Modification of Treasury Regulations Pursuant to Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 39278-39283 [2011-16856]
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39278
Federal Register / Vol. 76, No. 129 / Wednesday, July 6, 2011 / Rules and Regulations
367. An applicant must apply to receive
all business proprietary information on
the record of the segment of a
proceeding in question, but may waive
service of business proprietary
information it does not wish to receive
from other parties to the proceeding. An
applicant must serve an APO
application on the other parties by the
most expeditious manner possible at the
same time that it files the application
with the Department.
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[FR Doc. 2011–16352 Filed 7–5–11; 8:45 am]
BILLING CODE 3510–DS–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
authority delegated to the Commissioner
of Food and Drugs and redelegated to
the Center for Veterinary Medicine, 21
CFR part 510 is amended as follows:
DEPARTMENT OF THE TREASURY
PART 510—NEW ANIMAL DRUGS
[TD 9533]
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1. The authority citation for 21 CFR
part 510 continues to read as follows:
RIN 1545–BK28
Authority: 21 U.S.C. 321, 331, 351, 352,
353, 360b, 371, 379e.
Modification of Treasury Regulations
Pursuant to Section 939A of the DoddFrank Wall Street Reform and
Consumer Protection Act
2. In § 510.600, in the table in
paragraph (c)(1), revise the entry for
‘‘Huvepharma AD’’; and in the table in
paragraph (c)(2), revise the entry for
‘‘016592’’ to read as follows:
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21 CFR Part 510
[Docket No. FDA–2011–N–0003]
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(c) * * *
(1) * * *
New Animal Drugs; Change of
Sponsor’s Address
AGENCY:
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Drug
labeler
code
Firm name and address
Food and Drug Administration,
HHS.
ACTION:
Final rule.
The Food and Drug
Administration (FDA) is amending the
animal drug regulations to reflect a
change of address for Huvepharma AD,
a sponsor of approved new animal drug
applications.
DATES: This rule is effective July 6,
2011.
FOR FURTHER INFORMATION CONTACT:
Steven D. Vaughn, Center for Veterinary
Medicine (HFV–100), Food and Drug
Administration, 7520 Standish Pl.,
Rockville, MD 20855, 240–276–8300, email: steven.vaughn@fda.hhs.gov.
SUPPLEMENTARY INFORMATION:
Huvepharma AD, 33 James Boucher
Blvd., Sophia 1407, Bulgaria, has
informed FDA that it has changed its
address to 5th Floor, 3A Nikolay Haitov
Str., 1113 Sofia, Bulgaria. Accordingly,
the Agency is amending the regulations
in 21 CFR 510.600 to reflect this change.
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.
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SUMMARY:
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Huvepharma AD, 5th Floor, 3A
Nikolay Haitov Str., 1113 Sofia,
Bulgaria .....................................
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016592
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(2) * * *
Drug labeler code
Firm name and address
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016592 .... Huvepharma AD, 5th Floor, 3A
Nikolay Haitov Str., 1113
Sofia, Bulgaria.
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Dated: June 24, 2011.
Elizabeth Rettie,
Deputy Director, Office of New Animal Drug
Evaluation, Center for Veterinary Medicine.
[FR Doc. 2011–16845 Filed 7–5–11; 8:45 am]
BILLING CODE 4160–01–P
List of Subjects in 21 CFR Part 510
Administrative practice and
procedure, Animal drugs, Labeling,
Reporting and recordkeeping
requirements.
Therefore, under the Federal Food,
Drug, and Cosmetic Act and under
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26 CFR Parts 1 and 48
Internal Revenue Service (IRS),
Treasury.
ACTION: Final and temporary
regulations.
AGENCY:
This document contains
temporary regulations that remove any
reference to, or requirement of reliance
on, ‘‘credit ratings’’ in regulations under
the Internal Revenue Code (Code) and
provides substitute standards of creditworthiness where appropriate. This
action is required by the Dodd-Frank
Wall Street Reform and Consumer
Protection Act, which requires Federal
agencies to remove any reference to, or
requirement of reliance on, credit
ratings from their regulations and to
substitute such standard of creditworthiness as the agency deems
appropriate for such regulations. These
regulations affect persons subject to
various provisions of the Code. The text
of these temporary regulations also
serves as the text of the proposed
regulations set forth in the notice of
proposed rulemaking on this subject in
the Proposed Rules section of this issue
of the Federal Register.
DATES: Effective Date: These regulations
are effective on July 6, 2011.
Applicability Dates: For dates of
applicability, see §§ 1.150–1T(a)(4),
1.171–1T(f), 1.197–2T(b)(7), 1.249–
1T(f)(3), 1.475(a)–4T(d)(4), 1.860G–
2T(g)(3), 1.1001–3T(d), (e), and (g), and
48.4101–1T(l)(5).
FOR FURTHER INFORMATION CONTACT:
Arturo Estrada, (202) 622–3900 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
SUMMARY:
§ 510.600 Names, addresses, and drug
labeler codes of sponsors of approved
applications.
Food and Drug Administration
Internal Revenue Service
Background
Section 939A(a) of the Dodd-Frank
Wall Street Reform and Consumer
Protection Act, Public Law 111–203
(124 Stat. 1376 (2010)), (the ‘‘DoddFrank Act’’), requires each Federal
agency to review its regulations that
require the use of an assessment of
credit-worthiness of a security or money
market instrument, and to review any
references or requirements in those
regulations regarding credit ratings.
Section 939A(b) directs each agency to
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modify any regulation identified in the
review required under section 939A(a)
by removing any reference to, or
requirement of reliance on, credit
ratings and substituting a standard of
credit-worthiness that the agency deems
appropriate. Numerous provisions
under the Code are affected.
These temporary regulations amend
the Income Tax Regulations (26 CFR
part 1) under sections 150, 171, 197,
249, 475, 860G, and 1001 of the Code.
These sections were added to the Code
during different years to serve different
purposes. These temporary regulations
also amend the Manufacturers and
Retailers Excise Tax Regulations (26
CFR part 48) under section 4101 that
provides registration requirements
related to Federal fuel taxes.
Explanation of Provisions
These temporary regulations remove
references to ‘‘credit ratings’’ and
‘‘credit agencies’’ or functionally similar
terms in the existing regulations. Some
changes involve simple word deletions
or substitutions. Others reflect the
revision of a sentence to remove the
credit rating references. In some cases,
multiple sentences have been modified.
Where appropriate, substitute standards
of credit-worthiness replace the prior
references to credit ratings, credit
agencies or functionally similar terms.
Language revisions serve solely to
remove the references prohibited by
section 939A of the Dodd-Frank Act and
no additional changes are intended.
Section 1.150–1. Section 1.150–1
provides definitions for purposes of
sections 103 and 141 through 150.
Section 1.150–1(b) defines issuance
costs to mean costs to the extent
incurred in connection with, and
allocable to, the issuance of an issue
within the meaning of section 147(g).
Section 1.150–1(b) lists as non-exclusive
examples of issuance costs:
Underwriters’ spread; counsel fees;
financial advisory fees; rating agency
fees; trustee fees; paying agent fees;
bond registrar, certification, and
authentication fees; accounting fees;
printing costs for bonds and offering
documents; public approval process
costs; engineering and feasibility study
costs; guarantee fees, other than for
qualified guarantees (as defined in
§ 1.148–4(f)); and similar costs. These
temporary regulations replace the
§ 1.150–1(b) reference to rating agency
fees with ‘‘fees paid to an organization
to evaluate the credit quality of the
issue.’’ No substantive change is
intended.
Section 1.171–1. The temporary
regulations change credit rating in
§ 1.171–1(f) Example 2 (i) to credit
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quality. The change does not affect the
analysis in the example. In addition, the
temporary regulations make other
nonsubstantive changes to the example
(for example, the dates in the example
are updated).
Section 1.197–2(b)(7). The temporary
regulations remove ‘‘the existence of a
favorable credit rating’’ from the
examples of supplier-based intangibles
in the third sentence of § 1.197–2(b)(7).
No substantive change in the treatment
of a favorable credit rating as a supplierbased intangible under section 197 is
intended.
Section 1.249–1. The temporary
regulations change credit rating and
ratings of credit rating services in
§ 1.249–1(e)(2)(ii) to credit quality and
widely published financial information.
In the existing regulations, a change in
the credit rating of an issuer or
obligation is one of the facts and
circumstances used to determine how
much of a repurchase premium is
attributable to the cost of borrowing and
not to the conversion feature of a
convertible bond. Credit rating services
is used as a means to determine the
credit rating of an issuer or obligation.
None of these changes affect the
substantive rules in the existing
regulations.
Section 1.475(a)–4(d)(4). Example 1,
Example 2, and Example 3 in
§ 1.475(a)–4(d)(4) are revised to remove
references to credit ratings or credit
rating agencies. In these three examples
in the existing regulations, credit rating
or specific references to certain ratings
by certain credit ratings agencies (such
as AA/aa or AAA/aaa) were used to set
up the factual scenario that illustrates
the factors that go into the
determination of whether it is
appropriate for a dealer to take a credit
risk adjustment. These terms were also
used to describe the credit risk
adjustment implicit in the yield curve
used to discount the present value of the
cash flows. This adjustment affects
whether any additional credit risk
adjustments are warranted. These
examples also used credit rating agency
to set up the factual scenario that a
counterparty’s credit-worthiness was
based upon an industry standard of a
certain credit quality and illustrates the
factors that go into the determination of
whether it is appropriate for a dealer to
take a credit risk adjustment. The
changes that have been made to the
language of the examples do not alter
the purpose of the illustrations and
present the factual issues in a more
generalized way.
Section 1.860G–2. Section 1.860G–
2(g)(2) defines qualified reserve fund as
an amount that is reasonably required to
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fund expenses of the REMIC or amounts
due on regular or residual interests in
the event of defaults on the underlying
pool of mortgages. In defining the
amount reasonably required, § 1.860G–
2(g)(3)(ii) refers to the amount required
by a nationally recognized independent
rating agency as a condition of
providing the rating for the REMIC
interest desired by the sponsor. Because
an alternative and fully adequate
standard of reference is already set forth
in these regulations, these temporary
regulations remove the rating agency
alternative standard.
Section 1.1001–3. Section 1.1001–3
provides rules for determining whether
a modification of a debt instrument
results in an exchange for purposes of
§ 1.1001–1(a). These temporary
regulations remove the terms rating and
credit rating from § 1.1001–3 and
generally replace those terms with
credit quality. Section 1.1001–3(d)
Example 9 is revised so that the event
that triggers an option to increase a
note’s rate of interest is a breach of
certain covenants in the note, rather
than a specific decline in the
corporation’s credit rating. The
temporary regulations also revise
§ 1.1001–3(g) Example 5 so that the debt
instrument described in the example
allows a party to be substituted for the
instrument’s original obligor on the
basis of the party’s credit-worthiness,
rather than the party’s credit rating. The
temporary regulations also revise
§ 1.1001–3(g) Example 8 to explain that
a bank’s letter of credit supporting a
debt instrument is substituted for
another bank’s letter of credit when the
first bank encounters financial
difficulty, thus removing references to
rating agencies and either bank’s credit
rating.
Section 48.4101–1(f)(4). Section 4101
requires certain persons to be registered
by the IRS for purposes of several fuel
tax provisions of the Code. Under
§ 48.4101–1, the IRS will register an
applicant for registration only if, among
other conditions, the applicant has
adequate financial resources to pay its
expected fuel tax liability. To make this
determination, § 48.4101–1(f)(4)(ii)(B)
instructs the IRS to look to the
applicant’s financial information. These
temporary regulations remove the
examples of the types of documents the
IRS should review and instructs the IRS
to look at all information relevant to the
applicant’s financial status.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866, as
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supplemented by Executive Order
13563. 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 these
regulations. For applicability of the
Regulatory Flexibility Act (5 U.S.C.
chapter 6), please refer to the Special
Analysis section in the preamble to the
cross-referenced notice of proposed
rulemaking in the Proposed Rules
section in this issue of the Federal
Register. Pursuant to section 7805(f) of
the Code, these regulations have been
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on their
impact on small business.
Drafting Information
These regulations were drafted by
personnel in the Office of Associate
Chief Counsel (Financial Institutions
and Products), the Office of Associate
Chief Counsel (Income Tax and
Accounting), the Office of the Associate
Chief Counsel (International) and the
Office of the Associate Chief Counsel
(Passthroughs and Special Industries).
However, other personnel from the IRS
and the Treasury Department
participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 48
Excise taxes, Reporting and
recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 48
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
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Par. 2. Section 1.150–1 is amended as
follows:
■ 1. Paragraph (a)(4) is added.
■ 2. In paragraph (b), the definition of
Issuance costs is revised.
The additions and revisions read as
follows:
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Definitions.
(a) * * *
(4) [Reserved] For further guidance,
see § 1.150–1T(a)(4).
(b) * * *
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Definitions (temporary).
(a) through (a)(3) [Reserved]. For
further guidance, see § 1.150–1(a)
through (a)(3).
(4) Additional exception to the
general applicability date. Section
1.150–1T(b), Issuance costs, applies on
and after July 6, 2011.
(5) Expiration date. The applicability
of § 1.150–1T(b), Issuance costs, expires
on or before July 1, 2014.
(b) Bond through the definition of
Governmental bond [Reserved]. For
further guidance, see § 1.150–1(b) Bond
through the definition of Governmental
bond.
Issuance costs means costs to the
extent incurred in connection with, and
allocable to, the issuance of an issue
within the meaning of section 147(g).
For example, issuance costs include the
following costs but only to the extent
incurred in connection with, and
allocable to, the borrowing:
Underwriters’ spread; counsel fees;
financial advisory fees; fees paid to an
organization to evaluate the credit
quality of an issue; trustee fees; paying
agent fees; bond registrar, certification,
and authentication fees; accounting fees;
printing costs for bonds and offering
documents; public approval process
costs; engineering and feasibility study
costs; guarantee fees, other than for
qualified guarantees (as defined in
§ 1.148–4(f)); and similar costs.
(c) Issue date through paragraph (e)
[Reserved]. For further guidance, see
§ 1.150–1(b) Issue date through
paragraph (e).
■ Par. 4. Section 1.171–1(f) Example 2
is revised to read as follows:
Bond premium.
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§ 1.150–1T
§ 1.171–1
Authority: 26 U.S.C. 7805 * * *
§ 1.150–1
Issuance costs [Reserved]. For further
guidance, see § 1.150–1T(b), Issuance
costs.
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■ Par. 3. Section 1.150–1T is added to
read as follows:
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(f) * * *
Example 2. [Reserved]. For further
guidance, see § 1.171–1T(f) Example 2.
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■ Par. 5. Section 1.171–1T is added to
read as follows:
§ 1.171–1T
Bond premium (temporary).
(a) through (f) Example 1 [Reserved].
For further guidance, see § 1.171–1(a)
through (f) Example 1.
Example 2. Convertible bond—(i) Facts. On
January 1, 2012, A purchases for $1,100 B
corporation’s bond maturing on January 1,
2015, with a stated principal amount of
$1,000, payable at maturity. The bond
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provides for unconditional payments of
interest of $30 on January 1 and July 1 of
each year. In addition, the bond is
convertible into 15 shares of B corporation
stock at the option of the holder. On January
1, 2012, B corporation’s nonconvertible,
publicly-traded, three-year debt of
comparable credit quality trades at a price
that reflects a yield of 6.75 percent,
compounded semiannually.
(ii) Determination of basis. A’s basis for
determining loss on the sale or exchange of
the bond is $1,100. As of January 1, 2012,
discounting the remaining payments on the
bond at the yield at which B’s similar
nonconvertible bonds trade (6.75 percent,
compounded semiannually) results in a
present value of $980. Thus, the value of the
conversion option is $120. Under § 1.171–
1(e)(1)(iii)(A), A’s basis is $980 ($1,100
¥$120) for purposes of §§ 1.171–1 through
1.171–5. The sum of all amounts payable on
the bond other than qualified stated interest
is $1,000. Because A’s basis (as determined
under § 1.171–1(e)(1)(iii)(A)) does not exceed
$1,000, A does not acquire the bond at a
premium.
(iii) Effective/applicability date. This
Example 2 applies to bonds acquired on
or after July 6, 2011.
(g) Expiration date. The applicability
of this section expires on or before July
1, 2014.
■ Par. 6. Section 1.197–2 is amended by
revising paragraph (b)(7) to read as
follows:
§ 1.197–2 Amortization of goodwill and
certain other intangibles.
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(b) * * *
(7) [Reserved]. For further guidance,
see § 1.197–2T(b)(7).
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■ Par. 7. Section 1.197–2T is added to
read as follows:
§ 1.197–2T Amortization of goodwill and
certain other intangibles (temporary).
(a) through (b)(6) [Reserved]. For
further guidance, see § 1.197–2(a)
through (b)(6).
(7) Supplier-based intangibles—(i) In
general. Section 197 intangibles include
any supplier-based intangible. A
supplier-based intangible is the value
resulting from the future acquisition,
pursuant to contractual or other
relationships with suppliers in the
ordinary course of business, of goods or
services that will be sold or used by the
taxpayer. Thus, the amount paid or
incurred for supplier-based intangibles
includes, for example, any portion of
the purchase price of an acquired trade
or business attributable to the existence
of a favorable relationship with persons
providing distribution services (such as
favorable shelf or display space at a
retail outlet), or the existence of
favorable supply contracts. The amount
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paid or incurred for supplier-based
intangibles does not include any
amount required to be paid for the
goods or services themselves pursuant
to the terms of the agreement or other
relationship. In addition, see the
exceptions in § 1.197–2(c), including the
exception in § 1.197–2(c)(6) for certain
rights to receive tangible property or
services from another person.
(ii) Effective/applicability date. This
section applies to supplier-based
intangibles acquired after July 6, 2011.
(iii) Expiration date. The applicability
of this section expires on or before July
1, 2014.
(b)(8) through (l) [Reserved]. For
further guidance, see § 1.197–2(b)(8)
through (l).
■ Par. 8. Section 1.249–1 is amended as
follows:
■ 1. Paragraph (e)(2)(ii) is revised.
■ 2. The paragraph heading for
paragraph (f) is revised.
■ 3. Paragraph (f)(3) is added.
The revisions and addition read as
follows:
§ 1.249–1 Limitation on deduction of bond
premium on repurchase.
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(e) * * *
(2) * * *
(ii) [Reserved]. For further guidance,
see § 1.249–1T(e)(2)(ii).
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(f) Effective/applicability dates. * * *
(3) [Reserved]. For further guidance,
see § 1.249–1T(f)(3).
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■ Par. 9. Section 1.249–1T is added to
read as follows:
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§ 1.249–1T Limitation on deduction of
bond premium on repurchase (temporary).
(a) through (e)(2)(i) [Reserved]. For
further guidance, see § 1.249–1(a)
through (e)(2)(i).
(ii) In determining the amount under
§ 1.249–1(e)(2)(i), appropriate
consideration shall be given to all
factors affecting the selling price or
yields of comparable nonconvertible
obligations. Such factors include general
changes in prevailing yields of
comparable obligations between the
dates the convertible obligation was
issued and repurchased and the amount
(if any) by which the selling price of the
nonconvertible obligation was affected
by reason of any change in the issuing
corporation’s credit quality or the credit
quality of the obligation during such
period (determined on the basis of
widely published financial information
or on the basis of other relevant facts
and circumstances which reflect the
relative credit quality of the corporation
or the comparable obligation).
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(e)(2)(iii) through (f)(2) [Reserved]. For
further guidance, see § 1.249–1(e)(2)(iii)
through (f)(2).
(3) Portion of repurchase premium
attributable to cost of borrowing.
Paragraph (e)(2)(ii) of this section
applies to any repurchase of a
convertible obligation occurring on or
after July 6, 2011.
(g) [Reserved]. For further guidance,
see § 1.249–1(g).
(h) Expiration date. The applicability
of this section expires on or before
July 1, 2014.
■ Par. 10. Section 1.475(a)–4 is
amended by revising paragraph (d)(4)
Example 1, Example 2, and Example 3
to read as follows:
§ 1.475(a)–4
Valuation safe harbor.
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(d) * * *
(4) * * *
Example 1. [Reserved]. For further
guidance, see § 1.475(a)–4T(d)(4)
Example 1.
Example 2. [Reserved]. For further
guidance, see § 1.475(a)–4T(d)(4)
Example 2.
Example 3. [Reserved]. For further
guidance, see § 1.475(a)–4T(d)(4)
Example 3.
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■ Par. 11. Section 1.475(a)–4T is added
to read as follows:
§ 1.475(a)–4T
(temporary).
Valuation safe harbor
(a) through (d)(4) introductory text
[Reserved]. For further guidance, see
§ 1.475(a)–4(a) through (d)(4)
introductory text.
Example 1. (i) X, a calendar year taxpayer,
is a dealer in securities within the meaning
of section 475(c)(1). X generally maintains a
balanced portfolio of interest rate swaps and
other interest rate derivatives, capturing bidask spreads and keeping its market exposure
within desired limits (using, if necessary,
additional derivatives for this purpose). X
uses a mark-to-market method on a statement
that it is required to file with the United
States Securities and Exchange Commission
and that satisfies § 1.475(a)–4(d)(2) with
respect to both the contracts with customers
and the additional derivatives. When
determining the amount of any gain or loss
realized on a sale, exchange, or termination
of a position, X makes a proper adjustment
for amounts taken into account respecting
payments or receipts. X and all of its
counterparties on the derivatives have the
same general credit quality as each other.
(ii) Under X’s valuation method, as of each
valuation date, X determines a mid-market
probability distribution of future cash flows
under the derivatives and computes the
present values of these cash flows. In
computing these present values, X uses an
industry standard yield curve that is
appropriate for obligations by persons with
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this same general credit quality. In addition,
based on information that includes its own
knowledge about the counterparties, X
adjusts some of these present values either
upward or downward to reflect X’s
reasonable judgment about the extent to
which the true credit status of each
counterparty’s obligation, taking credit
enhancements into account, differs from the
general credit quality used in the yield curve
to present value the derivatives.
(iii) X’s methodology does not violate the
requirement in § 1.475(a)–4(d)(3)(iii) that the
same cost or risk not be taken into account,
directly or indirectly, more than once.
(iv) This Example 1 applies to valuations
of securities on or after July 6, 2011.
Example 2. (i) The facts are the same as in
Example 1, except that X uses a better credit
quality in determining the yield curve to
discount the payments to be received under
the derivatives. Based on information that
includes its own knowledge about the
counterparties, X adjusts these present values
to reflect X’s reasonable judgment about the
extent to which the true credit status of each
counterparty’s obligation, taking credit
enhancements into account, differs from this
better credit quality obligation.
(ii) X’s methodology does not violate the
requirement in § 1.475(a)–4(d)(3)(iii) that the
same cost or risk not be taken into account,
directly or indirectly, more than once.
(iii) This Example 2 applies to valuations
of securities on or after July 6, 2011.
Example 3. (i) The facts are the same as in
Example 1, except that, after computing
present values using the discount rates that
are appropriate for obligors with the same
general credit quality, and based on
information that includes X’s own knowledge
about the counterparties, X adjusts some of
these present values either upward or
downward to reflect X’s reasonable judgment
about the extent to which the true credit
status of each counterparty’s obligation,
taking credit enhancements into account,
differs from a better credit quality.
(ii) X’s methodology violates the
requirement in § 1.475(a)–4(d)(3)(iii) that the
same cost or risk not be taken into account,
directly or indirectly, more than once. By
using the same general credit quality
discount rate, X’s method takes into account
the difference between risk-free obligations
and obligations with that lower credit
quality. By adjusting values for the difference
between a higher credit quality and that
lower credit quality, X takes into account
risks that it had already accounted for
through the discount rates that it used. The
same result would occur if X judged some of
its counterparties’ obligations to be of a
higher credit quality but X failed to adjust the
values of those obligations to reflect the
difference between a higher credit quality
and the lower credit quality.
(iii) This Example 3 applies to valuations
of securities on or after July 6, 2011.
Example 4 and Example 5 and
paragraphs (e) through (m). [Reserved].
For further guidance, see § 1.475(a)–
4(d)(4) Example 4 and Example 5 and
paragraphs (e) through (m).
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(n) Expiration date. The applicability
of this section expires on or before
July 1, 2014.
■ Par. 12. Section 1.860G–2 is amended
by revising paragraphs (g)(3)(ii)(B) and
(C) and adding paragraph (D) to read as
follows:
§ 1.860G–2
Other rules.
*
*
*
*
*
(g) * * *
(3) * * *
(ii) * * *
(B) [Reserved]. For further guidance,
see § 1.860G–2T(g)(3)(ii)(B).
(C) [Reserved]. For further guidance,
see § 1.860G–2T(g)(3)(ii)(C).
(D) [Reserved]. For further guidance,
see § 1.860G–2T(g)(3)(ii)(D).
*
*
*
*
*
■ Par. 13. Section 1.860G–2T is added
to read as follows:
mstockstill on DSK4VPTVN1PROD with RULES
§ 1.860G–2T
Other rules (temporary).
(a) through (g)(3)(ii)(A) [Reserved].
For further guidance, see § 1.860G–2(a)
through (g)(3)(ii)(A).
(B) Presumption that a reserve is
reasonably required. The amount of a
reserve fund is presumed to be
reasonable (and an excessive reserve is
presumed to have been promptly and
appropriately reduced) if it does not
exceed the amount required by a third
party insurer or guarantor, who does not
own directly or indirectly (within the
meaning of section 267(c)) an interest in
the REMIC (as defined in section
1.860D–1(b)(1)), as a condition of
providing credit enhancement.
(C) Presumption may be rebutted. The
presumption in § 1.860G–2(g)(3)(ii)(B)
may be rebutted if the amounts required
by the third party insurer are not
commercially reasonable considering
the factors described in § 1.860G–
2(g)(3)(ii)(A).
(D) Effective/applicability date.
Paragraphs (g)(3)(ii)(B) and (C) of this
section apply on and after July 6, 2011.
(E) Expiration date. The applicability
of paragraphs (g)(3)(ii)(B) and (C) of this
section expires on or before July 1, 2014.
(h) through (k) [Reserved]. For further
guidance, see § 1.860G–2(h) through (k).
■ Par. 14. Section 1.1001–3 is amended
as follows:
■ 1. Paragraph (d) Example 9 is revised.
■ 2. Paragraph (e)(4)(iv)(B) is revised.
■ 3. Paragraph (e)(5)(ii)(B)(2) is revised.
■ 4. Paragraph (g) Examples 1, 5 and 8
are revised.
The revisions read as follows:
§ 1.1001–3 Modifications of debt
instruments.
*
*
*
(d) * * *
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*
17:43 Jul 05, 2011
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Example 9. [Reserved]. For further
guidance, see § 1.1001–3T(d) Example
9.
*
*
*
*
*
(e) * * *
(4) * * *
(iv) * * *
(B) [Reserved]. For further guidance,
see § 1.1001–3T(e)(4)(iv)(B).
*
*
*
*
*
(5) * * *
(ii) * * *
(B) * * *
(2) [Reserved]. For further guidance,
see § 1.1001–3T(e)(5)(ii)(B)(2).
*
*
*
*
*
(g) * * *
Example 1. [Reserved]. For further
guidance, see § 1.1001–3T(g) Example 1.
*
*
*
*
*
Example 5. [Reserved]. For further
guidance, see § 1.1001–3T(g) Example 5.
*
*
*
*
*
Example 8. [Reserved]. For further
guidance, see § 1.1001–3T(g) Example 8.
*
*
*
*
*
■ Par. 15. Section 1.1001–3T is added to
read as follows:
§ 1.1001–3T Modifications of debt
instruments (temporary).
(a) through (d) Example 8 [Reserved].
For further guidance, see § 1.1001–3(a)
through (d) Example 8.
Example 9. Holder’s option to increase
interest rate. (i) A corporation issues an
8-year note to a bank in exchange for cash.
Under the terms of the note, the bank has the
option to increase the rate of interest by a
specified amount if certain covenants in the
note are breached. The bank’s right to
increase the interest rate is a unilateral
option as described in § 1.1001–3(c)(3).
(ii) A covenant in the note is breached. The
bank exercises its option to increase the rate
of interest. The increase in the rate of interest
occurs by operation of the terms of the note
and does not result in a deferral or a
reduction in the scheduled payments or any
other alteration described in § 1.1001–3(c)(2).
Thus, the change in interest rate is not a
modification.
(iii) Effective/applicability date. This
Example 9 applies to modifications occurring
on or after July 6, 2011.
(d) Example 10 through (e)(4)(iv)(A)
[Reserved]. For further guidance, see
§ 1.1001–3(d) Example 10 through
(e)(4)(iv)(A).
(B) Nonrecourse debt instruments. (1)
A modification that releases, substitutes,
adds or otherwise alters a substantial
amount of the collateral for, a guarantee
on, or other form of credit enhancement
for a nonrecourse debt instrument is a
significant modification. A substitution
of collateral is not a significant
modification, however, if the collateral
is fungible or otherwise of a type where
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the particular units pledged are
unimportant (for example, government
securities or financial instruments of a
particular type and credit quality). In
addition, the substitution of a similar
commercially available credit
enhancement contract is not a
significant modification, and an
improvement to the property securing a
nonrecourse debt instrument does not
result in a significant modification.
(2) Effective/applicability date. This
paragraph (e)(4)(iv)(B) applies to
modifications occurring on or after
July 6, 2011.
(e)(4)(v) through (e)(5)(ii)(B)(1)
[Reserved]. For further guidance, see
§ 1.1001–3(e)(4)(v) through
(e)(5)(ii)(B)(1).
(2) Original collateral. (i) A
modification that changes a recourse
debt instrument to a nonrecourse debt
instrument is not a significant
modification if the instrument continues
to be secured only by the original
collateral and the modification does not
result in a change in payment
expectations. For this purpose, if the
original collateral is fungible or
otherwise of a type where the particular
units pledged are unimportant (for
example, government securities or
financial instruments of a particular
type and credit quality), replacement of
some or all units of the original
collateral with other units of the same
or similar type and aggregate value is
not considered a change in the original
collateral.
(ii) Effective/applicability date. This
paragraph (e)(5)(ii)(B)(2) applies to
modifications occurring on or after
July 6, 2011.
(e)(6) through (g) introductory text
[Reserved]. For further guidance, see
§ 1.1001–3(e)(6) through (g) introductory
text.
Example 1. Modification of call right. (i)
Under the terms of a 30-year, fixed-rate bond,
the issuer can call the bond for 102 percent
of par at the end of ten years or for 101
percent of par at the end of 20 years. At the
end of the eighth year, the holder of the bond
pays the issuer to waive the issuer’s right to
call the bond at the end of the tenth year. On
the date of the modification, the issuer’s
credit quality is approximately the same as
when the bond was issued, but market rates
of interest have declined from that date.
(ii) The holder’s payment to the issuer
changes the yield on the bond. Whether the
change in yield is a significant modification
depends on whether the yield on the
modified bond varies from the yield on the
original bond by more than the change in
yield as described in § 1.1001–3(e)(2)(ii).
(iii) If the change in yield is not a
significant modification, the elimination of
the issuer’s call right must also be tested for
significance. Because the specific rules of
§ 1.1001–3(e)(2) through (e)(6) do not address
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this modification, the significance of the
modification must be determined under the
general rule of § 1.1001–3(e)(1).
(iv) Effective/applicability date. This
Example 1 applies to modifications occurring
on or after July 6, 2011.
Example 2 through Example 4
[Reserved]. For further guidance, see
§ 1.1001–3(g) Example 2 through
Example 4.
Example 5. Assumption of mortgage with
increase in interest rate. (i) A recourse debt
instrument with a 9 percent annual yield is
secured by an office building. Under the
terms of the instrument, a purchaser of the
building may assume the debt and be
substituted for the original obligor if the
purchaser is equally or more creditworthy
than the original obligor and if the interest
rate on the instrument is increased by onehalf percent (50 basis points). The building
is sold, the purchaser assumes the debt, and
the interest rate increases by 50 basis points.
(ii) If the purchaser’s acquisition of the
building does not satisfy the requirements of
§ 1.1001–3(e)(4)(i)(B) or (C), the substitution
of the purchaser as the obligor is a significant
modification under § 1.1001–3(e)(4)(i)(A).
(iii) If the purchaser acquires substantially
all of the assets of the original obligor, the
assumption of the debt instrument will not
result in a significant modification if there is
not a change in payment expectations and
the assumption does not result in a
significant alteration.
(iv) The change in the interest rate, if tested
under the rules of § 1.1001–3(e)(2), would
result in a significant modification. The
change in interest rate that results from the
transaction is a significant alteration. Thus,
the transaction does not meet the
requirements of § 1.1001–3(e)(4)(i)(C) and is
a significant modification under § 1.1001–3
(e)(4)(i)(A).
(v) Effective/applicability date.
Notwithstanding § 1.1001–3(h), this Example
5 applies to modifications occurring on or
after July 6, 2011.
mstockstill on DSK4VPTVN1PROD with RULES
Example 6 through Example 7
[Reserved]. For further guidance, see
§ 1.1001–3(g) Example 6 through
Example 7.
Example 8. Substitution of credit
enhancement contract. (i) Under the terms of
a recourse debt instrument, the issuer’s
obligations are secured by a letter of credit
from a specified bank. The debt instrument
does not contain any provision allowing a
substitution of a letter of credit from a
different bank. The specified bank, however,
encounters financial difficulty. The issuer
and holder agree that the issuer will
substitute a letter of credit from another
bank.
(ii) Under § 1.1001–3(e)(4)(iv)(A), the
substitution of a different credit
enhancement contract is not a significant
modification of a recourse debt instrument
unless the substitution results in a change in
payment expectations. While the substitution
of a new letter of credit by a different bank
does not itself result in a change in payment
expectations, such a substitution may result
in a change in payment expectations under
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17:43 Jul 05, 2011
Jkt 223001
certain circumstances (for example, if the
obligor’s capacity to meet payment
obligations is dependent on the letter of
credit and the substitution substantially
enhances that capacity from primarily
speculative to adequate).
(iii) Effective/applicability date. This
Example 8 applies to modifications occurring
on or after July 6, 2011.
Example 9 through (h) [Reserved]. For
further guidance, see § 1.1001–3(g)
Example 9 through (h).
(i) Expiration date. The applicability
of this section expires on or before July
1, 2014.
PART 48—MANUFACTURERS AND
RETAILERS EXCISE TAXES
Par. 16. The authority citation for part
48 continues to read in part as follows:
■
39283
(h)(3)(v) through (l)(4) [Reserved]. For
further guidance, see § 48.4101–
1(h)(3)(v) through (l)(4).
(l)(5) Effective/applicability date.
Paragraph (f)(4)(ii)(B) of this section
applies on July 6, 2011.
(l)(6) Expiration date. The
applicability of paragraph (f)(4)(ii)(B) of
this section expires on or before July 1,
2014.
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
Approved: June 29, 2011.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury
(Tax Policy).
[FR Doc. 2011–16856 Filed 7–1–11; 11:15 am]
BILLING CODE 4830–01–P
Authority: 26 U.S.C. 7805 * * *
Par. 17. Section 48.4101–1 is
amended as follows:
■ 1. Paragraph (f)(4)(ii)(B) is removed
and reserved.
■ 2. Paragraph (l)(5) is added and
reserved.
The additions read as follows:
■
§ 48.4101–1
Taxable fuel; registration.
*
*
*
*
*
(f) * * *
(4) * * *
(ii) * * *
(B) [Reserved]. For further guidance,
see § 48.4101–1T(f)(4)(ii)(B).
*
*
*
*
*
(l) * * *
(5) [Reserved]. For further guidance,
see § 48.4101–1T(l)(5).
■ Par. 18. Section 48.4101–1T is
amended as follows:
■ 1. Paragraphs (a) through (f)(4)(ii)(A)
are reserved.
■ 2. Paragraph (f)(4)(ii)(B) is revised.
■ 3. Paragraphs (f)(4)(iii) through
(h)(3)(iii) are reserved.
■ 4. Paragraphs (h)(3)(v) through (l)(4)
are reserved.
■ 5. Paragraphs (l)(5) and (l)(6) are
added.
The additions and revisions read as
follows:
§ 48.4101–1T
(temporary).
Taxable fuel; registration
(a) through (f)(4)(ii)(A) [Reserved]. For
further guidance see § 48.4104–1(a)
through (f)(4)(ii)(A).
(B) Basis for determination. The
determination under § 48.4101–
1(f)(4)(ii) must be based on all
information relevant to the applicant’s
financial status.
(f)(4)(iii) through (h)(3)(iii) [Reserved].
For further guidance, see § 48.4101–
1(f)(4)(iii) through (h)(3)(iii).
*
*
*
*
*
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OCCUPATIONAL SAFETY AND
HEALTH REVIEW COMMISSION
29 CFR Part 2205
Enforcement of Nondiscrimination on
the Basis of Handicap in Programs or
Activities Conducted by the
Occupational Safety and Health
Review Commission
Occupational Safety and Health
Review Commission.
ACTION: Final rule.
AGENCY:
The Occupational Safety and
Health Review Commission (‘‘OSHRC’’)
is revising part 2205, which it
promulgated to implement section 504
of the Rehabilitation Act of 1973, as
amended. These revisions account for
statutory and regulatory changes, and
incorporate procedures for filing
complaints under section 508 of the
Rehabilitation Act of 1973, as amended.
OSHRC is also making various
corrections and technical amendments
to this part.
DATES: Effective July 6, 2011.
FOR FURTHER INFORMATION CONTACT: Ron
Bailey, Attorney-Advisor, Office of the
General Counsel, by telephone at (202)
606–5410, by e-mail at
rbailey@oshrc.gov, or by mail at: 1120–
20th Street, NW., Ninth Floor,
Washington, DC 20036–3457.
SUPPLEMENTARY INFORMATION: OSHRC
published a notice of proposed
rulemaking on May 24, 2011, 76 FR
30064, which would revise 29 CFR part
2205. Interested persons were afforded
an opportunity to participate in the
rulemaking process through submission
of written comments on the proposed
rule. OSHRC received no public
comments. We have reviewed the
SUMMARY:
E:\FR\FM\06JYR1.SGM
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]]>Agencies
[Federal Register Volume 76, Number 129 (Wednesday, July 6, 2011)]
[Rules and Regulations]
[Pages 39278-39283]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16856]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 48
[TD 9533]
RIN 1545-BK28
Modification of Treasury Regulations Pursuant to Section 939A of
the Dodd-Frank Wall Street Reform and Consumer Protection Act
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains temporary regulations that remove any
reference to, or requirement of reliance on, ``credit ratings'' in
regulations under the Internal Revenue Code (Code) and provides
substitute standards of credit-worthiness where appropriate. This
action is required by the Dodd-Frank Wall Street Reform and Consumer
Protection Act, which requires Federal agencies to remove any reference
to, or requirement of reliance on, credit ratings from their
regulations and to substitute such standard of credit-worthiness as the
agency deems appropriate for such regulations. These regulations affect
persons subject to various provisions of the Code. The text of these
temporary regulations also serves as the text of the proposed
regulations set forth in the notice of proposed rulemaking on this
subject in the Proposed Rules section of this issue of the Federal
Register.
DATES: Effective Date: These regulations are effective on July 6, 2011.
Applicability Dates: For dates of applicability, see Sec. Sec.
1.150-1T(a)(4), 1.171-1T(f), 1.197-2T(b)(7), 1.249-1T(f)(3), 1.475(a)-
4T(d)(4), 1.860G-2T(g)(3), 1.1001-3T(d), (e), and (g), and 48.4101-
1T(l)(5).
FOR FURTHER INFORMATION CONTACT: Arturo Estrada, (202) 622-3900 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 939A(a) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111-203 (124 Stat. 1376 (2010)), (the
``Dodd-Frank Act''), requires each Federal agency to review its
regulations that require the use of an assessment of credit-worthiness
of a security or money market instrument, and to review any references
or requirements in those regulations regarding credit ratings. Section
939A(b) directs each agency to
[[Page 39279]]
modify any regulation identified in the review required under section
939A(a) by removing any reference to, or requirement of reliance on,
credit ratings and substituting a standard of credit-worthiness that
the agency deems appropriate. Numerous provisions under the Code are
affected.
These temporary regulations amend the Income Tax Regulations (26
CFR part 1) under sections 150, 171, 197, 249, 475, 860G, and 1001 of
the Code. These sections were added to the Code during different years
to serve different purposes. These temporary regulations also amend the
Manufacturers and Retailers Excise Tax Regulations (26 CFR part 48)
under section 4101 that provides registration requirements related to
Federal fuel taxes.
Explanation of Provisions
These temporary regulations remove references to ``credit ratings''
and ``credit agencies'' or functionally similar terms in the existing
regulations. Some changes involve simple word deletions or
substitutions. Others reflect the revision of a sentence to remove the
credit rating references. In some cases, multiple sentences have been
modified. Where appropriate, substitute standards of credit-worthiness
replace the prior references to credit ratings, credit agencies or
functionally similar terms. Language revisions serve solely to remove
the references prohibited by section 939A of the Dodd-Frank Act and no
additional changes are intended.
Section 1.150-1. Section 1.150-1 provides definitions for purposes
of sections 103 and 141 through 150. Section 1.150-1(b) defines
issuance costs to mean costs to the extent incurred in connection with,
and allocable to, the issuance of an issue within the meaning of
section 147(g). Section 1.150-1(b) lists as non-exclusive examples of
issuance costs: Underwriters' spread; counsel fees; financial advisory
fees; rating agency fees; trustee fees; paying agent fees; bond
registrar, certification, and authentication fees; accounting fees;
printing costs for bonds and offering documents; public approval
process costs; engineering and feasibility study costs; guarantee fees,
other than for qualified guarantees (as defined in Sec. 1.148-4(f));
and similar costs. These temporary regulations replace the Sec. 1.150-
1(b) reference to rating agency fees with ``fees paid to an
organization to evaluate the credit quality of the issue.'' No
substantive change is intended.
Section 1.171-1. The temporary regulations change credit rating in
Sec. 1.171-1(f) Example 2 (i) to credit quality. The change does not
affect the analysis in the example. In addition, the temporary
regulations make other nonsubstantive changes to the example (for
example, the dates in the example are updated).
Section 1.197-2(b)(7). The temporary regulations remove ``the
existence of a favorable credit rating'' from the examples of supplier-
based intangibles in the third sentence of Sec. 1.197-2(b)(7). No
substantive change in the treatment of a favorable credit rating as a
supplier-based intangible under section 197 is intended.
Section 1.249-1. The temporary regulations change credit rating and
ratings of credit rating services in Sec. 1.249-1(e)(2)(ii) to credit
quality and widely published financial information. In the existing
regulations, a change in the credit rating of an issuer or obligation
is one of the facts and circumstances used to determine how much of a
repurchase premium is attributable to the cost of borrowing and not to
the conversion feature of a convertible bond. Credit rating services is
used as a means to determine the credit rating of an issuer or
obligation. None of these changes affect the substantive rules in the
existing regulations.
Section 1.475(a)-4(d)(4). Example 1, Example 2, and Example 3 in
Sec. 1.475(a)-4(d)(4) are revised to remove references to credit
ratings or credit rating agencies. In these three examples in the
existing regulations, credit rating or specific references to certain
ratings by certain credit ratings agencies (such as AA/aa or AAA/aaa)
were used to set up the factual scenario that illustrates the factors
that go into the determination of whether it is appropriate for a
dealer to take a credit risk adjustment. These terms were also used to
describe the credit risk adjustment implicit in the yield curve used to
discount the present value of the cash flows. This adjustment affects
whether any additional credit risk adjustments are warranted. These
examples also used credit rating agency to set up the factual scenario
that a counterparty's credit-worthiness was based upon an industry
standard of a certain credit quality and illustrates the factors that
go into the determination of whether it is appropriate for a dealer to
take a credit risk adjustment. The changes that have been made to the
language of the examples do not alter the purpose of the illustrations
and present the factual issues in a more generalized way.
Section 1.860G-2. Section 1.860G-2(g)(2) defines qualified reserve
fund as an amount that is reasonably required to fund expenses of the
REMIC or amounts due on regular or residual interests in the event of
defaults on the underlying pool of mortgages. In defining the amount
reasonably required, Sec. 1.860G-2(g)(3)(ii) refers to the amount
required by a nationally recognized independent rating agency as a
condition of providing the rating for the REMIC interest desired by the
sponsor. Because an alternative and fully adequate standard of
reference is already set forth in these regulations, these temporary
regulations remove the rating agency alternative standard.
Section 1.1001-3. Section 1.1001-3 provides rules for determining
whether a modification of a debt instrument results in an exchange for
purposes of Sec. 1.1001-1(a). These temporary regulations remove the
terms rating and credit rating from Sec. 1.1001-3 and generally
replace those terms with credit quality. Section 1.1001-3(d) Example 9
is revised so that the event that triggers an option to increase a
note's rate of interest is a breach of certain covenants in the note,
rather than a specific decline in the corporation's credit rating. The
temporary regulations also revise Sec. 1.1001-3(g) Example 5 so that
the debt instrument described in the example allows a party to be
substituted for the instrument's original obligor on the basis of the
party's credit-worthiness, rather than the party's credit rating. The
temporary regulations also revise Sec. 1.1001-3(g) Example 8 to
explain that a bank's letter of credit supporting a debt instrument is
substituted for another bank's letter of credit when the first bank
encounters financial difficulty, thus removing references to rating
agencies and either bank's credit rating.
Section 48.4101-1(f)(4). Section 4101 requires certain persons to
be registered by the IRS for purposes of several fuel tax provisions of
the Code. Under Sec. 48.4101-1, the IRS will register an applicant for
registration only if, among other conditions, the applicant has
adequate financial resources to pay its expected fuel tax liability. To
make this determination, Sec. 48.4101-1(f)(4)(ii)(B) instructs the IRS
to look to the applicant's financial information. These temporary
regulations remove the examples of the types of documents the IRS
should review and instructs the IRS to look at all information relevant
to the applicant's financial status.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866, as
[[Page 39280]]
supplemented by Executive Order 13563. 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 these regulations. For applicability of the Regulatory
Flexibility Act (5 U.S.C. chapter 6), please refer to the Special
Analysis section in the preamble to the cross-referenced notice of
proposed rulemaking in the Proposed Rules section in this issue of the
Federal Register. Pursuant to section 7805(f) of the Code, these
regulations have been submitted to the Chief Counsel for Advocacy of
the Small Business Administration for comment on their impact on small
business.
Drafting Information
These regulations were drafted by personnel in the Office of
Associate Chief Counsel (Financial Institutions and Products), the
Office of Associate Chief Counsel (Income Tax and Accounting), the
Office of the Associate Chief Counsel (International) and the Office of
the Associate Chief Counsel (Passthroughs and Special Industries).
However, other personnel from the IRS and the Treasury Department
participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 48
Excise taxes, Reporting and recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 48 are amended as follows:
PART 1--INCOME TAXES
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Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
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Par. 2. Section 1.150-1 is amended as follows:
0
1. Paragraph (a)(4) is added.
0
2. In paragraph (b), the definition of Issuance costs is revised.
The additions and revisions read as follows:
Sec. 1.150-1 Definitions.
(a) * * *
(4) [Reserved] For further guidance, see Sec. 1.150-1T(a)(4).
(b) * * *
Issuance costs [Reserved]. For further guidance, see Sec. 1.150-
1T(b), Issuance costs.
* * * * *
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Par. 3. Section 1.150-1T is added to read as follows:
Sec. 1.150-1T Definitions (temporary).
(a) through (a)(3) [Reserved]. For further guidance, see Sec.
1.150-1(a) through (a)(3).
(4) Additional exception to the general applicability date. Section
1.150-1T(b), Issuance costs, applies on and after July 6, 2011.
(5) Expiration date. The applicability of Sec. 1.150-1T(b),
Issuance costs, expires on or before July 1, 2014.
(b) Bond through the definition of Governmental bond [Reserved].
For further guidance, see Sec. 1.150-1(b) Bond through the definition
of Governmental bond.
Issuance costs means costs to the extent incurred in connection
with, and allocable to, the issuance of an issue within the meaning of
section 147(g). For example, issuance costs include the following costs
but only to the extent incurred in connection with, and allocable to,
the borrowing: Underwriters' spread; counsel fees; financial advisory
fees; fees paid to an organization to evaluate the credit quality of an
issue; trustee fees; paying agent fees; bond registrar, certification,
and authentication fees; accounting fees; printing costs for bonds and
offering documents; public approval process costs; engineering and
feasibility study costs; guarantee fees, other than for qualified
guarantees (as defined in Sec. 1.148-4(f)); and similar costs.
(c) Issue date through paragraph (e) [Reserved]. For further
guidance, see Sec. 1.150-1(b) Issue date through paragraph (e).
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Par. 4. Section 1.171-1(f) Example 2 is revised to read as follows:
Sec. 1.171-1 Bond premium.
* * * * *
(f) * * *
Example 2. [Reserved]. For further guidance, see Sec. 1.171-1T(f)
Example 2.
* * * * *
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Par. 5. Section 1.171-1T is added to read as follows:
Sec. 1.171-1T Bond premium (temporary).
(a) through (f) Example 1 [Reserved]. For further guidance, see
Sec. 1.171-1(a) through (f) Example 1.
Example 2. Convertible bond--(i) Facts. On January 1, 2012, A
purchases for $1,100 B corporation's bond maturing on January 1,
2015, with a stated principal amount of $1,000, payable at maturity.
The bond provides for unconditional payments of interest of $30 on
January 1 and July 1 of each year. In addition, the bond is
convertible into 15 shares of B corporation stock at the option of
the holder. On January 1, 2012, B corporation's nonconvertible,
publicly-traded, three-year debt of comparable credit quality trades
at a price that reflects a yield of 6.75 percent, compounded
semiannually.
(ii) Determination of basis. A's basis for determining loss on
the sale or exchange of the bond is $1,100. As of January 1, 2012,
discounting the remaining payments on the bond at the yield at which
B's similar nonconvertible bonds trade (6.75 percent, compounded
semiannually) results in a present value of $980. Thus, the value of
the conversion option is $120. Under Sec. 1.171-1(e)(1)(iii)(A),
A's basis is $980 ($1,100 -$120) for purposes of Sec. Sec. 1.171-1
through 1.171-5. The sum of all amounts payable on the bond other
than qualified stated interest is $1,000. Because A's basis (as
determined under Sec. 1.171-1(e)(1)(iii)(A)) does not exceed
$1,000, A does not acquire the bond at a premium.
(iii) Effective/applicability date. This Example 2 applies to bonds
acquired on or after July 6, 2011.
(g) Expiration date. The applicability of this section expires on
or before July 1, 2014.
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Par. 6. Section 1.197-2 is amended by revising paragraph (b)(7) to read
as follows:
Sec. 1.197-2 Amortization of goodwill and certain other intangibles.
* * * * *
(b) * * *
(7) [Reserved]. For further guidance, see Sec. 1.197-2T(b)(7).
* * * * *
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Par. 7. Section 1.197-2T is added to read as follows:
Sec. 1.197-2T Amortization of goodwill and certain other intangibles
(temporary).
(a) through (b)(6) [Reserved]. For further guidance, see Sec.
1.197-2(a) through (b)(6).
(7) Supplier-based intangibles--(i) In general. Section 197
intangibles include any supplier-based intangible. A supplier-based
intangible is the value resulting from the future acquisition, pursuant
to contractual or other relationships with suppliers in the ordinary
course of business, of goods or services that will be sold or used by
the taxpayer. Thus, the amount paid or incurred for supplier-based
intangibles includes, for example, any portion of the purchase price of
an acquired trade or business attributable to the existence of a
favorable relationship with persons providing distribution services
(such as favorable shelf or display space at a retail outlet), or the
existence of favorable supply contracts. The amount
[[Page 39281]]
paid or incurred for supplier-based intangibles does not include any
amount required to be paid for the goods or services themselves
pursuant to the terms of the agreement or other relationship. In
addition, see the exceptions in Sec. 1.197-2(c), including the
exception in Sec. 1.197-2(c)(6) for certain rights to receive tangible
property or services from another person.
(ii) Effective/applicability date. This section applies to
supplier-based intangibles acquired after July 6, 2011.
(iii) Expiration date. The applicability of this section expires on
or before July 1, 2014.
(b)(8) through (l) [Reserved]. For further guidance, see Sec.
1.197-2(b)(8) through (l).
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Par. 8. Section 1.249-1 is amended as follows:
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1. Paragraph (e)(2)(ii) is revised.
0
2. The paragraph heading for paragraph (f) is revised.
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3. Paragraph (f)(3) is added.
The revisions and addition read as follows:
Sec. 1.249-1 Limitation on deduction of bond premium on repurchase.
* * * * *
(e) * * *
(2) * * *
(ii) [Reserved]. For further guidance, see Sec. 1.249-
1T(e)(2)(ii).
* * * * *
(f) Effective/applicability dates. * * *
(3) [Reserved]. For further guidance, see Sec. 1.249-1T(f)(3).
* * * * *
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Par. 9. Section 1.249-1T is added to read as follows:
Sec. 1.249-1T Limitation on deduction of bond premium on repurchase
(temporary).
(a) through (e)(2)(i) [Reserved]. For further guidance, see Sec.
1.249-1(a) through (e)(2)(i).
(ii) In determining the amount under Sec. 1.249-1(e)(2)(i),
appropriate consideration shall be given to all factors affecting the
selling price or yields of comparable nonconvertible obligations. Such
factors include general changes in prevailing yields of comparable
obligations between the dates the convertible obligation was issued and
repurchased and the amount (if any) by which the selling price of the
nonconvertible obligation was affected by reason of any change in the
issuing corporation's credit quality or the credit quality of the
obligation during such period (determined on the basis of widely
published financial information or on the basis of other relevant facts
and circumstances which reflect the relative credit quality of the
corporation or the comparable obligation).
(e)(2)(iii) through (f)(2) [Reserved]. For further guidance, see
Sec. 1.249-1(e)(2)(iii) through (f)(2).
(3) Portion of repurchase premium attributable to cost of
borrowing. Paragraph (e)(2)(ii) of this section applies to any
repurchase of a convertible obligation occurring on or after July 6,
2011.
(g) [Reserved]. For further guidance, see Sec. 1.249-1(g).
(h) Expiration date. The applicability of this section expires on
or before July 1, 2014.
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Par. 10. Section 1.475(a)-4 is amended by revising paragraph (d)(4)
Example 1, Example 2, and Example 3 to read as follows:
Sec. 1.475(a)-4 Valuation safe harbor.
* * * * *
(d) * * *
(4) * * *
Example 1. [Reserved]. For further guidance, see Sec. 1.475(a)-
4T(d)(4) Example 1.
Example 2. [Reserved]. For further guidance, see Sec. 1.475(a)-
4T(d)(4) Example 2.
Example 3. [Reserved]. For further guidance, see Sec. 1.475(a)-
4T(d)(4) Example 3.
* * * * *
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Par. 11. Section 1.475(a)-4T is added to read as follows:
Sec. 1.475(a)-4T Valuation safe harbor (temporary).
(a) through (d)(4) introductory text [Reserved]. For further
guidance, see Sec. 1.475(a)-4(a) through (d)(4) introductory text.
Example 1. (i) X, a calendar year taxpayer, is a dealer in
securities within the meaning of section 475(c)(1). X generally
maintains a balanced portfolio of interest rate swaps and other
interest rate derivatives, capturing bid-ask spreads and keeping its
market exposure within desired limits (using, if necessary,
additional derivatives for this purpose). X uses a mark-to-market
method on a statement that it is required to file with the United
States Securities and Exchange Commission and that satisfies Sec.
1.475(a)-4(d)(2) with respect to both the contracts with customers
and the additional derivatives. When determining the amount of any
gain or loss realized on a sale, exchange, or termination of a
position, X makes a proper adjustment for amounts taken into account
respecting payments or receipts. X and all of its counterparties on
the derivatives have the same general credit quality as each other.
(ii) Under X's valuation method, as of each valuation date, X
determines a mid-market probability distribution of future cash
flows under the derivatives and computes the present values of these
cash flows. In computing these present values, X uses an industry
standard yield curve that is appropriate for obligations by persons
with this same general credit quality. In addition, based on
information that includes its own knowledge about the
counterparties, X adjusts some of these present values either upward
or downward to reflect X's reasonable judgment about the extent to
which the true credit status of each counterparty's obligation,
taking credit enhancements into account, differs from the general
credit quality used in the yield curve to present value the
derivatives.
(iii) X's methodology does not violate the requirement in Sec.
1.475(a)-4(d)(3)(iii) that the same cost or risk not be taken into
account, directly or indirectly, more than once.
(iv) This Example 1 applies to valuations of securities on or
after July 6, 2011.
Example 2. (i) The facts are the same as in Example 1, except
that X uses a better credit quality in determining the yield curve
to discount the payments to be received under the derivatives. Based
on information that includes its own knowledge about the
counterparties, X adjusts these present values to reflect X's
reasonable judgment about the extent to which the true credit status
of each counterparty's obligation, taking credit enhancements into
account, differs from this better credit quality obligation.
(ii) X's methodology does not violate the requirement in Sec.
1.475(a)-4(d)(3)(iii) that the same cost or risk not be taken into
account, directly or indirectly, more than once.
(iii) This Example 2 applies to valuations of securities on or
after July 6, 2011.
Example 3. (i) The facts are the same as in Example 1, except
that, after computing present values using the discount rates that
are appropriate for obligors with the same general credit quality,
and based on information that includes X's own knowledge about the
counterparties, X adjusts some of these present values either upward
or downward to reflect X's reasonable judgment about the extent to
which the true credit status of each counterparty's obligation,
taking credit enhancements into account, differs from a better
credit quality.
(ii) X's methodology violates the requirement in Sec. 1.475(a)-
4(d)(3)(iii) that the same cost or risk not be taken into account,
directly or indirectly, more than once. By using the same general
credit quality discount rate, X's method takes into account the
difference between risk-free obligations and obligations with that
lower credit quality. By adjusting values for the difference between
a higher credit quality and that lower credit quality, X takes into
account risks that it had already accounted for through the discount
rates that it used. The same result would occur if X judged some of
its counterparties' obligations to be of a higher credit quality but
X failed to adjust the values of those obligations to reflect the
difference between a higher credit quality and the lower credit
quality.
(iii) This Example 3 applies to valuations of securities on or
after July 6, 2011.
Example 4 and Example 5 and paragraphs (e) through (m). [Reserved].
For further guidance, see Sec. 1.475(a)-4(d)(4) Example 4 and Example
5 and paragraphs (e) through (m).
[[Page 39282]]
(n) Expiration date. The applicability of this section expires on
or before July 1, 2014.
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Par. 12. Section 1.860G-2 is amended by revising paragraphs
(g)(3)(ii)(B) and (C) and adding paragraph (D) to read as follows:
Sec. 1.860G-2 Other rules.
* * * * *
(g) * * *
(3) * * *
(ii) * * *
(B) [Reserved]. For further guidance, see Sec. 1.860G-
2T(g)(3)(ii)(B).
(C) [Reserved]. For further guidance, see Sec. 1.860G-
2T(g)(3)(ii)(C).
(D) [Reserved]. For further guidance, see Sec. 1.860G-
2T(g)(3)(ii)(D).
* * * * *
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Par. 13. Section 1.860G-2T is added to read as follows:
Sec. 1.860G-2T Other rules (temporary).
(a) through (g)(3)(ii)(A) [Reserved]. For further guidance, see
Sec. 1.860G-2(a) through (g)(3)(ii)(A).
(B) Presumption that a reserve is reasonably required. The amount
of a reserve fund is presumed to be reasonable (and an excessive
reserve is presumed to have been promptly and appropriately reduced) if
it does not exceed the amount required by a third party insurer or
guarantor, who does not own directly or indirectly (within the meaning
of section 267(c)) an interest in the REMIC (as defined in section
1.860D-1(b)(1)), as a condition of providing credit enhancement.
(C) Presumption may be rebutted. The presumption in Sec. 1.860G-
2(g)(3)(ii)(B) may be rebutted if the amounts required by the third
party insurer are not commercially reasonable considering the factors
described in Sec. 1.860G-2(g)(3)(ii)(A).
(D) Effective/applicability date. Paragraphs (g)(3)(ii)(B) and (C)
of this section apply on and after July 6, 2011.
(E) Expiration date. The applicability of paragraphs (g)(3)(ii)(B)
and (C) of this section expires on or before July 1, 2014.
(h) through (k) [Reserved]. For further guidance, see Sec. 1.860G-
2(h) through (k).
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Par. 14. Section 1.1001-3 is amended as follows:
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1. Paragraph (d) Example 9 is revised.
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2. Paragraph (e)(4)(iv)(B) is revised.
0
3. Paragraph (e)(5)(ii)(B)(2) is revised.
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4. Paragraph (g) Examples 1, 5 and 8 are revised.
The revisions read as follows:
Sec. 1.1001-3 Modifications of debt instruments.
* * * * *
(d) * * *
Example 9. [Reserved]. For further guidance, see Sec. 1.1001-3T(d)
Example 9.
* * * * *
(e) * * *
(4) * * *
(iv) * * *
(B) [Reserved]. For further guidance, see Sec. 1.1001-
3T(e)(4)(iv)(B).
* * * * *
(5) * * *
(ii) * * *
(B) * * *
(2) [Reserved]. For further guidance, see Sec. 1.1001-
3T(e)(5)(ii)(B)(2).
* * * * *
(g) * * *
Example 1. [Reserved]. For further guidance, see Sec. 1.1001-3T(g)
Example 1.
* * * * *
Example 5. [Reserved]. For further guidance, see Sec. 1.1001-3T(g)
Example 5.
* * * * *
Example 8. [Reserved]. For further guidance, see Sec. 1.1001-3T(g)
Example 8.
* * * * *
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Par. 15. Section 1.1001-3T is added to read as follows:
Sec. 1.1001-3T Modifications of debt instruments (temporary).
(a) through (d) Example 8 [Reserved]. For further guidance, see
Sec. 1.1001-3(a) through (d) Example 8.
Example 9. Holder's option to increase interest rate. (i) A
corporation issues an 8-year note to a bank in exchange for cash.
Under the terms of the note, the bank has the option to increase the
rate of interest by a specified amount if certain covenants in the
note are breached. The bank's right to increase the interest rate is
a unilateral option as described in Sec. 1.1001-3(c)(3).
(ii) A covenant in the note is breached. The bank exercises its
option to increase the rate of interest. The increase in the rate of
interest occurs by operation of the terms of the note and does not
result in a deferral or a reduction in the scheduled payments or any
other alteration described in Sec. 1.1001-3(c)(2). Thus, the change
in interest rate is not a modification.
(iii) Effective/applicability date. This Example 9 applies to
modifications occurring on or after July 6, 2011.
(d) Example 10 through (e)(4)(iv)(A) [Reserved]. For further
guidance, see Sec. 1.1001-3(d) Example 10 through (e)(4)(iv)(A).
(B) Nonrecourse debt instruments. (1) A modification that releases,
substitutes, adds or otherwise alters a substantial amount of the
collateral for, a guarantee on, or other form of credit enhancement for
a nonrecourse debt instrument is a significant modification. A
substitution of collateral is not a significant modification, however,
if the collateral is fungible or otherwise of a type where the
particular units pledged are unimportant (for example, government
securities or financial instruments of a particular type and credit
quality). In addition, the substitution of a similar commercially
available credit enhancement contract is not a significant
modification, and an improvement to the property securing a nonrecourse
debt instrument does not result in a significant modification.
(2) Effective/applicability date. This paragraph (e)(4)(iv)(B)
applies to modifications occurring on or after July 6, 2011.
(e)(4)(v) through (e)(5)(ii)(B)(1) [Reserved]. For further
guidance, see Sec. 1.1001-3(e)(4)(v) through (e)(5)(ii)(B)(1).
(2) Original collateral. (i) A modification that changes a recourse
debt instrument to a nonrecourse debt instrument is not a significant
modification if the instrument continues to be secured only by the
original collateral and the modification does not result in a change in
payment expectations. For this purpose, if the original collateral is
fungible or otherwise of a type where the particular units pledged are
unimportant (for example, government securities or financial
instruments of a particular type and credit quality), replacement of
some or all units of the original collateral with other units of the
same or similar type and aggregate value is not considered a change in
the original collateral.
(ii) Effective/applicability date. This paragraph (e)(5)(ii)(B)(2)
applies to modifications occurring on or after July 6, 2011.
(e)(6) through (g) introductory text [Reserved]. For further
guidance, see Sec. 1.1001-3(e)(6) through (g) introductory text.
Example 1. Modification of call right. (i) Under the terms of a
30-year, fixed-rate bond, the issuer can call the bond for 102
percent of par at the end of ten years or for 101 percent of par at
the end of 20 years. At the end of the eighth year, the holder of
the bond pays the issuer to waive the issuer's right to call the
bond at the end of the tenth year. On the date of the modification,
the issuer's credit quality is approximately the same as when the
bond was issued, but market rates of interest have declined from
that date.
(ii) The holder's payment to the issuer changes the yield on the
bond. Whether the change in yield is a significant modification
depends on whether the yield on the modified bond varies from the
yield on the original bond by more than the change in yield as
described in Sec. 1.1001-3(e)(2)(ii).
(iii) If the change in yield is not a significant modification,
the elimination of the issuer's call right must also be tested for
significance. Because the specific rules of Sec. 1.1001-3(e)(2)
through (e)(6) do not address
[[Page 39283]]
this modification, the significance of the modification must be
determined under the general rule of Sec. 1.1001-3(e)(1).
(iv) Effective/applicability date. This Example 1 applies to
modifications occurring on or after July 6, 2011.
Example 2 through Example 4 [Reserved]. For further guidance, see
Sec. 1.1001-3(g) Example 2 through Example 4.
Example 5. Assumption of mortgage with increase in interest
rate. (i) A recourse debt instrument with a 9 percent annual yield
is secured by an office building. Under the terms of the instrument,
a purchaser of the building may assume the debt and be substituted
for the original obligor if the purchaser is equally or more
creditworthy than the original obligor and if the interest rate on
the instrument is increased by one-half percent (50 basis points).
The building is sold, the purchaser assumes the debt, and the
interest rate increases by 50 basis points.
(ii) If the purchaser's acquisition of the building does not
satisfy the requirements of Sec. 1.1001-3(e)(4)(i)(B) or (C), the
substitution of the purchaser as the obligor is a significant
modification under Sec. 1.1001-3(e)(4)(i)(A).
(iii) If the purchaser acquires substantially all of the assets
of the original obligor, the assumption of the debt instrument will
not result in a significant modification if there is not a change in
payment expectations and the assumption does not result in a
significant alteration.
(iv) The change in the interest rate, if tested under the rules
of Sec. 1.1001-3(e)(2), would result in a significant modification.
The change in interest rate that results from the transaction is a
significant alteration. Thus, the transaction does not meet the
requirements of Sec. 1.1001-3(e)(4)(i)(C) and is a significant
modification under Sec. 1.1001-3 (e)(4)(i)(A).
(v) Effective/applicability date. Notwithstanding Sec. 1.1001-
3(h), this Example 5 applies to modifications occurring on or after
July 6, 2011.
Example 6 through Example 7 [Reserved]. For further guidance, see
Sec. 1.1001-3(g) Example 6 through Example 7.
Example 8. Substitution of credit enhancement contract. (i)
Under the terms of a recourse debt instrument, the issuer's
obligations are secured by a letter of credit from a specified bank.
The debt instrument does not contain any provision allowing a
substitution of a letter of credit from a different bank. The
specified bank, however, encounters financial difficulty. The issuer
and holder agree that the issuer will substitute a letter of credit
from another bank.
(ii) Under Sec. 1.1001-3(e)(4)(iv)(A), the substitution of a
different credit enhancement contract is not a significant
modification of a recourse debt instrument unless the substitution
results in a change in payment expectations. While the substitution
of a new letter of credit by a different bank does not itself result
in a change in payment expectations, such a substitution may result
in a change in payment expectations under certain circumstances (for
example, if the obligor's capacity to meet payment obligations is
dependent on the letter of credit and the substitution substantially
enhances that capacity from primarily speculative to adequate).
(iii) Effective/applicability date. This Example 8 applies to
modifications occurring on or after July 6, 2011.
Example 9 through (h) [Reserved]. For further guidance, see Sec.
1.1001-3(g) Example 9 through (h).
(i) Expiration date. The applicability of this section expires on
or before July 1, 2014.
PART 48--MANUFACTURERS AND RETAILERS EXCISE TAXES
0
Par. 16. The authority citation for part 48 continues to read in part
as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 17. Section 48.4101-1 is amended as follows:
0
1. Paragraph (f)(4)(ii)(B) is removed and reserved.
0
2. Paragraph (l)(5) is added and reserved.
The additions read as follows:
Sec. 48.4101-1 Taxable fuel; registration.
* * * * *
(f) * * *
(4) * * *
(ii) * * *
(B) [Reserved]. For further guidance, see Sec. 48.4101-
1T(f)(4)(ii)(B).
* * * * *
(l) * * *
(5) [Reserved]. For further guidance, see Sec. 48.4101-1T(l)(5).
0
Par. 18. Section 48.4101-1T is amended as follows:
0
1. Paragraphs (a) through (f)(4)(ii)(A) are reserved.
0
2. Paragraph (f)(4)(ii)(B) is revised.
0
3. Paragraphs (f)(4)(iii) through (h)(3)(iii) are reserved.
0
4. Paragraphs (h)(3)(v) through (l)(4) are reserved.
0
5. Paragraphs (l)(5) and (l)(6) are added.
The additions and revisions read as follows:
Sec. 48.4101-1T Taxable fuel; registration (temporary).
(a) through (f)(4)(ii)(A) [Reserved]. For further guidance see
Sec. 48.4104-1(a) through (f)(4)(ii)(A).
(B) Basis for determination. The determination under Sec. 48.4101-
1(f)(4)(ii) must be based on all information relevant to the
applicant's financial status.
(f)(4)(iii) through (h)(3)(iii) [Reserved]. For further guidance,
see Sec. 48.4101-1(f)(4)(iii) through (h)(3)(iii).
* * * * *
(h)(3)(v) through (l)(4) [Reserved]. For further guidance, see
Sec. 48.4101-1(h)(3)(v) through (l)(4).
(l)(5) Effective/applicability date. Paragraph (f)(4)(ii)(B) of
this section applies on July 6, 2011.
(l)(6) Expiration date. The applicability of paragraph
(f)(4)(ii)(B) of this section expires on or before July 1, 2014.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: June 29, 2011.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-16856 Filed 7-1-11; 11:15 am]
BILLING CODE 4830-01-P
