Mortgage Revenue Bonds, 29447-29450 [05-10163]
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Federal Register / Vol. 70, No. 98 / Monday, May 23, 2005 / Rules and Regulations
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
21 CFR Part 520
Oral Dosage Form New Animal Drugs;
Pyrantel Pamoate Paste
AGENCY:
Food and Drug Administration,
HHS.
ACTION:
Final rule.
The Food and Drug
Administration (FDA) is amending the
animal drug regulations to reflect
approval of a supplemental new animal
drug application (NADA) filed by
Phoenix Scientific, Inc. The NADA
provides for the oral use of pyrantel
pamoate paste for the removal and
control of mature infections of
tapeworms in horses and ponies.
DATES: This rule is effective May 23,
2005.
FOR FURTHER INFORMATION CONTACT:
Melanie R. Berson, Center for Veterinary
Medicine (HFV–110), Food and Drug
Administration, 7500 Standish Pl.,
Rockville, MD 20855, 301–827–7543, email: melanie.berson@fda.gov.
SUPPLEMENTARY INFORMATION: Phoenix
Scientific, Inc., 3915 South 48th Street
Ter., St. Joseph, MO 64503, filed
supplemental NADA 200–342 that
provides for the use of Pyrantel Pamoate
Paste for the removal and control of
mature infections of tapeworms
(Anoplocephala perfoliata) in horses
and ponies. The supplemental NADA is
approved as of April 18, 2005, and the
regulations are amended in 21 CFR
520.2044 to reflect the approval. The
basis of approval is discussed in the
freedom of information summary.
In accordance with the freedom of
information provisions of 21 CFR part
20 and 21 CFR 514.11(e)(2)(ii), a
summary of safety and effectiveness
data and information submitted to
support approval of this application
may be seen in the Division of Dockets
Management (HFA–305), Food and Drug
Administration, 5630 Fishers Lane, rm.
1061, Rockville, MD 20852, between 9
a.m. and 4 p.m., Monday through
Friday.
Under section 512(c)(2)(F)(iii) of the
Federal Food, Drug, and Cosmetic Act
(21 U.S.C. 360b(c)(2)(F)(iii)), this
supplemental approval qualifies for 3
years of marketing exclusivity beginning
April 18, 2005.
The agency has determined under 21
CFR 25.33(d)(1) that this action is of a
type that does not individually or
cumulatively have a significant effect on
the human environment. Therefore,
SUMMARY:
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neither an environmental assessment
nor an environmental impact statement
is required.
This rule does not meet the definition
of ‘‘rule’’ in 5 U.S.C. 804(3)(A) because
it is a rule of ‘‘particular applicability.’’
Therefore, it is not subject to the
congressional review requirements in 5
U.S.C. 801–808.
List of Subjects in 21 CFR Part 520
Animal drugs.
I Therefore, under the Federal Food,
Drug, and Cosmetic Act and under
authority delegated to the Commissioner
of Food and Drugs and redelegated to the
Center for Veterinary Medicine, 21 CFR
part 520 is amended as follows:
PART 520—ORAL DOSAGE FORM
NEW ANIMAL DRUGS
1. The authority citation for 21 CFR
part 520 continues to read as follows:
I
Authority: 21 U.S.C. 360b.
2. Section 520.2044 is revised to read
as follows:
I
§ 520.2044
Pyrantel pamoate paste.
(a) Specifications—(1) Each milliliter
(mL) contains 180 milligrams (mg)
pyrantel base (as pyrantel pamoate).
(2) Each mL contains 226 mg pyrantel
base (as pyrantel pamoate).
(3) Each mL contains 171 mg pyrantel
base (as pyrantel pamoate).
(b) Sponsors. See sponsors in
§ 510.600(c) of this chapter.
(1) No. 000069 for use of product
described in paragraph (a)(1) of this
section as in paragraph (d)(1)(i) and
(d)(2) of this section.
(2) No. 059130 for use of product
described in paragraph (a)(2) of this
section as in paragraph (d) of this
section.
(3) No. 061623 for use of product
described in paragraph (a)(3) of this
section as in paragraph (d)(1)(i) and
(d)(2) of this section.
(c) Special considerations. See
§ 500.25 of this chapter.
(d) Conditions of use. It is used in
horses and ponies as follows:
(1) Amounts and indications for use—
(i) 3 mg per pound (/lb) body weight as
single oral dose for removal and control
of infections from the following mature
parasites: large strongyles (Strongylus
vulgaris, S. edentatus, S. equinus); small
strongyles; pinworms (Oxyuris equi);
and large roundworms (Parascaris
equorum).
(ii) 6 mg/lb body weight as single oral
dose for the removal and control of
mature infections of tapeworms
(Anoplocephala perfoliata).
(2) Limitations. Not for use in horses
intended for food.
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29447
Dated: May 11, 2005.
Steven D. Vaughn,
Director, Office of New Animal Drug
Evaluation, Center for Veterinary Medicine.
[FR Doc. 05–10221 Filed 5–20–05; 8:45 am]
BILLING CODE 4160–01–S
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9204]
RIN 1545–BC59
Mortgage Revenue Bonds
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
AGENCY:
SUMMARY: This document contains final
regulations that provide guidance
regarding the limitation on the effective
rate of mortgage interest for purposes of
mortgage revenue bonds issued by State
and local governments. These
regulations provide guidance to State
and local governments that issue taxexempt mortgage revenue bonds.
DATES: Effective Date: These regulations
are effective May 23, 2005.
Applicability Date: For dates of
applicability, see § 1.143(g)-1(d) of these
regulations.
FOR FURTHER INFORMATION CONTACT:
Michael P. Brewer, (202) 622–3980 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document amends the Income
Tax Regulations (26 CFR part 1) under
section 143(g) of the Internal Revenue
Code by providing rules regarding the
limitation on the effective rate of
mortgage interest for purposes of
mortgage revenue bonds issued by State
and local governments. On November 5,
2003, the IRS published in the Federal
Register a notice of proposed
rulemaking (REG–146692–03)(68 FR
62549)(the proposed regulations). The
proposed regulations would add
§ 1.143(g)–1 to provide rules for
calculating the effective rate of mortgage
interest. A public hearing on the
proposed regulations was scheduled for
January 28, 2004. The public hearing
was cancelled because no requests to
speak were received. Written comments
were received regarding the proposed
regulations. After consideration of the
written comments, the proposed
regulations are adopted by this Treasury
decision without change (other than
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Federal Register / Vol. 70, No. 98 / Monday, May 23, 2005 / Rules and Regulations
certain clarifying changes to the
effective date provisions).
A. Mortgage Revenue Bonds
Section 103(a) of the Internal Revenue
Code of 1986 (Code) provides that,
generally, interest on any State or local
bond is not included in gross income.
However, this exclusion does not apply
to any private activity bond that is not
a qualified bond.
Section 141(e)(1) provides that a
qualified mortgage bond or a qualified
veterans’ mortgage bond (together,
mortgage revenue bonds) issued under
section 143 may be a qualified bond.
Sections 143(a)(2)(A)(ii) and 143(b)
provide, in part, that for an issue to be
an issue of qualified mortgage bonds or
qualified veterans’ mortgage bonds,
respectively, the issue must satisfy the
requirements of section 143(g). Section
143(g)(1) provides that an issue will
meet the requirements of section 143(g)
if the issue satisfies the requirements of
section 143(g)(2) and, in the case of an
issue 95 percent or more of the net
proceeds of which are to be used to
provide residences for veterans, if the
issue satisfies the requirements of
section 143(g)(3).
Section 143(g)(2)(A) provides that an
issue will meet the requirements of
section 143(g)(2) only if the excess of (1)
the effective interest rate on the
mortgages provided under the issue,
over (2) the yield on the issue, is not
greater than 1.125 percentage points.
Section 143(g)(2)(B)(i) provides that in
determining the effective rate of interest
on any mortgage for purposes of section
143(g)(2), all fees, charges, and other
amounts borne by the mortgagor that are
attributable to the mortgage or the bond
issue are taken into account as
additional interest paid.
Section 143(g)(2)(B)(ii) provides that,
for purposes of determining the effective
rate of mortgage interest, the following
items (among others) shall be treated as
borne by the mortgagor: (1) All points or
similar charges paid by the seller of the
property; and (2) the excess of the
amounts received from any person other
than the mortgagor by any person in
connection with the acquisition of the
mortgagor’s interest in the property over
the usual and reasonable acquisition
costs of a person acquiring like property
when owner-financing is not provided
through the use of mortgage revenue
bonds.
Section 143(g)(2)(B)(iii) provides that,
for purposes of determining the effective
rate of mortgage interest, the following
items shall not be taken into account: (1)
Any expected rebate of arbitrage profits;
and (2) any application fee, survey fee,
credit report fee, insurance charge, or
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similar amount to the extent such
amount does not exceed amounts
charged in such area in cases when
owner-financing is not provided
through the use of mortgage revenue
bonds. The exclusion for application
fees, survey fees, credit report fees,
insurance charges, or similar amounts
does not apply to origination fees,
points, or similar amounts.
In the case of an issue 95 percent or
more of the net proceeds of which are
to be used to provide residences for
veterans, section 143(g)(3) provides that
certain earnings on nonpurpose
investments must either be paid or
credited to mortgagors, or paid to the
United States, in certain circumstances.
In the Tax Reform Act of 1986, Public
Law 99–514 (the 1986 Act), Congress
reorganized sections 103 and 103A of
the Internal Revenue Code of 1954 (1954
Code) regarding tax-exempt bonds into
sections 103 and 141 through 150 of the
Code. Congress intended that to the
extent not amended by the 1986 Act, all
principles of pre-1986 Act law would
continue to apply to the reorganized
provisions. 2 H.R. Conf. Rep. No. 841,
99th Cong., 2d Sess. II–686 (1986),
1986–3 (Vol. 4) C.B. 686.
Interpreting section 103A(i)(2)(B)(iii)
of the 1954 Code, which is substantially
identical to section 143(g)(2)(B)(iii) of
the Code, § 6a.103A–2(i)(2)(ii)(C) of the
Temporary Income Tax Regulations
provides the following: ‘‘For example,
amounts paid for FHA, VA, or similar
private mortgage insurance on an
individual’s mortgage need not be taken
into account so long as such amounts do
not exceed the amounts charged in the
area with respect to a similar mortgage
that is not financed with qualified
mortgage bonds. Premiums charged for
pool mortgage insurance will be
considered amounts in excess of the
usual and reasonable amounts charged
for insurance in cases where owner
financing is not provided through the
use of qualified mortgage bonds.’’ Pool
mortgage insurance is not defined in the
regulations.
B. Qualified Guarantees
Under § 1.148–4(f), for purposes of
computing yield on an issue, fees paid
for a qualified guarantee for the issue
are treated as additional interest on the
issue. In general, a guarantee is a
qualified guarantee if: (1) As of the date
the guarantee is obtained, the issuer
reasonably expects that the present
value of the fees for the guarantee will
be less than the present value of the
expected interest savings on the issue as
a result of the guarantee; (2) the
arrangement creates a guarantee in
substance; and (3) the fees for the
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guarantee do not exceed a reasonable,
arm’s-length charge for the transfer of
credit risk. The regulations provide that
the guarantee of a loan of proceeds of an
issue, as opposed to a guarantee of the
issue, may constitute a qualified
guarantee, but this rule does not apply
to guarantees of mortgages financed
with mortgage revenue bonds.
Explanation of Provisions
A. Pool Mortgage Insurance
Prior to the issuance of the proposed
regulations, questions arose regarding
whether an issuer should be required to
treat the portion of the interest
payments on a pool of mortgages used
to pay fees for a guarantee of a passthrough security backed by the pool of
mortgages as an amount borne by the
mortgagors that must be taken into
account in determining the effective rate
of interest on the mortgages for purposes
of section 143(g). Taking the guarantee
fees into account results in a higher
effective rate of interest on the
mortgages than if the fees were not
taken into account.
The IRS and Treasury Department
have determined that the guarantee fees
should not be treated as amounts borne
by the mortgagors that must be taken
into account in determining the
effective rate of interest on the
mortgages for purposes of section
143(g). An issuer may achieve
substantially the same result as not
taking the guarantee fees into account in
computing the effective rate of interest
on the mortgages by substituting a
qualified guarantee on the bonds for the
guarantee of the pool of mortgages. If an
issuer does not take the mortgage
guarantee fees into account in
computing the effective rate of interest
on the mortgages, the difference
between the bond yield and the effective
rate on the mortgages is reduced
because the effective rate on the
mortgages is reduced. A qualified
guarantee of the bonds accomplishes the
same result by increasing bond yield,
rather than reducing the effective rate of
interest on the mortgages. Issuers should
not be required to change the form of
their transactions in these
circumstances.
Accordingly, to the extent the
amounts charged for a guarantee of a
pool of mortgages do not exceed
amounts charged in the area in cases
when owner-financing is not provided
through the use of mortgage revenue
bonds, the proposed regulations would
provide that such amounts are not
treated as borne by the mortgagors and
are not taken into account in
determining the effective rate of interest
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Federal Register / Vol. 70, No. 98 / Monday, May 23, 2005 / Rules and Regulations
on the mortgages for purposes of section
143(g).
B. Proposed Regulations
The proposed regulations propose a
new § 1.143(g)–1. The proposed
regulations provide that an issue
satisfies the requirements of section
143(g) only if the issue meets the
requirements of § 1.143(g)–1(b) and, in
the case of an issue 95 percent or more
of the net proceeds of which are to be
used to provide residences for veterans,
the issue also meets the requirements of
§ 1.143(g)–1(c). The requirements of
section 143(g) and the proposed
regulations are applicable in addition to
the requirements of section 148 and
§§ 1.148–0 through 1.148–11.
The proposed regulations provide that
an issue shall be treated as meeting the
requirements of § 1.143(g)–1(b) only if
the excess of (1) the effective rate of
interest on the mortgages financed by
the issue, over (2) the yield on the issue,
is not greater over the term of the issue
than 1.125 percentage points.
In determining the effective rate of
interest on any mortgage, the proposed
regulations provide that all fees,
charges, and other amounts borne by the
mortgagor that are attributable to the
mortgage or to the bond issue are taken
into account. Such amounts include
points, commitment fees, origination
fees, servicing fees, and prepayment
penalties paid by the mortgagor.
The proposed regulations provide that
items that are treated as borne by the
mortgagor and are taken into account in
calculating the effective rate of interest
also include: (1) All points, commitment
fees, origination fees, or similar charges
borne by the seller of the property; and
(2) the excess of any amounts received
from any person other than the
mortgagor by any person in connection
with the acquisition of the mortgagor’s
interest in the property over the usual
and reasonable acquisition costs of a
person acquiring like property where
owner-financing is not provided
through the use of mortgage revenue
bonds.
The proposed regulations further
provide that the following items are not
treated as borne by the mortgagor and
are not taken into account in calculating
the effective rate of interest: (1) Any
expected rebate of arbitrage profit; and
(2) any application fee, survey fee,
credit report fee, insurance charge or
similar settlement or financing cost to
the extent such amount does not exceed
amounts charged in the area in cases
where owner-financing is not provided
through the use of mortgage revenue
bonds.
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With respect to insurance charges, the
proposed regulations provide that
amounts paid for Federal Housing
Administration, Veterans’
Administration, or similar private
mortgage insurance on an individual’s
mortgage, or amounts paid for pool
mortgage insurance on a pool of
mortgages, are not taken into account so
long as such amounts do not exceed the
amounts charged in the area with
respect to a similar mortgage, or pool of
mortgages, that is not financed with
mortgage revenue bonds. Moreover, for
this purpose, amounts paid for pool
mortgage insurance include amounts
paid to an entity (for example, the
Government National Mortgage
Association, the Federal National
Mortgage Association, the Federal Home
Loan Mortgage Corporation, or other
mortgage insurer) to directly guarantee
the pool of mortgages financed with the
bonds, or to guarantee a pass-through
security backed by the pool of mortgages
financed with the bonds.
The proposed regulations do not
provide guidance regarding all aspects
of the application of section 143(g)(2).
The proposed regulations provide that
to the extent not inconsistent with the
1986 Act or subsequent law, the
provisions of § 6a.103A–2(i)(2) (other
than paragraphs (i)(2)(i) and (i)(2)(ii)(A)
through (C)) apply to provide additional
rules relating to compliance with the
requirement that the effective rate of
mortgage interest not exceed the bond
yield by more than 1.125 percentage
points.
The proposed regulations also do not
provide guidance regarding the
application of section 143(g)(3). The
proposed regulations provide that to the
extent not inconsistent with the 1986
Act or subsequent law, the provisions of
§ 6a.103A–2(i)(4) apply to provide
guidance regarding the application of
section 143(g)(3).
C. Final Regulations
All of the public comments expressed
support for the proposed regulations as
proposed, and the proposed regulations
are adopted by this Treasury decision
without change other than certain
changes to the effective date provisions
to reflect that the regulations are being
issued in final form.
Effective Dates
The final regulations apply to bonds
sold on or after May 23, 2005, that are
subject to section 143. Issuers may
apply the final regulations in whole, but
not in part, to bonds sold before May 23,
2005, that are subject to section 143.
Subject to the applicable effective dates
for the corresponding statutory
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29449
provisions, issuers may apply the final
regulations, in whole, but not in part, to
bonds that are subject to section 103A(i)
of the Internal Revenue Code of 1954.
To the extent that an issuer applies the
final regulations to bonds that were
issued before July 1, 1993, § 6a.103A–
2(i)(3) also applies.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
has also been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations, and, because the
regulations do not impose a collection
of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to
section 7805(f) of the Code, the notice
of proposed rulemaking preceding these
regulations was submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business.
Drafting Information
The principal authors of these
regulations are Timothy L. Jones and
Michael P. Brewer, Office of Associate
Chief Counsel (Tax-exempt and
Government Entities), IRS. However,
other personnel from the IRS and
Treasury Department participated in
their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
I
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as
follows:
I
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.143(g)–1 is added to
read as follows:
I
§ 1.143(g)–1
arbitrage.
Requirements related to
(a) In general. Under section 143, for
an issue to be an issue of qualified
mortgage bonds or qualified veterans’
mortgage bonds (together, mortgage
revenue bonds), the requirements of
section 143(g) must be satisfied. An
issue satisfies the requirements of
section 143(g) only if such issue meets
the requirements of paragraph (b) of this
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section and, in the case of an issue 95
percent or more of the net proceeds of
which are to be used to provide
residences for veterans, such issue also
meets the requirements of paragraph (c)
of this section. The requirements of
section 143(g) and this section are
applicable in addition to the
requirements of section 148 and
§§ 1.148–0 through 1.148–11.
(b) Effective rate of mortgage interest
not to exceed bond yield by more than
1.125 percentage points—(1) Maximum
yield. An issue shall be treated as
meeting the requirements of this
paragraph (b) only if the excess of the
effective rate of interest on the
mortgages financed by the issue, over
the yield on the issue, is not greater over
the term of the issue than 1.125
percentage points.
(2) Effective rate of interest. (i) In
determining the effective rate of interest
on any mortgage for purposes of this
paragraph (b), there shall be taken into
account all fees, charges, and other
amounts borne by the mortgagor that are
attributable to the mortgage or to the
bond issue. Such amounts include
points, commitment fees, origination
fees, servicing fees, and prepayment
penalties paid by the mortgagor.
(ii) Items that shall be treated as borne
by the mortgagor and shall be taken into
account in calculating the effective rate
of interest also include—
(A) All points, commitment fees,
origination fees, or similar charges
borne by the seller of the property; and
(B) The excess of any amounts
received from any person other than the
mortgagor by any person in connection
with the acquisition of the mortgagor’s
interest in the property over the usual
and reasonable acquisition costs of a
person acquiring like property when
owner-financing is not provided
through the use of mortgage revenue
bonds.
(iii) The following items shall not be
treated as borne by the mortgagor and
shall not be taken into account in
calculating the effective rate of
interest—
(A) Any expected rebate of arbitrage
profit under paragraph (c) of this
section; and
(B) Any application fee, survey fee,
credit report fee, insurance charge or
similar settlement or financing cost to
the extent such amount does not exceed
amounts charged in the area in cases
when owner-financing is not provided
through the use of mortgage revenue
bonds. For example, amounts paid for
Federal Housing Administration,
Veterans’ Administration, or similar
private mortgage insurance on an
individual’s mortgage, or amounts paid
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Jkt 205001
for pool mortgage insurance on a pool
of mortgages, are not taken into account
so long as such amounts do not exceed
the amounts charged in the area with
respect to a similar mortgage, or pool of
mortgages, that is not financed with
mortgage revenue bonds. For this
purpose, amounts paid for pool
mortgage insurance include amounts
paid to an entity (for example, the
Government National Mortgage
Association, the Federal National
Mortgage Association (FNMA), the
Federal Home Loan Mortgage
Corporation, or other mortgage insurer)
to directly guarantee the pool of
mortgages financed with the bonds, or
to guarantee a pass-through security
backed by the pool of mortgages
financed with the bonds.
(C) The following example illustrates
the provisions of this paragraph
(b)(2)(iii):
Example. Housing Authority X issues
bonds intended to be qualified mortgage
bonds under section 143(a). At the time the
bonds are issued, X enters into an agreement
with a group of mortgage lending institutions
(lenders) under which the lenders agree to
originate and service mortgages that meet
certain specified requirements. After
originating a specified amount of mortgages,
each lender issues a ‘‘pass-though security’’
(each, a PTS) backed by the mortgages and
sells the PTS to X. Under the terms of the
PTS, the lender pays X an amount equal to
the regular monthly payments on the
mortgages (less certain fees), whether or not
received by the lender (plus any prepayments
and liquidation proceeds in the event of a
foreclosure or other disposition of any
mortgages). FNMA guarantees the timely
payment of principal and interest on each
PTS. From the payments received from each
mortgagor, the lender pays a fee to FNMA for
its guarantee of the PTS. The amounts paid
to FNMA do not exceed the amounts charged
in the area with respect to a similar pool of
mortgages that is not financed with mortgage
revenue bonds. Under this paragraph
(b)(2)(iii), the fees for the guarantee provided
by FNMA are an insurance charge because
the guarantee is pool mortgage insurance.
Because the amounts charged for the
guarantee do not exceed the amounts charged
in the area with respect to a similar pool of
mortgages that is not financed with mortgage
revenue bonds, the amounts charged for the
guarantee are not taken into account in
computing the effective rate of interest on the
mortgages financed with X’s bonds.
(3) Additional rules. To the extent not
inconsistent with the Tax Reform Act of
1986, Public Law 99–514 (the 1986 Act),
or subsequent law, § 6a.103A–2(i)(2)
(other than paragraphs (i)(2)(i) and
(i)(2)(ii)(A) through (C)) of this chapter
applies to provide additional rules
relating to compliance with the
requirement that the effective rate of
mortgage interest not exceed the bond
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yield by more than 1.125 percentage
points.
(c) Arbitrage and investment gains to
be used to reduce costs of ownerfinancing. As provided in section
143(g)(3), certain earnings on
nonpurpose investments must either be
paid or credited to mortgagors, or paid
to the United States, in certain
circumstances. To the extent not
inconsistent with the 1986 Act or
subsequent law, § 6a.103A–2(i)(4) of this
chapter applies to provide guidance
relating to compliance with this
requirement.
(d) Effective dates—(1) In general.
Except as otherwise provided in this
section, § 1.143(g)–1 applies to bonds
sold on or after May 23, 2005, that are
subject to section 143.
(2) Permissive retroactive application
in whole. Except as provided in
paragraph (d)(4) of this section, issuers
may apply § 1.143(g)–1, in whole, but
not in part, to bonds sold before May 23,
2005, that are subject to section 143.
(3) Bonds subject to the Internal
Revenue Code of 1954. Except as
provided in paragraph (d)(4) of this
section and subject to the applicable
effective dates for the corresponding
statutory provisions, an issuer may
apply § 1.143(g)–1, in whole, but not in
part, to bonds that are subject to section
103A(i) of the Internal Revenue Code of
1954.
(4) Special rule for pre-July 1, 1993
bonds. To the extent that an issuer
applies this section to bonds issued
before July 1, 1993, § 6a.103A–2(i)(3) of
this chapter also applies to the bonds.
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
Approved: May 12, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary of the
Treasury.
[FR Doc. 05–10163 Filed 5–20–05; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 9206]
RIN 1545–BE12
Information Returns by Donees
Relating to Qualified Intellectual
Property Contributions
Internal Revenue Service (IRS),
Treasury.
ACTION: Temporary regulations.
AGENCY:
E:\FR\FM\23MYR1.SGM
23MYR1
]]>Agencies
[Federal Register Volume 70, Number 98 (Monday, May 23, 2005)]
[Rules and Regulations]
[Pages 29447-29450]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-10163]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9204]
RIN 1545-BC59
Mortgage Revenue Bonds
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations that provide guidance
regarding the limitation on the effective rate of mortgage interest for
purposes of mortgage revenue bonds issued by State and local
governments. These regulations provide guidance to State and local
governments that issue tax-exempt mortgage revenue bonds.
DATES: Effective Date: These regulations are effective May 23, 2005.
Applicability Date: For dates of applicability, see Sec. 1.143(g)-
1(d) of these regulations.
FOR FURTHER INFORMATION CONTACT: Michael P. Brewer, (202) 622-3980 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document amends the Income Tax Regulations (26 CFR part 1)
under section 143(g) of the Internal Revenue Code by providing rules
regarding the limitation on the effective rate of mortgage interest for
purposes of mortgage revenue bonds issued by State and local
governments. On November 5, 2003, the IRS published in the Federal
Register a notice of proposed rulemaking (REG-146692-03)(68 FR
62549)(the proposed regulations). The proposed regulations would add
Sec. 1.143(g)-1 to provide rules for calculating the effective rate of
mortgage interest. A public hearing on the proposed regulations was
scheduled for January 28, 2004. The public hearing was cancelled
because no requests to speak were received. Written comments were
received regarding the proposed regulations. After consideration of the
written comments, the proposed regulations are adopted by this Treasury
decision without change (other than
[[Page 29448]]
certain clarifying changes to the effective date provisions).
A. Mortgage Revenue Bonds
Section 103(a) of the Internal Revenue Code of 1986 (Code) provides
that, generally, interest on any State or local bond is not included in
gross income. However, this exclusion does not apply to any private
activity bond that is not a qualified bond.
Section 141(e)(1) provides that a qualified mortgage bond or a
qualified veterans' mortgage bond (together, mortgage revenue bonds)
issued under section 143 may be a qualified bond.
Sections 143(a)(2)(A)(ii) and 143(b) provide, in part, that for an
issue to be an issue of qualified mortgage bonds or qualified veterans'
mortgage bonds, respectively, the issue must satisfy the requirements
of section 143(g). Section 143(g)(1) provides that an issue will meet
the requirements of section 143(g) if the issue satisfies the
requirements of section 143(g)(2) and, in the case of an issue 95
percent or more of the net proceeds of which are to be used to provide
residences for veterans, if the issue satisfies the requirements of
section 143(g)(3).
Section 143(g)(2)(A) provides that an issue will meet the
requirements of section 143(g)(2) only if the excess of (1) the
effective interest rate on the mortgages provided under the issue, over
(2) the yield on the issue, is not greater than 1.125 percentage
points.
Section 143(g)(2)(B)(i) provides that in determining the effective
rate of interest on any mortgage for purposes of section 143(g)(2), all
fees, charges, and other amounts borne by the mortgagor that are
attributable to the mortgage or the bond issue are taken into account
as additional interest paid.
Section 143(g)(2)(B)(ii) provides that, for purposes of determining
the effective rate of mortgage interest, the following items (among
others) shall be treated as borne by the mortgagor: (1) All points or
similar charges paid by the seller of the property; and (2) the excess
of the amounts received from any person other than the mortgagor by any
person in connection with the acquisition of the mortgagor's interest
in the property over the usual and reasonable acquisition costs of a
person acquiring like property when owner-financing is not provided
through the use of mortgage revenue bonds.
Section 143(g)(2)(B)(iii) provides that, for purposes of
determining the effective rate of mortgage interest, the following
items shall not be taken into account: (1) Any expected rebate of
arbitrage profits; and (2) any application fee, survey fee, credit
report fee, insurance charge, or similar amount to the extent such
amount does not exceed amounts charged in such area in cases when
owner-financing is not provided through the use of mortgage revenue
bonds. The exclusion for application fees, survey fees, credit report
fees, insurance charges, or similar amounts does not apply to
origination fees, points, or similar amounts.
In the case of an issue 95 percent or more of the net proceeds of
which are to be used to provide residences for veterans, section
143(g)(3) provides that certain earnings on nonpurpose investments must
either be paid or credited to mortgagors, or paid to the United States,
in certain circumstances.
In the Tax Reform Act of 1986, Public Law 99-514 (the 1986 Act),
Congress reorganized sections 103 and 103A of the Internal Revenue Code
of 1954 (1954 Code) regarding tax-exempt bonds into sections 103 and
141 through 150 of the Code. Congress intended that to the extent not
amended by the 1986 Act, all principles of pre-1986 Act law would
continue to apply to the reorganized provisions. 2 H.R. Conf. Rep. No.
841, 99th Cong., 2d Sess. II-686 (1986), 1986-3 (Vol. 4) C.B. 686.
Interpreting section 103A(i)(2)(B)(iii) of the 1954 Code, which is
substantially identical to section 143(g)(2)(B)(iii) of the Code, Sec.
6a.103A-2(i)(2)(ii)(C) of the Temporary Income Tax Regulations provides
the following: ``For example, amounts paid for FHA, VA, or similar
private mortgage insurance on an individual's mortgage need not be
taken into account so long as such amounts do not exceed the amounts
charged in the area with respect to a similar mortgage that is not
financed with qualified mortgage bonds. Premiums charged for pool
mortgage insurance will be considered amounts in excess of the usual
and reasonable amounts charged for insurance in cases where owner
financing is not provided through the use of qualified mortgage
bonds.'' Pool mortgage insurance is not defined in the regulations.
B. Qualified Guarantees
Under Sec. 1.148-4(f), for purposes of computing yield on an
issue, fees paid for a qualified guarantee for the issue are treated as
additional interest on the issue. In general, a guarantee is a
qualified guarantee if: (1) As of the date the guarantee is obtained,
the issuer reasonably expects that the present value of the fees for
the guarantee will be less than the present value of the expected
interest savings on the issue as a result of the guarantee; (2) the
arrangement creates a guarantee in substance; and (3) the fees for the
guarantee do not exceed a reasonable, arm's-length charge for the
transfer of credit risk. The regulations provide that the guarantee of
a loan of proceeds of an issue, as opposed to a guarantee of the issue,
may constitute a qualified guarantee, but this rule does not apply to
guarantees of mortgages financed with mortgage revenue bonds.
Explanation of Provisions
A. Pool Mortgage Insurance
Prior to the issuance of the proposed regulations, questions arose
regarding whether an issuer should be required to treat the portion of
the interest payments on a pool of mortgages used to pay fees for a
guarantee of a pass-through security backed by the pool of mortgages as
an amount borne by the mortgagors that must be taken into account in
determining the effective rate of interest on the mortgages for
purposes of section 143(g). Taking the guarantee fees into account
results in a higher effective rate of interest on the mortgages than if
the fees were not taken into account.
The IRS and Treasury Department have determined that the guarantee
fees should not be treated as amounts borne by the mortgagors that must
be taken into account in determining the effective rate of interest on
the mortgages for purposes of section 143(g). An issuer may achieve
substantially the same result as not taking the guarantee fees into
account in computing the effective rate of interest on the mortgages by
substituting a qualified guarantee on the bonds for the guarantee of
the pool of mortgages. If an issuer does not take the mortgage
guarantee fees into account in computing the effective rate of interest
on the mortgages, the difference between the bond yield and the
effective rate on the mortgages is reduced because the effective rate
on the mortgages is reduced. A qualified guarantee of the bonds
accomplishes the same result by increasing bond yield, rather than
reducing the effective rate of interest on the mortgages. Issuers
should not be required to change the form of their transactions in
these circumstances.
Accordingly, to the extent the amounts charged for a guarantee of a
pool of mortgages do not exceed amounts charged in the area in cases
when owner-financing is not provided through the use of mortgage
revenue bonds, the proposed regulations would provide that such amounts
are not treated as borne by the mortgagors and are not taken into
account in determining the effective rate of interest
[[Page 29449]]
on the mortgages for purposes of section 143(g).
B. Proposed Regulations
The proposed regulations propose a new Sec. 1.143(g)-1. The
proposed regulations provide that an issue satisfies the requirements
of section 143(g) only if the issue meets the requirements of Sec.
1.143(g)-1(b) and, in the case of an issue 95 percent or more of the
net proceeds of which are to be used to provide residences for
veterans, the issue also meets the requirements of Sec. 1.143(g)-1(c).
The requirements of section 143(g) and the proposed regulations are
applicable in addition to the requirements of section 148 and
Sec. Sec. 1.148-0 through 1.148-11.
The proposed regulations provide that an issue shall be treated as
meeting the requirements of Sec. 1.143(g)-1(b) only if the excess of
(1) the effective rate of interest on the mortgages financed by the
issue, over (2) the yield on the issue, is not greater over the term of
the issue than 1.125 percentage points.
In determining the effective rate of interest on any mortgage, the
proposed regulations provide that all fees, charges, and other amounts
borne by the mortgagor that are attributable to the mortgage or to the
bond issue are taken into account. Such amounts include points,
commitment fees, origination fees, servicing fees, and prepayment
penalties paid by the mortgagor.
The proposed regulations provide that items that are treated as
borne by the mortgagor and are taken into account in calculating the
effective rate of interest also include: (1) All points, commitment
fees, origination fees, or similar charges borne by the seller of the
property; and (2) the excess of any amounts received from any person
other than the mortgagor by any person in connection with the
acquisition of the mortgagor's interest in the property over the usual
and reasonable acquisition costs of a person acquiring like property
where owner-financing is not provided through the use of mortgage
revenue bonds.
The proposed regulations further provide that the following items
are not treated as borne by the mortgagor and are not taken into
account in calculating the effective rate of interest: (1) Any expected
rebate of arbitrage profit; and (2) any application fee, survey fee,
credit report fee, insurance charge or similar settlement or financing
cost to the extent such amount does not exceed amounts charged in the
area in cases where owner-financing is not provided through the use of
mortgage revenue bonds.
With respect to insurance charges, the proposed regulations provide
that amounts paid for Federal Housing Administration, Veterans'
Administration, or similar private mortgage insurance on an
individual's mortgage, or amounts paid for pool mortgage insurance on a
pool of mortgages, are not taken into account so long as such amounts
do not exceed the amounts charged in the area with respect to a similar
mortgage, or pool of mortgages, that is not financed with mortgage
revenue bonds. Moreover, for this purpose, amounts paid for pool
mortgage insurance include amounts paid to an entity (for example, the
Government National Mortgage Association, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, or other
mortgage insurer) to directly guarantee the pool of mortgages financed
with the bonds, or to guarantee a pass-through security backed by the
pool of mortgages financed with the bonds.
The proposed regulations do not provide guidance regarding all
aspects of the application of section 143(g)(2). The proposed
regulations provide that to the extent not inconsistent with the 1986
Act or subsequent law, the provisions of Sec. 6a.103A-2(i)(2) (other
than paragraphs (i)(2)(i) and (i)(2)(ii)(A) through (C)) apply to
provide additional rules relating to compliance with the requirement
that the effective rate of mortgage interest not exceed the bond yield
by more than 1.125 percentage points.
The proposed regulations also do not provide guidance regarding the
application of section 143(g)(3). The proposed regulations provide that
to the extent not inconsistent with the 1986 Act or subsequent law, the
provisions of Sec. 6a.103A-2(i)(4) apply to provide guidance regarding
the application of section 143(g)(3).
C. Final Regulations
All of the public comments expressed support for the proposed
regulations as proposed, and the proposed regulations are adopted by
this Treasury decision without change other than certain changes to the
effective date provisions to reflect that the regulations are being
issued in final form.
Effective Dates
The final regulations apply to bonds sold on or after May 23, 2005,
that are subject to section 143. Issuers may apply the final
regulations in whole, but not in part, to bonds sold before May 23,
2005, that are subject to section 143. Subject to the applicable
effective dates for the corresponding statutory provisions, issuers may
apply the final regulations, in whole, but not in part, to bonds that
are subject to section 103A(i) of the Internal Revenue Code of 1954. To
the extent that an issuer applies the final regulations to bonds that
were issued before July 1, 1993, Sec. 6a.103A-2(i)(3) also applies.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It has also been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations, and, because the
regulations do not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Code, the notice of proposed
rulemaking preceding these regulations was submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on its impact on small business.
Drafting Information
The principal authors of these regulations are Timothy L. Jones and
Michael P. Brewer, Office of Associate Chief Counsel (Tax-exempt and
Government Entities), IRS. However, other personnel from the IRS and
Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
0
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.143(g)-1 is added to read as follows:
Sec. 1.143(g)-1 Requirements related to arbitrage.
(a) In general. Under section 143, for an issue to be an issue of
qualified mortgage bonds or qualified veterans' mortgage bonds
(together, mortgage revenue bonds), the requirements of section 143(g)
must be satisfied. An issue satisfies the requirements of section
143(g) only if such issue meets the requirements of paragraph (b) of
this
[[Page 29450]]
section and, in the case of an issue 95 percent or more of the net
proceeds of which are to be used to provide residences for veterans,
such issue also meets the requirements of paragraph (c) of this
section. The requirements of section 143(g) and this section are
applicable in addition to the requirements of section 148 and
Sec. Sec. 1.148-0 through 1.148-11.
(b) Effective rate of mortgage interest not to exceed bond yield by
more than 1.125 percentage points--(1) Maximum yield. An issue shall be
treated as meeting the requirements of this paragraph (b) only if the
excess of the effective rate of interest on the mortgages financed by
the issue, over the yield on the issue, is not greater over the term of
the issue than 1.125 percentage points.
(2) Effective rate of interest. (i) In determining the effective
rate of interest on any mortgage for purposes of this paragraph (b),
there shall be taken into account all fees, charges, and other amounts
borne by the mortgagor that are attributable to the mortgage or to the
bond issue. Such amounts include points, commitment fees, origination
fees, servicing fees, and prepayment penalties paid by the mortgagor.
(ii) Items that shall be treated as borne by the mortgagor and
shall be taken into account in calculating the effective rate of
interest also include--
(A) All points, commitment fees, origination fees, or similar
charges borne by the seller of the property; and
(B) The excess of any amounts received from any person other than
the mortgagor by any person in connection with the acquisition of the
mortgagor's interest in the property over the usual and reasonable
acquisition costs of a person acquiring like property when owner-
financing is not provided through the use of mortgage revenue bonds.
(iii) The following items shall not be treated as borne by the
mortgagor and shall not be taken into account in calculating the
effective rate of interest--
(A) Any expected rebate of arbitrage profit under paragraph (c) of
this section; and
(B) Any application fee, survey fee, credit report fee, insurance
charge or similar settlement or financing cost to the extent such
amount does not exceed amounts charged in the area in cases when owner-
financing is not provided through the use of mortgage revenue bonds.
For example, amounts paid for Federal Housing Administration, Veterans'
Administration, or similar private mortgage insurance on an
individual's mortgage, or amounts paid for pool mortgage insurance on a
pool of mortgages, are not taken into account so long as such amounts
do not exceed the amounts charged in the area with respect to a similar
mortgage, or pool of mortgages, that is not financed with mortgage
revenue bonds. For this purpose, amounts paid for pool mortgage
insurance include amounts paid to an entity (for example, the
Government National Mortgage Association, the Federal National Mortgage
Association (FNMA), the Federal Home Loan Mortgage Corporation, or
other mortgage insurer) to directly guarantee the pool of mortgages
financed with the bonds, or to guarantee a pass-through security backed
by the pool of mortgages financed with the bonds.
(C) The following example illustrates the provisions of this
paragraph (b)(2)(iii):
Example. Housing Authority X issues bonds intended to be
qualified mortgage bonds under section 143(a). At the time the bonds
are issued, X enters into an agreement with a group of mortgage
lending institutions (lenders) under which the lenders agree to
originate and service mortgages that meet certain specified
requirements. After originating a specified amount of mortgages,
each lender issues a ``pass-though security'' (each, a PTS) backed
by the mortgages and sells the PTS to X. Under the terms of the PTS,
the lender pays X an amount equal to the regular monthly payments on
the mortgages (less certain fees), whether or not received by the
lender (plus any prepayments and liquidation proceeds in the event
of a foreclosure or other disposition of any mortgages). FNMA
guarantees the timely payment of principal and interest on each PTS.
From the payments received from each mortgagor, the lender pays a
fee to FNMA for its guarantee of the PTS. The amounts paid to FNMA
do not exceed the amounts charged in the area with respect to a
similar pool of mortgages that is not financed with mortgage revenue
bonds. Under this paragraph (b)(2)(iii), the fees for the guarantee
provided by FNMA are an insurance charge because the guarantee is
pool mortgage insurance. Because the amounts charged for the
guarantee do not exceed the amounts charged in the area with respect
to a similar pool of mortgages that is not financed with mortgage
revenue bonds, the amounts charged for the guarantee are not taken
into account in computing the effective rate of interest on the
mortgages financed with X's bonds.
(3) Additional rules. To the extent not inconsistent with the Tax
Reform Act of 1986, Public Law 99-514 (the 1986 Act), or subsequent
law, Sec. 6a.103A-2(i)(2) (other than paragraphs (i)(2)(i) and
(i)(2)(ii)(A) through (C)) of this chapter applies to provide
additional rules relating to compliance with the requirement that the
effective rate of mortgage interest not exceed the bond yield by more
than 1.125 percentage points.
(c) Arbitrage and investment gains to be used to reduce costs of
owner-financing. As provided in section 143(g)(3), certain earnings on
nonpurpose investments must either be paid or credited to mortgagors,
or paid to the United States, in certain circumstances. To the extent
not inconsistent with the 1986 Act or subsequent law, Sec. 6a.103A-
2(i)(4) of this chapter applies to provide guidance relating to
compliance with this requirement.
(d) Effective dates--(1) In general. Except as otherwise provided
in this section, Sec. 1.143(g)-1 applies to bonds sold on or after May
23, 2005, that are subject to section 143.
(2) Permissive retroactive application in whole. Except as provided
in paragraph (d)(4) of this section, issuers may apply Sec. 1.143(g)-
1, in whole, but not in part, to bonds sold before May 23, 2005, that
are subject to section 143.
(3) Bonds subject to the Internal Revenue Code of 1954. Except as
provided in paragraph (d)(4) of this section and subject to the
applicable effective dates for the corresponding statutory provisions,
an issuer may apply Sec. 1.143(g)-1, in whole, but not in part, to
bonds that are subject to section 103A(i) of the Internal Revenue Code
of 1954.
(4) Special rule for pre-July 1, 1993 bonds. To the extent that an
issuer applies this section to bonds issued before July 1, 1993, Sec.
6a.103A-2(i)(3) of this chapter also applies to the bonds.
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
Approved: May 12, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 05-10163 Filed 5-20-05; 8:45 am]
BILLING CODE 4830-01-P
