Preparer Due Diligence Requirements for Determining Earned Income Credit Eligibility

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-120168-97]

RIN 1545-AW73

Preparer Due Diligence Requirements for Determining Earned Income

Credit Eligibility

AGENCY: Internal Revenue Service (IRS), Treasury.

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

regulations and notice of public hearing.

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SUMMARY: In the Rules and Regulations section of this issue of the

Federal Register, 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

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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.

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, 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;

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

Sec. 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 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 Sec. 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.

Background and Explanation of Provisions

Temporary regulations in the Rules and Regulations section of this

issue of the Federal Register 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 and

Treasury specifically request comments on the

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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.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

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 * * * 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:

Sec. 1.6695-2 Preparer due diligence requirements for determining

earned income tax credit eligibility.

[The text of proposed Sec. 1.6695-2 is the same as the text of

Sec. 1.6695-2T published elsewhere in this issue of the Federal

Register].

David S. Mader,

Acting Deputy Commissioner of Internal Revenue.

[FR Doc. 98-33344 Filed 12-18-98; 8:45 am]

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