IRS Publishes T-Bill Rate Used for Tax on DISC Income

Section 995(f)(1) of the Internal Revenue Code provides that a shareholder of a DISC shall pay interest each taxable year in an amount equal to the product of the shareholder's DISC-related deferred tax liability for the year and the "base period T-bill rate." Under section 995(f)(4), the base period T-bill rate is the annual rate of interest determined by the Secretary to be equivalent to the average of the 1-year constant maturity Treasury yields, as published by the Board of Governors of the Federal Reserve System, for the 1-year period ending on September 30 of the calendar year ending with (or of the most recent calendar year ending before) the close of the taxable year of the share-holder. The base period T-bill rate for the period ending September 30, 2014, is 0.11 percent.

Pursuant to section 6222 of the Code, interest must be compounded daily. The table below provides factors for com-pounding the base period T-bill rate daily for any number of days in the shareholder's taxable year (including a 52-53 week accounting period) for the 2014 base period T-bill rate. To compute the amount of the interest charge for the shareholder's taxable year, multiply the amount of the shareholder's DISC-related deferred tax liability (as defined in section 995(f)(2)) for that year by the base period T-bill rate factor corresponding to the number of days in the shareholder's taxable year for which the interest charge is being computed. Generally, one would use the factor for 365 days. One would use a different factor only if the shareholder's taxable year for which the interest charge being determined is a short taxable year, if the shareholder uses the 52-53 week taxable year, or if the shareholder's taxable year is a leap year.

For the base period T-bill rates for the periods ending in prior years, see Rev. Rul. 2013-24, 2013-49 IRB 534; Rev. Rul. 2012-22, 2012-48 IRB 565; Rev. Rul. 2011-30, 2011-49 IRB 826; Rev. Rul. 2010-28, 2010-49 IRB 804; and Rev. Rul. 2009-36, 2009-47 IRB 650.

DRAFTING INFORMATION

The principal author of this revenue ruling is Anand Desai of the Office of Associate Chief Counsel (International). For further information regarding the revenue ruling, contact Mr. Desai at (202) 317-6939 (not a toll-free number).

                     ANNUAL RATE, COMPOUNDED DAILY