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The Service mails a notice to B dated
July 28, 1999, advising that B is subject to
a $600 failure-to-deposit penalty under
§ 6656. Under §6656(e), B has until October 25, 1999, to designate the deposit li-

Date of deposit

ability due dates to which its deposits for
the first quarter of 1999 will be applied by
calling the toll-free number shown on the
penalty notice. On September 30, 1999,
B calls the toll-free number shown on the

Application of deposit
Deposit liability
due date

Days late

Taxpayer
designation

penalty notice and designates that its deposits be applied to its deposit liability
due dates as follows:

Applicable
penalty rate

Penalty amount

1-6-99

1-6-99

1-6-99

0

0%

$0

1-22-99

1-21-99

2-3-99

0

0%

$0

2-4-99

2-3-99

2-18-99

0

0%

$0

2-19-99

2-18-99

3-3-99

0

0%

$0

3-4-99

3-3-99

3-17-99

0

0%

$0

3-18-99

3-17-99

3-31-99

0

0%

$0

4-1-99

3-31-99

1-21-99

70

10%

$500

TOTAL

$500

By so designating its deposits, the Service
will reduce the total penalty amount to
which B is subject to $500.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective for
federal tax deposits required to be made
after January 18, 1999.
SECTION 7. EFFECT ON OTHER
DOCUMENTS
.01 Notice 98–14 is superseded with respect to federal tax deposits required to be
made after January 18, 1999. Notice
98–14 continues to apply to deposits required to be made on or before January
18, 1999, with respect to return periods
beginning after December 31, 1997.
.02 Rev. Proc. 90–58 is amplified.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Marc C. Porter of the Office
of Assistant Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure, contact
Marc C. Porter at (202) 622-4940 (not a
toll-free call).

January 11, 1999

26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement; determination of correct tax liability.
(Also Part I, section 42.)

Rev. Proc. 99–11
SECTION 1. PURPOSE
This revenue procedure establishes a
collateral program as an alternative to
providing a surety bond to avoid or defer
recapture of low-income housing tax
credits under § 42(j)(6) of the Internal
Revenue Code. Under this program, taxpayers may establish a Treasury Direct
Account and pledge certain United States
Treasury securities to the Internal Revenue Service as security. Procedures for
establishing the Treasury Direct Account
are provided in section 3 of this revenue
procedure.
SECTION 2. BACKGROUND
Section 42(a) allows a 10-year tax
credit for investment in qualified low-income buildings placed in service after December 31, 1986. If, at the close of any
tax year in the compliance period, the
amount of the qualified basis of any
building with respect to the taxpayer is

14

less than the amount of the qualified basis
at the close of the preceding tax year,
§ 42(j)(1) provides that the taxpayer’s tax
for the tax year shall be increased by the
credit recapture amount under § 42(j)(2).
Section 42(j)(6) provides that a taxpayer that disposes of a qualified low-income building or an interest therein may
defer or avoid recapture by furnishing a
bond to the Secretary in an amount satisfactory to, and for the period required by,
the Secretary if it is reasonably expected
that the building will continue to be operated as a qualified low-income building
for the remainder of the building’s compliance period. Guidance on the amount of
bond considered satisfactory by the Secretary and the period of the bond required by
the Secretary under § 42(j)(6) is provided
in Rev. Rul. 90–60, 1990–2 C.B. 3.
Section 7101 provides that a person required to furnish a bond under Title 26
may, in lieu thereof, deposit certain Treasury securities as provided in 31 United
States Code (U.S.C.) § 9303.
Under 31 U.S.C. § 9303 if a person is
required under a law of the United States
to give a surety bond, the person may give
a Government obligation as security instead of a surety bond. The obligation

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shall: 1) be given to the official having
authority to approve the surety bond; 2)
be in an amount equal at par value to the
amount of the required surety bond; and
3) authorize the official receiving the
obligation to collect or sell the obligation
if the person defaults on a required condition. A “Government obligation” is defined as a public debt obligation of the
United States Government whose principal and interest are unconditionally guaranteed by the Government.
Over the years, taxpayers have reported
difficulty in obtaining surety bonds because of the relatively small pool of
surety companies that offer surety bonds
for low- income housing buildings. Consequently, this program is being established to allow taxpayers to pledge Treasury securities in lieu of a surety bond to
secure the taxpayer’s liability for credit recapture under § 42(j). Upon furnishing
Treasury securities, the taxpayer will be
treated, solely for purposes of applying
§ 42(j), as if the taxpayer had not disposed
of the interest and the taxpayer will be
deemed to continue to own the disposedof-interest under the rules of § 42(c). The
taxpayer will not, however, be treated as
claiming any additional low-income housing credit for the disposed-of-interest for
any period following the disposition. If
the qualified basis of the taxpayer’s
deemed interest in a qualified low-income
building decreases after a disposition of
the taxpayer’s interest in the qualified
low-income building, the Treasury securities may be forfeited in whole or in part.
SECTION 3. PROCEDURES FOR
ESTABLISHING A TREASURY
DIRECT ACCOUNT
The procedures for establishing a Treasury Direct Account with the Service are
as follows:
.01 Taxpayers must complete the Form
8693, Low Income Housing Tax Credit
Disposition Bond, (see, however, any further revisions to the Form 8693 and its instructions for any changes in reporting) to
determine the required amount of Treasury securities to be pledged as follows:
(1) write the words “TREASURY
DIRECT ACCOUNT” across the top of
Form 8693;
(2) complete Part I of the Form 8693
which includes lines 1 through 5 (substi-

1999–2 I.R.B

tuting the word “security” wherever the
word “bond” appears in line 4), skip line
6, and indicate on line 7a the name and
address of the taxpayer;
(3) sign the perjury statement under
Part II;
(4) complete Part III, if applicable;
(5) compute the bond amount by
completing the worksheet in the instructions; and
(6) submit the completed Form 8693
to:
Internal Revenue Service
Low-Income Housing Tax Credit
Examination Group
Room 3426
P.O. Box 12040
Philadelphia, PA 19105
.02 Upon receipt of the Form 8693, the
Service will verify that the appropriate
dollar amount of Treasury securities has
been pledged and will provide the taxpayer with a Treasury Direct collateral
customer package and approval memorandum authorizing the establishment of
the Treasury Direct Account. The taxpayer must then:
(1) complete the Bureau of Public
Debt New Account Request Form (PD
5182) including the following information:
(a) taxpayer identification number (TIN);
(b) taxpayer mailing address;
(c) telephone number; and
(d) the direct deposit information for the taxpayer’s bank account to
which payments will be credited and purchases debited.
(2) submit the PD 5182 with the
Service approval memorandum to:
Bureau of the Public Debt
IRS Collateral - DCS (PD-DCS)
200 Third Street
P.O. Box 428
Parkersburg, WV 26106
.03 Upon receipt of PD 5182, the Bureau of the Public Debt (PD-DCS) will establish a zero par collateral account (that
is, an account without a balance). Taxpayers will then have 60 days to fund the
account through original issue or secondary market purchases of eligible Treasury securities, which are: 26-week Treasury bills, $1,000 minimum, $1,000
multiples; and 52-week Treasury bills,
$1,000 minimum, $1,000 multiples.

15

(1) For original issue purchases, the
taxpayer must:
(a) complete a Treasury Direct
Tender Form (PD 5381) to
purchase non-competitively the security with the required value and term;
(b) select Debit Account Clearing House as the method of payment on
the tender;
(c) submit the completed tender
to the PD-DCS collateral desk to be entered via Public Debt’s electronic site
(PD-DCS will not process any tender received that does not include an already established account number for a Treasury
Direct Account);
(d) receive a Treasury Direct
Statement of Account that displays both
the form of registration and the par
amount of Treasury securities pledged;
and
(e) submit within 30 days from
receipt a copy of the Treasury Direct
Statement of Account to the Service at the
address cited in section 3.01(6) of this revenue procedure as evidence that the collateral pledge account has been funded.
(2) For secondary market purchases, the taxpayer must:
(a) purchase a Treasury security
of the correct term and value on the secondary market through a broker/dealer;
(b) instruct the broker/dealer to
transfer the Treasury security or securities
into an established Treasury Direct Account;
(c) receive a Treasury Direct
Statement of Account that displays both
the form of registration and the par
amount of Treasury securities pledged;
and
(d) submit a copy of the Treasury Direct Statement of Account to the
Service as evidence that the collateral
pledge account has been funded.
.04 Taxpayers may purchase any combination of eligible Treasury securities to
provide the required amount of collateral.
All Treasury Direct Accounts are structured so that:
(1) Maturing securities are automatically reinvested in the same type of instruments previously held. If a like reinvestment option is not available upon a
security’s maturity, the proceeds are invested in the next offered 26 week Treasury bill. No interest accrues or is paid
for any period between investments.

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(2) PD-DCS reports to the Service
all Form 1099 information concerning the
accounts.
(3) All refund payments are credited
electronically to the bank account of
record on the previously established Treasury Direct Account. A refund payment
on a Treasury bill is an amount equal to
the difference between the face value and
the price paid for the bill when purchased
at original issue.
(4) Taxpayers are subject to annual
maintenance or other fees applicable generally to investors holding Treasury securities in Treasury Direct. Refer to annual
Federal Register notices for the schedule
of maintenance fees.
.05 Taxpayers are not able, without
written authorization from the Service, to
transfer securities or initiate other
changes to the collateral account. However, taxpayers may communicate directly with PD-DCS with any change in
bank account information.
.06 At the end of the required posting
period, the taxpayer must complete a Security Transfer Request Form (PD 5179),
and forward the Request Form PD 5179 to
the Service at the address noted in Section
3.01(6) of this revenue procedure. The

January 11, 1999

Service will review the taxpayer’s request
and notify PD-DCS to return the posted
securities. PD-DCS will not process any
transfer request from the taxpayer unless it
has been reviewed by the Service.
.07 The taxpayer has two options in receiving back the securities from the Treasury Direct Account. The taxpayer may:
(1) establish a new Treasury Direct
Account using the Public Debt New Account Request Form or designate an existing Treasury Direct Account in the taxpayer’s name and complete the Security
Transfer Request Form (PD 5179) to
transfer the securities into the new or existing Treasury Direct Account; or
(2) complete the Security Transfer
and Sale Request Form (PD-5179-1) to
transfer the securities to the commercial
market’s National Book-Entry System
(NBES). The securities are transferred
from the Treasury Direct system into the
Federal Reserve’s Bank of Chicago’s account in NBES to be sold on the secondary market.
.08 Questions regarding the computation of the required amount of collateral
can be directed to:
Internal Revenue Service

16

Low Income Housing Tax Credit
Examination Group
Room 3426
P.O. Box 12040
Philadelphia, PA 19105
Phone Number: (215) 861-1212
(Ext. 144)
.09 Administrative questions concerning the establishment of the Treasury Direct Account should be directed to:
Bureau of the Public Debt
IRS Collateral-DCS
200 Third Street
P.O. Box 428
Parkersburg, WV 26106
Phone Number: (304) 480-6158
SECTION 4. EFFECTIVE DATE
This revenue procedure is effective (Insert date of publication).
DRAFTING INFORMATION
The principal author of this revenue
procedure is Jack Malgeri of the Office of
Assistant Chief Counsel (Passthroughs
and Special Industries). For further information regarding this revenue procedure,
contact Mr. Malgeri at (202) 622-3040
(not a toll-free call).

1999–2 I.R.B.