Bulletin No. 1997–23

Agency decision

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What actually matters in this document.

Text

June 9, 1997

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

GENERATION-SKIPPING TRANSFER TAX

Rev. Rul. 97–25, page 4.

Low-income housing credit; satisfactory bond; ‘‘bond

factor’’ amounts for the period April through June

1997. This ruling announces the monthly bond factor

amounts to be used by taxpayers who dispose of

qualified low-income buildings or interests therein during

the period April through June 1997.

T.D. 8720, page 6.

Final regulations under section 2652 of the Code relate

to the generation-skipping transfer (GST) tax regulations

under Chapter 13 of the Code.

T.D. 8719, page 4.

REG–209837–96, page 8.

REG–105299–97, page 8.

Temporary and proposed regulations under section 446

of the Code relate to the procedure for requesting a

change in accounting method and to the standards for

granting an extension of time to request a change in

accounting method.

EXEMPT ORGANIZATIONS

Announcement 97–56, page 17.

A list is given of organizations now classified as private

foundations.

Finding Lists begin on page 22.

Announcement of Disbarments and Suspensions begins on page 19.

ADMINISTRATIVE

Rev. Proc. 97–28, page 9.

Tax forms and instructions. General procedures are

provided to inform those who participate in the Magnetic

Media/Electronic Filing Program for Form 1040NR, U.S.

Nonresident Alien Income Tax Return, of their obligations

to the Internal Revenue Service, taxpayers, and other

participants.

Announcement 97–57, page 18.

The 1997 Information Reporting Program Seminars will

be held in August and September. The schedule of

cities, dates, and contact telephone numbers is shown.

Mission of the Service

The purpose of the Internal Revenue Service is to

collect the proper amount of tax revenue at the least

cost; serve the public by continually improving the

quality of our products and services; and perform in a

manner warranting the highest degree of public

confidence in our integrity, efficiency and fairness.

Statement of Principles

of Internal Revenue

Tax Administration

The Service also has the responsibility of applying

and administering the law in a reasonable,

practical manner. Issues should only be raised by

examining of ficers when they have merit, never

arbitrarily or for trading purposes. At the same

time, the examining officer should never hesitate

to raise a meritorious issue. It is also important

that care be exercised not to raise an issue or to

ask a court to adopt a position inconsistent with

an established Service position.

The function of the Internal Revenue Service is to

administer the Internal Revenue Code. Tax policy

for raising revenue is determined by Congress.

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

carry out that policy by correctly applying the laws

enacted by Congress; to determine the reasonable

meaning of various Code provisions in light of the

Congressional purpose in enacting them; and to

perform this work in a fair and impartial manner,

with neither a government nor a taxpayer point of view.

Administration should be both reasonable and

vigorous. It should be conducted with as little

delay as possible and with great cour tesy and

considerateness. It should never try to overreach,

and should be reasonable within the bounds of law

and sound administration. It should, however, be

vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax

devices and fraud.

At the heart of administration is interpretation of the

Code. It is the responsibility of each person in the

Service, charged with the duty of interpreting the

law, to try to find the true meaning of the statutory

provision and not to adopt a strained construction in

the belief that he or she is ‘‘protecting the revenue.’’

The revenue is properly protected only when we ascertain and apply the true meaning of the statute.

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.

court decisions, rulings, and procedures 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,

The first Bulletin for each month includes an index for

the matters published during the preceding month.

These monthly indexes are cumulated on a quarterly and

semiannual basis, and are published in the first Bulletin

of the succeeding quarterly and semi-annual 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, D.C. 20402.

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

Section 42.—Low-Income Housing

Credit

Rev. Rul. 97–25

In Rev. Rul. 90–60, 1990–2 C.B. 3,

the Internal Revenue Service provided

guidance to taxpayers concerning the

general methodology used by the Treasury Department in computing the bond

factor amounts used in calculating the

amount of bond considered satisfactory

by the Secretary under § 42(j)(6) of the

Internal Revenue Code. It further announced that the Secretary would pub-

Low-income housing credit; satisfactory bond; “bond factor” amounts

for the period April through June

1997. This ruling announces the

monthly bond factor amounts to be used

by taxpayers who dispose of qualified

low-income buildings or interests therein

during the period April through June

1997.

lish in the Internal Revenue Bulletin a

table of ‘‘bond factor’’ amounts for

dispositions occurring during each calendar month.

This revenue ruling provides in Table

1 the bond factor amounts for calculating the amount of bond considered

satisfactory under § 42(j)(6) for dispositions of qualified low-income buildings

or interests therein during the period

April through June 1997.

Table 1

Rev. Rul. 97–25

Monthly Bond Factor Amounts for Dispositions Expressed

As a Percentage of Total Credits

Calendar Year Building Placed in Service

or, if Section 42(f)(1) Election Was Made,

the Succeeding Calendar Year

Month of

Disposition

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

Apr ’97

May ’97

Jun ’97

79.00

78.77

78.55

81.35

81.11

80.88

83.91

83.66

83.42

86.90

86.64

86.40

90.40

90.13

89.87

94.39

94.09

93.81

98.50

98.18

97.88

102.45

102.11

101.79

106.31

105.95

105.61

110.36

109.98

109.64

112.52

For a list of bond factor amounts

applicable to dispositions occurring during other calendar years, see the following revenue rulings: Rev. Rul. 90–60,

1990–2 C.B. 3, for dispositions occurring during calendar years 1987, 1988,

and 1989; Rev. Rul. 90–88, 1990–2 C.B.

7, for dispositions occurring during calendar year 1990; Rev. Rul. 91–67,

1991–2 C.B. 13, for dispositions occurring during calendar year 1991; Rev.

Rul. 92–101, 1992–2 C.B. 9, for dispositions occurring during calendar year

1992; Rev. Rul 93–83, 1993–2 C.B. 6,

for dispositions occurring during calendar year 1993; Rev. Rul. 94–71, 1994–2

C.B. 4, for dispositions occurring during

calendar year 1994; Rev. Rul. 95–83,

1995–2 C.B. 8, for dispositions occurring during calendar year 1995; Rev.

Rul. 96–16, 1996–1 C.B. 3, for dispositions occurring during the period January through March 1996; Rev. Rul.

96–33, 1996–27 I.R.B. 4, for dispositions occurring during the period April

through June 1996; Rev. Rul. 96–45,

1996–39 I.R.B. 5, for dispositions occurring during the period July through

September 1996; Rev. Rul. 96–59,

1996–50 I.R.B. 4, for dispositions occurring during the period October

through December 1996; and Rev. Rul.

97–16, 1997–13 I.R.B. 4, for disposi-

tions occurring during the period January through March 1997.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Jack Malgeri of the Office of

Assistant Chief Counsel (Passthroughs

and Special Industries). For further information regarding this revenue ruling,

contact Mr. Malgeri at (202) 622–3040

(not a toll-free call).

Section 446.—General Rule for

Methods of Accounting

26 CFR 1.446–1: General rule for methods of

accounting.

T.D. 8719

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 301 and 601

Requirements Respecting the

Adoption or Change of Accounting

Method; Extensions of Time to

Make Elections

procedure for requesting a change in

accounting method and to the standards

for granting an extension of time to

request a change in accounting method.

The regulations provide for a longer

period of time for filing an application

for change in accounting method with

the Commissioner. The regulations also

provide that an extension of time to file

an application for change in accounting

method will be granted only in unusual

and compelling circumstances. The

regulations affect taxpayers requesting a

change in method of accounting for

federal income tax purposes. The text of

these temporary regulations also serves

as the text of REG–209837–96 and

REG–105299–97, page 8.

DATES: These regulations are effective

May 15, 1997.

For dates of applicability of these

regulations, see §§ 1.446–1T(e)(3)(iii),

301.9100–1T(h) and 601.204T(e) of

these regulations.

FOR FURTHER INFORMATION CONTACT: Cheryl L. Oseekey at (202)

622–4970 (not a toll-free number).

AGENCY: Internal Revenue Service

(IRS), Treasury.

SUPPLEMENTARY INFORMATION:

ACTION: Temporary regulations.

Background

SUMMARY: This document contains

temporary regulations relating to the

This document contains amendments

to the Regulations on Income Taxes (26

CFR part 1), the Regulations on Procedure and Administration (26 CFR part

301), and the Statement of Procedural

Rules (26 CFR part 601) relating to the

requirements for changes in method of

accounting and extensions of time to

make elections. Proposed and temporary

regulations relating to extensions of time

to make elections were published in the

Federal Register for June 27, 1996 (61

FR 29714 and 61 FR 33365). These

regulations extend the time for filing an

application for change in accounting

method under § 1.446–1(e)(3)(i) and

amend §§ 301.9100–1T and 301.9100–

3T to provide that an extension of time

to file an application for change in

accounting method beyond the year provided in these regulations will be

granted only in unusual and compelling

circumstances.

Explanation of Provisions

Section 446(e) requires that a taxpayer obtain the Commissioner’s consent before changing a method of accounting. Sections 1.446–1(e)(3)(i) and

601.204(b) require the taxpayer to file a

Form 3115, Application for Change in

Accounting Method, with the Commissioner within the first 180 days of the

taxable year in which the taxpayer desires to make the change. Sections

301.9100–1T and 301.9100–3T provide

limited relief for extending the time to

file a Form 3115 (not to exceed 90 days

from the deadline for filing the Form

3115 except in unusual and compelling

circumstances).

Sections

1.446–1(e)(3)(i)

and

601.204(b) are amended to provide that

a taxpayer must file a Form 3115 with

the Commissioner during the taxable

year in which the taxpayer desires to

make the change in method of accounting. Taxpayers are encouraged to file the

Form 3115 as early as possible during

the year of change to provide the IRS

adequate time to process the application

prior to the original due date of the

taxpayer’s return.

In addition, §§ 301.9100–1T and

301.9100–3T are amended to provide

that an extension of time to file a Form

3115 (i.e., beyond the taxable year) will

only be granted in unusual and compelling circumstances.

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. Sections

1.446–1(e)(3)(i) and 601.204(b) require

a taxpayer to file a Form 3115, Application for Change in Accounting

Method, with the Commissioner within

the first 180 days of the taxable year in

which the taxpayer desires to make the

change. The temporary regulations in

this document, §§ 1.446–1T(e)(3)(i) and

601.204T(b), merely extend the time for

filing the Form 3115 and, therefore, do

not contain a new collection of information. Thus, 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 Cheryl L. Oseekey of the Office

of Assistant Chief Counsel (Income Tax

and Accounting). However, other personnel from the IRS and Treasury Department participated in their development.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1, 301,

and 601 are amended as follows:

§ 1.446–1T General rule for methods of

accounting (temporary).

(a) through (d) [Reserved] For further

guidance, see § 1.446–1(a) through (d).

(e) Requirement respecting the adoption or change of accounting method.

(1) and (2) [Reserved] For further

guidance, see § 1.446–1 (e)(1) and (2).

(3)(i)(A) [Reserved] For further

guidance, see § 1.446–1(e)(3)(i).

(B) For any Form 3115 filed on or

after May 15, 1997, permission to

change a taxpayer’s method of accounting will not be granted unless the taxpayer agrees to the Commissioner’s prescribed terms and conditions for

effecting the change, including the taxable year or years in which any adjustment necessary to prevent amounts from

being duplicated or omitted is to be

taken into account.

(ii) and (iii) [Reserved] For further

guidance, see § 1.446–1(e)(3) (ii) and

(iii).

PART 301—PROCEDURE AND ADMINISTRATION

Par. 4. The authority citation for part

301 continues to read in part as follows:

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

Par. 5. In § 301.9100–1T, paragraph

(h) is amended by adding a sentence at

the end of the paragraph to read as

follows:

§ 301.9100–1T Extensions of time to

make elections (temporary).

(h) * * * In addition, § 301.9100–

3T(c)(2)(i) is effective for any Form

3115 filed on or after May 15, 1997.

Par. 6. In § 301.9100–3T, paragraph

(c)(2)(i) is revised to read 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 1.446–1, paragraph

(e)(3)(i) is amended by adding a sentence at the end of the paragraph to read

as follows:

§ 1.446–1 General rule for methods of

accounting.

These amendments are effective for

Forms 3115 filed on or after May 15,

1997.

Par. 3. Section 1.446–1T is added to

read as follows:

(e)(3) * * * For any Form 3115 filed

on or after May 15, 1997, see § 1.446–

1T(e)(3)(i)(B).

§ 301.9100–3T Other extensions (temporary).

(2) * * *

(i) Subject to the procedure described

in § 1.446–1T(e)(3)(i) of this chapter

(requiring the advance written consent

of the Commissioner);

PART 601—STATEMENT OF PROCEDURAL RULES

Par. 7. The authority citation for part

601 continues to read as follows:

Authority: 26 U.S.C. 301 and 552,

unless otherwise noted.

Par. 8. Section 601.204, paragraph (b)

is amended by adding a sentence at the

end of the paragraph to read as follows:

§ 601.204 Changes in accounting periods and in methods of accounting.

(b) * * * For any Form 3115 filed on

or after May 15, 1997, see § 601.204T(b)(2).

Par. 9. Section 601.204T is added to

read as follows:

§ 601.204T Changes in accounting periods and in methods of accounting (temporary).

(a) [Reserved] For further guidance,

see § 601.204(a).

(b) Methods of accounting. (1) [Reserved] For further guidance, see

§ 601.204(b).

(2) For any Form 3115 filed on or

after May 15, 1997, application for

permission to change the method of

accounting employed shall be made on

Form 3115 and filed with the Commissioner during the taxable year in which

the taxpayer desires to make the change

in method of accounting. Permission to

change the method of accounting will

not be granted unless the taxpayer and

the Commissioner agree to the terms

and conditions under which the change

will be effected.

guidance, see § 601.204(c) and (d).

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved May 2, 1997.

Donald C. Lubick,

Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on

May 14, 1997, 8:45 a.m., and published in the

issue of the Federal Register for May 15, 1997, 62

F.R. 26740)

Section 2652.—Other Definitions

26 CFR 26.2652–1: Transferor defined; other

definitions.

T.D. 8720

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 26

Generation-Skipping Transfer Tax

AGENCY: Internal Revenue Service

(IRS), Treasury

ACTION: Final Regulations.

SUMMARY: This document contains

final regulations relating to the

generation-skipping transfer (GST) tax

regulations under chapter 13 of the

Internal Revenue Code (Code). This

document amends the final regulations

under section 2652 and is necessary to

provide guidance to taxpayers so that

they may comply with chapter 13 of the

Code.

DATES: This regulation is effective on

May 20, 1997.

For dates of applicability of these

regulations, see Effective Date under

Supplementary Information.

FOR FURTHER INFORMATION CONTACT: James F. Hogan, (202) 622–3090

(not a toll-free number),

SUPPLEMENTARY INFORMATION:

Background

On December 27, 1995, the IRS published final regulations in the Federal

200]) under sections 2611, 2612, 2613,

2632, 2641, 2642, 2652, 2653, 2654,

and 2663. On June 12, 1996, a notice of

proposed

rulemaking

deleting

§ 26.2652–1(a)(4) and two related examples was published in the Federal

1996–33 I.R.B. 15]). No comments responding to the notice of proposed

rulemaking were received, and no public

hearing was requested or held. The final

regulations are adopted as proposed.

Explanation of Provision

Section 2652(a)(1) provides generally,

that the term transferor means—(A) in

the case of any property subject to the

tax imposed by chapter 11, the decedent,

and (B) in the case of any property

subject to the tax imposed by chapter

12, the donor. An individual is treated as

transferring any property with respect to

which the individual is the transferor.

Under § 26.2652–1(a)(2), a transfer is

subject to Federal gift tax if a gift tax is

imposed under section 2501(a) and is

subject to Federal estate tax if the value

of the property is includible in the

decedent’s gross estate determined under

section 2031 or section 2103. Under

§ 26.2652–1(a)(4), the exercise of a

power of appointment that is not a

general power of appointment is also

treated as a transfer subject to Federal

estate or gift tax by the holder of the

power if the power is exercised in a

manner that may postpone or suspend

the vesting, absolute ownership, or

power of alienation of an interest in

property for a period, measured from the

date of the creation of the trust, extending beyond any specified life in being at

the date of creation of the trust plus a

period of 21 years plus, if necessary, a

reasonable period of gestation.

The purpose of the rule in

§ 26.2652–1(a)(4) was to impose the

GST tax when it may not otherwise

have applied. It was never intended to

(nor could it) prevent the application of

the tax pursuant to the statutory provisions that apply based on the original

taxable transfer. To eliminate any uncertainty concerning the proper application

of the GST tax, the regulations under

section 2652(a) are clarified by eliminating § 26.2652–1(a)(4) and Example 9

and Example 10 in § 26.2652–1(a)(6)

from the regulations.

Effective Date

These amendments apply to transfers

to trusts on or after June 12, 1996.

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 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, the notice

of proposed rulemaking preceding these

regulations was submitted to the Small

Business Administration for comment on

its impact on small business.

Drafting Information

The principal author of this regulation

is James F. Hogan, Office of the Chief

Counsel, IRS. Other personnel from the

IRS and Treasury Department participated in its development.

Amendments to the Regulations

Accordingly, 26 CFR part 26 is

amended as follows:

PART 26—GENERATION-SKIPPING

TRANSFER TAX REGULATIONS UNDER THE TAX REFORM ACT OF

1986

Paragraph 1. The authority citation for

part 26 continues to read, in part, as

follows:

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

Par. 2 Section 26.2652–1 is amended

as follows:

1. Paragraph (a)(4) is removed and

paragraphs (a)(5) and (a)(6) are redesignated as paragraphs (a)(4) and (a)(5),

respectively.

2. In newly designated paragraph

(a)(5), Examples 9 and 10 are removed

and Example 11 is redesignated as Example 9.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved May 1, 1997.

Donald C. Lubick,

Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on

May 19, 1997, 8:45 a.m., and published in the

issue of the Federal Register for May 20, 1997, 62

F.R. 27496)

Section 6012.—Persons Required

To Make Returns of Income

26 CFR 1.6012–5: Composite return in lieu of

specified form.

General procedures are provided to inform those

who participate in the Magnetic Media/Electronic

Filing Program for Form 1040NR, of their obligations to the Internal Revenue Service, taxpayers,

and other participants. See Rev. Proc. 97–28,

page 9.

Section 6061.—Signing of Returns

and Other Documents

26 CFR 1.6061–1: Signing of returns and other

documents by individuals.

General procedures are provided to inform those

who participate in the Magnetic Media/Electronic

Filing Program for Form 1040NR, of their obligations to the Internal Revenue Service, taxpayers,

and other participants. See Rev. Proc. 97–28,

page 9.

Part III. Administrative, Procedural, and Miscellaneous

Notice of Proposed Rulemaking

SUPPLEMENTARY INFORMATION:

Comments and Public Hearing

Requirements Respecting the

Adoption or Change of Accounting

Method; Extensions of Time To

Make Elections

Background

Before these proposed regulations are

adopted as final regulations, consideration will be given to any comments

that are submitted timely to the IRS (a

signed original and eight (8) copies if

the comments are written). All comments will be available for public inspection and copy. A public hearing may

be scheduled if requested in writing by

a person that timely submits comments.

If a public hearing is scheduled, notice

of the date, time, and place for the

hearing will be published in the Federal

REG–209837–96; REG–105299–97

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary

regulations.

SUMMARY: In T.D. 8719, page 4, the

IRS is issuing temporary regulations

relating to the procedure for requesting

a change in accounting method and to

the standards for granting an extension

of time to request a change in accounting method. The regulations provide for

a longer period of time for filing an

application for change in accounting

method with the Commissioner. The

regulations also provide that an extension of time to file an application for

change in accounting method will be

granted only in unusual and compelling

circumstances. The regulations affect

taxpayers requesting a change in method

of accounting for federal income tax

purposes. The text of those temporary

regulations also serves as the text of

these proposed regulations.

DATES: Written comments must be received by August 13, 1997.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (REG–209837–96

and REG–105299–97), room 5228, Internal Revenue Service, POB 7604, Ben

Franklin Station, Washington, DC

20044. Submissions may be hand delivered between the hours of 8 a.m. and 5

p.m. to: CC:DOM:CORP:R (REG–

209837–96 and REG–105299–97), Courier’s Desk, Internal Revenue Service,

1111 Constitution Avenue NW, Washington, DC. Taxpayers may also 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: Cheryl L. Oseekey, (202) 622–

4970 (not a toll-free number).

Temporary regulations T.D. 8719

amend Regulations on Income Taxes (26

CFR part 1), the Regulations on Procedure and Administration (26 CFR part

301), and the Statement of Procedural

Rules (26 CFR part 601) relating to the

requirements for changes in method of

accounting and extensions of time to

make elections. Proposed and temporary

regulations relating to extensions of time

to make elections were published in the

Federal Register for June 27, 1996 (61

FR 29714 and 61 FR 33365). These

regulations extend the time for filing an

application for change in accounting

method under § 1.446–1(e)(3)(i) and

amend §§ 301.9100–1T and 301.9100–

3T to provide that an extension of time

to file an application for change in

accounting method will be granted only

in unusual and compelling circumstances.

The text of those temporary regulations also serves as the text of these

proposed regulations. The preamble to

the temporary regulations explains the

rules provided by the 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 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. Sections 1.446–1(e)(3)(i)

and 601.204(b) require a taxpayer to file

a Form 3115, Application for Change in

Accounting Method, with the Commissioner within the first 180 days of the

taxable year in which the taxpayer desires to make the change. The proposed

regulations in this document merely extend the time for filing the Form 3115

and, therefore, do not contain a new

collection of information. Thus, 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.

Drafting Information

The principal author of these regulations is Cheryl L. Oseekey of the Office

of Assistant Chief Counsel (Income Tax

and Accounting). However, other personnel from the IRS and Treasury Department participated in their development.

Proposed Amendments to the Regulations

Accordingly, 26 CFR parts 1, 301,

and 601 are 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 1.446–1 is amended by

revising paragraph (e)(3)(i) to read as

follows:

§ 1.446–1 General rule for methods of

accounting.

[The text of proposed paragraph

(e)(3)(i) is the same as the text in

§ 1.446–1T(e)(3)(i) published in T.D.

8719.]

PART 301—PROCEDURE AND ADMINISTRATION

Par. 3. The authority citation for part

301 continues to read in part as follows:

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

Par. 4. In § 301.9100–1, paragraph

(h) is added to read as follows:

§ 301.9100–1 Extensions of time to

make elections.

[The text of proposed paragraph (h) is

the same as the text of § 301.9100–

1T(h) published June 27, 1996, at 61 FR

33368, and amended in T.D. 8719.]

Par. 5. In proposed § 301.9100–3,

published June 27, 1996, at 61 FR

33409, paragraph (c)(2)(i) is revised to

reads as follows:

§ 301.9100–3 Other extensions.

[The text of proposed paragraph

(c)(2)(i) is the same as the text in

§ 301.9100–3T(c)(2)(i) published in

T.D. 8719.]

PART 601—STATEMENT OF PROCEDURAL RULES

Par. 6. The authority citation for part

601 continues to read as follows:

Authority: 26 U.S.C. 301 and 552.

***

Par. 7. In § 601.204, paragraph (b) is

revised to read as follows:

§ 601.204 Changes in accounting periods and in methods of accounting.

[The text of proposed paragraph (b) is

the same as the text in § 601.204T(b)

published in T.D. 8719.]

Margaret Milner Richardson,

Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on

May 14, 1997, 8:45 a.m., and published in the

issue of the Federal Register for May 15, 1997, 62

F.R. 26755)

26 CFR 601.602 : Tax forms and instructions.

(Also Part I, §§ 6012, 6061; 1.6012–5, 1.6061–1.)

Rev. Proc. 97–28

CONTENTS

SECTION 1. PURPOSE

SECTION 2. BACKGROUND AND

CHANGES

SECTION 3. 1040NR PROGRAM

PARTICIPANTS—DEFINITIONS

SECTION 4. ACCEPTANCE INTO

THE 1040NR PROGRAM

SECTION 5. RESPONSIBILITIES OF

A 1040NR FILER

SECTION 6. PENALTIES

SECTION 7. FORM 8453–NR, U.S.

NONRESIDENT ALIEN INCOME

TAX DECLARATION FOR MAGNETIC MEDIA FILING

SECTION 8.

INFORMATION A

1040NR FILER MUST PROVIDE

TO THE TAXPAYER

SECTION 9. DIRECT DEPOSIT OF

REFUNDS

SECTION 10. BALANCE DUE RETURNS

SECTION 11. ADVERTISING STANDARDS FOR 1040NR FILERS AND

FINANCIAL INSTITUTIONS

SECTION 12. MONITORING AND

SUSPENSION OF A 1040NR FILER

SECTION 13. ADMINISTRATIVE REVIEW PROCESS FOR DENIAL OF

PARTICIPATION IN THE 1040NR

PROGRAM

SECTION 14. ADMINISTRATIVE REVIEW PROCESS FOR SUSPENSION FROM THE 1040NR PROGRAM

SECTION 15. EFFECT ON OTHER

DOCUMENTS

SECTION 16. EFFECTIVE DATE

SECTION 17. PROJECT OFFICE INFORMATION

SECTION 1. PURPOSE

This revenue procedure informs those

who participate in the 1997 Magnetic

Media/Electronic Filing Program for

Form 1040NR, U.S. Nonresident Alien

Income Tax Return (‘‘1040NR Program’’), of their obligations to the Internal Revenue Service, taxpayers, and

other participants. This revenue procedure updates Rev. Proc. 96–35, 1996–1

C.B. 721.

SECTION 2. BACKGROUND AND

CHANGES

.01 Section 1.6012–5 of the Income

Tax Regulations provides that the Commissioner may authorize the use, at the

option of a person required to make a

return, of a composite return in lieu of

any form specified in 26 CFR Part 1

(Income Tax), subject to the conditions,

limitations, and special rules governing

the preparation, execution, filing, and

correction thereof as the Commissioner

may deem appropriate.

.02 For purposes of this revenue procedure, a magnetically or electronically

filed Form 1040NR is a composite return consisting of data submitted on

magnetic tape, floppy disk, or via modem (the ‘‘data portion’’), and certain

paper documents (the ‘‘paper portion’’).

The paper portion of the return consists

of a Form 8453–NR, U.S. Nonresident

Alien Income Tax Declaration for Magnetic Media Filing, and other paper

documents that cannot be filed magnetically or electronically. Form 8453–NR

must be received by the Service before

any composite return is complete (see

section 5.07 of this revenue procedure).

A composite return must contain the

same information that a return filed

completely on paper contains. See section 7 of this revenue procedure for

procedures for completing Form 8453–

NR.

.03 The Magnetic Media Project Office (‘‘Project Office’’, see section 17 of

this revenue procedure for the address

and telephone numbers) will periodically

issue a list of the forms and schedules

that can be magnetically or electronically filed.

.04 A Form 1040NR with a zero

balance, balance due, or refund due may

be magnetically or electronically filed.

.05 A Form 1040NR cannot be filed

magnetically or electronically after December 5, 1997, notwithstanding the fact

that the taxpayer has been granted an

extension to file beyond that date. Form

2688, Application for Additional Extension of Time To File U.S. Individual

Income Tax Return, cannot be filed

magnetically or electronically.

.06 An amended tax return cannot be

filed magnetically or electronically. A

taxpayer must file an amended tax return on paper in accordance with the

instructions for Form 1040X, Amended

U.S. Individual Income Tax Return.

.07 Upon request, the Project Office

will provide technical information (file

specifications, record layouts, and testing procedures) for filing Form 1040NR

magnetically or electronically.

.08 This revenue procedure updates

Rev. Proc. 96–35, which applied to the

1040NR Program for the 1996 filing

season. The updates include changes in

the 1040NR Program for the 1997 filing

season, clarifications of prior 1040NR

Program statements, and additional guidance derived from other Service documents that relate to the 1040NR Program. Some of the updates are:

(1) a Service Bureau may submit

returns directly to the Service (section

3.02);

(2) in certain circumstances, a letter may be submitted in lieu of a revised

Form MAR–8980 (section 4.03);

(3) a nonparticipating 1040NR

Filer may be dropped from the 1040NR

Program (section 4.06);

(4) a 1040NR Filer may not base a

fee for the magnetic or electronic transmission of a Form 1040NR using any

amount from the return (section 5.04);

(5) the time period for a 1040NR

Filer to notify the Service that it is

discontinuing its participation in the

1040NR Program is extended to 30 days

(section 5.06);

(6) the duties of a 1040NR Return

Originator are clarified (sections 5.11,

5.12, 5.13, and 5.14);

(7) the duties of a 1040NR Transmitter are clarified (section 5.17);

(8) a 1040NR Filer, financial institution, or any other entity associated

with the magnetic or electronic filing of

a return must not put its address on

Form 8453–NR or anywhere in the data

portion of the return (section 7.01);

(9) procedures for corrections to

Form 8453–NR are clarified (section

7.02);

(10) a 1040NR Return Originator

must advise taxpayers that refund status

information is available on TeleTax (section 8.05);

(11) information a 1040NR Filer

must provide regarding a taxpayer’s address of record is clarified (section

8.06);

(12) information a 1040NR Return

Originator must provide regarding direct

deposit is clarified (section 9.04);

(13) the two-year periods for denial and suspension are modified and

clarified (sections 12.07 and 12.08);

(14) the time and method to respond to a proposed letter of denial and

a denial letter are clarified (sections

13.03 and 13.06); and

(15) the time and method to respond to a proposed suspension letter

and a suspension letter are clarified

(sections 14.02 and 14.05).

SECTION 3. 1040NR PROGRAM

PARTICIPANTS—DEFINITIONS

.01 After acceptance into the 1040NR

Program, as described in section 4 of

this revenue procedure, a participant is

referred to as a ‘‘1040NR Filer.’’

.02 A 1040NR Filer is categorized as

follows:

(1) 1040NR RETURN ORIGINATOR. A ‘‘1040NR Return Originator’’

is: (a) a ‘‘1040NR Return Preparer’’

who prepares tax returns, including

Forms 8453–NR, for taxpayers who intend to have their returns magnetically

or electronically filed; and/or (b) a

‘‘1040NR Return Collector’’ who accepts completed tax returns, including

Forms 8453–NR, from taxpayers who

intend to have their returns magnetically

or electronically filed.

(2) SERVICE BUREAU. A ‘‘Service Bureau’’ receives tax return information on any media from a 1040NR

Return Originator, formats the return

information, and either (a) sends back

the return information to the 1040NR

Return Originator, (b) forwards the return information to a Transmitter, or (c)

submits the composite tax return directly

to the Service.

(3) SOFTWARE DEVELOPER. A

‘‘Software Developer’’ develops software for the purposes of (a) formatting

returns according to the Service’s magnetic or electronic return filing specifications; and/or (b) filing returns magnetically or electronically directly with

the Service. A Software Developer may

also sell its software.

(4) TRANSMITTER. A ‘‘Transmitter’’ accepts a 1040NR composite tax

return from a 1040NR Return Originator

or Service Bureau and submits the return directly to the Service.

.03 The 1040NR Filer categories are

not mutually exclusive. For example, a

1040NR Return Originator can, at the

same time, be considered a Transmitter,

Software Developer, or Service Bureau

depending on the function(s) performed.

SECTION 4. ACCEPTANCE INTO

THE 1040NR PROGRAM

.01 Except as provided in sections

4.02 and 4.03 of this revenue procedure,

a 1040NR Filer that has actively participated in the 1996 1040NR Program

does not have to reapply to participate

in the 1997 1040NR Program. (See

section 4.06 of this revenue procedure

for a definition of active participation.)

However, a 1040NR Filer that intends to

function as a Transmitter or a Software

Developer in the 1997 1040NR Program

must first successfully complete the testing described in section 4.04 of this

revenue procedure. In addition, section

4.05 of this revenue procedure provides

for the Service’s issuance of credentials

necessary for participation in the 1997

1040NR Program.

.02 Applicants and 1040NR Filers

must file a new Form MAR–8980, Application for Electronic/Magnetic Media

Filing of Form 1040NR, with the

Project Office if:

(1) the applicant has never actively

participated in the 1040NR Program;

(2) the applicant has previously

been denied participation in the 1040NR

Program; or

(3) the applicant has been suspended from the 1040NR Program. Applications described in this section 4.02

may be submitted at any time during the

year.

.03 To participate in the 1997

1040NR Program, a 1040NR Filer in the

1996 1040NR Program must submit to

the Project Office either a revised Form

MAR–8980, or a letter containing the

same information contained in the revised Form MAR–8980, if there is any

change to the following information:

(1) the Firm name or Doing Business As (DBA) name;

(2) the business or mailing address;

(3) the contact person’s name or

telephone number; or

(4) the 1040NR Filer category.

Revised applications described in this

section 4.03 must be submitted within

30 days of the change(s) reflected on

the revised Form MAR–8980 or in the

letter.

.04 A 1040NR Filer may not submit

tax returns under the 1040NR Program

until 30 days after it has successfully

completed the necessary testing administered by the Project Office.

.05 The Service will issue credentials

to eligible applicants for the 1997

1040NR Program, as well as 1040NR

Filers that do not have to reapply pursuant to section 4.01, 4.02, or 4.03 of this

revenue procedure (provided they have

first satisfactorily completed the testing

described in section 4.04 of this revenue

procedure if they intend to function as a

Transmitter or Software Developer). No

one may participate in the 1040NR

Program for the 1997 filing season

without the following credentials:

(1) a letter of acceptance into the

1040NR Program for the 1997 filing

season; and

(2) a Magnetic Tape 1040NR Filer

Identification Number (MTFIN).

.06 A 1040NR Filer will not be considered to have actively participated in

the 1996 1040NR Program unless the

Service received and accepted magnetically or electronically filed returns containing the 1040NR Filer’s MTFIN during the 1996 filing season. The Service

will notify an inactive 1040NR Filer

that it may be dropped from the

1040NR Filing Program and explain

what steps the 1040NR Filer needs to

take to participate in the program.

.07 The following reasons may result

in rejection of an application to participate in the 1040NR Program (this list is

not all-inclusive):

(1) conviction of any criminal offense under the revenue laws of the

United States, or of any offense involving dishonesty or breach of trust;

(2) failure to timely and accurately

file tax returns, including returns indicating that no tax is due;

(3) failure to timely pay any tax

liabilities;

(4) assessment of tax penalties;

(5) suspension/disbarment from

practice before the Service;

(6) other facts or conduct of a

disreputable nature that would reflect

adversely on the 1040NR Program;

(7) misrepresentation on an application;

(8) suspension or rejection from

the 1040NR Program in a prior year;

(9) unethical practices in return

preparation;

(10) stockpiling returns prior to official acceptance into the 1040NR Program (see section 5.10 of this revenue

procedure);

(11) knowingly and directly or indirectly employing or accepting assistance from any firm, organization, or

individual that is prohibited from applying to participate in the 1040NR Program (see section 12.07 of this revenue

procedure) or that is suspended from

participating in that Program (see section 12.08 of this revenue procedure).

This includes any individual whose actions resulted in the rejection or suspension of a corporation or a partnership

from the 1040NR Program; or

(12) knowingly and directly or indirectly accepting employment as an

associate, correspondent, or as a subagent from, or sharing fees with, any

firm, organization, or individual that is

prohibited from applying to participate

in the 1040NR Program (see section

12.07 of this revenue procedure) or that

is suspended from participating in that

Program (see section 12.08 of this revenue procedure). This includes any individual whose actions resulted in the

rejection or suspension of a corporation

or a partnership from the 1040NR Program.

SECTION 5. RESPONSIBILITIES OF

A 1040NR FILER

.01 To ensure that complete returns

are accurately and efficiently filed, a

1040NR Filer must comply with all

publications and notices of the Service.

Currently, these publications and notices

include:

(1) Procedures for Magnetic Media

Filing of U.S. Nonresident Alien Income

Tax Returns, Form 1040NR (available

from the Project Office);

(2) File Specifications and Record

Layouts for Magnetic Media Filing of

U.S. Nonresident Alien Income Tax Returns, Form 1040NR (available from the

Project Office); and

(3) Postings to the Electronic Filing System Bulletin Board (EFS Bulletin Board).

.02 A 1040NR Filer must maintain a

high degree of integrity, compliance,

and accuracy.

.03 A 1040NR Filer may accept returns for magnetic or electronic filing

only from a taxpayer or from a 1040NR

Return Originator.

.04 If a 1040NR Filer charges a fee

for the submission of a magnetically or

electronically filed tax return, the fee

may not be based on a percentage of the

refund amount or any other amount

from the tax return. A 1040NR Filer

may not charge a separate fee for Direct

Deposit. See section 9 of this revenue

procedure for a discussion of Direct

Deposit.

.05 A 1040NR Filer must submit a

revised Form MAR–8980 to the Project

Office within 30 days of when any of

the conditions or changes described in

section 4.03 of this revenue procedure

occur.

.06 A 1040NR Filer must notify the

Project Office within 30 days of discontinuing its participation in the 1040NR

Program. This does not preclude reapplication in the future.

.07 A 1040NR Filer must ensure that

the composite return is filed on or

before the due date of the tax return. A

composite return is not considered filed

until the data portion of the tax return is

acknowledged by the Service as accepted for processing and a completed

and signed Form 8453–NR is received

by the Service. However, if the data

portion of a return is successfully transmitted on or shortly before the due date

(see section 5.08 of this revenue procedure) and the 1040NR Filer complies

with section 7.01 of this revenue procedure, the return will be deemed timely

filed. If the data portion of a return is

transmitted on or shortly before the due

date but is ultimately rejected, the return

will be deemed timely filed if the

1040NR Filer and the taxpayer comply

with section 5.14 of this revenue procedure. In the case of a balance due

return, see section 10 of this revenue

procedure for instructions on how to

make a timely payment of tax.

.08 A 1040NR Filer must ensure that

the return for any individual is received

by the Service on or before:

(1) April 15 if the individual was

an employee and received wages subject

to U.S. federal income tax withholding;

(2) June 16 if the individual did

not receive such wages. However, section 2.05 of this revenue procedure

provides that a composite return cannot

be filed after December 5, 1997.

.09 A 1040NR Filer must ensure

against the unauthorized use of its

MTFIN. A 1040NR Filer must not transfer its MTFIN by sale, merger, loan,

gift, or otherwise to another entity.

.10 A 1040NR Filer is responsible for

ensuring that stockpiling does not occur.

Prior to official acceptance of the

1040NR Filer into the 1040NR Program,

stockpiling means collecting returns

from taxpayers. After official acceptance, stockpiling means:

(1) in the case of a 1040NR Return

Originator, waiting for more than three

calendar days after receiving the necessary information to submit a return to a

Transmitter, or

(2) in the case of a Transmitter,

waiting for more than ten calendar days

after receiving the necessary information

to submit a composite return to the

Service.

.11 A 1040NR Filer that functions as

a Return Originator must:

(1) comply with the procedures for

completing Form 8453–NR described in

section 7 of this revenue procedure;

(2) comply with the procedures described in section 10 of this revenue

procedure for handling a balance due

return;

(3) furnish the taxpayer with a

copy of the signed Form 8453–NR and,

in the case of a prepared or corrected

return, a copy of the paper portions of

the return;

(4) while returns are being filed,

retain and, if requested, make available

to the Service the following material at

the business address from which a return was accepted for magnetic or electronic filing:

(a) a copy of the signed Form

8453–NR, paper copies of Forms W–2,

Wage and Tax Statement, W–2G, Certain Gambling Winnings, 1099–R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs,

Insurance Contracts, etc., and the paper

portion of the taxpayer’s return;

(b) a complete copy of the data

portion of the taxpayer’s return (may be

retained on computer media) that can be

readily and accurately converted into

magnetic or electronic data that the

Service can process; and

Transmitter;

(5) retain until the end of the calendar year in which a return was filed

and, if requested, make available to the

Service the materials described in section 5.11(4) of this revenue procedure,

at the business address from which a

return was accepted for magnetic or

electronic filing or from the contact

person named on Form MAR–8980.

.12 A 1040NR Return Originator who

is the paid preparer of a magnetically or

electronically filed Form 1040NR must

also retain for the prescribed amount of

time the materials described in

§ 1.6107–1(b) that are required to be

kept by an income tax return preparer.

.13 A 1040NR Return Originator must

identify the paid preparer (if any) in the

appropriate field of the data portion of

the return, in addition to ensuring that

the paid preparer signed Form 8453–

NR. If Form 8453–NR is not signed by

the paid preparer, the 1040NR Return

Originator must attach a copy of the

Form 1040NR originally signed by the

paid preparer. This copy must be

marked ‘‘COPY-DO NOT PROCESS’’

to prevent duplicate filings.

.14 If the data portion of a taxpayer’s

return is acknowledged as rejected by

the Service, and the reason for the

rejection cannot be rectified by making

nonsubstantive changes as described in

section 6.02(3) of this revenue procedure, the 1040NR Return Originator,

within 24 hours of receiving the rejection, must take all reasonable steps to

tell the taxpayer that the taxpayer’s

return has not been filed. If the taxpayer

chooses to have the data portion of the

return resubmitted magnetically or electronically, and the 1040NR Return

Originator successfully works with the

Project Office to correct the problems

causing the data portion of the return to

be rejected, the return will be accepted

as timely filed. A new Form 8453–NR

may be required (see section 7 of this

revenue procedure). However, even

when no new Form 8453–NR is required, the Transmitter must submit a

photocopy of the original Form

8453–NR with the rejected file or return

and mark the photocopy ‘‘Retransmitted.’’ If the Project Office determines

that the data portion of a return cannot

be accepted for processing or the taxpayer chooses not to have the rejected

data portion of the return resubmitted

magnetically or electronically, the taxpayer must file a paper return by the

later of:

(1) the due date (with regard to

any extensions of time to file) of the

return; or

(2) within ten calendar days after

the Service’s acknowledgement that the

return is rejected or notification that the

return cannot be retransmitted with an

explanation of why the return is being

filed after the due date.

A paper return filed in good faith under

any of these circumstances will be accepted as timely filed.

.15 A 1040NR Return Originator must

use the taxpayer’s address in the data

portion of the return. In addition, a

1040NR Return Originator must not put

its address as the taxpayer’s address in

the data portion of the return.

.16 A 1040NR Filer that functions as

a Service Bureau must:

(1) deliver all data portions of

composite returns to a Transmitter or

return them to the 1040NR Return

Originator who gave the data portions of

the returns to the Service Bureau within

three calendar days of receipt;

(2) retrieve the acknowledgement

file from the Transmitter within one

calendar day of receipt by the Transmitter;

(3) initiate the communication of

the acknowledgement file to the

1040NR Return Originator (whether related or not) within one work day of

retrieving the acknowledgement file;

(4) if the Service Bureau processes

Forms 8453–NR, send back to the

1040NR Return Originator any return

and Form 8453–NR that needs correction, unless the correction is described

in section 7.02(1) of this revenue procedure;

(5) accept tax return information

only from 1040NR Filers;

(6) include its MTFIN and the

1040NR Return Originator’s MTFIN

with all return information the Service

Bureau sends back to the 1040NR Return Originator, forwards to a Transmitter, or submits to the Service;

(7) retain each acknowledgement

file received from a Transmitter until the

end of the calendar year in which the

composite return was filed;

(8) if requested, serve as a contact

point between its client 1040NR Return

Originator and the Service; and

(9) if requested, provide the Service with a list of each client 1040NR

Return Originator.

.17 A 1040NR Filer that functions as

a Transmitter must:

(1) transmit all data portions of

composite returns within ten calendar

days of receipt;

(2) match the acknowledgement

file to the original transmission file and

initiate the communication of the

acknowledgement file to the 1040NR

Return Originator or the Service Bureau

(whether or not the 1040NR Return

Originator or the Service Bureau are

related to the Transmitter) within five

calendar days after receipt of the

acknowledgement file from the Service;

(3) retain an acknowledgement file

received from the Service until the end

of the calendar year in which the composite return was filed;

(4) immediately contact the Project

Office for further instructions if an

acknowledgement of acceptance for processing has not been received by the

Transmitter within 14 calendar days of

transmission, or if a Transmitter receives

an acknowledgement for a return that

was not transmitted on the designated

transmission;

(5) promptly correct any transmission error that causes a data portion of a

composite return to be rejected;

(6) contact the Project Office for

assistance if a data portion of a composite return has been rejected after three

transmission attempts; and

(7) ensure the security of all transmitted data.

.18 A Transmitter that provides transmission services to another 1040NR

Filer must, in addition to the items

covered in section 5.17 of this revenue

procedure, also:

(1) accept composite returns for

transmission to the Service only from an

accepted 1040NR Filer;

(2) provide each client with the

acknowledgement file for the data portion of the composite return within five

calendar days after receipt of the acknowledgment file from the Service;

and

(3) use its assigned MTFIN when

filing returns.

.19 A 1040NR Filer that functions as

a Software Developer must:

(1) promptly correct any software

error that causes a data portion of a

composite return to be rejected;

(2) promptly distribute any software correction made to its software

packages to all 1040NR Filers utilizing

these packages; and

(3) not incorporate into its software

a Service-assigned production password.

.20 In addition to the specific responsibilities described in this section, a

1040NR Filer must meet all the requirements in this revenue procedure to keep

the privilege of participating in the

1040NR Program.

SECTION 6. PENALTIES

.01 Penalties for Disclosure or Use of

Information.

(1) A 1040NR Filer, except a Software Developer, is a tax return preparer

(‘‘Preparer’’) under the definition of

§ 301.7216–1(b) of the Regulations on

Procedure and Administration. A

Preparer is subject to a criminal penalty

for disclosure or use of tax return

information, as described in § 301.7216–

1(a). In general, that regulation provides

that any preparer who discloses or uses

any tax return information for a purpose

other than preparing, assisting in preparing, or obtaining or providing services

in connection with the preparation of a

tax return is guilty of a misdemeanor. In

addition, § 6713 of the Internal Revenue Code provides for civil penalties

that may be assessed against a preparer

who makes an unauthorized disclosure

or use of tax return information.

(2) Under § 301.7216–2(h), disclosure of tax return information among

accepted 1040NR Filers for the purpose

of preparing a return is permissible. For

example, it is permissible for a 1040NR

Return Originator to pass on tax return

information to a Service Bureau and/or

a Transmitter for the purpose of having

the data portion of a composite return

formatted and filed with the Service.

However, if the tax return information is

disclosed or used in any other way, a

Service Bureau and or a Transmitter

may be guilty of a misdemeanor as

described in section 6.01(1) of this revenue procedure.

.02 Other Preparer Penalties.

(1) Preparer penalties may be asserted against an individual or firm who

meets the definition of an income tax

return preparer under §§ 7701(a)(36)

and 301.7701–15. Examples of preparer

penalties that may be asserted under

appropriate circumstances include, but

are not limited to, those set forth in

§§ 6694, 6695, and 6713.

(2) Under § 301.7701–15(d), 1040NR Return Collectors, Service Bureaus,

Software Developers, and Transmitters

are not income tax return preparers for

the purpose of assessing most preparer

penalties as long as their services are

limited to ‘‘typing, reproduction, or

other mechanical assistance in the

preparation of a return or claim for

refund.’’

(3) If a 1040NR Return Collector,

Service Bureau, Software Developer, or

Transmitter alters the return information

in a nonsubstantive way, this alteration

will be considered to come under the

‘‘mechanical assistance’’ exception described in § 301.7701–15(d)(1). A

nonsubstantive change is a correction or

change limited to a transposition error,

misplaced entry, spelling error, or arithmetic correction that falls within one of

the following tolerances:

(a) the Total Tax amount, Total

Payments amount, Refund amount, or

the Amount You Owe shown on Form

8453–NR differs from the corresponding

amount on the data portion of the

composite return by no more than $7;

(b) the Total Effectively Connected Income amount shown on Form

8453–NR differs from the corresponding

amount on the data portion of the

composite return by no more than $25;

to whole dollars.

(4) If a 1040NR Return Collector,

Service Bureau, or Transmitter alters the

return information in a substantive way,

rather than having the taxpayer alter the

return, the 1040NR Return Collector,

Service Bureau, or Transmitter will be

considered to be an income tax return

preparer for purposes of § 7701(a)(36).

(5) If a 1040NR Return Collector,

Service Bureau, Transmitter, or the

product of a Software Developer, goes

beyond mechanical assistance, any of

these parties may be held liable for

income tax return preparer penalties.

Rev. Rul. 85–189, 1985–2 C.B. 341,

describes a situation where a Software

Developer was determined to be an

income tax return preparer and subject

to certain preparer penalties.

.03 In addition to the above specified

provisions, the Service reserves the right

to assert all appropriate civil and criminal penalties, including preparer,

nonpreparer, and disclosure penalties,

against a 1040NR Filer as warranted

under the circumstances.

SECTION 7. FORM 8453–NR, U.S.

NONRESIDENT ALIEN INCOME TAX

DECLARATION FOR MAGNETIC

MEDIA FILING

.01 Procedures for Completing Form

8453–NR.

(1) Form 8453–NR must be completed in accordance with the instructions for Form 8453–NR.

(2) The taxpayer’s name, address,

taxpayer identification number, tax return information, and direct deposit of

refund information in the data portion of

the composite return must be identical

to the information on the Form

8453–NR that the taxpayer signed and

provided for submission to the Service.

(3) A 1040NR Filer, a financial

institution, or any other entity associated

with the magnetic or electronic filing of

a taxpayer’s return must not put its

address on Form 8453–NR or anywhere

in the data portion of a return.

(4) After the composite return has

been prepared and before the return is

submitted, the taxpayer must verify the

information on the data portion of the

composite return and on Form 8453–

NR, and must sign Form 8453–NR.

(5) A 1040NR Filer must submit a

Form 8453–NR to the Project Office

with each magnetically or electronically

filed return. A single Form 8453–NR

(inscribed with the language ‘‘See attached Multiple Return Information Listing’’) may be used for a multiple return

filing if the person who signs Form

8453–NR has authorization, either by a

specific power of attorney or as a

responsible representative or agent under

§ 1.6012–3(b), to sign each of the returns included in the multiple return

filing. A person who makes a multiple

return filing must attach to Form

8453–NR an information page(s) titled

‘‘Form 8453–NR for Multiple Returns—

Tax Return Information Listing’’ at the

top of the pages(s). Below the title, the

multiple return 1040NR Filer must provide his or her name and address. The

next item on the page(s) must be a list

that includes every taxpayer’s name

control, taxpayer identification number,

and the information shown on lines one

through five on Form 8453–NR, for

each return included in a multiple return

filing.

(6) If a 1040NR Filer functions as

a 1040NR Return Originator, the

1040NR Filer must sign the 1040NR

Return Originator’s Declaration on Form

8453–NR.

(7) If the 1040NR Filer is also the

paid preparer, the 1040NR Filer must

check the ‘‘Paid Preparer’’ box and sign

the 1040NR Return Originator Declaration on Form 8453–NR.

.02 Corrections to Form 8453–NR.

(1) A new form 8453–NR is not

required for a nonsubstantive change. A

nonsubstantive change is limited to a

correction that does not exceed the

tolerances, described in section 7.02(2)

of this revenue procedure for arithmetic

errors, a transposition error, a misplaced

entry, or a spelling error. The incorrect

nonsubstantive information must be

neatly lined through on the Form

8453–NR and the correct data entered

next to the lined through entry. Also the

individual making the correction must

initial the correction.

(2) The tolerances for section

7.02(1) of this revenue procedure are:

(a) the ‘‘Total Effectively Connected Income’’ (Form 8453–NR, line 1)

differs from the amount on the data

portion of the composite return by more

than $25; or

(b) the ‘‘Total Tax’’ (Form

8453–NR, line 2), the ‘‘Refund’’ (Form

8453–NR, line 4), or the ‘‘Amount

Owed’’ (Form 8453–NR, line 5) differs

from the amount on the data portion of

the composite return by more than $7.

(3) If the 1040NR Return Originator makes a substantive change to the

data portion of the return after Form

8453–NR has been signed by the taxpayer, but before it is transmitted to the

Service, the 1040NR Return Originator

must have all the necessary parties described above sign a new Form

8453–NR that reflects the corrections

before the return is transmitted.

(4) Dropping cents and rounding to

whole dollars does not constitute a substantive change or alteration to the return unless the amount differs by more

than the above tolerances. All rounding

should be accomplished in accordance

with the instructions in the Form

1040NR tax package.

.03 If the Service determines that a

Form 8453–NR is missing, the 1040NR

Return Originator must provide the Service with a replacement. A 1040NR

Return Originator must also provide a

copy of the Form(s) W–2, W–2G,

1099R, and all other attachments to the

Form 8453–NR.

.04 If a substitute Form 8453–NR is

used, it must be approved by the Service

prior to use. See Rev. Proc. 96–48,

1996–39 I.R.B. 10.

return includes: (1) Form 8453–NR and