SECTION 5. REQUEST FOR

COMMENTS AND CONTACT INFORMATION

The Treasury Department and the IRS solicit comments on the rules described in this notice. In particular, the Treasury Department and the IRS solicit comments on whether the transactions addressed in section 3 of this notice would be more appropriately addressed pursuant to rules under section 905(c) providing that additional payments of tax be accounted for through adjustments to the pools of post-1986 foreign income taxes and post-1986 undistributed earnings of section 902 corporations that are not the same entity as the payor of the tax. The Treasury Department and the IRS also are considering whether an objective test, rather than a subjective test based on taxpayer intent, should be used to determine when the transactions described in sections 3.01 and 3.02 of this notice are treated as splitter arrangements. Accordingly, the Treasury Department and the IRS solicit comments on this issue, as well as on the types of objective tests that could be used for this purpose.

Written comments may be submitted to the Office of Associate Chief Counsel (International), Attention: Jeffrey Parry, Internal Revenue Service, IR–4554, 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 inspection and copying. For further information regarding this notice, contact Mr. Parry of the Office of Associate Chief Counsel (International) at (202) 317-6936 (not a toll-free number). Written or electronic comments must be received by December 14, 2016.

Applicable

Month

First Segment

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

Notice 2016–54

This notice provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under §417(e)(3), and the 24-month average segment rates under §430(h)(2) of the Internal Revenue Code. 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 and the 30year Treasury weighted average rate under §431(c)(6)(E)(ii)(I).

YIELD CURVE AND SEGMENT RATES

Generally, except for certain plans under sections 104 and 105 of the Pension Protection Act of 2006 and CSEC plans under §414(y), §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 25year average segment rates for the period ending September 30 of the year preceding the calendar year in which the plan year begins. ¹ However, an election may be made under §430(h)(2)(D)(ii) to use

Second Segment

September 2016 1.52 3.80 4.79

Based on §430(h)(2)(C)(iv), the 24month averages applicable for September

2016 adjusted to be within the applicable minimum and maximum percentages of

the corresponding 25-year average segment rates, are as follows:

1Pursuant to §433(h)(3)(A), the 3rd segment rate determined under §430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount of the full funding limitation under §433(c)(7)(C)).

Bulletin No. 2016–40 429 October 3, 2016

For Plan

Years Beginning

Segment Rates

Applicable First Second

Adjusted 24-Month Average

Applicable First Second Third

In Month Segment Segment Segment

2015 September 2016 4.72 6.11 6.81

2016 September 2016 4.43 5.91 6.65

2017 September 2016 4.16 5.72 6.48

Second Segment

In

Month

First Segment

30-YEAR TREASURY SECURITIES INTEREST RATES

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 §431(c)(6)(A), based on the plan’s current liability. Section 431(c)(6) (E)(ii)(I) provides that the interest rate

For Plan Years

Beginning in

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 rate of interest on 30-year Treasury securities for August 2016 is 2.26 percent. The Service deter

30-Year Treasury Weighted

mined this rate as the average of the daily determinations of yield on the 30-year Treasury bond maturing in May 2046 determined each day through August 10, 2016 and the yield on the 30-year Treasury bond maturing in August 2046 determined each day for the balance of the month. For plan years beginning in the month shown below, the weighted average of the rates of interest on 30-year Treasury securities and the permissible range of rate used to calculate current liability are as follows:

Permissible Range

Month Year Average 90% to 105%

September 2016 2.97 2.67 3.11

MINIMUM PRESENT VALUE SEGMENT RATES

In general, the applicable interest rates under §417(e)(3)(D) are segment rates

First Segment

computed without regard to a 24-month average. Notice 2007–81 provides guidelines for determining the minimum present value segment rates. Pursuant to that notice, the minimum present value seg

Second Segment

ment rates determined for August 2016 are as follows:

Third Segment

1.39 3.27 4.18

DRAFTING INFORMATION

The principal author of this notice is Tom Morgan of the Office of the Associate Chief Counsel (Tax Exempt and

Government Entities). However, other personnel from the IRS participated in the development of this guidance. For further information regarding this no

tice, contact Mr. Morgan at 202-3176700 or Tony Montanaro at 202-3178698 (not toll-free numbers).

October 3, 2016 430 Bulletin No. 2016–40

Table I Monthly Yield Curve for August 2016

Derived from August 2016 Data

Maturity Yield Maturity Yield Maturity Yield Maturity Yield Maturity Yield

Bulletin No. 2016–40 431 October 3, 2016

Treatment of Amounts Paid to Section 170(c) Organizations under Employer Leave-Based Donation Programs to Aid Victims of Severe Storms and Flooding in Louisiana that Began on August 11, 2016

Notice 2016–55

This notice provides guidance on the treatment of leave-based donation programs to aid victims of the severe storms and flooding in Louisiana that began on August 11, 2016 (Louisiana storms).

TREATMENT OF LEAVE-BASED DONATION PAYMENTS

In response to the extreme need for charitable relief for victims of the Louisiana storms, employers may have adopted or may be considering adopting leavebased donation programs. Under leavebased donation programs, employees can elect to forgo vacation, sick, or personal leave in exchange for cash payments that the employer makes to charitable organizations described in §170(c) of the Internal Revenue Code (§170(c) organizations). This notice provides guidance for income and employment tax purposes on the treatment of cash payments made by employers under leave-based donation programs for the relief of victims of the Louisiana storms.

Notice 2014–68, 2014–47 I.R.B. 842, Notice 2012–69, 2012–51 I.R.B. 712, and Notice 2005–68, 2005–2 C.B. 622, provided similar guidance following the Ebola Virus Disease outbreak in West Africa, Hurricane Sandy, and Hurricane Katrina, respectively. See also Notice 2001–69, 2001–2 C.B. 491, as modified and superseded by Notice 2003–1, 2003–1 C.B. 257, regarding charitable relief following the September 11, 2001, terrorist attacks.

The Service will not assert that cash payments an employer makes to §170(c) organizations in exchange for vacation, sick, or personal leave that its employees elect to forgo constitute gross income or wages of the employees if the

payments are: (1) made to the §170(c) organizations for the relief of victims of the Louisiana storms; and (2) paid to the §170(c) organizations before January 1, 2018. Similarly, the Service will not assert that the opportunity to make such an election results in constructive receipt of gross income or wages for employees. Electing employees may not claim a charitable contribution deduction under §170 with respect to the value of forgone leave excluded from compensation and wages.

The Service will not assert that an employer is permitted to deduct these cash payments exclusively under the rules of §170 rather than the rules of §162. Cash payments to which this guidance applies need not be included in Box 1, 3 (if applicable), or 5 of the Form W–2.

DRAFTING INFORMATION

For further information, please contact Sheldon Iskow of the Office of Associate Chief Counsel (Income Tax and Accounting) at (202) 317-4718 (not a toll-free number).

Extension of Temporary Nondiscrimination Relief for Closed Defined Benefit Plans through 2017

Notice 2016–57

I. PURPOSE

This notice extends the temporary nondiscrimination relief for closed defined benefit plans that is provided in Notice 2014–5, 2014–2 I.R.B. 276, by making that relief available for plan years beginning before 2018 if the conditions of Notice 2014–5 are satisfied.

II. BACKGROUND

Notice 2014–5 provides temporary nondiscrimination relief for certain “closed” defined benefit pension plans (i.e., defined benefit plans that provide ongoing accruals but that have been amended to limit those accruals to some or all of the employees who participated in the plan on a specified date). Specifically, for plan years beginning before

2016, Section III.B of Notice 2014–5 permits a DB/DC plan that includes a closed defined benefit plan (that was closed before December 13, 2013) and that satisfies certain conditions set forth in the notice to demonstrate satisfaction of the nondiscrimination in amount requirement of §1.401(a)(4)–1(b)(2) on the basis of equivalent benefits even if the DB/DC plan does not meet any of the existing eligibility conditions for testing on that basis under §1.401(a)(4)–9(b)(2)(v).

Notice 2015–28, 2015–14 I.R.B. 848, extends the temporary nondiscrimination relief provided in Notice 2014–5 for an additional year by applying that relief to plan years beginning before 2017 if the conditions of Notice 2014–5 are satisfied. Notice 2015–28 further provides that, during the period for which the extension applies, the remaining provisions of the nondiscrimination regulations under §401 (a)(4) continue to apply.

Proposed regulations relating to nondiscrimination requirements for closed plans were published in the Federal Register on January 29, 2016 (81 FR 4976). The proposed regulations set forth relief for closed plans under §§1.401(a)(4)– 4, 1.401(a)(4)–8, and 1.401(a)(4)–9 (subject to satisfaction of certain conditions set forth in the regulations), and contain other proposed nondiscrimination rules. The regulations are proposed to apply generally to plan years beginning on or after the date of publication of the final regulations. The proposed regulations provide that taxpayers are permitted to apply certain provisions of the proposed regulations (including all of the provisions that apply specifically to closed plans) for certain plan years beginning before the proposed applicability date.

Many detailed and thoughtful comments have been submitted on the proposed regulations, including oral comments made at the public hearing held on May 19, 2016. The Internal Revenue Service (IRS) and the Treasury Department are taking the recommendations received from the public into account in finalizing the regulations. It is anticipated that the final regulations will not be published in time for plan sponsors to make plan design decisions based on the final regulations before expiration of the relief provided under Notice 2014–5 (as extended

October 3, 2016 432 Bulletin No. 2016–40

by Notice 2015–28). Accordingly, the IRS and the Treasury Department have determined that it is appropriate to extend the relief provided under Notice 2014–5 for an additional year.

III. EXTENSION OF RELIEF FOR CLOSED PLANS

The temporary nondiscrimination relief for closed plans that is provided in Notice 2014–5 is hereby extended to plan years beginning before 2018 if the conditions of Notice 2014–5 are satisfied. This extension is provided in anticipation of

the issuance of final amendments to the §401(a)(4) regulations. Those regulations are expected to be effective for plan years beginning on or after January 1, 2018, and are expected to permit plan sponsors to apply the provisions of the regulations that apply specifically to closed plans for certain earlier plan years.

IV. EFFECT ON OTHER DOCUMENTS

Notice 2014–5 and Notice 2015–28 are modified.

DRAFTING INFORMATION

The principal author of this notice is Diane S. Bloom of the Office of the Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS participated in development of this guidance. For further information regarding this notice, please contact Ms. Bloom or Linda Marshall at (202) 317-6700 (not a toll-free number).

Bulletin No. 2016–40 433 October 3, 2016