26 CFR §1.1288-1 — -1 Adjustment of applicable Federal rate for tax-exempt obligations.

1. (a)In general. In applying section 483 or section 1274 to a tax-exempt obligation, the applicable Federal rate is adjusted to take into account the tax exemption for interest on the obligation. For each applicable Federal rate determined under section 1274(d), the Secretary computes a corresponding adjusted applicable Federal rate by multiplying the applicable Federal rate by the adjustment factor described in paragraph (b) of this section. The Internal Revenue Service publishes the applicable Federal rates and the adjusted applicable Federal rates for each month in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii) of this chapter).
2. (b)Adjustment factor. The adjustment factor is a percentage equal to—
   1. (1)The excess of 100 percent, over
   2. (2)The product of—
      1. (i)59 percent, and
      2. (ii)The sum of the maximum rate in effect under section 1 applicable to individuals and the maximum rate in effect under section 1411 applicable to individuals for the month to which the adjusted applicable Federal rate applies.
3. (c)Effective/applicability date. The rules of this section apply to the determination of adjusted applicable Federal rates beginning with the rates determined during August 2016 that apply during September 2016.