D died before the NMS Payment was made.

LAW AND ANALYSIS

Section 61(a)(3) of the Internal Revenue Code provides that, except as otherwise provided in subtitle A, gross income includes gains derived from dealings in property.

Section 121(a) generally provides, with certain limitations and exceptions, that gross income does not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, the taxpayer has owned and used the property as the taxpayer’s principal residence for periods aggregating 2 years or more.

Section 121(d)(6) provides that the exclusion from income under § 121(a) does not apply to that part of the gain from the sale of any property that does not exceed the depreciation adjustments (as defined in § 1250(b)(3)) attributable to the property for periods after May 6, 1997. See § 1.121–1(d) for an example that illustrates this rule.

3The National Mortgage Settlement also requires the servicers to make other payments to the federal and state governments. Each state has the option of using a portion of those other funds to increase the amount paid to borrowers from that state who lost their homes in foreclosure. This revenue ruling does not address payments of these additional amounts.

4There are two exceptions—

In the case of the death of one spouse, the NMS payment is made in the sole name of the surviving spouse.
If an affidavit, an indemnity agreement, and a death certificate are submitted, the NMS payment is made in the name of the submitter.

January 6, 2014 256 Bulletin No. 2014–2

person to have the character which it would have had in the hands of the decedent if the decedent had lived and received such income.

Section 1001(a) provides that the gain from the sale or other disposition of property is the excess of the amount realized over the adjusted basis provided in § 1011 for determining gain, and the loss is the excess of the adjusted basis provided in § 1011 for determining loss over the amount realized.

Section 1.1001–1(a) states that the amount realized from a sale or other disposition of property is the sum of any money received plus the fair market value of any property (other than money) received.

Section 1.1001–2(a)(1) generally provides that the amount realized on a sale or disposition of property includes the amount of the liabilities from which the transferor is discharged as a result of the sale or disposition. Under § 1.1001–2(a)(2), however, the amount realized on a sale or other disposition of property that secures a recourse liability does not include amounts that are (or would be if realized and recognized) income from the discharge of indebtedness under § 61(a)(12).

In each situation in this revenue ruling, the borrower incurred recourse debt secured by property used (in whole or in part) as the borrower’s principal residence, and the foreclosure of the property resulted in final satisfaction of the outstanding balance of the recourse debt. Thus, under § 1001 and its regulations, the amount realized by each borrower on the disposition of the property in the foreclosure equals the fair market value of the property. ⁵

To determine the federal income tax treatment of a settlement payment, “the test is not whether the action was one in tort or contract, but rather the question to be asked is ‘In lieu of what were the damages awarded?’” See Raytheon Pro- duction Corp. v. Commissioner, 144 F.2d 110, 113 (1st Cir. 1944), aff’g 1 T.C. 952 (1943). Here, as reflected in the settlement documents, the NMS Payment from the Fund is an additional amount realized on the foreclosure of the borrower’s principal residence. That amount realized is used to

Section 1.121–1(e)(1) provides that § 121 does not apply to the gain allocable to any portion of the property (separate from the dwelling unit) sold or exchanged for which a taxpayer does not satisfy the use requirement. Thus, if a portion of the property was used for residential purposes and a portion of the property (separate from the dwelling unit) was used for nonresidential purposes, only the gain for the residential portion is excludable under § 121.

Section 1.121–1(e)(3) provides that for purposes of determining the amount of gain allocable to the residential and nonresidential portions of the property, the taxpayer must allocate the basis and the amount realized between the residential and the non-residential portions of the property using the same method of allocation that the taxpayer used to determine depreciation adjustments (as defined in § 1250(b)(3)), if applicable.

Under § 1.121–1(e)(1), no allocation of the gain from the sale or exchange of property is required if both the residential and non-residential portions of the property are within the same dwelling unit. However, § 121 does not apply to the gain allocable to the residential portion of the property to the extent provided by § 121(d)(6) and § 1.121–1(d). Thus, if the taxpayer’s adjusted basis in the dwelling unit reflects any prior depreciation deductions allowed or allowable on the dwelling unit, then the exclusion under § 121 is limited to the gain in excess of the depreciation deductions allowed or allowable. See § 1250(b)(3).

Section 165(a) allows as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.

For an individual, § 165(c) generally limits the deduction for losses to—

losses incurred in a trade or business;
losses incurred in any transaction entered into for profit, though not connected with a trade or business; and
losses of property not connected with a trade or business or a transaction entered into for profit that arise from fire, storm, shipwreck, or other casualty, or from theft.

Section 691(a)(1) provides that the amount of all items of gross income in respect of a decedent that are not properly includible in respect of the taxable period in which falls the date of the decedent’s death or a prior period (including the amount of all items of gross income in respect of a prior decedent, if the right to receive such amount was acquired by reason of the death of the prior decedent or by bequest, devise, or inheritance from the prior decedent) shall be included in the gross income, for the taxable year in which received, of—

the estate of the decedent, if the right to receive the amount is acquired by the decedent’s estate from the decedent;
the person who, by reason of the death of the decedent, acquires the right to receive the amount, if the right to receive the amount is not acquired by the decedent’s estate from the decedent; or
the person who acquires from the decedent the right to receive the amount by bequest, devise, or inheritance, if the amount is received after a distribution by the decedent’s estate of such right.

Section 1.691(a)–1(b) provides that the term “income in respect of a decedent” refers to those amounts to which a decedent was entitled as gross income, but which were not properly includible in computing the decedent’s taxable income for the taxable year ending with the date of the decedent’s death or for a previous taxable year under the method of accounting employed by the decedent.

Section 691(a)(3) provides that the right to receive an amount of income in respect of a decedent shall be treated, in the hands of the estate of the decedent or any person who acquired such right by reason of the death of the decedent, or by bequest, devise, or inheritance from the decedent, as if it had been acquired by the estate or such person in the transaction in which the right to receive the income was originally derived and the amount includible in gross income shall be considered, in the hands of the estate or such

5This revenue ruling addresses recourse mortgage loans. If the borrower’s mortgage loan was a nonrecourse loan, the debt that was discharged in the foreclosure would be included in the borrower’s amount realized from the disposition of the property. Regardless of whether the mortgage loan was recourse or nonrecourse, the NMS Payment is an additional amount realized from the foreclosure.

Bulletin No. 2014–2 257 January 6, 2014

determine any gain or loss realized under § 1001, including gain that may be excluded under § 121.

In addition, an NMS Payment is intended to compensate a borrower for loss of a principal residence rather than for loss on other property. This intention is indicated by the fact that only borrowers who lost their principal residence may receive the payment. Consequently, for purposes of § 1001, § 121, and § 1.121–1(e), if a taxpayer receives an NMS Payment for loss of a multiple-unit property a portion of which was used as the taxpayer’s principal residence, then the entire NMS Payment is allocable to the portion of the property used as a principal residence.

A taxpayer that receives a deceased eligible borrower’s NMS Payment “stands in the shoes” of the borrower for purposes of determining the tax consequences of that payment. Any gain not excluded from gross income under § 121 is income in respect of a decedent within the meaning of § 691(a).

Situation 1—Loss on a single-unit home. In 2011, A ’s amount realized on the foreclosure of the principal residence was $125,000, its fair market value. A ’s adjusted basis in the principal residence ($230,000) exceeded A’s amount realized ($125,000). Thus, A realized a $105,000 ($230,000 – $125,000) loss on the foreclosure. Under § 165(c), this loss is not deductible because A, an individual, did not incur the loss in a trade or business, a transaction entered into for profit, or as a result of a casualty. The NMS Payment of $1,400 that A received in 2013 reduces A ’s nondeductible loss to $103,600 and thus does not increase A ’s taxable income.

Situation 2—Loss on a multiple-unit home. In 2011, B ’s adjusted basis in the portion of the property that B used as a principal residence ($115,000) exceeded B ’s amount realized from the foreclosure of that portion of the property ($62,500). Thus, B realized a loss of $52,500 ($115,000–$62,500) on the portion of the property B used as a principal residence, which is not deductible under § 165(c). The entire NMS Payment of $1,400 that B received in 2013 is allocable to the portion of the property B used as a principal residence. The allocated amount reduces B ’s nondeductible loss to $51,100 and thus does not increase B’s taxable income.

Situation 3—Gain on a multiple-unit home. In 2009, B ’s amount realized on the foreclosure of the portion of the property B used as a principal residence ($80,000) exceeded B ’s adjusted basis ($77,500) in that portion of the property. Thus, B had a $2,500 ($80,000–$77,500) gain on the foreclosure of the principal residence. B excludes this gain from gross income under § 121 because B owned and used that portion of the property as a principal residence for at least two of the five years preceding the sale. The entire NMS Payment of $1,400 that B received in 2013 is allocable to the portion of the property B used as a principal residence, thus increasing B’s gain (and the amount excluded under § 121) on the foreclosure of the principal residence to $3,900.

Situation 4—Gain on a single-unit home. In 2009, C ’s amount realized on the foreclosure of the principal residence was $160,000, its fair market value. C ’s amount realized ($160,000) exceeded C ’s adjusted basis ($155,000). Thus, C had a $5,000 ($160,000– $155,000) gain on the foreclosure of the principal residence. C excludes this gain from gross income under § 121 because C owned and used the property as a principal residence for at least two of the five years preceding the sale. The NMS Payment of $1,400 that C received from the Fund in 2013 increases C’s gain (and the amount excluded under § 121) on the foreclosure to $6,400.

Situation 5—Single-unit home with gain less than prior depreciation. In 2009, D ’s amount realized on the foreclosure of the principal residence ($149,000) exceeded D ’s adjusted basis in the principal residence ($145,000). Thus, D realized a gain of $4,000 ($149,000–$145,000) on the foreclosure of the principal residence. Under § 121(d)(6), however, because the $4,000 gain did not exceed D ’s depreciation deductions of $10,000, D could not exclude that gain from income under § 121, and D includes the $4,000 gain in income under § 61(a)(3) in 2009. Similarly, under § 121(d)(6), D may not exclude from income the additional $1,400 gain that D realizes as a result of the NMS Payment of $1,400 that D receives in 2013. The NMS Payment increases the gain on the property to $5,400, which does not exceed D ’s depreciation deduc

tions. Thus, none of the $5,400 gain is excludable from gross income. Under § 61(a)(3), D must include the NMS Payment of $1,400 in income on D ’s federal income tax return for 2013, the year in which D received the NMS Payment. See § 1.121–1(d) for rules on determining the character of this income.

Situation 6—Single-unit home with gain greater than prior depreciation. Because the amount realized on the foreclosure was $154,500, the NMS Payment of $1,400 increased the gain to $10,900 (($154,500– $145,000) - $1,400), which exceeds the depreciation deductions by $900. Thus, D includes $500 of the additional gain resulting from the NMS Payment in gross income under § 121(d)(6) on D ’s federal income tax return for 2013, and excludes the remaining $900 from gross income under § 121(a). See § 1.121–1(d) for rules on determining the character of the amount that is included in income.

Situation 7—Deceased borrower. Because D died before payment was made, the person(s) with a right to D ’s NMS Payment must treat the entire amount received as income in respect of a decedent under § 691(a) because, if D had lived, D could not have excluded any of the NMS Payment from income pursuant to § 121(d)(6). See § 691(a)(3) and § 1.121– 1(d) for rules on determining the character of the amount that is included in income.

HOLDINGS

A taxpayer who receives an NMS Payment pursuant to the National Mortgage Settlement due to the foreclosure of the taxpayer’s principal residence includes the payment in the amount realized on the foreclosure under § 1001.
If a taxpayer includes an NMS Payment in the amount realized and, as a result, creates or increases a gain on the foreclosure of the principal residence, the taxpayer may exclude the resulting gain from gross income to the extent permitted under § 121, including the limitation in § 121(d)(6) that gain attributable to depreciation cannot be excluded from gross income.
If the property for which a taxpayer receives an NMS Payment contained one or more additional dwelling units that were not used as the taxpayer’s principal residence, the entire NMS Payment is al

January 6, 2014 258 Bulletin No. 2014–2

an employee as the average (without indexing) of the taxable wage bases in effect for each calendar year during the 35-year period ending with the last day of the calendar year in which the employee attains (or will attain) social security retirement age. A 35-year period is used for all individuals regardless of the year of birth of the individual. In determining an employee’s covered compensation for a plan year, the taxable wage base for all calendar years beginning after the first day of the plan year is assumed to be the same as the taxable wage base in effect as of the beginning of the plan year. An employee’s covered compensation for a plan year beginning after the 35-year period applicable under § 1.401(l)–1(c)(7)(i) is the employee’s covered compensation for a plan year during which the 35-year period ends. An employee’s covered compensation for a plan year beginning before the 35-year period applicable under § 1.401(l)–1(c)(7)(i) is the taxable wage base in effect as of the beginning of the plan year.

Section 1.401(l)–1(c)(7)(ii) provides that, for purposes of determining the amount of an employee’s covered compensation under § 1.401(l)–1(c)(7)(i), a plan may use tables, provided by the Commissioner, that are developed by rounding the actual amounts of covered compensation for different years of birth.

For purposes of determining covered compensation for the 2014 year, the taxable wage base is $117,000.

The following tables provide covered compensation for 2014.

2014 COVERED COMPENSATION

TABLE II

locable to the portion of the property that the taxpayer used as a principal residence.

A taxpayer who receives any portion of a deceased borrower’s NMS Payment stands in the shoes of the borrower to determine the taxable portion, if any, of the NMS Payment. Any taxable amount is income in respect of a decedent under § 691(a).

DRAFTING INFORMATION

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

Section 280G.—Golden Parachute Payments

Federal short-term, mid-term, and long-term rates are set forth for the month of January 2014. See Rev. Rul. 2014–1, page 263.

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 January 2014. See Rev. Rul. 2014–1, page 263.

CALENDAR

YEAR OF

BIRTH

Section 401.—Qualified Pension, Profit-Sharing, and Stock Bonus Plans

26 CFR 1.401(l)–1: Permitted disparity in employer- provided contributions or benefits

Rev. Rul. 2014–3

This revenue ruling provides tables of covered compensation under § 401(l)(5)(E) of the Internal Revenue Code (the “Code”) and the Income Tax Regulations thereunder, for the 2014 plan year.

Section 401(l)(5)(E)(i) defines covered compensation with respect to an employee as the average of the contribution and benefit bases in effect under section 230 of the Social Security Act (the “Act”) for each year in the 35-year period ending with the year in which the employee attains social security retirement age.

Section 401(l)(5)(E)(ii) states that the determination for any year preceding the year in which the employee attains social security retirement age shall be made by assuming that there is no increase in the contribution and benefit base after the determination year and before the employee attains social security retirement age.

Section 1.401(l)–1(c)(34) of the Income Tax Regulations (the “Regulations”) defines the taxable wage base as the contribution and benefit base under section 230 of the Act.

Section 1.401(l)–1(c)(7)(i) of the Regulations defines covered compensation for

ATTACHMENT I

2014 COVERED COMPENSATION TABLE

CALENDAR YEAR OF

SOCIAL SECURITY

RETIREMENT AGE

1907 1972 $ 4,488

1908 1973 4,704

1909 1974 5,004

1910 1975 5,316

1911 1976 5,664

1912 1977 6,060

Bulletin No. 2014–2 259 January 6, 2014

2014 COVERED COMPENSATION

CALENDAR

YEAR OF

ATTACHMENT I

2014 COVERED COMPENSATION TABLE

CALENDAR YEAR OF

SOCIAL SECURITY

BIRTH

BIRTH RETIREMENT AGE TABLE II

1913 1978 6,480

1914 1979 7,044

1915 1980 7,692

1916 1981 8,460

1917 1982 9,300

1918 1983 10,236

1919 1984 11,232

1920 1985 12,276

1921 1986 13,368

1922 1987 14,520

1923 1988 15,708

1924 1989 16,968

1925 1990 18,312

1926 1991 19,728

1927 1992 21,192

1928 1993 22,716

1929 1994 24,312

1930 1995 25,920

1931 1996 27,576

1932 1997 29,304

1933 1998 31,128

1934 1999 33,060

1935 2000 35,100

1936 2001 37,212

1937 2002 39,444

1938 2004 43,992

1939 2005 46,344

1940 2006 48,816

1941 2007 51,348

1942 2008 53,952

1943 2009 56,628

1944 2010 59,268

1945 2011 61,884

1946 2012 64,560

1947 2013 67,308

1948 2014 69,996

1949 2015 72,600

1950 2016 75,084

1951 2017 77,508

1952 2018 79,824

1953 2019 82,092

1954 2020 84,300

RETIREMENT AGE

January 6, 2014 260 Bulletin No. 2014–2

2014 COVERED COMPENSATION

CALENDAR

YEAR OF

ATTACHMENT I

2014 COVERED COMPENSATION TABLE

CALENDAR YEAR OF

SOCIAL SECURITY

BIRTH RETIREMENT AGE TABLE II

1955 2022 88,536

1956 2023 90,600

1957 2024 92,568

1958 2025 94,440

1959 2026 96,264

1960 2027 98,016

1961 2028 99,720

1962 2029 101,328

1963 2030 102,924

1964 2031 104,472

1965 2032 105,948

1966 2033 107,340

1967 2034 108,600

1968 2035 109,764

1969 2036 110,820

1970 2037 111,732

1971 2038 112,584

1972 2039 113,424

1973 2040 114,192

1974 2041 114,840

1975 2042 115,404

1976 2043 115,824

1977 2044 116,124

1978 2045 116,412

1979 2046 116,700

1980 2047 116,904

1981 and Later 2048 and Later 117,000

BIRTH

RETIREMENT AGE

ATTACHMENT II

2014 ROUNDED COVERED COMPENSATION TABLE

CALENDAR

YEAR OF

BIRTH

2014 COVERED COMPENSATION

ROUNDED

1937 $ 39,000

1938–1939 45,000

1940 48,000

1941 51,000

1942 54,000

1943 57,000

1944 60,000

1945 63,000

Bulletin No. 2014–2 261 January 6, 2014

ATTACHMENT II

2014 ROUNDED COVERED COMPENSATION TABLE

CALENDAR

YEAR OF

2014 COVERED COMPENSATION

BIRTH ROUNDED

1946–1947 66,000

1948 69,000

1949 72,000

1950 75,000

1951 78,000

1952–1953 81,000

1954 84,000

1955–1956 90,000

1957–1958 93,000

1959 96,000

1960–1961 99,000

1962–1963 102,000

1964–1965 105,000

1966–1967 108,000

1968–1970 111,000

1971–1975 114,000

1976 and Later 117,000

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 January 2014. See Rev. Rul. 2014–1, page 263.

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 January 2014. See Rev. Rul. 2014–1, page 263.

Section 509.—Private Foundation Defined

Guidance is provided for Type III supporting organizations seeking to qualify as functionally integrated by supporting a governmental supported organization. See Notice 2014–4 on page 274.

DRAFTING INFORMATION

The principal author of this revenue ruling is Michael Spaid of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue ruling, please contact the Employee Plans taxpayer assistance telephone service at 1-877-8295500, between the hours of 8:30 a.m. and 4:30 p.m. Eastern time, Monday through Friday (a toll-free number). Mr. Spaid may be reached via e-mail at RetirementPlanQuestions@irs.gov.

Section 412.—Minimum Funding Standards

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of January 2014. See Rev. Rul. 2014–1, page 263.

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 January 2014. See Rev. Rul. 2014–1, page 263.

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 of January 2014. See Rev. Rul. 2014–1, page 263.

January 6, 2014 262 Bulletin No. 2014–2

Section 642.—Special Rules for Credits and Deductions

Federal short-term, mid-term, and long-term rates are set forth for the month of January 2014. See Rev. Rul. 2014–1, page 263.

Section 807.—Rules for Certain Reserves

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of January 2014. See Rev. Rul. 2014–1, page 263.

Section 846.—Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of January 2014. See Rev. Rul. 2014–1, page 263.

Section 1274.— Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property

(Also Sections 42, 280G, 382, 412, 467, 468, 482, 483, 642, 807, 846, 1288, 7520, 7872.)

Rev. Rul. 2014–1

This revenue ruling provides various prescribed rates for federal income tax purposes for January 2014 (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 lowincome housing credit described in section 42(b)(1) for buildings placed in service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, with respect to housing credit dollar amount allocations made before January 1, 2014, shall not be less than 9%. 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. Finally, Table 6 contains the deemed rate of return for transfers made during calendar year 2014 to pooled income funds described in section 642(c)(5) that have been in existence for less than 3 taxable years immediately preceding the taxable year in which the transfer was made.

Applicable Federal Rates (AFR) for January 2014

Period for Compounding Annual Semiannual Quarterly Monthly

Short-term

AFR .25% .25% .25% .25%

110% AFR .28% .28% .28% .28%

120% AFR .30% .30% .30% .30%

130% AFR .33% .33% .33% .33%

Mid-term

AFR 1.75% 1.74% 1.74% 1.73%

110% AFR 1.92% 1.91% 1.91% 1.90%

120% AFR 2.10% 2.09% 2.08% 2.08%

130% AFR 2.27% 2.26% 2.25% 2.25%

150% AFR 2.63% 2.61% 2.60% 2.60%

175% AFR 3.07% 3.05% 3.04% 3.03%

Long-term

AFR 3.49% 3.46% 3.45% 3.44%

110% AFR 3.85% 3.81% 3.79% 3.78%

120% AFR 4.19% 4.15% 4.13% 4.11%

130% AFR 4.55% 4.50% 4.47% 4.46%

Bulletin No. 2014–2 263 January 6, 2014

REV. RUL. 2014–1 TABLE 2

Adjusted AFR for January 2014

Period for Compounding Annual Semiannual Quarterly Monthly

Short-term adjusted AFR .25% .25% .25% .25%

Mid-term adjusted AFR 1.56% 1.55% 1.55% 1.55%

Long-term adjusted AFR 3.49% 3.46% 3.45% 3.44%

REV. RUL. 2014–1 TABLE 3

Rates Under Section 382 for January 2014

Adjusted federal long-term rate for the current month 3.49%

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.) 3.49%

REV. RUL. 2014–1 TABLE 4

Appropriate Percentages Under Section 42(b)(1) for January 2014

Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, with respect to housing credit dollar amount allocations made before January 1, 2014, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit 7.60%

Appropriate percentage for the 30% present value low-income housing credit 3.26%

REV. RUL. 2014–1 TABLE 5

Rate Under Section 7520 for January 2014

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 2.2%

REV. RUL. 2014–1 TABLE 6

Deemed Rate for Transfers to New Pooled Income Funds During 2014

Deemed rate of return for transfers during 2014 to pooled income funds that have been in existence for less than 3 taxable years 1.4%

January 6, 2014 264 Bulletin No. 2014–2

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 January 2014. See Rev. Rul. 2014–1, page 263.

Section 3504.—Acts to be Performed by Agents

T.D. 9649

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 31

Section 3504 Agent Employment Tax Liability

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to agents authorized by the Secretary under section 3504 of the Internal Revenue Code to perform acts required of employers who are home care service recipients. The final regulations affect employers and their designated agents who pay wages for home care services, which are subject to taxes under the Federal Unemployment Tax Act. The final regulations also modify the existing regulations under section 3504 to be consistent with the organizational structure of the Internal Revenue Service (IRS), and to update the citation to the Internal Revenue Code of 1986.

DATES: Effective Date : These regulations are effective on December 12, 2013.

Applicability Date : For dates of applicability, see § 31.3504–1(c) of these regulations.

FOR FURTHER INFORMATION CONTACT: Michelle R. Weigelt at (202) 317-6798 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to 26 CFR part 31 under section 3504 of the Internal Revenue Code (Code). On January 13, 2010, the Treasury Department and the IRS published a notice of proposed rulemaking (REG–137036–08, 75 FR 1735, 2010–6 I.R.B. 398) (the proposed regulations) in the Federal Register under section 3504 of the Code. The Treasury Department and the IRS did not hold a public hearing because there were no requests to speak at a hearing. The Treasury Department and the IRS received written and electronic comments responding to the proposed regulations. After consideration of all the comments, the proposed regulations are adopted as amended by this Treasury decision. The comments and revisions are discussed in the preamble.

Explanation of Provisions

In case a fiduciary, agent, or other person has the control, receipt, custody, or disposal of, or pays the wages of an employee or group of employees, employed by one or more employers, section 3504 of the Code authorizes the Secretary of the Treasury to promulgate regulations to authorize the person (“agent”) to perform certain specified acts required of employers. Under section 3504, all provisions of law (including penalties) applicable with respect to employers are applicable to the agent and remain applicable to the employer. Accordingly, both the agent and employer are liable for the employment taxes and penalties associated with the employer’s employment tax obligations which the agent is authorized to perform. Prior to the amendments made by these final regulations, § 31.3504–1 of the Employment Tax Regulations provided that the IRS may authorize an agent to undertake the employment tax obligations of an employer with respect to income tax withholding and Federal Insurance Contributions Act (FICA) taxes. However, the employer was required to continue to meet its employment tax obligations with respect to Federal Unemployment Tax Act (FUTA) tax. Like the proposed regulations, these final regulations provide that the IRS may authorize an agent to under

take the employment tax obligations of an employer with respect to FUTA tax in certain circumstances.

Summary of Comments and Explanation of Revisions

A. Amendments to § 31.3504–1(a)

Under § 31.3504–1(a), an employer may request that the IRS authorize an agent under section 3504 to report, file, and pay income tax withholding, tax under the FICA, or tax under the Railroad Retirement Tax Act (RRTA), with respect to wages or compensation. The proposed regulations under § 31.3504–1(a) proposed amendments to the existing regulatory language designed to update citations and be consistent with the current organizational structure of the IRS.

One commenter expressed concern that deletion of the limiting language “in respect of such acts” from these regulations implied an agent could be held liable for all of an employer’s employment tax liabilities, regardless of which acts the agent was authorized to perform. Under section 3504, the agent is only liable for acts the IRS has authorized the agent to perform on behalf of the employer. Thus, language that limits the scope of the agent’s liability has been reincorporated into the final regulations.

Another commenter suggested that the final regulations include a rule that the agent is only liable for employment taxes with respect to wages or compensation paid by the agent on behalf of the employer. Because section 3504 provides an agent may also be authorized under section 3504 if the person has the control, receipt, custody, or disposal of the wages of an employer’s employees, a rule that the agent can only be held liable for employment taxes with respect to those wages paid by the agent would be more narrow than the statute. Therefore, this rule was not adopted in the final regulations. In addition to the change to proposed § 31.3504–1(a) made in response to comments, these final regulations adopt minor changes for clarity and consistency.

B. Amendments under § 31.3504–1(b)

The proposed regulations under § 31.3504–1(b) provide a special rule that

Bulletin No. 2014–2 265 January 6, 2014

allows an employer who is a home care service recipient to request that the IRS authorize an agent to act with respect to FUTA taxes imposed on wages paid for home care services, provided that the agent is authorized to act for the home care service recipient for income tax withholding and FICA tax purposes. The proposed regulations under § 31.3504– 1(b) do not apply to an agent that is authorized to report, file, and pay income tax withholding or FICA tax for an employer who is not a home care service recipient, or for wages paid for services other than home care services.

Several commenters sought legal or procedural explanations which were beyond the scope of the proposed regulations. Thus, those comments are not addressed in these final regulations. For example, these regulations do not address comments seeking clarification on the identity of the common law employer if the home care service recipient has a representative acting on his or her behalf, the ability of an agent to delegate its responsibility to a third-party, the application of certain exceptions to FICA and FUTA taxes, the proper use of employer identification numbers (EIN) in filing employment tax returns, and the deposit requirements of agents. However, Revenue Procedure 2013–39, which is being released simultaneously with these final regulations updates the procedures for requesting that the IRS authorize a person to act as agent under section 3504, and addresses filing, reporting, and deposit rules for agents.

1. Certification of State Unemployment Contributions

Section 3504 provides that all provisions of law applicable to an employer apply to the agent. Thus, an agent authorized under the proposed regulations for FUTA tax purposes reports the state unemployment contributions paid into a state unemployment fund on behalf of a home care service recipient as a credit under section 3302 against the FUTA tax reported on the agent’s aggregate FUTA tax return. The IRS has designated Form 940, Employer’s Annual Federal Unem- ployment Tax (FUTA) Return, as the return to file to report FUTA tax. The credit

can be reported by the agent regardless of whether the state unemployment contributions are made under the name and state identifying number of the home care service recipient or of the agent.

Several commenters expressed concern that the IRS will be unable to verify the state unemployment contributions made on behalf of a home care service recipient if such contributions are reported on an aggregate Form 940 FUTA tax return using the agent’s name and EIN. The commenters suggested that each home care service recipient’s name and EIN be included on the aggregate return for purposes of the annual certification process.

Following the publication of the proposed regulations, the IRS issued Schedule R (Form 940), Allocation Schedule for Aggregate Form 940 Filers, for use beginning in tax year 2010. Agents of home care service recipients are required to use Schedule R (Form 940) to allocate the information reported on the aggregate FUTA tax return, and must separately list each home care service recipient’s name and EIN on Schedule R (Form 940). Because the issuance of Schedule R (Form 940) resolves the concerns raised by these commenters, no changes were made to the final regulations.

2. Domestic Service Employment Tax Rules and Home Care Services

The proposed regulations define home care services to include health care and personal attendant care services rendered in the home care service recipient’s home or local community. Several commenters requested clarification of whether home care services constitute domestic services for employment tax purposes, particularly when the services involve travel outside the home.

The Code has special rules for domestic services. These special rules include provisions in section 3401(a)(3) regarding the requirement to withhold income tax; sections 3121(a)(7)(B), 3306(a)(3), and 3306(c)(2) regarding minimum dollar thresholds for imposition of FICA and FUTA taxes; section 3121(b)(3)(B) regarding exemption from FICA tax for certain family employment relationships; and section 3121(b)(21) regarding exemption from FICA tax depending on the age of

the service provider. Whether any of these rules apply in a given situation depends on whether the services are “domestic services” and whether the services are provided in the “private home” of the employer. These terms are explained in §§ 31.3121(a)(7)– 1(a)(2), 31.3306(c)(2)–1, and 31.3401(a)–3 of the regulations.

Generally, § 31.3121(a)(7)–1(a)(2) provides that domestic services are services of a household nature performed by an employee in or about a private home of the person by whom the employee is employed. A private home is a fixed place of abode of an individual or family. Sections 31.3306(c)(2)–1 and 31.3401(a)–3 contain similar descriptions for FUTA tax and income tax withholding purposes, respectively.

The preamble to the proposed regulations stated that services provided outside the home care service recipient’s private home may qualify as home care services for purposes of these regulations even if the services do not qualify as domestic service in a private home of the employer for purposes of sections 3121(a)(7), 3306(c)(2), and 3401(a)(3). One commenter requested a rule deeming the special statutory rules for domestic services as applying to all home care services. The determination of whether the statutory rules for domestic services apply depends on whether the services are domestic services provided in the private home of the employer as explained in the regulations. Thus, a bright line rule that home care services are domestic services in all cases is beyond the scope of these regulations, and the proposal was not adopted.

However, we anticipate that there will only be limited circumstances when home care services would not be subject to the domestic service rules and note that the regulations on domestic service described in this section, and other public guidance currently available address these comments. For example, Revenue Ruling 56– 109, 1956–1 C.B. 467, provides that services performed by an employee as a companion to a convalescent employer, including accompanying the convalescent on trips, constitute domestic service in a private home of the employer for purposes of employment taxes.

January 6, 2014 266 Bulletin No. 2014–2

Several commenters interpreted the use of the phrase “home or local community” in the definition of home care services to impose geographical restrictions. The phrase was intended to indicate that despite the home-based nature of health care and personal attendant care services, home care services may be provided outside of a home, and was not intended to exclude services qualifying for funds under the government program based on the location at which the services were provided. Thus, home care services under the regulations include any services for which an individual enrolled in a government program described in the regulations would be eligible to receive funds. Similar to how Rev. Rul. 56–109 describes a situation where services that are provided outside the employer’s house nevertheless constitute “domestic services in the pri- vate home of the employer,” services provided outside the home or local community may constitute home care services. Nevertheless, to avoid the implication of a geographical limitation on what services may qualify as home care services, the phrase was removed from the definition of home care services in the final regulations.

Finally, one commenter interpreted the definition of home care services to include only services provided to elderly individuals and individuals with physical disabilities, and not to include services provided to individuals with intellectual and developmental disabilities. The definition of home care services in the proposed regulations are not limited by the type of disability. Rather, the definition of home care services includes any services for which an individual enrolled in a government program described in the regulations would be eligible to receive funds. Therefore, no changes were made to the final regulations with regard to the definition of home care services to address this comment.

3. Clarification Regarding Home Care Service Recipients

The proposed regulations define home care service recipient as any individual who receives home care services while enrolled, and for the remainder of the calendar year after ceasing to be enrolled, in a program administered by a Federal,

state, or local government agency that provides Federal, state, or local government funds, to pay, in whole or in part, for the home care services for that individual. Several commenters submitted questions regarding this definition that did not require changes to the regulations, but with respect to which clarification is provided in this preamble.

With regard to the Federal, state, or local government programs which provide funds for home care services, the preamble to the proposed regulations provides, “In all such programs, intermediaries who are engaged to assist beneficiaries to receive and distribute funds on the beneficiaries’ behalf are reviewed and approved by a state or local government agency.” Several commenters interpreted this statement as inferring coordination between the IRS and the Centers for Medicare and Medicaid Services (CMS) regarding qualifications and contracting requirements for agents. The statement was intended to highlight the currently existing oversight of the intermediaries that serve as agents in these programs by CMS or other Federal, state, and local government agencies. There is no anticipated IRS involvement in the way these agencies administer these programs, including selection and monitoring of the intermediaries.

Application of the proposed regulations requires that a home care service recipient be enrolled in a program that provides Federal, state, or local government funds to pay for home care services, in whole or in part . One commenter asked whether an individual who pays for home care services from his or her personal bank account or with other nongovernment funds can be a home care service recipient within the meaning of the regulations. An individual is not a home care service recipient within the meaning of these regulations if no government funds are used to pay for any part of the home care services performed for the individual. However, an individual may be a home care service recipient if the cost of the home care services are initially paid for with non-government funds and such cost is reimbursed in whole or in part with government funds provided under the government program.

Other commenters asked about procedures an agent should follow when an

individual ceases to be a home care service recipient. Under § 31.3504– 1(b)(3), a participant qualifies as a home care service recipient until the end of the calendar year in which the participant ceases to be enrolled in the government program; accordingly, the agent may act as an agent with respect to the home care service recipient’s FUTA tax obligations for the entire calendar year in which the participant ceases to qualify as a home care service recipient. Furthermore, the agent may continue to act as an agent with respect to the home care service recipient’s FICA tax and income tax withholding obligations pursuant to § 31.3504– 1(a) after a participant ceases to qualify as a home care service recipient. Treasury and the IRS do not believe a description of any specific procedures is needed in these regulations with regard to the cessation of home care service recipient status for FUTA tax purposes. However, Revenue Procedure 2013–39, which is being released simultaneously with these final regulations updates the procedures to request the IRS authorize a person to act as agent under section 3504 and clarifies the rules for revoking authorization.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to this regulation. Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. The collection of information contained in these regulations is a voluntary written application from an employer, signed by the employer and the agent, requesting the IRS approve the appointment of an agent to perform the acts required of the employer. The application contains information generally available to taxpayers, such as the name, address, and EIN of the employer, and ultimately serves to lessen taxpayer burden by allowing the employer to have an agent fulfill certain employment tax obligations. Accordingly, a regulatory flexibility analysis

Bulletin No. 2014–2 267 January 6, 2014

is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the proposed regulations preceding these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received.

Drafting Information

The principal author of these final regulations is Michelle R. Weigelt, Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, personnel from other offices of the IRS and the Treasury Department participated in their development.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 31 is amended as follows:

PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE

Paragraph 1. The authority citation for part 31 continues to read in part as follows:

Authority: 26 U.S.C. 7805 - - Par.2. Section 31.3504–1 is revised to read as follows:

§ 31.3504–1 Designation of Agent by Application.

(a) In general . In the event wages as defined in chapter 21 or 24 of the Internal Revenue Code (Code), or compensation as defined in chapter 22 of the Code, of an employee or group of employees, employed by one or more employers, is paid by a fiduciary, agent, or other person (“agent”), or if that agent has the control, receipt, custody, or disposal of (collectively “pays”) wages or compensation, the Internal Revenue Service may, subject to the terms and conditions as it deems proper, authorize that agent to perform the acts required of the employer or employers under those provisions of the Code and the regulations that apply, for purposes of the taxes imposed by the chapter or chapters, with respect to wages or compensa

tion paid by the agent. If the agent is authorized by the Internal Revenue Service to perform such acts, all provisions of law (including penalties) and of the regulations applicable to an employer with respect to such acts shall be applicable to the agent. However, each employer for whom the agent acts shall remain subject to all provisions of law (including penalties) and of the regulations applicable to an employer with respect to such acts. Any application to authorize an agent to perform such acts, signed by the agent and the employer, shall be made on the form prescribed by the Internal Revenue Service and shall be filed with the Internal Revenue Service as prescribed in the instructions to the form and other applicable guidance.

(b) Special rule for home care service recipients . (1) In general . In the event an agent is authorized pursuant to paragraph (a) of this section to perform the acts required of an employer under chapters 21 or 24 on behalf of one or more home care service recipients, as defined in paragraph (b) (3) of this section, the Internal Revenue Service may authorize that agent to perform the acts as are required of employers for purposes of the tax imposed by chapter 23 of the Code with respect to wages paid by the agent for home care services, as defined in paragraph (b) (2) of this section, rendered to the home care service recipient. If the agent is authorized by the Internal Revenue Service to perform such acts, all provisions of law (including penalties) and of the regulations applicable to an employer in respect of such acts shall be applicable to the agent. However, each employer for whom the agent acts shall remain subject to all provisions of law (including penalties) and of the regulations applicable to an employer with respect to such acts.

(2) Home care services . For purposes of this section, the term home care ser- vices includes health care and personal attendant care services rendered to the home care service recipient.

(3) Home care service recipient . For purposes of this section, the term home care service recipient means any individual who receives home care services, as defined in paragraph (b) (2) of this section, while enrolled, and for the remainder of the calendar year after ceasing to be

enrolled, in a program administered by a Federal, state, or local government agency that provides Federal, state, or local government funds, to pay, in whole or in part, for home care services for that individual.

(c) Effective/applicability dates . An authorization under paragraph (a) in effect prior to December 12, 2013 continues to be in effect after that date. Paragraph (b) of this section applies to wages paid on or after January 1, 2014. However, pursuant to section 7805(b), taxpayers may rely on paragraph (b) of this section for all taxable years for which a valid designation is in effect under paragraph (a) of this section.

Beth Tucker, Deputy Commissioner for Services and

Enforcement.

Approved September 27, 2013

Mark J. Mazur, Assistant Secretary of the Treasury

(Tax Policy).

(Filed by the Office of the Federal Register on December 11, 2013, 8:45 a.m., and published in the issue of the Federal Register on December 12, 2013, 78 F.R. 75471)

Section 4942.—Taxes on Failure to Distribute Income

Guidance is provided to private foundations and sponsoring organizations that maintain donoradvised funds relating to grants to functionally integrated Type III supporting organizations. See Notice 2014–4 on page 274.

Section 4945.—Taxes on Taxable Expenditures

January 6, 2014 268 Bulletin No. 2014–2

Section 4966.—Taxes on Taxable Distributions

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of January 2014. See Rev. Rul. 2014–1, page 263.

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 January 2014. See Rev. Rul. 2014–1, page 263.

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