Notice 2013-4 - IRS proposals for changes to AFR, federal long-term rate determinations 

Proposals

As explained by Notice 2013-4 [PDF 24 KB], Treasury and the IRS are considering how to modify the method for determining adjusted AFRs and the adjusted federal long-term rate so that the method will be: (1) consistent with the purposes of sections 382(f) and 1288, even as market conditions and tax rates change; and (2) based on readily available data.

Among the options for determining the adjusted AFRs and the adjusted federal long-term rate, Treasury and the IRS are considering the following methods (listed below, the details of which are complex):

• Determine the rates using the current methodology, with two specified modifications
• Use an adjustment factor based on tax rates
• Use an adjustment factor in which the rates reflect equivalent credit qualities
• Use an adjustment factor based on the average percentage difference between the federal long-term rates and the adjusted federal long-term rates published between 1986 and 2007
• Use some combination of elements from these approaches

Notice 2013-4 includes a request for comments on the possible modifications to the method by which adjusted AFRs and the adjusted federal long-term rates are determined. Comments must be submitted by April 26, 2013.

Interim guidance

Notice 2013-4 provides that until Treasury and the IRS issue further guidance, the adjusted AFRs, the adjusted federal long- term rate, and the long-term tax-exempt rate will continue to be determined using the adjustment factor in the manner used since 1986, except for a change to the adjustment factor for any month when: (1) the adjustment factor would otherwise exceed one; or (2) the denominator of the adjustment factor would otherwise be zero or a negative number.

The modifications under the interim guidance would apply for the monthly revenue rulings in which the adjusted AFRs and the adjusted federal long-term rate are published, beginning with the rates for March 2013.