26 CFR Part 301 — Procedure and Administration

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PART 301—PROCEDURE AND ADMINISTRATION Authority: 26 U.S.C. 7805. Section 301.1474-1 also issued under 26 U.S.C. 1474(f). Section 301.6011-2 also issued under 26 U.S.C. 6011(e). Section 301.6011-3 also issued under 26 U.S.C. 6011. Section 301.6011-5 also issued under 26 U.S.C. 6011. Section 301.6011-6 also issued under 26 U.S.C. 6011(a). Section 301.6011-7 also issued under 26 U.S.C. 6011(e). Section 301.6011-10 also issued under 26 U.S.C. 6011. Section 301.6011-11 also issued under 26 U.S.C. 6011. Section 301.6011-12 also issued under 26 U.S.C. 6011. Section 301.6011-13 also issued under 26 U.S.C. 6011. Section 301.6011-14 also issued under 26 U.S.C. 6011. Section 301.6011-15 also issued under 26 U.S.C. 6011. Section 301.6012-2 also issued under 26 U.S.C. 6012. Section 301.6033-4 also issued under 26 U.S.C. 6033. Section 301.6036-1 also issued under 26 U.S.C. 6036. Section 301.6037-2 also issued under 26 U.S.C. 6037. Section 301.6039E-1 also issued under 26 U.S.C. 6039E. Section 301.6050M-1 also issued under 26 U.S.C. 6050M. Section 301.6057-3 also issued under 26 U.S.C. 6011 and 6057. Section 301.6058-2 also issued under 26 U.S.C. 6011 and 6058. Section 301.6059-2 also issued under 26 U.S.C. 6011 and 6059. Section 301.6061-1 also issued under 26 U.S.C. 6061. Section 301.6081-2 also issued under 26 U.S.C. 6081(a). Section 301.6103(c)-1 also issued under 26 U.S.C. 6103(c). Section 301.6103(h)(4)-1 also issued under 26 U.S.C. 6103(h)(4) and 26 U.S.C. 6103(q). Section 301.6103(j)(1)-1 also issued under 26 U.S.C. 6103(j)(1) and 6103(q). Section 301.6103(j)(5)-1 also issued under 26 U.S.C. 6103(j)(5). Section 301.6103(k)(6)-1 also issued under 26 U.S.C. 6103(k)(6); Section 301.6103(k)(6)-1T also issued under 26 U.S.C. 6103(k)(6); Section 301.6103(k)(9)-1 also issued under 26 U.S.C. 6103(k)(9) and 26 U.S.C. 6103(q). Section 301.6103(l)-1 also issued under 26 U.S.C. 6103(q). Section 301.6103(l)(14)-1 also issued under 26 U.S.C. 6103(l)(14). Section 301.6103(l)(21)-(1) also issued under 26 U.S.C. 6103(l)(21) and 6103(q). Section 301.6103(m)-1 also issued under 26 U.S.C. 6103(q). Section 301.6103(n)-1 also issued under 26 U.S.C. 6103(n). Section 301.6103(n)-2 also issued under 26 U.S.C. 6103(n). Section 301.6103(n)-2 also issued under 26 U.S.C. 6103(q). Section 301.6103(p)(2)(B)-1 also issued under 26 U.S.C. 6103(p)(2). Section 301.6103(p)(2)(B)-1T also issued under 26 U.S.C. 6103(p)(2). Sections 301.6103(p)(4)-1 and 301.6103(p)(7)-1T also issued under 26 U.S.C. 6103(p)(4) and (7) and (q), Section 301.6104(a)-6(d) is also issued under 5 U.S.C. 552. Section 301.6104(b)-1(d)(4) is also issued under 5 U.S.C. 552. Section 301.6104(c)-1 also issued under 26 U.S.C. 6104(c). Section 301.6104(d)-1(d)(3)(i) is also issued under 5 U.S.C. 552. Section 301.6104(d)-2 also issued under 26 U.S.C. 6104(d)(3). Section 301.6104(d)-3 also issued under 26 U.S.C. 6104(d)(3). Section 301.6104(d)-4 also issued under 26 U.S.C. 6104(e)(3). Section 301.6104(d)-5 also issued under 26 U.S.C. 6104(e)(3). Section 301.6109-1 also issued under 26 U.S.C. 6109 (a), (c), and (d). Section 301.6109-3 also issued under 26 U.S.C. 6109. Section 301.6111-1T also issued under 26 U.S.C. 6111. Section 301.6111-2T also issued under 26 U.S.C. 6111(f)(4). Section 301.6111-3 also issued under 26 U.S.C. 6111. Section 301.6111-3T also issued under 26 U.S.C. 6111. Section 301.6112-1T also issued under 26 U.S.C. 6112. Section 301.6114-1 also issued under 26 U.S.C. 6114. Section 301.6213-2 also issued under 26 U.S.C. 6213. Section 301.6221(a)-1 also issued under 26 U.S.C. 6221. Section 301.6221(b)-1 also issued under sections 6221 and 6241. Section 301.6222-1 also issued under 26 U.S.C. 6222 and 6223. Section 301.6222(a)-1T also issued under 26 U.S.C. 6230(k). Section 301.6222(a)-2T also issued under 26 U.S.C. 6230(k). Section 301.6222(b)-1T also issued under 26 U.S.C. 6230(k). Section 301.6222(b)-2T also issued under 26 U.S.C. 6230(k). Section 301.6222(b)-3T also issued under 26 U.S.C. 6230 (i) and (k). Section 301.6223(a)-1T also issued under 26 U.S.C. 6230(k). Section 301.6223(a)-2T also issued under 26 U.S.C. 6230(k). Section 301.6223(b)-1T also issued under 26 U.S.C. 6230 (i) and (k). Section 301.6223(b)-2T also issued under 26 U.S.C. 6230(k). Section 301.6223(c)-1T also issued under 26 U.S.C. 6223(c) and 6230 (i) and (k). Section 301.6223(e)-1T also issued under 26 U.S.C. 6230(k). Section 301.6223(e)-2T also issued under 26 U.S.C. 6230 (i) and (k). Section 301.6223(f)-1T also issued under 26 U.S.C. 6230(k). Section 301.6223(g)-1T also issued under 26 U.S.C. 6223(g) and 6230 (i) and (k). Section 301.6223(h)-1T also issued under 26 U.S.C. 6230 (i) and (k). Section 301.6224(a)-1T also issued under 26 U.S.C. 6230(k). Section 301.6224(b)-1T also issued under 26 U.S.C. 6230 (i) and (k). Section 301.6224(c)-1T also issued under 26 U.S.C. 6230 (i) and (k). Section 301.6224(c)-2T also issued under 26 U.S.C. 6230(k). Section 301.6224(c)-3T also issued under 26 U.S.C. 6230 (i) and (k). Section 301.6225-1 also issued under 26 U.S.C. 6225. Section 301.6225-2 also issued under 26 U.S.C. 6223 and 6225. Section 301.6225-3 also issued under 26 U.S.C. 6225. Section 301.6226-1 also issued under 26 U.S.C. 6223 and 6226. Section 301.6226-2 also issued under 26 U.S.C. 6226. Section 301.6226-3 also issued under 26 U.S.C. 6226. Section 301.6226(a)-1T also issued under 26 U.S.C. 6230(k). Section 301.6226(b)-1T also issued under 26 U.S.C. 6230(k). Section 301.6226(e)-1T also issued under 26 U.S.C. 6230(k). Section 301.6226(f)-1T also issued under 26 U.S.C. C. 6230(k). Section 301.6227-1 also issued under 26 U.S.C. 6223 and 6227. Section 301.6227-2 also issued under 26 U.S.C. 6227. Section 301.6227-3 also issued under 26 U.S.C. 6227. Section 301.6229(c)(2)-1 is also issued under 26 U.S.C. 6230(k). Section 301.6229(c)(2)-1T also issued under 26 U.S.C. § 6230(k). Section 301.6231-1 also issued under 26 U.S.C. 6231. Section 301.6231(a)(6)-1T also issued under 26 U.S.C. 6230(k). Section 301.6231(a)(7)-1 also issued under 26 U.S.C. 6230 (i) and (k). Section 301.6231(a)(7)-2 also issued under 26 U.S.C. 6230 (i) and (k). Section 301.6231(a)(12)-1T also issued under 26 U.S.C. 6230(k) and 6231(a)(12). Section 301.6231(c)-1 also issued under 26 U.S.C. 6231(c)(1) and (3). Section 301.6231(c)-2 also issued under 26 U.S.C. 6231(c)(1) and (3). Section 301.6231(c)-3T also issued under 26 U.S.C. 6230(k) and 6231(c). Section 301.6231(c)-4T also issued under 26 U.S.C. 6230(k) and 6231(c). Section 301.6231(c)-5T also issued under 26 U.S.C. 6230(k) and 6231(c). Section 301.6231(c)-6T also issued under 26 U.S.C. 6230(k) and 6231(c). Section 301.6231(c)-7T also issued under 26 U.S.C. 6230(k) and 6231(c). Section 301.6231(c)-8T also issued under 26 U.S.C. 6230(k) and 6231(c). Section 301.6231(d)-1T also issued under 26 U.S.C. 6230(k). Section 301.6231(e)-1T also issued under 26 U.S.C. 6230(k). Section 301.6231(e)-2T also issued under 26 U.S.C. 6230(k). Section 301.6231(f)-1T also issued under 26 U.S.C. 6230 (i) and (k) and 6231(f). Section 301.6232-1 also issued under 26 U.S.C. 6232. Section 301.6233-1T also issued under 26 U.S.C. 6230(k) and 6233. Section 301.6233(a)-1 also issued under 26 U.S.C. 6233. Section 301.6233(b)-1 also issued under 26 U.S.C. 6233. Section 301.6234-1 also issued under 26 U.S.C. 6234. Section 301.6235-1 also issued under 26 U.S.C. 6235. Section 301.6241-1 also issued under sections 48D(d), 6241, and 6417. Section 301.6241-2 also issued under 26 U.S.C. 6241. Section 301.6241-3 also issued under 26 U.S.C. 6241. Section 301.6241-4 also issued under 26 U.S.C. 6241. Section 301.6241-5 also issued under 26 U.S.C. 6241. Section 301.6241-6 also issued under 26 U.S.C. 6241. Section 301.6241-7 also issued under sections 48D(d), 6241, and 6417. Section 301.6311-2 also issued under 26 U.S.C. 6311. Section 301.6323(f)-(1)(c) also issued under 26 U.S.C. 6323(f)(3). Section 301.6325-1T also issued under 26 U.S.C. 6326. Section 301.6335-1 also issued under 26 U.S.C. 6335(e)(2). Section 301.6343-1 also issued under 26 U.S.C. 6343. Section 301.6343-2 also issued under 26 U.S.C. 6343. Section 301.6402-2(g) also issued under 26 U.S.C. 6402(n). Section 301.6402-3 also issued under 95 Stat. 357 amending 88 Stat. 2351. Section 301.6402-7 also issued under 26 U.S.C. 6402(i) and 6411(c). Section 301.6404-2 also issued under 26 U.S.C. 6404. Section 301.6404-3 also issued under 26 U.S.C. 6404(f)(3). Section 301.6621-1 also issued under 26 U.S.C. 6230(k). Section 301.6689-1 also issued under 26 U.S.C. 6689(a), 26 U.S.C. 6227(d), and 26 U.S.C. 6241(11). Section 301.6689-1T also issued under 26 U.S.C. 6689(a). Section 301.6708-1 also issued under 26 U.S.C. 6708 Section 301.6721-1 also issued under 26 U.S.C. 6011 and 6721. Section 301.6751(b)-1(a)(4) also issued under 26 U.S.C. 6751(b)(1). Section 301.7216-2, paragraphs (o) and (p) also issued under 26 U.S.C. 7216(b)(3). Section 301.7502-1 also issued under 26 U.S.C. 7502. Section 301.7502-2 also issued under 26 U.S.C. 7502. Section 301.7507-1 also issued under 26 U.S.C. 597. Section 301.7507-9 also issued under 26 U.S.C. 597. Section 301.7508-1 also issued under 26 U.S.C. 7508(a)(1)(K). Section 301.7508A-1 also issued under 26 U.S.C. 7508(a)(1)(K) and 7508A(a). Section 301.7605-1 also issued under section 6228(b) of the Technical and Miscellaneous Revenue Act of 1988. Sections 301.7623-1 through 301.7623-4 also issued under 26 U.S.C. 7623. Section 301.7624-1 also issued under 26 U.S.C. 7624. Section 301.7701-1(a)(4) also issued under 26 U.S.C. 7701(a)(40). Section 301.7701-2 also issued under 26 U.S.C. 7701. Sections 301.7701(b)-1 through 301.7701(b)-9 also issued under 26 U.S.C. 7701(b)(11). Section 301.7701(i)-1(g)(1) also issued under 26 U.S.C. 7701(i)(2)(D). Section 301.7701(i)-4(b) also issued under 26 U.S.C. 7701(i)(3). Section 301.7705-1 also issued under 26 U.S.C. 7705(h). Section 301.7705-2 also issued under 26 U.S.C. 7705(h). Section 301.7803-2 is also issued under 26 U.S.C. 7803(e). Section 301.7803-3 is also issued under 26 U.S.C. 7803(e). Section 301.9000-1 also issued under 5 U.S.C. 301 and 26 U.S.C. 6103(q) and 7804; Section 301.9000-2 also issued under 5 U.S.C. 301 and 26 U.S.C. 6103(q) and 7804; Section 301.9000-3 also issued under 5 U.S.C. 301 and 26 U.S.C. 6103(q) and 7804; Section 301.9000-4 also issued under 5 U.S.C. 301 and 26 U.S.C. 6103(q) and 7804; Section 301.9000-5 also issued under 5 U.S.C. 301 and 26 U.S.C. 6103(q) and 7804; Section 301.9000-6 also issued under 5 U.S.C. 301 and 26 U.S.C. 6103(q) and 7804; Section 301.9100-1T also issued under 26 U.S.C. 6081. Section 301.9100-2T also issued under 26 U.S.C. 6081. Section 301.9100-3T also issued under 26 U.S.C. 6081. Section 301.9100-4T also issued under 26 U.S.C. 168(f)(8)(G). Section 301.9100-7T also issued under 26 U.S.C. 42, 48, 56, 83, 141, 142, 143, 145, 147, 165, 168, 216, 263, 263A, 448, 453C, 468B, 469, 474, 585, 616, 617, 1059, 2632, 2652, 3121, 4982, 7701; and under the Tax Reform Act of 1986, 100 Stat. 2746, sections 203, 204, 243, 311, 646, 801, 806, 905, 1704, 1801, 1802, and 1804. Section 301.9100-8 also issued under 26 U.S.C. 1(i)(7), 41(h), 42(b)(2)(A)(ii), 42(d)(3), 42(f)(1), 42(g)(3), 42(i)(2)(B), 42(j)(5)(B), 121(d)(9), 142(i)(2), 165(l), 168(b)(2), 219(g)(4), 245(a)(10), 263A(d)(1), 263A(d)(3)(B), 263A(h), 460(b)(3), 643(g)(2), 831(b)(2)(A), 835(a), 865(f), 865(g)(3), 865(h)(2), 904(g)(10), 2056(b)(7)(c)(ii), 2056A(d), 2523(f)(6)(B), 3127, and 7520(a); the Technical and Miscellaneous Revenue Act of 1988, 102 Stat. 3324, sections 1002(a)(23)(B), 1005(c)(11), 1006(d)(15), 1006(j)(1)(C), 1006(t)(18)(B), 1012(n)(3), 1014(c)(1), 1014(c)(2), 2004(j)(1), 2004(m)(5), 5012(e)(4), 6181(c)(2), and 6277; and under the Tax Reform Act of 1986, 100 Stat. 2746, section 905(a). Sections 301.9100-9T, 301.9100-10T and 301.9100-11T also issued under 26 U.S.C. 1103 (g) and (h) and 6158(a). Sections 301.9100-13T, 301.9100-14T and 301.9100-15T also issued under 26 U.S.C. 108(d)(8) and 1017(b)(3)(E). Section 301.9100-16T also issued under 26 U.S.C. 463(d). Section 301.9100-22T is also issued under section 1101(g)(4) of Public Law 114-74. Source: 32 FR 15241, Nov. 3, 1967, unless otherwise noted. Editorial Note: In the text of this part, integral section references are to sections of the Internal Revenue Code of 1954; decimal section references are to the Code of Federal Regulations. References in the text to the “Code” are references to sections of the Internal Revenue Code of 1954. Information and Returns Returns and Records records, statements, and special returns § 301.269B-1 Stapled foreign corporations. In accordance with section 269B(a)(1), a stapled foreign corporation is subject to the same taxes that apply to a domestic corporation under title 26 of the Internal Revenue Code. For provisions concerning taxes other than income for which the stapled foreign corporation is liable, apply the same rules as set forth in § 1.269B-1(a) through (f)(1)(i), and (g) of this Chapter, except that references to income tax tax. tax [T.D. 9216, 70 FR 43760, July 29, 2005] § 301.1474-1 Required use of electronic form for financial institutions filing Form 1042, Form 1042-S, or Form 8966. (a) Financial institutions filing certain returns. Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, Foreign Person's U.S. Source Income Subject to Withholding, FATCA Report, IRS.gov IRS.gov (b) Exclusions from electronic-filing requirements Waivers. IRS.gov (2) Exemptions. IRS.gov (3) Additional Exclusion. (c) Failure to file. (d) Meaning of terms. Magnetic media or electronic form. magnetic media or electronic form (2) Financial institution. financial institution (e) Applicability date. [T.D. 9610, 78 FR 5994, Jan. 28, 2013, as amended by T.D. 9809, 82 FR 2192, Jan. 6, 2017; T.D. 9972, 88 FR 11767, Feb. 23, 2023] § 301.6001-1 Notice or regulations requiring records, statements, and special returns. For provisions requiring records, statements, and special returns, see the regulations relating to the particular tax. tax returns or statements General Requirement § 301.6011-1 General requirement of return, statement or list. (a) For provisions requiring returns, statements, or lists, see the regulations relating to the particular tax. (b) The Internal Revenue Service may prescribe in forms, instructions, or other appropriate guidance the information or documentation required to be included with any return or any statement required to be made or other document required to be furnished under any provision of the internal revenue laws or regulations. [T.D. 9040, 68 FR 4921, Jan. 31, 2003] § 301.6011-2 Required use of electronic form. (a) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Machine-readable paper form. (i) Optical-scan paper form; or (ii) Any other machine-readable paper form permitted under applicable regulations, revenue procedures, or Social Security Administration publications. (3) Person. (b) Returns required electronically. (2) If the use of Form W-2 (Wage and Tax Statement), Form 499R-2/W-2PR (Withholding Statement (Puerto Rico)), Form W-2VI (U.S. Virgin Islands Wage and Tax Statement), Form W-2GU (Guam Wage and Tax Statement), or Form W-2AS (American Samoa Wage and Tax Statement) is required for the purpose of making an information return, the information required by the form must be submitted electronically, except as otherwise provided in paragraph (c) of this section. Returns described in this paragraph (b)(2) must be made in accordance with applicable Social Security Administration procedures or publications (which may be obtained from the local office of the Social Security Administration). (3) If a person is required to make a return for the purpose of section 6050I, and such person is required to file returns described in paragraphs (b)(1) and (2) of this section electronically, then such person must also file the information required by section 6050I electronically. Returns described in this paragraph (b)(3) must be made in accordance with applicable IRS revenue procedures, publications, forms, instructions, or other guidance, including postings to the IRS.gov FinCEN.gov (4) The Commissioner may exempt certain returns from the electronic requirements of this section through revenue procedures, publications, forms, instructions, or other guidance, including postings to the IRS.gov (c) Electronic-filing threshold In general. (2) Machine-readable forms. (3) Special rule for partnerships. (4) Calculating the number of returns Aggregation of returns. (ii) Corrected returns. (B) If an original information return is permitted to be filed on paper and is filed on paper, any corrected information return corresponding to that original return must be filed on paper. (5) Examples. (i) Example 1. Interest Income, Dividends and Distributions, (ii) Example 2. Example 1 (iii) Example 3. Example 1 (iv) Example 4. Example 1 (v) Example 5. Miscellaneous Information, (6) Exclusions from electronic-filing requirements Waivers. IRS.gov (ii) Exemptions. IRS.gov (iii) Additional Exclusion. (d) Paper form returns. (e) Applicability of current procedures. (f) Failure to file. (g) Applicability date. [T.D. 8081, 51 FR 10348, Mar. 25, 1986, as amended by T.D. 8097, 51 FR 30352, Aug. 26, 1986; T.D. 8140, 52 FR 19137, May 21, 1987; T.D. 8636, 60 FR 66142, Dec. 21, 1995; T.D. 8772, 63 FR 35519, June 30, 1998; T.D. 8992, 67 FR 20907, Apr. 29, 2002; T.D. 9029, 67 FR 77687, Dec. 19, 2002; T.D. 9660, 79 FR 13231, Mar. 10, 2014; T.D. 9804, 81 FR 91768, Dec. 19, 2016; T.D. 9923, 85 FR 74047, Nov. 19, 2020; T.D. 9972, 88 FR 11767, Feb. 23, 2023] § 301.6011-3 Required use of electronic form for partnership returns. (a) Partnership returns required electronically. (i) the partnership is required by the Internal Revenue Code or regulations to file at least 10 returns (as described in paragraph (d)(5) of this section) during the calendar year ending with or within the taxable year of the partnership, or (ii) the partnership has more than 100 partners during the partnership's taxable year. (2) The Commissioner may direct the type of electronic filing and may also exempt certain returns from the electronic requirements of this section through revenue procedures, publications, forms, instructions, or other guidance, including postings on the IRS.gov (b) Exclusions from electronic-filing requirements Waivers. IRS.gov (2) Exemptions. IRS.gov (3) Additional Exclusion. (c) Failure to file. (d) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Partnership. partnership (3) Partner. partner (4) Partnership return. partnership return (5) Calculating the number of returns. (6) Partnerships with more than 100 partners. (e) Examples. (1) Example 1. (2) Example 2. (3) Example 3. (4) Example 4. Example 3 (f) Applicability date. [T.D. 8843, 64 FR 61503, Nov. 12, 1999, as amended by T.D. 9972, 88 FR 11769, Feb. 23, 2023] § 301.6011-5 Required use of electronic form for corporate income tax returns. (a) Corporate income tax returns required electronically. U.S. Corporation Income Tax Return, (2) All members of a controlled group of corporations must file their corporate income tax returns electronically if the aggregate number of returns required to be filed by the controlled group of corporations is at least 10 (as defined in paragraph (d)(5) of this section) during the calendar year ending with or within the taxable year of the controlled group of corporations. (3) The Commissioner may direct the type of electronic filing and may also exempt certain returns from the electronic requirements of this section through revenue procedures, publications, forms, instructions, or other guidance, including postings on the IRS.gov (b) Exclusions from electronic-filing requirements Waivers. IRS.gov (2) Exemptions. IRS.gov (3) Additional Exclusion. (c) Failure to file. (d) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Corporation. corporation (3) Controlled group of corporations. controlled group of corporations (4) Corporate income tax return. corporate income tax return (5) Calculating the number of returns. (e) Example. (1) The taxable year of Corporation X, a fiscal-year taxpayer, ends on September 30. During the calendar year ending December 31, 2023, X was required to file one Form 1120, U.S. Corporation Income Tax Return, Wage and Tax Statement, Dividends and Distributions, Employer's Annual Federal Unemployment (FUTA) Tax Return, Employer's Quarterly Federal Tax Return. (2) [Reserved] (f) Applicability date. [T.D. 9363, 72 FR 63811, Nov. 13, 2007, as amended by T.D. 9972, 88 FR 11769, Feb. 23, 2023] § 301.6011-6 Statement of series and series organizations [Reserved] § 301.6011-7 Specified tax return preparers required to file individual income tax returns using magnetic media. (a) Definitions. Magnetic media. magnetic media (2) Individual income tax return. individual income tax return (3) Specified tax return preparer. specified tax return preparer (4) File or Filed. (ii) An individual income tax return will not be considered to be filed, as defined in paragraph (a)(4)(i) of this section, by a tax return preparer or specified tax return preparer if the tax return preparer or specified tax return preparer who prepared the return obtains, on or prior to the date the individual income tax return is filed, a hand-signed and dated statement from the taxpayer (by either spouse if a joint return) that states the taxpayer chooses to file the individual income tax return in paper format, and that the taxpayer, and not the preparer, will submit the paper individual income tax return to the IRS. The IRS may provide guidance through forms, instructions or other appropriate guidance regarding how tax return preparers and specified tax return preparers can document a taxpayer's choice to file an individual income tax return in paper format. (iii) The rules contained in this section do not alter or affect a taxpayer's obligation to file returns under any other provision of law. The definition of file filed (b) Magnetic media filing requirement. (c) Exclusions. (1) Undue hardship waiver. (2) Administrative exemptions. (d) Reasonably expect to file In general. (2) Time for making determination of reasonable expectations. (e) Examples. Example 1. Tax Return Preparer A is an accountant who recently graduated from college with an accounting degree and has opened his own practice. A has not prepared individual income tax returns for compensation in the past and does not plan to focus his practice on individual income tax return preparation. A intends instead to focus his practice on providing specialized accounting services to certain health care service providers. A has no plans to, and does not, employ or engage any other tax return preparers. A estimates that he may be asked by some clients to prepare and file their individual income tax returns for compensation, but A expects that the number of people who do ask him to provide this service will be no more than seven in 2012. In fact, A actually prepares and files six paper Forms 1040 (U.S. Individual Income Tax Return) in 2012. Due to a growing client base, and based upon his experience in 2012, A expects that the number of individual income tax returns he will prepare and file in 2013 will at least double, estimating he will prepare and file 12 Form 1040 returns in 2013. A does not qualify as a specified tax return preparer for 2012 because A reasonably expects to file 10 or fewer returns (seven) in 2012. Consequently, A is not required to electronically file the individual income tax returns he prepares and files in 2012. A's expectation is reasonable based on his business projections, individual income tax return filing history, and staffing decisions. A is a specified tax return preparer in 2013, however, because based on those same factors A reasonably expects to file more than 10 individual income tax returns (12) during that calendar year. A, therefore, must electronically file all individual income tax returns that A prepares and files in 2013 that are not otherwise excluded from the electronic filing requirement. Example 2. Same facts as in Example 1, Example 3. Tax Return Preparer B is a solo general practice attorney in a small county. Her practice includes the preparation of wills and assisting executors in administering estates. As part of her practice, B infrequently prepares and files Forms 1041 (U.S. Income Tax Return for Estates and Trusts) for executors. In the past three years, she prepared and filed an average of five Forms 1041 each year and never exceeded more than seven Forms 1041 in any year. Based on B's prior experience and her estimate for 2012, made prior to the time she first files an individual income tax return in 2012, she reasonably expects to prepare and file no more than five Forms 1041 in 2012. Due to the unforeseen deaths of several of her clients in late 2011, B actually prepares and files 12 Forms 1041 in 2012. B does not find out about these deaths until after she has already filed the first Form 1041 in 2012 for another client. B is not required to electronically file these returns in 2012. She does not qualify as a specified tax return preparer for calendar year 2012 because prior to the time she filed the first Form 1041 in 2012, she reasonably expected to file 10 or fewer individual income tax returns in 2012. Example 4. Same facts as Example 3, Example 5. Firm X consists of two tax return preparers, Tax Return Preparer C who owns Firm X, and Tax Return Preparer D who is employed by C in Firm X. Based upon the firm's experience over the past three years, C and D reasonably expect to file nine and ten individual income tax returns for compensation, respectively, in 2012. Both C and D must electronically file the individual income tax returns that they prepare in 2012, unless the returns are otherwise excluded from the electronic filing requirement, because they are members of the same firm and the aggregated total of individual income tax returns that they reasonably expect to file in 2012 (nineteen), exceeds 10 individual income tax returns. (f) Additional guidance. (g) Effective/applicability date. [T.D. 9518, 76 FR 17528, Mar. 30, 2011] § 301.6011-10 Certain organizations, including trusts, required to file unrelated business income tax returns in electronic form. (a) Unrelated business income tax returns required in electronic form. Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)), (2) Returns filed in electronic form must be filed in accordance with applicable revenue procedures, publications, forms, instructions, or other guidance. (b) Failure to file. (c) Applicability date. February 23, 2023. [T.D. 9972, 88 FR 11770, Feb. 23, 2023] § 301.6011-11 Required use of electronic form for certain returns for tax-advantaged bonds. (a) Return for credit payments to issuers of qualified bonds. Return for Credit Payments to Issuers of Qualified Bonds, (2) Returns filed electronically must be completed in accordance with applicable revenue procedures, publications, forms, instructions, or other guidance, including postings to the IRS.gov (b) Exclusions from electronic-filing requirements Waivers. IRS.gov IRS.gov (2) Exemptions. IRS.gov IRS.gov (3) Additional Exclusion. (c) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Qualified bond. qualified bond (3) Return for credit payments to issuers of qualified bonds. return for credit payments to issuers of qualified bonds Return for Credit Payments to Issuers of Qualified Bonds, (d) Calculating the number of returns Aggregation of returns. (2) Corrected returns. (ii) If an original return covered by this section is permitted to be filed on paper and is filed on paper, any corrected return corresponding to that original return must be filed on paper. (e) Applicability date. [T.D. 9972, 88 FR 11770, Feb. 23, 2023] § 301.6011-12 Required use of electronic form for returns of certain excise taxes under Chapters 41 and 42 of the Internal Revenue Code. (a) Excise tax returns required electronically. Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, (2) The Commissioner may direct the type of electronic filing and may also exempt certain returns from the electronic requirements of this section through revenue procedures, publications, forms, instructions, or other guidance, including postings on the IRS.gov (3) Paragraph (a)(1) of this section is not applicable to private foundations that are subject to the filing requirements of § 301.6033-4. (b) Exclusions from electronic-filing requirements Waivers. IRS.gov (2) Exemptions. IRS.gov (3) Additional exclusion. (c) Failure to file. (d) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Excise tax return. excise tax return Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, (3) Calculating the number of returns. (e) Example. (1) During the calendar year ending December 31, 2023, Trust X was required to file one Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, Wage and Tax Statement, (2) [Reserved] (f) Applicability date. [T.D. 9972, 88 FR 11771, Feb. 23, 2023] § 301.6011-13 Required use of electronic form for split-interest trust returns. (a) Split-interest trust returns required electronically. Split-Interest Trust Information Return, (2) The Commissioner may direct the type of electronic filing and may also exempt certain returns from the electronic requirements of this section through revenue procedures, publications, forms, instructions, or other guidance, including postings on the IRS.gov (b) Exclusions from electronic-filing requirements Waivers. IRS.gov (2) Exemptions. IRS.gov (3) Additional exclusion. (c) Failure to file. (d) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Split-Interest Trust return. split-interest trust return Split-Interest Trust Information Return, (3) Calculating the number of returns. (e) Example. (1) During the calendar year ending December 31, 2023, Trust X was required to file one Form 5227, Split-Interest Trust Information Return, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, Dividends and Distributions. (2) [Reserved] (f) Applicability date. [T.D. 9972, 88 FR 11772, Feb. 23, 2023] § 301.6011-14 Required use of electronic form or other machine-readable form for material advisor disclosure statements. (a) Material advisor disclosure statements required electronically or in other machine-readable form. Material Advisor Disclosure Statement, IRS.gov (2) The Commissioner may direct the type of electronic or other machine-readable form through revenue procedures, publications, forms, instructions, or other guidance, including postings on the IRS.gov (b) Exclusions from electronic-filing requirements Waivers. IRS.gov (2) Exemptions. IRS.gov (3) Additional Exclusion. (c) Failure to file. (d) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Machine-readable form. machine-readable form (3) Material advisor disclosure statement. material advisor disclosure statement Material Advisor Disclosure Statement, (4) Calculating the number of returns. (ii) Form 8918 is not taken into account in calculating whether a material advisor is required to file at least 10 returns during a calendar year. (e) Example. (1) During the calendar year ending December 31, 2024, Material Advisor X was required to file one Form 1040, U.S. Individual Income Tax Return, Nonemployee Compensation. IRS.gov (2) [Reserved] (f) Applicability date. [T.D. 9972, 88 FR 11772, Feb. 23, 2023] § 301.6011-15 Required use of electronic form for withholding tax returns. (a) Withholding tax returns required electronically. Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, (2) The Commissioner may direct the type of electronic filing and may also exempt certain returns from the electronic requirements of this section through revenue procedures, publications, forms, instructions, or other guidance, including postings on the IRS.gov (b) Exclusions from electronic-filing requirements Waivers. IRS.gov (2) Exemptions. IRS.gov (3) Additional exclusion. (c) Failure to file. (d) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Withholding agent. withholding agent (3) Withholding tax return. withholding tax return Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, (4) Special rule for partnerships. (5) Calculating the number of returns. (e) Special rule for returns filed by financial institutions. (f) Applicability date. [T.D. 9972, 88 FR 11773, Feb. 23, 2023] § 301.6011(g)-1 Disclosure by taxable party to the tax-exempt entity. (a) Requirement of disclosure In general. (2) Determining whether a taxable party knows or has reason to know. (i) The extent of the efforts made to determine whether a tax-exempt entity is facilitating the transaction by reason of its tax-exempt, tax indifferent or tax-favored status (or is identified in published guidance, by type, class or role, as a party to the transaction); and (ii) If a tax-exempt entity is facilitating the transaction by reason of its tax-exempt, tax indifferent or tax-favored status (or is identified in published guidance, by type, class or role, as a party to the transaction), the extent of the efforts made to determine the identity of the tax-exempt entity. (b) Definition of tax-exempt party to a prohibited tax shelter transaction. (c) Definition of taxable party In general. taxable party (i) A person who has entered into and participates or expects to participate in the transaction under §§ 1.6011-4(c)(3)(i)(A), (B), or (C), 20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter; or (ii) A person who is designated as a taxable party by the Secretary in published guidance. (2) Special rules Certain listed transactions. (ii) Persons designated as non-parties. (d) Time for providing disclosure statement In general. (i) The date the person becomes a taxable party to the transaction within the meaning of paragraph (c) of this section; (ii) The date the taxable party knows or has reason to know that the tax-exempt entity is a party to the transaction within the meaning of paragraph (b) of this section; or (iii) July 6, 2010. (2) Termination of a disclosure obligation. (3) Disclosure is not required with respect to any prohibited tax shelter transaction entered into by a tax-exempt entity on or before May 17, 2006. (e) Frequency of disclosure. (f) Form and content of disclosure statement. (1) Identifies the type of prohibited tax shelter transaction (including the published guidance citation for a listed transaction); and (2) States that the tax-exempt entity's involvement in the transaction may subject either it or its entity manager(s) or both to excise taxes under section 4965 and to disclosure obligations under section 6033(a) of the Internal Revenue Code. (g) To whom disclosure is made. (1) In the case of a non-plan entity as defined in § 53.4965-2(b) of this chapter, to— (i) Any entity manager of the tax-exempt entity with authority or responsibility similar to that exercised by an officer, director or trustee of an organization; or (ii) If a person described in paragraph (g)(1)(i) of this section is not known, to the primary contact on the transaction. (2) In the case of a plan entity as defined in § 53.4965-2(c) of this chapter, including a fully self-directed qualified plan, IRA, or other savings arrangement, to any entity manager of the plan entity who approved or otherwise caused the entity to become a party to the prohibited tax shelter transaction. (h) Designation agreements. (i) Penalty for failure to provide disclosure statement. (j) Effective date/applicability date. [T.D. 9492, 75 FR 38709, July 6, 2010] Income Tax Returns § 301.6012-1 Persons required to make returns of income. For provisions with respect to persons required to make returns of income, see §§ 1.6012-1 to 1.6012-4, inclusive, of this chapter (Income Tax Regulations). § 301.6012-2 Required use of electronic form for income tax returns of certain political organizations. (a) Income tax returns of certain political organizations required electronically. U.S. Income Tax Return for Certain Political Organizations, (2) The Commissioner may direct the type of electronic filing and may also exempt certain returns from the electronic requirements of this section through revenue procedures, publications, forms, instructions, or other guidance, including postings on the IRS.gov (b) Exclusions from electronic-filing requirements Waivers. IRS.gov (2) Exemptions. IRS.gov (3) Additional exclusion. (c) Failure to file. (d) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Income tax return for certain political organizations. income tax return for certain political organizations U.S. Income Tax Return for Certain Political Organizations, (3) Calculating the number of returns. (e) Example. (1) During the calendar year ending December 31, 2023, Organization X was required to file one Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations, Political Organization Report of Contributions and Expenditures, Wage and Tax Statement, Employer's Annual Federal Unemployment (FUTA) Tax Return, Employer's Quarterly Federal Tax Return. (2) [Reserved] (f) Applicability date. [T.D. 9972, 88 FR 11774, Feb. 23, 2023] § 301.6013-1 Joint returns of income tax by husband and wife. For provisions with respect to joint returns of income tax by husband and wife, see §§ 1.6013-1 to 1.6013-7, inclusive, of this chapter (Income Tax Regulations). [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7670, 45 FR 6932, Jan. 31, 1980] § 301.6014-1 Income tax return—tax not computed by taxpayer. For provisions relating to the election not to show on an income tax return the amount of tax due in connection therewith, see §§ 1.6014-1 and 1.6014-2 of this chapter (Income Tax Regulations). [T.D. 7102, 36 FR 5498, Mar. 24, 1971] § 301.6015-1 Declaration of estimated income tax by individuals. For provisions relating to requirements of declarations of estimated income tax by individuals, see §§ 1.6015 (a)-1 through 1.6015 (j)-1 of this chapter (Income Tax Regulations). [T.D. 7427, 41 FR 34033, Aug. 12, 1976] § 301.6016-1 Declarations of estimated income tax by corporations. For provisions concerning the requirement of declarations of estimated income tax by corporations, see §§ 1.6016-1 to 1.6016-4, inclusive, of this chapter (Income Tax Regulations). § 301.6017-1 Self-employment tax returns. For provisions relating to the requirement of self-employment tax returns, see § 1.6017-1 of this chapter (Income Tax Regulations). Estate and Gift Tax Returns § 301.6018-1 Estate tax returns. For provisions relating to requirement of estate tax returns, see §§ 20.6018-1 to 20.6018-4, inclusive, of this chapter (Estate Tax Regulations). § 301.6019-1 Gift tax returns. For provisions relating to requirement of gift tax returns, see §§ 25.6019-1 to 25.6019-4, inclusive, of this chapter (Gift Tax Regulations). Miscellaneous Provisions § 301.6020-1 Returns prepared or executed by the Commissioner or other Internal Revenue Officers. (a) Preparation of returns In general. (2) Responsibility of person for whom return is prepared. (b) Execution of returns In general. (2) Form of the return. (3) Status of returns. (4) Deficiency procedures. (5) Employment status procedures. (6) Examples. Example 1. Individual A, a calendar-year taxpayer, fails to file his 2003 return. Employee X, an Internal Revenue Service employee, opens an examination related to A's 2003 taxable year. At the end of the examination, X completes a Form 13496, “IRC Section 6020(b) Certification,” and attached to it the documents listed on the form. Those documents explain examination changes and provide sufficient information to compute A's tax liability. The Form 13496 provides that the Service employee identified on the form certifies that the attached pages constitute a return under section 6020(b). When X signs the certification package, the package constitutes a return under paragraph (b) of this section because the package identifies A by name, contains A's taxpayer identifying number (TIN), has sufficient information to compute A's tax liability, and contains a statement stating that it constitutes a return under section 6020(b). In addition, the Service will determine the amount of the additions to tax under section 6651(a)(2) by treating the section 6020(b) return as the return filed by the taxpayer. Likewise, the Service will determine the amount of any addition to tax under section 6651(a)(3), which arises only after notice and demand for payment, by treating the section 6020(b) return as the return filed by the taxpayer. Example 2. Same facts as in Example 1 Example 3. Individual C, a calendar-year taxpayer, fails to file his 2003 return. The Service determines through its automated internal matching programs that C received reportable income and failed to file a return. The Service, again through its automated systems, generates a Letter 2566, “30 Day Proposed Assessment (SFR-01) 910 SC/CG.” This letter contains C's name, TIN, and has sufficient information to compute C's tax liability. Contemporaneous with the creation of the Letter 2566, the Service, through its automated system, electronically creates and stores a certification stating that the electronic data contained as part of C's account constitutes a valid return under section 6020(b) as of that date. Further, the electronic data includes the signature of the Service employee authorized to sign the section 6020(b) return upon its creation. Although the signature is stored electronically, it can appear as a printed name when the Service requests a paper copy of the certification. The electronically created information, signature, and certification is a return under section 6020(b). The Service will treat that return as the return filed by the taxpayer in determining the amount of the section 6651(a)(2) addition to tax with respect to C's 2003 taxable year. Likewise, the Service will determine the amount of any addition to tax under section 6651(a)(3), which arises only after notice and demand for payment, by treating the section 6020(b) return as the return filed by the taxpayer. Example 4. Corporation M, a quarterly taxpayer, fails to file a Form 941, “Employer's Quarterly Federal Tax Return,” for the second quarter of 2004. Q, a Service employee authorized to sign returns under section 6020(b), prepares a Form 941 by hand, stating Corporation M's name, address, and TIN. Q completes the Form 941 by entering line item amounts, including the tax due, and then signs the document. The Form 941 that Q prepared and signed constitutes a section 6020(b) return because the Form 941 purports to be a return under section 6020(b), the form contains M's name and TIN, and it includes sufficient information to compute M's tax liability for the second quarter of 2004. (c) Cross references (2) For determining the period of limitations on collection after assessment of a liability on a return executed by the Commissioner or other authorized Internal Revenue Officer or employee, see section 6502 and § 301.6502-1. (3) For additions to the tax and additional amounts for failure to file returns, see section 6651 and § 301.6651-1, and section 6652 and § 301.6652-1, respectively. (4) For additions to the tax for failure to pay tax, see section 6651 and § 301.6651-1. (5) For criminal penalties for willful failure to make returns, see sections 7201, 7202 and 7203. (6) For criminal penalties for willfully making false or fraudulent returns, see sections 7206 and 7207. (7) For civil penalties for filing frivolous income tax returns, see section 6702. (8) For authority to examine books and witnesses, see section 7602 and § 301.7602-1. (d) Effective/Applicability date. [T.D. 9380, 73 FR 9189, Feb. 20, 2008] § 301.6021-1 Listing by district directors of taxable objects owned by nonresidents of internal revenue districts. Whenever there are in any internal revenue district any articles subject to tax, which are not owned or possessed by or under the care or control of any person within such district, and of which no list has been transmitted to the district director, as required by law or by regulations prescribed pursuant to law, the district director, or other authorized internal revenue officer or employee, shall enter the premises where such articles are situated, shall make such inspection of the articles as may be necessary, and shall make lists of the same according to the forms prescribed. Such lists, being subscribed by the district director or other authorized internal revenue officer or employee, shall be sufficient lists of such articles for all purposes. information returns Information Concerning Persons Subject to Special Provisions § 301.6031(a)-1 Return of partnership income. For provisions relating to the requirement of returns of partnership income, see § 1.6031(a)-1 of this chapter. [T.D. 8841, 64 FR 61502, Nov. 12, 1999] § 301.6032-1 Returns of banks with respect to common trust funds. For provisions relating to requirement of returns of banks with respect to common trust funds, see § 1.6032-1 of this chapter (Income Tax Regulations). § 301.6033-1 Returns by exempt organizations. For provisions relating to the requirement of returns by exempt organizations, see § 1.6033-1 of this chapter (Income Tax Regulations). § 301.6033-4 Required filing in electronic form for returns by organizations required to file returns under section 6033. (a) Returns by organizations required to file returns under section 6033 in electronic form. (2) Returns filed in electronic form must be filed in accordance with applicable revenue procedures, publications, forms, instructions, or other guidance. (b) Failure to file. (c) Meaning of terms. return required under section 6033 Return of Organization Exempt From Income Tax; Short Form Return of Organization Exempt From Income Tax; Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation, (d) Applicability date. [T.D. 9972, 88 FR 11775, Feb. 23, 2023] § 301.6033-5 Disclosure by tax-exempt entities that are parties to certain reportable transactions. (a) In general. (b) Effective date/applicability date. [T.D. 9492, 75 FR 38710, July 6, 2010] § 301.6034-1 Returns by trusts described in section 4947(a)(2) or claiming charitable or other deductions under section 642(c). For provisions relating to the requirement of returns by trusts described in section 4947(a)(2) or claiming charitable or other deductions under section 642(c), see § 1.6034-1 of this chapter (Income Tax Regulations). [T.D. 8026, 50 FR 20757, May 20, 1985] § 301.6036-1 Notice required of executor or of receiver or other like fiduciary. (a) Receivers and other like fiduciaries Exemption for bankruptcy proceedings. (ii) Paragraph (a)(1)(i) of this section is effective for appointments, qualifications and authorizations to act made on or after January 29, 1988. For appointments, qualifications and authorizations to act made before the foregoing date, 26 CFR 301.6036-1 (a)(1) and (4)(i) (revised as of April 1, 1986) apply. (2) Proceedings other than bankruptcy. (3) Assignment for benefit of creditors. (4) Contents of notice Proceedings other than bankruptcy. ( a ( b ( c ( 1 ( 2 ( 3 ( 4 (ii) Assignment for benefit of creditors. ( a ( b ( c ( d ( e (iii) The notice required by this section shall be sent to the attention of the Chief, Special Procedures Staff, of the district office to which it is required to be sent. (b) Executors, administrators, and persons in possession of property of decedent. (c) Notice of fiduciary relationship. (d) Suspension of period on assessment. (e) Applicability. Federal Register (f) Cross references. (2) For criminal penalties for willfully making false or fraudulent statements, see sections 7206 and 7207. (3) For time for performance of acts where the last day falls on a Saturday, Sunday, or legal holiday, see section 7503 and § 301.7503-1. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7218, 37 FR 24748, Nov. 21, 1972; T.D. 7238, 37 FR 28738, Dec. 29, 1972; T.D. 8172, 53 FR 2600, Jan. 29, 1988] § 301.6037-1 Return of electing small business corporation. For provisions relating to requirement of return of electing small business corporation, see § 1.6037-1 of this chapter (Income Tax Regulations). § 301.6037-2 Required use of electronic form for returns of electing small business corporation. (a) Returns of electing small business corporation required electronically. U.S. Income Tax Return for an S Corporation, (2) The Commissioner may direct the type of electronic filing and may also exempt certain returns from the electronic requirements of this section through revenue procedures, publications, forms, instructions, or other guidance, including postings on the IRS.gov (b) Exclusions from electronic-filing requirements Waivers. IRS.gov (2) Exemptions. IRS.gov (3) Additional Exclusion. (c) Failure to file. (d) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Corporation. corporation (3) Electing small business corporation return. electing small business corporation return (4) Electing small business corporation. electing small business corporation (5) Calculating the number of returns. (e) Example. (1) In 2023, Corporation S, an electing small business corporation, is required to file one 2022 Form 1120-S, U.S. Income Tax Return for an S Corporation, Wage and Tax Statement, Dividends and Distributions, Employer's Annual Federal Unemployment (FUTA) Tax Return, Employer's Quarterly Federal Tax Return. (2) [Reserved] (f) Applicability date. [T.D. 9363, 72 FR 63812, Nov. 13, 2007, as amended by T.D. 9972, 88 FR 11775, Feb. 23, 2023] § 301.6038-1 Information returns required of U.S. persons with respect to certain foreign corporations. For provisions relating to information returns required of U.S. persons with respect to certain foreign corporations, see §§ 1.6038-1 and 1.6038-2 of this chapter (Income Tax Regulations). § 301.6039-1 Information returns and statements required in connection with certain options. For provisions relating to information returns and statements required in connection with certain options, see §§ 1.6039-1 and 1.6039-2 of this chapter (Income Tax Regulations). [T.D. 7275, 38 FR 11346, May 7, 1973] § 301.6039E-1 Information reporting by passport applicants. (a) In general. (b) Required information In general. (i) The passport applicant's full name and, if applicable, previous name; (ii) The passport applicant's permanent address and, if different, mailing address; (iii) The passport applicant's taxpayer identifying number (TIN), if such a number has been issued to the passport applicant. A TIN means the individual's social security number (SSN) issued by the Social Security Administration. A passport applicant who does not have an SSN must enter zeros in the appropriate space on the passport application; and (iv) The passport applicant's date of birth. (2) Time and manner for furnishing information. (c) Penalties In general. (2) Example. Example. C, a citizen of the United States, makes an error in supplying information on his passport application. Based on the nature of the error and C's timely response to correct the error after being contacted by the IRS, the Commissioner concludes that the mistake is due to reasonable cause and not due to willful neglect. Accordingly, no penalty is assessed. (d) Effective/applicability date. [T.D. 9679, 79 FR 41891, July 18, 2014] Information Concerning Transactions With Other Persons § 301.6041-1 Returns of information regarding certain payments. For provisions relating to the requirement of returns of information regarding certain payments, see §§ 1.6041-1 to 1.6041-6, inclusive, of this chapter (Income Tax Regulations). § 301.6042-1 Returns of information regarding payments of dividends and corporate earnings and profits. For provisions relating to the requirement of returns of information regarding payments of dividends and corporate earnings and profits, see §§ 1.6042-1 to 1.6042-4, inclusive, of this chapter (Income Tax Regulations). § 301.6043-1 Returns regarding liquidation, dissolution, termination, or contraction. For provisions relating to the requirement of returns of information regarding liquidations, dissolutions, terminations, or contracts, see §§ l.6043-1, 1.6043-2, and 1.6043-3 of this chapter (Income Tax Regulations). [T.D. 7563, 43 FR 40222, Sept. 11, 1978] § 301.6044-1 Returns of information regarding payments of patronage dividends. For provisions relating to the requirement of returns of information regarding payments of patronage dividends, see §§ 1.6044-1 to 1.6044-5, inclusive, of this chapter (Income Tax Regulations). § 301.6046-1 Returns as to organization or reorganization of foreign corporations and as to acquisitions of their stock. For provisions relating to requirement of returns as to organization or reorganization of foreign corporations and as to acquisitions of their stock, see §§ 1.6046-1 to 1.6046-3, inclusive, of this chapter. (Income Tax Regulations.) § 301.6047-1 Information relating to certain trusts and annuity and bond purchase plans. For provisions relating to the requirement of returns of information regarding certain trusts and annuity and bond purchase plans, see § 1.6047-1 of this chapter (Income Tax Regulations). § 301.6049-1 Returns regarding payments of interest. For provisions relating to the requirement of returns regarding payments of interest, see §§ 1.6049-1 to 1.6049-3, inclusive, of this chapter (Income Tax Regulations). § 301.6050A-1 Information returns regarding services performed by certain crewmen on fishing boats. For provisions relating to the requirement of returns of information regarding services performed by certain crewmen on fishing boats, see § 1.6050A-1 of this chapter (Income Tax Regulations) and § 301.6652-1 of this chapter (Regulations on Procedure and Administration). [T.D. 7716, 45 FR 57124, Aug. 27, 1980] § 301.6050M-1 Information returns relating to persons receiving contracts from certain Federal executive agencies. For provisions relating to the requirements of returns of information relating to persons receiving contracts from certain Federal executive agencies, see § 1.6050M-1 of this chapter (Income Tax Regulations). [T.D. 8275, 54 FR 50372, Dec. 6, 1989] Information Regarding Wages Paid Employees § 301.6051-1 Receipts for employees. For provisions relating to statements for employees regarding remuneration paid during calendar year, see § 31.6051-1 of this chapter (Employment Tax Regulations). § 301.6052-1 Information returns and statements regarding payment of wages in the form of group-term life insurance. For provisions relating to information returns and statements required in connection with the payment of wages in the form of group-term life insurance, see §§ 1.6052-1 and 1.6052-2 of this chapter (income tax regulations). [T.D. 7275, 38 FR 11346, May 7, 1973] § 301.6056-1 Rules relating to reporting by applicable large employers on health insurance coverage offered under employer-sponsored plans. (a) In general. (b) Definitions In general. (2) Applicable large employer. applicable large employer (3) Applicable large employer member. applicable large employer member (4) Dependent. dependent (5) Eligible employer-sponsored plan. eligible employer-sponsored plan (6) Full-time employee. full-time employee (7) Governmental unit. governmental unit (8) Agency or instrumentality of a governmental unit. (9) Minimum essential coverage. minimum essential coverage (10) Minimum value. minimum value (11) Person. person (c) Content and timing of reporting by applicable large employer members In general. (2) Reporting facilitated by third parties. (d) Information required to be reported to the Internal Revenue Service In general. (i) The name, address, and employer identification number of the applicable large employer member, (ii) The name and telephone number of the applicable large employer member's contact person, (iii) The calendar year for which the information is reported, (iv) A certification as to whether the applicable large employer member offered to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan, by calendar month, (v) The months during the calendar year for which minimum essential coverage under the plan was available, (vi) Each full-time employee's share of the lowest cost monthly premium (self-only) for coverage providing minimum value offered to that full-time employee under an eligible employer-sponsored plan, by calendar month; (vii) The number of full-time employees for each month during the calendar year, (viii) The name, address, and taxpayer identification number of each full-time employee during the calendar year and the months, if any, during which the employee was covered under the plan, and (ix) Any other information specified in forms, instructions, or published guidance, see §§ 601.601(d) and 601.602 of this chapter. (2) Form of the return. (e) Time and manner for filing return. (f) Statements required to be furnished to full-time employees In general. (i) The name, address and employer identification number of the applicable large employer member, and (ii) The information required to be shown on the section 6056 return with respect to the full-time employee. (2) Form of the statement. (g) Time and manner for furnishing statements Time for furnishing (2) Manner of furnishing. (h) Correction of returns. (i) Penalties In general. (2) Application of section 6721 and 6722 penalties to section 6056 reporting. (j) Alternative reporting methods for eligible applicable large employer members. (1) Certification of qualifying offer. (i) The applicable large employer member certifies on the section 6056 transmittal form, in accordance with the form and the instructions to the form, that it made a qualifying offer. A qualifying offer is an offer to one or more of its full-time employees for all months during the year for which the employee was a full-time employee and which are not within a limited nonassessment period (as defined in § 54.4980H-1(a)(26) of this chapter), of minimum essential coverage providing minimum value at an employee cost for employee-only coverage not exceeding 9.5 percent of the mainland single federal poverty line, and that includes an offer of minimum essential coverage to the employees' spouses and dependents. For this purpose, the applicable federal poverty line is the federal poverty line as defined in § 54.4980H-1(a)(19) of this chapter, as calculated and applied to the 48 contiguous states and the District of Columbia; (ii) The applicable large employer member provides on the Form 1095-C or other form as designated by the IRS, in accordance with the form and the instructions to the form, the information with respect to each full-time employee to whom a qualifying offer, as defined in paragraph (j)(1)(i) of this section, is made for all twelve months of the applicable calendar year; (iii) The applicable large employer member provides a statement to each full-time employee to whom a qualifying offer (as defined in paragraph (j)(1)(i) of this section) was made for all twelve months of the applicable calendar year, in such form and manner as prescribed by the Secretary, or a copy of the Form 1095-C filed with the IRS with respect to that full-time employee; and (D) The applicable large employer member files section 6056 returns and furnishes section 6056 employee statements with respect to all other full-time employees under the general reporting method described in paragraph (d) of this section, in accordance with forms and instructions. (2) Option to report without separate identification of full-time employees if certain conditions related to offers of coverage are satisfied (98 percent offers). (k) Special rules for governmental units Person appropriately designated. (2) Written designation. (3) Application to alternative reporting methods. (l) Additional guidance. (m) Applicability date. [T.D. 9661, 79 FR 13247, Mar. 10, 2014, as amended by T.D. 9970, 87 FR 76576, Dec. 15, 2022; 88 FR 14259, Mar. 8, 2023] § 301.6056-2 Electronic furnishing of statements. (a) Electronic furnishing of statements In general. (2) Consent In general. (ii) Withdrawal of consent. (iii) Change in hardware or software requirements. (iv) Examples. Example 1. Furnisher F sends Recipient R a letter stating that R may consent to receive the statement required under section 6056 electronically on a Web site instead of in a paper format. The letter contains instructions explaining how to consent to receive the statement electronically by accessing the Web site, downloading the consent document, completing the consent document and emailing the completed consent back to F. The consent document posted on the Web site uses the same electronic format that F will use for the electronically furnished statement. R reads the instructions and accesses the Web site, downloads and completes the consent document, and emails the completed consent back to F. R has consented to receive the statement required under section 6056 electronically in the manner described in paragraph (a)(2)(i) of this section. Example 2. Furnisher F sends Recipient R an email stating that R may consent to receive the statement required under section 6056 electronically instead of in a paper format. The email contains an attachment instructing R how to consent to receive the statement electronically. The email attachment uses the same electronic format that F will use for the electronically furnished statement. R opens the attachment, reads the instructions, and submits the consent in the manner provided in the instructions. R has consented to receive the statement required under section 6056 electronically in the manner described in paragraph (a)(2)(i) of this section. Example 3. Furnisher F posts a notice on its Web site stating that Recipient R may receive the statement required under section 6056 electronically instead of in a paper format. The Web site contains instructions on how R may access a secure Web page and consent to receive the statement electronically. The consent via the secure Web page uses the same electronic format that F will use for the electronically furnished statement. R accesses the Web site and follows the instructions for giving consent. R has consented to receive section 6056 statements electronically in the manner described in paragraph (a)(2)(i) of this section. (3) Required disclosures In general. (ii) Paper statement. (iii) Scope and duration of consent. (iv) Post-consent request for a paper statement. (v) Withdrawal of consent. (A) The recipient may withdraw a consent by writing (electronically or on paper) to the person or department whose name, mailing address, telephone number, and email address is provided in the disclosure statement, (B) The furnisher will confirm the withdrawal and the date on which it takes effect in writing (either electronically or on paper), and (C) A withdrawal of consent does not apply to a statement that was furnished electronically in the manner described in this paragraph (a) before the date on which the withdrawal of consent takes effect. (vi) Notice of termination. (vii) Updating information. (viii) Hardware and software requirements. (4) Format. (5) Notice In general. (ii) Undeliverable electronic address. (iii) Corrected statement. (A) An electronic notice of the Web site posting of an original statement or the corrected statement was returned as undeliverable, and (B) The recipient has not provided a new email address. (6) Access period. (7) Paper statements after withdrawal of consent. (b) Effective/applicability date. [T.D. 9661, 79 FR 13250, Mar. 10, 2014] § 301.6057-1 Employee retirement benefit plans; identification of participant with deferred vested retirement benefit. (a) Annual registration statement In general. (2) Deferred vested retirement benefit. (3) Plans subject to filing requirement. (4) Filing requirements. (5) Time for reporting deferred vested retirement benefit In general. (ii) Exception. (b) Plans to which more than one employer contributes Application. (2) Time for reporting deferred vested retirement benefit In general. (ii) Special rules (A) For the definition of the term “1-year break in service” in the case of a plan which uses the elapsed time method described in Department of Labor Regulations for crediting service for vesting percentage purposes, see § 1.411(a)-6(c)(2). (B) In the case of a plan which does not define the term “1-year break in service” for vesting percentage purposes, a plan participant shall be deemed to incur a 1-year break in service under the plan in any plan year within which the participant does not complete more than 500 hours of service covered by the plan. (iii) Transitional rule. (iv) Exception. (3) Information relating to deferred vested retirement benefit Incomplete records. (ii) Inability to determine correct amount of participant's deferred vested retirement benefit. (A) Are incomplete with respect to the participant's service covered by the plan (as described in subdivision (i)), or (B) Fail to account for the participant's service not covered by the plan which is relevant to a determination of the participant's deferred vested retirement benefit under the plan (as described in subdivision (i)), then the plan administrator must indicate on schedule SSA that the amount of the deferred vested retirement benefit shown therein may be other than that to which the participant is actually entitled because the amount is based upon incomplete records. (iii) Inability to determine whether participant vested in deferred retirement benefit. (c) Voluntary filing In general. (2) Deleting previously filed information. (i) Is paid some or all of the deferred vested retirement benefit under the plan, or (ii) Forfeits all of the deferred vested retirement benefit under the plan, the plan administrator may, at its option, file on schedule SSA (or such other form as may be provided for this purpose) the name and social security number of the participant with the notation that information previously filed relating to the participant's deferred vested retirement benefit should be deleted. (d) Filing incident to cessation of payment of benefits In general. (2) Exception. (e) Individual statement to participant. (f) Penalties. (g) Effective dates Plans to which only one employer contributes. (2) Plans to which more than one employer contributes. [T.D. 7561, 43 FR 38004, Aug. 25, 1978] § 301.6057-2 Employee retirement benefit plans; notification of change in plan status. (a) Change in plan status. (1) A change in the name of the plan. (2) A change in the name or address of the plan administrator, (3) The termination of the plan, or (4) The merger or consolidation of the plan with another plan or the division of the plan into two or more plans. (b) Notification. (c) Penalty. (d) Effective date. [T.D. 7561, 43 FR 38006, Aug. 25, 1978] § 301.6057-3 Required use of electronic form for filing requirements relating to deferred vested retirement benefit. (a) Electronic-filing requirements under section 6057. IRS.gov (b) Exclusions from electronic-filing requirements Waivers. IRS.gov (2) Exemptions. IRS.gov (3) Additional Exclusion. (c) Failure to file. (d) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Registration statement required under section 6057(a). registration statement required under section 6057(a) (3) Notification required under section 6057(b). notification required under section 6057(b) (4) Calculating the number of returns In general. (ii) Definition of filer. filer (e) Example. (1) Example. Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.; Annual Return/Report of Employee Benefit Plan; Annual Return of Withheld Federal Income Tax (2) [Reserved] (f) Applicability date. [T.D. 9695, 79 FR 58258, Sept. 29, 2014, as amended by T.D. 9972, 88 FR 11775, Feb. 23, 2023] § 301.6058-1 Information required in connection with certain plans of deferred compensation. (a) Reporting of information Annual return. (2) Plans subject to requirements. (3) Required information. (4) Time of filing. (b) Who must file In general. (2) Definition of employer. (c) Other rules applicable to annual returns Extensions of time for filing. (2) Amended filing. (3) Additional information. (4) Records. (5) Relief from filing. (d) Special rules for individual retirement arrangements Application. (2) General rule. (i) Establishes or maintains an individual retirement account described in section 408(a) (including an individual who is a participant in an individual retirement account described in section 408(c)). (ii) Purchases or maintains an individual retirement annuity described in section 408(b), or (iii) Is a surviving beneficiary with respect to an account or annuity referred to in this subparagraph which is in existence during such taxable year, shall file Form 5329 (or any other form designated by the Commissioner for this purpose), as an attachment to or part of the Form 1040 filed by such individual for such taxable year, setting forth in full the information required by that form and the accompanying instructions. (3) Special information returns. (4) Relief from filing. (5) Retirement bonds. (e) Actuarial statement in case of mergers, etc. (f) Effective dates Section 6058 (a) requirements. (2) Section 6058(b) requirements. [T.D. 7551, 43 FR 29292, July 7, 1978] § 301.6058-2 Required use of electronic form for filing requirements relating to information required in connection with certain plans of deferred compensation. (a) Electronic-filing requirements under section 6058. IRS.gov (b) Undue hardship. IRS.gov (c) Failure to file. (d) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Return required under section 6058. return required under section 6058 (3) Calculating the number of returns In general. (ii) Definition of filer. filer (iii) Special rules relating to calculating the number of returns. (e) Example. (1) In 2024, Employer X (the plan sponsor and plan administrator of Plan A) is required to file 12 returns. The sole shareholder of X and his spouse are the only participants in Plan A. Employer X is required to file the following: one Form 1120, U.S. Corporation Income Tax Return; Wage and Tax Statement; Employer's Annual Federal Unemployment (FUTA) Tax Return; Employer's Quarterly Federal Tax Return; Annual Return of Withheld Federal Income Tax; Dividends and Distributions. (2) [Reserved] (f) Applicability date. [T.D. 9695, 79 FR 58259, Sept. 29, 2014, as amended by T.D. 9972, 88 FR 11776, Feb. 23, 2023] § 301.6059-1 Periodic report of actuary. (a) In general. (b) Plan years for which report required. (c) Contents of report. (1) The date of the actuarial valuation applicable to the plan year for which the report is filed (see section 412(c)(9) for rules relating to the frequency with which an actuarial valuation of the plan is required to be made), (2) A description of the funding method and actuarial assumptions used to determine costs under the plan, (3) A certification of the contribution necessary to reduce the accumulated funding deficiency (as defined in section 412(a)) to zero, (4) A statement by the enrolled actuary signing the report that to the best of the actuary's knowledge the report is complete and accurate, (5) A statement by the enrolled actuary signing the report that in the actuary's opinion the actuarial assumptions used are in the aggregate (i) reasonably related to the experience of the plan and to reasonable expectations, and (ii) represent the actuary's best estimate of anticipated experience under the plan, (6) Such other information as may be necessary to fully and fairly disclose the actuarial position of the plan, and (7) Such other information as may be required by Schedule B or the instructions accompanying the Schedule and the Form 5500 series. (d) Certification by enrolled actuary. An actuarial report filed for a plan year ending after January 25, 1982, does not satisfy the requirements of this section if the actuary seeks to materially qualify such statements. For this purpose, the following are not considered to materially qualify a statement required by paragraph (c) (4) or (5) of this section: (1) A statement that the report is based in part on information provided to the actuary by another person, that such information would customarily not be verified by the actuary, and that the actuary has no reason to doubt the substantial accuracy of the information (taking into account the facts and circumstances that are known or reasonably should be known to the actuary, including the contents of any other actuarial report prepared by the actuary for the plan), (2) A statement that the report is based in part on information provided by another person, that the actuary believes such information is or may be inaccurate or incomplete, but that the inaccuracies or omissions are not material, the inaccuracies or omissions are not so numerous or flagrant as to suggest that there may be material inaccuracies, and that therefore the actuarial report is substantially accurate and complete and fairly discloses the actuarial position of the plan, (3) A statement that the report reflects the requirement of a regulation or ruling, and that any statement regarding the actuarial position of the plan is made only in light of such requirement, (4) A statement that the report reflects an interpretation of a statute, regulation or ruling, that the actuary has no reason to doubt the validity of that interpretation, and that any statement regarding the actuarial position of the plan is made only in light of such interpretation, (5) A statement that in the opinion of the actuary the report fully reflects the requirements of an applicable statute, but does not conform to the requirements of a regulation or ruling promulgated under the statute that the actuary believes is contrary to the statute, or (6) A statement furnished to comply with the requirements of paragraph (c)(6) of this section. A statement otherwise described in a subparagraph of this paragraph (d) shall not be considered to satisfy the requirements of such subparagraph unless the statement identifies, with particularity, that matter to which the statement relates and the facts and circumstances surrounding the statement. In addition, a statement otherwise described in subparagraph (5) of this paragraph (d) shall not be considered to satisfy the requirements of that subparagraph unless the statement indicates whether an accumulated funding deficiency or a contribution that is not wholly deductible may result if the actuary's belief is determined to be incorrect. (e) Relief from filing. (f) Penalty. (Secs. 6059 and 7805 of the Internal Revenue Code of 1954 (88 Stat. 947, 68A Stat. 917; 26 U.S.C. 6059, 7805)) [T.D. 7798, 46 FR 57483, Nov. 24, 1981; 46 FR 60435, Dec. 10, 1981] § 301.6059-2 Required use of electronic form for filing requirements relating to periodic report of actuary. (a) Electronic-filing requirements under section 6059. IRS.gov (b) Undue hardship. IRS.gov (c) Failure to file. (d) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Actuarial report required under section 6059 Single employer plans. actuarial report required under section 6059 (ii) Multiemployer and certain money purchase plans. actuarial report required under section 6059 (3) Calculating the number of returns In general. (ii) Definition of filer. filer (e) Applicability date. [T.D. 9695, 79 FR 58260, Sept. 29, 2014, as amended by T.D. 9972, 88 FR 11777, Feb. 23, 2023] signing and verifying of returns and other documents § 301.6061-1 Signing of returns and other documents. (a) In general. (b) Method of signing. (c) Effective dates. [T.D. 8689, 61 FR 65320, Dec. 12, 1996] § 301.6062-1 Signing of corporation returns. For provisions relating to the signing of corporation income tax returns, see § 1.6062-1 of this chapter (Income Tax Regulations). § 301.6063-1 Signing of partnership returns. For provisions relating to the signing of returns of partnership income, see § 1.6063-1 of this chapter (Income Tax Regulations). § 301.6064-1 Signature presumed authentic. An individual's name signed to a return, statement, or other document shall be prima facie evidence for all purposes that the return, statement, or other document was actually signed by him. § 301.6065-1 Verification of returns. For provisions concerning the verification of returns and other documents, see the regulations relating to the particular tax. time for filing returns and other documents § 301.6071-1 Time for filing returns and other documents. For provisions concerning the time for filing returns and other documents, see the regulations relating to the particular tax. § 301.6072-1 Time for filing income tax returns. For provisions relating to time for filing income tax returns, see §§ 1.6072-1 to 1.6072-4, inclusive, of this chapter (Income Tax Regulations). § 301.6073-1 Time for filing declarations of estimated income tax by individuals. For provisions relating to time for filing declarations of estimated income tax by individuals, see §§ 1.6073-1 to 1.6073-4, inclusive, of this chapter (Income Tax Regulations). § 301.6074-1 Time for filing declarations of estimated income tax by corporations. For provisions relating to time for filing declarations of estimated income tax by corporations, see §§ 1.6074-1 to 1.6074-3, inclusive, of this chapter (Income Tax Regulations). § 301.6075-1 Time for filing estate and gift tax returns. For provisions relating to time for filing estate tax returns and gift tax returns, see § 20.6075-1 of this chapter (Estate Tax Regulations) and § 25.6075-1 of this chapter (Gift Tax Regulations), respectively. extension of time for filing returns § 301.6081-1 Extension of time for filing returns. For provisions concerning extensions of time for filing returns or other documents, see the regulations relating to the particular tax. § 301.6081-2 Automatic extension of time for filing an information return with respect to certain foreign trusts. (a) In general. (b) Requirements. (1) Submit a complete application on Form 7004, “Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner; and (2) File the application on or before the date prescribed for filing the return with the Internal Revenue Service office designated in the application's instructions. (c) Termination of automatic extension. (d) Penalties. (e) Effective/applicability dates. [T.D. 9407, 73 FR 37371, July 1, 2008] place for filing returns or other documents § 301.6091-1 Place for filing returns and other documents. (a) General rule. (b) Exception for hand-carried documents other than returns. (1) Persons other than corporations. (2) Corporations. (c) Definition of hand carried. [T.D. 6950, 33 FR 5359, Apr. 4, 1968, as amended by T.D. 7008, 34 FR 3673, Mar. 1, 1969; T.D. 7012, 34 FR 7697, May 15, 1969; T.D. 7188, 37 FR 12794, June 29, 1972; T.D. 7238, 37 FR 28739, Dec. 29, 1972; T.D. ATF-33, 41 FR 44038, Oct. 6, 1976; T.D. 7495, 42 FR 33727, July 1, 1977; T.D. 9156, 69 FR 55747, Sept. 16, 2004] § 301.6096-1 Designation by individuals for taxable years beginning after December 31, 1972. (a) In general. (b) Income tax liability. (c) Manner and time of designation. (2) With respect to any taxable year beginning after December 31, 1972 for which no designation was made under paragraph (c)(1) of this section, a designation may be made on the form furnished by the Internal Revenue Service for such purpose, filed within 20 and one half months after the due date for the original return for such taxable year. In the case of a joint return where neither spouse made a designation or where only one spouse made a designation, a designation may be made, as provided in this subparagraph, by the spouse or spouses who had not previously made a designation. (3) A designation once made, whether by an original return or otherwise, may not be revoked. (d) Effective date. [T.D. 7304, 39 FR 4476, Feb. 4, 1974, as amended by T.D. 7643, 44 FR 50338, Aug. 28, 1979] Miscellaneous provisions § 301.6101-1 Period covered by returns or other documents. For provisions concerning the period covered by returns or other documents, see the regulations relating to the particular tax. § 301.6102-1 Computations on returns or other documents. (a) Amounts shown on forms. Exact amount To be reported as— $18.49 $18 $18.50 19 $18.51 19 (b) Election not to use whole dollar amounts Method of election. (2) Time of election. (3) Effect of election. (4) Fractional part of a cent. (c) Inapplicability to computation of amount. (d) Effect on accounting method. § 301.6103(a)-1 Disclosures after December 31, 1976, by officers and employees of Federal agencies of returns and return information (including taxpayer return information) disclosed to such officers and employees by the Internal Revenue Service before January 1, 1977, for a purpose not involving tax administration. (a) General rule. (b) Exception. (Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805)) [T.D. 7723, 45 FR 65566, Oct. 3, 1980] § 301.6103(a)-2 Disclosures after December 31, 1976, by attorneys of the Department of Justice and officers and employees of the Office of the Chief Counsel for the Internal Revenue Service of returns and return information (including taxpayer return information) disclosed to such attorneys, officers, and employees by the Service before January 1, 1977, for a purpose involving tax administration. (a) General rule. (b) Exception. (Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805)) [T.D. 7723, 45 FR 65567, Oct. 3, 1980] § 301.6103(c)-1 Disclosure of returns and return information to designee of taxpayer. (a) Overview. (b) Disclosure of returns and return information to person or persons designated in a written request or consent General requirements. (i) The taxpayer's taxpayer identity information described in section 6103(b)(6); (ii) The identity of the person or persons to whom the disclosure is to be made; (iii) The type of return (or specified portion of the return) or return information (and the particular data) that is to be disclosed; and (iv) The taxable year or years covered by the return or return information. (2) Requirement that request or consent be received within one hundred twenty days of when signed and dated. (c) Disclosure of returns and return information to designee of taxpayer to comply with a taxpayer's request for information or assistance. (1) Written request for information or assistance. see (A) The taxpayer's taxpayer identity information described in section 6103(b)(6); (B) The identity of the person or persons to whom disclosure is to be made; and (C) Sufficient facts underlying the request for information or assistance to enable the Internal Revenue Service to determine the nature and extent of the information or assistance requested and the returns or return information to be disclosed in order to comply with the taxpayer's request. (ii) A person who receives a copy of a taxpayer's written request for information or assistance but who is not the addressee of the request, such as a member of Congress who is provided with a courtesy copy of a taxpayer's letter to another member of Congress or to the Internal Revenue Service, cannot receive returns or return information under paragraph (c)(1) of this section. (2) Nonwritten request or consent. (A) Obtained from the taxpayer sufficient facts underlying the request for information or assistance to enable the Internal Revenue Service to determine the nature and extent of the information or assistance requested and the return or return information to be disclosed in order to comply with the taxpayer's request; (B) Confirmed the identity of the taxpayer and the designee; and (C) Confirmed the date, the nature, and the extent of the information or assistance requested. (ii) Examples of disclosures pursuant to nonwritten requests for information or assistance under this paragraph (c)(2) include, but are not limited to, disclosures to a friend, relative, or other person whom the taxpayer brings to an interview or meeting with Internal Revenue Service officials, and disclosures to a person whom the taxpayer wishes to involve in a telephone conversation with Internal Revenue Service officials. (iii) As long as the requirements of this paragraph (c)(2) are met, the taxpayer does not need to be present, either in person or as part of a telephone conversation, for disclosures of returns and return information to be made to the other person. (3) Rules applicable to written and nonwritten requests for information or assistance. (d) Acknowledgments of electronically filed returns and other documents; combined filing programs with State tax agencies. (1) Acknowledgment of, and notices regarding, electronically filed returns and other documents. (2) Combined return filing programs with State tax agencies. (ii) No disclosures may be made under this paragraph (d)(2) unless there are provisions of State law protecting the confidentiality of such items of common data. (e) Definitions and rules applicable to this section Separate written document. separate written document (A) Text appearing on one or more sheets of 8 1/2 (B) Text appearing on one or more computer screens, each of which pertains solely to the authorized disclosure, so long as such screen or, taken together, such screens— ( 1 ( 2 ( 3 (C) A consent on the record in an administrative or judicial proceeding, or a transcript of such proceeding recording such consent, containing the information required under paragraph (b)(1) of this section. (ii) A provision included in a taxpayer's application for a loan or other benefit authorizing the grantor of the loan or other benefit to obtain any financial information, including returns or return information, from any source as the grantor may request for purposes of verifying information supplied on the application, does not meet the requirements of paragraph (b)(1) of this section because the provision is not a separate written document relating solely to the disclosure of returns and return information. In addition, the provision does not contain the other information specified in paragraph (b)(1) of this section. (2) Method of signing. (3) Permissible designees and public forums. (4) Authority to execute a request for or consent to disclosure. (5) No disclosure of return information if impairment. (f) Applicability date. (g) Effective date. [T.D. 9054, 68 FR 22598, Apr. 29, 2003, as amended by T.D. 9618, 78 FR 26507, May 7, 2013] § 301.6103(h)(2)-1 Disclosure of returns and return information (including taxpayer return information) to and by officers and employees of the Department of Justice for use in Federal grand jury proceeding, or in preparation for proceeding or investigation, involving tax administration. (a) Disclosure of returns and return information (including taxpayer return information) to and by officers and employees of the Department of Justice. (2) Returns and return information (including taxpayer return information) inspected by or disclosed to officers and employees of the Department of Justice as provided in paragraph (a)(1) of this section may also be used by such officers and employees or disclosed by them to other officers and employees (including United States attorneys and supervisory personnel, such as Section Chiefs, Deputy Assistant Attorneys General, Assistant Attorneys General, the Deputy Attorney General, and the Attorney General), of the Department of Justice where necessary— (i) In connection with any Federal grand jury proceeding, or preparation for any proceeding (or with an investigation which may result in such a proceeding), described in paragraph (a)(1), or (ii) In connection with any Federal grand jury proceeding, or preparation for any proceeding (or with an investigation which may result in such a proceeding), described in paragraph (a)(1) which also involves enforcement of a specific Federal criminal statute other than one described in paragraph (a)(1) to which the United States is or may be a party, provided such matter involves or arises out of the particular facts and circumstances giving rise to the proceeding (or investigation) described in paragraph (a)(1) and further provided the tax portion of such proceeding (or investigation) has been duly authorized by or on behalf of the Assistant Attorney General for the Tax Division of the Department of Justice, pursuant to the request of the Secretary, as a proceeding (or investigation) described in paragraph (a)(1). If, in the course of a Federal grand jury proceeding, or preparation for a proceeding (or the conduct of an investigation which may result in such a proceeding), described in subdivision (ii) of this subparagraph, the tax administration portion thereof is terminated for any reason, any further use or disclosure of such returns or taxpayer return information in such Federal grand jury proceeding, or preparation or investigation, with respect to the remaining portion may be made only pursuant to, and upon the grant of, a court order as provided by section 6103(i)(1)(A), provided, however, that the returns and taxpayer return information may in any event be used for purposes of obtaining the necessary court order. (b) Disclosure of returns and return information (including taxpayer return information) by officers and employees of the Department of Justice. (i) To properly accomplish any purpose or activity of the nature described in section 6103(k)(6) and the regulations thereunder which is essential to such Federal grand jury proceeding, or to such proper preparation (or to such investigation); (ii) To properly interview, consult, depose, or interrogate or otherwise obtain relevant information from, the taxpayer to whom such return or return information relates (or such taxpayer's legal representative) or from any witness who may be called to give evidence in the proceeding; or (iii) To properly conduct negotiations concerning, or obtain authorization for, settlement or disposition of the proceeding, in whole or in part, or stipulations of fact in connection with the proceeding. Disclosure of a return or return information to a person other than the taxpayer to whom such return or return information relates or such taxpayer's legal representative to properly accomplish any purpose or activity described in this paragraph should be made, however, only if such purpose or activity cannot otherwise properly be accomplished without making such disclosure. (2) Among those persons to whom returns and return information may be disclosed by officers and employees of the Department of Justice as provided by paragraph (a)(1) of this section are— (i) Other officers and employees of the Department of Justice, such as personnel of an office, board, division, or bureau of such department (for example, the Federal Bureau of Investigation or the Drug Enforcement Administration), clerical personnel (for example, secretaries, stenographers, docket and file room clerks, and mail room employees) and supervisory personnel (such as supervisory personnel of the Federal Bureau of Investigation or the Drug Enforcement Administration); (ii) Officers and employees of another Federal agency (as defined in section 6103(b)(9)) working under the direction and control of any such officers and employees of the Department of Justice; and (iii) Court reporters. (Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805)) [T.D. 7723, 45 FR 65567, Oct. 3, 1980] § 301.6103(h)(4)-1 Disclosure of returns and return information in whistleblower administrative proceedings. (a) In general. (b) Disclosures in whistleblower administrative proceedings. (1) By communicating a preliminary award recommendation or preliminary denial letter to the whistleblower; (2) By providing the whistleblower with an award report package; (3) By conducting a meeting with the whistleblower to review documents supporting the preliminary award recommendation; and (4) By sending an award decision letter, award determination letter, or award denial letter to the whistleblower. (c) Effective/applicability date. [T.D. 9687, 79 FR 47264, Aug. 12, 2014] § 301.6103(i)-1 Disclosure of returns and return information (including taxpayer return information) to and by officers and employees of the Department of Justice or another Federal agency for use in Federal grand jury proceeding, or preparation for proceeding or investigation, involving enforcement of Federal criminal statute not involving tax administration. (a) Disclosure of returns and return information (including taxpayer return information) to officers and employees of the Department of Justice or another Federal agency. (b) Disclosure of returns and return information (including taxpayer return information) by officers and employees of the Department of Justice or another Federal agency. (i) To properly obtain the services of persons having special knowledge or technical skills (such as, but not limited to, handwriting analysis, photographic development, sound recording enhancement, or voice identification); (ii) To properly interview, consult, depose, or interrogate or otherwise obtain relevant information from, the taxpayer to whom such return or return information relates (or such taxpayer's legal representative) or any witness who may be called to give evidence in the proceeding; or (iii) To properly conduct negotiations concerning, or obtain authorization for, disposition of the proceeding, in whole or in part, or stipulations of fact in connection with the proceeding. Disclosure of a return or return information to a person other than the taxpayer to whom such return or return information relates or such taxpayer's legal representative to properly accomplish any purpose or activity described in this subparagraph should be made, however, only if such purpose or activity cannot otherwise properly be accomplished without making such disclosures. (2) Among those persons to whom returns and return information may be disclosed by officers and employees of the Department of Justice or other Federal agency as provided by subparagraph (1) of this paragraph are— (i) Other officers and employees of the Department of Justice (including an office, board, division, or bureau of such department, such as the Federal Bureau of Investigation or the Drug Enforcement Administration) or other Federal agency described in subparagraph (1), such as clerical personnel (for example, secretaries, stenographers, docket and file room clerks, and mail room employees) and supervisory personnel (for example, in the case of the Department of Justice, Section Chiefs, Deputy Assistant Attorneys General, Assistant Attorneys General, the Deputy Attorney General, the Attorney General, and supervisory personnel of the Federal Bureau of Investigation or the Drug Enforcement Administration); (ii) Officers and employees of another Federal agency (as defined in section 6103(b)(9)) working under the direction and control of such officers and employees of the Department of Justice or other Federal agency described in subparagraph (1); and (iii) Court reporters. (Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805)) [T.D. 7723, 45 FR 65568, Oct. 3, 1980] § 301.6103(j)(1)-1 Disclosures of return information reflected on returns to officers and employees of the Department of Commerce for certain statistical purposes and related activities. (a) General rule. (b) Disclosure of return information reflected on returns to officers and employees of the Bureau of the Census. (i) With respect to returns filed by individual taxpayers: (A) Taxpayer identity information (as defined in section 6103(b)(6) of the Internal Revenue Code (Code)), validity code with respect to the taxpayer identifying number (as described in section 6109 of the Code), and taxpayer identity information of spouse and dependents, if reported. (B) Filing status. (C) Number and classification of reported exemptions. (D) Wage and salary income. (E) Dividend income. (F) Interest income. (G) Gross rent and royalty income. (H) Total of— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 (I) Adjusted gross income. (J) Type of tax return filed. (K) Entity code. (L) Code indicators for Form 1040, Form 1040 (Schedules A, C, D, E, F, and SE), and Form 8814. (M) Posting cycle date relative to filing. (N) Social Security benefits. (O) Earned income (as defined in section 32(c)(2) of the Code). (P) Number of Earned income credit-eligible qualifying children. (Q) Electronic filing system indicator. (R) Return processing indicator. (S) Paid preparer code. (T) Dependent Social Security numbers. (U) Total income. (V) Ordinary dividends. (W) Taxable refunds, credits, or offsets of State and local income taxes. (X) Business income or (loss). (Y) Capital gain or (loss). (Z) Other gains or (losses). (AA) Individual Retirement Arrangement (IRA) distributions. (BB) Taxable amount of IRA distributions. (CC) Pensions and annuities. (DD) Taxable amount of pensions and annuities. (EE) Rental real estate, royalties, partnerships, S corporations, trusts, etc. (FF) Farm income or (loss). (GG) Earned income credit. (HH) Taxable amount of Social Security benefits. (II) Other income. (JJ) Itemized deductions. (KK) Taxable income. (LL) Tax. (MM) Credit for child and dependent care expenses. (NN) Education credits. (OO) Retirement savings contributions credit. (PP) Child tax credit. (QQ) Nontaxable combat pay election. (RR) Additional Child Tax Credit. (SS) American Opportunity Tax Credit. (TT) Medical and dental expenses. (UU) State and local income taxes. (VV) State and local general sales taxes. (WW) State and local personal property taxes. (XX) State and local real estate taxes. (YY) Other taxes (amount). (ZZ) Home mortgage interest and points. (AAA) Mortgage interest not on a Form 1098. (BBB) Points not on a Form 1098. (CCC) Investment interest. (DDD) Total gifts to charity, including carryover from prior year. (EEE) Casualty and theft losses. (FFF) Total itemized deductions. (GGG) Ordinary dividends. (HHH) Qualified dividends. (III) Tax-exempt interest. (JJJ) Unemployment compensation. (KKK) From Form 1098— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 ( 11 ( 12 ( 13 ( 14 ( 15 (LLL) From Form 1098-E—Student loan interest. (MMM) From Form 1098-T— ( 1 ( 2 ( 3 ( 4 ( 5 (NNN) From Form 5498— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 (OOO) From Form SSA-1099/RRB-1099— ( 1 ( 2 ( 3 (PPP) From Form 1099-G—Unemployment compensation. (QQQ) From Form 1099-K— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 ( 11 (RRR) From Form 1099-MISC—Nonemployee compensation. (SSS) From Form 1099-NEC—Nonemployee compensation. (TTT) From Form 1099-Q— ( 1 ( 2 (UUU) From Form 1099-R/RRB-1099-R— ( 1 ( 2 ( 3 (VVV) From Form W-2— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 (WWW) From Form 1040, Schedule D— ( 1 ( 2 (XXX) From Form 1040, Schedule E— ( 1 ( 2 (YYY) From Form 1040, Schedule F— ( 1 ( 2 ( 3 ( 4 (ii) With respect to taxpayers filing a return on behalf of a trade or business— (A) The taxpayer name directory and entity records consisting of taxpayer identity information (as defined in section 6103(b)(6) of the Code) with respect to taxpayers engaged in a trade or business. (B) The principal industrial activity code. (C) The filing requirement code. (D) The employment code. (E) The physical location. (F) Monthly corrections of, and additions to, the information described in paragraphs (b)(1)(ii)(A) through (E) of this section. (G) From Form SS-4, all information reflected on such form. (H) From an employment tax return— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 ( 11 ( 12 ( 13 (I) From Form 1040, Schedule C— ( 1 ( 2 ( 3 ( 4 ( 5 (J) From Form 1040 (Schedule SE)— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 (K) Total Social Security taxable earnings. (L) Quarters of Social Security coverage. (M) From Form 940— ( 1 ( 2 (N) From Form 941— ( 1 ( 2 (O) From Form 943— ( 1 ( 2 (P) Taxpayer identity information (as defined in section 6103(b)(6) of the Code) including parent corporation, shareholder, partner, and employer identity information. (Q) Gross income, profits, or receipts. (R) Returns and allowances. (S) Cost of labor, salaries, and wages. (T) Total expenses or deductions, including totals of the following components thereof: ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 ( 11 ( 12 ( 13 (U) Total assets. (V) Beginning- and end-of-year inventory. (W) Royalty income. (X) Interest income, including portfolio interest. (Y) Rental income, including gross rents. (Z) Tax-exempt interest income. (AA) Net gain from sales of business property. (BB) Other income. (CC) Total income. (DD) Percentage of stock owned by each shareholder. (EE) Percentage of capital ownership of each partner. (FF) Principal industrial activity code, including the business description. (GG) Consolidated return indicator. (HH) Wages, tips, and other compensation. (II) Social Security wages. (JJ) Deferred wages. (KK) Social Security tip income. (LL) Total Social Security taxable earnings. (MM) From Form 1099-R—Gross distributions from employer-sponsored and individual retirement plans. (NN) From Form 3921— ( 1 ( 2 ( 3 ( 4 ( 5 (OO) From Form 6765 (when filed with corporation income tax returns)— ( 1 ( 2 ( 3 (PP) Total number of documents reported on Form 1096 transmitting Forms 1099—MISC. (QQ) Total amount reported on Form 1096 transmitting Forms 1099—MISC. (RR) From Form 1125—A, purchases. (SS) From Form 1041— ( 1 ( 2 ( 3 ( 4 ( 5 (TT) From Form 1041, Schedule K-1— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 (UU) From Form 1120— ( 1 ( 2 ( 3 (VV) From Form 1120-REIT— ( 1 ( 2 ( 3 ( 4 ( 5 (WW) From Form 1120-S— ( 1 ( 2 (XX) From Form 1120-S, Schedule K-1— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 (YY) From Form 1065— ( 1 ( 2 ( 3 (ZZ) From Form 1065, Schedule K-1— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 ( 11 ( 12 ( 13 (AAA) From Form 3800 Part II (Current Year General Business Credit from Form 6765). (BBB) From Form 3800, Part III, Increasing research activities (Form 6765). (CCC) Dividends, including ordinary or qualified. (iii) With respect to returns filed on behalf of a tax-exempt organization— (A) Taxpayer identity information (as defined in section 6103(b)(6) of the Code). (B) Activity codes. (C) Filing requirement code. (D) Monthly corrections of, and additions to, the information described in paragraphs (b)(1)(iii)(A) through (C) of this section. (E) From Form 990, Salaries, other compensation, employee benefits. (F) From Form 990-PF— ( 1 ( 2 (G) From Form 990-EZ, Salaries, other compensation, employee benefits. (iv) With respect to taxpayers filing information returns relating to health insurance: (A) From Form 1095-A— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 ( 11 ( 12 ( 13 ( 14 ( 15 ( 16 ( 17 (B) From Form 1095-B— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 ( 11 ( 12 (C) From Form 1095-C— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 ( 11 ( 12 (v) With respect to taxpayers filing information returns related to health savings accounts, from Form 5498-SA— (A) Taxpayer identification number; (B) Total contributions; (C) Fair market value of accounts; and (D) Account type checkboxes. (2) Subject to the requirements of paragraph (d) of this section and § 301.6103(p)(2)(B)-1, officers or employees of the Social Security Administration to whom the following return information reflected on returns has been disclosed as provided by section 6103(l)(1)(A) or (l)(5) may disclose such information to officers and employees of the Bureau of the Census for necessary purposes described in paragraph (b)(1) of this section: (i) From Form SS-4, all information reflected on such form. (ii) From Form 1040 (Schedule SE)— (A) Taxpayer identifying number of self-employed individual; (B) Business activities subject to the tax imposed by chapter 21 of the Code; (C) Net earnings from farming; (D) Net earnings from nonfarming activities; (E) Total net earnings from self-employment; and (F) Taxable self-employment income for purposes of chapter 2 of the Code. (iii) From Form W-2, and related forms and schedules— (A) Social Security number; (B) Employer identification number; (C) Wages, tips, and other compensation; (D) Social Security wages; and (E) Deferred wages. (iv) Total Social Security taxable earnings. (v) Quarters of Social Security coverage. (3)(i) Officers or employees of the Internal Revenue Service will disclose the following return information (but not including return information described in section 6103(o)(2)) reflected on returns of corporations with respect to the tax imposed by chapter 1 of the Code to officers and employees of the Bureau of the Census for purposes of, but only to the extent necessary in, developing and preparing, as authorized by law, the Quarterly Financial Report: (A) From the business master files of the Internal Revenue Service— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 (B) From Form SS-4— ( 1 ( 2 ( 3 (C) From Form 1120-REIT— ( 1 ( 2 (D) From Form 1120F, corporation's method of accounting. (E) From Form 1096, total amount reported. (ii) Subject to the requirements of paragraph (d) of this section and § 301.6103(p)(2)(B)-1, officers or employees of the Social Security Administration to whom return information reflected on returns of corporations described in paragraph (b)(3)(i)(B) of this section has been disclosed as provided by section 6103(l)(1)(A) or (l)(5) may disclose such information to officers and employees of the Bureau of the Census for a purpose described in paragraph (b)(3)(i) of this section. (iii) Return information reflected on employment tax returns disclosed pursuant to paragraphs (b)(1)(ii)(H)( 1 2 4 9 10 (c) Disclosure of return information reflected on returns of corporations to officers and employees of the Bureau of Economic Analysis. (1) As authorized by law for purposes of, but only to the extent necessary in, conducting and preparing statistical analyses, the Internal Revenue Service will disclose to officers and employees of the Bureau of Economic Analysis all return information, regardless of format or medium and including edited information from the Statistics of Income sample, of designated classes or categories of corporations with respect to the tax imposed by chapter 1 of the Internal Revenue Code. (2) [Reserved] (3) The Internal Revenue Service will disclose the following return information reflected on returns filed by corporations to officers and employees of the Bureau of Economic Analysis: (i) From the business master files of the Internal Revenue Service— (A) Taxpayer identity information (as defined in section 6103(b)(6)) with respect to corporate taxpayers; (B) Business or industry activity codes; (C) Filing requirement code; and (D) Physical location. (ii) From Form SS-4, “Application for Employer Identification Number,” filed by an entity identifying itself on the form as a corporation or a private services corporation— (A) Taxpayer identity information (as defined in section 6103(b)(6), including legal, trade, and business name); (B) Physical location; (C) State or country of incorporation; (D) Entity type (corporate only); (E) Estimated highest number of employees expected in the next 12 months; (F) Principal activity of the business; (G) Principal line of merchandise; (H) Posting cycle date relative to filing; and (I) Document code. (iii) From an employment tax return filed by a corporation— (A) Taxpayer identity information (as defined in section 6103(b)(6)); (B) Total compensation reported; (C) Taxable wages paid for purposes of Chapter 21 to each employee; (D) Master file tax account code (MFT); (E) Total number of individuals employed in the taxable period covered by the return; (F) Posting cycle date relative to filing; (G) Accounting period covered; and (H) Document code. (iv) From returns of corporate taxpayers, including Form 1120, “U.S. Corporation Income Tax Return,” Form 851, “Affiliations Schedule,” and other business returns, schedules and forms that the Internal Revenue Service may issue— (A) Taxpayer identity information (as defined in section 6103(b)(6)), including that of a parent corporation, affiliate, or subsidiary; a shareholder; a foreign corporation of which one or more U.S. shareholders (as defined in section 951(b)) own at least 10% of the voting stock; a foreign trust; and a U.S. agent of a foreign trust; (B) Gross sales and receipts; (C) Gross income, including life insurance company gross income; (D) Gross income from sources outside the U.S.; (E) Gross rents from real property; (F) Other Gross Rents; (G) Total Gross Rents; (H) Returns and allowances; (I) Percentage of foreign ownership of corporations and trusts; (J) Fact of ownership of foreign partnerships; (K) Fact of ownership of foreign entity disregarded as a foreign entity; (L) Country of the foreign owner; (M) Gross value of the portion of the foreign trust owned by filer; (N) Country of incorporation; (O) Cost of labor, salaries, and wages; (P) Total assets; (Q) The quantity of certain forms attached that are returns of U.S. persons with respect to foreign disregarded entities, partnerships, and corporations. (R) Posting cycle date relative to filing; (S) Accounting period covered; (T) Master file tax account code (MFT); (U) Document code; and (V) Principal industrial activity code. (d) Procedures and restrictions. (i) The particular return information reflected on returns to be disclosed; (ii) The taxable period or date to which such return information reflected on returns relates; and (iii) The particular purpose for which the return information reflected on returns is to be used, and designating by name and title the officers and employees of the Bureau of the Census or the Bureau of Economic Analysis to whom such disclosure is authorized. (2) No officer or employee of the Bureau of the Census or the Bureau of Economic Analysis to whom return information reflected on returns is disclosed pursuant to the provisions of paragraph (b) or (c) of this section may disclose such information to any person, other than, pursuant to section 6103(e)(1), the taxpayer to whom such return information reflected on returns relates or other officers or employees of such bureau whose duties or responsibilities require such disclosure for a purpose described in paragraph (b) or (c) of this section, except in a form that cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer. If the Internal Revenue Service determines that the Bureau of the Census or the Bureau of Economic Analysis, or any officer or employee thereof, has failed to, or does not, satisfy the requirements of section 6103(p)(4) of the Code or regulations in this part or published procedures ( see (3) All projects using returns or return information disclosed to the Bureau of Census under this section must be approved by the Internal Revenue Service Director of Statistics of Income, the Director's successor, or the Director's delegate, prior to the release of such information. (4) In its sole discretion, the Internal Revenue Service may authorize the use of the Bureau of Census's disclosure review processes prior to any public disclosure by the Bureau of Census of a project using information provided pursuant to this section. Any Bureau of Census disclosure review process authorized under this paragraph (d)(4) must ensure that all releases meet or exceed all requirements set by the Internal Revenue Service for protecting the confidentiality of returns and return information. Additionally, in its sole discretion, the Internal Revenue Service Statistics of Income Disclosure Review Board may review a Bureau of Census project using information provided pursuant to this section prior to disclosure of that project to the public to ensure that any proposed releases meet or exceed all requirements set by the Internal Revenue Service for protecting the confidentiality of returns and return information. This review requirement may be imposed at any stage of the project. (e) Applicability date. [T.D. 9037, 68 FR 2693, Jan. 21, 2003, as amended by T.D. 9188, 70 FR 12141, Mar. 11, 2005; T.D. 9267, 71 FR 38263, July 6, 2006; T.D. 9372, 72 FR 73262, Dec. 27, 2007; T.D. 9439, 73 FR 79361, Dec. 29, 2008; T.D. 9500, 75 FR 52459, Aug. 26, 2010; T.D. 9631, 78 FR 52857, Aug. 27, 2013 T.D. 9754, 81 FR 9767, Feb. 26, 2016; T.D. 9856, 84 FR 14011, Apr. 9, 2019; T.D. 10013, 89 FR 93175, Nov. 26, 2024] § 301.6103(j)(5)-1 Disclosures of return information reflected on returns to officers and employees of the Department of Agriculture for conducting the census of agriculture. (a) General rule. (b) Disclosure of return information reflected on returns to officers and employees of the Department of Agriculture. (2) From Form 1040 “U.S. Individual Income Tax Return”, Form 1041 “U.S. Income Tax Return for Estates and Trusts”, Form 1065 “U.S. Return of Partnership Income” and Form 1065-B “U.S. Return of Income for Electing Large Partnerships” (Schedule F)— (i) Taxpayer identity information (as defined in section 6103(b)(6) of the Internal Revenue Code); (ii) Spouse's Social Security Number; (iii) Annual accounting period; (iv) Principal Business Activity (PBA) code; (v) Taxable cooperative distributions; (vi) Income from custom hire and machine work; (vii) Gross income; (viii) Master File Tax (MFT) code; (ix) Document Locator Number (DLN); (x) Cycle posted; (xi) Final return indicator; (xii) Part year return indicator; and (xiii) Taxpayer telephone number. (3) From Form 943, “Employer's Annual Tax Return for Agricultural Employees”— (i) Taxpayer identity information; (ii) Annual accounting period; (iii) Total wages subject to Medicare taxes; (iv) MFT code; (v) DLN; (vi) Cycle posted; (vii) Final return indicator; and (viii) Part year return indicator. (4) From Form 1120 series, “U.S. Corporation Income Tax Return”— (i) Taxpayer identity information; (ii) Annual accounting period; (iii) Gross receipts less returns and allowances; (iv) PBA code; (v) MFT Code; (vi) DLN; (vii) Cycle posted; (viii) Final return indicator; (ix) Part year return indicator; and (x) Consolidated return indicator. (5) From Form 1065 series, “U.S. Return of Partnership Income”— (i) Taxpayer identity information; (ii) Annual accounting period; (iii) PBA code; (iv) Gross receipts less returns and allowances; (v) Net farm profit (loss); (vi) MFT code; (vii) DLN; (viii) Cycle posted; (ix) Final return indicator; and (x) Part year return indicator. (c) Procedures and Restrictions. (i) The particular return information reflected on returns for disclosure; (ii) The taxable period or date to which such return information reflected on returns relates; and (iii) The particular purpose for the requested return information reflected on returns. (2)(i) No such officer or employee to whom the Internal Revenue Service discloses return information reflected on returns pursuant to the provisions of paragraph (b) of this section shall disclose such information to any person, other than the taxpayer to whom such return information reflected on returns relates or other officers or employees of the Department of Agriculture whose duties or responsibilities require such disclosure for a purpose described in paragraph (b)(1) of this section, except in a form that cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer. (ii) If the Internal Revenue Service determines that the Department of Agriculture, or any officer or employee thereof, has failed to, or does not, satisfy the requirements of section 6103(p)(4) of the Internal Revenue Code or regulations or published procedures, the Internal Revenue Service may take such actions as are deemed necessary to ensure that such requirements are or will be satisfied, including suspension of disclosures of return information reflected on returns otherwise authorized by section 6103(j)(5) and paragraph (b) of this section, until the Internal Revenue Service determines that such requirements have been or will be satisfied. (d) Effective date. [T.D. 9245, 71 FR 8945, Feb. 22, 2006] § 301.6103(k)(6)-1 Disclosure of return information by certain officers and employees for investigative purposes. (a) General rule. (i) Establishing or verifying the correctness or completeness of any return or return information; (ii) Determining the responsibility for filing a return, for making a return if none has been made, or for performing such acts as may be required by law concerning such matters; (iii) Establishing or verifying the liability (or possible liability) of any person, or the liability (or possible liability) at law or in equity of any transferee or fiduciary of any person, for any tax, penalty, interest, fine, forfeiture, or other imposition or offense under the internal revenue laws or related statutes or the amount thereof for collection; (iv) Establishing or verifying misconduct (or possible misconduct) or other activity proscribed by the internal revenue laws or related statutes; (v) Obtaining the services of persons having special knowledge or technical skills (such as, but not limited to, knowledge of particular facts and circumstances relevant to a correct determination of a liability described in paragraph (a)(1)(iii) of this section or skills relating to handwriting analysis, photographic development, sound recording enhancement, or voice identification) or having recognized expertise in matters involving the valuation of property if relevant to proper performance of official duties described in this paragraph; (vi) Establishing or verifying the financial status or condition and location of the taxpayer against whom collection activity is or may be directed, to locate assets in which the taxpayer has an interest, to ascertain the amount of any liability described in paragraph (a)(1)(iii) of this section for collection, or otherwise to apply the provisions of the Internal Revenue Code relating to establishment of liens against such assets, or levy, seizure, or sale on or of the assets to satisfy any such liability; (vii) Preparing for any proceeding described in section 6103(h)(2) or conducting an investigation which may result in such a proceeding; or (viii) Obtaining, verifying, or establishing information concerned with making determinations regarding a taxpayer's liability under the Internal Revenue Code, including, but not limited to, the administrative appeals process and any ruling, negotiated agreement, or prefiling process. (2) Disclosure of return information for the purpose of obtaining information to carry out properly the official duties described by this paragraph, or any activity connected with the official duties, is authorized only if the internal revenue or TIGTA employee reasonably believes, under the facts and circumstances, at the time of a disclosure, the information is not otherwise reasonably available, or if the activity connected with the official duties cannot occur properly without the disclosure. (3) Internal revenue and TIGTA employees may identify themselves, their organizational affiliation (e.g., Internal Revenue Service (IRS), Criminal Investigation (CI) or TIGTA, Office of Investigations (OI)), and the nature of their investigation, when making an oral, written, or electronic contact with a third party witness. Permitted disclosures include, but are not limited to, the use and presentation of any identification media (such as a Federal agency badge, credential, or business card) or the use of an information document request, summons, or correspondence on Federal agency letterhead or which bears a return address or signature block that reveals affiliation with the Federal agency. (4) This section does not address or affect the requirements under section 7602(c) (relating to contact of third parties). (b) Disclosure of return information in connection with certain personnel or claimant representative matters. (c) Definitions. (1) Disclosure of return information to the extent necessary necessary necessary Example 1. A revenue agent contacts a taxpayer's customer regarding the customer's purchases made from the taxpayer during the year under investigation. The revenue agent is able to obtain the purchase information only by disclosing the taxpayer's identity and the fact of the investigation. Depending on the facts and circumstances known to the revenue agent at the time of the disclosure, such as the way the customer maintains his records, it also may be necessary for the revenue agent to inform the customer of the date of the purchases and the types of merchandise involved for the customer to find the purchase information. Example 2. A revenue agent contacts a third party witness to obtain copies of invoices of sales made to a taxpayer under examination. The third party witness provides copies of the sales invoices in question and then asks the revenue agent for the current address of the taxpayer because the taxpayer still owes money to the third party witness. The revenue agent may not disclose that current address because this disclosure would be only for the benefit of the third party witness and not necessary to obtain information for the examination. Example 3. A revenue agent contacts a third party witness to obtain copies of invoices of sales made to a taxpayer under examination. The third party witness agrees to provide copies of the sales invoices in question only if the revenue agent provides him with the current address of the taxpayer because the taxpayer still owes money to the third party witness. The revenue agent may not disclose that current address because this disclosure would be a negotiated quid pro quo arrangement. (2) Disclosure of return information to accomplish properly an activity connected with official duties Example. A taxpayer failed to file an income tax return and pay the taxes owed. After the taxes were assessed and the taxpayer was notified of the balance due, a revenue officer filed a notice of federal tax lien and then served a notice of levy on the taxpayer's bank. The notices of lien and levy contained the taxpayer's name, social security number, amount of outstanding liability, and the tax period and type of tax involved. The taxpayer's assets were levied to satisfy the tax debt, but it was determined that, prior to the levy, the revenue officer failed to issue the taxpayer a notice of intent to levy, as required by section 6331, and a notice of right to hearing before the levy, as required by section 6330. The disclosure of the taxpayer's return information in the notice of levy is authorized by section 6103(k)(6) despite the revenue officer's failure to issue the notice of intent to levy or the notice of right to hearing. The ultimate validity of the underlying levy is irrelevant to the issue of whether the disclosure was authorized by section 6103(k)(6). (3) Information not otherwise reasonably available Example 1. A revenue agent is conducting an examination of a taxpayer. The taxpayer refuses to cooperate or provide any information to the revenue agent. Information relating to the taxpayer's examination would be information not otherwise reasonably available because of the taxpayer's refusal to cooperate and supply any information to the revenue agent. The revenue agent may seek information from a third party witness. Example 2. A special agent is conducting a criminal investigation of a taxpayer. The special agent has acquired certain information from the taxpayer. Although the special agent has no specific reason to disbelieve the taxpayer's information, the special agent contacts several third party witnesses to confirm the information. The special agent may contact third party witnesses to verify the correctness of the information provided by the taxpayer because the IRS is not required to rely solely on information provided by a taxpayer, and a special agent may take appropriate steps, including disclosures to third party witnesses under section 6103(k)(6), to verify independently or corroborate information obtained from a taxpayer. (4) Internal revenue employee (5) TIGTA employee (d) Examples. Example 1. A revenue agent is conducting an examination of a taxpayer. The taxpayer has been very cooperative and has supplied copies of invoices as requested. Some of the taxpayer's invoices show purchases that seem excessive in comparison to the size of the taxpayer's business. The revenue agent contacts the taxpayer's suppliers for the purpose of corroborating the invoices the taxpayer provided. In contacting the suppliers, the revenue agent discloses the taxpayer's name, the dates of purchase, and the type of merchandise at issue. These disclosures are permissible under section 6103(k)(6) because, under the facts and circumstances known to the revenue agent at the time of the disclosures, the disclosures were necessary to obtain information (corroboration of invoices) not otherwise reasonably available because suppliers would be the only source available for corroboration of this information. Example 2. A revenue agent is conducting an examination of a taxpayer. The revenue agent asks the taxpayer for business records to document the deduction of the cost of goods sold shown on Schedule C of the taxpayer's return. The taxpayer will not provide the business records to the revenue agent, who contacts a third party witness for verification of the amount on the Schedule C. In the course of the contact, the revenue agent shows the Schedule C to the third party witness. This disclosure is not authorized under section 6103(k)(6). Section 6103(k)(6) permits disclosure only of return information, not the return (including schedules and attachments) itself. If necessary, a revenue agent may disclose return information extracted from a return when questioning a third party witness. Thus, the revenue agent could have extracted the amount of cost of goods sold from the Schedule C and disclosed that amount to the third party witness. Example 3. A special agent is conducting a criminal investigation of a taxpayer, a doctor, for tax evasion. Notwithstanding the records provided by the taxpayer and the taxpayer's bank, the special agent decided to obtain information from the taxpayer's patients to verify amounts paid to the taxpayer for his services. Accordingly, the special agent sent letters to the taxpayer's patients to verify these amounts. In the letters, the agent disclosed that he was a special agent with IRS-CI and that he was conducting a criminal investigation of the taxpayer. Section 6103(k)(6) permits these disclosures (including the special agent disclosing his affiliation with CI and the nature of the investigation) to confirm the taxpayer's income. The decision whether to verify information already obtained is a matter of investigative judgment and is not limited by section 6103(k)(6). Example 4. Corporation A requests a private letter ruling (PLR) as to the tax consequences of a planned transaction. Corporation A has represented that it is in compliance with laws administered by Agency B that may relate to the tax consequences of the proposed transaction. Further information is needed from Agency B relating to possible tax consequences. Under section 6103(k)(6), the IRS may disclose Corporation A's return information to Agency B to the extent necessary to obtain information from Agency B for the purpose of properly considering the tax consequences of the proposed transaction that is the subject of the PLR. (e) Effective date. [T.D. 9274, 71 FR 38986, July 11, 2006, as amended by 71 FR 60827, Oct. 17, 2006; 71 FR 61833, Oct. 19, 2006] § 301.6103(k)(9)-1 Disclosure of returns and return information relating to payment of tax by credit card and debit card. Officers and employees of the Internal Revenue Service may disclose to card issuers, financial institutions, or other persons such return information as the Commissioner deems necessary in connection with processing credit card and debit card transactions to effectuate payment of tax as authorized by § 301.6311-2. Officers and employees of the Internal Revenue Service may disclose such return information to such persons as the Commissioner deems necessary in connection with billing or collection of the amounts charged or debited, including resolution of errors relating to the credit card or debit card account as described in § 301.6311-2(d). [T.D. 8969, 66 FR 64742, Dec. 14, 2001] § 301.6103(l)-1 Disclosure of returns and return information for purposes other than tax administration. (a) Definition. agent (b) Effective date. [T.D. 9111, 69 FR 507, Jan. 6, 2004] § 301.6103(l)(2)-1 Disclosure of returns and return information to Pension Benefit Guaranty Corporation for purposes of research and studies. (a) General rule. (b) Procedures and restrictions. (Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805)) [T.D. 7723, 45 FR 65570, Oct. 3, 1980] § 301.6103(l)(2)-2 Disclosure of returns and return information to Department of Labor for purposes of research and studies. (a) General rule. (b) Procedures and restrictions. (Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805)) [T.D. 7723, 45 FR 65571, Oct. 3, 1980] § 301.6103(l)(2)-3 Disclosure to Department of Labor and Pension Benefit Guaranty Corporation of certain returns and return information. (a) Disclosures following general requests. (1) Notification of receipt by the Service of an application by a particular taxpayer for a determination of whether a pension, profit-sharing, or stock bonus plan, a trust which is a part of such a plan, or an annuity or bond purchase plan meets the applicable requirements of part I of subchapter D of chapter 1 of the Code; (2) Notification that a particular application described in subparagraph (1) of this paragraph alleges that certain employees may be excluded from participation by reason of section 410(b)(2) (A) and (B) for the purpose of obtaining the finding necessary for the application of such section; (3) An application by a particular taxpayer for a determination of whether a pension, profit-sharing, or stock bonus plan, or an annuity or bond purchase plan, meets the applicable requirements of part I of subchapter D of chapter 1 of the Code with respect to a termination or proposed termination of the plan or to a partial termination or proposed partial termination of the plan, and any statement filed as provided by section 6058(b); (4) Notification that the Service has determined that a plan or trust described in subparagraph (1) or (3) of this paragraph meets or does not meet the applicable requirements of part I of subchapter D of chapter 1 of the Code and has issued a determination letter to such effect to a particular taxpayer or that an application for such a determination has been withdrawn by the taxpayer; (5) If the Department of Labor or the Pension Benefit Guaranty Corporation has commented on an application upon which a determination letter described in subparagraph (4) of this paragraph has been issued, a copy of the letter or document issued to the applicant; (6) Notification to a particular taxpayer that the Service intends to disqualify a pension, profit-sharing, or stock bonus plan, a trust which is a part of such plan, or an annuity or bond purchase plan because such plan or trust does not meet the requirements of section 410(a) or 411 as of the date that such notification is issued; (7) Notification required by section 3002(a) of the Act of the commencement of any proceeding to determine whether a particular pension, profit-sharing, or stock bonus plan, a trust which is a part of such plan, or an annuity or bond purchase plan meets the requirements of section 410(a) or 411; (8) Prior to issuance of a notice of deficiency to a particular taxpayer under section 6212, notification that the Service has determined that a deficiency exists under section 6211 with respect to the tax imposed by section 4971 (a) or (b) on such taxpayer, except that if the Service determines that the collection of such tax is in jeopardy within the meaning of section 6861(a), such notification may be disclosed after issuance of the notice of deficiency or jeopardy assessment; (9) Notification of receipt by the Service of, and action taken with respect to, an application by or on behalf of a particular taxpayer for a waiver of the tax imposed by section 4971 (b); (10) Prior to issuance of a notice of deficiency to a particular taxpayer under section 6212, notification that a deficiency exists under section 6211 with respect to the tax imposed by section 4975 (a) or (b) on such taxpayer, except that if the Service determines that the collection of such tax is in jeopardy within the meaning of section 6861(a), such notification may be disclosed after issuance of the notice of deficiency or jeopardy assessment; (11) Notification that the Service has waived the tax imposed by section 4975(b) on a particular taxpayer; (12) Notification of applicability of section 4975 to a particular pension, profit-sharing, or stock bonus plan, a trust which is a part of such plan, or an annuity or stock purchase plan engaged in prohibited transactions within the meaning of section 4975(c); (13) Notification to a plan administrator that the Service has determined that a pension, profit-sharing, stock bonus, annuity, or stock purchase plan no longer meets the requirements of section 401(a) or 404(a)(2); (14) Notification that the Service has determined that there has been a termination or partial termination of a particular pension, profit-sharing, stock bonus, annuity, or stock purchase plan within the meaning of section 411(d)(3); (15) Notification of the occurrence of an event (other than an event described in subparagraph (13), (14), or (18) of this paragraph) which the Service has determined to indicate that a particular pension, profit-sharing, stock bonus, annuity, or stock purchase plan may not be sound under section 4043(c)(2) of the Act; (16) Notification that the Service has received and responded to a request on behalf of a particular pension, profit-sharing, or stock bonus plan, a trust which is a part of such plan, or an annuity or stock purchase plan for an extension of time for filing an annual return by such plan or trust; (17) Notification that the Service has received and responded to a request on behalf of a particular pension, profit-sharing, or stock bonus plan, a trust which is a part of such plan, or an annuity or stock purchase plan to change the annual accounting period of such plan or trust; (18) Notification that the Service has determined that a particular plan does not meet the requirements of section 412 without regard to whether such plan is one described in section 4021(a)(2) of the Act; (19) Notification of the results of an investigation by the Service requested by the Department of Labor or the Pension Benefit Guaranty Corporation, or both, with respect to whether the tax described in section 4971 should be imposed on any employer named in such request or whether the tax imposed by section 4975 should be paid by any person named in the request; (20) Notification of receipt by the Service of an application by a particular taxpayer for exemption under section 4975(c)(2) or of initiation by the Service of an administrative proceeding for such exemption; (21) Notification of receipt by the Service of, and action taken with respect to, an application by or on behalf of a particular taxpayer for a waiver or variance of the minimum funding standard under section 303 of the Act or section 412(d); (22) Notification that the Service intends to undertake, is undertaking, or has completed, an examination to determine whether— (i) A particular pension, profit-sharing, or stock bonus plan, a trust which is a part of such plan, or an annuity or stock purchase plan meets the applicable requirements of part I of subchapter D of chapter 1 of the Code, (ii) Any particular person is, or may be, liable for any tax imposed by section 4971 or 4975, or (iii) A particular employee welfare benefit plan, as defined in section 3(1) of the Act, meets the applicable requirements of section 501(c) or 120, together with any completed Department of Labor or Pension Benefit Guaranty Corporation form (and supplemental schedules) relating to such examination; (23) Copies of initial pleadings indicating that the Service intends to intervene in a civil action under section 502(h) of the Act; (24) Notification of receipt by the Service of a request for technical advice as to whether a particular pension, profit-sharing, or stock bonus plan, a trust which is a part of such plan, or an annuity or bond purchase plan should be disqualified because of fiduciary actions subject to part 4 of subtitle B of title I of the Act which may violate the exclusive benefit rule of section 401(a); (25) Notification of receipt by the National Office of the Service of a request by or on behalf of a particular taxpayer for a ruling, opinion, variance, or waiver under any provision of title I of the Act and a copy of any such ruling, opinion, variance or waiver; (26) Notification that the Service proposes to take substantive action which would significantly impact on or substantially affect collectively bargained plans and a description of such proposed substantive action; and (27) Notification of receipt by the Service of, and action taken with respect to, a request by a particular taxpayer for a ruling under section 412(c)(8), 412(e), or 412(f). Return information disclosed under this paragraph includes the taxpayer identity information (as defined in section 6103(b)(6)) of the plan or trust, the name and address of the sponsor and administrator of the plan or trustee of the trust, and the name and address of the person authorized to represent the plan or trust before the Service. Disclosure of returns or return information as provided by this paragraph will be made only following receipt by the Commissioner of Internal Revenue or his delegate of an annual written request for such disclosure by the Secretary of Labor or his delegate or the Executive Director of the Pension Benefit Guaranty Corporation or his delegate describing the categories of returns or return information to be disclosed by the Service and the particular purpose for which the returns or return information is needed in the administration of title I or IV of the Act, and designating by title the officers and employees of the Department of Labor or such corporation to whom such disclosure is authorized. (b) Additional returns and return information subject to disclosure Returns and return information relating to automatic notification. (ii) Subject to the requirements of subparagraph (3)(ii) of this paragraph, in connection with the disclosure of any item as provided by paragraph (a) of this section, officers and employees of the Service may disclose to officers and employees of the Department of Labor or the Pension Benefit Guaranty Corporation such additional returns and return information relating to such item as the Service determines are or may be necessary in the administration of title I or IV of the Act. (2) Other returns and return information. (3) Procedures. (ii) Disclosure of returns or return information by officers or employees of the Service as provided by subparagraph (1)(ii) of this paragraph will be made only following receipt by the Commissioner of Internal Revenue or his delegate of an annual written request for such disclosure by the Secretary of Labor or his delegate or the Executive Director of the Pension Benefit Guaranty Corporation or his delegate stating the purpose for which the returns or return information is needed in the administration of title I or IV of the Act, and designating by title the officers and employees of such department or corporation to whom such disclosure is authorized. (c) Disclosure and use of returns and return information by officers and employees of Department of Labor, Pension Benefit Guaranty Corporation, and Department of Justice Use by officers and employees of Department of Labor and Pension Benefit Guaranty Corporation. (2) Disclosure by officers and employees of Department of Labor and Pension Benefit Guaranty Corporation to, and use by, other persons, including officers and employees of the Department of Justice. (ii) Returns and return information disclosed to officers and employees of the Department of Labor, the Pension Benefit Guaranty Corporation, and the Department of Justice as provided by this section may be disclosed by such officers and employees to other persons, including, but not limited to, persons described in subparagraph (2)(iii) of this paragraph, but only to the extent necessary in connection with administration of the provisions of title I or IV of the Act, including a Federal grand jury proceeding, and proper preparation for a proceeding (or investigation), described in subparagraph (1) or (2)(i). Such disclosures may include, but are not limited to, disclosures where necessary— (A) To properly obtain the services of persons having special knowledge or technical skills; (B) To properly interview, consult, depose, or interrogate or otherwise obtain relevant information from the taxpayer to whom such return or return information relates (or the legal representative of such taxpayer) or any witness who may be called to give evidence in the proceeding; or (C) To properly conduct negotiations concerning, or obtain authorization for, settlement or disposition of the proceeding, in whole or in part, or stipulations of fact in connection with the proceeding. Disclosure of a return or return information to a person other than the taxpayer to whom such return or return information relates (or the legal representative of such taxpayer) to properly accomplish any purpose or activity described in this subparagraph should be made, however, only if such purpose or activity cannot otherwise properly be accomplished without making such disclosure. (iii) Among those persons to whom returns and return information may be disclosed by officers and employees of the Department of Labor, the Pension Benefit Guaranty Corporation, and the Department of Justice as provided by subparagraph (2)(ii) of this paragraph are: (A) Other officers and employees of the Department of Labor, the Pension Benefit Guaranty Corporation, and the Department of Justice; (B) Officers and employees of another Federal agency (as defined in section 6103(b)(9)) working under the direction and control of such officers and employees of the Department of Labor, the Pension Benefit Guaranty Corporation, or the Department of Justice; and (C) Court reporters. Disclosure of returns or return information to other persons by officers and employees of the Department of Labor or the Pension Benefit Guaranty Corporation as provided by subparagraph (2)(ii) of this paragraph for purposes of conducting research, surveys, studies, and publications referred to in section 513(a), or authorized by title IV, of the Act shall be restricted, however, to disclosure to other officers and employees of such department or corporation to whom such disclosure is necessary in connection with such conduct or to the taxpayer by whom such return was made or to whom such return information relates if the return or return information can be associated with, or otherwise identify, directly or indirectly, a particular taxpayer. (3) Disclosure in judicial proceedings. (d) Disclosure of returns and return information in connection with certain consultations between Departments of the Treasury and Labor. (e) Return information open to public inspection under section 6104. (Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 1667, 1685, 68A Stat. 917; 26 U.S.C. 6103 and 7805)) [T.D. 7723, 45 FR 65571, Oct. 3, 1980, as amended by T.D. 7757, 46 FR 6930, Jan. 22, 1981; T.D. 7911, 48 FR 40377, Sept. 7, 1983] § 301.6103(l)(14)-1 Disclosure of return information to United States Customs Service. (a) General rule. (1) Ascertaining the correctness of any entry in audits as provided for in section 509 of the Tariff Act of 1930 or; (2) Other actions to recover any loss of revenue, or to collect duties, taxes, and fees, determined to be due and owing pursuant to such audits. (b) Procedures. (1) The particular items of return information to be disclosed; (2) The particular taxpayer to whom the return information relates; (3) The taxable period or date to which the return information relates; (4) The particular purpose for which each item of return information is needed, including an explanation as to how the requested information is necessary to accomplish that purpose. In addition, the request must designate by title the officers and employees of the Customs Service to whom the disclosure is authorized and certify that the Customs Service has initiated or intends to initiate, under section 509 of the Tariff Act of 1930, an audit of each taxpayer for whom return information is requested or that the taxpayer has a transactional or ownership relationship with the subject of such an audit. (c) Return information subject to disclosure. (d) Return information not subject to disclosure. (e) Impairment of tax administration. (f) Use by Customs Service. (g) Disclosure to, and use by, the Department of Justice. (h) Disclosure by officers and employees of the Department of Justice. (1) To properly obtain the services of persons having special knowledge or technical skills; (2) To properly interview, consult, depose, or interrogate or otherwise obtain relevant information from, the taxpayer (or the legal representative of the taxpayer) to whom the return information relates or any witness who may be called to give evidence in the proceeding; or (3) To properly conduct negotiations concerning, or obtain authorization for, settlement or disposition of the proceeding, in whole or in part, or stipulations of fact in connection with the proceeding. (i) Use in criminal judicial proceedings. (j) Restrictions. [T.D. 8527, 59 FR 11548, Mar. 11, 1994. Redesignated by T.D. 8694, 61 FR 66220, Dec. 17, 1996] § 301.6103(l)(21)-1 Disclosure of return information to the Department of Health and Human Services to carry out eligibility requirements for health insurance affordability programs. (a) General rule. (1) With respect to each relevant taxpayer for the reference tax year where the amount of social security benefits not included in gross income under section 86 of the Internal Revenue Code of that relevant taxpayer is unavailable: (i) The aggregate amount of the following items of return information— (A) Adjusted gross income, as defined by section 62 of the Internal Revenue Code; (B) Any amount excluded from gross income under section 911 of the Internal Revenue Code; and (C) Any amount of interest received or accrued by the taxpayer during the taxable year that is exempt from tax. (ii) Information indicating that the amount of social security benefits not included in gross income under section 86 of the Internal Revenue Code is unavailable. (2) Adjusted gross income, as defined by section 62 of the Internal Revenue Code, of a relevant taxpayer for the reference tax year, in circumstances where the modified adjusted gross income (MAGI), as defined by section 36B(d)(2)(B) of the Internal Revenue Code, of that relevant taxpayer is unavailable, as well as information indicating that the components of MAGI other than adjusted gross income must be taken into account to determine MAGI; (3) The amount of social security benefits of the relevant taxpayer that is included in gross income under section 86 of the Internal Revenue Code for the reference tax year; (4) Information indicating that certain return information of a relevant taxpayer is unavailable for the reference tax year because the relevant taxpayer jointly filed a U.S. Individual Income Tax Return for that year with a spouse who is not a relevant taxpayer listed on the same application; (5) Information indicating that, although a return for an individual identified on the application as a relevant taxpayer for the reference tax year is available, return information is not being provided because of possible authentication issues with respect to the identity of the relevant taxpayer; (6) Information indicating that a relevant taxpayer who is identified as a dependent for the tax year in which the premium tax credit under section 36B of the Internal Revenue Code would be claimed, did not have a filing requirement for the reference tax year based upon the U.S. Individual Income Tax Return the relevant taxpayer filed for the reference tax year; and (7) Information indicating that a relevant taxpayer who received advance payments of the premium tax credit in the reference tax year did not file a tax return for the reference tax year reconciling the advance payments of the premium tax credit with any premium tax credit under section 36B of the Internal Revenue Code available for that year. (b) Relevant taxpayer defined. (c) Reference tax year defined. (d) Effective/applicability date. [T.D. 9628, 78 FR 49369, Aug. 14, 2013] § 301.6103(m)-1 Disclosure of taxpayer identity information. (a) Definition. agent (b) Effective date. [T.D. 9111, 69 FR 507, Jan. 6, 2004] § 301.6103(n)-1 Disclosure of returns and return information in connection with written contracts or agreements for the acquisition of property or services for tax administration purposes. (a) General rule. (i) Equipment or other property; or (ii) Services relating to the processing, storage, transmission, or reproduction of returns or return information, the programming, maintenance, repair, or testing of equipment or other property, or the providing of other services. (2) Any person, or officer or employee of the person, who receives returns or return information under paragraph (a)(1) of this section, may— (i) Further disclose the returns or return information to another officer or employee of the person whose duties or responsibilities require the returns or return information for a purpose described in this paragraph (a); or (ii) Further disclose the returns or return information, when authorized in writing by the Internal Revenue Service (IRS), to the extent necessary to carry out the purposes described in this paragraph (a). Disclosures may include disclosures to an agent or subcontractor of the person, or officer or employee of the agent or subcontractor. (3) An agent or subcontractor, or officer or employee of the agent or subcontractor, who receives returns or return information under paragraph (a)(2)(ii) of this section, may further disclose the returns or return information to another officer or employee of the agent or subcontractor whose duties or responsibilities require the returns or return information for a purpose described in this paragraph (a). (4) Any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under this paragraph (a), may, subject to the provisions of § 301.6103(p)(2)(B)-1 (concerning disclosures by a Federal, State, or local agency, or its agents or contractors), further disclose the returns or return information for a purpose authorized, and subject to all applicable conditions imposed, by section 6103. (b) Limitations. (2) Disclosure of returns or return information in connection with a written contract or agreement for the acquisition of property or services described in paragraph (a) of this section shall be made only to the extent necessary to reasonably, properly, or economically perform the contract. For example, disclosure of returns or return information to employees of a contractor for purposes of programming, maintaining, repairing, or testing computer equipment used by the IRS or a State tax agency shall be made only if the services cannot be reasonably, properly, or economically performed without the disclosure. If it is determined that disclosure of returns or return information is necessary, and if the services can be reasonably, properly, or economically performed by disclosure of only parts or portions of a return or if deletion of taxpayer identity information (as defined in section 6103(b)(6)) reflected on a return would not seriously impair the ability of the employees to perform the services, then only the parts or portions of the return, or only the return with taxpayer identity information deleted, may be disclosed. (c) Penalties. (d) Notification requirements. (1) Returns or return information disclosed to the officer or employee may be used only for a purpose and to the extent authorized by paragraph (a) of this section and that the officer or employee is subject to the civil and criminal penalty provisions of sections 7431, 7213, and 7213A for the unauthorized inspection or disclosure of the returns or return information; (2) Further inspection of any returns or return information for a purpose or to an extent not authorized by paragraph (a) of this section constitutes a misdemeanor, punishable upon conviction by a fine of as much as $1,000, or imprisonment for as long as 1 year, or both, together with costs of prosecution; (3) Further disclosure of any returns or return information for a purpose or to an extent not authorized by paragraph (a) of this section constitutes a felony, punishable upon conviction by a fine of as much as $5,000, or imprisonment for as long as 5 years, or both, together with the costs of prosecution; (4) Further inspection or disclosure of returns or return information by any person who is not an officer or employee of the United States for a purpose or to an extent not authorized by paragraph (a) of this section may result also in an award of civil damages against that person in an amount not less than $1,000 for each act of unauthorized inspection or disclosure; or the sum of actual damages sustained by the plaintiff as a result of the unauthorized inspection or disclosure plus, in the case of a willful inspection or disclosure or an inspection or disclosure that is the result of gross negligence, punitive damages. In addition, costs and reasonable attorneys fees may be awarded; and (5) A conviction for an offense referenced in paragraph (d)(2) or (3) of this section shall, in addition to any other punishment, result in dismissal from office or discharge from employment if the person convicted is an officer or employee of the United States. (e) Safeguards. (2) Any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under paragraph (a) of this section, shall comply with all applicable conditions and requirements as the IRS may prescribe from time to time (prescribed requirements) for the purposes of protecting the confidentiality of returns and return information and preventing any disclosure or inspection of returns or return information in a manner not authorized by this section. (3) The terms of any written contract or agreement for the acquisition of property or services as described in paragraph (a) of this section shall provide, or shall be amended to provide, that any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under paragraph (a) of this section, shall comply with the prescribed requirements. Any contract or agreement shall be made available to the IRS before execution of the contract or agreement. For purposes of this paragraph (e)(3), a written contract or agreement shall include any contract or agreement between a person and an agent or subcontractor of the person to provide the property or services described in paragraph (a) of this section. (4) If the IRS determines that any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under paragraph (a) of this section, has failed to, or does not, satisfy the prescribed requirements, the IRS, consistent with the regulations under section 6103(p)(7), may take any actions it deems necessary to ensure that the prescribed requirements are or will be satisfied, including— (i) Suspension of further disclosures of returns or return information by the IRS to the State tax agency, the Social Security Administration, or the Department of Justice, until the IRS determines that the conditions and requirements have been or will be satisfied; (ii) Suspension of further disclosures by the Treasury Department otherwise authorized by paragraph (a) of this section; and (iii) Suspension or termination of any duty or obligation arising under a contract or agreement with the Treasury Department. (f) Definitions. (1) The term Treasury Department (2) The term State tax agency (3) The term Department of Justice (g) Effective date. [T.D. 9327, 72 FR 30976, June 5, 2007] § 301.6103(n)-2 Disclosure of return information in connection with written contracts among the IRS, whistleblowers, and legal representatives of whistleblowers. (a) General rule. (2) The IRS shall have the discretion to determine whether to enter into a written contract pursuant to section 7623 with the whistleblower and, if applicable, the legal representative of the whistleblower, for services described in paragraph (a)(1) of this section. (b) Limitations. (2) If the IRS determines that the services of a whistleblower and, if applicable, the legal representative of the whistleblower, as described in paragraph (a)(1) of this section, can be performed reasonably or properly by disclosure of only parts or portions of return information, then only the parts or portions of the return information shall be disclosed. (3) Upon written request by a whistleblower, or a legal representative of a whistleblower, with whom the IRS has entered into a written contract for services as described in paragraph (a)(1) of this section, the Director of the Whistleblower Office, or designee of the Director, may inform the whistleblower and, if applicable, the legal representative of the whistleblower, of the status of the whistleblower's claim for award under section 7623, including whether the claim is being evaluated for potential investigative action, or is pending due to an ongoing examination, appeal, collection action, or litigation. The information may be disclosed only if the IRS determines that the disclosure would not seriously impair Federal tax administration. (4) Return information disclosed to a whistleblower and, if applicable, a legal representative of a whistleblower, under this section, shall not be further disclosed or otherwise used by the whistleblower or a legal representative of a whistleblower, except as expressly authorized in writing by the IRS. (c) Penalties. (d) Safeguards. (2) Any written contract for services as described in paragraph (a)(1) of this section shall provide that any whistleblower and, if applicable, the legal representative of a whistleblower, who has access to return information under this section, shall comply with the prescribed requirements. (3) Any whistleblower, or the legal representative of a whistleblower, who may receive return information under this section, shall agree in writing, before any disclosure of return information is made, to permit an inspection of the whistleblower's or the legal representative's premises by the IRS relative to the maintenance of the return information disclosed under these regulations and, upon completion of services as described in the written contract with the IRS, to dispose of all return information by returning the return information, including any and all copies or notes made, to the IRS, or to the extent that it cannot be returned, by destroying the information in a manner consistent with prescribed requirements. (4) If the IRS determines that any whistleblower, or the legal representative of a whistleblower, who has access to return information under this section, has failed to, or does not, satisfy the prescribed requirements, the IRS, using the procedures described in the regulations under section 6103(p)(7), may take any action it deems necessary to ensure that the prescribed requirements are or will be satisfied, including— (i) Suspension of further disclosures of return information by the IRS to the whistleblower and, if applicable, the legal representative of the whistleblower, until the IRS determines that the conditions and requirements have been or will be satisfied; and (ii) Suspension or termination of any duty or obligation arising under the contract with the IRS. (e) Definitions. (1) The term Treasury Department (2) The term whistleblower (3) The term legal representative (f) Effective/applicability date. [T.D. 9516, 76 FR 13882, Mar. 15, 2011] § 301.6103(p)(2)(B)-1 Disclosure of returns and return information by other agencies. (a) General rule. (b) Approval by Commissioner. (c) Requirements and restrictions. (d) Records and reports of disclosure. (e) Effective date. [T.D. 9036, 68 FR 2696, Jan. 21, 2003] § 301.6103(p)(4)-1 Procedures relating to safeguards for returns or return information. For security guidelines and other safeguards for protecting returns and return information, see guidance published by the Internal Revenue Service. For procedures for administrative review of a determination that an authorized recipient has failed to safeguard returns or return information, see § 301.6103(p)(7)-1. [T.D. 9445, 74 FR 6830, Feb. 11, 2009] § 301.6103(p)(7)-1 Procedures for administrative review of a determination that an authorized recipient has failed to safeguard returns or return information. (a) In general. (1) The authorized recipient has allowed an unauthorized inspection or disclosure of returns or return information and that the authorized recipient has not taken adequate corrective action to prevent the recurrence of an unauthorized inspection or disclosure; or (2) The authorized recipient does not satisfactorily maintain the safeguards prescribed by section 6103(p)(4), and has made no adequate plan to improve its system to maintain the safeguards satisfactorily. (b) Notice of IRS's intention to terminate or suspend disclosure. (c) Authorized recipient's right to appeal. (d) Procedures for administrative review. (2) Within 45 days of the receipt of the request made in accordance with the provisions of paragraph (d)(1) of this section, the Commissioner or Deputy Commissioner personally shall hold a conference with representatives of the authorized recipient, after which the Commissioner or Deputy Commissioner shall make a final determination with respect to the appeal. (e) Effective/applicability date. [T.D. 9445, 74 FR 6830, Feb. 11, 2009] § 301.6104(a)-1 Public inspection of material relating to tax-exempt organizations. (a) Applications for exemption from Federal income tax, applications for a group exemption letter, and supporting documents. (b) Notices of status filed by political organizations. (c) Letters or documents issued by the Internal Revenue Service with respect to an application for exemption from Federal income tax. (1) Favorable rulings and determination letters, including group exemption letters, issued in response to applications for exemption from Federal income tax; (2) Technical advice memoranda issued with respect to the approval, or subsequent approval, of an application for exemption from Federal income tax; (3) Letters issued in response to an application for exemption from Federal income tax (including applications for a group exemption letter) that propose a finding that the applicant is not entitled to be exempt from Federal income tax, if the applicant is subsequently determined, on the basis of that application, to be exempt from Federal income tax; and (4) Any letter or document issued by the Internal Revenue Service relating to an organization's status as an organization described in section 509(a), 4940(d)(2), 4942(j)(3), or 4943(f), including a determination letter that the organization is or is not a private foundation. (d) Requirement of exempt status. (e) Documents included in the term “application for exemption from Federal income tax.” (1) Prescribed application form. (2) No prescribed application form. b (3) Application for a Group Exemption Letter. b (4) Notice of status filed under section 527(i). (i) Form 8871, “Political Organization Notice of Section 527 Status;” (ii) Form 8453-X, “Declaration of Electronic Filing of Notice of Section 527 Status;” and (iii) Any other additional forms or documents that the Internal Revenue Service may prescribe. (f) Material open to public inspection under section 6110. (g) Supporting documents defined. (h) Statement of exempt status. (1) The subsection and paragraph of section 501 (or the corresponding provision of any prior revenue law) under which the organization or group has been determined, on the basis of an application open to public inspection, to qualify for exemption from Federal income tax; and (2) Whether an organization or group is currently recognized as exempt from Federal income tax. (i) Publication of non-exempt status. (2) For publication of a list including any organization the tax exemption of which is revoked for failure to file required returns or notices for three consecutive years, see section 6033(j). (3) For publication of notice of suspension of tax exemption of terrorist organizations, see section 501(p). (j) Withholding of certain information from public inspection. (k) Procedures for inspection. (l) Effective/applicability date. [T.D. 9581, 77 FR 12203, Feb. 29, 2012] § 301.6104(a)-2 Public inspection of material relating to pension and other plans. (a) Material open to inspection. (b) Documents included in the term “application for a determination letter” Employees' plans and individual retirement plans. (i) A pension, profit-sharing, or stock bonus plan under section 401(a), (ii) An annuity plan under section 403(a), (iii) A bond purchase plan under section 405(a), or (iv) An individual retirement account or annuity described in section 408 (a), (b) or (c). (2) Tax exempt trusts or custodial accounts. (3) Master, prototype and pattern plans. (4) Prescribed forms and application letters. (c) Documents not constituting an “application for a determination letter”. (1) An incomplete application that is returned without action for proper completion, (2) An application that is returned without action to the applicant for failure to notify all interested parties in accordance with the regulations under section 7476 (relating to declaratory judgments), and (3) A request for a ruling as to whether a proposed transaction is a prohibited transaction under section 4975. (d) Supporting documents. (e) Applicant. (Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C. 6104(a)(1)(A), 6104(a)(1)(B), 7805)) [T.D. 7845, 47 FR 50487, Nov. 8, 1982] § 301.6104(a)-3 Public inspection of Internal Revenue Service letters and documents relating to pension and other plans. (a) In general. (1) The qualification of a pension, profit-sharing or stock bonus plan under section 401(a), an annuity plan under section 403(a), a bond purchase plan under section 405(a), or an individual retirement account or annuity described in section 408 (a), (b) or (c), (2) The exemption from tax under section 501(a) of an organization forming part of such a plan or account, or a custodial account described in section 401(f), or (3) The approval of a master, prototype, pattern or other such plan or account. (b) Scope. (c) Letters and documents open to public inspection. (1) Determination letters relating to the qualification of a plan, account or annuity described in paragraph (a)(1) of this section (see § 601.201 (o)), (2) Technical advice memoranda (see § 601.201(n)(9)) relating to the issuance of such determination letters, (3) Technical advice memoranda relating to the continuing qualification of a plan, account or annuity previously determined to be qualified, or to the qualification of a plan, account or annuity for which no determination letter has been issued, (4) Letters or documents revoking or modifying any prior favorable determination letter or denying the qualification of a plan, account or annuity for which no determination letter has been issued, (5) Determination letters relating to the exemption from tax of a trust or custodial account described in paragraph (a)(2) of this section (see § 601.201 (o)(2)(i)( b (6) Opinion letters relating to the acceptability of the form of any master, prototype or other such plan or account (see § 601.201 (p) and (q)) or notification letters issued with respect to pattern plans. (d) Extent letter or document open to public inspection. (e) Letters or documents issued with respect to tax return examination. (f) Letters or documents issued after September 2, 1974. (Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C. 6104(a)(1)(A), 6104(a)(1)(B), 7805)) [47 FR 7845, 47 FR 50487, Nov. 8, 1982] § 301.6104(a)-4 Requirement for 26 or more plan participants. (a) Inspection by plan participants. (b) Determining number of plan participants In general. (2) Decreasing number of plan participants. (3) Increasing number of plan participants. (c) Plan participant. (d) Authorized representative. (Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C. 6104(a)(1)(A), 6104(a)(1)(B), 7805)) [T.D. 7845, 47 FR 50488, Nov. 8, 1982] § 301.6104(a)-5 Withholding of certain information from public inspection. (a) Tax exempt organizations Trade secrets, patents, processes, styles of work, or apparatus. (2) National defense material. (b) Pension and other plans Applicant's exclusion of certain information. (2) Exception for separate document. (i) In the case of the separate schedule to certain applications for a determination letter which is provided for the purpose of setting forth confidential compensation information (as described in subparagraph (4) of this paragraph) which must be submitted by the applicant. (ii) If the applicant determines that it is impossible to provide the Internal Revenue Service with sufficient information to support an application for a determination letter without submitting what is believed to be information of the type described in section 6104(a)(1) (C) or (D), or (iii) If the Internal Revenue Service requests that the applicant submit information of the type described in section 6104(a)(1) (C) and (D). In a case described in subdivision (ii) or (iii) of this subparagraph, the applicant is to set forth the information in a document separate from the remainder of the application for a determination letter or other documents. The separate document is to state why the information is to be witheld from public inspection under section 6104(a)(1) (C) or (D). If the Internal Revenue Service has not requested the information, the separate document is to also state why it is impossible to provide the Internal Revenue Service sufficient information to support the application for a determination letter without including information which is to be withheld. The separate document should clearly identify the relevant portion of the application for a determination letter or other document (the document, page, paragraph, and line) to which the information set forth in the separate document relates. The Internal Revenue Service will withhold from public inspection (including inspection by a plan participant or authorized representative) information contained in the separate document if the Commissioner determines that the information is in fact information of the type described in section 6104(a)(1) (C) or (D), and, in the case of information relating to any trade secret, patent, process, style of work or apparatus, the Commissioner further determines that disclosure would be adverse to the applicant. If the Commissioner determines that the information will be disclosed, the organization will be given 15 days after notification of the Commissioner's decision to contest the decision before the document is disclosed. (3) National defense material. (4) Confidential compensation information. (Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C. 6104(a)(1)(A), 6104(a)(1)(B), 7805)) [T.D. 7845, 47 FR 50489, Nov. 8, 1982] § 301.6104(a)-6 Procedural rules for inspection. (a) Place of inspection; tax exempt organizations and pension and other plans. (b) Request for inspection Tax exempt organizations and pension and other plans; public inspection. (2) Pension and other plans; inspection by plan participant or authorized representative. (c) Time and extent of inspection. (d) Copies. (Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C. 6104(a)(1)(A), 6104(a)(1)(B), 7805)) [T.D. 7845, 47 FR 50490, Nov. 8, 1982, as amended by T.D. 9070, 68 FR 40769, July 9, 2003] § 301.6104(b)-1 Publicity of information on certain information returns. (a) In general. (1) Except as otherwise provided in section 6104 and the regulations thereunder, the information required by section 6033. (2) The information furnished pursuant to section 6034 (relating to returns by certain trusts) on Form 1041-A. (3) The information required to be furnished by section 6058. (b) Nondisclosure of certain information Names and addresses of contributors. (2) Amounts of contributions. (3) Foreign organizations. (4) Confidential business information. (i) A request if filed with the office with which the trustee filed the documents in which the information to be withheld is contained. (ii) Such request clearly specifies the information to be withheld and the reasons supporting the request for withholding, and (iii) The Commissioner determines that such information is confidential business information. Information such as the contributor's estimated total liability for black lung benefits, the contributor's coal pricing policies, or any background information necessary to establish estimated total liability or coal pricing policies are examples of confidential business information that shall not be disclosed to the public under this subparagraph. (c) Place of inspection. (d) Procedure for public inspection Requests for inspection. (2) Time and extent of inspection. (3) Returns available. (4) Copies. [T.D. 8026, 50 FR 20757, May 20, 1985, as amended by T.D. 9070, 68 FR 40769, July 9, 2003] § 301.6104(c)-1 Disclosure of certain information to State officials. (a) In general Charitable organizations and applicants. (i) Any organization described or formerly described in section 501(c)(3) and exempt or formerly exempt from taxation under section 501(a) (a charitable organization); or (ii) Any organization that has applied for recognition as an organization described in section 501(c)(3) (an applicant). (2) Section 501(c) organizations not described in section 501(c)(1) or (3). (b) Disclosure agreement. (c) Disclosures regarding charitable organizations and applicants In general. (i) A refusal or proposed refusal to recognize an organization's exemption as a charitable organization (a final or proposed denial letter). (ii) Return information regarding a grant of exemption following a proposed denial. (iii) A revocation of exemption as a charitable organization (a final revocation letter), including a notice of termination or dissolution. (iv) A proposed revocation of recognition of exemption as a charitable organization (a proposed revocation letter). (v) Return information regarding the final disposition of a proposed revocation of recognition other than by final revocation. (vi) A notice of deficiency or proposed notice of deficiency of tax imposed under section 507 or chapter 41 or 42 of the Code on the organization or on a taxable person (as described in paragraph (i)(4) of this section). (vii) Returns and return information regarding the final disposition of a proposed notice of deficiency of tax imposed under section 507 or chapter 41 or 42 of the Code on the organization other than by issuance of a notice of deficiency. (viii) The names, addresses, and taxpayer identification numbers of applicants for charitable status, provided on an applicant-by-applicant basis or by periodic lists of applicants. Under this paragraph (c)(1)(viii), the IRS may respond to inquiries from an ASO as to whether a particular organization has applied for recognition of exemption as a charitable organization. (ix) Return information regarding the final disposition of an application for recognition of exemption where no proposed denial letter is issued, including whether the application was withdrawn or whether the applicant failed to establish its exemption. (x) Returns and return information relating to the return information described in paragraph (c)(1) of this section, except for returns and return information relating to proposed notices of deficiency described in paragraph (c)(1)(vi) of this section with respect to taxable persons. (2) Disclosure of evidence of noncompliance with certain State laws. (d) Organizations to which disclosure applies. (1) An organization formed under the laws of the ASO's State; (2) An organization, the principal office of which is located in the ASO's State; (3) An organization that, as determined by the IRS, is or might be subject to the laws of the ASO's State regulating charitable organizations or the solicitation or administration of charitable funds or charitable assets; or (4) A private foundation required by § 1.6033-2(a)(iv) of this chapter to list the ASO's State on any of the foundation's returns filed for its last five taxable years. (e) Disclosure limitations. (1) Identification of a confidential informant or interference with a civil or criminal tax investigation; and (2) Information obtained pursuant to a tax convention, as defined in section 6105(c)(2), between the United States and a foreign government. (f) Disclosure recipients In general. (i) An ASO, as defined in paragraph (i)(1) of this section, or (ii) A person other than an ASO, but only if that person is a State officer or employee (which excludes an agent or contractor) designated by the ASO to receive information under section 6104(c) on behalf of the ASO, as specified in paragraph (f)(2) of this section. (2) Designation by ASO. (g) Redisclosure In general. (2) Civil administrative or judicial proceedings. (i) The organization or a taxable person is a party to the proceeding, or the proceeding arose out of, or in connection with, determining the civil liability of the organization or a taxable person, or collecting such civil liability, under State laws governing organizations with respect to which information can be disclosed under this subsection; (ii) The treatment of an item reflected on such a return is directly related to the resolution of an issue in the proceeding; or (iii) The return or return information directly relates to a transactional relationship between the organization or a taxable person and a person who is a party to the proceeding that directly affects the resolution of an issue in the proceeding. (h) Redisclosure limitation. (i) Definitions. (1) Appropriate State officer ASO (i) The State attorney general; (ii) The State tax officer; (iii) With respect to a charitable organization or applicant, any State officer other than the attorney general or tax officer charged with overseeing charitable organizations, provided that the officer shows the IRS that the officer is an ASO by presenting a letter from the State attorney general describing the functions and authority of the officer under State law, with sufficient facts for the IRS to determine that the officer is an ASO; and (iv) With respect to a section 501(c) organization that is not described in section 501(c)(1) or (c)(3), the head of the agency designated by the State attorney general as having primary responsibility for overseeing the solicitation of funds for charitable purposes, provided that the officer shows the IRS that the officer is an ASO by presenting a letter from the State attorney general describing the functions and authority of the officer under State law, with sufficient facts for the IRS to determine that the officer is an ASO. (2) Return (3) Return information (4) Taxable person (i) A disqualified person described in section 4946(a)(1), 4951(e)(4), or 4958(f); (ii) A foundation manager described in section 4946(b); (iii) An organization manager described in section 4955(f)(2) or 4958(f)(2); (iv) A person described in section 4958(c)(3)(B); (v) An entity manager described in section 4965(d); and (vi) A fund manager described in section 4966(d)(3). (j) Failure to comply. (k) Applicability date. [T.D. 9964, 87 FR 50244, Aug. 16, 2022] § 301.6104(d)-0 Table of contents. This section lists the major captions contained in §§ 301.6104(d)-1 through 301.6104(d)-3 as follows: § 301.6104(d)-1 Public inspection and distribution of applications for tax exemption and annual information returns of tax-exempt organizations. (a) In general. (b) Definitions. (1) Tax-exempt organization. (2) Private foundation. (3) Application for tax exemption. (i) In general. (ii) No prescribed application form. (iii) Exceptions. (iv) Local or subordinate organizations. (4) Annual information return. (i) In general. (ii) Exceptions. (iii) Returns more than 3 years old. (iv) Local or subordinate organizations. (5) Regional or district offices. (i) In general. (ii) Site not considered a regional or district office. (c) Special rules relating to public inspection. (1) Permissible conditions on public inspection. (2) Organizations that do not maintain permanent offices. (d) Special rules relating to copies. (1) Time and place for providing copies in response to requests made in person. (i) In general. (ii) Unusual circumstances. (iii) Agents for providing copies. (2) Request for copies in writing. (i) In general. (ii) Time and manner of fulfilling written requests. (A) In general. (B) Request for a copy of parts of document. (C) Agents for providing copies. (3) Fees for copies. (i) In general. (ii) Form of payment. (A) Request made in person. (B) Request made in writing. (iii) Avoidance of unexpected fees. (iv) Responding to inquiries of fees charged. (e) Documents to be provided by regional and district offices. (f) Documents to be provided by local and subordinate organizations. (1) Applications for tax exemption. (2) Annual information returns. (3) Failure to comply. (g) Failure to comply with public inspection or copying requirements. (h) Effective date. (1) In general. (2) Private foundation annual information returns. § 301.6104(d)-2 Making applications and returns widely available. (a) In general. (b) Widely available. (1) In general. (2) Internet posting. (i) In general. (ii) Transition rule. (iii) Reliability and accuracy. (c) Discretion to prescribe other methods for making documents widely available. (d) Notice requirement. (e) Effective date. § 301.6104(d)-3 Tax-exempt organization subject to harassment campaign. (a) In general. (b) Harassment. (c) Special rule for multiple requests from a single individual or address. (d) Harassment determination procedure. (e) Effect of a harassment determination. (f) Examples. (g) Effective date. [T.D. 8861, 65 FR 2033, Jan. 13, 2000] § 301.6104(d)-1 Public inspection and distribution of applications for tax exemption and annual information returns of tax-exempt organizations. (a) In general. (b) Definitions. (1) Tax-exempt organization. tax-exempt organization tax-exempt organization (2) Private foundation. private foundation (3) Application for tax exemption In general. application for tax exemption (ii) No prescribed application form. (A) The application letter and copy of the articles of incorporation, declaration of trust, or other similar instrument that sets forth the permitted powers or activities of the organization; (B) The organization's bylaws or other code of regulations; (C) The organization's latest financial statements showing assets, liabilities, receipts and disbursements; (D) Statements describing the character of the organization, the purpose for which it was organized, and its actual activities; (E) Statements showing the sources of the organization's income and receipts and their disposition; and (F) Any other statements or documents the Internal Revenue Service required the organization to file with, or that the organization submitted in support of, the application letter. (iii) Exceptions. application for tax exemption (A) Any application for tax exemption filed by an organization that the Internal Revenue Service has not yet recognized, on the basis of the application, as exempt from taxation under section 501 for any taxable year; (B) Any application for tax exemption filed before July 15, 1987, unless the organization filing the application had a copy of the application on July 15, 1987; (C) In the case of a tax-exempt organization other than a private foundation, the name and address of any contributor to the organization; or (D) Any material, including the material listed in § 301.6104(a)-1(i) and information that the Secretary would be required to withhold from public inspection, that is not available for public inspection under section 6104. (iv) Local or subordinate organizations. (4) Annual information return In general. annual information return (ii) Exceptions. annual information return annual information return (iii) Returns more than 3 years old. annual information return (iv) Local or subordinate organizations. (5) Regional or district offices In general. (ii) Site not considered a regional or district office. (A) The only services provided at the site further exempt purposes (such as day care, health care or scientific or medical research); and (B) The site does not serve as an office for management staff, other than managers who are involved solely in managing the exempt function activities at the site. (c) Special rules relating to public inspection Permissible conditions on public inspection. (2) Organizations that do not maintain permanent offices. (d) Special rules relating to copies Time and place for providing copies in response to requests made in-person In general. (ii) Unusual circumstances. (iii) Agents for providing copies. (2) Request for copies in writing In general. (A) Is addressed to, and delivered by mail, electronic mail, facsimile, or a private delivery service as defined in section 7502(f) to a principal, regional or district office of the organization; and (B) Sets forth the address to which the copy of the documents should be sent. (ii) Time and manner of fulfilling written requests In general. (B) Request for a copy of parts of document. (C) Agents for providing copies. (3) Fees for copies In general. de minimis (ii) Form of payment Request made in person. (B) Request made in writing. (iii) Avoidance of unexpected fees. (iv) Responding to inquiries of fees charged. (e) Documents to be provided by regional and district offices. (f) Documents to be provided by local and subordinate organizations Applications for tax exemption. (2) Annual information returns. (3) Failure to comply. (g) Failure to comply with public inspection or copying requirements. (h) Effective date In general. (2) Private foundation annual information returns. [T.D. 8818, 64 FR 17285, Apr. 9, 1999. Redesignated and amended by T.D. 8861, 65 FR 2033, 2034, Jan. 13, 2000, as amended by T.D. 9070, 68 FR 40769, July 9, 2003] § 301.6104(d)-2 Making applications and returns widely available. (a) In general. (b) Widely available In general. (2) Internet posting In general. (A) the World Wide Web page through which it is available clearly informs readers that the document is available and provides instructions for downloading it; (B) the document is posted in a format that, when accessed, downloaded, viewed and printed in hard copy, exactly reproduces the image of the application for tax exemption or annual information return as it was originally filed with the Internal Revenue Service, except for any information permitted by statute to be withheld from public disclosure. (See section 6104(d)(3) and § 301.6104(d)-3(b)(3) and (4)); and (C) any individual with access to the Internet can access, download, view and print the document without special computer hardware or software required for that format (other than software that is readily available to members of the public without payment of any fee) and without payment of a fee to the tax-exempt organization or to another entity maintaining the World Wide Web page. (ii) Transition rule. (iii) Reliability and accuracy. (c) Discretion to prescribe other methods for making documents widely available. (d) Notice requirement. (e) Effective date. [T.D. 8818, 64 FR 17285, Apr. 9, 1999. Redesignated and amended by T.D. 8861, 65 FR 2034, Jan. 13, 2000] § 301.6104(d)-3 Tax-exempt organization subject to harassment campaign. (a) In general. (b) Harassment. (c) Special rule for multiple requests from a single individual or address. (d) Harassment determination procedure. (e) Effect of a harassment determination. (f) Examples. Example 1. V, a tax-exempt organization, receives an average of 25 requests per month for copies of its three most recent information returns. In the last week of May, V is mentioned in a national news magazine story that discusses information contained in V's 1996 information return. From June 1 through June 30, 1997 V receives 200 requests for a copy of its documents. Other than the sudden increase in the number of requests for copies, there is no other evidence to suggest that the requests are part of an organized campaign to disrupt V's operations. Although fulfilling the requests will place a burden on V, the facts and circumstances do not show that V is subject to a harassment campaign. Therefore, V must respond timely to each of the 200 requests it receives in June. Example 2. Y is a tax-exempt organization that receives an average of 10 requests a month for copies of its annual information returns. From March 1, 1997 to March 31, 1997, Y receives 25 requests for copies of its documents. Fifteen of the requests come from individuals Y knows to be active members of the board of organization X. In the past X has opposed most of the positions and policies that Y advocates. None of the requesters have asked for copies of documents from Y during the past year. Y has no other information about the requesters. Although the facts and circumstances show that some of the individuals making requests are hostile to Y, they do not show that the individuals have organized a campaign that will place enough of a burden on Y to disrupt its activities. Therefore, Y must respond to each of the 25 requests it receives in March. Example 3. The facts are the same as in Example 2, Example 4. The facts are the same as in Example 3, (g) Effective date. [T.D. 8818, 64 FR 17289, Apr. 9, 1999. Redesignated and amended by T.D. 8861, 65 FR 2034, Jan. 13, 2000] § 301.6105-1 Compilation of relief from excess profits tax cases. Pursuant to and in accordance with the provisions of section 6105, the Commissioner shall make and publish in the Federal Register § 301.6106-1 Publicity of unemployment tax returns. For provisions relating to publicity of returns made in respect of unemployment tax imposed by chapter 23 of the Code, see §§ 301.6103(a)-1, 301.6103 (b)-1, 301.6103(c)-1, 301.6103 (d)-1, and 301.6103(f)-1. § 301.6108-1 Publication of statistics of income. Pursuant to and in accordance with the provisions of section 6108, statistics reasonably available with respect to the operation of the income tax laws shall be prepared and published annually by the Commissioner. § 301.6109-1 Identifying numbers. (a) In general Taxpayer identifying numbers Principal types. (ii) Uses. (A) Except as otherwise provided in paragraph (a)(1)(ii)(B) and (D) of this section, and § 301.6109-3, an individual required to furnish a taxpayer identifying number must use a social security number. (B) Except as otherwise provided in paragraph (a)(1)(ii)(D) of this section and § 301.6109-3, an individual required to furnish a taxpayer identifying number but who is not eligible to obtain a social security number must use an IRS individual taxpayer identification number. (C) Any person other than an individual (such as corporations, partnerships, nonprofit associations, trusts, estates, and similar nonindividual persons) that is required to furnish a taxpayer identifying number must use an employer identification number. (D) An individual, whether U.S. or foreign, who is an employer or who is engaged in a trade or business as a sole proprietor should use an employer identification number as required by returns, statements, or other documents and their related instructions. (2) A trust that is treated as owned by one or more persons pursuant to sections 671 through 678 Obtaining a taxpayer identification number General rule. (B) Exception for a trust all of which is treated as owned by one grantor or one other person and that reports under § 1.671-4(b)(2)(i)(A) of this chapter. (ii) Obligations of persons who make payments to certain trusts. (3) Obtaining a taxpayer identification number for a trust, or portion of a trust, following the death of the individual treated as the owner In general A trust all of which was treated as owned by a decedent. (B) Taxpayer identification number of trust with multiple owners. (ii) Furnishing correct taxpayer identification number to payors following the death of the decedent. (4) Taxpayer identification number to be used by a trust upon termination of a section 645 election If there is an executor. (ii) If there is no executor. (iii) Requirement to provide taxpayer identification number to payors. (5) Persons treated as payors. payor (6) Effective date. (b) Requirement to furnish one's own number U.S. persons. (2) Foreign persons. (i) A foreign person that has income effectively connected with the conduct of a U.S. trade or business at any time during the taxable year; (ii) A foreign person that has a U.S. office or place of business or a U.S. fiscal or paying agent at any time during the taxable year; (iii) A nonresident alien treated as a resident under section 6013(g) or (h); (iv) A foreign person that makes a return of tax (including income, estate, and gift tax returns), an amended return, or a refund claim under this title but excluding information returns, statements, or documents; (v) A foreign person that makes an election under § 301.7701-3(c); (vi) A foreign person that furnishes a withholding certificate described in § 1.1441-1(e)(2) or (3) of this chapter or § 1.1441-5(c)(2)(iv) or (3)(iii) of this chapter to the extent required under § 1.1441-1(e)(4)(vii) of this chapter; (vii) A foreign person whose taxpayer identifying number is required to be furnished on any return, statement, or other document as required by the income tax regulations under section 897 or 1445. This paragraph (b)(2)(vii) applies as of November 3, 2003; and (viii) A foreign person that furnishes a withholding certificate described in § 1.1446-1(c)(2) or (3) of this chapter or whose taxpayer identification number is required to be furnished on any return, statement, or other document as required by the income tax regulations under section 1446. This paragraph (b)(2)(viii) shall apply to partnership taxable years beginning after May 18, 2005, or such earlier time as the regulations under §§ 1.1446-1 through 1.1446-5 of this chapter apply by reason of an election under § 1.1446-7 of this chapter. (c) Requirement to furnish another's number. (d) Obtaining a taxpayer identifying number Social security number. (2) Employer identification number In general. (ii) Updating of application information Requirements. (B) Effective/applicability date. (iii) Special rule for Section 708(b)(1)(B) terminations. (3) IRS individual taxpayer identification number Definition. IRS individual taxpayer identification number IRS individual taxpayer identification number alien individual (ii) General rule for obtaining number. (iii) General rule for assigning number. (iv) Acceptance agents Agreements with acceptance agents. ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 (B) Persons who may be acceptance agents. (4) Coordination of taxpayer identifying numbers Social security number. (ii) Employer identification number. (e) Banks, and brokers and dealers in securities. (f) Penalty. (g) Special rules for taxpayer identifying numbers issued to foreign persons General rule Social security number. (ii) Employer identification number. (iii) IRS individual taxpayer identification number. (2) Change of foreign status. (3) Waiver of prohibition to disclose taxpayer information when acceptance agent acts. (h) Special rules for certain entities under § 301.7701-3 General rule. (2) Special rules for entities that are disregarded as entities separate from their owners When an entity becomes disregarded as an entity separate from its owner. (ii) When an entity that was disregarded as an entity separate from its owner becomes recognized as a separate entity. (3) Effective date. (i) Special rule for qualified subchapter S subsidiaries (QSubs) General rule. (2) EIN while QSub election in effect. (3) EIN when QSub election terminates. (4) Effective date. (j) Effective date General rule. (2) Special rules Employer identification number of an estate. (ii) Taxpayer identifying numbers of certain foreign persons. (iii) Paragraphs (a)(1)(i), (a)(1)(ii) introductory text, (a)(1)(ii)(A), and (a)(1)(ii)(B) of this section apply to income tax returns due (without regard to extensions) on or after April 15, 1998. [T.D. 7306, 39 FR 9946, Mar. 15, 1974] Editorial Note: For Federal Register www.govinfo.gov. § 301.6109-2 Authority of the Secretary of Agriculture to collect employer identification numbers for purposes of the Food Stamp Act of 1977. (a) In general. (b) Limited purpose. (c) Sharing of information Sharing permitted with certain United States agencies and instrumentalities. (2) Restrictions on the use of shared information. (d) Safeguards Restrictions on access to employer identification numbers by individuals Numbers maintained by the Secretary of Agriculture. (ii) Numbers maintained by any other agency or instrumentality. (2) Other safeguards. (e) Confidentiality and disclosure of employer identification numbers. officer or employee (f) Sanctions Unauthorized, willful disclosure of employer identification numbers. (2) Willful solicitation of employer identification numbers. (g) Delegation. (h) Effective date. [T.D. 8369, 56 FR 49685, Oct. 1, 1991, as amended by T.D. 8621, 60 FR 51725, Oct. 3, 1995; 61 FR 1035, Jan. 11, 1996] § 301.6109-3 IRS adoption taxpayer identification numbers. (a) In general Definition. IRS adoption taxpayer identification number (2) Expiration and extension. (b) Definitions. (1) Authorized placement agency (2) Prospective adoptive child child (3) Prospective adoptive parent parent (c) General rule for obtaining a number Who may apply. (i) The prospective adoptive parent is eligible to claim a personal exemption under section 151 with respect to the child; (ii) An authorized placement agency places the child with the prospective adoptive parent for legal adoption; (iii) The Social Security Administration will not process an application for an SSN by the prospective adoptive parent on behalf of the child (for example, because the adoption is not final); and (iv) The prospective adoptive parent has used all reasonable means to obtain the child's assigned social security number, if any, but has been unsuccessful in obtaining this number (for example, because the biological parent who obtained the number is not legally required to disclose the number to the prospective adoptive parent). (2) Procedure for obtaining an ATIN. Application for Taxpayer Identification Number for Pending Adoptions (i) A copy of a placement agreement entered into between the prospective adoptive parent and an authorized placement agency; (ii) An affidavit or letter signed by the adoption attorney or government official who placed the child for legal adoption pursuant to state law; (iii) A document authorizing the release of a newborn child from a hospital to a prospective adoptive parent for adoption; and (iv) A court document ordering or approving the placement of a child for adoption. (d) Effective date. [T.D. 8839, 64 FR 51242, Sept. 22, 1999] § 301.6109-4 IRS truncated taxpayer identification numbers. (a) In general Definition. (b) Use of a TTIN. In general. (2) TTIN not permitted. (i) A TTIN may not be used on a statement or other document if such use is prohibited by statute, regulation, other guidance published in the Internal Revenue Bulletin, form, or instructions. (ii) A TTIN may not be used on a statement or document if a statute, regulation, other guidance published in the Internal Revenue Bulletin, form, or instructions, specifically requires use of an SSN, ITIN, ATIN, or EIN and does not specifically state that the taxpayer identifying number may be truncated. For example, a TTIN may not be used on a Form W-8ECI or Form W-8IMY because the forms and/or form instructions specifically prescribe use of an SSN, EIN, or ITIN for the U.S. taxpayer identification number. (iii) A TTIN may not be used on any return, statement, or other document that is required to be filed with or furnished to the Internal Revenue Service or the Social Security Administration in the case of forms required to be filed with the Social Security Administration under the internal revenue laws. (iv) A person may not truncate its own taxpayer identifying number on any statement or other document that it furnishes to another person. For example, an employer may not truncate its EIN on a Form W-2, Wage and Tax Statement, that the employer furnishes to an employee; and a person may not truncate its TIN on a Form W-9, Request for Taxpayer Identification Number and Certification. (3) Examples. (i) Example 1. (ii) Example 2. (c) Applicability date. [T.D. 9675, 79 FR 41131, July 15, 2014, as amended by T.D. 9861, 84 FR 31720, July 3, 2019] § 301.6110-1 Public inspection of written determinations and background file documents. (a) General rule. (b) Items that may be inspected only under certain circumstances Background file documents. (2) Technical advice memoranda involving civil fraud and criminal investigations, jeopardy and termination assessments. (3) Written determinations with respect to adoption of or change in certain accounting or funding periods and methods. (i) The funding method or plan year of a plan under section 412. (ii) A taxpayer's annual accounting period under section 442. (iii) A taxpayer's method of accounting under section 446(e), or (iv) A partnership's or partner's taxable year under section 706 shall not be subject to inspection until such written determination would, but for this paragraph (b)(3), be open to public inspection pursuant to § 301.6110-5(c) and then only if a written request pursuant to paragraph (c)(4) of this section is made for inspection of such written determination. (c) Procecure for public inspection Place of public inspection. (2) Time and manner of public inspection. (3) Copies. (4) Requests. (i) Authorization for the Internal Revenue Service to charge the person making such request for making copies, searching for material, and making deletions therefrom; (ii) The maximum amount of charges which the Internal Revenue Service may incur without further authorization from the person making such request; (iii) With respect to requests for inspection and copies of background file documents, the file number of the written determination to which such background file document relates and a specific identification of the nature or type of the background file document requested; (iv) With respect to requests for inspections of general written determinations relating to accounting or funding periods and methods, the day, week, or month of issuance of such written determination, and the applicable category as selected from a special summary listing of categories prepared by the Internal Revenue Service; (v) With respect to requests for copies of written determinations, the file number of the written determination to be copied, which can be ascertained in the reading room or from the index; (vi) With respect to requests for copies of portions of the index, the section of the Internal Revenue Code, related statute or tax treaty in which the person making such request is interested; (vii) With respect to material which is to be mailed, the name, address, and telephone number of the person making such request and the address to which copies of the requested material should be sent; and (viii) Such other information as the Internal Revenue Service may from time to time require in its operation of reading rooms. (d) Effective/applicability date. [T.D. 7524, 42 FR 63412, Dec. 16, 1977, as amended by T.D. 9581, 77 FR 12205, Feb. 29, 2012] § 301.6110-2 Meaning of terms. (a) Written determination. (b) Reference written determination. (c) General written determination. (d) Ruling. (e) Determination letter. (f) Technical advice memorandum. (g) Background file document General rule. (ii) Any written material submitted in support of such request by the person by whom or on whose behalf the request for a written determination is made, (iii) Any written communication, or memorandum of a meeting, telephone communication, or other contact, between employees of the Internal Revenue Service or Office of its Chief Counsel and persons outside the Internal Revenue Service in connection with such request or written determination which is received prior to the issuance (as such term is defined in paragraph (h) of this section) of the written determination, but not including communications described in paragraph (g)(2) of this section, and (iv) Any subsequent communication between the National Office and a district director concerning the factual circumstances underlying the request for a technical advice memorandum, or concerning a request by the district director for reconsideration by the National Office of a proposed technical advice memorandum. (2) Limitations. (i) Communication between the Department of Justice and the Internal Revenue Service or the Office of its Chief Counsel relating to any pending civil or criminal case or investigation, (ii) Communication between Internal Revenue Service employees and employees of the Office of its Chief Counsel, (iii) Internal memorandum or attorney work product prepared by the Internal Revenue Service or Office of its Chief Counsel which relates to the development of the conclusion of the Internal Revenue Service in a written determination, including, with respect to a technical advice memorandum, the Transmittal Memorandum, as defined in § 601.105(b)(5)(vi)(c) of this chapter, (iv) Correspondence or any portion of correspondence between the Internal Revenue Service and any person relating solely to the making of or extent of deletions pursuant to section 6110(c), or a request pursuant to section 6110(g) (3) and (4) for postponement of the time at which a written determination is made open or subject to inspection, (v) Material relating to (A) a request for a ruling or determination letter that is withdrawn prior to issuance thereof or that the Internal Revenue Service declines to answer, (B) a request for technical advice that the National Office declines to answer, or (C) the appeal of a taxpayer from the decision of a district director not to seek technical advice, or (vi) Response to a request for technical advice which the district director declines to adopt, and the district director's request for reconsideration thereof. (h) Issuance. (i) Person to whom written determination pertains. (j) Person to whom a background file document relates. (k) Person who has a direct interest in maintaining confidentiality. (l) Successor in interest. (d) Effective/applicability date. [T.D. 7524, 42 FR 63413, Dec. 16, 1977, as amended by T.D. 9581, 77 FR 12205, Feb. 29, 2012] § 301.6110-3 Deletion of certain information in written determinations open to public inspection. (a) Information subject to deletion. (1) Identifying details. (ii) Any other information that would permit a person generally knowledgeable with respect to the appropriate community to identify any person. The determination of whether information would permit identification of a particular person will be made in view of information available to the public at the time the written determination or background file document is made open or subject to inspection and in view of information that will subsequently become available, provided the Internal Revenue Service is made aware of such information and the potential that such information may identify any person. The “appropriate community” is that group of persons who would be able to associate a particular person with a category of transactions one of which is described in the written determination or background file document. The appropriate community may vary according to the nature of the transaction which is the subject of the written determination. For example, if a steel company proposes to enter a transaction involving the purchase and installation of blast furnaces, the “appropriate community” may include all steel producers and blast furnace manufacturers, but if the installation process is a unique process of which everyone in national industry is aware, the “appropriate community” might also include the national industrial community. On the other hand, if the steel company proposes to enter a transaction involving the purchase of land on which to construct a building to house the blast furnaces, the “appropriate community” may also include those residing or doing business within the geographical locale of the land to be purchased. (2) Information concerning national defense and foreign policy. (3) Information exempted by other statutes and agency rules. (4) Trade secrets and privileged or confidential commercial or financial information Deletions to be made. (A) Trade secrets, and (B) Commercial or financial information obtained from any person which, despite the fact that identifying details are deleted pursuant to paragraph (a)(1) of this section, nonetheless remains privileged or confidential. (ii) Trade secret. (iii) Privileged or confidential. (5) Information within the ambit of personal privacy. (6) Information concerning agency regulation of financial institutions. (7) Information concerning wells. (b) Manner of deletions. (c) Limitations on the making of deletions. (1) If pursuant to section 6110(d)(3) or (f)(4)(A) a court orders disclosure of such portion, or (2) If pursuant, to § 301.6110-5(d)(1) an agreement is reached to disclose information. [T.D. 7524, 42 FR 63414, Dec. 16, 1977] § 301.6110-4 Communications from third parties. (a) General rule. (b) Limitations. (c) Action to obtain disclosure of identity of person to whom written determination pertains Creation of remedy. (2) Necessary disclosure. (3) Required notice. (4) Intervention. [T.D. 7524, 42 FR 63415, Dec. 16, 1977, as amended by T.D. 8939, 66 FR 2819, Jan. 12, 2001] § 301.6110-5 Notice and time requirements; actions to restrain disclosure; actions to obtain additional disclosure. (a) Notice General rule. (2) Contents of notice. (i) Include a copy of the text of the written determination or background file document, which the Commissioner proposes to make open to public inspection or subject to inspection pursuant to a written request, on which is indicated (A) the material that the Commissioner proposes to delete pursuant to section 6110(c), (B) any substitutions proposed to be made therefor, and (C) any third-party communication notations required to be placed pursuant to § 301.6110-4(a) on the face of the written determination. (ii) State that the written determination or background file document is to be open to public inspection or subject to inspection pursuant to a written request pursuant to section 6110. (iii) State that the recipient of the notice has the right to seek administrative remedies pursuant to paragraph (b)(1) of this section and to commence judicial proceedings pursuant to section 6110(f)(3) within indicated time periods, and (iv) Prominently indicate the date on which the notice is mailed. (b) Actions to restrain disclosure Administrative remedies. i f f (2) Judicial remedy. (3) Limitations on right to bring judicial actions. (4) Required notice. (5) Intervention. (c) Time at which open to public inspection General rule. (2) Limitations Court order. (ii) Postponement based on incomplete status of underlying transaction Initial period not to exceed 90 days. (B) Additional period. (C) Written request for extension. ( 1 ( 2 (D) Notice and determination of actual completion. 1 2 1 2 (d) Actions to obtain additional disclosure Administrative remedies. (2) Judicial remedy. (3) Limitations on right to bring judicial action Exhaustion of administrative remedies. (ii) Actions to obtain identity. (4) Required notice. (5) Intervention. [T.D. 7524, 42 FR 63415, Dec. 16, 1977, as amended by T.D. 8939, 66 FR 2819, Jan. 12, 2001] § 301.6110-6 Written determinations issued in response to requests submitted before November 1, 1976. (a) Inspection of written determinations and background file documents General rule. (2) Exclusions. (i) Written determinations with respect to matters for which the determination of whether public inspection should occur is made under section 6104. Some of these matters are listed in § 301.6110-1(a). (ii) Written determinations issued before September 2, 1974, dealing with the qualification of a plan described in section 6104(a)(1)(B)(i) or the exemption from tax under section 501(a) of an organization forming part of such a plan. (iii) Written determination issued pursuant to requests submitted before November 1, 1976 with respect to the exempt staus under section 501(a) of organizations described in section 501 (c) or (d), the status of organizations as private foundations under section 509(a), or the status of organizations as operating foundations under section 4942(j)(3). (iv) General written determinations that relate solely to accounting or funding periods and methods, as defined in § 301.6110-1(b)(3). (v) Determination letters. (3) Items that may be inspected only under certain circumstances Background file documents. (A) Background file documents relating to general written determinations issued before July 5, 1967. (B) Background file documents relating to written determinations described in paragraph (a)(2) of this section. (ii) General written determinations issued before July 5, 1967. (b) Notice and time requirements, and actions to restrain disclosure Notice— General rule. Federal Register (ii) Sequence of notices. (iii) Contents of notice. (A) Identify by subject matter description and dates of issuance the written determinations that the Commissioner proposes to make open or subject to inspection. (B) State that the written determinations will be made open or subject to inspection pursuant to section 6110(h), (C) State that the persons to whom the written determinations pertain have the right to seek administrative remedies under paragraph (b)(2)(ii) of this section and to commence judicial proceedings under section 6110(h)(4) within indicated time periods, (D) State that there exist the possibilities that someone might request additional disclosure under section 6110(f)(4) and that someone might request inspection of a related background file document, and (E) State that any notice that must be mailed by the Internal Revenue Service will be sent to the most recent address of the person to whom the notice must be sent that is in the relevent written determination file. (2) Actions to restrain disclosure Information on written determinations described by notice. Federal Register (ii) Administrative remedies. Federal Register (iii) Judicial remedy. Federal Register (iv) Limitations on right to bring judicial actions. Federal Register, (v) Required notice. (vi) Intervention. (vii) Background file documents. i f (3) Time at which open to public inspection General rule. Federal Register (ii) Limitation on account of court order. Federal Register (iii) Background file documents. [T.D. 7548, 43 FR 20791, May 15, 1978, as amended by T.D. 8939, 66 FR 2819, Jan. 12, 2001] § 301.6110-7 Miscellaneous provisions. (a) Disposition of written determinations and background file documents Reference written determinations. (2) General written determinations. (b) Precedential status of written determinations open to public inspection. (c) Civil remedies Liability for failure to make deletions or to conform to time limitations Creation of remedy. (A) The person to whom the written determination pertains whenever the Commissioner fails to act in accordance with the time requirements of section 6110(g), and (B) The person to whom the written determination pertains and any person identified in such written determination whenever the Commissioner fails to make deletions required by section 6110(c) if as a consequence of such failure there is disclosed the identity of such person or other information with respect to such person that is required to be deleted pursuant to section 6110(c). (ii) Limitations. (A) The failure of the Commissioner to make the deletions required by section 6110(c) is intentional or willful, (B) The Commissioner fails to make any deletion required by section 6110(c) which the Commissioner has agreed to make, or (C) The Commissioner fails to make any deletion which a court has ordered to be made pursuant to section 6110(f)(3). (iii) Damages. (A) Actual damages sustained by such person but in no case shall such person be entitled to receive less than the sum of $1,000. (B) The costs of the action, and (C) Reasonable attorney's fees as determined by the court. (2) Liability for making additional disclosure of information. (3) Obligation to defend action for additional disclosure. (4) Obligation to make deletions. (d) Fees General rule Copies. (ii) Preparation of information available upon request. (2) Reduction or waiver of fees Public interest. (ii) Previous requests. [T.D. 7524, 42 FR 63417, Dec. 16, 1977] § 301.6111-1T Questions and answers relating to tax shelter registration. The following questions and answers relate to the tax shelter registration requirements of section 6111 of the Internal Revenue Code of 1954, as added by section 141(a) of the Tax Reform Act of 1984 (Pub. L. 98-369, 98 Stat. 678). TABLE OF CONTENTS The following table of contents is provided as part of these temporary regulations to help the reader locate relevant provisions. The headings are to be used only as a matter of convenience and have no substantive effect. In General Overview of tax shelter registration, A-1 Overview of applicable penalties, A-2 Effect of registration, A-3 Tax Shelter Defined Definition of tax shelter, A-4 Tax Shelter Ratio Definition of tax shelter ratio, A-5 Deductions and Credits Represented as Potentially Allowable Definition of amount of deductions and credits, A-6 Definition of year, A-7 Definition of explicit representation, A-8 Definition of inferred representation, A-9 Effect of qualified representation, A-10 Representation regarding interest deduction, A-11 Representation regarding unintended events, A-12 Investment Base Definition of investment base, A-13 Amounts eliminated from investment base, A-14 Tax Shelter Ratio—Miscellaneous Effect of different ratios for different investors, A-15 Effect of alternate financing arrangements, A-16 Investments Subject to Securities Regulation Federal law regulating securities, A-17 State law regulating securities, A-18 Exemptions from federal securities registration, A-19 Exemptions from state securities registration, A-20 Substantial Investment Definition of substantial investment, A-21 Aggregation rules, A-22 and A-23 Exceptions From Tax Shelter Registration Investments excepted from tax shelter registration, A-24 Certain persons not treated as investors, A-24A Persons Required To Register a Tax Shelter Tax shelter organizer, A-25 and A-26 Principal organizer, A-27 Participant in the organization, A-28 Manager, A-29 Exception for certain unrelated persons, A-30 Sellers, A-31 Absence of representations by organizer, A-32 Exception for suport services, A-33 Circumstances Under Which Tax Shelter Organizers Are Required To Register a Tax Shelter Principal organizer and a participant in the organization, A-34 Manager who has not signed designation agreement, A-35 Seller who has not signed designation agreement, A-36 Person acting in multiple capacities, A-37 Designation agreement (designated organizer), A-38 Person who has signed designation agreement, A-39 Registration—General Rules Date registration is required, A-40 Requirement to provide registration notice to sellers and others, A-41 Definition of sale of an interest, A-42 Definition of offering for sale, A-43 No requirement to submit revised registration form A-44—A-45 Information reported on an amended application, 45A Effect of resale of an asset, A-46 When registration is complete, A-47 Separate forms required for certain aggregated investments, A-48 Applicability of section 7502, A-49 Required investor disclaimer, A-50 Furnishing Tax Shelter Registration Numbers to Investors Who must furnish number, A-51 When number must be furnished, A-52 Form required to furnish number, A-53 and A-54 Including the Registration Number on Tax Returns Requirement to include registration number on investor's return, A-55 and A-57 Projected Income Investments Special rules for projected income investments, A-57A Definitions relating to projected income, investments A57B—A-57D Tax shelters ineligible for the special rules, A-57E Consequences of bad faith or unreasonable projections, A-57F When a tax shelter ceases to be a projected income investment, A-57G Special rule for registration, A-57H Special rule for furnishing registration number, A-57I Special rule for including registration number on tax return, A-57J Effective Dates Effective dates, A-58 and A-60 In General Q-1. What is tax shelter registration? A-1. Tax shelter registration is a new provision of the Internal Revenue Code that affects organizers, sellers, investors, and certain other persons associated with investments that are considered tax shelters. The new provision imposes the following three requirements. First, a tax shelter must be registered by the tax shelter organizer. (See A-4 of this section for the definition of a tax shelter. See A-25 through A-39 of this section for rules relating to tax shelter organizers. See A-26 of this section for rules regarding when the seller of an interest in a tax shelter is treated as the tax shelter organizer.) Registration is accomplished by filing a properly completed Form 8264 with the Internal Revenue Service. The Internal Revenue Service will assign a registration number to each tax shelter that is registered. Second, any person who sells or otherwise transfers an interest in a tax shelter must furnish the registration number of the tax shelter to the purchaser or transferee of the interest. (See A-51 through A-54 of this section for the time and manner in which the number must be furnished.) Third, any person who claims a deduction, loss, credit, or other tax benefit or reports any income from the tax shelter must report the registration number of the tax shelter on any return on which the deduction, loss, credit, benefit, or income in included. (See A-55 through A-57 of this section for rules relating to the reporting of tax shelter registration numbers.) Q-2. Are penalties provided for failure to comply with the requirements of tax shelter registration? A-2. Yes. Separate penalties are provided for failure to satisfy any of the requirements set forth in A-1 of this section. See A-1 of § 301.6707-1T for the penalty for failure to register a tax shelter and A-8 of § 301.6707-1T for the penalty for filing false or incomplete information will respect to the registration of a tax shelter. See A-12 of § 301.6707-1T for the penalty for failure to furnish the tax shelter registration number to purchasers or transferees. See A-13 of 301.6707-1T for the penalty for failure to report the tax shelter registration number on a tax return on which a deduction, loss, credit, income, or other tax benefit is included. In addition, criminal penalties may be imposed for willful noncompliance with the requirements of tax shelter registration. See, for example, section 7203, relating to willful failure to supply information, and section 7206, relating to fraudulent and false statements. Q-3. Does registration of a tax shelter with the Internal Revenue Service indicate that the Internal Revenue Service has reviewed, examined, or approved the tax shelter or the claimed tax benefits? A-3. No. Moreover, any representation to prospective investors that states that a tax shelter is registered with the Internal Revenue Service (or that registration is being sought) must include a legend stating that registration does not indicate that the Internal Revenue Service has reviewed, examined or approved the tax shelter or any of the claimed tax benefits. (See A-50 of this section for the form and content of the legend.) Tax Shelter Defined Q-4. What investments are tax shelters that are required to be registered with the Internal Revenue Service? A-4. A tax shelter is any investment that meets the following two requirements: (I) The investment must be one with respect to which a person could reasonably infer, from the representations made or to be made in connection with any offer for sale of any interest in the investment, that the tax shelter ratio for any investor may be greater than 2 to 1 as of the close of any of the first 5 years ending after the date on which the investment is offered for sale. (II) The investment must be (i) required to be registered under a federal or state law regulating securities, (ii) sold pursuant to an exemption from registration requiring the filing of a notice with a federal or state agency regulating the offering or sale of securities, or (iii) a substantial investment. An investment that satisfies these two requirements is considered a tax shelter for registration purposes regardless of whether it is marketed or customarily designated as a tax shelter. See A-5 of this section for the definition of tax shelter ratio. See A-17 and A-18 of this section for the definition of an investment required to be registered under a federal or state law regulating securities. See A-19 and A-20 of this section for the definition of an investment sold pursuant to an exemption from registration requiring the filing of a notice. See A-21 of this section for the definition of a substantial investment. Tax Shelter Ratio Q-5. What does the term “tax shelter ratio” mean? A-5. The term “tax shelter ratio” means, with respect to any year, the ratio that the aggregate amount of deductions and 200 percent of the credits that are or will be represented as potentially allowable to an investor under subtitle A of the Internal Revenue Code for all periods up to (and including) the close of such year, bears to the investment base for such investor as of the close of such year. Deductions and Credits Represented as Potentially Allowable Q-6. What do the terms “amount of deductions” and “credits” mean? A-6. The term “amount of deductions” means the amount of gross deductions and other similar tax benefits potentially allowable with respect to the investment. The gross deductions are not to be offset by any gross income to be derived or potentially derived from the investment. Thus, the term “amount of deductions” is not equivalent to the net loss, if any, attributable to the investment. The term “credits” means the gross amount of credits potentially allowable with respect to the investment without regard to any possible tax liability resulting from the investment or any potential recapture of the credits. Q-7. What does the term “year” mean for purposes of determining the tax shelter ratio? A-7. The term “year” means the taxable year of a tax shelter, or if the tax shelter has no taxable year, the calendar year. Q-8. Under what circumstances is a deduction or credit considered to be represented as being potentially allowable to an investor? A-8. A deduction or credit is considered to be represented as being potentially allowable to an investor if any statement is made (or will be made) in connection with the offering for sale of an interest in an investment indicating that a tax deduction or credit is available or may be used to reduce federal income tax or federal taxable income. Representations of tax benefits may be oral or written and include those made at the time of the initial offering for sale of interests in the investment, such as advertisements, written offering materials, prospectuses, or tax opinions, and those that are expected to be made subsequent to the initial offering. Representations are not confined solely to statements regarding actual dollar amounts of tax benefits, but also include general representations that tax benefits are available with respect to an investment. Thus, for example, an advertisement stating that “purchase of restaurant includes trade fixtures (5-year write-off and investment tax credit)” constitutes an explicit representation of tax benefits. Q-9. If a deduction or credit is not explicitly represented as being potentially allowable to an investor may it be inferred as a represented tax benefit that is includible in the tax shelter ratio? A-9. Yes. Although some explicit representation concerning tax benefits is necessary before an investment may be considered a tax shelter, once an explicit representation is made (or will be made) regarding any tax benefit, all deductions or credits typically associated with the investment will be inferred to have been represented as potentially allowable. Thus, the tax shelter ratio will be determined with reference to those tax benefits that are explicitly represented as being potentially allowable as well as all other tax benefits that are typically associated with the investment. The amount of each deduction or credit that is includible in the tax shelter ratio, if not specifically represented as to amount, should be reasonably estimated based on representations of economic value or economic projections, if any, or on any other information available to the tax shelter organizer. Reasonable estimates of deductions or credits may take into account past experience with similar investments. Reasonable estimates must assume use of the most accelerated allowable basis for cost recovery deductions. As an example of the application of this A-9, assume that an advertisement explicitly states that a building is eligible for the investment tax credit for rehabilitation of a certified historic structure, but makes no mention of cost recovery deductions, amortization deductions for construction period interest and taxes, real estate taxes after construction, ongoing maintenance expenses, or other deductions or credits typically associated with a building. Reasonable estimates of all such deductions and credits must be included with the investment tax credit explicitly represented in determining the tax shelter ratio associated with any investor's acquisition of an interest in the building. Q-10. Does the fact that representations are made (or to be made) indicating that a deduction may be offset by income from the investment or that a deduction or credit may be subject to recapture or may be disallowed on audit affect the computation of the tax shelter ratio? A-10. No. Deductions and credits represented as being potentially allowable are taken into account in computing the tax shelter ratio regardless of whether any qualifying statements are made. Q-11. Is interest to be paid by an investor with respect to a debt obligation incurred in connection with the acquisition of an interest in the tax shelter included in the aggregate amount of deductions? A-11. If a deduction for such interest is explicitly represented (or will be represented) as being potentially allowable, the interest is includible in the aggregate amount of the deductions. In addition, any interest to be paid with respect to a debt obligation the proceeds of which reduce the investment base (see A-14 of this section), regardless of whether a deduction for such interest is explicitly represented as being allowable, will be considered a deduction typically associated with the investment (see A-9 of this section). Accordingly, such interest will be considered to be represented as being potentially allowable and must be taken into account in computing the tax shelter ratio. If interest to be paid with respect to a debt obligation the proceeds of which do not reduce the investment base (see A-14 of this section) is not explicitly represented as being potentially allowable, however, such interest will not be considered typically associated with the investment and will not be taken into account in computing the tax shelter ratio. Q-12. If representations are made that part or all of an amount invested in a tax shelter will be deductible upon the occurrence of an unintended event, will the deduction be included in the aggregate amount of deductions? A-12. No. Thus, for example, if representations are made that a person's investment in a tax shelter may give rise to a loss deduction if the investment becomes worthless, the amount of the loss deduction will not be included in the aggregate amount of deductions and will not be taken into account in computing the tax shelter ratio. Similarly, if representations are made that the costs of acquiring oil and gas lease interests may be deductible if the lease is proved worthless by abandonment, the amount of any loss deduction will not be included in the aggregate amount of deductions. Investment Base Q-13. What does the term “investment base” mean? A-13. The term “investment base” means, with respect to any year (as defined in A-7 of this section), means the cumulative amount of money and the adjusted basis of other property (reduced by any liability to which such other property is subject) that is unconditionally required to be contributed or paid directly to the tax shelter on or before the close of such year by an investor. Q-14. What amounts must be eliminated from the investment base? A-14. The investment base must be reduced by the following amounts: (1) Any amount borrowed by the investor, even if borrowed on a recourse basis, from any person who participated in the organization, sale, or management of the investment or who has an interest (other than an interest as a creditor) in the investment (“a participating person”) or from any person who is related (as defined in section 168 (e)(4)) to a participating person, unless the amount is unconditionally required to be repaid by the investor before the close of the year for which the determination is being made. An amount will be considered unconditionally required to be repaid by the investor only if any offering material in which the borrowed amount is described and any agreement to be entered into between a participating (or related) person and the investor provide that the amount must be repaid (without exception) by the end of the year for which the determination is being made. An amount that is to be repaid only from earnings of the investment is not an amount that is unconditionally required to be repaid and is thus excluded from the investment base. In addition, an amount is not unconditionally required to be repaid if the amount will be (or is expected to be) reloaned to the investor during the 5-year period ending after the date the investment is offered for sale. (2) Any amount borrowed by the investor, even if borrowed on a recourse basis, from a person, if the loan is arranged by a participating (or related) person, unless the amount is unconditionally required to be repaid by the investor before the close of the year for which the determination is being made. Any borrowing that is represented (orally or in writing) as being available from a specific source will be treated as arranged by a participating (or related) person, if the participating (or related) person provides a list of investors, or information relating to the investment, to the lender or otherwise informs the lender about the investment. However, in the case of an amount borrowed on a recourse basis, the mere fact that a lender who is actively and regularly engaged in the business of lending money obtained information relating to the investment, from a participating (or related) person, solely in response to a lender's request made in connection with such borrowing or a prior loan to the investment, a participating (or related) person, or an investor, will not, by itself, result in a determination that the loans are arranged by a participating (or related) person. Financing may be treated as arranged by a participating (or related) person regardless of whether a commitment to provide the financing is made by the lender to the participating or related person. For example, assume that a tax shelter organizer represents that the purchase of an interest in a tax shelter may be financed with the proceeds of a revolving loan, and the tax shelter organizer provides investors with the names of several banks or other lending institutions to which the tax shelter organizer has provided information about the investment. Assume further that the information was not provided in response to requests from such lending institutions made in connection with prior loans. The proceeds of the revolving loan will be excluded from the investment base because the loan is not unconditionally required to be repaid and it is treated as having been arranged by the tax shelter organizer. (3) Any amount borrowed, directly or indirectly, from a lender located outside the United States (“foreign-connected financing”), of which a participating (or related) person knows or has reason to know. (4) Any amounts to be held for the benefit of investors in cash, cash equivalents, or marketable securities. An amount is to be held in cash equivalents if the amount is to be held in a checking account, savings account, mutual fund, certificate of deposit, book entry government obligation, or any other similar account or arrangement. Marketable securities are any securities that are part of an issue any portion of which is traded on an established securities market and any securities that are regularly quoted by brokers or dealers making a market. (5) Any distributions (whether of cash or property) that will be made without regard to the income of the tax shelter, but only to the extent such distributions exceed the amount to be held as of the close of the year in cash, cash equivalents, or marketable securities. Tax Shelter Ratio—Miscellaneous Q-15. Does an investment satisfy the requirement in A-4 (I) of this section (“the tax shelter ratio requirement”) if it may be inferred from the representations made or to be made to investors that the tax shelter ratio for some, but not all, of the investors may be greater than 2 to 1 as of the close of any one of the first five years? A-15. Yes. If the tax shelter ratio for any one investor may be greater that 2 to 1, the investment satisfies the tax shelter ratio requirement and is a tax shelter if it also meets the requirement in A-4(II) of this section. Moreover, an investment will satisfy the tax shelter ratio requirement even if the tax shelter ratio for a single investor exceeds 2 to 1 as of the close of only one of the first five years. For purposes of computing the tax shelter ratio for a year, all persons with interests in the investment are considered investors, except that general partners in a limited partnership will not be treated as investors in the partnership if the general partners' aggregate interest in each item of partnership income, gain, loss, deduction, and credit for such year is not expected to exceed 2 percent. In determining the general partners' interest in such items, limited partnership interests owned by general partners shall not be taken into account. For purposes other than the computation of the tax shelter ratio, however, all general partners will be treated as investors. Thus, for example, a general partner with a 1 percent interest in a limited partnership will be treated as an investor for the purpose of determining whether the partnership is a substantial investment. Q-16. If a person could reasonably infer from the representations made or to be made about an investment that the tax shelter ratio for the investment may be greater than 2 to 1 under one arrangement for financing the purchase of an interest by an investor, but would be 2 to 1 or less under an alternative financing arrangement, does the investment satisfy the tax shelter ratio requirement of A-4 (I) of this section. A-16. Yes. An investment satisfies the tax shelter ratio requirement of A-4 (I) of this section if a person could reasonably infer from the representations made or to be made that the tax shelter ratio for any person may be greater than 2 to 1 as of the close of any one of the first five years. The tax shelter ratio requirement is met if the tax shelter ratio may exceed 2 to 1 under any type of financing arrangement that is or will be represented as being available to investors. Investments Subject to Securities Regulation Q-17. What is an investment that is required to be registered under a federal law regulating securities? A-17. An investment required to be registered under a federal law regulating securities is any public offering of an investment that is required to be registered under the Securities Act of 1933 (1933 Act), the Investment Company Act of 1940, or any other federal law regulating securities. An investment is required to be registered under the 1933 Act, the Investment Company Act, or any other federal law regulating securities, if failure to register the investment would result in a violations of the applicable federal law, whether or not the investment has in fact been registered and, if proper notice has not been filed, whether or not the investment could have been sold pursuant to an exemption listed in A-19 of this section if such notice had been filed. Q-18. What is an investment required to be registered under a state law regulating securities? A-18. An investment required to be registered under a state law regulating securities is any investment required to be registered under a blue sky law or other similar state statute regulating securities. The term “state” includes the 50 states, the District of Columbia, and possessions of the United States. Q-19. What is an investment sold pursuant to an exemption from registration requiring the filing of a notice with a federal agency regulating the offering or sale of securities? A-19. An investment sold pursuant to an exemption from registration requiring the filing of a notice with such a federal agency is any investment that is sold pursuant to an exemption from registration requiring the filing or submission of a notice or other document with the Securities and Exchange Commission or any other federal agency regulating the offering or sale of securities, including the following exemptions (and applicable filing): (1) Regulation A, as promulgated under section (3)(b) of the 1933 Act (Form 1(A)), (2) Regulation B, as promulgated under section 3(b) of the 1933 Act (Schedules A through F), (3) Regulation D, as promulgated under sections (3)(b) and 4(2) of the 1933 Act (Form D), and (4) Any other statutory or regulatory exemption from registration requiring the filing or submission of a notice or other document. Q-20. What is an investment sold pursuant to an exemption from registration requiring the filing of a notice with a state agency regulating the offering or sale of securities? A-20. An investment sold pursuant to an exemption from registration requiring the filing of a notice with such a state agency is any investment sold pursuant to an exemption under a blue sky law or other similar state statutory or regulatory scheme that requires the filing or submission of a notice or other document with such a state agency. See A-18 of this section for the definition of state. Substantial Investment Q-21. What is a substantial investment? A-21. An investment is a substantial investment if the aggregate amount that may be offered for sale to all investors exceeds $250,000 and 5 or more investors are expected. The aggregate amount offered for sale is the aggregate amount to be received from the sale of interests in the investment and includes all cash, the fair market value of all property contributed, and the principal amount of all indebtedness received in exchange for interests in the investment, regardless of whether the proceeds of the indebtedness are included in the investment base under A-14 of this section. For purposes of determining whether 5 or more investors are expected in an investment involving real property (and related personal property) that is used as a farm (as defined in section 2032A(e)(4)) for farming purposes (as defined in section 2032A(e)(5)), interests in the investment expected to be held by a husband and wife, their children and parents, and the spouses of their children (or any of them) will be treated as if the interests were to be held by one investor. Thus, for example, interests in a farm that are offered to two brothers and their wives would be treated as interests offered to one investor. Such an investment could be a substantial investment only if four or more persons who were not members of the family were expected to be investors in the farm. Q-22. Will an investment be considered a substantial investment if the investment involves a number of parts each including fewer than 5 investors or an aggregate amount of $250,000 or less? A-22. Yes, under the circumstances described in this A-22. For purposes of determining whether investments are parts of a substantial investment, similar investments offered by the same person or related persons (as defined in section 168(e)(4)) are aggregated together. Investments are considered similar if they involve similar principal business assets and similar plans or arrangements. Investments that include no business assets will be considered similar if they involve similar plans or arrangements. Similar investments are aggregated solely for the purpose of determining whether investments involving fewer than 5 investors or an aggregate amount of $250,000 or less are substantial investments. For this purpose, similar investments are aggregated even though some, but not all, of the investments are (i) required to be registered under a Federal or State law regulating securities or are sold pursuant to an exemption from securities registration requiring the filing of a notice with a Federal or State agency regulating the offering or sale of securities ( i.e., Assume, for example, that a person develops similar arrangements involving 8 different partnerships, each investing in a separate but similar asset (such as a separate master recording or separate piece of similar real estate), each with a different general partner and each with 3 different limited partners. Assume further that the arrangements of all the partnerships are similar. These partnerships involving similar arrangements and similar assets would be aggregated together. Thus, if each partner is expected to invest $11,000, there will be 32 investors (1 general partner plus 3 limited partners times 8 partnerships) and an aggregate investment of $352,000 (32 partners times $11,000). Accordingly, each partnership will constitute part of a substantial investment. If representations are made that $1,000 in tax credits and $3,000 in deductions are available to each limited partner in the first year and $10,000 of the cash invested was expected to be the proceeds of a loan arranged by the organizer, the tax shelter ratio as of the close of the first year (assuming there are no deductions or credits typically associated with such investment, as described in A-9 of this section) would be 5 to 1 ($5,000 in total tax benefits and $1,000 investment base). Accordingly, the organizer would be required to register the partnerships with the Internal Revenue Service. Q-23. If an investment involving fewer than 5 investors or an aggregate amount of $250,000 or less is offered for sale and, at the time of the offering, it is not known (and there is no reason to know) that subsequent similar investments will be offered by the person who made the first offering (or a related person), will subsequent similar investments offered by that person (or a related person) be aggregated with the first investment for purposes of determining whether the investments constitute a substantial investment? A-23. No. However, a tax shelter organizer will be presumed to have known of any similar investments (as defined in A-22 of this section) offered during the 12 months following the first offering of an investment. Exceptions From Tax Shelter Registration Q-24. Are there any investments that will not be subject to tax shelter registration even if they satisfy the requirements of a tax shelter (as defined in A-4 of this section)? A-24. Yes. The following investments are not subject to tax shelter registration: (1) Sales of residences primarily to persons who are expected to use the residences as their principal place of residence, (2) Sales or leases or tangible personal property (other than master sound recordings, motion picture or television films, videotapes, lithograph plates, or other property relating to a literary, musical, or artistic composition) by the manufacturer (or a member of an affiliated group, within the meaning of section 1502, including the manufacturer) of the property primarily to persons who are expected to use the property in their principal active trade or business (see, however, A-32 and A-46 of this section for the additional rules applicable to a purchaser of property described in this A-24 who organizes an investment involving the property), (3) Any other investment as specified by the Secretary in a rule-related notice published in the Federal Register. Q-24A. Under what other circumstances are particular sales or leases of tangible personal property to certain persons or the performance of particular services for certain persons exempt from tax shelter registration? A-24A. A person who, in the ordinary course of a trade or business, sells or leases tangible personal property (other than collectibles (as defined in section 408(m)(2)), master sound recordings, motion picture or television films, videotapes, lithograph plates, or other property that includes or relates to a literary, musical or artistic composition) to a purchaser or lessee who is reasonably expected to use the property either for a personal use or in the purchaser's or lessee's principal active trade or business is not required for any purpose to treat such a purchaser or lessee as an investor in a tax shelter. Property may be reasonably expected to be used by a purchaser or lessee for personal use only if sold or leased to the purchaser or lessee in a quantity that is customary for such use. Similarly, a person who performs services for another person in connection with the principal active trade or business of the recipient of the services or for the recipient's personal use is not required to treat the recipient as an investor in a tax shelter. Persons who are not reasonably expected to use property or services either in their principal active trade or business or for personal use must be treated as tax shelter investors in the event the sales, leases, or performance of services otherwise constitute a tax shelter. Assume, for example, that an organizer forms Z corporation to feed cattle and to provide services in connection with the cattle feeding operations. Z will agree to serve customers with a minimum of 200 head of cattle. The fee for the services is $20 per head. Feed for cattle will cost $280 per head. Z represents that the service fee and the cost of the feed may be financed by $5,000 of cash and $55,000 of proceeds of a revolving recourse note that Z has arranged be available. Z provides its services to 100 customers. Ninety-five of the customers are persons whose principal active trade or business is reasonably expected to be farming (as defined in section 464(e)(1)). Five of the customers are not reasonably expected to engage in farming as their principal active trade or business. Although all the individual investments involve similar principal business assets and similar plans or arrangements, only the 5 customers who are not reasonably expected to be in the principal active trade or business of farming will be treated as investors in a tax shelter and aggregated to determine whether a substantial investment exists. Thus, there will be 5 investors and an aggregate investment of $300,000. If representations are made that the service fee and the cost of the feed are tax deductible, the tax shelter ratio (assuming there are no deductions or credits typically associated with such an investment, as described in A-9 of this section) would be 12 to 1 ($60,000 in total tax benefits and $5,000 investment base) and the organizer would be required to register the five aggregated feeding arrangements as a tax shelter. The registration number of the tax shelter must be provided to the five customers treated as investors in the tax shelter, but would not be required to be furnished to the customers whose principal active trade or business is reasonably expected to be farming. Persons Required To Register a Tax Shelter Q-25. Who has the legal obligation to register a tax shelter? A-25. A tax shelter organizer is obligated to register the tax shelter. Q-26. What is the definition of tax shelter organizer? A-26. Several categories of persons may be tax shelter organizers. In general, the term tax shelter organizer means a person principally responsible for organizing a tax shelter. If a person principally responsible for organizing a tax shelter has not registered the tax shelter by the day on which interests in the shelter are first offered for sale, any other person who participated in the organization of the tax shelter will be treated as a tax shelter organizer. If neither a person principally responsible for organizing the tax shelter nor any other person who participated in the organization of a tax shelter has registered the tax shelter by the day on which interests in the tax shelter are first offered for sale, then any person who participates in the management of the tax shelter at a time when the tax shelter is not registered will be treated as a tax shelter organizer. Finally, if a person participates in the sale of a tax shelter at a time when the person knows or has reason to know that a tax shelter has not been registered, that person will be treated as a tax shelter organizer. See A-38 of this section for rules relating to the execution of an agreement among persons who may be treated as tax shelter organizers to designate one person to register a tax shelter. Q-27. Who is a person principally responsible for organizing a tax shelter? A-27. A person principally responsible for organizing a tax shelter (“principal organizer”) is any person who discovers, creates, investigates, or initiates the investment, devises the business or financial plans for the investment, or carries out those plans through negotiations or transactions with others. Q-28. What constitutes participation in the organization of a tax shelter? A-28. Participation in the organization of a tax shelter includes the performance of any act (directly or through an agent) related to the establishment of the tax shelter, including the following: (1) Preparation of any document establishing the tax shelter (for example, articles of incorporation, a trust instrument, or a partnership agreement); (2) Preparation of any document in connection with the registration (or exemption from registration) of the tax shelter with any federal, state, or local government body; (3) Preparation of a prospectus, offering memorandum, financial statement, or other statement describing the tax shelter; (4) Preparation of a tax or other legal opinion relating to the tax shelter; (5) Preparation of an appraisal relating to the tax shelter; (6) Negotiation or other participation on behalf of the tax shelter in the purchase of any property relating to the tax shelter. Q-29. What constitutes participation in the management of a tax shelter? A-29. Participation in the management of a tax shelter includes managing the assets of the tax shelter, directing the business activity of the tax shelter, or, depending on the form of the tax shelter, acting as a general partner who actively participates in the management of a partnership, a trustee of a trust, a director or an officer of a corporation (including a corporate general partner of a partnership), or performing activities similar to those performed by such a general partner, a trustee, a director, or an officer. Q-30. Will the performance of any act described in A-27 through A-29 of this section constitute participation in the organization or management of a tax shelter if the person performing the act is unrelated to the tax shelter (or any principal organizer of the tax shelter) and does not participate in the entrepreneurial risks or benefits of the tax shelter? A-30. No. The performance of an act described in A-27 through A-29 of this section will not constitute participation in the organization or management of a tax shelter unless the person performing the act is related to the tax shelter (or any principal organizer of the tax shelter) or the person participates in the entrepreneurial risks or benefits of the tax shelter. A person will be considered related to a tax shelter if the person is related to the tax shelter or a principal organizer of the tax shelter within the meaning of section 168(e)(4) or is employed by the tax shelter or a principal organizer of the tax shelter or has an interest (other than an interest as a creditor) in the tax shelter. A person will be considered a participant in the entrepreneurial risks or benefits of a tax shelter if the person's compensation for performing an act described in A-27 through A-29 of this section is contingent on any matter relating to the tax shelter (e.g., the compensation is based in whole or in part upon (i) whether interests in the tax shelter are actually sold or (ii) the number or value of the units in the tax shelter that are sold), or if the person will receive an interest in the tax shelter as part or all of the person's compensation. For example, assume that A forms Z partnership, a tax shelter for which registration is required. Z hires the X law firm, none of the partners of which is related to the tax shelter, to prepare the documents necessary to register the offering of Z securities with the Securities and Exchange Commission. X charges $100 an hour for its services in connection with the preparation of the necessary documents, and payment of the fee is not contingent. X will not be treated as a participant in the organization of the tax shelter. If, however, X were to charge a fee equal to 1 percent of the value of the units in the tax shelter that are sold, X would be considered a participant in the organization of the shelter. As another example, assume that individual C is an attorney employed by W corporation, the corporate general partner and principal organizer of Z, and that C prepares the documents necessary to register the tax shelter with the Securities and Exchange Commission. C will be treated as having participated in the organization of the tax shelter regardless of the way in which C's compensation is structured, because C, as an employee, is related to the principal organizer of the tax shelter. Q-31. What constitutes participation in the sale of a tax shelter? A-31. Participation in the sale of a tax shelter includes any marketing activities (directly or through an agent) with respect to an investment, including the following: (1) Direct contact with a prospective purchaser of an interest, or with a representative or agent of a prospective purchaser, but only if the contract relates to the possible purchase of an interest in the tax shelter; (2) Solicitation of investors using the mail, telephone, or other means, or by placing an advertisement for the tax shelter in a newspaper, magazine, or other publication or medium; (3) Instructing or advising salespersons regarding the tax shelter or sales presentations. Q-32. May persons be treated as tax shelter organizers if such persons do not make any representations of tax benefits to investors? A-32. Yes. If a person described in A-26 of this section knows or has reason to know that representations of tax benefits have been made, that person may be treated as a tax shelter organizer. For example, a participant in the sale of a tax shelter may know or have reason to know that representations of tax benefits have been made by the principal organizer or others who participate in the organization of the tax shelter. In addition, a person who acquires property from a manufacturer in a transaction exempt from tax shelter registration under A-24 of this section and who organizes an investment involving the property may know or have reason to know of any representation of tax benefits made by the manufacturer. Q-33. If a person performs support services such as typing, photocopying, or printing for a tax shelter (or a tax shelter organizer) or performs other ministerial functions for the tax shelter (or a tax shelter organizer), may the person be considered to have participated in the organization, management, or sale of the tax shelter? A-33. No. Merely performing support services or ministerial functions will not be considered participation in the organization, management, or sale of a tax shelter. Circumstances Under Which Tax Shelter Organizers Are Required To Register a Tax Shelter Q-34. When is a principal organizer or a person who participates in the organization of a tax shelter required to register a tax shelter? A-34. A principal organizer or a person who participates in the organization of a tax shelter ( i.e., Q-35. When is a person who participates in the management of a tax shelter (“manager”) required to register a tax shelter? A-35. A manager who has not signed a designation agreement pursuant to A-38 of this section must register the tax shelter if the manager participates in the management of the tax shelter on or after the first offering for sale of interests in the tax shelter at a time when the tax shelter has not been properly registered ( i.e., Q-36. When is a person who participates in the sale of a tax shelter (“seller”) required to register the tax shelter? A-36. A seller who has not signed a designation agreement pursuant to A-38 of this section must register the tax shelter if the seller participates in the sale of the tax shelter at a time when the seller knows or has reason to know that the tax shelter has not been properly registered ( i.e., Q-37. When is a person who acts in more than one capacity with respect to a tax shelter required to register the shelter? A-37. A person who acts in more than one capacity with respect to a tax shelter ( i.e., Q-38. May a group of persons who could be treated as tax shelter organizers under A-26 of this section designate one person to register the tax shelter? A-38. Yes. A group of persons who could be treated as tax shelter organizers under A-26 of this section may enter into a written agreement designating one person as the tax shelter organizer responsible for registering the tax shelter (“designated organizer”). The designated organizer should ordinarily be a person principally responsible for organizing the tax shelter, but may be any person who participates in the organization of the tax shelter. Although persons who participate only in the sale or management of a tax shelter may sign a designation agreement, they may not be the designated organizer. In addition, the designated organizer may not be a person who is a resident in a country other than the United States. Any person who signs a designation agreement, other than the designated organizer, will not be liable for failing to register the tax shelter and will not be subject to a penalty, even if the designated organizer fails to register the tax shelter, unless the person fails to register the tax shelter when such registration is required under A-39 of this section. See A-7 of § 301.6707-1T for additional rules relating to the reasonable cause exception applicable to persons who sign a designation agreement. Q-39. Is a tax shelter organizer who has signed a designation agreement and who is not the designated organizer required to register the tax shelter under any circumstances? A-39. Yes. If a tax shelter organizer who has signed a designation agreement pursuant to A-38 of this section knows or has reason to know on or after the day on which the first offering for sale of interests in a tax shelter occurs that the designated organizer failed to register the tax shelter, such tax shelter organizer must register the tax shelter as soon as practicable after he first knows or has reason to know of the failure. A tax shelter organizer who has signed a designation agreement is deemed to have reason to know that the designated organizer has failed to register the tax shelter if the tax shelter organizer does not receive a copy of the Internal Revenue Service registration notice containing the registration number from the designated organizer within the 60-day period after the day on which the first offering for sale of interests in the tax shelter occurs (or the person signs the designation agreement, if later). See A-41 of this section for the requirement that the designated organizer provide a copy of the registration notice and number to persons who have signed the designation agreement. Registration—General Rules Q-40. By what date must a tax shelter be registered? A-40. A tax shelter must be registered not later than the day on which the first offering for sale of an interest in the tax shelter occurs. Q-41. Is a tax shelter organizer (including a designated organizer) who registers a tax shelter responsible for performing any act with respect to tax shelter registration other than registering the tax shelter? A-41. Yes. A tax shelter organizer (including a designated organizer) who registers a tax shelter must provide a copy of the Internal Revenue Service registration notice containing the registration number within 7 days after the notice is received from the Internal Revenue Service to the principal organizer (if a different person) and to any persons who the tax shelter organizer knows or has reason to know are participating in the sale of interests in the tax shelter (if such persons begin to participate after the registration number is received, they must be provided the notice within 7 days after they commence their participation). In addition, a designated organizer must provide a copy of the notice within 7 days after it is received to all persons who have signed the designation agreement. Q-42. What is the sale of an interest in a tax shelter? A-42. The sale of an interest in a tax shelter includes the sale of property, or any interest in property, the entry into a leasing arrangement, a consulting, management or other agreement for the performance of services, or the sale or entry into any other plan, investment, or arrangement. Q-43. What does the term “offering for sale” mean? A-43. The term “offering for sale” means making any representation, whether oral or written, relating to participation in a tax shelter as an investor. The term includes any advertisement relating to the tax shelter and any mail, telephonic, or other contact with prospective investors. A representation relating to participation in a tax shelter will be considered an offering for sale of an interest in the tax shelter even though there is included in the representation an explicit statement that the representation does not constitute an offer to sell or a solicitation of an offer to buy an interest in the tax shelter. In determining whether an offering for sale of an interest has occurred, federal and state laws regulating securities are not controlling. Q-44. After a tax shelter has been registered, must it be registered again each year that it continues to be offered for sale? A-44. No. Registration is effective for the year in which first accomplished and all subsequent years. Q-45. If the facts relating to a tax shelter change after the tax shelter has been registered, must the tax shelter be registered again or must an amended application for registration be filed by the tax shelter organizer? A-45. No. The tax shelter organizer, however, is permitted to file an amended application if a material change in facts occurs after the initial registration. A material change in facts is— (1) A change in the identifying information relating to the tax shelter or tax shelter organizer, (2) The acquisition or construction of a principal asset not reported on the initial application for registration, (3) A change in the method of financing a minimum investment unit, or (4) A change in the principal business activity. In addition, a change in any tax shelter ratio reported on the initial application for registration that increases or decreases the reciprocal of the tax shelter ratio ( i.e., 1/2 1/4 1/6 1/4 Q-45A. What information should be included on an amended application for registration? A-45A. The tax shelter organizer must include the identifying information requested on Form 8264, Application for Registration of a Tax Shelter, and the tax shelter registration number that has been assigned to the tax shelter. In addition, the tax shelter organizer should include any other information requested on Form 8364(1) that has changed since the tax shelter was registered, or (2) that the tax shelter organizer did not know at the time the tax shelter was registered but has learned of since the registration. For example, assume that A organizes partnership L, a blind pool that will invest in real estate. Before the real estate is identified or acquired, interests in L will be offered to the public in an offering that must be registered with the Securities and Exchange Commission. Although A does not know what real estate L will acquire and therefore is unable to calculate the tax shelter ratio with certainty, A concludes (based on representations made or to be made) that the tax shelter ratio will exceed 2 to 1 as to some of the investors. Accordingly, A registers L as a tax shelter. A attaches a statement to the application for registration, explaining that L is a blind pool organized to invest in real estate, but that L has not yet acquired any real estate. In addition, A attaches a statement explaining that although the tax shelter ratio is expected to exceed 2 to 1, A cannot compute the tax shelter ratio with certainty because L has not yet acquired any real estate. Several months after L is registered, L acquires a shopping center. A may file an amended application for registration. In addition to reporting the identifying information and the tax shelter registration number on the amended application, A should report the shopping center as the principal asset and the recomputed tax shelter ratio. As another example, assume that C organizes a limited partnership that is a tax shelter. On the application for registration, C reports that the tax shelter ratio is 2.2 to 1. After the partnership has been registered, C finds that the partnership is unable to attract sufficient investors. To make investing in the partnership more attractive, C decides to offer financing for the purchase or interests in the partnership. As a result of the change in financing, the tax shelter ratio will be 5 to 1. Because there is a change in financing and a change in the tax shelter ratio that decreases the reciprocal of the tax shelter ratio by 50 percent or more, C may file an amended application for registration. In addition to reporting the identifying information and the tax shelter registration number on the amended application, C should report the recomputed tax shelter ratio and information relating to the change in financing. Q-46. If assets constituting a tax shelter are sold (“original sale”) and, subsequently, either the assets or interests in the assets are offered for sale by the purchaser (“resale”), must the purchaser file a new application for registration if the resale is an offering or sale of interests in a tax shelter? A-46. If the resale constitutes a tax shelter, the purchaser must file a new application for registration, unless the tax shelter organizer with respect to the original sale is also the tax shelter organizer with respect to the resale and the facts pertaining to the resale were reflected in the application for registration filed with respect to the original sale. For example, assume that A intends to sell a building with an estimated fair market value of $2.5 million to a group of 5 investors ( i.e., Q-47. When is a tax shelter considered registered? A-47. A tax shelter is considered registered when a properly completed Form 8264, Application for Registration of a Tax Shelter, is filed with the appropriate Internal Revenue Service Center. See A-7 of § 301.6111-2T for rules relating to the information required to be included on the form, and A-8 of § 301.6707-1T for rules relating to the penalty for filing incomplete information. Q-48. Must a person registering a tax shelter that is a substantial investment only by reason of an aggregation of multiple investments under A-22 of this section complete a separate Form 8264 for each investment constituting part of the substantial investment? A-48. A separate Form 8264 must be completed for each investment that differs from the other investments in a substantial investment with respect to any of the following: (1) Principal asset, (2) Accounting methods, (3) Federal or state agencies with which the investment is registered or with which an exemption notice is filed, (4) Methods of financing the purchase of an interest in the investment, (5) Tax shelter ratio. Such aggregated investments, however, are part of a single tax shelter. Q-49. Do the rules of section 7502 of the Internal Revenue Code, regarding timely mailing, apply to the filing of registration forms? A-49. Yes. Q-50. After a tax shelter has been registered, may representations that the investment has been registered with the Internal Revenue Service be made to potential investors? A-50. Investors may be informed that the investment has been registered with the Internal Revenue Service. Investors also must be informed, however, that registration does not imply that the Internal Revenue Service has reviewed, examined, or approved the investment or the claimed tax benefits. The disclaimer must be substantially in the form provided below: ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR APPROVED BY THE INTERNAL REVENUE SERVICE. See A-53 of this section for rules relating to the legend that must be included on any statement on which the tax shelter registration number is furnished to investors. Furnishing Tax Shelter Registration Numbers to Investors Q-51. Who must furnish investors in a tax shelter with the registration number of the tax shelter? A-51. Any person who sells (or otherwise transfers) an interest in a tax shelter is required to furnish the registration number assigned to that tax shelter to each person who purchases (or otherwise acquires) an interest in that tax shelter from the seller or transferor. For example, X, a tax shelter organizer, sells an interest in a tax shelter to A. One year later A sells A's interest in the shelter to B. X must furnish the tax shelter registration number to A, and A must furnish the number to B. If B sells or otherwise transfers the interest (by gift, for example), B must furnish the number to the purchaser or transferee of B's interest in the tax shelter. Q-52. When must the registration number be furnished to purchasers of interests in the tax shelter? A-52. The person who sells (or otherwise transfers) an interest in a tax shelter must furnish the registration number to the purchaser (or transferee) at the time of sale (or transfer) of the interest (or, if later, within 20 days after the seller or transferor receives the registration number). If the registration number is not furnished at the time of the sale (or other transfer), the seller (or transferor) must furnish the statement described in A-54 to the purchaser (or transferee) at the time of the sale (or other transfer). If interests in a tax shelter were sold before September 1, 1984, all investors who acquired their interests in the tax shelter before September 1, 1984, must be furnished with the registration number of the tax shelter by December 31, 1984. The registration number will be considered furnished to the investor if it is mailed to the investor at the last address of the investor known to the person required to furnish the number. Q-53. How is a seller or transferor of an interest in a tax shelter required to furnish the registration number to investors? A-53. The person who sells (or otherwise transfers) an interest in a tax shelter must furnish the registration number of the tax shelter to the tax shelter to the purchaser (or transferee) on a written statement. The written statement shall show the name, registration number, and taxpayer identification number of the tax shelter, and include a prominent legend in bold and conspicuous type stating that the registration number must be included on any return on which the investor claims any deduction, loss, credit, or other tax benefit, or reports any income, by reason of the tax shelter. The statment must also include a prominent legend in bold and conspicuous type stating that the issuance of the registration number does not indicate that the Internal Revenue Service has reviewed, examined, or approved the investment or the claimed tax benefits. The statement shall be substantially in the form provided below: You have acquired an interest in [name and address of tax shelter] whose taxpayer identification number is [if any]. The Internal Revenue Service has issued [name of tax shelter] the following tax shelter registration number: [Number] YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE SERVICE, IF YOU CLAIM ANY DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORT ANY INCOME BY REASON OR YOUR INVESTMENT IN [NAME OF TAX SHELTER]. You must report the registration number (as well as the name, and taxpayer identification number of [name of tax shelter]) on Form 8271. FORM 8271 MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM THE DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORT ANY INCOME. ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR APPROVED BY THE INTERNAL REVENUE SERVICE. This statement may be modified as necessary if the tax shelter is not a separate entity (e.g., certain Schedule F or Schedule C activities) or has no name or taxpayer identification number. Q-54. If a registration number has not been received by a seller (or transferor) from the person who registered the tax shelter by the time interests in the tax shelter are sold (or otherwise transferred), must the seller (or transferor) of the interests furnish the purchaser (or transferee) with any information regarding the registration? A-54. Yes. At the time of the sale (or other transfer) the seller (or other transferor) must furnish the purchaser (or transferee) with a written statement in substantially the form prescribed in A-53 of this section, except that the second sentence of the form prescribed in A-53 shall be replaced by a statement in the form provided below: On behalf of [name of tax shelter], [name of tax shelter organizer who has applied for registration] has applied to the Internal Revenue Service for a tax shelter registration number. The number will be furnished to you when it is received. Including the Registration Number on Tax Returns Q-55. Is an investor required to report the registration number of a tax shelter in which the investor has acquired an interest to the Internal Revenue Service? A-55. Yes. Any person claiming any deduction, loss, credit, or other tax benefit by reason of a tax shelter must report the registration number of the tax shelter on Form 8271, Investor Reporting of Tax Shelter Registration Number, which must be attached to the return on which any deduction, loss credit, or other tax benefit attributable to the tax shelter is claimed. For purposes of determining whether the tax shelter registration number must be reported by an investor, income attributable to an investment, such as a partner's distributive share of income, constitutes a deduction or tax benefit that is claimed, because gross deductions and other tax benefits are included in the net income reported by the investor. Thus, the registration number also must be reported on any return on which an investor reports any income attributable to a tax shelter. Q-56. What should the investor do if the investor has received a notice that a registration number for the tax shelter has been applied for, but the investor has not received the registration number by the time the investor files a return on which a deduction, loss credit, other tax benefit, or income attributable to the tax shelter is included? A-56. The investor must attach to the return a Form 8271 with the words “Applied For” written in the space for the registration number and must include on the Form 8271 the name and taxpayer identification number (if any) of the tax shelter and the name of the person who has applied for registration of the tax shelter. Q-57. Does the requirement to include the tax shelter registration number on a return apply to applications for tentative refund (Form 1045 and Form 1139) and amended returns (Form 1040X, Form 1120X)? A-57. Yes. A completed Form 8271 must be attached to any such return on which any deduction, loss, credit, other tax benefit, or income relating to a tax shelter is included. Projected Income Investments Q-57A. Are the registration requirements suspended with respect to any tax shelters? A-57A. Yes. If a tax shelter is a projected income investment, it is not required to be registered before the first offering for sale of an interest in the tax shelters occurs, but is subject only to the registration requirements set forth in A-57H through A-57J of this section. A tax shelter is a projected income investment if— (a) The tax shelter is not expected to reduce the cumulative tax liability of any investor for any year during the 5-year period described in A-4 (I) of this section; and (b) The assets of the tax shelter do not include or relate to any property described in A-57E of this section. Q-57B. Under what circumstances does a tax shelter satisfy the requirement of paragraph (a) of A-57A of this section? A-57B. A tax shelter is not expected to reduce the cumulative tax liability of any investor for any year during the 5-year period described in A-4 (I) of this section only if— (a) A written financial projection or other written representation that is provided to investors before the sale of interests in the investment states (or leads a reasonable investor to believe) that the investment will not reduce the cumulative tax liability of any investor with respect to any year (within the meaning of A-7 of this section) in such 5-year period; and (b) No written or oral projections or representations, other than those related to circumstances that are highly unlikely to occur, state (or lead a reasonable investor to believe) that the investment may reduce the cumulative tax liability of any investor with respect to any such year. Thus, a tax shelter for which there are multiple written or oral financial projections or other representations is not a projected income investment if any such projection or representation that relates to circumstances that are not highly unlikely to occur states (or leads a reasonable investor to believe) that the investment may reduce the cumulative tax liability of any investor. See A-57D and A-57F of this section for rules relating to financial projections or other representations that are not made in good faith, that are not based on reasonable economic and business assumptions, or that relate to circumstances that are highly unlikely. Q-57C. When does an investment reduce the cumulative tax liability of an investor? A-57C. (a) An investment reduces the cumulative tax liability of an investor with respect to a year during the 5-year period described in A-4 (I) of this section if, as of the close of such year, (i) cumulative projected deductions for the investor exceed cumulative projected income for the investor, or (ii) cumulative projected credits for the investor exceed cumulative projected tax liability (without regard to credits) for the investor. (b) The cumulative projected deductions for an investor as of the close of a year are the gross deductions of the investor with respect to the investment, for all periods up to (and including) the end of such year, that are included in the financial projection or upon which the representation is based. The deductions with respect to an investment include all deductions explicitly represented as being allowable and all deductions typically associated (within the meaning of A-9 of this section) with the investment. Therefore, interest to be paid by the investor that is taken into account in determining the tax shelter ratio of the investment (see A-11 of this section) is treated as a deduction with respect to the investment. (c) The cumulative projected income for an investor as of the close of a year is the gross income of the investor with respect to the investment, for all periods up to (and including) the end of such year, that is included in the financial projection or upon which the representation is based. For this purpose, income attributable to cash, cash equivalents, or marketable securities (within the meaning of A-14 (4) of this section) may not be treated as income from the investment. (d) The cumulative projected credits for an investor as of the close of a year are the gross credits of the investor with respect to the investment, for all periods up to (and including) the close of such year, that are included in the financial projection or upon which the representation is based. The credits with respect to an investment include all credits explicitly represented as being allowable and all credits typically associated (within the meaning of A-9 of this section) with the investment. (e) The cumulative projected tax liability (without regard to credits) for an investor as of the close of a year is 50 percent of the excess of cumulative projected income for the investor over cumulative projected deductions for the investor with respect to the investment as of the close of such year. (f) The following examples illustrate the application of the principles of this A-57C: Example 1. The promotional material with respect to a tax shelter includes a written financial projection indicating that the expected income of the investment in each of its first 5 years is $800,000. In subsequent oral discussions, investors are advised that, in certain circumstances that are not highly unlikely, the income expected from the investment may be as little as $500,000 per year. The subsequent oral discussions are taken into account in determining whether any projections or representations state or lead a reasonable investor to believe that the investment may reduce the cumulative tax liability of any investor. Thus, if the written financial projections indicate that the gross deductions attributable to the investment in each of its first 5 years are expected to be $600,000 and the subsequent oral discussions do not indicate that the amount of those deductions will change under the circumstances in which the income expected may be as little as $500,000, the subsequent oral discussions taken together with the written financial projections state (or lead a reasonable investor to believe) that the cumulative tax liability of an investor may be reduced ( i.e., Example 2. The written promotional material with respect to a tax shelter states that certain deductions are allowable to an investor (without specifying their amount), but there is no written statement relating to the amount of income expected from the investment. Because there is no written financial projection or other written representation that states or leads a reasonable investor to believe that the investment will not reduce the investor's cumulative tax liability ( i.e., Example 3. The written promotional material with respect to a tax shelter includes a good-faith financial projection for the first 5 years of the investment. Based on reasonable economic and business assumptions, the projection indicates that the expected net income of the investment in each of its first 4 years is $100,000 ($500,000 of gross income and $400,000 of gross deductions), but as a result of the anticipated acquisition of new business assets a loss of $20,000 is expected in the fifth year of the investment ($500,000 of gross income and $520,000 of gross deductions). The projection also indicates that a credit of $50,000 is expected in the fifth year of the investment. Such a written financial projection would be considered to state that the investment will not reduce the cumulative tax liability of any investor with respect to any year in the 5-year period described in A-4 (I) of this section. Although a loss and a credit are projected in the fifth year of the investment, as of the close of such year, cumulative projected income ($2,500,000) exceeds cumulative projected deductions ($2,120,000), and cumulative projected tax liability (without regard to credits) ($380,000 × 50 percent = $190,000) exceeds cumulative projected credits ($50,000). Assuming no contrary oral or written projections or representations are made, the tax shelter would thus be a projected income investment. Example 4. The written promotional material with respect to a tax shelter states that an investor will be entitled to a “1.5 to 1 write-off” in the year of investment. This statement is a representation that the investment will reduce the cumulative tax liability of an investor with respect to the first year of the investment and, accordingly, the investment is not a projected income investment. The result in this example would be the same if any “write-off” were represented, even if the write-off were less than 1.5 to 1. Q-57D. Are all financial projections and representations relating to the cumulative tax liability of an investor taken into account for purposes of A-57B of this section? A-57D. (a) No. A financial projection or other representation relating to the cumulative tax liability of an investor is not taken into account for purposes of A-57B of this section unless it is made in good faith and is based on reasonable economic and business assumptions. In addition, a financial projection or other representation is not taken into account if it relates to circumstances that are highly unlikely. Moreover, a general statement or disclaimer indicating that projected income is not guaranteed or otherwise assured, standing alone, is not a projection or representation for purposes of paragraph (b) of A-57B of this section. (b) The following example illustrates the application of the principles of this A-57D: Example. The written promotional material with respect to a tax shelter contains a representation stating that the investment is projected to produce net income for all investors in each of its first five years and there are no credits potentially allowable with respect to the investment. This statement is based on reasonable economic and business assumptions. Such a written representation, if made in good faith, would be considered under paragraph (a) of A-57B of this section to state that the investment will not reduce the cumulative tax liability of any investor with respect to any year in the 5-year period described in A-4(I) of this section. In addition, no oral or written statements or representations are communicated to investors that would indicate under paragraph (b) of A-57B of this section that the investment might reduce the cumulative tax liability of any investor with respect to any year in the 5-year period. Assume the tax shelter organizer has knowledge of certain other facts that lead the tax shelter organizer to believe that it is more likely than not that the investment will produce a net loss in the first year. The representation projecting net income is thus contrary to the tax shelter organizer's belief that it is more likely than not that the investment will produce a net loss in the first year. Therefore, the representation is not made in good faith. Since representations not made in good faith are ignored under A-57D, the tax shelter would not be a projected income investment. If, on the other hand, the tax shelter organizer did not know of the other facts so that the tax shelter organizer did not believe that the investment would produce a net loss in the first year, the representation projecting income is made in good faith. In that case, the tax shelter would be a projected income investment. Q-57E. What assets may not be held by a projected income investment? A-57E. A tax shelter is not a projected income investment if more than an incidental amount of its assets include or relate to any interest in a collectible (as defined in section 408(m)(2)), a master sound recording, motion picture or television film, videotape, lithograph plate, copyright, or a literary, musical, or artistic composition. Q-57F. What are the consequences if financial projections or other representations are not made in good faith or are not based on reasonable economic and business assumptions? A-57F. If a tax shelter is not a projected income investment because the financial projections or other representations are not made in good faith or are not based on reasonable economic and business assumptions, it must be registered not later than the day on which the first offering for sale of an interest in the tax shelter occurs. If the tax shelter is not registered timely, the tax shelter organizer may be subject to a penalty. (See A-1 of § 301.6707-1T.) Q-57G. When does a tax shelter cease to be a projected income investment? A-57G. A tax shelter ceases to be a projected income investment on the last day of the first year (as defined in A-7 of this section) in the 5-year period described in A-4 (I) of this section for which, for any investor, (i) the gross deductions allocable to the investor for that year and prior years exceed the gross income allocable to the investor for such years, or (ii) the credit allocable to the investor for that year and prior years exceed 50 percent of the amount by which gross income allocable to the investor exceeds gross deductions allocable to the investor for such years. For purposes of determining when a tax shelter ceases to be a projected income investment, the tax shelter organizer is not required to take into account interest that may be incurred by an investor with respect to debt described in A-14 (2) or (3) of this section, but is required to take into account interest incurred by an investor with respect to debt described in A-14 (1) of this section. In addition, the tax shelter organizer may not take into account income attributable to cash, cash equivalents, or marketable securities (within the meaning of A-14 (4) of this section). Q-57H. How does the requirement to register apply with respect to a tax shelter that is a projected income investment? A-57H. In the case of a tax shelter that is a projected income investment, registration is not required unless the tax shelter ceases to be a projected income investment under A-57G of this section. If the tax shelter ceases to be a projected income investment, the tax shelter organizer must register the tax shelter in accordance with the rules set forth in A-1 through A-39 and A-41 through A-50 of this section. The tax shelter must be registered— (a) Within 30 days after the date on which the tax shelter ceases to be a projected income investment, and (b) Before the date on which the tax shelter or a tax shelter organizer sends the investor any schedule of profit or loss, or income, deduction, or credit that may be used in preparing the investor's income tax return for the taxable year that includes the date on which the tax shelter ceases to be a projected income investment. If a tax shelter organizer fails to register timely as required by this A-57H, the tax shelter organizer may be subject to a penalty. (See A-1 of § 301.6707-1T.) For example, assume that C is the principal organizer and general partner of a limited partnership. Interests in the partnership will be offered for sale in a public offering required to be registered with the Securities and Exchange Commission. C knows that the tax shelter ratio (as defined in A-5 of this section) for the limited partners will be 5 to 1. Although C knows the partnership is a tax shelter, C does not register the partnership by the day on which the first offering for sale of an interest occurs because C believes the partnership is a projected income investment. In the second year of the partnership, the gross deductions allocable to each of the limited partners for the first two years of the partnership exceed the gross income allocable to the limited partners in such years. Thus, the partnership ceases to be a projected income investment under A-57G of this section. Assuming further that C continues as the general partner and knowingly fails to register the partnership as a tax shelter within the time prescribed in this A-57H, C will be subject to a penalty of 1 percent of the aggregate amount invested in the partnership. Because there is an intentional disregard of the registration requirements, the $10,000 limitation will not apply. Q-57I. How does the requirement to furnish registration numbers (A-51 through A-54 of this section) apply in the case of a tax shelter that is a projected income investment? A-57I. In the case of a tax shelter that is a projected income investment, a person who sells or transfers an interest in the tax shelter is not required to furnish a registration number under A-51 of this section or a notice under A-54 of this section unless the tax shelter ceases to be a projected income investment. If the tax shelter ceases to be a projected income investment, the tax shelter organizer who registers the tax shelter is required to furnish the registration number to all persons who the tax shelter organizer knows or has reason to know are participating in the sale of interests in the tax shelter and to all persons who the tax shelter organizer knows or has reason to know have acquired interests in the tax shelter. A person who sold (or otherwise transferred) an interest in the tax shelter before the date on which the tax shelter ceased to be a projected income investment is required to furnish the registration number to the purchaser or transferee as provided in A-51 of this section only if the seller or transferor knows or has reason to know that the tax shelter has ceased to be a projected income investment and that the tax shelter organizer who registered the tax shelter has not provided a registration number to such purchaser or transferee. In the case of persons who acquired interests in the tax shelter before the date on which the tax shelter ceased to be a projected income investment, the registration number must be provided not later than the date described in paragraph (b) of A-57H of this section or, if the tax shelter does not provide any schedule described in paragraph (b) of A-57H of this section, within 60 days after the date on which the tax shelter ceases to be a projected income investment. Thus, for example, if a tax shelter that ceases to be a projected income investment is a partnership, the tax shelter organizer would be required to provide the registration number to each partner not later than the date the Schedule K-1 for the year in which the tax shelter ceases to be a projected income investment is provided to each partner. The registration number must be provided in accordance with A-51 and A-52 of this section and must be accompanied by a statement explaining that the tax shelter has ceases to be a projected income investment and instructing the recipient to furnish the registration number to any persons to whom the recipient has sold or otherwise transferred interests in the tax shelter. A tax shelter organizer who fails to provide the registration number as provided in this A-57I may be subject to penalties. (See A-12 of § 301.6707-1T.) Q-57J. How does the requirement to include the registration number on tax returns (A-55 through A-57 of this section) apply in the case of a tax shelter that is a projected income investment? A-57J. In the case of a tax shelter that is a projected income investment, an investor is not required to report a registration number on the investor's tax return unless the tax shelter ceases to be a projected income investment. If the tax shelter ceases to be a projected income investment, the requirements of A-55 through A-57 apply with respect to returns for taxable years ending on or after the date on which the tax shelter ceases to be a projected income investment. Effective Dates Q-58. On what date does the requirement to register a tax shelter become effective? A-58. In general, a tax shelter must be registered if any interest in the tax shelter (other than an interest previously sold to an investor) is sold on or after September 1, 1984 (whether or not interests in the tax shelter were sold or offered for sale before September 1, 1984). The tax shelter must be registered with the Internal Revenue Service not later than the first day after August 31, 1984 on which an interest in the tax shelter is offered for sale. Q-59. By what date must the tax shelter registration number be furnished to investors who acquired interests before September 1, 1984 in a tax shelter that is required to be registered. A-59. All investors who acquired their interests in a tax shelter before September 1, 1984 must be supplied with the tax shelter registration number by December 31, 1984. See A-52 of this section for the date by which registration numbers must be furnished to investors who acquire their interests on or after September 1, 1984. Q-60. What interests will be taken into account in determining whether an investment in which interests were sold before September 1, 1984, is a substantial investment? A-60. The determination of whether an investment is a substantial investment will be made by taking into account only the interests that are offered for sale on or after September 1, 1984. An investment will be considered a substantial investment if there are expected to be 5 or more investors on or after September 1, 1984, and the aggregate amount offered for sale on or after September 1, 1984 is expected to exceed $250,000. Amounts received from the sale of interests before September 1, 1984, however, are taken into account in computing the amount of the penalty for failure to register. (Secs. 6111 and 7805, Internal Revenue Code of 1954 (98 Stat. 678, 26 U.S.C. 6111; 68A Stat. 917, 26 U.S.C. 7805); secs. 6111, 6112 and 7805, Internal Revenue Code of 1954 (98 Stat. 678, 98 Stat. 681, 68A Stat. 917; 26 U.S.C. 6111, 6112 and 7805)) [T.D. 7964, 49 FR 32713, Aug. 15, 1984, as amended by T.D. 7990, 49 FR 43641, Oct. 31, 1984; T.D. 7964, 49 FR 44461, Nov. 7, 1984; T.D. 8078, 51 FR 7440, Mar. 25, 1986; T.D. 7964, 73 FR 73180, Dec. 2, 2008] § 301.6111-2 Confidential corporate tax shelters. (a) In general. (2) A confidential corporate tax shelter is any transaction— (i) A significant purpose of the structure of which is the avoidance or evasion of Federal income tax, as described in paragraph (b) of this section, for a direct or indirect corporate participant; (ii) That is offered to any potential participant under conditions of confidentiality, as described in paragraph (c) of this section; and (iii) For which the tax shelter promoters may receive fees in excess of $100,000 in the aggregate, as described in paragraph (d) of this section. (3) For purposes of this section, references to the term transaction substantially similar (4) A transaction described in paragraph (b) of this section is for a direct or an indirect corporate participant if it is expected to provide Federal income tax benefits to any corporation (U.S. or foreign) whether or not that corporation participates directly in the transaction. (b) Transactions structured for avoidance or evasion of Federal income tax In general. (2) Listed transactions. (3) Other tax-structured transactions. (i) The potential participant is expected to participate in the transaction in the ordinary course of its business in a form consistent with customary commercial practice (a transaction involving the acquisition, disposition, or restructuring of a business, including the acquisition, disposition, or other change in the ownership or control of an entity that is engaged in a business, or a transaction involving a recapitalization or an acquisition of capital for use in the taxpayer's business, shall be considered a transaction carried out in the ordinary course of a taxpayer's business); and (ii) There is a generally accepted understanding that the expected Federal income tax benefits from the transaction (taking into account any combination of intended tax consequences) are properly allowable under the Internal Revenue Code for substantially similar transactions. There is no minimum period of time for which such a generally accepted understanding must exist. In general, however, a tax shelter promoter (or other person who would be responsible for registration under this section) cannot reasonably determine whether the intended tax treatment of a transaction has become generally accepted unless information relating to the tax treatment and tax structure of such transactions has been in the public domain (e.g., rulings, published articles, etc.) and widely known for a sufficient period of time (ordinarily a period of years) to provide knowledgeable tax practitioners and the IRS reasonable opportunity to evaluate the intended tax treatment. The mere fact that one or more knowledgeable tax practitioners have provided an opinion or advice to the effect that the intended tax treatment of the transaction should or will be sustained, if challenged by the IRS, is not sufficient to satisfy the requirements of this paragraph (b)(3)(ii). (4) Excepted transactions. (i) In the case of a transaction other than a transaction described in paragraph (b)(2) of this section, the tax shelter promoter (or other person who would be responsible for registration under this section) reasonably determines that there is no reasonable basis under Federal tax law for denial of any significant portion of the expected Federal income tax benefits from the transaction. This paragraph (b)(4)(i) applies only if the tax shelter promoter (or other person who would be responsible for registration under this section) reasonably determines that there is no basis that would meet the standard applicable to taxpayers under § 1.6662-3(b)(3) of this chapter under which the IRS could disallow any significant portion of the expected Federal income tax benefits of the transaction. Thus, the reasonable basis standard is not satisfied by an IRS position that would be merely arguable or that would constitute merely a colorable claim. However, the determination of whether the IRS would or would not have a reasonable basis for such a position must take into account the entirety of the transaction and any combination of tax consequences that are expected to result from any component steps of the transaction, must not be based on any unreasonable or unrealistic factual assumptions, and must take into account all relevant aspects of Federal tax law, including the statute and legislative history, treaties, administrative guidance, and judicial decisions that establish principles of general application in the tax law (e.g., Gregory Helvering, (ii) The IRS makes a determination by published guidance that the transaction is not subject to the registration requirements of this section. (iii) The IRS makes a determination by individual ruling under paragraph (b)(5) of this section that a specific transaction is not subject to the registration requirements of this section for the taxpayer requesting the ruling. (5) Requests for ruling. (6) Example. Example. (i) Facts. (ii) Analysis. (c) Conditions of confidentiality In general. (2) Exceptions Securities law. (ii) Mergers and acquisitions. (3) Presumption. (d) Determination of fees. (e) Registration Time for registering In general. (ii) Special rule. (2) Procedures for registering. (f) Definition of tax shelter promoter. tax shelter promoter (g) Person required to register Tax shelter promoters. (2) Persons who discuss the transaction; all promoters are foreign persons In general. (ii) Exceptions. (A) The person does not participate, directly or indirectly, in the shelter and notifies the tax shelter promoter in writing, within 90 days of beginning such discussions, that the person will not participate; or (B) Within 90 days after beginning such discussions, the person obtains and reasonably relies on both— ( 1 ( 2 (iii) Determination of foreign status. (A) Discusses participation in the tax shelter with a promoter that is a United States person; or (B) Obtains and reasonably relies on a written statement from one of the promoters that at least one of the promoters is a United States person. (iv) Discussion. (v) Special rule for controlled entities. (vi) Other rules. (B) Any person treated as a tax shelter promoter under section 6111(d) solely by reason of being related (within the meaning of section 267 or 707) to a foreign promoter will be treated as a foreign promoter for purposes of this paragraph (g)(2). (h) Effective dates. see see [T.D. 9046, 68 FR 10170, Mar. 4, 2003] § 301.6111-3 Disclosure of reportable transactions. (a) In general. (b) Material advisor In general. (2) Material aid, assistance, or advice In general. (A) A taxpayer who either is required to disclose the transaction under §§ 1.6011-4, 20.6011-4, 25.6011-4, 26.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter because the transaction is a listed transaction or a transaction of interest, or would have been required to disclose the transaction under §§ 1.6011-4, 20.6011-4, 25.6011-4, 26.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter if the transaction had become a listed transaction or a transaction of interest within the period of limitations in § 1.6011-4(e) of this chapter; (B) A taxpayer who the potential material advisor knows is or reasonably expects to be required to disclose the transaction under § 1.6011-4 of this chapter because the transaction is or is reasonably expected to become a transaction described in § 1.6011-4(b)(3) through (5) or (7) of this chapter; (C) A material advisor who is required to disclose the transaction under this section because it is a listed transaction or a transaction of interest; or (D) A material advisor who the potential material advisor knows is or reasonably expects to be required to disclose the transaction under this section because the transaction is or is reasonably expected to become a transaction described in § 1.6011-4(b)(3) through (5) or (7) of this chapter. (ii) Tax statement In general. (B) Confidential transactions. (C) Transactions with contractual protection. ( 1 ( 2 (D) Loss transactions. (E) [Reserved] (iii) Special rules Capacity as an employee. (B) Post-filing advice. (C) Publicly filed statements. (3) Gross income derived for material aid, assistance, or advice Threshold amount In general. (B) Listed transactions and transactions of interest. (C) [Reserved] (D) Substantially all of the tax benefits. (ii) Gross income derived directly or indirectly for the material aid, assistance, or advice. (4) Date a person becomes a material advisor In general. (A) The person provides material aid, assistance or advice as described in paragraph (b)(2) of this section; (B) The person directly or indirectly derives gross income in excess of the threshold amount as described in paragraph (b)(3) of this section; and (C) The transaction is entered into by the taxpayer to whom or for whose benefit the person provided the tax statement, or in the case of a tax statement provided to another material advisor, when the transaction is entered into by a taxpayer to whom or for whose benefit that material advisor provided a tax statement. (ii) Determining if the taxpayer entered into the transaction. (iii) Listed transactions and transactions of interest. (5) Other persons designated as material advisors. (c) Definitions. (1) Reportable transaction. reportable transaction (2) Listed transaction. listed transaction (3) Derive. derive (4) Person. person (5) Substantially similar. substantially similar (6) Tax. tax (7) Tax benefit. (8) Tax return. tax return (9) Tax structure. (10) Tax treatment. (11) Taxpayer. taxpayer (12) Tax result protection. tax result protection (13) Transaction of interest. transaction of interest (d) Form and content of material advisor's disclosure statement In general. (2) Reportable transaction number. (e) Time of providing disclosure. (f) Designation agreements. (g) Protective disclosures. (h) Rulings. (i) Effective/applicability date In general. (2) [Reserved] [T.D. 9351, 72 FR 43159, Aug. 3, 2007, as amended by T.D. 9556, 76 FR 70341, Nov. 14, 2011] § 301.6112-1 Material advisors of reportable transactions must keep lists of advisees, etc. (a) In general. (b) Preparation and maintenance of lists In general. (2) Persons required to be included on lists. (3) Contents. (i) Statement. (A) The name of each reportable transaction, the citation to the published guidance number identifying the transaction if the transaction is a listed transaction or a transaction of interest, and the reportable transaction number obtained under section 6111; (B) The name, address, and TIN of each person required to be included on the list; (C) The date on which each person required to be included on the list entered into each reportable transaction, if known by the material advisor; (D) The amount invested in each reportable transaction by each person required to be included on the list, if known by the material advisor; (E) A summary or schedule of the tax treatment that each person is intended or expected to derive from participation in each reportable transaction; and (F) The name of each other material advisor to the transaction, if known by the material advisor. (ii) Description of the transaction. (iii) Documents. (A) A copy of any designation agreement (as described in paragraph (f) of this section) to which the material advisor is a party; and (B) Copies of any additional written materials, including tax analyses or opinions, relating to each reportable transaction that are material to an understanding of the purported tax treatment or tax structure of the transaction that have been shown or provided to any person who acquired or may acquire an interest in the transactions, or to their representatives, tax advisors, or agents, by the material advisor or any related party or agent of the material advisor. However, a material advisor is not required to retain earlier drafts of a document provided the material advisor retains a copy of the final document (or, if there is no final document, the most recent draft of the document) and the final document (or most recent draft) contains all the information in the earlier drafts of such document that is material to an understanding of the purported tax treatment or the tax structure of the transaction. (c) Definitions. (1) Material advisor. material advisor (2) Reportable transaction. reportable transaction (3) Listed transaction. listed transaction (4) Substantially similar. substantially similar (5) Person. person (6) Related party. (7) Tax. tax (8) Tax benefit. tax benefit (9) Tax return. tax return (10) Tax structure. tax structure (11) Tax treatment. tax treatment (12) Transaction of interest. transaction of interest (d) Retention of lists. (e) Furnishing of lists In general. (2) Claims of privilege. (f) Designation agreements. (g) Effective/applicability date. November 14, 2011. [T.D. 9352, 72 FR 43155, Aug. 3, 2007, as amended by T.D. 9556, 76 FR 70341, Nov. 14, 2011] § 301.6114-1 Treaty-based return positions. (a) Reporting requirement General rule. (ii) If a return of tax would not otherwise be required to be filed, a return must nevertheless be filed for purposes of making the disclosure required by this section. For this purpose, such return need include only the taxpayer's name, address, taxpayer identifying number, and be signed under penalties of perjury (as well as the subject disclosure). Also, the taxpayer's taxable year shall be deemed to be the calendar year (unless the taxpayer has previously established, or timely chooses for this purpose to establish, a different taxable year). In the case of a disclosable return position relating solely to income subject to withholding (as defined in § 1.1441-2(a) of this chapter), however, the statement required to be filed in paragraph (d) of this section must instead be filed at times and in accordance with procedures published by the Internal Revenue Service. (2) Application. (A) The tax liability (including credits, carrybacks, carryovers, and other tax consequences or attributes for the current year as well as for any other affected tax years) to be reported on a return of the taxpayer, and (B) The tax liability (including such credits, carrybacks, carryovers, and other tax consequences or attributes) that would be reported if the relevant treaty provision did not exist. If there is a difference (or potential difference) in these two amounts, the position taken on a return is a treaty-based return position that must be reported. (ii) In the event a taxpayer's return position is based on a conclusion that a treaty provision is consistent with a Code provision, but the effect of the treaty provision is to alter the scope of the Code provision from the scope that it would have in the absence of the treaty, then the return position is a treaty-based return position that must be reported. (iii) A return position is a treaty-based return position unless the taxpayer's conclusion that no reporting is required under paragraphs (a)(2) (i) and (ii) of this section has a substantial probability of successful defense if challenged. (3) Examples. Example 1: X, a Country A corporation, claims the benefit of a provision of the income tax treaty between the United States and Country A that modifies a provision of the Code. This position does not result in a change of X's U.S. tax liability for the current tax year but does give rise to, or increases, a net operating loss which may be carried back (or forward) such that X's tax liability in the carryback (or forward) year may be affected by the position taken by X in the current year. X must disclose this treaty-based return position with its tax return for the current tax year. Example 2: Z, a domestic corporation, is engaged in a trade or business in Country B. Country B imposes a tax on the income from certain of Z's petroleum activities at a rate significantly greater than the rate applicable to income from other activities. Z claims a foreign tax credit for this tax on its tax return. The tax imposed on Z is specifically listed as a creditable tax in the income tax treaty between the United States and Country B; however, there is no specific authority that such tax would otherwise be a creditable tax for U.S. purposes under sections 901 or 903 of the Code. Therefore, in the absence of the treaty, the creditability of this petroleum tax would lack a substantial probability of successful defense if challenged, and Z must disclose this treaty-based return position (see also paragraph (b)(7) of this section). (b) Reporting specifically required. (1) That a nondiscrimination provision of a treaty precludes the application of any otherwise applicable Code provision, other than with respect to the making of or the effect of an election under section 897(i); (2) That a treaty reduces or modifies the taxation of gain or loss from the disposition of a United States real property interest; (3) That a treaty exempts a foreign corporation from (or reduces the amount of tax with respect to) the branch profits tax (section 884(a)) or the tax on excess interest (section 884(f)(1)(B)); (4) That, notwithstanding paragraph (c)(1)(i) of this section, (i) A treaty exempts from tax, or reduces the rate of tax on, interest or dividends paid by a foreign corporation that are from sources within the United States by reason of section 861(a)(2)(B) or section 884(f)(1)(A); or (ii) A treaty exempts from tax, or reduces the rate of tax on, fixed or determinable annual or periodical income subject to withholding under section 1441 or 1442 that a foreign person receives from a U.S. person, but only if described in paragraphs (b)(4)(ii)(A) and (B) of this section, or in paragraph (b)(4)(ii)(C) or (D) of this section as follows— (A) the payment is not properly reported to the Service on a Form 1042S; and (B) The foreign person is any of the following: ( 1 ( 2 ( 3 ( 4 (C) For payments made after December 31, 2000, with respect to a treaty that contains a limitation on benefits article, that— ( 1 ( 2 (D) For payments made after December 31, 2000, with respect to a treaty that imposes any other conditions for the entitlement of treaty benefits, for example as a part of the interest, dividends, or royalty article, that such conditions are met; (5) That, notwithstanding paragraph (c)(1)(i) of this section, under a treaty— (i) Income that is effectively connected with a U.S. trade or business of a foreign corporation or a nonresident alien is not attributable to a permanent establishment or a fixed base of operations in the United States and, thus, is not subject to taxation on a net basis, or that (ii) Expenses are allowable in determining net business income so attributable, notwithstanding an inconsistent provision of the Code; (6) Except as provided in paragraph (c)(1)(iv) of this section, that a treaty alters the source of any item of income or deduction; (7) That a treaty grants a credit for a specific foreign tax for which a foreign tax credit would not be allowed by the Code; or (8) For returns relating to taxable years for which the due date for filing returns (without extensions) is after December 15, 1997, that residency of an individual is determined under a treaty and apart from the Internal Revenue Code. (c) Reporting requirement waived. (i) For amounts received on or after January 1, 2001, reporting under paragraph (b)(4)(ii) is waived, unless reporting is specifically required under paragraphs (b)(4)(ii)(A) and (B) of this section, paragraph (b)(4)(ii)(C) of this section, or paragraph (b)(4)(ii)(D) of this section; (ii) Notwithstanding paragraph (b)(4) or (5) of this section, that a treaty has reduced the rate of withholding tax otherwise applicable to a particular type of fixed or determinable annual or periodical income subject to withholding under section 1441 or 1442, such as dividends, interest, rents, or royalties to the extent such income is beneficially owned by an individual or a State (including a political subdivision or local authority); (iii) For returns relating to taxable years for which the due date for filing returns (without extensions) is on or before December 15, 1997, that residency of an individual is determined under a treaty and apart from the Internal Revenue Code. (iv) That a treaty reduces or modifies the taxation of income derived from dependent personal services, pensions, annuities, social security and other public pensions, or income derived by artistes, athletes, students, trainees or teachers; (v) That income of an individual is resourced (for purposes of applying the foreign tax credit limitation) under a treaty provision relating to elimination of double taxation; (vi) That a nondiscrimination provision of a treaty allows the making of an election under section 897(i); (vii) That a Social Security Totalization Agreement or a Diplomatic or Consular Agreement reduces or modifies the taxation of income derived by the taxpayer; or (viii) That a treaty exempts the taxpayer from the excise tax imposed by section 4371, but only if: (A) The person claiming such treaty-based return position is an insured, as defined in section 4372(d) (without the limitation therein referring to section 4371(1)), or a U.S. or foreign broker of insurance risks, (B) Reporting under this section that would otherwise be required to be made by foreign insurers or reinsurers on a Form 720 on a quarterly basis is made on an annual basis on a Form 720 by a date no later than the date on which the return is due for the first quarter after the end of the calendar year, or (C) A closing agreement relating to entitlement to the exemption from the excise tax has been entered into with the Service by the foreign insurance company that is the beneficial recipient of the premium that is subject to the excise tax. (ix) Notwithstanding paragraph (b)(1) of this section, that a nondiscrimination provision of a qualified income tax treaty, as defined in Treas. Reg. § 1.5000C-1(c)(13), exempts a payment from tax under section 5000C, but only if the foreign person claiming such relief has provided a Section 5000C Certificate (such as Form W-14, “Certificate of Foreign Contracting Party Receiving Federal Procurement Payments”) to the acquiring agency in accordance with section 5000C and the regulations thereunder. (2) Reporting is waived for an individual if payments or income items otherwise reportable under this section (other than by reason of paragraph (b)(8) of this section), received by the individual during the course of the taxable year do not exceed $10,000 in the aggregate or, in the case of payments or income items reportable only by reason of paragraph (b)(8) of this section, do not exceed $100,000 in the aggregate. (3) Reporting with respect to payments or income items the treatment of which is mandated by the terms of a closing agreement with the Internal Revenue Service, and that would otherwise be subject to the reporting requirements of this section, is also waived. (4) If a partnership, trust, or estate that has the taxpayer as a partner or beneficiary discloses on its information return a position for which reporting is otherwise required by the taxpayer, the taxpayer (partner or beneficiary) is then excused from disclosing that position on a return. (5) This section does not apply to a withholding agent with respect to the performance of its withholding functions. (6)(i) For taxable years ending after December 31, 2004, except as provided in paragraph (c)(6)(ii) of this section, reporting under paragraph (b)(4)(ii) of this section is waived for amounts received by a related party, within the meaning of section 6038A(c)(2), from a withholding agent that is a reporting corporation, within the meaning of section 6038A(a), and that are properly reported on Form 1042-S. (ii) Paragraph (c)(6)(i) of this section does not apply to any amounts for which reporting is specifically required under the instructions to Form 8833. (7)(i) For taxable years ending after December 31, 2004, except as provided in paragraph (c)(7)(iv) of this section, reporting under paragraph (b)(4)(ii) of this section is waived for amounts properly reported on Form 1042-S (on either a specific payee or pooled basis) by a withholding agent described in paragraph (c)(7)(ii) of this section if the beneficial owner is described in paragraph (c)(7)(iii) of this section. (ii) A withholding agent described in this paragraph (c)(7)(ii) is a U.S. financial institution, as defined in § 1.1441-1(c)(5) of this chapter, a qualified intermediary, as defined in § 1.1441-1(e)(5)(ii) of this chapter, a withholding foreign partnership, as defined § 1.1441-5(c)(2)(i) of this chapter, or a withholding foreign trust, as defined in § 1.1441-5(e)(5)(v) of this chapter. (iii) A beneficial owner described in this paragraph (c)(7)(iii) of this section is a direct account holder of a U.S. financial institution or qualified intermediary, a direct partner of a withholding foreign partnership, or a direct beneficiary or owner of a simple or grantor trust that is a withholding foreign trust. A beneficial owner described in this paragraph (c)(7)(iii) also includes an account holder to which a qualified intermediary has applied section 4A.01 or 4A.02 of the qualified intermediary agreement, contained in Revenue Procedure 2000-12 (2000-1 C.B. 387), (as amended by Revenue Procedure 2003-64, (2003-2 C.B. 306); Revenue Procedure 2004-21 (2004-1 C.B. 702); Revenue Procedure 2005-77 (2005-51 I.R.B. 1176) (see § 601.601(b)(2) of this chapter) a partner to which a withholding foreign partnership has applied section 10.01 or 10.02 of the withholding foreign partnership agreement, and a beneficiary or owner to which a withholding foreign trust has applied section 10.01 or 10.02 of the withholding foreign trust agreement, contained in Revenue Procedure 2003-64, (2003-2 C.B. 306), (as amended by Revenue Procedure 2004-21 (2004-1 C.B. 702); Revenue Procedure 2005-77 (2005-51 I.R.B. 1176); (see § 601.601(b)(2) of this chapter). (iv) Paragraph (c)(7)(i) of this section does not apply to any amounts for which reporting is specifically required under the instructions to Form 8833. (8)(i) For taxable years ending after December 31, 2004, except as provided in paragraph (c)(8)(ii) of this section, reporting under paragraph (b)(4)(ii) of this section is waived for taxpayers that are not individuals or States and that receive amounts of income that have been properly reported on Form 1042-S, that do not exceed $500,000 in the aggregate for the taxable year and that are not received through an account with an intermediary, as defined in § 1.1441-1(c) (13), or with respect to interest in a flow-through entity, as defined in § 1.1441-1(c)(23), (ii) The exception contained in paragraph (c)(8)(i) of this section does not apply to any amounts for which reporting is specifically required under the instructions to Form 8833. (d) Information to be reported Returns due after (2) Earlier returns. (3) In general Permanent establishment. (ii) Single income item. (iii) Foreign source effectively connected income. (iv) Sales or services income. (v) Foreign insurers or reinsurers. (e) Effective/applicability date In general. (i) A taxpayer has filed a return for such a taxable year, without complying with the reporting requirement of this section, before November 13, 1989, or (ii) A taxpayer is not otherwise than by paragraph (a) of this section required to file a return for a taxable year before November 13, 1989, such taxpayer must file (apart from any earlier filed return) the statement required by paragraph (d) of this section before June 12, 1990, by mailing the required statement to the Internal Revenue Service, P.O. Box 21086, Philadelphia, PA 19114. Any such statement filed apart from a return must be dated, signed and sworn to by the taxpayer under the penalties of perjury. In addition, with respect to any return due (without extensions) on or before March 10, 1990, the reporting required by paragraph (a) of this section must be made no later than June 12, 1990. If a taxpayer files or has filed a return on or before November 13, 1989, that provides substantially the same information required by paragraph (d) of this section, no additional submission will be required. Foreign insurers and reinsurers subject to reporting described in paragraph (c)(7)(ii) of this section must so report for calendar years 1988 and 1989 no later than August 15, 1990. (2) Section 5000C. (f) Cross reference. [T.D. 8292, 55 FR 9440, Mar. 14, 1990; 55 FR 10237, Mar. 20, 1990, as amended by T.D. 8305, 55 FR 28609, July 12, 1990; T.D. 8733, 62 FR 53385, Oct. 14, 1997; T.D. 8734, 62 FR 53495, Oct. 14, 1997; T.D. 8804, 63 FR 72189, Dec. 31, 1998; T.D. 8856, 64 FR 73413, Dec. 30, 1999; T.D. 9253, 71 FR 13007, Mar. 14, 2006; 71 FR 27321, May 10, 2006; T.D. 9782, 81 FR 55145, Aug. 18, 2016] Time and Place for Paying Tax Place and Due Date for Payment of Tax § 301.6151-1 Time and place for paying tax shown on returns. For provisions concerning the time and place for paying tax shown on returns with respect to a particular tax, see the regulations relating to such tax. § 301.6153-1 Installment payments of estimated income tax by individuals. For provisions relating to installment payments of estimated income tax by individuals, see §§ 1.6153-1 to 1.6153-4, inclusive, of this chapter (Income Tax Regulations). § 301.6155-1 Payment on notice and demand. Upon receipt of notice and demand from the district director (including the Director of International Operations) or the director of the regional service center, there shall be paid at the place and time stated in such notice the amount of any tax (including any interest, additional amounts, additions to the tax, and assessable penalties) stated in such notice and demand. § 301.6159-0 Table of contents. This section lists the major captions that appear in the regulations under § 301.6159-1. § 301.6159-1 Agreements for the payment of tax liabilities in installments. (a) Authority. (b) Procedures for submission and consideration of proposed installment agreements. (c) Acceptance, form, and terms of installment agreements. (d) Rejection of a proposed installment agreement. (e) Modification or termination of installment agreements by the Internal Revenue Service. (f) Effect of installment agreement or pending installment agreement on collection activity. (g) Suspension of the statute of limitations on collection. (h) Annual statement. (i) Biennial review of partial payment installment agreements. (j) Cross reference. (k) Effective/applicability date. [T.D. 9473, 74 FR 61528, Nov. 25, 2009] § 301.6159-1 Agreements for payment of tax liabilities in installments. (a) Authority. (b) Procedures for submission and consideration of proposed installment agreements In general. (2) When a proposed installment agreement becomes pending. (3) Revised proposals of installment agreements submitted following rejection. (c) Acceptance, form, and terms of installment agreements Acceptance of an installment agreement In general. (ii) Acceptance does not reduce liabilities. (iii) Guaranteed installment agreements. (A) The aggregate amount of the liability (not including interest, penalties, additions to tax, and additional amounts) does not exceed $10,000; (B) The taxpayer (and, if the liability relates to a joint return, the taxpayer's spouse) has not, during any of the preceding five taxable years— ( 1 ( 2 ( 3 (C) The Commissioner determines that the taxpayer is financially unable to pay the liability in full when due (and the taxpayer submits any information the Commissioner requires to make that determination); (D) The installment agreement requires full payment of the liability within three years; and (E) The taxpayer agrees to comply with the provisions of the Internal Revenue Code for the period the agreement is in effect. (2) Form of installment agreements. (3) Terms of installment agreements. (ii) By its terms, an installment agreement may end upon the expiration of the period of limitations on collection in section 6502 and § 301.6502-1, or at some prior date. (iii) As a condition to entering into an installment agreement with a taxpayer, the Commissioner may require that— (A) The taxpayer agree to a reasonable extension of the period of limitations on collection; and (B) The agreement contain terms that protect the interests of the Government. (iv) Except as otherwise provided in an installment agreement, all payments made under the installment agreement will be applied in the best interests of the Government. (v) While an installment agreement is in effect, the Commissioner may request, and the taxpayer must provide, a financial condition update at any time. (vi) At any time after entering into an installment agreement, the Commissioner and the taxpayer may agree to modify or terminate an installment agreement or may agree to a new installment agreement that supersedes the existing agreement. (d) Rejection of a proposed installment agreement When a proposed installment agreement becomes rejected. (2) Independent administrative review. (3) Appeal of rejection of a proposed installment agreement. (e) Modification or termination of installment agreements by the Internal Revenue Service Inadequate information or jeopardy. (i) Information which was provided to the IRS by the taxpayer or the taxpayer's representative in connection with either the granting of the installment agreement or a request for a financial update was inaccurate or incomplete in any material respect; or (ii) Collection of any liability to which the installment agreement applies is in jeopardy. (2) Change in financial condition, failure to timely pay an installment or another Federal tax liability, or failure to provide requested financial information. (i) The Commissioner determines that the financial condition of a taxpayer that is party to the agreement has significantly changed; or (ii) A taxpayer that is party to the installment agreement fails to— (A) Timely pay an installment in accordance with the terms of the installment agreement; (B) Pay any other Federal tax liability when the liability becomes due; or (C) Provide a financial condition update requested by the Commissioner. (3) Request by taxpayer. (4) Notice. (5) Appeal of modification or termination of an installment agreement. (f) Effect of installment agreement or pending installment agreement on collection activity In general. (2) Exceptions. (3) Other actions by the IRS while levy is prohibited In general. (A) Crediting an overpayment against the liability pursuant to section 6402; (B) Filing or refiling notices of Federal tax lien; and (C) Taking action to collect from any person who is not named in the installment agreement or proposed installment agreement but who is liable for the tax to which the installment agreement relates. (ii) Proceedings in court. (g) Suspension of the statute of limitations on collection. (h) Annual statement. (i) Biennial review of partial payment installment agreements. (j) Cross reference. see (k) Effective/applicability date. [T.D. 9473, 74 FR 61528, Nov. 25, 2009] Extension of Time for Payment § 301.6161-1 Extension of time for paying tax. For provisions concerning the extension of time for paying a particular tax or for paying an amount determined as a deficiency, see the regulations relating to such tax. § 301.6162-1 Extension of time for payment of tax on gain attributable to liquidation of personal holding companies. For provisions relating to the extension of time for payment of tax on gain attributable to liquidation of personal holding companies, see § 1.6162-1 of this chapter (Income Tax Regulations). § 301.6163-1 Extension of time for payment of estate tax on value of reversionary or remainder interest in property. For provisions relating to the extension of time for payment of estate tax on value of reversionary or remainder interest in property, see § 20.6163-1 of this chapter (Estate Tax Regulations). § 301.6164-1 Extension of time for payment of taxes by corporations expecting carrybacks. For provisions relating to the extension of time for payment of taxes by corporations expecting carrybacks, see §§ 1.6164-1 to 1.6164-9, inclusive, of this chapter (Income Tax Regulations). § 301.6165-1 Bonds where time to pay the tax or deficiency has been extended. For provisions concerning bonds where time to pay a tax or deficiency has been extended, see the regulations relating to the particular tax. § 301.6166-1 Extension of time for payment of estate tax where estate consists largely of interest in closely held business. For provisions relating to the extension of time for payment of estate tax where estate consists largely of interest in closely held business, see §§ 20.6166-1 to 20.6166-4, inclusive, of this chapter (Estate Tax Regulations). Assessment In General § 301.6201-1 Assessment authority. (a) In general. (1) Taxes shown on return. (2) Unpaid taxes payable by stamp. ( a ( b The district director, upon such information as he can obtain, must estimate the amount of the tax which has not been paid and the district director or the director of the regional service center must make assessment therefor upon the person the district director determines to be liable for the tax. However, the district director or the director of the regional service center may not assess any tax which is payable by stamp unless the taxpayer fails to pay such tax at the time and in the manner provided by law or regulations. (ii) If a taxpayer gives a check or money order as a payment for stamps but the check or money order is not paid upon presentment, then the district director or the director of the regional service center shall assess the amount of the check or money order against the taxpayer as if it were a tax due at the time the check or money order was received by the district director. (3) Erroneous income tax prepayment credits. (b) Estimated income tax. (c) Compensation of child. § 301.6203-1 Method of assessment. The district director and the director of the regional service center shall appoint one or more assessment officers. The district director shall also appoint assessment officers in a Service Center servicing his district. The assessment shall be made by an assessment officer signing the summary record of assessment. The summary record, through supporting records, shall provide identification of the taxpayer, the character of the liability assessed, the taxable period, if applicable, and the amount of the assessment. The amount of the assessment shall, in the case of tax shown on a return by the taxpayer, be the amount so shown, and in all other cases the amount of the assessment shall be the amount shown on the supporting list or record. The date of the assessment is the date the summary record is signed by an assessment officer. If the taxpayer requests a copy of the record of assessment, he shall be furnished a copy of the pertinent parts of the assessment which set forth the name of the taxpayer, the date of assessment, the character of the liability assessed, the taxable period, if applicable, and the amounts assessed. § 301.6204-1 Supplemental assessments. If any assessment is incomplete or incorrect in any material respect, the district director or the director of the regional service center, subject to the restrictions with respect to the assessment of deficiencies in income, estate, gift, chapter 41, 42, 43, and 44 taxes, and subject to the applicable period of limitation, may make a supplemental assessment for the purpose of correcting or completing the original assessment. [T.D. 7838, 47 FR 44249, Oct. 7, 1982] § 301.6205-1 Special rules applicable to certain employment taxes. For regulations under section 6205, see § 31.6205-1 of this chapter (Employment Tax Regulations). Deficiency Procedures § 301.6211-1 Deficiency defined. (a) In the case of the income tax imposed by subtitle A of the Code, the estate tax imposed by chapter 11, subtitle B, of the Code, the gift tax imposed by chapter 12, subtitle B, of the Code, and any excise tax imposed by chapter 41, 42, 43, or 44 of the Code, the term “deficiency” means the excess of the tax, (income, estate, gift, or excise tax as the case may be) over the sum of the amount shown as such tax by the taxpayer upon his return and the amounts previously assessed (or collected without assessment) as a deficiency; but such sum shall first be reduced by the amount of rebates made. If no return is made, or if the return (except a return of income tax pursuant to sec. 6014) does not show any tax, for the purpose of the definition “the amount shown as the tax by the taxpayer upon his return” shall be considered as zero. Accordingly, in any such case, if no deficiencies with respect to the tax have been assessed, or collected without assessment, and no rebates with respect to the tax have been made, the deficiency is the amount of the income tax imposed by subtitle A, the estate tax imposed by chapter 11, the gift tax imposed by chapter 12, or any excise tax imposed by chapter 41, 42, 43, or 44. Any amount shown as additional tax on an “amended return,” so-called (other than amounts of additional tax which such return clearly indicates the taxpayer is protesting rather than admitting) filed after the due date of the return, shall be treated as an amount shown by the taxpayer “upon his return” for purposes of computing the amount of a deficiency. (b) For purposes of the definition, the income tax imposed by subtitle A and the income tax shown on the return shall both be determined without regard to the credit provided in section 31 for income tax withheld at the source and without regard to so much of the credit provided in section 32 for income taxes withheld at the source as exceeds 2 percent of the interest on tax-free covenant bonds described in section 1451. Payments on account of estimated income tax, like other payments of tax by the taxpayer, shall likewise be disregarded in the determination of a deficiency. Any credit resulting from the collection of amounts assessed under section 6851 or 6852 as the result of a termination assessment shall not be taken into account in determining a deficiency. (c) The computation by the Internal Revenue Service, pursuant to section 6014, of the income tax imposed by subtitle A shall be considered as having been made by the taxpayer and the tax so computed shall be considered as the tax shown by the taxpayer upon his return. (d) If so much of the credit claimed on the return for income taxes withheld at the source as exceeds 2 percent of the interest on tax-free convenant bonds is greater than the amount of such credit allowable, the unpaid portion of the tax attributable to such difference will be collected not as a deficiency but as an underpayment of the tax shown on the return. (e) This section may be illustrated by the following examples: Example 1. The amount of income tax shown by the taxpayer upon his return for the calendar year 1954 was $1,600. The taxpayer had no amounts previously assessed (or collected without assessment) as a deficiency. He claimed a credit in the amount of $2,050 for tax withheld at source on wages under section 3402, and a refund of $450 (not a rebate under section 6211) was made to him as an overpayment of tax for the taxable year. It is later determined that the correct tax for the taxable year is $1,850. A deficiency of $250 is determined as follows: Tax imposed by subtitle A $1,850 Tax shown on return $1,600 Tax previously assessed (or collected without assessment) as a deficiency None Total 1,600 Amount of rebates made None Balance 51,600 Deficiency 250 Example 2. The taxpayer made a return for the calendar year 1954 showing a tax of $1,250 before any credits for tax withheld at the source. He claimed a credit in the amount of $800 for tax withheld at source on wages under section 3402 and $60 for tax paid at source under section 1451 upon interest on bonds containing a tax-free covenant. The taxpayer had no amounts previously assessed (or collected without assessment) as a deficiency. The district director determines that the 2 percent tax paid at the source on tax-free covenant bonds is $40 instead of $60 as claimed by the taxpayer and that the tax imposed by subtitle A is $1,360 (total tax $1,400 less $40 paid at source on tax-free covenant bonds). A deficiency in the amount of $170 is determined as follows: Tax imposed by subtitle A ($1,400 minus $40) $1,360 Tax shown on return ($1,250 minus $60) $1,190 Tax previously assessed (or collected without assessment) as a deficiency None Total 1,190 Amount of rebates made None Balance 1,190 Deficiency 170 (f) As used in section 6211, the term rebate [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7102, 36 FR 5498, Mar. 24, 1971; T.D. 7575, 43 FR 58817, Dec. 18, 1978; T.D. 7838, 47 FR 44249, Oct. 7, 1982; T.D. 8628, 60 FR 62212, Dec. 5, 1995] § 301.6212-1 Notice of deficiency. (a) General rule. (b) Address for notice of deficiency Income, gift, and chapter 41, 42, 43, and 44 taxes. (2) Joint income tax returns. (3) Estate tax. (c) Further deficiency letters restricted. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7238, 37 FR 28739, Dec. 29, 1972; T.D. 7579, 43 FR 59360, Dec. 20, 1978; T.D. 7838, 47 FR 44249, Oct. 7, 1982; T.D. 7910, 48 FR 40376, Sept. 7, 1983; T.D. 8084, 51 FR 16305, May 2, 1986; T.D. 8628, 60 FR 62212, Dec. 5, 1995] § 301.6212-2 Definition of last known address. (a) General rule. (b) Address obtained from third party In general. (2) Exception for address obtained from the United States Postal Service Updating taxpayer addresses. (ii) Duration of address obtained from NCOA database. (A) The taxpayer files and the IRS properly processes a Federal tax return with an address different from the address obtained from the NCOA database; or (B) The taxpayer provides the Internal Revenue Service with clear and concise notification of a change of address, as defined in procedures prescribed by the Commissioner, that is different from the address obtained from the NCOA database. (3) Examples. Example 1. (i) A is an unmarried taxpayer. The address on A's 1999 Form 1040, U.S. Individual Income Tax Return, filed on April 14, 2000, and 2000 Form 1040 filed on April 13, 2001, is 1234 Anyplace Street, Anytown, USA 43210. On May 15, 2001, A informs the USPS of a new permanent address (9876 Newplace Street, Newtown, USA 12345) using the USPS Form 3575, “Official Mail Forwarding Change of Address Form.” The change of address is included in the weekly update of the USPS NCOA database. On May 29, 2001, A's address maintained in IRS records is changed to 9876 Newplace Street, Newtown, USA 12345. (ii) In June 2001 the IRS determines a deficiency for A's 1999 tax year and prepares to issue a notice of deficiency. The IRS obtains A's address for the notice of deficiency from IRS records. On June 15, 2001, the Internal Revenue Service mails the notice of deficiency to A at 9876 Newplace Street, Newtown, USA 12345. For purposes of section 6212(b), the notice of deficiency mailed on June 15, 2001, is mailed to A's last known address. Example 2. (i) The facts are the same as in Example 1, (ii) On May 21, 2001, the IRS prepares a notice of deficiency for A and obtains A's address from IRS records. Because A did not inform the USPS of the change of address in sufficient time for the IRS to process and post the new address in Internal Revenue Service's records by May 21, 2001, the notice of deficiency is mailed to 1234 Anyplace Street, Anytown, USA 43210. For purposes of section 6212(b), the notice of deficiency mailed on May 21, 2001, is mailed to A's last known address. Example 3. (i) C and D are married taxpayers. The address on C and D's 2000 Form 1040, U.S. Individual Income Tax Return, filed on April 13, 2001, and 2001 Form 1040 filed on April 15, 2002, is 2468 Spring Street, Little City, USA 97531. On August 15, 2002, D informs the USPS of a new permanent address (8642 Peachtree Street, Big City, USA 13579) using the USPS Form 3575, “Official Mail Forwarding Change of Address Form.” The change of address is included in the weekly update of the USPS NCOA database. On August 29, 2002, D's address maintained in IRS records is changed to 8642 Peachtree Street, Big City, USA 13579. (ii) In October 2002 the IRS determines a deficiency for C and D's 2000 tax year and prepares to issue a notice of deficiency. The Internal Revenue Service obtains C's address and D's address for the notice of deficiency from IRS records. On October 15, 2002, the IRS mails a copy of the notice of deficiency to C at 2468 Spring Street, Little City, USA 97531, and to D at 8642 Peachtree Street, Big City, USA 13579. For purposes of section 6212(b), the notices of deficiency mailed on October 15, 2002, are mailed to C and D's respective last known addresses. (c) Last known address for all notices, statements, and documents. last known address (d) Effective Date In general. (2) Individual moves in the case of joint filers. [T.D. 8939, 66 FR 2820, Jan. 12, 2001] § 301.6213-1 Restrictions applicable to deficiencies; petition to Tax Court. (a) Time for filing petition and restrictions on assessment Time for filing petition. (2) Restrictions on assessment. (b) Exceptions to restrictions on assessment of deficiencies Mathematical errors. (2) Tentative carryback adjustments. (ii) The method provided in subdivision (i) of this subparagraph to recover any amount applied, credited, or refunded in respect of an application for a tentative carryback adjustment which should not have been so applied, credited, or refunded is not an exclusive method. Two other methods are available to recover such amount: ( a b (3) Assessment of amount paid. (4) Jeopardy. (c) Failure to file petition. (d) Waiver of restrictions. (e) Suspension of filing period for certain chapter 42 and chapter 43 taxes. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7838, 47 FR 44250, Oct. 7, 1982; T.D. 8084, 51 FR 16035, May 2, 1986; T.D. 8628, 60 FR 62212, Dec. 5, 1995; T.D. 8920, 66 FR 2171, Jan. 10, 2001] § 301.6213-2 Omission of correct vehicle identification number. (a) In general. mathematical or clerical error (1) Under section 6213(g)(2)(T), an omission of a correct vehicle identification number required under section 30D(f)(9) of the Code (relating to credit for new clean vehicles) to be included on a return; (2) Under section 6213(g)(2)(U), an omission of a correct vehicle identification number required under section 25E(d) of the Code (relating to credit for previously-owned clean vehicles) to be included on a return; and (3) Under section 6213(g)(2)(V), an omission of a correct vehicle identification number required under section 45W(e) of the Code (relating to credit for qualified commercial clean vehicles) to be included on a return. (b) Omission of a correct vehicle identification number. (1) The vehicle identification number required to be reported under section 30D(f)(9), 25E(d), or 45W(e) is not included on the return of tax; (2) The vehicle identification number included on the return of tax is not that of a vehicle eligible for a credit under section 30D, 25E, or 45W. (3) The vehicle identification number included on the return of tax is not that of a vehicle eligible for a credit under section 30D, 25E, or 45W for the year in which it is claimed; (4) The vehicle identification number included on the return of tax differs from the vehicle identification number reported to the IRS and the taxpayer under section 30D(d)(1)(H) for each new clean vehicle placed in service during the taxable year by the taxpayer who was issued the report; or (5) The vehicle identification number included on the return of tax differs from the vehicle identification number reported to the IRS and the taxpayer under section 25E(c)(1)(D)(i) for each previously-owned clean vehicle placed in service during the taxable year by the taxpayer who was issued the report. (c) Applicability date. [T.D. 9995, 89 FR 37774, May 6, 2024] § 301.6215-1 Assessment of deficiency found by Tax Court. Where a petition has been filed with the Tax Court, the entire amount redetermined as the deficiency by the decision of the Tax Court which has become final shall be assessed by the district director or the director of the regional service center and the unpaid portion of the amount so assessed shall be paid by the taxpayer upon notice and demand therefor. § 301.6221-1 Tax treatment determined at partnership level. (a) In general. (b) Restrictions inapplicable after items become nonpartnership items. (c) Penalties determined at partnership level. (d) Partner-level defenses. (e) Cross-references. (f) Effective date. [T.D. 8965, 66 FR 50544, Oct. 4, 2001] § 301.6221(a)-1 Determination at partnership level. (a) In general. (b) Legal and factual determinations at the partnership level. (c) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6531, Feb. 27, 2019] § 301.6221(b)-1 Election out for certain partnerships with 100 or fewer partners. (a) In general. (b) Eligible partnership In general. (i) The partnership has 100 or fewer partners as determined in accordance with paragraph (b)(2) of this section, and (ii) Each statement the partnership is required to furnish under section 6031(b) for the partnership taxable year is furnished to a partner that was an eligible partner (as defined in paragraph (b)(3) of this section) for the partnership's entire taxable year. (2) 100 or fewer partners In general. (ii) Special rule for S corporations. (iii) Examples. Example 1. During its 2020 partnership taxable year, Partnership has four partners each owning an interest in Partnership. Two of the partners are Spouse 1 and Spouse 2 who are married to each other during all of 2020. Spouse 1 and Spouse 2 each own a separate interest in Partnership. The two other partners are unmarried individuals. Under section 6031(b), Partnership is required to furnish a separate statement (that is, Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Example 2. The facts are the same as in Example 1 Example 3. At the beginning of 2020, Partnership, which has a taxable year ending December 31, 2020, has three partners—individuals A, B, and C. Each individual owns an interest in Partnership. On June 30, 2020, Individual A dies, and A's interest in Partnership becomes an asset of A's estate. A's estate owns the interest for the remainder of 2020. On September 1, 2020, B sells his interest in Partnership to Individual D, who holds the interest for the remainder of the year. Under section 6031(b), Partnership is required to furnish five statements for its 2020 taxable year—one each to Individual A, the estate of Individual A, Individual B, Individual C, and Individual D. Therefore, for purposes of this paragraph (b)(2), Partnership has five partners during its 2020 taxable year. Example 4. During its 2020 taxable year, Partnership has 51 partners—50 partners who are individuals and S, an S corporation. S and Partnership are both calendar year taxpayers. S has 50 shareholders during the 2020 taxable year. Under section 6031(b), Partnership is required to furnish 51 statements for the 2020 taxable year—one to S and one to each of Partnership's 50 partners who are individuals. Under section 6037(b), S is required to furnish a statement (that is, Schedule K-1 (Form 1120-S), Shareholder's Share of Income, Deductions, Credits, etc. Example 5. During its 2020 taxable year, Partnership has two partners, A, an individual, and E, an estate of a deceased partner. E has 10 beneficiaries. Under section 6031(b), Partnership is required to furnish two statements, one to A and one to E. Any statements that E may be required to furnish to its beneficiaries are not taken into account for purposes of this paragraph (b)(2). Therefore, for purposes of this paragraph (b)(2), Partnership has two partners. (3) Eligible Partners In general. eligible partner (ii) Partners that are not eligible partners. (A) A partnership, (B) A trust, (C) A foreign entity that is not an eligible foreign entity described in paragraph (b)(3)(iii) of this section, (D) A wholly owned entity disregarded as separate from its owner for Federal income tax purposes, (E) An estate of an individual other than a deceased partner, or (F) Any person who holds an interest in the partnership on behalf of another person, or (G) A qualified subchapter S subsidiary, as defined in section 1361(b)(3)(B). (iii) Eligible foreign entity. (iv) Examples. Example 1. During the 2020 taxable year, Partnership has four equal partners. Two partners are individuals. One partner is a C corporation. The fourth partner, D, is a partnership. Because D is a partnership, D is not an eligible partner under paragraph (b)(3)(i) of this section. Accordingly, Partnership is not an eligible partnership under paragraph (b)(1) of this section and, therefore, cannot make the election under paragraph (a) of this section for its 2020 taxable year. Example 2. During its 2020 taxable year, Partnership has four equal partners. Two partners are individuals. One partner is a C corporation. The fourth partner, S, is an S corporation. S has ten shareholders. One of S's shareholders is a disregarded entity, and one is a qualified small business trust. S is an eligible partner under paragraph (b)(3)(i) of this section even though S's shareholders would not be considered eligible partners if those shareholders held direct interests in Partnership. See paragraph (b)(3)(i) of this section. Accordingly, Partnership meets the requirements under this paragraph (b)(3) for its 2020 taxable year. Example 3. During its 2020 taxable year, Partnership has two equal partners, A, an individual, and C, a disregarded entity, wholly owned by B, an individual. C is not an eligible partner under paragraph (b)(3)(i) of this section. Accordingly, Partnership is not an eligible partnership under paragraph (b)(1) of this section and, therefore, is ineligible to make the election under paragraph (a) of this section for its 2020 taxable year. (c) Election In general. (2) Disclosure of partner information to the IRS. (3) Partner notification. (d) Election made by a partnership that is a partner In general. (2) Examples. Example 1. During its 2020 taxable year, Partnership, a calendar year taxpayer, has two partners. One partner, A, is also a calendar year partnership. A files a valid election under this section with its timely filed partnership return for its 2020 taxable year. Partnership does not file an election under this section. Notwithstanding A's valid election under this section, with respect to A's interest in Partnership, A is subject to the rules applicable to partners in a partnership subject to the rules under subchapter C of chapter 63, including the consistency requirements of section 6222 and the regulations thereunder. Example 2. The facts are the same as Example 1 (e) Effect of an election In general. (2) IRS determination that election is invalid. (f) Applicability date. [T.D. 9829, 83 FR 31, Jan. 2, 2018, as amended by T.D. 9969, 87 FR 75490, Dec. 9, 2022] § 301.6222-1 Partner's return must be consistent with partnership return. (a) Consistent treatment of partnership-related items In general. partner's return (2) Partner that is a partnership with an election in effect under section 6221(b). (3) Partnership does not file a return. (4) Treatment of items on a partnership return. (i) The treatment of such item on the partnership's return of partnership income filed with the Internal Revenue Service (IRS) under section 6031, and any amendment or supplement thereto, including an administrative adjustment request (AAR) filed pursuant to section 6227; and (ii) The treatment of such item on any statement, schedule or list, and any amendment or supplement thereto, filed by the partnership with the IRS, including any statements filed pursuant to section 6226. (5) Examples. (i) Example 1. (ii) Example 2. (iii) Example 3. (iv) Example 4. (v) Example 5. (vi) Example 6. (vii) Example 7. (b) Effect of inconsistent treatment Determination of underpayment of tax resulting from inconsistent treatment. (2) Assessment and collection of tax. (3) Effect when partner is a partnership. (4) Examples. (i) Example 1. (ii) Example 2. (c) Notification to the IRS when items attributable to a partnership are treated inconsistently In general. (2) Coordination with section 6223. (3) Partner protected only to extent of notification. (4) Adjustment after notification In general. (ii) Adjustments in partner proceeding. (5) Limitation on treating partnership-related items inconsistently after notice of administrative proceeding. (6) Examples. (i) Example 1. (ii) Example 2. (d) Partner receiving incorrect information In general. (i) Demonstrates that the treatment of such item on the partner's return is consistent with the treatment of that item on the statement, schedule, or other form prescribed by the IRS and furnished to the partner by the partnership; and (ii) The partner makes an election in accordance with paragraph (d)(2) of this section. (2) Time and manner of making election In general. (ii) Contents of election. (A) Clearly identified as an election under section 6222(c)(2)(B); (B) Signed by the partner making the election; (C) Accompanied by a copy of the statement, schedule, or other form furnished to the partner by the partnership and a copy of the IRS notice that notified the partner of the inconsistency; and (D) Include any other information required in forms, instructions, or other guidance prescribed by the IRS. (iii) Treatment of partnership-related item is unclear. (3) Example. (e) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6531, Feb. 27, 2019] § 301.6222(a)-1 Consistent treatment of partnership items. (a) In general. (b) Treatment must be consistent with partnership return. (c) Examples. Example 1. B is a partner of Partnership P. Both B and P use the calendar year as the taxable year. In December 2001, P receives an advance payment for services to be performed in 2002 and reports this amount as income for calendar year 2001. However, B reports B's distributive share of this amount on B's income tax return for 2002 and not on B's return for 2001. B's treatment of this partnership item is inconsistent with the treatment of the item by P. Example 2. Partnership P incurred certain start-up costs before P was actively engaged in its business. P capitalized these costs. C, a partner in P, deducted C's proportionate share of these start-up costs. C's treatment of the partnership expenditure is inconsistent with the treatment of that item by P. Example 3. D is a partner in partnership P. P reports a loss of $100,000 on its return, $5,000 of which it reports on the Schedule K-1 attached to its return as D's distributive share. However, P reports $15,000 as D's distributive share of P's loss on the Schedule K-1 furnished to D. D reports the $15,000 loss on D's income tax return. D has not satisfied the consistent reporting requirement. See, however, § 301.6222(b)-3 for an election to be treated as having reported the inconsistency. (d) Effective date. For years beginning prior to October 4, 2001, see § 301.6222(a)-1T contained in 26 CFR part 1, revised April 1, 2001. [T.D. 8965, 66 FR 50545, Oct. 4, 2001] § 301.6222(a)-2 Application of consistent reporting and notification rules to indirect partners. (a) In general. source partnership (b) Indirect partner files consistently with source partnership. (c) Indirect partner files inconsistently with source partnership Indirect partner notifies the Internal Revenue Service of inconsistency. (i) Treats an item from a source partnership in a manner inconsistent with the treatment of that item on the source partnership's return; and (ii) Files a statement identifying the inconsistency with the source partnership in accordance with § 301.6222(c)-1, shall not be subject to a computational adjustment to conform the treatment of that item to the treatment of that item on the return of the source partnership. (2) Indirect partner does not notify the Internal Revenue Service of inconsistency. (i) Treats an item from a source partnership in a manner inconsistent with the treatment of that item on the source partnership's return; and (ii) Fails to file a statement identifying the inconsistency with the source partnership in accordance with § 301.6222(b)-1, is subject to a computational adjustment to conform the treatment of that item to the treatment of that item on the return of the source partnership. (3) Indirect partner files consistently with a pass-thru partner that notifies the Internal Revenue Service of the inconsistency. (i) Treats that item in a manner inconsistent with the treatment of that item on the source partnership's return; and (ii) Files a statement identifying the inconsistency with the source partnership in accordance with § 301.6222(b)-1, the indirect partner is not subject to a computational adjustment to conform to the treatment of that item on the return of the source partnership. (d) Examples. Example 1. One of the partners in Partnership A is Partnership B, which has four equal partners C, D, E, and F. Both A and B are partnerships within the meaning of section 6231(a)(1). On its return, A reports $100,000 as B's distributive share of A's ordinary income. B, however, reports only $80,000 as its distributive share of the income and does not notify the Internal Revenue Service of this inconsistent treatment with respect to A. C reports $20,000 as its distributive share of the item. Although C reports the item consistently with B, C is subject to a computational adjustment to conform the treatment of that item on C's return to the treatment of that item on A's return. Example 2. Assume the same facts as in Example 1, except that B notified the Internal Revenue Service of its inconsistent treatment with respect to source partnership A. C is not subject to a computational adjustment. Example 3. Assume the same facts as in Example 1. Example 4. Assume the same facts as in Example 3, Example 5. Assume the same facts as in Example 1. E reports $25,000 as its distributive share of the item. Regardless of whether E reports the inconsistency between its treatment of the item and that by B, E is neither subject to a computational adjustment to conform E's treatment of that item to that of B nor subject to the notice described in section 6231(b)(1)(A) with respect to any such notification of inconsistent treatment. (e) Effective date. [T.D. 8965, 66 FR 50545, Oct. 4, 2001] § 301.6222(b)-1 Notification to the Internal Revenue Service when partnership items are treated inconsistently. (a) In general. (b) Effective date. [T.D. 8965, 66 FR 50546, Oct. 4, 2001] § 301.6222(b)-2 Effect of notification of inconsistent treatment. (a) In general. (1) Conducts a partnership-level proceeding; or (2) Notifies the partner under section 6231(b)(1)(A) that all partnership items arising from that partnership will be treated as nonpartnership items. See, however, §§ 301.6231(c)-1 and 301.6231(c)-2 for special rules relating to certain applications and claims for refund based on losses, deductions, or credits from abusive tax shelter partnerships. (b) Partner protected only to extent of notification. (2) The following example illustrates the principles of this paragraph (b): Example. Partner A of Partnership P treats a deduction and a capital gain arising from P on A's return in a manner that is inconsistent with the treatment of those items by P. A reports the inconsistent treatment of the deduction but not of the gain. A is subject to a computational adjustment under section 6222(c) with respect to the gain. (c) Adjustments in a separate proceeding not limited to conforming adjustments. (2) Example. Example. Partnership P allocates to E, one of its partners, a loss of $8,000. E, however, claims a loss of $9,000 and reports the inconsistent treatment. The Internal Revenue Service notifies E that it will treat all of E's partnership items arising from P as nonpartnership items. As a result of a separate proceeding with E, the Internal Revenue Service may issue a deficiency notice which could include reducing the loss to $3,000. (d) Effective date. [T.D. 8965, 66 FR 50546, Oct. 4, 2001] § 301.6222(b)-3 Partner receiving incorrect schedule. (a) In general. (1) Demonstrates that the treatment of the partnership item on the partner's return is consistent with the treatment of that item on the schedule prescribed by the Internal Revenue Service and furnished to the partner by the partnership showing the partner's share of income, credits, deductions, etc.; and (2) Elects in accordance with the rules prescribed in paragraph (b) of this section to have this section apply with respect to that item. (b) Election provisions Time and manner of making election. (2) Contents of statement. (i) Clearly identified as an election under section 6222(b)(2); (ii) Signed by the partner making the election; and (iii) Accompanied by copies of the schedule furnished to the partner by the partnership and of the notice of computational adjustment. The partner need not enclose a copy of the notice of computational adjustment, however, if the partner clearly identifies the notice of computational adjustment. Generally, the requirement described in paragraph (a)(1) of this section will be satisfied by attaching to the statement a copy of the schedule furnished to the partner by the partnership. However, if it is not clear from the information contained on the schedule that the treatment of the partnership item on the schedule is consistent with the partner's treatment of such item on the partner's return the statement shall also include an explanation of how the treatment of such item on the schedule is consistent with the treatment on the partner's return with respect to the characterization, timing, and amount of such item. (c) Effective date. [T.D. 8965, 66 FR 50546, Oct. 4, 2001] § 301.6223-1 Partnership representative. (a) Each partnership must have a partnership representative. (b) Eligibility to serve as a partnership representative In general. (2) Substantial presence in the United States. (i) The person makes themselves available to meet in person with the IRS in the United States at a reasonable time and place as determined by the IRS in accordance with § 301.7605-1; and (ii) The person has a United States taxpayer identification number, a street address that is in the United States and a telephone number with a United States area code. (3) Eligibility of an entity to be a partnership representative In general. entity partnership representative, designated individual. (ii) Appointment of a designated individual. (4) Examples. Example 1. Partnership designates PR as its partnership representative for its 2018 tax year on its timely filed 2018 partnership return. The IRS initiates an administrative proceeding with respect to Partnership's 2018 tax year. PR has a United States taxpayer identification number, a United States street address, and a phone number with a United States area code. The IRS contacts PR and requests an in-person meeting with respect to the administrative proceeding. PR works with the IRS and agrees to meet. PR has substantial presence in the United States because she meets all the requirements under paragraph (b)(2) of this section. Example 2. The facts are the same as in Example 1 Example 3. The facts are the same as in Example 1 (c) Designation of partnership representative by the partnership In general. (2) Designation. (3) Example. Example. Partnership properly designates PR1 as its partnership representative for taxable year 2018 on its 2018 partnership return. Partnership designates PR2 as its partnership representative for taxable year 2021 on its 2021 partnership return. In 2022, the IRS mails Partnership a notice of administrative proceeding under section 6231(a)(1) with respect to Partnership's 2018 taxable year. PR1 is the partnership representative for the 2018 partnership taxable year, notwithstanding the designation of PR2 as partnership representative for the 2021 partnership taxable year. (d) Resignations In general. (2) Time for resignation. (3) Effective date of resignation. (i) The resigning partnership representative (and designated individual, if applicable) may not take any action on behalf of the partnership with respect to the partnership taxable year affected by the resignation; (ii) The partnership representative designation is no longer in effect with respect to the partnership taxable year affected by the resignation; (iii) In the case of a resigning entity partnership representative, the appointment of the designated individual is no longer in effect with respect to the partnership taxable year affected by the resignation; and (iv) In the case of a resigning designated individual, the designation of the entity partnership representative is no longer in effect with respect to the partnership taxable year affected by the resignation. (e) Revocations In general. (2) Time for revocation Revocation during an administrative proceeding. (ii) Revocation with an AAR. (3) Effective date of revocation. (i) The revoked partnership representative (and designated individual, if applicable) may not take any action on behalf of the partnership with respect to the partnership taxable year affected by the revocation; (ii) The designation of the revoked partnership representative is no longer in effect, and the successor partnership representative designation (and designated individual appointment, if applicable) is in effect with respect to the partnership taxable year affected by the revocation; (iii) In the case of a revoked entity partnership representative, the appointment of the designated individual is no longer in effect with respect to the partnership taxable year affected by the revocation; and (iv) In the case of a revoked designated individual where the designation of the entity partnership representative has not been revoked, the revoked designated individual may not take any action on behalf of the partnership with respect to the partnership taxable year affected by the revocation, the appointment of the revoked designated individual is no longer in effect, and the appointment of the successor designated individual is in effect. (4) Partners who may sign revocation. (5) Form of the revocation. (i) A certification under penalties of perjury that the person signing the notification is a partner described in paragraph (e)(4) of this section authorized by the partnership to revoke the designation of the partnership representative (or appointment of the designated individual, if applicable). (ii) A statement that the person signing the notification is revoking the designation of the partnership representative (or appointment of the designated individual, if applicable); (iii) A designation of a successor partnership representative (and appointment of a designated individual, if applicable) in accordance with this section and forms, instructions, and other guidance prescribed by the IRS; and (iv) In the case of a revocation of an appointment of a designated individual, appointment of a successor designated individual in accordance with this section and forms, instructions, and other guidance prescribed by the IRS. (6) Partnership representative designated by the IRS In general. (ii) Effective date of revocation. (7) Multiple revocations In general. (A) The IRS receives a revocation of a designation of a partnership representative or appointment of a designated individual, and (B) Within the 90-day period prior to the date the revocation described in paragraph (e)(7)(i)(A) of this section was received, the IRS received another revocation for the same partnership taxable year. (ii) Time limitation. (8) Examples. Example 1. Partnership properly designates PR, an individual, as partnership representative for its 2018 taxable year on its timely filed 2018 partnership return. In 2020, Partnership mails written notification to the IRS to revoke designation of PR as its partnership representative for Partnership's 2018 taxable year. The revocation is not made in connection with an AAR for Partnership's 2018 taxable year, and the IRS has not mailed Partnership a notice of selection for examination or a NAP under section 6231(a)(1) with respect to Partnership's 2018 taxable year. Because the revocation was not made when permitted under paragraph (e)(2) of this section, the revocation is not effective and PR remains the partnership representative for Partnership's 2018 taxable year unless and until PR's status as partnership representative is properly revoked under paragraph (e) of this section or terminated in accordance with paragraph (d) (regarding resignation) or (f) (regarding IRS designation) of this section. Example 2. During an administrative proceeding with respect to Partnership's 2018 taxable year, Partnership provides the IRS with written notification to revoke its designation of PR, an individual, as its partnership representative for the 2018 taxable year. The written notification does not include a designation of a new partnership representative for Partnership's 2018 taxable year. Because the revocation does not include a designation of a new partnership representative as required under paragraph (e)(1) of this section, the revocation is not effective and PR remains the partnership representative for Partnership's 2018 taxable year unless and until PR's status as partnership representative is properly revoked under paragraph (e) of this section or terminated in accordance with paragraph (d) (regarding resignation) or (f) (regarding IRS designation) of this section. (f) Designation of the partnership representative by the IRS In general. (2) IRS determination that partnership representative designation not in effect. (i) The partnership representative or the designated individual does not have substantial presence as described in paragraph (b)(2) of this section; (ii) The partnership failed to appoint a designated individual as described in paragraph (b)(3) of this section, as applicable; (iii) The partnership failed to make a valid designation as described in paragraph (c) of this section; (iv) The partnership representative or designated individual resigns as described in paragraph (d) of this section; (v) The partnership has made multiple revocations as described in paragraph (e)(7) of this section; or (vi) The partnership representative designation is no longer in effect as described in other published guidance. (3) Designation by the partnership during the 30-day period. (4) No opportunity for designation by the partnership in the case of multiple revocations. (5) Designation by the IRS In general. (ii) Factors considered when partnership representative designated by the IRS. (A) The views of the partners having a majority interest in the partnership regarding the designation; (B) The general knowledge of the person in tax matters and the administrative operation of the partnership; (C) The person's access to the books and records of the partnership; (D) Whether the person is a United States person (within the meaning of section 7701(a)(30)); and (E) The profits interest of the partner in the case of a partner. (iii) IRS employees. (6) Examples. Example 1. The IRS determines that Partnership has designated a partnership representative that does not have substantial presence in the United States as defined in paragraph (b)(2) of this section. The IRS may, but is not required to, determine that the designation is not in effect and designate a new partnership representative after following the procedures in this paragraph (f). Example 2. Partnership designates as its partnership representative a corporation but fails to appoint a designated individual to act on behalf of the corporation as required under paragraph (b)(3) of this section. The IRS may, but is not required to, determine that the partnership representative designation is not in effect and may designate a new partnership representative after following the procedures in this paragraph (f). Example 3. The partnership representative resigns pursuant to paragraph (d) of this section. The IRS mails Partnership a notification informing Partnership that no designation is in effect and that the IRS plans to designate a new partnership representative. Partnership fails to respond within 30 days of the date the IRS mails the notification. The IRS must designate a partnership representative pursuant to this paragraph (f). Example 4. Partnership designated on its partnership return a partnership representative, PR1. After Partnership received a NAP, Partnership submits to the IRS the form described in paragraph (e)(4) of this section requesting the revocation of PR1's designation as partnership representative and designating PR2 as the partnership representative. Sixty days later, Partnership signs and submits a form described in paragraph (e)(4) of this section requesting the revocation of PR2's designation as partnership representative and designating PR3 as the partnership representative. The IRS accepts the revocation of PR2 and designation of PR3 as valid and effective upon receipt pursuant to paragraph (e)(3) of this section. However, because PR2's revocation was within 90 days of PR1's revocation, the IRS may determine within 90 days of IRS's receipt of PR2's revocation, pursuant to paragraphs (e)(7) and (f)(2) of this section, that there is no designation in effect due to multiple revocations. The IRS may then designate a new partnership representative pursuant to this paragraph (f) without allowing Partnership an opportunity to designate a partnership representative within the 30-day period described in paragraph (f)(1) of this section. (g) Reliance on forms required by this section. (h) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9839, 83 FR 39344, Aug. 9, 2018, as amended by T.D. 9839, 84 FR 46440, Sept. 4, 2019; T.D. 9969, 87 FR 75490, Dec. 9, 2022] § 301.6223-2 Binding effect of actions of the partnership and partnership representative. (a) Binding nature of actions by partnership and final decision in a partnership proceeding. (b) Actions by the partnership representative before termination of designation. (c) Actions by the partnership representative upon withdrawal of notice of administrative proceeding. (d) Partnership representative has the sole authority to act on behalf of the partnership In general. (2) Designation provides authority to bind the partnership Partnership representative. (ii) Designated individual. (e) Examples. Example 1. Partnership designates a partnership representative, PR, on its timely filed partnership return for 2020. PR is a partner in Partnership. The partnership agreement for Partnership includes a clause that requires PR to consult with an identified management group of partners in Partnership before taking any action with respect to an administrative proceeding before the IRS. The IRS initiates an administrative proceeding with respect to Partnership's 2020 taxable year. During the course of the administrative proceeding, PR consents to an extension of the period of limitations on making adjustments under section 6235(b) allowing additional time for the IRS to mail an FPA. PR failed to consult with the management group of partners prior to agreeing to this extension of time. PR's consent provided to the IRS to extend the time period is valid and binding on Partnership because, pursuant to section 6223, PR, as the designated partnership representative, has authority to bind Partnership and all its partners. Example 2. Partnership designates a partnership representative, PR, on its timely filed partnership return for 2020. PR is not a partner in Partnership. During an administrative proceeding with respect to Partnership's 2020 taxable year, PR agrees to certain partnership adjustments and within 45 days after the issuance of the FPA elects the alternative to payment of the imputed underpayment under section 6226. Certain partners in Partnership challenge the actions taken by PR during the administrative proceeding and the validity of the section 6226 statements furnished to those partners, alleging that PR was never authorized to act on behalf of Partnership under state law or the partnership agreement. Because PR was designated by Partnership as the partnership representative under section 6223 and this section, PR was authorized to act on behalf of Partnership for all purposes under subchapter C of chapter 63, and the IRS may rely on that designation as conclusive evidence of PR's authority to act on behalf of Partnership. Example 3. Partnership designates an entity partnership representative, EPR, and appoints an individual, A, as the designated individual on its timely filed partnership return for 2020. EPR is a C corporation. A is unaffiliated with EPR and is not an officer, director, or employee of EPR. During an administrative proceeding with respect to Partnership's 2020 taxable year, A, acting for EPR, agrees to an extension of the period of limitations on making adjustments under section 6235(b) from March 15, 2024 to December 31, 2024. The IRS mails an FPA with respect to the 2020 partnership taxable year on December 13, 2024, before expiration of the extended period of limitations on making adjustments as agreed to by EPR, but after the expiration of the unextended period of limitations on making adjustments. Partnership challenges the FPA as untimely, alleging that A was not authorized under state law to act on behalf of EPR and thus the extension agreement was invalid. Because A was appointed by the partnership as the designated individual to act on behalf of EPR, A was authorized to act on behalf of EPR for all purposes under subchapter C of chapter 63, and the IRS may rely on that appointment as conclusive evidence of A's authority to act on behalf of EPR and Partnership. Example 4. The partnership representative, PR, consents to an extension of the period of limitations on making adjustments under section 6235(b) and § 301.6235-1(d) for Partnership for the partnership taxable year. After signing the consent, PR resigns as partnership representative in accordance with § 301.6223-1(d). The consent to extend the period of limitations on making adjustments under section 6235(b) remains valid even after PR resigns. Example 5. Partnership designates a partnership representative who does not make themselves available to meet with the IRS in person in the United States as required by § 301.6223-1(b). Although the partnership representative does not have substantial presence in the United States within the meaning of § 301.6223-1(b)(2), until a termination occurs under § 301.6223-1(d) or (e) or the IRS determines the partnership representative designation is no longer in effect under § 301.6223-1(f), the partnership representative designation remains in effect, and Partnership and all its partners are bound by the actions of the partnership representative. Example 6. Partnership designates PR1 as the partnership representative on its timely filed partnership return for 2020. On September 1, 2022, the IRS sends a NAP for the 2020 taxable year to Partnership and PR, and Partnership revokes PR1's designation and designates PR2 as the partnership representative in accordance with § 301.6223-1(e). On November 1, 2023, PR2 consents to an extension of the period of limitations on making adjustments under section 6235(b) and § 301.6235(d) for Partnership's 2020 taxable year. On December 1, 2023, the IRS then withdraws the NAP. PR2 remains the partnership representative, and the consent to extend the period of limitations on making adjustments under section 6235(b) remains valid even after the NAP is withdrawn. (f) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9839, 83 FR 39349, Aug. 9, 2018] § 301.6223(a)-1 Notice sent to tax matters partner. (a) In general. (1) The date on which the notice is mailed to “THE TAX MATTERS PARTNER” at the address of the partnership (as provided on the partnership return, except as updated under § 301.6223(c)-1); or (2) The date on which the notice is mailed to the person who is the tax matters partner at the address of that person (as provided on the partner's return, except as updated under § 301.6223(c)-1) or the partnership. See § 301.6223(c)-1 for rules relating to the information used by the Internal Revenue Service in providing notices, etc. (b) Example. Example. Partnership P designates B as its tax matters partner in accordance with § 301.6231(a)(7)-1(b). On December 1 a notice of the beginning of an administrative proceeding is mailed to “THE TAX MATTERS PARTNER” at the address of P. On January 10, a copy of the notice is mailed to B at B's address. December 1 is treated as the date that the notice was mailed to the tax matters partner. (c) Effective date. [T.D. 8965, 66 FR 50547, Oct. 4, 2001] § 301.6223(a)-2 Withdrawal of notice of the beginning of an administrative proceeding. (a) In general. (b) Internal Revenue Service may not reissue notice except under certain circumstances. (1) There is evidence of fraud, malfeasance, collusion, concealment, or misrepresentation of a material fact; (2) The prior proceeding involved the misapplication or erroneous interpretation of an established Internal Revenue Service position existing at the time of the previous examination, or the failure to make an adjustment based on such a position; or (3) Other circumstances exist which indicate that failure to reissue the notice would be a serious administrative omission. (c) Effective date. [T.D. 8965, 66 FR 50547, Oct. 4, 2001] § 301.6223(b)-1 Notice group. (a) In general. (b) Request for notice In general. (2) Content of request. (i) Identify the partnership by name, address, and taxpayer identification number; (ii) Specify the taxable year or years for which the notice group is formed; (iii) Designate the member of the group to receive the notices; (iv) Set out the name, address, taxpayer identification number, and profits interest of each member of the group; and (v) Be signed by all partners comprising the notice group. (3) Place for filing. (4) Copy to be sent to the tax matters partner. (5) Years covered by request. (c) Composition of notice group In general. (2) Partner may be a member of only one group. (3) Partner may join group after formation. (4) Date on which a partner becomes a member of notice group. (i) A request for notice from a notice group that identifies that partner as a member of that notice group; or (ii) A statement filed in accordance with paragraph (c)(3) of this section that states that the partner is joining the notice group. (5) No withdrawal from notice group. (6) Indirect and pass-thru partners Pass-thru partners and unidentified indirect partners. (ii) Indirect partners identified before the pass-thru partner joins a notice group. (A) The indirect partner held an interest in the partnership (either directly or through one or more pass-thru partners) at some time during that taxable year; and (B) The indirect partner was identified as provided in section 6223(c)(3) and § 301.6223(c)-1 on or before the date on which the pass-thru partner became a member of a notice group. (d) Termination of notice group. (e) Notice group is not a 5-percent group. (f) Effective date. [T.D. 8965, 66 FR 50547, Oct. 4, 2001] § 301.6223(c)-1 Additional information regarding partners furnished to the Internal Revenue Service. (a) In general. (b) Procedure for furnishing additional information In general. (2) Where statement must be filed. (3) Contents of statement. (i) Identify the partnership, each partner for whom information is supplied, and the person supplying the information by name, address, and taxpayer identification number; (ii) Explain that the statement is furnished to correct or supplement earlier information with respect to the partners in the partnership; (iii) Specify the taxable year to which the information relates; (iv) Set out the corrected or additional information; and (v) Be signed by the person supplying the information. (c) No incorporation by reference to previously furnished documents. (d) Information supplied by a person other than the tax matters partner. (e) Power of attorney In general. (2) Specifically for purposes of subchapter C of chapter 63 of the Internal Revenue Code. (3) Existing power of attorney. (f) Internal Revenue Service may use other information. (g) Effective date. [T.D. 8965, 66 FR 50548, Oct. 4, 2001] § 301.6223(e)-1 Effect of Internal Revenue Service's failure to provide notice. (a) Notice group. (b) Indirect partners In general. (i) Receives notice from the Internal Revenue Service; (ii) Is identified as provided in section 6223(c)(3) and § 301.6223(c)-1 at least 30 days before the notice is mailed to the tax matters partner; or (iii) Is a member of a notice group entitled to notice under paragraph (a) of this section. (2) Examples. Example 1. Partnership ABC has as one of its partners, A, a partnership with three partners, X, Y, and Z. ABC does not have more than 100 partners, and partnership A is entitled to notice under section 6223(a). In addition, Z was identified as provided in section 6223(c)(3) and § 301.6223(c)-1 on May 1, 2002. The Internal Revenue Service mailed a notice to the tax matters partner of ABC on July 1, 2002, but failed to provide notice to partnership A. Notwithstanding the Internal Revenue Service's notice to the tax matters partner, the Internal Revenue Service is deemed to have failed to provide notice to X and Y. The Internal Revenue Service's failure to provide notice to A, however, has no effect on Z; whether notice was provided to Z is determined independently. Example 2. Assume the same facts as in Example 1, Example 3. Assume the same facts as in Example 1, (c) Effective date. [T.D. 8965, 66 FR 50549, Oct. 4, 2001] § 301.6223(e)-2 Elections if Internal Revenue Service fails to provide timely notice. (a) In general. (b) Proceeding finished. (1) The period within which a petition for review of the FPAA under section 6226 may be filed has expired and no petition has been filed; or (2) The decision of a court in an action begun by such a petition has become final, the partner may elect in accordance with paragraph (d) of this section to have that adjustment, that decision, or a settlement agreement described in section 6224(c)(2) with respect to the partnership taxable year to which the adjustment relates apply to that partner. If the partner does not make an election in accordance with paragraph (d) of this section, the partnership items of the partner for the partnership taxable year to which the proceeding relates shall be treated as having become nonpartnership items as of the day on which the Internal Revenue Service mails the partner the FPAA. (c) Proceeding still going on. (1) A settlement agreement described in section 6224(c)(2) with respect to the partnership taxable year to which the proceeding relates apply to the partner; or (2) The partnership items of the partner for the partnership taxable year to which the proceeding relates treated as having become nonpartnership items as of the day on which the Internal Revenue Service mails the partner the FPAA. (d) Election In general. (2) Time and manner of making election. (3) Contents of statement. (i) Be clearly identified as an election under section 6223(e)(2) or (3); (ii) Specify the election being made (that is, application of final partnership administrative adjustment, court decision, consistent settlement agreement, or nonpartnership item treatment); (iii) Identify the partner making the election and the partnership by name, address, and taxpayer identification number; (iv) Specify the partnership taxable year to which the election relates; and (v) Be signed by the partner making the election. (e) Effective date. [T.D. 8965, 66 FR 50550, Oct. 4, 2001] § 301.6223(f)-1 Duplicate copy of final partnership administrative adjustment. (a) In general. (b) Effective date. [T.D. 8965, 66 FR 50550, Oct. 4, 2001] § 301.6223(g)-1 Responsibilities of the tax matters partner. (a) Notices described in section 6223(a) Notice of beginning of proceeding. (2) Notice of final partnership administrative adjustment. (3) Requirement inapplicable in certain cases. (i) Before the expiration of the applicable 75-day or 60-day period the partnership items of that partner have become nonpartnership items (for example, by settlement); (ii) That partner is an indirect partner and has not been identified to the tax matters partner at least 30 days before the tax matters partner is required to send such notice; (iii) That partner is treated as a partner solely by virtue of § 301.6231(a)(2)-1; (iv) That partner was a member of a notice group as of the date on which the notice was mailed to the tax matters partner (see § 301.6223(b)-1(c)(4) for the date on which a partner becomes a member of a notice group); (v) The notice has already been provided to that partner by another person; or (vi) The notice is withdrawn by the Internal Revenue Service under § 301.6223(a)-2. (b) Other notices or information In general. (i) Closing conference with the examining agent; (ii) Proposed adjustments, rights of appeal, and requirements for filing of a protest; (iii) Time and place of any Appeals conference; (iv) Acceptance by the Internal Revenue Service of any settlement offer; (v) Consent to the extension of the period of limitations with respect to all partners; (vi) Filing of a request for administrative adjustment (including a request for substituted return treatment under § 301.6227(c)-1) on behalf of the partnership; (vii) Filing by the tax matters partner or any other partner of any petition for judicial review under sections 6226 or 6228(a); (viii) Filing of any appeal with respect to any judicial determination provided for in sections 6226 or 6228(a); and (ix) Final judicial redetermination. (2) Partners to be notified. (i) Whose partnership items become nonpartnership items before the expiration of the period specified in paragraph (b)(3) of this section for furnishing that information; (ii) Who are indirect partners and who are not identified to the tax matters partner at least 30 days before the tax matters partner is required to provide the information; (iii) Who are treated as partners solely by virtue of § 301.6231(a)(2)-1; (iv) Who are members of a notice group as of the date on which the tax matters partner takes that action or receives information with respect to that matter (see § 301.6223(b)-1(c)(4) for the date on which a partner becomes a member of a notice group); or (v) Who have already received information with respect to the action or matter from any other person. (3) Time for furnishing information. (c) Effective date. [T.D. 8965, 66 FR 50550, Oct. 4, 2001] § 301.6223(h)-1 Responsibilities of pass-thru partner. (a) In general. (b) Effective date. [T.D. 8965, 66 FR 50551, Oct. 4, 2001] § 301.6224(a)-1 Participation in administrative proceedings. (a) In general. (b) Effective date. [T.D. 8965, 66 FR 50551, Oct. 4, 2001] § 301.6224(b)-1 Partner may waive rights. (a) In general. (b) Form and manner of making waiver. (1) Be clearly identified as a waiver under section 6224(b); (2) Identify the partner and the partnership by name, address, and taxpayer identification number; (3) Specify the right or restriction being waived and the taxable year(s) to which the waiver applies; (4) Be signed by the partner making the waiver; and (5) Be filed with the service center where the partnership return is filed. However, if the person filing the statement knows that the notice described in section 6223(a)(1) (beginning of an administrative proceeding) has already been mailed to the tax matters partner, the statement shall be filed with the Internal Revenue Service office that mailed such notice. (c) Effective date. [T.D. 8965, 66 FR 50551, Oct. 4, 2001] § 301.6224(c)-1 Tax matters partner may bind nonnotice partners. (a) In general. (1) Are, as of the day on which the agreement is entered into, either notice partners or members of a notice group (see § 301.6223(b)-1(c)(4) for the date on which a partner becomes a member of a notice group); or (2) Have, at least 30 days before the day on which the agreement is entered into, filed with the Internal Revenue Service the statement described in paragraph (c) of this section. (b) Indirect partners In general. (2) Example. Example. Partnership P has over 100 partners. Partnership J is a partner in partnership P with a profits interest of less than 1 percent. Partnership J has three partners, A, B, and C. A is a member of a notice group with respect to partnership P, but B and C are not. On July 1, 2002, B filed the statement described in paragraph (c) of this section not to be bound by any settlement agreement entered into by the tax matters partner of partnership P. On August 1, 2002, the tax matters partner of partnership P enters into a settlement agreement with the Internal Revenue Service and states that the agreement is binding on other partners as provided in section 6224(c)(3). Because partnership J is bound by the settlement agreement, paragraph (a) of this section is applied separately to each of the indirect partners to determine whether they are bound. A is not bound by the agreement because A was a member of a notice group on the day the agreement was entered into and B is not bound because B filed the statement not to be bound at least 30 days before the agreement was entered into. C is bound by the settlement agreement. (c) Statement not to be bound Contents of statement. (i) Be clearly identified as a statement to deny settlement authority to the tax matters partner under section 6224(c)(3)(B); (ii) Identify the partner and partnership by name, address, and taxpayer identification number; (iii) Specify the taxable year or years to which the statement applies; and (iv) Be signed by the partner filing the statement. (2) Place where statement is to be filed. (3) Consolidated statements. (d) Effective date. [T.D. 8965, 66 FR 50551, Oct. 4, 2001] § 301.6224(c)-2 Pass-thru partner binds indirect partners. (a) Pass-thru partner binds unidentified indirect partners In general. (2) Example. Example. Partnership J is a partner in partnership P. C is a partner in J but has not been identified as provided in section 6223(c)(3) and § 301.6223(c)-1. The only interest that C holds in P is through J. The tax matters partner of J enters into a settlement agreement with the Internal Revenue Service with respect to partnership items arising from P. C is bound by the settlement agreement entered into by the tax matters partner of J. (b) Person in pass-thru partner authorized to enter into settlement agreement that binds indirect partners. (1) A partnership within the meaning of section 6231(a)(1), the tax matters partner of that partnership; (2) A partnership other than a partnership described in paragraph (b)(1) of this section, any general partner of that partnership; (3) An S corporation, any officer of that S corporation; or (4) A trust, estate, or nominee, any person authorized in writing to act on behalf of that trust, estate, or nominee, may enter into a settlement agreement with the Internal Revenue Service on behalf of its respective entity that would bind the unidentified indirect partners that hold a partnership interest through the pass-thru partner. (c) Effective date. [T.D. 8965, 66 FR 50552, Oct. 4, 2001] § 301.6224(c)-3 Consistent settlements. (a) In general. (b) Requirements for consistent settlement terms In general. (i) The items were partnership items (or a partnership-level determination of any related penalty, addition to tax, or additional amount) for the partner entering into the original settlement immediately before the original settlement; and (ii) The items are partnership items (or a partnership-level determination of any related penalty, addition to tax, or additional amount) for the partner requesting the consistent settlement at the time the partner files the request. (2) Effect of consistent agreement. (c) Time and manner of requesting consistent settlements In general. (2) Contents of statement. (i) Identify the statement as a request for consistent settlement terms under section 6224(c)(2); (ii) Contain the name, address, and taxpayer identification number of the partnership and of the partner requesting the settlement offer (and, in the case of an indirect partner, of the pass-thru partner through which the indirect partner holds an interest); (iii) Identify the earlier agreement to which the request refers; and (iv) Be signed by the partner making the request. (3) Time for filing request. (i) The 150th day after the day on which the notice of final partnership administrative adjustment is mailed to the tax matters partner; or (ii) The 60th day after the day on which the settlement agreement was entered into. (d) Examples. Example 1. The Internal Revenue Service seeks to disallow a $100,000 loss reported by Partnership P $20,000 of which was allocated to partner X, and $10,000 of which was allocated to partner Y. The Internal Revenue Service agrees to a settlement with X in which the Internal Revenue Service allows $12,000 of the loss, accepts the treatment of all other partnership items on the partnership return, and imposes a penalty for negligence related to the $8,000 loss disallowance. Partner Y requests settlement terms consistent with the settlement made between X and the Internal Revenue Service. The items are partnership items (or a related penalty) for X immediately before X enters into the settlement agreement and are partnership items (or a related penalty) for Y at the time of the request. The Internal Revenue Service must offer Y settlement terms allowing a $6,000 loss, a negligence penalty on the $4,000 disallowance, and otherwise reflecting the treatment of partnership items on the partnership return. Example 2. F files inconsistently with Partnership P and reports the inconsistency. The Internal Revenue Service notifies F that it will treat all partnership items arising from P as nonpartnership items with respect to F. Later, the Internal Revenue Service enters into a settlement with F on these items. The Internal Revenue Service is not required to offer the other partners of P settlement terms consistent with the settlement reached between F and the Internal Revenue Service because the items arising from P are not partnership items with respect to F. Example 3. G, a partner in Partnership P, filed suit under section 6228(b) after the Internal Revenue Service failed to allow an administrative adjustment request with respect to a partnership item arising from P for a taxable year. Under section 6231(b)(1)(B), the partnership items of G for the partnership taxable year became nonpartnership items as of the date G filed suit. After G filed suit, another partner and the Internal Revenue Service entered into a settlement agreement with respect to items arising from P in that year. G is not entitled to consistent settlement terms because, at the time of the settlement, the items arising from P are no longer partnership items with respect to G. (e) Effective date. [T.D. 8965, 66 FR 50552, Oct. 4, 2001] § 301.6225-1 Partnership adjustment by the Internal Revenue Service. (a) Imputed underpayment based on partnership adjustments In general. (2) Partnership pays the imputed underpayment. (3) Imputed underpayment set forth in notice of proposed partnership adjustment. (b) Determination of an imputed underpayment In general. (i) Grouping the partnership adjustments in accordance with paragraph (c) of this section and, if appropriate, subgrouping such adjustments in accordance with paragraph (d) of this section; (ii) Netting the adjustments in accordance with paragraph (e) of this section; (iii) Calculating the total netted partnership adjustment in accordance with paragraph (b)(2) of this section; (iv) Multiplying the total netted partnership adjustment by the highest rate of Federal income tax in effect for the reviewed year under section 1 or 11; and (v) Increasing or decreasing the product that results under paragraph (b)(1)(iv) of this section by— (A) Any amounts treated as net positive adjustments (as defined in paragraph (e)(4)(i) of this section) under paragraph (e)(3)(ii) of this section; and (B) Except as provided in paragraph (e)(3)(ii) of this section, any amounts treated as net negative adjustments (as defined in paragraph (e)(4)(ii) of this section) under paragraph (e)(3)(ii) of this section. (2) Calculation of the total netted partnership adjustment. total netted partnership adjustment (3) Adjustments to items for which tax has been collected under chapters 3 and 4 of the Internal Revenue Code (Code). (4) Treatment of adjustment as zero for purposes of calculating the imputed underpayment. (c) Grouping of partnership adjustments In general. (2) Reallocation grouping In general. reallocation adjustment. (ii) Each reallocation adjustment results in at least two separate adjustments. (3) Credit grouping. (4) Creditable expenditure grouping In general. (ii) Adjustment to a creditable expenditure In general. (B) Creditable foreign tax expenditures. b (5) Residual grouping In general. (ii) Adjustments to partnership-related items that are not allocated under section 704(b). (6) Recharacterization adjustments Recharacterization adjustment defined. (ii) Grouping recharacterization adjustments. (iii) Recharacterization adjustments result in two partnership adjustments. (d) Subgroupings In general. (2) Definition of negative adjustments and positive adjustments In general. (A) An increase in an item of gain is treated as an increase in an item of income; (B) A decrease in an item of gain is treated as a decrease in an item of income; (C) An increase in an item of loss or deduction is treated as a decrease in an item of income; and (D) A decrease in an item of loss or deduction is treated as an increase in an item of income. (ii) Negative adjustment. negative adjustment (iii) Positive adjustment. (3) Subgrouping rules In general. (ii) Subgrouping reallocation adjustments Reallocation adjustments in the reallocation grouping. (B) Reallocation adjustments in the credit grouping. (iii) Subgroupings within the creditable expenditure grouping In general. (B) Subgroupings for adjustments to CFTEs. (iv) Subgrouping recharacterization adjustments. (e) Netting adjustments within each grouping or subgrouping In general. (2) Limitations on netting adjustments. (3) Results of netting adjustments within groupings or subgroupings Groupings other than the credit and creditable expenditure groupings. (ii) Credit grouping. (iii) Treatment of creditable expenditures Creditable foreign tax expenditures. (B) [Reserved] (4) Net positive adjustment and net negative adjustment defined Net positive adjustment. net positive adjustment (ii) Net negative adjustment. net negative adjustment (f) Partnership adjustments that do not result in an imputed underpayment In general. (i) After grouping, subgrouping, and netting the adjustments as described in paragraphs (c), (d), and (e) of this section, the result of netting with respect to any grouping or subgrouping that includes a particular partnership adjustment is a net negative adjustment (as described in paragraph (e)(4)(ii) of this section); or (ii) The calculation under paragraph (b)(1) of this section results in an amount that is zero or less than zero, unless paragraph (f)(3) of this section applies. (2) Treatment of an adjustment that does not result in an imputed underpayment. (3) Exception to treatment as an adjustment that does not result in an imputed underpayment Application of this paragraph (f)(3). (ii) Recalculation if paragraph (f)(3) of this section applies In general. (B) Recalculation is greater than zero. Example 13 (C) Recalculation is zero or less than zero. Example 14 (g) Multiple imputed underpayments in a single administrative proceeding In general. (2) Types of imputed underpayments In general. (ii) General imputed underpayment. (iii) Specific imputed underpayment In general. (B) Adjustments that do not result in an imputed underpayment associated with a specific imputed underpayment. (h) Examples. (1) Example 1. (2) Example 2. Example 1 (3) Example 3. (4) Example 4. (5) Example 5. (6) Example 6. (7) Example 7. (8) Example 8. (9) Example 9. (10) Example 10. (11) Example 11. (12) Example 12. (13) Example 13. (14) Example 14. Example 13 (15) Example 15. (i) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6534, Feb. 27, 2019, as amended by T.D. 9969, 87 FR 75490, Dec. 9, 2022; 88 FR 756, Jan. 5, 2023] § 301.6225-2 Modification of imputed underpayment. (a) Partnership may request modification of an imputed underpayment. relevant partner (1) A reviewed year partner (as defined in § 301.6241-1(a)(9)), including any pass-through partner (as defined in § 301.6241-1(a)(5)), except for any reviewed year partner that is a wholly-owned entity disregarded as separate from its owner for Federal income tax purposes; or (2) An indirect partner (as defined in § 301.6241-1(a)(4)) except for any indirect partner that is a wholly-owned entity disregarded as separate from its owner for Federal income tax purposes. (b) Effect of modification In general. (i) Modifications that affect the extent to which an adjustment factors into the determination of the imputed underpayment under paragraph (b)(2) of this section; (ii) Modification of the number and composition of imputed underpayments under paragraph (b)(4) of this section; and (iii) Modifications that affect the tax rate under paragraph (b)(3) of this section. (2) Modifications that affect partnership adjustments for purposes of determining the imputed underpayment. (i) Paragraph (d)(2) of this section (amended returns and the alternative procedure to filing amended returns); (ii) Paragraph (d)(3) of this section (tax-exempt status); (iii) Paragraph (d)(5) of this section (specified passive activity losses); (iv) Paragraph (d)(7) of this section (qualified investment entities); (v) Paragraph (d)(8) of this section (closing agreements), if applicable; (vi) Paragraph (d)(9) of this section (tax treaty modifications), if applicable; and (vii) Paragraph (d)(10) of this section (other modifications), if applicable. (3) Modifications that affect the tax rate In general. (A) Paragraph (d)(4) of this section (rate modification); (B) Paragraph (d)(8) of this section (closing agreements), if applicable; (C) Paragraph (d)(9) of this section (tax treaty modifications), if applicable; and (D) Paragraph (d)(10) of this section (other modifications), if applicable. (ii) Determination of the imputed underpayment in the case of rate modification. rate-modified netted partnership adjustment (iii) Calculation of rate-modified netted partnership adjustment in the case of a rate modification. rate-modified netted partnership adjustment (A) Determine each relevant partner's distributive share of the partnership adjustments subject to an approved modification under paragraph (b)(3)(i) of this section based on how each adjustment subject to rate modification was allocated in the NOPPA, or if the appropriate allocation was not addressed in the NOPPA, how the adjustment would be properly allocated under subchapter K of chapter 1 of the Internal Revenue Code (subchapter K) to such relevant partner in the reviewed year (as defined in § 301.6241-1(a)(8)). (B) Multiply each partnership adjustment determined under paragraph (b)(3)(iii)(A) of this section by the tax rate applicable to such adjustment based on the approved modification described under paragraph (b)(3)(i) of this section. (C) Add all of the amounts calculated under paragraph (b)(3)(iii)(B) of this section with respect to each partnership adjustment subject to an approved modification described under paragraph (b)(3)(i) of this section. (iv) Rate modification in the case of special allocations. (4) Modification of the number and composition of imputed underpayments. (5) Other modifications. (c) Time, form, and manner for requesting modification In general. (2) Partnership must substantiate facts supporting a request for modification In general. (ii) Information to be furnished for any modification request. h (3) Time for submitting modification request and information Modification request. (ii) Extension of the 270-day period. (iii) Expiration of the 270-day period by agreement. (4) Approval of modification by the IRS. (d) Types of modification In general. (2) Amended returns by partners In general. (ii) Requirements for approval of a modification request based on amended return. (A) Full payment required. tax (B) Amended returns for all relevant taxable years must be filed. modification year (C) Amended returns for partnership adjustments that reallocate distributive shares. (iii) Form and manner for filing amended returns. (iv) Period of limitations. (v) Amended returns in the case of adjustments allocated through certain pass-through partners. (A) Establishes that the pass-through partner is not subject to chapter 1 tax on the adjustments that are properly allocated to such pass-through partner; or (B) Requests modification with respect to the adjustments resulting in chapter 1 tax for the pass-through partner, including full payment of such chapter 1 tax for the first affected year and all modification years under paragraph (d)(2) of this section or in accordance with forms, instructions, or other guidance prescribed by the IRS. (vi) Amended returns in the case of pass-through partners Pass-through partners may file amended returns. (B) Adjustments that do not result in an imputed underpayment. (vii) Limitations on amended returns In general. (B) Further amended returns restricted. (C) Subsequent returns in the case of changes to partnership adjustments or denial of modification. (viii) Penalties. (ix) Effect on tax attributes binding. (x) Alternative procedure to filing amended returns In general. (B) Modifications with respect to reallocation adjustments. (3) Tax-exempt partners In general. (ii) Definition of tax-exempt entity. tax-exempt entity (iii) Modification limited to portion of partnership adjustments for which tax-exempt partner not subject to tax. (4) Modification based on a rate of tax lower than the highest applicable tax rate. (5) Certain passive losses of publicly traded partnerships In general. (ii) Specified passive activity loss. (A) At the end of the first affected year (affected year loss); or (B) At the end of— ( 1 ( 2 (iii) Specified partner. (A) The person is a partner of the publicly traded partnership requesting modification under this section; (B) The person is an individual, estate, trust, closely held C corporation, or personal service corporation; and (C) The person has a specified passive activity loss with respect to the publicly traded partnership. (iv) Qualified relevant partner. qualified relevant partner 2 2 (v) Partner notification requirement to reduce passive losses. (6) Modification of the number and composition of imputed underpayments In general. (ii) Request for particular treatment regarding limitations or restrictions. (7) Partnerships with partners that are “qualified investment entities” described in section 860 In general. (ii) Documentation of deficiency dividend. Determination Under Section 860(e)(4) by a Qualified Investment Entity, Claim for Deficiency Dividends Deductions by a Personal Holding Company, Regulated Investment Company, or Real Estate Investment Trust, (8) Closing agreements. (9) Tax treaty modifications. (10) Other modifications. (e) Modification of adjustments that do not result in an imputed underpayment. (f) Examples. (1) Example 1. (2) Example 2. (3) Example 3. (4) Example 4. Example 3 (5) Example 5. Example 3 (6) Example 6. Example 3 (7) Example 7. (8) Example 8. (g) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6539, Feb. 27, 2019, as amended by T.D. 9969, 87 FR 75491, Dec. 9, 2022] § 301.6225-3 Treatment of partnership adjustments that do not result in an imputed underpayment. (a) In general. (b) Treatment of adjustments by the partnership In general. (2) Separately stated items. (3) Credits. (4) Reallocation adjustments. (5) Adjustments taken into account by partners as part of the modification process. (6) Effect of election under section 6226. (7) Adjustments taken into account previously by partners. (8) Adjustments to items that are not items of income, gain, loss, deduction, or credit. (c) Treatment of adjustment year partners. (d) Examples. (1) Example 1. (2) Example 2. Example 1 (3) Example 3. (4) Example 4. (5) Example 5. Example 3 (e) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6547, Feb. 27, 2019, as amended by T.D. 9969, 87 FR 75492, Dec. 9, 2022] § 301.6226-1 Election for an alternative to the payment of the imputed underpayment. (a) In general. (b) Effect of election Reviewed year partners. (2) Partnership. (c) Time, form, and manner for making the election In general. (2) Time for making the election. (3) Form and manner of the election In general. (ii) Contents of the election. (A) The name, address, and taxpayer identification number (TIN) of the partnership; (B) The taxable year to which the election relates; (C) A copy of the FPA to which the election relates; (D) In the case of an FPA that includes more than one imputed underpayment, identification of the imputed underpayment to which the election applies; (E) The name and TIN (or alternative form of identification as prescribed by forms, instructions, or other guidance) of each reviewed year partner of the partnership; (F) The current or last address of each reviewed year partner that is known to the partnership; and (G) Any other information prescribed by the IRS in forms, instructions, and other guidance. (d) Determining an election is invalid. (e) Binding nature of statements. (f) Coordination with section 6234 regarding judicial review. (g) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6548, Feb. 27, 2019] § 301.6226-2 Statements furnished to partners and filed with the IRS. (a) In general. (b) Time and manner for furnishing the statements to partners In general. (i) The expiration of the time to file a petition under section 6234; or (ii) If a petition under section 6234 is filed, the date when the court's decision becomes final. (2) Address used for reviewed year partners. (3) Examples. (i) Example 1. (ii) Example 2. Example 1 (iii) Example 3. (c) Time and manner for filing the statements with the IRS. (d) Correction of statements In general. (2) Error discovered by partnership Discovery within 60 days of statement due date. (ii) Error discovered more than 60 days after statement due date. (3) Error discovered by the IRS. (4) Adjustments in the corrected statements taken into account by the reviewed year partners. (e) Content of the statements. (1) The name and TIN (or alternative form of identification as prescribed by forms, instructions, or other guidance) of the reviewed year partner to whom the statement is being furnished; (2) The current or last address of the reviewed year partner that is known to the partnership; (3) The reviewed year partner's share of items as originally reported for the reviewed year to the partner on statements furnished to the partner under section 6031(b) and, if applicable, section 6227; (4) The reviewed year partner's share of partnership adjustments determined under paragraph (f)(1) of this section; (5) Modifications approved by the IRS with respect to the reviewed year partner (or with respect to any indirect partner (as defined in § 301.6241-1(a)(4)) that holds its interest in the partnership through its interest in the reviewed year partner); (6) The applicability of any penalty, addition to tax, or additional amount determined at the partnership level that relates to any adjustments allocable to the reviewed year partner and the adjustments to which the penalty, addition to tax, or additional amount relates, the section of the Internal Revenue Code (Code) under which each penalty, addition to tax, or additional amount is imposed, and the applicable rate of each penalty, addition to tax, or additional amount determined at the partnership level; (7) The date the statement is furnished to the reviewed year partner; (8) The partnership taxable year to which the adjustments relate; and (9) Any other information required by forms, instructions, and other guidance prescribed by the IRS. (f) Determination of each partner's share of adjustments Adjustments and other amounts In general. (ii) Adjusted partnership-related item not reported on the partnership's return for the reviewed year. (iii) Adjustments that specifically allocate items. (2) Treatment of modifications disregarded. (g) Coordination with other provisions under subtitle A of the Code Statements furnished to qualified investment entities described in section 860. (2) Liability for tax under section 7704(g)(3). (3) Adjustments subject to chapters 3 and 4 of the Code. (4) Liability for chapter 1 taxes and penalties. (h) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6549, Feb. 27, 2019, as amended by T.D. 9969, 87 FR 75493, Dec. 9, 2022] § 301.6226-3 Adjustments taken into account by partners. (a) Effect of taking adjustments into account on tax imposed by chapter 1. (b) Determining the aggregate of the correction amounts In general. (2) Correction amount for the first affected year In general. (ii) Calculation of the correction amount for the first affected year. (A) The amount of chapter 1 tax shown by the partner on the return for the first affected year (which includes amounts shown on an amended return for such year, including an amended return filed under section 6225(c)(2) by the reviewed year partner); plus (B) Amounts not included in paragraph (b)(2)(ii)(A) of this section but previously assessed or collected (including the amounts defined in § 1.6664-2(d) of this chapter and any amounts paid by the partner in accordance with § 301.6225-2); less (C) The amount of rebates made (as defined in § 1.6664-2(e) of this chapter). (iii) Formulaic expression of the correction amount for the first affected year. Correction amount = A−(B + C−D) Where: A = the amount of chapter 1 tax that would have been imposed had the items as adjusted been properly reported on the return for the first affected year; B = the amount shown as chapter 1 tax on the return for the first affected year (taking into account amended returns); C = amounts previously assessed or collected; and D = the amount of rebates made. (3) Correction amount for the intervening years In general. (ii) Calculation of the correction amount for the intervening years. (A) The amount of chapter 1 tax shown by the partner on the return for the intervening year (which includes amounts shown on an amended return for such year, including an amended return filed under section 6225(c)(2) by a reviewed year partner); plus (B) Amounts not included in paragraph (b)(3)(ii)(A) of this section but previously or collected (including the amounts defined in § 1.6664-2(d) of this chapter and any amounts paid by the partner in accordance with § 301.6225-2); less (C) The amount of rebates made (as defined in § 1.6664-2(e) of this chapter). (iii) Formulaic expression of the correction amount for the intervening years. Correction amount = A−(B + C−D) Where: A = the amount of chapter 1 tax that would have been imposed for the intervening year; B = the amount shown as chapter 1 tax on the return for the intervening year (taking into account amended returns); C = amounts previously assessed or collected; and D = the amount of rebates made. (4) Coordination of sections 860 and 6226. (c) Interest Interest on the correction amounts. applicable taxable year (2) Interest on penalties. (3) Rate of interest. (d) Penalties Applicability determined at the partnership level. (2) Amount calculated at partner level. (3) Partner-level defenses to penalties. (e) Pass-through partners In general. (2) Failure to file and furnish required documents Failure to timely file and furnish statements. (ii) Failures relating to partnership adjustment tracking report. (3) Furnishing statements to partners In general. (ii) Time for filing and furnishing the statements. (iii) Contents of statements. (A) The name and taxpayer identification number (TIN) of the audited partnership; (B) The adjustment year of the audited partnership; (C) The extended due date for the return for the adjustment year of the audited partnership (as described in paragraph (e)(3)(ii) of this section); (D) The date on which the audited partnership furnished its statements required under § 301.6226-2(b); (E) The name and TIN of the partnership that furnished the statement to the pass-through partner if different from the audited partnership; (F) The name and TIN of the pass-through partner; (G) The pass-through partner's taxable year to which the adjustments reflected on the statements described in paragraph (e)(3) of this section relates; (H) The name and TIN (or alternative form of identification as prescribed by forms, instructions, or other guidance) of the affected partner to whom the statement is being furnished; (I) The current or last address of the affected partner that is known to the pass-through partner; (J) The affected partner's share of items as originally reported to such partner under section 6031(b) and, if applicable, section 6227, for the taxable year to which the adjustments reflected on the statement furnished to the pass-through partner relate; (K) The affected partner's share of partnership adjustments determined under § 301.6226-2(f)(1) as if the affected partner were the reviewed year partner and the pass-through partner were the partnership; (L) Modifications approved by the IRS with respect to the affected partner that holds its interest in the audited partnership through the pass-through partner; (M) The applicability of any penalties, additions to tax, or additional amounts determined at the audited partnership level that relate to any adjustments allocable to the affected partner and the adjustments allocated to the affected partner to which such penalties, additions to tax, or additional amounts relate, the section of the Internal Revenue Code under which each penalty, addition to tax, or additional amount is imposed, and the applicable rate of each penalty, addition to tax, or additional amount; and (N) Any other information required by forms, instructions, and other guidance prescribed by the IRS. (iv) Affected partner must take into account the adjustments. (v) Adjustments subject to chapters 3 and 4 of the Internal Revenue Code. (4) Pass-through partner pays an imputed underpayment In general. (ii) Time of payment. (iii) Computation of the imputed underpayment. (iv) Penalties and interest Penalties. (B) Interest. (v) Adjustments that do not result in an imputed underpayment. (vi) Coordination with chapters 3 and 4. (5) Treatment of pass-through partners that are not partnerships S corporations. (ii) Trusts and estates. (6) Pass-through partners subject to chapter 1 tax. (f) Partners subject to withholding under chapters 3 and 4. Foreign Person's U.S. Source Income Subject to Withholding, Foreign Partner's Information Statement of Section 1446 Withholding Tax, (g) Treatment of disregarded entities and wholly-owned grantor trusts. (h) Examples. (1) Example 1. (2) Example 2. (3) Example 3. (4) Example 4. (5) Example 5. (6) Example 6. (7) Example 7. (8) Example 8. (9) Example 9. (i) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6551, Feb. 27, 2019] § 301.6226(a)-1 Principal place of business of partnership. (a) In general. (b) Example. Example. The principal place of Partnership A's business on the day that the notice of the final partnership administrative adjustment was mailed to A's tax matters partner was Cincinnati, Ohio. However, by the day on which a petition seeking judicial review of that adjustment was filed, A had moved its principal place of business to Louisville, Kentucky. For purposes of section 6226(a)(2), A's principal place of business is Louisville. (c) Effective date. [T.D. 8965, 66 FR 50553, Oct. 4, 2001] § 301.6226(b)-1 5-percent group. (a) In general. (b) Effective date. [T.D. 8965, 66 FR 50553, Oct. 4, 2001] § 301.6226(e)-1 Jurisdictional requirement for bringing an action in District Court or United States Court of Federal Claims. (a) Amount to be deposited In general. (2) Example. Example. A files a petition for readjustment of partnership items in the United States Court of Federal Claims. A's tax liability would be increased by $4,000 if partnership items on A's return were conformed to the partnership return, as adjusted by the notice of final partnership administrative adjustment. A has an unpaid liability of $10,000 attributable to nonpartnership items. A is required to deposit $4,000 in order to satisfy the jurisdictional requirement. (b) Deposit taken into account in computing interest. (c) Deposit generally not treated as payment of tax. (d) Amount deposited may be applied against assessment. (e) Effective date. [T.D. 8965, 66 FR 50554, Oct. 4, 2001] § 301.6226(f)-1 Scope of judicial review. (a) In general. (b) Example. Example. The Internal Revenue Service issues a notice of final partnership administrative adjustment with respect to Partnership ABC in which the only item adjusted is depreciation. A petition for judicial review of that notice is filed. During the judicial proceeding, a partner of ABC, in accordance with the applicable court rules, raises an issue relating to the treatment of intangible drilling costs. The court reviewing the notice has jurisdiction to determine the intangible drilling cost issue in addition to the depreciation issue. (c) Effective date. [T.D. 8965, 66 FR 50554, Oct. 4, 2001] § 301.6227-1 Administrative adjustment request by partnership. (a) In general. (b) Time for filing an AAR. (c) Form and manner for filing an AAR In general. (2) Contents of AAR filed with the IRS. (i) The adjustments requested; (ii) If a reviewed year partner is required to take into account the adjustments requested under § 301.6227-3, statements described in paragraph (e) of this section, including any transmittal with respect to such statements required by forms, instructions, and other guidance prescribed by the IRS; and (iii) Other information prescribed by the IRS in forms, instructions, or other guidance. (d) Copy of statement furnished to reviewed year partners in certain cases. (e) Statements Contents. (i) The name and TIN of the reviewed year partner to whom the statement is being furnished; (ii) The current or last address of the partner that is known to the partnership; (iii) The reviewed year partner's share of items as originally reported on statements furnished to the partner under section 6031(b) and, if applicable, section 6227; (iv) The reviewed year partner's share of the adjustments as described under paragraph (e)(2) of this section; (v) The date the statement is furnished to the partner; (vi) The partnership taxable year to which the adjustments relate; and (vii) Any other information required by forms, instructions, and other guidance prescribed by the IRS. (2) Determination of each partner's share of adjustments In general. (ii) Adjusted partnership-related item not reported on the partnership's return for the reviewed year. (iii) Allocation adjustments. (f) Administrative proceeding for a taxable year for which an AAR is filed. (g) Notice requirement and partnership adjustments required as a result of a foreign tax redetermination. (h) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6558, Feb. 27, 2019, as amended by T.D. 9922, 85 FR 72074, Nov. 12, 2020] § 301.6227-2 Determining and accounting for adjustments requested in an administrative adjustment request by the partnership. (a) Determining whether adjustments result in an imputed underpayment Determination of an imputed underpayment. (2) Modification of imputed underpayment for purposes of this section. (i) The partnership is not required to seek the approval from the Internal Revenue Service (IRS) prior to applying modifications to the amount of any imputed underpayment under paragraph (a)(1) of this section reported on the AAR; and (ii) As part of the AAR filed with the IRS in accordance with forms, instructions, and other guidance prescribed by the IRS, the partnership must— (A) Notify the IRS of any modification; (B) Describe the effect of the modification on the imputed underpayment; (C) Provide an explanation of the basis for such modification; and (D) Provide documentation to support the partnership's eligibility for the modification. (b) Adjustments resulting in an imputed underpayment taken into account by the partnership In general. (2) Penalties and interest. (3) Coordination with chapters 3 and 4 of the Internal Revenue Code Coordination when partnership pays an imputed underpayment. (ii) Coordination when partnership elects to have adjustments taken into account by reviewed year partners. (c) Election to have adjustments resulting in an imputed underpayment taken into account by reviewed year partners. (d) Adjustments not resulting in an imputed underpayment. (e) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6559, Feb. 27, 2019] § 301.6227-3 Adjustments requested in an administrative adjustment request taken into account by reviewed year partners. (a) In general. (b) Adjustments taken into account by the reviewed year partner in the reporting year In general. (2) Examples. (i) Example 1. (ii) Example 2. Example 1 (c) Reviewed year partners that are pass-through partners In general. (2) Adjustments that do not result in an imputed underpayment. (3) Contents of statements. (i) The name and taxpayer identification number (TIN) of the partnership that filed the AAR with respect to the adjustments reflected on the statements described in paragraph (c)(1) of this section; (ii) The adjustment year (as defined in § 301.6241-1(a)(1)) of the partnership described in paragraph (c)(3)(i) of this section; (iii) The extended due date for the return for the adjustment year of the partnership described in paragraph (c)(3)(i) of this section (as described in § 301.6226-3(e)(3)(ii)); (iv) The date on which the partnership described in paragraph (c)(3)(i) of this section furnished its statements required under § 301.6227-1(d); (v) The name and TIN of the partnership that furnished the statement to the pass-through partner if different from the partnership described in paragraph (c)(3)(i) of this section; (vi) The name and TIN of the pass-through partner; (vii) The pass-through partner's taxable year to which the adjustments set forth in the statement described in paragraph (c)(1) of this section relate; (viii) The name and TIN of the affected partner to whom the statement is being furnished; (ix) The current or last address of the affected partner that is known to the pass-through partner; (x) The affected partner's share of items as originally reported to such partner under section 6031(b) and, if applicable, section 6227, for the taxable year to which the adjustments reflected on the statement furnished to the pass-through partner relate; (xi) The affected partner's share of partnership adjustments determined under § 301.6227-1(e)(2) as if the affected partner were the reviewed year partner and the partnership were the pass-through partner; (xii) Any other information required by forms, instructions, and other guidance prescribed by the IRS. (4) Affected partners must take into account the adjustments. (d) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6560, Feb. 27, 2019] § 301.6227(c)-1 Administrative adjustment request by the tax matters partner on behalf of the partnership. (a) In general. (1) Filed with the service center where the original partnership return was filed (but, if the notice described in section 6223(a)(1) (beginning of an administrative proceeding) has already been mailed to the tax matters partner, the statement should be filed with the Internal Revenue Service office that mailed such notice); (2) Signed by the tax matters partner; and (3) Accompanied by revised schedules showing the effects of the proposed changes on each partner and an explanation of the changes. (b) Denied request for treatment as a substituted return remains administrative adjustment request. (c) Effective date. [T.D. 8965, 66 FR 50554, Oct. 4, 2001] § 301.6227(d)-1 Administrative adjustment request filed on behalf of a partner. (a) In general. (1) Be filed in duplicate, the original copy filed with the partner's amended income tax return (on which the partner computes the amount by which the partner's tax liability should be adjusted if the request is granted) and the other copy filed with the service center where the partnership return is filed (but, if the notice described in section 6223(a)(1) (beginning of an administrative proceeding) has already been mailed to the tax matters partner, the statement should be filed with the Internal Revenue Service office that mailed such notice); (2) Identify the partner and the partnership by name, address, and taxpayer identification number; (3) Specify the partnership taxable year to which the administrative adjustment request applies; (4) Relate only to partnership items; and (5) Relate only to one partnership and one partnership taxable year. (b) Effective date. [T.D. 8965, 66 FR 50555, Oct. 4, 2001] § 301.6229(b)-1 Extension by agreement. (a) In general. (1) Provide that it is an authorization for a person other than the tax matters partner to extend the assessment period with respect to all partners; (2) Identify the partnership and the person being authorized by name, address, and taxpayer identification number; (3) Specify the partnership taxable year or years for which the authorization is effective; and (4) Be signed by all persons who were general partners (or, in the case of an LLC, member-managers, as those terms are defined in § 301.6231(a)(7)-2(b)) at any time during the year or years for which the authorization is effective. (b) Effective date. [T.D. 8965, 66 FR 50555, Oct. 4, 2001] § 301.6229(b)-2 Special rule with respect to debtors in title 11 cases. (a) In general. (b) Procedures for notifying the Internal Revenue Service of a partner's bankruptcy proceeding. (2) In addition to the information specified in § 301.6223(c)-1, notification that a person is (or was) a debtor in a bankruptcy proceeding shall include the date the bankruptcy proceeding was filed, the name and address of the court in which the bankruptcy proceeding exists (or took place), the caption of the bankruptcy proceeding (including the docket number or other identification number used by the court), and the status of the proceeding as of the date of notification. (c) Effective date. [T.D. 8965, 66 FR 50555, Oct. 4, 2001] § 301.6229(c)(2)-1 Substantial omission of income. (a) Partnership return General rule. (ii) For purposes of paragraph (a)(1)(i) of this section, the term gross income, (iii) For purposes of paragraph (a)(1)(i) of this section, the term gross income, (iv) An amount shall not be considered as omitted from gross income if information sufficient to apprise the Commissioner of the nature and amount of the item is disclosed in the return, including any schedule or statement attached to the return. (b) Effective/applicability date. [T.D. 9511, 75 FR 78898, Dec. 17, 2010] § 301.6229(e)-1 Information with respect to unidentified partner. (a) In general. (b) Effective date. [T.D. 8965, 66 FR 50555, Oct. 4, 2001] § 301.6229(f)-1 Special rule for partial settlement agreements. (a) In general. (b) Other items remaining in dispute. (c) Effective date. [T.D. 8965, 66 FR 50555, Oct. 4, 2001] § 301.6230(b)-1 Request that correction not be made. (a) In general. (1) State that it is a request that a correction not be made under section 6230(b); (2) Identify the partnership and the partner filing the request by name, address, and taxpayer identification number; (3) Be signed by the partner filing the request; and (4) Be filed with the Internal Revenue Service office that provided the notice of the correction of the error. (b) Effective date. [T.D. 8965, 66 FR 50556, Oct. 4, 2001] § 301.6230(c)-1 Claim arising out of erroneous computation, etc. (a) In general. (b) Effective date. [T.D. 8965, 66 FR 50556, Oct. 4, 2001] § 301.6230(e)-1 Tax matters partner required to furnish names. (a) In general. (b) Revised or additional information. (c) Information required with respect to indirect partners. (d) Effective date. [T.D. 8965, 66 FR 50556, Oct. 4, 2001] § 301.6231-1 Notice of proceedings and adjustments. (a) Notices to which this section applies. (1) Notice of any administrative proceeding initiated at the partnership level with respect to an adjustment of any partnership-related item (as defined in § 301.6241-1(a)(6)(ii)) for any partnership taxable year under subchapter C of chapter 63 (notice of administrative proceeding (NAP)); (2) Notice of any proposed partnership adjustment resulting from an administrative proceeding under subchapter C of chapter 63 (notice of proposed partnership adjustment (NOPPA)); and (3) Notice of any final partnership adjustment resulting from an administrative proceeding under subchapter C of chapter 63 (notice of final partnership adjustment (FPA)). (b) Time for mailing notices Notice of proposed partnership adjustment. (2) Notice of final partnership adjustment. (c) Last known address. (d) Notice mailed to partnership representative In general. (2) No partnership representative in effect. (e) Restrictions on additional FPAs after petition filed. (f) Withdrawal of NAP or NOPPA. (g) Rescission of FPA. (h) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6561, Feb. 27, 2019] § 301.6231(a)(1)-1 Exception for small partnerships. (a) In general. (1) 10 or fewer. C corporation. (2) Pass-thru partner. (3) Determination made annually. (b) Election to have subchapter C of chapter 63 apply In general. (2) Method of election. (3) Years covered by election. (c) Effective date. [T.D. 8965, 66 FR 50556, Oct. 4, 2001] § 301.6231(a)(2)-1 Persons whose tax liability is determined indirectly by partnership items. (a) Spouse filing joint return with individual holding a separate interest In general. (2) Counting rules. (3) Notice rules In general. (ii) Spouse identified on partnership return or by statement. (A) Is identified on the partnership return; or (B) Is identified as a partner entitled to notice as provided in § 301.6223(c)-1(b). (4) Conversion of partnership items Individual holding a separate interest. (ii) Spouse who files a joint return with an individual holding a separate interest in the partnership. (iii) Examples. Example 1. Husband owns a separate interest in ABC partnership and files a joint return with Wife. Husband files for bankruptcy. Pursuant to § 301.6231(c)-7, upon filing for bankruptcy, the partnership items of the debtor convert to nonpartnership items. Thus, Husband's partnership items converted to nonpartnership items upon the filing of Husband's bankruptcy petition. Pursuant to paragraph (a)(4)(i) of this section, Wife is no longer treated as a partner of ABC partnership as of the date the partnership items of Husband converted to nonpartnership items. Example 2. Wife owns a separate interest in XYZ partnership and files a joint return with Husband. Husband files for bankruptcy. Because the filing of the bankruptcy petition by Husband is an event that would convert Husband's partnership items to nonpartnership items if Husband were the owner of a separate interest, Husband shall no longer be treated as a partner as of the filing of the bankruptcy petition. Pursuant to paragraph (a)(4)(ii) of this section, the partnership items of Wife are not affected by Husband's bankruptcy. (5) Cross-reference. (b) Shareholder of C corporation. (c) Effective date. [T.D. 8965, 66 FR 50557, Oct. 4, 2001] § 301.6231(a)(3)-1 Partnership items. (a) In general. (1) The partnership aggregate and each partner's share of each of the following: (i) Items of income, gain loss, deduction, or credit of the partnership; (ii) Expenditures by the partnership not deductible in computing its taxable income (for example, charitable contributions); (iii) Items of the partnership which may be tax preference items under section 57(a) for any partner; (iv) Income of the partnership exempt from tax; (v) Partnership liabilities (including determinations with respect to the amount of the liabilities, whether the liabilities are nonrecourse, and changes from the preceding taxable year); and (vi) Other amounts determinable at the partnership level with respect to partnership assets, investments, transactions and operations necessary to enable the partnership or the partners to determine— (A) The investment credit determined under section 46(a); (B) Recapture under section 47 of the investment credit; (C) Amounts at risk in any activity to which section 465 applies; (D) The depletion allowance under section 613A with respect to oil and gas wells; and (E) The application of section 751 (a) and (b); (2) Guaranteed payments; (3) Optional adjustments to the basis of partnership property pursuant to an election under section 754 (including necessary preliminary determinations, such as the determination of a transferee partner's basis in a partnership interest); and (4) Items relating to the following transactions, to the extent that a determination of such items can be made from determinations that the partnership is required to make with respect to an amount, the character of an amount, or the percentage interest of a partner in the partnership, for purposes of the partnership books and records or for purposes of furnishing information to a partner: (i) Contributions to the partnership; (ii) Distributions from the partnership; and (iii) Transactions to which section 707(a) applies (including the application of section 707(b)). (b) Factors that affect the determination of partnership items. (c) Illustrations In general. (2) Contributions. (i) The character of the amount received from a partner (for example, whether it is a contribution, a loan, or a repayment of a loan); (ii) The amount of money contributed by a partner; (iii) The applicability of the investment company rules of section 721(b) with respect to a contribution; and (iv) The basis to the partnership of contributed property (including necessary preliminary determinations, such as the partner's basis in the contributed property). To the extent that a determination of an item relating to a contribution can be made from these and similar determinations that the partnership is required to make, therefore, that item is a partnership item. To the extent that that determination requires other information, however, that item is not a partnership item. For example, it may be necessary to determine whether contribution of the property causes recapture by the contributing partner of the investment credit under section 47 in certain circumstances in which that determination is irrelevant to the partnership. (3) Distributions. (i) The character of the amount transferred to a partner (for example, whether it is a distribution, a loan, or a repayment of a loan); (ii) The amount of money distributed to a partner; (iii) The adjusted basis to the partnership of distributed property; and (iv) The character of partnership property (for example, whether an item is inventory or a capital asset). To the extent that a determination of an item relating to a distribution can be made from these and similar determinations that the partnership is required to make, therefore, that item is a partnership item. To the extent that that determination requires other information, however, that item is not a partnership item. Such other information would include those factors used in determining the partner's basis for the partnership interest that are not themselves partnership items, such as the amount that the partner paid to acquire the partnership interest from a transferor partner if that transfer was not covered by an election under section 754. (4) Transactions to which section 707 (a) applies. (i) The amount transferred from the partnership to a partner or from a partner to the partnership in any transaction to which section 707(a) applies; (ii) The character of such an amount (for example, whether or not it is a loan; in the case of amounts paid over time for the purchase of an asset, what portion is interest); and (iii) The percentage of the capital interests and profits interests in the partnership owned by each partner. To the extent that a determination of an item relating to a transaction to which section 707(a) applies can be made from these and similar determinations that the partnership is required to make, therefore, that item is a partnership item. To the extent that that determination requires other information, however, that item is not a partnership item. An example of such other information is the cost to the partner of goods sold to the partnership. (d) Effective date. [T.D. 8082, 51 FR 13214, Apr. 18, 1986; 51 FR 19062, May 27, 1986] § 301.6231(a)(5)-1 Definition of affected item. (a) In general. affected item (b) Basis in a partner's partnership interest. (c) At-risk limitation. (d) Passive losses. (e) Penalty, addition to tax, or additional amount In general. affected item (2) Penalty, addition to tax, or additional amount without floor. affected item (3) Penalty, addition to tax, or additional amount containing floor Floor exceeded prior to adjustment. affected item (ii) Floor not exceeded prior to adjustment. affected item (4) Examples. Example 1. A, a partner of P, had an aggregate underpayment of $1,000 of which $100 is attributable to an adjustment to partnership items. A is negligent in reporting the partnership items. The accuracy-related penalty under section 6662 for negligence computed with reference to the $100 underpayment attributable to the partnership item adjustments is an affected item. Example 2. B, a partner of P, understated B's income tax liability attributable to nonpartnership items by $6,000. An adjustment to a partnership item resulting from a partnership proceeding increased B's income tax by an additional $2,000. Prior to the adjustment, B would have been subject to the accuracy-related penalty under section 6662 for a substantial understatement of income tax with respect to the $6,000 understatement attributable to nonpartnership items. The portion of the accuracy-related penalty under section 6662 computed with reference to the $2,000 understatement attributable to partnership items to which the accuracy-related penalty applies is an affected item. The portion of the accuracy-related penalty under section 6662 computed with reference to the $6,000 pre-existing understatement is not an affected item. Example 3. C, a partner in partnership P, understated C's income tax liability attributable to nonpartnership items by $4,000. As a result of an adjustment to partnership items, that understatement is increased to $10,000. Prior to the adjustment, C would not have been subject to the accuracy-related penalty under section 6662 for a substantial understatement of income tax. The accuracy-related penalty under section 6662 computed with reference to the entire $10,000 understatement to which the accuracy-related penalty applies is an affected item. (f) Effective date. [T.D. 8965, 66 FR 50557, Oct. 4, 2001] § 301.6231(a)(6)-1 Computational adjustments. (a) Changes in a partner's tax liability In general. (2) Affected items that do not require partner-level determinations. (3) Affected items that require partner-level determinations. (b) Interest. (c) Effective date. [T.D. 8965, 66 FR 50558, Oct. 4, 2001] § 301.6231(a)(7)-1 Designation or selection of tax matters partner. (a) In general. (b) Person who may be designated tax matters partner General requirement. (i) Was a general partner in the partnership at some time during the taxable year for which the designation is made; or (ii) Is a general partner in the partnership as of the time the designation is made. (2) Limitation on designation of tax matters partner who is not a United States person. United States person, (c) Designation of tax matters partner at time partnership return is filed. (d) Certification by current tax matters partner of selection of successor. (1) Identifies the partnership, the partner filing the statement, and the successor tax matters partner by name, address, and taxpayer identification number; (2) Specifies the partnership taxable year to which the designation relates; (3) Declares that the partner filing the statement has been properly designated as the tax matters partner of the partnership for the partnership taxable year and that that designation is in effect immediately before the filing of the statement; (4) Certifies that the other named partner has been selected as the tax matters partner of the partnership for that taxable year in accordance with the partnership's procedure for making that selection; and (5) Is signed by the partner filing the statement. (e) Designation by general partners with majority interest. (1) Identify the partnership and the designated partner by name, address, and taxpayer identification number; (2) Specify the partnership taxable year to which the designation relates; (3) Declare that it is a designation of a tax matters partner for the taxable year specified; and (4) Be signed by persons who were general partners at the close of the year and were shown on the return for that year to hold more than 50 percent of the aggregate interest in partnership profits held by all general partners as of the close of that taxable year. For purposes of this paragraph (e)(4), all limited partnership interests held by general partners shall be included in determining the aggregate interest in partnership profits held by such general partners. (f) Designation by partners with majority interest under certain circumstances In general. (i) The general partner is dead, or, if the general partner is an entity, has been liquidated or dissolved; (ii) The general partner has been adjudicated by a court of competent jurisdiction to be no longer capable of managing his or her person or estate; (iii) The general partner's partnership items have become nonpartnership items under section 6231(b); or (iv) The general partner is no longer a partner in the partnership. (2) Method of making designation. (i) Identify the partnership and the designated tax matters partner by name, address, and taxpayer identification number; (ii) Specify the partnership taxable year to which the designation relates; (iii) Declare that it is a designation of a tax matters partner for the partnership taxable year specified; and (iv) Be signed by persons who were partners at the close of such taxable year and were shown on the return for that year to hold more than 50 percent of the aggregate interest in partnership profits held by all partners as of the close of such taxable year. (g) Designation of alternate tax matters partner. (h) Prior designations superseded. (i) Resignation of designated tax matters partner. (j) Revocation of designation. (1) Identify by name, address, and taxpayer identification number the partnership and the general partner whose designation as tax matters partner is being revoked; (2) Specify the partnership taxable year to which the revocation relates; (3) Declare that it is a revocation of a designation of the tax matters partner for the taxable year specified; and (4) Be signed by the persons described in paragraph (e)(4) of this section, or, if at the time that the revocation is made, each partner who was a general partner at the close of the partnership taxable year to which the revocation relates is described in one or more of paragraphs (f)(1) (i) through (iv) of this section, by the persons described in paragraph (f)(2)(iv) of this section. (k) When designation, etc., becomes effective In general. (2) Notice of proceeding mailed. (l) Termination of designation In general. (i) The death of the designated tax matters partner; (ii) An adjudication by a court of competent jurisdiction that the individual designated as the tax matters partner is no longer capable of managing the individual's person or estate; (iii) The liquidation or dissolution of the tax matters partner, if the tax matters partner is an entity; (iv) The partnership items of the tax matters partner become nonpartnership items under section 6231(c) (relating to special enforcement areas); or (v) The day on which— (A) The resignation of the tax matters partner under paragraph (i) of this section; (B) A subsequent designation under paragraph (d), (e), or (f) of this section; or (C) A revocation of the designation under paragraph (j) of this section becomes effective. (2) Actions by the tax matters partner before termination of designation. (m) Tax matters partner where no partnership designation made In general. (i) The partnership has not designated a tax matters partner under this section for that taxable year; or (ii) The partnership has designated a tax matters partner under this section for that taxable year, that designation has been terminated under paragraph (l)(1) of this section, and the partnership has not made a subsequent designation under this section for that taxable year. (2) General partner having the largest profits interest is the tax matters partner. (3) Termination of designation. (n) Selection of tax matters partner by Commissioner when impracticable to apply the largest-profits-interest rule. (o) Impracticability of largest-profits-interest rule. (1) General partner with the largest profits interest is not apparent. (2) Each general partner is deemed to have no profits interest in the partnership. (3) General partner with the largest profits interest is disqualified. (i) Has been notified of suspension from practice before the Internal Revenue Service; (ii) Is incarcerated; (iii) Is residing outside the United States, its possessions, or territories; or (iv) Cannot be located or cannot perform the functions of a tax matters partner for any reason, except that lack of cooperation with the Internal Revenue Service by the general partner with the largest profits interest is not a basis for finding that the partner cannot perform the functions of a tax matters partner. (p) Commissioner's selection of the tax matters partner When the general partner with the largest profits interest is not apparent. (2) When each general partner is deemed to have no profits interest in the partnership. (2) When each general partner is deemed to have no profits interest in the partnership. (3) When the general partner with the largest profits interest is disqualified In general. (ii) Partner selected if no general partner may be selected. (q) Criteria for selecting a partner as tax matters partner In general. (2) Criteria to be considered. (i) The general knowledge of the partner in tax matters and the administrative operation of the partnership. (ii) The partner's access to the books and records of the partnership. (iii) The profits interest held by the partner. (iv) The views of the partners having a majority interest in the partnership regarding the selection. (v) Whether the partner is a partner of the partnership at the time the tax-matters-partner selection is made. (vi) Whether the partner is a United States person (within the meaning of section 7701(a)(30)). (3) Limited restriction on subsequent designation of a tax matters partner by the partnership. (r) Notification of partnership In general. (2) Limited opportunity for partnership to designate the tax matters partner. (ii) During the 30-day period and prior to a tax-matters-partner designation by the partnership, the Commissioner will communicate with the partnership by sending all correspondence or notices to “The Tax Matters Partner” in care of the partnership at the partnership's address. (iii) Any subsequent designation of a tax matters partner by the partnership after the 30-day period will become effective as provided under paragraph (k)(2) of this section (concerning designations made after a notice of beginning of administrative proceeding is mailed). (s) Effective date. [T.D. 8698, 61 FR 67459, Dec. 23, 1996, as amended by T.D. 8808, 64 FR 3840, Jan. 26, 1999; T.D. 8965, 66 FR 50558, Oct. 4, 2001] § 301.6231(a)(7)-2 Designation or selection of tax matters partner for a limited liability company (LLC). (a) In general. (b) Definitions LLC. LLC (i) Formed under a law that allows the limitation of the liability of all members for the organization's debts and other obligations within the meaning of § 301.7701-3(b)(2)(ii); and (ii) Classified as a partnership for Federal tax purposes. (2) Member. member (3) Member-manager. member-manager (c) Effective date. [T.D. 8698, 61 FR 67462, Dec. 23, 1996] § 301.6231(a)(12)-1 Special rules relating to spouses. (a) Spouses holding a joint interest In general. joint interest (2) Identification of joint interest. (3) Failure to identify both spouses as partners. (4) Example. Example. Wife owns an interest in ABC Partnership and is identified on the Schedule K-1 of the partnership return. Wife and Husband live in a community property state. The partnership return of ABC partnership does not identify Husband, and Husband is not identified as a partner entitled to notice as provided in § 301.6223(c)-1(b). Pursuant to paragraph (a)(3) of this section, the partnership interest of Wife shall be treated as separately owned by Wife. (b) Notice and counting rules In general. (2) Identified spouse entitled to notice. (i) Is identified as a partner on the partnership return for that taxable year; or (ii) Is identified as a partner entitled to notice as provided in § 301.6223(c)-1(b). (c) Conversion of partnership items In general. (2) Example. Example. Husband and Wife own a joint interest in XYZ Partnership. The partnership return identifies both spouses on the Schedule K-1. Under this section, each spouse is treated as a separate partner. If Wife enters into a settlement agreement, Wife's partnership items convert to nonpartnership items pursuant to section 6231(b)(1)(C). Accordingly, Wife no longer has the right to participate in the partnership proceeding subsequent to entering into the settlement agreement. Pursuant to paragraph (c) of this section, however, the partnership items of Husband are not affected by the conversion of the partnership items of Wife, and Husband continues to have the right to participate in the partnership proceeding. This result is the same regardless of whether the partnership items are reported on a joint return or on separate returns. (d) Cross-reference. (e) Effective date. [T.D. 8965, 66 FR 50559, Oct. 4, 2001] § 301.6231(c)-1 Special rules for certain applications for tentative carryback and refund adjustments based on partnership losses, deductions, or credits. (a) Application subject to this section. (1) A gross valuation overstatement; or (2) A false or fraudulent statement with respect to the tax benefits to be secured by reason of holding an interest in the partnership that would be subject to a penalty under section 6700 (relating to penalty for promoting abusive tax shelters, etc.). This section applies only with respect to an application based upon the original reporting on the partner's income tax return of partnership losses, deductions, or credits. Thus, this section does not apply to a request for administrative adjustment under section 6227 through which a partner seeks to change the partner's reporting of partnership items on the partner's income tax return (or on an earlier request for administrative adjustment). (b) Determination of special enforcement area. (c) Assessment permitted under section 6213(b)(3). (d) Limited right to elect to treat items as nonpartnership items In general. (2) Time and place of making election. (i) After the date which is one year after the date on which the partnership return was filed for the partnership taxable year in which the items at issue arose; and (ii) Before the date on which the Internal Revenue Service mails to the tax matters partner the notice of final partnership administrative adjustment for the partnership taxable year in which the items at issue arose. For purposes of this paragraph (d)(2), a partnership return filed before the last day prescribed by law for its filing (determined without regard to extensions) shall be treated as filed on the last day. (3) Contents of the statement. (i) Be clearly identified as an election to have partnership items treated as nonpartnership items because of notification of an assessment under section 6213(b)(3); (ii) Identify the partnership by name, address, and taxpayer identification number; (iii) Identify the partner making the election by name, address, and taxpayer identification number; (iv) Specify the partnership taxable year to which the election applies; and (v) Be signed by the partner making the election. (e) Effective date. [T.D. 8965, 66 FR 50559, Oct. 4, 2001] § 301.6231(c)-2 Special rules for certain refund claims based on losses, deductions, or credits from abusive tax shelter partnerships. (a) Claims subject to this section. (1) A gross valuation overstatement; or (2) A false or fraudulent statement with respect to the tax benefits to be secured by reason of holding an interest in the partnership that would be subject to a penalty under section 6700 (relating to penalty for promoting abusive tax shelters, etc.). This section applies only with respect to a claim that is based upon the partner's original reporting on the partner's income tax return of partnership losses, deductions, or credits. Thus, this section does not apply to a request for administrative adjustment under section 6227 through which a partner seeks to change the partner's reporting of partnership items on the partner's income tax return (or on an earlier request for administrative adjustment). For purposes of this section, any income tax return requesting a credit or refund shall be treated as a claim for a credit or refund. (b) Determination of special enforcement area. (c) Action on refund claims suspended. (d) Limited right to elect to treat items as nonpartnership items In general. (2) Time and place of making election. (i) After the date which is one year after the date on which the partnership return was filed for the partnership taxable year in which the items at issue arose; and (ii) Before the date on which the Internal Revenue Service mails to the tax matters partner the notice of final partnership administrative adjustment for the partnership taxable year in which the items at issue arose. For purposes of this paragraph (d)(2), a partnership return filed before the last day prescribed by law for its filing (determined without regard to extensions) shall be treated as filed on the last day. (3) Contents of the statement. (i) Be clearly identified as an election to have partnership items treated as nonpartnership items because of notification of suspension of action on a refund claim; (ii) Identify the partnership by name, address, and taxpayer identification number; (iii) Identify the partner making the election by name, address, and taxpayer identification number; (iv) Specify the partnership taxable year to which the election applies; and (v) Be signed by the partner making the election. (e) Effective date. [T.D. 8965, 66 FR 50560, Oct. 4, 2001] § 301.6231(c)-3 Limitation on applicability of §§ 301.6231(c)-4 through 301.6231(c)-8. (a) In general. (1) A notice of final partnership administrative adjustment with respect to those items has been mailed to the tax matters partner; and (2) Either— (i) The period during which an action with respect to that final partnership administrative adjustment may be brought under section 6226 has expired and no such action has been brought; or (ii) The decision of the court in an action brought under section 6226 with respect to that final partnership administrative adjustment has become final. (b) Effective date. [T.D. 8965, 66 FR 50560, Oct. 4, 2001] § 301.6231(c)-4 Termination and jeopardy assessment. (a) In general. (b) Effective date. [T.D. 8965, 66 FR 50561, Oct. 4, 2001] § 301.6231(c)-5 Criminal investigations. (a) In general. (b) Effective date. [T.D. 8965, 66 FR 50561, Oct. 4, 2001] § 301.6231(c)-6 Indirect method of proof of income. (a) In general. (b) Effective date. [T.D. 8965, 66 FR 50561, Oct. 4, 2001] § 301.6231(c)-7 Bankruptcy and receivership. (a) Bankruptcy. (b) Receivership. (c) Effective date. [T.D. 8965, 66 FR 50561, Oct. 4, 2001] § 301.6231(c)-8 Prompt assessment. (a) In general. (b) Effective date. [T.D. 8965, 66 FR 50561, Oct. 4, 2001] § 301.6231(d)-1 Time for determining profits interest of partners for purposes of sections 6223(b) and 6231(a)(11). (a) Partner owns interest at close of year. (b) Partner does not own interest at close of year. (c) Disposition of last remaining portion of interest is disposition of entire interest. (d) No profits interest in certain cases. (1) The interest of a partner in a partnership is entirely disposed of before the close of the taxable year of the partnership; and (2) No items of the partnership for that taxable year are required to be taken into account by the partner, then that partner has no profits interest in the partnership for that taxable year. (e) Examples. Example 1. B holds an interest in partnership P through T, a pass-thru partner. P uses a fiscal year ending June 30 as P's taxable year; B and T use the calendar year as the taxable year. As of the close of P's taxable year ending June 30, 2002, T holds an interest in P and B holds an interest in P through T. The profits interest held by B in P through T for that year is determined as of June 30, 2002. Example 2. Assume the same facts as in Example 1, Example 3. C holds an interest in partnership P through T, a pass-thru partner. C, P, and T all use the calendar year as the taxable year. T disposes of T's interest in P on June 5, 2002. The profits interest held by C in P through T for 2002 is determined as of the moment before the disposition on June 5, 2002. Example 4. Assume the same facts as in Example 3, Example 5. On January 1, 2002, D held a 2 percent profits interest in partnership P. Both D and P use the calendar year as the taxable year. On August 1, 2002, D transfers three-fourths of D's profits interest in P to E. On September 1, 2002, D sells D's remaining .5 percent profits interest in P to F. For purposes of sections 6223(b) and 6231(a)(11), D had a .5 percent profits interest in P for 2002. Example 6. Assume the same facts as in Example 5, (f) Effective date. [T.D. 8965, 66 FR 50562, Oct. 4, 2001] § 301.6231(e)-1 Effect of a determination with respect to a nonpartnership item on the determination of a partnership item. (a) In general. (b) Effective date. [T.D. 8965, 66 FR 50562, Oct. 4, 2001] § 301.6231(e)-2 Judicial decision not a bar to certain adjustments. (a) In general. (b) Effective date. [T.D. 8965, 66 FR 50562, Oct. 4, 2001] § 301.6231(f)-1 Disallowance of losses and credits in certain cases. (a) Application of section. (1) A partnership, whether domestic or foreign, that is required to file a return under section 6031 for a taxable year fails to file the return within the time prescribed; and (2) At any time after the close of that taxable year, either— (i) The tax matters partner of that partnership resides outside the United States; or (ii) The books and records of that partnership are maintained outside the United States. (b) Computational adjustment permitted if return is not filed after mailing of notice. (1) This section applies with respect to a partnership for a partnership taxable year; (2) The Internal Revenue Service mails notice to a partner that the losses and credits arising from that partnership for that year will be disallowed to that partner unless the partnership files a return for that year within 60 days after the date on which the notice is mailed; and (3) The partnership fails to file a return for that year within that 60-day period, the Internal Revenue Service may, without conducting a partnership-level proceeding, mail a notice of computational adjustment to that partner to reflect the disallowance of any loss (including a capital loss) or credit arising from that partnership for that year. (c) Restriction on notices under paragraph (b) of this section. (1) The tax matters partner of the partnership resides within the United States; and (2) The books and records of the partnership are maintained within the United States. Thus, if this section applies with respect to a partnership for a taxable year solely because the tax matters partner of that partnership resided outside the United States for a period after the close of that taxable year and the tax matters partner later takes up residence within the United States, no notice may be mailed under paragraph (b) of this section while the tax matters partner resides within the United States. (d) No disallowance in certain circumstances. (1) That the losses and credits arising from the partnership for the year are proper; and (2) That the partner has made a good faith effort to have the partnership file the required return; the Internal Revenue Service may allow the losses and credits in whole or in part. (e) Effective date. [T.D. 8965, 66 FR 50563, Oct. 4, 2001] § 301.6232-1 Assessment, collection, and payment of imputed underpayment. (a) In general. (b) Payment of the imputed underpayment. (c) Limitation on assessment In general. (i) The close of the 90th day after the day on which a notice of a final partnership adjustment (FPA) under section 6231(a)(3) was mailed; and (ii) If a petition for readjustment is filed under section 6234 with respect to such FPA, the decision of the court has become final. (2) Specified similar amount. (d) Exceptions to restrictions on adjustments and assessments Adjustments treated as mathematical or clerical errors In general. (ii) Request for abatement In general. (B) Adjustments with respect to inconsistent treatment by a partnership-partner. (iii) Partnerships that have an election under section 6221(b) in effect. (2) Partnership may waive limitations. (e) Limit on amount of imputed underpayment where no proceeding is begun. (f) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6562, Feb. 27, 2019] § 301.6233-1 Extension to entities filing partnership returns. (a) Entities filing a partnership return. (b) Partnership return filed but no entity found to exist. (c) Exceptions. (1) Entities for any taxable year in which such entity would be excepted from the provisions of subchapter C of the Internal Revenue Code under section 6231(a)(1)(B) and the regulations thereunder (relating to the exception for small partnerships) if such entity were a partnership for such taxable year; and (2) Entities for any taxable year for which a partnership return was filed for the sole purpose of making the election described in section 761(a). (d) Effective dates. [T.D. 8965, 66 FR 50563, Oct. 4, 2001] § 301.6233(a)-1 Interest and penalties determined from reviewed year. (a) Interest and penalties with respect to the reviewed year. (1) Interest computed in accordance with paragraph (b) of this section; and (2) Any penalty, addition to tax, or additional amount as provided under paragraph (c) of this section. (b) Computation of interest with respect to partnership adjustments for the reviewed year Interest on an imputed underpayment. (i) The date prescribed for payment (as described in § 301.6232-1(b)); (ii) The due date of the partnership return (without regard to extension) for the adjustment year (as defined in § 301.6241-1(a)(1)); or (iii) The date the imputed underpayment is fully paid. (2) Interest on penalties with respect to the reviewed year. (c) Penalties with respect to partnership adjustments for the reviewed year In general. (2) Determination of the amount of accuracy-related penalty and fraud penalty In general. (ii) Calculating the portion of an imputed underpayment subject to penalty and penalty amounts. (A) For purposes of applying this paragraph (c)(2)(ii)(A), disregard adjustments to credits or adjustments treated as adjustments to credits. Total all adjustments to which a particular penalty was imposed and to which the highest rate of tax in effect for the reviewed year under section 1 or 11 was applied when calculating the imputed underpayment. See § 301.6225-1(b)(1)(iv). (B) Multiply the total in paragraph (c)(2)(ii)(A) of this section by the highest rate of tax in effect for the reviewed year under section 1 or 11. (C) If the imputed underpayment was modified in accordance with § 301.6225-2(b)(3), repeat the steps in paragraphs (c)(2)(ii)(A) and (B) of this section for every tax rate applied in calculating the imputed underpayment by substituting the applicable tax rate determined under § 301.6225-2(b)(3) for the highest rate of tax in effect for the reviewed year under section 1 or 11. (D) Total all amounts determined after completing the steps in paragraphs (c)(2)(ii)(A) through (C) of this section. (E) Adjust the amount calculated in paragraph (c)(2)(ii)(D) of this section by: ( 1 1 ( 2 2 ( 3 1 2 (F) Multiply the total calculated in paragraph (c)(2)(ii)(E) of this section by the penalty rate applicable to the particular penalty. This is the total penalty amount for adjustments to which the particular penalty was imposed. (iii) Allocating negative adjustments In general. ( 1 ( 2 1 ( 3 2 (B) Allocation of negative adjustment within a penalty rate. (C) Adjustments remaining after allocation of negative adjustments 1 In general. net adjustment subject to penalty ( 2 Additional rules regarding allocation of negative credit amounts. ( i 3 ( ii 2 i ( iii 1 ii ( 3 Calculating the portion of the imputed underpayment to which no penalty was imposed before the application of negative adjustments to credits. 2 i (iv) Special rules Fraud penalties under section 6663. (B) Substantial understatement penalty under section 6662(d) 1 In general. 1 2 ( 2 Amount of tax required to be shown on the return. 2 (C) Reportable transaction understatement under section 6662A. (D) Reasonable cause and good faith. (v) Examples. (A) Example 1. (B) Example 2. Example 1 (C) Example 3. Example 2 (D) Example 4. Example 3 (E) Example 5. (F) Example 6. Example 5 (d) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6563, Feb. 27, 2019] § 301.6233(b)-1 Interest and penalties with respect to the adjustment year return. (a) Interest and penalties with respect to failure to pay imputed underpayment on the date prescribed. (1) Interest as determined under paragraph (c) of this section; and (2) Any penalty, addition to tax, or additional amount as determined under paragraph (d) of this section. (b) Imputed underpayments to which this section applies. (c) Interest. (d) Penalties. (e) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6565, Feb. 27, 2019] § 301.6234-1 Judicial review of partnership adjustment. (a) In general. (1) The Tax Court; (2) The district court of the United States for the district in which the partnership's principal place of business is located; or (3) The Court of Federal Claims. (b) Jurisdictional requirement for bringing action in district court or Court of Federal Claims. (c) Treatment of deposit as payment of tax. (d) Effect of decision dismissing action. (e) Amount deposited may be applied against assessment. (f) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6566, Feb. 27, 2019] § 301.6235-1 Period of limitations on making adjustments. (a) In general. (1) 3 years after the latest of— (i) The date on which the partnership return for such taxable year was filed; (ii) The return due date (as defined in section 6241(3)) for the taxable year; or (iii) The date on which the partnership filed an administrative adjustment request with respect to such taxable year under section 6227; (2) The date described in paragraph (b) of this section with respect to a request for modification; or (3) The date described in paragraph (c) of this section with respect to a notice of proposed partnership adjustment. (b) Modification requested under section 6225(c) In general. (2) Date on which everything is required to be submitted In general. (A) The date the period for requesting modification ends (including extensions) as described in § 301.6225-2(c)(3)(i) and (ii); or (B) The date the period for requesting modification expires as a result of a waiver of the prohibition on mailing a notice of final partnership adjustment (FPA) under § 301.6231-1(b)(2). See § 301.6225-2(c)(3)(iii). (ii) Incomplete submission has no effect. (c) Notice of proposed partnership adjustment. (d) Extension by agreement. (e) Examples. (1) Example 1. (2) Example 2. (3) Example 3. Example 2 (4) Example 4. Example 3 (5) Example 5. Example 4 (6) Example 6. Example 5 (f) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6566, Feb. 27, 2019] § 301.6241-1 Definitions. (a) Definitions. (1) Adjustment year. adjustment year (i) In the case of an adjustment pursuant to the decision of a court in a proceeding brought under section 6234, such decision becomes final; (ii) In the case of an administrative adjustment request (AAR) under section 6227, such AAR is filed; or (iii) In any other case, a notice of final partnership adjustment is mailed under section 6231 or, if the partnership waives the restrictions under section 6232(b) (regarding limitations on assessment), the waiver is executed by the IRS. (2) Adjustment year partner. adjustment year partner (3) Imputed underpayment. imputed underpayment imputed underpayment imputed underpayment (4) Indirect partner. indirect partner (5) Pass-through partner. pass-through partner (6) Partnership adjustment In general. partnership adjustment (ii) Partnership-related item. partnership-related item (A) Any item or amount with respect to the partnership (as defined in paragraph (a)(6)(iii) of this section) which is relevant in determining the tax liability of any person under chapter 1 of the Code (chapter 1) (as defined in paragraph (a)(6)(iv) of this section); (B) Any partner's distributive share of any such item or amount; and (C) Any imputed underpayment determined under subchapter C of chapter 63 of the Code (subchapter C of chapter 63). (iii) Item or amount with respect to the partnership. (iv) Relevant in determining the tax liability of any person under chapter 1. (v) Examples of partnership-related items. (A) The character, timing, source, and amount of the partnership's income, gain, loss, deductions, and credits; (B) The character, timing, and source of the partnership's activities; (C) The character, timing, source, value, and amount of any contributions to, and distributions from, the partnership; (D) The partnership's basis in its assets, the character and type of the assets, and the value (or revaluation such as under § 1.704-1(b)(2)(iv)( f s (E) The amount and character of partnership liabilities and any changes to those liabilities from the preceding tax year; (F) The category, timing, and amount of the partnership's creditable expenditures; (G) Any item or amount resulting from a partnership termination; (H) Any item or amount of the partnership resulting from an election under section 754; (I) Partnership allocations and any special allocations; and (J) The identity of a person as a partner in the partnership. (vi) Examples. (A) Example 1. (B) Example 2. (C) Example 3. (D) Example 4. Example 3 (7) Partnership-partner. partnership-partner (8) Reviewed year. reviewed year (9) Reviewed year partner. reviewed year partner (10) Tax attribute. (b) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6567, Feb. 27, 2019, as amended by T.D. 9988, 89 FR 17595, Mar. 11, 2024] § 301.6241-2 Bankruptcy of the partnership. (a) Coordination between Title 11 and proceedings under subchapter C of chapter 63 In general. (i) 60 days after the suspension ends, for adjustments or assessments; and (ii) 6 months after the suspension ends, for collection. (2) Interaction with section 6232(b). (3) Suspension of the time for judicial review. (4) Actions not prohibited. (i) An administrative proceeding with respect to a partnership under subchapter C of chapter 63; (ii) The mailing of any notice with respect to a proceeding with respect to a partnership under subchapter C of chapter 63, including: (A) A notice of administrative proceeding; (B) A notice of proposed partnership adjustment; and (C) A notice of final partnership adjustment; (iii) A demand for tax returns; (iv) The assessment of any tax, including the assessment of any imputed underpayment with respect to a partnership; and (v) The issuance of notice and demand for payment of an assessment under subchapter C of chapter 63 (but see section 362(b)(9)(D) of Title 11 of the United States Code regarding the timing of when a tax lien takes effect by reason of such assessment). (b) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6569, Feb. 27, 2019] § 301.6241-3 Treatment where a partnership ceases to exist. (a) Former partners take adjustments into account In general. (2) Partnership no longer liable for any unpaid amounts resulting from a partnership adjustment. (3) Application of this section to partnership-partners. (b) Cease to exist defined In general. (i) The partnership terminates within the meaning of section 708(b)(1); or (ii) The partnership does not have the ability to pay, in full, any amount that may be due under the provisions of subchapter C of chapter 63 for which the partnership is or may become liable. For purposes of this section, a partnership does not have the ability to pay if the IRS determines that the partnership's account is currently not collectible based on the information the IRS has at the time of such determination. (2) Year in which a partnership ceases to exist. (3) Limitation on IRS determination that partnership ceases to exist. (c) Partnership adjustment takes effect. (d) Former partners Adjustment year partners In general. former partners (ii) Partnership-partner ceases to exist. (2) No adjustment year partners. former partners (e) Taking adjustments into account In general. (2) Statements furnished to former partners. (i) The adjustments are taken into account by the applicable former partner (as described in paragraph (d) of this section), rather than the reviewed year partners (as defined in § 301.6241-1(a)(9)); and (ii) The partnership must furnish statements to the former partners and file the statements with the IRS no later than 60 days after the later of the date of the notification to the partnership that the IRS has determined that the partnership has ceased to exist or the date the adjustment takes effect, as described in paragraph (c) of this section. (3) Authority to issue statements. (f) Examples. (1) Example 1. (2) Example 2. (g) Applicability date. [T.D. 9844, 84 FR 6569, Feb. 27, 2019, as amended by T.D. 9969, 87 FR 75493, Dec. 9, 2022] § 301.6241-4 Payments nondeductible. (a) Payments nondeductible. (b) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6571, Feb. 27, 2019] § 301.6241-5 Extension to entities filing partnership returns. (a) Entities filing a partnership return. (b) Partnership return filed but no entity found to exist. (c) Exceptions. (1) Any taxable year for which an election under section 6221(b) is in effect, treating the return as if it were filed by a partnership for the taxable year to which the election relates; and (2) Any taxable year for which a valid section 761(a) election is made (regarding election out of subchapter K of chapter 1 of the Internal Revenue Code for certain unincorporated organizations). (d) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6571, Feb. 27, 2019] § 301.6241-6 Coordination with other chapters of the Internal Revenue Code. (a) Coordination with other chapters In general. (2) Examples. (i) Example 1. (ii) Example 2. (b) Coordination with chapters 3 and 4 In general. (2) Definitions. (i) Amount subject to withholding. amount subject to withholding (ii) Chapter 3. chapter 3 (iii) Chapter 4. chapter 4 (3) Partnership pays an imputed underpayment. (4) Partnership makes an election under section 6226 with respect to an imputed underpayment In general. (ii) Reduced rate of tax. (iii) Reporting requirements. (iv) Partners subject to withholding. (c) Applicability date In general. (2) Election under § 301.9100-22 in effect. [T.D. 9844, 84 FR 6572, Feb. 27, 2019] § 301.6241-7 Treatment of special enforcement matters. (a) Items that involve special enforcement matters. (b) Partnership-related items underlying items that are not partnership-related items In general. (i) An examination is being conducted of a person other than the partnership; (ii) A determination regarding a partnership-related item is made, as part of, or underlying, an adjustment to an item that is not a partnership-related item of the person described in paragraph (b)(1)(i) of this section; and (iii) The treatment of the partnership-related item on the return of the partnership under section 6031(a) or in the partnership's books and records is based in whole or in part on information provided by the person described in paragraph (b)(1)(i) of this section from that person's books and records. (2) Example. (c) Termination and jeopardy assessment. (d) Criminal investigations. (e) Indirect methods of proof of income. (f) Special relationships and extensions of the partner's period of limitations. (1) The direct or indirect partner is related to the partnership under section 267(b) or 707(b); or (2) Under section 6501(c)(4), the direct or indirect partner agrees, in writing, to extend the partner's section 6501 period of limitations on assessment for the taxable year but only if the agreement expressly provides that the partner is extending the time to adjust and assess any tax attributable to partnership-related items for the taxable year. (g) Penalties and taxes imposed on the partnership under chapter 1. (h) Determination that subchapter C of chapter 63 does not apply Notification. (2) Effect of adjustments not made under subchapter C of chapter 63. (i) Coordination with adjustments made at the partnership level. (1) Previously taken into account under subchapter C of chapter 63 by the person being examined; or (2) Included in an imputed underpayment paid by a partnership (or pass-through partner) for any taxable year in which the partner was a reviewed year partner or indirect partner but only if the amount included in the deficiency or adjustment exceeds the amount reported by the partnership to the partner that was either reported by the partner or indirect partner or is otherwise included in the deficiency or adjustment determined by the IRS. (j) Elections resulting in payments to a partnership. (k) Applicability date In general. (2) Partnership-related items underlying items that are not partnership-related items. (3) Elections resulting in payments to a partnership. [T.D. 9969, 87 FR 75494, Dec. 9, 2022, as amended by T.D. 9988, 89 FR 17595, Mar. 11, 2024] Collection General Provisions § 301.6301-1 Collection authority. The taxes imposed by the internal revenue laws shall be collected by district directors of internal revenue. See, however, section 6304, relating to the collection of certain taxes under the provisions of the Tariff Act of 1930 (19 U.S.C. ch. 4). § 301.6302-1 Manner or time of collection of taxes. (a) Employment and excise taxes. (b) Income taxes. (2) For provisions relating to the deposits of tax required to be withheld under chapter 3 of the Code on nonresident aliens and foreign corporations and tax-free covenant bonds, see § 1.6302-2 of this chapter. (c) Effective/applicability date. [75 FR 75904, Dec. 7, 2010] § 301.6303-1 Notice and demand for tax. (a) General rule. (b) Assessment prior to last date for payment. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 8939, 66 FR 2820, Jan. 12, 2001] § 301.6305-1 Assessment and collection of certain liability. (a) Scope. (b) Assessment and collection General rule. (2) Method of assessment. (i) The assessed amount; (ii) The name, social security number, and last known address of the individual owing the assessed amount. For further guidance regarding the definition of last known address, see § 301.6212-2; (iii) A designation of the assessed amount as a certified amount, together with the date on which the amount was certified and the name, position, and governmental address of the officer of the Department of Health and Human Services who certified the amount; (iv) The period to which the child and spousal support obligation represented by the certified amount relates; (v) The State in which was entered the court or administrative order giving rise to the child and spousal support obligation represented by the certified amount; (vi) The name of the person or persons to whom the child and spousal support obligation represented by the certified amount is owed; and (vii) The name of the child or children or the parent of the child or children for whose benefit the child and spousal support obligation exists. Upon request, the individual assessed shall be furnished a copy of pertinent parts of this assessment which set forth the information listed in subdivision (i) through (vii) of this paragraph (b)(2). (3) Supplemental assessments and abatements. (4) Method of collection. (ii) The district director or his delegate shall make diligent and reasonable efforts to collect certified amounts as if such amounts were taxes. He shall have no authority to compromise a proceeding by collection of only part of a certified amount in satisfaction of the full certified amount owing. However, he may arrange for payment of a certified amount by installments where advisable. (iii) The district director or his delegate may offset the amount of any overpayment of any internal revenue tax (as described in section 301.6401-1) to be refunded to the person making the overpayment by the amount of any past-due support (as defined in the regulations under section 6402) owed by the person making the overpayment. The amounts offset under section 6402(c) may be amounts of child and spousal support certified (or recertified) for collection under section 6305 and this section or they may be amounts of past-due support of which the Secretary of the Treasury has been notified under section 6402(c) and the regulations under that section. (5) Credits or refunds. (6) Disposition of certified amounts collected. (c) Additional limitations and conditions Interest and penalties. (2) Property not exempt from levy. (i) Unemployment benefits described in section 6334(a)(4); (ii) Certain annuities and pension payments described in section 6334(a)(6); or (iii) Salary, wages, or other income described in section 6334(a)(8). (3) Property exempt from levy. (4) First assessment. (5) Priority of liens. (6) Statute of limitations on collections. (d) Review of assessments and collections Federal courts. (2) Secretary of the Treasury. (3) State courts. (e) Internal Revenue regional service centers. (Sec. 7805, Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C. 7805); sec. 2332(a) of the Omnibus Budget Reconciliation Act of 1981 (95 Stat. 357), amending sec. 464(a) of the Social Security Act (88 Stat. 2351)) [T.D. 7576, 43 FR 59376, Dec. 20, 1978, as amended by T.D. 7808, 47 FR 5713, Feb. 8, 1982; T.D. 8939, 66 FR 2820, Jan. 12, 2001] Receipt of Payment § 301.6311-1 Payment by check or money order. (a) Authority to receive In general. a b c d (ii) An American citizen residing in a country with which the United States maintains direct exchange of money orders on a domestic basis may pay his tax by postal money order of such country. For a list of such countries, see section 171.27 of the Postal Manual of the United States. (iii) If one check or money order is remitted to cover two or more persons' taxes, the remittance should be accompanied by a letter of transmittal clearly identifying— ( a ( b ( c (2) Payment for internal revenue stamps. (b) Checks or money orders not paid Ultimate liability. (2) Liability of financial institutions and others. (c) Payment in nonconvertible foreign currency. (d) Financial institution. financial institution (1) A bank or trust company (as defined in section 581); (2) A domestic building and loan association (as defined in section 7701(a)(19)); (3) A mutual savings bank (including but not limited to a mutual savings bank as defined in section 591(b)); (4) A credit union (including both state and federal credit unions, and including but not limited to a credit union as defined in section 501(c)(14)); and (5) A regulated investment company (as defined in section 851(a)). [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7188, 37 FR 12795, June 29, 1972; T.D. ATF-33, 41 FR 44038, Oct. 6, 1976; T.D. 8595, 60 FR 20899, Apr. 28, 1995; T.D. 8969, 66 FR 64743, Dec. 14, 2001] § 301.6311-2 Payment by credit card and debit card. (a) Authority to receive Payments by credit card and debit card. tax (2) Payments by electronic funds transfer other than payments by credit card and debit card. (3) Definitions Credit card (ii) Debit card (b) When payment is deemed made. (c) Payment not made Continuing liability of taxpayer. (2) Liability of financial institutions. (d) Resolution of errors relating to the credit card or debit card account In general. (2) Matters covered by error resolution procedures. (A) An incorrect amount posted to the taxpayer's account as a result of a computational error, numerical transposition, or similar mistake; (B) An amount posted to the wrong taxpayer's account; (C) A transaction posted to the taxpayer's account without the taxpayer's authorization; and (D) Other similar types of errors that would be subject to resolution under section 161 of the Truth in Lending Act (15 U.S.C. 1666), section 908 of the Electronic Fund Transfer Act (15 U.S.C. 1693f), or similar provisions of state or local law. (ii) An error described in paragraph (d)(2)(i) of this section may be resolved only through the procedures referred to in paragraph (d)(1) of this section and cannot be a basis for any claim or defense in any administrative or court proceeding involving the Commissioner or the United States. (3) Return of funds pursuant to error resolution procedures. (4) Matters not subject to error resolution procedures. (5) Section 170 of the Truth in Lending Act not applicable. (e) Fees or charges. (f) Authority to enter into contracts. (g) Use and disclosure of information relating to payment of taxes by credit card and debit card. (1) No person other than the taxpayer shall use or disclose such information except as follows— (i) Card issuers, financial institutions, or other persons participating in the credit card or debit card transaction may use or disclose such information for the purpose and in direct furtherance of servicing cardholder accounts, including the resolution of errors in accordance with paragraph (d) of this section. This authority includes the following— (A) Processing the credit card or debit card transaction, in all of its stages through and including the crediting of the amount charged on account of tax to the United States Treasury; (B) Billing the taxpayer for the amount charged or debited with respect to payment of the tax liability; (C) Collecting the amount charged or debited with respect to payment of the tax liability; (D) Returning funds to the taxpayer in accordance with paragraph (d)(3) of this section; (E) Sending receipts or confirmation of a transaction to the taxpayer, including secured electronic transmissions and facsimiles; and (F) Providing information necessary to make a payment to state or local government agencies, as explicitly authorized by the taxpayer (e.g., name, address, taxpayer identification number). (ii) Card issuers, financial institutions or other persons participating in the credit card or debit card transaction may use and disclose such information for the purpose and in direct furtherance of any of the following activities— (A) Assessment of statistical risk and profitability; (B) Transfer of receivables or accounts or any interest therein; (C) Audit of account information; (D) Compliance with federal, state, or local law; and (E) Cooperation in properly authorized civil, criminal, or regulatory investigations by federal, state, or local authorities. (2) Notwithstanding the provisions of paragraph (g)(1) of this section, use or disclosure of information relating to credit card and debit card transactions for purposes related to any of the following is not authorized— (i) Sale of such information (or transfer of such information for consideration) separate from a sale of the underlying account or receivable (or transfer of the underlying account or receivable for consideration); (ii) Marketing for any purpose, such as, marketing tax-related products or services, or marketing any product or service that targets those who have used a credit card or debit card to pay taxes; and (iii) Furnishing such information to any credit reporting agency or credit bureau, except with respect to the aggregate amount of a cardholder's account, with the amount attributable to payment of taxes not separately identified. (3) Use and disclosure of information other than as authorized by this paragraph (g) may result in civil liability under sections 7431(a)(2) and (h). (h) Effective date. [T.D. 8969, 66 FR 64743, Dec. 14, 2001; 67 FR 1416, Jan. 11, 2001] § 301.6312-1 Treasury certificates of indebtedness, Treasury notes, and Treasury bills acceptable in payment of internal revenue taxes or stamps. (a) Treasury certificates of indebtedness, Treasury notes, or Treasury bills of any series (not including interim receipts issued by Federal reserve banks in lieu of definitive certificates, notes, or bills) may be tendered at or before maturity in payment of internal revenue taxes due on the date (or in payment for stamps purchased on the date), on which the certificates, notes, or bills mature, or in payment of internal revenue taxes due on a specified prior date, but only if such certificates, notes, or bills, according to the express terms of their issue, are made acceptable in payment of such taxes or for the purchase of stamps. If the taxes for which the certificates, notes, or bills are tendered in payment become due, or the stamps are purchased, on the same date as that on which such certificates, notes, or bills mature, they will be accepted at par plus accrued interest, if any, payable with the principal (not represented by coupons attached) in payment of such taxes or stamps. If the taxes for which the certificates, notes, or bills are tendered in payment become due, or the stamps are purchased, on a date prior to that on which the certificates, notes, or bills mature, they will be accepted at the value specified in the terms under which such certificates, notes, or bills were issued. All interest coupons attached to Treasury certificates of indebtedness or Treasury notes shall be detached by the taxpayer before such certificates or notes are tendered in payment of taxes or stamps. (b) Receipts given by a district director for Treasury certificates of indebtedness, Treasury notes, or Treasury bills received in payment of internal revenue taxes or for stamps as provided in this section shall contain an adequate description of such certificates, notes, or bills, and a statement of the value, including accrued interest, if any, payable with the principal (not represented by coupons attached), at which accepted, and shall show that the certificates, notes, or bills are tendered by the taxpayer and received by the district director, subject to no conditions, qualification, or reservation whatsoever, in payment of an amount of taxes or for stamps no greater than such value. Any certificate, note, or bill offered in payment of internal revenue taxes or for stamps subject to any condition, qualification, or reservation, or for any greater amount than the value at which acceptable in payment of taxes or stamps, as specified in the terms under which such certificate, note, or bill was issued, shall not be deemed to be duly tendered and shall be returned to the taxpayer. (c) For the purpose of saving taxpayers the expense of transmitting Treasury certificates of indebtedness, Treasury notes, or Treasury bills to the office of the district director in whose district the taxes are payable, or stamps are to be purchased, taxpayers desiring to pay taxes, or purchase stamps, with such certificates, notes, or bills acceptable in payment of taxes or for the purchase of stamps may deposit such certificates, notes, or bills with a Federal reserve bank or branch, or with the Office of the Treasurer of the United States, Treasury Building, Washington, D.C. In such cases, the Federal reserve bank or branch, or the Office of the Treasurer of the United States, shall issue a receipt in the name of the district director, describing the certificates, notes, or bills by par or dollar face amount and stating on the face of the receipt that the certificates, notes, or bills represented thereby are held by the bank or branch, or the Office of the Treasurer of the United States, for redemption at the value specified in the terms under which the certificates, notes, or bills were issued, and for application of the proceeds in payment of taxes due or for the purchase of stamps on a specified date by the taxpayer named therein. (d) In the case of payments of tax required to be deposited with Government depositaries by regulations under section 6302 of the Code, certificates, notes, or bills referred to in paragraph (a) of this section may be deposited with a Federal Reserve bank or branch, or with the Office of the Treasurer of the United States, in part or full satisfaction of such tax liability. As in the case of all remittances of amounts so required to be deposited, each such deposit of certificates, notes, or bills shall be accompanied by the appropriate deposit form in accordance with the regulations under section 6302. In such cases, notwithstanding paragraphs (b) and (c) of this section, receipts for such certificates, notes or bills shall no longer be issued in the name of the district director. § 301.6312-2 Certain Treasury savings notes acceptable in payment of certain internal revenue taxes. According to the express terms of their issue, the following series of Treasury savings notes are presently acceptable in payment of income taxes (current and back, personal and corporation taxes, and excess profits taxes) and estate and gift taxes (current and back): (a) Treasury Savings Notes, Series A, (b) Treasury Savings Notes, Series B, (c) Treasury Savings Notes, Series C. § 301.6313-1 Fractional parts of a cent. In the payment of any tax not payable by stamp, a fractional part of a cent shall be disregarded unless it amounts to one-half cent or more, in which case it shall be increased to one cent. Fractional parts of a cent shall not be disregarded in the computation of taxes. § 301.6314-1 Receipt for taxes. (a) In general. (b) Duplicate receipt for payment of estate taxes. [T.D. 7214, 37 FR 23176, Oct. 31, 1972] § 301.6315-1 Payments of estimated income tax. The payment of any installment of the estimated income tax (see sections 6015 and 6016) shall be considered payment on account of the income tax for the taxable year for which the estimate is made. The aggregate amount of the payments of estimated tax should be entered upon the income tax return for such taxable year as payments to be applied against the tax shown on such return. § 301.6316-1 Payment of income tax in foreign currency. Subject to the provisions of §§ 301.6316-3 to 301.6316-5, inclusive, that portion of the income tax which is attributable to amounts received by a citizen of the United States in nonconvertible foreign currency may be paid in such currency— (a) For any taxable year beginning on or after January 1, 1955, and before January 1, 1964, if such amounts— (1) Are disbursed from funds made available to a foundation or commission established in a foreign country pursuant to an agreement made under the authority of section 32(b) of the Surplus Property Act of 1944, as amended (50 U.S.C. App. 1641(b)(2)), or reestablished under the authority of the Mutual Educational and Cultural Exchange Act of 1961, as amended (22 U.S.C. 2451); (2) Constitute either a grant made for authorized purposes of the agreement or compensation for personal services performed in the employ of the foundation or commission; (3) Are at least 75 percent of the entire amount of the grant or compensation; and (4) Are treated as income from sources without the United States under the provisions of sections 861 to 864, inclusive, and §§ 1.861-1 to 1.864, inclusive, of this chapter (Income Tax Regulations); and (b) For any taxable year beginning on or after January 1, 1964, if such amounts— (1) Are disbursed from funds made available either to a foundation or commission, established pursuant to an agreement made under the authority of section 32(b) of the Surplus Property Act of 1944, as amended, or to a foundation or commission established or continued pursuant to an agreement made under the authority of the Mutual Educational and Cultural Exchange Act of 1961, as amended; or are paid from grants made to such citizen, or to a foundation or an educational or other institution, under the authority of the Mutual Educational and Cultural Exchange Act of 1961, as amended, or section 104 (h), (j), (k), (o), or (p) of the Agricultural Trade Development and Assistance Act of 1954, as amended (7 U.S.C. 1704 (h), (j), (k), (o), (p)); (2) Constitute either a grant made for a purpose authorized under any such agreement or law, or compensation for personal services performed in the employ of any organization engaged in administering any program or activity pursuant to any such agreement or law; (3) Are at least 70 percent of the entire amount of the grant or compensation; and (4) Are treated as income from sources without the United States under the provisions of sections 861 to 864, inclusive, and §§ 1.861-1 to 1.864, inclusive, of this chapter (Income Tax Regulations). § 301.6316-2 Definitions. For purposes of §§ 301.6316-1 to 301.6316-9, inclusive: (a) The term tax, (b) The term nonconvertible foreign currency (c) If the taxpayer computes taxable income under the accrual method, then the term received § 301.6316-3 Allocation of tax attributable to foreign currency. (a) Adjusted gross income ratio. (1) The amount which bears the same ratio to the entire tax for the taxable year as (i) the taxpayer's adjusted gross income received in that currency bears to (ii) the adjusted gross income determined under section 62 by taking into account the entire gross income and all deductions allowable under that section without distinction as to amounts received in foreign currency, exceeds (2) The total of the allowable credits against tax, and payments on account of tax, which are properly allocable to the amount of that currency included in gross income. (b) Example. Fulbright grant received by Mr. Jones in nonconvertible foreign currency $8,000 Dividends received by Mr. Jones entitled to dividends-received credit 500 Compensation for personal services of Mrs. Jones 3,000 Net profit from business carried on by Mrs. Jones 2,500 Total adjusted gross income 14,000 (2) The following amounts are allowable as properly deductible from adjusted gross income, no determination being made as to whether or not any part of them is properly allocable to the Fulbright grant: Deduction for personal exemptions $3,000 Charitable contributions 500 Interest expense 400 Taxes 300 Total allowable deductions 4,200 (3) For the taxable year the following amounts are allowable as credits against the tax, or as payments on account of the tax: Foreign tax credit for foreign taxes paid on Fulbright grant $300.00 Dividends-received credit 20.00 Credit for income tax withheld upon compensation of Mrs. Jones 304.80 Payments of estimated tax (see § 301.6316-6(b)(2) for determination of amounts): U.S. dollars $426.32 Foreign currency 893.88 1,320.20 Total allowable credits and payments 1,945.00 (4) The portion of the tax which is attributable to amounts received in nonconvertible foreign currency is $33.49, determined as follows: Adjusted gross income $14,000.00 Less: Allowable deductions 4,200.00 Taxable income 9,800.00 Tax computed under section 2 2,148.00 Ratio of adjusted gross income received in nonconvertible foreign currency to entire adjusted gross income ($8,000 ÷ $14,000) (percent) 57.14 Portion of tax attributable to nonconvertible foreign currency ($2,148 × 57.14 percent) $1,227.37 Less: Credit for foreign taxes paid on Fulbright grant $300.00 Payment in foreign currency of estimated tax 893.88 1,193.88 Portion of tax attributable to amounts received in nonconvertible foreign currency 83.49 § 301.6316-4 Return requirements. (a) Place for filing. (b) Statements required. (2) The taxpayer shall also attach to the return a detailed statement showing (i) the computation, in the manner prescribed by § 301.6316-3, of the portion of the tax attributable to amounts received in nonconvertible foreign currency and (ii) the rates of exchange used in determining the tax liability in U.S. dollars. See paragraph (c) of § 301.6316-5. § 301.6316-5 Manner of paying tax by foreign currency. (a) Time and place to pay. (b) Certified statement. (c) Determination of the tax. (d) Deposit of foreign currency with disbursing officer. (2) The disbursing officer may rely upon the taxpayer for the determination of the amount of tax payable in foreign currency but may not accept any such currency for deposit until the taxpayer has presented for inspection the certified statement referred to in paragraph (b)(1) of § 301.6316-4. Upon acceptance of foreign currency for deposit the disbursing officer shall give the taxpayer a receipt in duplicate showing the name and address of the depositor, the date of the deposit, the amount of foreign currency deposited, and its equivalent in U.S. dollars on the date of deposit. (3) Every taxpayer making a deposit of foreign currency in accordance with this paragraph shall attach to the return required to be filed in accordance with § 301.6316-4, in part or full payment of the taxes shown thereon, the original of the receipt given by the disbursing officer and shall pay to the Director of International Operations in U.S. dollars the balance, if any, of the tax shown to be due. Tender of such receipt to the Director of International Operations shall be considered as payment of tax in an amount equal to the U.S. dollars represented by the receipt. (4) A taxpayer shall make the deposit required by this paragraph in ample time to permit him to attach the receipt to his return for filing within the time prescribed by section 6072 or 6081 and §§ 1.6072-1, 1.6081-1, and 1.6081-2 of this chapter (Income Tax Regulations). § 301.6316-6 Declarations of estimated tax. (a) Filing of declaration. (b) Determination of estimated tax Allocation of tax attributable to foreign currency. (2) Example. Fulbright grant to be received by Mr. Jones in nonconvertible foreign currency $8,000 Dividends to be received by Mr. Jones entitled to dividends-received credit 875 Compensation to be received by Mrs. Jones for personal services 3,000 Net profit to be derived from business carried on by Mrs. Jones 1,625 Total estimated adjusted gross income 13,000 (ii) The following amounts were determined to be allowable as properly deductible from estimated adjusted gross income, no determination being made as to whether or not any part of them was properly allocable to the Fulbright grant: Deduction for personal exemptions $3,000 Charitable contributions 300 Interest expense 400 Taxes 300 Total allowable deductions 4,000 (iii) The following estimated amounts were determined to be allowable as credits against the tax for the taxable year: Foreign tax credit for foreign taxes to be paid on Fulbright grant $300.00 Credit for income tax expected to be withheld upon compensation of Mrs. Jones 304.80 Dividends-received credit 15.00 Total allowable estimated credits 619.80 (iv) The portion of the estimated tax which is attributable to amounts to be received during the taxable year in nonconvertible foreign currency is $893.88, determined as follows: Estimated adjusted gross income $13,000.00 Less: Allowable deductions 4,000.00 Estimated taxable income 9,000.00 Tax computed under section 2 1,940.00 Ratio of estimated adjusted gross income to be received in nonconvertible foreign currency to entire estimated adjusted gross income ($8,000 ÷ $13,000) (percent) 61.54 Portion of above tax attributable to nonconvertible foreign currency ($1,940 × 61.54 percent) 1,193.88 Less: Credit for foreign taxes expected to be paid on Fulbright grant 300.00 Portion of estimated tax which is attributable to amounts to be received during the taxable year in nonconvertible foreign currency 893.88 (v) The portion of the estimated tax which is payable in U.S. dollars is $426.32, determined as follows: Tax computed under section 2 $1,940.00 Less: Total allowable estimated credits 619.80 Total estimated tax 1,320.20 Less: Portion of estimated tax payable in foreign currency 893.88 Portion of estimated tax payable in U.S. dollars 426.32 (c) Payment of estimated tax. (2) Every taxpayer making a deposit of foreign currency in accordance with this paragraph shall tender to the Director of International Operations, Internal Revenue Service, Washington, D.C. 20225, the original of the receipt from the disbursing officer as payment, to the extent of the amount represented thereby in U.S. dollars, of the estimated tax. For the dates prescribed for the payment of estimated tax, see sections 6153 and 6161 and §§ 1.6153-1 to 1.6153-4, inclusive, and § 1.6161-1 of this chapter (Income Tax Regulations). A taxpayer should make the deposit required by this paragraph in ample time to permit him to tender such receipt by the date prescribed for payment of the estimated tax. (d) Credit on return for the taxable year. § 301.6316-7 Payment of Federal Insurance Contributions Act taxes in foreign currency. (a) In general. (1) Are paid from funds made available to a foundation or commission established in a foreign country pursuant to an agreement made under the authority of section 32(b) of the Surplus Property Act of 1944, as amended (50 U.S.C. App. 1641(b)(2)), or established or continued pursuant to an agreement made under authority of the Mutual Educational and Cultural Exchange Act of 1961, as amended (22 U.S.C. 2451); and (2) Are paid to a U.S. citizen for services performed in the employ of such foundation or commission. (b) Return requirements Statements required. (ii) The taxpayer shall also attach to the return a statement showing the rates of exchange used in determining in United States dollars the wages reported on the return and the taxes due with respect thereto. See paragraph (c)(1) of this section. (2) Cross references. (c) Payment of tax Determination of the tax. (2) Deposit of foreign currency with disbursing officer. (ii) The disbursing officer may rely upon the taxpayer for the determination of the amount of tax payable in foreign currency but may not accept any such currency for deposit until the taxpayer has presented for inspection the certified statement referred to in paragraph (b)(1) of this section. Upon acceptance of foreign currency for deposit the disbursing officer shall give the taxpayer a receipt in duplicate showing the name and address of the depositor, the date of the deposit, the amount of foreign currency deposited and its equivalent in U.S. dollars on the date of deposit, and the kind of tax for which the deposit is made. (iii) Every taxpayer making a deposit of foreign currency in accordance with this paragraph shall attach to the return required to be filed in accordance with paragraph (b) of this section the original of the receipt given by the disbursing officer. Tender of such receipt to the Director of International Operations shall be considered as payment of tax in an amount equal to the U.S. dollars represented by the receipt. (iv) A taxpayer shall make the deposit required by this paragraph in ample time to permit it to attach the receipt to its return for filing within the time prescribed by § 31.6071(a)-1 of this chapter (Employment Tax Regulations). § 301.6316-8 Refunds and credits in foreign currency. (a) Refunds. (b) Credits. § 301.6316-9 Interest, additions to tax, etc. Any reference in §§ 301.6316-1 to 301.6316-8, inclusive, to “tax” shall be deemed also to refer to the interest, additions to the tax, additional amounts, and penalties attributable to the tax. Lien for Taxes § 301.6320-1 Notice and opportunity for hearing upon filing of notice of Federal tax lien. (a) Notification In general. (2) Questions and answers. Q-A1. Who is the person entitled to notice under section 6320? A-A1. Under section 6320(a)(1), notification of the filing of a NFTL on or after January 19, 1999, is required to be given only to the person described in section 6321 who is named on the NFTL that is filed. The person described in section 6321 is the person liable to pay the tax due after notice and demand who refuses or neglects to pay the tax due (hereinafter, referred to as the taxpayer). Q-A2. When will the Internal Revenue Service (IRS) provide the notice required under section 6320? A-A2. The IRS will provide this notice within five business days after the filing of the NFTL. Q-A3. Will the IRS give notification to the taxpayer for each tax period listed in a NFTL filed on or after January 19, 1999? A-A3. Yes. A NFTL can be filed for more than one tax period. The notification of the filing of a NFTL will specify each unpaid tax and tax period listed in the NFTL. Q-A4. Will the IRS give notification to the taxpayer of any filing of a NFTL for the same tax period or periods at another place of filing? A-A4. Yes. The IRS will notify a taxpayer when a NFTL is filed on or after January 19, 1999, for a tax period or periods at any recording office. Q-A5. Will the IRS give notification to the taxpayer if a NFTL is filed on or after January 19, 1999, for a tax period or periods for which a NFTL was filed in another recording office prior to that date? A-A5. Yes. The IRS will notify a taxpayer when each NFTL is filed on or after January 19, 1999, for a tax period or periods at any recording office. Q-A6. Will the IRS give notification to the taxpayer when a NFTL is refiled on or after January 19, 1999? A-A6. No. Section 6320(a)(1) does not require the IRS to notify the taxpayer of the refiling of a NFTL. A taxpayer may, however, seek reconsideration by the IRS office that is collecting the tax or refiling the NFTL, an administrative hearing before the IRS Office of Appeals (Appeals), or assistance from the National Taxpayer Advocate. Q-A7. Will the IRS give notification to a known nominee of, or a person holding property of, the taxpayer of the filing of the NFTL? A-A7. No. Such person is not the person described in section 6321 and, therefore, is not entitled to notice, but such persons have other remedies. See A-B5 of paragraph (b)(2) of this section. Q-A8. Will the IRS give notification to the taxpayer when a subsequent NFTL is filed for the same period or periods? A-A8. Yes. If the IRS files an additional NFTL with respect to the same tax period or periods for which an original NFTL was filed, the IRS will notify the taxpayer when the subsequent NFTL is filed. Not all such notices will, however, give rise to a right to a CDP hearing (see paragraph (b) of this section). Q-A9. How will notification under section 6320 be accomplished? A-A9. The IRS will notify the taxpayer by letter. Included with this letter will be the additional information the IRS is required to provide taxpayers as well as, when appropriate, a Form 12153, Request for a Due Process Hearing. The IRS may effect delivery of the letter (and accompanying materials) in one of three ways: by delivering the notice personally to the taxpayer; by leaving the notice at the taxpayer's dwelling or usual place of business; or by mailing the notice to the taxpayer at his last known address by certified or registered mail. Q-A10. What must a CDP Notice given under section 6320 include? A-A10. These notices must include, in simple and nontechnical terms: (i) The amount of the unpaid tax. (ii) A statement concerning the taxpayer's right to request a CDP hearing during the 30-day period that commences the day after the end of the five business day period within which the IRS is required to provide the taxpayer with notice of the filing of the NFTL. (iii) The administrative appeals available to the taxpayer with respect to the NFTL and the procedures relating to such appeals. (iv) The statutory provisions and the procedures relating to the release of liens on property. Q-A11. What are the consequences if the taxpayer does not receive or accept a CDP Notice that is properly left at the taxpayer's dwelling or usual place of business, or sent by certified or registered mail to the taxpayer's last known address? A-A11. A CDP Notice properly sent by certified or registered mail to the taxpayer's last known address or left at the taxpayer's dwelling or usual place of business is sufficient to start the 30-day period, commencing the day after the end of the five business day notification period, within which the taxpayer may request a CDP hearing. Actual receipt is not a prerequisite to the validity of the CDP Notice. Q-A12. What if the taxpayer does not receive the CDP Notice because the IRS did not send that notice by certified or registered mail to the taxpayer's last known address, or failed to leave it at the dwelling or usual place of business of the taxpayer, and the taxpayer fails to request a CDP hearing with Appeals within the 30-day period commencing the day after the end of the five business day notification period? A-A12. A NFTL becomes effective upon filing. The validity and priority of a NFTL is not conditioned on notification to the taxpayer pursuant to section 6320. Therefore, the failure to notify the taxpayer concerning the filing of a NFTL does not affect the validity or priority of the NFTL. When the IRS determines that it failed properly to provide a taxpayer with a CDP Notice, it will promptly provide the taxpayer with a substitute CDP Notice and provide the taxpayer with an opportunity to request a CDP hearing. Substitute CDP Notices are discussed in Q&A-B3 of paragraph (b)(2) and Q&A-C8 of paragraph (c)(2) of this section. (3) Examples. Example 1. H and W are jointly and severally liable with respect to a jointly filed income tax return for 1996. IRS files a NFTL with respect to H and W in County X on January 26, 1999. This is the first NFTL filed on or after January 19, 1999, for their 1996 liability. H and W will each be notified of the filing of the NFTL. Example 2. Employment taxes for 1997 are assessed against ABC Corporation. A NFTL is filed against ABC Corporation for the 1997 liability in County X on June 5, 1998. A NFTL is filed against ABC Corporation for the 1997 liability in County Y on June 17, 1999. The IRS will notify the ABC Corporation with respect to the filing of the NFTL in County Y. Example 3. Federal income tax liability for 1997 is assessed against individual D. D buys an asset and puts it in individual E's name. A NFTL is filed against D in County X on June 5, 1999, for D's federal income tax liability for 1997. On June 17, 1999, a NFTL for the same tax liability is filed in County Y against E, as nominee of D. The IRS will notify D of the filing of the NFTL in both County X and County Y. The IRS will not notify E of the NFTL filed in County X. The IRS is not required to notify E of the NFTL filed in County Y. Although E is named on the NFTL filed in County Y, E is not the person described in section 6321 (the taxpayer) who is named on the NFTL. (b) Entitlement to a CDP hearing In general. (2) Questions and answers. Q-B1. Is a taxpayer entitled to a CDP hearing with respect to the filing of a NFTL for a type of tax and tax periods previously subject to a CDP Notice with respect to a NFTL filed in a different location on or after January 19, 1999? A-B1. No. Although the taxpayer will receive notice of each filing of a NFTL, under section 6320(b)(2), the taxpayer is entitled to only one CDP hearing under section 6320 for the type of tax and tax periods with respect to the first filing of a NFTL that occurs on or after January 19, 1999, with respect to that unpaid tax. Accordingly, if the taxpayer does not timely request a CDP hearing with respect to the first filing of a NFTL on or after January 19, 1999, for a given tax period or periods with respect to an unpaid tax, the taxpayer forgoes the right to a CDP hearing with Appeals and judicial review of the Appeals determination with respect to the NFTL. Under such circumstances, the taxpayer may request an equivalent hearing as described in paragraph (i) of this section. Q-B2. Is the taxpayer entitled to a CDP hearing when a NFTL for an unpaid tax is filed on or after January 19, 1999, in one recording office and a NFTL was previously filed for the same unpaid tax in another recording office prior to that date? A-B2. Yes. Under section 6320(b)(2), the taxpayer is entitled to a CDP hearing under section 6320 for each tax period with respect to the first filing of a NFTL on or after January 19, 1999, with respect to an unpaid tax, whether or not a NFTL was filed prior to January 19, 1999, for the same unpaid tax and tax period or periods. Q-B3. When the IRS provides the taxpayer with a substitute CDP Notice and the taxpayer timely requests a CDP hearing, is the taxpayer entitled to a CDP hearing before Appeals? A-B3. Yes. Unless the taxpayer provides the IRS a written withdrawal of the request that Appeals conduct a CDP hearing, the taxpayer is entitled to a CDP hearing before Appeals. Following the hearing, Appeals will issue a Notice of Determination, and the taxpayer is entitled to seek judicial review of that Notice of Determination. Q-B4. If the IRS sends a second CDP Notice under section 6320 (other than a substitute CDP Notice) for a tax period and with respect to an unpaid tax for which a section 6320 CDP Notice was previously sent, is the taxpayer entitled to a section 6320 CDP hearing based on the second CDP Notice? A-B4. No. The taxpayer is entitled to a CDP hearing under section 6320 for each tax period only with respect to the first filing of a NFTL on or after January 19, 1999, with respect to an unpaid tax. Q-B5. Is a nominee of, or a person holding property of, the taxpayer entitled to a CDP hearing or an equivalent hearing? A-B5. No. Such person is not the person described in section 6321 and is, therefore, not entitled to a CDP hearing or an equivalent hearing (as discussed in paragraph (i) of this section). Such person, however, may seek reconsideration by the IRS office collecting the tax or filing the NFTL, an administrative hearing before Appeals under its Collection Appeals Program, or assistance from the National Taxpayer Advocate. However, any such administrative hearing would not be a CDP hearing under section 6320 and any determination or decision resulting from the hearing would not be subject to judicial review under section 6320. Such person also may avail himself of the administrative procedure included in section 6325(b)(4) or of any other procedures to which he is entitled. (3) Examples. Example 1. H and W are jointly and severally liable with respect to a jointly filed income tax return for 1996. The IRS files a NFTL with respect to H and W in County X on January 26, 1999. This is the first NFTL filed on or after January 19, 1999, for their 1996 liability. H and W are each entitled to a CDP hearing with respect to the NFTL filed in County X. On June 17, 1999, a NFTL for the same tax liability is filed against H and W in County Y. The IRS will give H and W notification of the NFTL filed in County Y. H and W, however, are not entitled to a CDP hearing or an equivalent hearing with respect to the NFTL filed in County Y. Example 2. Federal income tax liability for 1997 is assessed against individual D. D buys an asset and puts it in individual E's name. A NFTL is filed against E, as nominee of D in County X on June 5, 1999, for D's federal income tax liability for 1997. The IRS will give D a CDP Notice with respect to the NFTL filed in County X. The IRS will not notify E of the NFTL filed in County X. The IRS is not required to notify E of the filing of the NFTL in County X. Although E is named on the NFTL filed in County X, E is not the person described in section 6321 (the taxpayer) who is named on the NFTL. (c) Requesting a CDP hearing In general. (2) Questions and answers. Q-C1. What must a taxpayer do to obtain a CDP hearing? A-C1. (i) The taxpayer must make a request in writing for a CDP hearing. The request for a CDP hearing shall include the information and signature specified in A-C1(ii) of this paragraph (c)(2). See A-D7 and A-D8 of paragraph (d)(2). (ii) The written request for a CDP hearing must be dated and must include the following: (A) The taxpayer's name, address, daytime telephone number (if any), and taxpayer identification number (e.g., SSN, ITIN or EIN). (B) The type of tax involved. (C) The tax period at issue. (D) A statement that the taxpayer requests a hearing with Appeals concerning the filing of the NFTL. (E) The reason or reasons why the taxpayer disagrees with the filing of the NFTL. (F) The signature of the taxpayer or the taxpayer's authorized representative. (iii) If the IRS receives a timely written request for CDP hearing that does not satisfy the requirements set forth in A-C1(ii) of this paragraph (c)(2), the IRS will make a reasonable attempt to contact the taxpayer and request that the taxpayer comply with the unsatisfied requirements. The taxpayer must perfect any timely written request for a CDP hearing that does not satisfy the requirements set forth in A-C1(ii) of this paragraph (c)(2) within a reasonable period of time after a request from the IRS. (iv) Taxpayers are encouraged to use Form 12153, “Request for a Collection Due Process Hearing,” in requesting a CDP hearing so that the request can be readily identified and forwarded to Appeals. Taxpayers may obtain a copy of Form 12153 by contacting the IRS office that issued the CDP Notice, by downloading a copy from the IRS Internet site, http://www.irs.gov/pub/irs-pdf/f12153.pdf, (v) The taxpayer must affirm any timely written request for a CDP hearing which is signed or alleged to have been signed on the taxpayer's behalf by the taxpayer's spouse or other unauthorized representative by filing, within a reasonable period of time after a request from the IRS, a signed, written affirmation that the request was originally submitted on the taxpayer's behalf. If the affirmation is filed within a reasonable period of time after a request, the timely CDP hearing request will be considered timely with respect to the non-signing taxpayer. If the affirmation is not filed within a reasonable period of time after a request, the CDP hearing request will be denied with respect to the non-signing taxpayer. Q-C2. Must the request for the CDP hearing be in writing? A-C2. Yes. There are several reasons why the request for a CDP hearing must be in writing. The filing of a timely request for a CDP hearing is the first step in what may result in a court proceeding. A written request will provide proof that the CDP hearing was requested and thus permit the court to verify that it has jurisdiction over any subsequent appeal of the Notice of Determination issued by Appeals. In addition, the receipt of the written request will establish the date on which the periods of limitation under section 6502 (relating to collection after assessment), section 6531 (relating to criminal prosecutions), and section 6532 (relating to suits) are suspended as a result of the CDP hearing and any judicial appeal. Moreover, because the IRS anticipates that taxpayers will contact the IRS office that issued the CDP Notice for further information or assistance in filling out Form 12153, or to attempt to resolve their liabilities prior to going through the CDP hearing process, the requirement of a written request should help prevent any misunderstanding as to whether a CDP hearing has been requested. If the information requested on Form 12153 is furnished by the taxpayer, the written request also will help to establish the issues for which the taxpayer seeks a determination by Appeals. Q-C3. When must a taxpayer request a CDP hearing with respect to a CDP Notice issued under section 6320? A-C3. A taxpayer must submit a written request for a CDP hearing within the 30-day period that commences the day after the end of the five business day period following the filing of the NFTL. Any request filed during the five business day period (before the beginning of the 30-day period) will be deemed to be filed on the first day of the 30-day period. The period for submitting a written request for a CDP hearing with respect to a CDP Notice issued under section 6320 is slightly different from the period for submitting a written request for a CDP hearing with respect to a CDP Notice issued under section 6330. For a CDP Notice issued under section 6330, the taxpayer must submit a written request for a CDP hearing within the 30-day period commencing the day after the date of the CDP Notice. Q-C4. How will the timeliness of a taxpayer's written request for a CDP hearing be determined? A-C4. The rules and regulations under section 7502 and section 7503 will apply to determine the timeliness of the taxpayer's request for a CDP hearing, if properly transmitted and addressed as provided in A-C6 of this paragraph (c)(2). Q-C5. Is the 30-day period within which a taxpayer must make a request for a CDP hearing extended because the taxpayer resides outside the United States? A-C5. No. Section 6320 does not make provision for such a circumstance. Accordingly, all taxpayers who want a CDP hearing under section 6320 must request such a hearing within the 30-day period that commences the day after the end of the five business day notification period. Q-C6. Where must the written request for a CDP hearing be sent? A-C6. The written request for a CDP hearing must be sent, or hand delivered (if permitted), to the IRS office and address as directed on the CDP Notice. If the address of that office does not appear on the CDP Notice, the taxpayer should obtain the address of the office to which the written request should be sent or hand delivered by calling, toll-free, 1-800-829-1040 and providing the taxpayer's identification number (e.g., SSN, ITIN or EIN). Q-C7. What will happen if the taxpayer does not request a CDP hearing in writing within the 30-day period that commences the day after the end of the five business day notification period? A-C7. If the taxpayer does not request a CDP hearing in writing within the 30-day period that commences on the day after the end of the five-business-day notification period, the taxpayer foregoes the right to a CDP hearing under section 6320 with respect to the unpaid tax and tax periods shown on the CDP Notice. A written request submitted within the 30-day period that does not satisfy the requirements set forth in A-C1(ii)(A), (B), (C), (D) or (F) of this paragraph (c)(2) is considered timely if the request is perfected within a reasonable period of time pursuant to A-C1(iii) of this paragraph (c)(2). If the request for CDP hearing is untimely, either because the request was not submitted within the 30-day period or not perfected within the reasonable period provided, the taxpayer will be notified of the untimeliness of the request and offered an equivalent hearing. In such cases, the taxpayer may obtain an equivalent hearing without submitting an additional request. See paragraph (i) of this section. Q-C8. When must a taxpayer request a CDP hearing with respect to a substitute CDP Notice? A-C8. A CDP hearing with respect to a substitute CDP Notice must be requested in writing by the taxpayer prior to the end of the 30-day period commencing the day after the date of the substitute CDP Notice. Q-C9. Can taxpayers attempt to resolve the matter of the NFTL with an officer or employee of the IRS office collecting the tax or filing the NFTL either before or after requesting a CDP hearing? A-C9. Yes. Taxpayers are encouraged to discuss their concerns with the IRS office collecting the tax or filing the NFTL, either before or after they request a CDP hearing. If such a discussion occurs before a request is made for a CDP hearing, the matter may be resolved without the need for Appeals consideration. However, these discussions do not suspend the running of the 30-day period, commencing the day after the end of the five business day notification period, within which the taxpayer is required to request a CDP hearing, nor do they extend that 30-day period. If discussions occur after the request for a CDP hearing is filed and the taxpayer resolves the matter with the IRS office collecting the tax or filing the NFTL, the taxpayer may withdraw in writing the request that a CDP hearing be conducted by Appeals. The taxpayer can also waive in writing some or all of the requirements regarding the contents of the Notice of Determination. (3) Examples. Example 1. A NFTL for a 1997 income tax liability assessed against individual A is filed in County X on June 17, 1999. The IRS mails a CDP Notice to individual A's last known address on June 18, 1999. Individual A has until July 26, 1999, a Monday, to request a CDP hearing. The five business day period within which the IRS is required to notify individual A of the filing of the NFTL in County X expires on June 24, 1999. The 30-day period within which individual A may request a CDP hearing begins on June 25, 1999. Because the 30-day period expires on July 24, 1999, a Saturday, individual A's written request for a CDP hearing will be considered timely if it is properly transmitted and addressed to the IRS in accordance with section 7502 and the regulations thereunder no later than July 26, 1999. Example 2. Same facts as in Example 1, Example 1, Example 3. Same facts as in Example 2, Example 4. Same facts as in Example 1, (d) Conduct of CDP hearing In general. (2) Questions and answers. Q-D1. Under what circumstances can a taxpayer receive more than one CDP hearing under section 6320 with respect to a tax period? A-D1. The taxpayer may receive more than one CDP hearing under section 6320 with respect to a tax period where the tax involved is a different type of tax (for example, an employment tax liability, where the original CDP hearing for the tax period involved an income tax liability), or where the same type of tax for the same period is involved, but where the amount of the unpaid tax has changed as a result of an additional assessment of tax (not including interest or penalties) for that period or an additional accuracy-related or filing-delinquency penalty has been assessed. The taxpayer is not entitled to another CDP hearing under section 6320 if the additional assessment represents accruals of interest, accruals of penalties, or both. Q-D2. Will a CDP hearing with respect to one tax period be combined with a CDP hearing with respect to another tax period? A-D2. To the extent practicable, a CDP hearing with respect to one tax period shown on the NFTL will be combined with any and all other CDP hearings which the taxpayer has requested. Q-D3. Will a CDP hearing under section 6320 be combined with a CDP hearing under section 6330? A-D3. To the extent practicable, a CDP hearing under section 6320 will be held in conjunction with a CDP hearing under section 6330. Q-D4. What is considered to be prior involvement by an employee or officer of Appeals with respect to the unpaid tax and tax period involved in the hearing? A-D4. Prior involvement by an Appeals officer or employee includes participation or involvement in a matter (other than a CDP hearing held under either section 6320 or section 6330) that the taxpayer may have had with respect to the tax and tax period shown on the CDP Notice. Prior involvement exists only when the taxpayer, the tax and the tax period at issue in the CDP hearing also were at issue in the prior non-CDP matter, and the Appeals officer or employee actually participated in the prior matter. Q-D5. How can a taxpayer waive the requirement that the officer or employee of Appeals have no prior involvement with respect to the tax and tax periods involved in the CDP hearing? A-D5. The taxpayer must sign a written waiver. Q-D6. How are CDP hearings conducted? A-D6. The formal hearing procedures required under the Administrative Procedure Act, 5 U.S.C. 551 et seq., Q-D7. If a taxpayer wants a face-to-face CDP hearing, where will it be held? A-D7. Except as provided in A-D8 of this paragraph (d)(2), a taxpayer who presents in the CDP hearing request relevant, non-frivolous reasons for disagreement with the NFTL filing will ordinarily be offered an opportunity for a face-to-face conference at the Appeals office closest to taxpayer's residence. A business taxpayer will ordinarily be offered an opportunity for a face-to-face conference at the Appeals office closest to the taxpayer's principal place of business. If that is not satisfactory to the taxpayer, the taxpayer will be given an opportunity for a hearing by telephone or by correspondence. In all cases, the Appeals officer or employee will review the case file, as described in A-F4 of paragraph (f)(2). If no face-to-face or telephonic conference is held, or other oral communication takes place, review of the documents in the case file, as described in A-F4 of paragraph (f)(2), will constitute the CDP hearing for purposes of section 6320(b). Q-D8. In what circumstances will a face-to-face CDP conference not be granted? A-D8. A taxpayer is not entitled to a face-to-face CDP conference at a location other than as provided in A-D7 of this paragraph (d)(2) and this A-D8. If all Appeals officers or employees at the location provided for in A-D7 of this paragraph (d)(2) have had prior involvement with the taxpayer as provided in A-D4 of this paragraph (d)(2), the taxpayer will not be offered a face-to-face conference at that location, unless the taxpayer elects to waive the requirement of section 6320(b)(3). The taxpayer will be offered a face-to-face conference at another Appeals office if Appeals would have offered the taxpayer a face-to-face conference at the location provided in A-D7 of this paragraph (d)(2), but for the disqualification of all Appeals officers or employees at that location. A face-to-face CDP conference concerning a taxpayer's underlying liability will not be granted if the request for a hearing or other taxpayer communication indicates that the taxpayer wishes only to raise irrelevant or frivolous issues concerning that liability. A face-to-face CDP conference concerning a collection alternative, such as an installment agreement or an offer to compromise liability, will not be granted unless other taxpayers would be eligible for the alternative in similar circumstances. For example, because the IRS does not consider offers to compromise from taxpayers who have not filed required returns or have not made certain required deposits of tax, as set forth in Form 656, “Offer in Compromise,” no face-to-face conference will be granted to a taxpayer who wishes to make an offer to compromise but has not fulfilled those obligations. Appeals in its discretion, however, may grant a face-to-face conference if Appeals determines that a face-to-face conference is appropriate to explain to the taxpayer the requirements for becoming eligible for a collection alternative. In all cases, a taxpayer will be given an opportunity to demonstrate eligibility for a collection alternative and to become eligible for a collection alternative, in order to obtain a face-to-face conference. For purposes of determining whether a face-to-face conference will be granted, the determination of a taxpayer's eligibility for a collection alternative is made without regard to the taxpayer's ability to pay the unpaid tax. A face-to-face conference need not be granted if the taxpayer does not provide the required information set forth in A-C1(ii)(E) of paragraph (c)(2). See also A-C1(iii) of paragraph (c)(2). (3) Examples. Example 1. Individual A timely requests a CDP hearing concerning a NFTL filed with respect to the 1998 income tax liability assessed against individual A. Appeals employee B previously conducted a CDP hearing regarding a proposed levy for individual A's 1998 income tax liability. Because employee B's only prior involvement with individual A's 1998 income tax liability was in connection with a section 6330 CDP hearing, employee B may conduct the CDP hearing under section 6320 involving the NFTL filed for the 1998 income tax liability. Example 2. Individual C timely requests a CDP hearing concerning a NFTL filed with respect to the 1998 income tax liability assessed against individual C. Appeals employee D previously conducted a Collection Appeals Program (CAP) hearing regarding a NFTL filed with respect to individual C's 1998 income tax liability. Because employee D's prior involvement with individual C's 1998 income tax liability was in connection with a non-CDP hearing, employee D may not conduct the CDP hearing under section 6320 unless individual C waives the requirement that the hearing will be conducted by an Appeals officer or employee who has had no prior involvement with respect to individual C's 1998 income tax liability. Example 3. Same facts as in Example 2 Example 4. Appeals employee F is assigned to a CDP hearing concerning a NFTL filed with respect to a trust fund recovery penalty (TFRP) assessed pursuant to section 6672 against individual E. Appeals employee F participated in a prior CAP hearing involving individual E's 1999 income tax liability, and participated in a CAP hearing involving the employment taxes of business entity X, which incurred the employment tax liability to which the TFRP assessed against individual E relates. Appeals employee F would not be considered to have prior involvement because the prior CAP hearings in which he participated did not directly involve the TFRP assessed against individual E. Example 5. Appeals employee G is assigned to a CDP hearing concerning a NFTL filed with respect to a TFRP assessed pursuant to section 6672 against individual H. In preparing for the CDP hearing, Appeals employee G reviews the Appeals case file concerning the prior CAP hearing involving the TFRP assessed pursuant to section 6672 against individual H. Appeals employee G is not deemed to have participated in the previous CAP hearing involving the TFRP assessed against individual H by such review. (e) Matters considered at CDP hearing In general. (2) Spousal defenses. (3) Questions and answers. Q-E1. What factors will Appeals consider in making its determination? A-E1. Appeals will consider the following matters in making its determination: (i) Whether the IRS met the requirements of any applicable law or administrative procedure. (ii) Any issues appropriately raised by the taxpayer relating to the unpaid tax. (iii) Any appropriate spousal defenses raised by the taxpayer. (iv) Any challenges made by the taxpayer to the appropriateness of the NFTL filing. (v) Any offers by the taxpayer for collection alternatives. (vi) Whether the continued existence of the filed NFTL represents a balance between the need for the efficient collection of taxes and the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. Q-E2. When is a taxpayer entitled to challenge the existence or amount of the tax liability specified in the CDP Notice? A-E2. A taxpayer is entitled to challenge the existence or amount of the underlying liability for any tax period specified on the CDP Notice if the taxpayer did not receive a statutory notice of deficiency for such liability or did not otherwise have an opportunity to dispute such liability. Receipt of a statutory notice of deficiency for this purpose means receipt in time to petition the Tax Court for a redetermination of the deficiency determined in the notice of deficiency. An opportunity to dispute the underlying liability includes a prior opportunity for a conference with Appeals that was offered either before or after the assessment of the liability. An opportunity for a conference with Appeals prior to the assessment of a tax subject to deficiency procedures is not a prior opportunity for this purpose. Q-E3. Are spousal defenses subject to the limitations imposed under section 6330(c)(2)(B) on a taxpayer's right to challenge the tax liability specified in the CDP Notice at a CDP hearing? A-E3. The limitations imposed under section 6330(c)(2)(B) do not apply to spousal defenses. When a taxpayer asserts a spousal defense, the taxpayer is not disputing the amount or existence of the liability itself, but asserting a defense to the liability which may or may not be disputed. A spousal defense raised under section 66 or section 6015 is governed by section 66 or section 6015 and the regulations and procedures thereunder. Any limitation under those sections, regulations, and procedures therefore will apply. Q-E4. May a taxpayer raise at a CDP hearing a spousal defense under section 66 or section 6015 if that defense was raised and considered administratively and the Commissioner has issued a statutory notice of deficiency or final determination letter addressing the spousal defense? A-E4. No. A taxpayer is precluded from raising a spousal defense at a CDP hearing when the Commissioner has made a final determination under section 66 or section 6015 in a final determination letter or statutory notice of deficiency. However, a taxpayer may raise spousal defenses in a CDP hearing when the taxpayer has previously raised spousal defenses, but the Commissioner has not yet made a final determination regarding this issue. Q-E5. May a taxpayer raise at a CDP hearing a spousal defense under section 66 or section 6015 if that defense was raised and considered in a prior judicial proceeding that has become final? A-E5. No. A taxpayer is precluded by the doctrine of res judicata and by the specific limitations under section 66 or section 6015 from raising a spousal defense in a CDP hearing under these circumstances. Q-E6. What collection alternatives are available to the taxpayer? A-E6. Collection alternatives include, for example, a proposal to withdraw the NFTL in circumstances that will facilitate the collection of the tax liability, subordination of the NFTL, discharge of the NFTL from specific property, an installment agreement, an offer to compromise, the posting of a bond, or the substitution of other assets. A collection alternative is not available unless the alternative would be available to other taxpayers in similar circumstances. See A-D8 of paragraph (d)(2). Q-E7. What issues may a taxpayer raise in a CDP hearing under section 6320 if the taxpayer previously received a notice under section 6330 with respect to the same tax and tax period and did not request a CDP hearing with respect to that notice? A-E7. The taxpayer may raise appropriate spousal defenses, challenges to the appropriateness of the NFTL filing, and offers of collection alternatives. The existence or amount of the underlying liability for any tax period specified in the CDP Notice may be challenged only if the taxpayer did not have a prior opportunity to dispute the tax liability. If the taxpayer previously received a CDP Notice under section 6330 with respect to the same tax and tax period and did not request a CDP hearing with respect to that earlier CDP Notice, the taxpayer had a prior opportunity to dispute the existence or amount of the underlying tax liability. Q-E8. How will Appeals issue its determination? A-E8. (i) Taxpayers will be sent a dated Notice of Determination by certified or registered mail. The Notice of Determination will set forth Appeals' findings and decisions. It will state whether the IRS met the requirements of any applicable law or administrative procedure; it will resolve any issues appropriately raised by the taxpayer relating to the unpaid tax; it will include a decision on any appropriate spousal defenses raised by the taxpayer; it will include a decision on any challenges made by the taxpayer to the appropriateness of the NFTL filing; it will respond to any offers by the taxpayer for collection alternatives; and it will address whether the continued existence of the filed NFTL represents a balance between the need for the efficient collection of taxes and the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. The Notice of Determination will also set forth any agreements that Appeals reached with the taxpayer, any relief given the taxpayer, and any actions the taxpayer or the IRS are required to take. Lastly, the Notice of Determination will advise the taxpayer of the taxpayer's right to seek judicial review within 30 days of the date of the Notice of Determination. (ii) Because taxpayers are encouraged to discuss their concerns with the IRS office collecting the tax or filing the NFTL, certain matters that might have been raised at a CDP hearing may be resolved without the need for Appeals consideration. Unless, as a result of these discussions, the taxpayer agrees in writing to withdraw the request that Appeals conduct a CDP hearing, Appeals will still issue a Notice of Determination. The taxpayer can, however, waive in writing Appeals' consideration of some or all of the matters it would otherwise consider in making its determination. Q-E9. Is there a period of time within which Appeals must conduct a CDP hearing or issue a Notice of Determination? A-E9. No. Appeals will, however, attempt to conduct a CDP hearing and issue a Notice of Determination as expeditiously as possible under the circumstances. Q-E10. Why is the Notice of Determination and its date important? A-E10. The Notice of Determination will set forth Appeals' findings and decisions with respect to the matters set forth in A-E1 of this paragraph (e)(3). The 30-day period within which the taxpayer is permitted to seek judicial review of Appeals' determination commences the day after the date of the Notice of Determination. Q-E11. If an Appeals officer considers the merits of a taxpayer's liability in a CDP hearing when the taxpayer had previously received a statutory notice of deficiency or otherwise had an opportunity to dispute the liability prior to the NFTL, will the Appeals officer's determination regarding those liability issues be considered part of the Notice of Determination? A-E11. No. An Appeals officer may consider the existence and amount of the underlying tax liability as a part of the CDP hearing only if the taxpayer did not receive a statutory notice of deficiency for the tax liability in question or otherwise have a prior opportunity to dispute the tax liability. Similarly, an Appeals officer may not consider any other issue if the issue was raised and considered at a previous hearing under section 6330 or in any other previous administrative or judicial proceeding in which the person seeking to raise the issue meaningfully participated. In the Appeals officer's sole discretion, however, the Appeals officer may consider the existence or amount of the underlying tax liability, or such other precluded issues, at the same time as the CDP hearing. Any determination, however, made by the Appeals officer with respect to such a precluded issue shall not be treated as part of the Notice of Determination issued by the Appeals officer and will not be subject to any judicial review. Because any decisions made by the Appeals officer on such precluded issues are not properly a part of the CDP hearing, such decisions are not required to appear in the Notice of Determination issued following the hearing. Even if a decision concerning such precluded issues is referred to in the Notice of Determination, it is not reviewable by the Tax Court because the precluded issue is not properly part of the CDP hearing. (4) Examples. Example 1. The IRS sends a statutory notice of deficiency to the taxpayer at his last known address asserting a deficiency for the tax year 1995. The taxpayer receives the notice of deficiency in time to petition the Tax Court for a redetermination of the asserted deficiency. The taxpayer does not timely file a petition with the Tax Court. The taxpayer is precluded from challenging the existence or amount of the tax liability in a subsequent CDP hearing. Example 2. Same facts as in Example 1, Example 3. The IRS properly assesses a trust fund recovery penalty against the taxpayer. The IRS offers the taxpayer the opportunity for a conference with Appeals at which the taxpayer would have the opportunity to dispute the assessed liability. The taxpayer declines the opportunity to participate in such a conference. The taxpayer is precluded from challenging the existence or amount of the tax liability in a subsequent CDP hearing. (f) Judicial review of Notice of Determination In general. (2) Questions and answers. Q-F1. What must a taxpayer do to obtain judicial review of a Notice of Determination? A-F1. Subject to the jurisdictional limitations described in A-F2 of this paragraph (f)(2), the taxpayer must, within the 30-day period commencing the day after the date of the Notice of Determination, appeal the determination by Appeals to the Tax Court. Q-F2. With respect to the relief available to the taxpayer under section 6015, what is the time frame within which a taxpayer may seek Tax Court review of Appeals' determination following a CDP hearing? A-F2. If the taxpayer seeks Tax Court review not only of Appeals' denial of relief under section 6015, but also of relief requested with respect to other issues raised in the CDP hearing, the taxpayer should request Tax Court review within the 30-day period commencing the day after the date of the Notice of Determination. If the taxpayer only seeks Tax Court review of Appeals' denial of relief under section 6015, then the taxpayer should request Tax Court review, as provided by section 6015(e), within 90 days of Appeals' determination. If a request for Tax Court review is filed after the 30-day period for seeking judicial review under section 6320, then only the taxpayer's section 6015 claims may be reviewable by the Tax Court. Q-F3. What issue or issues may the taxpayer raise before the Tax Court if the taxpayer disagrees with the Notice of Determination? A-F3. In seeking Tax Court review of a Notice of Determination, the taxpayer can only ask the court to consider an issue, including a challenge to the underlying tax liability, that was properly raised in the taxpayer's CDP hearing. An issue is not properly raised if the taxpayer fails to request consideration of the issue by Appeals, or if consideration is requested but the taxpayer fails to present to Appeals any evidence with respect to that issue after being given a reasonable opportunity to present such evidence. Q-F4. What is the administrative record for purposes of Tax Court review? A-F4. The case file, including the taxpayer's request for hearing, any other written communications and information from the taxpayer or the taxpayer's authorized representative submitted in connection with the CDP hearing, notes made by an Appeals officer or employee of any oral communications with the taxpayer or the taxpayer's authorized representative, memoranda created by the Appeals officer or employee in connection with the CDP hearing, and any other documents or materials relied upon by the Appeals officer or employee in making the determination under section 6330(c)(3), will constitute the record in the Tax Court review of the Notice of Determination issued by Appeals. (g) Effect of request for CDP hearing and judicial review on periods of limitation and collection activity In general. (2) Questions and answers. Q-G1. For what period of time will the periods of limitation under sections 6502, 6531, and 6532 remain suspended if the taxpayer timely requests a CDP hearing concerning the filing of a NFTL? A-G1. The suspension period commences on the date the IRS receives the taxpayer's written request for a CDP hearing. The suspension period continues until the IRS receives a written withdrawal by the taxpayer of the request for a CDP hearing or the Notice of Determination resulting from the CDP hearing becomes final. In no event shall any of these periods of limitation expire before the 90th day after the day on which the IRS receives the taxpayer's written withdrawal of the request that Appeals conduct a CDP hearing or there is a final determination with respect to such hearing. The periods of limitation that are suspended under section 6320 are those which apply to the taxes and the tax period or periods to which the CDP Notice relates. Q-G2. For what period of time will the periods of limitation under sections 6502, 6531, and 6532 be suspended if the taxpayer does not request a CDP hearing concerning the filing of a NFTL, or the taxpayer requests a CDP hearing, but his request is not timely? A-G2. Under either of these circumstances, section 6320 does not provide for a suspension of the periods of limitation. Q-G3. What, if any, enforcement actions can the IRS take during the suspension period? A-G3. Section 6330(e), made applicable to section 6320 CDP hearings by section 6320(c), provides for the suspension of the periods of limitation discussed in paragraph (g)(1) of these regulations. Section 6330(e) also provides that levy actions that are the subject of the requested CDP hearing under that section shall be suspended during the same period. Levy actions, however, are not the subject of a CDP hearing under section 6320. The IRS may levy for tax periods and taxes covered by the CDP Notice under section 6320 and for other taxes and periods if the CDP requirements under section 6330 for those taxes and periods have been satisfied. The IRS also may file NFTLs for tax periods or taxes not covered by the CDP Notice, may file a NFTL for the same tax and tax period stated on the CDP Notice at another recording office, and may take other non-levy collection actions such as initiating judicial proceedings to collect the tax shown on the CDP Notice or offsetting overpayments from other periods, or of other taxes, against the tax shown on the CDP Notice. Moreover, the provisions in section 6330 do not apply when the IRS levies for the tax and tax period shown on the CDP Notice to collect a state tax refund due the taxpayer, or determines that collection of the tax is in jeopardy. Finally, section 6330 does not prohibit the IRS from accepting any voluntary payments made for the tax and tax period stated on the CDP Notice. (3) Examples. Example 1. The period of limitation under section 6502 with respect to the taxpayer's tax period listed in the NFTL will expire on August 1, 1999. The IRS sent a CDP Notice to the taxpayer on April 30, 1999. The taxpayer timely requested a CDP hearing. The IRS received this request on May 15, 1999. Appeals sends the taxpayer its determination on June 15, 1999. The taxpayer timely seeks judicial review of that determination. The period of limitation under section 6502 would be suspended from May 15, 1999, until the determination resulting from that hearing becomes final by expiration of the time for seeking review or reconsideration before the Tax Court, plus 90 days. (h) Retained jurisdiction of Appeals In general. (2) Questions and answers. Q-H1. Are the periods of limitation suspended during the course of any subsequent Appeals consideration of the matters raised by a taxpayer when the taxpayer invokes the retained jurisdiction of Appeals under section 6330(d)(2)(A) or (d)(2)(B)? A-H1. No. Under section 6320(b)(2), a taxpayer is entitled to only one CDP hearing under section 6320 with respect to the tax and tax period or periods specified in the CDP Notice. Any subsequent consideration by Appeals pursuant to its retained jurisdiction is not a continuation of the original CDP hearing and does not suspend the periods of limitation. Q-H2. Is a decision of Appeals resulting from a retained jurisdiction hearing appealable to the Tax Court? A-H2. No. As discussed in A-H1, a taxpayer is entitled to only one CDP hearing under section 6320 with respect to the tax and tax period or periods specified in the CDP Notice. Only determinations resulting from CDP hearings are appealable to the Tax Court. (i) Equivalent hearing In general. (2) Questions and answers. Q-I1. What must a taxpayer do to obtain an equivalent hearing? A-I1. (i) A request for an equivalent hearing must be made in writing. A written request in any form that requests an equivalent hearing will be acceptable if it includes the information and signature required in A-I1(ii) of this paragraph (i)(2). (ii) The request must be dated and must include the following: (A) The taxpayer's name, address, daytime telephone number (if any), and taxpayer identification number (e.g., SSN, ITIN or EIN). (B) The type of tax involved. (C) The tax period at issue. (D) A statement that the taxpayer is requesting an equivalent hearing with Appeals concerning the filing of the NFTL. (E) The reason or reasons why the taxpayer disagrees with the filing of the NFTL. (F) The signature of the taxpayer or the taxpayer's authorized representative. (iii) The taxpayer must perfect any timely written request for an equivalent hearing that does not satisfy the requirements set forth in A-I1(ii) of this paragraph (i)(2) within a reasonable period of time after a request from the IRS. If the requirements are not satisfied within a reasonable period of time, the taxpayer's equivalent hearing request will be denied. (iv) The taxpayer must affirm any timely written request for an equivalent hearing that is signed or alleged to have been signed on the taxpayer's behalf by the taxpayer's spouse or other unauthorized representative, and that otherwise meets the requirements set forth in A-I1(ii) of this paragraph (i)(2), by filing, within a reasonable period of time after a request from the IRS, a signed written affirmation that the request was originally submitted on the taxpayer's behalf. If the affirmation is filed within a reasonable period of time after a request, the timely equivalent hearing request will be considered timely with respect to the non-signing taxpayer. If the affirmation is not filed within a reasonable period of time, the equivalent hearing request will be denied with respect to the non-signing taxpayer. Q-I2. What issues will Appeals consider at an equivalent hearing? A-I2. In an equivalent hearing, Appeals will consider the same issues that it would have considered at a CDP hearing on the same matter. Q-I3. Are the periods of limitation under sections 6502, 6531, and 6532 suspended if the taxpayer does not timely request a CDP hearing and is subsequently given an equivalent hearing? A-I3. No. The suspension period provided for in section 6330(e) relates only to hearings requested within the 30-day period that commences on the day after the end of the five business day period following the filing of the NFTL, that is, CDP hearings. Q-I4. Will collection action, including the filing of additional NFTLs, be suspended if a taxpayer requests and receives an equivalent hearing? A-I4. Collection action is not required to be suspended. Accordingly, the decision to take collection action during the pendency of an equivalent hearing will be determined on a case-by-case basis. Appeals may request the IRS office with responsibility for collecting the taxes to suspend all or some collection action or to take other appropriate action if it determines that such action is appropriate or necessary under the circumstances. Q-I5. What will the Decision Letter state? A-I5. The Decision Letter will generally contain the same information as a Notice of Determination. Q-I6. Will a taxpayer be able to obtain Tax Court review of a decision made by Appeals with respect to an equivalent hearing? A-I6. Section 6320 does not authorize a taxpayer to appeal the decision of Appeals with respect to an equivalent hearing. A taxpayer may under certain circumstances be able to seek Tax Court review of Appeals' denial of relief under section 6015. Such review must be sought within 90 days of the issuance of Appeals' determination on those issues, as provided by section 6015(e). Q-I7. When must a taxpayer request an equivalent hearing with respect to a CDP Notice issued under section 6320? A-I7. A taxpayer must submit a written request for an equivalent hearing within the one-year period commencing the day after the end of the five-business-day period following the filing of the NFTL. This period is slightly different from the period for submitting a written request for an equivalent hearing with respect to a CDP Notice issued under section 6330. For a CDP Notice issued under section 6330, a taxpayer must submit a written request for an equivalent hearing within the one-year period commencing the day after the date of the CDP Notice issued under section 6330. Q-I8. How will the timeliness of a taxpayer's written request for an equivalent hearing be determined? A-I8. The rules and regulations under section 7502 and section 7503 will apply to determine the timeliness of the taxpayer's request for an equivalent hearing, if properly transmitted and addressed as provided in A-I10 of this paragraph (i)(2). Q-I9. Is the one-year period within which a taxpayer must make a request for an equivalent hearing extended because the taxpayer resides outside the United States? A-I9. No. All taxpayers who want an equivalent hearing concerning the filing of the NFTL must request the hearing within the one-year period commencing the day after the end of the five-business-day period following the filing of the NFTL. Q-I10. Where must the written request for an equivalent hearing be sent? A-I10. The written request for an equivalent hearing must be sent, or hand delivered (if permitted), to the IRS office and address as directed on the CDP Notice. If the address of the issuing office does not appear on the CDP Notice, the taxpayer should obtain the address of the office to which the written request should be sent or hand delivered by calling, toll-free, 1-800-829-1040 and providing the taxpayer's identification number (e.g., SSN, ITIN or EIN). QI11. What will happen if the taxpayer does not request an equivalent hearing in writing within the one-year period commencing the day after the end of the five-business-day period following the filing of the NFTL? AI11. If the taxpayer does not request an equivalent hearing with Appeals within the one-year period commencing the day after the end of the five-business-day period following the filing of the NFTL, the taxpayer foregoes the right to an equivalent hearing with respect to the unpaid tax and tax periods shown on the CDP Notice. A written request submitted within the one-year period that does not satisfy the requirements set forth in A-I1(ii) of this paragraph (i)(2) is considered timely if the request is perfected within a reasonable period of time pursuant to A-I1(iii) of this paragraph (i)(2). If a request for equivalent hearing is untimely, either because the request was not submitted within the one-year period or not perfected within the reasonable period provided, the equivalent hearing request will be denied. The taxpayer, however, may seek reconsideration by the IRS office collecting the tax, assistance from the National Taxpayer Advocate, or an administrative hearing before Appeals under its Collection Appeals Program or any successor program. (j) Effective date. [T.D. 8979, 67 FR 2561, Jan. 18, 2002, as amended by T.D. 9290, 71 FR 60839, Oct. 17, 2006] § 301.6321-1 Lien for taxes. If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, tangible or intangible, belonging to such person. For purposes of section 6321 and this section, the term “any tax” shall include a State individual income tax which is a “qualified tax”, as defined in paragraph (b) of § 301.6361-4. The lien attaches to all property and rights to property belonging to such person at any time during the period of the lien, including any property or rights to property acquired by such person after the lien arises. Solely for purposes of sections 6321 and 6331, any interest in restricted land held in trust by the United States for an individual noncompetent Indian (and not for a tribe) shall not be deemed to be property, or a right to property, belonging to such Indian. For the method of allocating amounts collected pursuant to a lien between the Federal Government and a State or States imposing a qualified tax with respect to which the lien attached, see paragraph (f) of § 301.6361-1. For the special lien for estate and gift taxes, see section 6324 and § 301.6324-1 [T.D. 7577, 43 FR 59361, Dec. 20, 1978] § 301.6323(a)-1 Purchasers, holders of security interests, mechanic's lienors, and judgment lien creditors. (a) Invalidity of lien without notice. (b) Cross references. [T.D. 7429, 41 FR 35498, Aug. 23, 1976] § 301.6323(b)-1 Protection for certain interests even though notice filed. (a) Securities—( In general. (i) A purchaser (as defined in paragraph (f) of § 301.6323(h)-1) of the security who at the time of purchase did not have actual notice or knowledge (as defined in paragraph (a) of § 301.6323(i)-1) of the existence of the lien; (ii) A holder of a security interest (as defined in paragraph (a) of § 301.6323(h)-1) in the security who did not have actual notice or knowledge (as defined in paragraph (a) of § 301.6323(i)-1) of the existence of the lien at the time the security interest came into existence or at the time such security interest was acquired from a previous holder for a consideration in money or money's worth; or (iii) A transferee of an interest protected under subdivision (i) or (ii) of this subparagraph to the same extent the lien is invalid against his transferor. For purposes of subdivision (iii) of this subparagraph, no person can improve his position with respect to the lien by reacquiring the interest from an intervening purchaser or holder of a security interest against whom the lien is invalid. (2) Examples. Example 1. On May 1, 1969, in accordance with § 301.6323(f)-1, a notice of lien is filed with respect to A's delinquent tax liability. On May 20, 1969. A sells 100 shares of common stock in X corporation to B, who, on the date of the sale, does not have actual notice or knowledge of the existence of the lien. Because B purchased the stock without actual notice or knowledge of the lien, under subdivision (i) of subparagraph (1) of this paragraph, the stock purchased by B is not subject to the lien. Example 2. Assume the same facts as in example 1 except that on May 30, 1969, B sells the 100 shares of common stock in X corporation to C who on May 5, 1969, had actual notice of the existence of the tax lien against A. Because the X stock when purchased by B was not subject to the lien, under subdivision (iii) of subparagraph (1) of this paragraph, the stock purchased by C is not subject to the lien. C succeeds to B's rights, even though C had actual notice of the lien before B's purchase. Example 3. On June 1, 1970, in accordance with § 301.6323(f)-1, a notice of lien is filed with respect to D's delinquent tax liability. D owns 20 $1,000 bonds issued by the Y company. On June 10, 1970, D obtains a loan from M bank for $5,000 using the Y company bonds as collateral. At the time the loan is made M bank does not have actual notice or knowledge of the existence of the tax lien. Because M bank did not have actual notice or knowledge of the lien when the security interest came into existence, under subdivision (ii) of subparagraph (1) of this paragraph, the tax lien is not valid against M bank to the extent of its security interest. Example 4. Assume the same facts as in example 3 except that on June 19, 1970, M bank assigns the chose in action and its security interest to N, who had actual notice or knowledge of the existence of the lien on June 1, 1970. Because the security interest was not subject to the lien to the extent of M bank's security interest, the security interest held by N is to the same extent entitled to priority over the tax lien because N succeeds to M bank's rights. See subdivision (iii) of subparagraph (1) of this paragraph. Example 5. On July 1, 1970, in accordance with § 301.6323(f)-1, a notice of lien is filed with respect to E's delinquent tax liability. E owns ten $1,000 bonds issued by the Y company. On July 5, 1970, E borrows $4,000 from F and delivers the bonds to F as collateral for the loan. At the time the loan is made, F has actual knowledge of the existence of the tax lien and, therefore, holds the security interest subject to the lien on the bonds. On July 10, 1970, F sells the security interest to G for $4,000 and delivers the Y company bonds pledged as collateral. G does not have actual notice or knowledge of the existence of the lien on July 10, 1970. Because G did not have actual notice or knowledge of the lien at the time he purchased the security interest, under subdivision (ii) of subparagraph (1) of this paragraph, the tax lien is not valid against G to the extent of his security interest. Example 6. Assume the same facts as in example 5 except that, instead of purchasing the security interest from F on July 10, 1970, G lends $4,000 to F and takes a security interest in F's security interest in the bonds on that date. Because G became the holder of a security interest in a security interest after notice of lien was filed and does not directly have a security interest in a security, the security interest held by G is not entitled to a priority over the tax lien under the provisions of subparagraph (1) of this paragraph. (b) Motor vehicles In general. (i) At the time of the purchase, the purchaser did not have actual notice or knowledge (as defined in paragraph (a) of § 301.6323(i)-1) of the existence of the lien, and (ii) Before the purchaser obtains such notice or knowledge, he has acquired actual possession of the motor vehicle and has not thereafter relinquished actual possession to the seller or his agent. (2) Examples. Example 1. A, a delinquent taxpayer against whom a notice of tax lien has been filed in accordance with § 301.6323(f)-1, sells his automobile (which qualifies as a motor vehicle under paragraph (c) of § 301.6323(h)-1) to B, an automobile dealer. B takes actual possession of the automobile and does not thereafter relinquish actual possession to the seller or his agent. Subsequent to his purchase, B learns of the existence of the tax lien against A. Even though notice of lien was filed before the purchase, the lien is not valid against B, because B did not know of the existence of the lien before the purchase and before acquiring actual possession of the vehicle. Example 2. C is a wholesaler of used automobiles. A notice of lien has been filed with respect to C's delinquent tax liability in accordance with § 301.6323(f)-1. Subsequent to such filing, D, a used automobile dealer, purchases and takes actual possession of 20 automobiles (which qualify as motor vehicles under the provisions of paragraph (c) of § 301.6323(h)-1) from C at an auction and places them on his lot for sale. C does not reacquire possession of any of the automobiles. At the time of his purchase, D does not have actual notice or knowledge of the existence of the lien against C. Even though notice of lien was filed before D's purchase, the lien was not valid against D because D did not know of the existence of the lien before the purchase and before acquiring actual possession of the vehicles. (3) Cross reference. (c) Personal property purchased at retail In general. (2) Definition of retail sale. (3) Example. Example. A purchases a refrigerator from the M company, a retail appliance dealer. Prior to such purchase, a notice of lien was filed with respect to M's delinquent tax liability in accordance with § 301.6323(f)-1. At the time of the purchase A knows of the existence of the lien. However, A does not intend the purchase to hinder, evade, or defeat the collection of any internal revenue tax, and A does not have any reason to believe that the purchase will affect the collection of any internal revenue tax. Even though notice of lien was filed before the purchase, the lien is not valid against A because A in good faith purchased the refrigerator at retail in the ordinary course of the M company's business. (d) Personal property purchased in casual sale In general. (2) Limitation. (i) Of the existence of the tax lien, or (ii) That the sale is one of a series of sales. For purposes of subdivision (ii) of this subparagraph, a sale is one of a series of sales if the seller plans to dispose of, in separate transactions, substantially all of his household goods, personal effects, and other tangible personal property described in § 301.6334-1. (3) Examples. Example 1. A, an attorney's widow, sells a set of law books for $200 to B, for B's own use. Prior to the sale a notice of lien was filed with respect to A's delinquent tax liability in accordance with § 301.6323(f)-1. B has no actual notice or knowledge of the tax lien. In addition, B does not know that the sale is one of a series of sales. Because the sale is a casual sale for less than $1,380 and involves books of a profession (tangible personal property of a type described in § 301.6334-1, irrespective of the fact that A has never engaged in the legal profession), the tax lien is not valid against B even though a notice of lien was filed prior to the time of B's purchase. Example 2. Assume the same facts as in example 1 except that B purchases the books for resale in his second-hand bookstore. Because B purchased the books for resale, he purchased the books subject to the lien. Example 3. In an advertisement appearing in a local newspaper, G indicates that he is offering for sale a lawn mower, a used television set, a desk, a refrigerator, and certain used dining room furniture. In response to the advertisement, H purchases the dining room furniture for $200. H does not receive any information which would impart notice of a lien, or that the sale is one of a series of sales, beyond the information contained in the advertisement. Prior to the sale a notice of lien was filed with respect to G's delinquent tax liability in accordance with § 301.6323(f)-1. Because H had no actual notice or knowledge that substantially all of G's household goods were being sold or that the sale is one of a series of sales, and because the sale is a casual sale for less than $1,380, H does not purchase the dining room furniture subject to the lien. The household goods are of a type described in § 301.6334-1(a)(2) irrespective of whether G is the head of a family or whether all such household goods offered for sale exceed $8,250 in value. (e) Personal property subject to possessory liens. (f) Real property tax and special assessment liens In general. (i) A tax of general application levied by any taxing authority based upon the value of the property; (ii) A special assessment imposed directly upon the property by any taxing authority, if the assessment is imposed for the purpose of defraying the cost of any public improvement; or (iii) Charges for utilities or public services furnished to the property by the United States, a State or political subdivision thereof, or an instrumentality of any one or more of the foregoing. (2) Examples. Example 1. A owns Blackacre in the city of M. A notice of lien affecting Blackacre is filed in accordance with § 301.6323(f)-1. Subsequent to the filing of the notice of lien, the city of M acquires a lien against Blackacre to secure payment of real estate taxes. Such taxes are levied against all property in the city in proportion to the value of the property. Under local law, the holder of a lien for real property taxes is entitled to priority over a security interest in real property even though the security interest is prior in time. Because the real property tax lien held by the city of M secures payment of a tax of general application and is entitled to priority over security interests which are prior in time, the lien held by the city of M is entitled to priority over the Federal tax lien with respect to Blackacre. Example 2. B owns Whiteacre in N county. A notice of lien affecting Whiteacre is filed in accordance with § 301.6323(f)-1. Subsequent to the filing of the notice of lien, N county constructs a sidewalk, paves the street, and installs water and sewer lines adjacent to Whiteacre. In order to defray the cost of these improvements, N county imposes upon Whiteacre a special assessment which under local law results in a lien upon Whiteacre that is entitled to priority over security interests that are prior in time. Because the special assessment lien is (i) entitled under local law to priority over security interests which are prior in time, and (ii) imposed directly upon real property to defray the cost of a public improvement, the special assessment lien has priority over the Federal tax lien with respect to Whiteacre. Example 3. C owns Greenacre in town O. A notice of lien affecting Greenacre is filed in accordance with § 301.6323(f)-1. Town O furnishes water and electricity to Greenacre and periodically collects a fee for these services. Subsequent to the filing of the notice of lien, town O supplies water and electricity to Greenacre, and C fails to pay the charges for these services. Under local law, town O acquires a lien to secure charges for the services, and this lien has priority over security interests which are prior in time. Because the lien of town O (i) is for services furnished to the real property and (ii) has priority over earlier security interests, town O's lien has priority over the Federal tax lien with respect to Greenacre. (g) Residential property subject to a mechanic's lien for certain repairs and improvements In general. (i) The residence is occupied by the owner and contains no more than four dwelling units; and (ii) The contract price on the prime contract with the owner for the repair or improvement (excluding interest and expenses described in § 301.6323(e)-1) is not more than $6,890, effective for 2010 and adjusted each year based on the rate of inflation. (iii) For purposes of paragraph (g)(1)(ii) of this section, the amounts of subcontracts under the prime contract with the owner are not to be taken into consideration for purposes of computing the $6,890 prime contract price. It is immaterial that the notice of tax lien was filed before the contractor undertakes his work or that he knew of the lien before undertaking his work. (2) Examples. Example 1. A owns a building containing four apartments, one of which he occupies as his personal residence. A notice of lien which affects the building is filed in accordance with § 301.6323(f)-1. Thereafter, A enters into a contract with B in the amount of $800, which includes labor and materials, to repair the roof of the building. B purchases roofing shingles from C for $300. B completes the work and A fails to pay B the agreed amount. In turn, B fails to pay C for the shingles. Under local law, B and C acquire mechanic's liens on A's building. Because the contract price on the prime contract with A is not more than $6,890 and under local law B and C acquire mechanic's liens on A's building, the liens of B and C have priority over the Federal tax lien. Example 2. Assume the same facts as in Example 1, Example 3. Assume the same facts as in Example 1, (h) Attorney's liens In general. (2) Claim or cause of action against the United States. (i) Any judgment or other fund resulting from the successful litigation or settlement of an administrative claim or cause of action against the United States to the extent that the United States, under any legal or equitable right, offsets its liability under the judgment or settlement against any liability of the taxpayer to the United States, or (ii) Any amount credited against any liability of the taxpayer in accordance with section 6402. (3) Examples. Example 1. A notice of lien is filed against A in accordance with § 301.6323(f)-1. Subsequently, A is struck by an automobile and retains B, an attorney to institute suit on A's behalf against the operator of the automobile. B knows of the tax lien before he begins his work. Under local law, B is entitled to a lien upon any recovery in order to secure payment of his fee. A is awarded damages of $10,000. B charges a fee of $3,000 which is the fee customarly allowed under local law in similar cases and which is found to be reasonable under the circumstances of this particular case. Because, under local law, B holds a lien for the amount of his reasonable compensation for obtaining the judgment, B's lien has priority over the Federal tax lien. Example 2. Assume the same facts as in example 1, except that before suit is instituted A and the owner of the automobile settle out of court for $7,500. B charges a reasonable and customary fee of $1,800 for procuring the settlement and under local law holds a lien upon the settlement in order to secure payment of the fee. Because, under local law, B holds a lien for the amount of his reasonable compensation for obtaining the settlement, B has priority over the Federal tax lien. Example 3. In accordance with § 301.6323(f)-1, a notice of lien in the amount of $8,000 is filed against C, a contractor. Subsequently C retains D, an attorney, to initiate legal proceedings to recover the amount allegedly due him for construction work he has performed for the United States. C and D enter into an agreement which provides that D will receive a reasonable and customary fee of $2,500 as compensation for his services. Under local law, the agreement will give rise to a lien which is enforceable by D against any amount recovered in the suit. C is successful in the suit and is awarded $10,000. D claims $2,500 of the proceeds as his fee. The United States, however, exercises its right of set-off and applies $8,000 of the $10,000 award to satisfy C's tax liability. Because the $10,000 award resulted from the successful litigation of a cause of action against the United States, B's contract for attorney's fees is not enforceable against the amount recovered to the extent the United States offsets its liability under the judgment against C's tax liability. It is immaterial that D had no notice or knowledge of the tax lien at the time he began work on the case. (i) Certain insurance contracts In general. (i) Before the insuring organization has actual notice or knowledge (as defined in paragraph (a) of § 301.6323(i)-1) of the existence of the tax lien, (ii) After the insuring organization has actual notice or knowledge of the lien (as defined in paragraph (a) of § 301.6323(i)-1), with respect to advances (including contractual interest thereon as provided in paragraph (a) of § 301.6323(e)-1) required to be made automatically to maintain the contract in force under an agreement entered into before the insuring organization had such actual notice or knowledge, or (iii) After the satisfaction of a levy pursuant to section 6332(b), unless and until the Internal Revenue Service delivers to the insuring organization a notice (for example, another notice of levy, a letter, etc.) executed after the date of such satisfaction, that the lien exists. Delivery of the notice described in subdivision (iii) of this subparagraph may be made by any means, including regular mail, and delivery of the notice shall be effective only from the time of actual receipt of the notification by the insuring organization. The provisions of this paragraph are applicable to matured as well as unmatured insurance contracts. (2) Examples. Example 1. On May 1, 1964, the X insurance company issues a life insurance policy to A. On June 1, 1970, a tax assessment is made against A, and on June 2, 1970, a notice of lien with respect to the assessment is filed in accordance with § 301.6323(f)-1. On July 1, 1970, without actual notice or knowledge of the tax lien, the X company makes a “policy loan” to A. Under subparagraph (1)(i) of this paragraph, the loan, including interest (in accordance with the provisions of paragraph (a) of § 301.6323(e)-1), will have priority over the tax lien because X company did not have actual notice or knowledge of the tax lien at the time the policy loan was made. Example 2. On May 1, 1964, B enters into a life insurance contract with the Y insurance company. Under one of the provisions of the contract, in the event a premium is not paid, Y is to advance out of the cash loan value of the policy the amount of an unpaid premium in order to maintain the contract in force. The contract also provides for interest on any advances so made. On June 1, 1971, a tax assessment is made against B, and on June 2, 1971, in accordance with section 6323(f)-1, a notice of lien is filed. On July 1, 1971, B fails to pay the premium due on that date, and Y makes an automatic premium loan to keep the policy in force. At the time the automatic premium loan is made, Y had actual knowledge of the tax lien. Under subparagraph (1)(ii) of this paragraph, the lien is not valid against Y with respect to the advance (and the contractual interest thereon), because the advance was required to be made automatically under an agreement entered into before Y had actual notice or knowledge of the tax lien. Example 3. On May 1, 1964, C enters into a life insurance contract with the Z insurance company. On January 4, 1971, an assessment is made against C for $5,000 unpaid income taxes, and on January 11, 1971, in accordance with § 301.6323(f)-1, a notice of lien is filed. On January 29, 1971, a notice of levy with respect to C's delinquent tax is served on Z company. The amount which C could have had advanced to him from Z company under the contract on the 90th day after service of the notice of levy on Z company is $2,000. The Z company pays $2,000 pursuant to the notice of levy, thereby satisfying the levy upon the contract in accordance with § 6332(b). On February 1, 1973, Z company advances $500 to C, which is the increment in policy loan value since satisfaction of the levy of January 29, 1971. On February 5, 1973, a new notice of levy for the unpaid balance of the delinquent taxes, executed after the first levy was satisfied, is served upon Z company. Because the new notification was not received by Z company until after the policy loan was made, under paragraph (1)(iii) of this paragraph, the tax lien is not valid against Z company with respect to the policy loan (including interest thereon in accordance with paragraph (a) of § 301.6323(e)-1). Example 4. On June 1, 1973, a tax assessment is made against D and on June 2, 1973, in accordance with § 301.6323(f)-1, a notice of lien with respect to the assessment is filed. On July 2, 1973, D executes an assignment of his rights, as the insured, under an insurance contract to M bank as security for a loan. M bank holds its security interest subject to the lien because it is not an insurer entitled to protection under section 6323(b)(9) and did not become a holder of the security interest prior to the filing of the notice of lien for purposes of section 6323(a). It is immaterial that a notice of levy had not been served upon the insurer before the assignment to M bank was made. (j) Effective/applicability date. [T.D. 7429, 41 FR 35501, Aug. 23, 1976, as amended by T.D. 9520, 76 FR 18385, Apr. 4, 2011; 76 FR 24813, May 3, 2011] § 301.6323(c)-1 Protection for commercial transactions financing agreements. (a) In general. (1) Comes into existence after the tax lien filing, (2) Is in qualified property covered by the terms of a commercial transactions financing agreement entered into before the tax lien filing, and (3) Is protected under local law against a judgment lien arising, as of the time of the tax lien filing, out of an unsecured obligation. See paragraphs (a) and (e) of § 301.6323(h)-1 for definitions of the terms “security interest” and “tax lien filing,” respectively. For purposes of this section, a judgment lien is a lien held by a judgment lien creditor as defined in paragraph (g) of § 301.6323(h)-1. (b) Commercial transactions financing agreement. (1) To make loans to the taxpayer (whether or not at the option of the person agreeing to make such loans) to be secured by commercial financing security acquired by the taxpayer in the ordinary course of his trade or business, or (2) To purchase commercial financing security, other than inventory, acquired by the taxpayer in the ordinary course of his trade or business. Such an agreement qualifies as a commercial transactions financing agreement only with respect to loans or purchases made under the agreement before (i) the 46th day after the date of tax lien filing or, (ii) the time when the lender or purchaser has actual notice or knowledge (as defined in paragraph (a) of § 301.6323(i)-1) of the tax lien filing, if earlier. For purposes of this paragraph, a loan or purchase is considered to have been made in the course of the lender's or purchaser's trade or business if such person is in the business of financing commercial transactions (such as a bank or commercial factor) of if the agreement is incidental to the conduct of such person's trade or business. For example, if a manufacturer finances the accounts receivable of one of his customers, he is considered to engage in such financing in the course of his trade or business. The extent of the priority of the lender or purchaser over the tax lien is the amount of his disbursements made before the 46th day after the date the notice of tax lien is filed, or made before the day (before such 46th day) on which the lender or purchaser has actual notice or knowledge of the filing of the notice of the tax lien. (c) Commercial financing security In general. (i) Paper of a kind ordinarily arising in commercial transactions. (ii) Accounts receivable (as defined in subparagraph (2) of this paragraph (c)), (iii) Mortgages on real property, and (iv) Inventory. For purposes of this subparagraph, the term “paper of a kind ordinarily arising in commercial transactions” in general includes any written document customarily used in commercial transactions. For example, such written documents include paper giving contract rights (as defined in subparagraph (2) of this paragraph (c)), chattel paper, documents of title to personal property, and negotiable instruments or securities. The term “commercial financing security” does not include general intangibles such as patents or copyrights. A mortgage on real estate (including a deed of trust, contract for sale, and similar instrument) may be commercial financing security if the taxpayer has an interest in the mortgage as a mortgagee or assignee. The term “commercial financing security” does not include a mortgage where the taxpayer is the mortgagor or realty owned by him. For purposes of this subparagraph, the term “inventory” includes raw materials and goods in process as well as property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. (2) Definitions. (i) A contract right is any right to payment under a contract not yet earned by performance and not evidenced by an instrument or chattel paper, and (ii) An account receivable is any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper. (d) Qualified property. (e) Purchaser treated as acquiring security interest. (f) Examples. Example 1. (i) On June 1, 1970, a tax is assessed against M, a tool manufacturer, with respect to his delinquent tax liability. On June 15, 1970, M enters into a written financing agreement with X, a bank. The agreement provides that, in consideration of such sums as X may advance to M, X is to have a security interest in all of M's presently owned and subsequently acquired commercial paper, accounts receivable, and inventory (including inventory in the manufacturing stages and raw materials). On July 6, 1970, notice of the tax lien is filed in accordance with § 301.6323(f)-1. On August 3, 1970, without actual notice or knowledge of the tax lien filing, X advances $10,000 to M. On August 5, 1970, M acquires additional inventory through the purchase of raw materials. On August 20, 1970, M has accounts receivable, arising from the sale of tools, amounting to $5,000. Under local law, X's security interest arising by reason of the $10,000 advance on August 3, 1970, has priority, with respect to the raw materials and accounts receivable, over a judgment lien against M arising July 6, 1970 (the date of tax lien filing) out of an unsecured obligation. (ii) Because the $10,000 advance was made before the 46th day after the tax lien filing, and the accounts receivable in the amount of $5,000 and the raw materials were acquired by M before such 46th day, X's $10,000 security interest in the accounts receivable and the inventory has priority over the tax lien. The priority of X's security interest also extends to the proceeds, received on or after the 46th day after the tax lien filing, from the liquidation of the accounts receivable and inventory held by M on August 20, 1970, if X has a continuously perfected security interest in identifiable proceeds under local law. However, the priority of X's security interest will not extend to other property acquired with such proceeds. Example 2. Assume the same facts as in example 1 except that on July 15, 1970, X has actual knowledge of the tax lien filing. Because an agreement does not qualify as a commercial transactions financing agreement when a disbursement is made after tax lien filing with actual knowledge of the filing, X's security interest will not have priority over the tax lien with respect to the $10,000 advance made on August 3, 1970. Example 3. Assume the same facts as in example 1 except that, instead of additional inventory, on August 5, 1970, M acquires an account receivable as the result of the sale of machinery which M no longer needs in his business. Even though the account receivable was acquired by taxpayer M before the 46th day after tax lien filing, the tax lien will have priority over X's security interest arising in the account receivable pursuant to the earlier written agreement because the account receivable was not acquired by the taxpayer in the ordinary course of his trade or business. Example 4. Pursuant to a written agreement with the N Manufacturing Company entered into on January 4, 1971, Y a commercial factor, purchases the accounts receivable arising out of N's regular sales to its customers. On November 1, 1971, in accordance with § 301.6323(f)-1, a notice of lien is filed with respect to N's delinquent tax liability. On December 6, 1971, Y, without actual notice or knowledge of the tax lien filing, purchases all of the accounts receivable resulting from N's November 1971 sales. Y has taken appropriate steps under local law so that the December 6, 1971, purchase is protected against a judgment lien arising November 1, 1971 (the date of tax lien filing) out of an unsecured obligation. Because the purchaser of commercial financing security, other than inventory, is treated as having acquired a security interest in commercial financing security, and because Y otherwise meets the requirements of this section, the tax lien is not valid with respect to Y's December 6, 1971, purchase of N's accounts receivable. [T.D. 7429, 41 FR 35503, Aug. 23, 1976] § 301.6323(c)-2 Protection for real property construction or improvement financing agreements. (a) In general. (1) Comes into existence after the tax lien filing, (2) Is in qualified property covered by the terms of a real property construction or improvement financing agreement entered into before the tax lien filing, and (3) Is protected under local law against a judgment lien arising, as of the time of tax lien filing, out of an unsecured obligation. For purposes of this section, it is immaterial that the holder of the security interest had actual notice or knowledge of the lien at the time disbursements are made pursuant to such an agreement. See paragraphs (a) and (e) of § 301.6323(h)-1 for general definitions of the terms “security interest” and “tax lien filing.” For purposes of this section, a judgment lien is a lien held by a judgment lien creditor as defined in paragraph (g) of § 301.6323(h)-1. (b) Real property construction or improvement financing agreement. (1) To finance the construction, improvement, or demolition of real property if the agreement provides for a security interest in the real property with respect to which the construction, improvement, or demolition has been or is to be made; (2) To finance a contract to construct or improve, or demolish real property if the agreement provides for a security interest in the proceeds of the contract; or (3) To finance the raising or harvesting of a farm crop or the raising of livestock or other animals if the agreement provides for a security interest in any property subject to the lien imposed by section 6321 at the time of tax lien filing, in the crop raised or harvested, or in the livestock or other animals raised. For purposes of subparagraphs (1) and (2) of this paragraph (b), construction or improvement may include demolition. For purposes of any agreement described in subparagraph (3) of this paragraph (b), the furnishing of goods and services is treated as the disbursement of cash. (c) Qualified property. (1) In the case of an agreement described in paragraph (b)(1) of this section, the real property with respect to which the construction or improvement has been or is to be made; (2) In the case of an agreement described in paragraph (b)(2) of this section, the proceeds of the contract to construct or improve real property; or (3) In the case of an agreement described in paragraph (b)(3) of this section, property subject to the lien imposed by section 6321 at the time of tax lien filing, the farm crop raised or harvested, or the livestock or other animals raised. (d) Examples. Example 1. A, in order to finance the construction of a dwelling on a lot owned by him, mortgages the property to B. The mortgage, executed January 4, 2006, includes an agreement that B will make cash disbursements to A as the construction progresses. On February 1, 2006, in accordance with § 301.6323(f)-1, a notice of lien is filed and recorded in the public index with respect to A's delinquent tax liability. A continues the construction, and B makes cash disbursements on June 15, 2006, and December 15, 2006. Under local law B's security interest arising by virtue of the disbursements is protected against a judgment lien arising February 1, 2006 (the date of tax lien filing) out of an unsecured obligation. Because B is the holder of a security interest coming into existence by reason of cash disbursements made pursuant to a written agreement, entered into before tax lien filing, to make cash disbursements to finance the construction of real property, and because B's security interest is protected, under local law, against a judgment lien arising as of the time of tax lien filing out of an unsecured obligation, B's security interest has priority over the tax lien. Example 2. (i) C is awarded a contract for the demolition of several buildings. On March 3, 2004, C enters into a written agreement with D which provides that D will make cash disbursements to finance the demolition and also provides that repayment of the disbursements is secured by any sums due C under the contract. On April 1, 2004, in accordance with § 301.6323(f)-1, a notice of lien is filed with respect to C's delinquent tax liability. With actual notice of the tax lien, D makes cash disbursements to C on August 13, September 13, and October 13, 2004. Under local law D's security interest in the proceeds of the contract with respect to the disbursements is entitled to priority over a judgment lien arising on April 1, 2004 (the date of tax lien filing) out of an unsecured obligation. (ii) Because D's security interest arose by reason of disbursements made pursuant to a written agreement, entered into before tax lien filing, to make cash disbursements to finance a contract to demolish real property, and because D's security interest is valid under local law against a judgment lien arising as of the time of tax lien filed out of an unsecured obligation, the tax lien is not valid with respect to D's security interest in the proceeds of the demolition contract. Example 3. Assume the same facts as in Example 2 Example 4. (i) On January 3, 2006, F and G enter into a written agreement, whereby F agrees to provide G with cash disbursements, seed, fertilizer, and insecticides as needed by G, in order to finance the raising and harvesting of a crop on a farm owned by G. Under the terms of the agreement F is to have a security interest in the crop, the farm, and all other property then owned or thereafter acquired by G. In accordance with § 301.6323(f)-1, on January 10, 2006, a notice of lien is filed and recorded in the public index with respect to G's delinquent tax liability. On March 3, 2006, with actual notice of the tax lien, F makes a cash disbursement of $5,000 to G and furnishes him seed, fertilizer, and insecticides having a value of $10,000. Under local law F's security interest, coming into existence by reason of the cash disbursement and the furnishing of goods, has priority over a judgment lien arising January 10, 2006 (the date of tax lien filing and recording in the public index) out of an unsecured obligation. (ii) Because F's security interest arose by reason of a disbursement (including the furnishing of goods) made under a written agreement which was entered into before tax lien filing and which constitutes an agreement to finance the raising or harvesting of a farm crop, and because F's security interest is valid under local law against a judgment lien arising as of the time of tax lien filing out of an unsecured obligation, the tax lien is not valid with respect to F's security interest in the crop even though a notice of lien was filed before the security interest arose. Furthermore, because the farm is property subject to the tax lien at the time of tax lien filing, F's security interest with respect to the farm also has priority over the tax lien. Example 5. Assume the same facts as in Example 4 (e) Effective/applicability date. [T.D. 7429, 41 FR 35503, Aug. 23, 1976, as amended by T.D. 9520, 76 FR 18386, Apr. 4, 2011] § 301.6323(c)-3 Protection for obligatory disbursement agreements. (a) In general. (1) Comes into existence after the tax lien filing, (2) Is in qualified property covered by the terms of an obligatory disbursement agreement entered into before the tax lien filing, and (3) Is protected under local law against a judgment lien arising, as of the time of tax lien filing, out of an unsecured obligation. See paragraphs (a) and (e) of § 301.6323(h)-1 for definitions of the terms “security interest” and “tax lien filing.” For purposes of this section, a judgment lien is a lien held by a judgment lien creditor as defined in paragraph (g) of § 301.6323(h)-1. (b) Obligatory disbursement agreement. (c) Qualified property. (d) Special rule for surety agreements. (1) The proceeds of the contract the performance of which was insured, and (2) If the contract the performance of which was insured is a contract to construct or improve real property, to produce goods, or to furnish services, any tangible personal property used by the taxpayer in the performance of the insured contract. For example, a surety company which holds a security interest, arising from cash disbursements made after tax lien filing under a payment or performance bond on a real estate construction project, has priority over the tax lien with respect to the proceeds of the construction contract and, in addition, with respect to any tangible personal property used by the taxpayer in the construction project if its security interest in the tangible personal property is protected under local law against a judgment lien arising, as of the time the tax lien was filed, out of an unsecured obligation. (3) Examples. Example 1. (i) On January 2, 1969, H, an appliance dealer, in order to finance the acquisition from O of a large inventory of appliances, enters into a written agreement with Z, a bank. Under the terms of the agreement, in return for a security interest in all of H's inventory, presently owned and subsequently acquired, Z issues an irrevocable letter of credit to allow H to make the purchase. On December 31, 1968 and January 10, 1969, in accordance with § 301.6323(f)-1, separate notices of lien are filed with respect to H's delinquent tax liabilities. On March 31, 1969, Z honors the letter of credit. Under local law, Z's security interest in both existing and after-acquired inventory is protected against a judgment lien arising on or after January 10, 1969, out of an unsecured obligation. Under local law, Z's security interest in the inventory purchased under the letter of credit qualifies as a purchase money security interest and is valid against persons acquiring security interests in or liens upon such inventory at any time. (ii) Because Z's security interest in H's inventory did not arise under a written agreement entered into before the filing of notice of the first tax lien on December 31, 1968, that lien is superior to Z's security interest except to the extent of Z's purchase money security interest. Because Z's interest qualifies as a purchase money security interest with respect to the inventory purchased under the letter of credit, the tax liens attach under section 6321 only to the equity acquired by H, and the rights of Z in the inventory so purchased as superior even to the lien filed on December 31, 1968, without regard to this section. (iii) Because Z's security interest arose by reason of disbursements made under a written agreement which was entered into before the filing of notice of the second tax lien on January 10, 1969, and which constitutes an agreement to make disbursements required to be made by reason of the intervention of the rights of O, a person other than the taxpayer, and because Z's security interest is valid under local law against a judgment lien arising as of the time of such tax lien filing on January 10, 1969, out of an unsecured obligation, the second tax lien is, under this section, not valid with respect to Z's security interest in inventory owned by H on January 10, 1969, as well as any after-acquired inventory directly traceable to Z's disbursements (apart from such greater protection as Z enjoys, with respect to the latter, under its purchase money security interest). No protection against the second tax lien is provided under this section with respect to a security interest in any other inventory acquired by H after January 10, 1969, because such other inventory is neither subject to the tax lien at the time of tax lien filing nor directly traceable to Z's disbursements. Example 2. On June 1, 1971, K is awarded a contract to construct an office building. At the same time, S, a surety company, agrees in writing to insure the performance of the contract. The agreement provides that in the event S must complete the job as the result of a default by K, S will be entitled to the proceeds of the contract. In addition, the agreement provides that S is to have a security interest in all property belonging to K. On December 1, 1971, prior to the completion of the building, K defaults. On the same date, under § 301.6323(f)-1, a notice of lien is filed with respect to K's delinquent tax liability. S completes the building on June 1, 1972. Under local law S's security interest in the proceeds of the contract and S's security interest in the property of K are entitled to priority over a judgment lien arising December 1, 1971 (the date of tax lien filing) out of an unsecured obligation. Because, for purposes of an obligatory disbursement agreement which is a surety agreement, the security interest may be in the proceeds of the insured contract, S's security interest in the proceeds of the contract has priority over the tax lien even though a notice of lien was filed before S's security interest arose. Furthermore, because the insured contract was a contract to construct real property, S's security interest in any of K's tangible personal property used in the performance of the contract also has priority over the tax lien. Example 3. (i) On February 2, 1970, L enters into an agreement with M, a contractor, to construct an apartment building on land owned by L. Under a separate agreement, N bank agrees to furnish funds on a short-term basis to L for the payment of amounts due to M during the course of construction. Simultaneously, X, a financial institution, makes a binding commitment to N bank and L to provide long-term financing for the project after its completion. Under its commitment, X is obligated to pay off the balance of the construction loan held by N bank upon the execution by L of a new promissory note secured by a mortgage deed of trust upon the improved property. On September 4, 1970, in accordance with § 301.6323(f)-1, notice of lien is properly filed with respect to L's delinquent tax liability. On September 8, 1970. X obtains actual notice of the tax lien filing. On September 14, 1970, the documents creating X's security interest are executed and recorded, N bank's lien for its construction loan is released, and X makes the required disbursements to N bank. Under local law, X's security interest is protected against a judgment lien arising on September 4, 1970 (the time of tax lien filing) out of an unsecured obligation. (ii) Because X's security interest arose by reason of a disbursement made under a written agreement entered into before tax lien filing, which constitutes an agreement to make disbursements required to be made by reason of the intervention of the rights of N bank, a person other than the taxpayer, and because X's security interest is valid under local law against a judgment lien arising as of the time of the tax lien filing out of an unsecured obligation, the tax lien is not valid with respect to X's security interest to the extent of the disbursement to N bank. The obligatory disbursement is protected under section 6323(c)(4) even if X is not subrogated to N bank's rights or X's agreement is not itself a real property construction financing agreement. [T.D. 7429, 41 FR 35504, Aug. 23, 1976] § 301.6323(d)-1 45-day period for making disbursements. (a) In general. (1) In property which is subject, at the time of tax lien filing, to the lien imposed by section 6321 and which is covered by the terms of a written agreement entered into before tax lien filing, and (2) Protected under local law against a judgment lien arising, as of the time of tax lien filing, out of an unsecured obligation. For purposes of subparagraph (1) of this paragraph (a), a contract right (as defined in paragraph (c)(2)(i) of § 301.6323(c)-1) is subject, at the time of tax lien filing, to the lien imposed by section 6321 if the contract has been made by such time. An account receivable (as defined in paragraph (c)(2)(ii) of § 301.6323(c)-1) is subject, at the time of tax lien filing, to the lien imposed by section 6321 if, and to the extent, a right to payment has been earned by performance at such time. For purposes of subparagraph (2) of this paragraph (a), a judgment lien is a lien held by a judgment lien creditor as defined in paragraph (g) of § 301.6323(h)-1. For purposes of this section, it is immaterial that the written agreement provides that the disbursements are to be made at the option of the person making the disbursements. See paragraphs (a) and (e) of § 301.6323(h)-1 for definitions of the terms “security interest” and “tax lien filing,” respectively. See paragraph (a) of § 301.6323(i)-1 for certain circumstances under which a person is deemed to have actual notice or knowledge of a fact. (b) Examples. Example 1. On December 1, 1967, an assessment is made against A with respect to his delinquent tax liability. On January 2, 1968, A enters into a written agreement with B whereby B agrees to lend A $10,000 in return for a security interest in certain property owned by A. On January 10, 1968, in accordance with § 301.6323(f)-1 notice of the tax lien affecting the property is filed. On February 1, 1968, B, without actual notice or knowledge of the tax lien filing, disburses the loan to A. Under local law, the security interest arising by reason of the disbursement is entitled to priority over a judgment lien arising January 10, 1968 (the date of tax lien filing) out of an unsecured obligation. Because the disbursement was made before the 46th day after tax lien filing, because the disbursement was made pursuant to a written agreement entered into before tax lien filing, and because the resulting security interest is protected under local law against a judgment lien arising as of the date of tax lien filing out of an unsecured obligation, B's $10,000 security interest has priority over the tax lien. Example 2. Assume the same facts as in example 1 except that when B disburses the $10,000 to A on February 10, 1968, B has actual knowledge of the tax lien filing. Because the disbursement was made with actual knowledge of tax lien filing, B's security interest does not have priority over the tax lien even though the disbursement was made before the 46th day after the tax lien filing. Furthermore, B is not protected under § 301.6323(a)-1(a) as a holder of a security interest because he had not parted with money or money's worth prior to the time the notice of tax lien was filed (January 10, 1968) even though he had made a firm commitment to A before that time. [T.D. 7429, 41 FR 35505, Aug. 23, 1976] § 301.6323(e)-1 Priority of interest and expenses. (a) In general. (1) Any interest or carrying charges (including finance, service, and similar charges) upon the obligation secured, (2) The reasonable charges and expenses of an indenture trustee (including, for example, the trustee under a deed of trust) or agent holding the security interest for the benefit of the holder of the security interest, (3) The reasonable expenses, including reasonable compensation for attorneys, actually incurred in collecting or enforcing the obligation secured, (4) The reasonable costs of insuring, preserving, or repairing the property to which the lien or security interest relates, (5) The reasonable costs of insuring payment of the obligation secured (including amounts paid by the holder of the security interest for mortgage insurance, such as that issued by the Federal Housing Administration), and (6) Amounts paid to satisfy any lien on the property to which the lien or security interest relates, but only if the lien so satisfied is entitled to priority over the lien imposed by section 6321. (b) Collection expenses. (c) Costs of insuring, preserving, etc. (d) Satisfaction of liens. [T.D. 7429, 41 FR 35506, Aug. 23, 1976] § 301.6323(f)-1 Place for filing notice; form. (a) Place for filing. (1) Under State laws Real property. (ii) Personal property. (2) With the clerk of the United States district court. (3) With the Recorder of Deeds of the District of Columbia. (b) Situs of property subject to lien. (1) Real property. (2) Personal property. For purposes of subparagraph (2) of this paragraph (b), the residence of a corporation or partnership is deemed to be the place at which the principal executive office of the business is located, and the residence of a taxpayer whose residence is not within the United States is deemed to be in the District of Columbia. (c) National filing system. (d) Form In general. (2) Form 668 defined. Form 668 (e) Examples. Example 1. The law of State X provides that notices of Federal tax lien affecting personal property are to be filed in the Office of the Recorder of Deeds of the county where the taxpayer resides. The laws of State X also provide that notices of lien affecting real property are to be filed with the recorder of deeds of the county where the real property is located. On June 1, 1970, in accordance with § 301.6323(f)-1, a notice of lien is filed in county M with respect to the delinquent tax liability of A. At the time the notice is filed, A is a resident of county M and owns real property in that county. One year later A moves to county N and one year after that A moves to county O. Because the situs of personal property is deemed to be at the residence of the taxpayer at the time the notice of lien is filed, the notice continues to be effectively filed with respect to A's personal property even though A no longer resides in county M. Furthermore, because the situs of real property is deemed to be at its physical location, the notice of lien also continues to be effectively filed with respect to A's real property. Example 2. B is a resident of Canada but owns personal property in the United States. On January 4, 1971, in accordance with § 301.6323(f)-1, a notice of lien is filed with the Office of the Recorder of Deeds of the District of Columbia. On January 2, 1973, B changes his residence to State Y in the United States. Because the residence of a taxpayer who is not a resident of the United States is deemed to be in the District of Columbia and the situs of personal property is deemed to be at the residence of the taxpayer at the time of filing, the lien continues to be effectively filed with respect to the personal property of B located in the United States even though B has returned to the United States and taken up residence in State Y and even though B has at no time been in the District of Columbia. Example 3. The law of State Z in effect before July 1, 1967, provides that notices of lien affecting real property are to be filed in the office of the recorder of deeds of the county in which the real property is located, but that if the real property is registered under the Torrens system of title registration the notice is to be filed with the registrar of titles rather than the recorder of deeds. The law of State Z in effect after June 30, 1967, provides that all notices of lien affecting real property are to be filed with the recorder of deeds of the county in which the real property is located. Accordingly, where the Torrens system is adopted by a county in State Z, there were before July 1, 1967, two offices designated for filing notices of Federal tax lien affecting real property in the county because one office was designated for Torrens real property and another office was designated for non-Torrens real property. Because State Z had not designated one office within the State, county, or other governmental subdivision for filing notices before July 1, 1967, with respect to all real property located in the State, county, or governmental subdivision, before July 1, 1967, the place for filing notices of lien under this section, affecting property located in counties adopting the Torrens system, was with the clerk of the U.S. district court for the judicial district in which the real property is located. However, after June 30, 1967, the place for filing notices of lien under this section, affecting both Torrens and non-Torrens real property in counties adopting the Torrens system is with the recorder of deeds for each such county. Notices of lien filed under this section with the clerk of the U.S. district court before July 1, 1967, remain validly filed whether or not refiled with the recorder of deeds after the change in State law or upon refiling during the required refiling period. Example 4. The law of State W provides that notices of lien affecting personal property of corporations and partnerships are to be filed in the office of the Secretary of State. Notices of lien affecting personal property of any other person are to be filed in the office of the clerk of court for the county where the person resides. Because the State law designates only one filing office within State W with respect to personal property of any particular taxpayer, notices of lien filed under this section, affecting personal property, shall be filed in the office designated under State law. Example 5. The law of State F provides that notices of lien affecting personal property are to be filed with the clerk of the circuit court in the county in which the personal property is located. State F has conformed state law to federal law to provide that all instruments affecting title to an interest in any civil aircraft of the United States must be recorded in the Office of the Federal Aviation Administrator (FAA) in Oklahoma City, Oklahoma. On July 1, 1990, a tax lien arises against ABC airline, which owns aircraft situated in State F. The Internal Revenue Service files a Notice of Federal Tax Lien with the clerk of the circuit court in the county in which the aircraft is located but does not file the notice with the FAA in Oklahoma City, Oklahoma. Because the FAA system adopted by State F does not constitute a second place of filing pursuant to section 6323(f), the federal tax lien is validly filed. Example 6. Assume the same facts as Example 5 (f) Effective/applicability date. [T.D. 7429, 41 FR 35507, Aug. 23, 1976; 41 FR 41690, Sept. 23, 1976, as amended by T.D. 8234, 53 FR 47676, Nov. 25, 1988; T.D. 8557, 59 FR 38120, July 27, 1994; T.D. 9520, 76 FR 18386, Apr. 4, 2011] § 301.6323(g)-1 Refiling of notice of tax lien. (a) In general Requirement to refile. (2) Effect of refiling. (3) Effect of failure to refile (i) However, neither the failure to refile before the expiration of the refiling period, nor the release of the lien, shall alter or impair any right of the United States to property or its proceeds that is the subject of a levy or judicial proceeding commenced prior to the end of the refiling period or the release of the lien, except to the extent that a person acquires an interest in the property for adequate consideration after the commencement of the proceeding and does not have notice of, and is not bound by, the outcome of the proceeding. (ii) If a suit or levy referred to in the preceding sentence is dismissed or released and the property is subject to the lien at such time, a notice of lien with respect to the property is not effective after the suit or levy is dismissed or released unless refiled during the required refiling period. (4) Filing of new notice. (b) Place for refiling notice of lien In general. (i) If the notice of lien is refiled in the office in which the prior notice of lien (including a refiled notice) was filed under the provisions of section 6323; and (ii) In any case in which 90 days or more prior to the date the refiling of the notice of lien under subdivision (i) is completed, the Internal Revenue Service receives written information (in the manner described in subparagraph (2) of this paragraph (b)) concerning a change in the taxpayer's residence, if a notice of such lien is also filed in accordance with section 6323(f)(1)(A)(ii) in the State in which such new residence is located (or, if such new residence is located without the United States, in the District of Columbia). A notice of lien is considered as refiled in the office in which the prior notice or refiled notice was filed under the provisions of section 6323 if it is refiled in the office which, pursuant to a change in the applicable local law, assumed the functions of the office in which the prior notice or refiled notice was filed. If on or before the 90th day referred to in subdivision (ii) more than one written notice is received concerning a change in the taxpayer's residence, a notice of lien is required by this subdivision to be filed only with respect to the residence shown on the written notice received on the most recent date. Subdivision (ii) is applicable regardless of whether the taxpayer resides at the new residence on the date the refiling of notice of lien under subdivision (i) of this subparagraph is completed. (2) Notice of change of taxpayer's residence In general. (ii) Notice received before August 23, 1976. (iii) By return or amended return. (iv) Other rules applicable. (3) Examples. Example 1. A, a delinquent taxpayer, is a resident of State M and owns real property in State N. In accordance with § 301.6323(f)-1, notices of lien are filed in States M and N. The notices of lien contain certificates of release that release the lien at the end of the required refiling period. In order to continue the effect of the notice of lien filed in either M or N, the Internal Revenue Service must refile, during the required refiling period, the notice of lien with the appropriate office in M as well as with the appropriate office in N. Example 2. B, a delinquent taxpayer, is a resident of State M. In accordance with § 301.6323(f)-1, notice of lien is properly filed in that State. One year before the beginning of the required refiling period, B establishes his residence in State N, and B immediately notifies the Internal Revenue Service of his change in residence in accordance with the provisions of paragraph (b)(2) of this section. In order to continue the effect of the notice of lien filed in M, the Internal Revenue Service must refile, during the required refiling period, notices of lien with (i) the appropriate office in M, and (ii) the appropriate office in N, because B properly notified the Internal Revenue Service of his change in residence to N more than 89 days prior to the date refiling of the notice of lien in M is completed. Even if the Internal Revenue Service had acquired actual notice or knowledge of B's change in residence by other means, if B had not properly notified the Internal Revenue Service of his change in residence, the effect of the notice of lien in State M could have been continued without any refiling in State N. Example 3. C, a delinquent taxpayer, is a resident of State O. In accordance with § 301.6323(f)-1, notice of lien is properly filed in that State. Four years before the required refiling period, C establishes his residence in State P, and C immediately notifies the Internal Revenue Service of his change in residence in accordance with the provisions of paragraph (b)(2) of this section. Three years before the required refiling period, C establishes his residence in State R, and again C immediately notifies the Internal Revenue Service of his change in residence in accordance with the provisions of paragraph (2) of this section. In order to continue the effect of the notice of lien filed in O, the Internal Revenue Service must refile, during the required refiling period, notices of lien with (i) the appropriate office in O, and (ii) the appropriate office in R. Refiling in R is required because the notice received by the Service of C's change in residence to R was the most recent notice received more than 89 days prior to the date refiling in O is completed. The notice of lien is not required to be filed in P, even though C properly notified the Internal Revenue Service of his change in residence to P, because such notice is not the most recent one received. Example 4. Assume the same facts as in example 3, except that C does not notify the Internal Revenue Service of his change in residence to R in accordance with the provisions of paragraph (b)(2) of this section. In order to continue the effect of the notice of lien filed in O, the Internal Revenue Service must refile, during the required refiling period, the notice of lien with (i) the appropriate office in O, and (ii) the appropriate office in P. Refiling in P is required because C properly notified the Internal Revenue Service of his change in residence to P, even though C is not a resident of P on the date refiling of the notice of lien in O is completed. The Internal Revenue Service is not required to file a notice of lien in R because C did not properly notify the Service of his change in residence to R. Example 5. D, a delinquent taxpayer, is a resident of State M and owns real property in States N and O. In accordance with § 301.6323(f)-1, the Internal Revenue Service files notices of lien in M, N, and O States. Nine years and 6 months after the date of the assessment shown on the notice of lien, D establishes his residence in P, and at that time the Internal Revenue Service receives from D a notification of his change in residence in accordance with the provisions of paragraph (b)(2) of this section. On a date which is 9 years and 7 months after the date of the assessment shown on the notice of lien, the Internal Revenue Service properly refiles notices of lien in M, N, and O which refilings are sufficient to continue the effect of each of the notices of lien. The Internal Revenue Service is not required to file a notice of lien in P because D did not notify the Internal Revenue Service of his change of residence to P more than 89 days prior to the date each of the refilings in M, N, and O was completed. Example 6. Assume the same facts as in example 5 except that the refiling of the notice of lien in O occurs 100 days after D notifies the Internal Revenue Service of hischange in residence to P in accordance with the provisions of paragraph (b)(2) of this section. In order to continue the effect of the notice of lien filed in O, in addition to refiling the notice of lien in O, the Internal Revenue Service must also refile, during the required refiling period, a notice of lien in P because D properly notified the Internal Revenue Service of his change of residence to P more than 89 days prior to the date the refiling in O was completed. However, the Internal Revenue Service is not required to refile the notice of lien in P to maintain the effect of the notices of lien in M and N because D did not notify the Internal Revenue Service of his change in residence to P more than 89 days prior to the date the refilings in M and N were completed. Example 7. E, a delinquent taxpayer, is a resident of State T. Because T has not designated one office in the case of personal property for filing notices of lien in accordance with the provisions of section 6323(f)(1)(A)(ii), the Internal Revenue Service properly files a notice of lien with the clerk of the appropriate United States district court. However, solely as a matter of convenience for those who may have occasion to search for notices of lien, and not as a matter of legal effectiveness, the Internal Revenue Service also files notice of lien with the recorder of deeds of the county in T where E resides. In addition, the Internal Revenue Service sends a copy of the notice of lien to the X life insurance company to give the company actual notice of the notice of lien. In order to continue the effect of the notice of lien, the Internal Revenue Service must refile the notice of lien with the clerk of the appropriate United States district court during the required refiling period. In order to continue the effect of the notice of the lien, it is not necessary to refile the notice of lien with the Recorder of Deeds of the county where E resides, because the refiling of the notice of lien with the recorder of deeds does not constitute a proper filing for the purposes of section 6323(f). In addition, to continue the effect of the notice of lien under this section it is not necessary to send a copy of the notice of lien to the X life insurance company, because the sending of a notice of lien to an insurance company does not constitute a proper filing for the purposes of section 6323(f). (c) Required refiling period In general. required refiling period (i) The 1-year period ending 30 days after the expiration of 10 years after the date of the assessment of the tax; and (ii) The 1-year period ending with the expiration of 10 years after the close of the preceding required refiling period for such notice of lien. (2) Examples. Example 1. On March 10, 1998, an assessment of tax is made against B, a delinquent taxpayer, and a lien for the amount of the assessment arises on that date. On July 10, 1998, in accordance with § 301.6323(f)-1, a notice of lien is filed. The notice of lien filed on July 10, 1998, is effective through April 9, 2008. The first required refiling period for the notice of lien begins on April 10, 2007, and ends on April 9, 2008. A refiling of the notice of lien during that period will extend the effectiveness of the notice of lien filed on July 10, 1998, through April 9, 2018. The second required refiling period for the notice of lien begins on April 10, 2017, and ends on April 9, 2018. Example 2. Assume the same facts as in Example 1, (d) Effective/applicability date. [T.D. 7429, 41 FR 35509, Aug. 23, 1976, as amended by T.D. 9520, 76 FR 18386, Apr. 4, 2011] § 301.6323(h)-0 Scope of definitions. Except as otherwise provided by § 301.6323(h)-1 the definitions provided by § 301.6323(h)-1 apply for purposes of §§ 301.6323(a)-1 through 301.6324-1. [T.D. 7429, 41 FR 35509, Aug. 23, 1976] § 301.6323(h)-1 Definitions. (a) Security interest In general. (i) If, at such time, the property is in existence and the interest has become protected under local law against a subsequent judgment lien (as provided in subparagraph (2) of this paragraph (a)) arising out of an unsecured obligation; and (ii) To the extent that, at such time, the holder has parted with money or money's worth (as defined in subparagraph (3) of this paragraph (a)). For purposes of this subparagraph, a contract right (as defined in paragraph (c)(2)(i) of § 301.6323(c)-1) is in existence when the contract is made. An account receivable (as defined in paragraph (c)(2)(ii) of § 301.6323(c)-1) is in existence when, and to the extent, a right to payment is earned by performance. A security interest must be in existence, within the meaning of this paragraph, at the time as of which its priority against a tax lien is determined. For example, to be afforded priority under the provisions of paragraph (a) of § 301.6323(a)-1 a security interest must be in existence within the meaning of this paragraph before a notice of lien is filed. (2) Protection against a subsequent judgment lien. (A) The date on which all actions required under local law to establish the priority of a security interest against a judgment lien have been taken, or (B) If later, the date on which all required actions are deemed effective, under local law, to establish the priority of the security interest against a judgment lien. For purposes of this subdivision, the dates described in (A) and (B) of this subdivision (i) shall be determined without regard to any rule or principle of local law which permits the relation back of any requisite action to a date earlier than the date on which the action is actually performed. For purposes of this paragraph, a judgment lien is a lien held by a judgment lien creditor as defined in paragraph (g) of this section. (ii) The following example illustrates the application of paragraph (a)(2): Example. (i) Under the law of State X, a security interest in certificated securities, negotiable documents, or instruments may be perfected, and hence protected against a judgment lien, by filing or by the secured party taking possession of the collateral. However, a security interest in such intangible personal property is considered to be temporarily perfected for a period of 20 days from the time the security interest attaches, to the extent that it arises for new value given under an authenticated security agreement. Under the law of X, a security interest attaches to such collateral when there is an agreement between the creditor and debtor that the interest attaches, the debtor has rights in the property, and consideration is given by the creditor. Under the law of X, in the case of temporary perfection, the security interest in such property is protected during the 20-day period against a judgment lien arising, after the security interest attaches, out of an unsecured obligation. Upon expiration of the 20-day period, the holder of the security interest must perfect its security interest under local law. (ii) Because the security interest is perfected during the 20-day period against a subsequent judgment lien arising out of an unsecured obligation, and because filing or the taking of possession before the conclusion of the period of temporary perfection is not considered, for purposes of paragraph (a)(2)(i) of this section, to be a requisite action which relates back to the beginning of such period, the requirements of this paragraph are satisfied. Because filing or taking possession is a condition precedent to continued perfection, filing or taking possession of the collateral is a requisite action to establish such priority after expiration of the period of temporary perfection. If there is a lapse of perfection for failure to file or take possession, the determination of when the security interest exists (for purposes of protection against the tax lien) is made without regard to the period of temporary perfection. (3) Money or money's worth. money or money's worth (4) Holder of a security interest. (b) Mechanic's lienor In general. (i) The date on which the mechanic's lien first becomes valid under local law against subsequent purchasers of the real property without actual notice, or (ii) The date on which the mechanic's lienor begins to furnish the services, labor, or materials. (2) Example. Example. On February 1, 1968, A lets a contract for the construction of an office building on property owned by him. On March 1, 1968, in accordance with § 301.6323(f)-1, a notice of lien for delinquent Federal taxes owed by A is filed. On April 1, 1968, B, a lumber dealer, delivers lumber to A's property. On May 1, 1968, B records a mechanic's lien against the property to secure payment of the price of the lumber. Under local law, B's mechanic's lien is valid against subsequent purchasers of real property without notice from February 1, 1968, which is the date the construction contract was entered into. Because the date on which B's mechanic's lien is valid under local law against subsequent purchasers is February 1, and the date on which B begins to furnish the materials is April 1, the date on which B becomes a mechanic's lienor within the meaning of this paragraph is April 1, the later of these two dates. Under paragraph (a) of § 301.6323(a)-1, B's mechanic's lien will not have priority over the Federal tax lien, even though under local law the mechanic's lien relates back to the date of the contract. (c) Motor vehicle. (2) A motor vehicle is “registered for highway use” at the time of a sale if immediately prior to the sale it is so registered under the laws of any State, the District of Columbia, or a foreign country. Where immediately prior to the sale of a motor vehicle by a dealer, the dealer is permitted under local law to operate it under a dealer's tag, license, or permit issued to him, the motor vehicle is considered to be registered for highway use in the name of the dealer at the time of the sale. (d) Security. (e) Tax lien filing. (f) Purchaser In general. (2) Interest in property. (i) A lease of property, (ii) A written executory contract to purchase or lease property, (iii) An option to purchase or lease property and any interest therein, or (iv) An option to renew or extend a lease of property. (3) Adequate and full consideration in money or money's worth. (4) Examples. Example 1. A enters into a contract for the purchase of a house and lot from B. Under the terms of the contract A makes a down payment and is to pay the balance of the purchase price in 120 monthly installments. After payment of the last installment, A is to receive a deed to the property. A enters into possession, which under local law protects his interest in the property against subsequent purchasers without actual notice. After A has paid five monthly installments, a notice of lien for Federal taxes is filed against B in accordance with § 301.6323(f)-1. Because the contract is an executory contract to purchase property and is valid under local law against subsequent purchasers without actual notice, A qualifies as a purchaser under this paragraph. Example 2. C owns a residence which he leases to his son-in-law, D, for a period of 5 years commencing January 1, 1968. The lease provides for payment of $100 a year, although the fair rental value of the residence is $2,500 a year. The lease is recorded on December 31, 1967. On March 1, 1968, a notice of tax lien for unpaid Federal taxes of C is filed in accordance with § 301.6323(f)-1. Under local law, D's interest is protected against subsequent purchasers without actual notice. However, because the rental paid by D has no reasonable relationship to the value of the interest in property acquired, D does not qualify as a purchaser under this paragraph. (g) Judgment lien creditor. (h) Effective/applicability date. [T.D. 7429, 41 FR 35511, Aug. 23, 1976, as amended by T.D. 9520, 76 FR 18387, Apr. 4, 2011] § 301.6323(i)-1 Special rules. (a) Actual notice or knowledge. (b) Subrogation In general. (2) Example. Example. On February 1, 1968, an assessment is made and a tax lien arises with respect to A's delinquent tax liability. On February 25, 1968, in accordance with § 301.6323(f)-1, a notice of lien is properly filed. On March 1, 1968, A negotiates a loan from B, the security for which is a second mortgage on property owned by A. The first mortgage on the property is held by C and has priority over the tax lien. Upon default by A, C begins proceedings to foreclose upon the first mortgage. On September 1, 1968, B pays the amount of principal and interest in default to C in order to protect the second mortgage against the pending foreclosure of C's senior mortgage. Under local law, B is subrogated to C's rights to the extent of the payment to C. Therefore, the tax lien is invalid against B to the extent he became subrogated to C's rights even though the tax lien is valid against B's second mortgage on the property. (c) Disclosure of amount of outstanding lien. [T.D. 7429, 41 FR 35511, Aug. 23, 1976] § 301.6323(j)-1 Withdrawal of notice of federal tax lien in certain circumstances. (a) In general. (b) Conditions authorizing withdrawal. (1) Premature or not in accordance with administrative procedures. (2) Installment agreement. (3) Facilitate collection. (4) Best interests of the United States and the taxpayer In general. (ii) Best interest of the taxpayer. (5) Examples. Example 1. A owes $1,000 in Federal income taxes. The IRS files a notice of federal tax lien to secure A's tax liability. However, the IRS failed to follow procedure provided by the Internal Revenue Manual (but not required by statute) with regard to managerial approval prior to the filing of a notice of federal tax lien. The Commissioner may withdraw the notice of federal tax lien because the filing of the notice was not in accordance with the Secretary's administrative procedures. Example 2. A owes $1,000 in federal income taxes. A enters into an agreement to pay the outstanding federal income tax liability in installments. The agreement provides that a notice of federal tax lien may be filed if the taxpayer defaults. A timely pays the installments each month and has not defaulted in any way. Eleven months after entering into the installment agreement, the Internal Revenue Service files a notice of federal tax lien. Noting that there has been no default, the taxpayer asks the Internal Revenue Service to withdraw the notice of federal tax lien. In this situation, the Commissioner may withdraw the notice of federal tax lien because the taxpayer has entered into an installment agreement. Example 3. A is an employee of X Corporation. A notice of federal tax lien has been filed to secure an outstanding tax liability against A. A, who has no assets and no other secured creditors, has agreed to pay the balance of tax due through payroll deductions at a rate higher than the Internal Revenue Service could obtain through a wage levy in order to get the notice of federal tax lien withdrawn. X Corporation has agreed to allow A to enter into a payroll deduction agreement. In this situation, the Commissioner may withdraw the notice of federal tax lien to facilitate collection. Example 4. A is owner of a farm machinery dealership against whom a notice of federal tax lien has been filed to secure an outstanding tax liability. A currently is paying the tax liability by an installment agreement. X Corporation has agreed to provide A with 100 tractors to increase A's inventory if the notice of federal tax lien is withdrawn. A asks the Internal Revenue Service to withdraw the notice of federal tax lien. The Commissioner determines that the larger inventory would enable A to generate additional tractor sales. Increased sales would enable A to increase the amount of installment payments and, consequently, reduce the amount of time needed to satisfy the liability. A, who has no other assets or secured creditors, has agreed to modify the installment agreement. The Commissioner may withdraw the notice of federal tax lien because the withdrawal is in the best interest of the taxpayer and the United States. (c) Determinations by the Commissioner. (d) Procedures for request for withdrawal Manner. (2) Form. (i) Name, current address, and taxpayer identification number of the person requesting the withdrawal of notice of federal tax lien; (ii) A copy of the notice of federal tax lien affecting the taxpayer's property, if available; (iii) The grounds upon which the withdrawal of notice of federal tax lien is being requested; (iv) A list of the names and addresses of any credit reporting agency and any financial institution or creditor that the taxpayer wishes the Commissioner to notify of the withdrawal of notice of federal tax lien; and (v) A request to disclose the withdrawal of notice of federal tax lien to the persons listed in paragraph (d)(2)(iv) of this section. (e) Supplemental list of credit agencies, financial institutions, and creditors In general. (2) Manner. (3) Form. (i) Name, current address, and taxpayer identification number of the taxpayer requesting the notification of any credit agency or any financial institution or creditor of the withdrawal of notice of federal tax lien; (ii) A copy of the notice of withdrawal, if available; (iii) A supplemental list, identified as such, of the names and addresses of any credit reporting agency and any financial institution or creditor that the taxpayer wishes the Commissioner to notify of the withdrawal of notice of federal tax lien; and (iv) A request to disclose the withdrawal of notice of federal tax lien to the persons listed in paragraph (e)(3)(iii) of this section. (f) Effective date. [T.D. 8951, 66 FR 33465, June 22, 2001] § 301.6324-1 Special liens for estate and gift taxes; personal liability of transferees and others. (a) Estate tax. (2) Unless the tax is paid in full or becomes unenforceable by reason of lapse of time, and except as otherwise provided in paragraph (c) of this section, the lien upon the entire property constituting the gross estate continues for a period of 10 years after the decedent's death, except that the lien shall be divested with respect to— (i) The portion of the gross estate used for the payment of charges against the estate and expenses of its administration allowed by any court having jurisdiction thereof; (ii) Property included in the gross estate under sections 2034 to 2042, inclusive, which is transferred by (or transferred by the transferee of) the spouse, transferee, trustee, surviving tenant, person in possession of the property by reason of the exercise, nonexercise, or release of a power of appointment, or beneficiary to a purchaser or holder of a security interest. In such case a like lien attaches to all the property of the spouse, transferee, trustee, surviving tenant, person in possession, beneficiary, or transferee of any such person, except the part which is transferred to a purchaser or a holder of a security interest. See section 6323(h) (1) and (6) and the regulations thereunder, respectively, for the definitions of “security interest” and “purchaser”; (iii) The portion of the gross estate (or any interest therein) which has been transferred to a purchaser or holder of a security interest if payment is made of the full amount of tax determined by the district director pursuant to a request of the fiduciary (executor, in the case of the estate of a decedent dying before January 1, 1971) for discharge from personal liability as authorized by section 2204 (relating to discharge of fiduciary from personal liability) but there is substituted a like lien upon the consideration received from the purchaser or holder of a security interest; and (iv) Property as to which the district director has issued a certificate releasing a lien under section 6325(a) and the regulations thereunder. (b) Lien for gift tax. (c) Exceptions. (2) If a lien described in either paragraph (a) or paragraph (b) of this section is not valid against a lien or security interest (as defined in section 6323(h) (1) and the regulations thereunder), the priority of the lien or security interest extends to any item described in section 6323(e) (relating to priority of interest and expenses) to the extent that, under local law, the item has the same priority as the lien or security interest to which it relates. (d) Application of lien imposed by section 6321. [T.D. 7238, 37 FR 28740, Dec. 29, 1972] § 301.6324A-1 Election of and agreement to special lien for estate tax deferred under section 6166 or 6166A. (a) Election of lien. (b) Agreement to lien In general. (i) The decedent's name and taxpayer identification number as they appear on the estate tax return; (ii) The amount of the lien; (iii) The fair market value of the property to be subject to the lien as of the date of the decedent's death and the date of the election under this section; (iv) The amount, as of the date of the decedent's death and the date of the election, of all encumbrances on the property, including mortgages and any lien under section 6324B; (v) A clear description of the property which is to be subject to the lien, and in the case of property other than land, a statement of its estimated remaining useful life; and (vi) Designation of an agent (including the agent's address) for the beneficiaries of the estate and the consenting parties to the lien for all dealings with the Internal Revenue Service on matters arising under section 6166 or 6166A (as in effect prior to its repeal by Economic Recovery Tax Act of 1981), or under section 6324A. (2) Persons having an interest in designated property. (3) Consent on behalf of interested party. (4) Duties of agent designated in agreement. (c) Partial substitution of bond for lien. (d) Relation of sections 6324A and 2204. (e) Relation of sections 6324A and 6324. (f) Section 6324A lien to be in lieu of bond under section 6165. (g) Special rule for estates for which elections under section 6324A are made on or before August 30, 1980. (Approved by the Office of Management and Budget under control number 1545-0754) (Secs. 2032A and 7805 of the Internal Revenue Code of 1954 (90 Stat. 1856, 68A Stat. 917; 26 U.S.C. 2032A, 7805); secs. 6324A(a) and 7805 of the Internal Revenue Code of 1954 (90 Stat. 1808, 68A Stat. 917; 26 U.S.C. 6324A(a), 7805)) [T.D. 7710, 45 FR 50747, July 31, 1980, as amended by T.D. 7941, 49 FR 4469, Feb. 7, 1984] § 301.6325-1 Release of lien or discharge of property. (a) Release of lien Liability satisfied or unenforceable. (2) Bond accepted. (3) Certificate of release for a lien which has become legally unenforceable. (4) Satisfaction of tax liability. (i) The appropriate official determines that the entire tax liability listed in a notice of Federal tax lien has been fully satisfied. Such determination will be made as soon as practicable after tender of payment; or (ii) The taxpayer provides the appropriate official with proof of full payment (as defined in paragraph (a)(5) of this section) with respect to the entire tax liability listed in a notice of Federal tax lien together with the information and documents set forth in paragraph (a)(7) of this section. See paragraph (a)(6) of this section if more than one tax liability is listed in a notice of Federal tax lien. (5) Proof of full payment. proof of full payment (i) An internal revenue cashier's receipt reflecting full payment of the tax liability in question; (ii) A canceled check in an amount sufficient to satisfy the tax liability for which the release is being sought; (iii) A record, made in accordance with procedures prescribed by the Commissioner, of proper payment of the tax liability by credit or debit card or by electronic funds transfer; or (iv) Any other manner of proof acceptable to the appropriate official. (6) Notice of a Federal tax lien which lists multiple liabilities. (7) Taxpayer requests. (b) Discharge of specific property from the lien Property double the amount of the liability. (ii) The following example illustrates a case in which a certificate of discharge may not be given under this subparagraph: Example. The Federal tax liability secured by a lien is $1,000. The fair market value of all property which after the discharge will continue to be subject to the Federal tax lien is $10,000. There is a prior mortgage on the property of $5,000, including interest, and the property is subject to a prior lien of $100 for real estate taxes. Accordingly, the taxpayer's equity in the property over and above the amount of the mortgage and real estate taxes is $4,900, or nearly five times the amount required to pay the assessed tax on which the Federal tax lien is based. Nevertheless, a discharge under this subparagraph is not permissible. In the illustration, the sum of the amount of the Federal tax liability ($1,000) and of the amount of the prior mortgage and the lien for real estate taxes ($5,000 + $100 = $5,100) is $6,100. Double this sum is $12,200, but the fair market value of the remaining property is only $10,000. Hence, a discharge of the property is not permissible under this subparagraph, since the Code requires that the fair market value of the remaining property be at least double the sum of two amounts, one amount being the outstanding Federal tax liability and the other amount being all prior liens upon such property. In order that the discharge may be issued, it would be necessary that the remaining property be worth not less than $12,200. (2) Part payment; interest of United States valueless Part payment. (ii) Interest of the United States valueless. (3) Discharge of property by substitution of proceeds of sale. (4) Right of substitution of value Issuance of certificate of discharge to property owner who is not the taxpayer. (ii) Refund of deposit and release of bond. (iii) Refund request. (iv) Internal Revenue Service's use of deposit if court action not filed. (5) Application for certificate of discharge. (6) Valuation of interest of United States. (c) Estate or gift tax liability fully satisfied or provided for Certificate of discharge. (2) Application for certificate of discharge. (3) For provisions relating to transfer certificates in the case of nonresident estates, see § 20.6325-1 of this chapter (Estate Tax Regulations). (d) Subordination of lien By payment of the amount subordinated. (2) To facilitate tax collection In general. (ii) Examples. Example 1. A, a farmer needs money in order to harvest his crop. A Federal tax lien, notice of which has been filed, is outstanding with respect to A's property. B, a lending institution is willing to make the necessary loan if the loan is secured by a first mortgage on the farm which is prior to the Federal tax lien. Upon examination, the appropriate official believes that ultimately the amount realizable from A's property will be increased and the collection of the tax liability will be facilitated by the availability of cash when the crop is harvested and sold. In this case, the appropriate official may, in his discretion, subordinate the tax lien on the farm to the mortgage securing the crop harvesting loan. Example 2. C owns a commercial building which is deteriorating and in unsalable condition. Because of outstanding Federal tax liens, notices of which have been filed, C is unable to finance the repair and rehabilitation of the building. D, a contractor, is willing to do the work if his mechanic's lien on the property is superior to the Federal tax liens. Upon examination, the appropriate official believes that ultimately the amount realizable from C's property will be increased and the collection of the tax liability will be facilitated by arresting deterioration of the property and restoring it to salable condition. In this case, the appropriate official may, in his discretion, subordinate the tax lien on the building to the mechanic's lien. Example 3. E, a manufacturer of electronic equipment, obtains financing from F, a lending institution, pursuant to a security agreement, with respect to which a financing statement was duly filed under the Uniform Commercial Code on June 1, 1970. On April 15, 1971, F gains actual notice or knowledge that notice of a Federal tax lien had been filed against E on March 31, 1971, and F refuses to make further advances unless its security interest is assured of priority over the Federal tax lien. Upon examination, the appropriate official believes that ultimately the amount realizable from E's property will be increased and the collection of the tax liability will be facilitated if the work in process can be completed and the equipment sold. In this case, the appropriate official may, in his discretion, subordinate the tax lien to F's security interest for the further advances required to complete the work. Example 4. Suit is brought against G by H, who claims ownership of property the legal title to which is held by G. A Federal tax lien against G, notice of which has previously been filed, will be enforceable against the property if G's title is confirmed. Because section 6323(b)(8) is inapplicable, J, an attorney, is unwilling to defend the case for G unless he is granted a contractual lien on the property, superior to the Federal tax lien. Upon examination, the appropriate official believes that the successful defense of the case by G will increase the amount ultimately realizable from G's property and will facilitate collection of the tax liability. In this case, the appropriate official may, in his discretion, subordinate the tax lien to J's contractual lien on the disputed property to secure J's reasonable fees and expenses. (3) Subordination of section 6324B lien. A, (4) Application for certificate of subordination. (e) Nonattachment of lien. (f) Effect of certificate Conclusiveness. (i) In the case of a certificate of release issued under paragraph (a) of this section, the certificate shall be conclusive that the tax lien referred to in the certificate is extinguished; (ii) In the case of a certificate of discharge issued under paragraph (b) or (c) of this section, the certificate shall be conclusive that the property covered by the certificate is discharged from the tax lien; (iii) In the case of a certificate of subordination issued under paragraph (d) of this section, the certificate shall be conclusive that the lien or interest to which the Federal tax lien is subordinated is superior to the tax lien; and (iv) In the case of a certificate of nonattachment issued under paragraph (e) of this section, the certificate shall be conclusive that the lien of the United States does not attach to the property of the person referred to in the certificate. (2) Revocation of certificate of release or nonattachment In general. ( a ( b and if the period of limitation on collection after assessment of the tax liability has not expired, the appropriate official may revoke the certificate and reinstate the tax lien. The provisions of this subparagraph do not apply in the case of the lien imposed by section 6324 relating to estate and gift taxes. (ii) Method of revocation and reinstatement. ( a ( b (iii) Effect of reinstatement a Effective date. a b ( b Treatment of reinstated lien. (iv) Example. Example. On March 1, 1967, an assessment of an unpaid Federal tax liability is made against A. On March 1, 1968, notice of the Federal tax lien, which arose at the time of assessment, is filed. On April 1, 1968, A executes a bona fide mortgage on property belonging to him to B. On May 1, 1968, a certificate of release of the tax lien is erroneously issued and is filed by A in the same office in which the notice of lien was filed. On June 3, 1968, the lien is reinstated in accordance with the provisions of this subparagraph. On July 1, 1968, A executes a bona fide mortgage on property belonging to him to C. On August 1, 1968, a notice of the lien which was reinstated is properly filed in accordance with the provisions of § 301.6323(f)-1. The mortgages of both B and C will have priority over the rights of the United States with respect to the tax liability in question. Because a reinstated lien continues in existence only until the expiration of the period of limitation on collection after assessment of the tax liability to which the lien relates, in the absence of any extension or suspension of the period of limitation on collection after assessment, the reinstated lien will become unenforceable by reason of lapse of time after February 28, 1973. (3) Certificates void under certain conditions. (g) Filing of certificates and notices. (h) As used in this section, the term appropriate official (i) Effective/applicability date. (Secs. 6324B (90 Stat. 1861, 26 U.S.C. 6324B) and 7805 (68A Stat. 917, 26 U.S.C. 7805)) [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7429, 41 FR 35512, Aug. 23, 1976; T.D. 7847, 47 FR 50857, Nov. 10, 1982; T.D. 8939, 66 FR 2821, Jan. 12, 2001; 73 FR 5742, T.D. 9378, Jan. 31, 2008; T.D. 9378, 73 FR 9672, Feb. 22, 2008] § 301.6326-1 Administrative appeal of the erroneous filing of notice of federal tax lien. (a) In general. (b) Appeal alleging an error in the filing of notice of lien. (1) The tax liability that gave rise to the lien, plus any interest and additions to tax associated with said liability, was satisfied prior to the filing of notice of lien; (2) The tax liability that gave rise to the lien was assessed in violation of the deficiency procedures set forth in section 6213 of the Internal Revenue Code; (3) The tax liability that gave rise to the lien was assessed in violation of title 11 of the United States Code (the Bankruptcy Code); or (4) The statutory period for collection of the tax liability that gave rise to the lien expired prior to the filing of notice of federal tax lien. (c) Notice of federal tax lien that lists multiple liabilities. (d) Procedures for appeal Manner. (2) Form. (i) Name, current address, and taxpayer identification number of the person appealing the filing of notice of federal tax lien; (ii) A copy of the notice of federal tax lien affecting the property, if available; and (iii) The grounds upon which the filing of notice of federal tax lien is being appealed. (A) If the ground upon which the filing of notice is being appealed is that the tax liability in question was satisfied prior to the filing, proof of full payment as defined in paragraph (e) of this section must be provided. (B) If the ground upon which the filing of notice is being appealed is that the tax liability that gave rise to lien was assessed in violation of the deficiency procedures set forth in section 6213 of the Internal Revenue Code, the appealing party must explain how the assessment was erroneous. (C) If the ground upon which the filing of notice is being appealed is that the tax liability that gave rise to the lien was assessed in violation of title 11 of the United States Code (the Bankruptcy Code), the appealing party must provide the following: ( 1 ( 2 ( 3 Time. (e) Proof of full payment. (1) An internal revenue cashier's receipt reflecting full payment of the tax liability in question prior to the date the federal tax lien issue was filed; (2) A canceled check to the Internal Revenue Service in an amount which was sufficient to satisfy the tax liability for which release is being sought; or (3) Any other manner of proof acceptable to the district director. (f) Exclusive remedy. (g) Effective date. [T.D. 8250, 54 FR 19569, May 8, 1989. Redesignated at 56 FR 19948, May 1, 1991] Seizure of Property for Collection of Taxes § 301.6330-1 Notice and opportunity for hearing prior to levy. (a) Notification In general. (2) Exceptions state tax refunds. (ii) Jeopardy. (3) Questions and answers. Q-A1. A-A1. Q-A2. A-A2. Q-A3. A-A3. Q-A4. A-A4. Q-A5. A-A5. Q-A6. A-A6. (i) The amount of the unpaid tax. (ii) Notification of the right to request a CDP hearing. (iii) A statement that the IRS intends to levy. (iv) The taxpayer's rights with respect to the levy action, including a brief statement that sets forth— (A) The statutory provisions relating to the levy and sale of property; (B) The procedures applicable to the levy and sale of property; (C) The administrative appeals available to the taxpayer with respect to the levy and sale and the procedures relating to those appeals; (D) The alternatives available to taxpayers that could prevent levy on the property (including installment agreements); and (E) The statutory provisions and the procedures relating to the redemption of property and the release of liens on property. Q-A7. A-A7. (i) The amount of the unpaid tax. (ii) Notification of the right to request a CDP hearing. (iii) A statement that the IRS has levied upon the taxpayer's state tax refund or has made a jeopardy levy on property or rights to property of the taxpayer, as appropriate. (iv) The taxpayer's rights with respect to the levy action, including a brief statement that sets forth— (A) The statutory provisions relating to the levy and sale of property; (B) The procedures applicable to the levy and sale of property; (C) The administrative appeals available to the taxpayer with respect to the levy and sale and the procedures relating to those appeals; (D) The alternatives available to taxpayers that could prevent any further levies on the taxpayer's property (including installment agreements); and (E) The statutory provisions and the procedures relating to the redemption of property and the release of liens on property. Q-A8. A-A8. (i) The IRS may effect delivery of a pre-levy CDP Notice (and accompanying materials) in one of three ways: (A) By delivering the notice personally to the taxpayer. (B) By leaving the notice at the taxpayer's dwelling or usual place of business. (C) By mailing the notice to the taxpayer at the taxpayer's last known address by certified or registered mail, return receipt requested. (ii) The IRS may effect delivery of a post-levy CDP Notice (and accompanying materials) in one of three ways: (A) By delivering the notice personally to the taxpayer. (B) By leaving the notice at the taxpayer's dwelling or usual place of business. (C) By mailing the notice to the taxpayer at the taxpayer's last known address by certified or registered mail. Q-A9. A-A9. Q-A10. A-A10. (4) Examples. Example 1. Prior to January 19, 1999, the IRS issues a continuous levy on a taxpayer's wages and a levy on that taxpayer's fixed right to future payments. The IRS is not required to release either levy on or after January 19, 1999, until the requirements of section 6343(a)(1) are met. The taxpayer is not entitled to a CDP Notice or a CDP hearing under section 6330 with respect to either levy because both levy actions were initiated prior to January 19, 1999. Example 2. The same facts as in Example 1, (b) Entitlement to a CDP hearing In general. (2) Questions and answers. Q-B1. A-B1. Q-B2. A-B2. Q-B3. A-B3. Q-B4. A-B4. Q-B5. A-B5. (3) Example. Example. Federal income tax liability for 1997 is assessed against individual D. D buys an asset and puts it in individual E's name. The IRS gives D a CDP Notice of intent to levy with respect to the 1997 tax liability. The IRS will not notify E of its intent to levy. The IRS is not required to notify E of its intent to levy although E holds property of individual D. E is not the taxpayer. (c) Requesting a CDP hearing In general. (2) Questions and answers. Q-C1. A-C1. (ii) The written request for a CDP hearing must be dated and must include the following: (A) The taxpayer's name, address, daytime telephone number (if any), and taxpayer identification number (e.g., SSN, ITIN or EIN). (B) The type of tax involved. (C) The tax period at issue. (D) A statement that the taxpayer requests a hearing with Appeals concerning the proposed levy. (E) The reason or reasons why the taxpayer disagrees with the proposed levy. (F) The signature of the taxpayer or the taxpayer's authorized representative. (iii) If the IRS receives a timely written request for CDP hearing that does not satisfy the requirements set forth in A-C1(ii) of this paragraph (c)(2), the IRS will make a reasonable attempt to contact the taxpayer and request that the taxpayer comply with the unsatisfied requirements. The taxpayer must perfect any timely written request for a CDP hearing that does not satisfy the requirements set forth in A-C1(ii) of this paragraph (c)(2) within a reasonable period of time after a request from the IRS. (iv) Taxpayers are encouraged to use Form 12153, “Request for a Collection Due Process Hearing,” in requesting a CDP hearing so that the request can be readily identified and forwarded to Appeals. Taxpayers may obtain a copy of Form 12153 by contacting the IRS office that issued the CDP Notice, by downloading a copy from the IRS Internet site, http://www.irs.gov/pub/irs-pdf/f12153.pdf, (v) The taxpayer must affirm any timely written request for a CDP hearing which is signed or alleged to have been signed on the taxpayer's behalf by the taxpayer's spouse or other unauthorized representative by filing, within a reasonable period of time after a request from the IRS, a signed, written affirmation that the request was originally submitted on the taxpayer's behalf. If the affirmation is filed within a reasonable period of time after a request, the timely CDP hearing request will be considered timely with respect to the non-signing taxpayer. If the affirmation is not filed within a reasonable period of time after a request, the CDP hearing request will be denied with respect to the non-signing taxpayer. Q-C2. A-C2. Q-C3. A-C3. Q-C4. A-C4. Q-C5. A-C5. Q-C6. A-C6. Q-C7. A-C7. Q-C8. A-C8. Q-C9. A-C9. (3) Examples. Example 1. The IRS mails a CDP Notice of intent to levy to individual A's last known address on June 24, 1999. Individual A has until July 26, 1999, a Monday, to request a CDP hearing. The 30-day period within which individual A may request a CDP hearing begins on June 25, 1999. Because the 30-day period expires on July 24, 1999, a Saturday, individual A's written request for a CDP hearing will be considered timely if it is properly transmitted and addressed to the IRS in accordance with section 7502 and the regulations thereunder no later than July 26, 1999. Example 2. Same facts as in Example 1, Example 1, Example 3. Same facts as in Example 2, Example 4. Same facts as in Example 1, (d) Conduct of CDP hearing In general. (2) Questions and answers. Q-D1. A-D1. Q-D2. A-D2. Q-D3. A-D3. Q-D4. A-D4. Q-D5. A-D5. Q-D6. A-D6. et seq., Q-D7. A-D7. Q-D8. A-D8. (3) Examples. Example 1. Individual A timely requests a CDP hearing concerning a proposed levy for the 1998 income tax liability assessed against individual A. Appeals employee B previously conducted a CDP hearing regarding a NFTL filed with respect to individual A's 1998 income tax liability. Because employee B's only prior involvement with individual A's 1998 income tax liability was in connection with a section 6320 CDP hearing, employee B may conduct the CDP hearing under section 6330 involving the proposed levy for the 1998 income tax liability. Example 2. Individual C timely requests a CDP hearing concerning a proposed levy for the 1998 income tax liability assessed against individual C. Appeals employee D previously conducted a Collection Appeals Program (CAP) hearing regarding a NFTL filed with respect to individual C's 1998 income tax liability. Because employee D's prior involvement with individual C's 1998 income tax liability was in connection with a non-CDP hearing, employee D may not conduct the CDP hearing under section 6330 unless individual C waives the requirement that the hearing will be conducted by an Appeals officer or employee who has had no prior involvement with respect to individual C's 1998 income tax liability. Example 3. Same facts as in Example 2 Example 4. Appeals employee F is assigned to a CDP hearing concerning a proposed levy for a trust fund recovery penalty (TFRP) assessed pursuant to section 6672 against individual E. Appeals employee F participated in a prior CAP hearing involving individual E's 1999 income tax liability, and participated in a CAP hearing involving the employment taxes of business entity X, which incurred the employment tax liability to which the TFRP assessed against individual E relates. Appeals employee F would not be considered to have prior involvement because the prior CAP hearings in which he participated did not directly involve the TFRP assessed against individual E. Example 5. Appeals employee G is assigned to a CDP hearing concerning a proposed levy for a TFRP assessed pursuant to section 6672 against individual H. In preparing for the CDP hearing, Appeals employee G reviews the Appeals case file concerning the prior CAP hearing involving the TFRP assessed pursuant to section 6672 against individual H. Appeals employee G is not deemed to have participated in the previous CAP hearing involving the TFRP assessed against individual H by such review. (e) Matters considered at CDP hearing In general. (2) Spousal defenses. (3) Questions and answers. Q-E1. A-E1. (i) Whether the IRS met the requirements of any applicable law or administrative procedure. (ii) Any issues appropriately raised by the taxpayer relating to the unpaid tax. (iii) Any appropriate spousal defenses raised by the taxpayer. (iv) Any challenges made by the taxpayer to the appropriateness of the proposed collection action. (v) Any offers by the taxpayer for collection alternatives. (vi) Whether the proposed collection action balances the need for the efficient collection of taxes and the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. Q-E2. A-E2. Q-E3. A-E3. Q-E4. A-E4. Q-E5. A-E5. Q-E6. A-E6. Q-E7. A-E7. Q-E8. A-E8. (ii) Because taxpayers are encouraged to discuss their concerns with the IRS office collecting the tax, certain matters that might have been raised at a CDP hearing may be resolved without the need for Appeals consideration. Unless, as a result of these discussions, the taxpayer agrees in writing to withdraw the request that Appeals conduct a CDP hearing, Appeals will still issue a Notice of Determination, but the taxpayer can waive in writing Appeals' consideration of some or all of the matters it would otherwise consider in making its determination. Q-E9. A-E9. Q-E10. A-E10. Q-E11. A-E11. (4) Examples. Example 1. The IRS sends a statutory notice of deficiency to the taxpayer at his last known address asserting a deficiency for the tax year 1995. The taxpayer receives the notice of deficiency in time to petition the Tax Court for a redetermination of the asserted deficiency. The taxpayer does not timely file a petition with the Tax Court. The taxpayer is precluded from challenging the existence or amount of the tax liability in a subsequent CDP hearing. Example 2. Same facts as in Example 1, Example 3. The IRS properly assesses a trust fund recovery penalty against the taxpayer. The IRS offers the taxpayer the opportunity for a conference with Appeals at which the taxpayer would have the opportunity to dispute the assessed liability. The taxpayer declines the opportunity to participate in such a conference. The taxpayer is precluded from challenging the existence or amount of the tax liability in a subsequent CDP hearing. (f) Judicial review of Notice of Determination In general. (2) Questions and answers. Q-F1. A-F1. Q-F2. A-F2. Q-F3. A -F3. Q-F4. A-F4. (g) Effect of request for CDP hearing and judicial review on periods of limitation and collection activity In general. (2) Questions and answers. Q-G1. A-G1. Q-G2. A-G2. Q-G3. A-G3. (3) Examples. Example 1. The period of limitation under section 6502 with respect to the taxpayer's tax period listed in the CDP Notice will expire on August 1, 1999. The IRS sent a CDP Notice to the taxpayer on April 30, 1999. The taxpayer timely requested a CDP hearing. The IRS received this request on May 15, 1999. Appeals sends the taxpayer its determination on June 15, 1999. The taxpayer timely seeks judicial review of that determination. The period of limitation under section 6502 would be suspended from May 15, 1999, until the determination resulting from that hearing becomes final by expiration of the time for seeking review or reconsideration before the Tax Court, plus 90 days. Example 2. Same facts as in Example 1, (h) Retained jurisdiction of Appeals In general. (2) Questions and answers. Q-H1. A-H1. Q-H2. A-H2. (i) Equivalent hearing In general. (2) Questions and answers. Q-I1. A-I1. (ii) The request must be dated and must include the following: (A) The taxpayer's name, address, daytime telephone number (if any), and taxpayer identification number (e.g., SSN, ITIN or EIN). (B) The type of tax involved. (C) The tax period at issue. (D) A statement that the taxpayer is requesting an equivalent hearing with Appeals concerning the levy. (E) The reason or reasons why the taxpayer disagrees with the proposed levy. (F) The signature of the taxpayer or the taxpayer's authorized representative. (iii) The taxpayer must perfect any timely written request for an equivalent hearing that does not satisfy the requirements set forth in A-I1(ii) of this paragraph (i)(2) within a reasonable period of time after a request from the IRS. If the requirements are not satisfied within a reasonable period of time, the taxpayer's equivalent hearing request will be denied. (iv) The taxpayer must affirm any timely written request for an equivalent hearing that is signed or alleged to have been signed on the taxpayer's behalf by the taxpayer's spouse or other unauthorized representative, and that otherwise meets the requirements set forth in A-I1(ii) of this paragraph (i)(2), by filing, within a reasonable period of time after a request from the IRS, a signed written affirmation that the request was originally submitted on the taxpayer's behalf. If the affirmation is filed within a reasonable period of time after a request, the timely equivalent hearing request will be considered timely with respect to the non-signing taxpayer. If the affirmation is not filed within a reasonable period of time, the equivalent hearing request will be denied with respect to the non-signing taxpayer. Q-I2. A-I2. Q-I3. A-I3. Q-I4. A-I4. Q-I5. A-I5. Q-I6. A-I6. Q-I7. A-I7. Q-I8. A-I8. Q-I9. A-I9. No. Q-I10. A-I10. Q-I11. A-I11. (j) Effective date. [T.D. 8980, 67 FR 2551, Jan. 18, 2002, as amended by T.D. 9291, 71 FR 60831, Oct. 17, 2006] § 301.6331-1 Levy and distraint. (a) Authority to levy In general. (2) Jeopardy cases. (3) Bankruptcy or receivership cases. (4) Certain types of compensation Federal employees. a b (ii) State and municipal employees. (iii) Seamen. (5) Noncompetent Indians. (b) Continuing levies and successive seizures Continuing effect of levy on salary and wages. salary or wages (2) Successive seizures. (c) Service of notice of levy by mail. Any person may, upon written notice to the district director having audit jurisdiction over such person, have all notices of levy by mail sent to one designated office. After such a notice is received by the district director, notices of levy by mail will be sent to the designated office until a written notice withdrawing the request or a written notice designating a different office is received by the district director. (d) Effective date. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7139, 36 FR 15041, Aug. 12, 1971; T.D. 7620, 44 FR 27987, May 14, 1979; T.D. 7874, 48 FR 10061, Mar. 10, 1983; T.D. 8558, 59 FR 38903, Aug. 1, 1994] § 301.6331-2 Procedures and restrictions on levies. (a) Notice of intent to levy In general. (2) Content of Notice. (i) The Internal Revenue Code provisions and the procedures relating to levy and sale of property; (ii) The administrative appeals available with respect to the levy and sale of property and the procedures relating to such appeals; (iii) The alternatives available that could prevent levy on the property (including the use of an installment agreement under section 6159); and (iv) The Internal Revenue Code provisions and the procedures relating to redemption of property and release of liens on property. (b) Uneconomical levy In general. (2) Time of estimate. (3) Examples. Example 1. A director anticipates that the taxpayer has only one item of property that can be seized and sold. This item is estimated to have a fair market value of $250.00. The director also estimates that the costs of seizure and sale will total $300.00 if this item is seized. The director is prohibited from levying on this one item of the taxpayer's property because the costs of seizure and sale are estimated to exceed the property's fair market value. Example 2. The facts are the same as in Example 1 Example 3. The taxpayer has three items of property, A, B, and C. The director anticipates that the value of items A, B, and C depends on their being sold as a unit. The director estimates that due to high anticipated costs of storing or maintaining item B prior to the sale, the aggregate fair market value of items A, B, and C will not exceed the anticipated expenses of seizure and sale if all three items are seized. Accordingly, the director is prohibited from levying on items A, B, and C. Example 4. The facts are the same as in Example 3 (c) Restriction on levy on date of appearance. (d) Jeopardy. (e) Effective date. [T.D. 8558, 59 FR 38903, Aug. 1, 1994, as amended by T.D. 8939, 66 FR 2821, Jan. 12, 2001] § 301.6331-3 Restrictions on levy while offers to compromise are pending. Cross-reference. see [T.D. 9027, 67 FR 77417, Dec. 18, 2002] § 301.6331-4 Restrictions on levy while installment agreements are pending or in effect. (a) Prohibition on levy In general. (2) When a proposed installment agreement becomes pending. (3) Revised proposals of installment agreements submitted following rejection. (4) Exceptions. (b) Other actions by the IRS while levy is prohibited In general. (i) Crediting an overpayment against the liability pursuant to section 6402; (ii) Filing or refiling notices of Federal tax lien; and (iii) Taking action to collect from any person who is not named in the installment agreement or proposed installment agreement but who is liable for the tax to which the installment agreement relates. (2) Proceedings in court. (c) Statute of limitations Suspension of the statute of limitations on collection. (2) Waivers of the statute of limitations on collection. (d) Cross-reference. see (e) Effective/applicability date. [T.D. 9027, 67 FR 77417, Dec. 18, 2002, as amended by T.D. 9473, 74 FR 61530, Nov. 25, 2009] § 301.6332-1 Surrender of property subject to levy. (a) Requirement In general. (2) Levy on bank deposits held in offices outside the United States. (i) That the taxpayer is within the jurisdiction of a U.S. court at the time the levy is made and that the bank is in possession of (or obligated with respect to) deposits of the taxpayer in an office of the bank outside the United States or a possession of the United States; or (ii) That the taxpayer is not within the jurisdiction of a U.S. court at the time the levy is made, that the bank is in possession of (or obligated with respect to) deposits of the taxpayer in an office outside the United States or a possession of the United States, and that such deposits consist, in whole or in part, of funds transferred from the United States or a possession of the United States in order to hinder or delay the collection of a tax imposed by the Code. For purposes of this subparagraph, the term “possession of the United States” includes Guam, the Midway Islands, the Panama Canal Zone, the Commonwealth of Puerto Rico, American Samoa, the Virgin Islands, and Wake Island. (b) Enforcement of levy Extent of personal liability. (2) Penalty for violation. (c) Effect of honoring levy In general. (2) Exception for certain incorrectly surrendered property. (3) Remedy. (4) Examples. Example 1. M Bank is served with a notice of levy for an unpaid tax liability due from A in the amount of $2,000. M Bank holds $2,000 in a checking account in the names of A or B or C. Although all of the deposits into the account were made by B and C, A has an unrestricted right to withdraw the funds from the account. M Bank surrenders the entire account to the district director at the end of the holding period provided in section 6332(c). Under paragraph (c)(1) of this section, M Bank is not liable to B or C for any amount, even if B or C prove that the funds in the account did not belong to A, because A's unrestricted right to withdraw the funds is an interest which in subject to levy. B or C may, however, seek the return of the funds from the United States as provided in sections 6343(b) and 7426 of the Internal Revenue Code. Example 2. A is indebted to B for $400. Unbeknownst to A, B has assigned his right to receive payment to C. A is served with a notice of levy for an unpaid tax liability due from B for $400. A, acting with no knowledge of the assignment to C, surrenders $400 to the district director. A is discharged from his obligation to pay B, the taxpayer. Under paragraph (c)(2) of this section, because B had an apparent interest in the funds that A owed to B, and because A determined in good faith that those funds had been levied upon, A is also discharged from any liability to C, even though the money is not properly subject to levy. C may, however, seek return of the payment from the United States as provided in sections 6343(b) and 7426 of the Internal Revenue Code. Example 3. M Bank is served with a notice of levy for an unpaid tax liability due from “John H. Smith, Sr.” in the amount of $5,000. M Bank fails to read the notice of levy carefully. When searching its records, M Bank finds the name of “John H. Smith, Jr.” and looks no further. M Bank surrenders $5,000 from John H. Smith, Jr.'s checking account to the district director. M Bank is not discharged from liability under section 6332(e) of the Internal Revenue Code because the delinquent taxpayer (John H. Smith, Sr.) had no apparent interest in the account of John H. Smith, Jr. (Generally, John H. Smith Jr. may seek return of the payment from the United States as provided in sections 6343 and 7426 of the Internal Revenue Code.) Example 4. M Bank is served with a notice of levy for an unpaid tax liability due from “Robert A. Jones” in the amount of $5,000. M Bank searches its records and identifies four separate accounts of $1,000 each in the name of “Robert A. Jones.” All four accounts list different addresses and social security identification numbers. M Bank surrenders all four accounts totalling $4,000 in response to the levy. M Bank could not in good faith have determined that all four accounts were levied upon. Therefore, M Bank is not discharged from liability to any person other than the taxpayer whose account was levied upon. (5) Effective date. (d) Person defined. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7317, Apr. 13, 1972; T.D. 7620, 44 FR 27988, May 14, 1979; T.D. 8466, 58 FR 17, Jan. 4, 1993; T.D.8467, 58 FR 3829, Jan. 12, 1993] § 301.6332-2 Surrender of property subject to levy in the case of life insurance and endowment contracts. (a) In general. (b) Effect of service of notice of levy In general. (A) A demand by the district director for the payment of the cash loan value of the contract adjusted in accordance with paragraph (c) of this section, and (B) The exercise of the right of the person against whom the tax is assessed to the advance of such cash loan value. (ii) It is unnecessary for the district director to surrender the contract document to the insuring organization upon which the levy is made. However, the notice of levy will include a certification by the district director that a copy of the notice of levy has been mailed to the person against whom the tax is assessed at his last known address. For further guidance regarding the definition of last known address, see § 301.6212-2. At the time of service of the notice of levy, the levy is effective with respect to the cash loan value of the insurance contract, subject to the condition that if the levy is not satisfied or released before the 90th day after the date of service, the levy can be satisfied only by payment of the amount described in paragraph (c) of this section. Other than satisfaction or release of the levy, no event during the 90-day period subsequent to the date of service of the notice of levy shall release the cash loan value from the effect of the levy. For example, the termination of the policy by the taxpayer or by the death of the insured during such 90-day period shall not release the levy. For the rules relating to the time when the insuring organization is to pay over the required amount, see paragraph (c) of this section. (2) Notification of amount subject to levy Full payment before the 90th day. (ii) Notification after the 90th day. (c) Satisfaction of levy In general. (2) Examples. Example 1. On March 5, 1968, a notice of levy for an unpaid income tax assessment due from A in the amount of $3,000 is served on the X Insurance Company with respect to A's life insurance policy. On March 5, 1968, the cash loan value of the policy is $1,500. On April 9, 1968, A does not pay a premium due on the policy in the amount of $200. Under an automatic premium advance provision contained in the policy originally issued in 1960, X advances the premium out of the cash value of the policy. As of June 3, 1968 (the 90th day after service of the notice of levy), pursuant to the provisions of the policy, the amount of accrued charges upon the automatic premium advance in the amount of $200 for the period April 9, 1968, through June 3, 1968, is $2. On June 5, 1968, the district director gives written notification to X indicating that A's unpaid tax assessment is $2,500. Under this section, X is required to pay to the district director, promptly after receipt of the June 5, 1968, notification, the sum of $1,298 ($1,500 less $200 less $2), which is the amount A could have had advanced to him by X on June 3, 1968. Example 2. Assume the same facts as in example 1 except that on May 10, 1968, A requests and X grants an advance in the amount of $1,000. X has actual notice of the existence of the lien by reason of the service of the notice of levy on March 5, 1968. This advance is not required to be made automatically under the policy and reduces the amount of the cash value of the policy. For the use of the $1,000 advance during the period May 10, 1968, through June 3, 1968, X charges A the sum of $3. Under this section, X is required to pay to the district director, promptly after receipt of the June 5, 1968, notification, the sum of $1,298. This $1,298 amount is composed of the $295 amount ($1,500 less $200 less $2 less $1,000 less $3) A could have had advanced to him by X on June 3, 1968, plus the $1,000 advance plus the charges in the amount of $3 with respect thereto. Example 3. Assume the same facts as in example 1 except that the insurance contract does not contain an automatic premium advance provision. The contract does provide that, upon default in the payment of premiums, the policy shall automatically be converted to paid-up term insurance with no cash or loan value. A fails to make the premium payment of $200 due on April 9, 1968. After expiration of a grace period to make the premium payment, the X Insurance Company applies the cash loan value of $1,500 to effect the conversion. Since the service of the notice of levy constitutes the exercise of A's right to receive the cash loan value and the amount applied to effect the conversion is not an automatic advance to A to maintain the policy in force, the conversion of the policy is not an event which will release the cash loan value from the effect of the levy. Therefore, X Insurance Company is required to pay to the district director, promptly after receipt of the June 5, 1968 notification, the sum of $1,500. (d) Other enforcement proceedings. (e) Cross references. (2) For provisions relating to the issuance of a certificate of discharge of a life insurance or endowment contract subject to a tax lien, see section 6325(b) and the regulations thereunder. [T.D. 7180, 37 FR 7317, Apr. 13, 1972, as amended by T.D. 8939, 66 FR 2821, Jan. 12, 2001] § 301.6332-3 The 21-day holding period applicable to property held by banks. (a) In general. (b) Definition of bank. (1) A bank or trust company or domestic building and loan association incorporated and doing business under the laws of the United States (including laws relating to the District of Columbia) or of any State, a substantial part of the business of which consists of receiving deposits and making loans and discounts, or of exercising fiduciary powers similar to those permitted to national banks under authority of the Comptroller of the Currency, and which is subject by law to supervision and examination by State or Federal authority having supervision over banking institutions; (2) Any credit union the member accounts of which are insured in accordance with the provisions of title II of the Federal Credit Union Act, 12 U.S.C. 1781 et seq.; (3) A corporation which, under the laws of the State of its incorporation, is subject to supervision and examination by the Commissioner of Banking or other officer of such State in charge of the administration of the banking laws of such State. (c) 21-day holding period In general. (2) Payment of interest on deposits. (3) Transactions affecting accounts. (4) Waiver of 21-day holding period. (5) Examples. Example 1. On April 2, 1992, a notice of levy for an unpaid income tax assessment due from A in the amount of $10,000 is served on X Bank with respect to A's savings account. At the time the notice of levy is served, X Bank holds $5,000 in A's interest-bearing savings account. On April 24, 1992, (the first business day after the 21-day holding period) X Bank must surrender $5,000 plus any interest that accrued on the account under the terms of A's contract with X Bank up through April 23, 1992, (the last day of the holding period). Example 2. The facts are the same as in Example 1 Example 3. The facts are the same as in Example 1 Example 4. The facts are the same as in Example 1 Example 5. On September 3, 1992, A opens a $5,000 six-month certificate of deposit account with X Bank. Under the terms of the account, the depositor must forfeit up to 30 days of interest on the account in the event of early withdrawal. On January 4, 1993, a notice of levy for an unpaid income tax assessment due from A in the amount of $10,000 is served with respect to A's certificate of deposit account. On January 26, 1993, the bank must surrender $5,000 plus the interest which accrued on the account through January 25, 1993, minus the penalty of 30 days of interest as provided in the deposit agreement. Example 6. Same facts as in Example 5 (d) Notification to the district director of errors with respect to levied upon bank accounts In general. (2) Disputes regarding the merits of the underlying assessment. (3) Notification of errors from sources other than the depositor. (e) Effective date. [T.D. 8466, 58 FR 18, Jan. 4, 1993] § 301.6333-1 Production of books. If a levy has been made or is about to be made on any property or rights to property, any person, having custody or control of any books or records containing evidence or statements relating to the property or rights to property subject to levy, shall, upon demand of the internal revenue officer who has made or is about to make the levy, exhibit such books or records to such officer. § 301.6334-1 Property exempt from levy. (a) Enumeration. (1) Wearing apparel and school books. (2) Fuel, provisions, furniture, and personal effects. (3) Books and tools of a trade, business or profession. (4) Unemployment benefits. (5) Undelivered mail. (6) Certain annuity and pension payments. (7) Workmen's compensation. (8) Judgments for support of minor children. (9) Minimum exemption for wages, salary, and other income. (10) Certain service-connected disability payments. (i) Subchapters II (wartime disability compensation), III (wartime death compensation), IV (peacetime disability compensation), V (peacetime death compensation), or VI (general compensation provisions) of chapter 11 of title 38, U.S.C.; or (ii) Chapters 13 (dependency and indemnity compensation for service commenced deaths), 21 (specially adapted housing for disabled veterans), 23 (burial benefits), 31 (vocational rehabilitation), 32 (post-Vietnam era veterans' educational assistance), 34 (veterans' educational assistance), 35 (survivors' and dependents' educational assistance), 37 (home, condominium, and mobile home loans), or 39 (automobiles and adaptive equipment for certain disabled veterans and members of the armed forces) of title 38, U.S.C. (11) Certain public assistance payments. (i) Title IV or title XVI (relating to supplemental security income for the aged, blind, and disabled) of the Social Security Act (42 U.S.C. 301 et seq. (ii) State or local government public assistance or public welfare programs for which eligibility is determined by a needs or income test. (12) Assistance under Job Training Partnership Act. (13) Residences exempt in small deficiency cases and principal residences and certain business assets exempt in absence of certain approval or jeopardy (ii) Principal residences and certain business assets. (b) Appraisal. (c) Other property. (d) Levy allowed on principal residence. (1) Nature of judicial proceeding. (2) The taxpayer will be granted a hearing to rebut the Government's prima facie case if the taxpayer files an objection within the time period required by the court raising a genuine issue of material fact demonstrating that the underlying tax liability has been satisfied, that the taxpayer has other assets from which the liability can be satisfied, or that the Service did not follow the applicable laws or procedures pertaining to the levy. The taxpayer is not permitted to challenge the merits underlying the tax liability in the proceeding. Unless the taxpayer files a timely and appropriate objection, the court would be expected to enter an order approving the levy of the principal residence property. (3) Notice letter to be issued to certain family members. (e) Levy allowed on certain business assets. (1) An Area Director of the Service personally approves (in writing) the levy of such property; or (2) The Secretary finds that the collection of tax is in jeopardy. An Area Director may not approve a levy under paragraph (e)(1) unless the Area Director determines that the taxpayer's other assets subject to collection are insufficient to pay the amount due, together with expenses of the proceeding. When other assets of an individual taxpayer include permits issued by a State and required under State law for the harvest of fish or wildlife in the taxpayer's trade or business, the taxpayer's other assets also include future income that may be derived by such taxpayer from the commercial sale of fish or wildlife under such permit. (f) Levy allowed on certain specified payments. (g) Inflation adjustment. (h) Effective date. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7319, Apr. 13, 1972; T.D. 7182, 37 FR 7887, Apr. 21, 1972; T.D. 7620, 44 FR 27988, May 14, 1979; T.D. 8568, 59 FR 53088, Oct. 21, 1994; T.D. 8725, 62 FR 39117, July 22, 1997; T.D. 9189, 70 FR 10885, Mar. 7, 2005] § 301.6334-2 Wages, salary, and other income. (a) In general. (b) Eligible taxpayer income. Example. Delinquent taxpayer A, an individual, is employed by the M Corporation and is paid wages on Friday of each week. Accordingly, A is paid wages on Friday, February 16, 1990. On Saturday, February 17, A deposits these wages into his personal checking account at Bank N. On Tuesday, February 20, a notice of levy is served on the M Corporation and also on Bank N. Amounts payable to A as wages on Friday, February 23, 1990, and any payday thereafter may be exempt from levy under section 6334(a)(9). No amount of wages A deposited in his account at Bank N on February 17, 1990, is exempt from levy under section 6334(a)(9). (c) Payment of exempt amounts to taxpayer From wages, salary, or income from other sources where levy on all sources not made. Example. Delinquent taxpayer C is an employee of O Corporation and is paid wages totalling $450 on Friday of each week. C also performs services for P Corporation and is paid a salary of $250 on Friday of each week. On Tuesday, February 20, 1990, a levy is served on O Corporation with respect to the wages payable to C. A levy is not served on P Corporation. C's filing status is single and C is entitled to 1 personal exemption. Under § 301.6334-3, C is entitled to an exemption from levy under 6334(a)(9) totalling $101.92 for each weekly pay period. However, because levy has not been made on C's salary paid by the P Corporation ($250 per week) and that salary exceeds the weekly amount ($101.92) to which C is entitled as exempt from levy, the district director may treat no amount of C's wages paid by the O Corporation as exempt from levy. If the district director requires such treatment, the district director must notify O Corporation that no amount of C's wages is exempt from levy and O Corporation may rely on such notification; in the absence of such notification O Corporation must treat $101.92 as exempt from levy. (2) Where sources not levied upon are less than exempt amount. Example. Delinquent taxpayer C is an employee of O Corporation and is paid wages totalling $50 on Friday of each week. C also performs services for P Corporation and is paid a salary of $75 on Friday of each week. On Tuesday, February 20, 1990, a levy is served on P Corporation with respect to the wages and salary of C. C's filing status is single and C is entitled to 1 personal exemption. Under § 301.6334-3, C is entitled to an exemption from levy under section 6334(a)(9) totalling $101.92 for each weekly pay period. The district director may notify P Corporation that only $51.92 of C's wages is exempt from levy and P Corporation may rely on such notification; in the absence of such notification, P Corporation must treat the entire $75 salary as exempt from levy. (d) Effective date. [T.D. 8568, 59 FR 53088, Oct. 21, 1994] § 301.6334-3 Determination of exempt amount. (a) Individuals paid on weekly basis. (b) Term defined. exempt amount (1) The sum of— (i) The standard deduction (including additional standard deductions on account of age or blindness); and (ii) The aggregate amount of the deductions for personal exemptions allowed the taxpayer under section 151 in the taxable year in which such levy occurs; (2) Divided by 52. (c) Written and properly verified statement. (d) Individuals paid on basis other than weekly In general. (2) Specific pay periods other than weekly. (i) The sum of— (A) The standard deduction (including additional standard deductions on account of age or blindness); and (B) The aggregate amount of the deductions for personal exemptions allowed the taxpayer under section 151 in the taxable year in which such levy occurs; (ii) Divided by— (A) 260 in the case of a daily pay period; (B) 26 in the case of a bi-weekly pay period; (C) 24 in the case of a semi-monthly pay period; and (D) 12 in the case of a monthly pay period. (3) Nonspecific pay periods. Example. Taxpayer A's exempt amount per week (as determined under paragraph (b) of this section) is $100. Taxpayer A is hired by Corporation X to perform a specific task for Corporation X at a flat fee of $1,500 which is to be paid at the completion of the task. Taxpayer A completes the task in 10 weeks. The total exempt amount is $1,000 and $500 is subject to levy. (e) Levies continuing into following years. (f) Effective date. [T.D. 8568, 59 FR 53089, Oct. 21, 1994] § 301.6334-4 Verified statements. (a) In general. (b) Content of statement. (1) The filing status of the taxpayer as either: (i) Single; (ii) Married filing a joint return; (iii) Married filing a separate return; (iv) Head of household; or (v) Qualifying widow or widower with dependent child; (2) The name, relationship, and Social Security Number of each individual whom the taxpayer can claim as a personal exemption on the taxpayer's income tax return; and (3) Any additional standard deductions that the taxpayer can claim on account of age (65 or older) or blindness on the taxpayer's income tax return. (c) Submission of verified statement Obligation of employer. (2) Submission by taxpayer. (3) Additional statements. (d) Effect of verified statement (2) The Internal Revenue Service may find that a verified statement submitted by an employee contains a materially incorrect statement, or it may determine, after written request to the employee for verification of information contained in the verified statement, that it lacks sufficient information to determine whether the verified statement is correct. If the Internal Revenue Service so finds or determines, and notifies the employer in writing that the verified statement is defective, upon receipt of such notice the employer shall consider the verified statement to be defective for purposes of computing the exempt amount. (3) If the Internal Revenue Service notifies the employer that the verified statement is defective, the Internal Revenue Service will, based upon its finding, advise the employer that the employer is to compute the exempt amount as if no verified statement had been submitted by the employee or will describe upon what basis the exempt amount is to be computed. The Internal Revenue Service will also specify which Internal Revenue Service office to contact for further information. (4) In addition to any notice furnished to the employer for the employer's use, the Internal Revenue Service will provide the employer with a copy for the employee of each notice it furnishes the employer. (5) The employer must promptly furnish the employee with a copy of any Internal Revenue Service notice with respect to a verified statement submitted by the employee. (6) Once paragraph (d)(3) of this section applies, the employer must continue to compute the exempt amount on the basis of the written notice from the Internal Revenue Service until the Internal Revenue Service by written notice advises the employer to compute the exempt amount on the basis of a new verified statement (as described in paragraph (d)(7) of this section) and revokes its earlier written notice. (7) Once paragraph (d)(3) of this section applies, the employee may submit a new verified statement together with a written explanation of any circumstances of the employee which have changed since the Internal Revenue Service's earlier written notice, or any other circumstances or reasons as justification or support for the claims made by the employee on the new verified statement. The employee may submit the new verified statement and written explanation either— (i) To the Internal Revenue Service office specified in the notice furnished to the employer under paragraph (d)(3) of this section; or (ii) To the employer, who must forward the new verified statement and written explanation to the Internal Revenue Service office specified in the notice earlier furnished to the employer on the next occasion on which the employer responds to the notice of levy. (e) Effective date. [T.D. 8568, 59 FR 53090, Oct. 21, 1994] § 301.6335-1 Sale of seized property. (a) In general. (b) Notice of seizure Issuance and delivery. internal revenue district (2) Contents. (c) Notice of sale In general. see (2) Alternative methods. (3) Exception. (d) Time, place, manner, and conditions of sale. (1) Time and place of sale. (2) Adjournment of sale. (3) Determinations relating to minimum price Minimum price. (ii) Purchase by the United States. (A) Marketability of property; (B) Cost of maintaining the property; (C) Cost of repairing or restoring the property; (D) Cost of transporting the property; (E) Cost of safeguarding the property; (F) Cost of potential toxic waste cleanup; and (G) Other factors pertinent to the type of property. (4) Disposition of property at sale Sale to highest bidder at or above minimum price. (ii) Property deemed sold to United States at minimum price. (iii) Release to owner. (5) Offering of property Sale of indivisible property. see (ii) Separately, in groups, or in the aggregate. (A) As separate items, (B) As groups of items, (C) In the aggregate, or (D) Both as separate items (or in groups) and in the aggregate, in which case, the property will be sold under the method that produces the highest aggregate amount. (iii) Condition of title and of property. (iv) Terms of payment. (A) Payment in full upon acceptance of the highest bid, or (B) An initial payment upon acceptance of the highest bid if the payment is in the amount (either the dollar amount or the percentage of the purchase price) specified in the notice of sale and followed by payment of the balance (including all costs incurred for the protection or preservation of the property subsequent to the sale and prior to final payment) within a specified period, not to exceed one month from the date of the sale. (6) Method of sale and sale procedures. (i) Invitation to bidders. (ii) Form for use by bidders. (iii) Remittance with bid. (iv) Time for receiving bids. (v) Consideration of bids. (vi) Withdrawal of bids. (7) Payment of bid price. (8) Delivery and removal of personal property. (9) Default in payment. (10) Stay of sale of seized property pending Tax Court decision. (11) Participation in sale by revenue officers. (e) Right to request the sale of seized property In general. (2) Procedures to request the sale of seized property Manner. (ii) Form. (A) The name, current address, current home and work telephone numbers and any convenient times to be contacted, and taxpayer identification number of the owner making the request; (B) A description of the seized property that is the subject of the request; (C) A copy of the notice of seizure, if available; (D) The period within which the owner is requesting that the property be sold; and (E) The signature of the owner or duly authorized representative. For purposes of these regulations, a duly authorized representative is any attorney, certified public accountant, enrolled actuary, or any other person permitted to represent the owner before the Internal Revenue Service who is not disbarred or suspended from practice before the Internal Revenue Service and who has written power of attorney executed by the owner. (3) Notification to owner. (f) Applicability date. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7319, Apr. 13, 1972; T.D. 8398, 57 FR 7546, Mar. 3, 1992; T.D. 8691, 61 FR 66217, Dec. 17, 1996; T.D. 8939, 66 FR 2821, Jan. 12, 2001; T.D. 10011,

89 FR 87785, Nov. 5, 2024] § 301.6336-1 Sale of perishable goods. (a) Appraisal of certain seized property. (b) Return to owner. (1) Pays to the district director an amount equal to the appraised value, or (2) Gives an acceptable bond as prescribed by section 7101 and § 301.7101-1. Such bond shall be in an amount not less than the appraised value of the property and shall be conditioned upon the payment of such amount at such time as the district director determines to be appropriate in the circumstances. (c) Immediate sale. (1) Notice of sale. (2) Sale. (3) Terms. § 301.6337-1 Redemption of property. (a) Before sale. (b) Redemption of real estate after sale Period. (2) Price. (c) Record. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7319, Apr. 13, 1972] § 301.6338-1 Certificate of sale; deed of real property. (a) Certificate of sale. (b) Deed to real property. (c) Deed to real property purchased by the United States. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7319, Apr. 13, 1972] § 301.6339-1 Legal effect of certificate of sale of personal property and deed of real property. (a) Certificate of sale of property other than real property. (1) As evidence. (2) As conveyance. (3) As authority for transfer of corporate stock. (4) As receipts. (5) As authority for transfer of title to motor vehicle. (b) Deed to real property. (1) Deed as evidence. (2) Deed as conveyance of title. (c) Effect of junior encumbrances. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7320, Apr. 13, 1972] § 301.6340-1 Records of sale. (a) Requirement. (b) Copy as evidence. § 301.6341-1 Expense of levy and sale. The district director shall determine the expenses to be allowed in all cases of levy and sale. Such expenses shall include the expenses of protection and preservation of the property during the period subsequent to the levy, as well as the actual expenses incurred in connection with the sale thereof. In case real and personal property (or several tracts of real property) are sold in the aggregate, the district director shall properly apportion the expenses to the real property (or to each tract). § 301.6342-1 Application of proceeds of levy. (a) Collection of liability. (1) Expense of levy and sale. (2) Specific tax liability on seized property. (3) Liability of delinquent taxpayer. (b) Surplus proceeds. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7320, Apr. 13, 1972] § 301.6343-1 Requirement to release levy and notice of release. (a) In general. director (b) Conditions requiring release. (1) Liability satisfied or unenforceable General rule. (A) The taxpayer agreed in writing to extend the period of limitations as provided in section 6502(a)(2) and § 301.6502-1; or (B) A proceeding in court to collect the liability has begun within the period of limitations. (ii) Special situations. (2) Release will facilitate collection. (i) Example. Example. A and B each own machines which, when used together, produce widgets. A owes delinquent federal taxes. A notice of federal tax lien is properly filed against all property or rights to property belonging to A. A's machine is seized to satisfy A's delinquent tax liability. The fair market value of A's property is greater than the expenses of seizure and sale, but less than the amount of A's tax liability. A and B find a buyer who wants to buy both machines together. The buyer will only buy the machines together. A's property has a greater value as part of the package than it does by itself. The larger value, as shown in the sale contract, is enough to pay A's tax liability in full. In this situation a release of the levy will facilitate collection because the sale of both machines can be completed and A's liability will be paid in full at the settlement. (ii) Compliance with other conditions. (A) The delinquent taxpayer delivers a satisfactory arrangement, which is accepted by the director, for placing property in escrow to secure the payment of the liability (including the expenses of the levy) which is the basis of the levy. (B) The delinquent taxpayer delivers an acceptable bond to the director conditioned upon the payment of the liability (including the expenses of levy) which is the basis of the levy. This bond shall be in the form provided in section 7101 and § 301.7101-1. (C) There is paid to the director an amount determined by the director to be equal to the interest of the United States in the seized property or the part of the seized property to be released. (D) The delinquent taxpayer executes an agreement to extend the statute of limitations in accordance with section 6502(a)(2) and § 301.6502-1. (iii) Expenses of sale exceed the government's interest. (3) Installment agreement. (4) Economic hardship General rule. (ii) Information from taxpayer. (A) The taxpayer's age, employment status and history, ability to earn, number of dependents, and status as a dependent of someone else; (B) The amount reasonably necessary for food, clothing, housing (including utilities, home-owner insurance, home-owner dues, and the like), medical expenses (including health insurance), transportation, current tax payments (including federal, state, and local), alimony, child support, or other court-ordered payments, and expenses necessary to the taxpayer's production of income (such as dues for a trade union or professional organization, or child care payments which allow the taxpayer to be gainfully employed); (C) The cost of living in the geographic area in which the taxpayer resides; (D) The amount of property exempt from levy which is available to pay the taxpayer's expenses; (E) Any extraordinary circumstances such as special education expenses, a medical catastrophe, or natural disaster; and (F) Any other factor that the taxpayer claims bears on economic hardship and brings to the attention of the director. (iii) Good faith requirement. (5) Fair market value exceeds liability. Example. The Internal Revenue Service levies upon ten widgets which belong to the taxpayer to satisfy the taxpayer's outstanding tax liabilities. Subsequent to the levy, the taxpayer establishes that market conditions have increased the aggregate fair market value of widgets so that the value of seven widgets equals the aggregate anticipated expenses of sale and seizure and the tax liabilities for which the levy was made. The director must release three widgets from the levy and return them to the taxpayer. (c) Request for release of levy Information to be submitted by taxpayer. (i) The name, address, and taxpayer identification number of the taxpayer; (ii) A description of the property levied upon; (iii) The type of tax and the period for which the tax is due; (iv) The date of the levy and the originating Internal Revenue district, if known; and (v) A statement of the grounds upon which the request for release of the levy is based. (2) Time for submission. (3) Determination by director When required. (ii) Time for making required determination. (iii) Discretionary determination. (4) Notification to taxpayer of determination. (d) Expedited determination with respect to certain business property General procedure Submission by taxpayer. (ii) Time for making required determination. (iii) Discretionary determination. (2) Essential business property defined. essential business property (3) Seizure of perishable goods. (e) Effect of a release of levy. (f) Effective date. [T.D. 8587, 59 FR 35, Jan. 3, 1995] § 301.6343-2 Return of wrongfully levied upon property. (a) Return of property General rule. (i) The specific property levied upon; (ii) An amount of money equal to the amount of money levied upon; or (iii) An amount of money equal to the amount of money received by the United States from a sale of the property. (2) Time of return. (3) Specific property. (4) Purchase by United States. (b) Request for return of property. http://www.irs.gov. (1) The name and address of the person submitting the request; (2) A detailed description of the property levied upon; (3) A description of the claimant's basis for claiming an interest in the property levied upon; and (4) The name and address of the taxpayer, the originating IRS office, and the date of the levy as shown on the notice of levy form, or levy form, or, in lieu thereof, a statement of the reasons why such information cannot be furnished. (c) Inadequate request. (d) Payment of interest. (1) In the case of money returned under paragraph (a)(1)(ii) of this section, from the date the IRS received the money to a date (to be determined by the IRS) preceding the date of return by not more than 30 days; or (2) In the case of money returned under paragraph (a)(1)(iii) of this section, from the date of the sale of the property to a date (to be determined by the IRS) preceding the date of return by not more than 30 days. (e) Effective/applicability date. [T.D. 8587, 59 FR 37, Jan. 3, 1995, as amended by T.D. 9344, 72 FR 39739, July 20, 2007; T.D. 9410, 73 FR 38916, July 8, 2008] § 301.6343-3 Return of property in certain cases. (a) In general. (1) An amount of money equal to the amount of money levied upon; (2) An amount of money equal to the amount of money received by the United States from a sale of the property; or (3) The specific property levied upon and purchased by the United States. (b) Return of levied upon property in possession of the Internal Revenue Service (IRS) pending sale under section 6335. (c) Conditions authorizing the return of property. (1) Premature or not in accordance with administrative procedures. (2) Installment agreement. (3) Facilitate collection. (4) Best interests of the United States and the taxpayer In general. (ii) Best interest of the taxpayer. (5) Examples. Example 1. A owes $1,000 in Federal income taxes. The IRS levies on a broker with respect to a money market account belonging to the taxpayer and receives payment from the broker which it applies to the taxpayer's outstanding liability. However, the IRS failed to follow procedure provided by the Internal Revenue Manual (but not required by statute) with regard to managerial approval prior to the making of the levy. The Commissioner may return an amount of money equal to the amount of money the IRS levied upon and applied toward the taxpayer's tax liability. Example 2. B owes $1,000 in Federal income taxes. The IRS levies on a bank with respect to a savings account belonging to the taxpayer and receives funds from the bank, which it applies to the taxpayer's liability. Subsequent to the levy, B enters into an installment agreement, under which B will pay timely installments to satisfy the entire liability. The installment agreement does not by its terms preclude the return of levied upon property. The revenue officer verifies that B is financially capable of paying the entire liability, including accruals, in the agreed-upon installment payments. The Commissioner may return an amount of money equal to the amount of money levied upon and applied toward the taxpayer's liability. Example 3. C owns a house that is deteriorating and in unsalable condition. C is in the process of renovating the house for sale when the IRS levies upon C's bank account for the payment of a $20,000 outstanding Federal tax liability and receives funds in the amount of $3,000, which it applies toward C's liability. A notice of federal tax lien is the only lien encumbrancing the house. C requests that an amount of money equal to the amount seized from the bank account be returned so that C can complete the renovations on the house. Without the funds, C will be unable to complete the renovations and sell the house. Upon examination, the Commissioner determines that the IRS will be able to collect the entire tax liability if C's house is restored to salable condition. If the National Taxpayer Advocate, or the Commissioner in lieu of the National Taxpayer Advocate, determines that the return of the seized money is in the taxpayer's best interest, the Commissioner may return an amount of money equal to the amount seized from the bank account, in the best interest of the taxpayer and the United States. (d) Best Interests of the United States and the taxpayer to release levy and return of property where levy made in violation of law In general. (i) Without giving the requisite thirty-day notice of the right to a hearing under section 6330; (ii) During the pendency of a proceeding for refund of divisible tax in violation of section 6331(i); (iii) Before investigation of the status of levied upon property in violation of section 6331(j); (iv) During the pendency of an offer-in-compromise in violation of section 6331(k)(1); or (v) During the period an offer to enter into an installment agreement is pending (or for 30 days following the rejection of an offer, or, if the rejection is timely appealed, during the period that the appeal is pending) or during the period an installment agreement is in effect (or during the 30 days following a termination or, if a timely appeal of termination is filed, during the period the appeal is pending) in violation of section 6331(k)(2). (2) Property may not be credited to outstanding liability without the taxpayer's permission. (e) Time of return. (f) Purchase by the United States. (g) Determinations by the Commissioner. (h) Procedures for request for the return of property Manner. (2) Form. (i) The name, current address, and taxpayer identification number of the person requesting the return of money (or property purchased by the United States); (ii) A description of the property levied upon; (iii) The date of the levy; and (iv) A statement of the grounds upon which the return of money is being requested (or property purchased by the United States). (i) No interest. (j) Administrative collection upon default. (k) Effective date. [T.D. 9213, 70 FR 40670, July 14, 2005] § 301.6361-1 Collection and administration of qualified taxes. (a) In general. (b) Returns of qualified taxes. (1) Shall file a Federal income tax return at the time prescribed pursuant to section 6072(a) (whether or not such return is required by section 6012), and shall file therewith on the prescribed form a return under penalties of perjury for each tax which is— (i) A qualified resident tax imposed by a State of which the taxpayer was a resident, as defined in § 301.6362-6, for any part of the taxable year; (ii) A qualified nonresident tax imposed by a State within which was located the source or sources from which the taxpayer derived, while not a resident of such State and while not exempt from liability for the tax by reason of a reciprocal agreement between such State and the State of which he is a resident, 25 percent or more of his aggregate wage and other business income, as defined in paragraph (c) of § 301.6362-5, for the taxable year; or (iii) A qualified resident or nonresident tax with respect to which any amount was currently collected from the taxpayer's income (including collection by withholding on wages or by payment of estimated income tax), as provided in paragraph (f) of § 301.6362-6, for any part of the taxable year; and (2) Shall declare (in addition to the declaration required with respect to the return of the Federal income tax and in the place and manner prescribed by form or instructions thereto) under penalties of perjury that, to the best of the knowledge and belief of the taxpayer (or, in the case of an estate or trust, of the fiduciary who executes the Federal income tax return), he has no liability for any qualified tax for the taxable year other than any such liabilities returned with the Federal income tax return (pursuant to subparagraph (1) of this paragraph (b)). Such declaration shall constitute a return indicating no liability with respect to each qualified tax other than any such tax for which liability is so returned. A Federal income tax return form which is filed but which does not contain such declaration shall constitute a Federal income tax return only if the taxpayer in fact has no liability for any qualified State tax for the taxable year. (c) Credits Credit for tax of another State or political subdivision In general. (ii) Substantiation of tax liability for which a credit is allowed. (2) Credit or withheld qualified tax. (d) Collection of qualified taxes at source on wages In general. (2) Specific withholding requirements. (i) In the case of a qualified resident tax, the employee's services giving rise to the wages are performed in another State, and such other State or a political subdivision thereof imposes a nonresident tax on such employee with respect to which the withholding amount exceeds the prescribed withholding amount with respect to such qualified resident tax, and the State imposing such qualified resident tax grants a credit against it for such nonresident tax. (ii) In the case of a qualified nonresident tax, either: (A) Residents of the State in which the employee resides are exempt from liability for the qualified nonresident tax imposed by the State from sources within which his wage income is derived, by reason of an interstate compact or agreement to which the two States are parties, or (B) The State in which the employee resides imposes a qualified resident tax on such employee with respect to which the prescribed withholding amounts exceed the prescribed withholding amounts with respect to the qualified nonresident tax imposed by the State from sources within which his wage income is derived, and the State in which he resides grants a credit against its qualifed resident tax for such qualified nonresident tax. If the nonresident tax described in subdivision (i) of this subparagraph is a qualified nonresident tax imposed by a State, then the reference in such subdivision to the State in which the services are performed shall be construed as a reference to the State from sources within which the wage income is derived, within the meaning of paragraph (d)(1) of § 301.6362-5. (3) Forms, procedures, and returns relating to withholding with respect to qualified taxes Forms W-4 and W-4P. (ii) Forms W-2 and W-2P. (A) The total amount withheld with respect to the Federal income tax; (B) The total amount withheld with respect to qualified taxes; (C) The name of each State imposing a qualified tax in which the employee (or annuitant) resided during the taxable year, as shown on Form W-4 (or W-4P); (D) The name of each State imposing a qualified nonresident tax within which were located sources from which the employee's wage income was derived during a period of the taxable year in which he was not shown as a resident of such State on Form W-4, and the amount of the employee's wage income so derived; and (E) The name of each State or locality that imposes an income tax which is not a qualified tax and with respect to which the employer withheld on the employee's wage income for the taxable year, and the amount of wage income with respect to which the employer so withheld. (iii) Requirements relating to deposit and payment of withheld tax. (A) The combined total amount of Federal income, FICA, and qualified taxes withheld; (B) The combined total amount of qualified taxes withheld; and (C) The total amount of qualified taxes withheld with respect to each electing State. Data indicating the total amount of tax deposits processed by the Internal Revenue Service with respect to the qualified taxes of an electing State will be available to that State upon request on as frequent as a weekly basis. These data will be available no later than 10 working days after the end of the calendar week in which the deposits were processed by the Service. (iv) Employment tax returns. (e) Criminal penalties. (f) Allocation of amounts collected with respect to tax and criminal fines In general. (2) Amounts of collections and liabilities. (3) Special rules relating to criminal fines. nolo contendere. (ii) If a criminal charge described in the first sentence of subdivision (i) of this subparagraph is actually brought with respect to the income tax of every affected jurisdiction with respect to the taxable year, and if a Court adjudicates on the merits the taxpayer's liability for a fine to each such jurisdiction, and includes in its decree a direction of the amount, if any, to be paid as a fine to each such jurisdiction, then that decree shall govern the allocation of the amount of money collected by the Federal Government as a fine with respect to the taxable year. (4) Examples. Example 1. The total combined amount of State X qualified tax and Federal income tax collected from A, a resident of State X, for the taxable year is $5,100. The amounts of A's liabilities for such taxes for that year are $800 to State X and $4,000 to the Federal Government. Since A's tax liability to State X is one-sixth of the combined tax liability ($4,800), one-sixth ($50) of the amount to be refunded to A ($300) is chargeable against State X's account, and five-sixths ($250) is chargeable against the Federal Government's account. Example 2. Assume the same facts as in example 1 except that the total amount collected from A is $4,500. Since A's liabilities for the State X tax and the Federal tax are one-sixth and five-sixths, respectively, of the combined tax liability, the Federal Government shall pay over to State X one-sixth ($750) of the amount actually collected from A, and the Federal Government shall retain five-sixths ($3,750). Example 3. The total amount of State X qualified tax, State Y qualified tax, and Federal income tax collected from B, a resident of State X who is employed in State Y, for the taxable year is $5,500. The amounts of B's liabilities for such taxes for that year are: $250 for the State X tax (after allowance of a credit for State Y's qualified tax), $750 for the State Y tax, and $4,000 for the Federal tax. Since B's liability for the State X tax ($250) is 5 percent of the combined tax liability ($5,000), his liability for the State Y tax ($750) is 15 percent of such combined liability, and his liability for the Federal tax ($4,000) is 80 percent of such combined liability, the total amount to be refunded to B ($500) shall be chargeable in the following manner: 5 percent ($25) against State X's account, 15 percent ($75) against State Y's account, and 80 percent ($400) against the Federal Government's account. Example 4. C is liable for $2,000 in Federal income tax and $500 in State X qualified tax (a resident tax) for the taxable year. However, on his Federal income tax return for such year, C erroneously described himself as a resident of State Y (which does not have a qualified tax), and he filed with such return his declaration to the effect that he had no qualified tax liability for the year. Accordingly, C paid only $2,000 for his Federal tax liability, and such amount was retained in the account of the Federal Government. Subsequently, C's error is discovered. The amount collected by the Federal Government from C for such year must be allocated between the Federal Government and State X in proportion to C's tax liability to both. Accordingly, the Federal Government must pay over to State X the amount of $400 (which is 1/5 4/5 1/5 4/5 Example 5. A criminal charge is brought against D pursuant to chapter 75, alleging that he willfully evaded the payment of Federal income tax by failing to report interest income derived from obligations of the United States. D enters a plea of non contendere Example 6. A criminal charge is brought against E pursuant to chapter 75, alleging that he willfully attempted to evade the assessment of liability for both Federal income tax and the qualified tax of State X by filing false and fraudulent income tax returns. E's case is settled upon the condition that he pay a fine in the amount of $5,000. As determined pursuant to subparagraph (2) of this paragraph, E's liabilities for the taxable year are in the amounts of $7,200 to the Federal Government and $800 to State X. Accordingly, after the Federal Government collects the fine, $500 ($5,000 + $800 × $8,000) is remitted to State X. Example 7. Assume the same facts as in example 6, except that E is tried and convicted on both charges, and pursuant to court decree he pays to the United States a fine of $6,000 with respect to each charge, or a total of $12,000. Because a criminal charge was brought with respect to each affected jurisdiction, and the allocation of the total amount paid as a fine was specifically imposed by a court decree, the direction of the Court shall govern the allocation. Accordingly, after the Federal Government collects the fines it pays over $6,000 to the account of State X. [T.D. 7577, 43 FR 59361, Dec. 20, 1978] § 301.6361-2 Judicial and administrative proceedings; Federal representation of State interests. (a) Civil proceedings General rule. (2) Exception. (b) Criminal proceedings. (c) Administrative proceedings. (d) United States representation of State interests General rule. (2) Exceptions. (i) In proceedings in a State court involving the constitution of such State, to the extent of such constitutional issue, or (ii) In proceedings in any court involving the relationship between the United States and the State, to the extent of the issue pertaining to such relationship, if either: (A) The proceeding is one which is initiated by the United States against the State, or by the State against the United States, and no individual (except in his official capacity as a governmental official) is an original party to the proceeding, or (B) The proceeding is not one described in (A), but the State elects to represent its own interests to the extent permissible under this subdivision. (3) Finality of Federal administrative determinations. [T.D. 7577, 43 FR 59364, Dec. 20, 1978] § 301.6361-3 Transfers to States. (a) Periodic transfers. (b) Determination of amounts of transfers. (c) Adjustment of difference between actual collections and periodic transfers. (d) Recipient of transferred funds. [T.D. 7577, 43 FR 59365, Dec. 20, 1978] § 301.6361-4 Definitions. For purposes of the regulations in this part under subchapter E of chapter 64 of the Internal Revenue Code of 1954, relating to collection and administration of State individual income taxes— (a) State agreement. (b) Qualified tax. (c) Chapters and subtitles. (d) Subchapter E. [T.D. 7577, 43 FR 59365, Dec. 20, 1978] § 301.6361-5 Effective date of section 6361. Section 6361 shall take effect on the first January 1 which is more than 1 year after the first date on which at least one State has filed a notice of election with the Secretary or his delegate to enter into a State agreement. For purposes of this section, a notice of election shall be deemed to have been filed by a State only if there is no defect in either the State's notice of election or the State's tax law of which the Secretary notified the Governor pursuant to paragraph (c) of § 301.6363-1, and which has not been retroactively cured under the provisions of such paragraph. [T.D. 7577, 43 FR 59365, Dec. 20, 1978] § 301.6362-1 Types of qualified tax. (a) In general. (b) Qualified resident tax. (1) A tax based on Federal taxable income which meets the requirements of section 6362 (b), (e), and (f), and of §§ 301.6362-2, 301.6362-6, and 301.6362-7; or (2) A tax which is a percentage of the Federal tax and which meets the requirements of section 6362 (c), (e), and (f), and of §§ 301.6362-3, 301.6362-6, and 301.6362-7. (c) Qualified nonresident tax. [T.D. 7577, 43 FR 59366, Dec. 20, 1978] § 301.6362-2 Qualified resident tax based on taxable income. (a) In general. (1) By subtracting an amount equal to the amount of the taxpayer's interest on obligations of the United States which was included in his gross income for the taxable year; (2) By adding an amount equal to the amount of the taxpayer's net State income tax deduction, as defined in paragraph (a) of § 301.6362-4, for the taxable year; (3) By adding an amount equal to the amount of the taxpayer's net tax-exempt income, as defined in paragraph (b) of § 301.6362-4, for the taxable year; and (4) If a credit is allowed against the tax in accordance with paragraph (b)(3) of this section for sales tax imposed by the State or a political subdivision thereof, by adding an amount equal to the amount of the taxpayer's deduction under section 164(a)(4) for such sales tax. The tax may provide for either a single rate or multiple rates which vary with the amount of taxable income, as adjusted. (b) Permitted adjustments. (1) A credit meeting the requirements of paragraph (c) of § 301.6362-4 is allowed against the tax for the taxpayer's income tax liability to another State or a political subdivision thereof. (2) A tax is imposed on the amount taxed under section 56 (relating to the minimum tax for tax preferences). (3) A credit is allowed against the tax for all or a portion of any general sales tax imposed by the State or a political subdivision thereof with respect to sales either to the taxpayer or to one or more of his dependents. (c) Method of making mandatory adjustments. [T.D. 7577, 43 FR 59366, Dec. 20, 1978] § 301.6362-3 Qualified resident tax which is a percentage of Federal tax. (a) In general. (1) The tax is imposed as a single specified percentage of the excess of the taxes imposed by chapter 1 over the sum of the credits allowable under part IV of subchapter A of chapter 1 (other than the credits allowable under sections 31 and 39), and (2) The amount of the tax is decreased by the amount of the decrease in such liability which would result from excluding from the taxpayer's gross income an amount equal to the amount of interest on obligations of the United States which was included in his gross income for the taxable year. (b) Permitted adjustments. (1) The amount of a taxpayer's liability for tax is increased by the amount of the increase in such liability which would result from including in such taxpayer's gross income all of the following: (i) An amount equal to the amount of his net State income tax deduction, as defined in paragraph (a) of § 301.6362-4, for the taxable year, (ii) An amount equal to the amount of his net tax-exempt income, as defined in paragraph (b) of § 301.6362-4, for the taxable year, and (iii) If a credit is allowed against the tax under paragraph (b)(3) of this section for sales tax imposed by the State or a political subdivision thereof, an amount equal to the amount of his deduction under section 164(a)(4) for such sales tax. (2) A credit meeting the requirements of paragraph (c) of § 301.6362-4 is allowed against the tax for the income tax of another State or a political subdivision thereof. (3) A credit is allowed against the tax for all or a portion of any general sales tax imposed by the State or a political subdivision thereof with respect to sales either to the taxpayer or to one or more of his dependents. (c) Method of making adjustments. [T.D. 7577, 43 FR 59366, Dec. 20, 1978] § 301.6362-4 Rules for adjustments relating to qualified resident taxes. (a) Net State income tax deduction. (b) Net tax-exempt income. (1) The sum of (i) the interest on obligations described in section 103 (a)(1) other than obligations of the State imposing the tax and the political subdivisions thereof, and (ii) the interest on obligations described in such section of such State and the political subdivisions thereof which under the law of the State is subject to the tax; over (2) The sum of (i) the amount of deductions allocable to the interest described in subparagraph (1) (i) or (ii) of this paragraph (b), which is disallowed pursuant to section 265 and the regulations thereunder, and (ii) the amount of the adjustment to basis allocable to such obligations which is required to be made for the taxable year under section 1016(a) (5) or (6). For purposes of subparagraph (1)(ii) of this paragraph (b), a State may, at its option, subject to the tax the interest from all, none, or some of its section 103(a)(1) obligations and those of its political subdivisions. For example, a State may subject to tax all of such obligations other than those which it or its political subdivisions issued prior to a specified date, which may be the date that subchapter E became applicable to the State. (c) Credits for taxes of other jurisdictions In general. (A) Reported to the taxing authorities responsible for collecting such other jurisdiction's tax, and (B) Substantiated pursuant to the requirements of paragraph (c)(1)(ii) of § 301.6361-1. (2) Limitation. (3) Examples. Example 1. (i) A, a calendar-year, cash-basis taxpayer, is a resident of State X throughout the taxable year. For such year, his adjusted gross income for Federal income tax purposes consists of $24,000, consisting of $3,000 derived from employment in State X, $5,000 derived from employment in State Y. $15,000 derived from employment in State Z, and $1,000 in interest income from United States savings bonds. In addition, he received net tax-exempt income in the amount of $2,000. For the taxable year, he incurs liabilities of $200 for the State Y nonresident income tax, and $1,400 for the State Z nonresident income tax. State X, which has in effect a State agreement for the taxable year, imposes a resident tax against which credits are allowed for the nonresident taxes imposed by States Y and Z. Without taking any such credits into account, however, the amount of A's liability for such resident tax would be $1,500. A properly reports his nonresident income tax liabilities to States Y and Z at the same time that he files his return with respect to the State X tax, and he substantiates on such return his liabilities to States Y and Z. (ii) The amount of A's income subject to tax in State X is $25,000 (his adjusted gross income of $24,000, minus the United States savings bond income of $1,000, plus the net tax-exempt income of $2,000). The amount of the credit allowable against the State X resident tax for the amount of A's liability with respect to the State Y nonresident tax is calculated as follows: The maximum amount of credit is the actual amount of his liability to Y, or $200. Under subparagraph (2) of this paragraph, the amount of the credit is limited to $300 ($1,500 × $5,000/$25,000). Thus, such limit has no effect, and the full $200 is allowable as a credit against A's liability for the resident tax of State X. The amount of the credit allowable against the State X resident tax for the amount of A's liability with respect to the State Z nonresident tax is calculated as follows: The maximum amount of the credit is the actual amount of his liability to Z, or $1,400. Under subparagraph (2) of this paragraph, the amount of the credit is limited to $900 (1,500 × $15,000/$25,000). Thus, such limit has the effect of reducing to $900 the amount of the credit allowable for tax of State Z against A's liability for the resident tax of State X. Example 2. (i) B, a calendar-year, cash-basis taxpayer, is a resident of State X employed in State Y through March 14, 1977. On March 15, 1977, B becomes a resident of State Z and remains a resident of such State through the remainder of 1977. For 1977, the amount of B's adjusted gross income for Federal income tax purposes is $20,000, consisting of $6,000 derived from employment in State Y which B held during the period of his residence in State X, $12,000 derived from employment in State Z which B held during the period of his residence in State Z, and $2,000 in interest income from various bank accounts. During 1977, B has no interest income from United States obligations, and no tax-exempt income. For 1977, B incurs a liability of $200 to State Y on account of its nonresident income tax imposed with respect to his $6,000 of income derived from sources within that State. State Z, which has in effect a State agreement for 1977, imposes a resident income tax on B which, if B had been a resident of State Z for all 1977, would amount to $1,200 prior to the allowance of any credits under this paragraph. However, by reason of paragraph (e)(1) of § 301.6362-6, B's liability for the resident tax of State Z, before taking into account credits allowed under this paragraph, is reduced to $960 ($1,200 × 292/365 4/5 (ii) The amount of the credit allowable against the State Z resident tax for the amount of B's liability with respect to the State Y nonresident tax is calculated as follows: The maximum amount of the credit is the amount of his actual liability to State Y, or $200. Under subparagraph (2) of this paragraph, the amount of the credit is limited to $288 ($960 × $6,000/$20,000). Thus, such limit has no effect, and the full $200 is allowable as a credit for tax of State Y against B's liability for the resident tax of State Z. [T.D. 7577, 43 FR 59367, Dec. 20, 1978] § 301.6362-5 Qualified nonresident tax. (a) In general. (1) The tax is imposed by a State which simultaneously imposes a resident tax meeting the requirements of section 6362(b) and § 301.6362-2 or of section 6362(c) and § 301.6362-3; (2) The tax is required to be computed in accordance with either the method prescribed in paragraph (b) of this section or another method of which the Secretary or his delegate approves upon submission by the State of the laws pertaining to the tax; (3) The tax is imposed only on the wage and other business income derived from sources within such State (as defined in paragraph (d) of this section), of all individuals each of whom derives 25 percent or more of his aggregate wage and other business income for the taxable year from sources within such State while he is neither (i) a resident of such State within the meaning of section 6362(e) and § 301.6362-6, nor (ii) exempt from liability for the tax by reason of a reciprocal agreement between such State and the State of which he is a resident within the meaning of those provisions; (4) The amount of the tax imposed with respect to any individual does not exceed the amount of tax for which such individual would be liable under the qualified resident tax imposed by such State if he were a resident of the State for the period during which he earned wage or other business income from sources within the State, and if his taxable income for such period were an amount equal to the sum of the zero bracket amount (within the meaning of section 63(d) and determined as if he had been a resident of the State for such period) and the excess of: (i) The amount of his wage and other business income derived from sources within the State, over (ii) That portion of the sum of the zero bracket amount and the nonbusiness deductions ( i.e., (5) For purposes of the tax, wage or other business income is considered as being the income of the individual whose income it is for purposes of section 61. (b) Approved method of computing liability for qualified nonresident tax. (c) Definition of wage and other business income. (1) Wages, as defined in section 3401(a) and the regulations thereunder, but for these purposes: (i) The amount of wages shall exclude amounts which are treated as wages under section 3402 (o) or (p) (relating to supplemental unemployment compensation benefits, annuity payments, and voluntary withholding agreements), and amounts which are treated as disability payments to the extent that they are excluded from gross income for Federal income tax purposes, pursuant to section 105(d), and (ii) The amount of wages shall be reduced by those expenses which are directly related to the earning of such wages and with respect to which deductions are properly claimed from gross income in computing adjusted gross income; (2) Net earnings from self-employment, as defined in section 1402(a); and (3) The distributive share of income of any trade or business carried on by a trust, estate, or electing small business corporation (as defined in section 1371(a) and the regulations thereunder), to the extent that such share: (i) Is includible in the gross income of the taxpayer for the taxable year, and (ii) Would constitute net earnings from self-employment if the trade or business were carried on by a partnership. For purposes of this subparagraph, “distributive share” includes the income of a trust or estate which is taxable to the taxpayer as a beneficiary under applicable Federal income tax rules, and the undistributed taxable income of an electing small business corporation which is taxable to the taxpayer as a shareholder under section 1373. (d) Income derived from sources within a State Income attributable primarily to services. (2) Income attributable primarily to investment. (i) Allocation by records. (ii) Allocation by formula. (A) Property percentage. (B) Payroll percentage. (C) Gross income percentage. (3) Income attributable to real estate investment. (4) Treatment of losses. (5) Examples. Example 1. A, an employee who earns $10,000 in wage income attributable to services, and who has no other wage or other business income, spends 60 percent of his working time performing services for his employer in State X, 30 percent in State Y, and 10 percent in State Z. In the absence of the requisite proof to the contrary, A's wage income is considered to have been derived 60 percent from sources located within State X, 30 percent within State Y, and 10 percent within State Z. Assuming that A is a nonresident with respect to all three States, and that they all impose qualified nonresident taxes, then the qualified nonresident tax of State X is imposed on $6,000, the qualified nonresident tax of State Y is imposed on $3,000, and the qualified nonresident tax of State Z is not imposed on any of the income because A did not derive at least 25 percent of his wage and other business income from sources located within State Z. Example 2. B, who earns no wage income but who has a total of $10,000 of other business income for the taxable year, all of which is net income from self-employment attributable primarily to services, spends 45 percent of his working time performing services in State X, 30 percent in State Y, and 25 percent in State Z. However, the rates that B is able to charge for his services and the business expenses which he incurs vary in the different States, and he is able to prove by detailed records that his net income from self-employment was in fact derived 50 percent from sources located within State X, 35 percent from sources located within State Y, and 15 percent from sources located within State Z. Assuming that B is a nonresident with respect to all three States, and that they all impose qualified nonresident taxes, then the qualified nonresident tax of State X is imposed on $5,000, the qualified nonresident tax of State Y is imposed on $3,500, and the qualified nonresident tax of State Z is not imposed on any of the income because B did not derive at least 25 percent of his wage and other business income from sources located within State Z. Example 3. C is a partner in a profitable business concern, in which he has a substantial capital investment. His net earnings from self-employment attributable to his partnership interest are $75,000 for the taxable year. The fair market value of the services which C performs for the partnership during the taxable year is $30,000. C's income is therefore attributable primarily to his capital investment. The partnership business is carried on partially within and partially without State X. Neither C nor the partnership maintains records from which the portion of C's $75,000 income which is considered to be derived from sources within State X can be satisfactorily proven. As determined under subparagraph (2) of this paragraph, the partnership's “property percentage” in State X is 70, its “payroll percentage” therein is 60, and its “gross income percentage” therein is 56. The amount of C's partnership income considered to be derived from sources within State X is $46,500 ($75,000 × 62 percent). This result would obtain even if C's services for the partnership are performed entirely within State X. Example 4. Assume the same facts as in (3), except that the records of the partnership of which C is a member indicate that the net profits of the partnership are derived 40 percent from business activities conducted in State X, and 60 percent from business activities conducted in State Y. C is requested to prove that those records fairly and equitably reflect the income which is allocable to sources within State X. The documentary evidence which he adduces in support of the allocation made by the records shows how such allocation results from a careful step-by-step tracing of the profitability of each phase and aspect of the partnership's operations, and shows the State in which each such phase and aspect of the operations is conducted. C's proof is satisfactory to show that the percentage allocation, and the amount of his partnership income considered to be derived from sources within State X is $30,000, or $75,000 multiplied by 40 percent. This result would obtain even if B's services for the partnership are performed entirely within State X. [T.D. 7577, 43 FR 59367, Dec. 20, 1978] § 301.6362-6 Requirements relating to residence. (a) In general. (1) The State of residence of an individual, estate, or trust is determined according to paragraph (1), (2), or (3) respectively, of section 6362(e), and according to paragraph (b), (c), or (d), respectively, of this section. (2) The liability for a resident tax imposed by such State upon an individual or trust which changes residence to another State in the taxable year is determined according to section 6362(e)(4) and paragraph (e) of this section. (3) The rules relating to current collection of tax apply as provided in section 6362(e)(5) and paragraph (f) of this section. (b) Residence of an individual In general. (i) His principal place of residence (as defined in subparagraph (2) of this paragraph (b)) is within such State for a period of at least 135 consecutive days, at least 30 days of which are in such taxable year; or (ii) In the case of a citizen or resident of the United States who is not a resident of any State (determined as provided in subdivision (i) of this subparagraph) with respect to such taxable year, his domicile (as defined in subparagraph (3) of this paragraph (b)) is in such State for at least 30 days during such taxable year. With respect to an individual who is a resident (determined as provided in subdivision (i) of this subparagraph) of more than one State during a taxable year, see paragraph (e) of this section. (2) Principal place of residence Definition. (ii) Examples. Example 1. A has a city home and a country home. He resides in the city home for 7 months of the year and uses the address of that home as his legal residence for purposes of driver's license, automobile registration, and voter registration. He resides in the country home 5 months of the year. His city home is considered his principal place of residence. Example 2. During the taxable year, B, a construction worker, is employed at several different locations in different States. The duration of each job on which he is employed ranges from a few weeks to several months, and he knows when he accepts a job what its approximate duration will be. He owns a house in State X which he uses as his legal residence for purposes of driver's license, automobile registration, and voter registration. In addition, his family lives there during the entire year, and B lives there during periods between jobs. However, the duration of the jobs and the distance between the job-sites and his house require him to live in the localities of the respective job-sites during the period of his employment, although occasionally he returns to his house in State X on weekends. B's house in State X is his principal place of residence during all of the taxable year. Example 3. C, a dependent of his parents who are residents of State X, is a full-time student in a 4-year degree program at a college in State Y. During the 9-month academic year, C lives on the college campus, but he returns to his parents' home in State X for the summer recess. C gives the State Y as his residence for purposes of his driver's license and voter registration, but lists the address of his parents' home in State X as his “permanent address” on the records of the college which he attends. Although C's domicile remains at his parents' home in State X, his presence in State Y cannot be regarded as that of a mere transient or sojourner; accordingly, C's principal place of residence is in State Y for that portion of the taxable year during which he attends college. Example 4. D loses his job in State X, where he lived and worked for many years. After a series of unsuccessful attempts to find other employment in State X, he accepts a job in State Y. D gives up his apartment in State X and moves to State Y upon commencing his new job; however, he intends to continue to explore available employment opportunities in State X so that he may return there as soon as an opportunity to do so arises. D changes his principal place of residence when he moves to State Y. (3) Domicile defined. (4) Period of residence General rule. (ii) Examples. Example 1. A, a calendar-year taxpayer, has his principal place of residence in State X from the beginning of 1976 through August 1, 1976, when he gives up pemanently such principal place of residence. He spends the remainder of 1976 traveling outside of the United States, but does not become a resident of any other country. A is considered to be a resident of State X for the entire year 1976. Example 2. Assume the same facts as in example 1, except that A ceases his traveling and establishes his principal place of residence in State Y on November 15, 1976. Assume, also, that A maintains that principal place of residence for more than 135 consecutive days. Under these circumstances, for his taxable year 1976, A is considered to be a resident of State X from January 1 through November 14, and a resident of State Y from November 15 through December 31. (5) Special rules. (ii) For special rules relating to members of the Armed Forces, see paragraph (h) of § 301.6362-7. (6) Examples. Example 1. A, a calendar-year taxpayer, maintains his principal place of residence in State X from December 1, 1976, through April 15, 1977. Assuming that A was not a resident of any other jurisdiction at any time during 1976, A is treated as a resident of State X for the entire year 1976. Such result would obtain even if A was absent from State X on vacation for some portion of December 1976. Moreover, such result would obtain even if it is assumed that A was a domiciliary of State Y from January 1, 1976, through April 15, 1977, because an individual's domicile does not determine his residence so long as residence in one State for the taxable year can be determined from the general rule stated in the first sentence of paragraph (b)(1) of this section. Example 2. Assume the same facts as in example 1 (including the fact of A's domicile in State Y), except that A maintained his principal place of residence in State Z from September 15, 1975, through January 31, 1976, inclusive. With respect to the year 1976, A is treated as a resident of State Z from January 1 through November 30, and as a resident of State X from December 1 through December 31. A's liability for the qualified taxes of the respective States for 1976 shall be determined pursuant to the provisions in paragraph (e) of this section. (c) Residence of an estate. (d) Residence of a trust In general. (ii) If only one individual has ever contributed assets to the trust, including the assets which were transferred to the trust at its inception, then such individual is the principal contributor to the trust. However, if on any day subsequent to the initial creation of the trust, such trust receives assets having a value greater than the aggregate value of all assets theretofore contributed to it, then the trust shall be deemed (for the limited purpose of determining the State of residence) to have been “created” anew, and the individual who on the day of such creation contributed more (in value) than any other individual contributed on that day shall become the principal contributor to the trust. When a trust is created anew, all references in this paragraph to the creation of the trust shall be construed as referring to the most recent creation. For purposes of this paragraph, the value of any asset shall be its fair market value on the day that it was contributed to the trust; any subsequent appreciation or depreciation in the value of the asset shall be disregarded. (2) Testamentary trust. (3) Nontestamentary trust. (4) Special rules. (i) If, at the time of creation of the trust, 50 percent or more in value of the trust corpus consists of real property, then the trust shall be treated as a resident of the State in which more of the real property (in value) which was in the trust at such time was located than any other State. (ii) If, at the time of creation of the trust, less than 50 percent in value of the trust corpus consists of real property, then the trust shall be treated as a resident of the State in which, at such time, the trustee, if an individual, had his principal place of residence, or, if a corporation, had its principal place of business. If there were two or more trustees, then the foregoing sentence shall be applied by reference to the principal places of residence, or of business, of the majority of trustees who had authority to make investment and other management decisions for the trust. (iii) If, after application of the provisions of subdivisions (i) and (ii) of this subparagraph, the State of residence of the trust still cannot be ascertained, then the Commissioner of Internal Revenue shall determine the State of residence of such trust for purposes of qualified taxes. Such determination shall be made by reference to the number of significant contacts each State had with the trust at the time of its creation. Significant contacts shall include the principal place of residence of the principal contributor or contributors to the trust, the principal place of residence or business of the trustee (or trustees), the situs of the assets of which the trust corpus was composed, and the location from which management decisions emanated with respect to the business and investment interests of the trusts. (5) Examples. Example 1. A created a trust in 1950 by transferring to it certain stock in a corporation. At the time of such transfer, the stock had a fair market value of $1,000. A at all relevant times had his principal place of residence in State X, and accordingly the trust is treated as a resident of such State for qualified tax purposes. As of January 1, 1977, the stock originally contributed by A, which was at all times the only property in the trust, has a fair market value of $3,000. On such date, B, who has had his principal place of residence in State Y for more than 3 years, contributes to the trust property having a fair market value of $1,200. For purposes of determining the identity of the principal contributor to the trust and the State of residence of the trust, the stock contributed by A in 1950 continues to be valued for such purposes at $1,000. Thus, the trust is treated as being created anew on January 1, 1977, with B as the principal contributor, and with State Y as its State of residence. Example 2. C has his principal place of residence in State X continuously for many years, until August 1, 1978, when he establishes his principal place of residence in State Y. The change of residence is intended to be permanent, and C has no further contact with State X after such change. On January 1, 1980, C creates a nontestamentary trust. During the 3-year period ending on such date C had his principal place of residence in State X for 576 days, and in State Y for 519 days. Therefore, the trust is treated as a resident of State X. (e) Liability for tax on change of residence during taxable year In general. i.e. (2) Residence determined by domicile. (3) Example. Example. A, a calendar-year taxpayer, is a resident of State X continuously for many years prior to March 15, 1977. On such date, A retires and establishes a new principal place of residence in State Y. A earns $6,000 in 1977 prior to March 15, but receives no taxable income for the remainder of such year. If A had been a resident of State X for the entire taxable year 1977, his liability with respect to the qualified tax of such State (computed after allowing the nonrefundable credits available against the tax) would be $600. If he had been a resident of State Y for the entire taxable year 1977, his liability with respect to the qualified tax on that State (computed similarly) would be $400. Pursuant to the provisions in paragraph (e) of this section, A's liabilities for State qualified taxes for 1977 are as follows: Liability for State X Liability for State Y (f) Current collection of tax. (1) In the case of a resident tax, an individual shall be subject to the current collection provisions if either— (i) He is a resident of the State within the meaning of paragraph (b) of this section, or (ii) He has his principal place of residence (as defined in paragraph (b)(2) of this section) within the State, And it is reasonable to expect him to have it within the State for 30 days or more during the taxable year. (2) In the case of a nonresident tax, an individual shall be subject to the current collection provisions if he does not meet either description relating to an individual in subparagraph (1) of this paragraph (f), if he is not exempt from liability for the tax by reason for a reciprocal agreement between the State of which he is a resident and the State imposing the tax, and if it is reasonable to expect him to receive wage or other business income derived from sources within the State imposing the tax (as defined in paragraph (d) of § 301.6362-5) for services performed on 30 days or more of the taxable year. For additional rules relating to withholding see paragraph (d) of § 301.6361-1. [T.D. 7577, 43 FR 59369, Dec. 20, 1978] § 301.6362-7 Additional requirements. A State tax meets the additional requirements of section 6362(f) and this section only if: (a) State agreement must be in effect for period concerned. (b) State laws must contain certain provisions. (c) State individual income tax laws can be only of certain kinds. (d) Taxable years must coincide. (e) Married individuals. (f) Penalties; no double jeopardy. (1) Civil and criminal sanctions identical to those provided by subtitle F, and by title 18 of the United States Code (relating to crimes and criminal procedures), with respect to the taxes imposed on the income of individuals by chapter 1 and on the wages of individuals by chapter 24, apply to individuals and their employers who are subject to such State tax (and the collection and administration thereof, including the corresponding withholding tax imposed to implement the current collection of such State tax) as if such tax were imposed by chapter 1 or chapter 24, in the case of the withholding tax), except to the extent that the application of such sanctions is modified by regulations issued under subchapter E; and (2) No other sanctions or penalties apply with respect to any act or omission to act in respect of such State tax. See also paragraph (e) of § 301.6361-1 with respect to criminal penalties. (g) Partnerships, trusts, subchapter S corporations, and other conduit entities. (1) Partnerships and partners, (2) Trusts and their beneficiaries, (3) Estate and their beneficiaries, (4) Electing small business corporations (within the meaning of section 1371(a) and their shareholders, and (5) Any other entity and the individuals having beneficial interests therein (such as a cooperative corporation and its shareholders), to the extent that such entity is treated as a conduit for purposes of the taxes imposed by chapter 1, corresponds to the tax treatment provided therefor with respect to the taxes imposed by chapter 1. For example, a subchapter S corporation shall not be subject to the State's corporate income tax on amounts which are includible in shareholders incomes which are subject to that State's individual income tax, except to the extent that the subchapter S corporation is subject to tax under Federal law. Similarly, a partnership shall not be subject to the State's unincorporated business income tax on amounts which are includible in partners' incomes which are subject to that State's individual income tax. However, the laws of the State which set forth the provisions of such State individual income tax shall authorize the Commissioner of Internal Revenue to require that the conduit entities described in this paragraph (or some of them) supply information to the Federal Government with respect to the source of income, the State of residence, or the amount of income of a particular type, of an individual, estate, or trust holding a beneficial interest in such conduit entity. (h) Members of armed forces. (i) Withholding on compensation of employees of railroads, motor carriers, airlines, and water carriers. (j) Income derived from interstate commerce. [T.D. 7577, 43 FR 59372, Dec. 20, 1978] § 301.6363-1 State agreements. (a) Notice of election. (1) Statement by the Governor. (i) Requesting that the Secretary enter into a State agreement, and (ii) Binding the Governor and his successors in office to notify the Secretary or his delegate immediately of the enactment, between the time of the filing of the notice of election and the time of the execution of the State agreement, of any law of that State which meets the description given in any of the subdivisions of subparagraph (2) of this paragraph (a), whether or not such law is intended to be administered by the United States pursuant to subchapter E. (2) Copy of State laws. (i) All of the State individual income tax laws (including laws relating to the collection or administration of such taxes or to the prosecution of alleged civil or criminal violations with respect to such taxes) which the State would expect the United States to administer pursuant to subchapter E if the State agreement is executed as requested. In order to have a valid notice, the State must have a tax which would meet the requirements for qualification specified in section 6362 and the regulations thereunder if a State agreement were in effect with respect thereto, with no conditions attached to the effectiveness of such tax other than the execution of a State agreement. Such tax must be effective no later than the January 1 specified in the State's notice of election as the date as of which subchapter E is desired to become applicable to the electing State, except that such effective date shall be deferred to the date provided in the State agreement for the beginning of applicability of subchapter E to the State, if the latter date is different from the date specified in the notice of election. (ii) All of the State income tax laws applicable to individuals (including laws relating to the collection or administration of such taxes or to the prosecution of alleged civil or criminal violations with respect to such taxes) which the State would not expect the United States to administer but which may be in effect simultaneously (for any period of time) with the State agreement. (iii) All of the State laws other than individual income tax laws which provide for the making of any payments by the State based on one or more criteria which the State may desire to verify by reference to information contained in returns of qualified taxes. (iv) All of the State laws which may be in effect simultaneously (for any period of time) with the State agreement and which provide for cooperation or reciprocal agreement between the electing State and another State with respect to income taxes applicable to individuals. (3) Approval by legislature or authorization by constitutional amendment. (4) Opinion by State Attorney General or judgment of highest court. (5) Effective date. (b) Rules relating to time for filing notice of election. (c) Procedures relating to defects in notice or tax laws. (d) Execution and contents of State agreement. (1) Effective date. (2) Obligation of Governor to notify the United States of changes in pertinent State laws. (3) Obligation of Governor to furnish to the United States information needed to administer State tax laws. (4) Identification of State official to act as liaison with Federal Government. (5) Identification of State official to receive transferred funds. (6) Other obligations. (e) State agreement superseding certain other agreements. [T.D. 7577, 43 FR 59373, Dec. 20, 1978] § 301.6363-2 Withdrawal from State agreements. (a) By notification. (1) Request by the Governor. (2) Legislative approval of withdrawal. (3) Identification of State official. (b) By change in State law. (c) Rules relating to time of withdrawal General rule. (2) Early withdrawal. (i) The State will suffer a hardship if required to meet such requirement, and (ii) The early withdrawal requested by the Governor would be practicable from the standpoint of orderly collection of the qualified tax and administration of the State law by the Federal Government. [T.D. 7577, 43 FR 59374, Dec. 20, 1978] § 301.6363-3 Transition years. The State may by law provide for the transition to or from a qualified tax to the extent necessary to prevent double taxation or other unintended hardships, or to prevent unintended benefits, under State law. Generally, such provisions shall be administered by the State; but, if requested to do so by the Governor of the State, the Secretary or his delegate may in his discretion, agree to administer such provisions either solely or jointly with the State. [T.D. 7577, 43 FR 59375, Dec. 20, 1978] § 301.6363-4 Judicial review. (a) General rule. (b) Court of Appeals' jurisdiction. (c) Review of Court of Appeals' judgment. (d) Effect of final judgment. (e) Expeditious treatment of judicial proceedings. [T.D. 7577, 43 FR 59375, Dec. 20, 1978] § 301.6365-1 Definitions. (a) State. (b) Governor. [T.D. 7577, 43 FR 59375, Dec. 20, 1978] § 301.6365-2 Commencement and cessation of applicability of subchapter E to individual taxpayers. (a) General rule. i.e. (b) Special rules pertaining to withholding Subchapter E beginning to apply. (2) Subchapter E ceasing to apply. [T.D. 7577, 43 FR 59375, Dec. 20, 1978] Abatements, Credits, and Refunds Procedure in General § 301.6401-1 Amounts treated as overpayments. (a) The term “overpayment” includes: (1) Any payment of any internal revenue tax which is assessed or collected after the expiration of the period of limitation applicable thereto. (2) Any amount allowable for a taxable year as credits under sections 31 (relating to tax withheld on wages), 39 (relating to certain uses of gasoline, special fuels, and, lubricating oil), 43 (relating to earned income credit), and 667(b) (relating to taxes paid by certain trusts) which exceeds the tax imposed by subtitle A of the Code (reduced by the credits allowable under subpart A of part IV of subchapter A of chapter 1 of the Code, other than the credits allowable under sections 31, 39, and 43) for such year. (b) An amount paid as tax shall not be considered not to constitute an overpayment solely by reason of the fact that there was no tax liability in respect of which such amount was paid. [T.D. 7204, 37 FR 17158, Aug. 25, 1972, as amended by T.D. 7537, 43 FR 13878, Apr. 3, 1978] § 301.6402-1 Authority to make credits or refunds. The Commissioner, within the applicable period of limitations, may credit any overpayment of tax, including interest thereon, against any outstanding liability for any tax (or for any interest, additional amount, addition to the tax, or assessable penalty) owed by the person making the overpayment and the balance, if any, shall be refunded, subject to sections 6402 (c) and (d) and the regulations thereunder, to that person by the Commissioner. [T.D. 8053, 50 FR 39662, Sept. 30, 1985] § 301.6402-2 Claims for credit or refund. (a) Requirement that claim be filed. (2) Except as provided in paragraph (b) of § 301.6091-1 (relating to hand-carried documents), if a taxpayer is required to file a claim for credit or refund using a particular form, then the claim, together with appropriate supporting evidence, shall be filed in a manner consistent with such form, form instructions, publications, or other guidance found on the IRS.gov Web site. If a taxpayer is filing a claim in response to an IRS notice or correspondence, then the claim must be filed in accordance with the specific instructions contained in the notice or correspondence regarding the manner of filing. Any other claim not described in the preceding sentences generally must be filed with the service center at which the taxpayer currently would be required to file a tax return for the type of tax to which the claim relates or via the appropriate electronic portal. For rules relating to interest in the case of credits or refunds, see section 6611. For rules treating timely mailing as timely filing, see section 7502. For rules relating to the time for filing a claim when the last day falls on Saturday, Sunday, or a legal holiday, see section 7503. (b) Grounds set forth in claim. (2) The IRS does not have the authority to refund on equitable grounds penalties or other amounts legally collected. (c) Form for filing claim. (d) Separate claims for separate taxable periods. (e) Proof of representative capacity. (f) Mailing of refund check. (2) Checks in payment of claims which have either been reduced to judgment or settled in the course or as a result of litigation will be drawn in the name of the person or persons entitled to the money and will be sent to the Assistant Attorney General, Tax Division, Department of Justice, for delivery to the taxpayer or the counsel of record in the court proceeding. (3) For restrictions on the assignment of claims, see section 3477 of the Revised Statutes (31 U.S.C. 203). (g) Misdirected direct deposit refund Definition. misdirected direct deposit refund (2) Procedures for reporting a misdirected direct deposit refund In general. (ii) How to report a misdirected direct deposit refund. (A) By calling the IRS; (B) On the form prescribed by the IRS and in accordance with the applicable publications, instructions, or other appropriate guidance; (C) By contacting the Office of the Taxpayer Advocate by telephone, by mail, facsimile, or in person; or (D) By submitting the appropriate form in person at a Taxpayer Assistance Center. (3) Procedures for coordination with financial institutions Identification of the account that received the misdirected direct deposit refund. (ii) Coordination to recover the amounts transferred. (4) Issuance of replacement refund. (5) Applicability of this paragraph (g) to missing refunds. (h) Applicability dates. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7008, 34 FR 3673, Mar. 1, 1969; T.D. 7188, 37 FR 12794, June 29, 1972; T.D. 7410, 41 FR 11020, Mar. 16, 1976; T.D. ATF-33, 41 FR 44038, Oct. 6, 1976; T.D. 7484, 42 FR 22143, May 2, 1977; T.D. 9727, 80 FR 43951, July 24, 2015; T.D. 9940, 85 FR 83447, Dec. 22, 2020] § 301.6402-3 Special rules applicable to income tax. (a) The following rules apply to a claim for credit or refund of income tax:— (1) In general, in the case of an overpayment of income taxes, a claim for credit or refund of such overpayment shall be made on the appropriate income tax return. (2) In the case of an overpayment of income taxes for a taxable year of an individual for which a Form 1040 or 1040A has been filed, a claim for refund shall be made on Form 1040X (“Amended U.S. Individual Income Tax Return”). (3) In the case of an overpayment of income taxes for a taxable year of a corporation for which a Form 1120 has been filed, a claim for refund shall be made on Form 1120X (“Amended U.S. Corporation Income Tax Return”). (4) In the case of an overpayment of income taxes for a taxable year for which a form other than Form 1040, 1040A, or 1120 was filed (such as Form 1041 (U.S. Fiduciary Income Tax Return) or Form 990T (Exempt Organization Business Income Tax Return)), a claim for credit or refund shall be made on the appropriate amended income tax return. (5) A properly executed individual, fiduciary, or corporation original income tax return or an amended return (on 1040X or 1120X if applicable) shall constitute a claim for refund or credit within the meaning of section 6402 and section 6511 for the amount of the overpayment disclosed by such return (or amended return). For purposes of section 6511, such claim shall be considered as filed on the date on which such return (or amended return) is considered as filed, except that if the requirements of § 301.7502-1, relating to timely mailing treated as timely filing are met, the claim shall be considered to be filed on the date of the postmark stamped on the cover in which the return (or amended return) was mailed. A return or amended return shall constitute a claim for refund or credit if it contains a statement setting forth the amount determined as an overpayment and advising whether such amount shall be refunded to the taxpayer or shall be applied as a credit against the taxpayer's estimated income tax for the taxable year immediately succeeding the taxable year for which such return (or amended return) is filed. If the taxpayer indicates on its return (or amended return) that all or part of the overpayment shown by its return (or amended return) is to be applied to its estimated income tax for its succeeding taxable year, such indication shall constitute an election to so apply such overpayment, and no interest shall be allowed on such portion of the overpayment credited and such amount shall be applied as a payment on account of the estimated income tax for such year or the installments thereof. (6) Notwithstanding paragraph (a)(5) of this section, the Internal Revenue Service, within the applicable period of limitations, may credit any overpayment of individual, fiduciary, or corporation income tax, including interest thereon, against— (i) First, any outstanding liability for any tax (or for any interest, additional amount, additions to the tax, or assessable penalty) owed by the taxpayer making the overpayment; (ii) Second, in the case of an individual taxpayer, amounts of past-due support assigned to a State under section 402(a)(26) or 471(a)(17) of the Social Security Act under procedures set forth in the regulations under section 6402(c); (iii) Third, past-due and legally enforceable debt under procedures set forth in the regulations under section 6402(d); and (iv) Fourth, qualifying amounts of past-due support not assigned to a State under procedures set forth in the regulations under section 6402 (c). Only the balance, if any, of the overpayment remaining after credits described in this paragraph (a)(6) shall be treated in the manner so elected. (b) [Reserved] (c) If the taxpayer is not required to show the tax on the form (see section 6014 and the accompanying regulations), the IRS will treat a properly filed income tax return as a claim for refund and such return will constitute a claim for refund within the meaning of section 6402 and section 6511 for the amount of the overpayment shown by the computation of the tax made by the IRS on the basis of the return. For purposes of the limitations period of section 6511, such claim will be treated as filed on the date the return is treated as filed. (d) In any case in which a taxpayer elects to have an overpayment refunded to him he may not thereafter change his election to have the overpayment applied as a payment on account of his estimated income tax. (e) In the case of a nonresident alien individual or foreign corporation, the appropriate income tax return on which the claim for refund or credit is made must contain the tax identification number of the taxpayer required pursuant to section 6109 and the entire amount of income of the taxpayer subject to tax, even if the tax liability for that income was fully satisfied at source through withholding under chapters 3 or 4 of the Internal Revenue Code (Code). Also, if the overpayment of tax resulted from the withholding of tax at source under chapter 3 or 4 of the Code, a copy of the Form 1042-S, “Foreign Person's U.S. Source Income subject to Withholding,” Form 8805, “Foreign Partner's Information Statement of Section 1446 Withholding Tax,” or other statement (required under § 1.1446-3(d)(2) of this chapter) required to be provided to the beneficial owner or partner pursuant to § 1.1461-1(c)(1)(i), § 1.1474-1(d)(1)(i), or § 1.1446-3(d) of this chapter must be attached to the return. For purposes of claiming a refund, the Form 8805 or other statement must include the taxpayer identification number of the beneficial owner or partner even if not otherwise required. No claim for refund or credit under chapter 65 of the Code may be made by the taxpayer for any amount that the payor has repaid to the taxpayer pursuant to reimbursement or set-off procedures (described in § 1.1461-2(a)(2),(3) or § 1.1474-2(a)(3), (4) of this chapter). In addition, no claim for refund or credit may be made by a taxpayer for any amount that has been repaid to a qualified intermediary (as described in § 1.1441-1(e)(5)(ii)) or a participating FFI (as described in § 1.1471-1(b)(91)) pursuant to a collective refund filed by such entity on behalf of the taxpayer. See § 1.1441-1(e)(5)(iii) (describing a qualified intermediary agreement) and § 1.1471-4(h) (describing a collective refund). Upon request, a taxpayer must also submit such documentation as the IRS, may require establishing that the taxpayer is the beneficial owner of the income for which a claim for refund or credit is being made and verifying the grounds and facts set forth in taxpayer's claim as required by § 301.6402-2(b)(1). See § 1.1474-5 for additional requirements that may apply in the case of a refund of tax withheld under chapter 4. (f) Effective/applicability date (2) References in paragraph (e) of this section to Form 8805 or other statements required under § 1.1446-3(d)(2) shall apply to partnership taxable years beginning after April 29, 2008. References in paragraph (e) of this section to amounts withheld under chapter 4 of the Code and claims made with respect to amounts withheld under chapter 4 of the Code shall apply to withholdable payments made after June 30, 2014. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7102, 36 FR 5498, Mar. 24, 1971; T.D. 7234, 37 FR 28163, Dec. 21, 1972; T.D. 7293, 38 FR 32804, Nov. 28, 1973; T.D. 7298, 38 FR 35234, Dec. 26, 1973; T.D. 7410, 41 FR 11020, Mar. 16, 1976; T.D. 7808, 47 FR 5714, Feb. 8, 1982; T.D. 8053, 50 FR 39662, Sept. 30, 1985; T.D. 8734, 62 FR 53495, Oct. 14, 1997; T.D. 9394, 73 FR 23086, Apr. 29, 2008; T.D. 9658, 79 FR 12809, Mar. 6, 2014; T.D. 9727, 80 FR 43951, July 24, 2015; T.D. 9808, 82 FR 2121, Jan. 6, 2017] § 301.6402-4 Payments in excess of amounts shown on return. (a) If the IRS determines that the payments by the taxpayer that are made within the period prescribed for payment and before the filing of the return exceed the amount of tax shown on the return (for example, excessive estimated income tax payments or excessive withholding), the IRS may credit or refund such overpayment without awaiting examination of the completed return and without awaiting the filing of a claim for refund. The provisions of §§ 301.6402-2 and 301.6402-3 are applicable to such overpayment, and taxpayers should submit claims for refund (if the income tax return is not itself a claim for refund, as provided in § 301.6402-3) to protect themselves in the event the IRS fails to make such determination and credit or refund. The provisions of section 6405 (relating to reports of refunds in excess of the statutorily prescribed threshold referral amount to the Joint Committee on Taxation) do not apply to the overpayments described in this section. (b) Effective/applicability date. [T.D. 9727, 80 FR 43951, July 24, 2015] § 301.6402-5 Offset of past-due support against overpayment. (a) Introduction Scope. (2) General rule. (b) Past-due support Definition. (2) Past-due support qualifying for offset. (i) There has been as assignment of the support obligation to a State pursuant to section 402(a)(26) of the Social Security Act (relating to aid and service to needy families with children) and that State has made reasonable efforts to collect the amount of the obligation; (ii) The amount of past-due support is not less than $150.00; (iii) The past-due support has been delinquent for three months or longer; and (iv) A notification of liability for past-due support has been received by the Secretary of the Treasury as prescribed by paragraph (c) of this section. (c) Notification of liability for past-due support Form. Office of Child Support Enforcement, Department of Health and Human Services, 6110 Executive Boulevard, Suite 900, Rockville, Maryland 20852, Attention: Tax Refund Offset—Tape Processing. (2) Content. (i) The name of the taxpayer who owes the past-due support; (ii) The social security number of that taxpayer; (iii) The amount of past-due support owed; and (iv) The alphabetical designation of the State submitting the notification of liability for past-due support. The Secretary of Health and Human Services may also require such other information from the State submitting the notification as is necessary for his orderly consolidation of data for transmittal to the Internal Revenue Service. (3) Transmittal of notification to Internal Revenue Service. (4) Correction of notification. (d) Collection Priority of offset for outstanding tax liability. (2) Amounts subject to offset. (3) Amounts not subject to offset. (e) Notice of offset. (f) Disposition of amounts collected. (g) Fee. (h) Effective dates. This section applies to refunds payable on or before January 1, 1999. For the rules applicable after January 1, 1999, see 31 CFR part 285. [T.D. 7895, 48 FR 22709, May 20, 1983, as amended by T.D. 8837, 64 FR 48548, Sept. 7, 1999] § 301.6402-6 Offset of past-due, legally enforceable debt against overpayment. (a) General rule. (2)(i) This section applies to OASDI overpayments provided the requirements of 31 U.S.C. 3720A(f)(1) and (2) are met with respect to such overpayments. (ii) For purposes of this section, “OASDI overpayment” means any overpayment of benefits made to an individual under title II of the Social Security Act. (b) Eligible Federal agencies. (i) Has promulgated temporary of final regulations under 31 U.S.C. 3720A, governing the operation of the Federal tax refund offset program in the agency; (ii) Has promulgated temporary or final regulations under 31 U.S.C. 3716, governing the operation of the administrative offset program in the agency; and (iii) Has promulgated temporary or final regulations under 5 U.S.C. 5514(a), governing the operation of the salary offset program in the agency (unless the agency has certified that, relying on the most current information reasonably available, it will not refer to the Service any names of present or former Federal employees or other persons whose debts are subject to offset under the provisions of 5 U.S.C. 5514(a)(1)). (2) An agency prohibited by Federal law from meeting any of the requirements of paragraph (b)(1) or (c) of this section shall notify the Service in writing of the specific legal impediment to meeting these requirements. This notification shall be made prior to entering into an agreement with the Service to participate in the tax refund offset program. The Service will determine in writing whether the agency is prohibited by Federal law from meeting any of the requirements of paragraph (b)(1) or (c) of this section. The Service will waive in writing any requirement that it determines the agency is prohibited by Federal law from meeting. (c) Past-due, legally enforceable debt eligible for refund offset. (1) Except in the case of a judgment debt or any debts specifically exempt from this requirement (for example, debts referred by the Department of Education that were pending on or after April 9, 1991, and referred to the Service for offset before November 15, 1992), the debt is referred for offset within ten years after the agency's right of action accrues; (2) The debt cannot be currently collected pursuant to the salary offset provisions of 5 U.S.C. 5514(a)(1); (3) The debt is ineligible for administrative offset under 31 U.S.C. 3716(a) by reason of 31 U.S.C. 3716(c)(2), or cannot be currently collected by administrative offset under 31 U.S.C. 3716(a) by the referring agency against amounts payable to the taxpayer by the referring agency; (4) The agency has notified, or has made a reasonable attempt to notify, the taxpayer that the debt is past-due, and unless repaid within 60 days thereafter, will be referred to the Service for offset against an overpayment of tax; (5) The agency has given the taxpayer at least 60 days to present evidence that all or part of the debt is not past-due or legally enforceable, has considered any evidence presented by the taxpayer, and has determined that the debt is past-due and legally enforceable; (6) The debt has been disclosed by the agency to a consumer reporting agency as authorized by 31 U.S.C. 3711(f), unless the consumer reporting agency would be prohibited from reporting information concerning the debt by reason of 15 U.S.C. 1681c, or unless the amount of the debt does not exceed $100; (7) The debt is at least $25; and (8) In the case of an OASDI overpayment— (i) The individual is not currently entitled to monthly insurance benefits under title II of the Social Security Act; (ii) The notice describes conditions under which the Department of Health and Human Services is required to waive recovery of the overpayment, as provided under section 204(b) of the Social Security Act; and (iii) If the taxpayer files for a waiver under section 204(b) of the Social Security Act within the 60-day notice period, the agency has considered the taxpayer's request. (d) Pre-offset notice and consideration of evidence. (2) For purposes of paragraph (c)(5) of this section, if the evidence presented by the taxpayer is considered by an agent of the agency, or other entities or persons acting on the agency's behalf, the taxpayer must be accorded at least 30 days from the date the agent or other entity or person determines that all or part of the debt is past-due and legally enforceable to request review by an officer or employee of the agency of any unresolved dispute. The agency must then notify the taxpayer of its decision. (e) Referral of past-due, legally enforceable debt. (1) The name and identifying number (as defined in section 6109) of the taxpayer who is responsible for the debt; (2) The amount of such past-due and legally enforceable debt; (3) The date on which the debt became past-due; (4) The designation of the Federal agency or subagency referring the debt; and (5) In the case of an OASDI overpayment, a certification by the Secretary of Health and Human Services designating whether the amount payable to the agency is to be deposited in either the Federal Old-Age and Survivors Insurance Trust Fund or the Federal Disability Insurance Trust Fund, but not both. (f) Correction of referral. (g) Priorities for offset. (2) If a taxpayer owes more than one past-due, legally enforceable debt to a Federal agency or agencies, the overpayment shall be credited against the debts in the order in which the debts accrued. A debt shall be considered to have accrued at the time at which the agency determines that the debt became past due. (3) Reduction of the overpayment pursuant to section 6402 (a), (c), and (d) shall occur prior to crediting the overpayment to any future liability for an internal revenue tax. Any amount remaining after offset under section 6402 (a), (c), and (d) shall be refunded to the taxpayer, or applied to estimated tax, if elected by the taxpayer. (h) Post-offset notice to the taxpayer and the agency. (2) The Service shall advise each agency of the names, mailing addresses, and identifying numbers of the taxpayers from whom amounts of past-due, legally enforceable debt were collected and of the amounts collected from each taxpayer. If the refund from which an amount of past-due, legally enforceable debt is to be withheld is based upon a joint return, the Service shall notify the agency and furnish the names and addresses of each taxpayer filing the joint return. (i) Offset made with regard to refund based upon joint return. (2) If the person filing the joint return with the taxpayer owing the past-due, legally enforceable debt takes appropriate action to secure his or her proper share of a refund from which an offset was made, the Service shall pay the person his or her share of the refund and shall deduct that amount from amounts payable to the agency. (j) Disposition of amounts collected. (k) Fees. (l) Review of offset of refunds. (m) Access to and use of confidential tax information. (n) Effective dates. [T.D. 8413, 57 FR 13038, Apr. 15, 1992; 57 FR 36691, Aug. 14, 1992, as amended by T.D. 8837, 64 FR 48548, Sept. 7, 1999] § 301.6402-7 Claims for refund and applications for tentative carryback adjustments involving consolidated groups that include insolvent financial institutions. (a) In general Overview. (2) Notice. (i) The fiduciary for the institution may, in addition to the common parent, act as agent for the group in certain matters relating to the tax liability of the group in the year in which a loss arose and for the year to which a claim for refund or application for tentative carryback adjustment relates; and (ii) The Internal Revenue Service may deal directly with the common parent or the fiduciary (or both) as agent for the group to the extent provided in this section. (b) Definitions. (1) Carryback year group. (2) Consolidated carryback year. (3) Fiduciary. (i) The Federal Deposit Insurance Corporation; (ii) The Resolution Trust Corporation; or (iii) Any other entity established by federal law, or a federal agency, that is identified by the Commissioner in a revenue ruling or revenue procedure as a fiduciary for purposes of this section; in its capacity as an authorized receiver or conservator of an insolvent financial institution. (4) Insolvent financial institution. (i) On the ground that the institution is insolvent within the meaning of 12 U.S.C. 191, 12 U.S.C. 1821(c)(5)(A), 12 U.S.C. 1464(d)(2)(A)(i), or 12 U.S.C. 1464(d)(2)(C)(i) or any applicable state law (or any successor statute which adopts a substantially similar standard); or (ii) On grounds other than insolvency, provided that the institution is insolvent within the meaning of paragraph (b)(4)(i) of this section at any time after commencement of the conservatorship or receivership. A reference to an institution under these regulations includes, as the context requires, a reference to predecessors and successors of the institution. (5) Loss year. (6) Loss year group. (7) Procedure effective date. (i) Appropriate notice to the Internal Revenue Service has been filed; and (ii) Payments with respect to losses of an institution are to be paid in accordance with the procedures set forth in this section. (8) Definitions in § 1.1502-1. (c) Deemed agency status of fiduciary In general. (i) Of the loss year group (if any) for purposes of filing a consolidated return for the loss year; (ii) Of the carryback year group for purposes of filing a claim for refund or an application for a tentative carryback adjustment for the consolidated carryback year under paragraph (e) of this section and receiving payments of any refund or tentative carryback adjustment under paragraph (g) of this section; and (iii) Of the carryback year group, the loss year group or any other group of which the institution is a member for any matter pertaining to the determination of the refund or tentative carryback adjustment, but only to the extent provided in paragraph (c)(2) of this section. (2) Limitation. (i) Authorized by the district director, in his/her sole discretion, after receiving a written request from the fiduciary; or (ii) Requested by the Internal Revenue Service under paragraph (f)(3) of this section. (d) Notice requirements Notice to the Internal Revenue Service. (2) Notice to the common parent Form 56-F. (ii) Claim for refund and loss year return. (iii) Additional information. (e) Filing requirements of the fiduciary Claim for refund by the fiduciary. (i) The name and employer identification number of the institution that was a member of the carryback year group; (ii) The name of the fiduciary; (iii) A schedule demonstrating that the amount of the refund claimed by the fiduciary is determined in accordance with paragraph (g) of this section; (iv) A representation that the institution is an insolvent financial institution as defined in paragraph (b)(4) of this section; (v) A representation that the fiduciary has satisfied the requirements set forth in paragraphs (d)(2)(i) and (ii) of this section; and (vi) A statement executed by an authorized representative of the fiduciary and any paid preparer utilized by the fiduciary that provides “Under penalties of perjury, I declare that I have examined the items listed in § 301.6402-7T(e)(1)(i) through (v), including accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than fiduciary) is based on all information of which the preparer has any knowledge.” (2) Application for tentative carryback adjustment pursuant to section 6411. (i) The name and employer identification number of the institution that was a member of the carryback year group; (ii) The name of the fiduciary; (iii) A schedule demonstrating that the amount claimed by the fiduciary is determined in accordance with paragraph (g) of this section; (iv) A representation that the institution is an insolvent financial institution as defined in paragraph (b)(4) of this section; and (v) A representation that the fiduciary has satisfied the requirements set forth in paragraph (d)(2)(i) of this section. (3) Loss year return by the fiduciary. (i) The name and employer identification number of the institution that is a member of the loss year group; (ii) The name of the fiduciary; (iii) A representation that the institution is an insolvent financial institution as defined in paragraph (b)(4) of this section; and (iv) A representation that the fiduciary has satisfied the requirements set forth in paragraphs (d)(2)(i) and (ii) of this section. (4) Additional information. (5) Election to waiver carryback. (f) Processing and reconciliation of information by the Internal Revenue Service Loss year return if the insolvent financial institution is a member of a loss year group. (2) Claim for refund with respect to consolidated carryback year. (3) Additional information. (g) Payment of a refund or a tentative carryback adjustment to fiduciary In general. (2) Portion of refund or tentative carryback adjustment attributable to the net operating loss of an insolvent financial institution In general. (ii) Member's net operating loss. (iii) Absorption of net operating losses. (3) Examples. Example 1. Absorption of net operating losses, (a) P owns all the stock of S1, an insolvent financial institution, and S2, a corporation that is not a financial institution. For Year 1, P, S1, and S2 each have $50 of income, and the P group's consolidated taxable income is $150. On May 31 of Year 2, S1 becomes insolvent and is placed in receivership under the supervision of a fiduciary. For Year 2, the P group has a consolidated net operating loss of $200, of which $100 is attributable to S1 and $100 is attributable to S2. (b) Under paragraph (g)(2)(iii) of this section, the $150 of consolidated taxable income for Year 1 is offset first by the $100 portion of the consolidated net operating loss for Year 2 attributable to S1. The remaining $50 is treated as offset by $50 of the $100 of consolidated net operating loss attributable to S2. Thus, the refund attributable to $100 of the loss may be payable to the fiduciary and the refund attributable to $50 of the loss may be payable to P. The remaining $50 consolidated net operating loss, available to be carried forward, is entirely attributable to S2. Example 2. Separate return net operating loss, The facts are the same as in Example 1, (4) Refund or tentative carryback adjustment allocation agreement. (i) Any agreement among the members of the consolidated group; or (ii) Whether the fiduciary is otherwise entitled to any portion of the refund or tentative carryback adjustment under applicable law. (h) Credits, net capital losses, and subgroups Credits and net capital losses In general. (ii) Example. Example. Net capital loss. (a) P owns all the stock of S1, an insolvent financial institution, and S2, a corporation that is not a financial institution. For Year 1, P, S1, and S2 each have $50 of capital gain, and the P group's consolidated capital gain net income is $150. On May 31 of Year 2, S1 becomes insolvent and is placed in receivership under the supervision of a fiduciary. For Year 2, the P group has a consolidated net operating loss of $100 that is attributable to S1, and a consolidated net capital loss of $100 that is attributable to S2. (b) Under paragraphs (g)(2)(iii) and (h)(1) of this section, the generally applicable absorption principles of sections 172 and 1212 and §§ 1.1502-21(b) and 1.1502-22(b) of this chapter apply. Consequently, S2's capital loss is absorbed before S1's net operating loss. Therefore, the $150 of consolidated capital gain net income is offset first by S2's $100 capital loss and the remaining $50 by S1's net operating loss. The refund attributable to $50 of the net operating loss may be payable to the fiduciary, and the refund attributable to the $100 of capital loss may be payable to P. The remaining $50 consolidated net operating loss available to be carried forward is entirely attributable to S1. (2) Insolvent financial institution subgroup In general. (ii) Examples. Example 1. Loss of other subgroup members. (a) S1 is a financial institution, and P, S2, and S3 are not financial institutions. P owns all the stock of S1, S1 owns all the stock of S2, and the stock of S3 is owned 20 percent by S2 and 80 percent by P. For Year 1, P, S1, and S2 each have $100 of income, S3 has no income or loss, and the P group's consolidated taxable income is $300. On May 31 of Year 2, S1 becomes insolvent and is placed in receivership under the supervision of a fiduciary. For Year 2, the P group has a consolidated net operating loss of $300, of which $200 is attributable to S1 and $100 is attributable to S2. (b) S1 and S2 compose a subgroup because S2 bears the same relationship to S1 that the member of a group bears to its common parent under section 1504(a). S3 is not included in the subgroup because it is not connected to S1 through 80 percent stock ownership as described in section 1504(a). (c) Because S1 and S2 are members of a subgroup, a claim for refund under paragraph (e) of this section must be based on the aggregate consolidated net operating loss of both S1 and S2. Under paragraph (e)(5) of this section, P may not elect under section 172(b)(3) to relinquish the entire carryback period with respect to the $300 of consolidated net operating loss arising in Year 2 that is attributable to S1 and S2. Any refund payable under paragraph (g)(1) of this section with respect to the $300 loss of S1 and S2 may be paid by the Internal Revenue Service directly to the fiduciary. Example 2. Income of other subgroup members, (a) The facts are the same as in Example 1, (b) Although P and S3 are not members included in the subgroup, the loss year return and the claim for refund filed by the fiduciary under paragraph (e) of this section must be completed based on all information to which the fiduciary has reasonable access. Under paragraph (e)(3) of this section, if P does not file a loss year return that is accepted by S1, and S1 has reasonable access to information indicating that P and S3 have income in Year 2, S1 must take that income into account in filing the P group's return for Year 2 and reduce the amount of S1's loss that may be carried to Year 1 accordingly. However, if P or S3 has a loss in Year 2, any refund attributable to that loss will not be paid to the fiduciary. (i) [Reserved] (j) Determination of ownership. (k) Liability of the Government. (l) Effective dates. [T.D. 8387, 56 FR 67487, Dec. 31, 1991; 57 FR 6073, Feb. 20, 1992. Redesignated and amended by T.D. 8446, 57 FR 53034, Nov. 6, 1992; T.D. 8677, 61 FR 33325, June 27, 1996; T.D. 8823, 64 FR 36101, July 2, 1999; T.D. 10018, 89 FR 106882, Dec. 30, 2024] § 301.6403-1 Overpayment of installment. If any installment of tax is overpaid, the overpayment shall first be applied against any outstanding installments of such tax. If the overpayment exceeds the correct amount of tax due, the overpayment shall be credited or refunded as provided in section 6402 and §§ 301.6402-1 to 301.6402-4, inclusive. § 301.6404-0 Table of contents. This section lists the paragraphs contained in §§ 301.6404-1 through 301.6404-4. § 301.6404-1 Abatements. § 301.6404-2T Definition of ministerial act (temporary). (a) In general. (b) Ministerial act. (1) Definition. (2) Examples. (c) Effective date. § 301.6404-3 Abatement of penalty or addition to tax attributable to erroneous written advice of the Internal Revenue Service. (a) General rule. (b) Requirements. (1) In general. (2) Advice was reasonably relied upon. (i) In general. (ii) Advice relating to a tax return. (iii) Amended returns. (iv) Advice not related to a tax return. (v) Period of reliance. (3) Advice was in response to written request. (4) Taxpayer's information must be adequate and accurate. (c) Definitions. (1) Advice. (2) Penalty and addition to tax. (d) Procedures for abatement. (e) Period for requesting abatement. (f) Examples. (g) Effective date. § 301.6404-4 Suspension of interest and certain penalties when the Internal Revenue Service does not timely contact the taxpayer. (a) Suspension. (1) In general. (2) Treatment of amended returns and other documents. (i) Amended returns filed on or after December 21, 2005, that show an increase in tax liability. (ii) Amended returns that show a decrease in tax liability. (iii) Amended returns and other documents as notice. (iv) Joint return after filing separate return. (3) Separate application. (4) Duration of suspension period. (5) Certain notices provided on or after November 26, 2007. (i) Eighteen-month period has closed. (ii) All other cases. (6) Examples. (7) Notice of liability and the basis for the liability. (i) In general. (ii) Tax attributable to TEFRA partnership items. (iii) Examples. (8) Providing notice. (i) In general. (ii) Providing notice in TEFRA partnership proceedings. (b) Exceptions. (1) Failure to file tax return or to pay tax. (2) Fraud. (3) Tax shown on return. (4) Gross misstatement. (i) Description. (ii) Effect of gross misstatement. (5) Listed transactions and undisclosed reportable transactions. (i) In general. (ii) Special rule for certain listed or undisclosed reportable transactions. (A) Participant in a settlement initiative. ( 1 ( 2 (B) Taxpayer acting in good faith. ( 1 ( 2 ( 3 (C) Closed transactions. (c) Special rules. (1) Tentative carryback and refund adjustments. (2) Election under section 183(e). (i) In general. (ii) Example. (d) Effective/applicability date. [T.D. 8299, 55 FR 14245, Apr. 17, 1990, as amended by T.D. 9488, 75 FR 33993, June 16, 2010; T.D. 9545, 76 FR 52261, Aug. 22, 2011] § 301.6404-1 Abatements. (a) The district director or the director of the regional service center may abate any assessment, or unpaid portion thereof, if the assessment is in excess of the correct tax liability, if the assessment is made subsequent to the expiration of the period of limitations applicable thereto, or if the assessment has been erroneously or illegally made. (b) No claim for abatement may be filed with respect to income, estate, or gift tax. (c) Except in case of income, estate, or gift tax, if more than the correct amount of tax, interest, additional amount, addition to the tax, or assessable penalty is assessed but not paid to the district director, the person against whom the assessment is made may file a claim for abatement of such overassessment. Each claim for abatement under this section shall be made on Form 843. In the case of a claim filed prior to April 15, 1968, the claim shall be filed in the office of the internal revenue officer by whom the tax was assessed or with the assistant regional Commissioner (alcohol, tobacco, and firearms) where the regulations respecting the particular tax to which the claim relates specifically require the claim to be filed with that officer. Except as provided in paragraph (b) of § 301.6091-1 (relating to hand-carried documents), in the case of a claim filed after April 14, 1968, the claim shall be filed (1) with the Director of International Operations if the tax was assessed by him, or (2) with the assistant regional Commissioner (alcohol, tobacco, and firearms) where the regulations respecting the particular tax to which the claim relates specifically require the claim to be filed with that officer; otherwise, the claim shall be filed with the service center serving the internal revenue district in which the tax was assessed. Form 843 shall be made in accordance with the instructions relating to such form. (d) The Commissioner may issue uniform instructions to district directors authorizing them, to the extent permitted in such instructions, to abate amounts the collection of which is not warranted because of the administration and collection costs. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7008, 34 FR 3673, Mar. 1, 1969; T.D. 7188, 37 FR 12794, June 29, 1972; T.D. ATF-33, 41 FR 44038, Oct. 6, 1976] § 301.6404-2 Abatement of interest. (a) In general. (i) Deficiency (as defined in section 6211(a), relating to income, estate, gift, generation-skipping, and certain excise taxes) attributable in whole or in part to any unreasonable error or delay by an officer or employee of the Internal Revenue Service (IRS) (acting in an official capacity) in performing a ministerial or managerial act; or (ii) Payment of any tax described in section 6212(a) (relating to income, estate, gift, generation-skipping, and certain excise taxes) to the extent that any unreasonable error or delay in payment is attributable to an officer or employee of the IRS (acting in an official capacity) being erroneous or dilatory in performing a ministerial or managerial act. (2) An error or delay in performing a ministerial or managerial act will be taken into account only if no significant aspect of the error or delay is attributable to the taxpayer involved or to a person related to the taxpayer within the meaning of section 267(b) or section 707(b)(1). Moreover, an error or delay in performing a ministerial or managerial act will be taken into account only if it occurs after the IRS has contacted the taxpayer in writing with respect to the deficiency or payment. For purposes of this paragraph (a)(2), no significant aspect of the error or delay is attributable to the taxpayer merely because the taxpayer consents to extend the period of limitations. (b) Definitions Managerial act (2) Ministerial act (c) Examples. Example 1. A taxpayer moves from one state to another before the IRS selects the taxpayer's income tax return for examination. A letter explaining that the return has been selected for examination is sent to the taxpayer's old address and then forwarded to the new address. The taxpayer timely responds, asking that the audit be transferred to the IRS's district office that is nearest the new address. The group manager timely approves the request. After the request for transfer has been approved, the transfer of the case is a ministerial act. The Commissioner may (in the Commissioner's discretion) abate interest attributable to any unreasonable delay in transferring the case. Example 2. An examination of a taxpayer's income tax return reveals a deficiency with respect to which a notice of deficiency will be issued. The taxpayer and the IRS identify all agreed and unagreed issues, the notice is prepared and reviewed (including review by District Counsel, if necessary), and any other relevant prerequisites are completed. The issuance of the notice of deficiency is a ministerial act. The Commissioner may (in the Commissioner's discretion) abate interest attributable to any unreasonable delay in issuing the notice. Example 3. A revenue agent is sent to a training course for an extended period of time, and the agent's supervisor decides not to reassign the agent's cases. During the training course, no work is done on the cases assigned to the agent. The decision to send the revenue agent to the training course and the decision not to reassign the agent's cases are not ministerial acts; however, both decisions are managerial acts. The Commissioner may (in the Commissioner's discretion) abate interest attributable to any unreasonable delay resulting from these decisions. Example 4. A taxpayer appears for an office audit and submits all necessary documentation and information. The auditor tells the taxpayer that the taxpayer will receive a copy of the audit report. However, before the report is prepared, the auditor is permanently reassigned to another group. An extended period of time passes before the auditor's cases are reassigned. The decision to reassign the auditor and the decision not to reassign the auditor's cases are not ministerial acts; however, they are managerial acts. The Commissioner may (in the Commissioner's discretion) abate interest attributable to any unreasonable delay resulting from these decisions. Example 5. A taxpayer is notified that the IRS intends to audit the taxpayer's income tax return. The agent assigned to the case is granted sick leave for an extended period of time, and the taxpayer's case is not reassigned. The decision to grant sick leave and the decision not to reassign the taxpayer's case to another agent are not ministerial acts; however, they are managerial acts. The Commissioner may (in the Commissioner's discretion) abate interest attributable to any unreasonable delay caused by these decisions. Example 6. A revenue agent has completed an examination of the income tax return of a taxpayer. There are issues that are not agreed upon between the taxpayer and the IRS. Before the notice of deficiency is prepared and reviewed, a clerical employee misplaces the taxpayer's case file. The act of misplacing the case file is a managerial act. The Commissioner may (in the Commissioner's discretion) abate interest attributable to any unreasonable delay resulting from the file being misplaced. Example 7. A taxpayer invests in a tax shelter and reports a loss from the tax shelter on the taxpayer's income tax return. IRS personnel conduct an extensive examination of the tax shelter, and the processing of the taxpayer's case is delayed because of that examination. The decision to delay the processing of the taxpayer's case until the completion of the examination of the tax shelter is a decision on how to organize the processing of tax returns. This is a general administrative decision. Consequently, interest attributable to a delay caused by this decision cannot be abated under paragraph (a) of this section. Example 8. A taxpayer claims a loss on the taxpayer's income tax return and is notified that the IRS intends to examine the return. However, a decision is made not to commence the examination of the taxpayer's return until the processing of another return, for which the statute of limitations is about to expire, is completed. The decision on how to prioritize the processing of returns based on the expiration of the statute of limitations is a general administrative decision. Consequently, interest attributable to a delay caused by this decision cannot be abated under paragraph (a) of this section. Example 9. During the examination of an income tax return, there is disagreement between the taxpayer and the revenue agent regarding certain itemized deductions claimed by the taxpayer on the return. To resolve the issue, advice is requested in a timely manner from the Office of Chief Counsel on a substantive issue of federal tax law. The decision to request advice is a decision concerning the proper application of federal tax law; it is neither a ministerial nor a managerial act. Consequently, interest attributable to a delay resulting from the decision to request advice cannot be abated under paragraph (a) of this section. Example 10. The facts are the same as in Example 9 Example 11. A taxpayer contacts an IRS employee and requests information with respect to the amount due to satisfy the taxpayer's income tax liability for a particular taxable year. Because the employee fails to access the most recent data, the employee gives the taxpayer an incorrect amount due. As a result, the taxpayer pays less than the amount required to satisfy the tax liability. Accessing the most recent data is a ministerial act. The Commissioner may (in the Commissioner's discretion) abate interest attributable to any unreasonable error or delay arising from giving the taxpayer an incorrect amount due to satisfy the taxpayer's income tax liability. Example 12. A taxpayer contacts an IRS employee and requests information with respect to the amount due to satisfy the taxpayer's income tax liability for a particular taxable year. To determine the current amount due, the employee must interpret complex provisions of federal tax law involving net operating loss carrybacks and foreign tax credits. Because the employee incorrectly interprets these provisions, the employee gives the taxpayer an incorrect amount due. As a result, the taxpayer pays less than the amount required to satisfy the tax liability. Interpreting complex provisions of federal tax law is neither a ministerial nor a managerial act. Consequently, interest attributable to an error or delay arising from giving the taxpayer an incorrect amount due to satisfy the taxpayer's income tax liability in this situation cannot be abated under paragraph (a) of this section. Example 13. A taxpayer moves from one state to another after the IRS has undertaken an examination of the taxpayer's income tax return. The taxpayer asks that the audit be transferred to the IRS's district office that is nearest the new address. The group manager approves the request, and the case is transferred. Thereafter, the taxpayer moves to yet another state, and once again asks that the audit be transferred to the IRS's district office that is nearest that new address. The group manager approves the request, and the case is again transferred. The agent then assigned to the case is granted sick leave for an extended period of time, and the taxpayer's case is not reassigned. The taxpayer's repeated moves result in a delay in the completion of the examination. Under paragraph (a)(2) of this section, interest attributable to this delay cannot be abated because a significant aspect of this delay is attributable to the taxpayer. However, as in Example 5, (d) Effective dates In general. (2) Special rules Estate tax. (A) Estate tax imposed under section 2001 on estates of decedents dying after July 30, 1996; (B) The additional estate tax imposed under sections 2032A(c) and 2056A(b)(1)(B) in the case of taxable events occurring after July 30, 1996; and (C) The additional estate tax imposed under section 2056A(b)(1)(A) in the case of taxable events occurring after December 31, 1996. (ii) Gift tax. (iii) Generation-skipping transfer tax. (A) On direct skips occurring at death, if the transferor dies after July 30, 1996; and (B) On inter vivos direct skips, and all taxable terminations and taxable distributions occurring after December 31, 1996. [T.D. 8789, 63 FR 70013, Dec. 18, 1998] § 301.6404-3 Abatement of penalty or addition to tax attributable to erroneous written advice of the Internal Revenue Service. (a) General rule. (b) Requirements In general. (i) The written advice was reasonably relied upon by the taxpayer; (ii) The advice was issued in response to a specific written request for advice by the taxpayer; and (iii) The taxpayer requesting advice provided adequate and accurate information. (2) Advice was reasonably relied upon In general. (ii) Advice relating to a tax return. (iii) Amended returns. (iv) Advice not related to a tax return. (v) Period of reliance. (A) Enactment of legislation or ratification of a tax treaty; (B) A decision of the United States Supreme Court; (C) The issuance of temporary or final regulations; or (D) The issuance of a revenue ruling, a revenue procedure, or other statement published in the Internal Revenue Bulletin. (3) Advice was in response to written request. (i) The taxpayer's representative is an attorney, a certified public accountant, an enrolled agent, an enrolled actuary, or any other person permitted to represent the taxpayer before the Service and who is not disbarred or suspended from practice before the Service; and (ii) The written request for advice either is accompanied by a power of attorney that is signed by the taxpayer and that authorizes the representative to represent the taxpayer for purposes of the request, or such a power of attorney is currently on file with the Service. (4) Taxpayer's information must be adequate and accurate. (c) Definitions Advice. (2) Penalty and addition to tax. (d) Procedures for abatement. (1) The taxpayer's written request for advice; (2) The erroneous written advice furnished by the Service to the taxpayer and relied on by the taxpayer; and (3) The report (if any) of tax adjustments that identifies the penalty or addition to tax and the item relating to the erroneous written advice. (e) Period for requesting abatement. (f) Examples. Example 1. In February 1989, an individual submitted a written request for advice to an Internal Revenue Service Center and included adequate and accurate information to consider the request. The question posed by the taxpayer concerned whether a certain amount was includible in income on the taxpayer's 1989 federal income tax return. An employee of the Service Center issued the taxpayer a written response that concluded that based on the specific facts submitted by the taxpayer, the amount was not includible in income on the taxpayer's 1989 return. Since the response provided a conclusion regarding the tax treatment accorded the taxpayer on the basis of the facts submitted, the response constitutes “advice” for purposes of section 6404(f). The taxpayer filed his 1989 return and, relying on the Service's advice, did not include the item in income. Upon examination, it was determined that the item should have been included in income on the taxpayer's 1989 return. Because the taxpayer reasonably relied upon erroneous written advice from the Service, any penalty or addition to tax attributable to the erroneous advice will be abated by the Service. However, the erroneous advice will not affect the amount of any taxes and interest owed by the taxpayer (except to the extent interest relates to a penalty or addition to tax attributable to the erroneous advice) due to the fact that the item was not included in income. Example 2. In March 1989, an individual submitted a written request to the National Office of the Internal Revenue Service regarding whether a certain activity constitutes a passive activity within the meaning of section 469 of the Code. The request did not meet the procedural requirements set forth by the National Office for consideration of the submission as a private letter ruling request and, thus, was not treated as such by the Service. The Service furnished the taxpayer with a written response that transmitted various published provisions of section 469 and the regulations thereunder relevant to the determination of whether an activity is passive within the meaning of those provisions. The Service also included a Publication regarding the tax treatment of passive activities. However, the Service's response contained no opinion or determination regarding whether the taxpayer's described activity was or was not passive under section 469. The Service's response is not advice within the meaning of section 6404(f), and cannot be relied upon for purposes of an abatement of a portion of a penalty or addition to tax under that section. Example 3. On April 1, 1989, an individual submitted a written request for advice to an Internal Revenue Service Center. The advice related to an item included on a federal tax return. The individual filed a federal income tax return with the appropriate Service Center on April 15, 1989. Subsequently, on May 1, 1989, the individual received advice from the Service Center concerning the written request made on April 1. Because the individual filed his tax return prior to the date on which written advice from the Service was received, the individual did not rely on the Service's written advice for purposes of section 6404(f). If, however, the individual amends his tax return to conform with the written advice received from the Service, the individual will be considered to have reasonably relied upon the Service's advice. Example 4. Individual A, on May 1, 1989, received advice from the Service that concluded that interest paid by the taxpayer with respect to a specific loan was interest paid or accrued in connection with a trade or business, within the meaning of section 163(h)(2)(A) of the Code. The advice relates to a continuing action. Therefore, provided the facts submitted by the taxpayer to obtain the advice remain adequate and accurate (that is, the circumstances relating to the indebtedness do not change), Individual A may rely on the Service's advice for subsequent taxable years until the individual is put on notice that the advice no longer represents Service position and, thus, is no longer valid. Example 5. An individual, on June 1, 1989, received advice from the Service that concluded that no gain or loss would be recognized with respect to a transfer of property to his spouse under section 1041. The advice does not relate to a continuing action. Therefore, the taxpayer may not rely on the advice of the Service for transfers other than the transfer discussed in the taxpayer's written request for advice. (g) Effective date. [T.D. 8254, 54 FR 21057, May 16, 1989. Redesignated at 55 FR 14245, Apr. 17, 1990] § 301.6404-4 Suspension of interest and certain penalties when the Internal Revenue Service does not timely contact the taxpayer. (a) Suspension In general. (2) Treatment of amended returns and other documents Amended returns filed on or after December 21, 2005, that show an increase in tax liability. (ii) Amended returns that show a decrease in tax liability. (iii) Amended returns and other documents as notice. (B) Example. (iv) Joint return after filing separate return. (3) Separate application. (4) Duration of suspension period. (5) Certain notices provided on or after November 26, 2007. (i) Eighteen-month period has closed. (ii) All other cases. (6) Examples. Example 1. An individual taxpayer timely files a Federal income tax return for taxable year 2005 on April 17, 2006. On December 11, 2007, the taxpayer mails to the IRS an amended return reporting an additional item of income and an increased tax liability for taxable year 2005. The IRS receives the amended return on December 13, 2007. On January 16, 2008, the IRS provides the taxpayer with a notice stating that the taxpayer has an additional tax liability based on the disallowance of a deduction the taxpayer claimed on his original return and did not change on his amended return. The date the amended return was received substitutes for the date that the original return was filed with respect to the additional item of tax liability reported on the amended return. Thus, the IRS will not suspend any interest, penalty, addition to tax, or additional amount with respect to the additional item of income and the increased tax liability reported on the amended return. The suspension period for the additional tax liability based on the IRS's disallowance of the deduction begins on October 17, 2007, so the IRS will suspend any interest, penalty, addition to tax, and additional amount with respect to the disallowed deduction and additional tax liability from that date through February 6, 2008, which is 21 days after the IRS provided notice of the additional tax liability and the basis for that liability. The suspension period in this example begins 18 months after filing the return (not 36 months) because, as of November 25, 2007, the 18-month period beginning on the date the return was filed had closed without the IRS giving notice of the additional liability. Thus, under the rules in paragraph (a)(5) of this section, the suspension period begins 18 months from the April 17, 2006 return filing date. Example 2. An individual taxpayer files a Federal income tax return for taxable year 2008 on April 15, 2009. The taxpayer consents to extend the time within which the IRS may assess any tax due on the return until June 30, 2013. On December 20, 2012, the IRS provides a notice to the taxpayer specifically stating the taxpayer's liability and the basis for the liability. The suspension period for the liability identified by the IRS begins on April 15, 2012, so the IRS will suspend any interest, penalty, addition to tax, and additional amount with respect to that liability from that date through January 10, 2013, which is 21 days after the IRS provided notice of the additional tax liability and the basis for that liability. (7) Notice of liability and the basis for the liability In general. Income Tax Examination Changes Explanation of Items); Waiver of Restriction on Assessments and Collection of Deficiency in Tax and Acceptance of Overassessment; (ii) Tax attributable to TEFRA partnership items. (iii) Examples. Example 1. During an audit of Taxpayer A's 2005 taxable year return, the IRS questions a charitable deduction claimed on the return. The IRS provides A with a 30-day letter that proposes to disallow the charitable contribution deduction resulting in a deficiency of $1,000 and informs A that A may file a written protest of the proposed disallowance with the Office of Appeals within 30 days. The letter includes as an attachment a copy of the revenue agent's report that states, “It has not been established that the amount shown on your return as a charitable contribution was paid during the tax year. Therefore, this deduction is not allowable.” The information in the 30-day letter and attachment provides A with notice of the specific amount of the liability and the basis for that liability as described in this paragraph (a)(7). Example 2. Taxpayer B is a partner in partnership P, a TEFRA partnership for taxable year 2005. B claims a distributive share of partnership income on B's Federal income tax return for 2005 timely filed on April 17, 2006. On October 1, 2007, during the course of a partnership audit of P for taxable year 2005, the IRS provides P's TMP with a 60-day letter proposing to adjust P's income by $10,000. The IRS previously had provided the TMP with a copy of the examination report explaining that the adjustment was based on $10,000 of unreported net income. On October 31, 2007, P's TMP informs B of the proposed adjustment as required by § 301.6223(g)-1(b). By accounting for B's distributive share of the $10,000 of unreported income from P with B's other income tax items, B can determine B's tax attributable to the $10,000 partnership adjustment. The information in the 60-day letter and the examination report allows B to compute the specific amount of the liability attributable to the adjustment to the partnership item and the basis for that adjustment and therefore satisfies the notice requirement of paragraph (a). Because the IRS provided that notice to the TMP, B's agent under the TEFRA partnership provisions, within 18 months of the April 17, 2006 filing date of B's return, any interest, penalty, addition to tax, or additional amount with respect to B's tax liability attributable to B's distributive share of the $10,000 of unreported partnership income will not be suspended under section 6404(g). (8) Providing notice In general. (ii) Providing notice in TEFRA partnership proceedings. (b) Exceptions Failure to file tax return or to pay tax. (2) Fraud. (3) Tax shown on return. (4) Gross misstatement Description. gross misstatement (A) a substantial omission of income as described in section 6501(e)(1) or section 6229(c)(2); (B) a gross valuation misstatement within the meaning of section 6662(h)(2)(A) and (B); or (C) a misstatement to which the penalty under section 6702(a) applies. (ii) Effect of gross misstatement. (5) Listed transactions and undisclosed reportable transactions In general. undisclosed reportable transaction (ii) Special rule for certain listed or undisclosed reportable transactions. (A) Participant in a settlement initiative 1 Participant in a settlement initiative who, as of January 23, 2006, had not reached agreement with the IRS. participant in a settlement initiative ( 2 Participant in a settlement initiative who, as of January 23, 2006, had reached agreement with the IRS. participant in a settlement initiative (B) Taxpayer acting in good faith 1 In general. ( 2 Presumption. 2 1 ( 3 Examples. Example 1. The taxpayer participated in a listed transaction. The IRS, in a letter sent directly to the taxpayer in July 2005, proposed a settlement of the transaction. The taxpayer informed the IRS of his interest in the settlement within the prescribed time period. The revenue agent assigned to the taxpayer's case was not able to calculate the taxpayer's liability under the settlement or tender a closing agreement to the taxpayer until March 2006. The taxpayer promptly executed the closing agreement and returned it to the IRS with a proposal for arrangements to pay the agreed-upon liability. The IRS agreed with the proposed arrangements for full payment. For purposes of the application of section 6404(g)(2)(E), the taxpayer has acted reasonably and in good faith. Interest accruing on or before October 3, 2004, relating to the transaction in which the taxpayer participated will be suspended. Example 2. The facts are the same as in Example 1, Example 3. The taxpayer participated in a listed transaction. In response to an offer of settlement extended by the IRS in August 2005, the taxpayer informed the IRS of her interest in entering into a closing agreement on the terms proposed by the IRS. The revenue agent assigned to the transaction calculated the taxpayer's liability under the settlement and tendered a closing agreement to the taxpayer in November 2005. The taxpayer executed the closing agreement but failed to make any arrangement for payment of the agreed-upon liability stated in the closing agreement. Taking into account all the facts and circumstances surrounding the transaction, the taxpayer did not act reasonably and in good faith. Interest accruing on or before October 3, 2004, relating to the transaction in which the taxpayer participated will not be suspended. Example 4. The taxpayer participated in a listed transaction. In a letter sent by the IRS directly to the taxpayer in July 2005, the IRS extended an offer of settlement. The July 2005 letter informed the taxpayer that, absent atypical facts and circumstances, the taxpayer should not expect resolution of the tax issues on more favorable terms than proposed in the letter. The taxpayer declined the proposed settlement terms of the letter and proceeded to Appeals to present what the taxpayer claimed were atypical facts and circumstances. The administrative file did not contain sufficient information bearing on atypical facts and circumstances, and the taxpayer failed to provide additional information when requested by Appeals to explain how the transaction originally proposed to the taxpayer differed in structure or types of tax benefits claimed, from the transaction as implemented by the taxpayer. Appeals determined that the taxpayer's facts and circumstances were not significantly different from those of other taxpayers who participated in that listed transaction and thus, were not atypical. In September 2006, the taxpayer and Appeals entered into a closing agreement on terms consistent with those originally proposed in the July 2005 letter. The taxpayer has complied with the terms of that closing agreement. For purposes of the application of section 6404(g)(2)(E), this taxpayer is not presumed to have acted reasonably and in good faith; instead, the IRS will apply the general rule to determine whether to suspend interest accruing on or before October 3, 2004, relating to the transaction in which the taxpayer participated. Example 5. The facts are the same as in Example 4, (C) Closed transactions. (c) Special rules Tentative carryback and refund adjustments. (2) Election under section 183(e) In general. (ii) Example. (d) Effective/Applicability date. [T.D. 9488, 75 FR 33993, June 16, 2010, as amended by T.D. 9545, 76 FR 52261, Aug. 22, 2011; 76 FR 60373, Sept. 29, 2011] § 301.6405-1 Reports of refunds and credits. Section 6405 requires that a report be made to the Joint Committee on Taxation of proposed refunds or credits in excess of $100,000 of any income tax (including any qualified State individual income tax collected by the Federal Government), war profits tax, excess profits tax, estate tax, or gift tax. An exception is provided under which refunds and credits made after July 1, 1972, and attributable to an election under section 165(h) to deduct a disaster loss for the taxable year in which the disaster occurred, may be made prior to the submission of such report to the Joint Committee on Taxation. [T.D. 7577, 43 FR 59376, Dec. 20, 1978] § 301.6407-1 Date of allowance of refund or credit. The date on which the district director or the director of the regional service center, or an authorized certifying officer designated by either of them, first certifies the allowance of an overassessment in respect of any internal revenue tax shall be considered as the date of allowance of refund or credit in respect of such tax. Rules of Special Application § 301.6411-1 Tentative carryback adjustments. For regulations under section 6411, see §§ 1.6411-1 to 1.6411-4, inclusive, of this chapter (Income Tax Regulations). § 301.6413-1 Special rules applicable to certain employment taxes. For regulations under section 6413, see §§ 31.6413(a)-1 to 31.6413(c)-1, inclusive, of this chapter (Employment Tax Regulations). § 301.6414-1 Income tax withheld. (a) For rules relating to the refund or credit of income tax withheld under chapter 3 of the Code on nonresident aliens and foreign corporations and tax-free covenant bonds, see § 1.6414-1 of this chapter (Income Tax Regulations). (b) For rules relating to the refund or credit of income tax withheld under chapter 24 of the Code from wages, see § 31.6414-1 of this chapter (Employment Tax Regulations). § 301.6425-1 Adjustment of overpayment of estimated income tax by corporation. For regulations under section 6425, see §§ 1.6425-1 to 1.6425-3, inclusive, of this chapter (Income Tax Regulations). [T.D. 7059, 35 FR 14548, Sept. 17, 1970] Limitations Limitations on Assessment and Collection § 301.6501(a)-1 Period of limitations upon assessment and collection. (a) The amount of any tax imposed by the Code (other than a tax collected by means of stamps) shall be assessed within 3 years after the return was filed. For rules applicable in cases where the return is filed prior to the due date thereof, see section 6501(b). In the case of taxes payable by stamp, assessment shall be made at any time after the tax became due and before the expiration of 3 years after the date on which any part of the tax was paid. For exceptions and additional rules, see subsections (b) to (g) of section 6501, and for cross references to other provisions relating to limitations on assessment and collection, see sections 6501(h) and 6504. (b) No proceeding in court without assessment for the collection of any tax shall be begun after the expiration of the applicable period for the assessment of such tax. § 301.6501(b)-1 Time return deemed filed for purposes of determining limitations. (a) Early return. (b) Returns of social security tax and of income tax withholding. (c) Returns executed by district directors or other internal revenue officers. § 301.6501(c)-1 Exceptions to general period of limitations on assessment and collection. (a) False return. (b) Willful attempt to evade tax. (c) No return. (d) Extension by agreement. (e) Gifts subject to chapter 14 of the Internal Revenue Code not adequately disclosed on the return. (2) Adequately shown. (i) A description of the transactions, including a description of transferred and retained interests and the method (or methods) used to value each; (ii) The identity of, and relationship between, the transferor, transferee, all other persons participating in the transactions, and all parties related to the transferor holding an equity interest in any entity involved in the transaction; and (iii) A detailed description (including all actuarial factors and discount rates used) of the method used to determine the amount of the gift arising from the transfer (or taxable event), including, in the case of an equity interest that is not actively traded, the financial and other data used in determining value. Financial data should generally include balance sheets and statements of net earnings, operating results, and dividends paid for each of the 5 years immediately before the valuation date. (3) Effective date. (f) Gifts made after December 31, 1996, not adequately disclosed on the return In general. (2) Adequate disclosure of transfers of property reported as gifts. (i) A description of the transferred property and any consideration received by the transferor; (ii) The identity of, and relationship between, the transferor and each transferee; (iii) If the property is transferred in trust, the trust's tax identification number and a brief description of the terms of the trust, or in lieu of a brief description of the trust terms, a copy of the trust instrument; (iv) Except as provided in § 301.6501-1(f)(3), a detailed description of the method used to determine the fair market value of property transferred, including any financial data (for example, balance sheets, etc. with explanations of any adjustments) that were utilized in determining the value of the interest, any restrictions on the transferred property that were considered in determining the fair market value of the property, and a description of any discounts, such as discounts for blockage, minority or fractional interests, and lack of marketability, claimed in valuing the property. In the case of a transfer of an interest that is actively traded on an established exchange, such as the New York Stock Exchange, the American Stock Exchange, the NASDAQ National Market, or a regional exchange in which quotations are published on a daily basis, including recognized foreign exchanges, recitation of the exchange where the interest is listed, the CUSIP number of the security, and the mean between the highest and lowest quoted selling prices on the applicable valuation date will satisfy all of the requirements of this paragraph (f)(2)(iv). In the case of the transfer of an interest in an entity (for example, a corporation or partnership) that is not actively traded, a description must be provided of any discount claimed in valuing the interests in the entity or any assets owned by such entity. In addition, if the value of the entity or of the interests in the entity is properly determined based on the net value of the assets held by the entity, a statement must be provided regarding the fair market value of 100 percent of the entity (determined without regard to any discounts in valuing the entity or any assets owned by the entity), the pro rata portion of the entity subject to the transfer, and the fair market value of the transferred interest as reported on the return. If 100 percent of the value of the entity is not disclosed, the taxpayer bears the burden of demonstrating that the fair market value of the entity is properly determined by a method other than a method based on the net value of the assets held by the entity. If the entity that is the subject of the transfer owns an interest in another non-actively traded entity (either directly or through ownership of an entity), the information required in this paragraph (f)(2)(iv) must be provided for each entity if the information is relevant and material in determining the value of the interest; and (v) A statement describing any position taken that is contrary to any proposed, temporary or final Treasury regulations or revenue rulings published at the time of the transfer (see § 601.601(d)(2) of this chapter). (3) Submission of appraisals in lieu of the information required under paragraph (f)(2)(iv) of this section. (i) The appraisal is prepared by an appraiser who satisfies all of the following requirements: (A) The appraiser is an individual who holds himself or herself out to the public as an appraiser or performs appraisals on a regular basis. (B) Because of the appraiser's qualifications, as described in the appraisal that details the appraiser's background, experience, education, and membership, if any, in professional appraisal associations, the appraiser is qualified to make appraisals of the type of property being valued. (C) The appraiser is not the donor or the donee of the property or a member of the family of the donor or donee, as defined in section 2032A(e)(2), or any person employed by the donor, the donee, or a member of the family of either; and (ii) The appraisal contains all of the following: (A) The date of the transfer, the date on which the transferred property was appraised, and the purpose of the appraisal. (B) A description of the property. (C) A description of the appraisal process employed. (D) A description of the assumptions, hypothetical conditions, and any limiting conditions and restrictions on the transferred property that affect the analyses, opinions, and conclusions. (E) The information considered in determining the appraised value, including in the case of an ownership interest in a business, all financial data that was used in determining the value of the interest that is sufficiently detailed so that another person can replicate the process and arrive at the appraised value. (F) The appraisal procedures followed, and the reasoning that supports the analyses, opinions, and conclusions. (G) The valuation method utilized, the rationale for the valuation method, and the procedure used in determining the fair market value of the asset transferred. (H) The specific basis for the valuation, such as specific comparable sales or transactions, sales of similar interests, asset-based approaches, merger-acquisition transactions, etc. (4) Adequate disclosure of non-gift completed transfers or transactions. (i) The information required for adequate disclosure under paragraphs (f)(2)(i), (ii), (iii) and (v) of this section; and (ii) An explanation as to why the transfer is not a transfer by gift under chapter 12 of the Internal Revenue Code. (5) Adequate disclosure of incomplete transfers. (6) Treatment of split gifts. (7) Examples. Example 1. (i) Facts. (ii) Application of the adequate disclosure standard. Example 2. (i) Facts. (ii) Application of the adequate disclosure standard. Example 3. (i) Facts. (ii) Application of the adequate disclosure standard. Example 4. (i) Facts. (ii) Application of the adequate disclosure standard. Example 5. The facts are the same as in Example 4 Example 6. A owns 100 percent of the stock of X Corporation, a company actively engaged in a manufacturing business. B, A's child, is an employee of X and receives an annual salary paid in the ordinary course of operating X Corporation. B reports the annual salary as income on B's income tax returns. In 2001, A transfers property to family members and files a Federal gift tax return reporting the transfers. However, A does not disclose the 2001 salary payments made to B. Because the salary payments were reported as income on B's income tax return, the salary payments are deemed to be adequately disclosed. The transfer of property to family members, other than the salary payments to B, reported on the gift tax return must satisfy the adequate disclosure requirements under paragraph (f)(2) of this section in order for the period of assessment under section 6501 to commence to run with respect to those transfers. (8) Effective date. (g) Listed transactions In general. (2) Limitations period if paragraph (g)(5) or (g)(6) is satisfied. (3) Definitions Listed transaction. listed transaction (ii) Material advisor. material advisor (iii) Taxable year(s) to which the failure to disclose relates. taxable year(s) to which the failure to disclose relates (4) Application of paragraph with respect to pass-through entities. (5) Taxpayer's disclosure of a listed transaction that the taxpayer did not properly disclose under section 6011 In general Method of disclosure. Section 6501(c)(10) Disclosure Section 6501(c)(10) Disclosure; 2005 Form 1040 (B) Cover letter. 1 Under penalties of perjury, I declare that I have examined this reportable transaction disclosure statement and, to the best of my knowledge and belief, this reportable transaction disclosure statement is true, correct, and complete. ( 2 Under penalties of perjury, I declare that I have examined this reportable transaction disclosure statement and, to the best of my knowledge and belief, this reportable transaction disclosure statement is true, correct, and complete. This declaration is based on all information of which I, as paid preparer, have any knowledge. (C) Taxpayer under examination or Appeals consideration. (D) Date the one-year period will begin to run if paragraph (g)(5) satisfied. (ii) Exception for returns other than annual returns. (6) Material advisor's disclosure of a listed transaction not properly disclosed by a taxpayer under section 6011 In general. (ii) Paragraph (g)(6) not satisfied Information not furnished by a material advisor or a person permitted to act on behalf of the material advisor. ( 1 ( 2 ( 3 (B) No written request by IRS. (C) Information furnished does not identify the taxpayer. (iii) Date the one-year period will begin if paragraph (g)(6) is satisfied. (7) Tax assessable under this section. (8) Examples. Example 1. No requirement to disclose under section 6011. Example 2. Taxable year to which the failure to disclose relates when transaction is identified as a listed transaction after first year of participation and the transaction must be disclosed with the return next filed. (ii) The period of limitations on assessment for Y's 2003 taxable year was open on the date the transaction was identified as a listed transaction. Under the applicable section 6011 regulations (TD 9108), which were effective for transactions entered into before August 3, 2007, Y should have disclosed its participation in the transaction with its next filed return, which was its 2004 Form 1120, but Y did not disclose its participation. Y's failure to disclose with the 2004 Form 1120 relates to taxable years 2003 and 2004. Section 6501(c)(10) operates to keep the period of limitations on assessment open for the 2003 and 2004 taxable years with respect to the listed transaction until at least one year after the date Y satisfies the requirements of paragraph (g)(5) of this section or a material advisor satisfies the requirements of paragraph (g)(6) of this section with respect to Y. Example 3. Taxable year to which the failure to disclose relates when transaction is identified as a listed transaction after the first year of participation and the transaction must be disclosed 90 days after the transaction became a listed transaction. (ii) The period of limitations on assessment for A's 2015 taxable year was open on the date the transaction was identified as a listed transaction. Under the current section 6011 regulations (TD 9350) which are effective for transactions entered into on or after August 3, 2007, A must disclose its participation in the transaction by filing a completed Form 8886 with OTSA on or before June 5, 2017, which is 90 days after the date the transaction became a listed transaction. A did not disclose the transaction as required. A's failure to disclose relates to taxable year 2015 even though the obligation to disclose did not arise until 2017. Section 6501(c)(10) operates to keep the period of limitations on assessment open for the 2015 taxable year with respect to the listed transaction until at least one year after the date A satisfies the requirements of paragraph (g)(5) of this section or a material advisor satisfies the requirements of paragraph (g)(6) of this section with respect to A. Example 4. Requirements of paragraph (g)(6) satisfied. Example 3, Example 5. Requirements of paragraph (g)(5) also satisfied. Examples 3 and 4, Example 4, Example 6. Period to assess tax remains open under another exception. Examples 3, 4, and 5, Example 7. Requirements of (g)(5) not satisfied. Example 8. Section 6501(c)(10) applies to keep one partner's period of limitations on assessment open. Example 9. Section 6501(c)(10) satisfied before expiration of three-year period of limitations under section 6501(a). Example 8, Example 10. No section 6112 request. Example 11. Section 6112 request but the requirements of paragraph (g)(6) are not satisfied with respect to B. Example 10, Example 12. Section 6112 submission made before taxpayer failed to disclose a listed transaction. Example 13. Transaction removed from the category of listed transactions after taxpayer failed to disclose. Example 14. Taxes assessed with respect to the listed transaction. (ii) On July 2, 2020, the IRS completes an examination of F's 2015 taxable year and disallows the tax consequences claimed as a result of the listed transaction. The disallowance of a loss increased F's adjusted gross income. Due to the increase of F's adjusted gross income, certain credits, such as the child tax credit, and exemption deductions were disallowed or reduced because of limitations based on adjusted gross income. In addition, F now is liable for the alternative minimum tax. The examination also uncovered that F claimed two deductions on Schedule C to which F was not entitled. Under section 6501(c)(10), the IRS can timely issue a statutory notice of deficiency (and assess in due course) against F for the deficiency resulting from (1) disallowing the loss, (2) disallowing the credits and exemptions to which F was not entitled based on F's increased adjusted gross income, and (3) being liable for the alternative minimum tax. In addition, the IRS can assess any interest and applicable penalties related to those adjustments, such as the accuracy-related penalty under sections 6662 and 6662A and the penalty under section 6707A for F's failure to disclose the transaction as required under section 6011 and the regulations under section 6011. The IRS cannot, however, pursuant to section 6501(c)(10), assess the increase in tax that would result from disallowing the two deductions on F's Schedule C because those deductions are not related to, or affected by, the adjustments concerning the listed transaction. (9) Effective/applicability date. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7838, 47 FR 44250, Oct. 7, 1982; T.D. 8395, 57 FR 4277, Feb. 4, 1992; T.D. 8845, 64 FR 67771, Dec. 3, 1999; 65 FR 1059, Jan. 7, 2000; T.D. 9718, 80 FR 16976, Mar. 31, 2015; T.D. 9718, 80 FR 23444, Apr. 28, 2015] § 301.6501(d)-1 Request for prompt assessment. (a) Except as otherwise provided in section 6501 (c), (e), or (f), any tax for which a return is required and for which: (1) A decedent or an estate of a decedent may be liable, other than the estate tax imposed by chapter 11 of the Code, or (2) A corporation which is contemplating dissolution, is in the process of dissolution, or has been dissolved, may be liable, shall be assessed, or a proceeding in court without assessment for the collection of such tax shall be begun, within 18 months after the receipt of a written request for prompt assessment thereof. (b) The executor, administrator, or other fiduciary representing the estate of the decedent, or the corporation, or the fiduciary representing the dissolved corporation, as the case may be, shall, after the return in question has been filed, file the request for prompt assessment in writing with the district director for the internal revenue district in which such return was filed. The request, in order to be effective, must be transmitted separately from any other document, must set forth the classes of tax and the taxable periods for which the prompt assessment is requested, and must clearly indicate that it is a request for prompt assessment under the provisions of section 6501(d). The effect of such a request is to limit the time in which an assessment of tax may be made, or a proceeding in court without assessment for collection of tax may be begun, to a period of 18 months from the date the request is filed with the proper district director. The request does not extend the time within which an assessment may be made, or a proceeding in court without assessment years from the date the return was filed. This special period of limitations will not apply to any return filed after a request for prompt assessment has been made unless an additional request is filed in the manner provided herein. (c) In the case of a corporation the 18-month period shall not apply unless: (1) The written request notifies the district director that the corporation contemplates dissolution at or before the expiration of such 18-month period; the dissolution is in good faith begun before the expiration of such 18-month period; and the dissolution so begun is completed either before or after the expiration of such 18-month period; or (2) The written request notifies the district director that a dissolution has in good faith been begun, and the dissolution is completed either before or after the expiration of such 18-month period; or (3) A dissolution has been completed at the time the written request is made. § 301.6501(e)-1 Omission from return. (a) Income taxes General rule. (ii) For purposes of paragraph (a)(1)(i) of this section, the term gross income, (iii) For purposes of paragraph (a)(1)(i) of this section, the term gross income, gross income (iv) An amount shall not be considered as omitted from gross income if information sufficient to apprise the Commissioner of the nature and amount of the item is disclosed in the return, including any schedule or statement attached to the return. (2) [Reserved] (b) Estate and gift taxes (2) For purposes of this paragraph (b), an item disclosed in the return or in any schedule or statement attached to the return in a manner sufficient to apprise the Commissioner of the nature and amount thereof shall not be taken into account in determining items omitted from the gross estate or total gifts, as the case may be. Further, there shall not be taken into account in computing the 25 percent omission from the gross estate stated in the estate tax return or from the total gifts stated in the gift tax return, any increases in the valuation of assets disclosed on the return. (c) Excise taxes In general. (2) Chapter 41 excise taxes. (3) Chapter 42 excise taxes. (ii) If a private foundation, trust, or other organization (as the case may be) discloses an item in its return (or in a schedule or statement attached thereto) in a manner sufficient to apprise the Commissioner of the existence and nature of the item, the three-year limitation on assessment and collection described in section 6501(a) shall apply with respect to any tax imposed under sections 4941(a), 4942(a), 4943(a), 4944(a), 4945(a), 4951(a), 4952(a), 4953 and 4958, arising from any transaction disclosed by the item. If a private foundation, trust, or other organization (as the case may be) fails to so disclose an item in its return (or in a schedule or statement attached thereto), the tax arising from any transaction not so disclosed may be assessed or a proceeding in court for the collection of the tax may be begun without assessment, at any time within 6 years after the return was filed. (4) Chapter 43 excise taxes. (5) Chapter 44 excise taxes. (d) Exception. (e) Effective/applicability date Income taxes. (2) Estate, gift and excise taxes. [T.D. 9511, 75 FR 78899, Dec. 17, 2010] § 301.6501(f)-1 Personal holding company tax. If a corporation which is a personal holding company for any taxable year fails to file with its income tax return for such year a schedule setting forth the items of gross income described in section 543(a) received by the corporation during such year, and the names and addresses of the individuals who owned, within the meaning of section 544, at any time during the last half of such taxable year, more than 50 percent in value of the outstanding capital stock of the corporation, the personal holding company tax for such year may be assessed, or a proceeding in court for the collection thereof may be begun without assessment, at any time within 6 years after the return for such year was filed. § 301.6501(g)-1 Certain income tax returns of corporations. (a) Trusts or partnerships. (b) Exempt organizations. (c) DISC. (1) Such return shall be deemed to be the return of the corporation for the purpose of section 6501. (2) Such return if filed within the time required by section 6072(b) for filing a DISC return shall be deemed to be filed within the time required by section 6072(b) for filing of a return by a corporation which is not a DISC, and (3) Interest on underpayment and overpayments allowed by chapter 67 of the Code and additions to the tax, additional amounts and assessable penalties allowed by chapter 68 of the Code, when determined by reference to the time for filing of a return, shall be determined by reference to the time required by section 6072(b) for filing of a return by a DISC. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7533, 43 FR 6604, Feb. 15, 1978] § 301.6501(h)-1 Net operating loss or capital loss carrybacks. In the case of a deficiency attributable to the application to the taxpayer of a net operating loss or capital loss carryback (including deficiencies which may be assessed pursuant to the provisions of section 6213(b)(2)), such deficiency may be assessed at any time before the expiration of the period within which a deficiency for the taxable year of the net operating loss or net capital loss which results in such carryback may be assessed. In the case of a deficiency attributable to the application of a net operating loss carryback, such deficiency may be assessed within 18 months after the date on which the taxpayer files in accordance with section 172(b)(3) a copy of the certification (with respect to such taxable year) issued under section 317 of the Trade Expansion Act of 1962, if later than the date prescribed by the preceding sentence. [T.D. 7301, 39 FR 974, Jan. 4, 1974] § 301.6501(i)-1 Foreign tax carrybacks; taxable years beginning after December 31, 1957. With respect to taxable years beginning after December 31, 1957, a deficiency attributable to the application to the taxpayer of a carryback under section 904(d) (relating to carryback and carryover of excess foreign taxes), may be assessed at any time before the expiration of 1 year after the expiration of the period within which a deficiency may be assessed for the taxable year of the excess taxes described in section 904(d) which result in such carryback. § 301.6501(j)-1 Investment credit carryback; taxable years ending after December 31, 1961. With respect to taxable years ending after December 31, 1961, a deficiency attributable to the application to the taxpayer of an investment credit carryback may be assessed at any time before the expiration of the period within which a deficiency for the taxable year of the unused investment credit which results in such carryback may be assessed, or, with respect to any portion of an investment credit carryback from a taxable year attributable to a net operating loss or capital loss carryback from a subsequent taxable year, at any time before the expiration of the period within which a deficiency for such subsequent taxable year may be assessed. For purposes of this section a deficiency shall include a deficiency which may be assessed pursuant to the provisions of section 6213(b)(2), but only those arising with respect to applications for tentative carryback adjustments filed after November 2, 1966. [T.D. 7301, 39 FR 975, Jan. 4, 1974] § 301.6501(m)-1 Tentative carryback adjustment assessment period. (a) Period of limitation after tentative carryback adjustment. (2) The application of this paragraph may be illustrated by the following example: Example. Assume that M Corporation, which claims an unused investment credit of $50,000 for the calendar year 1968, files an application under section 6411 of the Code for an adjustment of its tax for 1965, and receives a refund of $50,000 in 1969. In 1971, it is determined that the amount of the unused investment credit for 1968 is $30,000 rather than $50,000. Moreover, it is determined that M Corporation would have owed $40,000 of additional tax for 1965 if it had properly reported certain income which it failed to include in its 1965 return. Assuming that M Corporation filed its 1968 return on March 15, 1969, and that the 3-year period described in section 6501(a) has not been extended, the period prescribed in section 6501(j) for assessing the excessive amount refunded, $20,000 ( i.e., (b) Effective date. [T.D. 7301, 39 FR 975, Jan. 4, 1974] § 301.6501(n)-1 Special rules for chapter 42 and similar taxes. (a) Return filed by private foundation, plan, trust, or other organization. (2) For purposes of section 4940, the return referred to in this section is the return filed by the private foundation for the taxable year for which the tax is imposed. (b) Failure of private foundation plan, trust, or other organization to file. (c) Example. Example. In 1973, D, an individual taxpayer who was a disqualified person under the provisions of section 4946(a)(1), participated in an act of self-dealing with a private foundation and incurred a tax under section 4941(a)(1). On May 15, 1974, the private foundation files a Form 990-PF and answers all the questions thereon with regard to any acts of self-dealing (as defined in section 4941(d)) in which it may have engaged in 1973. Assuming that the foundation's return was not a false or fraudulent return nor made with the willful attempt to defeat tax, the period of limitations on assessment and collection under section 6501(a) shall start with respect to any tax under section 4941(a) or section 4941(b) imposed on D arising out of that transaction with such foundation. [T.D. 7838, 47 FR 44251, Oct. 7, 1982, as amended by T.D. 8920, 66 FR 2171, Jan. 10, 2001] § 301.6501(n)-2 Certain contributions to section 501(c)(3) organizations. If a private foundation makes a contribution to a section 501(c)(3) organization as provided in section 4942(g)(3), and a deficiency of tax of such foundation occurs due to the failure of the section 501(c)(3) organization to make the distribution prescribed by section 4942(g)(3), then such deficiency may be assessed within one year after the expiration of the period within which a deficiency may be assessed for the taxable year with respect to which the contribution was made. [T.D. 7838, 47 FR 44251, Oct. 7, 1982] § 301.6501(n)-3 Certain set-asides described in section 4942(g)(2). Where a deficiency of tax of a private foundation results from the failure of an amount set aside by such foundation for a specific project to be treated as a qualifying distribution under section 4942(g)(2)(B)(ii)(II), such deficiency may be assessed within two years after the expiration of the period within which a deficiency may be assessed for the taxable year to which the amount set aside relates. [T.D. 7838, 47 FR 44251, Oct. 7, 1982] § 301.6502-1 Collection after assessment. (a) General rule. (b) Agreement to extend the period of limitations on collection. (1) Extension agreement entered into in connection with an installment agreement. (2) Extension agreement entered into in connection with the release of a levy under section 6343. (c) Proceeding in court for the collection of the tax. (d) Effect of statutory suspensions of the period of limitations on collection if executed collection extension agreement is in effect. (2) The following example illustrates the principle set forth in this paragraph (d): Example. In June of 2003, the Internal Revenue Service (IRS) enters into an installment agreement with the taxpayer to provide for periodic payments of the taxpayer's timely assessed tax liabilities. At the time the installment agreement is entered into, the taxpayer and the IRS execute a written agreement to extend the period of limitations on collection. The extension agreement executed in connection with the installment agreement operates to extend the period of limitations on collection to the date agreed upon in the extension agreement, plus 89 days. Subsequently, and prior to the expiration of the extended period of limitations on collection, the taxpayer files a bankruptcy petition under chapter 7 of the Bankruptcy Code and receives a discharge from bankruptcy a few months later. Assuming the tax is not discharged in the bankruptcy, section 6503(h) of the Internal Revenue Code operates to suspend the running of the previously extended period of limitations on collection for the period of time the IRS is prohibited from collecting due to the bankruptcy proceeding, and for 6 months thereafter. The new expiration date for the IRS to collect the tax is the date agreed upon in the previously executed extension agreement, plus 89 days, plus the period during which the IRS is prohibited from collecting due to the bankruptcy proceeding, plus 6 months. (e) Date when levy is considered made. (f) Effective date. [T.D. 9284, 71 FR 52445, Sept. 6, 2006] § 301.6503(a)-1 Suspension of running of period of limitation; issuance of statutory notice of deficiency. (a) General rule. (2) This paragraph may be illustrated by the following example: Example. A taxpayer filed a return for the calendar year 1973 on April 15, 1974; the notice of deficiency was mailed to him (at an address within the United States) on April 15, 1977; and he filed a petition with the Tax Court on July 14, 1977. The decision of the Tax Court became final on November 6, 1978. The running of the period of limitation for assessment is suspended from April 15, 1977, to January 5, 1979, which date is 60 days after the date (November 6, 1978), on which the decision became final. If in this example the taxpayer had failed to file a petition with the Tax Court, the running of the period of limitation for assessment would then be suspended from April 15, 1977 (the date of notice), to September 12, 1977 (that is, for the 90-day period in which he could file a petition with the Tax Court, and for 60 days thereafter). (3) For provisions relating to suspension of the running of the period of limitation with respect to collection of “second tier” excise taxes (as defined in section 4963) until final resolution of a refund proceeding described in sections 4961 and 7422 for the determination of the taxpayer's liability for the second tier taxes, see § 53.4961-2 (e)(4). (b) Corporations joining in consolidated return. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7244, 37 FR 28898, Dec. 30, 1972; T.D. 7838, 47 FR 44251, Oct. 7, 1982; T.D. 8084, 51 FR 16305, May 2, 1986] § 301.6503(b)-1 Suspension of running of period of limitation; assets of taxpayer in control or custody of court. Where all or substantially all of the assets of a taxpayer are in the control or custody of the court in any proceeding before any court of the United States, or of any State of the United States, or of the District of Columbia, the period of limitations on collection after assessment prescribed in section 6502 is suspended with respect to the outstanding amount due on the assessment for the period such assets are in the control or custody of the court, and for 6 months thereafter. In the case of an estate of a decedent or an incompetent, the period of limitations on collection is suspended only for periods beginning after November 2, 1966, during which assets are in the control or custody of a court, and for 6 months thereafter. [T.D. 7121, 36 FR 10782, June 3, 1971] § 301.6503(c)-1 Suspension of running of period of limitation; location of property outside the United States or removal of property from the United States; taxpayer outside of United States. (a) Property located outside, or removed from, the United States prior to November 3, 1966. (b) Taxpayer outside United States after November 2, 1966. [T.D. 7121, 36 FR 10782, June 3, 1971, as amended by T.D. 8939, 66 FR 2821, Jan. 12, 2001] § 301.6503(d)-1 Suspension of running of period of limitation; extension of time for payment of estate tax. Where an estate is granted an extension of time as provided in section 6161 (a)(2) or (b)(2), or under the provisions of section 6166, for payment of any estate tax, the running of the period of limitations for collection of such tax is suspended for the period of time for which the extension is granted. § 301.6503(e)-1 Suspension of running of period of limitation; certain powers of appointment. Where the estate of a decedent is allowed an estate tax charitable deduction under the provisions of section 2055(b)(2) (with respect to property over which the decedent's surviving spouse was given a power of appointment exercisable in favor of charitable organizations) subject to the later disallowance of the deduction if all conditions set forth in section 2055(b)(2) are not complied with, the running of the period of limitation for assessment or collection of any estate tax imposed on the decedent's estate is suspended until 30 days after the expiration of the period for assessment or collection of the estate tax imposed on the estate of the decedent's surviving spouse. § 301.6503(f)-1 Suspension of running of period of limitation; wrongful seizure of property of third-party owner and discharge of lien for substitution of value. (a) Wrongful seizure. Example. On June 1, 1968 (at which time 10 months remain before the period of limitations on collection after assessment will expire), the appropriate official wrongfully seizes $1,000 in B's account in Bank X and properly seizes $500 in taxpayer A's account in Bank Y in an attempt to satisfy A's assessed tax liability of $1,500. The appropriate official determines that the $1,000 seized in Bank X was not the property of taxpayer A and, on March 1, 1969, he returns the $1,000 to B. As a result of the wrongful seizure, the running of the period of limitations on collection after assessment of the amount owed by taxpayer A is suspended for the 9-month period (beginning June 1, 1968, when the money was wrongfully seized and ending March 1, 1969, when the money was returned to B), plus 30 days. Therefore, the period of limitations on collection after assessment prescribed in section 6502 will not expire until February 1, 1970, which is 10 months plus 30 days after the money was returned. (b) Discharge of wrongful lien for substitution of value. (1) The date the appropriate official no longer holds, or is deemed to no longer hold, within the meaning of paragraph (b)(4)(iv) of this section, any amount as a deposit or bond by reason of taking such actions as prescribed in sections 6325(b)(4)(B) and (C); or (2) The date the judgment secured under section 7426(b)(5) becomes final. (c) As used in this section, the term appropriate official (d) Effective/applicability date. [T.D. 7121, 36 FR 10783, June 3, 1971. Redesignated by T.D. 7838, 47 FR 44252, Oct. 7, 1982; 73 FR 5744, Jan. 31, 2008] § 301.6503(g)-1 Suspension pending correction. The running of the periods of limitations provided in sections 6501 and 6502 on the making of assessments, the collection by levy, or a proceeding in court in respect of any tax imposed by chapter 42 or section 507, 4971, or 4975 shall be suspended for any period described in section 507(g)(2) or during which the Commissioner has extended the time for making correction under section 4963(e)(1)(B). [T.D. 7838, 47 FR 44252, Oct. 7, 1982, as amended by T.D. 8084, 51 FR 16305, May 2, 1986] § 301.6503(j)-1 Suspension of running of period of limitations; extension in case of designated and related summonses. (a) General rule. (b) Period of suspension. (c) Definitions designated summons (i) The Division Commissioner and the Division Counsel of the Office of Chief Counsel (or their successors) for the organizations that have jurisdiction over the corporation whose tax liability is the subject of the summons have reviewed the summons before it is issued; (ii) The Internal Revenue Service (IRS) issues the summons at least 60 days before the day the period prescribed in section 6501 for the assessment of tax expires (determined with regard to extensions); and (iii) The summons states that it is a designated summons for purposes of section 6503(j). (2) A related summons (i) Relates to the same return of the corporation under examination as the designated summons; and (ii) Is issued to any person, including the person to whom the designated summons was issued, during the 30-day period that begins on the day the designated summons is issued. (3) The judicial enforcement period (4) Court proceeding In general. court proceeding (ii) Date when proceeding is no longer pending. (5) Compliance In general. Compliance (ii) Date compliance occurs. (6) Final resolution (d) Special rules Number of summonses that may be issued Designated summons. (ii) Related summonses. (2) Time within which court proceedings must be brought. (3) Computation of suspension period if multiple court proceedings are instituted. (4) Effect on other suspension periods In general. (ii) Examples. Example 1. The period of limitations on assessment against Corporation P, a calendar year taxpayer, for its 2007 return is scheduled to end on March 17, 2011. (Ordinarily, Corporation P's returns are filed on March 15th of the following year, but March 15, 2008, was a Saturday, and Corporation P timely filed its return on the subsequent Monday, March 17, 2008, making March 17, 2011 the last day of the period of limitations on assessment for Corporation P's 2007 tax year.) On January 4, 2011, a designated summons is issued to Corporation P concerning its 2007 return. On March 3, 2011 (14 days before the period of limitations on assessment would otherwise expire with respect to Corporation P's 2007 return), a court proceeding is brought to enforce the designated summons issued to Corporation P. On June 6, 2011, the court orders Corporation P to comply with the designated summons. Corporation P does not appeal the court's order. On September 6, 2011, agents for Corporation P deliver material that they state are the records requested by the designated summons. On October 13, 2011, a final resolution to Corporation P's response to the designated summons occurs when it is determined that Corporation P has fully complied with the court's order. The suspension period applicable with respect to the designated summons issued to Corporation P consists of the judicial enforcement period (March 3, 2011, through October 13, 2011) and an additional 120-day period under section 6503(j)(1)(B), because the court required Corporation P to comply with the designated summons. Thus, the suspension period applicable with respect to the designated summons issued to Corporation P begins on March 3, 2011, and ends on February 10, 2012. Under the facts of this Example 1 Example 2. Assume the same facts set forth in Example 1 (5) Computation of 60-day period when last day of assessment period falls on a weekend or holiday. (e) Effective/applicability date. [T.D. 9455, 74 FR 38097, July 31, 2009] Limitations on Credit or Refund § 301.6511(a)-1 Period of limitation on filing claim. (a) In the case of any tax (other than a tax payable by stamp): (1) If a return is filed, a claim for credit or refund of an overpayment must be filed by the taxpayer within 3 years from the time the return was filed or within 2 years from the time the tax was paid, whichever of such periods expires the later. (2) If no return is filed, the claim for credit or refund of an overpayment must be filed by the taxpayer within 2 years from the time the tax was paid. (b) In the case of any tax payable by means of a stamp, a claim for credit or refund of an overpayment of such tax must be filed by the taxpayer within 3 years from the time the tax was paid. For provisions relating to redemption of unsued stamps, see section 6805. (c) For limitations on allowance of credit or refund, special rules, and exceptions, see subsections (b) through (e) of section 6511. For limitations in the case of a petition to the Tax Court, see section 6512. For rules as to time return is deemed filed and tax considered paid, see section 6513. § 301.6511(b)-1 Limitations on allowance of credits and refunds. (a) Effect of filing claim. (b) Limit on amount to be credited or refunded. (i) If a return was filed, and a claim is filed within 3 years from the time the return was filed, the amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return. (ii) If a return was filed, and a claim is filed after the 3-year period described in subdivision (i) of this subparagraph but within 2 years from the time the tax was paid, the amount of the credit or refund shall not exceed the portion of the tax paid within the 2 years immediately preceding the filing of the claim. (iii) If no return was filed, but a claim is filed, the amount of the credit or refund shall not exceed the portion of the tax paid within the 2 years immediately preceding the filing of the claim. (iv) If no claim is filed, the amount of the credit or refund allowed or made by the district director or the director of the regional service center shall not exceed the amount that would have been allowable under the preceding subdivisions of this subparagraph if a claim had been filed on the date the credit or refund is allowed. (2) In the case of a tax payable by stamp: (i) If a claim is filed, the amount of the credit or refund shall not exceed the portion of the tax paid within the 3 years immediately preceding the filing of the claim. (ii) If no claim is filed, the amount of the credit or refund allowed or made by the district director or the director of the regional service center shall not exceed the portion of the tax paid within the 3 years immediately preceding the allowance of the credit or refund. For provisions relating to redemption of unused stamps, see section 6805. § 301.6511(c)-1 Special rules applicable in case of extension of time by agreement. (a) Scope. (b) Period in which claim may be filed. (c) Limit on amount to be credited or refunded. (2) If no claim is filed, the amount of credit or refund allowed or made within the time prescribed in paragraph (b) of this section shall not exceed the portion of the tax paid after the execution of the agreement and before the making of the credit or refund, plus the amount that could have been properly credited or refunded under the provisions of section 6511(b)(2) if a claim had been filed on the date of the execution of the agreement. (d) Effective date of agreement. § 301.6511(d)-1 Overpayment of income tax on account of bad debts, worthless securities, etc. (a)(1) If the claim for credit or refund relates to an overpayment of income tax on account of— (i) The deductibility by the taxpayer, under section 166 or section 832(c), of a debt as a debt which became worthless, or, under section 165(g), of a loss from the worthlessness of a security, or (ii) The effect that the deductibility of a debt or loss described in subdivision (i) of this subparagraph has on the application to the taxpayer of a carryover, then in lieu of the 3-year period from the time the return was filed in which claim may be filed or credit or refund allowed, as prescribed in section 6511 (a) or (b), the period shall be 7 years from the date prescribed by law for filing the return (determined without regard to any extension of time for filing such return) for the taxable year for which the claim is made or the credit or refund allowed or made. (2) If the claim for credit or refund relates to an overpayment on account of the effect that the deductibility of a debt or loss, described in subparagraph (1) of this paragraph (a), has on the application to the taxpayer of a net operating loss carryback provided in section 172(b), the period in which claim for credit or refund may be filed shall be whichever of the following two periods expires later: (i) Seven years from the last date prescribed for filing the return (determined without regard to any extension of time for filing such return) for the taxable year of the net operating loss which results in such carryback, or (ii) The period which ends with the expiration of the period prescribed in section 6511(c) within which a claim for credit or refund may be filed with respect to the taxable year of the net operating loss which resulted in the carryback. (3) In the case of a claim for credit or refund involving items described in this section, the amount of the credit or refund may exceed the portion of the tax paid within the period provided in section 6511 (b)(2) or (c), whichever is applicable, to the extent of the amount of the overpayment attributable to the deductibility of items described in subparagraph (1) of this paragraph (a). If the claim involves an overpayment based not only on the deductibility of items described in subparagraph (1) of this paragraph (a), but based also on other items, the credit or refund cannot exceed the sum of the following: (i) The amount of the overpayment which is attributable to the deductibility of items described in subparagraph (1) of this paragraph (a), and (ii) The balance of such overpayment up to a limit of the portion, if any, of the tax paid within the period provided in section 6511 (b)(2) or (c), or within the period provided in any other applicable provision of law. (4) If the claim involves an overpayment based not only on the deductibility of items described in subparagraph (1) of this paragraph (a), but based also on other items, and if the claim with respect to any items is barred by the expiration of any applicable period of limitation, the portion of the overpayment attributable to the items not so barred shall be determined by treating the allowance of such items as the first adjustment to be made in computing such overpayment. (b) If a claim for credit or refund is not filed within the applicable period described in paragraph (a) of this section, then credit or refund may be allowed or made only if claim therefor is filed or if such credit or refund is allowed within any period prescribed in section 6511 (a), (b), or (c), whichever is applicable, subject to the provisions thereof limiting the amount of credit or refund in the case of a claim filed, or, if no claim was filed, in the case of credit or refund allowed within such applicable period as prescribed in section 6511 (b) or (c). (c) The provisions of this section and section 6511(d)(1) do not apply to an overpayment resulting from the deductibility of a debt that became partially worthless during the taxable year, but only to an overpayment resulting from the deductibility of a debt which became entirely worthless during such year. (d) The provisions of paragraph (a) of this section with regard to an overpayment caused by the deductibility of a bad debt under section 166 or section 832(c), or of a loss from the worthlessness of a security under section 165(g), are likewise applicable to an overpayment caused by the effect that the deductibility of such bad debt or loss has on the application to the taxpayer of a carryover or of a carryback. § 301.6511(d)-2 Overpayment of income tax on account of net operating loss or capital loss carrybacks. (a) Special period of limitation. (i) The period which ends with the expiration of the 15th day of the 40th month (or 39th month, in the case of a corporation) following the end of the taxable year of the net operating loss or net capital loss which resulted in the carryback; or (ii) The period which ends with the expiration of the period prescribed in section 6511(c) within which a claim for credit or refund may be filed with respect to the taxable year of the net operating loss or net capital loss which resulted in the carryback except that— ( a ( b (2) In the case of a claim for credit or refund involving a net operating loss or capital loss carryback described in subparagraph (1) of this paragraph (a), the amount of the credit or refund may exceed the portion of the tax paid within the period provided in section 6511 (b)(2) or (c), whichever is applicable, to the extent of the amount of the overpayment attributable to the carryback. If the claim involves an overpayment based not only on a net operating loss or capital loss carryback described in subparagraph (1) of this paragraph (a), but based also on other items, the credit or refund cannot exceed the sum of the following: (i) The amount of the overpayment which is attributable to the net operating loss or capital loss carryback, and (ii) The balance of such overpayment up to a limit of the portion, if any, of the tax paid within the period provided in section 6511 (b)(2) or (c), or within the period provided in any other applicable provision of law. (3) If the claim involves an overpayment based not only on a net operating loss or capital loss carryback described in subparagraph (1) of this paragraph (a), but based also on other items, and if the claim with respect to any items is barred by the expiration of any applicable period of limitation, the portion of the overpayment attributable to the items not so barred shall be determined by treating the allowance of such items as the first adjustment to be made in computing such overpayment. If a claim for credit or refund is not filed, and if credit or refund is not allowed, within the period prescribed in this paragraph, then credit or refund may be allowed or made only if claim therefor is filed, or if such credit or refund is allowed, within the period prescribed in section 6511 (a), (b), or (c), whichever is applicable, subject to the provisions thereof limiting the amount of credit or refund in the case of a claim filed, or if no claim was filed, in case of credit or refund allowed, within such applicable period. For the limitations on the allowance of interest for an overpayment where credit or refund is subject to the provisions of this section, see section 6611(f). (b)(1) Barred overpayments. (2) For purposes of the special period of limitation for filing a claim for credit or refund of an overpayment of tax with respect to a computation year (as defined in section 1302(c)(1)) by an individual who has chosen to compute his tax under sections 1301 through 1305 (relating to income averaging), such claim is determined to relate to an overpayment attributable to a net operating loss carryback when such carryback relates to any base period year (as defined in section 1302(c)(3)). Thus, if (i) an individual has a net operating loss for a taxable year subsequent to a taxable year for which he had chosen the benefits of income averaging, and (ii) such net operating loss carryback is wholly utilized in any one or more of his base period years (which would result in an increased amount of averageable income for such computation year), the special period of limitation with respect to such individual's computation year applies and a timely claim for credit or refund with respect to the computation year may be filed. [T.D. 7196, 37 FR 13691, July 13, 1972, and T.D. 7301, 39 FR 976, Jan. 4, 1974] § 301.6511(d)-3 Special rules applicable to credit against income tax for foreign taxes. (a) Period in which claim may be filed. (b) Limit on amount to be credited or refunded. § 301.6511(d)-4 Overpayment of income tax on account of investment credit carryback. (a) Special period of limitation. (i) The period which ends with the expiration of the 15th day of the 40th month (or 39th month, in the case of a corporation) following the end of the taxable year of the unused investment credit which resulted in the carryback (or, with respect to any portion of an investment credit carryback from a taxable year attributable to a net operating loss carryback or a capital loss carryback from a subsequent taxable year, the period which ends with the expiration of the 15th day of the 40th month (or 39th month, in the case of a corporation) following the end of such subsequent taxable year); or (ii) The period which ends with the expiration of the period prescribed in section 6511(c) within which a claim for credit or refund may be filed with respect to the taxable year of the unused investment credit which resulted in the carryback. (2) In the case of a claim for credit or refund involving an investment credit carryback described in subparagraph (1) of this paragraph, the amount of the credit or refund may exceed the portion of the tax paid within the period provided in section 6511 (b)(2) or (c), whichever is applicable, to the extent of the amount of the overpayment attributable to the carryback. If the claim involves an overpayment based not only on an investment credit carryback described in subparagraph (1) of this paragraph (a), but based also on other items, the credit or refund cannot exceed the sum of the following: (i) The amount of the overpayment which is attributable to the investment credit carryback, and (ii) The balance of such overpayment up to a limit of the portion, if any, of the tax paid within the period provided in section 6511 (b)(2) or (c), or within the period provided in any other applicable provision of law. (3) If the claim involves an overpayment based not only on an investment credit carryback described in subparagraph (1) of this paragraph (a), but based also on other items, and if the claim with respect to any items is barred by the expiration of any applicable period of limitation, the portion of the overpayment attributable to the items not so barred shall be determined by treating the allowance of such items as the first adjustment to be made in computing such overpayment. If a claim for credit or refund is not filed, and if credit or refund is not allowed, within the period prescribed in this paragraph, then credit or refund may be allowed or made only if claim therefor is filed, or if such credit or refund is allowed, within the period prescribed in section 6511 (a), (b), or (c), whichever is applicable, subject to the provisions thereof limiting the amount of credit or refund in the case of a claim filed, or if no claim was filed, in case of credit or refund allowed, within such applicable period. For the limitations on the allowance of interest for an overpayment where credit or refund is subject to the provisions of this section, see section 6611(f). (b) Barred overpayments. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7301, 39 FR 977, Jan. 4, 1974] § 301.6511(e)-1 Special rules applicable to manufactured sugar. (a) Use as livestock feed and for distillation of alcohol. (b) Exportation. § 301.6511(f)-1 Special rules for chapter 42 taxes. (a) In general. (b) Examples. Example 1. In 1972, D, an individual taxpayer who was a disqualified person under the provisions of section 4946(a)(1), participated in an act of self-dealing with a private foundation and incurred a tax under section 4941(a)(1). The private foundation files a Form 990-PF on May 15, 1973, and discloses thereon that it has engaged in an act of self-dealing with D. D files a Form 4720 on July 2, 1973, and pays the amount of tax imposed by section 4941(a) with respect to such act of self-dealing. For purposes of this section, the return was filed on May 15, 1973, and any claim for credit or refund by D must be filed by May 17, 1976 (May 15, 1976, was a Saturday). Example 2. Assume the same facts as in example 1 except that D filed a Form 4720 on July 1, 1974, and pays the tax on that date. D must then file any claim for credit or refund by July 1, 1976. [T.D. 7838, 47 FR 44252, Oct. 7, 1982] § 301.6512-1 Limitations in case of petition to Tax Court. (a) Effect of petition to Tax Court General rule. (2) Exceptions. (i) An overpayment determined by a decision of the Tax Court which has become final; (ii) Any amount collected in excess of an amount computed in accordance with the decision of the Tax Court which has become final; and (iii) Any amount collected after the expiration of the period of limitation upon levying or beginning a proceeding in court for collection. (b) Overpayment determined by Tax Court. (1) After the mailing of the notice of deficiency, or (2) Within the period which would be applicable under section 6511(b)(2), (c), (d) or (g) (see §§ 301.6511(b)-1. 301.6511(c)-1, 301.6511(d)-1, 301.6511(d)-2, and 301.6511(d)-3), if on the date of the mailing of the notice of deficiency a claim had been filed (whether or not filed) stating the grounds upon which the Tax Court finds that there is an overpayment. (c) Jeopardy assessments. (d) Disallowance of deficiency by reviewing court. (e) Collection in excess of amount determined by Tax Court. (f) Collection after expiration of statutory period. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7838, 47 FR 44252, Oct. 7, 1982] § 301.6513-1 Time return deemed filed and tax considered paid. (a) Early return or advance payment of tax. (b) Prepaid income tax. (1) Any tax actually deducted and withheld at the source during any calendar year under chapter 24 of the Code (relating to collection of income tax at source on wages) shall, in respect of the recipient of the income, be deemed to have been paid by him on the 15th day of the fourth month following the close of his taxable year with respect to which such tax is allowable as a credit under section 31 (relating to tax withheld on wages), (2) Any amount paid as estimated income tax for any taxable year shall be deemed to have been paid on the last day prescribed for filing the income tax return under section 6012 for such taxable year (determined without regard to any extension of time for filing such return), and (3) Any tax withheld at the source on or after November 13, 1966, under chapter 3 of the Code (relating to tax withheld on nonresident aliens and foreign corporations and tax-free covenant bonds) shall, in respect of the recipient of the income, be deemed to have been paid by such recipient on the last day prescribed for filing his income tax return under section 6012 for the taxable year (determined without regard to any extension of time for filing such return) with respect to which such tax is allowable as a credit under section 1462 (relating to withheld tax as credit to recipient of income). Subparagraph (3) of this paragraph (b), shall apply even though the recipient of the income has been granted under section 6012 and the regulations thereunder an exemption from the requirement of making an income tax return for the taxable year. (c) Return and payment of social security taxes and income tax withholding. (d) Overpayment of income tax credited to estimated tax. § 301.6514(a)-1 Credits or refunds after period of limitation. (a) A refund of any portion of any internal revenue tax (or any interest, additional amount, addition to the tax, or assessable penalty) shall be considered erroneous and a credit of any such portion shall be considered void: (1) If made after the expiration of the period of limitation prescribed by section 6511 for filing claim therefor, unless prior to the expiration of such period claim was filed, or (2) In the case of a timely claim, if the credit or refund was made after the expiration of the period of limitation prescribed by section 6532(a) for the filing of suit, unless prior to the expiration of such period suit was begun. (b) For procedure by the United States to recover erroneous refunds, see sections 6532(b) and 7405. § 301.6514(b)-1 Credit against barred liability. Any credit against a liability in respect of any taxable year shall be void if the collection of such liability would be barred by the applicable statute of limitations at the time such credit is made. Mitigation of Effect of Period of Limitations § 301.6521-1 Mitigation of effect of limitation in case of related employee social security tax and self-employment tax. (a) Section 6521 may be applied in the correction of a certain type of error involving both the tax on self-employment income under section 1401 and the employee tax under section 3101 if the correction of the error as to one tax is, on the date the correction is authorized, prevented in whole or in part by the operation of any law or rule of law other than section 7122, relating to compromises. Examples of such law are sections 6212(c), 6401(a), 6501, 6511, 6512(a), 6514, 6532, 6901 (c), (d) and (e), 7121, and 7459(e). (b) If the liability for either tax with respect to which the error was made has been compromised under section 7122, the provisions of section 6521 limiting the correction with respect to the other tax do not apply. (c) Section 6521 is not applicable if, on the date of the authorization, correction of the effect of the error is permissible as to both taxes without recourse to such section. (d) If, because an amount of wages, as defined in section 3121(a), is erroneously treated as self-employment income, as defined in section 1402(b), or an amount of self-employment income is erroneously treated as wages, it is necessary in correcting the error to assess the correct tax and give a credit or refund for the amount of the tax erroneously paid, and if either, but not both, of such adjustments is prevented by any law or rule of law (other than section 7122), the amount of the assessment, or the amount of the credit or refund, authorized shall reflect the adjustment which would be made in respect of the other tax (either the tax on self-employment income under section 1401 or the employee tax under section 3101) but for the operation of such law or rule of law. For example, assume that during 1955 A paid $10 as tax on an amount erroneously treated as “wages”, when such amount was actually self-employment income, and that credit or refund of the $10 is not barred. A should have paid a self-employment tax of $15 on the amount. If the assessment of the correct tax, that is, $15, is barred by the statute of limitations, no credit or refund of the $10 shall be made without offsetting against such $10 the $15, assessment of which is barred. Thus, no credit or refund in respect of the $10 can be made. (e) As another example, assume that during 1955 a taxpayer reports wages of $4,200 and net earnings from self-employment of $900. By reason of the limitations of section 1402(b) he shows no self-employment income. Assume further that by reason of a final decision by the Tax Court of the United States, further adjustments to the taxpayer's income tax liability are barred. The question of the amount of his wages, as defined in section 3121, was not in issue in the Tax Court litigation, but it is subsequently determined (within the period of limitations applicable under the Federal Insurance Contributions Act) that $700 of the $4,200 reported as wages was not for employment as defined in section 3121(b). Therefore, the taxpayer is entitled to the allowance of a refund of the $14 tax paid on such remuneration under section 3101. The reduction of his wages from $4,200 to $3,500 would result in the determination of $700 self-employment income, the tax on which is $21 for the year. Under section 6521, the overpayment of $14 would be offset by the barred deficiency of $21, thus eliminating the refund otherwise allowable. If the facts were changed so that the taxpayer erroneously paid tax on self-employment income of $700, having been taxed on only $3,500 as wages, and within the period of limitations applicable under the Federal Insurance Contributions Act, it is determined that his wages were $4,200, the tax of $14 under section 3101, otherwise collectible, would be eliminated by offsetting under section 6521 the barred overpayment of $21. The balance of the barred overpayment, $7, cannot be credited or refunded. (f) Another illustration of the operation of section 6521 is the case of a taxpayer who, for 1955, is erroneously taxed on $2,500 as wages, the tax on which is $50, and who reports no self-employment income. After the period of limitations has run on the refund of the tax under the Federal Insurance Contributions Act, it is determined that the amount treated as wages should have been reported as net earnings from self-employment. The taxpayer's self-employment income would then be $2,500 and the tax thereon would be $75. Assume that the period of limitations applicable to subtitle A of the Code has not expired, and that a notice of deficiency may properly be issued. Under section 6521, the amount of the deficiency of $75 must be reduced by the barred overpayment of $50. § 301.6521-2 Law applicable in determination of error. The question of whether there was an erroneous treatment of self-employment income or of wages is determined under the provisions of law and regulations applicable with respect to the year or other taxable period as to which the error was made. The fact that the error was in pursuance of an interpretation, either judicial or administrative, accorded such provisions of law and regulations at the time the action involved was taken is not necessarily determinative of this question. For example, if a later judicial decision authoritatively alters such interpretation so that such action is contrary to the applicable provisions of the law and regulations as later interpreted, the error comes within the scope of section 6521. Periods of Limitation in Judicial Proceedings § 301.6532-1 Periods of limitation on suits by taxpayers. (a) No suit or proceeding under section 7422(a) for the recovery of any internal revenue tax, penalty, or other sum shall be begun until whichever of the following first occurs: (1) The expiration of 6 months from the date of the filing of the claim for credit or refund, or (2) A decision is rendered on such claim prior to the expiration of 6 months after the filing thereof. Except as provided in paragraph (b) of this section, no suit or proceeding for the recovery of any internal revenue tax, penalty, or other sum may be brought after the expiration of 2 years from the date of mailing by registered mail prior to September 3, 1958, or by either registered or certified mail on or after September 3, 1958, by a district director, a director of an internal revenue service center, or an assistant regional commissioner to a taxpayer of a notice of disallowance of the part of the claim to which the suit or proceeding relates. (b) The 2-year period described in paragraph (a) of this section may be extended if an agreement to extend the running of the period of limitations is executed. The agreement must be signed by the taxpayer or by an attorney, agent, trustee, or other fiduciary on behalf of the taxpayer. If the agreement is signed by a person other than the taxpayer, it shall be accompanied by an authenticated copy of the power of attorney or other legal evidence of the authority of such person to act on behalf of the taxpayer. If the taxpayer is a corporation, the agreement should be signed with the corporate name followed by the signature of a duly authorized officer of the corporation. The agreement will not be effective until signed by a district director, a director of an internal revenue service center, or an assistant regional commissioner. (c) The taxpayer may sign a waiver of the requirement that he be mailed a notice of disallowance. Such waiver is irrevocable and will commence the running of the 2-year period described in paragraph (a) of this section on the date the waiver is filed. The waiver shall set forth: (1) The type of tax and the taxable period covered by the taxpayer's claim for refund; (2) The amount of the claim; (3) The amount of the claim disallowed; (4) A statement that the taxpayer agrees the filing of the waiver will commence the running of the 2-year period provided for in section 6532(a)(1) as if a notice of disallowance had been sent the taxpayer by either registered or certified mail. The filing of such a waiver prior to the expiration of 6 months from the date the claim was filed does not permit the filing of a suit for refund prior to the time specified in section 6532(a)(1) and paragraph (a) of this section. (d) Any consideration, reconsideration, or other action with respect to a claim after the mailing by registered mail prior to September 3, 1958, or by either registered or certified mail on or after September 3, 1958, of a notice of disallowance or after the execution of a waiver referred to in paragraph (c) of this section, shall not extend the period for bringing suit or other proceeding under section 7422(a). § 301.6532-2 Periods of limitation on suits by the United States. The United States may not recover any erroneous refund by civil action under section 7405 unless such action is begun within 2 years after the making of such refund. However, if any part of the refund was induced by fraud or misrepresentation of a material fact, the action to recover the erroneous refund may be brought at any time within 5 years from the date the refund was made. § 301.6532-3 Periods of limitation on suits by persons other than taxpayers. (a) General rule. (b) Period when claim is filed. (1) 12 months from the date of filing by a third party of a written request under § 301.6343-1(b)(2) for the return of property wrongfully levied upon, or (2) 6 months from the date of mailing by registered or certified mail by the district director to the party claimant of a notice of disallowance of the part of the request to which the action relates. A request which, under § 301.6343-1(b)(3), is not considered adequate does not extend the 9-month period described in paragraph (a) of this section. (c) Examples. Example 1. On June 1, 1970, a tax is assessed against A with respect to his delinquent tax liability. On July 19, 1970, a levy is wrongfully made upon certain tangible personal property of B's which is in A's possession at that time. On July 20, 1970, notice of seizure is given to A. Thus, under section 6502(b), July 20, 1970, is the date on which the levy is considered to be made. Unless a request for the return of property is sooner made to extend the 9-month period, no suit or proceeding under section 7426 may be begun by B after April 20, 1971, which is 9 months from the date of levy. Example 2. Assume the same facts as in the preceding example except that, on August 3, 1970, B properly files a request for the return of his property wrongfully levied upon. Assume further that the district director mails, on March 1, 1971, a notice of disallowance of B's request for the return of the property. No suit or proceeding under section 7426 may be begun by B after August 3, 1971, which is 12 months from the date of filing a request for the return of property wrongfully levied upon. Example 3. Assume the same facts as in the preceding example except that the notice of disallowance of B's request for the return of property wrongfully levied upon is mailed to B on November 12, 1970. Since the 6-month period from the mailing of the notice of disallowance expires before the 12-month period from the date of filing the request for the return of property which ends on August 3, 1971, no suit or proceeding under section 7426 may be begun by B after May 12, 1971, which is 6 months from the date of mailing the notice of disallowance. [T.D. 7305, 39 FR 9950, Mar. 15, 1974] Interest Interest on Underpayments § 301.6601-1 Interest on underpayments. (a) General rule. (2) For provisions requiring the payment of interest during the period occurring before July 1, 1975, see section 6601(a) prior to its amendment by section 7 of the Act of Jan. 3, 1975 (Pub. L. 93-625, 88 Stat. 2115). (b) Satisfaction by credits made after December 31, 1957 In general. (2) Examples. Example 1. An examination of A's income tax returns for the calendar years 1955 and 1956 discloses an underpayment of $800 for 1955 and an overpayment of $500 for 1956. Interest under section 6601(a) ordinarily accrues on the underpayment of $800 from April 15, 1956, to the date of payment. However, the 1956 overpayment of $500 is credited after December 31, 1957, against the underpayment in accordance with the provisions of section 6402(a) and § 301.6402-1. Under such circumstances interest on the $800 underpayment runs from April 15, 1956, the last date prescribed for payment of the 1955 tax, to April 15, 1957, the date the overpayment of $500 was made. Since interest would have been allowed on the overpayment, if refunded, from April 15, 1957, to a date not more than 30 days prior to the date of the refund check, no interest is imposed after April 15, 1957, on $500, the portion of the underpayment satisfied by credit. Interest continues to run, however, on $300 (the $800 underpayment for 1955 less the $500 overpayment for 1956) to the date of payment. Example 2. An examination of A's income tax returns for the calendar years 1956 and 1957 discloses an overpayment, occurring on April 15, 1957, of $700 for 1956 and an underpayment of $400 for 1957. After April 15, 1958, the last date prescribed for payment of the 1957 tax, the district director credits $400 of the overpayment against the underpayment. In such a case, interest will accrue upon the overpayment of $700 from April 15, 1957, to April 15, 1958, the due date of the amount against which the credit is taken. Interest will also accrue under section 6611 upon $300 ($700 overpayment less $400 underpayment) from April 15, 1958, to a date not more than 30 days prior to the date of the refund check. Since a refund of the portion of the overpayment credited against the underpayment would have resulted in interest running upon such portion from April 15, 1958, to a date not more than 30 days prior to the date of the refund check, no interest is imposed upon the underpayment. (c) Last date prescribed for payment. (2)(i) If a tax or portion thereof is payable in installments in accordance with an election made under section 6152(a) or 6156(a), the last date prescribed for payment of any installment of such tax or portion thereof shall be determined under the provisions of section 6152(b) or 6156(b), as the case may be, and interest shall run on any unpaid installment from such last date to the date on which payment is received. However, in the event installment privileges are terminated for failure to pay an installment when due as provided by section 6152(d) and the time for the payment of any remaining installment is accelerated by the issuance of a notice and demand therefor, interest shall run on such unpaid installment from the date of the notice and demand to the date on which payment is received. But see section 6601(e)(4). (ii) If the tax shown on a return is payable in installments, interest will run on any tax not shown on the return from the last date prescribed for payment of the first installment. If a deficiency is prorated to any unpaid installments, in accordance with section 6152(c), interest shall run on such prorated amounts from the date prescribed for the payment of the first installment to the date on which payment is received. (3) If, by reason of jeopardy, a notice and demand for payment of any tax is issued before the last date otherwise prescribed for payment, such last date shall nevertheless be used for the purpose of the interest computation, and no interest shall be imposed for the period commencing with the date of the issuance of the notice and demand and ending on such last date. If the tax is not paid on or before such last date, interest will automatically accrue from such last date to the date on which payment is received. (4) In the case of taxes payable by stamp and in all other cases where the last date for payment of the tax is not otherwise prescribed, such last date for the purpose of the interest computation shall be deemed to be the date on which the liability for the tax arose. However, such last date shall in no event be later than the date of issuance of a notice and demand for the tax. (d) Suspension of interest; waiver of restrictions on assessment. (e) Income tax reduced by carryback. (2) Where an extension of time for payment of income tax has been granted under section 6164 to a corporation expecting a net operating loss carryback or a net capital loss carryback, interest is payable at the annual rate established under section 6621 on the amount of such unpaid tax from the last date prescribed for payment thereof without regard to such extension. (3) Where there has been an allowance of an overpayment attributable to a net operating loss carryback, a capital loss carryback, an investment credit carryback, or a WIN credit carryback and all or part of such allowance is later determined to be excessive, interest shall be computed on the excessive amount from the last day of the year in which the net operating loss, net capital loss, investment credit, or WIN credit arose until the date on which the repayment of such excessive amount is received. Where there has been an allowance of an overpayment with respect to any portion of an investment credit carryback or a WIN credit carryback from a taxable year attributable to a net operating loss carryback or a capital loss carryback from a subsequent taxable year and all or part of such allowance is later determined to be excessive, interest shall be computed on the excessive amount from the last day of such subsequent taxable year until the date on which the repayment of such excessive amount is received. (f) Applicable rules. (2) No interest under section 6601 shall be payable on any interest provided by such section. This paragraph (f)(2) shall not apply after December 31, 1982, with respect to interest accruing after such date, or accrued but unpaid on such date. See § 301.6622-1. (3) Interest will not be imposed on any assessable penalty, addition to the tax (other than an addition to tax described in section 6601(e)(2)(B)), or additional amount if the amount is paid within 21 calendar days (10 business days if the amount assessed and shown on the notice and demand equals or exceeds $100,000) from the date of the notice and demand. If interest is imposed, it will be imposed only for the period from the date of the notice and demand to the date on which payment is received. This paragraph (f)(3) is applicable with respect to any notice and demand made after December 31, 1996. (4) If notice and demand is made after December 31, 1996, for any amount and the amount is paid within 21 calendar days (10 business days if the amount assessed and shown on the notice and demand equals or exceeds $100,000) from the date of the notice and demand, interest will not be imposed for the period after the date of the notice and demand. (5) For purposes of paragraphs (f)(3) and (4) of this section— (i) The term business day (ii) The term calendar day (6) No interest shall be imposed for failure to pay estimated tax as required by section 59 of the Internal Revenue Code of 1939 or section 6153 or 6154 of the Internal Revenue Code of 1954. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7238, 37 FR 28742, Dec. 29, 1972; T.D. 7301, 39 FR 978, Jan. 4, 1974; T.D. 7384, 40 FR 49324, Oct. 22, 1975; T.D. 7838, 47 FR 44252, Oct. 7, 1982; T.D. 7907, 48 FR 38230, Aug. 23, 1983; T.D. 8725, 62 FR 39117, July 22, 1997] § 301.6602-1 Interest on erroneous refund recoverable by suit. Any portion of an internal revenue tax (or any interest, assessable penalty, additional amount, or addition to tax) which has been erroneously refunded, and which is recoverable by a civil action pursuant to section 7405, shall bear interest at the annual rate referred to in the regulations under section 6621 from the date of the payment of the refund. [T.D. 7384, 40 FR 49324, Oct. 22, 1975] Interest on Overpayments § 301.6611-1 Interest on overpayments. (a) General rule. (b) Date of overpayment. (c) Examples. Example 1. Corporation X files an income tax return on March 15, 1955, for the calendar year 1954 disclosing a tax liability of $1,000 and elects to pay the tax in installments. Subsequent to payment of the final installment, the correct tax liability is determined to be $900. Tax liability Assessed $1,000 Correct liability 900 Overassessment 100 Record of payments Mar. 15, 1955 $500 June 15, 1955 500 Since the correct liability in this case is $900, the payment of $500 made on March 15, 1955, and $400 of the payment made on June 15, 1955, are applied in satisfaction of the tax liability. The balance of the payment made on June 15, 1955 ($100) constitutes the amount of the overpayment, and the date on which such payment was made would be the date of the overpayment from which interest would be computed. Example 2. Corporation Y files an income tax return for the calendar year 1954 on March 15, 1955, disclosing a tax liability of $50,000, and elects to pay the tax in installments. On October 15, 1956, a deficiency in the amount of $10,000 is assessed and is paid in equal amounts on November 15 and November 26, 1956. On April 15, 1957, it is determined that the correct tax liability of the taxpayer for 1954 is only $35,000. Tax liability Original assessment $50,000 Deficiency assessment 10,000 Total assessed 60,000 Correct liability 35,000 Overassessment 25,000 Record of payments Mar. 15, 1955 $25,000 June 15, 1955 25,000 Nov. 15, 1956 5,000 Nov. 26, 1956 5,000 Since the correct liability in this case is $35,000, the entire payment of $25,000 made on March 15, 1955, and $10,000 of the payment made on June 15, 1955, are applied in satisfaction of the tax liability. The balance of the payment made on June 15, 1955 ($15,000), plus the amounts paid on November 15 ($5,000), and November 26, 1956 ($5,000), constitute the amount of the overpayment. The dates of the overpayments from which interest would be computed are as follows: Date Amount of overpayment June 15, 1955 $15,000 Nov. 15, 1956 5,000 Nov. 26, 1956 5,000 The amount of any interest paid with respect to the deficiency of $10,000 is also an overpayment. (d) Advance payment of tax, payment of estimated tax, and credit for income tax withholding. (e) Refund of income tax caused by carryback. (f) Refund of income tax caused by carryback of foreign taxes. (g) Period for which interest allowable in case of refunds. (h) Period for which interest allowable in case of credits General rule. (2) Determination of due date In general. (ii) Tax payable in installments—(a) In general. ( b Delinquent installment. (iii) Tax or installment not yet due. (iv) Additional assessment satisfied by credit before January 1, 1958. (v) Interest. (vi) Additional amount, addition to the tax, or assessable penalty. (vii) Estimated income tax for succeeding year. (i) [Reserved] (j) Refund of overpayment. (1) In the case of a return filed on or before the last date prescribed for filing the return of such tax (determined without regard to any extension of time for filing such return), within 45 days after such last date, or (2) After December 17, 1966, in the case of a return filed after the last day prescribed for filing the return, within 45 days after the date on which the return is filed. However, in the case of any overpayment of tax by an individual (other than an estate or trust and other than a nonresident alien individual) for a taxable year beginning in 1974, “60 days” shall be substituted for “45 days” each place it appears in this paragraph. (k) Effective date. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7301, 39 FR 979, Jan. 4, 1974; T.D. 7384, 40 FR 49325, Oct. 22, 1975; T.D. 7415, 41 FR 14369, Apr. 5, 1976; T.D. 8524, 59 FR 10076, Mar. 3, 1994] Determination of Interest Rate § 301.6621-1 Interest rate. (a) In general. (1) On amounts outstanding before July 1, 1975, 6 percent per annum (or 4 percent in the case of certain extensions of time for payment of taxes as provided in sections 6601 (b) and (j) prior to amendment by section 7(b) of the Act of Jan. 3, 1975 (Pub. L. 93-625, 88 Stat. 2115), and certain overpayments of the unrelated business income tax as provided in section 514(b)(3)(D), prior to its amendment by such Act). (2) On amounts outstanding— After And before Rate per annum (percent) June 30, 1975 Feb. 1, 1976 9 Jan. 31, 1976 Feb. 1, 1978 7 Jan. 31, 1978 Feb. 1, 1980 6 Jan. 31, 1980 Feb. 1, 1982 12 Jan. 31, 1982 Jan. 1, 1983 20 (3) On amounts outstanding after December 31, 1982, the adjusted rate established by the Commissioner under section 6621(b). This adjusted rate shall be published by the Commissioner in a Revenue Ruling. See § 301.6622-1 for application of daily compounding in determining interest accruing after December 31, 1982. Because interest accruing after December 31, 1982, accrues at the prescribed rate per annum compounded daily, the effective annual percentage rate of interest will exceed the prescribed rate of interest. (b) [Reserved] (c) Applicability of interest rate Computation. (2) Additions to tax. (3) Interest. (d) Examples. Example 1. A, an individual, files an income tax return for the calendar year 1974 on April 15, 1975, showing a tax due of $1,000. A pays the $1,000 on September 1, 1975. Pursuant to section 6601(a), interest on the underpayment of $1,000 is computed at the rate of 6 percent per annum from April 15, 1975, to June 30, 1975, a total of 76 days. Interest for 63 days, from June 30, 1975, to September 1, 1975, shall be computed at the rate of 9 percent per annum. Example 2. An executor of an estate is granted, in accordance with section 6161(a)(2)(A), a two-year extension of time for payment of the estate tax shown on the estate tax return, which tax was otherwise due on January 15, 1974. The tax is paid on January 15, 1976. Interest on the underpayment shall be computed at the rate of 4 percent per annum from January 15, 1974, to June 30, 1975, and at the rate of 9 percent per annum from June 30, 1975, to January 15, 1976. Example 3. X, a corporation, files its 1973 corporate income tax return on March 15, 1974, and pays the balance of tax due shown thereon. On August 1, 1975, an assessment of a deficiency is made against X with respect to such tax. The deficiency is paid on October 1, 1975. Interest at the rate of 6 percent per annum is due on the deficiency from March 15, 1974, the due date of the return, to June 30, 1975, and at the rate of 9 percent per annum from June 30, 1975, to October 1, 1975. Example 4. Y, an individual, files an amended individual income tax return on October 1, 1975, for the refund of an overpayment of income tax Y made on April 15, 1975. Interest is allowed on the overpayment to December 1, 1975. Pursuant to section 6611(a), interest is computed at the rate of 6 percent per annum from April 15, 1975, the date of overpayment, to June 30, 1975. Interest from June 30, 1975, to December 1, 1975, shall be computed at the rate of 9 percent per annum. Example 5. A, an individual, is liable for an addition to tax under section 6654 for the underpayment of estimated tax from April 15, 1975 until January 15, 1976. The addition to tax shall be computed at the annual rate of 6 percent per annum from April 15, 1975, to June 30, 1975, and at the annual rate of 9 percent per annum from June 30, 1975, to January 15, 1976. Example 6. B, an individual, files an income tax return for calendar year 1980 on April 15, 1981, showing a tax due of $1,000. B pays the $1,000 on March 1, 1983. Under section 6601 (a), interest on the $1,000 underpayment is due from April 15, 1981, to March 1, 1983. Such interest is computed at the rate of 12 percent per annum, simple interest from April 15, 1981, to January 31, 1982, and at the rate of 20 percent per annum, simple interest from January 31, 1982, to December 31, 1982, and at the rate of 16 percent per annum, compounded daily, from December 31, 1982, to March 1, 1983. The total simple interest accrued but unpaid at the end of December 31, 1982, is combined with the $1,000 underpayment for purposes of determining the amount of daily compounded interest to be charged from December 31, 1982, to March 1, 1983. [T.D. 7907, 48 FR 38230, Aug. 23, 1983; 48 FR 41018, Sept. 13, 1983; 48 FR 41581, Sept. 16, 1983] § 301.6621-2T Questions and answers relating to the increased rate of interest on substantial underpayments attributable to certain tax motivated transactions (temporary). The following questions and answers relate to the increased rate of interest on substantial underpayments attributable to certain tax motivated transactions as provided in section 6621(d) of the Internal Revenue Code of 1954, as added by section 144 of the Tax Reform Act of 1984 (Pub. L. 98-369, 98 Stat. 682): Q-1. What is the annual interest rate under section 6621 for purposes of computing the amount of interest that must be paid under section 6601 (relating to interest on underpayments)? A-1. In general, the annual interest rate for purposes of section 6601 is the adjusted rate of interest established under section 6621 (b) § 301.6621-1 (“adjusted rate”). If, however, a tax motivated underpayment (as defined in A-2 of this section) for a taxable year is substantial (as defined in A-7 of this section), section 6621(d) provides that the annual rate of interest with respect to the tax motivated underpayment is 120 percent of the adjusted rate (“120 percent rate”), rounded to the nearest tenth of a percent. Q-2. What is a tax motivated underpayment? A-2. A tax motivated underpayment is the portion of a deficiency (as defined in section 6211) of tax imposed by subtitle A (income taxes) that is attributable to any of the following tax motivated transactions: (1) Any instance in which the value of any property, or the adjusted basis of any property, claimed on a return is 150 percent or more of the amount determined to be the correct amount of such valuation or adjusted basis ( i.e., (2) Any loss disallowed for any period by reason of section 465(a) or any amount included in gross income by reason of section 465(e); (3) Any credit disallowed for any period by reason of section 46(c)(8) or section 48(d)(6); (4) Any loss disallowed for any period with respect to a straddle, as defined in section 1092(c), but without regard to sections 1092 (d) and (e); (5) Any use of an accounting method that may result in a substantial distortion of income for any period (see A-3 of this section); and (6) Any deduction disallowed with respect to any other tax motivated transactions (see A-4 of this section). Q-3. What accounting methods may result in a substantial distortion of income for any period under A-2(5) of this section? A-3. A deduction or credit disallowed, or income included, in any of the circumstances listed below shall be treated as attributable to the use of an accounting method that may result in a substantial distortion of income and shall thus be a tax motivated transaction that results in a tax motivated underpayment: (1) Any deduction disallowed for any period by reason of section 464 or section 278(b), relating to certain expenses of farming syndicates; (2) In the case of a taxpayer who computes taxable income using the cash receipts and disbursements method of accounting, any interest deduction disallowed for any period by reason of section 461(g), relating to prepaid interest, provided the interest is not paid with respect to indebtedness incurred in connection with (i) the purchase, refinancing, or improvement of the principal residence of the taxpayer, or (ii) the purchase of consumer goods by the taxpayer; (3) Any interest deduction disallowed for any period because the amount of the claimed deduction was computed using a method resulting in an amount of interest for a period that exceeds the true cost of the indebtedness for the period computed by applying the effective rate of interest on the loan to the unpaid balance of the loan for the period ( i.e., (4) Any deduction disallowed for any period under section 709, relating to organization or syndication expenditures of a partnership; (5) In the case of any expenditure described in section 248(b) that was incurred by an S corporation, any deduction disallowed because it exceeds the amount allowable under section 248, relating to organizational expenditures; (6) Any deduction disallowed for any period under section 267(a), relating to transactions between related taxpayers; (7) Any deduction disallowed for any period, or any income required to be included for any period, under section 467, relating to certain payments for the use of property or services; (8) Any deduction disallowed for any period under section 461(i), relating to certain deductions of tax shelters; and (9) In the case of a taxpayer who computes taxable income using the cash receipts and disbursements method of accounting, any deduction disallowed for any period because (i) the expenditure resulting in the deduction was a deposit rather than a payment, (ii) the expenditure was prepaid for tax avoidance purposes and not for a business purpose, or (iii) the deduction resulted in a material distortion of income (see, e.g., Rev. Rul. 79-229, 1979-2 C.B. 210). Q-4. Are any transaction other than those specified in A-2 of this section and those involving the use of accounting methods under circumstances specified in A-3 of this section considered tax motivated transactions under A-2(6) of this section? A-4. Yes. Deductions disallowed under the following provisions are considered to be attributable to tax motivated transactions: (1) Any deduction disallowed for any period under section 183, relatiing to an activity engaged in by an individual or an S corporation that is not engaged in for profit, and (2) Any deduction disallowed for any period under section 165(c)(2), relating to any transaction not entered into for profit. Q-5. How is the amount of a tax motivated underpayment determined? A-5. Except as provided in A-6 of this section, the amount of a tax motivated underpayment is determined in the following manner: (1) Calculate the amount of the tax liability for the taxable year as if all items of income, gain, loss, deduction, or credit, had been reported properly on the income tax return of the taxpayer (“total tax liability”); and (2) Without taking into account any adjustments to items of income, gain, loss, deduction, or credit that are attributable to tax motivated transactions (as defined in A-2 through A-4 of this section), calculate the amount of the tax liability for the taxable year as if all other items of income, gain loss, deduction, or credit had been reported properly on the income tax return of the taxpayer (“tax liability without regard to tax motivated transactions”). (3) The difference between the total tax liability and the tax liability without regard to tax motivated transactions is the amount of the tax motivated underpayment. Example. Taxpayer A, a calendar year taxpayer, files his 1984 income tax return reporting $70,000 of taxable income and $23,171 of tax liability. On January 20, 1986, A enters into a closing agreement with the Internal Revenue Service that includes the following adjustments; Section 162 deduction disallowed (not tax motivated) $7,500 Loss disallowed under section 465 (tax motivated—see A-2(2) of this section) 5,000 Section 170 deduction disallowed because of a valuation overstatement (tax motivated—see A-2(1) of this section) 10,000 Loss disallowed with respect to a straddle as defined in section 1092(c) (tax motivated—see A-2(4) of this section) 7,000 Other adjustments (none of which are tax motivated) 4,000 1. Reported taxable income 70,000 (Add all adjustments to items of income, gain, loss, deduction, or credit (including tax motivated transactions subject to section 6621(d))) + 33,500 Tax = $39,685 (“total tax liability”) 103,500 2. Reported taxable income 70,000 (Add adjustments to items of income, gain, loss, deduction, or credit other than those with respect to items that are tax motivated) + 11,500 Tax = $28,691 (“tax liability without regard to tax motivated transactions”) 81,500 The tax motivated underpayment ( i.e. The remainder of the underpayment ( i.e., Q-6: How are the amounts of the tax motivated underpayment and the underpayment attributable to fraud or negligence determined if all or a portion of the taxpayer's underpayment is attributable to one or more tax motivated transactions and all or a portion is subject to the addition to tax imposed by section 6653(a)(2) (in the case of an underpayment attributable to negligence or intentional disregard) or section 6653(b)(2) (in the case of an underpayment attributable to fraud)? A-6: If all or a portion of the taxpayer's underpayment is attributable to tax motivated transactions, and all or a portion is attributable to fraudulent or negligent items ( i.e., (1) Determine the following amounts; (i) The tax liability for the taxable year of the taxpayer as if all items of income, gain, loss, deduction, or credit had been reported properly on the income tax return of the taxpayer (“total tax liability”); (ii) The tax liability for the taxable year of the taxpayer as if all items of income, gain, loss, deduction, or credit without taking into account adjustments to items of income, gain, loss, deduction, or credit that are both (a) attributable to tax motivated transactions and (b) subject to section 6653(a)(2) or section 6653(b)(2), had been reported properly on the income tax return of the taxpayer (“tax liability without regard to fraudulent or negligent tax motivated items”); (iii) The tax liability for the taxable year of the taxpayer as if all items of income, gain, loss, deduction, or credit, without taking into account adjustments to items of income, gain, loss, deduction, or credit that are subject to section 6653(a)(2) or section 6653(b)(2), had been reported properly on the income tax return of the taxpayer (“tax liability without regard to fraudulent or negligent items”); (iv) The tax liability for the taxable year of the taxpayer as if all items of income, gain, loss, deduction, or credit, without taking into account adjustments to items of income, gain, loss, deduction, or credit that are either subject to section 6653(a)(2) or section 6653(b)(2) or attributable to tax motivated transactions, had been reported properly on the income tax return of the taxpayer (“tax liability without regard to tax motivated or fraudulent or negligent items”). (2) The tax motivated underpayment attributable to fraudulent or negligent items is the excess of the total tax liability over the tax liability determined without regard to fraudulent or negligent tax motivated items ((i)-(ii)). (3) The tax motivated underpayment is the sum of (a) the tax motivated underpayment attributable to fraudulent or negligent items ((i)-(ii)) plus (b) the excess of the tax liability without regard to fraudulent or negligent items over the tax liability without regard to tax motivated or fraudulent or negligent items ((iii)-(iv)). Interest on this underpayment is computed at the 120 percent rate. (4) The underpayment attributable to fraudulent or negligent items is the excess of the total tax liability over the tax liability without regard to fraudulent or negligent items ((i)-(iii)). The section 6653 addition to tax is 50 percent of the interest on this underpayment computed at the 120 percent rate on an amount equal to the tax motivated underpayment attributable to fraudulent or negligent items (computed in (2)) and at the adjusted rate on the remainder. Example. Taxpayer A, a calendar year taxpayer, files his 1984 income tax return reporting $70,000 of taxable income and $23,171 of tax liability. On January 20, 1986, A enters into a closing agreement with the Internal Revenue Service that includes the following adjustments: Section 162 deduction disallowed (not tax motivated but fraudulent or negligent) $7,500 Loss disallowed under section 465(a) (tax motivated—see A-2(2) of this section—and fraudulent or negligent) 5,000 Section 170 deduction disallowed because of a valuation overstatement (tax motivated—see A-2(1) of this section—but not fraudulent or negligent 10,000 Loss disallowed with respect to a straddle as defined in section 1092(c) (tax motivated—see A-2(4) of this section but not fraudulent or negligent) 7,000 Other adjustments (none of which are tax motivated or fraudulent or negligent) 4,000 The tax motivated underpayment is determined in the following manner: (1)(i) Reported taxable income $70,000 (Add all adjustment + 33,500 Tax = $39,685 (“total tax liability”) 103,500 (ii) Reported taxable income 70,000 All adjustments other than those with respect to items that are both tax motivated and fraudulent or negligent + 28,500 Tax = $37,185 (“tax liability without regard to fraudulent or negligent, tax motivated items”) 98,500 (iii) Reported taxable income 70,000 (All adjustments other than those with respect to items that are fraudulent or negligent) + 21,000 Tax = $33,435 (“tax liability without regard fraudulent or negligent items”) 91,000 (iv) Reported taxable income 70,000 (All adjustments other than those with respect to items that are either tax motivated or fraudulent or negligent) + 4,000 Tax = $25,091 (“tax liability without regard to tax motivated or fraudulent or negligent items”) 74,000 (2) The tax motivated underpayment attributable to fraudulent or negligent items is $2,500 ((i))-(ii) or $39,685−$37,185). (3) The tax motivated underpayment is $10,844 ((2) + ((iii)-(iv)) or $2,500 + ($33,435−$25,091)). Interest on $10,844 is computed at the 120 percent rate. (4) The underpayment attributable to fraudulent or negligent items is $6,250 ((i)-(iii) or $39,685−$33,435). The section 6653 addition to tax is 50 percent of the interest on $6,250, computed at the 120 percent rate on an amount equal to the tax motivated underpayment attributable to fraudulent or negligent items ($2,500) and at the adjusted rate on the remainder ($3,750). (5) In summary, therefore, the total underpayment is $16,514 (total tax liability ($39,685) less reported tax liability ($23,171)) of which $10,844 accrues interest at the 120 percent rate and $5,670 ($16,514−$10,844) accrues interest at the adjusted rate. In addition, $6,250 of the underpayment is subject to the section 6653(a)(2) or section 6653(b)(2) addition to tax. The underlying interest, upon which the addition to tax is based, is computed using the 120 percent rate for the portion of the underpayment subject to section 6621(d) ($2,500) and the adjusted rate for the portion that is not subject to section 6621(d) ($3,750). Q-7. Does the 120 percent rate apply to all tax motivated underpayments? A-7. No. The 120 percent rate applies only if the tax motivated underpayment for the taxable year is substantial. A tax motivated underpayment is substantial only if it exceeds $1,000. If, for example, a taxpayer has a $600 underpayment attributable to a valuation overstatement (within the meaning of section 6659(c)(1)) and a $500 underpayment attributable to a loss disallowed under section 465(a), the amount of the tax motivated underpayment is $1,100. Because the amount of the tax motivated underpayment is thus substantial the 120 percent rate applies. Q-8. How do carryovers affect the amount of the tax motivated underpayment and the amount of the underpayment attributable to fraudulent or negligent items? A-8. For purposes of A-5 and A-6 of this section, a net operating loss carryover, capital loss carryover, or credit carryover is treated as a deduction or credit in the year in which taken into account. In any computation of tax liability required under A-5 or A-6 of this section ( i.e., Q-9. What amount is subject to the 120 percent rate if the amount of a taxpayer's unpaid tax for a year is less than the taxpayer's substantial tax motivated underpayment? A-9. The 120 percent rate applies with respect to the lesser of— (1) The amount of unpaid tax for the taxable year determined in accordance with § 301.6601-1; or (2) The substantial tax motivated underpayment for the taxable year. Q-10. What is the effective date for the 120 percent rate? A-10. The 120 percent rate applies to interest accruing on a deficiency attributable to a substantial tax motivated underpayment after December 31, 1984, including interest accruing with respect to transactions described in A-3 and A-4 of this section, regardless of the date prescribed for payment of the tax. Example. Taxpayer A files his income tax return on April 15, 1983 (the last date prescribed for payment of tax for taxable year 1982 under section 6601). In January 1985, Taxpayer A files a petition in the Tax Court in response to a statutory notice of deficiency for taxable year 1982, which includes a tax motivated underpayment of $10,000. In September 1986, the Tax Court enters a decision for the Internal Revenue Service. Under section 6601, interest accrues at the adjusted rate, compounded daily, on tax motivated underpayments outstanding before January 1, 1985, and at the 120 percent rate, compounded daily, on amounts outstanding after December 31, 1984. The underpayment that is subject to the 120 percent rate includes both the $10,000 tax motivated underpayment and the interest that accrued on the underpayment at the adjusted rate from April 16, 1983, through December 31, 1984. Q-11. Can a taxpayer stop the running of interest on a tax motivated underpayment by application of a remittance? A-11. Yes. The running of interest on a tax liability stops on the date the remittance (either a payment of tax or a deposit in the nature of a cash bond) is received by the Internal Revenue Service, regardless of when the liability is assessed or the remittance is actually applied against the taxpayer's account. A taxpayer must make a remittance for both the tax liability and the interest that has accrued as of the date of remittance to stop the running of interest on both the tax liability and the accrued interest with respect to the liability. (See Rev. Proc. 84-58.) Taxpayer cannot make partial remittances applicable only to tax motivated underpayments. Under A-9 of this section, the 120 percent rate applies to the amount of unpaid tax to the extent that amount does not exceed the tax motivated underpayment. Therefore, a partial remittance is applied first to any tax due that is not attributable to a tax motivated underpayment. The excess of the partial remittance over tax that is not attributable to a tax motivated underpayment, if any, will then be applied to tax due that is attributable to a tax motivated underpayment. Q-12. Does the 120 percent rate apply to interest accruing on interest, penalties, additional amounts, or additions to tax as provided in section 6601(e)(2)? A-12. The 120 percent rate applies only to taxes imposed by subtitle A (income taxes) and to interest accrued with respect to such taxes. The penalties, additional amounts, and additions to tax specified in section 6601(e)(2) are not imposed by subtitle A and are not, therefore, included in the amount of a tax motivated underpayment. They are, however, included in the amount of unpaid tax for purposes of A-9 of this section. Example. Taxpayer A, for taxable year 1984, has a $10,000 tax motivated underpayment and a $2,000 addition to tax for a total unpaid tax of $12,000. If A makes a $5,000 payment of tax, he will still have a $10,000 tax motivated underpayment but will now have only $7,000 of unpaid tax. Pursuant to A-9 of this section, therefore, the 120 percent rate would apply to the $7,000 of unpaid tax. (Secs. 6621(d) and 7805, Internal Revenue Code of 1954 (98 Stat. 682, 26 U.S.C. 6621(d); 68A Stat. 917, 26 U.S.C. 7805)) [T.D. 7998, 49 FR 50391, Dec. 28, 1984] § 301.6621-3 Higher interest rate payable on large corporate underpayments. (a) In general. (b) Large corporate underpayment Defined. (2) Underpayment of a tax In general. (ii) Threshold underpayment of a tax. (iii) When determined In general. (B) Judicial determinations. (iv) Special rule. (3) C corporation defined. (i) The taxpayer ceases to be a C corporation; or (ii) The underpayment becomes the liability of a successor or transferee that is not a C corporation. (4) Taxable period. (5) Last date prescribed for payment. (c) Applicable date In general. (2) When deficiency procedures apply. (i) The date on which the Service sends the taxpayer the first letter of proposed deficiency that allows the taxpayer an opportunity for administrative review in the Service's Office of Appeals (commonly called a “30-day letter”); or (ii) The date on which the Service sends a deficiency notice under section 6212 of the Internal Revenue Code (commonly called a “90-day letter”). (3) When deficiency procedures do not apply. (4) Partnership items. (5) Exception of payment of amount shown as due In general. (ii) Special transition rule. (iii) Amount shown as due. (6) Exception for withdrawn letters and notices Letters of proposed deficiency. (ii) Deficiency notices. (iii) Assessment letters and notices. (d) Examples. Example 1. V, a C corporation, timely files Form 941 on January 31, 1991, for the fourth quarter of 1990. On September 1, 1992, the Service sends V a section 6303 notice and demand reflecting an additional FICA tax liability for that quarter of $90,000. Interest computed at the section 6621(a)(2) rate totals $15,000 as of September 1, 1992. Accordingly, V's underpayment of FICA tax for the fourth quarter of 1990 exceeds $100,000. However, V's $90,000 threshold underpayment of FICA tax for that taxable period is less than $100,000, so that the section 6621(c) rate will not apply to the underpayment for that taxable period. Example 2. (i) W, a C corporation, timely files its 1990 income tax return on March 15, 1991, showing a liability of $95,000, of which W pays only $35,000 with the return. On June 1, 1991, the Service sends W an assessment notice reflecting the balance due of $60,000 plus interest computed at the section 6621(a)(2) rate. W pays all amounts due on August 1, 1991. On July 1, 1993, the Service sends W a 90-day letter (without having sent a 30-day letter) reflecting an additional income tax deficiency of $85,000 for the taxable year 1990. W files a petition in the Tax Court within 90 days. In 1995, the Tax Court determines a $50,000 income tax deficiency (exclusive of interest, penalties, additional amounts, and additions to tax) for 1990, which the Service promptly assesses against W. (ii) As a result of the combination of the failure to timely pay the $60,000 of income tax reported as due on the return and the Tax Court's determination of an additional deficiency of $50,000, W's threshold underpayment of income tax for 1990 is $110,000. Because W is a C corporation and the threshold underpayment for 1990 exceeds $100,000, the section 6621(c) rate applies to W's 1990 large corporate underpayment for periods after the applicable date. (iii) The applicable date is July 1, 1991, the 30th day after the date on which the Service sent W the first assessment notice. (iv) From March 16, 1991, through July 1, 1991, interest on W's 1990 underpayment of income tax (including any interest, penalties, additional amounts, and additions to tax) is computed at the section 6621(a)(2) rate. From July 2, 1991, such interest is computed at the section 6621(c) rate. (v) If W had paid the amount shown as due on the June 1, 1991, assessment notice on or before June 30, 1991, instead of on August 1, 1991, the applicable date would have been July 31, 1993. (vi) Assume that W had paid the amount shown as due on the June 1, 1991, assessment notice on or before June 30, 1991. If W had made a $40,000 deposit in the nature of a cash bond on July 15, 1993, the applicable date would be July 31, 1993. Moreover, the deposit would have no effect on the existence or amount of W's threshold underpayment or large corporate underpayment for 1990. In such a case, however, when the Service assesses the amount due from W in 1995, the deposit would be treated as a payment made as of July 15, 1993, for purposes of computing interest due after that date. As a result, interest would accrue after July 15, 1993, (at the section 6621(c) rate) only on the portion of W's 1990 underpayment that exceeds the $40,000 deposit amount. Example 3. (i) X, a C corporation, filed its 1989 income tax return ,on September 17, 1990, pursuant to an automatic extension. X enclosed payment of the $7,500 balance reported on the return as due (plus interest). On January 1, 1992, the Service sends X a written notification that X's 1989 income tax return is being examined. This written notification also contains a request that X provide supplemental information with respect to particular deductions totalling $1.5 million. On July 1, 1993, the Service sends X a 30-day letter proposing a $450,000 deficiency (without any reference to penalties, additional amounts, additions to tax, and interest) with respect to 1989. On December 15, 1993, the Service sends X a 90-day letter asserting a deficiency of $300,000 (excluding penalties, additional amounts, additions to tax, and other interest). X does not file a Tax Court petition and the Service assesses the $300,000 (plus interest and penalties) on April 1, 1994. On April 5, 1994, X pays the full amount assessed. Thereafter, X timely files an administrative claim for refund and a refund suit in federal district court for the amounts assessed on April 1, 1994. On September 30, 1995, the federal district court determines that, exclusive of interest and penalties, X overpaid its 1989 income tax by $250,000. (ii) The April 1, 1994, assessment establishes at that time that X's threshold underpayment of income tax for 1989 is $300,000. Because X is a C corporation and the threshold underpayment for 1989 exceeds $100,000, X's underpayment of income tax for 1989 is a large corporate underpayment to which the section 6621(c) rate applies for periods after the applicable date. X's decision to file a refund claim does not affect, in and of itself, either the existence of a threshold underpayment or the amount of X's large corporate underpayment. (iii) For purposes of determining the amount of interest to assess on April 1, 1994, the applicable date is July 31, 1993, the 30th day after the date on which the Service sent X a 30-day letter. The January 1, 1992, notice of examination and request for additional information has no effect on the applicable date. Similarly, the September 30, 1995, federal district court decision has no effect on the applicable date. (iv) From March 16, 1990, through July 31, 1993, interest on X's 1989 underpayment of income tax (including any interest, penalties, additional amounts, and additions to tax) is computed at the section 6621(a)(2) rate. From August 1, 1993, through April 5, 1994, such interest is computed at the section 6621(c) rate. (v) Because of the federal district court's decision that X's underpayment, exclusive of interest and penalties, was only $50,000, X does not have a large corporate underpayment of income tax for 1989. Thus, the interest X paid with respect to the remaining $250,000 in taxes (exclusive of interest and penalties) becomes part of the overpayment and will be refunded. In addition, any interest computed at the section 6621(c) rate for the period from August 1, 1993, through April 5, 1994, should be recomputed at the section 6621(a)(2) rate and the difference refunded. Example 4. (i) Y, a C corporation, timely filed its 1989 income tax return on March 15, 1990, and enclosed payment of the amount reported on the return as due. On May 1, 1990, the Service sent to Y an assessment notice for $1,000 resulting from a math error on Y's return. Y did not request an abatement of the assessment pursuant to section 6213(b). Instead, Y paid the $1,000, plus interest, on July 31, 1990. On March 31, 1992, the Service sends Y a 90-day letter showing an income tax deficiency for 1989 of $125,000 (exclusive of interest, penalties, additional amounts, and additions to tax). No 30-day letter had been issued previously to Y in connection with its 1989 taxable year. Y does not file a petition with the Tax Court, but files an amended return for 1989 on April 15, 1992, showing $30,000 of tax due. Y pays this amount (plus interest from March 15, 1990, computed at the section 6621(a)(2) rate) with the amended return. Shortly thereafter, the Service assesses the $125,000 deficiency (plus interest) and credits the April 15, 1992, payment against the assessment. (ii) Y's threshold underpayment for 1989 is $125,000 notwithstanding Y's April 15, 1992, payment of $30,000. Because Y is a C corporation and the threshold underpayment for 1989 exceeds $100,000, Y has a large corporate underpayment of income tax for the taxable period 1989 to which the section 6621(c) rate applies for periods after the applicable date. (iii) Because Y paid the $1,000 amount shown as due on the math error assessment notice (plus interest) on or before January 31, 1991, the applicable date is April 30, 1992, the 30th day after the 90-day letter is sent. (iv) From March 16, 1990, through April 30, 1992, interest is computed on Y's underpayment of income tax (including any interest, penalties, additional amounts, and additions to tax) at the section 6621(a)(2) rate. From May 1, 1992, such interest is computed at the section 6621(c) rate. (v) If Y had not paid the $1,000 amount shown as due on the math error assessment notice (plus interest) on or before January 31, 1991, the applicable date would have been May 31, 1990, and interest would be computed at the section 6621(c) rate beginning on January 1, 1991. If, however, Y had timely requested an abatement of the assessment under section 6213(b), the applicable date would be April 30, 1992. Example 5. (i) Effective January 1, 1993, Y converts from a C corporation to an S corporation. On January 31, 1993 Y files its 1992 FUTA tax return and encloses a payment equal to the amount reported as due on the return. On March 15, 1993, Y files its 1992 income tax return and encloses a payment equal to the amount reported as due on the return. On August 1, 1993, the Service sends to Y an assessment notice for $150,000 of FUTA tax, plus interest, with respect to calendar year 1992. Y pays the full amount shown as due in the assessment notice on August 7, 1993. On January 1, 1995, Y files an amended income tax return for 1992 showing $15,000 of tax due. Y pays this amount with the amended return. On February 10, 1995, the Service sends Y an assessment notice for the interest payable on the $15,000. Y pays this interest on February 13, 1995. (ii) Y's threshold underpayment of FUTA tax for 1992 is $150,000. Because Y was a C corporation in 1992 and the threshold underpayment of FUTA tax for 1992 exceeds $100,000, Y has a large corporate underpayment of FUTA tax. However, Y's threshold underpayment of income tax for the same taxable period ( i.e., (iii) Because Y pays within 30 days the amount shown as due on the August 1, 1993, assessment notice, there is no applicable date with respect to the large corporate underpayment of FUTA tax for 1992. (iv) All of the interest payable with respect to the 1992 underpayments of FUTA and income taxes is computed at the section 6621(a)(2) rate. (v) If Y had not paid the amount shown as due on the August 1, 1993, FUTA tax assessment notice within 30 days, the applicable date would have been August 31, 1993, (the 30th day after the assessment notice is sent). Thus, interest would have been computed at the section 6621(c) rate after that date, even though Y is not at that time a C corporation. (vi) If the amended 1992 income tax return Y files on January 1, 1995, had shown $115,000 of tax due instead of $15,000, Y's threshold underpayment of income tax for 1992 would have been $115,000. Because Y was a C corporation in 1992 and the threshold underpayment of income tax for that year would have exceeded $100,000, Y would have a large corporate underpayment of income tax for that year. However, because Y would have paid the amount shown as due in the February 10, 1995, assessment notice within 30 days of when that assessment notice was sent, there would have been no applicable date with respect to that large corporate underpayment and the section 6621(c) rate would have not applied. Example 6. (i) On August 1, 1990, the Service sent to Z, a C corporation, an assessment notice for $200,000 of income tax, plus $30,000 in interest and penalties, with respect to calendar year 1988. Subsequent assessment notices were sent to Z on September 12, 1990, October 10, 1990, and November 14, 1990, each including additional interest. The November 14, 1990, assessment notice provided that the total amount of tax, interest and penalties due was $242,000. On December 31, 1990, Z pays $230,000. On February 13, 1991, the Service sends Z an assessment notice for the remaining balance (plus additional interest thereon). On December 31, 1991, Z pays all amounts owed as of that date in connection with its 1988 income tax liability. (ii) Z's threshold underpayment of income tax for 1988 is $200,000. Because Z is a C corporation and its threshold underpayment of income tax for 1988 exceeds $100,000, Z has a large corporate underpayment for 1988 to which the section 6621(c) rate applies for periods after the applicable date. (iii) Notwithstanding Z's payment of $230,000 on December 31, 1990, the applicable date with respect to the large corporate underpayment of 1988 income tax is August 31, 1990, the 30th day after the date on which the Service sent the first assessment notice. (iv) From March 16, 1989, to December 31, 1990, interest is computed on Z's underpayment of income tax (including any interest, penalties, additional amounts and additions to tax) at the section 6621(a)(2) rate. From January 1, 1991, through December 31, 1991, interest is computed on that underpayment at the section 6621(c) rate. (v) If Z had paid on or before January 31, 1991, the full $242,000 shown as due on the November 14, 1990, assessment notice, the applicable date with respect to any remaining unpaid interest would have been March 15, 1991, the 30th day after the Service sent the February 13, 1991, assessment notice. (vi) The same result as in paragraph (v) of this Example 6 (e) Effective date. [T.D. 8447, 57 FR 53554, Nov. 12, 1992; 57 FR 60846, Dec. 22, 1992] § 301.6622-1 Interest compounded daily. (a) General rule. (b) Exception. (c) Applicability to unpaid amounts on December 31, 1982 In general. (2) Illustration. Example. Individual A files a tax return for calendar year 1981 on April 15, 1982, showing a tax due of $10,000. A pays $10,000 on December 31, 1982, but A does not pay any interest with respect to this underpayment until March 1, 1983, on which date A paid all amounts of interest with respect to the $10,000 underpayment of tax. On December 31, 1982, A's unsatisfied interest liability was $1,424.66 ($10,000 × 20 percent × 260/365 days). Interest, compounded daily, accrues on this unsatisfied interest obligation beginning on January 1, 1983, until March 1, 1983, the date the total interest obligation is satisfied. On March 1, 1983, the total interest obligation is $1,462.62, computed as follows: Item Amount Unpaid tax at December 31, 1982 0 Unpaid interest at December 31, 1982 $1,424.66 Total unsatisfied obligation at December 31, 1982 1,424.66 Interest from December 31, 1982, to March 1, 1983, at 16 percent per year compounded daily 37.96 Total due, March 1, 1983 1,462.62 [T.D. 7907, 48 FR 38231, Aug. 23, 1983] Additions to the Tax, Additional Amounts, and Assessable Penalties Additions to the Tax and Additional Amounts § 301.6651-1 Failure to file tax return or to pay tax. (a) Addition to the tax Failure to file tax return. (i) Subchapter A, chapter 61 of the Code, relating to returns and records (other than sections 6015 and 6016, relating to declarations of estimated tax, and part III thereof, relating to information returns); (ii) Subchapter A, chapter 51 of the Code, relating to distilled spirits, wines, and beer; (iii) Subchapter A, chapter 52 of the Code, relating to cigars, cigarettes, and cigarette papers and tubes; or (iv) Subchapter A, chapter 53 of the Code, relating to machine guns, destructive devices, and certain other firearms; and The regulations thereunder, on or before the date prescribed for filing (determined with regard to any extension of time for such filing), there shall be added to the tax required to be shown on the return the amount specified below unless the failure to file the return within the prescribed time is shown to the satisfaction of the district director or the director of the service center to be due to reasonable cause and not to willful neglect. The amount to be added to the tax is 5 percent thereof if the failure is for not more than 1 month, with an additional 5 percent for each additional month or fraction thereof during which the failure continues, but not to exceed 25 percent in the aggregate. The amount of any addition under this subparagraph shall be reduced by the amount of the addition under subparagraph (2) of this paragraph for any month to which an addition to tax applies under both subparagraphs (1) and (2) of this paragraph (a). (2) Failure to pay tax shown on return. (3) Failure to pay tax not shown on return. calendar day business day. (4) Reduction of failure to pay penalty during the period an installment agreement is in effect In general. (A) The amount added to tax for a month or fraction thereof is determined by using 0.25 percent instead of 0.5 percent under paragraph (a)(2) of this section if at any time during the month an installment agreement under section 6159 is in effect for the payment of such tax; and (B) The amount added to tax for a month or fraction thereof is determined by using 0.25 percent instead of 0.5 percent under paragraph (a)(3) of this section if at any time during the month an installment agreement under section 6159 is in effect for the payment of such tax. (ii) Effective date. (b) Month defined. (2) If the date prescribed for filing the return or paying tax is a date other than the last day of a calendar month, the period which terminates with the date numerically corresponding thereto in the succeeding calendar month and each such successive period shall constitute a month for purposes of section 6651. If, in the month of February, there is no date corresponding to the date prescribed for filing the return or paying tax, the period from such date in January through the last day of February shall constitute a month for purposes of section 6651. Thus, if a return is due on January 30, the first month shall end on February 28 (or 29 if a leap year), and the succeeding months shall end on March 30, April 30, etc. (3) If a return is not timely filed or tax is not timely paid, the fact that the date prescribed for filing the return or paying tax, or the corresponding date in any succeeding calendar month, falls on a Saturday, Sunday, or a legal holiday is immaterial in determining the number of months for which the addition to the tax under section 6651 applies. (c) Showing of reasonable cause. Provided, (2) In determining if the taxpayer exercised ordinary business care and prudence in providing for the payment of his tax liability, consideration will be given to the nature of the tax which the taxpayer has failed to pay. Thus, for example, facts and circumstances which, because of the taxpayer's efforts to conserve assets in marketable form, may constitute reasonable cause for nonpayment of income taxes may not constitute reasonable cause for failure to pay over taxes described in section 7501 that are collected or withheld from any other person. (3) If, for a taxable year ending on or after December 31, 1995, an individual taxpayer satisfies the requirement of § 1.6081-4(a) of this chapter (relating to automatic extension of time for filing an individual income tax return), reasonable cause will be presumed, for the period of the extension of time to file, with respect to any underpayment of tax if— (i) The excess of the amount of tax shown on the individual income tax return over the amount of tax paid on or before the regular due date of the return (by virtue of tax withheld by the employer, estimated tax payments, and any payment with an application for extension of time to file pursuant to § 1.6081-4 of this chapter) is no greater than 10 percent of the amount of tax shown on the individual income tax return; and (ii) Any balance due shown on the individual income tax return is remitted with the return. (4) If, for a taxable year ending on or after December 31, 1972, a corporate taxpayer satisfies the requirements of § 1.6081-3 (a) (relating to an automatic extension of time for filing a corporation income tax return), reasonable cause shall be presumed, for the period of the extension of time to file, with respect to any underpayment of tax if— (i) The amount of tax (determined without regard to any prepayment thereof) shown on Form 7004, or the amount of tax paid on or before the regular due date of the return, is at least 90 percent of the amount of tax shown on the taxpayer's Form 1120, and (ii) Any balance due shown on the Form 1120 is paid on, or before the due date of the return, including any extensions of time for filing. (d) Penalty imposed on net amount due Credits against the tax. (2) Partial payments. (ii) The amount of tax stated in the notice and demand for purposes of section 6651(a)(3) shall, for the purpose of computing the addition for any month, be reduced by the amount of any part of the tax which is paid before the first day of such month. (e) No addition to tax if fraud penalty assessed. (f) Examples. Example 1. (a) Under section 6072(a), income tax returns of individuals on a calendar year basis must be filed on or before the 15th day of April following the close of the calendar year. Assume an individual filed his income tax return for the calendar year 1969 on July 20, 1970, and the failure to file on or before the prescribed date is not due to reasonable cause. The tax shown on the return is $800 and a deficiency of $200 is subsequently assessed, making the tax required to be shown on the return, $1,000. Of this amount, $300 has been paid by withholding from wages and $400 has been paid as estimated tax. The balance due as shown on the return of $100 ($800 shown as tax on the return less $700 previously paid) is paid on August 21, 1970. The failure to pay on or before the prescribed date is not due to reasonable cause. There will be imposed, in addition to interest, an additional amount under section 6651(a)(2) of $2.50, which is 2.5 percent (2% for the 4 months from April 16 through August 15, and 0.5% for the fractional part of the month from August 16 through August 21) of the net amount due as shown on the return of $100 ($800 shown on the return less $700 paid on or before April 15). There will also be imposed an additional amount under section 6651(a)(1) of $58, determined as follows: 20 percent (5% per month for the 3 months from April 16 through July 15 and 5% for the fractional part of the month from July 16 through July 20) of the net amount due of $300 ($1,000 required to be shown on the return less $700 paid on or before April 15) $60 Reduced by the amount of the addition imposed under section 6651(a)(2) for those months 2 Addition to tax under section 6651(a)(1) $50 (b) A notice and demand for the $200 deficiency is issued on January 8, 1971, but the taxpayer does not pay the deficiency until December 23, 1971. In addition to interest there will be imposed an additional amount under section 6651(a)(3) of $10, determined as follows: Addition computed without regard to limitation: 6 percent (5 1 2 $12 Limitation on addition: 25 percent of the amount stated in the notice and demand ($200) $50 Reduced by the part of the addition under section 6651(a)(1) for failure to file attributable to the $200 deficiency (20% of $200) $40 Maximum amount of the addition under section 6651(a)(3) $10 Example 2. An individual files his income tax return for the calendar year 1969 on December 2, 1970, and such delinquency is not due to reasonable cause. The balance due, as shown on the return, of $500 is paid when the return is filed on December 2, 1970. In addition to interest and the addition for failure to pay under section 6651(a)(2) of $20 (8 months at 0.5% per month, 4%), there will also be imposed an additional amount under section 6651(a)(1) of $112.50, determined as follows: Penalty at 5 percent for maximum of 5 months, 25 percent of $500 $125.00 Less reduction for the amount of the addition under section 6651(a)(2): Amount imposed under section 6651(a)(2) for the months in which there is also an addition for failure to file—2 1 2 12.50 Addition to tax under section 6651(a)(1) $112.50 (g) Treatment of returns prepared by the Secretary In general. (2) Effective date. [T.D. 7133, 36 FR 13594, July 22, 1971, as amended by T.D. 7160, 37 FR 2507, Feb. 2, 1972; T.D. 7260, 38 FR 4259, Feb. 12, 1973; T.D. 8651, 61 FR 262, Jan. 4, 1996; T.D. 8703, 61 FR 69031, Dec. 31, 1996; T.D. 8725, 62 FR 39117, July 22, 1997; T.D. 8895, 65 FR 50408, Aug. 18, 2000; T.D. 9163, 69 FR 70550, Dec. 7, 2004] § 301.6652-1 Failure to file certain information returns. (a) Returns with respect to payments made in calendar years after 1962 Payments of dividends, interest, or patronage dividends aggregating $10 or more. (i) Section 6042(a)(1), relating to information returns with respect to payments of dividends aggregating $10 or more in a calendar year, in effect with respect to payments made after December 31, 1962, (ii) Section 6044(a)(1), relating to information returns with respect to certain payments by cooperatives aggregating $10 or more in a calendar year, in effect with respect to payments made on or after the first day of the first taxable year of the cooperative beginning after December 31, 1962, with respect to patronage occurring on or after such first day, or (iii) Section 6049(a)(1), relating to information returns with respect to payments of interest aggregating $10 or more in a calendar year, in effect with respect to payments made after December 31, 1962, and the regulations under such section, within the time prescribed for filing such statement (determined with regard to any extension of time for filing), there shall be paid by the person failing to so file the statement $10 for each such statement not so filed. However, the total amount imposed on the delinquent person for all such failures under section 6652(a) and this section during any calendar year shall not exceed $25,000. (2) Other payments; statements with respect to tips. (i) To file a statement of a payment made to another person required under authority of section 6041, relating to information returns with respect to certain information at source, or section 6051(d), relating to information returns with respect to payments of wages as defined in section 3401(a), or section 6050(a), relating to information returns with respect to remuneration of certain crew members defined in section 3121(b)(20), or (ii) To furnish a statement required under authority of section 6053(b), relating to statements furnished by employers with respect to tips, or section 6050A(b), relating to statements furnished by fishing boat operators with respect to remuneration of certain crew members, within the time prescribed by regulations under those sections for filing such statements (determined with regard to any extension of time for filing), There shall be paid by the person failing to so file the statement $1 for each such statement not so filed. However, the total amount imposed on the delinquent person for all such failures during any calendar year shall not exceed $1,000. (b) Returns with respect to payments made in calendar years before 1963 and to certain payments by cooperatives after 1962. (1) Section 6041, relating to information returns with respect to certain information at source, in effect with respect to payments made before 1963, (2) Section 6042(1), relating to information returns with respect to payments of corporate dividends, in effect with respect to payments made before 1963, (3) Section 6044, relating to information returns with respect to payments of patronage dividends, in effect with respect to payments made by a cooperative with respect to patronage occurring before the first day of the first taxable year of the cooperative beginning after December 31, 1962, or (4) Section 6051(d), relating to information returns with respect to payments of wages as defined in section 3401(a), in effect with respect to payments made before 1963, and the regulations under such section, within the time prescribed for filing such statement (determined with regard to any extension of time for filing), there shall be paid by the person failing to so file such statement $1 for each such statement not so filed. However, the total amount imposed on the delinquent person for all such failures during any calendar year shall not exceed $1,000. (c) Returns with respect to reporting payments of wages in the form of group-term life insurance provided in a calendar year after December 31, 1963. (d) Returns with respect to transfer of stock or record title thereto pursuant to options exercised on or after January 1, 1964. (e) Manner of payment. (f) Showing of reasonable cause. (g) Alcohol and tobacco taxes. (h) Tips. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7001, 34 FR 1006, Jan. 23, 1969; T.D. 7127, 36 FR 11503, June 15, 1971; T.D. 7716, 45 FR 57124, Aug. 27, 1980] § 301.6652-2 Failure by exempt organizations and certain nonexempt organizations to file certain returns or to comply with section 6104(d) for taxable years beginning after December 31, 1969. (a) Exempt organization or trust. (1) Section 6033, relating to returns by exempt organizations, trusts described in section 4947(a)(1) and nonexempt private foundations, (2) Section 6034, relating to returns by certain trusts, or (3) Section 6043(b), relating to returns regarding the liquidation, dissolution, termination, or substantial contraction of an exempt organization, within the time and in the manner prescribed for filing such return (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause, there shall be paid by the exempt organization or trust failing to file such return $10 for each day during which such failure continues. However, the total amount imposed on any exempt organization or trust under this paragraph for such failure with regard to any one return shall not exceed $5,000. (b) Managers. (c) Public inspection of private foundations' annual returns In general. (2) Amount imposed. (3) Cross reference. (d) Special rules. (1) Person. (2) Liability. (e) Manner of payment. (f) Showing of reasonable cause. (g) Group returns. (h) Effective date. [T.D. 7127, 36 FR 11503, June 15, 1971, as amended by T.D. 8026, 50 FR 20758, May 20, 1985] § 301.6652-3 Failure to file information with respect to employee retirement benefit plan. (a) Amount imposed Annual registration statement. (2) Notification of change in status. (3) Annual return of funded plan of deferred compensation. (4) Actuarial statement in case of mergers. (5) Information relating to certain trusts and annuity and bond purchase plans. (b) Showing of reasonable cause. (2) No amount imposed by section 6652(f) shall apply with respect to a failure to file a return or statement required by section 6058 or 6047, or a failure to provide material items of information called for on such a return or statement, if it is established to the satisfaction of the appropriate district director or the director of the internal revenue service center at which the return or statement is required to be filed that the failure was due to reasonable cause. (3) An affirmative showing of reasonable cause must be made in the form of a written statement setting forth all the facts alleged as reasonable cause. The statement must contain a declaration by the appropriate individual that the statement is made under the penalties of perjury. (c) Joint liability. (d) Manner of payment. (e) Effective dates Annual registration statement. (i) In the case of a plan to which only one employer contributes, for plan years beginning after December 31, 1975, with respect to participants who separate from service covered by the plan in plan years beginning after that date, and (ii) In the case of a plan to which more than one employer contributes, for plan years beginning after December 31, 1977, and with respect to participants who complete two consecutive 1-year breaks in service under the plan in service computation periods beginning after December 31, 1974. (2) Notification of change in status. (3) Annual return of employee benefit plan. (4) Actuarial statement in case of mergers. (5) Information relating to certain trusts and annuity and bond purchase plans. [T.D. 7551, 43 FR 29293, July 7, 1978, and T.D. 7561, 43 FR 38006, Aug. 25, 1978; 44 FR 24285, Apr. 25, 1979] § 301.6653-1 Failure to pay tax. (a) Negligence or intentional disregard of rules and regulations with respect to income or gift taxes. (b) Fraud. (2) If a 50 percent addition to the tax for fraud is assessed under section 6653(b) with respect to an underpayment— (i) The addition to the tax under section 6651, relating to failure to file a tax return, will not be assessed with respect to the same underpayment, and (ii) In the case of the income taxes imposed by subtitle A and the gift tax imposed by chapter 12 of subtitle B, the 5 percent addition to the tax under section 6653(a), relating to negligence and intentional disregard of rules and regulations, will not be assessed with respect to the same underpayment. (c) Definition of underpayment Income, estate, gift, and chapter 41, 42, 43, and 44 taxes. (i) The total amount of all deficiencies as defined in section 6211, if a return was filed on or before the last date (determined with regard to any extension of time) prescribed for filing such return, or (ii) The amount of the tax imposed by subtitle A or B, or chapter 41, 42, 43, or 44, as the case may be, if a return was not filed on or before the last date (determined with regard to any extension of time) prescribed for filing such return. However, for purposes of paragraph (c)(1)(i) of this section, any amount of additional tax shown on the amended return, so called, filed after the due date of the return is a deficiency. (2) Other taxes. (i) In the case of any tax with respect to which the taxpayer is required to file a return, the sum of ( a b (ii) In the case of any tax payable by stamp, the amount paid (on or before the date prescribed for payment) in respect of such tax. The amounts specified in subdivisions (i) and (ii) of this subparagraph shall be reduced, for purposes of determining the amount of the underpayment, by the amount of any rebates made. For purposes of this subparagraph, the term “rebates” means so much of an abatement, credit, refund, or other repayment as was made on the ground that the tax imposed was less than the excess of the amount specified in subdivision (i) or (ii) of this subparagraph, whichever is applicable, over any rebates previously made. (d) No delinquency penalty if fraud assessed. (e) Failure to pay stamp tax. (f) Joint returns. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7320, 39 FR 28279, Aug. 6, 1974; 39 FR 29353, Aug. 15, 1974; T.D. 7838, 47 FR 44252, Oct. 7, 1982] § 301.6654-1 Failure by individual to pay estimated income tax. For regulations under section 6654, see §§ 1.6654-1 to 1.6654-5, inclusive, of this chapter (Income Tax Regulations). [T.D. 7282, 38 FR 19029, July 19, 1973] § 301.6655-1 Failure by corporation to pay estimated income tax. (a) For regulations under section 6655, see §§ 1.6655-1 through 1.6655-7 of this chapter. (b) Effective/applicability date: [T.D. 9347, 72 FR 44366, Aug. 7, 2007] § 301.6656-1 Abatement of penalty. (a) Exception for first time depositors of employment taxes Waiver. (i) The failure is inadvertent; (ii) The person meets the requirements referred to in section 7430(c)(4)(A)(ii) (relating to the net worth requirements applicable for awards of attorney's fees); (iii) The failure occurs during the first quarter that the person is required to deposit any employment tax; and (iv) The return of the tax is filed on or before the due date. (2) Inadvertent failure. (b) Deposit sent to Secretary. (c) Effective/applicability date. [T.D. 8725, 62 FR 39118, July 22, 1997. Redesignated by T.D. 8947, 66 FR 32542, June 15, 2001; T.D. 9507, 75 FR 75904, Dec. 7, 2010] § 301.6657-1 Bad checks. (a) In general. (b) Reasonable cause. § 301.6658-1 Addition to tax in case of jeopardy. Upon a finding by the district director that any taxpayer violated, or attempted to violate, section 6851 (relating to termination of taxable year) there shall, in addition to all other penalties, be added as part of the tax 25 percent of the total amount of the tax or deficiency in the tax. § 301.6659-1 Applicable rules. (a) Additions treated as tax. (b) Additions to tax for failure to file return or pay tax. (c) Deficiency procedures Addition to the tax for failure to file tax return. (ii) The provisions of paragraph (c)(1)(i) of this section may be illustrated by the following examples: Example 1. A filed his income tax return for the calendar year 1955 on May 15, 1956, not having been granted an extension of time for such filing. His failure to file on time was not due to reasonable cause. The return showed a liability of $1,000 and it was determined that A is liable under section 6651 for an addition to such tax of $50 (5 percent a month for 1 month). The provisions of subchapter B of chapter 63 (deficiency procedures) do not apply to the assessment and collection of the addition to the tax since such provisions are not applicable to the tax with respect to which such addition was asserted, there being no statutory deficiency for purposes of section 6211. Example 2. Assume the same facts as in example 1 and assume further that a deficiency of $500 in tax and a further $25 addition to the tax under section 6651 is asserted against A for the calendar year 1955. Thus, the total addition to the tax under section 6651 is $75. Since the provisions of subchapter B of chapter 63 are applicable to the $500 deficiency, they likewise apply to the $25 addition to the tax asserted with respect to such deficiency (but not to the $50 addition to the tax under example 1). (2) Additions to the tax for negligence or fraud. (3) Additions to tax for failure to pay estimated income taxes Return filed by taxpayer. (ii) No return filed by taxpayer. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7838, 47 FR 44252, Oct. 7, 1982] Assessable Penalties § 301.6671-1 Rules for application of assessable penalties. (a) Penalty assessed as tax. (b) Person defined. § 301.6672-1 Failure to collect and pay over tax, or attempt to evade or defeat tax. Any person required to collect, truthfully account for, and pay over any tax imposed by the Code who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. The penalty imposed by section 6672 applies only to the collection, accounting for, or payment over of taxes imposed on a person other than the person who is required to collect, account for, and pay over such taxes. No penalty under section 6653, relating to failure to pay tax, shall be imposed for any offense to which this section is applicable. For further guidance regarding the determination of the proper address for mailing the notice required under section 6672(b)(1), see § 301.6212-2. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 8939, 66 FR 2821, Jan. 12, 2001] § 301.6673-1 Damages assessable for instituting proceedings before the Tax Court merely for delay. Any damages awarded to the United States by the Tax Court under section 6673 against a taxpayer for instituting proceedings before the Tax Court merely for delay shall be assessed at the same time at the deficiency and shall be paid upon notice and demand from the district director or the director of the regional service center and shall be collected as a part of the tax. § 301.6674-1 Fraudulent statement or failure to furnish statement to employee. For regulations under section 6674, see § 31.6674-1 of this chapter (Employment Tax Regulations). § 301.6678-1 Failure to furnish statements to payees. (a) In general. (1) Under section 6042(c) and § 1.6042-4 to a person with respect to whom a return has been made under section 6042(a)(1), relating to information returns with respect to payment of dividends aggregating $10 or more in a calendar year, (2) Under section 6044(e) and § 1.6044-5 to a person with respect to whom a return has been made under section 6044(a)(1), relating to information returns with respect to certain payments by cooperatives aggregating $10 or more in a calendar year, (3) Under section 6049(c) and § 1.6049-3 to a person with respect to whom a return has been made under section 6049(a)(1), relating to information returns with respect to payments of interest aggregating $10 or more in a calendar year, (4) Under section 6039(b) and § 1.6039-2 to a person with respect to whom a return has been made under section 6039(a), relating to information returns with respect to certain stock option transactions occurring in a calendar year, or (5) Under section 6052(b) and § 1.6052-2 to a person with respect to whom a return has been made under section 6052(a), relating to information returns with respect to payment of wages in the form of group-term life insurance provided for an employee on his life, within the time prescribed for furnishing such statement (determined with regard to any extension of time for furnishing), there shall be paid by the person failing to so furnish the statement $10 for each such statement not so furnished. However, the total amount imposed on the delinquent person for all such failures during a calendar year shall not exceed $25,000. (b) Manner of payment. (c) Showing of reasonable cause. § 301.6679-1 Failure to file returns, etc. with respect to foreign corporations or foreign partnerships for taxable years beginning after September 3, 1982. (a) Civil penalty In general. (2) Joint return. (3) Showing of reasonable cause. (b) Deficiency procedures not to apply. [32 FR 15421, Nov. 3, 1967, as amended by T.D. 7288, 38 FR 27215, Oct. 1, 1973; T.D. 7542, 43 FR 18552, May 1, 1978; T.D. 8028, 50 FR 23409, June 4, 1985] § 301.6682-1 False information with respect to withholding allowances based on itemized deductions. For regulations under section 6682, see § 31.6682-1 of this chapter (Employment Tax Regulations). [T.D. 7109, 35 FR 16544, Oct. 23, 1970] § 301.6684-1 Assessable penalties with respect to liability for tax under chapter 42. (a) In general. (1) Such person has theretofore (at any time) been liable for tax under any section of such chapter (other than section 4940 or 4948(a)), or (2) Such act or failure to act is both willful and flagrant, then such person shall be liable for a penalty equal to the amount of such tax. (b) Showing of reasonable cause. (c) Willful and flagrant. (d) Effective date. [T.D. 7127, 36 FR 11504, June 15, 1971] § 301.6685-1 Assessable penalties with respect to private foundations' failure to comply with section 6104(d). (a) In general. (b) Person. (c) Effective date. (d) Cross reference. [T.D. 7127, 36 FR 11505, June 15, 1971, as amended by T.D. 8026, 50 FR 20758, May 20, 1985] § 301.6686-1 Failure of DISC to file returns. (a) In general. (b) Showing of reasonable cause. [T.D. 7533, 43 FR 6604, Feb. 15, 1978] § 301.6688-1 Assessable penalties with respect to information required to be furnished with respect to possessions. (a) In general. (b) Manner of payment. (c) Reasonable cause Commissioner (d) Effective/applicability date. [T.D. 9391, 73 FR 19376, Apr. 9, 2008; 73 FR 27728, May 14, 2008] § 301.6689-1 Failure to file notice of redetermination of foreign income taxes. (a) Application of civil penalty. (b) Amount of the penalty. (1) Five percent of the deficiency (or imputed underpayment) if the failure is for not more than one month; plus (2) An additional five percent of the deficiency (or imputed underpayment) for each month (or fraction thereof) during which the failure continues, but not to exceed in the aggregate twenty-five percent of the deficiency (or imputed underpayment). (c) Foreign tax redetermination defined. (d) Reasonable cause. (e) Applicability date. [T.D. 9922, 85 FR 72074, Nov. 12, 2020] § 301.6690-1 Penalty for fraudulent statement or failure to furnish statement to plan participant. (a) Penalty. (b) Effective date. [T.D. 7561, 43 FR 38007, Aug. 25, 1978] § 301.6692-1 Failure to file actuarial report. (a) Penalty. Further, for any report filed for a plan year ending after January 25, 1982, if the actuary seeks to materially qualify a statement required by § 301.6059-1(c) (4) or (5) there is a failure to provide a material item of information called for in the report. For rules relating to statements not considered as materially qualifying the required statements, see § 301.6059-1(d). (b) Failure to make actuarial valuation. (c) Showing of reasonable cause. (d) Joint liability. (e) Manner of payment. (f) Effective dates. (Secs. 6059 and 7805 of the Internal Revenue Code of 1954 (88 Stat. 947, 68A Stat. 917; 26 U.S.C. 6059, 7805)) [T.D. 7798, 46 FR 57484, Nov. 24, 1981] § 301.6693-1 Penalty for failure to provide reports and documents concerning individual retirement accounts or annuities. (a) In general Annual reports, etc. (2) Disclosure statements. (b) Showing of reasonable cause. (c) Deficiency procedures not to apply. (d) Other penalties. (e) Effective date. [T.D. 7730, 45 FR 72652, Nov. 3, 1980] § 301.6707-1 Failure to furnish information regarding reportable transactions. (a)(1) In general. (i) Reportable transactions. (ii) Listed transactions. In general. (B) Intentional action or failure. (C) Transaction that is both a listed transaction and reportable transaction other than a listed transaction. (2) Gross income derived by the material advisor. (b) Definitions Derive. (2) False information. (3) Incomplete information. (4) Intentional. (i) The material advisor knew of the obligation to file a return and knowingly did not timely file a return with the IRS; or (ii) The material advisor filed a return knowing that it was false or incomplete. (5) Listed transaction. (6) Material Advisor. (7) Reportable transaction. (c) Assessment of penalty Intentional failure determined based on all the facts and circumstances. (2) Individual liability in the case of more than one material advisor. (3) Designation agreements. (d) Examples. Example 1. Advisor A becomes a material advisor as defined under section 6111(b)(1) and § 301.6111-3(b) in the fourth quarter of 2014 with respect to a reportable transaction other than a listed transaction, and Advisor B also becomes a material advisor in the same quarter with respect to the same reportable transaction. Advisors A and B fail to timely file the Form 8918 with respect to the reportable transaction. Under paragraph (a)(1)(ii) of this section, the penalty for failure by a material advisor to timely disclose a reportable transaction other than a listed transaction is $50,000. Because the section 6707 penalty applies to each material advisor independently under paragraph (c)(2) of this section, Advisors A and B each are subject to a section 6707 penalty of $50,000. Example 2. Same as Example 1, Example 3. Advisor C becomes a material advisor to Client X on January 5, 2015, with respect to a listed transaction. Advisor C derives $400,000 in gross income from his advice to Client X because he expects to receive that amount from Client X, even though he has not yet received that amount. On January 5, 2016, Advisor C becomes a material advisor to Client Y with respect to the same type of listed transaction. Advisor C derives $100,000 in gross income from his advice to Client Y because he expects to receive that amount from Client Y, even though he has not yet received that amount. At no time did Advisor C file a Form 8918 to disclose the listed transaction. For purposes of this example, assume that Advisor C's failure to file a Form 8918 was unintentional. Therefore, under paragraph (c)(2) of this section, Advisor C is subject to a section 6707 penalty based on the gross income derived from Client X and Client Y. Accordingly, Advisor C is subject to a penalty of $250,000 (50 percent of $500,000, the gross income derived from Clients X and Y). Example 4. Same as Example 3, Example 5. Same as Example 3, Example 6. Same as Example 3, Example 3, Example 7. Advisor D becomes a material advisor as defined under section 6111(b)(1) and § 301.6111-3(b) in the first quarter of 2016 with respect to a reportable transaction other than a listed transaction. Advisor D does not file a Form 8918 by April 30, 2016. The transaction is then identified as a listed transaction in published guidance on July 7, 2016. Advisor D knew that he had a new obligation to file a Form 8918 by October 31, 2016, and intentionally fails to file the Form 8918. Advisor D is subject to only one penalty, in the amount of the greater of $200,000, or 75 percent of the gross income he derived from the transaction, for intentionally failing to disclose the listed transaction in accordance with § 301.6111-3(d)(1) and (e). Example 8. Same as Example 7, (e) Rescission authority In general. (i) The violation relates to a reportable transaction that is not a listed transaction; and (ii) Rescinding the penalty would promote compliance with the requirements of the Code and effective tax administration. (2) Requesting rescission. (3) Factors that weigh in favor of granting rescission. (i) The material advisor, upon becoming aware of the failure to disclose a reportable transaction in accordance with section 6111 and the regulations thereunder, filed a complete and proper, albeit untimely, Form 8918 (or successor form). This factor weighs in favor of rescission if circumstances suggest that the material advisor did not delay in filing an untimely but properly completed Form 8918 (or successor form) until after the IRS had taken steps to identify the person as a material advisor with respect to the reportable transaction. For instance, this factor will weigh strongly in favor of rescission if the material advisor files the Form 8918 (or successor form) prior to the date the IRS contacts the material advisor concerning the reportable transaction. However, this factor will not weigh in favor of rescission if the facts and circumstances indicate that the material advisor delayed filing the Form 8918 (or successor form) until after a taxpayer files a Form 8886 (or successor form) identifying the material advisor with respect to the reportable transaction in question. (ii) The material advisor's failure to disclose the reportable transaction properly was due to an unintentional mistake of fact that existed despite the material advisor's reasonable attempts to ascertain the correct facts with respect to the transaction. (iii) The material advisor has an established history of properly disclosing other reportable transactions and complying with other tax laws, including compliance with any requests made by the IRS under section 6112, if applicable. (iv) The material advisor demonstrates that the failure to include on any return or statement any information required to be disclosed under section 6111 arose from events beyond the material advisor's control. (v) The material advisor cooperates with the IRS by providing timely information with respect to the transaction at issue that the Commissioner (or the Commissioner's delegate) may request in consideration of the rescission request. In considering whether a material advisor cooperates with the IRS, the Commissioner (or the Commissioner's delegate) will take into account whether the material advisor meets the deadlines described in guidance published in the Internal Revenue Bulletin for complying with requests for additional information. (vi) Assessment of the penalty weighs against equity and good conscience, including whether the material advisor demonstrates that there was reasonable cause for, and the material advisor acted in good faith with respect to, the failure to timely file or to include on any return any information required to be disclosed under section 6111. An important factor in determining reasonable cause and good faith is the extent of the material advisor's efforts to determine whether there was a requirement to file the return required under section 6111. The presence of reasonable cause, however, will not necessarily be determinative of whether to grant rescission. (4) Absence of favorable factors weighs against rescission. (5) Factors not considered. (f) Effective/applicability date. [T.D. 9686, 79 FR 44283, July 31, 2014] § 301.6707A-1 Failure to include on any return or statement any information required to be disclosed under section 6011 with respect to a reportable transaction. (a) In general. (b) Definitions Reportable transaction. (2) Listed transaction. (3) Return. return return (c) Assessment of the penalty In general. (2) Examples. Example 1. Taxpayer T is required to attach a Form 8886 to its return for the 2008 taxable year and to send a copy of the Form 8886 to OTSA at the time it files its return. Taxpayer T fails to attach the Form 8886 to its return and fails to send a copy of the Form 8886 to OTSA. Taxpayer T is subject to a single penalty under section 6707A for failure to disclose because Taxpayer T failed to comply with the disclosure requirements of section 6011 as described in §§ 1.6011-4(d) and 1.6011-4(e) of this chapter. A penalty under section 6707A also would apply if Taxpayer T had failed to comply with only one of the two requirements. Example 2. Same as Example 1, Example 1. Example 3. In November 2009, Taxpayer U participates in a reportable transaction resulting in a loss. On March 15, 2010, Taxpayer U files its 2009 return, on which it reports the loss and to which it fails to attach a Form 8886. One month later, Taxpayer U files an amended return for 2008, on which it carries back the loss and to which it fails to attach a Form 8886. Section 1.6011-4(e)(1) of this chapter requires Taxpayer U to attach a Form 8886 to its amended return for the 2008 taxable year. Taxpayer U is subject to two penalties under section 6707A: one for the failure to attach Form 8886 to its amended return for 2008 and another for the failure to attach Form 8886 to its 2009 return. Example 4. Taxpayer V participates in a nonlisted reportable transaction and is required to attach a Form 8886 to its return for the 2009 taxable year that is due on March 15, 2010. Taxpayer V timely files its return but fails to attach the Form 8886 to its return. After the due date of Taxpayer V's return and without an extension of time to file, Taxpayer V files an amended return relating to the 2009 taxable year to which Taxpayer V attaches the Form 8886. Taxpayer V is subject to a penalty under section 6707A for failure to disclose because Taxpayer V failed to comply with the disclosure requirements of section 6011 (described in § 1.6011-4(e)(1) of this chapter) by not attaching a Form 8886 to its original return for the 2009 taxable year that was timely filed on or before the due date of March 15, 2010. An additional penalty under section 6707A would apply if Taxpayer V had failed to attach a Form 8886 to its amended return. Example 5. Shareholder W, a shareholder in an S Corporation, receives a timely Schedule K-1, “Shareholder's Share of Income, Deductions, Credits, etc.,” Example 6. In July 2008, Taxpayer X participates in Transaction Z, a transaction that is not reportable as of April 15, 2009, the date Taxpayer X files his individual income tax return for 2008. On July 15, 2009, Transaction Z is identified as a transaction of interest. Section 1.6011-4(e)(2)(i) of this chapter provides that if a transaction that is not otherwise a reportable transaction becomes a listed transaction or a transaction of interest after the taxpayer has filed a tax return (including an amended return) reflecting the taxpayer's participation in the listed transaction or transaction of interest and before the end of the period of limitations for assessment of tax for any taxable year in which the taxpayer participated in the listed transaction or transaction of interest, then a disclosure statement must be filed with OTSA within 90 calendar days after the date on which the transaction became a listed transaction or transaction of interest, regardless of whether the taxpayer participated in the transaction in the year the transaction became a listed transaction or a transaction of interest. Taxpayer X fails to file a Form 8886 with OTSA by October 13, 2009, 90 calendar days after the date that the transaction was identified as a transaction of interest. Accordingly, Taxpayer X is subject to a penalty under section 6707A. Example 7. Taxpayer Y is required to attach a Form 8886 to its return for the 2008 taxable year with respect to participation in a listed transaction. Taxpayer Y attaches the Form 8886 to its timely filed return. The Form 8886, however, does not describe all of the potential tax benefits expected to result from this transaction and states that information will be provided upon request. Because the Form 8886 does not describe all of the potential tax benefits expected to result from the transaction and merely provides that the information will be provided upon request, the Form 8886 filed by Taxpayer Y is incomplete and does not satisfy the requirements set forth in § 1.6011-4(d) of this chapter. Taxpayer Y is subject to a penalty under section 6707A for failure to disclose in the appropriate manner. (d) Calculation of the penalty Decrease in tax In general. decrease in tax shown on the return as a result of the transaction or the decrease that would have resulted from the transaction if it were respected for Federal tax purposes ( 1 ( 2 (B) The amount of tax that would have been shown on the return if it did not reflect the taxpayer's participation in the reportable transaction includes adjustments that result mechanically from backing out the reportable transaction, such as tax items affected by an increase in adjusted gross income resulting from not participating in the transaction. The calculation of the penalty is unaffected by whether a taxpayer's tax liability is ultimately settled with the IRS for a different amount or whether the taxpayer subsequently reports a different amount of tax on an amended return, because these amounts do not enter into the calculation of the decrease in tax shown on the return (or returns) to which the penalty relates. (ii) Subsequently identified transactions. (iii) Penalty for failure to report to the SEC. (iv) Minimum and maximum amount of the penalty. (2) No tax required to be shown on return. (3) Examples. (i) Example 1. (ii) Example 2. (iii) Example 3. (iv) Example 4. See (v) Example 5. (vi) Example 6. (vii) Example 7. (viii) Example 8. (ix) Example 9. (x) Example 10. i.e., (xi) Example 11. (e) Rescission authority In general. (i) The violation relates to a reportable transaction that is not a listed transaction; and (ii) Rescinding the penalty would promote compliance with the requirements of the Code and effective tax administration. (2) Requesting rescission. (3) Factors that weigh in favor of granting rescission. (i) The taxpayer, upon becoming aware that it failed, in whole or in part, to disclose a reportable transaction in accordance with the requirements of § 1.6011-4 of this chapter, filed a complete and proper, albeit untimely, Form 8886 (or successor form), as required by § 1.6011-4. If the penalty is due to the taxpayer's failure to file Form 8886 (or successor form) with a return, in order for an untimely disclosure to weigh in favor of rescission, the taxpayer must file an amended return with the appropriate Service Center and attach a complete and proper Form 8886 (or successor form) to that amended return. The amended return filed with the untimely Form 8886 (or successor form) must not reflect any other changes to the return that it amends, and the taxpayer must, in the space provided for an explanation of changes on the amended return, state the reason for filing the amended return. If the penalty is due to the taxpayer's failure to file Form 8886 (or successor form) with OTSA, in order for an untimely disclosure to weigh in favor of rescission, the taxpayer must file a complete and proper Form 8886 (or successor form) with OTSA. If the taxpayer fails to file a complete and proper Form 8886 (or successor form) with the return and also fails to file a copy of the complete and proper Form 8886 (or successor form) with OTSA, incurring one penalty for both failures, then the taxpayer must, in the manner prescribed in this paragraph (e)(3)(i), file complete and proper Forms 8886 with both the Service Center and OTSA in order for the untimely disclosures to weigh in favor of rescission. This factor will weigh heavily in favor of rescission provided that— (A) The taxpayer files the Form 8886 prior to the date the IRS first contacts the taxpayer (including contacts by the IRS with any partnership in which the taxpayer is a partner, any S corporation in which the taxpayer is a shareholder, or any trust in which the taxpayer is a beneficiary) concerning a tax examination for the tax period in which the taxpayer participated in the reportable transaction; and (B) Other circumstances suggest that the taxpayer did not delay filing an untimely but properly completed Form 8886 until after the IRS had taken steps to identify the taxpayer's participation in the reportable transaction in question. (ii) The failure, in whole or in part, to disclose in accordance with the requirements of § 1.6011-4 of this chapter was due to an unintentional mistake of fact that existed despite the taxpayer's reasonable attempts to ascertain the correct facts with respect to the transaction. (iii) The taxpayer has an established history of properly disclosing other reportable transactions and complying with other tax laws. (iv) The taxpayer demonstrates that the failure to include on any return or statement any information required to be disclosed under section 6011 arose from events beyond the taxpayer's control. (v) The taxpayer cooperates with the IRS by providing timely information with respect to the transaction at issue that the Commissioner (or the Commissioner's delegate) may request in consideration of the rescission request. In considering whether a taxpayer cooperates with the IRS, the Commissioner (or the Commissioner's delegate) will take into account whether the taxpayer meets the deadlines described in Rev. Proc. 2007-21 (2007-1 CB 613) (or successor document) (see § 601.601(d)(2)(ii)( b (vi) Assessment of the penalty weighs against equity and good conscience, including whether the taxpayer demonstrates that there was reasonable cause for, and the taxpayer acted in good faith with respect to, the failure to timely file or to include on any return any information required to be disclosed under section 6011. An important factor in determining reasonable cause and good faith is the extent of the taxpayer's efforts to ensure that persons who prepared the taxpayer's return were informed of the taxpayer's participation in the reportable transactions; this factor will be disregarded, however, if the persons who prepared the taxpayer's return were material advisors with respect to the reportable transaction. The presence of reasonable cause, however, will not necessarily be determinative of whether to grant rescission. (4) Absence of favorable factors weighs against rescission. (5) Factors not considered. (6) Example. Example. In 2008, Taxpayer Z participated in a nonlisted reportable transaction for the first time. Under § 1.6011-4(e)(1) of this chapter, he was required to attach a complete and proper Form 8886 to his 2008 return, due on April 15, 2009, and to file a copy of the Form 8886 with OTSA. Taxpayer Z timely filed his 2008 return but failed to attach a Form 8886 to his return or file a Form 8886 with OTSA. On June 1, 2009, Taxpayer Z discovered his error. On June 8, 2009, Taxpayer Z filed an amended return for tax year 2008 and attached a complete and proper Form 8886 that disclosed his participation in the reportable transaction. The amended return reflected no changes from the original return and explained that the sole purpose of the amended return was to correct Taxpayer Z's failure to file a Form 8886 with his original return. On June 8, 2009, Taxpayer Z also filed a copy of the complete and proper Form 8886 with OTSA. The IRS later notified Taxpayer Z that he was subject to a penalty under section 6707A because he failed to comply with the disclosure requirements of section 6011 by not attaching Form 8886 to his return for the 2008 taxable year. The IRS properly assessed the penalty under section 6707A and, on October 15, 2010, issued notice and demand. On November 1, 2010, in accordance with Rev. Proc. 2007-21, Taxpayer Z submitted a written request for rescission of the assessed penalty. The fact that Taxpayer Z filed an untimely Form 8886 shortly after discovery of his error but before the IRS first contacted him concerning his return for the 2008 taxable year will weigh heavily in favor of rescission. (f) Reports to the Securities and Exchange Commission (SEC) In general. (i) The penalty imposed by section 6707A(a) for failure to disclose a listed transaction. (ii) The accuracy-related penalty imposed by section 6662A(a) at the 30- percent rate determined under section 6662A(c) for a reportable transaction understatement with respect to which the relevant facts affecting the tax treatment of the reportable transaction were not adequately disclosed in accordance with regulations prescribed under section 6011. (iii) The accuracy-related penalty imposed by section 6662(a) at the 40-percent rate determined under section 6662(h) for a gross valuation misstatement, if the taxpayer (but for the exclusionary rule of section 6662A(e)(2)(C)(ii)) would have been subject to the accuracy-related penalty under section 6662A(a) at the 30-percent rate determined under section 6662A(c). (iv) The penalty described in paragraph (f)(3) of this section for failure to disclose in periodic reports filed with the SEC the requirement to pay any of the penalties described in paragraphs (f)(1)(i) through (f)(1)(iii) or paragraph (f)(3) of this section. (2) Manner and content of disclosure. (3) Penalty for failure to disclose in SEC filings. (g) Applicability date. March 26, 2019. (2) For penalties assessed before March 26, 2019, [T.D. 9550, 76 FR 55258, Sept. 7, 2011, as amended by T.D. 9853, 84 FR 11219, Mar. 26, 2019] § 301.6708-1 Failure to maintain lists of advisees with respect to reportable transactions. (a) In general. (b) Calculation of the 20-business-day period. (1) Mails a request for the list required to be maintained under section 6112(a) by certified or registered mail to the person required to maintain the list; (2) Hand delivers the written request to the person required to maintain the list; or (3) Leaves the written request with an individual 18 years old or older at the usual place of business of the person required to maintain the list. (c) Making a list available. (2) A person who is required to maintain a list required by section 6112 may also make the list available to the IRS by making it available for inspection and copying during normal business hours, as provided by section 6112, or by another agreed-upon method, on an agreed-upon date that falls within the 20-business-day period following the list request. (3) Extension In general. (ii) Requesting an extension. (4) Examples. Example 1. (i) Firm A is a large law firm that is a material advisor. Firm A conducts annual sessions to educate its professionals about reportable transactions and the firm's obligations related to those reportable transactions. Firm A instructs its professionals to provide information on tax engagements that involve reportable transactions and to provide the documents required to be maintained under sections 6001 and 6112 to Firm A's compliance officer for list maintenance purposes. Firm A's policy provides that, for each engagement involving a reportable transaction, one firm professional will send an email to the firm's compliance officer about the engagement and then direct a subordinate to send the documents required to be maintained to the firm's compliance officer. Firm A has policies and procedures in place to monitor compliance with these rules and to address non-compliance. (ii) Firm A receives a request from the IRS for a section 6112 list. In compiling its list to turn over to the IRS during the 20-business-day period following the list request, Firm A discovers that, with respect to one reportable transaction, a subordinate did not provide the documentation required by Firm A's policy. In addition, Firm A experiences difficulty locating the required documents as both the professional and the subordinate who worked on the matter are no longer employed by Firm A, requiring the firm to undertake an extensive search for the information responsive to the list request. Firm A also seeks the information from the firm's clients. Despite these efforts, Firm A reasonably determined that it will not be able to respond timely to the request. Within the 20-business-day period, Firm A notifies the IRS, in writing, of the difficulties it is experiencing and requests an additional 10 business days to locate and produce the information for this one transaction. Within the 20-business-day period, Firm A makes all other required list information available to the IRS, together with a description of the information that is being searched for, all statements required by these regulations, and a proposed schedule to produce the missing information. (iii) Under these circumstances, Firm A demonstrated that it could not reasonably make the portion of the list relating to the one transaction available within the 20-business-day period and thus qualified for an extension. Firm A had established policies and procedures reasonably designed and implemented to ensure and monitor compliance with the requirements of section 6112 and address non-compliance. Because the facts and circumstances indicate that Firm A made diligent efforts to maintain the materials constituting the list in a readily accessible form and as otherwise required under section 6112, the requested 10-business-day extension with respect to the portion of the list relating to the one transaction where records were not maintained in accordance with the firm's policies and procedures should be granted. Example 2. (i) Assume the same facts set forth in example one, except that, in the process of compiling the list to comply with the list maintenance request, Firm A first becomes aware that a firm professional did not send an email to the firm's compliance officer about a transaction subject to the list maintenance request and did not direct a subordinate to send to the firm's compliance officer the information required to be maintained with respect to the transaction. Assume further that Firm A had a robust section 6112 compliance monitoring program in place and despite this, the firm did not know that the professional did not follow firm policies and procedures with respect to this transaction. The professional who worked on the matter is no longer employed by Firm A, causing Firm A difficulty in locating the required information and in ascertaining whether the professional in question failed to comply with Firm A's list maintenance policies with respect to any other reportable transactions. Firm A is searching its records to locate information responsive to the list request and to ensure that no other reportable transactions were omitted from the list. Firm A estimates that it will take an additional 20 business days after the 20th business day to retrieve the missing information and provide IRS with the additional information responsive to the list request. Within the 20-business-day period, Firm A notifies the IRS, in writing, of the difficulties it is experiencing and requests an additional 20 business days to locate and produce the information for this one transaction and for any other reportable transactions omitted from the list as a result of the inaction by the professional in question. Within the 20-business-day period, Firm A makes all other required list information available to the IRS, together with a description of the information that is being searched for, all statements required by these regulations, and a proposed schedule to produce the missing documents. (ii) Under these facts and circumstances, Firm A demonstrated that it could not reasonably, within the 20-business-day period, make available the portion of the list relating to one or possibly more transactions omitted from the list because of the inaction of the professional in question. Firm A therefore qualifies for an extension. Firm A had established policies and procedures reasonably designed and implemented to ensure and monitor compliance with the requirements of section 6112 and address non-compliance. Because the facts and circumstances indicate that Firm A made diligent efforts to maintain the materials constituting the list in a readily accessible form and as otherwise required under section 6112, the requested 20-business-day extension with respect to the portion of the list relating to the one known omitted transaction and to any other omitted reportable transactions resulting from the inaction of the professional in question should be granted. (d) Failure to make list available. (e) Computation of penalty In general. (2) Computation of penalty after grant of extension. (3) Designation agreements and concurrent application of penalty. (4) Example. Example. The IRS hand delivers a written request for the list required to be maintained under section 6112 to Firm B, a material advisor, on Friday, March 10, 2017. Firm B must make the list available to the IRS on or before Friday, April 7, 2017, the 20th business day after the request was hand delivered. If Firm B fails to make the list available to the IRS by that day, absent reasonable cause or the IRS's grant of an extension of the response time, the $10,000-per-day penalty begins on Saturday, April 8, 2017. The $10,000 per day penalty will continue for each subsequent calendar day until Firm B makes the complete list available, except for those days for which Firm B demonstrates reasonable cause. If Firm B hand delivers a complete copy of the requested list to the IRS on the morning of Tuesday, April 11, 2017, absent reasonable cause or the IRS's prior grant of an extension for the response time, a penalty of $30,000 will be imposed upon Firm B (for April 8, 9, and 10). See paragraphs (g) and (h) of this section for an explanation of reasonable cause. (f) Definitions. (1) Material advisor (2) Business day (3) Reportable transaction (4) Listed transaction (g) Reasonable cause—general applicability Overview. (2) Good-faith factors. (i) The person's efforts to determine or assess its status as a material advisor as defined by section 6111; (ii) The person's efforts to determine the information and documentation required to be maintained under section 6112; (iii) The person's efforts to meet its obligations to maintain a readily producible list as required by section 6112; (iv) The person's efforts, upon receiving the list request, to make the list available to the IRS within the 20-business-day period (or extended period) under paragraphs (a), (b), and (c)(3) of this section; and (v) The person's efforts to ensure that the list furnished to the IRS is accurate and complete. (3) Ordinary business care. (4) Supervening events. (5) Reliance on opinion or advice In general. (ii) Independent tax professional. (6) Examples. Example 1. On August 11, 2017, the IRS sends a list request via certified mail to Firm C, a material advisor. Firm C consists of a sole practitioner, X, who is away from the office on vacation on this date. X has arranged for a colleague, Y, to review Firm C's mail, email, and telephone messages daily during his absence. X returns to the office the day after his vacation ends, on September 5, 2017, and immediately contacts the IRS to notify it of his absence. Firm C makes a complete list available to the IRS on September 19, 2017, 10 business days after he has returned from vacation. Firm C establishes that X was on vacation at the time the list request was sent to Firm C, and Firm C promptly furnished the requested list in a manner and time period reflecting ordinary business care and prudence upon X's return to the office. Under these circumstances, Firm C is considered to have made a good-faith effort to comply with the section 6112 requirements. Firm C has established reasonable cause for the entire period between the expiration of the 20-business-day period following the list request and the date the list was made available to the IRS. See paragraphs (g)(2) and (3) of this section. Example 2. On March 3, 2017, the IRS hand delivers to Firm D, a material advisor, a list request related to a transaction believed by the IRS to have been implemented in November 2008 by a group of Firm D's clients (the advisees). Firm D's involvement in the transaction included implementing the transaction on behalf of some but not all of the advisees. Firm D timely makes the requested list available to the IRS. Upon review, the IRS determines that the information furnished by Firm D appears to be accurate, but the IRS believes that some of the information is incomplete because it does not contain information about certain individuals who were identified through other investigative means as Firm D's clients who may have engaged in the transaction. In response to a follow-up inquiry by the IRS, Firm D establishes, however, that it is not a material advisor with respect to these taxpayers. Under these circumstances, Firm D has furnished the list as required by section 6112. Because the list was complete when furnished, Firm D need not make a showing of reasonable cause. See paragraph (g)(1) of this section. Example 3. The IRS sends a list request by certified mail to Firm E, a material advisor. Firm E maintains the materials responsive to the list request on a portable data storage device. Under Firm E's established procedures for maintaining section 6112 lists, once the transaction is completed, paper documents are scanned and saved electronically according to Firm E's records management procedures. Under Firm E's records management procedures, after the scanning process is completed, Firm E sends the paper documents to an off-site storage facility. Three days before the 20th business day following the date of the written request, the electronic data is permanently destroyed. Firm E contacts the IRS representative listed as a contact person on the section 6112 list request to advise him that the relevant data was permanently destroyed. Firm E establishes that it exercised ordinary business care but that the data was nevertheless destroyed due to circumstances outside of its control. Under these circumstances, Firm E has reasonable cause for the period of time that Firm E cannot respond to the list request due to circumstances out of Firm E's control. The reasonable cause exception, however, will only be available to Firm E for the period of time that a person who exercises ordinary business care would need to obtain the materials that are part of the list, including in this case paper documents from the off-site storage facility, and furnish the list to the IRS. See paragraphs (g)(3) and (4) of section. Example 4. On February 2, 2017, the IRS hand delivers a list request to Firm F, a material advisor. Firm F filed with the IRS the disclosure statement required by section 6111 for the reportable transaction that is the subject of the list request but did not maintain the section 6112 list documentation in a readily accessible format after filing the section 6111 statement. On March 3, 2017, the 20th business day (due to the Presidents' Day holiday) after the list request is delivered to Firm F, Firm F contacts the IRS to ask for additional time to comply with the list request, stating that it could not gather the list information together in 20 business days. Because Firm F is not able to show that it made diligent efforts to maintain the materials constituting the list in a readily accessible form, the IRS should not grant Firm F an extension of time. See paragraph (c)(3) of this section. Further, Firm F does not have reasonable cause because it has failed to demonstrate a good-faith effort to comply with the section 6112 requirements and ordinary business care. See paragraphs (g)(2) and (3) of this section. Example 5. On August 11, 2017, the IRS sends a list request, via certified mail, to Firm G, a material advisor. Firm G consists of a sole practitioner, P. Firm G maintains the materials responsive to the list request electronically. Generally, under Firm G's records management procedures, once a transaction is completed, the documents related to that transaction are scanned and then saved electronically consistent with IRS guidance on maintaining books and records in electronic form. P is aware of the list request but ignores it. On September 24, 2017, the 13th calendar day after the 20-business-day period following the list request (due to the Labor Day holiday), P suffers a temporary but debilitating illness that lasts 22 days. Following the illness, P immediately returns to work. After returning to work, P continues to ignore the list request. In this situation, the facts and circumstances indicate that Firm G does not have reasonable cause for any day in which there was a failure to make the list available to the IRS, including the 22 days due to the intervening event, because the failure was not due solely to the supervening event occurring on September 24, 2017. Firm G did not make a good-faith effort to make the list available to the IRS before or after the supervening event occurred. Firm G is liable for the $10,000 per day penalty from the first day following the expiration of the 20-business-day period until but not including the day that Firm G furnishes the list to the IRS. See paragraphs (g)(2) and (4) of this section. Example 6. On August 11, 2017, the IRS sends a list request, via certified mail, to Firm H, a material advisor. Firm H, consists of a sole practitioner, P. Firm H maintains the materials responsive to the list request electronically. Generally, under Firm H's records management procedures, once the transaction is completed, the documents are scanned and then saved electronically consistent with IRS guidance on maintaining books and records in electronic form. P is aware of the list request and begins compiling the documents to respond to the IRS within the 20-business-day period ending on September 11, 2017 (due to the Labor Day holiday). Before responding to the list request, P suffers a temporary but debilitating illness on September 3, 2017, that lasts through September 19, 2017. Upon returning to work on September 20, 2017, P contacts the IRS to explain that P experienced a temporary but debilitating illness from September 3, 2017, through September 19, 2017, and that P has returned to the office and intends to furnish the list to the IRS within a short period of time. Firm H furnishes the list to the IRS on September 22, 2017. In this situation, the facts and circumstances indicate that Firm H has reasonable cause for the period from September 12, 2017 until September 21, 2017, attributable to P's illness. The failure to furnish the list in a timely fashion was solely attributable to the supervening event occurring on September 3, 2017, and Firm H promptly furnished the requested list in a manner and time period reflecting ordinary business care upon P's return to the office. Firm H is considered to have made a good-faith effort to comply with the section 6112 requirements. Firm H has established reasonable cause for the entire period between the expiration of the 20-business-day period following the list request and the date Firm H furnished the list to the IRS. See paragraphs (g)(2) and (4) of this section. Example 7. Firm I receives a list request for transactions that are the same or substantially similar to the listed transaction described in Notice 2002-21, 2002-1 CB 730. Firm I will be considered a material advisor with respect to a particular transaction for which it provided advice if the transaction is the same as or substantially similar to the transaction described in Notice 2002-21. Firm I, however, is unsure whether the transaction is the same as or substantially similar to the transaction described in this Notice. Firm I obtains an opinion from Firm L, a law firm, on this issue. P, a partner in Firm L, provided tax advice to clients who invested in other Notice 2002-21 transactions, including how to report the purported tax benefits from the transaction on their income tax returns, and Firm L is a material advisor with respect to those transactions. Because Firm L is a material advisor with respect to the type of transaction that is the same as or substantially similar to the transaction described in Notice 2002-21, Firm L is not considered an independent tax professional under paragraph (g)(5)(ii) of this section. Therefore, Firm I cannot rely on advice provided by Firm L to establish reasonable cause under this paragraph (g). The IRS may consider Firm L's advice in determining reasonable cause in light of other facts and circumstances, but Firm L's advice, without more, is not sufficient to establish reasonable cause because P is not an independent tax professional under paragraph (g)(5)(ii) of this section. Example 8. Firm J, a law firm, provides advice to various clients of the firm regarding the potential tax benefits of a reportable transaction under § 1.6011-4(b)(5) of this chapter (involving a section 165 loss) and is a material advisor with respect to that transaction. Firm J also provides advice to Firm M, an accounting firm, regarding the same transaction. Firm M then advises various Firm M clients regarding this same transaction, and is a material advisor. The transaction is not a listed transaction. Firm N, a law firm that is not associated with Firm J and has not provided advice with respect to the same transaction to Firm M, has provided advice to its own clients regarding other transactions subject to § 1.6011-4(b)(5) of this chapter, but not the particular transaction that was the subject of Firm J's advice to Firm M. The IRS hand delivers a list request to Firm M, the subject of which is the transaction regarding which Firm J provided advice to Firm M. Before the expiration of the 20-business-day period, Firm M seeks advice from Firm J and Firm N about the propriety of withholding certain documents related to the transaction. Because Firm J provided advice with respect to the particular transaction that is the subject of the list request, Firm J is not an independent tax professional under paragraph (g)(5)(ii) of this section. Although Firm N has provided advice on a transaction that is considered a reportable transaction under § 1.6011-4(b)(5) of this chapter, Firm N is considered to be an independent tax professional under paragraph (g)(5)(ii) of this section because Firm N did not provide material assistance with respect to the particular transaction that is the subject of the list request. (h) Reasonable cause—special considerations Material advisor no longer in existence. (2) Review by IRS. (3) Examples. Example 1. On February 2, 2017, the IRS hand delivers a list request to Firm O, a material advisor. On March 3, 2017, the 20th business day (due to the Presidents' Day holiday) after the list request is delivered to Firm O, Firm O sends a list to the IRS that was contemporaneously prepared after Firm O issued advice with respect to the reportable transaction and continuously maintained in accordance with the requirements of section 6112 and the related regulations. Before sending the list, a supervisor at Firm O carefully reviewed the list to verify that it was comprehensive and accurate. The IRS completes its review on March 23, 2017, and determines that the list is not complete because Firm O furnished a draft copy of the tax opinion, rather than the final document, which Firm O had mistakenly misfiled. After Firm O is notified of the missing information, Firm O immediately furnishes a complete copy of the final version of the tax opinion. Firm O made a good-faith effort to comply with the section 6112 requirements, including its efforts to ensure that the list that was furnished to the IRS was accurate and complete. Firm O has reasonable cause for the entire period between the expiration of the 20-business-day period following the list request and the date it furnished the complete list to the IRS. Example 2. On February 2, 2017, the IRS hand delivers a list request to Firm P, a material advisor. Firm P's involvement in the reportable transaction included implementing the transaction on behalf of some but not all of Firm P's clients. On March 3, 2017, the 20th business day (due to the Presidents' Day holiday) after the list request is delivered to Firm P, Firm P sends the list to the IRS. The IRS completes its review on March 23, 2017. The IRS believes the client list is incomplete because it does not contain information about certain individuals who were identified through other investigative means as clients of Firm P who may have engaged in the transaction. On March 27, 2017, in response to a follow-up inquiry by the IRS, Firm P establishes that it is not a material advisor with respect to these taxpayers. Therefore, the March 3, 2017 list was complete and accurate when first furnished. Under these circumstances, Firm P has timely furnished the list as required by section 6112. Because Firm P complied with the requirements of section 6112 no penalty applies, and Firm P does not need to establish reasonable cause for the period from March 4, 2017, through March 27, 2017, when the IRS was reviewing the list. Example 3. On February 2, 2017, the IRS hand delivers a list request to Firm Q, a material advisor. On March 3, 2017, the 20th business day (due to the Presidents' Day holiday) after the list request is delivered to Firm Q, Firm Q sends the list to the IRS. Firm Q had not maintained a list contemporaneously after issuing the advice with respect to the reportable transaction, and created the list during the 20 business days before providing the list to the IRS. To meet the 20-business-day deadline, a supervisor did not review the final list before sending it to the IRS. The IRS completes its review on March 23, 2017, and determines that the list is not complete because it does not include 15 persons for whom Firm Q acted as a material advisor with respect to the reportable transaction. Firm Q furnishes the additional information on March 27, 2017. Because Firm Q is not able to show that it made diligent efforts to maintain the materials constituting the list in a readily accessible form and that it made a reasonable effort to ensure that the list that was furnished to the IRS was accurate and complete, Firm Q cannot establish that it exhibited a good-faith effort to comply with the section 6112 requirements. Firm Q does not have reasonable cause for its failure to furnish the complete list from March 4, 2017, through March 26, 2017. Example 4. Within the 20-business-day period following a list request, Firm R sends four boxes of documents comprising the required list to the IRS using a commercial delivery service. The IRS receives only three of the boxes because box 4 was erroneously self-addressed using Firm R's office address. Box 4 arrives at Firm R's office on January 6, 2017, the 2nd calendar day after the 20th business day after the list request was made. Firm R immediately recognizes its clerical error, promptly contacts the IRS, and resends the original and unopened box 4, properly addressed, to the IRS together with documentation supporting the error. The IRS receives box 4 on January 9, 2017. Under these circumstances, Firm R has reasonable cause for the late delivery of box 4 because it made a good-faith attempt to timely comply with the list request and immediately corrected an inadvertent error upon its discovery. As a result, no penalty will be imposed based on the delay in providing box 4. If, after inspection, the IRS determines that, even with the contents of box 4, the list is incomplete or defective, Firm R must establish reasonable cause for the incomplete nature of the list or the defect to avoid imposition of a penalty for the period beginning January 5, 2017, until but not including the day that Firm R furnishes the list to the IRS. Example 5. (i) Firm S is a large law firm that is a material advisor. Firm S conducts annual sessions to educate its professionals about reportable transactions and the firm's obligations related to those reportable transactions. Firm S instructs its professionals to provide information on tax engagements that involve reportable transactions and to provide the documents required to be maintained under section 6112 to Firm S's compliance officer for list maintenance purposes. Firm S's policy provides that, for each engagement involving a reportable transaction, one firm professional will send an email to the firm's compliance officer about the engagement and then direct a subordinate to send to the firm's compliance officer the documents required to be maintained. (ii) Firm S receives a request from the IRS for a section 6112 list. In compiling its list to turn over to the IRS during the 20-business-day period, Firm S asks all professionals to ensure that they have reported all engagements involving a reportable transaction to the firm's compliance officer. Before submission to the IRS, a Firm S supervisor reviews the list to ensure completeness. Firm S has no reason to know of any deficiencies, and in compiling its list, Firm S discovers no deficiencies. (iii) Upon review of the list, the IRS determines that the information furnished by Firm S appears to be accurate, but the IRS believes that some of the information is incomplete because it does not contain information about an individual who may have engaged in the transaction and who was identified through other investigative means as Firm S's client. In response to a follow-up inquiry by the IRS, Firm S immediately reviews its files and discovers that a former Firm S professional, who is no longer employed by Firm S, provided material advice to the individual with respect to carrying out a reportable transaction, but did not send an email to the firm's compliance officer about the transaction or direct a subordinate to send the documents required to be maintained to the firm's compliance officer. Firm S immediately furnishes the missing information and documents related to the identified omission to the IRS. (iv) Firm S establishes that the professional in question ordinarily complied with Firm S's list maintenance procedures and that Firm S had no reason to know of this one omission or to suspect that the professional had failed to report any reportable transactions to the firm's compliance officer in accordance with the firm's policies. Firm S also immediately undertakes a thorough search of its electronic and paper files to locate any additional reportable transactions relating to the professional in question that may have been omitted from the list. Under these circumstances, Firm S has demonstrated that it has acted in good faith in its efforts to comply with section 6112 and is deemed to have reasonable cause for the period of time the IRS took to review the furnished list and to inform the material advisor of the identified failure in the list. See paragraph (h)(2) of this section. The reasonable cause exception, however, will only be available to Firm S with respect to the omission identified by the IRS for the period of time that a person who exercises ordinary business care would need to obtain the information and documents related to the identified omission. See paragraph (g)(3) of this section. With respect to any other omissions related to the same professional and not identified by the IRS, the reasonable cause exception will only be available to Firm S for the period of time that a person who exercises ordinary business care would need to ascertain whether any other reportable transactions were omitted from the list and to obtain the information and documents related to any such omissions. See paragraph (g)(3) of this section. (i) Effective/applicability date. [T.D. 9764, 81 FR 25334, Apr. 28, 2016] § 301.6708-1T Failure to maintain list of investors in potentially abusive tax shelters (temporary). The following questions and answers issued under section 6708 of the Internal Revenue Code of 1954, as added by section 142 of the Tax Reform Act of 1984 (Pub. L. 98-369; 98 Stat. 683), relate to the penalty for failure to maintain a list of investors in potentially abusive tax shelters. Q-1: What penalties are provided with respect to the failure properly to maintain a list of persons who acquire interests in potentially abusive tax shelters? A-1: Any organizer (as defined in A-5 of § 301.6112-1T) of a tax shelter (as defined in A-3 of § 301.6112-1T) or seller (as defined in A-6 of § 301.6112-1T) of interests in a tax shelter who fails to meet any requirement imposed by section 6112 regarding the requirement to maintain a list of persons who have acquired interests in a tax shelter shall pay a penalty of $50 for each investor with respect to whom there is such a failure, unless it is shown that the failure is due to reasonable cause and not due to willful neglect. For example, if an organizer who is required to maintain a list identifying each of 100 persons who acquired interests in a tax shelter fails to maintain the list, the organizer will be liable for a penalty of $5,000 ($50 × 100 persons), unless the organizer can show the failure was due to reasonable cause and not due to willful neglect. As another example, if a seller is required to maintain a list identifying each of 100 persons who acquired interests in a tax shelter from the seller and fails properly to maintain such list by omitting the TIN of each person, the seller will be liable for a penalty of $5,000 ($50 × 100 persons), unless the seller can show the failure was due to reasonable cause and not due to willful neglect. Q-2: If an organizer or seller properly maintains a list, but fails to make the list available to the Internal Revenue Service upon request, will the organizer or seller be subject to a penalty? A-2: Yes. A penalty applies if an organizer or seller fails to meet any requirement imposed by section 6112, including the requirement, upon request, to make the list available to the Internal Revenue Service as soon as practicable, but in any event within 10 calendar days. (See A-21 of § 301.6112-1T). The amount of the penalty is $50 for each person required to be on the list at the time of the request by the Internal Revenue Service. Assume, for example, that an organizer of a tax shelter properly maintains a list of 200 persons who have acquired interests in a tax shelter and that the Internal Revenue Service requests the organizer to provide the list. If the organizer fails to provide the list to the Internal Revenue Service as soon as practicable (as required by A-21 of § 301.6112-1T), or in a form that enables the Internal Revenue Service to obtain the required information without undue delay or difficulty (as required by A-16 of § 301.6112-1T), the organizer will be liable for a penalty of $10,000 ($50 × 200 persons), unless the organizer can show that the failure to provide the list was due to reasonable cause and not to willful neglect. Q-3: If an organizer or seller is required to maintain lists for more than one tax shelter in which the same person has acquired interests, how does the penalty apply if the organizer or seller fails to identify the person on each of the lists? A-3: A separate $50 penalty applies with respect to the list for each tax shelter on which the person who acquired interests is not identified. Q-4: Is there a limitation on the amount of the penalty imposed on a seller or organizer required to maintain a list of persons who have acquired interests in a tax shelter? A-4: Yes. The maximum penalty that may be imposed on a person for any calendar year may not exceed $50,000. Q-5: How does the calendar year limitation apply? A-5: A separate $50,000 limitation applies to each calendar year in which a failure occurs, and to each tax shelter for which a list is required to be maintained. See A-6 of this section for special rules for determining how the $50,000 limitation applies to a designated person who fails properly to maintain a list of investors. Example 1. Assume that A, an organizer of a tax shelter, fails to maintain and to provide to the Internal Revenue Service a list of 900 persons who acquired interests in the tax shelter in 1986. In addition, assume that A again fails to maintain and to provide the list of 900 investors upon request in 1987. A is subject to a penalty of $45,000 (900 persons × $50) for each calendar year in which there is a failure to comply with the requirements of section 6112. Thus, A is subject to $45,000 in penalties for the failures to maintain and to provide the list in 1986, and $45,000 in penalties for the failures to maintain and to provide the list in 1987, unless A can show reasonable cause for the failures. Example 2. Assume that B, an organizer of Tax Shelter I, fails to provide a list of 1,500 persons who acquired interests in the tax shelter to the Internal Revenue Service upon request in 1987. Assume also that B, an organizer of Tax Shelter II, fails to provide a list of 2,000 persons who acquired interests in Tax Shelter II to the Internal Revenue Service upon request in 1987. Because the $50,000 calendar year limitation applies separately with respect to each tax shelter for which a list must be maintained, B is subject to a penalty of $50,000 for failing to provide the list for Tax Shelter I in 1987 and a $50,000 penalty for failing to provide the list for Tax Shelter II in 1987. Q-6: How does the penalty apply to a designated person? A-6: Separate penalties, each with its own $50,000 calendar year limitation, apply with respect to the portion of the list kept by the designated person in that person's capacity as organizer and to each portion of the list kept by the designated person in that person's capacity as the designated person with respect to each organizer and seller who signed the agreement under A-12 of § 301.6112-1T and for whom the designated person is responsible for complying with the requirements of section 6112. Example. Assume that X, an organizer and seller, sells interests in a tax shelter directly to 750 investors in 1985. In addition, assume that A, an agent of X, negotiates for X sales of interests in the tax shelter to an additional 500 persons in 1985. If no agreement to designate X is made pursuant to A-11 of § 301.6112-1T, X would be required to maintain a list of the 1,250 investors who acquired interests in the tax shelter (see paragraph (a) of A-8 of § 301.6112-1T) and A would be required to maintain a list of the 500 persons who acquired interests through A (see A-10 of § 301.6112-1T). If, therefore, neither X nor A complied with the requirements of section 6112 in 1985, X would be liable for $50,000 in penalties ($50 × 1,250 investors, subject to the $50,000 maximum) and A would be liable for $25,000 in penalties $50 × 500 investors). Assume, however, that X and A enter into a written agreement to designate X to maintain the list for the tax shelter. Pursuant to that agreement, A submits to X all of the required information regarding the sales to the 500 persons otherwise required to be maintained on A's list and provides the notice required by A-13 of § 301.6112-1T to each person. In 1986, X fails to provide any list of investors to the Internal Revenue Service upon request. For calendar year 1986, X is liable for penalties of $50,000 in X's capacity as an organizer ($50 × 1,250 persons, subject to the $50,000 maximum). In addition, X, as the person designated to maintain the list for A, is liable for penalties of $25,000 for failing properly to maintain A's list of investors ($50 × 500 persons). A would not be liable for any penalties. Q-7: If an organizer or seller is subject to a penalty with respect to a tax shelter under section 6708, may the organizer or seller also be liable for other fines or penalties with respect to the tax shelter? A-7: Yes. The penalty imposed by section 6708 is in addition to any other penalty provided by law. If, for example, an organizer of a tax shelter is subject to a penalty under section 6700 for promoting an abusive tax shelter, the organizer also would be liable for any applicable penalties for failing properly to maintain a list for the tax shelter. Similarly, if an organizer or seller fails to furnish a list upon request by the Internal Revenue Service, the organizer or seller may be subject both to the fine under section 7203 for the willful failure to supply information, and to the penalty for failing properly to maintain a list for the tax shelter. Q-8: When is the penalty under section 6708 effective? A-8: The penalty under section 6708 applies with respect to any interest in a tax shelter which is required to be included on a list under section 6112. See A-22 of § 301.6112-1T. (Secs. 6112 and 7805, Internal Revenue Code of 1954 (98 Stat. 681; 68A Stat. 917; 26 U.S.C. 6112 and 7805)) [T.D. 7969, 49 FR 34204, Aug. 29, 1984] § 301.6712-1 Failure to disclose treaty-based return positions. (a) Penalty imposed. (1) For a corporation taxable as such under the Code $10,000; or (2) For all other taxpayers, $1,000. The penalty imposed by this section may be imposed more than once for a single taxable year if a taxpayer has failed to disclose one or more positions taken with respect to more than one separate payment or separate income item and may be imposed in addition to any other penalty imposed by law. For this purpose, separate payments or income items of the same type (e.g., interest payments) received from the same ultimate payor (e.g., the obligor on the note) will be treated as separate payments or income items (and not aggregated). However, for purposes of determining the number of separate penalties to be imposed under this section, the District Director shall have the discretion to aggregate separate payments or income items, in whole or in part, in accordance with the rules for aggregation of such items for purposes of reporting, as described in § 301.6114-1(d). (b) Penalty waived. (c) Manner of payment. (d) Effective date. [T.D. 8292, 55 FR 9441, Mar. 14, 1990] § 301.6721-0 Table of Contents. In order to facilitate the use of §§ 301.6721-1 through 301.6724-1, this section lists the paragraph headings contained in these sections. § 301.6721-1 Failure to file correct information returns. (a) Imposition of penalty. (1) General rule. (2) Failures subject to the penalty. (b) Reduction in the penalty when a correction is made within specified periods. (1) Correction within 30 days. (2) Correction after 30 days but on or before August 1. (3) Required filing date defined. (4) Penalty amount for return with multiple failures. (5) Examples. (6) Application to returns not due on January 31, February 28, or March 15. (c) Exception for inconsequential errors or omissions. (1) In General. (2) Errors or omissions that are never inconsequential. (3) Examples. (d) Exception for a de minimis (1) Requirements. (2) Calculation of the de minimis (3) Examples. (4) Nonapplication to returns not due on January 31, February 28, or March 15. (e) Safe harbor exception for certain de minimis errors. (1) In general. (2) Definition of de minimis error. (3) Election to override the safe harbor exception. (4) Voluntary corrections. (5) Limitations on applicability. (f) Lower limitations on the $250,000 maximum penalty amount with respect to persons with gross receipts of not more than $5,000,000. (1) In general. (2) Gross receipts test. (g) Higher penalty for intentional disregard of requirement to file timely correct information returns. (1) Application of section 6721(e). (2) Meaning of “Intentional disregard.” (3) Facts and circumstances considered. (4) Amount of the penalty. (5) Computation of the penalty; aggregate dollar amount of the items required to be reported correctly. (6) Examples. (h) Definitions. (1) Information return. (2) Statements. (3) Returns. (4) Other items. (5) Payee. (6) Filer. (i) Adjustment for inflation. (j) Applicability date. § 301.6722-1 Failure to furnish correct payee statements. (a) Imposition of penalty. (1) General rule. (2) Failures subject to the penalty. (b) Exception for inconsequential errors or omissions. (1) In general. (2) Errors or omissions that are never inconsequential. (3) Examples. (c) Higher penalty for intentional disregard of requirement to furnish timely correct payee statements. (1) Application of section 6722(c). (2) Amount of the penalty. (3) Computation of the penalty; aggregate dollar amount of items required to be shown correctly. (d) Safe harbor exception for certain de minimis errors. (1) In general. (2) Definition of de minimis error. (3) Election to override the safe harbor exception. (4) Record retention. (5) Examples. (6) Voluntary corrections. (7) Limitations on applicability. (e) Definitions. (1) Payee. (2) Payee statement. (3) Other items. (4) Filer. (f) Adjustment for inflation. (g) Applicability date. § 301.6723-1 Failure to comply with other information reporting requirements. (a) Imposition of penalty. (1) General rule. (2) Failures subject to the penalty. (3) Exception for inconsequential errors or omissions. (4) Specified information reporting requirement defined. (b) Examples. § 301.6724-1 Reasonable cause. (a) Waiver of the penalty. (1) General rule. (2) Reasonable cause defined. (b) Significant mitigating factors. (c) Events beyond the filer's control. (1) In general. (2) Unavailability of the relevant business records. (3) Undue economic hardship relating to filing on magnetic media. (4) Actions of the IRS. (5) Actions of agent—imputed reasonable cause. (6) Actions of the payee or any other person. (d) Responsible manner. (1) In general. (2) Special rule for filers seeking a waiver pursuant to paragraph (c)(6) of this section. (e) Acting in a responsible manner—special rules for missing TINs. (1) In general. (i) Initial solicitation. (ii) First annual solicitation. (iii) Second annual solicitation. (iv) Additional requirements. (v) Failures to which a solicitation relates. (vi) Exceptions and limitations. (2) Manner of making annual solicitations—by mail or telephone. (i) By mail. (ii) By telephone. (f) Acting in a responsible manner—special rules for incorrect TINs. (1) In general. (i) Initial solicitation. (ii) First annual solicitation. (iii) Second annual solicitation. (iv) Additional requirements. (2) Manner of making annual solicitation if notified pursuant to section 3406(a)(1)(B) and the regulations thereunder. (3) Manner of making annual solicitation if notified pursuant to section 6721. (4) Failures to which a solicitation relates. (5) Exceptions and limitations. (g) Due diligence safe harbor. (1) In general. (2) Special rules relating to TINs. (3) Effective dates. (h) Reasonable cause safe harbor after election under section 6722(c)(3)(B). (i) [Reserved] (j) Failures to which this section relates. (k) Examples. (l) [Reserved] (m) Procedure for seeking a waiver. (n) Manner of payment. (o) Applicability dates. [T.D. 8386, 56 FR 67182, Dec. 30, 1991, as amended by T.D. 8734, 62 FR 53496, Oct. 14, 1997; T.D. 9984, 88 FR 87700, Dec. 19, 2023; 89 FR 20317, Mar. 22, 2024] § 301.6721-1 Failure to file correct information returns. (a) Imposition of penalty General rule. information return failure See See See See See See See See (2) Failures subject to the penalty. (i) A failure to file an information return on or before the required filing date (“failure to file timely”), and (ii) A failure to include all the information required to be shown on the return or including incorrect information (failure to include correct information). A failure to file timely includes a failure to file in the required manner, for example, electronically or in other machine-readable form as provided under section 6011(e). However, no penalty is imposed under paragraph (a)(1) of this section solely by reason of any failure to comply with the requirements of section 6011(e)(2), except to the extent that the failure occurs with respect to more than 10 returns, or with respect to a return described in section 6011(e)(4). If a partnership return under section 6031(a) is required to be filed electronically, each schedule required to be included with such return with respect to each partner will be treated as a separate information return for purposes of this section. See section 6724(e). Filers who are required to file information returns electronically and who file those information returns electronically are considered to have satisfied the electronic-filing requirement. Except as provided in paragraph (c)(1) or (e)(1) of this section, a failure to include correct information encompasses a failure to include the information required by applicable information-reporting statutes or by any administrative pronouncements (such as regulations, revenue rulings, revenue procedures, or information-reporting forms, and form instructions). A failure to include information in the correct format may be either a failure to file timely an information return or a failure to include correct information on an information return. For example, an error on an electronic submission to the Internal Revenue Service that prevents processing by the Internal Revenue Service may constitute a failure to file timely. However, if information is set forth on the wrong field of the electronic submission, that error may constitute a failure to file timely or a failure to include correct information, depending upon the extent of the failure. For purposes of paragraph (b) of this section, a failure to file corrected information returns in the format required under § 301.6011-2(c)(4)(ii) is a failure to correct the corresponding original information returns. (b) Reduction in the penalty when a correction is made within specified periods Correction within 30 days. (2) Correction after 30 days but on or before August 1. See (3) Required filing date defined. (4) Penalty amount for return with multiple failures. (5) Examples. (i) Example 1. Miscellaneous Information, Interest Income, (ii) Example 2. (iii) Example 3. (iv) Example 4. (v) Example 5. (vi) Example 6. (6) Application to returns not due on January 31, February 28, or March 15. Report of Cash Payments Over $10,000 Received in a Trade or Business (c) Exception for inconsequential errors or omissions In general. inconsequential error or omission See payee. (2) Errors or omissions that are never inconsequential. (i) A taxpayer identification number; (ii) A surname of a payee ( i.e., (iii) Any monetary amounts, except as provided in paragraph (e) of this section. The IRS may, by administrative pronouncement, specify other types of errors or omissions that are never inconsequential. (3) Examples. (i) Example 1. (ii) Example 2. (iii) Example 3. (d) Exception for a de minimis number of failures Requirements. See (2) Calculation of the de minimis exception. (3) Examples. (i) Example 1. Interest Income, (ii) Example 2. (iii) Example 3. (iv) Example 4. See (4) Nonapplication to returns not due on January 31, February 28, or March 15. (e) Safe harbor exception for certain de minimis errors In general. (2) Definition of de minimis error. de minimis error, see (3) Election to override the safe harbor exception. See See (4) Voluntary corrections. (5) Limitations on applicability. (f) Lower limitations on the $250,000 maximum penalty amount with respect to persons with gross receipts of not more than $5,000,000 In general. gross receipts test (2) Gross receipts test. (g) Higher penalty for intentional disregard of requirement to file timely correct information returns Application of section 6721(e). (2) Meaning of “intentional disregard.” (i) Failure to file timely, or (ii) Failure to include correct information. Whether a person knowingly or willfully fails to file timely or fails to include correct information is determined on the basis of all the facts and circumstances in the particular case. (3) Facts and circumstances considered. (i) Whether the failure to file timely or the failure to include correct information is part of a pattern of conduct by the person who filed the return of repeatedly failing to file timely or repeatedly failing to include correct information; (ii) Whether correction was promptly made upon discovery of the failure; (iii) Whether the filer corrects a failure to file or a failure to include correct information within 30 days after the date of any written request from the IRS to file or to correct; and (iv) Whether the amount of the information reporting penalties is less than the cost of complying with the requirement to file timely or to include correct information on an information return. (4) Amount of the penalty. (i) Paragraphs (b), (d), (e), and (f) of this section will not apply; (ii) The $3,000,000 limitation under paragraph (a) of this section will not apply, and the penalty under this paragraph (g) will not be taken into account in applying the $3,000,000 limitation (or any similar limitation under paragraph (b) or (f) of this section) to penalties not determined under this paragraph (g); (iii) The penalty imposed under paragraph (a) of this section will be $500 or, if greater, the statutory percentage; and (iv) The term statutory percentage (A) In the case of a return other than a return required under section 6045(a), 6041A(b), 6050H, 6050I, 6050J, 6050K, 6050L, or 6050V, 10 percent of the aggregate dollar amount of the items required to be reported correctly; (B) In the case of a return required to be filed by section 6045(a), 6050K, or 6050L, 5 percent of the aggregate dollar amount of the items required to be reported correctly; (C) In the case of a return required to be filed under section 6050I(a), for any transaction (or related transactions), the greater of $25,000 or the amount of cash (within the meaning of section 6050I(d)) received in such transaction to the extent the amount of such cash does not exceed $100,000; or (D) In the case of a return required to be filed under section 6050V, 10 percent of the value of the benefit of any contract with respect to which information is required to be included on the return. (5) Computation of the penalty; aggregate dollar amount of the items required to be reported correctly. Interest Income, (6) Examples. (i) Example 1. John Doe. (ii) Example 2. confidential. (iii) Example 3. Dividends and Distributions, (iv) Example 4. Employer's Annual Information Return of Tip Income and Allocated Tips, (h) Definitions Information return. information return information return (2) Statements. (i) Section 6041(a) or (b) (relating to certain information at source, generally reported on Form 1099-MISC, “Miscellaneous Income”; Form W-2, “Wage and Tax Statement”; Form W-2G, “Certain Gambling Winnings”; and Form 1099-INT, “Interest Income”); (ii) Section 6042(a)(1) (relating to payments of dividends, generally reported on Form 1099-DIV, “Dividends and Distributions”); (iii) Section 6044(a)(1) (relating to payments of patronage dividends, generally reported on Form 1099-PATR, “Taxable Distributions Received From Cooperatives”); (iv) Section 6049(a) (relating to payments of interest, generally reported on Form 1099-INT or Form 1099-OID, “Original Issue Discount”); (v) Section 6050A(a) (relating to reporting requirements of certain fishing boat operators, generally reported on Form 1099-MISC); (vi) Section 6050N(a) (relating to payments of royalties, generally reported on Form 1099-MISC); (vii) Section 6051(d) (relating to information returns with respect to income tax withheld, generally reported on Form W-2); (viii) Section 6050R (relating to returns relating to certain purchases of fish, generally reported on Form 1099-MISC); (ix) Section 110(d) (relating to qualified lessee construction allowances for short-term leases, generally reported by attaching a statement to an income tax return); (x) Section 408(i) (relating to reports with respect to individual retirement accounts or annuities on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (xi) Section 6047(d) (relating to reports by employers, plan administrators, etc., on Form 1099-R); or (xii) Section 6035 (relating to basis information with respect to property acquired from a decedent, generally Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent (3) Returns. (i) Section 6041A(a) or (b) (relating to returns of direct sellers, generally reported on Form 1099-MISC); (ii) Section 6043A(a) (relating to returns relating to taxable mergers and acquisitions); (iii) Section 6045(a) or (d) of the Code (relating to returns of brokers, generally reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, Digital Asset Proceeds from Broker Transactions Proceeds From Real Estate Transactions, Miscellaneous Income, (iv) Section 6045B(a) (relating to returns relating to actions affecting basis of specified securities); (v) Section 6050H(a) or (h)(1) (relating to mortgage interest received in trade or business from individuals, generally reported on Form 1098, “Mortgage Interest Statement”); (vi) Section 6050I(a) or (g)(1) (relating to cash received in trade or business, etc., generally reported on Form 8300, “Report of Cash Payments Over $10,000 Received In a Trade or Business”); (vii) Section 6050J(a) (relating to foreclosures and abandonments of security, generally reported on Form 1099-A, “Acquisition or Abandonment of Secured Property”); (viii) Section 6050K(a) (relating to exchanges of certain partnership interests, generally reported on Form 8308, “Report of a Sale or Exchange of Certain Partnership Interests”); (ix) Section 6050L(a) (relating to returns relating to certain dispositions of donated property, generally reported on Form 8282, “Donee Information Return”); (x) Section 6050P (relating to returns relating to the cancellation of indebtedness by certain financial entities, generally reported on Form 1099-C, “Cancellation of Debt”); (xi) Section 6050Q (relating to certain long-term care benefits, generally reported on Form 1099-LTC, “Long-Term Care and Accelerated Death Benefits”); (xii) Section 6050S (relating to returns relating to payments for qualified tuition and related expenses, generally reported on Form 1098-E, “Student Loan Interest Statement,” or Form 1098-T, “Tuition Statement”); (xiii) Section 6050T (relating to returns relating to credit for health insurance costs of eligible individuals, generally reported on Form 1099-H, “Health Coverage Tax Credit (HCTC) Advance Payments”); (xiv) Section 6052(a) (relating to reporting payment of wages in the form of group-life insurance, generally reported on Form W-2); (xv) Section 6050V (relating to returns relating to applicable insurance contracts in which certain exempt organizations hold interests, generally reported on Form 8921, “Applicable Insurance Contract Information Return”); (xvi) Section 6053(c)(1) (relating to reporting with respect to certain tips, generally reported on Form 8027, “Employer's Annual Information Return of Tip Income and Allocated Tips”); (xvii) Section 1060(b) (relating to reporting requirements of transferors and transferees in certain asset acquisitions, generally reported on Form 8594, Asset Acquisition Statement (xviii) Section 4101(d) (relating to information reporting with respect to fuel oils); (xix) Section 338(h)(10)(C) (relating to information required to be furnished to the Secretary in case of elective recognition of gain or loss (effective for acquisitions after October 9, 1990, except any acquisition pursuant to a written binding contract in effect on October 9, 1990, and at all times thereafter before such acquisition)); (xx) Section 264(f)(5)(A)(iv) (relating to reporting with respect to certain life insurance and annuity contracts); (xxi) Section 6050U (relating to charges or payments for qualified long-term care insurance contracts under combined arrangements, generally reported on Form 1099-R); (xxii) Section 6039(a) (relating to returns required with respect to certain options); (xxiii) Section 6050W (relating to information returns with respect to payments made in settlement of payment card and third party network transactions); (xxiv) Section 6055 (relating to information returns reporting minimum essential coverage); (xxv) Section 6056 (relating to information returns reporting on offers of health insurance coverage by applicable large employer members); (xxvi) Section 6050Y (relating to returns relating to certain life insurance contract transactions); or (xxvii) Section 6050Z (relating to reports relating to long-term care premium statements). (4) Other items. information return Foreign Person's U.S. Source Income Subject to Withholding, Foreign Partner's Information Statement of Section 1446 Withholding Tax. (5) Payee. (6) Filer. filer (i) Adjustment for inflation. (j) Applicability dates In general. See (2) Exceptions. (ii) Paragraph (h)(2)(xii) of this section applies with respect to information returns required to be filed after September 17, 2024. [T.D. 8386, 56 FR 67182, Dec. 30, 1991, as amended by T.D. 8843, 64 FR 61504, Nov. 12, 1999; T.D. 9200, 70 FR 28742, May 18, 2005; T.D. 9496, 75 FR 49836, Aug. 16, 2010; T.D. 9504, 75 FR 64103, Oct. 18, 2010; T.D. 9660, 79 FR 13231, Mar. 10, 2014; T.D. 9972, 88 FR 11777, Feb. 23, 2023; T.D. 9984, 88 FR 87701, Dec. 19, 2023; T.D. 10000, 89 FR 56583, July 9, 2024; T.D. 9991, 89 FR 76386, Sept. 17, 2024; 91 FR 13221, Mar. 19, 2026] § 301.6722-1 Failure to furnish correct payee statements. (a) Imposition of penalty General rule. payee statement failure composite substitute payee statement See See See See (2) Failures subject to the penalty. (i) A failure to furnish a payee statement on or before the prescribed date therefore to the person to whom such statement is required to be furnished (“failure to furnish timely”), and (ii) A failure to include all of the information required to be shown on a payee statement or the inclusion of incorrect information (failure to include correct information). A failure to furnish timely includes a failure to furnish a written statement to the payee in a statement mailing as required under sections 6042(c), 6044(e), 6049(c), and 6050N(b), as well as a failure to furnish the statement on a form acceptable to the Internal Revenue Service (IRS). Except as provided in paragraph (b) or (d) of this section, a failure to include correct information encompasses a failure to include the information required by applicable information reporting statutes or by any administrative pronouncements issued thereunder (such as regulations, revenue rulings, revenue procedures, or information reporting forms). (b) Exception for inconsequential errors or omissions In general. (2) Errors or omissions that are never inconsequential. (i) A dollar amount, except as provided in paragraph (d) of this section; (ii) The significant items in the address of a payee, which is the address provided by the payee to the filer; (iii) The appropriate form for the information provided ( i.e., (iv) The manner of furnishing a statement required under sections 6042(c), 6044(e), 6049(e), and 6050N(b). The IRS may, by administrative pronouncement, specify other types of errors or omissions that are never inconsequential. (3) Examples. (i) Example 1. (ii) Example 2. Example 1 (c) Higher penalty for intentional disregard of requirement to furnish timely correct payee statements Application of section 6722(e). (2) Amount of the penalty. (i) Paragraph (d) of this section will not apply; (ii) The $3,000,000 limitation under paragraph (a) of this section will not apply and the penalty under this paragraph (c)(2) will not be taken into account in applying the $3,000,000 limitation to penalties not determined under this paragraph (c)(2); (iii) The penalty imposed under paragraph (a) of this section will be $500 or, if greater, the statutory percentage; and (iv) The term “statutory percentage” means— (A) In the case of a payee statement other than a statement required under section 6045(b), 6041A(e) (in respect of a return required under section 6041A(b)), 6050H(d), 6050J(e), 6050K(b), or 6060L(c), 10 percent of the aggregate dollar amount of the items required to be reported correctly, or (B) In the case of a payee statement required under section 6045(b), 6050K(b), or 6050L(c), 5 percent of the aggregate dollar amount of the items required to be reported correctly. (3) Computation of the penalty; aggregate dollar amount of items required to be shown correctly. i.e., (d) Safe harbor exception for certain de minimis errors In general. (2) Definition of de minimis error. information return payee statement (3) Election to override the safe harbor exception In general. (ii) Timing of election. (iii) Manner for making the election. designated delivery service (A) Clearly state that the payee is making the election; (B) Provide the payee's name, address, and taxpayer identification number TIN (C) If the payee wants the election to apply only to specific types of statements, identify the type of payee statement(s) and account number(s), if applicable, to which the election applies (for example, Form 1099-DIV, Dividends and Distributions (D) Provide any other information required by the IRS in forms, instructions, or publications. (iv) Payee statements to which the election applies. (v) Reasonable alternative manner for making the election in cases of notification by the filer In general. (B) Notification of payee of reasonable alternative manner for making election. ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 (C) Notification of revocation procedures. (D) Time for providing notification of reasonable alternative manner for making payee election. 2 ( 1 ( 2 1 (E) Reasonable alternative manner. (vi) Election not available for certain information. See, (vii) Revocation of election. 6 (A) Clearly state that the payee is revoking the payee's prior election; (B) Provide the payee's name, address, and TIN to the filer; (C) Provide the name of the filer; (D) Identify the type of payee statement(s) (for example, Form 1099-DIV) to which the revocation applies; (E) Identify the account number(s), if applicable, to which the revocation applies; and (F) Provide any other information required by the IRS in forms, instructions or publications. (viii) Reasonable cause. See (4) Record retention. see see (5) Examples. (i) Example 1 Facts. Proceeds From Broker and Barter Exchange Transactions, (B) Analysis. (ii) Example 2 Facts. Example 1 (B) Analysis. (iii) Example 3 Facts. (B) Analysis. 2 (iv) Example 4 Facts. Wage and Tax Statement, (B) Analysis. (v) Example 5 Facts. (B) A single amount of tax withheld reported on the Form W-2, specifically the amount of Federal income tax withheld, differs from the correct amount by more than $25. Under paragraph (d)(2) of this section, this error is not a de minimis error. Therefore, the safe harbor exception for de minimis errors provided for by paragraph (d)(1) of this section does not apply. It is irrelevant that the sum total of taxes withheld reported on the Form W-2 ($28,840) differs from the correct total of taxes withheld ($28,850) by less than $25. (6) Voluntary corrections. (7) Limitations on applicability. (e) Definitions Payee. See payee. (2) Payee statement. payee statement payee statement (i) Section 6031(b) or (c), 6034A, or 6037(b) (relating to statements furnished by certain pass-thru entities, generally a Schedule K-1 (Form 1065), “Partner's Share of Income, Deductions, Credits, etc.,” for section 6031(b) or (c), a copy of the Schedule K-1 (Form 1041), “Beneficiary's Share of Income, Deductions, Credits, etc.,” for section 6034A, and a copy of Schedule K-1 (Form 1120S), “Shareholder's Share of Income, Deductions, Credits, etc.,” for section 6037(b)); (ii) Section 6039(b) (relating to information required in connection with certain options); (iii) Section 6041(d) (relating to information at source, generally the recipient copy of Form 1099-MISC, “Miscellaneous Income”; Form W-2, “Wage and Tax Statement”; Form 1099-INT, “Interest Income”; and the winner's copies of Form W-2G, “Certain Gambling Winnings”); (iv) Section 6041A(e) (relating to returns regarding payments of remuneration for services and direct sales, generally the recipient copy of Form 1099-MISC); (v) Section 6042(c) (relating to returns regarding payments of dividends and corporate earnings and profits, generally the recipient copy of Form 1099-DIV, “Dividends and Distributions”); (vi) Section 6043A(b) or (d) (relating to returns relating to taxable mergers and acquisitions); (vii) Section 6044(e) (relating to returns regarding payments of patronage dividends, generally the recipient copy of Form 1099-PATR, “Taxable Distributions Received From Cooperatives”); (viii) Section 6045(a) or (d) (relating to returns of brokers, generally reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, Digital Asset Proceeds From Broker Transactions, Proceeds From Real Estate Transactions, Miscellaneous Income, (ix) Section 6045A (relating to information required in connection with transfers of covered securities to brokers); (x) Section 6045B(c) or (e) (relating to returns relating to actions affecting basis of specified securities); (xi) Section 6049(c) (relating to returns regarding payments of interest, generally the recipient copy of Form 1099-INT or Form 1099-OID, “Original Issue Discount”); (xii) Section 6050A(b) (relating to reporting requirements of certain fishing boat operators, generally the recipient copy of Form 1099-MISC); (xiii) Section 6050H(d) or (h)(2) (relating to returns relating to mortgage interest received in trade or business from individuals, generally the payor copy of Form 1098, “Mortgage Interest Statement”); (xiv) Section 6050I(e), (g)(4), or (g)(5) (relating to returns relating to cash received in trade or business, etc., generally a copy of Form 8300, “Report of Cash Payments Over $10,000 Received In a Trade or Business”); (xv) Section 6050J(e) (relating to returns relating to foreclosures and abandonments of security, generally the borrower copy of Form 1099-A, “Acquisition or Abandonment of Secured Property”); (xvi) Section 6050K(b) (relating to returns relating to exchanges of certain partnership interests, generally a copy of Form 8308, “Report of a Sale or Exchange of Certain Partnership Interests”); (xvii) Section 6050L(c) (relating to returns relating to certain dispositions of donated property, generally a copy of Form 8282, “Donee Information Return”); (xviii) Section 6050N(b) (relating to returns regarding payments of royalties, generally the recipient copy of Form 1099-MISC); (xix) Section 6050P(d) (relating to returns relating to the cancellation of indebtedness by certain financial entities, generally the recipient copy of Form 1099-C, “Cancellation of Debt”); (xx) Section 6050Q(b) (relating to certain long-term care benefits, generally the policyholder and insured copies of Form 1099-LTC, “Long-Term Care and Accelerated Death Benefits”); (xxi) Section 6050R(c) (relating to returns relating to certain purchases of fish, generally the recipient copy of Form 1099-MISC); (xxii) Section 6051 (relating to receipts for employees, generally the employee copy of Form W-2); (xxiii) Section 6052(b) (relating to returns regarding payment of wages in the form of group-term life insurance, generally the employee copy of Form W-2); (xxiv) Section 6053(b) or (c) (relating to reports of tips, generally the employee copy of Form W-2); (xxv) Section 6048(b)(1)(B) (relating to foreign trust reporting requirements, generally copies of the owner and beneficiary statements of Form 3520-A, “Annual Information Return of Foreign Trust With a U.S. Owner”); (xxvi) Section 408(i) (relating to reports with respect to individual retirement plans on the recipient copies of Form 1099-R, “Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.”); (xxvii) Section 6047(d) (relating to reports by plan administrators on the recipient copies of Form 1099-R); (xxviii) Section 6050S(d) (relating to returns relating to qualified tuition and related expenses, generally the borrower copy of Form 1098-E, “Student Loan Interest Statement,” or the student copy of Form 1098-T, “Tuition Statement”); (xxix) Section 264(f)(5)(A)(iv) (relating to reporting with respect to certain life insurance and annuity contracts); (xxx) Section 6050T (relating to returns relating to credit for health insurance costs of eligible individuals, generally the recipient copy of Form 1099-H, “Health Coverage Tax Credit (HCTC) Advance Payments”); (xxxi) Section 6050U (relating to charges or payments for qualified long-term care insurance contracts under combined arrangements, generally the recipient copy of Form 1099-R); (xxxii) Section 6050W (relating to information returns with respect to payments made in settlement of payment card and third party network transactions); (xxxiii) Section 6055 (relating to information returns reporting minimum essential coverage); (xxxiv) Section 6056 (relating to information returns reporting on offers of health insurance coverage by applicable large employer members); (xxxv) Section 6035 (relating to basis information with respect to property acquired from a decedent, generally Schedule A of Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent (xxxvi) Section 6050Y(a)(2), 6050Y(b)(2), or 6050Y(c)(2) (relating to certain life insurance contract transactions); (xxxvii) Section 6226(a)(2) (regarding statements relating to alternative to payment of imputed underpayment by a partnership) or under any other provision of this title that provides for the application of rules similar to section 6226(a)(2); or (xxxviii) Section 6050Z (relating to reports relating to long-term care premium statements). (3) Other items. payee statement (4) Filer. filer payee statement (f) Adjustment for inflation. (g) Applicability dates In general. See (2) Exceptions. (ii) Paragraph (e)(2)(xxxv) of this section applies with respect to payee statements required to be furnished after September 17, 2024. [T.D. 8386, 56 FR 67182, Dec. 30, 1991, as amended by T.D. 9394, 73 FR 23086, Apr. 29, 2008; T.D. 9496, 75 FR 49836, Aug. 16, 2010; T.D. 9504, 75 FR 64104, Oct. 18, 2010; T.D. 9660, 79 FR 13231, Mar. 10, 2014; T.D. 9984, 88 FR 87705, Dec. 19, 2023; T.D. 10000, 89 FR 56583, July 9, 2024, T.D. 9991, 89 FR 76386, Sept. 17, 2024; 91 FR 13221, Mar. 19, 2026] § 301.6723-1 Failure to comply with other information reporting requirements. (a) Imposition of penalty General rule. (2) Failures subject to the penalty. (i) A failure to comply timely with a specified information reporting requirement on or before the date prescribed therefor (“failure to comply timely”), and (ii) A failure to include all the information required by a specified information reporting requirement or the inclusion of incorrect information (“failure to include correct information”). (3) Exception for inconsequential errors or omissions. (4) Specified information reporting requirement defined. (i) The requirement to provide the notice under section 6050K(c)(1) (relating to the requirement that a transferor notify the partnership of an exchange of a partnership interest); (ii) Any requirement contained in the regulations under section 6109 that a person— (A) Include his or her taxpayer identification number (“TIN”) on any return, statement, or other document (other than an information return or payee statement), (B) Include on any return, statement, or other document (other than an information return or payee statement) made with respect to another person the TIN of such person, or (C) Furnish his or her TIN to another person; (iii) Any requirement contained in the regulations under section 215 that a person— (A) Furnish his or her TIN to another person, or (B) Include on his or her return the TIN of another person; and (iv) The requirement under section 6109(e) that a person include the TIN of any dependent on his or her return. (b) Examples. Example 1. Individual A, who has two dependents ages 7 and 9, files his 1990 Form 1040 in 1991. The Form 1040 requires him to provide the TINs of his two dependents, which A fails to do. Because A fails to comply timely with two requirements to include on his return the TIN of another person, a $50 penalty under paragraph (a) of this section is imposed on A for each of the two failures, for a total penalty of $100. Example 2. In 1991 Individual B opens with Bank X an account which pays reportable interest under section 6049. When B opens the account, Bank X requests that B provide his TIN on a Form W-9. B does not provide his TIN as required by § 301.6109-1(b). As a result B fails to comply timely with a specified information reporting requirement under paragraph (a) of this section for furnishing his TIN to another person. Therefore, a $50 penalty is imposed on B under paragraph (a) of this section for the failure. See section 6721(a) for the penalty to which X may be subject if X files a Form 1099-INT (relating to payments of interest) for calendar year 1991 without B's TIN. See section 3406(a)(1)(A) which requires X to impose backup withholding on reportable payments of interest to B's account. Example 3. In 1991 Individual C is a nonresident alien with an account inside the U.S. with Bank Z. The account pays interest that would be reportable under section 6049 but for the fact that it is paid to a nonresident alien. Under section 6109 and § 301.6109-1(b), Bank Z is required to request the TIN from C. C claims that he is a nonresident alien and that his account is not subject to information reporting under section 6049. Because of this, C contends he is not required to provide any TIN information. As a result of this discussion, Bank Z then requests C to provide it with a Form W-8 in order for C to certify that he is a nonresident alien which C fails to do. C fails to comply timely with a specified information reporting requirement under paragraph (a) of this section to furnish his TIN to another person. Therefore, a penalty is imposed on C under paragraph (a) of this section for the failure. See section 6721(a) for the penalty that may be imposed on Z if Z files a Form 1099-INT for calendar year 1991 without C's TIN. See section 3406(a)(1)(A) under which Z is required to impose backup withholding on reportable payment of interest to C's account. Example 4. In 1991 Partnership D opens with Bank Y an account that pays reportable interest under section 6049. When D opens the account, Y requests the partnership's employer identification number (EIN) on a Form W-9 as required under § 301.6109-1(b). The partnership provides its EIN on the Form W-9. Y files an information return with respect to D for the 1991 calendar year. Subsequently, the Internal Revenue Service later notifies Y that D's EIN is incorrect as defined under section 3406 and § 35a.3406-1(a)(6). D fails to comply timely with a specified reporting requirement under paragraph (a) of this section of furnishing its correct EIN to another person. Therefore, a penalty is imposed on D under paragraph (a) of this section for the failure. See section 6721(a) for the penalty to which Y may be subject if Y files a Form 1099-INT for calendar year 1991 without D's correct EIN. See section 3406(a)(1)(B), which requires Y to impose backup withholding on reportable payments of interest to B's account when the Internal Revenue Service or a broker has notified Y that the EIN is incorrect. [T.D. 8386, 56 FR 67182, Dec. 30, 1991] § 301.6724-1 Reasonable cause. (a) Waiver of the penalty General rule. information reporting requirement (2) Reasonable cause defined. (i) There are significant mitigating factors with respect to the failure, as described in paragraph (b) of this section; or (ii) The failure arose from events beyond the filer's control (impediment), as described in paragraph (c) of this section. (iii) Moreover, the filer must establish that the filer acted in a responsible manner, as described in paragraph (d) of this section, both before and after the failure occurred. Thus, if the filer establishes that there are significant mitigating factors for a failure but is unable to establish that the filer acted in a responsible manner, the mitigating factors will not be sufficient to obtain a waiver of the penalty. Similarly, if the filer establishes that a failure arose from an impediment but is unable to establish that the filer acted in a responsible manner, the impediment will not be sufficient to obtain a waiver of the penalty. See See (b) Significant mitigating factors. See (1) The fact that prior to the failure the filer was never required to file the particular type of return or furnish the particular type of statement with respect to which the failure occurred, or (2) The fact that the filer has an established history of complying with the information reporting requirement with respect to which the failure occurred. In determining whether the filer has such an established history, significant consideration is given to— (i) Whether the filer has incurred any penalty under § 301.6721-1, § 301.6722-1, or § 301.6723-1 in prior years for the failure; and (ii) If the filer has incurred any such penalty in prior years, the extent of the filer's success in lessening its error rate from year to year. (3) A filer may treat as a penalty not incurred any penalty under sections 6721 through 6723 that was self-assessed under section 6724(c)(3) and any penalty under section 6676(b) that was self-assessed under section 6676(d), prior to amendment or repeal by the Omnibus Budget Reconciliation Act of 1989. See paragraph (c)(5) of this section for the application of this paragraph (b) to failures attributable to the actions of a filer's agent. (c) Events beyond the filer's control In general. (i) The unavailability of the relevant business records (as described in paragraph (c)(2) of this section), (ii) An undue economic hardship relating to filing on magnetic media (as described in paragraph (c)(3) of this section), (iii) Certain actions of the Internal Revenue Service (IRS) (as described in paragraph (c)(4) of this section), (iv) Certain actions of an agent (as described in paragraph (c)(5) of this section), and (v) Certain actions of the payee or any other person providing necessary information with respect to the return or payee statement (as described in paragraph (c)(6) of this section). (2) Unavailability of the relevant business records. (i) A fire or other casualty that damages or impairs the filer's relevant business records or the filer's system for processing and filing such records; (ii) A statutory or regulatory change that has a direct impact upon data processing and that is made so close to the time that the return or payee statement is required that, for all practical purposes, the change cannot be complied with; or (iii) The unavoidable absence (e.g., due to death or serious illness) of the person with the sole responsibility for filing a return or furnishing a payee statement. (3) Undue economic hardship relating to filing on magnetic media. (i) The filer attempted on a timely basis to contract out the magnetic media filing; (ii) The cost of filing on magnetic media or in electronic form was prohibitive as determined at least 45 days before the due date of the returns (without regard to extensions); (iii) The cost was supported by a minimum of two cost estimates from unrelated parties; and (iv) The filer filed the returns on paper. Reasonable cause will not ordinarily be established under this paragraph (c)(3) if a filer received a reasonable cause waiver in any prior year under paragraph (c)(1) of this section due to an undue economic hardship relating to filing on magnetic media. (4) Actions of the IRS. (5) Actions of agent—imputed reasonable cause. (i) The filer exercised reasonable business judgment in contracting with the agent to file timely correct returns or furnish timely correct payee statements with respect to which the failure occurred. This includes contracting with the agent and providing the proper information sufficiently in advance of the due date of the return or statement to permit timely filing of correct returns or timely furnishing of correct payee statements; and (ii) The agent satisfied the reasonable cause criteria set forth in paragraph (b) or one of the reasonable cause criteria set forth in paragraph (c) (2) through (6) of this section. (6) Actions of the payee or any other person. (i) That the failure resulted from the failure of the payee, or any other person required to provide information necessary for the filer to comply with the information reporting requirements (“any other person”), to provide information to the filer, or (ii) That the failure resulted from incorrect information provided by the payee (or any other person) upon which information the filer relied in good faith. To substantiate reasonable cause under this paragraph (c)(6), the filer must provide documentary evidence upon request of the IRS showing that the failure was attributable to the payee (or any other person). See paragraph (d)(2) of this section for special rules relating to the availability of a waiver where the filer's failure relates to a taxpayer identification number (TIN), and the failure is attributable to actions of the payee described in paragraph (c)(6) (i) or (ii) of this section. (d) Responsible manner In general. (i) That the filer exercised reasonable care, which is that standard of care that a reasonably prudent person would use under the circumstances in the course of its business in determining its filing obligations and in handling account information such as account numbers and balances, and (ii) That the filer undertook significant steps to avoid or mitigate the failure, including, where applicable— (A) Requesting appropriate extensions of time to file, when practicable, in order to avoid the failure, (B) Attempting to prevent an impediment or a failure, if it was foreseeable, (C) Acting to remove an impediment or the cause of a failure, once it occurred, and (D) Rectifying the failure as promptly as possible once the impediment was removed or the failure was discovered. Ordinarily, a rectification is considered prompt if it is made within 30 days after the date the impediment is removed or the failure is discovered or on the earliest date thereafter on which a regular submission of corrections is made. Submissions will be considered regular only if made at intervals of 30 days or less. A failure may be rectified by filing or correcting the information return, furnishing or correcting the payee statement, or by providing or correcting the information to satisfy the specified information reporting requirement with respect to which the failure occurs. Paragraph (d)(ii)(D) of this section does not apply with respect to information the filer is prohibited from altering under specific information reporting rules. See § 1.6045-4(i)(5) of this chapter. (2) Special rule for filers seeking a waiver pursuant to paragraph (c)(6) of this section. (e) Acting in a responsible manner—special rules for missing TINs In general. missing TIN See See See (i) Initial solicitation. account see (ii) First annual solicitation. (iii) Second annual solicitation. (iv) Additional requirements. (v) Failures to which a solicitation relates. (vi) Exceptions and limitations. return, (B) An annual solicitation is not required to be made for a year under this paragraph (e) with respect to an account if no payments are made to the account for such year or if no return as defined in paragraph (g) of § 301.6721-1 is required to be filed for the account for the year. (C) If a filer fails to make one (or more) of the required solicitations under paragraphs (e)(1) (i), (ii), and (iii) of this section, the filer may satisfy the requirements of this section by— ( 1 ( 2 For example, a filer who has made none of the required solicitations may satisfy the requirements of this section by making two consecutive solicitations. In determining whether a filer has made two consecutive solicitations, years to which paragraph (e)(1)(vi)(B) of this section applies shall be disregarded. If a filer fails to make the initial solicitation under paragraph (e)(1)(i) of this section, the make-up solicitations described in this paragraph (e)(1)(vi)(C) may be made in the years in which the first and second annual solicitations are required to be made; however, the penalty will apply with respect to the year in which the filer failed to make the initial solicitation. The penalty will apply to failures with respect to years for which a required solicitation is not made and to failures with respect to all subsequent years until the filer conducts its make-up solicitations. The penalty will not apply with respect to the year in which the first make-up solicitation is made (unless it is also the year in which the filer fails to make its initial solicitation) if the second make-up solicitation is made in the following year. (D) A financial institution is not required to make an annual solicitation by mail on accounts with “stop-mail” or “hold-mail” instructions, provided the filer furnishes the solicitation material to the payee in the same manner as it furnishes other mail. (E) A filer is not required to make annual solicitations by mail on accounts with respect to which the filer has an undeliverable address, that is, where other mailings to that address have been returned to the filer because the address was incorrect and no new address has been provided to the filer. (F) Except as provided in paragraphs (e)(1)(vi)(A) and (C) of this section, no more than two annual solicitations are required under this paragraph (e) in order for a filer to establish reasonable cause. (2) Manner of making annual solicitations—by mail or telephone By mail. (A) A letter informing the payee that he or she must provide his or her TIN and that he or she is subject to a $50 penalty imposed by the IRS under section 6723 if he or she fails to furnish his or her TIN, (B) A Form W-9 or an acceptable substitute form, as defined in § 31.3406 (h)-3 (a), (b), or (c) of this chapter, on which the payee may provide the TIN, and (C) A return envelope for the payee to provide the TIN which may be, but is not required to be, postage prepaid. (ii) By telephone. (A) Completes a call to each person with a missing TIN and speaks to an adult member of the household, or to an officer of the business or the organization, (B) Requests the TIN of the payee, (C) Informs the payee that he or she is subject to a $50 penalty imposed by the IRS under section 6723 if he or she fails to furnish his or her TIN, (D) Maintains contemporaneous records showing that the solicitation was properly made, and (E) Provides such contemporaneous records to the IRS upon request. (f) Acting in a responsible manner—special rules for incorrect TINS In general. See solicitation. See See (i) Initial solicitation. account see (ii) First annual solicitation. (iii) Second annual solicitation. (iv) Additional requirements. (2) Manner of making annual solicitation if notified pursuant to section 6721. (3) Coordination with solicitations under section 3406(a)(1)(b). (ii) A filer that has been notified of an incorrect TIN by a notice pursuant to section 6721 (except filers to which § 31.3406(d)-5(b)(4)(i)(A) of this chapter applies) is not required to make the annual solicitation of this paragraph (f) if— (A) The filer has received an effective notice pursuant to section 3406(a)(1)(B) with respect to the same payee, either during the same calendar year or for information returns filed for the same year; and (B) The filer makes a solicitation in the manner and within the time period required under § 31.3406(d)-5(d)(2)(i) or (g)(1)(ii) of this chapter, whichever applies, before the filer is required to make the annual solicitation of this paragraph (f). (iii) A filer that has been notified of an incorrect TIN by a notice pursuant to section 6721 with respect to a fiduciary or nominee account to which § 31.3406(d)-5(b)(4)(i)(A) of this chapter applies is required to make the annual solicitation of this paragraph (f). (4) Failures to which a solicitation relates. (5) Exceptions and limitations. return, (ii) An annual solicitation is not required to be made for a year under this paragraph (f) with respect to an account if no payments are made to the account for such year or if no return (iii) If a filer fails to make one (or more) of the required solicitations under paragraph (f)(1) (i), (ii), and (iii) of this section, the filer may satisfy the requirements of this section by: (A) Making two consecutive annual solicitations in subsequent years (“make-up solicitations”), and (B) Satisfying paragraph (f)(1)(iv) of this section. For example, a filer who has made none of the required solicitations may satisfy the requirements of this section by making two consecutive solicitations. In determining whether a filer has made two consecutive solicitations, years to which paragraph (f)(5)(ii) of this section applies are disregarded. If a filer fails to make the initial solicitation under paragraph (f)(1)(i) of this section, the make-up solicitations described in this paragraph (f)(5)(iii) may be made in the years in which the first and second annual solicitations are required to be made; however, the penalty will apply with respect to the year in which the filer failed to make the initial solicitation. The penalty will apply to failures in years in which a required solicitation is not made and to failures with respect to all subsequent years until the filer conducts its make-up solicitations. The penalty will not apply with respect to the year in which the first make-up solicitation is made (unless it is also the year in which the filer fails to make the initial solicitation) if the second make-up solicitation is made in the following year. (iv) A financial institution is not required to make an annual solicitation by mail on accounts with “stop-mail” or “hold-mail” instructions, provided the filer furnishes the solicitation material to the payee in the same manner as it furnishes other mail. (v) A filer is not required to make annual solicitations by mail on accounts with respect to which the filer has an undeliverable address, i.e., (vi) In general, except as provided in paragraph (f)(5) (i) and (iii) of this section, no more than two annual solicitations are required under this paragraph (f) in order for a filer to establish reasonable cause. However, a filer who complies with this paragraph (f) during a calendar year after receiving a notice under section 6721 and who later during the same calendar year receives a notice pursuant to section 3406 may be required to undertake additional annual mailings in such calendar year pursuant to section 3406(a)(1)(B) in order to satisfy the annual solicitation requirement in paragraph (f)(3) of this section. (g) Due diligence safe harbor In general. (i) A failure to provide a correct TIN on any— (A) Information return (B) Payee statement (C) Document as described in § 301.6723-1(a)(4); or (ii) The failure merely to provide a TIN as described in § 301.6723-1(a)(4)(ii). (2) General rule. (3) Due diligence defined for accounts opened and instruments acquired after December 31, 1983 In general. due diligence (ii) Notification of incorrect TIN. (iii) Inadvertent processing. (4) Instruments not transferred with assistance of broker In general. (ii) Solicitation of TIN not required. (iii) Payee provides incorrect TIN. (5) Filer incurred an undue hardship In general. (ii) Only IRS makes undue hardship determinations. (6) Acquisitions of pre-1984 accounts or instruments In general. (ii) Establishing due diligence was exercised for accounts or instruments. (7) Limited reliance on certain pre-2001 rules. see (h) Reasonable cause safe harbor after election under section 6722(c)(3)(B). See (i) [Reserved] (j) Failures to which this section relates. (1) A failure described under § 301.6721-1(a)(2) relating to the failure to file timely correct information returns as defined in section 6724(d)(1), (2) A failure described under § 301.6722-1(a)(2) relating to the failure to furnish timely a correct payee statement as defined in section 6724(d)(2), and (3) A failure described under § 301.6723-1(a)(2) relating to the failure to timely comply with and to include correct specified information as defined in section 6724(d)(3). (k) Examples. (1) Example 1 Facts. (ii) Analysis. (A) L acted in a responsible manner in attempting to satisfy the information reporting requirement as described in paragraph (d) of this section; and (B) L demonstrates that the failure arose from events beyond L's control, as described in paragraph (c)(6) of this section. (iii) Analysis (continued). See (2) Example 2 Facts. Interest Income, (ii) Analysis. See (3) Example 3 Table. Table 1 to Paragraph (k)(3)(i) 2023 2/2024 10/2024 2/2025 Account opened (solicits TIN) 2023 return filed B-notice with respect to 2023 return 2024 return filed. 4/2025 10/2025 2/2026 4/2026 6721 penalty notice for 2023 return B-notice with respect to 2024 return 2025 return filed 6721 penalty notice for 2024. (ii) Facts. Example 2 (iii) Analysis. (4) Example 4 Table. Table 2 to Paragraph (k)(4)(i) 2023 2/2024 10/2024 2/2025 Account opened (solicits TIN) 2023 return filed B-notice with respect to 2023 return 2024 return filed. 4/2025 10/2025 2/2026 4/2026 6721 penalty notice for 2023 return B-notice with respect to 2024 return 2025 return filed 6721 penalty notice for 2024 return. (ii) Facts. Example 3 (iii) Analysis. See (5) Example 5 Facts. (ii) Analysis. (6) Example 6 Table. Table 3 to Paragraph (k)(6)(i) 10/2023 2/2024 10/2024 2/2025 Account opened. (solicits TIN) 2023 return filed B-notice with respect to 2023 return 2024 return filed. 4/2025 10/2025 2/2026 4/2026 6721 penalty notice for 2023 return B-notice with respect to 2024 return 2025 return filed 6721 penalty notice for 2024 return. (ii) Facts. (iii) Analysis. (7) Example 7 Facts. Example 6 (ii) Analysis. (8) Example 8 Facts. Miscellaneous Information, (ii) Analysis. See (9) Example 9 Facts. Example 8 (ii) Analysis. (l) [Reserved] (m) Procedure for seeking a waiver. (1) State the specific provision under which the waiver is being requested, that is, paragraph (b) or under paragraphs (c)(2) through (6) or paragraph (h) of this section; (2) Set forth all the facts alleged as the basis for reasonable cause; (3) Contain the signature of the person required to file the return; and (4) Contain a declaration that it is made under penalties of perjury. See § 1.6061-1 of the Income Tax Regulations for the rules on the signing of returns. (n) Manner of payment. (o) Applicability dates In general. See (2) Paragraph (g). information returns payee statements See (3) Paragraph (h). [T.D. 8386, 56 FR 67182, Dec. 30, 1991, and amended by T.D. 8409, 57 FR 13035, Apr. 15, 1992; T.D. 8734, 62 FR 53496, Oct. 14, 1997; T.D. 8804, 63 FR 72189, Dec. 31, 1998; T.D. 8856, 64 FR 73413, Dec. 30, 1999; T.D. 9055, 68 FR 22595, Apr. 29, 2003; T.D. 9136, 69 FR 41943, July 13, 2004; T.D. 9699, 79 FR 63812, Oct. 27, 2014; T.D. 9984, 88 FR 87708, Dec. 19, 2023] Regulations Applicable to Information Returns and Payee Statements the Due Date for Which (Without Regard to Extensions) Is After December 31, 1986, and Before January 1, 1990 § 301.6751(b)-1 Supervisory and higher level official approval for penalties. (a) Approval requirement In general. (2) Exceptions. (i) Any penalty under section 6651, 6654, 6655, 6673, 6662(b)(9), or 6662(b)(10) of the Code; or (ii) Any other penalty automatically calculated through electronic means. (3) Definitions. (i) Penalty. penalty (ii) Individual who first proposed the penalty. individual who first proposed the penalty (iii) Immediate supervisor. immediate supervisor (iv) Higher level official. higher level official (v) Personally approved (in writing). personally approved (in writing) (vi) Automatically calculated through electronic means. automatically calculated through electronic means (4) Higher level official. (b) Penalties not subject to pre-assessment review in the Tax Court. (c) Penalties subject to pre-assessment review in the Tax Court. (d) Penalties raised in the Tax Court after a petition. see (e) Examples. (1) Example 1. (2) Example 2. (3) Example 3. (i) Alternative Outcome 1: (ii) Alternative Outcome 2: (4) Example 4. (5) Example 5. (6) Example 6. (f) Applicability date. [T.D. 10017, 89 FR 104423, Dec. 23, 2024] General Provisions Relating to Stamps § 301.6801-1 Authority for establishment, alteration, and distribution. (a) Establishment and alteration. (b) Preparation and distribution of forms, stamps and dies. § 301.6802-1 Supply and distribution. (a) Postmaster General. (b) Designated depositary of the United States. (c) State agents. § 301.6803-1 Accounting and safeguarding. In cases coming within the provisions of section 6802 (2) and (3) and paragraphs (b) and (c) of § 301.6802-1, the district director may require a bond in such amount as he deems advisable, conditioned for the faithful return, whenever so required, of all quantities or amounts of adhesive stamps undisposed of and for the payment monthly for all quantities or amounts of adhesive stamps sold or not remaining on hand. Such bond shall be furnished in accordance with the provisions contained in section 7101 and § 301.7101-1. § 301.6804-1 Attachment and cancellation. For provisions relating to the attachment and cancellation of specific stamps used with respect to a particular tax, see the regulations relating to such tax. § 301.6805-1 Redemption of stamps. (a) Authorization. (i) The stamps have been spoiled, destroyed, or rendered useless or unfit for the purpose intended, or (ii) The owner of the stamps has no use therefor. (2) If a stamp has been in use for any period of time, it may not be redeemed under section 6805. Similarly, no allowance shall be made for stamps which have been lost or stolen. (b) Method and conditions of allowance. (c) Time for filing claims. (d) Finality of decisions. [T.D. 7188, 37 FR 12795, June 29, 1972] § 301.6806-1 Posting occupational tax stamps. For provisions relating to the posting of specific stamps used with respect to a particular tax, other than a special tax under subchapter B of chapter 35, subchapter B of chapter 36, or subtitle E, see the regulations relating to such tax. For penalties for failure to post occupational tax stamps, see section 7273. [T.D. 7188, 37 FR 12795, June 29, 1972] Jeopardy, Bankruptcy, and Receiverships Jeopardy termination of taxable year § 301.6851-1 Termination of taxable year. For regulations under section 6851, see §§ 1.6851-1 to 1.6851-3, inclusive, of this chapter (Income Tax Regulations). § 301.6852-1 Termination assessments of tax in the case of flagrant political expenditures of section 501(c)(3) organizations. (a) Authority for making. (b) Determination of income tax. (c) Payment. (d) Effective date. [T.D. 8628, 60 FR 62212, Dec. 5, 1995] jeopardy assessments § 301.6861-1 Jeopardy assessments of income, estate, gift, and certain excise taxes. (a) Authority for making. (b) Amount of jeopardy assessment. (c) Jurisdiction of Tax Court. (d) Payment and collection of jeopardy assessment. (e) Abatement of excessive assessment. (f) Abatement if jeopardy does not exist. (2) After abatement of a jeopardy assessment in whole or in part, a deficiency may be assessed and collected in the manner authorized by law as if the jeopardy assessment or part thereof so abated had not existed. If a notice of deficiency has been sent to the taxpayer before the abatement of the jeopardy assessment in whole or in part, whether such notice was sent before or after the making of the assessment, such abatement will not affect the validity of the notice or of any proceedings for redetermination based thereon. The period of limitation on the making of assessments and the beginning of levy or a proceeding in court for collection in respect of any deficiency shall be determined as if the jeopardy assessment so abated had not been made, except that the running of such period shall in any event be suspended for the period from the date of such jeopardy assessment until the expiration of the tenth day after the date on which such jeopardy assessment is abated in whole or in part. The provisions of this subparagraph may be illustrated by the following example: Example. On March 18, 1958, 28 days before the last day of the 3-year period of limitations on assessment, a jeopardy assessment is made in respect of a proposed deficiency. On May 2, 1958, before the mailing of the notice of deficiency provided by section 6861(b), this assessment is abated. By virtue of this subparagraph, the last day of the period of limitations for the making of an assessment is June 9, 1958, that is, the 38th day after the date of the abatement. If the notice of deficiency provided for in section 6861(b) has been sent before the abatement, the running of the period of limitations on assessment would have been suspended pursuant to the provisions of the section 6503(a). (3) See section 7429 with respect to requesting the district director to review the making of the jeopardy assessment. (g) Special rules for chapters 42 and 43 taxes. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7575, 43 FR 58817, Dec. 18, 1978; T.D. 7838, 47 FR 44253, Oct. 7, 1982; T.D. 8084, 51 FR 16305, May 2, 1986; T.D. 8628, 60 FR 62213, Dec. 5, 1995] § 301.6862-1 Jeopardy assessment of taxes other than income, estate, gift, and certain excise taxes. (a) If the district director believes that the collection of any tax (other than income, estate, gift, chapter 41, 42, 43, or 44 tax) will be jeopardized by delay, the director shall, whether or not the time otherwise prescribed by law for filing the return or paying such tax has expired, immediately assess such tax, together with all interest, additional amounts and additions to the tax provided by law. A district director will make an assessment under this section if collection is determined to be in jeopardy because at least one of the conditions described in § 1.6851-1(a)(1)(i), (ii), or (iii) (relating to termination assessments) exists. For example, assume that a taxpayer incurs on January 18, 1977, liability for tax imposed by section 4061, that the last day on which return and payment of such tax is required to be made is May 2, 1977, and that on January 18, 1977, the district director determines that collection of such tax would be jeopardized by delay. In such case, the district director shall immediately assess the tax. (b) The tax, interest, additional amounts, and additions to the tax will, upon assessment, become immediately due and payable, and the district director shall, without delay, issue a notice and demand for payment thereof in full. Upon failure or refusal to pay the amount demanded, collection thereof by levy shall be lawful without regard to the 10-day period provided in section 6331 (a). However, the collection of the whole or any part of the amount of the jeopardy assessment may be stayed by timely filing with the district director a bond as provided in section 6863. (c) See section 7429 with respect to requesting the district director to review the making of the jeopardy assessment. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7575, 43 FR 58817, Dec. 18, 1978; T.D. 7838, 47 FR 44253, Oct. 7, 1982] § 301.6863-1 Stay of collection of jeopardy assessments; bond to stay collection. (a) General rule. (2) The bond may be filed— (i) At any time before the time collection by levy is authorized under section 6331(a), or (ii) After collection by levy is authorized and before levy is made on any property or rights to property, or (iii) In the discretion of the district director, after any such levy has been made and before the expiration of the period of limitations on collection. (3) The bond must be in an amount equal to the portion (including interest thereon to the date of payment as calculated by the district director) of the jeopardy assessment or political assessment collection of which is sought to be stayed. See section 7101 and § 301.7101-1, relating to the form of bond and the sureties thereon. The bond shall be conditioned upon the payment of the amount (together with interest thereon), the collection of which is stayed, at the time at which, but for the making of the jeopardy assessment, such amount would be due. (4) Upon the filing of a bond in accordance with this section, the collection of so much of the assessment as is covered by the bond will be stayed. The taxpayer may at any time waive the stay of collection of the whole or any part of the amount covered by the bond. If as a result of such waiver any part of the amount covered by the bond is paid, or if any portion of the jeopardy assessment or political assessment is abated by the district director, then the bond shall be at the request of the taxpayer be proportionately reduced. (b) Additional conditions applicable to income, estate, gift, and chapter 41, 42, 43 and 44 tax assessments. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7384, 40 FR 49325, Oct. 22, 1975; T.D. 7575, 43 FR 58817, Dec. 18, 1978; T.D. 7838, 47 FR 44253, Oct. 7, 1982; T.D. 8628, 60 FR 62213, Dec. 5, 1995] § 301.6863-2 Collection of jeopardy assessment; stay of sale of seized property pending Tax Court decision. (a) General rule. (1) The period provided in section 7429(a)(2) to request the district director to review the action taken expires. (2) The period provided in section 7429(b)(1) to file an action in U.S. District Court expires if a request for a redetermination is made to the district director. (3) The U.S. District Court judgment in such action becomes final, if a civil action is begun in accordance with section 7429(b). (4) In addition to the occurrences described in paragraphs (a), (1), (2), and (3) of this section, in the case of an assessment of income, estate, gift, chapter 41, 42, 43, or 44 excise taxes, until the latest of the following occurs: (i) The expiration of the period provided in section 6213(a) within which the taxpayer may file a petition with the Tax Court; or (ii) The decision of the Tax Court becomes final, if a petition for redetermination is filed with the Tax Court (whether before or after the making of the assessment). However, notwithstanding paragraph (a)(4)(i) of this section, in the case of a termination assessment under section 6851, property seized may be sold after the due date (determined with extensions) of the taxpayer's return if the taxpayer does not file a return by such date. Furthermore, for the purposes of paragraph (a)(4)(ii) of this section, a petition will not operate as a further stay of the sale of the seized property unless the taxpayer files a bond as provided in section 7485. (b) Exceptions. (1) If the taxpayer files with the district director a written consent to the sale, or (2) If the district director determines that the expenses of conservation and maintenance of the property will greatly reduce the net proceeds from the sale of such property, or (3) If the property is of a type to which section 6336 (relating to sale of perishable goods) is applicable. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7575, 43 FR 58817, Dec. 18, 1978; T.D. 8628, 60 FR 62213, Dec. 5, 1995] § 301.6867-1 Presumptions where owner of large amount of cash is not identified. (a) General rule. (1) The cash represents gross income of an unknown single individual; and (2) That the collection of tax on that income will be jeopardized by delay. (b) Rules for assessment. (1) The entire amount of cash is treated as taxable income for the taxable year in which the cash is found; (2) The income is treated as taxable at the highest rate of tax specified in section 1 of the Internal Revenue Code; and (3) Except as provided in paragraph (c), the possessor of the cash is treated (solely with respect to that cash) as the taxpayer for purposes of chapters 63 and 64 and section 7429(a)(1) of the Internal Revenue Code. (c) Effect of later substitution of true owner In general. (2) Example. Example. On June 5, 1994, A is found in possession of a bag, containing $200,000, which A claims he was holding for a friend whose name A cannot remember. Because A does not claim ownership of the cash and does not provide the name of the true owner so that the Commissioner can identify the true owner and have that person acknowledge ownership of the cash, it is presumed that the cash represents gross income of an individual for calendar year 1994, and that the collection of tax on that gross income will be jeopardized by delay. Accordingly, on June 17, 1994, a termination assessment under section 6851 is made against A, in his capacity as possessor of the cash. On June 21, 1994, the written statement of information provided for by section 7429(a)(1) is given to A. No request for review under section 7429(a)(2) is made by the true owner within 30 days after the day on which A was furnished the written statement provided for in section 7429(a)(1). Subsequently, individual B comes to the Service and states that he is the owner of the cash. On September 2, 1994, the Service determines that B was the true owner of the cash on June 5, 1994. On September 9, 1994, the Service abates the termination assessment made against A solely as possessor of cash and, after determining that jeopardy exists, replaces it with a termination assessment under section 6851 against B. The lien against B that arises under section 6321 is treated as arising on June 17, 1994. However, within 5 days after September 9, 1994, the Service must give B the written statement of information required by section 7429(a)(1) so that B can make a request for review under section 7429(a)(2). In addition, a notice of deficiency must be sent to B within 60 days after the later of the due date or the actual filing of B's tax return for 1994, as required by section 6851(b). (d) Rights of possessor of cash Action permitted. (2) Actions not permitted. (e) Rights of true owner of cash Actions permitted. (2) Actions not permitted. (f) Definitions. (1) Cash. cash (2) Cash equivalent In general. cash (ii) Specific cash equivalents. (A) Coins; (B) Precious metals; (C) Jewelry; (D) Precious stones; (E) Postage stamps; (F) Traveler's checks in any form; (G) Negotiable instruments (including personal checks, business checks, official bank checks, cashier's checks, notes, and money orders) that are either in bearer form, endorsed without restriction, made out to a fictitious payee, or otherwise in such form that title thereto passes upon delivery; (H) Incomplete instruments (including personal checks, business checks, official bank checks, cashier's checks, notes, and money orders) signed but with the payee's name omitted; and (I) Securities or stock in bearer form or otherwise in such form that title thereto passes upon delivery. (iii) Value of cash equivalents. (3) Possessor of cash. (4) True owner of the cash. (g) Effective date. [T.D. 8605, 60 FR 39654, Aug. 3, 1995] Bankruptcy and Receiverships § 301.6871(a)-1 Immediate assessment of claims for income, estate, and gift taxes in bankruptcy and receivership proceedings. (a) Upon (1) the adjudication of bankruptcy of any taxpayer in any liquidating proceeding, (2) the filing with a court of competent jurisdiction or (where approval is required by the Bankruptcy Act, 11 U.S.C. Chapters 1-14) the approval of a petition of, or the approval of a petition against, any taxpayer in any other proceeding under the Bankruptcy Act, or (3) the appointment of any receiver for any taxpayer in a receivership proceeding before any court of the United States or of any State or Territory or of the District of Columbia, the district director shall immediately assess any deficiency of income, estate, or gift tax (together with all interest, additional amounts, or additions to the tax provided by law), determined by him, if such deficiency has not heretofore been assessed in accordance with law. Such assessment shall be made immediately, whether or not a notice of deficiency has been issued, and without regard to the restrictions upon assessment under section 6213. (b) As used in this section and §§ 301.6871(a)-2 to 301.6873-1, inclusive, the term “proceeding under the Bankruptcy Act” includes a proceeding under chapters I to VII, inclusive, of the Bankruptcy Act, or under section 75 or 77 (11 U.S.C. 203, 205), or chapters X to XIII, inclusive, of such Act, or any other proceeding under the Act. § 301.6871(a)-2 Collection of assessed taxes in bankruptcy and receivership proceedings. (a) During a proceeding under the Bankruptcy Act (11 U.S.C. chapters 1-14) or a receivership proceeding in either a Federal or State court, generally the assets of the taxpayer are under the control of the court in which such proceeding is pending, and the collection of taxes cannot be made by levying upon such assets. However, any assets which under applicable provisions of law are not under the control of the court may be subject to levy. See paragraph (b) of this section and § 301.6871(b)-1 with respect to claims for such taxes. See section 6873 with respect to collection of unpaid claims. (b) District directors should, promptly after ascertaining the existence of any outstanding liability against a taxpayer in any proceeding under the Bankruptcy Act or in any receivership proceeding, and in any event within the time limited by the appropriate provisions of the Bankruptcy Act, or by the appropriate orders of the court in which such proceeding is pending, file proof of claim covering such liability in the court in which such proceeding is pending. Such proof of claim should be filed whether the unpaid taxes involved have been assessed or not, except in cases where the instructions of the Commissioner direct otherwise; for example, where the payment of the taxes is secured by a sufficient bond. At the same time proof of claim is filed with the bankruptcy or receivership court, the district director will send notice and demand for payment to the taxpayer, together with a copy of such proof of claim. (c) Under sections 3466 and 3467 of the Revised Statutes (31 U.S.C. 191, 192) and section 64 of the Bankruptcy Act (11 U.S.C. 104), taxes are entitled to the priority over other claims therein specified, and the trustee, receiver, debtor in possession, or other person designated as in control of the assets of the debtor by the court in which the proceeding under the Bankruptcy Act or receivership proceeding is pending, may be held personally liable for failure on his part to protect the priority of the Government respecting taxes of which he has notice. Sections 75(l), 77(e), 199, 337(2), 455, and 659(6) of the Bankruptcy Act (11 U.S.C. 203(l), 205(e), 599, 737(2), 855, and 1059(6)) also contain provisions with respect to the rights of the United States relative to priority of payment. For the filing of returns by a trustee in bankruptcy or by a receiver, see section 6012(b)(3) and 28 U.S.C. 960. Bankruptcy courts have jurisdiction under the Bankruptcy Act to determine all disputes regarding the amount and validity of taxes claimed in a proceeding under the Bankruptcy Act. A proceeding under the Bankruptcy Act or a receivership proceeding does not discharge any portion of a claim of the United States for taxes except in the case of a proceeding under section 77 or chapter X of the Bankruptcy Act. However, the claim may be settled or compromised as in other cases in court. (d) For the requirement that a receiver, trustee in bankruptcy, or other like fiduciary give notice as to his qualification as such, see section 6036 and the regulations thereunder. § 301.6871(b)-1 Claims for income, estate, and gift taxes in proceedings under the Bankruptcy Act and receivership proceedings; claim filed despite pendency of Tax Court proceedings. (a) If it is determined that a deficiency is due in respect of income, estate, or gift tax and the taxpayer has filed a petition with the Tax Court before (1) the adjudication of bankruptcy in any liquidating proceeding, (2) the filing with a court of competent jurisdiction or (where approval is required by the Bankruptcy Act, 11 U.S.C. chapters 1-14) the approval of a petition of, or the approval of a petition against, any taxpayer in any other proceeding under the Bankruptcy Act, or (3) the appointment of a receiver, the trustee, receiver, debtor in possession, or other like fiduciary, may, upon his own motion, be made a party to the Tax Court proceeding and thereafter may prosecute the appeal before the Tax Court as to that particular determination. No petition shall be filed with the Tax Court for a redetermination of the deficiency after the adjudication of bankruptcy, the filing or (where approval is required by the Bankruptcy Act) the approval of a petition of, or the approval of a petition against, any taxpayer in any other bankruptcy proceeding, or the appointment of the receiver. (b) Even though the determination of a deficiency is pending before the Tax Court for redetermination, proof of claim for the amount of such deficiency may be filed with the court in which the proceeding under the Bankruptcy Act or receivership proceeding is pending without awaiting final decision of the Tax Court. In case of a final decision of the Tax Court before the payment or the disallowance of the claim in the proceeding under the Bankruptcy Act or receivership proceeding, a copy of the Tax Court's decision may be filed by the district director with the court in which such proceeding is pending. (c) While a district director is required by section 6871(a) and paragraph (a) of § 301.6871(a)-1 to make immediate assessment of any deficiency, such assessment is not made as a jeopardy assessment within the meaning of section 6861, and consequently the provisions of that section do not apply to any assessment made under section 6871. Therefore, the notice of deficiency provided in section 6861(b) will not be mailed. Although such notice will not be issued, a letter will be sent to the taxpayer or to the trustee, receiver, debtor in possession, or other like fiduciary, notifying him in detail how the deficiency was computed, that he may furnish evidence showing wherein the deficiency is incorrect, and that upon request he will be granted a conference by the district director with respect to such deficiency. However, such letter will not provide for such a conference where a petition was filed with the Tax Court before (1) the adjudication of bankruptcy in a liquidating proceeding, (2) the filing with a court of competent jurisdiction or (where approval is required by the Bankruptcy Act), the approval of a petition of, or the approval of a petition against, any taxpayer in any other proceeding under the Bankruptcy Act, or (3) the appointment of a receiver. § 301.6872-1 Suspension of running of period of limitations on assessment. If any fiduciary in any proceeding under the Bankruptcy Act (11 U.S.C. chapters 1-14), including a trustee, receiver, or debtor in possession, or a receiver in any other court proceeding is required, pursuant to section 6036, to give notice in writing to the district director of his qualification as such, then the running of the period of limitations on assessment shall be suspended from the date the proceeding is instituted to the date such notice is received by the district director, and for an additional 30 days thereafter. However, the suspension under this section of the running of the period of limitation on assessment shall in no case exceed 2 years. § 301.6873-1 Unpaid claims in bankruptcy or receivership proceedings. (a) If any portion of the claim allowed by the court in a receivership proceeding, or in any proceeding under the Bankruptcy Act (11 U.S.C. chs. 1-14) remains unpaid after the termination of such proceeding, the district director will send notice and demand for payment thereof to the taxpayer. Such unpaid portion with interest as provided in section 6601 may be collected from the taxpayer by levy or proceeding in court within the period of limitation for collection after assessment. For the general rule as to such period of limitation, see section 6502, and for suspension of the running of the period provided in section 6502, see, for example, section 6503. For suspensions under other provisions of law, see, for example, section 11f of the Bankruptcy Act (11 U.S.C. 29(f)). Extension of time for the payment of such unpaid amount may be granted in the same manner and subject to the same provisions and limitations as provided in section 6161(c). (b) Section 6873 is applicable only where a claim for taxes is allowed in a receivership proceeding or in a proceeding under the Bankruptcy Act. Claims for taxes, interest, additional amounts, or additions to the tax may be collectible in equity or under other provisions of law although no claim was allowed in the proceeding because, for example, such items were not included in a proof of claim filed in the proceeding or no proof of claim was filed. Except in the case of a proceeding under section 77 or chapter X of the Bankruptcy Act, a tax or a liability in respect thereof is not discharged by a proceeding under such act, whether or not a claim is filed in such proceeding, and provisions suspending the running of the period of limitation on the collection of taxes are applicable, whether or not a claim is filed in such proceeding. Transferees and Fiduciaries § 301.6901-1 Procedure in the case of transferred assets. (a) Method of collection Income, estate, and gift taxes. (i) A taxpayer, in the case of a tax imposed by subtitle A of the Code (relating to income taxes), (ii) A decedent, in the case of the estate tax imposed by chapter 11 of the Code, or (iii) A donor, in the case of the gift tax imposed by chapter 12 of the Code, is liable, at law or in equity, and the amount of the personal liability of a fiduciary under section 3467 of the Revised Statutes, as amended (31 U.S.C. 192), in respect of the payment of such taxes, whether shown on the return of the taxpayer or determined as a deficiency in the tax, shall be assessed against such transferee or fiduciary and paid and collected in the same manner and subject to the same provisions and limitations as in the case of a deficiency in the tax with respect to which such liability is incurred, except as hereinafter provided. (2) Other taxes. (3) Applicable provisions. (i) Delinquency in payment after notice and demand and the amount of interest attaching because of such delinquency; (ii) The authorization of distraint and proceedings in court for collection; (iii) The prohibition of claims and suits for refund; and (iv) In any instance in which the liability of a transferee or fiduciary is one referred to in subparagraph (1) of this paragraph (a), the filing of a petition with the Tax Court of the United States and the filing of a petition for review of the Tax Court's decision. For detailed provisions relating to assessments, collections, and refunds, see chapters 63, 64, and 65 of the Code, respectively. (b) Definition of transferee. (c) Period of limitation on assessment. (1) Initial transferee. (2) Transferee of transferee. (3) Court proceeding against taxpayer or last preceding transferee. (4) Fiduciary. (d) Extension by agreement Extension of time for assessment. (2) Extension of times for credit or refund. (ii) For the purpose of determining the limit specified in section 6511(c)(2) on the amount of the credit or refund, if the agreement is executed after the expiration of the period of limitation for assessment against the taxpayer with reference to whom the liability of such transferee or fiduciary arises, the periods specified in section 6511(b)(2) shall be increased by the period from the date of such expiration to the date the agreement is executed. The application of this subdivision may be illustrated by the following example: Example. Assume that Corporation A files its income tax return on March 15, 1955, for the calendar year 1954, showing a liability of $100,000 which is paid with the return. The period within which an assessment may be made against Corporation A expires on March 15, 1958. Corporation B is a transferee of Corporation A. An agreement is executed on October 9, 1958, extending, beyond its normal expiration date of March 15, 1959, the period within which an assessment may be made against Corporation B. Under section 6511(c)(2) and section 6511(b)(2)(A) the portion of an overpayment, paid before the execution of an agreement extending the period for assessment, may not be credited or refunded unless paid within three years prior to the date on which the agreement is executed. However, as applied to Corporation B such 3-year period is increased under section 6901(d)(2) to include the period from March 15, 1958, to October 9, 1958, the date on which the agreement was executed. (e) Period of assessment against taxpayer. (f) Suspension of running of period of limitations. § 301.6902-1 Burden of proof. In proceedings before the Tax Court the burden of proof shall be upon the Commissioner to show that a petitioner is liable as a transferee of property of a taxpayer, but not to show that the taxpayer was liable for the tax. § 301.6903-1 Notice of fiduciary relationship. (a) Rights and obligations of fiduciary. (b) Manner of notice Notices filed before April 24, 2002. (2) Notices filed on or after April 24, 2002. (c) Where notice is not filed. (d) Definition of fiduciary. (e) Applicability of other provisions. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 8939, 66 FR 2821, Jan. 12, 2001; T.D. 8989, 67 FR 20032, Apr. 24, 2002; T.D. 9040, 68 FR 4921, Jan. 31, 2003] § 301.6905-1 Discharge of executor from personal liability for decedent's income and gift taxes. (a) Discharge of liability. (b) Definition of “executor”. (c) Cross reference. [T.D. 7238, 37 FR 28742, Dec. 29, 1972] Licensing § 301.7001-1 License to collect foreign items. (a) In general. (b) Definitions Foreign item. (2) Collection. (i) The payment by the licensee of the foreign item in cash; (ii) The crediting by the licensee of the account of the person presenting the foreign item; (iii) The tentative crediting by the licensee of the account of the person presenting the foreign item until the amount of the foreign item is received by the licensee from abroad; and (iv) The receipt of foreign items by the licensee for the purpose of transmitting them abroad for deposits. (c) Application for license. (1) The name and present business of the person, partnership (including names of all partners), or corporation applying for the license; (2) The address of the applicant's principal place of business in the United States and of any branch offices in the United States; (3) The date on which the applicant intends to commence the collection of foreign items; and (4) An estimate of the aggregate amount of annual collections of foreign items (in dollars). The application shall be signed by the applicant (a partner, in the case of a partnership, or an officer, in the case of a corporation). (d) Issuance of license. (e) Previous license holders. (f) Returns of information as to foreign items. Bonds § 301.7101-1 Form of bond and security required. (a) In general. (1) On the appropriate form prescribed by the Internal Revenue Service (which may be obtained from the district director), and (2) With satisfactory surety. For provisions as to what will be considered “satisfactory surety”, see paragraph (b) of this section. The bonds referred to in this paragraph shall be drawn in favor of the United States. (b) Satisfactory surety Approved surety company or bonds or notes of the United States. (i) It is executed by a surety company holding a certificate of authority from the Secretary as an acceptable surety on Federal bonds; or (ii) It is secured by bonds or notes of the United States as provided in 6 U.S.C. 15 (see 31 CFR part 225). (2) Other surety acceptable in discretion of district director. (i) Executed by a corporate surety (other than a surety company) provided such corporate surety establishes that it is within its corporate powers to act as surety for another corporation or an individual; (ii) Executed by two or more individual sureties, provided such individual sureties meet the conditions contained in subparagraph (3) of this paragraph (b); (iii) Secured by a mortgage on real or personal property; (iv) Secured by a certified, cashier's, or treasurer's check drawn on any bank or trust company incorporated under the laws of the United States or any State, Territory, or possession of the United States, or by a U.S. postal, bank, express or telegraph money order; (v) Secured by corporate bonds or stocks, or by bonds issued by a State or political subdivision thereof, of recognized stability; or (vi) Secured by any other acceptable collateral. Collateral shall be deposited with the district director or, in his discretion, with a responsible financial institution acting as escrow agent. (3) Conditions to be met by individual sureties. (i) He must reside within the State in which the principal place of business or legal residence of the primary obligor is located; (ii) He must have property subject to execution of a current market value, above all encumbrances, equal to at least the penalty of the bond; (iii) All real property which he offers as security must be located in the State in which the principal place of business or legal residence of the primary obligor is located; (iv) He must agree not to mortgage, or otherwise encumber, any property offered as security while the bond continues in effect without first securing the permission of the district director; and (v) He must file with the bond, and annually thereafter so long as the bond continues in effect, an affidavit as to the adequacy of his security, executed on the appropriate form furnished by the district director. Partners may not act as sureties upon bonds of their partnership. Stockholders of a corporate principal may be accepted as sureties provided their qualifications as such are independent of their holdings of the stock of the corporation. (4) Adequacy of surety. (c) Bonds required by Internal Revenue Code of 1939. (d) Bonds required under subtitle E and chapter 75 of the Internal Revenue Code of 1954. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7239, 37 FR 28628, Dec. 28, 1972] § 301.7102-1 Single bond in lieu of multiple bonds. (a) In general. (b) Bonds required under subtitle E and chapter 75 of the Internal Revenue Code of 1954. Closing Agreements and Compromises § 301.7121-1 Closing agreements. (a) In general. (b) Scope of closing agreement In general. (2) Taxable periods ended prior to date of closing agreement. (3) Taxable periods ending subsequent to date of closing agreement. (4) Illustration. Example. A owns 500 shares of stock in the XYZ Corporation which he purchased prior to March 1, 1913. A is considering selling 200 shares of such stock but is uncertain as to the basis of the stock for the purpose of computing gain. Either prior or subsequent to the sale, a closing agreement may be entered into determining the market value of such stock as of March 1, 1913, which represents the basis for determining gain if it exceeds the adjusted basis otherwise determined as of such date. Not only may the closing agreement determine the basis for computing gain on the sale of the 200 shares of stock, but such an agreement may also determine the basis (unless or until the law is changed to require the use of some other factor to determine basis) of the remaining 300 shares of stock upon which gain will be computed in a subsequent sale. (c) Finality. (1) The case shall not be reopened as to the matters agreed upon or the agreement modified by any officer, employee, or agent of the United States, and (2) In any suit, action, or proceeding, such agreement, or any determination, assessment, collection, payment, abatement, refund, or credit made in accordance therewith, shall not be annulled, modified, set aside, or disregarded. However, a closing agreement with respect to a taxable period ending subsequent to the date of the agreement is subject to any change in, or modification of, the law enacted subsequent to the date of the agreement and made applicable to such taxable period, and each closing agreement shall so recite. (d) Procedure with respect to closing agreements Submission of request. (2) Collection, credit, or refund. § 301.7122-0 Table of contents. This section lists the major captions that appear in the regulations under § 301.7122-1. § 301.7122-1 Compromises. (a) In general. (b) Grounds for compromise. (c) Special rules for the evaluation of offers to compromise. (d) Procedures for submission and consideration of offers. (e) Acceptance of an offer to compromise a tax liability. (f) Rejection of an offer to compromise. (g) Effect of offer to compromise on collection activity. (h) Deposits. (i) Statute of limitations. (j) Inspection with respect to accepted offers to compromise. (k) Effective date. [T.D. 9007, 67 FR 48029, July 23, 2002] § 301.7122-1 Compromises. (a) In general (2) An agreement to compromise may relate to a civil or criminal liability for taxes, interest, or penalties. Unless the terms of the offer and acceptance expressly provide otherwise, acceptance of an offer to compromise a civil liability does not remit a criminal liability, nor does acceptance of an offer to compromise a criminal liability remit a civil liability. (b) Grounds for compromise Doubt as to liability. (2) Doubt as to collectibility. (3) Promote effective tax administration. (ii) If there are no grounds for compromise under paragraphs (b)(1), (2), or (3)(i) of this section, the IRS may compromise to promote effective tax administration where compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for compromising the liability. Compromise will be justified only where, due to exceptional circumstances, collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner. A taxpayer proposing compromise under this paragraph (b)(3)(ii) will be expected to demonstrate circumstances that justify compromise even though a similarly situated taxpayer may have paid his liability in full. (iii) No compromise to promote effective tax administration may be entered into if compromise of the liability would undermine compliance by taxpayers with the tax laws. (c) Special rules for evaluating offers to compromise In general. (2) Doubt as to collectibility Allowable expenses. (ii) Nonliable spouses In general. (B) Exception. (3) Compromises to promote effective tax administration (A) Taxpayer is incapable of earning a living because of a long term illness, medical condition, or disability, and it is reasonably foreseeable that taxpayer's financial resources will be exhausted providing for care and support during the course of the condition; (B) Although taxpayer has certain monthly income, that income is exhausted each month in providing for the care of dependents with no other means of support; and (C) Although taxpayer has certain assets, the taxpayer is unable to borrow against the equity in those assets and liquidation of those assets to pay outstanding tax liabilities would render the taxpayer unable to meet basic living expenses. (ii) Factors supporting (but not conclusive of) a determination that compromise would undermine compliance within the meaning of paragraph (b)(3)(iii) of this section include, but are not limited to— (A) Taxpayer has a history of noncompliance with the filing and payment requirements of the Internal Revenue Code; (B) Taxpayer has taken deliberate actions to avoid the payment of taxes; and (C) Taxpayer has encouraged others to refuse to comply with the tax laws. (iii) The following examples illustrate the types of cases that may be compromised by the Secretary, at the Secretary's discretion, under the economic hardship provisions of paragraph (b)(3)(i) of this section: Example 1. The taxpayer has assets sufficient to satisfy the tax liability. The taxpayer provides full time care and assistance to her dependent child, who has a serious long-term illness. It is expected that the taxpayer will need to use the equity in his assets to provide for adequate basic living expenses and medical care for his child. The taxpayer's overall compliance history does not weigh against compromise. Example 2. The taxpayer is retired and his only income is from a pension. The taxpayer's only asset is a retirement account, and the funds in the account are sufficient to satisfy the liability. Liquidation of the retirement account would leave the taxpayer without an adequate means to provide for basic living expenses. The taxpayer's overall compliance history does not weigh against compromise. Example 3. The taxpayer is disabled and lives on a fixed income that will not, after allowance of basic living expenses, permit full payment of his liability under an installment agreement. The taxpayer also owns a modest house that has been specially equipped to accommodate his disability. The taxpayer's equity in the house is sufficient to permit payment of the liability he owes. However, because of his disability and limited earning potential, the taxpayer is unable to obtain a mortgage or otherwise borrow against this equity. In addition, because the taxpayer's home has been specially equipped to accommodate his disability, forced sale of the taxpayer's residence would create severe adverse consequences for the taxpayer. The taxpayer's overall compliance history does not weigh against compromise. (iv) The following examples illustrate the types of cases that may be compromised by the Secretary, at the Secretary's discretion, under the public policy and equity provisions of paragraph (b)(3)(ii) of this section: Example 1. In October of 1986, the taxpayer developed a serious illness that resulted in almost continuous hospitalizations for a number of years. The taxpayer's medical condition was such that during this period the taxpayer was unable to manage any of his financial affairs. The taxpayer has not filed tax returns since that time. The taxpayer's health has now improved and he has promptly begun to attend to his tax affairs. He discovers that the IRS prepared a substitute for return for the 1986 tax year on the basis of information returns it had received and had assessed a tax deficiency. When the taxpayer discovered the liability, with penalties and interest, the tax bill is more than three times the original tax liability. The taxpayer's overall compliance history does not weigh against compromise. Example 2. The taxpayer is a salaried sales manager at a department store who has been able to place $2,000 in a tax-deductible IRA account for each of the last two years. The taxpayer learns that he can earn a higher rate of interest on his IRA savings by moving those savings from a money management account to a certificate of deposit at a different financial institution. Prior to transferring his savings, the taxpayer submits an e-mail inquiry to the IRS at its Web Page, requesting information about the steps he must take to preserve the tax benefits he has enjoyed and to avoid penalties. The IRS responds in an answering e-mail that the taxpayer may withdraw his IRA savings from his neighborhood bank, but he must redeposit those savings in a new IRA account within 90 days. The taxpayer withdraws the funds and redeposits them in a new IRA account 63 days later. Upon audit, the taxpayer learns that he has been misinformed about the required rollover period and that he is liable for additional taxes, penalties and additions to tax for not having redeposited the amount within 60 days. Had it not been for the erroneous advice that is reflected in the taxpayer's retained copy of the IRS e-mail response to his inquiry, the taxpayer would have redeposited the amount within the required 60-day period. The taxpayer's overall compliance history does not weigh against compromise. (d) Procedures for submission and consideration of offers In general. (2) When offers become pending and return of offers. (3) Withdrawal. (e) Acceptance of an offer to compromise a tax liability. (2) As additional consideration for the acceptance of an offer to compromise, the IRS may request that taxpayer enter into any collateral agreement or post any security which is deemed necessary for the protection of the interests of the United States. (3) Offers may be accepted when they provide for payment of compromised amounts in one or more equal or unequal installments. (4) If the final payment on an accepted offer to compromise is contingent upon the immediate and simultaneous release of a tax lien in whole or in part, such payment must be made in accordance with the forms, instructions, or procedures prescribed by the Secretary. (5) Acceptance of an offer to compromise will conclusively settle the liability of the taxpayer specified in the offer. Compromise with one taxpayer does not extinguish the liability of, nor prevent the IRS from taking action to collect from, any person not named in the offer who is also liable for the tax to which the compromise relates. Neither the taxpayer nor the Government will, following acceptance of an offer to compromise, be permitted to reopen the case except in instances where— (i) False information or documents are supplied in conjunction with the offer; (ii) The ability to pay or the assets of the taxpayer are concealed; or (iii) A mutual mistake of material fact sufficient to cause the offer agreement to be reformed or set aside is discovered. (6) Opinion of Chief Counsel. (i) The amount of tax assessed; (ii) The amount of interest, additional amount, addition to the tax, or assessable penalty, imposed by law on the person against whom the tax is assessed; and (iii) The amount actually paid in accordance with the terms of the compromise. (f) Rejection of an offer to compromise. (2) The IRS may not notify a taxpayer or taxpayer's representative of the rejection of an offer to compromise until an independent administrative review of the proposed rejection is completed. (3) No offer to compromise may be rejected solely on the basis of the amount of the offer without evaluating that offer under the provisions of this section and the Secretary's policies and procedures regarding the compromise of cases. (4) Offers based upon doubt as to liability. (5) Appeal of rejection of an offer to compromise In general. (ii) Offer to compromise returned following a determination that the offer was nonprocessable, a failure by the taxpayer to provide requested information, or a determination that the offer was submitted for purposes of delay. (g) Effect of offer to compromise on collection activity In general. (2) Revised offers submitted following rejection. (3) Jeopardy. (4) Offers to compromise determined by IRS to be nonprocessable or submitted solely for purposes of delay. (5) Offsets under section 6402. (6) Proceedings in court. (h) Deposits. (i) Statute of limitations Suspension of the statute of limitations on collection. (2) Extension of the statute of limitations on assessment. (j) Inspection with respect to accepted offers to compromise. (k) Effective date. [T.D. 9007, 67 FR 48029, July 23, 2002; 67 FR 53879, Aug. 20, 2002] Crimes, Other Offenses, and Forfeitures Crimes general provisions § 301.7207-1 Fraudulent returns, statements, or other documents. Any person who willfully delivers or discloses to any officer or employee of the Internal Revenue Service any list, return, account, statement, or other document, known by him to be fraudulent or to be false as to any material matter, shall be fined not more than $1,000, or imprisoned not more than 1 year, or both. Any person required pursuant to section 6047 (b) or (c) or, section 6104(d), to furnish information to any officer or employee of the Internal Revenue Service or any other person who willfully furnishes to such officer or employee of the Internal Revenue Service or such other person any information known by him to be fraudulent or to be false as to any material matter shall be fined not more than $1,000, or imprisoned not more than 1 year, or both. [T.D. 7127, 36 FR 11505, June 15, 1971, as amended by T.D. 8026, 50 FR 20758, May 20, 1985] § 301.7209-1 Unauthorized use or sale of stamps. (a) Any person who buys, sells, offers for sale, uses, transfers, takes or gives in exchange, or pledges or gives in pledge, except as authorized in the Code or in regulations made pursuant thereto, any stamp, coupon, ticket, book, or other device prescribed by the Commissioner under the Code for the collection or payment of any tax imposed by the Code, shall, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than 6 months, or both. (b) For use or resale of unused documentary stamps, see paragraph (c) of § 43.6802-1 of this chapter (Documentary Stamp Tax Regulations). § 301.7214-1 Offenses by officers and employees of the United States. Any officer or employee of the United States acting in connection with any revenue law of the United States required to make a written report under the provisions of section 7214(a)(8) shall submit such report to the Commissioner, or to a regional commissioner or district director. § 301.7216-0 Table of contents. This section lists captions contained in §§ 301.7216-1 through 301.7216-3. § 301.7216-1 Penalty for disclosure or use of tax return information. (a) In general. (b) Definitions. (c) Gramm-Leach-Bliley Act. (d) Effective date. § 301.7216-2 Permissible disclosures or uses without consent of the taxpayer. (a) Disclosure pursuant to other provisions of the Internal Revenue Code. (b) Disclosures to the IRS. (c) Disclosures or uses for preparation of a taxpayer's return. (d) Disclosures to other tax return preparers. (e) Disclosure or use of information in the case of related taxpayers. (f) Disclosure pursuant to an order of a court, or an administrative order, demand, request, summons or subpoena which is issued in the performance of its duties by a Federal or State agency, the United States Congress, a professional association ethics committee or board, or the Public Company Accounting Oversight Board. (g) Disclosure for use in securing legal advice, Treasury investigations or court proceedings. (h) Certain disclosures by attorneys and accountants. (i) Corporate fiduciaries. (j) Disclosure to taxpayer's fiduciary. (k) Disclosure or use of information in preparation or audit of State or local tax returns or assisting a taxpayer with foreign country tax obligations. (l) Payment for tax preparation services. (m) Retention of records. (n) Lists for solicitation of tax return preparation business. (o) Producing statistical information in connection with tax return preparation business. (p) Disclosure or use of information for quality, peer, or conflict reviews. (q) Disclosure to report the commission of a crime. (r) Disclosure of tax return information due to a tax return preparer's incapacity or death. (s) Effective date. § 301.7216-3 Disclosure or use permitted only with the taxpayer's consent. (a) In general. (b) Timing requirements and limitations. (c) Special rules. (d) Effective date. [T.D. 9375, 73 FR 1067, Jan. 7, 2008, as amended by T.D. 9478, 75 FR 52, Jan. 4, 2010; T.D. 9608, 77 FR 76403, Dec. 28, 2012] § 301.7216-1 Penalty for disclosure or use of tax return information. (a) In general. (b) Definitions. (1) Tax return. tax return (2) Tax return preparer In general. tax return preparer (A) Any person who is engaged in the business of preparing or assisting in preparing tax returns; (B) Any person who is engaged in the business of providing auxiliary services in connection with the preparation of tax returns, including a person who develops software that is used to prepare or file a tax return and any Authorized IRS e-file Provider; (C) Any person who is otherwise compensated for preparing, or assisting in preparing, a tax return for any other person; or (D) Any individual who, as part of their duties of employment with any person described in paragraph (b)(2)(i)(A), (B), or (C) of this section performs services that assist in the preparation of, or assist in providing auxiliary services in connection with the preparation of, a tax return. (ii) Business of preparing returns. (iii) Providing auxiliary services. (iv) Otherwise compensated. (A) Is compensated for preparing a tax return for another person, but not in the course of a business; or (B) Is compensated for helping, on a casual basis, a relative, friend, or other acquaintance to prepare their tax return. (v) Exclusions. (vi) Examples. Example 1. Bank B is a tax return preparer within the meaning of paragraph (b)(2)(i)(A) of this section, and an Authorized IRS e-file Provider. B employs one individual, Q, to solicit the necessary tax return information for the preparation of a tax return; another individual, R, to prepare the return on the basis of the information that is furnished; a secretary, S, who types the information on the returns into a computer; and an administrative assistant, T, who uses a computer to file electronic versions of the tax returns. Under these circumstances, only R is a tax return preparer for purposes of section 7701(a)(36), but all four employees are tax return preparers for purposes of section 7216, as provided in paragraph (b) of this section. Example 2. Tax return preparer P contracts with department store D to rent space in D's store. D advertises that taxpayers who use P's services may charge the cost of having their tax return prepared to their charge account with D. Under these circumstances, D is not a tax return preparer because it provides space, credit, and services only incidentally related to the preparation of tax returns. (3) Tax return information In general. tax return information (A) Tax return information can be provided directly by the taxpayer or by another person. Likewise, tax return information includes information received by the tax return preparer from the IRS in connection with the processing of such return, including an acknowledgment of acceptance or notice of rejection of an electronically filed return. (B) Tax return information includes statistical compilations of tax return information, even in a form that cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer. See § 301.7216-2(o) for limited use of tax return information to make statistical compilations without taxpayer consent and to use the statistical compilations for limited purposes. (C) Tax return information does not include information identical to any tax return information that has been furnished to a tax return preparer if the identical information was obtained otherwise than in connection with the preparation of a tax return. (D) Information is considered “in connection with tax return preparation,” and therefore tax return information, if the taxpayer would not have furnished the information to the tax return preparer but for the intention to engage, or the engagement of, the tax return preparer to prepare the tax return. (ii) Examples. Example 1. Taxpayer A purchases computer software designed to assist with the preparation and filing of her income tax return. When A loads the software onto her computer, it prompts her to register her purchase of the software. In this situation, the software provider is a tax return preparer under paragraph (b)(2)(i)(B) of this section and the information that A provides to register her purchase is tax return information because she is providing it in connection with the preparation of a tax return. Example 2. Corporation A is a brokerage firm that maintains a Web site through which its clients may access their accounts, trade stocks, and generally conduct a variety of financial activities. Through its Web site, A offers its clients free access to its own tax preparation software. Taxpayer B is a client of A and has furnished A his name, address, and other information when registering for use of A's Web site to use A's brokerage services. In addition, A has a record of B's brokerage account activity, including sales of stock, dividends paid, and IRA contributions made. B uses A's tax preparation software to prepare his tax return. The software populates some fields on B's return on the basis of information A already maintains in its databases. A is a tax return preparer within the meaning of paragraph (b)(2)(i)(B) of this section because it has prepared and provided software for use in preparing tax returns. The information in A's databases that the software accesses to populate B's return, i.e. (4) Use In general. (ii) Example. Example. Preparer G is a tax return preparer as defined by paragraph (b)(2)(i)(A) of this section. If G determines, upon preparing a return, that the taxpayer is eligible to make a contribution to an individual retirement account (IRA), G will ask whether the taxpayer desires to make a contribution to an IRA. G does not ask about IRAs in cases in which the taxpayer is not eligible to make a contribution. G is using tax return information when it asks whether a taxpayer is interested in making a contribution to an IRA because G is basing the inquiry upon knowledge gained from information that the taxpayer furnished in connection with the preparation of the taxpayer's return. (5) Disclosure. disclosure (6) Hyperlink. (7) Request for consent. (c) Gramm-Leach-Bliley Act. (d) Effective/applicability date. [T.D. 9375, 73 FR 1067, Jan. 7, 2008] § 301.7216-2 Permissible disclosures or uses without consent of the taxpayer. (a) Disclosure pursuant to other provisions of the Internal Revenue Code. (b) Disclosures to the IRS. (c) Disclosures or uses for preparation of a taxpayer's return Updating Taxpayers' Tax Return Preparation Software. (2) Tax return preparers located within the same firm in the United States. (3) Furnishing tax return information to tax return preparers located outside the United States. (4) Examples. Example 1. Preparer P provides tax return preparation software to Taxpayer T for T to use in the preparation of its 2009 income tax return. For the 2009 tax year, and using T's tax return information furnished while registering for the software, P would like to update the tax return preparation software that T is using to account for last minute changes made to the tax laws for the 2009 tax year. P is not required to obtain T's consent to update the tax return preparation software. P may perform a software update regardless of whether the software update will affect T's particular return preparation activities. Example 2. T is a client of Firm, which is a tax return preparer. E, an employee at Firm's State A office, receives tax return information from T for use in preparing T's income tax return. E discloses the tax return information to P, an employee in Firm's State B office; P uses the tax return information to process T's income tax return. Firm is not required to receive T's consent under § 301.7216-3 prior to E's disclosure of T's tax return information to P because the tax return information is disclosed to an employee employed by the same tax return preparer located within the United States. Example 3. Same facts as Example 2 Example 4. T, Firm's client, is temporarily located in Country F. She initially furnishes her tax return information to employee FE in Firm's Country F office for the purpose of having Firm prepare her U.S. income tax return. FE makes the substantive determinations concerning T's tax liability and forwards T's tax return information to FP, an employee in Firm's Country P office, for the purpose of processing T's tax return information. FP processes the return information and forwards it to Partner at Firm's State A office in the United States for review and delivery to T. Because T initially furnished the tax return information to a tax return preparer outside of the United States, T's prior consent for disclosure or use under § 301.7216-3 was not required. An officer, employee, or member of Firm in the United States may use T's tax return information or disclose the tax return information to another officer, employee, or member of Firm without T's prior consent under § 301.7216-3 as long as any disclosure or use of T's tax return information is within the United States. Firm is required to receive T's consent under § 301.7216-3 prior to any subsequent disclosure of T's tax return information to a tax return preparer located outside of the United States. (d) Disclosures to other tax return preparers Preparer-to-preparer disclosures. e-file (2) Disclosures to contractors. (3) Examples. Example 1. E, an employee at Firm's State A office, receives tax return information from T for Firm's use in preparing T's income tax return. E makes substantive determinations and forwards the tax return information to P, an employee at Processor; Processor is located in State B. P places the tax return information on the income tax return and furnishes the finished product to E. E is not required to receive T's prior consent under § 301.7216-3 before disclosing T's tax return information to P because Processor's services are not substantive determinations and the tax return information remained in the United States at Processor's State B office during the entire course of the tax return preparation process. Example 2. Firm, a tax return preparer, offers income tax return preparation services. Firm's contract with its software provider, Contractor, requires Firm to periodically randomly select certain taxpayers' tax return information solely for the purpose of testing the reliability of the software sold to Firm. Under its agreement with Contractor, Firm discloses tax return information to Contractor's employee, C, who services Firm's contract without providing Contractor or C with a written notice that describes the requirements of and penalties under sections 7216 and 6713. C uses the tax return information solely for quality assurance purposes. Firm's disclosure of tax return information to C was an impermissible disclosure because Firm failed to ensure that C received a written notice that describes the requirements and penalties of sections 7216 and 6713. Example 3. E, an employee of Firm in State A in the United States, receives tax return information from T for use in preparing T's income tax return. After E enters T's tax return information into Firm's computer, that information is stored on a computer server that is physically located in State A. Firm contracts with Contractor, located in Country F, to prepare its clients' tax returns. FE, an employee of Contractor, uses a computer in Country F and inputs a password to view T's income tax information stored on the computer server in State A to prepare T's tax return. A computer program permits FE to view T's tax return information, but prohibits FE from downloading or printing out T's tax return information from the computer server. Because Firm is disclosing T's tax return information outside of the United States, Firm is required to obtain T's consent under § 301.7216-3 prior to the disclosure to FE. As provided in § 301.7216-3(b)(5), however, Firm may not obtain consent to disclose T's social security number (SSN) to a tax return preparer located outside of the United States or any territory or possession of the United States. Example 4. A, an employee at Firm A, receives tax return information from T for Firm's use in preparing T's income tax return. A forwards the tax return information to B, an employee at another firm, Firm B, to obtain advice on the issue of whether T may claim a deduction for a certain business expense. A is required to receive T's prior consent under § 301.7216-3 before disclosing T's tax return information to B because B's services involve a substantive determination affecting the tax liability that T will report. (e) Disclosure or use of information in the case of related taxpayers. (i) The second taxpayer is related to the first taxpayer within the meaning of paragraph (e)(2) of this section; (ii) The first taxpayer's tax interest in the information is not adverse to the second taxpayer's tax interest in the information; and (iii) The first taxpayer has not expressly prohibited the disclosure or use. (2) For purposes of paragraph (e)(1)(i) of this section, a taxpayer is related to another taxpayer if they have any one of the following relationships: Husband and wife, child and parent, grandchild and grandparent, partner and partnership, trust or estate and beneficiary, trust or estate and fiduciary, corporation and shareholder, or members of a controlled group of corporations as defined in section 1563. (3) See § 301.7216-3 for disclosure or use of tax return information of the taxpayer in preparing the tax return of a second taxpayer when the requirements of this paragraph are not satisfied. (f) D isclosure pursuant to an order of a court, or an administrative order, demand, request, summons or subpoena which is issued in the performance of its duties by a Federal or State agency, the United States Congress, a professional association ethics committee or board, or the Public Company Accounting Oversight Board. (1) The order of any court of record, Federal, State, or local. (2) A subpoena issued by a grand jury, Federal or State. (3) A subpoena issued by the United States Congress. (4) An administrative order, demand, summons or subpoena that is issued in the performance of its duties by— (i) Any Federal agency as defined in 5 U.S.C. 551(1) and 5 U.S.C. 552(f), or (ii) A State agency, body, or commission charged under the laws of the State or a political subdivision of the State with the licensing, registration, or regulation of tax return preparers. (5) A written request from a professional association ethics committee or board investigating the ethical conduct of the tax return preparer. (6) A written request from the Public Company Accounting Oversight Board in connection with an inspection under section 104 of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7214, or an investigation under section 105 of such Act, 15 U.S.C. 7215, for use in accordance with such Act. (g) Disclosure for use in securing legal advice, Treasury investigations or court proceedings. (1) To an attorney for purposes of securing legal advice; (2) To an employee of the Treasury Department for use in connection with any investigation of the tax return preparer (including investigations relating to the tax return preparer in its capacity as a practitioner) conducted by the IRS or the Treasury Department; or (3) To any officer of a court for use in connection with proceedings involving the tax return preparer (including proceedings involving the tax return preparer in its capacity as a practitioner), or the return preparer's client, before the court or before any grand jury that may be convened by the court. (h) Certain disclosures by attorneys and accountants. (1)(i) A tax return preparer who is lawfully engaged in the practice of law or accountancy and prepares a tax return for a taxpayer may use the taxpayer's tax return information, or disclose the information to another officer, employee or member of the tax return preparer's law or accounting firm, consistent with applicable legal and ethical responsibilities, who may use the tax return information for the purpose of providing other legal or accounting services to the taxpayer. As an example, a lawyer who prepares a tax return for a taxpayer may use the tax return information of the taxpayer for, or in connection with, rendering legal services, including estate planning or administration, or preparation of trial briefs or trust instruments, for the taxpayer or the estate of the taxpayer. In addition, the lawyer who prepared the tax return may disclose the tax return information to another officer, employee or member of the same firm for the purpose of providing other legal services to the taxpayer. As another example, an accountant who prepares a tax return for a taxpayer may use the tax return information, or disclose it to another officer, employee or member of the firm, for use in connection with the preparation of books and records, working papers, or accounting statements or reports for the taxpayer. In the normal course of rendering the legal or accounting services to the taxpayer, the attorney or accountant may make the tax return information available to third parties, including stockholders, management, suppliers, or lenders, consistent with the applicable legal and ethical responsibilities, unless the taxpayer directs otherwise. For rules regarding disclosures outside of the United States, see § 301.7216-2(c) and (d). (ii) A tax return preparer's law or accounting firm does not include any related or affiliated firms. For example, if law firm A is affiliated with law firm B, officers, employees and members of law firm A must receive a taxpayer's consent under § 301.7216-3 before disclosing the taxpayer's tax return information to an officer, employee or member of law firm B. (2) A tax return preparer who is lawfully engaged in the practice of law or accountancy and prepares a tax return for a taxpayer may, consistent with the applicable legal and ethical responsibilities, take the tax return information into account, and may act upon it, in the course of performing legal or accounting services for a client other than the taxpayer, or disclose the information to another officer, employee or member of the tax return preparer's law or accounting firm to enable that other officer, employee or member to take the information into account, and act upon it, in the course of performing legal or accounting services for a client other than the taxpayer. This is permissible when the information is, or may be, relevant to the subject matter of the legal or accounting services for the other client, and consideration of the information by those performing the services is necessary for the proper performance of the services. In no event, however, may the tax return information be disclosed to a person who is not an officer, employee or member of the law or accounting firm, unless the disclosure is exempt from the application of section 7216(a) and § 301.7216-1 by reason of another provision of §§ 301.7216-2 or 301.7216-3. (3) Examples. Example 1. A, a member of an accounting firm, renders an opinion on a financial statement of M Corporation that is part of a registration statement filed with the Securities and Exchange Commission. After the registration statement is filed, but before its effective date, B, a member of the same accounting firm, prepares an income tax return for N Corporation. In the course of preparing N's income tax return, B discovers that N does business with M and concludes that the information given by N should be considered by A to determine whether the financial statement opined on by A contains an untrue statement of material fact or omits a material fact required to keep the statement from being misleading. B discloses to A the tax return information of N for this purpose. A determines that there is an omission of material fact and that an amended statement should be filed. A so advises M and the Securities and Exchange Commission. A explains that the omission was revealed as a result of confidential information that came to A's attention after the statement was filed, but A does not disclose the identity of the taxpayer or the tax return information itself. Section 7216(a) and § 301.7216-1 do not apply to B's disclosure of N's tax return information to A and A's use of the information in advising M and the Securities and Exchange Commission of the necessity for filing an amended statement. Section 7216(a) and § 301.7216-1 would apply to a disclosure of N's tax return information to M or to the Securities and Exchange Commission unless the disclosure is exempt from the application of section 7216(a) and § 301.7216-1 by reason of another provision of either this section or § 301.7216-3. Example 2. A, a member of an accounting firm, is conducting an audit of M Corporation, and B, a member of the same accounting firm, prepares an income tax return for D, an officer of M. In the course of preparing the return, B obtains information from D indicating that D, pursuant to an arrangement with a supplier doing business with M, has been receiving from the supplier a percentage of the amounts that the supplier invoices to M. B discloses this information to A who, acting upon it, searches in the course of the audit for indications of a kickback scheme. As a result, A discovers information from audit sources that independently indicate the existence of a kickback scheme. Without revealing the tax return information A has received from B, A brings to the attention of officers of M the audit information indicating the existence of the kickback scheme. Section 7216(a) and § 301.7216-1 do not apply to B's disclosure of D's tax return information to A, A's use of D's information in the course of the audit, and A's disclosure to M of the audit information indicating the existence of the kickback scheme. Section 7216(a) and § 301.7216-1 would apply to a disclosure to M, or to any other person not an employee or member of the accounting firm, of D's tax return information furnished to B. (i) Corporate fiduciaries. (1) Disclose or use the taxpayer's tax return information in the ordinary course of rendering such services to or for the taxpayer; or (2) Make the information available to the taxpayer's attorney, accountant, or investment advisor. (j) Disclosure to taxpayer's fiduciary. (k) Disclosure or use of information in preparation or audit of State or local tax returns or assisting a taxpayer with foreign country tax obligations. (l) Payment for tax preparation services. (m) Retention of records. (n) Lists for solicitation of tax return preparation business. b list, (2) Examples. Example 1. Preparer A is a tax return preparer as defined by § 301.7216-1(b)(2)(i)(A). Preparer A's office is located in southeast Pennsylvania, and Preparer A prepares federal and state income tax returns for taxpayers who live in Pennsylvania, New Jersey, Maryland, and Delaware. Preparer A maintains a list of taxpayer clients containing the information allowed by this paragraph (n). Preparer A provides quarterly state income tax information updates to his individual taxpayer clients by email or U.S. mail. To ensure that his clients only receive the information updates that are relevant to them, Preparer A uses his list to direct his outreach efforts towards the relevant clients by searching his list to filter it by zip code and income tax return form number (Form 1040 and corresponding state income tax return form number). Preparer A may use the list information in this manner without taxpayer consent because he is providing tax information for educational or informational purposes and is targeting clients based solely upon tax return information that is authorized by this paragraph (n) (by zip code, which is part of a taxpayer's address, and by income tax return form number). Without taxpayer consent, Preparer A also may deliver this information to his clients by email, U.S. mail, or other method of delivery that uses only information authorized by this paragraph (n). Example 2. Preparer B is a tax return preparer as defined by § 301.7216-1(b)(2)(i)(A). Preparer B maintains a list of taxpayer clients containing the information allowed by this paragraph (n). Preparer B provides monthly federal income tax information updates in the form of a newsletter to all of her taxpayer clients by email or U.S. mail. When Preparer B hires a new employee who participates or assists in tax return preparation, she announces that hire in the newsletter for the month that follows the hiring. Each announcement includes a photograph of the new employee, the employee's name, the employee's telephone number, a brief listing of the employee's qualifications, and a brief listing of the employee's employment responsibilities. Preparer B may use the tax return information described in this paragraph (n) in this manner without taxpayer consent because she is providing tax information for educational or informational purposes to provide general federal income tax information updates. Preparer B may include the new employee announcements in the form described because this is considered tax information for informational purposes, provided the announcements do not contain solicitations for non-tax return preparation services. Without taxpayer consent, Preparer B also may deliver this information to her clients by email, U.S. mail, or other method of delivery that uses only information authorized by this paragraph (n). (o) Producing statistical information in connection with tax return preparation business. (2) A tax return preparer may not sell or exchange for value a statistical compilation of data described in § 301.7216-1(b)(3)(i)(B), in whole or in part, except in conjunction with the transfer of assets made pursuant to the sale or other disposition of the tax return preparer's tax return preparation business. The provisions of paragraph (n) of this section regarding the transfer of a taxpayer list also apply to the transfer of any statistical compilations of data to which this paragraph applies. A person who acquires a statistical compilation, or a part thereof, pursuant to the operation of this paragraph (o) or in conjunction with a sale or other disposition of a tax return preparation business is subject to the provisions of this paragraph with respect to the compilation. (3) Examples. Example 1. Preparer A is a tax return preparer as defined by § 301.7216-1(b)(2)(i)(A). In 2009, A used tax return information to produce a statistical compilation of data for both internal management purposes and to support A's tax return preparation business. The statistical compilation included an aggregate figure containing the information that A prepared 32 S corporation tax returns in 2009. In 2010, A decided to embark upon a new marketing campaign emphasizing its experience preparing small business tax returns. In the campaign, A discloses the aggregate figure containing the number of S corporation tax returns prepared in 2009. A's disclosure does not include any information that can be associated with or identify any specific taxpayers. A may disclose the anonymous statistical compilation without taxpayer consent. Example 2. Preparer B is a tax return preparer as defined by § 301.7216-1(b)(2)(i)(A). In 2010, in support of B's tax return preparation business, B wants to advertise that the average tax refund obtained for its clients in 2009 was $2,800. B may not disclose this information because it contains a statistical compilation reflecting average refund amounts. Example 3. Preparer C is a tax return preparer as defined by § 301.7216-1(b)(2)(i)(A) and is a volunteer income tax assistance program. In 2010, in support of C's tax return preparation business, C submits a grant application to a charitable foundation to fund C's operations providing free tax return preparation services to low- and moderate-income families. In support of C's request, C includes anonymous statistical data consisting of aggregated figures containing data from ten or more tax returns showing that, in 2009, C provided services to 500 taxpayers, that 95 percent of the taxpayer population served by C received the Earned Income Tax Credit (EITC), and that the average amount of the EITC received was $3,300. Despite the fact that this information constitutes an average credit amount, C may disclose the information to the charitable foundation because disclosures made in support of fundraising activities conducted by volunteer income tax assistance programs and other organizations described in section 501(c) of the Code in direct support of their tax return preparation business are not considered marketing and advertising for purposes of § 301.7216-2(o)(1). Example 4. Preparer D is a tax return preparer as defined by § 301.7216-1(b)(2)(i)(A). In December 2009, D produced an anonymous statistical compilation of tax return information obtained during the 2009 filing season. In 2010, D wants to disclose portions of the anonymous statistical compilation from aggregated figures containing data from ten or more tax returns in connection with the marketing of its financial advisory and asset planning services. D is required to receive taxpayer consent under § 301.7216-3 before disclosing the tax return information contained in the anonymous statistical compilation because the disclosure is not being made in support of D's tax return preparation business. (p) Disclosure or use of information for quality, peer, or conflict reviews. (2) The provisions of section 7216(a) and § 301.7216-1 shall not apply to any disclosure necessary to accomplish a conflict review. A conflict review is a review undertaken to comply with requirements established by any federal, state, or local law, agency, board or commission, or by a professional association ethics committee or board, to either identify, evaluate, or monitor actual or potential legal and ethical conflicts of interest that may arise when a tax return preparer is employed or acquired by another tax return preparer, or to identify, evaluate, or monitor actual or potential legal and ethical conflicts of interest that may arise when a tax return preparer is considering engaging a new client. Tax return information gathered in conducting a conflict review may be used only for purposes of a conflict review. No tax return information identifying a taxpayer may be disclosed in any evaluative reports or recommendations that may be accessible to any person other than those responsible for identifying, evaluating, or monitoring legal and ethical conflicts of interest. No tax return information identifying a taxpayer may be disclosed outside of the United States or a territory or possession of the United States unless the disclosing and receiving tax return preparers have procedures in place that are consistent with good business practices and designed to maintain the confidentiality of the disclosed tax return information. (3) Any person (including administrative and support personnel) receiving tax return information in connection with a quality, peer, or conflict review is a tax return preparer for purposes of sections 7216(a) and 6713(a). Tax return information disclosed and used for purposes of a quality, peer, or conflict review shall not be disclosed or used for any other purpose. (q) Disclosure to report the commission of a crime. (r) Disclosure of tax return information due to a tax return preparer's incapacity or death. (s) Effective/applicability date. [T.D. 9375, 73 FR 1069, Jan. 7, 2008, as amended by T.D. 9478, 75 FR 52, Jan. 4, 2010; T.D. 9608, 77 FR 76404, Dec. 28, 2012] § 301.7216-3 Disclosure or use permitted only with the taxpayer's consent. (a) In general Taxpayer consent. (2) Taxpayer consent to a tax return preparer furnishing tax return information to another tax return preparer. (ii) Example. Example. Preparer P, who is located within the United States, is retained by Company C to provide tax return preparation services for employees of Company C. An employee of Company C, Employee E, works for C outside of the United States. To provide tax return preparation services for E, P requires the assistance of and needs to disclose E's tax return information to a tax return preparer who works for P's affiliate located in the country where E works. P may condition its provision of tax return preparation services upon E consenting to the disclosure of E's tax return information to the tax return preparer in the country where E works. (3) The form and contents of taxpayer consents In general. (A) A taxpayer's consent to a tax return preparer's disclosure or use of tax return information must include the name of the tax return preparer and the name of the taxpayer. (B) If a taxpayer consents to a disclosure of tax return information, the consent must identify the intended purpose of the disclosure. Except as provided in § 301.7216-3(a)(3)(iii), if a taxpayer consents to a disclosure of tax return information, the consent must also identify the specific recipient (or recipients) of the tax return information. If the taxpayer consents to use of tax return information, the consent must describe the particular use authorized. For example, if the tax return preparer intends to use tax return information to generate solicitations for products or services other than tax return preparation, the consent must identify each specific type of product or service for which the tax return preparer may solicit use of the tax return information. Examples of products or services that must be identified include, but are not limited to, balance due loans, mortgage loans, mutual funds, individual retirement accounts, and life insurance. (C) The consent must specify the tax return information to be disclosed or used by the return preparer. (D) If a tax return preparer to whom the tax return information is to be disclosed is located outside of the United States, the taxpayer's consent under § 301.7216-3 prior to any disclosure is required. See § 301.7216-2(c) and (d). (E) A consent to disclose or use tax return information must be signed and dated by the taxpayer. (ii) The form and contents of taxpayer consents with respect to taxpayers filing a return in the Form 1040 series—guidance describing additional requirements for taxpayer consents with respect to Form 1040 series filers. (iii) The form and contents of taxpayer consents with respect to all other taxpayers. (iv) Examples. Example 1. Consistent with applicable legal and ethical responsibilities, Preparer Z sends its client, a corporation, Taxpayer C, an engagement letter. Part of the engagement letter requests the consent of Taxpayer C for the purpose of disclosing tax return information to an investment banking firm to assist the investment banking firm in securing long term financing for Taxpayer C. The engagement letter includes language and information that meets the requirements of § 301.7216-3(a)(3)(i), including: (I) Preparer Z's name, Taxpayer C's name, and a signature and date line for Taxpayer C; and (II) a statement that “Taxpayer C authorizes Preparer Z to disclose the portions of Taxpayer C's 2009 tax return information to the firm retained by Taxpayer C necessary for the purposes of assisting Taxpayer C secure long term financing.” The engagement letter satisfies the requirements of § 301.7216-3(a)(3) for the disclosure of the information provided therein for the specific purpose stated. Example 2. Consistent with applicable legal and ethical responsibilities, Preparer N sends its client, a corporation, Taxpayer D, an engagement letter. Part of the engagement letter requests the consent of Taxpayer D for the purpose of disclosing tax return information to Preparer N's affiliated firms located outside of the United States for the purposes of preparation of Taxpayer D's 2009 tax return”. The engagement letter includes language and information that meets the requirements of § 301.7216-3(a)(3)(i), including: (I) Preparer N's name, Taxpayer D's name, and a signature and date line for Taxpayer D; (II) a statement that “Taxpayer D authorizes Preparer N to disclose Taxpayer D's 2009 tax return information to Preparer N's affiliates located outside of the United States for the purposes of assisting Preparer N prepare Taxpayer D's 2009 tax return”; and (III) a statement that, in providing consent, Taxpayer D acknowledges that its tax return information for 2009 will be disclosed to tax return preparers located abroad. The engagement letter satisfies the requirements of § 301.7216-3(a)(3) for the disclosure of the information provided therein for the specific purpose stated. (b) Timing requirements and limitations No retroactive consent. (2) Time limitations on requesting consent in solicitation context. (3) No requests for consent after an unsuccessful request. (4) No consent to the disclosure of a taxpayer's social security number to a return preparer outside of the United States with respect to a taxpayer filing a return in the Form 1040 Series In general. (ii) Exception. (5) Duration of consent. (c) Special rules Multiple disclosures within a single consent form or multiple uses within a single consent form. (2) Disclosure of entire return. (3) Copy of consent must be provided to taxpayer. (d) Effective/applicability date. [T.D. 9375, 73 FR 1073, Jan. 7, 2008, as amended by T.D. 9409, 73 FR 37806, July 2, 2008; T.D. 9437, 73 FR 76217, Dec. 16, 2008] penalties applicable to certain taxes § 301.7231-1 Failure to obtain license for collection of foreign items. For provisions relating to the obtaining of a license for the collection of foreign items, see section 7001 and § 301.7001-1. Other Offenses § 301.7269-1 Failure to produce records. Whoever fails to comply with any duty imposed upon him by section 6018, 6036 (in the case of an executor), or 6075(a), or, having in his possession or control any record, file, or paper, containing or supposed to contain any information concerning the estate of the decedent, or, having in his possession or control any property comprised in the gross estate of the decedent, fails to exhibit the same upon request of any officer or employee of the Internal Revenue Service who desires to examine the same in the performance of his duties under chapter 11 of the Code (relating to estate taxes) shall be liable to a penalty of not exceeding $500, to be recovered with costs of suit, in a civil action in the name of the United States. § 301.7272-1 Penalty for failure to register. (a) Any person who fails to register with the district director as required by the Code or by regulations issued thereunder shall be liable to a penalty of $50 except that on and after September 3, 1958, this section shall not apply to persons required to register under subtitle E of the Code, or persons engaging in a trade or business on which a special tax is imposed by such subtitle. (b) For provisions relating to registration under sections 4101, 4412, 4455, 4722, 4753, and 4804(d), see the regulations relating to the particular tax. For regulations under section 7011, see § 301.7011-1. Forfeitures property subject to forfeiture § 301.7304-1 Penalty for fraudulently claiming drawback. Whenever any person fraudulently claims or seeks to obtain an allowance of drawback on goods, wares, or merchandise on which no internal tax shall have been paid, or fraudulently claims any greater allowance of drawback than the tax actually paid, he shall forfeit triple the amount wrongfully or fraudulently claimed or sought to be obtained, or the sum of $500, at the election of the district director. provisions common to forfeitures § 301.7321-1 Seizure of property. Any property subject to forfeiture to the United States under any provision of the Code may be seized by the district director or assistant regional commissioner (alcohol, tobacco, and firearms). Upon seizure of property by the district director he shall notify the assistant regional commissioner (alcohol, tobacco, and firearms) for the region wherein the district is located who will take charge of the property and arrange for its disposal or retention under the provisions of law and regulations applicable thereto. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7188, 37 FR 12794, June 29, 1972; T.D. ATF-33, 41 FR 44038, Oct. 6, 1976] § 301.7322-1 Delivery of seized property to U.S. marshal. Any forfeitable property which may be seized under the provisions of the Code may, at the option of the assistant regional commissioner (alcohol, tobacco, and firearms) be delivered to the U.S. marshal of the judicial district wherein the property was seized, and remain in the care and custody and under the control of such marshal, pending the disposal thereof as provided by law. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7188, 37 FR 12794, June 29, 1972; T.D. ATF-33, 41 FR 44038, Oct. 6, 1976] § 301.7324-1 Special disposition of perishable goods. For regulations relating to the disposal of perishable goods, see § 172.30 of this chapter (Disposition of Seized Personal Property). § 301.7325-1 Personal property valued at $2,500 or less. For regulations relating to the forfeiture of personal property valued at $2,500 or less, see part 172 of this chapter (Disposition of Seized Personal Property). § 301.7326-1 Disposal of forfeited or abandoned property in special cases. (a) Coin-operated gaming devices. (b) Narcotics. (c) Firearms. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7188, 37 FR 12796, June 29, 1972] § 301.7327-1 Customs laws applicable. For regulations relating to the remission or mitigation of forfeitures, see part 172 of this chapter (Disposition of Seized Personal Property). Judicial Proceedings Civil Actions by the United States § 301.7401-1 Authorization. (a) In general. (b) Property held by banks. (1) That the taxpayer is within the jurisdiction of a U.S. court at the time the civil action is authorized or sanctioned and that the bank is in possession of (or obligated with respect to) deposits of the taxpayer in an office of the bank outside the United States or a possession of the United States; or (2) That the taxpayer is not within the jurisdiction of a U.S. court at the time the civil action is authorized or sanctioned, that the bank is in possession of (or obligated with respect to) deposits of the taxpayer in an office outside the United States or a possession of the United States, and that such deposits consist, in whole or in part, of funds transferred from the United States or a possession of the United States in order to hinder or delay the collection of a tax imposed by the Code. For purposes of this paragraph, the term “possession of the United States” includes Guam, the Midway Islands, the Panama Canal Zone, the Commonwealth of Puerto Rico, American Samoa, the Virgin Islands, and Wake Island. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7188, 37 FR 12796, June 29, 1972] § 301.7403-1 Action to enforce lien or to subject property to payment of tax. (a) Civil actions. (b) Bid by the United States. [T.D. 7305, 39 FR 9950, Mar. 15, 1974] § 301.7404-1 Authority to bring civil action for estate taxes. (a) If the estate tax imposed by chapter 11 of the Code is not paid on or before the last date prescribed for payment, the district director shall proceed to collect the tax under the provisions of general law; or appropriate proceedings in the name of the United States may be commenced in any court having jurisdiction to subject the property of the decedent to be sold under the judgment or decree of the court. (b) The remedy by action provided in section 7404 is not exclusive. The district director may proceed to collect the tax by levy, as provided in section 6331, on any or all property or rights to property of the estate, or collection may be enforced by an appropriate action against the executor, certain transferees, trustees, and beneficiaries for their personal liability. See § 20.2002-1 of this chapter (Estate Tax Regulations). § 301.7406-1 Disposition of judgments and moneys recovered. All judgments and moneys recovered or received for taxes, costs, forfeitures, and penalties shall be paid to the district director as collections of internal revenue taxes. § 301.7409-1 Action to enjoin flagrant political expenditures of section 501(c)(3) organizations. (a) Letter to organization. (b) Determination by Commissioner. (c) Flagrant political intervention. flagrant political intervention (d) Effective date. [T.D. 8628, 60 FR 62213, Dec. 5, 1995] Proceedings by Taxpayers and Third Parties § 301.7422-1 Special rules for certain excise taxes imposed by chapter 42 or 43. (a) Finality of refund proceeding. (1) Upon the expiration of the time allowed for filing a notice of appeal from a decision of the United States Claims Court or of the United States District Court, if no timely notice of appeal is filed; or (2) Upon the expiration of the time allowed for filing a petition for certiorari from a decision of the United States Claims Court, or from a decision of the United States District Court, which has been affirmed or the appeal dismissed by the United States Court of Appeals, if no timely petition for certiorari is filed; or (3) If a petition for certiorari has been filed, thirty days from the denial of such petition; or (4) Thirty days from the date of a decision of the United States Supreme Court if no timely petition for rehearing is filed; however, if a timely petition for rehearing from such a decision is filed, and is denied, thirty days from the denial thereof; or (5) If a decision is entered upon a rehearing or if a decision is modified or reversed as the result of a decision of a higher court, upon the expiration, with respect to the decision on rehearing or the modified or reversed decision, of periods similar to those provided in subparagraphs (1) through (4). (b) Right to bring action. (c) Limitation on suit for refund. (1) No other suit has been maintained for credit or refund of any tax imposed by such sections with respect to such taxable event; and (2) No petition has been filed in the Tax Court with respect to a deficiency in any tax imposed by such sections with respect to such taxable event. (d) Final determination of issues. (e) Definitions. [T.D. 8084, 51 FR 16305, May 2, 1986, as amended by T.D. 8628, 60 FR 62213, Dec. 5, 1995; T.D. 8920, 66 FR 2171, Jan. 10, 2001] § 301.7423-1 Repayments to officers or employees. The Commissioner is authorized to repay to any officer or employee of the United States the full amount of such sums of money as may be recovered against him in any court, for any internal revenue taxes collected by him, with the cost and expense of suit, and all damages and costs recovered against any officer or employee of the United States in any suit brought against him by reason of anything done in the official performance of his duties under the Code. § 301.7424-2 Intervention. If the United States is not a party to a civil action or suit, the United States may intervene in such action or suit to assert any lien arising under title 26 of the United States Code on the property which is the subject of such action or suit. The provisions of section 2410 of title 28 of the United States Code (except subsection (b)) and of section 1444 of title 28 of the United States Code shall apply in any case in which the United States intervenes as if the United States had originally been named a defendant in such action or suit. If the application of the United States to intervene is denied, the adjudication in such civil action or suit shall have no effect upon such lien. [T.D. 7305, 39 FR 9951, Mar. 15, 1974] § 301.7425-1 Discharge of liens; scope and application; judicial proceedings. (a) In general. (b) Effective date. (1) Any notice of sale given to an office of the Internal Revenue Service or the Treasury Department during the period November 3, 1966, through December 21, 1966, shall be considered as adequate; (2) Any notice of sale given during the period December 22, 1966, through January 31, 1968, which complies with the provisions of either— (i) Revenue Procedure 67-25, 1967-1 C.B. 626 (based on Technical Information Release 873, dated December 22, 1966), or (ii) Section 301.7425-3, shall be considered as adequate; and (3) Any notice of sale given after January 31, 1968, which complies with the provisions of § 301.7425-3 shall be considered as adequate. (c) Judicial proceedings In general. (2) Notice of lien filed when the proceeding is commenced. (3) Notice of lien not filed when the proceeding is commenced General rule. (ii) Examples. Example 1. A, the first mortgagee of an apartment building located in State Y, commenced a foreclosure action on the mortgage prior to the time that a notice of a Federal tax lien, on that building, had been filed. Under the law of Y, junior liens on real property are discharged by a judicial sale pursuant to a judgment in a foreclosure action. Therefore, the Federal tax lien on the building will be discharged by the judicial sale. This result is the same whether the tax lien arose before or after the date of commencement of the foreclosure action and whether notice of the tax lien was filed at any time after commencement of the foreclosure action. Example 2. On January 10, 1969, B dies testate and devises Blackacre to C. At B's death, Blackacre is subject to a first mortgage held by D. Realty is subject to administration as part of a decedent's estate under the laws of State X. However, C takes possession of Blackacre with the assent of E, the executor of B's estate. On January 5, 1970, D commences a foreclosure action on the mortgage. Under the law of X, junior liens on real property are discharged by a judicial sale pursuant to a judgment in a foreclosure action. After commencement of the proceedings, an assessment for estate taxes is made and, thereafter, a notice of lien is filed in accordance with section 6323. The special lien on Blackacre, arising at the date of B's death, for estate taxes under section 6324(a) will be discharged by the judicial sale because there are no provisions for filing a notice thereof under law and junior liens are discharged by the sale under local law. The lien is discharged even though the executor failed to obtain a discharge of his personal liability under section 2204. Furthermore, the general lien on Blackacre under section 6321 will be discharged by the judicial sale because the foreclosure action was commenced prior to the time that a notice of lien was filed. (4) Proceeds of a judicial sale. [T.D. 7430, 41 FR 35178, Aug. 20, 1976] § 301.7425-2 Discharge of liens; nonjudicial sales. (a) In general. (1) An instrument creating a lien on the property sold, (2) A confession of judgment on the obligation secured by an instrument creating a lien on the property sold, or (3) A statutory lien on the property sold. For purposes of this section, such a sale is referred to as a “nonjudicial sale.” The term “nonjudicial sale” includes, but is not limited to, the divestment of the taxpayer's interest in property which occurs by operation of law, by public or private sale, by forfeiture, or by termination under provisions contained in a contract for a deed or a conditional sales contract. Under section 7425(b)(1), if a notice of lien is filed in accordance with section 6323 (f) or (g), or the title derived from the enforcement of a lien is recorded as provided by local law, more than 30 days before the date of sale, and the appropriate district director is not given notice of the sale (in the manner prescribed in § 301.7425-3), the sale shall be made subject to and without disturbing the lien or title of the United States. Under section 7425(b)(2)(C), in any case in which notice of the sale is given to the district director not less than 25 days prior to the date of sale (in the manner prescribed in section 7425(c)(1)), the sale shall have the same effect with respect to the discharge or divestment of the lien or title as may be provided by local law with respect to other junior liens or other titles derived from the enforcement of junior liens. A nonjudicial sale pursuant to a lien which is junior to a tax lien does not divest the tax lien, even though notice of the nonjudicial sale is given to the appropriate district director. However, under the provisions of section 6325(b) and § 301.6325-1, a district director may discharge the property from a tax lien, including a tax lien which is senior to another lien upon the property. (b) Date of sale. (1) In the case of divestment of junior liens on property resulting directly from a public sale, the date of sale is deemed to be the date the public sale is held, regardless of the date under local law on which junior liens on the property are divested or the title to the property is transferred, (2) In the case of divestment of junior liens on property resulting directly from a private sale, the date of sale is deemed to be the date title to the property is transferred, regardless of the date junior liens on the property are divested under local law, and (3) In the case of divestment of junior liens on property not resulting directly from a public or private sale, the date of sale is deemed to be the date on which junior liens on the property are divested under local law. For provisions relating to the right of redemption of the United States, see section 7425(d) and § 301.7425-4. (c) Examples. Example 1. (i) Under the law of State M, upon entry of judgment, the judgment creditor obtains a statutory lien upon the real property of the judgment debtor, and certain procedures are provided by which the judgment creditor may execute by public sale upon such real property. These procedures provide, among other things, for notification by personal service or registered or certified mail to other lien creditors, if any, and publication of a notice of the sale in a local newspaper. After the expiration of a prescribed period of time after such notification and publication, the sheriff of the county where the real property is located may sell the property at public sale. After payment of the amount bid at the public sale, the sheriff issues to the purchaser a deed to the real property, and the interests of junior lienors in the property are divested. (ii) For purposes of this section, such an execution sale is a nonjudicial sale described in section 7425(b) because the sale is made pursuant to a statutory lien on the property sold. The date of sale, for purposes of computing a period of time determined with reference to the date of sale, is the date on which the public sale is held because junior liens on the real property are divested directly as a result of the public sale. This result obtains even though the junior liens are legally divested on a later date when the sheriff issues the deed. Example 2. (i) Under the law of State N, mortgages on real property may contain a power of sale which authorizes the mortgagee, upon breach by the mortgagor of one of the conditions of the mortgage, to have the mortgaged property sold at public sale. This public sale must be preceded by notice by advertisement in a local newspaper, and the time, place, description of the property, and other terms of the sale must be specified. The purchaser at such a public sale obtains a title to the real property which is not subject to a right of redemption by the mortgagor and which divests the interests of the junior lienors in the property. (ii) For purposes of this section, a sale pursuant to such a power of sale is a nonjudicial sale described in section 7425(b) because the sale is made pursuant to the mortgage instrument which created a lien on the property sold. The date of the sale, for purposes of computing a period of time determined with reference to the date of sale, is the date of the public sale because junior liens on the property are divested directly as a result of the public sale. Example 3. Assume the same facts as in example 2 except that the purchaser at the public sale obtains a title which is defeasible by the exercise of a right of redemption in the mortgagor. The purchaser's title divests the interests of junior lienors in the property as of the time of public sale. The interests of junior leinors in the property revive if the mortgagor exercises his right of redemption. The date of the sale, for purposes of computing a period of time determined with reference to the date of sale, is the date of the public sale because junior liens on the property are divested directly as a result of the public sale although such junior liens may be revived by a subsequent redemption by the mortgagor. Example 4. (i) Under the law of State O, upon breach by a mortgagor of real property of one of the conditions of the mortgage, the mortgagee may foreclose the mortgage by securing possession of the property by one of several procedures provided by statute. These procedures are generally referred to as “strict foreclosure.” In order for a foreclosure to be effective under these procedures, a certificate attesting the fact of entry must be recorded with the proper registrar of deeds within 30 days after the mortgagee enters the property. During the one-year period following the date on which the certificate of entry is recorded, the mortgagor or a junior lienor may redeem the property by paying the mortgagee the amount of the mortgage obligation. If, during such one-year period the property is not redeemed and the mortgagee's possession is continued, the interests of the mortgagor and the junior lienors in the property are divested as of the date such one-year period expires. (ii) For purposes of this section, such a foreclosure procedure is a nonjudicial sale described in section 7425(b) because it results in the divestment of the mortgagor's interest in the property by operation of law pursuant to the mortgage which created a lien on the property. In addition, because there is no public or private sale which directly results in the divestment of junior liens on the property, the date of sale, for purposes of computing a period of time determined with reference to the date of sale, is the date on which the one-year period following the recording of the certificate of entry expires. Example 5. The law of State P contains a procedure which permits a county to collect a delinquent tax assessment with respect to real property by the means of a tax sale of the property. First, a notice of a public auction with respect to the tax assessment on the real property is published in a local newspaper. At the public auction, the purchaser, upon payment of the delinquent taxes and interest, obtains from the county tax collector a tax certificate with respect to the real property. Because the obtaining of this tax certificate does not directly result in the divestment of either the owner's title or junior liens with respect to the property, the public auction is not a nonjudicial sale described in section 7425(b). At any time before a tax deed with respect to the property is issued by the clerk of the county court, the owner or any holder of a lien or other interest with respect to the property may obtain the tax certificate by paying the holder of the tax certificate the amount of the taxes, interest, and costs. After a date which is two years after the date on which the tax assessment became delinquent, the holder of the tax certificate may request the clerk of the county court to have the property advertised for sale. After advertisement of the sale, the clerk of the county court conducts a public sale of the real property and the purchaser obtains a tax deed. The interests of all junior lienors in the property are divested and the property is not subject to a right of redemption under the law of State P. For purposes of this section, this public sale is considered to be a nonjudicial sale described in section 7425(b) because the sale is made pursuant to a statutory lien on the property sold. The date of the sale, for purposes of computing a period of time determined with reference to the date of sale, is the date on which the public sale is held at which the purchaser obtains a tax deed as this sale directly results in the divestment of junior liens on the property. Example 6. The law of State Q contains a provision which permits a county to collect a delinquent tax assessment with respect to real property by the means of a tax sale of the property. After public notice is given, a “tax sale” of the real property is conducted. Upon payment of the delinquent taxes and interest, a purchaser obtains a tax certificate with respect to the real property. If there is no purchaser at the tax sale, the property is deemed to be bid in by the State. Because the obtaining of this tax certificate by a purchaser or State Q does not directly result in the divestment of either the owner's title or junior liens with respect to the property, the tax sale is not a nonjudicial sale described in section 7425(b). Following the tax sale, there is a three-year period during which any person having an interest in the property may redeem the property by paying the holder of the tax certificate the amount of taxes, interest, and costs. Unless, redeemed, the holder of the tax certificate may obtain an absolute title at the expiration of the period of redemption provided he serves a notice of the expiration of the redemption period upon the owner at least 60 days prior to the date of expiration. Because there is no public or private sale which directly results in the divestment of junior liens on the property, the date of sale, for purposes of computing a period of time determined with reference to the date of sale, is the date on which the holder of the tax certificate obtains absolute title. [T.D. 7430, 41 FR 35178, Aug. 20, 1976] § 301.7425-3 Discharge of liens; special rules. (a) Notice of sale requirements In general. http://www.irs.gov. (2) Postponement of scheduled sale Where notice of sale is given. (ii) Where notice of sale is not given. (A) Notice of a nonjudicial sale would not be required under subparagraph (1) of this paragraph (a), if the sale were held on the originally scheduled date, (B) Because of a postponement of the scheduled sale, more than 30 days elapse between the originally scheduled date of the sale and the date of the sale, and (C) A notice of lien with respect to the property to be sold is filed more than 30 days before the date of the sale, notice of the sale is required to be given to the IRS in accordance with the provisions of paragraph (a)(1) of this section. In any case in which notice of sale is required to be given with respect to a scheduled sale, and notice of the sale is not given, any postponement of the scheduled sale does not affect the rights of the United States under section 7425(b). (iii) Examples. Example 1. A nonjudicial sale of Blackacre, belonging to A, a delinquent taxpayer, is scheduled for December 2, 1968. As no notice of lien is filed applicable to Blackacre more than 30 days before December 2, 1968, no notice of sale is given to the IRS. On December 2, 1968, the sale of Blackacre is postponed until January 15, 1969. A notice of lien with respect to Blackacre is properly filed on January 2, 1969. The sale of blackacre is held on January 15, 1969. Even though more than 30 days elapsed between the originally scheduled date of the sale (December 2, 1968) and the date of the sale (January 15, 1969), no notice of sale is required to be given to the IRS because the notice of lien was not filed more than 30 days before the date of the sale. Example 2. Assume the same facts as in example 1 except that a notice of lien is filed on November 29, 1968, in accordance with section 6323. Because more than 30 days elapsed between the originally scheduled date of the sale and the date of the sale, and the notice of lien is filed (on November 29, 1968) more than 30 days before the date of the sale (January 15, 1969), notice of the sale, in accordance with the provisions of subparagraph (1) of this paragraph, is required to be given to the distirct director. Example 3. A nonjudicial sale of Whiteacre, belonging to B, a delinquent taxpayer, is scheduled for December 2, 1968. A notice of lien applicable to Whiteacre is filed on November 12, 1968, in accordance with section 6323. As the notice of lien was not filed more than 30 days before December 2, 1968, no notice of sale is given to the IRS. On December 2, 1968, the sale of Whiteacre is postponed until December 20, 1968. The sale of Whiteacre is held on December 20, 1968. Even though more than 30 days elapsed between the date notice of lien was filed (November 12, 1968) and the date of the sale (December 20, 1968), no notice of sale is required to be given to the IRS because not more than 30 days elapsed between the date of the originally scheduled sale (December 2, 1968) and the date the sale was actually held (December 20, 1968). (b) Consent to sale In general. (2) Application for consent. (c) Sale of perishable goods In general. (2) Definition of perishable goods. (d) Content of notice of sale In general. (i) The name and address of the person submitting the notice of sale; (ii) A copy of each notice of Federal Tax Lien (Form 668) affecting the property to be sold, or the following information as shown on each such Notice of Federal Tax Lien— (A) The IRS office named thereon, (B) The name and address of the taxpayer, and (C) The date and place of filing of the notice; (iii) With respect to the property to be sold, the following information— (A) A detailed description, including location, of the property affected by the notice (in the case of real property, the street address, city, and State and the legal description contained in the title or deed to the property and, if available, a copy of the abstract of title), (B) The date, time, place, and terms of the proposed sale of the property, and (C) In the case of a sale of perishable property described in paragraph (c) of this section, a statement of the reasons why the property is believed to be perishable; and (iv) The approximate amount of the principal obligation, including interest, secured by the lien sought to be enforced and a description of the other expenses (such as legal expenses, selling costs, etc.) which may be charged against the sale proceeds. (2) Inadequate notice. (3) Acknowledgment of notice. (4) Disclosure of adequacy of notice. http://www.irs.gov. (e) Effective/applicability date. [T.D. 7430, 41 FR 35180, Aug. 20, 1976, as amended by T.D. 9344, 72 FR 39739, July 20, 2007; T.D. 9410, 73 FR 38916, July 8, 2008] § 301.7425-4 Discharge of liens; redemption by United States. (a) Right to redeem In general. (2) Redemption period. (i) The period beginning with the date of the sale (as determined under paragraph (b) of § 301.7425-2) and ending with the 120th day after such date, or (ii) The period for redemption of real property allowable with respect to other secured creditors, under the local law of the place where the real property is located, whichever expires later. Whichever period is applicable, section 7425 and this section shall govern the amount to be paid and the procedure to be followed. (3) Limitations. (b) Amount to be paid In general. (i) The actual amount paid for the property (as determined under paragraph (b)(2) of this section) being redeemed (which, in the case of a purchaser who is the holder of the lien being foreclosed, shall include the amount of the obligation secured by such lien to the extent legally satisfied by reason of the sale); (ii) Interest on the amount paid (described in paragraph (b)(1)(i) of this section) at the sale by the purchaser of the real property computed at the rate of 6 percent per annum for the period from the date of the sale (as determined under paragraph (b) of § 301.7425-2) to the date of redemption; (iii) The amount, if any, equal to the excess of (A) the expenses necessarily incurred to maintain such property (as determined under paragraph (b)(3) of this section) by the purchaser (and his successor in interest, if any) over (B) the income from such property realized by the purchaser (and his successor in interest, if any) plus a reasonable rental value of such property (to the extent the property is used by or with the consent of the purchaser or his successor in interest or is rented at less than its reasonable rental value); and (iv) With respect to a redemption made after December 31, 1976, the amounts, if any, of a payment made by the purchaser or his successor in interest after the foreclosure sale to a holder of a senior lien (to the extent provided under paragraph (b)(4) of this section). (2) Actual amount paid. (ii) In the case of a purchaser who is the holder of the lien being foreclosed, the actual amount paid is the sum of (A) the amount of the obligation secured by such lien to the extent legally satisfied by reason of the sale and (B) any additional amount bid and paid at the sale. For purposes of this section, a purchaser who acquires title as a result of a nonjudicial foreclosure sale is treated as the holder of the lien being foreclosed if a lien (or any interest reserved, created, or conveyed as security for the payment of a debt or fulfillment of other obligation) held by him is partially or fully satisfied by reason of the foreclosure sale. For example, a person whose title is derived from a tax deed issued under local law shall be treated as a purchaser who is the holder of the lien foreclosed in a case where a tax certificate, evidencing a lien on the property arising from the payment of property taxes, ripens into title. The amount paid by a purchaser at the sale includes deferred payments upon any portion of the bid price which is in excess of the amount of the lien being foreclosed. The actual amount paid does not include costs and expenses incurred prior to the foreclosure sale by the purchaser except to the extent such expenses are included in the amount of the lien being foreclosed which is legally satisfied by reason of the sale or in the amount bid and paid at the sale. Where the lien being foreclosed attaches to other property not subject to the foreclosure sale, the amount legally satisfied by reason of the sale does not include the amount of such lien that attaches to the other property. However, for purposes of the preceding sentence, the amount of the lien that attaches to the other property shall be considered to be equal to the amount by which the value of the other property exceeds the amount of any other senior lien on that property. Where, after the sale, the holder of the lien being foreclosed has the right to the unpaid balance of the amount due him, the amount legally satisfied by reason of the sale does not include the amount of such lien to the extent a deficiency judgment may be obtained therefor. However, for purposes of the preceding sentence, an amount, with respect to which the holder of the lien being foreclosed would otherwise have a right to a deficiency judgment, shall be considered to be legally satisfied by reason of the foreclosure sale to the extent that the holder has waived his right to a deficiency judgment prior to the foreclosure sale. For this purpose, the waiver must be in writing and legally binding upon the foreclosing lienholder as of the time the sale is concluded. If, prior to the foreclosure, payments have been made by the foreclosing lienholder to a holder of a superior lien, the payments are included in the actual amount paid to the extent they give rise to an interest which is legally satisfied by reason of the foreclosure sale. (3) Excess expenses incurred by purchaser. (ii) At any time prior to the expiration of the redemption period applicable under paragraph (a)(2) of this section, the district director may, by certified or registered mail or hand delivery, request a written itemized statement of the amount claimed by the purchaser or his successor in interest to be payable under paragraph (b)(1)(iii) of this section. Unless the purchaser or his successor in interest furnishes the written itemized statement within 15 days after the request is made by the district director, it shall be presumed that no amount is payable for expenses in excess of income and the Internal Revenue Service shall tender only the amount otherwise payable under paragraph (b)(1) of this section. If a purchaser or his or her successor in interest has failed to furnish the written itemized statement within 15 days after the request therefor is made by the district director, or there is a disagreement as to the amount properly payable under paragraph (b)(1)(iii) of this section, or if there were additional excess expenses that were not claimed in the original itemized statement, the purchaser or his or her successor in interest may submit a written itemized statement to the district director within 30 days after the date of redemption. If the purchaser or his or her successor in interest fails to timely submit such a written itemized statement, no amount shall be payable for expenses in excess of income. (4) Payments made by purchaser or his successor in interest to a senior lienor. (ii) Before the expiration of the redemption period applicable under paragraph (a)(2) of this section, the district director shall, in any case where a redemption is contemplated, send notice to the purchaser (or his successor in interest of record) by certified or registered mail or hand delivery of his right under this subparagraph to request reimbursement (payable in the event the right to redeem under section 7425(d) is exercised) for a payment made to a senior lienor. No later than 15 days after the notice from the district director is sent, the request for reimbursement shall be mailed or delivered to the office specified in such notice and shall consist of— (A) A written itemized statement, signed by the claimant, of the amount claimed with respect to a payment made to a senior lienor, together with the supporting evidence requested in the notice from the district director, and (B) A waiver or other document that will be effective upon redemption by the United States to discharge the property from, or transfer to the United States, any interest in or lien on the property that may arise under local law with respect to the payment made to a senior lienor. Upon a showing of reasonable cause, a district director may, in his discretion and at any time before the expiration of the applicable period for redemption, grant an extension for a reasonable period of time to submit, amend, or supplement a request for reimbursement. Unless a request for reimbursement is timely submitted (determined with regard to any extension of time granted), no amount shall be payable to the purchaser or his successor in interest on account of a payment made to a senior lienor if the right to redeem under section 7425(d) is exercised. A waiver or other document submitted pursuant to this subdivision shall be treated as effective only to the extent of the amount included in the redemption price under this paragraph. If the right to redeem is not exercised or a request for reimbursement is withdrawn, the district director shall, by certified or registered mail or hand delivery, return to the purchaser or his successor any waiver or other document submitted pursuant to this subdivision as soon as is practicable. (iii) A request for reimbursement submitted in accordance with paragraph (b)(4)(ii) of this section shall be considered to be approved for the total amount claimed by the purchaser, and payable in the event the right to redeem is exercised, unless the district director sends notice to the claimant, by certified or registered mail or hand delivery, of the denial of the amount claimed within 30 days after receipt of the request or 15 days before expiration of the applicable period for redemption, whichever is later. The notification of denial shall state the grounds for denial. If such notice of denial is given, the request for reimbursement for a payment made to a senior lienor shall be treated as having been withdrawn by the purchaser or his successor and the Internal Revenue Service shall tender only the amount otherwise payable under paragraph (b)(1) of this section. If a request for reimbursement is treated as having been withdrawn under the preceding sentence, payment for amounts described in this subparagraph may, in the discretion of the district director, be made after the redemption upon the resolution of the disagreement as to the amount properly payable under paragraph (b)(1)(iv) of this section. (5) Examples. Example 1. A, a delinquent taxpayer, owns Blackacre located in State X upon which B holds a mortgage. After the mortgage is properly recorded, a notice of tax lien is filed under section 6323(f) which is applicable to Blackacre. Subsequently, A defaults on the mortgage and B forecloses on the mortgage which has an outstanding obligation in the amount of $100,000. At the foreclosure sale, B bids $50,000 and obtains title to Blackacre as a result of the sale. At the time of the foreclosure sale, Blackacre has a fair market value of $75,000. Under the laws of State X, the mortgage obligation is fully satisfied by operation of the foreclosure sale per se and the mortgagee cannot obtain a deficiency judgment. Under paragraph (b)(1)(i) of this section, the district director must pay $100,000 in order to redeem Blackacre. Example 2. Assume the same facts as in example 1 except that under the laws of State X, the amount bid is the amount of the obligation legally satisfied as a result of the foreclosure sale, and in the case in which the amount of the obligation exceeds the amount bid, the mortgagee has the right to a judgment for the deficiency computed as the difference between the amount of the obligation and the amount bid. B does not waive, prior to the foreclosure sale, his right to a deficiency judgment. In such a case, the district director must, under paragraph (b)(1)(i) of this section, pay $50,000 in order to redeem Blackacre, whether or not B seeks a judgment for the deficiency. Example 3. C, a delinquent taxpayer, owns Greenacre located in State Y upon which D holds a first mortgage and E holds a second mortgage. After the mortgages are properly recorded, a notice of tax lien is filed under section 6323(f) which is applicable to Greenacre. Subsequently, C defaults on both mortgages and E pays $5,000 to D, which is the portion of D's obligation which is in default. The second mortgage held by E is an outstanding obligation in the amount of $100,000. Under the laws of State Y, E may treat the amount paid to D as an addition to his second mortgage upon foreclosure by him. E forecloses upon the security interest held by him. At the foreclosure sale, E bids $50,000 and obtains title to Greenacre subject to D's mortgage as a result of the foreclosure sale. Under the laws of State Y, the mortgage obligation legally satisfied is the amount bid and E has the right to a judgment for a deficiency in the amount of $55,000 ($100,000 plus $5,000 less $50,000). In such a case, the district director must, under paragraph (b)(1)(i) of this section, pay $50,000 in order to redeem Greenacre, whether or not E seeks a judgment for the deficiency. Example 4. The law of State Z contains a procedure which permits a county to collect a delinquent tax assessment with respect to real property by the means of a “tax sale” of the property. Pursuant to this procedure, a public auction is conducted on January 15, 1970, to collect the delinquent property taxes assessed against Whiteacre, which is owned by F. At the auction, a bid of $1,000 (representing the tax, costs, and interest due at the time of the auction) is made by G. Subsequently, G pays the amount bid to the county and obtains a tax certificate with respect to Whiteacre. Under this tax sale procedure, the obtaining of the tax certificate does not directly result in the divestment of either F's title or any junior liens on Whiteacre. On January 15, 1973, the period under this tax sale procedure during which F could have redeemed Whiteacre expires. Further, more than 30 days before January 15, 1973, a notice of tax lien affecting Whiteacre is filed under section 6323(f) with respect to F's delinquent Federal income taxes. Under the state tax sale procedure, the amount which would be required to be paid by F to G on January 15, 1973, to redeem Whiteacre is $1,350 (the $1,000 amount bid, interest of $300, and costs of $50). However, Whiteacre is not redeemed by F under the state procedure and, on January 16, 1973, G obtains a tax deed to Whiteacre. Under the law of State Z, the issuance of the tax deed results in the divestment of F's title and junior liens on Whiteacre. Thus, under § 301.7425-2(b), the date of sale is January 16, 1973, for purposes of section 7425(b). The amount legally satisfied by reason of the sale is the amount G is entitled to receive, immediately prior to the expiration of the period for redemption under the law of State Z, if Whiteacre were redeemed at such time. Thus, the district director must, under paragraph (b)(1)(i) of this section, pay $1,350 in order to redeem Whiteacre. (c) Certificate of redemption In general. (2) Filing. (3) Effect of certificate of redemption. (4) Application for release of right of redemption. [T.D. 7430, 41 FR 35181, Aug. 20, 1976, as amended by T.D. 8596, 60 FR 28720, June 2, 1995] § 301.7426-1 Civil actions by persons other than taxpayers. (a) Actions permitted Wrongful levy In general. (A) That such person has an interest in, or lien on, such property which is senior to the interest of the United States; and (B) That such property was wrongfully levied upon. (ii) Debt owed by another Federal agency. (2) Surplus proceeds. (i) Has an interest in or lien on such property junior to that of the United States; and (ii) Is entitled to the surplus proceeds of such sale. (3) Substituted sale proceeds. (4) Substitution of value. (b) Adjudication Wrongful levy. (i) Grant an injunction to prohibit the enforcement of such levy or to prohibit a sale of such property if such sale would irreparably injure rights in the property which are superior to the rights of the United States in such property; or (ii) Order the return of specific property if the United States is in possession of such property; or (iii) Grant a judgment for the amount of money levied upon; or (iv) Grant a judgment for an amount not exceeding the amount received by the United States from the sale of such property (which, in the case of property declared purchased by the United States at a sale, shall be the greater of the minimum amount determined pursuant to section 6335(e) or the amount received by the United States from the resale of such property). For purposes of this paragraph, a levy is wrongful against a person (other than the taxpayer against whom the assessment giving rise to the levy is made), if ( a b c d 1 2 3 4 5 (2) Example. Example. On April 10, 1972, A makes a $10,000 loan to B which is partially secured by a $5,000 obligation owed to B by C. Under local law, A's security interest in the obligation owed to B by C is protected against a subsequent judgment lien arising out of an unsecured obligation. Thus, under section 6323(h)(1), A's security interest exists as of April 10, 1972, for purposes of determining priorities against a tax lien under section 6323. On April 17, 1972, an assessment of $6,000 is made against B with respect to his delinquent Federal tax liability. Thereafter, notice of lien is filed pursuant to section 6323(f) with respect to B's delinquent tax liability. On July 10, 1972, a notice of levy is served upon C to reach the amount owed by him to B. C pays over the $5,000 obligation in satisfaction of the levy and, under local law, the obligation is discharged as to A. Because the levy effectively destroyed A's senior security interest in the obligation owed to B by C, the levy is wrongful as to A for purposes of section 7426. Under these circumstances, the levy is wrongful with respect to A even if, under local law. A may have a cause of action in contract against B for the $10,000 loan or may have a cause of action in tort against C for the amount of the $5,000 payment which defeated A's security interest in the obligation owed by C to B. (3) Surplus proceeds. (4) Substituted sale proceeds. (5) Substitution of value. (c) Effective date. (d) Paragraphs (a)(4) and (b)(5) of this section apply to any request for a certificate of discharge made after January 31, 2008. [T.D. 7305, 39 FR 9951, Mar. 15, 1974, as amended by T.D. 8541, 59 FR 26601, May 23, 1994; 73 FR 5744, Jan. 31, 2008] § 301.7426-2 Recovery of damages in certain cases. (a) In general. (1) Actual, direct economic damages as defined in § 301.7433-1(b) sustained as a proximate result of the reckless, intentional, or negligent actions of the officer or employee, reduced by the amount of any damages awarded under § 301.7426-1(b); and (2) Costs of the action as defined in § 301.7433-1(c). (b) Administrative remedies must be exhausted. (c) No request for damages in a district court of the United States prior to filing an administrative claim. (i) The date the decision is rendered on a claim filed in accordance with paragraph (d) of this section; or (ii) The date that is six months after the date an administrative claim is filed in accordance with paragraph (d) of this section. (2) If an administrative claim is filed in accordance with paragraph (d) of this section during the last six months of the period of limitations described in paragraph (f) of this section, the claimant may file an action in a district court of the United States any time after the administrative claim is filed and before the expiration of the period of limitations. (d) Procedures for an administrative claim Manner. (2) Form. (i) The name, taxpayer identification number, current address and current home and work telephone numbers (indicating any convenient times to be contacted) of the person making the claim; (ii) The grounds, in reasonable detail, for the claim (include copies of any available substantiating documentation or correspondence with the Internal Revenue Service); (iii) A description of the damages incurred by the claimant filing the claim (include copies of any available substantiating documentation or evidence); (iv) The dollar amount of the claim, including any damages that have not yet been incurred but which are reasonably foreseeable (include copies of any available substantiating documentation or evidence); and (v) The signature of the claimant or duly authorized representative. (3) Duly authorized representative. (e) No liability for damages for any sum in excess of the dollar amount sought in the administrative claim. See (f) Period of limitations Time for filing. (2) Right of action accrues. (g) Recovery of costs under section 7430. See (h) Effective date. [T.D. 9050, 68 FR 14319, Mar. 25, 2003] § 301.7429-1 Review of jeopardy and termination assessment and jeopardy levy procedures; information to taxpayer. Not later than 5 days after the day on which an assessment is made under section 6851(a), 6852(a), 6861(a), or 6862, or a levy is made under section 6331(a) without complying with the notice before levy provisions of section 6331(d), the district director shall provide the taxpayer a written statement setting forth the information upon which the district director relies in authorizing such assessment or levy. [T.D. 8453, 57 FR 58985, Dec. 14, 1992] § 301.7429-2 Review of jeopardy and termination assessment and jeopardy levy procedures. (a) Request for administrative review. (b) Administrative review. (c) Abatement of assessment. [T.D. 8453, 57 FR 58985, Dec. 14, 1992] § 301.7429-3 Review of jeopardy and termination assessment and jeopardy levy procedures; judicial action. (a) Time for bringing judicial action. (1) The date the district director notifies the taxpayer of the determination described in section 7429(a)(3) and ending on the 90th day thereafter; or (2) The 16th day after the request described in section 7429(a)(2) was made by the taxpayer and ending on the 90th day thereafter. (b) Extension of period for judicial review. (c) Jurisdiction for determination. [T.D. 8453, 57 FR 58985, Dec. 14, 1992] § 301.7430-0 Table of contents. This section lists the captions that appear in §§ 301.7430-1 through 301.7430-6. § 301.7430-1 Exhaustion of administrative remedies. (a) In general. (b) Requirements. (1) In general. (2) Participates. (3) Tax matter. (4) Failure to agree to extension of time for assessments. (c) Revocation of a determination that an organization is described in section 501(c)(3). (d) Actions involving summonses, levies, liens, jeopardy and termination assessments, etc. (e) Exception to requirement that party pursue administrative remedies. (f) Examples. (g) Effective date. § 301.7430-2 Requirements and procedures for recovery of reasonable administrative costs. (a) Introduction. (b) Requirements for recovery. (1) Determination by the Internal Revenue Service. (i) Jurisdiction. (ii) Administrative proceeding. (iii) Administrative proceeding date. (iv) Reasonable administrative costs. (v) Prevailing party. (vi) Not unreasonably protracted. (vii) Procedural requirements. (2) Determination by court. (c) Procedure for recovering reasonable administrative costs. (1) In general. (2) Where request must be filed. (3) Contents of request. (i) Statements. (ii) Affidavit or affidavits. (iii) Documentation and information. (4) Form of request. (5) Period for requesting costs from the Internal Revenue Service. (6) Notice. (7) Appeal to Tax Court. (d) Unreasonable protraction of administrative proceeding. (e) Examples. § 301.7430-3 Administrative proceeding and administrative proceeding date. (a) Administrative proceeding. (b) Collection action. (c) Administrative proceeding date. (1) General rule. (2) Notice of the decision of the Internal Revenue Service Office of Appeals. (3) Notice of deficiency. (4) First letter of proposed deficiency that allows the taxpayer an opportunity for administrative review in the Office of Appeals. (d) Examples. § 301.7430-4 Reasonable administrative costs. (a) In general. (b) Costs described. (1) In general. (2) Representative and specially qualified representative. (i) Representative. (ii) Specially qualified representative. (3) Limitation on fees for a representative. (i) In general. (ii) Cost of living adjustment. (iii) Special factor adjustment. (A) In general. (B) Special factor. (C) Limited availability. (D) Local availability of tax expertise. (E) Difficulty of the issues. (F) Example. (c) Certain costs excluded. (1) Costs not incurred in an administrative proceeding. (2) Costs incurred in an administrative proceeding but not reasonable. (i) In general. (ii) Special rule for expert witness' fees on issue of prevailing market rates. (3) Litigation costs. (4) Examples. (d) Pro bono representation. (1) In general. (2) Requirements. (3) Nominal fee. (4) Payment when representation provided for a nominal fee. (5) Requirements. (6) Hourly rate. (7) Examples. § 301.7430-5 Prevailing party. (a) In general. (b) Position of the Internal Revenue Service. (c) Examples. (d) Substantially justified. (1) In general. (2) Position in courts of appeal. (3) Examples. (4) Included costs. (5) Examples. (6) Exception. (7) Presumption. (e) Amount in controversy. (f) Most significant issue or set of issues presented. (1) In general. (2) Example. (g) Net worth and size limitations. (1) Individuals. (2) Estates and trusts. (3) Others. (4) Special rule for charitable organizations and certain cooperatives. (5) Special rule for TEFRA partnerships. (6) Determining net worth. (h) Determination of prevailing party. (i) Examples. § 301.7430-6 Effective/applicability dates. § 301.7430-7 Qualified offers. (a) In general. (b) Requirements for treatment as a prevailing party based upon having made a qualified offer. (1) In general. (2) Liability under the last qualified offer. (3) Liability pursuant to the judgment. (c) Qualified offer. (1) In general. (2) To the United States. (3) Specifies the offered amount. (4) Designated at the time it is made as a qualified offer. (5) Remains open. (6) Last qualified offer. (7) Qualified offer period. (8) Interest as a contested issue. (d) [Reserved]. (e) Examples. (f) Effective date. § 301.7430-8 Administrative costs incurred in damage actions for violations of section 362 or 524 of the Bankruptcy Code. (a) In general. (b) Prevailing party. (c) Administrative proceeding. (d) Costs incurred after filing of bankruptcy petition. (e) Time for filing claim for administrative costs. (f) Effective date. [T.D. 8542, 59 FR 29360, June 7, 1994, as amended by T.D. 8725, 62 FR 39118, July 22, 1997; T.D. 9756, 81 FR 10483, Mar. 1, 2016] § 301.7430-1 Exhaustion of administrative remedies. (a) In general. (b) Requirements In general. (i) The party, prior to filing a petition in the Tax Court or a civil action for refund in a court of the United States (including the Court of Federal Claims), participates, either in person or through a qualified representative described in § 601.502 of this chapter, in an Appeals office conference; or (ii) If no Appeals office conference is granted, the party, prior to the issuance of a statutory notice in the case of a petition in the Tax Court or the issuance of a notice of disallowance in the case of a civil action for refund in a court of the United States (including the Court of Federal Claims)— (A) Requests an Appeals office conference in accordance with §§ 601.105 and 601.106 of this chapter or any successor published guidance; and (B) Files a written protest if a written protest is required to obtain an Appeals office conference. (2) Participates. (3) Tax matter. (4) Failure to agree to extension of time for assessments. (c) Revocation of a determination that an organization is described in section 501(c)(3). (d) Actions involving summonses, levies, liens, jeopardy and termination assessments, etc. (i) The party follows all applicable Internal Revenue Service procedures for contesting the matter (including filing a written protest or claim, requesting an administrative appeal, and participating in an administrative hearing or conference); or (ii) If there are no applicable Internal Revenue Service procedures, the party submits to the Area Director of the area having jurisdiction over the dispute a written claim for relief reciting facts and circumstances sufficient to show the nature of the relief requested and that the party is entitled to the requested relief, and the Area Director denies the claim for relief in writing or fails to act on the claim within a reasonable period after the claim is received by the Area Director. (2) For purposes of paragraph (d)(1)(ii) of this section, a reasonable period (i) The 5-day period preceding the filing of a petition to quash an administrative summons issued under section 7609; (ii) The 5-day period preceding the filing of a wrongful levy action in which a demand for the return of property is made; (iii) The period expressly provided for administrative review of the party's claim by an applicable provision of the Internal Revenue Code that expressly provides for the pursuit of administrative remedies (such as the 16-day period provided under section 7429(b)(1)(B) relating to review of jeopardy assessment procedures); or (iv) The 60-day period following receipt of the claim for relief in all other cases. (e) Actions involving willful violations of the automatic stay under section 362 or the discharge provisions under section 524 of the Bankruptcy Code Section 7433 claims. (2) Section 362(h) claims. (f) Exception to requirement that party pursue administrative remedies. (1) The Internal Revenue Service notifies the party in writing that the pursuit of administrative remedies in accordance with paragraphs (b), (c), and (d) of this section is unnecessary. (2) In the case of a petition in the Tax Court— (i) The party did not receive a notice of proposed deficiency (30-day letter) prior to the issuance of the statutory notice and the failure to receive such notice was not due to actions of the party (such as a failure to supply requested information or a current mailing address to the Internal Revenue Service office or service center having jurisdiction over the tax matter); and (ii) The party does not refuse to participate in an Appeals office conference while the case is in docketed status. (3) In the case of a civil action for refund involving a tax matter other than a tax matter described in paragraph (e)(4) of this section, the party— (i) Participates in an Appeals office conference with respect to the tax matter prior to issuance of a statutory notice of deficiency with respect to such tax matter; or (ii) Did not receive written notification that an Appeals office conference was available prior to issuance of a notice of disallowance and the failure to receive such a notification was not due to the actions of the party (such as the failure to supply requested information or a current mailing address to the Internal Revenue Service office or service center having jurisdiction over the tax matter); or (iii) Did not receive either written or oral notification that an Appeals office conference had been granted within six months from the date of the filing of the claim for refund and the failure to receive such notice was not due to actions of the party (such as the failure to supply requested information or a current mailing address to the Internal Revenue Service office or service center having jurisdiction over the tax matter). (4) In the case of a civil action for refund involving a tax matter under sections 6703 or 6694— (i) The party did not receive a notice of proposed disallowance prior to issuance of a notice of disallowance and the failure to receive such notice was not due to actions of the party (such as the failure to supply requested information or a current mailing address to the Internal Revenue Service office or service center having jurisdiction over the tax matter); or (ii) During the six-month period following the day on which the party's claim for refund is filed, the party's claim for refund is not denied, and the Internal Revenue Service has failed to process the claim with due diligence. (g) Examples. Example 1. Taxpayer A exchanges property held for investment for similar property and claims that the gain on the exchange is not recognized under section 1031. The Internal Revenue Service conducts a field examination and determines that there has not been a like-kind exchange. No agreement is reached on the matter and a notice of proposed deficiency (30-day letter) is sent to A. A does not file a request for an Appeals office conference. A pays the amount of the proposed deficiency and files a claim for refund. A notice of proposed disallowance is issued by the Internal Revenue Service. A does not request an Appeals office conference and, instead, files a civil action for refund in a United States District Court. A has not exhausted the administrative remedies available within the Internal Revenue Service. Example 2. Assume the same facts as in Example 1 Example 3. Assume the same facts as in Example 1 Example 4. Taxpayer B receives a notice of proposed deficiency (30-day letter) after completion of a field examination. B provided to the Internal Revenue Service during the examination all relevant information under the taxpayer's control and all relevant legal arguments supporting the taxpayer's position. B properly requests an Appeals office conference. The Appeals office, to obtain an additional period of time to consider the tax matter, requests that B sign Form 872 to extend the time for an assessment of tax, but B declines. Appeals then denies the request for a conference and issues a notice of deficiency. B has exhausted the administrative remedies available within the Internal Revenue Service. Example 5. Taxpayer C receives a notice of proposed deficiency (30-day letter) and a written statement that C need not file a written protest or request an Appeals office conference since a conference will not be granted. C files a petition in the Tax Court after receiving the statutory notice of deficiency. C's administrative remedies within the Internal Revenue Service are deemed to have been exhausted. Example 6. On January 2, the Internal Revenue Service serves a summons issued under section 7609 on third-party recordkeeper D to produce records of taxpayer E. On January 5, notice of the summons is given to E. The last day on which E may file a petition in a court of the United States to quash the summons is January 25. Thereafter, E files a written claim for relief with the Internal Revenue Service office having jurisdiction over the matter together with a copy of the summons. The claim and copy are received by the Internal Revenue Service office on January 20. On January 25, E files a petition to quash the summons. E has exhausted the administrative remedies available within the Internal Revenue Service. Example 7. A notice of Federal tax lien is filed in County M on March 3, in the name of F. On April 2, F pays the entire liability thereby satisfying the lien. On May 2, F files a written claim with the Internal Revenue Service office having jurisdiction over the tax matter demanding a certificate of release of lien. Thereafter, F provides the Internal Revenue Service office with a copy of the notice of Federal tax lien and a copy of the canceled check in satisfaction of the lien, which are received by the district director on May 15. F's claim is deemed to have been filed on May 15. Accordingly, F must wait until after July 14 (60 days following the filing of the claim for relief on May 15) to commence an action, in order to have exhausted the administrative remedies available within the Internal Revenue Service. Example 8. A revenue officer seizes an automobile to effect collection of G's liability on January 10. On January 22, H submits a written claim to the Internal Revenue Service office having jurisdiction over the tax matter claiming that H purchased the automobile from G for an adequate consideration before the tax lien against G arose, and demands immediate return of the automobile. A copy of the title certificate and H's canceled check are submitted with the claim. The claim is received by the Internal Revenue Service office on January 25. On January 30, H brings a wrongful levy action. H has exhausted the administrative remedies available within the Internal Revenue Service. Example 9. The Internal Revenue Service issues a revenue ruling which holds that ear piercing does not affect a function or structure of the body within the meaning of section 213 and therefore is not deductible. Taxpayer I deducts the costs of ear piercing and, following an examination, receives a notice of proposed deficiency (30-day letter) disallowing the treatment of these costs. Because of the revenue ruling, I believes a conference would not aid in the resolution of the tax dispute. Accordingly, I does not request an Appeals office conference. After receiving a statutory notice of deficiency, I files a petition in the Tax Court. I has not exhausted the administrative remedies available within the Internal Revenue Service. The issuance of a revenue ruling covering the same fact situation but taking a contrary position does not constitute notification by the Internal Revenue Service to I that the pursuit of administrative remedies is unnecessary. Similarly, the issuance to I of a private letter ruling or technical advice does not constitute notification by the Internal Revenue Service that the pursuit of administrative remedies is unnecessary. Example 10. Taxpayer J is assessed a penalty under section 6701 for aiding in the understatement of the tax liability of another person. J pays 15% of the penalty in accordance with section 6703 and files a claim for refund on June 15. J is not issued a notice of proposed disallowance and thus cannot participate in an Appeals office conference within six months of the filing of the claim for refund. J brings an action on December 23. J has exhausted the administrative remedies available within the Internal Revenue Service. Example 11. Taxpayer K receives a notice of proposed deficiency (30-day letter) and neither requests nor participates in an Appeals office conference. The Service then issues a statutory notice of deficiency (90-day letter). Upon receiving the statutory notice, and after filing a petition with the Tax Court, K requests an Appeals office conference. K has not exhausted the administrative remedies available within the Internal Revenue Service because the request for an Appeals office conference was made after the issuance of the statutory notice. (h) Effective date. [T.D. 8543, 59 FR 29357, June 7, 1994, as amended by T.D. 8725, 62 FR 39118, July 22, 1997; T.D. 9050, 68 FR 14319, Mar. 25, 2003; T.D. 9050, 68 FR 16351, Apr. 3, 2003; T.D. 9756, 81 FR 10484, Mar. 1, 2016] § 301.7430-2 Requirements and procedures for recovery of reasonable administrative costs. (a) Introduction. (b) Requirements for recovery Determination by the Internal Revenue Service. (i) Jurisdiction. (ii) Administrative proceeding. (iii) Administrative proceeding date. (iv) Reasonable administrative costs. (v) Prevailing party. (vi) Not unreasonably protracted. (vii) Procedural requirements. (2) Determination by court. (c) Procedure for recovering reasonable administrative costs In general. (2) Where request must be filed. (3) Contents of request. (i) Statements. (B) A clear and concise statement of the reasons why the taxpayer alleges that the position of the Internal Revenue Service in the administrative proceeding was not substantially justified. For administrative proceedings commenced after July 30, 1996, if the taxpayer alleges that the Internal Revenue Service did not follow any applicable published guidance, the statement must identify all applicable published guidance that the taxpayer alleges that the Internal Revenue Service did not follow. For purposes of this paragraph (c)(3)(i)(B), the term applicable published guidance means final or temporary regulations, revenue rulings, revenue procedures, information releases, notices, announcements, and, if issued to the taxpayer, private letter rulings, technical advice memoranda, and determination letters. Also, for purposes of this paragraph (c)(3)(i)(B), the term administrative proceeding includes only those administrative proceedings or portions of administrative proceedings occurring on or after the administrative proceeding date as defined in § 301.7430-3(c).

For costs incurred after January 18, 1999, if the taxpayer alleges that the United States has lost in courts of appeal for other circuits on substantially similar issues, the taxpayer must provide, for each such case, the full name of the case, volume and pages of the reporter in which the opinion appears, the circuit in which the case was decided, and the year of the opinion; (C) A statement sufficient to demonstrate that the taxpayer has substantially prevailed as to the amount in controversy or with respect to the most significant issue or set of issues presented in the proceeding; (D) A statement that the taxpayer has not unreasonably protracted the portion of the administrative proceeding for which the taxpayer is requesting costs; and (E) A statement supported by a detailed affidavit executed by the taxpayer or the taxpayer's representative that sets forth the nature and amount of each specific item of reasonable administrative costs for which the taxpayer is seeking recovery. This statement must identify whether the representation is on a pro bono basis as defined in § 301.7430-4(d) and, if so, to whom payment should be made. Specifically, the statement must direct whether payment should be made to the taxpayer's representative or to the representative's employer. (ii) Affidavit or affidavits. (B) An affidavit supporting the statement described in paragraph (c)(3)(i)(E) of this section; and (C) For costs incurred after January 18, 1999, if more than $125 per hour (as adjusted for an increase in the cost of living pursuant to § 301.7430-4(b)(3)) is claimed for the fees of a representative in connection with the administrative proceeding, an affidavit is necessary stating that a special factor described in § 301.7430-4(b)(3) is applicable, such as the difficulty of the issues presented in the case or the lack of local availability of tax expertise. If a special factor is claimed based on specialized skills and distinctive knowledge as described in § 301.7430-4(b)(2)(ii), the affidavit should state— ( 1 ( 2 ( 3 (iii) Documentation and information. (B) An address at which the taxpayer wishes to receive notice of the determination of the Internal Revenue Service with regard to the request for reasonable administrative costs. (C) In cases of pro bono representation, time records similar to billing records, detailing the time spent and work completed, must be submitted for the requested fees. (4) Form of Request. (5) Period for requesting costs from the Internal Revenue Service. interest (6) Notice. (7) Appeal to Tax Court. (d) Unreasonable protraction of administrative proceeding. (e) The following examples primarily illustrate paragraph (a) of this section: Example 1. Taxpayer A receives a notice of proposed deficiency (30-day letter). A requests and is granted Appeals office consideration. The administrative file contains certain documents provided by A as substantiation for the tax matters at issue. Appeals determines that the information submitted is insufficient. Appeals then issues a notice of deficiency. After receiving the notice of deficiency but before the 90-day period for filing a petition with the Tax Court has expired, and before filing a petition with the Tax Court, A convinces Appeals that the information previously submitted and reviewed by Appeals is sufficient and, therefore, the notice of deficiency is incorrect and A owes no additional tax. Pursuant to section 6212(d), the notice of deficiency is rescinded. Appeals then closes the case showing a zero deficiency and mails A a notice to this effect. Assuming that Appeals did not rely on any new information provided by A in rescinding the notice of deficiency and that all of the other requirements of section 7430 are satisfied, A may recover reasonable administrative costs incurred after the date of the 30-day letter (the administrative proceeding date as defined in Treas. Reg. § 301.7430-3(c)). To recover these costs, A must file a request for administrative costs with the Appeals office personnel who settled A's tax matter, or if that person is unknown to A, with the Area Director of the area that considered the underlying matter, within 90 days after the date of mailing of the Office of Appeals' final decision that A owes no additional tax. Example 2. Taxpayer B files a request for an abatement of interest pursuant to section 6404 and the regulations thereunder. The Area Director issues a notice of proposed disallowance of the abatement request (akin to a 30-day letter). B requests and is granted Appeals office consideration. No agreement is reached with Appeals and the Office of Appeals issues a notice of disallowance of the abatement request. B does not file suit in the Tax Court, but instead contacts the Appeals office within 180 days after the mailing date of the notice of disallowance of the abatement request to attempt to reverse the decision. B convinces the Appeals office that the notice of disallowance is in error. The Appeals office agrees to abate the interest and mails the taxpayer a notification of this decision. The mailing date of the notification from Appeals of the decision to abate interest commences the 90-day period from which the taxpayer may request administrative costs. Assuming that Appeals did not rely on any new information provided by B in reversing its notice of disallowance, and that all of the other requirements of section 7430 are satisfied, B may recover reasonable administrative costs incurred after the date the Area Director issued the notice of proposed disallowance of the abatement request (the administrative proceeding date as defined in Treas. Reg. § 301.7430-3(c)). To recover these costs, B must file a request for costs with the Appeals office personnel who settled B's tax matter, or if that person is unknown to B, with the Area Director of the area that considered the underlying matter within 90 days after the date of mailing of the Office of Appeals' final decision that B is entitled to abatement of interest. Example 3. Taxpayer C receives a notice of proposed adjustment and employment tax 30-day letter. C requests and is granted Appeals office consideration. The administrative file contains certain documents provided by C to support C's position in the tax matters at issue. Appeals determines that the documents submitted are insufficient. Appeals then issues a notice of determination of worker classification. After receiving the notice of determination of worker classification but before the 90-day period for filing a petition with the Tax Court has expired, C convinces Appeals that the documents previously submitted and reviewed by Appeals adequately support its position and, therefore, C owes no additional employment tax. Appeals then closes the case showing a zero tax adjustment and mails C a no-change letter. Assuming that Appeals did not rely on any new information provided by C in reversing its notice of determination of worker classification, and that all of the other requirements of section 7430 are satisfied, C may recover reasonable administrative costs incurred after the date of the notice of proposed adjustment and 30-day letter (the administrative proceeding date as defined in Treas. Reg. § 301.7430-3(c)). To recover these costs, C must file a request for administrative costs with the Appeals office personnel who settled C's tax matter, or if that person is unknown to C, with the Area Director of the area that considered the underlying matter, within 90 days after the date of mailing of the Office of Appeals' final decision that C owes no additional tax. [T.D. 8542, 59 FR 29360, June 7, 1994, as amended by T.D. 8725, 62 FR 39118, July 22, 1997; T.D. 9050, 68 FR 14320, Mar. 25, 2003; T.D. 9756, 81 FR 10484, Mar. 1, 2016] § 301.7430-3 Administrative proceeding and administrative proceeding date. (a) Administrative proceeding. (1) Proceedings involving matters of general application, including hearings on regulations, comments on forms, or proceedings involving revenue rulings or revenue procedures; (2) Proceedings involving requests for private letter rulings or similar determinations; (3) Proceedings involving technical advice memoranda, except those submitted after the administrative proceeding date (as defined in paragraph (c) of this section); and (4) Proceedings in connection with collection actions (as defined in paragraph (b) of this section), including proceedings under section 7432 or 7433, except proceedings brought under section 7433(e) and § 301.7433-2 or proceedings otherwise described in § 301.7430-8(c). See § 301.7430-8. (b) Collection action. (c) Administrative proceeding date General rule. administrative proceeding date (i) The date of the receipt by the taxpayer of the notice of the decision of the Internal Revenue Service Office of Appeals; (ii) The date of the notice of deficiency; or (iii) The date on which the first letter of proposed deficiency that allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals is sent. (2) Notice of the decision of the Internal Revenue Service Office of Appeals. (3) Notice of deficiency. (i) A notice of final partnership administrative adjustment described in section 6223(a)(2). (ii) A notice of determination of worker classification issued pursuant to section 7436. (iii) A final notice of determination denying innocent spouse relief issued pursuant to section 6015. (4) First letter of proposed deficiency that allows the taxpayer an opportunity for administrative review in the Office of Appeals. (d) Examples. Example 1. Taxpayer A receives a notice of proposed deficiency (30-day letter). A files a request for and is granted an Appeals office conference. At the Appeals conference no agreement is reached on the tax matters at issue. The Office of Appeals then issues a notice of deficiency. Upon receiving the notice of deficiency, A does not file a petition with the Tax Court. Instead, A pays the deficiency and files a claim for refund. The claim for refund is considered by the Internal Revenue Service and the Area Director issues a notice of proposed claim disallowance. A requests and is granted Appeals office consideration. A convinces Appeals that A's claim is correct and Appeals allows A's claim. A may recover reasonable administrative costs incurred on or after the date of the notice of proposed deficiency (30-day letter), but only if the other requirements of section 7430 and the regulations thereunder are satisfied. A cannot recover costs incurred prior to the date of the 30-day letter because these costs were incurred before the administrative proceeding date. Example 2. Taxpayer B files an individual income tax return showing a balance due. No payment is made with the return and the Internal Revenue Service assesses the amount shown on the return. The Internal Revenue Service issues a Notice Of Intent to Levy And Notice Of Your Right To A Hearing pursuant to sections 6330(a) and 6331(d). B timely requests and is granted a Collection Due Process (CDP) hearing. In connection with the CDP hearing, B enters into an installment agreement as a collection alternative. The costs that B incurred in connection with the CDP hearing were not incurred in an administrative proceeding, but rather in a collection action. Accordingly, B may not recover those costs as reasonable administrative costs under section 7430 and the regulations thereunder. [T.D. 8542, 59 FR 29362, June 7, 1994, as amended by T.D. 9050, 68 FR 14320, Mar. 25, 2003; T.D. 9756, 81 FR 10485, Mar. 1, 2016] § 301.7430-4 Reasonable administrative costs. (a) In general. (b) Costs described In general. (i) Any administrative fees or similar charges imposed by the Internal Revenue Service; (ii) Reasonable expenses of expert witnesses; (iii) Reasonable costs of any study, analysis, engineering report, test or project that is necessary for, and incurred in preparation of, the taxpayer's case; and (iv) Reasonable fees paid or incurred for the services of a representative (as defined in paragraph (b)(2) of this section) in connection with the administrative proceeding. (2) Representative and specially qualified representative Representative. (ii) Specially qualified representative. (3) Limitation on fees for a representative In general. (ii) Cost of living adjustment. (B) Percentage adjustment. (iii) Special factor adjustment In general. (B) Special factor. special factor (C) Limited availability. (D) Limited local availability of tax expertise. (E) Difficulty of the issues. ( 1 ( 2 ( 3 ( 4 (F) Example. Example. Taxpayer A is represented by B, a CPA and attorney with a LL.M. Degree in Taxation with Highest Honors who regularly handles cases dealing with TEFRA partnership issues. B represents A in an administrative proceeding involving TEFRA partnership issues that is subject to the provisions of this section. Assuming A qualifies for an award of reasonable administrative costs by meeting the requirements of section 7430, the amount of the award attributable to the fees of B may not exceed the $125 per hour limitation (as adjusted for an increase in the cost of living), absent a special factor. B is not a specially qualified representative because extraordinary knowledge of the tax laws does not constitute distinctive knowledge or a unique and specialized skill constituting a special factor. A higher rate may be justified by another special factor, that is, the limited local availability of tax expertise or the difficulty of the issues. (c) Certain costs excluded Costs not incurred in an administrative proceeding. (2) Costs incurred in an administrative proceeding but not reasonable In general. (ii) Special Rule for Expert Witness' Fees on Issue of Prevailing Market Rates. (3) Litigation costs. (i) Costs incurred in connection with the preparation and filing of a petition with the United States Tax Court or in connection with the commencement of any other court proceeding; and (ii) Costs incurred after the filing of a petition with the United States Tax Court or after the commencement of any other court proceeding. (4) Examples. Example 1. After incurring fees for representation during the Internal Revenue Service's examination of A's income tax return, A receives a notice of proposed deficiency (30-day letter). A files a request for and is granted an Appeals office conference. At the conference no agreement is reached on the tax matters at issue. The Internal Revenue Service then issues a notice of deficiency. Upon receiving the notice of deficiency, A discontinues A's administrative efforts and files a petition with the Tax Court. A's costs incurred before the date of the mailing of the 30-day letter are not reasonable administrative costs because they were incurred before the administrative proceeding date. Similarly, A's costs incurred in connection with the preparation and filing of a petition with the Tax Court are litigation costs and not reasonable administrative costs. Example 2. Assume the same facts as in Example 1 (d) Pro bono representation In general. (2) Requirements. (i) Representation was provided for no fee or for a fee that (taking into account all the facts and circumstances) constitutes a nominal fee; (ii) The representative intended to provide representation for no fee or for a nominal fee from the commencement of the representation. Intent to provide representation for no fee or for a nominal fee may be demonstrated through documentation such as a retainer agreement. An individual will not be considered to have represented a client on a pro bono basis if the facts demonstrate that the individual anticipated a fee greater than a nominal fee or provided representation on a contingency fee basis. The fact that the representative intended to seek recovery of fees under section 7430 will not prevent the representative from satisfying this requirement. (3) Nominal fee. nominal fee (4) Payment when representation provided at no charge or for a nominal fee. (5) Recordkeeping. (6) Examples. Example 1. Taxpayer A, an attorney, files a petition with the Tax Court and pays a $60 filing fee. A appears pro se in the court proceeding. If A prevails, he will not be entitled to an award of reasonable litigation costs for his services. A is rendering services on his own behalf, not providing pro bono representation. His lost opportunity costs are not compensable under section 7430. A may recover the filing fee as a litigation cost, but only if the other requirements of section 7430 and the regulations thereunder are satisfied. [T.D. 8542, 59 FR 29363, June 7, 1994, as amended by T.D. 8725, 62 FR 39118, July 22, 1997; T.D. 9756, 81 FR 10486, Mar. 1, 2016] § 301.7430-5 Prevailing party. (a) In general. (1) At least one issue (other than recovery of administrative costs) remains in dispute as of the date that the Internal Revenue Service takes a position in the administrative proceeding, as described in paragraph (b) of this section; (2) The position of the Internal Revenue Service was not substantially justified; (3) The taxpayer substantially prevails as to the amount in controversy or with respect to the most significant issue or set of issues presented; and (4) The taxpayer satisfies the net worth and size limitations referenced in paragraph (f) of this section. (b) Position of the Internal Revenue Service. (1) The date of the receipt by the taxpayer of the notice of the decision of the Internal Revenue Service Office of Appeals; or (2) The date of the notice of deficiency or any date thereafter. (c) Examples. Example 1. Taxpayer A receives a notice of proposed deficiency (30-day letter). A pays the amount of the proposed deficiency and files a claim for refund. A's claim is considered and a notice of proposed claim disallowance is issued by the Area Director. A does not request an Appeals office conference and the Area Director issues a notice of claim disallowance. A then files suit in a United States District Court. A cannot recover reasonable administrative costs because the notice of claim disallowance is not a notice of the decision of the Internal Revenue Service Office of Appeals or a notice of deficiency. Accordingly, the Internal Revenue Service has not taken a position in the administrative proceeding pursuant to section 7430(c)(7)(B). Example 2. Taxpayer B receives a notice of proposed deficiency (30-day letter). B disputes the proposed adjustments and requests an Appeals office conference. The Appeals office determines that B has no additional tax liability. B requests administrative costs from the date of the 30-day letter. B is not the prevailing party and may not recover administrative costs because all of the proposed adjustments in the case were resolved as of the date that the Internal Revenue Service took a position in the administrative proceeding. (d) Substantially justified In general. (2) Position in courts of appeal. (3) Example. Example. The Internal Revenue Service, in the conduct of a correspondence examination of taxpayer A's individual income tax return, requests substantiation from A of claimed medical expenses. A does not respond to the request and the Internal Revenue Service issues a notice of deficiency. After receiving the notice of deficiency, A presents sufficient information and arguments to convince a tax compliance officer that the notice of deficiency is incorrect and that A owes no tax. The revenue agent then closes the case showing no deficiency. Although A incurred costs after the issuance of the notice of deficiency, A is unable to recover these costs because, as of the date these costs were incurred, A had not presented relevant information under A's control and relevant legal arguments supporting A's position to the appropriate Internal Revenue Service personnel. Accordingly, the position of the Internal Revenue Service was substantially justified at the time the costs were incurred. (4) Included costs. (ii) If the Internal Revenue Service takes a position in an administrative proceeding, as defined in paragraph (b) of this section, and the position is not substantially justified, the taxpayer may be permitted to recover costs incurred before the position was taken, but not before the dates set forth in this paragraph (d)(4). (5) Examples. Example 1. Pursuant to section 6672, taxpayer D receives from the Area Director Collection Operations (Collection) a proposed assessment of trust fund taxes (Trust Fund Recovery Penalty). D requests and is granted Appeals office consideration. Appeals considers the issues and decides to uphold Collection's recommended assessment. Appeals notifies D of this decision in writing. Collection then assesses the tax and notice and demand is made. D timely pays the minimum amount required to commence a court proceeding, files a claim for refund, and furnishes the required bond. Collection disallows the claim, but Appeals, on reconsideration, reverses its original position, thus upholding D's position. If Appeals' initial determination was not substantially justified, D may recover administrative costs incurred on or after the mailing of the proposed assessment of trust fund taxes, because the proposed assessment is the first determination letter that allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals. Example 2. Taxpayer E receives a notice of proposed deficiency (30-day letter). E pays the amount of the proposed deficiency and files a claim for refund. E's claim is considered and a notice of proposed disallowance is issued by the Area Director. E requests and is granted Appeals office consideration. No agreement is reached with Appeals and the Office of Appeals issues a notice of claim disallowance. E does not file suit in a United States District Court but instead contacts the Appeals office to attempt to reverse the decision. E convinces the Appeals officer that the notice of claim disallowance is in error. The Appeals officer then abates the assessment. E may recover reasonable administrative costs if the position taken in the notice of claim disallowance issued by the Office of Appeals was not substantially justified and the other requirements of section 7430 and the regulations thereunder are satisfied. If so, E may recover administrative costs incurred from the mailing date of the 30-day letter because the requirements of paragraph (c)(2) of this section are met. E cannot recover the costs incurred prior to the mailing of the 30-day letter because they were incurred before the administrative proceeding date. (6) Exception. (7) Presumption. applicable published guidance (e) Amount in controversy. (f) Most significant issue or set of issues presented. In general. (2) Example. Example. In the purchase of an ongoing business, Taxpayer F obtains from the previous owner of the business a covenant not to compete for a period of five years. On audit of F's individual income tax return for the year in which the business was acquired, the Internal Revenue Service challenges the basis assigned to the covenant not to compete and a deduction taken as a business expense for a seminar attended by F. Both parties agree that the covenant not to compete is amortizable over a period of five years; however, the Internal Revenue Service asserts that the proper basis of the covenant is $25,000, while F asserts the basis is $50,000 and claims a deduction of $10,000 in the year in which the business was acquired. F deducted $12,000 for the seminar. The Internal Revenue Service determines that the deduction for the seminar should be disallowed entirely. In the notice of deficiency, the Internal Revenue Service adjusts the amortization deduction to reflect the change to the basis of the covenant not to compete, and disallows the seminar expense. Thus, of the two adjustments determined for the year under audit, the adjustment attributable to the disallowance of the seminar is larger than that attributable to the covenant not to compete. Due to the impact on the next succeeding four years, however, the covenant not to compete adjustment is the most significant issue to both F and the Internal Revenue Service. (g) Net worth and size limitations Individuals. (2) Estates and trusts. (3) Others. (A) The taxpayer's net worth does not exceed seven million dollars; and (B) The taxpayer does not have more than 500 employees. (ii) A taxpayer who is a natural person and owns an unincorporated business is subject to the net worth and size limitations contained in paragraph (g)(3)(i) of this section if the tax at issue (or any interest, additional amount, addition to tax, or penalty, together with any costs in addition to the tax) relates directly to the business activities of the unincorporated business. (4) Special rule for charitable organizations and certain cooperatives. (5) Special rule for TEFRA partnership proceedings. (A) The partnership's net worth does not exceed seven million dollars; and (B) The partnership does not have more than 500 employees. (ii) In addition, each partner requesting fees pursuant to section 7430 must meet the appropriate net worth and size limitations set forth in paragraph (g)(1), (g)(2), or (g)(3) of this section. For example, if a partner is an individual, his or her net worth must not exceed two million dollars as of the administrative proceeding date. If the partner is a corporation, its net worth must not exceed seven million dollars and it must not have more than 500 employees. (6) Determining net worth. (h) Determination of prevailing party. [T.D. 9756, 81 FR 10487, Mar. 1, 2016] § 301.7430-6 Effective/applicability dates. Sections 301.7430-2 through 301.7430-6, other than §§ 301.7430-2(b)(2), (c)(3)(i)(B), (c)(3)(i)(E), (c)(3)(ii)(C), (c)(3)(iii)(C), (c)(5), (c)(7), and (e); §§ 301.7430-3(c)(1), (c)(3), (c)(4), and (d); §§ 301.7430-4(b)(3)(i), (b)(3)(ii), (b)(3)(iii)(B), (b)(3)(iii)(C), (b)(3)(iii)(D), (b)(3)(iii)(E), (b)(3)(iii)(F), (c)(2)(ii), (c)(4), and (d); and §§ 301.7430-5(a), (b), (c)(3), (d)(2), (d)(3), (d)(4), (d)(5), (d)(7), (f)(2), (g)(1), (g)(2), (g)(3), (g)(5), and (g)(6) apply to claims for reasonable administrative costs filed with the Internal Revenue Service after December 23, 1992, with respect to costs incurred in administrative proceedings commenced after November 10, 1988. Section 301.7430-2(c)(5) is applicable to costs incurred and services performed in cases in which the petition was filed on or after March 1, 2016, except for the last two sentences, which are applicable March 23, 1993. Sections 301.7430-2(b)(2), and (c)(3)(i)(B) (except the last sentence); 301.7430-4(b)(3)(ii), (b)(3)(iii)(C) (except the first two sentences), and (c)(2)(ii) (except for references to the statutory cap as $125); and 301.7430-5(a) (except the parenthetical of 5(a) and all of 5(a)(1)), and the first and last sentence of (d)(7) are applicable for administrative proceedings commenced after July 30, 1996. Sections 301.7430-1(e), 301.7430-2(c)(2), 7430-3(a)(4) and (b) are applicable with respect to actions taken by the Internal Revenue Service after July 22, 1998. The last sentence of § 301.7430-2(c)(3)(i)(B), the first two sentences of § 301.7430-2(b)(3)(iii)(C), §§ 301.7430-2(c)(3)(i)(E), (c)(3)(ii)(C), (c)(3)(iii)(C), (c)(7), (e); 301.7430-3(c)(1), (c)(3), (c)(4), (d); 301.7430-4(b)(3)(i), (b)(3)(iii)(B), (b)(3)(iii)(E), (b)(3)(iii)(F), (c)(2)(ii) (to the extent it references the statutory cap as $125), (c)(4), (d); the parenthetical of § 301.7430-5(a) and §§ 301.7430-5(a)(1), (b), (d)(2), (d)(3), (d)(4), (d)(5), (d)(7), except the first and last sentences, (f)(2), (g)(1), (g)(2), (g)(3), (g)(5), and (g)(6) apply to costs incurred and services performed in cases in which the petition was filed on or after March 1, 2016. [T.D. 9756, 81 FR 10489, Mar. 1, 2016] § 301.7430-7 Qualified offers. (a) In general. judgment (b) Requirements for treatment as a prevailing party based upon having made a qualified offer In general. (2) Liability under the last qualified offer. (3) Liability pursuant to the judgment. (c) Qualified offer In general. (i) Is made by the taxpayer to the United States during the qualified offer period; (ii) Specifies the offered amount of the taxpayer's liability (determined without regard to interest, unless interest is a contested issue in the proceeding); (iii) Is designated at the time it is made as a qualified offer for purposes of section 7430(g); and (iv) By its terms, remains open during the period beginning on the date it is made and ending on the earliest of the date the offer is rejected, the date the trial begins, or the 90th day after the date the offer is made. (2) To the United States. (A) If the taxpayer's initial pleading in a court proceeding has been answered, the taxpayer may deliver the offer to the office that filed the answer. (B) If the taxpayer's petition in the Tax Court has not yet been answered, the taxpayer may deliver the offer to the Office of Chief Counsel, 1111 Constitution Avenue, NW., Washington, DC 20224. (C) If the taxpayer's initial pleading in any Federal court, other than the Tax Court, has not yet been answered, the taxpayer may deliver the offer to the Attorney General of the United States, 950 Pennsylvania Ave., NW., Washington, DC 20530-0001. For a suit brought in a United States district court, a copy of the offer should also be delivered to the United States Attorney for the district in which the suit was brought. (D) In any other situation, the taxpayer may deliver the offer to the office that sent the taxpayer the first letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals. (ii) Until an offer is received by the appropriate personnel or office under this paragraph (c)(2), it is not considered to have been made, with the following exception. If the offer is deposited in the United States mail, in an envelope or other appropriate wrapper, postage prepaid, properly addressed to the appropriate personnel or office under this paragraph (c)(2), the date of the United States postmark stamped on the cover in which the offer is mailed shall be deemed to be the date of receipt of that offer by the addressee. If any offer is deposited with a designated delivery service, as defined in section 7502(f)(2), in lieu of the United States mail, the provisions of section 7502(f)(1) shall apply in determining whether that offer qualifies for this exception. (3) Specifies the offered amount. (4) Designated at the time it is made as a qualified offer. (5) Remains open. (6) Last qualified offer. (7) Qualified offer period. (8) Interest as a contested issue. (d) [Reserved] (e) Examples. Example 1. Definition of a judgment, The Internal Revenue Service (IRS) audits Taxpayer A for year X and issues a notice of proposed deficiency (30-day letter) proposing to disallow deductions 1, 2, 3, and 4. A files a protest and participates in a conference with the Internal Revenue Service Office of Appeals (Appeals). Appeals allows deduction 1, and issues a statutory notice of deficiency for deductions 2, 3, and 4. A's petition to the United States Tax Court for year X never mentions deduction 2. Prior to trial, A concedes deduction 3. After the trial, the Tax Court issues an opinion allowing A to deduct a portion of deduction 4. As used in paragraph (a) of this section, the term judgment means the cumulative determinations of the court concerning the adjustments at issue in the court proceeding. Thus, the term judgment does not include deduction 1 because it was never at issue in the court proceeding. Similarly, the term judgment does not include deduction 2 because it was not placed at issue by A in the court proceeding. Although deduction 3 was at issue in the court proceeding, it is not included in the term judgment because it was not determined by the court, but rather by concession or settlement. For purposes of section 7430(c)(4)(E), the term judgment only includes the portion of deduction 4 disallowed by the Tax Court. Example 2. Liability under the offer and liability under the judgment, Assume the same facts as in Example 1 Example 1 Example 3. Offer must resolve full liability, Assume the same facts as in Example 2 Example 2, Example 4. Offer must resolve full liability, Assume the same facts as in Example 1, Example 5. Qualified offer rule for multiple tax years, partial resolution offer is a qualified offer, Taxpayer B receives a notice of deficiency for taxable years 2001, 2002, and 2003. For 2001, the statutory notice disallows business deductions. For 2002, the statutory notice increases income for unreported lottery winnings. For 2003, the statutory notice disallows a child care credit. B submits a qualified offer only with respect to 2002. Since the adjustments for the three tax years are separate and distinct, B may submit a qualified offer for a single year. If B's liability under the judgment is equal to or less than the qualified offer with respect to 2002, irrespective of 2001 and 2003, B is a prevailing party for 2002 for purposes of section 7430(g). Assuming B satisfies the remaining requirements of section 7430, B may recover reasonable administrative and litigation costs that are attributable to 2002 from the date of the qualified offer. To qualify for any costs with respect to 2001 or 2003, B must satisfy the requirements of section 7430(c)(4). Example 6. Qualified offer rule for multiple tax years, partial resolution offer is not a qualified offer, Assume the same facts as in Example 5 Example 7. Qualified offer rule for multiple tax years, partial resolution offer is not a qualified offer, Taxpayer C receives a notice of deficiency for taxable years 2001, 2002, and 2003 adjusting the amount of a depreciation deduction due to the Internal Revenue Service's increase to the recovery period. C submits a settlement offer relating only to 2003 that purports to be a qualified offer. C's offer is not a qualified offer because the issue in the three tax years is not separable given that the treatment of the issue in one of the years necessarily affects the treatment of the issue in the other years, and C's offer only applies to one of the years in the proceeding. In cases involving multiple tax years with nonseparable tax issues affecting all tax years, an offer is not a qualified offer unless it resolves the liability for all tax years at issue in the administrative or judicial proceeding. Example 8. Qualified offer rule inapplicable when all issues settled, Taxpayer D receives a notice of proposed deficiency (30-day letter) proposing to disallow both a personal interest deduction in the amount of $10,000 (Adjustment 1), and a charitable contribution deduction in the amount of $2,000 (Adjustment 2), and to include in income $4,000 of unreported interest income (Adjustment 3). D timely files a protest with Appeals. At the Appeals conference, D presents substantiation for the charitable contribution and presents arguments that the interest paid was deductible mortgage interest and that the interest received was held in trust for Taxpayer E. At the conference, D also provides the Appeals officer assigned to D's case a written offer to settle the case for a deficiency of $2,000, exclusive of interest. The offer states that it is a qualified offer for purposes of section 7430(g) and that it will remain open for acceptance by the IRS for a period in excess of 90 days. After considering D's substantiation and arguments, the Appeals Officer accepts the $2,000 offer to settle the case in full. Although D's offer is a qualified offer, because all three adjustments contained in the qualified offer were settled, the qualified offer rule is inapplicable. Example 9. Qualified offer rule inapplicable when all issues contained in the qualified offer are settled; subsequently raised adjustments ignored, Assume the same facts as in Example 8 Example 8, Example 10. Exclusion of adjustments made after the qualified offer is made, Assume the same facts as in Example 9 Example 11. Qualified offer in a refund case, Taxpayer E timely files an amended return claiming a refund of $1,000. This refund claim results from several omitted deductions which, if allowed, would reduce E's tax liability from $10,000 to $9,000. E receives a notice of claim disallowance and files a complaint with the appropriate United States District Court. Subsequently, E makes a qualified offer for a refund of $500. The offer is rejected and after trial the court finds E is entitled to a refund of $700. The change in E's liability from the tax shown on the return that would have resulted from the acceptance of E's qualified offer is a reduction in that liability of $500. The change in E's liability from the tax shown on the return resulting from the judgment of the court is a reduction in that liability of $700. Because E's liability under the qualified offer exceeds E's liability under the judgment, E is a prevailing party for purposes of section 7430. Assuming E satisfies the remaining requirements of section 7430, E may recover those reasonable litigation costs incurred on or after the date of the qualified offer. To qualify for any further award of reasonable administrative and litigation costs E must satisfy the requirements of section 7430(c)(4)(A). Example 12. End of qualified offer period when case is removed from Tax Court trial calendar more than 30 days before scheduled trial calendar, Taxpayer F has petitioned the Tax Court in response to the issuance of a notice of deficiency. F receives notice that the case will be heard on the July trial session in F's city of residence. The scheduled date for the calendar call for that trial session is July 1st. On May 15th, F's motion to remove the case from the July trial session and place it on the October trial session for that city is granted. The scheduled date for the calendar call for the October trial session is October 1st. On May 31st, F delivers a qualified offer to the field attorney assigned to the case. On August 31st, F delivers a revised qualified offer to the field attorney assigned to the case. Neither offer is accepted. The case is tried during the October trial session, and at some time thereafter, a decision is entered by the court. Assume the judgment in the case, as calculated under paragraph (b)(3) of this section, is greater than the amount offered, as calculated under paragraph (b)(2) of this section, in the qualified offer delivered on May 31st, but less than the amount offered, as similarly calculated, in the qualified offer delivered on August 31st. Because the qualified offer period did not end until September 1st, and the offer of August 31st otherwise satisfied the requirements of paragraph (c) of this section, the offer delivered on August 31st is a qualified offer. Furthermore, because the August 31st qualified offer is closer in time to the end of the qualified offer period than the May 31st qualified offer, the August 31st qualified offer is the last qualified offer made by F. Consequently, the August 31st offer is the qualified offer that is compared to the judgment for purposes of determining whether F is a prevailing party under section 7430(c)(4)(E). Because F's liability under the August 31st qualified offer equals or exceeds F's liability under the judgment as calculated under paragraph (b)(3) of this section, F is a prevailing party for purposes of section 7430. Example 13. End of qualified offer period when case is removed from Tax Court trial calendar less than 30 days before scheduled trial calendar, Assume the same facts as in Example 12 Example 14. When a qualified offer can be made and to whom it must be made, During the examination of Taxpayer G's return, the IRS issues a notice of deficiency without having first issued a 30-day letter. After receiving the notice of deficiency G timely petitions the Tax Court. The next day G mails an offer to the office that issued the notice of deficiency, which offer satisfies the requirements of paragraphs (c)(3) through (6) of this section. This is the only written offer made by G during the administrative or court proceeding, and by its terms it is to remain open for a period in excess of 90 days after the date of mailing to the office issuing the notice of deficiency. The office that issued the notice of deficiency transmitted the offer to the field attorney with jurisdiction over the Tax Court case. After answering the case, the field attorney refers the case to Appeals pursuant to Rev. Proc. 87-24 (1987-1 C.B. 720). See § 601.601(d)(2)(ii)( b b Example 15. Substitution of parties permitted under last qualified offer, Taxpayer H receives a 30-day letter and participates in a conference with the Office of Appeals but no agreement is reached. Subsequently, H receives a notice of deficiency and petitions the Tax Court. Upon receiving the Internal Revenue Service's answer to the petition, H sends a qualified offer to the field attorney who signed the answer, by United States mail. The qualified offer stated that it would remain open for more than 90 days. Thirty days after making the offer, H dies and, on motion under Rule 63(a) of the Tax Court's Rules of Practice and Procedure by H's personal representative, I is substituted for H as a party in the Tax Court proceeding. I makes no qualified offers to settle the case and the case proceeds to trial, with the Tax Court issuing an opinion partially in favor of I. Even though I was not a party when the qualified offer was made by H, that offer constitutes a qualified offer because by its terms, when made, it was to remain open until at least the earlier of the date it is rejected, the date of trial, or 90 days. If the liability of I under the qualified offer, as determined under paragraph (b)(2) of this section, equals or exceeds the liability under the judgment of the Tax Court, as determined under paragraph (b)(3) of this section, I will be a prevailing party for purposes of an award of reasonable litigation costs under section 7430. Example 16. Qualified offer may not compromise interest unless it is a contested issue. Taxpayer J receives a notice of deficiency making an adjustment resulting in a deficiency in tax of $6,500 plus a penalty of $500. Interest is not a contested issue in the proceeding. Within the qualified offer period, J submits a written offer to settle the case for a deficiency of $1,000, including all taxes, penalties, and interest. The offer states that it is a qualified offer for purposes of section 7430(g) and that it will remain open for acceptance by the Internal Revenue Service for a period of 90 days. Section 7430(g)(2)(B) and paragraph (c)(3) of this section state that the amount of a qualified offer must be without regard to interest unless interest is at issue in the proceeding. Since J's offer attempts to compromise interest, which is not a contested issue in the proceeding, it is not a qualified offer. Example 17. Qualified offer based on new defense or legal theory. Taxpayers K and L received a statutory notice of deficiency for tax year 2005, a tax year when they were married and filed a joint income tax return. Taxpayer K files a separate petition claiming innocent spouse relief and simultaneously submits an offer purporting to be a qualified offer. The offer states that K is entitled to innocent spouse relief and offers to settle the 2005 deficiency as to K. K's innocent spouse claim was not raised during K and L's audit, nor was it raised during their appeals conference. Additionally, at no time prior to or contemporaneously with submitting the offer did K file with the Internal Revenue Service a Form 8857, Request for Innocent Spouse Relief, or otherwise provide the information specified in § 1.6015-5(a) of this chapter. K's offer is not a qualified offer because K did not file a Form 8857 or otherwise provide substantiation or legal and factual arguments necessary to allow for informed consideration of the merits of the innocent spouse claim as required by paragraph (c)(4) of this section, contemporaneously with the offer or prior to making the offer. (f) Effective/applicability date. March 1, 2016. [T.D. 9106, 68 FR 74850, Dec. 29, 2003; T.D. 9106, 69 FR 4059, Jan. 28, 2004; T.D. 9756, 81 FR 10489, Mar. 1, 2016] § 301.7430-8 Administrative costs incurred in damage actions for violations of section 362 or 524 of the Bankruptcy Code. (a) In general. (b) Prevailing party. (1) The taxpayer satisfies the net worth and size limitations in paragraph (f) of § 301.7430-5; (2) The taxpayer establishes that in connection with the collection of his or her federal tax an officer or employee of the Internal Revenue Service has willfully violated a provision of section 362 or 524 of the Bankruptcy Code; and (3) The position of the Internal Revenue Service in the proceeding was not substantially justified. (c) Administrative proceeding. (d) Costs incurred after filing of bankruptcy petition. (e) Time for filing claim for administrative costs. (2) If the Internal Revenue Service denies the claim for administrative costs in whole or in part, the taxpayer must file a petition with the Bankruptcy Court for administrative costs no later than 90 days after the date on which the denial of the claim for administrative costs is mailed, or otherwise furnished, to the taxpayer. If the Internal Revenue Service does not respond on the merits to a request by the taxpayer for an award of reasonable administrative costs within six months after such request is filed, the Internal Revenue Service's failure to respond may be considered by the taxpayer as a denial of an award of reasonable administrative costs. (3) For purposes of paragraphs (e)(1) and (2) of this section, if the 90th day falls on a Saturday, Sunday, or a legal holiday, the 90-day period shall end on the next succeeding day which is not a Saturday, Sunday, or a legal holiday. The term legal holiday means a legal holiday in the District of Columbia. If the request for costs is to be filed with the Internal Revenue Service at an office of the Internal Revenue Service located outside the District of Columbia, the term legal holiday also means a statewide legal holiday in the state where such office is located. (f) Effective date. [T.D. 9050, 68 FR 14320, Mar. 25, 2003] § 301.7432-1 Civil cause of action for failure to release a lien. (a) In general. (1) The actual, direct economic damages sustained by the taxpayer which, but for the officer's or the employee's knowing or negligent failure to release the lien under section 6325, would not have been sustained; and (2) Costs of the action. The amount of actual, direct economic damages that are recoverable is reduced to the extent such damages reasonably could have been mitigated by the plaintiff. An action for damages filed in federal district court may not be maintained unless the taxpayer has filed an administrative claim pursuant to paragraph (f) of this section and has waited the period required under paragraph (e) of this section. (b) Finding of satisfaction or unenforceability. (1) The date on which the district director of the district in which the taxpayer currently resides or the district in which the lien was filed finds full satisfaction or legal unenforceability; or (2) The date on which such district director receives a request for a certificate of release of lien in accordance with § 401.6325-1(f), together with any information which is reasonably necessary for the district director to conclude that the lien has been fully satisfied or is legally unenforceable. (c) Actual, direct economic damages Definition. (2) Litigation costs and administrative costs not recoverable. see (i) Litigation costs. (A) Court costs; (B) Expenses of expert witnesses in connection with a court proceeding; (C) Cost of any study, analysis, engineering report, test, or project prepared for a court proceeding; and (D) Fees paid or incurred for the services of attorneys, or other individuals authorized to practice before the court, in connection with a court proceeding. (ii) Administrative costs. (A) Any administrative fees or similar charges imposed by the Internal Revenue Service; and (B) Expenses, costs, and fees described in paragraph (c)(2)(i) of this section incurred in pursuing administrative relief. (d) Costs of the action. (1) Fees of the clerk and marshall; (2) Fees of the court reporter for all or any part of the stenographic transcript necessarily obtained for use in the case; (3) Fees and disbursements for printing and witnesses; (4) Fees for exemplification and copies of paper necessarily obtained for use in the case; (5) Docket fees; and (6) Compensation of court appointed experts and interpreters. (e) No civil action in federal district court prior to filing an administrative claim (i) The date a decision is rendered on a claim filed in accordance with paragraph (f) of this section; or (ii) The date 30 days after the date an administrative claim is filed in accordance with paragraph (f) of this section. (2) If an administrative claim is filed in accordance with paragraph (f) of this section during the last 30 days of the period of limitations described in paragraph (i) of this section, the taxpayer may file an action in federal district court anytime after the administrative claim is filed and before the expiration of the period of limitations, without waiting for 30 days to expire or for a decision to be rendered on the claim. (f) Procedures for an administrative claim Manner. (2) Form. (i) The name, current address, current home and work telephone numbers and any convenient times to be contacted, and taxpayer identification number of the taxpayer making the claim; (ii) A copy of the notice of federal tax lien affecting the taxpayer's property, if available; (iii) A copy of the request for release of lien made in accordance with § 401.6325-1(f) of the Code of Federal Regulations, if applicable; (iv) The grounds, in reasonable detail, for the claim (include copies of any available substantiating documentation or correspondence with the Internal Revenue Service); (v) A description of the injuries incurred by the taxpayer filing the claim (include copies of any available substantiating documentation or evidence); (vi) The dollar amount of the claim, including any damages that have not yet been incurred but that are reasonably foreseeable (include copies of any available substantiating documentation or evidence); and (vii) The signature of the taxpayer or duly authorized representative. For purposes of this paragraph, a duly authorized representative is any attorney, certified public accountant, enrolled actuary, or any other person permitted to represent the taxpayer before the Internal Revenue Service who is not disbarred or suspended from practice before the Internal Revenue Service and who has a written power of attorney executed by the taxpayer. (g) Notice of failure to release lien (h) No action in federal district court for any sum in excess of the dollar amount sought in the administrative claim (i) Period of limitations Time of filing. (2) Cause of action accrues. (j) Recovery of costs under section 7430 (k) Effective date [T.D. 8393, 57 FR 3539, Jan. 30, 1992; 57 FR 6061, Feb. 19, 1992] § 301.7433-1 Civil cause of action for certain unauthorized collection actions. (a) In general. (1) The actual, direct economic damages sustained as a proximate result of the reckless or international actions of the officer or employee; and (2) Costs of the action. An action for damages filed in federal district court may not be maintained unless the taxpayer has filed an administrative claim pursuant to paragraph (e) of this section, and has waited for the period required under paragraph (d) of this section. (b) Actual, direct economic damages Definition. (2) Litigation costs and administrative costs not recoverable. see (i) Litigation costs. (A) Court costs; (B) Expenses of expert witnesses in connection with a court proceeding; (C) Cost of any study, analysis, engineering report, test, or project prepared for a court proceeding; and (D) Fees paid or incurred for the services of attorneys, or other individuals authorized to practice before the court, in connection with a court proceeding. (ii) Administrative costs. (A) Any administrative fees or similar charges imposed by the Internal Revenue Service; and (B) Expenses, costs, and fees described in paragraph (b)(2)(i) of this section incurred pursuing administrative relief. (c) Costs of the action. (1) Fees of the clerk and marshall; (2) Fees of the court reporter for all or any part of the stenographic transcript necessarily obtained for use in the case; (3) Fees and disbursements for printing and witnesses; (4) Fees for exemplification and copies of paper necessarily obtained for use in the case; (5) Docket fees; and (6) Compensation of court appointed experts and interpreters. (d) No civil action in federal district court prior to filing an administrative claim (i) The date the decision is rendered on a claim filed in accordance with paragraph (e) of this section; or (ii) The date six months after the date an administrative claim is filed in accordance with paragraph (e) of this section. (2) If an administrative claim is filed in accordance with paragraph (e) of this section during the last six months of the period of limitations described in paragraph (g) of this section, the taxpayer may file an action in federal district court any time after the administrative claim is filed and before the expiration of the period of limitations. (e) Procedures for an administrative claim Manner. (2) Form. (i) The name, current address, current home and work telephone numbers and any convenient times to be contacted, and taxpayer identification number of the taxpayer making the claim; (ii) The grounds, in reasonable detail, for the claim (include copies of any available substantiating documentation or correspondence with the Internal Revenue Service); (iii) A description of the injuries incurred by the taxpayer filing the claim (include copies of any available substantiating documentation or evidence); (iv) The dollar amount of the claim, including any damages that have not yet been incurred but which are reasonably foreseeable (include copies of any available substantiating documentation or evidence); and (v) The signature of the taxpayer or duly authorized representative. For purposes of this paragraph, a duly authorized representative is any attorney, certified public accountant, enrolled actuary, or any other person permitted to represent the taxpayer before the Internal Revenue Service who is not disbarred or suspended from practice before the Internal Revenue Service and who has a written power of attorney executed by the taxpaper. (f) No action in federal district court for any sum in excess of the dollar amount sought in the administrative claim. (g) Period of limitations Time for filing. (2) Right of action accrues. (h) Recovery of costs under section 7430. (i) Effective dates. [T.D. 8392, 57 FR 3536, Jan. 30, 1992; 57 FR 5931, Feb. 18, 1992, as amended by T.D. 9050, 68 FR 14320, Mar. 25, 2003] § 301.7433-2 Civil cause of action for violation of section 362 or 524 of the Bankruptcy Code. (a) In general. (i) Actual, direct economic damages sustained as a proximate result of the willful actions of the officer or employee; and (ii) Costs of the action. (2) An action under this section constitutes the exclusive remedy under the Internal Revenue Code for violations of sections 362 and 524 of the Bankruptcy Code. In addition, taxpayers injured by violations of section 362 of the Bankruptcy Code may maintain actions under section 362(h) of the Bankruptcy Code (relating to an individual injured by a willful violation of the stay). However, any administrative or litigation costs in connection with an action under section 362(h) may be awarded, if at all, only under section 7430 of the Internal Revenue Code. (b) Actual, direct economic damages Definition. (2) Litigation costs and administrative costs not recoverable as actual, direct economic damages. (c) Costs of the action. (d) No civil action in federal bankruptcy court prior to filing an administrative claim In general. (i) The date the decision is rendered on a claim filed in accordance with paragraph (e) of this section; or (ii) The date that is six months after the date an administrative claim is filed in accordance with paragraph (e) of this section. (2) When administrative claim filed in last six months of period of limitations. (e) Procedures for an administrative claim Manner. (2) Form. (i) The name, taxpayer identification number, current address, and current home and work telephone numbers (with an identification of any convenient times to be contacted) of the taxpayer making the claim; (ii) The location of the bankruptcy court in which the underlying bankruptcy case was filed and the case number of the case in which the violation occurred; (iii) A description, in reasonable detail, of the violation (include copies of any available substantiating documentation or correspondence with the Internal Revenue Service); (iv) A description of the injuries incurred by the taxpayer filing the claim (include copies of any available substantiating documentation or evidence); (v) The dollar amount of the claim, including any damages that have not yet been incurred but which are reasonably foreseeable (include copies of any available documentation or evidence); and (vi) The signature of the taxpayer or duly authorized representative. (3) Duly authorized representative defined. (f) No action in bankruptcy court for any sum in excess of the dollar amount sought in the administrative claim. (g) Period of limitations Time for filing. (2) Right of action accrues. (h) Recovery of litigation costs and administrative costs under section 7430 In general. (2) Administrative costs In general. See (ii) Limitation regarding recoverable administrative costs. (i) Effective date. [T.D. 9050, 68 FR 14321, Mar. 25, 2003] The Tax Court procedure § 301.7452-1 Representation of parties. The Commissioner shall be represented by the Chief Counsel for the Internal Revenue Service in the same manner before the Tax Court as he has heretofore been represented in proceedings before such Court. The taxpayer shall continue to be represented in accordance with the rules of practice prescribed by the Court. § 301.7454-1 Burden of proof in fraud and transferee cases. In any proceeding involving the issue whether the petitioner has been guilty of fraud with intent to evade tax, the burden of proof in respect of such issue shall be upon the Commissioner. § 301.7454-2 Burden of proof in foundation manager, etc. cases. (a) Foundation manager. (b) Trustee of a black lung benefit trust. [T.D. 7838, 47 FR 44253, Oct. 7, 1982, as amended by T.D. 8920, 66 FR 2171, Jan. 10, 2001] § 301.7456-1 Administration of oaths and procurement of testimony; production of records of foreign corporations, foreign trusts or estates and nonresident alien individuals. Upon motion and notice by the Commissioner and upon good cause shown therefor, the Tax Court or any division thereof shall order any foreign corporation, foreign trust or estate, or nonresident alien individual, who has filed a petition with the Tax Court, to produce, or, upon satisfactory proof to the Tax Court or any of its divisions that the petitioner is unable to produce, to make available to the Commissioner, and, in either case, to permit the inspection, copying, or photographing of, such books, records, documents, memoranda, correspondence and other papers, wherever situated, as the Tax Court or any of its divisions may deem relevant to the proceedings and which are in the possession, custody or control of the petitioner, or of any person directly or indirectly under his control or having control over him or subject to the same common control. § 301.7457-1 Witness fees. Any witness summoned for the Commissioner or whose deposition is taken under section 7456 shall receive the same fees and mileage as witnesses in courts of the United States. Such fees and mileage and the expense of taking any such deposition shall be paid by the Commissioner out of any moneys appropriated for the collection of internal revenue taxes, and may be paid in advance. § 301.7458-1 Hearings. Notice and opportunity to be heard upon any proceeding instituted before the Tax Court shall be given to the taxpayer and the Commissioner. If an opportunity to be heard upon the proceeding is given before a division of the Tax Court, neither the taxpayer nor the Commissioner shall be entitled to notice and opportunity to be heard before the Tax Court upon review, except upon a specific order of the chief judge. § 301.7461-1 Publicity of proceedings. All reports of the Tax Court and all evidence received by the Tax Court and its divisions, including a transcript of the stenographic report of the hearings, shall be public records open to the inspection of the public; except that after the decision of the Tax Court in any proceeding has become final the Tax Court may, upon motion of the taxpayer or the Commissioner, permit the withdrawal by the party entitled thereto of the originals of books, documents, and records, and of models, diagrams, and other exhibits, introduced in evidence before the Tax Court or any of its divisions; or the Tax Court may, on its own action, make such other disposition thereof as it deems advisable. declaratory judgments relating to qualification of certain retirement plans § 301.7476-1 Declaratory judgments. See the regulations under section 7476 contained in part 1 of this chapter (Income Tax Regulations) for provisions relating to declaratory judgments, for provisions relating to the qualification of an employee as an “interested party”, and for a requirement that the applicant for an advance determination by the Internal Revenue Service of the qualification of certain retirement plans give notice of such application to interested parties. [T.D. 7421, 41 FR 20878, May 21, 1976] § 301.7477-1 Declaratory judgments relating to the value of certain gifts for gift tax purposes. (a) In general. (b) Declaratory judgment procedure In general. (i) The donor requests Appeals consideration in writing within 30 calendar days after the mailing date of the Letter 950-G, or by such later date as determined pursuant to IRS procedures, and the matter is not resolved by Appeals; (ii) The donor does not request Appeals consideration within the time provided in paragraph (b)(1)(i) of this section; or (iii) The IRS does not issue a Letter 950-G in circumstances described in paragraph (d)(4)(iv) of this section. (2) Notice of determination of value. (3) Tax Court petition. (c) Adjustments subject to declaratory judgment procedure. (d) Requirements for declaratory judgment procedure In general. (2) Reporting. return of tax imposed by chapter 12 (3) IRS determination and actual controversy. (4) Exhaustion of administrative remedies In general. (ii) Appeals office consideration. (iii) Request for Appeals office consideration not granted. (iv) No Letter 950-G issued. (A) The IRS decision not to issue the Letter 950-G was not due to actions or inactions of the donor (such as a failure to supply requested information or a current mailing address to the Area Director having jurisdiction over the tax matter); and (B) The donor, or a qualified representative of the donor described in § 601.502 of this chapter, after the filing of a petition in Tax Court for a declaratory judgment pursuant to section 7477, participates fully (within the meaning of paragraph (d)(4)(vi) of this section) in the Appeals office consideration if offered by the IRS while the case is in docketed status. (v) Failure to agree to extension of time for assessment. (vi) Participation in Appeals consideration process. (5) Timely petition in Tax Court. (e) Examples. These examples, however, do not address any other situations that might affect the Tax Court's jurisdiction over the proceeding: Example 1. Exhaustion of administrative remedies, The donor (D) timely files a Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return,” on which D reports D's completed gift of closely held stock. After conducting an examination, the IRS concludes that the value of the stock on the date of the gift is greater than the value reported on the return. Because the amount of D's available applicable credit amount under section 2505 is sufficient to cover any resulting tax liability, no gift tax deficiency will result from the adjustment. D is unable to resolve the matter with the IRS examiner. The IRS sends a Letter 950-G to D informing D of the proposed adjustment. D, within 30 calendar days after the mailing date of the letter, submits a written request for Appeals consideration. During the Appeals process, D provides to the Appeals office all additional information (if any) requested by Appeals relevant to the determination of the value of the stock in a timely fashion. The Appeals office and D are unable to reach an agreement regarding the value of the stock as of the date of the gift. The Appeals office sends D a notice of determination of value (Letter 3569). For purposes of section 7477, the IRS will consider D to have exhausted all available administrative remedies within the IRS, and thus will not contest the allegation in D's petition that D has exhausted all such administrative remedies. Example 2. Exhaustion of administrative remedies, Assume the same facts as in Example 1, Example 3. Exhaustion of administrative remedies, D timely files a Form 709 on which D reports D's completed gifts of interests in a family limited partnership. After conducting an examination, the IRS proposes to adjust the value of the gifts as reported on the return. No gift tax deficiency will result from the adjustments, however, because D has a sufficient amount of available applicable credit amount under section 2505. D declines to consent to extend the time for the assessment of gift tax with respect to the gifts at issue. Because of the pending expiration of the period of limitation on assessment within which a gift tax, if any, could be assessed, the IRS determines that there is not adequate time for Appeals consideration. Accordingly, the IRS mails to D a Letter 3569, even though a Letter 950-G had not first been issued to D. D timely files a petition in Tax Court pursuant to section 7477. After the case is docketed in Tax Court, D is offered the opportunity for Appeals to consider any dispute regarding the determination and participates fully in the Appeals consideration process. However, the Appeals office and D are unable to resolve the issue. The IRS will consider D to have exhausted all administrative remedies available within the IRS, and thus will not assert that D has not exhausted all such administrative remedies. Example 4. Legal issue, D transfers nonvested stock options to a trust for the benefit of D's child. D timely files a Form 709 reporting the transfer as a completed gift for Federal gift tax purposes and complies with the adequate disclosure requirements for purposes of triggering the commencement of the applicable statute of limitations. Pursuant to § 301.6501(c)-1(f)(5), adequate disclosure of a transfer that is reported as a completed gift on the Form 709 will commence the running of the period of limitations for assessment of gift tax on D, even if the transfer is ultimately determined to be an incomplete gift for purposes of § 25.2511-2 of this chapter. After conducting an examination, the IRS concurs with the reported valuation of the stock options, but concludes that the reported transfer is not a completed gift for Federal gift tax purposes. D is unable to resolve the matter with the IRS examiner. The IRS sends a Letter 950-G to D, who timely mails a written request for Appeals consideration. Assuming that the IRS mails to D a Letter 3569 with regard to this transfer, and that D complies with the administrative procedures set forth in this section, including the exhaustion of all administrative remedies available within the IRS, then D may file a petition for declaratory judgment with the Tax Court pursuant to section 7477. Example 5. Transfers in controversy, On April 16, 2007, D timely files a Form 709 on which D reports gifts made in 2006 of fractional interests in certain real property and of interests in a family limited partnership (FLP). However, although the gifts are disclosed on the return, the return does not contain information sufficient to constitute adequate disclosure under § 301.6501(c)-1(e) or (f) for purposes of the application of the statute of limitations on assessment of gift tax with respect to the reported gifts. The IRS conducts an examination and concludes that the value of both the interests in the real property and the FLP interests on the date(s) of the transfers are greater than the values reported on the return. No gift tax deficiency will result from the adjustments because D has a sufficient amount of remaining applicable credit amount under section 2505. However, D does not agree with the adjustments. The IRS sends a Letter 950-G to D informing D of the proposed adjustments in the value of the reported gifts. D, within 30 calendar days after the mailing date of the letter, submits a written request for Appeals consideration. The Appeals office and D are unable to reach an agreement regarding the value of any of the gifts. In the exercise of its discretion, the IRS decides to resolve currently only the value of the real property interests, and to defer the resolution of the value of the FLP interests. On May 28, 2009, the Appeals office sends D a Letter 3569 addressing only the value of the gifts of interests in the real property. Because none of the gifts reported on the return filed on April 16, 2007 were adequately disclosed for purposes of § 301.6501(c)-1(e) or (f), the period of limitations during which the IRS may adjust the value of those gifts has not begun to run. Accordingly, the Letter 3569 is timely mailed. If D timely files a petition in Tax Court pursuant to section 7477 with regard to the value of the interests in the real property, then, assuming the other requirements of section 7477 are satisfied with regard to those interests, the Tax Court's declaratory judgment, once it becomes final, will determine the value of the gifts of the interests in the real property. Because the IRS has not yet put the gift tax value of the interests in the FLP into controversy, the procedure under section 7477 is not yet available with regard to those gifts. (f) Effective/applicability date. [T.D. 9460, 74 FR 46347, Sept. 9, 2009; 74 FR 55136, Oct. 27, 2009] court review of tax court decisions § 301.7481-1 Date when Tax Court decision becomes final; decision modified or reversed. (a) Upon mandate of Supreme Court. (b) Upon mandate of the Court of Appeals. (i) The time allowed for filing a petition for certiorari has expired and no such petition has been duly filed, or (ii) The petition for certiorari has been denied, or (iii) The decision of the U.S. Court of Appeals has been affirmed by the Supreme Court, then the decision of the Tax Court rendered in accordance with the mandate of the U.S. Court of Appeals shall become final on the expiration of 30 days from the time such decision of the Tax Court was rendered, unless within such 30 days either the Commissioner or the taxpayer has instituted proceedings to have such decision corrected so that it will accord with the mandate, in which event the decision of the Tax Court shall become final when so corrected. § 301.7482-1 Courts of review; venue. Under section 7482(b)(2) of the Code, decisions of the Tax Court may be reviewed by any U.S. Court of Appeals which may be designated by the Commissioner and the taxpayer by stipulation in writing. § 301.7483-1 Petition for review. The decision of the Tax Court may be reviewed by a U.S. Court of Appeals as provided in section 7482 of the Code if a petition for such review is filed by either the Commissioner or the taxpayer within 3 months after the decision is rendered. If, however, a petition for such review is so filed by one party to the proceeding, a petition for review of the decision of the Tax Court may be filed by any other party to the proceeding within 4 months after such decision is rendered. § 301.7484-1 Change of incumbent in office. When the incumbent of the office of Commissioner changes, no substitution of the name of his successor shall be required in proceedings pending before any appellate court reviewing the action of the Tax Court. miscellaneous provisions § 301.7502-1 Timely mailing of documents and payments treated as timely filing and paying. (a) General rule. (b) Definitions Document defined. document, (ii) The term does not include returns, claims, statements, or other documents that are required under any provision of the internal revenue laws or the regulations thereunder to be delivered by any method other than mailing. (iii) The term does not include any document filed in any court other than the Tax Court, but the term does include any document filed with the Tax Court, including a petition and a notice of appeal of a decision of the Tax Court. (iv) The term does not include any document that is mailed to an authorized financial institution under section 6302. However, see § 301.7502-2 for special rules relating to the timeliness of deposits and documents required to be filed with deposits. (2) Claims for refund In general. (ii) Example. Example. (A) Taxpayer A, an individual, mailed his 2004 Form 1040, “U.S. Individual Income Tax Return,” on May 10, 2005, but no tax was paid at that time because the tax liability disclosed by the return had been completely satisfied by the income tax that had been withheld on A's wages. On April 15, 2008, A mails, in accordance with the requirements of this section, a Form 1040X, “Amended U.S. Individual Income Tax Return,” claiming a refund of a portion of the tax that had been paid through withholding during 2004. The date of the postmark on the envelope containing the claim for refund is April 15, 2008. The claim is received by the IRS on April 18, 2008. (B) Under section 6511(a), A's claim for refund is timely if filed within three years from May 10, 2005, the date on which A's 2004 return was filed. As a result of the limitations of section 6511(b)(2)(A), if A's claim is not filed within three years after April 15, 2005, the date on which A is deemed under section 6513 to have paid his 2004 tax, A is not entitled to any refund. Because A's claim for refund is postmarked and mailed in accordance with the requirements of this section and is delivered after the last day of the period specified in section 6511(b)(2)(A), section 7502 is applicable and the claim is deemed to have been filed on April 15, 2008. (3) Payment defined. payment, (ii) The term does not include any payment that is required under any provision of the internal revenue laws or the regulations thereunder to be delivered by any method other than mailing. See, for example, section 6302(h) and the regulations thereunder regarding electronic funds transfer. (iii) The term does not include any payment, whether it is made in the form of currency or other medium of payment, unless it is actually received and accounted for. For example, if a check is used as the form of payment, this section does not apply unless the check is honored upon presentation. (iv) The term does not include any payment to any court other than the Tax Court. (v) The term does not include any deposit that is required to be made with an authorized financial institution under section 6302. However, see § 301.7502-2 for rules relating to the timeliness of deposits. (4) Last date or last day prescribed. the last date, or the last day of the period, prescribed for filing the document or making the payment (c) Mailing requirements In general. (i) Envelope and address. (ii) Timely deposited in U.S. mail. (iii) Postmark U.S. Postal Service postmark. (B) Postmark made by other than U.S. Postal Service 1 In general. ( i ( ii ( 2 Document or payment received late. 1 ( i ( ii ( iii ( 3 U.S. and non-U.S. postmarks. (2) Registered or certified mail. (3) Private delivery services. b (d) Electronically filed documents In general. (2) Authorized electronic return transmitters. (3) Definitions Electronic return transmitter. electronic return transmitter (ii) Electronic postmark. electronic postmark (e) Delivery General rule. (2) Exceptions to actual delivery Registered and certified mail. (ii) Equivalents of registered and certified mail. b (f) Claim for credit or refund on late filed tax return In general. (i) The date of the postmark on the envelope is within the period that is three years (plus the period of any extension of time to file) from the day the tax is paid or considered paid (see section 6513), and the claim for credit or refund is delivered after this three-year period; and (ii) The conditions of section 7502 are otherwise met. (2) Filing date of late filed return. (3) Example. Example. (i) Taxpayer A, an individual, mailed his 2001 Form 1040, “U.S. Individual Income Tax Return,” on April 15, 2005, claiming a refund of amounts paid through withholding during 2001. The date of the postmark on the envelope containing the return and claim for refund is April 15, 2005. The return and claim for refund are received by the Internal Revenue Service (IRS) on April 18, 2005. Amounts withheld in 2001 exceeded A's tax liability for 2001 and are treated as paid on April 15, 2002, pursuant to section 6513. (ii) Even though the date of the postmark on the envelope is after the due date of the return, the claim for refund and the late filed return are treated as filed on the postmark date for purposes of this paragraph (f). Accordingly, the return will be treated as filed on April 15, 2005. In addition, the claim for refund will be treated as timely filed on April 15, 2005. Further, the entire amount of the refund attributable to withholding is allowable as a refund under section 6511(b)(2)(A). (g) Effective date In general. (2) Claim for credit or refund on late filed tax return. (3) Electronically filed documents. (4) Registered or certified mail as the means to prove delivery of a document. [T.D. 8932, 66 FR 2258, Jan. 11, 2001, as amended by T.D. 9543, 76 FR 52563, Aug. 23, 2011] § 301.7503-1 Time for performance of acts where last day falls on Saturday, Sunday, or legal holiday. (a) In general. (b) Legal holidays. legal holiday legal holiday legal holiday [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7309, 39 FR 11537, Mar. 29, 1974; T.D. 8681, 61 FR 42179, Aug. 14, 1996] § 301.7505-1 Sale of personal property acquired by the United States. (a) Sale In general. (2) Time, place, manner, and terms of sale. (i) Time, notice, and place of sale. (ii) Rejection of bids and adjournment of sale. (iii) Liquidated damages. (3) Agreement to bid. (4) Terms of payment. (i) Payment in full upon acceptance of the highest bid, without regard to the amount of such bid, or (ii) If the aggregate price of all property purchased by a successful bidder at the sale is more than $200, an initial payment of $200 or 20 percent of the purchase price, whichever is the greater, and payment of the balance (including all costs incurred for the protection or preservation of the property subsequent to the sale and prior to final payment) within a specified period, not to exceed one month from the date of the sale. (5) Method of sale. (i) At public auction, at which open competitive bids shall be received, or (ii) At public sale under sealed bids. (6) Sales under sealed bids. (i) Invitation to bidders. (ii) Form for use by bidders. (iii) Remittance with bid. (iv) Time for receiving and opening bids. (v) Consideration of bids. (vi) Withdrawal of bids. (7) Payment of bid price. (8) Delivery and removal of personal property. (9) Certificate of sale. (b) Accounting. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7305, 39 FR 9952, Mar. 15, 1974] § 301.7506-1 Administration of real estate acquired by the United States. (a) Persons charged with. (b) Sale. (1) Property purchased at sale under levy. (2) Notice of sale. (3) Time and place of sale. (4) Rejection of bids and adjournment of sale. (5) Liquidated damages. (6) Agreement to bid. (7) Terms. (i) Payments in full upon acceptance of the highest bid, or (ii) If the price of the property purchased by a successful bidder at the sale is more than $200, an initial payment of $200 or 20 percent of the purchase price, whichever is the greater, and payment of the balance within a specified period, not to exceed one month from the date of the sale. (8) Method of sale. (i) At public auction, at which open competitive bids shall be received, or (ii) At public sale under sealed bids. (9) Sales under sealed bids. (i) Invitation to bidders. (ii) Form for use by bidders. (iii) Remittance with bid. (iv) Time for receiving and opening bids. (v) Consideration of bids. (vi) Withdrawal of bids. (10) Payment of bid price. (11) Deed. (c) Lease. (d) Release to debtor. (e) Accounting. (f) Authority of Commissioner. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7027, 35 FR 3806, Feb. 27, 1970; T.D. 7305, 39 FR 9953, Mar. 15, 1974] § 301.7507-1 Banks and trust companies covered. (a) Section 7507 applies to any national bank, or bank or trust company organized under State law, a substantial portion of the business of which consists of receiving deposits and making loans and discounts, and which has— (1) Ceased to do business by reason of insolvency or bankruptcy, or (2) Been released or discharged from its liability to its depositors for any part of their deposit claims, and the depositors have accepted in lieu thereof a lien upon its subsequent earnings or claims against its assets either (i) segregated and held by it for benefit of the depositors or (ii) transferred to an individual or corporate trustee or agent who liquidates, holds or operates the assets for the benefit of the depositors. (b) As used in this section and §§ 301.7507-2 to 301.7507-11, inclusive: (1) The term bank, (2) The terms statute of limitations limitations (3) The term segregated assets (4) The term ceased to do business (i) Transfers assets and liabilities to a Bridge Bank in a transfer described in § 1.597-4 of this chapter; (ii) Transfers assets and liabilities to any person in a transaction to which section 381(a) applies or in which the transferee receives property with a transferred basis; (iii) Transfers assets or liabilities to any person in a transaction in which Federal Financial Assistance (as defined in section 597) is provided to any party to the transaction, unless all the Federal Financial Assistance is deposit insurance under § 301.7507-9(d); or (iv) Transfers assets or liabilities to any person in a transaction similar to any transaction described in paragraphs (b)(4)(i) through (iii) of this section. This paragraph (b)(4) applies to taxable years ending on or after April 22, 1992. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 8641, 60 FR 66105, Dec. 21, 1995] § 301.7507-2 Scope of section generally. (a) Purpose. (b) Requisites of application. (c) Interest. (d) Limitations on immunity. § 301.7507-3 Segregated or transferred assets. (a) In general. (b) Corporate transferees. § 301.7507-4 Unsegregated assets. (a) Depositors' claims against assets. (2) If the unsegregated assets of the bank are subject to any portion of the depositors' claims, such unsegregated assets will be within the immunity of the section only to the extent necessary to satisfy the claims to which such assets are subject. Taxes will still be collectible from the unsegregated assets to the extent of the amount by which the total value of such assets exceeds the liability to depositors to be satisfied therefrom. Therefore, if, for example, in the case of a bank having a tax liability, not previously immune under the section, of $50,000, the deposit claims against the bank are in the amount of $75,000, and the assets available for satisfaction of deposit claims amount to $100,000, the $50,000 tax is collectible to the extent of the $25,000 excess of assets over deposit claims. Collection is not to be postponed until the full amount of the tax is collectible. (b) Depositors' claims against earnings. § 301.7507-5 Earnings. (a) Availability for tax collection. (b) Tax computation. Example. (1) An agreement, executed in the year 1954 between a bank and its depositors, provides (i) that certain assets are to be segregated for the benefit of the depositors who have waived (as claims against unsegregated assets of the bank) a percentage of the deposits; (ii) that 40 percent of the bank's net earnings, for years beginning with 1954, from unsegregated assets, shall be paid to the depositors until the portion of their claims waived with respect to unsegregated assets of the bank has been paid; and (iii) that the unsegregated assets shall not be subject to depositors' claims. The net income of the bank for the calendar year 1954 is $10,000, $4,000 produced by the segregated, and $6,000 produced by the unsegregated assets. Such amount shall be considered the net earnings for the purpose of section 7507 in computing the portion of the earnings to be paid to depositors. The bank has an outstanding tax liability for prior years of $7,000. The income tax liability of the bank for 1954 is 30 percent of $10,000, or $3,000, making a total outstanding tax liability of $10,000. The portion of the earnings of the bank for 1954 remaining after provision for depositors is $3,600 ($6,000 less 40 percent thereof, or $2,400). It will be assumed that of the total outstanding tax liability of $10,000, $3,600 may be assessed and collected, leaving $6,400 to be collected from any excess of the segregated assets after claims of depositors against such segregated assets have been paid in full. No part of the $6,400 immune from collection from 1954 earnings may be collected thereafter from unsegregated assets of the bank or earnings therefrom, so that except for any possible surplus of the segregated assets the $6,400 is uncollectible. (2) In the year 1955, the earnings are again $10,000, $4,000 from segregated and $6,000 from unsegregated assets, as in 1954. However, the return filed shows income of $5,000 and a tax liability of $1,500. An investigation shows the true income to be $10,000, on which the tax is $3,000. The full $3,000 will be assumed to be collectible. The $600 difference between $3,600 (the excess of earnings from unsegregated assets over the amount going to the depositors), and the $3,000 tax for 1955, is not available for collection of the tax for prior years, which became immune as described above, but may be available for collection of tax for subsequent years. (c) No significance attaches to the selection of the years 1954 and 1955 in the example set forth in paragraph (b) of this section. The rules indicated by the example are equally applicable to subsequent or prior years not excluded by limitations. § 301.7507-6 Abatement and refund. (a) An assessment or collection, no matter when made, if contrary to section 7507, is subject to abatement or refund within the applicable statutory period of limitations. (b) Collection from a bank within section 7507(b) which diminishes assets necessary for payment of depositors, if made prior to agreement with depositors, is not contrary to the section, and affords no ground for refund. (c) Any abatement or refund is subject to existing statutory periods of limitation, which periods are not suspended or extended by section 7507. In order to secure a refund of any taxes paid for any taxable year during the period of immunity the bank must file claim therefor. § 301.7507-7 Establishment of immunity. (a) The mere allegation of insolvency, or that depositors have claims against segregated or other assets or earnings, will not of itself secure immunity from tax collection. It must be affirmatively established to the satisfaction of the district director that collection of tax will be contrary to section 7507. See also § 301.7507-8. (b) Any claim, by a bank, of immunity under section 7507(b), shall be supported by a statement, under oath or affirmation, which shall show: (1) The total of depositors' claims outstanding, and (2) separately and in detail, the amount of each of the following, and the amount of depositors' claims properly chargeable against each: (i) Segregated or transferred assets; (ii) unsegregated assets; (iii) estimated future average annual earnings and profits; (iv) amount collectible from shareholders; and (v) any other resources available for payment of depositors' claims. The detail shall show the full amount of depositors' claims chargeable against each of the items in subdivisions (i) to (v), inclusive, of this subparagraph even though part or all of the amount chargeable against a particular item is also chargeable against some other item or items. There shall also be filed a copy of any agreement between the bank and its depositors, and any other agreement or document bearing on the claim of immunity. The statement shall show the basis, as “book,” “market,” etc., of valuation of the assets. § 301.7507-8 Procedure during immunity. (a) Statements to be filed. (b) Failure to file. § 301.7507-9 Termination of immunity. (a) In general. (2) As to unsegregated assets of a bank within section 7507(b), immunity terminates only as to taxes thereafter becoming due. When taxes are once immune from collection, the immunity as to unsegregated assets is absolute. But see paragraph (a) of § 301.7507-4. (b) General creditors. (c) Shareholder liability. (d) Deposit insurance. (e) Notice by bank. (f) Payment by bank. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 8641, 60 FR 66105, Dec. 21, 1995] § 301.7507-10 Collection of tax after termination of immunity. If, in the case of a bank within section 7507(b), segregated assets (including earnings therefrom), in excess of those necessary for payment of outstanding deposits become available, such excess of segregated assets shall be applied toward satisfaction of accumulated outstanding taxes previously immune under the section, and not barred by the statute of limitations. But see § 301.7507-3. Where sufficient segregated or unsegregated assets are available, statutory interest shall be collected with the tax. When unsegregated assets or earnings therefrom previously immune become available for tax collection, they will be available only for collection of taxes (including interest and other additions) becoming due after immunity ceases. See the example in paragraph (b) of § 301.7507-5. § 301.7507-11 Exception of employment taxes. The immunity granted by section 7507 does not apply to taxes imposed by chapter 21 or chapter 23 of the Code. § 301.7508-1 Time for performing certain acts postponed by reason of service in a combat zone. (a) General rule. (b) Effective date. [T.D. 8911, 65 FR 78411, Dec. 15, 2000] § 301.7508A-1 Postponement of certain tax-related deadlines by reasons of a federally declared disaster or terroristic or military action. (a) Scope. (b) Postponed deadlines In general. (i) Whether any or all of the acts described in paragraph (c) of this section were performed within the time prescribed; (ii) The amount of interest, penalty, additional amount, or addition to the tax; and (iii) The amount of credit or refund. (2) Effect of postponement period. (3) Interaction between postponement period and extensions of time to file or pay In general. (ii) Original due date prior to, but extended due date within, the postponement period. (4) Due date not extended. (5) Additional relief. (c) Acts for which a period may be disregarded Acts performed by taxpayers. (i) Filing any return of income tax, estate tax, gift tax, generation-skipping transfer tax, excise tax (other than firearms tax (chapter 32, section 4181); harbor maintenance tax (chapter 36, section 4461); and alcohol and tobacco taxes (subtitle E)), or employment tax (including income tax withheld at source and income tax imposed by subtitle C or any law superseded thereby); (ii) Paying any income tax, estate tax, gift tax, generation-skipping transfer tax, excise tax (other than firearms tax (chapter 32, section 4181); harbor maintenance tax (chapter 36, section 4461); and alcohol and tobacco taxes (subtitle E)), employment tax (including income tax withheld at source and income tax imposed by subtitle C or any law superseded thereby), any installment of those taxes (including payment under section 6159 relating to installment agreements), or of any other liability to the United States in respect thereof, but not including deposits of taxes pursuant to section 6302 and the regulations under section 6302; (iii) Making contributions to a qualified retirement plan (within the meaning of section 4974(c)) under section 219(f)(3), 404(a)(6), 404(h)(1)(B), or 404(m)(2); making distributions under section 408(d)(4); recharacterizing contributions under section 408A(d)(6); or making a rollover under section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3); (iv) Filing a petition with the Tax Court, or for review of a decision rendered by the Tax Court; (v) Filing a claim for credit or refund of any tax; (vi) Bringing suit upon a claim for credit or refund of any tax; and (vii) Any other act specified in a revenue ruling, revenue procedure, notice, announcement, news release, or other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2) of this chapter). (2) Acts performed by the government. (i) Assessing any tax; (ii) Giving or making any notice or demand for the payment of any tax, or with respect to any liability to the United States in respect of any tax; (iii) Collecting by the Secretary, by levy or otherwise, of the amount of any liability in respect of any tax; (iv) Bringing suit by the United States, or any officer on its behalf, in respect of any liability in respect of any tax; (v) Allowing a credit or refund of any tax; and (vi) Any other act specified in a revenue ruling, revenue procedure, notice, or other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2) of this chapter). (d) Definitions Affected taxpayer (i) Any individual whose principal residence (for purposes of section 1033(h)(4)) is located in a covered disaster area; (ii) Any business entity or sole proprietor whose principal place of business is located in a covered disaster area; (iii) Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area; (iv) Any individual whose principal residence (for purposes of section 1033(h)(4)), or any business entity or sole proprietor whose principal place of business is not located in a covered disaster area, but whose records necessary to meet a deadline for an act specified in paragraph (c) of this section are maintained in a covered disaster area; (v) Any estate or trust that has tax records necessary to meet a deadline for an act specified in paragraph (c) of this section and that are maintained in a covered disaster area; (vi) The spouse of an affected taxpayer, solely with regard to a joint return of the husband and wife; or (vii) Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose records necessary to meet a deadline for an act specified in paragraph (c) of this section are located in the covered disaster area; (viii) Any individual visiting the covered disaster area who was killed or injured as a result of the disaster; or (ix) Any other person determined by the IRS to be affected by a federally declared disaster (within the meaning of section 1033(h)(3)). (2) Covered disaster area (3) Postponement period (e) Notice of postponement of certain acts. (f) Examples. Example 1. (i) Corporation X, a calendar year taxpayer, has its principal place of business in County M in State W. Pursuant to a timely filed request for extension of time to file, Corporation X's 2008 Form 1120, “U.S. Corporation Income Tax Return,” is due on September 15, 2009. Also due on September 15, 2009, is Corporation X's third quarter estimated tax payment for 2009. Corporation X's 2009 third quarter Form 720, “Quarterly Federal Excise Tax Return,” and third quarter Form 941, “Employer's Quarterly Federal Tax Return,” are due on October 31, 2009. In addition, Corporation X has an employment tax deposit due on September 15, 2009. (ii) On September 1, 2009, a hurricane strikes County M in State W. On September 7, 2009, certain counties in State W (including County M) are determined to be disaster areas within the meaning of section 1033(h)(3) that are eligible for assistance by the Federal government under the Stafford Act. Also on September 7, 2009, the IRS determines that County M in State W is a covered disaster area and publishes guidance announcing that the time period for affected taxpayers to file returns, pay taxes, and perform other time-sensitive acts falling on or after September 1, 2009, and on or before November 30, 2009, has been postponed to November 30, 2009, pursuant to section 7508A. (iii) Because Corporation X's principal place of business is in County M, Corporation X is an affected taxpayer. Accordingly, Corporation X's 2008 Form 1120 will be timely if filed on or before November 30, 2009. Corporation X's 2009 third quarter estimated tax payment will be timely if made on or before November 30, 2009. In addition, pursuant to paragraph (c) of this section, Corporation X's 2009 third quarter Form 720 and third quarter Form 941 will be timely if filed on or before November 30, 2009. However, because deposits of taxes are excluded from the scope of paragraph (c) of this section, Corporation X's employment tax deposit is due on September 15, 2009. In addition, Corporation X's deposits relating to the third quarter Form 720 are not postponed. Absent reasonable cause, Corporation X is subject to the failure to deposit penalty under section 6656 and accrual of interest. Example 2. The facts are the same as in Example 1, Example 3. The facts are the same as in Example 2 Example 4. (i) H and W, individual calendar year taxpayers, intend to file a joint Form 1040, “U.S. Individual Income Tax Return,” for the 2008 taxable year and are required to file a Schedule H, “Household Employment Taxes.” The joint return is due on April 15, 2009. H and W's principal residence is in County M in State Q. (ii) On April 2, 2009, a severe ice storm strikes County M. On April 5, 2009, certain counties in State Q (including County M) are determined to be disaster areas within the meaning of section 1033(h)(3) that are eligible for assistance by the Federal government under the Stafford Act. Also on April 5, 2009, the IRS determines that County M in State Q is a covered disaster area and publishes guidance announcing that the time period for affected taxpayers to file returns, pay taxes, and perform other time-sensitive acts falling on or after April 2, 2009, and on or before June 2, 2009, has been postponed to June 2, 2009. (iii) Because H and W's principal residence is in County M, H and W are affected taxpayers. April 15, 2009, the due date for the filing of H and W's 2008 Form 1040 and Schedule H, falls within the postponement period described in the IRS published guidance. Thus, H and W's return will be timely if filed on or before June 2, 2009. If H and W request an extension of time to file under section 6081 on or before June 2, 2009, the extension is deemed to have been filed by April 15, 2009. Thus, H and W's return will be timely if filed on or before October 15, 2009. (iv) April 15, 2009, is also the due date for the payment due on the return. This date falls within the postponement period described in the IRS published guidance. Thus, the payment of tax due with the return will be timely if paid on or before June 2, 2009 the last day of the postponement period. If H and W fail to pay the tax due on the 2008 Form 1040 by June 2, 2009, and do not receive an extension of time to pay under section 6161, H and W will be subject to failure to pay penalties and accrual of interest beginning on June 3, 2009. Example 5. (i) H and W, residents of County D in State G, intend to file an amended return to request a refund of 2008 taxes. H and W timely filed their 2008 income tax return on April 15, 2009. Under section 6511(a), H and W's amended 2008 tax return must be filed on or before April 16, 2012 (because April 15, 2012 falls on a Sunday, H and W's amended return was due to be filed on April 16, 2012). (ii) On April 2, 2012, an earthquake strikes County D. On April 6, 2012, certain counties in State G (including County D) are determined to be disaster areas within the meaning of section 1033(h)(3) that are eligible for assistance by the Federal government under the Stafford Act. Also on April 6, 2012, the IRS determines that County D in State G is a covered disaster area and publishes guidance announcing that the time period for affected taxpayers to file returns, pay taxes, and perform other time-sensitive acts falling on or after April 2, 2012, and on or before October 2, 2012, has been postponed to October 2, 2012. (iii) Under paragraph (c) of this section, filing a claim for refund of tax is one of the taxpayer acts for which the IRS may disregard a period of up to one year. The postponement period for this disaster begins on April 2, 2012, and ends on October 2, 2012. Accordingly, H and W's claim for refund for 2008 taxes will be timely if filed on or before October 2, 2012. Moreover, in applying the lookback period in section 6511(b)(2)(A), which limits the amount of the allowable refund, the period from October 2, 2012, back to April 2, 2012, is disregarded under paragraph (b)(1)(iii) of this section. Thus, if the claim is filed on or before October 2, 2012, amounts deemed paid on April 15, 2009, under section 6513(b), such as estimated tax and tax withheld from wages, will have been paid within the lookback period of section 6511(b)(2)(A). Example 6. (i) A is an unmarried, calendar year taxpayer whose principal residence is located in County W in State Q. A intends to file a Form 1040 for the 2008 taxable year. The return is due on April 15, 2009. A timely files Form 4868, “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.” Due to A's timely filing of Form 4868, the extended filing deadline for A's 2008 tax return is October 15, 2009. Because A timely requested an extension of time to file, A will not be subject to the failure to file penalty under section 6651(a)(1), if A files the 2008 Form 1040 on or before October 15, 2009. However, A failed to pay the tax due on the return by April 15, 2009 and did not receive an extension of time to pay under section 6161. Absent reasonable cause, A is subject to the failure to pay penalty under section 6651(a)(2) and accrual of interest. (ii) On September 30, 2009, a blizzard strikes County W. On October 5, 2009, certain counties in State Q (including County W) are determined to be disaster areas within the meaning of section 1033(h)(3) that are eligible for assistance by the Federal government under the Stafford Act. Also on October 5, 2009, the IRS determines that County W in State Q is a covered disaster area and announces that the time period for affected taxpayers to file returns, pay taxes, and perform other time-sensitive acts falling on or after September 30, 2009, and on or before December 2, 2009, has been postponed to December 2, 2009. (iii) Because A's principal residence is in County W, A is an affected taxpayer. Because October 15, 2009, the extended due date to file A's 2008 Form 1040, falls within the postponement period described in the IRS's published guidance, A's return is timely if filed on or before December 2, 2009. However, the payment due date, April 15, 2009, preceded the postponement period. Thus, A will continue to be subject to failure to pay penalties and accrual of interest during the postponement period. Example 7. (i) H and W, individual calendar year taxpayers, intend to file a joint Form 1040 for the 2008 taxable year. The joint return is due on April 15, 2009. After credits for taxes withheld on wages and estimated tax payments, H and W owe tax for the 2008 taxable year. H and W's principal residence is in County J in State W. (ii) On March 3, 2009, severe flooding strikes County J. On March 6, 2009, certain counties in State W (including County J) are determined to be disaster areas within the meaning of section 1033(h)(3) that are eligible for assistance by the Federal government under the Stafford Act. Also on March 6, 2009, the IRS determines that County J in State W is a covered disaster area and publishes guidance announcing that the time period for affected taxpayers to file returns, pay taxes, and perform other time-sensitive acts falling on or after March 3, 2009, and on or before June 1, 2009, has been postponed to June 1, 2009. (iii) Because H and W's principal residence is in County J, H and W are affected taxpayers. April 15, 2009, the due date for filing the 2008 joint return, falls within the postponement period described in the IRS published guidance. Therefore, H and W's joint return without extension will be timely if filed on or before June 1, 2009. Similarly, H and W's 2008 income taxes will be timely paid if paid on or before June 1, 2009. (iv) On April 30, 2009, H and W timely file Form 4868, “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.” H and W's extension will be deemed to have been filed on April 15, 2009. Thus, H and W's 2008 income tax return will be timely if filed on or before October 15, 2009. (v) H and W did not request or receive an extension of time to pay. Therefore, the payment of tax due with the 2008 joint return will be timely if paid on or before June 1, 2009. If H and W fail to pay the tax due on the 2008 joint return by June 1, 2009, H and W will be subject to failure to pay penalties and accrual of interest beginning on June 2, 2009. Example 8. (i) H and W, individual calendar year taxpayers, entered into an installment agreement with respect to their 2006 tax liabilities. H and W's installment agreement required H and W to make regularly scheduled installment payments on the 15th day of the month for the next 60 months. H and W's principal residence is in County K in State X. (ii) On May 1, 2009, severe flooding strikes County K. On May 5, 2009, certain counties in State X including County K) are determined by the Federal government to be disaster areas within the meaning of section 1033(h)(3), and are eligible for assistance under the Stafford Act. Also on May 5, 2009, the IRS determines that County K in State X is a covered disaster area and publishes guidance announcing that the time period for affected taxpayers to file returns, pay taxes, and perform other time-sensitive acts falling on or after May 1, 2009 and on or before July 1, 2009, has been postponed to July 1, 2009. (iii) Because H and W's principal residence is in County K, H and W are affected taxpayers. Pursuant to the IRS's grant of relief under section 7508A, H and W's installment agreement payments that become due during the postponement period are suspended until after the postponement period has ended. H and W will be required to resume payments no later than August 15, 2009. Skipped payments will be tacked on at the end of the installment payment period. Because the installment agreement pertains to prior year tax liabilities, interest and penalties will continue to accrue. H and W may, however, be entitled to abatement of the failure to pay penalties incurred during the postponement period upon establishing reasonable cause. (g) Mandatory 60-day postponement In general. (2) Acts postponed. (i) Making contributions to a qualified retirement plan (within the meaning of section 4974(c)) under section 219(f)(3), 404(a)(6), 404(h)(1)(B), or 404(m)(2); (ii) Making distributions under section 408(d)(4); (iii) Recharacterizing contributions under section 408A(d)(6); and (iv) Making a rollover under section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3). (3) Calculation of mandatory 60-day postponement period In general. (ii) Limitations on the mandatory 60-day postponement period. (B) In the event the Secretary determines to postpone time-sensitive acts pursuant to a declaration establishing a federally declared disaster for purposes of section 7508A that does not specify an incident date, there is no mandatory postponement period under section 7508A(d). In such cases, the only postponement period will be the period determined by the Secretary under section 7508A(a) or (b). (4) Examples. (i) Example (1). Federal Register (ii) Example (2). Federal Register (iii) Example (3). Federal Register Federal Register (iv) Example (4). (h) Applicability dates In general. (2) Paragraph (g) of this section. [T.D. 8911, 65 FR 78411, Dec. 15, 2000; 66 FR 10365, Feb. 15, 2001; T.D. 9443, 74 FR 2371, Jan. 15, 2009; 74 FR 66915, Dec. 17, 2009; T.D. 9950, 86 FR 31150, June 11, 2021] § 301.7510-1 Exemption from tax of domestic goods purchased for the United States. For any regulations under section 7510, see the applicable regulations with respect to the various taxes. § 301.7512-1 Separate accounting for certain collected taxes. (a) Scope. (1) The following taxes imposed by subtitle C of the Code in respect of wages or compensation paid after February 11, 1958, for pay periods beginning after such date: (i) The employee tax imposed by section 3101 of chapter 21 (Federal Insurance Contributions Act), (ii) The employee tax imposed by section 3201 of chapter 22 (Railroad Retirement Tax Act), and (iii) The income tax required to be withheld on wages by section 3402 of chapter 24 (Collection of Income Tax at Source on Wages); and (2) The following taxes imposed by chapter 33 of the Code in respect of taxable payments made, except as otherwise specifically provided in this subparagraph, after February 11, 1958: (i) The taxes imposed by section 4231 (1), (2), and (3) on amounts paid for admissions, and the tax imposed by section 4231(6) on amounts paid for admission, refreshment, service, or merchandise, at any roof garden, cabaret, or other similar place, to the extent that such tax on amounts paid on or after January 1, 1959, is required to be collected by the proprietor of the roof garden, cabaret, or similar place from a concessionaire in such establishment, (ii) The taxes imposed by section 4241 on amounts paid as club dues, (iii) The taxes imposed by section 4251 on amounts paid for communications services or facilities, (iv) The tax imposed by section 4261 on amounts paid for transportation of persons and the tax imposed by section 4271 on amounts paid before August 1, 1958, for the transportation of property, and (v) The tax imposed by section 4286 on amounts collected for the use of safe deposit boxes. (b) Requirement. (1) Collect, at the times and in the manner provided by the law and the regulations in respect of the various taxes described in paragraph (a) of this section, all of the taxes described in such paragraph which become collectible by him after receipt of such notice; (2) Deposit the taxes so collected, not later than the end of the second banking day after collection, with a bank, as defined in section 581, in a separate account established in accordance with paragraph (c) of this section; and (3) Keep in such account the taxes so deposited until payment thereof is made to the United States as required by the law and the regulations in respect of such taxes. The separate accounting requirements contained in subparagraphs (1), (2), and (3) of this paragraph (b), are applicable, in the case of the taxes described in paragraph (a)(1) of this section, to taxes with respect to wages or compensation paid after receipt of the notice from the district director, irrespective of whether such wages or compensation was earned prior to or after receipt of the notice; and, in the case of the taxes described in paragraph (a)(2) of this section, to taxes with respect to taxable payments made after receipt of the notice from the district director, irrespective of whether the transactions with respect to which such payments were made occurred prior to or after receipt of the notice. (c) Trust fund account. (d) Notice. (e) Cancellation of notice. (f) Penalties. § 301.7513-1 Reproduction of returns and other documents. (a) In general. (b) Safeguards By private contractor. (i) The films or photoimpressions, and reproductions made therefrom, shall be used only for the purpose of carrying out the provisions of the contract, and information contained in such material shall be treated as confidential and shall not be divulged or made known in any manner to any person except as may be necessary in the performance of the contract; (ii) All the services shall be performed under the supervision of the person with whom the contract is made or his responsible employees; (iii) All material received for processing and all processed and reproduced material shall be kept in a locked and fireproof compartment in a secure place when not being worked upon; (iv) All spoilage of reproductions made from the film or photoimpressions supplied to the contractor shall be destroyed, and a statement under the penalties of perjury shall be submitted to the Internal Revenue Service that such destruction has been accomplished; and (v) All film, photoimpressions, and reproductions made therefrom, shall be transmitted to the Internal Revenue Service by personal delivery, first-class mail, parcel post, or express. (2) By Federal agency. (3) Inspection. (4) Criminal sanctions. (c) Legal status of reproductions. § 301.7514-1 Seals of office. (a) Establishment of seals Commissioner of Internal Revenue. (2) Establishment of uniform seal. (ii) The uniform seal may be used by any office of internal revenue set forth in paragraphs (a) (3) through (8) of this section, and any other office designated by the Commissioner to use a seal, including the following internal revenue offices resulting from a reorganization of the IRS that will be implemented beginning October 1, 1995: Office of Regional Commissioner for: Midstates Region (Dallas) Northeast Region (Manhattan) Southeast Region (Atlanta) Western Region (San Francisco) Office of District Director for: Arkansas-Oklahoma District (Oklahoma City) Brooklyn District Central California District (San Jose) Connecticut-Rhode Island District (Hartford) Delaware-Maryland District (Baltimore) Georgia District (Atlanta) Gulf Coast District (New Orleans) Houston District Illinois District (Chicago) Indiana District (Indianapolis) Kansas-Missouri District (St. Louis) Kentucky-Tennessee District (Nashville) Los Angeles District Manhattan District Michigan District (Detroit) Midwest District (Milwaukee) New Jersey District (Newark) New England District (Boston) North Central District (St. Paul) North Florida District (Jacksonville) North-South Carolina District (Greensboro) North Texas District (Dallas) Northern California District (Oakland) Ohio District (Cincinnati) Pacific-Northwest District (Seattle) Pennsylvania District (Philadelphia) Rocky Mountain District (Denver) South Florida District (Fort Lauderdale) South Texas District (Austin) Southern California District (Laguna Niguel) Southwest District (Phoenix) Upstate New York District (Buffalo) Virginia-West Virginia District (Richmond) Office of Director of Computing Centers in: Detroit Memphis Martinsburg Office of Director of Submission Processing Centers in: Austin Cincinnati Memphis Kansas City Ogden Office of Director of Customer Service Centers in: Andover Atlanta Austin Baltimore Brookhaven Buffalo Cincinnati Cleveland Dallas Denver Fresno Indianapolis Jacksonville Kansas City Memphis Nashville Ogden Philadelphia Pittsburgh Portland, OR Richmond St. Louis Seattle. (3) District Directors of Internal Revenue. (ii) The offices of District Director of Internal Revenue for which seals are established in subdivision (i) of this subparagraph are as follows: District Director of Internal Revenue, Birmingham, Ala. District Director of Internal Revenue, Anchorage, Alaska. District Director of Internal Revenue, Phoenix, Ariz. District Director of Internal Revenue, Little Rock, Ark. District Director of Internal Revenue, Los Angeles, Calif. District Director of Internal Revenue, San Francisco, Calif. District Director of Internal Revenue, Denver, Colo. District Director of Internal Revenue, Hartford, Conn. District Director of Internal Revenue, Wilmington, Del. District Director of Internal Revenue, Ft. Lauderdale, Fla. District Director of Internal Revenue, Jacksonville, Fla. District Director of Internal Revenue, Atlanta, Ga. District Director of Internal Revenue, Honolulu, Hawaii. District Director of Internal Revenue, Boise, Idaho. District Director of Internal Revenue, Chicago, Ill. District Director of Internal Revenue, Springfield, Ill. District Director of Internal Revenue, Indianapolis, Ind. District Director of Internal Revenue, Des Moines, Iowa. District Director of Internal Revenue, Wichita, Kans. District Director of Internal Revenue, Louisville, Ky. District Director of Internal Revenue, New Orleans, La. District Director of Internal Revenue, Augusta, Maine. District Director of Internal Revenue, Baltimore, Md. District Director of Internal Revenue, Boston, Mass. District Director of Internal Revenue, Detroit, Mich. District Director of Internal Revenue, St. Paul, Minn. District Director of Internal Revenue, Jackson, Miss. District Director of Internal Revenue, St. Louis, Mo. District Director of Internal Revenue, Helena, Mont. District Director of Internal Revenue, Omaha, Nebr. District Director of Internal Revenue, Portsmouth, N.H. District Director of Internal Revenue, Newark, N.J. District Director of Internal Revenue, Albuquerque, N. Mex. District Director of Internal Revenue, Albany, N.Y. District Director of Internal Revenue, Brooklyn, N.Y. District Director of Internal Revenue, Buffalo, N.Y. District Director of Internal Revenue, Manhattan, New York, N.Y. District Director of Internal Revenue, Greensboro, N.C. District Director of Internal Revenue, Fargo, N. Dak. District Director of Internal Revenue, Cincinnati, Ohio. District Director of Internal Revenue, Cleveland, Ohio. District Director of Internal Revenue, Oklahoma City, Okla. District Director of Internal Revenue, Portland, Oreg. District Director of Internal Revenue, Philadelphia, Pa. District Director of Internal Revenue, Pittsburgh, Pa. District Director of Internal Revenue, Providence, R.I. District Director of Internal Revenue, Columbia, S.C. District Director of Internal Revenue, Aberdeen, S. Dak. District Director of Internal Revenue, Nashville, Tenn. District Director of Internal Revenue, Austin, Tex. District Director of Internal Revenue, Dallas, Tex. District Director of Internal Revenue, Houston, Tex. District Director of Internal Revenue, Salt Lake City, Utah. District Director of Internal Revenue, Richmond, Va. District Director of Internal Revenue, Burlington, Vt. District Director of Internal Revenue, Seattle, Wash. District Director of Internal Revenue, Parkersburg, W. Va. District Director of Internal Revenue, Milwaukee, Wis. District Director of Internal Revenue, Cheyenne, Wyo. (iii) There is hereby established an official seal in and for each of the offices of district director of internal revenue listed in paragraph (a)(2)(iv) of this section. The seal is described as follows, and one such seal is illustrated below: A circle within which shall appear that part of the seal of the Treasury Department represented by the shield. Exterior to this circle and within a circumscribed circle in the form of a rope shall appear in the upper part the words “DISTRICT DIRECTOR OF INTERNAL REVENUE” and in the lower part the location of the office for which the seal is established. (iv) The offices of district director of internal revenue for which seals are established in paragraph (a)(2)(iii) of this section are as follows: District Director of Internal Revenue, Laguna Niguel, CA., District Director of Internal Revenue, Sacramento, CA., District Director of Internal Revenue, San Jose Dist. (v) There is hereby established an official seal in and for the office of district director of internal revenue listed in paragraph (a)(2)(vi) of this section. The seal is described as follows, and illustrated below: A circle within which shall appear the Internal Revenue emblem. Exterior to this circle and within a circumscribed circle in the form of a rope shall appear in the upper part the words “DISTRICT DIRECTOR OF INTERNAL REVENUE” and in the lower part the location of the office for which the seal is established. (vi) The office of district director of internal revenue for which the seal is established in paragraph (a)(2)(v) of this section is as follows: District Director of Internal Revenue, Las Vegas, Nevada. (4) Assistant Commissioner (International). (5) Regional Commissioners of Internal Revenue. (ii) The offices of the Regional Commissioner of Internal Revenue for which seals are established in subdivision (i) of this subparagraph are as follows: Regional Commissioner of Internal Revenue, Central Region. Regional Commissioner of Internal Revenue, Mid-Atlantic Region. Regional Commissioner of Internal Revenue, Midwest Region. Regional Commissioner of Internal Revenue, North-Atlantic Region. Regional Commissioner of Internal Revenue, Southeast Region. Regional Commissioner of Internal Revenue, Southwest Region. Regional Commissioner of Internal Revenue, Western Region. (6) Directors of Internal Revenue Service Centers. (ii) The offices of Director of Internal Revenue Service Center for which seals are established in subdivision (i) of this subparagraph are as follows: Director, Internal Revenue Service Center, Central Region, Covington, Ky. Director, Internal Revenue Service Center, Mid-Atlantic Region, Philadelphia, Pa. Director, Internal Revenue Service Center, Midwest Region, Kansas City, Mo. Director, Internal Revenue Service Center, North-Atlantic Region, Andover, Mass. Director, Internal Revenue Service Center, North-Atlantic Region, Brookhaven, N.Y. Director, Internal Revenue Service Center, Southeast Region, Chamblee, Ga. Director, Internal Revenue Service Center, Southeast Region, Memphis, Tenn. Director, Internal Revenue Service Center, Southwest Region, Austin, Tex. Director, Internal Revenue Service Center, Southwest Region, Ogden, Utah Director, Internal Revenue Service Center, Western Region, Fresno, Calif. (7) Director of Internal Revenue Computing Center. (8) Director of Internal Revenue Compliance Center. (b) Custody of seal. (c) Use of official seal. (1) No such seal shall be affixed to material to be published in the Federal Register, (2) The seal of the office of a District Director of Internal Revenue or the Director of International Operations shall not be affixed to the certification of copies of books, records, papers, writings, or documents in his custody in any case in which, pursuant to Executive order, Treasury decision, or part 601 of this chapter (Statement of Procedural Rules), such copies may be furnished to applicants only by the Commissioner. (d) Judicial notice. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 6933, 32 FR 15483, Nov. 7, 1967; T.D. 6974, 33 FR 14779, Oct. 3, 1968; T.D. 7147, 36 FR 20510, Oct. 23, 1971; T.D. 8414, 57 FR 15015, Apr. 24, 1992; T.D. 8625, 60 FR 54945, Oct. 27, 1995] § 301.7515-1 Special statistical studies and compilations on request. The Commissioner is authorized within his discretion, upon written request of any person and payment by such person of the cost of the work to be performed, to make special statistical studies and compilations involving data from returns, declarations, statements, or other documents required by the Code or regulations or from records established or maintained in connection with the administration and enforcement of the Code; to engage in any such special study or compilation jointly with the party or parties requesting it; and to furnish transcripts of any such study or compilation. The requests for services should be addressed to the Commissioner of Internal Revenue, Attention: PR, Washington, D.C. 20224. The requests should describe fully the nature of the study or compilation desired, giving detailed specifications for all tables to be prepared, and should include a general statement regarding the use to be made of the data requested. § 301.7516-1 Training and training aids on request. The Commissioner is authorized, within his discretion, upon written request, to admit employees and officials of any State, the Commonwealth of Puerto Rico, any possession of the United States, any political subdivision or instrumentality of any of the foregoing, the District of Columbia, or any foreign government to training courses conducted by the Internal Revenue Service, and to supply them with texts and other training aids. Requests for such training or training aids should be addressed to the Commissioner of Internal Revenue, Washington, D.C. 20224, Attention: A: T, except that requests involving officials or visitors of foreign governments should be addressed to the Commissioner of Internal Revenue, Washington, D.C. 20224. Attention: C: FA. The Commissioner may require payment from the party or parties making the request of a reasonable fee not to exceed the cost of the training and training aids supplied pursuant to such request. § 301.7517-1 Furnishing on request of statement explaining estate or gift valuation. (a) In general. (b) Effective date Estates of decedents. (2) Gifts. (3) Generation-skipping transfer. [T.D. 7757, 46 FR 6930, Jan. 22, 1981] Discovery of Liability and Enforcement of Title Examination and Inspection § 301.7601-1 Canvass of districts for taxable persons and objects. Each district director shall, to the extent he deems it practicable, cause officers or employees under his supervision and control to proceed, from time to time, through his district and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care and management of any objects with respect to which any tax is imposed. [T.D. 7297, 38 FR 34803, Dec. 19, 1973] § 301.7602-1 Examination of books and witnesses. (a) In general. (b) Summons In general. (2) Officer or employee of the IRS. (3) Participation of a person described in section 6103(n) IRS contractor access to books and records obtained by the IRS administratively In general. (B) Persons providing expert evaluation and assistance. ( 1 ( 2 ( 3 (C) Hiring of certain non-government attorneys. (ii) IRS contractor participation in an IRS summons interview In general. (B) Court reporters, translators, and interpreters are not barred from asking questions. (c) Proscription on issuing of administrative summons when a Justice Department referral is in effect In general. (2) Justice Department referral in effect. (i) The Secretary recommends, within the meaning of this paragraph, that the Attorney General either commence a grand jury investigation of or criminal prosecution of such person for any alleged offense connected with the administration or enforcement of the internal revenue laws, or (ii) The Attorney General (or Deputy Attorney General or Assistant Attorney General) under section 6103(h)(3)(B) requests in writing that the Secretary disclose a return of, or return information relating to, such person. The request must set forth that the need for disclosure is for the purpose of a grand jury investigation of or potential or pending criminal prosecution of such person for any alleged offense connected with the administration or enforcement of the internal revenue laws. The referral is effective at the time the document recommending criminal prosecution or grand jury investigation is signed by the Secretary or upon the Secretary's receipt of the section 6103(h)(3)(B) request. (3) Cessation of Justice Department referral. (i) When the Secretary receives written notification from the Attorney General that the Justice Department: (A) Will not prosecute that person for any offense connected with the administration or enforcement of the internal revenue laws that gave rise to the referral under paragraph (2)(i) of this section, or (B) Will not authorize a grand jury investigation of that person with respect to such offense, or (C) Will discontinue any grand jury investigation of that person with respect to such offense; (ii) When a final disposition with respect to a criminal proceeding brought against that person has been made; or (iii) When the Secretary receives written notification from the Attorney General, Deputy Attorney General, or an Assistant Attorney General, that the Justice Department will not prosecute such person for any offense connected with the administration or enforcement of the internal revenue laws, based upon a previous request for disclosure under section 6103(h)(3)(B). (4) Taxable years and taxes imposed by separate chapters of the Code treated separately In general. (ii) Examples. Example 1. A Justice Department referral is in effect for D's criminal evasion of income tax for the taxable year 1979. The Commission may issue a summons respecting D's 1980 criminal and/or civil tax liability. The Commissioner may not issue a summons respecting D's 1979 income tax liability. Example 2. A referral has been made to the Department of Justice for the criminal prosecution of F with regard to F's income tax liability for the taxable year 1978. The Commissioner may issue a summons respecting F's gift tax liability for the taxable year 1978. Example 3. A referral has been made to the Department of Justice for a grand jury investigation respecting G's 1980 income tax liability. The Commissioner may issue a summons related to an investigation of G's liability for Federal Insurance Contribution Act (FICA) taxes for the taxable year 1980. Example 4. A referral has been made to the Department of Justice respecting J's criminal evasion of windfall profit tax for all quarters of the calendar year 1982. The Commissioner may issue a summons respecting J's liability for highway motor vehicle use tax covering the same periods. Example 5. A referral has been made to the Department of Justice for a grand jury investigation respecting L's 1983 income tax liability. The Commissioner may issue a summons related to the investigation of L's liability under sections 6700 (abusive tax shelter promoter penalty) and 7408 of the Code for his conduct during 1983. (d) Applicability date. [T.D. 8091, 51 FR 23053, June 25, 1986, as amended by T.D. 9015, 67 FR 57331, Sept. 10, 2002; T.D. 9195, 70 FR 16711, Apr. 1, 2005; T.D. 9778, 81 FR 45414, July 14, 2016; T.D. 9952, 86 FR 49924, Sept. 7, 2021] § 301.7602-2 Third party contacts. (a) In general. (b) Third-party contact defined. (1) Is initiated by an IRS employee; (2) Is made to a person other than the taxpayer; (3) Is made with respect to the determination or collection of the tax liability of such taxpayer; (4) Discloses the identity of the taxpayer being investigated; and (5) Discloses the association of the IRS employee with the IRS. (c) Elements of third-party contact explained Initiation by an IRS employee Explanation Initiation. (B) IRS employee. (ii) Examples. Example 1. An IRS employee receives a message to return an unsolicited call. The employee returns the call and speaks with a person who reports information about a taxpayer who is not meeting his tax responsibilities. Later, the employee makes a second call to the person and asks for more information. The first call is not a contact initiated by an IRS employee. Just because the employee must return the call does not change the fact that it is the other person, and not the employee, who initiated the contact. The second call, however, is initiated by the employee and so meets the first element. Example 2. An IRS employee wants to hire an appraiser to help determine the value of a taxpayer's oil and gas business. At the initial interview, the appraiser signs an agreement that prohibits him from disclosing return information of the taxpayer except as allowed by the agreement. Once hired, the appraiser initiates a contact by calling an industry expert in Houston and discusses the taxpayer's business. The IRS employee's contact with the appraiser does not meet the first element of a third-party contact because the appraiser is treated, for section 7602(c) purposes only, as an employee of the IRS. For the same reason, however, the appraiser's call to the industry expert does meet the first element of a third-party contact. Example 3. A revenue agent trying to contact the taxpayer to discuss the taxpayer's pending examination twice calls the taxpayer's place of business. The first call is answered by a receptionist who states that the taxpayer is not available. The IRS employee leaves a message with the receptionist stating only his name and telephone number, and asks that the taxpayer call him. The second call is answered by the office answering machine, on which the IRS employee leaves the same message. Neither of these phone calls meets the first element of a third-party contact because the IRS employee is trying to initiate a communication with the taxpayer and not a person other than the taxpayer. The fact that the IRS employee must either speak with a third party (the receptionist) or leave a message on the answering machine, which may be heard by a third party, does not mean that the employee is initiating a communication with a person other than the taxpayer. Both the receptionist and the answering machine are only intermediaries in the process of reaching the taxpayer. (2) Person other than the taxpayer Explanation. (A) An officer or employee of the IRS, as defined in paragraph (c)(1)(i)(B) of this section, acting within the scope of his or her employment; (B) Any computer database or website regardless of where located and by whom maintained, including databases or web sites maintained on the Internet or in county courthouses, libraries, or any other real or virtual site; or (C) A current employee, officer, or fiduciary of a taxpayer when acting within the scope of his or her employment or relationship with the taxpayer. Such employee, officer, or fiduciary shall be conclusively presumed to be acting within the scope of his or her employment or relationship during business hours on business premises. (ii) Examples: Example 1. A revenue agent examining a taxpayer's return speaks with another revenue agent who has previously examined the same taxpayer about a recurring issue. The revenue agent has not contacted a “person other than the taxpayer” within the meaning of section 7602(c). Example 2. A revenue agent examining a taxpayer's return speaks with one of the taxpayer's employees on business premises during business hours. The employee is conclusively presumed to be acting within the scope of his employment and is therefore not a “person other than the taxpayer” for section 7602(c) purposes. Example 3. A revenue agent examining a corporate taxpayer's return uses a commercial online research service to research the corporate structure of the taxpayer. The revenue agent uses an IRS account, logs on with her IRS user name and password, and uses the name of the corporate taxpayer in her search terms. The revenue agent later explores several Internet web sites that may have information relevant to the examination. The searches on the commercial online research service and Internet websites are not contacts with “persons other than the taxpayer.” (3) With respect to the determination or collection of the tax liability of such taxpayer Explanation With respect to. (B) Determination or collection. (C) Tax liability. tax liability (D) Such taxpayer. (ii) Examples. Example 1. As part of a compliance check on a return preparer, an IRS employee visits the preparer's office and reviews the preparer's client files to ensure that the proper forms and records have been created and maintained. This contact is not a third-party contact “with respect to” the preparer's clients because it is not for the purpose of determining the tax liability of the preparer's clients, even though the agent might discover information that would lead the agent to recommend an examination of one or more of the preparer's clients. Example 2. A revenue agent is assigned to examine a taxpayer's return, which was prepared by a return preparer. As in all such examinations, the revenue agent asks the taxpayer routine questions about what information the taxpayer gave the preparer and what advice the preparer gave the taxpayer. As a result of the examination, the revenue agent recommends that the preparer be investigated for penalties under section 6694 or 6695. Neither the examination of the taxpayer's return nor the questions asked of the taxpayer are “with respect to” the determination of the preparer's tax liabilities within the meaning of section 7602(c) because the purpose of the contacts was to determine the taxpayer's tax liability, even though the agent discovered information that may result in a later investigation of the preparer. Example 3. To help identify taxpayers in the florist industry who may not have filed proper returns, an IRS employee contacts a company that supplies equipment to florists and asks for a list of its customers in the past year in order to cross-check the list against filed returns. The employee later contacts the supplier for more information about one particular florist who the employee believes did not file a proper return. The first contact is not a contact with respect to the determination of the tax liability of “such taxpayer” because no particular taxpayer has been identified for investigation at the time the contact is made. The later contact, however, is with respect to the determination of the tax liability of “such taxpayer” because a particular taxpayer has been identified. The later contact is also “with respect to” the determination of that taxpayer's liability because, even though no examination has been opened on the taxpayer, the information sought could lead to an examination. Example 4. A revenue officer, trying to collect the trust fund portion of unpaid employment taxes of a corporation, begins to investigate the liability of two corporate officers for the section 6672 Trust Fund Recovery Penalty (TFRP). The revenue officer obtains the signature cards for the corporation's bank accounts from the corporation's bank. The contact with the bank to obtain the signature cards is a contact with respect to the determination of the two identified corporate officers' tax liabilities because it is directly connected to the purpose of determining a tax liability of two identified taxpayers. It is not, however, a contact with respect to any other person not already under investigation for TFRP liability, even though the signature cards might identify other potentially liable persons. Example 5. The IRS is asked to rule on whether a certain pension plan qualifies under section 401 so that contributions to the pension plan are excludable from the employees' incomes under section 402 and are also deductible from the employer's income under section 404. Contacts made with the plan sponsor (and with persons other than the plan sponsor) are not contacts “with respect to” the determination of the tax liabilities of the pension plan participants because the purpose of the contacts is to determine the status of the plan, even though that determination may affect the participants' tax liabilities. Example 6(a). The IRS audits a TEFRA partnership at the partnership (entity) level pursuant to sections 6221 through 6233. The tax treatment of partnership items is at issue, but the respective tax liabilities of the partners may be affected by the results of the TEFRA partnership audit. With respect to the TEFRA partnership, contacts made with employees of the partnership acting within the scope of their duties or any partner are not section 7602(c) contacts because they are considered the equivalent of contacting the partnership. Contacts relating to the tax treatment of partnership items made with persons other than the employees of the partnership who are acting within the scope of their duties or the partners are section 7602(c) contacts with respect to the TEFRA partnership, and reasonable advance notice should be provided by sending the appropriate Letter 3164 to the partnership's tax matters partner (TMP). Individual partners who are merely affected by the partnership audit but who are not identified as subject to examination with respect to their individual tax liabilities need not be sent Letters 3164. Example 6(b). In the course of an audit of a TEFRA partnership at the partnership (entity) level, the IRS intends to contact third parties regarding transactions between the TEFRA partnership and specific, identified partners. In addition to the partnership's TMP, the specific, identified partners should also be provided advance notice of any third-party contacts relating to such transactions. (4) Discloses the identity of the taxpayer being investigated Explanation. (ii) Examples. Example 1. A revenue agent seeking to value the taxpayer's condominium calls a real estate agent and asks for a market analysis of the taxpayer's condominium, giving the unit number of the taxpayer's condominium. The revenue agent has revealed the identity of the taxpayer, regardless of whether the revenue agent discloses the name of the taxpayer, because the real estate agent can readily ascertain the taxpayer's identity from the address given. Example 2. A revenue officer seeking to value the taxpayer's condominium calls a real estate agent and, without identifying the taxpayer's unit, asks for the sales prices of similar units recently sold and listing prices of similar units currently on the market. The revenue officer has not revealed the identity of the taxpayer because the revenue officer has not given any information from which the real estate agent can readily ascertain the taxpayer's identity. (5) Discloses the association of the IRS employee with the IRS. (d) Pre-contact notice In general. (i) Mailed to the taxpayer's last known address; (ii) Given in person; (iii) Left at the taxpayer's dwelling or usual place of business; or (iv) Actually received by the taxpayer. (2) Pre-contact notice not required. (e) Post-contact reports Requested reports. (2) Contents of record In general. (ii) Special rule for employees. entity (3) Post-contact record not required. (4) Examples. Example 1. An IRS employee trying to find a specific taxpayer's assets in order to collect unpaid taxes talks to the owner of a marina. The employee asks whether the taxpayer has a boat at the marina. The owner gives his name as John Doe. The employee may record the contact as being with John Doe and is not required by this regulation to collect or record any other identifying information. Example 2. An IRS employee trying to find a specific taxpayer and his assets in order to collect unpaid taxes talks to a person at 502 Fernwood. The employee asks whether the taxpayer lives next door at 500 Fernwood, as well as where the taxpayer works, what kind of car the taxpayer drives and whether the camper parked in front of 500 Fernwood belongs to the taxpayer. The person does not disclose his name. The employee may record the contact as being with a person at 502 Fernwood. If the employee then makes the same inquiries of another person on the street in front of 500 Fernwood, and does not learn that person's name, the latter contact may be reported as being with a person on the street in front of 500 Fernwood. Example 3. An IRS employee examining a return obtains loan documents from a bank where the taxpayer applied for a loan. After reviewing the documents, the employee talks with the loan officer at the bank who handled the application. The employee has contacted only one “person other than the taxpayer.” The bank and not the loan officer is the “person other than the taxpayer” for section 7602(c) purposes. The contact with the loan officer is treated as a contact with the bank because the loan officer was an employee of the bank and was acting within the scope of her employment with the bank. Example 4. An IRS employee issues a summons to a third party with respect to the determination of a taxpayer's liability and properly follows the procedures for such summonses under section 7609, which requires that a copy of the summons be given to the taxpayer. This third-party contact need not be maintained in a record of contacts available to the taxpayer because providing a copy of the third-party summons to the taxpayer pursuant to section 7609 satisfies the post-contact recording and reporting requirement of this section. Example 5. An IRS employee serves a levy on a third party with respect to the collection of a taxpayer's liability. The employee provides the taxpayer with a copy of the notice of levy form that shows the identity of the third party. This third-party contact need not be maintained in a record of contacts available to the taxpayer because providing a copy of the notice of levy to the taxpayer satisfies the post-contact recording and reporting requirement of this section. (f) Exceptions Authorized by taxpayer Explanation. (A) The contact is with the taxpayer's authorized representative, that is, a person who is authorized to speak or act on behalf of the taxpayer, such as a person holding a power of attorney, a corporate officer, a personal representative, an executor or executrix, or an attorney representing the taxpayer; or (B) The taxpayer or the taxpayer's authorized representative requests or approves the contact. (ii) No prevention or delay of contact. (2) Jeopardy Explanation. (A) Attempts by any person to conceal, remove, destroy, or alter records or assets that may be relevant to any tax examination or collection activity; (B) Attempts by any person to prevent other persons, through intimidation, bribery, or collusion, from communicating any information that may be relevant to any tax examination or collection activity; or (C) Attempts by any person to flee, or otherwise avoid testifying or producing records that may be relevant to any tax examination or collection activity. (ii) Record of contact. (3) Reprisal In general. (ii) Examples. Example 1. An IRS employee seeking to collect unpaid taxes is told by the taxpayer that all the money in his and his brother's joint bank account belongs to the brother. The IRS employee contacts the brother to verify this information. The brother refuses to confirm or deny the taxpayer's statement. He states that he does not believe that reporting the contact to the taxpayer would result in harm to anyone but further states that he does not want his name reported to the taxpayer because it would appear that he gave information. This contact is not excepted from the statute merely because the brother asks that his name be left off the list of contacts. Example 2. Assume the same facts as in Example 1, Example 3. An IRS employee is examining a joint return of a husband and wife, who recently divorced. From reading the court divorce file, the IRS employee learns that the divorce was acrimonious and that the ex-husband once violated a restraining order issued to protect the ex-wife. This information provides good cause for the IRS employee to believe that reporting contacts which might disclose the ex-wife's location may cause reprisal against any person. Therefore, when the IRS employee contacts the ex-wife's new employer to verify salary information provided by the ex-wife, the IRS employee has good cause not to report that contact to the ex-husband, regardless of whether the new employer expresses concern about reprisal against it or its employees. (4) Pending criminal investigations IRS criminal investigations. (A) Made against a particular, identified taxpayer for the primary purpose of evaluating the potential for criminal prosecution of that taxpayer; and (B) Made by an IRS employee whose primary duties include either identifying or investigating criminal violations of the law. (ii) Other criminal investigations. (5) Governmental entities. office (6) Confidential informants. (7) Nonadministrative contacts Explanation. (ii) Examples. Example 1. An attorney for the Office of Chief Counsel needs to contact a potential witness for an upcoming Tax Court proceeding involving the 1997 and 1998 taxable years of the taxpayer. Section 7602(c) does not apply because the contact is being made in the course of a pending court proceeding. Example 2. While a Tax Court case is pending with respect to a taxpayer's 1997 and 1998 income tax liabilities, a revenue agent is conducting an examination of the taxpayer's excise tax liabilities for the fiscal year ending 1999. Any third-party contacts made by the revenue agent with respect to the excise tax liabilities would be subject to the requirements of section 7602(c) because the Tax Court proceeding does not involve the excise tax liabilities. Example 3. A taxpayer files a Chapter 7 bankruptcy petition and receives a discharge. A revenue officer contacts a third party in order to determine whether the taxpayer has any exempt assets against which the IRS may take collection action to enforce its federal tax lien. At the time of the contact, the bankruptcy case has not been closed. Although the bankruptcy proceeding remains pending, the purpose of this contact relates to potential collection action by the IRS, a matter not before or related to the bankruptcy court proceeding. (g) Effective Date. [T.D. 9028, 67 FR 77421, Dec. 18, 2002] § 301.7603-1 Service of summons. (a) In general Hand delivery or delivery to place of abode. (2) Summonses issued to third-party recordkeepers. (b) Persons who may serve a summons. (c) Effect of certificate of service. (d) Sufficiency of description of summoned records. (e) Records. records (f) Effective/applicability date. [T.D. 9395, 73 FR 23344, Apr. 30, 2008] § 301.7603-2 Third-party recordkeepers. (a) Definitions Accountant. (2) Attorney. (3) Credit cards Person extending credit through credit cards. person extending credit through the use of credit cards or similar devices (ii) Devices similar to credit cards. (iii) Debit cards. (4) Enrolled agent. (5) Owner or developer of certain computer code and data. (b) When third-party recordkeeper status arises In general. (i) Records relating to non-credit card transactions, such as a cash sale by the issuer to a holder of the issuer's credit card; or (ii) Records relating to transactions involving the use of another issuer's credit card. (2) Examples. Example 1. V issues a credit card (the V card) that is honored by R, a retailer. When using the V card, C, a customer, signs a sales slip in triplicate. C, R, and V each retain one copy. Only the copy held by V is held by a third-party recordkeeper under section 7603(b)(2), even though R may issue its own credit card. Example 2. R, a retailer, issues its own credit card (the R card) to C, a customer. When C makes a credit purchase from R using the R card, C signs a sales slip in duplicate. C and R each retain one copy. Because R keeps the copy in its capacity as credit card issuer, as well as in its capacity as a retailer, it is a third-party recordkeeper under section 7603(b)(2) with respect to its copy of the sales slip. (c) Effective/applicability date. [T.D. 9395, 73 FR 23345, Apr. 30, 2008] § 301.7604-1 Enforcement of summons. (a) In general. (b) Persons who may apply for an attachment. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7297, 38 FR 34803, Dec. 19, 1973] § 301.7605-1 Time and place of examination. (a) Time and place of examination to be reasonable In general. (2) International examinations. (3) Criminal investigations. (b) Time of examination Date and time of examination. (2) Date of appearance when summons is used. (c) Type of examination In general. i.e., i.e., (2) Office examination held in location other than Service office in case of clear need. (d) Place of examination In general. (2) Office examinations In general. (ii) Exception. (iii) Travel considerations. (3) Field examinations In general. (ii) Exception for certain small businesses. (iii) Site visitations. (e) Requests by taxpayers to change place of examination In general. (i) The location of the taxpayer's current residence; (ii) The location of the taxpayer's current principal place of business; (iii) The location at which the taxpayer's books, records, and source documents are maintained; (iv) The location at which the Service can perform the examination most efficiently; (v) The Service resources available at the location to which the taxpayer has requested a transfer; and (vi) Other factors that indicate that conducting the examination at a particular location could pose undue inconvenience to the taxpayer. (2) Circumstances in which the Service normally will permit transfers. (i) Office examination (B) If the current residence of a taxpayer, in the case of an individual or sole proprietorship, or the location where a taxpayer entity's books, records, and source documents are maintained, is in a district other than the district where the examination has been scheduled, the Service normally will agree to transfer the examination to the closest Service office in the other district. (ii) Field examinations (B) If, in the case of an individual, a sole proprietorship, or a taxpayer entity, the taxpayer's books, records, and source documents are maintained at a location other than the location where the examination has been scheduled, the Service will agree to transfer the examination to the location where the taxpayer's books, records, and source documents are maintained. (3) Transfer for convenience of taxpayer's representative. (4) Transfer within thirteen months of expiration of limitations period. (5) Transfer to office with insufficient resources. (f) Safety of Service officers and employees. (g) Transfers initiated by Service. (h) Restrictions on examination of taxpayer. (i) Restriction on examination of churches In general. (2) Books of account. (3) Religious activities. (4) Effective date. (j) Effective date. (Secs. 1441(c)(4) (80 Stat. 1553; 26 U.S.C. 1441(c)(4)), 3401(a)(6) (80 Stat. 1554; 26 U.S.C. 3401(a)(6)), and 7805 (68A Stat. 917; 26 U.S.C. 7805), Internal Revenue Code of 1954) [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7146, 36 FR 20599, Oct. 27, 1971; T.D. 7977, 49 FR 36836, Sept. 20, 1984; T.D. 8297, 55 FR 12346, Apr. 3, 1990; T.D. 8469, 58 FR 17519, Apr. 5, 1993] § 301.7606-1 Entry of premises for examination of taxable objects. Any officer or employee of the Internal Revenue Service may, in the performance of his duty, enter in the daytime any building or place where any articles or objects subject to tax are made, produced, or kept, so far as it may be necessary for the purpose of examining said articles or objects and also enter at night any such building or place, while open, for a similar purpose. [T.D. 7297, 38 FR 34804, Dec. 19, 1973] § 301.7609-1 Special procedures for third-party summonses. (a) In general (2) Neither section 7609 nor the regulations hereunder limit the IRS's ability to obtain information, other than by summons, through formal or informal procedures authorized by sections 7601 and 7602. (b) Cross references. (c) Records. records (d) Effective/applicability date. [T.D. 9395, 73 FR 23345, Apr. 30, 2008] § 301.7609-2 Notification of persons identified in third-party summonses. (a) In general Persons entitled to notice. (2) Time for providing notice. (3) Methods for serving notice. (4) Content of the notice. (b) Exceptions. (1) Summons served on the taxpayer. (2) Existence of records. (3) Numbered account or similar arrangement. person having a numbered account or similar arrangement (4) Summonses in aid of the collection of liabilities In general. (A) An assessment or judgment against the person with respect to whose liability the summons is issued; or (B) The liability determined at law or in equity of any transferee or fiduciary of a person described in paragraph (b)(4)(i)(A) of this section. (ii) Examples. Example 1. A third-party summons is issued to a bank to determine the amount held in an account in the name of A, against whom unpaid income taxes have been assessed. Notice of the summons is not required to be given to A or any other persons identified in the summons because the summons is issued in connection with the collection of taxes that have been assessed. Example 2. A third-party summons is issued to determine whether assessments should be made against A, who is potentially liable for a trust fund recovery penalty under section 6672 with respect to the assessed but unpaid withholding tax liability of employer E. The summons is captioned: In the matter of A. Notice of the summons must be provided to A and to any other persons identified in the summons because the summons was issued with respect to A's potential, unassessed liability under section 6672. (5) Summonses issued by a criminal investigator. (6) John Doe summons. (7) Summons issued pursuant to a court order to prevent spoliation of evidence. (c) Effective/applicability date. [T.D. 9395, 73 FR 23345, Apr. 30, 2008] § 301.7609-3 Duty of and protection for the summoned party. (a) Duty of the summoned party. (b) Disclosing summoned party not liable In general. (2) Certificate of the Secretary. (i) The 20-day period within which a person entitled to notice of the summons may institute a proceeding to quash the summons has expired; and (ii) No proceeding has been instituted within that period. (c) Reimbursement of costs. (d) Notification of suspension of periods of limitations in connection with a John Doe summons Requirement of notification. (2) Content of notification. (i) A John Doe summons was served on the summoned party seeking records that may be relevant to the person's tax liability; (ii) The date on which the summons was served; (iii) The tax period(s) to which the summons relates; (iv) Six months have passed since service of the summons and the summoned party's response to the summons has not been finally resolved; (v) The periods of limitations under section 6501 (relating to assessment and collection) and section 6531 (relating to criminal prosecution), have been suspended; and (vi) The date on which suspension of the periods of limitations under sections 6501 and 6531 began. (3) Time and manner of notification. (e) Effective/applicability date. [T.D. 9395, 73 FR 23345, Apr. 30, 2008] § 301.7609-4 Right to intervene; right to institute a proceeding to quash. (a) Intervention in proceeding with respect to enforcement of a summons. (b) Right to institute a proceeding to quash In general. (2) Requirements for a proceeding to quash. (i) File a petition to quash a summons in the name of the person entitled to notice of the summons in the proper district court; (ii) Notify the Internal Revenue Service (IRS) by sending a copy of that petition to quash by registered or certified mail to the IRS employee and office designated in the notice of summons to receive the copy; and (iii) Notify the summoned person by sending by registered or certified mail a copy of the petition to quash to the summoned person. (3) Failure to give timely notice. (4) Failure to institute a proceeding to quash. (c) Presumption no notice has been mailed. (d) Effective/applicability date. [T.D. 9395, 73 FR 23345, Apr. 30, 2008] § 301.7609-5 Suspension of periods of limitations. (a) In general. (b) Intervention in an action to enforce the summons (2) Action to intervene. (c) Institution of a proceeding to quash a summons In general. (2) Action to institute a proceeding to quash a summons. (d) Summoned party's failure to finally resolve the response to a summons after six months from service In general. (2) Example. A John Doe summons is issued on April 1, 2004, to the promoter of a tax shelter and seeks the names of all participants in the shelter in order to investigate the participants' income tax liabilities for 2001 and 2002. The district court approves service of the summons on April 30, 2004, and the summons is served on the promoter on May 3, 2004. The promoter does not provide the names of the participants. The periods of limitations for the participants' income tax liabilities and criminal prosecution for 2001 and 2002 are suspended under section 7609(e)(2) beginning on November 3, 2004, the date which is six months after the date the John Doe summons was served until the date on which the promoter's response to the summons is finally resolved. (e) Definitions Agent, nominee, etc. (2) Period during which a proceeding is pending Intervention in an enforcement proceeding. (ii) Proceeding to quash a summons. (iii) Examples. Example 1. A revenue agent issues a summons to A, an accountant for B, requiring production of records relating to B's income tax liabilities for 2002. The summons is served on A on March 1, 2004. B files a petition to quash the summons in district court on March 15, 2004. The district court dismisses B's petition on July 1, 2004. B fails to appeal this decision by filing a notice of appeal within 60 days from the date of the district court's order of dismissal. The revenue agent notifies A that B did not appeal the district court's order. A turns over all of the records requested in the summons. The periods of limitations applicable to B for 2002 under sections 6501 and 6531 are suspended under section 7609(e)(1) from March 15, 2004, the date B filed a petition to quash, until August 30, 2004, the last day on which B could have filed a notice of appeal. Example 2. A revenue agent issues a summons to A, an accountant for B, requiring production of records relating to B's income tax liabilities for 2003. The summons is served on A on June 1, 2005. B files an untimely petition to quash the summons in district court on June 29, 2005. The district court dismisses B's petition on July 29, 2005. B does not file an appeal of the district court's order. The periods of limitations applicable to B for 2003 under sections 6501 and 6531 are suspended under section 7609(e)(1) from June 29, 2005, the date B filed an untimely petition to quash, until September 27, 2005, the last day on which B could have filed a notice of appeal. (3) Final resolution of the summoned third party's response to a summons. (f) Effective/applicability date. April 30, 2008. [T.D. 9395, 73 FR 23345, Apr. 30, 2008] § 301.7610-1 Fees and costs for witnesses. (a) Introduction. (b) Definitions (2) Reproduction cost. (3) Search costs. (4) Third party. (5) Third party records. (6) Transportation costs. (c) Conditions and rates of payments Basis for payment. (2) Payment rates. (i) Search costs. (B) For retrieval of information stored by computer in the format in which it is normally produced, actual costs, based on computer time and necessary supplies, except that personnel time for computer search is payable only under subparagraph (2)(i)(A) of this paragraph. (ii) Reproductions costs. (B) For photographers, films and other materials, actual cost, except that personnel time is payable only under subparagraph (2)(i)(A) of this paragraph. (iii) Transportation costs. (d) Appearance fees and allowances (2) Attendance fees. (3) Travel allowances. (4) Subsistence allowances. (Secs. 7610(a) and 7805 of the Internal Revenue Code of 1954 (26 U.S.C. 7610(a) and 7805)) [T.D. 7899, 48 FR 32773, July 19, 1983; 48 FR 36449, Aug. 11, 1983] § 301.7611-1 Questions and answers relating to church tax inquiries and examinations. Table of Contents Question(s)/Answer(s) Church Tax Inquiry 1, 2, 3 Routine Requests 4 Third Party Records 5 Scope of Section 7611 6, 7, 8 Notice Requirements 9, 10 Action After Issuance of Notice 11 Procedural Time Limitations 12, 13, 13a Examination of Records or Religious Activities 14 Limitations on Period of Assessment or Proceedings for Collection Without Assessment 15 Multiple Examinations 16 Remedy for Violations of Section 7611 17 Effective Date 18 Application to Section 4958 19 Church Tax Inquiry Q-1: When may the Internal Revenue Service begin an inquiry of a church's tax liability? A-1: Under section 7611 of the Internal Revenue Code, the Internal Revenue Service may begin a church tax inquiry only when the appropriate Regional Commissioner (or higher Treasury official) reasonably believes, on the basis of facts and circumstances recorded in writing, that the organization (1) may not qualify for tax exemption as a church; (2) may be carrying on an unrelated trade or business (within the meaning of section 513); or (3) may be otherwise engaged in activities subject to tax. Information received by the Internal Revenue Service at its request may not be used to form the basis of a reasonable belief to begin a church tax inquiry, unless the Service's request is made within the procedures of section 7611, is a request permitted by these questions and answers to be made without application of the procedures of section 7611, or is a request to which the procedures of section 7611 do not apply. Q-2: What is a church tax inquiry within the meaning of section 7611? A-2: A church tax inquiry is any inquiry to a church (other than a routine request described in Q and A-4, an inquiry described in Q and A-5, an investigation described in Q and A-6 or an examination described in Qs and As 10 and 14), to serve as a basis for determining whether the organization qualifies for tax exemption as a church or whether it is carrying on an unrelated trade or business or is otherwise engaged in activities subject to tax. An inquiry is considered to commence when the Internal Revenue Service requests information or materials from a church of a type contained in church records. The term “church tax inquiry” does not include routine requests for information or inquiries regarding matters which do not primarily concern the tax status or liability of the church itself. See Q and A-4 with respect to routine requests regarding, among other things, withholding responsibilities for income tax or FICA (social security) tax liabilities. See Q and A-6 with respect to the types of investigations, other than routine requests, that are outside the scope of the procedures of section 7611. See Q and A-5 with respect to requests for third party records that are outside the scope of the procedures of section 7611. Q-3: What is a “church” for purposes of the church tax inquiry and examination procedures of section 7611? A-3: Solely for purposes of applying the procedures of section 7611, and as used in these questions and answers, the term “church” includes any organization claiming to be a church and any convention or association of churches. For purposes of the procedures of section 7611 and these questions and answers a church does not include separately incorporated church-supported schools or other organizations incorporated separately from the church. Routine Requests Q-4: What is a routine request to a church that is outside the scope of and does not necessitate application of the procedures set forth in section 7611? A-4: Routine requests to a church will not be considered to commence a church tax inquiry and will not necessitate application of the procedures set forth in section 7611. Routine requests for this purpose include (but are not limited to) questions regarding (1) the filing or failure to file any tax return or information return by the church; (2) compliance with income tax or FICA (social security) tax withholding responsibilities by the church; (3) any supplemental information needed to complete the mechanical processing of any incomplete or incorrect return filed by the church; (4) information necessary to process applications for exempt status and letter ruling requests; (5) information necessary to process and update periodically a church's (i) registrations for tax-free transactions (excise tax), (ii) elections for exemption from windfall profit tax, or (iii) employment tax exemption requests; (6) information identifying a church that is used to update the Cumulative List of Tax Exempt Organizations (Publication No. 78) and other computer files; and (7) confirmation that a specific business is or is not owned or operated by a church. Third Party Records Q-5: To what extent may the Internal Revenue Service gain access to third party records? A-5: The Internal Revenue Service may request a church to provide information necessary to locate third-party records (for instance, bank records), including information regarding the church's chartered name, state and year of incorporation, and location of checking and savings accounts, without application of the procedures of section 7611. Records (for instance, cancelled checks or other records in the possession of a bank) held by third party recordkeepers, as defined in section 7609, are not considered church records. Thus, subject to the provisions set forth in section 7609 regarding third party summonses, access is permitted to such records without regard to the requirements of the procedures set forth in section 7611. The Internal Revenue Service is generally required, under other rules, to inform a church of any Internal Revenue Service requests for materials. Third party materials may be acquired without application of the procedures of section 7611; however, a determination that a church is not entitled to an exemption, or an assessment of tax for unrelated business income against a church, may not be made solely on the basis of third party records, without first complying with the requirements of two notices and offering of a conference (see Qs and As 9 and 10) pursuant to the procedures set forth in section 7611. This limitation does not apply to assessments of tax other than income tax resulting from loss of exemption or for unrelated business income (for instance, assessments of social security or other employment taxes). Third party bank records will not be used in a manner inconsistent with the procedures set forth in section 7611 or in these questions and answers. Scope of Section 7611 Q-6: What types of investigations, other than routine requests and requests for information necessary to locate and examine third party records, and examination of those records, are outside the scope of the procedures of section 7611? A-6: The church inquiry and examination procedures described in section 7611 do not apply to (1) any inquiry or examination relating to the tax liability of any person other than a church; (2) any termination assessment under section 6851 or 6852, or jeopardy assessment under section 6861; or (3) any case involving a knowing failure to file a return or a willful attempt to defeat or evade tax (including but not limited to any case involving a failure by the church to withhold or pay social security or other employment taxes or income tax required to be withheld from wages). Additionally, the church inquiry and examination procedures do not apply to any criminal investigations. The church tax inquiry and examination procedures also do not apply to inquiries or examinations which relate primarily to the tax status (including, but not limited to, social security or self-employment tax or income tax required to be withheld from wages) or liability of persons other than the church (including, but not limited to, the tax status or liability of a contributor or contributors to the church), rather than the tax status or liability of the church itself. These may include, but are not limited to: (1) inquiries or examinations regarding the inurement of church funds to a particular individual or individuals or to another organization, which may result in the denial of all or part of such individual's or organization's deduction for charitable contributions to a church; (2) inquiries or examinations regarding the assignment of income or services or contributions to a church; and (3) inquiries or examinations regarding a vow of poverty by an individual or individuals followed by a transfer of property or an assignment of income or services to a church. Inquiries may be made to a church regarding these matters without being considered to have commenced a church tax inquiry under section 7611, and an examination of church records may be made relating to these issues (including enforcement of a summons for access to such records) without application of the requirements contained in section 7611 applicable to church tax inquiries and examinations. Such examinations are subject to the general rules regarding examinations of taxpayer books and records. Q-7: What action may be taken if the church or its agents fail to respond to routine requests, or questions regarding other individuals' or organizations' tax liabilities? A-7: Repeated (two or more) failures by a church or its agents to reply to routine requests (see Q and A-4) will be considered by the appropriate Internal Revenue Service Regional Commissioner to be a reasonable basis for commencement of a church tax inquiry under the church tax inquiry and examination procedures of section 7611. The failure of a church to respond to repeated requests for information regarding individuals' or other organizations' tax liabilities (see Q and A-6) will be considered a reasonable basis for commencement of a church tax inquiry. Failure by a church to provide information necessary to locate third-party records (see Q and A-5) will be a factor, but not a conclusive factor, in determining if there is reasonable cause for commencing a church tax inquiry. For this purpose, a failure to respond to a request means either that no response has been made or that the response does not make a reasonable attempt to submit the information called for by the specific language of the request. Q-8: Where an inquiry or examination is outside the scope of and does not necessitate application of the procedures of section 7611, what are the limitations on the Internal Revenue Service's actions? A-8: Inquiries or examinations which are outside the scope of the procedures of section 7611 and therefore are conducted without application of the procedures of section 7611 (for instance, those addressed in Q and A-6) will be limited to the determination of facts and circumstances specifically relating to the tax liabilities of the individuals or other organizations in question. For example, in a case against an individual or other organization, information may be requested or church records examined, if pertinent, regarding amounts of money, property, or services transferred to the individual or individuals in question (including, but not limited to wages, loans, or noncontractual transfers), the use of church funds for personal expenses, or other similar matters, without having to follow the church tax inquiry and examination procedures. As one example, in an assignment of income case against an individual or other organization, information could be requested or church records examined if relevant to an individual's assignment of particular income, donation of property, or transfer of a business to a church. However, without following the church tax inquiry and examination procedures, no examination of a contributor or membership list in the possession of the church will be made, other than under the applicable procedures of section 7611, for the purpose of determining the overall financial structure of the church, merely because such structure was relevant to the church's qualification as a tax-exempt entity and therefore indirectly relevant to the validity of contributors' deductions in general. Inquiries or examinations regarding individuals' or other organizations' tax liabilities will not be used in a manner inconsistent with the procedures set forth in section 7611 or in these questions and answers. Notice Requirements Q-9: What satisfies the inquiry notice requirement (first notice) upon commencement of a church tax inquiry? A-9: Upon commencing a church tax inquiry, the appropriate Regional Commissioner is required to provide written notice to the church of the beginning of the inquiry. This notice will include (1) an explanation of the concerns which gave rise to the inquiry and the general subject matter of the inquiry, which is sufficiently specific to allow the church to understand the particular area of church activities or behavior which is at issue; (2) a general explanation of the provisions of the Internal Revenue Code which authorize the inquiry or which may otherwise be involved in the inquiry; and (3) a general explanation of applicable administrative and constitutional provisions with respect to the inquiry, including the right to a conference with the Internal Revenue Service before an examination of church records is commenced. The inquiry notice (first notice) will generally request information in an effort to alleviate the concerns which gave rise to the inquiry. However, the Internal Revenue Service is not precluded from expanding its inquiry beyond the concerns expressed in the inquiry notice (first notice) as a result of facts and circumstances which subsequently comes to its attention (including, where appropriate, an expansion of an unrelated business income inquiry to include questions of tax-exempt status, and vice-versa). The inquiry notice requirement (first notice) does not require the Internal Revenue Service to share particular items of evidence with the church, or to identify its sources of information regarding church activities, if providing such information would be damaging to the inquiry or to the sources of information. For example, in an inquiry regarding unrelated business income, the Internal Revenue Service might state that its inquiry was prompted by a local newspaper advertisement regarding a church-owned business. However, the Internal Revenue Service would not be required to reveal the existence or identity of any so-called “informers” within a church (including present or former employees). Q-10: What must be done to satisfy the examination notice requirement (second notice) before commencing an examination of church records or religious activities with respect to an examination conducted under section 7611? A-10: Where an examination is conducted under section 7611, church records or religious activities of a church may be examined only if, at least 15 days prior to the examination, written notice of the proposed examination is provided to the church and to the appropriate Regional Counsel. This notice is in addition to the notice of commencement of inquiry (first notice) previously provided to the church. The notice of examination (second notice) is required to include (1) a copy of the church tax inquiry notice (first notice) previously provided to the church; (2) a description of the church records and activities sought to be examined; and (3) a copy of all documents which were collected or prepared by the Internal Revenue Service for use in the examination, and which are required to be disclosed under the Freedom of Information Act (5 U.S.C. 552) as supplemented by section 6103 of the Code (relating to disclosure and confidentiality of tax return information). The documents to be supplied under this provision will be limited to documents specifically concerning the church whose records are to be examined and will not include documents relating to other inquiries or examinations or to Internal Revenue Service practices and procedures in general. Disclosure to the church will be subject to restrictions regarding the disclosure of the existence or identity of informants. Although a description of materials to be examined will be provided in the notice of examination (second notice), the description does not restrict the ability of the Internal Revenue Service to examine church records or religious activities which are not specifically mentioned in the notice of examination (second notice) but which are properly within the scope of the examination. Thus, the Internal Revenue Service is not precluded from expanding its inquiry beyond the concerns expressed in the examination notice (second notice) as a result of facts and circumstances which subsequently come to its attention (including, where appropriate, an expansion of an unrelated business income examination to include questions of tax--exempt status, and vice versa). At the time the notice of examination (second notice) is provided to the church, a copy of the same notice will be provided to the appropriate Regional Counsel. The Regional Counsel is then allowed 15 days from issuance of the second notice in which to file an advisory objection to the examination. (This is concurrent with the 15-day period during which an examination of church records is prohibited pending a request for a conference.) As part of the notice of examination (second notice), the church will be offered an opportunity to meet with an Internal Revenue Service official to discuss the concerns which gave rise to the inquiry and the general subject matter of the inquiry. An examination will not begin until 15 days after the mailing of the notice of examination (second notice). The organization may request a conference at any time prior to beginning of the examination and a conference so requested will be scheduled within a reasonable time after the request is made. The purpose of the conference is to remind the church, in general terms, of the stages of the church tax inquiry and examination procedures and to discuss the relevant issues that may arise as part of the inquiry, in an effort to resolve the issues of tax exemption or liability without the necessity of an examination of church records or activities. Information properly excludable from a written notice of examination (second notice) (including information regarding the identity of third-party witnesses or evidence provided by such witnesses) is not a subject for discussion at, and will not be revealed during, a conference. Once a conference request is timely made, an examination will begin only following the conference. The conference requirement may not be utilized to delay an examination beyond the time reasonably necessary to prepare for and hold the conference. The holding of one conference with the church will be sufficient to satisfy the requirements of section 7611 and these questions and answers. Action After Issuance of Notice Q-11: What action may be taken after issuance of the examination notice (second notice)? A-11: After the examination notice (second notice) is issued, the organization may request a conference as described in Q and A-10 (see Q and A-12 with respect to time for issuance of examination notice). If the matters of concern which gave rise to the issuance of the examination notice (second notice) are resolved at the conference, it may be determined that an examination is not necessary. If the matters of concern are not resolved at the conference, or if the organization does not request a conference, the examination will ordinarily begin. The examination will be conducted under the Internal Revenue Service's general examination procedures and the procedures of section 7611. The outcome of such an examination will ordinarily be: (1) No change in tax-exempt status or tax liability; (2) no change in such status or liability, conditioned on compliance with a request to modify in future tax periods matters such as internal accounting practices and procedures or coupled with a caution to refrain from increasing certain activities limited by the Internal Revenue Code, such as lobbying programs aimed at influencing legislation; (3) a proposal to revoke tax-exempt status; (4) a proposal asserting unrelated business income tax liability; or (5) a proposal asserting liability for other taxes. In certain exceptional circumstances the Internal Revenue Service may, in lieu of an examination, propose to revoke the organization's exemption based upon the facts and circumstances which form the basis for a reasonable belief to commence an inquiry under section 7611 and any other appropriate information that becomes apparent as a result of the inquiry, the conference, or both. Pursuant to section 7611(d), the Regional Counsel is required to approve, in writing, certain final determinations that are within the scope of section 7611 and adversely affect tax-exempt status or increase any tax liability. The Regional Counsel will review and approve (1) a determination that an organization is not entitled to tax-exempt status; (2) a determination that an organization is not entitled to receive tax-deductible contributions; or (3) the issuance of a notice of tax deficiency to a church arising out of an inquiry or examination or, in cases where deficiency procedures are inapplicable, the assessment of any underpayment of tax by the church arising out of an inquiry or examination. The Regional Counsel will also state in writing that there has been substantial compliance with section 7611, when applicable. Procedural Time Limitations Q-12: When may the notice of examination (second notice) be sent? A-12. The notice of examination (second notice) may be mailed to a church not less than 15 days after the notice of commencement of a church tax inquiry (first notice). Thus, at least 30 days must pass between the first notice and the actual examination of church records since an examination may not begin until 15 days after the notice of examination (second notice). For example, if notice of commencement of an inquiry is mailed to a church on March 1st, the notice of proposed examination may be mailed to the church no earlier than the 15th day after the date of the inquiry notice, or March 16th. If the notice of examination (second notice) was mailed March 16th, no examination of church records may be made prior to day 30; thus, the earliest date the examination may commence is March 31st. If an organization does not request a conference prior to day 30, the Internal Revenue Service may proceed to examine church records and complete its investigation or make a determination based on the information already in its possession. Q-13: What is the limitation on the amount of time the Internal Revenue Service has to complete inquiries and examinations? A-13: The Internal Revenue Service is required to complete any church inquiry or examination, and to make a final determination with respect thereto, not later than two years after the date on which the notice of examination (second notice) is mailed to the church. The running of this two-year period is suspended for any period during which (1) a judicial proceeding brought by the church or its officials or agents against the Internal Revenue Service with respect to the church tax inquiry or examination is pending or being appealed (even though section 7611(e)(2) describes the exclusive remedy for a violation of the church tax inquiry and examination procedures; see Q and A-17); (2) a judicial proceeding brought by the Internal Revenue Service against the church (or any official or agent thereof) to compel compliance with any reasonable request for examination of church records or religious activities is pending or being appealed; or (3) the Internal Revenue Service is unable to take actions with respect to the church tax inquiry or examination by reason of an order issued in a suit under section 7609 involving access to records held by third-party recordkeepers. The two-year period is also suspended for any period in excess of 20 days (but not in excess of 6 months) in which the church or its agents fail to comply with any reasonable request for church records or other information. The two-year period may be extended by mutual agreement of the church and the Internal Revenue Service. In cases where the inquiry is not followed by an examination notice (second notice), the inquiry must be concluded and a final determination made within 90 days of the date of the notice of inquiry (first notice). This 90-day period is suspended during any period for which the two year period for duration of a church examination would be suspended; except that the 90-day period will not be suspended because of the church's failure to comply with requests for information made prior to the notice of examination (second notice). Q-13a: When do the church tax inquiry and church tax examination periods commence and conclude? A-13a: A church tax inquiry commences when the church tax inquiry notice (first notice) is mailed. A church tax inquiry must be concluded not later than 90 days after the church tax inquiry notice (first notice) date. The period is counted from the day after the inquiry notice (first notice) is mailed. A church tax inquiry is concluded when the results of the inquiry or the notice of examination, as appropriate, is mailed. For example, if the inquiry notice (first notice) is mailed on November 1, 1985, the church tax inquiry must be concluded, in the absence of a permissible suspension of the period (see Q and A-13), on or before January 30, 1986. A church tax examination commences when the church tax examination notice (second notice) is mailed. A church tax examination must be concluded not later than the date which is 2 years after the examination notice (second notice) date. The period is counted from the day after the examination notice (second notice) is mailed. A church tax examination is concluded when the final determination is mailed. For example, if the examination notice is mailed November 16, 1985, the final determination must be made, in the absence of a permissible suspension of the period (see Q and A-13), on or before November 16, 1987. Examination of Records or Religious Activities Q-14: To what extent may church records or religious activities of a church be examined? A-14: In cases conducted under section 7611, an examination of church records may be made only after complying with the notice provisions of section 7611 (see Qs and As 9, 10 and 12) unless the church files a written waiver of the provisions of section 7611 or a part thereof. In cases conducted under section 7611 where no written waiver has been filed, church records may be examined only to the extent necessary to determine the liability for, and the amount of, any Federal tax. This includes examinations (1) to determine the initial or continuing qualification of the organization whose records are being examined as a tax-exempt church under section 501(c)(3); (2) to determine whether the organization qualifies to receive tax-deductible contributions under section 170(c); or (3) to determine the amount of tax (including unrelated business income tax), if any, which is to be imposed on the organization. Church records include all regularly kept church corporate and financial records including (but not limited to) corporate minute books, contributor or membership lists, and any materials which qualified as church books of account under section 7605(c), as in effect on December 31, 1984. Church records include private correspondence between a church and its members that is in the possession of the church. However, church records do not include records previously filed with a public official or newspapers or newsletters distributed generally to church members. The religious activities of an organization claiming to be a church (see Q and A-3 for a definition of the term “church” as used in section 7611 and in these questions and answers) may be examined only to the extent necessary to determine if the organization actually is a church exempt from tax. This includes a determination of the organization's qualification as a church for any period. Limitations on Period of Assessment or Proceedings for Collection Without Assessment Q-15: What are the special limitations on the period of assessment or proceedings for collection without assessment? A-15: The special limitation periods for church tax liabilities are described below and are not be to construed to increase an otherwise applicable limitation period. Thus, a three-year limitation period would apply where a church filed a tax return before an examination was held and did not substantially understate income. No limitation period is to apply in any case of fraud, willful tax evasion, or knowing failure to file a return which should have been filed. In the case of any church tax examination with respect to the revocation of tax-exempt status under section 501(a), any tax imposed by chapter 1 (other than section 511) may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, only for the three most recently completed taxable years preceding the examination notice date ( i.e., For examinations concerning qualification for tax-exempt status, the examination is limited initially to an examination of church records which are relevant to a determination of tax status or liability for the three most recently completed taxable years ending before the examination notice date. If it is determined that an organization is not a church exempt from tax for one or more of the three most recently completed taxable years and no return has been filed for the three years ending before the three most recently completed taxable years, an examination of relevant records may be made, as part of the same examination, for the six most recently completed taxable years ending before the examination notice date. (This assumes that no returns were filed for any of the three years to which the examination is to be extended. If a return was timely filed for any such year, the filing of that return determines the applicable statute of limitations for that year in the absence of other factors, for example, fraud, willful tax evasion or substantial understatement, which ordinarily would extend the statute of limitations.) For purposes of section 7611(d)(2)(A) and this question and answer, an organization is determined not to be a church exempt from tax for one or more of the three most recently completed taxable years ending before the examination notice date, when the appropriate Regional Commissioner approves, in writing, the completed findings of the examining agent that the organization is not a church exempt from tax for one or more of such years. Such approval may not be delegated by the Regional Commissioner to a subordinate official. The completed findings of the examining agent, as approved by the appropriate Regional Commissioner for this purpose, do not constitute a final revenue agent's report under section 7611(g). Church records of a year earlier than the third or sixth completed taxable year, as applicable, may be examined if material to a determination of tax-exempt status during the applicable three or six year period. For examinations concerning unrelated business taxable income, where no return has been filed by the church, tax may be assessed or collected for the six most recently completed taxable years ending before the examination notice date. Church records of a year earlier than the sixth year may be examined if material to a determination of unrelated business income tax liability during the six year period. For examinations involving issues other than revocation of exempt status or unrelated business income (e.g., examinations relating to social security or other employment taxes), no limitation period is to apply if no return has been filed. The applicable limitation period may be extended by mutual agreement of the church and the Internal Revenue Service. Multiple Examinations Q-16: What are the special multiple examination rules applicable to churches? A-16: The Assistant Commissioner (Employee Plans and Exempt Organizations) is required to approve, in writing, any second inquiry or examination of a church, if the second inquiry or examination is to be undertaken within five years of an earlier inquiry or examination and if the earlier inquiry or examination did not result in either (1) revocation of tax exemption, notice of deficiency or an assessment of tax, or (2) a request for any significant changes in church operational practices (including the adequacy or sufficiency of records maintained to reflect income). The Assistant Commissioner's approval is required only if the second inquiry or examination involves the same or similar issues as the earlier inquiry or examination. The 5-year period is counted from the examination notice date of the earlier examination or, if no notice of examination was mailed, the inquiry notice date of the earlier examination. This 5-year period is to be suspended for periods during which the two-year period for completion of an examination is suspended (as described in Q and A-13) unless the prior examination was actually concluded within 2 years of the notice of examination. In determining whether the second church tax inquiry or examination involves the same or similar issues as the preceding inquiry or examination, the substantive factual issues involved in the two examinations, rather than legal classifications, will govern. For example, where a prior examination and a current examination of unrelated business income involve income from different sources, the current examination involves different issues than the prior examination and the approval of the Assistant Commissioner (Employee Plans and Exempt Organizations) is not necessary. Remedy for Violations of Section 7611 Q-17: What remedy is available for a violation of the church inquiry and examination procedures? A-17: The exclusive remedy for any Internal Revenue Service violation of the church tax inquiry and examination procedures is as follows: Failure to comply substantially with the requirements that (1) two notices be sent to the church; (2) the Regional Commissioner approve the commencement of a church tax inquiry; or (3) an offer of a conference with the church be made (and a conference held if timely requested), will result in a stay of proceedings in a summons proceeding to gain access to church records (but not in dismissal of such proceeding), until these requirements are satisfied. The two-year limitation on duration of a church tax examination will not be suspended during stays of summons proceedings resulting from violations described above; however, violations may be corrected without regard to the otherwise applicable time limits prescribed under the procedures of section 7611. In determining whether a stay is necessary, a court must consider the good faith effort of the Internal Revenue Service and the effect of any violation of the proper examination procedures. Section 7611(e)(2) provides that no suit may be maintained and no defense may be raised, other than a stay in a summons enforcement proceeding, by reason of any noncompliance with the requirements of section 7611. Thus, failure to comply with any of these requirements may not be raised as a defense or affirmative ground for relief in any judicial proceeding including, but not limited to, a summons proceeding to gain access to church records; a declaratory judgment proceeding involving a determination of tax-exempt status under section 7428; a proceeding to collect unpaid tax; or a deficiency or refund proceeding. Additionally, failure to substantially comply with the requirements that two notices be sent, that the Regional Commissioner approve an inquiry, and that a conference be offered (and the conference held if requested) may not be raised as a defense or as an affirmative ground for relief in a summons proceeding or any other judicial proceeding other than as specifically set forth above. Therefore, a church or its representatives will not be able to litigate the issue of the reasonableness of the appropriate Regional Commissioner's belief in approving the commencement of a church tax inquiry ( i.e., Effective Date Q-18: What is the effective date of the church examination procedures? A-18: The procedures set forth in section 7611 apply to all tax inquiries and examinations beginning after December 31, 1984. The procedures of section 7605 will apply to any examination commenced before January 1, 1985. Any activities commenced after December 31, 1984, that would constitute a new inquiry or new examination must comply with the procedures of section 7611. Application to Section 4958 Q-19: When do the church tax inquiry and examination procedures described in section 7611 apply to a determination of whether there was an excess benefit transaction described in section 4958? A-19: See § 53.4958-8(b) of this chapter for rules governing the interaction between section 4958 excise taxes on excess benefit transactions and section 7611 church tax inquiry and examination procedures. [T.D. 8013, 50 FR 9615, Mar. 11, 1985. Redesignated and amended by T.D. 8077, 51 FR 6220, Feb. 21, 1986; T.D. 8628, 60 FR 62213, Dec. 5, 1995; T.D. 8920, 66 FR 2171, Jan. 10, 2001; 66 FR 13013, Mar. 2, 2001; T.D. 8978, 67 FR 3099, Jan. 23, 2002; 67 FR 12472, Mar. 19, 2002] General Powers and Duties § 301.7621-1 Internal revenue districts. For delegation to the Secretary of authority to prescribe internal revenue districts for the purpose of administering the internal revenue laws, see Executive Order No. 10289, dated September 17, 1951 (16 FR 9499), as made applicable to the Code by Executive Order No. 10574, dated November 5, 1954 (19 FR 7249). § 301.7622-1 Authority to administer oaths and certify. The officers and employees of the Internal Revenue Service whom the Commissioner has designated are authorized to administer such oaths or affirmations and to certify to such papers as may be necessary under the internal revenue laws or regulations issued thereunder, except that the authority to certify shall not be construed as applying to those papers or documents the certification of which is authorized by separate order or directive. (Sec. 7805, Internal Revenue Code of 1954, 68A Stat. 917; 26 U.S.C. 7805) [T.D. 7359, 40 FR 23743, June 2, 1975] § 301.7623-1 General rules, submitting information on underpayments of tax or violations of the internal revenue laws, and filing claims for award. (a) In general. (b) Eligibility to file claim for award. In general. (2) Ineligible whistleblowers. (i) An individual who is an employee of the Department of Treasury or was an employee of the Department of Treasury when the individual obtained the information on which the claim is based; (ii) An individual who obtained the information through the individual's official duties as an employee of the Federal Government, or who is acting within the scope of those official duties as an employee of the Federal Government; (iii) An individual who is or was required by Federal law or regulation to disclose the information or who is or was precluded by Federal law or regulation from disclosing the information; (iv) An individual who obtained or had access to the information based on a contract with the Federal Government; or (v) An individual who filed a claim for award based on information obtained from an ineligible whistleblower for the purpose of avoiding the rejection of the claim that would have resulted if the claim was filed by the ineligible whistleblower. (c) Submission of information and claims for award. Submitting information. (2) Filing claim for award. (i) The date of the claim; (ii) The whistleblower's name; (iii) The whistleblower's address and telephone number; (iv) The whistleblower's date of birth; (v) The whistleblower's taxpayer identification number; and (vi) An explanation of how the information on which the claim is based came to the attention and into the possession of the whistleblower, including, as available, the date(s) on which the whistleblower acquired the information and a complete description of the whistleblower's present or former relationship (if any) to person(s) identified on the Form 211. (3) Under penalty of perjury. (4) Perfecting claim for award. (d) Request for assistance. In general. (2) No agency relationship. (e) Confidentiality of whistleblowers. (f) Effective/applicability date. [T.D. 9687, 79 FR 47264, Aug. 12, 2014] § 301.7623-2 Definitions. (a) Action. In general. action (2) Administrative action. administrative action (3) Judicial action. judicial action (b) Proceeds based on. In general. proceeds based on (2) Examples. Example 1. Information provided to the IRS by a whistleblower, under section 7623 and § 301.7623-1, identifies a taxpayer, describes and documents specific facts relating to the taxpayer's foreign sales in Country A, and, based on those facts, alleges that the taxpayer was not entitled to a foreign tax credit relating to its foreign sales in Country A. The IRS receives the information after having already initiated an examination of the taxpayer. The IRS's audit plan includes foreign tax credit issues but focuses on taxpayer's foreign sales in Country B and does not specifically address the taxpayer's foreign sales in Country A. Based on the information provided, the IRS expands the examination of the foreign tax credit issue to include consideration of the amount of foreign tax credit relating to the taxpayer's foreign sales in Country A. For purposes of section 7623 and §§ 301.7623-1 through 301.7623-4, the portion of the IRS's examination of the taxpayer relating to the foreign tax credit issue with respect to Country A is an administrative action with which the IRS proceeds based on the information provided by the whistleblower because the information provided substantially contributed to the action by causing the expansion of the IRS's examination. Example 2. Information provided to the IRS by a whistleblower, under section 7623 and § 301.7623-1, identifies a taxpayer, describes and documents specific facts relating to the taxpayer's activities, and, based on those facts, alleges that the taxpayer owed additional taxes in Year 1. The IRS proceeds with an examination of the taxpayer for Year 1 based on the information provided by the whistleblower. The IRS discovers that the taxpayer engaged in the same activities in Year 2 and expands the examination to Year 2. In the course of the examination, the IRS obtains, through the issuance of Information Document Requests (IDRs) and summonses, additional facts that are unrelated to the activities described in the information provided by the whistleblower. Based on these additional facts, the IRS expands the scope of the examination of the taxpayer for both Year 1 and Year 2. For purposes of section 7623 and §§ 301.7623-1 through 301.7623-4, the portion of the IRS's examination relating to the activities described and documented in the information provided is an administrative action with which the IRS proceeds based on information provided by the whistleblower because the information provided substantially contributed to the action by causing the expansion of the IRS's examination of Year 1 and Year 2. The portions of the IRS's examination of the taxpayer in both Year 1 and Year 2 relating to the additional facts obtained through the issuance of IDRs and summonses are not actions with which the IRS proceeds based on the information provided by the whistleblower because the information provided did not substantially contribute to the action. Example 3. Information provided to the IRS by a whistleblower, under section 7623 and § 301.7623-1, identifies a taxpayer, describes and documents specific facts relating to the taxpayer's activities, and, based on those facts, alleges that the taxpayer owed additional taxes in Year 1. The IRS receives the information after having already initiated an examination of the taxpayer for Year 1. During the examination, the information is provided to the Exam team and the Exam team uses the information provided to confirm the correctness of adjustments made based on other information. Although the whistleblower's information confirms the correctness of the IRS's adjustments, the IRS does not rely on the whistleblower's information when it makes the adjustments, nor does the information cause the IRS to expand the scope of its examination. The whistleblower's information merely supports information independently obtained by the IRS. For purposes of section 7623 and §§ 301.7623-1 through 301.7623-4, the IRS's examination is not an administrative action with which the IRS proceeds based on information provided by the whistleblower because the information provided did not substantially contribute to the action. Example 4. Same facts as Example 3. (c) Related action. In general. related action (i) The facts relating to the underpayment of tax or violations of the internal revenue laws by the other person are substantially the same as the facts described and documented in the information provided (with respect to the person(s) subject to the original action); (ii) The IRS proceeds with the action against the other person based on the specific facts described and documented in the information provided; and (iii) The other, unidentified person is related to the person identified in the information provided. For purposes of this paragraph, an unidentified person is related to the person identified in the information provided if the IRS can identify the unidentified person using the information provided (without first having to use the information provided to identify any other person or having to independently obtain additional information). (2) Examples. Example 1. Information provided to the IRS by a whistleblower, under section 7623 and § 301.7623-1, identifies a taxpayer (Taxpayer 1), describes and documents specific facts relating to Taxpayer 1's activities, and, based on those facts, alleges tax underpayments by Taxpayer 1. The information provided also identifies an accountant (CPA 1) and describes and documents specific facts relating to CPA 1's contribution to the activities of Taxpayer 1 that the whistleblower alleges resulted in tax underpayments. The IRS proceeds with an examination of Taxpayer 1 based on the information provided by the whistleblower. Using the information provided, the IRS obtains CPA 1's client list and identifies two taxpayer/clients of CPA 1 (Taxpayer 2 and Taxpayer 3) that appear to have engaged in activities similar to Taxpayer 1. The IRS proceeds with an examination of Taxpayer 2 and finds that Taxpayer 2 engaged in the same activities as those described in the information provided with respect to Taxpayer 1. The IRS proceeds with an examination of Taxpayer 3 and finds that Taxpayer 3 engaged in different activities from those described in the information provided with respect to Taxpayer 1. For purposes of section 7623 and §§ 301.7623-1 through 301.7623-4, the examination of Taxpayer 2 is a related action because it satisfies the conditions of paragraph (c)(1) of this section. The examination of Taxpayer 3 is not a related action because the relevant facts are not substantially the same as the facts relevant to the examination of Taxpayer 1. Example 2. Same facts as Example 1. Example 3. Same facts as Example 1. Example 4. Information provided to the IRS by a whistleblower, under section 7623 and § 301.7623-1, identifies a taxpayer (Taxpayer 1), describes and documents specific facts relating to Taxpayer 1's activities, and, in particular, Taxpayer 1's participation in a transaction. Based on those facts, the whistleblower alleges that Taxpayer 1 owed additional taxes. The IRS proceeds with an examination of Taxpayer 1 based on the information provided by the whistleblower. The IRS identifies the other parties to the transaction described in the information provided (Taxpayer 2 and Taxpayer 3). The IRS proceeds with examinations of Taxpayer 2 and Taxpayer 3 relating to their participation in the transaction described in the information provided. For purposes of section 7623 and §§ 301.7623-1 through 301.7623-4, the IRS's examinations of Taxpayer 2 and Taxpayer 3 relating to the activities described and documented in the information provided are related actions because they satisfy the conditions of paragraph (c)(1) of this section. (d) Collected proceeds. In general. proceeds of amounts collected collected proceeds collected proceeds (2) Refund netting. In general. (A) Allowed, and (B) Used to satisfy a tax liability attributable to the information provided instead of refunded to the taxpayer, then the allowed but non-refunded amount constitutes collected proceeds. (ii) Example. Example. Information provided to the IRS by a whistleblower, under section 7623 and § 301.7623-1, identifies a corporate taxpayer (Corporation), describes and documents specific facts relating to Corporation's activities, and, based on those facts, alleges that Corporation owed additional taxes. Based on the information provided by the whistleblower, the IRS proceeds with an examination of Corporation and determines adjustments that would result in an unpaid tax liability of $500,000. During the examination, Corporation informally claims a refund of $400,000 based on adjustments to items of income and expense that are wholly unrelated to the information provided by the whistleblower. The IRS agrees to the unrelated adjustments. The IRS nets the adjustments and determines a tax deficiency of $100,000. Thereafter, Corporation makes full payment of the $100,000 deficiency. For purposes of section 7623 and §§ 301.7623-1 through 301.7623-4, the collected proceeds include the $400,000 informally claimed as a refund and netted against the adjustments attributable to the information provided, as well as the $100,000 paid by Corporation. (3) Amended returns. (i) The IRS proceeds based on the information provided; (ii) As a result, the person subject to the action(s) with which the IRS proceeds files amended returns; and (iii) The amounts collected based on the amended returns relate to the activities or facts described in the information provided. (4) Criminal fines. (5) Computation of collected proceeds. In general. (ii) Post-determination proceeds. (iii) Partial collection. (e) Amount in dispute and gross income. In general. (2) Amount in dispute. In general. amount in dispute (ii) Examples. Example 1. Information provided to the IRS by a whistleblower, under section 7623 and § 301.7623-1, identifies a corporate taxpayer, describes and documents specific facts relating to the taxpayer's activities, and, based on those facts, alleges that the taxpayer owed additional taxes. The IRS proceeds with an examination of the taxpayer based on the information provided by the whistleblower; makes adjustments to items of income and expense and allows certain credits; and, ultimately, determines a deficiency against the taxpayer of $1,900,000 and issues the taxpayer a statutory notice of deficiency. The taxpayer petitions the notice to the United States Tax Court. The Tax Court sustains the IRS's position resulting in a deficiency of $1,900,000. Following the final determination of tax, the IRS computes that the total of tax, penalties, interest, additions to tax, and additional amounts that resulted from the action was $2,500,000. For purposes of section 7623 and §§ 301.7623-1 through 301.7623-4, the amount in dispute is $2,500,000. Example 2. Same facts as Example 1, Example 3. Same facts as Example 1, (3) Gross income. gross income (f) Effective/applicability date. [T.D. 9687, 79 FR 47266, Aug. 12, 2014; 79 FR 57785, Sept. 26, 2014] § 301.7623-3 Whistleblower administrative proceedings and appeals of award determinations. (a) In general. (b) Awards under section 7623(a). Preliminary award recommendation. (2) Decision letter. (3) Rejections and denials. (c) Awards under section 7623(b). Preliminary award recommendation. (2) Contents of preliminary award recommendation. (i) A preliminary award recommendation letter that describes the whistleblower's options for responding to the preliminary award recommendation; (ii) A summary report that states a preliminary computation of the amount of collected proceeds, the recommended award percentage, the recommended award amount (even in cases when the application of section 7623(b)(2) or section 7623(b)(3) results in a reduction of the recommended award amount to zero), and a list of the factors that contributed to the recommended award percentage; (iii) An award consent form; and (iv) A confidentiality agreement. (3) Opportunity to respond to preliminary award recommendation. (i) If the whistleblower takes no action, then the Whistleblower Office will make an award determination, pursuant to paragraph (c)(6) of this section; (ii) If the whistleblower signs, dates, and returns the award consent form agreeing to the preliminary award recommendation and waiving any and all administrative and judicial appeal rights, then the Whistleblower Office will make an award determination, pursuant to paragraph (c)(6) of this section; (iii) If the whistleblower signs, dates, and returns the confidentiality agreement, then the Whistleblower Office will provide the whistleblower with a detailed award report, and an opportunity to review documents supporting the report pursuant to paragraphs (c)(4) and (5) of this section, and any comments submitted by the whistleblower will be added to the administrative claim file; or (iv) If the whistleblower submits comments on the preliminary award recommendation to the Whistleblower Office, but does not sign, date, and return the confidentiality agreement, then the comments will be added to the administrative claim file and reviewed by the Whistleblower Office in making an award determination, pursuant to paragraph (c)(6) of this section. (4) Detailed report. Contents of detailed report. (A) A detailed report that states a preliminary computation of the amount of collected proceeds, the recommended award percentage, and the recommended award amount, and provides a full explanation of the factors that contributed to the recommended award percentage; (B) Instructions for scheduling an appointment for the whistleblower (and the whistleblower's legal representative, if any) to review information in the administrative claim file that is not protected by one or more common law or statutory privileges; and (C) An award consent form. (ii) Opportunity to respond to detailed report. (A) If the whistleblower takes no action, then the Whistleblower Office will make an award determination, pursuant to paragraph (c)(6) of this section; (B) If the whistleblower requests an appointment to review information from the administrative claim file that is not protected from disclosure by one or more common law or statutory privileges, then a meeting will be arranged pursuant to paragraph (c)(5) of this section; (C) If the whistleblower does not request an appointment but does submit comments on the detailed report to the Whistleblower Office, then the comments will be added to the administrative claim file and reviewed by the Whistleblower Office in making an award determination pursuant to paragraph (c)(6) of this section; or (D) If the whistleblower signs, dates, and returns the award consent form agreeing to the preliminary award recommendation and waiving any and all administrative and judicial appeal rights, then the Whistleblower Office will make an award determination, pursuant to paragraph (c)(6) of this section. (iii) Additional rules. (5) Opportunity to review documents supporting award report recommendations. (6) Determination letter. (7) Rejections. (8) Denials. (d) Appeal of award determination. (e) Administrative record. In general. (2) Administrative claim file. (i) The Form 211, “Application for Award for Original Information,” filed by the whistleblower and all information provided by the whistleblower (whether provided with the whistleblower's original submission or through a subsequent contact with the IRS). (ii) Copies of all debriefing notes and recorded interviews held with the whistleblower (and the whistleblower's legal representative, if any). (iii) Form(s) 11369, “Confidential Evaluation Report on Claim for Award,” including narratives prepared by the relevant IRS office(s), explaining the whistleblower's contributions to the actions and documenting the actions taken by the IRS in the case(s). The Form 11369 will refer to and incorporate additional documents relating to the issues raised by the claim, as appropriate, including, for example, relevant portions of revenue agent reports, copies of agreements entered into with the taxpayer(s), tax returns, and activity records. (iv) Copies of all contracts entered into among the IRS, the whistleblower, and the whistleblower's legal representative (if any), and an explanation of the cooperation provided by the whistleblower (or the whistleblower's legal representative, if any) under the contract. (v) Any information that reflects actions by the whistleblower that may have had a negative impact on the IRS's ability to examine the taxpayer(s). (vi) All correspondence and documents sent by the Whistleblower Office to the whistleblower. (vii) All notes, memoranda, and other documents made by officers and employees of the Whistleblower Office and considered by the official making the award determination. (viii) All correspondence and documents received by the Whistleblower Office from the whistleblower (and the whistleblower's legal representative, if any) in the course of the whistleblower administrative proceeding. (ix) All other information considered by the official making the award determination. (f) Effective/applicability date. [T.D. 9687, 79 FR 47268, Aug. 12, 2014] § 301.7623-4 Amount and payment of award. (a) In general. (1) Analyze the claim by applying the rules provided in paragraph (c) of this section to the information contained in the administrative claim file to determine an award percentage; and (2) Multiply the award percentage by the amount of collected proceeds. If the award determination arises out of a single whistleblower administrative proceeding involving multiple actions, the Whistleblower Office may determine separate award percentages on an action-by-action basis and apply the separate award percentages to the collected proceeds attributable to the corresponding actions. The Internal Revenue Service (IRS) will pay all awards in accordance with the rules provided in paragraph (d) of this section. All relevant factors will be taken into account by the Whistleblower Office in determining whether an award will be paid and, if so, the amount of the award. No person is authorized under this section to make any offer or promise or otherwise bind the Whistleblower Office with respect to the amount or payment of an award. (b) Factors used to determine award percentage. Positive factors. (i) The whistleblower acted promptly to inform the IRS or the taxpayer of the tax noncompliance. (ii) The information provided identified an issue or transaction of a type previously unknown to the IRS. (iii) The information provided identified taxpayer behavior that the IRS was unlikely to identify or that was particularly difficult to detect through the IRS's exercise of reasonable diligence. (iv) The information provided thoroughly presented the factual details of tax noncompliance in a clear and organized manner, particularly if the manner of the presentation saved the IRS work and resources. (v) The whistleblower (or the whistleblower's legal representative, if any) provided exceptional cooperation and assistance during the pendency of the action(s). (vi) The information provided identified assets of the taxpayer that could be used to pay liabilities, particularly if the assets were not otherwise known to the IRS. (vii) The information provided identified connections between transactions, or parties to transactions, that enabled the IRS to understand tax implications that might not otherwise have been understood by the IRS. (viii) The information provided had an impact on the behavior of the taxpayer, for example by causing the taxpayer to promptly correct a previously-reported improper position. (2) Negative factors. (i) The whistleblower delayed informing the IRS after learning the relevant facts, particularly if the delay adversely affected the IRS's ability to pursue an action or issue. (ii) The whistleblower contributed to the underpayment of tax or tax noncompliance identified. (iii) The whistleblower directly or indirectly profited from the underpayment of tax or tax noncompliance identified, but did not plan and initiate the actions that led to the underpayment of tax or actions described in section 7623(a)(2) . (iv) The whistleblower (or the whistleblower's legal representative, if any) negatively affected the IRS's ability to pursue the action(s), for example by disclosing the existence or scope of an enforcement activity. (v) The whistleblower (or the whistleblower's legal representative, if any) violated instructions provided by the IRS, particularly if the violation caused the IRS to expend additional resources. (vi) The whistleblower (or the whistleblower's legal representative, if any) violated the terms of the confidentiality agreement described in § 301.7623-3(c)(2)(iv). (vii) The whistleblower (or the whistleblower's legal representative, if any) violated the terms of a contract entered into with the IRS pursuant to § 301.6103(n)-2. (viii) The whistleblower provided false or misleading information or otherwise violated the requirements of section 7623(b)(6)(C) or § 301.7623-1(c)(3). (c) Amount of award percentage. Award for substantial contribution. In general. (ii) Computational framework. (iii) Examples. Example 1. Facts. Whistleblower A, an employee in Corporation's sales department, submitted to the IRS a claim for award under section 7623 and information indicating that Corporation improperly claimed a credit in tax year 2006. Whistleblower A's information consisted of numerous non-privileged documents relevant to Corporation's eligibility for the credit. Whistleblower A's original submission also included an analysis of the documents, as well as information about meetings in which the claim for credit was discussed. When interviewed by the IRS, Whistleblower A clarified ambiguities in the original submission, answered questions about Corporation's business and accounting practices, and identified potential sources to corroborate the information. Some of the documents provided by Whistleblower A were not included in Corporation's general record-keeping system and their existence may not have been easily uncovered through normal IRS examination procedures. Corporation initially denied the facts revealed in the information provided by Whistleblower A, which were essential to establishing the impropriety of the claim for credit. IRS examination of Corporation's return confirmed that the credit was improperly claimed by Corporation in tax year 2006, as alleged by Whistleblower A. Corporation agreed to the ensuing assessments of tax and interest and paid the liabilities in full. Analysis. In this case, Whistleblower A provided specific and credible information that formed the basis for action by the IRS. Whistleblower A provided information that was difficult to detect, provided useful assistance to the IRS, and helped the IRS sustain the assessment. Based on the presence and significance of these positive factors, viewed against all the specific facts relevant to Corporation's 2006 tax year, the Whistleblower Office could increase the award percentage to 22 percent of collected proceeds. If, however, Whistleblower A's claim reflected negative factors, for example Whistleblower A violated instructions provided by the IRS and the violation caused the IRS to expend additional resources, then the Whistleblower Office could, based on this negative factor, reduce the award percentage to 18 or 15 percent (but not to lower than 15 percent of collected proceeds). Example 2. Facts. Whistleblower B, an employee of Financial Advisory Firm 1 (Firm 1), submitted to the IRS a claim for award under section 7623 and information indicating that Firm 1 helped clients engage in activities that were intended to, and did, result in substantial tax underpayments. The activities were designed to avoid detection by the IRS, and prior IRS audits of several clients of Firm 1 had failed to detect underpayments of tax. Whistleblower B learned of the activities after being reassigned to a new position with Firm 1. Whistleblower B provided the information to the IRS soon after he understood the scope, nature and impact of the activities. The information provided consisted of numerous documents containing client profiles and marketing strategies, as well as descriptions of the transactions and structures used by Firm 1 and its clients to obscure the clients' identities and to generate the substantial tax underpayments. Whistleblower B also provided an analysis of the documents, as well as information about meetings in which the transactions and structures were discussed. When interviewed by the IRS, Whistleblower B clarified ambiguities in the original submission, answered questions about Firm 1's execution of specific client transactions, and identified potential sources to corroborate the information provided. Whistleblower B also notified the IRS of steps taken by Firm 1 to limit the disclosure of information requested by the IRS, enabling the IRS to obtain full disclosure of the information through the targeted use of summonses. Analysis. Ultimately, the IRS collected tax, penalties, and interest from Firm 1 and multiple clients. In addition, Treasury and the IRS issued a notice identifying the impropriety of the transactions and structures employed by Firm 1 and its clients. Whistleblower B provided specific and credible information that formed the basis for action by the IRS. The information provided identified transactions that were difficult to detect. Whistleblower B acted promptly after he understood the activities at issue and he provided useful assistance to the IRS. Whistleblower B's assistance, and the information he provided, helped the IRS overcome the efforts made to obscure the activities and the clients' identities. And the information provided by Whistleblower B contributed to the decision to issue the notice, which may have a positive effect on client behavior and save IRS resources. Based on the presence and significance of these positive factors, the Whistleblower Office could increase the award percentage to 30 percent of collected proceeds. If Whistleblower B directly or indirectly profited from Firm 1's and the clients' activities resulting in the tax underpayments, then the Whistleblower Office could, based on this negative factor, reduce the award percentage to 26, 22, 18 percent or 15 percent (but not to lower than 15 percent of collected proceeds). (2) Award for less substantial contribution. In general. (ii) Computational framework. (A) Whether the claim involves specific allegations regarding a tax underpayment or a violation of the internal revenue laws that reasonably may be inferred to have resulted from a judicial or administrative hearing; a government report, hearing, audit, or investigation; or the news media; (B) Whether the action described in paragraph (c)(1) of this section was based principally on the disclosure of the specific allegations; and (C) Whether the whistleblower was the original source of the information that gave rise to the specific allegations. If the Whistleblower Office determines that the action was based principally on disclosures of specific allegations, as stated in paragraph (c)(2)(ii)(B) of this section, and that the whistleblower was not the original source of the information, then, starting at 1 percent, the Whistleblower Office will analyze the administrative claim file using the factors listed in paragraph (b)(1) of this section to determine whether the whistleblower merits an increased award percentage of 4 percent, 7 percent, or 10 percent. The Whistleblower Office will then determine whether the whistleblower merits a decreased award percentage of zero, 1 percent, 4 percent, or 7 percent using the factors listed in paragraph (b)(2) of this section. The Whistleblower Office may increase the award percentage based on the presence and significance of positive factors and may decrease (to zero) the award percentage based on the presence and significance of negative factors. Like the analysis described in paragraph (c)(1)(ii) of this section, the Whistleblower Office's analysis cannot be reduced to a mathematical equation. The factors are not exclusive and are not weighted and, in a particular case, one factor may override several others. The presence and significance of positive factors may offset the presence and significance of negative factors. But the absence of negative factors does not constitute a positive factor. (iii) Example. Example. Facts. Whistleblower A submitted to the IRS a claim for award under section 7623 and information indicating that Taxpayer B was the defendant in a criminal prosecution for embezzlement. Whistleblower A's information further indicated that evidence presented at Taxpayer B's trial revealed Taxpayer B's efforts to conceal the embezzled funds by depositing them in bank accounts of entities controlled by Taxpayer B. Taxpayer B's failure to pay tax on the embezzled funds was not explicitly stated during the judicial hearing, but could be reasonably inferred from the facts and circumstances, including Taxpayer B's efforts to conceal the funds. Analysis. In this case, Whistleblower A's information is based principally on disclosures of specific allegations resulting from a judicial hearing. Absent information demonstrating that the investigation leading to the embezzlement charge was based on information provided by Whistleblower A, section 7623(b)(2) and paragraph (c)(2) of this section apply to the determination of Whistleblower A's award. In this case, there is no reason for the Whistleblower Office to increase the applicable award percentage above 1 percent, the starting point for its analysis, given the absence of positive factors. Accordingly, Whistleblower A may receive an award of 1 percent of collected proceeds. (3) Reduction in award and denial of award. In general. (ii) Threshold determination. planned and initiated (A) Designed, structured, drafted, arranged, formed the plan leading to, or otherwise planned, an underlying act, (B) Took steps to start, introduce, originate, set into motion, promote or otherwise initiate an underlying act, and (C) Knew or had reason to know that an underpayment of tax or actions described in section 7623(a)(2) could result from planning and initiating the underlying act. (D) The whistleblower need not have been the sole person involved in planning and initiating the underlying acts. A whistleblower who merely furnishes typing, reproducing, or other mechanical assistance in implementing one or more underlying acts will not be treated as initiating any underlying act. A whistleblower who is a junior employee acting at the direction, and under the control, of a senior employee will not be treated as initiating any underlying act. (E) If the Whistleblower Office determines that a whistleblower has satisfied this initial threshold of planning and initiating, the Whistleblower Office will then reduce the award amount based on the extent of the whistleblower's planning and initiating, pursuant to paragraph (c)(3)(iii) of this section. (iii) Computational framework. (A) Categorize the whistleblower's role as a planner and initiator as primary, significant, or moderate; and (B) Appropriately reduce the award percentage that would otherwise result from the application of section 7623(b)(1) and paragraph (c)(1) of this section or section 7623(b)(2) and paragraph (c)(2) of this section, as applicable, by 67 percent to 100 percent in the case of a primary planner and initiator, by 34 percent to 66 percent in the case of a significant planner and initiator, or by 0 percent to 33 percent in the case of a moderate planner and initiator. If the whistleblower is convicted of criminal conduct arising from his or her role in planning and initiating the underlying acts, then the Whistleblower Office will deny an award without regard to whether the Whistleblower Office categorized the whistleblower's role as a planner and initiator as primary, significant, or moderate. (iv) Factors demonstrating the extent of a whistleblower's planning and initiating. (A) The whistleblower's role as a planner and initiator. Was the whistleblower the sole decision-maker or one of several contributing planners and initiators? To what extent was the whistleblower acting under the direction and control of a supervisor? (B) The nature of the whistleblower's planning and initiating activities. Was the whistleblower involved in legitimate tax planning activities? Did the whistleblower take steps to hide the actions at the planning stage? Did the whistleblower commit any identifiable misconduct (legal, ethical, etc.)? (C) The extent to which the whistleblower knew or should have known that tax noncompliance could result from the course of conduct. (D) The extent to which the whistleblower acted in furtherance of the noncompliance, including, for example, efforts to conceal or disguise the transaction. (E) The whistleblower's role in identifying and soliciting others to participate in the actions reported, whether as parties to a common transaction or as parties to separate transactions. (v) Examples. Example 1. Facts. Whistleblower A is employed as a junior associate in a law firm and is responsible for performing research and drafting activities for, and under the direction and control of, partners of the law firm. Whistleblower A performed research on financial products for Partner B that Partner B used in advising a client (Corporation 1) on a financial strategy. After Corporation 1 executed the strategy, Whistleblower A submitted a claim for award under section 7623 along with information about the strategy to the IRS. The IRS initiated an examination of Corporation 1 based on Whistleblower A's information, determined deficiencies in tax and penalties, and ultimately assessed and collected the tax and penalties as determined. Analysis. Whistleblower A did nothing to design or set into motion Corporation 1's activities. Whistleblower A did not know or have reason to know that an underpayment of tax or actions described in section 7623(a)(2) could result from the research and drafting activities. Accordingly, as a threshold matter, Whistleblower A was not a planner and initiator of Corporation 1's strategy, and the award that would otherwise be determined based on the application of section 7623(b)(1) and paragraph (c)(1) of this section is not subject to reduction under section 7623(b)(3) and paragraph (c)(3) of this section. Example 2. Facts. Whistleblower C is employed in the human resources department of a corporation (Corporation 2). Corporation 2 tasked Whistleblower C with hiring a large number of temporary employees to meet Corporation 2's seasonal business demands. Whistleblower C organized, scheduled, and conducted job fairs and job interviews to hire the seasonal employees. Whistleblower C was not responsible for, had no knowledge of, and played no part in, classifying the seasonal employees for Federal income tax purposes. Whistleblower C later discovered, however, that Corporation 2 classified the seasonal employees as independent contractors. After discovering the misclassification, Whistleblower C submitted a claim for award under section 7623 along with non-privileged information describing the employee misclassification to the IRS. The IRS initiated an examination of Corporation 2 based on Whistleblower C's information, determined deficiencies in tax and penalties, and ultimately assessed and collected the tax and penalties as determined. Analysis. The award that would otherwise be determined based on the application of section 7623(b)(1) and paragraph (c)(1) of this section would not be subject to a reduction under section 7623(b)(3) and paragraph (c)(3) of this section because Whistleblower C did not satisfy the requirements of the threshold determination of a planner and initiator. Whistleblower C did not know and had no reason to know that her actions could result in an underpayment of tax or actions described in section 7623(a)(2) or that Corporation 2 would misclassify the employees as independent contractors. Example 3. Facts. Whistleblower D is employed as a supervisor in the finance department of a corporation (Corporation 3) and is responsible for planning Corporation 3's overall financial strategy. Pursuant to the overall financial strategy, Whistleblower D and others at Corporation 3, in good faith but incorrectly, planned tax-advantaged transactions. Whistleblower D and others at Corporation 3 prepared documents needed to execute the transactions. After Corporation 3 executed the transactions, Whistleblower D reached the conclusion that the tax consequences claimed were incorrect and Whistleblower D submitted a claim for award under section 7623 along with non-privileged information about the transactions to the IRS. The IRS initiated an examination of Corporation 3 based on Whistleblower D's information, determined deficiencies in tax and penalties, and ultimately assessed and collected the tax and penalties as determined. Analysis. The award that would otherwise be determined based on the application of section 7623(b)(1) and paragraph (c)(1) of this section would be subject to an appropriate reduction under section 7623(b)(3) and paragraph (c)(3) of this section because Whistleblower D satisfies the requirements of the threshold determination of a planner and initiator. Whistleblower D planned the transactions, prepared the necessary documents, and knew that an underpayment of tax could result from the transactions. Whistleblower D was not the sole planner and initiator of Corporation 3's transactions. Whistleblower D did nothing to conceal Corporation 3's activities. Corporation 3 had a good faith basis for claiming the disallowed tax benefits. On the basis of those facts, Whistleblower D was a moderate-level planner and initiator. Accordingly, the Whistleblower Office will exercise its discretion to reduce Whistleblower D's award by 0 to 33 percent. Example 4. Facts. Same facts as Example 3, Analysis. The award that would otherwise be determined based on the application of section 7623(b)(1) and paragraph (c)(1) of this section would be subject to an appropriate reduction under section 7623(b)(3) and paragraph (c)(3) of this section because Whistleblower D satisfies the requirements of the threshold determination of a planner and initiator. Whistleblower D planned the transaction, prepared the necessary documents, and knew that an underpayment of tax or actions described in section 7623(a)(2) could result from the transaction. Working independently, Whistleblower D designed and took steps to effectuate the transaction while knowing that the planning and initiating of the transaction was likely to result in tax noncompliance. Whistleblower D, however, did not approve the execution of the transaction by Corporation 3 and, therefore, was not a decision-maker. On the basis of these facts, Whistleblower D was a significant-level planner and initiator. Accordingly, the Whistleblower Office will exercise its discretion to reduce Whistleblower D's award by 34 to 66 percent. Example 5. Facts. Whistleblower E is a financial planner. Whistleblower E designed a financial product that the IRS identified as an abusive tax avoidance transaction. Whistleblower E marketed the transaction to taxpayers, facilitated their participation in the transaction, and, initially, took steps to disguise the transaction. After several taxpayers had participated in the transaction, Whistleblower E submitted a claim for award under section 7623 along with non-privileged information to the IRS about the transaction and the participating taxpayers. The IRS initiated an examination of the identified taxpayers based on Whistleblower E's information, determined deficiencies in tax and penalties, and ultimately assessed and collected the tax and penalties as determined. Whistleblower E was not criminally prosecuted. Analysis. The award that would otherwise be determined based on the application of section 7623(b)(1) and paragraph (c)(1) of this section would be subject to an appropriate reduction under section 7623(b)(3) and paragraph (c)(3) of this section because Whistleblower E satisfies the requirements of the threshold determination of a planner and initiator. Whistleblower E designed the financial product, marketed and facilitated its use by taxpayers, and knew that an underpayment of tax or actions described in section 7623(a)(2) could result from the transaction. Whistleblower E was the sole designer of the transaction, solicited clients to participate in the transaction, and facilitated and attempted to conceal their participation in the transaction. Whistleblower E knew that the planning and initiating of the taxpayers' participation in the transaction was likely to result in an underpayment of tax or actions described in section 7623(a)(2). On the basis of these facts, Whistleblower E was a primary-level planner and initiator. Accordingly, the Whistleblower Office will exercise its discretion to reduce Whistleblower E's award by 67 to 100 percent. (4) Multiple whistleblowers. (d) Payment of Award. In general. (2) Final determination of tax. In general. final determination of tax (ii) Example. Example. Information provided to the IRS by a whistleblower, under section 7623 and § 301.7623-1, identifies a taxpayer (Corporation 1), describes and documents specific facts relating to Corporation 1's activities, and, based on those facts, alleges that Corporation 1 owed additional taxes in Year 1. The Whistleblower Office processes the incoming claim and provides the information to an IRS Operating Division (Operating Division 1). Operating Division 1 reviews the claim and the allegations and ultimately decides not to proceed with an action against Corporation 1. Operating Division 1 conveys its determination not to proceed with an action against Corporation 1 to the Whistleblower Office on a Form 11369 along with all of the relevant supporting documents. The Whistleblower Office provides written notice to the whistleblower, denying any award pursuant to § 301.7623-3(c)(8), and the whistleblower does not appeal the notice to Tax Court within 30 days. Two months after the Whistleblower Office denies the award, the Whistleblower Office recognizes a potential connection between the information provided and a recently-initiated, ongoing, examination of a second taxpayer by a second IRS Operating Division (Operating Division 2). The Whistleblower Office provides the information to Operating Division 2. Operating Division 2 evaluates the information and proceeds with an action against Taxpayer 2 based on the information provided. Ultimately, Operating Division 2 assesses and collects taxes resulting from the action and totaling $3 million. Following the conclusion of the whistleblower's participation in a whistleblower administrative proceeding described in § 301.7623-3(c) and the expiration of the statutory period for filing a claim for refund by Taxpayer 2, the Whistleblower Office determines the amount of the award and communicates the award to the whistleblower in a determination letter. The whistleblower may appeal the notice to the Tax Court within 30 days. (3) Joint Whistleblowers. (4) Deceased Whistleblower. (5) Tax treatment of award. (e) Effective/applicability date. [T.D. 9687, 79 FR 47270, Aug. 12, 2014] § 301.7624-1 Reimbursement to State and local law enforcement agencies. (a) In general. (b) Information that substantially contributes to recovery of taxes Definition. (i) Concerns a taxpayer who is not under examination or investigation by the Service at the time the information is furnished or has not already been selected by the Service for examination or investigation in the near future, or (ii) Concerns a taxpayer who is under examination or has been selected for examination at the time the information is furnished but the information furnished would not normally have been discovered in the course of an ordinary investigation or examination by the Service. Also, information will generally be considered as substantially contributing to the recovery of taxes if it leads to the discovery of hidden assets owned by the taxpayer which are used to satisfy the taxpayer's assessed but otherwise uncollectible Federal tax liability with respect to illegal drug or related money laundering activities. For purposes of this paragraph (b), information includes, but is not limited to, tax years of violations, aliases, addresses, social security numbers and/or employer identification numbers, financial data (bank accounts, assets, etc.) and their location, and any documentation that substantiates allegations concerning tax liability (books and records) and its location. (2) Examples: Example 1. A local police department's narcotics division has been gathering information on a suspected local drug dealer for approximately six months. Because this person is very cautious when handling narcotics, the local police have been unsuccessful in catching this person in possession of drugs. Rather than drop the case, the narcotics detective turns over to the local IRS Criminal Investigation Division (CID) office information concerning this person. At the time the information is furnished, the Service is unaware of this person's suspected involvement in drugs and has no reason to suspect that this person's Federal income tax returns are incorrect. Upon examination of this person's returns for three open years, the Service determines that additional Federal income taxes and civil penalties of approximately $20,000 per year are due because of unreported income from drug dealing. Because the taxpayer was not under examination and was not reasonably anticipated to have been examined prior to receipt of the information, the Service will consider that the information furnished by the local police department substantially contributed to the recovery of approximately $60,000 in taxes with respect to illegal drug activities. Example 2. Assume the same facts as example 1 except that at the time the information is turned over to the Service, the Service was already aware of the extent of this person's involvement in drug dealing, either through information developed in the course of examinations of other taxpayers or through information received from other sources, and had already selected this person's returns for examination although the person had not yet been contacted by the Service. In this case, the information provided by the local police department did not substantially contribute to the recovery of taxes from this person because the information was already known to the Service. Example 3. A state or local police officer is conducting ordinary traffic patrol. The officer stops a vehicle for speeding and reckless driving. The officer recognizes the driver as a known narcotics dealer. In the vehicle is a brief case containing $75,000 in cash, but no trace of narcotics is found. The driver claims the cash was won in a high stakes poker game. The officer arrests the driver for traffic violations and takes the briefcase into custody for safe keeping. The local police department cannot seize the money because they cannot tie it to a narcotics transaction. Instead, they immediately inform the local CID office of their find. At the time this information is furnished to the Service, there is an unpaid assessed liability of $300,000 in Federal taxes and penalties owed by the dealer with respect to illegal drug activities that the Service has been unable to collect. Therefore, the Service immediately seizes the $75,000 in cash in partial payment of the tax liability. The Service will consider that the information furnished by the police department substantially contributed to the recovery of $75,000 in taxes with respect to drug related activities. Example 4. Through information furnished by a reliable informant, a local police department learns that a known racketeer and suspected drug dealer maintains a second set of books and records in a safe at home. The local police obtain a search warrant and find a set of books revealing that this person has been using a legitimate business operation to launder money derived from both prostitution and drug dealing. At the time these records are turned over to the local CID office, the taxpayer is already under examination for tax evasion. However, based on the information contained in this second set of books, the Service is able to collect additional taxes and civil penalties in the amount of $1 million in connection with these illegal activities. The Service will consider that this information substantially contributed to the recovery of $1 million in taxes with respect to money laundering in connection with illegal drug activities because, even though the taxpayer was already under examination, the information provided by the local police would normally not have been discovered by the Service in the course of an ordinary investigation. (c) Application for reimbursement. (d) Time for filing application for reimbursement. (e) Amount and payment of reimbursement De minimis rule. (2) Taxes recovered. (3) Limitation on reimbursement. (4) No duplicate reimbursement. (5) Time of payment. (6) Applicability. (f) Effective date. [T.D. 8255, 54 FR 21054, May 16, 1989, as amended by 57 FR 2840, Jan. 24, 1992. Redesignated by T.D. 8415, 57 FR 15017, Apr. 24, 1992] Supervision of Operations of Certain Manufacturers § 301.7641-1 Supervision of operations of certain manufacturers. For regulations under section 7641, except the provisions thereof relating to the manufacture of opium suitable for smoking purposes, see subparts E, F, G, and H or part 45 of this chapter (Miscellaneous Stamp Tax Regulations). For regulations relating to the manufacture of opium suitable for smoking purposes, see 26 CFR (1939) 150 (Narcotics Regulations 3, 3 FR 1402) as made applicable to section 7641 by Treasury Decision 6091, approved August 16, 1954 (19 FR 5167). Possessions § 301.7654-1 Coordination of U.S. and Guam individual income taxes. (a) Application of section Scope. (2) Individuals covered. (i) Adjusted gross income of $50,000 or more, and (ii) Gross income of $5,000 or more from sources within the jurisdiction (either the United States or Guam) other than the jurisdiction with which the individual is required to file his income tax return under paragraph (b) of § 1.935-1 of this chapter. For the determination of gross income and adjusted gross income see sections 61 and 62, and the regulations thereunder, or, when applicable, the corresponding provisions as made applicable in Guam by the Guam Territorial income tax (48 U.S.C. 1421i). For purposes of this paragraph, gross income consisting of compensation for military or naval service shall be taken into account notwithstanding section 514 of the Soldiers' and Sailors' Civil Relief Act of 1940 (50 App. U.S.C. 574). However, see paragraph (e) of this section. (b) Allocation of tax. (i) Net collections attributable to income from sources within the United States shall be covered into the Treasury of the United States. (ii) Net collections attributable to income from sources within Guam shall be covered into the treasury of Guam, and (iii) Net collections not described in subdivision (i) or (ii) of this subparagraph ( i.e. (2) The amount of tax of any individual for a taxable year which shall be allocated to Guam for purposes of determining the portion of the net collections from such individual which shall be covered into the treasury of Guam by the United States for such year shall be that amount which bears the same ratio to such amount of tax as the adjusted gross income of that individual for such year which is allocable to sources in Guam bears to the total adjusted gross income of such individual for such year. For purposes of such allocation by the United States, the adjusted gross income of the taxpayer shall be determined by taking into account any compensation of any member of the Armed Forces for services performed in Guam the withheld tax on which is paid into the treasury of Guam pursuant to paragraph (e) of this section. The amount of tax of any individual for any taxable year which shall be allocated to the United States for purposes of determining the portion of the net collections from such individual which shall be covered into the Treasury of the United States by Guam for such year shall be that amount which bears the same ratio to such amount of tax as the adjusted gross income of that individual for such year which is allocable to sources in the United States bears to the total adjusted gross income of such individual for such year. (c) Definitions and special rules. (1) Net collections. (ii) Tax withheld from the compensation of any member of the Armed Forces described in paragraph (a)(2) of this section which is paid to Guam pursuant to section 7654(d) and paragraph (e) of this section shall be taken into account in determining the amount required to be covered into the treasury of Guam under paragraph (b)(1)(ii) of this section. (iii) For purposes of this subparagraph, any underpayment of tax is treated as attributable on a pro rata basis to income from sources within the United States, Guam, and sources other than within the United States or Guam, respectively, and is divided between the United States and Guam under the rules in paragraph (b) of this section. (2) Income taxes. (i) With respect to taxes imposed by the United States, the income taxes imposed by chapter 1 of the Code, and (ii) With respect to taxes imposed by Guam, the Guam Territorial income tax (48 U.S.C. 1421i). (3) Source rules. (d) Information return. (e) Military personnel in Guam. (f) Transfers of funds. [T.D. 7385, 40 FR 50265, Oct. 29, 1975] Definitions § 301.7701-1 Classification of organizations for federal tax purposes. (a) Organizations for federal tax purposes In general. (2) Certain joint undertakings give rise to entities for federal tax purposes. (3) Certain State and local law entities not recognized. (4) Certain Tribal entities In general Rule. (B) Definition of section 17 corporation. section 17 corporation (C) Definition of section 3 corporation. section 3 corporation (D) Definition of wholly owned Tribal entity. wholly owned Tribal entity (ii) Elections under section 6417. See (iii) Federal employment taxes and excise taxes. (iv) Examples. (A) Example 1. (B) Example 2. Example 1 Example 1 (C) Example 3. (D) Example 4. (E) Example 5. (5) Single owner organizations. (b) Classification of organizations. (c) Cost sharing arrangements. (d) Domestic and foreign business entities. (e) State. State (f) Applicability dates In general. (2) Exceptions Paragraph (a)(4) of this section. (ii) Paragraph (c) of this section. [T.D. 8697, 61 FR 66588, Dec. 18, 1996, as amended by T.D. 9153, 69 FR 49810, Aug. 12, 2004; T.D. 9246, 71 FR 4816, Jan. 30, 2006; T.D. 9441, 74 FR 390, Jan. 5, 2009; T.D. 9568, 76 FR 80136, Dec. 22, 2011; T.D. 10039, 90 FR 58161, Dec. 16, 2025] § 301.7701-2 Business entities; definitions. (a) Business entities. business entity (b) Corporations. corporation (1) A business entity organized under a Federal or State statute, or under a statute of a federally recognized Indian tribe, if the statute describes or refers to the entity as incorporated or as a corporation, body corporate, or body politic; (2) An association (as determined under § 301.7701-3); (3) A business entity organized under a State statute, if the statute describes or refers to the entity as a joint-stock company or joint-stock association; (4) An insurance company; (5) A State-chartered business entity conducting banking activities, if any of its deposits are insured under the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1811 et seq., (6) A business entity wholly owned by a State or any political subdivision thereof, or a business entity wholly owned by a foreign government or any other entity described in § 1.892-2T; (7) A business entity that is taxable as a corporation under a provision of the Internal Revenue Code other than section 7701(a)(3); and (8) Certain foreign entities In general. American Samoa, Corporation Argentina, Sociedad Anonima Australia, Public Limited Company Austria, Aktiengesellschaft Barbados, Limited Company Belgium, Societe Anonyme Belize, Public Limited Company Bolivia, Sociedad Anonima Brazil, Sociedade Anonima Bulgaria, Aktsionerno Druzhestvo. Canada, Corporation and Company Chile, Sociedad Anonima People's Republic of China, Gufen Youxian Gongsi Republic of China (Taiwan), Ku-fen Yu-hsien Kung-szu Colombia, Sociedad Anonima Costa Rica, Sociedad Anonima Cyprus, Public Limited Company Czech Republic, Akciova Spolecnost Denmark, Aktieselskab Ecuador, Sociedad Anonima or Compania Anonima Egypt, Sharikat Al-Mossahamah El Salvador, Sociedad Anonima Estonia, Aktsiaselts European Economic Area/European Union, Societas Europaea Finland, Julkinen Osakeyhtio/Publikt Aktiebolag France, Societe Anonyme Germany, Aktiengesellschaft Greece, Anonymos Etairia Guam, Corporation Guatemala, Sociedad Anonima Guyana, Public Limited Company Honduras, Sociedad Anonima Hong Kong, Public Limited Company Hungary, Reszvenytarsasag Iceland, Hlutafelag India, Public Limited Company Indonesia, Perseroan Terbuka Ireland, Public Limited Company Israel, Public Limited Company Italy, Societa per Azioni Jamaica, Public Limited Company Japan, Kabushiki Kaisha Kazakstan, Ashyk Aktsionerlik Kogham Republic of Korea, Chusik Hoesa Latvia, Akciju Sabiedriba Liberia, Corporation Liechtenstein, Aktiengesellschaft Lithuania, Akcine Bendroves Luxembourg, Societe Anonyme Malaysia, Berhad Malta, Public Limited Company Mexico, Sociedad Anonima Morocco, Societe Anonyme Netherlands, Naamloze Vennootschap New Zealand, Limited Company Nicaragua, Compania Anonima Nigeria, Public Limited Company Northern Mariana Islands, Corporation Norway, Allment Aksjeselskap Pakistan, Public Limited Company Panama, Sociedad Anonima Paraguay, Sociedad Anonima Peru, Sociedad Anonima Philippines, Stock Corporation Poland, Spolka Akcyjna Portugal, Sociedade Anonima Puerto Rico, Corporation Romania, Societate pe Actiuni Russia, Otkrytoye Aktsionernoy Obshchestvo Saudi Arabia, Sharikat Al-Mossahamah Singapore, Public Limited Company Slovak Republic, Akciova Spolocnost Slovenia, Delniska Druzba South Africa, Public Limited Company Spain, Sociedad Anonima Surinam, Naamloze Vennootschap Sweden, Publika Aktiebolag Switzerland, Aktiengesellschaft Thailand, Borisat Chamkad (Mahachon) Trinidad and Tobago, Limited Company Tunisia, Societe Anonyme Turkey, Anonim Sirket Ukraine, Aktsionerne Tovaristvo Vidkritogo Tipu United Kingdom, Public Limited Company United States Virgin Islands, Corporation Uruguay, Sociedad Anonima Venezuela, Sociedad Anonima or Compania Anonima (ii) Clarification of list of corporations in paragraph (b)(8)(i) of this section Exceptions in certain cases. ( 1 ( 2 ( 3 (B) Inclusions in certain cases. (iii) Public companies. (iv) Limited companies. (v) Multilingual countries. (b)(9) Business entities with multiple charters. (ii) Examples. Example 1. (i) Facts. (ii) Result. Example 2. (i) Facts. (ii) Result. Example 3. (i) Facts. (ii) Result. Example 4. (i) Facts. (ii) Result. (c) Other business entities. (1) The term partnership (2) Wholly owned entities In general. (ii) Special rule for certain business entities. (iii) Tax liabilities of certain disregarded entities In general. ( 1 ( 2 ( 3 (B) Examples. Example 1. In 2006, X, a domestic corporation that reports its taxes on a calendar year basis, merges into Z, a domestic LLC wholly owned by Y that is disregarded as an entity separate from Y, in a state law merger. X was not a member of a consolidated group at any time during its taxable year ending in December 2005. Under the applicable state law, Z is the successor to X and is liable for all of X's debts. In 2009, the Internal Revenue Service (IRS) seeks to extend the period of limitations on assessment for X's 2005 taxable year. Because Z is the successor to X and is liable for X's 2005 taxes that remain unpaid, Z is the proper party to sign the consent to extend the period of limitations. Example 2. The facts are the same as in Example 1, (iv) Special rule for employment tax purposes (A) In general. (B) Treatment of entity. (C) Special rules. 1 ( 2 (D) Example. Example. (i) LLCA is an eligible entity owned by individual A and is generally disregarded as an entity separate from its owner for Federal tax purposes. However, LLCA is treated as an entity separate from its owner for purposes of subtitle C of the Internal Revenue Code. LLCA has employees and pays wages as defined in sections 3121(a), 3306(b), and 3401(a). (ii) LLCA is subject to the provisions of subtitle C of the Internal Revenue Code and related provisions under 26 CFR subchapter C, Employment Taxes and Collection of Income Tax at Source, parts 31 through 39. Accordingly, LLCA is required to perform such acts as are required of an employer under those provisions of the Internal Revenue Code and regulations thereunder that apply. All provisions of law (including penalties) and the regulations prescribed in pursuance of law applicable to employers in respect of such acts are applicable to LLCA. Thus, for example, LLCA is liable for income tax withholding, Federal Insurance Contributions Act (FICA) taxes, and Federal Unemployment Tax Act (FUTA) taxes. See sections 3402 and 3403 (relating to income tax withholding); 3102(b) and 3111 (relating to FICA taxes), and 3301 (relating to FUTA taxes). In addition, LLCA must file under its name and EIN the applicable Forms in the 94X series, for example, Form 941, “Employer's Quarterly Employment Tax Return,” Form 940, “Employer's Annual Federal Unemployment Tax Return;” file with the Social Security Administration and furnish to LLCA's employees statements on Forms W-2, “Wage and Tax Statement;” and make timely employment tax deposits. See §§ 31.6011(a)-1, 31.6011(a)-3, 31.6051-1, 31.6051-2, and 31.6302-1 of this chapter. (iii) A is self-employed for purposes of subtitle A, chapter 2, Tax on Self-Employment Income, of the Internal Revenue Code. Thus, A is subject to tax under section 1401 on A's net earnings from self-employment with respect to LLCA's activities. A is not an employee of LLCA for purposes of subtitle C of the Internal Revenue Code. Because LLCA is treated as a sole proprietorship of A for income tax purposes, A is entitled to deduct trade or business expenses paid or incurred with respect to activities carried on through LLCA, including the employer's share of employment taxes imposed under sections 3111 and 3301, on A's Form 1040, Schedule C, “Profit or Loss for Business (Sole Proprietorship).” (v) Special rule for certain excise tax purposes In general. ( 1 ( 2 ( 3 ( 4 1 ( 5 (B) Treatment of entity. (C) Example. Example. (i) LLCB is an eligible entity that has a single owner, B. LLCB is generally disregarded as an entity separate from its owner. However, under paragraph (c)(2)(v) of this section, LLCB is treated as an entity separate from its owner for certain purposes relating to excise taxes. (ii) LLCB mines coal from a coal mine located in the United States. Section 4121 of chapter 32 of the Internal Revenue Code imposes a tax on the producer's sale of such coal. Section 48.4121-1(a) of this chapter defines a “producer” generally as the person in whom is vested ownership of the coal under state law immediately after the coal is severed from the ground. LLCB is the person that owns the coal under state law immediately after it is severed from the ground. Under paragraph (c)(2)(v)(A)( 1 (iii) LLCB uses undyed diesel fuel in an earthmover that is not registered or required to be registered for highway use. Such use is an off-highway business use of the fuel. Under section 6427(l), the ultimate purchaser is allowed to claim an income tax credit or payment related to the tax imposed on diesel fuel used in an off-highway business use. Under paragraph (c)(2)(v) of this section, for purposes of the credit or payment allowed under section 6427(l), LLCB is the person that could claim the amount on its Form 720 or on a Form 8849, “Claim for Refund of Excise Taxes.” Alternatively, if LLCB did not claim a payment during the time prescribed in section 6427(i)(2) for making a claim under section 6427, § 1.34-1 of this chapter provides that B, the owner of LLCB, could claim the income tax credit allowed under section 34 for the nontaxable use of diesel fuel by LLCB. (iv) Assume the same facts as in paragraph (c)(2)(v)(C) Example (vi) Special rule for reporting under section 6038A In general. ( 1 ( 2 (B) Definitions 1 Indirect sole ownership. 2 ( 2 Entity disregarded as separate from its owner. 1 ( 3 Grantor trust. 1 (C) Taxable year. ( 1 2 ( 2 1 (vii) Special rules for certain disregarded payments Disregarded payment loss rules. (B) Non-application of the sixty-month limitation. (d) Special rule for certain foreign business entities In general. (i) The entity was in existence on May 8, 1996; (ii) The entity's classification was relevant (as defined in § 301.7701-3(d)) on May 8, 1996; (iii) No person (including the entity) for whom the entity's classification was relevant on May 8, 1996, treats the entity as a corporation for purposes of filing such person's federal income tax returns, information returns, and withholding documents for the taxable year including May 8, 1996; (iv) Any change in the entity's claimed classification within the sixty months prior to May 8, 1996, occurred solely as a result of a change in the organizational documents of the entity, and the entity and all members of the entity recognized the federal tax consequences of any change in the entity's classification within the sixty months prior to May 8, 1996; (v) A reasonable basis (within the meaning of section 6662) existed on May 8, 1996, for treating the entity as other than a corporation; and (vi) Neither the entity nor any member was notified in writing on or before May 8, 1996, that the classification of the entity was under examination (in which case the entity's classification will be determined in the examination). (2) Binding contract rule. (3) Termination of grandfather status In general. (A) The effective date of an election to be treated as an association under § 301.7701-3; (B) A termination of the partnership under section 708(b)(1)(B) (regarding sale or exchange of 50 percent or more of the total interest in an entity's capital or profits within a twelve month period); (C) A division of the partnership under section 708(b)(2)(B); or (D) The date any person or persons, who were not owners of the entity as of November 29, 1999, own in the aggregate a 50 percent or greater interest in the entity. (ii) Special rule for certain entities. (e) Effective/applicability date. (2) Paragraph (c)(2)(iii) of this section applies on and after September 14, 2009. For rules that apply before September 14, 2009, see 26 CFR part 301, revised as of April 1, 2009. (3)(i) General rule. (ii) Transition rule. (4) The reference to the Estonian, Latvian, Liechtenstein, Lithuanian, and Slovenian entities in paragraph (b)(8)(i) of this section applies to such entities formed on or after October 7, 2004, and to any such entity formed before such date from the date any person or persons, who were not owners of the entity as of October 7, 2004, own in the aggregate a 50 percent or greater interest in the entity. The reference to the European Economic Area/European Union entity in paragraph (b)(8)(i) of this section applies to such entities formed on or after October 8, 2004. (5)(i) Except as provided in this paragraph (e)(5), paragraph (c)(2)(iv) of this section applies with respect to wages paid on or after January 1, 2009. (ii) Paragraph (c)(2)(iv)(B) applies with respect to wages paid on or after September 14, 2009. For rules that apply before September 14, 2009, see 26 CFR part 301 revised as of April 1, 2009. (iii) Paragraph (c)(2)(iv)(C)( 1 1 (6)(i) Except as provided in this paragraph (e)(6), paragraph (c)(2)(v) of this section applies to liabilities imposed and actions first required or permitted in periods beginning on or after January 1, 2008. (ii) Paragraphs (c)(2)(v)(B) and (c)(2)(v)(C) Example (iii) Paragraph (c)(2)(v)(A)( 5 (iv) References to Chapter 49 in paragraph (c)(2)(v) of this section apply to taxes imposed on amounts paid on or after July 1, 2012. (7) The reference to the Bulgarian entity in paragraph (b)(8)(i) of this section applies to such entities formed on or after January 1, 2007, and to any such entity formed before such date from the date that, in the aggregate, a 50 percent or more interest in such entity is owned by any person or persons who were not owners of the entity as of January 1, 2007. For purposes of the preceding sentence, the term interest (i) In the case of a partnership, a capital or profits interest; and (ii) In the case of a corporation, an equity interest measured by vote or value. (8) Paragraph (c)(2)(iv)(C)( 2 (i) August 1, 2016; or (ii) The first day of the latest-starting plan year beginning after May 4, 2016, and on or before May 4, 2017, of an affected plan (based on the plans adopted before, and the plan years in effect as of, May 4, 2016) sponsored by an entity that is disregarded as an entity separate from its owner for any purpose under this section. For rules that apply before the applicability date of paragraph (c)(2)(iv)(C)( 2 (A) An affected plan includes any qualified plan, health plan, or section 125 cafeteria plan if the plan benefits participants whose employment status is affected by paragraph (c)(2)(iv)(C)( 2 (B) A qualified plan means a plan, contract, pension, or trust described in paragraph (A) or (B) of section 219(g)(5) (other than paragraph (A)(iii)); and (C) A health plan means an arrangement described under § 1.105-5 of this chapter. (9) Reporting required under section 6038A. (10) Paragraph (c)(2)(vii) of this section (special rules for certain disregarded payments) applies to taxable years beginning on or after January 1, 2026, except that paragraph (c)(2)(vii)(B) of this section (non-application of sixty-month limitation) applies as of August 6, 2024. [T.D. 8697, 61 FR 66589, Dec. 18, 1996, as amended by T.D. 8844, 64 FR 66583, Nov. 29, 1999; T.D. 9012, 67 FR 49864, Aug. 1, 2002; T.D. 9093, 68 FR 60298, Oct. 22, 2003; T.D. 9153, 69 FR 49810, Aug. 12, 2004; T.D. 9183, 70 FR 9221, Feb. 25, 2005; T.D. 9197, 70 FR 19698, Apr. 14, 2005; T.D. 9235, 70 FR 74658, Dec. 16, 2005; T.D. 9246, 71 FR 4817, Jan. 30, 2006; T.D. 9356, 72 FR 45893, Aug. 16, 2007; T.D. 9388, 73 FR 15065, Mar. 21, 2008; T.D. 8697, 73 FR 18442, Apr. 4, 2008; 73 FR 21415, Apr. 21, 2008; T.D. 9433, 73 FR 72346, Nov. 28, 2008; T.D. 9462, 74 FR 46904, Sept. 14, 2009; T.D. 9553, 76 FR 66182, Oct. 26, 2011; T.D. 9554, 76 FR 67365, Nov. 1, 2011; T.D. 9596, 77 FR 37807, June 25, 2012; T.D. 9655, 79 FR 8601, Feb. 12, 2014; T.D. 9670, 79 FR 36206, June 26, 2014; T.D. 9766, 81 FR 26694, May 4, 2016; T.D. 9796, 81 FR 89851, Dec. 13, 2016; T.D. 9869, 84 FR 31479, July 2, 2019; T.D. 10026, 90 FR 3021, Jan. 14, 2025] § 301.7701-3 Classification of certain business entities. (a) In general. eligible entity (b) Classification of eligible entities that do not file an election Domestic eligible entities. (i) A partnership if it has two or more members; or (ii) Disregarded as an entity separate from its owner if it has a single owner. (2) Foreign eligible entities In general. (A) A partnership if it has two or more members and at least one member does not have limited liability; (B) An association if all members have limited liability; or (C) Disregarded as an entity separate from its owner if it has a single owner that does not have limited liability. (ii) Definition of limited liability. (3) Existing eligible entities In general. (ii) Special rules. (c) Elections Time and place for filing In general. (ii) Further notification of elections. (iii) Effective date of election. (iv) Limitation. (v) Deemed elections Exempt organizations. (B) Real estate investment trusts. (C) S corporations. (vi) Examples. Example 1. On July 1, 1998, X, a domestic corporation, purchases a 10% interest in Y, an eligible entity formed under Country A law in 1990. The entity's classification was not relevant to any person for federal tax or information purposes prior to X's acquisition of an interest in Y. Thus, Y is not considered to be in existence on the effective date of this section for purposes of paragraph (b)(3) of this section. Under the applicable Country A statute, all members of Y have limited liability as defined in paragraph (b)(2)(ii) of this section. Accordingly, Y is classified as an association under paragraph (b)(2)(i)(B) of this section unless it elects under this paragraph (c) to be classified as a partnership. To be classified as a partnership as of July 1, 1998, Y must file a Form 8832 by September 14, 1998. See paragraph (c)(1)(i) of this section. Because an election cannot be effective more than 75 days prior to the date on which it is filed, if Y files its Form 8832 after September 14, 1998, it will be classified as an association from July 1, 1998, until the effective date of the election. In that case, it could not change its classification by election under this paragraph (c) during the sixty months succeeding the effective date of the election. Example 2. (i) Z is an eligible entity formed under Country B law and is in existence on the effective date of this section within the meaning of paragraph (b)(3) of this section. Prior to the effective date of this section, Z claimed to be classified as an association. Unless Z files an election under this paragraph (c), it will continue to be classified as an association under paragraph (b)(3) of this section. (ii) Z files a Form 8832 pursuant to this paragraph (c) to be classified as a partnership, effective as of the effective date of this section. Z can file an election to be classified as an association at any time thereafter, but then would not be permitted to change its classification by election during the sixty months succeeding the effective date of that subsequent election. (2) Authorized signatures In general. (A) Each member of the electing entity who is an owner at the time the election is filed; or (B) Any officer, manager, or member of the electing entity who is authorized (under local law or the entity's organizational documents) to make the election and who represents to having such authorization under penalties of perjury. (ii) Retroactive elections. (iii) Changes in classification. (3) Consent to be subject to section 1503(d) Rule. domestic consenting corporation (ii) Transition rule—deemed consent. (iii) Applicability date. (d) Special rules for foreign eligible entities Definition of relevance General rule. (ii) Deemed relevance General rule. (B) Exception. (2) Entities the classification of which has never been relevant. (3) Special rule when classification is no longer relevant. (4) Effective date. (e) Coordination with section 708(b). (f) Changes in number of members of an entity Associations. (2) Partnerships and single member entities. (3) Effect on sixty month limitation. (4) Examples. Example 1. A, a U.S. person, owns a domestic eligible entity that is disregarded as an entity separate from its owner. On January 1, 1998, B, A. B A B B A A A A, A A B, B A. Example 2. (i) On April 1, 1998, A B, X, X X A B X. (ii) Under paragraph (f)(1) of this section, X X, A. X X Example 3. (i) On April 1, 1998, A B, X, X X X X i.e. (ii) On June 1, 2000, A B X. A B X X X A A X. X, X, X i.e. X (5) Effective date. (g) Elective changes in classification Deemed treatment of elective change Partnership to association. (ii) Association to partnership. (iii) Association to disregarded entity. (iv) Disregarded entity to an association. (2) Effect of elective changes In general. (ii) Adoption of plan of liquidation. (3) Timing of election In general. (ii) Coordination with section 338 election. (iii) Application to successive elections in tiered situations. (4) Effective date. (h) Effective date In general. (2) Prior treatment of existing entities. (i) The entity had a reasonable basis (within the meaning of section 6662) for its claimed classification; (ii) The entity and all members of the entity recognized the federal tax consequences of any change in the entity's classification within the sixty months prior to January 1, 1997; and (iii) Neither the entity nor any member was notified in writing on or before May 8, 1996, that the classification of the entity was under examination (in which case the entity's classification will be determined in the examination). (3) Deemed elections for S corporations. Editorial Note: For Federal Register www.govinfo.gov. § 301.7701-4 Trusts. (a) Ordinary trusts. (b) Business trusts. (c) Certain investment trusts See Commissioner v. North American Bond Trust, cert. denied, (2) The provisions of paragraph (c)(1) of this section may be illustated by the following examples: Example 1. A corporation purchases a portfolio of residential mortgages and transfers the mortgages to a bank under a trust agreement. At the same time, the bank as trustee delivers to the corporation certificates evidencing rights to payments from the pooled mortgages; the corporation sells the certificates to the public. The trustee holds legal title to the mortgages in the pool for the benefit of the certificate holders but has no power to reinvest proceeds attributable to the mortgages in the pool or to vary investments in the pool in any other manner. There are two classes of certificates. Holders of class A certificates are entitled to all payments of mortgage principal, both scheduled and prepaid, until their certificates are retired; holders of class B certificates receive payments of principal only after all class A certificates have been retired. The different rights of the class A and class B certificates serve to shift to the holders of the class A certificates, in addition to the earlier scheduled payments of principal, the risk that mortgages in the pool will be prepaid so that the holders of the class B certificates will have “call protection” (freedom from premature termination of their interests on account of prepayments). The trust thus serves to create investment interests with respect to the mortgages held by the trust that differ significantly from direct investment in the mortgages. As a consequence, the existence of multiple classes of trust ownership is not incidental to any purpose of the trust to facilitate direct investment, and, accordingly, the trust is classified as a business entity under § 301.7701-2. Example 2. Corporation M is the originator of a portfolio of residential mortgages and transfers the mortgages to a bank under a trust agreement. At the same time, the bank as trustee delivers to M certificates evidencing rights to payments from the pooled mortgages. The trustee holds legal title to the mortgages in the pool for the benefit of the certificate holders, but has no power to reinvest proceeds attributable to the mortgages in the pool or to vary investments in the pool in any other manner. There are two classes of certificates. Holders of class C certificates are entitled to receive 90 percent of the payments of principal and interest on the mortgages; class D certificate holders are entitled to receive the other ten percent. The two classes of certificates are identical except that, in the event of a default on the underlying mortgages, the payment rights of class D certificate holders are subordinated to the rights of class C certificate holders. M sells the class C certificates to investors and retains the class D certificates. The trust has multiple classes of ownership interests, given the greater security provided to holders of class C certificates. The interests of certificate holders, however, are substantially equivalent to undivided interests in the pool of mortgages, coupled with a limited recourse guarantee running from M to the holders of class C certificates. In such circumstances, the existence of multiple classes of ownership interests is incidental to the trust's purpose of facilitating direct investment in the assets of the trust. Accordingly, the trust is classified as a trust. Example 3. A promoter forms a trust in which shareholders of a publicly traded corporation can deposit their stock. For each share of stock deposited with the trust, the participant receives two certificates that are initially attached, but may be separated and traded independently of each other. One certificate represents the right to dividends and the value of the underlying stock up to a specified amount; the other certificate represents the right to appreciation in the stock's value above the specified amount. The separate certificates represent two different classes of ownership interest in the trust, which effectively separate dividend rights on the stock held by the trust from a portion of the right to appreciation in the value of such stock. The multiple classes of ownership interests are designed to permit investors, by transferring one of the certificates and retaining the other, to fulfill their varying investment objectives of seeking primarily either dividend income or capital appreciation from the stock held by the trust. Given that the trust serves to create investment interests with respect to the stock held by the trust that differ significantly from direct investment in such stock, the trust is not formed to facilitate direct investment in the assets of the trust. Accordingly, the trust is classified as a business entity under § 301.7701-2. Example 4. Corporation N purchases a portfolio of bonds and transfers the bonds to a bank under a trust agreement. At the same time, the trustee delivers to N certificates evidencing interests in the bonds. These certificates are sold to public investors. Each certificate represents the right to receive a particular payment with respect to a specific bond. Under section 1286, stripped coupons and stripped bonds are treated as separate bonds for federal income tax purposes. Although the interest of each certificate holder is different from that of each other certificate holder, and the trust thus has multiple classes of ownership, the multiple classes simply provide each certificate holder with a direct interest in what is treated under section 1286 as a separate bond. Given the similarity of the interests acquired by the certificate holders to the interests that could be acquired by direct investment, the multiple classes of trust interests merely facilitate direct investment in the assets held by the trust. Accordingly, the trust is classified as a trust. (d) Liquidating trusts. (e) Environmental remediation trusts. (2) Each contributor (grantor) to the trust is treated as the owner of the portion of the trust contributed by that grantor under rules provided in section 677 and § 1.677(a)-1(d) of this chapter. Section 677 and § 1.677(a)-1(d) of this chapter provide rules regarding the treatment of a grantor as the owner of a portion of a trust applied in discharge of the grantor's legal obligation. Items of income, deduction, and credit attributable to an environmental remediation trust are not reported by the trust on Form 1041, but are shown on a separate statement to be attached to that form. See § 1.671-4(a) of this chapter. The trustee must also furnish to each grantor a statement that shows all items of income, deduction, and credit of the trust for the grantor's taxable year attributable to the portion of the trust treated as owned by the grantor. The statement must provide the grantor with the information necessary to take the items into account in computing the grantor's taxable income, including information necessary to determine the federal tax treatment of the items (for example, whether an item is a deductible expense under section 162(a) or a capital expenditure under section 263(a)) and how the item should be taken into account under the economic performance rules of section 461(h) and the regulations thereunder. See § 1.461-4 of this chapter for rules relating to economic performance. (3) All amounts contributed to an environmental remediation trust by a grantor (cash-out grantor) who, pursuant to an agreement with the other grantors, contributes a fixed amount to the trust and is relieved by the other grantors of any further obligation to make contributions to the trust, but remains liable or potentially liable under the applicable environmental laws, will be considered amounts contributed for remediation. An environmental remediation trust agreement may direct the trustee to expend amounts contributed by a cash-out grantor (and the earnings thereon) before expending amounts contributed by other grantors (and the earnings thereon). A cash-out grantor will cease to be treated as an owner of a portion of the trust when the grantor's portion is fully expended by the trust. (4) The provisions of this paragraph (e) may be illustrated by the following example: Example. (a) X, Y, Z X, Y, Z X, Y, Z X, Y, Z X, Y, Z (b) The estimated cost of the remediation is $20,000,000. X, Y, Z Z Z X Y (c) On June 1, 1996, X, Y, Z Z Z X Y X Y Z (d) Z Z X Y Z Z Z Z X Y X Y (e) The trustee made no further remediation disbursements in 1996, and X Y X Y X Y Z (5) This paragraph (e) is applicable to trusts meeting the requirements of paragraph (e)(1) of this section that are formed on or after May 1, 1996. This paragraph (e) may be relied on by trusts formed before May 1, 1996, if the trust has at all times met all requirements of this paragraph (e) and the grantors have reported items of ,income and deduction consistent with this paragraph (e) on original or amended returns. For trusts formed before May 1, 1996, that are not described in the preceding sentence, the Commissioner may permit by letter ruling, in appropriate circumstances, this paragraph (e) to be applied subject to appropriate terms and conditions. (f) Effective date. Example 1 Example 3 [32 FR 15241, Nov. 3, 1967, as amended by T.D. 8080, 51 FR 9952, Mar. 24, 1986; T.D. 8668, 61 FR 19191, May 1, 1996; T.D. 8697, 61 FR 66592, Dec. 18, 1996; T.D. 9961, 87 FR 182, Jan. 4, 2022] § 301.7701-5 Domestic and foreign business entities. (a) Domestic and foreign business entities. (b) Examples. Example 1. (i) Facts. (ii) Result. Example 2. (i) Facts. (ii) Result. (c) Effective date General rule. (2) Transition rule. [T.D. 9246, 71 FR 4817, Jan. 30, 2006] § 301.7701-6 Definitions; person, fiduciary. (a) Person. person (b) Fiduciary In general. (2) Fiduciary distinguished from agent. (c) Effective date. [T.D. 8697, 61 FR 66593, Dec. 18, 1996] § 301.7701-7 Trusts—domestic and foreign. (a) In general. (i) A court within the United States is able to exercise primary supervision over the administration of the trust (court test); and (ii) One or more United States persons have the authority to control all substantial decisions of the trust (control test). (2) A trust is a United States person for purposes of the Internal Revenue Code (Code) on any day that the trust meets both the court test and the control test. For purposes of the regulations in this chapter, the term domestic trust foreign trust (3) Except as otherwise provided in part I, subchapter J, chapter 1 of the Code, the taxable income of a foreign trust is computed in the same manner as the taxable income of a nonresident alien individual who is not present in the United States at any time. Section 641(b). Section 7701(b) is not applicable to trusts because it only applies to individuals. In addition, a foreign trust is not considered to be present in the United States at any time for purposes of section 871(a)(2), which deals with capital gains of nonresident aliens present in the United States for 183 days or more. (b) Applicable law. (c) The court test Safe harbor. (i) The trust instrument does not direct that the trust be administered outside of the United States; (ii) The trust in fact is administered exclusively in the United States; and (iii) The trust is not subject to an automatic migration provision described in paragraph (c)(4)(ii) of this section. (2) Example. Example. A creates a trust for the equal benefit of A B C. DC, Y Y DC Y (3) Definitions. (i) Court. court (ii) The United States. the United States (iii) Is able to exercise. is able to exercise (iv) Primary supervision. primary supervision (v) Administration. administration (4) Situations that cause a trust to satisfy or fail to satisfy the court test. (A) Uniform Probate Code. Trust Administration, (B) Testamentary trust. (C) Inter vivos trust. (D) A United States court and a foreign court are able to exercise primary supervision over the administration of the trust. (ii) Automatic migration provisions. (5) Examples. Example 1. A, a United States citizen, creates a trust for the equal benefit of A DC, X, DC X X. Y, X, X X Y X. Example 2. A, a United States citizen, creates a trust for A A B, Y, DC, Y Y Z, (d) Control test Definitions United States person. United States person (ii) Substantial decisions. substantial decisions (A) Whether and when to distribute income or corpus; (B) The amount of any distributions; (C) The selection of a beneficiary; (D) Whether a receipt is allocable to income or principal; (E) Whether to terminate the trust; (F) Whether to compromise, arbitrate, or abandon claims of the trust; (G) Whether to sue on behalf of the trust or to defend suits against the trust; (H) Whether to remove, add, or replace a trustee; (I) Whether to appoint a successor trustee to succeed a trustee who has died, resigned, or otherwise ceased to act as a trustee, even if the power to make such a decision is not accompanied by an unrestricted power to remove a trustee, unless the power to make such a decision is limited such that it cannot be exercised in a manner that would change the trust's residency from foreign to domestic, or vice versa; and (J) Investment decisions; however, if a United States person under section 7701(a)(30) hires an investment advisor for the trust, investment decisions made by the investment advisor will be considered substantial decisions controlled by the United States person if the United States person can terminate the investment advisor's power to make investment decisions at will. (iii) Control. control (iv) Safe harbor for certain employee benefit trusts and investment trusts. (A) A qualified trust described in section 401(a); (B) A trust described in section 457(g); (C) A trust that is an individual retirement account described in section 408(a); (D) A trust that is an individual retirement account described in section 408(k) or 408(p); (E) A trust that is a Roth IRA described in section 408A; (F) A trust that is an education individual retirement account described in section 530; (G) A trust that is a voluntary employees' beneficiary association described in section 501(c)(9); (H) A group trust described in Rev. Rul. 81-100 (1981-1 C.B. 326) ( See (I) An investment trust classified as a trust under § 301.7701-4(c), provided that the following conditions are satisfied— ( 1 ( 2 ( 3 (J) Such additional categories of trusts as the Commissioner may designate in revenue procedures, notices, or other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)( b (v) Examples. Example 1. Trust is a testamentary trust with three fiduciaries, A, B, C. A B C C Example 2. Assume the same facts as in Example 1, Example 3. Assume the same facts as in Example 2, C A B C A B A B, Example 4. Assume the same facts as in Example 3, A B C C Example 5. X, a foreign corporation, conducts business in the United States through various branch operations. X A, B, A. B B B X B, X X (2) Replacement of any person who had authority to make a substantial decision of the trust Replacement within 12 months. (ii) Request for extension of time. (iii) Examples. Example 1. A trust that satisfies the court test has three fiduciaries, A, B, C. A B C D, A D D D A B D E, D E A A E Example 2. Assume the same facts as in Example 1 A D A (3) Automatic migration provisions. (4) Examples. Example 1. A, a nonresident alien individual, is the grantor and, during A A Example 2. A, a nonresident alien individual, is the grantor of a trust and has the power to revoke the trust, in whole or in part, and revest assets in A. A A B, C. B C. A A B Example 3. A trust, Trust T, has two fiduciaries, A B. A B A B C, C A B C A B Example 4. G, a United States citizen, creates a trust. The trust provides for income to A B A B A B A A, (e) Effective date General rule. (2) Trusts created after August 19, 1996. (3) Effective date of safe harbor for certain employee benefit trusts and investment trusts. Examples 1 5 Examples 1 5 (f) Election to remain a domestic trust Trusts eligible to make the election to remain domestic. (2) Determining whether a trust was treated as a domestic trust on August 19, 1996 Trusts filing Form 1041 for the taxable year that includes August 19, 1996. (ii) Trusts not filing a Form 1041. (3) Procedure for making the election to remain domestic Required Statement. (A) A statement that the trust is electing to continue to be treated as a domestic trust under section 1161 of the Taxpayer Relief Act of 1997; (B) A statement that the trustee had a reasonable basis (within the meaning of section 6662) under prior law for treating the trust as a domestic trust on August 19, 1996. (The trustee need not explain the reasonable basis on the election statement.); (C) A statement either that the trust filed a Form 1041 treating the trust as a domestic trust for the period that includes August 19, 1996, (and that the trust did not file a Form 1040NR for that period), or that the trust was not required to file a Form 1041 or a Form 1040NR for the period that includes August 19, 1996, with an accompanying brief explanation as to why a Form 1041 was not required to be filed; and (D) The name, address, and employer identification number of the trust. (ii) Filing the required statement with the Internal Revenue Service. (B) If the trust has insufficient gross income and no taxable income for its 1997 or 1998 taxable year, or both, and therefore is not required to file a Form 1041 for either or both years, the trust must make the election by filing a Form 1041 for either the 1997 or 1998 taxable year with the statement attached (even though not otherwise required to file a Form 1041 for that year). The trust should only provide on the Form 1041 the trust's name, name and title of fiduciary, address, employer identification number, date created, and type of entity. The statement must be attached to a Form 1041 that is filed no later than October 15, 1999. (C) If the trust files a Form 1040NR for the 1997 taxable year based on application of new section 7701(a)(30)(E) to the trust, and satisfies paragraph (f)(1) of this section, in order for the trust to make the election the trust must file an amended Form 1040NR return for the 1997 taxable year. The trust must note on the amended Form 1040NR that it is making an election under section 1161 of the Taxpayer Relief Act of 1997. The trust must attach to the amended Form 1040NR the statement required by paragraph (f)(3)(i) of this section and a completed Form 1041 for the 1997 taxable year. The items of income, deduction and credit of the trust must be excluded from the amended Form 1040NR and reported on the Form 1041. The amended Form 1040NR for the 1997 taxable year, with the statement and the Form 1041 attached, must be filed with the Philadelphia Service Center no later than the due date, plus extensions, for filing a Form 1041 for the 1998 taxable year. (D) If a trust has made estimated tax payments as a foreign trust based on application of section 7701(a)(30)(E) to the trust, but has not yet filed a Form 1040NR for the 1997 taxable year, when the trust files its Form 1041 for the 1997 taxable year it must note on its Form 1041 that it made estimated tax payments based on treatment as a foreign trust. The Form 1041 must be filed with the Philadelphia Service Center (and not with the service center where the trust ordinarily would file its Form 1041). (E) If a trust forms part of a qualified stock bonus, pension, or profit sharing plan, the election provided by this paragraph (f) must be made by attaching the statement to the plan's annual return required under section 6058 (information return) for the first plan year beginning after December 31, 1996, or to the plan's information return for the first plan year beginning after December 31, 1997. The statement must be attached to the plan's information return that is filed no later than the due date for filing the plan's information return for the first plan year beginning after December 31, 1997, plus extensions. The election will be effective for the first plan year beginning after December 31, 1996, and thereafter, until revoked or terminated. (F) Any other type of trust that is not required to file a Form 1041 for the taxable year, but that is required to file an information return (for example, Form 5227) for the 1997 or 1998 taxable year must attach the statement to the trust's information return for the 1997 or 1998 taxable year. However, the statement must be attached to an information return that is filed no later than the due date for filing the trust's information return for the 1998 taxable year, plus extensions. The election will be effective for the 1997 taxable year, and thereafter, until revoked or terminated. (G) A group trust described in Rev. Rul. 81-100 consisting of trusts that are parts of qualified retirement plans and individual retirement accounts (and any other trust that is not described above and that is not required to file a Form 1041 or an information return) need not attach the statement to any return and should file the statement with the Philadelphia Service Center. The trust must make the election provided by this paragraph (f) by filing the statement by October 15, 1999. The election will be effective for the 1997 taxable year, and thereafter, until revoked or terminated. (iii) Failure to file the statement in the required manner and time. (4) Revocation or termination of the election Revocation of election. (ii) Termination of the election. (5) Effective date. [T.D. 8813, 64 FR 4970, Feb. 2, 1999, as amended by T.D. 8962, 66 FR 41779, Aug. 9, 2001] § 301.7701-8 Military or naval forces and Armed Forces of the United States. The term “military or naval forces of the United States” and the term “Armed Forces of the United States” each includes all regular and reserve components of the uniformed services which are subject to the jurisdiction of the Secretary of Defense, the Secretary of the Army, the Secretary of the Navy, or the Secretary of the Air Force. The terms also include the Coast Guard. The members of such forces include commissioned officers and the personnel below the grade of commissioned officer in such forces. § 301.7701-9 Secretary or his delegate. (a) The term Secretary or his delegate (b) In any case in which a function is vested by the Internal Revenue Code of 1954 or any other statute in the Secretary or his delegate, and Treasury regulations or Treasury decisions approved by the Secretary or his delegate provide that such function may be performed by the Commissioner, assistant commissioner, regional commissioner, assistant regional commissioner, district director, director of a regional service center, or by a designated officer or employee in the office of any such officer, such provision in the regulations or Treasury decision shall constitute a delegation by the Secretary of the authority to perform such function to the designated officer or employee. If such authority is delegated to any officer or employee performing services under the supervision and control of the Commissioner, such provision in the regulations or Treasury decision shall constitute a delegation by the Secretary to the Commissioner of the authority to perform such function and a redelegation thereof by the Commissioner to the designated officer or employee. (c) An officer or employee, including the Commissioner, authorized by regulations or Treasury decision to perform a function shall have authority to redelegate the performance of such function to any officer or employee performing services under his supervision and control, unless such power to so redelegate is prohibited or restricted by proper order or directive. The Commissioner may also redelegate authority to perform such function to other officers or employees under his supervision and control and, to the extent he deems proper, may authorize further redelegation of such authority. (d) The Commissioner may prescribe such limitations as he deems proper on the extent to which any officer or employee under his supervision and control shall perform any such function, but, in the case of an officer or employee designated in regulations or Treasury decision as authorized to perform such function, such limitations shall not render invalid any performance by such officer or employee of the function which, except for such limitations, such officer or employee is authorized to perform by such regulations or Treasury decision in effect at the time the function is performed. § 301.7701-10 District director. The term district director [32 FR 15241, Nov. 3, 1967, as amended by T.D. 8411, 57 FR 15241, Apr. 27, 1992] § 301.7701-11 Social security number. For purposes of this chapter, the term social security number [T.D. 7306, 39 FR 9947, Mar. 15, 1974] § 301.7701-12 Employer identification number. For purposes of this chapter, the term employer identification number [T.D. 7306, 39 FR 9947, Mar. 15, 1974] § 301.7701-13 Pre-1970 domestic building and loan association. (a) In general. (b) Supervisory test. (c) Business operations test In general. (2) Acquiring the savings of the public. (3) Investing in loans In general. (ii) Gross income test. ( a ( b ( c ( d ( e ( f For the purposes of this subparagraph, gross income shall be computed without regard to gains or losses on the sale of the portion of property used in the association's business (described in paragraph (d)(5) of this section), without regard to gains or losses on the rented portion of property used as the principal or branch office of the association (described in such paragraph), and without regard to gains or losses on the sale of participations and loans (other than governmental obligations defined in paragraph (d)(3) of this section). Examples of types of income which would cause an association to fail to meet the gross income test, if in the aggregate they exceed 15 percent of gross income, are the excess of gains over losses on sale of real estate (other than foreclosed property); rental income (other than on foreclosed property and the portion of property used in the association's business); premiums, commissions, and fees (other than commitment fees) on loans which have never been held by the association; and insurance brokerage fees. (iii) Sales activity test: in general. ( a loan ( b ( c loans acquired for investment during the taxable year 1 2 ( d sales of participations ( e sales of whole loans d (iv) Sales of whole loans test. a b b b b), (v) Sales of whole loans and participations test. (vi) Sales activity tests: special rules a Carryover of sales. a ( b Use of preceding year's base. a a a a a (vii) Examples illustrating sales activity test. Example 1. X Association made sales of whole loans in 1964 and 1965 which were 10 percent and 7 percent, respectively, of the amounts of loans outstanding at the beginning of each such year, and which were 25 percent and 17 percent, respectively, of the amounts of loans acquired for investment in each such year. The amount of X's loans outstanding at the beginning of 1966 was $1 million, and the amount of its loans acquired for investment for such year was $300,000. The maximum amount of sales of whole loans which X may make under the percentage of beginning loans limitation for 1966 is $30,000, which is 3 percent (20 percent reduced by the sum of 10 percent and 7 percent) of $1 million. The maximum amount of sales of whole loans permitted under the percentage of loans acquired for investment limitation for 1966 is $45,000 (15 percent of $300,000). X may therefore sell whole loans in an amount up to $45,000 in 1966 and meet the sales of whole loans test. It is assumed that the amount of loans acquired for investment in 1965 did not exceed $300,000, so that the preceding year's base cannot be used to increase the amount of sales permitted in 1966. Example 2. Assume the same facts as in the previous example, except that the amount of loans acquired for investment in the preceding year (1965) was $320,000. Since such amount is greater than the $300,000 amount of loans acquired for investment in 1966, X may base its 15 percent limitation for 1966 on the $320,000 amount and sell whole loans in an amount up to $48,000 (15 percent of $320,000) and still meet the sales of whole loans test. However, to the extent that the amount of sales of whole loans exceeds $45,000 (15 percent of the $300,000 amount of loans acquired for investment in 1966), the maximum amount of sales computed under the percentage of loans acquired for investment limitation (but not the 20 percent of beginning loans limitation) for 1967 must be reduced. Example 3. Y Association made no sales of whole loans in 1964 and 1965, and made sales of participations in the 2 years in amounts which, in the aggregate, were $50,000 less than the amounts of loans acquired for investment for such years. At the beginning of 1966 the amount of Y's loans outstanding was $1 million, and the amount of its loans acquired for investment in such year was $100,000. Although the maximum amount of sales of whole loans which Y could make under the sales of whole loans test is $200,000 (20 percent of $1 million), nevertheless, in order to meet the sales of whole loans and participations test, the sum of the amounts of sales of whole loans and sales of participations may not exceed $150,000 (100 percent of the $100,000 amount of loans acquired for investment in 1966 plus a carryover of sales from the previous two years of $50,000). It is assumed that the amount of loans acquired for investment in 1965 did not exceed $100,000, so that the preceding year's base cannot be used to increase the amount of sales permitted in 1966. (viii) Reporting requirements. a (4) Effective date. b (i) The amount of the “loans acquired for investment” for such part year shall be equal to the loans acquired for investment during the entire taxable year within which falls such part year, multiplied by a fraction the numerator of which is the number of days in such part year and the denominator of which is the number of days in such entire taxable year. (ii) The increase in sales of whole loans and participations permitted by subdivision (vi) of subparagraph (3) of this paragraph (c), (relating to carryover of sales and use of preceding year's base) shall be the amount of such increase computed under such subdivision, multiplied by the fraction specified in subdivision (i) of this subparagraph. If, treating the part year as a taxable year, the association meets all the requirements of this paragraph for such part year it will be considered to have met the business operations test for the entire taxable year, providing it operated in all material respects in conformity with applicable rules and regulations of Federal or State supervisory authorities for the entire taxable year. The 20 percent of beginning loans limitation specified in subdivision (iv)( b (d) 90 percent of assets test In general. (2) Cash. (3) Governmental obligations. (4) Deposit insurance company securities. (5) Property used in the association's business In general. (ii) Property rented to others. (6) Passbook loan. (7) Home loan. (i) Improved residential real property consisting of a structure or structures containing, in the aggregate, no more than 4 family units. (ii) An individually owned family unit in a multiple-unit structure, the owner of which unit owns an undivided interest in the underlying real estate and the common elements of such structure (so-called condominium type). Or a construction loan or improvement loan for such property. A construction loan made for the purpose of financing more than one structure (so-called tract financing) constitutes a home loan, providing no individual structure contains more than 4 family units and it is contemplated that, as soon as possible after completion of construction, the structures will become property described in subdivision (i) of this subparagraph. A construction loan secured by a structure containing more than 4 family units constitutes a home loan only if the structure has been committed to a plan of individual apartment ownership described in subdivision (ii) of this subparagraph and such plan is held out and advertised as such. A loan secured by a cooperative apartment building containing more than 4 family units does not constitute a home loan. (8) Church loan. (9) Multifamily loan. (10) Nonresidential real property loan. (e) 18 percent of assets test. (f) 36 or 41 percent of assets test 36 percent test. (2) 41 percent test. (g) Taxable years for which 41 percent of assets test applies First taxable year. (2) Second taxable year. (3) Years other than first and second taxable years. (i) The requirements of paragraphs (b) through (e), (f)(1), and (h) of this section for the immediately preceding taxable year, or (ii) The requirements of paragraphs (b) through (e), (f)(2), and (h) of this section for the immediately preceding taxable year, and the requirements of paragraphs (b) through (e), (f)(1), and (h) of this section for the second preceding taxable year. Thus, in years other than its first and second taxable years beginning after October 16, 1962, an association may apply the 41 percent of assets test for 2 consecutive years, but only if it met the 36 percent test (and all other tests) for the year previous to the 2 consecutive years. (4) Examples. Example 1. An association has 41 percent of its assets invested in assets other than those defined in subparagraphs (2) through (8) of paragraph (d) of this section as of the close of 1963 and 1964. Because 1963 is its first taxable year beginning after October 16, 1962, the 41 percent of assets test applies, and the association therefore qualifies as a domestic building and loan association for 1963. Because 1964 is its second taxable year beginning after such date and the 41 percent of assets test applied for its first taxable year, the 41 percent of assets test applies for 1964 and it therefor qualifies for such year. Example 2. An association has 36 percent of its assets invested in assets other than those defined in subparagraphs (2) through (8) of paragraph (d) of this section as of the close of 1964, and 41 percent as of the close of 1965, 1966, and 1967. The association qualifies in 1965 because, as a result of having met the 36 percent of assets test for the immediately preceding taxable year (1964), the 41 percent of assets test applies to 1965. It qualifies in 1966 because as a result of having met the 41 percent of assets test in the immediately preceding taxable year (1965) and the 36 percent of assets test in the second preceding taxable year (1964), the 41 percent of assets test applies to 1966. The association would not qualify in 1967, however, because, although it met the 41 percent of assets test for the immediately preceding taxable year (1966), it did not meet the 36 percent of assets test in the second preceding taxable year (1965), and therefore the 41 percent of assets test does not apply to 1967. Example 3. An association has more than 41 percent of its assets invested in assets other than those defined in subparagraphs (2) through (8) of paragraph (d) of this section as of the close of 1963, and 41 percent invested in such assets as of the close of 1964. The association does not qualify in either year. It does not qualify in 1963 because it exceeded the 41 percent limitation, and it does not qualify in 1964 because the 41 percent of assets test does not apply to 1964 since the association did not meet either the 41 percent of assets test or the 36 percent of assets test in the prior year (1963). (h) 3 percent of assets test. (1) Stock representing a withdrawable account in another financial institution; (2) Stock of a corporation which is an instrumentality of the United States or of a State or political subdivision thereof; (3) Stock which was security for a loan and which, by reason of having been bid in at foreclosure or otherwise having been reduced to ownership or possession of the association, is a loan within the definition of such term in paragraph (j)(1) of this section; and (4) Stock of a wholly owned subsidiary corporation which has as its exclusive activity the ownership and management of property more than 50 percent of the fair rental value of which is used as the principal or branch office of the association. (i) [Reserved] (j) Definition of certain terms. (1) Loan. (2) Secured. (3) Interest. (4) Real property. (5) Improved real property. (i) Land on which is located any building of a permanent nature (such as a house, apartment house, office building, hospital, shopping center, warehouse, garage, or other similar permanent structure), provided that the value of such building is substantial in relation to the value of such land; (ii) Any building lot or site which, by reason of installations and improvements that have been completed in keeping with applicable governmental requirements and with general practice in the community, is a building lot or site ready for the construction of any building of a permanent nature within the meaning of subdivision (i) of this subparagraph; or (iii) Real property which, because of its state of improvement, produces sufficient income to maintain such real property and retire the loan in accordance with the terms thereof. (6) Construction loan. (7) Improvement loan. (8) Residential real property. (k) Amount and character of loans Treatment at time of determination In general. ( a ( b ( c To the extent that the amount of a loan exceeds the amount treated as being secured by property defined in subparagraphs (6) through (10) of paragraph (d) of this section, such loan shall be treated as property not defined in paragraph (d) of this section. If the loan value of any one category of property defined in paragraph (d) of this section exceeds 85 percent of the amount of the loan for which it is security then the entire loan shall be treated as a loan secured by such property. (ii) Loans of $40,000 or less. (iii) Home loans of $20,000 or less. (2) Treatment subsequent to time of determination. (3) Time of determination In general. ( a ( b ( c ( d (ii) Special rule. (4) Loan value. (5) Examples. Example 1. On July 1, 1963, X makes a single loan of $1 million to M Corporation which loan is secured by real property which is a combination of homes, apartments, and stores. As of the time the loan is made X determines that the loan values of the categories of property are as follows: Category of property Loan value Home $400,000 Multifamily 420,000 Nonresidential real property 240,000 Total 1,060,000 As of the time the loan is made, therefore, the $1,000,000 loan is treated under subparagraph (1)(i) of this paragraph as being secured as follows: Category of loan Amount of loan Percentage of total Home loan $400,000 40 Multifamily loan 420,000 42 Nonresidential real property loan 180,000 18 Total 1,000,000 100 Assuming that the $1 million loan to M was reduced to $900,000 as of the close of 1963, that there were no increases in the amount of the loan and no releases of property which was security for the loan, and that there was no regulatory requirement to reappraise or reanalyze the loan, such loan will be considered under subparagraph (2) of this paragraph to be secured, as of the close of 1963, as follows: Category Percentage as of last determination July 1, 1963 Amount as of Dec. 31, 1963 Home 40 $360,000 (40% × $900,000) Multifamily 42 378,000 (42% × $900,000) Nonresidential real property 18 162,000 (18% × $900,000) Total 900,000 Example 2. X makes a loan of $40,000 secured by a building which contains a store on the first floor and four family units on the upper floors. The loan value of the part of the building used as a store is $21,000 and the loan value of the residential portion is $23,000. The loan will be treated under subdivision (i) of subparagraph (1) of this paragraph as a loan secured by residential real property containing four or fewer family units to the extent of $23,000, and by nonresidential property to the extent of $17,000, as of the time the loan is made. However, if X exercises the option to treat all loans of $40,000 or less in accordance with subdivision (ii) of subparagraph (1) of this paragraph, this loan would be treated as a home loan to the extent of the full $40,000 because the loan value of the residential portion is larger than the loan value of the nonresidential part. (l) Computation of percentages In general. (2) Treatment of certain assets and reserves. (i) Reserves for bad debts established pursuant to section 593, or corresponding provisions of prior law, and the regulations thereunder shall not constitute a reduction of total assets, but shall be treated as a surplus or net worth item. (ii) The adjusted basis of a “loan in process” does not include the unadvanced portion of such loan. (iii) Advances made by the association for taxes, insurance, etc., on loans shall be treated as being in the same category as the loan with respect to which the advances are made (irrespective of whether the advances are secured by the property securing the loan). (iv) Interest receivable included in gross income shall be treated as being in the same category as the loan or asset with respect to which it is earned. (v) The unamortized portion of premiums paid on mortgage loans acquired by the association shall be considered part of the acquisition cost of such loans. (vi) Prepaid Federal Savings and Loan Insurance Corporation premiums shall be treated as being governmental obligations defined in paragraph (d)(3) of this section. (vii) Accounts receivable (other than accrued interest receivable), and prepaid expenses and deferred charges other than those referred to in subdivision (v) or (vi) of this subparagraph, shall be disregarded both as separate categories and in the computation of total assets. (viii) Foreclosed property (as defined in paragraph (j)(1) of this section) shall be treated as having the same character as the loan for which it was given as security. (3) Alternative method. (4) Acquisition of certain assets. (i) Assets which, within a 60-day period beginning in one taxable year of the taxpayer and ending in the next year, are acquired directly or indirectly through borrowing and then repaid or disposed of within such period, shall be considered assets other than those defined in paragraph (d) of this section, unless both the acquisition and disposition are established to the satisfaction of the district director to have been for bona fide purposes; and (ii) The amount of cash shall not include amounts received directly or indirectly from another financial institution (other than a Federal Home Loan Bank or a similar institution organized under State law) to the extent of the amount of cash which an association has on deposit or holds as a withdrawable account in such other financial institution. (5) Reporting requirements. (6) Example. Savings and Loan Association Assets as of December 31, 1964 Item Described in paragraph (d), subparagraph Amount Percentage 1. Cash (2) $1,000,000 1 2. Governmental obligations 1 (3) 8,000,000 8 3. Deposit insurance company securities (4) 1,000,000 1 Loans outstanding: 2 4. Home (7) 59,000,000 59 5. Church (8) 1,000,000 1 6. Multifamily (9) 20,000,000 20 7. Nonresidential real property (10) 5,000,000 5 8. Passbook (6) 1,000,000 1 9. Other 2,000,000 2 Fixed assets (less depreciation reserves): 10. Used in the association's business (5) 1,000,000 1 11. Rented to others 500,000 .5 12. Land held for investment 500,000 .5 13. Total assets included for purposes of this paragraph 100,000,000 100.0% 14. Accounts receivable 100,000 (disregarded) 15. Prepaid expenses (other than prepaid FSLIC premiums) 1,000,000 (disregarded) 16. Deferred charges 1,000,000 (disregarded) 17. Total assets 102,100,000 1 2 The computation of the percentages of assets in the various categories for the purpose of determining whether the percentage of assets tests in the paragraphs in this section are met as of the close of the year are as follows: Test and paragraph Items considered Percentage 90 percent test (d) the sum of items 1 through 8 and 10 item—13 (total included assets) = 97 percent 18 percent test (e) the sum of items 7, 9, 11, and 12—item 13 (total included assets) = 8 percent 36 percent test (f) the sum of items 6, 7, 9, 11, and 12—item 13 (total included assets) = 28 percent 3 percent test (h) 0—item 13 (total included assets) = 0 percent At the option of the association, the computations listed above could have been made as of the close of each month, each quarter, or semiannually, and averaged for the entire year. (m) Taxable years beginning before October 17, 1962. [32 FR 15241, Nov. 3, 1967, as amended by T.D. 7622, 44 FR 28661, May 16, 1979] § 301.7701-13A Post-1969 domestic building and loan association. (a) In general. (b) Supervisory test. (c) Business operations test In general. (2) Acquiring the savings of the public. (3) Investing in loans In general. ( a ( b ( c ( d ( e ( f Examples of types of income which would cause an association to fail to meet the requirements of this paragraph if, in the aggregate, they equal or exceed 25 percent of gross income, are: The excess of gains over losses from sales of real property (other than foreclosed property); rental income (other than on foreclosed property and the portion of property used in the association's business); premiums, commissions, and fees (other than commitment fees) on loans which have never been held by the association; and insurance brokerage fees. (ii) Computation of gross income. ( a ( b ( c For purposes of this paragraph, gross income is also computed without regard to items of income which an association establishes arise out of transactions which are necessitated by exceptional circumstances and which are not undertaken as recurring business activities for profit. Thus, for example, an association would meet the investing in loans requirement if it can establish that it would otherwise fail to meet that requirement solely because of the receipt of a nonrecurring item of income due to exceptional circumstances. For this purpose, transactions necessitated by an excess of demand for loans over savings capital in the association's area are not to be deemed to be necessitated by exceptional circumstances. For purposes of paragraph (c)(3)(ii)( c (iii) Reporting requirement. (d) 60 percent of assets test. (e) Assets defined. (1) Cash. (2) Governmental obligations. (i) Obligations of the United States, (ii) Obligations of a State or political subdivision of a State, and (iii) Stock or obligations of a corporation which is an instrumentality of the United States, a State, or a political subdivision of a State, other than obligations the interest on which is excludable from gross income under section 103 and the regulations thereunder. (3) Deposit insurance company securities. (4) Passbook loan. (5) Residential real property loan. (6) Church loan. (7) Urban renewal loan. (8) Institutional loan. (9) Foreclosed property. (10) Educational loan. (11) Property used in the association's business In general. (ii) Property rented to others. (12) Regular or residual interest in a REMIC In general. (ii) Loans secured by manufactured housing. (f) Special rules. [T.D. 7622, 44 FR 28661, May 16, 1979; 44 FR 29048, May 18, 1979, as amended by T.D. 8458, 57 FR 61313, Dec. 24, 1992] § 301.7701-14 Cooperative bank. For taxable years beginning after October 16, 1962, the term “cooperative bank” means an institution without capital stock organized and operated for mutual purposes without profit which meets the supervisory test, the business operations test, and the various assets tests specified in paragraphs (d) through (h) of § 301.7701-13, employing the rules and definitions of paragraphs (j) through (l) of that section. In applying paragraphs (b) through (l) of such section any references to an “association” or to a “domestic building and loan association” shall be deemed to be a reference to a cooperative bank. § 301.7701-15 Tax return preparer. (a) In general. tax return preparer (b) Definitions Signing tax return preparer. signing tax return preparer (2) Nonsigning tax return preparer In general. nonsigning tax return preparer (ii) Examples. Example 1. Attorney A, an attorney in a law firm, provides legal advice to a large corporate taxpayer regarding a completed corporate transaction. The advice provided by A is directly relevant to the determination of an entry on the taxpayer's return, and this advice leads to a position(s) or entry that constitutes a substantial portion of the return. A, however, does not prepare any other portion of the taxpayer's return and is not the signing tax return preparer of this return. A is considered a nonsigning tax return preparer. Example 2. Attorney B, an attorney in a law firm, provides legal advice to a large corporate taxpayer regarding the tax consequences of a proposed corporate transaction. Based upon this advice, the corporate taxpayer enters into the transaction. Once the transaction is completed, the corporate taxpayer does not receive any additional advice from B with respect to the transaction. B did not provide advice with respect to events that have occurred and is not considered a tax return preparer. Example 3. The facts are the same as Example 2, except that Attorney B provides supplemental advice to the corporate taxpayer on a phone call after the transaction is completed. Attorney B did not provide advice before the corporate transaction occurred with the primary intent to avoid being treated as a tax return preparer. The time incurred on this supplemental advice by B represented less than 5 percent of the aggregate amount of time spent by B providing tax advice on the position. B is not considered a tax return preparer. (3) Substantial portion. (A) the size and complexity of the item relative to the taxpayer's gross income; and (B) the size of the understatement attributable to the item compared to the taxpayer's reported tax liability. (ii)(A) For purposes of applying the rules of paragraph (b)(3)(i) of this section to a nonsigning tax return preparer within the meaning of paragraph (b)(2) of this section only, the schedule or other portion is not considered to be a substantial portion if the schedule, entry, or other portion of the return or claim for refund involves amounts of gross income, amounts of deductions, or amounts on the basis of which credits are determined that are— ( 1 ( 2 (B) If more than one schedule, entry or other portion is involved, all schedules, entries or other portions shall be aggregated in applying the de minimis rule in paragraph (b)(3)(ii)(A) of this section. (C) The de minimis rule in paragraph (b)(3)(ii)(A) of this section shall not apply to a signing tax return preparer within the meaning of paragraph (b)(1) of this section. (iii) A tax return preparer with respect to one return is not considered to be a tax return preparer of another return merely because an entry or entries reported on the first return may affect an entry reported on the other return, unless the entry or entries reported on the first return are directly reflected on the other return and constitute a substantial portion of the other return. For example, the sole preparer of a partnership return of income or small business corporation income tax return is considered a tax return preparer of a partner's or a shareholder's return if the entry or entries on the partnership or small business corporation return reportable on the partner's or shareholder's return constitute a substantial portion of the partner's or shareholder's return. (iv) Examples. Example 1. Accountant C prepares a Form 8886, “Reportable Transaction Disclosure Statement”, that is used to disclose reportable transactions. C does not prepare the tax return or advise the taxpayer regarding the tax return reporting position of the transaction to which the Form 8886 relates. The preparation of the Form 8886 is not directly relevant to the determination of the existence, characterization, or amount of an entry on a tax return or claim for refund. Rather, the Form 8886 is prepared by C to disclose a reportable transaction. C has not prepared a substantial portion of the tax return and is not considered a tax return preparer under section 6694. Example 2. Accountant D prepares a schedule for an individual taxpayer's Form 1040, “U.S. Individual Income Tax Return”, reporting $4,000 in dividend income and gives oral or written advice about Schedule A, which results in a claim of a medical expense deduction totaling $5,000, but does not sign the tax return. D is not a nonsigning tax return preparer because the total aggregate amount of the deductions is less than $10,000. (4) Return and claim for refund Return. (ii) Claim for refund. (c) Mechanical or clerical assistance. (d) Qualifications. (e) Outside the United States. tax return preparer. (f) Persons who are not tax return preparers. (i) An official or employee of the Internal Revenue Service (IRS) performing official duties. (ii) Any individual who provides tax assistance under a Volunteer Income Tax Assistance (VITA) program established by the IRS, but only with respect to those returns prepared as part of the VITA program. (iii) Any organization sponsoring or administering a VITA program established by the IRS, but only with respect to that sponsorship or administration. (iv) Any individual who provides tax counseling for the elderly under a program established pursuant to section 163 of the Revenue Act of 1978, but only with respect to those returns prepared as part of that program. (v) Any organization sponsoring or administering a program to provide tax counseling for the elderly established pursuant to section 163 of the Revenue Act of 1978, but only with respect to that sponsorship or administration. (vi) Any individual who provides tax assistance as part of a qualified Low-Income Taxpayer Clinic (LITC), as defined by section 7526, subject to the requirements of paragraphs (f)(2) and (3) of this section, but only with respect to those returns and claims for refund prepared as part of the LITC program. (vii) Any organization that is a qualified LITC, as defined by section 7526, subject to the requirements of paragraphs (f)(2) and (3) of this section. (viii) An individual providing only typing, reproduction, or other mechanical assistance in the preparation of a return or claim for refund. (ix) An individual preparing a return or claim for refund of a taxpayer, or an officer, a general partner, member, shareholder, or employee of a taxpayer, by whom the individual is regularly and continuously employed or compensated or in which the individual is a general partner. (x) An individual preparing a return or claim for refund for a trust, estate, or other entity of which the individual either is a fiduciary or is an officer, general partner, or employee of the fiduciary. (xi) An individual preparing a claim for refund for a taxpayer in response to— (A) A notice of deficiency issued to the taxpayer; or (B) A waiver of restriction on assessment after initiation of an audit of the taxpayer or another taxpayer if a determination in the audit of the other taxpayer affects, directly or indirectly, the liability of the taxpayer for tax. (xii) A person who prepares a return or claim for refund for a taxpayer with no explicit or implicit agreement for compensation, even if the person receives an insubstantial gift, return service, or favor. (2) Paragraphs (f)(1)(vi) and (vii) of this section apply only if any assistance with a return of tax or claim for refund is directly related to a controversy with the IRS for which the qualified LITC is providing assistance or is an ancillary part of an LITC program to inform individuals for whom English is a second language about their rights and responsibilities under the Code. (3) Notwithstanding paragraph (f)(2) of this section, paragraphs (f)(1)(vi) and (f)(1)(vii) of this section do not apply if an LITC charges a separate fee or varies a fee based on whether the LITC provides assistance with a return of tax or claim for refund under the Code or if the LITC charges more than a nominal fee for its services. (4) For purposes of paragraph (f)(1)(ix) of this section, the employee of a corporation owning more than 50 percent of the voting power of another corporation, or the employee of a corporation more than 50 percent of the voting power of which is owned by another corporation, is considered the employee of the other corporation as well. (5) For purposes of paragraph (f)(1)(x) of this section, an estate, guardianship, conservatorship, committee, or any similar arrangement for a taxpayer under a legal disability (such as a minor, an incompetent, or an infirm individual) is considered a trust or estate. (6) Examples. Example 1. A reporting agent received employment tax information from a client from the client's business records. The reporting agent did not render any tax advice to the client or exercise any discretion or independent judgment on the client's underlying tax positions. The reporting agent processed the client's information, signed the return as authorized by the client pursuant to Form 8655, Reporting Agent Authorization, and filed the client's return using the information supplied by the client. The reporting agent is not a tax return preparer. Example 2. A reporting agent rendered tax advice to a client on determining whether its workers are employees or independent contractors for Federal tax purposes. For compensation, the reporting agent received employment tax information from the client, processed the client's information and filed the client's return using the information supplied by the client. The reporting agent is a tax return preparer. (g) Effective/applicability date. [T.D. 9436, 73 FR 78463, Dec. 22, 2008, as amended by T.D. 9436, 74 FR 5107, Jan. 29, 2009] § 301.7701-16 Other terms. For a definition of the term “withholding agent” see § 1.1441-7(a). Any other terms that are defined in section 7701 and that are not defined in §§ 301.7701-1 to 301.7701-15, inclusive, shall, when used in this chapter, have the meanings assigned to them in section 7701. (Secs. 1441(c)(4) (80 Stat. 1553; 26 U.S.C. 1441(c)(4)), 3401(a)(6) (80 Stat. 1554; 26 U.S.C. 3401(a)(6)), and 7805 (68A Stat. 917; 26 U.S.C. 7805), Internal Revenue Code of 1954) [T.D. 7977, 49 FR 36836, Sept. 20, 1984] § 301.7701-17T Collective-bargaining plans and agreements (temporary). Q-1: How did the Tax Reform Act of 1984 (TRA of 1984) change the laws with respect to plans that are maintained pursuant to collective bargaining agreements? A-1: (a) Many of the requirements and rules applicable to deferred compensation and welfare benefit plans are different for plans maintained pursuant to a collective bargaining agreement. Prior to the TRA of 1984, the Internal Revenue Code provided no clear definition of an employee representative or whether there is a collective bargaining agreement between such employee representative and one or more employers. (b) Section 526(c) of the TRA of 1984 added a new condition under a new section 7701(a)(46) that must be satisfied in order for a plan to be considered to be a plan maintained pursuant to a collective bargaining agreement between employee representatives and one or more employers for purposes of the Code after March 31, 1984. If more than one-half of the membership of an organization is comprised of owners, officers, and executives of employers covered by the plan, then such organization is not an employee representative for purposes of determining whether a plan is to be treated as maintained pursuant to a collective bargaining agreement between employee representatives and one or more employers. Whether an individual is an owner, officer or executive is to be determined separately with respect to each employer. Additionally, section 7701(a)(46) provides that the Internal Revenue Service shall make the determination for purposes of the Code as to whether there is a collective bargaining agreement between employee representatives and one or more employers. Q-2: If an organization does not fail to be an employee representative under the 50 percent or less test of section 7701(a)(46), is a plan maintained pursuant to an agreement between such organization and one or more employers necessarily treated, under the Code, as a plan maintained pursuant to a collective bargaining agreement between an employee representative and one or more employers? A-2: (a) No. (b) Specific Code provisions generally require other conditions than that in section 7701(a)(46) to be satisfied in order for a plan to be considered to be collectively-bargained. For example, in order for a plan to be described in section 413(a), the Secretary of Labor must find that the plan is maintained pursuant to a collective bargaining agreement between employee representatives and one or more employers. (c) Even if (1) the finding in the example in the preceding paragraph (b) is made by the Secretary of Labor, (2) the union has been recognized as exempt under section 501(c)(5), and (3) the percentage condition in section 7701(a)(46) is satisfied, the Internal Revenue Service has the authority, pursuant to section 7701(a)(46), to determine whether there is a collective bargaining agreement under the Code. [T.D. 8073, 51 FR 4337, Feb. 4, 1986] § 301.7701-18 Definitions; spouse, husband and wife, husband, wife, marriage. (a) In general. spouse, husband, wife husband and wife (b) Persons who are lawfully married for federal tax purposes In general. (2) Foreign marriages. (c) Persons who are not lawfully married for federal tax purposes. spouse, husband, wife husband and wife marriage (d) Applicability date. [T.D. 9785, 81 FR 60616, Sept. 2, 2016] § 301.7701(b)-0 Outline of regulation provision for section 7701(b)-1 through (b)-9. This section lists the paragraphs contained in §§ 301.7701(b)-1 through 301.7701(b)-9. § 301.7701(b)-1 Resident alien. (a) Scope. (b) Lawful permanent resident. (1) Green card test. (2) Rescission of resident status. (3) Administrative or judicial determination of abandonment of resident status. (c) Substantial presence test. (1) In general. (2) Determination of presence. (i) Physical presence. (ii) United States. (3) Current year. (4) Thirty-one day minimum. (d) Application of section 7701(b) to the possessions and territories. (1) Application to aliens. (2) Non-application to citizens. (e) Examples. § 301.7701(b)-2 Closer connection exception. (a) In general. (b) Foreign country. (c) Tax home. (1) Definition. (2) Duration and nature of tax home. (d) Closer connection to a foreign country. (1) In general. (2) Permanent home. (e) Special rule. (f) Closer connection exception unavailable. (g) Filing requirements. § 301.7701(b)-3 Days of presence in the United States that are excluded for purposes of section 7701(b). (a) In general. (b) Exempt individuals. (1) In general. (2) Foreign government-related individual. (i) In general. (ii) Definition of international organization. (iii) Full-time diplomatic or consular status. (3) Teacher or trainee. (4) Student. (5) Professional athlete. (6) Substantial compliance. (7) Limitation on teacher or trainee and student exemptions. (i) Teacher or trainee limitation in general. (ii) Special teacher or trainee limitation for section 872(b)(3) compensation. (iii) Limitation on student exemption. (iv) Transition rule. (v) Examples. (8) Immediate family. (c) Medical condition. (1) In general. (2) lntent to leave the United States. (3) Preexisting medical condition. (4) Examples. (d) Days in transit. (e) Regular commuters from Mexico or Canada. (1) General rule. (2) Definitions. (3) Examples. (f) Determination of excluded days applies beyond year of determination. § 301.7701(b)-4 Residency time periods. (a) First year of residency. (b) Last year of residency. (1) General rule. (2) Exceptions. (c) Rules relating to residency starting date and residency termination date. (1) De minimis presence. (2) Proration. (3) Residency starting date for certain individuals. (i) In general. (ii) Determination of presence. (iii) Thirty-one day period. (iv) Period of continuous presence. (v) Election procedure. (A) Filing requirements. (B) Election on behalf of a dependent child. (C) Statement. (vi) Penalty for failure to comply with filing requirements. (A) General rule. (B) Exception. (d) Examples. (e) No lapse. (1) Residency in prior year. (2) Residency in following year. (3) Special rule. (4) Example. § 301.7701(b)-5 Coordination with section 877. (a) General rule. (b) Tax imposed. (c) Example. § 301.7701(b)-6 Taxable year. (a) In general. (b) Examples. § 301.7701(b)-7 Coordination with income tax treaties. (a) Consistency requirement. (1) Application. (2) Computation of tax liability. (3) Other Internal Revenue Code purposes. (4) Special rules for S corporations. [Reserved] (b) Filing requirements. (c) Contents of statement. (1) In general. (i) Returns due after December 15, 1997. (ii) Earlier returns. (2) Controlled foreign corporation shareholders. (3) S corporation shareholders. [Reserved] (d) Relationship to section 6114(a) treaty-based return positions. (e) Examples. § 301.7701(b)-8 Procedural rules. (a) Who must file. (1) Closer connection exception. (2) Exempt individuals and individuals with a medical condition. (3) De minimis presence and residency starting and termination dates. (b) Contents of statement. (1) Closer connection exception. (i) Returns due after December 15, 1997. (ii) Earlier returns. (2) Exempt individuals and individuals with a medical condition. (i) Returns due after December 15, 1997. (ii) Earlier returns. (3) De minimis presence and residency starting and termination dates. (c) How to file. (d) Penalty for failure to file statement. (1) General rule. (2) Exception. (e) Filing requirement disregarded. § 301.7701(b)-9 Effective dates of §§ 301.7701(b)-1 through 301.7701(b)-7. (a) In general. (b) Special rules. (1) Green card test-residency starting date. (2) Substantial presence test-years included. (3) Professional athletes. (4) Procedural rules and filing requirements. [T.D. 8411, 57 FR 15241, Apr. 27, 1992; 58 FR 17516, Apr. 5, 1993, as amended by T.D. 8733, 62 FR 53386, Oct. 14, 1997] § 301.7701(b)-1 Resident alien. (a) Scope. (b) Lawful permanent resident Green card test. (2) Rescission of resident status. (3) Administrative or judicial determination of abandonment of resident status. (c) Substantial presence test In general. (2) Determination of presence Physical presence. (ii) United States. United States (3) Current year. current year (4) Thirty-one day minimum. (d) Application of section 7701(b) to the possessions and territories Application to aliens for purposes of mirror systems. (2) Non-application for bona fide resident determination. (e) Examples. Example 1. B, an alien individual, is present in the United States for 122 days in the current year. He was present in the United States for 122 days in the first preceding calendar year and for 122 days in the second preceding calendar year. In determining his status for the current year, B counts all 122 days in the United States in the current year plus 1/3 2/3 1/6 1/3 2/3 1/3 Example 2. C, an alien individual, is present in the United States for 25 days during the current year. She was present in the United States for 365 days during the first preceding year and 365 days during the second preceding year. The substantial presence test does not apply because C is present in the United States for fewer than 31 days during the current year. Example 3. D, an alien individual, is present in the United States for 170 days during the current year. He was present in the United States for 30 days during the first preceding year and 30 days during the second preceding year. In determining his status for the current year, D counts all 170 days in the United States in the current year plus 1/3 1/6 [T.D. 8411, 57 FR 15242, Apr. 27, 1992; 57 FR 28612, June 26, 1992; 57 FR 37190, Aug. 18, 1992, as amended by T.D. 9194, 70 FR 18947, Apr. 11, 2005; T.D. 9391, 73 FR 19377, Apr. 9, 2008] § 301.7701(b)-2 Closer connection exception. (a) In general. (1) The individual is present in the United States for fewer than 183 days in the current year; (2) The individual maintains a tax home in a foreign country during the current year; and (3) Except as provided in paragraph (e) of this section, the individual has a closer connection during the current year to a single foreign country in which he or she maintains a tax home than to the United States. (b) Foreign country. (c) Tax home Definition. (2) Duration and nature of tax home. (d) Closer connection to a foreign country In general. (i) The location of the individual's permanent home; (ii) The location of the individual's family; (iii) The location of personal belongings, such as automobiles, furniture, clothing and jewelry owned by the individual and his or her family; (iv) The location of social, political, cultural or religious organizations with which the individual has a current relationship; (v) The location where the individual conducts his or her routine personal banking activities; (vi) The location where the individual conducts business activities (other than those that constitute the individual's tax home); (vii) The location of the jurisdiction in which the individual holds a driver's license; (viii) The location of the jurisdiction in which the individual votes; (ix) The country of residence designated by the individual on forms and documents; and (x) The types of official forms and documents filed by the individual, such as Form 1078 (Certificate of Alien Claiming Residence in the United States), Form W-8 (Certificate of Foreign Status) or Form W-9 (Payer's Request for Taxpayer ldentification Number). (2) Permanent home. (e) Special Rule. (1) The individual maintains a tax home beginning on the first day of the current year in one foreign country; (2) The individual changes his or her tax home during the current year to a second foreign country; (3) The individual continues to maintain his or her tax home in the second foreign country for the remainder of the current year; (4) The individual has a closer connection to each foreign country than to the United States for the period during which the individual maintains a tax home in that foreign country; and (5) The individual is subject to taxation as a resident pursuant to the internal laws of either foreign country for the entire year or subject to taxation as a resident in both foreign countries for the period during which the individual maintains a tax home in each foreign country. (f) Closer connection exception unavailable. (1) The filing of Immigration and Naturalization Form I-508 (Waiver of Immunities) by the alien; (2) The filing of Immigration and Naturalization Form I-485 (Application for Status as Permanent Resident) by the alien; (3) The filing of Immigration and Naturalization Form I-130 (Petition for Alien Relative) on behalf of the alien; (4) The filing of Immigration and Naturalization Form I-140 (Petition for Prospective Immigrant Employee) on behalf of the alien; (5) The filing of Department of Labor Form ETA-750 (Application for Alien Employment Certification) on behalf of the alien; or (6) The filing of Department of State Form OF-230 (Application for Immigrant Visa and Alien Registration) by the alien. (g) Filing requirements. [T.D. 8411, 57 FR 15244, Apr. 27, 1992; 57 FR 28612, June 26, 1992; 57 FR 37190, Aug. 18, 1992; 58 FR 17516, Apr. 5, 1993] § 301.7701(b)-3 Days of presence in the United States that are excluded for purposes of section 7701(b). (a) In general. (1) Any day that an individual is present in the United States as an exempt individual; (2) Any day that an individual is prevented from leaving the United States because of a medical condition that arose while the individual was present in the United States; (3) Any day that an individual is in transit between two points outside the United States; and (4) Any day on which a regular commuter residing in Canada or Mexico commutes to and from employment in the United States. (b) Exempt individuals In general. (i) Foreign government-related individual as defined in paragraph (b)(2) of this section; (ii) Teacher or trainee as defined in paragraph (b)(3) of this section; (iii) Student as defined in paragraph (b)(4) of this section; or (iv) Professional athlete as defined in paragraph (b)(5) of this section. (2) Foreign government-related individual In general. (A) As a full-time employee of an international organization; (B) By reason of diplomatic status; or (C) By reason of a visa that the Secretary of the Treasury or his or her delegate (after consultation with the Secretary of State when appropriate) determines represents full-time diplomatic or consular status. An individual described in this paragraph shall be considered to be temporarily present in the United States if the individual is not a lawful permanent resident as described in § 301.7701(b)-1(b)(1), regardless of the actual amount of time that the individual is present in the United States. (ii) Definition of international organization. (iii) Full-time diplomatic or consular status. (A) The individual has been accredited by a foreign government recognized de jure or de facto by the United States; (B) The individual intends to engage primarily in official activities for that foreign government while in the United States; and (C) The individual has been recognized by the President, or by the Secretary of State, or by a consular officer acting on behalf of the Secretary of State, as being entitled to such status. (3) Teacher or trainee. (4) Student. (5) Professional athlete. (6) Substantial compliance. (7) Limitation on teacher or trainee and student exemptions Teacher or trainee limitation in general. (ii) Special teacher or trainee limitation for section 872(b)(3) compensation. (A) A teacher or trainee receives compensation in the current year and all of that compensation is described in section 872(b)(3); (B) That individual was present in the United States as a teacher or trainee in any prior year within the last 6 years; and (C) During each prior year (within the 6 year period) in which the individual was present as a teacher or trainee, the individual received compensation all of which was described in section 872(b)(3); Then that individual shall include days of presence as a teacher or trainee in the current year only if the individual has been exempt as a teacher, trainee, or student for any part of four of the six preceding calendar years. (iii) Limitation on student exemption. (A) Whether the individual has maintained a closer connection with a foreign country as described in § 301.7701(b)-2; and (B) Whether the individual has taken affirmative steps within the meaning of paragraph (f) of § 301.7701(b)-2 to adjust the individual's status from nonimmigrant to lawful permanent resident. (iv) Transition rule. (v) Examples. Example 1. B is temporarily present in the United States during the current year as a teacher, within the meaning of section 101(a)(15)(J) of the Immigration and Nationality Act. B does not receive compensation described in section 872(b)(3) in the current year. B has been treated as an exempt student for the past three years. Although this is the first year that B is seeking to be exempt as a teacher, he will not be considered an exempt individual for the year because he has been exempt as a student for at least two of the past six years. Example 2. C is temporarily present in the United States during the current year as a teacher and receives compensation described in section 872(b)(3) in the current year. C has been treated as an exempt teacher for the past two years but C's compensation for those years was not described in section 872(b)(3). C will not be considered an exempt individual for the current year because she has been exempt as a teacher for at least two of the past six years. Example 3. The facts are the same as in Example 2, Example 4. D is temporarily present in the United States during the current year as a teacher, within the meaning of section 101(a)(15)(J) of the Immigration and Nationality Act. D does not receive compensation described in section 872(b)(3) in the current year. D entered the United States in December of the second preceding year and intends to remain in the United States until June of the current year. D will not be considered an exempt individual for the current year because he has been exempt as a teacher for at least two of the past six years. (8) Immediate family. unmarried children (c) Medical condition In general. (2) Intent to leave the United States. (3) Pre-existing medical condition. (4) Examples. Example 1. B is in a serious automobile accident in the United States on March 25. B intended to leave the United States on March 31 (as evidenced by an airline ticket), but was unable to leave on that date as a result of the injuries suffered in the accident. B recovered from the injuries and was able to leave and did leave the United States on May 31. B's presence in the United States during the period from April 1 through May 31 will not be counted as days of presence in the United States. Example 2. The facts are the same as in Example 1, (d) Days in transit. (e) Regular commuters from Mexico or Canada General rule. (2) Definitions. commutes (ii) The term workdays (iii) The term working period (3) Examples. Example 1. B lives in Mexico and is employed by Corporation X in its office in Mexico. B was temporarily assigned to X's office in the United States. B's employment in the United States office began on February 1, 1988, and continued through June 1, 1988. On June 2, B resumed his employment in Mexico. On 59 days in the period beginning on February 1, 1988, and ending on June 1, 1988, B travelled each morning from his residence in Mexico to X Corporation's United States office for the purpose of engaging in his employment with X Corporation. B returned to his residence in Mexico on each of those evenings. On seven days in the period from February 1, 1988, through June 1, 1988, B worked in X's Mexico office. B is not considered to have been present in the United States on any of the days that he travelled to X's United States office for the purpose of engaging in employment with Corporation X because he commuted to his place of employment within the United States on more than 75% of the workdays during the working period (59 workdays in the United States/66 workdays in the working period = 89.4%). Example 2. C, who lives in Canada, contracted with a resort located in the United States to provide snow-skiing instructions for the resort's customers for two skiing seasons, the first beginning on November 15, 1987, and ending on March 15, 1988, and the second beginning on November 15, 1988, and ending on March 15, 1989. On 90 days in each of the two skiing seasons, C travelled in the morning from Canada to the resort to provide skiing instructions pursuant to the contract. C returned to Canada on each of those evenings. On 20 days during each of the two skiing seasons, C worked in Canada. C is not considered to have been present in the United States on any of the days that she travelled to the United States to provide ski instructions in either the first working period beginning on November 15, 1987, and ending on March 15, 1988, or the second working period beginning on November 15, 1988, and ending on March 15, 1989, because she commuted to her employment within the United States on more than 75% of the workdays during each of the working periods (90 workdays in the United States/110 workdays in the working period = 81.8%). Example 3. D, who lives in Canada, is the sole proprietor of a wholesale lumber business with offices in both the United States and Canada. Beginning on January 4, 1988, and ending on February 12, 1988, D commuted to work in his United States office on 30 days. Beginning on February 15, 1988, and ending on March 25, 1988, D commuted to work in his Canadian office on 30 days. Beginning on March 28, 1988, and ending on May 27, 1988, D commuted to work in his United States office on 45 days. Subsequent to May 27, D did not commute to the United States on any other days in 1988. D is considered to have been present in the United States on each day that he travelled to his office in the United States because D did not commute to the United States office on more than 75% of the workdays during the working period beginning on January 4, 1988, and ending on May 27, 1988 (75 workdays in the United States/105 workdays in the working period = 71.4%). (f) Determination of excluded days applies beyond year of determination. [T.D. 8411, 57 FR 15245, Apr. 27, 1992; 57 FR 28612, June 26, 1992; 57 FR 37190, Aug. 18, 1992, as amended by T.D. 8733, 62 FR 53386, Oct. 14, 1997] § 301.7701(b)-4 Residency time periods. (a) First year of residency. (b) Last year of residency General rule. (2) Exceptions. (c) Rules relating to residency starting date and residency termination date De minimis presence. (2) Proration. (3) Residency starting date for certain individuals In general. (A) The individual was not a resident of the United States under the substantial presence test or the green card test in the year preceding the current year; and (B) The individual is a resident of the United States in the subsequent year under the substantial presence test (whether or not the individual is also a resident of the United States under the green card test). (ii) Determination of presence. (iii) Thirty-one day period. thirty-one day period (iv) Period of continuous presence. continuous presence (v) Election procedure Filing requirements. (B) Election on behalf of a dependent child. (C) Statement. ( 1 ( 2 ( 3 ( 4 ( 5 (vi) Penalty for failure to comply with filing requirements General rule. (B) Exception. (d) Examples. Example 1. B, a citizen of foreign country X, is an alien who has never before been a United States resident for tax purposes. B comes to the United States on January 6, 1985, to attend a business meeting and returns to country X on January 10, 1985. B is able to establish a closer connection to country X for the period January 6-10. On March 1, 1985, B moves to the United States and resides here until August 20, 1985, when he returns to country X. On December 12, 1985, B comes to the United States for pleasure and stays here until December 16, 1985 when he returns to country X. B is able to establish a closer connection to country X for the period December 12-16. B is not a United States resident for tax purposes during the following year and can establish a closer connection to country X for the remainder of calendar year 1985. B is a resident of the United States under the substantial presence test because B is present in the United States for 183 days (5 days in January plus 173 days for the period March 1-August 20 plus 5 days in December). B's residency starting date is March 1, 1985, and his residency termination date is August 20, 1985. Example 2. The facts are the same as in Example 1, Example 3. C, a citizen of foreign country Y, is an alien who has never before been a United States resident for tax purposes. C comes to the United States for the first time on February 10, 1985, and attends a business conference until February 24, 1985, when she returns to country Y. On April 20, 1985, C enters the United States as a lawful permanent resident. On November 10, 1985, C ceases to be a lawful permanent resident but stays on in the United States until November 20, 1985 when she returns to country Y. On December 8, 1985, C comes to the United States and stays here until December 17, 1985 when she returns to country Y. She can establish a closer connection to country Y for that period. C is not a resident of the United States during the following calendar year and can establish a closer connection to country Y for the remainder of calendar year 1985. C qualifies as a United States resident under both the green card test and the substantial presence test. C's residency starting date under the green card test is April 20, 1985. Under the substantial presence test, C's residency starting date is February 10, 1985, because she is present for more than ten days in February and cannot take advantage of the de minimis presence rule. Therefore, C's residency starting date is February 10, 1985. C's residency termination date under the green card test is November 10, 1985. Her residency termination date under the substantial presence test is November 20, because B can disregard ten days of presence in December. Thus, her residency termination date is November 20, 1985, the later of her residency termination date under the substantial presence test or the green card test. Example 4. The facts are the same as in Example 3, Example 5. D, a citizen of foreign country Z, is an alien who has never before been a United States resident for tax purposes. D comes to the United States on November 1, 1985 and is present in the United States on 31 consecutive days (from November 1 through December 1, 1985). D returns to country Z on December 1 and does not come back to the United States until December 17, 1985. He remains in the United States for the rest of the year. During 1986, D is a resident of the United States under the substantial presence test. D may elect to be treated as a resident of the United States for 1985 because he was present in the United States in 1985 for a 31 consecutive day period of presence (November 1 through December 1, 1985) and for at least 75 percent of the days following (and including) the first day of D's 31 consecutive day period of presence (46 total days of presence in the United States/61 days in the period from November 1 through December 31 = 75.4%). If D makes the election to be treated as a resident, his residency starting date will be November 1, 1985. Example 6. The facts are the same as in Example 5, Example 7. F, a citizen of foreign country M, is an alien individual who has never before been a United States resident for tax purposes. F comes to the United States on January 1, 1985 and remains in the United States through January 31, 1985, when she returns to country M. F comes back to the United States on October 1, 1985 and is present in the United States through November 1, 1985. From November 1, 1985 through December 31, 1985, F is present in the United States for 38 days. Although F satisfies two 31 consecutive day periods of presence, (January 1 through January 31 and October 1 through November 1), she satisfies the continuous presence requirement only with regard to the later period of presence (69 total days of presence/92 days in the period from October 1 through December 31 = 75%). Thus, if F makes the election to be treated as a resident, his residency starting date is October 1, 1985. (e) No lapse Residency in prior year. (2) Residency in following year. (3) Special rule. (4) Example. Example. B, an alien individual who is a citizen of foreign country M, comes to the United States for the first time on May 1, 1985, and remains in the United States until November 5, 1985, when he returns to country M. B comes back to the United States on March 5, 1986 as a lawful permanent resident and remains in the United States until September 10, 1986, when he ceases to be a lawful permanent resident and returns to country M. B is not a resident in calendar year 1987. B's United States residency in calendar year 1985 continues through December 31, 1985, because he is a United States resident in the following calendar year. In calendar year 1986, B's United States residency is deemed to begin on January 1, 1986 because B qualified as a resident in the preceding calendar year. Thus, B's residency period in the United States begins on May 1, 1985, and ends on September 10, 1986. [T.D. 8411, 57 FR 15247, Apr. 27, 1992; 57 FR 28612, June 26, 1992] § 301.7701(b)-5 Coordination with section 877. (a) General rule. (1) The alien individual is a resident alien of the United States for at least three consecutive calendar years (the initial residency period) beginning after December 31, 1984; (2) The period of residence for each of the three consecutive calendar years includes at least 183 days; (3) The alien is once again taxed as a nonresident (including an individual taxed as a nonresident) under § 301.7701(b)-7(a)(1); and (4) The alien then becomes a resident of the United States before the close of the third calendar year beginning after the individual's residency termination date in the initial residency period. (b) Tax imposed. (c) Example. Example. B, a citizen of foreign country F, enters the United States on April 1, 1985, as a lawful permanent resident. On August 1, 1987, B ceases to be a lawful permanent resident and returns to country F. B meets the initial residency period requirement because he is a resident of the United States for at least 183 days in each of three consecutive years (1985, 1986 and 1987). B returns to the United States on October 5, 1990, as a lawful permanent resident. Because B became a resident of the United States before the close of the third calendar year (1990) beginning after the close of the initial residency period (August 1, 1987), he is subject to tax under section 877(b) for the intervening period of nonresidency, August 2, 1987 through October 4, 1990, if the amount of the tax imposed under section 877 is more than the tax imposed under section 871. [T.D. 8411, 57 FR 15250, Apr. 27, 1992] § 301.7701(b)-6 Taxable year. (a) In general. (b) Examples. Example 1. B, a citizen and resident of foreign country F, was engaged in a United States business during 1982 and filed a return on a fiscal year basis. B's fiscal year runs from October 1 to September 30. B comes to the United States on March 8, 1985 and remains in the United States until October 10, 1985, when he returns to country F. B maintains a closer connection to and his tax home in Country F for the remainder of calendar year 1985. B, who is not a United States resident at any time in 1986, is a United States resident for the period that begins on March 8, 1985, and ends on October 10, 1985. B has adopted a fiscal year taxable year for purposes of computing his United States income tax liability. For his fiscal year that ends on September 30, 1985, B will be taxed as a United States resident for the period that begins on March 8, 1985 and ends on September 30, 1985. For his fiscal year that ends on September 30, 1986, B will only be taxed as a United States resident for the period that begins on October 1, 1985 and ends on October 10, 1985. Example 2. The facts are the same as in Example 1, Example 3. The facts are the same as in Example 1, [T.D. 8411, 57 FR 15250, Apr. 27, 1992; 57 FR 28612, June 26, 1992, as amended by T.D. 8996, 67 FR 35012, May 17, 2002] § 301.7701(b)-7 Coordination with income tax treaties. (a) Consistency requirement Application. (2) Computation of tax liability. (3) Other Code purposes. (4) Special rules for S corporations. (b) Filing requirements. (c) Contents of statement In general Returns due after December 15, 1997. (ii) Earlier returns. (2) Controlled foreign corporation shareholders. (3) S corporation shareholders. (d) Relationship to section 6114(a) treaty-based return positions. (e) Examples. Example 1. B, an alien individual, is a resident of foreign country X, under X's internal law. Country X is a party to an income tax convention with the United States. B is also a resident of the United States under the Internal Revenue Code. B is considered to be a resident of country X under the convention. The convention does not specifically deal with characterization of foreign corporations as controlled foreign corporations or the taxability of United States shareholders on inclusions of subpart F income, but it provides, in an “Other Income” article similar to Article 21 of the 1981 draft of the United States Model Income Tax Convention (U.S. Model), that items of income of a resident of country X that are not specifically dealt with in the convention shall be taxable only in country X. B owns 80% of the one class of stock of foreign corporation R. The remaining 20% is owned by C, a United States citizen who is unrelated to B. In 1985, corporation R's only income is interest that is foreign personal holding company income under § 1.954A-2 of this chapter. Because the United States-X income tax convention does not deal with characterization of foreign corporations as controlled foreign corporations, United States internal income tax law applies. Therefore, B and C are United States shareholders within the meaning of § 1.951-1(g) of this chapter, corporation R is a controlled foreign corporation within the meaning of § 1.957-1 of this chapter, and corporation R's income is included in C's income as subpart F income under § 1.951-1 of this chapter. B may avoid current taxation on his share of the subpart F inclusion by filing as a nonresident ( i.e., Example 2. The facts are the same as in Example 1, i.e., Example 3. C, a married alien individual with three children, is a resident of foreign country Y, under Y's internal law. Country Y is a party to an income tax convention with the United States. C is also a resident of the United States under the Internal Revenue Code. C is considered to be a resident of country Y under the convention. The convention specifically covers, among other items of income, personal services income, dividends and interest. C is sent by her country Y employer to work in the United States from January 1, 1985 until December 31, 1985. During 1985, C also earns United States source dividends and interest and incurs mortgage interest expenses on her personal residence. The United States-Y treaty provides that remuneration for personal services performed in the United States by a country Y resident is exempt from United States tax if, among other things, the individual performing such services is present in the United States for a period that is not in excess of 183 days. The treaty provides that the rate of United States tax on United States source dividends paid to residents of Y shall not exceed 15 percent of the gross amount of the dividends and it exempts residents of Y from United States tax on United States source interest. In filing her 1985 tax return, C may choose to file either as a resident alien without claiming any treaty benefits or as a nonresident alien if she desires to claim any treaty benefit. C files as a nonresident ( i.e. Example 4. The facts are the same as in Example 3, i.e., [T.D. 8411, 57 FR 15251, Apr. 27, 1992; 57 FR 28612, June 26, 1992, as amended by T.D. 8733, 62 FR 53387, Oct. 14, 1997] § 301.7701(b)-8 Procedural rules. (a) Who must file Closer connection exception. (2) Exempt individuals and individuals with a medical condition. (i) Is an exempt individual as described in § 301.7701(b)-3(b)(3) (teacher/trainee) or (b)(4) (student); (ii) Is an exempt individual described in § 301.7701 (b)-3(b)(5) (professional athlete); or (iii) Has a medical condition or problem as described in § 301.7701(b)-3(c). (3) De minimis presence and residency starting and termination dates. (i) That a period of de minimis presence of ten or fewer days should be disregarded for purposes of the individual's residency starting or termination date; or (ii) A residency termination date. (b) Contents of statement Closer connection exception Returns due after December 15, 1997. (ii) Earlier returns. (2) Exempt individuals and individuals with a medical condition Returns due after December 15, 1997. (ii) Earlier returns. (3) De minimis presence and residency starting and termination dates. (i) The first day that the individual was present in the United States during the current year; (ii) The last day that the individual was present in the United States during the current year; (iii) Dates of de minimis presence that the individual is seeking to exclude from his or her residency starting or termination dates; (iv) Sufficient facts to establish that the individual has maintained his or her tax home in and a closer connection to a foreign country during a period of de minimis presence; (v) Sufficient facts to establish that the individual has maintained his or her tax home in and a closer connection to a foreign country following the individual's last day of presence in the United States during the current year or following the abandonment or rescission of the individual's status as a lawful permanent resident during the current year; (vi) Date that the individual's status as a lawful permanent resident was abandoned or rescinded; and (vii) Sufficient facts (including copies of relevant documents) to establish that the individual's status as lawful permanent resident has been abandoned or rescinded. (c) How to file. (d) Penalty for failure to file statement General rule. (2) Exception. (e) Filing requirement disregarded. [T.D. 8411, 57 FR 15252, Apr. 27, 1992; 57 FR 28612, June 26, 1992; 57 FR 37190, Aug. 18, 1992, as amended by T.D. 8733, 62 FR 53387, Oct. 14, 1997] § 301.7701(b)-9 Effective/applicability dates of §§ 301.7701(b)-1 through 301.7701(b)-7. (a) In general. (b) Special rules Green card test-residency starting date. (2) Substantial presence test-years included. (3) Professional athletes. (4) Procedural rules and filing requirements. (5) Possessions and territories. [T.D. 8411, 57 FR 15253, Apr. 27, 1992, as amended by T.D. 9391, 73 FR 19377, Apr. 9, 2008] § 301.7701(i)-0 Outline of taxable mortgage pool provisions. This section lists the major paragraphs contained in §§ 301.7701(i)-1 through 301.7701(i)-4. § 301.7701(i)-1 Definition of a taxable mortgage pool. (a) Purpose. (b) In general. (c) Asset composition tests. (1) Determination of amount of assets. (2) Substantially all. (i) In general. (ii) Safe harbor. (3) Equity interests in pass-through arrangements. (4) Treatment of certain credit enhancement contracts. (i) In general. (ii) Credit enhancement contract defined. (5) Certain assets not treated as debt obligations. (i) In general. (ii) Safe harbor. (A) In general. (B) Payments with respect to a mortgage defined. (C) Entity treated as not anticipating payments. (d) Real estate mortgages or interests therein defined. (1) In general. (2) Interests in real property and real property defined. (i) In general. (ii) Manufactured housing. (3) Principally secured by an interest in real property. (i) Tests for determining whether an obligation is principally secured. (A) The 80 percent test. (B) Alternative test. (ii) Obligations secured by real estate mortgages (or interests therein), or by combinations of real estate mortgages (or interests therein) and other assets. (A) In general. (B) Example. (e) Two or more maturities. (1) In general. (2) Obligations that are allocated credit risk unequally. (3) Examples. (f) Relationship test. (1) In general. (2) Payments on asset obligations defined. (3) Safe harbor for entities formed to liquidate assets. (g) Anti-avoidance rules. (1) In general. (2) Certain investment trusts. (3) Examples. § 301.7701(i)-2 Special rules for portions of entities. (a) Portion defined. (b) Certain assets and rights to assets disregarded. (1) Credit enhancement assets. (2) Assets unlikely to service obligations. (3) Recourse. (c) Portion as obligor. (1) In general. (2) Example. § 301.7701(i)-3 Effective dates and duration of taxable mortgage pool classification. (a) Effective dates. (b) Entities in existence on December 31, 1991. (1) In general. (2) Special rule for certain transfers. (3) Related debt obligation. (4) Example. (c) Duration of taxable mortgage pool classification. (1) Commencement and duration. (2) Testing day defined. § 301.7701(i)-4 Special rules for certain entities. (a) States and municipalities. (1) In general. (2) Governmental purpose. (3) Determinations by the Commissioner. (b) REITs. [Reserved] (c) Subchapter S corporations. (1) In general. (2) Portion of an S corporation treated as a separate corporation. [T.D. 8610, 60 FR 40088, Aug. 7, 1995] § 301.7701(i)-1 Definition of a taxable mortgage pool. (a) Purpose. (b) In general. (2) Paragraph (c) of this section provides the tests for determining whether substantially all of an entity's assets are debt obligations and for determining whether more than 50 percent of its debt obligations are real estate mortgages. Paragraph (d) of this section defines real estate mortgages for purposes of the 50 percent test. Paragraph (e) of this section defines two or more maturities and paragraph (f) of this section provides rules for determining whether debt obligations bear a relationship to the assets held by an entity. Paragraph (g) of this section provides anti-avoidance rules. Section 301.7701(i)-2 provides rules for applying section 7701(i) to portions of entities and § 301.7701(i)-3 provides effective dates. Section 301.7701(i)-4 provides special rules for certain entities. For purposes of the regulations under section 7701(i), the term entity includes a portion of an entity (within the meaning of section 7701(i)(2)(B)), unless the context clearly indicates otherwise. (c) Asset composition tests Determination of amount of assets. (2) Substantially all In general. (ii) Safe harbor. (3) Equity interests in pass-through arrangements. (4) Treatment of certain credit enhancement contracts In general. (ii) Credit enhancement contract defined. (5) Certain assets not treated as debt obligations In general. (ii) Safe harbor In general. (B) Payments with respect to a mortgage defined. (C) Entity treated as not anticipating payments. (d) Real estate mortgages or interests therein defined In general. (i) Obligations (including participations or certificates of beneficial ownership therein) that are principally secured by an interest in real property (as defined in paragraph (d)(3) of this section); (ii) Regular and residual interests in a REMIC; and (iii) Stripped bonds and stripped coupons (as defined in section 1286(e) (2) and (3)) if the bonds (as defined in section 1286(e)(1)) from which such stripped bonds or stripped coupons arose would have qualified as real estate mortgages or interests therein. (2) Interests in real property and real property defined In general. (ii) Manufactured housing. (3) Principally secured by an interest in real property Tests for determining whether an obligation is principally secured. (A) The 80 percent test. (B) Alternative test. (ii) Obligations secured by real estate mortgages (or interests therein), or by combinations of real estate mortgages (or interests therein) and other assets In general. (B) Example. Example. At the time it is originated, an obligation has an adjusted issue price of $300,000 and is secured by a $70,000 loan principally secured by an interest in a single family home, a fifty percent co-ownership interest in a $400,000 parcel of land, and $80,000 of stock. Under paragraph (d)(3)(ii)(A) of this section, the obligation is treated as secured by interests in real property and under paragraph (d)(3)(i)(A) of this section, the obligation is treated as principally secured by interests in real property. (e) Two or more maturities In general. (2) Obligations that are allocated credit risk unequally. (3) Examples. Example 1. (i) Corporation M transfers a pool of real estate mortgages to a trustee in exchange for Class A bonds and a certificate representing the residual beneficial ownership of the pool. All Class A bonds have a stated maturity of March 1, 2002, but if cash flows from the real estate mortgages and investments are sufficient, the trustee may select one or more bonds at random and redeem them earlier. (ii) The Class A bonds do not have different maturities. Each outstanding Class A bond has an equal chance of being redeemed because the selection process is random. The holders of the Class A bonds, therefore, have identical rights concerning the maturities of their obligations. Example 2. (i) Corporation N transfers a pool of real estate mortgages to a trustee in exchange for Class C bonds, Class D bonds, and a certificate representing the residual beneficial ownership of the pool. The Class D bonds are subordinate to the Class C bonds so that cash flow shortfalls due to defaults or delinquencies on the real estate mortgages are borne first by the Class D bond holders. The terms of the bonds are otherwise identical in all relevant aspects except that the Class D bonds carry a higher coupon rate because of the subordination feature. (ii) The Class C bonds and the Class D bonds share credit risk unequally because of the subordination feature. However, neither this difference, nor the difference in interest rates, causes the bonds to have different maturities. The result is the same if, in addition to the other terms described in paragraph (i) of this Example 2, (f) Relationship test In general. (2) Payments on asset obligations defined. (i) A payment of principal or interest on an asset obligation, including a prepayment of principal, a payment under a credit enhancement contract (as defined in paragraph (c)(4)(ii) of this section) and a payment from a settlement at a discount (other than a substantial discount); (ii) A payment from a settlement at a substantial discount, but only if the settlement is arranged, whether in writing or otherwise, prior to the issuance of the liability obligations; and (iii) A payment from the foreclosure on or sale of an asset obligation, but only if the foreclosure or sale is arranged, whether in writing or otherwise, prior to the issuance of the liability obligations. (3) Safe harbor for entities formed to liquidate assets. (i) The entity's organizational documents manifest clearly that the entity is formed for the primary purpose of liquidating its assets and distributing proceeds of liquidation; (ii) The entity's activities are all reasonably necessary to and consistent with the accomplishment of liquidating assets; (iii) The entity plans to satisfy at least 50 percent of the total issue price of each of its liability obligations having a different maturity with proceeds from liquidation and not with scheduled payments on its asset obligations; and (iv) The terms of the entity's liability obligations (or underlying arrangement) provide that within three years of the time it first acquires assets to be liquidated the entity either— (A) Liquidates; or (B) Begins to pass through without delay all payments it receives on its asset obligations (less reasonable allowances for expenses) as principal payments on its liability obligations in proportion to the adjusted issue prices of the liability obligations. (g) Anti-avoidance rules In general. (2) Certain investment trusts. (3) Examples. Example 1. (i) Partnership P, in addition to its other investments, owns $10,000,000 of mortgage pass-through certificates guaranteed by FNMA (FNMA Certificates). On May 15, 1997, Partnership P transfers the FNMA Certificates to Trust 1 in exchange for 100 Class A bonds and Certificate 1. The Class A bonds, under which Trust 1 is the obligor, have a stated principal amount of $5,000,000 and bear a relationship to the FNMA Certificates (within the meaning of § 301.7701(i)-1(f)). Certificate 1 represents the residual beneficial ownership of the FNMA Certificates. (ii) On July 5, 1997, with a view to avoiding the application of section 7701(i), Partnership P transfers Certificate 1 to Trust 2 in exchange for 100 Class B bonds and Certificate 2. The Class B bonds, under which Trust 2 is the obligor, have a stated principal amount of $5,000,000, bear a relationship to the FNMA Certificates (within the meaning of § 301.7701(i)-1(f)), and have a different maturity than the Class A bonds (within the meaning of § 301.7701(i)-1(e)). Certificate 2 represents the residual beneficial ownership of Certificate 1. (iii) For purposes of determining whether Trust 1 is classified as a taxable mortgage pool, the Commissioner can disregard the separate existence of Trust 2 and treat Trust 1 and Trust 2 as a single trust. Example 2. (i) Corporation Q files a consolidated return with its two wholly-owned subsidiaries, Corporation R and Corporation S. Corporation R is in the business of building and selling single family homes. Corporation S is in the business of financing sales of those homes. (ii) On August 10, 1998, Corporation S transfers a pool of its real estate mortgages to Trust 3, taking back Certificate 3 which represents beneficial ownership of the pool. On September 25, 1998, with a view to avoiding the application of section 7701(i), Corporation R issues bonds that have different maturities (within the meaning of § 301.7701(i)-1(e)) and that bear a relationship (within the meaning of § 301.7701(i)-1(f)) to the real estate mortgages in Trust 3. The holders of the bonds have an interest in a credit enhancement contract that is written by Corporation S and collateralized with Certificate 3. (iii) For purposes of determining whether Trust 3 is classified as a taxable mortgage pool, the Commissioner can treat Trust 3 as the obligor of the bonds issued by Corporation R. Example 3. (i) Corporation X, in addition to its other assets, owns $110,000,000 in Treasury securities. From time to time, Corporation X acquires pools of real estate mortgages, which it immediately uses to issue multiple-class debt obligations. (ii) On October 1, 1996, Corporation X transfers $20,000,000 in Treasury securities to Trust 4 in exchange for Class C bonds, Class D bonds, Class E bonds, and Certificate 4. Trust 4 is the obligor of the bonds. The different classes of bonds have the same stated maturity date, but if cash flows from the Trust 4 assets exceed the amounts needed to make interest payments, the trustee uses the excess to retire the classes of bonds in alphabetical order. Certificate 4 represents the residual beneficial ownership of the Treasury securities. (iii) With a view to avoiding the application of section 7701(i), Corporation X reserves the right to replace any Trust 4 asset with real estate mortgages or guaranteed mortgage pass-through certificates. In the event the right is exercised, cash flows on the real estate mortgages and guaranteed pass-through certificates will be used in the same manner as cash flows on the Treasury securities. Corporation X exercises this right of replacement on February 1, 1997. (iv) For purposes of determining whether Trust 4 is classified as a taxable mortgage pool, the Commissioner can treat February 1, 1997, as a testing day (within the meaning of § 301.7701(i)-3(c)(2)). The result is the same if Corporation X has an obligation, rather than a right, to replace the Trust 4 assets with real estate mortgages and guaranteed pass-through certificates. Example 4. (i) Corporation Y, in addition to its other assets, owns $1,900,000 in obligations secured by personal property. On November 1, 1995, Corporation Y begins negotiating a $2,000,000 loan to individual A. As security for the loan, A offers a first deed of trust on land worth $1,700,000. (ii) With a view to avoiding the application of section 7701(i), Corporation Y induces A to place the land in a partnership in which A will have a 95 percent interest and agrees to accept the partnership interest as security for the $2,000,000 loan. Thereafter, the loan to A, together with the $1,900,000 in obligations secured by personal property, are transferred to Trust 5 and used to issue bonds that have different maturities (within the meaning of § 301.7701(i)-1(e)) and that bear a relationship (within the meaning of § 301.7701(i)-1(f)) to the $1,900,000 in obligations secured by personal property and the loan to A. (iii) For purposes of determining whether Trust 5 is a taxable mortgage pool, the Commissioner can treat the loan to A as an obligation secured by an interest in real property rather than as an obligation secured by an interest in a partnership. Example 5. (i) Corporation Z, in addition to its other assets, owns $3,000,000 in notes secured by interests in retail shopping centers. Partnership L, in addition to its other assets, owns $20,000,000 in notes that are principally secured by interests in single family homes and $3,500,000 in notes that are principally secured by interests in personal property. (ii) On December 1, 1995, Partnership L asks Corporation Z for two separate loans, one in the amount of $9,375,000 and another in the amount of $625,000. Partnership L offers to collateralize the $9,375,000 loan with $10,312,500 of notes secured by interests in single family homes and the $625,000 loan with $750,000 of notes secured by interests in personal property. Corporation Z has made similar loans to Partnership L in the past. (iii) With a view to avoiding the application of section 7701(i), Corporation Z induces Partnership L to accept a single $10,000,000 loan and to post as collateral $7,500,000 of the notes secured by interests in single family homes and all $3,500,000 of the notes secured by interests in personal property. Ordinarily, Corporation Z would not make a loan on these terms. Thereafter, the loan to Partnership L, together with the $3,000,000 in notes secured by interests in retail shopping centers, are transferred to Trust 6 and used to issue bonds that have different maturities (within the meaning of § 301.7701(i)-1(e)) and that bear a relationship (within the meaning of § 301.7701(i)-1(f)) to the loans secured by interests in retail shopping centers and the loan to Partnership L. (iv) For purposes of determining whether Trust 6 is a taxable mortgage pool, the Commissioner can treat the $10,000,000 loan to Partnership L as consisting of a $9,375,000 obligation secured by interests in real property and a $625,000 obligation secured by interests in personal property. Under § 301.7701(i)-1(d)(3)(ii)(A), the notes secured by single family homes are treated as $7,500,000 of interests in real property. Under § 301.7701(i)-1(d)(3)(i)(A), $7,500,000 of interests in real property are sufficient to treat a $9,375,000 obligation as principally secured by an interest in real property ($7,500,000 equals 80 percent of $9,375,000). [T.D. 8610, 60 FR 40088, Aug. 7, 1995; 60 FR 49754, Sept. 27, 1995] § 301.7701(i)-2 Special rules for portions of entities. (a) Portion defined. (b) Certain assets and rights to assets disregarded Credit enhancement assets. (2) Assets unlikely to service obligations. (3) Recourse. (c) Portion as obligor In general. (2) Example. Example. (i) Corporation Z owns $1,000,000,000 in assets including an office complex and $90,000,000 of real estate mortgages. (ii) On November 30, 1998, Corporation Z issues eight classes of bonds, Class A through Class H. Each class is secured by a separate letter of credit and by a lien on the office complex. One group of the real estate mortgages supports Class A through Class D, another group supports Class E through Class G, and a third group supports Class H. It is anticipated that the cash flows from each group of mortgages will service its related bonds. (iii) Each of the following constitutes a separate portion of Corporation Z: the group of mortgages supporting Class A through Class D; the group of mortgages supporting Class E through Class G; and the group of mortgages supporting Class H. No other asset is included in any of the three portions notwithstanding the lien of the bonds on the office complex and the fact that Corporation Z is the issuer of the bonds. The letters of credit are treated as incidents of the mortgages to which they relate. (iv) For purposes of section 7701(i)(2)(A)(ii), each portion described above is treated as the obligor of the bonds of that portion, notwithstanding the fact that Corporation Z is the legal obligor with respect to the bonds. [T.D. 8610, 60 FR 40091, Aug. 7, 1995] § 301.7701(i)-3 Effective dates and duration of taxable mortgage pool classification. (a) Effective dates. (b) Entities in existence on December 31, 1991 In general. (2) Special rule for certain transfers. (i) The transfer is significant in amount; and (ii) The transfer is connected to the entity's issuance of related debt obligations (as defined in paragraph (b)(3) of this section) that have different maturities (within the meaning of § 301.7701-1(e)). (3) Related debt obligation. (4) Example. Example. On December 31, 1991, Partnership Q holds a pool of real estate mortgages that it acquired through retail sales of single family homes. Partnership Q raises $10,000,000 on October 25, 1996, by using this pool to issue related debt obligations with multiple maturities. The transfer of the $10,000,000 to Partnership Q is a substantial transfer (within the meaning of § 301.7701(i)-3(b)(2)). (c) Duration of taxable mortgage pool classification Commencement and duration. (2) Testing day defined. [T.D. 8610, 60 FR 40092, Aug. 7, 1995] § 301.7701(i)-4 Special rules for certain entities. (a) States and municipalities In general. (i) The entity is a State, territory, a possession of the United States, the District of Columbia, or any political subdivision thereof (within the meaning of § 1.103-1(b) of this chapter), or is empowered to issue obligations on behalf of one of the foregoing; (ii) The entity issues the debt obligations in the performance of a governmental purpose; and (iii) The entity holds the remaining interests in all assets that support those debt obligations until the debt obligations issued by the entity are retired. (2) Governmental purpose. (3) Determinations by the Commissioner. (b) REITs. (c) Subchapter S corporations In general. (2) Portion of an S corporation treated as a separate corporation. [T.D. 8610, 60 FR 40092, Aug. 7, 1995] § 301.7704-2 Transition provisions. See the regulations under section 7704 contained in part 1 of this chapter for a definition of the “substantial new line of business” that an “existing” publicly traded partnership cannot enter without forfeiting its partnership status under the transition provisions applicable to section 7704. [T.D. 8450, 57 FR 58710, Dec. 11, 1992] § 301.7705-1 Certified professional employer organization. (a) In general. (b) Definitions Certified professional employer organization (2) CPEO applicant (3) CPEO contract (i) Assume responsibility for payment of wages to the individual, without regard to the receipt or adequacy of payment from the customer for the services; (ii) Assume responsibility for reporting, withholding, and paying any applicable federal employment taxes with respect to the individual's wages, without regard to the receipt or adequacy of payment from the customer for the services; (iii) Assume responsibility for any employee benefits that the service contract may require the CPEO to provide to the individual, without regard to the receipt or adequacy of payment from the customer for such benefits; (iv) Assume responsibility for recruiting, hiring, and firing the individual in addition to the customer's responsibility for recruiting, hiring, and firing the individual; (v) Maintain employee records relating to the individual; and (vi) Agree to be treated as a CPEO for purposes of section 3511 with respect to the individual. (4) Certified public accountant (CPA) (i) With respect to a CPEO applicant or CPEO, is independent of the CPEO applicant or CPEO (as prescribed by the American Institute of Certified Public Accountants' Professional Standards, Code of Professional Conduct, and its interpretations and rulings); (ii) Is not currently under suspension or disbarment from practice before the IRS; (iii) Is duly qualified to practice as a CPA in any state; (iv) Files with the IRS a written declaration that he or she is currently qualified to practice as a CPA in any state; and (v) Meets such other requirements as the Commissioner may prescribe in further guidance. (5) Covered employee (6) Customer In general. (ii) Persons who are not customers. (7) Federal employment taxes (8) Guidance Federal Register irs.gov (9) Partnership (10) Precursor entity In general. (A) Has made a substantial asset transfer to the CPEO applicant during the calendar year in which the CPEO applicant applies for certification or any of the three preceding calendar years or plans to make such a substantial asset transfer while the application for certification is pending or in the 12-month period following the date of the CPEO applicant's application for certification; or (B) Has ceased operations or dissolved during the calendar year in which the CPEO applicant applied for certification or any of the three preceding calendar years. (ii) Related. (11) Provider of payroll services (12) Related entity (i) The person is a member of a controlled group of which the CPEO applicant or CPEO is also a member. Additionally, CPEO applicants and CPEOs that, but for their status as disregarded entities would separately be members of a controlled group, are treated as members of a controlled group for purposes of this paragraph (b)(12)(i). For purposes of this paragraph (b)(12)(i), controlled group has the meaning given to such term by sections 414(b) and (c) and §§ 1.414(b)-1 and 1.414(c)-1 through 1.414(c)-6 of this chapter, except that— (A) With respect to a person that is not a provider of payroll services “more than 50 percent” will be substituted for “at least 80 percent” each place it appears in section 1563(a) (which is cross-referenced in section 414(b) and § 1.414(c)-2 of this chapter); and (B) With respect to a person that is a provider of payroll services, “more than 5 percent” will be substituted for “at least 80 percent” each place it appears in section 1563(a) and § 1.414(c)-2 of this chapter; or (ii) The person is a provider of payroll services and— (A) A majority of the directors or a majority of the officers (as described in paragraph (b)(13)(ii) of this section) of the CPEO applicant or CPEO are directors or officers (as described in paragraph (b)(13)(ii) of this section), respectively, of the provider of payroll services; or (B) An individual is a responsible individual of both the provider of payroll services and the CPEO applicant or CPEO by reason of paragraph (b)(13)(i) of this section. (13) Responsible individual (i) Any individual who owns, directly or indirectly, applying the constructive ownership rules of section 1563(e) with respect to stock ownership and substituting the term “interest” for the term “stock” and the term “partnership” for the term “corporation” used in that section, as appropriate for purposes of determining whether an interest in a partnership is indirectly owned by any person, 33 percent or more of— (A) In the case of a corporation, the total combined voting power of all classes of stock entitled to vote of such corporation or the total value of shares of all classes of stock of such corporation; or (B) In the case of a partnership, the capital interest or profits interest of such partnership. (ii) Any individual who is a director or an officer. For purposes of this paragraph (b)(13)(ii), a director is a voting member of the governing body (that is, the board of directors or equivalent controlling body authorized under state law to make governance decisions on behalf of the organization), and the officers are determined by reference to the organizing document, bylaws, or resolutions of the governing body, or otherwise designated consistent with state law. Officers may include individuals such as a president, vice-president, secretary, and treasurer. (iii) Any individual who, regardless of title, has ultimate responsibility for implementing the decisions of the organization's governing body. An individual who serves with the title of chief executive officer, executive director, and/or president has this ultimate responsibility. An individual with this ultimate responsibility may include an individual who is not treated as an employee of the organization. If this ultimate responsibility resides with two or more individuals (for example, co-presidents), who may exercise such responsibility in concert or individually, then each such individual is a responsible individual. (iv) Any individual who, regardless of title, has ultimate responsibility for supervising the management, administration, or operation of the organization. An individual who serves with the title of chief operating officer has this ultimate responsibility. An individual with this ultimate responsibility may include an individual who is not treated as an employee of the organization. If this ultimate responsibility resides with two or more individuals, who may exercise such responsibility in concert or individually, then each such individual is a responsible individual. (v) Any individual who, regardless of title, has ultimate responsibility for managing the organization's finances. An individual who serves with the title of chief financial officer or treasurer has this ultimate responsibility. An individual with this ultimate responsibility may include an individual who is not treated as an employee of the organization. If this ultimate responsibility resides with two or more individuals who may exercise the responsibility in concert or individually, then each such individual is a responsible individual. (vi) In the case of a partnership, any individual who is a managing member or general partner. (vii) In the case of a sole proprietorship, the sole proprietor. (viii) In the case of a disregarded entity owned by a corporation or partnership, the responsible individuals of that corporation or partnership. (ix) In the case of a disregarded entity owned by an individual, the individual owner. (x) Any other individual with primary responsibility for the organization's federal employment tax compliance. (14) Self-employed individual (15) Substantial asset transfer (16) Work site (17) Work site employee In general. (ii) Self-employed individuals. (iii) Excluded employees. (iv) Treatment for calendar quarter. (v) Separate determination for each work site. (vi) Good faith determination respected. (c) Applicability date. [T.D. 9860, 84 FR 24382, May 28, 2019] § 301.7705-2 CPEO certification process. (a) Application requirement and certification Application. (2) Notice. (3) Public disclosure of certification. (4) Effective date of certification. (b) Requirements for certification. (c) Suitability In general. (i) The CPEO applicant or CPEO, or any of its precursor entities, related entities, or responsible individuals, has failed to pay any applicable federal, state, or local taxes or file any required federal, state, or local tax or information returns in a timely and accurate manner, unless the failure is determined to be due to reasonable cause and not due to willful neglect. (ii) The CPEO applicant or CPEO, or any of its precursor entities, related entities, or responsible individuals, has been charged with or convicted of any criminal offense under the laws of the United States or of a state or political subdivision thereof, or is the subject of an active IRS criminal investigation. (iii) The CPEO applicant or CPEO, or any of its precursor entities, related entities, or responsible individuals, has been sanctioned, or had a license, registration, or accreditation (including a license, registration, or accreditation relating to its status or ability to operate as a professional employer organization) denied, suspended, or revoked, by a court of competent jurisdiction, licensing board, assurance or other professional organization, or federal or state agency, court, body, board, or other authority for any misconduct that involves dishonesty, fraud, or breach of trust or that otherwise bears upon the suitability of the CPEO applicant or CPEO to perform its professional functions (including, but not limited to, any civil or criminal penalty described in 42 U.S.C. 503(k)(1)(D) imposed by state law). (iv) The CPEO applicant or CPEO, or any of its precursor entities, related entities, or responsible individuals, is listed on any sanctions list compiled by the Office of Foreign Assets Control (OFAC) within the Department of Treasury, including, but not limited to, the OFAC Consolidated Sanctions List and the OFAC Specially Designated Nationals List. (v) The CPEO applicant or CPEO, or any of its precursor entities, related entities, or responsible individuals, fails to demonstrate a history of financial responsibility, which the IRS may assess by checks on credit history and other similar indicators. (vi) The CPEO applicant or CPEO and the responsible individuals of the CPEO applicant or CPEO fail to demonstrate adequate collective knowledge or experience with respect to: (A) Federal or state employment tax reporting, depositing, and withholding requirements; (B) Handling of and accounting for payroll, tax payments, and other funds on behalf of others; (C) Effective recordkeeping systems; (D) Retention of qualified personnel and legal advisors as needed; and (E) General business and risk management. (vii) The CPEO applicant or CPEO, or any of its responsible individuals, gives false or misleading information (including by intentionally omitting relevant information), or participates in any way in the giving of false or misleading information, to the IRS, knowing, or having reason to know, that the information is false or misleading. For the purpose of this paragraph (c)(1)(vii), “information” includes (but is not limited to) facts or other matters contained in testimony, federal tax returns, and financial statements and opinions regarding such statements; applications for certification (and all accompanying documentation); affidavits, declarations, assertions, attestations, statements, and agreements; and periodic verifications that the requirements of this section continue to be met; and any other information that is required to be provided by this section, section 3511(g), § 31.3511-1 of this chapter, or further guidance. (2) Must be a business entity or sole proprietorship In general. (ii) Ownership by a United States person. (iii) Treatment as separate member of a controlled group. (3) Authorization to investigate suitability. i.e., (d) Business location State of organization. (2) Business location in the United States. (3) United States responsible individuals. (4) Use of financial institution. (e) Financial statements CPEOs. (i) A copy of its annual audited financial statements for the fiscal year; (ii) An opinion of a certified public accountant (CPA) that such financial statements are presented fairly and in accordance with generally accepted accounting principles (GAAP); and (iii) A statement in the Note to the Financial Statements covered by the CPA opinion that the CPEO's annual audited financial statements reflect positive working capital or, only if the CPEO satisfies the requirements of paragraph (e)(3) of this section, reflect negative working capital, with such statement in either case setting forth in detail a calculation of the CPEO's working capital as reflected in the annual audited financial statements (a working capital statement). (2) CPEO applicants In general. (ii) Newly established CPEO applicants. (3) Exception to positive working capital requirement. (i) The CPEO applicant or CPEO has negative working capital for no more than two consecutive fiscal quarters of that fiscal year, as demonstrated by the financial statements (for the final fiscal quarter in the fiscal year) and the statements described in paragraph (f)(1)(ii) of this section (for any other fiscal quarter), as applicable; (ii) The CPEO applicant or CPEO, or its CPA, provides, in such time and manner as the Commissioner may prescribe in further guidance, an explanation to the IRS describing the reason for the failure; and (iii) The IRS determines, in its sole discretion, that the failure does not present a material risk to the IRS's collection of federal employment taxes. (4) Completed fiscal year. (f) Quarterly assertions and attestations CPEOs. (i) An assertion, signed by a responsible individual under penalties of perjury, stating that the CPEO has withheld and made deposits of all federal employment taxes (other than taxes imposed by chapter 23 of the Code) as required by subtitle C for such calendar quarter and an examination level attestation from a CPA stating that such assertion is fairly stated in all material respects. (ii) A statement signed by a responsible individual under penalties of perjury verifying that the CPEO has positive working capital (as determined in accordance with GAAP) at the end of the most recently completed fiscal quarter, as well as such additional financial information that the Commissioner may specify in further guidance. (2) Exceptions Immaterial failures. (A) The attestation provides a summary of the immaterial failures that were found; (B) The attestation states that the failures were immaterial and isolated and do not reflect a meaningful lapse in compliance with federal employment tax withholding and deposit requirements; and (C) The IRS determines, in its sole discretion, that the isolated and immaterial failures identified by the CPA do not present a material risk to the IRS's collection of federal employment taxes. (ii) Negative working capital. (A) The CPEO does not have negative working capital at the end of the two fiscal quarters immediately preceding such fiscal quarter, as demonstrated by the annual audited financial statements described in paragraph (e)(1) of this section, if available, or the statements described in paragraph (f)(1)(ii) of this section; (B) The CPEO provides an explanation to the IRS describing the reason for such negative working capital in such time and manner as the Commissioner may prescribe in further guidance; and (C) The IRS determines, in its sole discretion, that the negative working capital does not present a material risk to the IRS's collection of federal employment taxes. (3) CPEO applicants In general. (ii) Newly established CPEO applicants. (g) Bond In general. (2) Bond amount In general. (A) Five percent of the CPEO's liability under section 3511 (or, if applicable, the liability described in paragraph (g)(2)(ii) of this section) during the calendar year preceding the beginning of the bond period, but not more than $1,000,000; or (B) $50,000. (ii) Amount of bond in first and second year as a CPEO. (iii) One continuous obligation. (3) Increase in bond amount In general. (ii) To reflect adjustment or assessment. (4) Cancellation Notice. (ii) New or superseding bond required. (iii) Ongoing liability. (5) No posting of collateral In general. (ii) Surety's retention of the right to seek collateral by itself not a violation of paragraph (g)(5)(i) of this section. (iii) Exceptions to no collateral requirement. (6) Requirements for surety. (7) Bond definitions Rider. (ii) Strengthening bond. (iii) New bond. (iv) Superseding bond. (h) Controlled group. (i) Consents to disclose. (j) Periodic verification. (k) Notification of material changes. (l) Accrual method of accounting. (m) Compliance with reporting obligations In general. (2) Filing on magnetic media. (n) Suspension and revocation In general. (2) Suspension. (3) Revocation. (4) Disclosure of suspension and revocation Notification by the CPEO. (ii) Disclosure by the IRS. (o) Applicability date. [T.D. 9860, 84 FR 24382, May 28, 2019] General Rules Application of Internal Revenue Laws § 301.7803-1 Security bonds covering personnel of the Internal Revenue Service. For regulations relating to the procurement of security bonds covering designated personnel of the Internal Revenue Service between January 1, 1956, and June 6, 1972, see 31 CFR part 226. (Sec. 7805 of the Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C. 7805)) [T.D. 7239, 37 FR 28628, Dec. 28, 1972] § 301.7805-1 Rules and regulations. (a) Issuance. (b) Retroactivity. (c) Preparation and distribution of regulations, forms, stamps, and other matters. § 301.7811-1 Taxpayer assistance orders. (a) Authority To Issue In general. (2) The National Taxpayer Advocate defined. National Taxpayer Advocate (3) Issuance without a written application. (4) Significant hardship Determination required. (ii) Term defined. significant hardship (A) An immediate threat of adverse action; (B) A delay of more than 30 days in resolving taxpayer account problems; (C) The incurring by the taxpayer of significant costs (including fees for professional representation) if relief is not granted; or (D) Irreparable injury to, or a long-term adverse impact on, the taxpayer if relief is not granted. (iii) A delay of more than 30 days in resolving taxpayer account problems is further defined. (A) When a taxpayer does not receive a response by the date promised by the IRS; or (B) When the IRS has established a normal processing time for taking an action and the taxpayer experiences a delay of more than 30 days beyond the normal processing time. (iv) Examples of significant hardship. Example 1. Immediate threat of adverse action. The IRS serves a levy on A's bank account. A needs the bank funds to pay for a medically necessary surgical procedure that is scheduled to take place in one week. If the levy is not released, A will lack the funds necessary to have the procedure. A is experiencing an immediate threat of adverse action. Example 2. Delay of more than 30 days. B files a Form 4506, “Request for a Copy of Tax Return.” B does not receive the photocopy of the tax return after waiting more than 30 days beyond the normal time for processing. B is experiencing a delay of more than 30 days. Example 3. Significant costs. The IRS sends XYZ, Inc. a notice requesting payment of the outstanding employment taxes and penalties owed by XYZ, Inc. The notice indicates that XYZ, Inc. has small employment tax balances with respect to 12 employment tax quarters totaling $10X. XYZ, Inc. provides documentation to the IRS which it contends shows that if all payments were applied to each quarter correctly, there would be no balance due. The IRS requests additional records and documentation. Because there are 12 quarters involved, to comply with this request XYZ, Inc. asserts that it will need to hire an accountant, who estimates he will charge at least $5X to organize all the records and provide a detailed analysis of how to apply the deposits and payments. XYZ, Inc. is facing significant costs. Example 4. Irreparable injury. D has arranged with a bank to refinance his mortgage to lower his monthly payment. D is unable to make the current monthly payment. Unless the monthly payment amount is lowered, D will lose his residence to foreclosure. The IRS refuses to subordinate the Federal tax lien, as permitted by section 6325(d), or discharge the property subject to the lien, as permitted by section 6325(b). As a result, the bank will not allow D to refinance. D is facing an irreparable injury if relief is not granted. (5) Distinction between significant hardship and the issuance of a TAO. (b) Generally. (c) Contents of taxpayer assistance orders. (1) Release a levy. (2) Take certain other actions. (i) Chapter 64 (relating to collection); (ii) Chapter 70, subchapter B (relating to bankruptcy and receiverships); (iii) Chapter 78 (relating to discovery of liability and enforcement of title); or (iv) Any other provision of the internal revenue laws specifically described by the NTA in the TAO. (3) Expedite, review, or reconsider an action at a higher level. (4) Examples. Example 1. J contacts a Local Taxpayer Advocate because a wage levy is causing financial difficulties. The NTA determines that the levy should be released as it is causing economic hardship (within the meaning of section 6343(a)(1)(D) and § 301.6343-1(b)(4)). The NTA may issue a TAO ordering the IRS to release the levy in whole or in part by a specified date. Example 2. The IRS rejects K's offer in compromise. K files a Form 911, “Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order).” The NTA discovers facts that support acceptance of the offer in compromise. The NTA may issue a TAO ordering the IRS to reconsider its rejection of the offer or to review the rejection of the offer at a higher level. The TAO may include the NTA's analysis of and recommendation for resolving the case. Example 3. L files a protest requesting Appeals consideration of IRS's proposed denial of L's request for innocent spouse relief. Appeals advises L that it is going to issue a Final Determination denying the request for innocent spouse relief. L files a Form 911, “Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order).” The NTA reviews the administrative record and concludes that the facts support granting innocent spouse relief. The NTA may issue a TAO ordering Appeals to refrain from issuing a Final Determination and reconsider or review at a higher level its decision to deny innocent spouse relief. The TAO may include the NTA's analysis of and recommendation for resolving the case. (d) Issuance. (e) Suspension of statutes of limitations In general. (2) Date of decision. (3) Periods suspended. Example 1. On August 31, 1989, the Internal Revenue Service levies on funds in the taxpayer's checking account. On September 1, 1989 (at which time 7 months remain before the period of limitations on collection after assessment will expire on April 1, 1990) the Ombudsman receives the taxpayer's written application for a taxpayer assistance order. Subsequently, on September 6, 1989, the Ombudsman determines that the levy has caused a significant hardship and the Internal Revenue Service function which served the levy agrees to release the levy. The levy is released. As a result of the application and the decision by the Ombudsman and the involved function of the Service resolving the hardship, the statute of limitations on collection after assessment is suspended from the date the Ombudsman received the application, September 1, 1989, until the date on which the decision was made to release the levy, September 6, 1989. Therefore, the statute of limitations on collection after assessment will not expire until after April 6, 1990, which is 7 months plus 5 days after the date on which the application for a taxpayer assistance order was received by the Ombudsman. Example 2. The facts are the same as in example 1 except that the Internal Revenue Service function which served the levy does not agree to release the levy, and the Ombudsman, having made a determination that the levy is causing a significant hardship, issues a taxpayer assistance order on September 6, 1989, in which the levy is ordered to be released and specifies that the statute of limitations on collection after assessment is suspended for an additional 15 days. The period of limitations on collection after assessment will therefore not expire until after April 21, 1990, which is 7 months and 20 days (5 days plus 15 days) after the application for the taxpayer assistance order was received by the Ombudsman. Example 3. The facts are the same as in example 2 except that the Ombudsman does not specifically suspend the statute of limitations on collection after assessment for an additional number of days in the taxpayer assistance order, but rather the function seeks modification or rescission of the taxpayer assistance order and the appropriate official charged with that responsibility completes his consideration of the assistance order on September 8, 1989. The period of limitations on collection after assessment will therefore not expire until after April 8, 1990, which is 7 months and 7 days after the application for the taxpayer assistance order was received by the Ombudsman. (4) Absence of a written application. (f) Effective/applicability date. [T.D. 8246, 54 FR 11700, Mar. 22, 1989, as amended by T.D. 8403, 56 FR 9977, Mar. 23, 1992; T.D. 9519, 76 FR 18060, Apr. 1, 2011] § 301.7803-2 Internal Revenue Service Independent Office of Appeals resolution of Federal tax controversies without litigation. (a) Function of the Internal Revenue Service Independent Office of Appeals. (b) Consideration of a Federal tax controversy by Appeals In general. (2) Definition of Federal tax controversy. Federal tax controversy (3) Other administrative determinations treated as Federal tax controversies. (i) Liabilities and penalties administered by the IRS that are outside the Internal Revenue Code (Code), such as a liability or penalty pursuant to 31 U.S.C. 5321 (relating to Report of Foreign Bank and Financial Accounts or Bank Secrecy Act civil penalties); (ii) A request under the Freedom of Information Act (5 U.S.C. 552); (iii) Application to become, or the sanction of, an Electronic Return Originator or Authorized IRS e-file Provider; (iv) An IRS-proposed determination to a bond issuer that denies a claim for recovery of an asserted overpayment of arbitrage rebate, yield reduction payment, or penalty in lieu of rebate under section 148 of the Code (relating to arbitrage) with respect to tax-exempt bonds or under section 148 as modified by relevant provisions of the Code with respect to other tax-advantaged bonds; (v) Administrative costs under section 7430 of the Code (relating to awarding of costs and certain fees); or (vi) Any other topic that the IRS has determined may be considered by Appeals. (c) Exceptions to consideration by Appeals. (1) Any administrative determination made by the IRS rejecting a position of a taxpayer that the IRS has identified as frivolous for purposes of section 6702(c) of the Code (regarding listing of frivolous positions) and any case solely involving the taxpayer's failure or refusal to comply with the internal revenue laws because of frivolous moral, religious, political, constitutional, conscientious, or similar grounds. (2) Penalties assessed by the IRS under section 6702 (relating to frivolous tax submissions) or section 6682 of the Code (relating to false information with respect to withholding) or any other penalty imposed for a frivolous position or false information. Appeals, however, may obtain verification that the assessment of the penalties complied with sections 6203 (relating to method of assessment) and 6751(b) (relating to supervisory approval of assessment) of the Code in a collection due process (CDP) hearing under sections 6320 (relating to a hearing upon filing of a notice of lien) and 6330 (relating to a hearing before levy) of the Code. Appeals also may consider a non-frivolous substantive challenge to a section 6702 or section 6682 penalty in a CDP hearing. (3) Any administrative determination made by the IRS under section 7623 of the Code (relating to awards to whistleblowers). (4) Any administrative determination issued by an agency other than the IRS, such as a determination by the Alcohol and Tobacco Tax and Trade Bureau (TTB) concerning an excise tax administered by and within the jurisdiction of TTB. (5) Any decision made by the IRS not to issue a Taxpayer Assistance Order (TAO) under section 7811 of the Code (relating to TAOs). (6) Any decision made by the IRS concerning material to be deleted from the text of a written determination pursuant to section 6110 of the Code (relating to public inspection of written determinations) unless the written determination is otherwise being considered by Appeals. (7) Any denial of access under the Privacy Act (5 U.S.C. 552a(d)(1)). (8) Any issue resolved in an agreement described in section 7121 of the Code (regarding closing agreements) that the taxpayer entered into with the IRS, and any decision made by the IRS to enter into or not enter into such agreement. Appeals may consider the question of whether an item or items are covered, and how the item or items are covered, in a closing agreement. (9) Any case in which the IRS erroneously returns or rejects an offer in compromise (OIC) submitted under section 7122 of the Code (relating to compromises) as nonprocessable or no longer processable and the taxpayer requests Appeals consideration to assert that the OIC should be deemed to be accepted under section 7122(f). (10) Any case in which a criminal prosecution, or a recommendation for criminal prosecution, is pending against the taxpayer for a tax-related offense, except with the concurrence of the Office of Chief Counsel or the Department of Justice, as applicable. (11) Any issues relating to allocation among different fee payers of the branded prescription drug and health insurance providers fees in section 9008 of the Patient Protection and Affordable Care Act (PPACA), Public Law 111-148 (124 Stat. 119 (2010)), as amended by section 1404 of the Health Care and Education Reconciliation Act of 2010 (HCERA), Public Law 111-152 (124 Stat. 1029 (2010)), and section 9010 of PPACA, as amended by section 10905 of PPACA, and as further amended by section 1406 of HCERA. (12) Any certification or issuance of a notice of certification of a seriously delinquent Federal tax debt to the Department of State under section 7345 of the Code (relating to the revocation or denial of a passport in the case of serious tax delinquencies). (13) Any issue barred from consideration under section 6320 or section 6330, §§ 301.6320-1 and 301.6330-1, or any other administrative guidance related to CDP hearings or equivalent hearings. (14) Any case, determination, matter, decision, request, or issue that Appeals lacks the authority to settle. The following is a non-exclusive list of examples: (i) Any case or issue in a case that has been referred to the Department of Justice. (ii) Any competent authority case (including a competent authority resolution previously accepted by the taxpayer) under a United States tax treaty that is within the exclusive authority of the United States Competent Authority. (iii) Any decision of the Commissioner of Internal Revenue or the Commissioner's delegate to not rescind a penalty under section 6707A of the Code for a non-listed reportable transaction. (iv) Any request for relief under section 6015 of the Code (relating to relief from joint and several liability on a joint return) when the nonrequesting spouse is a party to a docketed case in the United States Tax Court (Tax Court) and does not agree to granting full or partial relief under section 6015 to the requesting spouse. (v) Any criminal restitution-based assessment under section 6201(a)(4) of the Code (relating to certain orders of criminal restitution and restriction on challenge of assessment). (15) Any adverse action related to the initial or continuing recognition of tax-exempt status, an entity's classification as a foundation, the initial or continuing determination of employee plan qualification, or a determination involving an obligation and the issuer of an obligation under section 103 of the Code. The exception in this paragraph (c)(15) applies only if the tax-exempt recognition, classification, determination of employee plan qualification, or determination involving an obligation and the issuer of an obligation under section 103 is based upon a technical advice memorandum issued by an Office of Associate Chief Counsel before an appeal is requested. (16) Any case docketed in the Tax Court if the notice of deficiency, notice of liability, or final adverse determination letter is based upon a technical advice memorandum issued by an Office of Associate Chief Counsel in that case involving an adverse action described in paragraph (c)(15) of this section. (17) Any decision by an Office of Associate Chief Counsel regarding whether to issue a letter ruling or the content of a letter ruling. This includes decisions regarding requests for relief under §§ 301.9100-1 through 301.9100-22 and requests for a change in method of accounting. The subject of the letter ruling may be considered by Appeals if all other requirements in this section are met. For example, if an Office of Associate Chief Counsel issues an adverse letter ruling to a taxpayer, the taxpayer cannot immediately appeal the issuance of the adverse letter ruling. If the taxpayer subsequently files a return taking a position that is contrary to the letter ruling and that position is audited by the IRS, Appeals may consider that Federal tax controversy if all other requirements in this section are met. (18) Any issue based on a taxpayer's argument that a statute violates the United States Constitution unless there is an unreviewable decision from a Federal court holding that the cited statute is unconstitutional. For purposes of this paragraph (c)(18), an argument that a statute violates the United States Constitution includes any argument that a statute is unconstitutional on its face or as applied to a particular person. The exception in this paragraph (c)(18) does not preclude Appeals from considering a Federal tax controversy based on arguments other than the constitutionality of a statute, such as whether the statute applies to the taxpayer's facts and circumstances. For purposes of this section, the phrase unreviewable decision (19) Any issue based on a taxpayer's argument that a Treasury regulation is invalid unless there is an unreviewable decision from a Federal court invalidating the regulation as a whole or the provision in the regulation that the taxpayer is challenging. The exception in this paragraph (c)(19) does not preclude Appeals from considering a Federal tax controversy based on arguments other than the validity of a Treasury regulation, such as whether the Treasury regulation applies to the taxpayer's facts and circumstances. For purposes of this paragraph (c)(19), the term invalid See procedurally invalid. (20) Any issue based on a taxpayer's argument that a notice or revenue procedure published in the Internal Revenue Bulletin is procedurally invalid unless there is an unreviewable decision from a Federal court holding it to be invalid. This exception does not preclude Appeals from considering a Federal tax controversy based on arguments other than the procedural validity of a notice or revenue procedure, such as whether the notice or revenue procedure applies to the taxpayer's facts and circumstances. For purposes of this section, the term procedurally invalid (21) Any case or issue designated for litigation, or withheld from Appeals consideration in a Tax Court case, in accordance with guidance regarding designating or withholding a case or issue. For purposes of this section, designated for litigation (22) Any case docketed in the Tax Court if the notice of deficiency, notice of liability, or other determination was issued by Appeals unless the exception in paragraph (f)(1) of this section (regarding when the Tax Court remands a CDP case for reconsideration) applies. (23) Any case in which timely Appeals consideration must be requested before a petition is filed in the Tax Court because exhaustion of administrative review, including consideration by Appeals, is a prerequisite for the Tax Court to have jurisdiction, and the taxpayer failed to timely request Appeals consideration. For example, Appeals consideration must be requested before a petition is filed in the Tax Court regarding a declaratory judgment request under section 7428 (relating to declaratory judgment on the classification of specified organizations), section 7476 (relating to declaratory judgment on qualification of certain retirement plans), or section 7477 (relating to declaratory judgment on the value of certain gifts) of the Code. (24) Any administrative determination made by the IRS to deny or revoke a Certified Professional Employer Organization certification. (d) Originating office has completed its review In general. (2) Exception for early consideration programs. (e) Procedural and timing requirements are followed In general. (2) Example. U.S. Individual Income Tax Return, (f) One opportunity for consideration by Appeals In general. (2) Exceptions. (g) Special rules. (1) Appeals reconsideration. (2) Coordination between Office of Chief Counsel and Appeals. (h) Applicability date. [T.D. 10030, 90 FR 3662, Jan. 15, 2025] § 301.7803-3 Requests for referral to the Internal Revenue Service Independent Office of Appeals following the issuance of a notice of deficiency. (a) Notice and protest. (1) Notice of deficiency. (2) Frivolous positions. (3) Multiple requests for referral to Appeals. (4) Previous Appeals consideration. (5) Notice of deficiency with more than one matter or issue. (b) Applicability date. [T.D. 10030, 90 FR 3662, Jan. 15, 2025] Miscellaneous Provisions § 301.9000-1 Definitions when used in §§ 301.9000-1 through 301.9000-6. (a) IRS records or information (1) At the administrative stage of a criminal investigation (prior to the initiation of the grand jury); (2) From IRS files (such as transcripts or tax returns); or (3) For use in a subsequent civil investigation. (b) IRS officers and employees (c) IRS contractor (d) A request (e) A demand (f) An IRS matter (g) An IRS congressional matter (h) A non-IRS matter (i) A testimony authorization (j) An authorizing official [T.D. 9178, 70 FR 7397, Feb. 14, 2005] § 301.9000-2 Considerations in responding to a request or demand for IRS records or information. (a) Situations in which disclosure shall not be authorized. (1) Violate a Federal statute including, but not limited to, sections 6103 or 6105 of the Internal Revenue Code (Code), the Privacy Act of 1974 (5 U.S.C. 552a), or a rule of procedure, such as the grand jury secrecy rule, Fed. R. Crim. P. 6(e); (2) Violate a specific Federal regulation, including, but not limited to, 31 CFR 103.53; (3) Reveal classified national security information, unless properly declassified; (4) Reveal the identity of an informant; or (5) Reveal investigatory records or information compiled for law enforcement purposes that would permit interference with law enforcement proceedings or would disclose investigative techniques and procedures, the effectiveness of which could thereby be impaired. (b) Assertion of privileges. (1) Attorney-client privilege; (2) Attorney work product doctrine; and (3) Deliberative process (executive) privilege. (c) Non-IRS matters. (1) Whether the requester is a Federal agency, or a state or local government or agency thereof; (2) Whether the demand was issued by a Federal or state court, administrative agency or other authority; (3) The potential effect of the case on the administration of the internal revenue laws or any other laws administered by or concerning the IRS; (4) The importance of the legal issues presented; (5) Whether the IRS records or information are available from other sources; (6) The IRS's anticipated commitment of time and anticipated expenditure of funds necessary to comply with the request or demand; (7) The number of similar requests and their cumulative effect on the expenditure of IRS resources; (8) Whether the request or demand allows a reasonable time for compliance (generally, at least fifteen business days); (9) Whether the testimony or disclosure is appropriate under the rules of procedure governing the case or matter in which the request or demand arises; (10) Whether the request or demand involves expert witness testimony; (11) Whether the request or demand is for the testimony of an IRS officer, employee or contractor who is without personal knowledge of relevant facts; (12) Whether the request or demand is for the testimony of a presidential appointee or senior executive and whether the testimony of a lower-level official would suffice; (13) Whether the procedures in § 301.9000-5 have been followed; and (14) Any other relevant factors that may be brought to the attention of the authorizing official. [T.D. 9178, 70 FR 7397, Feb. 14, 2005] § 301.9000-3 Testimony authorizations. (a) Prohibition on disclosure of IRS records or information without testimony authorization. (b) Exceptions. (1) To respond to a request or demand for IRS records or information by the attorney or other government representative representing the IRS in a particular IRS matter; (2) To respond solely in writing, under the direction of the attorney or other government representative, to requests and demands in IRS matters, including, but not limited to, admissions, document production, and written interrogatories to parties; (3) To respond to a request or demand issued to a former IRS officer, employee or contractor for expert or opinion testimony if the testimony sought from the former IRS officer, employee or contractor involves general knowledge (such as information contained in published procedures of the IRS or the IRS Office of Chief Counsel) gained while the former IRS officer, employee or contractor was employed or under contract with the IRS; or (4) If a more specific procedure established by the Commissioner governs the disclosure of IRS records or information. These procedures include, but are not limited to, those relating to: procedures pursuant to § 601.702(d) of this chapter; Freedom of Information Act requests pursuant to 5 U.S.C. 552; Privacy Act of 1974 requests pursuant to 5 U.S.C. 552a; disclosures to state tax agencies pursuant to section 6103(d) of the Internal Revenue Code (Code); and disclosures to the United States Department of Justice pursuant to an ex parte order under section 6103(i)(1) of the Code. (c) Disclosures of IRS records or information with or without testimony authorization must be permitted under other applicable law. [T.D. 9178, 70 FR 7397, Feb. 14, 2005] § 301.9000-4 Procedure in the event of a request or demand for IRS records or information. (a) Purpose and scope. (b) Notification of the Disclosure Officer. (1) United States Tax Court cases. (2) Personnel matters, labor relations matters, government contract matters, matters related to informant claims or matters related to the rules of Bivens Six Unknown Named Agents of Federal Bureau of Narcotics, (3) IRS congressional matters. (c) Requests or demands in United States Tax Court cases. (d) Requests or demands in personnel, labor relations, government contract, Bivens or FTCA matters, or matters related to informant claims. (e) Requests or demands in IRS congressional matters. (f) Opposition to a demand for IRS records or information in IRS and non-IRS matters. (g) Procedure in the event of an adverse ruling. (h) Penalties. (i) No creation of benefit or separate privilege. [T.D. 9178, 70 FR 7397, Feb. 14, 2005] § 301.9000-5 Written statement required for requests or demands in non-IRS matters. (a) Written statement. (1) A brief description of the parties to and subject matter of the proceeding and the issues; (2) A summary of the testimony, IRS records or information sought, the relevance to the proceeding, and the estimated volume of IRS records involved; (3) The time that will be required to present the testimony (on both direct and cross examination); (4) Whether any of the IRS records or information is a return or is return information (as defined in section 6103(b) of the Internal Revenue Code (Code)), or tax convention information (as defined in section 6105(c)(1) of the Code), and the statutory authority for the disclosure of the return or return information (and, if no consent to disclose pursuant to section 6103(c) of the Code accompanies the request or demand, the reason consent is not necessary); (5) Whether a declaration of an IRS officer, employee or contractor under penalties of perjury pursuant to 28 U.S.C. 1746 would suffice in lieu of deposition or trial testimony; (6) Whether deposition or trial testimony is necessary in a situation in which IRS records may be authenticated without testimony under applicable rules of evidence and procedure; (7) Whether IRS records or information are available from other sources; and (8) A statement that the request or demand allows a reasonable time (generally at least fifteen business days) for compliance. (b) Permissible waiver of statement. [T.D. 9178, 70 FR 7397, Feb. 14, 2005] § 301.9000-6 Examples. The following examples illustrate the provisions of §§ 301.9000-1 through 301.9000-5: Example 1. A taxpayer sues a practitioner in state court for malpractice in connection with the practitioner's preparation of a Federal income tax return. The taxpayer subpoenas an IRS employee to testify concerning the IRS employee's examination of the taxpayer's Federal income tax return. The taxpayer provides the statement required by § 301.9000-5. This is a non-IRS matter. A testimony authorization would be required for the IRS employee to testify. (In addition, the taxpayer would be required to execute an appropriate consent under section 6103(c) of the Code). The IRS would oppose the IRS employee's appearance in this case because the IRS is a disinterested party with respect to the dispute and would consider the commitment of resources to comply with the subpoena inappropriate. Example 2. In a state judicial proceeding concerning child support, the child's custodial parent subpoenas for a deposition an IRS agent who is examining certain post-divorce Federal income tax returns of the non-custodial parent. This is a non-IRS matter. The custodial parent submits with the subpoena the statement required by § 301.9000-5 stating as the reason for the lack of taxpayer consent to disclosure that the non-custodial parent has refused to provide the consent (both a consent from the taxpayer complying with section 6103(c) and a testimony authorization would be required prior to the IRS agent testifying at the deposition). If taxpayer consent is obtained, the IRS may provide a declaration or certified return information of the taxpayer. A deposition would be unnecessary under the circumstances. Example 3. The chairperson of a congressional committee requests the appearance of an IRS employee before the committee and committee staff to submit to questioning by committee staff concerning the procedures for processing Federal employment tax returns. This is an IRS congressional matter. Even though questioning would not involve the disclosure of returns or return information, the questioning would involve the disclosure of IRS records or information; therefore, a testimony authorization would be required. The IRS employee must contact the IRS Office of Legislative Affairs for instructions before appearing. Example 4. The IRS opens a criminal investigation as to the tax liabilities of a taxpayer. This is an IRS matter. During the criminal investigation, the IRS refers the matter to the United States Department of Justice, requesting the institution of a Federal grand jury to investigate further potential criminal tax violations. The United States Department of Justice approves the request and initiates a grand jury investigation. The grand jury indicts the taxpayer. During the taxpayer's trial, the taxpayer subpoenas an IRS special agent for testimony regarding the investigation. The records and information collected during the administrative stage of the investigation, including the taxpayer's tax returns from IRS files, are IRS records and information. A testimony authorization is required for the IRS special agent to testify regarding this information. However, no IRS testimony authorization is required regarding the information collected by the IRS special agent when the IRS special agent was acting under the direction and control of the United States Attorney's Office in the Federal grand jury investigation. That information is not IRS records or information within the meaning of § 301.9000-1(a). Disclosure of that information should be coordinated with the United States Attorney's Office. Example 5. The United States Department of Justice attorney representing the IRS in a suit for refund requests testimony from an IRS revenue agent. This is an IRS matter. A testimony authorization would not be required for the IRS revenue agent to testify because the testimony was requested by the government attorney. Example 6. In response to a request by the taxpayer's counsel to interview an IRS revenue agent who was involved in a case at the administrative level, the United States Department of Justice attorney representing the IRS in a suit for refund asks that the IRS revenue agent be made available to be interviewed. This is an IRS matter. A testimony authorization would be required for the IRS revenue agent to testify because the testimony was first requested by taxpayer's counsel. Example 7. A state assistant attorney general, acting in accordance with a recommendation from his state's department of revenue, is prosecuting a taxpayer under a state criminal law proscribing the intentional failure to file a state income tax return. The assistant attorney general serves an IRS employee with a subpoena to testify concerning the taxpayer's Federal income tax return filing history. This is a non-IRS matter. This is also a state judicial proceeding pertaining to tax administration within the meaning of section 6103(h)(4) and (b)(4). As such, the requirements of section 6103(h)(4) apply. A testimony authorization would be required for the testimony demand in the subpoena. Example 8. A former IRS revenue agent is requested to testify in a divorce proceeding. The request seeks testimony explaining the meaning of entries appearing on one party's transcript of account, which is already in the possession of the parties. This is a non-IRS matter. No testimony authorization is required because the testimony requested from the former IRS employee involves general knowledge gained while the former IRS revenue agent was employed with the IRS. Example 9. A Department of Justice attorney requests an IRS employee to testify in a refund suit involving Taxpayer A. The testimony may include tax convention information, as defined in section 6105, which was originally obtained by the IRS from a treaty partner in connection with a tax case against Taxpayer B. While no testimony authorization is necessary, because the testimony is being requested by government counsel in a tax matter, the IRS employee may not testify (or otherwise disclose IRS records or information) without coordinating with the U.S. Competent Authority, as disclosure of tax convention information is governed by section 6105. The disclosure must also meet the requirements in section 6103(h)(4). Example 10. In a state court tort action, Defendant subpoenas IRS for Plaintiff's federal income tax returns for particular taxable years. This is a non-IRS matter. The Disclosure Officer instructs Defendant that the IRS has established procedures for obtaining copies of Federal income tax returns. Section 601.702(d)(1) of this chapter establishes the procedures for obtaining Federal tax returns by requiring written requests for copies of tax returns using IRS Form 4506, “Request for Copy of Tax Return.” At Defendant's request, Plaintiff executes Form 4506, naming Defendant's counsel as designee, and the form is properly submitted to IRS. A testimony authorization would not be required to disclose Plaintiff's returns to Defendant's counsel. [T.D. 9178, 70 FR 7397, Feb. 14, 2005] § 301.9000-7 Effective date. These regulations are applicable on February 14, 2005. [T.D. 9178, 70 FR 7397, Feb. 14, 2005] § 301.9001 Statutory provisions; Outer Continental Shelf Lands Act Amendments of 1978. Section 302 of the Outer Continental Shelf Lands Act Amendments of 1978 (92 Stat. 629) provides as follows: Sec. 302. (a) There is hereby established in the Treasury of the United States an Offshore Oil Pollution Compensation Fund in an amount not to exceed $200,000,000, except that such limitation shall be increased to the extent necessary to permit any moneys recovered or collected which are referred to in subsection (b)(2) of this section to be paid into the Fund. The Fund shall be administered by the Secretary 1 1 (b) The Fund shall be composed of— (1) All fees collected pursuant to subsection (d) of this section; and (2) All other moneys recovered or collected on behalf of the Fund under section 308 or any other provision of this title. (c) The Fund shall be immediately available for— (1) Removal costs described in section 301(22): (2) The processing and settlement claims under section 307 of this title (including the costs of assessing injury to, or destruction of, natural resources); and (3) Subject to such amounts as are provided in appropriation Acts, all administrative and personnel costs of the Federal Government incident to the administration of this title, including, but not limited to, the claims settlement activities and adjudicatory and judicial proceedings, whether or not such costs are recoverable under section 308 of this title. The Secretary is authorized to promulgate regulations designating the person or persons who may obligate available money in the Fund for such purposes. (d)(1) The Secretary shall levy and the Secretary of the Treasury shall collect a fee of not to exceed 3 cents per barrel on oil obtained from the Outer Continental Shelf, which shall be imposed on the owner of the oil when such oil is produced. (2) The Secretary of the Treasury, after consulting with the Secretary, may promulgate reasonable regulations relating to the collection of the fees authorized by paragraph (1) of this subsection and, from time to time, the modification thereof. Any modification shall become effective on the date specified in the regulation making such modification, but no earlier than the ninetieth day following the date such regulation is published in the Federal Register. (3)(A) Any person who fails to collect or pay any fee as required by any regulation promulgated under paragraph (2) of this subsection shall be liable for a civil penalty not to exceed $10,000, to be assessed by the Secretary of the Treasury, in addition to the fee required to be collected or paid and the interest on such fee at the rate such fee would have earned if collected or paid when due and invested in special obligations of the United States in accordance with subsection (e)(2) of this section. Upon the failure of any person so liable to pay any penalty, fee, or interest upon demand, the Attorney General may, at the request of the Secretary of the Treasury, bring an action in the name of the Fund against that person for such amount. (B) Any person who falsifies records or documents required to be maintained under any regulation promulgated under this subsection shall be subject to prosecution for a violation of section 1001 of title 18, United States Code. (4) The Secretary of the Treasury may, by regulation, designate the reasonably necessary records and documents to be kept by persons from whom fees are to be collected pursuant to paragraph (1) of this subsection, and the Secretary of the Treasury and the Comptroller General of the United States shall have access to such records and documents for the purpose of audit and examination. (e)(1) The Secretary shall determine the level of funding required for immediate access in order to meet potential obligations of the Fund. (2) The Secretary of the Treasury may invest any excess in the Fund above the level determined under paragraph (1) of this subsection, in interest-bearing special obligations of the United States. Such special obligations may be redeemed at any time in accordance with the terms of the special issue and pursuant to regulations promulgated by the Secretary of the Treasury. The interest on, and the proceeds from the sale of, any obligations held in the Fund shall be deposited in and credited to the Fund. (f) If at any time the moneys available in the Fund are insufficient to meet the obligations of the Fund, the Secretary shall issue to the Secretary of the Treasury notes or other obligations in the forms and denominations, bearing the interest rates and maturities, and subject to such terms and conditions as may be prescribed by the Secretary of the Treasury. Redemption of such notes or other obligations shall be made by the Secretary from moneys in the Fund. Such notes or other obligations shall bear interest at a rate determined by the Secretary of the Treasury, taking into consideration the average market yield on outstanding marketable obligations of comparable maturity. The Secretary of the Treasury shall purchase any notes or other obligations issued under this subsection and, for that purpose, he is authorized to use as a public debt transaction the proceeds from the sale of any securities issued under the Second Liberty Bond Act. The purpose for which securities may be issued under that Act are extended to include any purchase of such notes or other obligations. The Secretary of the Treasury may at any time sell any of the notes or other obligations acquired by him under this subsection. All redemptions, purchases, and sales by the Secretary of the Treasury of such notes or other obligations shall be treated as public debt transactions of the United States. (Sec. 302(d) of the Outer Continental Shelf Lands Act Amendments of 1978 (92 Stat. 672) and sec. 7805 of the Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C. 7805)) [T.D. 7697, 45 FR 33974, May 21, 1980] § 301.9001-1 Collection of fee. (a) Imposition of fee In general. (2) Owner of oil. (3) Example. Example. X is the owner of oil produced on the Outer Continental Shelf. During one reporting period, 10,000 barrels of oil were obtained from this location. X will use a portion of this oil to make a royalty payment to the United States government. X also has a contract with Y to sell Y the remaining barrels of oil. For the purpose of the Act, X is the owner of the oil and must pay a fee of 3 cents per barrel on all 10,000 barrels of oil. (4) Cross-references. (5) Effective Date. (b) Collection of fee. (c) Time and place for payment of the fee In general. (2) $100 or less of fees. (3) More than $100 of fees. (4) More than $2000 of fees. (d) Responsibility for payment of fee In general. (2) Example. Example. W, X, Y, and Z are oil companies that own equal interests in oil produced on the Outer Continental Shelf. W was selected to be the operator of the offshore facility. Additionally, X, Y, and Z authorized W to file Form 6009 and to pay the fee imposed by section 302(d) of the Act on the oil produced at this facility. Pursuant to this authorization, W paid a fee of $16,600. Since the ownership of the oil is divided equally among W, X, Y, and Z, each company's share of the fee is $4,150. (e) Penalty and Interest. (1) $10,000 or (2) The amount of the fee. (Sec. 302(d) of the Outer Continental Shelf Lands Act Amendments of 1978 (92 Stat. 672) and sec. 7805 of the Internal Revenue Code of 1954 (68A Stat. 917: 26 U.S.C. 7805)) [T.D. 7697, 45 FR 33975, May 21, 1980] § 301.9001-2 Definitions. The terms enumerated in this section are to be defined for the purposes of §§ 301.9001-1, 301.9001-2, and 301.9001-3 in the following manner: (a) “Barrel” means 42 United States gallons at 60 degrees Fahrenheit. (b) “Oil” means petroleum, including crude oil or any fraction or residue therefrom, and natural gas condensate, except that the term does not include natural gas. (c) “Person” means an individual, firm, corporation, association, partnership, consortium, joint venture, or governmental entity. (d) “Outer Continental Shelf” means all submerged lands lying seaward and outside of the area of lands beneath navigable waters as defined in section 1301 of title 43 and of which the subsoil and seabed appertain to the United States and are subject to its jurisdiction and control; (Sec. 302(d) of the Outer Continental Shelf Lands Act Amendments of 1978 (92 Stat. 672) and sec. 7805 of the Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C. 7805)) [T.D. 7697, 45 FR 33976, May 21, 1980] § 301.9001-3 Cross reference. See the Coast Guard regulations under 33 CFR parts 135 and 136 for rules relating to the implementation of the Act. (Sec. 302(d) of the Outer Continental Shelf Lands Act Amendments of 1978 (92 Stat. 672) and sec. 7805 of the Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C. 7805)) [T.D. 7697, 45 FR 33976, May 21, 1980] § 301.9100-0 Outline of regulations. This section lists the paragraphs in §§ 301.9100-1 through 301.9100-3. § 301.9100-1 Extensions of time to make elections. (a) Introduction. (b) Terms. (c) General standards for relief. (d) Exceptions. (e) Effective dates. § 301.9100-2 Automatic extensions. (a) Automatic 12-month extension. (1) In general. (2) Elections eligible for automatic 12-month extension. (b) Automatic 6-month extension. (c) Corrective action. (d) Procedural requirements. (e) Examples. § 301.9100-3 Other extensions. (a) In general. (b) Reasonable action and good faith. (1) In general. (2) Reasonable reliance on a qualified tax professional. (3) Taxpayer deemed to have not acted reasonably or in good faith. (c) Prejudice to the interests of the Government. (1) In general. (i) Lower tax liability. (ii) Closed years. (2) Special rules for accounting method regulatory elections. (3) Special rules for accounting period regulatory elections. (d) Effect of amended returns. (1) Second examination under section 7605(b). (2) Suspension of the period of limitations under section 6501(a). (e) Procedural requirements. (1) In general. (2) Affidavit and declaration from taxpayer. (3) Affidavits and declarations from other parties. (4) Other information. (5) Filing instructions. (f) Examples. [T.D. 8742, 62 FR 68169, Dec. 31, 1997] § 301.9100-1 Extensions of time to make elections. (a) Introduction. (b) Terms. Election Regulatory election Federal Register, Statutory election Taxpayer (c) General standards for relief. (d) Exceptions. (1) For elections under section 4980A(f)(5); or (2) For elections that are expressly excepted from relief or where alternative relief is provided by a statute, a regulation published in the Federal Register, (e) Effective dates. [T.D. 8742, 62 FR 68169, Dec. 31, 1997] § 301.9100-2 Automatic extensions. (a) Automatic 12-month extension In general. (2) Elections eligible for automatic 12-month extension. (i) The election to use other than the required taxable year under section 444; (ii) The election to use the last-in, first-out (LIFO) inventory method under section 472; (iii) The 15-month rule for filing an exemption application for a section 501(c)(9), 501(c)(17), or 501(c)(20) organization under section 505; (iv) The 15-month rule for filing an exemption application for a section 501(c)(3) organization under section 508; (v) The election to be treated as a homeowners association under section 528; (vi) The election to adjust basis on partnership transfers and distributions under section 754; (vii) The estate tax election to specially value qualified real property (where the Internal Revenue Service (IRS) has not yet begun an examination of the filed return) under section 2032A(d)(1); (viii) The chapter 14 gift tax election to treat a qualified payment right as other than a qualified payment under section 2701(c)(3)(C)(i); and (ix) The chapter 14 gift tax election to treat any distribution right as a qualified payment under section 2701(c)(3)(C)(ii). (b) Automatic 6-month extension. (c) Corrective action. Federal Register, (d) Procedural requirements. (e) Examples. The following examples illustrate the provisions of this section: Example 1. Automatic 12-month extension. Taxpayer A fails to make an election described in paragraph (a)(2) of this section when filing A's 1997 income tax return on March 16, 1998, the due date of the return. This election does not affect the tax liability of any other taxpayer. The applicable regulation requires that the election be made by attaching the appropriate form to a timely filed return including extensions. In accordance with paragraphs (a) and (c) of this section, A may make the regulatory election by taking the corrective action of filing an amended return with the appropriate form by March 15, 1999 (12 months from the March 16, 1998 due date of the return). If A obtained a 6-month extension to file its 1997 income tax return, A may make the regulatory election by taking the corrective action of filing an amended return with the appropriate form by September 15, 1999 (12 months from the September 15, 1998 extended due date of the return). Example 2. Automatic 6-month extension. Taxpayer B fails to make an election not described in paragraph (a)(2) of this section when filing B's 1997 income tax return on March 16, 1998, the due date of the return. This election does not affect the tax liability of any other taxpayer. The applicable regulation requires that the election be made by attaching the appropriate form to a timely filed return including extensions. In accordance with paragraphs (b) and (c) of this section, B may make the regulatory election by taking the corrective action of filing an amended return with the appropriate form by September 15, 1998 (6 months from the March 16, 1998 due date of the return). (f) Automatic 6-month extension for certain generation-skipping transfer tax allocations and elections Availability. (2) Applicability date. Allocation of Increase in Basis for Property Acquired from a Decedent, [T.D. 8742, 62 FR 68170, Dec. 31, 1997, as amended by T.D. 9996, 89 FR 37127, May 6, 2024] § 301.9100-3 Other extensions. (a) In general. (b) Reasonable action and good faith In general. (i) Requests relief under this section before the failure to make the regulatory election is discovered by the Internal Revenue Service (IRS); (ii) Failed to make the election because of intervening events beyond the taxpayer's control; (iii) Failed to make the election because, after exercising reasonable diligence (taking into account the taxpayer's experience and the complexity of the return or issue), the taxpayer was unaware of the necessity for the election; (iv) Reasonably relied on the written advice of the Internal Revenue Service (IRS); or (v) Reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election. (2) Reasonable reliance on a qualified tax professional. (i) Competent to render advice on the regulatory election; or (ii) Aware of all relevant facts. (3) Taxpayer deemed to have not acted reasonably or in good faith. (i) Seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under section 6662 at the time the taxpayer requests relief (taking into account any qualified amended return filed within the meaning of § 1.6664-2(c)(3) of this chapter) and the new position requires or permits a regulatory election for which relief is requested; (ii) Was informed in all material respects of the required election and related tax consequences, but chose not to file the election; or (iii) Uses hindsight in requesting relief. If specific facts have changed since the due date for making the election that make the election advantageous to a taxpayer, the IRS will not ordinarily grant relief. In such a case, the IRS will grant relief only when the taxpayer provides strong proof that the taxpayer's decision to seek relief did not involve hindsight. (c) Prejudice to the interests of the Government In general. (i) Lower tax liability. (ii) Closed years. (2) Special rules for accounting method regulatory elections. (i) Is subject to the procedure described in § 1.446-1(e)(3)(i) of this chapter (requiring the advance written consent of the Commissioner); (ii) Requires an adjustment under section 481(a) (or would require an adjustment under section 481(a) if the taxpayer changed to the method of accounting for which relief is requested in a taxable year subsequent to the taxable year the election should have been made); (iii) Would permit a change from an impermissible method of accounting that is an issue under consideration by examination, an appeals office, or a federal court and the change would provide a more favorable method or more favorable terms and conditions than if the change were made as part of an examination; or (iv) Provides a more favorable method of accounting or more favorable terms and conditions if the election is made by a certain date or taxable year. (3) Special rules for accounting period regulatory elections. (d) Effect of amended returns Second examination under section 7605(b). (2) Suspension of the period of limitations under section 6501(a). (e) Procedural requirements In general. (2) Affidavit and declaration from taxpayer. (3) Affidavits and declarations from other parties. (4) Other information. (i) The taxpayer must state whether the taxpayer's return(s) for the taxable year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made is being examined by a district director, or is being considered by an appeals office or a federal court. The taxpayer must notify the IRS office considering the request for relief if the IRS starts an examination of any such return while the taxpayer's request for relief is pending; (ii) The taxpayer must state when the applicable return, form, or statement used to make the election was required to be filed and when it was actually filed; (iii) The taxpayer must submit a copy of any documents that refer to the election; (iv) When requested, the taxpayer must submit a copy of the taxpayer's return for any taxable year for which the taxpayer requests an extension of time to make the election and any return affected by the election; and (v) When applicable, the taxpayer must submit a copy of the returns of other taxpayers affected by the election. (5) Filing instructions. (f) Examples. Example 1. Taxpayer discovers own error. Taxpayer A prepares A's 1997 income tax return. A is unaware that a particular regulatory election is available to report a transaction in a particular manner. A files the 1997 return without making the election and reporting the transaction in a different manner. In 1999, A hires a qualified tax professional to prepare A's 1999 return. The professional discovers that A did not make the election. A promptly files for relief in accordance with this section. Assume paragraphs (b)(3) (i) through (iii) of this section do not apply. Under paragraph (b)(1)(i) of this section, A is deemed to have acted reasonably and in good faith because A requested relief before the failure to make the regulatory election was discovered by the IRS. Example 2. Reliance on qualified tax professional. Taxpayer B hires a qualified tax professional to advise B on preparing B's 1997 income tax return. The professional was competent to render advice on the election and B provided the professional with all the relevant facts. The professional fails to advise B that a regulatory election is necessary in order for B to report income on B's 1997 return in a particular manner. Nevertheless, B reports this income in a manner that is consistent with having made the election. In 2000, during the examination of the 1997 return by the IRS, the examining agent discovers that the election has not been filed. B promptly files for relief in accordance with this section, including attaching an affidavit from B's professional stating that the professional failed to advise B that the election was necessary. Assume paragraphs (b)(3) (i) through (iii) of this section do not apply. Under paragraph (b)(1)(v) of this section, B is deemed to have acted reasonably and in good faith because B reasonably relied on a qualified tax professional and the tax professional failed to advise B to make the election. Example 3. Accuracy-related penalty. Taxpayer C reports income on its 1997 income tax return in a manner that is contrary to a regulatory provision. In 2000, during the examination of the 1997 return, the IRS raises an issue regarding the reporting of this income on C's return and asserts the accuracy-related penalty under section 6662. C requests relief under this section to elect an alternative method of reporting the income. Under paragraph (b)(3)(i) of this section, C is deemed to have not acted reasonably and in good faith because C seeks to alter a return position for which an accuracy-related penalty could be imposed under section 6662. Example 4. Election not requiring adjustment under section 481(a). Taxpayer D prepares D's 1997 income tax return. D is unaware that a particular accounting method regulatory election is available. D files D's 1997 return without making the election and uses another permissible method of accounting. The applicable regulation provides that the election is made on a cut-off basis (without an adjustment under section 481(a)). In 1998, D requests relief under this section to make the election under the regulation. If D were granted an extension of time to make the election, D would pay no less tax than if the election had been timely made. Assume that paragraphs (c)(2) (i), (iii), and (iv) of this section do not apply. Under paragraph (c)(2)(ii) of this section, the interests of the Government are not deemed to be prejudiced because the election does not require an adjustment under section 481(a). Example 5. Election requiring adjustment under section 481(a). The facts are the same as in Example 4 of this paragraph (f) except that the applicable regulation provides that the election requires an adjustment under section 481(a). Under paragraph (c)(2)(ii) of this section, the interests of the Government are deemed to be prejudiced except in unusual or compelling circumstances. Example 6. Under examination by the IRS. A regulation permits an automatic change in method of accounting for an item on a cut-off basis. Taxpayer E reports income on E's 1997 income tax return using an impermissible method of accounting for the item. In 2000, during the examination of the 1997 return by the IRS, the examining agent notifies E in writing that its method of accounting for the item is an issue under consideration. Any change from the impermissible method made as part of an examination is made with an adjustment under section 481(a). E requests relief under this section to make the change pursuant to the regulation for 1997. The change on a cut-off basis under the regulation would be more favorable than if the change were made with an adjustment under section 481(a) as part of an examination. Under paragraph (c)(2)(iii) of this section, the interests of the Government are deemed to be prejudiced except in unusual and compelling circumstances because E seeks to change from an impermissible method of accounting that is an issue under consideration in the examination on a basis that is more favorable than if the change were made as part of an examination. (g) Relief under section 2642(g)(1) Procedures. see (2) Applicability date. [T.D. 8742, 62 FR 68171, Dec. 31, 1997, as amended by T.D. 9996, 89 FR 37127, May 6, 2024] § 301.9100-4T Time and manner of making certain elections under the Economic Recovery Tax Act of 1981. (a) Miscellaneous elections Elections to which this paragraph applies. Section of Act Section of code Description of election Availability of election 201(a) 168(b)(3) Different recovery period Property placed in service after 1980. 201(a) 168(d)(2)(A) Inclusion in income of entire proceeds of disposition Property placed in service after 1980. 201(a) 168(e)(2) Exclusion of property from recovery system Property placed in service after 1980. 201(a) 168(f)(2)(C) Different recovery period for property used outside U.S. Property placed in service after 1980. 202(a) 179 Expensing certain depreciable property Taxable years beginning after 1981. 237 474 For small business to use one inventory pool when LIFO is elected Taxable years beginning after 1981. 266(a) Deferral of commencement of amortization period for motor carrier operating authority Taxable years ending after June 30, 1980. 508(c) Application of title V of the Act to all regulated futures contracts or positions held on June 23, 1981 Property held on June 23, 1981. 509 Application of Code sec. 1256 and extension of time for payment of tax for all regulated futures contracts held at any time during taxable year that includes June 23, 1981 Property held during taxable year that includes June 23, 1981. (2) Time for making elections In general. (A) The due date (taking extensions into account) of the income tax return for the taxable year for which the election is to be effective, or (B) April 15, 1982. (ii) No extension of time for payment. (iii) Elections under section 508(c) or 509 of the Act. (3) Manner of making elections. (i) Contain the name, address, and taxpayer identification number of the electing taxpayer, (ii) Identify the election, (iii) Indicate the section of the Code (or, if the provision is not codified, the section of the Act) under which the election is being made, (iv) Specify the period for which the election is being made and the property to which the election is to apply, and (v) Provide any information required by the relevant statutory provisions and any information necessary to show that the taxpayer is entitled to make the election. (b) Designation of principal campaign committee. (1) Contain the name, address, and taxpayer identification number of the candidate and of the committee, (2) Identify the statement as a designation under section 527(h) of the Code, and (3) Designate the committee as the principal campaign committee of the candidate. The candidate shall attach to the statement a copy of the statement of designation filed with the Federal Election Commission. (c) Election to be treated as a qualified fund for purposes of the research credit. (1) Contain the name, address, and taxpayer identification number of the electing organization and of the organization that established and maintains the electing organization, (2) Identify the election as an election under section 44F(e)(4) of the Code, (3) Specify the date on which the election is to become effective (in the case of elections filed before February 1, 1982, not earlier than the date that is 7 months before the date on which the election is filed; in the case of elections filed after January 31, 1982, not earlier than the date on which the election is filed), and (4) Provide all information necessary to show that the organization is entitled to make the election. (d) Election to treat qualified subchapter S trust as grantor trust. (1) Contains the name, address, and taxpayer identification number of the beneficiary, the trust, and the subchapter S corporation, (2) Identifies the election as an election under section 1371(g)(2) of the Code, (3) Specifies the date on which the election is to become effective (not earlier than 60 days before the date on which the election is filed), and (4) Provides all information necessary to show that the beneficiary is entitled to make the election. Note that this election does not itself constitute an election as to the status of the corporation; the corporation must make the election provided in section 1372(a) to be treated as an electing small business corporation. (e) Election to have Code section 422A apply to options granted before 1981. (1) Contains the name, address, and taxpayer identification number of the corporation, (2) Identifies the election as an election under section 251(c)(1)(B) of the Economic Recovery Tax Act of 1981, (3) Specifies the options to which the election applies, and (4) Provides all information necessary to show that the corporation is entitled to make the election. (f) Election to increase basis of property on which additional estate tax is imposed. (1) Contains the name, address, and taxpayer identification number of the qualified heir and of the estate, (2) Identifies the election as an election under section 1016(c) of the Code, (3) Specifies the property with respect to which the election is made, and (4) Provides any additional information required by the instructions accompanying Form 706-A. A qualified heir making an election under this paragraph must pay interest on the additional estate tax from the date that is 9 months after the date of the decedent's death to the date of the payment of the additional estate tax. (g) Revocation of elections. (1) Contain the name, address, and taxpayer identification number of all parties identified in connection with the election, (2) Identify the election being revoked by reference to the section of the Code or Act under which the election was made, (3) Specify the scope of the election, and (4) Explain why the applicant seeks to revoke the election. (h) Additional information required. (1) Contain the name, address, and taxpayer identification numbers of all parties identified in connection with the election, (2) Identify the election by reference to the section of the Code or Act under which the election was made, and (3) Specify the scope of the election. If the additional information is not provided within 60 days after the request is made, the election may, at the discretion of the Commissioner, be held invalid. (i) Effective date. [T.D. 7793, 46 FR 54538, Nov. 3, 1981. Redesignated by T.D. 8435, 57 FR 43895, Sept. 23, 1992. Amended by T.D. 9481, 75 FR 17857, Apr. 8, 2010] § 301.9100-5T Time and manner of making certain elections under the Tax Equity and Fiscal Responsibility Act of 1982. (a) Miscellaneous elections Elections to which this paragraph applies. Section of act Section of code Description Availability 201(c) 58(i)(1) Optional 10-year write off of certain tax preferences Taxable years beginning after Dec. 31, 1982. 201(c)(1) 58(i)(4) Intangible drilling and development costs Taxable years beginning after Dec. 31, 1982. 205(a) 48(q) Reduced investment credit in lieu of basis adjustment Generally to period beginning after Dec. 31, 1982. 256(f) 820 Insurance company revocation of election under section 820 Contracts which took effect in 1980 or 1981. (2) Time for making elections In general. (A) The due date (taking extensions into account) of the income tax return for the taxable year for which the election is to be effective, or (B) April 15, 1983. (ii) No extensions of time for payment. (iii) Election by insurance companies relating to repeal of section 820. (3) Manner of making elections. (i) Contain the name, address, and taxpayer identification number of the electing taxpayer, (ii) Identify the election, (iii) Indicate the section of the Code (or, if the provision is not codified, the section of the Act) under which the election is being made, (iv) Specify the period for which the election is being made and the property to which the election is to apply, and (v) Provide any information required by the relevant statutory provisions and any information necessary to show that the taxpayer is entitled to make the election. (b) Special rules for reduced investment credit in lieu of basis adjustment Appropriate return. (2) Applicability of election. (c) Election by a reinsurer to make installment payments of taxes owed resulting from the repeal of section 820. (1) Contain the name, address, and tax-payer identification number of the corporation, (2) Identify the election as an election under section 256(e) of the Act, and section 256(e)(2)(B) if applicable, and (3) Provide all information necessary to show the taxpayer is entitled to make the election. For provisions relating to the use of authorized financial institutions in depositing the taxes, see § 1.6302-1. (d) [Reserved] (e) Additional information required. (1) Contain the name, address, and taxpayer identification numbers of all parties identified in connection with the election, (2) Identify the election by reference to the section of the Code or Act under which the election was made, and (3) Specify the scope of the election. If the additional information is not provided within 60 days after the request is made, the election may, at the discretion of the Commissioner, be held invalid. (f) Effective date. [T.D. 7870, 48 FR 1486, Jan. 13, 1983. Redesignated by T.D. 8435, 57 FR 43895, Sept. 23, 1992, as amended by T.D. 8952, 66 FR 33832, June 26, 2001] § 301.9100-6T Time and manner of making certain elections under the Deficit Reduction Act of 1984. (a) Miscellaneous elections Elections to which this paragraph applies. Table 1 to Paragraph (a)(1) Section of act Section of code Description of election Availability of election 31(a) and 31(g)(16) 168(j)(4)(E)(ii) Election by certain 501(c)(12) organizations to be treated as taxable organizations and to have certain arbitrage profits taxed Generally for property placed in service after May 23, 1983, or leased after such date. 31(f) 46(e)(4)(C) Election by section 593 organizations not to apply section 46(e)(4)(A) Generally for property placed in service after Nov. 5, 1983, or leased after such date. 41(a) 1282(b)(2) Election to have section 1281 apply to all short-term obligations acquired on or after the first day of the first taxable year to which the election relates (but not to obligations acquired before July 19, 1984) Taxable years ending after July 18, 1984, with respect to obligations acquired after such date. 41(a) 1283(c)(2) Election to have section 1283(c)(1) not apply to all obligations acquired on or after the first day of the first taxable year to which the election relates (but not to obligations acquired before July 19, 1984) Do. 113 48(r) Election by all persons having an ownership interest in a sound recording to treat such recording as 3-yr. recovery property Property placed in service after Mar. 15, 1984. 431(e)(2) 46(c) (8) and (9), 48(d)(6), 47(d) (1) and (2) Election to apply the investment tax credit at risk rules as modified by the Tax Reform Act of 1984 to all transactions covered by sec. 211(f) of the Economic Recovery Tax Act of 1981 Generally to property placed in service between Feb. 18, 1981, and July 19, 1984. 712(l)(7)(B) 304 Election to apply certain technical corrections of sec. 304 to all transfers covered by the changes made to sec. 304 by the Tax Equity and Fiscal Responsibility Act of 1982 Stock acquired after Aug. 31, 1982, and before June 19, 1984. 712(l)(7)(C)(ii) 304 Election with respect to bank holding companies to apply certain technical corrections of sec. 304 to stock acquired after June 18, 1984 Generally to transfers to bank holding companies formed pursuant to application filed with Federal Reserve Board before June 18, 1984. 1066 163(d) Elections to treat certain income from S corporations, for purposes of sec. 163(d), as such income would have been treated prior to the Subchapter S Revision Act of 1982 With respect to S corporation taxable years beginning in 1983 or 1984. 1078 Election to exclude from gross income payments from U.S. Forest Service as result of restricting motorized traffic in the boundary waters canoe area Payments in taxable years beginning after Dec. 31, 1979. (2) Time for making elections In general. (A) The due date (taking extensions into account) of the tax return for the first taxable year for which the election is to be effective, or (B) April 15, 1985 (in which case the election generally must be made by amended return). (ii) No extension of time for payment. (iii) [Reserved] (iv) Time for making the election to exclude from gross income payments received from the U.S. Forest Service as a result of the restriction of motorized traffic in the Boundary Waters Canoe Area. (3) Manner of making elections In general. (A) Contain the name, address, and taxpayer identification number of the electing taxpayer, (B) Identify the election, (C) Indicate the section of the Code (or, if the provision is not codified, the section of the Act) under which the election is made, (D) Specify, as applicable, the period for which the election is being made and/or the property or other items to which the election is to apply, and (E) Provide any information required by the relevant statutory provisions and any information necessary to show that the taxpayer is entitled to make the election. (ii) Special rules for making the election with respect to sound recordings. (iii) Special rules for making the election with respect to redemption through use of related corporations. (iv) Special rules for making the election for investment tax credit at risk rules. (4) Revocation. (b) Church or qualified church-controlled organization's election of exemption from social security taxes under chapter 21 In general. (2) Time for making the election. (3) Manner of making the election. (4) Refunds of FICA taxes paid. (5) Irrevocability of election except by Commissioner. (c) Election to issue taxable student loan bonds. (d) [Reserved] (e) Election not to claim the credit for alcohol used as fuel. (f) Protective election to adopt LIFO method Time for making the election. (2) Manner for making a protective election. (g) Election by an estate or trust to recognize gain or loss on the distribution of property (other than cash) to a beneficiary. (h) Election to treat a stapled foreign entity as a subsidiary. (1) Contains the name, address, and taxpayer identification number of the domestic corporation, (2) Identifies the election as made under section 136(c)(6) of the Tax Reform Act of 1984, and, (3) Identifies the foreign entity and the interests in the foreign entity which constitute stapled interests with respect to the stock of the domestic corporation, and specifies the date on which those interests became stapled interests. If this election is not made, the foreign corporation (interests in which were stapled interests as of June 30, 1983) will be treated as a domestic corporation, effective January 1, 1987, under section 269B(a)(1) of the Code. (i) Election to treat certain section 1248 amounts as included in gross income under section 951(a)(1)(A). (1) Contain the name, address, and taxpayer identification number (if any) of the corporation making the election, (2) Identify the election as made under section 133(d)(3) of the Tax Reform Act of 1984, and (3) Identify all of the transactions (including the date of each transaction), shareholders involved in those transactions, and amounts to which the election applies. (j) Special election for computing investment company taxable income. (k) Election of extension of time for payment of estate tax for interests in certain holding companies. (l) Subchapter S election by commodities dealers and options dealers. (m) Election with respect to treatment of S termination year. (n) Election to be an S corporation; certain short taxable years. (o) Election with respect to subchapter S passive investment income rules. (p) Election with respect to subchapter S distributions during certain post-termination transition periods. (q) No elections for closed year. (r) Additional information required. [T.D. 7976, 49 FR 35487, Sept. 10, 1984; T.D. 7976, 49 FR 43640, Oct. 31, 1984; 49 FR 43951, Nov. 1, 1984, as amended by T.D. 8062, 50 FR 46004, Nov. 6, 1985. Redesignated by T.D. 8435, 57 FR 43895, Sept. 23, 1992; T.D. 9172, 70 FR 296, Jan. 4, 2005: T.D. 9911, 85 FR 64394, Oct. 13, 2020] § 301.9100-7T Time and manner of making certain elections under the Tax Reform Act of 1986. (a) Miscellaneous elections Elections to which this paragraph applies. Section of Act Section of Code Description of Election Availability of Election 201(a) 168(b)(5) Election to depreciate property using the straight line method of recovery with respect to one or more classes of property for any taxable year Property placed in service after 12-31-86. Election must be made for taxable year in which property is placed in service. Election shall apply to all property in the class placed in service during the taxable year for which the election is made. 201(a) 168(f)(1) Election to exclude certain property from the accelerated cost recovery system Property placed in service after 12-31-86. Election must be made for taxable year in which property is placed in service. 201(a) 168(g)(7) Election to use alternative depreciation system with respect to one or more classes of property for any taxable year (except for residential rental or non-residential real property where the election may be made separately with respect to each property) Property placed in service after 12-31-86. Election must be made for taxable year in which property is placed in service. Except for residential rental or non-residential real property, election shall apply to all property in the class placed in service during the taxable year for which the election is made. 201(a), 1802(a) 168(h)(6)(F)(ii), 168(j) (as in effect before October 22, 1986) Election by a tax-exempt controlled entity to treat any gain recognized by the tax-exempt parent on any disposition of an interest in the tax-exempt controlled entity (and to treat any dividends or interest received or accrued from the tax-exempt controlled entity) as unrelated business taxable income under Code section 511 in order for the tax-exempt controlled entity to not be treated as a tax-exempt entity (or as a successor to a tax-exempt entity) Property placed in service after 9-27-85, but can apply to property placed in service before such date if the tax-exempt controlled entity so elects. [See paragraph (a)(3)(ii) of this section.] 203(a)(1)(B) Election to apply Act section 201 (including all elections within section 201) Property placed in service after 7-31-86 and before 1-1-87. 204(e) Election to have Act section 201 either (i) not apply to any property placed in service during 1987 or 1988 which is replacement property for property lost, damaged or destroyed in a flood which occurred 11-3-85 through 11-7-85 and which was declared a natural disaster area by the President of the United States, or (ii) apply to all such replacement property placed in service during 1985 or 1986 (i) Property placed in service during 1987 or 1988; or (ii) property placed in service during 1985 or 1986. 243(a) Election to begin the 60 month amortization period with the first month of the taxpayer's first taxable year beginning after 11-19-82 in lieu of the 11-19-82 date or the bus operating authority acquisition date Bus operating authorities held on 11/19/82, or acquired after that date under a written contract that was binding on that date. 243(b) Election to begin the 60 month amortization period on the first month of the taxpayer's first taxable year beginning after the deregulation month in lieu of the deregulation month Freight forwarder operating authorities held at the beginning of the 60 month period applicable to the taxpayer ( i.e., 243 (a), (b) Election by a qualified corporate taxpayer to allocate a portion of the cost basis of a qualified acquiring corporation in the stock of an acquired corporation to the basis of the authority For bus operating authorities: authorities held on 11/19/82, or acquired after that date under a written contract that was binding on that date. For freight forwarders: authorities held at the beginning of the 60-month period applicable to the taxpayer. 252(a) 42(f)(1) Election concerning beginning of credit period for low-income housing credit Buildings placed in service after 12-31-86 and before 1-1-90 (before 1-1-91 for buildings described in Code section 42(n)(2)(B)). [See paragraph (b) of this section.] 252(a) 42(g)(1) Election concerning qualified low-income housing project to either satisfy the 20-50 or the 40-60 occupancy test Buildings placed in service after 12-31-86 and before 1-1-90 (before 1-1-91 for buildings described in Code section 42(n)(2)(B)). [See paragraph (b) of this section.] 252(a) 42(i)(2) Election to reduce eligible basis by outstanding balance of Federal loan subsidy Buildings placed in service after 12-31-86 and before 1-1-90 (before 1-1-91 for buildings described in Code section 42(n)(2)(B)). [See paragraph (b) of this section.] 252(a) 42(j)(5) Election to have certain partnerships treated as the taxpayer eligible for low-income housing credit Buildings placed in service after 12-31-86 and before 1-1-90 (before 1-1-91 for buildings described in Code section 42(n)(2)(B) [See paragraph (b) of this section.] 311(d)(2) Revocation of prior election under Code section 631(a) Election for taxable years beginning before 1-1-87 may be revoked for taxable years ending after 12-31-86. 411(b)(1) 263(i) For intangible drilling and development costs paid or incurred with respect to an oil, gas, or geothermal well located outside the United States, election to include such costs in adjusted basis for purposes of computing the amount of any deduction under Code section 611 (without regard to section 613) Costs paid or incurred after 12-31-86 in taxable years ending after such date. [See paragraph (a)(2)(iii) of this section.] 411(b)(2) 616(d) For expenditures paid or incurred with respect to the development of a mine or other natural deposit (other than an oil, gas, or geothermal well) located outside the United States, election to include such expenditures paid or incurred during the taxable year for which made in adjusted basis for purposes of computing the amount of any deduction under Code section 611 (without regard to section 613) Costs paid or incurred after 12-31-86 in taxable years ending after such date. [See paragraph (a)(2)(iv) of this section.] 411(b)(2) 617(h) For expenditures paid or incurred before the development stage for the purpose of ascertaining the existence, location, extent or quality of any deposit of ore or other mineral deposit (other than an oil, gas or geothermal well) located outside the United States, election to include all such expenditures, paid or incurred during the taxable year with respect to any such deposit, in adjusted basis for purposes of computing the amount of any deduction under Code section 611 (without regard to section 613) Costs paid or incurred after 12-31-86 in taxable years ending after such date. [See paragraph (a)(2)(v) of this section.] 501(a) 469(j)(9) Election to increase basis of property by amount of disallowed credit for purposes of determining gain or loss from a disposition of property used in a passive activity Taxable years beginning after 12-31-86. [See paragraph (a)(3)(iii) of this section.] 614(b) 1059(c)(4) Election to determine whether a dividend is extraordinary by reference to the fair market value of the share of stock with respect to which the dividend was received Dividends declared after July 18, 1986 in taxable years ending after such date. 644(d) 216(b)(3) Election by a cooperative housing corporation to allocate real estate taxes or interest or both to each tenant-stockholder's dwelling unit in a manner which reasonably reflects the cost to the corporation of the tenant-stockholder's dwelling unit Taxable years beginning after 12-31-86. [See paragraph (a)(3)(iv) of this section.] 646 Election by an entity to be treated as a trust under the Internal Revenue Code if such entity was created in 1906 as a common law trust and governed by the trust laws of the State of Minnesota, receives royalties from iron ore leases, and income interests in the entity are publicly traded on a national stock exchange The election is effective beginning on the first day of the first taxable year beginning after October 22, 1986 and following the year in which the election is made. Such election must be made by the board of trustees of such entity and must be accompanied by a written agreement signed by the board of trustees of the entity. 651 4982(e)(4) Election by a regulated investment company to use taxable years ending on 11-30 or 12-31 for purposes of computing capital gain net income under Code section 4982 Calendar years beginning after 12-31-86. [See paragraph (a)(2)(vi) of this section.] 701(a) 56(f)(3)(B) Election to have amount of net book income be equal to amount of earnings and profits Taxable years beginning after 12-31-86. 801(a) 448(d)(4) Election of common parent of an affiliated group that all members of such group be treated as one taxpayer if substantially all the activities of all members of the affiliated group involve performance of services in the same field Taxable years beginning after 12-31-86. 801(d)(2) Election to continue using the cash method of accounting for loans, leases and related party transactions Loans, leases and related party transactions entered into before 9-26-85. 802 474 Election by certain small businesses to use the simplified dollar-value LIFO method Taxable years beginning after 12-31-86. [See paragraph (a)(3)(v) of this section.] 803(a) 263A(d)(3) Election to have rules of Code section 263A (relating to capitalization and inclusion in inventory costs of certain expenses) not apply to any plant or animal produced in any farming business conducted by the electing taxpayer Unless consent is obtained from the Commissioner, the first taxable year beginning after 12-31-86 during which the taxpayer engages in a farming business. [See paragraph (c) of this section.] 806(e)(2)(C) Election to have net income for the short taxable year of a partnership or S corporation which results from the required change in accounting period included entirely in income for such short taxable year Partner and shareholder taxable years beginning after 12-31-86 with or within which the short taxable year created under section 806 of the Act ends. [See paragraph (d) of this section.] Election to reduce partnership or S corporation income for the short taxable year resulting from a required change in accounting period under section 806 of the Act by an unamortized adjustment amount existing as of October 22, 1986, where such adjustment was required to effectuate a previous accounting period change under Rev. Proc. 72-51, 1972-2 C.B. 832 or Rev. Proc. 83-25, 1983-1 C.B. 689 Short taxable years of partnerships or S corporations beginning after 12-31-86. [See paragraph (e) of this section.] 811(a) 453C(b)(2)(B) Election to compute adjusted bases using depreciation deduction used under Code section 312(k) Taxable years ending after 12-31-86 with respect to dispositions made after 2-28-86. 811(a) 453C(e)(4) Election to have Code section 453C not apply to obligations arising from sales of timeshares and unimproved residential lots to invidividuals Taxable years ending after 12-31-86 with respect to dispositions made after 2-28-86. [See paragraph (a)(3)(vi) of this section.] 905(a) 165(l)(1) Election to treat amount of reasonably estimated loss on a deposit in insolvent or bankrupt qualified financial institution as a loss described in Code section 165(c)(3) and incurred in the taxable year Taxable years beginning after 12-31-81. [See the cross--reference in paragraph (f) of this section.] 905(c) Election to apply Code section 451(f) (relating to treatment of interest on frozen deposits in certain financial institutions) Taxable years beginning after 12-31-82 and before 1-1-87. 1301(b) 141(b)(9) Election by issuer of tax-exempt bonds to treat a portion of an issue as a qualified 501(c)(3) bond if such portion would have qualified as a 501(c)(3) bond had it been issued separately Bonds issued after 8-15-86. [See paragraph (g) of this section.] 1301(b) 142(d)(1) Election by issuer of tax-exempt bonds for residential rental property to satisfy either the 20-50 or the 40-60 occupancy test Bonds issued after 8-15-86. [See paragraph (g) of this section.] 1301(b) 142(d)(4)(B) Election by issuer of tax-exempt bonds for residential rental property to treat the project as a deep rent skewed project Bonds issued after 8-15-86. [See paragraph (g) of this section.] 1301(b) 143(k)(9)(D)(iii) Election to treat limited equity cooperative housing as residential rental property and not as owner-occupied housing Bonds issued after 8-15-86 and before 1-1-89. [See paragraph (g) of this section.] 1301(b) 145(d) Election by issuer of tax-exempt bonds to have Code section 145 not apply to the issue if the issue is an issue of exempt facility bonds or qualified redevelopment bonds, to which the volume cap applies Bonds issued after 8-15-86. [See paragraph (g) of this section.] 1301(b) 147(b)(4)(A) Election by issuer of qualified 501(c)(3) bonds to have such bonds treated as meeting the limitation on maturity requirements of Code section 147(b)(1) if the requirements of section 147(b)(4)(B) are met Bonds issued after 8-15-86. [See paragraph (g) of this section.] 1704(b) Election to revoke prior election under Code section 1402(e) (relating to exemption from social security taxes for certain clergy) Remuneration received in taxable years ending on or after October 22, 1986. [See paragraph (h) of this section.] 1801(a) 168(i) (as in effect before October 22, 1986) Election to make finance leasing rules inapplicable to property which would otherwise be subject to them under the transitional rules of section 12(c)(1) of the Tax Reform Act of 1984 Personal property leased under certain lease agreements effective on or after 1-1-84. [See paragraph (a)(3)(vii) of this section.] 1804(e)(4) Election by a common parent of an affiliated group to apply amendments made by the Tax Reform Act of 1984 for taxable years beginning after 12-31-83 Groups which include a corporation which on 6-22-84 is a member of the group which files a consolidated return for such corporation's taxable year which includes 6-22-84. 1807(a)(7) 468B Election to treat a qualified payment made to a court-ordered fund as a payment made to a designated settlement fund Generally, liabilities arising out of personal injury, death or property damage that are incurred after 7-18-84 under law in effect before the enactment of Code section 461(h). Election is made for the taxable year in which qualified payments are made to a designated settlement fund. 1809(e)(2) 48(b)(2) Election by lessee and lessor not to apply the rule of Code section 48(b)(2) concerning the date leased property is treated as originally placed in service Property originally placed in service after 4-11-84 (as determined under Code section 48(b) prior to its amendment by section 114(a)of the Tax Reform Act of 1984). [See paragraph (a)(3)(viii) of this section.] 1810(1)(4) 7701(b) Election to be treated as a resident alien Taxable years beginning after December 31, 1984. [See paragraph (a)(3)(ix) of this section.] 1879(p)(1) 83(c)(3) Election to treat certain stock acquired upon the exercise of nonqualified stock options as subject to a substantial risk of forfeiture by reason of Code section 83(c)(3) even though the transfer of stock pursuant to such exercise occurred before 1-1-82, the effective date of section 83(c)(3) Transfers of stock described in section 1879(p)(1) of the Act. [See paragraph (a)(2)(vii) and(a)(3)(x) of this section.] 1882(c) 3121(w)(2) Election to revoke prior election under Code section 3121(w) (relating to exemption from social security taxes for certain churches and qualified church-controlled organizations) Remuneration paid after 12-31-86 unless such electing church or church-controlled organization had withheld and paid over all employment taxes due, as if such election had never been in effect during the period from the stated effective date of the election being revoked through 12-31-86. [See paragraph (i) of this section.] (2) Time for making elections In general. (A) The due date (taking extensions into account) of the tax return for the first taxable year for which the election is to be effective, or (B) April 15, 1987 (in which case the election generally must be made by amended return). (ii) No extension of time for payment. (iii) Time for making the election with respect to foreign intangible drilling costs. (iv) Time for making the election with respect to foreign development expenditures. (v) Time for making the election with respect to foreign exploration expenditures. (vi) Time for making certain elections by regulated investment companies. (A) March 15 of the first calendar year beginning after the end of the first excise tax period for which the election is to be effective, or (B) If the regulated investment company has been granted an extension of time to file a return for the excise tax under Code section 4982 for such excise tax period, the due date (including extensions thereof) for such return. The statement of election under section 4982(e)(4) shall be attached to the prescribed form regardless of whether the regulated investment company is liable for the excise tax imposed by section 4982 for the excise tax period in question. (vii) Time for making the election with respect to certain nonqualified stock options. (A) By April 21, 1987, in any case in which the operation of any law or rule of law on or before such date would prevent the credit or refund of any overpayment of tax resulting from such election, and (B) By no later than any date after April 21, 1987 on which the operation of any law or rule of law would prevent the credit or refund of any overpayment of tax resulting from such election. (3) Manner of making elections In general. (A) Contain the name, address and taxpayer identification number of the electing taxpayer, (B) Identify the election, (C) Indicate the section of the Code (or, if the provision is not codified, the section of the Act) under which the election is made, (D) Specify, as applicable, the period for which the election is being made and/or the property or other items to which the election is to apply, and (E) Provide any information required by the relevant statutory provisions and any information necessary to show that the taxpayer is entitled to make the election. (ii) Special rules for making the transitional rule elections with respect to certain tax-exempt controlled entities. (iii) Special rule for making the election with respect to gain or loss from a disposition of property used in a passive activity. (iv) Special rules for making the election with respect to cooperative housing corporations. (v) Special rules for making the election with respect to the simplified dollar-value LIFO method. (vi) Special rules for making the election to have section 453C not apply to obligations arising from sales of timeshares and unimproved residential lots to individuals. (vii) Special rules for making certain finance leasing transitional rule elections. (viii) Special rules for making the election relating to the date leased property is treated as originally placed in service. (ix) Special rules for making the election to be treated as a resident alien. (A) That the alien individual was not a resident in the year immediately preceding the election year; (B) That the alien individual is a resident in the year immediately following the election year under the substantial presence test and the individual's number of days of presence in the United States during such year; (C) The date or dates of the alien individual's 31 consecutive day period of presence and continuous presence in the United States during the election year; and (D) The date or dates of absence from the United States during the election year that are deemed to be days of presence. (x) Special rules for making the election with respect to the treatment of the exercise of certain nonqualified stock options. (A) The date on which the option was granted, (B) The name of the corporation which granted the option, (C) The date on which the stock was transferred pursuant to the exercise of the option, (D) The fair market value of such stock on December 4, 1973, (E) The fair market value on July 1, 1974 of the stock received upon the reorganization of the corporation which granted the option, and (F) The date on which the taxpayer sold substantially all of the stock received in such reorganization. The taxpayer shall file a single claim for credit or refund of the entire overpayment of tax resulting from the election under Act section 1879(p)(1). (4) Revocation Irrevocable elections. Act Sections Code Sections 201(a) 168(b)(5), 168(f)(1), 168(g)(7), 168(h)(6)(F)(ii) 203(a)(1)(B), 252(a) 42(f)(1), 42(g)(1), 42(i)(2), 42(j)(5) 411(b)(1) 263(i) 411(b)(2)(A) 616(d)(2)(A) 501(a) 469(j)(9) 801(d)(2), 905(c), 1301(b) 141(b)(9), 142(d)(1), 142(d)(4)(B) 143(k)(9)(D)(iii), 145(d), 147(b)(4)(A) 1704(b), 1802(a) 168(j) as in effect before October 22, 1986 1804(e)(4), 1879(p)(1) 83(c)(3) 1882(c) 3121(w)(2) are irrevocable. (ii) Elections revocable with the consent of the Commissioner. Act Sections Code Sections 204(e), 243(a), 243(b), 243(a)(b), 411(b)(2)(B) 617(h)(2)(A) 614(b) 1059(c)(4) 644(d) 216(b)(3) 646, 651 4982(e)(4)(B) 701(a) 56(f)(3)(B) 801(a) 448(d)(4) 802 474 803(a) 263A(d)(3) 806(e)(2)(C) and the election described in H.R. Rep. No. 99-841 at II-320, 811(a) 453C(b)(2)(B)(i), 453C(e)(4) 905(a) 165(l)(1) 1801(a) 168(i) as in effect before October 22, 1986 1807(a)(7) 468B) 1809(e)(2) 48(b)(2) 1810(l)(4) 7701(b) are revocable only with the consent of the Commissioner. (iii) Freely revocable election. (b) Elections with respect to the low-income housing credit. (c) Election to have the rules of section 263A (relating to capitalization and inclusion in inventory costs of certain expenses) not apply to any plant or animal produced in any farming business conducted by the electing taxpayer In general. (2) Time and manner of making the election. (3) Election treated as if made if certain requirements satisfied. (4) Revocation. (5) Special rules for treatment of expenses. (d) Election with respect to the treatment of net income for the short taxable year resulting from a required change in accounting period. (e) Election with respect to reducing partnership or S corporation income for the short taxable year resulting from a required change in accounting period under section 806 of the Act by an unamortized adjustment amount existing as of October 22, 1986 In general. (2) Partnerships or S corporations that make the election to reduce income for the short taxable year by an unamortized adjustment amount existing as of October 22, 1986. (3) Partnerships or S corporations that do not make the election to reduce income for the short taxable year by an unamortized adjustment amount existing as of October 22, 1986. (f) Cross-reference. (g) Elections with respect to certain bonds. (h) Revocation of the election for exemption from social security taxes by certain clergy In general. (2) Time for revoking the election. (3) Manner of revoking the election. (4) Special rules for payment of self-employment taxes with respect to certain taxable years ending on or after October 22, 1986 Elections filed after the due date of the Federal income tax return. (ii) Elections filed before the due date of the Federal income tax return. (A) In the case of Forms 2031 that are filed on or before the date on which the individual's Federal income tax return for such first taxable year is filed, with the individual's Federal income tax return for such taxable year; and (B) In the case of Forms 2031 that are filed after the date on which the individual's Federal income tax return for such first taxable year is filed, with an amended Federal income tax return for that taxable year filed on or before the due date for the individual's Federal income tax return (including any extension thereof) for such taxable year. (iii) Interest on amounts paid after the due date of the Federal income tax return. (5) Revocability of the revocation of the election. (6) Effective date of this provision. (i) Revocation of the election for exemption from social security taxes by certain churches on qualified church-controlled organizations In general. (2) Time and manner of revoking the election. (3) Revocability of the revocation of the election. (4) Effective date of this paragraph. (j) Additional information required. [T.D. 8124, 52 FR 3624, Feb. 5, 1987; 52 FR 8405, Mar. 17, 1987; 52 FR 10085, Mar. 30, 1987, as amended by T.D. 8180, 53 FR 6147, Mar. 1, 1988; T.D. 8267, 54 FR 38980, Sept. 22, 1989. Redesignated and amended by T.D. 8435, 57 FR 43895, 43896, Sept. 23, 1992; T.D. 8513, 58 FR 68764, 68765, Dec. 29, 1993; T.D. 8530, 59 FR 12844, Mar. 18, 1994; T.D. 8644, 60 FR 66926, Dec. 27, 1995] § 301.9100-8 Time and manner of making certain elections under the Technical and Miscellaneous Revenue Act of 1988. (a) Miscellaneous elections Elections to which this paragraph applies. Section of act Section of code Description of election Availability of election 1002 (a)(11)(A) 168(b)(2) Election to depreciate property using the 150 percent declining balance method for one or more classes of property for any taxable year For property placed in service after December 31, 1986, the election must be made for the taxable year in which the property is placed in service. For taxable years ending before January 1, 1989, taxpayers have until January 22, 1990, to amend their returns to elect the 150 percent declining balance method, regardless of whether the taxpayer had used or elected to use a different method for property placed in service during those taxable years. The election will apply to all property in the class placed in service during the taxable year for which the election is made. 1002(a)(23)(B) 168(d)(3)(B) Election to disregard property placed in service and disposed of in the same taxable year in applying the 40 percent test to determine if the mid-quarter convention applies Available for property placed in service in taxable years beginning on or before March 31, 1988. Election will apply to all property placed in service and disposed of during the taxable year for which the election is made. 1002(l)(1)(A) 42(b)(2)(A)(ii) Election to use the applicable percentage for a month other than the month in which a building is placed in service Available for qualified buildings placed in service after December 31, 1987, and with respect to which either a binding agreement is made as to the allocable credit dollar amount or tax-exempt bonds are issued. [See paragraph (b) of this section.] 1002(l)(2)(B) 42(f)(1) Election to defer the beginning of the credit period for the low-income housing credit Available for qualified buildings placed in service after December 31, 1986. 1002(l)(4) 42(d)(3)(B) Election to exclude excess costs of disproportionate units Available for qualified buildings placed in service after December 31, 1986. 1002(l)(12) 42(g)(3)(B)(i) Election to aggregate buildings in a low-income housing project to satisfy the minimum set-aside requirement elected under section 42(g)(1) of the Code Available for qualified buildings placed in service after December 31, 1986. 1002(l)(19)(B) 42(i)(2)(B) Election to reduce eligible basis by outstanding balance of Federal loan subsidy or proceeds of tax-exempt obligation Available for qualified buildings placed in service after December 31, 1986. 1005(c)(11) 469,163 Election to treat certain carryovers of disallowed investment interest expense as passive activity deductions for the first taxable year beginning after December 31, 1986 Available for investment interest that is disallowed for the last taxable year beginning before January 1, 1987, and is properly allocable to a passive activity for the first taxable year beginning after December 31, 1986. [See paragraph (c) of this section.] 1006(d)(15) 382 As a general rule, a firm commitment underwriter of an offering of a loss corporation's stock made before September 19, 1986 (January 1, 1989, for an institution described in section 591) is not treated as acquiring underwritten stock if it is disposed of pursuant to the offering on or before 60 days after the initial offering. The loss corporation may elect not to apply the general rule Available to any loss corporation to which the general rule would otherwise apply. The election is to be made by filing a statement with the District Director with whom the loss corporation would file its Federal income tax return. The statement must identify the election as an election under section 1006(d)(15) of the Act and must (1) contain the taxpayer's name, address, and employee identification number, (2) identify the transaction to which the election relates, (3) represent that the conditions for making the election have been satisfied, and (4) be signed by a person authorized to sign the Federal income tax return of the loss corporation. 1006(j)(1)(C) 171(e) Election to reduce interest payments received on certain bonds by allocable bond premium in accordance with section 171(e) of the Code Available for obligations acquired after October 22, 1986, and before January 1, 1988. 1006(t)(18)(B) 860F(e) Election not treat a REMIC (real estate mortgage investment conduit) as a partnership for purposes of determining who may sign the REMIC return Available for REMICs with a start-up date (as defined in section 860G(a)(9) of the Code, as in effect on November 9, 1988) before November 10, 1988. The election is made by attaching a statement to the amended tax return for tax year 1987 or to the tax return for the first taxable year for which the election is to be effective. 1008(c)(4)(A) 460(b)(3) Election not to discount an amount received or accrued after completion of a contract to its value as of the completion of the contract for purposes of applying the look-back method Effective as if included in the Tax Reform Act of 1986 (1986 Act) (available for contracts entered into after February 28, 1986). The election must be made on a contract-by-contract basis by attaching a statement to the tax return for the first year after completion in which the taxpayer includes in income any adjustments to the contract price or deducts any adjustments to contract costs (or, if later, the first tax return filed after October 23, 1989). 1009(d) 165(1) Election to treat amount of reasonably estimated loss on a deposit in an insolvent or bankrupt qualified financial institution as a loss described in either section 165(c) (2) or (3) of the Code and incurred in the taxable year for which the election is made Available for taxable years beginning after December 31, 1981. [See paragraph (d) of this section.] 1010(f)(1) 831(b)(2)(A) Election for insurance companies other than life to use alternative tax under certain circumstances Available for taxable years beginning after December 31, 1986. 1010(f)(2) 835(a) Election for an interinsurer or reciprocal underwirter mutual insurance company subject to section 831(a) of the Code to be subject to section 835(b) limitation Available for taxable years beginning after December 31, 1986. 1011(a) 219(g)(4) Election to treat a married individual as not married for purposes of certain contributions made to an individual retirement plan for 1987 Available to a married individual who (1) was an active participant during 1987, (2) lived apart from the other spouse during the entire 1987 calendar year, (3) filed a separate income tax return for 1987, (4) had adjusted gross income of not more than $35,000 for 1987, and (5) made a contribution to an individual retirement plan for 1987. 1012(d)(4) 865(f) Election to treat an affiliate and its wholly-owned subsidiaries as one corporation Shareholder-level election, available, subject to certain conditions, to United States residents selling stock in an affiliate which is a foreign corporation. Available for taxable years beginning after December 31, 1986. 1012(d)(6) 865(g)(3) Election to treat a corporation and its wholly-owned subsidiaries as one corporation Shareholder-level election, available only to individual bona fide residents of Puerto Rico, if the corporate group is engaged in active trade or business in Puerto Rico and meets a gross income test. Available for taxable years beginning after December 31, 1986. 1012(d)(8) 865(h)(2) Election to apply treaty source rule to treat gain from a sale of an intangible or of stock in a foreign corporation as foreign source Taxpayer election for treatment of gain on the disposition of certain stocks and intangibles. Available for taxable years beginning after December 31, 1986. 1012(1)(2) 245(a)(10) Election to apply treaty source rules to treat dividends received from a qualified 10-percent owned foreign corporation as foreign source Available to corporations for distributions out of earnings and profits for taxable years beginning after December 31, 1986. 1012(n)(3) 936 Election to reduce the amount of qualified possession source investment income for certain corporations that fail the 75 percent active trade or business income requirement of section 936(a)(2)(B) of the Code due to section 1231(d) of the 1986 Act Corporate-level election, available for any taxable year beginning in 1987 or 1988. 1012(bb)(4) 904(g)(10) Election to apply treaty source rules (in lieu of rules in section 904(g) of the Code) to treat an amount derived from a U.S.-owned foreign corporation as foreign source Available generally beginning July 18, 1984 (the amendment is to take effect as if included in the amendment made in section 121 of the Tax Reform Act of 1984). 1014(c)(1) 664(b) Election by a beneficiary of a trust to which section 664 of the Code applies to obtain certain benefits of section 1403(c)(2) of the 1986 Act, relating to the ratable inclusion of certain income over 4 taxable years Available for taxable years beginning after December 31, 1986, provided the trust was required to change its taxable year under section 1403(a) of the 1986 Act. Election is made by attaching a statement to an amended return for the trust beneficiary's first taxable year beginning after December 31, 1986. Amended return must be filed on or before January 22, 1990. If no such election is filed, the benefits of section 1403(c)(2) are waived. 1014(c)(2) 652, 662 Election by any trust beneficiary (other than a beneficiary of a trust to which section 664 of the Code applies), to waive the benefits of section 1403(c)(2) of the 1986 Act Available for taxable years beginning after December 31, 1986. Election is made by attaching a statement to an amended return for the trust beneficiary's first taxable year beginning after December 31, 1986. Amended return must be filed on or before January 22, 1990. 1014(d)(3)(B), 1014(d)(4) 643(g)(2) Election to have certain payments of estimated tax made by a trust or estate treated as paid by the beneficiary Available for taxable years beginning after December 31, 1986. In the case of an estate, the election is available only for a taxable year reasonably expected to be the estate's last taxable year. Election must be made by the fiduciary of the trust or estate on or before the 65th day after the close of the taxable year for which the election is made. The election must be made by that date by filing Form 1041-T with the Internal Revenue Service Center where the trust's return for such taxable year is required to be filed. The trust's return (or amended return) for that year must include a copy of the Form 1041-T. 2004(j)(1) 1503(e) Election, made by an affiliated group filing a consolidated return upon the disposition of intragroup stock on or before December 15, 1987, to reduce the disposing member's basis in the indebtedness of the subsidiary member whose stock has been disposed of, in lieu of taking into account as negative basis the “unrecaptured amount” allocable to the stock disposed of Available to an affiliated group filing a consolidated return in which a member disposes of intragroup stock on or before December 15, 1987. 2004(m)(5) 384 Election to have amendments (to the limitation on use of preacquisition losses to offset corporate built-in gains) made by section 2004(m) of the Act not apply in any case where the acquisition date is before March 31, 1988 Available when the acquisition date is before March 31, 1988. Election must be made not later than the later of the due date (including extensions) for filing the return for the taxable year of the acquiring corporation in which the acquisition date occurs or March 10, 1989. 4004(a) 42(j)(5)(B) Election to have certain partnerships not treated as the taxpayer to which the low-income housing credit is allowable Available for qualified buildings placed in service after December 31, 1986, and owned by partnerships with 35 or more partners. [See paragraph (b) of this section.] 4008(b) 41(h) Election to have the research credit under secction 41 of the Code not apply for any taxable year Available in any taxable year beginning after December 31, 1988. The election is made by not claiming the research credit on an original return, or by filing an amended return on which no research credit is claimed, at any time before the expiration of the 3-year period beginning on the last day prescribed by law for filing the return for the taxable year (determined without regard to extensions). The election may be revoked within the above-described 3-year period by filing an amended return on which the credit is claimed. 5012(e)(4) 7002A(c)(3) 72(e) Election to recognize gain on exchange of life insurance contracts to avoid the characterization of life insurance contract as a modified endowment contract Available for contracts entered into after June 20, 1988, and before November 6, 1988, which are exchanged before February 10, 1989. 5031(a) 7520(a) Election to use 120 percent of the Applicable Federal Midterm rate for either of the two months preceding a valuation date in valuing certain interests transferred to charity for which an income, estate, or gift tax charitable deduction is allowable Available in cases where the valuation date occurs on or after May 1, 1989. The election is made by attaching a statement to the last income, estate, or gift tax return filed before the due date, or if a timely return is not filed, the first return filed after the due date. The statement shall contain the following: (1) A statement that an election under section 7520(a) is being made; (2) the transferor's name and taxpayer identification number as they appear on the return; (3) a description of the interest being valued; (4) the recipients, beneficiaries, or donees of the transferred interest; (5) the date of the transfer; (6) the Applicable Federal Midterm rate that is used to value the transferred interest and the month to which the rate pertains. 5033(a)(2) 2056(d) Election to treat a trust for the benefit of a surviving spouse who is not a U.S. citizen as a Qualified Domestic Trust, transfers to which are deductible under section 2056(a) of the Code Available in the case of estates of decedents dying after November 11, 1988. The election is made by the executor on the last Federal estate tax return filed by the executor before the due date of the return, or if a timely return is not filed by the executor, on the first estate tax return filed by the executor after the due date. However, elections made on or after May 5, 1991, may not be made on any return filed more than one year after the time prescribed for filing the return (including extensions). 6006(a) 1(i)(7) Election to include certain unearned income of a child on the parent's return Available for taxable years beginning after December 31, 1988. The election must be made in the manner prescribed by the appropriate forms for the parent's return for the year for which the election is effective. The election must be made by the due date (taking extensions into account) of such tax return. 6011 121(d)(9) Election to exclude gain on the sale of a principal residence by certain incapacitated taxpayers age 55 or over Election may be made for a sale or exchange after September 30, 1988, by a taxpayer who becomes physically or mentally incapable of self-care and meets the required use rule provided in section 121(d)(9) of the Code. For the time and manner of making the election see § 1.121-4 of the Income Tax Regulations. 6026(a) 263A(h) Election for certain authors, photographers, and artists to apply the exemption from the uniform capitalization rules for the first taxable year ending after November 10, 1988 Available for the first taxable year ending after November 10, 1988. An eligible taxpayer will be treated as having made the election if the taxpayer reports income and expenses for the first taxable year ending after November 10, 1988 in accordance with the exemption from section 263A of the Code. 6026(b)(1) 263A(d)(1) Revocation of prior election under section 263A(d)(3) of the Code (relating to the capitalization of certain expenses for the production of animals) Election for any taxable year beginning before January 1, 1989, may be revoked for the first taxable year beginning after December 31, 1988. 6026(c) 263A(d)(3)(B) Election by eligible taxpayers not to have section 263A of the Code apply to costs incurred in the planting, cultivation, maintenance, or development of pistachio trees Available without the consent of the Commissioner for the first taxable year beginning after December 31, 1986, during which the taxpayer engages in the planting, cultivation, maintenance, or development of pistachio trees. Consent must be obtained from the Commissioner for the election to be made for any subsequent taxable year. 6152(a), 6152(c)(3) 2056(b)(7)(C)(ii) Election to treat a survivor annuity payable to a surviving spouse that is otherwise deductible under section 2056(b)(7)(C) of the Code as a nondeductible terminable interest Available in the case of estates of decedents dying after December 31, 1981, and in no event will the time for making the election expire before November 11, 1990. [See paragraph (e) of this section.] 6152(b), 6152(c)(3) 2523(f)(6)(B) Election to treat a joint and survivor annuity in which the donee spouse has a survivorship interest that is otherwise deductible under section 2523(f)(6)(A) of the Code as a nondeductible terminable interest Available in the case of transfers made after December 31, 1981, and in no event will the time for making the election expire before November 11, 1990. [See paragraph (f) of this section.] 6152(c)(2) 2056(b)(7)(C)(ii), 2523(f)(6)(B) Election to treat as deductible for estate or gift tax purposes under sections 2056(b)(7)(C) or 2523(f)(6) of the Code, respectively, a survivor's annuity payable to a surviving spouse reported on an estate or gift tax return filed prior to November 11, 1988, as a nondeductible terminable interest Available to estates of decedents dying after December 31, 1981, or to transfers made after December 31, 1981, where: (1) the estate or gift tax return was filed prior to November 11, 1988; (2) the annuity was not deducted on the return as qualified terminable interest property under sections 2056(b)(7) or 2523(f) of the Code; and (3) the executor or donor elects to treat the interest as a deductible terminable interest under sections 2056(b)(7)(C) or 2523(f)(6) prior to November 11, 1990. [See paragraph (g) of this section.] 6180(b)(1) 142(i)(2) Election by a nongovernmental owner of a highspeed intercity rail facility not to claim any deduction under section 167 or 168 of the Code and any credit under subtitle A, in order for the facility to be described in section 142(a)(11) Available for bonds issued after November 10, 1988. [See paragraph (h) of this section.] 6181(c)(2) 148(f)(4)(A) One-time election by the issuer of tax-exempt bonds outstanding as of November 11, 1988, other than private activity bonds, to apply the amendments made by section 148(b) of the Code to amounts deposited after such date in bona fide debt service funds Available for bonds outstanding as of November 11, 1988. The election must be made in writing on the later of March 21, 1990, or the first date any payment is required under section 148(f) of the Code. The election should be retained as part of the issuer's books and records (as defined in § 1.103-10(b)(2)(vi) of the regulations) of the bond issue to which it relates. 6277 382, 383 Election by a loss corporation that otherwise qualifies for the exception of section 621(f)(5) of the 1986 Act not to apply that exception. That exception provides for the inapplicability, in certain situations, of the amendments to sections 382 and 383 of the Code made by the 1986 Act (relating to limitation of corporate attributes after an ownership change). That exception applies with respect to a loss corporation's ownership change resulting from a reorganization described in section 368(a)(1)(G) of the Code or from an exchange of debt for stock in a title 11 or similar case if a petition was filed with the court before August 14, 1986 Available for ownership changes described in section 621(f)(5) of the 1986 Act, if a petition was filed with the court before August 14, 1986. The election is to be made by filing a statement with the District Director with whom the loss corporation would file its Federal income tax return. The statement must identify the election as an election under section 6277 of the Act and must (1) contain the taxpayer's name, address, and employee identification number, (2) identify the transaction to which the election relates, (3) represent that the conditions for making the election have been satisfied, and (4) be signed by a person authorized to sign the Federal income tax return of the loss corporation. 8007(a)(1) 3127 Election to be exempted from the taxes imposed by sections 3101 and 3111 of the Code An individual employer and an employee, both of whom are members of a recognized religious sect or a division thereof described in section 1402(g)(1) of the Code and adherents of established tenets or teachings of such sect or division, may, if both qualify and make elections, obtain exemptions from the taxes imposed by sections 3101 and 3111. [See paragraph (i) of this section.] (2) Time for making elections In general. (A) The due date (taking into account any extensions of time to file obtained by the taxpayer) of the tax return for the first taxable year for which the election is effective, or (B) January 22, 1990 (in which case the election generally must be made by amended return). (ii) No extension of time for payment. (3) Manner of making elections. (i) Contain the name, address and taxpayer identification number of the electing taxpayer; (ii) Identify the election; (iii) Indicate the section of the Code (or, if the provision is not codified, the section of the Act) under which the election is made; (iv) Specify, as applicable, the period for which the election is being made and the property or other items to which the election is to apply; and (v) Provide any information required by the relevant statutory provisions and any information requested in applicable forms and instructions, such as the information necessary to show that the taxpayer is entitled to make the election. Notwithstanding the foregoing, an amended return need not be filed for an election made prior to October 23, 1989, if the taxpayer made the election in a reasonable manner. (4) Revocation Irrevocable elections. (ii) Elections revocable with the consent of the Commissioner. (iii) Freely revocable elections. (b) Elections with respect to the low-income housing credit. (c) Election to treat certain carryovers of disallowed investment interest expense as passive activity deductions. (d) Election with respect to the treatment of reasonably estimated losses in an insolvent or bankrupt financial institution In general. (i) As of the close of the taxable year, it can reasonably be estimated that there is a loss on a deposit (within the meaning of section 165(l)(4)) of a qualified individual (as defined in section 165(l)(2)) in a qualified financial institution (as defined in section 165(l)(3)), and (ii) Such loss is on account of the bankruptcy or insolvency of such institution, then the qualified individual may elect under either section 165(l)(1) or (5) (but not both), to treat the amount (subject to the applicable limitations if under section 165(l)(5)) so estimated for that taxable year as a loss described in either section 165(c)(3), relating to casualty losses, or section 165(c)(2), relating to transactions entered into for profit, and incurred during the taxable year. The election will apply to all losses of the qualified individual on deposits in the institution with respect to which an election is made. For additional information and examples of the application of the election rules, see Notice 89-28, 1989-12 I.R.B. 72. This paragraph (d) includes the procedural and the principal substantive rules first issued in Notice 89-28. For specific rules relating to an election under section 165(1)(5), see paragraph (d)(2) of this section. (2) Specific rules relating to the section 165(1)(5) election Applicability. (ii) Dollar limitations. (3) Time and manner of determining loss and making the election Year of election and determination of loss. (ii) Time and manner of making election. (A) The income tax return for the taxable year with respect to which the taxpayer made a reasonable estimate of the loss; (B) An amended income tax return for a taxable year described in paragraph (d)(3)(ii)(A) of this section, if the period prescribed for filing a claim for refund or credit for that taxable year has not yet expired; or, if applicable, (C) An amended income tax return for a taxable year (beginning after December 31, 1981) described in paragraph (d)(3)(ii)(A) of this section, whether or not the claim for refund or credit is barred by another provision of law, but only if the amended return is properly filed on or before November 9, 1989. (iii) Information to include with election. (4) Revocability of the election In general. (ii) Exception. (5) Effective date. (e) Election to treat a survivor annuity payable to a surviving spouse as a nondeductible terminable interest. (1) A statement that the election under section 2056(b)(7)(C)(ii) of the Code is being made; (2) The applicable revised schedules; (3) A recomputation of the tax due; and (4) Payment of any additional tax due. (f) Election to treat a joint and survivor annuity in which the donee spouse has a survivor interest as a nondeductible terminable interest. (1) A statement that the election under section 2523(f)(6)(B) is being made; (2) A recomputation of the tax due; and (3) Payment of any additional tax due. (g) Election to treat survivor's annuity payable to the surviving spouse as qualified terminable interest property deductible under sections 2056(b)(7)(C) or 2523(f)(6) of the Code in the case of a return filed prior to November 11, 1988. (i) A statement that the election under section 6152(c)(2) of the Technical and Miscellaneous Revenue Act of 1988 is being made; (ii) The applicable revised schedules; and (iii) A recomputation of the estate's tax liability showing the amount of any refund due. (2) In the case of a gift tax election under section 2523(f)(6) of the Code, the election is made by filing with the Service Center where the original return was filed an amended return (and timely claim for refund under section 6511, if applicable) containing: (i) A statement that the election under section 6152(c)(2) of the Technical and Miscellaneous Revenue Act of 1988 is being made; (ii) The applicable revised schedules; and (iii) A recomputation of the gift tax liability showing the amount of any refund due. (h) Elections with respect to certain nongovernmentally owned rail facilities In general. (i) A description of the property with respect to which the election is being made; (ii) The name, address, and taxpayer identification number of the issuing authority; (iii) The name, address, and taxpayer identification number of the electing owner; and (iv) The date and face amount of the issue used to provide the property. (2) Other requirements. (3) Election is binding on purchasers and successors. (i) Election under section 3127 of the Code to be exempted from the taxes imposed by sections 3111 and 3101 Application for exemption. (2) Approval of application for exemption. (i) The application contains or is accompanied by the evidence described in section 1402(g)(1)(A) of the Code and a waiver described in section 1402(g)(1)(B); (ii) The Secretary of Health and Human Services makes the findings described in section 1402(g)(1) (C), (D), and (E) with respect to the religious sect or division described in section 1402(g)(1) of which the individual employer and employee are members; and (iii) No benefit or other payment referred to in section 1402(g)(1)(B) became payable (or, but for sections 203 or 222(b) of the Social Security Act, would have become payable) to the employee filing the application at or before the time of the filing. (3) Effective period of exemption. (4) Termination of election. (i) Such individual employer or the employee involved ceases to meet the applicable requirements of paragraphs (h)(2) and (h)(3), or (ii) The sect or division thereof of which such individual employer or employee is a member is found by the Secretary of Health and Human Services to have failed to meet the requirements of section 3127(b)(2). (5) Both the individual employer and employee must qualify and elect. (j) Certain elections not addressed in this section. (1) An election relating to the effective date of certain source rules under section 861(a) of the Code (section 1012(g)(1) of the Act); (2) An election relating to transitional rules for interest allocation under 864(e) of the Code (section 1012(h)(7) of the Act); (3) An election relating to the chain deficit rules under section 952(c)(1)(C) of the Code (section 1012(i)(25) of the Act); (4) An election relating to the definition of a passive foreign investment company in section 1296 of the Code (section 1012(p)(27) of the Act); (5) An election by a shareholder of a qualified electing fund under section 1291(d)(2)(B) of the Code (section 1012(p)(28) of the Act); (6) An election to be treated as a qualified electing fund under section 1295 of the Code (section 6127 of the Act); (7) An election relating to treatment of an insurance branch as a separate corporation under section 964(d) of the Code (section 6129 of the Act); (8) An election relating to certain regulated futures contracts and nonequity options under section 988(c)(1)(D) of the Code (section 6130(b) of the Act); (9) An election relating to certain qualified funds under section 988(c)(1)(E) of the Code (section 6130(b) of the Act); (10) An election under section 952(c)(1)(B) of the Code to apply section 953(a) without regard to the same country exception (section 6131(a) of the Act); (11) An election relating to treatment of a foreign insurance company as a domestic corporation under section 953(d) of the Code (section 6135 of the Act). Guidance concerning the elections described in this paragraph (j) will generally be provided in regulations to be issued under the relevant Code sections. With respect to certain elections described in this paragraph (j), preliminary guidance has been published. See Notice 88-125, 1988-52 I.R.B. 4, for guidance with respect to the election described in paragraph (j)(6) of this section, relating to the qualified electing fund election. See Notice 88-124, 1988-51 I.R.B. 6, for guidance with respect to the elections described in paragraph (j) (8) and (9) of this section, relating to section 988(c)(1) (D) and (E) of the Code. (k) Additional information required. [T.D. 8267, 54 FR 38980, Sept. 22, 1989; 54 FR 41243, 41364, Oct. 6, 1989. Redesignated and amended by T.D. 8435, 57 FR 43895, 43896, Sept. 23, 1992; 57 FR 47373, Oct. 15, 1992] § 301.9100-9T Election by a bank holding company to forego grandfather provision for all property representing pre-June 30, 1968, activities. (a) In general. et seq. (b) Manner of making election. (c) Scope of election. (d) Election; binding effect. (e) Final certification. (f) Conditional certification. [T.D. 7570, 43 FR 52057, Nov. 8, 1978. Redesignated by T.D. 8435, 57 FR 43896, Sept. 23, 1992] § 301.9100-10T Election by certain family-owned bank holding companies to divest all banking or nonbanking property. (a) In general. et seq. (b) Manner of making election. (c) Scope of election. (d) Election; binding effect. (e) Final certification. (f) Conditional certification. [T.D. 7570, 43 FR 52057, Nov. 8, 1978. Redesignated by T.D. 8435, 57 FR 43896, Sept. 23, 1992] § 301.9100-11T Election by a qualified bank holding corporation to pay in installments the tax attributable to sales under the Bank Holding Company Act. (a) In general. (1) It meets the conditions described in paragraph (b) of this section, and (2) It files an election in accordance with the rules set forth in paragraph (c) of this section. (b) Conditions. (2) The Federal Reserve Board must certify before the sale of the bank property or prohibited property that the divestiture of such property is necessary or appropriate to effectuate section 4 or the policies of the Bank Holding Company Act (12 U.S.C. 1841 et seq. (3) If bank property is sold, the qualified bank holding corporation (or a corporation having control of it or a subsidiary of it) must not have— (i) Previously elected to apply section 6158 to a sale of prohibited property, or (ii) Previously distributed prohibited property under section 1101(a). (4) If prohibited property is sold, the qualified bank holding corporation (or a corporation having control of it or a subsidiary of it) must not have— (i) Previously elected to apply section 6158 to a sale of bank property, or (ii) Previously distributed bank property under section 1101(b). (5) The qualified bank holding corporation must not have elected to return the income from the sale under the installment provisions of section 453. (c) Time and manner of making election. (i) Attaching a statement to its income tax return for the taxable year in which the prohibited property or bank property is sold showing the tax computation under paragraph (f) of this section and the amount of the installment paid with the return, and (ii) Entering the amount of the installment payment followed by the words “computed under section 6158” in the appropriate place on the tax return. (2) If the qualified bank holding corporation filed its income tax return for the year of sale before February 6, 1979 (without electing under section 6158(a)), then it shall make the election under section 6158(a) by attaching a statement to its claim for credit or refund (amended tax return) for its overpayment of income tax attributable to the application of section 6158 showing the tax computation under paragraph (f) of this section and entering the amount of the credit or refund followed by the words “attributable to the application of section 6158” in the appropriate place on the claim. In order for the election to be effective, the claim must be filed before the earlier of— (i) The expiration of the period of limitation for the filing of the claim, or (ii) February 6, 1979. (d) Scope of election. (e) Special rule for certifying sales. (f) Tax attributable to sales. (1) The tax under chapter I for such year on the taxable income of the corporation exclusive of gains on sales of property with respect to which an election under section 6158 has been made, or (2) The tax under chapter I for such year on the taxable income of the corporation exclusive of gains and losses on all sales of the type of property (either bank property or prohibited property) with respect to which an election under section 6158 has been made. [T.D. 7570, 43 FR 52057, Nov. 8, 1978. Redesignated by T.D. 8435, 57 FR 43896, Sept. 23, 1992] § 301.9100-12T Various elections under the Tax Reform Act of 1976. (a) Elections covered by temporary rules. (1) FIRST CATEGORY Section Description of election Availability of election 167(o) of Code Substantially rehabilitated historic property Additions to capital account occurring after June 30, 1976, and before July 1, 1981. 172(b)(3)(E) of Code Forego of carryback period Any taxable year ending after December 31, 1975. 402(e)(4)(L) of Code Lump sum distributions from qualified plans Distributions and payments made after December 31, 1975, in taxable years beginning after such date. 812(b)(3) of Code Forego of carryback period by life insurance companies Any taxable year ending after December 31, 1975 819A of Code Contiguous country branches of domestic life insurance companies All taxable years beginning after December 31, 1975. 825(d)(2) of Code Forego of carryback period by mutual insurance companies Any taxable year ending after December 31, 1975. 911(e) of Code Foregoing of benefits of section 911 All taxable years beginning after December 31, 1975. (2) SECOND CATEGORY 185(d) of Code Amortization of railroad grading and tunnel bores All taxable years beginning after December 31, 1974. 1057 of Code Transfer to foreign trusts etc Any transfer of property after October 2, 1975. (b) Time for making election or serving notice Category (1). (2) Category (2). (c) Certain other elections. (1) The following elections under the Tax Reform Act of 1976 shall be made: (i) Section 207(c)(3) of Act; change from static value method of accounting; all taxable years beginning after December 31, 1976. by filing Form 3115 with the National Office of the Internal Revenue Service before October 5, 1977. (ii) Section 604 of Act; travel expenses of State legislators; all taxable years beginning before January 1, 1976. by filing an amended return for any taxable year for which the period for assessing or collecting a deficiency has not expired before October 4, 1976, by the last day for filing a claim for refund or credit for the taxable year but in no event shall such day be earlier than October 4, 1977. (iii) Section 804(e)(2) of Act; retroactive applications of amendments to property described in section 50(a) of Code; certain taxable years beginning before January 1, 1975. by filing amended returns before October 5, 1977, for all taxable years to which applicable for which the period of limitation for filing claim for credit or refund for overpayment of tax has not expired. (iv) Section 1608(d)(2) of Act; election as a result of determination as defined in section 859(c) of the Code; determinations made after October 4, 1976. by filing a statement with the district director for the district in which the taxpayer maintains its principal place of business within 60 days after such determination. (v) Section 2103 of Act; treatment of certain 1972 disaster losses. Any taxable year in which payment is received or indebtedness is foregiven. by filing a return for the taxable year or an amended return by the last day for making a claim for credit or refund for the taxable year but in no event shall such day be earlier than October 4, 1977. (2) [Reserved] (3) The election provided for in section 167(e)(3) of the Code shall be made in accordance with § 1.167(e)-1(d) except that the election shall be applicable for the first taxable year of the taxpayer beginning after December 31, 1975. (d) Manner of making election. (e) Effect of election Consent to revoke required. (2) Revocation without consent. (f) Furnishing of supplementary information required. (Sec. 191(b), Internal Revenue Code of 1954 (90 Stat. 1916, 26 U.S.C. 191(b)) [T.D. 7459, 42 FR 1469, Jan. 7, 1977] Editorial Note: For Federal Register www.govinfo.gov. § 301.9100-14T Individual's election to terminate taxable year when case commences. (a) Scope. (b) Availability of election. (c) Effect of election. (d) Time and manner. (e) Irrevocability of election. (f) Subsequent bankruptcy case of debtor's spouse. (g) Examples. Example. (1) Assume that husband and wife are calendar-year taxpayers, that a bankruptcy case involving only the husband commences on March 1, 1982, and that a bankruptcy case involving only the wife commences on October 10, 1982. (2) If the husband does not make an election, his taxable year would not be affected; i.e., (3) The wife could elect to terminate her taxable year on October 9. If she did, and if the husband had not made an election or if the wife had not joined in the husband's election, she would have two taxable years in 1982—the first from January 1 through October 9, and the second from October 10 through December 31. The tax return for her first short taxable year would be due on February 15, 1983. If the husband had not made an election to terminate his taxable year on February 28, the husband could join in an election by his wife, but only if they file a joint return for the taxable year January 1 through October 9. If the husband had made an election but the wife had not joined in the husband's election, the husband could not join in an election by the wife to terminate her taxable year on October 9, since they could not file a joint return for such year. (4) If the wife makes the election relating to her own bankruptcy case, and had joined the husband in making an election relating to his case, she would have two additional taxable years with respect to her 1982 income and deductions—the second short taxable year would be March 1 through October 9, and the third short taxable year would be October 10 through December 31. The husband could join in the wife's election if they file a joint return for the second short taxable year. If the husband joins in the wife's election, they could file joint returns for the short taxable year ending December 31, but would not be required to do so. [T.D. 7775, 46 FR 25292, May 6, 1981; 46 FR 30495, June 9, 1981. Redesignated by T.D. 8435, 57 FR 43896, Sept. 23, 1992] § 301.9100-15T Election to use retroactive effective date. (a) Scope. (b) Availability of election. (c) Effect of election In general. (2) Amendments affected. (i) 111, relating to recovery of bad debts, prior taxes, and delinquency amounts, (ii) 302, relating to the repeal of special treatment for certain railroad redemptions, (iii) 312, relating to the effect of debt discharge on earnings and profits, (iv) 337, relating to the application of the 12-month liquidation rule, (v) 351, relating to certain transfers to controlled corporations, (vi) 354 (other than the amendment made by section 6(i)(2) of the Bankruptcy Tax Act of 1980), 355, 357, 368, and 381, relating to corporate reorganizations, (vii) 382, relating to special limitations on net operating loss carryover, (viii) 542, relating to the personal holding company tax, and (ix) 703, relating to elections of partnerships. (3) Other amendments affected in part. (4) Substitution of effective dates. (d) Time and manner Time and place. (2) Statement. (i) The name, address, and taxpayer identification number of the debtor, (ii) A statement that the debtor is making the election under section 7(f) of the Bankruptcy Tax Act of 1980, and (iii) Information (including the date of commencement) sufficient to identify the bankruptcy case or similar proceeding. (3) Evidence of court approval. (e) Revocability. [T.D. 7775, 46 FR 25292, May 6, 1981. Redesignated by T.D. 8435, 57 FR 43896, Sept. 23, 1992] § 301.9100-16T Election to accrue vacation pay. (a) In general. (b) Time for making election. (2) In the case of a trade or business of a taxpayer to which paragraph (b)(1) does not apply, the election provided for in this section may be made for any taxable year beginning after December 31, 1973, by making the election not later than (i) July 21, 1975, or (ii) the due date for filing the income tax return (determined with regard to any extensions of time granted the taxpayer for filing such return) for the first taxable year for which the election is made. (3) A taxpayer who elects under section 463 to treat vacation pay as provided in this section and who wishes to revoke such election may only do so with the consent of the Commissioner. Such revocation shall constitute a change in the method of accounting. (c) Manner of making election. (i) The taxpayer's name and a description of each vacation pay plan to which the election is to apply. (ii) A schedule with appropriate explanations showing— (A) In the case of a vacation pay account established or maintained pursuant to I.T. 3956 and section 97 of the Technical Amendments Act of 1958, as amended, ( 1 ( 2 (B) In the case of other vacation pay accounts, the amount of the closing balances the taxpayer would have had for the taxpayer's 3 taxable years immediately preceding the taxable year for which the election was made, had the taxpayer maintained an account representing the taxpayer's liability for vacation pay earned by the employees before the close of the taxable year and payable during the taxable year or within 12 months following the close of the taxable year throughout the 3 immediately preceding taxable years. (iii) The amounts accrued and deducted for prior years for vacation pay but not paid at the close of the taxable year preceding the year for which the election is made. (2) Where a taxpayer has filed its return for a taxable year beginning after December 31, 1973 prior to July 21, 1975, and has not made the election pursuant to this section, the election may be made by filing an amended return (showing adjustments, in any) for such year and attaching the statement required by paragraph (c)(1) of this section on or before July 21, 1975. (d) The time for making the election may be illustrated by the following examples: Example (1). X, whose taxable year begins on February 1, files, its return based on the accrual method of accounting. X has continuously accrued and deducted for income tax purposes contingent amounts of vacation pay, pursuant to I.T. 3956. Pursuant to section 463 and these regulations, in order for X to continue accruing and deducting its vacation pay amounts, X must elect to account for vacation pay under section 463 by attaching the election to its timely filed return for its taxable year ending on January 31, 1975, or if X has already filed such return by July 21, 1975, without such election, by filing the election statement with an amended return by July 21, 1975. If X does not make the election under section 463, X will be treated as having initiated a change in its method of accounting for vacation pay in its taxable year ending on January 31, 1973. Example (2). Y, a calendar year taxpayer files its returns based on the accrual method of accounting. Y deducted its vacation pay amounts only when paid since such amounts were contingent when earned and Y was not entitled to the benefits of I.T. 3956, Y may elect for its taxable year ending on December 31, 1974, to deduct certain amounts with respect to contingent vacation pay which were not otherwise deductible, by filing an election pursuant to these regulations with its timely filed income tax return for such year or if such return was already filed by [insert date 90 days after publication of this document as a Treasury decision], without such election, by filing the election with an amended return filed by July 21, 1975. If Y does not make the election for its taxable year ending on December 31, 1974, Y may make the election with respect to any subsequent taxable year by filing an election with its return for such year. [T.D. 7353, 40 FR 17554, Apr. 21, 1975; 40 FR 25590, June 17, 1975. Redesignated by T.D. 8435, 57 FR 43896, Sept. 23, 1992] § 301.9100-17T Procedure applicable to certain elections. (a) Elections covered by temporary rules. Section Description of election Availability of election (1) First category: 231(d)(2) of Act Moving expenses Expenses paid or incurred before July 1, 1970, if employee was notified of move by employer on or before Dec. 19, 1969. 503(c)(2) of Act Carved-out mineral production payments All mineral production payments carved out of mineral properties after beginning of last taxable year ending before Aug. 7, 1969. 516(d)(3) of Act Contingent payments by transferee of franchise, trademark, or trade name Payments made in taxable years ending after Dec. 31, 1969, and beginning before Jan. 1, 1980, on transfers made before Jan. 1, 1970. 642(c)(1) of Code Charitable contributions of estates or trusts paid in following year Amounts paid in any taxable year beginning after Dec. 31, 1969. 1251(b)(4) of Code No additions to excess deductions account of taxpayers electing to compute taxable income from farming in certain manner Any taxable year beginning after Dec. 31, 1969. (2) Second category: 184(b) of Code Amortization of qualified railroad rolling stock Any taxable year beginning after Dec. 31, 1969, in which rolling stock was placed in service (or succeeding taxable year). (3) Third category: 504(d)(2) of Act Notification not to have sec. 615(e) election treated as a sec. 617(a) election Exploration expenditures paid or incurred after Dec. 31, 1969. (b) Manner of making election or serving notice In general. a b (ii) The election shall be made by a statement attached to the return (or an amended return) for the taxable year, indicating the section under which the election is being made and setting forth information to identify the election, the period for which it applies, and the facility, property, or amounts to which it applies. (2) Additional time for certain elections. (3) Notification as to section 615(e) election. (ii) The notification referred to in paragraph (a)(3) of this section, in respect of an election under section 615(e) which is made on or after the date on which the regulations in this section are filed with the Office of the Federal Register, shall be made in the statement of election required by paragraph (a)(2) of § 15.1-1 of this chapter (Temporary Income Tax Regulations Relating to Exploration Expenditures in the Case of Mining). (iii) The serving of notice pursuant to this subparagraph shall not preclude the subsequent making of an election under section 617(a). A failure to serve notice pursuant to this subparagraph shall be treated as an election under section 617(a) and paragraph (a)(1) of § 15.1-1 of this chapter with respect to exploration expenditures paid or incurred after December 31, 1969, whether or not the taxpayer subsequently revokes his election under section 615(e) with respect to exploration expenditures paid or incurred before January 1, 1970. (iv) For rules relating to the revocation of an election under section 615(e), including such an election which is treated pursuant to this subparagraph as an election under section 617(a), see paragraph (a) of § 15.1-2 of this chapter (T.D. 6907, C.B. 1967-1, 531, 535). (c) Effect of election Revocations Consent to revoke required. (ii) Revocation without consent. (iii) Election treated as tentative. (iv) Place for filing revocations. (2) Termination without consent. (d) Furnishing of supplementary information required. (e) Other elections. Section Description 167(k)(1) Expenditures to rehabilitate low-income rental housing. 167(l)(4) Post-1969 property of certain utilities representing growth in capacity. 170(b)(1)(D)(iii) Special limitation with respect to contributions of certain capital gain property. 453(c) Revocation of election to report income on installment basis. 507(b)(1)(B)(ii) Notice of termination of private foundation status. 1564(a)(2) Allowance of certain amounts to component member of controlled group of corporations. 4942(h)(2) Deficient distributions of private foundations for prior taxable years. 4943(c)(4)(E) Determination of holdings of a private foundation in a business enterprise where substantial contributors hold more than 15 percent of voting stock. (f) Cross reference. (83 Stat. 487, 85 Stat. 522, 523; 26 U.S.C. 1 nt., 57(c)(4), 163(d)(7)) [T.D. 7032, 35 FR 4330, Mar. 11, 1970] Editorial Note: For Federal Register www.govinfo.gov. § 301.9100-18T Election to include in gross income in year of transfer. (a) In general. (b) Manner of making election. (c) Additional copies. (d) Content of statement. (1) The name, address, taxpayer identification number and the taxable year (For example, “Calendar year 1969” or “Fiscal year ending May 31, 1970”) of the person who performed the services; (2) A description of each property with respect to which the election is being made; (3) The date or dates on which the property is transferred; (4) The nature of the restriction or restrictions to which the property is subject; (5) The fair market value at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) of each property with respect to which the election is being made; and (6) The amount (if any) paid for such property. (e) Time for making election. Federal Register (f) Revocability of election. [T.D. 7021, 35 FR 626, Jan. 17, 1970; 35 FR 889, Jan. 22, 1970. Redesignated by T.D. 8435, 57 FR 43895, Sept. 23, 1992] § 301.9100-19T Election relating to passive investment income of electing small business corporations. (a) In general. (1) Such taxable year is the first taxable year in which the corporation commenced the active conduct of any trade or business or the next succeeding taxable year; and (2) The amount of passive investment income for such taxable year is less than $3,000. Section 3(b) of the Act of April 14, 1966, provides that the amendment made by section 3(a) thereof shall also apply to taxable years of a corporation beginning after December 31, 1962, and ending before April 15, 1966, if the corporation elects to have the amendment apply to such years, and all persons (or their personal representatives) who were shareholders of such corporation at any time during any of such years consent to such election and the application of the amendment. This section prescribes the time for, and manner of, making such election and consents, and also extends the time within which certain new shareholders may consent to an election under section 1372(a) of the Code. (b) Application of amendment to taxable years beginning after December 31, 1962, and ending before April 15, 1966 In general. (i) Such taxable year is the first taxable year in which the corporation commenced the active conduct of any trade or business, or the next succeeding taxable year; (ii) The amount of passive investment income for such taxable year is less than $3,000; (iii) The corporation makes an election, within such time and in such manner as provided in subparagraph (2) of this paragraph; and (iv) All persons (or their personal representatives) who were shareholders of the corporation at any time during any taxable year of the corporation beginning after December 31, 1962, and ending before April 15, 1966, consent to such election, within such time and in such manner as provided in subparagraph (3) of this paragraph. If an election by a corporation under section 1372(a) of the Code is not treated as terminated for a taxable year of the corporation as a result of an election and consents under this paragraph, such election under section 1372(a) of the Code shall be treated as being in effect with respect to all subsequent taxable years of the corporation unless it is otherwise terminated or revoked for any such subsequent year pursuant to section 1372(e) of the Code. (2) Election by corporation. (3) Consents by shareholders. (4) Election and consents are binding. (c) New shareholders. (1) The corporation's election under section 1372(a) of the Code would have terminated for a taxable year under section 1372(e)(5) of the Code in the event it had not made an election under paragraph (b) of this section, and (2) A proper consent under section 1372(e)(1) of the Code is filed by such new shareholder with the corporation's election under paragraph (b) of this section. [T.D. 6912, 32 FR 3343, Feb. 28, 1967. Redesignated by T.D. 8435, 57 FR 43896, Sept. 23, 1992] § 301.9100-20T Election to treat certain distributions as made on the last day of the taxable year. (a) In general. (1) The corporation makes a distribution of money to its shareholders on or before the 15th day of the third month following the close of a taxable year with respect to which it was an electing small business corporation within the meaning of section 1371(b); (2) Such distribution is made pursuant to a resolution of the corporation's board of directors, adopted before the close of such taxable year, to distribute to its shareholders all or a part of the proceeds of one or more sales of capital assets, or of property described in section 1231(b), made during such taxable year; and (3) Each shareholder on the day such distribution is received— (i) Owns the same proportion of the stock of the corporation on such day as he owned on the last day of such taxable year, and (ii) Consents to such election. Section 1375(e) applies only with respect to taxable years of corporations beginning after December 31, 1957. (b) Time and manner for making election Taxable years ending after February 26, 1964. (i) A statement that the corporation elects the application of section 1375(e) and the date and amount of each distribution to which the election applies; (ii) A copy of the resolution of the board of directors referred to in paragraph (a)(2) of this section; and (iii) A statement of the consent of each shareholder of the corporation containing the information required by, and filed in the manner provided in, paragraph (c) of this section. (2) Taxable years beginning after December 31, 1957, and ending on or before February 26, 1964. (3) Election is binding. (c) Shareholders' consent. [T.D. 6719, 29 FR 4771, Apr. 3, 1964. Redesignated by T.D. 8435, 57 FR 43896, Sept. 23, 1992] § 301.9100-21 References to other temporary elections under various tax acts. Regulations regarding elections under various other tax acts are found at the following sections in title 26 of the Code of Federal Regulations: Section of 26 CFR Description of election 5c.168(f)(8)-2 Election to characterize transaction as a section 168(f)(8) lease, under the Economic Recovery Tax Act of 1981. 5c.1256-1 Election with respect to property held on June 23, 1981, under section 508(c) of the Economic Recovery Tax Act of 1981. 5c.1256-2 Election with respect to taxable years beginning before June 23, 1981, and ending after June 22, 1981, under section 509 of the Economic Recovery Tax Act of 1981. 7.48-1 Election to have investment credit for movie and television films determined in accordance with previous litigation, under the Tax Reform Act of 1976. 7.48-2 Election of forty-percent method of determining investment credit for movie and television films placed in service in a taxable year beginning before January 1, 1975, under the Tax Reform Act of 1976. 7.48-3 Election to apply the amendments made by sections 804 (a) and (b) of the Tax Reform Act of 1976 to property described in section 50(a) of the Code. 7.57(d)-1 Election with respect to straight line recovery of intangibles, under the Tax Reform Act of 1976. 11.402(a)(4)(B)-1 Election to treat an amount as a lump sum distribution, under the Employee Retirement Income Security Act of 1974. 11.410-1 Election by church to have participation, vesting, funding, etc., provisions apply, under the Employee Retirement Income Security Act of 1974. 11.412(c)-7 Election to treat certain retroactive plan amendments as made on the first day of the plan year, under the Employee Retirement Income Security Act of 1974. 11.412(c)-11 Election with respect to bonds, under the Employee Retirement Income Security Act of 1974. 11.415(c)(4)-1 Special elections for section 403(b) annuity contracts purchased by educational institutions, hospitals and home health service agencies, under the Employee Retirement Income Security Act of 1974. 12.4 Election of Class Life Asset Depreciation Range System (ADR), under the Revenue Act of 1971. 12.7 Election to be treated as a DISC, under the Revenue Act of 1971. 12.8 Elections with respect to net leases of real property, under the Revenue Act of 1971. 12.9 Election to postpone determination with respect to the presumption described in section 183(d), under the Revenue Act of 1971. 15.1-1 Elections to deduct, relating to exploration expenditures in the case of mining. 15.1-2 Revocation of election to deduct, relating to exploration expenditures in the case of mining. 15.1-3 Elections as to methods of recapture, relating to exploration expenditures in the case of mining. 18.1361-1 Election to treat qualified subchapter S trust as a trust described in section 1361(c)(2)(A)(i), under the Subchapter S Revision Act of 1982. 18.1362-1 Election to be an S corporation, under the Subchapter S Revision Act of 1982. 18.1362-3 Revocation of election, under the Subchapter S Revision Act of 1982. 18.1362-5 Election not to have new passive income rules apply during 1982, under the Subchapter S Revision Act of 1982. 18.1371-1 Election to treat distributions as dividends during certain post-termination transition periods, under the Subchapter S Revision Act of 1982. 18.1377-1 Election to terminate year, under the Subchapter S Revision Act of 1982. 18.1379-2 Special rules for all elections, consents, and refusals, under the Subchapter S Revision Act of 1982. 22.0 Certain estate taxes elections under the Economic Recovery Tax Act of 1981. 23.1 Election and eligibility to treat interests in property held jointly on December 31, 1976, as qualified joint interests, under the Revenue Act of 1978. [T.D. 8435, 57 FR 43894, Sept. 23, 1992] § 301.9100-22 Time, form, and manner of making the election under section 1101(g)(4) of the Bipartisan Budget Act of 2015 for returns filed for partnership taxable years beginning after November 2, 2015 and before January 1, 2018. (a) Election. (b) Election on notification by the IRS Time for making the election. (2) Form and manner of making the election In general. (ii) Statement requirements. (A) The partnership's name, taxpayer identification number, and the partnership taxable year for which the election described in this paragraph (b) is being made; (B) The name, taxpayer identification number, address, and daytime telephone number of the individual who signs the statement; (C) Language indicating that the partnership is electing application of section 1101(c) of the BBA for the partnership return for the eligible taxable year identified in the notice of selection for examination; (D) The information required to properly designate the partnership representative as defined by section 6223 as amended by the BBA, which must include the name, taxpayer identification number, address, and daytime telephone number of the partnership representative and any additional information required by applicable regulations, forms and instructions, and other guidance issued by the IRS; (E) The following representations— ( 1 ( 2 ( 3 ( 4 (F) A representation, signed under penalties of perjury, that the individual signing the statement is duly authorized to make the election described in this paragraph (b) and that, to the best of the individual's knowledge and belief, all of the information contained in the statement is true, correct, and complete. (iii) Notice of Administrative Proceeding. (c) Election for the purpose of filing an administrative adjustment request (AAR) under section 6227 as amended by the BBA In general. (2) Time for making the election. (3) Form and manner of making an election. (4) Effect of filing an AAR before January 1, 2018. (d) Eligible taxable year In general. eligible taxable year (2) Exception if AAR or amended return filed or deemed filed. (i) The tax matters partner has filed an AAR under section 6227(c) (prior to amendment by the BBA), (ii) The partnership is deemed to have filed an AAR under section 6227(c) (prior to the amendment by the BBA) in accordance with paragraph (c)(4) of this section, or (iii) An amended return of partnership income has been filed or has been deemed to be filed under paragraph (c)(4) of this section. (e) Applicability date. [T.D. 9839, 83 FR 39350, Aug. 9, 2018]

26 CFR Part 301 — Procedure and Administration

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