us-irs-announcements-irb-2012-35-pdf•Internal Revenue Bulletin 2012-35 (PDF rendition): IRS Announcements
Internal Revenue Bulletin 2012-35 (PDF rendition): IRS Announcements
us-irs-announcements-irb-2012-35-pdfInternal Revenue Bulletin 2012-35 (PDF rendition): IRS AnnouncementsGuidance
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Bulletin No. 201 2-35 August 27, 2012 HIGHLIGHTS OF THIS ISSUE These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. INCOME TAX REG–136491–09, page 321. Proposed regulations under section 42 of the Code update the utility allowance regulations to clarify that utility costs paid by a tenant based on actual consumption in a submetered rent-re- stricted unit are treated as paid by the tenant directly to the util- ity company. A public hearing is scheduled for November 27, 2012. EMPLOYEE PLANS Notice 2012–53, page 317. Weighted average interest rate update; corporate bond indices; 30-year Treasury securities; segment rates. This notice contains updates for the corporate bond weighted average interest rate for plan years beginning in August 2012; the 24-month average segment rates; the funding transitional segment rates applicable for August 2012; and the minimum present value transitional rates for July 2012. However, the notice does not reflect changes to segment rates required under the Moving Ahead for Progress in the 21st Century Act (MAP-21). EXEMPT ORGANIZATIONS Announcement 2012–32, page 325. The IRS has revoked its determination that Christian Credit Outreach, Inc., of Carlsbad, CA; ECM-1, Inc., of Sulphur, LA; Friends of Fiji of Danville, CA; Headwaters Ministries, Inc., of Fort Mill, SC; Kids Educational Development Scholarship, Inc., of Los Gatos, CA; South Plains Volunteer Services, Inc., of Lub- bock, TX; United States Navy Veteran Association Minnesota Chapter of St. Paul, MN; United States Navy Veteran Associ- ation Georgia Chapter of Tampa, FL; United States Navy Vet- eran Association Kansas Chapter of Washington, DC; United States Navy Veteran Association New Hampshire Chapter of Washington, DC; United StatesNavy Veteran Association New Mexico Chapter of Washington, DC; United States Navy Veteran Association Rhode Island Chapter of Washington, DC; United States Navy Veteran Association of Washington, DC; United States Navy Veteran Association Arkansas Chapter of Washing- ton, DC; W.E.B. Dubois Community Development Corporation of Wake Forest, NC; and Women of Distinction of Dallas, TX, qualify as organizations described in sections 501(c)(3) and 170(c)(2) of the Code. ADMINISTRATIVE Notice 2012–52, page 317. This notice advises taxpayers that, if all other requirements of section 170 of the Code are met, the Service will treat a con- tribution to a U.S. disregarded single member limited liability company that is wholly owned and controlled by a U.S. charity as a charitable contribution to a branch or division of the U.S. charity. Announcements of Disbarments and Suspensions begin on page 325. Fi nding Lists begin on page ii. Index for July through August begins on page iv. The IRS Mission Provide Americ a’s taxpayers top-quality service by helping them understa nd and meet their tax responsibilities and en- force the law wi th integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conven- tions, legislation, court decisions, and other items of general interest. It is published weekly and may be obtained from the Superintendent of Documents on a subscription basis. Bulletin contents are compiled semiannually into Cumulative Bulletins, which are sold on a single-copy basis. It is the policy of the Service to publish in the Bulletin all sub- stantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, mod- ify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless otherwise indi- cated. Procedures relating solely to matters of internal man- agement are not published; however, statements of internal practices and procedures that affect the rights and duties of taxpayers are published. Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts stated in the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices, identifying details and information of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory requirements. Rulings and procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations, but they may be used as precedents. Unpublished rulings will not be relied on, used, or cited as precedents by Service personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—19 86 Code. This part i ncludes rulings and decisions based on provisions of the Intern al Revenue Code of 1986. Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions and Other Related Items, and Subpart B, Leg- islation and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rul- ings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Secre- tary (Enforcement). Part IV .—Items of General Interest. This par t includes notices of proposed rulemakings, disbar- ment an d suspension lists, and announcements. The last Bulletin for each month includes a cumulative index for the matters published during the preceding months. These monthly indexes are cumulated on a semiannual basis, and are published in the last Bulletin of each semiannual period. The c ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402. August 27, 20122012–35 I.R.B. Part III. Administrative, Procedural, and Miscellaneous Charitable Contributions to Domestic Disregarded Entities Notice 2012–52 PURPOSE This notice provides guidance on the deductibility of contributions to domestic single-member limited liability companies that are wholly owned and controlled by organizations described in § 170(c)(2) of the Internal Revenue Code (U.S. char- ities) and for federal tax purposes are disregarded as entities separate from their owners under § 301.7701–2(c)(2)(i) of the Procedure and Administration Regula- tions (SMLLCs). BACKGROUND Section 170(a) allows as a deduction any charitable contribution, as defined in § 170(c). Section 170(c)(2) in part defines the term “charitable contribution” as a con- tribution or gift to or for the use of a cor- poration, trust, or community chest, fund, or foundation— (A) Created or organized in the United States or in any possession thereof, or un- der the law of the United States, any State, the District of Columbia, or any possession of the United States; (B) Organized and operated exclu- sively for specified purposes, including religious, charitable, scientific, literary or educational purposes; (C) No part of the net earnings of which inures to the benefit of any private share- holder or individual; and (D) Which is not disqualified for tax ex- emption under § 501(c)(3) by reason of at- tempting to influence legislation or partic- ipating in a political campaign. Section 170(b) prescribes limitations on the maximum amount deductible as a char- itable contribution. Generally, a business entity that has a single owner and is not a corporation under § 301.7701–2(b) is disregarded for federal tax purposes as an entity sep- arate from its owner (disregarded en- tity). See § 301.7701–2(c)(2)(i). Section 301.7701–2(a) provides that “if the entity is disregarded, its activities are treated in the same manner as a sole proprietor- ship, branch, or division of the owner.” A business entity (including a disregarded entity) is domestic if it is created or orga- nized within the United States, or under the law of the United States or of any state. See § 301.7701–5(a). A U.S. char- ity that wholly owns a disregarded entity must treat the operations and finances of the disregarded entity as its own for tax and information reporting purposes. See Ann. 99–102, 1999–2 C.B. 545. How- ever, for employment and certain excise tax purposes, an entity that is disregarded as separate from its owner for any pur- pose under § 301.7701–2 is treated as an entity separate from its owner. See § 301.7701–2(c)(2)(iv) and (v). CONTRIBUTIONS TO DOMESTIC SMLLCs If all other requirements of § 170 are met, the Internal Revenue Service will treat a contribution to a disregarded SMLLC that was created or organized in or under the law of the United States, a United States possession, a state, or the District of Columbia, and is wholly owned and controlled by a U.S. charity, as a charitable contribution to a branch or division of the U.S. charity. The U.S. charity is the donee organization for purposes of the substantiation and disclosure required by §§ 170(f) and 6115. To avoid unnecessary inquiries by the Service, the charity is encouraged to disclose, in the acknowledgment or another statement, that the SMLLC is wholly owned by the U.S. charity and treated by the U.S. charity as a disregarded entity. The limitations of § 170(b) apply as though the gift were made to the U.S. charity. EFFECTIVE DATE This notice is effective for charitable contributions made on or after July 31, 2012. However, taxpayers may rely on this notice prior to its effective date for taxable years for which the period of limitation on refund or credit under § 6511 has not ex- pired. DRAFTING INFORMATION The principal author of this notice is Susan J. Kassell of the Office of the Associate Chief Counsel (Income Tax & Accounting).For further information concerning this notice, contact Ms. Kassell at (202) 622–5020 (not a toll-free call). Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates Notice 2012–53 This notice provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under §412(b)(5)(B)(ii)(II) of the Internal Revenue Code as in ef- fect for plan years beginning before 2008. It also provides guidance on the cor- porate bond monthly yield curve (and the corresponding spot segment rates), and the 24-month average segment rates under § 430(h)(2). In addition, this no- tice provides guidance as to the interest rate on 30-year Treasury securities un- der § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, the 30-year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I), and the min- imum present value segment rates under § 417(e)(3)(D) as in effect for plan years beginning after 2007. These rates do not reflect any changes implemented by the Moving Ahead for Progress in the 21st Century Act, Public Law 112–141 (MAP–21). MAP–21 provides that for purposes of section 430(h)(2), the seg- ment rates are limited by the applicable maximum percentage or the applicable minimum percentage based on the average of segment rates over a 25 year period. Guidance related to the new legislation will be issued in the future. CORPORATE BOND WEIGHTED AVERAGE INTEREST RATE Sections412(b)(5)(B)(ii)and 412(l)(7)(C)(i) provide that the interest rates used to calculate current liability 2012–35 I.R.B.317August 27, 2012 and to determine the required contribution under § 412(l) for plan years beginning in 2004 through 2007 must be within a permissible range based on the weighted average of the rates of interest on amounts invested conservatively in long term in- vestment grade corporate bonds during the 4-year period ending on the last day before the beginning of the plan year. Notice 2004–34, 2004–1 C.B. 848, pro- vides guidelines for determining the cor- porate bond weighted average interest rate and the resulting permissible range of in- terest rates used to calculate current liabil- ity. That notice establishes that the corpo- rate bond weighted average is based on the monthly composite corporate bond rate de- rived from designated corporate bond in- dices. The methodology for determining the monthly composite corporate bond rate as set forth in Notice 2004–34 continues to apply in determining that rate. See Notice 2006–75, 2006–2 C.B. 366. The composite corporate bond rate for July 2012 is 3.97 percent. Pursuant to No- tice 2004–34, the Service has determined this rate as the average of the monthly yields for the included corporate bond in- dices for that month. The following corporate bond weighted average interest rate was determined for plan years beginning in the month shown below. For Plan Years Beginning inPermissible Range MonthYear Corporate Bond Weighted Average90%to100% August2012 5.31 4.78 5.31 YIELD CURVE AND SEGMENT RATES Generally, except for certain plans un- der sections 104 and 105 of the Pension Protection Act of 2006 (PPA), § 430 of the Code specifies the minimum funding requirements that apply to single em- ployer plans pursuant to § 412. Section 430(h)(2) specifies the interest rates that must be used to determine a plan’s target normal cost and funding target. Under this provision, present value is generally determined using three 24-month average interest rates (“segment rates”), each of which applies to cash flows during spec- ified periods. However, an election may be made under § 430(h)(2)(D)(ii) to use the monthly yield curve in place of the segment rates. Notice 2007–81, 2007–2 C.B. 899, provides guidelines for determining the monthly corporate bond yield curve, and the 24-month average corporate bond segment rates used to compute the tar- get normal cost and the funding target. Pursuant to Notice 2007–81, the monthly corporate bond yield curve derived from July 2012 data is in Table I at the end of this notice. The spot first, second, and third segment rates for the month of July 2012 are, respectively, 1.22, 3.66, and 4.50. The three 24-month average cor- porate bond segment rates applicable for August 2012 are as follows: First Segment Second Segment Third Segment 1.774.67 5.78 30-YEAR TREASURY SECURITIES INTEREST RATES Section 417(e)(3)(A)(ii)(II) (prior to amendment by PPA) defines the appli- cable interest rate, which must be used for purposes of determining the minimum present value of a participant’s benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury se- curities for the month before the date of distribution or such other time as the Secretary may by regulations prescribe. Section 1.417(e)–1(d)(3) of the Income Tax Regulations provides that the applica- ble interest rate for a month is the annual rate of interest on 30-year Treasury secu- rities as specified by the Commissioner for that month in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin. The rate of interest on 30-year Trea- sury securities for July 2012 is 2.59 per- cent. The Service has determined this rate as the average of the daily determinations of yield on the 30-year Treasury bond ma- turing in May 2042. Generally for plan years beginning after 2007, § 431 specifies the mini- mum funding requirements that apply to multiemployer plans pursuant to § 412. Section 431(c)(6)(B)specifies a minimum amount for the full-funding limitation described in section 431(c)(6)(A), based on the plan’s current liability. Section 431(c)(6)(E)(ii)(I) provides that the inter- est rate used to calculate current liability for this purpose must be no more than 5 percent above and no more than 10 percent below the weighted average of the rates of interest on 30-year Treasury securities dur- ing the four-year period ending on the last day before the beginning of the plan year. Notice 88–73, 1988–2 C.B. 383, provides guidelines for determining the weighted average interest rate. The following rates were determined for plan years beginning in the month shown below. August 27, 20123182012–35 I.R.B. For Plan Years Beginning inPermissible Ran ge MonthYear 30-Year Treasury Weighted Average90%to105% August20123.773.393.96 MINIMUM PRESENT VALUE SEGMENT RATES In general, the applicable interest rates under § 417(e)( 3)(D) are segment rates computed with out regard to a 24-month average. For p lan years beginning in 2008 through 201 1, the applicable interest rates are the mo nthly spot segment rates blended with th e applicable rate under § 417(e)(3)(A) (ii)(II) as in effect for plan years beginnin g in 2007. Notice 2007–81 provides guid elines for determining the minimum prese nt value segment rates. Pursuant to that notice, the minimum present value t ransitional segment rates determined for July 2012, taking into ac- count the July 2 012 30-year Treasury rate of 2.59 stated a bove, are as follows: For Plan Years Beginning in First Segment Second Segment Third Segment 20111.49 3.45 4.12 20121.223.66 4.50 DRAFTING INFORMATION The principal author of this notice is Tony Montanaro of the Employee Plans, Tax Exempt and Government Entities Di- vision. Mr. Montanaro may be e-mailed at RetirementPlanQuestions@irs.gov. 2012–35 I.R.B.319August 27, 2012 Table I Monthly Yield Curve for July 2012 Derived from July 2012 Data Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield 0.5 0.39 20.5 4.37 40.54.5160.54.5780.5 4.60 1.00.6721.04.3841.0 4.51 61.0 4.57 81.04.60 1.5 0.91 21.54.3841.54.5261.54.5781.54.60 2.01.1022.04.3942.0 4.52 62.0 4.58 82.04.60 2.5 1.24 22.5 4.39 42.54.5262.54.5882.5 4.60 3.01.3623.0 4.39 43.0 4.52 63.0 4.58 83.04.61 3.5 1.46 23.5 4.40 43.54.5363.54.5883.5 4.61 4.0 1.57 24.04.4044.0 4.53 64.0 4.58 84.04.61 4.51.7024.54.4044.54.5364.54.5884.54.61 5.0 1.83 25.0 4.41 45.04.5365.04.5885.0 4.61 5.5 1.98 25.5 4.41 45.54.5365.54.5885.5 4.61 6.0 2.15 26.04.4246.0 4.53 66.0 4.58 86.04.61 6.5 2.32 26.5 4.42 46.54.5466.54.5886.5 4.61 7.0 2.49 27.04.4247.0 4.54 67.0 4.58 87.04.61 7.52.6727.54.4347.54.5467.54.5987.54.61 8.02.8428.04.4348.0 4.54 68.04.5988.04.61 8.5 3.01 28.5 4.44 48.54.5468.5 4.59 88.5 4.61 9.0 3.16 29.0 4.44 49.0 4.54 69.0 4.59 89.0 4.61 9.53.3129.5 4.45 49.5 4.55 69.54.5989.54.61 10.03.4430.0 4.4550.04.55 70.04.59 90.0 4.61 10.53.5630.54.4550.54.5570.54.5990.54.61 11.03.6731.04.46 51.04.55 71.04.5991.04.61 11.5 3.77 31.5 4.46 51.54.5571.5 4.5991.54.61 12.03.8632.04.46 52.04.55 72.04.59 92.0 4.61 12.5 3.94 32.5 4.47 52.54.5572.5 4.5992.54.61 13.04.0133.04.47 53.04.56 73.04.59 93.0 4.62 13.54.0733.54.4753.54.5673.54.5993.54.62 14.04.1234.04.48 54.04.56 74.04.5994.04.62 14.5 4.17 34.5 4.48 54.54.5674.5 4.6094.54.62 15.0 4.21 35.0 4.48 55.04.5675.0 4.6095.04.62 15.5 4.24 35.5 4.49 55.54.5675.5 4.6095.54.62 16.04.2636.0 4.49 56.04.56 76.04.60 96.0 4.62 16.54.2836.5 4.49 56.54.5676.54.6096.54.62 17.04.3037.0 4.5057.04.57 77.04.6097.04.62 17.5 4.32 37.54.5057.54.5777.5 4.6097.54.62 18.04.3338.0 4.5058.04.57 78.04.60 98.0 4.62 18.5 4.34 38.54.5058.54.5778.5 4.6098.54.62 19.0 4.35 39.0 4.51 59.0 4.57 79.0 4.60 99.0 4.62 19.54.3639.54.5159.54.5779.54.6099.54.62 20.04.3740.0 4.51 60.0 4.57 80.04.60100.04.62 August 27, 20123202012–35 I.R.B. Part IV. Items o fGeneralInterest Notice of Prop osed Rulemaking an dNoticeof Public Hearin g Utility Allow ances Submetering REG–136491– 09 AGENCY: Inte rnal Revenue Service (IRS), Treas ury. ACTION: Noti ce of proposed rulemaking and notice o f public hearing. SUMMARY: Th is document contains proposed re gulations that amend the util- ity allowan ce regulations concerning the low-income housing tax credit. The pro- posed regul ations update the utility al- lowance re gulations to clarify that utility costs paid by a tenant based on actual consumpti on in a submetered rent-re- stricted u nit are treated as paid by the tenant di rectly to the utility company. The propo sed regulations affect owners of low-inco me housing projects that claim the credi t, the tenants in those low-income housing p rojects, and the State and local housing credit agencies that administer the credit. This document also contains a no- tice of a public hearing on these proposed regulat ions. DATES: C omments must be received by October 9, 2012. Outlines of topics to be discus sed at the public hearing scheduled for Tue sday, November 27, 2012, must be receiv ed by October 9, 2012. ADDRES SES: Send submissions to: CC:PA: LPD:PR(REG–136491–09), room 52 05, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washi ngton, DC 20044. Submissions may be han d-delivered Monday through Friday betwe en the hours of 8 a.m. and 4 p.m. to CC: PA:LPD:PR (REG–136491–09), Cour ier’s Desk, Internal Revenue Serv ice, 1111 Constitution Avenue, NW, Wash ington, DC, or sent electronically, viat heFederaleRulemaking Port al atwww.regulations.gov(IRS REG– 136491–09). The public hearing wil l be held in the Auditorium of the Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. FOR FURTHER IN FORMATION CONTACT: Conc erning the proposed reg- ulations, Dav id Selig, at (202) 622–3040; concerning su bmissions of comments, the hearing, or to be placed on the building acc ess list to attend the hear- ing, Oluwafu nmilayo Taylor, at (202) 622–7180 (no t toll-free numbers). SUPPLEMENTA RY INFORMATION: Background This docume nt contains proposed amendments to the Income Tax Regu- lations (26 CFR Part 1) relating to the low-income housing credit under section 42 of the In ternal Revenue Code. Sec- tion 42(a) provides that, for purposes of section 38 , the amount of the low-income housing cr edit determined under section 42 for any t axable year in the credit pe- riod is an amount equal to the applicable percenta ge of the qualified basis of each qualifie d low-income building. A qual- ified low -income building is defined in section 4 2(c)(2) as any building that is part of a qual ified low-income housing project at all ti mes during a statutorily prescribed period. A qualif ied low-income housing project is defin ed in section 42(g)(1) as any project for resi dential rental housing if the project meets on e of the following tests elected by the tax payer: (1) At least 20 percent of the reside ntial units in the project are rent-re- strict ed and occupied by individuals whose income is 50 percent or less of area me- dian gr oss income; or (2) at least 40 per- cent o f the residential units in the project are re nt-restricted and occupied by indi- vidua ls whose income is 60 percent or less of are a median gross income. If a taxpayer does n ot meet the elected test, the project is no t eligible for the section 42 credit. To qua lify as a rent-restricted unit with in the meaning of section 42(g), the gros s rent for the unit must not exceed 30 perc ent of the applicable income limita- tion . If any utilities are paid directly by the t enant, section 42(g)(2)(B)(ii) requires the inclusion in gross rent of a utility al- low ance determined by the Secretary, after taking into ac count the procedures under section 8 of th e United States Housing Act of 1937. On March 3, 199 4, the Treasury De- partment and t he IRS published in the Federal Regis tera Treasury Decision containing fi nal regulations under section 42 (59 FR 1006 7). Among these reg- ulations was §1.42–10, which provided guidance reg arding the proper role of util- ity allowanc es in determining gross rent under secti on 42(g)(2)(B)(i) for rent-re- stricted un its. On July 29, 2008, the Trea- sury Depart ment and the IRS published in theFeder al Registeramendments to §1.42–10 ( 73 FR 43863). If gross ren t includes a utility al- lowance, § 1.42–10(b), as amended, pro- vides rule s for determining the applicable utility al lowance depending upon whether (1) the bui lding receives rental assistance from the R ural Housing Service (RHS) (“RHS-as sisted building”), (2) the build- ing has an y tenant that receives RHS rental assistan ce payments (“RHS tenant assis- tance”), (3) the rents and utility allowances of the bu ilding are reviewed by the Depart- ment of H ousing and Urban Development (HUD) (“ HUD-regulated building”), or (4) the b uilding is not described in (1), (2), or ( 3) (“other building”). For an RHS-as sisted building and a building with RHS ten ant assistance, §1.42–10(b)(1) and (b) (2) provides that the applicable utilit y allowance is the applicable RHS utilit y allowance. For a HUD-regulated build ing, §1.42–10(b)(3) provides that the appli cable utility allowance is the appli- cable HUD utility allowance. In other build ings, for all rent-restricted units oc- cupie d by tenants receiving HUD tenant assi stance, §1.42–10(b)(4)(i) provides that the applicable utility allowance is the a pplicable Public Housing Authority (PHA ) utility allowance established for the S ection 8 Existing Housing Program. For all other tenants in rent-restricted uni ts in other buildings, §1.42–10(b)(4)(ii) pro vides that the applicable utility al- low ance is the applicable PHA utility all owance under §1.42–10(b)(4)(ii)(A), alo cal utility company estimate un- de r §1.42–10(b)(4)(ii)(B), an estimate fr om the State or local housing credit ag ency that has jurisdiction over the 2012–35 I.R.B.321August 27, 2012 building under §1.42–10(b)(4)(ii)(C), the HUD Utility Schedule Model under §1.42–10(b)(4)(ii)(D), or an energy consumption model under §1.42–10(b)(4)(ii)(E). After the 2008 amendment of the 1994 final regulations, commentators requested clarification about how the regulations ap- ply to submetering arrangements. Some buildings in qualified low-income hous- ing projects are submetered. Submeter- ing measures tenants’ actual utility con- sumption, and tenants pay for the utilities they use. A submetering system typically includes a master meter, which is owned or controlled by the utility company, with overall utility consumption billed to the building owner. In a submetered system, building owners (or their agents) use unit- based meters to measure utility consump- tion and prepare a bill for each residen- tial unit based on actual consumption. The building owners (or their agents) retain records of utility consumption in each unit, and tenants receive documentation of util- ity costs as specified in the lease. Notice 2009–44, 2009–21 I.R.B. 1037 (see §601.601(d)(2)(ii)(b)) was issued to clarify that, for purposes of §1.42–10(a), utility costs paid by a tenant based on ac- tual consumption in a submetered rent-re- stricted unit are treated as paid by the ten- ant directly to the utility company, and not by or through the owner of the building. Notice 2009–44 provides that, for RHS-as- sisted buildings under §1.42–10(b)(1), buildings with RHS tenant assistance un- der §1.42–10(b)(2), HUD-regulated build- ings under §1.42–10(b)(3), and rent-re- stricted units in other buildings occupied by tenants receiving HUD rental assistance under §1.42–10(b)(4)(i), the applicable RHS or HUD rules apply. For all other tenants in rent-re- stricted units in other buildings under §1.42–10(b)(4)(ii), Notice 2009–44 pro- vides that the utility rates charged to tenants in each submetered rent-restricted unit must be limited to the utility company rates incurred by the building owners (or their agents). Notice 2009–44 also pro- vides that, if building owners (or their agents) charge tenants a reasonable fee for the administrative costs of submetering, then the fee is not considered gross rent under section 42(g)(2). The fee must not exceed an aggregate amount per unit of 5 dollars per month unless State law pro- vides otherwise. If the costs for sewerage are based on the tenants’ actual water con- sumption determined with a submetering system and the sewerage costs are on a combined water and sewerage bill, then the tenants’ sewerage costs are treated as paid directly by the tenants for purposes of the utility allowances regulations. Even though Notice 2009–44 provides that the fee for the administrative costs of submetering is not considered gross rent under section 42(g)(2), the fee must be in- cluded in the gross income of the building owner under section 61. Notice 2009–44 states that the utility allowance regulations would be amended to incorporate the guidance set forth in the notice and requested comments on the provisions of the notice and issues result- ing from the notice. Comments were re- ceived in response to Notice 2009–44, and the comments were taken into consider- ation in developing these proposed reg- ulations. The proposed regulations gen- erally incorporate the guidance in Notice 2009–44 with additional modifications as explained in more detail below. Addi- tional comments are invited on the issues discussedinthispreambleoronotheris- sues related to utility submetering. See §601.601(d)(2)(ii)(b). Summary of Comments on Notice 2009–44 and Explanation of Provisions A commentator requested that ratio util- ity billing systems (commonly known as RUBS) be treated like submetering. Un- like submetering, RUBS use a formula that allocates a property’s utility bill among its units based on the units’ relative floor space, number of occupants, or some other quantitative measure, but not actual use by the unit. The IRS and the Treasury Depart- ment believe it is appropriate to treat a ten- ant’s payment of a utility through a build- ing owner (or its agent) as a direct pay- ment to the utility only to the extent the tenant’s utility cost is based on the unit’s actual consumption. Therefore, the pro- posed regulations do not permit utility al- lowances for RUBS. A commentator recommended that the regulations exclude or restrict “quasi-us- age” allocation systems in buildings with a master chiller or boiler where the tenant’s use of utilities is partly determined on an assumption not relating to actual use (such as the number of times a tenant turns on the system). Under Notice 2009–44 and these proposed regulations, if a submeter- ing arrangement is not based on a unit’s ac- tual consumption of a utility, then the gross rent for that unit cannot include a utility al- lowance for that particular utility. A commentator inquired as to the for- mat and length of time records of resi- dent utility consumption should be main- tained. Existing rules address record reten- tion. Section 1.42–10(d) provides that the building owner must retain any utility con- sumption estimates and supporting data as part of the taxpayer’s records for purposes of §1.6001–1(a). A commentator suggested that the regulations should limit use of a PHA utility allowance for non-Section 8 units that are submetered. The commentator reasoned that the PHA utility allowance does not reflect actual utility consump- tion in the building, resulting in a low allowance in some cases. In the past, other commentators have stated that PHA utility allowances generally are too high because they are based on older build- ings with higher utility costs compared to newly constructed or renovated low-in- come housing projects. The IRS and the Treasury Department have deter- mined that, if building owners do not wish to expend resources to obtain util- ity allowances under one of the methods in §1.42–10(b)(4)(ii)(B), (b)(4)(ii)(C), (b)(4)(ii)(D), or (b)(4)(ii)(E), it is reason- able that they be permitted to use PHA utility allowances for units not subject to §1.42–10(b)(1), (b)(2), (b)(3), or (b)(4)(i). Commentators also requested clari- ficationonotherrulescontainedinthe §1.42–10 final regulations. A commenta- tor asked whether State housing agencies are allowed to disapprove of certain meth- ods for determining utility allowances listed in §1.42–10(b)(4)(ii). Existing rules address the role of State housing agen- cies in determining utility allowances. Thus, depending on the particular method under §1.42–10(b)(4)(ii), State housing agencies may require certain information before a method can be used, or they may disapprove use of a method. For exam- ple, §1.42–10(b)(4)(ii)(C) provides that a building owner may obtain a utility esti- mate for each unit in the building from the agency that has jurisdiction over the build- ing “provided the Agency agrees to pro- August 27, 20123222012–35 I.R.B. vide the estimate.” That is, State housing agencies are not required to provide a util- ity estimate under §1.42–10(b)(4)(ii)(C). Also, §1.42–10(b)(4)(ii)(E) provides that, under the energy consumption model, utility consumption estimates must be calculated by “either a properly licensed engineer or a qualified professional ap- proved by the Agency that has jurisdiction over the building.” Thus, State housing agencies are not required to provide the ap- proval described in §1.42–10(b)(4)(ii)(E). Comments are requested on whether ap- proval by the agency with jurisdiction over the building should be necessary for both properly licensed engineers and qualified professionals or only for qualified pro- fessionals that are not properly licensed engineers. A commentator asserted that there is confusion concerning mixed-financed properties, which may be subject to mul- tiple Federal programs using different utility allowances. The commentator re- quested clarification on which methods maybeusedinbuildingswithmultiple programs. If a building receives assistance from RHS or if any tenant in a building receives RHS rental assistance payments, then the applicable utility allowance for all rent-restricted units in the building is the utility allowance determined under themethodprescribedbytheRHSfor the building (whether or not the building or its tenants receive other state or fed- eral assistance). If neither a building nor any tenant in the building receives RHS housing assistance and the building is a HUD-regulated building, then the applica- ble utility allowance for all rent-restricted units in the building is the applicable HUD utility allowance. If a building is neither an RHS-assisted nor a HUD-regulated building, no tenant in the building receives RHS tenant assistance, and tenants in a rent-restricted unit in the building receive HUD rental assistance payments, then the applicable utility allowance for that unit is the applicable PHA utility allowance. For all other rent-restricted units not subject to any of the methods in §1.42–10(b)(1), (b)(2), (b)(3), or (b)(4)(i), the building owner may use the applicable PHA utility allowance or one of the building meth- ods in §1.42–10(b)(4)(ii)(B), (b)(4)(ii)(C), (b)(4)(ii)(D), or (b)(4)(ii)(E) for calculat- ing utility allowances for all rent-restricted units in the building. The proposed regulations modify the requirements in Notice 2009–44 in the fol- lowing manner: First, if two or more utili- ties such as electricity and water are treated as submetered under the proposed regu- lations, then the building owner (or its agent or other party acting on behalf of the building owner) must separately state the amount billed to the tenants for each sub- metered utility. Second, if a building owner imposes an administrative fee on a unit’s tenants for the costs of administering a subme- tering arrangement, then the fee generally is not included in gross rent for purposes of section 42(g)(2). The exclusion from gross rent does not apply to any amount by which the aggregate monthly fee for all of a unit’s utilities under one or more sub- metering arrangements exceeds the lesser of the following: (A) Five dollars per month or (B) The owner’s actual monthly costs paid or incurred for administering the arrangement (whether internal costs or amounts paid to third parties). For this purpose, the owner’s ac- tual costs include internal costs (such as amounts paid to employees) and external costs (such as amounts paid to third-party service providers) for administering the submetering arrangement, as well as that month’s portion of costs that relate to the submetering equipment and that are not included in the building’s eligible basis under section 42(d). The goal of these re- strictions is to disallow any exclusion from gross rent beyond the extent to which a fee represents a reasonable reimbursement to the owner for the owner’s otherwise un- reimbursed actual costs for administering the submetering arrangement. The IRS and the Treasury Department request com- ments on whether or not rules are needed to address the building owner’s determina- tion of actual costs when a utility company administers a submetering arrangement on behalf of the building owner and includes in the utility rate an amount for its services that is not separately stated. Third, the proposed regulations remove the requirement in Notice 2009–44 that the administrative fee must not exceed an ag- gregate amount per unit of 5 dollars per month (unless State law provides other- wise). Instead of that prohibition, the pro- posed regulations merely require inclusion in gross rent for any amounts charged in excess of the lesser of five dollars or ac- tual administrative costs. The proposed regulations also amend §1.42–10(b)(4)(ii)(A). Section 1.42–10(b)(4)(i) provides rules for deter- mining the utility allowance of rent-re- stricted units occupied by tenants re- ceiving HUD rental assistance. Sec- tion 1.42–10(b)(4)(ii)(A) provides that, if none of the rules of §1.42–10(b)(1), (b)(2), (b)(3), and (b)(4)(i) apply to any rent-restricted units in a building, then the utility allowance for the units may be determined under §1.42–10(b)(4)(ii)(B), (b)(4)(ii)(C), (b)(4)(ii)(D), or (b)(4)(ii)(E). Some commentators have interpreted §1.42–10(b)(4)(ii)(A) to mean that, if a tenant receiving HUD rental assis- tance occupies a rent-restricted unit in a building, then the methods described in §1.42–10(b)(4)(ii)(B), (b)(4)(ii)(C), (b)(4)(ii)(D), and (b)(4)(ii)(E) are not available for determining utility al- lowances for any other rent-restricted units in the same building. This result was not intended. The proposed regulations amend §1.42–10(b)(4)(ii)(A) to clarify that for all rent-restricted units not subject to the rules of §1.42–10(b)(1), (b)(2), (b)(3), and (b)(4)(i) for determining the appropriate utility allowance for a rent-restricted unit, the owner may choose one of the options under §1.42–10(b)(4)(ii)(B), (b)(4)(ii)(C), (b)(4)(ii)(D), and (b)(4)(ii)(E) or the ap- plicable PHA utility allowance for de- termining the utility allowance for those rent-restricted units. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Execu- tive Order 13563. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Ad- ministrative Procedure Act (5 U.S.C. chap- ter 5) does not apply to this regulation, and because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to sec- tion 7805(f) of the Internal Revenue Code, this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. 2012–35 I.R.B.323August 27, 2012 Comments and Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are sub- mitted timely to the IRS prescribed in this preamble under the “Addresses” heading. The IRS and the Treasury Department re- quest comments on all aspects of the pro- posed rules. All comments will be avail- able atwww.regulations.govor upon re- quest. A public hearing has been scheduled for Tuesday, November 27, 2012, at 10 a.m. in the Auditorium of the Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter at the Con- stitution Avenue entrance. In addition, all visitors must presentphoto identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the “FOR FURTHER IN- FORMATION CONTACT” section of this preamble. The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit electronic or written com- ments and an outline of the topics to be discussed and the time to be devoted to each topic (signed original and eight (8) copies) by October 9, 2012. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing. Drafting Information The principal author of these regula- tions is David Selig, Office of the As- sociate Chief Counsel (Passthroughs and Special Industries), IRS. However, other personnel from the IRS and the Treasury Department participated in their develop- ment. ***** Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.42–10 is amended by: 1.Addingasentenceafterthefirstsen- tence of paragraph (a). 2. Revising the first sentence of para- graph (b)(4)(ii)(A). 3. Adding paragraph (e). The additions and revisions read as fol- lows: §1.42–10 Utility allowances. (a) * * * For purposes of the preced- ing sentence, if the cost of a particular util- ity for a residential unit is paid pursuant to an actual-consumption submetering ar- rangement within the meaning of para- graph (e)(1) of this section, then that cost is treated as being paid directly by the ten- ant(s) and not by or through the owner of the building. * * * ***** (b) * * * (4) * * * (ii) * * * (A)***Ifnoneoftherulesofpara- graphs (b)(1), (b)(2), (b)(3), and (b)(4 )(i) of this section apply to determine the ap- propriate utility allowance for a rent-r e- stricted unit, then the appropriate util ity al- lowance for the unit is the applicable PH A utility allowance. * * * ***** (e)Actual-consumption submetering arrangements—(1)Definition. For pur- poses of this section, an actual-consump- tion submetering arrangement for a utility in a residential unit possesses all of the following attributes: (i) The building owner (or its agent or other party acting on behalf of the build- ing owner) pays the utility provider for the particular utility consumed by the tenants in the unit; (ii) The tenants in the unit are billed for, and pay the building owner (or its agent or other party acting on behalf of the building owner) for, the unit’s consumption of the particular utility; (iii) The billed amount reflects the unit’s actual consumption of the particular utility. In the case of sewerage charges, however, if the unit’s sewerage charges are combined on the bill with water charges and the sewerage charges are determined based on the actual water consumption of the unit, then the bill is treated as reflect- ing the actual sewerage consumption of the unit; and (iv) The utility rate charged to the ten- ants of the unit does not exceed the util- ity company rate incurred by the building owner for that particular utility. (2)Special rules—(i)Fees. If the owner charges a unit’s tenants an administrative fee for the owner’s actual monthly costs of administering an actual-consumption sub- metering arrangement, then the fee is not considered gross rent for purposes of sec- tion 42(g)(2). The preceding sentence, however, does not apply unless the fee is computed in the same manner for every unit receiving the same submetered utility service, nor does it apply to any amount by which the aggregate monthly fee or fees for all of the unit’s utilities under one or more actual-consumption submetering ar- rangements exceed the lesser of— (A) Five dollars per month; or (B) The owner’s actual monthly costs paid or incurred for administering the ar- rangement. (ii)Actual costs. For purposes of paragraph (e)(2)(i)(B) of this section, the owner’s actual costs of administering an actual-consumption submetering arrange- ment include amounts paid to employ- ees, independent contractors, and service providers for administering the submeter- ing arrangement and allocable costs that relate to submetering equipment and that are not included in the building’s eligible basis under section 42(d). Par. 3. Section 1.42–12 is amended by adding paragraph (a)(5) to read as follows: §1.42–12 Effective dates and transitional rules. (a) * * * (5)Submetered buildings. The sec- ond sentence in §1.42–10(a), the first sentence in §1.42–10(b)(4)(ii)(A), and §1.42–10(e) apply to utility allowances determined on or after the date the final August 27, 20123242012–35 I.R.B. regulations are published in theFederal Register. Until the date the final reg- ulations are published in theFederal Register,taxpayersmayrelyonNotice 2009–44, 2009–21 I.R.B. 1037; May 26, 2009 (see §601.601(d)(2)(ii)(b)ofthis chapter) for taxable years beginning on or after July 29, 2008. ***** Steven T. Miller, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register on August 6, 2012, 8:45 a.m., and published in the issue of the Federal Register for August 7, 2012, 77 F.R. 46987) Deletions From Cumulative List of Organizations Contributions to Which are Deductible Under Section 170 of the Code Announcement 2012–32 The Internal Revenue Service has re- voked its determination that the organi- zations listed below qualify as organiza- tions described in sections 501(c)(3) and 170(c)(2) of the Internal Revenue Code of 1986. Generally, the Service will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the Service is not precluded from disallowing a deduction for any contributions made after an or- ganization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation. If on the other hand a suit for declara- tory judgment has been timely filed, con- tributions from individuals and organiza- tions described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on August 27, 2012, andwouldendonthedatethecourtfirst determines that the organization is not de- scribed in section 170(c)(2) as more partic- ularly set forth in section 7428(c)(1). For individual contributors, the maximum de- duction protected is $1,000, with a hus- band and wife treated as one contributor. This benefit is not extended to any indi- vidual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation. Christian Credit Outreach, Inc. Carlsbad, CA ECM–1, Inc. Sulphur, LA Friends of Fiji Danville, CA Headwaters Ministries, Inc. Fort Mill, SC Kids Educational Development Scholarship, Inc. Los Gatos, CA South Plains Volunteer Services, Inc. Lubbock, TX United States Navy Veteran Association Minnesota Chapter St. Paul, MN United States Navy Veteran Association Georgia Chapter Tampa, FL United States Navy Veteran Association Kansas Chapter Washington, DC United States Navy Veteran Association New Hampshire Chapter Washington, DC United States Navy Veteran Association New Mexico Chapter Washington, DC United States Navy Veteran Association Rhode Island Chapter Washington, DC United States Navy Veteran Association Washington, DC United States Navy Veteran Association Arkansas Chapter Washington, DC W.E.B. Dubois Community Development Corporation Wake Forest, NC Women of Distinction Dallas, TX Announcement of Disciplinary Sanctions From the Office of Professional Responsibility Announcement 2012-33 TheOfficeofProfessionalResponsi- bility (OPR) announcesrecent disciplinary sanctions involving attorneys, certified public accountants, enrolled agents, en- rolled actuaries, enrolled retirement plan agents, and appraisers. These individuals are subject to the regulations governing practice before the Internal Revenue Ser- vice (IRS), which are set out in Title 31, Code of Federal Regulations, Part 10, and which are published in pamphlet form as Treasury Department Circular No. 230. The regulations prescribe the duties and restrictions relating to such practice and prescribe the disciplinary sanctions for violating the regulations. The disciplinary sanctions to be im- posed for violation of the regulations are: Disbarred from practice before the IRS—An individual who is disbarred is not eligible to represent taxpayers before the IRS. Suspended from practice before the IRS—An individual who is suspended is not eligible to represent taxpayers before the IRS during the term of the suspension. Censured in practice before the IRS—Censure is a public reprimand. Un- like disbarment or suspension, censure does not affect an individual’s eligibility to represent taxpayers before the IRS, but OPR may subject the individual’s future representations to conditions designed to promote high standards of conduct. Monetary penalty—A monetary penalty may be imposed on an individual 2012–35 I.R.B.325August 27, 2012 who engages in conduct subject to sanc- tion or on an employer, firm, or entity if the individual was acting on its behalf and if it knew, or reasonably should have known, of the individual’s conduct. Disqualification of appraiser—An appraiser who is disqualified is barred from presenting evidence or testimony in any administrative proceeding before the Department of the Treasury or the IRS. Under the regulations, attorneys, cer- tified public accountants, enrolled agents, enrolled actuaries, and enrolled retirement plan agents may not assist, or accept assis- tance from, individuals who are suspended or disbarred with respect to matters consti- tuting practice (i.e., representation) before the IRS, and they may not aid or abet sus- pended or disbarred individuals to practice before the IRS. Disciplinary sanctions are described in these terms: Disbarred by decision after hearing, Suspended by decision after hearing, Censured by decision after hearing, Monetary penalty imposed after hear- ing, and Disqualified after hearing—An administrative law judge (ALJ) conducted an evidentiary hearing upon OPR’s com- plaint alleging violation of the regulations and issued a decision imposing one of these sanctions. After 30 days from the issuance of the decision, in the absence of an appeal, the ALJ’s decision became the final agency decision. Disbarred by default decision, Sus- pended by default decision, Censured by default decision, Monetary penalty im- posed by default decision, and Disqual- ified by default decision—An ALJ, after findingthatnoanswertoOPR’scomplaint had been filed, granted OPR’s motion for a default judgment and issued a decision im- posing one of these sanctions. Disbarment by decision on appeal, Suspended by decision on appeal, Cen- sured by decision on appeal, Monetary penalty imposed by decision on ap- peal, and Disqualified by decision on appeal—The decision of the ALJ was appealed to the agency appeal authority, acting as the delegate of the Secretary of the Treasury, and the appeal authority issued a decision imposing one of these sanctions. Disbarred by consent, Suspended by consent, Censured by consent, Mone- tary penalty imposed by consent, and Disqualified by consent—In lieu of a disciplinary proceeding being instituted or continued, an individual offered a con- sent to one of these sanctions and OPR accepted the offer. Typically, an offer of consent will provide for: suspension for an indefinite term; conditions that the individual must observe during the sus- pension; and the individual’s opportunity, after a stated number of months, to file with OPR a petition for reinstatement af- firming compliance with the terms of the consent and affirming current eligibility to practice (i.e., an active professional license or active enrollment status). An enrolled agent or an enrolled retirement plan agent may also offer to resign in order to avoid a disciplinary proceeding. Suspended by decision in expedited proceeding, Suspended by default de- cision in expedited proceeding, Sus- pended by consent in expedited pro- ceeding—OPR instituted an expedited proceeding for suspension (based on cer- tain limited grounds, including loss of a professional license and criminal convic- tions). OPR has authority to disclose the grounds for disciplinary sanctions in these situations: (1) an ALJ or the Secretary’s delegate on appeal has issued a decision on or after September 26, 2007, which was theeffectivedateofamendmentstothe regulations that permit making such deci- sions publicly available; (2) the individual has settled a disciplinary case by signing OPR’s “consent to sanction” form, which requires consenting individuals to admit to one or more violations of the regulations and to consent to the disclosure of the in- dividual’s own return information related to the admitted violations (for example, failure to file Federal income tax returns); or (3) OPR has issued a decision in an expedited proceeding for suspension. Announcements of disciplinary sanc- tions appear in the Internal Revenue Bul- letin at the earliest practicable date. The sanctions announced below are alphabet- ized first by the names of states and sec- ond by the last names of individuals. Un- less otherwise indicated, section numbers (e.g., § 10.51) refer to the regulations. City & StateNameProfessionalDisciplinary SanctionEffective Date(s) Designation California La MesaLewis, Charles D.Enrolled AgentSuspended by decision in expedited proceeding under § 10.82 (convicted under CA law of theft or embezzlement from elderly person) Indefinite from May 15, 2012 August 27, 20123262012–35 I.R.B. City & StateNameProfessionalDisciplinary SanctionEffective Date(s) Designation Connecticut WallingfordGanias, Stavros M.Enrolled AgentSuspended by decision in expedited proceeding under § 10.82 (conviction under 26 U.S.C. § 7201, attempt to evade or defeat taxandtaxevasion) Indefinite from June 1, 2012 Florida OdessaOsimen, Christopher E. CPASuspended by decision in expedited proceeding under § 10.82 (conviction under 18 U.S.C. § 1341, mail fraud and 26 U.S.C. § 7201, tax evasion) Indefinite from May 29, 2012 Kentucky LexingtonRogers, Mary C.CPASuspended by default decision in expedited proceeding under § 10.82 (conviction under 18 U.S.C. § 1349, conspiracy to commit bank and mail fraud and 26 U.S.C. § 7206(1), filing a false income tax return) Indefinite from May 30, 2012 Louisiana MetairieMiller, Bruce A.AttorneyCensured by consent for admitted violation of § 10.29 (conflict of interest) June 4, 2012 SlidellOhle III., John B.CPASuspended by default decision in expedited proceeding under § 10.82 (conviction under 18 U.S.C. § 371, conspiracy to defraud the United States and to commit wire fraud and 26 U.S.C. § 7201, tax evasion) Indefinite from May 15, 2012 Baton RougeZinna, Randy P.AttorneySuspended by default decision in expedited proceeding under § 10.82 (conviction under 18 U.S.C. § 1341, mail fraud, and permanent resignation of attorney license) Indefinite from May 15, 2012 2012–35 I.R.B.327August 27, 2012 City & StateNameProfessionalDisciplinary SanctionEffective Date(s) Designation Montana KalispellBenavides, AlCPASuspended by default decision in expedited proceeding under § 10.82 (conviction under 26 U.S.C. § 7206(2), aid or assist false or fraudulent document) Indefinite from June 13, 2012 NewYork BrooklynO’Brien, John J.AttorneySuspended by default decision in expedited proceeding under § 10.82 (conviction under 26 U.S.C. § 7203, willful failure to file U.S. individual income tax returns and willful failure to pay tax) Indefinite from May 31, 2012 Ohle III., John B., See Louisiana Ohio Rogers, Mary C. See Kentucky Oregon Christensen, David O., See Washington Washington VancouverChristensen, David O. CPASuspended by default decision in expedited proceeding under § 10.82 (revocation of CPA license) Indefinite from May 18, 2012 Port OrchardVazquez, Sonya M.CPAReinstated to practice before the IRS, May 10, 2012 SpokaneWasson, Curtis G.Enrolled AgentSuspended by default decision in expedited proceeding under § 10.82 (convicted under Washington law state of first degree theft) Indefinite from May 18, 2012 August 27, 20123282012–35 I.R.B. Definition of Terms Revenue rulings and revenue procedures (hereinafter referred to as “rulings”) that have an effect on previous rulings use the following defined terms to describe the ef- fect: Amplifieddescribes a situation where no change is being made in a prior pub- lished position, but the prior position is be- ingextendedtoapplytoavariationofthe fact situation set forth therein. Thus, if an earlier ruling held that a principle ap- plied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is amplified. (Compare withmodi- fied,below). Clarifiedis used in those instances where the language in a prior ruling is be- ing made clear because the language has caused, or may cause, some confusion. It is not used where a position in a prior ruling is being changed. Distinguisheddescribes a situation where a ruling mentions a previously pub- lished ruling and points out an essential difference between them. Modifiedis used where the substance of a previously published position is being changed. Thus, if a prior ruling held that a principle applied to A but not to B, and the new ruling holds that it applies to both A and B, the prior ruling is modified because it corrects a published position. (Compare withamplifiedandclarified, above). Obsoleteddescribes a previously pub- lished ruling that is not considered deter- minative with respect to future transac- tions. This term is most commonly used in a ruling that lists previously published rul- ings that are obsoleted because of changes in laws or regulations. A ruling may also be obsoleted because the substance has been included in regulations subsequently adopted. Revokeddescribes situations where the position in the previously published ruling is not correct and the correct position is beingstatedinanewruling. Supersededdescribes a situation where the new ruling does nothing more than re- state the substance and situation of a previ- ously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same po- sition published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single rul- ing a series of situations, names, etc., that were previously published over a period of time in separate rulings. If the new rul- ing does more than restate the substance of a prior ruling, a combination of terms is used. For example,modifiedandsu- persededdescribes a situation where the substance of a previously published ruling is being changed in part and is continued without change in part and it is desired to restate the valid portion of the previously published ruling in a new ruling that is self contained. In this case, the previously pub- lished ruling is first modified and then, as modified, is superseded. Supplementedis used in situations in which a list, such as a list of the names of countries, is published in a ruling and that list is expanded by adding further names in subsequent rulings. After the original rul- ing has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the ad- ditions, and supersedes all prior rulings in the series. Suspendedis used in rare situations to show that the previous published rulings will not be applied pending some future action such as the issuance of new or amended regulations, the outcome of cases in litigation, or the outcome of a Service study. Abbreviations The fol lowing abbreviations in current use and for merly used will appear in material publis hedintheBulletin. A—Individual. Acq.—A cquiescence. B—Individual. BE—Beneficiary. BK—Bank . B.T.A.—Board of Tax Appeals. C—Individual. C.B.—Cu mulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Coo perative. Ct.D.—Court Decision. CY—County. D—Decede nt. DC—Dummy Corporation. DE—Donee. Del. Order —Delegation Order. DISC—Domestic International Sales Corporation. DR—Donor. E—Estate. EE—Employee. E.O.—Executive Order. ER—Emp loyer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduc iary. FC—Foreign Country. FICA—Federal Insurance Contributions Act. FISC—Fo reign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Fed eral Unemployment Tax Act. FX—Foreign corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grante e. GP—General Partner. GR—Grantor. IC—Insura nce Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—No nacquiescence. O—Organization. P—Parent Corporation. PHC—Persona l Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Pa rtnership. PTE—Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Re al Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsi diary. S.P.R.—Statement of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Trans feree. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpay er. TR—Trust. TT—Trustee. U.S.C.—Uni ted States Code. X—Corporation. Y—Corporation. Z—Corporat ion. 2012–35 I.R.B.iAugust 27, 2012 Numerical Finding List 1 Bulletins 2012–27 through 2012–35 Announcements: 2012-26, 2012-27 I.R.B.8 2012-27, 2012-27 I.R.B.10 2012-28, 2012-27 I.R.B.10 2012-30, 2012-34 I.R.B.314 2012-31, 2012-34 I.R.B.315 2012-32, 2012-35 I.R.B.325 2012-33, 2012-35 I.R.B.325 Notices: 2012-39, 2012-31 I.R.B.95 2012-44, 2012-28 I.R.B.45 2012-45, 2012-29 I.R.B.59 2012-46, 2012-30 I.R.B.86 2012-47, 2012-31 I.R.B.98 2012-48, 2012-31 I.R.B.102 2012-49, 2012-31 I.R.B.119 2012-50, 2012-31 I.R.B.121 2012-51, 2012-33 I.R.B.150 2012-52, 2012-35 I.R.B.317 2012-53, 2012-35 I.R.B.317 Proposed Regulations: REG-101812-07, 2012-34 I.R.B.311 REG-134042-07, 2012-27 I.R.B.5 REG-153627-08, 2012-29 I.R.B.60 REG-136491-09, 2012-35 I.R.B.321 REG-125570-11, 2012-30 I.R.B.93 REG-130266-11, 2012-32 I.R.B.126 REG-134935-11, 2012-29 I.R.B.64 REG-141832-11, 2012-28 I.R.B.54 REG-107889-12, 2012-28 I.R.B.53 REG-113738-12, 2012-29 I.R.B.66 Revenue Procedures: 2012-28, 2012-27 I.R.B.4 2012-29, 2012-28 I.R.B.49 2012-30, 2012-33 I.R.B.165 2012-31, 2012-33 I.R.B.256 2012-32, 2012-34 I.R.B.267 2012-33, 2012-34 I.R.B.272 2012-34, 2012-34 I.R.B.280 Revenue Rulings: 2012-19, 2012-28 I.R.B.16 2012-20, 2012-27 I.R.B.1 2012-21, 2012-32 I.R.B.123 Treasury Decisions: 9591, 2012-28 I.R.B.32 9592, 2012-28 I.R.B.41 9593, 2012-28 I.R.B.17 Treasury Decisions— Continued: 9594, 2012-29 I.R.B.57 9595, 2012-30 I.R.B.71 9596, 2012-30 I.R.B.84 9597, 2012-34 I.R.B.258 1 A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2012–1 through 2012–26 is in Internal Revenue Bulletin 2012–26, dated June 25, 2012. August 27, 2012ii2012–35 I.R.B. Finding List of Current Actions on Previously Published Items 1 Bulletins 2012–27 through 2012–35 Announcements: 83-196 Superseded by Rev. Proc. 2012-31, 2012-33 I.R.B.256 85-141 Superseded by Rev. Proc. 2012-31, 2012-33 I.R.B.256 Notices: 2009-24 Amplified by Notice 2012-51, 2012-33 I.R.B.150 2012-51 Amplified by Notice 2012-51, 2012-33 I.R.B.150 Proposed Regulations: REG-100276-97 Withdrawn by Ann. 2012-27, 2012-27 I.R.B.10 Revenue Procedures: 95-15 Superseded by Rev. Proc. 2012-31, 2012-33 I.R.B.256 98-32 Modified and superseded by Rev. Proc. 2012-33, 2012-34 I.R.B.272 2007-38 Modified and superseded by Rev. Proc. 2012-32, 2012-34 I.R.B.267 2011-40 Superseded by Rev. Proc. 2012-30, 2012-33 I.R.B.165 1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2012–1 through 2012–26 is in Internal Revenue Bulletin 2012–26, dated June 25, 2012. 2012–35 I.R.B.iiiAugust 27, 2012 INDEX Internal Revenue Bulletins 2012–27 through 2012–35 The abbreviation and number in parenthesis following the index entry refer to the specific item; numbers in roman and italic type following the parentheses refer to the Internal Revenue Bulletin in which the item may be found and the page number on which it appears. Key to Abbreviations: AnnAnnouncement CDCourt Decision DODelegation Order EOExecutive Order PLPublic Law PTEProhibited Transaction Exemption RPRevenue Procedure RRRevenue Ruling SPRStatement of Procedural Rules TCTax Convention TDTreasury Decision TDOTreasury Department Order EMPLOYEE PLANS Amendment of prohibited payment option under defined sin- gle–employer defined benefit plan of plan sponsor in bank- ruptcy (REG–113738–12) 29,66 Application of section 162(m)(4)(C) to dividends and dividend equivalents (RR 19) 28,16 Election to include in gross income in year of transfer (RP 29) 28,49 Full funding limitations, weighted average interest rates, seg- ment rates for: July 1, 2012 (Notice 47) 31,98 August 1, 2012 (Notice 53) 35,317 Proposed Regulations: 26 CFR 1.411(d)–4, amended; amendment of prohibited pay- ment option under defined single–employer defined benefit plan of plan sponsor in bankruptcy (REG–113738–12) 29, 66 26 CFR 1.6081–11, amended; 301.6057–1, amended; report- ing and notice requirements for deferred vested benefits un- der section 6057 (REG–153627–08) 29,60 Reporting and notice requirements for deferred vested benefits under section 6057 (REG–153627–08) 29,60 Underfunded plans, notice requirements (Notice 46) 30,86 EMPLOYMENT TAX Background file document requests, processing fees, update to Rev. Proc. 95–15 (RP 31) 33,256 Revisions to Rev. Proc. 98–32 (RP 33) 34,272 Third party payer issues and reporting agents, revisions to Rev. Proc. 2007–38 (RP 32) 34,267 ESTATE TAX Background file document requests, processing fees, update to Rev. Proc. 95–15 (RP 31) 33,256 Portability of a deceased spousal unused exclusion amount (TD 9593) 28,17; (REG–141832–11) 28,54 Proposed Regulations: 26 CFR 20.2001–2, added; 20.2010–0, thru –3, added; 25 CFR 25.2505–0, thru –2, added; portability of a deceased spousal unused exclusion amount (REG–141832–11) 28, 54 Regulations: 26 CFR 20.2001–2T, added; 20.2010–0T, thru –2T, added; 25.2505–0T, thru –3T, added; 602.101, amended; porta- bility of a deceased spousal unused exclusion amount (TD 9593) 28,17 EXCISE TAX Background file document requests, processing fees, update to Rev. Proc. 95–15 (RP 31) 33,256 Disregarded entities and the indoor tanning services excise tax (TD 9596) 30,84; (REG–125570–11) 30,93 Proposed Regulations: 26 CFR 1.1361–4, amended; 301.7701–2, amended; disre- garded entities and the indoortanning services excise tax (REG–125570–11) 30,93 Regulations: 26 CFR 1.1361–4, amended; 1.1361–4T, added; 301.7701–2T, added; disregarded entities and the indoor tanning services excise tax (TD 9596) 30,84 EXEMPT ORGANIZATIONS Additional requirements for charitable hospitals (REG–130266–11) 32,126 Background file document requests, processing fees, update to Rev. Proc. 95–15 (RP 31) 33,256 Proposed Regulations: 26 CFR 1.501(r)–0 thru –7, added; additional requirements for charitable hospitals (REG–130266–11) 32,126 Revocations (Ann 32) 35,325 GIFT TAX Background file document requests, processing fees, update to Rev. Proc. 95–15 (RP 31) 33,256 Portability of a deceased spousal unused exclusion amount (TD 9593) 28,17; (REG–141832–11) 28,54 Proposed Regulations: 26 CFR 20.2001–2, added; 20.2010–0, thru –3, added; 25 CFR 25.2505–0, thru –2, added; portability of a deceased spousal unused exclusion amount (REG–141832–11) 28, 54 August 27, 2012iv2012–35 I.R.B. GIFT TAX—Cont. Regulations: 26 CFR 20.2001–2T, added; 20.2010–0T, thru –2T, added; 25.2505–0T, thru –3T, added; 602.101, amended; porta- bility of a deceased spousal unused exclusion amount (TD 9593) 28,17 INCOME TAX Application of section 162(m)(4)(C) to dividends and dividend equivalents (RR 19) 28,16 Background file document requests, processing fees, update to Rev. Proc. 95–15 (RP 31) 33,256 Basis of indebtedness of S corporations to their shareholders (REG–134042–07) 27,5 Bonds: Qualified energy conversation bonds (Notice 44) 28,45 Tribal economic development bonds (Notice 48) 31,102 Charitable contribution deduction (Notice 52) 35,317 Corporations, regulations under section 367(d) applicable to cer- tain outbound asset reorganizations (Notice 39) 31,95 Credits: Low-income housing credit: Utility allowances submetering (REG–136491–09) 35, 321 Qualifying advance coal project section 48A credit (Notice 51) 33,150 Deductions for entertainment use of business aircraft (TD 9597) 34,258 Disciplinary actions involvingattorneys, certified public ac- counts, enrolled agents, and enrolled actuaries (Ann 28) 27, 10; (Ann 33) 35,325 Election to include in gross income in year of transfer (RP 29) 28,49 Financial asset securitization investment trusts (Ann 27) 27,10 Forms 1097, 1098, 3921, 3922, 5498, 8935, and W-2G, require- ments for filing electronically (RP 30) 33,165 Interest: Investment: Federal short-term, mid-term, and long-term rates for: July (RR 20) 27,1 August 2012 (RR 21) 32,123 Marginal production rates, 2012 (Notice 50) 31,121 Modification to consolidated return regulation permitting an election to treat a liquidation of a target, followed by a recon- tribution to a new target, as a cross-chain reorganization (TD 9594) 29,57 Overall foreign loss recapture on property dispositions (REG–134935–11) 29,64 Proposed Regulations: 26 CFR 1.42–10, –12, amended; utility allowances submeter- ing (REG–136491–09) 35,321 26 CFR 1.108–7, amended; 1.366–0, amended; 1.1366–2, –5, amended; 1.1367–1(h), amended; 1.1367–3, amended; ba- sis of indebtedness of S corporations to their shareholders (REG–134042–07) 27,5 INCOME TAX—Cont. 26 CFR 1.274–2, amended; 1.274–8, revised; reimbursed en- tertainment expenses (REG-101812–07) 34,311 26 CFR 1.904–4, amended; 1.904(g)–3, amended; over- all foreign loss recaptureon property dispositions (REG–134935–11) 29,64 26 CFR 1.7874–3, added; substantial business activities (REG–107889–12) 28,53 Publications: 1120, Specifications for filing Forms 1097, 1098, 3921, 3922, 5498, 8935, and W-2G, electronically, 2012 revision (RP 30) 33,165 4810, Specificatiions for filing Forms 8955–SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits, Electronically (RP 34) 34, 280 Qualifying income under section 7704(d) (RP 28) 27,4 Regulations: 26 CFR 1.61–21, amended; 1.274–9, –10, added; deductions for entertainment use of business aircraft (TD 9597) 34,258 26 CFR 1.904–0, –1, –2, –7, –8, amended; 1.904(f)–0T, –1T, –2T, –7T, –8T, removed; 1.904(g)–0, –1, –2, –3, amended; 1.904(g)–0T, –1T, –2T, –3T, removed; 1.502–9, amended, 1.1502–9T, removed; treatment of overall foreign and do- mestic losses (TD 9595) 30,71 26 CFR 1.1502–13, amended; 1.1502–13T, removed; 602.101, amended; modification to consolidated return regulation permitting an election to treat a liquidation of a target, followed by a recontribution to a new target, as a cross-chain reorganization (TD 9594) 29,57 26 CFR 1.7874–1, amended; 1.7874–1T, removed; 1.7874–2, added; surrogate foreign corporations (TD 9591) 28,32 26 CFR 1.7874–3T, added; substantial business activities (TD 9592) 28,41 Reimbursed entertainment expenses (REG-101812–07) 34,311 Revisions to Rev. Proc. 98–32 (RP 33) 34,272 Revocations, exempt organizations (Ann 32) 35,325 Section 43 inflation adjustment, 2012 (Notice 49) 31,119 Substantial business activities (TD 9592) 28,41; (REG–107889–12) 28,53 Surrogate foreign corporations (TD 9591) 28,32 Tax Conventions: U.S.-Belgium agreement regarding taxes imposed by Bel- gium municipalities (Ann 30) 34,314 U.S.-Canada agreement regarding OECD report on the attri- bution of profits to permanent establishments (Ann 31) 34, 315 U.S.-Netherlands agreement of limited funds for mutual ac- count (LFMA) (Ann 26) 27,8 Third party payer issues and reporting agents, revisions to Rev. Proc. 2007–38 (RP 32) 34,267 Treatment of income from certain government bonds for pur- poses of the passive foreign investment company (PFIC) rules (Notice 45) 29,59 Treatment of overall foreign and domestic losses (TD 9595) 30, 71 2012–35 I.R.B.vAugust 27, 2012 SELF-EMPLOYMENT TAX Background file document requests, processing fees, update to Rev. Proc. 95–15 (RP 31) 33,256 August 27, 2012vi2012–35 I.R.B. 2012–35 I.R.B.August 27, 2012 August 27, 20122012–35 I.R.B. Internal Revenue Service W ashington,DC20224 Official Business Penalty for Private Use, $300 INTERNAL REVENUE BULLETIN The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin- tendent of Documents when their subscriptions must be renewed. CUMULATIVE BULLETINS The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are sold on a single copy basis andare notincluded as part of the subscription to the Internal Revenue Bulletin. For the foreseeable future, the IRS will not create Cumulative Bulletins after the 2008–2 edition. 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