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Bulletin No. 1999–7

February 16, 1999

Internal Revenue

bulletin

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 99–9, page 14.

LIFO; price indexes; department stores. The December

1998 Bureau of Labor Statistics price indexes are accepted

for use by department stores employing the retail inventory

and last-in, first-out inventory methods for valuing inventories

for tax years ended on, or with reference to, December 31,

1998.

T.D. 8792, page 36.

Final regulations under section 7702B of the Code relate to

consumer protection with respect to qualified long-term care

insurance contracts and relate to events that will result in

the loss of grandfathered status for long-term care insurance contracts issued prior to January 1, 1997.

T.D. 8793, page 15.

REG–111435–98, page 55.

Temporary and proposed regulations under sections 6103

and 6311 of the Code authorize the Secretary of the Treasury to accept payment of internal revenue taxes by credit

card or debit card.

T.D. 8809, page 27.

REG–117620–98, page 59.

Temporary and proposed regulations under section 6330 of

the Code relate to the provision of notice to taxpayers of a

right to a hearing before levy. A public hearing will be held on

June 15, 1999.

T.D. 8810, page 19.

REG–116824–98, page 57.

Temporary and proposed regulations under section 6320 of

the Code relate to the provision of notice to taxpayers of the

filing of a notice of federal tax lien (NFTL).

411 and 417 of the Code relate to the increase from

$3,500 to $5,000 of the limit on distributions from qualified

retirement plans that can be made without participant consent.

T.D. 8795, page 8.

Final regulations under section 411 of the Code provide

guidance on the requirements of section 204(h) of the Employee Retirement Income Security Act of 1974, as

amended (ERISA), relating to defined benefit plans and to individual account plans that are subject to the funding standards of section 302 of ERISA.

ADMINISTRATIVE

Rev. Proc. 99–15, page 42.

Insurance companies; loss reserves; discounting unpaid losses. The loss payment patterns and discount factors are set forth for the 1998 accident year. These factors

will be used for computing discounted unpaid losses under

section 846 of the Code.

Rev. Proc. 99–16, page 50.

Insurance companies; discounting estimated salvage

recoverable. The salvage discount factors are set forth for

the 1998 accident year. These factors will be used for computing estimated salvage recoverable under section 832 of

the Code.

Rev. Proc. 99–17, page 52.

Commodities dealers; securities or commodities

traders: procedures for making elections. This procedure prescribes the time and manner for dealers in commodities and traders in securities or commodities to elect to

use the mark-to-market method of accounting under section

475 of the Code.

Announcement 99–14, page 60.

EMPLOYEE PLANS

T.D. 8794, page 4.

REG–113694–98, page 56.

Final, temporary, and proposed regulations under sections

Finding Lists begin on page 62.

Department of the Treasury

Internal Revenue Service

Final regulation T.D. 8611, 1995–2 C.B. 286, relating to

conduit financing arrangements under section 7701 of the

Code, is corrected.

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Mission of the Service

and by applying the tax law with integrity and fairness to

all.

Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities

Statement of Principles

of Internal Revenue

Tax Administration

The Service also has the responsibility of applying and

administering the law in a reasonable, practical manner.

Issues should only be raised by examining officers when

they have merit, never arbitrarily or for trading purposes.

At the same time, the examining officer should never hesitate to raise a meritorious issue. It is also important that

care be exercised not to raise an issue or to ask a court to

adopt a position inconsistent with an established Service

position.

The function of the Internal Revenue Service is to administer the Internal Revenue Code. Tax policy for raising revenue

is determined by Congress.

With this in mind, it is the duty of the Service to carry out that

policy by correctly applying the laws enacted by Congress;

to determine the reasonable meaning of various Code provisions in light of the Congressional purpose in enacting them;

and to perform this work in a fair and impartial manner, with

neither a government nor a taxpayer point of view.

Administration should be both reasonable and vigorous. It

should be conducted with as little delay as possible and

with great courtesy and considerateness. It should never

try to overreach, and should be reasonable within the

bounds of law and sound administration. It should, however, be vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax devices and

fraud.

At the heart of administration is interpretation of the Code. It

is the responsibility of each person in the Service, charged

with the duty of interpreting the law, to try to find the true

meaning of the statutory provision and not to adopt a

strained construction in the belief that he or she is “protecting the revenue.” The revenue is properly protected only

when we ascertain and apply the true meaning of the statute.

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Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly and may be obtained

from the Superintendent of Documents on a subscription

basis. Bulletin contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold

on a single-copy basis.

dures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances

are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements

of internal practices and procedures that affect the rights

and duties of taxpayers are published.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions, and Subpart B, Legislation and Related

Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings

are issued by the Department of the Treasury’s Office of the

Assistant Secretary (Enforcement).

Revenue rulings represent the conclusions of the Service on

the application of the law to the pivotal facts stated in the

revenue ruling. In those based on positions taken in rulings

to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature

are deleted to prevent unwarranted invasions of privacy and

to comply with statutory requirements.

Part IV.—Items of General Interest.

With the exception of the Notice of Proposed Rulemaking

and the disbarment and suspension list included in this part,

none of these announcements are consolidated in the Cumulative Bulletins.

Rulings and procedures reported in the Bulletin do not have

the force and effect of Treasury Department Regulations,

but they may be used as precedents. Unpublished rulings

will not be relied on, used, or cited as precedents by Service

personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and proce-

The first Bulletin for each month includes a cumulative index

for the matters published during the preceding months.

These monthly indexes are cumulated on a quarterly and

semiannual basis, and are published in the first Bulletin of the

succeeding quarterly and semiannual period, respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

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Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 411.—Minimum Vesting

Standards

FOR FURTHER INFORMATION CONTACT: Michael J. Karlan, (202) 622-6030

(not a toll-free number).

26 CFR 1.411(a)–7T: Definitions and special rules

(temporary).

SUPPLEMENTARY INFORMATION:

T.D. 8794

Background

DEPARTMENT OF THE TREASURY

Interval Revenue Service

26 CFR Parts and 31

This document contains amendments to

the Income Tax Regulations and the Employment Tax Regulations (26 CFR parts

1 and 31) under sections 411(a)(7),

411(a)(11), and 417(e)(1) regarding restrictions on involuntary distributions and

joint and survivor annuity requirements

for qualified plans. The final and temporary regulations change the existing regulations to take into account amendments

made by the Taxpayer Relief Act of 1997

(TRA ’97), Public Law 105–34, 111 Stat.

788 (1997).

Increase In Cash-Out Limit

Under Sections (411(a)(7),

411(a)(11), and 417(e)(1) for

Qualified Retirement Plans

AGENCY: Internal Revenue Service

(IRS) Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains

final and temporary regulations providing

guidance relating to the increase from

$3,500 to $5,000 of the limit on distributions from qualified retirement plans that

can be made without participant consent.

This increase is contained in the Taxpayer

Relief Act of 1997. In addition, these regulations eliminate, for most distributions,

the “lookback rule” pursuant to which the

qualified plan benefits of certain participants are deemed to exceed this limit on

mandatory distributions. The final and

temporary regulations affect sponsors and

administrators of qualified retirement

plans, and participants in those plans. The

final regulations also amend the existing

final regulations to cross-reference the

temporary regulations. The text of the

temporary regulations also serves, in part,

as the text of the proposed regulations set

forth in REG–113694–98, page 56 in this

Bulletin.

DATES: Effective Date: These regulations are effective December 31, 1998.

Applicability Date: These final and

temporary regulations generally apply to

distributions made on or after March 22,

1999. However, employers are permitted

to apply the final regulations and the temporary regulations other than §1.411(a)–

11T(c)(i) to plan years beginning on or

after August 6, 1997.

February 16, 1999

Explanation of Provisions

A. Restrictions on Mandatory

Distributions

Prior to the enactment of TRA ’97, section 411(a)(11)(A) provided that if the present value of any nonforfeitable accrued

benefit exceeded $3,500, a plan met the

requirements of section 411(a)(11) only if

such plan provided that such benefit could

not be immediately distributed without the

consent of the participant. TRA ’97

changed this cash-out limit to $5,000, effective for plan years beginning after August 5, 1997. For this purpose, both before and after the enactment of TRA ’97,

the present value of a participant’s nonforfeitable benefit is calculated in accordance

with section 417(e)(3).

Interpreting the law prior to the

enactment of TRA ’97, §1.411(a)–11(c)(3)

provides that the written consent of a participant is required before the commencement of the distribution of any portion of

the participant’s accrued benefit if the present value of the nonforfeitable total accrued benefit is greater than $3,500. If the

present value does not exceed $3,500, the

consent requirements are deemed satisfied,

and the plan may distribute such portion to

the participant as a single sum. The regulation further provides that, if the present

value determined at the time of a distribution to the participant exceeds $3,500, then

the present value at any subsequent time is

4

deemed to exceed $3,500; this is commonly referred to as the “lookback rule.”

Consistent with the TRA ’97 change,

these regulations increase the cash-out

limit to $5,000. In determining whether a

participant’s nonforfeitable accrued benefit may be distributed without consent

during plan years beginning on or after

August 6, 1997, the new cash-out limit of

$5,000 is permitted to be applied as

though it were in effect for all plan years,

including those beginning before August

6, 1997. Thus, for example, a calendar

year plan may be amended to provide for

the involuntary distribution after December 31, 1997, of the accrued benefit of a

participant who terminated employment

on or before that date, if the present value

of the accrued benefit does not exceed

$5,000 at the time of the distribution (subject to the exception described below for

optional forms of benefit under which at

least one scheduled periodic distribution

is still payable). This result is the same

even if the accrued benefit could only

have been distributed with the participant’s or the spouse’s consent at termination of employment because the present

value of the benefit exceeded $3,500 at

that time.

In addition, these temporary regulations eliminate, for many distributions,

the lookback rule under §1.411(a)–11(c)(3). Under these regulations, a plan may

provide that the present value of a participant’s nonforfeitable accrued benefit generally may be distributed without consent

if that present value does not exceed the

cash-out limit as determined at the time of

the current distribution without regard to

the present value of the participant’s benefit at the time of an earlier distribution.

However, under these temporary regulations, if a participation has begun to receive distributions pursuant to an optional

form of benefit under which at least one

scheduled periodic distribution is still

payable, and if the present value of the

participant’s nonforfeitable accrued benefit exceeded the $5,000 cash-out limit at

the time of the first distribution under that

optional form of benefit, then the present

value of the participant’s nonforfeitable

accrued benefit may not be distributed

without consent.

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B. Immediate Distribution of the Present

Value of a QJSA or QPSA

Prior to the enactment of TRA ’97, section 417(e)(1) provided that a plan subject

to sections 401(a)(11) and 417 could provide that the present value of a qualified

joint and survivor annuity (“QJSA”) or a

qualified preretirement survivor annuity

(“QPSA”) would be immediately distributed if such value did not exceed $3,500.

Pursuant to section 417(e)(1), no distribution could be made under the preceding

sentence after the annuity starting date

unless the participant and the spouse of

the participant (or where the participant

had died, the surviving spouse) consented

in writing to such distribution. TRA ’97

changed this dollar limit from $3,500 to

the dollar limit under section

411(a)(11)(A), effective for plan years beginning after August 5, 1997. These regulations change only the dollar limit in

§1.417(e)–1(b)(2)(i) from $3,500 to the

dollar limit under section 411(a)(11)(A),

and do not revise the lookback rule set

forth in that section for plans subject to

sections 401(a)(11) and 417.

C. Proposed Regulations

The proposed regulations set forth in the

notice of proposed rulemaking on this subject in the Proposed Rules section of the

Federal Register completely repeal the

lookback rule under §§1.411(a)– 11(c)(3)

and 1.417(e)–1(b)(2)(i), i.e., both for plans

that are and plans that are not subject to

sections 401(a)(11) and 417. In accordance

with section 417(e)(1), the proposed regulations provide that, in the case of plans

subject to sections 401(a)(11) and 417,

consent is required after the annuity starting date for the immediate distribution of

the present value of the accrued benefit

being distributed in any form, including a

qualified joint and survivor annuity or a

qualified preretirement survivor annuity,

regardless of the amount of that present

value. Where only a portion of an accrued

benefit is being distributed, this provision

applies only to that portion (and not to the

portion with respect to which no distributions are being made).

D. Disregard of Certain Past Service

Section 411(a)(7)(B)(i) provides that,

for purposes of determining the employee’s accrued benefit under the plan,

the plan may disregard service performed

1999–7 I.R.B.

by the employee with respect to which he

has received a distribution of the present

value of his entire nonforfeitable benefit

if such distribution was in an amount not

more than $3,500 (prior to the amendment of the cash-out limit under TRA

’97), as permitted under regulations prescribed by the Secretary. Section

411(a)(7)(B)(i) applies only if the distribution was made on termination of the employee’s participation in the plan, and

§1.411(a)–7(d)(4)(i)(C) provides that

such involuntary distributions must have

been made due to the termination of the

employee’s participation in the plan. TRA

’97 changed this $3,500 limit to the dollar

limit under section 411(a)(11)(A), effective for plan years beginning after August

5, 1997. These temporary regulations provide that, for purposes of applying section

411(a)(7)(B)(i), an involuntary distribution of an employee’s nonforfeitable accrued benefit the present value of which

does not exceed $5,000 may be treated as

having occurred due to termination of

participation if the distribution could have

been made due to termination of participation but for the fact that the present

value exceeded $3,500 at that time.

E. Conforming Amendments

Several other provisions of the Treasury Regulations incorporate the cash-out

limit, and these regulations make conforming amendments to those provisions

in order to incorporate the new cash-out

limit under section 411(a)(11). Specifically, conforming amendments are made

to the following sections: §§1.401(a)–20

Q&A-8(d); 1.401(a)–20 Q&A-24;

1.401(a)(4)–4(b)(2)(ii)(C); 1.401(a)(26)–

4(d)(2); 1.401(a)(26)–6(c)(4); 1.411(a)–

11(b); 1.411(a)–11(c)(7); 1.411(d)–4

Q&A-2(b)(2)(v); 1.411(d)–4 Q&A-4(a);

1.417(e)–1(b)(2)(i); and 31.3121(b)(7)–

2(d)(2)(i).

F. Valuation Rules

Section 417(e)(3) prescribes rules and

definitions for determining the present

value of an accrued benefit under a defined benefit plan for purposes of sections

417 and 411(a)(11)(A). (In the case of a

defined contribution plan, the present

value of the accrued benefit is the value of

the account balance.) The present value of

a participant’s accrued benefit for purposes of the cash-out limit is determined

5

in accordance with section 417(e)(3)

using the interest rate and mortality tables

in effect under the plan for the annuity

starting date. Thus, for example, if the

present value of the participant’s accrued

benefit using the rate described in section

417(e)(3)(B) (often referred to as the

“PBGC rate”) exceeds $5,000, and the

plan is subsequently amended to reflect

the interest rate described in section

417(e)(3)(A)(ii), the plan may provide

that the present value of the accrued benefit may be distributed without the participant’s or spouse’s consent if the value of

the accrued benefit does not exceed

$5,000, as determined under the plan provisions then in effect.

G. Benefits Protected from Reduction or

Elimination

Section 411(d)(6) provides, in general,

that a plan shall be treated as not satisfying the requirements of section 401(a) if

the accrued benefit of a participant is decreased, or an optional form of benefit is

eliminated, by an amendment of the plan.

Section 1.411(d)–4, paragraph (b)(2)(v)

of Q&A-2 provides that a plan may be

amended to provide for the involuntary

distribution of an employee’s benefit to

the extent such distribution is permitted

under sections 411(a)(11) and 417(e). In

accordance with that provision, a plan

may be amended for plan years beginning

on or after August 6, 1997, to permit the

involuntary distribution of an accrued

benefit using a cash-out limit of $5,000,

with respect to benefits accrued before the

amendment was adopted and effective.

Such an amendment is permitted even if

the plan, prior to amendment, did not permit involuntary distributions (as well as if

the plan permitted involuntary distributions if the present value of the participant’s benefit did not exceed the prior

cash-out limit of $3,500). Such an amendment will not violate the anti-cutback

rules of section 411(d)(6).

H. Remedial Amendment Period

Rev. Proc. 98–14 (1998–4 I.R.B. 22) at

section 4, provides the remedial amendment period for certain plan amendments

made pursuant to TRA ’97. A plan may be

amended retroactively to implement the

increase in the cash-out limit to $5,000 in

accordance with section 4 of the revenue

procedure.

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Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866.

Therefore, a regulatory assessment is not

required. It also has been determined that

section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not

apply to these regulations, and because

the regulations does not impose a collection of information on small entities, the

Regulatory Flexibility Act (5 U.S.C.

chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue

Code, these regulations will be submitted

to the Chief Counsel for Advocacy of the

Small Business Administration for comment on their impact on small business.

Drafting Information

The principal author of these regulations is Michael J. Karlan, Office of the

Associate Chief Counsel (Employee Benefits and Exempt Organizations). However, other personnel from the IRS and

Treasury Department participated in their

development.

* * * * *

Adoption of Amendment to the

Regulations

Accordingly 26 CFR parts 1 and 31 are

amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by adding an entry for

§1.411(a)–7T and revising the entry for

§1.411(d)–4 to read as follows:

Authority: 26 U.S.C. 7805***

§1.411(a)–7T also issued under 26

U.S.C. 411(a)(7)(B)(i).

§1.411(d)–4 also issued under 26

U.S.C. 411(d)(6).***

Par. 2. Section 1.411(a)–7 is amended

by adding a sentence at the end of the

concluding text of paragraph (d)(4)(i) to

read as follows:

§1.411(a)–7 Definitions and special

rules.

* * * * *

(d) * * *

(4) Certain cash-outs of accrued benefits. (i) ***

February 16, 1999

* * * * *

*** (For distributions made on or after

March 22, 1999, see §1.411(a)–7T.)

* * * * *

Par. 3. Section 1.411(a)–7T is added to

read as follows:

§1.411(a)–7T Definitions and special

rules (temporary).

(a) through (d)(3) [Reserved]. For further guidance, see §1.411(a)–7(a) through

(d)(3).

(d)(4) Certain cash-outs of accrued

benefits—(1) Involuntary cash-outs. For

purposes of determining an employee’s

right to an accrued benefit derived from

employer contributions under a plan, the

plan may disregard service performed by

the employee with respect to which—

(A) The employee receives a distribution of the present value of his entire nonforfeitable benefit at the time of the distribution;

(B) The requirements of section

411(a)(11) are satisfied at the time of the

distribution;

(C) The distribution is made due to the

termination of the employee’s participation in the plan; and

(D) The plan has a repayment provision

which satisfies the requirements of

§1.411(a)–7(d)(4)(iv) in effect at the time

of the distribution.

(d)(4)(ii) through (v) [Reserved]. For

further guidance, see §1.411(a)–7(d)(4)(ii) through (v).

(vi) For purposes of paragraph (d)(4)(i)

of this section, a distribution shall be

deemed to be made due to the termination

of an employee’s participation in the plan

if it is made no later than the close of the

second plan year following the plan year

in which such termination occurs, or if

such distribution would have been made

under the plan by the close of such second

plan year but for the fact that the present

value of the nonforfeitable accrued benefit then exceeded the cash-out limit in effect under §1.411(a)–11T(c)(3)(ii). For

purposes of determining the entire nonforfeitable benefit, the plan may disregard

service after the distribution, as illustrated

in §1.411(a)–7(d)(2)(i).

(vii) Effective date. Paragraphs

(d)(4)(i) and (vi) of this section apply to

distributions made on or after March 22,

6

1999, through December 18, 2001. For

plan years beginning before March 22,

1999, see §1.411(a)–7(d)(4)(i). However,

an employer is permitted to apply paragraphs (d)(4)(i) and (vi) of this section to

plan years beginning on or after August 6,

1997.

(d)(5) and (60 [Reserved]. For further

guidance, see §1.411(a)–7(d)(5) and (6).

Par. 4. Section 1.411(a)–11 is amended

by adding a sentence at the end of paragraph (c)(3) to read as follows:

§1.411(a)–11 Restriction and valuation of

distributions.

* * * * *

(c) ***

(3) $3,500. *** (For distributions made

on or after March 22, 1999, see

§1.411(a)–11T.)

Par. 5. Section 1.411(a)–11T is added

to read as follows:

§1.411(a)–11T Restriction and valuation

of distributions (temporary).

(a) and (b) [Reserved]. For further

guidance, see §1.411(a)–11(a) and (b).

(c) Consent, etc. requirements—(1)

General rule. [Reserved]. For further

guidance, see §1.411(a)–11(c)(1).

(2) Consent. [Reserved]. For further

guidance, see §1.411(a)–11(c)(2).

(3) Cash-out limit. (i) Written consent

of the participant is required before the

commencement of the distribution of any

portion of an accrued benefit if the present value of the nonforfeitable total accrued benefit is greater than the cash-out

limit in effect under paragraph (c)(3)(ii)

of this section on the date the distribution

commences. The consent requirements

are deemed satisfied if such value does

not exceed the cash-out limit, and the plan

may distribute such portion to the participant as a single sum. Present value for

this purpose must be determined in the

same manner as under section 417(e); see

§1.417(e)–1(d). If a participant has begun

to receive distributions pursuant to an optional form of benefit under which at least

one scheduled periodic distribution ha

snot yet been made, and if the present

value of the participant’s nonforfeitable

accrued benefit, determined at the time of

the first distribution under that optional

form of benefit, exceeded the cash-out

limit currently in effect under paragraph

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(c)(3)(ii) of this section, then the present

value of the participant’s nonforfeitable

accrued benefit is deemed to continue to

exceed the cash-out limit. Thus, for example, if the present value of a participant’s

accrued benefit does not exceed the cashout limit on the date of a distribution after

termination of employment but did, at the

time of an earlier in-service hardship

withdrawal, exceed the cash-out limit in

effect on the date of the post-termination

distribution, the plan is permitted to distribute the present value of the participant’s accrued benefit on the date of the

post-termination distribution without he

participant’s consent. However, if a participant began to receive scheduled installment payments under a plan and, at

that time, the participant’s accrued benefit

exceeded the cash-out limit currently in

effect, the present value of the participant’s accrued benefit is deemed to continue to exceed the cash-out limit and may

not be distributed without the participant’s consent.

(ii) The cash-out limit in effect for a

date is the amount described in section

411(a)(11)(A) for the plan year that includes that date. The cash-out limit in effect for dates in plan years beginning on

or after August 6, 1997, is $5,000. The

cash-out limit in effect for dates in plan

years beginning before August 6, 1997, is

$3,500.

(iii) Effective date. Paragraphs (c)(3)(i)

and (ii) of this section apply to distribu-

tions made on or after March 22, 1999

through December 18, 2001. For plan

years beginning before March 22, 1999,

see §1.11(a)–11(c)(3). However, an employer is permitted to apply paragraph

(c)(3)(ii) of this section to plan years beginning on or after August 6, 1997.

(c)(4) through (e) [Reserved]. For further guidance, see §1.411(a)–11(c)(4)

through (e).

PARTS 1 AND 31—[AMENDED]

Par. 6. In the table below, for each section indicated in the left column, remove

the language in the middle column and

add the language in the right column:

Section

Remove

Add

1.401(a)–20, Q&A-8,

paragraph (d), first sentence

$3,500

the cash-out limit in effect

under §1.411(a)–11T(c)(3)(ii)

1.401(a)–20, Q&A-24,

paragraph (a)(1), fourth

sentence

$3,500

the cash-out limit in effect

under §1.411(a)–11T(c)(3)(ii)

1.401(a)(4)–4, paragraph

(b)(2)(ii)(C)

$3,500

the cash-out limit in effect

under §1.411(a)–11T(c)(3)(ii)

1.401(a)(26)–4, paragraph

(d)(2), last sentence

$3,500

the cash-out limit in effect

under §1.411(a)–11T(c)(3)(ii)

1.401(a)(26)–6, paragraph

(c)(4), first sentence

$3,500

the cash-out limit in effect

under §1.411(a)–11T(c)(3)(ii)

1.411(a)–11, paragraph (b),

first sentence

$3,500

the cash-out limit in effect

under §1.411(a)–11T(c)(3)(ii)

1.411(a)–11, paragraph

(c)(7), third sentence

$3,500

the cash-out limit in effect

under §1.411(a)–11T(c)(3)(ii)

1.411(d)–4, Q&A-2, paragraph

(b)(2)(v), second, third, and

fourth sentences

$3,500

the cash-out limit in effect

under §1.411(a)–11T(c)(3)(ii)

1.411(d)–4, Q&A-2, paragraph

(b)(2)(v), second sentence

$1,750

$3,500

1.411(d)–4, Q&A-4, paragraph

(a), eighth sentence

$3,500

the cash-out limit in effect

under §1.411(a)–11T(c)(3)(ii)

1999–7 I.R.B.

7

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Page 8

1.411(d)–4, Q&A-4, paragraph

(a), last sentence in the

parenthetical

§1.401(a)–4 Q&A-4

§1.401(a)(4)–4(b)(2)(ii)(C)

1.417(e)–1, paragraph

(b)(2)(i), first, fourth, and fifth

sentences

$3,500

the cash-out limit in effect

under §1.411(a)–11T(c)(3)(ii)

31.3121(b)(7)–2, paragraph

(d)(2)(i), last sentence

$3,500

the cash-out limit in effect

under §1.411(a)–11T(c)(3)(ii)

of this chapter

David A. Mader,

Acting Deputy Commissioner

of Internal Revenue.

Approved November 18, 1998.

Donald C. Lubick,

Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on December 18, 1998, 8:45 a.m., and published in the

issue of the Federal Register for December 21, 1998,

63 F.R. 70335)

26 CFR 1.411(d)–6: Section 204(h) notice.

T.D. 8795

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

Notice of Significant Reduction

in the Rate of Future Benefit

Accrual

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final regulations that provide guidance on

the requirements of section 204(h) of the

Employee Retirement Income Security

Act of 1974, as amended (ERISA), relating to defined benefit plans and to individual account plans that are subject to

the funding standards of section 302 of

ERISA. It requires the plan administrator

to give notice of plan amendments,

which provide for a significant reduction

February 16, 1999

in the rate of future benefit accrual, to

participants in the plan and certain other

parties.

DATES: Effective Date: December 14,

1998

Applicability Dates: For dates of applicability of these regulations, see Effective Dates under Supplementary Information.

FOR FURTHER INFORMATION CONTACT: Diane S. Bloom at(202)622-6214

or Christine L. Keller at (202)622-6090

(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained

in these final regulations has been reviewed and approved by the Office of

Management and Budget in accordance

with the Paperwork Reduction Act of

1995 (44 U.S.C. 3705(d)) under the control number 1545–1477. The collection of

information in these final regulations is in

§1.411(d)–6. Responses to this collection

of information are required in order to obtain a benefit. Specifically, this information is required for a taxpayer who wants

to amend a qualified plan to significantly

reduce the rate of future benefit accrual.

This information will be used to notify

participants, alternate payees and employee organizations of the amendment.

An agency may not conduct or sponsor,

and a person is not required to respond to,

a collection of information unless it displays a valid control number.

The estimated average burden per

recordkeeper varies from 1 hour to 40

8

hours, depending on individual circumstances, with an estimated average of 5

hours.

Estimated number of respondents:

3,000.

Estimated annual frequency of responses: Once.

Comments concerning the accuracy of

this burden estimate and suggestions for

reducing this burden should be sent to the

Internal Revenue Service, Attn: IRS

Clearance Officer, OP:FS:FP, Washington, DC 20224, and to the Office of Management and Budget, Attn: Desk Officer

for the Department of the Treasury, Office

of Information and Regulatory Affairs,

Washington, DC 20503.

Books or records relating to a collection of information must be retained as

long as their contents may become material in the administration of any internal

revenue law. Generally, tax returns and

tax return information are confidential, as

required by 26 U.S.C. 6103.

Background

On December 12, 1995, temporary regulations (T.D. 8631, 1996–1 C.B. 54),

under section 411 of the Internal Revenue

Code, 26 U.S.C. 411, were filed, providing guidance on section 204(h) of the Employee Retirement Income Security Act of

1974, as amended (ERISA), 29 U.S.C.

1054(h). The temporary regulations were

published in the Federal Register on December 15, 1995 (60 F.R. 64320). A notice of proposed rulemaking (EE–34–95,

1996–1 C.B. 761), cross-referencing the

temporary regulations, was published in

the Federal Register (60 F.R. 64401) on

the same day.

1999–7 I.R.B.

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Page 9

After consideration of the comments

received regarding the proposed regulations, the temporary regulations are replaced and the proposed regulations are

adopted as revised by this Treasury decision.

Section 204(h) was added to ERISA by

section 11006(a) of the Single-Employer

Pension Plan Amendments Act of 1986

(Title XI of Public Law 99-272), and was

amended by section 1879(u)(1) of the Tax

Reform Act of 1986, Public Law 99–514.

Pursuant to section 101(a) of the Reorganization Plan No. 4 of 1978, 29 U.S.C.

1001nt, the Secretary of the Treasury has

authority to issue regulations under parts

2 and 3 of subtitle B of title I of ERISA

(including section 204 of ERISA). Under

section 104 of Reorganization Plan No. 4,

the Secretary of Labor retains enforcement authority with respect to parts 2 and

3 of subtitle B of title I of ERISA, but, in

exercising such authority, is bound by the

regulations issued by the Secretary of the

Treasury.

In addition to the proposed and temporary regulations, prior guidance relating

to the requirements of section 204(h) has

been provided in Rev. Proc. 94–13 (1994–

1 C.B. 566), Notice 90–73 (1990–2 C.B.

353), Notice 89–92 (1989–2 C.B. 410),

Rev. Proc. 89–65 (1989–2 C.B. 786), Notice 88–131 (1988–2 C.B. 546), and Notice 87–21 (1987–1 C.B. 458).

Explanation of Provisions

Section 204(h) applies if a defined benefit plan or a money purchase pension or

other individual account plan that is subject to the funding standards of section

302 of ERISA is amended to provide for a

significant reduction in the rate of future

benefit accrual. It requires the plan administrator to give written notice of the

amendment to participants in the plan, to

alternate payees, and to employee organizations representing participants in the

plan (or to a person designated, in writing,

to receive the notice on behalf of a participant, alternate payee, or employee organization). The notice must set forth the

plan amendment and its effective date and

must be provided after adoption of the

amendment and not less than 15 days before the effective date of the amendment.

A plan amendment that is subject to the

notice requirements of section 204(h)

may also be subject to additional report-

1999–7 I.R.B.

ing and disclosure requirements under

title I of ERISA, such as the requirement

to provide a summary of material modifications. See sections 102(a) and 104(a)

of ERISA, 29 U.S.C. 1022 and 1024, and

the regulations thereunder for guidance

on when a summary of material modifications must be provided. Section 204(h)

notice must be provided at least 15 days

before the effective date of an amendment

significantly reducing the rate of future

benefit accrual, even though a summary

of material modifications describing the

amendment is provided at a later date.

Summary of Comments

Commentators generally supported the

basic rules in the proposed and temporary

regulations, and the final regulations are

substantially similar to the proposed and

temporary regulations. However, a number of clarifications have been made in response to comments.

For example, changes have been made

in the rules for cases in which there has

been a failure to notify all affected participants in accordance with section 204(h).

The proposed and temporary regulations

provided in Q&A-12 that if a plan administrator fails to notify more than a de minimis percentage of affected participants,

the plan administrator is considered to

have complied with section 204(h) only

with respect to those participants who

were provided with section 204(h) notice.

In response to comments, the final regulations have added a requirement that the

plan administrator have acted in good

faith in order for this relief to apply. Thus,

where there is an intentional failure to give

section 204(h) notice, the amendment will

not be effective as to any participant.

In addition, the final regulations provide that the basic rule in Q&A-13 of the

final regulations (that the amendment will

not be effective with respect to participants or alternate payees who did not receive section 204(h) notice) applies unless the number of participants who were

not provided with section 204(h) notice is

de minimis and certain other conditions

(described in Q&A-14 of the final regulations) are satisfied. Thus, the regulations

clarify that, except for the limited circumstances set forth in Q&A-14 of the final

regulations relating to certain de minimis

failures to notify, the amendment will not

be effective with respect to participants or

9

alternate payees who did not receive notice in accordance with section 204(h).

At the suggestion of commentators, the

final regulations also address the application of section 204(h) to a sale of a business, as well as its application to plan

mergers and transfers of plan assets and

liabilities. The final regulations add examples that apply the general principles

established under the regulations to typical sales and merger transactions. In response to one commentator, an example

has been added to illustrate that a plan

merger can require notice under section

204(h).

In response to requests by commentators for additional guidance on the mechanics of providing section 204(h) notice, Q&A-11 has been added providing

rules that can be relied on to calculate the

15-day notice period. These rules provide

that when section 204(h) notice is delivered by first class mail, the notice is considered given as of the date of the United

States postmark stamped on the cover in

which the document is mailed.

Commentators also suggested that the

rules under the temporary regulations

concerning plan terminations needed to

be expanded. The final regulations contain an example illustrating the application of section 204(h) to certain specific

situations that arise when a defined benefit plan cannot be terminated on a proposed termination date because there is a

failure to satisfy all of the requirements of

title IV of ERISA for terminating the

plan. The example provides, in part, that

if all of the requirements of title IV are

not satisfied accruals will still cease if an

amendment has been adopted that ceases

accruals as of a specified date and section

204(h) notice of that amendment, including a statement of its effective date, is

given. Apart from this clarification, the

rule under the temporary regulations concerning terminations under title IV remains unchanged.

The final regulations, like the proposed

and temporary regulations, interpret section 204(h) as applying with respect to

changes that affect the annual benefit

commencing at normal retirement age.

The statutory phrase “rate of future benefit accrual” implies, on its face, that section 204(h) is limited to changes in the

accrued benefit. Nonetheless, one commentator suggested that the temporary

February 16, 1999

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Page 10

regulations be changed to require section

204(h) notice when defined benefit plans

are amended to significantly reduce or

eliminate early retirement subsidies or optional forms of benefit. Most commentators, however, generally supported the

basic standard of the regulations under

which a reduction in the rate of future

benefit accrual depends on whether the

amendment affects the annual benefit

commencing at normal retirement age.

Some commentators also noted that the

approach in the proposed and temporary

regulations would ease plan administration. Accordingly, the final regulations

retain the rule of the proposed and temporary regulations that, for purposes of section 204(h), an amendment to a defined

benefit plan affects the rate of future benefit accrual only if it is reasonably expected to change the amount of the future

annual benefit commencing at normal retirement age.

The final regulations clarify that the

term “annual benefit commencing at normal retirement age” refers, in a defined

benefit plan, to the benefit payable in the

form in which the terms of the plan express the accrued benefit. In the case of a

defined benefit plan that does not express

the accrued benefit as an annual benefit,

the final regulations provide that the term

“annual benefit commencing at normal

retirement age” refers to the benefit

payable in the form of a single life annuity commencing at normal retirement age

that is the actuarial equivalent of the accrued benefit expressed under the terms

of the plan under the principles of section

411(c)(3) (relating to actuarial adjustments to determine an employee’s accrued benefit).

Some commentators also suggested

that certain bright-line standards be established for some of the rules, including

how to determine whether an amendment

results in a significant reduction and what

constitutes a de minimis percentage of

participants for purposes of the rules relating to failure to provide notice to all

participants and alternate payees. Because the wide variety of potential facts

and circumstances make it difficult to

adopt clear standards that are appropriate

in all circumstances, the final regulations

do not include such bright-line standards.

February 16, 1999

Effective Dates

The final regulations apply to amendments adopted on or after December 12,

1998. The final regulations provide that

the rules set forth in the temporary regulations apply to determine whether section

204(h) and the final regulations are satisfied with respect to an amendment that is

adopted before the effective date of the

final regulations (and on or after the effective date of the temporary regulations).

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866.

Therefore, a regulatory assessment is not

required. It also has been determined that

section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not

apply to these regulations and because the

notice of proposed rulemaking preceding

the regulations was issued prior to March

29, 1996, the Regulatory Flexibility Act

(5 U.S.C. chapter 6) does not apply to

these regulations, and, therefore, a Regulatory Flexibility Analysis is not required.

Pursuant to section 7805(f) of the Internal

Revenue Code, the notice of proposed

rulemaking preceding these regulations

was submitted to the Chief Counsel for

Advocacy of the Small Business Administration for comment on their impact on

small business.

Drafting Information

The principal author of these regulations is Christine L. Keller. However,

other personnel from the IRS and Treasury Department participated in their development.

* * * * *

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR parts 1 and 602

are amended as follows:

PART 1—INCOME TAXES

Par. 1. The authority citation for part 1

is amended by removing the entry for

§1.411(d)–6T and by adding an entry in

numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *

10

Section 1.411(d)–6 is issued under Reorganization Plan No. 4 of 1978, 29

U.S.C. 1001nt. * * *

§1.411(d)–6T [Removed]

Par. 2. Section 1.411(d)–6T is removed.

Par. 3. Section 1.411(d)–6 is added to

read as follows:

§1.411(d)–6 Section 204(h) notice.

Q-1: What are the requirements of section 204(h) of the Employee Retirement

Income Security Act of 1974, as amended

(ERISA)(29 U.S.C 1054(h))?

A-1: (a) Requirements of section

204(h). Section 204(h) of ERISA (“section 204(h)”) generally requires written

notice of an amendment to certain plans

that provides for a significant reduction in

the rate of future benefit accrual. Section

204(h) generally requires the notice to be

provided to plan participants, alternate

payees, and employee organizations. The

plan administrator must provide the notice after adoption of the plan amendment

and not less than 15 days before the effective date of the plan amendment.

(b) Other notice requirements. Other

provisions of law may require that certain

parties be notified of a plan amendment.

See, for example, sections 102 and 104 of

ERISA, and the regulations thereunder,

for requirements relating to summary plan

descriptions and summaries of material

modifications.

Q-2: To which plans does section

204(h) apply?

A-2: Section 204(h) applies to defined

benefit plans that are subject to part 2 of

subtitle B of title I of ERISA and to individual account plans that are subject to

both such part 2 and the funding standards

of section 302 of ERISA. Accordingly, individual account plans that are not subject

to the funding standards of section 302,

such as profit-sharing and stock bonus

plans, are not subject to section 204(h).

Q-3: What is “section 204(h) notice”?

A-3: “Section 204(h) notice” is notice

that complies with section 204(h)and the

rules in this section.

Q-4: For which amendments is section

204(h) notice required?

A-4: (a) In general. Section 204(h)

notice is required for an amendment to a

1999–7 I.R.B.

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Page 11

plan described in Q&A-2 of this section

that provides for a significant reduction in

the rate of future benefit accrual.

(b) Delegation of authority to Commissioner. The Commissioner of Internal

Revenue may provide through publication

in the Internal Revenue Bulletin of revenue rulings, notices, or other documents

(see §601.601(d)(2) of this chapter) that

section 204(h) notice need not be provided for plan amendments otherwise described in paragraph (a) of this Q&A-4

that the Commissioner determines to be

necessary or appropriate, as a result of

changes in the law, to maintain compliance with the requirements of the Internal

Revenue Code of 1986, as amended

(Code) (including requirements for tax

qualification), ERISA, or other applicable

federal law.

Q-5: What is an amendment that affects the rate of future benefit accrual for

purposes of section 204(h)?

A-5: (a) In general—(1) Defined benefit plans. For purposes of section 204(h),

an amendment to a defined benefit plan

affects the rate of future benefit accrual

only if it is reasonably expected to change

the amount of the future annual benefit

commencing at normal retirement age.

For this purpose, the annual benefit commencing at normal retirement age is the

benefit payable in the form in which the

terms of the plan express the accrued benefit (or, in the case of a plan in which the

accrued benefit is not expressed in the

form of an annual benefit commencing at

normal retirement age, the benefit payable in the form of a single life annuity

commencing at normal retirement age

that is the actuarial equivalent of the accrued benefit expressed under the terms

of the plan, as determined in accordance

with the principles of section 411(c)(3) of

the Code).

(2) Individual account plans. For purposes of section 204(h), an amendment to

an individual account plan affects the rate

of future benefit accrual only if it is reasonably expected to change the amounts

allocated in the future to participants’ accounts. Changes in the investments or investment options under an individual account plan are not taken into account for

this purpose.

(b) Determination of rate of future benefit accrual. In accordance with paragraph (a) of this Q&A-5, the rate of future

1999–7 I.R.B.

benefit accrual is determined without regard to optional forms of benefit (other

than the annual benefit described in paragraph (a) of this Q&A-5), early retirement

benefits, or retirement-type subsidies,

within the meaning of such terms as used

in section 411(d)(6) of the Code (section

204(g) of ERISA). The rate of future

benefit accrual is also determined without

regard to ancillary benefits and other

rights or features as defined in §1.401(a)(4)-4(e).

(c) Examples. These examples illustrate the rules in this Q&A-5:

Example 1. A plan is amended with respect to future benefit accruals to eliminate a right to commencement of a benefit prior to normal retirement

age. Because the amendment does not change the

annual benefit commencing at normal retirement

age, it does not reduce the rate of future benefit accrual for purposes of section 204(h).

Example 2. A plan is amended to modify the actuarial factors used in converting an annuity form of

distribution to a single sum form of distribution.

The use of these modified assumptions results in a

lower single sum. Because the amendment does not

affect the annual benefit commencing at normal retirement age, it does not change the rate of future

benefit accrual for purposes of section 204(h).

Q-6: What plan provisions are taken

into account in determining whether there

has been a reduction in the rate of future

benefit accrual?

A-6: (a) Plan provisions taken into account. All plan provisions that may affect

the rate of future benefit accrual of participants or alternate payees must be taken

into account in determining whether an

amendment provides for a significant reduction in the rate of future benefit accrual. Such provisions include, for example, the dollar amount or percentage of

compensation on which benefit accruals

are based; in the case of a plan using permitted disparity under section 401(l) of

the Code, the amount of disparity between the excess benefit percentage or excess contribution percentage and the base

benefit percentage or base contribution

percentage (all as defined in section

401(l)); the definition of service or compensation taken into account in determining an employee’s benefit accrual; the

method of determining average compensation for calculating benefit accruals; the

definition of normal retirement age in a

defined benefit plan; the exclusion of current participants from future participation;

benefit offset provisions; minimum bene-

11

fit provisions; the formula for determining the amount of contributions and forfeitures allocated to participants’ accounts

in an individual account plan; and the actuarial assumptions used to determine

contributions under a target benefit plan

(as defined in §1.401(a)(4)–8(b)(3)(i)).

(b) Plan provisions not taken into account. Plan provisions that do not affect

the rate of future benefit accrual of participants or alternate payees are not taken

into account in determining whether there

has been a reduction in the rate of future

benefit accrual. For example, provisions

such as vesting schedules or optional

forms of benefit (other than the annual

benefit described in Q&A-5(a) of this section) are not taken into account.

(c) Examples. The following example

illustrates the rules in this Q&A-6:

Example. A defined benefit plan provides a normal retirement benefit equal to 50% of final average

compensation times a fraction (not in excess of one),

the numerator of which equals the number of years

of participation in the plan and the denominator of

which is 20. A plan amendment that changes the numerator or denominator of that fraction must be

taken into account in determining whether there has

been a reduction in the rate of future benefit accrual.

Q-7: What is the basic principle used in

determining whether an amendment provides for a significant reduction in the rate

of future benefit accrual for purposes of

section 204(h)?

A-7: Whether an amendment provides

for a significant reduction in the rate of

future benefit accrual for purposes of section 204(h) is determined based on reasonable expectations taking into account

the relevant facts and circumstances at the

time the amendment is adopted. For a defined benefit plan this is done by comparing the amount of the annual benefit commencing at normal retirement age as

determined under Q&A-5(a)(1) under the

terms of the plan as amended, with the

amount of the annual benefit commencing

at normal retirement age as determined

under Q&A-5(a)(1) under the terms of the

plan prior to amendment. For an individual account plan, this is done in accordance with Q&A-5(a)(2) by comparing

the amounts to be allocated in the future

to participants’ accounts under the terms

of the plan as amended, with the amounts

to be allocated in the future to participants’ accounts under the terms of the

plan prior to amendment.

February 16, 1999

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Page 12

Q-8: Are employees who have not yet

become participants in a plan at the time

an amendment to the plan is adopted

taken into account in applying section

204(h) with respect to the amendment?

A-8: No. Employees who have not yet

become participants in a plan at the time

an amendment to the plan is adopted are

not taken into account in applying section

204(h) with respect to the amendment.

Thus, if section 204(h) notice is required

with respect to an amendment, the plan

administrator need not provide section

204(h) notice to such employees.

Q-9: If section 204(h) notice is required with respect to an amendment,

must such notice be provided to participants or alternate payees whose rate of future benefit accrual is not reduced by the

amendment?

A-9: (a) In general. A plan administrator need not provide section 204(h) notice

to any participant whose rate of future

benefit accrual is reasonably expected not

to be reduced by the amendment, nor to

any alternate payee under an applicable

qualified domestic relations order whose

rate of future benefit accrual is reasonably

expected not to be reduced by the amendment. A plan administrator need not provide section 204(h) notice to an employee

organization unless the employee organization represents a participant to whom

section 204(h) notice is required to be

provided.

(b) Facts and circumstances test.

Whether a participant or alternate payee is

described in paragraph (a) of this Q&A-9

is determined based on all relevant facts

and circumstances at the time the amendment is adopted.

(c) Examples. The following examples

illustrate the rules in this Q&A-9:

Example 1. Plan A is amended to reduce significantly the rate of future benefit accrual of all current

employees who are participants in the plan. It is reasonable to expect based on the facts and circumstances that the amendment will not reduce the rate

of future benefit accrual of former employees who

are currently receiving benefits or that of former employees who are entitled to vested benefits. Accordingly, the plan administrator is not required to provide section 204(h) notice to such former

employees.

Example 2. The facts are the same as in Example

1 except that Plan A also covers two groups of alternate payees. The alternate payees in the first group

are entitled to a certain percentage or portion of the

former spouse’s accrued benefit, and for this purpose the accrued benefit is determined at the time

February 16, 1999

the former spouse begins receiving retirement benefits under the plan. The alternate payees in the second group are entitled to a certain percentage or portion of the former spouse’s accrued benefit, and for

this purpose the accrued benefit was determined at

the time the qualified domestic relations order was

issued by the court. It is reasonable to expect that

the benefits to be received by the second group of alternate payees will not be affected by any reduction

in a former spouse’s rate of future benefit accrual.

Accordingly, the plan administrator is not required

to provide section 204(h) notice to the alternate payees in the second group.

Example 3. Plan B covers hourly employees and

salaried employees. Plan B provides the same rate

of benefit accrual for both groups. The employer

amends Plan B to reduce significantly the rate of future benefit accrual of the salaried employees only.

At that time, it is reasonable to expect that only a

small percentage of hourly employees will become

salaried in the future. Accordingly, the plan administrator is not required to provide section 204(h) notice to the participants who are currently hourly employees.

Example 4. Plan C covers employees in Division

M and employees in Division N. Plan C provides

the same rate of benefit accrual for both groups. The

employer amends Plan C to reduce significantly the

rate of future benefit accrual of employees in Division M. At that time, it is reasonable to expect that

in the future only a small percentage of employees

in Division N will be transferred to Division M. Accordingly, the plan administrator is not required to

provide section 204(h) notice to the participants who

are employees in Division N.

Example 5. The facts are the same facts as in Example 4, except that at the time the amendment is

adopted, it is expected that soon thereafter Division

N will be merged into Division M in connection with

a corporate reorganization (and the employees in Division N will become subject to the plan’s amended

benefit formula applicable to the employees in Division M). In this instance, the plan administrator must

provide section 204(h) notice to the participants who

are employees in Division M and to the participants

who are employees in Division N.

Q-10: Does a notice fail to comply with

section 204(h) if it contains a summary of

the amendment and the effective date,

without the text of the amendment itself?

A-10: No, the notice does not fail to

comply with section 204(h) merely because the notice contains a summary of

the amendment, rather than the text of the

amendment, if the summary is written in a

manner calculated to be understood by the

average plan participant and contains the

effective date. The summary need not explain how the individual benefit of each

participant or alternate payee will be affected by the amendment.

Q-11: How may section 204(h) notice

be provided?

A-11: A plan administrator (including a

person acting on behalf of the plan admin-

12

istrator such as the employer or plan

trustee) may use any method reasonably

calculated to ensure actual receipt of the

section 204(h) notice. First class mail to

the last known address of the party is an

acceptable delivery method. Likewise,

hand delivery is acceptable. Section

204(h) notice may be enclosed with or

combined with other notice provided by

the employer or plan administrator. For

example, a notice of intent to terminate

under title IV of ERISA or a notice to interested parties of the application for a determination letter may also serve as section 204(h) notice if it otherwise meets

the requirements of this section.

Q-12: How may the 15-day notice requirement be satisfied?

A-12: (a) Generally. A section 204(h)

notice is deemed to have been provided at

least 15 days before the effective date of

the amendment if it has been provided by

the end of the 15th day before the effective date. When notice is delivered by

first class mail, the notice is considered

provided as of the date of the United

States postmark stamped on the cover in

which the document is mailed.

(b) Example. The following example

illustrates the provisions of this Q&A-12:

Example. Plan A is amended to reduce significantly the rate of future benefit accruals effective

December 1, 1999. The plan administrator causes

section 204(h) notice to be mailed to all affected participants. The mailing is postmarked November 16,

1999. Accordingly, the section 204(h) notice is considered to be given not less than 15 days before the

effective date of the plan amendment.

Q-13: If a plan administrator fails to

provide section 204(h) notice to some

participants or alternate payees, will the

plan administrator be considered to have

complied with section 204(h) with respect

to participants and alternate payees who

were provided with section 204(h) notice?

A-13: The plan administrator will be

considered to have complied with section

204(h) with respect to a participant to

whom section 204(h) notice is required to

be provided if the participant and any employee organization representing the participant were provided with section

204(h) notice, and if the plan administrator has made a good faith effort to comply

with the requirements of section 204(h).

The plan administrator will be considered

to have complied with section 204(h) with

respect to an alternate payee to whom sec-

1999–7 I.R.B.

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Page 13

tion 204(h) notice is required to be provided if the alternate payee was provided

with section 204(h) notice, and if the plan

administrator made a good faith effort to

comply with the requirements of section

204(h). If these conditions are satisfied

the amendment will become effective in

accordance with its terms with respect to

the participants and alternate payees to

whom section 204(h) notice was provided. Except to the extent provided in

Q&A-14, the amendment will not become

effective with respect to those participants

and alternate payees who were not provided with section 204(h) notice.

Q-14: Will a plan be considered to

have complied with section 204(h) if the

plan administrator provides section

204(h) notice to all but a de minimis percentage of participants and alternate payees to whom section 204(h) notice must

be provided?

A-14: The plan will be considered to

have complied with section 204(h) and

the amendment will become effective in

accordance with its terms with respect to

all parties to whom section 204(h) notice

was required to be provided (including

those who did not receive notice prior to

discovery of the omission), if the plan administrator—

(a) Has made a good faith effort to

comply with the requirements of section

204(h);

(b) Has provided section 204(h) notice

to each employee organization that represents any participant to whom section

204(h) notice is required to be provided;

(c) Has failed to provide section 204(h)

notice to no more than a de minimis percentage of participants and alternate payees to whom section 204(h) notice is required to be provided; and

(d) Provides section 204(h) notice to

those participants and alternate payees

promptly upon discovering the oversight.

Q-15: How does section 204(h) apply

to the sale of a business?

A-15: (a) Generally. Whether section

204(h) notice is required in connection

with the sale of a business depends on

whether a plan amendment is adopted that

significantly reduces the rate of future

benefit accrual.

(b) Examples. The following examples

illustrate the rules of this Q&A-15:

1999–7 I.R.B.

Example 1. Corporation Q maintains Plan A, a

defined benefit plan that covers all employees of

Corporation Q, including employees in its Division

M. Plan A provides that participating employees

cease to accrue benefits when they cease to be employees of Corporation Q. On January 1, 2000, Corporation Q sells all of the assets of Division M to

Corporation R. Corporation R maintains Plan B,

which covers all of the employees of Corporation R.

Under the sale agreement, employees of Division M

become employees of Corporation R on the date of

the sale (and cease to be employees of Corporation

Q), Corporation Q continues to maintain Plan A following the sale, and the employees of Division M

become participants in Plan B. In this Example, no

section 204(h) notice is required because no plan

amendment was adopted that reduced the rate of future benefit accrual. The employees of Division M

who become employees of Corporation R ceased to

accrue benefits under Plan A because their employment with Corporation Q terminated.

Example 2. Subsidiary Y is a wholly owned subsidiary of Corporation S. Subsidiary Y maintains

Plan C, a defined benefit plan that covers employees

of Subsidiary Y. Corporation S sells all of the stock

of Subsidiary Y to Corporation T. At the effective

date of the sale of the stock of Subsidiary Y, in accordance with the sale agreement between Corporation S and Corporation T, Subsidiary Y amends Plan

C so that all benefit accruals cease. In this Example,

section 204(h) notice is required to be provided because Subsidiary Y adopted a plan amendment that

significantly reduced the rate of future benefit accrual in Plan C.

Example 3. Corporation U maintains two plans:

Plan D covers employees of Division N and Plan E

covers the rest of the employees of Corporation U.

Plan E provides a significantly lower rate of future

benefit accrual than Plan D. Plan D is merged with

Plan E, and all of the employees of Corporation U

will accrue benefits under the merged plan in accordance with the benefit formula of former Plan E. In

this Example, section 204(h) notice is required.

Example 4. Corporation V maintains several

plans, including Plan F, which covers employees of

Division P. Plan F provides that participating employees cease to accrue further benefits under the

plan when they cease to be employees of Corporation V. Corporation V sells all of the assets of Division P to Corporation W, which maintains Plan G for

its employees. Plan G provides a significantly lower

rate of future benefit accrual than Plan F. Plan F is

merged with Plan G as part of the sale, and employees of Division P who become employees of Corporation W will accrue benefits under the merged plan

in accordance with the benefit formula of former

Plan G. In this Example, no section 204(h) notice is

required because no plan amendment was adopted

that reduced the rate of future benefit accrual. Under

the terms of Plan F as in effect prior to the merger,

employees of Division P cease to accrue any further

benefits under Plan F after the date of the sale

because their employment with Corporation V terminated.

Q-16: How are amendments to cease

accruals and terminate a plan treated

under section 204(h)?

13

A-16: (a) General rule—(1) Rule. An

amendment providing for the cessation of

benefit accruals on a specified future date

and for the termination of a plan is subject

to section 204(h).

(2) Example. The following example

illustrates the rule of paragraph (a)(1) of

this Q&A-16:

Example. (i) An employer adopts an amendment

that provides for the cessation of benefit accruals

under a defined benefit plan on December 31, 2001,

and for the termination of the plan pursuant to title

IV of ERISA as of a proposed termination date that

is also December 31, 2001. As part of the notice of

intent to terminate required under title IV in order to

terminate the plan, the plan administrator gives section 204(h) notice of the amendment ceasing accruals, which states that benefit accruals will cease “on

December 31, 2001.” However, because all the requirements of title IV for a plan termination are not

satisfied, the plan cannot be terminated until a date

that is later than December 31, 2001.

(ii) Nonetheless, because section 204(h) notice

was given stating that the plan was amended to

cease accruals on December 31, 2001, section

204(h) does not prevent the amendment to cease accruals from being effective on December 31, 2001.

The result would be the same had the section 204(h)

notice informed the participants that the plan was

amended to provide for a proposed termination date

of December 31, 2001, and to provide that “benefit

accruals will cease on the proposed termination date

whether or not the plan is terminated on that date.”

However, the cessation of accruals would not be effective on December 31, 2001, had the section

204(h) notice merely stated that benefit accruals

would cease “on the termination date” or “on the

proposed termination date.”

(b) Terminations in accordance with

title IV of ERISA. A plan that is terminated in accordance with title IV of

ERISA is deemed to have satisfied section

204(h) not later than the termination date

(or date of termination, as applicable) established under section 4048 of ERISA.

Accordingly, section 204(h) would in no

event require that any additional benefits

accrue after the effective date of the termination.

(c) Amendment effective before termination date of a plan subject to title IV of

ERISA. To the extent that an amendment

providing for a significant reduction in

the rate of future benefit accrual has an effective date that is earlier than the termination date (or date of termination, as applicable) established under section 4048

of ERISA, that amendment is subject to

section 204(h). Accordingly, the plan administrator must provide section 204(h)

notice (either separately or with or as part

February 16, 1999

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Page 14

of the notice of intent to terminate) with

respect to such an amendment.

Q-17: When does section 204(h) become effective?

A-17: (a) Statutory effective date.

With respect to defined benefit plans, section 204(h) generally applies to plan

amendments adopted on or after January

1, 1986. With respect to individual account plans, section 204(h) applies to plan

amendments adopted on or after October

22, 1986.

(b) Regulatory effective date—(1) General regulatory effective date. This section is applicable for amendments

adopted on or after December 12, 1998.

(2) Special rule for amendments

adopted under the temporary regulations.

Whether an amendment that is adopted on

or after December 15, 1995 and before

December 12, 1998 complies with section

204(h) is determined under the rules of

section 1.411(d)-6T in effect prior to December 14, 1998 (See §1.411(d)- 6T in 26

CFR Part 1 revised as of April 1, 1998).

PART 602—OMB CONTROL

NUMBERS UNDER THE

PAPERWORK REDUCTION ACT

Par. 4. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 5. In §602.101, the table in paragraph (c) is amended by removing the

entry for 1.411(d)6–T and by adding an

entry in numerical order to read as follows:

§602.101 OMB Control numbers.

* * * * *

(c)* * *

CFR part or section

where identified

and described

Current OMB

control No.

* * * * *

1.411(d)–6 . . . . . . . . . . . . . . . 1545–1447

* * * * *

Robert E. Wenzel,

Deputy Commissioner of

Internal Revenue.

Approved December 4, 1998.

Jonathan Talisman,

Deputy Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on December 11, 1998, 8:45 a.m., and published in the

issue of the Federal Register for December 14, 1998,

63 F.R. 68678)

Section 472.—Last-in, First-out

Inventories

Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in,

first-out inventory methods for valuing

inventories for tax years ended on, or with

reference to, December 31, 1998.

Rev. Rul. 99–9

The following Department Store Inventory Price Indexes for December 1998

were issued by the Bureau of Labor Statistics. The indexes are accepted by the

Internal Revenue Service, under § 1.472–

1(k) of the Income Tax Regulations and

Rev. Proc. 86–46, 1986–2 C.B. 739, for

appropriate application to inventories of

department stores employing the retail inventory and last-in, first-out inventory

methods for tax years ended on, or with

reference to, December 31, 1998.

The Department Store Inventory Price

Indexes are prepared on a national basis

and include (a) 23 major groups of departments, (b) three special combinations of

the major groups - soft goods, durable

goods, and miscellaneous goods, and (c) a

store total, which covers all departments,

including some not listed separately, except for the following: candy, food,

liquor, tobacco, and contract departments.

26 CFR 1.472–1: Last-in, first-out inventories.

LIFO; price indexes; department

stores. The December 1998 Bureau of

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE

INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Dec

1997

Dec

1998

Percent Change

from Dec.1997

to Dec 19981

1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522.7

2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620.8

3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . 661.6

4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 894.5

5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620.2

6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548.7

7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297.0

8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . 541.1

9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . 406.4

10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606.0

11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 598.6

12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . 505.4

546.8

631.2

660.9

905.3

628.7

559.6

304.1

536.4

401.0

603.3

591.9

493.7

4.6

1.7

–0.1

1.2

1.4

2.0

2.4

–0.9

–1.3

–0.4

–1.1

–2.3

Groups

February 16, 1999

14

1999–7 I.R.B.

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Page 15

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE

INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS (Continued)

(January 1941 = 100, unless otherwise noted)

Dec

1997

Dec

1998

Percent Change

from Dec.1997

to Dec 19981

13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 948.3

14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 797.8

15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 922.4

16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662.6

17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581.1

18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 806.6

19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241.7

20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73.9

21. Recreation and Education2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.6

22. Home Improvements2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133.4

23. Auto Accessories2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.0

953.0

771.9

939.4

691.1

602.5

806.5

236.0

69.6

101.6

130.6

107.7

0.5

–3.2

1.8

4.3

3.7

0.0

–2.4

–5.8

–6.4

–2.1

–0.3

Groups 1 – 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 594.5

595.0

0.1

Groups 16 – 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460.9

458.0

–0.6

Groups 21 – 23: Misc. Goods2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111.7

106.6

–4.6

Store Total3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548.2

544.8

–0.6

Groups

1 Absence of a minus sign before percentage change in this column signifies price increase.

2 Indexes on a January 1986=100 base.

3 The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, to-

bacco, and contract departments.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Richard C. Farley, Jr. of the Office of Assistant Chief Counsel (Income

Tax and Accounting). For further information regarding this revenue ruling, contact Mr. Farley on (202) 622-4970 (not a

toll-free call).

Section 832.—Insurance

Company Taxable Income

26 CFR 1.832–4: Gross income.

The salvage discount factors are set forth for the

1998 accident year. These factors will be used for

computing estimated salvage recoverable for purposes of section 832 of the Code. See Rev. Proc.

99–16, page 50.

Section 846.—Discounted

Unpaid Losses Defined

26 CFR 1.846–1: Application of discount factors.

The loss payment patterns and discount factors

are set forth for the 1998 accident year. These fac-

1999–7 I.R.B.

tors will be used for computing discounted unpaid

losses under section 846 of the Code. See Rev. Proc.

99–15, page 42.

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Temporary regulations.

26 CFR 1.846–1: Application of discount factors.

The salvage discount factors are set forth for the

1998 accident year. These factors will be used for

computing estimated salvage recoverable for purposes of section 832 of the Code. See Rev. Proc.

99–16, page 50.

Section 6311.—Payment of Tax

by Commercially Acceptable

Means

26 CFR 301.6311–2T: Payment by credit card and

debit card (temporary).

T.D. 8793

SUMMARY: This document contains

temporary regulations that authorize the

Secretary of the Treasury to accept payment of internal revenue taxes by credit

card or debit card. The temporary regulations reflect changes to the law made by

the Taxpayer Relief Act of 1997, and will

affect all persons who pay their tax liabilities by credit card or debit card pursuant

to guidance prescribed by the Secretary.

The text of the temporary regulations also

serves as the text of the proposed regulations set forth in REG–111435–98, page

55 in this Bulletin.

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

DATES: Effective Date: These temporary

regulations are effective January 1, 1999.

Applicability Date: For dates of applicability, see §301.6311–2T(h) of these

regulations.

Payment by Credit Card and

Debit Card

FOR FURTHER INFORMATION CONTACT: Concerning the regulations,

15

February 16, 1999

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Page 16

Mitchel S. Hyman, (202) 622-3620 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains temporary regulations amending the Procedure and Administration Regulations (26 CFR part

301) under sections 6103 and 6311 of the

Internal Revenue Code. The regulations

reflect the amendment of sections 6103

and 6311 by section 1205 of the Taxpayer

Relief Act of 1997 (Public Law 105-34,

111 Stat. 788, 995)(1997 Act) and section

4003(k) of the Tax and Trade Relief Extension Act of 1998 (Public Law 105-277,

112 Stat. 2681).

As amended by the 1997 Act, section

6311(a) provides that it shall be lawful for

the Secretary to receive payment for internal revenue taxes by any commercially

acceptable means that the Secretary

deems appropriate to the extent and under

the conditions provided in regulations

prescribed by the Secretary. The legislative history accompanying the Act explains that commercially acceptable

means includes “electronic funds transfers, including those arising from credit

cards, debit cards, and charge cards.” H.

Conf. Rep. 220, 105th Cong., 1st Sess.

652 (1997). The current regulations

under Treas. Reg. §301.6311–1 permit

payment of taxes by checks, drafts drawn

on financial institutions, or money orders.

The temporary regulations add payments

by credit cards (which includes charge

cards) and debit cards to the acceptable

methods of payment under section 6311.

Methods of payment by electronic

funds transfer other than by credit card or

debit card are currently authorized by section 6302 of the Internal Revenue Code

and its implementing regulations. For example, Treas. Reg. § 1.6302–4 permits individuals to voluntarily remit payments of

income taxes by electronic funds transfer.

Thus, the temporary regulations only address payments by credit card and debit

card. Section 6302 and its regulations

will remain the authority for forms of

payment by electronic funds transfer

other than payments by credit card and

debit card.

Section 6103(a) of the Code prohibits

disclosure of returns and return information except as expressly provided in the

February 16, 1999

Code. Section 1205(c)(1) of the 1997 Act

(as amended by section 6012(b)(2) of the

Internal Revenue Service Restructuring

and Reform Act of 1998, Public Law 105206) added section 6103(k)(9) to the

Code. Section 6103(k)(9) authorizes the

IRS to disclose returns and return information to financial institutions and others

to the extent necessary for the administration of section 6311. Section 6103(k)(9)

further provides that disclosures of information for purposes other than to accept

payments by check or money order (for

example, by credit card, or debit card)

shall be made only to the extent authorized by written procedures promulgated

by the Secretary. Section 6311(e) provides that no person shall use or disclose

any information obtained pursuant to section 6103(k)(9) related to credit card or

debit card transactions except to the extent authorized by written procedures promulgated by the Secretary.

Any person who uses or discloses information in violation of section 6311(e)

is subject to civil liability for damages.

See I.R.C. section 7431(h), added by section 1205(c)(2) of the 1997 Act (as

amended by Public Law 105-206, section

6012(b)(3)).

Explanation of Provisions

The temporary regulations provide that

internal revenue taxes may be paid by

credit card or debit card. Payment of

taxes by credit card or debit card is voluntary on the part of the taxpayer. However,

only credit cards or debit cards approved

by the Secretary may be used for this purpose, only the types of tax liabilities specified by the Secretary may be paid by

credit card or debit card, and all such payments must be made in the manner and in

accordance with the forms, instructions,

and procedures prescribed by the Secretary. Thus, payments by credit card or

debit card may be limited to certain designated cards, to payments made through

certain service providers, or to payments

of specific types of taxes. It is anticipated

that the Secretary will be entering into

contracts with specific card issuers or

other persons such as third parties who

will process the credit and debit card

transactions, to facilitate payments by

credit cards and debit cards, subject to the

requirement that the Secretary may not

16

pay any fee or provide any other monetary consideration under such contracts.

Under the temporary regulations, a

payment by credit card or debit card received by the Secretary will be deemed

made when the credit card or debit card

transaction is authorized by the card issuer, provided the payment is actually received by the Secretary in the ordinary

course of business and is not returned due

to correction of errors relating to the

credit card or debit card account.

The temporary regulations provide, as

required by section 6311(d)(3), that payments of taxes by credit card or debit card

are subject to the error resolution procedures of section 161 of the Truth in Lending Act, 15 U.S.C. section 1666, section

908 of the Electronic Fund Transfer Act,

15 U.S.C. 1693f, or any similar provisions of state law, only for the purpose of

resolving errors relating to the credit card

or debit card account, but not for the purpose of resolving any errors, disputes, or

adjustments relating to the underlying tax

liability. These provisions ensure that any

disputes concerning the merits of the tax

liability will be resolved in the traditional

administrative and judicial forums (e.g.,

filing a petition in Tax Court, paying the

disputed tax and filing a claim for refund), and will not be raised in any dispute with the card issuer, financial institution, or other person participating in the

credit card or debit card transaction.

As authorized by section 6311(d)(3)(E), the temporary regulations permit

the Secretary to return funds erroneously

received due to errors relating to the

credit card or debit card account by arranging for a credit to the taxpayer’s account with the issuer of the credit card or

debit card or other appropriate financial

institution or person. Returns of funds

through credit card or debit card credits,

however, are only available to correct errors relating to the credit card and debit

card account, and not to refund overpayments of taxes.

The temporary regulations also provide

that the Internal Revenue Service may not

impose any fee or charge on persons making payment of taxes by credit card or

debit card. The regulations provide that

the imposition of fees or charges by issuers of credit cards or debit cards or by

any other financial institution or person

participating in the credit card or debit

1999–7 I.R.B.

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Page 17

card transaction are not prohibited. The

Internal Revenue Service may not receive

any part of any fees that may be charged.

The temporary regulations also provide

the procedures required under sections

6103(k)(9) and 6311(e) with respect to

use and disclosure of information relating

to payment of taxes by credit card and

debit card. IRS personnel are authorized

to disclose to card issuers, financial institutions, and other persons information

necessary to process the tax payment or to

bill or collect the amount charged or debited (for example, to resolve billing errors). Pursuant to section 6311(e), information received by any person in

connection with payment of tax by credit

card or debit card shall be treated as confidential by all persons who receive such

information, whether such information is

received from the Secretary or from any

other person including the taxpayer.

The temporary regulations set forth the

limited purposes and activities for which

such information may be used or disclosed by card issuers, financial institutions, and other persons. The permitted

purposes and activities principally involve credit card and debit card processing, billing, collection, account servicing,

account transfers, internal business

records, legal compliance, and legal proceedings. The temporary regulations expressly prohibit selling the information,

sharing it with credit bureaus, or using it

for any marketing purpose, for example,

marketing tax-related products or any

marketing that targets those who have

used a credit card or debit card to pay

taxes.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866.

Therefore, a regulatory assessment is not

required. It also has been determined that

these regulations must be effective by

January 1, 1999, to permit taxpayers the

opportunity to pay taxes by credit card for

the 1999 filing season, and, therefore, it

has been determined that sections 553(b)

and (d) of the Administrative Procedure

Act (5 U.S.C. chapter 5) do not apply to

these regulations. It has also been determined that because the regulations do not

impose a collection of information on

1999–7 I.R.B.

small entities, the Regulatory Flexibility

Act (5 U.S.C. chapter 6) does not apply.

Pursuant to section 7805(f) of the Internal

Revenue Code, this temporary regulation

will be submitted to the Chief Counsel for

Advocacy of the Small Business Administration for comment on its impact on

small business.

Drafting Information

The principal author of these regulations is Mitchel S. Hyman of the Office of

Assistant Chief Counsel (General Litigation) CC:EL:GL, IRS. However, other

personnel from the IRS and Treasury Department participated in their development.

* * * * *

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 301 is

amended as follows:

PART 301—PROCEDURE AND

ADMINISTRATION

Paragraph 1. The authority citation for

part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.6103(k)(9)–1T is

added to read as follows:

§301.6103(k)(9)–1T Disclosure of

returns and return information relating to

payment of tax by credit card and debit

card (temporary).

Officers and employees of the Internal

Revenue Service may disclose to card issuers, financial institutions or other persons such return information as the Secretary deems necessary in connection with

processing credit card and debit card

transactions to effectuate payment of tax

as authorized by §301.6311–2T. Officers

and employees of the Service may disclose such return information to such persons as the Secretary 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

§301.6311–2T(d).

Par. 3. Section 301.6311–2T is added

to read as follows:

17

§301.6311–2T Payment by credit card

and debit card (temporary).

(a) Authority to receive—(1) Payments

by credit card and debit card. Internal

revenue taxes may be paid by credit card

or debit card as authorized by this section.

Payment of taxes by credit card or debit

card is voluntary on the part of the taxpayer. However, only credit cards or

debit cards approved by the Secretary

may be used for this purpose, only the

types of tax liabilities specified by the

Secretary may be paid by credit card or

debit card, and all such payments must be

made in the manner and in accordance

with the forms, instructions and procedures prescribed by the Secretary. All references in this section to “tax” also include interest, penalties and additions to

tax.

(2) Payments by electronic funds transfer other than payments by credit card

and debit card. Provisions relating to

payments by electronic funds transfer

other than payments by credit card and

debit card are contained in section 6302

and the Treasury Regulations promulgated pursuant to section 6302.

(3) Definitions—(i) Credit card means

any credit card as defined in section

103(k) of the Truth in Lending Act, 15

U.S.C. section 1602(k), including any

credit card, charge card or other credit device issued for the purpose of obtaining

money, property, labor or services on

credit.

(ii) Debit card means any accepted

card or other means of access as defined

in section 903(1) of the Electronic Funds

Transfer Act, 15 U.S.C. 1693a(1), including any debit card or similar device or

means of access to an account issued for

the purpose of initiating electronic fund

transfers to obtain money, property, labor

or services.

(b) When payment is deemed made. A

payment of tax by credit card or debit

card shall be deemed made when the issuer of the credit card or debit card properly authorizes the transaction, provided

the payment is actually received by the

Secretary in the ordinary course of business and is not returned pursuant to paragraph (d)(3) of this section.

(c) Payment not made—(1) Continuing

liability of taxpayer. A taxpayer who tenders payment of taxes by credit card or

February 16, 1999

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Page 18

debit card is not relieved of liability for

such taxes until the payment is actually

received by the Secretary and is not required to be returned pursuant to paragraph (d)(3) of this section. This continuing liability of the taxpayer is in addition

to, and not in lieu of, any liability of the

issuer of the credit card or debit card or financial institution pursuant to paragraph

(c)(2) of this section.

(2) Liability of financial institutions. If

a taxpayer has tendered a payment of internal revenue taxes by credit card or debit

card, and the credit card or debit card

transaction has been guaranteed expressly

by a financial institution, and the United

States is not duly paid, the United States

shall have a lien for the guaranteed

amount of the transaction upon all the assets of the institution making such guarantee. The unpaid amount shall be paid out

of such assets in preference to any other

claims whatsoever against such guaranteeing institution, except the necessary costs

and expenses of administration and the reimbursement of the United States for the

amount expended in the redemption of the

circulating notes of such institution.

(d) Resolution of errors relating to the

credit card or debit card account—(1) In

general. Payments of taxes by credit card

or debit card shall be subject to the applicable error resolution procedures of section

161 of the Truth in Lending Act, 15

U.S.C. 1666, or section 908 of the Electronic Fund Transfer Act, 15 U.S.C.

1693f, or any similar provisions of state

law, for the purpose of resolving errors relating to the credit card or debit card account, but not for the purpose of resolving

any errors, disputes or adjustments relating to the underlying tax liability.

(2) Matters covered by error resolution

procedures. (i) The error resolution procedures of paragraph (d)(1) of this section

apply to the following types of errors:

(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.

(D) Similar types of errors that would

be subject to resolution under these procedures in ordinary commercial transactions.

February 16, 1999

(ii) An error described in paragraphs

(d)(2)(i)(A) through (D) of this section

may only be resolved 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 Secretary.

(3) Return of funds pursuant to error

resolution procedures. Notwithstanding

section 6402 of the Internal Revenue

Code, if a taxpayer is entitled to a return

of funds pursuant to the error resolution

procedures of paragraph (d)(1) of this section, the Secretary may, in the Secretary’s

sole discretion, effect such return by arranging for a credit to the taxpayer’s account with the issuer of the credit card or

debit card or any other financial institution or person that participated in the

transaction in which the error occurred.

(4) Matters not subject to error resolution procedures. The error resolution procedures of paragraph (d)(1) of this section

do not apply to any error, question or dispute concerning the amount of tax owed

by any person for any year. For example,

these error resolution procedures do not

apply to determine a taxpayer’s entitlement to a refund of tax for any year for

any reason, nor may they be used to pay a

refund. All such matters shall be resolved

through administrative and judicial procedures established pursuant to the Internal

Revenue Code and the rules and regulations thereunder.

(5) Payments of taxes by credit card or

debit card are not subject to section 170 of

the Truth in Lending Act, 15 U.S.C.

1666i, or to any similar provision of state

law.

(e) Fees or charges. The Internal Revenue Service may not impose any fee or

charge on persons making payment of

taxes by credit card or debit card. This

section does not prohibit the imposition of

fees or charges by issuers of credit cards

or debit cards or by any other financial institution or person participating in the

credit card or debit card transaction. The

Internal Revenue Service may not receive

any part of any fees that may be charged.

(f) Authority to enter into contracts.

The Secretary may enter into contracts related to receiving payments of tax by

credit card or debit card if such contracts

are cost beneficial to the Government.

The determination of whether the contract

is cost beneficial shall be based on an

18

analysis appropriate for the contract at

issue and at a level of detail appropriate to

the size of the Government’s investment

or interest. The Secretary may not pay

any fee or charge or provide any other

monetary consideration under such contracts for such payments.

(g) Use and disclosure of information

relating to payment of taxes by credit card

and debit card. Information obtained by

any person other than the taxpayer in connection with payment of taxes by a credit

card or debit card shall be treated as confidential, whether such information is received from the Secretary or from any

other person (including the taxpayer). No

person other than the taxpayer shall use or

disclose such information except as follows:

(1) 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:

(i) Processing of 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.

(ii) Billing the taxpayer for the amount

charged or debited with respect to payment of the tax liability.

(iii) Collection of the amount charged

or debited with respect to payment of the

tax liability.

(iv) Returning funds to the taxpayer in

accordance with paragraph (d)(3) of this

section.

(2) 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:

(i) Assessment of statistical risk and

profitability.

(ii) Transfer of receivables or accounts

or any interest therein.

(iii) Audit of account information.

(iv) Compliance with Federal, State, or

local law.

(v) Cooperation in properly authorized

civil, criminal, or regulatory investigations

by Federal, State, or local authorities.

1999–7 I.R.B.

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Page 19

(3) Notwithstanding the foregoing, 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 or exchange of such information separate from the underlying receivable or account.

(ii) Marketing for any purpose, for example, 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.

(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.

(4) Use and disclosure of information

other than as authorized by this paragraph

(g) may result in civil liability under section 7431(h) of the Internal Revenue

Code.

(h) Effective date. This section applies

to payments of taxes made on and after

January 1, 1999, and through January 1,

2002.

Robert E. Wenzel,

Deputy Commissioner of

Internal Revenue.

Approved December 1, 1998.

Donald C. Lubick,

Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on December 14, 1998, 8:45 a.m., and published in the

issue of the Federal Register for December 15, 1998,

63 F.R. 68995)

Section 6320.—Notice and

Opportunity for Hearing Upon

Filing of Notice of Lien

26 CFR 301.6320–1T: Notice and opportunity for

hearing upon filing of notice of Federal tax lien

(temporary).

T.D. 8810

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

Notice and Opportunity for

Hearing Upon Filing of Notice of

Lien

1999–7 I.R.B.

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains

temporary regulations relating to the provision of notice to taxpayers of the filing

of a notice of federal tax lien (NFTL).

The regulations implement certain

changes made by section 3401 of the Internal Revenue Service Restructuring and

Reform Act of 1998. They affect taxpayers against whose property and rights to

property the IRS files a NFTL. The text

of these regulations also serves as the text

of the proposed regulations in

REG–116824–98, page 57 in this Bulletin.

DATES: These regulations are effective

January 19, 1999.

FOR FURTHER INFORMATION CONTACT: Jerome D. Sekula (202) 622-3610

(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to

the Procedure and Administration Regulations (26 CFR part 301) that reflect the

addition of section 6320 to the Internal

Revenue Code made by section 3401 of

the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA).

These temporary regulations implement the provisions of section 6320 and

thus set forth the procedures the IRS will

follow regarding notice to taxpayers of

the filing of a NFTL on or after January

19, 1999, the right to a hearing before the

IRS Office of Appeals (Appeals) with respect to the filing of a NFTL, the procedures that will be followed at those hearings, judicial review of the determinations

reached at the hearings, and the suspensions of various periods of limitation as a

result of a timely request for a hearing.

The legislative history accompanying

RRA also explains that Congress intended

the IRS to grant an equivalent hearing to

taxpayers who do not request a hearing

under section 6320 within the 30-day period that commences the day after the five

business day notification period. H.

Conf. Rep. No. 599, 105th Cong., 2d

19

Sess. 266 (1998). These temporary regulations set forth the procedural requirements and rules that will govern the conduct of such an equivalent hearing.

Explanation of Provisions

The temporary regulations provide

guidance to taxpayers for purposes of section 6320. Pursuant to section 6320, for

NFTLs filed on or after January 19, 1999,

the IRS must provide written notification

of the filing of the NFTL to the taxpayer

named in the NFTL. The notification

under section 6320 may be given in person, left at the taxpayer’s dwelling or

usual place of business, or sent to the taxpayer by certified or registered mail to the

taxpayer’s last known address not more

than five business days after the day the

NFTL is filed. The notification must state

the amount of unpaid tax, inform the taxpayer of the right to request a hearing during the 30-day period that commences the

day after the end of the five business day

notification period, inform the taxpayer of

the administrative appeals available with

respect to such lien and the procedures related to such appeals, and inform the taxpayer of the provisions and procedures relating to the release of liens. Unless the

taxpayer withdraws the request that Appeals conduct a hearing when the taxpayer has made a timely request for a

hearing, Appeals will hold one collection

due process hearing (CDP hearing) with

respect to the tax and tax period or periods specified in the CDP hearing notice

(CDP Notice). The taxpayer is entitled to

have a CDP hearing conducted by an Appeals officer who has had no prior involvement with the unpaid tax that is the

subject of the hearing. This requirement,

however, can be waived by the taxpayer

in writing. The taxpayer may seek judicial review of an Appeals determination

issued with respect to a CDP hearing. If a

taxpayer timely requests a CDP hearing,

the periods of limitation relating to collection after assessment, relating to criminal

prosecutions, and relating to suits are suspended. If the taxpayer has a hearing

with Appeals, the suspension of the applicable periods of limitation continues

until the determination resulting from that

hearing becomes final by expiration of the

time for seeking review or reconsideration before the appropriate court. If the

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Page 20

taxpayer has withdrawn the request for a

hearing with Appeals, the suspension of

the applicable periods of limitation ends

as a result of that withdrawal.

The temporary regulations discuss the

procedures for CDP hearings under section 6320, including the requirement that

the Appeals officer obtain verification

that all legal and administrative requirements for the filing of the NFTL have

been met. The temporary regulations further discuss the types of issues that may

or may not be raised at the CDP hearing.

The types of issues that may be raised at

the CDP hearing include appropriate

spousal defenses; challenges to the appropriateness of collection actions; collection

alternatives; and challenges to the existence or amount of the liability specified

in the CDP Notice. An issue may not be

raised at the CDP hearing if the issue was

raised and considered at a previous CDP

hearing under section 6330 or any other

previous administrative or judicial proceeding in which the taxpayer meaningfully participated. Challenges to the existence or amount of the tax liability

specified in the CDP Notice may be

raised only 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.

Following the CDP hearing, the Appeals officer will issue a Notice of Determination, which can be appealed to the

United States Tax Court or a district court

of the United States by filing an appropriate pleading with the court that has jurisdiction over the type of tax involved

within 30 days of the date of the determination. The temporary regulations discuss the content of the Notice of Determination and the rules for obtaining judicial

review. The temporary regulations also

provide guidance as to the extent to which

the Appeals officer will retain jurisdiction

with respect to the determination.

Lastly, the temporary regulations provide rules and procedures with respect to

the administrative hearing (referred to as

an “equivalent hearing”) the IRS will provide to taxpayers who do not timely request a hearing under section 6320.

Special Analyses

It has been determined that this Treasury decision is not a significant regula-

February 16, 1999

tory action as defined in Executive Order

12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553 (b) of the Administrative Procedure Act (5 U.S.C.

chapter 5) does not apply to these regulations. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6)

refer to the Special Analyses section of

the preamble to the cross reference notice

of proposed rulemaking published in the

Proposed Rules section of this issue of the

Federal Register. Pursuant to section

7805 (f) of the Internal Revenue Code,

this temporary regulation will be submitted to the Chief Counsel for Advocacy of

the Small Business Administration for

comment on its impact on small business.

Drafting Information

The principal author of this regulation

is Jerome D. Sekula, Office of the Assistant Chief Counsel (General Litigation).

However, other personnel from the IRS

and Treasury Department participated in

its development.

* * * * *

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 301 is

amended as follows:

PART 301—PROCEDURE AND

ADMINISTRATION

Paragraph 1. The authority citation for

part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.6320–1T is added

under the undesignated centerheading

“Lien for Taxes” to read as follows:

§301.6320–1T Notice and opportunity for

hearing upon filing of notice of Federal

tax lien (temporary).

(a) Notification–(1) In general. For a

notice of federal tax lien (NFTL) filed on

or after January 19, 1999, district directors, directors of service centers, and the

Assistant Commissioner (International),

or their successors, are required to notify

the person described in section 6321 of

the filing of a NFTL not more than five

business days after the date of any such

filing. The Collection Due Process Hear-

20

ing Notice (CDP Notice) and other notices given under this section must be

given in person, left at the dwelling or

usual place of business of such person, or

sent by certified or registered mail to such

person’s last known address, not more

than five business days after the day the

NFTL was filed.

(2) Questions and answers. The questions and answers illustrate the provisions

of this paragraph (a) as follows:

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 only required to be

given 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 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. Under section 6323(f), a

NFTL can be filed for more than one tax

period. The notification of the filing of a

NFTL will specify each 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 location.

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

1999–7 I.R.B.

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Page 21

of the refiling of a NFTL. A taxpayer

may, however, seek reconsideration by

the IRS office that is collecting the tax or

filing the NFTL, an administrative hearing before Appeals, or assistance from the

National Taxpayer Advocate.

Q-A7. Will the IRS give notification to

a known nominee of, or 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 is,

therefore, not entitled to notice, but such

persons have other remedies. See A-B5

of paragraph (b) 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 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-day period described in section 6320(a)(2).

(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.

1999–7 I.R.B.

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 that commences 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 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 an opportunity to request a

CDP hearing.

(3) Examples. The following examples

illustrate the principles of this paragraph

(a):

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

21

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 Collection Due

Process (CDP hearing)—(1) In general.

A taxpayer is entitled to one 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 the

amount of unpaid tax shown on the NFTL

if the taxpayer timely requests such a

hearing. The taxpayer must request such

a 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.

(2) Questions and answers. The questions and answers illustrate the provisions of this paragraph (b) as follows:

Q-B1. Is a taxpayer entitled to a CDP

hearing with respect to the filing of a

NFTL for a tax and tax period previously

subject to a CDP Notice in a different location?

A-B1. No. Although the taxpayer will

receive notice of each filing of the NFTL,

under section 6320(b)(2), the taxpayer is

entitled to only one CDP hearing under

section 6320 for each tax period with respect to the first filing of a NFTL that occurs on or after January 19, 1999, with respect to an amount of 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 amount of

unpaid tax, the taxpayer foregoes the right

to a CDP hearing with Appeals and judicial review of Appeals’s determination as

to the NFTL. Under such circumstances,

a taxpayer, however, may request an

equivalent hearing as described in paragraph (i) of this section.

Q-B2. Is the taxpayer entitled to a

CDP hearing where a NFTL for a tax and

tax period is filed on or after January 19,

1999, in one recording office and a NFTL

was previously filed in another recording

office prior to that date?

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Page 22

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 amount of unpaid tax, whether or

not a NFTL was filed prior to January 19,

1999, for the same 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 he 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 amount of unpaid

tax for which a section 6320 CDP Notice

was previously sent, is the taxpayer entitled to a second section 6320 CDP

hearing?

A-B4. No. The taxpayer is entitled to

only one CDP hearing under section 6320

for a tax and tax period set forth in a

NFTL with respect to the first filing of a

NFTL that occurs on or after January 19,

1999.

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. Such person may also

avail himself of the administrative proce-

February 16, 1999

dure included in section 6325(b)(4) of the

Internal Revenue Code or of any other

procedures to which he is entitled.

(3) Examples. The following examples

illustrate the principles of this paragraph

(b):

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.

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 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 give D a

CDP Notice with respect to the NFTL filed in

County X. It will give D notification of the NFTL

filed in 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 filing of the NFTL 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.

(c) Requesting a CDP hearing—(1) In

general. Where a taxpayer is entitled to a

CDP hearing under section 6320, such a

hearing must be requested during the 30day 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 a CDP notice with

respect to the filing of the NFTL.

(2) Questions and answers. The questions and answers illustrate the provisions of this paragraph (c) as follows:

Q-C1. What must a taxpayer do to obtain a CDP hearing?

A-C1. The taxpayer must make a request in writing for a CDP hearing. A

written request in any form, which requests a CDP hearing, will be acceptable.

The request must include the taxpayer’s

name, address, and daytime telephone

number, and must be signed by the taxpayer or the taxpayer’s authorized representative and dated. Included with the

CDP Notice will be a Form 12153, Request for a Collection Due Process Hearing, that can be used by the taxpayer in requesting a CDP hearing. The Form 12153

requests the following information: the

taxpayer’s name, address, daytime telephone number, and taxpayer identification number (SSN or TIN); the type of tax

22

involved; the tax period at issue; a statement that the taxpayer requests a hearing

with Appeals concerning the filing of the

NFTL; and the reason or reasons why the

taxpayer disagrees with the filing of the

NFTL. Taxpayers are encouraged to use a

Form 12153 in requesting a CDP hearing

so that such a 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 or by calling, toll free, 1-800829-3676.

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. First, 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, for help in filling out

Form 12153, or in an attempt to resolve

their liabilities prior to going through the

CDP hearing process, the requirement of

a written request should help to 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 will also 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

1999–7 I.R.B.

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Page 23

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 taxpayers are allowed 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 request 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 under section 7502

and the regulations under that section and

section 7503 and the regulations under

that section 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 should the written request for a CDP hearing be sent?

A-C6. The written request for a CDP

hearing should be filed with the IRS office that issued the CDP Notice at the address indicated on the CDP Notice. If the

address of that office is not known, the request may be sent to the District Director

serving the district of the taxpayer’s residence or principal place of business. If

the taxpayer does not have a residence or

principal place of business in the United

States, the request may be sent to the Director, Philadelphia Service Center.

Q-C7. What will happen if the taxpayer does not request a section 6320

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 30day period that commences on the day

1999–7 I.R.B.

after the end of the five business day notification period, the taxpayer will forego

the right to a CDP hearing under section

6320 with respect to the tax and tax period or periods shown on the CDP Notice.

The taxpayer may, however, request an

equivalent hearing. 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 that commences 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 30day 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. The following examples

illustrate the principles of this paragraph

(c):

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

23

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, except

that individual A is on vacation, outside the United

States, or otherwise does not receive or read the

CDP Notice until July 19, 1999. As in (i), individual

A has until July 26, 1999, to request a CDP hearing.

If individual A does not request a CDP hearing, individual A may request an equivalent hearing as to the

NFTL at a later time. The taxpayer should make a

request for an equivalent hearing at the earliest possible time.

Example 3. Same facts as in Example 2, except

that individual A does not receive or read the CDP

Notice until after July 26, 1999, and does not request

a hearing by July 26, 1999. Individual A is not entitled to a CDP hearing. Individual A may request an

equivalent hearing as to the NFTL at a later time.

The taxpayer should make a request for an equivalent hearing at the earliest possible time.

Example 4. Same facts as in Example 1, except

the IRS determines that the CDP Notice mailed on

June 18, 1999, was not mailed to individual A’s last

known address. As soon as practicable after making

this determination, the IRS will mail a substitute

CDP Notice to individual A at individual A’s last

known address, hand deliver the substitute CDP Notice to individual A, or leave the substitute CDP Notice at individual A’s dwelling or usual place of business. Individual A will have 30 days commencing

on the day after the date of the substitute CDP Notice within which to request a CDP hearing.

(d) Conduct of CDP hearing—(1) In

general. If a taxpayer requests a CDP

hearing under section 6320(a)(3)(B) (and

does not withdraw that request), the CDP

hearing will be held with Appeals. The

taxpayer is entitled to only one CDP hearing for a tax and tax period set forth in a

NFTL under section 6320 with respect to

the first filing of a NFTL on or after January 19, 1999. To the extent practicable,

the CDP hearing requested under section

6320 will be held in conjunction with any

CDP hearing the taxpayer requests under

section 6330. A CDP hearing will be conducted by an employee or officer of Appeals who has had no involvement with

respect to the tax for the tax period or periods covered by the hearing prior to the

first CDP hearing under section 6320 or

section 6330, unless the taxpayer waives

that requirement.

(2) Questions and answers. The questions and answers illustrate the provisions of this paragraph (d) as follows:

Q-D1. Under what circumstances can

a taxpayer receive more than one CDP

hearing with respect to a tax period?

February 16, 1999

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A-D1. The taxpayer may receive more

than one CDP hearing 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 tax

has changed as a result of an additional

assessment of tax for that period or an additional accuracy-related or filing delinquency penalty has been assessed. The

taxpayer is not entitled to another CDP

hearing if the additional assessment represents accruals of interest or accruals of

penalties.

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

hearing with respect to one tax period

shown on the NFTL will be combined

with any and all other hearings to which

the taxpayer may be entitled with respect

to other tax periods shown on the NFTL.

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 tax and tax

period or periods involved in the hearing?

A-D4. Prior involvement by an employee or officer of Appeals includes participation or involvement in an Appeals

hearing (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 or periods

shown on the NFTL.

Q-D5. How can a taxpayer waive the

requirement that the officer or employee

of Appeals had no prior involvement with

respect to the tax and tax period or periods involved in the CDP hearing?

A-D5. The taxpayer must sign a written waiver.

(e) Matters considered at CDP hearing—(1) In general. Appeals has the authority to determine the validity, sufficiency, and timeliness of any CDP Notice

given by the IRS and of any request for a

February 16, 1999

CDP hearing that is made by a taxpayer.

Prior to the issuance of a determinaton,

the hearing officer is required to obtain

verification from the IRS office collecting

the tax or filing the NFTL that the requirements of any applicable law or administrative procedure have been met.

The taxpayer may raise any relevant issue

relating to the unpaid tax at the hearing,

including appropriate spousal defenses,

challenges to the appropriateness of the

NFTL filing, and offers of collection alternatives. The taxpayer also may raise

challenges to the existence or amount of

the tax liability specified on the CDP Notice for any tax period shown on the CDP

Notice if the taxpayer did not receive a

statutory notice of deficiency for that tax

liability or did not otherwise have an opportunity to dispute that tax liability. Finally, the taxpayer may not raise an issue

that was raised and considered at a previous CDP hearing under section 6330 or in

any other previous administrative or judicial proceeding if the taxpayer participated meaningfully in such hearing or

proceeding. Taxpayers will be expected

to provide all relevant information requested by Appeals, including financial

statements, for its consideration of the

facts and issues involved in the hearing.

(2) Spousal defenses. A taxpayer may

raise any appropriate spousal defenses at a

CDP hearing. To claim a spousal defense

under section 6015, the taxpayer must do

so in writing according to rules prescribed

by the Secretary. Spousal defenses raised

under section 6015 in a CDP hearing are

governed in all respects by the provisions

of section 6015 and the procedures prescribed by the Secretary thereunder.

(3) Questions and answers. The questions and answers illustrate the provisions of this paragraph (e) as follows:

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.

24

(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 tax

liability specified in 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 asserted in the notice of deficiency. An opportunity to dispute a liability includes a

prior opportunity for a conference with

Appeals that was offered either before or

after the assessment of the liability.

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. No. The limitations imposed

under section 6330(c)(2)(B) do not apply

to spousal defenses. A spousal defense

raised under section 6015 is governed by

that section; therefore any limitations

under section 6015 will apply.

Q-E4. May a taxpayer raise at a CDP

hearing a spousal defense under section

6015 if that defense was raised and considered in a prior judicial proceeding that

has become final?

A-E4. No. A taxpayer is precluded by

limitations under section 6015 from raising a spousal defense under section 6015

in a CDP hearing under these circumstances.

Q-E5. What collection alternatives are

available to the taxpayer?

A-E5. Collection alternatives would

include, for example, withdrawal of the

NFTL in circumstances that will facilitate

the collection of the tax liability, an installment agreement, an offer-in-compromise, the posting of a bond, or the substitution of other assets.

Q-E6. What issues may a taxpayer

raise in a CDP hearing under section 6320

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Page 25

if he 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-E6. 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 tax liability for the

tax and tax period specified in the CDP

Notice may be challenged only if the taxpayer did not already have an opportunity

to dispute that tax liability. Where 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 already

had an opportunity to dispute the existence or amount of the tax liability.

Q-E7. How will Appeals issue its determination?

A-E7. (i) Taxpayers will be sent a dated

Notice of Determination by certified or

registered mail. The Notice of Determination will set forth Appeals’s 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 Appeals reached with the

taxpayer, any relief given the taxpayer,

and any actions the taxpayer and/or the

IRS are required to take. Lastly, the Notice of Determination will advise the taxpayer of his 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

1999–7 I.R.B.

without the need for Appeals consideration. Unless as a result of these discussions, the taxpayer agrees to withdraw in

writing the request that Appeals conduct a

CDP hearing, Appeals will still issue a

Notice of Determination. The taxpayer

can, however, waive in writing Appeals’s

consideration of some or all of the matters

it would otherwise consider in making its

determination.

Q-E8. Is there a time limit on the CDP

hearings or on when Appeals must issue a

Notice of Determination?

A-E8. No. Appeals will, however, attempt to conduct CDP hearings as expeditiously as possible.

Q-E9. Why is the Notice of Determination and its date important?

A-E9. The Notice of Determination

will set forth Appeals’s findings and decisions with respect to the matters set forth

in A-E1 of this paragraph (e)(3). The date

of the Notice of Determination establishes

the beginning date of the 30-day period

within which the taxpayer is permitted to

seek judicial review of Appeals’s determination.

(4) Examples. The following examples illustrate the principles of this paragraph (e).

Example 1. The IRS sends a statutory notice of

deficiency to the taxpayer at his last known address

asserting a deficiency for the taxable 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

therefore precluded from challenging the existence

or amount of the tax liability in a subsequent CDP

hearing.

Example 2. Same facts as in Example 1, except

the taxpayer does not receive the notice of deficiency in time to petition the Tax Court. The taxpayer is not, therefore, precluded from challenging

the existence or amount of the tax liability in a subsequent CDP hearing.

Example 3. The IRS properly assesses a trust

fund recovery penalty against the taxpayer. The IRS

offers the opportunity for a conference at which the

taxpayer would have the opportunity to dispute the

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–-(1) In general. Unless the taxpayer provides the IRS a written withdrawal of the request that Appeals

conduct a CDP hearing, Appeals is required to issue a Notice of Determination

25

in all cases where a taxpayer has timely

requested a CDP hearing in writing. The

taxpayer may appeal such determinations

made by Appeals within 30 days after the

date of the Notice of Determination to the

Tax Court or a district court of the United

States, as appropriate.

(2) Questions and answers. The questions and answers illustrate the provisions

of this paragraph (f) as follows:

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, 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 or to a district court of the United States.

Q-F2. With respect to the relief available to the taxpayer under section 6015(b)

or (c), what is the time frame within

which a taxpayer may seek Tax Court review of Appeals’s determination following a CDP hearing?

A-F2. If the taxpayer seeks Tax Court

review not only of Appeals’s denial of relief under section 6015(b) or (c), 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’s denial of relief

under section 6015(b) or (c), the taxpayer

should request Tax Court review, as provided by section 6015(e), within 90 days

of Appeals’s determination. If a request

for Tax Court review is filed after the 30day period for seeking judicial review

under section 6320, then only the taxpayer’s section 6015(b) or (c) claims may

be reviewable by the Tax Court.

Q-F3. Where should a taxpayer direct

a request for judicial review of a Notice of

Determination?

A-F3. If the Tax Court would have jurisdiction over the type of tax specified in

the CDP Notice (for example, income and

estate taxes), then the taxpayer must seek

judicial review by the Tax Court. If the

tax liability specified in the CDP Notice

arises from a type of tax over which the

Tax Court would not have jurisdiction,

then the taxpayer must seek judicial review by a district court of the United

February 16, 1999

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Page 26

States in accordance with Title 28 of the

United States Code.

Q-F4. What happens if the taxpayer

timely appeals Appeals’s determination to

the incorrect court?

A-F4. If the court to which the taxpayer directed a timely appeal of the Notice of Determination determines that the

appeal was to the incorrect court (because

of jurisdictional, venue or other reasons),

the taxpayer will have 30 days after the

court’s determination to that effect within

which to file an appeal to the correct

court.

Q-F5. What issue or issues may the

taxpayer raise before the Tax Court or before a district court if the taxpayer disagrees with the Notice of Determination?

A-F5. In seeking Tax Court or district

court review of Appeals’s Notice of Determination, the taxpayer can only request

that the court consider an issue that was

raised in the taxpayer’s CDP hearing.

(g) Effect of request for CDP hearing

and judicial review on periods of limitation—(1) In general. 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 until the date the IRS receives the

taxpayer’s written withdrawal of the request for a CDP hearing by Appeals or the

determination resulting from the CDP

hearing becomes final by expiration of the

time for seeking review or reconsideration. In no event shall any of these periods of limitation expire before the 90th

day after the date on which the IRS receives the taxpayer’s written withdrawal

of the request that Appeals conduct a CDP

hearing or the determination with respect

to such hearing becomes final upon expiration of the time for seeking review or

reconsideration.

(2) Questions and answers. The questions and answers illustrate the provisions

of this paragraph (g) as follows:

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

February 16, 1999

by the taxpayer of the request for a CDP

hearing or the determination resulting

from the CDP hearing becomes final by

expiration of the time for seeking review

or reconsideration. 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.

(3) Examples. The following examples illustrate the principles of this paragraph (g).

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 appropriate court, plus 90 days.

Example 2. Same facts as in Example 1, except

the taxpayer does not seek judicial review of Appeals’s determination. Because the taxpayer requested the CDP hearing when fewer than 90 days

remained on the period of limitation, the period of

limitation will be extended to October 13, 1999 (90

days from July 15, 1999).

(h) Retained jurisdiction of Appeals—

(1) In general. The Appeals office that

makes a determination under section 6320

retains jurisdiction over that determination, including any subsequent administrative hearings that may be requested by

the taxpayer regarding the NFTL and any

collection actions taken or proposed with

respect to Appeals’s determination. Once

a taxpayer has exhausted his other remedies, Appeals’s retained jurisdiction per-

26

mits it to consider whether a change in the

taxpayer’s circumstances affects its original determination. Where a taxpayer alleges a change in circumstances that affects Appeals’s original determination,

Appeals may consider whether changed

circumstances warrant a change in its earlier determination.

(2) Questions and answers. The questions and answers illustrate the provisions

of this paragraph (h) as follows:

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 section

6320 CDP hearing 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 or a district

court?

A-H2. No. As discussed in A-H1, a

taxpayer is entitled to only one section

6320 CDP hearing 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 or a district court.

(i) Equivalent hearing—(1) In general.

A taxpayer who fails to make a timely request for a CDP hearing is not entitled to

a CDP hearing. Such a taxpayer may nevertheless request an administrative hearing with Appeals, which is referred to

herein as an “equivalent hearing.” The

equivalent hearing will be held by Appeals and will generally follow Appeals

procedures for a CDP hearing. Appeals

will not, however, issue a Notice of Determination. Under such circumstances,

Appeals will issue a Decision Letter.

(2) Questions and answers. The questions and answers illustrate the provisions

of this paragraph (i) as follows:

Q-I1. What issues will Appeals consider at an equivalent hearing?

A-I1. In an equivalent hearing, Appeals will consider the same issues that it

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Page 27

would have considered at a CDP hearing

on the same matter.

Q-I2. 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-I2. 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-I3. Will collection action, including

the filing of additional NFTLs, be suspended if a taxpayer requests and receives

an equivalent hearing?

A-I3. 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-I4. What will the Decision Letter

state?

A-I4. The Decision Letter will generally contain the same information as a

Notice of Determination.

Q-I5. Will a taxpayer be able to obtain

court review of a decision made by Appeals with respect to an equivalent hearing?

A-I5. 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’s denial of relief under

section 6015(b) or (c). Such review must

be sought within 90 days of the issuance

of Appeals’s determination on those issues, as provided by section 6015(e).

(j) Effective date. This section is applicable with respect to any filing of a

NFTL on or after January 19, 1999, and

before January 22, 2002.

Robert E. Wenzel,

Deputy Commissioner of

Internal Revenue.

Approved January 13, 1999.

1999–7 I.R.B.

Donald C. Lubick,

Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on January 19, 1999, 10:56 a.m., and published in the issue

of the Federal Register for January 22, 1999, 64 F.R.

3398)

Section 6330.—Notice and

Opportunity for Hearing Before

Levy

26 CFR 301.6330–1T: Notice and opportunity for

hearing prior to levy (temporary).

T.D. 8809

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

Notice and Opportunity for

Hearing Before Levy

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains

temporary regulations relating to the provision of notice to taxpayers of a right to a

hearing before levy. The regulations implement certain changes made by section

3401 of the Internal Revenue Service Restructuring and Reform Act of 1998. They

affect taxpayers against whose property

the IRS intends to levy. The text of these

regulations also serves as the text of the

proposed regulations set forth in

REG–117620–98, page 59 in this Bulletin.

DATES: This regulation is effective January 19, 1999.

FOR FURTHER INFORMATION CONTACT: Jerome D. Sekula (202) 622-3610

(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to

the Procedure and Administration Regulations (26 CFR part 301) that reflect the

addition of section 6330 to the Internal

Revenue Code made by section 3401 of

the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA).

27

Prior to January 1, 1983, the IRS was

only required to notify a taxpayer of its

intention to levy in the case of proposed

levies on salary or wages. Section

6331(d) was amended as a part of the Tax

Equity and Fiscal Responsibility Act of

1982 (TEFRA). The TEFRA amendment

required the IRS to give a taxpayer a notice of its intention to levy, in non-jeopardy situations, before any levy was made

upon the salary, wages, or other property

of the taxpayer. The legislative history of

the TEFRA amendment recognized that,

although a single notice of intent to levy

relating to all property would be sufficient, the IRS was not precluded from

sending multiple notices of intention to

levy.

Under section 6331(a), the IRS may

levy upon a taxpayer’s property and rights

to property if a taxpayer fails to pay a tax

liability. Exemptions from levy are provided for certain property under section

6334(a). The first step toward levy generally occurs when the IRS provides a taxpayer with a written notice and demand

for payment. Under section 6303, a notice and demand is a notice which states

that the tax has been assessed and demands that payment be made. If, in nonjeopardy situations, the taxpayer fails to

pay the tax within 10 days after notice and

demand, the IRS may seize a taxpayer’s

property or rights to property 30 days

after sending the taxpayer a notice required under section 6331(d), called a

Notice of Intent to Levy. Although the

notice and demand and the Notice of Intent to Levy may be combined and sent at

the same time under Treas. Reg.

§301.6331–2(a)(1), under current practice

these two notices are usually sent separately. Generally, the notice and demand

is sent first and, as the second step in the

levy process, the Notice of Intent to Levy

is sent at a later time. The IRS is permitted to proceed with immediate seizure of

a taxpayer’s property or rights to property

without regard to the 10-day waiting period if it determines that the collection of

the tax is in jeopardy.

Under section 6331(d), the Notice of

Intent to Levy must contain a brief statement, in simple, nontechnical terms, 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

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appeals available to the taxpayer with respect to levy and sale and the procedures

relating to those appeals, (

This text is long and has been trimmed here. Open the source document for the complete record.