Highlights of This Issue ADMINISTRATIVE INCOME TAX Preface The IRS Mission Introduction Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 T.D. 9850 Part III. Administrative, Procedural, and Miscellaneous Notice 201917 Notice 201919 Part IV. Items of General Interest Announcement 201902 Definition of Terms and Abbreviations Definition of Terms Abbreviations Numerical Finding List Numerical Finding List Effect of Current Actions on Previously Published Items Finding List of Current Actions on Previously Published Items How to get the Internal Revenue Bulletin INTERNAL REVENUE BULLETIN We Welcome Comments About the Internal Revenue Bulletin Internal Revenue Bulletin: 2019-12 March 18, 2019 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. ADMINISTRATIVE Announcement 2019–02 Announcement 2019–02 The Office of Professional Responsibility (OPR) announces recent disciplinary sanctions involving attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled retirement plan agents, and appraisers. These individuals are subject to the regulations governing practice before the Internal Revenue Service (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. Notice 2019–17 Notice 2019–17 This notice provides a waiver of the addition to tax under section 6654 for underpayment of estimated income tax by qualifying farmers and fishermen for the 2018 tax year. This addition to tax is waived for any qualifying farmer or fisherman who files his or her 2018 federal income tax return with the proper waiver form and pays in full any tax due by April 15, 2019, or by April 17, 2019, for those taxpayers who live in Maine or Massachusetts. INCOME TAX Notice 2019–17 Notice 2019–17 This notice provides a waiver of the addition to tax under section 6654 for underpayment of estimated income tax by qualifying farmers and fishermen for the 2018 tax year. This addition to tax is waived for any qualifying farmer or fisherman who files his or her 2018 federal income tax return with the proper waiver form and pays in full any tax due by April 15, 2019, or by April 17, 2019, for those taxpayers who live in Maine or Massachusetts. Notice 2019–19 Notice 2019–19 Resident populations of the 50 states, the District of Columbia, Puerto Rico, and the insular areas for purposes of determining the 2019 calendar year (1) state housing credit ceiling under section 42(h) of the Code, (2) private activity bond volume cap under section 146, and (3) private activity bond volume limit under section 142(k) are reproduced. T.D. 9850 T.D. 9850 These final regulations amend the utility allowance regulations concerning the low-income housing credit under section 42. These final regulations extend the principles of the current submetering rules to situations where the building owner independently generates and sells to tenants certain types of energy without the intervention of a local utility company. Preface The IRS Mission Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with 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 Conventions, legislation, court decisions, and other items of general interest. It is published weekly. It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, modify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management 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.—1986 Code. This part includes rulings and decisions based on provisions of the Internal 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, Legislation 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 Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Secretary (Enforcement). Part IV.—Items of General Interest. This part includes notices of proposed rulemakings, disbarment and 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. Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 T.D. 9850 Utility Allowance Submetering DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations and removal of temporary regulations. SUMMARY: This document contains final regulations that amend the utility allowance regulations concerning the low-income housing credit under section 42 of the Internal Revenue Code (Code). These final regulations extend the principles of the current submetering rules. The current rules address situations in which a building owner purchases a utility from a utility company and then separately charges the tenants for the utility. In those situations, if the utility costs paid by a tenant are based on actual consumption in the tenant’s submetered, rent-restricted unit and if certain other requirements are satisfied, then the charges for the utility are treated as paid by the tenant directly to the utility company, even though the payment passes through the building owner. The final regulations extend these principles and apply to situations in which a building owner sells to tenants energy that is produced from a renewable source and that the owner did not purchase from or through a local utility company. The final regulations affect owners of low-income housing projects that claim the credit, the tenants in those low-income housing projects, and the State and local housing credit agencies that administer the credit. DATES: Effective Date: These final regulations are effective on March 4, 2019. Applicability Date: For dates of applicability, see § 1.42–12(a)(5). FOR FURTHER INFORMATION CONTACT: Dillon Taylor, (202) 317-4137 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background On March 3, 2016, the Department of the Treasury (Treasury Department) and the IRS published in the Federal Register (81 FR 11104) final and temporary regulations (TD 9755) that amended § 1.42–10 of the Income Tax Regulations. The final regulations in TD 9755 clarified the circumstances in which utility costs paid by a tenant based on actual consumption in a submetered, rent-restricted unit are treated as paid by the tenant directly to the utility company and not to the building owner. In such a case, for purposes of section 42, the tenant’s payments to the owner for the utilities are not treated as payments of gross rent, and the rent that the owner might otherwise have collected for the unit is reduced by an amount that is called a “utility allowance.” The temporary regulations extended the principles of those final regulations to situations in which a building owner sold to tenants energy that was produced from a renewable source and that the owner had not purchased from or through a local utility company. In the same issue of the Federal Register (81 FR 11160), the Treasury Department and the IRS published a notice of proposed rulemaking (REG–123867–14) (the proposed regulations). The text of the proposed regulations incorporated by cross-reference the text of the temporary regulations. The Treasury Department and the IRS received written and electronic comments responding to the proposed regulations. No requests for a public hearing were made, and no public hearing was held. After consideration of all the comments, the proposed regulations are adopted as amended by this Treasury Decision. Summary of Comments and Explanation of Provisions The temporary regulations in TD 9755 applied the submetering principles to energy that the building owner sold to tenants if the energy was “produced from a renewable source” and if the owner had acquired it from the renewable source without the intervention of a local utility company. Qualification for this submetering treatment, however, depended on the charges to the tenants for this energy being comparable to local utility rates. That is, under the temporary regulations, to the extent that tenants consumed this energy, the rate charged by the building owner could not exceed the rate at which the local utility company would have charged the tenants if they had instead acquired the energy from that company. A commenter requested that the final regulations clarify how a building owner may demonstrate that the rate that the owner charges tenants for renewable energy satisfies this requirement (the evidentiary issue). In addition, if there are multiple local utility rates that the tenants might have been charged (possibly from multiple utility companies), the commenter asked for clarification as to which rate or rates should be taken into account in determining whether the owner’s charges to the tenants qualify (the reference-rate issue). The final regulations resolve both of these issues. Addressing the reference-rate issue, the final regulations require that the rate that the owner charges must not exceed the highest rate at which the tenants might have obtained energy from a local utility company. This criterion has several advantages over alternatives. For example, it is easily administrable (as compared, for example, with a requirement that the owner’s rate not exceed the “most typical rate” in the community). Also, the criterion protects an owner’s qualifying rate from being disqualified by the introduction of new rates in the community (as might be the case, for example, if the reference for the criterion were the average or median of local rates). Regarding the evidentiary issue, in determining the acceptability of the rate that a building owner charges tenants, the owner may rely on the rates published by local utility companies. The temporary regulations in TD 9755 provide that, for purposes of qualifying for submetering treatment, energy is “produced from a renewable source” if it is energy that is produced from energy property described in section 48; energy that is produced from a facility described in section 45(d)(1), (2), (3), (4), (6), (9), or (11); or energy that is described in guidance published for this purpose in the Internal Revenue Bulletin. Sections 45 and 48 of the Code determine whether a taxpayer is entitled to certain energy-related credits. A commenter requested that the final regulations clarify the extent to which these cross-references to “energy property” and “facility” incorporate the various requirements for earning those credits. The final regulations clarify that the building owner need not own the source from which the utility is produced and need not qualify for, or receive, any credit under section 45 or 48 associated with the source. Indeed, energy may qualify as “produced from a renewable resource” even if potential entitlement to credits under these Code sections has expired. Thus, the final regulations clarify that they refer to “energy property” and “facility” as a means of describing certain types of production of renewable energy but that they do not also incorporate any other criteria from those Code sections. Under section 42(g)(1) and (2), a residential unit may qualify as a low-income unit only if it is “rent-restricted.” The amount that qualifies as restricted rent is determined based on the assumption that most utilities are generally covered by that rent. See H.R. Conf. Rep. 99–841, at II–94 (1986). For that reason, if the tenant pays for a utility directly, the rent that the owner may require from the tenant is reduced. The amount of this reduction is called a “utility allowance.” See section 42(g)(2)(B)(ii) and § 1.42–10(a). Language in the preamble of TD 9755 states that utility costs paid by a tenant based on actual consumption in a submetered, rent-restricted unit are treated as paid by the tenant directly to the utility and thus do not count against the maximum rent that the building owner can charge. Referencing this language, one commenter requested that the final regulations clarify whether a building owner of a submetered building is required to reduce its maximum gross rents by the amount of a utility allowance. Because § 1.42–10(e) treats a tenant in a submetered, rent-restricted unit as having paid for a utility directly and not by or through the owner of the building, the proper treatment of the tenant’s submetered utility payments is the same as if the tenant had made those payments directly to the utility company—(1) Although the payments pass through the building owner, they are not treated for purposes of the rent restriction as if they were payments of rent; and (2) The amount of rent that the owner might otherwise have demanded from the tenant is reduced by the amount of an applicable utility allowance. Special Analyses This regulation is not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Department of the Treasury and the Office of Management and Budget regarding review of tax regulations. Therefore, a regulatory impact assessment is not required. It has also been determined that the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply because the regulations do not impose a collection of information on small entities. Pursuant to section 7805(f) of the Internal Revenue Code, this proposed rule preceding these final regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business and no comments were received. Drafting Information The principal author of this regulation is James W. Rider, formerly of the Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the Treasury Department and the IRS participated in its development. * * * * Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is amended as follows: PART 1–INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by removing the entry for § 1.42–10T to read in part as follows: Authority: 26 U.S.C. 7805 * * * Sections 1.42–6, 1.42–8, 1.42–9, 1.42–10, 1.42–11, and 1.42–12, also issued under 26 U.S.C. 42(n). Par. 2. Section 1.42–0T is amended by removing the entries for § 1.42–10T. Par. 3. Section 1.42–10 is amended by: 1. Revising paragraph (e)(1)(i) introductory text. 2. Revising paragraph (e)(1)(i)(B). 3. Adding paragraphs (e)(1)(i)(C) and (D). 4. Revising paragraph (e)(1)(iv)(B). The revisions and additions read as follows: § 1.42–10 Utility allowances. * * * * * (e) * * * (1) * * * (i) The utility consumed in the unit is described in paragraph (e)(1)(i)(A) or (e)(1)(i)(B) of this section; * * * * * (B) The utility is not purchased from or through a local utility company and is produced from a renewable source (within the meaning of paragraph (e)(1)(i)(C) of this section). (C) For purposes of paragraph (e)(1)(i)(B) of this section, a utility is produced from a renewable source if— (1) It is energy that is produced from energy property described in section 48; (2) It is energy that is produced from a facility described in section 45(d)(1), (2), (3), (4), (6), (9), or (11); or (3) It is a utility that is described in guidance published for this purpose in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii) of this chapter). (D) Determinations under paragraph (e)(1)(i)(C)(1) and (2) of this section take into account only the manner in which the energy is produced and not who owns the energy property or the facility or whether the applicability of relevant portions of sections 45 and 48 has expired. * * * * * (iv) * * * (B) To the extent that the utility consumed is described in paragraph (e)(1)(i)(B) of this section, the utility rate charged to the tenants of the unit does not exceed the highest rate that the tenants would have paid if they had obtained the utility from a local utility company. In determining whether a rate satisfies the preceding sentence, a building owner may rely on the rates published by local utility companies. * * * * * § 1.42–10T [Removed] Par. 5. Section 1.42–10T is removed. Par. 6. Section 1.42–12 is amended by: 1. Revising paragraph (a)(5)(i)(E). 2. Revising paragraph (a)(5)(ii). 3. Adding paragraph (a)(5)(iii). The revisions and addition read as follows: § 1.42–12 Effective dates and transitional rules. (a) * * * (5) * * * (i) * * * (E) Section 1.42–10(e), except as provided in paragraph (a)(5)(iii) of this section. (ii) Except as provided in paragraph (a)(5)(iii) of this section, a building owner may apply the provisions described in paragraph (a)(5)(i)(A)–(E) of this section to the building owner’s taxable years beginning before March 3, 2016. Otherwise, the utility allowance provisions that apply to those taxable years are contained in § 1.42–10, as contained in 26 CFR part 1, revised as of April 1, 2015. (iii) The provisions in § 1.42–10(e)(1)(i) introductory text, (e)(1)(i)(B)–(D), and (e)(1)(iv)(B) apply to a building owner’s taxable years beginning on or after March 4, 2019. A building owner, however, may apply these provisions to earlier taxable years. Otherwise, the submetering provisions that apply to taxable years beginning after March 3, 2016, and before March 4, 2019 are contained in § 1.42–10 and § 1.42–10T as contained in 26 CFR part 1 revised as of April 1, 2016. In addition, a building owner may apply those submetering provisions to taxable years beginning before March 3, 2016. Kirsten Wielobob, Deputy Commissioner for Services and Enforcement. Approved: February 26, 2019. David J. Kautter, Assistant Secretary of the Treasury (Tax Policy). Note (Filed by the Office of the Federal Register on February 27, 2019, 4:15 p.m. and published in the issue of the Federal Register for March 4, 2019, 84 F.R. 7283) Part III. Administrative, Procedural, and Miscellaneous Notice 2019–17 Relief from Addition to Tax for Underpayment of Estimated Income Tax by Individual Farmers and Fishermen SECTION 1. PURPOSE This notice provides a waiver of the addition to tax under section 6654 of the Internal Revenue Code (Code) for underpayment of estimated income tax by qualifying individual farmers and fishermen. SECTION 2. BACKGROUND Generally, the Code requires taxpayers to pay federal income taxes as they earn income. To the extent these taxes are not withheld from wages, a taxpayer must pay estimated income tax on a quarterly basis. Section 6654 provides that, in the case of an individual, estimated income tax is required to be paid in four installments each 25 percent of the required annual payment. Individual taxpayers who fail to make a sufficient and timely payment of estimated income tax are liable for an addition to tax under section 6654(a). Qualifying farmers and fishermen are subject to special rules requiring them to make only one installment payment due on January 15 of the year following the taxable year. I.R.C. § 6654(i)(1)(A) & (B). A taxpayer qualifies as a farmer or fisherman for the 2018 tax year if at least two-thirds of the taxpayer’s total gross income was from farming or fishing in either 2017 or 2018. See I.R.C. § 6654(i)(2). Qualifying farmers and fishermen who did not make the required estimated tax installment payment by January 15, 2019, are not subject to an addition to tax for failing to pay estimated income tax if they file their returns and pay the full amount of tax reported on the return as payable by March 1, 2019. See I.R.C. § 6654(i)(1)(D). The Secretary is authorized to waive the section 6654 addition to tax for an underpayment of estimated tax in unusual circumstances to the extent its imposition would be against equity and good conscience. I.R.C. § 6654(e)(3)(A). Due to certain changes in the rules that affect farmers and fishermen, the Treasury Department and IRS anticipate that farmers and fishermen may have difficulty accurately determining and paying their tax liability for the 2018 taxable year by March 1, 2019. Accordingly, the IRS is providing relief to individual taxpayers who are farmers or fishermen by waiving certain penalties if the requirements set forth in section 3 of this notice are satisfied. SECTION 3. WAIVER OF UNDERPAYMENT OF ESTIMATED INCOME TAX Under the authority granted by section 6654(e)(3)(A), the addition to tax under section 6654 for failure to make an estimated tax payment for the 2018 tax year is waived for any qualifying farmer or fisherman who files his or her 2018 income tax return and pays in full any tax due by April 15, 2019, or by April 17, 2019, for those taxpayers who live in Maine or Massachusetts. Farmers and fishermen requesting this waiver of the addition to tax must attach Form 2210-F, Underpayment of Estimated Tax by Farmers and Fishermen, to their 2018 tax return. The form can be submitted electronically or on paper. The taxpayer’s name and identifying number should be entered at the top of the form, and the waiver box (Part I, Box A) should be checked. The rest of the form should be left blank. Forms, instructions, and other tax assistance are available on IRS.gov. The IRS toll-free number for general tax questions is 1-800-829-1040. SECTION 4. CONTACT INFORMATION The principal author of this notice is Alexander Wu of the Office of the Associate Chief Counsel (Procedure and Administration). For further information, please contact Mr. Wu at (202) 317-6845 (not a toll-free number). Notice 2019–19 2019 Calendar Year Resident Population Figures This notice advises State and local housing credit agencies that allocate low-income housing tax credits under § 42 of the Internal Revenue Code, and States and other issuers of tax-exempt private activity bonds under § 141, of the population figures to use in calculating: (1) the 2019 calendar year population-based component of the State housing credit ceiling (Credit Ceiling) under § 42(h)(3)(C)(ii); (2) the 2019 calendar year volume cap (Volume Cap) under § 146; and (3) the 2019 volume limit (Volume Limit) under § 142(k)(5). Generally, § 146(j) requires determining the population figures for the population-based component of both the Credit Ceiling and the Volume Cap for any calendar year on the basis of the most recent census estimate of the resident population of a State (or issuing authority) released by the U.S. Census Bureau before the beginning of the calendar year. Similarly, § 142(k)(5) bases the Volume Limit on the State population. Sections 42(h)(3)(H) and 146(d)(2) require adjusting for inflation the population-based component of the Credit Ceiling and the Volume Cap. The Credit Ceiling adjustment for the 2019 calendar year is in Rev. Proc. 2018–57, 2018–49 I.R.B. 827. Section 3.10 of Rev. Proc. 2018–57 provides that, for calendar year 2019, the amount for calculating the Credit Ceiling under § 42(h)(3)(C)(ii) is the greater of $2.75625 multiplied by the State population, or $3,166,875. Further, section 3.21 of Rev. Proc. 2018–57 provides that the amount for calculating the Volume Cap under § 146(d)(1) for calendar year 2019 is the greater of $105 multiplied by the State population, or $316,745,000. For the 50 states, the District of Columbia, and Puerto Rico, the population figures for calculating the Credit Ceiling, the Volume Cap, and the Volume Limit for the 2019 calendar year are the resident population estimates released electronically by the U.S. Census Bureau on December 19, 2018, and described in Press Release CB18–193. For American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands, the population figures for the 2019 calendar year are the 2018 midyear population figures in the U.S. Census Bureau’s International Data Base (IDB). The U.S. Census Bureau electronically announced an update of the IDB on September 18, 2018, in Press Release CB18-TPS.45. For convenience, these figures are reprinted below.