Section 1367 Regarding Open Account Debt; Correction, 67388-67389 [E8-27024]
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67388
Federal Register / Vol. 73, No. 221 / Friday, November 14, 2008 / Rules and Regulations
3. The first sentence of paragraph
(e)(5)(iv)(D) Example 8.(i)(B) is revised.
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§ 1.901–2T Income, war profits, or excess
profits tax paid or accrued (temporary).
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(e) * * *
(5) * * *
(iv) * * *
(C) * * *
(5) * * *
(i) In general. The term passive
investment income means income
described in section 954(c), as modified
by this paragraph (e)(5)(iv)(C)(5)(i) and
paragraph (e)(5)(iv)(C)(5)(ii) of this
section. * * *
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(D) * * *
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Example 5. * * *
(i) * * *
(A) A country X corporation (Foreign Bank)
contributes $2 billion to a newly-formed
country X company (Newco) in exchange for
all of the common stock of Newco and
securities that are treated as debt of Newco
for U.S. tax purposes and preferred stock of
Newco for country X tax purposes. A
domestic corporation (USP) contributes
$1 billion to Newco in exchange for
securities that are treated as preferred stock
of Newco for U.S. tax purposes and debt of
Newco for country X tax purposes. Newco
loans the $3 billion to a wholly-owned,
country X subsidiary of Foreign Bank (FSub)
in return for a $3 billion, seven-year note
paying interest currently. The Newco
securities held by USP entitle the holder to
fixed distributions of $4 million per year, and
the Newco securities held by Foreign Bank
entitle the holder to receive $82 million per
year, payable only on maturity of the $3
billion FSub note in year 7. At the end of
year 5, pursuant to a prearranged plan,
Foreign Bank acquires USP’s Newco
securities for a prearranged price of $1
billion. Country X does not impose tax on
dividends received by one country X
corporation from a second country X
corporation. Under an income tax treaty
between country X and the United States,
country X does not impose country X tax on
interest received by U.S. residents from
sources in country X. None of Foreign Bank’s
stock is owned, directly or indirectly, by USP
or any shareholders of USP that are domestic
corporations, U.S. citizens or resident alien
individuals.
(B) In each of years 1 through 7, FSub pays
Newco $124 million of interest on the
$3 billion note. Newco distributes $4 million
to USP in each of years 1 through 5. The
distributions are deductible for country X tax
purposes, and Newco pays country X
$36 million with respect to $120 million of
taxable income from the FSub note in each
year. For U.S. tax purposes, in each year
Newco’s post-1986 undistributed earnings
are increased by $124 million of interest
income and reduced by accrued interest
expense with respect to the Newco securities
held by Foreign Bank.
(ii) Result. The $36 million payment to
country X is not a compulsory payment, and
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15:52 Nov 13, 2008
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thus is not an amount of tax paid, because
the foreign payment is attributable to a
structured passive investment arrangement.
First, Newco is an SPV because all of
Newco’s income is passive investment
income described in paragraph (e)(5)(iv)(C)(5)
of this section; Newco’s only asset, a note of
FSub, is held to produce such income; the
payment to country X is attributable to such
income; and if the payment were an amount
of tax paid it would be paid or accrued in
a U.S. taxable year in which Newco meets the
requirements of paragraph (e)(5)(iv)(B)(1)(i)
of this section. Second, if the foreign
payment were an amount of tax paid, USP
would be deemed to pay its pro rata share of
the foreign payment under section 902(a) in
each of years 1 through 5 and, therefore,
would be eligible to claim a credit under
section 901(a). Third, USP would not pay any
country X tax if it directly owned its
proportionate share of Newco’s assets, a note
of FSub. Fourth, for country X tax purposes,
Foreign Bank is eligible to receive a tax-free
distribution of $82 million attributable of
each of years 1 through 5, and that amount
corresponds to more than 10 percent of the
foreign base with respect to which USP’s
share of the foreign payment was imposed.
Fifth, Foreign Bank is a counterparty because
it owns stock of Newco for country X tax
purposes and none of Foreign Bank’s stock is
owned, directly or indirectly, by USP or
shareholders of USP that are domestic
corporations, U.S. citizens, or resident alien
individuals. Sixth, the United States and
country X treat various aspects of the
arrangement differently, including whether
the Newco securities held by Foreign Bank
and USP are debt or equity. The amount of
credits claimed by USP if the payment to
country X were an amount of tax paid is
materially greater than it would be if, for U.S.
tax purposes, the securities held by USP were
treated as debt or the securities held by
Foreign Bank were treated as equity, and the
amount of income recognized by Newco for
U.S. tax purposes is materially less than the
amount of income recognized for country X
tax purposes. Because the payment to
country X is not an amount of tax paid, USP
is not deemed to pay any country X tax under
section 902(a). USP has dividend income of
$4 million in each of years 1 through 5.
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Example 8. * * *
(i) * * *
(B) The transaction is structured in such a
way that, for U.S. tax purposes, there is a
loan of $1.5 billion from FC to USP, and USP
is the owner of the class C stock and the class
A stock. * * *
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Internal Revenue Service
26 CFR Part 1
[TD 9428]
RIN 1545–BD72
Section 1367 Regarding Open Account
Debt; Correction
Internal Revenue Service (IRS),
Treasury.
ACTION: Correcting amendment.
AGENCY:
SUMMARY: This document contains
corrections to final regulations (TD
9428) that were published in the
Federal Register on Monday, October
20, 2008 (73 FR62199) relating to the
treatment of open account debt between
S corporations and their shareholders.
These final regulations provide rules
regarding the definition of open account
debt and the adjustments in basis of any
indebtedness of an S corporation to a
shareholder under section 1367(b)(2) of
the Internal Revenue Code for
shareholder advances and repayments
on advances of open account debt. The
regulations affect shareholders of S
corporations and are necessary to
provide guidance needed to comply
with the applicable tax law.
DATES: Effective Date: This correction is
effective November 14, 2008, and is
applicable on October 20, 2008.
FOR FURTHER INFORMATION CONTACT:
Stacy L. Short or Deane M. Burke, (202)
622–3070 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations that are the
subjects of this document are under
section 1367 of the Internal Revenue
Code.
Need for Correction
As published, final regulations (TD
9428) contain errors that may prove to
be misleading and are in need of
clarification.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Correction of Publication
Accordingly, 26 CFR part 1 is
corrected by making the following
correcting amendments:
■
Guy Traynor,
Acting Chief, Publications and Regulations
Branch, Legal Processing Division, Associate
Chief Counsel (Procedure and
Administration).
[FR Doc. E8–27023 Filed 11–13–08; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read, in part, as
follows:
■
E:\FR\FM\14NOR1.SGM
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Federal Register / Vol. 73, No. 221 / Friday, November 14, 2008 / Rules and Regulations
Authority: 26 U.S.C. 7805 * * *
■ Par. 2. Section 1.1367–2(e) is
amended by revising the title of
paragraph Example 6.
and the first sentence of paragraph
Example 7.(i) to read as follows:
§ 1.1367–2 Adjustments to basis of
indebtedness to shareholder.
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(e) * * *
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Example 6. The $25,000 aggregate
principal amount applies to each
shareholder. * * *
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Example 7. * * *
(i) The facts are the same as in Example 6,
in addition to which, on December 31, 2009,
A’s basis in the open account debt is reduced
under paragraph (b) of this section to $8,000.
* * *
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LaNita Van Dyke,
Chief, Publications and Regulations Branch,
Legal Processing Division, Associate Chief
Counsel (Procedure and Administration).
[FR Doc. E8–27024 Filed 11–13–08; 8:45 am]
BILLING CODE 4830–01–P
PENSION BENEFIT GUARANTY
CORPORATION
29 CFR Parts 4022 and 4044
Benefits Payable in Terminated SingleEmployer Plans; Allocation of Assets
in Single-Employer Plans; Interest
Assumptions for Valuing and Paying
Benefits
Pension Benefit Guaranty
Corporation.
ACTION: Final rule.
sroberts on PROD1PC70 with RULES
AGENCY:
SUMMARY: The Pension Benefit Guaranty
Corporation’s regulations on Benefits
Payable in Terminated Single-Employer
Plans and Allocation of Assets in
Single-Employer Plans prescribe interest
assumptions for valuing and paying
benefits under terminating singleemployer plans. This final rule amends
the regulations to adopt interest
assumptions for plans with valuation
dates in December 2008. Interest
assumptions are also published on the
PBGC’s Web site (https://www.pbgc.gov).
DATES: Effective December 1, 2008.
FOR FURTHER INFORMATION CONTACT:
Catherine B. Klion, Manager, Regulatory
and Policy Division, Legislative and
Regulatory Department, Pension Benefit
Guaranty Corporation, 1200 K Street,
NW., Washington, DC 20005, 202–326–
4024. (TTY/TDD users may call the
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15:52 Nov 13, 2008
Jkt 217001
Federal relay service toll-free at 1–800–
877–8339 and ask to be connected to
202–326–4024.)
SUPPLEMENTARY INFORMATION: The
PBGC’s regulations prescribe actuarial
assumptions—including interest
assumptions—for valuing and paying
plan benefits of terminating singleemployer plans covered by title IV of
the Employee Retirement Income
Security Act of 1974. The interest
assumptions are intended to reflect
current conditions in the financial and
annuity markets.
Three sets of interest assumptions are
prescribed: (1) A set for the valuation of
benefits for allocation purposes under
section 4044 (found in Appendix B to
Part 4044), (2) a set for the PBGC to use
to determine whether a benefit is
payable as a lump sum and to determine
lump-sum amounts to be paid by the
PBGC (found in Appendix B to Part
4022), and (3) a set for private-sector
pension practitioners to refer to if they
wish to use lump-sum interest rates
determined using the PBGC’s historical
methodology (found in Appendix C to
Part 4022).
This amendment (1) adds to
Appendix B to Part 4044 the interest
assumptions for valuing benefits for
allocation purposes in plans with
valuation dates during December 2008,
(2) adds to Appendix B to Part 4022 the
interest assumptions for the PBGC to
use for its own lump-sum payments in
plans with valuation dates during
December 2008, and (3) adds to
Appendix C to Part 4022 the interest
assumptions for private-sector pension
practitioners to refer to if they wish to
use lump-sum interest rates determined
using the PBGC’s historical
methodology for valuation dates during
December 2008.
For valuation of benefits for allocation
purposes, the interest assumptions that
the PBGC will use (set forth in
Appendix B to part 4044) will be 7.92
percent for the first 20 years following
the valuation date and 6.99 percent
thereafter. These interest assumptions
represent an increase (from those in
effect for November 2008) of 0.83
percent for the first 20 years following
the valuation date and 0.83 percent for
all years thereafter.
The interest assumptions that the
PBGC will use for its own lump-sum
payments (set forth in Appendix B to
part 4022) will be 4.75 percent for the
period during which a benefit is in pay
status and 4.00 percent during any years
preceding the benefit’s placement in pay
status. These interest assumptions
represent an increase (from those in
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67389
effect for November 2008) of 1.00
percent in the immediate annuity rate
and are otherwise unchanged. For
private-sector payments, the interest
assumptions (set forth in Appendix C to
part 4022) will be the same as those
used by the PBGC for determining and
paying lump sums (set forth in
Appendix B to part 4022).
The PBGC has determined that notice
and public comment on this amendment
are impracticable and contrary to the
public interest. This finding is based on
the need to determine and issue new
interest assumptions promptly so that
the assumptions can reflect current
market conditions as accurately as
possible.
Because of the need to provide
immediate guidance for the valuation
and payment of benefits in plans with
valuation dates during December 2008,
the PBGC finds that good cause exists
for making the assumptions set forth in
this amendment effective less than 30
days after publication.
The PBGC has determined that this
action is not a ‘‘significant regulatory
action’’ under the criteria set forth in
Executive Order 12866.
Because no general notice of proposed
rulemaking is required for this
amendment, the Regulatory Flexibility
Act of 1980 does not apply. See 5 U.S.C.
601(2).
List of Subjects
29 CFR Part 4022
Employee benefit plans, Pension
insurance, Pensions, Reporting and
recordkeeping requirements.
29 CFR Part 4044
Employee benefit plans, Pension
insurance, Pensions.
In consideration of the foregoing, 29
CFR parts 4022 and 4044 are amended
as follows:
■
PART 4022—BENEFITS PAYABLE IN
TERMINATED SINGLE-EMPLOYER
PLANS
1. The authority citation for part 4022
continues to read as follows:
■
Authority: 29 U.S.C. 1302, 1322, 1322b,
1341(c)(3)(D), and 1344.
2. In appendix B to part 4022, Rate Set
182, as set forth below, is added to the
table.
■
Appendix B to Part 4022—Lump Sum
Interest Rates for PBGC Payments
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]]>Agencies
[Federal Register Volume 73, Number 221 (Friday, November 14, 2008)]
[Rules and Regulations]
[Pages 67388-67389]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-27024]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9428]
RIN 1545-BD72
Section 1367 Regarding Open Account Debt; Correction
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Correcting amendment.
-----------------------------------------------------------------------
SUMMARY: This document contains corrections to final regulations (TD
9428) that were published in the Federal Register on Monday, October
20, 2008 (73 FR62199) relating to the treatment of open account debt
between S corporations and their shareholders. These final regulations
provide rules regarding the definition of open account debt and the
adjustments in basis of any indebtedness of an S corporation to a
shareholder under section 1367(b)(2) of the Internal Revenue Code for
shareholder advances and repayments on advances of open account debt.
The regulations affect shareholders of S corporations and are necessary
to provide guidance needed to comply with the applicable tax law.
DATES: Effective Date: This correction is effective November 14, 2008,
and is applicable on October 20, 2008.
FOR FURTHER INFORMATION CONTACT: Stacy L. Short or Deane M. Burke,
(202) 622-3070 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations that are the subjects of this document are
under section 1367 of the Internal Revenue Code.
Need for Correction
As published, final regulations (TD 9428) contain errors that may
prove to be misleading and are in need of clarification.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Correction of Publication
0
Accordingly, 26 CFR part 1 is corrected by making the following
correcting amendments:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read, in
part, as follows:
[[Page 67389]]
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.1367-2(e) is amended by revising the title of
paragraph Example 6.
and the first sentence of paragraph Example 7.(i) to read as follows:
Sec. 1.1367-2 Adjustments to basis of indebtedness to shareholder.
* * * * *
(e) * * *
Example 6. The $25,000 aggregate principal amount applies to
each shareholder. * * *
* * * * *
Example 7. * * *
(i) The facts are the same as in Example 6, in addition to
which, on December 31, 2009, A's basis in the open account debt is
reduced under paragraph (b) of this section to $8,000. * * *
* * * * *
LaNita Van Dyke,
Chief, Publications and Regulations Branch, Legal Processing Division,
Associate Chief Counsel (Procedure and Administration).
[FR Doc. E8-27024 Filed 11-13-08; 8:45 am]
BILLING CODE 4830-01-P
