Proposed regulations: Adjusted federal rate methodologies, sections 382 and 1288

Adjusted federal rate methodologies

The Treasury Department and IRS today released for publication in the Federal Register proposed regulations (REG-136018-13) that provide revised methods to determine the adjusted applicable federal rates (adjusted AFRs) under section 1288 and the adjusted federal long-term rate under section 382.

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The IRS and Treasury have requested comments on the proposed regulations [PDF 244 KB] to be received 90 days from the date of publication in the Federal Register, which is scheduled for March 2, 2015. A public hearing is scheduled for June 24, 2015.

KPMG observation

The proposed regulations would reduce section 382 limitations to approximately 75% of what they would be if computed for an ownership change occurring at this time. The proposed regulations are based on the view that tax-exempt rates computed under the existing formulae are too generous because they reflect high credit risk as opposed to taxable government securities.

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