Announcement 2004-43

paragraph (c)(ti)ji) of this section to interest income with respect to certain inwrcuinpany obligations the interest deduction on which is disallowed under section
265(a)(2) * * *

*****
(iii) Ejective date. The bird serltencc
of paragraph (c}(6)(iiXA)of this sectian

I. Rackground

Section 102 of PFEA'W, which
enacted an April 10, 20U4, added
W 4120(12) to the Code and section
302(d)(12) to bKISA. Sectiuri 4 12(l)(12)
of h e Code permits certitin employers
who are requircrl tu makc additional contributions under ri- 4 IZrl)
., to elect a reduced
was

shall apply 10 taxable years beginning on iu~lolultnf those. conhbutions ("alternaor after the date these regulations are pub+ tive deficit reductinn contributions'~far
lisl~cd final rcgulntions in the Federal cemin plan years. A n etnployer is eligible

Register.

to make such an election if it i s [I) a commercial passenger airline, (2) primarily
engaged in thr: production or manufacture
mill product ur the processing
of iron ore pellets, or (3) an organization
of a steel

beneficiary, or to the PBGC, that employer
may be liable ro wch ~ c i p n mt benc
ficiary or to the PBGC, in the discretion of
rhe court. fur a p~naltyof up to $1Wa day
from the date of the film,or such other
rclicf as the court deems proper.

n. Required Notice to Participants and
Beneficiaries
A. Explunurivn of Contcx+huant
302(d)(32)(EXi)of ERISA, ao
cmployet that elects an alternative deficit
reduction conhibution must provide written notice nf t h e election to toch participant and to each beneficiary under the plan
("the participant notice') and mast explain
the context in which the information set
forth in section n.B. of this announcement
is king provided. T h s requirement to explain the context is satisfied if the notice
to seclion

described in 3: 501 (c)(5) that established a
plan m June 30.1455, to which 9 412 ouw
(d) Tac-ex~mpri n m m e . The facts are applies. On April 12. 2004. the Internal
the s a m as in paragraph (a) uf this Exam- Revenue Service (d1c '*Service")issucd includes the following info~mati011:
ple I . except that B's bornwing fmm s Announcemen1 2004-38, 2004-18 I.R.B.
"As permit& under a new law
i s allocahle uttder section 265 r i ~B's pur- 818, whucl~provides guidance for malcing
called the Pension Punding Equity
chase of state and local bonds ro which sec- the election for an drernative deficit reAct of 2 W , Pub.
L. 108-218
tion 103 applies and $1.265-2(c) does not duction contributior~.
("'PFEA'OP), [cnter name of c q o Section 302 of ERISA contain.. miniapply. * * *
ration] has made a spmial election that
mum Funding standard requirements that
rcduces the amonnt of mnhbutions
are parallel to those under $ 412 of the
!ha! are required lo be made for [enter
Cndz, and section 302(d)(12) of ERISA
plan year] to [enter name of pension
Mark E. Matthews, provides an clection that is identical to
plan]. The election was made on [enDeputy Commissioner jar the election under $ 412(1)(12) of the
ter date of election]. The following
Services and EnjOrrement. Code. Moreover, section 3 E { d ) { lZ](E) of
infomarion is being pmvided to you
ERISA requires an cmployer that elects an
(Filal by tbc Oftlccul'tha Feh-4 Hcgmrcrun Muy 4 :W,
pursuant to the new law."
alternative deficit reduction conlribuliun
R:4S u.nl.. and publhW inthe i-ue ulrheFnlaru1 Register
l r ~ tr h y 1, WD4. hG F.R. 2535)
d e r section 302(d)(f2) of ERISA and
B. Infirmation Required in Notice to
lj 412(1)(12) of the CuJe for any year to
Pnrtict&mt.r and Bewjiclarie.~--€'ursuant
provide certain notices to the paItiiipants
to section 302(d)(12)(E)ii) of ERISA, h e
and bmeficiarics undcr the plan and m
participant
nutice must also include the inElection of Alternative Deficit the PBGC. The notices must be provided
htmation described in this Section 11.8.
Reductbn Contribution
wirhin 30 days of tIle filing fif the election
for such year, and the written notices of the I. Due Date of the Airernative Dejicit
electinn mnst specify various information. Reduction Can?ribufionand Ammt by
Announcement 2004-43
Section 302(dj(IZ)(F) of ERISA as Which Required Contribution is Reduced
This arlrlounccmcnt provides guidance added by section 102Ca) of PFEA'O.1 auThe participit nulicc must spccify the
on the notices that must be given by an thorizes the Secretary of the Treasury to
cmployer to plsn parricipants and their prescribe the time a r ~ dmmeT of making following information with respect to the
beneficiaries and to the Pension Benefit an alternative deficit reduction contribu- due date and thc reduction in t~.quired
Guaranty Corporadon (the "PBGC') if tion election. In addition, under section wntributioos resulting from the altemathe employer elects the alternative deficit 101 of Keorganizarion Plan No. 4 of 1978, tive deficit reah~ctirmcnntributim election
reduction conPibution under J 3 12(1)(12) 1979-1 C.B.480, the Secretary of the for the plan year:
a- The amount of t h e required miniuf the Internal Revenue Code (the "Code") Treasury has sole intcrpretivo uutharity
and section 302(d)(12) of the Employee (except for certain matters nEQ relevant mum conmbtion under 8 412 of the Cade
Retirement Income Security Act of 1974 here) uver thc subjcct matter addressed in for the plan year for which the alternative
deficit reduction contribution election was
("ERISA") AS addcd by section f 02 of the this annoutlcetnent.
Section IO?,(d) nf PFEA'M amended made. edcnlated W i n g into account that
Pension Fudding Equlty Act of 2004. Pub.
L. 108-218 ("PFEA'W"). This announce- section 5M(c)(3) of ERISAto provide that election;
b. The amount of the required mininlent also sew forth ritning requircmcnts if an employer f~liIstn provide the required
notices on a timely basis to a participant or mum contribution under $412 for rite plan
fnr the election.

2004-21 I.R.B.

955

May 24, 2004

year for which the alternative deficit reduction conaibution election was made,
calculared rvithout laking into account the
election;
c. The due date of the required minimum contribution under 2 4 11 for the plan
year for which the alternative deficit reduction contribution election was made;
and
d. If the electing employer is required
to make qu=terly conlributions to the plan
for the plan year for which the election
is made, the aggregate amount of the required minimum contribution under # 41 2
for the plan year that is required to be paid
in quarterly installments (cdculated taking
into account the election).
The empl(iyer may provide reasonable
estimates of t1lc amounts described above,
and the participant notice may also specify
the amount and date of any contributions
thzt were made for the plan yrar prior to
the date of the participant notice.

A. Due Date ofthe Alternative Dejicit

sets, (2) total liabilities, (3) stockholder eq-

Red~ictionCo~trriburiotiand d~nount
b y Which Required Contributton Was

uity (deficit), (4) paid-in capital, and (5) rerained earnings (accun~ulatcdloss).
The capitalization information should
be shown as of the same date fw which
the underfunded amount in the paragraph
above is specifid. If, llowever, thc capi talization inforrnatim is not available as
of such date, capitalization information as
of the end of the most recent1y ended fiscal
year of the corporatian may be substituted.

R~duced

'Ibis PBGC notice must include the
information regardirlg the contribution
amounts and due dates set forth in the

description of the participant notice in
section 1I.B.I. of this announcement.

B. Erne to RearmrePian to Full Funding

Method of' Delivery
The PB(3C notice must include fie
number of years it will ake to restore
The delivery requirement for the PBGC
the plan to full funding if the employer notice is set forth on the PBGC's website
only makes the required minimum con- at www.pbgc.gov.
tributions. For this purpose. a plan will
bc considered to be in full funding fnt a IV. Time For Making Election
plan year if, for the plan year, the plan is
Fursuan~to the authority contained in
subject to the full-funding Limitation of
section 302(d)(12)(F) of ERISA, and sub(1 412(c)(7), taking into account the 90%
ject tr, the mnsition rule in Section V of
uverride of 8 412(cj(7)(E).
The projection of when the plan this announcement, an election to make
will be in full funding mgst he .based the alternative deficit reduction coneibu2. Benefits Eligible fur Guarantee and
on reasonable actuarial assumptions tjnn for any plan year must be made by the
Litrr~tntionson Cuaranrcr
and, fur plau years beginning in 2006 end of the rust quartz of that plan year.
and later years, must reflect the interThe participant notice must include est rate rules !5& 417(b)(S)(ii)(III) and
a description of the benefits under h z 412(1)(7)(C)(i)(lI)) diat are applicable for
Notwithstanding the requirement to
plat1 drat zrc cligiblc for guarantee by
plmk years beginning after 2005. 111 ilddi- make an e1cc~:tiuriby the cnd of thc first
the PBGC, an explanation of the limita- tion. the PBGC notice must also include
quarter of the plan year, the following
tions O n the PBGC's guarantee and the the required minimum contributions that
transitional rules are applicable. If an
circumstances in which the limitations form the basis of the projections for the
employer makes an alternative deficit reapply, includirlg the ~r~arin~um
guaranteed plan year ot Ule elecrion and each of die 4
duction contributiuli dectiun on or bcfore
monthly bent:fik h a t the PBGC wauld subsequent plan years.
June 30,2004, that election will k deemed
pay if the plan terminated while undatimely for the plan year that begins during
funded. This requirement will be sarisfid
calendar 2004. In addition, if an employer
if an employer includes in Lhe participilr~t
issues a PBGC notice for a plan ou ur
notice the text from the portion of the
before June 5, 2004, the PBGC will mat
The PBGC notice must include (1) the
model notice in Appendix A to 29 CFR
the PBGC notice as timely issued.
Pan 401 1 that is found under the heading amount by which the plan is underfundd
and (2) thc capihlization of the employer VI. Paperwork Reduction Act
"PBGC: Guarantees."
making the election.
For purposes of providing the amount
The collection of informationcontained
by which the plan i s underfunded, the in this announcement bas been reviewed
The delivery requirement for the partic- PBOC: nuiicc must include thc plan's ter- and approved b y rhe Clffice of Manageipant notice is rceacld=satisfied if the par- niinarion liability as of a date within the ment and Budget in accmdance with the
ticipant notice is mailed to the last known most recently cnded plan year and the Paperwork Reduction Act (44 U.S.C.
address of each participant or be~~eficiary. market value of plan assek as of that date. 3507) under control number 1545-1884.
[n die cabe uf an e~uploycrwhose stock
An agency may not mndnct m spnnsnr.
is publicly waded, the capitalization of the and a person is not required to respond
111. Required Notice to PBGC
employer is h e product of the m m k r of to, a collection d information unless the
Pursuant to section 302(d)( lZ)(E)(iii) outstanding shares of stock and the mar- callection of information displays a valid
of ERISA an employer electing an alter- ket price per hare. In the case uf any curltxol number.
The collection of information in this
native deficit reduction conajbution must olhcr employer, the capitalizationinformaprovide the information described in chis tim required to be shown is the follow- annourtcement is in sections U and DI.
ing: (I) the fair markt value of total as- This information i> required to meet the
section.

May 24, 2004

2004-21 I.R.B.

requirements of section 103 of the Pension Funding Equity Act of 2004 to monitor and make valid determinations with respect to employers that elect an alternative deficit reduction contribution for certain plans. As a result of such elections, an
employer's deficit reduction con~ibution
for certain plan? will be based on amounts
specified under 4 4 12(l)(12) of the Code.
If an employer does not give timely notice of an election t~ make a deficit reduction contribution (including all of the requirements described above), a court may
in its discretion i m p s e a penaity. The
like1y respondents are businesses or other
for-profit institutions. utd nonprofit inst.tutions.
The esti maled total annual reporting
andor recordkeeping burden is 12,000

hours.
The estimated annual burden per respondeot/mordkr.eper varies from 20 to
100 hours. depending on individual circumstances, with an estimared average of
60 hours. The estimated number of responden~sandlor recordkeepers is 2011.
The estimated frequency of responses is
occasional.

Books or records relating to a collection
of information must be retained as long
as their contents may becume material in
the adminiswition of any internal revenue
law. Generally tax returns and tax return
information are confidential, as requkd
by 26 U.S.C. 3 6103.

VII. Efftct on Other Documents
Announcement 2004-38.
I.R.3. 878, is modified.

2004- 18

Drafting Information

The principal authors of this announcement are James E. Holland and
Michael Rubin of the EmpIoyee Plans,
Tax Exempt and Government Entities Division. Mr. Holland may he reached at
1-202-283-9699 and Mr. Rubin may be
reached at 1-202-283-9888 (not toll-free
numbers).

2004-21 I.R.B.

Application of Sections
265(a)(2) and 246A in
Multi-Party Financing
Arrangements; Request
for Comments

Announcement 200444
AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Advance notice of proposed
rulemaking.
SUMMARY: The IRS and Treasury Department are soliciting comments and suggestion~regarding the scope and details
of regulations (REG-1 211572-03) that may
be proposed under section 7701 (f) of the
Internal Revenue Code to address the application of sections 265(aX2) and 246A
in transactions involving related parties,
pass-through entities, or other intermediaries.

no deduction shall be allowed for interest
on indebtedness incurred or continued to
purchase or carry obligations the interest
on which is wholly exempt from Federal
income taxes.
Generally. section 246A reduces the
dividends received deduction under section 243, 244, or 3 5 ( a ) to
eldent that
the portfolio stock, with respect to which
the dividends are received, is debt-financed. Stock is treated as debt-financed
if there is indebtedness directly attrjbutable to the stock invesknent.
Section 7701(f) provides that the Secretary shaU prescribe such ~gulationsas
may be necessaryor appropriateILI prevent
the avoidance of the provisions of the Internal Revenue Code that deal with ( I ) the
linking of borrowing to investment, or (2)

diminishingrisk, through the use of related
persons, pass-thru entities, or other inter-

mediaries.
Concurrent with the publication of this
advance notice of pwposed rulemakirig in
the Federal Register, the IRS and Treasury are issuing Rev. Rul. 200447.
DATES: Written or electronic comments
2W-21 I.R.B. 941, which provides
must be submitted by August 5,2004.
guidance on the application of section
ADDRESSES: Scnd submissions to 265(a)(2) to disallow a portion of interest
CC:PA:LPD:PR(REG-128572-03), room incurred by one member of an affiliated
5203, Internal Revenue Service, POB group when it mnsfers borrowed funds
7604, Ben Franklin Station, Washing- to another rne111br.rof the group that is a
dealer in tax-exempt bods. In the cirton, DC 20044. Submissions may be
hand delivered Monday through Friday cumstances deshbed in Situations I and
2 of that ruling, the funds borrowed hy one
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR(REG-1 2857243), member are directly traceable to the Cunds
Courier's Desk, Internal Revenue Service, the borrowing member transfers to the
dealer member. Under Rev. Roc. 72-1 8.
1111 Constitution Avenue, NW, Washington, DC or sent electronically, via 1972-1 C.B. 740. the application of section 265(a)(2) to these facts requim a
h e IUS Internet site at www.ir,~.gov/reg~
or via the Federat eRulanaking Por- determination of the borrowing member's
tal at www.ri~giilutinns.gov (IRS and purpose fur iocurring or continuing each
item of indebtedness. The revenue ruling
REG-]2857243).
holds that the purpose of the borrowing
FOR
FURTHER
WORMATION member is determined by reference to the
CONTACT: Concerning submissions, use of the borrowed funds in the business
LaNita Van Dyke, (202) 622-7 180; con- of the dealer memkr to whom the funds
cerning the notice, Avital h h a u s , (202) are made available. This conclusion is
based on H Enrerprise.7 Inremfional v.
622-3930 (not toll -free numbers).
Commissioner, 75 T.C+M. 1948 (1 998),
a f ' d per curinrn. 183 E3d 907 (gth Cir.
1999). The result is a disallowance of
the borrowing member's interest expense
Background
under section 265(a)(2).
Section 163(a) generally allows a deIn H Enterprises, a parent and a subduction for all interest paid or accrued sidiary were members of the same conwithin h e taxable year an indebtedness. solidated group of corporations. The
Section 265(a)(2), however, provides h a t subsidiary d e c l a d a dividend and, a few

957

May 24, 2004