Bulletin No. 1999–12
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Bulletin No. 1999–12
March 22, 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. 99–15, page 4.
LIFO; price indexes; department stores. The January
1999 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, January 31,
1999.
T.D. 8798, page 16.
REG–120168–97, page 21.
Temporary and proposed regulations under section 6695 of
the Code relate to the due diligence requirements for paid
preparers of federal income tax returns or claims for refund
involving the earned income credit. A public hearing is
scheduled for May 20, 1999.
T.D. 8803, page 15.
REG–106386–98, page 31.
Final and temporary regulations under section 6695 of the
Code provide income tax return preparers with two alternative means of meeting the requirements that a preparer retain the manually signed (by the preparer) copy of the return
or claim.
turing and Reform Act of 1998 regarding the valuation of
prior gifts in determining estate and gift tax liability, and the
period of limitations for assessing and collecting gift tax. A
public hearing is scheduled for April 28, 1999.
GIFT TAX
REG–106177–98, page 25.
Proposed regulations under sections 2001, 2504, and
6501 of the Code relate to changes made by the Taxpayer
Relief Act of 1997 and the Internal Revenue Service Restructuring and Reform Act of 1998 regarding the valuation of
prior gifts in determining estate and gift tax liability, and the
period of limitations for assessing and collecting gift tax. A
public hearing is scheduled for April 28, 1999.
EMPLOYEE PLANS
Notice 99–15, page 20.
Weighted average interest rate update. Guidelines are
set forth for determining the weighted average interest rate
for March 1999 and the resulting permissible range of interest rates used to calculate current liability for purposes of
the full funding limitation of section 412(c)(7) of the Code.
EXEMPT ORGANIZATIONS
T.D. 8804, page 5.
Announcement 99–22, page 32.
Final regulations relate to delaying the effective date and
making technical amendments to final regulations under section 1441 of the Code.
A list is given of organizations now classified as private foundations.
REG–105964–98, page 22.
ADMINISTRATIVE
Proposed regulations under section 1502 of the Code clarify
the treatment of the transfer or extinguishment of rights
under an intercompany obligation.
REG–116099–98, page 34.
ESTATE TAX
Announcement 99–25, page 35.
REG–106177–98, page 25.
Proposed regulations under sections 2001, 2504, and
6501 of the Code relate to changes made by the Taxpayer
Relief Act of 1997 and the Internal Revenue Service Restruc-
This notice withdraws certain proposed regulations under
section 162 of the Code.
The Joint Board for the Enrollment of Actuaries is proposing
a restructuring of the examination program. Clarification is
also provided on the Continuing Professional Education
(CPE) requirements and the use of the four-digit enrollment
number.
Finding Lists begin on page 43.
Announcement of Disbarments and Suspensions begins on page 38.
Department of the Treasury
Internal Revenue Service
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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
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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.
3
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Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472-1: Last-in, first-out inventories.
LIFO; price indexes; department
stores. The January 1999 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, January 31, 1999.
Rev. Rul. 99–15
The following Department Store Inventory Price Indexes for January 1999
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, January 31,
1999.
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.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Jan.
1998
Jan.
1999
Percent Change
from Jan. 1998
to Jan. 19991
1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . . . .
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21. Recreation and Education2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22. Home Improvements2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23. Auto Accessories2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
536.7
627.9
656.3
890.5
619.0
558.3
304.6
544.1
395.6
614.6
584.2
504.4
981.2
803.3
929.7
662.8
583.9
811.8
241.8
73.5
108.3
134.0
107.8
507.3
643.1
640.4
894.0
628.6
560.7
316.2
535.4
376.9
603.8
585.2
482.1
965.3
729.7
946.8
678.4
602.4
813.6
237.7
69.6
100.7
130.3
107.8
–5.5
2.4
–2.4
0.4
1.6
0.4
3.8
–1.6
–4.7
–1.8
0.2
–4.4
–1.6
–9.2
1.8
2.4
3.2
0.2
–1.7
–5.3
–7.0
–2.8
0.0
Groups 1 – 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
593.1
586.4
–1.1
Groups 16 – 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
461.9
459.0
–0.6
Groups 21 – 23: Misc. Goods2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
111.5
106.0
–4.9
Store Total3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
547.5
539.4
–1.5
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, tobacco, and contract departments.
March 22, 1999
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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 1441.—Withholding of
Tax on Nonresident Aliens
26 CFR 1.1441–1: Requirement for the deduction
and withholding of tax on payments to foreign
persons.
T.D. 8804
DEPARTMENT OF THE TREASURY
Internal Revenue Services
26 CFR Parts 1, 31, 35a and
301
General Revision of Regulations
Relating to Withholding of Tax
on Certain U.S. Source Income
Paid to Foreign Persons and
Related Collection, Refunds,
and Credits; Revision of
Information Reporting and
Backup Withholding
Regulations; and Removal of
Regulations Under Parts 1 and
35a and of Certain Regulations
Under Income Tax Treaties
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final rule; delay of effective
date, technical amendments, and partial
withdrawal.
SUMMARY: This document contains
changes delaying the effective date and
making technical amendments to final
regulations (T.D. 8734, 1997–2 C.B.
109), relating to the withholding of income tax on certain U.S. source income
payments to foreign persons. The Department of the Treasury and the IRS believe
it is in the best interest of tax administration to extend the effective date of the
final withholding regulations to ensure
that both taxpayers and the government
can complete changes necessary to implement the new withholding regime. As ex-
1999–12 I.R.B.
tended by this document, the final withholding regulations will apply to payments made after December 31, 1999.
This document also withdraws two
amendments which have already been
dealt with in T.D. 8772, (1998–31 I.R.B.
8), which was published in the Federal
Register for June 30, 1998.
DATES: Effective Dates: The amendments in this final rule are effective January 1, 2000. As of December 31, 1998,
the effective date of the final regulations
published at 62 F.R. 53387, October 14,
1997, is delayed from January 1, 1999,
until January 1, 2000; however, the effective date of the addition of §31.9999–0
and §35a.9999–0 and the removal of
§35a.9999–0T remains October 14, 1997.
Withdrawal: Effective December 31,
1998, the amendments removing
§§1.6045–1T and 1.6045–2T published at
62 F.R. 53387, October 14, 1997, are
withdrawn.
FOR FURTHER INFORMATION CONTACT: Lilo Hester, (202) 622-3840 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations that are the subject of this amendment provide guidance
under sections 1441, 1442, and 1443 of
the Internal Revenue Code (Code) on certain U.S. source income paid to foreign
persons, the related tax deposit and reporting requirements under section 1461
of the Code, and the related changes
under sections 163(f), 165(j), 871, 881,
1462, 1463, 3401, 3406, 6041, 6041A,
6042, 6045, 6049, 6050A, 6050N, 6109,
6114, 6402, 6413, and 6724 of the Code.
ble to payments made after December 31,
1998, and generally granted withholding
agents until after December 31, 1999, to
obtain the new withholding certificates
and statements required under those regulations. This amendment serves to make
the final regulations applicable to payments made after December 31, 1999, and
to require mandatory use of the new withholding certificates and statements after
December 31, 2000. In addition, this
amendment serves to address typographical errors, and to withdraw the removal of
§§1.6045–1T and 1.6045–2T since those
sections were already removed on June
30, 1998, in T.D. 8772 (63 F.R. 35517).
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 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. Finally, it has
been determined that the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply to these regulations because the
regulations do not impose a collection of
information on small entities. Pursuant to
7805(f) of the Code, the notice of proposed rulemaking preceding these regulations (61 F.R. 17614) was submitted to
the Small Business Administration for
comment on its impact on small business.
* * * * *
Amendments to the Regulations
Accordingly, under the authority of 26
U.S.C. 7805, 26 CFR parts 1, 31, 35a, and
301 are amended by making the following
correcting amendments:
Need for Changes
On April 13, 1998, in Notice 98–16
(1998–15 I.R.B. 12), the IRS and Treasury announced their decision to extend
the effective date of the final regulations,
and to make correlative changes to the
transition rules for obtaining new withholding certificates and statements containing the necessary information and representations required by the final
regulations. As published in the Federal
Register on October 14, 1997 (62 F.R.
53387 [T.D. 8734, 1997–2 C.B. 109]), the
final regulations were generally applica-
5
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §1.871–14, paragraph (h) is
revised to read as follows:
§1.871–14 Rules relating to repeal of tax
on interest of nonresident alien
individuals and foreign corporations
received from certain portfolio debt
investments.
* * * * *
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Page 6
(h) Effective date—(1) In general.
This section shall apply to payments of
interest made after December 31, 1999.
(2) Transition rule. For purposes of
this section, the validity of a Form W-8
that was valid on January 1, 1998, under
the regulations in effect prior to January
1, 2000 (see 26 CFR parts 1 and 35a, revised April 1, 1998) and expired, or will
expire, at any time during 1998, is extended until December 31, 1998. The validity of a Form W-8 that is valid on or
after January 1, 1999, remains valid until
its validity expires under the regulations
in effect prior to January 1, 2000 (see 26
CFR parts 1 and 35a, revised April 1,
1998) or, if earlier, until December 31,
2000. The rule in this paragraph (h)(2),
however, does not apply to extend the validity period of a Form W-8 that expires
solely by reason of changes in the circumstances of the person whose name is on
the certificate. Notwithstanding the first
three sentences of this paragraph (h)(2), a
withholding agent or payor may choose to
not take advantage of the transition rule in
this paragraph (h)(2) with respect to one
or more withholding certificates valid
under the regulations in effect prior to
January 1, 2000 (see 26 CFR parts 1 and
35a, revised April 1, 1998) and, therefore,
may choose to obtain withholding certificates conforming to the requirements described in this section (new withholding
certificates). For purposes of this section,
a new withholding certificate is deemed
to satisfy the documentation requirement
under the regulations in effect prior to
January 1, 2000 (see 26 CFR parts 1 and
35a, revised April 1, 1998). Further, a
new withholding certificate remains valid
for the period specified in §1.1441–
1(e)(4)(ii), regardless of when the certificate is obtained.
Par. 3. In §1.1441–1 as revised at 62
F.R. 53424, paragraph (f) is revised to
read as follows:
§1.1441–1 Requirement for the
deduction and withholding of tax on
payments to foreign persons.
* * * * *
(f) Effective date—(1) In general.
This section applies to payments made
after December 31, 1999.
March 22, 1999
(2) Transition rules—(i) Special rules
for existing documentation. For purposes
of paragraphs (d)(3) and (e)(2)(i) of this
section, the validity of a withholding certificate (namely, Form W-8, 8233, 1001,
4224, or 1078 , or a statement described
in §1.1441–5 in effect prior to January 1,
2000 (see §1.1441–5 as contained in 26
CFR part 1, revised April 1, 1998)) that
was valid on January 1, 1998 under the
regulations in effect prior to January 1,
2000 (see 26 CFR parts 1 and 35a, revised
April 1, 1998) and expired, or will expire,
at any time during 1998, is extended until
December 31, 1998. The validity of a
withholding certificate that is valid on or
after January 1, 1999, remains valid until
its validity expires under the regulations
in effect prior to January 1, 2000 (see 26
CFR parts 1 and 35a, revised April 1,
1998) or, if earlier, until December 31,
2000. The rule in this paragraph (f)(2)(i),
however, does not apply to extend the validity period of a withholding certificate
that expires solely by reason of changes in
the circumstances of the person whose
name is on the certificate. Notwithstanding the first three sentences of this paragraph (f)(2)(i), a withholding agent may
choose to not take advantage of the transition rule in this paragraph (f)(2)(i) with respect to one or more withholding certificates valid under the regulations in effect
prior to January 1, 2000 (see 26 CFR parts
1 and 35a, revised April 1, 1998) and,
therefore, to require withholding certificates conforming to the requirements described in this section (new withholding
certificates). For purposes of this section,
a new withholding certificate is deemed to
satisfy the documentation requirement
under the regulations in effect prior to January 1, 2000 (see 26 CFR parts 1 and 35a,
revised April 1, 1998). Further, a new
withholding certificate remains valid for
the period specified in paragraph (e)(4)(ii)
of this section, regardless of when the certificate is obtained.
(ii) Lack of documentation for past
years. A taxpayer may elect to apply the
provisions of paragraphs (b)(7)(i)(B), (ii),
and (iii) of this section, dealing with liability for failure to obtain documentation
timely, to all of its open tax years, including tax years that are currently under examination by the IRS. The election is
made by simply taking action under those
6
provisions in the same manner as the taxpayer would take action for payments
made after December 31, 1999.
Par. 4. In §1.1441–4 as amended at 62
F.R. 53450, paragraph (g) is revised to
read as follows:
§1.1441–4 Exemptions from withholding
for certain effectively connected income
and other amounts.
* * * * *
(g) Effective date—(1) General rule.
This section applies to payments made
after December 31, 1999.
(2) Transition rules. The validity of a
Form 4224 or 8233 that was valid on January 1, 1998, under the regulations in effect
prior to January 1, 2000 (see 26 CFR part
1, revised April 1, 1998) and expired, or
will expire, at any time during 1998, is extended until December 31, 1998. The validity of a Form 4224 or 8233 that is valid
on or after January 1, 1999, remains valid
until its validity expires under the regulations in effect prior to January 1, 2000 (see
26 CFR part 1, revised April 1, 1998) or, if
earlier, until December 31, 2000. The rule
in this paragraph (g)(2), however, does not
apply to extend the validity period of a
Form 4224 or 8223 that expires solely by
reason of changes in the circumstances of
the person whose name is on the certificate. Notwithstanding the first three sentences of this paragraph (g)(2), a withholding agent may choose to not take
advantage of the transition rule in this
paragraph (g)(2) with respect to one or
more withholding certificates valid under
the regulations in effect prior to January 1,
2000 (see 26 CFR part 1, revised April 1,
1998) and, therefore, to require withholding certificates conforming to the requirements described in this section (new withholding certificates). For purposes of this
section, a new withholding certificate is
deemed to satisfy the documentation requirement under the regulations in effect
prior to January 1, 2000 (see 26 CFR part
1, revised April 1, 1998). Further, a new
withholding certificate remains valid for
the period specified in §1.1441–1(e)(4)(ii),
regardless of when the certificate is obtained.
Par. 5. In §1.1441–5 as revised at 62
F.R, 53452, paragraph (g) is revised to
read as follows:
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Page 7
§1.1441–5 Withholding on payments to
partnerships, trusts, and estates.
*****
(g) Effective date—(1) General rule.
This section applies to payments made
after December 31, 1999.
(2) Transition rules. The validity of a
withholding certificate that was valid on
January 1, 1998, under the regulations in
effect prior to January 1, 2000 (see 26
CFR parts 1 and 35a, revised April 1,
1998) and expired, or will expire, at any
time during 1998, is extended until December 31, 1998. The validity of a withholding certificate that is valid on or after
January 1, 1999, remains valid until its
validity expires under the regulations in
effect prior to January 1, 2000 (see 26
CFR parts 1 and 35a, revised April 1,
1998) or, if earlier, until December 31,
2000. The rule in this paragraph (g)(2),
however, does not apply to extend the validity period of a withholding certificate
that expires solely by reason of changes in
the circumstances of the person whose
name is on the certificate. Notwithstanding the first three sentences of this paragraph (g)(2) , a withholding agent may
choose to not take advantage of the transition rule in this paragraph (g)(2) with respect to one or more withholding certificates valid under the regulations in effect
prior to January 1, 2000 (see 26 CFR
parts 1 and 35a, revised April 1, 1998)
and, therefore, to require withholding certificates conforming to the requirements
described in this section (new withholding certificates). For purposes of this section, a new withholding certificate is
deemed to satisfy the documentation requirement under the regulations in effect
prior to January 1, 2000 (see 26 CFR
parts 1 and 35a, revised April 1, 1998).
Further, a new withholding certificate remains valid for the period specified in
§1.1441–1(e)(4)(ii), regardless of when
the certificate is obtained.
Par. 6. In §1.1441–6 as revised at 62
F.R. 53458, paragraph (g) is revised to
read as follows:
(g) Effective date—(1) General rule.
This section applies to payments made
after December 31, 1999.
(2) Transition rules. For purposes of
this section, the validity of a Form 1001
or 8233 that was valid on January 1, 1998,
under the regulations in effect prior to
January 1, 2000 (see 26 CFR parts 1 and
35a, revised April 1, 1998) and expired,
or will expire, at any time during 1998, is
extended until December 31, 1998. The
validity of a Form 1001 or 8233 is valid
on or after January 1, 1999, remains valid
until its validity expires under the regulations in effect prior to January 1, 2000
(see 26 CFR parts 1 and 35a, revised
April 1, 1998) or, if earlier, until December 31, 2000. The rule in this paragraph
(g)(2), however, does not apply to extend
the validity period of a Form 1001 or
8233 that expires solely by reason of
changes in the circumstances of the person whose name is on the certificate or in
interpretation of the law under the regulations under §1.894–1T(d). Notwithstanding the first three sentences of this paragraph (g)(2), a withholding agent may
choose to not take advantage of the transition rule in this paragraph (g)(2) with respect to one or more withholding certificates valid under the regulations in effect
prior to January 1, 2000 (see 26 CFR
parts 1 and 35a, revised April 1, 1998)
and, therefore, to require withholding certificates conforming to the requirements
described in this section (new withholding certificates). For purposes of this section, a new withholding certificate is
deemed to satisfy the documentation requirement under the regulations in effect
prior to January 1, 2000 (see 26 CFR
parts 1 and 35a, revised April 1, 1998).
Further, a new withholding certificate remains valid for the period specified in
§1.1441–1(e)(4)(ii), regardless of when
the certificate is obtained.
Par. 7. In §1.1441–8 as redesignated
and amended at 62 F.R. 53464, paragraph
(f) is revised to read as follows:
§1.1441–6 Claim of reduced withholding
under an income tax treaty.
§1.1441–8 Exemption from withholding
for payments to foreign governments,
international organizations, foreign
central banks of issue, and the Bank for
International Settlements.
* * * * *
* * * * *
1999–12 I.R.B.
7
(f) Effective date—(1) In general.
This section applies to payments made
after December 31, 1999.
(2) Transition rules. For purposes of
this section, the validity of a Form 8709
that was valid on January 1, 1998, under
the regulations in effect prior to January
1, 2000 (see 26 CFR part 1, revised April
1, 1998) and expired, or will expire, at
any time during 1998, is extended until
December 31, 1998. The validity of a
Form 8709 that is valid on or after January 1, 1999, remains valid until its validity expires under the regulations in effect
prior to January 1, 2000 (see 26 CFR part
1, revised April 1, 1998) or, if earlier,
until December 31, 2000. The rule in this
paragraph (f)(2), however, does not apply
to extend the validity period of a Form
8709 that expires solely by reason of
changes in the circumstances of the person whose name is on the certificate.
Notwithstanding the first three sentences
of this paragraph (f)(2), a withholding
agent may choose to not take advantage
of the transition rule in this paragraph
(f)(2) with respect to one or more withholding certificates valid under the regulations in effect prior to January 1, 2000
(see 26 CFR part 1, revised April 1, 1998)
and, therefore, to require withholding certificates conforming to the requirements
described in this section (new withholding certificates). For purposes of this section, a new withholding certificate is
deemed to satisfy the documentation requirement under the regulations in effect
prior to January 1, 2000 (see 26 CFR part
1, revised April 1, 1998). Further, a new
withholding certificate remains valid for
the period specified in §1.1441–1(e)(4)(ii), regardless of when the certificate
is obtained.
Par. 8. In §1.1441–9, paragraph (d) is
revised to read as follows:
§1.1441–9 Exemption from withholding
on exempt income of a foreign tax-exempt
organization, including foreign private
foundations.
* * * * *
(d) Effective date—(1) In general.
This section applies to payments made
after December 31, 1999.
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(2) Transition rules. For purposes of
this section, the validity of a Form W-8,
1001, or 4224 or a statement that was
valid on January 1, 1998, under the regulations in effect prior to January 1, 2000
(see 26 CFR parts 1 and 35a, revised
April 1, 1998) and expired, or will expire,
at any time during 1998, is extended until
December 31, 1998. The validity of a
Form W-8, 1001, or 4224 or a statement
that is valid on or after January 1, 1999
remains valid until its validity expires
under the regulations in effect prior to
January 1, 2000 (see 26 CFR parts 1 and
35a, revised April 1, 1998) or, if earlier,
until December 31, 2000. The rule in this
paragraph (d)(2), however, does not apply
to extend the validity period of a Form
W-8, 1001, or 4224 or a statement that
expires solely by reason of changes in the
circumstances of the person whose name
is on the certificate. Notwithstanding the
first three sentences of this paragraph
(d)(2), a withholding agent may choose to
not take advantage of the transition rule in
this paragraph (d)(2) with respect to one
or more withholding certificates valid
under the regulations in effect prior to
January 1, 2000 (see 26 CFR parts 1 and
35a, revised April 1, 1998) and, therefore,
to require withholding certificates conforming to the requirements described in
this section (new withholding certificates). For purposes of this section, a new
withholding certificate is deemed to satisfy the documentation requirement under
the regulations in effect prior to January
1, 2000 (see 26 CFR parts 1 and 35a, revised April 1, 1998). Further, a new withholding certificate remains valid for the
period specified in §1.1441–1(e)(4)(ii),
regardless of when the certificate is
obtained.
Par. 9. In §1.1443–1 as revised at 62
F.R. 53466, paragraph (c) is revised to
read as follows:
§1.1443–1 Foreign tax-exempt
organizations.
* * * * *
(c) Effective date—(1) In general.
This section applies to payments made
after December 31, 1999.
(2) Transition rules. For purposes of
this section, the validity of an affidavit or
opinion of counsel described in §1.1443–
1(b)(4)(i) in effect prior to January 1,
March 22, 1999
2000 (see §1.1443–1(b)(4)(i) as contained
in 26 CFR part 1, revised April 1, 1998)
that is valid on December 31, 1998 is extended until December 31, 2000. However, a withholding agent may choose to
not take advantage of the transition rule in
this paragraph (c)(2) with respect to one
or more withholding certificates valid
under the regulations in effect prior to
January 1, 2000 (see 26 CFR part 1, revised April 1, 1998) and, therefore, to require withholding certificates conforming
to the requirements described in this section (new withholding certificates). For
purposes of this section, a new withholding certificate is deemed to satisfy the
documentation requirement under the regulations in effect prior to January 1, 2000
(see 26 CFR part 1, revised April 1,
1998). Further, a new withholding certificate remains valid for the period specified
in §1.1441–1(e)(4)(ii), regardless of when
the certificate is obtained.
§1.6041–3 [Amended]
Par. 10. Section 1.6041–3 as amended
at 62 F.R. 53472 is further amended by removing the last sentence of the introductory text.
Par. 11. In §1.6042–3 as amended at 62
F.R. 53475, paragraph (b)(5) is revised to
read as follows:
§1.6042–3 Dividends subject to
reporting.
* * * * *
(b) * * *
(5) Effective date—(i) General rule.
The provisions of this paragraph (b) apply
to payments made after December 31,
1999.
(ii) Transition rules. The validity of a
withholding certificate (namely, Form W8 or other form upon which the payor is
permitted to rely to hold the payee as a
foreign person) that was valid on January
1, 1998, under the regulations in effect
prior to January 1, 2000 (see 26 CFR
parts 1 and 35a, revised April 1, 1998)
and expired, or will expire, at any time
during 1998, is extended until December
31, 1998. The validity of a withholding
certificate that is valid on or after January
1, 1999, remains valid until its validity
expires under the regulations in effect
prior to January 1, 2000 (see 26 CFR
parts 1 and 35a, revised April 1, 1998) or,
8
if earlier, until December 31, 2000. The
rule in this paragraph (b)(5)(ii), however,
does not apply to extend the validity period of a withholding certificate that expires solely by reason of changes in the
circumstances of the person whose name
is on the certificate. Notwithstanding the
first three sentences of this paragraph
(b)(5)(ii), a payor may choose not to take
advantage of the transition rule in this
paragraph (b)(5)(ii) with respect to one or
more withholding certificates valid under
the regulations in effect prior to January
1, 2000 (see 26 CFR parts 1 and 35a, revised April 1, 1998) and, therefore, to require withholding certificates conforming to the requirements described in this
section (new withholding certificates).
For purposes of this section, a new withholding certificate is deemed to satisfy the
documentation requirement under the regulations in effect prior to January 1, 2000
(see 26 CFR parts 1 and 35a, revised
April 1, 1998). Further, a new withholding certificate remains valid for the period
specified in §1.1441–1(e)(4)(ii), regardless of when the certificate is obtained.
Par. 12. In §1.6045–1 as amended at
62 F.R. 53476, paragraph (g)(5) is revised
to read as follows:
§1.6045–1 Returns of information of
brokers and barter exchanges.
* * * * *
(g) * * *
(5) Effective date—(i) General rule.
The provisions of this paragraph (g) apply
to payments made after December 31,
1999.
(ii) Transition rules. The validity of a
withholding certificate (namely, Form W8 or other form upon which the payor is
permitted to rely to hold the payee as a
foreign person) that was valid on January
1, 1998, under the regulations in effect
prior to January 1, 2000 (see 26 CFR
parts 1 and 35a, revised April 1, 1998)
and expired, or will expire, at any time
during 1998, is extended until December
31, 1998. The validity of a withholding
certificate that is valid on or after January
1, 1999, remains valid until its validity
expires under the regulations in effect
prior to January 1, 2000 (see 26 CFR
parts 1 and 35a, revised April 1, 1998) or,
if earlier, until December 31, 2000. The
rule in this paragraph (g)(5)(ii), however,
1999–12 I.R.B.
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Page 9
does not apply to extend the validity period of a form that expires in 1998 solely
by reason of changes in the circumstances
of the person whose name is on the certificate. Notwithstanding the first three
sentences of this paragraph (g)(5)(ii), a
payor may choose not to take advantage
of the transition rule in this paragraph
(g)(5)(ii) with respect to one or more
withholding certificates valid under the
regulations in effect prior to January 1,
2000 (see 26 CFR parts 1 and 35a, revised
April 1, 1998) and, therefore, to require
withholding certificates conforming to the
requirements described in this section
(new withholding certificates). For purposes of this section, a new withholding
certificate is deemed to satisfy the documentation requirement under the regulations in effect prior to January 1, 2000
(see 26 CFR parts 1 and 35a, revised
April 1, 1998). Further, a new withholding certificate remains valid for the period
specified in §1.1441–1(e)(4)(ii), regardless of when the certificate is obtained.
Par 13. Effective December 31, 1998,
the amendments removing §§1.6045–1T
and 1.6045–2T, published at 62 F.R.
53480, are withdrawn.
Par. 14. In §1.6049–5 as amended at
62 F.R. 53483, paragraph (g) is revised to
read as follows:
§1.6049–5 Interest and original issue
discount subject to reporting after
December 31, 1982.
Section
Remove
Add
1.871–14(c)(2)(iii)
1.871–14(c)(3)(ii),
Example, first and sixth sentences
1.1441–1(c)(3)(ii)
October 12, 1999
1.1441–1(e)(3)(ii)
October 12, 2000
1.871–14(c)(3)(ii),
Example, sixth sentence
December 31, 1999
December 31, 2000
1.871–14(c)(3)(ii),
Example, sixth and seventh sentences
June 15, 2003
June 15, 2004
1.1441–1(b)(2)(iii)(B),
fifth sentence
savings clause
saving clause
1.1441–1(b)(2)(iv)(E),
second sentence
actually maintain
actually maintains
1.1441–1(b)(3)(iii)(B),
first sentence
that cannot reliably
cannot reliably
1.1441–1(b)(3)(iii)(C),
last sentence
1.1441–4(e)
1.1441–4(d)
1.1441–1(b)(3)(x),
Example 1, seventh and ninth sentences
Ws
W’s
1999–12 I.R.B.
* * * * *
(g) Effective date—(1) General rule.
The provisions of paragraphs (b)(6)
through (15), (c), (d), and (e) of this section apply to payments made after December 31, 1999.
(2) Transition rules. The validity of a
withholding certificate (namely, Form W8 or other form upon which the payor is
permitted to rely to hold the payee as a
foreign person) that was valid on January
1, 1998, under the regulations in effect
prior to January 1, 2000 (see 26 CFR
parts 1 and 35a, revised April 1, 1998)
and expired, or will expire, at any time
during 1998, is extended until December
31, 1998. The validity of a withholding
certificate that is valid on or after January
1, 1999, remains valid until its validity
expires under the regulations in effect
prior to January 1, 2000 (see 26 CFR
parts 1 and 35a, revised April 1, 1998) or,
if earlier, until December 31, 2000. The
rule in this paragraph (g)(2), however,
does not apply to extend the validity period of a withholding certificate that expires solely by reason of changes in the
circumstances of the person whose name
9
is on the certificate. Notwithstanding the
first three sentences of this paragraph
(g)(2), a payor may choose not to take
advantage of the transition rule in this
paragraph (g)(2) with respect to one or
more withholding certificates valid under
the regulations in effect prior to January
1, 2000 (see 26 CFR parts 1 and 35a, revised April 1, 1998) and, therefore, may
require withholding certificates conforming to the requirements described in this
section (new withholding certificates).
For purposes of this section, a new withholding certificate is deemed to satisfy the
documentation requirement under the regulations in effect prior to January 1, 2000
(see 26 CFR parts 1 and 35a, revised
April 1, 1998). Further, a new withholding certificate remains valid for the period
specified in §1.1441–1(e)(4)(ii), regardless of when the certificate is obtained.
PARTS 1, 31, 35a, and 301
[AMENDED]
Par. 15. In the list below, for each section indicated in the left column (which
was added, revised, or amended at 62 F.R.
53387), remove the language in the middle column and add the language in the
right column:
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1.1441–1(b)(3)(x),
Example 2, sixth and seventh sentences
Ws
W’s
1.1441–1(b)(3)(x),
Example 3, third sentence
X, nc.
X, Inc.
1.1441–1(b)(4)(i),
first sentence
1.871–7(b)(2)(i)
1.871–7(b)(2)
1.1441–1(b)(4)(xix)
January 1, 1999
January 1, 2000
1.1441–1(b)(4)(xix)
April 1, 1997
April 1, 1998
1.1441–1(b)(5)(viii)
I.R.B. 1996–49
1996–2 C.B. 227
1.1441–1(b)(7)(v),
Example 1, first, fourth, and
eighth sentences
June 15, 1999
June 15, 2000
1.1441–1(b)(7)(v),
Example 1, third and ninth sentences
September 30, 2001
September 30, 2002
1.1441–1(b)(7)(v),
Example 1, ninth sentence
March 15, 2000
March 15, 2001
1.1441-1(b)(7)(v),
Example 2, first, fourth, and seventh
sentences
June 15, 1999
June 15, 2000
1.1441–1(b)(7)(v),
Example 2, third and seventh sentences
September 30, 2001
September 30, 2002
1.1441–1(b)(7)(v),
Example 2, seventh and ninth sentences
March 15, 2000
March 15, 2001
1.1441–1(c)(6)(ii)(B)
January 1, 1999
January 1, 2000
1.1441–1(c)(6)(ii)(B)
April 1, 1997
April 1, 1998
1.1441–1(e)(4)(ii)(A)
September 30, 1999
September 30, 2000
1.1441–1(e)(4)(ii)(A)
December 31, 2002
December 31, 2003
1.1441–1(e)(4)(vi),
sixth sentence
provided the acceptable
provided on the acceptable
1.1441–1(e)(4)(ix)(A)(2),
second sentence
§31.3406(c)1(c)(3)(ii)
§31.3406(c)–(c)(3)(ii)
1.1441–1(e)(5)(i),
penultimate sentence
reportable payments
reportable amounts
1.1441–1(e)(5)(v)(A),
third sentence
the intermediary
the qualified intermediary
1.1441–1(e)(5)(v)(A),
fourth sentence
the intermediary to
the qualified intermediary to
March 22, 1999
10
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Page 11
1.1441–1(e)(5)(v)(B),
introductory text, third sentence
paragraph (b)(3)(vi)
paragraph (e)(3)(vi)
1.1441–1(e)(5)(v)(B)(1),
second sentence
withholding agent
qualified intermediary
1.1441–1(e)(5)(v)(C),
first sentence
The intermediary
The qualified intermediary
1.1441–2(a), last
sentence
871(h)(5)(B)
871(h)(5)(B) or a member of a clearing
organization which member is the beneficial owner of the obligation
1.1441–2(b)(1)(ii),
fifth sentence
someone s
someone’s
1.1441–2(b)(3)(iv)
December 31, 1998
December 31, 1999
1.1441–2(f)
December 31, 1998
December 31, 1999
1.1441–3(h)
December 31, 1998
December 31, 1999
1.1441–4(a)(2)(i), second
sentence
United States
United States and is includable in the
beneficial owner’s gross income for the
taxable year
1.1441–5(a)(6),
second sentence
withholding partnership
withholding foreign partnership
1.1441–5(c)(2)(ii)(B),
sixth sentence
qualified intermediary
withholding foreign partnership
1.1441–5(c)(2)(ii)(B),
sixth sentence
customers
partners
1.1441–5(c)(3)(iii)(D)
that the partners
that the amounts allocable to the partners
1.1441–5(d)(4), Example 2,
second sentence
depending of
depending on
1.1441–6(b)(1), first
sentence
§1.1441–1(e)(1)(ii)(B)
§1.1441–1(e)(1)(ii)(A)(2)
1.1441–6(c)(2)(ii), first
sentence
upon a certificate
upon receipt of a certificate
1.1441–6(d), second
sentence
rate of tax
rate of withholding
1.1441–7(g)
December 31, 1998
December 31, 1999
1.1461–1(b)(2)(v)
foreign partnership shall
foreign partnership (whether or not a
withholding foreign partnership) shall
1.1461–1(b)(2)(vi),
paragraph heading
banks, securities dealers,
or insurance companies.
banks, or insurance companies.
1999–12 I.R.B.
11
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1.1461–1(c)(4)(iv), first
sentence
certificate attached to the intermediary’s
or partnership withholding certificate
that is from a qualified intermediary or a
withholding foreign partnership
certificate or documentary evidence atattached to the intermediary’s or partnership withholding certificate
1.1461–1(i)
December 31, 1998
December 31, 1999
1.1461–2(a)(1), third
sentence
an adjustment to
a refund of
1.1461–2(a)(3),
first sentence
beneficial owner
beneficial owner or payee
1.1461–2(a)(4),
Example 1(i), second sentence
December 1999
December 2000
1.1461–2(a)(4),
Example 1(i), third sentence
February 10, 2000
February 10, 2001
1.1461–2(a)(4),
Example 1(ii), first, second, and last
sentences
1999
2000
1.1461–2(a)(4),
Example 1(ii), first sentence
March 15, 2000
March 15, 2001
1.1461–2(a)(4),
Example 1(ii), third sentence
2000
2001
1.1461–2(a)(4),
Example 2, second and
last sentences
2000
2001
1.1461–2(a)(4),
Example 2, second sentence
June 2000
June 2001
1.1461–2(a)(4),
Example 2, third sentence
July 15, 2000
July 15, 2001
1.1461–2(a)(4),
Example 2, third sentence
1999
2000
1.1461–2(a)(4),
Example 2, last sentence
March 15, 2001
March 15, 2002
1.1461–2(a)(4), Example 3,
last sentence
February 15, 2000
February 15, 2001
1.1461–2(a)(4), Example 3,
last sentence
March 15, 2000
March 15, 2001
1.1461–2(d)
December 31, 1998
December 31, 1999
1.1462–1(c)
December 31, 1998
December 31, 1999
1.1463–1(a), last sentence
§1.1441–7(b)(7)
§1.1441–7(b)
1.1463–1(b)
December 31, 1989
December 31, 1999
March 22, 1999
12
1999–12 I.R.B.
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Page 13
1.1464–1(b)
§1.1461–4
§1.1461–2
1.6041–4(d)
December 31, 1998
December 31, 1999
1.6041A–1(d)(3)(i)(B),
first sentence
if payments made
if payments are made
1.6041A–1(d)(3)(iv),
paragraph heading
amount paid
amounts paid
1.6041A–1(d)(3)(v)
December 31, 1998
December 31, 1999
1.6043–2(a), first, second,
and last sentences
966
1099
1.6045–1(d)(6)(ii)(B)
December 31, 1998
December 31, 1999
1.6045–1(g)(3)(iv),
second sentence
Example 7
Example 6
1.6045–1(g)(4),
Example 7(ii), last sentence
Ys
Y’s
1.6049–4(c)(1)(ii)(A),
second sentence
certificate meeting the certification
requirements of paragraphs (c)(2)(ii)(A)
(1) through (5) of this section.
certificate stating that each member of the
partnership meets the requirements of
paragraphs (c)(1)(ii)(A)(1) through (4) of
this section.
1.6049–4(d)(3)(ii)(B)
December 31, 1998
December 31, 1999
1.6049–5(b)(12), first
sentence
Returns of information are not required
for payments that
Payments that
1.6049–5(c)(4)(i), first
sentence
the payor may
the bank or other financial institution may
1.6049–5(c)(4)(ii), second sentence
then the financial institution
then the bank or other financial institution
1.6049–5(c)(4)(v)
January 1, 1999
January 1, 2000
1.6049–5(d)(2)(ii), second
and last sentences
publicly traded
actively traded
1.6049–5(d)(2)(ii), eighth
sentence
is less than 31
is equal to or less than 31
1.6049–5(e)(1)(i),
introductory text
The amount
An amount is described in this paragraph
(e)(1)(i) if it
1.6049–5(e)(1)(ii)
The amount
An amount is described in this paragraph
(e)(1)(ii) if it
1.6049–5(e)(4), second sentence
specifically identifies
specifically identify
1.6049–5(e)(5),
Example 5, last sentence
of is section
of this section
1999–12 I.R.B.
13
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1.6049–5(e)(5),
Example 9, second sentence
a holds
A holds
1.6049–5(e)(5),
Example 9, third sentence
paid to a
paid to A
1.6049–5(e)(5),
Example 9, third sentence
a’s
A’s
1.6049–5(e)(5),
Example 9, last sentence
to a by DB
to A by DB
1.6050N–1(e), first sentence
is applies to
applies to
1.6050N–1(e), last sentence
December 31, 1998
December 31, 1999
31.3401(a)(6)–1(e),
paragraph heading
January 1, 1999
January 1, 2000
31.3401(a)(6)–1(e),
first sentence
January 1, 1999
January 1, 2000
31.3401(a)(6)–1(f),
paragraph heading
December 31, 1998
December 31, 1999
31.3401(a)(6)–1(f),
first sentence
December 31, 1998
December 31, 1999
31.3406(g)–1(e),
first sentence
December 31, 1998
December 31, 1999
31.3406(h)–2(d),
penultimate sentence
December 31, 1998
December 31, 1999
31.9999–0
January 1, 1999
January 1, 2000
301.6114–1(b)(4)(ii)(C),
introductory text
December 31, 1998
December 31, 1999
301.6114–1(b)(4)(ii)(D)
December 31, 1998
December 31, 1999
301.6724–1(g)(2) Q-11
January 1, 1999
January 1, 2000
301.6724–1(g)(2) Q-11
April 1, 1997
April 1, 1998
301.6724–1(g)(2) A-11
January 1, 1999
January 1, 2000
301.6724–1(g)(2) A-11
April 1, 1997
April 1, 1998
301.6724–1(g)(3), first
sentence
December 31, 1998
December 31, 1999
301.6724–1(g)(3), last
sentence in both places
January 1, 1999
January 1, 2000
301.6724–1(g)(3), last
sentence
April 1, 1997
April 1, 1998
March 22, 1999
14
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Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
Approved January 7, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on December 30, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 31, 1998,
63 F.R. 72183)
Section 6695.—Other
Assessable Penalties With
Respect to the Preparation of
Income Tax Returns for Other
Persons
26 CFR 1.6695–1: Other assessable penalties with
respect to the preparation of income tax returns for
other persons.
T.D. 8803
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Retention of Income Tax Return
Preparers’ Signatures
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regulations.
SUMMARY: This document contains
final and temporary regulations that provide income tax return preparers with two
alternative means of meeting the requirement that a preparer retain the manually
signed (by the preparer) copy of the return
or claim. The regulations are necessary to
inform preparers of the two alternatives
and provide preparers with the guidance
needed to comply with the alternatives.
The text of the temporary regulations also
serves as the text of the proposed regulations set forth in the notice of proposed
rulemaking on this subject in REG–
106386–98, page 31.
DATES: Effective date. These regulations
are effective December 31, 1998.
Applicability date: For dates of applicability, see §1.6695–1T(g) of these regulations.
1999–12 I.R.B.
FOR FURTHER INFORMATION CONTACT: Marc C. Porter (202) 622-4940
(not a toll-free number).
of a partnership which is a preparer), must
retain the manually signed copy of the return or claim.
SUPPLEMENTARY INFORMATION:
Explanation of Provisions
Background
The regulations provide that, if an income tax return preparer presents for a
taxpayer’s signature a return or claim for
refund that has a copy of the preparer’s
manual signature, the preparer may either
retain a photocopy of the manually signed
copy of the return or claim for refund or
use an electronic storage system meeting
the requirements of section 4 of Rev.
Proc. 97–22, (1997–1 C.B. 652) or procedures subsequently prescribed by the
Commissioner, to store and produce a
copy of the return of claim manually
signed by the preparer.
This document contains amendments to
the Income Tax Regulations (26 CFR part
1) relating to the penalty for failure to
sign an income tax return under section
6695(b) of the Internal Revenue Code.
Section 6695(b) provides that any person
who is an income tax return preparer with
respect to a return or claim for refund,
who is required by regulations prescribed
by the Secretary to sign the return or
claim, and who fails to comply with those
regulations, must pay a penalty of $50 for
such failure, unless it is shown that the
failure is due to reasonable cause and not
willful neglect. The maximum penalty
imposed with respect to documents filed
during a calendar year will not exceed
$25,000.
Section 7701(a)(36)(A) provides that,
in general, the term “income tax return
preparer” means any person who prepares
for compensation, or who employs one or
more persons to prepare for compensation, any return of tax or claim for refund
imposed by subtitle A. For purposes of
the preceding sentence, the preparation of
a substantial portion of a return or claim is
treated as if it were the preparation of
such return or claim.
Section 1.6695–1(b)(1) and (c) generally provides that an income tax return
preparer, with respect to a return or claim
for refund, must manually sign the return
or claim (which may be a photocopy) in
the appropriate space provided on the return or claim after it is completed and before it is presented to the taxpayer (or
nontaxable entity) for signature.
Section 1.6695–1(b)(4)(i) provides that
the manual signature requirement may be
satisfied by a photocopy of a copy of the
return or claim for refund if the copy is
manually signed by the income tax return
preparer after completion of its preparation. The taxpayer may file a photocopy
of this manually signed return with the
IRS, see Rev. Proc. 78–370, (1978–2 C.B.
335). The employer of the preparer or the
partnership in which the preparer is a
partner, or the preparer (if not employed
or engaged by a preparer and not a partner
15
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 do 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 temporary 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 Marc C. Porter, Office of Assistant Chief Counsel (Income Tax & Accounting). However, other personnel from
the IRS and Treasury Department participated in their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entity in
March 22, 1999
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Page 16
numerical order to read as follows:
Authority: 26 U.S.C. 7805 ***
Section 1.6695–1T also issued under
U.S.C. 6695(b) ***
Par 2. Section 1.6695–1 is amended by
revising paragraph (b)(4)(i) to read as follows:
§1.6695–1 Other assessable penalties
with respect to the preparation of income
tax returns for other persons.
* * * * *
(b) ***
(4) (i) [Reserved]. For further guidance on acceptable methods of meeting
the manual signature requirement of paragraph (b)(1) and (2), see §1.6695–1T(b)(4)(i).
* * * * *
Par. 3. Section 1.6695–1T is added to
read as follows:
§1.6695–1T Other assessable penalties
with respect to the preparation of income
tax returns for other persons (temporary).
(a) through (b)(3) [Reserved]. For further guidance, see §1.6695–1(a) through
(b)(3).
(4) (i) The manual signature requirement of paragraph 1.6695–1(b)(1) and (2)
of this section may be satisfied by a photocopy of a copy of the return or claim for
refund which copy is manually signed by
the preparer after completion of its preparation. After a copy of the return or claim
for refund is signed by the preparer and
before it is photocopied, no person other
than the preparer may alter any entries on
the copy other than to correct arithmetical
errors discernible on the return or claim
for refund. The employer of the preparer
or the partnership in which the preparer is
a partner, or the preparer (if not employed
or engaged by a preparer and not a partner
of a partnership which is a preparer), must
retain the manually signed copy of the return or claim for refund. In the alternative,
for a return or claim for refund presented
to a taxpayer for signature after December
31, 1998 and for returns or claims for refund retained on or before that date, the
person required to retain the manually
signed copy of the return or claim for refund may choose to retain a photocopy of
the manually signed copy of the return or
March 22, 1999
claim for refund, or use an electronic storage system to store and produce a copy of
the manually signed return or claim for
refund. For purposes of paragraph
(b)(4)(i) of this section, an electronic storage system must meet the electronic storage system requirements prescribed in
section 4 of Rev. Proc. 97–22 (1997–1
C.B. 652) or procedures subsequently
prescribed by the Commissioner. A record
of any arithmetical errors corrected must
be retained and made available upon request by the person required to retain the
manually signed copy of the return or
claim for refund.
(b)(4)(ii) through (f) [Reserved]. For
further guidance, see §1.6695–1(b)(4)(ii)
through (f).
(g) Effective date. This section applies
to income tax returns and claims for refund presented to a taxpayer for signature
after December 31, 1998 and for returns
or claims for refund retained on or before
that date. This section expires on December 31, 2001.
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
Approved December 17, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on December 30, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 31, 1998,
63 F.R. 72182)
26 CFR 1.6695–2T: Preparer due diligence
requirements for determining earned income credit
eligibility (temporary).
T.D. 8798
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Preparer Due Diligence
Requirements for Determining
Earned Income Credit Eligibility
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
16
SUMMARY: This document contains
temporary regulations relating to the due
diligence requirements for paid preparers
of federal income tax returns or claims for
refund involving the earned income
credit. The temporary regulations reflect
changes to the law made by the Taxpayer
Relief Act of 1997. The temporary regulations provide guidance to paid preparers
who prepare federal income tax returns or
claims for refund claiming the earned income credit. The text of the temporary
regulations also serves as the text of the
proposed regulations set forth in the notice of proposed rulemaking on this subject in REG–120168–97, page 21.
DATES: These regulations are effective
December 21, 1998.
FOR FURTHER INFORMATION CONTACT: Marc C. Porter (202) 622-4940
(not a toll free call).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These regulations are being issued
without prior notice and public procedure
pursuant to the Administrative Procedure
Act (5 U.S.C. 553). For this reason, the
collection of information contained in
these regulations has been reviewed and
pending receipt and evaluation of public
comments, approved by the Office of
Management and Budget under control
number 1545–1570. Responses to this
collection of information are mandatory.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the collection of information displays a valid
control number.
For further information concerning this
collection of information, and where to
submit comments on the collection of information and the accuracy of the estimated burden, and suggestions for reducing this burden, please refer to the
preamble to the cross-referencing notice
of proposed rulemaking published in
REG–120168–97.
Books and 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
1999–12 I.R.B.
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Page 17
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This document contains amendments to
the Income Tax Regulations (26 CFR
parts 1 and 602) under section 6695(g) relating to the penalty for failure of a preparer to be diligent in determining a taxpayer’s eligibility for the earned income
credit (EIC). Section 6695(g) was added
by section 1085(a)(2) of the Taxpayer Relief Act of 1997, Public Law 105-34 (11
Stat. 788, 955 (1997)) (the Act), effective
for taxable years beginning after December 31, 1996.
Section 6695(g) imposes a $100
penalty for each failure by an income tax
return preparer to meet the due diligence
requirements set forth in this regulation.
The IRS may impose the section 6695(g)
penalty in addition to any other applicable
penalty provided by law.
In Notice 97–65 (1997–51 I.R.B. 14
(December 22, 1997)), the IRS set forth
the preparer due diligence requirements
for 1997 returns and claims for refund involving the EIC. To avoid the imposition
of the section 6695(g) penalty for 1997
returns and claims for refund, Notice 9765 requires preparers to meet four requirements: (1) complete the Earned Income Credit Eligibility Checklist attached
to Notice 97-65 (Eligibility Checklist), or
otherwise record the information necessary to complete the Eligibility Checklist;
(2) complete the Earned Income Credit
Worksheet (Computation Worksheet), as
contained in the 1997 Form 1040 instructions, or otherwise record the computation and information necessary to complete the Computation Worksheet; (3)
have no knowledge that any information
used by the preparer in determining eligibility for, and amount of, the EIC is incorrect; and (4) retain for three years the Eligibility Checklist and Computation
Worksheet (or alternative records), and a
record of how and when the information
used to determine eligibility for, and
amount of, the EIC was obtained by the
preparer. This information may be retained either as a paper record or in magnetic media format consistent with Rev.
Proc. 81–46 (1981–2 C.B. 621).
Notice 97–65 also requested comments
on preparer due diligence requirements
1999–12 I.R.B.
for tax years after 1997. Two comments
were received. The commentators did not
suggest alternative due diligence requirements. One commentator suggested,
however, increased education for the public. The IRS and Treasury Department
adhere to the principle that education is an
integral part of good tax administration.
Therefore, as part of its overall EIC strategy, the IRS has established various educational tools and outreach programs for
taxpayers and preparers. These efforts are
intended to provide the public with the
tools necessary to receive the full amount
of the EIC allowed by law.
The second commentator suggested
that preparers should be able to meet the
due diligence requirements by using software reviewed and approved by the IRS.
The IRS does not approve commercial
software. The IRS is currently exploring,
however, new opportunities for partnership with outside stakeholders to reduce
burden, enhance customer service, and increase compliance. As part of this effort,
the IRS will continue to review this comment and evaluate options.
Explanation of Provisions
The temporary and proposed regulations impose due diligence standards on
persons who are income tax return preparers with respect to determining eligibility
for, or the amount of, the EIC. Consistent
with existing regulations under section
6695, these temporary regulations apply a
modified definition of income tax return
preparer. Section 7701(a)(36) provides
that, in general, the term income tax return preparer means any person who prepares for compensation, or who employs
one or more persons to prepare for compensation, any return or claim for refund
of tax imposed by subtitle A. The preparation of a substantial portion of a return
or claim for refund is treated as if it were
the preparation of such return or claim for
refund. Persons are considered preparers
if they give legal advice concerning a return or claim for refund or if they prepare
another return which affects the return or
claim for refund (§301.7701–15(a)(2) and
(b) and §301.7701–15(b)(3), respectively). The regulations retain this definition of an income tax return preparer, except that preparers who merely give
advice or prepare another return that af-
17
fects the EIC return or claim for refund
are not preparers for purposes of the section 6695(g) penalty. Rather, the due diligence standards are imposed only on paid
preparers who prepare the return claiming
the EIC.
The temporary regulations essentially
adopt the four due diligence requirements
in Notice 97-65. Thus, to avoid the
penalty under section 6695(g), a preparer
must: (1) complete the Eligibility Checklist (Form 8867, Paid Preparer’s Earned
Income Credit Checklist, or such other
form as may be prescribed by the IRS), or
otherwise record in the preparer’s files the
information necessary to complete the Eligibility Checklist; (2) complete the Computation Worksheet (Earned Income
Credit Worksheet contained in the Form
1040 instructions), or otherwise record in
the preparer’s files the computation and
information necessary to complete the
Computation Worksheet; (3) have no
knowledge, and have no reason to know,
that any information used by the preparer
in determining eligibility for, and amount
of, the EIC is incorrect; and (4) retain for
three years the Eligibility Checklist and
the Computation Worksheet (or alternative records), and a record of how and
when the information used to determine
eligibility for, and the amount of, the EIC
was obtained by the preparer.
The temporary regulations also provide
that the income tax return preparer may
avoid the section 6695(g) penalty with respect to a particular income tax return or
claim for refund if the preparer can
demonstrate to the satisfaction of the IRS
that, considering all the facts and circumstances, the preparer’s normal office procedures are reasonably designed and routinely followed to ensure compliance with
the due diligence requirements of the regulations, and that the particular failure
was isolated and inadvertent.
The temporary regulations will be effective for taxable years beginning after
December 31, 1996. However, the Eligibility Checklist contained in Notice 97-65
has been expanded in Form 8867. Therefore, for taxable year 1997, the applicable
Eligibility Checklist is the Eligibility
Checklist contained in Notice 97-65. For
taxable year 1998, a preparer may choose
as the applicable Eligibility Checklist either the Eligibility Checklist published in
Notice 97-65 modified however, by re-
March 22, 1999
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Page 18
placing, $9,770, $25,760, $29,290, and
$2,250 each time these figures appear on
the 1997 Eligibility Checklist with
$10,030, $26,473, $30,095, and $2,300,
respectively, or Form 8867. For taxable
years beginning after December 31, 1998,
the applicable Eligibility Checklist will be
the Form 8867.
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. Further, it is
hereby certified, pursuant to sections
603(a) and 605(b) of the Regulatory Flexibility Act, that the collection of information in these regulations will not have a
significant economic impact on a substantial number of small entities. This certification is based upon the fact that the
amount of time necessary to record and
retain the required information will be
nominal for those income tax return preparers that choose to use the Alternative
Eligibility Record and Alternative Computation Record. Therefore, a Regulatory
Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not
required. Pursuant to section 7805(f) of
the Internal Revenue Code, these temporary regulations will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
their impact.
Drafting Information
The principal author of these regulations is Marc C. Porter, Office of Assistant Chief Counsel (Income Tax & Accounting). However, other personnel
from the IRS and Treasury Department
participated in their development.
* * * * *
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1 — INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read as follows:
March 22, 1999
Authority: 26 U.S.C. 7805 * * *
Section 1.6695–2T also issued under 26
U.S.C. 6695(g). * * *
Par. 2. Section 1.6695–2T is added to
read as follows:
§1.6695–2T Preparer due diligence
requirements for determining earned
income credit eligibility (temporary).
(a) Penalty for failure to meet due diligence requirements. A person who is an
income tax return preparer (preparer) of
an income tax return or claim for refund
under subtitle A of the Internal Revenue
Code (Code) with respect to determining
the eligibility for, or the amount of, the
earned income credit (EIC) under section
32 and who fails to satisfy the due diligence requirements of paragraph (b) of
this section will be subject to a penalty of
$100 for each such failure. However, no
penalty will be imposed under section
6695(g) on a person who is an income tax
return preparer solely by reason of —
(1) Section 301.7701–15(a)(2) and (b)
of this chapter, on account of having
given advice on specific issues of law; or
(2) Section 301.7701–15(b)(3) of this
chapter, on account of having prepared
the return solely because of having prepared another return that affects amounts
reported on the return.
(b) Due diligence requirements. A preparer must satisfy the following due diligence requirements:
(1) Completion of eligibility checklist.
(i) The preparer must either —
(A) Complete Form 8867, Paid Preparer’s Earned Income Credit Checklist,
or such other form as may be prescribed
by the IRS (Eligibility Checklist); or
(B) Otherwise record in the preparer’s
paper or electronic files the information
necessary to complete the Eligibility
Checklist (Alternative Eligibility Record).
The Alternative Eligibility Record may
consist of one or more documents containing the required information.
(ii) The preparer’s completion of the
Eligibility Checklist or Alternative Eligibility Record must be based on information provided by the taxpayer to the preparer or otherwise reasonably obtained by
the preparer.
(2) Computation of credit. (i) The preparer must either —
(A) Complete the Earned Income
Credit Worksheet in the Form 1040 in-
18
structions or such other form as may be
prescribed by the IRS (Computation
Worksheet); or
(B) Otherwise record in the preparer’s
paper or electronic files the preparer’s
EIC computation, including the method
and information used to make the computation (Alternative Computation Record).
The Alternative Computation Record may
consist of one or more documents containing the required information.
(ii) The preparer’s completion of the
Computation Worksheet or Alternative
Computation Record must be based on information provided by the taxpayer to the
preparer or otherwise reasonably obtained
by the preparer.
(3) Knowledge. The preparer must not
know, or have reason to know, that any information used by the preparer in determining the taxpayer’s eligibility for, or
the amount of, the EIC is incorrect. The
preparer may not ignore the implications
of information furnished to, or known by,
the preparer, and must make reasonable
inquiries if the information furnished to,
or known by, the preparer appears to be
incorrect, inconsistent, or incomplete.
(4) Retention of records. (i) The preparer must retain —
(A) A copy of the completed Eligibility
Checklist or Alternative Eligibility
Record;
(B) A copy of the Computation Worksheet or Alternative Computation Record;
and
(C) A record of how and when the information used to complete the Eligibility
Checklist or Alternative Eligibility
Record and the Computation Worksheet
or Alternative Computation Record was
obtained by the preparer, including the
identity of any person furnishing the information.
(ii) These items must be retained for
three years after the June 30th following
the date the return or claim for refund was
presented to the taxpayer for signature,
and may be retained on paper or electronically in the manner prescribed in applicable regulations, revenue rulings, revenue
procedures, or other appropriate guidance.
(c) Exception to penalty. The section
6695(g) penalty will not be applied with
respect to a particular income tax return
or claim for refund if the preparer can
demonstrate to the satisfaction of the IRS
that, considering all the facts and circum-
1999–12 I.R.B.
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Page 19
stances, the preparer’s normal office procedures are reasonably designed and routinely followed to ensure compliance with
the due diligence requirements of paragraph (b) of this section, and the failure to
meet the due diligence requirements of
paragraph (b) of this section with respect
to the particular return or claim for refund
was isolated and inadvertent.
(d) Effective date. (1) In general. This
section applies to income tax returns and
claims for refund for taxable years beginning after December 31, 1996. This section expires on, December 21, 2001. For
the applicable Eligibility Checklist see
paragraph (d)(2) of this section.
(2) Eligibility Checklist—(i) For the
1997 taxable year. For taxable year 1997,
the applicable Eligibility Checklist is the
Eligibility Checklist published in Notice
97-65 (1997–51 I.R.B.14) December 22,
1997. (See §601.601(d)(2)(ii)(b) of this
chapter.)
(ii) For the 1998 taxable year. For taxable year 1998 the applicable Checklist is
either—
(A) The Checklist published in Notice
97-65 (1997-51 I.R.B.14) December 22,
1999–12 I.R.B.
1997, modified however, by applying the
figures $10,030, $26,473, $30,095, and
$2,300 in place of $9,770, $25,760,
$29,290, and $2,250, respectively, each
time these figures appear on the 1997
Checklist; or
(B) Form 8867, Paid Preparer ’s
Earned Income Credit Checklist.
(iii) For taxable years after 1998. For
taxable years beginning after December
31, 1998, the applicable Eligibility
Checklist is the Eligibility Checklist contained in Form 8867, Paid Preparer’s
Earned Income Credit Checklist, or such
other form as may be prescribed by the
IRS.
PART 602 — OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 3. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 4. In §602.101, paragraph (c) is
amended by adding the following entry in
numerical order to the table to read as follows:
19
§602.101 OMB Control numbers.
* * * * *
(c) * * *
CFR part or section
where identified
and described
Current OMB
control No.
* * * * *
1.6695–2T . . . . . . . . . . . . . . . 1545–1570
* * * * *
David S. Mader,
Acting Deputy Commissioner
of Internal Revenue.
Approved December 9, 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. 70339)
March 22, 1999
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Page 20
Part III. Administrative, Procedural, and Miscellaneous
Weighted Average Interest
Rate Update
Notice 99–15
Notice 88–73 provides guidelines for
determining the weighted average interest
rate and the resulting permissible range of
interest rates used to calculate current liability for the purpose of the full funding
limitation of § 412(c)(7) of the Internal
Revenue Code as amended by the Omnibus Budget Reconciliation Act of 1987
and as further amended by the Uruguay
Round Agreements Act, Pub. L. 103–465
(GATT).
Month
Year
Weighted
Average
March
1999
6.15
Drafting Information
The principal author of this notice is
Todd Newman of the Employee Plans Di-
March 22, 1999
90% to 105%
Permissible
Range
90% to 110%
Permissible
Range
5.54 to 6.46
5.54 to 6.77
vision. For further information regarding
this notice, call (202) 622-6076 between
2:30 and 3:30 p.m. Eastern time (not a
toll-free number). Mr. Newman’s number
20
The average yield on the 30-year Treasury Constant Maturities for February
1999 is 5.37 percent.
The following rates were determined
for the plan years beginning in the month
shown below.
is (202) 622-8458 (also not a toll-free
number).
1999–12 I.R.B.
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Page 21
Part IV. Items of General Interest
Notice of Proposed Rulemaking
Notice of Public Hearing
Preparer Due Diligence
Requirements for Determining
Earned Income Credit Eligibility
REG–120168–97
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking by cross-reference to temporary regulations and notice of public hearing.
SUMMARY: In T.D. 8798, page 16, the
IRS is issuing temporary regulations relating to the due diligence requirements in
determining eligibility for the earned income credit for paid preparers of federal
income tax returns or claims for refund.
The text of those regulations also serves
as the text of these proposed regulations.
This document also provides notice of a
public hearing on these proposed regulations.
DATES: Written comments must be received by, March 22, 1999. Outlines of
topics to be discussed at the public hearing scheduled for Thursday, May 20,
1999, at 10 a.m. must be received by
Thursday, April 29, 1999.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–120168–97),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG–120168–97),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the Internet by selecting the “Tax Regs”
option on the IRS Home Page, or by submitting comments directly to the IRS Internet site at http://www.irs.ustreas.gov/
prod/tax_regs/comments.html. The public hearing will be held in room 2615 of
the Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC.
1999–12 I.R.B.
FOR FURTHER INFORMATION CONTACT: Concerning submissions, LaNita
Van Dyke, (202) 622-7190; concerning
the regulations, Marc C. Porter, (202)
622-4940 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of
Management and Budget for review in accordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information
should be sent to the Office of Management and Budget, Attn: Desk Officer for
the Department of Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS
Reports Clearance Officer, OP:FS:FP,
Washington, DC 20224. Comments on
the collection of information should be received by, February 19, 1998. Comments
are specifically requested concerning:
Whether the proposed collection of information is necessary for the proper performance of the functions of the Internal
Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be
enhanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the application of automated collection techniques or other forms of information technology; and
Estimates of capital or start-up costs and
costs of operation, maintenance, and purchase of service to provide information.
The collection of information in this
proposed regulation is in §1.6695–2T.
This information is required by the IRS to
determine preparer due diligence compliance. This information will be used to
avoid the imposition of the penalty imposed by section 6695(g) of the Internal
21
Revenue Code. The collection of information is mandatory. The likely recordkeepers are individuals, business or other
for profit institutions, and small businesses or organizations.
The collection of information in
§1.6695–2T is generally satisfied by completing: 1) the required information on
the Checklist published in Notice 97–65
or the Form 8867, Paid Preparer ’s
Earned Income Credit Checklist; and 2)
the required Worksheet information on
the Earned Income Credit Worksheet contained in the instructions to the Form
1040. The burden for the Checklist requirement is reflected in the burden estimate for Form 8867. The burden for the
Worksheet requirement is reflected in the
burden estimate for the Earned Income
Credit Worksheet contained in the instructions to the Form 1040. Preparers may
also choose to record the information necessary to complete the Checklist and
Worksheet in their paper or electronic
files (alternative method).
The information collections in this regulation were originally included in Notice
97–65 and have been approved by the Office of Management and Budget under
control number 1545–1570.
The collection of information for preparers who choose to record the information required by the regulations in alternative paper or electronic form is as follows:
Estimated total annual recordkeeping
burden: 507,136 hours.
Estimated average annual burden hours
per recordkeeper: 5 hours 4 minutes (40
minutes per return or claim for refund, 7.6
returns per preparer).
Estimated number of recordkeepers:
100,000.
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 assigned by
the Office of Management and Budget.
Books and 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.
March 22, 1999
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Page 22
Background and Explanation of
Provisions
Temporary regulations in T.D. 8798
amend the Income Tax Regulations (26
CFR part 1) relating to section 6695. The
temporary regulations set forth due diligence requirements that paid preparers of
federal income tax returns or claims for
refund involving the Earned Income
Credit (EIC) must meet to avoid imposition of the penalty under section 6695(g)
for taxable years beginning after December 31, 1996. The text of those regulations also serves as the text of these proposed regulations. The preamble to the
temporary regulations explains the
amendments.
Special Analyses
It has been determined that this notice
of proposed rulemaking 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. Further, it is hereby certified, pursuant to sections 603(a) and 605(b) of the
Regulatory Flexibility Act, that the collection of information in these regulations
will not have a significant economic impact on a substantial number of small entities. This certification is based upon the
fact that the amount of time necessary to
record and retain the required information
will be minimal for those income tax return preparers that choose to use the Alternative Eligibility Record and Alternative Computation Record. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on their impact.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration will be given to any comments (a
signed original and eight (8) copies) that
are submitted timely to the IRS. The IRS
March 22, 1999
and Treasury specifically request comments on the clarity of the proposed rule
and how it may be made easier to understand. All comments will be available for
public inspection and copying.
A public hearing has been scheduled for
May 20, 1999, beginning at 10 a.m. in
room 2615 of the Internal Revenue Building, 1111 Constitution Avenue, NW,
Washington, DC. Due to building security
procedures, visitors must enter at the 10th
Street entrance, located between Constitution and Pennsylvania Avenues, NW. In
addition, all visitors must present photo
identification to enter the building. Because of access restrictions, visitors will
not be admitted beyond the immediate entrance area more than 15 minutes before
the hearing starts. For information about
having your name placed on the building
access list to attend the hearing, see the
“FOR FURTHER INFORMATION CONTACT” section of this preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written comments and an outline
of the topics to be discussed and the time
to be devoted to each topic (signed original and eight (8) copies) by (April 29,
1999). A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after
the deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these regulations is Marc C. Porter, Office of Assistant Chief Counsel (Income Tax & Accounting). However, other personnel
from the IRS and Treasury Department
participated in their development.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1 — INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
22
Section 1.6695–2 also issued under 26
U.S.C. 6695(g). * * *
Par. 2. Section 1.6695–2 is added to
read as follows:
§1.6695–2 Preparer due diligence
requirements for determining earned
income tax credit eligibility.
[The text of proposed §1.6695–2 is the
same as the text of §1.6695–2T published
in T.D. 8798.]
David S. Mader,
Acting Deputy Commissioner
of Internal Revenue.
(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. 70357)
Notice of Proposed Rulemaking
Intercompany Obligations
REG–105964–98
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains a
proposed regulation that clarifies the
treatment of the transfer or extinguishment of rights under an intercompany
obligation. The existing regulation has
caused uncertainty concerning the tax
treatment of such transactions. The proposed regulation affects corporations that
are members of consolidated groups, their
subsidiaries, and their shareholders.
DATES: Comments and requests for a
public hearing must be received by March
22, 1999.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–105964–98),
room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG–105964–98),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW,
Washington, DC. Alternatively, taxpayers
1999–12 I.R.B.
IRB 1999-12
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Page 23
may submit comments electronically via
the Internet by selecting the “Tax Regs”
option on the IRS Home Page, or by submitting comments directly to the IRS Internet site at http://www.irs.ustreas.gov/
prod/tax_regs/comments.html.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulation, Theresa A. Abell, (202) 622-7790;
concerning submissions of comments,
LaNita Van Dyke, (202) 622-7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to §1.1502–13(g) of the Income Tax Regulations. Section 1.1502–
13(g) prescribes rules relating to the treatment of the transfer or extinguishment of
rights an intercompany obligation. An intercompany obligation is generally defined as an obligation between members
of a consolidated group, but only for the
period during which both parties are
members of the group. The current regulation provides that if a member of a consolidated group realizes an amount (other
than zero) of income, gain, deduction, or
loss upon the transfer or extinguishment
of all or part of its remaining rights or
obligations under an intercompany obligation, the obligation is treated as satisfied
(and the transferor’s basis in the property
received is adjusted to reflect the satisfaction amount) and , if the obligation remains outstanding, it is treated as reissued
as a new obligation.
The current regulation is, however, ambiguous regarding the form of the recast
transaction, i.e., the deemed transaction
that encompasses the satisfaction,reissuance, and actual transaction. Under one
interpretation of the regulation, there is a
potential that the form of the recast jeopardizes the tax-free treatment of common
corporates restructuring transactions.
While it is not clear the regulation produces such consequences, the IRS and
Treasury believe that any such consequences would be inappropriate and unnecessary to achieve the objectives of the
regulation. Accordingly, the IRS and
Treasury propose to amend the regulation
as described below.
1999–12 I.R.B.
Explanation of Provisions
The existing regulation does not apply
to transactions in which the amount of income, gain, deduction, or loss realized is
zero. This rule was intended to avoid application of the regulation to transactions
in which preservation of gain or loss location, an objective of §1.1502–13(g),
would not be at issue. However, the determination of whether the amount of income, gain, deduction, or loss realized is
zero might depend on the fair market
value of property received in an exchange. The difficulty and manipulability
of that valuation is a reason for the enactment of certain provisions of the original
issue discount (OID) rules, particularly
section 1274. To the extent that taxpayers
were able to avoid the deemed satisfaction and reissuance rule by inaccurately
maintaining that the amount of income,
gain, deduction, or loss realized is zero,
taxpayers could avoid those OID rules
and could inappropriately shift gain or
loss among members. The IRS and Treasury have concluded that the better and
more administrable approach is not to
condition the application of the regulation
on a realization of some amount of income, gain, deduction, or loss other than
zero. Accordingly, the regulation as proposed will apply to all transactions in
which any amount is realized due to the
transfer or extinguishment of rights in an
intercompany obligation.
The IRS and Treasury believe the exception from the operation of this provision for transactions that will not have
significant effect on any person’s Federal
income tax liability for any year is unclear
in its application and scope. Further, the
exception offers little, if any, relief from
the requirements of the provision. Accordingly, the exception is eliminated
from the regulation.
The proposed regulation clarifies the
form and timing of the recast applied to
transactions subject to the regulation. In
particular, it clarifies that the deemed satisfaction proceeds (rather than the obligation) are treated as transferred by the initial creditor in the actual transaction and
then advanced by the transferee to the
debtor in the deemed reissuance of the
obligation. The proposed regulation includes an example to illustrate clearly the
mechanics of the proposed regulation. It
23
also includes certain conforming adjustments.
The proposed regulation retains the
rule that the deemed satisfaction and reissuance amounts are determined under the
principles of the OID provisions if the
debt is transferred for property. The IRS
and Treasury recognize that an alternate
rule providing for a fair market value determination of the deemed satisfaction
and reissuance amounts might (in theory)
more accurately preserve location of economic gain or loss. In such an alternate
regime, however, the inherent difficulty
of valuing intercompany obligations
would prove burdensome to both taxpayers and the IRS and may provide significant potential for abuse when member
obligations are transferred. Certain provisions of the OID rules are intended to address the difficulty and manipulability o
this valuation. Other developments in the
tax law have recognized that issue price,
as determined under the OID rules, is the
surrogate for fair market value in the case
of a debt obligation. For example,
§1.100–1(g) provides that issue price is
used in determining the amount realized
from the receipt of a debt instrument. For
these reasons, and consistent with the objective of promoting single entity treatment of the group, the IRS and Treasury
continue to believe that the use of the OID
provisions is appropriate and desirable in
determining the deemed satisfaction
amount and the amount for which the
obligation is deemed reissued. Accordingly, the regulation as proposed continues to use the OID provisions to determine both the amount repaid in the
deemed satisfaction and the issue price of
the reissued obligation in cases involving
the exchange of an intercompany obligation for cash or property.
In addition, the proposed regulation
clarifies that the term “conversion” includes only conversions pursuant to the
terms of the instrument.
Proposed Effective Date
The regulation is proposed to be effective on the date that the final regulation is
published in the Federal Register. For
purposes of determining the tax treatment
of transactions undertaking prior to such
effective date, taxpayers may rely on the
form and timing of the recast transaction,
March 22, 1999
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Page 24
as clarified by these proposed regulations.
No inference is intended, however, as to
the correct interpretation of the existing
regulation.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant regulatory action as defined in EO
12866. Therefore, a regulatory assessment is not required. It is hereby certified
that these regulations will not have a significant impact on a substantial number of
small entities. This certification is based
on the fact that these regulations principally affect corporations filing consolidated Federal income tax returns. Available data indicates that many consolidated
return filers are larger companies (not
small businesses). Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility ct (5 U.S.C. chapter 6) is
not required. Pursuant to section 7805(f)
of the Internal Revenue Code, this notice
of proposed rulemaking will be submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small business.
Comments and Requests for a Public
hearing
Before this proposed regulation is
adopted as a final regulation, consideration will be given to any written comments (preferably a signed original and
eight copies) that are timely submitted to
the IRS. All comments will be available
for public inspection and copying. A public hearing may be scheduled if requested
in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time,
and place of the hearing will be published
in the Federal Register.
Drafting Information
The principal author of this regulation
is Theresa A. Abell of the Office of Assistant Chief Counsel (Corporate), IRS.
However, other personnel from the IRS
and Treasury Department participated in
its development.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
March 22, 1999
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 ***
Section 1.1502–13 also issued under 26
U.S.C. 1502.
Par. 2. Section 1.1502–13 is amended
by:
1. Revising paragraphs (g)(3)(i)(A),
(g)(3)(i)(B)(3), (g)(3)(ii)(A), and (g)(3)(ii), and removing paragraph (g)(3)(i)(B)(4).
2. Revising paragraph (g)(4)(i)(B).
3. Amending paragraph (g)(5) by:
a. Removing the language “Example 2” in each place it appears in paragraphs (d), (e) and (f) of Example 2 and
adding “Example 3” in its place.
b. Removing the language “Example 3” in each place it appears in paragraph (c) and (d) of Example 3 and
adding “Example 4” in its place.
c. Removing the language “Example 5” in each place it appears in paragraph (c) of Example 5 and adding “Example 6” in its place.
d. Redesignating Examples 2, 3, 4
and 5 as Examples 3, 4, 5 and 6 and
adding a new Example 2.
The revisions and additions read as follows:
§1.1502–13 Intercompany transactions.
* * * * *
(g) ***
(3) Deemed satisfaction and reissuance of intercompany obligations—(i)
Application—(a) In general. If a member
realizes an amount from the assignment
or extinguishment of all or part of its remaining rights or obligations under an intercompany obligation, the intercompany
obligation is treated for all Federal income tax purposes as satisfied under paragraph (g)(3)(ii) of this section and, if it remains outstanding (either as an
intercompany obligation or a nonintercompany obligations), reissued under
paragraph (g)(3)(iii) of this section. Similar principles apply under this paragraph
(g)(3) if a member realizes an amount, directly or indirectly, from a comparable
transaction (for example, a marking-tomarket of an obligation or a bad debt deduction), or if an intercompany obligation
becomes an obligation that is not an intercompany obligation.
24
(B) ***
(3) The amount realized is from the
conversion of an obligation (under the
terms of the instrument) into stock of the
obligor.
(ii) Satisfaction—(A) General rule. If
a creditor member sells an intercompany
debt for cash, the debt is treated as satisfied by the debtor immediately before the
sale for an amount equal to the amount of
the cash. If the debt is transferred for
property, the debt is treated as satisfied
immediately before the transaction for an
amount equal to the issue price (determined under section 1273 or section
1274) of a new debt issued on the date of
the transaction, with identical terms, for
such property. If this paragraph (g)(3) applies because the debtor or creditor becomes a nonmember, the debt is treated as
satisfied for cash in an amount equal to its
fair market value immediately before the
debtor or creditor becomes a nonmember.
If the debt is transferred for cash or property, the proceeds of the deemed satisfaction are treated as transferred by the creditor tot he transferee of the debt in
exchange for the cash or property. Similar
principles apply to other transactions and
to transactions involving intercompany
obligations other than debt. For example,
if a corporation assumes the debtor’s liability in exchange for property of the
debtor, the debt is treated as satisfied for
an amount equal to the issue price (determined under section 1273 or section
1274) of a new debt issued on the date of
the transaction, with identical terms, for
such property. If, in a transaction to which
this paragraph (g)(3) applies, the obligation is extinguished, including in a transaction in which the creditor and debtor
become the same entity, the obligation is
treated as satisfied for an amount equal to
the issue price (determined under section
1273 or section 1274) of a new debt issued on the date of the transaction, with
identical terms, to a third party, for property that is not publicly traded.
* * * * *
(iii) Reissuance. If an intercompany
debt is transferred for cash or property, it
is treated as a new debt (with a new holding period but otherwise identical terms)
issued to the transferee in exchange for
the proceeds of the deemed satisfaction as
determined under paragraph (g)(3)(ii) of
1999–12 I.R.B.
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Page 25
this section. If this paragraph (g)(3) applies because the debtor or creditor becomes a nonmember, the debt is treated as
a new debt (with a new holding period but
otherwise identical terms) issued to the
creditor for the deemed satisfaction proceeds. Similar principles apply to other
transactions and to transactions involving
intercompany obligations other than debt.
* * * * *
(4) ***
(i) ***
(B) Exception. This paragraph (g)(4)
does not apply to an obligation if the
obligation becomes an intercompany
obligation by reason of an event described
in §1.108–2(e) (exceptions to the application of section 108(e)(4)).
* * * * *
of this section, B is treated as reissuing the note to P
for $100. P’s basis in the note is $100.
* * * * *
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
(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. 70354)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Adequate Disclosure of Gifts
Example 2. Nonrecognition transactions. (a)
Facts. On January 1 of Year 1, B borrows $100 from
S in return for B’s not providing for $10 of interest
annually at the end of each year, and repayment of
$100 at the end of Year 5. B fully performs its obligations with the same tax consequences as described
in paragraph (a) of Example 1. At the end of Year 3,
S transfers the note to a newly formed subsidiary,
Newco, in exchange for Newco stock. Section 351
applies to the exchange. The interest is adequate
stated interest within the meaning of section
1274(c)(2) (determined on the date of the transfer).
Neither B’s not nor Newco’s stock is publicly
traded.
(b) Deemed satisfaction and reissuance of note.
Under paragraph (g)(3)(ii) of this section, B’s note is
treated as satisfied for $100 (the issue price of the
reissued note, determined under section 1273(b)(4))
immediately before S’s transfer of the note to
Newco. Zero gain or loss is recognized by S and B
on the deemed satisfaction of B’s note. S is then
treated as transferring the deemed proceeds of the
satisfaction of the note ($100) to Newco in exchange
for the Newco stock. S’s basis in the Newco stock is
$100. Under paragraph (g)(3)(iii) of this section, B
is treated as reissuing the note to Newco for $100.
Newco’s basis in B’s note is $100.
(c) Intercompany obligation transferred in section 332 transaction. The facts are the same as in
paragraph (a) of this Example 2, except that S transfers the note to P in a complete liquidation under
section 332. Under paragraph (g)(3)(ii) of this section, B’s note is treated as satisfied for $100 (the
issue price of the reissued note, determined under
section 1273(b)(4)) immediately before S’s transfer
of the note to P. Zero gain or loss is recognized by S
and B on the deemed satisfaction of the note. S is
then treated as transferring the deemed proceeds of
the satisfaction of the note, with its other assets, to P
in complete liquidation. Under paragraph (g)(3)(iii)
1999–12 I.R.B.
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations,
William L. Blodgett, (202) 622-3090;
concerning submissions and the hearing,
and/or to be placed on the building access
list to attend the hearing, LaNita Van
Dyke, (202) 622-7180 (not toll- free numbers).
REG–106177–98
AGENCY: Internal Revenue Service
(IRS), Treasury.
(5) Examples.
* * * * *
the internet by selecting the “Tax Regs”
option on the IRS Home Page, or by submitting comments directly to the IRS internet site at http://www.irs.ustreas.gov/
prod/tax_regs/comments.html. The public hearing will be held in room 2615, at
10 a.m., Internal Revenue Building, 1111
Constitution Avenue, NW, Washington
DC.
ACTION: Notice of proposed rulemaking and notice of public hearing.
SUMMARY: This document contains
proposed regulations relating to changes
made by the Taxpayer Relief Act of 1997
and the Internal Revenue Service Restructuring and Reform Act of 1998 regarding
the valuation of prior gifts in determining
estate and gift tax liability, and the period
of limitations for assessing and collecting
gift tax. The proposed regulations affect
individual donors and the estates of those
donors. This document also provides notice of a public hearing on these proposed
regulations.
DATES: Written and electronic comments must be received by March 22,
1999. Outlines of topics to be discussed
at the public hearing scheduled for
Wednesday, April 28, 1999, must be received by Wednesday, April 7, 1999.
ADDRESSES: Send submissions to
CC:DOM:CORP:R [REG–106177–98]
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Washington DC 20044. Submissions may also
be hand delivered Monday through Friday
between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R [REG–106177–98],
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
25
SUPPLEMENTARY INFORMATION:
Introduction
This document proposes to amend the
Estate and Gift Tax Regulations (26 CFR
parts 20 and 25) under sections 2001 and
2504 relating to the value of prior gifts for
purposes of computing the estate and gift
tax. This document also proposes to
amend the Procedure and Administration
Regulations relating to the period for assessment and collection of gift tax under
section 6501.
Paperwork Reduction Act
The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of
Management and Budget for review in accordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information
should be sent 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, with copies to
the Internal Revenue Service, Attn: IRS
Reports Clearance Officer, OP:FS:FP,
Washington, DC 20224. Comments on
the collection of information should be received by February 22, 1999. Comments
are specifically requested concerning:
Whether the proposed collection of information is necessary for the proper performance of the functions of the Internal
Revenue Service, including whether the
information will have practical utility;
March 22, 1999
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Page 26
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be enhanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the application of automated collection techniques or other forms of information technology; and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of service to provide information.
The collection of information in this
proposed regulation is proposed
§301.6501(c)–1(f) of the Procedure and
Administration Regulations. This information is required by statute in order to
commence the period of limitations on assessment. This information will be used
to identify gift tax issues relating to the
reported transfers. The collection of information is mandatory. The likely respondents are individuals.
The reporting burden contained in
§301.6501–1(f) is reflected in the burden
of Form 709, U.S. Gift (and GenerationSkipping Transfer) Tax Return.
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 assigned by
the Office of Management and Budget.
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 information are confidential, as required by 26 U.S.C. 6103.
Background
Under the unified estate and gift tax
system, a single rate schedule is applied
to an individual’s cumulative gifts and bequests. Gift tax is computed by determining a tax on the total of the gifts made by
the donor in the current calendar year plus
the gifts made in prior years (prior taxable
gifts). The tax computed is then reduced
by the tax that would have been payable
on the prior taxable gifts. The result
(after taking into account the applicable
credit amount under section 2505) is the
gift tax on the current gifts. Similarly, the
March 22, 1999
estate tax is computed by determining a
tax on the value of the decedent’s taxable
estate plus the value of lifetime gifts (adjusted taxable gifts) made by the decedent. The tax computed is then reduced
by the gift tax that would have been
payable on the adjusted taxable gifts. The
result (after allowing for various credits)
is the estate tax on the taxable estate.
The Statute of Limitations for Assessment
of Gift Tax Under Section 6501(c)(9) of
the Internal Revenue Code
Prior to the Taxpayer Relief Act of 1997
(the 1997 Act) and the Internal Revenue
Service Restructuring and Reform Act of
1998 (the 1998 Act), the period for assessment of gift tax for a calendar period generally expired three years from the date a
gift tax return for that period was deemed
to be filed. The statute of limitation protection extended to all gifts made in a calendar period for which a return was filed,
including gifts not reported on the gift tax
return for the period. An exception to this
general rule applied for gifts subject to the
special valuation rules of sections 2701
and 2702. For gifts subject to these rules,
section 6501(c)(9) extends the period of
assessment indefinitely unless the gifts
were disclosed on the gift tax return in a
manner adequate to apprise the IRS of the
nature of the transfer.
Under the 1997 and 1998 Acts, this adequate disclosure requirement was extended to all gifts, whether or not subject
to section 2701 or 2702. Consequently,
the period of assessment will not close for
any gift made in a calendar year ending
after August 5, 1997, or with respect to
any increase in gift tax required under
section 2701(d), that is not adequately
disclosed on a gift tax return.
The proposed regulations provide a list
of information that, if applicable to a
transaction, must be reported on a gift tax
return, or a statement attached thereto, in
order for the transaction to be considered
adequately disclosed to cause the period
for assessment to commence. The required information must completely and
accurately describe the transaction and include: the nature of the transferred property; the parties involved; the value of the
transferred property; and how the value
was determined, including any discounts
or adjustments used in valuing the transferred property.
26
Specific rules are provided in the case
of transfers of entities that are not actively
traded that own interests in other non-actively traded entities. Comments are requested on how these rules should be applied when the required information is not
available to the donor.
In addition, the return must disclose
the facts affecting the gift tax treatment of
the transaction in a manner that reasonably may be expected to apprise the IRS
of the nature of any potential controversy
regarding the gift tax treatment of the
transfer. In lieu of this statement, the taxpayer may provide a statement of any
legal issue presented by the facts. Finally,
the taxpayer must also provide a statement of any position taken by the taxpayer that is contrary to any temporary or
final Treasury regulation or any revenue
ruling. These standards are based on
those currently employed under §6662 in
determining whether an item is adequately disclosed under that section, such
that accuracy-related penalties will not be
imposed.
The proposed regulations contain examples that illustrate adequate disclosure
under these standards.
Under the proposed regulations, adequate disclosure of a transfer that is reported as a completed gift on the gift tax
return will commence the running of the
statute of limitations under section
6501(c)(9) even if the transfer is ultimately determined to be an incomplete
gift. Thus, if the donor reports a transfer
on the gift tax return as a completed gift
for gift tax purposes, the period for assessing a gift tax with respect to the transfer will commence. If the IRS does not
examine the transaction reported on the
gift tax return prior to the expiration of
the running of the statute of limitations,
the transaction will be treated as a completed gift as reported on the gift tax return. If the IRS, upon examination, disagrees with the donor’s characterization
of the transaction, and the issue remains
unresolved through the administrative
process, the donor will be sent a final notice of determination and the donor will
be able to seek a declaratory judgment on
the matter pursuant to section 7477.
On the other hand, if a donor initially
reports a transfer as an incomplete gift,
even if adequately disclosed, the statute
of limitations does not commence to run
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Page 27
until the donor reports the transfer as a
completed gift. The IRS would have
three years from the date of filing of the
subsequent gift tax return disclosing the
completed gift to make any assessment
with respect to the gift.
As discussed below, the 1997 and 1998
Act amendments to sections 2001 and
2504 curtail the IRS’ ability to redetermine the value of a gift in computing the
estate or gift tax, after the statute of limitations expires. However, the adequate
disclosure requirement contained in section 6501(c)(9) is intended to afford the
IRS the reasonable opportunity to identify
in a timely manner and with a minimum
expenditure of resources returns that present issues that merit further examination.
Accordingly, the information required is
intended to enable the IRS to identify issues, if any, without imposing an undue
burden on taxpayers.
The proposed regulations conform the
regulations to the new statutory rules for
gifts made in calendar years ending after
August 5, 1997, if such gift tax return is
filed after the regulations are published as
final regulations. In the interim period,
the statutory provisions apply.
Valuation of Prior Gifts for Gift Tax
Purposes
Prior to the 1997 and 1998 Acts, section 2504(c) provided that if a gift tax had
been paid or assessed with respect to the
calendar period in which the gift occurred
and the statute of limitations on assessment for the prior gift had expired, then
the value of any gift made in such calendar period could not be adjusted for purposes of determining the total amount of
prior taxable gifts that the individual had
made. This prohibition on adjustments
applied even if a particular gift was not
disclosed on the gift tax return. This rule
continues to apply for gifts made prior to
August 6, 1997.
Under section 2504(c) as amended by
the 1997 and 1998 Acts, if a gift was adequately disclosed such that the time has
expired for assessing gift tax for a preceding calendar period under section 6501,
then the value of such gift made in the
prior calendar period cannot be adjusted
(regardless of whether or not a gift tax has
been assessed or paid for a prior calendar
period). Rather, the value of the gift is the
value as finally determined for gift tax
1999–12 I.R.B.
purposes, as defined in section 2001(f). A
similar rule applies with respect to any increase in taxable gifts required under section 2701(d) (pertaining to the transfer of
applicable retained interests under section
2701).
Section 2504(c) applies only to adjustments involving issues of valuation.
Thus, even after the 1997 and 1998
amendments to section 2504(c), adjustments to prior taxable gifts may be made
if the adjustment is not related to the valuation of the gift; e.g., the erroneous inclusion or exclusion of property for gift tax
purposes. See Rev. Rul. 76–451 (1976–2
C.B. 304). This result is consistent with
the legislative history to the 1997 Act
which emphasizes that the statutory
change imposes a prohibition on revaluing certain gifts. The House Committee
report states that a gift for which the limitations period has passed cannot be revalued for purposes of determining the applicable estate tax bracket and available
unified credit. H.R. Rep. No. 148, 105th
Cong., 1st Sess. 359 (1997).
The proposed regulations conform the
regulations to the new statutory rules for
gift tax returns filed after the regulations
are published as final regulations. In the
interim period, the statutory provisions
apply.
Valuation of Prior Gifts for Estate Tax
Purposes
Prior to the enactment of the 1997 and
1998 Acts, there was no estate tax provision corresponding to section 2504(c).
Therefore, even where the period of assessment expired for a calendar period,
and gift tax was paid or assessed for that
period, the value of any gifts made in that
period could be adjusted for purposes of
determining the estate tax liability. The
statutory change and these proposed regulations preserve that treatment for gifts
made prior to August 6, 1997.
Section 2001(f) was added by the 1997
Act and amended by the 1998 Act. Under
section 2001(f) as amended, if the time
has expired for assessing gift tax for a
preceding calendar period under section
6501, then the value of the gift, for purposes of computing the estate tax liability,
is the value of the gift as finally determined for gift tax purposes. A similar
rule applies for any increase in taxable
gifts required under section 2701(d).
27
Under the statute, the value of a gift is finally determined if: the value is shown
on a gift tax return and the IRS does not
contest the value before the period for assessing gift tax expires; or, before the period for assessing gift tax expires, the
value is specified by the IRS and the taxpayer does not contest the specified value;
or, the value is determined by a court or
pursuant to a settlement agreement between the taxpayer and the IRS.
As discussed above, the provision only
limits the IRS’ ability to make adjustments related to the value of a gift. Thus,
the IRS is not precluded from making adjustments that are not related to value,
such as the erroneous inclusion or exclusion of property for gift tax purposes.
The proposed regulations conform the
current regulations to the statutory change
for gift tax returns filed after the regulations are published as final regulations.
In the interim period, the statutory provisions apply.
Special Analyses
It has been determined that this notice
of proposed rulemaking 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 these regulations do
not impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemaking
will be submitted to the Small Business
Administration for comment on their impact on small business.
Comment and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration will be given to electronic and written comments (a signed original and eight
(8) copies) that are timely submitted to
the IRS. The IRS and Treasury specifically request comments on the clarity of
the proposed regulations and how it may
be made easier to understand. All comments will be available for public inspection and copying.
March 22, 1999
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Page 28
A public hearing has been scheduled for
Wednesday, April 28, 1999, at 10 a.m. in
Room 2615 of the Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, DC. Due to building security
procedures, visitors must enter at the 10th
Street entrance, located between Constitution and Pennsylvania Avenues, NW. In
addition, all visitors must present photo
identification to enter the building. Because of access restrictions, visitors will
not be admitted beyond the immediate entrance area more than 15 minutes before
the hearing starts. For information about
having your name placed on the building
access list to attend the hearing, see the
“FOR FURTHER INFORMATION CONTACT” section of this preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written comments and an outline
of the topics to be discussed and the time
to be devoted to each topic (a signed original and eight (8) copies) by Wednesday,
April 7, 1999.
A period of 10 minutes will be allocated to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these regulations is William L. Blodgett, Office of Assistant Chief Counsel (Passthroughs and
Special Industries), IRS. However, other
personnel from the IRS and Treasury Department participated in their development.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 20 is proposed to be amended as follows:
PART 20—ESTATE TAX; ESTATES OF
DECEDENTS DYING AFTER
AUGUST 16, 1954
Paragraph 1. The authority citation for
part 20 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
March 22, 1999
Par. 2. Section 20.2001–1 is revised to
read as follows:
§20.2001–1 Valuation of adjusted
taxable gifts and section 2701(d) taxable
events.
(a) Adjusted taxable gifts made prior
to August 6, 1997. For purposes of determining the value of adjusted taxable gifts
as defined in section 2001(b), if the gift
was made prior to August 6, 1997, the
value of the gift may be adjusted at any
time, even if the time within which a gift
tax may be assessed has expired under
section 6501. This paragraph (a) also applies to adjustments involving issues
other than valuation.
(b) Adjusted taxable gifts and section
2701(d) taxable events occurring after
August 5, 1997. For purposes of determining the value of adjusted taxable gifts
as defined in section 2001(b), if, under
section 6501, the time has expired within
which a gift tax may be assessed under
chapter 12 of the Internal Revenue Code
(or under corresponding provisions of
prior laws) with respect to a gift made
after August 5, 1997, and during a preceding calendar period (as defined in
§25.2502–1(c)(2) of this chapter), or with
respect to an increase in taxable gifts required under section 2701(d) and
§25.2701–4 of this chapter, then the value
of the gift will be the value as finally determined for gift tax purposes under chapter 12 of the Internal Revenue Code. This
paragraph (b) does not apply to adjustments involving issues other than valuation. See §25.2504–1(d) of this chapter.
(c) Finally determined. For purposes
of paragraph (a) of this section, the value
of a gift is finally determined for gift tax
purposes if—
(1) The value is shown on a gift tax return, or on a statement attached to the return, and the Internal Revenue Service
does not contest the value before the time
has expired under section 6501 within
which gift taxes may be assessed;
(2) The value is specified by the Internal Revenue Service before the time has
expired under section 6501 within which
gift taxes may be assessed on the gift and
such specified value is not timely contested by the taxpayer;
(3) The value is finally determined by a
court of competent jurisdiction; or
28
(4) The value is determined pursuant to
a settlement agreement entered into between the taxpayer and the Internal Revenue Service.
(d) Definitions. For purposes of paragraph (b) of this section, the value is finally determined by a court of competent
jurisdiction when the court enters a final
decision, judgment, decree or other order
passing on the valuation that is not subject
to appeal. See, for example, section 7481
regarding the finality of a decision by the
U.S. Tax Court. Also, for purposes of
paragraph (b) of this section, a settlement
agreement means any agreement entered
into by the Internal Revenue Service and
the taxpayer that is binding on both. The
term includes a closing agreement under
section 7121, a compromise under section
7122, and an agreement entered into in
settlement of litigation involving a valuation issue.
(e) Expiration of period of assessment.
For purposes of determining if the time
has expired within which a tax may be assessed under chapter 12 of the Internal
Revenue Code, see §301.6501(c)-1(e)
and (f) of this chapter.
(f) Examples. The following examples
illustrate the rules of this section:
Example 1. (i) Facts. A owns Blackacre and B,
A’s child, owns Whiteacre. In 1999, A and B exchange ownership of these properties. On A’s federal
gift tax return, Form 709, for the 1999 calendar year,
the transfer of Blackacre to B is adequately disclosed
under §301.6501(c)–1(f)(2) of this chapter. A reports
the transfer as nontaxable, representing that the fair
market values of Whiteacre and Blackacre, at the
time of the transfer, were equal. A dies after the period of assessment for the transfer has expired.
(ii) Application of the rule limiting adjustments to
valuation issues. The fair market values of Blackacre and Whiteacre at the time of the transfer are
valuation issues. Because A filed the return adequately disclosing the transfer, the period of assessment with respect to A’s transfer has expired,
notwithstanding the fact that no gift tax return was
required to be filed. Therefore, the Internal Revenue
Service is precluded from revaluing Blackacre and
Whiteacre in determining the amount of A’s adjusted
taxable gifts in computing A’s estate tax liability.
Example 2. (i) Facts. In 1999, A transfers stock
in a closely-held corporation to an irrevocable trust.
Under the terms of the trust, the trustee has the discretion to accumulate trust net income or distribute
it among A’s children. At A’s death, the trust is to
terminate and the trust corpus is to be paid to A’s
surviving issue. On A’s federal gift tax return, Form
709, filed for the 1999 calendar year, the transfer is
adequately disclosed under §301.6501(c)–1(f)(2) of
this chapter. A claims an annual exclusion under
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Page 29
section 2503(b) for the transfer. A dies after the period of assessment for the transfer has expired.
(ii) Application of the rule limiting adjustments to
valuation issues. Because the period of assessment
has closed on the transfer due to adequate disclosure, the Internal Revenue Service is precluded from
revaluing the transferred stock for purposes of assessing gift tax. Therefore, the value of the transfer
as reported on A’s 1999 Federal gift tax return may
not be redetermined for purposes of determining A’s
adjusted taxable gifts. However, the applicability of
the annual exclusion to the transfer is a question of
law and not of valuation. Accordingly, although the
Internal Revenue Service may not assess or collect
additional gift tax on the 1999 transfer (because the
period of assessment has closed), the Internal Revenue Service is not precluded from challenging the
annual exclusion claimed by A for purposes of determining A’s adjusted taxable gifts in computing the
estate tax liability.
(g) Effective dates. Paragraph (a) of
this section applies to transfers of property by gift made prior to August 6, 1997,
if the estate tax return for the donor/decedent’s estate is filed after this document is
published as a final regulation in the Federal Register. Paragraphs (b) through (f)
of this section apply to transfers of property by gift made after August 5, 1997, if
the gift tax return for the calendar period
in which the gift is made is filed after this
document is published as a final regulation in the Federal Register.
PART 25—GIFT TAX; GIFTS MADE
AFTER DECEMBER 31, 1954
Par. 3. The authority citation for part
25 continues to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 4. Section 25.2504–2 is revised to
read as follows:
§25.2504–2 Valuation of certain gifts for
preceding calendar periods.
(a) Gifts made before August 6, 1997.
If the time has expired within which a tax
may be assessed under chapter 12 of the
Internal Revenue Code (or under corresponding provisions of prior laws) on the
transfer of property by gift made during a
preceding calendar period, as defined in
§25.2502–1(c)(2), the gift was made prior
to August 6, 1997, and a tax has been assessed or paid for such prior calendar period, the value of the gift, for purposes of
arriving at the correct amount of the taxable gifts for the preceding calendar periods (as defined under §25.2504–1(a)), is
the value used in computing the tax for
the last preceding calendar period for
1999–12 I.R.B.
which a tax was assessed or paid under
chapter 12 of the Internal Revenue Code
or the corresponding provisions of prior
laws. However, this rule does not apply
where no tax was paid or assessed for the
prior calendar period. Furthermore, this
rule does not apply to adjustments involving issues other than valuation. See
§25.2504–(d).
(b) Gifts made or section 2701(d) taxable events occurring after August 5,
1997. If the time has expired under section 6501 within which a gift tax may be
assessed under chapter 12 of the Internal
Revenue Code (or under corresponding
provisions of prior laws) on the transfer of
property by gift made during a preceding
calendar period, as defined in §25.2502–
1(c)(2), or with respect to an increase in
taxable gifts required under section
2701(d) and §25.2701–4, and the gift was
made, or the section 2701(d) taxable
event occurred, after August 5, 1997, the
value of the gift or the amount of the increase in taxable gifts, for purposes of determining the correct amount of taxable
gifts for the preceding calendar periods
(as defined in §25.2504–1(a)), is the value
that is finally determined for gift tax purposes (within the meaning of §20.2001–
1(c) of this chapter). This rule does not
apply to adjustments involving issues
other than valuation. See §25.2504–1(d).
For an illustration of this rule, see the examples under §20.2001–1(f) of this chapter. For purposes of determining if the
time has expired within which a gift tax
may be assessed, see §301.6501(c)–1(e)
and (f) of this chapter.
(c) Example. The following example
illustrates the rules of paragraphs (a) and
(b) of this section:
Example. (i) Facts. In 1996, A transfers closelyheld stock to B, A’s child. A timely filed a federal
gift tax return reporting the 1996 transfer to B. No
gift tax was assessed or paid as a result of application of A’s available unified credit. In 1999, A transfers additional closely-held stock to B. A’s federal
gift tax return reporting the 1999 transfer is timely
filed and the transfer is adequately disclosed under
§301.6501(c)-1(f)(2) of this chapter. In 2003, A
transfers additional property to B and timely files a
federal gift tax return reporting the gift.
(ii) Application of the rule limiting adjustments
to valuation of prior gifts. Under section 2504(c), in
determining A’s 2003 gift tax liability, the value of
A’s 1996 gift can be adjusted for purposes of computing the value of prior taxable gifts, since that gift
was made prior to August 6, 1997, and therefore, the
provisions of paragraph (a) of this section apply.
29
However, A’s 1999 transfer was adequately disclosed on a timely filed gift tax return and, thus,
under §25.2504-1(b), the value of the 1999 gift by A
may not be adjusted for purposes of computing the
value of prior taxable gifts in determining A’s 2003
gift tax liability.
(d) Effective dates. Paragraph (a) of
this section applies to transfers of property by gift made prior to August 6, 1997.
Paragraphs (b) and (c) of this section
apply to transfers of property by gift made
after August 5, 1997, if the gift tax return
for the calendar period in which the transfer is reported is filed after this document
is published as a final regulation in the
Federal Register.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 5. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 6. Section 301.6501(c)-1 is
amended by:
1. Revising the heading to paragraph
(e).
2. Adding paragraph (f).
The revision and addition reads as follows:
§301.6501(c)–1 Exceptions to general
period of limitations on assessment and
collection.
* * * * *
(e) Gifts subject to chapter 14 of the Internal Revenue Code not adequately disclosed on the return—
* * * * *
(f) Gifts made after August 5, 1997, not
adequately disclosed on the return—(1)
In general. If a transfer of property, other
than a transfer described in paragraph (e)
of this section, is not adequately disclosed
on a gift tax return (Form 709 United
States Gift (and Generation-Skipping
Transfer) Tax Return) filed for the calendar period in which the transfer occurs,
then any gift tax imposed by chapter 12 of
subtitle B of the Internal Revenue Code
on the transfer may be assessed, or a proceeding in court for the collection of the
appropriate tax may be begun without assessment, at any time.
(2) Adequate disclosure of transfers of
property reported as gifts. A transfer will
be adequately disclosed on the return only
March 22, 1999
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Page 30
if it is reported in a manner adequate to
apprise the Internal Revenue Service of
the nature of the gift and the basis for the
value so reported. Transfers reported on
the gift tax return as transfers of property
by gift will be considered adequately disclosed under this paragraph (f) only if the
return provides a complete and accurate
description of the transaction including—
(i) A description of the transferred
property and any consideration received
by the transferor;
(ii) The identity of, and relationship
between, the transferor and the transferee;
(iii) A detailed description of the
method used to determine the fair market
value of property transferred, including
any relevant financial data and a description of any discounts, such as discounts
for blockage, minority or fractional interests, and lack of marketability, claimed in
valuing the property. In the case of the
transfer of an interest in an entity (e.g., a
corporation or partnership) that is not actively traded, a description of any discount claimed in valuing the entity or any
assets owned by such entity, including a
statement regarding the fair market value
of 100 percent of the entity (determined
without regard to any discounts in valuing
the entity or any assets owned by the entity), the pro rata portion of the entity subject to the transfer, and the fair market
value of the transferred interest as reported on the return. If the entity that is
the subject of the transfer owns an interest
in another non-actively traded entity (either directly or through ownership of an
entity), the information required in this
paragraph (f)(2)(iii) must be provided for
each entity and the assets owned by each
entity;
(iv) If the property is transferred in
trust, the trust’s tax identification number
and a brief description of the terms of the
trust;
(v) Any restrictions on the transferred
property that were considered in determining the fair market value of the property; and
(vi) A statement of the relevant facts
affecting the gift tax treatment of the
transfer that reasonably may be expected
to apprise the Internal Revenue Service of
the nature of any potential controversy
concerning the gift tax treatment of the
transfer, or in lieu of this statement, a concise description of the legal issue pre-
March 22, 1999
sented by the facts. In addition, a statement describing any position taken that is
contrary to any temporary or final Treasury regulations or revenue rulings.
(3) Adequate disclosure of non-gift
completed transfers or transactions.
Completed transfers, all or a portion of
which are reported as not constituting a
transfer by gift (for example, a transaction
in the ordinary course of business), will
be considered adequately disclosed under
this paragraph (f) only if the following information is provided on or attached to
the return—
(i) The information required for adequate disclosure under paragraph (f)(2) of
this section; and
(ii) An explanation as to why the transfer is not a transfer by gift under chapter
12 of the Internal Revenue Code.
(4) Adequate disclosure of incomplete
transfers. Adequate disclosure of a transfer that is reported as a completed gift on
the gift tax return will commence the running of the statute of limitations for assessment of gift tax on the transfer, even
if the transfer is ultimately determined to
be an incomplete gift for purposes of
§25.2511–2 of this chapter. For example,
if an incomplete gift is reported as a completed gift on the gift tax return and is adequately disclosed, the period for assessment of the gift tax will begin running
when the return is filed, as determined
under section 6501(b). On the other hand,
if the transfer is reported as an incomplete
gift and adequately disclosed, the period
for assessing a gift tax with respect to the
transfer will not commence to run even if
the transfer is ultimately determined to be
a completed gift. In that situation, the gift
tax with respect to the transfer may be assessed at any time, up until three years
after the donor files a return reporting the
transfer as a completed gift.
(5) Examples. The following examples
illustrate the rules of this paragraph (f):
Example 1. (i) Facts. In 1999, A transfers 100
shares of common stock of XYZ Corporation to A’s
child. The common stock of XYZ Corporation is
actively traded on a major stock exchange. For gift
tax purposes, the fair market value of one share of
XYZ common stock on the date of the transfer, determined in accordance with §25.2512-2(b) of this
chapter (based on the mean between the highest and
lowest quoted selling prices), is $150.00. On A’s
federal gift tax return, Form 709, for the 1999 calendar year, A reports the gift as 100 shares of common
stock of XYZ Corporation with a value for gift tax
30
purposes of $15,000. A specifies the date of the
transfer, recites that the stock is publicly traded, and
identifies the stock exchange on which the stock is
traded.
(ii) Application of the adequate disclosure standard. A has adequately disclosed the transfer.
Therefore, the period of assessment for the transfer
under section 6501 will run from the time the return
is filed (as determined under section 6501(b)).
Example 2. (i) Facts. On December 30, 1999, A
transferred closely-held stock to B, A’s child. A determined that the value of the transferred stock, on
December 30, 1999, was $9,000. A made no other
transfers to B, or any other donee, during 1999. On
A’s federal gift tax return, Form 709, filed for the
1999 calendar year, A provides the information required under paragraph (f)(2) of this section (including the method used to determine the fair market
value of the stock and a description of discounts
claimed) such that the transfer is adequately disclosed. A claims an annual exclusion under section
2503(b) for the transfer.
(ii) Application of the adequate disclosure standard. Because the transfer was adequately disclosed
under paragraph (f)(2) of this section, the period of
assessment for the transfer will expire as prescribed
by section 6501(b), notwithstanding that if A’s valuation of the closely-held stock was correct, A was
not required to file a gift tax return reporting the
transfer under section 6019. After the period of assessment has expired on the transfer, the Internal
Revenue Service is precluded from revaluing the
transferred stock for purposes of assessing gift tax or
for purposes of determining the estate tax liability.
Therefore, the value of the transfer as reported on
A’s 1999 federal gift tax return may not be redetermined for purposes of determining A’s prior taxable
gifts (for gift tax purposes) or A’s adjusted taxable
gifts (for estate tax purposes).
Example 3. (i) Facts. A owns 100 percent of the
common stock of X, a closely-held corporation. X
does not hold an interest in any other entity that is
not actively traded. In 1999, A transfers 20 percent
of the X stock to B and C, A’s children, in a transfer
that is not subject to the special valuation rules of
section 2701. The transfer is made outright with no
restrictions on ownership rights, including voting
rights and the right to transfer the stock. The reported value of the transferred stock incorporates the
use of minority discounts and lack of marketability
discounts. No other discounts were used in arriving
at the fair market value of the transferred stock or
any assets owned by X. A reports the transfer on a
federal gift tax return, Form 709, for the 1999 calendar year. On the return, A provides a statement reporting the fair market value of 100 percent of X
(before taking into account any discounts), the pro
rata portion of X subject to the transfer, and the reported value of the transfer. A also attaches a statement regarding the determination of value that includes a discussion of the discounts claimed and
how the discounts were determined.
(ii) Application of the adequate disclosure standard. A has provided sufficient information such
that the transfer will be considered adequately disclosed and the period of assessment for the transfer
under section 6501 will run from the time the return
is filed (as determined under section 6501(b)).
Example 4. (i) Facts. A owns a 70 percent limited partnership interest in PS. PS owns 40 percent
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of the stock in X, a closely-held corporation. The assets of X include a 50 percent general partnership interest in PB. PB owns an interest in commercial real
property. None of the entities (PS, X, or PB) is actively traded. In 1999, A transfers a 25 percent limited partnership interest in PS to B, A’s child. On the
federal gift tax return, Form 709, filed for the 1999
calendar year, A reports the transfer of the 25 percent
limited partnership interest in PS and that the fair
market value of 100 percent of PS is $y and that the
value of 25 percent of PS is $z, reflecting marketability and minority discounts with respect to the 25 percent interest. However, A does not disclose that PS
owns 40 percent of X, and that X owns 50 percent of
PB and that, in arriving at the $y fair market value of
100 percent of PS, discounts were claimed in valuing
PS’s interest in X, X’s interest in PB, and PB’s interest in the commercial real property.
(ii) Application of the adequate disclosure standard. Because A has failed to comply with requirements of paragraph (f)(2) of this section regarding
PS’s interest in X, X’s interest in PB, and PB’s interest in the commercial real property, the transfer will
not be considered adequately disclosed and the period of assessment for the transfer under section
6501 will remain open indefinitely.
(6) Effective date. This paragraph (f)
is applicable to gifts made in calendar
years ending after August 5, 1997, if the
gift tax return for such calendar year is
filed after this document is published as a
final regulation in the Federal Register.
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on December 21, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 22, 1998,
63 F.R. 70701)
Notice of Proposed Rulemaking
Retention of Income Tax Return
Preparers’ Signatures
REG–106386–98
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regulations.
SUMMARY: In T.D. 8803, page 15, the
IRS is issuing temporary regulations relating to the retention of income tax return
preparers’ signatures. The text of those
temporary regulations also serves as the
text of these proposed regulations.
1999–12 I.R.B.
DATES: Written comments and requests
for a public hearing must be received by
March 31, 1999. The IRS and Treasury
Department request comments on the
clarity of the proposed rules and how they
can be made easier to understand.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–106386–98),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 5 p.m. to
CC:DOM:CORP:R (REG–106386–98),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the Internet by selecting the “Tax Regs”
option on the IRS Home Page, or by submitting comments directly to the IRS Internet site at http://www.irs.ustreas.gov/
prod/tax_regs/comments.html.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Marc
C. Porter, (202) 622-4940; concerning
submissions, LaNita Van Dyke, (202)
622-7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Temporary regulations in T.D. 8803
amend Income Tax Regulations (26 CFR
part 1) under section 6695(b) of the Internal Revenue Code. These regulations require an income tax return preparer to
keep a manually signed (by the preparer)
copy of a return or claim for refund if the
preparer presented to the taxpayer for signature a return or claim with a copy of the
preparer’s manual signature.
The text of those temporary regulations
also serves as the text of these proposed
regulations. The preamble to the temporary regulations explains the temporary
regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant regulatory action as defined in EO
12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Ad-
31
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regulations, and because the regulations do 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, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment on its
impact on small business.
Proposed Effective Date
The proposed regulations are proposed
to be effective for returns or claims for refund presented to a taxpayer for signature
after December 31, 1998 and for returns
or claims retained on or before that date.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration will be given to any written comments (a signed original and 8 copies) that
are submitted timely to the IRS. All comments will be available for public inspection and copying. A public hearing may
be scheduled if requested in writing by
any person that timely submits written
comments. If a public hearing is scheduled, notice of the date, time, and place
for the hearing will be published in the
Federal Register.
Drafting Information
The principal author of these regulations is Marc C. Porter, Office of Assistant Chief Counsel (Income Tax & Accounting). However, other personnel
from the IRS and Treasury Department
participated in its development.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.6695–1 is amended
by:
March 22, 1999
IRB 1999-12
3/17/99 12:40 PM
Page 32
1. Revising paragraph (b)(4)(i).
2. Adding paragraph (g).
The revision and addition read as follows:
§1.6695–1 Other assessable penalties
with respect to the preparation of income
tax returns for other persons.
* * * * *
(b) * * *
(4)(i) [The text of proposed paragraph
(b)(4)(i) is the same as the text of
§1.6695–1T(b)(4)(i) published in T.D.
8803.]
* * * * *
(g) [The text proposed paragraph (g) is
the same as the text of §1.6695–1T(g)
published in T.D. 8803.]
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on December 30, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 31, 1998,
63 F.R. 72218)
Foundations Status of Certain
Organizations
Announcement 99–22
The following organizations have
failed to establish or have been unable to
maintain their status as public charities or
as operating foundations. Accordingly,
grantors and contributors may not, after
this date, rely on previous rulings or designations in the Cumulative List of Organizations (Publication 78), or on the presumption arising from the filing of notices
under section 508(b) of the Code. This
listing does not indicate that the organizations have lost their status as organizations described in section 501(c)(3), eligible to receive deductible contributions.
Former Public Charities. The following
organizations (which have been treated as
organizations that are not private foundations described in section 509(a) of the
Code) are now classified as private foundations:
L I Science and Engineering fair Inc.,
East Setauket, NY
La Alma Lincoln Park Neighborhood
Organization Inc., Denver, CO
March 22, 1999
La Charitable Organization Alliance Inc.,
Metairie, LA
Lanier Retirement Community, Inc.,
Gainesville, GA
Lansing Neighborhood Housing
Corporation, Lansing, MI
La Porte County Juvenile Service Center
Task Force Inc., LaPorte, IN
La Raza Lawyers Institute, Sacramento,
CA
The Last Harvest Inc., Irvine, CA
La Vida-2 Inc., Rochester, NY
La Vivienda Housing Development
Corporation, Chicago, IL
Labor-Environmental Solidarity
Network, Portland, OR
Lackawanna County Medical Society
Health Care Fund, Scranton, PA
Lady Boston Inc., Charlestown, MA
Lahoma Community Park Association,
Lahoma, OK
Lake Cinderella Improvement
Committee, Spring, TX
Lake County Minority Healty Coalition
Inc., East Chicago, IN
Lake Erie Native American Council Inc.,
Cleveland, OH
Lake Neatahwanta Reclamation
Committee Inc., Fulton, NY
Lake Ontario Youth Athletic League Inc.,
Medina, NY
Lake St. Louis Golf Charities Inc., Lake
St. Louis, MO
Lake Toxaway Community Club, Lake
Toxaway, NC
Lakeland Rebounders Inc., Lakeland, FL
Lakewood Works for Disabled Too,
Lakewood, OH
Laotian American Organized Support,
Fountain Valley, CA
Larimer Land Trust, Loveland, CO
Larose Institution for Development,
Kalamazoo, MI
Las Vegas Valley Fire Fighters
Association, Las Vegas, NV
Lathika International Film &
Entertainment Inc., Virginia Beach, VA
Latin American Mission Programs &
Publishing, National City, CA
Latin World Ministries Inc., Austin, TX
Latino Empowerment Association of
Delmarva – Lead, Dover, DE
Laura Lagrotteria Jill Sawyer Christy
Stevens Michael Gallo, Niantic, CT
Lauravetlan Foundation Inc., New York,
NY
Laurinburg Community Economic Action
Program Inc., Lauringburg, NC
32
Lawrence Bud Kern Trust Fund Inc.,
Somers Point, NJ
Lawyers for Affordable Housing Inc.,
Dallas, TX
Lay Ministry to Missions Inc., Arlington,
TX
Lay Missionaries of the Blessed
Sacrament, Dayton, OH
LDS International Student Exchange,
Weatherford, TX
Le Bayou Legendaire Company, Lake
Charles, LA
Lead or Leave Education Fund,
Washington, DC
Leadership Lindsay, Lindsay, CA
League of Benefactors for Childrens
Activities Inc., Guthrie, OK
League of Volunteers Association,
Fairfax, VA
Learning Lab Inc., Okemah, OK
Learning Parent Inc., Houston, TX
Learning S Way, Manchester, NH
Lee Guardianship Services Inc., Fort
Myers, FL
Leon-Wakulla County Community
Housing & Development Agency Inc.,
Tallahassee, FL
Leonard Music Institute of Texas Inc.,
Fort Worth, TX
Leroy Christian Youth Centre Inc., Leroy,
KS
Let Live Inc., Baltimore, MD
Life Inc., Lafayette, LA
Leva Tatidar Samaj Inc. USA, Waltham,
MA
Lewisburg Area Community Center Inc.,
Lewisburg, PA
Liberty Glass Company Foundation Inc.,
Sapulpa, OK
Liberty Park USA Foundation, Colorado
Springs, CO
Libraries Worl-Wide Inc., Weston, MO
Life Center Foundation Inc., Key West,
FL
Life-Flite Corporation, Miami, FL
Life From Life Mid-Iowa Transplant
Support Group, Des Moines, IA
Life Harvest, Hersey, MI
Life Involves New Connections Inc.,
Rockville, Centre, NY
Life Long Learning Center Inc.,
Southampton, PA
Life Out Reach Development Center,
Oregonia, OH
Lifechange Ministries Inc., Fort Mill, SC
Lifeline a Mental Retardation
Partnership, Washington, DC
Lifeline Institute Inc., Dale city, VA
1999–12 I.R.B.
IRB 1999-12
3/17/99 12:40 PM
Page 33
Lifestream Ministries Inc., Brentwood,
TN
Lifta Society, Dallas, TX
Lighthouse Maternity Services, Oxford,
OH
Lighthouse Restoration Center, Castle
Hayne, NC
Lighthouse of the Virginian Sea, Louisa,
VA
Lincoln Avenue Community
Development Corporation Inc.,
Evansville, IN
Lindale Historical Society, Tyler, TX
Linden Ladies Auxiliary Inc., Linden, NC
Linesville Community Public Library
Inc., Linesville, PA
Link Community Inc., Philadelphia, PA
Link to Life Network Inc., New York,
NY
Linton Teen Center Inc., Linton, IN
Lionel Washingtons River Parishes Pro
Football Camp, Lutcher, LA
Listen to Me Inc., Baltimore, MD
Literacy Council of Colorado County
Inc., Columbus, TX
Lithuanian-American Historical Aviation
Society, Grand Rapids, MI
Little Frontier Inc., E Amherst, NY
Little Hand Charities Inc., New Port
Richey, FL
Little River Community Complex Inc.,
Durham, NC
Live Eyes Theatre Company Inc., New
York, NY
Live Foundation Inc., New Orleans, LA
Livermore Fire Department Inc.,
Livermore, CO
Livernois-Seven Mile Non-Profit
Housing Corporation, Detroit, MI
Living Climb Organization Inc., New
York, NY
Living Stones Fellowship Inc., Hixson,
TN
Living Tradition, Garden Grove, CA
Living Well Foundation, Dallas, TX
Living Word Explorations, Arriba, CO
Lo Society Branch of Wisconsin Inc.,
Oshkosh, WI
Lodgistics Interim Homes for Homeless
Veterans, Corpus Christi, TX
Lombard Orioles Baseball Club,
Lombard, IL
Long Island for Education Center Inc.,
Farmingdale, NY
Long Island Maritime Heritage Society
Inc., Riverhead, NY
Lou Brock Scholarship Foundation Inc.,
St. Louis, MO
1999–12 I.R.B.
Loudoun Families for Children,
Leesburg, VA
Louisiana Air National Guard
Community, New Orleans, LA
Louisiana for Low-Income Housing
Today Incorporated, New Orleans, LA
Louisiana League of Anglers, Marrero,
LA
Louisiana Mico Enterprise Development
Corporation, Monroe, LA
Louisianas Absolute Pitch Inc., Baton
Rouge, LA
Love & Action Midwest Inc.,
Mt. Prospect, IL
Love All Tennis Patrons Incorporated Not
for Profit, East Chicago, IN
Love and Hope Inc., Lynwood, CA
Love in Christ Foundation Incorporated,
Grand Prairie, TX
Love Inc. Anchorage, Anchorage, AK
Love Nutrition Program, Houston, TX
Love Our Kids Inc., Houston, TX
Love Santa Inc., Woodburn, OR
Loving Arms, Memphis, TN
Loving Hands Adult Day Program,
Bellefontaine, OH
Loving Hands Ministries Inc.,
Birmingham, AL
Loving Options, San Bernardino, CA
Lower Richland Community Care Center
Inc., Columbia, SC
LPS Ministry Inc., Folly Beach, SC
Lt. Eddie Kitchen Jr Foundation,
Natchez, MS
Lulac National Civil Rights Commission
Inc., Lubbock, TX
Luso American Social and Cultural
Center Inc., Providence, RI
Luther Village of Tampa Bay Inc.,
Tampa, FL
Lyme Disease Coalition of Minnesota,
Roseville, MN
Lyon County Girls Club Incorporated,
Kuttawa, KY
Lyons Community Association, Stilwell,
OK
Lyons Parent-Teacher Organization Inc.,
Randolph, MA
Lyric Opera of Erie Inc., Erie, PA
Lytal Aquatic Foundation Inc., Palm
Beach, FL
Maasai Nation, Inc., Atlanta, GA
Maine Immigration Advocacy Project,
Portland, ME
Merchants Foundation, Inc., Homestead,
PA
Midwest Childrens Theatre, Inc.,
Kenosha, WI
33
Mon County Housing Development
Corporation, Morgantown, WV
The Moreno Valley Arts Association,
Moreno Valley, CA
National Aquatic Foundation, Naperville,
IL
The National Jazz Hall of Fame and
Museum, Inc., Pittsburgh, PA
New Directions Community
Improvement Corp., Ravenna, OH
Northwest Florida Spinal Cord Injury
Council, Inc., Pensacola, FL
North Iowa Alliance for the Mentally Ill,
Mason City, IA
Ohio Jujitsu, Stow, OH
Operation Unity, Los Angeles, CA
Orange County Cocaine Anonymous,
Costa Mesa, CA
Outreach Ministries of the Greater New
Zion Missionary Baptist Church,
Los Angeles, CA
Oregon Horse Rescue, Eugene, OR
Pandora Playground, Inc., Pandora, OH
Paul Emerick Vocational Education
Foundation, Wilsonville, OR
Personal Physician Cave of Ohio, Inc.,
Cleveland, OH
Petersburg-Newburg Improvement
Association, Inc., Louisville, KY
PHS Community Development
Corporation, Detroit, MI
Pineland Early Learning Center, Inc.,
Pineland, TX
Pinnah Eben Ministries, Lawrenceville,
GA
Portland Metro Mens Council, Portland,
OR
Project Youth Life Skills Center,
Las Vegas, NV
Puritan Community Outreach, Baton
Rouge, LA
Puyallup Schools Foundation, Puyallup,
WA
Rivercrest Community Church Inc.,
Crescent Springs, KY
San Antonio Leadership Foundation,
San Antonio, TX
San Antonio Retired Educators
Foundation Inc., San Antonio, TX
San Joaquin County Bar Foundation,
Stockton, CA
San Quentin Productions, San Rafael, CA
Scuppernong Vision & Action, Creswell,
NC
Sea Ministries Charit Tr, Minonk, IL
Seenet, Charlottesville, VA
Shelter From Darkness Ministries,
Oroville, WA
March 22, 1999
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Page 34
Shepherds Field, Mobile, AL
The Shiloh Community Services
Foundation, Sacramento, CA
Shriners Hospital for Crippled Children
Tr 2225, Boston, MA
Silver Lake Community Development
Corporation, Silver Lake, OR
The Simeon Institute, Claremont, CA
Smiles Learning Center, Inc., Starkville,
MS
Sonshine Sanctuary, Bellingham, WA
South Florida Aerospace Scholarship
Corporation, Miami, FL
Southern Housing Restoration &
Development, Inc., Atlanta,
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