SERVICE RELEASES UPDATED 'BASE PERIOD T-BILL RATES' FOR USE IN CALCULATING DISC-RELATED DEFERRED TAX LIABILITY

Rev. Rul. 86-132

Section 995(f)(1) of the Internal Revenue Code provides that a shareholder of a DISC shall pay for each taxable year interest in an amount equal to the product of the shareholder's DISC-related deferred tax liability for such year and the base period T-bill rate. This provision applies to tax years ending after December 31, 1984.

Section 995(f)(4) of the Code provides that the term "base period T-bill rate," as used in section 995(f)(1), means the annual rate of interest determined by the Secretary to be equivalent to the average investment yield of United States Treasury bills with maturities of 52 weeks which were auctioned during 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 shareholder.

Accordingly, the base period T-bill rate for the period ending September 30, 1984, is 10.96 percent. The base period T-bill rate for the period ending September 30, 1985, is 8.79 percent. The base period T-bill rate for the period ending September 20, 1986, is 6.92 percent. Pursuant to section 6622 of the Code interest shall be compounded daily.

Set forth below is a table providing factors reflecting daily compounding of the base period T-bill rate for any number of days in the shareholder's taxable year (including a 52-53 week accounting period) for both the 1984 and the 1985 base period T-bill rates. 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) of the Code) for such 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, the factor to be used will be the factor for 365 days. The factor to be used will be other than the factor for 365 days if the shareholder's taxable year for which the interest charge is 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.

                    ANNUAL RATE, COMPOUNDED DAILY