[Title 26 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2021 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          
          
          Title 26

Internal Revenue


________________________

Parts 300 to 499

                         Revised as of April 1, 2021

          Containing a codification of documents of general 
          applicability and future effect

          As of April 1, 2021
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 26:
          Chapter I--Internal Revenue Service, Department of 
          the Treasury (Continued)                                   3
  Finding Aids:
      Table of CFR Titles and Chapters........................    1011
      Alphabetical List of Agencies Appearing in the CFR......    1031
      Table of OMB Control Numbers............................    1041
      List of CFR Sections Affected...........................    1059

[[Page iv]]





                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 26 CFR 300.0 refers 
                       to title 26, part 300, 
                       section 0.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

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OMB CONTROL NUMBERS

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[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
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[[Page vii]]

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    Director,
    Office of the Federal Register
    April 1, 2021.







[[Page ix]]



                               THIS TITLE

    Title 26--Internal Revenue is composed of twenty-two volumes. The 
contents of these volumes represent all current regulations codified 
under this title by the Internal Revenue Service, Department of the 
Treasury, as of April 1, 2021. The first fifteen volumes comprise part 1 
(Subchapter A--Income Tax) and are arranged by sections as follows: 
Sec. Sec.  1.0-1.60; Sec. Sec.  1.61-1.139; Sec. Sec.  1.140-1.169; 
Sec. Sec.  1.170-1.300; Sec. Sec.  1.301-1.400; Sec. Sec.  1.401-1.409; 
Sec. Sec.  1.410-1.440; Sec. Sec.  1.441-1.500; Sec. Sec.  1.501-1.640; 
Sec. Sec.  1.641-1.850; Sec. Sec.  1.851-1.907; Sec. Sec.  1.908-1.1000; 
Sec. Sec.  1.1001-1.1400; Sec. Sec.  1.1401-1.1550; and Sec.  1.1551 to 
end of part 1. The sixteenth volume containing parts 2-29, includes the 
remainder of subchapter A and all of Subchapter B--Estate and Gift 
Taxes. The last six volumes contain parts 30-39 (Subchapter C--
Employment Taxes and Collection of Income Tax at Source); parts 40-49; 
parts 50-299 (Subchapter D--Miscellaneous Excise Taxes); parts 300-499 
(Subchapter F--Procedure and Administration); parts 500-599 (Subchapter 
G--Regulations under Tax Conventions); and part 600 to end (Subchapter 
H--Internal Revenue Practice).

    The OMB control numbers for title 26 appear in Sec.  602.101 of this 
chapter. For the convenience of the user, Sec.  602.101 appears in the 
Finding Aids section of the volumes containing parts 1 to 599.

    For this volume, Susannah C. Hurley was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of John 
Hyrum Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



                       TITLE 26--INTERNAL REVENUE




                  (This book contains parts 300 to 499)

  --------------------------------------------------------------------
                                                                    Part

chapter i--Internal Revenue Service, Department of the 
  Treasury (Continued)......................................         300

[[Page 3]]



    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)




  --------------------------------------------------------------------


  Editorial Note: IRS published a document at 45 FR 6088, Jan. 25, 1980, 
deleting statutory sections from their regulations. In chapter I cross 
references to the deleted material have been changed to the 
corresponding sections of the IRS Code of 1954 or to the appropriate 
regulations sections. When either such change produced a redundancy, the 
cross reference has been deleted. For further explanation, see 45 FR 
20795, Mar. 31, 1980.

               SUBCHAPTER F--PROCEDURE AND ADMINISTRATION
Part                                                                Page
300             User fees...................................           5
301             Procedure and administration................           9
302             Taxes under the International Claims 
                    Settlement Act, as amended August 9, 
                    1955....................................         972
303             Taxes under the Trading With the Enemy Act..         978
304

[Reserved]

305             Temporary procedural and administrative tax 
                    regulations under the Indian Tribal 
                    Governmental Tax Status Act of 1982.....         984
306-399

[Reserved]

400             Temporary regulations under the Federal Tax 
                    Lien Act of 1966........................         986
402

[Reserved]

403             Disposition of seized personal property.....         999
404             Temporary regulations on procedure and 
                    administration under the Tax Reform Act 
                    of 1976.................................        1005
405-419

[Reserved]

420             Temporary regulations on procedure and 
                    administration under the Employee 
                    Retirement Income Security Act of 1974..        1007
421-499

[Reserved]

[[Page 5]]



                SUBCHAPTER F_PROCEDURE AND ADMINISTRATION





PART 300_USER FEES--Table of Contents



Sec.
300.0 User fees; in general.
300.1 Installment agreement fee.
300.2 Restructuring or reinstatement of installment agreement fee.
300.3 Offer to compromise fee.
300.4 Enrolled agent special enrollment examination fee.
300.5 Enrollment of enrolled agent fee.
300.6 Renewal of enrollment of enrolled agent fee.
300.7 Enrollment of enrolled actuary fee.
300.8 Renewal of enrollment of enrolled actuary fee.
300.9 Enrolled retirement plan agent special enrollment examination fee.
300.10 Renewal of enrollment of enrolled retirement plan agent fee.
300.11 Registered tax return preparer competency examination fee.
300.12 Fee for obtaining a preparer tax identification number.

    Authority: 31 U.S.C. 9701.

    Source: T.D. 8589, 60 FR 8299, Feb. 14, 1995, unless otherwise 
noted.



Sec.  300.0  User fees; in general.

    (a) In general. The regulations in this part 300 are designated the 
User Fee Regulations and provide rules relating to user fees under 31 
U.S.C. 9701.
    (b) Applicability. User fees are imposed on the following services:
    (1) Entering into an installment agreement.
    (2) Restructuring or reinstating an installment agreement.
    (3) Processing an offer to compromise.
    (4) Taking the special enrollment examination to become an enrolled 
agent.
    (5) Enrolling an enrolled agent.
    (6) Renewing the enrollment of an enrolled agent.
    (7) Enrolling an enrolled actuary.
    (8) Renewing the enrollment of an enrolled actuary.
    (9) Taking the special enrollment examination to become an enrolled 
retirement plan agent.
    (10) Renewing the enrollment of an enrolled retirement plan agent.
    (11) Taking the registered tax return preparer competency 
examination.
    (12) Applying for a preparer tax identification number.

[T.D. 8589, 60 FR 8299, Feb. 14, 1995, as amended by T.D. 9086, 68 FR 
48787, Aug. 15, 2003; T.D. 9288, 71 FR 58742, Oct. 5, 2006; T.D. 9306, 
71 FR 78075, Dec. 28, 2006; T.D. 9370, 72 FR 72607, Dec. 21, 2007; T.D. 
9503, 75 FR 60320, Sept. 30, 2010; T.D. 9523, 76 FR 21806, Apr. 19, 
2011; T.D. 9559, 76 FR 72623, Nov. 25, 2011; T.D. 9858, 84 FR 20804, May 
13, 2019]



Sec.  300.1  Installment agreement fee.

    (a) Applicability. This section applies to installment agreements 
under section 6159 of the Internal Revenue Code.
    (b) Fee. The fee for entering into an installment agreement before 
January 1, 2017, is $120. The fee for entering into an installment 
agreement on or after January 1, 2017, is $225. A reduced fee applies in 
the following situations:
    (1) For installment agreements entered into before January 1, 2017, 
the fee is $52 when the taxpayer pays by way of a direct debit from the 
taxpayer's bank account. The fee is $107 when the taxpayer pays by way 
of a direct debit from the taxpayer's bank account for installment 
agreements entered into on or after January 1, 2017;
    (2) For online payment agreements entered into before January 1, 
2017, the fee is $120, except that the fee is $52 when the taxpayer pays 
by way of a direct debit from the taxpayer's bank account. The fee is 
$149 for entering into online payment agreements on or after January 1, 
2017, except that the fee is $31 when the taxpayer pays by way of a 
direct debit from the taxpayer's bank account; and
    (3) Notwithstanding the type of installment agreement and method of 
payment, the fee is $43 if the taxpayer is a low-income taxpayer, that 
is, an individual who falls at or below 250 percent of the dollar 
criteria established by the poverty guidelines updated annually in the 
Federal Register by the U.S. Department of Health and Human Services 
under authority of section 673(2) of the Omnibus Budget Reconciliation 
Act of 1981 (95 Stat. 357, 511), or such other measure that is adopted 
by the Secretary, except that the fee is $31

[[Page 6]]

when the taxpayer pays by way of a direct debit from the taxpayer's bank 
account with respect to online payment agreements entered into on or 
after January 1, 2017;
    (c) Person liable for fee. The person liable for the installment 
agreement fee is the taxpayer entering into an installment agreement.
    (d) Applicability date. This section is applicable beginning January 
1, 2017.

[T.D. 8589, 60 FR 8299, Feb. 14, 1995, as amended by T.D. 9306, 71 FR 
78075, Dec. 28, 2006; T.D. 9503, 75 FR 60320, Sept. 30, 2010; T.D. 9647, 
78 FR 72018, Dec. 2, 2013; T.D. 9798, 81 FR 86960, Dec. 2, 2016]



Sec.  300.2  Restructuring or reinstatement of installment agreement fee.

    (a) Applicability. This section applies to installment agreements 
under section 6159 of the Internal Revenue Code that are in default. An 
installment agreement is deemed to be in default when a taxpayer fails 
to meet any of the conditions of the installment agreement.
    (b) Fee. The fee for restructuring or reinstating an installment 
agreement before January 1, 2017, is $50. The fee for restructuring or 
reinstating an installment agreement on or after January 1, 2017, is 
$89. If the taxpayer is a low-income taxpayer, that is, an individual 
who falls at or below 250 percent of the dollar criteria established by 
the poverty guidelines updated annually in the Federal Register by the 
U.S. Department of Health and Human Services under authority of section 
673(2) of the Omnibus Budget Reconciliation Act of 1981 (95 Stat. 357, 
511), or such other measure that is adopted by the Secretary, then the 
fee for restructuring or reinstating an installment agreement on or 
after January 1, 2017 is $43.
    (c) Person liable for fee. The person liable for the restructuring 
or reinstatement fee is the taxpayer that has an installment agreement 
restructured or reinstated.
    (d) Applicability date. This section is applicable beginning January 
1, 2017.

[T.D. 8589, 60 FR 8299, Feb. 14, 1995, as amended by T.D. 9306, 71 FR 
78075, Dec. 28, 2006; T.D. 9503, 75 FR 60320, Sept. 30, 2010; T.D. 9647, 
78 FR 72018, Dec. 2, 2013; T.D. 9798, 81 FR 86960, Dec. 2, 2016]



Sec.  300.3  Offer to compromise fee.

    (a) Applicability. This section applies to the processing of offers 
to compromise tax liabilities pursuant to Sec.  301.7122-1 of this 
chapter. Except as provided in this section, this fee applies to all 
offers to compromise accepted for processing.
    (b) Fee. (1) The fee for processing an offer to compromise submitted 
before April 27, 2020, is $186. The fee for processing an offer to 
compromise submitted on or after April 27, 2020, is $205. No fee will be 
charged if an offer is--
    (i) Based solely on doubt as to liability as defined in Sec.  
301.7122-1(b)(1) of this chapter;
    (ii) Made by a low-income taxpayer, that is, an individual whose 
income falls at or below the dollar criteria established by the poverty 
guidelines updated annually in the Federal Register by the U.S. 
Department of Health and Human Services under authority of section 
673(2) of the Omnibus Budget Reconciliation Act of 1981 (95 Stat. 357, 
511) or such other measure that is adopted by the Secretary; or
    (iii) Made by a low-income taxpayer, as described in section 
7122(c)(3) of the Internal Revenue Code, and submitted after July 1, 
2019.
    (2) The fee will be applied against the amount of the offer, unless 
the taxpayer requests that it be refunded, if the offer is--
    (i) Accepted to promote effective tax administration pursuant to 
Sec.  301.7122-1(b)(3) of this chapter; or
    (ii) Accepted based on doubt as to collectibility and a 
determination that collection of an amount greater than the amount 
offered would create economic hardship within the meaning of Sec.  
301.6343-1 of this chapter.
    (3) Except as otherwise provided in this paragraph (b), the fee will 
not be refunded to the taxpayer if the offer is accepted, rejected, 
withdrawn, or returned as nonprocessable after acceptance for 
processing.
    (4) No additional fee will be charged if a taxpayer resubmits an 
offer the Secretary determines to have been rejected in error or 
returned in error after acceptance for processing.

[[Page 7]]

    (c) Person liable for the fee. The person liable for the processing 
fee is the taxpayer whose tax liabilities are the subject of the offer.
    (d) Applicability date. This section is applicable beginning April 
27, 2020.

[T.D. 9086, 68 FR 48787, Aug. 15, 2003, as amended by T.D. 9503, 75 FR 
60320, Sept. 30, 2010; T.D. 9647, 78 FR 72018, Dec. 2, 2013; T.D. 9894, 
85 FR 14572, Mar. 13, 2020]



Sec.  300.4  Enrolled agent special enrollment examination fee.

    (a) Applicability. This section applies to the special enrollment 
examination to become an enrolled agent pursuant to 31 CFR 10.4(a).
    (b) Fee. The fee for taking the enrolled agent special enrollment 
examination is $81 per part, which is the cost to the government for 
overseeing the development and administration of the examination and 
does not include any fees charged by the administrator of the 
examination.
    (c) Person liable for the fee. The person liable for the special 
enrollment examination fee is the applicant taking the examination.
    (d) Applicability date. This section applies to registrations that 
occur on or after March 1, 2018, for the enrolled agent special 
enrollment examination. Section 300.4 (as contained in 26 CFR part 300, 
revised April 2017) applies to registrations that occur before March 1, 
2018.

[T.D. 9288, 71 FR 58742, Oct. 5, 2006, as amended by T.D. 9503, 75 FR 
60320, Sept. 30, 2010; T.D. 9523, 76 FR 21806, Apr. 19, 2011; T.D. 9820, 
82 FR 33012, July 19, 2017]



Sec.  300.5  Enrollment of enrolled agent fee.

    (a) Applicability. This section applies to the initial enrollment of 
enrolled agents with the IRS Office of Professional Responsibility 
pursuant to 31 CFR 10.5(b).
    (b) Fee. The fee for initially enrolling as an enrolled agent with 
the IRS is $67.
    (c) Person liable for the fee. The person liable for the enrollment 
fee is the applicant filing for enrollment as an enrolled agent with the 
IRS Office of Professional Responsibility.
    (d) Applicability date. This section applies beginning June 12, 
2019.

[T.D. 9288, 71 FR 58742, Oct. 5, 2006, as amended by T.D. 9503, 75 FR 
60320, Sept. 30, 2010; T.D. 9523, 76 FR 21807, Apr. 19, 2011; T.D. 9858, 
84 FR 20804, May 13, 2019]



Sec.  300.6  Renewal of enrollment of enrolled agent fee.

    (a) Applicability. This section applies to the renewal of enrollment 
of enrolled agents with the IRS Office of Professional Responsibility 
pursuant to 31 CFR 10.6(d)(6).
    (b) Fee. The fee for renewal of enrollment as an enrolled agent with 
the IRS is $67.
    (c) Person liable for the fee. The person liable for the renewal of 
enrollment fee is the person renewing their enrollment as an enrolled 
agent with the IRS Office of Professional Responsibility.
    (d) Applicability date. This section applies beginning June 12, 
2019.

[T.D. 9288, 71 FR 58742, Oct. 5, 2006, as amended by T.D. 9503, 75 FR 
60321, Sept. 30, 2010; T.D. 9523, 76 FR 21807, Apr. 19, 2011; T.D. 9858, 
84 FR 20804, May 13, 2019]



Sec.  300.7  Enrollment of enrolled actuary fee.

    (a) Applicability. This section applies to the initial enrollment of 
enrolled actuaries with the Joint Board for the Enrollment of Actuaries 
pursuant to 20 CFR Part 901.
    (b) Fee. The fee for initially enrolling as an enrolled actuary with 
the Joint Board for the Enrollment of Actuaries is $250.00.
    (c) Person liable for the fee. The person liable for the enrollment 
fee is the applicant filing for enrollment as an enrolled actuary with 
the Joint Board for the Enrollment of Actuaries.
    (d) Effective/applicability date. This section is applicable 
beginning January 22, 2008.

[T.D. 9370, 72 FR 72607, Dec. 21, 2007, as amended by T.D. 9503, 75 FR 
60321, Sept. 30, 2010]



Sec.  300.8  Renewal of enrollment of enrolled actuary fee.

    (a) Applicability. This section applies to the renewal of enrollment 
of enrolled actuaries with the Joint Board for the Enrollment of 
Actuaries pursuant to 20 CFR Part 901.

[[Page 8]]

    (b) Fee. The fee for renewal of enrollment as an enrolled actuary 
with the Joint Board for the Enrollment of Actuaries is $250.00.
    (c) Person liable for the fee. The person liable for the renewal of 
enrollment fee is the person renewing their enrollment as an enrolled 
actuary with the Joint Board for the Enrollment of Actuaries.
    (d) Effective/applicability date. This section is applicable 
beginning January 22, 2008.

[T.D. 9370, 72 FR 72607, Dec. 21, 2007, as amended by T.D. 9503, 75 FR 
60321, Sept. 30, 2010]



Sec.  300.9  Enrolled retirement plan agent special enrollment examination fee.

    (a) Applicability. This section applies to the special enrollment 
examination to become an enrolled retirement plan agent pursuant to 31 
CFR 10.4(b).
    (b) Fee. The fee for taking the enrolled retirement plan agent 
special enrollment examination is $11 per part, which is the cost to the 
government for overseeing the examination and does not include any fees 
charged by the administrator of the examination.
    (c) Person liable for the fee. The person liable for the enrolled 
retirement plan agent special enrollment examination fee is the 
applicant taking the examination.
    (d) Effective/applicability date. This section is applicable 
beginning April 19, 2011.

[T.D. 9523, 76 FR 21807, Apr. 19, 2011]



Sec.  300.10  Renewal of enrollment of enrolled retirement plan agent fee.

    (a) Applicability. This section applies to the renewal of enrollment 
of enrolled retirement plan agents with the IRS pursuant to 31 CFR 
10.5(b).
    (b) Fee. The fee for renewal of enrollment as an enrolled retirement 
plan agent with the IRS is $67.
    (c) Person liable for the fee. The person liable for the renewal of 
enrollment fee is the person renewing enrollment as an enrolled 
retirement plan agent with the IRS.
    (d) Applicability date. This section applies beginning June 12, 
2019.

[T.D. 9523, 76 FR 21807, Apr. 19, 2011. Redesignated and amended at 84 
FR 20804, May 13, 2019]



Sec.  300.11  Registered tax return preparer competency examination fee.

    (a) Applicability. This section applies to the competency 
examination to become a registered tax return preparer pursuant to 31 
CFR 10.4(c).
    (b) Fee. The fee for taking the registered tax return preparer 
competency examination is $27, which is the government cost for 
overseeing the examination and does not include any fees charged by the 
administrator of the examination.
    (c) Person liable for the fee. The person liable for the competency 
examination fee is the applicant taking the examination.
    (d) Effective/applicability date. This section is applicable 
beginning November 25, 2011.

[T.D. 9559, 76 FR 72623, Nov. 25, 2011. Redesignated at 84 FR 20804, May 
13, 2019]



Sec.  300.12  Fee for obtaining a preparer tax identification number.

    (a) Applicability. This section applies to the application for and 
renewal of a preparer tax identification number pursuant to 26 CFR 
1.6109-2(d).
    (b) Fee. The fee to apply for or renew a preparer tax identification 
number is $21 per year and is in addition to the fee charged by the 
contractor.
    (c) Person liable for the fee. The individual liable for the 
application or renewal fee is the individual applying for and renewing a 
preparer tax identification number from the IRS.
    (d) Applicability date. This section applies to applications for or 
renewal of a preparer tax identification number filed on or after August 
17, 2020.

[T.D. 9503, 75 FR 60321, Sept. 30, 2010. Redesignated at T.D. 9523, 76 
FR 21807, Apr. 19, 2011, and further redesignated by T.D. 9559, 76 FR 
72623, Nov. 25, 2011; T.D. 9742, 80 FR 66794, Oct. 30, 2015; T.D. 9781, 
81 FR 52767, Aug. 10, 2016. Redesignated at 84 FR 20804, May 13, 2019. 
T.D. 9903, 85 FR 43436, July 17, 2020]

[[Page 9]]



PART 301_PROCEDURE AND ADMINISTRATION--Table of Contents



                         Information and Returns

                           Returns and Records

                records, statements, and special returns

Sec.
301.269B-1 Stapled foreign corporations.
301.1474-1 Required use of magnetic media for financial institutions 
          filing Form 1042-S or Form 8966.
301.6001-1 Notice or regulations requiring records, statements, and 
          special returns.

                        tax returns or statements

                           General Requirement

301.6011-1 General requirement of return, statement or list.
301.6011-2 Required use of magnetic media.
301.6011-3 Required use of magnetic media for partnership returns.
301.6011-5 Required use of magnetic media for corporate income tax 
          returns.
301.6011-6 Statement of series and series organizations [Reserved]
301.6011-7 Specified tax return preparers required to file individual 
          income tax returns using magnetic media.
301.6011(g)-1 Disclosure by taxable party to the tax-exempt entity.

                           Income Tax Returns

301.6012-1 Persons required to make returns of income.
301.6013-1 Joint returns of income tax by husband and wife.
301.6014-1 Income tax return--tax not computed by taxpayer.
301.6015-1 Declaration of estimated income tax by individuals.
301.6016-1 Declarations of estimated income tax by corporations.
301.6017-1 Self-employment tax returns.

                       Estate and Gift Tax Returns

301.6018-1 Estate tax returns.
301.6019-1 Gift tax returns.

                        Miscellaneous Provisions

301.6020-1 Returns prepared or executed by the Commissioner or other 
          Internal Revenue Officers.
301.6021-1 Listing by district directors of taxable objects owned by 
          nonresidents of internal revenue districts.

                           information returns

      Information Concerning Persons Subject to Special Provisions

301.6031(a)-1 Return of partnership income.
301.6032-1 Returns of banks with respect to common trust funds.
301.6033-1 Returns by exempt organizations.
301.6033-4 Required use of magnetic media for returns by organizations 
          required to file returns under section 6033.
301.6033-5 Disclosure by tax-exempt entities that are parties to certain 
          reportable transactions.
301.6034-1 Returns by trusts described in section 4947(a)(2) or claiming 
          charitable or other deductions under section 642(c).
301.6036-1 Notice required of executor or of receiver or other like 
          fiduciary.
301.6037-1 Return of electing small business corporation.
301.6037-2 Required use of magnetic media for returns of electing small 
          business corporation.
301.6038-1 Information returns required of U.S. persons with respect to 
          certain foreign corporations.
301.6039-1 Information returns and statements required in connection 
          with certain options.
301.6039E-1 Information reporting by passport applicants.

         Information Concerning Transactions With Other Persons

301.6041-1 Returns of information regarding certain payments.
301.6042-1 Returns of information regarding payments of dividends and 
          corporate earnings and profits.
301.6043-1 Returns regarding liquidation, dissolution, termination, or 
          contraction.
301.6044-1 Returns of information regarding payments of patronage 
          dividends.
301.6046-1 Returns as to organization or reorganization of foreign 
          corporations and as to acquisitions of their stock.
301.6047-1 Information relating to certain trusts and annuity and bond 
          purchase plans.
301.6049-1 Returns regarding payments of interest.
301.6050A-1 Information returns regarding services performed by certain 
          crewmen on fishing boats.
301.6050M-1 Information returns relating to persons receiving contracts 
          from certain Federal executive agencies.

               Information Regarding Wages Paid Employees

301.6051-1 Receipts for employees.
301.6052-1 Information returns and statements regarding payment of wages 
          in the form of group-term life insurance.
301.6056-1 Rules relating to reporting by applicable large employers on 
          health insurance coverage offered under employer-sponsored 
          plans.
301.6056-2 Electronic furnishing of statements.

[[Page 10]]

301.6057-1 Employee retirement benefit plans; identification of 
          participant with deferred vested retirement benefit.
301.6057-2 Employee retirement benefit plans; notification of change in 
          plan status.
301.6057-3 Required use of magnetic media for filing requirements 
          relating to deferred vested retirement benefit.
301.6058-1 Information required in connection with certain plans of 
          deferred compensation.
301.6058-2 Required use of magnetic media for filing requirements 
          relating to information required in connection with certain 
          plans of deferred compensation.
301.6059-1 Periodic report of actuary.
301.6059-2 Required use of magnetic media for filing requirements 
          relating to periodic report of actuary.

          signing and verifying of returns and other documents

301.6061-1 Signing of returns and other documents.
301.6062-1 Signing of corporation returns.
301.6063-1 Signing of partnership returns.
301.6064-1 Signature presumed authentic.
301.6065-1 Verification of returns.

               time for filing returns and other documents

301.6071-1 Time for filing returns and other documents.
301.6072-1 Time for filing income tax returns.
301.6073-1 Time for filing declarations of estimated income tax by 
          individuals.
301.6074-1 Time for filing declarations of estimated income tax by 
          corporations.
301.6075-1 Time for filing estate and gift tax returns.

                  extension of time for filing returns

301.6081-1 Extension of time for filing returns.
301.6081-2 Automatic extension of time for filing an information return 
          with respect to certain foreign trusts.

               place for filing returns or other documents

301.6091-1 Place for filing returns and other documents.
301.6096-1 Designation by individuals for taxable years beginning after 
          December 31, 1972.

                        miscellaneous provisions

301.6101-1 Period covered by returns or other documents.
301.6102-1 Computations on returns or other documents.
301.6103(a)-1 Disclosures after December 31, 1976, by officers and 
          employees of Federal agencies of returns and return 
          information (including taxpayer return information) disclosed 
          to such officers and employees by the Internal Revenue Service 
          before January 1, 1977, for a purpose not involving tax 
          administration.
301.6103(a)-2 Disclosures after December 31, 1976, by attorneys of the 
          Department of Justice and officers and employees of the Office 
          of the Chief Counsel for the Internal Revenue Service of 
          returns and return information (including taxpayer return 
          information) disclosed to such attorneys, officers, and 
          employees by the Service before January 1, 1977, for a purpose 
          involving tax administration.
301.6103(c)-1 Disclosure of returns and return information to designee 
          of taxpayer.
301.6103(h)(2)-1 Disclosure of returns and return information (including 
          taxpayer return information) to and by officers and employees 
          of the Department of Justice for use in Federal grand jury 
          proceeding, or in preparation for proceeding or investigation, 
          involving tax administration.
301.6103(h)(4)-1 Disclosure of returns and return information in 
          whistleblower administrative proceedings.
301.6103(i)-1 Disclosure of returns and return information (including 
          taxpayer return information) to and by officers and employees 
          of the Department of Justice or another Federal agency for use 
          in Federal grand jury proceeding, or preparation for 
          proceeding or investigation, involving enforcement of Federal 
          criminal statute not involving tax administration.
301.6103(j)(1)-1 Disclosures of return information reflected on returns 
          to officers and employees of the Department of Commerce for 
          certain statistical purposes and related activities.
301.6103(j)(5)-1 Disclosures of return information reflected on returns 
          to officers and employees of the Department of Agriculture for 
          conducting the census of agriculture.
301.6103(k)(6)-1 Disclosure of return information by certain officers 
          and employees for investigative purposes.
301.6103(k)(9)-1 Disclosure of returns and return information relating 
          to payment of tax by credit card and debit card.
301.6103(l)-1 Disclosure of returns and return information for purposes 
          other than tax administration.
301.6103(l)(2)-1 Disclosure of returns and return information to Pension 
          Benefit Guaranty Corporation for purposes of research and 
          studies.
301.6103(l)(2)-2 Disclosure of returns and return information to 
          Department of Labor for purposes of research and studies.
301.6103(l)(2)-3 Disclosure to Department of Labor and Pension Benefit 
          Guaranty Corporation of certain returns and return 
          information.

[[Page 11]]

301.6103(l)(14)-1 Disclosure of return information to United States 
          Customs Service.
301.6103(m)-1 Disclosure of taxpayer identity information.
301.6103(n)-1 Disclosure of returns and return information in connection 
          with written contracts or agreements for the acquisition of 
          property or services for tax administration purposes.
301.6103(n)-2 Disclosure of return information in connection with 
          written contracts among the IRS, whistleblowers, and legal 
          representatives of whistleblowers.
301.6103(p)(2)(B)-1 Disclosure of returns and return information by 
          other agencies.
301.6103(p)(4)-1 Procedures relating to safeguards for returns or return 
          information.
301.6103(p)(7)-1 Procedures for administrative review of a determination 
          that an authorized recipient has failed to safeguard returns 
          or return information.
301.6104(a)-1 Public inspection of material relating to tax-exempt 
          organizations.
301.6104(a)-2 Public inspection of material relating to pension and 
          other plans.
301.6104(a)-3 Public inspection of Internal Revenue Service letters and 
          documents relating to pension and other plans.
301.6104(a)-4 Requirement for 26 or more plan participants.
301.6104(a)-5 Withholding of certain information from public inspection.
301.6104(a)-6 Procedural rules for inspection.
301.6104(b)-1 Publicity of information on certain information returns.
301.6104(c)-1 Disclosure of certain information to State officers.
301.6104(d)-0 Table of contents.
301.6104(d)-1 Public inspection and distribution of applications for tax 
          exemption and annual information returns of tax-exempt 
          organizations.
301.6104(d)-2 Making applications and returns widely available.
301.6104(d)-3 Tax-exempt organization subject to harassment campaign.
301.6105-1 Compilation of relief from excess profits tax cases.
301.6106-1 Publicity of unemployment tax returns.
301.6108-1 Publication of statistics of income.
301.6109-1 Identifying numbers.
301.6109-2 Authority of the Secretary of Agriculture to collect employer 
          identification numbers for purposes of the Food Stamp Act of 
          1977.
301.6109-3 IRS adoption taxpayer identification numbers.
301.6109-4 IRS truncated taxpayer identification numbers.
301.6110-1 Public inspection of written determinations and background 
          file documents.
301.6110-2 Meaning of terms.
301.6110-3 Deletion of certain information in written determinations 
          open to public inspection.
301.6110-4 Communications from third parties.
301.6110-5 Notice and time requirements; actions to restrain disclosure; 
          actions to obtain additional disclosure.
301.6110-6 Written determinations issued in response to requests 
          submitted before November 1, 1976.
301.6110-7 Miscellaneous provisions.
301.6111-1T Questions and answers relating to tax shelter registration.
301.6111-2 Confidential corporate tax shelters.
301.6111-3 Disclosure of reportable transactions.
301.6112-1 Material advisors of reportable transactions must keep lists 
          of advisees, etc.
301.6114-1 Treaty--based return positions.

                      Time and Place for Paying Tax

                  Place and Due Date for Payment of Tax

301.6151-1 Time and place for paying tax shown on returns.
301.6153-1 Installment payments of estimated income tax by individuals.
301.6155-1 Payment on notice and demand.
301.6159-0 Table of contents.
301.6159-1 Agreements for the payment of tax liabilities in 
          installments.

                      Extension of Time for Payment

301.6161-1 Extension of time for paying tax.
301.6162-1 Extension of time for payment of tax on gain attributable to 
          liquidation of personal holding companies.
301.6163-1 Extension of time for payment of estate tax on value of 
          reversionary or remainder interest in property.
301.6164-1 Extension of time for payment of taxes by corporations 
          expecting carrybacks.
301.6165-1 Bonds where time to pay the tax or deficiency has been 
          extended.
301.6166-1 Extension of time for payment of estate tax where estate 
          consists largely of interest in closely held business.

                               Assessment

                               In General

301.6201-1 Assessment authority.
301.6203-1 Method of assessment.
301.6204-1 Supplemental assessments.
301.6205-1 Special rules applicable to certain employment taxes.

                          Deficiency Procedures

301.6211-1 Deficiency defined.
301.6212-1 Notice of deficiency.
301.6212-2 Definition of last known address.

[[Page 12]]

301.6213-1 Restrictions applicable to deficiencies; petition to Tax 
          Court.
301.6215-1 Assessment of deficiency found by Tax Court.
301.6221-1 Tax treatment determined at partnership level.
301.6221(a)-1 Determination at partnership level.
301.6221(b)-1 Election out for certain partnerships with 100 or fewer 
          partners.
301.6222-1 Partner's return must be consistent with partnership return.
301.6222(a)-1 Consistent treatment of partnership items.
301.6222(a)-2 Application of consistent reporting and notification rules 
          to indirect partners.
301.6222(b)-1 Notification to the Internal Revenue Service when 
          partnership items are treated inconsistently.
301.6222(b)-2 Effect of notification of inconsistent treatment.
301.6222(b)-3 Partner receiving incorrect schedule.
301.6223-1 Partnership representative.
301.6223-2 Binding effect of actions of the partnership and partnership 
          representative.
301.6223(a)-1 Notice sent to tax matters partner.
301.6223(a)-2 Withdrawal of notice of the beginning of an administrative 
          proceeding.
301.6223(b)-1 Notice group.
301.6223(c)-1 Additional information regarding partners furnished to the 
          Internal Revenue Service.
301.6223(e)-1 Effect of Internal Revenue Service's failure to provide 
          notice.
301.6223(e)-2 Elections if Internal Revenue Service fails to provide 
          timely notice.
301.6223(f)-1 Duplicate copy of final partnership administrative 
          adjustment.
301.6223(g)-1 Responsibilities of the tax matters partner.
301.6223(h)-1 Responsibilities of pass-thru partner.
301.6224(a)-1 Participation in administrative proceedings.
301.6224(b)-1 Partner may waive rights.
301.6224(c)-1 Tax matters partner may bind nonnotice partners.
301.6224(c)-2 Pass-thru partner binds indirect partners.
301.6224(c)-3 Consistent settlements.
301.6225-1 Partnership adjustment by the Internal Revenue Service.
301.6225-2 Modification of imputed underpayment.
301.6225-3 Treatment of partnership adjustments that do not result in an 
          imputed underpayment.
301.6226-1 Election for an alternative to the payment of the imputed 
          underpayment.
301.6226-2 Statements furnished to partners and filed with the IRS.
301.6226-3 Adjustments taken into account by partners.
301.6226(a)-1 Principal place of business of partnership.
301.6226(b)-1 5-percent group.
301.6226(e)-1 Jurisdictional requirement for bringing an action in 
          District Court or United States Court of Federal Claims.
301.6226(f)-1 Scope of judicial review.
301.6227-1 Administrative adjustment request by partnership.
301.6227-2 Determining and accounting for adjustments requested in an 
          administrative adjustment request by the partnership.
301.6227-3 Adjustments requested in an administrative adjustment request 
          taken into account by reviewed year partners.
301.6227(c)-1 Administrative adjustment request by the tax matters 
          partner on behalf of the partnership.
301.6227(d)-1 Administrative adjustment request filed on behalf of a 
          partner.
301.6229(b)-1 Extension by agreement.
301.6229(b)-2 Special rule with respect to debtors in title 11 cases.
301.6229(c)(2)-1 Substantial omission of income.
301.6229(e)-1 Information with respect to unidentified partner.
301.6229(f)-1 Special rule for partial settlement agreements.
301.6230(b)-1 Request that correction not be made.
301.6230(c)-1 Claim arising out of erroneous computation, etc.
301.6230(e)-1 Tax matters partner required to furnish names.
301.6231-1 Notice of proceedings and adjustments.
301.6231(a)(1)-1 Exception for small partnerships.
301.6231(a)(2)-1 Persons whose tax liability is determined indirectly by 
          partnership items.
301.6231(a)(3)-1 Partnership items.
301.6231(a)(5)-1 Definition of affected item.
301.6231(a)(6)-1 Computational adjustments.
301.6231(a)(7)-1 Designation or selection of tax matters partner.
301.6231(a)(7)-2 Designation or selection of tax matters partner for a 
          limited liability company (LLC).
301.6231(a)(12)-1 Special rules relating to spouses.
301.6231(c)-1 Special rules for certain applications for tentative 
          carryback and refund adjustments based on partnership losses, 
          deductions, or credits.
301.6231(c)-2 Special rules for certain refund claims based on losses, 
          deductions, or credits from abusive tax shelter partnerships.
301.6231(c)-3 Limitation on applicability of Sec. Sec.  301.6231(c)-4 
          through 301.6231(c)-8.
301.6231(c)-4 Termination and jeopardy assessment.
301.6231(c)-5 Criminal investigations.

[[Page 13]]

301.6231(c)-6 Indirect method of proof of income.
301.6231(c)-7 Bankruptcy and receivership.
301.6231(c)-8 Prompt assessment.
301.6231(d)-1 Time for determining profits interest of partners for 
          purposes of sections 6223(b) and 6231(a)(11).
301.6231(e)-1 Effect of a determination with respect to a nonpartnership 
          item on the determination of a partnership item.
301.6231(e)-2 Judicial decision not a bar to certain adjustments.
301.6231(f)-1 Disallowance of losses and credits in certain cases.
301.6232-1 Assessment, collection, and payment of imputed underpayment.
301.6233-1 Extension to entities filing partnership returns.
301.6233(a)-1 Interest and penalties determined from reviewed year.
301.6233(b)-1 Interest and penalties with respect to the adjustment year 
          return.
301.6234-1 Judicial review of partnership adjustment.
301.6235-1 Period of limitations on making adjustments.
301.6241-1 Definitions.
301.6241-2 Bankruptcy of the partnership.
301.6241-3 Treatment where a partnership ceases to exist.
301.6241-4 Payments nondeductible.
301.6241-5 Extension to entities filing partnership returns.
301.6241-6 Coordination with other chapters of the Internal Revenue 
          Code.

                               Collection

                           General Provisions

301.6301-1 Collection authority.
301.6302-1 Manner or time of collection of taxes.
301.6303-1 Notice and demand for tax.
301.6305-1 Assessment and collection of certain liability.

                           Receipt of Payment

301.6311-1 Payment by check or money order.
301.6311-2 Payment by credit card and debit card.
301.6312-1 Treasury certificates of indebtedness, Treasury notes, and 
          Treasury bills acceptable in payment of internal revenue taxes 
          or stamps.
301.6312-2 Certain Treasury savings notes acceptable in payment of 
          certain internal revenue taxes.
301.6313-1 Fractional parts of a cent.
301.6314-1 Receipt for taxes.
301.6315-1 Payments of estimated income tax.
301.6316-1 Payment of income tax in foreign currency.
301.6316-2 Definitions.
301.6316-3 Allocation of tax attributable to foreign currency.
301.6316-4 Return requirements.
301.6316-5 Manner of paying tax by foreign currency.
301.6316-6 Declarations of estimated tax.
301.6316-7 Payment of Federal Insurance Contributions Act taxes in 
          foreign currency.
301.6316-8 Refunds and credits in foreign currency.
301.6316-9 Interest, additions to tax, etc.

                             Lien for Taxes

301.6320-1 Notice and opportunity for hearing upon filing of notice of 
          Federal tax lien.
301.6321-1 Lien for taxes.
301.6323(a)-1 Purchasers, holders of security interests, mechanic's 
          lienors, and judgment lien creditors.
301.6323(b)-1 Protection for certain interests even though notice filed.
301.6323(c)-1 Protection for commercial transactions financing 
          agreements.
301.6323(c)-2 Protection for real property construction or improvement 
          financing agreements.
301.6323(c)-3 Protection for obligatory disbursement agreements.
301.6323(d)-1 45-day period for making disbursements.
301.6323(e)-1 Priority of interest and expenses.
301.6323(f)-1 Place for filing notice; form.
301.6323(g)-1 Refiling of notice of tax lien.
301.6323(h)-0 Scope of definitions.
301.6323(h)-1 Definitions.
301.6323(i)-1 Special rules.
301.6323(j)-1 Withdrawal of notice of federal tax lien in certain 
          circumstances.
301.6324-1 Special liens for estate and gift taxes; personal liability 
          of transferees and others.
301.6324A-1 Election of and agreement to special lien for estate tax 
          deferred under section 6166 or 6166A.
301.6325-1 Release of lien or discharge of property.
301.6326-1 Administrative appeal of the erroneous filing of notice of 
          federal tax lien.

               Seizure of Property for Collection of Taxes

301.6330-1 Notice and opportunity for hearing prior to levy.
301.6331-1 Levy and distraint.
301.6331-2 Procedures and restrictions on levies.
301.6331-3 Restrictions on levy while offers to compromise are pending.
301.6331-4 Restrictions on levy while installment agreements are pending 
          or in effect.
301.6332-1 Surrender of property subject to levy.
301.6332-2 Surrender of property subject to levy in the case of life 
          insurance and endowment contracts.

[[Page 14]]

301.6332-3 The 21-day holding period applicable to property held by 
          banks.
301.6333-1 Production of books.
301.6334-1 Property exempt from levy.
301.6334-2 Wages, salary, and other income.
301.6334-3 Determination of exempt amount.
301.6334-4 Verified statements.
301.6335-1 Sale of seized property.
301.6336-1 Sale of perishable goods.
301.6337-1 Redemption of property.
301.6338-1 Certificate of sale; deed of real property.
301.6339-1 Legal effect of certificate of sale of personal property and 
          deed of real property.
301.6340-1 Records of sale.
301.6341-1 Expense of levy and sale.
301.6342-1 Application of proceeds of levy.
301.6343-1 Requirement to release levy and notice of release.
301.6343-2 Return of wrongfully levied upon property.
301.6343-3 Return of property in certain cases.
301.6361-1 Collection and administration of qualified taxes.
301.6361-2 Judicial and administrative proceedings; Federal 
          representation of State interests.
301.6361-3 Transfers to States.
301.6361-4 Definitions.
301.6361-5 Effective date of section 6361.
301.6362-1 Types of qualified tax.
301.6362-2 Qualified resident tax based on taxable income.
301.6362-3 Qualified resident tax which is a percentage of Federal tax.
301.6362-4 Rules for adjustments relating to qualified resident taxes.
301.6362-5 Qualified nonresident tax.
301.6362-6 Requirements relating to residence.
301.6362-7 Additional requirements.
301.6363-1 State agreements.
301.6363-2 Withdrawal from State agreements.
301.6363-3 Transition years.
301.6363-4 Judicial review.
301.6365-1 Definitions.
301.6365-2 Commencement and cessation of applicability of subchapter E 
          to individual taxpayers.

                    Abatements, Credits, and Refunds

                          Procedure in General

301.6401-1 Amounts treated as overpayments.
301.6402-1 Authority to make credits or refunds.
301.6402-2 Claims for credit or refund.
301.6402-3 Special rules applicable to income tax.
301.6402-4 Payments in excess of amounts shown on return.
301.6402-5 Offset of past-due support against overpayment.
301.6402-6 Offset of past-due, legally enforceable debt against 
          overpayment.
301.6402-7 Claims for refund and applications for tentative carryback 
          adjustments involving consolidated groups that include 
          insolvent financial institutions.
301.6403-1 Overpayment of installment.
301.6404-0 Table of contents.
301.6404-1 Abatements.
301.6404-2 Abatement of interest.
301.6404-3 Abatement of penalty or addition to tax attributable to 
          erroneous written advice of the Internal Revenue Service.
301.6404-4 Suspension of interest and certain penalties when the 
          Internal Revenue Service does not timely contact the taxpayer.
301.6405-1 Reports of refunds and credits.
301.6407-1 Date of allowance of refund or credit.

                      Rules of Special Application

301.6411-1 Tentative carryback adjustments.
301.6413-1 Special rules applicable to certain employment taxes.
301.6414-1 Income tax withheld.
301.6425-1 Adjustment of overpayment of estimated income tax by 
          corporation.

                               Limitations

                Limitations on Assessment and Collection

301.6501(a)-1 Period of limitations upon assessment and collection.
301.6501(b)-1 Time return deemed filed for purposes of determining 
          limitations.
301.6501(c)-1 Exceptions to general period of limitations on assessment 
          and collection.
301.6501(d)-1 Request for prompt assessment.
301.6501(e)-1 Omission from return.
301.6501(f)-1 Personal holding company tax.
301.6501(g)-1 Certain income tax returns of corporations.
301.6501(h)-1 Net operating loss or capital loss carrybacks.
301.6501(i)-1 Foreign tax carrybacks; taxable years beginning after 
          December 31, 1957.
301.6501(j)-1 Investment credit carryback; taxable years ending after 
          December 31, 1961.
301.6501(m)-1 Tentative carryback adjustment assessment period.
301.6501(n)-1 Special rules for chapter 42 and similar taxes.
301.6501(n)-2 Certain contributions to section 501(c)(3) organizations.
301.6501(n)-3 Certain set-asides described in section 4942(g)(2).
301.6502-1 Collection after assessment.
301.6503(a)-1 Suspension of running of period of limitation; issuance of 
          statutory notice of deficiency.
301.6503(b)-1 Suspension of running of period of limitation; assets of 
          taxpayer in control or custody of court.

[[Page 15]]

301.6503(c)-1 Suspension of running of period of limitation; location of 
          property outside the United States or removal of property from 
          the United States; taxpayer outside of United States.
301.6503(d)-1 Suspension of running of period of limitation; extension 
          of time for payment of estate tax.
301.6503(e)-1 Suspension of running of period of limitation; certain 
          powers of appointment.
301.6503(f)-1 Suspension of running of period of limitation; wrongful 
          seizure of property of third-party owner and discharge of lien 
          for substitution of value.
301.6503(g)-1 Suspension pending correction.

                     Limitations on Credit or Refund

301.6503(j)-1 Suspension of running of period of limitations; extension 
          in case of designated and related summonses.
301.6511(a)-1 Period of limitation on filing claim.
301.6511(b)-1 Limitations on allowance of credits and refunds.
301.6511(c)-1 Special rules applicable in case of extension of time by 
          agreement.
301.6511(d)-1 Overpayment of income tax on account of bad debts, 
          worthless securities, etc.
301.6511(d)-2 Overpayment of income tax on account of net operating loss 
          or capital loss carrybacks.
301.6511(d)-3 Special rules applicable to credit against income tax for 
          foreign taxes.
301.6511(d)-4 Overpayment of income tax on account of investment credit 
          carryback.
301.6511(e)-1 Special rules applicable to manufactured sugar.
301.6511(f)-1 Special rules for chapter 42 taxes.
301.6512-1 Limitations in case of petition to Tax Court.
301.6513-1 Time return deemed filed and tax considered paid.
301.6514(a)-1 Credits or refunds after period of limitation.
301.6514(b)-1 Credit against barred liability.

              Mitigation of Effect of Period of Limitations

301.6521-1 Mitigation of effect of limitation in case of related 
          employee social security tax and self-employment tax.
301.6521-2 Law applicable in determination of error.

              Periods of Limitation in Judicial Proceedings

301.6532-1 Periods of limitation on suits by taxpayers.
301.6532-2 Periods of limitation on suits by the United States.
301.6532-3 Periods of limitation on suits by persons other than 
          taxpayers.

                                Interest

                        Interest on Underpayments

301.6601-1 Interest on underpayments.
301.6602-1 Interest on erroneous refund recoverable by suit.

                        Interest on Overpayments

301.6611-1 Interest on overpayments.

                     Determination of Interest Rate

301.6621-1 Interest rate.
301.6621-2T Questions and answers relating to the increased rate of 
          interest on substantial underpayments attributable to certain 
          tax motivated transactions (temporary).
301.6621-3 Higher interest rate payable on large corporate 
          underpayments.
301.6622-1 Interest compounded daily.

   Additions to the Tax, Additional Amounts, and Assessable Penalties

               Additions to the Tax and Additional Amounts

301.6651-1 Failure to file tax return or to pay tax.
301.6652-1 Failure to file certain information returns.
301.6652-2 Failure by exempt organizations and certain nonexempt 
          organizations to file certain returns or to comply with 
          section 6104(d) for taxable years beginning after December 31, 
          1969.
301.6652-3 Failure to file information with respect to employee 
          retirement benefit plan.
301.6653-1 Failure to pay tax.
301.6654-1 Failure by individual to pay estimated income tax.
301.6655-1 Failure by corporation to pay estimated income tax.
301.6656-1 Abatement of penalty.
301.6657-1 Bad checks.
301.6658-1 Addition to tax in case of jeopardy.
301.6659-1 Applicable rules.

                          Assessable Penalties

301.6671-1 Rules for application of assessable penalties.
301.6672-1 Failure to collect and pay over tax, or attempt to evade or 
          defeat tax.
301.6673-1 Damages assessable for instituting proceedings before the Tax 
          Court merely for delay.
301.6674-1 Fraudulent statement or failure to furnish statement to 
          employee.
301.6678-1 Failure to furnish statements to payees.
301.6679-1 Failure to file returns, etc. with respect to foreign 
          corporations or foreign partnerships for taxable years 
          beginning after September 3, 1982.

[[Page 16]]

301.6682-1 False information with respect to withholding allowances 
          based on itemized deductions.
301.6684-1 Assessable penalties with respect to liability for tax under 
          chapter 42.
301.6685-1 Assessable penalties with respect to private foundations' 
          failure to comply with section 6104(d).
301.6686-1 Failure of DISC to file returns.
301.6688-1 Assessable penalties with respect to information required to 
          be furnished with respect to possessions.
301.6689-1 Failure to file notice of redetermination of foreign income 
          taxes.
301.6690-1 Penalty for fraudulent statement or failure to furnish 
          statement to plan participant.
301.6692-1 Failure to file actuarial report.
301.6693-1 Penalty for failure to provide reports and documents 
          concerning individual retirement accounts or annuities.
301.6707-1 Failure to furnish information regarding reportable 
          transactions.
301.6707A-1 Failure to include on any return or statement any 
          information required to be disclosed under section 6011 with 
          respect to a reportable transaction.
301.6708-1 Failure to maintain lists of advisees with respect to 
          reportable transactions.
301.6708-1T Failure to maintain list of investors in potentially abusive 
          tax shelters (temporary).
301.6712-1 Failure to disclose treaty--based return positions.
301.6721-0 Table of Contents.
301.6721-1 Failure to file correct information returns.
301.6722-1 Failure to furnish correct payee statements.
301.6723-1 Failure to comply with other information reporting 
          requirements.
301.6724-1 Reasonable cause.

 Regulations Applicable to Information Returns and Payee Statements the 
Due Date for Which (Without Regard to Extensions) Is After December 31, 
                    1986, and Before January 1, 1990

301.6723-1A Failure to include correct information.

                  General Provisions Relating to Stamps

301.6801-1 Authority for establishment, alteration, and distribution.
301.6802-1 Supply and distribution.
301.6803-1 Accounting and safeguarding.
301.6804-1 Attachment and cancellation.
301.6805-1 Redemption of stamps.
301.6806-1 Posting occupational tax stamps.

                 Jeopardy, Bankruptcy, and Receiverships

                                Jeopardy

                       termination of taxable year

301.6851-1 Termination of taxable year.
301.6852-1 Termination assessments of tax in the case of flagrant 
          political expenditures of section 501(c)(3) organizations.

                          jeopardy assessments

301.6861-1 Jeopardy assessments of income, estate, gift, and certain 
          excise taxes.
301.6862-1 Jeopardy assessment of taxes other than income, estate, gift, 
          and certain excise taxes.
301.6863-1 Stay of collection of jeopardy assessments; bond to stay 
          collection.
301.6863-2 Collection of jeopardy assessment; stay of sale of seized 
          property pending Tax Court decision.
301.6867-1 Presumptions where owner of large amount of cash is not 
          identified.

                      Bankruptcy and Receiverships

301.6871(a)-1 Immediate assessment of claims for income, estate, and 
          gift taxes in bankruptcy and receivership proceedings.
301.6871(a)-2 Collection of assessed taxes in bankruptcy and 
          receivership proceedings.
301.6871(b)-1 Claims for income, estate, and gift taxes in proceedings 
          under the Bankruptcy Act and receivership proceedings; claim 
          filed despite pendency of Tax Court proceedings.
301.6872-1 Suspension of running of period of limitations on assessment.
301.6873-1 Unpaid claims in bankruptcy or receivership proceedings.

                       Transferees and Fiduciaries

301.6901-1 Procedure in the case of transferred assets.
301.6902-1 Burden of proof.
301.6903-1 Notice of fiduciary relationship.
301.6905-1 Discharge of executor from personal liability for decedent's 
          income and gift taxes.

                                Licensing

301.7001-1 License to collect foreign items.

                                  Bonds

301.7101-1 Form of bond and security required.
301.7102-1 Single bond in lieu of multiple bonds.

                   Closing Agreements and Compromises

301.7121-1 Closing agreements.
301.7122-0 Table of contents.
301.7122-1 Compromises.

[[Page 17]]

                 Crimes, Other Offenses, and Forfeitures

                                 Crimes

                           general provisions

301.7207-1 Fraudulent returns, statements, or other documents.
301.7209-1 Unauthorized use or sale of stamps.
301.7214-1 Offenses by officers and employees of the United States.
301.7216-0 Table of contents.
301.7216-1 Penalty for disclosure or use of tax return information.
301.7216-2 Permissible disclosures or uses without consent of the 
          taxpayer.
301.7216-3 Disclosure or use permitted only with the taxpayer's consent.

                  penalties applicable to certain taxes

301.7231-1 Failure to obtain license for collection of foreign items.

                             Other Offenses

301.7269-1 Failure to produce records.
301.7272-1 Penalty for failure to register.

                               Forfeitures

                     property subject to forfeiture

301.7304-1 Penalty for fraudulently claiming drawback.

                    provisions common to forfeitures

301.7321-1 Seizure of property.
301.7322-1 Delivery of seized property to U.S. marshal.
301.7324-1 Special disposition of perishable goods.
301.7325-1 Personal property valued at $2,500 or less.
301.7326-1 Disposal of forfeited or abandoned property in special cases.
301.7327-1 Customs laws applicable.

                          Judicial Proceedings

                   Civil Actions by the United States

301.7401-1 Authorization.
301.7403-1 Action to enforce lien or to subject property to payment of 
          tax.
301.7404-1 Authority to bring civil action for estate taxes.
301.7406-1 Disposition of judgments and moneys recovered.
301.7409-1 Action to enjoin flagrant political expenditures of section 
          501(c)(3) organizations.

               Proceedings by Taxpayers and Third Parties

301.7422-1 Special rules for certain excise taxes imposed by chapter 42 
          or 43.
301.7423-1 Repayments to officers or employees.
301.7424-2 Intervention.
301.7425-1 Discharge of liens; scope and application; judicial 
          proceedings.
301.7425-2 Discharge of liens; nonjudicial sales.
301.7425-3 Discharge of liens; special rules.
301.7425-4 Discharge of liens; redemption by United States.
301.7426-1 Civil actions by persons other than taxpayers.
301.7426-2 Recovery of damages in certain cases.
301.7429-1 Review of jeopardy and termination assessment and jeopardy 
          levy procedures; information to taxpayer.
301.7429-2 Review of jeopardy and termination assessment and jeopardy 
          levy procedures.
301.7429-3 Review of jeopardy and termination assessment and jeopardy 
          levy procedures; judicial action.
301.7430-0 Table of contents.
301.7430-1 Exhaustion of administrative remedies.
301.7430-2 Requirements and procedures for recovery of reasonable 
          administrative costs.
301.7430-3 Administrative proceeding and administrative proceeding date.
301.7430-4 Reasonable administrative costs.
301.7430-5 Prevailing party.
301.7430-6 Effective/applicability dates.
301.7430-7 Qualified offers.
301.7430-8 Administrative costs incurred in damage actions for 
          violations of section 362 or 524 of the Bankruptcy Code.
301.7432-1 Civil cause of action for failure to release a lien.
301.7433-1 Civil cause of action for certain unauthorized collection 
          actions.
301.7433-2 Civil cause of action for violation of section 362 or 524 of 
          the Bankruptcy Code.

                              The Tax Court

                                procedure

301.7452-1 Representation of parties.
301.7454-1 Burden of proof in fraud and transferee cases.
301.7454-2 Burden of proof in foundation manager, etc. cases.
301.7456-1 Administration of oaths and procurement of testimony; 
          production of records of foreign corporations, foreign trusts 
          or estates and nonresident alien individuals.
301.7457-1 Witness fees.
301.7458-1 Hearings.
301.7461-1 Publicity of proceedings.

 declaratory judgments relating to qualification of certain retirement 
                                  plans

301.7476-1 Declaratory judgments.
301.7477-1 Declaratory judgments relating to the value of certain gifts 
          for gift tax purposes.

[[Page 18]]

                   court review of tax court decisions

301.7481-1 Date when Tax Court decision becomes final; decision modified 
          or reversed.
301.7482-1 Courts of review; venue.
301.7483-1 Petition for review.
301.7484-1 Change of incumbent in office.

                        miscellaneous provisions

301.7502-1 Timely mailing of documents and payments treated as timely 
          filing and paying.
301.7503-1 Time for performance of acts where last day falls on 
          Saturday, Sunday, or legal holiday.
301.7505-1 Sale of personal property acquired by the United States.
301.7506-1 Administration of real estate acquired by the United States.
301.7507-1 Banks and trust companies covered.
301.7507-2 Scope of section generally.
301.7507-3 Segregated or transferred assets.
301.7507-4 Unsegregated assets.
301.7507-5 Earnings.
301.7507-6 Abatement and refund.
301.7507-7 Establishment of immunity.
301.7507-8 Procedure during immunity.
301.7507-9 Termination of immunity.
301.7507-10 Collection of tax after termination of immunity.
301.7507-11 Exception of employment taxes.
301.7508-1 Time for performing certain acts postponed by reason of 
          service in a combat zone.
301.7508A-1 Postponement of certain tax-related deadlines by reasons of 
          a federally declared disaster or terroristic or military 
          action.
301.7510-1 Exemption from tax of domestic goods purchased for the United 
          States.
301.7512-1 Separate accounting for certain collected taxes.
301.7513-1 Reproduction of returns and other documents.
301.7514-1 Seals of office.
301.7515-1 Special statistical studies and compilations on request.
301.7516-1 Training and training aids on request.
301.7517-1 Furnishing on request of statement explaining estate or gift 
          valuation.

             Discovery of Liability and Enforcement of Title

                       Examination and Inspection

301.7601-1 Canvass of districts for taxable persons and objects.
301.7602-1 Examination of books and witnesses.
301.7602-2 Third party contacts.
301.7603-1 Service of summons.
301.7603-2 Third-party recordkeepers.
301.7604-1 Enforcement of summons.
301.7605-1 Time and place of examination.
301.7606-1 Entry of premises for examination of taxable objects.
301.7609-1 Special procedures for third-party summonses.
301.7609-2 Notification of persons identified in third-party summonses.
301.7609-3 Duty of and protection for the summoned party.
301.7609-4 Right to intervene; right to institute a proceeding to quash.
301.7609-5 Suspension of periods of limitations.
301.7610-1 Fees and costs for witnesses.
301.7611-1 Questions and answers relating to church tax inquiries and 
          examinations.

                        General Powers and Duties

301.7621-1 Internal revenue districts.
301.7622-1 Authority to administer oaths and certify.
301.7623-1 General rules, submitting information on underpayments of tax 
          or violations of the internal revenue laws, and filing claims 
          for award.
301.7623-2 Definitions.
301.7623-3 Whistleblower administrative proceedings and appeals of award 
          determinations.
301.7623-4 Amount and payment of award.
301.7624-1 Reimbursement to State and local law enforcement agencies

           Supervision of Operations of Certain Manufacturers

301.7641-1 Supervision of operations of certain manufacturers.

                               Possessions

301.7654-1 Coordination of U.S. and Guam individual income taxes.

                               Definitions

301.7701-1 Classification of organizations for federal tax purposes.
301.7701-2 Business entities; definitions.
301.7701-3 Classification of certain business entities.
301.7701-4 Trusts.
301.7701-5 Domestic and foreign business entities.
301.7701-6 Definitions; person, fiduciary.
301.7701-7 Trusts--domestic and foreign.
301.7701-8 Military or naval forces and Armed Forces of the United 
          States.
301.7701-9 Secretary or his delegate.
301.7701-10 District director.
301.7701-11 Social security number.
301.7701-12 Employer identification number.
301.7701-13 Pre-1970 domestic building and loan association.
301.7701-13A Post--1969 domestic building and loan association.
301.7701-14 Cooperative bank.
301.7701-15 Tax return preparer.
301.7701-16 Other terms.

[[Page 19]]

301.7701-17T Collective--bargaining plans and agreements (temporary).
301.7701-18 Definitions; spouse, husband and wife, husband, wife, 
          marriage.
301.7701(b)-0 Outline of regulation provision for section 7701(b)-1 
          through (b)-9.
301.7701(b)-1 Resident alien.
301.7701(b)-2 Closer connection exception.
301.7701(b)-3 Days of presence in the United States that are excluded 
          for purposes of section 7701(b).
301.7701(b)-4 Residency time periods.
301.7701(b)-5 Coordination with section 877.
301.7701(b)-6 Taxable year.
301.7701(b)-7 Coordination with income tax treaties.
301.7701(b)-8 Procedural rules.
301.7701(b)-9 Effective/applicability dates of Sec. Sec.  301.7701(b)-1 
          through 301.7701(b)-7.
301.7701(i)-0 Outline of taxable mortgage pool provisions.
301.7701(i)-1 Definition of a taxable mortgage pool.
301.7701(i)-2 Special rules for portions of entities.
301.7701(i)-3 Effective dates and duration of taxable mortgage pool 
          classification.
301.7701(i)-4 Special rules for certain entities.
301.7704-2 Transition provisions.
301.7705-1 Certified professional employer organization.
301.7705-2 CPEO certification process.

                              General Rules

                  Application of Internal Revenue Laws

301.7803-1 Security bonds covering personnel of the Internal Revenue 
          Service.
301.7805-1 Rules and regulations.
301.7811-1 Taxpayer assistance orders.

                        Miscellaneous Provisions

301.9000-1 Definitions when used in Sec. Sec.  301.9000-1 through 
          301.9000-6.
301.9000-2 Considerations in responding to a request or demand for IRS 
          records or information.
301.9000-3 Testimony authorizations.
301.9000-4 Procedure in the event of a request or demand for IRS records 
          or information.
301.9000-5 Written statement required for requests or demands in non-IRS 
          matters.
301.9000-6 Examples.
301.9000-7 Effective date.
301.9001 Statutory provisions; Outer Continental Shelf Lands Act 
          Amendments of 1978.
301.9001-1 Collection of fee.
301.9001-2 Definitions.
301.9001-3 Cross reference.
301.9100-0 Outline of regulations.
301.9100-1 Extensions of time to make elections.
301.9100-2 Automatic extensions.
301.9100-3 Other extensions.
301.9100-4T Time and manner of making certain elections under the 
          Economic Recovery Tax Act of 1981.
301.9100-5T Time and manner of making certain elections under the Tax 
          Equity and Fiscal Responsibility Act of 1982.
301.9100-6T Time and manner of making certain elections under the 
          Deficit Reduction Act of 1984.
301.9100-7T Time and manner of making certain elections under the Tax 
          Reform Act of 1986.
301.9100-8 Time and manner of making certain elections under the 
          Technical and Miscellaneous Revenue Act of 1988.
301.9100-9T Election by a bank holding company to forego grandfather 
          provision for all property representing pre-June 30, 1968, 
          activities.
301.9100-10T Election by certain family-owned bank holding companies to 
          divest all banking or nonbanking property.
301.9100-11T Election by a qualified bank holding corporation to pay in 
          installments the tax attributable to sales under the Bank 
          Holding Company Act.
301.9100-12T Various elections under the Tax Reform Act of 1976.
301.9100-14T Individual's election to terminate taxable year when case 
          commences.
301.9100-15T Election to use retroactive effective date.
301.9100-16T Election to accrue vacation pay.
301.9100-17T Procedure applicable to certain elections.
301.9100-18T Election to include in gross income in year of transfer.
301.9100-19T Election relating to passive investment income of electing 
          small business corporations.
301.9100-20T Election to treat certain distributions as made on the last 
          day of the taxable year.
301.9100-21 References to other temporary elections under various tax 
          acts.
301.9100-22 Time, form, and manner of making the election under section 
          1101(g)(4) of the Bipartisan Budget Act of 2015 for returns 
          filed for partnership taxable years beginning after November 
          2, 2015 and before January 1, 2018.

    Authority: 26 U.S.C. 7805.
    Section 301.1474-1 also issued under 26 U.S.C. 1474(f).
    Section 301.6011-2 also issued under 26 U.S.C. 6011(e).
    Section 301.6011-3 also issued under 26 U.S.C. 6011.
    Section 301.6011-5 also issued under 26 U.S.C. 6011.
    Section 301.6011-6 also issued under 26 U.S.C. 6011(a).
    Section 301.6011-7 also issued under 26 U.S.C. 6011(e).

[[Page 20]]

    Section 301.6033-4 also issued under 26 U.S.C. 6033.
    Section 301.6036-1 also issued under 26 U.S.C. 6036.
    Section 301.6037-2 also issued under 26 U.S.C. 6037.
    Section 301.6039E-1 also issued under 26 U.S.C. 6039E.
    Section 301.6050M-1 also issued under 26 U.S.C. 6050M.
    Section 301.6061-1 also issued under 26 U.S.C. 6061.
    Section 301.6081-2 also issued under 26 U.S.C. 6081(a).
    Section 301.6103(c)-1 also issued under 26 U.S.C. 6103(c).
    Section 301.6103(h)(4)-1 also issued under 26 U.S.C. 6103(h)(4) and 
26 U.S.C. 6103(q).
    Section 301.6103(j)(1)-1 also issued under 26 U.S.C. 6103(j)(1).
    Section 301.6103(j)(1)-1T also issued under 26 U.S.C. 6103(j)(1);
    Section 301.6103(j)(5)-1 also issued under 26 U.S.C. 6103(j)(5).
    Section 301.6103(k)(6)-1 also issued under 26 U.S.C. 6103(k)(6);
    Section 301.6103(k)(6)-1T also issued under 26 U.S.C. 6103(k)(6);
    Section 301.6103(k)(9)-1 also issued under 26 U.S.C. 6103(k)(9) and 
26 U.S.C. 6103(q).
    Section 301.6103(l)-1 also issued under 26 U.S.C. 6103(q).
    Section 301.6103(l)(14)-1 also issued under 26 U.S.C. 6103(l)(14).
    Section 301.6103(l)(21)-(1) also issued under 26 U.S.C. 6103(l)(21) 
and 6103(q).
    Section 301.6103(m)-1 also issued under 26 U.S.C. 6103(q).
    Section 301.6103(n)-1 also issued under 26 U.S.C. 6103(n).
    Section 301.6103(n)-2 also issued under 26 U.S.C. 6103(n).
    Section 301.6103(n)-2 also issued under 26 U.S.C. 6103(q).
    Section 301.6103(p)(2)(B)-1 also issued under 26 U.S.C. 6103(p)(2).
    Section 301.6103(p)(2)(B)-1T also issued under 26 U.S.C. 6103(p)(2).
    Sections 301.6103(p)(4)-1 and 301.6103(p)(7)-1T also issued under 26 
U.S.C. 6103(p)(4) and (7) and (q),
    Section 301.6104(a)-6(d) is also issued under 5 U.S.C. 552.
    Section 301.6104(b)-1(d)(4) is also issued under 5 U.S.C. 552.
    Section 301.6104(d)-1(d)(3)(i) is also issued under 5 U.S.C. 552.
    Section 301.6104(d)-2 also issued under 26 U.S.C. 6104(d)(3).
    Section 301.6104(d)-3 also issued under 26 U.S.C. 6104(d)(3).
    Section 301.6104(d)-4 also issued under 26 U.S.C. 6104(e)(3).
    Section 301.6104(d)-5 also issued under 26 U.S.C. 6104(e)(3).
    Section 301.6109-1 also issued under 26 U.S.C. 6109 (a), (c), and 
(d).
    Section 301.6109-3 also issued under 26 U.S.C. 6109.
    Section 301.6111-1T also issued under 26 U.S.C. 6111.
    Section 301.6111-2T also issued under 26 U.S.C. 6111(f)(4).
    Section 301.6111-3 also issued under 26 U.S.C. 6111.
    Section 301.6111-3T also issued under 26 U.S.C. 6111.
    Section 301.6112-1T also issued under 26 U.S.C. 6112.
    Section 301.6114-1 also issued under 26 U.S.C. 6114.
    Section 301.6221(a)-1 also issued under 26 U.S.C. 6221.
    Section 301.6222-1 also issued under 26 U.S.C. 6222 and 6223.
    Section 301.6222(a)-1T also issued under 26 U.S.C. 6230(k).
    Section 301.6222(a)-2T also issued under 26 U.S.C. 6230(k).
    Section 301.6222(b)-1T also issued under 26 U.S.C. 6230(k).
    Section 301.6222(b)-2T also issued under 26 U.S.C. 6230(k).
    Section 301.6222(b)-3T also issued under 26 U.S.C. 6230 (i) and (k).
    Section 301.6223(a)-1T also issued under 26 U.S.C. 6230(k).
    Section 301.6223(a)-2T also issued under 26 U.S.C. 6230(k).
    Section 301.6223(b)-1T also issued under 26 U.S.C. 6230 (i) and (k).
    Section 301.6223(b)-2T also issued under 26 U.S.C. 6230(k).
    Section 301.6223(c)-1T also issued under 26 U.S.C. 6223(c) and 6230 
(i) and (k).
    Section 301.6223(e)-1T also issued under 26 U.S.C. 6230(k).
    Section 301.6223(e)-2T also issued under 26 U.S.C. 6230 (i) and (k).
    Section 301.6223(f)-1T also issued under 26 U.S.C. 6230(k).
    Section 301.6223(g)-1T also issued under 26 U.S.C. 6223(g) and 6230 
(i) and (k).
    Section 301.6223(h)-1T also issued under 26 U.S.C. 6230 (i) and (k).
    Section 301.6224(a)-1T also issued under 26 U.S.C. 6230(k).
    Section 301.6224(b)-1T also issued under 26 U.S.C. 6230 (i) and (k).
    Section 301.6224(c)-1T also issued under 26 U.S.C. 6230 (i) and (k).
    Section 301.6224(c)-2T also issued under 26 U.S.C. 6230(k).
    Section 301.6224(c)-3T also issued under 26 U.S.C. 6230 (i) and (k).
    Section 301.6225-1 also issued under 26 U.S.C. 6225.
    Section 301.6225-2 also issued under 26 U.S.C. 6223 and 6225.
    Section 301.6225-3 also issued under 26 U.S.C. 6225.
    Section 301.6226-1 also issued under 26 U.S.C. 6223 and 6226.

[[Page 21]]

    Section 301.6226-2 also issued under 26 U.S.C. 6226.
    Section 301.6226-3 also issued under 26 U.S.C. 6226.
    Section 301.6226(a)-1T also issued under 26 U.S.C. 6230(k).
    Section 301.6226(b)-1T also issued under 26 U.S.C. 6230(k).
    Section 301.6226(e)-1T also issued under 26 U.S.C. 6230(k).
    Section 301.6226(f)-1T also issued under 26 U.S.C. C. 6230(k).
    Section 301.6227-1 also issued under 26 U.S.C. 6223 and 6227.
    Section 301.6227-2 also issued under 26 U.S.C. 6227.
    Section 301.6227-3 also issued under 26 U.S.C. 6227.
    Section 301.6229(c)(2)-1 is also issued under 26 U.S.C. 6230(k).
    Section 301.6229(c)(2)-1T also issued under 26 U.S.C. Sec.  6230(k).
    Section 301.6231-1 also issued under 26 U.S.C. 6231.
    Section 301.6231(a)(6)-1T also issued under 26 U.S.C. 6230(k).
    Section 301.6231(a)(7)-1 also issued under 26 U.S.C. 6230 (i) and 
(k).
    Section 301.6231(a)(7)-2 also issued under 26 U.S.C. 6230 (i) and 
(k).
    Section 301.6231(a)(12)-1T also issued under 26 U.S.C. 6230(k) and 
6231(a)(12).
    Section 301.6231(c)-1 also issued under 26 U.S.C. 6231(c)(1) and 
(3).
    Section 301.6231(c)-2 also issued under 26 U.S.C. 6231(c)(1) and 
(3).
    Section 301.6231(c)-3T also issued under 26 U.S.C. 6230(k) and 
6231(c).
    Section 301.6231(c)-4T also issued under 26 U.S.C. 6230(k) and 
6231(c).
    Section 301.6231(c)-5T also issued under 26 U.S.C. 6230(k) and 
6231(c).
    Section 301.6231(c)-6T also issued under 26 U.S.C. 6230(k) and 
6231(c).
    Section 301.6231(c)-7T also issued under 26 U.S.C. 6230(k) and 
6231(c).
    Section 301.6231(c)-8T also issued under 26 U.S.C. 6230(k) and 
6231(c).
    Section 301.6231(d)-1T also issued under 26 U.S.C. 6230(k).
    Section 301.6231(e)-1T also issued under 26 U.S.C. 6230(k).
    Section 301.6231(e)-2T also issued under 26 U.S.C. 6230(k).
    Section 301.6231(f)-1T also issued under 26 U.S.C. 6230 (i) and (k) 
and 6231(f).
    Section 301.6232-1 also issued under 26 U.S.C. 6232.
    Section 301.6233-1T also issued under 26 U.S.C. 6230(k) and 6233.
    Section 301.6233(a)-1 also issued under 26 U.S.C. 6233.
    Section 301.6233(b)-1 also issued under 26 U.S.C. 6233.
    Section 301.6234-1 also issued under 26 U.S.C. 6234.
    Section 301.6235-1 also issued under 26 U.S.C. 6235.
    Section 301.6241-1 also issued under 26 U.S.C. 6241.
    Section 301.6241-2 also issued under 26 U.S.C. 6241.
    Section 301.6241-3 also issued under 26 U.S.C. 6241.
    Section 301.6241-4 also issued under 26 U.S.C. 6241.
    Section 301.6241-5 also issued under 26 U.S.C. 6241.
    Section 301.6241-6 also issued under 26 U.S.C. 6241.
    Section 301.6311-2 also issued under 26 U.S.C. 6311.
    Section 301.6323(f)-(1)(c) also issued under 26 U.S.C. 6323(f)(3).
    Section 301.6325-1T also issued under 26 U.S.C. 6326.
    Section 301.6343-1 also issued under 26 U.S.C. 6343.
    Section 301.6343-2 also issued under 26 U.S.C. 6343.
    Section 301.6402-2(g) also issued under 26 U.S.C. 6402(n).
    Section 301.6402-3 also issued under 95 Stat. 357 amending 88 Stat. 
2351.
    Section 301.6402-7 also issued under 26 U.S.C. 6402(i) and 6411(c).
    Section 301.6404-2 also issued under 26 U.S.C. 6404.
    Section 301.6404-3 also issued under 26 U.S.C. 6404(f)(3).
    Section 301.6621-1 also issued under 26 U.S.C. 6230(k).
    Section 301.6689-1 also issued under 26 U.S.C. 6689(a), 26 U.S.C. 
6227(d), and 26 U.S.C. 6241(11).
    Section 301.6689-1T also issued under 26 U.S.C. 6689(a).
    Section 301.6708-1 also issued under 26 U.S.C. 6708
    Section 301.7216-2, paragraphs (o) and (p) also issued under 26 
U.S.C. 7216(b)(3).
    Section 301.7502-1 also issued under 26 U.S.C. 7502.
    Section 301.7502-2 also issued under 26 U.S.C. 7502.
    Section 301.7507-1 also issued under 26 U.S.C. 597.
    Section 301.7507-9 also issued under 26 U.S.C. 597.
    Section 301.7508-1 also issued under 26 U.S.C. 7508(a)(1)(K).
    Section 301.7508A-1 also issued under 26 U.S.C. 7508(a)(1)(K) and 
7508A(a).
    Section 301.7605-1 also issued under section 6228(b) of the 
Technical and Miscellaneous Revenue Act of 1988.
    Sections 301.7623-1 through 301.7623-4 also issued under 26 U.S.C. 
7623.
    Section 301.7624-1 also issued under 26 U.S.C. 7624.
    Sections 301.7701(b)-1 through 301.7701(b)-9 also issued under 26 
U.S.C. 7701(b)(11).

[[Page 22]]

    Section 301.7701(i)-1(g)(1) also issued under 26 U.S.C. 
7701(i)(2)(D).
    Section 301.7701(i)-4(b) also issued under 26 U.S.C. 7701(i)(3).
    Section 301.7705-1 also issued under 26 U.S.C. 7705(h).
    Section 301.7705-2 also issued under 26 U.S.C. 7705(h).
    Section 301.9000-1 also issued under 5 U.S.C. 301 and 26 U.S.C. 
6103(q) and 7804;
    Section 301.9000-2 also issued under 5 U.S.C. 301 and 26 U.S.C. 
6103(q) and 7804;
    Section 301.9000-3 also issued under 5 U.S.C. 301 and 26 U.S.C. 
6103(q) and 7804;
    Section 301.9000-4 also issued under 5 U.S.C. 301 and 26 U.S.C. 
6103(q) and 7804;
    Section 301.9000-5 also issued under 5 U.S.C. 301 and 26 U.S.C. 
6103(q) and 7804;
    Section 301.9000-6 also issued under 5 U.S.C. 301 and 26 U.S.C. 
6103(q) and 7804;
    Section 301.9100-1T also issued under 26 U.S.C. 6081.
    Section 301.9100-2T also issued under 26 U.S.C. 6081.
    Section 301.9100-3T also issued under 26 U.S.C. 6081.
    Section 301.9100-4T also issued under 26 U.S.C. 168(f)(8)(G).
    Section 301.9100-7T also issued under 26 U.S.C. 42, 48, 56, 83, 141, 
142, 143, 145, 147, 165, 168, 216, 263, 263A, 448, 453C, 468B, 469, 474, 
585, 616, 617, 1059, 2632, 2652, 3121, 4982, 7701; and under the Tax 
Reform Act of 1986, 100 Stat. 2746, sections 203, 204, 243, 311, 646, 
801, 806, 905, 1704, 1801, 1802, and 1804.
    Section 301.9100-8 also issued under 26 U.S.C. 1(i)(7), 41(h), 
42(b)(2)(A)(ii), 42(d)(3), 42(f)(1), 42(g)(3), 42(i)(2)(B), 42(j)(5)(B), 
121(d)(9), 142(i)(2), 165(l), 168(b)(2), 219(g)(4), 245(a)(10), 
263A(d)(1), 263A(d)(3)(B), 263A(h), 460(b)(3), 643(g)(2), 831(b)(2)(A), 
835(a), 865(f), 865(g)(3), 865(h)(2), 904(g)(10), 2056(b)(7)(c)(ii), 
2056A(d), 2523(f)(6)(B), 3127, and 7520(a); the Technical and 
Miscellaneous Revenue Act of 1988, 102 Stat. 3324, sections 
1002(a)(23)(B), 1005(c)(11), 1006(d)(15), 1006(j)(1)(C), 1006(t)(18)(B), 
1012(n)(3), 1014(c)(1), 1014(c)(2), 2004(j)(1), 2004(m)(5), 5012(e)(4), 
6181(c)(2), and 6277; and under the Tax Reform Act of 1986, 100 Stat. 
2746, section 905(a).
    Sections 301.9100-9T, 301.9100-10T and 301.9100-11T also issued 
under 26 U.S.C. 1103 (g) and (h) and 6158(a).
    Sections 301.9100-13T, 301.9100-14T and 301.9100-15T also issued 
under 26 U.S.C. 108(d)(8) and 1017(b)(3)(E).
    Section 301.9100-16T also issued under 26 U.S.C. 463(d).
    Section 301.9100-22T is also issued under section 1101(g)(4) of 
Public Law 114-74.

    Source: 32 FR 15241, Nov. 3, 1967, unless otherwise noted.

    Editorial Note: In the text of this part, integral section 
references are to sections of the Internal Revenue Code of 1954; decimal 
section references are to the Code of Federal Regulations.

    References in the text to the ``Code'' are references to sections of 
the Internal Revenue Code of 1954.



                         Information and Returns

                           Returns and Records

                records, statements, and special returns



Sec.  301.269B-1  Stapled foreign corporations.

    In accordance with section 269B(a)(1), a stapled foreign corporation 
is subject to the same taxes that apply to a domestic corporation under 
title 26 of the Internal Revenue Code. For provisions concerning taxes 
other than income for which the stapled foreign corporation is liable, 
apply the same rules as set forth in Sec.  1.269B-1(a) through 
(f)(1)(i), and (g) of this Chapter, except that references to income tax 
shall be replaced with the term tax. In addition, for purposes of 
collecting those taxes solely from the stapled foreign corporation, the 
term tax means any tax liability imposed on a domestic corporation under 
title 26 of the United States Code, including additions to tax, 
additional amounts, penalties, and interest related to that tax 
liability.

[T.D. 9216, 70 FR 43760, July 29, 2005]



Sec.  301.1474-1  Required use of magnetic media for financial institutions 
filing Form 1042-S or Form 8966.

    (a) Financial institutions filing certain information returns. If a 
financial institution is required to file a Form 1042-S, ``Foreign 
Person's U.S. Source Income Subject to Withholding,'' (or such other 
form as the IRS may prescribe) under Sec.  1.1474-1(d) of this chapter, 
the financial institution must file the information required by the 
applicable forms and schedules on magnetic media. Additionally, if a 
financial institution is required to file Form 8966, ``FATCA Report,'' 
(or such other form as the IRS may prescribe) to report certain 
information about U.S. accounts, substantial U.S. owners of foreign 
entities, or owner-documented FFIs as required under this chapter, the 
financial institution must file the

[[Page 23]]

required information on magnetic media or other machine-readable form. 
Returns filed on magnetic media must be made in accordance with 
applicable regulations, revenue procedures, publications, forms, 
instructions, and the IRS.gov Internet site. In prescribing regulations, 
revenue procedures, publications, forms, and instructions, including 
those on the IRS.gov Internet site, the Commissioner may direct the type 
of magnetic media or other machine-readable form used for filing.
    (b) Waiver. The Commissioner may grant waivers from the requirements 
of this section in cases of undue hardship. A request for waiver must be 
made in accordance with applicable revenue procedures or publications. 
The waiver also will be subject to such terms and conditions regarding 
the method of filing as may be prescribed by the Commissioner.
    (c) Failure to file. If a financial institution fails to file a Form 
1042-S or a Form 8966 on magnetic media when required to do so by this 
section, the financial institution is deemed to have failed to comply 
with the information reporting requirements under section 6721 of the 
Code. See section 6724(c) for failure to meet magnetic media 
requirements. In determining whether there is reasonable cause for 
failure to file the return, Sec.  301.6651-1(c) and rules similar to the 
rules in Sec.  301.6724-1(c)(3) (undue economic hardship related to 
filing information returns on magnetic media) will apply.
    (d) Meaning of terms. The following definitions apply for purposes 
of this section--(1) Magnetic media. The term magnetic media means any 
magnetic media permitted under applicable regulations, revenue 
procedures, publications, forms, or instructions. These generally 
include magnetic tape, tape cartridge, and diskette, as well as other 
media, such as electronic filing, specifically permitted under the 
applicable regulations, revenue procedures, publications, forms, or 
instructions.
    (2) Financial institution. The term financial institution has the 
meaning set forth in section 1471(d)(5) of the Code and the regulations 
thereunder.
    (e) Effective/applicability date. This section applies to any Form 
1042-S or Form 8966 (or any other form that the IRS may prescribe) filed 
with respect to calendar years ending after December 31, 2013.

[T.D. 9610, 78 FR 5994, Jan. 28, 2013, as amended by T.D. 9809, 82 FR 
2192, Jan. 6, 2017]



Sec.  301.6001-1  Notice or regulations requiring records, statements, 
and special returns.

    For provisions requiring records, statements, and special returns, 
see the regulations relating to the particular tax.

                        tax returns or statements

                           General Requirement



Sec.  301.6011-1  General requirement of return, statement or list.

    (a) For provisions requiring returns, statements, or lists, see the 
regulations relating to the particular tax.
    (b) The Internal Revenue Service may prescribe in forms, 
instructions, or other appropriate guidance the information or 
documentation required to be included with any return or any statement 
required to be made or other document required to be furnished under any 
provision of the internal revenue laws or regulations.

[T.D. 9040, 68 FR 4921, Jan. 31, 2003]



Sec.  301.6011-2  Required use of magnetic media.

    (a) Meaning of terms. The following definitions apply for purposes 
of this section:
    (1) Magnetic media. The term magnetic media means any media 
permitted under applicable regulations, revenue procedures or 
publications, or, in the case of returns filed with the Social Security 
Administration, Social Security Administration publications. These 
generally include magnetic tape, tape cartridge, and diskette, as well 
as other media (such as electronic filing) specifically permitted under 
the applicable regulations, procedures, or publications.
    (2) Machine-readable paper form. The term ``machine-readable paper 
form'' means--
    (i) Optical-scan paper form; or
    (ii) Any other machine-readable paper form permitted under 
applicable

[[Page 24]]

regulations, revenue procedures, or Social Security Administration 
publications.
    (3) Person. The term ``person'' includes any person that is required 
to file a return that is described in paragraph (b) of this section. 
Thus, the term ``person'' includes the United States, a State, the 
District of Columbia, a foreign government, a political subdivision of a 
State or of a foreign government, or an international organization. In 
addition, in the case of an affiliated group of corporations filing a 
consolidated return, each member of the affiliated group is a separate 
person.
    (b) Returns required on magnetic media. (1) If the use of Form 1042-
S, 1094 series,1095-B, 1095-C, 1098, 1098-E, 1098-T, 1099 series, 5498 
series, 8027, W-2G, or other form treated as a form specified in this 
paragraph (b)(1) is required by the applicable regulations or revenue 
procedures for the purpose of making an information return, the 
information required by the form must be submitted on magnetic media, 
except as otherwise provided in paragraph (c) of this section. Returns 
on magnetic media must be made in accordance with applicable revenue 
procedures or publications (see Sec.  601.601(d)(2)(ii)(b) of this 
chapter). Pursuant to these procedures, the consent of the Commissioner 
of Internal Revenue (or other authorized officer or employee of the 
Internal Revenue Service) to a magnetic medium must be obtained by 
submitting Form 4419 (Application for Filing Information Returns 
Magnetically/Electronically) prior to submitting a return described in 
this paragraph (b)(1) on the magnetic medium.
    (2) If the use of Form W-2 (Wage and Tax Statement), Form 499R-2/W-
2PR (Withholding Statement (Puerto Rico)), Form W-2VI (U.S. Virgin 
Islands Wage and Tax Statement), Form W-2GU (Guam Wage and Tax 
Statement), Form W-2AS (American Samoa Wage and Tax Statement), or other 
form treated as a form specified in this paragraph (b)(2) is required 
for the purpose of making an information return, the information 
required by the form must be submitted on magnetic media, except as 
otherwise provided in paragraph (c) of this section. Returns described 
in this paragraph (b)(2) must be made in accordance with applicable 
Social Security Administration procedures or publications (which may be 
obtained from the local office of the Social Security Administration).
    (3) The Commissioner may prescribe by revenue procedure that 
additional forms are treated, for purposes of this section, as forms 
specified in paragraph (b)(1) or (b)(2) of this section.
    (c) Exceptions--(1) Low-volume filers/250-threshold--(i) In general. 
No person is required to file information returns on magnetic media 
unless the person is required to file 250 or more returns during the 
calendar year. Persons filing fewer than 250 returns during the calendar 
year may make the returns on the prescribed paper form, or, 
alternatively, such persons may make returns on magnetic media in 
accordance with paragraph (b) of this section.
    (ii) Machine-readable forms. Returns made on a paper form under this 
paragraph (c)(1) shall be machine-readable if applicable revenue 
procedures provide for a machine-readable paper form.
    (iii) No aggregation. Each type of information return described in 
paragraphs (b)(1) and (2) of this section is considered a separate 
return for purposes of this paragraph (c)(1). Therefore, the 250-
threshold applies separately to each type of form required to be filed.
    (iv) Examples. The provisions of paragraph (c)(1)(iii) of this 
section are illustrated by the following examples:

    Example 1. For the calendar year ending December 31, 1998, Company X 
is required to file 200 returns on Form 1099-INT and 350 returns on Form 
1099-MISC. Company X is not required to file Forms 1099-INT on magnetic 
media but is required to file Forms 1099-MISC on magnetic media.
    Example 2. During the calendar year ending December 31, 1998, 
Company Y has 275 employees in Puerto Rico and 50 employees in American 
Samoa. Company Y is required to file Forms 499R-2/W-2PR on magnetic 
media but is not required to file Forms W-2AS on magnetic media.
    Example 3. For the calendar year ending December 31, 1998, Company Z 
files 300 original returns on Form 1099-DIV and later files 70 corrected 
returns on Form 1099-DIV. Company Z is required to file the original 
returns on magnetic media. However, Company Z is not required to file 
the corrected returns on

[[Page 25]]

magnetic media because the corrected returns fall under the 250-
threshold. See Sec.  301.6721-1(a)(2)(ii).

    (2) Waiver. (i) The Commissioner may waive the requirements of this 
section if hardship is shown in a request for waiver filed in accordance 
with this paragraph (c)(2)(i). The principal factor in determining 
hardship will be the amount, if any, by which the cost of filing the 
information returns in accordance with this section exceeds the cost of 
filing the returns on other media. Notwithstanding the foregoing, if an 
employer is required to make a final return on Form 941, or a variation 
thereof, and expedited filing of Forms W-2, Forms 499R-2/W-2PR, Forms W-
2VI, Forms W-2GU, or Form W-2AS is required, the unavailability of the 
specifications for magnetic media filing will be treated as creating a 
hardship (see Sec.  31.6071(a)-1(a)(3)(ii) of this chapter). A request 
for waiver must be made in accordance with applicable revenue procedures 
or publications (see Sec.  601.601(d)(2)(ii)(b) of this chapter). 
Pursuant to these procedures, a request for waiver should be filed at 
least 45 days before the due date of the information return in order for 
the Service to have adequate time to respond to the request for waiver. 
The waiver will specify the type of information return and the period to 
which it applies and will be subject to such terms and conditions 
regarding the method of reporting as may be prescribed by the 
Commissioner.
    (ii) The Commissioner may prescribe rules that supplement the 
provisions of paragraph (c)(2)(i) of this section.
    (d) Paper form returns. Returns submitted on paper forms (whether or 
not machine-readable) permitted under paragraph (c) of this section 
shall be in accordance with applicable Internal Revenue Service or 
Social Security Administration procedures.
    (e) Applicability of current procedures. Until procedures are 
prescribed which further implement the mandatory filing on magnetic 
media provided by this section, a return to which this section applies 
shall be made in the manner and shall be subject to the requirements and 
conditions (including the requirement of applying for consent to the 
magnetic medium) prescribed in the regulations, revenue procedures and 
Social Security Administration publications relating to the filing of 
such return on magnetic media.
    (f) Failure to file. If a person fails to file an information return 
on magnetic media when required to do so by this section, the person is 
deemed to have failed to file the return. In addition, if a person 
making returns on a paper form under paragraph (c) of this section fails 
to file a return on machine-readable paper form when required to do so 
by this section, the person is deemed to have failed to file the return. 
See sections 6652, 6693, and 6721 for penalties for failure to file 
certain returns. See also section 6724 and the regulations under section 
6721 for the specific rules and limitations regarding the penalty 
imposed under section 6721 for failure to file on magnetic media.
    (g) Effective dates. (1) Except as otherwise provided in paragraph 
(g)(2) or (3) of this section, this section applies to returns required 
to be filed after December 31, 1986.
    (2) Paragraphs (a)(1), (b)(1), (b)(2), (c)(1)(i), (c)(1)(iii), 
(c)(1)(iv), (c)(2), (d), (e), and (f) of this section are effective for 
information returns required to be filed after December 31, 1996. For 
information returns required to be filed after December 31, 1989, and 
before January 1, 1997, see section 6011(e).
    (3) This section applies to returns on Forms 1098-E, ``Student Loan 
Interest Statement,'' and 1098-T, ``Tuition Statement,'' filed after 
December 31, 2003.

[T.D. 8081, 51 FR 10348, Mar. 25, 1986, as amended by T.D. 8097, 51 FR 
30352, Aug. 26, 1986; T.D. 8140, 52 FR 19137, May 21, 1987; T.D. 8636, 
60 FR 66142, Dec. 21, 1995; T.D. 8772, 63 FR 35519, June 30, 1998; T.D. 
8992, 67 FR 20907, Apr. 29, 2002; T.D. 9029, 67 FR 77687, Dec. 19, 2002; 
T.D. 9660, 79 FR 13231, Mar. 10, 2014; T.D. 9804, 81 FR 91768, Dec. 19, 
2016; T.D. 9923, 85 FR 74047, Nov. 19, 2020]



Sec.  301.6011-3  Required use of magnetic media for partnership returns.

    (a) Partnership returns required on magnetic media. If a partnership 
with more than 100 partners is required to file a partnership return 
pursuant to Sec.  1.6031(a)-1 of this chapter, the information required 
by the applicable forms and schedules must be filed on magnetic media, 
except as otherwise

[[Page 26]]

provided in paragraph (b) of this section. Returns filed on magnetic 
media must be made in accordance with applicable revenue procedures or 
publications. In prescribing revenue procedures or publications, the 
Commissioner may determine that partnerships will be required to use any 
one form of magnetic media filing. For example, the Commissioner may 
determine that partnerships with more than 100 partners must file their 
partnership returns electronically. In filing its return, a partnership 
must register to participate in the magnetic media filing program in the 
manner prescribed by the Internal Revenue Service in applicable revenue 
procedures or publications.
    (b) Waiver. The Commissioner may waive the requirements of this 
section if hardship is shown in a request for waiver filed in accordance 
with this paragraph (b). A determination of hardship will be based upon 
all of the facts and circumstances. One factor in determining hardship 
will be the reasonableness of the incremental cost to the partnership of 
complying with the magnetic media filing requirements. Other factors, 
such as equipment breakdowns or destruction of magnetic media filing 
equipment, also may be considered. A request for waiver must be made in 
accordance with applicable revenue procedures or publications. The 
waiver will specify the type of partnership return and the period to 
which it applies. The waiver will also be subject to such terms and 
conditions regarding the method of filing as may be prescribed by the 
Commissioner.
    (c) Failure to file. If a partnership fails to file a partnership 
return on magnetic media in the manner required and when required to do 
so by this section, the partnership will be deemed to have failed to 
file the return in the manner prescribed for purposes of the information 
return penalty under section 6721. See Sec.  301.6724-1(c)(3) for rules 
regarding the waiver of penalties for undue economic hardship relating 
to filing returns on magnetic media.
    (d) Meaning of terms. The following definitions apply for purposes 
of this section:
    (1) Magnetic media. The term magnetic media means any magnetic media 
permitted under applicable regulations, revenue procedures, or 
publications. These generally include magnetic tape, tape cartridge, and 
diskette, as well as other media (such as electronic filing) 
specifically permitted under the applicable regulations, procedures, or 
publications.
    (2) Partnership. The term partnership means a partnership as defined 
in Sec.  1.761-1(a) of this chapter.
    (3) Partner. The term partner means a member of a partnership as 
defined in section 7701(a)(2).
    (4) Partnership return. The term partnership return means a form in 
Series 1065 (including Form 1065, U.S. Partnership Return of Income, and 
Form 1065-B, U.S. Return of Income for Electing Large Partnerships), 
along with the corresponding Schedules K-1 and all other related forms 
and schedules that are required to be attached to the Series 1065 form.
    (5) Partnerships with more than 100 partners. A partnership has more 
than 100 partners if, over the course of the partnership's taxable year, 
the partnership had more than 100 partners, regardless of whether a 
partner was a partner for the entire year or whether the partnership had 
over 100 partners on any particular day in the year. For purposes of 
this paragraph (d)(5), however, only those persons having a direct 
interest in the partnership must be considered partners for purposes of 
determining the number of partners during the partnership's taxable 
year.
    (e) Examples. The following examples illustrate the provisions of 
paragraph (d)(5) of this section. In the examples, the partnerships 
utilize the calendar year, and the taxable year in question is 2000:

    Example 1. Partnership P had five general partners and 90 limited 
partners on January 1, 2000. On March 15, 2000, 10 more limited partners 
acquired an interest in P. On September 29, 2000, the 10 newest partners 
sold their individual partnership interests to C, a corporation which 
was one of the original 90 limited partners. On December 31, 2000, P had 
the same five general partners and 90 limited partners it had on January 
1, 2000. P had a total of 105 partners over the course of partnership 
taxable year 2000. Therefore, P must

[[Page 27]]

file its 2000 partnership return on magnetic media.
    Example 2. Partnership Q is a general partnership that had 95 
partners on January 1, 2000. On March 15, 2000, 10 partners sold their 
individual partnership interests to corporation D, which was not 
previously a partner in Q. On September 29, 2000, corporation D sold 
one-half of its partnership interest in equal shares to five 
individuals, who were not previously partners in Q. On December 31, 
2000, Q had a total of 91 partners, and on no date in the year did Q 
have more than 100 partners. Over the course of the year, however, Q had 
101 partners. Therefore, Q must file its 2000 partnership return on 
magnetic media.
    Example 3. Partnership G is a general partnership with 100 partners 
on January 1, 2000. There are no new partners added to G in 2000. One of 
G's partners, A, is a partnership with 53 partners. A is one partner, 
regardless of the number of partners A has. Therefore, G has 100 
partners and is not required to file its 2000 partnership return on 
magnetic media.

    (f) Effective date. In general, this section applies to partnership 
returns for taxable years ending on or after December 31, 2000. However, 
electing large partnerships under section 775 and partnerships using 
foreign addresses on their Series 1065 forms are not required to file 
using magnetic media for taxable years ending before January 1, 2001.

[T.D. 8843, 64 FR 61503, Nov. 12, 1999]



Sec.  301.6011-5  Required use of magnetic media for corporate 
income tax returns.

    (a) Corporate income tax returns required on magnetic media--(1) A 
corporation required to file a corporate income tax return on Form 1120, 
``U.S. Corporation Income Tax Return,'' under Sec.  1.6012-2 of this 
chapter must file its corporate income tax return on magnetic media if 
the corporation is required by the Internal Revenue Code or regulations 
to file at least 250 returns during the calendar year. Returns filed on 
magnetic media must be made in accordance with applicable revenue 
procedures, publications, forms, or instructions. In prescribing revenue 
procedures, publications, forms, or instructions, the Commissioner may 
direct the type of magnetic media filing. (See Sec.  601.601(d)(2) of 
this chapter.)
    (2) All members of a controlled group of corporations must file 
their corporate income tax returns on magnetic media if the aggregate 
number of returns required to be filed by the controlled group of 
corporations is at least 250.
    (b) Waiver. The Commissioner may grant waivers of the requirements 
of this section in cases of undue hardship. A request for waiver must be 
made in accordance with applicable revenue procedures or publications. 
The waiver also will be subject to the terms and conditions regarding 
the method of filing as may be prescribed by the Commissioner.
    (c) Failure to file. If a corporation fails to file a corporate 
income tax return on magnetic media when required to do so by this 
section, the corporation is deemed to have failed to file the return. 
(See section 6651 for the addition to tax for failure to file a return). 
In determining whether there is reasonable cause for failure to file the 
return, Sec.  301.6651-1(c) and rules similar to the rules in Sec.  
301.6724-1(c)(3) (undue economic hardship related to filing information 
returns on magnetic media) will apply.
    (d) Meaning of terms. The following definitions apply for purposes 
of this section:
    (1) Magnetic media. The term magnetic media means any magnetic media 
permitted under applicable regulations, revenue procedures, or 
publications. These generally include magnetic tape, tape cartridge, and 
diskette, as well as other media, such as electronic filing, 
specifically permitted under the applicable regulations, procedures, 
publications, forms, or instructions. (See Sec.  601.601(d)(2) of this 
chapter).
    (2) Corporation. The term corporation means a corporation as defined 
in section 7701(a)(3).
    (3) Controlled group of corporations. The term controlled group of 
corporations means a group of corporations as defined in section 
1563(a).
    (4) Corporate income tax return. The term corporate income tax 
return means a Form 1120, ``U.S. Corporation Income Tax Return,'' along 
with all other related forms, schedules, and statements that are 
required to be attached to the Form 1120, and all members of the Form 
1120 series of returns, including amended and superseding returns.

[[Page 28]]

    (5) Determination of 250 returns. For purposes of this section, a 
corporation or controlled group of corporations is required to file at 
least 250 returns if, during the calendar year ending with or within the 
taxable year of the corporation or the controlled group, the corporation 
or the controlled group is required to file at least 250 returns of any 
type, including information returns (for example, Forms W-2, Forms 
1099), income tax returns, employment tax returns, and excise tax 
returns. In the case of a short year return, a corporation is required 
to file at least 250 returns if, during the calendar year which includes 
the short taxable year of the corporation, the corporation is required 
to file at least 250 returns of any type, including information returns 
(for example, Forms W-2, Forms 1099), income tax returns, employment tax 
returns, and excise tax returns. If the corporation is a member of a 
controlled group, the determination of the number of returns includes 
all returns required to be filed by all members of the controlled group 
during the calendar year ending with or within the taxable year of the 
controlled group.
    (e) Example. The following example illustrates the provisions of 
paragraph (d)(5) of this section:

    Example. The taxable year of Corporation X, a fiscal year taxpayer 
with assets in excess of $10 million, ends on September 30. During the 
calendar year ending December 31, 2007, X was required to file one Form 
1120, ``U.S. Corporation Income Tax Return,'' 100 Forms W-2, ``Wage and 
Tax Statement,'' 146 Forms 1099-DIV, ``Dividends and Distributions,'' 
one Form 940, ``Employer's Annual Federal Unemployment (FUTA) Tax 
Return,'' and four Forms 941, ``Employer's Quarterly Federal Tax 
Return.'' Because X is required to file 252 returns during the calendar 
year that ended within its taxable year ending September 30, 2008, X is 
required to file its Form 1120 electronically for its taxable year 
ending September 30, 2008.

    (f) Effective/applicability dates. This section applies to corporate 
income tax returns for corporations that report total assets at the end 
of the corporation's taxable year that equal or exceed $10 million on 
Schedule L of their Form 1120, for taxable years ending on or after 
December 31, 2006, except for the application of the short year rules in 
paragraph (d)(5) of this section, which is applicable for taxable years 
ending on or after November 13, 2007.

[T.D. 9363, 72 FR 63811, Nov. 13, 2007]



Sec.  301.6011-6  Statement of series and series organizations [Reserved]



Sec.  301.6011-7  Specified tax return preparers required to file 
individual income tax returns using magnetic media.

    (a) Definitions. (1) Magnetic media. For purposes of this section, 
the term magnetic media has the same meaning as in Sec.  301.6011-
2(a)(1).
    (2) Individual income tax return. The term individual income tax 
return means any return of tax imposed by subtitle A on individuals, 
estates, and trusts.
    (3) Specified tax return preparer. The term specified tax return 
preparer means any person who is a tax return preparer, as defined in 
section 7701(a)(36) and Sec.  301.7701-15, unless that person reasonably 
expects to file 10 or fewer individual income tax returns in a calendar 
year. If a person who is a tax return preparer is a member of a firm, 
that person is a specified tax return preparer unless the person's firm 
members in the aggregate reasonably expect to file 10 or fewer 
individual income tax returns in a calendar year. Solely for the 2011 
calendar year, a person will not be considered a specified tax return 
preparer if that person reasonably expects, or if the person is a member 
of a firm, the firm's members in the aggregate reasonably expect, to 
file fewer than 100 individual income tax returns in the 2011 calendar 
year. Solely for purposes of this section, a person is considered a 
member of a firm if the person is an employee, agent, member, partner, 
shareholder, or other equity holder of the firm.
    (4) File or Filed. (i) For purposes of section 6011(e)(3) and these 
regulations only, an individual income tax return is considered to be 
``filed'' by a tax return preparer or a specified tax return preparer if 
the preparer submits the individual income tax return to the IRS on the 
taxpayer's behalf, either electronically (by e-file or other magnetic 
media) or in non-electronic (paper) form. Submission of an individual 
income tax return by a tax return preparer or a specified tax return 
preparer

[[Page 29]]

in non-electronic form includes the transmission, sending, mailing or 
otherwise delivering of the paper individual income tax return to the 
IRS by the preparer, any member, employee, or agent of the preparer, or 
any member, employee, or agent of the preparer's firm.
    (ii) An individual income tax return will not be considered to be 
filed, as defined in paragraph (a)(4)(i) of this section, by a tax 
return preparer or specified tax return preparer if the tax return 
preparer or specified tax return preparer who prepared the return 
obtains, on or prior to the date the individual income tax return is 
filed, a hand-signed and dated statement from the taxpayer (by either 
spouse if a joint return) that states the taxpayer chooses to file the 
individual income tax return in paper format, and that the taxpayer, and 
not the preparer, will submit the paper individual income tax return to 
the IRS. The IRS may provide guidance through forms, instructions or 
other appropriate guidance regarding how tax return preparers and 
specified tax return preparers can document a taxpayer's choice to file 
an individual income tax return in paper format.
    (iii) The rules contained in this section do not alter or affect a 
taxpayer's obligation to file returns under any other provision of law. 
The definition of file or filed by a tax return preparer or specified 
tax return preparer contained in paragraph (a)(4)(i) of this section 
applies only for the purposes of section 6011(e)(3) and these 
regulations and does not apply for any other purpose under any other 
provision of law.
    (b) Magnetic media filing requirement. Except as provided in 
paragraphs (a)(4)(ii) and (c) of this section, any individual income tax 
return prepared by a specified tax return preparer in a calendar year 
must be filed on magnetic media if the return is filed by the specified 
tax return preparer.
    (c) Exclusions. The following exclusions apply to the magnetic media 
filing requirement in this section:
    (1) Undue hardship waiver. The IRS may grant a waiver of the 
requirement of this section in cases of undue hardship. An undue 
hardship waiver may be granted upon application by a specified tax 
return preparer consistent with instructions provided in published 
guidance and as prescribed in relevant forms and instructions. A 
determination of undue hardship will be based upon all facts and 
circumstances. The undue hardship waiver provided to a specified tax 
return preparer may apply to a series or class of individual income tax 
returns or for a specified period of time, subject to the terms and 
conditions regarding the method of filing prescribed in such waiver.
    (2) Administrative exemptions. The IRS may provide administrative 
exemptions from the requirement of this section for certain classes of 
specified tax return preparers, or regarding certain types of individual 
income tax returns, as the IRS determines necessary to promote effective 
and efficient tax administration. The IRS may provide administrative 
exemptions and any criteria or procedures necessary to claim an 
administrative exemption through forms, instructions, or other 
appropriate guidance.
    (d) Reasonably expect to file--(1) In general. The determination of 
whether a tax return preparer reasonably expects, or if the preparer is 
a member of a firm, the firm's members in the aggregate reasonably 
expect, to file 10 or fewer individual income tax returns (or, in the 
case of the 2011 calendar year, fewer than 100 individual income tax 
returns) is made by adding together all of the individual income tax 
returns the tax return preparer and, if the preparer is a member of a 
firm, the firm's members reasonably expect to prepare and file in the 
calendar year. In making this determination, individual income tax 
returns that the tax return preparer reasonably expects will not be 
subject to the magnetic media filing requirement under paragraph 
(a)(4)(ii) of this section or are excluded from the requirement under 
(c)(2) of this section are not to be counted. Individual income tax 
returns excluded from the magnetic media filing requirement under 
paragraph (c)(1) of this section are to be counted for purposes of 
making this determination.
    (2) Time for making determination of reasonable expectations. The 
determination regarding reasonable expectations is made separately for 
each calendar

[[Page 30]]

year in order to ascertain whether the magnetic media filing requirement 
applies to a tax return preparer for that year. For each calendar year, 
the determination of whether a tax return preparer and the preparer's 
firm reasonably expect to file 10 or fewer individual income tax returns 
(or, in the case of the 2011 calendar year, fewer than 100 individual 
income tax returns) is made based on all relevant, objective, and 
demonstrable facts and circumstances prior to the time the tax return 
preparer and the preparer's firm first file an individual income tax 
return during the calendar year.
    (e) Examples. The following examples illustrate the rules of 
paragraphs (a) through (d) of this section.

    Example 1. Tax Return Preparer A is an accountant who recently 
graduated from college with an accounting degree and has opened his own 
practice. A has not prepared individual income tax returns for 
compensation in the past and does not plan to focus his practice on 
individual income tax return preparation. A intends instead to focus his 
practice on providing specialized accounting services to certain health 
care service providers. A has no plans to, and does not, employ or 
engage any other tax return preparers. A estimates that he may be asked 
by some clients to prepare and file their individual income tax returns 
for compensation, but A expects that the number of people who do ask him 
to provide this service will be no more than seven in 2012. In fact, A 
actually prepares and files six paper Forms 1040 (U.S. Individual Income 
Tax Return) in 2012. Due to a growing client base, and based upon his 
experience in 2012, A expects that the number of individual income tax 
returns he will prepare and file in 2013 will at least double, 
estimating he will prepare and file 12 Form 1040 returns in 2013. A does 
not qualify as a specified tax return preparer for 2012 because A 
reasonably expects to file 10 or fewer returns (seven) in 2012. 
Consequently, A is not required to electronically file the individual 
income tax returns he prepares and files in 2012. A's expectation is 
reasonable based on his business projections, individual income tax 
return filing history, and staffing decisions. A is a specified tax 
return preparer in 2013, however, because based on those same factors A 
reasonably expects to file more than 10 individual income tax returns 
(12) during that calendar year. A, therefore, must electronically file 
all individual income tax returns that A prepares and files in 2013 that 
are not otherwise excluded from the electronic filing requirement.
    Example 2. Same facts as in Example 1, except three of Tax Return 
Preparer A's clients specifically chose to have A prepare their 
individual income tax returns in paper format in 2012 with the clients 
mailing their respective returns to the IRS. A expects that these three 
clients will similarly choose to have him prepare their returns in paper 
format in 2013, with the clients being responsible for mailing their 
returns to the IRS. A is not required to electronically file these three 
returns in 2013 because the taxpayers chose to file their returns in 
paper format. A obtained a hand-signed and dated statement from each of 
those taxpayers, indicating that they chose to file their returns in 
paper format. These three individual income tax returns are not counted 
in determining how many individual income tax returns A reasonably 
expects to file in 2013. Because the total number of individual income 
tax returns A reasonably expects to file in 2013 (nine) does not exceed 
10, A is not a specified tax return preparer for calendar year 2013, and 
A is not required to electronically file any individual income tax 
return that he prepares and files in 2013.
    Example 3. Tax Return Preparer B is a solo general practice attorney 
in a small county. Her practice includes the preparation of wills and 
assisting executors in administering estates. As part of her practice, B 
infrequently prepares and files Forms 1041 (U.S. Income Tax Return for 
Estates and Trusts) for executors. In the past three years, she prepared 
and filed an average of five Forms 1041 each year and never exceeded 
more than seven Forms 1041 in any year. Based on B's prior experience 
and her estimate for 2012, made prior to the time she first files an 
individual income tax return in 2012, she reasonably expects to prepare 
and file no more than five Forms 1041 in 2012. Due to the unforeseen 
deaths of several of her clients in late 2011, B actually prepares and 
files 12 Forms 1041 in 2012. B does not find out about these deaths 
until after she has already filed the first Form 1041 in 2012 for 
another client. B is not required to electronically file these returns 
in 2012. She does not qualify as a specified tax return preparer for 
calendar year 2012 because prior to the time she filed the first Form 
1041 in 2012, she reasonably expected to file 10 or fewer individual 
income tax returns in 2012.
    Example 4. Same facts as Example 3, except, in addition to the five 
Forms 1041 that she expects to prepare and file in 2012, Tax Return 
Preparer B also expects to prepare and file 10 paper Forms 1040 (U.S. 
Individual Income Tax Return) in 2012, based upon the requests that she 
has received from some of her clients. Because the total number of 
individual income tax returns B reasonably expects to file in 2012 
(fifteen) exceeds 10, B is a specified tax return preparer for calendar 
year 2012, and B must electronically file all individual income tax 
returns that B prepares and files in 2012 that are not otherwise

[[Page 31]]

excluded from the electronic filing requirement.
    Example 5. Firm X consists of two tax return preparers, Tax Return 
Preparer C who owns Firm X, and Tax Return Preparer D who is employed by 
C in Firm X. Based upon the firm's experience over the past three years, 
C and D reasonably expect to file nine and ten individual income tax 
returns for compensation, respectively, in 2012. Both C and D must 
electronically file the individual income tax returns that they prepare 
in 2012, unless the returns are otherwise excluded from the electronic 
filing requirement, because they are members of the same firm and the 
aggregated total of individual income tax returns that they reasonably 
expect to file in 2012 (nineteen), exceeds 10 individual income tax 
returns.

    (f) Additional guidance. The IRS may implement the requirements of 
this section through additional guidance, including by revenue 
procedures, notices, publications, forms and instructions, including 
those issued electronically.
    (g) Effective/applicability date. This section is effective on March 
30, 2011, and applicable to individual income tax returns filed after 
December 31, 2010.

[T.D. 9518, 76 FR 17528, Mar. 30, 2011]



Sec.  301.6011(g)-1  Disclosure by taxable party to the tax-exempt entity.

    (a) Requirement of disclosure--(1) In general. Except as provided in 
paragraph (d)(2) of this section, any taxable party (as defined in 
paragraph (c) of this section) to a prohibited tax shelter transaction 
(as defined in section 4965(e) and Sec.  53.4965-3 of this chapter) must 
disclose by statement to each tax-exempt entity (as defined in section 
4965(c) and Sec.  53.4965-2 of this chapter) that the taxable party 
knows or has reason to know is a party to such transaction (as defined 
in paragraph (b) of this section) that the transaction is a prohibited 
tax shelter transaction.
    (2) Determining whether a taxable party knows or has reason to know. 
Whether a taxable party knows or has reason to know that a tax-exempt 
entity is a party to a prohibited tax shelter transaction is based on 
all the facts and circumstances. If the taxable party knows or has 
reason to know that a prohibited tax shelter transaction involves a tax-
exempt, tax indifferent or tax-favored entity, relevant factors for 
determining whether the taxable party knows or has reason to know that a 
specific tax-exempt entity is a party to the transaction include--
    (i) The extent of the efforts made to determine whether a tax-exempt 
entity is facilitating the transaction by reason of its tax-exempt, tax 
indifferent or tax-favored status (or is identified in published 
guidance, by type, class or role, as a party to the transaction); and
    (ii) If a tax-exempt entity is facilitating the transaction by 
reason of its tax-exempt, tax indifferent or tax-favored status (or is 
identified in published guidance, by type, class or role, as a party to 
the transaction), the extent of the efforts made to determine the 
identity of the tax-exempt entity.
    (b) Definition of tax-exempt party to a prohibited tax shelter 
transaction. For purposes of section 6011(g), a tax-exempt entity is a 
party to a prohibited tax shelter transaction if the entity is defined 
as such under Sec.  53.4965-4 of this chapter.
    (c) Definition of taxable party--(1) In general. For purposes of 
this section, the term taxable party means--
    (i) A person who has entered into and participates or expects to 
participate in the transaction under Sec. Sec.  1.6011-4(c)(3)(i)(A), 
(B), or (C), 20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 
56.6011-4 of this chapter; or
    (ii) A person who is designated as a taxable party by the Secretary 
in published guidance.
    (2) Special rules--(i) Certain listed transactions. If a transaction 
that was otherwise not a prohibited tax shelter transaction becomes a 
listed transaction after the filing of a person's tax return (including 
an amended return) reflecting either tax consequences or a tax strategy 
described in the published guidance listing the transaction (or a tax 
benefit derived from tax consequences or a tax strategy described in the 
published guidance listing the transaction), the person is a taxable 
party beginning on the date the transaction is described as a listed 
transaction in published guidance.
    (ii) Persons designated as non-parties. Published guidance may 
identify which persons, by type, class or role, will not be treated as a 
party to a prohibited

[[Page 32]]

tax shelter transaction for purposes of section 6011(g).
    (d) Time for providing disclosure statement--(1) In general. A 
taxable party to a prohibited tax shelter transaction must make the 
disclosure required by this section to each tax-exempt entity that the 
taxable party knows or has reason to know is a party to the transaction 
within 60 days after the last to occur of--
    (i) The date the person becomes a taxable party to the transaction 
within the meaning of paragraph (c) of this section;
    (ii) The date the taxable party knows or has reason to know that the 
tax-exempt entity is a party to the transaction within the meaning of 
paragraph (b) of this section; or
    (iii) July 6, 2010.
    (2) Termination of a disclosure obligation. A person shall not be 
required to provide the disclosure otherwise required by this section if 
the person does not know or have reason to know that the tax-exempt 
entity is a party to the transaction within the meaning of paragraph (b) 
of this section on or before the first date on which the transaction is 
required to be disclosed by the person under Sec. Sec.  1.6011-4, 
20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of 
this chapter.
    (3) Disclosure is not required with respect to any prohibited tax 
shelter transaction entered into by a tax-exempt entity on or before May 
17, 2006.
    (e) Frequency of disclosure. One disclosure statement is required 
per tax-exempt entity per transaction. See paragraph (h) of this section 
for rules relating to designation agreements.
    (f) Form and content of disclosure statement. The statement 
disclosing to the tax-exempt entity that the transaction is a prohibited 
tax shelter transaction must be a written statement that--
    (1) Identifies the type of prohibited tax shelter transaction 
(including the published guidance citation for a listed transaction); 
and
    (2) States that the tax-exempt entity's involvement in the 
transaction may subject either it or its entity manager(s) or both to 
excise taxes under section 4965 and to disclosure obligations under 
section 6033(a) of the Internal Revenue Code.
    (g) To whom disclosure is made. The disclosure statement must be 
provided--
    (1) In the case of a non-plan entity as defined in Sec.  53.4965-
2(b) of this chapter, to--
    (i) Any entity manager of the tax-exempt entity with authority or 
responsibility similar to that exercised by an officer, director or 
trustee of an organization; or
    (ii) If a person described in paragraph (g)(1)(i) of this section is 
not known, to the primary contact on the transaction.
    (2) In the case of a plan entity as defined in Sec.  53.4965-2(c) of 
this chapter, including a fully self-directed qualified plan, IRA, or 
other savings arrangement, to any entity manager of the plan entity who 
approved or otherwise caused the entity to become a party to the 
prohibited tax shelter transaction.
    (h) Designation agreements. If more than one taxable party is 
required to disclose a prohibited tax shelter transaction under this 
section, the taxable parties may designate by written agreement a single 
taxable party to disclose the transaction. The transaction must then be 
disclosed in accordance with this section. The designation of one 
taxable party to disclose the transaction does not relieve the other 
taxable parties of their obligation to disclose the transaction to a 
tax-exempt entity that is a party to the transaction in accordance with 
this section, if the designated taxable party fails to disclose the 
transaction to the tax-exempt entity in a timely manner.
    (i) Penalty for failure to provide disclosure statement. See section 
6707A for the penalty applicable to the failure to disclose a prohibited 
tax shelter transaction in accordance with this section.
    (j) Effective date/applicability date. This section will apply with 
respect to transactions entered into by a tax-exempt entity after May 
17, 2006.

[T.D. 9492, 75 FR 38709, July 6, 2010]

[[Page 33]]

                           Income Tax Returns



Sec.  301.6012-1  Persons required to make returns of income.

    For provisions with respect to persons required to make returns of 
income, see Sec. Sec.  1.6012-1 to 1.6012-4, inclusive, of this chapter 
(Income Tax Regulations).



Sec.  301.6013-1  Joint returns of income tax by husband and wife.

    For provisions with respect to joint returns of income tax by 
husband and wife, see Sec. Sec.  1.6013-1 to 1.6013-7, inclusive, of 
this chapter (Income Tax Regulations).

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7670, 45 FR 6932, Jan. 
31, 1980]



Sec.  301.6014-1  Income tax return--tax not computed by taxpayer.

    For provisions relating to the election not to show on an income tax 
return the amount of tax due in connection therewith, see Sec. Sec.  
1.6014-1 and 1.6014-2 of this chapter (Income Tax Regulations).

[T.D. 7102, 36 FR 5498, Mar. 24, 1971]



Sec.  301.6015-1  Declaration of estimated income tax by individuals.

    For provisions relating to requirements of declarations of estimated 
income tax by individuals, see Sec. Sec.  1.6015 (a)-1 through 1.6015 
(j)-1 of this chapter (Income Tax Regulations).

[T.D. 7427, 41 FR 34033, Aug. 12, 1976]



Sec.  301.6016-1  Declarations of estimated income tax by corporations.

    For provisions concerning the requirement of declarations of 
estimated income tax by corporations, see Sec. Sec.  1.6016-1 to 1.6016-
4, inclusive, of this chapter (Income Tax Regulations).



Sec.  301.6017-1  Self-employment tax returns.

    For provisions relating to the requirement of self-employment tax 
returns, see Sec.  1.6017-1 of this chapter (Income Tax Regulations).

                       Estate and Gift Tax Returns



Sec.  301.6018-1  Estate tax returns.

    For provisions relating to requirement of estate tax returns, see 
Sec. Sec.  20.6018-1 to 20.6018-4, inclusive, of this chapter (Estate 
Tax Regulations).



Sec.  301.6019-1  Gift tax returns.

    For provisions relating to requirement of gift tax returns, see 
Sec. Sec.  25.6019-1 to 25.6019-4, inclusive, of this chapter (Gift Tax 
Regulations).

                        Miscellaneous Provisions



Sec.  301.6020-1  Returns prepared or executed by the Commissioner 
or other Internal Revenue Officers.

    (a) Preparation of returns--(1) In general. If any person required 
by the Internal Revenue Code or by the regulations to make a return 
fails to make such return, it may be prepared by the Commissioner or 
other authorized Internal Revenue Officer or employee provided such 
person consents to disclose all information necessary for the 
preparation of such return. The return upon being signed by the person 
required to make it shall be received by the Commissioner as the return 
of such person.
    (2) Responsibility of person for whom return is prepared. A person 
for whom a return is prepared in accordance with paragraph (a)(1) of 
this section shall for all legal purposes remain responsible for the 
correctness of the return to the same extent as if the return had been 
prepared by him.
    (b) Execution of returns--(1) In general. If any person required by 
the Internal Revenue Code or by the regulations to make a return (other 
than a declaration of estimated tax required under section 6654 or 6655) 
fails to make such return at the time prescribed therefore, or makes, 
willfully or otherwise, a false, fraudulent or frivolous return, the 
Commissioner or other authorized Internal Revenue Officer or employee 
shall make such return from his own knowledge and from such information 
as he can obtain through testimony or otherwise. The Commissioner or 
other authorized Internal Revenue Officer or employee may make the 
return by gathering information and making

[[Page 34]]

computations through electronic, automated or other means to make a 
determination of the taxpayer's tax liability.
    (2) Form of the return. A document (or set of documents) signed by 
the Commissioner or other authorized Internal Revenue Officer or 
employee shall be a return for a person described in paragraph (b)(1) of 
this section if the document (or set of documents) identifies the 
taxpayer by name and taxpayer identification number, contains sufficient 
information from which to compute the taxpayer's tax liability, and 
purports to be a return. A Form 13496, ``IRC Section 6020(b) 
Certification,'' or any other form that an authorized Internal Revenue 
Officer or employee signs and uses to identify a set of documents 
containing the information set forth in this paragraph as a section 
6020(b) return, and the documents identified, constitute a return under 
section 6020(b). A return may be signed by the name or title of an 
Internal Revenue Officer or employee being handwritten, stamped, typed, 
printed or otherwise mechanically affixed to the return, so long as that 
name or title was placed on the document to signify that the Internal 
Revenue Officer or employee adopted the document as a return for the 
taxpayer. The document and signature may be in written or electronic 
form.
    (3) Status of returns. Any return made in accordance with paragraph 
(b)(1) of this section and signed by the Commissioner or other 
authorized Internal Revenue Officer or employee shall be good and 
sufficient for all legal purposes except insofar as any Federal statute 
expressly provides otherwise. Furthermore, the return shall be treated 
as the return filed by the taxpayer for purposes of determining the 
amount of the addition to tax under sections 6651(a)(2) and (3).
    (4) Deficiency procedures. For deficiency procedures in the case of 
income, estate, and gift taxes, see sections 6211 through 6216, 
inclusive, and Sec. Sec.  301.6211-1 through 301.6215-1, inclusive.
    (5) Employment status procedures. For pre-assessment procedures in 
employment taxes cases involving worker classification, see section 7436 
(proceedings for determination of employment status).
    (6) Examples. The application of this paragraph (b) is illustrated 
by the following examples:

    Example 1. Individual A, a calendar-year taxpayer, fails to file his 
2003 return. Employee X, an Internal Revenue Service employee, opens an 
examination related to A's 2003 taxable year. At the end of the 
examination, X completes a Form 13496, ``IRC Section 6020(b) 
Certification,'' and attached to it the documents listed on the form. 
Those documents explain examination changes and provide sufficient 
information to compute A's tax liability. The Form 13496 provides that 
the Service employee identified on the form certifies that the attached 
pages constitute a return under section 6020(b). When X signs the 
certification package, the package constitutes a return under paragraph 
(b) of this section because the package identifies A by name, contains 
A's taxpayer identifying number (TIN), has sufficient information to 
compute A's tax liability, and contains a statement stating that it 
constitutes a return under section 6020(b). In addition, the Service 
will determine the amount of the additions to tax under section 
6651(a)(2) by treating the section 6020(b) return as the return filed by 
the taxpayer. Likewise, the Service will determine the amount of any 
addition to tax under section 6651(a)(3), which arises only after notice 
and demand for payment, by treating the section 6020(b) return as the 
return filed by the taxpayer.
    Example 2. Same facts as in Example 1, except that, after performing 
the examination, X does not compile any examination documents together 
as a related set of documents. X also does not sign and complete the 
Form 13496 nor associate the forms explaining examination changes with 
any other document. Because X did not sign any document stating that it 
constitutes a return under section 6020(b) and the documents otherwise 
do not purport to be a section 6020(b) return, the documents do not 
constitute a return under section 6020(b). Therefore, the Service cannot 
determine the section 6651(a)(2) addition to tax against nonfiler A for 
A's 2003 taxable year on the basis of those documents.
    Example 3. Individual C, a calendar-year taxpayer, fails to file his 
2003 return. The Service determines through its automated internal 
matching programs that C received reportable income and failed to file a 
return. The Service, again through its automated systems, generates a 
Letter 2566, ``30 Day Proposed Assessment (SFR-01) 910 SC/CG.'' This 
letter contains C's name, TIN, and has sufficient information to compute 
C's tax liability. Contemporaneous with the creation of the Letter 2566, 
the Service, through its

[[Page 35]]

automated system, electronically creates and stores a certification 
stating that the electronic data contained as part of C's account 
constitutes a valid return under section 6020(b) as of that date. 
Further, the electronic data includes the signature of the Service 
employee authorized to sign the section 6020(b) return upon its 
creation. Although the signature is stored electronically, it can appear 
as a printed name when the Service requests a paper copy of the 
certification. The electronically created information, signature, and 
certification is a return under section 6020(b). The Service will treat 
that return as the return filed by the taxpayer in determining the 
amount of the section 6651(a)(2) addition to tax with respect to C's 
2003 taxable year. Likewise, the Service will determine the amount of 
any addition to tax under section 6651(a)(3), which arises only after 
notice and demand for payment, by treating the section 6020(b) return as 
the return filed by the taxpayer.
    Example 4. Corporation M, a quarterly taxpayer, fails to file a Form 
941, ``Employer's Quarterly Federal Tax Return,'' for the second quarter 
of 2004. Q, a Service employee authorized to sign returns under section 
6020(b), prepares a Form 941 by hand, stating Corporation M's name, 
address, and TIN. Q completes the Form 941 by entering line item 
amounts, including the tax due, and then signs the document. The Form 
941 that Q prepared and signed constitutes a section 6020(b) return 
because the Form 941 purports to be a return under section 6020(b), the 
form contains M's name and TIN, and it includes sufficient information 
to compute M's tax liability for the second quarter of 2004.

    (c) Cross references--(1) For provisions that a return executed by 
the Commissioner or other authorized Internal Revenue Officer or 
employee will not start the running of the period of limitations on 
assessment and collection, see section 6501(b)(3) and Sec.  301.6501(b)-
1(e).
    (2) For determining the period of limitations on collection after 
assessment of a liability on a return executed by the Commissioner or 
other authorized Internal Revenue Officer or employee, see section 6502 
and Sec.  301.6502-1.
    (3) For additions to the tax and additional amounts for failure to 
file returns, see section 6651 and Sec.  301.6651-1, and section 6652 
and Sec.  301.6652-1, respectively.
    (4) For additions to the tax for failure to pay tax, see section 
6651 and Sec.  301.6651-1.
    (5) For criminal penalties for willful failure to make returns, see 
sections 7201, 7202 and 7203.
    (6) For criminal penalties for willfully making false or fraudulent 
returns, see sections 7206 and 7207.
    (7) For civil penalties for filing frivolous income tax returns, see 
section 6702.
    (8) For authority to examine books and witnesses, see section 7602 
and Sec.  301.7602-1.
    (d) Effective/Applicability date. This section is applicable on 
February 20, 2008.

[T.D. 9380, 73 FR 9189, Feb. 20, 2008]



Sec.  301.6021-1  Listing by district directors of taxable objects 
owned by nonresidents of internal revenue districts.

    Whenever there are in any internal revenue district any articles 
subject to tax, which are not owned or possessed by or under the care or 
control of any person within such district, and of which no list has 
been transmitted to the district director, as required by law or by 
regulations prescribed pursuant to law, the district director, or other 
authorized internal revenue officer or employee, shall enter the 
premises where such articles are situated, shall make such inspection of 
the articles as may be necessary, and shall make lists of the same 
according to the forms prescribed. Such lists, being subscribed by the 
district director or other authorized internal revenue officer or 
employee, shall be sufficient lists of such articles for all purposes.

                           information returns

      Information Concerning Persons Subject to Special Provisions



Sec.  301.6031(a)-1  Return of partnership income.

    For provisions relating to the requirement of returns of partnership 
income, see Sec.  1.6031(a)-1 of this chapter.

[T.D. 8841, 64 FR 61502, Nov. 12, 1999]



Sec.  301.6032-1  Returns of banks with respect to common trust funds.

    For provisions relating to requirement of returns of banks with 
respect

[[Page 36]]

to common trust funds, see Sec.  1.6032-1 of this chapter (Income Tax 
Regulations).



Sec.  301.6033-1  Returns by exempt organizations.

    For provisions relating to the requirement of returns by exempt 
organizations, see Sec.  1.6033-1 of this chapter (Income Tax 
Regulations).



Sec.  301.6033-4  Required use of magnetic media for returns by organizations 
required to file returns under section 6033.

    (a) Returns by organizations required to file returns under section 
6033 on magnetic media. An organization required to file a return under 
section 6033 on Form 990, ``Return of Organization Exempt from Income 
Tax,'' or Form 990-PF, ``Return of Private Foundation or Section 
4947(a)(1) Trust Treated as a Private Foundation,'' must file its Form 
990 or 990-PF on magnetic media if the organization is required by the 
Internal Revenue Code or regulations to file at least 250 returns during 
the calendar year ending with or within its taxable year. Returns filed 
on magnetic media must be made in accordance with applicable revenue 
procedures, publications, forms, or instructions. In prescribing revenue 
procedures, publications, forms, or instructions, the Commissioner may 
direct the type of magnetic media filing. (See Sec.  601.601(d)(2) of 
this chapter).
    (b) Waiver. The Commissioner may grant waivers of the requirements 
of this section in cases of undue hardship. A request for waiver must be 
made in accordance with applicable revenue procedures or publications. 
The waiver also will be subject to the terms and conditions regarding 
the method of filing as may be prescribed by the Commissioner.
    (c) Failure to file. If an organization required to file a return 
under section 6033 fails to file an information return on magnetic media 
when required to do so by this section, the organization is deemed to 
have failed to file the return. (See section 6652 for the addition to 
tax for failure to file a return.) In determining whether there is 
reasonable cause for failure to file the return, Sec.  301.6652-2(f) and 
rules similar to the rules in Sec.  301.6724-1(c)(3) (undue economic 
hardship related to filing information returns on magnetic media) will 
apply.
    (d) Meaning of terms. The following definitions apply for purposes 
of this section:
    (1) Magnetic media. The term magnetic media means any magnetic media 
permitted under applicable regulations, revenue procedures, or 
publications. These generally include magnetic tape, tape cartridge, and 
diskette, as well as other media, such as electronic filing, 
specifically permitted under the applicable regulations, procedures, 
publications, forms or instructions. (See Sec.  601.601(d)(2) of this 
chapter).
    (2) Return required under section 6033. The term return required 
under section 6033 means a Form 990, ``Return of Organization Exempt 
from Income Tax,'' and Form 990-PF, ``Return of Private Foundation or 
Section 4947(a)(1) Trust Treated as a Private Foundation,'' along with 
all other related forms, schedules, and statements that are required to 
be attached to the Form 990 or Form 990-PF, and all members of the Form 
990 series of returns, including amended and superseding returns.
    (3) Determination of 250 returns. For purposes of this section, an 
organization is required to file at least 250 returns if, during the 
calendar year ending with or within the taxable year of the 
organization, the organization is required to file at least 250 returns 
of any type, including information returns (for example, Forms W-2, 
Forms 1099), income tax returns, employment tax returns, and excise tax 
returns. In the case of a short year return, an organization is required 
to file at least 250 returns if, during the calendar year which includes 
the short taxable year of the organization, the organization is required 
to file at least 250 returns of any type, including information returns 
(for example, Forms W-2, Forms 1099), income tax returns, employment tax 
returns, and excise tax returns.
    (e) Example. The following example illustrates the provisions of 
paragraph (d)(3) of this section. In the example, the organization is a 
calendar year taxpayer:

    Example. In 2006, Organization T, with total assets in excess of $10 
million, is required to file one Form 990, ``Return of Organization

[[Page 37]]

Exempt from Income Tax,'' 200 Forms W-2, ``Wage and Tax Statement,'' one 
Form 940, ``Employer's Annual Federal Unemployment (FUTA) Tax Return,'' 
four Forms 941, ``Employer's Quarterly Federal Tax Return,'' and 60 
Forms 1099-MISC, ``Miscellaneous Income.'' Because T is required to file 
266 returns during the calendar year, T must file its 2006 Form 990 
electronically.

    (f) Effective/applicability dates. This section applies to any 
organization required to file Form 990 for a taxable year ending on or 
after December 31, 2006, that has total assets as of the end of the 
taxable year of $10 million or more. This section applies to any 
organization required to file Form 990-PF for taxable years ending on or 
after December 31, 2006, except for the application of the short year 
rules in paragraph (d)(3) of this section, which is applicable for 
taxable years ending on or after November 13, 2007.

[T.D. 9363, 72 FR 63811, Nov. 13, 2007]



Sec.  301.6033-5  Disclosure by tax-exempt entities that are parties 
to certain reportable transactions.

    (a) In general. For provisions relating to the requirement of the 
disclosure by a tax-exempt entity that it is a party to certain 
reportable transactions, see Sec.  1.6033-5 of this chapter (Income Tax 
Regulations).
    (b) Effective date/applicability date. This section applies with 
respect to transactions entered into by a tax-exempt entity after May 
17, 2006.

[T.D. 9492, 75 FR 38710, July 6, 2010]



Sec.  301.6034-1  Returns by trusts described in section 4947(a)(2) 
or claiming charitable or other deductions under section 642(c).

    For provisions relating to the requirement of returns by trusts 
described in section 4947(a)(2) or claiming charitable or other 
deductions under section 642(c), see Sec.  1.6034-1 of this chapter 
(Income Tax Regulations).

[T.D. 8026, 50 FR 20757, May 20, 1985]



Sec.  301.6036-1  Notice required of executor or of receiver 
or other like fiduciary.

    (a) Receivers and other like fiduciaries--(1) Exemption for 
bankruptcy proceedings. (i) A bankruptcy trustee, debtor in possession 
or other like fiduciary in a bankruptcy proceeding is not required by 
this section to give notice of appointment, qualification or 
authorization to act to the Secretary or his delegate. (However, see the 
notice requirements under the Bankruptcy Rules.)
    (ii) Paragraph (a)(1)(i) of this section is effective for 
appointments, qualifications and authorizations to act made on or after 
January 29, 1988. For appointments, qualifications and authorizations to 
act made before the foregoing date, 26 CFR 301.6036-1 (a)(1) and (4)(i) 
(revised as of April 1, 1986) apply.
    (2) Proceedings other than bankruptcy. A receiver in a receivership 
proceeding or a similar fiduciary in any proceeding (including a 
fiduciary in aid of foreclosure), designated by order of any court of 
the United States or of any State or Territory or of the District of 
Columbia as in control of all or substantially all the assets of a 
debtor or other party to such proceeding shall, on, or within 10 days 
of, the date of his appointment or authorization to act, give notice 
thereof in writing to the district director for the internal revenue 
district in which the debtor, or such other party, is or was required to 
make returns. Moreover, any fiduciary in aid of foreclosure not 
appointed by order of any such court, if he takes possession of all or 
substantially all the assets of the debtor, shall, on, or within 10 days 
of, the date of his taking possession, give notice thereof in writing to 
such district director.
    (3) Assignment for benefit of creditors. An assignee for the benefit 
of a creditor or creditors shall, on, or within 10 days of, the date of 
an assignment, give notice thereof in writing to the district director 
for the internal revenue district in which the debtor is or was required 
to make returns. For purposes of this subparagraph, an assignee for the 
benefit of creditors shall be any person who, by authority of law, by 
the order of any court, by oral or written agreement, or in any other 
manner acquires control or possession of or title to all or 
substantially all the assets of a debtor, and who under such acquisition 
is authorized to use, reassign, sell, or in any manner dispose of such 
assets so that the proceeds from the use, sale, or other disposition may 
be paid to or

[[Page 38]]

may inure directly or indirectly to the benefit of a creditor or 
creditors of such debtor.
    (4) Contents of notice--(i) Proceedings other than bankruptcy. The 
written notice required under paragraph (a)(2) of this section shall 
contain:
    (a) The name and address of the person making such notice and the 
date of his appointment or of his taking possession of the assets of the 
debtor or other person whose assets are controlled,
    (b) The name, address, and, for notices filed after December 21, 
1972, the taxpayer identification number of the debtor or other person 
whose assets are controlled.
    (c) In the case of a court proceeding:
    (1) The name and location of the court in which the proceedings are 
pending,
    (2) The date on which such proceedings were instituted,
    (3) The number under which such proceedings are docketed, and
    (4) When possible, the date, time, and place of any hearing, meeting 
of creditors, or other scheduled action with respect to such 
proceedings.
    (ii) Assignment for benefit of creditors. The written notice 
required under subparagraph (3) of this paragraph shall contain:
    (a) The name and address of, and the date the asset or assets were 
assigned to, the assignee,
    (b) The name, address, and, for notice filed after December 21, 
1972, the taxpayer identification number of the debtor whose assets were 
assigned.
    (c) A brief description of the assets assigned,
    (d) An explanation of the action expected to be taken with respect 
to such assets, and
    (e) When possible, the date, time, and place of any hearing, meeting 
of creditors, sale, or other scheduled action with respect to such 
assets.
    (iii) The notice required by this section shall be sent to the 
attention of the Chief, Special Procedures Staff, of the district office 
to which it is required to be sent.
    (b) Executors, administrators, and persons in possession of property 
of decedent. For provisions relating to the requirement of filing, by an 
executor, administrator, or person in possession of property of a 
decedent, of a preliminary notice in the case of the estate of a 
decedent dying before January 1, 1971, see Sec.  20.6036-1 of this 
chapter (Estate Tax Regulations).
    (c) Notice of fiduciary relationship. When a notice is required 
under Sec.  301.6903-1 of a person acting in a fiduciary capacity and is 
also required of such person under this section, notice given in 
accordance with the provisions of this section shall be considered as 
complying with both sections.
    (d) Suspension of period on assessment. For suspension of the 
running of the period of limitations on the making of assessments from 
the date a proceeding is instituted to a date 30 days after receipt of 
notice from a fiduciary in any proceeding under the Bankruptcy Act or 
from a receiver in any other court proceeding, see section 6872 and 
Sec.  301.6872-1.
    (e) Applicability. Except as provided in paragraph (a)(1)(ii) of 
this section, the provisions of this section shall apply to those 
persons referred to in this section whose appointments, authorizations, 
or assignments occur on or after the date of publication of these 
regulations in the Federal Register as a Treasury decision.
    (f) Cross references. (1) For criminal penalty for willful failure 
to supply information, see section 7203.
    (2) For criminal penalties for willfully making false or fraudulent 
statements, see sections 7206 and 7207.
    (3) For time for performance of acts where the last day falls on a 
Saturday, Sunday, or legal holiday, see section 7503 and Sec.  301.7503-
1.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7218, 37 FR 24748, Nov. 
21, 1972; T.D. 7238, 37 FR 28738, Dec. 29, 1972; T.D. 8172, 53 FR 2600, 
Jan. 29, 1988]



Sec.  301.6037-1  Return of electing small business corporation.

    For provisions relating to requirement of return of electing small 
business corporation, see Sec.  1.6037-1 of this chapter (Income Tax 
Regulations).

[[Page 39]]



Sec.  301.6037-2  Required use of magnetic media for returns of electing 
small business corporation.

    (a) Returns of electing small business corporation required on 
magnetic media. An electing small business corporation required to file 
an electing small business return on Form 1120S, ``U.S. Income Tax 
Return for an S Corporation,'' under Sec.  1.6037-1 of this chapter must 
file its Form 1120S on magnetic media if the small business corporation 
is required by the Internal Revenue Code and regulations to file at 
least 250 returns during the calendar year ending with or within its 
taxable year. Returns filed on magnetic media must be made in accordance 
with applicable revenue procedures, publications, forms, or 
instructions. In prescribing revenue procedures, publications, forms, or 
instructions, the Commissioner may direct the type of magnetic media 
filing. (See Sec.  601.601(d)(2) of this chapter).
    (b) Waiver. The Commissioner may grant waivers of the requirements 
of this section in cases of undue hardship. A request for waiver must be 
made in accordance with applicable revenue procedures or publications. 
The waiver also will be subject to the terms and conditions regarding 
the method of filing as may be prescribed by the Commissioner.
    (c) Failure to file. If an electing small business corporation fails 
to file a return on magnetic media when required to do so by this 
section, the corporation is deemed to have failed to file the return. 
(See section 6651 for the addition to tax for failure to file a return.) 
In determining whether there is reasonable cause for failure to file the 
return, Sec.  301.6651-1(c) and rules similar to the rules in Sec.  
301.6724-1(c)(3) (undue economic hardship related to filing information 
returns on magnetic media) will apply.
    (d) Meaning of terms. The following definitions apply for purposes 
of this section:
    (1) Magnetic media. The term magnetic media means any magnetic media 
permitted under applicable regulations, revenue procedures, or 
publications. These generally include magnetic tape, tape cartridge, and 
diskette, as well as other media, such as electronic filing, 
specifically permitted under the applicable regulations, procedures, 
publications, forms, or instructions. (See Sec.  601.601(d)(2) of this 
chapter).
    (2) Corporation. The term corporation means a corporation as defined 
in section 7701(a)(3).
    (3) Electing small business corporation return. The term electing 
small business corporation return means a Form 1120S, ``U.S. Income Tax 
Return for an S Corporation,'' along with all other related forms, 
schedules, and statements that are required to be attached to the Form 
1120S, and all members of the Form 1120S series of returns, including 
amended and superseding returns.
    (4) Electing small business corporation. The term electing small 
business corporation means an S corporation as defined in section 
1361(a)(1).
    (5) Determination of 250 returns. For purposes of this section, a 
corporation is required to file at least 250 returns if, during the 
calendar year ending with or within the taxable year of the corporation, 
the corporation is required to file at least 250 returns of any type, 
including information returns (for example, Forms W-2, Forms 1099), 
income tax returns, employment tax returns, and excise tax returns. In 
the case of a short year return, a corporation is required to file at 
least 250 returns if, during the calendar year which includes the short 
taxable year of the corporation, the corporation is required to file at 
least 250 returns of any type, including information returns (for 
example, Forms W-2, Forms 1099), income tax returns, employment tax 
returns, and excise tax returns.
    (e) Example. The following example illustrates the provisions of 
paragraph (d)(5) of this section. In the example, the corporation is a 
calendar year taxpayer:

    Example. In 2007, Corporation S, an electing small business 
corporation with assets in excess of $10 million, is required to file 
one Form 1120S, ``U.S. Corporation Income Tax Return,'' 100 Forms W-2, 
``Wage and Tax Statement,'' 146 Forms 1099-DIV, ``Dividends and 
Distributions,'' one Form 940, ``Employer's Annual Federal Unemployment 
(FUTA) Tax Return,'' and four Forms 941, ``Employer's Quarterly Federal 
Tax Return.'' Because S is required to file 252 returns during the 
calendar year, S is required to file its 2007 Form 1120S electronically.


[[Page 40]]


    (f) Effective/applicability dates. This section applies to returns 
of electing small business corporations that report total assets at the 
end of the corporation's taxable year that equal or exceed $10 million 
on Schedule L of Form 1120S for taxable years ending on or after 
December 31, 2006, except for the application of the short year rules in 
paragraph (d)(5) of this section, which is applicable for taxable years 
ending on or after November 13, 2007.

[T.D. 9363, 72 FR 63812, Nov. 13, 2007]



Sec.  301.6038-1  Information returns required of U.S. persons 
with respect to certain foreign corporations.

    For provisions relating to information returns required of U.S. 
persons with respect to certain foreign corporations, see Sec. Sec.  
1.6038-1 and 1.6038-2 of this chapter (Income Tax Regulations).



Sec.  301.6039-1  Information returns and statements required 
in connection with certain options.

    For provisions relating to information returns and statements 
required in connection with certain options, see Sec. Sec.  1.6039-1 and 
1.6039-2 of this chapter (Income Tax Regulations).

[T.D. 7275, 38 FR 11346, May 7, 1973]



Sec.  301.6039E-1  Information reporting by passport applicants.

    (a) In general. Every individual who applies for a U.S. passport or 
the renewal of a passport (passport applicant), other than a passport 
for use in diplomatic, military, or other official U.S. government 
business, shall include with his or her passport application the 
information described in paragraph (b)(1) of this section in the time 
and manner described in paragraph (b)(2) of this section.
    (b) Required information--(1) In general. The information required 
under paragraph (a) of this section shall include the following 
information:
    (i) The passport applicant's full name and, if applicable, previous 
name;
    (ii) The passport applicant's permanent address and, if different, 
mailing address;
    (iii) The passport applicant's taxpayer identifying number (TIN), if 
such a number has been issued to the passport applicant. A TIN means the 
individual's social security number (SSN) issued by the Social Security 
Administration. A passport applicant who does not have an SSN must enter 
zeros in the appropriate space on the passport application; and
    (iv) The passport applicant's date of birth.
    (2) Time and manner for furnishing information. A passport applicant 
must provide the information required by this section with his or her 
passport application, whether by personal appearance or mail, to the 
Department of State (including United States Embassies and Consular 
posts abroad).
    (c) Penalties--(1) In general. If the information required by 
paragraph (b)(1) of this section is incomplete or incorrect, or the 
information is not filed in the time and manner described in paragraph 
(b)(2) of this section, then the passport applicant may be subject to a 
penalty equal to $500 per application. Before assessing a penalty under 
this section, the IRS will provide to the passport applicant written 
notice of the potential assessment of the $500 penalty, requesting the 
information being sought, and offering the applicant an opportunity to 
explain why the information was not provided with the passport 
application. A passport applicant has 60 days from the date of the 
notice of the potential assessment of the penalty (90 days from such 
date if the notice is addressed to an applicant outside the United 
States) to respond to the notice. If the passport applicant demonstrates 
to the satisfaction of the Commissioner (or the Commissioner's delegate) 
that the failure is due to reasonable cause and not due to willful 
neglect, after considering all the surrounding circumstances, then the 
IRS will not assess the penalty.
    (2) Example. The following example illustrates the provisions of 
paragraph (c) of this section.

    Example. C, a citizen of the United States, makes an error in 
supplying information on his passport application. Based on the nature 
of the error and C's timely response to correct the error after being 
contacted by the IRS, the Commissioner concludes that the mistake is due 
to reasonable cause and not due to willful neglect. Accordingly, no 
penalty is assessed.


[[Page 41]]


    (d) Effective/applicability date. This section applies to passport 
applications submitted after July 18, 2014.

[T.D. 9679, 79 FR 41891, July 18, 2014]

         Information Concerning Transactions With Other Persons



Sec.  301.6041-1  Returns of information regarding certain payments.

    For provisions relating to the requirement of returns of information 
regarding certain payments, see Sec. Sec.  1.6041-1 to 1.6041-6, 
inclusive, of this chapter (Income Tax Regulations).



Sec.  301.6042-1  Returns of information regarding payments of dividends 
and corporate earnings and profits.

    For provisions relating to the requirement of returns of information 
regarding payments of dividends and corporate earnings and profits, see 
Sec. Sec.  1.6042-1 to 1.6042-4, inclusive, of this chapter (Income Tax 
Regulations).



Sec.  301.6043-1  Returns regarding liquidation, dissolution, termination, 
or contraction.

    For provisions relating to the requirement of returns of information 
regarding liquidations, dissolutions, terminations, or contracts, see 
Sec. Sec.  l.6043-1, 1.6043-2, and 1.6043-3 of this chapter (Income Tax 
Regulations).

[T.D. 7563, 43 FR 40222, Sept. 11, 1978]



Sec.  301.6044-1  Returns of information regarding payments 
of patronage dividends.

    For provisions relating to the requirement of returns of information 
regarding payments of patronage dividends, see Sec. Sec.  1.6044-1 to 
1.6044-5, inclusive, of this chapter (Income Tax Regulations).



Sec.  301.6046-1  Returns as to organization or reorganization 
of foreign corporations and as to acquisitions of their stock.

    For provisions relating to requirement of returns as to organization 
or reorganization of foreign corporations and as to acquisitions of 
their stock, see Sec. Sec.  1.6046-1 to 1.6046-3, inclusive, of this 
chapter. (Income Tax Regulations.)



Sec.  301.6047-1  Information relating to certain trusts and annuity 
and bond purchase plans.

    For provisions relating to the requirement of returns of information 
regarding certain trusts and annuity and bond purchase plans, see Sec.  
1.6047-1 of this chapter (Income Tax Regulations).



Sec.  301.6049-1  Returns regarding payments of interest.

    For provisions relating to the requirement of returns regarding 
payments of interest, see Sec. Sec.  1.6049-1 to 1.6049-3, inclusive, of 
this chapter (Income Tax Regulations).



Sec.  301.6050A-1  Information returns regarding services performed 
by certain crewmen on fishing boats.

    For provisions relating to the requirement of returns of information 
regarding services performed by certain crewmen on fishing boats, see 
Sec.  1.6050A-1 of this chapter (Income Tax Regulations) and Sec.  
301.6652-1 of this chapter (Regulations on Procedure and 
Administration).

[T.D. 7716, 45 FR 57124, Aug. 27, 1980]



Sec.  301.6050M-1  Information returns relating to persons receiving contracts 
from certain Federal executive agencies.

    For provisions relating to the requirements of returns of 
information relating to persons receiving contracts from certain Federal 
executive agencies, see Sec.  1.6050M-1 of this chapter (Income Tax 
Regulations).

[T.D. 8275, 54 FR 50372, Dec. 6, 1989]

               Information Regarding Wages Paid Employees



Sec.  301.6051-1  Receipts for employees.

    For provisions relating to statements for employees regarding 
remuneration paid during calendar year, see Sec.  31.6051-1 of this 
chapter (Employment Tax Regulations).



Sec.  301.6052-1  Information returns and statements regarding payment 
of wages in the form of group-term life insurance.

    For provisions relating to information returns and statements 
required in connection with the payment of

[[Page 42]]

wages in the form of group-term life insurance, see Sec. Sec.  1.6052-1 
and 1.6052-2 of this chapter (income tax regulations).

[T.D. 7275, 38 FR 11346, May 7, 1973]



Sec.  301.6056-1  Rules relating to reporting by applicable large employers 
on health insurance coverage offered under employer-sponsored plans.

    (a) In general. Section 6056 requires an applicable large employer 
subject to the requirements of section 4980H to report certain health 
insurance coverage information to the Internal Revenue Service, and to 
furnish certain related employee statements to its full-time employees. 
Paragraph (b) of this section contains definitions for purposes of this 
section. Paragraph (c) of this section prescribes general rules for 
filing the required information with the IRS and furnishing the required 
employee statements to employees. Paragraphs (d) and (e) of this section 
describe the information required to be reported on a section 6056 
information return and the time and manner for filing. Paragraph (f) of 
this section provides information about the statement required to be 
furnished to a full-time employee. Paragraph (g) of this section 
prescribes the time and manner of furnishing the statement, including 
extensions of time to furnish, to a full-time employee. Paragraph (h) 
addresses corrections of returns. Paragraph (i) of this section 
describes the information return penalties applicable to section 6056 
returns. Paragraph (j) of this section describes alternative reporting 
methods available to certain applicable large employers with certain 
employees. Paragraph (k) of this section describes certain special rules 
applicable to applicable large employers that are governmental units.
    (b) Definitions--(1) In general. The definitions in this paragraph 
(b) apply for purposes of this section.
    (2) Applicable large employer. The term applicable large employer 
has the same meaning as in section 4980H(c)(2) and Sec.  54.4980H-
1(a)(4) of this chapter.
    (3) Applicable large employer member. The term applicable large 
employer member has the same meaning as in Sec.  54.4980H-1(a)(5) of 
this chapter.
    (4) Dependent. The term dependent has the same meaning as in Sec.  
54.4980H-1(a)(11) of this chapter.
    (5) Eligible employer-sponsored plan. The term eligible employer-
sponsored plan has the same meaning as in section 5000A(f)(2) and Sec.  
1.5000A-2(c)(1) of this chapter.
    (6) Full-time employee. The term full-time employee has the same 
meaning as in section 4980H and Sec.  54.5980H-1(a)(21) of this chapter, 
as applied to the determination and calculation of liability under 
section 4980H(a) and (b) with respect to any individual employee, and 
not as applied to the determination of status as an applicable large 
employer, if different.
    (7) Governmental unit. The term governmental unit refers to the 
government of the United States, any State or political subdivision 
thereof, or any Indian tribal government (as defined in section 
7701(a)(40)) or subdivision of an Indian tribal government (as defined 
in section 7871(d)).
    (8) Agency or instrumentality of a governmental unit. [Reserved]
    (9) Minimum essential coverage. The term minimum essential coverage 
has the same meaning as in section 5000A(f) and the regulations issued 
under that section.
    (10) Minimum value. The term minimum value has the same meaning as 
in section 36B and any applicable regulations.
    (11) Person. The term person has the same meaning as in section 
7701(a)(1) and applicable regulations.
    (c) Content and timing of reporting by applicable large employer 
members--(1) In general. Each applicable large employer member required 
to make a return and furnish a related statement to its full-time 
employees under section 6056 for a calendar year must make a return and 
furnish the related statement using such form(s) as may be prescribed by 
the Internal Revenue Service. An applicable large employer member will 
satisfy its reporting requirements under section 6056 if it files with 
the Internal Revenue Service a return for each full-time employee using 
Form 1095-C or another form the IRS designates, and a transmittal form 
using Form 1094-C or another form the IRS designates, as

[[Page 43]]

prescribed in this section and in the instructions to the forms. Each 
Form 1095-C and the transmittal Form 1094-C will together constitute an 
information return to be filed with the Internal Revenue Service.
    (2) Reporting facilitated by third parties. A separate section 6056 
information return must be filed for each applicable large employer 
member. If more than one section 6056 information return is being filed 
for an applicable large employer member, there must be one authoritative 
section 6056 transmittal (Form 1094-C) reporting aggregate employer-
level data for all full-time employees of the applicable large employer 
member, in accordance with forms and instructions. Additionally, there 
must be only one section 6056 employee statement (Form 1095-C) for each 
full-time employee with respect to that full-time employee's employment 
with the applicable large employer member, so that all required 
information for a particular full-time employee of the applicable large 
employer member is reflected on a single Form 1095-C.
    (d) Information required to be reported to the Internal Revenue 
Service--(1) In general. Except as provided in paragraph (j) of this 
section (relating to alternative reporting methods for eligible 
applicable large employer members), every applicable large employer 
member must make a section 6056 information return with respect to each 
full-time employee. Each section 6056 information return must show--
    (i) The name, address, and employer identification number of the 
applicable large employer member,
    (ii) The name and telephone number of the applicable large employer 
member's contact person,
    (iii) The calendar year for which the information is reported,
    (iv) A certification as to whether the applicable large employer 
member offered to its full-time employees (and their dependents) the 
opportunity to enroll in minimum essential coverage under an eligible 
employer-sponsored plan, by calendar month,
    (v) The months during the calendar year for which minimum essential 
coverage under the plan was available,
    (vi) Each full-time employee's share of the lowest cost monthly 
premium (self-only) for coverage providing minimum value offered to that 
full-time employee under an eligible employer-sponsored plan, by 
calendar month;
    (vii) The number of full-time employees for each month during the 
calendar year,
    (viii) The name, address, and taxpayer identification number of each 
full-time employee during the calendar year and the months, if any, 
during which the employee was covered under the plan, and
    (ix) Any other information specified in forms, instructions, or 
published guidance, see Sec. Sec.  601.601(d) and 601.602 of this 
chapter.
    (2) Form of the return. A return required under this paragraph (d) 
may be made on Forms 1094-C and 1095-C or other form(s) designated by 
the Internal Revenue Service, or a substitute form. A substitute form 
must include the information required to be reported on Forms 1094-C and 
1095-C and must comply with applicable revenue procedures or other 
published guidance relating to substitute statements. See Sec.  
601.601(d)(2) of this chapter.
    (e) Time and manner for filing return. An applicable large employer 
member must file the return and transmittal form required under 
paragraph (d)(2) of this section on or before February 28 (March 31 if 
filed electronically) of the year succeeding the calendar year to which 
it relates in accordance with any applicable guidance and the 
instructions to the form. An applicable large employer member must file 
the return and transmittal form at the address specified on the return 
form or its instructions. For extensions of time for filing returns 
under this section, see Sec. Sec.  1.6081-1 and 1.6081-8 of this 
chapter. See Sec.  301.6011-2 for rules relating to electronic filing.
    (f) Statements required to be furnished to full-time employees--(1) 
In general. Except as provided in paragraph (j) of this section, every 
applicable large employer member required to file a return under section 
6056 must furnish to each of its full-time employees identified on the 
return a written statement showing--

[[Page 44]]

    (i) The name, address and employer identification number of the 
applicable large employer member, and
    (ii) The information required to be shown on the section 6056 return 
with respect to the full-time employee.
    (2) Form of the statement. A statement required under this paragraph 
(f) may be made either by furnishing to the full-time employee a copy of 
Form 1095-C or another form the IRS designates as prescribed in this 
section and in the instructions to such forms, or a substitute 
statement. A substitute statement must include the information required 
to be shown on the return filed with the IRS and must comply with 
requirements in published guidance (see Sec.  601.601(d)(2) of this 
chapter) relating to substitute statements. An IRS truncated taxpayer 
identification number may be used as the identifying number for an 
individual in lieu of the identifying number appearing on the 
corresponding information return filed with the IRS.
    (g) Time and manner for furnishing statements--(1) Time for 
furnishing--(i) In general. Each statement required by this section for 
a calendar year must be furnished to a full-time employee on or before 
January 31 of the year succeeding that calendar year in accordance with 
applicable Internal Revenue Service procedures and instructions
    (ii) Extensions of time--(A) In general. For good cause upon written 
application of the person required to furnish statements under this 
section, the Internal Revenue Service may grant an extension of time not 
exceeding 30 days in which to furnish such statements. The application 
must be addressed to the Internal Revenue Service, and must contain a 
full recital of the reasons for requesting the extension to aid the 
Internal Revenue Service in determining the period of the extension, if 
any, that will be granted. A request in the form of a letter to the 
Internal Revenue Service, signed by the applicant, suffices as an 
application. The application must be filed on or before the date 
prescribed in paragraph (g)(1) of this section.
    (B) Automatic extension of time. The Commissioner may, in 
appropriate cases, prescribe additional guidance or procedures, 
published in the Internal Revenue Bulletin (see Sec.  601.601(d)(2) of 
this chapter), for automatic extensions of time to furnish to one or 
more full-time employees the statement required under section 6056.
    (2) Manner of furnishing. If mailed, the statement must be sent to 
the full-time employee's last known permanent address or, if no 
permanent address is known, to the employee's temporary address. For 
purposes of this paragraph (g), an applicable large employer member's 
first class mailing to the last known permanent address, or if no 
permanent address is known, the temporary address, discharges the 
requirement to furnish the statement. An applicable large employer 
member may furnish the statement electronically in accordance with Sec.  
301.6056-2.
    (h) Correction of returns. See Sec.  301.6056-1(i)(2).
    (i) Penalties--(1) In general. For provisions relating to the 
penalty for failure to file timely a correct information return required 
under section 6056, see section 6721 and the regulations under that 
section. For provisions relating to the penalty for failure to furnish 
timely a correct statement to full-time employees required under section 
6056, see section 6722 and the regulations under that section. See 
section 6724 and the regulations under that section for rules relating 
to the waiver of penalties if a failure to file timely or accurately is 
due to reasonable cause and is not due to willful neglect.
    (2) Application of section 6721 and 6722 penalties to section 6056 
reporting. For purposes of section 6056 reporting, if the information 
reported on a return (including a transmittal) or a statement required 
by this section is incomplete or incorrect as a result of a change in 
circumstances (such as a retroactive change in coverage), a failure to 
timely file or furnish a corrected document is a failure to file or 
furnish a correct return or statement under sections 6721 and 6722.
    (j) Alternative reporting methods for eligible applicable large 
employer members. In lieu of the general reporting method described in 
paragraph (d) of this section, eligible applicable large employer 
members may use the following alternative reporting methods described in 
this paragraph (j).

[[Page 45]]

    (1) Certification of qualifying offer. An applicable large employer 
member is an eligible applicable large employer member and is treated as 
meeting its reporting obligation under section 6056 if:
    (i) The applicable large employer member certifies on the section 
6056 transmittal form, in accordance with the form and the instructions 
to the form, that it made a qualifying offer. A qualifying offer is an 
offer to one or more of its full-time employees for all months during 
the year for which the employee was a full-time employee and which are 
not within a limited nonassessment period (as defined in Sec.  54.4980H-
1(a)(26) of this chapter), of minimum essential coverage providing 
minimum value at an employee cost for employee-only coverage not 
exceeding 9.5 percent of the mainland single federal poverty line, and 
that includes an offer of minimum essential coverage to the employees' 
spouses and dependents. For this purpose, the applicable federal poverty 
line is the federal poverty line as defined in Sec.  54.4980H-1(a)(19) 
of this chapter, as calculated and applied to the 48 contiguous states 
and the District of Columbia;
    (ii) The applicable large employer member provides on the Form 1095-
C or other form as designated by the IRS, in accordance with the form 
and the instructions to the form, the information with respect to each 
full-time employee to whom a qualifying offer, as defined in paragraph 
(j)(1)(i) of this section, is made for all twelve months of the 
applicable calendar year;
    (iii) The applicable large employer member provides a statement to 
each full-time employee to whom a qualifying offer (as defined in 
paragraph (j)(1)(i) of this section) was made for all twelve months of 
the applicable calendar year, in such form and manner as prescribed by 
the Secretary, or a copy of the Form 1095-C filed with the IRS with 
respect to that full-time employee; and
    (D) The applicable large employer member files section 6056 returns 
and furnishes section 6056 employee statements with respect to all other 
full-time employees under the general reporting method described in 
paragraph (d) of this section, in accordance with forms and 
instructions.
    (2) Option to report without separate identification of full-time 
employees if certain conditions related to offers of coverage are 
satisfied (98 percent offers). An applicable large employer member that 
otherwise meets its reporting obligation under section 6056 is not 
required to identify on its section 6056 return whether a particular 
employee is a full-time employee for one or more calendar months of the 
reporting year or report the total number of its full-time employees for 
the reporting year, if it certifies that it offered minimum essential 
coverage providing minimum value that was affordable under section 4980H 
to at least 98 percent of the employees (and their dependents) with 
respect to whom it reports for purposes of section 6056 in accordance 
with paragraph (d) of this section (regardless of whether the employee 
is a full-time employee for purposes of section 4980H for a calendar 
month during the year).
    (k) Special rules for governmental units--(1) Person appropriately 
designated. In the case of any applicable large employer member that is 
a governmental unit or any agency or instrumentality thereof, the person 
or persons appropriately designated under section 6056(e) for purposes 
of the filing and furnishing requirements of section 6056 must be part 
of or related to the same governmental unit as the applicable large 
employer member. The applicable large employer member must make (or 
revoke) the designation before the earlier of the deadline for filing 
the returns or furnishing the statements required by this section. A 
person that has been appropriately designated under section 6056(e) must 
file a separate section 6056 return and transmittal for each applicable 
large employer member for which the person is reporting. The person 
appropriately designated under section 6056(e) assumes responsibility 
for the section 6056 requirements on behalf of the applicable large 
employer member for which the person is designated. Notwithstanding the 
designation, a separate section 6056 information return must be filed 
for each applicable large employer member that is a governmental unit. 
If more than one section

[[Page 46]]

6056 information return is being filed for an applicable large employer 
member, there must be one authoritative section 6056 transmittal (Form 
1094-C) reporting aggregate employer-level data for all full-time 
employees of the applicable large employer member, in accordance with 
forms and instructions. In addition, notwithstanding the designation, 
there must be only one section 6056 employee statement (Form 1095-C) for 
each full-time employee with respect to that full-time employee's 
employment with the applicable large employer member, so that all 
required information for a particular full-time employee of the 
applicable large employer member is reflected on a single Form 1095-C.
    (2) Written designation. The designation under section 6056(e) must 
be made in writing, must be signed by both the applicable large employer 
member and the designated person, and must be effective under all 
applicable laws. The designation must set forth the name, address, and 
employer identification number of the designated person, and appoint 
such person as the person responsible for reporting under section 6056 
on behalf of the applicable large employer member. The designation must 
contain information identifying the category of full-time employees 
(which may be full-time employees eligible for a specified health plan, 
or in a particular job category, as long as the specific employees 
covered by the designation can be identified) for which the designated 
person is responsible for reporting under section 6056 on behalf of the 
applicable large employer member. If the designated person is 
responsible for reporting under section 6056 for all full-time employees 
of an applicable large employer member, the designation must so 
indicate. The designation must contain language that the designated 
person agrees and certifies that it is the appropriately designated 
person under section 6056(e), and an acknowledgement that the designated 
person is responsible for reporting under section 6056 on behalf of the 
applicable large employer member and subject to the requirements of 
section 6056, including for purposes of information reporting 
requirements under sections 6721, 6722, and 6724. The designation must 
also set forth the name and employer identification number of the 
applicable large employer member, identifying the applicable large 
employer member as the person subject to the requirements of section 
4980H. An equivalent applicable statutory or regulatory designation 
containing the language described in this paragraph (k)(2) will be 
treated as a written designation for purposes of section 6056(e) and 
this section. The designation will not be submitted to the IRS and 
should be maintained under the normal record-retention rules under 
section 6103.
    (3) Application to alternative reporting methods. A person 
designated under this paragraph (k) may use the alternative reporting 
method identified in paragraph (j)(1) of this section for the full-time 
employees for which it is reporting with respect to a particular 
governmental unit if that particular governmental unit meets the 
eligibility requirements with respect to those employees, but may use 
the alternative reporting method identified in paragraph (j)(2) of this 
section only if the governmental unit on whose behalf it is reporting 
would itself be eligible to use that alternative reporting method.
    (l) Additional guidance. The Commissioner may prescribe additional 
guidance of general applicability, published in the Internal Revenue 
Bulletin (see Sec.  601.601(d)(2) of this chapter) to provide additional 
rules under section 6056, including rules permitting use of alternative 
optional methods to meet reporting requirements.
    (m) Effective/applicability date. This section applies for calendar 
years beginning after December 31, 2014. Reporting entities will not be 
subject to penalties under sections 6721 or 6722 for failure to comply 
with the section 6056 reporting requirements for 2014 (for information 
returns filed and for statements furnished to employees in 2015).

[T.D. 9661, 79 FR 13247, Mar. 10, 2014]



Sec.  301.6056-2  Electronic furnishing of statements.

    (a) Electronic furnishing of statements--(1) In general. An 
applicable large employer member required by

[[Page 47]]

Sec.  301.6056-1 to furnish a statement (furnisher) to a full-time 
employee (a recipient) as required by section 6056 may furnish the 
section 6056 employee statement (the statement) in an electronic format 
in lieu of a paper format, provided that the furnisher meets the 
requirements of paragraphs (a)(2) through (a)(6) of this section. An 
applicable large employer member who meets the requirements of 
paragraphs (a)(2) through (6) of this section is treated as furnishing 
the statement in a timely manner.
    (2) Consent--(i) In general. The recipient must have affirmatively 
consented to receive the statement in an electronic format. The 
recipient may make the consent electronically in any manner that 
reasonably demonstrates that the recipient can access the statement in 
the electronic format in which it will be furnished to the recipient. 
Alternatively, the recipient may make the consent in a paper document if 
the recipient confirms the consent electronically.
    (ii) Withdrawal of consent. The consent requirement of this 
paragraph (a)(2) is not satisfied if the recipient withdraws the consent 
and the withdrawal takes effect before the statement is furnished. The 
furnisher may provide that a withdrawal of consent takes effect either 
on the date it is received by the furnisher or on a subsequent date. The 
furnisher may also provide that a recipient's request for a paper 
statement will be treated as a withdrawal of the recipient's consent.
    (iii) Change in hardware or software requirements. If a change in 
the hardware or software required to access the statement creates a 
material risk that the recipient will not be able to access the 
statement, the furnisher must, prior to changing the hardware or 
software, provide the recipient with a notice. The notice must describe 
the revised hardware and software required to access the statement and 
inform the recipient that a new consent to receive the statement in the 
revised electronic format must be provided to the furnisher. After 
implementing the revised hardware and software, the furnisher must 
obtain from the recipient, in the manner described in paragraph 
(a)(2)(i) of this section, a new consent or confirmation of consent to 
receive the statement electronically.
    (iv) Examples. The following examples illustrate the rules of this 
paragraph (a)(2):

    Example 1. Furnisher F sends Recipient R a letter stating that R may 
consent to receive the statement required under section 6056 
electronically on a Web site instead of in a paper format. The letter 
contains instructions explaining how to consent to receive the statement 
electronically by accessing the Web site, downloading the consent 
document, completing the consent document and emailing the completed 
consent back to F. The consent document posted on the Web site uses the 
same electronic format that F will use for the electronically furnished 
statement. R reads the instructions and accesses the Web site, downloads 
and completes the consent document, and emails the completed consent 
back to F. R has consented to receive the statement required under 
section 6056 electronically in the manner described in paragraph 
(a)(2)(i) of this section.
    Example 2. Furnisher F sends Recipient R an email stating that R may 
consent to receive the statement required under section 6056 
electronically instead of in a paper format. The email contains an 
attachment instructing R how to consent to receive the statement 
electronically. The email attachment uses the same electronic format 
that F will use for the electronically furnished statement. R opens the 
attachment, reads the instructions, and submits the consent in the 
manner provided in the instructions. R has consented to receive the 
statement required under section 6056 electronically in the manner 
described in paragraph (a)(2)(i) of this section.
    Example 3. Furnisher F posts a notice on its Web site stating that 
Recipient R may receive the statement required under section 6056 
electronically instead of in a paper format. The Web site contains 
instructions on how R may access a secure Web page and consent to 
receive the statement electronically. The consent via the secure Web 
page uses the same electronic format that F will use for the 
electronically furnished statement. R accesses the Web site and follows 
the instructions for giving consent. R has consented to receive section 
6056 statements electronically in the manner described in paragraph 
(a)(2)(i) of this section.

    (3) Required disclosures--(i) In general. Prior to, or at the time 
of, a recipient's consent, a furnisher must provide to the recipient a 
clear and conspicuous disclosure statement containing each

[[Page 48]]

of the disclosures described in paragraphs (a)(3)(ii) through (viii) of 
this section.
    (ii) Paper statement. The furnisher must inform the recipient that 
the statement will be furnished on paper if the recipient does not 
consent to receive it electronically.
    (iii) Scope and duration of consent. The furnisher must inform the 
recipient of the scope and duration of the consent. For example, the 
recipient must be informed whether the consent applies to each statement 
required to be furnished after the consent is given until it is 
withdrawn in the manner described in paragraph (a)(3)(v)(A) of this 
section or only to the first statement required to be furnished 
following the date of the consent.
    (iv) Post-consent request for a paper statement. The furnisher must 
inform the recipient of any procedure for obtaining a paper copy of the 
recipient's statement after giving the consent described in paragraph 
(a)(2)(i) of this section and whether a request for a paper statement 
will be treated as a withdrawal of consent.
    (v) Withdrawal of consent. The furnisher must inform the recipient 
that--
    (A) The recipient may withdraw a consent by writing (electronically 
or on paper) to the person or department whose name, mailing address, 
telephone number, and email address is provided in the disclosure 
statement,
    (B) The furnisher will confirm the withdrawal and the date on which 
it takes effect in writing (either electronically or on paper), and
    (C) A withdrawal of consent does not apply to a statement that was 
furnished electronically in the manner described in this paragraph (a) 
before the date on which the withdrawal of consent takes effect.
    (vi) Notice of termination. The furnisher must inform the recipient 
of the conditions under which a furnisher will cease furnishing 
statements electronically to the recipient (for example, termination of 
the recipient's employment with furnisher-employer).
    (vii) Updating information. The furnisher must inform the recipient 
of the procedures for updating the information needed to contact the 
recipient. The furnisher must inform the recipient of any change in the 
furnisher's contact information.
    (viii) Hardware and software requirements. The furnisher must 
provide the recipient with a description of the hardware and software 
required to access, print, and retain the statement, and the date when 
the statement will no longer be available on the Web site. The furnisher 
must advice the recipient that the statement may be required to be 
printed and attached to a Federal, State, or local income tax return.
    (4) Format. The electronic version of the statement must contain all 
required information and comply with applicable revenue procedures 
relating to substitute statements to recipients.
    (5) Notice--(i) In general. If the statement is furnished on a Web 
site, the furnisher must notify the recipient that the statement is 
posted on a Web site. The notice may be delivered by mail, electronic 
mail, or in person. The notice must provide instructions on how to 
access and print the statement. The notice must include the following 
statement in capital letters, ``IMPORTANT TAX RETURN DOCUMENT 
AVAILABLE.'' If the notice is provided by electronic mail, the foregoing 
statement must be on the subject line of the electronic mail.
    (ii) Undeliverable electronic address. If an electronic notice 
described in paragraph (a)(5)(i) of this section is returned as 
undeliverable, and the correct electronic address cannot be obtained 
from the furnisher's records or from the recipient, then the furnisher 
must furnish the notice by mail or in person within 30 days after the 
electronic notice is returned.
    (iii) Corrected statement. If the furnisher has corrected a 
recipient's statement as directed in Sec.  301.6056-1(k) and the 
original statement was furnished electronically, the furnisher must 
furnish the corrected statement to the recipient electronically. If the 
original statement was furnished through a Web site posting and the 
furnisher has corrected the statement, the furnisher must notify the 
recipient that it has posted the corrected statement on the Web site 
within 30 days of such posting in the manner described in paragraph 
(a)(5)(i) of this section. The corrected

[[Page 49]]

statement or the notice must be furnished by mail or in person if--
    (A) An electronic notice of the Web site posting of an original 
statement or the corrected statement was returned as undeliverable, and
    (B) The recipient has not provided a new email address.
    (6) Access period. Statements furnished on a Web site must be 
retained on the Web site through October 15 of the year following the 
calendar year to which the statements relate (or the first business day 
after October 15, if October 15 falls on a Saturday, Sunday, or legal 
holiday). The furnisher must maintain access to corrected statements 
that are posted on the Web site through October 15 of the year following 
the calendar year to which the statements relate (or the first business 
day after such October 15, if October 15 falls on a Saturday, Sunday, or 
legal holiday) or the date 90 days after the corrected forms are posted, 
whichever is later.
    (7) Paper statements after withdrawal of consent. A furnisher must 
furnish a paper statement if a recipient withdraws consent to receive a 
statement electronically and the withdrawal takes effect before the 
statement is furnished. A paper statement furnished after the statement 
due date under this paragraph (a)(7) is timely if furnished within 30 
days after the date the furnisher receives the withdrawal of consent.
    (b) Effective/applicability date. This section applies for calendar 
years beginning after December 31, 2014. Reporting entities will not be 
subject to penalties under section 6722 with respect to the reporting 
requirements for 2014 (for statements furnished in 2015).

[T.D. 9661, 79 FR 13250, Mar. 10, 2014]



Sec.  301.6057-1  Employee retirement benefit plans; 
identification of participant with deferred vested retirement benefit.

    (a) Annual registration statement--(1) In general. Under section 
6057(a), the plan administrator (within the meaning of section 414(g)) 
of an employee retirement benefit plan must file with the Internal 
Revenue Service information relating to each plan participant who 
separates from service covered by the plan and is entitled to a deferred 
vested retirement benefit under the plan, but is not paid this 
retirement benefit. Plans subject to this filing requirement are 
described in subparagraph (3) of this paragraph. Subparagraph (4) 
describes how the information is to be filed with the Internal Revenue 
Service. In the case of a plan to which only one employer contributes, 
the time for filing the information with respect to each separated 
participant is described in subparagraph (5). In the case of a plan to 
which more than one employer contributes the time for filing the 
information with respect to a participant is described in paragraph 
(b)(2) of this section. Paragraph (b) of this section also provides 
other rules applicable only to plans to which more than one employer 
contributes.
    (2) Deferred vested retirement benefit. For purposes of this 
section, a plan participant's deferred retirement benefit is considered 
a vested benefit if it is vested under the terms of the plan at the 
close of the plan year described in paragraph (a)(5) or (b)(4) of this 
section (whichever is applicable) for which information relating to any 
deferred vested retirement benefit of the participant must be filed. A 
participant's deferred retirement benefit need not be a nonforfeitable 
benefit within the meaning of section 411(a) for the filing requirements 
described in this section to apply. Accordingly, information relating to 
a participant's deferred vested retirement benefit must be filed as 
required by this section notwithstanding that the benefit is subject to 
forfeiture by reason of an event or condition occurring subsequent to 
the close of the plan year described in paragraph (a)(5) or (b)(4) of 
this section (whichever is applicable) for which information relating to 
any deferred vested retirement benefit of the participant must be filed.
    (3) Plans subject to filing requirement. The term ``employee 
retirement benefit plan'' means a plan to which the vesting standards of 
section 203 of part 2 of subtitle B of title I of the Employee 
Retirement Income Security Act of 1974 (88 Stat. 854) apply for any day 
in the plan year. (For purposes of this section, ``plan year'' means the 
plan year as determined for purposes of

[[Page 50]]

the annual return required by section 6058(a)). Accordingly, a plan need 
not be a qualified plan within the meaning of section 401(a) to be 
subject to these filing requirements. A plan to which more than one 
employer contributes must file the report of deferred vested retirement 
benefits described in this section, but see paragraph (b) of this 
section for special rules applicable to such a plan. The filing 
requirements described in this section and Sec.  301.6057-2 (relating to 
notification of change in plan status) do not apply to a governmental or 
church plan described in section 414 (d) or (e).
    (4) Filing requirements. Information relating to the deferred vested 
retirement benefit of a plan participant must be filed on schedule SSA 
as an attachment to the Annual Return/Report of Employee Benefit Plan 
(form 5500 series). Schedule SSA shall be filed on behalf of an employee 
retirement benefit plan for each plan year for which information 
relating to the deferred vested retirement benefit of a plan participant 
is filed under paragraph (a)(5) or (b)(2) of this section. There shall 
be filed on schedule SSA the name and social security number of the 
participant, a description of the nature, form, and amount of the 
deferred vested retirement benefit to which the participant is entitled, 
and such other information as is required by section 6057(a) or schedule 
SSA and the accompanying instructions. The form of the benefit reported 
on schedule SSA shall be the normal form of benefit under the plan, or, 
if the plan administrator (within the meaning of section 414(g)) 
considers it more appropriate, any other form of benefit.
    (5) Time for reporting deferred vested retirement benefit--(i) In 
general. In the case of a plan to which only one employer contributes, 
information relating to the deferred vested retirement benefit of a plan 
participant must be filed no later than on the schedule SSA filed for 
the plan year following the plan year within which the participant 
separates from service covered by the plan. Information relating to a 
separated participant may, at the option of the plan administrator, be 
reported earlier (that is, on the schedule SSA filed for the plan year 
in which the participant separates from service covered by the plan). 
For purposes of this paragraph a participant is not considered to 
separate from service covered by the plan solely because the participant 
incurs a break in service under the plan. In addition, for purposes of 
this paragraph, in the case of a plan which uses the elapsed time method 
described in Department of Labor regulations for crediting service for 
benefit accrual purposes, a participant is considered to separate from 
service covered by the plan on the date the participant severs from 
service covered by the plan.
    (ii) Exception. Notwithstanding subdivision (i), no information 
relating to the deferred vested retirement benefit of a separated 
participant is required to be filed on schedule SSA if, before the date 
such schedule SSA is required to be filed (including any extension of 
time for filing granted pursuant to section 6081), the participant (A) 
is paid some or all of the deferred vested retirement benefit under the 
plan, (B) returns to service covered by the plan, or (C) forfeits all of 
the deferred vested retirement benefit under the plan.
    (b) Plans to which more than one employer contributes--(1) 
Application. Section 6057 and this section apply to a plan to which more 
than one employer contributes with the modifications set forth in this 
paragraph. For purposes of section 6057 and this section, whether or not 
more than one employer contributes to a plan shall be determined by the 
number of employers who are required to contribute to the plan. Thus, 
for example, this paragraph applies to plans maintained by more than one 
employer which are collectively bargained as described in section 
413(a), multiple-employer plans described in section 413(c) and the 
regulations thereunder, multiemployer plans described in section 414(f), 
and plans adopted by more than one employer of certain controlled and 
common control groups described in section 414 (b) and (c).
    (2) Time for reporting deferred vested retirement benefit--(i) In 
general. In the case of a plan to which more than one employer 
contributes, information relating to the deferred vested retirement 
benefit of a plan participant must be filed no later than on the 
schedule

[[Page 51]]

SSA filed for the plan year within which the participant completes the 
second of two consecutive one-year breaks in service (as defined in the 
plan for vesting percentage purposes) in service computation periods (as 
defined in the plan for vesting percentage purposes) which begin after 
December 31, 1974. At the option of the plan administrator, information 
relating to a participant's deferred vested retirement benefit may be 
filed earlier (that is, on the schedule SSA filed for the plan year in 
which the participant incurs the first one-year break in service or, in 
the case of a separated participant, on the schedule SSA filed for the 
plan year in which the participant separates from service).
    (ii) Special rules--For purposes of this subparagraph (1)--
    (A) For the definition of the term ``1-year break in service'' in 
the case of a plan which uses the elapsed time method described in 
Department of Labor Regulations for crediting service for vesting 
percentage purposes, see Sec.  1.411(a)-6(c)(2).
    (B) In the case of a plan which does not define the term ``1-year 
break in service'' for vesting percentage purposes, a plan participant 
shall be deemed to incur a 1-year break in service under the plan in any 
plan year within which the participant does not complete more than 500 
hours of service covered by the plan.
    (iii) Transitional rule. Notwithstanding subdivision (i), if the 
second consecutive 1-year break in service described in subdivision (i) 
is incurred in a plan year beginning before January 1, 1978, information 
relating to the participant's deferred vested retirement benefit is not 
required to be filed earlier than on the schedule SSA filed for the 
first plan year beginning after December 31, 1977.
    (iv) Exception. Notwithstanding subdivision (i) or (iii) of this 
subparagraph, no information relating to a participant's deferred vested 
retirement benefit is required to be filed on schedule SSA if, before 
the date such schedule SSA is required to be filed (including any 
extension of time for filing granted pursuant to section 6081), the 
participant (A) is paid some or all of the deferred vested retirement 
benefit under the plan, (B) accrues additional retirement benefits under 
the plan, or (C) forfeits all of the deferred vested retirement benefit 
under the plan.
    (3) Information relating to deferred vested retirement benefit--(i) 
Incomplete records. Section 6057(a) and paragraph (a)(4) of this section 
require the filing on schedule SSA of a description of the deferred 
vested retirement benefit to which the participant is entitled. If the 
plan administrator of a plan to which more than one employer contributes 
maintains records of a participant's service covered by the plan which 
are incomplete as of the close of the plan year with respect to which 
the plan administrator files information relating to the participant on 
schedule SSA, the plan administrator may elect to file the information 
required by schedule SSA based only upon these incomplete records. The 
plan administrator is not required, for purposes of completing schedule 
SSA, to compile from sources other than such records a complete record 
of a participant's years of service covered by the plan. Similarly, if 
retirement benefits under the plan are determined by taking into account 
a participant's service with an employer which is not service covered by 
the plan, but the plan administrator maintains records only with respect 
to periods of service covered by the plan, the plan administrator may 
complete schedule SSA taking into account only the participant's period 
of service covered by the plan.
    (ii) Inability to determine correct amount of participant's deferred 
vested retirement benefit. If the amount of a participant's deferred 
vested retirement benefit which is filed on schedule SSA is computed on 
the basis of plan records maintained by the plan administrator which--
    (A) Are incomplete with respect to the participant's service covered 
by the plan (as described in subdivision (i)), or
    (B) Fail to account for the participant's service not covered by the 
plan which is relevant to a determination of the participant's deferred 
vested retirement benefit under the plan (as described in subdivision 
(i)),

then the plan administrator must indicate on schedule SSA that the 
amount

[[Page 52]]

of the deferred vested retirement benefit shown therein may be other 
than that to which the participant is actually entitled because the 
amount is based upon incomplete records.
    (iii) Inability to determine whether participant vested in deferred 
retirement benefit. Where, as described in subdivision (i), information 
to be reported on schedule SSA is to be based upon records which are 
incomplete with respect to a participant's service covered by the plan 
or which fail to take into account relevant service not covered by the 
plan, the plan administrator may be unable to determine whether or not 
the participant is vested in any deferred retirement benefit. If, in 
view of information provided either by the incomplete records or the 
plan participant, there is a significant likelihood that the plan 
participant is vested in a deferred retirement benefit under the plan, 
information relating to the participant must be filed on schedule SSA 
with the notation that the participant may be entitled to a deferred 
vested retirement benefit under the plan, but information relating to 
the amount of the benefit may be omitted. This subdivision (iii) does 
not apply in a case in which it can be determined from plan records 
maintained by the plan administrator that the participant is vested in a 
deferred retirement benefit. Subdivision (ii), however, may apply in 
such a case.
    (c) Voluntary filing--(1) In general. The plan administrator of an 
employee retirement benefit plan described in paragraph (a)(3) of this 
section, or any other employee retirement benefit plan (including a 
governmental or church plan), may at its option, file on schedule SSA 
information relating to the deferred vested retirement benefit of any 
plan participant who separates at any time from service covered by the 
plan, including plan participants who separate from service in plan 
years beginning before 1976.
    (2) Deleting previously filed information. If, after information 
relating to the deferred vested retirement benefit of a plan participant 
is filed on schedule SSA, the plan participant--
    (i) Is paid some or all of the deferred vested retirement benefit 
under the plan, or
    (ii) Forfeits all of the deferred vested retirement benefit under 
the plan, the plan administrator may, at its option, file on schedule 
SSA (or such other form as may be provided for this purpose) the name 
and social security number of the participant with the notation that 
information previously filed relating to the participant's deferred 
vested retirement benefit should be deleted.
    (d) Filing incident to cessation of payment of benefits--(1) In 
general. As described in this section, no information relating to the 
deferred vested retirement benefit of a plan participant is required to 
be filed on schedule SSA if before the date such schedule SSA is 
required to be filed, some of the deferred vested retirement benefit is 
paid to the participant, and information relating to a participant's 
deferred vested retirement benefit which was previously filed on 
schedule SSA may be deleted if the participant is paid some of the 
deferred vested retirement benefit. If payment of the deferred vested 
retirement benefit ceases before all of the benefit to which the 
participant is entitled is paid to the participant, information relating 
to the deferred vested retirement benefit to which the participant 
remains entitled shall be filed on the schedule SSA filed for the plan 
year following the last plan year within which a portion of the benefit 
is paid to the participant.
    (2) Exception. Notwithstanding subparagraph (1) of this paragraph, 
no information relating to the deferred vested retirement benefit to 
which the participant remains entitled is required to be filed on 
schedule SSA if, before the date such schedule SSA is required to be 
filed (including any extension of time for filing granted pursuant to 
section 6081), the participant (i) returns to service covered by the 
plan, (ii) accrues additional retirement benefits under the plan, or 
(iii) forfeits the benefit under the plan.
    (e) Individual statement to participant. The plan administrator of 
an employee retirement benefit plan defined in paragraph (a)(3) of this 
section must provide each participant with respect to whom information 
is required to be filed on schedule SSA a statement describing the 
deferred vested retirement

[[Page 53]]

benefit to which the participant is entitled. The description provided 
the participant must include the information filed with respect to the 
participant on schedule SSA. The statement is to be delivered to the 
participant or forwarded to the participant's last known address no 
later than the date on which any schedule SSA reporting information with 
respect to the participant is required to be filed (including any 
extension of time for filing granted pursuant to section 6081).
    (f) Penalties. For amounts imposed in the case of failure to file 
the report of deferred vested retirement benefits required by section 
6057(a) and paragraph (a) or (b) of this section, see section 
6652(e)(1). For the penalty relating to a failure to provide the 
participant the individual statement of deferred vested retirement 
benefit required by section 6057(e) and paragraph (e) of this section, 
see section 6690.
    (g) Effective dates--(1) Plans to which only one employer 
contributes. In the case of a plan to which only one employer 
contributes, this section is effective for plan years beginning after 
December 31, 1975, and with respect to a participant who separates from 
service covered by the plan in plan years beginning after that date.
    (2) Plans to which more than one employer contributes. In the case 
of a plan to which more than one employer contributes, this section is 
effective for plan years beginning after December 31, 1977, and with 
respect to a participant who completes two consecutive 1-year breaks in 
service under the plan in service computation periods beginning after 
December 31, 1974.

[T.D. 7561, 43 FR 38004, Aug. 25, 1978]



Sec.  301.6057-2  Employee retirement benefit plans; 
notification of change in plan status.

    (a) Change in plan status. The plan administrator (within the 
meaning of section 414(g)) of an employee retirement benefit plan 
defined in Sec.  301.6057-1(a)(3) (including a plan to which more than 
one employer contributes, as described in Sec.  301.6057-1(b)(1)) must 
notify the Internal Revenue Service of the following changes in plan 
status--
    (1) A change in the name of the plan.
    (2) A change in the name or address of the plan administrator,
    (3) The termination of the plan, or
    (4) The merger or consolidation of the plan with another plan or the 
division of the plan into two or more plans.
    (b) Notification. A notification of a change in status described in 
paragraph (a) of this section, must be filed on the Annual Return/Report 
of Employee Benefit Plan (form 5500 series) for the plan year in which 
the change in status occurred. The notification must be filed at the 
time and place and in the manner prescribed in the form and any 
accompanying instructions.
    (c) Penalty. For amounts imposed in the case of failure to file a 
notification of a change in plan status required by section 6057(b) and 
this section, see section 6652(e)(2).
    (d) Effective date. This section is effective for changes in plan 
status occurring within plan years beginning after December 31, 1975.

[T.D. 7561, 43 FR 38006, Aug. 25, 1978]



Sec.  301.6057-3  Required use of magnetic media for filing requirements 
relating to deferred vested retirement benefit.

    (a) Magnetic media filing requirements under section 6057. A 
registration statement required under section 6057(a) or a notification 
required under section 6057(b) with respect to an employee benefit plan 
must be filed on magnetic media if the filer is required by the Internal 
Revenue Code or regulations to file at least 250 returns during the 
calendar year that includes the first day of the plan year. Returns 
filed on magnetic media must be made in accordance with applicable 
revenue procedures, publications, forms, instructions, or other guidance 
on the IRS.gov Internet Web site. In prescribing revenue procedures, 
publications, forms, instructions, or other guidance on the IRS.gov 
Internet Web site, the Commissioner may direct the type of magnetic 
media filing. See Sec.  601.601(d)(2)(ii)(b) of this chapter.
    (b) Economic hardship waiver. The Commissioner may waive the 
requirements of this section in cases of undue economic hardship. The 
principal factor in determining hardship will be the amount, if any, by 
which the cost of

[[Page 54]]

filing the registration statements or notifications on magnetic media in 
accordance with this section exceeds the cost of filing the registration 
statements or notifications on other media. A request for a waiver must 
be made in accordance with applicable published guidance, publications, 
forms, instructions, or other guidance on the IRS.gov Internet Web site. 
See Sec.  601.601(d)(2)(ii)(b) of this chapter. The waiver will specify 
the type of filing (that is, a registration statement or notification 
under section 6057) and the period to which it applies. In addition, the 
waiver will be subject to such terms and conditions regarding the method 
of filing as may be prescribed by the Commissioner.
    (c) Failure to file. If a filer required to file a registration 
statement or other notification under section 6057 fails to file the 
statement or other notification on magnetic media when required to do so 
by this section, the filer is deemed to have failed to file the 
statement or other notification. See section 6652(d) for the amount 
imposed for the failure to file a registration statement or other 
notification required under section 6057. In determining whether there 
is reasonable cause for the failure to file the registration statement 
or notification under section 6057, Sec.  301.6652-3(b) and rules 
similar to the rules in Sec.  301.6724-1(c)(3)(ii) (regarding undue 
economic hardship related to filing information returns on magnetic 
media) will apply.
    (d) Meaning of terms. The following definitions apply for purposes 
of this section.
    (1) Magnetic media. The term magnetic media means electronic filing, 
as well as other media specifically permitted under applicable 
regulations, revenue procedures, or publications, forms, instructions, 
or other guidance on the IRS.gov Internet Web site. See Sec.  
601.601(d)(2)(ii)(b) of this chapter.
    (2) Registration statement required under section 6057(a). The term 
registration statement required under section 6057(a) means a Form 8955-
SSA (or its successor).
    (3) Notification required under section 6057(b). The term 
notification required under section 6057(b) means either a Form 8955-SSA 
(or its successor) or a return in the Form 5500 series (or its 
successor).
    (4) Determination of 250 returns--(i) In general. For purposes of 
this section, a filer is required to file at least 250 returns if, 
during the calendar year that includes the first day of the plan year, 
the filer is required to file at least 250 returns of any type, 
including information returns (for example, Forms W-2 and Forms 1099), 
income tax returns, employment tax returns, and excise tax returns.
    (ii) Definition of filer. For purposes of this section, the term 
filer means the plan administrator within the meaning of section 414(g). 
If the plan administrator within the meaning of section 414(g) is the 
employer, the special rules in Sec.  1.6058-2(d)(3)(iii) will apply.
    (e) Example. The following example illustrates the provisions of 
paragraph (d)(4) of this section:

    Example. In 2015, P, the plan administrator of Plan B, is required 
to file 252 returns (including Forms 1099-R, ``Distributions From 
Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance 
Contracts, etc.;'' Form 8955-SSA, ``Annual Registration Statement 
Identifying Separated Participants with Deferred Vested Benefits;'' Form 
5500, ``Annual Return/Report of Employee Benefit Plan;'' and Form 945, 
``Annual Return of Withheld Federal Income Tax''). Plan B's plan year is 
the calendar year. Because P is required to file at least 250 returns 
during the 2015 calendar year, P must file the 2015 Form 8955-SSA for 
Plan B electronically.

    (f) Effective/applicability date. This section is applicable for 
registration statements and other notifications required to be filed 
under section 6057 for plan years that begin on or after January 1, 
2014, but only for filings with a filing deadline (not taking into 
account extensions) on or after July 31, 2015.

[T.D. 9695, 79 FR 58258, Sept. 29, 2014]



Sec.  301.6058-1  Information required in connection with certain plans 
of deferred compensation.

    (a) Reporting of information--(1) Annual return. For each funded 
plan of deferred compensation an annual return must be filed with the 
Internal Revenue Service. The annual return of the plan is the 
appropriate Annual Return/Report of Employee Benefit Plan (Form 5500 
series) as determined under

[[Page 55]]

these forms. The annual period for the annual return of the plan shall 
be either the plan year or the taxable year of the employer maintaining 
the plan as determined under these forms. These forms are hereinafter 
referred to as the ``forms prescribed by section 6058(a).''
    (2) Plans subject to requirements. For purposes of this section, the 
term ``funded plan of deferred compensation'' means each pension, 
annuity, stock bonus, profit-sharing, or other funded plan of deferred 
compensation described in part 1 of subchapter D of chapter 1. 
Accordingly, the term includes qualified plans under sections 401(a), 
403(a), and 405(a); individual retirement accounts and annuities 
described in sections 408(a) and 408(b); and custodial accounts under 
section 403(b)(7). The term also includes: funded plans of deferred 
compensation which are not qualified plans; funded governmental plans 
and church plans, whether or not qualified (See sections 414(d) and 
414(e)); and plans maintained outside the United States primarily for 
nonresident aliens (as described in subsection (b)(4) of section 4 of 
subtitle A of title I of the Employee Retirement Income Security Act of 
1974; (88 Stat. 840)). The term does not include annuity contracts 
described in section 403(b)(1) or individual retirement accounts (an 
individual participant or surviving beneficiary in such account must 
file under paragraph (d)(2) of this section) and bonds described in 
sections 408(c) and 409.
    (3) Required information. The information required to be furnished 
on the forms prescribed by section 6058(a) shall include such 
information concerning the qualification of the plan, the financial 
condition of the trust, fund, or custodial or fiduciary account which is 
a part of the plan, and the operation of the plan as shall be required 
by the forms, applicable accompanying schedules and related instructions 
applicable to the annual period.
    (4) Time of filing. The forms prescribed by section 6058(a) shall be 
filed in the manner and at the time as required by the forms and related 
instructions applicable to the annual period.
    (b) Who must file--(1) In general. The annual return required to be 
filed under section 6058(a) and paragraph (a) of this section for the 
annual period shall be filed by either the employer maintaining the plan 
or the plan administrator (as defined in section 414(g)) of the plan for 
that annual period. Whether the employer or plan administrator files 
shall be determined under the forms prescribed by section 6058(a) and 
related instructions applicable to the annual period. Nothing in these 
forms shall preclude an employer from filing the return on behalf of the 
plan administrator, or the plan administrator from filing on behalf of 
the employer.
    (2) Definition of employer. For purposes of subparagraph (1) of this 
paragraph, the term ``employer'' includes a sole proprietor and a 
partnership.
    (c) Other rules applicable to annual returns--(1) Extensions of time 
for filing. For rules relating to the extension of time for filing, see 
section 6081 and the regulations thereunder and the instructions on the 
forms prescribed by section 6058(a).
    (2) Amended filing. Any form prescribed by this section may be filed 
as an amendment to a form previously filed under this section with 
respect to the same annual period pursuant to the instructions for such 
forms.
    (3) Additional information. In addition to the information otherwise 
required to be furnished by this section, the district director may 
require any further information that is considered necessary to 
determine allowable deductions under section 404, qualification under 
section 401, or the financial condition and operation of the plan.
    (4) Records. Records substantiating all data and information 
required by this section to be filed must be kept at all times available 
for inspection by internal revenue officers at the principal office or 
place of business of the employer or plan administrator.
    (5) Relief from filing. Notwithstanding paragraph (a) of this 
section, the Commissioner may, in his discretion, relieve an employer, 
or plan administrator, from reporting information on the forms 
prescribed by section 6058(a). This discretion includes the ability to 
relieve an employer, or plan administrator, from filing the applicable 
form.

[[Page 56]]

    (d) Special rules for individual retirement arrangements--(1) 
Application. This paragraph, in lieu of paragraph (a) of this section, 
applies to an individual retirement account described in section 408(a) 
and an individual retirement annuity described in section 408(b), 
including such accounts and annuities for which a deduction is allowable 
under section 220 (spousal individual retirement arrangements).
    (2) General rule. For each taxable year beginning after December 31, 
1974, every individual who during such taxable year--
    (i) Establishes or maintains an individual retirement account 
described in section 408(a) (including an individual who is a 
participant in an individual retirement account described in section 
408(c)).
    (ii) Purchases or maintains an individual retirement annuity 
described in section 408(b), or
    (iii) Is a surviving beneficiary with respect to an account or 
annuity referred to in this subparagraph which is in existence during 
such taxable year, shall file Form 5329 (or any other form designated by 
the Commissioner for this purpose), as an attachment to or part of the 
Form 1040 filed by such individual for such taxable year, setting forth 
in full the information required by that form and the accompanying 
instructions.
    (3) Special information returns. If an individual described in 
subparagraph (2) of this paragraph is not required to file a Form 1040 
for such taxable year, such individual shall file a Form 5329 (or any 
other designated form) with the Internal Revenue Service by the 15th day 
of the 4th month following the close of such individual's taxable year 
setting forth in full the information required by that form and the 
accompanying instructions.
    (4) Relief from filing. The Commissioner may, in his discretion, 
relieve an individual from filing the form prescribed by this paragraph.
    (5) Retirement bonds. An individual who purchases, holds, or 
maintains a retirement bond described in section 409 may be required to 
file a return under other provisions of the Code.
    (e) Actuarial statement in case of mergers, etc. For requirements 
with respect to the filing of actuarial statements in the case of a 
merger, consolidation, or transfer of assets or liabilities, see section 
6058(b) and section 414(l) and the regulations thereunder.
    (f) Effective dates--(1) Section 6058 (a) requirements. The rules 
with respect to annual returns required under section 6058(a) (the rules 
in this section, other than paragraph (e) thereof) are effective for 
plan years beginning after September 2, 1974.
    (2) Section 6058(b) requirements. The requirements of section 
6058(b) relating to mergers, etc., and paragraph (e) of this section are 
effective on September 2, 1974, with respect to events described in 
section 6058(b) occurring on or after such date.

[T.D. 7551, 43 FR 29292, July 7, 1978]



Sec.  301.6058-2  Required use of magnetic media for filing requirements 
relating to information required in connection with certain plans 
of deferred compensation.

    (a) Magnetic media filing requirements under section 6058. A return 
required under section 6058 with respect to an employee benefit plan 
must be filed on magnetic media if the filer is required by the Internal 
Revenue Code or regulations to file at least 250 returns during the 
calendar year that includes the first day of the plan year. Returns 
filed on magnetic media must be made in accordance with applicable 
revenue procedures, publications, forms, instructions, or other guidance 
on the IRS.gov Internet Web site. In prescribing revenue procedures, 
publications, forms, and instructions, or other guidance on the IRS.gov 
Internet site, the Commissioner may direct the type of magnetic media 
filing. See Sec.  601.601(d)(2)(ii)(b) of this chapter.
    (b) Economic hardship waiver. The Commissioner may waive the 
requirements of this section in cases of undue economic hardship. The 
principal factor in determining hardship will be the amount, if any, by 
which the cost of filing the return on magnetic media in accordance with 
this section exceeds the cost of filing the returns on other media. A 
request for a waiver must be made in accordance with applicable 
published guidance, publications, forms, instructions, or other guidance

[[Page 57]]

on the IRS.gov Internet Web site. See Sec.  601.601(d)(2)(ii)(b) of this 
chapter. The waiver will specify the type of filing (that is, a return 
required under section 6058) and the period to which it applies. In 
addition, the waiver will be subject to such terms and conditions 
regarding the method of filing as may be prescribed by the Commissioner.
    (c) Failure to file. If a filer required to file a return under 
section 6058 fails to file the return on magnetic media when required to 
do so by this section, the filer is deemed to have failed to file the 
return. See section 6652(e) for the amount imposed for the failure to 
file a return required under section 6058. In determining whether there 
is reasonable cause for failure to file the return, Sec.  301.6652-3(b) 
and rules similar to the rules in Sec.  301.6724-1(c)(3)(ii) (regarding 
undue economic hardship related to filing information returns on 
magnetic media) will apply.
    (d) Meaning of terms. The following definitions apply for purposes 
of this section.
    (1) Magnetic media. The term magnetic media means electronic filing, 
as well as other media specifically permitted under applicable 
regulations, revenue procedures, or publications, forms, instructions, 
or other guidance on the IRS.gov Internet Web site. See Sec.  
601.601(d)(2)(ii)(b) of this chapter.
    (2) Return required under section 6058. The term return required 
under section 6058 means a return in the Form 5500 series (or its 
successor).
    (3) Determination of 250 returns--(i) In general. For purposes of 
this section, a filer is required to file at least 250 returns if, 
during the calendar year that includes the first day of the plan year, 
the filer is required to file at least 250 returns of any type, 
including information returns (for example, Forms W-2 and Forms 1099), 
income tax returns, employment tax returns, and excise tax returns.
    (ii) Definition of filer. For purposes of this section, the term 
filer means the employer or employers maintaining the plan and the plan 
administrator within the meaning of section 414(g).
    (iii) Special rules relating to determining 250 returns. For 
purposes of applying paragraph (d)(3)(ii) of this section, the 
aggregation rules of section 414(b), (c), (m), and (o) will apply to a 
filer that is or includes an employer. Thus, for example, a filer that 
is a member of a controlled group of corporations within the meaning of 
section 414(b) must file the Form 5500 series on magnetic media if the 
aggregate number of returns required to be filed by all members of the 
controlled group of corporations is at least 250.
    (e) Example. The following example illustrates the provisions of 
paragraph (d)(3) of this section:

    Example. In 2016 Employer X (the plan sponsor of Plan A) and P (the 
plan administrator of Plan A) are required to file 267 returns. Employer 
X is required to file the following: one Form 1120, ``U.S. Corporation 
Income Tax Return;'' 195 Forms W-2, ``Wage and Tax Statement;'' 25 Forms 
1099-DIV, ``Dividends and Distributions;'' one Form 940, ``Employer's 
Annual Federal Unemployment (FUTA) Tax Return;'' and four Forms 941, 
``Employer's Quarterly Federal Tax Return.'' P is required to file 40 
Forms 1099-R, ``Distributions From Pensions, Annuities, Retirement, 
Profit-Sharing Plans, IRAs, Insurance Contracts, etc.'' P and Employer X 
are jointly required to file one Form 5500 series return. Plan A's plan 
year is the calendar year. Because P and Employer X, in the aggregate, 
are required to file at least 250 returns during the calendar year, the 
2016 Form 5500 for Plan A must be filed electronically.

    (f) Effective/applicability date. This section is applicable for 
returns required to be filed under section 6058 for plan years that 
begin on or after January 1, 2015, but only for filings with a filing 
deadline (not taking into account extensions) after December 31, 2015.

[T.D. 9695, 79 FR 58259, Sept. 29, 2014]



Sec.  301.6059-1  Periodic report of actuary.

    (a) In general. The actuarial report described in this section must 
be filed on behalf on a defined benefit plan to which the minimum 
funding standards of section 412 apply. The actuarial report must be 
filed by the plan administrator (within the meaning of section 414(g)) 
on Schedule B as an attachment to the annual Return/Report of Employee 
Benefit Plan (Form 5500 series). The instructions accompanying the Form 
5500 series prescribe the place and date for filing Schedule B.

[[Page 58]]

    (b) Plan years for which report required. In the case of a plan in 
existence on January 1, 1974, Schedule B must be filed for the first 
plan year beginning after December 31, 1975, for which the minimum 
funding standards apply to the plan, and for each plan year thereafter 
for which the Schedule must be filed under the instructions accompanying 
the Schedule and the Form 5500 series. In the case of a plan not in 
existence on January 1, 1974, Schedule B must be filed for the first 
plan year beginning after September 2, 1974, for which the minimum 
funding standards apply to the plan, and for each plan year thereafter 
for which the Schedule must be filed under the instructions accompanying 
the Schedule and the Form 5500 series. For rules relating to when a plan 
is considered to be in existence, see Sec.  1.410(a)-2(c). For purposes 
of this section, ``plan year'' means the plan year as determined for 
purposes of the minimum funding standards.
    (c) Contents of report. The actuarial report of a plan filed on 
Schedule B must contain--
    (1) The date of the actuarial valuation applicable to the plan year 
for which the report is filed (see section 412(c)(9) for rules relating 
to the frequency with which an actuarial valuation of the plan is 
required to be made),
    (2) A description of the funding method and actuarial assumptions 
used to determine costs under the plan,
    (3) A certification of the contribution necessary to reduce the 
accumulated funding deficiency (as defined in section 412(a)) to zero,
    (4) A statement by the enrolled actuary signing the report that to 
the best of the actuary's knowledge the report is complete and accurate,
    (5) A statement by the enrolled actuary signing the report that in 
the actuary's opinion the actuarial assumptions used are in the 
aggregate (i) reasonably related to the experience of the plan and to 
reasonable expectations, and (ii) represent the actuary's best estimate 
of anticipated experience under the plan,
    (6) Such other information as may be necessary to fully and fairly 
disclose the actuarial position of the plan, and
    (7) Such other information as may be required by Schedule B or the 
instructions accompanying the Schedule and the Form 5500 series.
    (d) Certification by enrolled actuary. The actuarial report filed on 
Schedule B must be signed by an enrolled actuary (within the meaning of 
section 7701(a)(35)) or there may be attached to the report a statement 
signed by the actuary that contains the statements described in 
paragraph (c) (4) and (5) of this section.

An actuarial report filed for a plan year ending after January 25, 1982, 
does not satisfy the requirements of this section if the actuary seeks 
to materially qualify such statements. For this purpose, the following 
are not considered to materially qualify a statement required by 
paragraph (c) (4) or (5) of this section:
    (1) A statement that the report is based in part on information 
provided to the actuary by another person, that such information would 
customarily not be verified by the actuary, and that the actuary has no 
reason to doubt the substantial accuracy of the information (taking into 
account the facts and circumstances that are known or reasonably should 
be known to the actuary, including the contents of any other actuarial 
report prepared by the actuary for the plan),
    (2) A statement that the report is based in part on information 
provided by another person, that the actuary believes such information 
is or may be inaccurate or incomplete, but that the inaccuracies or 
omissions are not material, the inaccuracies or omissions are not so 
numerous or flagrant as to suggest that there may be material 
inaccuracies, and that therefore the actuarial report is substantially 
accurate and complete and fairly discloses the actuarial position of the 
plan,
    (3) A statement that the report reflects the requirement of a 
regulation or ruling, and that any statement regarding the actuarial 
position of the plan is made only in light of such requirement,
    (4) A statement that the report reflects an interpretation of a 
statute, regulation or ruling, that the actuary has no reason to doubt 
the validity of that interpretation, and that any

[[Page 59]]

statement regarding the actuarial position of the plan is made only in 
light of such interpretation,
    (5) A statement that in the opinion of the actuary the report fully 
reflects the requirements of an applicable statute, but does not conform 
to the requirements of a regulation or ruling promulgated under the 
statute that the actuary believes is contrary to the statute, or
    (6) A statement furnished to comply with the requirements of 
paragraph (c)(6) of this section.

A statement otherwise described in a subparagraph of this paragraph (d) 
shall not be considered to satisfy the requirements of such subparagraph 
unless the statement identifies, with particularity, that matter to 
which the statement relates and the facts and circumstances surrounding 
the statement. In addition, a statement otherwise described in 
subparagraph (5) of this paragraph (d) shall not be considered to 
satisfy the requirements of that subparagraph unless the statement 
indicates whether an accumulated funding deficiency or a contribution 
that is not wholly deductible may result if the actuary's belief is 
determined to be incorrect.
    (e) Relief from filing. Notwithstanding paragraph (a) of this 
section, the Commissioner may, in the Commissioner's discretion, relieve 
a plan administrator from filing Schedule B or from reporting 
information required by Schedule B or paragraph (c) of this section.
    (f) Penalty. For the penalty imposed in the case of a failure to 
file the actuarial report required by this section, see section 6692 and 
Sec.  301.6692-1.

(Secs. 6059 and 7805 of the Internal Revenue Code of 1954 (88 Stat. 947, 
68A Stat. 917; 26 U.S.C. 6059, 7805))

[T.D. 7798, 46 FR 57483, Nov. 24, 1981; 46 FR 60435, Dec. 10, 1981]



Sec.  301.6059-2  Required use of magnetic media for filing requirements 
relating to periodic report of actuary.

    (a) Magnetic media filing requirements under section 6059. An 
actuarial report required under section 6059 with respect to an employee 
benefit plan must be filed on magnetic media if the filer is required by 
the Internal Revenue Code or regulations to file at least 250 returns 
during the calendar year that includes the first day of the plan year. 
Actuarial reports filed on magnetic media must be made in accordance 
with applicable revenue procedures, publications, forms, instructions, 
or other guidance on the IRS.gov Internet Web site. In prescribing 
revenue procedures, publications, forms, instructions, or other guidance 
on the IRS.gov Internet Web site, the Commissioner may direct the type 
of magnetic media filing. See Sec.  601.601(d)(2)(ii)(b) of this 
chapter.
    (b) Economic hardship waiver. The Commissioner may waive the 
requirements of this section in cases of undue economic hardship. The 
principal factor in determining hardship will be the amount, if any, by 
which the cost of filing the reports on magnetic media in accordance 
with this section exceeds the cost of filing the reports on other media. 
A request for a waiver must be made in accordance with applicable 
published guidance, publications, forms, instructions, or other guidance 
on the IRS.gov Internet Web site. See Sec.  601.601(d)(2)(ii)(b) of this 
chapter. The waiver will specify the type of filing (that is, an 
actuarial report required under section 6059) and the period to which it 
applies. In addition, the waiver will be subject to such terms and 
conditions regarding the method of filing as may be prescribed by the 
Commissioner.
    (c) Failure to file. If a filer required to file an actuarial report 
under section 6059 fails to file the report on magnetic media when 
required to do so by this section, the filer is deemed to have failed to 
file the report. See section 6692 for the penalty for the failure to 
file an actuarial report. In determining whether there is reasonable 
cause for failure to file the report, Sec.  301.6692-1(c) and rules 
similar to the rules in Sec.  301.6724-1(c)(3)(ii) (regarding undue 
economic hardship related to filing information returns on magnetic 
media) will apply.
    (d) Meaning of terms. The following definitions apply for purposes 
of this section.
    (1) Magnetic media. The term magnetic media means electronic filing, 
as well as other media specifically permitted under applicable 
regulations, revenue

[[Page 60]]

procedures, or publications, forms, instructions, or other guidance on 
the IRS.gov Internet Web site. See Sec.  601.601(d)(2)(ii)(b) of this 
chapter.
    (2) Actuarial report required under section 6059--(i) Single 
employer plans. For a single employer plan, the term actuarial report 
required under section 6059 means the Schedule SB, ``Single-Employer 
Defined Benefit Plan Actuarial Information,'' of the Form 5500 series 
(or its successor).
    (ii) Multiemployer and certain money purchase plans. For 
multiemployer and certain money purchase plans, the term actuarial 
report required under section 6059 means the Schedule MB, 
``Multiemployer Defined Benefit Plan and Certain Money Purchase Plan 
Actuarial Information,'' of the Form 5500 series (or its successor).
    (3) Determination of 250 returns--(i) In general. For purposes of 
this section, a filer is required to file at least 250 returns if, 
during the calendar year that includes the first day of the plan year, 
the filer is required to file at least 250 returns of any type, 
including information returns (for example, Forms W-2 and Forms 1099), 
income tax returns, employment tax returns, and excise tax returns.
    (ii) Definition of filer. For purposes of this section, the term 
filer means the plan administrator within the meaning of section 414(g). 
If the plan administrator within the meaning of section 414(g) is the 
employer, the special rules in Sec.  1.6058-2(d)(3)(iii) will apply.
    (e) Example. The following example illustrates the provisions of 
paragraph (d)(3) of this section:

    Example. In 2016, P, the plan administrator of Plan B (a single 
employer defined benefit plan), is required to file 266 returns 
(including Forms 1099-R ``Distributions From Pensions, Annuities, 
Retirement, Profit-Sharing Plans, IRAs, Insurance Contracts, etc.'' and 
one Form 5500 series). Plan B's plan year is the calendar year. Because 
P is required to file at least 250 returns during the calendar year, P 
must file the 2016 Schedule SB of the Form 5500 series return for Plan B 
electronically.

    (f) Effective/applicability date. This section is applicable for 
actuarial reports required to be filed under section 6059 for plan years 
that begin on or after January 1, 2015, but only for filings with a 
filing deadline (not taking into account extensions) after December 31, 
2015.

[T.D. 9695, 79 FR 58260, Sept. 29, 2014]

          signing and verifying of returns and other documents



Sec.  301.6061-1  Signing of returns and other documents.

    (a) In general. For provisions concerning the signing of returns and 
other documents, see the regulations relating to the particular tax.
    (b) Method of signing. The Secretary may prescribe in forms, 
instructions, or other appropriate guidance the method of signing any 
return, statement, or other document required to be made under any 
provision of the internal revenue laws or regulations.
    (c) Effective dates. The rule in paragraph (a) is effective December 
12, 1996. The rule in paragraph (b) is effective on July 21, 1995.

[T.D. 8689, 61 FR 65320, Dec. 12, 1996]



Sec.  301.6062-1  Signing of corporation returns.

    For provisions relating to the signing of corporation income tax 
returns, see Sec.  1.6062-1 of this chapter (Income Tax Regulations).



Sec.  301.6063-1  Signing of partnership returns.

    For provisions relating to the signing of returns of partnership 
income, see Sec.  1.6063-1 of this chapter (Income Tax Regulations).



Sec.  301.6064-1  Signature presumed authentic.

    An individual's name signed to a return, statement, or other 
document shall be prima facie evidence for all purposes that the return, 
statement, or other document was actually signed by him.



Sec.  301.6065-1  Verification of returns.

    For provisions concerning the verification of returns and other 
documents, see the regulations relating to the particular tax.

[[Page 61]]

               time for filing returns and other documents



Sec.  301.6071-1  Time for filing returns and other documents.

    For provisions concerning the time for filing returns and other 
documents, see the regulations relating to the particular tax.



Sec.  301.6072-1  Time for filing income tax returns.

    For provisions relating to time for filing income tax returns, see 
Sec. Sec.  1.6072-1 to 1.6072-4, inclusive, of this chapter (Income Tax 
Regulations).



Sec.  301.6073-1  Time for filing declarations of estimated income tax 
by individuals.

    For provisions relating to time for filing declarations of estimated 
income tax by individuals, see Sec. Sec.  1.6073-1 to 1.6073-4, 
inclusive, of this chapter (Income Tax Regulations).



Sec.  301.6074-1  Time for filing declarations of estimated income tax 
by corporations.

    For provisions relating to time for filing declarations of estimated 
income tax by corporations, see Sec. Sec.  1.6074-1 to 1.6074-3, 
inclusive, of this chapter (Income Tax Regulations).



Sec.  301.6075-1  Time for filing estate and gift tax returns.

    For provisions relating to time for filing estate tax returns and 
gift tax returns, see Sec.  20.6075-1 of this chapter (Estate Tax 
Regulations) and Sec.  25.6075-1 of this chapter (Gift Tax Regulations), 
respectively.

                  extension of time for filing returns



Sec.  301.6081-1  Extension of time for filing returns.

    For provisions concerning extensions of time for filing returns or 
other documents, see the regulations relating to the particular tax.



Sec.  301.6081-2  Automatic extension of time for filing an information return 
with respect to certain foreign trusts.

    (a) In general. A trust required to file a return on Form 3520-A, 
``Annual Information Return of Foreign Trust with a U.S. Owner,'' will 
be allowed an automatic 6-month extension of time to file the return 
after the date prescribed for filing the return if the trust files an 
application under this section in accordance with paragraph (b) of this 
section.
    (b) Requirements. To satisfy this paragraph (b), a trust must--
    (1) Submit a complete application on Form 7004, ``Application for 
Automatic Extension of Time to File Certain Business Income Tax, 
Information, and Other Returns,'' or in any other manner prescribed by 
the Commissioner; and
    (2) File the application on or before the date prescribed for filing 
the return with the Internal Revenue Service office designated in the 
application's instructions.
    (c) Termination of automatic extension. The Commissioner may 
terminate an automatic extension at any time by mailing to the trust a 
notice of termination at least 10 days prior to the termination date 
designated in such notice. The Commissioner must mail the notice of 
termination to the address shown on the Form 7004 or to the trust's last 
known address. For further guidance regarding the definition of last 
known address, see Sec.  301.6212-2 of this chapter.
    (d) Penalties. See section 6677 for failure to file information 
returns with respect to certain foreign trusts.
    (e) Effective/applicability dates. This section is applicable for 
applications for an automatic extension of time to file an information 
return with respect to certain foreign trusts listed in paragraph (a) of 
this section filed after July 1, 2008.

[T.D. 9407, 73 FR 37371, July 1, 2008]

               place for filing returns or other documents



Sec.  301.6091-1  Place for filing returns and other documents.

    (a) General rule. For provisions concerning the place for filing 
returns, including hand-carried returns, see the regulations relating to 
the particular tax. Except as provided in paragraph (b) of this section, 
for provisions concerning the place for filing documents

[[Page 62]]

other than returns, see the regulations relating to the particular tax.
    (b) Exception for hand-carried documents other than returns. 
Notwithstanding any other provisions of this chapter--
    (1) Persons other than corporations. If a document, other than a 
return, of a person (other than a corporation) is hand carried, and if 
the document is otherwise required to be filed with a service center, 
such document may be filed with any person assigned the responsibility 
to receive hand-carried returns in the local Internal Revenue Service 
office that serves the legal residence or principal place of business of 
such person, or, in the case of an estate, the local Internal Revenue 
Service office serving the domicile of the decedent at the time of his 
death. A document may also be filed by hand carrying such document to 
the appropriate service center, or, in the case of a document required 
to be filed with an office of the Alcohol and Tobacco Tax and Trade 
Bureau, by hand carrying as specified in regulations of the Alcohol and 
Tobacco Tax and Trade Bureau, see, 27 CFR chapter I, subchapter F.
    (2) Corporations. If a document, other than a return, of a 
corporation is hand carried, and if the document is otherwise required 
to be filed with a service center, such document may be filed with any 
person assigned the responsibility to receive hand-carried returns in 
the local Internal Revenue Service office that serves the principal 
place of business or principal office or agency of the corporation. A 
document may also be filed by hand carrying such document to the 
appropriate service center, or, in the case of a document required to be 
filed with an office of the Alcohol and Tobacco Tax and Trade Bureau, by 
hand carrying as specified in regulations of the Alcohol and Tobacco Tax 
and Trade Bureau, see, 27 CFR chapter I, subchapter F.
    (c) Definition of hand carried. For purposes of this section and 
section 6091(b)(4) and the regulations issued thereunder, a return or 
document will be considered to be hand carried if it is brought to the 
any person assigned the responsibility to receive hand-carried returns 
in the local Internal Revenue Service office by the person required to 
file the return or other document, or by his agent. Examples of persons 
who will be considered to be agents, for purposes of the preceding 
sentence, are: Members of the taxpayer's family, an employee of the 
taxpayer, the taxpayer's attorney, accountant, or tax advisor, and 
messengers employed by the taxpayer. A return or document will not be 
considered to be hand carried if it is sent to the Internal Revenue 
Service through the U.S. Mail.

[T.D. 6950, 33 FR 5359, Apr. 4, 1968, as amended by T.D. 7008, 34 FR 
3673, Mar. 1, 1969; T.D. 7012, 34 FR 7697, May 15, 1969; T.D. 7188, 37 
FR 12794, June 29, 1972; T.D. 7238, 37 FR 28739, Dec. 29, 1972; T.D. 
ATF-33, 41 FR 44038, Oct. 6, 1976; T.D. 7495, 42 FR 33727, July 1, 1977; 
T.D. 9156, 69 FR 55747, Sept. 16, 2004]



Sec.  301.6096-1  Designation by individuals for taxable years 
beginning after December 31, 1972.

    (a) In general. Every individual (other than a nonresident alien) 
whose income tax liability, as defined in paragraph (b) of this section, 
is one dollar or more may, at his option, designate that one dollar 
shall be paid over to the Presidential Election Campaign Fund, in 
accordance with the provisions of section 9006. In the case of a joint 
return of a husband and wife, each spouse may designate that one dollar 
be paid to the fund as provided in this paragraph only if the joint 
income tax liability of the husband and wife is two dollars or more.
    (b) Income tax liability. For purposes of paragraph (a) of this 
section, the income tax liability of an individual for any taxable year 
is the amount of the tax imposed by chapter 1 on such individual for the 
taxable year (as shown on his or her return) reduced by the sum of the 
credits (as shown on his or her return) allowable under sections 33, 37, 
38, 40, 41, 42, 44, and 44A.
    (c) Manner and time of designation. (1) A designation under 
paragraph (a) of this section may be made with respect to any taxable 
year at the time of the filing of the return of the tax imposed by 
chapter 1 for such taxable year, and shall be made either on the first 
page of the return or on the page bearing the taxpayer's signature, in 
accordance with the instructions applicable thereto.

[[Page 63]]

    (2) With respect to any taxable year beginning after December 31, 
1972 for which no designation was made under paragraph (c)(1) of this 
section, a designation may be made on the form furnished by the Internal 
Revenue Service for such purpose, filed within 20 and one half months 
after the due date for the original return for such taxable year. In the 
case of a joint return where neither spouse made a designation or where 
only one spouse made a designation, a designation may be made, as 
provided in this subparagraph, by the spouse or spouses who had not 
previously made a designation.
    (3) A designation once made, whether by an original return or 
otherwise, may not be revoked.
    (d) Effective date. This section shall apply to taxable years 
beginning after December 31, 1972.

[T.D. 7304, 39 FR 4476, Feb. 4, 1974, as amended by T.D. 7643, 44 FR 
50338, Aug. 28, 1979]

                        Miscellaneous provisions



Sec.  301.6101-1  Period covered by returns or other documents.

    For provisions concerning the period covered by returns or other 
documents, see the regulations relating to the particular tax.



Sec.  301.6102-1  Computations on returns or other documents.

    (a) Amounts shown on forms. To the extent permitted by any internal 
revenue form or instructions prescribed for use with respect to any 
internal revenue return, declaration, statement, other document, or 
supporting schedules, any amount required to be reported on such form 
shall be entered at the nearest whole dollar amount. The extent to 
which, and the conditions under which, such whole dollar amounts shall 
be entered on any form will be set forth in the instructions issued with 
respect to such form. For the purpose of the computation to the nearest 
dollar, a fractional part of a dollar shall be disregarded unless it 
amounts to one-half dollar or more, in which case the amount (determined 
without regard to the fractional part of a dollar) shall be increased by 
$1. The following illustrates the application of this paragraph:

------------------------------------------------------------------------
                                                                 To be
                        Exact amount                           reported
                                                                 as--
------------------------------------------------------------------------
$18.49......................................................         $18
$18.50......................................................          19
$18.51......................................................          19
------------------------------------------------------------------------

    (b) Election not to use whole dollar amounts--(1) Method of 
election. Where any internal revenue form, or the instructions issued 
with respect to such form, provide that whole dollar amounts shall be 
reported, any person making a return, declaration, statement, or other 
document on such form may elect not to use whole dollar amounts by 
reporting thereon all amounts in full, including cents.
    (2) Time of election. The election not to use whole dollar amounts 
must be made at the time of filing the return, declaration, statement, 
or other document. Such election may not be revoked after the time 
prescribed for filing such return, declaration, statement, or other 
document, including extensions of time granted for such filing. Such 
election may be made on any return, declaration, statement, or other 
document which is filed after the time prescribed for filing (including 
extensions of time), and such an election is irrevocable.
    (3) Effect of election. The taxpayer's election shall be binding 
only on the return, declaration, statement, or other document filed for 
a taxable year or period, and a new election may be made on the return, 
declaration, statement, or other document filed for a subsequent taxable 
year or period. An election by either a husband or a wife not to report 
whole dollar amounts on a separate income tax return shall be binding on 
any subsequent joint return filed under the provisions of section 
6013(b).
    (4) Fractional part of a cent. For treatment of the fractional part 
of a cent in the payment of taxes, see section 6313 and Sec.  301.6313-
1.
    (c) Inapplicability to computation of amount. The provisions of 
paragraph (a) of this section apply only to amounts required to be 
reported on a return, declaration, statement, or other document. They do 
not apply to items which must be taken into account in making the 
computations necessary to determine such amounts. For example,

[[Page 64]]

each item of receipt must be taken into account at its exact amount, 
including cents, in computing the amount of total receipts required to 
be reported on an income tax return or supporting schedule. It is the 
amount of total receipts, so computed, which is to be reported at the 
nearest whole dollar on the return or supporting schedule.
    (d) Effect on accounting method. Section 6102 and this section have 
no effect on any authorized accounting method.



Sec.  301.6103(a)-1  Disclosures after December 31, 1976, by officers 
and employees of Federal agencies of returns and return information 
(including taxpayer return information) disclosed to such officers 
and employees by the Internal Revenue Service before January 1, 1977, 
for a purpose not involving tax administration.

    (a) General rule. Except as provided by paragraph (b) of this 
section, a return or return information (including taxpayer return 
information), as defined in section 6103(b) (1), (2), and (3) of the 
Internal Revenue Code, disclosed by the Internal Revenue Service before 
January 1, 1977, to an officer or employee of a Federal agency (as 
defined in section 6103(b)(9)) for a purpose not involving tax 
administration (as defined in section 6103(b)(4)) pursuant to the 
authority of section 6103 (or any order of the President under section 
6103 or rules and regulations thereunder prescribed by the Secretary or 
his delegate and approved by the President) before amendment of such 
section by section 1202 of the Tax Reform Act of 1976 (Pub. L. 94-455, 
90 Stat. 1667) may be disclosed by, or on behalf of, such officer, 
employee, or agency after December 31, 1976, for any purpose authorized 
by such section (or such order or rules and regulations) before such 
amendment.
    (b) Exception. Notwithstanding the provisions of paragraph (a) of 
this section, a return or return information (including taxpayer return 
information) disclosed before January 1, 1977, by the Service to an 
officer or employee of a Federal agency for a purpose unrelated to tax 
administration as described in paragraph (a) may, after December 31, 
1976, be disclosed by, or on behalf of, such agency, officer, or 
employee in an administrative or judicial proceeding only if such 
proceeding is one described in section 6103(i)(4) of the Code and if the 
requirements of section 6103(i)(4) have first been met.

(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))

[T.D. 7723, 45 FR 65566, Oct. 3, 1980]



Sec.  301.6103(a)-2  Disclosures after December 31, 1976, by attorneys 
of the Department of Justice and officers and employees of the Office 
of the Chief Counsel for the Internal Revenue Service of returns and return 
information (including taxpayer return information) disclosed to such 
attorneys, officers, and employees by the Service before January 1, 1977, 
for a purpose involving tax administration.

    (a) General rule. Except as provided by paragraph (b) of this 
section and subject to the requirements of this paragraph, a return or 
return information (including taxpayer return information), as defined 
in section 6103(b) (1), (2), and (3), of the Internal Revenue Code 
disclosed by the Internal Revenue Service before January 1, 1977, to an 
attorney of the Department of Justice (including a United States 
attorney) or to an officer or employee of the Office of the Chief 
Counsel for the Service for a purpose involving tax administration (as 
defined in section 6103(b)(4)) pursuant to the authority of section 6103 
(or any order of the President under section 6103 or rules and 
regulations thereunder prescribed by the Secretary or his delegate and 
approved by the President) before amendment of such section by section 
1202 of the Tax Reform Act of 1976 (Pub. L. 94-455, 90 Stat. 1667) may 
be disclosed by, or on behalf of, such attorney, officer, or employee 
after December 31, 1976, for any purpose authorized by such section (or 
such order or rules and regulations) before such amendment.
    (b) Exception. Notwithstanding the provisions of paragraph (a) of 
this section, a return or return information (including taxpayer return 
information) disclosed before January 1, 1977, by the Service to an 
attorney of the Department of Justice or to an officer or employee of 
the Office of the Chief Counsel for the Service for a purpose

[[Page 65]]

related to tax administration as described in paragraph (a) may, after 
December 31, 1976, be disclosed by, or on behalf of, such attorney, 
officer, or employee in an administrative or judicial proceeding only if 
such proceeding is one described in section 6103(h)(4) of the Code and 
if the requirements of section 6103 (h)(4) have first been met.

(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))

[T.D. 7723, 45 FR 65567, Oct. 3, 1980]



Sec.  301.6103(c)-1  Disclosure of returns and return information 
to designee of taxpayer.

    (a) Overview. Subject to such requirements and conditions as the 
Secretary may prescribe by regulation, section 6103(c) of the Internal 
Revenue Code authorizes the Internal Revenue Service to disclose a 
taxpayer's return or return information to such person or persons as the 
taxpayer may designate in a request for or consent to such disclosure, 
or to any other person at the taxpayer's request to the extent necessary 
to comply with the taxpayer's request to such other person for 
information or assistance. This regulation contains the requirements 
that must be met before, and the conditions under which, the Internal 
Revenue Service may make such disclosures. Paragraph (b) of this section 
provides the requirements that are generally applicable to designate a 
third party to receive the taxpayer's returns and return information. 
Paragraph (c) of this section provides requirements under which the 
Internal Revenue Service may disclose information in connection with a 
taxpayer's written or nonwritten request for a third party to provide 
information or assistance with regard to a tax matter, for example, a 
Congressional inquiry. Paragraph (d) of this section provides the 
parameters for disclosure consents connected with electronic return 
filing programs and combined Federal-State filing. Finally, paragraph 
(e) of this section provides definitions and general rules related to 
requests for or consents to disclosure.
    (b) Disclosure of returns and return information to person or 
persons designated in a written request or consent--(1) General 
requirements. Pursuant to section 6103(c) of the Internal Revenue Code, 
the Internal Revenue Service (or an agent or contractor of the Internal 
Revenue Service) may disclose a taxpayer's return or return information 
(in written or nonwritten form) to such person or persons as the 
taxpayer may designate in a request for or consent to such disclosure. A 
request for or consent to disclosure under this paragraph (b) must be in 
the form of a separate written document pertaining solely to the 
authorized disclosure. (For the meaning of separate written document, 
see paragraph (e)(1) of this section.) The separate written document 
must be signed (see paragraph (e)(2) of this section) and dated by the 
taxpayer who filed the return or to whom the return information relates. 
At the time it is signed and dated by the taxpayer, the written document 
must also indicate--
    (i) The taxpayer's taxpayer identity information described in 
section 6103(b)(6);
    (ii) The identity of the person or persons to whom the disclosure is 
to be made;
    (iii) The type of return (or specified portion of the return) or 
return information (and the particular data) that is to be disclosed; 
and
    (iv) The taxable year or years covered by the return or return 
information.
    (2) Requirement that request or consent be received within one 
hundred twenty days of when signed and dated. The disclosure of a return 
or return information authorized by a written request for or written 
consent to the disclosure shall not be made unless the request or 
consent is received by the Internal Revenue Service (or an agent or 
contractor of the Internal Revenue Service) within 120 days following 
the date upon which the request or consent was signed and dated by the 
taxpayer.
    (c) Disclosure of returns and return information to designee of 
taxpayer to comply with a taxpayer's request for information or 
assistance. If a taxpayer makes a written or nonwritten request, 
directly to another person or to the Internal Revenue Service, that such 
other person (for example, a member of Congress, friend, or relative of 
the taxpayer) provide information or assistance relating to the 
taxpayer's return

[[Page 66]]

or to a transaction or other contact between the taxpayer and the 
Internal Revenue Service, the Internal Revenue Service (or an agent or 
contractor of the Internal Revenue Service or a Federal government 
agency performing a Federal tax administration function) may disclose 
returns or return information (in written or nonwritten form) to such 
other person under the circumstances set forth in paragraphs (c)(1) 
through (3) of this section.
    (1) Written request for information or assistance. (i) The 
taxpayer's request for information or assistance may be in the form of a 
letter or other written document, which must be signed (see paragraph 
(e)(2) of this section) and dated by the taxpayer. The taxpayer must 
also indicate in the written request--
    (A) The taxpayer's taxpayer identity information described in 
section 6103(b)(6);
    (B) The identity of the person or persons to whom disclosure is to 
be made; and
    (C) Sufficient facts underlying the request for information or 
assistance to enable the Internal Revenue Service to determine the 
nature and extent of the information or assistance requested and the 
returns or return information to be disclosed in order to comply with 
the taxpayer's request.
    (ii) A person who receives a copy of a taxpayer's written request 
for information or assistance but who is not the addressee of the 
request, such as a member of Congress who is provided with a courtesy 
copy of a taxpayer's letter to another member of Congress or to the 
Internal Revenue Service, cannot receive returns or return information 
under paragraph (c)(1) of this section.
    (2) Nonwritten request or consent. (i) A request for information or 
assistance may also be nonwritten. Disclosure of returns and return 
information to a designee pursuant to a taxpayer's nonwritten request 
will be made only after the Internal Revenue Service has--
    (A) Obtained from the taxpayer sufficient facts underlying the 
request for information or assistance to enable the Internal Revenue 
Service to determine the nature and extent of the information or 
assistance requested and the return or return information to be 
disclosed in order to comply with the taxpayer's request;
    (B) Confirmed the identity of the taxpayer and the designee; and
    (C) Confirmed the date, the nature, and the extent of the 
information or assistance requested.
    (ii) Examples of disclosures pursuant to nonwritten requests for 
information or assistance under this paragraph (c)(2) include, but are 
not limited to, disclosures to a friend, relative, or other person whom 
the taxpayer brings to an interview or meeting with Internal Revenue 
Service officials, and disclosures to a person whom the taxpayer wishes 
to involve in a telephone conversation with Internal Revenue Service 
officials.
    (iii) As long as the requirements of this paragraph (c)(2) are met, 
the taxpayer does not need to be present, either in person or as part of 
a telephone conversation, for disclosures of returns and return 
information to be made to the other person.
    (3) Rules applicable to written and nonwritten requests for 
information or assistance. A return or return information will be 
disclosed to the taxpayer's designee as provided by this paragraph only 
to the extent considered necessary by the Internal Revenue Service to 
comply with the taxpayer's request or consent. Such disclosures shall 
not be made unless the request or consent is received by the Internal 
Revenue Service, its agent or contractor, or a Federal government agency 
performing a Federal tax administration function in connection with a 
request for advice or assistance relating to such function. This 
paragraph (c) does not apply to disclosures to a taxpayer's 
representative in connection with practice before the Internal Revenue 
Service (as defined in Treasury Department Circular No. 230, 31 CFR part 
10). For disclosures in these cases, see section 6103(e)(6) and 
Sec. Sec.  601.501 through 601.508 of this chapter.
    (d) Acknowledgments of electronically filed returns and other 
documents; combined filing programs with State tax agencies. The 
requirements of paragraphs (b) and (c) of this section do not apply to 
this paragraph (d).

[[Page 67]]

    (1) Acknowledgment of, and notices regarding, electronically filed 
returns and other documents. When a taxpayer files returns or other 
documents or information with the Internal Revenue Service 
electronically, the taxpayer may consent to the disclosure of return 
information to the transmitter or other third party, such as the 
taxpayer's financial institution, necessary to acknowledge that the 
electronic transmission was received and either accepted or rejected by 
the Internal Revenue Service, the reason for any rejection, and such 
other information as the Internal Revenue Service determines is 
necessary to the operation of the electronic filing program. The consent 
must inform the taxpayer of the return information that will be 
transmitted and to whom disclosure will be made.
    (2) Combined return filing programs with State tax agencies. (i) A 
taxpayer's participation in a combined return filing program between the 
Internal Revenue Service and a State agency, body, or commission (State 
agency) described in section 6103(d)(1) constitutes a consent to the 
disclosure by the Internal Revenue Service, to the State agency, of 
taxpayer identity information, signature, and items of common data 
contained on the return. For purposes of this paragraph, common data 
means information reflected on the Federal return required by State law 
to be attached to or included on the State return. Instructions 
accompanying the forms or published procedures involved in such program 
must indicate that by participating in the program, the taxpayer is 
consenting to the Internal Revenue Service's disclosure to the State 
agency of the taxpayer identity information, signature, and items of 
common data, and that such information will be treated by the State 
agency as if it had been directly filed with the State agency. Such 
instructions or procedures must also describe any verification that 
takes place before the taxpayer identity information, signature and 
common data is transmitted by the Internal Revenue Service to the State 
agency.
    (ii) No disclosures may be made under this paragraph (d)(2) unless 
there are provisions of State law protecting the confidentiality of such 
items of common data.
    (e) Definitions and rules applicable to this section--(1) Separate 
written document. (i) For the purposes of paragraph (b) of this section, 
separate written document means--
    (A) Text appearing on one or more sheets of 8\1/2\ -inch by 11-inch 
or larger paper, each of which pertains solely to the authorized 
disclosure, so long as such sheet or sheets, taken together, contain all 
the elements described in paragraph (b)(1) of this section;
    (B) Text appearing on one or more computer screens, each of which 
pertains solely to the authorized disclosure, so long as such screen or, 
taken together, such screens--
    (1) Contain all the elements described in paragraph (b)(1) of this 
section,
    (2) Can be signed (see paragraph (e)(2) of this section) and dated 
by the taxpayer, and
    (3) Can be reproduced, if necessary; or
    (C) A consent on the record in an administrative or judicial 
proceeding, or a transcript of such proceeding recording such consent, 
containing the information required under paragraph (b)(1) of this 
section.
    (ii) A provision included in a taxpayer's application for a loan or 
other benefit authorizing the grantor of the loan or other benefit to 
obtain any financial information, including returns or return 
information, from any source as the grantor may request for purposes of 
verifying information supplied on the application, does not meet the 
requirements of paragraph (b)(1) of this section because the provision 
is not a separate written document relating solely to the disclosure of 
returns and return information. In addition, the provision does not 
contain the other information specified in paragraph (b)(1) of this 
section.
    (2) Method of signing. A request for or consent to disclosure may be 
signed by any method of signing the Secretary has prescribed pursuant to 
Sec.  301.6061-1(b) in forms, instructions, or other appropriate 
guidance.
    (3) Permissible designees and public forums. Permissible designees 
under this

[[Page 68]]

section include individuals; trusts; estates; corporations; 
partnerships; Federal, State, local and foreign government agencies or 
subunits of such agencies; or the general public. When disclosures are 
to be made in a public forum, such as in a courtroom or congressional 
hearing, the request for or consent to disclosure must describe the 
circumstances surrounding the public disclosure, e.g., congressional 
hearing, judicial proceeding, media, and the date or dates of the 
disclosure. When a designee is an individual, this section does not 
authorize disclosures to other individuals associated with such 
individual, such as employees of such individual or members of such 
individual's staff.
    (4) Authority to execute a request for or consent to disclosure. Any 
person who may obtain returns under section 6103(e)(1) through (5), 
except section 6103(e)(1)(D)(iii), may execute a request for or consent 
to disclose a return or return information to third parties. For 
taxpayers that are legal entities, such as corporations and municipal 
bond issuers, any officer of the entity with authority under applicable 
State law to legally bind the entity may execute a request for or 
consent to disclosure. A person described in section 6103(e)(6) (a 
taxpayer's representative or individual holding a power of attorney) may 
not execute a request for or consent to disclosure unless the 
designation of representation or power of attorney specifically 
delegates such authority. A designee pursuant to this section does not 
have authority to execute a request for or consent to disclosure 
permitting the Internal Revenue Service to disclose returns or return 
information to another person.
    (5) No disclosure of return information if impairment. A disclosure 
of return information shall not be made under this section if the 
Internal Revenue Service determines that the disclosure would seriously 
impair Federal tax administration (as defined in section 6103(b)(4) of 
the Internal Revenue Code).
    (f) Applicability date. This section is applicable on April 29, 
2003, except that paragraph (b)(2) is applicable to section 6103(c) 
authorizations signed on or after October 19, 2009.
    (g) Effective date. This section is effective on April 29, 2003, 
except that paragraphs (b)(2) and (f) are effective on May 7, 2013.

[T.D. 9054, 68 FR 22598, Apr. 29, 2003, as amended by T.D. 9618, 78 FR 
26507, May 7, 2013]



Sec.  301.6103(h)(2)-1  Disclosure of returns and return information 
(including taxpayer return information) to and by officers and employees 
of the Department of Justice for use in Federal grand jury proceeding, or 
in preparation for proceeding or investigation, involving tax administration.

    (a) Disclosure of returns and return information (including taxpayer 
return information) to and by officers and employees of the Department 
of Justice. (1) Returns and return information (including taxpayer 
return information), as defined in section 6103(b) (1), (2), and (3) of 
the Internal Revenue Code, shall, to the extent provided by section 
6103(h)(2) (A), (B), and (C) and subject to the requirements of section 
6103(h)(3), be open to inspection by or disclosure to officers and 
employees of the Department of Justice (including United States 
attorneys) personally and directly engaged in, and for their necessary 
use in, any Federal grand jury proceeding, or preparation for any 
proceeding (or for their necessary use in an investigation which may 
result in such a proceeding) before a Federal grand jury or any Federal 
or State court, in a matter involving tax administration (as defined in 
section 6103(b)(4)), including any such proceeding (or any such 
investigation) also involving the enforcement of a related Federal 
criminal statute which has been referred by the Secretary to the 
Department of Justice.
    (2) Returns and return information (including taxpayer return 
information) inspected by or disclosed to officers and employees of the 
Department of Justice as provided in paragraph (a)(1) of this section 
may also be used by such officers and employees or disclosed by them to 
other officers and employees (including United States attorneys and 
supervisory personnel, such as Section Chiefs, Deputy Assistant 
Attorneys General, Assistant Attorneys General, the Deputy Attorney

[[Page 69]]

General, and the Attorney General), of the Department of Justice where 
necessary--
    (i) In connection with any Federal grand jury proceeding, or 
preparation for any proceeding (or with an investigation which may 
result in such a proceeding), described in paragraph (a)(1), or
    (ii) In connection with any Federal grand jury proceeding, or 
preparation for any proceeding (or with an investigation which may 
result in such a proceeding), described in paragraph (a)(1) which also 
involves enforcement of a specific Federal criminal statute other than 
one described in paragraph (a)(1) to which the United States is or may 
be a party, provided such matter involves or arises out of the 
particular facts and circumstances giving rise to the proceeding (or 
investigation) described in paragraph (a)(1) and further provided the 
tax portion of such proceeding (or investigation) has been duly 
authorized by or on behalf of the Assistant Attorney General for the Tax 
Division of the Department of Justice, pursuant to the request of the 
Secretary, as a proceeding (or investigation) described in paragraph 
(a)(1). If, in the course of a Federal grand jury proceeding, or 
preparation for a proceeding (or the conduct of an investigation which 
may result in such a proceeding), described in subdivision (ii) of this 
subparagraph, the tax administration portion thereof is terminated for 
any reason, any further use or disclosure of such returns or taxpayer 
return information in such Federal grand jury proceeding, or preparation 
or investigation, with respect to the remaining portion may be made only 
pursuant to, and upon the grant of, a court order as provided by section 
6103(i)(1)(A), provided, however, that the returns and taxpayer return 
information may in any event be used for purposes of obtaining the 
necessary court order.
    (b) Disclosure of returns and return information (including taxpayer 
return information) by officers and employees of the Department of 
Justice. (1) Returns and return information (including taxpayer return 
information), as defined in section 6103(b) (1), (2), and (3) of the 
Code, inspected by or disclosed to officers and employees of the 
Department of Justice as provided by paragraph (a) of this section may 
be disclosed by such officers and employees to other persons, including, 
but not limited to, persons described in paragraph (b)(2), but only to 
the extent necessary in connection with a Federal grand jury proceeding, 
or the proper preparation for a proceeding (or in connection with an 
investigation which may result in such a proceeding), described in 
paragraph (a). Such disclosures may include, but are not limited to, 
disclosures--
    (i) To properly accomplish any purpose or activity of the nature 
described in section 6103(k)(6) and the regulations thereunder which is 
essential to such Federal grand jury proceeding, or to such proper 
preparation (or to such investigation);
    (ii) To properly interview, consult, depose, or interrogate or 
otherwise obtain relevant information from, the taxpayer to whom such 
return or return information relates (or such taxpayer's legal 
representative) or from any witness who may be called to give evidence 
in the proceeding; or
    (iii) To properly conduct negotiations concerning, or obtain 
authorization for, settlement or disposition of the proceeding, in whole 
or in part, or stipulations of fact in connection with the proceeding.

Disclosure of a return or return information to a person other than the 
taxpayer to whom such return or return information relates or such 
taxpayer's legal representative to properly accomplish any purpose or 
activity described in this paragraph should be made, however, only if 
such purpose or activity cannot otherwise properly be accomplished 
without making such disclosure.
    (2) Among those persons to whom returns and return information may 
be disclosed by officers and employees of the Department of Justice as 
provided by paragraph (a)(1) of this section are--
    (i) Other officers and employees of the Department of Justice, such 
as personnel of an office, board, division, or bureau of such department 
(for example, the Federal Bureau of Investigation or the Drug 
Enforcement Administration), clerical personnel (for example, 
secretaries, stenographers, docket

[[Page 70]]

and file room clerks, and mail room employees) and supervisory personnel 
(such as supervisory personnel of the Federal Bureau of Investigation or 
the Drug Enforcement Administration);
    (ii) Officers and employees of another Federal agency (as defined in 
section 6103(b)(9)) working under the direction and control of any such 
officers and employees of the Department of Justice; and
    (iii) Court reporters.

(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))

[T.D. 7723, 45 FR 65567, Oct. 3, 1980]



Sec.  301.6103(h)(4)-1  Disclosure of returns and return information 
in whistleblower administrative proceedings.

    (a) In general. A whistleblower administrative proceeding (as 
described in Sec.  301.7623-3) is an administrative proceeding 
pertaining to tax administration within the meaning of section 
6103(h)(4).
    (b) Disclosures in whistleblower administrative proceedings. 
Pursuant to section 6103(h)(4) and paragraph (a) of this section, the 
Director, officers, and employees of the Whistleblower Office may 
disclose returns and return information (as defined by section 6103(b)) 
to a whistleblower (or the whistleblower's legal representative, if any) 
to the extent necessary to conduct a whistleblower administrative 
proceeding (as described in Sec.  301.7623-3), including but not limited 
to--
    (1) By communicating a preliminary award recommendation or 
preliminary denial letter to the whistleblower;
    (2) By providing the whistleblower with an award report package;
    (3) By conducting a meeting with the whistleblower to review 
documents supporting the preliminary award recommendation; and
    (4) By sending an award decision letter, award determination letter, 
or award denial letter to the whistleblower.
    (c) Effective/applicability date. This rule is effective on August 
12, 2014. This rule applies to information submitted on or after August 
12, 2014, and to claims for award under sections 7623(a) and 7623(b) 
that are open as of August 12, 2014.

[T.D. 9687, 79 FR 47264, Aug. 12, 2014]



Sec.  301.6103(i)-1  Disclosure of returns and return information 
(including taxpayer return information) to and by officers and employees 
of the Department of Justice or another Federal agency for use in Federal 
grand jury proceeding, or preparation for proceeding or investigation, 
involving enforcement of Federal criminal statute not involving 
tax administration.

    (a) Disclosure of returns and return information (including taxpayer 
return information) to officers and employees of the Department of 
Justice or another Federal agency. Returns and return information 
(including taxpayer return information), as defined in section 
6103(b)(1), (2), and (3) of the Internal Revenue Code, shall, to the 
extent provided by section 6103(i) (1), (2), and (3) and subject to the 
requirements of section 6103(i) (1) and (2), be open to inspection by or 
disclosure to officers and employees of the Department of Justice 
(including United States attorneys) or of another Federal agency (as 
defined in section 6103(b)(9)) personally and directly engaged in, and 
for their necessary use in, any Federal grand jury proceeding, or 
preparation for any administration or judicial proceeding (or their 
necessary use in an investigation which may result in such a 
proceeding), pertaining to enforcement of a specifically designated 
Federal criminal statute not involving or related to tax administration 
to which the United States or such agency is or may be a party.
    (b) Disclosure of returns and return information (including taxpayer 
return information) by officers and employees of the Department of 
Justice or another Federal agency. (1) Returns and return information 
(including taxpayer return information), as defined in section 6103(b) 
(1), (2), and (3) of the Code, disclosed to officers and employees of 
the Department of Justice or other Federal agency (as defined in section 
6103(b)(9)) as provided by paragraph (a) of this section may be 
disclosed by such officers and employees to other persons, including, 
but not limited to, persons described in subparagraph (2) of this

[[Page 71]]

paragraph, but only to the extent necessary in connection with a Federal 
grand jury proceeding, or the proper preparation for a proceeding (or in 
connection with an investigation which may result in such a proceeding), 
described in paragraph (a). Such disclosures may include, but are not 
limited to, disclosures where necessary--
    (i) To properly obtain the services of persons having special 
knowledge or technical skills (such as, but not limited to, handwriting 
analysis, photographic development, sound recording enhancement, or 
voice identification);
    (ii) To properly interview, consult, depose, or interrogate or 
otherwise obtain relevant information from, the taxpayer to whom such 
return or return information relates (or such taxpayer's legal 
representative) or any witness who may be called to give evidence in the 
proceeding; or
    (iii) To properly conduct negotiations concerning, or obtain 
authorization for, disposition of the proceeding, in whole or in part, 
or stipulations of fact in connection with the proceeding.

Disclosure of a return or return information to a person other than the 
taxpayer to whom such return or return information relates or such 
taxpayer's legal representative to properly accomplish any purpose or 
activity described in this subparagraph should be made, however, only if 
such purpose or activity cannot otherwise properly be accomplished 
without making such disclosures.
    (2) Among those persons to whom returns and return information may 
be disclosed by officers and employees of the Department of Justice or 
other Federal agency as provided by subparagraph (1) of this paragraph 
are--
    (i) Other officers and employees of the Department of Justice 
(including an office, board, division, or bureau of such department, 
such as the Federal Bureau of Investigation or the Drug Enforcement 
Administration) or other Federal agency described in subparagraph (1), 
such as clerical personnel (for example, secretaries, stenographers, 
docket and file room clerks, and mail room employees) and supervisory 
personnel (for example, in the case of the Department of Justice, 
Section Chiefs, Deputy Assistant Attorneys General, Assistant Attorneys 
General, the Deputy Attorney General, the Attorney General, and 
supervisory personnel of the Federal Bureau of Investigation or the Drug 
Enforcement Administration);
    (ii) Officers and employees of another Federal agency (as defined in 
section 6103(b)(9)) working under the direction and control of such 
officers and employees of the Department of Justice or other Federal 
agency described in subparagraph (1); and
    (iii) Court reporters.

(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))

[T.D. 7723, 45 FR 65568, Oct. 3, 1980]



Sec.  301.6103(j)(1)-1  Disclosures of return information reflected 
on returns to officers and employees of the Department of Commerce 
for certain statistical purposes and related activities.

    (a) General rule. Pursuant to the provisions of section 6103(j)(1) 
of the Internal Revenue Code and subject to the requirements of 
paragraph (d) of this section, officers or employees of the Internal 
Revenue Service will disclose return information (as defined by section 
6103(b)(2) but not including return information described in section 
6103(o)(2)) reflected on returns to officers and employees of the 
Department of Commerce to the extent, and for such purposes as may be, 
provided by paragraphs (b) and (c) of this section. Further, in the case 
of any disclosure of return information reflected on returns so provided 
by paragraphs (b) and (c) of this section, the tax period or accounting 
period to which such information relates will also be disclosed. 
``Return information reflected on returns'' includes, but is not limited 
to, information on returns, information derived from processing such 
returns, and information derived from the Social Security Administration 
and other sources for the purposes of establishing and maintaining 
taxpayer information relating to returns.
    (b) Disclosure of return information reflected on returns to 
officers and employees of the Bureau of the Census. (1) Officers or 
employees of the Internal Revenue Service will disclose the following

[[Page 72]]

return information reflected on returns of individual taxpayers to 
officers and employees of the Bureau of the Census for purposes of, but 
only to the extent necessary in, conducting and preparing, as authorized 
by chapter 5 of title 13, United States Code, intercensal estimates of 
population and income for all geographic areas included in the 
population estimates program and demographic statistics programs, 
censuses, and related program evaluation:
    (i) Taxpayer identity information (as defined in section 6103(b)(6) 
of the Internal Revenue Code), validity code with respect to the 
taxpayer identifying number (as described in section 6109), and taxpayer 
identity information of spouse and dependents, if reported.
    (ii) Location codes (including area/district office and campus/
service center codes).
    (iii) Marital status.
    (iv) Number and classification of reported exemptions.
    (v) Wage and salary income.
    (vi) Dividend income.
    (vii) Interest income.
    (viii) Gross rent and royalty income.
    (ix) Total of--
    (A) Wages, salaries, tips, etc.;
    (B) Interest income;
    (C) Dividend income;
    (D) Alimony received;
    (E) Business income;
    (F) Pensions and annuities;
    (G) Income from rents, royalties, partnerships, estates, trusts, 
etc.;
    (H) Farm income;
    (I) Unemployment compensation; and
    (J) Total Social Security benefits.
    (x) Adjusted gross income.
    (xi) Type of tax return filed.
    (xii) Entity code.
    (xiii) Code indicators for Form 1040, Form 1040 (Schedules A, C, D, 
E, F, and SE), and Form 8814.
    (xiv) Posting cycle date relative to filing.
    (xv) Social Security benefits.
    (xvi) Earned Income (as defined in section 32(c)(2)).
    (xvii) Number of Earned Income Tax Credit-eligible qualifying 
children.
    (xviii) Electronic Filing System Indicator.
    (xix) Return Processing Indicator.
    (xx) Paid Preparer Code.
    (2) Officers or employees of the Internal Revenue Service will 
disclose to officers and employees of the Bureau of the Census for 
purposes of, but only to the extent necessary in, conducting, as 
authorized by chapter 5 of title 13, United States Code, demographic, 
economic, and agricultural statistics programs and censuses and related 
program evaluation--
    (i) From the business master files of the Internal Revenue Service--
the taxpayer name directory and entity records consisting of taxpayer 
identity information (as defined in section 6103(b)(6)) with respect to 
taxpayers engaged in a trade or business, the principal industrial 
activity code, the filing requirement code, the employment code, the 
physical location, the location codes (including area/district office 
and campus/service center codes), and monthly corrections of, and 
additions to, such entity records;
    (ii) From Form SS-4--all information reflected on such form;
    (iii) From an employment tax return--
    (A) Taxpayer identifying number (as described in section 6109) of 
the employer;
    (B) Total compensation reported;
    (C) Master file tax account code (MFT);
    (D) Taxable period covered by such return;
    (E) Employer code;
    (F) Document locator number;
    (G) Record code;
    (H) Total number of individuals employed in the taxable period 
covered by the return;
    (I) Total taxable wages paid for purposes of chapter 21;
    (J) Total taxable tip income reported for purposes of chapter 21;
    (K) If a business has closed or stopped paying wages;
    (L) Final date a business paid wages; and
    (M) If a business is a seasonal employer and does not have to file a 
return for every quarter of the year;
    (iv) From Form 1040 (Schedule SE)--
    (A) Taxpayer identifying number of self-employed individual;
    (B) Business activities subject to the tax imposed by chapter 21;

[[Page 73]]

    (C) Net earnings from farming;
    (D) Net earnings from nonfarming activities;
    (E) Total net earnings from self-employment; and
    (F) Taxable self-employment income for purposes of chapter 2;
    (v) Total Social Security taxable earnings; and
    (vi) Quarters of Social Security coverage.
    (3) Officers or employees of the Internal Revenue Service will 
disclose the following business-related return information reflected on 
returns of taxpayers to officers and employees of the Bureau of the 
Census for purposes of, but only to the extent necessary in, conducting 
and preparing, as authorized by chapter 5 of title 13, United States 
Code, demographic and economic statistics programs, censuses, and 
surveys. (The ``returns of taxpayers'' include, but are not limited to: 
Form 941; Form 990 series; Form 1040 series and Schedules C and SE; Form 
1065 and all attending schedules and Form 8825; Form 1120 series and all 
attending schedules and Form 8825; Form 851; Form 1096; and other 
business returns, schedules and forms that the Internal Revenue Service 
may issue.):
    (i) Taxpayer identity information (as defined in section 6103(b)(6)) 
including parent corporation, shareholder, partner, and employer 
identity information.
    (ii) Gross income, profits, or receipts.
    (iii) Returns and allowances.
    (iv) Cost of labor, salaries, and wages.
    (v) Total expenses or deductions, including totals of the following 
components thereof:
    (A) Repairs (and maintenance) expense;
    (B) Rents (or lease) expense;
    (C) Taxes and licenses expense;
    (D) Interest expense, including mortgage or other interest;
    (E) Depreciation expense;
    (F) Depletion expense;
    (G) Advertising expense;
    (H) Pension and profit-sharing plans (retirement plans) expense;
    (I) Employee benefit programs expense;
    (J) Utilities expense;
    (K) Supplies expense;
    (L) Contract labor expense; and
    (M) Management (and investment advisory) fees.
    (vi) Total assets.
    (vii) Beginning- and end-of-year inventory.
    (viii) Royalty income.
    (ix) Interest income, including portfolio interest.
    (x) Rental income, including gross rents.
    (xi) Tax-exempt interest income.
    (xii) Net gain from sales of business property.
    (xiii) Other income.
    (xiv) Total income.
    (xv) Percentage of stock owned by each shareholder.
    (xvi) Percentage of capital ownership of each partner.
    (xvii) Principal industrial activity code, including the business 
description.
    (xviii) Consolidated return indicator.
    (xix) Wages, tips, and other compensation.
    (xx) Social Security wages.
    (xxi) Deferred wages.
    (xxii) Social Security tip income.
    (xxiii) Total Social Security taxable earnings.
    (xxiv) Gross distributions from employer-sponsored and individual 
retirement plans from Form 1099-R.
    (xxv) From Form 6765 (when filed with corporation income tax 
returns)--
    (A) Indicator that total qualified research expenses is greater than 
zero, but less than $1 million; greater than or equal to $1 million, but 
less than $3 million; or, greater than or equal to $3 million;
    (B) Cycle posted; and
    (C) Research tax credit amount to be carried over to a business 
return, schedule, or form.
    (xxvi) Total number of documents reported on Form 1096 transmitting 
Forms 1099-MISC.
    (xxvii) Total amount reported on Form 1096 transmitting Forms 1099-
MISC.
    (xxviii) Type of REIT.
    (xxix) From Form 1125-A-- purchases.
    (xxx) From Form 1040, Schedule C--
    (A) Purchases less cost of items withdrawn for personal use; and
    (B) Materials and supplies.
    (xxxi) Electronic filing system indicator.

[[Page 74]]

    (xxxii) Posting cycle date relative to filing.
    (xxxiii) Dividends, including ordinary or qualified.
    (xxxiv) From Form 1120S, Schedule K-1--ordinary business income 
(loss).
    (xxxv) From Form 1065, Schedule K-1--
    (A) Publicly-traded partnership indicator;
    (B) Partner's share of nonrecourse, qualified nonrecourse, and 
recourse liabilities; and
    (C) Ordinary business income (loss).
    (4) Officers or employees of the Internal Revenue Service will 
disclose return information reflected on returns of taxpayers contained 
in the exempt organization master files of the Internal Revenue Service 
to officers and employees of the Bureau of the Census for purposes of, 
but only to the extent necessary in, conducting and preparing, as 
authorized by chapter 5 of title 13, United States Code, economic 
censuses. This return information reflected on returns of taxpayers 
consists of taxpayer identity information (as defined in section 
6103(b)(6)), activity codes, and filing requirement code, and monthly 
corrections of, and additions to, such information.
    (5) Subject to the requirements of paragraph (d) of this section and 
Sec.  301.6103(p)(2)(B)-1, officers or employees of the Social Security 
Administration to whom the following return information reflected on 
returns has been disclosed as provided by section 6103(l)(1)(A) or 
(l)(5) may disclose such information to officers and employees of the 
Bureau of the Census for necessary purposes described in paragraph 
(b)(2) or (3) of this section:
    (i) From Form SS-4--all information reflected on such form.
    (ii) From Form 1040 (Schedule SE)--
    (A) Taxpayer identifying number of self-employed individual;
    (B) Business activities subject to the tax imposed by chapter 21;
    (C) Net earnings from farming;
    (D) Net earnings from nonfarming activities;
    (E) Total net earnings from self-employment; and
    (F) Taxable self-employment income for purposes of chapter 2.
    (iii) From Form W-2, and related forms and schedules--
    (A) Social Security number;
    (B) Employer identification number;
    (C) Wages, tips, and other compensation;
    (D) Social Security wages; and
    (E) Deferred wages.
    (iv) Total Social Security taxable earnings.
    (v) Quarters of Social Security coverage.
    (6)(i) Officers or employees of the Internal Revenue Service will 
disclose the following return information (but not including return 
information described in section 6103(o)(2)) reflected on returns of 
corporations with respect to the tax imposed by chapter 1 to officers 
and employees of the Bureau of the Census for purposes of, but only to 
the extent necessary in, developing and preparing, as authorized by law, 
the Quarterly Financial Report:
    (A) From the business master files of the Internal Revenue Service--
    (1) Taxpayer identity information (as defined in section 
6103(b)(6)), including parent corporation identity information;
    (2) Document code;
    (3) Location codes (including area/district office and campus/
service center codes);
    (4) Consolidated return and final return indicators;
    (5) Principal industrial activity code;
    (6) Partial year indicator;
    (7) Annual accounting period;
    (8) Gross receipts less returns and allowances; and
    (9) Total assets.
    (B) From Form SS-4--
    (1) Month and year in which such form was executed;
    (2) Taxpayer identity information; and
    (3) Principal industrial activity, geographic, firm size, and reason 
for application codes.
    (C) From Form 1120-REIT--
    (1) Type of REIT; and
    (2) Gross rents from real property;
    (D) From Form 1120F--corporation's method of accounting.
    (E) From Form 1096--total amount reported.
    (ii) Subject to the requirements of paragraph (d) of this section 
and

[[Page 75]]

Sec.  301.6103(p)(2)(B)-1, officers or employees of the Social Security 
Administration to whom return information reflected on returns of 
corporations described in paragraph (b)(6)(i)(B) of this section has 
been disclosed as provided by section 6103(l)(1)(A) or (l)(5) may 
disclose such information to officers and employees of the Bureau of the 
Census for a purpose described in this paragraph (b)(6).
    (iii) Return information reflected on employment tax returns 
disclosed pursuant to paragraphs (b)(2)(iii) (A), (B), (D), (I) and (J) 
of this section may be used by officers and employees of the Bureau of 
the Census for the purpose described in and subject to the limitations 
of this paragraph (b)(6).
    (7) Officers or employees of the Internal Revenue Service will 
disclose the following return information reflected on Form 1098 
``Mortgage Interest Statement'' to officers and employees of the Bureau 
of the Census for purposes of, but only to the extent necessary in, 
conducting and preparing, as authorized by chapter 5 of title 13, United 
States Code, demographic statistics programs, censuses, and surveys--
    (i) Payee/Payer/Employee Taxpayer Identification Number;
    (ii) Payee/Payer/Employee Name (First, Middle, Last, Suffix);
    (iii) Street Address;
    (iv) City;
    (v) State;
    (vi) ZIP Code (9 digit);
    (vii) Posting Cycle Week;
    (viii) Posting Cycle Year; and
    (ix) Document Code.
    (c) Disclosure of return information reflected on returns of 
corporations to officers and employees of the Bureau of Economic 
Analysis.
    (1) As authorized by law for purposes of, but only to the extent 
necessary in, conducting and preparing statistical analyses, the 
Internal Revenue Service will disclose to officers and employees of the 
Bureau of Economic Analysis all return information, regardless of format 
or medium and including edited information from the Statistics of Income 
sample, of designated classes or categories of corporations with respect 
to the tax imposed by chapter 1 of the Internal Revenue Code.
    (2) [Reserved]
    (3) The Internal Revenue Service will disclose the following return 
information reflected on returns filed by corporations to officers and 
employees of the Bureau of Economic Analysis:
    (i) From the business master files of the Internal Revenue Service--
    (A) Taxpayer identity information (as defined in section 6103(b)(6)) 
with respect to corporate taxpayers;
    (B) Business or industry activity codes;
    (C) Filing requirement code; and
    (D) Physical location.
    (ii) From Form SS-4, ``Application for Employer Identification 
Number,'' filed by an entity identifying itself on the form as a 
corporation or a private services corporation--
    (A) Taxpayer identity information (as defined in section 6103(b)(6), 
including legal, trade, and business name);
    (B) Physical location;
    (C) State or country of incorporation;
    (D) Entity type (corporate only);
    (E) Estimated highest number of employees expected in the next 12 
months;
    (F) Principal activity of the business;
    (G) Principal line of merchandise;
    (H) Posting cycle date relative to filing; and
    (I) Document code.
    (iii) From an employment tax return filed by a corporation--
    (A) Taxpayer identity information (as defined in section 
6103(b)(6));
    (B) Total compensation reported;
    (C) Taxable wages paid for purposes of Chapter 21 to each employee;
    (D) Master file tax account code (MFT);
    (E) Total number of individuals employed in the taxable period 
covered by the return;
    (F) Posting cycle date relative to filing;
    (G) Accounting period covered; and
    (H) Document code.
    (iv) From returns of corporate taxpayers, including Form 1120, 
``U.S. Corporation Income Tax Return,'' Form 851, ``Affiliations 
Schedule,'' and other business returns, schedules and forms that the 
Internal Revenue Service may issue--

[[Page 76]]

    (A) Taxpayer identity information (as defined in section 
6103(b)(6)), including that of a parent corporation, affiliate, or 
subsidiary; a shareholder; a foreign corporation of which one or more 
U.S. shareholders (as defined in section 951(b)) own at least 10% of the 
voting stock; a foreign trust; and a U.S. agent of a foreign trust;
    (B) Gross sales and receipts;
    (C) Gross income, including life insurance company gross income;
    (D) Gross income from sources outside the U.S.;
    (E) Gross rents from real property;
    (F) Other Gross Rents;
    (G) Total Gross Rents;
    (H) Returns and allowances;
    (I) Percentage of foreign ownership of corporations and trusts;
    (J) Fact of ownership of foreign partnerships;
    (K) Fact of ownership of foreign entity disregarded as a foreign 
entity;
    (L) Country of the foreign owner;
    (M) Gross value of the portion of the foreign trust owned by filer;
    (N) Country of incorporation;
    (O) Cost of labor, salaries, and wages;
    (P) Total assets;
    (Q) The quantity of certain forms attached that are returns of U.S. 
persons with respect to foreign disregarded entities, partnerships, and 
corporations.
    (R) Posting cycle date relative to filing;
    (S) Accounting period covered;
    (T) Master file tax account code (MFT);
    (U) Document code; and
    (V) Principal industrial activity code.
    (d) Procedures and restrictions. Disclosure of return information 
reflected on returns by officers or employees of the Internal Revenue 
Service or the Social Security Administration as provided by paragraphs 
(b) and (c) of this section will be made only upon written request to 
the Commissioner of Internal Revenue by the Secretary of Commerce 
describing--
    (1) The particular return information reflected on returns to be 
disclosed;
    (2) The taxable period or date to which such return information 
reflected on returns relates; and
    (3)(i) The particular purpose for which the return information 
reflected on returns is to be used, and designating by name and title 
the officers and employees of the Bureau of the Census or the Bureau of 
Economic Analysis to whom such disclosure is authorized.
    (ii) No such officer or employee to whom return information 
reflected on returns is disclosed pursuant to the provisions of 
paragraph (b) or (c) of this section shall disclose such information to 
any person, other than the taxpayer to whom such return information 
reflected on returns relates or other officers or employees of such 
bureau whose duties or responsibilities require such disclosure for a 
purpose described in paragraph (b) or (c) of this section, except in a 
form which cannot be associated with, or otherwise identify, directly or 
indirectly, a particular taxpayer. If the Internal Revenue Service 
determines that the Bureau of the Census or the Bureau of Economic 
Analysis, or any officer or employee thereof, has failed to, or does 
not, satisfy the requirements of section 6103(p)(4) of the Internal 
Revenue Code or regulations or published procedures thereunder (see 
Sec.  601.601(d)(2) of this chapter), the Internal Revenue Service may 
take such actions as are deemed necessary to ensure that such 
requirements are or will be satisfied, including suspension of 
disclosures of return information reflected on returns otherwise 
authorized by section 6103 (j)(1) and paragraph (b) or (c) of this 
section, until the Internal Revenue Service determines that such 
requirements have been or will be satisfied.
    (e) Applicability date. Paragraphs (b)(2)(iii)(I), (b)(2)(iii)(K) 
through (b)(2)(iii)(M), (b)(3)(v), (b)(3)(xxv) through (b)(3)(xxxv), and 
(b)(6)(i)(C) through (b)(6)(i)(E) of this section apply to disclosure to 
the Bureau of the Census made on or after December 9, 2016. For rules 
that apply to disclosure to the Bureau of the Census before December 9, 
2016, see 26 CFR

[[Page 77]]

301.6103(j)(1)-1 (revised as of April 1, 2016).

[T.D. 9037, 68 FR 2693, Jan. 21, 2003, as amended by T.D. 9188, 70 FR 
12141, Mar. 11, 2005; T.D. 9267, 71 FR 38263, July 6, 2006; T.D. 9372, 
72 FR 73262, Dec. 27, 2007; T.D. 9439, 73 FR 79361, Dec. 29, 2008; T.D. 
9500, 75 FR 52459, Aug. 26, 2010; T.D. 9631, 78 FR 52857, Aug. 27, 2013 
T.D. 9754, 81 FR 9767, Feb. 26, 2016; T.D. 9856, 84 FR 14011, Apr. 9, 
2019]



Sec.  301.6103(j)(5)-1  Disclosures of return information reflected 
on returns to officers and employees of the Department of Agriculture 
for conducting the census of agriculture.

    (a) General rule. Pursuant to the provisions of section 6103(j)(5) 
of the Internal Revenue Code and subject to the requirements of 
paragraph (c) of this section, officers or employees of the Internal 
Revenue Service will disclose return information reflected on returns to 
officers and employees of the Department of Agriculture to the extent, 
and for such purposes, as may be provided by paragraph (b) of this 
section. ``Return information reflected on returns'' includes, but is 
not limited to, information on returns, information derived from 
processing such returns, and information derived from other sources for 
the purposes of establishing and maintaining taxpayer information 
relating to returns.
    (b) Disclosure of return information reflected on returns to 
officers and employees of the Department of Agriculture. (1) Officers or 
employees of the Internal Revenue Service will disclose the following 
return information reflected on returns described in this paragraph (b) 
for individuals, partnerships and corporations with agricultural 
activity, as determined generally by industry code classification or the 
filing of returns for such activity, to officers and employees of the 
Department of Agriculture for purposes of, but only to the extent 
necessary in, structuring, preparing, and conducting, as authorized by 
chapter 55 of title 7, United States Code, the census of agriculture.
    (2) From Form 1040 ``U.S. Individual Income Tax Return'', Form 1041 
``U.S. Income Tax Return for Estates and Trusts'', Form 1065 ``U.S. 
Return of Partnership Income'' and Form 1065-B ``U.S. Return of Income 
for Electing Large Partnerships'' (Schedule F)--
    (i) Taxpayer identity information (as defined in section 6103(b)(6) 
of the Internal Revenue Code);
    (ii) Spouse's Social Security Number;
    (iii) Annual accounting period;
    (iv) Principal Business Activity (PBA) code;
    (v) Taxable cooperative distributions;
    (vi) Income from custom hire and machine work;
    (vii) Gross income;
    (viii) Master File Tax (MFT) code;
    (ix) Document Locator Number (DLN);
    (x) Cycle posted;
    (xi) Final return indicator;
    (xii) Part year return indicator; and
    (xiii) Taxpayer telephone number.
    (3) From Form 943, ``Employer's Annual Tax Return for Agricultural 
Employees''--
    (i) Taxpayer identity information;
    (ii) Annual accounting period;
    (iii) Total wages subject to Medicare taxes;
    (iv) MFT code;
    (v) DLN;
    (vi) Cycle posted;
    (vii) Final return indicator; and
    (viii) Part year return indicator.
    (4) From Form 1120 series, ``U.S. Corporation Income Tax Return''--
    (i) Taxpayer identity information;
    (ii) Annual accounting period;
    (iii) Gross receipts less returns and allowances;
    (iv) PBA code;
    (v) MFT Code;
    (vi) DLN;
    (vii) Cycle posted;
    (viii) Final return indicator;
    (ix) Part year return indicator; and
    (x) Consolidated return indicator.
    (5) From Form 1065 series, ``U.S. Return of Partnership Income''--
    (i) Taxpayer identity information;
    (ii) Annual accounting period;
    (iii) PBA code;
    (iv) Gross receipts less returns and allowances;
    (v) Net farm profit (loss);
    (vi) MFT code;
    (vii) DLN;
    (viii) Cycle posted;
    (ix) Final return indicator; and
    (x) Part year return indicator.
    (c) Procedures and Restrictions. (1) Disclosure of return 
information reflected on returns by officers or employees of

[[Page 78]]

the Internal Revenue Service as provided by paragraph (b) of this 
section will be made only upon written request designating, by name and 
title, the officers and employees of the Department of Agriculture to 
whom such disclosure is authorized, to the Commissioner of Internal 
Revenue by the Secretary of Agriculture and describing--
    (i) The particular return information reflected on returns for 
disclosure;
    (ii) The taxable period or date to which such return information 
reflected on returns relates; and
    (iii) The particular purpose for the requested return information 
reflected on returns.
    (2)(i) No such officer or employee to whom the Internal Revenue 
Service discloses return information reflected on returns pursuant to 
the provisions of paragraph (b) of this section shall disclose such 
information to any person, other than the taxpayer to whom such return 
information reflected on returns relates or other officers or employees 
of the Department of Agriculture whose duties or responsibilities 
require such disclosure for a purpose described in paragraph (b)(1) of 
this section, except in a form that cannot be associated with, or 
otherwise identify, directly or indirectly, a particular taxpayer.
    (ii) If the Internal Revenue Service determines that the Department 
of Agriculture, or any officer or employee thereof, has failed to, or 
does not, satisfy the requirements of section 6103(p)(4) of the Internal 
Revenue Code or regulations or published procedures, the Internal 
Revenue Service may take such actions as are deemed necessary to ensure 
that such requirements are or will be satisfied, including suspension of 
disclosures of return information reflected on returns otherwise 
authorized by section 6103(j)(5) and paragraph (b) of this section, 
until the Internal Revenue Service determines that such requirements 
have been or will be satisfied.
    (d) Effective date. This section is applicable on February 22, 2006.

[T.D. 9245, 71 FR 8945, Feb. 22, 2006]



Sec.  301.6103(k)(6)-1  Disclosure of return information by certain officers 
and employees for investigative purposes.

    (a) General rule. (1) Pursuant to the provisions of section 
6103(k)(6) and subject to the conditions of this section, an internal 
revenue employee or an Office of Treasury Inspector General for Tax 
Administration (TIGTA) employee, in connection with official duties 
relating to any examination, administrative appeal, collection activity, 
administrative, civil or criminal investigation, enforcement activity, 
ruling, negotiated agreement, prefiling activity, or other proceeding or 
offense under the internal revenue laws or related statutes, or in 
preparation for any proceeding described in section 6103(h)(2) (or 
investigation which may result in such a proceeding), may disclose 
return information, of any taxpayer, to the extent necessary to obtain 
information relating to such official duties or to accomplish properly 
any activity connected with such official duties, including, but not 
limited to--
    (i) Establishing or verifying the correctness or completeness of any 
return or return information;
    (ii) Determining the responsibility for filing a return, for making 
a return if none has been made, or for performing such acts as may be 
required by law concerning such matters;
    (iii) Establishing or verifying the liability (or possible 
liability) of any person, or the liability (or possible liability) at 
law or in equity of any transferee or fiduciary of any person, for any 
tax, penalty, interest, fine, forfeiture, or other imposition or offense 
under the internal revenue laws or related statutes or the amount 
thereof for collection;
    (iv) Establishing or verifying misconduct (or possible misconduct) 
or other activity proscribed by the internal revenue laws or related 
statutes;
    (v) Obtaining the services of persons having special knowledge or 
technical skills (such as, but not limited to, knowledge of particular 
facts and circumstances relevant to a correct determination of a 
liability described in paragraph (a)(1)(iii) of this section or skills 
relating to handwriting analysis,

[[Page 79]]

photographic development, sound recording enhancement, or voice 
identification) or having recognized expertise in matters involving the 
valuation of property if relevant to proper performance of official 
duties described in this paragraph;
    (vi) Establishing or verifying the financial status or condition and 
location of the taxpayer against whom collection activity is or may be 
directed, to locate assets in which the taxpayer has an interest, to 
ascertain the amount of any liability described in paragraph (a)(1)(iii) 
of this section for collection, or otherwise to apply the provisions of 
the Internal Revenue Code relating to establishment of liens against 
such assets, or levy, seizure, or sale on or of the assets to satisfy 
any such liability;
    (vii) Preparing for any proceeding described in section 6103(h)(2) 
or conducting an investigation which may result in such a proceeding; or
    (viii) Obtaining, verifying, or establishing information concerned 
with making determinations regarding a taxpayer's liability under the 
Internal Revenue Code, including, but not limited to, the administrative 
appeals process and any ruling, negotiated agreement, or prefiling 
process.
    (2) Disclosure of return information for the purpose of obtaining 
information to carry out properly the official duties described by this 
paragraph, or any activity connected with the official duties, is 
authorized only if the internal revenue or TIGTA employee reasonably 
believes, under the facts and circumstances, at the time of a 
disclosure, the information is not otherwise reasonably available, or if 
the activity connected with the official duties cannot occur properly 
without the disclosure.
    (3) Internal revenue and TIGTA employees may identify themselves, 
their organizational affiliation (e.g., Internal Revenue Service (IRS), 
Criminal Investigation (CI) or TIGTA, Office of Investigations (OI)), 
and the nature of their investigation, when making an oral, written, or 
electronic contact with a third party witness. Permitted disclosures 
include, but are not limited to, the use and presentation of any 
identification media (such as a Federal agency badge, credential, or 
business card) or the use of an information document request, summons, 
or correspondence on Federal agency letterhead or which bears a return 
address or signature block that reveals affiliation with the Federal 
agency.
    (4) This section does not address or affect the requirements under 
section 7602(c) (relating to contact of third parties).
    (b) Disclosure of return information in connection with certain 
personnel or claimant representative matters. In connection with 
official duties relating to any investigation concerned with enforcement 
of any provision of the Internal Revenue Code, including enforcement of 
any rule or directive prescribed by the Secretary or the Commissioner of 
Internal Revenue under any provision of the Internal Revenue Code, or 
the enforcement of any provision related to tax administration, that 
affects or may affect the personnel or employment rights or status, or 
civil or criminal liability, of any former, current, or prospective 
employee of the Treasury Department, Bureau of Alcohol, Tobacco, 
Firearms, and Explosives, United States Customs Service, United States 
Secret Service, or any successor agency, or the rights of any person who 
is, or may be, a party to an administrative action or proceeding 
pursuant to 31 U.S.C. 330 (relating to practice before the Treasury 
Department), an internal revenue, TIGTA, or other Federal officer or 
employee who is responsible for investigating such employees and persons 
and is properly in possession of relevant return information is 
authorized to disclose such return information to the extent necessary 
for the purpose of obtaining, verifying, or establishing other 
information which is or may be relevant and material to the 
investigation.
    (c) Definitions. The following definitions apply to this section--
    (1) Disclosure of return information to the extent necessary means a 
disclosure of return information which an internal revenue or TIGTA 
employee, based on the facts and circumstances, at the time of the 
disclosure, reasonably believes is necessary to obtain information to 
perform properly the official

[[Page 80]]

duties described by this section, or to accomplish properly the 
activities connected with carrying out those official duties. The term 
necessary in this context does not mean essential or indispensable, but 
rather appropriate and helpful in obtaining the information sought. Nor 
does necessary in this context refer to the necessity of conducting an 
investigation or the appropriateness of the means or methods chosen to 
conduct the investigation. Section 6103(k)(6) does not limit or restrict 
internal revenue or TIGTA employees with respect to the decision to 
initiate or the conduct of an investigation. Disclosures under this 
paragraph (c)(1), however, may not be made indiscriminately or solely 
for the benefit of the recipient or as part of a negotiated quid pro quo 
arrangement. This paragraph (c)(1) is illustrated by the following 
examples:

    Example 1. A revenue agent contacts a taxpayer's customer regarding 
the customer's purchases made from the taxpayer during the year under 
investigation. The revenue agent is able to obtain the purchase 
information only by disclosing the taxpayer's identity and the fact of 
the investigation. Depending on the facts and circumstances known to the 
revenue agent at the time of the disclosure, such as the way the 
customer maintains his records, it also may be necessary for the revenue 
agent to inform the customer of the date of the purchases and the types 
of merchandise involved for the customer to find the purchase 
information.
    Example 2. A revenue agent contacts a third party witness to obtain 
copies of invoices of sales made to a taxpayer under examination. The 
third party witness provides copies of the sales invoices in question 
and then asks the revenue agent for the current address of the taxpayer 
because the taxpayer still owes money to the third party witness. The 
revenue agent may not disclose that current address because this 
disclosure would be only for the benefit of the third party witness and 
not necessary to obtain information for the examination.
    Example 3. A revenue agent contacts a third party witness to obtain 
copies of invoices of sales made to a taxpayer under examination. The 
third party witness agrees to provide copies of the sales invoices in 
question only if the revenue agent provides him with the current address 
of the taxpayer because the taxpayer still owes money to the third party 
witness. The revenue agent may not disclose that current address because 
this disclosure would be a negotiated quid pro quo arrangement.

    (2) Disclosure of return information to accomplish properly an 
activity connected with official duties means a disclosure of return 
information to carry out a function associated with official duties 
generally consistent with established practices and procedures. This 
paragraph (c)(2) is illustrated by the following example:

    Example. A taxpayer failed to file an income tax return and pay the 
taxes owed. After the taxes were assessed and the taxpayer was notified 
of the balance due, a revenue officer filed a notice of federal tax lien 
and then served a notice of levy on the taxpayer's bank. The notices of 
lien and levy contained the taxpayer's name, social security number, 
amount of outstanding liability, and the tax period and type of tax 
involved. The taxpayer's assets were levied to satisfy the tax debt, but 
it was determined that, prior to the levy, the revenue officer failed to 
issue the taxpayer a notice of intent to levy, as required by section 
6331, and a notice of right to hearing before the levy, as required by 
section 6330. The disclosure of the taxpayer's return information in the 
notice of levy is authorized by section 6103(k)(6) despite the revenue 
officer's failure to issue the notice of intent to levy or the notice of 
right to hearing. The ultimate validity of the underlying levy is 
irrelevant to the issue of whether the disclosure was authorized by 
section 6103(k)(6).

    (3) Information not otherwise reasonably available means information 
that an internal revenue or TIGTA employee reasonably believes, under 
the facts and circumstances, at the time of a disclosure, cannot be 
obtained in a sufficiently accurate or probative form, or in a timely 
manner, and without impairing the proper performance of the official 
duties described by this section, without making the disclosure. This 
definition does not require or create the presumption or expectation 
that an internal revenue or TIGTA employee must seek information from a 
taxpayer or authorized representative prior to contacting a third party 
witness in an investigation. Neither the Internal Revenue Code, IRS 
procedures, nor these regulations require repeated contacting of an 
uncooperative taxpayer. Moreover, an internal revenue or TIGTA employee 
may make a disclosure to a third party witness to corroborate 
information provided by a taxpayer. This paragraph (c)(3) is illustrated 
by the following examples:


[[Page 81]]


    Example 1. A revenue agent is conducting an examination of a 
taxpayer. The taxpayer refuses to cooperate or provide any information 
to the revenue agent. Information relating to the taxpayer's examination 
would be information not otherwise reasonably available because of the 
taxpayer's refusal to cooperate and supply any information to the 
revenue agent. The revenue agent may seek information from a third party 
witness.
    Example 2. A special agent is conducting a criminal investigation of 
a taxpayer. The special agent has acquired certain information from the 
taxpayer. Although the special agent has no specific reason to 
disbelieve the taxpayer's information, the special agent contacts 
several third party witnesses to confirm the information. The special 
agent may contact third party witnesses to verify the correctness of the 
information provided by the taxpayer because the IRS is not required to 
rely solely on information provided by a taxpayer, and a special agent 
may take appropriate steps, including disclosures to third party 
witnesses under section 6103(k)(6), to verify independently or 
corroborate information obtained from a taxpayer.

    (4) Internal revenue employee means, for purposes of this section, 
an officer or employee of the IRS or Office of Chief Counsel for the 
IRS, or an officer or employee of a Federal agency responsible for 
administering and enforcing taxes under Chapters 32 (Part III of 
Subchapter D), 51, 52, or 53 of the Internal Revenue Code, or 
investigating tax refund check fraud under 18 U.S.C. 510.
    (5) TIGTA employee means an officer or employee of the Office of 
Treasury Inspector General for Tax Administration.
    (d) Examples. The following examples illustrate the application of 
this section:

    Example 1. A revenue agent is conducting an examination of a 
taxpayer. The taxpayer has been very cooperative and has supplied copies 
of invoices as requested. Some of the taxpayer's invoices show purchases 
that seem excessive in comparison to the size of the taxpayer's 
business. The revenue agent contacts the taxpayer's suppliers for the 
purpose of corroborating the invoices the taxpayer provided. In 
contacting the suppliers, the revenue agent discloses the taxpayer's 
name, the dates of purchase, and the type of merchandise at issue. These 
disclosures are permissible under section 6103(k)(6) because, under the 
facts and circumstances known to the revenue agent at the time of the 
disclosures, the disclosures were necessary to obtain information 
(corroboration of invoices) not otherwise reasonably available because 
suppliers would be the only source available for corroboration of this 
information.
    Example 2. A revenue agent is conducting an examination of a 
taxpayer. The revenue agent asks the taxpayer for business records to 
document the deduction of the cost of goods sold shown on Schedule C of 
the taxpayer's return. The taxpayer will not provide the business 
records to the revenue agent, who contacts a third party witness for 
verification of the amount on the Schedule C. In the course of the 
contact, the revenue agent shows the Schedule C to the third party 
witness. This disclosure is not authorized under section 6103(k)(6). 
Section 6103(k)(6) permits disclosure only of return information, not 
the return (including schedules and attachments) itself. If necessary, a 
revenue agent may disclose return information extracted from a return 
when questioning a third party witness. Thus, the revenue agent could 
have extracted the amount of cost of goods sold from the Schedule C and 
disclosed that amount to the third party witness.
    Example 3. A special agent is conducting a criminal investigation of 
a taxpayer, a doctor, for tax evasion. Notwithstanding the records 
provided by the taxpayer and the taxpayer's bank, the special agent 
decided to obtain information from the taxpayer's patients to verify 
amounts paid to the taxpayer for his services. Accordingly, the special 
agent sent letters to the taxpayer's patients to verify these amounts. 
In the letters, the agent disclosed that he was a special agent with 
IRS-CI and that he was conducting a criminal investigation of the 
taxpayer. Section 6103(k)(6) permits these disclosures (including the 
special agent disclosing his affiliation with CI and the nature of the 
investigation) to confirm the taxpayer's income. The decision whether to 
verify information already obtained is a matter of investigative 
judgment and is not limited by section 6103(k)(6).
    Example 4. Corporation A requests a private letter ruling (PLR) as 
to the tax consequences of a planned transaction. Corporation A has 
represented that it is in compliance with laws administered by Agency B 
that may relate to the tax consequences of the proposed transaction. 
Further information is needed from Agency B relating to possible tax 
consequences. Under section 6103(k)(6), the IRS may disclose Corporation 
A's return information to Agency B to the extent necessary to obtain 
information from Agency B for the purpose of properly considering the 
tax consequences of the proposed transaction that is the subject of the 
PLR.


[[Page 82]]


    (e) Effective date. This section is applicable on July 11, 2006.

[T.D. 9274, 71 FR 38986, July 11, 2006, as amended by 71 FR 60827, Oct. 
17, 2006; 71 FR 61833, Oct. 19, 2006]



Sec.  301.6103(k)(9)-1  Disclosure of returns and return information 
relating to payment of tax by credit card and debit card.

    Officers and employees of the Internal Revenue Service may disclose 
to card issuers, financial institutions, or other persons such return 
information as the Commissioner deems necessary in connection with 
processing credit card and debit card transactions to effectuate payment 
of tax as authorized by Sec.  301.6311-2. Officers and employees of the 
Internal Revenue Service may disclose such return information to such 
persons as the Commissioner deems necessary in connection with billing 
or collection of the amounts charged or debited, including resolution of 
errors relating to the credit card or debit card account as described in 
Sec.  301.6311-2(d).

[T.D. 8969, 66 FR 64742, Dec. 14, 2001]



Sec.  301.6103(l)-1  Disclosure of returns and return information 
for purposes other than tax administration.

    (a) Definition. For purposes of applying the provisions of section 
6103(l) of the Internal Revenue Code, the term agent includes a 
contractor.
    (b) Effective date. This section is applicable January 6, 2004.

[T.D. 9111, 69 FR 507, Jan. 6, 2004]



Sec.  301.6103(l)(2)-1  Disclosure of returns and return information 
to Pension Benefit Guaranty Corporation for purposes of research and studies.

    (a) General rule. Pursuant to the provisions of section 6103(l)(2) 
of the Internal Revenue Code and subject to the requirements of 
paragraph (b) of this section, officers and employees of the Internal 
Revenue Service may disclose returns and return information (as defined 
by section 6103(b)) to officers and employees of the Pension Benefit 
Guaranty Corporation for purposes of, but only to the extent necessary 
in, conducting research and studies authorized by title IV of the 
Employee Retirement Income Security Act of 1974.
    (b) Procedures and restrictions. Disclosure of returns or return 
information by officers or employees of the Service as provided by 
paragraph (a) of this section will be made only upon written request to 
the Commissioner of Internal Revenue by the Executive Director of the 
Pension Benefit Guaranty Corporation describing the returns or return 
information to be disclosed, the taxable period or date to which such 
returns or return information relates, and the purpose for which the 
returns or return information is needed in the administration of title 
IV of the Employee Retirement Income Security Act of 1974, and 
designating by title the officers and employees of such corporation to 
whom such disclosure is authorized. No such officer or employee to whom 
returns or return information is disclosed pursuant to the provisions of 
paragraph (a) shall disclose such returns or return information to any 
person, other than the taxpayer by whom the return was made or to whom 
the return information relates or other officers or employees of such 
corporation whose duties or responsibilities require such disclosure for 
a purpose described in paragraph (a), except in a form which cannot be 
associated with, or otherwise identify, directly or indirectly, a 
particular taxpayer.

(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))

[T.D. 7723, 45 FR 65570, Oct. 3, 1980]



Sec.  301.6103(l)(2)-2  Disclosure of returns and return information 
to Department of Labor for purposes of research and studies.

    (a) General rule. Pursuant to the provisions of section 6103(l)(2) 
of the Internal Revenue Code and subject to the requirements of 
paragraph (b) of this section, officers or employees of the Internal 
Revenue Service may disclose returns and return information (as defined 
by section 6103(b)) to officers and employees of the Department of Labor 
for purposes of, but only to the extent necessary in, conducting 
research and studies authorized by section 513 of the Employee 
Retirement Income Security Act of 1974.

[[Page 83]]

    (b) Procedures and restrictions. Disclosure of returns or return 
information by officers or employees of the Service as provided by 
paragraph (a) of this section will be made only upon written request to 
the Commissioner of Internal Revenue by the Administrator of the Pension 
and Welfare Benefit Programs of the Department of Labor describing the 
returns or return information to be disclosed, the taxable period or 
date to which such returns or return information relates, and the 
purpose for which the returns or return information is needed in the 
administration of title I of the Employee Retirement Income Security Act 
of 1974, and designating by title the officers and employees of such 
department to whom such disclosure is authorized. No such officer or 
employee to whom returns or return information is disclosed pursuant to 
the provisions of paragraph (a) shall disclose such returns or return 
information to any person, other than the taxpayer by whom the return 
was made or to whom the return information relates or other officers or 
employees of such department whose duties or responsibilities require 
such disclosure for a purpose described in paragraph (a), except in a 
form which cannot be associated with, or otherwise identify, directly or 
indirectly, a particular taxpayer.

(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))

[T.D. 7723, 45 FR 65571, Oct. 3, 1980]



Sec.  301.6103(l)(2)-3  Disclosure to Department of Labor 
and Pension Benefit Guaranty Corporation of certain returns 
and return information.

    (a) Disclosures following general requests. Pursuant to the 
provisions of section 6103(l)(2) of the Internal Revenue Code and 
subject to the requirements of this paragraph, officers or employees of 
the Internal Revenue Service may disclose the following returns and 
return information (as defined by section 6103(b)) to officers and 
employees of the Department of Labor or the Pension Benefit Guaranty 
Corporation for purposes of, but only to the extent necessary in, the 
administration of title I or IV of the Employee Retirement Income 
Security Act of 1974 (hereinafter referred to in this section as the 
Act)--
    (1) Notification of receipt by the Service of an application by a 
particular taxpayer for a determination of whether a pension, profit-
sharing, or stock bonus plan, a trust which is a part of such a plan, or 
an annuity or bond purchase plan meets the applicable requirements of 
part I of subchapter D of chapter 1 of the Code;
    (2) Notification that a particular application described in 
subparagraph (1) of this paragraph alleges that certain employees may be 
excluded from participation by reason of section 410(b)(2) (A) and (B) 
for the purpose of obtaining the finding necessary for the application 
of such section;
    (3) An application by a particular taxpayer for a determination of 
whether a pension, profit-sharing, or stock bonus plan, or an annuity or 
bond purchase plan, meets the applicable requirements of part I of 
subchapter D of chapter 1 of the Code with respect to a termination or 
proposed termination of the plan or to a partial termination or proposed 
partial termination of the plan, and any statement filed as provided by 
section 6058(b);
    (4) Notification that the Service has determined that a plan or 
trust described in subparagraph (1) or (3) of this paragraph meets or 
does not meet the applicable requirements of part I of subchapter D of 
chapter 1 of the Code and has issued a determination letter to such 
effect to a particular taxpayer or that an application for such a 
determination has been withdrawn by the taxpayer;
    (5) If the Department of Labor or the Pension Benefit Guaranty 
Corporation has commented on an application upon which a determination 
letter described in subparagraph (4) of this paragraph has been issued, 
a copy of the letter or document issued to the applicant;
    (6) Notification to a particular taxpayer that the Service intends 
to disqualify a pension, profit-sharing, or stock bonus plan, a trust 
which is a part of such plan, or an annuity or bond purchase plan 
because such plan or trust does not meet the requirements of section 
410(a) or 411 as of the date that such notification is issued;

[[Page 84]]

    (7) Notification required by section 3002(a) of the Act of the 
commencement of any proceeding to determine whether a particular 
pension, profit-sharing, or stock bonus plan, a trust which is a part of 
such plan, or an annuity or bond purchase plan meets the requirements of 
section 410(a) or 411;
    (8) Prior to issuance of a notice of deficiency to a particular 
taxpayer under section 6212, notification that the Service has 
determined that a deficiency exists under section 6211 with respect to 
the tax imposed by section 4971 (a) or (b) on such taxpayer, except that 
if the Service determines that the collection of such tax is in jeopardy 
within the meaning of section 6861(a), such notification may be 
disclosed after issuance of the notice of deficiency or jeopardy 
assessment;
    (9) Notification of receipt by the Service of, and action taken with 
respect to, an application by or on behalf of a particular taxpayer for 
a waiver of the tax imposed by section 4971 (b);
    (10) Prior to issuance of a notice of deficiency to a particular 
taxpayer under section 6212, notification that a deficiency exists under 
section 6211 with respect to the tax imposed by section 4975 (a) or (b) 
on such taxpayer, except that if the Service determines that the 
collection of such tax is in jeopardy within the meaning of section 
6861(a), such notification may be disclosed after issuance of the notice 
of deficiency or jeopardy assessment;
    (11) Notification that the Service has waived the tax imposed by 
section 4975(b) on a particular taxpayer;
    (12) Notification of applicability of section 4975 to a particular 
pension, profit-sharing, or stock bonus plan, a trust which is a part of 
such plan, or an annuity or stock purchase plan engaged in prohibited 
transactions within the meaning of section 4975(c);
    (13) Notification to a plan administrator that the Service has 
determined that a pension, profit-sharing, stock bonus, annuity, or 
stock purchase plan no longer meets the requirements of section 401(a) 
or 404(a)(2);
    (14) Notification that the Service has determined that there has 
been a termination or partial termination of a particular pension, 
profit-sharing, stock bonus, annuity, or stock purchase plan within the 
meaning of section 411(d)(3);
    (15) Notification of the occurrence of an event (other than an event 
described in subparagraph (13), (14), or (18) of this paragraph) which 
the Service has determined to indicate that a particular pension, 
profit-sharing, stock bonus, annuity, or stock purchase plan may not be 
sound under section 4043(c)(2) of the Act;
    (16) Notification that the Service has received and responded to a 
request on behalf of a particular pension, profit-sharing, or stock 
bonus plan, a trust which is a part of such plan, or an annuity or stock 
purchase plan for an extension of time for filing an annual return by 
such plan or trust;
    (17) Notification that the Service has received and responded to a 
request on behalf of a particular pension, profit-sharing, or stock 
bonus plan, a trust which is a part of such plan, or an annuity or stock 
purchase plan to change the annual accounting period of such plan or 
trust;
    (18) Notification that the Service has determined that a particular 
plan does not meet the requirements of section 412 without regard to 
whether such plan is one described in section 4021(a)(2) of the Act;
    (19) Notification of the results of an investigation by the Service 
requested by the Department of Labor or the Pension Benefit Guaranty 
Corporation, or both, with respect to whether the tax described in 
section 4971 should be imposed on any employer named in such request or 
whether the tax imposed by section 4975 should be paid by any person 
named in the request;
    (20) Notification of receipt by the Service of an application by a 
particular taxpayer for exemption under section 4975(c)(2) or of 
initiation by the Service of an administrative proceeding for such 
exemption;
    (21) Notification of receipt by the Service of, and action taken 
with respect to, an application by or on behalf of a particular taxpayer 
for a waiver or variance of the minimum funding standard under section 
303 of the Act or section 412(d);
    (22) Notification that the Service intends to undertake, is 
undertaking, or

[[Page 85]]

has completed, an examination to determine whether--
    (i) A particular pension, profit-sharing, or stock bonus plan, a 
trust which is a part of such plan, or an annuity or stock purchase plan 
meets the applicable requirements of part I of subchapter D of chapter 1 
of the Code,
    (ii) Any particular person is, or may be, liable for any tax imposed 
by section 4971 or 4975, or
    (iii) A particular employee welfare benefit plan, as defined in 
section 3(1) of the Act, meets the applicable requirements of section 
501(c) or 120, together with any completed Department of Labor or 
Pension Benefit Guaranty Corporation form (and supplemental schedules) 
relating to such examination;
    (23) Copies of initial pleadings indicating that the Service intends 
to intervene in a civil action under section 502(h) of the Act;
    (24) Notification of receipt by the Service of a request for 
technical advice as to whether a particular pension, profit-sharing, or 
stock bonus plan, a trust which is a part of such plan, or an annuity or 
bond purchase plan should be disqualified because of fiduciary actions 
subject to part 4 of subtitle B of title I of the Act which may violate 
the exclusive benefit rule of section 401(a);
    (25) Notification of receipt by the National Office of the Service 
of a request by or on behalf of a particular taxpayer for a ruling, 
opinion, variance, or waiver under any provision of title I of the Act 
and a copy of any such ruling, opinion, variance or waiver;
    (26) Notification that the Service proposes to take substantive 
action which would significantly impact on or substantially affect 
collectively bargained plans and a description of such proposed 
substantive action; and
    (27) Notification of receipt by the Service of, and action taken 
with respect to, a request by a particular taxpayer for a ruling under 
section 412(c)(8), 412(e), or 412(f).

Return information disclosed under this paragraph includes the taxpayer 
identity information (as defined in section 6103(b)(6)) of the plan or 
trust, the name and address of the sponsor and administrator of the plan 
or trustee of the trust, and the name and address of the person 
authorized to represent the plan or trust before the Service. Disclosure 
of returns or return information as provided by this paragraph will be 
made only following receipt by the Commissioner of Internal Revenue or 
his delegate of an annual written request for such disclosure by the 
Secretary of Labor or his delegate or the Executive Director of the 
Pension Benefit Guaranty Corporation or his delegate describing the 
categories of returns or return information to be disclosed by the 
Service and the particular purpose for which the returns or return 
information is needed in the administration of title I or IV of the Act, 
and designating by title the officers and employees of the Department of 
Labor or such corporation to whom such disclosure is authorized.
    (b) Additional returns and return information subject to 
disclosure--(1) Returns and return information relating to automatic 
notification. (i) Subject to the requirements of subparagraph (3)(i) of 
this paragraph, officers or employees of the Service may disclose to 
officers and employees of the Department of Labor or the Pension Benefit 
Guaranty Corporation for purposes of, but only to the extent necessary 
in, the administration of title I or IV of the Act additional return and 
return information relating to any item described in paragraph (a) of 
this section.
    (ii) Subject to the requirements of subparagraph (3)(ii) of this 
paragraph, in connection with the disclosure of any item as provided by 
paragraph (a) of this section, officers and employees of the Service may 
disclose to officers and employees of the Department of Labor or the 
Pension Benefit Guaranty Corporation such additional returns and return 
information relating to such item as the Service determines are or may 
be necessary in the administration of title I or IV of the Act.
    (2) Other returns and return information. Subject to the 
requirements of subparagraph (3)(i) of this paragraph, officers or 
employees of the Service may disclose to officers and employees of the 
Department of Labor or the Pension Benefit Guaranty Corporation returns 
and return information (other than returns and return information 
disclosed as provided by paragraph (a)

[[Page 86]]

of this section or Sec.  301.6103(l)(2)-1 or Sec.  301.6103(l)(2)-2 for 
purposes of, but only to the extent necessary in, administration of 
title I or IV of the Act.
    (3) Procedures. (i) Disclosure of returns or return information by 
officers or employees of the Service as provided by subparagraph (1)(i) 
or (2) of this paragraph will be made only following receipt by the 
Commissioner of Internal Revenue or his delegate of a written request 
for such disclosure by the Secretary of Labor or his delegate or the 
Executive Director of the Pension Benefit Guaranty Corporation or his 
delegate identifying the particular taxpayer by whom such return was 
made or to whom such return information relates, describing the 
particular returns or return information to be disclosed, stating the 
purpose for which the returns or return information is needed in the 
administration of title I or IV of the Act, and designating by title the 
officers and employees of such department or corporation to whom such 
disclosure is authorized.
    (ii) Disclosure of returns or return information by officers or 
employees of the Service as provided by subparagraph (1)(ii) of this 
paragraph will be made only following receipt by the Commissioner of 
Internal Revenue or his delegate of an annual written request for such 
disclosure by the Secretary of Labor or his delegate or the Executive 
Director of the Pension Benefit Guaranty Corporation or his delegate 
stating the purpose for which the returns or return information is 
needed in the administration of title I or IV of the Act, and 
designating by title the officers and employees of such department or 
corporation to whom such disclosure is authorized.
    (c) Disclosure and use of returns and return information by officers 
and employees of Department of Labor, Pension Benefit Guaranty 
Corporation, and Department of Justice--(1) Use by officers and 
employees of Department of Labor and Pension Benefit Guaranty 
Corporation. Returns and return information disclosed to officers and 
employees of the Department of Labor and the Pension Benefit Guaranty 
Corporation as provided by this section may be used by such officers and 
employees for purposes of, but only to the extent necessary in, 
administration of any provision of title I or IV of the Act, including 
any preparation for any administrative or judicial proceeding (or 
investigation which may result in such a proceeding) authorized by, or 
described in, title I or IV of the Act.
    (2) Disclosure by officers and employees of Department of Labor and 
Pension Benefit Guaranty Corporation to, and use by, other persons, 
including officers and employees of the Department of Justice. (i) 
Returns and return information disclosed to officers and employees of 
the Department of Labor or the Pension Benefit Guaranty Corporation as 
provided by this section may be disclosed by such officers and employees 
to officers and employees of the Department of Justice (including United 
States attorneys) personally and directly engaged in, and for their 
necessary use in, any Federal grand jury proceeding, or preparation for 
any civil or criminal judicial proceeding (or for their necessary use in 
an investigation which may result in such a proceeding), authorized by, 
or described in, title I or IV of the Act.
    (ii) Returns and return information disclosed to officers and 
employees of the Department of Labor, the Pension Benefit Guaranty 
Corporation, and the Department of Justice as provided by this section 
may be disclosed by such officers and employees to other persons, 
including, but not limited to, persons described in subparagraph 
(2)(iii) of this paragraph, but only to the extent necessary in 
connection with administration of the provisions of title I or IV of the 
Act, including a Federal grand jury proceeding, and proper preparation 
for a proceeding (or investigation), described in subparagraph (1) or 
(2)(i). Such disclosures may include, but are not limited to, 
disclosures where necessary--
    (A) To properly obtain the services of persons having special 
knowledge or technical skills;
    (B) To properly interview, consult, depose, or interrogate or 
otherwise obtain relevant information from the taxpayer to whom such 
return or return information relates (or the legal representative of 
such taxpayer) or any witness who may be called to give evidence in the 
proceeding; or

[[Page 87]]

    (C) To properly conduct negotiations concerning, or obtain 
authorization for, settlement or disposition of the proceeding, in whole 
or in part, or stipulations of fact in connection with the proceeding.

Disclosure of a return or return information to a person other than the 
taxpayer to whom such return or return information relates (or the legal 
representative of such taxpayer) to properly accomplish any purpose or 
activity described in this subparagraph should be made, however, only if 
such purpose or activity cannot otherwise properly be accomplished 
without making such disclosure.
    (iii) Among those persons to whom returns and return information may 
be disclosed by officers and employees of the Department of Labor, the 
Pension Benefit Guaranty Corporation, and the Department of Justice as 
provided by subparagraph (2)(ii) of this paragraph are:
    (A) Other officers and employees of the Department of Labor, the 
Pension Benefit Guaranty Corporation, and the Department of Justice;
    (B) Officers and employees of another Federal agency (as defined in 
section 6103(b)(9)) working under the direction and control of such 
officers and employees of the Department of Labor, the Pension Benefit 
Guaranty Corporation, or the Department of Justice; and
    (C) Court reporters.

Disclosure of returns or return information to other persons by officers 
and employees of the Department of Labor or the Pension Benefit Guaranty 
Corporation as provided by subparagraph (2)(ii) of this paragraph for 
purposes of conducting research, surveys, studies, and publications 
referred to in section 513(a), or authorized by title IV, of the Act 
shall be restricted, however, to disclosure to other officers and 
employees of such department or corporation to whom such disclosure is 
necessary in connection with such conduct or to the taxpayer by whom 
such return was made or to whom such return information relates if the 
return or return information can be associated with, or otherwise 
identify, directly or indirectly, a particular taxpayer.
    (3) Disclosure in judicial proceedings. A return or return 
information disclosed to officers and employees of the Department of 
Labor, the Pension Benefit Guaranty Corporation, or the Department of 
Justice as provided by this section may be entered into evidence by such 
officers or employees in a civil or criminal judicial proceeding 
authorized by, or described in, title I or IV of the Act, provided that, 
in the case of a judicial proceeding described in section 6103(i)(4), 
the requirements of section 6103(i)(4) have first been met.
    (d) Disclosure of returns and return information in connection with 
certain consultations between Departments of the Treasury and Labor. 
Upon general written request to the Commissioner of Internal Revenue by 
the Secretary of Labor, officers and employees of the Service may 
disclose to officers and employees of the Department of Labor such 
returns and return information as may be necessary to properly carry out 
any consultation required by section 3002, 3003, or 3004 of the Act.
    (e) Return information open to public inspection under section 6104. 
Nothing in these regulations shall be construed to deny officers and 
employees of the Department of Labor and the Pension Benefit Guaranty 
Corporation the right to inspect return information available to the 
public under section 6104 of the Code.

(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat. 
1667, 1685, 68A Stat. 917; 26 U.S.C. 6103 and 7805))

[T.D. 7723, 45 FR 65571, Oct. 3, 1980, as amended by T.D. 7757, 46 FR 
6930, Jan. 22, 1981; T.D. 7911, 48 FR 40377, Sept. 7, 1983]



Sec.  301.6103(l)(14)-1  Disclosure of return information 
to United States Customs Service.

    (a) General rule. Pursuant to the provisions of section 6103(l)(14) 
of the Internal Revenue Code, officers and employees of the Internal 
Revenue Service may disclose to officers and employees of the United 
States Customs Service return information (as defined by section 
6103(b)) with respect to taxes imposed by chapters 1 and 6 of the 
Internal Revenue Code solely for purposes of, and only to the extent 
necessary in--
    (1) Ascertaining the correctness of any entry in audits as provided 
for in section 509 of the Tariff Act of 1930 or;

[[Page 88]]

    (2) Other actions to recover any loss of revenue, or to collect 
duties, taxes, and fees, determined to be due and owing pursuant to such 
audits.
    (b) Procedures. Disclosure of return information by officers or 
employees of the Internal Revenue Service as provided by paragraph (a) 
of this section will be made only following receipt by the Internal 
Revenue Service of a written request for the disclosure by the 
Commissioner of the U.S. Customs Service identifying--
    (1) The particular items of return information to be disclosed;
    (2) The particular taxpayer to whom the return information relates;
    (3) The taxable period or date to which the return information 
relates;
    (4) The particular purpose for which each item of return information 
is needed, including an explanation as to how the requested information 
is necessary to accomplish that purpose. In addition, the request must 
designate by title the officers and employees of the Customs Service to 
whom the disclosure is authorized and certify that the Customs Service 
has initiated or intends to initiate, under section 509 of the Tariff 
Act of 1930, an audit of each taxpayer for whom return information is 
requested or that the taxpayer has a transactional or ownership 
relationship with the subject of such an audit.
    (c) Return information subject to disclosure. Any return information 
requested must be necessary to a Customs determination of the 
correctness of any entry in audits conducted under section 509 of the 
Tariff Act of 1930. Taxpayers as to whom return information is requested 
must either be the subject of a Customs audit (or intended audit) or 
have a transactional or ownership relationship with the subject of a 
Customs audit. Requested information must relate to the declared value, 
classification or rate of duty applicable to entered merchandise. 
Requested information may also include any adjustment by the IRS to the 
items of return information described by this paragraph.
    (d) Return information not subject to disclosure. The following 
return information may not be requested or disclosed pursuant to section 
6103(l)(14) of the Internal Revenue Code: any Advance Pricing Agreement 
or information submitted to or generated by the IRS as part of the 
negotiation process for an Advance Pricing Agreement, or any information 
to the extent its disclosure would be inconsistent with a tax treaty or 
executive agreement with respect to which the United States is a party.
    (e) Impairment of tax administration. Return information with 
respect to a taxpayer may not be disclosed pursuant to this section if 
the IRS determines that the disclosure would identify a confidential 
informant or seriously impair any civil or criminal tax investigation or 
proceeding.
    (f) Use by Customs Service. Return information disclosed under this 
section may be used by the U.S. Customs Service to the extent necessary 
to ascertain or to document the correctness of any entry in audits as 
provided for in section 509 of the Tariff Act of 1930 and in any related 
administrative proceedings to recover any loss of revenue, or to collect 
duties, taxes or fees, determined to be due and owing pursuant to these 
audits. Uses may include, to the extent necessary, disclosure to the 
importer (or the legal representative of such importer) subject to the 
audit with respect to which the information was requested.
    (g) Disclosure to, and use by, the Department of Justice. Return 
information disclosed to officers and employees of the U.S. Customs 
Service as provided by this section may be disclosed by these officers 
and employees to officers and employees of the Department of Justice 
(including United States attorneys) personally and directly engaged in, 
and solely for their necessary use in, advocating or defending the 
correctness of Customs determinations with respect to any entry, in any 
civil judicial proceeding, or any preparations therefor (or for their 
necessary use in an investigation which may result in such a 
proceeding), to recover any loss of revenue, or to collect duties, taxes 
or fees, determined to be due and owing as a consequence of an audit 
provided for in section 509 of the Tariff Act of 1930.

[[Page 89]]

    (h) Disclosure by officers and employees of the Department of 
Justice. Return information disclosed to officers and employees of the 
Department of Justice (including United States Attorneys) as provided by 
this section may be disclosed by these officers and employees to other 
persons as is necessary to properly accomplish the purposes or 
activities described in paragraph (g). Disclosure of return information 
to a person, other than the importer (or the legal representative of the 
importer) subject to the audit with respect to which the information was 
originally requested, to properly accomplish any purpose or activity 
described in paragraph (g) may be made, however, only if the purpose or 
activity cannot otherwise properly be accomplished without making the 
disclosure. Disclosures may include, but are not limited to, disclosures 
where necessary--
    (1) To properly obtain the services of persons having special 
knowledge or technical skills;
    (2) To properly interview, consult, depose, or interrogate or 
otherwise obtain relevant information from, the taxpayer (or the legal 
representative of the taxpayer) to whom the return information relates 
or any witness who may be called to give evidence in the proceeding; or
    (3) To properly conduct negotiations concerning, or obtain 
authorization for, settlement or disposition of the proceeding, in whole 
or in part, or stipulations of fact in connection with the proceeding.
    (i) Use in criminal judicial proceedings. Return information 
disclosed pursuant to this section may not be used in any criminal 
judicial proceeding, or any preparations therefor (or in a criminal 
investigation which may result in such a proceeding), involving the 
enforcement of a criminal statute, without compliance with the 
requirements of section 6103(i) (1) or (2) as appropriate. However, the 
return information may in any event be used for purposes of complying 
with the requirements of section 6103(i).
    (j) Restrictions. Return information disclosed to officers and 
employees of the U.S. Customs Service or to the Department of Justice as 
provided by this section may not be used or disclosed for any purpose 
other than to ascertain, or advocate or defend the correctness of, 
Customs determinations with respect to, any entry in the audits for 
which the information was requested or in certain actions resulting from 
the audits as described above. Return information disclosed to officers 
and employees of the U.S. Customs Service or to the Department of 
Justice as provided by this section may not be disclosed to any person, 
including any contractor of the U.S. Customs Service, except as provided 
by this section, or as otherwise provided by section 6103 of the 
Internal Revenue Code.

[T.D. 8527, 59 FR 11548, Mar. 11, 1994. Redesignated by T.D. 8694, 61 FR 
66220, Dec. 17, 1996]



Sec.  301.6103(l)(21)-1  Disclosure of return information 
to the Department of Health and Human Services to carry out eligibility 
requirements for health insurance affordability programs.

    (a) General rule. Pursuant to the provisions of section 
6103(l)(21)(A) of the Internal Revenue Code, officers and employees of 
the Internal Revenue Service will disclose, upon written request, for 
each relevant taxpayer on a single application those items of return 
information that are described under section 6103(l)(21)(A) and 
paragraphs (a)(1) through (7) of this section, for the reference tax 
year, as applicable, to officers, employees, and contractors of the 
Department of Health and Human Services. Such information shall be 
provided solely for purposes of, and to the extent necessary in, 
establishing an individual's eligibility for participation in an 
Exchange established under the Patient Protection and Affordable Care 
Act, verifying the appropriate amount of any premium tax credit under 
section 36B or cost-sharing reduction under section 1402 of the Patient 
Protection and Affordable Care Act, or determining eligibility for the 
State programs described in section 6103(l)(21)(A).
    (1) With respect to each relevant taxpayer for the reference tax 
year where the amount of social security benefits not included in gross 
income under section 86 of the Internal Revenue Code of that relevant 
taxpayer is unavailable:

[[Page 90]]

    (i) The aggregate amount of the following items of return 
information--
    (A) Adjusted gross income, as defined by section 62 of the Internal 
Revenue Code;
    (B) Any amount excluded from gross income under section 911 of the 
Internal Revenue Code; and
    (C) Any amount of interest received or accrued by the taxpayer 
during the taxable year that is exempt from tax.
    (ii) Information indicating that the amount of social security 
benefits not included in gross income under section 86 of the Internal 
Revenue Code is unavailable.
    (2) Adjusted gross income, as defined by section 62 of the Internal 
Revenue Code, of a relevant taxpayer for the reference tax year, in 
circumstances where the modified adjusted gross income (MAGI), as 
defined by section 36B(d)(2)(B) of the Internal Revenue Code, of that 
relevant taxpayer is unavailable, as well as information indicating that 
the components of MAGI other than adjusted gross income must be taken 
into account to determine MAGI;
    (3) The amount of social security benefits of the relevant taxpayer 
that is included in gross income under section 86 of the Internal 
Revenue Code for the reference tax year;
    (4) Information indicating that certain return information of a 
relevant taxpayer is unavailable for the reference tax year because the 
relevant taxpayer jointly filed a U.S. Individual Income Tax Return for 
that year with a spouse who is not a relevant taxpayer listed on the 
same application;
    (5) Information indicating that, although a return for an individual 
identified on the application as a relevant taxpayer for the reference 
tax year is available, return information is not being provided because 
of possible authentication issues with respect to the identity of the 
relevant taxpayer;
    (6) Information indicating that a relevant taxpayer who is 
identified as a dependent for the tax year in which the premium tax 
credit under section 36B of the Internal Revenue Code would be claimed, 
did not have a filing requirement for the reference tax year based upon 
the U.S. Individual Income Tax Return the relevant taxpayer filed for 
the reference tax year; and
    (7) Information indicating that a relevant taxpayer who received 
advance payments of the premium tax credit in the reference tax year did 
not file a tax return for the reference tax year reconciling the advance 
payments of the premium tax credit with any premium tax credit under 
section 36B of the Internal Revenue Code available for that year.
    (b) Relevant taxpayer defined. For purposes of paragraph (a) of this 
section, a relevant taxpayer is defined to be any individual listed, by 
name and social security number, on an application submitted pursuant to 
Title I, Subtitle E, of the Patient Protection and Affordable Care Act, 
whose income may bear upon a determination of any advance payment of any 
premium tax credit under section 36B of the Internal Revenue Code, cost-
sharing reduction under section 1402 of the Patient Protection and 
Affordable Care Act, or eligibility for any program described in section 
6103(l)(21)(A) of the Internal Revenue Code.
    (c) Reference tax year defined. For purposes of section 
6103(l)(21)(A) of the Internal Revenue Code and this section, the 
reference tax year is the first calendar year or, where no return 
information is available in that year, the second calendar year, prior 
to the submission of an application pursuant to Title I, Subtitle E, of 
the Patient Protection and Affordable Care Act.
    (d) Effective/applicability date. This section applies to 
disclosures to the Department of Health and Human Services on or after 
August 14, 2013.

[T.D. 9628, 78 FR 49369, Aug. 14, 2013]



Sec.  301.6103(m)-1  Disclosure of taxpayer identity information.

    (a) Definition. For purposes of applying the provisions of section 
6103(m) of the Internal Revenue Code, the term agent includes a 
contractor.
    (b) Effective date. This section is applicable January 6, 2004.

[T.D. 9111, 69 FR 507, Jan. 6, 2004]

[[Page 91]]



Sec.  301.6103(n)-1  Disclosure of returns and return information 
in connection with written contracts or agreements for the acquisition 
of property or services for tax administration purposes.

    (a) General rule. (1) Pursuant to the provisions of section 6103(n) 
of the Internal Revenue Code and subject to the conditions of this 
section, officers and employees of the Treasury Department, a State tax 
agency, the Social Security Administration, or the Department of 
Justice, are authorized to disclose returns and return information (as 
defined in section 6103(b)) to any person (including, in the case of the 
Treasury Department, any person described in section 7513(a)), or to an 
officer or employee of the person, for purposes of tax administration 
(as defined in section 6103(b)(4)), to the extent necessary in 
connection with a written contract or agreement for the acquisition of--
    (i) Equipment or other property; or
    (ii) Services relating to the processing, storage, transmission, or 
reproduction of returns or return information, the programming, 
maintenance, repair, or testing of equipment or other property, or the 
providing of other services.
    (2) Any person, or officer or employee of the person, who receives 
returns or return information under paragraph (a)(1) of this section, 
may--
    (i) Further disclose the returns or return information to another 
officer or employee of the person whose duties or responsibilities 
require the returns or return information for a purpose described in 
this paragraph (a); or
    (ii) Further disclose the returns or return information, when 
authorized in writing by the Internal Revenue Service (IRS), to the 
extent necessary to carry out the purposes described in this paragraph 
(a). Disclosures may include disclosures to an agent or subcontractor of 
the person, or officer or employee of the agent or subcontractor.
    (3) An agent or subcontractor, or officer or employee of the agent 
or subcontractor, who receives returns or return information under 
paragraph (a)(2)(ii) of this section, may further disclose the returns 
or return information to another officer or employee of the agent or 
subcontractor whose duties or responsibilities require the returns or 
return information for a purpose described in this paragraph (a).
    (4) Any person, or officer, employee, agent or subcontractor of the 
person, or officer or employee of the agent or subcontractor, who 
receives returns or return information under this paragraph (a), may, 
subject to the provisions of Sec.  301.6103(p)(2)(B)-1 (concerning 
disclosures by a Federal, State, or local agency, or its agents or 
contractors), further disclose the returns or return information for a 
purpose authorized, and subject to all applicable conditions imposed, by 
section 6103.
    (b) Limitations. (1) Disclosure of returns or return information in 
connection with a written contract or agreement for the acquisition of 
property or services described in paragraph (a) of this section will be 
treated as necessary only if the performance of the contract or 
agreement cannot otherwise be reasonably, properly, or economically 
carried out without the disclosure.
    (2) Disclosure of returns or return information in connection with a 
written contract or agreement for the acquisition of property or 
services described in paragraph (a) of this section shall be made only 
to the extent necessary to reasonably, properly, or economically perform 
the contract. For example, disclosure of returns or return information 
to employees of a contractor for purposes of programming, maintaining, 
repairing, or testing computer equipment used by the IRS or a State tax 
agency shall be made only if the services cannot be reasonably, 
properly, or economically performed without the disclosure. If it is 
determined that disclosure of returns or return information is 
necessary, and if the services can be reasonably, properly, or 
economically performed by disclosure of only parts or portions of a 
return or if deletion of taxpayer identity information (as defined in 
section 6103(b)(6)) reflected on a return would not seriously impair the 
ability of the employees to perform the services, then only the parts or 
portions of the return, or only the return with taxpayer identity 
information deleted, may be disclosed.

[[Page 92]]

    (c) Penalties. Any person, or officer, employee, agent or 
subcontractor of the person, or officer or employee of the agent or 
subcontractor, who receives returns or return information under 
paragraph (a) of this section, is subject to the civil and criminal 
penalty provisions of sections 7431, 7213, and 7213A for the 
unauthorized inspection or disclosure of the returns or return 
information.
    (d) Notification requirements. Any person, or agent or subcontractor 
of the person, who receives returns or return information under 
paragraph (a) of this section shall provide written notice to his, her, 
or its officers and employees receiving the returns or return 
information that--
    (1) Returns or return information disclosed to the officer or 
employee may be used only for a purpose and to the extent authorized by 
paragraph (a) of this section and that the officer or employee is 
subject to the civil and criminal penalty provisions of sections 7431, 
7213, and 7213A for the unauthorized inspection or disclosure of the 
returns or return information;
    (2) Further inspection of any returns or return information for a 
purpose or to an extent not authorized by paragraph (a) of this section 
constitutes a misdemeanor, punishable upon conviction by a fine of as 
much as $1,000, or imprisonment for as long as 1 year, or both, together 
with costs of prosecution;
    (3) Further disclosure of any returns or return information for a 
purpose or to an extent not authorized by paragraph (a) of this section 
constitutes a felony, punishable upon conviction by a fine of as much as 
$5,000, or imprisonment for as long as 5 years, or both, together with 
the costs of prosecution;
    (4) Further inspection or disclosure of returns or return 
information by any person who is not an officer or employee of the 
United States for a purpose or to an extent not authorized by paragraph 
(a) of this section may result also in an award of civil damages against 
that person in an amount not less than $1,000 for each act of 
unauthorized inspection or disclosure; or the sum of actual damages 
sustained by the plaintiff as a result of the unauthorized inspection or 
disclosure plus, in the case of a willful inspection or disclosure or an 
inspection or disclosure that is the result of gross negligence, 
punitive damages. In addition, costs and reasonable attorneys fees may 
be awarded; and
    (5) A conviction for an offense referenced in paragraph (d)(2) or 
(3) of this section shall, in addition to any other punishment, result 
in dismissal from office or discharge from employment if the person 
convicted is an officer or employee of the United States.
    (e) Safeguards. (1) Any person, or agent or subcontractor of the 
person, who may receive returns or return information under paragraph 
(a) of this section, shall agree, before disclosure of any returns or 
return information to the person, agent, or subcontractor, to permit an 
inspection by the IRS of his, her, or its site or facilities.
    (2) Any person, or officer, employee, agent or subcontractor of the 
person, or officer or employee of the agent or subcontractor, who 
receives returns or return information under paragraph (a) of this 
section, shall comply with all applicable conditions and requirements as 
the IRS may prescribe from time to time (prescribed requirements) for 
the purposes of protecting the confidentiality of returns and return 
information and preventing any disclosure or inspection of returns or 
return information in a manner not authorized by this section.
    (3) The terms of any written contract or agreement for the 
acquisition of property or services as described in paragraph (a) of 
this section shall provide, or shall be amended to provide, that any 
person, or officer, employee, agent or subcontractor of the person, or 
officer or employee of the agent or subcontractor, who receives returns 
or return information under paragraph (a) of this section, shall comply 
with the prescribed requirements. Any contract or agreement shall be 
made available to the IRS before execution of the contract or agreement. 
For purposes of this paragraph (e)(3), a written contract or agreement 
shall include any contract or agreement between a person and an agent or 
subcontractor of the person to provide the property or services 
described in paragraph (a) of this section.

[[Page 93]]

    (4) If the IRS determines that any person, or officer, employee, 
agent or subcontractor of the person, or officer or employee of the 
agent or subcontractor, who receives returns or return information under 
paragraph (a) of this section, has failed to, or does not, satisfy the 
prescribed requirements, the IRS, consistent with the regulations under 
section 6103(p)(7), may take any actions it deems necessary to ensure 
that the prescribed requirements are or will be satisfied, including--
    (i) Suspension of further disclosures of returns or return 
information by the IRS to the State tax agency, the Social Security 
Administration, or the Department of Justice, until the IRS determines 
that the conditions and requirements have been or will be satisfied;
    (ii) Suspension of further disclosures by the Treasury Department 
otherwise authorized by paragraph (a) of this section; and
    (iii) Suspension or termination of any duty or obligation arising 
under a contract or agreement with the Treasury Department.
    (f) Definitions. For purposes of this section--
    (1) The term Treasury Department includes the IRS, the Office of the 
Chief Counsel for the IRS, and the Office of the Treasury Inspector 
General for Tax Administration;
    (2) The term State tax agency means an agency, body, or commission 
described in section 6103(d); and
    (3) The term Department of Justice includes offices of the United 
States Attorneys.
    (g) Effective date. This section is applicable on June 5, 2007.

[T.D. 9327, 72 FR 30976, June 5, 2007]



Sec.  301.6103(n)-2  Disclosure of return information in connection with 
written contracts among the IRS, whistleblowers, and legal representatives 
of whistleblowers.

    (a) General rule. (1) Pursuant to the provisions of sections 6103(n) 
and 7623 of the Internal Revenue Code and subject to the conditions of 
this section, an officer or employee of the Treasury Department is 
authorized to disclose return information (as defined in section 
6103(b)(2)) to a whistleblower and, if applicable, the legal 
representative of the whistleblower, to the extent necessary in 
connection with a written contract among the Internal Revenue Service 
(IRS), the whistleblower and, if applicable, the legal representative of 
the whistleblower, for services relating to the detection of violations 
of the internal revenue laws or related statutes.
    (2) The IRS shall have the discretion to determine whether to enter 
into a written contract pursuant to section 7623 with the whistleblower 
and, if applicable, the legal representative of the whistleblower, for 
services described in paragraph (a)(1) of this section.
    (b) Limitations. (1) Disclosure of return information in connection 
with a written contract for services described in paragraph (a)(1) of 
this section shall be made only to the extent the IRS deems it necessary 
in connection with the reasonable or proper performance of the contract. 
Disclosures may include, but are not limited to, disclosures to 
accomplish properly any purpose or activity of the nature described in 
section 6103(k)(6) and the regulations thereunder.
    (2) If the IRS determines that the services of a whistleblower and, 
if applicable, the legal representative of the whistleblower, as 
described in paragraph (a)(1) of this section, can be performed 
reasonably or properly by disclosure of only parts or portions of return 
information, then only the parts or portions of the return information 
shall be disclosed.
    (3) Upon written request by a whistleblower, or a legal 
representative of a whistleblower, with whom the IRS has entered into a 
written contract for services as described in paragraph (a)(1) of this 
section, the Director of the Whistleblower Office, or designee of the 
Director, may inform the whistleblower and, if applicable, the legal 
representative of the whistleblower, of the status of the 
whistleblower's claim for award under section 7623, including whether 
the claim is being evaluated for potential investigative action, or is 
pending due to an ongoing examination, appeal, collection action, or 
litigation. The information may be disclosed only if the IRS determines 
that the disclosure would not seriously impair Federal tax 
administration.

[[Page 94]]

    (4) Return information disclosed to a whistleblower and, if 
applicable, a legal representative of a whistleblower, under this 
section, shall not be further disclosed or otherwise used by the 
whistleblower or a legal representative of a whistleblower, except as 
expressly authorized in writing by the IRS.
    (c) Penalties. Any whistleblower, or legal representative of a 
whistleblower, who receives return information under this section, is 
subject to the civil and criminal penalty provisions of sections 7431, 
7213, and 7213A for the unauthorized inspection or disclosure of the 
return information.
    (d) Safeguards. (1) Any whistleblower, or the legal representative 
of a whistleblower, who receives return information under this section, 
shall comply with all applicable conditions and requirements as the IRS 
may prescribe from time to time for the purposes of protecting the 
confidentiality of the return information and preventing any disclosure 
or inspection of the return information in a manner not authorized by 
this section (prescribed requirements).
    (2) Any written contract for services as described in paragraph 
(a)(1) of this section shall provide that any whistleblower and, if 
applicable, the legal representative of a whistleblower, who has access 
to return information under this section, shall comply with the 
prescribed requirements.
    (3) Any whistleblower, or the legal representative of a 
whistleblower, who may receive return information under this section, 
shall agree in writing, before any disclosure of return information is 
made, to permit an inspection of the whistleblower's or the legal 
representative's premises by the IRS relative to the maintenance of the 
return information disclosed under these regulations and, upon 
completion of services as described in the written contract with the 
IRS, to dispose of all return information by returning the return 
information, including any and all copies or notes made, to the IRS, or 
to the extent that it cannot be returned, by destroying the information 
in a manner consistent with prescribed requirements.
    (4) If the IRS determines that any whistleblower, or the legal 
representative of a whistleblower, who has access to return information 
under this section, has failed to, or does not, satisfy the prescribed 
requirements, the IRS, using the procedures described in the regulations 
under section 6103(p)(7), may take any action it deems necessary to 
ensure that the prescribed requirements are or will be satisfied, 
including--
    (i) Suspension of further disclosures of return information by the 
IRS to the whistleblower and, if applicable, the legal representative of 
the whistleblower, until the IRS determines that the conditions and 
requirements have been or will be satisfied; and
    (ii) Suspension or termination of any duty or obligation arising 
under the contract with the IRS.
    (e) Definitions. For purposes of this section--
    (1) The term Treasury Department includes the IRS and the Office of 
the Chief Counsel for the IRS.
    (2) The term whistleblower means an individual who provides 
information to the IRS regarding violations of the tax laws or related 
statutes and submits a claim for an award under section 7623 with 
respect to the information.
    (3) The term legal representative means any individual who is a 
member in good standing in the bar of the highest court of any state, 
possession, territory, commonwealth, or the District of Columbia, and 
who has a written power of attorney executed by the whistleblower.
    (f) Effective/applicability date. This section is applicable on 
March 15, 2011.

[T.D. 9516, 76 FR 13882, Mar. 15, 2011]



Sec.  301.6103(p)(2)(B)-1  Disclosure of returns and return information 
by other agencies.

    (a) General rule. Subject to the requirements of paragraphs (b), 
(c), and (d) of this section, returns or return information that have 
been obtained by a Federal, state or local agency, or its agents or 
contractors, in accordance with section 6103 (the first recipient) may 
be disclosed by the first recipient to another recipient authorized to 
receive such returns or return information under section 6103 (the 
second recipient).

[[Page 95]]

    (b) Approval by Commissioner. A disclosure described in paragraph 
(a) of this section may be made if the Commissioner of Internal Revenue 
(the Commissioner) determines, after receiving a written request under 
this section, that such returns or return information are more readily 
available from the first recipient than from the Internal Revenue 
Service (IRS). The disclosure authorization by the Commissioner shall be 
directed to the head of the first recipient and may contain such 
conditions or restrictions as the Commissioner may prescribe. The 
disclosure authorization may be revoked by the Commissioner at any time.
    (c) Requirements and restrictions. The second recipient may receive 
only returns or return information as authorized by the provision of 
section 6103 applicable to such second recipient. Any returns or return 
information disclosed may be used by the second recipient only for a 
purpose authorized by and subject to any conditions imposed by section 
6103 and the regulations thereunder, including, if applicable, 
safeguards imposed by section 6103(p)(4).
    (d) Records and reports of disclosure. The first recipient shall 
maintain to the satisfaction of the IRS a permanent system of 
standardized records regarding such disclosure authorization described 
in paragraph (a) of this section and any disclosure of returns and 
return information made pursuant to such authorization, and shall 
provide such information as prescribed by the Commissioner in order to 
enable the IRS to comply with its obligations under section 6103(p)(3) 
to keep accountings for disclosures and to make annual reports of 
disclosures to the Joint Committee on Taxation. The information required 
for reports to the Joint Committee on Taxation must be provided within 
30 days after the close of each calendar year. The requirements of this 
paragraph do not apply to the disclosure of returns and return 
information as provided by paragraph (a) of this section which, had such 
disclosures been made directly by the IRS, would not have been subject 
to the recordkeeping requirements imposed by section 6103(p)(3)(A).
    (e) Effective date. This section is applicable on January 21, 2003.

[T.D. 9036, 68 FR 2696, Jan. 21, 2003]



Sec.  301.6103(p)(4)-1  Procedures relating to safeguards for returns 
or return information.

    For security guidelines and other safeguards for protecting returns 
and return information, see guidance published by the Internal Revenue 
Service. For procedures for administrative review of a determination 
that an authorized recipient has failed to safeguard returns or return 
information, see Sec.  301.6103(p)(7)-1.

[T.D. 9445, 74 FR 6830, Feb. 11, 2009]



Sec.  301.6103(p)(7)-1  Procedures for administrative review 
of a determination that an authorized recipient has failed to safeguard 
returns or return information.

    (a) In general. Notwithstanding any section of the Internal Revenue 
Code (Code), the Internal Revenue Service (IRS) may terminate or suspend 
disclosure of returns and return information to any authorized recipient 
specified in section (p)(4) of section 6103, if the IRS determines that:
    (1) The authorized recipient has allowed an unauthorized inspection 
or disclosure of returns or return information and that the authorized 
recipient has not taken adequate corrective action to prevent the 
recurrence of an unauthorized inspection or disclosure; or
    (2) The authorized recipient does not satisfactorily maintain the 
safeguards prescribed by section 6103(p)(4), and has made no adequate 
plan to improve its system to maintain the safeguards satisfactorily.
    (b) Notice of IRS's intention to terminate or suspend disclosure. 
Prior to terminating or suspending authorized disclosures, the IRS will 
notify the authorized recipient in writing of the IRS's preliminary 
determination and of the IRS's intention to discontinue disclosure of 
returns and return information to the authorized recipient. Upon so 
notifying the authorized recipient, the IRS, if it determines that tax 
administration otherwise would be seriously impaired, may suspend 
further

[[Page 96]]

disclosures of returns and return information to the authorized 
recipient pending a final determination by the Commissioner or a Deputy 
Commissioner described in paragraph (d)(2) of this section.
    (c) Authorized recipient's right to appeal. An authorized recipient 
shall have 30 days from the date of receipt of a notice described in 
paragraph (b) of this section to appeal the preliminary determination 
described in paragraph (b) of this section. The appeal shall be made 
directly to the Commissioner.
    (d) Procedures for administrative review. (1) To appeal a 
preliminary determination described in paragraph (b) of this section, 
the authorized recipient shall send a written request for a conference 
to: Commissioner of Internal Revenue (Attention: SE:S:CLD:GLD), 1111 
Constitution Avenue, NW., Washington, DC 20224. The request must include 
a complete description of the authorized recipient's present system of 
safeguarding returns or return information received by the authorized 
recipient (and its authorized contractors or agents, if any). The 
request must state the reason or reasons the authorized recipient 
believes that such system or practice (including improvements, if any, 
to such system or practice expected to be made in the near future) is or 
will be adequate to safeguard returns or return information.
    (2) Within 45 days of the receipt of the request made in accordance 
with the provisions of paragraph (d)(1) of this section, the 
Commissioner or Deputy Commissioner personally shall hold a conference 
with representatives of the authorized recipient, after which the 
Commissioner or Deputy Commissioner shall make a final determination 
with respect to the appeal.
    (e) Effective/applicability date. This section applies to all 
authorized recipients of returns and return information that are subject 
to the safeguard requirements set forth in section 6103(p)(4) on or 
after February 11, 2009.

[T.D. 9445, 74 FR 6830, Feb. 11, 2009]



Sec.  301.6104(a)-1  Public inspection of material relating to 
tax-exempt organizations.

    (a) Applications for exemption from Federal income tax, applications 
for a group exemption letter, and supporting documents. If the Internal 
Revenue Service determines that an organization described in section 
501(c) or section 501(d) is exempt from Federal income tax for any 
taxable year, the application upon which the determination is based, 
together with any supporting documents, shall be open to public 
inspection. Such applications and supporting documents shall be open for 
public inspection even after any revocation of the Internal Revenue 
Service's determination that the organization is exempt from Federal 
income tax. In the past, some applications were destroyed and therefore 
are not available for inspection. For purposes of determining the 
availability for public inspection, a claim for exemption from Federal 
income tax filed to re-establish exempt status after denial thereof 
under the provisions of section 503 or 504 (as in effect on December 31, 
1969), or under the corresponding provisions of any prior revenue law, 
is considered an application for exemption from Federal income tax.
    (b) Notices of status filed by political organizations. If, in 
accordance with section 527(i), an organization notifies the Internal 
Revenue Service that it is a political organization as described in 
section 527, exempt from Federal income tax for any taxable year, the 
notice of status filed by the political organization shall be open to 
public inspection.
    (c) Letters or documents issued by the Internal Revenue Service with 
respect to an application for exemption from Federal income tax. If an 
application for exemption from Federal income tax is filed with the 
Internal Revenue Service after October 31, 1976, and is open to public 
inspection under paragraph (a) of this section, then any letter or 
document issued to the applicant by the Internal Revenue Service that 
relates to the application is also open to public inspection. For rules 
relating to when a letter or document is issued, see Sec.  301.6110-
2(h). Letters or documents to which this paragraph (c) applies include, 
but are not limited to--
    (1) Favorable rulings and determination letters, including group 
exemption

[[Page 97]]

letters, issued in response to applications for exemption from Federal 
income tax;
    (2) Technical advice memoranda issued with respect to the approval, 
or subsequent approval, of an application for exemption from Federal 
income tax;
    (3) Letters issued in response to an application for exemption from 
Federal income tax (including applications for a group exemption letter) 
that propose a finding that the applicant is not entitled to be exempt 
from Federal income tax, if the applicant is subsequently determined, on 
the basis of that application, to be exempt from Federal income tax; and
    (4) Any letter or document issued by the Internal Revenue Service 
relating to an organization's status as an organization described in 
section 509(a), 4940(d)(2), 4942(j)(3), or 4943(f), including a 
determination letter that the organization is or is not a private 
foundation.
    (d) Requirement of exempt status. An application for exemption from 
Federal income tax (including applications for a group exemption 
letter), supporting documents, and letters or documents issued by the 
Internal Revenue Service that relate to the application shall not be 
open to public inspection before the organization is determined, on the 
basis of that application, to be exempt from Federal income tax for any 
taxable year. If an organization is determined to be exempt from Federal 
income tax for any taxable year, these materials shall not be withheld 
from public inspection on the basis that the organization is 
subsequently determined not to be exempt for any other taxable year.
    (e) Documents included in the term ``application for exemption from 
Federal income tax.'' For purposes of this section--
    (1) Prescribed application form. If a form is prescribed for an 
organization's application for exemption from Federal income tax, the 
application includes the form and all documents and statements that the 
Internal Revenue Service requires to be filed with the form, any 
amendments or revisions to the original application, or any resubmitted 
applications where the original application was submitted in draft form 
or was withdrawn. An application includes an application for 
reinstatement of tax-exempt status after an organization's tax-exempt 
status has been revoked pursuant to section 6033(j). An application 
submitted in draft form or an application submitted and later withdrawn 
is not considered an application.
    (2) No prescribed application form. If no form is prescribed for an 
organization's application for exemption from Federal income tax, the 
application includes the submission by letter requesting recognition of 
tax exemption and any statements or documents as prescribed by Revenue 
Procedure 2011-9, IRB 2011-2 (January 10, 2011), or any successor 
guidance describing procedures for application for exempt status 
pursuant to section 501 and section 521 of the Internal Revenue Code. 
See Sec.  601.601(d)(2)(ii)(b).
    (3) Application for a Group Exemption Letter. The application for a 
group exemption letter includes the letter submitted by or on behalf of 
subordinate organizations that seek exempt status pursuant to a group 
exemption letter and any statements or documents as prescribed by 
Revenue Procedure 80-27, 1980-1 CB 677 (June 20, 1980), and any 
successor guidance. See Sec.  601.601(d)(2)(ii)(b).
    (4) Notice of status filed under section 527(i). For purposes of 
this section, documents included in the term ``notice of status filed 
under section 527(i)'' include--
    (i) Form 8871, ``Political Organization Notice of Section 527 
Status;''
    (ii) Form 8453-X, ``Declaration of Electronic Filing of Notice of 
Section 527 Status;'' and
    (iii) Any other additional forms or documents that the Internal 
Revenue Service may prescribe.
    (f) Material open to public inspection under section 6110. Under 
section 6110, certain written determinations, including negative 
determinations issued to organizations that applied for an exemption 
from Federal income tax, issued by the Internal Revenue Service are made 
available for public inspection. Section 6110 does not apply, however, 
to material that is open to public inspection under section 6104. See 
sections 6104(a)(1) and 6110(l)(1).

[[Page 98]]

    (g) Supporting documents defined. For purposes of this section, 
``supporting documents,'' with respect to an application for exemption 
from Federal income tax, means any statement or document not described 
in paragraph (e) of this section that is submitted by the organization 
or group in support of its application prior to a determination 
described in paragraph (a) of this section. Items submitted in 
connection with an application in draft form, or with an application 
submitted and later withdrawn, are not supporting documents. There are 
no supporting documents with respect to Notices of Status filed by 
political organizations.
    (h) Statement of exempt status. For efficient tax administration, 
the Internal Revenue Service may publish, in paper or electronic format, 
the names of organizations currently recognized as exempt from Federal 
income tax, including organizations recognized as exempt from Federal 
income tax under particular paragraphs of section 501(c) or section 
501(d). In addition to having the opportunity to inspect material 
relating to an organization exempt from Federal income tax, a person may 
request a statement, or the Internal Revenue Service may disclose, in 
response to or in anticipation of a request, the following information--
    (1) The subsection and paragraph of section 501 (or the 
corresponding provision of any prior revenue law) under which the 
organization or group has been determined, on the basis of an 
application open to public inspection, to qualify for exemption from 
Federal income tax; and
    (2) Whether an organization or group is currently recognized as 
exempt from Federal income tax.
    (i) Publication of non-exempt status. (1) For publication of the 
notice of the revocation of a determination that an organization is 
described in section 501(c)(3), see section 7428(c).
    (2) For publication of a list including any organization the tax 
exemption of which is revoked for failure to file required returns or 
notices for three consecutive years, see section 6033(j).
    (3) For publication of notice of suspension of tax exemption of 
terrorist organizations, see section 501(p).
    (j) Withholding of certain information from public inspection. For 
rules relating to certain information contained in an application for 
exemption from Federal income tax and supporting documents that will be 
withheld from public inspection, see Sec.  301.6104(a)-5(a).
    (k) Procedures for inspection. For rules relating to procedures for 
public inspection of applications for exemption from Federal income tax 
and supporting documents, see Sec.  301.6104(a)-6.
    (l) Effective/applicability date. The rules of this section apply 
February 29, 2012.

[T.D. 9581, 77 FR 12203, Feb. 29, 2012]



Sec.  301.6104(a)-2  Public inspection of material relating to pension 
and other plans.

    (a) Material open to inspection. Except as provided in Sec.  
301.6104(a)-4 with respect to plans having fewer than 26 participants, 
an application for a determination letter which is filed with the 
Internal Revenue Service after September 2, 1974, together with 
supporting documents filed by the applicant in support of the 
application, will be open to public inspection under section 
6104(a)(1)(B) (i) and (ii). An application for a determination letter 
and supporting documents will be open to public inspection whether or 
not the application is withdrawn by the applicant, and whether or not 
the Internal Revenue Service determines that the plan, account, or 
annuity to which the application relates is qualified or that any 
related trust or custodial account is exempt from tax.
    (b) Documents included in the term ``application for a determination 
letter''--(1) Employees' plans and individual retirement plans. For 
purposes of this section, the term ``application for a determination 
letter'' includes the documents that an applicant files with respect to 
a request that the Internal Revenue Service determine the qualification 
of--
    (i) A pension, profit-sharing, or stock bonus plan under section 
401(a),
    (ii) An annuity plan under section 403(a),
    (iii) A bond purchase plan under section 405(a), or

[[Page 99]]

    (iv) An individual retirement account or annuity described in 
section 408 (a), (b) or (c).
    (2) Tax exempt trusts or custodial accounts. The term ``application 
for a determination letter'' also includes the documents an applicant 
files with respect to a request that the Internal Revenue Service 
determine the exemption from tax under section 501(a) of an organization 
forming part of a plan or account described in subparagraph (1) of this 
paragraph, or a custodial account described in section 401(f).
    (3) Master, prototype and pattern plans. The term ``application for 
a determination letter'' also includes documents which an applicant 
files with respect to a request for approval of a master, prototype, 
pattern or other such plan or account.
    (4) Prescribed forms and application letters. With respect to an 
application for a determination letter described in this paragraph (b) 
for which an application form is prescribed, the application for a 
determination letter includes the form and all documents and statements 
required to be filed in connection with the form. With respect to an 
application for a determination letter for which no application form is 
prescribed, the application for a determination letter includes the 
application letter and all documents and statements the Internal Revenue 
Service requires to be submitted with the application letter.
    (c) Documents not constituting an ``application for a determination 
letter''. The following are not applications for a determination letter 
for purposes of this section:
    (1) An incomplete application that is returned without action for 
proper completion,
    (2) An application that is returned without action to the applicant 
for failure to notify all interested parties in accordance with the 
regulations under section 7476 (relating to declaratory judgments), and
    (3) A request for a ruling as to whether a proposed transaction is a 
prohibited transaction under section 4975.
    (d) Supporting documents. ``Supporting documents'', as used with 
respect to an application for a determination letter which is open to 
public inspection under this section, means any statement or document 
submitted in support of the application which is not specifically 
required by the application form or the Internal Revenue Service. For 
example, a legal brief submitted in support of an application for a 
determination letter is a supporting document.
    (e) Applicant. For purposes of this section, Sec.  301.6104(a)-3 
(relating to Internal Revenue Service letters and documents open to 
public inspection) and Sec.  301.6104(a)-5 (relating to the withholding 
of certain information from public inspection), an ``applicant'' 
includes, but is not limited to, an employer, plan administrator (as 
defined in section 414(g)), labor union, bank, or insurance company that 
files an application for a determination letter.

(Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue 
Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C. 
6104(a)(1)(A), 6104(a)(1)(B), 7805))

[T.D. 7845, 47 FR 50487, Nov. 8, 1982]



Sec.  301.6104(a)-3  Public inspection of Internal Revenue Service letters 
and documents relating to pension and other plans.

    (a) In general. Except as provided in Sec.  301.6104(a)-4 with 
respect to plans having fewer than 26 participants, a letter or other 
document issued by the Internal Revenue Service after September 2, 1974, 
is open to public inspection under section 6104(a)(1)(B)(iv) and this 
section, if it is issued with respect to--
    (1) The qualification of a pension, profit-sharing or stock bonus 
plan under section 401(a), an annuity plan under section 403(a), a bond 
purchase plan under section 405(a), or an individual retirement account 
or annuity described in section 408 (a), (b) or (c),
    (2) The exemption from tax under section 501(a) of an organization 
forming part of such a plan or account, or a custodial account described 
in section 401(f), or
    (3) The approval of a master, prototype, pattern or other such plan 
or account.
    (b) Scope. Internal Revenue Service letters and documents open to 
public inspection under section 6104(a)(1)(B)(iv) and this section are 
not limited to those issued in response to

[[Page 100]]

an application for a determination letter described in Sec.  
301.6104(a)-2. They are, however, limited to those issued by the 
Internal Revenue Service to the person or organization which either did 
or could file an application for a determination letter for the plan, 
account or annuity to which the letter or document relates. If such a 
person or organization designates a representative having a power of 
attorney, however, then the letter or document will be open to 
inspection if issued to the representative. For rules relating to when a 
letter or document is issued, see Sec.  301.6110-2(h). Internal Revenue 
Service letters and documents are open to public inspection under 
section 6104(a)(1)(B)(iv) and this section whether or not the Internal 
Revenue Service determines that the plan, account or annuity to which 
the letter or document relates is qualified or that any related trust or 
custodial account is exempt from tax.
    (c) Letters and documents open to public inspection. Internal 
Revenue Service letters and documents open to public inspection under 
section 6104(a)(1)(B)(iv) and this section include, but are not limited 
to:
    (1) Determination letters relating to the qualification of a plan, 
account or annuity described in paragraph (a)(1) of this section (see 
Sec.  601.201 (o)),
    (2) Technical advice memoranda (see Sec.  601.201(n)(9)) relating to 
the issuance of such determination letters,
    (3) Technical advice memoranda relating to the continuing 
qualification of a plan, account or annuity previously determined to be 
qualified, or to the qualification of a plan, account or annuity for 
which no determination letter has been issued,
    (4) Letters or documents revoking or modifying any prior favorable 
determination letter or denying the qualification of a plan, account or 
annuity for which no determination letter has been issued,
    (5) Determination letters relating to the exemption from tax of a 
trust or custodial account described in paragraph (a)(2) of this section 
(see Sec.  601.201 (o)(2)(i)(b)), or
    (6) Opinion letters relating to the acceptability of the form of any 
master, prototype or other such plan or account (see Sec.  601.201 (p) 
and (q)) or notification letters issued with respect to pattern plans.
    (d) Extent letter or document open to public inspection. A letter or 
document issued by the Internal Revenue Service is open to public 
inspection under section 6104(a)(1)(B)(iv) and this section only to the 
extent it relates directly to the qualification of a plan, account or 
annuity, the exemption from tax of a related organization or custodial 
account, or the approval of a master, prototype, pattern or other such 
plan. Any part of the letter or document which does not directly relate 
to such a qualification, exemption or approval is not open to public 
inspection. For example, a letter to an employer which concludes that an 
employee's plan is not qualified and the related trust is not tax exempt 
will be open to public inspection. However, that same letter may also 
assert an income tax deficiency because employer contributions to the 
trust are, therefore, not deductible. In such a case, that part of the 
letter relating to the tax deficiency will be deleted before the letter 
is opened to public inspection.
    (e) Letters or documents issued with respect to tax return 
examination. In the case of an examination of a taxpayer's return or 
consideration of a taxpayer's claim for credit or refund, no letter or 
document issued to the taxpayer before the preliminary or ``30-day'' 
letter described in Sec.  601.105(d)(1) is issued to the taxpayer will 
be open to public inspection under section 6104(a)(1)(B)(iv) and this 
section. The ``30-day'' letter and any statutory notice of deficiency 
subsequently issued to the taxpayer under section 6212 will be open to 
public inspection to the extent provided in paragraph (d) of this 
section. If any letter or document other than a statutory notice of 
deficiency is issued to the taxpayer after the ``30-day'' letter is 
issued, such letter or document will be open to inspection to the extent 
provided in paragraph (d) of this section only if it finally resolves or 
otherwise disposes of a plan qualification or tax exemption issue raised 
in the ``30-day'' letter.
    (f) Letters or documents issued after September 2, 1974. Section 
6104(a)(1)(B)(iv) and this section apply

[[Page 101]]

to letters or documents issued by the Internal Revenue Service after 
September 2, 1974, even though the relevant application for a 
determination letter or other initiating correspondence from the 
applicant was filed with the Internal Revenue Service before September 
2, 1974.

(Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue 
Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C. 
6104(a)(1)(A), 6104(a)(1)(B), 7805))

[47 FR 7845, 47 FR 50487, Nov. 8, 1982]



Sec.  301.6104(a)-4  Requirement for 26 or more plan participants.

    (a) Inspection by plan participants. In the case of a plan, annuity 
or account described in Sec.  301.6104(a)-2(b) and Sec.  301.6104(a)-
3(a) that has fewer than 26 participants, material described in 
Sec. Sec.  301.6104(a)-2 and 301.6104(a)-3 as open to public inspection 
is only open to inspection by a plan participant or the participant's 
authorized representative. This limitation does not apply, however, with 
respect to documents which an applicant files with respect to a request 
for approval of a master, prototype, pattern or other such plan (see 
Sec.  301.6104 (a)-2 (b)(3)) or to opinion, notification or other such 
letters issued by the Internal Revenue Service with respect to such 
plans (see Sec.  301.6104 (a)-3 (a)(3)).
    (b) Determining number of plan participants--(1) In general. For 
purposes of determining whether a plan has fewer than 26 participants, 
the number of plan participants will be the number indicated on the most 
recent annual return filed for the plan under section 6058. Where an 
annual return indicates the number of participants both at the beginning 
and end of the plan year, the number indicated on the return means the 
number at the end of the plan year. If no annual return has been filed 
for the plan, then the number of plan participants will be the number 
indicated on the most recent application for a determination letter 
filed for the plan. If, however, the number of plan participants is 
increased prior to final Internal Revenue Service action on the 
application, the number of plan participants will be that increased 
number.
    (2) Decreasing number of plan participants. If a plan having 26 or 
more participants, as indicated on an annual return or application for a 
determination letter, subsequently files an annual return indicating 
fewer than 26 plan participants, then material relating to the plan 
which is issued or received by the Internal Revenue Service after the 
date the annual return is filed will be open to inspection only by plan 
participants or their authorized representatives. Similarly, if a plan 
having 26 or more participants as indicated on an annual return or an 
application for a determination letter, subsequently files an 
application for a determination letter which indicates fewer than 26 
plan participants, then that application and related material, as well 
as any other material relating to the plan which is received or issued 
by the Internal Revenue Service after the date of receipt of that 
application, will be open to inspection only by plan participants or 
their authorized representatives. In either case, material open to 
public inspection pursuant to the number of plan participants indicated 
on previous annual returns or applications for a determination letter 
will remain open to public inspection.
    (3) Increasing number of plan participants. If a plan having fewer 
than 26 plan participants, as indicated on an annual return or 
application for a determination letter, files a subsequent return or 
application indicating 26 or more plan participants, all the plan's 
prior applications and other material received or issued by the Internal 
Revenue Service after September 2, 1974, will be open to public 
inspection regardless of the number of plan participants indicated on 
any prior return or application.
    (c) Plan participant. Solely for purposes of determining who is a 
plan participant permitted to inspect material relating to a plan having 
fewer than 26 participants, the term ``plan participant'' includes, but 
is not limited to, former employees (such as certain retired and 
terminated employees) who have a nonforfeitable right to benefits under 
the plan. An individual who is merely a beneficiary of an employee or 
former employee is not a plan participant, unless the individual is a 
beneficiary of a deceased former employee and is receiving benefits or 
entitled to

[[Page 102]]

receive future benefits under the plan. The term ``plan participant'' 
also includes the administrator, executor, or trustee of the estate of a 
deceased plan participant if such administrator, executor, or trustee is 
receiving benefits or entitled to receive future benefits under the plan 
in his or her official capacity. That material may be available for 
inspection to an individual under this paragraph does not constitute a 
determination by the Internal Revenue Service that the individual is a 
plan participant for any purpose other than inspection under section 
6104(a)(1)(B).
    (d) Authorized representative. ``Authorized representative'' means 
the representative of a plan participant designated by the participant 
in writing to inspect material described in Sec. Sec.  301.6104(a)-2 and 
301.6104(a)-3. The document designating the authorized representative 
must be signed by the plan participant and must specify that the 
representative is authorized to inspect the material. The document, or a 
copy, must be filed with the office of the Internal Revenue Service in 
which the authorized representative is to inspect the material. A copy 
which is reproduced by a photographic process need not be certified as a 
true and correct copy of the original.

(Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue 
Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C. 
6104(a)(1)(A), 6104(a)(1)(B), 7805))

[T.D. 7845, 47 FR 50488, Nov. 8, 1982]



Sec.  301.6104(a)-5  Withholding of certain information from public inspection.

    (a) Tax exempt organizations--(1) Trade secrets, patents, processes, 
styles of work, or apparatus. An organization whose application for tax 
exemption is open to public inspection under section 6104(a)(1)(A) and 
Sec.  301.6104(a)-1 may in writing request the withholding of 
information contained in the application or supporting documents which 
relates to any trade secret, patent, process, style of work, or 
apparatus of the organization. The information will be withheld from 
public inspection if the Commissioner determines that the disclosure of 
such information would adversely affect the organization. Requests for 
withholding information from public inspection should be filed with the 
office with which the organization files the documents containing the 
information. The request must clearly identify the material desired to 
be withheld (the document, page, paragraph, and line) and must state why 
the information should not be open to public inspection. The 
organization will be notified of the Commissioner's determination as to 
whether the information will be withheld from public inspection. If the 
Commissioner determines that the information will be disclosed, the 
organization will be given 15 days after notification of the 
Commissioner's decision to contest that decision before the document is 
disclosed.
    (2) National defense material. The Internal Revenue Service will 
withhold from public inspection any information which is submitted by an 
organization whose application for tax exemption is open to inspection 
under section 6104(a)(1)(A) and Sec.  301.6104(a)-1, if the Commissioner 
determines that public disclosure would adversely affect the national 
defense.
    (b) Pension and other plans--(1) Applicant's exclusion of certain 
information. Except as provided in subparagraph (2) of this paragraph, 
information that, in the opinion of the applicant, is of the type 
described in section 6104(a)(1) (C) or (D) should not be included in an 
application for a determination letter, supporting documents, or any 
other document open to inspection under section 6104(a)(1)(B). 
Accordingly, an applicant should not include in an application for a 
determination letter or supporting documents confidential compensation 
information as described in subparagraph (4) of this paragraph. Neither 
should an applicant include information relating to any trade secret, 
patent, process, style of work or apparatus, the disclosure of which 
would be adverse to the applicant.
    (2) Exception for separate document. The rule that an applicant 
should exclude from an application for a determination letter or other 
documents information of the type in section 6104(a)(1) (C) or (D) does 
not apply--
    (i) In the case of the separate schedule to certain applications for 
a determination letter which is provided for

[[Page 103]]

the purpose of setting forth confidential compensation information (as 
described in subparagraph (4) of this paragraph) which must be submitted 
by the applicant.
    (ii) If the applicant determines that it is impossible to provide 
the Internal Revenue Service with sufficient information to support an 
application for a determination letter without submitting what is 
believed to be information of the type described in section 6104(a)(1) 
(C) or (D), or
    (iii) If the Internal Revenue Service requests that the applicant 
submit information of the type described in section 6104(a)(1) (C) and 
(D).

In a case described in subdivision (ii) or (iii) of this subparagraph, 
the applicant is to set forth the information in a document separate 
from the remainder of the application for a determination letter or 
other documents. The separate document is to state why the information 
is to be witheld from public inspection under section 6104(a)(1) (C) or 
(D). If the Internal Revenue Service has not requested the information, 
the separate document is to also state why it is impossible to provide 
the Internal Revenue Service sufficient information to support the 
application for a determination letter without including information 
which is to be withheld. The separate document should clearly identify 
the relevant portion of the application for a determination letter or 
other document (the document, page, paragraph, and line) to which the 
information set forth in the separate document relates. The Internal 
Revenue Service will withhold from public inspection (including 
inspection by a plan participant or authorized representative) 
information contained in the separate document if the Commissioner 
determines that the information is in fact information of the type 
described in section 6104(a)(1) (C) or (D), and, in the case of 
information relating to any trade secret, patent, process, style of work 
or apparatus, the Commissioner further determines that disclosure would 
be adverse to the applicant. If the Commissioner determines that the 
information will be disclosed, the organization will be given 15 days 
after notification of the Commissioner's decision to contest the 
decision before the document is disclosed.
    (3) National defense material. The Internal Revenue Service will 
withhold from public inspection (including inspection by a plan 
participant or authorized representative) any information which is 
included in an application for a determination letter or supporting 
documents if the Commissioner determines that public disclosure would 
adversely affect the national defense. The information will be withheld 
whether or not submitted on a separate document pursuant to subparagraph 
(2) of this paragraph.
    (4) Confidential compensation information. If an application for a 
determination letter, supporting document, or related letter or document 
referred to in section 6104(a)(1)(B) and Sec. Sec.  301.6104(a)-2 and 
301.6104(a)-3 contains information (including aggregate figures) from 
which an individual's compensation (including deferred compensation) may 
be ascertained, that information is not open to public inspection 
(including inspection by a plan participant or authorized 
representative). Confidential compensation information includes the 
amount of benefit a specific plan participant may expect to receive at 
normal or early retirement age and the amount of the employer's 
contributions under the plan that may be allocated to a specific plan 
participant. However, so long as a plan has more than one participant, 
the amount of benefit provided under the plan to plan participants, in 
general, at normal or early retirement age, or the amount of the 
employer's contributions under the plan that are allocable to plan 
participants, in general, does not constitute confidential compensation 
information. Further, a description of the numbers of individuals 
covered and not covered by a plan, listed by compensation range, does 
not constitute confidential compensation information.

(Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue 
Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C. 
6104(a)(1)(A), 6104(a)(1)(B), 7805))

[T.D. 7845, 47 FR 50489, Nov. 8, 1982]

[[Page 104]]



Sec.  301.6104(a)-6  Procedural rules for inspection.

    (a) Place of inspection; tax exempt organizations and pension and 
other plans. Material relating either to tax exempt organizations or to 
pension and other plans that is open to public inspection under section 
6104(a)(1) and Sec.  301.6104(a)-1 through Sec.  301.6104(a)-3 will be 
made available for inspection at the Freedom of Information Reading 
Room, National Office, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, D.C. 20224, and in the office of any district 
director of internal revenue.
    (b) Request for inspection--(1) Tax exempt organizations and pension 
and other plans; public inspection. Material relating to either tax 
exempt organizations or pension and other plans that is open to public 
inspection under section 6104(a)(1) and Sec. Sec.  301.6104(a)-1 through 
Sec.  301.6104(a)-3 will be available for inspection only upon request. 
If inspection at the National Office is desired, a request should be 
made in writing to the Commissioner of Internal Revenue, Attention: 
Freedom of Information Reading Room, 1111 Constitution Avenue, NW., 
Washington, D.C. 20224. Requests for inspection in the office of a 
district director should be made in writing to the district director's 
office. The request must describe the material to be inspected in 
reasonably sufficient detail so that Internal Revenue Service personnel 
can locate the material. If a tax-exempt organization has more than one 
application for tax exemption open to public inspection, or if a pension 
or other plan has more than one application for a determination letter 
open to public inspection, only the most recent application and related 
material will be made available for inspection unless the request states 
otherwise. Further, in the case of a pension or other plan, only 
Internal Revenue Service documents issued or delivered after the date of 
the filing of the most recent application for a determination letter 
will be made available for inspection, unless the request states 
otherwise.
    (2) Pension and other plans; inspection by plan participant or 
authorized representative. As described in Sec.  301.6104(a)-4, material 
relating to plans having fewer than 26 participants is only open to 
inspection by a plan participant or authorized representative. In the 
case of such a plan, the rules described in subparagraph (1) of this 
paragraph apply. The request for inspection must include satisfactory 
evidence that the person requesting inspection is a plan participant 
(see Sec.  301.6104(a)-4(c)) or an authorized representative of such a 
plan participant within the meaning of Sec.  301.6104(a)-4(d).
    (c) Time and extent of inspection. A person requesting inspection 
will be notified when the material will be made available for 
inspection. The material will be made available for inspection at times 
that will not interfere with its use by the Internal Revenue Service or 
exclude other persons from inspecting it. In addition, the Commissioner 
or district director may limit the number of applications for tax 
exemption, applications for a determination letter, supporting 
documents, or letters and documents issued by the Internal Revenue 
Service that will be made available to any person for inspection on a 
given date. Inspection will be allowed only in the presence of an 
Internal Revenue Service employee and only during regular business 
hours.
    (d) Copies. Notes may be taken of the material open for inspection. 
Copies may be made manually or, if a person provides the equipment, 
photographically at the place of inspection. Photographic copying is 
subject to reasonable supervision with regard to the facilities and 
equipment used. Any fees the Internal Revenue Service may charge for 
furnishing copies under this section shall be no more than under the fee 
schedule promulgated pursuant to section (a)(4)(A)(i) of the Freedom of 
Information Act, 5 U.S.C. 552, by the Commissioner from time to time. 
Copies will be certified upon request.

(Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue 
Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C. 
6104(a)(1)(A), 6104(a)(1)(B), 7805))

[T.D. 7845, 47 FR 50490, Nov. 8, 1982, as amended by T.D. 9070, 68 FR 
40769, July 9, 2003]

[[Page 105]]



Sec.  301.6104(b)-1  Publicity of information on certain information returns.

    (a) In general. The following information, together with the name 
and address of the organization or trust furnishing such information, 
shall be a matter of public record:
    (1) Except as otherwise provided in section 6104 and the regulations 
thereunder, the information required by section 6033.
    (2) The information furnished pursuant to section 6034 (relating to 
returns by certain trusts) on Form 1041-A.
    (3) The information required to be furnished by section 6058.
    (b) Nondisclosure of certain information--(1) Names and addresses of 
contributors. The names and addresses of contributors to an organization 
other than a private foundation shall not be made available for public 
inspection under section 6104(b).
    (2) Amounts of contributions. The amounts of contributions and 
bequests to an organization shall be available for public inspection 
unless the disclosure of such information can reasonably be expected to 
identify any contributor. Notwithstanding the preceding sentence, the 
amounts of contributions and bequests to a private foundation shall be 
available for public inspection.
    (3) Foreign organizations. The names, addresses, and amounts of 
contributions or bequests of persons who are not citizens of the United 
States to a foreign organization described in section 4948(b) shall not 
be made available for public inspection under section 6104(b).
    (4) Confidential business information. Confidential business 
information of contributors to any trust described in section 501(c)(21) 
(black lung trusts) shall not be available for public inspection under 
section 6104(b) provided:
    (i) A request if filed with the office with which the trustee filed 
the documents in which the information to be withheld is contained.
    (ii) Such request clearly specifies the information to be withheld 
and the reasons supporting the request for withholding, and
    (iii) The Commissioner determines that such information is 
confidential business information.

Information such as the contributor's estimated total liability for 
black lung benefits, the contributor's coal pricing policies, or any 
background information necessary to establish estimated total liability 
or coal pricing policies are examples of confidential business 
information that shall not be disclosed to the public under this 
subparagraph.
    (c) Place of inspection. Information furnished on the public portion 
of returns (as described in paragraph (a) of this section) shall be made 
available for public inspection at the Freedom of Information Reading 
Room. Internal Revenue Service, 1111 Constitution Avenue, NW., 
Washington, D.C. 20224, and at the office of any district director.
    (d) Procedure for public inspection--(1) Requests for inspection. 
Information furnished on the public portion of returns (as described in 
paragraph (a) of this section) shall be available for public inspection 
only upon request. Requests for public inspection must be in writing to 
or at any of the offices mentioned in paragraph (c) of this section. 
Persons submitting requests for inspection must provide the name and 
address of the organization that filed the return, the type of return, 
and the year for which the organization filed.
    (2) Time and extent of inspection. A person requesting public 
inspection in the manner specified in subparagraph (1) of this paragraph 
shall be notified by the Internal Revenue Service when the material he 
desires to inspect will be made available for his inspection. 
Information on returns required by sections 6033, 6034, and 6058 will be 
made available for public inspection at such reasonable and proper 
times, and under such conditions, that will not interfere with their use 
by the Internal Revenue Service and will not exclude other persons from 
inspecting them. In addition the Commissioner, Director of the Service 
Center, or district director may limit the number of returns to be made 
available to any person for inspection on a given date. Inspection will 
be allowed only in the presence of an internal revenue officer or 
employee and only during the regular hours of business of the Internal 
Revenue Service office.
    (3) Returns available. Returns filed before January 1, 1970, shall 
be available

[[Page 106]]

for public inspection only pursuant to the provisions of section 6104 in 
effect for such years. The information furnished on all returns filed 
after December 31, 1969, purusant to the requirements of section 6033, 
6034, or 6058, shall be available for public inspection in accordance 
with the provisions of section 6104.
    (4) Copies. Notes may be taken of the material opened for inspection 
under this section. Copies may be made manually or, if a person provides 
the equipment, photographically at the place of inspection, subject to 
reasonable supervision with regard to the facilities and equipment to be 
employed. Copies of the material opened for inspection will be furnished 
by the Internal Revenue Service to any person making request therefor. 
Requests for such copies shall be made in the same manner as requests 
for inspection (see subparagraph (1) of this paragraph) to the office of 
the Internal Revenue Service in which such material is available for 
inspection as provided in paragraph (c) of this section. Copies may also 
be obtained by written request to the director of any service center. If 
made at the time of inspection, the request for copies need not be in 
writing. Any copies furnished will be certified upon request. Any fees 
the Internal Revenue Service may charge for furnishing copies under this 
section shall be no more than under the fee schedule promulgated 
pursuant to section (a)(4)(A)(i) of the Freedom of Information Act, 5 
U.S.C. 552, by the Commissioner from time to time.

[T.D. 8026, 50 FR 20757, May 20, 1985, as amended by T.D. 9070, 68 FR 
40769, July 9, 2003]



Sec.  301.6104(c)-1  Disclosure of certain information to State officers.

    (a) Notification of determinations--(1) Automatic notification. Upon 
making a determination described in paragraph (c) of this section, the 
Internal Revenue Service will notify the Attorney General and the 
principal tax officer of each of the following States of such 
determination without application or request by such State officer--
    (i) In the case of any organization described in section 501(c)(3), 
the State in which the principal office of the organization is located 
(as shown on the last-filed return required by section 6033, or on the 
application for exemption if no return has been filed), and the State in 
which the organization was incorporated, or if a trust, in which it was 
created, and
    (ii) In the case of a private foundation, each State which the 
organization was required to list as an attachment to its last-filed 
return pursuant to Sec.  1.6033-2(a)(2)(iv).
    (2) Applications for notification by other State officers. Other 
officers of States described in subparagraph (1) of this paragraph, and 
officers of States not described in such subparagraph, may request that 
they be notified (either generally or with respect to a particular 
organization or type of organization) of determinations described in 
paragraph (c) of this section. In such cases, these State officers must 
show that they are appropriate State officers within the meaning of 
section 6104(c)(2). The required showing may be made by presenting a 
letter from the Attorney General of the State setting forth (i) the 
functions and authority of the State officer under State law, and (ii) 
sufficient facts for the Internal Revenue Service to determine that such 
officer is an appropriate State officer within the meaning of section 
6104(c)(2).
    (3) Manner of notification. A State officer who is entitled to be 
notified of a determination under this paragraph will be notified by 
sending him a copy of the communication from the Internal Revenue 
Service to the organization which informs such organization of the 
determination.
    (b) Inspection by State officers--(1) In general. After a 
determination described in paragraph (c) of this section has been made, 
appropriate State officers within the meaning of section 6104(c)(2) may 
inspect the material described in subparagraph (3) of this paragraph. 
Such material may be inspected at an office of the Internal Revenue 
Service which will be designated upon receipt of a request for 
inspection; the location of such office will be determined with due 
consideration of the needs of the Internal Revenue Service and the needs 
of the State officer entitled to inspect.

[[Page 107]]

    (2) State officers who may inspect material. Any State officer 
entitled to be notified of a determination without application (under 
paragraph (a)(1) of this section) may inspect the material described in 
subparagraph (3) of this paragraph upon demonstrating that he is so 
entitled. Any State officer who has in fact been notified by the 
Internal Revenue Service of a determination may inspect such material 
without further demonstration, unless it shall be determined by the 
Internal Revenue Service that such officer was not entitled to be so 
notified. Other State officers must demonstrate to the satisfaction of 
the Internal Revenue Service that they are entitled to be notified under 
paragraph (a)(2) of this section before they may inspect such material.
    (3) Material which may be inspected. (i) Except as provided in 
subdivision (ii) of this subparagraph, a State officer who is so 
entitled under subparagraphs (1) and (2) of this paragraph will be 
permitted to inspect and copy all returns, filed statements, records, 
reports, and other information relating to a determination described in 
paragraph (c) of this section which is relevant to a determination under 
State law, and which is in the hands of the Internal Revenue Service.
    (ii) The following material will not be made available for 
inspection by State officers under section 6104(c) and this section--
    (a) Interpretations by the Internal Revenue Service or other federal 
agency of federal laws (including the Internal Revenue Code of 1954 and 
its predecessors) which would not otherwise be made available to State 
officers under section 6103(d),
    (b) Reports of informers, or any other material which would disclose 
the identity, or threaten the safety or anonymity, of an informer,
    (c) Returns of persons (other than those exempt from taxation) which 
would not be available under section 6103(d) to the State officer 
requesting inspection, or
    (d) Other material the disclosure of which the Commissioner has 
determined would prejudice the proper administration of the internal 
revenue laws.
    (4) Statement by State officer. Before any State officer will be 
permitted to inspect material described in this paragraph, he must 
submit a statement to the Internal Revenue Service that he intends to 
use such material solely in fulfilling his functions under State law 
relating to organizations of the type described in section 501(c)(3); 
material is made available to State officers under this section in 
reliance on such statements. For provisions relating to penalties for 
misuse of information which is made available under section 6104(c) and 
this section, see 18 U.S.C. 1001.
    (c) Determinations defined. For purposes of this section, a 
determination means a final determination by the Internal Revenue 
Service that--
    (1) An organization is refused recognition as an organization 
described in section 501(c)(3), or has been operated in such a manner 
that it will not, or will no longer, be recognized as meeting the 
requirements for exemption under that section, or
    (2) A deficiency of tax exists under section 507 or chapter 41 or 
42.

For purposes of this paragraph, a determination by the Internal Revenue 
Service is not final until all administrative review with respect to 
such determination has been completed. For purposes of this section, a 
waiver of restrictions on assessment and collection of deficiency in tax 
is treated as a final determination that a deficiency of tax exists when 
such waiver has been finally accepted by the Internal Revenue Service. 
For example, a final determination that a deficiency of tax exists under 
section 507 or chapter 41 or 42 is made when the organization is sent a 
notice of deficiency with respect to such tax.
    (d) Effective date. The provisions of this section apply with 
respect to all

[[Page 108]]

determinations made after December 31, 1969.

(Secs. 6033(a)(1), 6104(b), and 7805 of the Internal Revenue Code of 
1954 (83 Stat. 519, 68A Stat. 755 as amended by 83 Stat. 530, and 68A 
Stat. 917; 26 U.S.C. 6033(a)(1), 6104(b), and 7805); secs. 
6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue Code of 
1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C. 
6104(a)(1)(A), 6104(a)(1)(B), 7805))

[T.D. 7122, 36 FR 11031, June 8, 1971, as amended by T.D. 7290, 38 FR 
31835, Nov. 19, 1973; T.D. 7785, 46 FR 38508, July 28, 1981. 
Redesignated by T.D. 7845, 47 FR 50490, Nov. 8, 1982]



Sec.  301.6104(d)-0  Table of contents.

    This section lists the major captions contained in Sec. Sec.  
301.6104(d)-1 through 301.6104(d)-3 as follows:

 Sec.  301.6104(d)-1 Public inspection and distribution of applications 
     for tax exemption and annual information returns of tax-exempt 
                             organizations.

    (a) In general.
    (b) Definitions.
    (1) Tax-exempt organization.
    (2) Private foundation.
    (3) Application for tax exemption.
    (i) In general.
    (ii) No prescribed application form.
    (iii) Exceptions.
    (iv) Local or subordinate organizations.
    (4) Annual information return.
    (i) In general.
    (ii) Exceptions.
    (iii) Returns more than 3 years old.
    (iv) Local or subordinate organizations.
    (5) Regional or district offices.
    (i) In general.
    (ii) Site not considered a regional or district office.
    (c) Special rules relating to public inspection.
    (1) Permissible conditions on public inspection.
    (2) Organizations that do not maintain permanent offices.
    (d) Special rules relating to copies.
    (1) Time and place for providing copies in response to requests made 
in person.
    (i) In general.
    (ii) Unusual circumstances.
    (iii) Agents for providing copies.
    (2) Request for copies in writing.
    (i) In general.
    (ii) Time and manner of fulfilling written requests.
    (A) In general.
    (B) Request for a copy of parts of document.
    (C) Agents for providing copies.
    (3) Fees for copies.
    (i) In general.
    (ii) Form of payment.
    (A) Request made in person.
    (B) Request made in writing.
    (iii) Avoidance of unexpected fees.
    (iv) Responding to inquiries of fees charged.
    (e) Documents to be provided by regional and district offices.
    (f) Documents to be provided by local and subordinate organizations.
    (1) Applications for tax exemption.
    (2) Annual information returns.
    (3) Failure to comply.
    (g) Failure to comply with public inspection or copying 
requirements.
    (h) Effective date.
    (1) In general.
    (2) Private foundation annual information returns.

  Sec.  301.6104(d)-2 Making applications and returns widely available.

    (a) In general.
    (b) Widely available.
    (1) In general.
    (2) Internet posting.
    (i) In general.
    (ii) Transition rule.
    (iii) Reliability and accuracy.
    (c) Discretion to prescribe other methods for making documents 
widely available.
    (d) Notice requirement.
    (e) Effective date.

   Sec.  301.6104(d)-3 Tax-exempt organization subject to harassment 
                                campaign.

    (a) In general.
    (b) Harassment.
    (c) Special rule for multiple requests from a single individual or 
address.
    (d) Harassment determination procedure.
    (e) Effect of a harassment determination.
    (f) Examples.
    (g) Effective date.

[T.D. 8861, 65 FR 2033, Jan. 13, 2000]



Sec.  301.6104(d)-1  Public inspection and distribution of applications 
for tax exemption and annual information returns of tax-exempt organizations.

    (a) In general. Except as otherwise provided in this section, if a 
tax-exempt organization (as defined in paragraph (b)(1) of this section) 
filed an application for recognition of exemption under section 501, it 
shall make its application for tax exemption (as defined in paragraph 
(b)(3) of this section) available for public inspection without charge 
at its principal, regional and district offices during regular business 
hours. Except as otherwise provided in

[[Page 109]]

this section, a tax-exempt organization shall make its annual 
information returns (as defined in paragraph (b)(4) of this section) 
available for public inspection without charge in the same offices 
during regular business hours. Each annual information return shall be 
made available for a period of three years beginning on the date the 
return is required to be filed (determined with regard to any extension 
of time for filing) or is actually filed, whichever is later. In 
addition, except as provided in Sec. Sec.  301.6104(d)-2 and 
301.6104(d)-3, an organization shall provide a copy without charge, 
other than a reasonable fee for reproduction and actual postage costs, 
of all or any part of any application or return required to be made 
available for public inspection under this paragraph to any individual 
who makes a request for such copy in person or in writing. See paragraph 
(d)(3) of this section for rules relating to fees for copies.
    (b) Definitions. For purposes of applying the provisions of section 
6104(d), this section and Sec. Sec.  301.6104(d)-2 and 301.6104(d)-3, 
the following definitions apply:
    (1) Tax-exempt organization. The term tax-exempt organization means 
any organization that is described in section 501(c) or section 501(d) 
and is exempt from taxation under section 501(a). The term tax-exempt 
organization also includes any nonexempt charitable trust described in 
section 4947(a)(1) or nonexempt private foundation that is subject to 
the reporting requirements of section 6033 pursuant to section 6033(d).
    (2) Private foundation. The term private foundation means a private 
foundation as defined in section 509(a) or a nonexempt charitable trust 
described in section 4947(a)(1) or a nonexempt private foundation 
subject to the information reporting requirements of section 6033 
pursuant to section 6033(d).
    (3) Application for tax exemption--(i) In general. Except as 
described in paragraph (b)(3)(iii) of this section, the term application 
for tax exemption includes any prescribed application form (such as Form 
1023 or Form 1024), all documents and statements the Internal Revenue 
Service requires an applicant to file with the form, any statement or 
other supporting document submitted by an organization in support of its 
application, and any letter or other document issued by the Internal 
Revenue Service concerning the application (such as a favorable 
determination letter or a list of questions from the Internal Revenue 
Service about the application). For example, a legal brief submitted in 
support of an application, or a response to questions from the Internal 
Revenue Service during the application process, is part of an 
application for tax exemption.
    (ii) No prescribed application form. If no form is prescribed for an 
organization's application for tax exemption, the application for tax 
exemption includes--
    (A) The application letter and copy of the articles of 
incorporation, declaration of trust, or other similar instrument that 
sets forth the permitted powers or activities of the organization;
    (B) The organization's bylaws or other code of regulations;
    (C) The organization's latest financial statements showing assets, 
liabilities, receipts and disbursements;
    (D) Statements describing the character of the organization, the 
purpose for which it was organized, and its actual activities;
    (E) Statements showing the sources of the organization's income and 
receipts and their disposition; and
    (F) Any other statements or documents the Internal Revenue Service 
required the organization to file with, or that the organization 
submitted in support of, the application letter.
    (iii) Exceptions. The term application for tax exemption does not 
include--
    (A) Any application for tax exemption filed by an organization that 
the Internal Revenue Service has not yet recognized, on the basis of the 
application, as exempt from taxation under section 501 for any taxable 
year;
    (B) Any application for tax exemption filed before July 15, 1987, 
unless the organization filing the application had a copy of the 
application on July 15, 1987;
    (C) In the case of a tax-exempt organization other than a private 
foundation, the name and address of any contributor to the organization; 
or

[[Page 110]]

    (D) Any material, including the material listed in Sec.  
301.6104(a)-1(i) and information that the Secretary would be required to 
withhold from public inspection, that is not available for public 
inspection under section 6104.
    (iv) Local or subordinate organizations. For rules relating to 
applications for tax exemption of local or subordinate organizations, 
see paragraph (f)(1) of this section.
    (4) Annual information return--(i) In general. Except as described 
in paragraph (b)(4)(ii) of this section, the term annual information 
return includes an exact copy of any return filed by a tax-exempt 
organization pursuant to section 6033. It also includes any amended 
return the organization files with the Internal Revenue Service after 
the date the original return is filed. Returns filed pursuant to section 
6033 include Form 990, Return of Organization Exempt From Income Tax, 
Form 990-PF, Return of Private Foundation, or any other version of Form 
990 (such as Forms 990-EZ or 990-BL, except Form 990-T) and Form 1065. 
Each copy of a return must include all information furnished to the 
Internal Revenue Service on the return, as well as all schedules, 
attachments and supporting documents. For example, in the case of a Form 
990, the copy must include Schedule A of Form 990 (containing 
supplementary information on section 501(c)(3) organizations), and those 
parts of the return that show compensation paid to specific persons 
(currently, Part V of Form 990 and Parts I and II of Schedule A of Form 
990).
    (ii) Exceptions. The term annual information return does not include 
Schedule A of Form 990-BL, Form 990-T, Exempt Organization Business 
Income Tax Return, Schedule K-1 of Form 1065 or Form 1120-POL, U.S. 
Income Tax Return For Certain Political Organizations. In the case of a 
tax-exempt organization other than a private foundation, the term annual 
information return does not include the name and address of any 
contributor to the organization.
    (iii) Returns more than 3 years old. The term annual information 
return does not include any return after the expiration of 3 years from 
the date the return is required to be filed (including any extension of 
time that has been granted for filing such return) or is actually filed, 
whichever is later. If an organization files an amended return, however, 
the amended return must be made available for a period of 3 years 
beginning on the date it is filed with the Internal Revenue Service.
    (iv) Local or subordinate organizations. For rules relating to 
annual information returns of local or subordinate organizations, see 
paragraph (f)(2) of this section.
    (5) Regional or district offices--(i) In general. A regional or 
district office is any office of a tax-exempt organization, other than 
its principal office, that has paid employees, whether part-time or 
full-time, whose aggregate number of paid hours a week are normally at 
least 120.
    (ii) Site not considered a regional or district office. A site is 
not considered a regional or district office, however, if--
    (A) The only services provided at the site further exempt purposes 
(such as day care, health care or scientific or medical research); and
    (B) The site does not serve as an office for management staff, other 
than managers who are involved solely in managing the exempt function 
activities at the site.
    (c) Special rules relating to public inspection--(1) Permissible 
conditions on public inspection. A tax-exempt organization may have an 
employee present in the room during an inspection. The organization, 
however, must allow the individual conducting the inspection to take 
notes freely during the inspection. If the individual provides 
photocopying equipment at the place of inspection, the organization must 
allow the individual to photocopy the document at no charge.
    (2) Organizations that do not maintain permanent offices. If a tax-
exempt organization does not maintain a permanent office, the 
organization shall comply with the public inspection requirements of 
paragraph (a) of this section by making its application for tax 
exemption and its annual information returns, as applicable, available 
for inspection at a reasonable location of its choice. Such an 
organization shall permit public inspection within a reasonable amount 
of time after receiving a request for inspection (normally not

[[Page 111]]

more than 2 weeks) and at a reasonable time of day. At the 
organization's option, it may mail, within 2 weeks of receiving the 
request, a copy of its application for tax exemption and annual 
information returns to the requester in lieu of allowing an inspection. 
The organization may charge the requester for copying and actual postage 
costs only if the requester consents to the charge. An organization that 
has a permanent office, but has no office hours or very limited hours 
during certain times of the year, shall make its documents available 
during those periods when office hours are limited or not available as 
though it were an organization without a permanent office.
    (d) Special rules relating to copies--(1) Time and place for 
providing copies in response to requests made in-person--(i) In general. 
Except as provided in paragraph (d)(1)(iii) of this section, a tax-
exempt organization shall provide copies of the documents it is required 
to provide under section 6104(d) in response to a request made in person 
at its principal, regional and district offices during regular business 
hours. Except as provided in paragraph (d)(1)(ii) of this section, an 
organization shall provide such copies to a requester on the day the 
request is made.
    (ii) Unusual circumstances. In the case of an in-person request, 
where unusual circumstances exist such that fulfilling the request on 
the same business day places an unreasonable burden on the tax-exempt 
organization, the organization must provide the copies no later than the 
next business day following the day that the unusual circumstances cease 
to exist or the fifth business day after the date of the request, 
whichever occurs first. Unusual circumstances include, but are not 
limited to, receipt of a volume of requests that exceeds the 
organization's daily capacity to make copies; requests received shortly 
before the end of regular business hours that require an extensive 
amount of copying; or requests received on a day when the organization's 
managerial staff capable of fulfilling the request is conducting special 
duties, such as student registration or attending an off-site meeting or 
convention, rather than its regular administrative duties.
    (iii) Agents for providing copies. A principal, regional or district 
office of a tax-exempt organization subject to the requirements of this 
section may retain a local agent to process requests made in person for 
copies of its documents. A local agent must be located within reasonable 
proximity of the applicable office. A local agent that receives a 
request made in person for copies must provide the copies within the 
time limits and under the conditions that apply to the organization 
itself. For example, a local agent generally must provide a copy to a 
requester on the day the agent receives the request. When a principal, 
regional or district office of a tax-exempt organization using a local 
agent receives a request made in person for a copy, it must immediately 
provide the name, address and telephone number of the local agent to the 
requester. An organization that provides this information is not 
required to respond further to the requester. However, the penalty 
provisions of sections 6652(c)(1)(C), 6652(c)(1)(D), and 6685 continue 
to apply to the tax-exempt organization if the organization's local 
agent fails to provide the documents as required under section 6104(d).
    (2) Request for copies in writing--(i) In general. A tax-exempt 
organization must honor a written request for a copy of documents (or 
the requested part) that the organization is required to provide under 
section 6104(d) if the request--
    (A) Is addressed to, and delivered by mail, electronic mail, 
facsimile, or a private delivery service as defined in section 7502(f) 
to a principal, regional or district office of the organization; and
    (B) Sets forth the address to which the copy of the documents should 
be sent.
    (ii) Time and manner of fulfilling written requests--(A) In general. 
A tax-exempt organization receiving a written request for a copy shall 
mail the copy of the requested documents (or the requested parts of 
documents) within 30 days from the date it receives the request. 
However, if a tax-exempt organization requires payment in advance, it is 
only required to provide the copies within 30 days from the date it 
receives

[[Page 112]]

payment. For rules relating to payment, see paragraph (d)(3) of this 
section. In the absence of evidence to the contrary, a request or 
payment that is mailed shall be deemed to be received by an organization 
7 days after the date of the postmark. A request that is transmitted to 
the organization by electronic mail or facsimile shall be deemed 
received the day the request is transmitted successfully. If an 
organization requiring payment in advance receives a written request 
without payment or with an insufficient payment, the organization must, 
within 7 days from the date it receives the request, notify the 
requester of its prepayment policy and the amount due. A copy is deemed 
provided on the date of the postmark or private delivery mark (or if 
sent by certified or registered mail, the date of registration or the 
date of the postmark on the sender's receipt). If an individual making a 
request consents, a tax-exempt organization may provide a copy of the 
requested document exclusively by electronic mail. In such case, the 
material is provided on the date the organization successfully transmits 
the electronic mail.
    (B) Request for a copy of parts of document. A tax-exempt 
organization must fulfill a request for a copy of the organization's 
entire application for tax exemption or annual information return or any 
specific part or schedule of its application or return. A request for a 
copy of less than the entire application or less than the entire return 
must specifically identify the requested part or schedule.
    (C) Agents for providing copies. A tax-exempt organization subject 
to the requirements of this section may retain an agent to process 
written requests for copies of its documents. The agent shall provide 
the copies within the time limits and under the conditions that apply to 
the organization itself. For example, if the organization received the 
request first (e.g., before the agent), the deadline for providing a 
copy in response to a request shall be determined by reference to when 
the organization received the request, not when the agent received the 
request. An organization that transfers a request for a copy to such an 
agent is not required to respond further to the request. If the 
organization's agent fails to provide the documents as required under 
section 6104(d), however, the penalty provisions of sections 
6652(c)(1)(C), 6652(c)(1)(D), and 6685 continue to apply to the tax-
exempt organization.
    (3) Fees for copies--(i) In general. A tax-exempt organization may 
charge a reasonable fee for providing copies. A fee is reasonable only 
if it is no more than the total of the applicable per-page copying 
charge prescribed by the fee schedule promulgated pursuant to section 
(a)(4)(A)(i) of the Freedom of Information Act, 5 U.S.C. 552, by the 
Commissioner from time to time, and the actual postage costs incurred by 
the organization to send the copies. The applicable per-page copying 
charge shall be determined without regard to any applicable fee 
exclusion provided in the fee schedule for an initial or de minimis 
number of pages (e.g., the first 100 pages). Before the organization 
provides the documents, it may require that the individual requesting 
copies of the documents pay the fee. If the organization has provided an 
individual making a request with notice of the fee, and the individual 
does not pay the fee within 30 days, or if the individual pays the fee 
by check and the check does not clear upon deposit, the organization may 
disregard the request.
    (ii) Form of payment--(A) Request made in person. If a tax-exempt 
organization charges a fee for copying (as permitted under paragraph 
(d)(3)(i) of this section), it shall accept payment by cash and money 
order for requests made in person. The organization may accept other 
forms of payment, such as credit cards and personal checks.
    (B) Request made in writing. If a tax-exempt organization charges a 
fee for copying and postage (as permitted under paragraph (d)(3)(i) of 
this section), it shall accept payment by certified check, money order, 
and either personal check or credit card for requests made in writing. 
The organization may accept other forms of payment.
    (iii) Avoidance of unexpected fees. Where a tax-exempt organization 
does not require prepayment and a requester does not enclose payment 
with a request, an organization must receive

[[Page 113]]

consent from a requester before providing copies for which the fee 
charged for copying and postage exceeds $20.
    (iv) Responding to inquiries of fees charged. In order to facilitate 
a requester's ability to receive copies promptly, a tax-exempt 
organization shall respond to any questions from potential requesters 
concerning its fees for copying and postage. For example, the 
organization shall inform the requester of its charge for copying and 
mailing its application for exemption and each annual information 
return, with and without attachments, so that a requester may include 
payment with the request for copies.
    (e) Documents to be provided by regional and district offices. 
Except as otherwise provided, a regional or district office of a tax-
exempt organization must satisfy the same rules as the principal office 
with respect to allowing public inspection and providing copies of its 
application for tax exemption and annual information returns. A regional 
or district office is not required, however, to make its annual 
information return available for inspection or to provide copies until 
30 days after the date the return is required to be filed (including any 
extension of time that is granted for filing such return) or is actually 
filed, whichever is later.
    (f) Documents to be provided by local and subordinate 
organizations--(1) Applications for tax exemption. Except as otherwise 
provided, a tax-exempt organization that did not file its own 
application for tax exemption (because it is a local or subordinate 
organization covered by a group exemption letter referred to in Sec.  
1.508-1 of this chapter) must, upon request, make available for public 
inspection, or provide copies of, the application submitted to the 
Internal Revenue Service by the central or parent organization to obtain 
the group exemption letter and those documents which were submitted by 
the central or parent organization to include the local or subordinate 
organization in the group exemption letter. However, if the central or 
parent organization submits to the Internal Revenue Service a list or 
directory of local or subordinate organizations covered by the group 
exemption letter, the local or subordinate organization is required to 
provide only the application for the group exemption ruling and the 
pages of the list or directory that specifically refer to it. The local 
or subordinate organization shall permit public inspection, or comply 
with a request for copies made in person, within a reasonable amount of 
time (normally not more than 2 weeks) after receiving a request made in 
person for public inspection or copies and at a reasonable time of day. 
In a case where the requester seeks inspection, the local or subordinate 
organization may mail a copy of the applicable documents to the 
requester within the same time period in lieu of allowing an inspection. 
In such a case, the organization may charge the requester for copying 
and actual postage costs only if the requester consents to the charge. 
If the local or subordinate organization receives a written request for 
a copy of its application for tax exemption, it must fulfill the request 
in the time and manner specified in paragraph (d)(2) of this section. 
The requester has the option of requesting from the central or parent 
organization, at its principal office, inspection or copies of the 
application for group exemption and the material submitted by the 
central or parent organization to include a local or subordinate 
organization in the group ruling. If the central or parent organization 
submits to the Internal Revenue Service a list or directory of local or 
subordinate organizations covered by the group exemption letter, it must 
make such list or directory available for public inspection, but it is 
required to provide copies only of those pages of the list or directory 
that refer to particular local or subordinate organizations specified by 
the requester. The central or parent organization must fulfill such 
requests in the time and manner specified in paragraphs (c) and (d) of 
this section.
    (2) Annual information returns. A local or subordinate organization 
that does not file its own annual information return (because it is 
affiliated with a central or parent organization that files a group 
return pursuant to Sec.  1.6033-2(d) of this chapter) must, upon 
request, make available for public inspection, or provide copies of, the 
group returns filed

[[Page 114]]

by the central or parent organization. However, if the group return 
includes separate schedules with respect to each local or subordinate 
organization included in the group return, the local or subordinate 
organization receiving the request may omit any schedules relating only 
to other organizations included in the group return. The local or 
subordinate organization shall permit public inspection, or comply with 
a request for copies made in person, within a reasonable amount of time 
(normally not more than 2 weeks) after receiving a request made in 
person for public inspection or copies and at a reasonable time of day. 
In a case where the requester seeks inspection, the local or subordinate 
organization may mail a copy of the applicable documents to the 
requester within the same time period in lieu of allowing an inspection. 
In such a case, the organization may charge the requester for copying 
and actual postage costs only if the requester consents to the charge. 
If the local or subordinate organization receives a written request for 
a copy of its annual information return, it must fulfill the request by 
providing a copy of the group return in the time and manner specified in 
paragraph (d)(2) of this section. The requester has the option of 
requesting from the central or parent organization, at its principal 
office, inspection or copies of group returns filed by the central or 
parent organization. The central or parent organization must fulfill 
such requests in the time and manner specified in paragraphs (c) and (d) 
of this section.
    (3) Failure to comply. If an organization fails to comply with the 
requirements specified in this paragraph, the penalty provisions of 
sections 6652(c)(1)(C), 6652(c)(1)(D), and 6685 apply.
    (g) Failure to comply with public inspection or copying 
requirements. If a tax-exempt organization denies an individual's 
request for inspection or a copy of an application for tax exemption or 
an annual information return as required under this section, and the 
individual wants to alert the Internal Revenue Service to the possible 
need for enforcement action, the individual may provide a statement to 
the district director for the key district in which the applicable tax-
exempt organization's principal office is located (or such other person 
as the Commissioner may designate) that describes the reason why the 
individual believes the denial was in violation of the requirements of 
section 6104(d).
    (h) Effective date--(1) In general. For a tax-exempt organization, 
other than a private foundation, this section is applicable June 8, 
1999. For a private foundation, this section is applicable (except as 
provided in paragraph (h)(2) of this section) beginning March 13, 2000.
    (2) Private foundation annual information returns. This section does 
not apply to any private foundation return the due date for which 
(determined with regard to any extension of time for filing) is before 
the applicable date for private foundations specified in paragraph 
(h)(1) of this section.

[T.D. 8818, 64 FR 17285, Apr. 9, 1999. Redesignated and amended by T.D. 
8861, 65 FR 2033, 2034, Jan. 13, 2000, as amended by T.D. 9070, 68 FR 
40769, July 9, 2003]



Sec.  301.6104(d)-2  Making applications and returns widely available.

    (a) In general. A tax-exempt organization is not required to comply 
with a request for a copy of its application for tax exemption or an 
annual information return pursuant to Sec.  301.6104(d)-1(a) if the 
organization has made the requested document widely available in 
accordance with paragraph (b) of this section. An organization that 
makes its application for tax exemption and/or annual information return 
widely available must nevertheless make the document available for 
public inspection as required under Sec.  301.6104(d)-1(a), as 
applicable.
    (b) Widely available--(1) In general. A tax-exempt organization 
makes its application for tax exemption and/or an annual information 
return widely available if the organization complies with the 
requirements specified in paragraph (b)(2) of this section, and if the 
organization satisfies the requirements of paragraph (d) of this 
section.
    (2) Internet posting--(i) In general. A tax-exempt organization can 
make its application for tax exemption and/or an annual information 
return widely available by posting the document on a

[[Page 115]]

World Wide Web page that the tax-exempt organization establishes and 
maintains or by having the document posted, as part of a database of 
similar documents of other tax-exempt organizations, on a World Wide Web 
page established and maintained by another entity. The document will be 
considered widely available only if--
    (A) the World Wide Web page through which it is available clearly 
informs readers that the document is available and provides instructions 
for downloading it;
    (B) the document is posted in a format that, when accessed, 
downloaded, viewed and printed in hard copy, exactly reproduces the 
image of the application for tax exemption or annual information return 
as it was originally filed with the Internal Revenue Service, except for 
any information permitted by statute to be withheld from public 
disclosure. (See section 6104(d)(3) and Sec.  301.6104(d)-3(b)(3) and 
(4)); and
    (C) any individual with access to the Internet can access, download, 
view and print the document without special computer hardware or 
software required for that format (other than software that is readily 
available to members of the public without payment of any fee) and 
without payment of a fee to the tax-exempt organization or to another 
entity maintaining the World Wide Web page.
    (ii) Transition rule. A tax-exempt organization that posted its 
application for tax exemption or its annual information returns on a 
World Wide Web page on or before April 9, 1999 in a manner consistent 
with regulation project REG-246250-96 (1997 C.B. 627) (See Sec.  
601.601(d)(2) of this chapter.) will be treated as satisfying the 
requirements of paragraphs (b)(2)(i)(B) & (C) of this section until June 
8, 2000 provided that an individual can access, download, view and print 
the document without payment of a fee to the tax-exempt organization or 
to another entity maintaining the World Wide Web page.
    (iii) Reliability and accuracy. In order for the document to be 
widely available through an Internet posting, the entity maintaining the 
World Wide Web page must have procedures for ensuring the reliability 
and accuracy of the document that it posts on the page and must take 
reasonable precautions to prevent alteration, destruction or accidental 
loss of the document when posted on its page. In the event that a posted 
document is altered, destroyed or lost, the entity must correct or 
replace the document.
    (c) Discretion to prescribe other methods for making documents 
widely available. The Commissioner, from time to time, may prescribe 
additional methods, other than an Internet posting meeting the 
requirements of paragraph (b)(2) of this section, that a tax-exempt 
organization may use to make its documents widely available.
    (d) Notice requirement. If a tax-exempt organization has made its 
application for tax exemption and/or an annual information return widely 
available it must notify any individual requesting a copy where the 
documents are available (including the address on the World Wide Web, if 
applicable). If the request is made in person, the organization shall 
provide such notice to the individual immediately. If the request is 
made in writing, the notice shall be provided within 7 days of receiving 
the request.
    (e) Effective date. For a tax-exempt organization, other than a 
private foundation, this section is applicable June 8, 1999. For a 
private foundation, this section is applicable beginning March 13, 2000.

[T.D. 8818, 64 FR 17285, Apr. 9, 1999. Redesignated and amended by T.D. 
8861, 65 FR 2034, Jan. 13, 2000]



Sec.  301.6104(d)-3  Tax-exempt organization subject to harassment campaign.

    (a) In general. If the district director for the key district in 
which the organization's principal office is located (or such other 
person as the Commissioner may designate) determines that the 
organization is the subject of a harassment campaign and compliance with 
the requests that are part of the harassment campaign would not be in 
the public interest, a tax-exempt organization is not required to 
fulfill a request for a copy (as otherwise required by Sec.  
301.6104(d)-1(a)) that it reasonably believes is part of the campaign.
    (b) Harassment. A group of requests for an organization's 
application for

[[Page 116]]

tax exemption or annual information returns is indicative of a 
harassment campaign if the requests are part of a single coordinated 
effort to disrupt the operations of a tax-exempt organization, rather 
than to collect information about the organization. Whether a group of 
requests constitutes such a harassment campaign depends on the relevant 
facts and circumstances. Facts and circumstances that indicate the 
organization is the subject of a harassment campaign include: a sudden 
increase in the number of requests; an extraordinary number of requests 
made through form letters or similarly worded correspondence; evidence 
of a purpose to deter significantly the organization's employees or 
volunteers from pursuing the organization's exempt purpose; requests 
that contain language hostile to the organization; direct evidence of 
bad faith by organizers of the purported harassment campaign; evidence 
that the organization has already provided the requested documents to a 
member of the purported harassing group; and a demonstration by the tax-
exempt organization that it routinely provides copies of its documents 
upon request.
    (c) Special rule for multiple requests from a single individual or 
address. A tax-exempt organization may disregard any request for copies 
of all or part of any document beyond the first two received within any 
30-day period or the first four received within any one-year period from 
the same individual or the same address, regardless of whether the 
district director for the applicable key district (or such other person 
as the Commissioner may designate) has determined that the organization 
is subject to a harassment campaign.
    (d) Harassment determination procedure. A tax-exempt organization 
may apply for a determination that it is the subject of a harassment 
campaign and that compliance with requests that are part of the campaign 
would not be in the public interest by submitting a signed application 
to the district director for the key district where the organization's 
principal office is located (or such other person as the Commissioner 
may designate). The application shall consist of a written statement 
giving the organization's name, address, employer identification number, 
and the name, address and telephone number of the person to contact 
regarding the application. The application must describe in detail the 
facts and circumstances that the organization believes support a 
determination that the organization is subject to a harassment campaign. 
The organization may suspend compliance with respect to any request for 
a copy of its documents based on its reasonable belief that such request 
is part of a harassment campaign, provided that the organization files 
an application for a determination within 10 business days from the day 
the organization first suspends compliance with respect to a request 
that is part of the alleged campaign. In addition, the organization may 
suspend compliance with any request it reasonably believes to be part of 
the harassment campaign until it receives a response to its application 
for a harassment campaign determination.
    (e) Effect of a harassment determination. If the appropriate 
district director (or such other person as the Commissioner may 
designate) determines that a tax-exempt organization is the subject of a 
harassment campaign and it is not in the public interest to comply with 
requests that are part of the campaign, such organization is not 
required to comply with any request for copies that it reasonably 
believes is part of the campaign. This determination may be subject to 
other terms and conditions set forth by the district director (or such 
other person as the Commissioner may designate). A person (as defined in 
section 6652(c)(4)(C)) shall not be liable for any penalty under 
sections 6652(c)(1)(C), 6652(c)(1)(D) or 6685 for failing to timely 
provide a copy of documents in response to a request covered in a 
request for a harassment determination if the organization fulfills the 
request within 30 days of receiving a determination from the district 
director (or such other person as the Commissioner may designate) that 
the organization is not subject to a harassment campaign. 
Notwithstanding the preceding sentence, if the district director (or 
such other person as the Commissioner may designate) further determines 
that the organization did not have a reasonable

[[Page 117]]

basis for requesting a determination that it was subject to a harassment 
campaign or reasonable belief that a request was part of the campaign, 
the person (as defined in section 6652(c)(4)(C)) remains liable for any 
penalties that result from not providing the copies in a timely fashion.
    (f) Examples. The provisions of this section are illustrated by the 
following examples:

    Example 1. V, a tax-exempt organization, receives an average of 25 
requests per month for copies of its three most recent information 
returns. In the last week of May, V is mentioned in a national news 
magazine story that discusses information contained in V's 1996 
information return. From June 1 through June 30, 1997 V receives 200 
requests for a copy of its documents. Other than the sudden increase in 
the number of requests for copies, there is no other evidence to suggest 
that the requests are part of an organized campaign to disrupt V's 
operations. Although fulfilling the requests will place a burden on V, 
the facts and circumstances do not show that V is subject to a 
harassment campaign. Therefore, V must respond timely to each of the 200 
requests it receives in June.
    Example 2. Y is a tax-exempt organization that receives an average 
of 10 requests a month for copies of its annual information returns. 
From March 1, 1997 to March 31, 1997, Y receives 25 requests for copies 
of its documents. Fifteen of the requests come from individuals Y knows 
to be active members of the board of organization X. In the past X has 
opposed most of the positions and policies that Y advocates. None of the 
requesters have asked for copies of documents from Y during the past 
year. Y has no other information about the requesters. Although the 
facts and circumstances show that some of the individuals making 
requests are hostile to Y, they do not show that the individuals have 
organized a campaign that will place enough of a burden on Y to disrupt 
its activities. Therefore, Y must respond to each of the 25 requests it 
receives in March.
    Example 3. The facts are the same as in Example 2, except that 
during March 1997, Y receives 100 requests. In addition to the fifteen 
requests from members of organization X's board, 75 of the requests are 
similarly worded form letters. Y discovers that several individuals 
associated with X have urged the X's members and supporters, via the 
Internet, to submit as many requests for a copy of Y's annual 
information returns as they can. The message circulated on the Internet 
provides a form letter that can be used to make the request. Both the 
appeal via the Internet and the requests for copies received by Y 
contain hostile language. During the same year but before the 100 
requests were received, Y provided copies of its annual information 
returns to the headquarters of X. The facts and circumstances show that 
the 75 form letter requests are coordinated for the purpose of 
disrupting Y's operations, and not to collect information that has 
already been provided to an association representing the requesters' 
interests. Thus, the fact and circumstances show that Y is the subject 
of an organized harassment campaign. To confirm that it may disregard 
the 90 requests that constitute the harassment campaign, Y must apply to 
the applicable district director (or such other person as the 
Commissioner may designate) for a determination. Y may disregard the 90 
requests while the application is pending and after the determination is 
received. However, it must respond within the applicable time limits to 
the 10 requests it received in March that were not part of the 
harassment campaign.
    Example 4. The facts are the same as in Example 3, except that Y 
receives 5 additional requests from 5 different representatives of the 
news media who in the past have published articles about Y. Some of 
these articles were hostile to Y. Normally, the Internal Revenue Service 
will not consider a tax-exempt organization to have a reasonable belief 
that a request from a member of the news media is part of a harassment 
campaign absent additional facts that demonstrate that the organization 
could reasonably believe the particular requests from the news media to 
be part of a harassment campaign. Thus, absent such additional facts, Y 
must respond within the applicable time limits to the 5 requests that it 
received from representatives of the news media.

    (g) Effective date. For a tax-exempt organization, other than a 
private foundation, this section is applicable June 8, 1999. For a 
private foundation, this section is applicable beginning March 13, 2000.

[T.D. 8818, 64 FR 17289, Apr. 9, 1999. Redesignated and amended by T.D. 
8861, 65 FR 2034, Jan. 13, 2000]



Sec.  301.6105-1  Compilation of relief from excess profits tax cases.

    Pursuant to and in accordance with the provisions of section 6105, 
the Commissioner shall make and publish in the Federal Register a 
compilation, for each fiscal year beginning after June 30, 1941, of all 
cases in which relief under the provisions of section 722 of the 
Internal Revenue Code of 1939, as amended, has been allowed during such 
fiscal year by the Commissioner and by the Tax Court of the United 
States.

[[Page 118]]



Sec.  301.6106-1  Publicity of unemployment tax returns.

    For provisions relating to publicity of returns made in respect of 
unemployment tax imposed by chapter 23 of the Code, see Sec. Sec.  
301.6103(a)-1, 301.6103 (b)-1, 301.6103(c)-1, 301.6103 (d)-1, and 
301.6103(f)-1.



Sec.  301.6108-1  Publication of statistics of income.

    Pursuant to and in accordance with the provisions of section 6108, 
statistics reasonably available with respect to the operation of the 
income tax laws shall be prepared and published annually by the 
Commissioner.



Sec.  301.6109-1  Identifying numbers.

    (a) In general--(1) Taxpayer identifying numbers--(i) Principal 
types. There are several types of taxpayer identifying numbers that 
include the following: social security numbers, Internal Revenue Service 
(IRS) individual taxpayer identification numbers, IRS adoption taxpayer 
identification numbers, and employer identification numbers. Social 
security numbers take the form 000-00-0000. IRS individual taxpayer 
identification numbers and IRS adoption taxpayer identification numbers 
also take the form 000-00-0000 but include a specific number or numbers 
designated by the IRS. Employer identification numbers take the form 00-
0000000.
    (ii) Uses. Social security numbers, IRS individual taxpayer 
identification numbers, and IRS adoption taxpayer identification numbers 
are used to identify individual persons. Employer identification numbers 
are used to identify employers. For the definition of social security 
number and employer identification number, see Sec. Sec.  301.7701-11 
and 301.7701-12, respectively. For the definition of IRS individual 
taxpayer identification number, see paragraph (d)(3) of this section. 
For the definition of IRS adoption taxpayer identification number, see 
Sec.  301.6109-3(a). Except as otherwise provided in applicable 
regulations under this chapter or on a return, statement, or other 
document, and related instructions, taxpayer identifying numbers must be 
used as follows:
    (A) Except as otherwise provided in paragraph (a)(1)(ii)(B) and (D) 
of this section, and Sec.  301.6109-3, an individual required to furnish 
a taxpayer identifying number must use a social security number.
    (B) Except as otherwise provided in paragraph (a)(1)(ii)(D) of this 
section and Sec.  301.6109-3, an individual required to furnish a 
taxpayer identifying number but who is not eligible to obtain a social 
security number must use an IRS individual taxpayer identification 
number.
    (C) Any person other than an individual (such as corporations, 
partnerships, nonprofit associations, trusts, estates, and similar 
nonindividual persons) that is required to furnish a taxpayer 
identifying number must use an employer identification number.
    (D) An individual, whether U.S. or foreign, who is an employer or 
who is engaged in a trade or business as a sole proprietor should use an 
employer identification number as required by returns, statements, or 
other documents and their related instructions.
    (2) A trust that is treated as owned by one or more persons pursuant 
to sections 671 through 678--(i) Obtaining a taxpayer identification 
number--(A) General rule. Unless the exception in paragraph (a)(2)(i)(B) 
of this section applies, a trust that is treated as owned by one or more 
persons under sections 671 through 678 must obtain a taxpayer 
identification number as provided in paragraph (d)(2) of this section.
    (B) Exception for a trust all of which is treated as owned by one 
grantor or one other person and that reports under Sec.  1.671-
4(b)(2)(i)(A) of this chapter. A trust that is treated as owned by one 
grantor or one other person under sections 671 through 678 need not 
obtain a taxpayer identification number, provided the trust reports 
pursuant to Sec.  1.671-4(b)(2)(i)(A) of this chapter. The trustee must 
obtain a taxpayer identification number as provided in paragraph (d)(2) 
of this section for the first taxable year that the trust is no longer 
owned by one grantor or one other person or for the first taxable year 
that the trust does not report pursuant to Sec.  1.671-4(b)(2)(i)(A) of 
this chapter.
    (ii) Obligations of persons who make payments to certain trusts. Any 
payor

[[Page 119]]

that is required to file an information return with respect to payments 
of income or proceeds to a trust must show the name and taxpayer 
identification number that the trustee has furnished to the payor on the 
return. Regardless of whether the trustee furnishes to the payor the 
name and taxpayer identification number of the grantor or other person 
treated as an owner of the trust, or the name and taxpayer 
identification number of the trust, the payor must furnish a statement 
to recipients to the trustee of the trust, rather than to the grantor or 
other person treated as the owner of the trust. Under these 
circumstances, the payor satisfies the obligation to show the name and 
taxpayer identification number of the payee on the information return 
and to furnish a statement to recipients to the person whose taxpayer 
identification number is required to be shown on the form.
    (3) Obtaining a taxpayer identification number for a trust, or 
portion of a trust, following the death of the individual treated as the 
owner--(i) In general--(A) A trust all of which was treated as owned by 
a decedent. In general, a trust all of which is treated as owned by a 
decedent under subpart E (section 671 and following), part I, subchapter 
J, chapter 1 of the Internal Revenue Code as of the date of the 
decedent's death must obtain a new taxpayer identification number 
following the death of the decedent if the trust will continue after the 
death of the decedent.
    (B) Taxpayer identification number of trust with multiple owners. 
With respect to a portion of a trust treated as owned under subpart E 
(section 671 and following), part I, subchapter J, chapter 1 (subpart E) 
of the Internal Revenue Code by a decedent as of the date of the 
decedent's death, if, following the death of the decedent, the portion 
treated as owned by the decedent remains part of the original trust and 
the other portion (or portions) of the trust continues to be treated as 
owned under subpart E by a grantor(s) or other person(s), the trust 
reports under the taxpayer identification number assigned to the trust 
prior to the decedent's death and the portion of the trust treated as 
owned by the decedent prior to the decedent's death (assuming the 
decedent's portion of the trust is not treated as terminating upon the 
decedent's death) continues to report under the taxpayer identification 
number used for reporting by the other portion (or portions) of the 
trust. For example, if a trust, reporting under Sec.  1.671-4(a) of this 
chapter, is treated as owned by three persons and one of them dies, the 
trust, including the portion of the trust no longer treated as owned by 
a grantor or other person, continues to report under the tax 
identification number assigned to the trust prior to the death of that 
person. See Sec.  1.671-4(a) of this chapter regarding rules for filing 
the Form 1041, ``U.S. Income Tax Return for Estates and Trusts,'' where 
only a portion of the trust is treated as owned by one or more persons 
under subpart E.
    (ii) Furnishing correct taxpayer identification number to payors 
following the death of the decedent. If the trust continues after the 
death of the decedent and is required to obtain a new taxpayer 
identification number under paragraph (a)(3)(i)(A) of this section, the 
trustee must furnish payors with a new Form W-9, ``Request for Taxpayer 
Identification Number and Certification,'' or an acceptable substitute 
Form W-9, containing the new taxpayer identification number required 
under paragraph (a)(3)(i)(A) of this section, the name of the trust, and 
the address of the trustee.
    (4) Taxpayer identification number to be used by a trust upon 
termination of a section 645 election--(i) If there is an executor. Upon 
the termination of the section 645 election period, if there is an 
executor, the trustee of the former electing trust may need to obtain a 
taxpayer identification number. If Sec.  1.645-1(g) of this chapter 
regarding the appointment of an executor after a section 645 election is 
made applies to the electing trust, the electing trust must obtain a new 
TIN upon termination of the election period. See the instructions to the 
Form 1041 for whether a new taxpayer identification number is required 
for other former electing trusts.
    (ii) If there is no executor. Upon termination of the section 645 
election period, if there is no executor, the trustee

[[Page 120]]

of the former electing trust must obtain a new taxpayer identification 
number.
    (iii) Requirement to provide taxpayer identification number to 
payors. If the trustee is required to obtain a new taxpayer 
identification number for a former electing trust pursuant to this 
paragraph (a)(4), or pursuant to the instructions to the Form 1041, the 
trustee must furnish all payors of the trust with a completed Form W-9 
or acceptable substitute Form W-9 signed under penalties of perjury by 
the trustee providing each payor with the name of the trust, the new 
taxpayer identification number, and the address of the trustee.
    (5) Persons treated as payors. For purposes of paragraphs (a)(2), 
(3), and (4) of this section, a payor is a person described in 
Sec. Sec.  1.671-4(b)(4) of this chapter.
    (6) Effective date. Paragraphs (a)(3), (4), and (5) of this section 
apply to trusts of decedents dying on or after December 24, 2002.
    (b) Requirement to furnish one's own number--(1) U.S. persons. Every 
U.S. person who makes under this title a return, statement, or other 
document must furnish its own taxpayer identifying number as required by 
the forms and the accompanying instructions. A U.S. person whose number 
must be included on a document filed by another person must give the 
taxpayer identifying number so required to the other person on request. 
For penalties for failure to supply taxpayer identifying numbers, see 
sections 6721 through 6724. For provisions dealing specifically with the 
duty of employees with respect to their social security numbers, see 
Sec.  31.6011(b)-2 (a) and (b) of this chapter (Employment Tax 
Regulations). For provisions dealing specifically with the duty of 
employers with respect to employer identification numbers, see Sec.  
31.6011(b)-1 of this chapter (Employment Tax Regulations).
    (2) Foreign persons. The provisions of paragraph (b)(1) of this 
section regarding the furnishing of one's own number shall apply to the 
following foreign persons--
    (i) A foreign person that has income effectively connected with the 
conduct of a U.S. trade or business at any time during the taxable year;
    (ii) A foreign person that has a U.S. office or place of business or 
a U.S. fiscal or paying agent at any time during the taxable year;
    (iii) A nonresident alien treated as a resident under section 
6013(g) or (h);
    (iv) A foreign person that makes a return of tax (including income, 
estate, and gift tax returns), an amended return, or a refund claim 
under this title but excluding information returns, statements, or 
documents;
    (v) A foreign person that makes an election under Sec.  301.7701-
3(c);
    (vi) A foreign person that furnishes a withholding certificate 
described in Sec.  1.1441-1(e)(2) or (3) of this chapter or Sec.  
1.1441-5(c)(2)(iv) or (3)(iii) of this chapter to the extent required 
under Sec.  1.1441-1(e)(4)(vii) of this chapter;
    (vii) A foreign person whose taxpayer identifying number is required 
to be furnished on any return, statement, or other document as required 
by the income tax regulations under section 897 or 1445. This paragraph 
(b)(2)(vii) applies as of November 3, 2003; and
    (viii) A foreign person that furnishes a withholding certificate 
described in Sec.  1.1446-1(c)(2) or (3) of this chapter or whose 
taxpayer identification number is required to be furnished on any 
return, statement, or other document as required by the income tax 
regulations under section 1446. This paragraph (b)(2)(viii) shall apply 
to partnership taxable years beginning after May 18, 2005, or such 
earlier time as the regulations under Sec. Sec.  1.1446-1 through 
1.1446-5 of this chapter apply by reason of an election under Sec.  
1.1446-7 of this chapter.
    (c) Requirement to furnish another's number. Every person required 
under this title to make a return, statement, or other document must 
furnish such taxpayer identifying numbers of other U.S. persons and 
foreign persons that are described in paragraph (b)(2)(i), (ii), (iii), 
(vi), (vii), or (viii) of this section as required by the forms and the 
accompanying instructions. The taxpayer identifying number of any person 
furnishing a withholding certificate referred to in paragraph (b)(2)(vi) 
or (viii) of this section shall also be furnished if it is actually 
known to the person making a return, statement, or other document 
described in this paragraph (c). If the person making the return,

[[Page 121]]

statement, or other document does not know the taxpayer identifying 
number of the other person, and such other person is one that is 
described in paragraph (b)(2)(i), (ii), (iii), (vi), (vii), or (viii) of 
this section, such person must request the other person's number. The 
request should state that the identifying number is required to be 
furnished under authority of law. When the person making the return, 
statement, or other document does not know the number of the other 
person, and has complied with the request provision of this paragraph 
(c), such person must sign an affidavit on the transmittal document 
forwarding such returns, statements, or other documents to the Internal 
Revenue Service, so stating. A person required to file a taxpayer 
identifying number shall correct any errors in such filing when such 
person's attention has been drawn to them. References in this paragraph 
(c) to paragraph (b)(2)(viii) of this section shall apply to partnership 
taxable years beginning after May 18, 2005, or such earlier time as the 
regulations under Sec. Sec.  1.1446-1 through 1.1446-5 of this chapter 
apply by reason of an election under Sec.  1.1446-7 of this chapter.
    (d) Obtaining a taxpayer identifying number--(1) Social security 
number. Any individual required to furnish a social security number 
pursuant to paragraph (b) of this section shall apply for one, if he has 
not done so previously, on Form SS-5, which may be obtained from any 
Social Security Administration or Internal Revenue Service office. He 
shall make such application far enough in advance of the first required 
use of such number to permit issuance of the number in time for 
compliance with such requirement. The form, together with any 
supplementary statement, shall be prepared and filed in accordance with 
the form, instructions, and regulations applicable thereto, and shall 
set forth fully and clearly the data therein called for. Individuals who 
are ineligible for or do not wish to participate in the benefits of the 
social security program shall nevertheless obtain a social security 
number if they are required to furnish such a number pursuant to 
paragraph (b) of this section.
    (2) Employer identification number--(i) In general. Any person 
required to furnish an employer identification number must apply for 
one, if not done so previously, on Form SS-4. A Form SS-4 may be 
obtained from any office of the Internal Revenue Service, U.S. consular 
office abroad, or from an acceptance agent described in paragraph 
(d)(3)(iv) of this section. The person must make such application far 
enough in advance of the first required use of the employer 
identification number to permit issuance of the number in time for 
compliance with such requirement. The form, together with any 
supplementary statement, must be prepared and filed in accordance with 
the form, accompanying instructions, and relevant regulations, and must 
set forth fully and clearly the requested data.
    (ii) Updating of application information--(A) Requirements. Persons 
issued employer identification numbers in accordance with the 
application process set forth in paragraph (d)(2)(i) of this section 
must provide to the Internal Revenue Service any updated application 
information in the manner and frequency required by forms, instructions, 
or other appropriate guidance.
    (B) Effective/applicability date. Paragraph (d)(2)(ii)(A) of this 
section applies to all persons possessing an employer identification 
number on or after January 1, 2014.
    (iii) Special rule for Section 708(b)(1)(B) terminations. A new 
partnership that is formed as a result of the termination of a 
partnership under section 708(b)(1)(B) will retain the employer 
identification number of the terminated partnership. This paragraph 
(d)(2)(iii) applies to terminations of partnerships under section 
708(b)(1)(B) occurring on or after May 9, 1997; however, this paragraph 
(d)(2)(iii) may be applied to terminations occurring on or after May 9, 
1996, provided that the partnership and its partners apply this 
paragraph (d)(2)(iii) to the termination in a consistent manner.
    (3) IRS individual taxpayer identification number--(i) Definition. 
The term IRS individual taxpayer identification number means a taxpayer 
identifying number issued to an alien individual by the Internal Revenue 
Service, upon application, for use in connection with

[[Page 122]]

filing requirements under this title. The term IRS individual taxpayer 
identification number does not refer to a social security number or an 
account number for use in employment for wages. For purposes of this 
section, the term alien individual means an individual who is not a 
citizen or national of the United States.
    (ii) General rule for obtaining number. Any individual who is not 
eligible to obtain a social security number and is required to furnish a 
taxpayer identifying number must apply for an IRS individual taxpayer 
identification number on Form W-7, Application for IRS Individual 
Taxpayer Identification Number, or such other form as may be prescribed 
by the Internal Revenue Service. Form W-7 may be obtained from any 
office of the Internal Revenue Service, U.S. consular office abroad, or 
any acceptance agent described in paragraph (d)(3)(iv) of this section. 
The individual shall furnish the information required by the form and 
accompanying instructions, including the individual's name, address, 
foreign tax identification number (if any), and specific reason for 
obtaining an IRS individual taxpayer identification number. The 
individual must make such application far enough in advance of the first 
required use of the IRS individual taxpayer identification number to 
permit issuance of the number in time for compliance with such 
requirement. The application form, together with any supplementary 
statement and documentation, must be prepared and filed in accordance 
with the form, accompanying instructions, and relevant regulations, and 
must set forth fully and clearly the requested data.
    (iii) General rule for assigning number. Under procedures issued by 
the Internal Revenue Service, an IRS individual taxpayer identification 
number will be assigned to an individual upon the basis of information 
reported on Form W-7 (or such other form as may be prescribed by the 
Internal Revenue Service) and any such accompanying documentation that 
may be required by the Internal Revenue Service. An applicant for an IRS 
individual taxpayer identification number must submit such documentary 
evidence as the Internal Revenue Service may prescribe in order to 
establish alien status and identity. Examples of acceptable documentary 
evidence for this purpose may include items such as an original (or a 
certified copy of the original) passport, driver's license, birth 
certificate, identity card, or immigration documentation.
    (iv) Acceptance agents--(A) Agreements with acceptance agents. A 
person described in paragraph (d)(3)(iv)(B) of this section will be 
accepted by the Internal Revenue Service to act as an acceptance agent 
for purposes of the regulations under this section upon entering into an 
agreement with the Internal Revenue Service, under which the acceptance 
agent will be authorized to act on behalf of taxpayers seeking to obtain 
a taxpayer identifying number from the Internal Revenue Service. The 
agreement must contain such terms and conditions as are necessary to 
insure proper administration of the process by which the Internal 
Revenue Service issues taxpayer identifying numbers to foreign persons, 
including proof of their identity and foreign status. In particular, the 
agreement may contain--
    (1) Procedures for providing Form SS-4 and Form W-7, or such other 
necessary form to applicants for obtaining a taxpayer identifying 
number;
    (2) Procedures for providing assistance to applicants in completing 
the application form or completing it for them;
    (3) Procedures for collecting, reviewing, and maintaining, in the 
normal course of business, a record of the required documentation for 
assignment of a taxpayer identifying number;
    (4) Procedures for submitting the application form and required 
documentation to the Internal Revenue Service, or if permitted under the 
agreement, submitting the application form together with a certification 
that the acceptance agent has reviewed the required documentation and 
that it has no actual knowledge or reason to know that the documentation 
is not complete or accurate;
    (5) Procedures for assisting taxpayers with notification procedures 
described in paragraph (g)(2) of this section in the event of change of 
foreign status;
    (6) Procedures for making all documentation or other records 
furnished

[[Page 123]]

by persons applying for a taxpayer identifying number promptly available 
for review by the Internal Revenue Service, upon request; and
    (7) Provisions that the agreement may be terminated in the event of 
a material failure to comply with the agreement, including failure to 
exercise due diligence under the agreement.
    (B) Persons who may be acceptance agents. An acceptance agent may 
include any financial institution as defined in section 265(b)(5) or 
Sec.  1.165-12(c)(1)(v) of this chapter, any college or university that 
is an educational organization as defined in Sec.  1.501(c)(3)-
1(d)(3)(i) of this chapter, any federal agency as defined in section 
6402(f) or any other person or categories of persons that may be 
authorized by regulations or Internal Revenue Service procedures. A 
person described in this paragraph (d)(3)(iv)(B) that seeks to qualify 
as an acceptance agent must have an employer identification number for 
use in any communication with the Internal Revenue Service. In addition, 
it must establish to the satisfaction of the Internal Revenue Service 
that it has adequate resources and procedures in place to comply with 
the terms of the agreement described in paragraph (d)(3)(iv)(A) of this 
section.
    (4) Coordination of taxpayer identifying numbers--(i) Social 
security number. Any individual who is duly assigned a social security 
number or who is entitled to a social security number will not be issued 
an IRS individual taxpayer identification number. The individual can use 
the social security number for all tax purposes under this title, even 
though the individual is, or later becomes, a nonresident alien 
individual. Further, any individual who has an application pending with 
the Social Security Administration will be issued an IRS individual 
taxpayer identification number only after the Social Security 
Administration has notified the individual that a social security number 
cannot be issued. Any alien individual duly issued an IRS individual 
taxpayer identification number who later becomes a U.S. citizen, or an 
alien lawfully permitted to enter the United States either for permanent 
residence or under authority of law permitting U.S. employment, will be 
required to obtain a social security number. Any individual who has an 
IRS individual taxpayer identification number and a social security 
number, due to the circumstances described in the preceding sentence, 
must notify the Internal Revenue Service of the acquisition of the 
social security number and must use the newly-issued social security 
number as the taxpayer identifying number on all future returns, 
statements, or other documents filed under this title.
    (ii) Employer identification number. Any individual with both a 
social security number (or an IRS individual taxpayer identification 
number) and an employer identification number may use the social 
security number (or the IRS individual taxpayer identification number) 
for individual taxes, and the employer identification number for 
business taxes as required by returns, statements, and other documents 
and their related instructions. Any alien individual duly assigned an 
IRS individual taxpayer identification number who also is required to 
obtain an employer identification number must furnish the previously-
assigned IRS individual taxpayer identification number to the Internal 
Revenue Service on Form SS-4 at the time of application for the employer 
identification number. Similarly, where an alien individual has an 
employer identification number and is required to obtain an IRS 
individual taxpayer identification number, the individual must furnish 
the previously-assigned employer identification number to the Internal 
Revenue Service on Form W-7, or such other form as may be prescribed by 
the Internal Revenue Service, at the time of application for the IRS 
individual taxpayer identification number.
    (e) Banks, and brokers and dealers in securities. For additional 
requirements relating to deposits, share accounts, and brokerage 
accounts, see 31 CFR 103.34 and 103.35.
    (f) Penalty. For penalties for failure to supply taxpayer 
identifying numbers, see sections 6721 through 6724.
    (g) Special rules for taxpayer identifying numbers issued to foreign 
persons--(1) General rule--(i) Social security number. A social security 
number is generally identified in the records and

[[Page 124]]

database of the Internal Revenue Service as a number belonging to a U.S. 
citizen or resident alien individual. A person may establish a different 
status for the number by providing proof of foreign status with the 
Internal Revenue Service under such procedures as the Internal Revenue 
Service shall prescribe, including the use of a form as the Internal 
Revenue Service may specify. Upon accepting an individual as a 
nonresident alien individual, the Internal Revenue Service will assign 
this status to the individual's social security number.
    (ii) Employer identification number. An employer identification 
number is generally identified in the records and database of the 
Internal Revenue Service as a number belonging to a U.S. person. 
However, the Internal Revenue Service may establish a separate class of 
employer identification numbers solely dedicated to foreign persons 
which will be identified as such in the records and database of the 
Internal Revenue Service. A person may establish a different status for 
the number either at the time of application or subsequently by 
providing proof of U.S. or foreign status with the Internal Revenue 
Service under such procedures as the Internal Revenue Service shall 
prescribe, including the use of a form as the Internal Revenue Service 
may specify. The Internal Revenue Service may require a person to apply 
for the type of employer identification number that reflects the status 
of that person as a U.S. or foreign person.
    (iii) IRS individual taxpayer identification number. An IRS 
individual taxpayer identification number is generally identified in the 
records and database of the Internal Revenue Service as a number 
belonging to a nonresident alien individual. If the Internal Revenue 
Service determines at the time of application or subsequently, that an 
individual is not a nonresident alien individual, the Internal Revenue 
Service may require that the individual apply for a social security 
number. If a social security number is not available, the Internal 
Revenue Service may accept that the individual use an IRS individual 
taxpayer identification number, which the Internal Revenue Service will 
identify as a number belonging to a U.S. resident alien.
    (2) Change of foreign status. Once a taxpayer identifying number is 
identified in the records and database of the Internal Revenue Service 
as a number belonging to a U.S. or foreign person, the status of the 
number is permanent until the circumstances of the taxpayer change. A 
taxpayer whose status changes (for example, a nonresident alien 
individual with a social security number becomes a U.S. resident alien) 
must notify the Internal Revenue Service of the change of status under 
such procedures as the Internal Revenue Service shall prescribe, 
including the use of a form as the Internal Revenue Service may specify.
    (3) Waiver of prohibition to disclose taxpayer information when 
acceptance agent acts. As part of its request for an IRS individual 
taxpayer identification number or submission of proof of foreign status 
with respect to any taxpayer identifying number, where the foreign 
person acts through an acceptance agent, the foreign person will agree 
to waive the limitations in section 6103 regarding the disclosure of 
certain taxpayer information. However, the waiver will apply only for 
purposes of permitting the Internal Revenue Service and the acceptance 
agent to communicate with each other regarding matters related to the 
assignment of a taxpayer identifying number, including disclosure of any 
taxpayer identifying number previously issued to the foreign person, and 
change of foreign status. This paragraph (g)(3) applies to payments made 
after December 31, 2001.
    (h) Special rules for certain entities under Sec.  301.7701-3--(1) 
General rule. Any entity that has an employer identification number 
(EIN) will retain that EIN if its federal tax classification changes 
under Sec.  301.7701-3.
    (2) Special rules for entities that are disregarded as entities 
separate from their owners--(i) When an entity becomes disregarded as an 
entity separate from its owner. Except as otherwise provided in 
regulations or other guidance, a single owner entity that is disregarded 
as an entity separate from its owner under

[[Page 125]]

Sec.  301.7701-3, must use its owner's taxpayer identifying number (TIN) 
for federal tax purposes.
    (ii) When an entity that was disregarded as an entity separate from 
its owner becomes recognized as a separate entity. If a single owner 
entity's classification changes so that it is recognized as a separate 
entity for federal tax purposes, and that entity had an EIN, then the 
entity must use that EIN and not the TIN of the single owner. If the 
entity did not already have its own EIN, then the entity must acquire an 
EIN and not use the TIN of the single owner.
    (3) Effective date. The rules of this paragraph (h) are applicable 
as of January 1, 1997.
    (i) Special rule for qualified subchapter S subsidiaries (QSubs)--
(1) General rule. Any entity that has an employer identification number 
(EIN) will retain that EIN if a QSub election is made for the entity 
under Sec.  1.1361-3 or if a QSub election that was in effect for the 
entity terminates under Sec.  1.1361-5.
    (2) EIN while QSub election in effect. Except as otherwise provided 
in regulations or other published guidance, a QSub must use the parent S 
corporation's EIN for Federal tax purposes.
    (3) EIN when QSub election terminates. If an entity's QSub election 
terminates, it may not use the EIN of the parent S corporation after the 
termination. If the entity had an EIN prior to becoming a QSub or 
obtained an EIN while it was a QSub in accordance with regulations or 
other published guidance, the entity must use that EIN. If the entity 
had no EIN, it must obtain an EIN upon termination of the QSub election.
    (4) Effective date. The rules of this paragraph (i) apply on January 
20, 2000.
    (j) Effective date--(1) General rule. Except as otherwise provided 
in this paragraph (j), the provisions of this section are generally 
effective for information that must be furnished after April 15, 1974. 
However, the provisions relating to IRS individual taxpayer 
identification numbers apply on and after May 29, 1996. An application 
for an IRS individual taxpayer identification number (Form W-7) may be 
filed at any time on or after July 1, 1996.
    (2) Special rules--(i) Employer identification number of an estate. 
The requirement under paragraph (a)(1)(ii)(C) of this section that an 
estate obtain an employer identification number applies on and after 
January 1, 1984.
    (ii) Taxpayer identifying numbers of certain foreign persons. The 
requirement under paragraph (b)(2)(iv) of this section that certain 
foreign persons furnish a TIN on a return of tax is effective for tax 
returns filed after December 31, 1996.
    (iii) Paragraphs (a)(1)(i), (a)(1)(ii) introductory text, 
(a)(1)(ii)(A), and (a)(1)(ii)(B) of this section apply to income tax 
returns due (without regard to extensions) on or after April 15, 1998.

[T.D. 7306, 39 FR 9946, Mar. 15, 1974]

    Editorial Note: For Federal Register citations affecting Sec.  
301.6109-1, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  301.6109-2  Authority of the Secretary of Agriculture to collect 
employer identification numbers for purposes of the Food Stamp Act of 1977.

    (a) In general. The Secretary of Agriculture may require each 
applicant retail food store or wholesale food concern to furnish its 
employer identification number in connection with the administration of 
section 9 of the Food Stamp Act of 1977 (7 U.S.C. 2018) (relating to the 
determination of the qualifications of applicants under the Food Stamp 
Act).
    (b) Limited purpose. The Secretary of Agriculture may have access to 
the employer identification numbers obtained pursuant to paragraph (a) 
of this section, but only for the purpose of establishing and 
maintaining a list of the names and employer identification numbers of 
the stores and concerns for use in determining those applicants who have 
been previously sanctioned or convicted under section 12 or 15 of the 
Food Stamp Act of 1977 (7 U.S.C. 2021 or 2024). The Secretary of 
Agriculture may use this determination of sanctions and convictions in 
administering section 9 of the Food Stamp Act of 1977.
    (c) Sharing of information--(1) Sharing permitted with certain 
United States

[[Page 126]]

agencies and instrumentalities. The Secretary of Agriculture may share 
the information contained in the list described in paragraph (b) of this 
section with any other agency or instrumentality of the United States 
that otherwise has access to employer identification numbers, but only 
to the extent the Secretary of Agriculture determines sharing such 
information will assist in verifying and matching that information 
against information maintained by the other agency or instrumentality.
    (2) Restrictions on the use of shared information. The information 
shared by the Secretary of Agriculture pursuant to this section may be 
used by any other agency or instrumentality of the United States only 
for the purpose of effective administration and enforcement of the Food 
Stamp Act of 1977 or for the purpose of investigation of violations of 
other Federal laws or enforcement of those laws.
    (d) Safeguards--(1) Restrictions on access to employer 
identification numbers by individuals--(i) Numbers maintained by the 
Secretary of Agriculture. The individuals who are permitted access to 
employer identification numbers obtained pursuant to paragraph (a) of 
this section and maintained by the Secretary of Agriculture are officers 
and employees of the United States whose duties or responsibilities 
require access to such employer identification numbers for the purpose 
of effective administration or enforcement of the Food Stamp Act of 1977 
or for the purpose of sharing the information in accordance with 
paragraph (c) of this section.
    (ii) Numbers maintained by any other agency or instrumentality. The 
individuals who are permitted access to employer identification numbers 
obtained pursuant to paragraph (c) of this section and maintained by any 
agency or instrumentality of the United States other than the Department 
of Agriculture are officers and employees of the United States whose 
duties or responsibilities require access to such employer 
identification numbers for the purpose of effective administration and 
enforcement of the Food Stamp Act of 1977 or for the purpose of 
investigation of violations of other Federal laws or enforcement of 
those laws.
    (2) Other safeguards. The Secretary of Agriculture, and the head of 
any other agency or instrumentality referred to in paragraph (c) of this 
section, must provide for any additional safeguards that the Secretary 
of the Treasury determines to be necessary or appropriate to protect the 
confidentiality of the employer identification numbers. The Secretary of 
Agriculture, and the head of any other agency or instrumentality 
referred to in paragraph (c) of this section, may also provide for any 
additional safeguards to protect the confidentiality of employer 
identification numbers, provided these safeguards are consistent with 
safeguards determined by the Secretary of the Treasury to be necessary 
or appropriate.
    (e) Confidentiality and disclosure of employer identification 
numbers. Employer identification numbers obtained pursuant to paragraph 
(a) or (c) of this section are confidential. No officer or employee of 
the United States who has or had access to any such employer 
identification number may disclose that number in any manner to an 
individual not described in paragraph (d) of this section. For purposes 
of this paragraph (e), officer or employee includes a former officer or 
employee.
    (f) Sanctions--(1) Unauthorized, willful disclosure of employer 
identification numbers. Sections 7213(a) (1), (2), and (3) apply with 
respect to the unauthorized, willful disclosure to any person of 
employer identification numbers that are maintained pursuant to this 
section by the Secretary of Agriculture, or any other agency or 
instrumentality with which information is shared pursuant to paragraph 
(c) of this section, in the same manner and to the same extent as 
sections 7213(a) (1), (2), and (3) apply with respect to unauthorized 
disclosures of returns and return information described in those 
sections.
    (2) Willful solicitation of employer identification numbers. Section 
7213(a)(4) applies with respect to the willful offer of any item of 
material value in exchange for any employer identification number 
maintained pursuant to this section by the Secretary of Agriculture, or 
any other agency or instrumentality with which information is shared 
pursuant to paragraph (c) of this section,

[[Page 127]]

in the same manner and to the same extent as section 7213(a)(4) applies 
with respect to offers (in exchange for any return or return 
information) described in that section.
    (g) Delegation. All references in this section to the Secretary of 
Agriculture are references to the Secretary of Agriculture or his or her 
delegate.
    (h) Effective date. Except as provided in the following sentence, 
this section is effective on February 1, 1992. Any provisions relating 
to the sharing of information by the Secretary of Agriculture with any 
other agency or instrumentality of the United States are effective on 
August 15, 1994.

[T.D. 8369, 56 FR 49685, Oct. 1, 1991, as amended by T.D. 8621, 60 FR 
51725, Oct. 3, 1995; 61 FR 1035, Jan. 11, 1996]



Sec.  301.6109-3  IRS adoption taxpayer identification numbers.

    (a) In general--(1) Definition. An IRS adoption taxpayer 
identification number (ATIN) is a temporary taxpayer identifying number 
assigned by the Internal Revenue Service (IRS) to a child (other than an 
alien individual as defined in Sec.  301.6109-1(d)(3)(i)) who has been 
placed, by an authorized placement agency, in the household of a 
prospective adoptive parent for legal adoption. An ATIN is assigned to 
the child upon application for use in connection with filing 
requirements under the Internal Revenue Code and the regulations 
thereunder. When an adoption becomes final, the adoptive parent must 
apply for a social security number for the child. After the social 
security number is assigned, that number, rather than the ATIN, must be 
used as the child's taxpayer identification number on all returns, 
statements, or other documents required under the Internal Revenue Code 
and the regulations thereunder.
    (2) Expiration and extension. An ATIN automatically expires two 
years after the number is assigned. However, upon request, the IRS may 
grant an extension if the IRS determines the extension is warranted.
    (b) Definitions. For purposes of this section--
    (1) Authorized placement agency has the same meaning as in Sec.  
1.152-2(c) of this chapter;
    (2) Prospective adoptive child or child means a child who has not 
been adopted, but who has been placed in the household of a prospective 
adoptive parent for legal adoption by an authorized placement agency; 
and
    (3) Prospective adoptive parent or parent means an individual in 
whose household a prospective adoptive child is placed by an authorized 
placement agency for legal adoption.
    (c) General rule for obtaining a number--(1) Who may apply. A 
prospective adoptive parent may apply for an ATIN for a child if--
    (i) The prospective adoptive parent is eligible to claim a personal 
exemption under section 151 with respect to the child;
    (ii) An authorized placement agency places the child with the 
prospective adoptive parent for legal adoption;
    (iii) The Social Security Administration will not process an 
application for an SSN by the prospective adoptive parent on behalf of 
the child (for example, because the adoption is not final); and
    (iv) The prospective adoptive parent has used all reasonable means 
to obtain the child's assigned social security number, if any, but has 
been unsuccessful in obtaining this number (for example, because the 
biological parent who obtained the number is not legally required to 
disclose the number to the prospective adoptive parent).
    (2) Procedure for obtaining an ATIN. If the requirements of 
paragraph (c)(1) of this section are satisfied, the prospective adoptive 
parent may apply for an ATIN for a child on Form W-7A, Application for 
Taxpayer Identification Number for Pending Adoptions (or such other form 
as may be prescribed by the IRS). An application for an ATIN should be 
made far enough in advance of the first intended use of the ATIN to 
permit issuance of the ATIN in time for such use. An application for an 
ATIN must include the information required by the form and accompanying 
instructions, including the name and address of each prospective 
adoptive parent and the child's name and date of birth. In addition, the 
application must include such documentary evidence as the IRS may 
prescribe to establish that a child was placed in the prospective 
adoptive

[[Page 128]]

parent's household by an authorized placement agency for legal adoption. 
Examples of acceptable documentary evidence establishing placement for 
legal adoption by an authorized placement agency may include--
    (i) A copy of a placement agreement entered into between the 
prospective adoptive parent and an authorized placement agency;
    (ii) An affidavit or letter signed by the adoption attorney or 
government official who placed the child for legal adoption pursuant to 
state law;
    (iii) A document authorizing the release of a newborn child from a 
hospital to a prospective adoptive parent for adoption; and
    (iv) A court document ordering or approving the placement of a child 
for adoption.
    (d) Effective date. The provisions of this section apply to income 
tax returns due (without regard to extension) on or after April 15, 
1998.

[T.D. 8839, 64 FR 51242, Sept. 22, 1999]



Sec.  301.6109-4  IRS truncated taxpayer identification numbers.

    (a) In general-- Definition. An IRS truncated taxpayer 
identification number (TTIN) is an individual's social security number 
(SSN), IRS individual taxpayer identification number (ITIN), IRS 
adoption taxpayer identification number (ATIN), or IRS employer 
identification number (EIN) in which the first five digits of the nine-
digit number are replaced with Xs or asterisks. The TTIN takes the same 
format of the identifying number it replaces, for example XXX-XX-1234 
when replacing an SSN, or XX-XXX1234 when replacing an EIN.
    (b) Use of a TTIN. (1) In general. Except as provided in paragraph 
(b)(2) of this section, a TTIN may be used to identify any person on any 
statement or other document that the internal revenue laws require to be 
furnished to another person. Use of a TTIN is permissive and not 
mandatory. Use of a TTIN as permitted by this section will not result in 
application of any penalty for failure to include a correct taxpayer 
identifying number on any payee statement or other document. For 
example, the section 6722 penalty for failure to timely furnish a 
correct statement would not apply solely because the payor used a TTIN 
as permitted by this section.
    (2) TTIN not permitted. Use of a TTIN is not permitted in the 
following circumstances:
    (i) A TTIN may not be used on a statement or other document if such 
use is prohibited by statute, regulation, other guidance published in 
the Internal Revenue Bulletin, form, or instructions.
    (ii) A TTIN may not be used on a statement or document if a statute, 
regulation, other guidance published in the Internal Revenue Bulletin, 
form, or instructions, specifically requires use of an SSN, ITIN, ATIN, 
or EIN and does not specifically state that the taxpayer identifying 
number may be truncated. For example, a TTIN may not be used on a Form 
W-8ECI or Form W-8IMY because the forms and/or form instructions 
specifically prescribe use of an SSN, EIN, or ITIN for the U.S. taxpayer 
identification number.
    (iii) A TTIN may not be used on any return, statement, or other 
document that is required to be filed with or furnished to the Internal 
Revenue Service or the Social Security Administration in the case of 
forms required to be filed with the Social Security Administration under 
the internal revenue laws.
    (iv) A person may not truncate its own taxpayer identifying number 
on any statement or other document that it furnishes to another person. 
For example, an employer may not truncate its EIN on a Form W-2, Wage 
and Tax Statement, that the employer furnishes to an employee; and a 
person may not truncate its TIN on a Form W-9, Request for Taxpayer 
Identification Number and Certification.
    (3) Examples. The provisions of this paragraph (b) are illustrated 
by the following examples:

    (i) Example 1. Pursuant to section 6051(d) and Sec.  31.6051-2(a) of 
this chapter, Employer files the Social Security Administration copy of 
Employee's Form W-2, Wage and Tax Statement, with the Social Security 
Administration. Employer may not truncate any identifying number on the 
Social Security Administration copy. Pursuant to section 6051(a) and 
Sec.  31.6051-1(a)(1)(i) of this chapter, Employer furnishes copies

[[Page 129]]

of Forms W-2 to Employee. There are no applicable statutes, regulations, 
other published guidance, forms, or instructions that prohibit use of a 
TTIN on Form W-2, and Sec.  31.6051-1(a)(1)(i) specifically permits 
truncating employees' SSNs. Accordingly, Employer may truncate 
Employee's SSN to appear in the form of a TTIN on copies of Forms W-2 
furnished to Employee. Employer may not truncate its own EIN on copies 
of Forms W-2 furnished to Employee.
    (ii) Example 2. On April 5, year 1, Donor contributes a used car 
with a blue book value of $1,100 to Charitable Organization. On April 
20, year 1, Charitable Organization sends Donor copies B and C of the 
Form 1098-C as a contemporaneous written acknowledgement of the $1,100 
contribution as required by section 170(f)(12). In late-February, year 
2, Charitable Organization prepares and files copy A of Form 1098-C with 
the IRS, reporting Donor's donation of a qualified vehicle in year 1. 
Charitable Organization may truncate Donor's SSN to appear in the form 
of a TTIN in the Donor's Identification Number box on copies B and C of 
the Form 1098-C because copies B and C of the Form 1098-C are documents 
required by the Internal Revenue Code and regulations to be furnished to 
another person; there are no applicable statutes, regulations, other 
published guidance, forms or instructions that prohibit the use of a 
TTIN on those copies; and there are no applicable statutes, regulations, 
other published guidance, forms, or instructions that specifically 
require use of an SSN or other identifying number on those copies. 
Charitable Organization may not truncate its own EIN on copies B and C 
of the Form 1098-C because a person cannot truncate its own taxpayer 
identifying number on any statement or other document the person 
furnishes to another person. Charitable Organization may not truncate 
any identifying number on copy A of the Form 1098-C because copy A is 
required to be filed with the IRS.

    (c) Applicability date. This section is applicable to returns, 
statements, and other documents required to be filed or furnished after 
December 31, 2020.

[T.D. 9675, 79 FR 41131, July 15, 2014, as amended by T.D. 9861, 84 FR 
31720, July 3, 2019]



Sec.  301.6110-1  Public inspection of written determinations 
and background file documents.

    (a) General rule. Except as provided in Sec.  301.6110-3, relating 
to deletion of certain information, Sec.  301.6110-5(b), relating to 
actions to restrain disclosure, paragraph (b)(2) of this section, 
relating to technical advice memoranda involving civil fraud and 
criminal investigations, and jeopardy and termination assessments, and 
paragraph (b)(3) of this section, relating to general written 
determinations relating to accounting or funding periods and methods, 
the text of any written determination (as defined in Sec.  301.6110-
2(a)) issued pursuant to a request postmarked or hand delivered after 
October 31, 1976, shall be open to public inspection in the places 
provided in paragraph (c)(1) of this section. The text of any written 
determination issued pursuant to a request postmarked or hand delivered 
before November 1, 1976, shall be open to public inspection pursuant to 
section 6110(h) and Sec.  301.6110-6, when funds are appropriated by 
Congress for such purpose. The procedures and rules set forth in 
Sec. Sec.  301.6110-1 through 301.6110-5 and Sec.  301.6110-7 do not 
apply to written determinations issued pursuant to requests postmarked 
or hand delivered before November 1, 1976, unless Sec.  301.6110-6 
states otherwise. There shall also be open to public inspection in each 
place of public inspection an index to the written determinations 
subject to inspection at such place. Each such index shall be arranged 
by section of the Internal Revenue Code, related statute or tax treaty 
and by subject matter description within such section in such manner as 
the Commissioner may from time to time provide. The Commissioner shall 
not be required to make any written determination or background file 
document open to public inspection pursuant to section 6110 or refrain 
from disclosure of any such documents or any information therein, except 
as provided by section 6110 or with respect to a discovery

[[Page 130]]

order made in connection with a judicial proceeding. The provisions of 
section 6110 shall not apply to material that is open to public 
inspection under section 6104. See section 6110(l)(1).
    (b) Items that may be inspected only under certain circumstances--
(1) Background file documents. A background file document (as such term 
is defined in Sec.  301.6110-2(g)) relating to a particular written 
determination issued pursuant to a request postmarked or hand delivered 
after October 31, 1976, shall not be subject to inspection until such 
written determination is open to public inspection or available for 
inspection pursuant to paragraph (b) (2) or (3) of this section, and 
then only if a written request pursuant to paragraph (c)(4) of this 
section is made for inspection of such background file document. 
Background file documents relating to written determinations issued 
pursuant to requests postmarked or hand delivered before November 1, 
1976, shall be subject to inspection pursuant to section 6110 (h) and 
Sec.  301.6110-6, when funds are appropriated by Congress for such 
purpose. The version of the background file document which is available 
for inspection shall be the version originally made available for 
inspection, as modified by any additional disclosure pursuant to section 
6110(d)(3) and (f)(4).
    (2) Technical advice memoranda involving civil fraud and criminal 
investigations, jeopardy and termination assessments. Any technical 
advice memorandum (as such term is defined in Sec.  301.6110-2(f) 
involving any matter that is the subject of a civil fraud or criminal 
investigation, a jeopardy assessment (as such term is defined in section 
6861), or a termination assessment (as such term is defined in section 
6851) shall not be subject to inspection until all actions relating to 
such investigation or assessment are completed and then only if a 
written request pursuant to paragraph (c)(4) of this section is made for 
inspection of such technical advice memorandum. A ``civil fraud 
investigation'' is any administrative step or judicial proceeding in 
which an issue for determination is whether the Commissioner should 
impose additional tax pursuant to section 6653(b). A ``criminal 
investigation'' is any administrative step or judicial proceeding in 
which an issue for determination is whether a taxpayer should be charged 
with or is guility of criminal conduct. An action relating to a civil 
fraud or criminal investigation includes any such administrative step or 
judicial proceeding, the review of subsequent related activities and 
related returns of the taxpayer or related taxpayers, and any other 
administrative step or judicial procedure or proceeding or appellate 
process that is initiated as a consequence of the facts and 
circumstances disclosed by such investigation. An action relating to a 
jeopardy or termination assessment includes any administrative step or 
judicial proceeding that is initiated to determine whether to make such 
assessment, that is brought pursuant to section 7429 to determine the 
appropriateness or reasonableness of such assessment, or that is brought 
to resolve the legal consequences of the tax status or liability issue 
underlying the making of such assessment. Any action relating to a civil 
fraud or criminal investigation, a jeopardy assessment, or a termination 
assessment is not completed until all available administrative steps and 
judicial proceedings and remedies, including appeals, have been 
completed.
    (3) Written determinations with respect to adoption of or change in 
certain accounting or funding periods and methods. Any general written 
determination (as defined in Sec.  301.6110-2(c) that relates solely to 
approval of any adoption of or change in--
    (i) The funding method or plan year of a plan under section 412.
    (ii) A taxpayer's annual accounting period under section 442.
    (iii) A taxpayer's method of accounting under section 446(e), or
    (iv) A partnership's or partner's taxable year under section 706

shall not be subject to inspection until such written determination 
would, but for this paragraph (b)(3), be open to public inspection 
pursuant to Sec.  301.6110-5(c) and then only if a written request 
pursuant to paragraph (c)(4) of this section is made for inspection of 
such written determination.
    (c) Procecure for public inspection--(1) Place of public inspection. 
The text of

[[Page 131]]

any ruling (as such term is defined in Sec.  301.6110-2(d) or technical 
advice memorandum that is open to public inspection pursuant to section 
6110 shall be located in the National Office Reading Room. The text of 
any determination letter (as such term is defined in Sec.  301.6110-
2(e)) that is open to public inspection pursuant to section 6110 shall 
be located in the Reading Room of the Regional Office in which is 
located the district office that issued such determination letter. 
Inspection of any written determination subject to inspection only upon 
written request shall be requested from the National Office Reading 
Room. Inspection of any background file document shall be requested only 
from the reading room in which the related written determination is 
either open to public inspection or subject to inspection upon written 
request. The locations and mailing addresses of the reading rooms are 
set forth in Sec.  601.702(b)(3)(ii) of this chapter.
    (2) Time and manner of public inspection. The inspection authorized 
by section 6110 will be allowed only in the place provided for such 
inspection in the presence of an Internal Revenue officer or employee 
and only during the regular hours of business of the Internal Revenue 
Service office in which the reading room is located. The public will not 
be allowed to remove any record from a reading room. A person who wishes 
to inspect reading room material without visiting a reading room may 
submit a written request pursuant to paragraph (c)(4) of this section 
for copies of any such material to the Internal Revenue Service reading 
room in which is located such material.
    (3) Copies. Notes may be taken of any material open to public 
inspection under section 6110, and copies may be made manually. Copies 
of any material open to public inspection or subject to inspection upon 
written request will be furnished by the Internal Revenue Service to any 
person making requests therefor pursuant to paragraph (c)(4) of this 
section. If made at the time of inspection the request for copies need 
not be in writing, unless the material is not immediately available for 
copying. The Commissioner may prescribe fees pursuant to section 6110(j) 
for furnishing copies of material open or subject to inspection.
    (4) Requests. Any request for copies of written determinations, for 
inspection of general written determinations relating to accounting or 
funding periods and methods or technical advice memoranda involving 
civil fraud and criminal investigations, and jeopardy and termination 
assessments, for inspection or copies of background file documents, and 
for copies of the index shall be submitted to the reading room in which 
is located the requested material. If made in person, the request may be 
submitted to the internal revenue employee supervising the reading room. 
The request shall contain:
    (i) Authorization for the Internal Revenue Service to charge the 
person making such request for making copies, searching for material, 
and making deletions therefrom;
    (ii) The maximum amount of charges which the Internal Revenue 
Service may incur without further authorization from the person making 
such request;
    (iii) With respect to requests for inspection and copies of 
background file documents, the file number of the written determination 
to which such background file document relates and a specific 
identification of the nature or type of the background file document 
requested;
    (iv) With respect to requests for inspections of general written 
determinations relating to accounting or funding periods and methods, 
the day, week, or month of issuance of such written determination, and 
the applicable category as selected from a special summary listing of 
categories prepared by the Internal Revenue Service;
    (v) With respect to requests for copies of written determinations, 
the file number of the written determination to be copied, which can be 
ascertained in the reading room or from the index;
    (vi) With respect to requests for copies of portions of the index, 
the section of the Internal Revenue Code, related statute or tax treaty 
in which the person making such request is interested;
    (vii) With respect to material which is to be mailed, the name, 
address, and telephone number of the person making such request and the 
address to

[[Page 132]]

which copies of the requested material should be sent; and
    (viii) Such other information as the Internal Revenue Service may 
from time to time require in its operation of reading rooms.
    (d) Effective/applicability date. The rules of paragraph (a) apply 
February 29, 2012.

[T.D. 7524, 42 FR 63412, Dec. 16, 1977, as amended by T.D. 9581, 77 FR 
12205, Feb. 29, 2012]



Sec.  301.6110-2  Meaning of terms.

    (a) Written determination. A ``written determination'' is a ruling, 
a determination letter, or a technical advice memorandum, as such terms 
are defined in paragraphs (d), (e), and (f) of this section, 
respectively. Notwithstanding paragraphs (d) through (f) of this 
section, a written determination does not include for example, opinion 
letters (as defined in Sec.  601.201(a)(4) of this chapter), information 
letters (as defined in Sec.  601.201(a)(5) of this chapter), technical 
information responses, technical assistance memoranda, notices of 
deficiency, reports on claims for refund, Internal Revenue Service 
decisions to accept taxpayers' offers in compromise, earnings and 
profits determinations, or documents issued by the Internal Revenue 
Service in the course of tax administration that are not disclosed to 
the persons to whose tax returns or tax liability the documents relate.
    (b) Reference written determination. A ``reference written 
determination'' is any written determination that the Commissioner 
determines to have significant reference value. Any written 
determination that the Commissioner determines to be the basis for a 
published revenue ruling is a reference written determination until such 
revenue ruling is obsoleted, revoked, superseded or otherwise held to 
have no effect.
    (c) General written determination. A ``general written 
determination'' is any written determination that is not a reference 
written determination.
    (d) Ruling. A ``ruling'' is a written statement issued by the 
National Office to a taxpayer or to the taxpayer's authorized 
representative (as such term is defined in Sec.  601.201(e)(7) of this 
chapter) on behalf of the taxpayer, that interprets and applies tax laws 
to a specific set of facts. A ruling generally recites the relevant 
facts, sets forth the applicable provisions of law, and shows the 
application of the law to the facts.
    (e) Determination letter. A ``determination letter'' is a written 
statement issued by a district director in response to a written inquiry 
by an individual or an organization that applies principles and 
precedents previously announced by the National Office to the particular 
facts involved.
    (f) Technical advice memorandum. A ``technical advice memorandum'' 
is a written statement issued by the National Office to, and adopted by, 
a district director in connection with the examination of a taxpayer's 
return or consideration of a taxpayer's claim for refund or credit. A 
technical advice memorandum generally recites the relevant facts, sets 
forth the applicable law, and states a legal conclusion.
    (g) Background file document--(1) General rule. A ``background file 
document'' is--(i) The request for a written determination.
    (ii) Any written material submitted in support of such request by 
the person by whom or on whose behalf the request for a written 
determination is made,
    (iii) Any written communication, or memorandum of a meeting, 
telephone communication, or other contact, between employees of the 
Internal Revenue Service or Office of its Chief Counsel and persons 
outside the Internal Revenue Service in connection with such request or 
written determination which is received prior to the issuance (as such 
term is defined in paragraph (h) of this section) of the written 
determination, but not including communications described in paragraph 
(g)(2) of this section, and
    (iv) Any subsequent communication between the National Office and a 
district director concerning the factual circumstances underlying the 
request for a technical advice memorandum, or concerning a request by 
the district director for reconsideration by the National Office of a 
proposed technical advice memorandum.

[[Page 133]]

    (2) Limitations. Notwithstanding paragraph (g)(1) of this section, a 
``background file document'' shall not include any--
    (i) Communication between the Department of Justice and the Internal 
Revenue Service or the Office of its Chief Counsel relating to any 
pending civil or criminal case or investigation,
    (ii) Communication between Internal Revenue Service employees and 
employees of the Office of its Chief Counsel,
    (iii) Internal memorandum or attorney work product prepared by the 
Internal Revenue Service or Office of its Chief Counsel which relates to 
the development of the conclusion of the Internal Revenue Service in a 
written determination, including, with respect to a technical advice 
memorandum, the Transmittal Memorandum, as defined in Sec.  
601.105(b)(5)(vi)(c) of this chapter,
    (iv) Correspondence or any portion of correspondence between the 
Internal Revenue Service and any person relating solely to the making of 
or extent of deletions pursuant to section 6110(c), or a request 
pursuant to section 6110(g) (3) and (4) for postponement of the time at 
which a written determination is made open or subject to inspection,
    (v) Material relating to (A) a request for a ruling or determination 
letter that is withdrawn prior to issuance thereof or that the Internal 
Revenue Service declines to answer, (B) a request for technical advice 
that the National Office declines to answer, or (C) the appeal of a 
taxpayer from the decision of a district director not to seek technical 
advice, or
    (vi) Response to a request for technical advice which the district 
director declines to adopt, and the district director's request for 
reconsideration thereof.
    (h) Issuance. ``Issuance'' of a written determination occurs, with 
respect to rulings and determination letters, upon the mailing of the 
ruling or determination letter to the person to whom it pertains. 
Issuance of a technical advice memorandum occurs upon the adoption of 
the technical advice memorandum by the district director.
    (i) Person to whom written determination pertains. A ``person to 
whom a written determination pertains'' is the person by whom a ruling 
or determination letter is requested, but if requested by an authorized 
representative, the person on whose behalf the request is made. With 
respect to a technical advice memorandum, a ``person to whom a written 
determination pertains'' is the taxpayer whose return is being examined 
or whose claim for refund or credit is being considered.
    (j) Person to whom a background file document relates. A ``person to 
whom a background file document relates'' is the person to whom the 
related written determination pertains, as such term is defined in 
paragraph (i) of this section.
    (k) Person who has a direct interest in maintaining confidentiality. 
A ``person who has a direct interest in maintaining the confidentiality 
of a written determination'' is any person whose name and address is 
listed in the request for such written determination, as required by 
Sec.  601.201(e)(2) of this chapter. A ``person who has a direct 
interest in maintaining the confidentiality of a background file 
document'' is any person whose name and address is in such background 
file document, or who has a direct interest in maintaining the 
confidentiality of the written determination to which such background 
file document relates.
    (l) Successor in interest. A ``successor in interest'' to any person 
to whom a written determination pertains or background file document 
relates is any person who acquires the rights and assumes the 
liabilities of such person with respect to the transaction which was the 
subject matter of the written determination, provided that the successor 
in interest notifies the Commissioner with respect to the succession in 
interest.
    (d) Effective/applicability date. The rules of paragraph (a) apply 
February 29, 2012.

[T.D. 7524, 42 FR 63413, Dec. 16, 1977, as amended by T.D. 9581, 77 FR 
12205, Feb. 29, 2012]



Sec.  301.6110-3  Deletion of certain information in written determinations 
open to public inspection.

    (a) Information subject to deletion. There shall be deleted from the 
text of any written determination open to

[[Page 134]]

public inspection or subject to inspection upon written request and 
background file document subject to inspection upon written request 
pursuant to section 6110 the following types of information:
    (1) Identifying details. (i) The names, addresses, and identifying 
numbers (including telephone, license, social security, employer 
identification, credit card, and selective service numbers) of any 
person, other than the identifying details of a person who makes a 
third-party communication described in Sec.  301.6110-4(a), and
    (ii) Any other information that would permit a person generally 
knowledgeable with respect to the appropriate community to identify any 
person. The determination of whether information would permit 
identification of a particular person will be made in view of 
information available to the public at the time the written 
determination or background file document is made open or subject to 
inspection and in view of information that will subsequently become 
available, provided the Internal Revenue Service is made aware of such 
information and the potential that such information may identify any 
person. The ``appropriate community'' is that group of persons who would 
be able to associate a particular person with a category of transactions 
one of which is described in the written determination or background 
file document. The appropriate community may vary according to the 
nature of the transaction which is the subject of the written 
determination. For example, if a steel company proposes to enter a 
transaction involving the purchase and installation of blast furnaces, 
the ``appropriate community'' may include all steel producers and blast 
furnace manufacturers, but if the installation process is a unique 
process of which everyone in national industry is aware, the 
``appropriate community'' might also include the national industrial 
community. On the other hand, if the steel company proposes to enter a 
transaction involving the purchase of land on which to construct a 
building to house the blast furnaces, the ``appropriate community'' may 
also include those residing or doing business within the geographical 
locale of the land to be purchased.
    (2) Information concerning national defense and foreign policy. 
Information specifically authorized under criteria established by an 
Executive order to be kept secret in the interest of national defense or 
foreign policy and which is in fact properly classified pursuant to such 
order.
    (3) Information exempted by other statutes and agency rules. 
Information specifically exempted from disclosure by any statute other 
than the Internal Revenue Code of 1954 and 5 U.S.C. 552 which is 
applicable to the Internal Revenue Service, and any information obtained 
by the Internal Revenue Service solely and directly from another Federal 
agency subject to a nondisclosure rule of such agency. Deletion of 
information shall not be made solely because the same information was 
submitted to another Federal agency subject to a nondisclosure rule 
applicable only to such agency.
    (4) Trade secrets and privileged or confidential commercial or 
financial information--(i) Deletions to be made. Any--
    (A) Trade secrets, and
    (B) Commercial or financial information obtained from any person 
which, despite the fact that identifying details are deleted pursuant to 
paragraph (a)(1) of this section, nonetheless remains privileged or 
confidential.
    (ii) Trade secret. For purposes of paragraph (a)(4)(i)(A) of this 
section, a trade secret may consist of any formula, pattern, device or 
compilation of information that is used in one's business, and that 
gives one an opportunity to obtain an advantage over competitors who do 
not know or use it. It may be a formula for a chemical compound, a 
process of manufacturing, treating or preserving materials, a pattern 
for a machine or other device, or a list of customers. The subject of a 
trade secret must be secret, that is, it must not be of public knowledge 
or of a general knowledge in the trade or business. Novelty, in the 
patent law sense, is not required for a trade secret.
    (iii) Privileged or confidential. For purposes of paragraph 
(a)(4)(i)(B) of this section, information is privileged or confidential 
if from examination of the

[[Page 135]]

request and supporting documents relating to a written determination, 
and in consideration of the fact that identifying details are deleted 
pursuant to paragraph (a)(1) of this section, it is determined that 
disclosure of such information would cause substantial harm to the 
competitive position of any person. For example, while determining 
whether disclosure of certain information would cause substantial harm 
to X's competitive position, the Internal Revenue Service becomes aware 
that his information has previously been disclosed to the public. In 
this situation, the Internal Revenue Service will not agree with X's 
argument that disclosure of the information would cause substantial harm 
to X's competitive position. An example of information previously 
disclosed to the public is financial information contained in the 
published annual reports of widely held public corporations.
    (5) Information within the ambit of personal privacy. Information 
the disclosure of which would constitute a clearly unwarranted invasion 
of personal privacy, despite the fact that identifying details are 
deleted pursuant to paragraph (a)(1) of this section. Personal privacy 
information encompasses embarrassing or sensitive information that a 
reasonable person would not reveal to the public under ordinary 
circumstances. Matters of personal privacy include, but are not limited 
to, details not yet public of a pending divorce, medical treatment for 
physical or mental disease or injury, adoption of a child, the amount of 
a gift, and political preferences. A clearly unwarranted invasion of 
personal privacy exists if from analysis of information submitted in 
support of the request for a written determination it is determined that 
the public interest purpose for requiring disclosure is outweighed by 
the potential harm attributable to such invasion of personal privacy.
    (6) Information concerning agency regulation of financial 
institutions. Information contained in or related to reports prepared 
by, on behalf of, or for the use of an agency responsible for the 
regulation or supervision of financial institutions concerning 
examination, operation or condition of a financial institution, 
disclosure of which would damage the standing of such financial 
institution.
    (7) Information concerning wells. Geological or geophysical 
information and data, including maps, concerning wells.
    (b) Manner of deletions. Whenever information, which is not to be 
disclosed pursuant to section 6110(c), is deleted from the text of a 
written determination or background file document, substitutions 
therefore shall be made to the extent feasible if necessary for an 
understanding of the legal analysis developed in such written 
determination or to make the disclosed text of a background file 
document comprehensible. Wherever any material is deleted, an indication 
of such deletion, and of any substitution therefor, shall be made in 
such manner as the Commissioner deems appropriate.
    (c) Limitations on the making of deletions. Any portion of a written 
determination or background file document that has been deleted will be 
restored to the text thereof--
    (1) If pursuant to section 6110(d)(3) or (f)(4)(A) a court orders 
disclosure of such portion, or
    (2) If pursuant, to Sec.  301.6110-5(d)(1) an agreement is reached 
to disclose information.

[T.D. 7524, 42 FR 63414, Dec. 16, 1977]



Sec.  301.6110-4  Communications from third parties.

    (a) General rule. Except as provided in paragraph (b) of this 
section a record will be made of any communication, whether written, by 
telephone, at a meeting, or otherwise, received by the Internal Revenue 
Service or Office of its Chief Counsel prior to the issuance of written 
determination from any person other than a person to whom the written 
determination pertains or the authorized representative of such person. 
This rule applies to any communication concerning such written 
determination, any communication concerning the request for such written 
determination, or any communication concerning other matters involving 
such written determination. A notation that such communication has been 
made shall be placed on such written determination when it is made open 
to public inspection or available for inspection upon written request 
pursuant

[[Page 136]]

to Sec.  301.6110-5. The notation to be placed on a written 
determination shall consist of the date on which the communication was 
received and the category of the person making such communication, for 
example, Congressional, Department of Commerce, Treasury, trade 
association, White House, educational institution. Any person may 
request the Internal Revenue Service to disclose the name of any person 
about whom a notation has been made pursuant to this paragraph.
    (b) Limitations. The provisions of paragraph (a) of this section 
shall not apply to communications received by the Internal Revenue 
Service from employee of the Internal Revenue Service or Office of its 
Chief Counsel, from the Chief of Staff of the Joint Committee on 
Internal Revenue Taxation, from the Department of Justice with respect 
to any pending civil or criminal case or investigation, or from another 
government agency in response to a request made by the Internal Revenue 
Service to such agency for assistance involving the expertise of such 
agency.
    (c) Action to obtain disclosure of identity of person to whom 
written determination pertains--(1) Creation of remedy. With respect to 
any written determination on which a notation has been placed pursuant 
to paragraph (a) of this section, any person may file a petition in the 
United States Tax Court or file a complaint in the United States 
District Court for the District of Columbia for an order requiring that 
the identity of any person to whom such written determination pertains 
be disclosed, but such petition or complaint must be filed within 36 
months of the date such written determination is made open or subject to 
inspection.
    (2) Necessary disclosure. Whenever an action is brought pursuant to 
section 6110(d)(3), the court may order that the identity of any person 
to whom the written determination pertains be disclosed. Such disclosure 
may be ordered if the court determines that there is evidence in the 
record from which it could reasonably be concluded that an impropriety 
occurred or undue influence was exercised with respect to such written 
determination by or on behalf of the person to whom the written 
determination pertains. The court may, pursuant to section 6110(d)(3), 
also order the disclosure of any material deleted pursuant to section 
6110(c) if such disclosure is in the public interest. The written 
determination or background file document with respect to which the 
disclosure was sought shall be revised to disclose the information which 
the court orders to be disclosed.
    (3) Required notice. If a proceeding is commenced pursuant to 
section 6110(d)(3) and paragraph (c)(1) of this section with respect to 
any written determination, the Secretary shall send notice of the 
commencement of such proceeding to any person whose identity is subject 
to being disclosed and to the person about whom a third-party 
communication notation has been made pursuant to section 6110(d)(1). 
Such notice shall be sent, by registered or certified mail, to the last 
known address of the persons described in this paragraph (c)(3) within 
15 days after notice of the petition or complaint filed pursuant to 
section 6110(d)(3) is served on the Secretary. For further guidance 
regarding the definition of last known address, see Sec.  301.6212-2.
    (4) Intervention. Any person who is entitled to receive notice 
pursuant to paragraph (c)(3) of this section shall have the right to 
intervene in any action brought pursuant to section 6110(d)(3). If 
appropriate such person shall be permitted to intervene anonymously.

[T.D. 7524, 42 FR 63415, Dec. 16, 1977, as amended by T.D. 8939, 66 FR 
2819, Jan. 12, 2001]



Sec.  301.6110-5  Notice and time requirements; 
actions to restrain disclosure; actions to obtain additional disclosure.

    (a) Notice--(1) General rule. Before a written determination is made 
open to public inspection or subject to inspection upon written request, 
or before a background file document is subject to inspection upon 
written request, the person to whom the written determination pertains 
or background file document relates shall be notified by the 
Commissioner of intention to disclose such written determination or 
background file document. The notice with respect to a written 
determination,

[[Page 137]]

other than a written determination described in Sec.  301.6110-1(b) (2) 
or (3) shall be mailed when such written determination is issued. The 
notice with respect to any written determination relating to accounting 
or funding periods and methods, any technical advice memoranda involving 
civil fraud and criminal investigations, and jeopardy and termination 
assessments, and any background file document shall be mailed within a 
reasonable time after the receipt of the first written request for 
inspection thereof.
    (2) Contents of notice. The notice required by paragraph (a)(1) of 
this section shall--
    (i) Include a copy of the text of the written determination or 
background file document, which the Commissioner proposes to make open 
to public inspection or subject to inspection pursuant to a written 
request, on which is indicated (A) the material that the Commissioner 
proposes to delete pursuant to section 6110(c), (B) any substitutions 
proposed to be made therefor, and (C) any third-party communication 
notations required to be placed pursuant to Sec.  301.6110-4(a) on the 
face of the written determination.
    (ii) State that the written determination or background file 
document is to be open to public inspection or subject to inspection 
pursuant to a written request pursuant to section 6110.
    (iii) State that the recipient of the notice has the right to seek 
administrative remedies pursuant to paragraph (b)(1) of this section and 
to commence judicial proceedings pursuant to section 6110(f)(3) within 
indicated time periods, and
    (iv) Prominently indicate the date on which the notice is mailed.
    (b) Actions to restrain disclosure--(1) Administrative remedies. Any 
person to whom a written determination pertains or background file 
document relates, and any successor in interest, executor or authorized 
representative of such person may pursue the administrative remedies 
described in Sec.  601.105(b)(5) (iii)(i) and (vi)(f) and Sec.  
601.201(e) (11) and (16) of this chapter. Any person who has a direct 
interest in maintaining the confidentiality of any written determination 
or background file document or portion thereof may pursue the 
administrative remedies described in Sec.  601.105(b)(5)(vi)(f) and 
Sec.  601.201(e)(16) of this chapter. No person about whom a third-party 
communication notation has been made pursuant to Sec.  301.6110-4(a) may 
pursue any administrative remedy for the purpose of restraining 
disclosure of the identity of such person where such identity appears 
with respect to the making of such third-party communication.
    (2) Judicial remedy. Except as provided in paragraph (b)(3) of this 
section, any person permitted to resort to administrative remedies 
pursuant to paragraph (b)(1) of this section may, if such person 
proposes any deletion not made pursuant to Sec.  301.6110-3 by the 
Commissioner, file a petition in the United States Tax Court pursuant to 
section 6110(f)(3) for a determination with respect to such proposed 
deletion. If appropriate, such petition may be filed anonymously. Any 
petition filed pursuant to section 6110(f)(3) must be filed within 60 
days after the date on which the Commissioner mails the notice of 
intention to disclose required by section 6110(f)(1).
    (3) Limitations on right to bring judicial actions. No petition 
shall be filed pursuant to section 6110(f)(3) unless the administrative 
remedies provided by paragraph (b)(1) of this section have been 
exhausted. However, if the petitioner has responded within the 
prescribed time period to the notice pursuant to section 6110(f)(1) of 
intention to disclose, but has not received the final administrative 
conclusion of the Internal Revenue Service within 50 days after the date 
on which the Commissioner mails the notice of intention to disclose 
required by section 6110(f)(1), the petitioner may file a petition 
pursuant to section 6110(f)(3). No judicial action with respect to any 
written determination or background file document shall be commenced 
pursuant to section 6110(f)(3) by any person who has received a notice 
with respect to such written determination or background file document 
pursuant to paragraph (b)(4) of this section.
    (4) Required notice. If a proceeding is commenced pursuant to 
section 6110(f)(3) with respect to any written determination or 
background file document, the Secretary shall send notice

[[Page 138]]

of the commencement of such proceeding to any person to whom such 
written determination pertains or to whom such background file document 
relates. No notice is required to be sent to persons who have filed the 
petition that commenced the proceeding pursuant to section 6110(f)(3) 
with respect to such written determination or background file document. 
The notice shall be sent, by registered or certified mail, to the last 
known address of the persons described in this paragraph (b)(4) within 
15 days after notice of the petition filed pursuant to section 
6110(f)(3) is served on the Secretary. For further guidance regarding 
the definition of last known address, see Sec.  301.6212-2.
    (5) Intervention. Any person who is entitled to receive notice 
pursuant to paragraph (b)(4) of this section shall have the right to 
intervene in any action brought pursuant to this section. If 
appropriate, such person shall be permitted to intervene anonymously.
    (c) Time at which open to public inspection--(1) General rule. 
Except as otherwise provided in paragraph (c)(2) of this section, the 
text of any written determination or background file document open to 
public inspection or available for inspection upon written request 
pursuant to section 6110 shall be made open to or available for 
inspection no earlier than 75 days and no later than 90 days after the 
date on which the Commissioner mails the notice required by paragraph 
(a)(1) of this section. However, if an action is brought pursuant to 
section 6110(f)(3) to restrain disclosure of any portion of such written 
determination or background file document the disputed portion of such 
written determination or background file document shall be made open to 
or available for inspection pursuant to paragraph (c)(2)(i) of this 
section.
    (2) Limitations--(i) Court order. The portion of the text of any 
written determination or background file document that was subject to an 
action pursuant to section 6110(f)(3) to restrain disclosure in which 
the court determined that such disclosure should not be restrained shall 
be made open to or available for inspection within 30 days of the date 
that the court order becomes final. However, in no event shall such 
portion of the text of such written determination or background file 
document be made open to or available for inspection earlier than 75 
days after the date on which the Commissioner mails the notice of 
intention to disclose required by section 6110(f)(1) and paragraph 
(a)(1) of this section. Such 30-day period may be extended for such time 
as the court finds necessary to allow the Commissioner to comply with 
its decision. Any portion of a written determination or background file 
document which a court orders open to public inspection or subject to 
inspection upon written request pursuant to section 6110(f)(4) or 
disclosed pursuant to section 6110(d)(3) shall be made open or subject 
to inspection or disclosed within such time as the court provides.
    (ii) Postponement based on incomplete status of underlying 
transaction--(A) Initial period not to exceed 90 days. The time period 
set forth in paragraph (c)(1) of this section within which a written 
determination shall be made open to public inspection or available for 
inspection upon written request shall be extended, upon the written 
request of the person to whom such written determination pertains or the 
authorized representative of such person, until 15 days after the date 
on which the transaction set forth in the written determination is 
scheduled to be completed, but such day shall be no later than 180 days 
after the date on which the Commissioner mails the notice of intention 
to disclose.
    (B) Additional period. The time period determined pursuant to 
paragraph (c)(2)(ii)(A) of this section shall be further extended upon 
an additional written request, if the Commissioner determines from the 
information contained in such request that good cause exists to warrant 
such extension. This further extension shall be until 15 days after the 
date on which the transaction set forth in the written determination is 
expected to be completed, but such day shall be no later than 360 days 
after the date on which the Commissioner mails the notice of intention 
to disclose. The good cause required by this paragraph (B) exists if the 
person requesting the delay in inspection demonstrates to the 
satisfaction of the Commissioner

[[Page 139]]

that it is likely that the lack of such extension will cause 
interference with consummation of the pending transaction.
    (C) Written request for extension. The written request for extension 
of the time when a written determination is to be made open to public 
inspection or available for inspection upon written request shall set 
forth the date on which it is expected that the underlying transaction 
will be completed, and, with respect to the additional extension 
described in paragraph (c)(2)(ii)(B) of this section, set forth the 
reason for requesting such extension. A request for extension of time 
may not be submitted until the notice of intention to disclose is mailed 
and must be received by the Internal Revenue Service office which issued 
such written determination no later than--
    (1) In the case of the initial extension, 60 days after the date on 
which the Commissioner mails the notice of intention to disclose, or
    (2) In the case of the additional extension, 15 days before the day 
on which, for purposes of paragraph (c)(2)(ii)(A) of this section, the 
transaction set forth in the written determination was expected to have 
been completed.
    (D) Notice and determination of actual completion. If an extension 
of time for inspection has been granted, and the transaction is 
completed prior to the day on which it was expected to have been 
completed, the Internal Revenue Service office which issued such written 
determination shall be so notified by the person who requested such 
extension. In such event, the written determination shall be made open 
to public inspection or available for inspection upon written request on 
the earlier of (1) 30 days after the day on which the Commissioner is 
notified that the transaction is completed, or (2) the day on which the 
written determination was scheduled to be made open to public inspection 
or available for inspection upon written request pursuant to paragraph 
(c)(2)(ii) of this section. Similarly, if the Commissioner determines 
that the transaction was completed prior to the day on which it was 
expected to have been completed, even if the person requesting such 
extension has not so notified the Internal Revenue Service, the written 
determination shall be made open to public inspection or available for 
inspection upon written request on the earlier of (1) the day which is 
30 days after the Commissioner ascertains that the transaction is 
completed sooner than has been expected, or (2) the day on which the 
written determination was scheduled to be made open to public inspection 
or available for inspection upon written request pursuant to paragraph 
(c)(2)(ii) of this section.
    (d) Actions to obtain additional disclosure--(1) Administrative 
remedies. Under section 6110(f)(4) any person may seek to obtain 
additional disclosure of information contained in any written 
determination or background file document that has been made open or 
subject to inspection. A request for such additional disclosure shall be 
submitted to the Internal Revenue Service office which issued such 
written determination, or to which the request for inspection of such 
background file document has been submitted pursuant to Sec.  301.6110-
1(c)(4), and must contain the file number of the written determination 
or a description of the background file document (including the file 
number of the related written determination), the deleted information 
which in the opinion of such person should be open or subject to 
inspection, and the basis for such opinion. If the Internal Revenue 
Service determines that the request constitutes a request for disclosure 
of the name, address, or the identifying numbers described in Sec.  
301.6110-3(a)(1)(i) of any person, it shall within a reasonable time 
notify the person requesting such disclosure that disclosure will not be 
made. If the Internal Revenue Service determines that the request or any 
portion thereof constitutes a request for disclosure of information 
other than the name, address, or the identifying numbers described in 
Sec.  301.6110-3(a)(1)(i) of any person, it shall send a notice that 
such additional disclosure has been requested to any person to whom the 
written determination pertains or background file document relates, and 
to all persons who are identified by name and address in the written 
determination or background file document. Notice

[[Page 140]]

that such persons have been contacted shall be sent to the person 
requesting the additional disclosure. The notice that additional 
disclosure has been requested shall state that the Internal Revenue 
Service has determined that additional disclosure of information other 
than the name, address, or the identifying numbers described in Sec.  
301.6110-3(a)(1)(i) of any person has been requested, inform the 
recipient of the notice that the person seeking the additional 
disclosure has the right under section 6110(f)(4) to bring a judicial 
action to attempt to compel such disclosure, and request the recipient 
of the notice to reply within 20 days by submitting a statement of 
whether or not the recipient of the notice agrees to the requested 
disclosure or portion thereof. If all persons to whom a notice is sent 
pursuant to this paragraph (d)(1) of this section agree to disclose the 
requested information or any portion thereof, the person seeking such 
disclosure will be so informed; the written determination or background 
file document shall be accordingly revised to disclose the information 
with respect to which an agreement to disclose has been reached. If any 
of the persons to whom a notice is sent pursuant to this paragraph 
(d)(1) of this section do not agree to the additional disclosure or do 
not respond to such notice, the Internal Revenue Service shall within a 
reasonable time so notify the person requesting such disclosure, and 
deny the request for additional disclosure.
    (2) Judicial remedy. Except as provided in paragraph (d)(3) of this 
section, any person who seeks to obtain additional disclosure of 
information contained in any written determination or background file 
document may file a petition pursuant to section 6110(f)(4) in the 
United States Tax Court or a complaint in the United States District 
Court for the District of Columbia for an order requiring that such 
information be made open or subject to inspection. Nothing in this 
paragraph shall prevent the Commissioner from disposing of written 
determinations and related background file documents pursuant to Sec.  
301.6110-7(a).
    (3) Limitations on right to bring judicial action--(i) Exhaustion of 
administrative remedies. No petition or complaint shall be filed 
pursuant to section 6110(f)(4) unless the administrative remedies 
provided by paragraph (d)(1) of this section have been exhausted. 
However, if the Internal Revenue Service does not approve or deny the 
request for additional disclosure within 180 days after the request is 
submitted, the person making the request may file a petition pursuant to 
section 6110(f)(4).
    (ii) Actions to obtain identity. No petition or complaint shall be 
filed pursuant to section 6110(f)(4) to obtain disclosure of the 
identity of any person to whom a written determination on which a third-
party communication notation has been placed pursuant to Sec.  301.6110-
4(a) pertains. Such actions shall be brought pursuant to section 
6110(d)(3).
    (4) Required notice. If a proceeding is commenced pursuant to 
section 6110(f)(4) with respect to any written determination or 
background file document, the Secretary shall send notice of the 
commencement of such proceeding to any person to whom the written 
determination pertains or background file document relates, and to all 
persons who are identified by name and address in the written 
determination or background file document. The notice shall be sent, by 
registered or certified mail, to the last known address of the persons 
described in this paragraph (d)(4) within 15 days after notice of the 
petition or complaint filed pursuant to section 6110(f)(4) is served on 
the Secretary.
    (5) Intervention. Any person who is entitled to receive notice 
pursuant to paragraph (d)(4) of this section shall have the right to 
intervene in any action brought pursuant to this section. If 
appropriate, such person shall be permitted to intervene anonymously.

[T.D. 7524, 42 FR 63415, Dec. 16, 1977, as amended by T.D. 8939, 66 FR 
2819, Jan. 12, 2001]

[[Page 141]]



Sec.  301.6110-6  Written determinations issued in response to 
requests submitted before November 1, 1976.

    (a) Inspection of written determinations and background file 
documents--(1) General rule. Except as provided in this section, the 
text of any written determination issued in response to a request 
postmarked or hand delivered before November 1, 1976 and any related 
background file document shall be open or subject to inspection in 
accordance with the rules in Sec. Sec.  301.6110-1 through 301.6110-5 
and 301.6110-7. However, the rules in Sec.  301.6110-4 do not apply to 
inspection under this section. The rules in Sec.  301.6110-5 (a), (b) 
and (c) also do not apply, except with respect to background file 
documents.
    (2) Exclusions. The following written determinations are not open or 
subject to inspection under this section.
    (i) Written determinations with respect to matters for which the 
determination of whether public inspection should occur is made under 
section 6104. Some of these matters are listed in Sec.  301.6110-1(a).
    (ii) Written determinations issued before September 2, 1974, dealing 
with the qualification of a plan described in section 6104(a)(1)(B)(i) 
or the exemption from tax under section 501(a) of an organization 
forming part of such a plan.
    (iii) Written determination issued pursuant to requests submitted 
before November 1, 1976 with respect to the exempt staus under section 
501(a) of organizations described in section 501 (c) or (d), the status 
of organizations as private foundations under section 509(a), or the 
status of organizations as operating foundations under section 
4942(j)(3).
    (iv) General written determinations that relate solely to accounting 
or funding periods and methods, as defined in Sec.  301.6110-1(b)(3).
    (v) Determination letters.
    (3) Items that may be inspected only under certain circumstances--
(i) Background file documents. A background file document relating to a 
particular written determination issued in response to a request 
submitted before November 1, 1976 shall not be subject to inspection 
until the related written determination is open to public inspection or 
available for inspection, and then only if a written request pursuant to 
Sec.  301.6110-1(c)(4) is made for inspection of the background file 
document. However, the following background file documents are not open 
or subject to inspection:
    (A) Background file documents relating to general written 
determinations issued before July 5, 1967.
    (B) Background file documents relating to written determinations 
described in paragraph (a)(2) of this section.
    (ii) General written determinations issued before July 5, 1967. 
General written determinations issued before July 5, 1967 shall not be 
subject to inspection until all other written determinations issued in 
response to requests postmarked or hand delivered before November 1, 
1976 that are open to inspection under this section have been made open 
to public inspection, and then only if a written request pursuant to 
Sec.  301.6110-1(c)(4) is made for inspection of the written 
determination. In this regard, the request for inspection must also 
contain the section of the Internal Revenue Code in which the requester 
is interested and the dates of issuance of the written determinations.
    (b) Notice and time requirements, and actions to restrain 
disclosure--(1) Notice-- (i) General rule. Before a written 
determination is made open to public inspection and before a particular 
written determination is subject to inspection in response to the first 
written request therefor, the Commissioner shall publish in the Federal 
Register a notice that the written determination is to be made open or 
subject to inspection. Notices with respect to written determinations, 
other than those described in paragraph (a)(3)(ii) of this section, 
shall be published at the earliest practicable time after this 
regulation is adopted as a Treasury decision. Notices with respect to 
written determinations subject to inspection upon written request shall 
be published within a reasonable time after the receipt of the first 
written request for inspection thereof, but no sooner than the day as of 
which all other written determinations open to public inspection under 
this section have been made open to public inspection. Notices with 
respect to background file documents

[[Page 142]]

shall be sent in accordance with the rules in Sec.  301.6110-5(a) and 
will be mailed by the Internal Revenue Service to the most recent 
addresses of the persons to whom the background file document relates 
that are in the written determination file.
    (ii) Sequence of notices. Notices with respect to written 
determinations, other than general written determinations issued before 
July 5, 1967, shall be published in the following order. The first 
category is notices with respect to reference written determinations 
issued under the Internal Revenue Code of 1954. The second category is 
notices with respect to general written determinations issued after July 
4, 1967. The third category is notices with respect to reference written 
determinations issued under the Internal Revenue Code of 1939 or 
corresponding provisions of prior law. Within a category, the 
Commissioner may publish notices individually or for groups of written 
determinations arranged according to the jurisdictions of the ruling 
branches in the Office of the Assistant Commissioner (Technical) and the 
Assistant Commissioner (Employee Plans and Exempt Organizations), as the 
Commissioner may find reasonable. To the extent practicable, notices 
published individually shall be published in the reverse order of the 
issuance of the written determinations for which they are published, 
starting with the most recent written determination issued. To the 
extent practicable, each group shall consist of consecutively issued 
written determinations. Notices for groups shall be published, to the 
extent practicable, in the reverse order of the time period of issuance 
of the written determinations in each group, starting with the most 
recent time period.
    (iii) Contents of notice. The notice required by paragraph (b)(1)(i) 
of this section shall:
    (A) Identify by subject matter description and dates of issuance the 
written determinations that the Commissioner proposes to make open or 
subject to inspection.
    (B) State that the written determinations will be made open or 
subject to inspection pursuant to section 6110(h),
    (C) State that the persons to whom the written determinations 
pertain have the right to seek administrative remedies under paragraph 
(b)(2)(ii) of this section and to commence judicial proceedings under 
section 6110(h)(4) within indicated time periods,
    (D) State that there exist the possibilities that someone might 
request additional disclosure under section 6110(f)(4) and that someone 
might request inspection of a related background file document, and
    (E) State that any notice that must be mailed by the Internal 
Revenue Service will be sent to the most recent address of the person to 
whom the notice must be sent that is in the relevent written 
determination file.
    (2) Actions to restrain disclosure--(i) Information on written 
determinations described by notice. Any person may, within 15 days after 
the Commissioner publishes in the Federal Register a notice of intention 
to disclose a written determination under section 6110(h), request the 
Internal Revenue Service to provide certain information. This 
information includes whether any of the written determinations described 
by the notice is one that was issued to the person requesting this 
information. The Internal Revenue Service will also inform the person 
whether any of the written determinations described by the notice is one 
that was issued to a person with respect to whom the person requesting 
this information is a successor in interest executor or authorized 
representative. However, in order to do so, the Internal Revenue Service 
must be given the name and taxpayer identifying number of this other 
person and documentation of the relationship between that person and the 
person requesting the information. If the person requesting this 
information is a person to whom a written determination described by the 
notice pertains, or a successor in interest, executor, or authorized 
representative of that person, the Internal Revenue Service will also 
provide the person with a copy of the written determination on which is 
indicated the material that the Commissioner proposes to delete under 
section 6110(c) and any substitution proposed to be made therefor.
    (ii) Administrative remedies. Any person to whom a written 
determination described by the notice in the Federal

[[Page 143]]

Register pertains, and any successor in interest, executor or authorized 
representative of that person may pursue the administrative remedies 
described in this paragraph (b)(2)(ii). If after receiving the 
information described in paragraph (b)(2)(i) of this section, the person 
pursuing these administrative remedies desires to protest the disclosure 
of certain information in the written determination, that person must 
within 35 days after the notice is published submit a written statement 
identifying those deletions not made by the Internal Revenue Service 
which the person believes should have been made. The person pursuing 
these administrative remedies must also submit a copy of the version of 
the written determination proposed to be open or subject to inspection 
on which that person indicates, by the use of brackets, the deletions 
which the person believes should have been made. The Internal Revenue 
Service shall, within 20 days after receipt of the response by the 
person pursuing these administrative remedies, mail to that person its 
final administrative conclusion with respect to the deletions to be 
made.
    (iii) Judicial remedy. Except as provided in paragraph (b)(2)(iv) of 
this section, any person permitted to resort to administrative remedies 
under paragraph (b)(2)(ii) of this section may, if that person proposed 
any deletion not made under section 6110(c) by the Commissioner, file a 
petition in the United States Tax Court under section 6110(h)(4) for a 
determination with respect to the proposed deletion. If appropriate, the 
petition may be filed anonymously. Any petition filed under section 
6110(h)(4) must be filed within 75 days after the date on which the 
Commissioner publishes in the Federal Register the notice of intention 
to disclose required under section 6110(h)(4).
    (iv) Limitations on right to bring judicial actions. No petition 
shall be filed under section 6110(h)(4) unless the administrative 
remedies provided by paragraph (b)(2)(ii) of this section have been 
exhausted. However, under two circumstances the petition may be filed 
even though the administrative remedies have not been exhausted. The 
first circumstance is if the petitioner requests the information 
described in paragraph (b)(2)(i) of this section within 15 days after 
the notice of intention to disclose is published in the Federal 
Register, but does not receive it within 30 days after the notice is 
published. The other circumstance is if the petitioner submits the 
statement of deletions within 35 days after the notice is published, but 
does not receive the final administrative conclusion of the Internal 
Revenue Service within 65 days after the notice is published. No 
judicial action with respect to any written determination shall be 
commenced under section 6110(h)(4) by any person who has received a 
notice with respect to the written determination under paragraph 
(b)(2)(v) of this section.
    (v) Required notice. If a proceeding is commenced under section 
6110(h)(4) with respect to any written determination, the Secretary 
shall send notice of the commencement of the proceeding to any person to 
whom the written determination pertains. No notice is required to be 
sent to persons who have filed the petition that commenced the 
proceeding under section 6110(h)(4) with respect to the written 
determination. The notice shall be sent, by registered or certified 
mail, to the last known address of the persons described in this 
paragraph (b)(2)(v) within 15 days after notice of the petition filed 
under section 6110(h)(4) is served on the Secretary. For further 
guidance regarding the definition of last known address, see Sec.  
301.6212-2.
    (vi) Intervention. Any person who is entitled to receive notice 
under paragraph (b)(2)(v) of this section has the right to intervene in 
any action brought under this paragraph (b)(2). If appropriate, this 
person shall be permitted to intervene anonymously.
    (vii) Background file documents. The following qualifications of the 
rules in Sec.  301.6110-5(b) apply with respect to the restraint of 
disclosure of background file documents related to written 
determinations to which this section applies. First, the administrative 
remedies described in Sec. Sec.  601.105 (b)(5)(iii)(i) and 
601.201(e)(11) of this chapter do not apply. Second, the rule in 
Sec. Sec.  601.105(b)(5)(vi)(f) and 601.201(e)(16) that the Internal 
Revenue Service will

[[Page 144]]

not consider the deletion of material not proposed for deletion prior to 
the issuance of the written determination does not apply.
    (3) Time at which open to public inspection--(i) General rule. 
Except as otherwise provided in paragraph (b)(3)(ii) of this section, 
the text of any written determination open to public inspection or 
available for inspection upon written request under section 6110(h) 
shall be made open to or available for inspection no earlier than 90 
days and no later than 120 days after the date on which the Commissioner 
publishes in the Federal Register the notice of intention to disclose 
required under section 6110(h)(4). However, if an action is brought 
under section 6110(h)(4) to restrain disclosure of any portion of a 
written determination, the disputed portion of that written 
determination shall be made open to or available for inspection under 
paragraph (b)(3)(ii) of this section.
    (ii) Limitation on account of court order. The portion of the text 
of any written determination that was subject to an action under section 
6110(h)(4) to restrain disclosure in which the court determined that the 
disclosure should not be restrained shall be made open to or available 
for inspection within 30 days of the date that the court order becomes 
final. However, in no event shall that portion of the text of that 
written determination be made open to or available for inspection 
earlier than 90 days after the date on which the Commissioner publishes 
in the Federal Register the notice of intention to disclose required by 
section 6110(h)(4) and paragraph (b)(1) of this section. This 30-day 
period may be extended for such time as the court finds necessary to 
allow the Commissioner to comply with its decision. Any portion of a 
written determination which a court orders open to public inspection or 
subject to inspection upon written request under section 6110(f)(4) 
shall be open or subject to inspection within such time as the court 
provides.
    (iii) Background file documents. The rules in Sec.  301.6110-
5(c)(2)(ii) do not apply with respect to the time at which background 
file documents related to written determinations to which this section 
applies are subject to inspection.

[T.D. 7548, 43 FR 20791, May 15, 1978, as amended by T.D. 8939, 66 FR 
2819, Jan. 12, 2001]



Sec.  301.6110-7  Miscellaneous provisions.

    (a) Disposition of written determinations and background file 
documents--(1) Reference written determinations. The Internal Revenue 
Service shall not dispose of any reference written determinations or 
related background file documents. The Commissioner may reclassify 
reference written determinations as general written determinations if 
the classification as reference was erroneous or if the Commissioner 
determines that such written determination no longer has any significant 
reference value. Notwithstanding the preceding sentence, the 
Commissioner shall not classify as a general written determination any 
written determination which is determined to be the basis for a 
published revenue ruling unless such revenue ruling is obsoleted, 
revoked, superseded or otherwise held to have no effect.
    (2) General written determinations. The Internal Revenue Service may 
dispose of general written determinations and any background file 
document relating to such written determination pursuant to its 
established records disposition procedures. Disposition of a written 
determination shall not occur earlier than 3 years after the date on 
which such written determination is made open to public inspection or 
available for inspection upon written request. Disposition of a 
background file document shall not occur earlier than 3 years after the 
date on which the related written determination is made open to public 
inspection or available for inspection upon written request.
    (b) Precedential status of written determinations open to public 
inspection. A written determination may not be used or cited as 
precedent, but the rule set forth in this paragraph shall not apply to 
change the precedential status, if any, of written determinations issued 
with respect to taxes imposed by subtitle D of the Internal Revenue Code 
of 1954.

[[Page 145]]

    (c) Civil remedies--(1) Liability for failure to make deletions or 
to conform to time limitations--(i) Creation of remedy. An exclusive 
remedy against the Commissioner shall exist in the Court of Claims for--
    (A) The person to whom the written determination pertains whenever 
the Commissioner fails to act in accordance with the time requirements 
of section 6110(g), and
    (B) The person to whom the written determination pertains and any 
person identified in such written determination whenever the 
Commissioner fails to make deletions required by section 6110(c) if as a 
consequence of such failure there is disclosed the identity of such 
person or other information with respect to such person that is required 
to be deleted pursuant to section 6110(c).
    (ii) Limitations. The remedy provided in paragraph (c)(1)(i) of this 
section for failure to make deletions shall be available only if--
    (A) The failure of the Commissioner to make the deletions required 
by section 6110(c) is intentional or willful,
    (B) The Commissioner fails to make any deletion required by section 
6110(c) which the Commissioner has agreed to make, or
    (C) The Commissioner fails to make any deletion which a court has 
ordered to be made pursuant to section 6110(f)(3).
    (iii) Damages. In any suit brought pursuant to paragraph (c)(1)(i) 
of this section in which the court determines that an employee of the 
Internal Revenue Service intentionally or willfully failed to make a 
deletion required by section 6110(c), or intentionally or willfully 
failed to act in accordance with the time requirements of section 
6110(g), the United States shall be liable, to the person described in 
paragraph (c)(1)(i) of this section who brought the action, in an amount 
equal to the sum of--
    (A) Actual damages sustained by such person but in no case shall 
such person be entitled to receive less than the sum of $1,000.
    (B) The costs of the action, and
    (C) Reasonable attorney's fees as determined by the court.
    (2) Liability for making additional disclosure of information. The 
Commissioner shall not be liable for making any additional disclosure 
ordered pursuant to an action described in Sec.  301.6110-5(d)(2) if the 
notice required by Sec.  301.6110-5(d)(4) is sent.
    (3) Obligation to defend action for additional disclosure. The 
Commissioner shall not be required to defend any action brought to 
obtain additional disclosure pursuant to section 6110(f)(4) if the 
notice required by Sec.  301.6110-5(d)(4) is sent.
    (4) Obligation to make deletions. The Commissioner shall be 
obligated to make only those deletions required by section 6110(c) which 
he has agreed to make, those which a court has ordered to be made 
pursuant to Sec.  301.6110-5(b)(2) and those the omission of which would 
be intentional or willful.
    (d) Fees--(1) General rule--(i) Copies. The Commissioner may 
prescribe fees pursuant to Sec.  607.702(f)(4) of this chapter for the 
costs of furnishing copies of material open to public inspection or 
subject to inspection upon written request pursuant to section 6110.
    (ii) Preparation of information available upon request. The 
Commissioner may prescribe fees pursuant to Sec.  601.702(f) of this 
chapter for the costs of searching for and making deletions from any 
written determinations and background if documents that are subject to 
inspection only upon written request pursuant to Sec.  301.6110-1(b).
    (2) Reduction or waiver of fees--(i) Public interest. The 
Commissioner shall reduce or waive the fees described in paragraph 
(d)(1) of this section if the Commissioner determines that furnishing 
copies of, searching for, or making deletions from any written 
determination or background file document primarily benefits the general 
public, as described in Sec.  601.702(f)(2)(ii)(B) of this chapter.
    (ii) Previous requests. The Commissioner may waive the fees 
described in paragraph (d)(1) of this section for searching for any 
written determination or background file document if the search for such 
written determination or background file document was made pursuant to a 
previous request for inspection thereof. The Commissioner

[[Page 146]]

shall waive the fees described in paragraph (d)(1) of this section for 
making deletions from any written determination or background file 
document if the making of such deletions from such written determination 
or background file document was made pursuant to a previous request for 
inspection thereof. Nothing in this (d)(2)(ii) shall prevent the 
Commissioner from prescribing fees for making additional deletions from 
such written determination or background file document pursuant to Sec.  
301.6110-5(b).

[T.D. 7524, 42 FR 63417, Dec. 16, 1977]



Sec.  301.6111-1T  Questions and answers relating to tax shelter registration.

    The following questions and answers relate to the tax shelter 
registration requirements of section 6111 of the Internal Revenue Code 
of 1954, as added by section 141(a) of the Tax Reform Act of 1984 (Pub. 
L. 98-369, 98 Stat. 678).

                            TABLE OF CONTENTS

    The following table of contents is provided as part of these 
temporary regulations to help the reader locate relevant provisions. The 
headings are to be used only as a matter of convenience and have no 
substantive effect.

                               In General

Overview of tax shelter registration, A-1
Overview of applicable penalties, A-2
Effect of registration, A-3

                           Tax Shelter Defined

Definition of tax shelter, A-4

                            Tax Shelter Ratio

Definition of tax shelter ratio, A-5

       Deductions and Credits Represented as Potentially Allowable

Definition of amount of deductions and credits, A-6
Definition of year, A-7
Definition of explicit representation, A-8
Definition of inferred representation, A-9
Effect of qualified representation, A-10
Representation regarding interest deduction, A-11
Representation regarding unintended events, A-12

                             Investment Base

Definition of investment base, A-13
Amounts eliminated from investment base, A-14

                    Tax Shelter Ratio--Miscellaneous

Effect of different ratios for different investors, A-15
Effect of alternate financing arrangements, A-16

              Investments Subject to Securities Regulation

Federal law regulating securities, A-17
State law regulating securities, A-18
Exemptions from federal securities registration, A-19
Exemptions from state securities registration, A-20

                         Substantial Investment

Definition of substantial investment, A-21
Aggregation rules, A-22 and A-23

                Exceptions From Tax Shelter Registration

Investments excepted from tax shelter registration, A-24
Certain persons not treated as investors, A-24A

               Persons Required To Register a Tax Shelter

Tax shelter organizer, A-25 and A-26
Principal organizer, A-27
Participant in the organization, A-28 Manager, A-29
Exception for certain unrelated persons, A-30
Sellers, A-31
Absence of representations by organizer, A-32
Exception for suport services, A-33

    Circumstances Under Which Tax Shelter Organizers Are Required To 
                         Register a Tax Shelter

Principal organizer and a participant in the organization, A-34
Manager who has not signed designation agreement, A-35
Seller who has not signed designation agreement, A-36
Person acting in multiple capacities, A-37
Designation agreement (designated organizer), A-38
Person who has signed designation agreement, A-39

                       Registration--General Rules

Date registration is required, A-40
Requirement to provide registration notice to sellers and others, A-41
Definition of sale of an interest, A-42
Definition of offering for sale, A-43
No requirement to submit revised registration form A-44--A-45
Information reported on an amended application, 45A
Effect of resale of an asset, A-46
When registration is complete, A-47

[[Page 147]]

Separate forms required for certain aggregated investments, A-48
Applicability of section 7502, A-49
Required investor disclaimer, A-50

        Furnishing Tax Shelter Registration Numbers to Investors

Who must furnish number, A-51
When number must be furnished, A-52
Form required to furnish number, A-53 and A-54

            Including the Registration Number on Tax Returns

Requirement to include registration number on investor's return, A-55 
and A-57

                      Projected Income Investments

Special rules for projected income investments, A-57A
Definitions relating to projected income, investments A57B--A-57D
Tax shelters ineligible for the special rules, A-57E
Consequences of bad faith or unreasonable projections, A-57F
When a tax shelter ceases to be a projected income investment, A-57G
Special rule for registration, A-57H
Special rule for furnishing registration number, A-57I
Special rule for including registration number on tax return, A-57J

                             Effective Dates

Effective dates, A-58 and A-60

                               In General

    Q-1. What is tax shelter registration?
    A-1. Tax shelter registration is a new provision of the Internal 
Revenue Code that affects organizers, sellers, investors, and certain 
other persons associated with investments that are considered tax 
shelters. The new provision imposes the following three requirements. 
First, a tax shelter must be registered by the tax shelter organizer. 
(See A-4 of this section for the definition of a tax shelter. See A-25 
through A-39 of this section for rules relating to tax shelter 
organizers. See A-26 of this section for rules regarding when the seller 
of an interest in a tax shelter is treated as the tax shelter 
organizer.) Registration is accomplished by filing a properly completed 
Form 8264 with the Internal Revenue Service. The Internal Revenue 
Service will assign a registration number to each tax shelter that is 
registered. Second, any person who sells or otherwise transfers an 
interest in a tax shelter must furnish the registration number of the 
tax shelter to the purchaser or transferee of the interest. (See A-51 
through A-54 of this section for the time and manner in which the number 
must be furnished.) Third, any person who claims a deduction, loss, 
credit, or other tax benefit or reports any income from the tax shelter 
must report the registration number of the tax shelter on any return on 
which the deduction, loss, credit, benefit, or income in included. (See 
A-55 through A-57 of this section for rules relating to the reporting of 
tax shelter registration numbers.)
    Q-2. Are penalties provided for failure to comply with the 
requirements of tax shelter registration?
    A-2. Yes. Separate penalties are provided for failure to satisfy any 
of the requirements set forth in A-1 of this section. See A-1 of Sec.  
301.6707-1T for the penalty for failure to register a tax shelter and A-
8 of Sec.  301.6707-1T for the penalty for filing false or incomplete 
information will respect to the registration of a tax shelter. See A-12 
of Sec.  301.6707-1T for the penalty for failure to furnish the tax 
shelter registration number to purchasers or transferees. See A-13 of 
301.6707-1T for the penalty for failure to report the tax shelter 
registration number on a tax return on which a deduction, loss, credit, 
income, or other tax benefit is included. In addition, criminal 
penalties may be imposed for willful noncompliance with the requirements 
of tax shelter registration. See, for example, section 7203, relating to 
willful failure to supply information, and section 7206, relating to 
fraudulent and false statements.
    Q-3. Does registration of a tax shelter with the Internal Revenue 
Service indicate that the Internal Revenue Service has reviewed, 
examined, or approved the tax shelter or the claimed tax benefits?
    A-3. No. Moreover, any representation to prospective investors that 
states that a tax shelter is registered with the Internal Revenue 
Service (or that registration is being sought) must include a legend 
stating that registration does not indicate that the Internal Revenue 
Service has reviewed, examined or approved the tax shelter or any

[[Page 148]]

of the claimed tax benefits. (See A-50 of this section for the form and 
content of the legend.)

                           Tax Shelter Defined

    Q-4. What investments are tax shelters that are required to be 
registered with the Internal Revenue Service?
    A-4. A tax shelter is any investment that meets the following two 
requirements:
    (I) The investment must be one with respect to which a person could 
reasonably infer, from the representations made or to be made in 
connection with any offer for sale of any interest in the investment, 
that the tax shelter ratio for any investor may be greater than 2 to 1 
as of the close of any of the first 5 years ending after the date on 
which the investment is offered for sale.
    (II) The investment must be (i) required to be registered under a 
federal or state law regulating securities, (ii) sold pursuant to an 
exemption from registration requiring the filing of a notice with a 
federal or state agency regulating the offering or sale of securities, 
or (iii) a substantial investment.
    An investment that satisfies these two requirements is considered a 
tax shelter for registration purposes regardless of whether it is 
marketed or customarily designated as a tax shelter. See A-5 of this 
section for the definition of tax shelter ratio. See A-17 and A-18 of 
this section for the definition of an investment required to be 
registered under a federal or state law regulating securities. See A-19 
and A-20 of this section for the definition of an investment sold 
pursuant to an exemption from registration requiring the filing of a 
notice. See A-21 of this section for the definition of a substantial 
investment.

                            Tax Shelter Ratio

    Q-5. What does the term ``tax shelter ratio'' mean?
    A-5. The term ``tax shelter ratio'' means, with respect to any year, 
the ratio that the aggregate amount of deductions and 200 percent of the 
credits that are or will be represented as potentially allowable to an 
investor under subtitle A of the Internal Revenue Code for all periods 
up to (and including) the close of such year, bears to the investment 
base for such investor as of the close of such year.

       Deductions and Credits Represented as Potentially Allowable

    Q-6. What do the terms ``amount of deductions'' and ``credits'' 
mean?
    A-6. The term ``amount of deductions'' means the amount of gross 
deductions and other similar tax benefits potentially allowable with 
respect to the investment. The gross deductions are not to be offset by 
any gross income to be derived or potentially derived from the 
investment. Thus, the term ``amount of deductions'' is not equivalent to 
the net loss, if any, attributable to the investment. The term 
``credits'' means the gross amount of credits potentially allowable with 
respect to the investment without regard to any possible tax liability 
resulting from the investment or any potential recapture of the credits.
    Q-7. What does the term ``year'' mean for purposes of determining 
the tax shelter ratio?
    A-7. The term ``year'' means the taxable year of a tax shelter, or 
if the tax shelter has no taxable year, the calendar year.
    Q-8. Under what circumstances is a deduction or credit considered to 
be represented as being potentially allowable to an investor?
    A-8. A deduction or credit is considered to be represented as being 
potentially allowable to an investor if any statement is made (or will 
be made) in connection with the offering for sale of an interest in an 
investment indicating that a tax deduction or credit is available or may 
be used to reduce federal income tax or federal taxable income. 
Representations of tax benefits may be oral or written and include those 
made at the time of the initial offering for sale of interests in the 
investment, such as advertisements, written offering materials, 
prospectuses, or tax opinions, and those that are expected to be made 
subsequent to the initial offering. Representations are not confined 
solely to statements regarding actual dollar amounts of tax benefits, 
but also include general representations that tax benefits are available 
with respect to an investment. Thus, for example, an advertisement 
stating

[[Page 149]]

that ``purchase of restaurant includes trade fixtures (5-year write-off 
and investment tax credit)'' constitutes an explicit representation of 
tax benefits.
    Q-9. If a deduction or credit is not explicitly represented as being 
potentially allowable to an investor may it be inferred as a represented 
tax benefit that is includible in the tax shelter ratio?
    A-9. Yes. Although some explicit representation concerning tax 
benefits is necessary before an investment may be considered a tax 
shelter, once an explicit representation is made (or will be made) 
regarding any tax benefit, all deductions or credits typically 
associated with the investment will be inferred to have been represented 
as potentially allowable. Thus, the tax shelter ratio will be determined 
with reference to those tax benefits that are explicitly represented as 
being potentially allowable as well as all other tax benefits that are 
typically associated with the investment. The amount of each deduction 
or credit that is includible in the tax shelter ratio, if not 
specifically represented as to amount, should be reasonably estimated 
based on representations of economic value or economic projections, if 
any, or on any other information available to the tax shelter organizer. 
Reasonable estimates of deductions or credits may take into account past 
experience with similar investments. Reasonable estimates must assume 
use of the most accelerated allowable basis for cost recovery 
deductions.
    As an example of the application of this A-9, assume that an 
advertisement explicitly states that a building is eligible for the 
investment tax credit for rehabilitation of a certified historic 
structure, but makes no mention of cost recovery deductions, 
amortization deductions for construction period interest and taxes, real 
estate taxes after construction, ongoing maintenance expenses, or other 
deductions or credits typically associated with a building. Reasonable 
estimates of all such deductions and credits must be included with the 
investment tax credit explicitly represented in determining the tax 
shelter ratio associated with any investor's acquisition of an interest 
in the building.
    Q-10. Does the fact that representations are made (or to be made) 
indicating that a deduction may be offset by income from the investment 
or that a deduction or credit may be subject to recapture or may be 
disallowed on audit affect the computation of the tax shelter ratio?
    A-10. No. Deductions and credits represented as being potentially 
allowable are taken into account in computing the tax shelter ratio 
regardless of whether any qualifying statements are made.
    Q-11. Is interest to be paid by an investor with respect to a debt 
obligation incurred in connection with the acquisition of an interest in 
the tax shelter included in the aggregate amount of deductions?
    A-11. If a deduction for such interest is explicitly represented (or 
will be represented) as being potentially allowable, the interest is 
includible in the aggregate amount of the deductions. In addition, any 
interest to be paid with respect to a debt obligation the proceeds of 
which reduce the investment base (see A-14 of this section), regardless 
of whether a deduction for such interest is explicitly represented as 
being allowable, will be considered a deduction typically associated 
with the investment (see A-9 of this section). Accordingly, such 
interest will be considered to be represented as being potentially 
allowable and must be taken into account in computing the tax shelter 
ratio. If interest to be paid with respect to a debt obligation the 
proceeds of which do not reduce the investment base (see A-14 of this 
section) is not explicitly represented as being potentially allowable, 
however, such interest will not be considered typically associated with 
the investment and will not be taken into account in computing the tax 
shelter ratio.
    Q-12. If representations are made that part or all of an amount 
invested in a tax shelter will be deductible upon the occurrence of an 
unintended event, will the deduction be included in the aggregate amount 
of deductions?
    A-12. No. Thus, for example, if representations are made that a 
person's investment in a tax shelter may give rise to a loss deduction 
if the investment becomes worthless, the amount

[[Page 150]]

of the loss deduction will not be included in the aggregate amount of 
deductions and will not be taken into account in computing the tax 
shelter ratio. Similarly, if representations are made that the costs of 
acquiring oil and gas lease interests may be deductible if the lease is 
proved worthless by abandonment, the amount of any loss deduction will 
not be included in the aggregate amount of deductions.

                             Investment Base

    Q-13. What does the term ``investment base'' mean?
    A-13. The term ``investment base'' means, with respect to any year 
(as defined in A-7 of this section), means the cumulative amount of 
money and the adjusted basis of other property (reduced by any liability 
to which such other property is subject) that is unconditionally 
required to be contributed or paid directly to the tax shelter on or 
before the close of such year by an investor.
    Q-14. What amounts must be eliminated from the investment base?
    A-14. The investment base must be reduced by the following amounts:
    (1) Any amount borrowed by the investor, even if borrowed on a 
recourse basis, from any person who participated in the organization, 
sale, or management of the investment or who has an interest (other than 
an interest as a creditor) in the investment (``a participating 
person'') or from any person who is related (as defined in section 168 
(e)(4)) to a participating person, unless the amount is unconditionally 
required to be repaid by the investor before the close of the year for 
which the determination is being made. An amount will be considered 
unconditionally required to be repaid by the investor only if any 
offering material in which the borrowed amount is described and any 
agreement to be entered into between a participating (or related) person 
and the investor provide that the amount must be repaid (without 
exception) by the end of the year for which the determination is being 
made. An amount that is to be repaid only from earnings of the 
investment is not an amount that is unconditionally required to be 
repaid and is thus excluded from the investment base. In addition, an 
amount is not unconditionally required to be repaid if the amount will 
be (or is expected to be) reloaned to the investor during the 5-year 
period ending after the date the investment is offered for sale.
    (2) Any amount borrowed by the investor, even if borrowed on a 
recourse basis, from a person, if the loan is arranged by a 
participating (or related) person, unless the amount is unconditionally 
required to be repaid by the investor before the close of the year for 
which the determination is being made. Any borrowing that is represented 
(orally or in writing) as being available from a specific source will be 
treated as arranged by a participating (or related) person, if the 
participating (or related) person provides a list of investors, or 
information relating to the investment, to the lender or otherwise 
informs the lender about the investment. However, in the case of an 
amount borrowed on a recourse basis, the mere fact that a lender who is 
actively and regularly engaged in the business of lending money obtained 
information relating to the investment, from a participating (or 
related) person, solely in response to a lender's request made in 
connection with such borrowing or a prior loan to the investment, a 
participating (or related) person, or an investor, will not, by itself, 
result in a determination that the loans are arranged by a participating 
(or related) person. Financing may be treated as arranged by a 
participating (or related) person regardless of whether a commitment to 
provide the financing is made by the lender to the participating or 
related person.
    For example, assume that a tax shelter organizer represents that the 
purchase of an interest in a tax shelter may be financed with the 
proceeds of a revolving loan, and the tax shelter organizer provides 
investors with the names of several banks or other lending institutions 
to which the tax shelter organizer has provided information about the 
investment. Assume further that the information was not provided in 
response to requests from such lending institutions made in connection 
with prior loans. The proceeds of the revolving loan will be excluded 
from the investment base because the loan is

[[Page 151]]

not unconditionally required to be repaid and it is treated as having 
been arranged by the tax shelter organizer.
    (3) Any amount borrowed, directly or indirectly, from a lender 
located outside the United States (``foreign-connected financing''), of 
which a participating (or related) person knows or has reason to know.
    (4) Any amounts to be held for the benefit of investors in cash, 
cash equivalents, or marketable securities. An amount is to be held in 
cash equivalents if the amount is to be held in a checking account, 
savings account, mutual fund, certificate of deposit, book entry 
government obligation, or any other similar account or arrangement. 
Marketable securities are any securities that are part of an issue any 
portion of which is traded on an established securities market and any 
securities that are regularly quoted by brokers or dealers making a 
market.
    (5) Any distributions (whether of cash or property) that will be 
made without regard to the income of the tax shelter, but only to the 
extent such distributions exceed the amount to be held as of the close 
of the year in cash, cash equivalents, or marketable securities.

                    Tax Shelter Ratio--Miscellaneous

    Q-15. Does an investment satisfy the requirement in A-4 (I) of this 
section (``the tax shelter ratio requirement'') if it may be inferred 
from the representations made or to be made to investors that the tax 
shelter ratio for some, but not all, of the investors may be greater 
than 2 to 1 as of the close of any one of the first five years?
    A-15. Yes. If the tax shelter ratio for any one investor may be 
greater that 2 to 1, the investment satisfies the tax shelter ratio 
requirement and is a tax shelter if it also meets the requirement in A-
4(II) of this section. Moreover, an investment will satisfy the tax 
shelter ratio requirement even if the tax shelter ratio for a single 
investor exceeds 2 to 1 as of the close of only one of the first five 
years.
    For purposes of computing the tax shelter ratio for a year, all 
persons with interests in the investment are considered investors, 
except that general partners in a limited partnership will not be 
treated as investors in the partnership if the general partners' 
aggregate interest in each item of partnership income, gain, loss, 
deduction, and credit for such year is not expected to exceed 2 percent. 
In determining the general partners' interest in such items, limited 
partnership interests owned by general partners shall not be taken into 
account. For purposes other than the computation of the tax shelter 
ratio, however, all general partners will be treated as investors. Thus, 
for example, a general partner with a 1 percent interest in a limited 
partnership will be treated as an investor for the purpose of 
determining whether the partnership is a substantial investment.
    Q-16. If a person could reasonably infer from the representations 
made or to be made about an investment that the tax shelter ratio for 
the investment may be greater than 2 to 1 under one arrangement for 
financing the purchase of an interest by an investor, but would be 2 to 
1 or less under an alternative financing arrangement, does the 
investment satisfy the tax shelter ratio requirement of A-4 (I) of this 
section.
    A-16. Yes. An investment satisfies the tax shelter ratio requirement 
of A-4 (I) of this section if a person could reasonably infer from the 
representations made or to be made that the tax shelter ratio for any 
person may be greater than 2 to 1 as of the close of any one of the 
first five years. The tax shelter ratio requirement is met if the tax 
shelter ratio may exceed 2 to 1 under any type of financing arrangement 
that is or will be represented as being available to investors.

              Investments Subject to Securities Regulation

    Q-17. What is an investment that is required to be registered under 
a federal law regulating securities?
    A-17. An investment required to be registered under a federal law 
regulating securities is any public offering of an investment that is 
required to be registered under the Securities Act of 1933 (1933 Act), 
the Investment Company Act of 1940, or any other federal law regulating 
securities. An investment is required to be registered under the 1933 
Act, the Investment Company

[[Page 152]]

Act, or any other federal law regulating securities, if failure to 
register the investment would result in a violations of the applicable 
federal law, whether or not the investment has in fact been registered 
and, if proper notice has not been filed, whether or not the investment 
could have been sold pursuant to an exemption listed in A-19 of this 
section if such notice had been filed.
    Q-18. What is an investment required to be registered under a state 
law regulating securities?
    A-18. An investment required to be registered under a state law 
regulating securities is any investment required to be registered under 
a blue sky law or other similar state statute regulating securities. The 
term ``state'' includes the 50 states, the District of Columbia, and 
possessions of the United States.
    Q-19. What is an investment sold pursuant to an exemption from 
registration requiring the filing of a notice with a federal agency 
regulating the offering or sale of securities?
    A-19. An investment sold pursuant to an exemption from registration 
requiring the filing of a notice with such a federal agency is any 
investment that is sold pursuant to an exemption from registration 
requiring the filing or submission of a notice or other document with 
the Securities and Exchange Commission or any other federal agency 
regulating the offering or sale of securities, including the following 
exemptions (and applicable filing):
    (1) Regulation A, as promulgated under section (3)(b) of the 1933 
Act (Form 1(A)),
    (2) Regulation B, as promulgated under section 3(b) of the 1933 Act 
(Schedules A through F),
    (3) Regulation D, as promulgated under sections (3)(b) and 4(2) of 
the 1933 Act (Form D), and
    (4) Any other statutory or regulatory exemption from registration 
requiring the filing or submission of a notice or other document.
    Q-20. What is an investment sold pursuant to an exemption from 
registration requiring the filing of a notice with a state agency 
regulating the offering or sale of securities?
    A-20. An investment sold pursuant to an exemption from registration 
requiring the filing of a notice with such a state agency is any 
investment sold pursuant to an exemption under a blue sky law or other 
similar state statutory or regulatory scheme that requires the filing or 
submission of a notice or other document with such a state agency. See 
A-18 of this section for the definition of state.

                         Substantial Investment

    Q-21. What is a substantial investment?
    A-21. An investment is a substantial investment if the aggregate 
amount that may be offered for sale to all investors exceeds $250,000 
and 5 or more investors are expected. The aggregate amount offered for 
sale is the aggregate amount to be received from the sale of interests 
in the investment and includes all cash, the fair market value of all 
property contributed, and the principal amount of all indebtedness 
received in exchange for interests in the investment, regardless of 
whether the proceeds of the indebtedness are included in the investment 
base under A-14 of this section. For purposes of determining whether 5 
or more investors are expected in an investment involving real property 
(and related personal property) that is used as a farm (as defined in 
section 2032A(e)(4)) for farming purposes (as defined in section 
2032A(e)(5)), interests in the investment expected to be held by a 
husband and wife, their children and parents, and the spouses of their 
children (or any of them) will be treated as if the interests were to be 
held by one investor. Thus, for example, interests in a farm that are 
offered to two brothers and their wives would be treated as interests 
offered to one investor. Such an investment could be a substantial 
investment only if four or more persons who were not members of the 
family were expected to be investors in the farm.
    Q-22. Will an investment be considered a substantial investment if 
the investment involves a number of parts each including fewer than 5 
investors or an aggregate amount of $250,000 or less?
    A-22. Yes, under the circumstances described in this A-22. For 
purposes of determining whether investments are

[[Page 153]]

parts of a substantial investment, similar investments offered by the 
same person or related persons (as defined in section 168(e)(4)) are 
aggregated together. Investments are considered similar if they involve 
similar principal business assets and similar plans or arrangements. 
Investments that include no business assets will be considered similar 
if they involve similar plans or arrangements.
    Similar investments are aggregated solely for the purpose of 
determining whether investments involving fewer than 5 investors or an 
aggregate amount of $250,000 or less are substantial investments. For 
this purpose, similar investments are aggregated even though some, but 
not all, of the investments are (i) required to be registered under a 
Federal or State law regulating securities or are sold pursuant to an 
exemption from securities registration requiring the filing of a notice 
with a Federal or State agency regulating the offering or sale of 
securities (i.e., required to be registered as tax shelters whether or 
not a substantial investment) or (ii) substantial investments without 
regard to aggregation.
    Assume, for example, that a person develops similar arrangements 
involving 8 different partnerships, each investing in a separate but 
similar asset (such as a separate master recording or separate piece of 
similar real estate), each with a different general partner and each 
with 3 different limited partners. Assume further that the arrangements 
of all the partnerships are similar. These partnerships involving 
similar arrangements and similar assets would be aggregated together. 
Thus, if each partner is expected to invest $11,000, there will be 32 
investors (1 general partner plus 3 limited partners times 8 
partnerships) and an aggregate investment of $352,000 (32 partners times 
$11,000). Accordingly, each partnership will constitute part of a 
substantial investment. If representations are made that $1,000 in tax 
credits and $3,000 in deductions are available to each limited partner 
in the first year and $10,000 of the cash invested was expected to be 
the proceeds of a loan arranged by the organizer, the tax shelter ratio 
as of the close of the first year (assuming there are no deductions or 
credits typically associated with such investment, as described in A-9 
of this section) would be 5 to 1 ($5,000 in total tax benefits and 
$1,000 investment base). Accordingly, the organizer would be required to 
register the partnerships with the Internal Revenue Service.
    Q-23. If an investment involving fewer than 5 investors or an 
aggregate amount of $250,000 or less is offered for sale and, at the 
time of the offering, it is not known (and there is no reason to know) 
that subsequent similar investments will be offered by the person who 
made the first offering (or a related person), will subsequent similar 
investments offered by that person (or a related person) be aggregated 
with the first investment for purposes of determining whether the 
investments constitute a substantial investment?
    A-23. No. However, a tax shelter organizer will be presumed to have 
known of any similar investments (as defined in A-22 of this section) 
offered during the 12 months following the first offering of an 
investment.

                Exceptions From Tax Shelter Registration

    Q-24. Are there any investments that will not be subject to tax 
shelter registration even if they satisfy the requirements of a tax 
shelter (as defined in A-4 of this section)?
    A-24. Yes. The following investments are not subject to tax shelter 
registration:
    (1) Sales of residences primarily to persons who are expected to use 
the residences as their principal place of residence,
    (2) Sales or leases or tangible personal property (other than master 
sound recordings, motion picture or television films, videotapes, 
lithograph plates, or other property relating to a literary, musical, or 
artistic composition) by the manufacturer (or a member of an affiliated 
group, within the meaning of section 1502, including the manufacturer) 
of the property primarily to persons who are expected to use the 
property in their principal active trade or business (see, however, A-32 
and A-46 of this section for the additional rules applicable to a 
purchaser of property described in this A-24 who

[[Page 154]]

organizes an investment involving the property),
    (3) Any other investment as specified by the Secretary in a rule-
related notice published in the Federal Register.
    Q-24A. Under what other circumstances are particular sales or leases 
of tangible personal property to certain persons or the performance of 
particular services for certain persons exempt from tax shelter 
registration?
    A-24A. A person who, in the ordinary course of a trade or business, 
sells or leases tangible personal property (other than collectibles (as 
defined in section 408(m)(2)), master sound recordings, motion picture 
or television films, videotapes, lithograph plates, or other property 
that includes or relates to a literary, musical or artistic composition) 
to a purchaser or lessee who is reasonably expected to use the property 
either for a personal use or in the purchaser's or lessee's principal 
active trade or business is not required for any purpose to treat such a 
purchaser or lessee as an investor in a tax shelter. Property may be 
reasonably expected to be used by a purchaser or lessee for personal use 
only if sold or leased to the purchaser or lessee in a quantity that is 
customary for such use. Similarly, a person who performs services for 
another person in connection with the principal active trade or business 
of the recipient of the services or for the recipient's personal use is 
not required to treat the recipient as an investor in a tax shelter. 
Persons who are not reasonably expected to use property or services 
either in their principal active trade or business or for personal use 
must be treated as tax shelter investors in the event the sales, leases, 
or performance of services otherwise constitute a tax shelter.
    Assume, for example, that an organizer forms Z corporation to feed 
cattle and to provide services in connection with the cattle feeding 
operations. Z will agree to serve customers with a minimum of 200 head 
of cattle. The fee for the services is $20 per head. Feed for cattle 
will cost $280 per head. Z represents that the service fee and the cost 
of the feed may be financed by $5,000 of cash and $55,000 of proceeds of 
a revolving recourse note that Z has arranged be available. Z provides 
its services to 100 customers. Ninety-five of the customers are persons 
whose principal active trade or business is reasonably expected to be 
farming (as defined in section 464(e)(1)). Five of the customers are not 
reasonably expected to engage in farming as their principal active trade 
or business. Although all the individual investments involve similar 
principal business assets and similar plans or arrangements, only the 5 
customers who are not reasonably expected to be in the principal active 
trade or business of farming will be treated as investors in a tax 
shelter and aggregated to determine whether a substantial investment 
exists. Thus, there will be 5 investors and an aggregate investment of 
$300,000. If representations are made that the service fee and the cost 
of the feed are tax deductible, the tax shelter ratio (assuming there 
are no deductions or credits typically associated with such an 
investment, as described in A-9 of this section) would be 12 to 1 
($60,000 in total tax benefits and $5,000 investment base) and the 
organizer would be required to register the five aggregated feeding 
arrangements as a tax shelter. The registration number of the tax 
shelter must be provided to the five customers treated as investors in 
the tax shelter, but would not be required to be furnished to the 
customers whose principal active trade or business is reasonably 
expected to be farming.

               Persons Required To Register a Tax Shelter

    Q-25. Who has the legal obligation to register a tax shelter?
    A-25. A tax shelter organizer is obligated to register the tax 
shelter.
    Q-26. What is the definition of tax shelter organizer?
    A-26. Several categories of persons may be tax shelter organizers. 
In general, the term tax shelter organizer means a person principally 
responsible for organizing a tax shelter. If a person principally 
responsible for organizing a tax shelter has not registered the tax 
shelter by the day on which interests in the shelter are first offered 
for sale, any other person who participated in the organization of the 
tax shelter will be treated as a tax shelter organizer. If

[[Page 155]]

neither a person principally responsible for organizing the tax shelter 
nor any other person who participated in the organization of a tax 
shelter has registered the tax shelter by the day on which interests in 
the tax shelter are first offered for sale, then any person who 
participates in the management of the tax shelter at a time when the tax 
shelter is not registered will be treated as a tax shelter organizer. 
Finally, if a person participates in the sale of a tax shelter at a time 
when the person knows or has reason to know that a tax shelter has not 
been registered, that person will be treated as a tax shelter organizer. 
See A-38 of this section for rules relating to the execution of an 
agreement among persons who may be treated as tax shelter organizers to 
designate one person to register a tax shelter.
    Q-27. Who is a person principally responsible for organizing a tax 
shelter?
    A-27. A person principally responsible for organizing a tax shelter 
(``principal organizer'') is any person who discovers, creates, 
investigates, or initiates the investment, devises the business or 
financial plans for the investment, or carries out those plans through 
negotiations or transactions with others.
    Q-28. What constitutes participation in the organization of a tax 
shelter?
    A-28. Participation in the organization of a tax shelter includes 
the performance of any act (directly or through an agent) related to the 
establishment of the tax shelter, including the following:
    (1) Preparation of any document establishing the tax shelter (for 
example, articles of incorporation, a trust instrument, or a partnership 
agreement);
    (2) Preparation of any document in connection with the registration 
(or exemption from registration) of the tax shelter with any federal, 
state, or local government body;
    (3) Preparation of a prospectus, offering memorandum, financial 
statement, or other statement describing the tax shelter;
    (4) Preparation of a tax or other legal opinion relating to the tax 
shelter;
    (5) Preparation of an appraisal relating to the tax shelter;
    (6) Negotiation or other participation on behalf of the tax shelter 
in the purchase of any property relating to the tax shelter.
    Q-29. What constitutes participation in the management of a tax 
shelter?
    A-29. Participation in the management of a tax shelter includes 
managing the assets of the tax shelter, directing the business activity 
of the tax shelter, or, depending on the form of the tax shelter, acting 
as a general partner who actively participates in the management of a 
partnership, a trustee of a trust, a director or an officer of a 
corporation (including a corporate general partner of a partnership), or 
performing activities similar to those performed by such a general 
partner, a trustee, a director, or an officer.
    Q-30. Will the performance of any act described in A-27 through A-29 
of this section constitute participation in the organization or 
management of a tax shelter if the person performing the act is 
unrelated to the tax shelter (or any principal organizer of the tax 
shelter) and does not participate in the entrepreneurial risks or 
benefits of the tax shelter?
    A-30. No. The performance of an act described in A-27 through A-29 
of this section will not constitute participation in the organization or 
management of a tax shelter unless the person performing the act is 
related to the tax shelter (or any principal organizer of the tax 
shelter) or the person participates in the entrepreneurial risks or 
benefits of the tax shelter. A person will be considered related to a 
tax shelter if the person is related to the tax shelter or a principal 
organizer of the tax shelter within the meaning of section 168(e)(4) or 
is employed by the tax shelter or a principal organizer of the tax 
shelter or has an interest (other than an interest as a creditor) in the 
tax shelter. A person will be considered a participant in the 
entrepreneurial risks or benefits of a tax shelter if the person's 
compensation for performing an act described in A-27 through A-29 of 
this section is contingent on any matter relating to the tax shelter 
(e.g., the compensation is based in whole or in part upon (i) whether 
interests in the tax shelter are actually sold or (ii) the

[[Page 156]]

number or value of the units in the tax shelter that are sold), or if 
the person will receive an interest in the tax shelter as part or all of 
the person's compensation.
    For example, assume that A forms Z partnership, a tax shelter for 
which registration is required. Z hires the X law firm, none of the 
partners of which is related to the tax shelter, to prepare the 
documents necessary to register the offering of Z securities with the 
Securities and Exchange Commission. X charges $100 an hour for its 
services in connection with the preparation of the necessary documents, 
and payment of the fee is not contingent. X will not be treated as a 
participant in the organization of the tax shelter. If, however, X were 
to charge a fee equal to 1 percent of the value of the units in the tax 
shelter that are sold, X would be considered a participant in the 
organization of the shelter.
    As another example, assume that individual C is an attorney employed 
by W corporation, the corporate general partner and principal organizer 
of Z, and that C prepares the documents necessary to register the tax 
shelter with the Securities and Exchange Commission. C will be treated 
as having participated in the organization of the tax shelter regardless 
of the way in which C's compensation is structured, because C, as an 
employee, is related to the principal organizer of the tax shelter.
    Q-31. What constitutes participation in the sale of a tax shelter?
    A-31. Participation in the sale of a tax shelter includes any 
marketing activities (directly or through an agent) with respect to an 
investment, including the following:
    (1) Direct contact with a prospective purchaser of an interest, or 
with a representative or agent of a prospective purchaser, but only if 
the contract relates to the possible purchase of an interest in the tax 
shelter;
    (2) Solicitation of investors using the mail, telephone, or other 
means, or by placing an advertisement for the tax shelter in a 
newspaper, magazine, or other publication or medium;
    (3) Instructing or advising salespersons regarding the tax shelter 
or sales presentations.
    Q-32. May persons be treated as tax shelter organizers if such 
persons do not make any representations of tax benefits to investors?
    A-32. Yes. If a person described in A-26 of this section knows or 
has reason to know that representations of tax benefits have been made, 
that person may be treated as a tax shelter organizer. For example, a 
participant in the sale of a tax shelter may know or have reason to know 
that representations of tax benefits have been made by the principal 
organizer or others who participate in the organization of the tax 
shelter. In addition, a person who acquires property from a manufacturer 
in a transaction exempt from tax shelter registration under A-24 of this 
section and who organizes an investment involving the property may know 
or have reason to know of any representation of tax benefits made by the 
manufacturer.
    Q-33. If a person performs support services such as typing, 
photocopying, or printing for a tax shelter (or a tax shelter organizer) 
or performs other ministerial functions for the tax shelter (or a tax 
shelter organizer), may the person be considered to have participated in 
the organization, management, or sale of the tax shelter?
    A-33. No. Merely performing support services or ministerial 
functions will not be considered participation in the organization, 
management, or sale of a tax shelter.

    Circumstances Under Which Tax Shelter Organizers Are Required To 
                         Register a Tax Shelter

    Q-34. When is a principal organizer or a person who participates in 
the organization of a tax shelter required to register a tax shelter?
    A-34. A principal organizer or a person who participates in the 
organization of a tax shelter (i.e., a person who could be treated as a 
tax shelter organizer within the meaning of A-26 of this section) is 
required to register the tax shelter by the day on which the first 
offering for sale of interests in the tax shelter occurs, unless the 
person has signed a designation agreement pursuant to A-38 of this 
section. If a group of persons who could be treated as tax

[[Page 157]]

shelter organizers has signed a designation agreement pursuant to A-38 
of this section, the designated organizer is required to register the 
tax shelter by the day on which the first offering for sale of interests 
in the tax shelter occurs. See A-39 of this section for additional rules 
applicable to tax shelter organizers (other than a designated organizer) 
who have signed a designation agreement.
    Q-35. When is a person who participates in the management of a tax 
shelter (``manager'') required to register a tax shelter?
    A-35. A manager who has not signed a designation agreement pursuant 
to A-38 of this section must register the tax shelter if the manager 
participates in the management of the tax shelter on or after the first 
offering for sale of interests in the tax shelter at a time when the tax 
shelter has not been properly registered (i.e., the manager is treated 
as a tax shelter organizer within the meaning of A-26 of this section). 
Such a manager must register the tax shelter by the day on which the 
first offering for sale of interests in the tax shelter occurs, or by 
the day on which the manager's participation in the management of the 
tax shelter commences, whichever is later. See A-39 of this section for 
rules applicable to a manager who has signed a designation agreement.
    Q-36. When is a person who participates in the sale of a tax shelter 
(``seller'') required to register the tax shelter?
    A-36. A seller who has not signed a designation agreement pursuant 
to A-38 of this section must register the tax shelter if the seller 
participates in the sale of the tax shelter at a time when the seller 
knows or has reason to know that the tax shelter has not been properly 
registered (i.e., the seller is treated as a tax shelter organizer 
within the meaning of A-26 of this section). A seller who has not signed 
a designation agreement will be deemed to have reason to know that the 
tax shelter has not been properly registered if the seller does not 
receive a copy of the Internal Revenue Service tax shelter registration 
notice containing the registration number within the 30-day period after 
the seller first offers interests in the tax shelter for sale. A seller 
must register the tax shelter as soon as practicable after the seller 
first knows or has reason to know that the tax shelter has not been 
properly registered. See A-39 of this section for rules applicable to a 
seller who has signed a designation agreement.
    Q-37. When is a person who acts in more than one capacity with 
respect to a tax shelter required to register the shelter?
    A-37. A person who acts in more than one capacity with respect to a 
tax shelter (i.e., as two or more of the following: principal organizer, 
participant in the organization, manager, or seller) must register the 
tax shelter by the earliest day on which a tax shelter organizer acting 
in any of the person's several capacities would be required to register 
the tax shelter.
    Q-38. May a group of persons who could be treated as tax shelter 
organizers under A-26 of this section designate one person to register 
the tax shelter?
    A-38. Yes. A group of persons who could be treated as tax shelter 
organizers under A-26 of this section may enter into a written agreement 
designating one person as the tax shelter organizer responsible for 
registering the tax shelter (``designated organizer''). The designated 
organizer should ordinarily be a person principally responsible for 
organizing the tax shelter, but may be any person who participates in 
the organization of the tax shelter. Although persons who participate 
only in the sale or management of a tax shelter may sign a designation 
agreement, they may not be the designated organizer. In addition, the 
designated organizer may not be a person who is a resident in a country 
other than the United States. Any person who signs a designation 
agreement, other than the designated organizer, will not be liable for 
failing to register the tax shelter and will not be subject to a 
penalty, even if the designated organizer fails to register the tax 
shelter, unless the person fails to register the tax shelter when such 
registration is required under A-39 of this section. See A-7 of Sec.  
301.6707-1T for additional rules relating to the reasonable cause 
exception

[[Page 158]]

applicable to persons who sign a designation agreement.
    Q-39. Is a tax shelter organizer who has signed a designation 
agreement and who is not the designated organizer required to register 
the tax shelter under any circumstances?
    A-39. Yes. If a tax shelter organizer who has signed a designation 
agreement pursuant to A-38 of this section knows or has reason to know 
on or after the day on which the first offering for sale of interests in 
a tax shelter occurs that the designated organizer failed to register 
the tax shelter, such tax shelter organizer must register the tax 
shelter as soon as practicable after he first knows or has reason to 
know of the failure. A tax shelter organizer who has signed a 
designation agreement is deemed to have reason to know that the 
designated organizer has failed to register the tax shelter if the tax 
shelter organizer does not receive a copy of the Internal Revenue 
Service registration notice containing the registration number from the 
designated organizer within the 60-day period after the day on which the 
first offering for sale of interests in the tax shelter occurs (or the 
person signs the designation agreement, if later). See A-41 of this 
section for the requirement that the designated organizer provide a copy 
of the registration notice and number to persons who have signed the 
designation agreement.

                       Registration--General Rules

    Q-40. By what date must a tax shelter be registered?
    A-40. A tax shelter must be registered not later than the day on 
which the first offering for sale of an interest in the tax shelter 
occurs.
    Q-41. Is a tax shelter organizer (including a designated organizer) 
who registers a tax shelter responsible for performing any act with 
respect to tax shelter registration other than registering the tax 
shelter?
    A-41. Yes. A tax shelter organizer (including a designated 
organizer) who registers a tax shelter must provide a copy of the 
Internal Revenue Service registration notice containing the registration 
number within 7 days after the notice is received from the Internal 
Revenue Service to the principal organizer (if a different person) and 
to any persons who the tax shelter organizer knows or has reason to know 
are participating in the sale of interests in the tax shelter (if such 
persons begin to participate after the registration number is received, 
they must be provided the notice within 7 days after they commence their 
participation). In addition, a designated organizer must provide a copy 
of the notice within 7 days after it is received to all persons who have 
signed the designation agreement.
    Q-42. What is the sale of an interest in a tax shelter?
    A-42. The sale of an interest in a tax shelter includes the sale of 
property, or any interest in property, the entry into a leasing 
arrangement, a consulting, management or other agreement for the 
performance of services, or the sale or entry into any other plan, 
investment, or arrangement.
    Q-43. What does the term ``offering for sale'' mean?
    A-43. The term ``offering for sale'' means making any 
representation, whether oral or written, relating to participation in a 
tax shelter as an investor. The term includes any advertisement relating 
to the tax shelter and any mail, telephonic, or other contact with 
prospective investors. A representation relating to participation in a 
tax shelter will be considered an offering for sale of an interest in 
the tax shelter even though there is included in the representation an 
explicit statement that the representation does not constitute an offer 
to sell or a solicitation of an offer to buy an interest in the tax 
shelter. In determining whether an offering for sale of an interest has 
occurred, federal and state laws regulating securities are not 
controlling.
    Q-44. After a tax shelter has been registered, must it be registered 
again each year that it continues to be offered for sale?
    A-44. No. Registration is effective for the year in which first 
accomplished and all subsequent years.
    Q-45. If the facts relating to a tax shelter change after the tax 
shelter has been registered, must the tax shelter be registered again or 
must an amended application for registration be filed by the tax shelter 
organizer?

[[Page 159]]

    A-45. No. The tax shelter organizer, however, is permitted to file 
an amended application if a material change in facts occurs after the 
initial registration. A material change in facts is--
    (1) A change in the identifying information relating to the tax 
shelter or tax shelter organizer,
    (2) The acquisition or construction of a principal asset not 
reported on the initial application for registration,
    (3) A change in the method of financing a minimum investment unit, 
or
    (4) A change in the principal business activity.
    In addition, a change in any tax shelter ratio reported on the 
initial application for registration that increases or decreases the 
reciprocal of the tax shelter ratio (i.e., the fraction in which the 
amount of the applicable investment base is the numerator and the amount 
of the applicable deductions and credits is the denominator) by 50 
percent or more is a material change in facts. For example, if the tax 
shelter ratio increases from 2 to 1 to 4 to 1, the reciprocal of the tax 
shelter ratio decreases from \1/2\ to \1/4\, a 50-percent decrease. 
Similarly, if the tax shelter ratio decreases from 6 to 1 to 4 to 1, the 
reciprocal of the tax shelter ratio increases from \1/6\ to \1/4\, a 50-
percent increase. In either case, there is a material change in facts 
and an amended application could be filed.
    Q-45A. What information should be included on an amended application 
for registration?
    A-45A. The tax shelter organizer must include the identifying 
information requested on Form 8264, Application for Registration of a 
Tax Shelter, and the tax shelter registration number that has been 
assigned to the tax shelter. In addition, the tax shelter organizer 
should include any other information requested on Form 8364(1) that has 
changed since the tax shelter was registered, or (2) that the tax 
shelter organizer did not know at the time the tax shelter was 
registered but has learned of since the registration.
    For example, assume that A organizes partnership L, a blind pool 
that will invest in real estate. Before the real estate is identified or 
acquired, interests in L will be offered to the public in an offering 
that must be registered with the Securities and Exchange Commission. 
Although A does not know what real estate L will acquire and therefore 
is unable to calculate the tax shelter ratio with certainty, A concludes 
(based on representations made or to be made) that the tax shelter ratio 
will exceed 2 to 1 as to some of the investors. Accordingly, A registers 
L as a tax shelter. A attaches a statement to the application for 
registration, explaining that L is a blind pool organized to invest in 
real estate, but that L has not yet acquired any real estate. In 
addition, A attaches a statement explaining that although the tax 
shelter ratio is expected to exceed 2 to 1, A cannot compute the tax 
shelter ratio with certainty because L has not yet acquired any real 
estate. Several months after L is registered, L acquires a shopping 
center. A may file an amended application for registration. In addition 
to reporting the identifying information and the tax shelter 
registration number on the amended application, A should report the 
shopping center as the principal asset and the recomputed tax shelter 
ratio.
    As another example, assume that C organizes a limited partnership 
that is a tax shelter. On the application for registration, C reports 
that the tax shelter ratio is 2.2 to 1. After the partnership has been 
registered, C finds that the partnership is unable to attract sufficient 
investors. To make investing in the partnership more attractive, C 
decides to offer financing for the purchase or interests in the 
partnership. As a result of the change in financing, the tax shelter 
ratio will be 5 to 1. Because there is a change in financing and a 
change in the tax shelter ratio that decreases the reciprocal of the tax 
shelter ratio by 50 percent or more, C may file an amended application 
for registration. In addition to reporting the identifying information 
and the tax shelter registration number on the amended application, C 
should report the recomputed tax shelter ratio and information relating 
to the change in financing.
    Q-46. If assets constituting a tax shelter are sold (``original 
sale'') and, subsequently, either the assets or interests in the assets 
are offered for sale by

[[Page 160]]

the purchaser (``resale''), must the purchaser file a new application 
for registration if the resale is an offering or sale of interests in a 
tax shelter?
    A-46. If the resale constitutes a tax shelter, the purchaser must 
file a new application for registration, unless the tax shelter 
organizer with respect to the original sale is also the tax shelter 
organizer with respect to the resale and the facts pertaining to the 
resale were reflected in the application for registration filed with 
respect to the original sale. For example, assume that A intends to sell 
a building with an estimated fair market value of $2.5 million to a 
group of 5 investors (i.e., a substantial investment, as defined in A-21 
of this section). A also intends to make representations of tax benefits 
attributable to an investment in the building. Based on these 
representations and the investment base, the tax shelter ratio 
attributable to an investment in the building may be greater than 2 to 
1. A therefore files an application for registration relating to the 
building with the Internal Revenue Service. The Internal Revenue Service 
issues a registration number for the investment, and A furnishes the 
registration number to each of the 5 investors in accordance with A-53 
of this section. In an unrelated transaction, the 5 investors decide to 
syndicate the building and to offer interests in the syndicate to 
approximately 500 investors. In connection with this offer, the 
investors expect to make representations concerning tax benefits with 
respect to the syndication. If based on these representations and the 
investment base, the tax shelter ratio may be greater than 2 to 1 for an 
investor in the syndicate, the 5 investors must file an application for 
registration for the syndicate before interests in the syndicate may be 
offered for sale. The investors in the syndicate must be furnished with 
the new registration number and not the registration number issued with 
respect to A. On the other hand, if the original sale and the 
syndication were part of A's plan to sell interests in the building, A 
is a tax shelter organizer with respect to the syndication. If the facts 
pertaining to the syndication were reflected on A's application for 
registration with respect to the original sale, a second application for 
registration would not be required with respect to the syndication. 
However, the investors in the syndicate would have to be furnished with 
the tax shelter registration number issued to A.
    Q-47. When is a tax shelter considered registered?
    A-47. A tax shelter is considered registered when a properly 
completed Form 8264, Application for Registration of a Tax Shelter, is 
filed with the appropriate Internal Revenue Service Center. See A-7 of 
Sec.  301.6111-2T for rules relating to the information required to be 
included on the form, and A-8 of Sec.  301.6707-1T for rules relating to 
the penalty for filing incomplete information.
    Q-48. Must a person registering a tax shelter that is a substantial 
investment only by reason of an aggregation of multiple investments 
under A-22 of this section complete a separate Form 8264 for each 
investment constituting part of the substantial investment?
    A-48. A separate Form 8264 must be completed for each investment 
that differs from the other investments in a substantial investment with 
respect to any of the following:
    (1) Principal asset,
    (2) Accounting methods,
    (3) Federal or state agencies with which the investment is 
registered or with which an exemption notice is filed,
    (4) Methods of financing the purchase of an interest in the 
investment,
    (5) Tax shelter ratio.
    Such aggregated investments, however, are part of a single tax 
shelter.
    Q-49. Do the rules of section 7502 of the Internal Revenue Code, 
regarding timely mailing, apply to the filing of registration forms?
    A-49. Yes.
    Q-50. After a tax shelter has been registered, may representations 
that the investment has been registered with the Internal Revenue 
Service be made to potential investors?
    A-50. Investors may be informed that the investment has been 
registered with the Internal Revenue Service. Investors also must be 
informed, however, that registration does not imply that the Internal 
Revenue Service has reviewed, examined, or approved the

[[Page 161]]

investment or the claimed tax benefits. The disclaimer must be 
substantially in the form provided below:
    ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS 
INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR 
APPROVED BY THE INTERNAL REVENUE SERVICE.
    See A-53 of this section for rules relating to the legend that must 
be included on any statement on which the tax shelter registration 
number is furnished to investors.

        Furnishing Tax Shelter Registration Numbers to Investors

    Q-51. Who must furnish investors in a tax shelter with the 
registration number of the tax shelter?
    A-51. Any person who sells (or otherwise transfers) an interest in a 
tax shelter is required to furnish the registration number assigned to 
that tax shelter to each person who purchases (or otherwise acquires) an 
interest in that tax shelter from the seller or transferor. For example, 
X, a tax shelter organizer, sells an interest in a tax shelter to A. One 
year later A sells A's interest in the shelter to B. X must furnish the 
tax shelter registration number to A, and A must furnish the number to 
B. If B sells or otherwise transfers the interest (by gift, for 
example), B must furnish the number to the purchaser or transferee of 
B's interest in the tax shelter.
    Q-52. When must the registration number be furnished to purchasers 
of interests in the tax shelter?
    A-52. The person who sells (or otherwise transfers) an interest in a 
tax shelter must furnish the registration number to the purchaser (or 
transferee) at the time of sale (or transfer) of the interest (or, if 
later, within 20 days after the seller or transferor receives the 
registration number). If the registration number is not furnished at the 
time of the sale (or other transfer), the seller (or transferor) must 
furnish the statement described in A-54 to the purchaser (or transferee) 
at the time of the sale (or other transfer). If interests in a tax 
shelter were sold before September 1, 1984, all investors who acquired 
their interests in the tax shelter before September 1, 1984, must be 
furnished with the registration number of the tax shelter by December 
31, 1984. The registration number will be considered furnished to the 
investor if it is mailed to the investor at the last address of the 
investor known to the person required to furnish the number.
    Q-53. How is a seller or transferor of an interest in a tax shelter 
required to furnish the registration number to investors?
    A-53. The person who sells (or otherwise transfers) an interest in a 
tax shelter must furnish the registration number of the tax shelter to 
the tax shelter to the purchaser (or transferee) on a written statement. 
The written statement shall show the name, registration number, and 
taxpayer identification number of the tax shelter, and include a 
prominent legend in bold and conspicuous type stating that the 
registration number must be included on any return on which the investor 
claims any deduction, loss, credit, or other tax benefit, or reports any 
income, by reason of the tax shelter. The statment must also include a 
prominent legend in bold and conspicuous type stating that the issuance 
of the registration number does not indicate that the Internal Revenue 
Service has reviewed, examined, or approved the investment or the 
claimed tax benefits. The statement shall be substantially in the form 
provided below:
    You have acquired an interest in [name and address of tax shelter] 
whose taxpayer identification number is [if any]. The Internal Revenue 
Service has issued [name of tax shelter] the following tax shelter 
registration number: [Number]
    YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE 
SERVICE, IF YOU CLAIM ANY DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT 
OR REPORT ANY INCOME BY REASON OR YOUR INVESTMENT IN [NAME OF TAX 
SHELTER].
    You must report the registration number (as well as the name, and 
taxpayer identification number of [name of tax shelter]) on Form 8271.
    FORM 8271 MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM THE 
DEDUCTION, LOSS, CREDIT, OR

[[Page 162]]

OTHER TAX BENEFIT OR REPORT ANY INCOME.
    ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS 
INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR 
APPROVED BY THE INTERNAL REVENUE SERVICE.
    This statement may be modified as necessary if the tax shelter is 
not a separate entity (e.g., certain Schedule F or Schedule C 
activities) or has no name or taxpayer identification number.
    Q-54. If a registration number has not been received by a seller (or 
transferor) from the person who registered the tax shelter by the time 
interests in the tax shelter are sold (or otherwise transferred), must 
the seller (or transferor) of the interests furnish the purchaser (or 
transferee) with any information regarding the registration?
    A-54. Yes. At the time of the sale (or other transfer) the seller 
(or other transferor) must furnish the purchaser (or transferee) with a 
written statement in substantially the form prescribed in A-53 of this 
section, except that the second sentence of the form prescribed in A-53 
shall be replaced by a statement in the form provided below:
    On behalf of [name of tax shelter], [name of tax shelter organizer 
who has applied for registration] has applied to the Internal Revenue 
Service for a tax shelter registration number. The number will be 
furnished to you when it is received.

            Including the Registration Number on Tax Returns

    Q-55. Is an investor required to report the registration number of a 
tax shelter in which the investor has acquired an interest to the 
Internal Revenue Service?
    A-55. Yes. Any person claiming any deduction, loss, credit, or other 
tax benefit by reason of a tax shelter must report the registration 
number of the tax shelter on Form 8271, Investor Reporting of Tax 
Shelter Registration Number, which must be attached to the return on 
which any deduction, loss credit, or other tax benefit attributable to 
the tax shelter is claimed. For purposes of determining whether the tax 
shelter registration number must be reported by an investor, income 
attributable to an investment, such as a partner's distributive share of 
income, constitutes a deduction or tax benefit that is claimed, because 
gross deductions and other tax benefits are included in the net income 
reported by the investor. Thus, the registration number also must be 
reported on any return on which an investor reports any income 
attributable to a tax shelter.
    Q-56. What should the investor do if the investor has received a 
notice that a registration number for the tax shelter has been applied 
for, but the investor has not received the registration number by the 
time the investor files a return on which a deduction, loss credit, 
other tax benefit, or income attributable to the tax shelter is 
included?
    A-56. The investor must attach to the return a Form 8271 with the 
words ``Applied For'' written in the space for the registration number 
and must include on the Form 8271 the name and taxpayer identification 
number (if any) of the tax shelter and the name of the person who has 
applied for registration of the tax shelter.
    Q-57. Does the requirement to include the tax shelter registration 
number on a return apply to applications for tentative refund (Form 1045 
and Form 1139) and amended returns (Form 1040X, Form 1120X)?
    A-57. Yes. A completed Form 8271 must be attached to any such return 
on which any deduction, loss, credit, other tax benefit, or income 
relating to a tax shelter is included.

                      Projected Income Investments

    Q-57A. Are the registration requirements suspended with respect to 
any tax shelters?
    A-57A. Yes. If a tax shelter is a projected income investment, it is 
not required to be registered before the first offering for sale of an 
interest in the tax shelters occurs, but is subject only to the 
registration requirements set forth in A-57H through A-57J of this 
section. A tax shelter is a projected income investment if--
    (a) The tax shelter is not expected to reduce the cumulative tax 
liability of

[[Page 163]]

any investor for any year during the 5-year period described in A-4 (I) 
of this section; and
    (b) The assets of the tax shelter do not include or relate to any 
property described in A-57E of this section.
    Q-57B. Under what circumstances does a tax shelter satisfy the 
requirement of paragraph (a) of A-57A of this section?
    A-57B. A tax shelter is not expected to reduce the cumulative tax 
liability of any investor for any year during the 5-year period 
described in A-4 (I) of this section only if--
    (a) A written financial projection or other written representation 
that is provided to investors before the sale of interests in the 
investment states (or leads a reasonable investor to believe) that the 
investment will not reduce the cumulative tax liability of any investor 
with respect to any year (within the meaning of A-7 of this section) in 
such 5-year period; and
    (b) No written or oral projections or representations, other than 
those related to circumstances that are highly unlikely to occur, state 
(or lead a reasonable investor to believe) that the investment may 
reduce the cumulative tax liability of any investor with respect to any 
such year.

Thus, a tax shelter for which there are multiple written or oral 
financial projections or other representations is not a projected income 
investment if any such projection or representation that relates to 
circumstances that are not highly unlikely to occur states (or leads a 
reasonable investor to believe) that the investment may reduce the 
cumulative tax liability of any investor. See A-57D and A-57F of this 
section for rules relating to financial projections or other 
representations that are not made in good faith, that are not based on 
reasonable economic and business assumptions, or that relate to 
circumstances that are highly unlikely.
    Q-57C. When does an investment reduce the cumulative tax liability 
of an investor?
    A-57C. (a) An investment reduces the cumulative tax liability of an 
investor with respect to a year during the 5-year period described in A-
4 (I) of this section if, as of the close of such year, (i) cumulative 
projected deductions for the investor exceed cumulative projected income 
for the investor, or (ii) cumulative projected credits for the investor 
exceed cumulative projected tax liability (without regard to credits) 
for the investor.
    (b) The cumulative projected deductions for an investor as of the 
close of a year are the gross deductions of the investor with respect to 
the investment, for all periods up to (and including) the end of such 
year, that are included in the financial projection or upon which the 
representation is based. The deductions with respect to an investment 
include all deductions explicitly represented as being allowable and all 
deductions typically associated (within the meaning of A-9 of this 
section) with the investment. Therefore, interest to be paid by the 
investor that is taken into account in determining the tax shelter ratio 
of the investment (see A-11 of this section) is treated as a deduction 
with respect to the investment.
    (c) The cumulative projected income for an investor as of the close 
of a year is the gross income of the investor with respect to the 
investment, for all periods up to (and including) the end of such year, 
that is included in the financial projection or upon which the 
representation is based. For this purpose, income attributable to cash, 
cash equivalents, or marketable securities (within the meaning of A-14 
(4) of this section) may not be treated as income from the investment.
    (d) The cumulative projected credits for an investor as of the close 
of a year are the gross credits of the investor with respect to the 
investment, for all periods up to (and including) the close of such 
year, that are included in the financial projection or upon which the 
representation is based. The credits with respect to an investment 
include all credits explicitly represented as being allowable and all 
credits typically associated (within the meaning of A-9 of this section) 
with the investment.
    (e) The cumulative projected tax liability (without regard to 
credits) for an investor as of the close of a year is 50 percent of the 
excess of cumulative projected income for the investor over cumulative 
projected deductions for

[[Page 164]]

the investor with respect to the investment as of the close of such 
year.
    (f) The following examples illustrate the application of the 
principles of this A-57C:

    Example 1. The promotional material with respect to a tax shelter 
includes a written financial projection indicating that the expected 
income of the investment in each of its first 5 years is $800,000. In 
subsequent oral discussions, investors are advised that, in certain 
circumstances that are not highly unlikely, the income expected from the 
investment may be as little as $500,000 per year. The subsequent oral 
discussions are taken into account in determining whether any 
projections or representations state or lead a reasonable investor to 
believe that the investment may reduce the cumulative tax liability of 
any investor. Thus, if the written financial projections indicate that 
the gross deductions attributable to the investment in each of its first 
5 years are expected to be $600,000 and the subsequent oral discussions 
do not indicate that the amount of those deductions will change under 
the circumstances in which the income expected may be as little as 
$500,000, the subsequent oral discussions taken together with the 
written financial projections state (or lead a reasonable investor to 
believe) that the cumulative tax liability of an investor may be reduced 
(i.e., the subsequent oral discussions (taken together with the 
projections) state or lead a reasonable investor to believe that 
cumulative projected deductions may exceed cumulative projected income 
under circumstances that are not highly unlikely). Accordingly, under 
paragraph (b) of A-57B of this section, the tax shelter would not 
qualify as a projected income investment.
    Example 2. The written promotional material with respect to a tax 
shelter states that certain deductions are allowable to an investor 
(without specifying their amount), but there is no written statement 
relating to the amount of income expected from the investment. Because 
there is no written financial projection or other written representation 
that states or leads a reasonable investor to believe that the 
investment will not reduce the investor's cumulative tax liability 
(i.e., the cumulative projected deductions, although not specified in 
the projections, may exceed the cumulative projected income (0)), the 
requirement of paragraph (a) of A-57B of this section would not be 
satisifed. The result in this example would be the same if there were 
only oral representations that the income to be derived from the 
investment would exceed the deductions with respect to the investment, 
because there would be no written statement as required by paragraph (a) 
of A-57B of this section. The tax shelter in this case would qualify as 
a projected income investment, however, if the written promotional 
material contains good-faith representations based on reasonable 
economic and business assumptions that state or lead reasonable 
investors to believe that the cumulative projected income from the 
investment will exceed the cumulative projected deductions allowable 
with respect to the investment for each year in the 5-year period, even 
though the amounts of income and deductions are not specified.
    Example 3. The written promotional material with respect to a tax 
shelter includes a good-faith financial projection for the first 5 years 
of the investment. Based on reasonable economic and business 
assumptions, the projection indicates that the expected net income of 
the investment in each of its first 4 years is $100,000 ($500,000 of 
gross income and $400,000 of gross deductions), but as a result of the 
anticipated acquisition of new business assets a loss of $20,000 is 
expected in the fifth year of the investment ($500,000 of gross income 
and $520,000 of gross deductions). The projection also indicates that a 
credit of $50,000 is expected in the fifth year of the investment. Such 
a written financial projection would be considered to state that the 
investment will not reduce the cumulative tax liability of any investor 
with respect to any year in the 5-year period described in A-4 (I) of 
this section. Although a loss and a credit are projected in the fifth 
year of the investment, as of the close of such year, cumulative 
projected income ($2,500,000) exceeds cumulative projected deductions 
($2,120,000), and cumulative projected tax liability (without regard to 
credits) ($380,000 x 50 percent = $190,000) exceeds cumulative projected 
credits ($50,000). Assuming no contrary oral or written projections or 
representations are made, the tax shelter would thus be a projected 
income investment.
    Example 4. The written promotional material with respect to a tax 
shelter states that an investor will be entitled to a ``1.5 to 1 write-
off'' in the year of investment. This statement is a representation that 
the investment will reduce the cumulative tax liability of an investor 
with respect to the first year of the investment and, accordingly, the 
investment is not a projected income investment. The result in this 
example would be the same if any ``write-off'' were represented, even if 
the write-off were less than 1.5 to 1.

    Q-57D. Are all financial projections and representations relating to 
the cumulative tax liability of an investor taken into account for 
purposes of A-57B of this section?
    A-57D. (a) No. A financial projection or other representation 
relating to the cumulative tax liability of an investor is not taken 
into account for purposes

[[Page 165]]

of A-57B of this section unless it is made in good faith and is based on 
reasonable economic and business assumptions. In addition, a financial 
projection or other representation is not taken into account if it 
relates to circumstances that are highly unlikely. Moreover, a general 
statement or disclaimer indicating that projected income is not 
guaranteed or otherwise assured, standing alone, is not a projection or 
representation for purposes of paragraph (b) of A-57B of this section.
    (b) The following example illustrates the application of the 
principles of this A-57D:

    Example. The written promotional material with respect to a tax 
shelter contains a representation stating that the investment is 
projected to produce net income for all investors in each of its first 
five years and there are no credits potentially allowable with respect 
to the investment. This statement is based on reasonable economic and 
business assumptions. Such a written representation, if made in good 
faith, would be considered under paragraph (a) of A-57B of this section 
to state that the investment will not reduce the cumulative tax 
liability of any investor with respect to any year in the 5-year period 
described in A-4(I) of this section. In addition, no oral or written 
statements or representations are communicated to investors that would 
indicate under paragraph (b) of A-57B of this section that the 
investment might reduce the cumulative tax liability of any investor 
with respect to any year in the 5-year period.
    Assume the tax shelter organizer has knowledge of certain other 
facts that lead the tax shelter organizer to believe that it is more 
likely than not that the investment will produce a net loss in the first 
year. The representation projecting net income is thus contrary to the 
tax shelter organizer's belief that it is more likely than not that the 
investment will produce a net loss in the first year. Therefore, the 
representation is not made in good faith. Since representations not made 
in good faith are ignored under A-57D, the tax shelter would not be a 
projected income investment. If, on the other hand, the tax shelter 
organizer did not know of the other facts so that the tax shelter 
organizer did not believe that the investment would produce a net loss 
in the first year, the representation projecting income is made in good 
faith. In that case, the tax shelter would be a projected income 
investment.

    Q-57E. What assets may not be held by a projected income investment?
    A-57E. A tax shelter is not a projected income investment if more 
than an incidental amount of its assets include or relate to any 
interest in a collectible (as defined in section 408(m)(2)), a master 
sound recording, motion picture or television film, videotape, 
lithograph plate, copyright, or a literary, musical, or artistic 
composition.
    Q-57F. What are the consequences if financial projections or other 
representations are not made in good faith or are not based on 
reasonable economic and business assumptions?
    A-57F. If a tax shelter is not a projected income investment because 
the financial projections or other representations are not made in good 
faith or are not based on reasonable economic and business assumptions, 
it must be registered not later than the day on which the first offering 
for sale of an interest in the tax shelter occurs. If the tax shelter is 
not registered timely, the tax shelter organizer may be subject to a 
penalty. (See A-1 of Sec.  301.6707-1T.)
    Q-57G. When does a tax shelter cease to be a projected income 
investment?
    A-57G. A tax shelter ceases to be a projected income investment on 
the last day of the first year (as defined in A-7 of this section) in 
the 5-year period described in A-4 (I) of this section for which, for 
any investor, (i) the gross deductions allocable to the investor for 
that year and prior years exceed the gross income allocable to the 
investor for such years, or (ii) the credit allocable to the investor 
for that year and prior years exceed 50 percent of the amount by which 
gross income allocable to the investor exceeds gross deductions 
allocable to the investor for such years. For purposes of determining 
when a tax shelter ceases to be a projected income investment, the tax 
shelter organizer is not required to take into account interest that may 
be incurred by an investor with respect to debt described in A-14 (2) or 
(3) of this section, but is required to take into account interest 
incurred by an investor with respect to debt described in A-14 (1) of 
this section. In addition, the tax shelter organizer may not take into 
account income attributable to cash, cash equivalents, or marketable 
securities (within the meaning of A-14 (4) of this section).

[[Page 166]]

    Q-57H. How does the requirement to register apply with respect to a 
tax shelter that is a projected income investment?
    A-57H. In the case of a tax shelter that is a projected income 
investment, registration is not required unless the tax shelter ceases 
to be a projected income investment under A-57G of this section. If the 
tax shelter ceases to be a projected income investment, the tax shelter 
organizer must register the tax shelter in accordance with the rules set 
forth in A-1 through A-39 and A-41 through A-50 of this section. The tax 
shelter must be registered--
    (a) Within 30 days after the date on which the tax shelter ceases to 
be a projected income investment, and
    (b) Before the date on which the tax shelter or a tax shelter 
organizer sends the investor any schedule of profit or loss, or income, 
deduction, or credit that may be used in preparing the investor's income 
tax return for the taxable year that includes the date on which the tax 
shelter ceases to be a projected income investment. If a tax shelter 
organizer fails to register timely as required by this A-57H, the tax 
shelter organizer may be subject to a penalty. (See A-1 of Sec.  
301.6707-1T.) For example, assume that C is the principal organizer and 
general partner of a limited partnership. Interests in the partnership 
will be offered for sale in a public offering required to be registered 
with the Securities and Exchange Commission. C knows that the tax 
shelter ratio (as defined in A-5 of this section) for the limited 
partners will be 5 to 1. Although C knows the partnership is a tax 
shelter, C does not register the partnership by the day on which the 
first offering for sale of an interest occurs because C believes the 
partnership is a projected income investment. In the second year of the 
partnership, the gross deductions allocable to each of the limited 
partners for the first two years of the partnership exceed the gross 
income allocable to the limited partners in such years. Thus, the 
partnership ceases to be a projected income investment under A-57G of 
this section. Assuming further that C continues as the general partner 
and knowingly fails to register the partnership as a tax shelter within 
the time prescribed in this A-57H, C will be subject to a penalty of 1 
percent of the aggregate amount invested in the partnership. Because 
there is an intentional disregard of the registration requirements, the 
$10,000 limitation will not apply.
    Q-57I. How does the requirement to furnish registration numbers (A-
51 through A-54 of this section) apply in the case of a tax shelter that 
is a projected income investment?
    A-57I. In the case of a tax shelter that is a projected income 
investment, a person who sells or transfers an interest in the tax 
shelter is not required to furnish a registration number under A-51 of 
this section or a notice under A-54 of this section unless the tax 
shelter ceases to be a projected income investment. If the tax shelter 
ceases to be a projected income investment, the tax shelter organizer 
who registers the tax shelter is required to furnish the registration 
number to all persons who the tax shelter organizer knows or has reason 
to know are participating in the sale of interests in the tax shelter 
and to all persons who the tax shelter organizer knows or has reason to 
know have acquired interests in the tax shelter. A person who sold (or 
otherwise transferred) an interest in the tax shelter before the date on 
which the tax shelter ceased to be a projected income investment is 
required to furnish the registration number to the purchaser or 
transferee as provided in A-51 of this section only if the seller or 
transferor knows or has reason to know that the tax shelter has ceased 
to be a projected income investment and that the tax shelter organizer 
who registered the tax shelter has not provided a registration number to 
such purchaser or transferee. In the case of persons who acquired 
interests in the tax shelter before the date on which the tax shelter 
ceased to be a projected income investment, the registration number must 
be provided not later than the date described in paragraph (b) of A-57H 
of this section or, if the tax shelter does not provide any schedule 
described in paragraph (b) of A-57H of this section, within 60 days 
after the date on which the tax shelter ceases to be a projected income 
investment. Thus, for example,

[[Page 167]]

if a tax shelter that ceases to be a projected income investment is a 
partnership, the tax shelter organizer would be required to provide the 
registration number to each partner not later than the date the Schedule 
K-1 for the year in which the tax shelter ceases to be a projected 
income investment is provided to each partner.
    The registration number must be provided in accordance with A-51 and 
A-52 of this section and must be accompanied by a statement explaining 
that the tax shelter has ceases to be a projected income investment and 
instructing the recipient to furnish the registration number to any 
persons to whom the recipient has sold or otherwise transferred 
interests in the tax shelter. A tax shelter organizer who fails to 
provide the registration number as provided in this A-57I may be subject 
to penalties. (See A-12 of Sec.  301.6707-1T.)
    Q-57J. How does the requirement to include the registration number 
on tax returns (A-55 through A-57 of this section) apply in the case of 
a tax shelter that is a projected income investment?
    A-57J. In the case of a tax shelter that is a projected income 
investment, an investor is not required to report a registration number 
on the investor's tax return unless the tax shelter ceases to be a 
projected income investment. If the tax shelter ceases to be a projected 
income investment, the requirements of A-55 through A-57 apply with 
respect to returns for taxable years ending on or after the date on 
which the tax shelter ceases to be a projected income investment.

                             Effective Dates

    Q-58. On what date does the requirement to register a tax shelter 
become effective?
    A-58. In general, a tax shelter must be registered if any interest 
in the tax shelter (other than an interest previously sold to an 
investor) is sold on or after September 1, 1984 (whether or not 
interests in the tax shelter were sold or offered for sale before 
September 1, 1984). The tax shelter must be registered with the Internal 
Revenue Service not later than the first day after August 31, 1984 on 
which an interest in the tax shelter is offered for sale.
    Q-59. By what date must the tax shelter registration number be 
furnished to investors who acquired interests before September 1, 1984 
in a tax shelter that is required to be registered.
    A-59. All investors who acquired their interests in a tax shelter 
before September 1, 1984 must be supplied with the tax shelter 
registration number by December 31, 1984. See A-52 of this section for 
the date by which registration numbers must be furnished to investors 
who acquire their interests on or after September 1, 1984.
    Q-60. What interests will be taken into account in determining 
whether an investment in which interests were sold before September 1, 
1984, is a substantial investment?
    A-60. The determination of whether an investment is a substantial 
investment will be made by taking into account only the interests that 
are offered for sale on or after September 1, 1984. An investment will 
be considered a substantial investment if there are expected to be 5 or 
more investors on or after September 1, 1984, and the aggregate amount 
offered for sale on or after September 1, 1984 is expected to exceed 
$250,000. Amounts received from the sale of interests before September 
1, 1984, however, are taken into account in computing the amount of the 
penalty for failure to register.

(Secs. 6111 and 7805, Internal Revenue Code of 1954 (98 Stat. 678, 26 
U.S.C. 6111; 68A Stat. 917, 26 U.S.C. 7805); secs. 6111, 6112 and 7805, 
Internal Revenue Code of 1954 (98 Stat. 678, 98 Stat. 681, 68A Stat. 
917; 26 U.S.C. 6111, 6112 and 7805))

[T.D. 7964, 49 FR 32713, Aug. 15, 1984, as amended by T.D. 7990, 49 FR 
43641, Oct. 31, 1984; T.D. 7964, 49 FR 44461, Nov. 7, 1984; T.D. 8078, 
51 FR 7440, Mar. 25, 1986; T.D. 7964, 73 FR 73180, Dec. 2, 2008]



Sec.  301.6111-2  Confidential corporate tax shelters.

    (a) In general. (1) Under section 6111(d) and this section, a 
confidential corporate tax shelter is treated as a tax shelter subject 
to the requirements of sections 6111 (a) and (b).
    (2) A confidential corporate tax shelter is any transaction--

[[Page 168]]

    (i) A significant purpose of the structure of which is the avoidance 
or evasion of Federal income tax, as described in paragraph (b) of this 
section, for a direct or indirect corporate participant;
    (ii) That is offered to any potential participant under conditions 
of confidentiality, as described in paragraph (c) of this section; and
    (iii) For which the tax shelter promoters may receive fees in excess 
of $100,000 in the aggregate, as described in paragraph (d) of this 
section.
    (3) For purposes of this section, references to the term transaction 
include all of the factual elements relevant to the expected tax 
treatment of any investment, entity, plan, or arrangement, and include 
any series of steps carried out as part of a plan. For purposes of this 
section, the term substantially similar includes any transaction that is 
expected to obtain the same or similar types of tax consequences and 
that is either factually similar or based on the same or similar tax 
strategy. Receipt of an opinion regarding the tax consequences of the 
transaction is not relevant to the determination of whether the 
transaction is the same as or substantially similar to another 
transaction. Further, the term substantially similar must be broadly 
construed in favor of registration. For examples, see Sec.  1.6011-
4(c)(4) of this chapter.
    (4) A transaction described in paragraph (b) of this section is for 
a direct or an indirect corporate participant if it is expected to 
provide Federal income tax benefits to any corporation (U.S. or foreign) 
whether or not that corporation participates directly in the 
transaction.
    (b) Transactions structured for avoidance or evasion of Federal 
income tax--(1) In general. The avoidance or evasion of Federal income 
tax will be considered a significant purpose of the structure of a 
transaction if the transaction is described in paragraph (b)(2) or (3) 
of this section. However, a transaction described in paragraph (b)(3) of 
this section need not be registered if the transaction is described in 
paragraph (b)(4) of this section. For purposes of this section, Federal 
income tax benefits include deductions, exclusions from gross income, 
nonrecognition of gain, tax credits, adjustments (or the absence of 
adjustments) to the basis of property, status as an entity exempt from 
Federal income taxation, and any other tax consequences that may reduce 
a taxpayer's Federal income tax liability by affecting the amount, 
timing, character, or source of any item of income, gain, expense, loss, 
or credit.
    (2) Listed transactions. A transaction is described in this 
paragraph (b)(2) if the transaction is the same as or substantially 
similar to one of the types of transactions that the Internal Revenue 
Service (IRS) has determined to be a tax avoidance transaction and 
identified by notice, regulation, or other form of published guidance as 
a listed transaction. If a transaction becomes a listed transaction 
after the date on which registration would otherwise be required under 
this section, and if the transaction otherwise satisfies the 
confidentiality and fee requirements of paragraphs (a)(2)(ii) and (iii) 
of this section, registration shall in all events be required with 
respect to any interests in the transaction that are offered for sale 
after the transaction becomes a listed transaction. However, because a 
transaction identified as a listed transaction is generally considered 
to have been structured for a significant tax avoidance purpose, such a 
transaction ordinarily will have been subject to registration under this 
section before becoming a listed transaction if the transaction 
previously satisfied the confidentiality and fee requirements of 
paragraphs (a)(2)(ii) and (iii) of this section.
    (3) Other tax-structured transactions. A transaction is described in 
this paragraph (b)(3) if it has been structured to produce Federal 
income tax benefits that constitute an important part of the intended 
results of the transaction and the tax shelter promoter (or other person 
who would be responsible for registration under this section) reasonably 
expects the transaction to be presented in the same or substantially 
similar form to more than one potential participant, unless the promoter 
reasonably determines that--
    (i) The potential participant is expected to participate in the 
transaction in the ordinary course of its business in

[[Page 169]]

a form consistent with customary commercial practice (a transaction 
involving the acquisition, disposition, or restructuring of a business, 
including the acquisition, disposition, or other change in the ownership 
or control of an entity that is engaged in a business, or a transaction 
involving a recapitalization or an acquisition of capital for use in the 
taxpayer's business, shall be considered a transaction carried out in 
the ordinary course of a taxpayer's business); and
    (ii) There is a generally accepted understanding that the expected 
Federal income tax benefits from the transaction (taking into account 
any combination of intended tax consequences) are properly allowable 
under the Internal Revenue Code for substantially similar transactions. 
There is no minimum period of time for which such a generally accepted 
understanding must exist. In general, however, a tax shelter promoter 
(or other person who would be responsible for registration under this 
section) cannot reasonably determine whether the intended tax treatment 
of a transaction has become generally accepted unless information 
relating to the tax treatment and tax structure of such transactions has 
been in the public domain (e.g., rulings, published articles, etc.) and 
widely known for a sufficient period of time (ordinarily a period of 
years) to provide knowledgeable tax practitioners and the IRS reasonable 
opportunity to evaluate the intended tax treatment. The mere fact that 
one or more knowledgeable tax practitioners have provided an opinion or 
advice to the effect that the intended tax treatment of the transaction 
should or will be sustained, if challenged by the IRS, is not sufficient 
to satisfy the requirements of this paragraph (b)(3)(ii).
    (4) Excepted transactions. The avoidance or evasion of Federal 
income tax will not be considered a significant purpose of the structure 
of a transaction if the transaction is described in either paragraph 
(b)(4)(i), (ii), or (iii) of this section.
    (i) In the case of a transaction other than a transaction described 
in paragraph (b)(2) of this section, the tax shelter promoter (or other 
person who would be responsible for registration under this section) 
reasonably determines that there is no reasonable basis under Federal 
tax law for denial of any significant portion of the expected Federal 
income tax benefits from the transaction. This paragraph (b)(4)(i) 
applies only if the tax shelter promoter (or other person who would be 
responsible for registration under this section) reasonably determines 
that there is no basis that would meet the standard applicable to 
taxpayers under Sec.  1.6662-3(b)(3) of this chapter under which the IRS 
could disallow any significant portion of the expected Federal income 
tax benefits of the transaction. Thus, the reasonable basis standard is 
not satisfied by an IRS position that would be merely arguable or that 
would constitute merely a colorable claim. However, the determination of 
whether the IRS would or would not have a reasonable basis for such a 
position must take into account the entirety of the transaction and any 
combination of tax consequences that are expected to result from any 
component steps of the transaction, must not be based on any 
unreasonable or unrealistic factual assumptions, and must take into 
account all relevant aspects of Federal tax law, including the statute 
and legislative history, treaties, administrative guidance, and judicial 
decisions that establish principles of general application in the tax 
law (e.g., Gregory v. Helvering, 293 U.S. 465 (1935)). The determination 
of whether the IRS would or would not have such a reasonable basis is 
qualitative in nature and does not depend on any percentage or other 
quantitative assessment of the likelihood that the taxpayer would 
ultimately prevail if a significant portion of the expected tax benefits 
were disallowed by the IRS.
    (ii) The IRS makes a determination by published guidance that the 
transaction is not subject to the registration requirements of this 
section.
    (iii) The IRS makes a determination by individual ruling under 
paragraph (b)(5) of this section that a specific transaction is not 
subject to the registration requirements of this section for the 
taxpayer requesting the ruling.
    (5) Requests for ruling. If a tax shelter promoter (or other person 
who would be responsible for registration under

[[Page 170]]

this section) is uncertain whether a transaction is properly classified 
as a confidential corporate tax shelter or is otherwise uncertain 
whether registration is required under this section, that person may, on 
or before the date that registration would otherwise be required under 
this section, submit a request to the IRS for a ruling as to whether the 
transaction is subject to the registration requirements of this section. 
If the request fully discloses all relevant facts relating to the 
transaction, that person's potential obligation to register the 
transaction will be suspended during the period that the ruling request 
is pending and, if the IRS subsequently concludes that the transaction 
is a confidential corporate tax shelter subject to registration under 
this section, until the sixtieth day after the issuance of the ruling 
(or, if the request is withdrawn, sixty days from the date that the 
request is withdrawn). In the alternative, that person may register the 
transaction in accordance with the requirements of this section and 
append a statement to the Form 8264, ``Application for Registration of a 
Tax Shelter'', which states that the person is uncertain whether the 
transaction is required to be registered as a confidential corporate tax 
shelter, and that the Form 8264 is being filed on a protective basis.
    (6) Example. The following example illustrates the application of 
paragraphs (b)(1) through (4) of this section. Assume, for purposes of 
the example, that the transaction is not the same as or substantially 
similar to any of the types of transactions that the IRS has identified 
as listed transactions under section 6111 and, thus, is not described in 
paragraph (b)(2) of this section. The example is as follows:

    Example. (i) Facts. Y has designed a combination of financial 
instruments to be issued as a package by corporations. The financial 
instruments are expected to be treated as equity for financial 
accounting purposes and as debt giving rise to allowable interest 
deductions for Federal income tax purposes. Y reasonably expects to 
present this method of raising capital to more than one potential 
corporate participant. Assume that, because of the unusual nature of the 
combination of financial instruments, Y cannot conclude either that the 
transaction represented by the financial instruments is in customary 
commercial form or that there is a generally accepted understanding that 
interest deductions are available to issuers of substantially similar 
combinations of financial instruments. Further, assume that Y cannot 
reasonably determine that the IRS would have no reasonable basis to deny 
the deductions.
    (ii) Analysis. The transaction represented by this combination of 
financial instruments is a transaction described in paragraph (b)(3) of 
this section. However, if Y is uncertain whether this transaction is 
described in paragraph (b)(3) of this section, or is otherwise uncertain 
whether registration is required, Y may apply for a ruling under 
paragraph (b)(5) of this section, and Y will not be required to register 
the transaction while the ruling is pending or for sixty days 
thereafter.

    (c) Conditions of confidentiality--(1) In general. All the facts and 
circumstances relating to the transaction will be considered when 
determining whether an offer is made under conditions of confidentiality 
as described in section 6111(d)(2), including prior conduct of the 
parties. Pursuant to section 6111(d)(2)(A), if an offeree's disclosure 
of the tax treatment or tax structure of the transaction is limited in 
any manner by an express or implied understanding or agreement with or 
for the benefit of any tax shelter promoter, an offer is considered made 
under conditions of confidentiality, whether or not such understanding 
or agreement is legally binding. The tax treatment of a transaction is 
the purported or claimed Federal income tax treatment of the 
transaction. The tax structure of a transaction is any fact that may be 
relevant to understanding the purported or claimed Federal income tax 
treatment of the transaction. Pursuant to section 6111(d)(2)(B), an 
offer will also be considered made under conditions of confidentiality 
in the absence of any such understanding or agreement if any tax shelter 
promoter knows or has reason to know that the offeree's use or 
disclosure of information relating to the tax treatment or tax structure 
of the transaction is limited for the benefit of any person other than 
the offeree in any other manner, such as where the transaction is 
claimed to be proprietary or exclusive to the tax shelter promoter or 
any party other than the offeree.

[[Page 171]]

    (2) Exceptions--(i) Securities law. An offer is not considered made 
under conditions of confidentiality if disclosure of the tax treatment 
or tax structure of the transaction is subject to restrictions 
reasonably necessary to comply with securities laws and such disclosure 
is not otherwise limited.
    (ii) Mergers and acquisitions. In the case of a proposed taxable or 
tax-free acquisition of historic assets of a corporation (other than an 
investment company, as defined in section 351(e), that is not publicly 
traded) that constitute an active trade or business the acquirer intends 
to continue, or a proposed taxable or tax-free acquisition of more than 
50 percent of the stock of a corporation (other than an investment 
company, as defined in section 351(e), that is not publicly traded) that 
owns historic assets used in an active trade or business the acquirer 
intends to continue, the transaction is not considered offered under 
conditions of confidentiality under paragraph (c)(1) of this section if 
the offeree is permitted to disclose the tax treatment and tax structure 
of the transaction no later than the earlier of the date of the public 
announcement of discussions relating to the transaction, the date of the 
public announcement of the transaction, or the date of the execution of 
an agreement (with or without conditions) to enter into the transaction. 
However, this exception is not available where the offeree's ability to 
consult any tax advisor (including a tax advisor independent from all 
other entities involved in the transaction) regarding the tax treatment 
or tax structure of the transaction is limited in any way.
    (3) Presumption. Unless facts and circumstances indicate otherwise, 
an offer is not considered made under conditions of confidentiality if 
the tax shelter promoter provides express written authorization to each 
offeree permitting the offeree (and each employee, representative, or 
other agent of such offeree) to disclose to any and all persons, without 
limitation of any kind, the tax treatment and tax structure of the 
transaction, and all materials of any kind (including opinions or other 
tax analyses) that are provided to the offeree related to such tax 
treatment and tax structure. Except as provided in paragraph (c)(2) of 
this section, this presumption is available only in cases in which each 
written authorization permits the offeree to disclose the tax treatment 
and tax structure of the transaction immediately upon commencement of 
discussions with the tax shelter promoter providing the authorization 
and each written authorization is given no later than 30 days from the 
day the tax shelter promoter commenced discussions with the offeree. A 
transaction that is exclusive or proprietary to any party other than the 
offeree will not be considered offered under conditions of 
confidentiality if written authorization to disclose is provided to the 
offeree in accordance with this paragraph (c)(3) and the transaction is 
not otherwise confidential.
    (d) Determination of fees. All the facts and circumstances relating 
to the transaction will be considered when determining the amount of 
fees, in the aggregate, that the tax shelter promoters may receive. For 
purposes of this paragraph (d), all consideration that tax shelter 
promoters may receive is taken into account, including contingent fees, 
fees in the form of equity interests, and fees the promoters may receive 
for other transactions as consideration for promoting the tax shelter. 
For example, if a tax shelter promoter may receive a fee for arranging a 
transaction that is a confidential corporate tax shelter and a separate 
fee for another transaction that is not a confidential corporate tax 
shelter, part or all of the fee paid with respect to the other 
transaction may be treated as a fee paid with respect to the 
confidential corporate tax shelter if the facts and circumstances 
indicate that the fee paid for the other transaction is in consideration 
for the confidential corporate tax shelter. For purposes of determining 
whether the tax shelter promoters may receive fees in excess of 
$100,000, the fees from all substantially similar transactions are 
considered part of the same tax shelter and must be aggregated.
    (e) Registration--(1) Time for registering--(i) In general. A tax 
shelter must be registered not later than the day on which the first 
offering for sale

[[Page 172]]

of interests in the shelter occurs. An offer to participate in a 
confidential corporate tax shelter shall be treated as an offer for 
sale. If interests in a confidential corporate tax shelter were first 
offered for sale on or before February 28, 2000, the first offer for 
sale of interests in the shelter that occurs after February 28, 2000 
shall be considered the first offer for sale under this section.
    (ii) Special rule. If a transaction becomes a confidential corporate 
tax shelter (e.g., because of a change in the law or factual 
circumstances, or because the transaction becomes a listed transaction) 
subsequent to the first offering for sale after February 28, 2000, and 
the transaction was not previously required to be registered as a 
confidential corporate tax shelter under this section, the transaction 
must be registered under this section if interests are offered for sale 
after the transaction becomes a confidential corporate tax shelter. The 
transaction must be registered by the next offering for sale of 
interests in the shelter. If, subsequent to the first offering for sale, 
a transaction becomes a confidential corporate tax shelter because the 
transaction becomes a listed transaction on or after February 28, 2003, 
and the transaction was not previously required to be registered as a 
confidential corporate tax shelter under this section, the transaction 
must be registered under this section within 60 days after the 
transaction becomes a listed transaction/confidential corporate tax 
shelter if any interests were offered for sale within the previous six 
years.
    (2) Procedures for registering. To register a confidential corporate 
tax shelter, the person responsible for registering the tax shelter must 
file Form 8264, ``Application for Registration of a Tax Shelter''. (Form 
8264 is also used to register tax shelters defined in section 6111(c).) 
Similar to the treatment provided under Q&A-22 and Q&A-48 of Sec.  
301.6111-1T, transactions involving similar business assets and similar 
plans or arrangements that are offered to corporate taxpayers by the 
same person or related persons are aggregated and considered part of a 
single tax shelter. However, in contrast with the requirement of Q&A-48 
of Sec.  301.6111-1T, the tax shelter promoter may file a single Form 
8264 with respect to any such aggregated tax shelter, provided an 
amended Form 8264 is filed to reflect any material changes and to 
include any additional or revised written materials presented in 
connection with an offer to participate in the shelter. Furthermore, all 
transactions that are part of the same tax shelter and that are to be 
carried out by the same corporate participant (or one or more other 
members of the same affiliated group within the meaning of section 1504) 
must be registered on the same Form 8264.
    (f) Definition of tax shelter promoter. For purposes of section 
6111(d)(2) and this section, the term tax shelter promoter includes a 
tax shelter organizer and any other person who participates in the 
organization, management or sale of a tax shelter (as those persons are 
described in section 6111(e)(1) and Sec.  301.6111-1T (Q&A-26 through 
Q&A-33) or any person related (within the meaning of section 267 or 707) 
to such tax shelter organizer or such other person.
    (g) Person required to register--(1) Tax shelter promoters. The 
rules in section 6111 (a) and (e) and Sec.  301.6111-1T (Q&A-34 through 
Q&A-39) determine who is required to register a confidential corporate 
tax shelter. A promoter of a confidential corporate tax shelter must 
register the tax shelter only if it is a person required to register 
under the rules in section 6111(a) and (e) and Sec.  301.6111-1T (Q&A-34 
through Q&A-39).
    (2) Persons who discuss the transaction; all promoters are foreign 
persons--(i) In general. If all of the tax shelter promoters of a 
confidential corporate tax shelter are foreign persons, any person who 
discusses participation in the transaction must register the shelter 
under this section within 90 days after beginning such discussions.
    (ii) Exceptions. Registration by a person discussing participation 
in a transaction is not required if either--
    (A) The person does not participate, directly or indirectly, in the 
shelter and notifies the tax shelter promoter in writing, within 90 days 
of beginning such discussions, that the person will not participate; or

[[Page 173]]

    (B) Within 90 days after beginning such discussions, the person 
obtains and reasonably relies on both--
    (1) A written statement from one of the tax shelter promoters that 
such promoter has registered the tax shelter under this section; and
    (2) A copy of the registration.
    (iii) Determination of foreign status. For purposes of this 
paragraph (g)(2), a person must presume that all tax shelter promoters 
are foreign persons unless the person either--
    (A) Discusses participation in the tax shelter with a promoter that 
is a United States person; or
    (B) Obtains and reasonably relies on a written statement from one of 
the promoters that at least one of the promoters is a United States 
person.
    (iv) Discussion. Discussing participation in a transaction includes 
discussing such participation with any person that conveys the tax 
shelter promoter's proposal. For purposes of this paragraph (g)(2), any 
person that participates directly or indirectly in a transaction will be 
treated as having discussed participation in the transaction not later 
than the date of the agreement to participate. Thus, a tax shelter 
participant will be treated as having discussed participation in the 
transaction even if all discussions were conducted by an intermediary 
and the agreement to participate was made indirectly through another 
person acting on the participant's behalf (for example, through an 
intermediary empowered to commit the participant to participate in the 
shelter).
    (v) Special rule for controlled entities. A person (first person) 
will be treated as participating indirectly in a confidential corporate 
tax shelter if a foreign person controlled by the first person 
participates in the shelter, and a significant purpose of the shelter is 
the avoidance or evasion of the first person's Federal income tax. For 
purposes of this paragraph (g)(2)(v), control of a foreign corporation 
or partnership will be determined under the rules of section 6038(e)(2) 
and (3), except that such section shall be applied by substituting 
``10'' for ``50'' each place it appears and ``at least'' for ``more 
than'' each place it appears. In addition, section 6038(e)(2) shall be 
applied for these purposes without regard to the constructive ownership 
rules of section 318 and by treating stock as owned if it is owned 
directly or indirectly. Section 6038(e)(3) shall be applied for these 
purposes without regard to the last sentence of section 6038(e)(3)(B). 
Any beneficiary with a 10 percent or more interest in a foreign trust or 
estate shall be treated as controlling that trust or estate for purposes 
of this paragraph (g)(2)(v).
    (vi) Other rules. (A) For purposes of the registration requirements 
under section 6111(d)(3), it is presumed that the tax shelter promoters 
will receive fees in excess of $100,000 in the aggregate unless the 
person responsible for registering the tax shelter can show otherwise.
    (B) Any person treated as a tax shelter promoter under section 
6111(d) solely by reason of being related (within the meaning of section 
267 or 707) to a foreign promoter will be treated as a foreign promoter 
for purposes of this paragraph (g)(2).
    (h) Effective dates. This section applies to confidential corporate 
tax shelters in which any interests are offered for sale after February 
28, 2000. If an interest is sold after February 28, 2000, it is treated 
as offered for sale after February 28, 2000, unless the sale was 
pursuant to a written binding contract entered into on or before 
February 28, 2000. However, paragraphs (a) through (g) of this section 
apply to confidential corporate tax shelters in which any interests are 
offered for sale on or after February 28, 2003, and to transactions 
described in paragraph (e)(1)(ii) of this section. The rules that apply 
to confidential corporate tax shelters in which any interests are 
offered for sale after February 28, 2000, and before February 28, 2003, 
are contained in Sec.  301.6111-2T in effect prior to February 28, 2003 
(see 26 CFR part 301 revised as of April 1, 2002, 2002-28 I.R.B 91, and 
2002-45 I.R.B. 823 (see Sec.  601.601(d)(2) of this chapter)).

[T.D. 9046, 68 FR 10170, Mar. 4, 2003]



Sec.  301.6111-3  Disclosure of reportable transactions.

    (a) In general. Each material advisor, as defined in paragraph (b) 
of this section, with respect to any reportable

[[Page 174]]

transaction, as defined in Sec.  1.6011-4(b) of this chapter, must file 
a return as described in paragraph (d) of this section by the date 
described in paragraph (e) of this section.
    (b) Material advisor--(1) In general. A person is a material advisor 
with respect to a transaction if the person provides any material aid, 
assistance, or advice with respect to organizing, managing, promoting, 
selling, implementing, insuring, or carrying out any reportable 
transaction, and directly or indirectly derives gross income in excess 
of the threshold amount as defined in paragraph (b)(3) of this section 
for the material aid, assistance, or advice. The term transaction 
includes all of the factual elements relevant to the expected tax 
treatment of any investment, entity, plan or arrangement, and includes 
any series of steps carried out as part of a plan.
    (2) Material aid, assistance, or advice--(i) In general. Except as 
provided in paragraph (b)(5) of this section, a person provides material 
aid, assistance, or advice with respect to organizing, managing, 
promoting, selling, implementing, insuring, or carrying out any 
transaction if the person makes or provides a tax statement to or for 
the benefit of--
    (A) A taxpayer who either is required to disclose the transaction 
under Sec. Sec.  1.6011-4, 20.6011-4, 25.6011-4, 26.6011-4, 31.6011-4, 
53.6011-4, 54.6011-4, or 56.6011-4 of this chapter because the 
transaction is a listed transaction or a transaction of interest, or 
would have been required to disclose the transaction under Sec. Sec.  
1.6011-4, 20.6011-4, 25.6011-4, 26.6011-4, 31.6011-4, 53.6011-4, 
54.6011-4, or 56.6011-4 of this chapter if the transaction had become a 
listed transaction or a transaction of interest within the period of 
limitations in Sec.  1.6011-4(e) of this chapter;
    (B) A taxpayer who the potential material advisor knows is or 
reasonably expects to be required to disclose the transaction under 
Sec.  1.6011-4 of this chapter because the transaction is or is 
reasonably expected to become a transaction described in Sec.  1.6011-
4(b)(3) through (5) or (7) of this chapter;
    (C) A material advisor who is required to disclose the transaction 
under this section because it is a listed transaction or a transaction 
of interest; or
    (D) A material advisor who the potential material advisor knows is 
or reasonably expects to be required to disclose the transaction under 
this section because the transaction is or is reasonably expected to 
become a transaction described in Sec.  1.6011-4(b)(3) through (5) or 
(7) of this chapter.
    (ii) Tax statement--(A) In general. A tax statement is any statement 
(including another person's statement), oral or written, that relates to 
a tax aspect of a transaction that causes the transaction to be a 
reportable transaction as defined in Sec.  1.6011-4(b)(2) through (7) of 
this chapter. A tax statement under this section includes tax result 
protection that insures some or all of the tax benefits of a reportable 
transaction.
    (B) Confidential transactions. A statement relates to a tax aspect 
of a transaction that causes it to be a confidential transaction if the 
statement concerns a tax benefit related to the transaction and either 
the taxpayer's disclosure of the tax treatment or tax structure of the 
transaction is limited in the manner described in Sec.  1.6011-4(b)(3) 
of this chapter by or for the benefit of the person making the 
statement, or the person making the statement knows the taxpayer's 
disclosure of the tax structure or tax aspects of the transaction is 
limited in the manner described in Sec.  1.6011-4(b)(3) of this chapter.
    (C) Transactions with contractual protection. A statement relates to 
a tax aspect of a transaction that causes it to be a transaction with 
contractual protection if the statement concerns a tax benefit related 
to the transaction and either--
    (1) The taxpayer has the right to a full or partial refund of fees 
paid to the person making the statement or the fees are contingent in 
the manner described in Sec.  1.6011-4(b)(4) of this chapter; or
    (2) The person making the statement knows or has reason to know that 
the taxpayer has the right to a full or partial refund of fees 
(described in Sec.  1.6011-4(b)(4)(ii) of this chapter) paid to another 
if all or part of the intended tax consequences from the transaction are

[[Page 175]]

not sustained or that fees (as described in Sec.  1.6011-4(b)(4)(ii) of 
this chapter) paid by the taxpayer to another are contingent on the 
taxpayer's realization of tax benefits from the transaction in the 
manner described in Sec.  1.6011-4(b)(4) of this chapter.
    (D) Loss transactions. A statement relates to a tax aspect of a 
transaction that causes it to be a loss transaction if the statement 
concerns an item that gives rise to a loss described in Sec.  1.6011-
4(b)(5) of this chapter.
    (E) [Reserved]
    (iii) Special rules--(A) Capacity as an employee. A material advisor 
generally does not include a person who makes a tax statement solely in 
the person's capacity as an employee, shareholder, partner or agent of 
another person. Any tax statement made by that person will be attributed 
to that person's employer, corporation, partnership or principal. 
However, a person shall be treated as a material advisor if that person 
forms or avails of an entity with the purpose of avoiding the rules of 
section 6111 or 6112 or the penalties under section 6707 or 6708.
    (B) Post-filing advice. A person will not be considered to be a 
material advisor with respect to a transaction if that person does not 
make or provide a tax statement regarding the transaction until after 
the first tax return reflecting tax benefit(s) of the transaction is 
filed with the IRS. However, this exception does not apply to a person 
who makes a tax statement with respect to the transaction if it is 
expected that the taxpayer will file a supplemental or amended return 
reflecting additional tax benefits from the transaction.
    (C) Publicly filed statements. A tax statement with respect to a 
transaction that includes only information about the transaction 
contained in publicly available documents filed with the Securities and 
Exchange Commission no later than the close of the transaction will not 
be considered a tax statement to or for the benefit of a person 
described in paragraph (b)(2) of this section.
    (3) Gross income derived for material aid, assistance, or advice--
(i) Threshold amount--(A) In general. The threshold amount of gross 
income is $50,000 in the case of a reportable transaction substantially 
all of the tax benefits from which are provided to natural persons 
(looking through any partnerships, S corporations, or trusts). For all 
other transactions, the threshold amount is $250,000.
    (B) Listed transactions and transactions of interest. For listed 
transactions described in Sec. Sec.  1.6011-4, 20.6011-4, 25.6011-4, 
26.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this 
chapter, the threshold amounts in paragraph (b)(3)(i)(A) of this section 
are reduced from $50,000 to $10,000 and from $250,000 to $25,000. For 
transactions of interest described in Sec. Sec.  1.6011-4, 20.6011-4, 
25.6011-4, 26.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of 
this chapter, the threshold amounts in paragraph (b)(3)(i)(A) of this 
section may be reduced as identified in the published guidance 
describing the transaction.
    (C) [Reserved]
    (D) Substantially all of the tax benefits. For purposes of this 
section, the determination of whether substantially all of the tax 
benefits from a reportable transaction are provided to natural persons 
is made based on all the facts and circumstances. Generally, unless the 
facts and circumstances prove otherwise, if 70 percent or more of the 
tax benefits from a reportable transaction are provided to natural 
persons (looking through any partnerships, S corporations, or trusts) 
then substantially all of the tax benefits will be considered to be 
provided to natural persons.
    (ii) Gross income derived directly or indirectly for the material 
aid, assistance, or advice. In determining the amount of gross income a 
person derives directly or indirectly for material aid, assistance, or 
advice, all fees for a tax strategy or for services for advice (whether 
or not tax advice) or for the implementation of a reportable transaction 
are taken into account. Fees include consideration in whatever form 
paid, whether in cash or in kind, for services to analyze the 
transaction (whether or not related to the tax consequences of the 
transaction), for services to implement the transaction, for services to 
document the transaction, and for services to prepare tax returns to the 
extent return preparation fees are unreasonable in light of all of the 
facts

[[Page 176]]

and circumstances. A fee does not include amounts paid to a person, 
including an advisor, in that person's capacity as a party to the 
transaction. For example, a fee does not include reasonable charges for 
the use of capital or the sale or use of property. The IRS will 
scrutinize carefully all of the facts and circumstances in determining 
whether consideration received in connection with a reportable 
transaction constitutes gross income derived directly or indirectly for 
aid, assistance, or advice. For purposes of this section, the threshold 
amount must be met independently for each transaction that is a 
reportable transaction and aggregation of fees among transactions is not 
required.
    (4) Date a person becomes a material advisor--(i) In general. A 
person will be treated as becoming a material advisor when all of the 
following events have occurred (in no particular order)--
    (A) The person provides material aid, assistance or advice as 
described in paragraph (b)(2) of this section;
    (B) The person directly or indirectly derives gross income in excess 
of the threshold amount as described in paragraph (b)(3) of this 
section; and
    (C) The transaction is entered into by the taxpayer to whom or for 
whose benefit the person provided the tax statement, or in the case of a 
tax statement provided to another material advisor, when the transaction 
is entered into by a taxpayer to whom or for whose benefit that material 
advisor provided a tax statement.
    (ii) Determining if the taxpayer entered into the transaction. 
Material advisors, including those who cease providing services before 
the time the transaction is entered into, must make reasonable and good 
faith efforts to determine whether the event described in paragraph 
(b)(4)(i)(C) of this section has occurred.
    (iii) Listed transactions and transactions of interest. If a 
transaction that was not a reportable transaction is identified as a 
listed transaction or a transaction of interest in published guidance 
after the occurrence of the events described in paragraph (b)(4)(i) of 
this section, the person will be treated as becoming a material advisor 
on the date the transaction is identified as a listed transaction or a 
transaction of interest.
    (5) Other persons designated as material advisors. Published 
guidance may identify other types or classes of persons as material 
advisors.
    (c) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Reportable transaction. The term reportable transaction is 
defined in Sec.  1.6011-4(b)(1) of this chapter.
    (2) Listed transaction. The term listed transaction is defined in 
Sec.  1.6011-4(b)(2) of this chapter. See also Sec. Sec.  20.6011-4(a), 
25.6011-4(a), 26.6011-4, 31.6011-4(a), 53.6011-4(a), 54.6011-4(a), or 
56.6011-4(a) of this chapter.
    (3) Derive. The term derive means receive or expect to receive.
    (4) Person. The term person means any person described in section 
7701(a)(1), including an affiliated group of corporations that join in 
the filing of a consolidated return under section 1501.
    (5) Substantially similar. The term substantially similar is defined 
in Sec.  1.6011-4(c)(4) of this chapter.
    (6) Tax. The term tax means Federal tax.
    (7) Tax benefit. A tax benefit includes deductions, exclusions from 
gross income, nonrecognition of gain, tax credits, adjustments (or the 
absence of adjustments) to the basis of property, status as an entity 
exempt from Federal income taxation, and any other tax consequences that 
may reduce a taxpayer's Federal tax liability by affecting the amount, 
timing, character, or source of any item of income, gain, expense, loss, 
or credit.
    (8) Tax return. The term tax return means a Federal tax return and a 
Federal information return.
    (9) Tax structure. The tax structure of a transaction is any fact 
that may be relevant to understanding the purported or claimed Federal 
tax treatment of the transaction.
    (10) Tax treatment. The tax treatment of a transaction is the 
purported or claimed Federal tax treatment of the transaction.
    (11) Taxpayer. The term taxpayer is defined in Sec.  1.6011-4(c)(1) 
of this chapter.

[[Page 177]]

    (12) Tax result protection. The term tax result protection includes 
insurance company and other third party products commonly described as 
tax result insurance.
    (13) Transaction of interest. The term transaction of interest is 
defined in Sec.  1.6011-4(b)(6) of this chapter. See also Sec. Sec.  
20.6011-4(a), 25.6011-4(a), 26.6011-4, 31.6011-4(a), 53.6011-4(a), 
54.6011-4(a), or 56.6011-4(a) of this chapter.
    (d) Form and content of material advisor's disclosure statement--(1) 
In general. A material advisor required to file a disclosure statement 
under this section must file a completed Form 8918, ``Material Advisor 
Disclosure Statement'' (or successor form) in accordance with this 
paragraph (d) and the instructions to the form. To be considered 
complete, the information provided on the form must describe the 
expected tax treatment and all potential tax benefits expected to result 
from the transaction, describe any tax result protection with respect to 
the transaction, and identify and describe the transaction in sufficient 
detail for the IRS to be able to understand the tax structure of the 
reportable transaction and the identity of any material advisor(s) whom 
the material advisor knows or has reason to know acted as a material 
advisor as defined in paragraph (b) of this section with respect to the 
transaction. An incomplete form containing a statement that information 
will be provided upon request is not considered a complete disclosure 
statement. A material advisor may file a single form for substantially 
similar transactions. An amended form must be filed if information 
previously provided is no longer accurate, if additional information 
that was not disclosed becomes available, or if there are material 
changes to the transaction. A material advisor is not required to file 
an additional form for each additional taxpayer that enters into the 
same or substantially similar transaction. If the form is not completed 
in accordance with the provisions in this paragraph (d) and the 
instructions to the form, the material advisor will not be considered to 
have complied with the disclosure requirements of this section.
    (2) Reportable transaction number. The IRS will issue to a material 
advisor a reportable transaction number with respect to the disclosed 
reportable transaction. Receipt of a reportable transaction number does 
not indicate that the disclosure statement is complete, nor does it 
indicate that the transaction has been reviewed, examined, or approved 
by the IRS. Material advisors must provide the reportable transaction 
number to all taxpayers and material advisors for whom the material 
advisor acts as a material advisor as defined in paragraph (b) of this 
section. The reportable transaction number must be provided at the time 
the transaction is entered into, or, if the transaction is entered into 
prior to the material advisor receiving the reportable transaction 
number, within 60 calendar days from the date the reportable transaction 
number is mailed to the material advisor.
    (e) Time of providing disclosure. The material advisor's disclosure 
statement for a reportable transaction must be filed with the Office of 
Tax Shelter Analysis (OTSA) by the last day of the month that follows 
the end of the calendar quarter in which the advisor became a material 
advisor with respect to the reportable transaction or in which the 
circumstances necessitating an amended disclosure statement occur. The 
disclosure statement must be sent to OTSA at the address provided in the 
instructions for Form 8918 (or a successor form).
    (f) Designation agreements. If more than one material advisor is 
required to disclose a reportable transaction under this section, the 
material advisors may designate by written agreement a single material 
advisor to disclose the transaction. The transaction must be disclosed 
by the last day of the month following the end of the calendar quarter 
that includes the earliest date on which a material advisor who is a 
party to the agreement became a material advisor with respect to the 
transaction as described in paragraph (b)(4) of this section. The 
designation of one material advisor to disclose the transaction does not 
relieve the other material advisors of their obligation to disclose the 
transaction to the IRS in accordance with this section, if the 
designated material advisor fails to

[[Page 178]]

disclose the transaction to the IRS in a timely manner.
    (g) Protective disclosures. If a potential material advisor is 
uncertain whether a transaction must be disclosed under this section, 
the advisor may disclose the transaction in accordance with the 
requirements of this section and comply with all the provisions of this 
section, and indicate on the disclosure statement that the disclosure 
statement is being filed on a protective basis. The IRS will not treat 
disclosure statements filed on a protective basis any differently than 
other disclosure statements filed under this section. For a protective 
disclosure to be effective, the advisor must comply with the regulations 
under this section and Sec.  301.6112-1 by providing to the IRS all 
information requested by the IRS under these sections.
    (h) Rulings. If a potential material advisor requests a ruling as to 
whether a specific transaction is a reportable transaction on or before 
the date that disclosure would otherwise be required under this section, 
the Commissioner in his discretion may determine that the submission 
satisfies the disclosure rules under this section for that transaction 
if the request fully discloses all relevant facts relating to the 
transaction which would otherwise be required to be disclosed under this 
section. The potential obligation of the person to disclose the 
transaction under this section (or to maintain or furnish the list under 
Sec.  301.6112-1) will not be suspended during the period that the 
ruling request is pending.
    (i) Effective/applicability date--(1) In general. This section 
applies to transactions with respect to which a material advisor makes a 
tax statement on or after August 3, 2007. However, this section applies 
to transactions of interest entered into on or after November 2, 2006, 
with respect to which a material advisor makes a tax statement under 
this section on or after November 2, 2006. Paragraphs (b)(2)(i)(A), 
(b)(3)(i)(B), (c)(2), and (c)(13) of this section apply to transactions 
with respect to which a material advisor makes a tax statement under 
this section after November 14, 2011. Paragraph (h) of this section 
applies to ruling requests received on or after November 2, 2006. 
Otherwise, the rules that apply on or before November 14, 2011 are 
contained in this section in effect prior to November 14, 2011 (see 26 
CFR part 301 revised as of April 1, 2011).
    (2) [Reserved]

[T.D. 9351, 72 FR 43159, Aug. 3, 2007, as amended by T.D. 9556, 76 FR 
70341, Nov. 14, 2011]



Sec.  301.6112-1  Material advisors of reportable transactions 
must keep lists of advisees, etc.

    (a) In general. Each material advisor, as defined in Sec.  301.6111-
3(b), with respect to any reportable transaction, as defined in Sec.  
1.6011-4(b) of this chapter, shall prepare and maintain a list in 
accordance with paragraph (b) of this section and shall furnish such 
list to the Internal Revenue Service (IRS) in accordance with paragraph 
(e) of this section.
    (b) Preparation and maintenance of lists--(1) In general. A separate 
list must be prepared and maintained for each reportable transaction. 
However, one list must be maintained for substantially similar 
transactions. A material advisor will have 30 calendar days from the 
date the list maintenance requirement first arises (see Sec.  301.6111-
3(b)(4) and paragraph (a) of this section) with respect to a reportable 
transaction to prepare the list that must be maintained under this 
section with respect to that transaction. The Commissioner in his 
discretion also may provide in published guidance designating a 
transaction as a reportable transaction a list preparation time period 
greater than 30 calendar days. If a list is requested under this section 
during the list preparation time period, the request for the list will 
be treated as having been made on the day after the list preparation 
time period ends. A list must be maintained in a form that enables the 
IRS to determine without undue delay or difficulty the information 
required in paragraph (b)(3) of this section. The Commissioner in his 
discretion may provide in published guidance a form or method for 
maintaining or furnishing the list.
    (2) Persons required to be included on lists. A material advisor is 
required to maintain a list identifying each person with respect to whom 
the advisor acted

[[Page 179]]

as a material advisor with respect to the reportable transaction. 
However, a material advisor is not required to identify a person on the 
list if the person entered into a listed transaction or a transaction of 
interest more than 6 years before the transaction was identified in 
published guidance as a listed transaction or a transaction of interest.
    (3) Contents. Each list must include the three components described 
in paragraph (b)(3)(i), (ii), and (iii) of this section.
    (i) Statement. An itemized statement containing the following 
information--
    (A) The name of each reportable transaction, the citation to the 
published guidance number identifying the transaction if the transaction 
is a listed transaction or a transaction of interest, and the reportable 
transaction number obtained under section 6111;
    (B) The name, address, and TIN of each person required to be 
included on the list;
    (C) The date on which each person required to be included on the 
list entered into each reportable transaction, if known by the material 
advisor;
    (D) The amount invested in each reportable transaction by each 
person required to be included on the list, if known by the material 
advisor;
    (E) A summary or schedule of the tax treatment that each person is 
intended or expected to derive from participation in each reportable 
transaction; and
    (F) The name of each other material advisor to the transaction, if 
known by the material advisor.
    (ii) Description of the transaction. A detailed description of each 
reportable transaction that describes both the tax structure of the 
transaction and the purported tax treatment of the transaction.
    (iii) Documents. The following documents--
    (A) A copy of any designation agreement (as described in paragraph 
(f) of this section) to which the material advisor is a party; and
    (B) Copies of any additional written materials, including tax 
analyses or opinions, relating to each reportable transaction that are 
material to an understanding of the purported tax treatment or tax 
structure of the transaction that have been shown or provided to any 
person who acquired or may acquire an interest in the transactions, or 
to their representatives, tax advisors, or agents, by the material 
advisor or any related party or agent of the material advisor. However, 
a material advisor is not required to retain earlier drafts of a 
document provided the material advisor retains a copy of the final 
document (or, if there is no final document, the most recent draft of 
the document) and the final document (or most recent draft) contains all 
the information in the earlier drafts of such document that is material 
to an understanding of the purported tax treatment or the tax structure 
of the transaction.
    (c) Definitions. For purposes of this section, the following terms 
are defined as:
    (1) Material advisor. The term material advisor is defined in Sec.  
301.6111-3(b).
    (2) Reportable transaction. The term reportable transaction is 
defined in Sec.  1.6011-4(b)(1) of this chapter.
    (3) Listed transaction. The term listed transaction is defined in 
Sec.  1.6011-4(b)(2) of this chapter. See also Sec. Sec.  20.6011-4(a), 
25.6011-4(a), 26.6011-4, 31.6011-4(a), 53.6011-4(a), 54.6011-4(a), or 
56.6011-4(a) of this chapter.
    (4) Substantially similar. The term substantially similar is defined 
in Sec.  1.6011-4(c)(4) of this chapter.
    (5) Person. The term person is defined in Sec.  301.6111-3(c)(4).
    (6) Related party. A person is a related party with respect to 
another person if such person bears a relationship to such other person 
described in section 267(b) or 707(b).
    (7) Tax. The term tax is defined in Sec.  301.6111-3(c)(6).
    (8) Tax benefit. The term tax benefit is defined in Sec.  301.6111-
3(c)(7).
    (9) Tax return. The term tax return is defined in Sec.  301.6111-
3(c)(8).
    (10) Tax structure. The term tax structure is defined in Sec.  
301.6111-3(c)(9).
    (11) Tax treatment. The term tax treatment is defined in Sec.  
301.6111-3(c)(10).
    (12) Transaction of interest. The term transaction of interest is 
defined in Sec.  1.6011-4(b)(6) of this chapter. See also Sec. Sec.  
20.6011-4(a), 25.6011-4(a), 26.6011-4,

[[Page 180]]

31.6011-4(a), 53.6011-4(a), 54.6011-4(a), or 56.6011-4(a) of this 
chapter.
    (d) Retention of lists. Each material advisor must maintain each 
component of the list described in paragraph (b)(3) of this section in a 
readily accessible form for seven years following the earlier of the 
date on which the material advisor last made a tax statement relating to 
the transaction, or the date the transaction was last entered into, if 
known. If the material advisor required to prepare, maintain, and 
furnish the list is a corporation, partnership, or other entity (entity) 
that has dissolved or liquidated before completion of the seven-year 
period, the person responsible under state law for winding up the 
affairs of the entity must prepare, maintain and furnish each component 
of the list on behalf of the entity, unless the entity submits the list 
to the Office of Tax Shelter Analysis (OTSA) within 60 days after the 
dissolution or liquidation. If state law does not specify any person as 
responsible for winding up the affairs, then each of the directors of 
the corporation, the general partners of the partnership, or the 
trustees, owners, or members of the entity are responsible for 
preparing, maintaining and furnishing each component of the list on 
behalf of the entity, unless the entity submits the list to the OTSA 
within 60 days after the dissolution or liquidation. The responsible 
person must also provide notice to OTSA of such dissolution or 
liquidation within 60 days after the dissolution or liquidation. The 
list and the notice provided to OTSA must be sent to: Internal Revenue 
Service, OTSA Mail Stop 4915, 1973 North Rulon White Blvd., Ogden, Utah 
84404, or to such other address as provided by the Commissioner.
    (e) Furnishing of lists--(1) In general. Each material advisor 
responsible for maintaining a list must, upon written request by the 
IRS, make each component of the list described in paragraph (b)(3) of 
this section available to the IRS. Each component of the list must be 
furnished to the IRS in a form that enables the IRS to determine without 
undue delay or difficulty the information required in paragraph (b)(3) 
of this section. If any component of the list is not in a form that 
enables the IRS to determine without undue delay or difficulty the 
information required in paragraph (b)(3) of this section, the material 
advisor will not be considered to have complied with the list 
maintenance provisions in section 6112 and this section. A material 
advisor must make the list or each component of the list available to 
the IRS within the period prescribed in section 6708 or published 
guidance relating to section 6708.
    (2) Claims of privilege. Each material advisor who is required to 
maintain a list with respect to a reportable transaction, must still 
maintain the list pursuant to the requirements of this section even if a 
person asserts a claim of privilege with respect to the information 
specified in paragraph (b)(3)(iii)(B) of this section.
    (f) Designation agreements. If more than one material advisor is 
required to maintain a list of persons for a reportable transaction, in 
accordance with paragraph (b) of this section, the material advisors may 
designate by written agreement a single material advisor (the designated 
material advisor) to maintain the list or a portion of the list. A 
designation agreement does not relieve material advisors from their 
obligation to maintain a list in accordance with paragraph (b) of this 
section or to furnish their list to the IRS in accordance with paragraph 
(e)(1) of this section, but a designation agreement may allow one 
material advisor to maintain a list on behalf of the other material 
advisors who are a party to the designation agreement. A material 
advisor is not relieved from the requirement of this section because a 
material advisor is unable to obtain the list from any designated 
material advisor, any designated material advisor did not maintain a 
list, or the list maintained by any designated material advisor is not 
complete. The existence of a designation agreement does not affect the 
ability of the IRS to request a list from any party to the designation 
agreement. The IRS may request a list from any party to the designation 
agreement, and the party receiving the request must furnish their list 
to the IRS in accordance with paragraph (e)(1) of this section, 
regardless of whether their list was maintained by another

[[Page 181]]

party pursuant to the terms of a designation agreement.
    (g) Effective/applicability date. In general, this section applies 
to transactions with respect to which a material advisor makes a tax 
statement under Sec.  301.6111-3 on or after August 3, 2007. However, 
this section applies to transactions of interest entered into on or 
after November 2, 2006, with respect to which a material advisor makes a 
tax statement under Sec.  301.6111-3 on or after November 2, 2006. 
Paragraphs (b)(1), (c)(3), (c)(12), and (f) of this section apply to 
transactions with respect to which a material advisor makes a tax 
statement under Sec.  301.6111-3 after November 14, 2011. Otherwise, the 
rules that apply on or before November 14, 2011 are contained in this 
section in effect prior to November 14, 2011 (see 26 CFR part 301 
revised as of April 1, 2011).

[T.D. 9352, 72 FR 43155, Aug. 3, 2007, as amended by T.D. 9556, 76 FR 
70341, Nov. 14, 2011]



Sec.  301.6114-1  Treaty-based return positions.

    (a) Reporting requirement--(1) General rule. (i) Except as provided 
in paragraph (c) of this section, if a taxpayer takes a return position 
that any treaty of the United States (including, but not limited to, an 
income tax treaty, estate and gift tax treaty, or friendship, commerce 
and navigation treaty) overrules or modifies any provision of the 
Internal Revenue Code and thereby effects (or potentially effects) a 
reduction of any tax incurred as any time, the taxpayer shall disclose 
such return position on a statement (in the form required in paragraph 
(d) of this section) attached to such return.
    (ii) If a return of tax would not otherwise be required to be filed, 
a return must nevertheless be filed for purposes of making the 
disclosure required by this section. For this purpose, such return need 
include only the taxpayer's name, address, taxpayer identifying number, 
and be signed under penalties of perjury (as well as the subject 
disclosure). Also, the taxpayer's taxable year shall be deemed to be the 
calendar year (unless the taxpayer has previously established, or timely 
chooses for this purpose to establish, a different taxable year). In the 
case of a disclosable return position relating solely to income subject 
to withholding (as defined in Sec.  1.1441-2(a) of this chapter), 
however, the statement required to be filed in paragraph (d) of this 
section must instead be filed at times and in accordance with procedures 
published by the Internal Revenue Service.
    (2) Application. (i) A taxpayer is considered to adopt a ``return 
position'' when the taxpayer determines its tax liability with respect 
to a particular item of income, deduction or credit. A taxpayer may be 
considered to adopt a return position whether or not a return is 
actually filed. To determine whether a return position is a ``treaty-
based return position'' so that reporting is required under this 
paragraph (a), the taxpayer must compare:
    (A) The tax liability (including credits, carrybacks, carryovers, 
and other tax consequences or attributes for the current year as well as 
for any other affected tax years) to be reported on a return of the 
taxpayer, and
    (B) The tax liability (including such credits, carrybacks, 
carryovers, and other tax consequences or attributes) that would be 
reported if the relevant treaty provision did not exist.

If there is a difference (or potential difference) in these two amounts, 
the position taken on a return is a treaty-based return position that 
must be reported.
    (ii) In the event a taxpayer's return position is based on a 
conclusion that a treaty provision is consistent with a Code provision, 
but the effect of the treaty provision is to alter the scope of the Code 
provision from the scope that it would have in the absence of the 
treaty, then the return position is a treaty-based return position that 
must be reported.
    (iii) A return position is a treaty-based return position unless the 
taxpayer's conclusion that no reporting is required under paragraphs 
(a)(2) (i) and (ii) of this section has a substantial probability of 
successful defense if challenged.
    (3) Examples. The application of section 6114 and paragraph (a)(2) 
of this section may be illustrated by the following examples:

    Example 1: X, a Country A corporation, claims the benefit of a 
provision of the income tax treaty between the United States

[[Page 182]]

and Country A that modifies a provision of the Code. This position does 
not result in a change of X's U.S. tax liability for the current tax 
year but does give rise to, or increases, a net operating loss which may 
be carried back (or forward) such that X's tax liability in the 
carryback (or forward) year may be affected by the position taken by X 
in the current year. X must disclose this treaty-based return position 
with its tax return for the current tax year.
    Example 2: Z, a domestic corporation, is engaged in a trade or 
business in Country B. Country B imposes a tax on the income from 
certain of Z's petroleum activities at a rate significantly greater than 
the rate applicable to income from other activities. Z claims a foreign 
tax credit for this tax on its tax return. The tax imposed on Z is 
specifically listed as a creditable tax in the income tax treaty between 
the United States and Country B; however, there is no specific authority 
that such tax would otherwise be a creditable tax for U.S. purposes 
under sections 901 or 903 of the Code. Therefore, in the absence of the 
treaty, the creditability of this petroleum tax would lack a substantial 
probability of successful defense if challenged, and Z must disclose 
this treaty-based return position (see also paragraph (b)(7) of this 
section).

    (b) Reporting specifically required. Reporting is required under 
this section except as expressly waived under paragraph (c) of this 
section. The following list is not a list of all positions for which 
reporting is required under this section but is a list of particular 
positions for which reporting is specifically required. These positions 
are as follows:
    (1) That a nondiscrimination provision of a treaty precludes the 
application of any otherwise applicable Code provision, other than with 
respect to the making of or the effect of an election under section 
897(i);
    (2) That a treaty reduces or modifies the taxation of gain or loss 
from the disposition of a United States real property interest;
    (3) That a treaty exempts a foreign corporation from (or reduces the 
amount of tax with respect to) the branch profits tax (section 884(a)) 
or the tax on excess interest (section 884(f)(1)(B));
    (4) That, notwithstanding paragraph (c)(1)(i) of this section,
    (i) A treaty exempts from tax, or reduces the rate of tax on, 
interest or dividends paid by a foreign corporation that are from 
sources within the United States by reason of section 861(a)(2)(B) or 
section 884(f)(1)(A); or
    (ii) A treaty exempts from tax, or reduces the rate of tax on, fixed 
or determinable annual or periodical income subject to withholding under 
section 1441 or 1442 that a foreign person receives from a U.S. person, 
but only if described in paragraphs (b)(4)(ii)(A) and (B) of this 
section, or in paragraph (b)(4)(ii)(C) or (D) of this section as 
follows--
    (A) the payment is not properly reported to the Service on a Form 
1042S; and
    (B) The foreign person is any of the following:
    (1) A controlled foreign corporation (as defined in section 957) in 
which the U.S. person is a U.S. shareholder within the meaning of 
section 951(b);
    (2) A foreign corporation that is controlled within the meaning of 
section 6038 by the U.S. person;
    (3) A foreign shareholder of the U.S. person that, in the case of 
tax years beginning on or before July 10, 1989, is controlled within the 
meaning of section 6038A by the foreign shareholder, or, in the case of 
tax years beginning after July 10, 1989, is 25-percent owned within the 
meaning of section 6038A by the foreign shareholder; or
    (4) With respect to payments made after October 10, 1990, a foreign 
related party, as defined in section 6038A (c)(2)(B), the U.S. person; 
or
    (C) For payments made after December 31, 2000, with respect to a 
treaty that contains a limitation on benefits article, that--
    (1) The treaty exempts from tax, or reduces the rate of tax on 
income subject to withholding (as defined in Sec.  1.1441-2(a) of this 
chapter) that is received by a foreign person (other than a State, 
including a political subdivision or local authority) that is the 
beneficial owner of the income and the beneficial owner is related to 
the person obligated to pay the income within the meaning of sections 
267(b) and 707(b), and the income exceeds $500,000; and
    (2) A foreign person (other than an individual or a State, including 
a political subdivision or local authority)

[[Page 183]]

meets the requirements of the limitation on benefits article of the 
treaty; or
    (D) For payments made after December 31, 2000, with respect to a 
treaty that imposes any other conditions for the entitlement of treaty 
benefits, for example as a part of the interest, dividends, or royalty 
article, that such conditions are met;
    (5) That, notwithstanding paragraph (c)(1)(i) of this section, under 
a treaty--
    (i) Income that is effectively connected with a U.S. trade or 
business of a foreign corporation or a nonresident alien is not 
attributable to a permanent establishment or a fixed base of operations 
in the United States and, thus, is not subject to taxation on a net 
basis, or that
    (ii) Expenses are allowable in determining net business income so 
attributable, notwithstanding an inconsistent provision of the Code;
    (6) Except as provided in paragraph (c)(1)(iv) of this section, that 
a treaty alters the source of any item of income or deduction;
    (7) That a treaty grants a credit for a specific foreign tax for 
which a foreign tax credit would not be allowed by the Code; or
    (8) For returns relating to taxable years for which the due date for 
filing returns (without extensions) is after December 15, 1997, that 
residency of an individual is determined under a treaty and apart from 
the Internal Revenue Code.
    (c) Reporting requirement waived. (1) Pursuant to the authority 
contained in section 6114 (b), reporting is waived under this section 
with respect to any of the following return positions taken by the 
taxpayer:
    (i) For amounts received on or after January 1, 2001, reporting 
under paragraph (b)(4)(ii) is waived, unless reporting is specifically 
required under paragraphs (b)(4)(ii)(A) and (B) of this section, 
paragraph (b)(4)(ii)(C) of this section, or paragraph (b)(4)(ii)(D) of 
this section;
    (ii) Notwithstanding paragraph (b)(4) or (5) of this section, that a 
treaty has reduced the rate of withholding tax otherwise applicable to a 
particular type of fixed or determinable annual or periodical income 
subject to withholding under section 1441 or 1442, such as dividends, 
interest, rents, or royalties to the extent such income is beneficially 
owned by an individual or a State (including a political subdivision or 
local authority);
    (iii) For returns relating to taxable years for which the due date 
for filing returns (without extensions) is on or before December 15, 
1997, that residency of an individual is determined under a treaty and 
apart from the Internal Revenue Code.
    (iv) That a treaty reduces or modifies the taxation of income 
derived from dependent personal services, pensions, annuities, social 
security and other public pensions, or income derived by artistes, 
athletes, students, trainees or teachers;
    (v) That income of an individual is resourced (for purposes of 
applying the foreign tax credit limitation) under a treaty provision 
relating to elimination of double taxation;
    (vi) That a nondiscrimination provision of a treaty allows the 
making of an election under section 897(i);
    (vii) That a Social Security Totalization Agreement or a Diplomatic 
or Consular Agreement reduces or modifies the taxation of income derived 
by the taxpayer; or
    (viii) That a treaty exempts the taxpayer from the excise tax 
imposed by section 4371, but only if:
    (A) The person claiming such treaty-based return position is an 
insured, as defined in section 4372(d) (without the limitation therein 
referring to section 4371(1)), or a U.S. or foreign broker of insurance 
risks,
    (B) Reporting under this section that would otherwise be required to 
be made by foreign insurers or reinsurers on a Form 720 on a quarterly 
basis is made on an annual basis on a Form 720 by a date no later than 
the date on which the return is due for the first quarter after the end 
of the calendar year, or
    (C) A closing agreement relating to entitlement to the exemption 
from the excise tax has been entered into with the Service by the 
foreign insurance company that is the beneficial recipient of the 
premium that is subject to the excise tax.

[[Page 184]]

    (ix) Notwithstanding paragraph (b)(1) of this section, that a 
nondiscrimination provision of a qualified income tax treaty, as defined 
in Treas. Reg. Sec.  1.5000C-1(c)(13), exempts a payment from tax under 
section 5000C, but only if the foreign person claiming such relief has 
provided a Section 5000C Certificate (such as Form W-14, ``Certificate 
of Foreign Contracting Party Receiving Federal Procurement Payments'') 
to the acquiring agency in accordance with section 5000C and the 
regulations thereunder.
    (2) Reporting is waived for an individual if payments or income 
items otherwise reportable under this section (other than by reason of 
paragraph (b)(8) of this section), received by the individual during the 
course of the taxable year do not exceed $10,000 in the aggregate or, in 
the case of payments or income items reportable only by reason of 
paragraph (b)(8) of this section, do not exceed $100,000 in the 
aggregate.
    (3) Reporting with respect to payments or income items the treatment 
of which is mandated by the terms of a closing agreement with the 
Internal Revenue Service, and that would otherwise be subject to the 
reporting requirements of this section, is also waived.
    (4) If a partnership, trust, or estate that has the taxpayer as a 
partner or beneficiary discloses on its information return a position 
for which reporting is otherwise required by the taxpayer, the taxpayer 
(partner or beneficiary) is then excused from disclosing that position 
on a return.
    (5) This section does not apply to a withholding agent with respect 
to the performance of its withholding functions.
    (6)(i) For taxable years ending after December 31, 2004, except as 
provided in paragraph (c)(6)(ii) of this section, reporting under 
paragraph (b)(4)(ii) of this section is waived for amounts received by a 
related party, within the meaning of section 6038A(c)(2), from a 
withholding agent that is a reporting corporation, within the meaning of 
section 6038A(a), and that are properly reported on Form 1042-S.
    (ii) Paragraph (c)(6)(i) of this section does not apply to any 
amounts for which reporting is specifically required under the 
instructions to Form 8833.
    (7)(i) For taxable years ending after December 31, 2004, except as 
provided in paragraph (c)(7)(iv) of this section, reporting under 
paragraph (b)(4)(ii) of this section is waived for amounts properly 
reported on Form 1042-S (on either a specific payee or pooled basis) by 
a withholding agent described in paragraph (c)(7)(ii) of this section if 
the beneficial owner is described in paragraph (c)(7)(iii) of this 
section.
    (ii) A withholding agent described in this paragraph (c)(7)(ii) is a 
U.S. financial institution, as defined in Sec.  1.1441-1(c)(5) of this 
chapter, a qualified intermediary, as defined in Sec.  1.1441-
1(e)(5)(ii) of this chapter, a withholding foreign partnership, as 
defined Sec.  1.1441-5(c)(2)(i) of this chapter, or a withholding 
foreign trust, as defined in Sec.  1.1441-5(e)(5)(v) of this chapter.
    (iii) A beneficial owner described in this paragraph (c)(7)(iii) of 
this section is a direct account holder of a U.S. financial institution 
or qualified intermediary, a direct partner of a withholding foreign 
partnership, or a direct beneficiary or owner of a simple or grantor 
trust that is a withholding foreign trust. A beneficial owner described 
in this paragraph (c)(7)(iii) also includes an account holder to which a 
qualified intermediary has applied section 4A.01 or 4A.02 of the 
qualified intermediary agreement, contained in Revenue Procedure 2000-12 
(2000-1 C.B. 387), (as amended by Revenue Procedure 2003-64, (2003-2 
C.B. 306); Revenue Procedure 2004-21 (2004-1 C.B. 702); Revenue 
Procedure 2005-77 (2005-51 I.R.B. 1176) (see Sec.  601.601(b)(2) of this 
chapter) a partner to which a withholding foreign partnership has 
applied section 10.01 or 10.02 of the withholding foreign partnership 
agreement, and a beneficiary or owner to which a withholding foreign 
trust has applied section 10.01 or 10.02 of the withholding foreign 
trust agreement, contained in Revenue Procedure 2003-64, (2003-2 C.B. 
306), (as amended by Revenue Procedure 2004-21 (2004-1 C.B. 702); 
Revenue Procedure 2005-77 (2005-51 I.R.B. 1176); (see Sec.  
601.601(b)(2) of this chapter).
    (iv) Paragraph (c)(7)(i) of this section does not apply to any 
amounts for

[[Page 185]]

which reporting is specifically required under the instructions to Form 
8833.
    (8)(i) For taxable years ending after December 31, 2004, except as 
provided in paragraph (c)(8)(ii) of this section, reporting under 
paragraph (b)(4)(ii) of this section is waived for taxpayers that are 
not individuals or States and that receive amounts of income that have 
been properly reported on Form 1042-S, that do not exceed $500,000 in 
the aggregate for the taxable year and that are not received through an 
account with an intermediary, as defined in Sec.  1.1441-1(c) (13), or 
with respect to interest in a flow-through entity, as defined in Sec.  
1.1441-1(c)(23),
    (ii) The exception contained in paragraph (c)(8)(i) of this section 
does not apply to any amounts for which reporting is specifically 
required under the instructions to Form 8833.
    (d) Information to be reported--(1) Returns due after December 15, 
1997. When reporting is required under this section for a return 
relating to a taxable year for which the due date (without extensions) 
is after December 15, 1997, the taxpayer must furnish, in accordance 
with paragraph (a) of this section, as an attachment to the return, a 
fully completed Form 8833 (Treaty-Based Return Position Disclosure Under 
Section 6114 or 7701(b)) or appropriate successor form.
    (2) Earlier returns. For returns relating to taxable years for which 
the due date for filing returns (without extensions) is on or before 
December 15, 1997, the taxpayer must furnish information in accordance 
with paragraph (d) of this section in effect prior to December 15, 1997 
(see Sec.  301.6114-1(d) as contained in 26 CFR part 301, revised April 
1, 1997).
    (3) In general--(i) Permanent establishment. For purposes of 
determining the nature and amount (or reasonable estimate thereof) of 
gross receipts, if a taxpayer takes a position that it does not have a 
permanent establishment or a fixed base in the United States and 
properly discloses that position, it need not separately report its 
payment of actual or deemed dividends or interest exempt from tax by 
reason of a treaty (or any liability for tax imposed by reason of 
section 884).
    (ii) Single income item. For purposes of the statement of facts 
relied upon to support each separate Treaty-Based Return Position taken, 
a taxpayer may treat payments or income items of the same type (e.g., 
interest items) received from the same ultimate payor (e.g., the obligor 
on a note) as a single separate payment or income item.
    (iii) Foreign source effectively connected income. If a taxpayer 
takes the return position that, under the treaty, income that would be 
income effectively connected with a U.S. trade or business is not 
subject to U.S. taxation because it is income treated as derived from 
sources outside the United States, the taxpayer may treat payments or 
income items of the same type (e.g., interest items) as a single 
separate payment or income item.
    (iv) Sales or services income. Income from separate sales or 
services, whether or not made or performed by an agent (independent or 
dependent), to different U.S. customers on behalf of a foreign 
corporation not having a permanent establishment in the United States 
may be treated as a single payment or income item.
    (v) Foreign insurers or reinsurers. For purposes of reporting by 
foreign insurers or reinsurers, as described in paragraph (c)(1)(vii)(B) 
of this section, such reporting must separately set forth premiums paid 
with respect to casualty insurance and indemnity bonds (subject to 
section 4371(1)); life insurance, sickness and accident policies, and 
annuity contracts (subject to section 4371(2)); and reinsurance (subject 
to section 4371(3)). All premiums paid with respect to each of these 
three categories may be treated as a single payment or income item 
within that category. For reports first due before May 1, 1991, the 
report may disclose, for each of the three categories, the total amount 
of premiums derived by the foreign insurer or reinsurer in U.S. dollars 
(even if a portion of these premiums relate to risks that are not U.S. 
situs). Reasonable estimates of the amounts required to be disclosed 
will satisfy these reporting requirements.
    (e) Effective/applicability date--(1) In general. This section is 
effective for taxable years of the taxpayer for which the due date for 
filing returns (without

[[Page 186]]

extensions) occurs after December 31, 1988. However, if--
    (i) A taxpayer has filed a return for such a taxable year, without 
complying with the reporting requirement of this section, before 
November 13, 1989, or
    (ii) A taxpayer is not otherwise than by paragraph (a) of this 
section required to file a return for a taxable year before November 13, 
1989, such taxpayer must file (apart from any earlier filed return) the 
statement required by paragraph (d) of this section before June 12, 
1990, by mailing the required statement to the Internal Revenue Service, 
P.O. Box 21086, Philadelphia, PA 19114. Any such statement filed apart 
from a return must be dated, signed and sworn to by the taxpayer under 
the penalties of perjury. In addition, with respect to any return due 
(without extensions) on or before March 10, 1990, the reporting required 
by paragraph (a) of this section must be made no later than June 12, 
1990. If a taxpayer files or has filed a return on or before November 
13, 1989, that provides substantially the same information required by 
paragraph (d) of this section, no additional submission will be 
required. Foreign insurers and reinsurers subject to reporting described 
in paragraph (c)(7)(ii) of this section must so report for calendar 
years 1988 and 1989 no later than August 15, 1990.
    (2) Section 5000C. Paragraph (c)(1)(ix) of this section applies to 
payments made on and after November 16, 2016 pursuant to contracts 
entered into on and after January 2, 2011. However, a taxpayer that 
receives payments exempt from tax under section 5000C by reason of a 
qualified income tax treaty before November 16, 2016 is not required to 
disclose this position on Form 8833, provided it has properly relied on 
Notice 2015-35, I.R.B. 2016-14, 533, in claiming the exemption.
    (f) Cross reference. For the provisions concerning penalties for 
failure to disclose a treaty-based return position, see section 6712 and 
Sec.  301.6712-1.

[T.D. 8292, 55 FR 9440, Mar. 14, 1990; 55 FR 10237, Mar. 20, 1990, as 
amended by T.D. 8305, 55 FR 28609, July 12, 1990; T.D. 8733, 62 FR 
53385, Oct. 14, 1997; T.D. 8734, 62 FR 53495, Oct. 14, 1997; T.D. 8804, 
63 FR 72189, Dec. 31, 1998; T.D. 8856, 64 FR 73413, Dec. 30, 1999; T.D. 
9253, 71 FR 13007, Mar. 14, 2006; 71 FR 27321, May 10, 2006; T.D. 9782, 
81 FR 55145, Aug. 18, 2016]



                      Time and Place for Paying Tax

                  Place and Due Date for Payment of Tax



Sec.  301.6151-1  Time and place for paying tax shown on returns.

    For provisions concerning the time and place for paying tax shown on 
returns with respect to a particular tax, see the regulations relating 
to such tax.



Sec.  301.6153-1  Installment payments of estimated income tax by individuals.

    For provisions relating to installment payments of estimated income 
tax by individuals, see Sec. Sec.  1.6153-1 to 1.6153-4, inclusive, of 
this chapter (Income Tax Regulations).



Sec.  301.6155-1  Payment on notice and demand.

    Upon receipt of notice and demand from the district director 
(including the Director of International Operations) or the director of 
the regional service center, there shall be paid at the place and time 
stated in such notice the amount of any tax (including any interest, 
additional amounts, additions to the tax, and assessable penalties) 
stated in such notice and demand.



Sec.  301.6159-0  Table of contents.

    This section lists the major captions that appear in the regulations 
under Sec.  301.6159-1.

   Sec.  301.6159-1 Agreements for the payment of tax liabilities in 
                              installments.

    (a) Authority.
    (b) Procedures for submission and consideration of proposed 
installment agreements.
    (c) Acceptance, form, and terms of installment agreements.
    (d) Rejection of a proposed installment agreement.
    (e) Modification or termination of installment agreements by the 
Internal Revenue Service.
    (f) Effect of installment agreement or pending installment agreement 
on collection activity.
    (g) Suspension of the statute of limitations on collection.
    (h) Annual statement.
    (i) Biennial review of partial payment installment agreements.
    (j) Cross reference.

[[Page 187]]

    (k) Effective/applicability date.

[T.D. 9473, 74 FR 61528, Nov. 25, 2009]



Sec.  301.6159-1  Agreements for payment of tax liabilities in installments.

    (a) Authority. The Commissioner may enter into a written agreement 
with a taxpayer that allows the taxpayer to make scheduled periodic 
payments of any tax liability if the Commissioner determines that such 
agreement will facilitate full or partial collection of the tax 
liability.
    (b) Procedures for submission and consideration of proposed 
installment agreements--(1) In general. A proposed installment agreement 
must be submitted according to the procedures, and in the form and 
manner, prescribed by the Commissioner.
    (2) When a proposed installment agreement becomes pending. A 
proposed installment agreement becomes pending when it is accepted for 
processing. The Internal Revenue Service (IRS) may not accept a proposed 
installment agreement for processing following reference of a case 
involving the liability that is the subject of the proposed installment 
agreement to the Department of Justice for prosecution or defense. The 
proposed installment agreement remains pending until the IRS accepts the 
proposal, the IRS notifies the taxpayer that the proposal has been 
rejected, or the proposal is withdrawn by the taxpayer. If a proposed 
installment agreement that has been accepted for processing does not 
contain sufficient information to permit the IRS to evaluate whether the 
proposal should be accepted, the IRS will request the taxpayer to 
provide the needed additional information. If the taxpayer does not 
submit the additional information that the IRS has requested within a 
reasonable time period after such a request, the IRS may reject the 
proposed installment agreement.
    (3) Revised proposals of installment agreements submitted following 
rejection. If, following the rejection of a proposed installment 
agreement, the IRS determines that the taxpayer made a good faith 
revision of the proposal and submitted the revision within 30 days of 
the date of rejection, the provisions of this section shall apply to 
that revised proposal. If, however, the IRS determines that a revision 
was not made in good faith, the provisions of this section do not apply 
to the revision and the appeal period in paragraph (d)(3) of this 
section continues to run from the date of the original rejection.
    (c) Acceptance, form, and terms of installment agreements--(1) 
Acceptance of an installment agreement--(i) In general. A proposed 
installment agreement has not been accepted until the IRS notifies the 
taxpayer or the taxpayer's representative of the acceptance. Except as 
provided in paragraph (c)(1)(iii) of this section, the Commissioner has 
the discretion to accept or reject any proposed installment agreement.
    (ii) Acceptance does not reduce liabilities. The acceptance of an 
installment agreement by the IRS does not reduce the amount of taxes, 
interest, or penalties owed. (However, penalties may continue to accrue 
at a reduced rate pursuant to section 6651(h).)
    (iii) Guaranteed installment agreements. In the case of a liability 
of an individual for income tax, the Commissioner shall accept a 
proposed installment agreement if, as of the date the individual 
proposes the installment agreement--
    (A) The aggregate amount of the liability (not including interest, 
penalties, additions to tax, and additional amounts) does not exceed 
$10,000;
    (B) The taxpayer (and, if the liability relates to a joint return, 
the taxpayer's spouse) has not, during any of the preceding five taxable 
years--
    (1) Failed to file any income tax return;
    (2) Failed to pay any required income tax; or
    (3) Entered into an installment agreement for the payment of any 
income tax;
    (C) The Commissioner determines that the taxpayer is financially 
unable to pay the liability in full when due (and the taxpayer submits 
any information the Commissioner requires to make that determination);
    (D) The installment agreement requires full payment of the liability 
within three years; and
    (E) The taxpayer agrees to comply with the provisions of the 
Internal

[[Page 188]]

Revenue Code for the period the agreement is in effect.
    (2) Form of installment agreements. An installment agreement must be 
in writing. A written installment agreement may take the form of a 
document signed by the taxpayer and the Commissioner or a written 
confirmation of an agreement entered into by the taxpayer and the 
Commissioner that is mailed or personally delivered to the taxpayer.
    (3) Terms of installment agreements. (i) Except as otherwise 
provided in this section, an installment agreement is effective from the 
date the IRS notifies the taxpayer or the taxpayer's representative of 
its acceptance until the date the agreement ends by its terms or until 
it is superseded by a new installment agreement.
    (ii) By its terms, an installment agreement may end upon the 
expiration of the period of limitations on collection in section 6502 
and Sec.  301.6502-1, or at some prior date.
    (iii) As a condition to entering into an installment agreement with 
a taxpayer, the Commissioner may require that--
    (A) The taxpayer agree to a reasonable extension of the period of 
limitations on collection; and
    (B) The agreement contain terms that protect the interests of the 
Government.
    (iv) Except as otherwise provided in an installment agreement, all 
payments made under the installment agreement will be applied in the 
best interests of the Government.
    (v) While an installment agreement is in effect, the Commissioner 
may request, and the taxpayer must provide, a financial condition update 
at any time.
    (vi) At any time after entering into an installment agreement, the 
Commissioner and the taxpayer may agree to modify or terminate an 
installment agreement or may agree to a new installment agreement that 
supersedes the existing agreement.
    (d) Rejection of a proposed installment agreement--(1) When a 
proposed installment agreement becomes rejected. A proposed installment 
agreement has not been rejected until the IRS notifies the taxpayer or 
the taxpayer's representative of the rejection, the reason(s) for 
rejection, and the right to an appeal.
    (2) Independent administrative review. The IRS may not notify a 
taxpayer or taxpayer's representative of the rejection of an installment 
agreement until an independent administrative review of the proposed 
rejection is completed.
    (3) Appeal of rejection of a proposed installment agreement. The 
taxpayer may administratively appeal a rejection of a proposed 
installment agreement to the IRS Office of Appeals (Appeals) if, within 
the 30-day period commencing the day after the taxpayer is notified of 
the rejection, the taxpayer requests an appeal in the manner provided by 
the Commissioner.
    (e) Modification or termination of installment agreements by the 
Internal Revenue Service--(1) Inadequate information or jeopardy. The 
Commissioner may terminate an installment agreement if the Commissioner 
determines that--
    (i) Information which was provided to the IRS by the taxpayer or the 
taxpayer's representative in connection with either the granting of the 
installment agreement or a request for a financial update was inaccurate 
or incomplete in any material respect; or
    (ii) Collection of any liability to which the installment agreement 
applies is in jeopardy.
    (2) Change in financial condition, failure to timely pay an 
installment or another Federal tax liability, or failure to provide 
requested financial information. The Commissioner may modify or 
terminate an installment agreement if--
    (i) The Commissioner determines that the financial condition of a 
taxpayer that is party to the agreement has significantly changed; or
    (ii) A taxpayer that is party to the installment agreement fails 
to--
    (A) Timely pay an installment in accordance with the terms of the 
installment agreement;
    (B) Pay any other Federal tax liability when the liability becomes 
due; or
    (C) Provide a financial condition update requested by the 
Commissioner.
    (3) Request by taxpayer. Upon request by a taxpayer that is a party 
to the installment agreement, the Commissioner may terminate or modify 
the terms of an installment agreement if the Commissioner determines 
that the

[[Page 189]]

financial condition of the taxpayer has significantly changed. The 
taxpayer's request will not suspend the statute of limitations under 
section 6502 for collection of any liability. While the Commissioner is 
considering the request, the taxpayer shall comply with the terms of the 
existing installment agreement.
    (4) Notice. Unless the Commissioner determines that collection of 
the tax is in jeopardy, the Commissioner will notify the taxpayer in 
writing at least 30 days prior to modifying or terminating an 
installment agreement pursuant to paragraph (e)(1) or (2) of this 
section. The notice provided pursuant to this section must briefly 
describe the reason for the intended modification or termination. Upon 
receiving notice, the taxpayer may provide information showing that the 
reason for the proposed modification or termination is incorrect.
    (5) Appeal of modification or termination of an installment 
agreement. The taxpayer may administratively appeal the modification or 
termination of an installment agreement to Appeals if, following 
issuance of the notice required by paragraph (e)(4) of this section and 
prior to the expiration of the 30-day period commencing the day after 
the modification or termination is to take effect, the taxpayer requests 
an appeal in the manner provided by the Commissioner.
    (f) Effect of installment agreement or pending installment agreement 
on collection activity--(1) In general. No levy may be made to collect a 
tax liability that is the subject of an installment agreement during the 
period that a proposed installment agreement is pending with the IRS, 
for 30 days immediately following the rejection of a proposed 
installment agreement, during the period that an installment agreement 
is in effect, and for 30 days immediately following the termination of 
an installment agreement. If, prior to the expiration of the 30-day 
period following the rejection or termination of an installment 
agreement, the taxpayer appeals the rejection or termination decision, 
no levy may be made while the rejection or termination is being 
considered by Appeals. This section will not prohibit levy to collect 
the liability of any person other than the person or persons named in 
the installment agreement.
    (2) Exceptions. Paragraph (f)(1) of this section shall not prohibit 
levy if the taxpayer files a written notice with the IRS that waives the 
restriction on levy imposed by this section, the IRS determines that the 
proposed installment agreement was submitted solely to delay collection, 
or the IRS determines that collection of the tax to which the 
installment agreement or proposed installment agreement relates is in 
jeopardy.
    (3) Other actions by the IRS while levy is prohibited--(i) In 
general. The IRS may take actions other than levy to protect the 
interests of the Government with regard to the liability identified in 
an installment agreement or proposed installment agreement. Those 
actions include, for example--
    (A) Crediting an overpayment against the liability pursuant to 
section 6402;
    (B) Filing or refiling notices of Federal tax lien; and
    (C) Taking action to collect from any person who is not named in the 
installment agreement or proposed installment agreement but who is 
liable for the tax to which the installment agreement relates.
    (ii) Proceedings in court. Except as otherwise provided in this 
paragraph (f)(3)(ii), the IRS will not refer a case to the Department of 
Justice for the commencement of a proceeding in court, against a person 
named in an installment agreement or proposed installment agreement, if 
levy to collect the liability is prohibited by paragraph (f)(1) of this 
section. Without regard to whether a person is named in an installment 
agreement or proposed installment agreement, however, the IRS may 
authorize the Department of Justice to file a counterclaim or third-
party complaint in a refund action or to join that person in any other 
proceeding in which liability for the tax that is the subject of the 
installment agreement or proposed installment agreement may be 
established or disputed, including a suit against the United States 
under 28 U.S.C. 2410. In addition, the United States may file a claim in 
any bankruptcy proceeding or

[[Page 190]]

insolvency action brought by or against such person. If a person named 
in an installment agreement is joined in a proceeding, the United States 
obtains a judgment against that person, and the case is referred back to 
the IRS for collection, collection will continue to occur pursuant to 
the terms of the installment agreement. Notwithstanding the installment 
agreement, any claim or suit permitted will be for the full amount of 
the liabilities owed.
    (g) Suspension of the statute of limitations on collection. The 
statute of limitations under section 6502 for collection of any 
liability shall be suspended during the period that a proposed 
installment agreement relating to that liability is pending with the 
IRS, for 30 days immediately following the rejection of a proposed 
installment agreement, and for 30 days immediately following the 
termination of an installment agreement. If, within the 30 days 
following the rejection or termination of an installment agreement, the 
taxpayer files an appeal with Appeals, the statute of limitations for 
collection shall be suspended while the rejection or termination is 
being considered by Appeals. The statute of limitations for collection 
shall continue to run if an exception under paragraph (f)(2) of this 
section applies and levy is not prohibited with respect to the taxpayer.
    (h) Annual statement. The Commissioner shall provide each taxpayer 
who is party to an installment agreement under this section with an 
annual statement setting forth the initial balance owed at the beginning 
of the year, the payments made during the year, and the remaining 
balance as of the end of the year.
    (i) Biennial review of partial payment installment agreements. The 
Commissioner shall perform a review of the taxpayer's financial 
condition in the case of a partial payment installment agreement at 
least once every two years. The purpose of this review is to determine 
whether the taxpayer's financial condition has significantly changed so 
as to warrant an increase in the value of the payments being made or 
termination of the agreement.
    (j) Cross reference. Pursuant to section 6601(b)(1), the last day 
prescribed for payment is determined without regard to any installment 
agreement, including for purposes of computing penalties and interest 
provided by the Internal Revenue Code. For special rules regarding the 
computation of the failure to pay penalty while certain installment 
agreements are in effect, see section 6651(h) and Sec.  301.6651-
1(a)(4).
    (k) Effective/applicability date. This section is applicable on 
November 25, 2009.

[T.D. 9473, 74 FR 61528, Nov. 25, 2009]

                      Extension of Time for Payment



Sec.  301.6161-1  Extension of time for paying tax.

    For provisions concerning the extension of time for paying a 
particular tax or for paying an amount determined as a deficiency, see 
the regulations relating to such tax.



Sec.  301.6162-1  Extension of time for payment of tax on gain 
attributable to liquidation of personal holding companies.

    For provisions relating to the extension of time for payment of tax 
on gain attributable to liquidation of personal holding companies, see 
Sec.  1.6162-1 of this chapter (Income Tax Regulations).



Sec.  301.6163-1  Extension of time for payment of estate tax on value 
of reversionary or remainder interest in property.

    For provisions relating to the extension of time for payment of 
estate tax on value of reversionary or remainder interest in property, 
see Sec.  20.6163-1 of this chapter (Estate Tax Regulations).



Sec.  301.6164-1  Extension of time for payment of taxes by corporations 
expecting carrybacks.

    For provisions relating to the extension of time for payment of 
taxes by corporations expecting carrybacks, see Sec. Sec.  1.6164-1 to 
1.6164-9, inclusive, of this chapter (Income Tax Regulations).



Sec.  301.6165-1  Bonds where time to pay the tax or deficiency 
has been extended.

    For provisions concerning bonds where time to pay a tax or 
deficiency has been extended, see the regulations relating to the 
particular tax.

[[Page 191]]



Sec.  301.6166-1  Extension of time for payment of estate tax where estate 
consists largely of interest in closely held business.

    For provisions relating to the extension of time for payment of 
estate tax where estate consists largely of interest in closely held 
business, see Sec. Sec.  20.6166-1 to 20.6166-4, inclusive, of this 
chapter (Estate Tax Regulations).



                               Assessment

                               In General



Sec.  301.6201-1  Assessment authority.

    (a) In general. The district director is authorized and required to 
make all inquiries necessary to the determination and assessment of all 
taxes imposed by the Internal Revenue Code of 1954 or any prior internal 
revenue law. The district director is further authorized and required, 
and the director of the regional service center is authorized, to make 
the determinations and the assessments of such taxes. However, certain 
inquiries and determinations are, by direction of the Commissioner, made 
by other officials, such as assistant regional commissioners. The term 
``taxes'' includes interest, additional amounts, additions to the taxes, 
and assessable penalties. The authority of the district director and the 
director of the regional service center to make assessments includes the 
following:
    (1) Taxes shown on return. The district director or the director of 
the regional service center shall assess all taxes determined by the 
taxpayer or by the district director or the director of the regional 
service center and disclosed on a return or list.
    (2) Unpaid taxes payable by stamp. (i) If without the use of the 
proper stamp:
    (a) Any article upon which a tax is required to be paid by means of 
a stamp is sold or removed for sale or use by the manufacturer thereof, 
or
    (b) Any transaction or act upon which a tax is required to be paid 
by means of a stamp occurs;

The district director, upon such information as he can obtain, must 
estimate the amount of the tax which has not been paid and the district 
director or the director of the regional service center must make 
assessment therefor upon the person the district director determines to 
be liable for the tax. However, the district director or the director of 
the regional service center may not assess any tax which is payable by 
stamp unless the taxpayer fails to pay such tax at the time and in the 
manner provided by law or regulations.
    (ii) If a taxpayer gives a check or money order as a payment for 
stamps but the check or money order is not paid upon presentment, then 
the district director or the director of the regional service center 
shall assess the amount of the check or money order against the taxpayer 
as if it were a tax due at the time the check or money order was 
received by the district director.
    (3) Erroneous income tax prepayment credits. If the amount of income 
tax withheld or the amount of estimated income tax paid is overstated by 
a taxpayer on a return or on a claim for refund, the amount so 
overstated which is allowed against the tax shown on the return or which 
is allowed as a credit or refund shall be assessed by the district 
director or the director of the regional service center in the same 
manner as in the case of a mathematical error on the return. See section 
6213 (b)(1), relating to exceptions to restrictions on assessment.
    (b) Estimated income tax. Neither the district director nor the 
director of the regional service center shall assess any amount of 
estimated income tax required to be paid under section 6153 or 6154 
which is unpaid.
    (c) Compensation of child. Any income tax assessed against a child, 
to the extent of the amount attributable to income included in the gross 
income of the child solely by reason of section 73(a) or the 
corresponding provision of prior law, if not paid by the child, shall, 
for the purposes of the income tax imposed by chapter 1 of the Code (or 
the corresponding provisions of prior law), be considered as having also 
been properly assessed against the parent. In any case in which the 
earnings of the child are included in the gross income of the child 
solely by reason of section 73(a) or the corresponding provision of 
prior law, the parent's liability is an amount equal to the amount by 
which the tax assessed against the

[[Page 192]]

child (and not paid by him) has been increased by reason of the 
inclusion of such earnings in the gross income of the child. Thus, if 
for the calendar year 1954 the child has income of $1,000 from 
investments and of $3,000 for services rendered, and the latter amount 
is includible in the gross income of the child under section 73(a) and 
the child has no wife or dependents, the tax liability determined under 
section 3 is $625. If the child had only the investment income of 
$1,000, his tax liability would be $62. If the tax of $625 is assessed 
against the child, the difference between $625 and $62, or $563, is the 
amount of such tax which is considered to have been properly assessed 
against the parent, if not paid by the child.



Sec.  301.6203-1  Method of assessment.

    The district director and the director of the regional service 
center shall appoint one or more assessment officers. The district 
director shall also appoint assessment officers in a Service Center 
servicing his district. The assessment shall be made by an assessment 
officer signing the summary record of assessment. The summary record, 
through supporting records, shall provide identification of the 
taxpayer, the character of the liability assessed, the taxable period, 
if applicable, and the amount of the assessment. The amount of the 
assessment shall, in the case of tax shown on a return by the taxpayer, 
be the amount so shown, and in all other cases the amount of the 
assessment shall be the amount shown on the supporting list or record. 
The date of the assessment is the date the summary record is signed by 
an assessment officer. If the taxpayer requests a copy of the record of 
assessment, he shall be furnished a copy of the pertinent parts of the 
assessment which set forth the name of the taxpayer, the date of 
assessment, the character of the liability assessed, the taxable period, 
if applicable, and the amounts assessed.



Sec.  301.6204-1  Supplemental assessments.

    If any assessment is incomplete or incorrect in any material 
respect, the district director or the director of the regional service 
center, subject to the restrictions with respect to the assessment of 
deficiencies in income, estate, gift, chapter 41, 42, 43, and 44 taxes, 
and subject to the applicable period of limitation, may make a 
supplemental assessment for the purpose of correcting or completing the 
original assessment.

[T.D. 7838, 47 FR 44249, Oct. 7, 1982]



Sec.  301.6205-1  Special rules applicable to certain employment taxes.

    For regulations under section 6205, see Sec.  31.6205-1 of this 
chapter (Employment Tax Regulations).

                          Deficiency Procedures



Sec.  301.6211-1  Deficiency defined.

    (a) In the case of the income tax imposed by subtitle A of the Code, 
the estate tax imposed by chapter 11, subtitle B, of the Code, the gift 
tax imposed by chapter 12, subtitle B, of the Code, and any excise tax 
imposed by chapter 41, 42, 43, or 44 of the Code, the term 
``deficiency'' means the excess of the tax, (income, estate, gift, or 
excise tax as the case may be) over the sum of the amount shown as such 
tax by the taxpayer upon his return and the amounts previously assessed 
(or collected without assessment) as a deficiency; but such sum shall 
first be reduced by the amount of rebates made. If no return is made, or 
if the return (except a return of income tax pursuant to sec. 6014) does 
not show any tax, for the purpose of the definition ``the amount shown 
as the tax by the taxpayer upon his return'' shall be considered as 
zero. Accordingly, in any such case, if no deficiencies with respect to 
the tax have been assessed, or collected without assessment, and no 
rebates with respect to the tax have been made, the deficiency is the 
amount of the income tax imposed by subtitle A, the estate tax imposed 
by chapter 11, the gift tax imposed by chapter 12, or any excise tax 
imposed by chapter 41, 42, 43, or 44. Any amount shown as additional tax 
on an ``amended return,'' so-called (other than amounts of additional 
tax which such return clearly indicates the taxpayer is protesting 
rather than admitting) filed after the due date of the return, shall be 
treated as an amount shown by the taxpayer ``upon his return'' for 
purposes of computing the amount of a deficiency.

[[Page 193]]

    (b) For purposes of the definition, the income tax imposed by 
subtitle A and the income tax shown on the return shall both be 
determined without regard to the credit provided in section 31 for 
income tax withheld at the source and without regard to so much of the 
credit provided in section 32 for income taxes withheld at the source as 
exceeds 2 percent of the interest on tax-free covenant bonds described 
in section 1451. Payments on account of estimated income tax, like other 
payments of tax by the taxpayer, shall likewise be disregarded in the 
determination of a deficiency. Any credit resulting from the collection 
of amounts assessed under section 6851 or 6852 as the result of a 
termination assessment shall not be taken into account in determining a 
deficiency.
    (c) The computation by the Internal Revenue Service, pursuant to 
section 6014, of the income tax imposed by subtitle A shall be 
considered as having been made by the taxpayer and the tax so computed 
shall be considered as the tax shown by the taxpayer upon his return.
    (d) If so much of the credit claimed on the return for income taxes 
withheld at the source as exceeds 2 percent of the interest on tax-free 
convenant bonds is greater than the amount of such credit allowable, the 
unpaid portion of the tax attributable to such difference will be 
collected not as a deficiency but as an underpayment of the tax shown on 
the return.
    (e) This section may be illustrated by the following examples:

    Example 1. The amount of income tax shown by the taxpayer upon his 
return for the calendar year 1954 was $1,600. The taxpayer had no 
amounts previously assessed (or collected without assessment) as a 
deficiency. He claimed a credit in the amount of $2,050 for tax withheld 
at source on wages under section 3402, and a refund of $450 (not a 
rebate under section 6211) was made to him as an overpayment of tax for 
the taxable year. It is later determined that the correct tax for the 
taxable year is $1,850. A deficiency of $250 is determined as follows:

Tax imposed by subtitle A.............................   $1,850
Tax shown on return...................................   $1,600
Tax previously assessed (or collected without              None
 assessment) as a deficiency..........................
                                                       ---------
   Total..............................................    1,600
Amount of rebates made................................     None
                                                       ---------
Balance...............................................  .......   51,600
                                                                --------
Deficiency............................................  .......      250
 

    Example 2. The taxpayer made a return for the calendar year 1954 
showing a tax of $1,250 before any credits for tax withheld at the 
source. He claimed a credit in the amount of $800 for tax withheld at 
source on wages under section 3402 and $60 for tax paid at source under 
section 1451 upon interest on bonds containing a tax-free covenant. The 
taxpayer had no amounts previously assessed (or collected without 
assessment) as a deficiency. The district director determines that the 2 
percent tax paid at the source on tax-free covenant bonds is $40 instead 
of $60 as claimed by the taxpayer and that the tax imposed by subtitle A 
is $1,360 (total tax $1,400 less $40 paid at source on tax-free covenant 
bonds). A deficiency in the amount of $170 is determined as follows:

Tax imposed by subtitle A ($1,400 minus $40)...................   $1,360
Tax shown on return ($1,250 minus $60)................   $1,190
Tax previously assessed (or collected without              None
 assessment) as a deficiency..........................
                                                       ---------
   Total..............................................    1,190
Amount of rebates made................................     None
                                                       ---------
Balance...............................................  .......    1,190
                                                                --------
Deficiency............................................  .......      170
 

    (f) As used in section 6211, the term rebate means so much of an 
abatement, credit, refund, or other repayment as is made on the ground 
that the income tax imposed by subtitle A, the estate tax imposed by 
chapter 11, the gift tax imposed by chapter 12, or the excise tax 
imposed by chapter 41, 42, 43, or 44, is less than the excess of (1) the 
amount shown as the tax by the taxpayer upon the return increased by the 
amount previously assessed (or collected without assessment) as a 
deficiency over (2) the amount of rebates previously made. For example, 
assume that the amount of income tax shown by the taxpayer upon his 
return for the taxable year is $600 and the amount claimed as a credit 
under section 31 for income tax withheld at the source is $900. If the 
district director determines that the tax imposed by subtitle A is $600 
and makes a refund of $300, no part of such refund constitutes a 
``rebate'' since the refund is not made on the ground that the tax 
imposed by subtitle A is less than the tax shown on the return. If, 
however, the district director determines that the tax imposed by 
subtitle A is $500 and refunds $400, the amount of $100 of such refund

[[Page 194]]

would constitute a rebate since it is made on the ground that the tax 
imposed by subtitle A ($500) is less than the tax shown on the return 
($600). The amount of such rebate ($100) would be taken into account in 
arriving at the amount of any deficiency subsequently determined.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7102, 36 FR 5498, Mar. 
24, 1971; T.D. 7575, 43 FR 58817, Dec. 18, 1978; T.D. 7838, 47 FR 44249, 
Oct. 7, 1982; T.D. 8628, 60 FR 62212, Dec. 5, 1995]



Sec.  301.6212-1  Notice of deficiency.

    (a) General rule. If a district director or director of a service 
center (or regional director of appeals), determines that there is a 
deficiency in respect of income, estate, or gift tax imposed by subtitle 
A or B, or excise tax imposed by chapter 41, 42, 43, or 44, of the Code, 
such official is authorized to notify the taxpayer of the deficiency by 
either registered or certified mail.
    (b) Address for notice of deficiency--(1) Income, gift, and chapter 
41, 42, 43, and 44 taxes. Unless the district director for the district 
in which the return in question was filed has been notified under the 
provisions of section 6903 as to the existence of a fiduciary 
relationship, notice of a deficiency in respect of income tax, gift tax, 
or tax imposed by chapter 41, 42, 43, or 44 shall be sufficient if 
mailed to the taxpayer at his last known address, even though such 
taxpayer is deceased, or is under a legal disability, or, in the case of 
a corporation, has terminated its existence.
    (2) Joint income tax returns. If a joint income tax return has been 
filed by husband and wife, the district director (or assistant regional 
commissioner, appellate) may, unless the district director for the 
district in which such joint return was filed has been notified by 
either spouse that a separate residence has been established, send 
either a joint or separate notice of deficiency to the taxpayers at 
their last known address. If, however, the proper district director has 
been so notified, a separate notice of deficiency that is a duplicate 
original of the joint notice, must be sent by registered mail prior to 
September 3, 1958, and by either registered or certified mail on and 
after September 3, 1958, to each spouse at his or her last known 
address. The notice of separate residences should be addressed to the 
district director for the district in which the joint return was filed.
    (3) Estate tax. In the absence of notice, under the provisions of 
section 6903 as to the existence of a fiduciary relationship, to the 
district director for the district in which the estate tax return was 
filed, notice of a deficiency in respect of the estate tax imposed by 
chapter 11, subtitle B, of the Code shall be sufficient if addressed in 
the name of the decedent or other person subject to liability and mailed 
to his last known address.
    (c) Further deficiency letters restricted. If the district director 
or director of a service center (or regional director of appeals) mails 
to the taxpayer notice of a deficiency, and the taxpayer files a 
petition with the Tax Court within the prescribed period, no additional 
deficiency may be determined with respect to income tax for the same 
taxable year, gift tax for the same ``calendar period'' (as defined in 
Sec.  25.2502-1(c)(1)), estate tax with respect to the taxable estate of 
the same decedent, chapter 41, 43, or 44 tax of the taxpayer for the 
same taxable year, section 4940 tax for the same taxable year, or 
chapter 42 tax of the taxpayer (other than under section 4940) with 
respect to the same act (or failure to act) to which such petition 
relates. This restriction shall not apply in the case of fraud, 
assertion of deficiencies with respect to any qualified tax (as defined 
in paragraph (b) of Sec.  301.6361-4) in respect of which no deficiency 
was asserted for the taxable year in the notice, assertion of 
deficiencies with respect to the Federal tax when deficiencies with 
respect to only a qualified tax (and not the Federal tax) were asserted 
for the taxable year in the notice, assertion of greater deficiencies 
before the Tax Court as provided in section 6214(a), mathematical errors 
as provided in section 6213(b)(1), termination assessments in section 
6851 or 6852, or jeopardy assessments as provided in section 6861(c). 
Solely for purposes of applying the restriction of section 6212(c), a 
notice of deficiency with respect to second tier tax under chapter 43 
shall be deemed to be a notice of deficiency for the taxable year in 
which the taxable event occurs. See

[[Page 195]]

Sec.  53.4963-1(e)(7)(iii) or (iv) for the date on which the taxable 
event occurs.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7238, 37 FR 28739, Dec. 
29, 1972; T.D. 7579, 43 FR 59360, Dec. 20, 1978; T.D. 7838, 47 FR 44249, 
Oct. 7, 1982; T.D. 7910, 48 FR 40376, Sept. 7, 1983; T.D. 8084, 51 FR 
16305, May 2, 1986; T.D. 8628, 60 FR 62212, Dec. 5, 1995]



Sec.  301.6212-2  Definition of last known address.

    (a) General rule. Except as provided in paragraph (b)(2) of this 
section, a taxpayer's last known address is the address that appears on 
the taxpayer's most recently filed and properly processed Federal tax 
return, unless the Internal Revenue Service (IRS) is given clear and 
concise notification of a different address. Further information on what 
constitutes clear and concise notification of a different address and a 
properly processed Federal tax return can be found in Rev. Proc. 90-18 
(1990-1 C.B. 491) or in procedures subsequently prescribed by the 
Commissioner.
    (b) Address obtained from third party--(1) In general. Except as 
provided in paragraph (b)(2) of this section, change of address 
information that a taxpayer provides to a third party, such as a payor 
or another government agency, is not clear and concise notification of a 
different address for purposes of determining a last known address under 
this section.
    (2) Exception for address obtained from the United States Postal 
Service--(i) Updating taxpayer addresses. The IRS will update taxpayer 
addresses maintained in IRS records by referring to data accumulated and 
maintained in the United States Postal Service (USPS) National Change of 
Address database that retains change of address information for thirty-
six months (NCOA database). Except as provided in paragraph (b)(2)(ii) 
of this section, if the taxpayer's name and last known address in IRS 
records match the taxpayer's name and old mailing address contained in 
the NCOA database, the new address in the NCOA database is the 
taxpayer's last known address, unless the IRS is given clear and concise 
notification of a different address.
    (ii) Duration of address obtained from NCOA database. The address 
obtained from the NCOA database under paragraph (b)(2)(i) of this 
section is the taxpayer's last known address until one of the following 
events occurs--
    (A) The taxpayer files and the IRS properly processes a Federal tax 
return with an address different from the address obtained from the NCOA 
database; or
    (B) The taxpayer provides the Internal Revenue Service with clear 
and concise notification of a change of address, as defined in 
procedures prescribed by the Commissioner, that is different from the 
address obtained from the NCOA database.
    (3) Examples. The following examples illustrate the rules of 
paragraph (b)(2) of this section:

    Example 1. (i) A is an unmarried taxpayer. The address on A's 1999 
Form 1040, U.S. Individual Income Tax Return, filed on April 14, 2000, 
and 2000 Form 1040 filed on April 13, 2001, is 1234 Anyplace Street, 
Anytown, USA 43210. On May 15, 2001, A informs the USPS of a new 
permanent address (9876 Newplace Street, Newtown, USA 12345) using the 
USPS Form 3575, ``Official Mail Forwarding Change of Address Form.'' The 
change of address is included in the weekly update of the USPS NCOA 
database. On May 29, 2001, A's address maintained in IRS records is 
changed to 9876 Newplace Street, Newtown, USA 12345.
    (ii) In June 2001 the IRS determines a deficiency for A's 1999 tax 
year and prepares to issue a notice of deficiency. The IRS obtains A's 
address for the notice of deficiency from IRS records. On June 15, 2001, 
the Internal Revenue Service mails the notice of deficiency to A at 9876 
Newplace Street, Newtown, USA 12345. For purposes of section 6212(b), 
the notice of deficiency mailed on June 15, 2001, is mailed to A's last 
known address.
    Example 2. (i) The facts are the same as in Example 1, except that 
instead of determining a deficiency for A's 1999 tax year in June 2001, 
the IRS determines a deficiency for A's 1999 tax year in May 2001.
    (ii) On May 21, 2001, the IRS prepares a notice of deficiency for A 
and obtains A's address from IRS records. Because A did not inform the 
USPS of the change of address in sufficient time for the IRS to process 
and post the new address in Internal Revenue Service's records by May 
21, 2001, the notice of deficiency is mailed to 1234 Anyplace Street, 
Anytown, USA 43210. For purposes of section 6212(b), the notice of 
deficiency mailed on May 21, 2001, is mailed to A's last known address.
    Example 3. (i) C and D are married taxpayers. The address on C and 
D's 2000 Form 1040, U.S. Individual Income Tax Return,

[[Page 196]]

filed on April 13, 2001, and 2001 Form 1040 filed on April 15, 2002, is 
2468 Spring Street, Little City, USA 97531. On August 15, 2002, D 
informs the USPS of a new permanent address (8642 Peachtree Street, Big 
City, USA 13579) using the USPS Form 3575, ``Official Mail Forwarding 
Change of Address Form.'' The change of address is included in the 
weekly update of the USPS NCOA database. On August 29, 2002, D's address 
maintained in IRS records is changed to 8642 Peachtree Street, Big City, 
USA 13579.
    (ii) In October 2002 the IRS determines a deficiency for C and D's 
2000 tax year and prepares to issue a notice of deficiency. The Internal 
Revenue Service obtains C's address and D's address for the notice of 
deficiency from IRS records. On October 15, 2002, the IRS mails a copy 
of the notice of deficiency to C at 2468 Spring Street, Little City, USA 
97531, and to D at 8642 Peachtree Street, Big City, USA 13579. For 
purposes of section 6212(b), the notices of deficiency mailed on October 
15, 2002, are mailed to C and D's respective last known addresses.

    (c) Last known address for all notices, statements, and documents. 
The rules in paragraphs (a) and (b) of this section apply for purposes 
of determining whether all notices, statements, or other documents are 
mailed to a taxpayer's last known address whenever the term last known 
address is used in the Internal Revenue Code or the regulations 
thereunder.
    (d) Effective Date--(1) In general. Except as provided in paragraph 
(d)(2) of this section, this section is effective on January 29, 2001.
    (2) Individual moves in the case of joint filers. In the case of 
taxpayers who file joint returns under section 6013, if the NCOA 
database contains change of address information for only one spouse, 
paragraphs (b)(2) and (3) of this section will not apply to notices, 
statements, and other documents mailed before the processing of the 
taxpayers' 2000 joint return.

[T.D. 8939, 66 FR 2820, Jan. 12, 2001]



Sec.  301.6213-1  Restrictions applicable to deficiencies; 
petition to Tax Court.

    (a) Time for filing petition and restrictions on assessment--(1) 
Time for filing petition. Within 90 days after notice of the deficiency 
is mailed (or within 150 days after mailing in the case of such notice 
addressed to a person outside the States of the Union and the District 
of Columbia), as provided in section 6212, a petition may be filed with 
the Tax Court of the United States for a redetermination of the 
deficiency. In determining such 90-day or 150-day period, Saturday, 
Sunday, or a legal holiday in the District of Columbia is not counted as 
the 90th or 150th day. In determining the time for filing a petition 
with the Tax Court in the case of a notice of deficiency mailed to a 
resident of Alaska prior to 12:01 p.m., e.s.t., January 3, 1959, and in 
the case of a notice of deficiency mailed to a resident of Hawaii prior 
to 4 p.m., e.d.s.t., August 21, 1959, the term ``States of the Union'' 
does not include Alaska or Hawaii, respectively, and the 150-day period 
applies. In determining the time within which a petition to the Tax 
Court may be filed in the case of a notice of deficiency mailed to a 
resident of Alaska after 12:01 p.m., e.s.t., January 3, 1959, and in the 
case of a notice of deficiency mailed to a resident of Hawaii after 4 
p.m., e.d.s.t., August 21, 1959, the term ``States of the Union'' 
includes Alaska and Hawaii, respectively, and the 90-day period applies.
    (2) Restrictions on assessment. Except as otherwise provided by this 
section, by sections 6851, 6852, and 6861(a) (relating to termination 
and jeopardy assessments), by section 6871(a) (relating to immediate 
assessment of claims for income, estate, and gift taxes in bankruptcy 
and receivership cases), or by section 7485 (in case taxpayer petitions 
for a review of a Tax Court decision without filing bond), no assessment 
of a deficiency in respect of a tax imposed by subtitle A or B or 
chapter 41, 42, 43, or 44 of the Code and no levy or proceeding in court 
for its collection shall be made until notice of deficiency has been 
mailed to the taxpayer, nor until the expiration of the 90-day or 150-
day period within which a petition may be filed with the Tax Court, nor, 
if a petition has been filed with the Tax Court, until the decision of 
the Tax Court has become final. As to the date on which a decision of 
the Tax court becomes final, see section 7481. Notwithstanding the 
provisions of section 7421(a), the making of an assessment or the 
beginning of a proceeding or levy which is forbidden by this paragraph 
may be enjoined by a proceeding in the proper court. In any case where 
the running of

[[Page 197]]

the time prescribed for filing a petition in the Tax Court with respect 
to a tax imposed by chapter 42 or 43 is suspended under section 6213(e), 
no assessment of a deficiency in respect of such tax shall be made until 
expiration of the entire period for filing the petition.
    (b) Exceptions to restrictions on assessment of deficiencies--(1) 
Mathematical errors. If a taxpayer is notified of an additional amount 
of tax due on account of a mathematical error appearing upon the return, 
such notice is not deemed a notice of deficiency, and the taxpayer has 
no right to file a petition with the Tax Court upon the basis of such 
notice, nor is the assessment of such additional amount prohibited by 
section 6213(a).
    (2) Tentative carryback adjustments. (i) If the district director or 
the director of the regional service center determines that any amount 
applied, credited, or refunded under section 6411(b) with respect to an 
application for a tentative carryback adjustment is in excess of the 
overassessment properly attributable to the carryback upon which such 
application was based, the district director or the director of the 
regional service center may assess the amount of the excess as a 
deficiency as if such deficiency were due to a mathematical error 
appearing on the return. That is, the district director or the director 
of the regional service center may assess an amount equal to the excess, 
and such amount may be collected, without regard to the restrictions on 
assessment and collection imposed by section 6213(a). Thus, the district 
director or the director of the regional service center may assess such 
amount without regard to whether the taxpayer has been mailed a prior 
notice of deficiency. Either before or after assessing such an amount, 
the district director or the director of the regional service center 
will notify the taxpayer that such assessment has been or will be made. 
Such notice will not constitute a notice of deficiency, and the taxpayer 
may not file a petition with the Tax Court of the United States based on 
such notice. However, the taxpayer, within the applicable period of 
limitation, may file a regular claim for credit or refund based on the 
carryback, if he has not already filed such a claim, and may maintain a 
suit based on such claim if it is disallowed or if it is not acted upon 
by the Internal Revenue Service within 6 months from the date the claim 
was filed.
    (ii) The method provided in subdivision (i) of this subparagraph to 
recover any amount applied, credited, or refunded in respect of an 
application for a tentative carryback adjustment which should not have 
been so applied, credited, or refunded is not an exclusive method. Two 
other methods are available to recover such amount: (a) By way of a 
deficiency notice under section 6212; or (b) by a suit to recover an 
erroneous refund under section 7405. Any one or more of the three 
available methods may be used to recover any amount which was improperly 
applied, credited, or refunded in respect of an application for a 
tentative carryback adjustment.
    (3) Assessment of amount paid. Any payment made after the mailing of 
a notice of deficiency which is made by the taxpayer as a payment with 
respect to the proposed deficiency may be assessed without regard to the 
restrictions on assessment and collection imposed by section 6213(a) 
even though the taxpayer has not filed a waiver of restrictions on 
assessment as provided in section 6213(d). A payment of all or part of 
the deficiency asserted in the notice together with the assessment of 
the amount so paid will not affect the jurisdiction of the Tax Court. If 
any payment is made before the mailing of a notice of deficiency, the 
district director or the director of the regional service center is not 
prohibited by section 6213(a) from assessing such amount, and such 
amount may be assessed if such action is deemed to be proper. If such 
amount is assessed, the assessment is taken into account in determining 
whether or not there is a deficiency for which a notice of deficiency 
must be issued. Thus, if such a payment satisfies the taxpayer's tax 
liability, no notice of deficiency will be mailed and the Tax Court will 
have no jurisdiction over the matter. In any case in which there is a 
controversy as to the correct amount of the tax liability, the 
assessment of any amount pursuant to the provisions of section 
6213(b)(3) shall in no way be considered

[[Page 198]]

to be the acceptance of an offer by the taxpayer to settle such 
controversy.
    (4) Jeopardy. If the district director believes that the assessment 
or collection of a deficiency will be jeopardized by delay, such 
deficiency shall be assessed immediately, as provided in section 
6861(a).
    (c) Failure to file petition. If no petition is filed with the Tax 
Court within the period prescribed in section 6213(a), the district 
director or the director of the regional service center shall assess the 
amount determined as the deficiency and of which the taxpayer was 
notified by registered or certified mail and the taxpayer shall pay the 
same upon notice and demand therefor. In such case the district director 
will not be precluded from determining a further deficiency and 
notifying the taxpayer thereof by registered or certified mail. If a 
petition is filed with the Tax Court the taxpayer should notify the 
district director who issued the notice of deficiency that the petition 
has been filed in order to prevent an assessment of the amount 
determined to be the deficiency.
    (d) Waiver of restrictions. The taxpayer may at any time by a signed 
notice in writing filed with the district director waive the 
restrictions on the assessment and collection of the whole or any part 
of the deficiency. The notice must in all cases be filed with the 
district director or other authorized official under whose jurisdiction 
the audit or other consideration of the return in question is being 
conducted. The filing of such notice with the Tax Court does not 
constitute filing with the district director within the meaning of the 
Code. After such waiver has been acted upon by the district director and 
the assessment has been made in accordance with its terms, the waiver 
cannot be withdrawn.
    (e) Suspension of filing period for certain chapter 42 and chapter 
43 taxes. The period prescribed by section 6213(a) for filing a petition 
in the Tax Court with respect to the taxes imposed by section 4941,4942, 
4943, 4944, 4945, 4951, 4952, 4955, 4958, 4971, or 4975, shall be 
suspended for any other period which the Commissioner has allowed for 
making correction under Sec.  53.4963-1(e)(3). Where the time for filing 
a petition with the Tax Court has been suspended under the authority of 
this paragraph (e), the extension shall not be reduced as a result of 
the correction being made prior to expiration of the period allowed for 
making correction.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7838, 47 FR 44250, Oct. 
7, 1982; T.D. 8084, 51 FR 16035, May 2, 1986; T.D. 8628, 60 FR 62212, 
Dec. 5, 1995; T.D. 8920, 66 FR 2171, Jan. 10, 2001]



Sec.  301.6215-1  Assessment of deficiency found by Tax Court.

    Where a petition has been filed with the Tax Court, the entire 
amount redetermined as the deficiency by the decision of the Tax Court 
which has become final shall be assessed by the district director or the 
director of the regional service center and the unpaid portion of the 
amount so assessed shall be paid by the taxpayer upon notice and demand 
therefor.



Sec.  301.6221-1  Tax treatment determined at partnership level.

    (a) In general. A partner's treatment of partnership items on the 
partner's return may not be changed except as provided in sections 6222 
through 6231 and the regulations thereunder. Thus, for example, if a 
partner treats an item on the partner's return consistently with the 
treatment of the item on the partnership return, the IRS generally 
cannot adjust the treatment of that item on the partner's return except 
through a partnership-level proceeding. Similarly, the taxpayer may not 
put partnership items in issue in a proceeding relating to 
nonpartnership items. For example, the taxpayer may not offset a 
potential increase in taxable income based on changes to nonpartnership 
items by a potential decrease based on partnership items.
    (b) Restrictions inapplicable after items become nonpartnership 
items. Section 6221 and paragraph (a) of this section cease to apply to 
items arising from a partnership with respect to a partner when those 
items cease to be partnership items with respect to that partner under 
section 6231(b).
    (c) Penalties determined at partnership level. Any penalty, addition 
to tax, or additional amount that relates to an adjustment to a 
partnership item shall be determined at the partnership level.

[[Page 199]]

Partner-level defenses to such items can only be asserted through refund 
actions following assessment and payment. Assessment of any penalty, 
addition to tax, or additional amount that relates to an adjustment to a 
partnership item shall be made based on partnership-level 
determinations. Partnership-level determinations include all the legal 
and factual determinations that underlie the determination of any 
penalty, addition to tax, or additional amount, other than partner-level 
defenses specified in paragraph (d) of this section.
    (d) Partner-level defenses. Partner-level defenses to any penalty, 
addition to tax, or additional amount that relates to an adjustment to a 
partnership item may not be asserted in the partnership-level 
proceeding, but may be asserted through separate refund actions 
following assessment and payment. See section 6230(c)(4). Partner-level 
defenses are limited to those that are personal to the partner or are 
dependent upon the partner's separate return and cannot be determined at 
the partnership level. Examples of these determinations are whether any 
applicable threshold underpayment of tax has been met with respect to 
the partner or whether the partner has met the criteria of section 
6664(b) (penalties applicable only where return is filed), or section 
6664(c)(1) (reasonable cause exception) subject to partnership-level 
determinations as to the applicability of section 6664(c)(2).
    (e) Cross-references. See Sec. Sec.  301.6231(c)-1 and 301.6231(c)-2 
for special rules relating to certain applications and claims for refund 
based on losses, deductions, or credits from abusive tax shelter 
partnerships.
    (f) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6221-1T contained in 26 CFR part 
1, revised April 1, 2001.

[T.D. 8965, 66 FR 50544, Oct. 4, 2001]



Sec.  301.6221(a)-1  Determination at partnership level.

    (a) In general. Except as otherwise provided under subchapter C of 
chapter 63 of the Internal Revenue Code (subchapter C of chapter 63) and 
the regulations in this part, any adjustment to a partnership-related 
item (as defined in Sec.  301.6241-1(a)(6)(ii)) is determined, any tax 
imposed by chapter 1 of the Internal Revenue Code (Code) attributable 
thereto is assessed and collected, and the applicability of any penalty, 
addition to tax, or additional amount that relates to an adjustment to 
any partnership-related item is determined at the partnership level 
under subchapter C of chapter 63.
    (b) Legal and factual determinations at the partnership level. 
Except as otherwise provided under subchapter C of chapter 63, any legal 
or factual determinations underlying any adjustment or determination 
made in accordance with paragraph (a) of this section are also 
determined at the partnership level under subchapter C of chapter 63. 
For instance, determinations under this paragraph (b) include any 
determinations necessary to calculate the imputed underpayment or any 
modification of the imputed underpayment under section 6225 and the 
period of limitations on making adjustments under subchapter C of 
chapter 63.
    (c) Applicability date--(1) In general. Except as provided in 
paragraph (c)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6531, Feb. 27, 2019]



Sec.  301.6221(b)-1  Election out for certain partnerships with 100 
or fewer partners.

    (a) In general. The provisions of subchapter C of chapter 63 of the 
Internal Revenue Code (subchapter C of chapter 63) do not apply for any 
partnership taxable year for which an eligible partnership under 
paragraph (b) of this section makes a valid election in accordance with 
paragraph (c) of this section. For rules regarding deficiency 
procedures, see subchapter B of chapter 63 of the Internal Revenue Code 
and Sec. Sec.  301.6211-1 through 301.6215-1.

[[Page 200]]

    (b) Eligible partnership--(1) In general. Only an eligible 
partnership may make an election under this section. A partnership is an 
eligible partnership for purposes of this section if--
    (i) The partnership has 100 or fewer partners as determined in 
accordance with paragraph (b)(2) of this section, and
    (ii) Each statement the partnership is required to furnish under 
section 6031(b) for the partnership taxable year is furnished to a 
partner that was an eligible partner (as defined in paragraph (b)(3) of 
this section) for the partnership's entire taxable year.
    (2) 100 or fewer partners--(i) In general. Except as provided in 
paragraph (b)(2)(ii) of this section, a partnership has 100 or fewer 
partners if the partnership is required to furnish 100 or fewer 
statements under section 6031(b) for the taxable year.
    (ii) Special rule for S corporations. For purposes of this paragraph 
(b)(2), a partnership with a partner that is an S corporation (as 
defined in section 1361(a)(1)) must take into account each statement 
required to be furnished by the S corporation to its shareholders under 
section 6037(b) for the taxable year of the S corporation ending with or 
within the partnership's taxable year.
    (iii) Examples. The following examples illustrate the provisions of 
this paragraph (b)(2). For purposes of these examples, each partnership 
is required to file a return under section 6031(a):

    Example 1. During its 2020 partnership taxable year, Partnership has 
four partners each owning an interest in Partnership. Two of the 
partners are Spouse 1 and Spouse 2 who are married to each other during 
all of 2020. Spouse 1 and Spouse 2 each own a separate interest in 
Partnership. The two other partners are unmarried individuals. Under 
section 6031(b), Partnership is required to furnish a separate statement 
(that is, Schedule K-1 (Form 1065), Partner's Share of Income, 
Deductions, Credits, etc.) to each individual partner, including 
separate statements to Spouse 1 and Spouse 2. Therefore, for purposes of 
this paragraph (b)(2), Partnership has four partners during its 2020 
taxable year.
    Example 2. The facts are the same as in Example 1 of this paragraph 
(b)(2)(iii), except Spouse 2 does not separately own an interest in 
Partnership during 2020 and Spouse 1 and Spouse 2 live in a community 
property state, State A. Spouse 1 acquired the partnership interest in 
such a manner that by operation of State A law, Spouse 2 has a community 
property interest in Spouse 1's partnership interest. Because Spouse 2's 
community property interest in Spouse 1's partnership interest is not 
taken into account for purposes of determining the number of statements 
Partnership is required to furnish under section 6031(b), Partnership is 
required to furnish a statement to Spouse 1, but not to Spouse 2. 
Therefore, for purposes of this paragraph (b)(2), Partnership has three 
partners during its 2020 taxable year.
    Example 3. At the beginning of 2020, Partnership, which has a 
taxable year ending December 31, 2020, has three partners--individuals 
A, B, and C. Each individual owns an interest in Partnership. On June 
30, 2020, Individual A dies, and A's interest in Partnership becomes an 
asset of A's estate. A's estate owns the interest for the remainder of 
2020. On September 1, 2020, B sells his interest in Partnership to 
Individual D, who holds the interest for the remainder of the year. 
Under section 6031(b), Partnership is required to furnish five 
statements for its 2020 taxable year--one each to Individual A, the 
estate of Individual A, Individual B, Individual C, and Individual D. 
Therefore, for purposes of this paragraph (b)(2), Partnership has five 
partners during its 2020 taxable year.
    Example 4. During its 2020 taxable year, Partnership has 51 
partners--50 partners who are individuals and S, an S corporation. S and 
Partnership are both calendar year taxpayers. S has 50 shareholders 
during the 2020 taxable year. Under section 6031(b), Partnership is 
required to furnish 51 statements for the 2020 taxable year--one to S 
and one to each of Partnership's 50 partners who are individuals. Under 
section 6037(b), S is required to furnish a statement (that is, Schedule 
K-1 (Form 1120-S), Shareholder's Share of Income, Deductions, Credits, 
etc.) to each of its 50 shareholders. Under paragraph (b)(2)(ii) of this 
section, the number of statements required to be furnished by S under 
section 6037(b), which is 50, is taken into account to determine whether 
partnership has 100 or fewer partners. Accordingly, for purposes of this 
paragraph (b)(2), Partnership has a total of 101 partners (51 statements 
furnished by Partnership to its partners plus 50 statements furnished by 
S to its shareholders) and is therefore not an eligible partnership 
under paragraph (b)(1) of this section. Because Partnership is not an 
eligible partnership, it cannot make the election under paragraph (a) of 
this section.
    Example 5. During its 2020 taxable year, Partnership has two 
partners, A, an individual, and E, an estate of a deceased partner. E 
has 10 beneficiaries. Under section 6031(b), Partnership is required to 
furnish two statements, one to A and one to E. Any

[[Page 201]]

statements that E may be required to furnish to its beneficiaries are 
not taken into account for purposes of this paragraph (b)(2). Therefore, 
for purposes of this paragraph (b)(2), Partnership has two partners.

    (3) Eligible Partners--(i) In general. For purposes of paragraph 
(b)(1)(ii) of this section, the term eligible partner means a partner 
that is an individual, a C corporation (as defined by section 
1361(a)(2)), an eligible foreign entity described in paragraph 
(b)(3)(iii) of this section, an S corporation, or an estate of a 
deceased partner. An S corporation is an eligible partner regardless of 
whether one or more shareholders of the S corporation are not an 
eligible partner.
    (ii) Partners that are not eligible partners. A partner is not an 
eligible partner under paragraph (b)(3)(i) of this section if the 
partner is--
    (A) A partnership,
    (B) A trust,
    (C) A foreign entity that is not an eligible foreign entity 
described in paragraph (b)(3)(iii) of this section,
    (D) A disregarded entity described in Sec.  301.7701-2(c)(2)(i),
    (E) An estate of an individual other than a deceased partner, or
    (F) Any person that holds an interest in the partnership on behalf 
of another person.
    (iii) Eligible foreign entity. For purposes of this paragraph 
(b)(3), a foreign entity is an eligible partner if the foreign entity 
would be treated as a C corporation if it were a domestic entity. For 
purposes of the preceding sentence, a foreign entity would be treated as 
a C corporation if it were a domestic entity if the entity is classified 
as a per se corporation under Sec.  301.7701-2(b)(1), (3), (4), (5), 
(6), (7), or (8), is classified by default as an association taxable as 
a corporation under Sec.  301.7701-3(b)(2)(i)(B), or is classified as an 
association taxable as a corporation in accordance with an election 
under Sec.  301.7701-3(c).
    (iv) Examples. The following examples illustrate the rules of this 
paragraph (b)(3). For purposes of these examples, each partnership is 
required to file a return under section 6031(a):

    Example 1. During the 2020 taxable year, Partnership has four equal 
partners. Two partners are individuals. One partner is a C corporation. 
The fourth partner, D, is a partnership. Because D is a partnership, D 
is not an eligible partner under paragraph (b)(3)(i) of this section. 
Accordingly, Partnership is not an eligible partnership under paragraph 
(b)(1) of this section and, therefore, cannot make the election under 
paragraph (a) of this section for its 2020 taxable year.
    Example 2. During its 2020 taxable year, Partnership has four equal 
partners. Two partners are individuals. One partner is a C corporation. 
The fourth partner, S, is an S corporation. S has ten shareholders. One 
of S's shareholders is a disregarded entity, and one is a qualified 
small business trust. S is an eligible partner under paragraph (b)(3)(i) 
of this section even though S's shareholders would not be considered 
eligible partners if those shareholders held direct interests in 
Partnership. See paragraph (b)(3)(i) of this section. Accordingly, 
Partnership meets the requirements under this paragraph (b)(3) for its 
2020 taxable year.
    Example 3. During its 2020 taxable year, Partnership has two equal 
partners, A, an individual, and C, a disregarded entity, wholly owned by 
B, an individual. C is not an eligible partner under paragraph (b)(3)(i) 
of this section. Accordingly, Partnership is not an eligible partnership 
under paragraph (b)(1) of this section and, therefore, is ineligible to 
make the election under paragraph (a) of this section for its 2020 
taxable year.

    (c) Election--(1) In general. An election under this section must be 
made on the eligible partnership's timely filed return, including 
extensions, for the taxable year to which the election applies and 
include all information required by the Internal Revenue Service (IRS) 
in forms, instructions, or other guidance. An election is not valid 
unless the partnership discloses to the IRS all of the information 
required under paragraph (c)(2) of this section and, in the case of a 
partner that is an S corporation, the shareholders of such S 
corporation. An election once made may not be revoked without the 
consent of the IRS.
    (2) Disclosure of partner information to the IRS. A partnership 
making an election under this section must disclose to the IRS 
information about each person that was a partner at any time during the 
taxable year of the partnership to which the election applies, including 
each partner's name and correct U.S. taxpayer identification number 
(TIN) (or alternative form of identification required by forms, 
instructions, or other guidance), each partner's Federal

[[Page 202]]

tax classification, an affirmative statement that the partner is an 
eligible partner under paragraph (b)(3)(i) of this section, and any 
other information required by the IRS in forms, instructions, or other 
guidance. If a partner is an S corporation, the partnership must also 
disclose to the IRS information about each shareholder of the S 
corporation that was a shareholder at any time during the taxable year 
of the S corporation ending with or within the partnership's taxable 
year, including each shareholder's name and correct TIN (or alternative 
form of identification as prescribed by forms, instructions, or other 
guidance), each shareholder's Federal tax classification, and any other 
information required by the IRS in forms, instructions, or other 
guidance.
    (3) Partner notification. A partnership that makes an election under 
this section must notify each of its partners of the election within 30 
days of making the election in the form and manner determined by the 
partnership.
    (d) Election made by a partnership that is a partner --(1) In 
general. The fact that a partnership has made an election under this 
section does not affect whether the provisions of subchapter C of 
chapter 63 apply to any other partnership, including a partnership in 
which the partnership making the election is a partner. Accordingly, the 
provisions of subchapter C of chapter 63 that apply to partners in a 
partnership that has not made an election under this section apply, to 
the extent provided in the regulations under subchapter C of chapter 63, 
to partners (that are themselves partnerships that have made an election 
under this section) in their capacity as partners in the other 
partnership.
    (2) Examples. The following examples illustrate the rules of 
paragraph (d)(1) of this section. For purposes of these examples, each 
partnership is required to file a return under section 6031(a):

    Example 1. During its 2020 taxable year, Partnership, a calendar 
year taxpayer, has two partners. One partner, A, is also a calendar year 
partnership. A files a valid election under this section with its timely 
filed partnership return for its 2020 taxable year. Partnership does not 
file an election under this section. Notwithstanding A's valid election 
under this section, with respect to A's interest in Partnership, A is 
subject to the rules applicable to partners in a partnership subject to 
the rules under subchapter C of chapter 63, including the consistency 
requirements of section 6222 and the regulations thereunder.
    Example 2. The facts are the same as Example 1 of this paragraph 
(d)(2). The IRS mails to Partnership a notice of final partnership 
adjustment under section 6231 with respect to Partnership's 2020 taxable 
year. Partnership timely elects the alternative to payment of imputed 
underpayment under section 6226 and the regulations thereunder. 
Partnership must provide A with a statement under section 6226 
reflecting A's share of the adjustments for Partnership's 2020 taxable 
year. A is subject to the rules applicable to partners in a partnership 
subject to the rules under subchapter C of chapter 63 with respect to 
A's interest in Partnership.

    (e) Effect of an election--(1) In general. An election made under 
this section is an action taken under subchapter C of chapter 63 by the 
partnership for purposes of section 6223. Accordingly, the partnership 
and all partners are bound by an election of the partnership under this 
section unless the IRS determines that the election is invalid. See 
Sec.  301.6223-2 for the binding nature of actions taken by a 
partnership under subchapter C of chapter 63.
    (2) IRS determination that election is invalid. If the IRS 
determines that an election under this section for a partnership taxable 
year is invalid, the IRS will notify the partnership in writing and the 
provisions of subchapter C of chapter 63 will apply to that partnership 
taxable year.
    (f) Applicability date. These regulations are applicable to 
partnership taxable years beginning after December 31, 2017.

[T.D. 9829, 83 FR 31, Jan. 2, 2018]



Sec.  301.6222-1  Partner's return must be consistent with partnership return.

    (a) Consistent treatment of partnership-related items--(1) In 
general. The treatment of partnership-related items (as defined in Sec.  
301.6241-1(a)(6)(ii)) on a partner's return must be consistent with the 
treatment of such items on the partnership return in all respects, 
including the amount, timing, and characterization of such items. A 
partner has not satisfied the requirement of this paragraph (a) if the 
treatment of the partnership-related item on the

[[Page 203]]

partner's return is consistent with how such item was treated on a 
schedule or other information furnished to the partner by the 
partnership but inconsistent with the treatment of the item on the 
partnership return actually filed. For rules relating to the election to 
be treated as having reported the inconsistency where the partner treats 
a partnership-related item consistently with an incorrect schedule or 
other information furnished by the partnership, see paragraph (d) of 
this section. For purposes of this section, the term partner's return 
includes any return, statement, schedule, or list, and any amendment or 
supplement thereto, filed by the partner with respect to any tax imposed 
by the Internal Revenue Code (Code).
    (2) Partner that is a partnership with an election in effect under 
section 6221(b). The rules of this section apply to all partners, 
including a partnership-partner (as defined in Sec.  301.6241-1(a)(7)) 
that has an election in effect under section 6221(b) for any taxable 
year. Accordingly, unless the requirements of paragraph (c) of this 
section are satisfied, a partnership-partner must treat partnership-
related items of a partnership in which it is a partner consistent with 
the treatment of such items on the partnership return filed by the 
partnership in which it is a partner.
    (3) Partnership does not file a return. A partner's treatment of a 
partnership-related item attributable to a partnership that does not 
file a return is per se inconsistent.
    (4) Treatment of items on a partnership return. For purposes of this 
section, the treatment of a partnership-related item on a partnership 
return includes--
    (i) The treatment of such item on the partnership's return of 
partnership income filed with the Internal Revenue Service (IRS) under 
section 6031, and any amendment or supplement thereto, including an 
administrative adjustment request (AAR) filed pursuant to section 6227; 
and
    (ii) The treatment of such item on any statement, schedule or list, 
and any amendment or supplement thereto, filed by the partnership with 
the IRS, including any statements filed pursuant to section 6226.
    (5) Examples. The following examples illustrate the rules of this 
paragraph (a). For purposes of these examples, each partnership is 
subject to the provisions of subchapter C of chapter 63 of the Code 
(subchapter C of chapter 63), and each partnership and its partners are 
calendar year taxpayers, unless otherwise stated.

    (i) Example 1. A is a partner in Partnership during 2018 and 2019. 
In December 2018, Partnership receives an advance payment for services 
to be performed in 2019 and reports this amount as income on its 
partnership return for 2018. A includes its distributive share of income 
from the advance payment on A's income tax return for 2019 and not on 
A's income tax return for 2018. A has not satisfied the requirements of 
paragraph (a) of this section because A's treatment of the income 
attributable to Partnership is inconsistent with the treatment of that 
item by Partnership on its partnership return.
    (ii) Example 2. B is a partner in Partnership during 2018. 
Partnership incurred start-up costs before it was actively engaged in 
its business. Partnership capitalized these costs on its 2018 
partnership return. B deducted his distributive share of the start-up 
costs on B's 2018 income tax return. B has not satisfied the 
requirements of paragraph (a) of this section because B's treatment of 
the start-up costs is inconsistent with the treatment of that item by 
Partnership on its partnership return.
    (iii) Example 3. C is a partner in Partnership during 2018. 
Partnership reports a loss of $100,000 on its partnership return for 
2018. On the 2018 Schedule K-1 attached to the partnership return, 
Partnership reports $5,000 as C's distributive share of that loss. On 
the 2018 Schedule K-1 furnished to C, however, Partnership reports 
$15,000 as C's distributive share of the loss. C reports the $15,000 
loss on C's 2018 income tax return. C has not satisfied the requirements 
of paragraph (a) of this section because C reported C's distributive 
share of the loss in a manner that is inconsistent with how C's 
distributive share of the loss was reported on the 2018 partnership 
return actually filed. See, however, paragraph (d) of this section for 
the election to be treated as

[[Page 204]]

having reported the inconsistency where the partner treats an item 
consistently with an incorrect schedule.
    (iv) Example 4. D was a partner in Partnership during 2018. 
Partnership reports a loss of $100,000 on its partnership return for 
2018. In 2020, Partnership files an AAR under section 6227 reporting 
that the amount of the loss on its 2018 partnership return is $90,000, 
rather than $100,000 as originally reported. Pursuant to section 6227, 
Partnership elects to have its partners take the adjustment into 
account, and furnishes D a statement showing D's share of the reduced 
loss for 2018. D fails to take his share of the reduced loss for 2018 
into account in accordance with section 6227. D has not satisfied the 
requirements of paragraph (a) of this section because D has not taken 
into account his share of the loss in a manner consistent with how 
Partnership treated such items on the partnership return actually filed.
    (v) Example 5. E was a partner in Partnership during 2018. In 2021, 
Partnership receives a notice of final partnership adjustment (FPA) in 
an administrative proceeding under subchapter C of chapter 63 with 
respect to Partnership's 2018 taxable year. The FPA reflects an imputed 
underpayment. Partnership properly elects the application of section 
6226 with respect to the imputed underpayment and files with the IRS and 
furnishes to E a statement of E's share of adjustments with respect to 
Partnership's 2018 taxable year. E fails to take his share of the 
adjustments into account in accordance with section 6226. E has not 
satisfied the requirements of paragraph (a) of this section because E 
has not taken into account his share of adjustments with respect to 
Partnership's 2018 taxable year in a manner consistent with how 
Partnership treated such items on the section 6226 statement filed with 
the IRS.
    (vi) Example 6. F was a partner in Partnership during 2018. F has a 
valid election under section 6221(b) in effect with respect to F's 2018 
partnership taxable year. Notwithstanding F's election under section 
6221(b) for its 2018 taxable year, F is subject to section 6222 for 
taxable year 2018. F must treat, on its 2018 partnership return, any 
items attributable to F's interest in Partnership in a manner that is 
consistent with the treatment of those items on the 2018 partnership 
return actually filed by Partnership.
    (vii) Example 7. G was a partner in Partnership during 2018. G's 
taxable year ends on the same day as Partnership's 2018 taxable year. 
Partnership did not file a partnership return for its 2018 taxable year. 
G files an income tax return for its 2018 taxable year and reports G's 
share of a loss attributable to G's interest in Partnership. Because 
Partnership failed to file a partnership return, G's treatment of such 
loss is per se inconsistent pursuant to paragraph (a)(3) of this 
section.

    (b) Effect of inconsistent treatment--(1) Determination of 
underpayment of tax resulting from inconsistent treatment. If a partner 
fails to satisfy the requirements of paragraph (a) of this section, 
unless the partner provides notice in accordance with paragraph (c) of 
this section, the IRS may adjust the inconsistently reported 
partnership-related item on the partner's return to make it consistent 
with the treatment of such item on the partnership return (or where no 
partnership return was filed, remove any treatment of such items from 
the partner's return) and determine any underpayment of tax that results 
from that adjustment. For purposes of this section, except as provided 
in paragraph (b)(3) of this section, the underpayment of tax is the 
amount by which the correct tax, as determined by making the partner's 
return consistent with the partnership return, exceeds the tax shown on 
the partner's return.
    (2) Assessment and collection of tax. The IRS may assess and collect 
any underpayment of tax resulting from an adjustment described in 
paragraph (b)(1) of this section in the same manner as if the 
underpayment of tax were on account of a mathematical or clerical error 
appearing on the partner's return, except that the procedures under 
section 6213(b)(2) for requesting abatement of an assessment do not 
apply.
    (3) Effect when partner is a partnership. For the effect of a 
failure to satisfy the requirements of paragraph (a) of this section 
where the partner is

[[Page 205]]

itself a partnership (a partnership-partner), see section 6232(d)(1)(B) 
and Sec.  301.6232-1(d).
    (4) Examples. The following examples illustrate the rules of this 
paragraph (b). For purposes of these examples, each partnership is 
subject to the provisions of subchapter C of chapter 63, and each 
partnership and its partners are calendar year taxpayers, unless 
otherwise stated.

    (i) Example 1. H, an individual, is a partner in Partnership. On its 
partnership return for taxable year 2018, Partnership reports $100,000 
in ordinary income. On the Schedule K-1 attached to the partnership 
return, as well as on the Schedule K-1 furnished to H, Partnership 
reports $15,000 as H's distributive share of the $100,000 in ordinary 
income. H reports only $5,000 of the $15,000 of ordinary income on his 
2018 income tax return. The IRS may determine the amount of tax that 
results from adjusting the ordinary income attributable to H's interest 
in Partnership reported on H's 2018 income tax return from $5,000 to 
$15,000 and assess that resulting underpayment in tax as if it were on 
account of a mathematical or clerical error appearing on H's return. H 
may not request an abatement of that assessment under section 6213(b).
    (ii) Example 2. J was a partner in Partnership during 2018. In 2021, 
Partnership receives an FPA in an administrative proceeding under 
subchapter C of chapter 63 with respect to Partnership's 2018 taxable 
year. The FPA reflects an imputed underpayment. Partnership properly 
elects the application of section 6226 with respect to the imputed 
underpayment and files with the IRS and furnishes to J a statement of 
J's share of adjustments with respect to Partnership's 2018 taxable 
year. J fails to report one adjustment reflected on the statement, J's 
share of a decrease in the amount of losses for 2018, on J's return as 
required by section 6226. The IRS may determine the amount of tax that 
results from adjusting the decrease in the amount of losses on J's 
return to be consistent with the amount included on the section 6226 
statement filed with the IRS and may assess the resulting underpayment 
in tax as if it were on account of a mathematical or clerical error 
appearing on J's return. J may not request an abatement of that 
assessment under section 6213(b).

    (c) Notification to the IRS when items attributable to a partnership 
are treated inconsistently--(1) In general. Paragraphs (a) and (b) of 
this section (regarding the consistent treatment of partnership-related 
items and the effect of inconsistent treatment) do not apply to 
partnership-related items identified as inconsistent (or that may be 
inconsistent) in a statement that the partner provides to the IRS 
according to the forms, instructions, and other guidance prescribed by 
the IRS. Instead, the procedures in paragraph (c)(3) of this section 
apply. A statement does not identify an inconsistency for purposes of 
this paragraph (c) unless it is attached to the partner's return on 
which the partnership-related item is treated inconsistently.
    (2) Coordination with section 6223. Paragraph (c)(1) of this section 
is not applicable to a partnership-related item the treatment of which 
is binding on the partner because of actions taken by the partnership 
under subchapter C of chapter 63 or because of a final decision in a 
proceeding with respect to the partnership under subchapter C of chapter 
63. For instance, the provisions of paragraph (c)(1) of this section do 
not apply with respect to the partner's treatment of a partnership-
related item reflected on a statement described in Sec.  301.6226-2 
filed by the partnership with the IRS. See Sec.  301.6226-1(e) 
(regarding the binding nature of statements described in Sec.  301.6226-
2). Any underpayment resulting from the inconsistent treatment of an 
item described in this paragraph (c)(2) may be assessed and collected in 
accordance with paragraph (b)(2) of this section.
    (3) Partner protected only to extent of notification. A partner who 
reports the inconsistent treatment of a partnership-related item is not 
subject to paragraphs (a) and (b) of this section only with respect to 
those items identified in the statement described in paragraph (c)(1) of 
this section. Thus, if a partner notifying the IRS with respect to one 
partnership-related item does not report the inconsistent treatment of 
another partnership-related item,

[[Page 206]]

the IRS may determine the amount of tax that results from adjusting the 
unidentified, inconsistently reported item on the partner's return to 
make it consistent with the treatment of such item on the partnership 
return and assess the resulting underpayment of tax in accordance with 
paragraph (b)(2) of this section.
    (4) Adjustment after notification--(i) In general. If a partner 
notifies the IRS of the inconsistent treatment of a partnership-related 
item in accordance with paragraph (c)(1) of this section and the IRS 
disagrees with the inconsistent treatment, the IRS may adjust the 
identified, inconsistently reported item in a proceeding with respect to 
the partner. Nothing in this paragraph (c)(4)(i) precludes the IRS from 
also conducting a proceeding with respect to the partnership. If the IRS 
conducts a proceeding with respect to the partnership regarding the 
identified, inconsistently reported item, each partner of the 
partnership, including any partner that notified the IRS of inconsistent 
treatment in accordance with paragraph (c)(1) of this section, is bound 
by actions taken by the partnership and by any final decision in the 
proceeding with respect to the partnership. See paragraph (c)(2) of this 
section.
    (ii) Adjustments in partner proceeding. In a proceeding with respect 
to a partner described in paragraph (c)(4)(i) of this section, the IRS 
may adjust any identified, inconsistently reported partnership-related 
item to make the item consistent with the treatment of that item on the 
partnership return or determine that the correct treatment of such item 
differs from the treatment on the partnership return and instead adjust 
the item to reflect the correct treatment, notwithstanding the treatment 
of that item on the partnership return. The IRS may also adjust any item 
on the partner's return, including items that are not partnership-
related items. Any final decision with respect to an inconsistent 
position in a proceeding to which the partnership is not a party is not 
binding on the partnership.
    (5) Limitation on treating partnership-related items inconsistently 
after notice of administrative proceeding. After a notice of 
administrative proceeding with respect to a partnership taxable year has 
been mailed by the IRS under section 6231, a partner may not notify the 
IRS the partner is treating a partnership-related item on the partner's 
return inconsistently with how such item was treated on the partnership 
return for such taxable year, except as provided in Sec.  301.6225-2.
    (6) Examples. The following examples illustrate the rules of this 
paragraph (c). For purposes of these examples, each partnership is 
subject to the provisions of subchapter C of chapter 63, and each 
partnership and partner is a calendar year taxpayer, unless otherwise 
stated.

    (i) Example 1. K is a partner in Partnership during 2018. K treats a 
deduction and a capital gain attributable to Partnership on K's 2018 
income tax return in a manner that is inconsistent with the treatment of 
those items by Partnership on its 2018 partnership return. K reports the 
inconsistent treatment of the deduction in accordance with paragraph 
(c)(1) of this section, but not the inconsistent treatment of the gain. 
Because K did not notify the IRS of the inconsistent treatment of the 
gain in accordance with paragraph (c)(1) of this section, the IRS may 
determine the amount of tax that results from adjusting the gain 
reported on K's 2018 income tax return in order to make the treatment of 
that gain consistent with how the gain was treated on Partnership's 
partnership return. Pursuant to paragraph (c)(3) of this section, the 
IRS may assess and collect the underpayment of tax resulting from the 
adjustment to the gain as if it were on account of a mathematical or 
clerical error appearing on K's return.
    (ii) Example 2. L is a partner in Partnership during 2018. On its 
2018 partnership return, Partnership treats partner L's distributive 
share of ordinary loss attributable to Partnership as $8,000. L, 
however, claims an ordinary loss of $9,000 as attributable to 
Partnership on its 2018 income tax return and notifies the IRS of the 
inconsistent treatment in accordance with paragraph (c)(1) of this 
section. As a result of the notice of inconsistent treatment, the IRS 
conducts a separate proceeding under subchapter B of chapter 63 of the 
Internal Revenue Code with respect to L's 2018

[[Page 207]]

income tax return, a proceeding to which Partnership is not a party. 
During the proceeding, the IRS determines that the proper amount of L's 
distributive share of the ordinary loss from Partnership is $3,000. 
During the same proceeding, the IRS also determines that L overstated a 
charitable contribution deduction in the amount of $2,500 on its 2018 
income tax return. The determination of the adjustment of L's share of 
ordinary loss is not binding on Partnership. The charitable contribution 
deduction is not attributable to Partnership or to another partnership 
subject to the provisions of subchapter C of chapter 63. The IRS may 
determine the amount of tax that results from adjusting the $9,000 
ordinary loss deduction to $3,000 and from adjusting the charitable 
contribution deduction. Pursuant to paragraph (c)(4)(ii) of this 
section, the IRS is not limited to only adjusting the ordinary loss of 
$9,000, as originally reported on L's partner return, to $8,000, as 
originally reported by Partnership on its partnership return, nor is the 
IRS prohibited from adjusting the charitable contribution deduction in 
the proceeding with respect to L.

    (d) Partner receiving incorrect information--(1) In general. A 
partner is treated as having complied with section 6222(c)(1)(B) and 
paragraph (c)(1) of this section with respect to a partnership-related 
item if the partner--
    (i) Demonstrates that the treatment of such item on the partner's 
return is consistent with the treatment of that item on the statement, 
schedule, or other form prescribed by the IRS and furnished to the 
partner by the partnership; and
    (ii) The partner makes an election in accordance with paragraph 
(d)(2) of this section.
    (2) Time and manner of making election--(i) In general. An election 
under paragraph (d) of this section must be filed in writing with the 
IRS office set forth in the notice that notified the partner of the 
inconsistency no later than 60 days after the date of such notice.
    (ii) Contents of election. The election described in paragraph 
(d)(2)(i) of this section must be--
    (A) Clearly identified as an election under section 6222(c)(2)(B);
    (B) Signed by the partner making the election;
    (C) Accompanied by a copy of the statement, schedule, or other form 
furnished to the partner by the partnership and a copy of the IRS notice 
that notified the partner of the inconsistency; and
    (D) Include any other information required in forms, instructions, 
or other guidance prescribed by the IRS.
    (iii) Treatment of partnership-related item is unclear. Generally, 
the requirement described in paragraph (d)(2)(ii)(C) of this section 
will be satisfied by attaching a copy of the statement, schedule, or 
other form furnished to the partner by the partnership to the election 
(in addition to a copy of the IRS notice that notified the partner of 
the inconsistency). However, if it is not clear from the statement, 
schedule, or other form furnished by the partnership that the partner's 
treatment of the partnership-related item on the partner's return is 
consistent, the election must also include an explanation of how the 
treatment of such item on the statement, schedule, or other form 
furnished by the partnership is consistent with the treatment of the 
item on the partner's return, including with respect to the 
characterization, timing, and amount of such item.
    (3) Example. M is a partner in Partnership for 2018. Partnership is 
subject to subchapter C of chapter 63, and both Partnership and M are 
calendar year taxpayers. On its 2018 partnership return, Partnership 
reports that M's distributive share of ordinary income attributable to 
Partnership is $1,000. Partnership furnishes to M a Schedule K-1 for 
2018 showing $500 as M's distributive share of ordinary income. M 
reports $500 of ordinary income attributable to Partnership on its 2018 
income tax return consistent with the Schedule K-1 furnished to M. The 
IRS notifies M that M's treatment of the ordinary income attributable to 
Partnership on its 2018 income tax return is inconsistent with how 
Partnership treated the ordinary income allocated to M on its 2018 
partnership return. Within 60 days of receiving the notice

[[Page 208]]

from the IRS of the inconsistency, M files an election with the IRS in 
accordance with paragraph (d)(2) of this section. Because M made a valid 
election under section 6222(c)(2)(B) and paragraph (d)(1) of this 
section, M is treated as having notified the IRS of the inconsistency 
with respect to the ordinary income attributable to Partnership under 
paragraph (c)(1) of this section.
    (e) Applicability date--(1) In general. Except as provided in 
paragraph (e)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6531, Feb. 27, 2019]



Sec.  301.6222(a)-1  Consistent treatment of partnership items.

    (a) In general. The treatment of a partnership item on the partner's 
return must be consistent with the treatment of that item by the 
partnership on the partnership return in all respects including the 
amount, timing, and characterization of the item.
    (b) Treatment must be consistent with partnership return. The 
treatment of a partnership item on the partner's return must be 
consistent with the treatment of that item on the partnership return. 
Thus, a partner who treats an item consistently with a schedule or other 
information furnished to the partner by the partnership has not 
satisfied the requirement of paragraph (a) of this section if the 
treatment of that item is inconsistent with the treatment of the item on 
the partnership return actually filed. For rules relating to the 
election to be treated as having reported the inconsistency where the 
partner treats an item consistently with an incorrect schedule, see 
Sec.  301.6222(b)-3.
    (c) Examples. The following examples illustrate the principles of 
this section:

    Example 1. B is a partner of Partnership P. Both B and P use the 
calendar year as the taxable year. In December 2001, P receives an 
advance payment for services to be performed in 2002 and reports this 
amount as income for calendar year 2001. However, B reports B's 
distributive share of this amount on B's income tax return for 2002 and 
not on B's return for 2001. B's treatment of this partnership item is 
inconsistent with the treatment of the item by P.
    Example 2. Partnership P incurred certain start-up costs before P 
was actively engaged in its business. P capitalized these costs. C, a 
partner in P, deducted C's proportionate share of these start-up costs. 
C's treatment of the partnership expenditure is inconsistent with the 
treatment of that item by P.
    Example 3. D is a partner in partnership P. P reports a loss of 
$100,000 on its return, $5,000 of which it reports on the Schedule K-1 
attached to its return as D's distributive share. However, P reports 
$15,000 as D's distributive share of P's loss on the Schedule K-1 
furnished to D. D reports the $15,000 loss on D's income tax return. D 
has not satisfied the consistent reporting requirement. See, however, 
Sec.  301.6222(b)-3 for an election to be treated as having reported the 
inconsistency.

    (d) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001.
    For years beginning prior to October 4, 2001, see Sec.  301.6222(a)-
1T contained in 26 CFR part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50545, Oct. 4, 2001]



Sec.  301.6222(a)-2  Application of consistent reporting 
and notification rules to indirect partners.

    (a) In general. The consistent reporting requirement of Sec.  
301.6222(a)-1 is generally applied with respect to the source 
partnership. For purposes of this section, the term source partnership 
means the partnership (within the meaning of section 6231(a)(1)) from 
which the partnership item originates.
    (b) Indirect partner files consistently with source partnership. An 
indirect partner who treats an item from a source partnership in a 
manner consistent with the treatment of that item on the source 
partnership's return satisfies the consistency requirement of section 
6222(a) regardless of whether the indirect partner treats that item in a 
manner consistent with the treatment of that item by the pass-thru 
partner through which the indirect partner holds the interest in the 
source partnership. Under these circumstances, therefore, the Internal 
Revenue Service shall not send to the

[[Page 209]]

indirect partner the notice described in section 6231(b)(1)(A).
    (c) Indirect partner files inconsistently with source partnership--
(1) Indirect partner notifies the Internal Revenue Service of 
inconsistency. An indirect partner who--
    (i) Treats an item from a source partnership in a manner 
inconsistent with the treatment of that item on the source partnership's 
return; and
    (ii) Files a statement identifying the inconsistency with the source 
partnership in accordance with Sec.  301.6222(c)-1, shall not be subject 
to a computational adjustment to conform the treatment of that item to 
the treatment of that item on the return of the source partnership.
    (2) Indirect partner does not notify the Internal Revenue Service of 
inconsistency. Except as provided in paragraph (b)(3) of this section, 
an indirect partner who--
    (i) Treats an item from a source partnership in a manner 
inconsistent with the treatment of that item on the source partnership's 
return; and
    (ii) Fails to file a statement identifying the inconsistency with 
the source partnership in accordance with Sec.  301.6222(b)-1, is 
subject to a computational adjustment to conform the treatment of that 
item to the treatment of that item on the return of the source 
partnership.
    (3) Indirect partner files consistently with a pass-thru partner 
that notifies the Internal Revenue Service of the inconsistency. If an 
indirect partner treats an item from a source partnership in a manner 
consistent with the treatment of that item by a pass-thru partner 
through which the indirect partner holds the interest in the source 
partnership and that pass-thru partner--
    (i) Treats that item in a manner inconsistent with the treatment of 
that item on the source partnership's return; and
    (ii) Files a statement identifying the inconsistency with the source 
partnership in accordance with Sec.  301.6222(b)-1, the indirect partner 
is not subject to a computational adjustment to conform to the treatment 
of that item on the return of the source partnership.
    (d) Examples. The following examples illustrate the principles of 
this section:

    Example 1. One of the partners in Partnership A is Partnership B, 
which has four equal partners C, D, E, and F. Both A and B are 
partnerships within the meaning of section 6231(a)(1). On its return, A 
reports $100,000 as B's distributive share of A's ordinary income. B, 
however, reports only $80,000 as its distributive share of the income 
and does not notify the Internal Revenue Service of this inconsistent 
treatment with respect to A. C reports $20,000 as its distributive share 
of the item. Although C reports the item consistently with B, C is 
subject to a computational adjustment to conform the treatment of that 
item on C's return to the treatment of that item on A's return.
    Example 2. Assume the same facts as in Example 1, except that B 
notified the Internal Revenue Service of its inconsistent treatment with 
respect to source partnership A. C is not subject to a computational 
adjustment.
    Example 3. Assume the same facts as in Example 1. D reports only 
$15,000 as D's distributive share of the income and does not report the 
inconsistency. F reports only $9,000 as its distributive share of the 
item but reports this inconsistency with respect to source partnership 
A. D is subject to a computational adjustment to conform the treatment 
of that item on D's return to the treatment of that item on A's return. 
F is not subject to a computational adjustment.
    Example 4. Assume the same facts as in Example 3, except that F 
reported the inconsistency with respect to B and did not report the 
inconsistency with respect to source partnership A. F is subject to a 
computational adjustment to conform the treatment of that item on F's 
return to the treatment of that item on A's return.
    Example 5. Assume the same facts as in Example 1. E reports $25,000 
as its distributive share of the item. Regardless of whether E reports 
the inconsistency between its treatment of the item and that by B, E is 
neither subject to a computational adjustment to conform E's treatment 
of that item to that of B nor subject to the notice described in section 
6231(b)(1)(A) with respect to any such notification of inconsistent 
treatment.

    (e) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6222(a)-2T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50545, Oct. 4, 2001]

[[Page 210]]



Sec.  301.6222(b)-1  Notification to the Internal Revenue Service 
when partnership items are treated inconsistently.

    (a) In general. The statement identifying an inconsistency described 
in section 6222(b)(1)(B) shall be filed by filing the form prescribed 
for that purpose in accordance with the instructions accompanying that 
form.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6222(b)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50546, Oct. 4, 2001]



Sec.  301.6222(b)-2  Effect of notification of inconsistent treatment.

    (a) In general. Generally, if a partner treats a partnership item on 
the partner's return in a manner inconsistent with the treatment of that 
item on the partnership return, the Internal Revenue Service may make a 
computational adjustment to conform the treatment of the item by the 
partner with the treatment of that item on the partnership return. Any 
additional tax resulting from that computational adjustment may be 
assessed without either the commencement of a partnership proceeding or 
notification to the partner that all partnership items arising from that 
partnership will be treated as nonpartnership items. However, if a 
partner notifies the Internal Revenue Service of the inconsistent 
treatment of a partnership item in the manner prescribed in Sec.  
301.6222(b)-1, the Internal Revenue Service generally may not make an 
adjustment with respect to that partnership item unless the Internal 
Revenue Service--
    (1) Conducts a partnership-level proceeding; or
    (2) Notifies the partner under section 6231(b)(1)(A) that all 
partnership items arising from that partnership will be treated as 
nonpartnership items. See, however, Sec. Sec.  301.6231(c)-1 and 
301.6231(c)-2 for special rules relating to certain applications and 
claims for refund based on losses, deductions, or credits from abusive 
tax shelter partnerships.
    (b) Partner protected only to extent of notification. (1) A partner 
who reports the inconsistent treatment of partnership items on the 
partner's return is protected from computational adjustments under 
section 6222(c) only with respect to those partnership items the 
inconsistent treatment of which is reported. Thus, if a partner 
notifying the Internal Revenue Service with respect to one item fails to 
report the inconsistent treatment of another item, the partner is 
subject to a computational adjustment with respect to that other item.
    (2) The following example illustrates the principles of this 
paragraph (b):

    Example. Partner A of Partnership P treats a deduction and a capital 
gain arising from P on A's return in a manner that is inconsistent with 
the treatment of those items by P. A reports the inconsistent treatment 
of the deduction but not of the gain. A is subject to a computational 
adjustment under section 6222(c) with respect to the gain.

    (c) Adjustments in a separate proceeding not limited to conforming 
adjustments. (1) If the Internal Revenue Service conducts a separate 
proceeding with a partner whose partnership items are treated as 
nonpartnership items under section 6231(b), the Internal Revenue Service 
is not limited to making adjustments that merely conform the partner's 
return to the partnership return.
    (2) Example. The following example illustrates the principles of 
this paragraph (c):

    Example. Partnership P allocates to E, one of its partners, a loss 
of $8,000. E, however, claims a loss of $9,000 and reports the 
inconsistent treatment. The Internal Revenue Service notifies E that it 
will treat all of E's partnership items arising from P as nonpartnership 
items. As a result of a separate proceeding with E, the Internal Revenue 
Service may issue a deficiency notice which could include reducing the 
loss to $3,000.

    (d) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6222(b)-2T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50546, Oct. 4, 2001]



Sec.  301.6222(b)-3  Partner receiving incorrect schedule.

    (a) In general. A partner shall be treated as having complied with 
section 6222(b)(1)(B) and Sec.  301.6222(b)-1 with

[[Page 211]]

respect to a partnership item if the partner--
    (1) Demonstrates that the treatment of the partnership item on the 
partner's return is consistent with the treatment of that item on the 
schedule prescribed by the Internal Revenue Service and furnished to the 
partner by the partnership showing the partner's share of income, 
credits, deductions, etc.; and
    (2) Elects in accordance with the rules prescribed in paragraph (b) 
of this section to have this section apply with respect to that item.
    (b) Election provisions--(1) Time and manner of making election. The 
election described in paragraph (a) of this section shall be made by 
filing a statement with the Internal Revenue Service office issuing the 
notice of computational adjustment within 30 days after the notice is 
mailed to the partner.
    (2) Contents of statement. The statement described in paragraph 
(b)(1) of this section shall be--
    (i) Clearly identified as an election under section 6222(b)(2);
    (ii) Signed by the partner making the election; and
    (iii) Accompanied by copies of the schedule furnished to the partner 
by the partnership and of the notice of computational adjustment. The 
partner need not enclose a copy of the notice of computational 
adjustment, however, if the partner clearly identifies the notice of 
computational adjustment. Generally, the requirement described in 
paragraph (a)(1) of this section will be satisfied by attaching to the 
statement a copy of the schedule furnished to the partner by the 
partnership. However, if it is not clear from the information contained 
on the schedule that the treatment of the partnership item on the 
schedule is consistent with the partner's treatment of such item on the 
partner's return the statement shall also include an explanation of how 
the treatment of such item on the schedule is consistent with the 
treatment on the partner's return with respect to the characterization, 
timing, and amount of such item.
    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6222(b)-3T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50546, Oct. 4, 2001]



Sec.  301.6223-1  Partnership representative.

    (a) Each partnership must have a partnership representative. A 
partnership subject to subchapter C of chapter 63 of the Internal 
Revenue Code (subchapter C of chapter 63) for a partnership taxable year 
must designate a partnership representative for the partnership taxable 
year in accordance with this section. There may be only one designated 
partnership representative for a partnership taxable year at any time. 
The designation of a partnership representative for a partnership 
taxable year under this section remains in effect until the date on 
which the designation of the partnership representative is terminated by 
valid resignation (as described in paragraph (d) of this section), valid 
revocation (as described in paragraph (e) of this section), or a 
determination by the Internal Revenue Service (IRS) that the designation 
is not in effect (as described in paragraph (f) of this section). A 
designation of a partnership representative for a partnership taxable 
year under paragraphs (e) or (f) of this section supersedes all prior 
designations of a partnership representative for that year. If required 
by forms, instructions, and other guidance prescribed by the IRS, a 
partnership representative must update the partnership representative's 
contact information when such information changes. Only a person 
designated as a partnership representative in accordance with this 
section will be recognized as the partnership representative under 
section 6223. A power of attorney (including a Form 2848, Power of 
Attorney) may not be used to designate a partnership representative. See 
Sec.  301.6223-2(a), (b), and (c) with regard to the binding effect of 
actions taken by the partnership representative. See Sec.  301.6223-2(d) 
with regard to the sole authority of the partnership representative to 
act on behalf of the partnership. See paragraph (f) of this section for 
rules regarding designation of a partnership representative by the IRS.

[[Page 212]]

    (b) Eligibility to serve as a partnership representative--(1) In 
general. Any person (as defined in section 7701(a)(1)) that meets the 
requirements of paragraphs (b)(2) and (3) of this section, as 
applicable, is eligible to serve as a partnership representative, 
including a wholly owned entity disregarded as separate from its owner 
for federal tax purposes. A person designated under this section as 
partnership representative is deemed to be eligible to serve as the 
partnership representative unless and until the IRS determines that the 
person is ineligible. A partnership can designate itself as its own 
partnership representative provided it meets the requirements of 
paragraphs (b)(2) and (3) of this section.
    (2) Substantial presence in the United States. A person must have 
substantial presence in the United States to be the partnership 
representative. A person has substantial presence in the United States 
for the purposes of this section if--
    (i) The person makes themselves available to meet in person with the 
IRS in the United States at a reasonable time and place as determined by 
the IRS in accordance with Sec.  301.7605-1; and
    (ii) The person has a United States taxpayer identification number, 
a street address that is in the United States and a telephone number 
with a United States area code.
    (3) Eligibility of an entity to be a partnership representative--(i) 
In general. A person who is not an individual may be a partnership 
representative only if an individual who meets the requirements of 
paragraph (b)(2) of this section is appointed by the partnership as the 
sole individual through whom the partnership representative will act for 
all purposes under subchapter C of chapter 63. A partnership 
representative meeting the requirements of this paragraph (b)(3) is an 
entity partnership representative, and the individual through whom such 
entity partnership representative acts is the designated individual. 
Designated individual status automatically terminates on the date that 
the designation of the entity partnership representative for which the 
designated individual was appointed is no longer in effect in accordance 
with paragraph (d), (e), or (f) of this section.
    (ii) Appointment of a designated individual. A designated individual 
must be appointed by the partnership at the time of the designation of 
the entity partnership representative in the manner prescribed by the 
IRS in forms, instructions, and other guidance. Accordingly, if the 
entity partnership representative is designated on the partnership 
return for the taxable year in accordance with paragraph (c)(2) of this 
section, the designated individual must be appointed by the partnership 
at that time. Similarly, if the entity partnership representative is 
designated under paragraph (e) of this section (regarding revocation and 
subsequent designation after revocation of a partnership 
representative), the designated individual must be appointed at that 
time. If the partnership fails to appoint a designated individual at the 
time and in the manner set forth in this paragraph (b)(3)(ii), the IRS 
may determine that the entity partnership representative designation is 
not in effect under paragraph (f) of this section.
    (4) Examples. The following examples illustrate the rules of this 
paragraph (b).

    Example 1. Partnership designates PR as its partnership 
representative for its 2018 tax year on its timely filed 2018 
partnership return. The IRS initiates an administrative proceeding with 
respect to Partnership's 2018 tax year. PR has a United States taxpayer 
identification number, a United States street address, and a phone 
number with a United States area code. The IRS contacts PR and requests 
an in-person meeting with respect to the administrative proceeding. PR 
works with the IRS and agrees to meet. PR has substantial presence in 
the United States because she meets all the requirements under paragraph 
(b)(2) of this section.
    Example 2. The facts are the same as in Example 1 of this paragraph 
(b)(4), except that PR is an entity and Partnership appointed DI, a 
designated individual to act on behalf of PR for its 2018 tax year on 
its timely filed 2018 partnership return. DI has a United States 
taxpayer identification number and a phone number with a United States 
area code. However, the address provided for DI is not a United States 
address. Accordingly, PR is not an eligible partnership representative 
because PR is an entity and DI does not satisfy the requirements of 
paragraph (b)(3)(i) of this section. Although DI does not have 
substantial presence in the United States under

[[Page 213]]

paragraph (b)(2) of this section and therefore PR is not an eligible 
partnership representative, until there is a resignation or revocation 
under paragraph (d) or (e) of this section or until the IRS determines 
the partnership representative designation is no longer in effect under 
paragraph (f) of this section, the designation of PR as the partnership 
representative remains in effect in accordance with paragraph (a) of 
this section, and Partnership and all its partners are bound by the 
actions of PR as the partnership representative.
    Example 3. The facts are the same as in Example 1 of this paragraph 
(b)(4), except PR works in a foreign country and spends the majority of 
her time there. Unless PR otherwise fails to meet one of the 
requirements under paragraph (b)(2) of this section, PR has substantial 
presence in the United States. However, even if PR fails to meet one of 
the requirements under paragraph (b)(2) of this section, until there is 
a resignation or revocation under paragraph (d) or (e) of this section 
or until the IRS determines the partnership representative designation 
is no longer in effect under paragraph (f) of this section, the 
designation of PR as the partnership representative remains in effect in 
accordance with paragraph (a) of this section, and Partnership and all 
its partners are bound by the actions of PR as the partnership 
representative.

    (c) Designation of partnership representative by the partnership--
(1) In general. The partnership must designate a partnership 
representative separately for each taxable year. The designation of a 
partnership representative for one taxable year is effective only for 
the taxable year for which it is made.
    (2) Designation. Except in the case of a designation of a 
partnership representative (and the appointment of the designated 
individual, if applicable) after an event described in paragraph (d) of 
this section (regarding resignation), paragraph (e) of this section 
(regarding revocation by the partnership), or paragraph (f) of this 
section (regarding designation made by the IRS), or except as prescribed 
in forms, instructions, and other guidance, designation of a partnership 
representative (and the appointment of the designated individual, if 
applicable) must be made on the partnership return for the partnership 
taxable year to which the designation relates and must include all of 
the information required by forms, instructions, and other guidance, 
including information about the designated individual if paragraph 
(b)(3) of this section applies. The designation of the partnership 
representative (and the appointment of the designated individual, if 
applicable) is effective on the date that the partnership return is 
filed.
    (3) Example. The following example illustrates the rules of this 
paragraph (c).

    Example. Partnership properly designates PR1 as its partnership 
representative for taxable year 2018 on its 2018 partnership return. 
Partnership designates PR2 as its partnership representative for taxable 
year 2021 on its 2021 partnership return. In 2022, the IRS mails 
Partnership a notice of administrative proceeding under section 
6231(a)(1) with respect to Partnership's 2018 taxable year. PR1 is the 
partnership representative for the 2018 partnership taxable year, 
notwithstanding the designation of PR2 as partnership representative for 
the 2021 partnership taxable year.

    (d) Resignations--(1) In general. A partnership representative or 
designated individual may resign as partnership representative or 
designated individual, as applicable, for a partnership taxable year for 
any reason by notifying the IRS in writing of the resignation in 
accordance with forms, instructions, and other guidance prescribed by 
the IRS. A resigning partnership representative may not designate a 
successor partnership representative. A resigning designated individual 
may not designate a successor designated individual or partnership 
representative. No later than 30 days after the IRS receives a written 
notification of resignation, the IRS will send written confirmation of 
receipt of the written notification to the partnership and the resigning 
partnership representative (to the attention of the designated 
individual if appropriate). A failure by the IRS to send any 
notification under this paragraph (d) does not invalidate a valid 
resignation made pursuant to this paragraph (d). A failure by the 
partnership representative (or designated individual, if the designated 
individual is the person resigning) to satisfy the requirements of this 
paragraph (d) is treated as if there were no resignation, and the 
partnership representative designation (and designated individual 
appointment, if applicable) remains in effect until the

[[Page 214]]

designation (or appointment) is terminated by valid resignation (as 
described in this paragraph (d)), valid revocation by the partnership 
(as described in paragraph (e) of this section), or a determination by 
the IRS that the designation is not in effect (as described in paragraph 
(f) of this section). See Sec.  301.6223-2 for binding nature of actions 
taken by the partnership representative or designated individual on 
behalf of a partnership representative, if applicable, prior to 
resignation.
    (2) Time for resignation. A partnership representative or designated 
individual may submit the written notification of resignation described 
in paragraph (d)(1) of this section to the IRS only after the IRS issues 
a notice of administrative proceeding (NAP) under section 6231(a)(1) for 
the partnership taxable year for which the partnership representative 
designation is in effect or at such other time as prescribed by the IRS 
in forms, instructions, or other guidance. If the IRS withdraws the NAP 
pursuant to Sec.  301.6231-1(f), any valid resignation by the 
partnership representative or designated individual under this paragraph 
(d) prior to the withdrawal of the NAP remains in effect.
    (3) Effective date of resignation. A valid resignation is 
immediately effective upon the IRS's receipt of the written notification 
described in paragraph (d)(1) of this section. As of the effective date 
of the resignation--
    (i) The resigning partnership representative (and designated 
individual, if applicable) may not take any action on behalf of the 
partnership with respect to the partnership taxable year affected by the 
resignation;
    (ii) The partnership representative designation is no longer in 
effect with respect to the partnership taxable year affected by the 
resignation;
    (iii) In the case of a resigning entity partnership representative, 
the appointment of the designated individual is no longer in effect with 
respect to the partnership taxable year affected by the resignation; and
    (iv) In the case of a resigning designated individual, the 
designation of the entity partnership representative is no longer in 
effect with respect to the partnership taxable year affected by the 
resignation.
    (e) Revocations--(1) In general. A partnership may revoke a 
designation of a partnership representative or appointment of a 
designated individual for a partnership taxable year for any reason by 
notifying the IRS in writing of the revocation in accordance with forms, 
instructions, and other guidance prescribed by the IRS. The partnership 
may make such revocation regardless of when and how the designation or 
appointment was made, except as provided in paragraph (e)(6) of this 
section (regarding designation by the IRS). The revocation must include 
the designation of a successor partnership representative (and the 
appointment of a designated individual, if applicable). In the case of a 
revocation of only the designated individual appointment, the 
partnership must designate a successor designated individual. No later 
than 30 days after the IRS receives a written notification of revocation 
submitted at the time described in paragraph (e)(2)(i) of this section, 
the IRS will send written confirmation of receipt of the written 
notification to the partnership, the revoked partnership representative 
or, in the case of a revocation of only the appointment of a designated 
individual, to the revoked designated individual, and to the newly 
designated partnership representative. In the case of a revocation of an 
entity partnership representative, the notification will be sent to the 
entity partnership representative, to the attention of the designated 
individual. A failure by the IRS to send any notification under this 
paragraph (e) does not invalidate a valid revocation made pursuant to 
this paragraph (e). A failure by the partnership to satisfy the 
requirements of this paragraph (e), including failure to designate a 
successor, is treated as if no revocation has occurred and the 
partnership representative designation (and designated individual 
appointment, if applicable) remains in effect until the designation (or 
appointment) is terminated either by valid resignation (as described in 
paragraph (d) of this section), valid revocation by the partnership (as 
described in this paragraph (e)), or determination by the IRS that

[[Page 215]]

the designation is not in effect (as described in paragraph (f) of this 
section). See Sec.  301.6223-2 for binding nature of actions taken by 
the partnership representative or designated individual on behalf of a 
partnership representative, if applicable, prior to revocation.
    (2) Time for revocation--(i) Revocation during an administrative 
proceeding. Except as provided in paragraph (e)(2)(ii) of this section 
or in forms, instructions, or other guidance prescribed by the IRS, a 
partnership may revoke a designation of a partnership representative or 
appointment of a designated individual only after the IRS issues a 
notice of selection for examination or a NAP under section 6231(a)(1) 
for the partnership taxable year for which the designation or 
appointment is in effect. If the IRS withdraws the NAP pursuant to Sec.  
301.6231-1(f), any valid revocation of a partnership representative 
designation or designated individual appointment under this paragraph 
(e) prior to the withdrawal of the NAP remains in effect.
    (ii) Revocation with an AAR. The partnership may revoke a 
designation of a partnership representative or appointment of a 
designated individual for the taxable year prior to receiving a notice 
of selection for examination or a NAP by filing a valid administrative 
adjustment request (AAR) in accordance with section 6227 for a 
partnership taxable year. A partnership may not use the form prescribed 
by the IRS for filing an AAR solely for the purpose of revoking a 
designation of a partnership representative or appointment of a 
designated individual. See Sec.  301.6227-1 for the rules regarding the 
time and manner of filing an AAR.
    (3) Effective date of revocation. Except as described in paragraph 
(e)(6)(ii) of this section (regarding the effective date of a revocation 
of a partnership representative designated by the IRS under paragraph 
(f)(5) of this section), a valid revocation is immediately effective 
upon the IRS's receipt of the written notification described in 
paragraph (e)(1) of this section. A revocation of a partnership 
representative designation and a designation of a new partnership 
representative (and appointment of a new designated individual, if 
applicable) is effective on the date the partnership files a valid AAR. 
Similarly, a revocation of a designated individual appointment and 
appointment of a new designated individual is effective on the date the 
partnership files a valid AAR. As of the effective date of the 
revocation--
    (i) The revoked partnership representative (and designated 
individual, if applicable) may not take any action on behalf of the 
partnership with respect to the partnership taxable year affected by the 
revocation;
    (ii) The designation of the revoked partnership representative is no 
longer in effect, and the successor partnership representative 
designation (and designated individual appointment, if applicable) is in 
effect with respect to the partnership taxable year affected by the 
revocation;
    (iii) In the case of a revoked entity partnership representative, 
the appointment of the designated individual is no longer in effect with 
respect to the partnership taxable year affected by the revocation; and
    (iv) In the case of a revoked designated individual where the 
designation of the entity partnership representative has not been 
revoked, the revoked designated individual may not take any action on 
behalf of the partnership with respect to the partnership taxable year 
affected by the revocation, the appointment of the revoked designated 
individual is no longer in effect, and the appointment of the successor 
designated individual is in effect.
    (4) Partners who may sign revocation. A revocation under this 
paragraph (e) must be signed by a person who was a partner at any time 
during the partnership taxable year to which the revocation relates or 
as provided in forms, instructions, and other guidance prescribed by the 
IRS.
    (5) Form of the revocation. The written notification of revocation 
described in paragraph (e)(1) of this section must include the items 
described in this paragraph (e)(5). A notification of revocation 
described in paragraph (e)(1) of this section that does not include each 
of the following items is not a valid revocation:

[[Page 216]]

    (i) A certification under penalties of perjury that the person 
signing the notification is a partner described in paragraph (e)(4) of 
this section authorized by the partnership to revoke the designation of 
the partnership representative (or appointment of the designated 
individual, if applicable).
    (ii) A statement that the person signing the notification is 
revoking the designation of the partnership representative (or 
appointment of the designated individual, if applicable);
    (iii) A designation of a successor partnership representative (and 
appointment of a designated individual, if applicable) in accordance 
with this section and forms, instructions, and other guidance prescribed 
by the IRS; and
    (iv) In the case of a revocation of an appointment of a designated 
individual, appointment of a successor designated individual in 
accordance with this section and forms, instructions, and other guidance 
prescribed by the IRS.
    (6) Partnership representative designated by the IRS--(i) In 
general. If a partnership representative is designated (and a designated 
individual is appointed, if applicable) by the IRS pursuant to paragraph 
(f)(5) of this section, the partnership may only revoke that designation 
(or the appointment of the designated individual, if applicable) with 
the permission of the IRS, which the IRS will not unreasonably withhold.
    (ii) Effective date of revocation. The effective date of any 
revocation submitted in accordance with paragraph (e)(6)(i) of this 
section is the date on which the IRS sends notification that the 
revocation is valid.
    (7) Multiple revocations--(i) In general. The IRS may determine that 
a designation is not in effect under paragraph (f) of this section if:
    (A) The IRS receives a revocation of a designation of a partnership 
representative or appointment of a designated individual, and
    (B) Within the 90-day period prior to the date the revocation 
described in paragraph (e)(7)(i)(A) of this section was received, the 
IRS received another revocation for the same partnership taxable year.
    (ii) Time limitation. The IRS may not determine that a designation 
is not in effect in accordance with paragraph (e)(7)(i) of this section 
later than 90 days after the IRS's receipt of the revocation described 
in paragraph (e)(7)(i)(A) of this section.
    (8) Examples. The following examples illustrate the rules of this 
paragraph (e).

    Example 1. Partnership properly designates PR, an individual, as 
partnership representative for its 2018 taxable year on its timely filed 
2018 partnership return. In 2020, Partnership mails written notification 
to the IRS to revoke designation of PR as its partnership representative 
for Partnership's 2018 taxable year. The revocation is not made in 
connection with an AAR for Partnership's 2018 taxable year, and the IRS 
has not mailed Partnership a notice of selection for examination or a 
NAP under section 6231(a)(1) with respect to Partnership's 2018 taxable 
year. Because the revocation was not made when permitted under paragraph 
(e)(2) of this section, the revocation is not effective and B remains 
the partnership representative for Partnership's 2018 taxable year 
unless and until B's status as partnership representative is properly 
revoked under paragraph (e) of this section or terminated in accordance 
with paragraph (d) (regarding resignation) or (f) (regarding IRS 
designation) of this section.
    Example 2. During an administrative proceeding with respect to 
Partnership's 2018 taxable year, Partnership provides the IRS with 
written notification to revoke its designation of PR, an individual, as 
its partnership representative for the 2018 taxable year. The written 
notification does not include a designation of a new partnership 
representative for Partnership's 2018 taxable year. Because the 
revocation does not include a designation of a new partnership 
representative as required under paragraph (e)(1) of this section, the 
revocation is not effective and PR remains the partnership 
representative for Partnership's 2018 taxable year unless and until B's 
status as partnership representative is properly revoked under paragraph 
(e) of this section or terminated in accordance with paragraph (d) 
(regarding resignation) or (f) (regarding IRS designation) of this 
section.

    (f) Designation of the partnership representative by the IRS--(1) In 
general. If the IRS determines that a designation of a partnership 
representative is not in effect for a partnership taxable year in 
accordance with paragraph (f)(2) of this section, the IRS will notify 
the

[[Page 217]]

partnership that a partnership representative designation is not in 
effect. The IRS will also notify the most recent partnership 
representative for the partnership taxable year, except as described in 
paragraph (f)(2)(iii) of this section. In the case of an entity 
partnership representative, the notification will be sent to the entity 
partnership representative, to the attention of the designated 
individual. The determination that a designation is not in effect is 
effective on the date the IRS mails the notification. Except as 
described in paragraph (f)(4) of this section, the partnership may 
designate, in accordance with paragraph (f)(3) of this section, a 
successor partnership representative (and designated individual, if 
applicable) eligible under paragraph (b) of this section within 30 days 
of the date the IRS mails the notification. In the case of a resignation 
of a partnership representative, this notification may include the 
written confirmation of receipt described in paragraph (d)(1) of this 
section. See paragraph (f)(2)(iv) of this section. If the partnership 
does not designate a successor within 30 days from the date of IRS 
notification, the IRS will designate a partnership representative in 
accordance with paragraph (f)(5) of this section. A partnership 
representative designation made in accordance with paragraphs (c), (e), 
or (f) of this section remains in effect until the IRS determines the 
designation is not in effect. See Sec.  301.6223-2 for binding nature of 
actions taken by the partnership representative or designated individual 
on behalf of a partnership representative, if applicable, prior to a 
determination by the IRS that the designation is not in effect.
    (2) IRS determination that partnership representative designation 
not in effect. The IRS may, but is not required to, determine that a 
partnership representative designation is not in effect. The IRS is not 
obligated to search for or otherwise seek out information related to the 
circumstances in which the IRS may determine a partnership 
representative designation is not in effect, and the fact that the IRS 
is aware of any such circumstances does not obligate the IRS to 
determine that a partnership representative designation is not in 
effect. The IRS may determine that the partnership representative 
designation is not in effect if the IRS determines that--
    (i) The partnership representative or the designated individual does 
not have substantial presence as described in paragraph (b)(2) of this 
section;
    (ii) The partnership failed to appoint a designated individual as 
described in paragraph (b)(3) of this section, as applicable;
    (iii) The partnership failed to make a valid designation as 
described in paragraph (c) of this section;
    (iv) The partnership representative or designated individual resigns 
as described in paragraph (d) of this section;
    (v) The partnership has made multiple revocations as described in 
paragraph (e)(7) of this section; or
    (vi) The partnership representative designation is no longer in 
effect as described in other published guidance.
    (3) Designation by the partnership during the 30-day period. 
Designation of a partnership representative (and appointment of a 
designated individual, if applicable) by the partnership during the 30-
day period described in paragraph (f)(1) of this section must be made in 
accordance with forms, instructions, and other guidance prescribed by 
the IRS. If the partnership fails to provide all information required by 
forms, instructions, and other guidance, the partnership will have 
failed to make a designation (and appointment, if applicable). If the 
partnership does not fully comply with the requirement of this paragraph 
(f)(3) within the 30-day period described in paragraph (f)(1) of this 
section, the IRS will designate a partnership representative (and 
appoint a designated individual, if applicable).
    (4) No opportunity for designation by the partnership in the case of 
multiple revocations. In the event that the IRS determines a partnership 
representative designation is not in effect due to multiple revocations 
as described in paragraph (e)(7) of this section, the partnership will 
not be given an opportunity to designate the successor partnership 
representative prior to the designation by the IRS as described in

[[Page 218]]

paragraph (f)(5) of this section. However, see paragraph (e)(6) of this 
section regarding revocation of a partnership representative designated 
by the IRS.
    (5) Designation by the IRS--(i) In general. The IRS designates a 
partnership representative under this paragraph (f)(5) by notifying the 
partnership of the name, address, and telephone number of the new 
partnership representative. If the IRS designates an entity partnership 
representative, the IRS will also appoint a designated individual to act 
on behalf of the entity partnership representative. The designation of a 
partnership representative (and appointment of a designated individual, 
if applicable) by the IRS is effective on the date on which the IRS 
mails the notification of the designation (and appointment, if 
applicable) to the partnership. The IRS will also mail a copy of the 
notification of the designation (and appointment, if applicable) to the 
new partnership representative (through the new designated individual, 
if applicable) that has been designated (and appointed, if applicable) 
by the IRS under this section.
    (ii) Factors considered when partnership representative designated 
by the IRS. The IRS will ordinarily consider one or more of the factors 
set forth in this paragraph (f)(5)(ii) when determining whom to 
designate as partnership representative. No single factor is 
determinative, and other than as described in paragraph (f)(5)(iii) of 
this section, the IRS may exercise its discretion to designate a person 
as partnership representative even if none of the factors are applicable 
to such person. The factors are not requirements for eligibility to be 
designated by the IRS as partnership representative; the only 
requirements for eligibility are described under paragraph (b) of this 
section. The IRS is not obligated to search for or otherwise seek out 
information related to the factors, and the fact that the IRS is aware 
of any information related to such factors does not obligate the IRS to 
designate a particular person. Although the IRS may designate any person 
to be the partnership representative, a principal consideration in 
determining whom to designate as a partnership representative is whether 
there is a reviewed year partner that is eligible to serve as the 
partnership representative in accordance with paragraph (b)(1) of this 
section or whether there is a partner at the time the partnership 
representative designation is made that is eligible to serve as the 
partnership representative. Other factors that will ordinarily be 
considered by the IRS in determining whom to designate as a partnership 
representative include, but are not limited to:
    (A) The views of the partners having a majority interest in the 
partnership regarding the designation;
    (B) The general knowledge of the person in tax matters and the 
administrative operation of the partnership;
    (C) The person's access to the books and records of the partnership;
    (D) Whether the person is a United States person (within the meaning 
of section 7701(a)(30)); and
    (E) The profits interest of the partner in the case of a partner.
    (iii) IRS employees. The IRS will not designate a current employee, 
agent, or contractor of the IRS as the partnership representative unless 
that employee, agent, or contractor was a reviewed year partner or is 
currently a partner in the partnership.
    (6) Examples. The following examples illustrate the rules of this 
paragraph (f).

    Example 1. The IRS determines that Partnership has designated a 
partnership representative that does not have substantial presence in 
the United States as defined in paragraph (b)(2) of this section. The 
IRS may, but is not required to, determine that the designation is not 
in effect and designate a new partnership representative after following 
the procedures in this paragraph (f).
    Example 2. Partnership designates as its partnership representative 
a corporation but fails to appoint a designated individual to act on 
behalf of the corporation as required under paragraph (b)(3) of this 
section. The IRS may, but is not required to, determine that the 
partnership representative designation is not in effect and may 
designate a new partnership representative after following the 
procedures in this paragraph (f).
    Example 3. The partnership representative resigns pursuant to 
paragraph (d) of this section. The IRS mails Partnership a notification 
informing Partnership that no designation is in effect and that the IRS 
plans to designate a new partnership representative. Partnership fails 
to respond within 30 days of the date the IRS mails the notification. 
The

[[Page 219]]

IRS must designate a partnership representative pursuant to this 
paragraph (f).
    Example 4. Partnership designated on its partnership return a 
partnership representative, PR1. After Partnership received a NAP, 
Partnership submits to the IRS the form described in paragraph (e)(4) of 
this section requesting the revocation of PR1's designation as 
partnership representative and designating PR2 as the partnership 
representative. Sixty days later, Partnership signs and submits a form 
described in paragraph (e)(4) of this section requesting the revocation 
of PR2's designation as partnership representative and designating PR3 
as the partnership representative. The IRS accepts the revocation of PR2 
and designation of PR3 as valid and effective upon receipt pursuant to 
paragraph (e)(3) of this section. However, because PR2's revocation was 
within 90 days of PR1's revocation, the IRS may determine within 90 days 
of IRS's receipt of PR2's revocation, pursuant to paragraphs (e)(7) and 
(f)(2) of this section, that there is no designation in effect due to 
multiple revocations. The IRS may then designate a new partnership 
representative pursuant to this paragraph (f) without allowing 
Partnership an opportunity to designate a partnership representative 
within the 30-day period described in paragraph (f)(1) of this section.

    (g) Reliance on forms required by this section. The IRS may rely on 
any form or other document filed or submitted under this section as 
evidence of the designation, resignation, or revocation on such form and 
as evidence of the date on which such form was filed or submitted 
relating to a designation, resignation, or revocation.
    (h) Applicability date--(1) In general. Except as provided in 
paragraph (h)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable years beginning after November 2, 2015 and 
before January 1, 2018 for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9839, 83 FR 39344, Aug. 9, 2018, as amended by T.D. 9839, 84 FR 
46440, Sept. 4, 2019]



Sec.  301.6223-2  Binding effect of actions of the partnership 
and partnership representative.

    (a) Binding nature of actions by partnership and final decision in a 
partnership proceeding. The actions of the partnership and the 
partnership representative taken under subchapter C of chapter 63 of the 
Internal Revenue Code (subchapter C of chapter 63) and any final 
decision in a proceeding brought under subchapter C of chapter 63 with 
respect to the partnership bind the partnership, all partners of the 
partnership (including partnership-partners as defined in Sec.  
301.6241-1(a)(7) that have a valid election under section 6221(b) in 
effect for any taxable year that ends with or within the taxable year of 
the partnership), and any other person whose tax liability is determined 
in whole or in part by taking into account directly or indirectly 
adjustments determined under subchapter C of chapter 63 (for example, 
indirect partners as defined in Sec.  301.6241-1(a)(4)). For instance, a 
settlement agreement entered into by the partnership representative on 
behalf of the partnership, a notice of final partnership adjustment 
(FPA) with respect to the partnership that is not contested by the 
partnership, or the final decision of a court with respect to the 
partnership if the FPA is contested, binds all persons described in the 
preceding sentence.
    (b) Actions by the partnership representative before termination of 
designation. A termination of the designation of a partnership 
representative because of a resignation under Sec.  301.6223-1(d) or a 
revocation under Sec.  301.6223-1(e), or as a result of a determination 
by the Internal Revenue Service (IRS) under Sec.  301.6223-1(f) that the 
designation is not in effect, does not affect the validity of any action 
taken by that partnership representative during the period prior to such 
termination. For example, if a partnership representative properly 
designated under Sec.  301.6223-1 consented to an extension of the 
period of limitations on making adjustments under section 6235(b) in 
accordance with Sec.  301.6235-1(d), that extension remains valid even 
after termination of the designation of that partnership representative.
    (c) Actions by the partnership representative upon withdrawal of 
notice of administrative proceeding. If the IRS issues a notice of 
administrative proceeding (NAP) under section 6231(a)(1) and 
subsequently withdraws such NAP pursuant to Sec.  301.6231-1(f), any 
actions taken by a partnership representative

[[Page 220]]

(or successor partnership representative after a change to the 
partnership representative that occurred after the issuance of the NAP 
and before the NAP was withdrawn) are binding as described in paragraph 
(a) of this section even though the NAP has been withdrawn and has no 
effect for purposes of subchapter C of chapter 63.
    (d) Partnership representative has the sole authority to act on 
behalf of the partnership--(1) In general. The partnership 
representative has the sole authority to act on behalf of the 
partnership for all purposes under subchapter C of chapter 63. In the 
case of an entity partnership representative, the designated individual 
has the sole authority to act on behalf of the partnership 
representative and the partnership. Except for a partner that is the 
partnership representative or the designated individual, no partner, or 
any other person, may participate in an administrative proceeding 
without the permission of the IRS. The failure of the partnership 
representative to follow any state law, partnership agreement, or other 
document or agreement has no effect on the authority of the partnership 
representative or the designated individual as described in section 
6223, Sec.  301.6223-1, and this section. Nothing in this section 
affects, or otherwise restricts, the ability of a partnership 
representative to authorize a person to represent the partnership 
representative, in the partnership representative's capacity as the 
partnership representative, before the IRS under a valid power of 
attorney in a proceeding involving the partnership under subchapter C of 
chapter 63.
    (2) Designation provides authority to bind the partnership--(i) 
Partnership representative. A partnership representative, by virtue of 
being designated under section 6223 and Sec.  301.6223-1, has the 
authority to bind the partnership for all purposes under subchapter C of 
chapter 63.
    (ii) Designated individual. A partnership that is required to 
appoint a designated individual described under Sec.  301.6223-
1(b)(3)(i) acts through such designated individual. By virtue of being 
appointed as part of the designation of the partnership representative 
under Sec.  301.6223-1, the designated individual has the sole authority 
to bind the partnership representative and therefore the partnership, 
its partners, and any other person as described in paragraph (a) of this 
section for all purposes under subchapter C of chapter 63 so long as the 
partnership representative designation and designated individual 
appointment are in effect.
    (e) Examples. The following examples illustrate the rules of this 
section.

    Example 1. Partnership designates a partnership representative, PR, 
on its timely filed partnership return for 2020. PR is a partner in 
Partnership. The partnership agreement for Partnership includes a clause 
that requires PR to consult with an identified management group of 
partners in Partnership before taking any action with respect to an 
administrative proceeding before the IRS. The IRS initiates an 
administrative proceeding with respect to Partnership's 2020 taxable 
year. During the course of the administrative proceeding, PR consents to 
an extension of the period of limitations on making adjustments under 
section 6235(b) allowing additional time for the IRS to mail an FPA. PR 
failed to consult with the management group of partners prior to 
agreeing to this extension of time. PR's consent provided to the IRS to 
extend the time period is valid and binding on Partnership because, 
pursuant to section 6223, PR, as the designated partnership 
representative, has authority to bind Partnership and all its partners.
    Example 2. Partnership designates a partnership representative, PR, 
on its timely filed partnership return for 2020. PR is not a partner in 
Partnership. During an administrative proceeding with respect to 
Partnership's 2020 taxable year, PR agrees to certain partnership 
adjustments and within 45 days after the issuance of the FPA elects the 
alternative to payment of the imputed underpayment under section 6226. 
Certain partners in Partnership challenge the actions taken by PR during 
the administrative proceeding and the validity of the section 6226 
statements furnished to those partners, alleging that PR was never 
authorized to act on behalf of Partnership under state law or the 
partnership agreement. Because PR was designated by Partnership as the 
partnership representative under section 6223 and this section, PR was 
authorized to act on behalf of Partnership for all purposes under 
subchapter C of chapter 63, and the IRS may rely on that designation as 
conclusive evidence of PR's authority to act on behalf of Partnership.

[[Page 221]]

    Example 3. Partnership designates an entity partnership 
representative, EPR, and appoints an individual, A, as the designated 
individual on its timely filed partnership return for 2020. EPR is a C 
corporation. A is unaffiliated with EPR and is not an officer, director, 
or employee of EPR. During an administrative proceeding with respect to 
Partnership's 2020 taxable year, A, acting for EPR, agrees to an 
extension of the period of limitations on making adjustments under 
section 6235(b) from March 15, 2024 to December 31, 2024. The IRS mails 
an FPA with respect to the 2020 partnership taxable year on December 13, 
2024, before expiration of the extended period of limitations on making 
adjustments as agreed to by EPR, but after the expiration of the 
unextended period of limitations on making adjustments. Partnership 
challenges the FPA as untimely, alleging that A was not authorized under 
state law to act on behalf of EPR and thus the extension agreement was 
invalid. Because A was appointed by the partnership as the designated 
individual to act on behalf of EPR, A was authorized to act on behalf of 
EPR for all purposes under subchapter C of chapter 63, and the IRS may 
rely on that appointment as conclusive evidence of A's authority to act 
on behalf of EPR and Partnership.
    Example 4. The partnership representative, PR, consents to an 
extension of the period of limitations on making adjustments under 
section 6235(b) and Sec.  301.6235-1(d) for Partnership for the 
partnership taxable year. After signing the consent, PR resigns as 
partnership representative in accordance with Sec.  301.6223-1(d). The 
consent to extend the period of limitations on making adjustments under 
section 6235(b) remains valid even after PR resigns.
    Example 5. Partnership designates a partnership representative who 
does not make themselves available to meet with the IRS in person in the 
United States as required by Sec.  301.6223-1(b). Although the 
partnership representative does not have substantial presence in the 
United States within the meaning of Sec.  301.6223-1(b)(2), until a 
termination occurs under Sec.  301.6223-1(d) or (e) or the IRS 
determines the partnership representative designation is no longer in 
effect under Sec.  301.6223-1(f), the partnership representative 
designation remains in effect, and Partnership and all its partners are 
bound by the actions of the partnership representative.
    Example 6. Partnership designates PR1 as the partnership 
representative on its timely filed partnership return for 2020. On 
September 1, 2022, the IRS sends a NAP for the 2020 taxable year to 
Partnership and PR, and Partnership revokes PR1's designation and 
designates PR2 as the partnership representative in accordance with 
Sec.  301.6223-1(e). On November 1, 2023, PR2 consents to an extension 
of the period of limitations on making adjustments under section 6235(b) 
and Sec.  301.6235(d) for Partnership's 2020 taxable year. On December 
1, 2023, the IRS then withdraws the NAP. PR2 remains the partnership 
representative, and the consent to extend the period of limitations on 
making adjustments under section 6235(b) remains valid even after the 
NAP is withdrawn.

    (f) Applicability date--(1) In general. Except as provided in 
paragraph (f)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable years beginning after November 2, 2015 and 
before January 1, 2018 for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9839, 83 FR 39349, Aug. 9, 2018]



Sec.  301.6223(a)-1  Notice sent to tax matters partner.

    (a) In general. For purposes of subchapter C of chapter 63 of the 
Internal Revenue Code, a notice is treated as mailed to the tax matters 
partner on the earlier of--
    (1) The date on which the notice is mailed to ``THE TAX MATTERS 
PARTNER'' at the address of the partnership (as provided on the 
partnership return, except as updated under Sec.  301.6223(c)-1); or
    (2) The date on which the notice is mailed to the person who is the 
tax matters partner at the address of that person (as provided on the 
partner's return, except as updated under Sec.  301.6223(c)-1) or the 
partnership. See Sec.  301.6223(c)-1 for rules relating to the 
information used by the Internal Revenue Service in providing notices, 
etc.
    (b) Example. The provisions of this section may be illustrated by 
the following example:

    Example. Partnership P designates B as its tax matters partner in 
accordance with Sec.  301.6231(a)(7)-1(b). On December 1 a notice of the 
beginning of an administrative proceeding is mailed to ``THE TAX MATTERS 
PARTNER'' at the address of P. On January 10, a copy of the notice is 
mailed to B at B's address. December 1 is treated as the date that the 
notice was mailed to the tax matters partner.

    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4,

[[Page 222]]

2001, see Sec.  301.6223(a)-1T contained in 26 CFR part 1, revised April 
1, 2001.

[T.D. 8965, 66 FR 50547, Oct. 4, 2001]



Sec.  301.6223(a)-2  Withdrawal of notice of the beginning of 
an administrative proceeding.

    (a) In general. If the Internal Revenue Service, within 45 days 
after the day on which the notice specified in section 6223(a)(1) is 
mailed to the tax matters partner, decides not to propose any 
adjustments to the partnership return as filed, the Internal Revenue 
Service may withdraw the notice specified in section 6223(a)(1) by 
mailing a letter to that effect to the tax matters partner within that 
45-day period. Even if the Internal Revenue Service does not withdraw 
the notice specified in section 6223(a)(1), the Internal Revenue Service 
is not required to issue a notice of final partnership administrative 
adjustment. If the Internal Revenue Service withdraws the notice 
specified in section 6223(a)(1), neither the Internal Revenue Service 
nor the tax matters partner is required to furnish any notice with 
respect to that proceeding to any other partner. Except as provided in 
paragraph (b) of this section, a notice specified in section 6223(a)(1) 
which has been withdrawn shall be treated for purposes of subchapter C 
of chapter 63 of the Internal Revenue Code as if that notice had never 
been mailed to the tax matters partner.
    (b) Internal Revenue Service may not reissue notice except under 
certain circumstances. If the notice specified in section 6223(a)(1) was 
mailed to the tax matters partner with respect to a partnership taxable 
year and that notice was later withdrawn as provided in paragraph (a) of 
this section, the Internal Revenue Service shall not mail a second 
notice specified in section 6223(a)(1) with respect to that taxable year 
unless--
    (1) There is evidence of fraud, malfeasance, collusion, concealment, 
or misrepresentation of a material fact;
    (2) The prior proceeding involved the misapplication or erroneous 
interpretation of an established Internal Revenue Service position 
existing at the time of the previous examination, or the failure to make 
an adjustment based on such a position; or
    (3) Other circumstances exist which indicate that failure to reissue 
the notice would be a serious administrative omission.
    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6223(a)-2T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50547, Oct. 4, 2001]



Sec.  301.6223(b)-1  Notice group.

    (a) In general. If a group of partners having in the aggregate a 5 
percent or more interest in the profits of a partnership requests and 
designates one of their members to receive the notices described in 
section 6223(a)(1) and (2), the member so designated shall be treated as 
a partner to whom section 6223(a) applies. Thus, the designated 
representative is entitled to receive any notice described in section 
6223(a) that is mailed to the tax matters partner 30 days or more after 
the day on which the Internal Revenue Service receives the request from 
the group.
    (b) Request for notice--(1) In general. The Internal Revenue Service 
shall mail to the member of the notice group designated to receive such 
notice any notice described in section 6223(a) that is mailed to the tax 
matters partner 30 days or more after the day on which the Internal 
Revenue Service receives the request for notice from the group if such 
request for notice is made in accordance with the rules prescribed in 
this paragraph (b).
    (2) Content of request. The request for notice from a notice group 
shall--
    (i) Identify the partnership by name, address, and taxpayer 
identification number;
    (ii) Specify the taxable year or years for which the notice group is 
formed;
    (iii) Designate the member of the group to receive the notices;
    (iv) Set out the name, address, taxpayer identification number, and 
profits interest of each member of the group; and
    (v) Be signed by all partners comprising the notice group.
    (3) Place for filing. The request for notice from a notice group 
generally must be filed with the service center where the partnership 
return is filed.

[[Page 223]]

However, if the notice group representative knows that the notice 
described in section 6223(a)(1) (beginning of an administrative 
proceeding) has already been mailed to the tax matters partner, the 
statement should be filed with the Internal Revenue Service office that 
mailed that notice.
    (4) Copy to be sent to the tax matters partner. A copy of the 
request for notice from a notice group shall be provided to the tax 
matters partner by the notice group representative within 30 days after 
the request is filed with the Internal Revenue Service.
    (5) Years covered by request. A request for notice by a notice group 
may relate only to partnership taxable years that have ended before the 
request is filed. A request, however, may relate to more than one 
partnership taxable year if the 5 percent or more profits interest 
requirement of section 6223(b)(2) is satisfied for each year to which 
the request relates.
    (c) Composition of notice group--(1) In general. A notice group 
shall be comprised only of persons who were partners at some time during 
the partnership taxable year for which the group is formed. If a notice 
group is formed for more than one taxable year, each member of the group 
must have been a partner at some time during at least one of the taxable 
years for which the group is formed. A notice group may include a 
partner entitled to separate notice. See section 6231(d) and Sec.  
301.6231(d)-1 for rules relating to determining the interest of a 
partner in the profits of a partnership for a partnership taxable year 
for purposes of section 6223(b). See paragraph (c)(6) of this section 
for rules relating to indirect and pass-thru partners.
    (2) Partner may be a member of only one group. A partner cannot be a 
member of more than one notice group with respect to the same 
partnership for the same partnership taxable year. See paragraph (c)(6) 
of this section for rules relating to indirect and pass-thru partners.
    (3) Partner may join group after formation. A partner may join a 
notice group at any time after the formation of that group by filing 
with the Internal Revenue Service office where the notice group filed 
its request a statement that it is joining the notice group. The 
statement shall identify the partner joining the notice group, the 
partnership, and the members of the notice group by name, address, and 
taxpayer identification number and shall be signed by the joining 
partner. A copy of the statement shall be provided by the joining 
partner to both the tax matters partner and the notice group 
representative within 30 days after the request is filed with the 
Internal Revenue Service. The partner shall become a member of the 
notice group for each partnership taxable year for which the group was 
formed and for which the partner was a partner at any time during such 
partnership taxable year.
    (4) Date on which a partner becomes a member of notice group. A 
partner shall become a member of a notice group on the 30th day after 
the day on which the Internal Revenue Service receives--
    (i) A request for notice from a notice group that identifies that 
partner as a member of that notice group; or
    (ii) A statement filed in accordance with paragraph (c)(3) of this 
section that states that the partner is joining the notice group.
    (5) No withdrawal from notice group. A partner who has signed a 
notice group request filed with the Internal Revenue Service remains a 
member of that notice group until the group terminates. A partner cannot 
withdraw from the notice group.
    (6) Indirect and pass-thru partners--(i) Pass-thru partners and 
unidentified indirect partners. A pass-thru partner may become a member 
of a notice group as provided in this section. For purposes of applying 
the aggregate interest requirement specified in paragraph (a) of this 
section to a pass-thru partner, the partnership interest held by the 
pass-thru partner shall not include any interest held through the pass-
thru partner by an indirect partner that has been identified as provided 
in section 6223(c)(3) and Sec.  301.6223(c)-1 before the date on which 
the pass-thru partner becomes a member of the notice group.
    (ii) Indirect partners identified before the pass-thru partner joins 
a notice group. An indirect partner may become a member of a notice 
group with respect to a partnership taxable year only if--

[[Page 224]]

    (A) The indirect partner held an interest in the partnership (either 
directly or through one or more pass-thru partners) at some time during 
that taxable year; and
    (B) The indirect partner was identified as provided in section 
6223(c)(3) and Sec.  301.6223(c)-1 on or before the date on which the 
pass-thru partner became a member of a notice group.
    (d) Termination of notice group. Unless the original request for 
notice from the notice group or a subsequent statement filed by the 
representative (in accordance with paragraphs (b)(3) and (4) of this 
section) designates a successor to the designated group representative, 
the group terminates if the representative dies (or, in the case of an 
entity, if the entity is dissolved), resigns, or is adjudicated 
incompetent.
    (e) Notice group is not a 5-percent group. The forming of a notice 
group under this section does not constitute the forming of a 5-percent 
group for purposes of litigation. A notice group is formed solely for 
the purpose of receiving notices. A 5-percent group is formed solely for 
the purpose of filing a petition for judicial review or appealing a 
judicial determination. See Sec.  301.6226(b)-1. Thus, a member of a 
notice group may choose not to join a 5-percent group formed by other 
members of the notice group.
    (f) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6223(b)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50547, Oct. 4, 2001]



Sec.  301.6223(c)-1  Additional information regarding partners furnished 
to the Internal Revenue Service.

    (a) In general. In addition to the names, addresses, and profits 
interests as shown on the partnership return, the Internal Revenue 
Service will use additional information as provided in this section for 
purposes of administering subchapter C of chapter 63 of the Internal 
Revenue Code.
    (b) Procedure for furnishing additional information--(1) In general. 
Any person may furnish additional information at any time by filing a 
written statement with the Internal Revenue Service. However, the 
information contained in the statement will be considered for purposes 
of determining whether a partner is entitled to a notice described in 
section 6223(a) only if the Internal Revenue Service receives the 
statement at least 30 days before the date on which the Internal Revenue 
Service mails the notice to the tax matters partner. Similarly, 
information contained in the statement generally will not be taken into 
account for other purposes by the Internal Revenue Service until 30 days 
after the statement is received.
    (2) Where statement must be filed. A statement furnished under this 
section generally must be filed with the service center where the 
partnership return is filed. However, if the person filing the statement 
knows that the notice described in section 6223(a)(1) (beginning of an 
administrative proceeding) has already been mailed to the tax matters 
partner, the statement should be filed with the Internal Revenue Service 
office that mailed such notice.
    (3) Contents of statement. The statement shall--
    (i) Identify the partnership, each partner for whom information is 
supplied, and the person supplying the information by name, address, and 
taxpayer identification number;
    (ii) Explain that the statement is furnished to correct or 
supplement earlier information with respect to the partners in the 
partnership;
    (iii) Specify the taxable year to which the information relates;
    (iv) Set out the corrected or additional information; and
    (v) Be signed by the person supplying the information.
    (c) No incorporation by reference to previously furnished documents. 
Incorporation by reference of information contained in another document 
previously furnished to the Internal Revenue Service will not be given 
effect for purposes of section 6223(c) or 6229(e). For example, 
reference to a return filed by a pass-thru partner which contains 
identifying information with respect to the indirect partners of that 
pass-thru partner is not sufficient to identify the indirect partners 
unless a copy of the document referred to is attached to the statement. 
Furthermore, reference to a

[[Page 225]]

prior general notification to the Internal Revenue Service that a 
partner who would otherwise be the tax matters partner is a debtor in a 
bankruptcy proceeding or has had a receiver appointed for the partner in 
a receivership proceeding is not sufficient unless a copy of the 
notification document referred to is attached to the statement.
    (d) Information supplied by a person other than the tax matters 
partner. The Internal Revenue Service may require appropriate 
verification in the case of information furnished by a person other than 
the tax matters partner. The 30-day period referred to in paragraph 
(b)(1) of this section shall not begin until that verification is 
supplied.
    (e) Power of attorney--(1) In general. This paragraph (e) applies to 
powers of attorney with respect to proceedings under subchapter C of 
chapter 63 of the Internal Revenue Code (chapter 63C) that begin on or 
after January 2, 2002.
    (2) Specifically for purposes of subchapter C of chapter 63 of the 
Internal Revenue Code. A power of attorney specifically for purposes of 
subchapter C of chapter 63 of the Internal Revenue Code shall be 
furnished in accordance with paragraph (b)(2) of this section.
    (3) Existing power of attorney. A power of attorney granted to 
another person by a partner for other tax purposes shall not be given 
effect for purposes of subchapter C of chapter 63 unless the partner 
specifically requests that the power be given such effect in a statement 
furnished to the Internal Revenue Service in accordance with paragraph 
(b) of this section.
    (f) Internal Revenue Service may use other information. In addition 
to the information on the partnership return and that supplied on 
statements filed under this section, the Internal Revenue Service may 
use other information in its possession (for example, a change in 
address reflected on a partner's return) in administering subchapter C 
of chapter 63 of the Internal Revenue Code. However, the Internal 
Revenue Service is not obligated to search its records for information 
not expressly furnished under this section.
    (g) Effective date. Except as provided in paragraph (e)(1) of this 
section, this section is applicable to partnership taxable years 
beginning on or after October 4, 2001. For years beginning prior to 
October 4, 2001, see Sec.  301.6223(c)-1T contained in 26 CFR part 1, 
revised April 1, 2001.

[T.D. 8965, 66 FR 50548, Oct. 4, 2001]



Sec.  301.6223(e)-1  Effect of Internal Revenue Service's failure 
to provide notice.

    (a) Notice group. Section 6223(e)(1)(B)(ii) applies with respect to 
a notice group only if the request for notice described in Sec.  
301.6223(b)-1 is received by the Internal Revenue Service at least 30 
days before the notice is mailed to the tax matters partner.
    (b) Indirect partners--(1) In general. For purposes of section 
6223(e), the Internal Revenue Service's failure to provide notice to a 
pass-thru partner entitled to notice under section 6223(b) is deemed a 
failure to provide notice to indirect partners holding an interest in 
the partnership through the pass-thru partner. However, this rule does 
not apply if the indirect partner--
    (i) Receives notice from the Internal Revenue Service;
    (ii) Is identified as provided in section 6223(c)(3) and Sec.  
301.6223(c)-1 at least 30 days before the notice is mailed to the tax 
matters partner; or
    (iii) Is a member of a notice group entitled to notice under 
paragraph (a) of this section.
    (2) Examples. The provisions of paragraph (b)(1) of this section may 
be illustrated by the following examples:

    Example 1. Partnership ABC has as one of its partners, A, a 
partnership with three partners, X, Y, and Z. ABC does not have more 
than 100 partners, and partnership A is entitled to notice under section 
6223(a). In addition, Z was identified as provided in section 6223(c)(3) 
and Sec.  301.6223(c)-1 on May 1, 2002. The Internal Revenue Service 
mailed a notice to the tax matters partner of ABC on July 1, 2002, but 
failed to provide notice to partnership A. Notwithstanding the Internal 
Revenue Service's notice to the tax matters partner, the Internal 
Revenue Service is deemed to have failed to provide notice to X and Y. 
The Internal Revenue Service's failure to provide notice to A, however, 
has no effect on Z; whether notice was provided to Z is determined 
independently.
    Example 2. Assume the same facts as in Example 1, except that the 
Internal Revenue Service provided notice to partnership A but

[[Page 226]]

did not provide separate notice to Z. Notwithstanding the Internal 
Revenue Service's notice to partnership A, the Internal Revenue Service 
is deemed to have failed to provide notice to Z.
    Example 3. Assume the same facts as in Example 1, except that 
partnership ABC has more than 100 partners and partnership A is entitled 
to notice under section 6223(b) because it had at least a 1 percent 
profits interest in partnership ABC. In addition, X became a member of a 
notice group on June 1, 2002, and the Internal Revenue Service mailed a 
notice to the designated member of that notice group. The Internal 
Revenue Service also mailed a separate notice to Z. The Internal Revenue 
Service's failure to provide notice to partnership A only affects Y, who 
is deemed not to have been provided notice by the Internal Revenue 
Service.

    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6223(e)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50549, Oct. 4, 2001]



Sec.  301.6223(e)-2  Elections if Internal Revenue Service fails 
to provide timely notice.

    (a) In general. This section applies in any case in which the 
Internal Revenue Service fails to timely mail any notice described in 
section 6223(a) of the Internal Revenue Code to a partner entitled to 
such notice within the period specified in section 6223(d). The failure 
to issue any notice within the period specified in section 6223(d) does 
not invalidate the notice of the beginning of an administrative 
proceeding or final partnership administrative adjustment (FPAA). An 
untimely FPAA enables the recipient of the untimely notice to make the 
elections described in paragraphs (b), (c), and (d) of this section. The 
period within which to make the elections described in paragraphs (b), 
(c), and (d) of this section commences with the mailing of an FPAA to 
the partner. In the absence of an election, paragraphs (b) and (c) of 
this section provide for the treatment of a partner's partnership items.
    (b) Proceeding finished. If at the time the Internal Revenue Service 
mails the partner an FPAA--
    (1) The period within which a petition for review of the FPAA under 
section 6226 may be filed has expired and no petition has been filed; or
    (2) The decision of a court in an action begun by such a petition 
has become final, the partner may elect in accordance with paragraph (d) 
of this section to have that adjustment, that decision, or a settlement 
agreement described in section 6224(c)(2) with respect to the 
partnership taxable year to which the adjustment relates apply to that 
partner. If the partner does not make an election in accordance with 
paragraph (d) of this section, the partnership items of the partner for 
the partnership taxable year to which the proceeding relates shall be 
treated as having become nonpartnership items as of the day on which the 
Internal Revenue Service mails the partner the FPAA.
    (c) Proceeding still going on. If at the time the Internal Revenue 
Service mails the partner an FPAA, paragraphs (b)(1) and (2) of this 
section do not apply, the partner shall be a party to the proceeding 
unless the partner elects, in accordance with paragraph (d) of this 
section, to have--
    (1) A settlement agreement described in section 6224(c)(2) with 
respect to the partnership taxable year to which the proceeding relates 
apply to the partner; or
    (2) The partnership items of the partner for the partnership taxable 
year to which the proceeding relates treated as having become 
nonpartnership items as of the day on which the Internal Revenue Service 
mails the partner the FPAA.
    (d) Election--(1) In general. The election described in paragraph 
(b) or (c) of this section shall be made in the manner prescribed in 
this paragraph (d). The election shall apply to all partnership items 
for the partnership taxable year to which the election relates.
    (2) Time and manner of making election. The election shall be made 
by filing a statement with the Internal Revenue Service office mailing 
the FPAA within 45 days after the date on which the FPAA was mailed to 
the partner making the election.
    (3) Contents of statement. The statement shall--
    (i) Be clearly identified as an election under section 6223(e)(2) or 
(3);

[[Page 227]]

    (ii) Specify the election being made (that is, application of final 
partnership administrative adjustment, court decision, consistent 
settlement agreement, or nonpartnership item treatment);
    (iii) Identify the partner making the election and the partnership 
by name, address, and taxpayer identification number;
    (iv) Specify the partnership taxable year to which the election 
relates; and
    (v) Be signed by the partner making the election.
    (e) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6223(e)-2T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50550, Oct. 4, 2001]



Sec.  301.6223(f)-1  Duplicate copy of final partnership 
administrative adjustment.

    (a) In general. Section 6223(f) does not prohibit the Internal 
Revenue Service from issuing a duplicate copy of the notice of final 
partnership administrative adjustment (for example, in the event the 
original notice is lost).
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6223(f)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50550, Oct. 4, 2001]



Sec.  301.6223(g)-1  Responsibilities of the tax matters partner.

    (a) Notices described in section 6223(a)--(1) Notice of beginning of 
proceeding. Except as otherwise provided in Sec.  301.6223(a)-2, the tax 
matters partner shall, within 75 days after the Internal Revenue Service 
mails the notice specified in section 6223(a)(1), forward a copy of that 
notice to each partner not entitled to notice from the Internal Revenue 
Service under section 6223. See Sec.  301.6230(e)-1 for information to 
be furnished to the Internal Revenue Service.
    (2) Notice of final partnership administrative adjustment. The tax 
matters partner shall, within 60 days after the Internal Revenue Service 
mails the notice specified in section 6223(a)(2), forward a copy of that 
notice to each partner not entitled to notice from the Internal Revenue 
Service under section 6223.
    (3) Requirement inapplicable in certain cases. The tax matters 
partner is not required to send notice to a partner if--
    (i) Before the expiration of the applicable 75-day or 60-day period 
the partnership items of that partner have become nonpartnership items 
(for example, by settlement);
    (ii) That partner is an indirect partner and has not been identified 
to the tax matters partner at least 30 days before the tax matters 
partner is required to send such notice;
    (iii) That partner is treated as a partner solely by virtue of Sec.  
301.6231(a)(2)-1;
    (iv) That partner was a member of a notice group as of the date on 
which the notice was mailed to the tax matters partner (see Sec.  
301.6223(b)-1(c)(4) for the date on which a partner becomes a member of 
a notice group);
    (v) The notice has already been provided to that partner by another 
person; or
    (vi) The notice is withdrawn by the Internal Revenue Service under 
Sec.  301.6223(a)-2.
    (b) Other notices or information--(1) In general. The tax matters 
partner shall furnish to the partners specified in paragraph (b)(2) of 
this section information with respect to the following--
    (i) Closing conference with the examining agent;
    (ii) Proposed adjustments, rights of appeal, and requirements for 
filing of a protest;
    (iii) Time and place of any Appeals conference;
    (iv) Acceptance by the Internal Revenue Service of any settlement 
offer;
    (v) Consent to the extension of the period of limitations with 
respect to all partners;
    (vi) Filing of a request for administrative adjustment (including a 
request for substituted return treatment under Sec.  301.6227(c)-1) on 
behalf of the partnership;
    (vii) Filing by the tax matters partner or any other partner of any 
petition for judicial review under sections 6226 or 6228(a);

[[Page 228]]

    (viii) Filing of any appeal with respect to any judicial 
determination provided for in sections 6226 or 6228(a); and
    (ix) Final judicial redetermination.
    (2) Partners to be notified. The tax matters partner shall provide 
information with respect to any action or other matter specified in 
paragraph (b)(1) of this section to all notice group representatives and 
all other partners except partners--
    (i) Whose partnership items become nonpartnership items before the 
expiration of the period specified in paragraph (b)(3) of this section 
for furnishing that information;
    (ii) Who are indirect partners and who are not identified to the tax 
matters partner at least 30 days before the tax matters partner is 
required to provide the information;
    (iii) Who are treated as partners solely by virtue of Sec.  
301.6231(a)(2)-1;
    (iv) Who are members of a notice group as of the date on which the 
tax matters partner takes that action or receives information with 
respect to that matter (see Sec.  301.6223(b)-1(c)(4) for the date on 
which a partner becomes a member of a notice group); or
    (v) Who have already received information with respect to the action 
or matter from any other person.
    (3) Time for furnishing information. The tax matters partner shall 
furnish information with respect to an action or other matter described 
in paragraph (b)(1) of this section within 30 days of taking the action 
or receiving information with respect to that matter.
    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6223(g)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50550, Oct. 4, 2001]



Sec.  301.6223(h)-1  Responsibilities of pass-thru partner.

    (a) In general. The pass-thru partner shall, within 30 days of 
receiving notice or any other information regarding a partnership 
proceeding from the Internal Revenue Service, the tax matters partner, 
or another pass-thru partner, forward a copy of that notice or 
information to the person or persons holding an interest through the 
pass-thru partner in the profits or losses of the partnership for the 
partnership taxable year to which the notice or information relates. In 
the case of a pass-thru partner that is a partnership within the meaning 
of section 6231(a)(1), the tax matters partner of such partnership shall 
forward copies of the notice or information to the partners of such 
partnership.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6223(h)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50551, Oct. 4, 2001]



Sec.  301.6224(a)-1  Participation in administrative proceedings.

    (a) In general. Every partner in the partnership, including an 
indirect partner, has the right to participate in any phase of 
administrative proceedings. However, except as provided in section 6223 
and the regulations thereunder, neither the Internal Revenue Service nor 
the tax matters partner is required to provide notice of any proceeding 
to the partners. Consequently, a partner who wishes, for example, to be 
present during a preliminary discussion between an examining agent and 
the tax matters partner should make special arrangements with the tax 
matters partner to obtain information as to the time and place of the 
discussion. The Internal Revenue Service and the tax matters partner 
will determine the time and place for all administrative proceedings. 
Arrangements will generally not be changed merely for the convenience of 
another partner.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6224(a)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50551, Oct. 4, 2001]



Sec.  301.6224(b)-1  Partner may waive rights.

    (a) In general. A partner may at any time waive any right that the 
partner has or any restriction on action by the

[[Page 229]]

Internal Revenue Service under subchapter C of chapter 63 of the 
Internal Revenue Code.
    (b) Form and manner of making waiver. The waiver described in 
paragraph (a) of this section shall be made by a written statement. If 
the Internal Revenue Service furnishes a form to be used for this 
purpose, the partner may make the waiver by completing the form in 
accordance with the form's instructions. If such a form is not 
furnished, the statement shall--
    (1) Be clearly identified as a waiver under section 6224(b);
    (2) Identify the partner and the partnership by name, address, and 
taxpayer identification number;
    (3) Specify the right or restriction being waived and the taxable 
year(s) to which the waiver applies;
    (4) Be signed by the partner making the waiver; and
    (5) Be filed with the service center where the partnership return is 
filed. However, if the person filing the statement knows that the notice 
described in section 6223(a)(1) (beginning of an administrative 
proceeding) has already been mailed to the tax matters partner, the 
statement shall be filed with the Internal Revenue Service office that 
mailed such notice.
    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6224(b)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50551, Oct. 4, 2001]



Sec.  301.6224(c)-1  Tax matters partner may bind nonnotice partners.

    (a) In general. In the absence of a showing of fraud, malfeasance, 
or misrepresentation of fact, if the tax matters partner enters into a 
settlement agreement with the Internal Revenue Service with respect to 
partnership items, including partnership-level determinations relating 
to any penalty, addition to tax, or additional amounts that relate to 
adjustments to partnership items, and expressly states that the 
agreement shall be binding on the other partners, then that agreement 
shall be binding on all partners except those who--
    (1) Are, as of the day on which the agreement is entered into, 
either notice partners or members of a notice group (see Sec.  
301.6223(b)-1(c)(4) for the date on which a partner becomes a member of 
a notice group); or
    (2) Have, at least 30 days before the day on which the agreement is 
entered into, filed with the Internal Revenue Service the statement 
described in paragraph (c) of this section.
    (b) Indirect partners--(1) In general. If, under paragraph (a) of 
this section, a pass-thru partner is not bound by an agreement entered 
into by the tax matters partner, all indirect partners holding an 
interest in the partnership through that pass-thru partner shall not be 
bound by that agreement. If, however, the pass-thru partner is bound by 
an agreement entered into by the tax matters partner, paragraph (a) of 
this section shall be applied separately to each indirect partner 
holding an interest in the partnership through the pass-thru partner to 
determine whether the indirect partner is also bound by the agreement.
    (2) Example. The following example illustrates the principles of 
this section:

    Example. Partnership P has over 100 partners. Partnership J is a 
partner in partnership P with a profits interest of less than 1 percent. 
Partnership J has three partners, A, B, and C. A is a member of a notice 
group with respect to partnership P, but B and C are not. On July 1, 
2002, B filed the statement described in paragraph (c) of this section 
not to be bound by any settlement agreement entered into by the tax 
matters partner of partnership P. On August 1, 2002, the tax matters 
partner of partnership P enters into a settlement agreement with the 
Internal Revenue Service and states that the agreement is binding on 
other partners as provided in section 6224(c)(3). Because partnership J 
is bound by the settlement agreement, paragraph (a) of this section is 
applied separately to each of the indirect partners to determine whether 
they are bound. A is not bound by the agreement because A was a member 
of a notice group on the day the agreement was entered into and B is not 
bound because B filed the statement not to be bound at least 30 days 
before the agreement was entered into. C is bound by the settlement 
agreement.

    (c) Statement not to be bound--(1) Contents of statement. The 
statement referred to in paragraph (a)(2) of this section shall--

[[Page 230]]

    (i) Be clearly identified as a statement to deny settlement 
authority to the tax matters partner under section 6224(c)(3)(B);
    (ii) Identify the partner and partnership by name, address, and 
taxpayer identification number;
    (iii) Specify the taxable year or years to which the statement 
applies; and
    (iv) Be signed by the partner filing the statement.
    (2) Place where statement is to be filed. The statement described in 
paragraph (c)(1) of this section generally shall be filed with the 
Internal Revenue Service service center where the partnership return is 
filed. However, if the partner knows that the notice described in 
section 6223(a)(1) (beginning of an administrative proceeding) has 
already been mailed to the tax matters partner, the statement shall be 
filed with the Internal Revenue Service office that mailed that notice.
    (3) Consolidated statements. The statement described in paragraph 
(c)(1) of this section may be filed with respect to more than one 
partner if the requirements of that paragraph (c)(1) (including 
signatures) are satisfied with respect to each partner.
    (d) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6224(c)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50551, Oct. 4, 2001]



Sec.  301.6224(c)-2  Pass-thru partner binds indirect partners.

    (a) Pass-thru partner binds unidentified indirect partners--(1) In 
general. If a pass-thru partner enters into a settlement agreement with 
the Internal Revenue Service with respect to partnership items, that 
agreement binds all indirect partners holding an interest in that 
partnership through the pass-thru partner except those indirect partners 
who have been identified as provided in section 6223(c)(3) and Sec.  
301.6223(c)-1 at least 30 days before the date on which the agreement is 
entered into. A settlement with respect to partnership items includes 
partnership-level determinations relating to any penalty, addition to 
tax, and additional amounts that relate to adjustments to partnership 
items. However, if, in addition to the interest in the partnership held 
through the pass-thru partner entering into a settlement agreement, an 
indirect partner holds a separate interest in that partnership, either 
directly or indirectly through a different pass-thru partner, then the 
indirect partner shall not be bound by that settlement agreement with 
respect to the interests held directly or indirectly through a pass-thru 
partner other than the pass-thru partner entering into the settlement 
agreement.
    (2) Example. The provisions of paragraph (a)(1) of this section may 
be illustrated by the following example:

    Example. Partnership J is a partner in partnership P. C is a partner 
in J but has not been identified as provided in section 6223(c)(3) and 
Sec.  301.6223(c)-1. The only interest that C holds in P is through J. 
The tax matters partner of J enters into a settlement agreement with the 
Internal Revenue Service with respect to partnership items arising from 
P. C is bound by the settlement agreement entered into by the tax 
matters partner of J.

    (b) Person in pass-thru partner authorized to enter into settlement 
agreement that binds indirect partners. In the case of a pass-thru 
partner that is--
    (1) A partnership within the meaning of section 6231(a)(1), the tax 
matters partner of that partnership;
    (2) A partnership other than a partnership described in paragraph 
(b)(1) of this section, any general partner of that partnership;
    (3) An S corporation, any officer of that S corporation; or
    (4) A trust, estate, or nominee, any person authorized in writing to 
act on behalf of that trust, estate, or nominee, may enter into a 
settlement agreement with the Internal Revenue Service on behalf of its 
respective entity that would bind the unidentified indirect partners 
that hold a partnership interest through the pass-thru partner.
    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6224(c)-2T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50552, Oct. 4, 2001]

[[Page 231]]



Sec.  301.6224(c)-3  Consistent settlements.

    (a) In general. If the Internal Revenue Service enters into a 
settlement agreement with any partner with respect to partnership items, 
whether comprehensive or partial, the Internal Revenue Service shall 
offer to any other partner who so requests in accordance with paragraph 
(c) of this section, settlement terms consistent with those contained in 
the settlement agreement entered into.
    (b) Requirements for consistent settlement terms--(1) In general. 
Consistent settlement terms are those based on the same determinations 
with respect to partnership items. However, consistent settlement terms 
also may include partnership-level determinations of any penalty, 
addition to tax, or additional amount that relates to partnership items. 
Settlements with respect to partnership items shall be self-contained; 
thus, a concession by one party with respect to a partnership item may 
not be based upon a concession by another party with respect to any item 
that is not a partnership item other than a partnership-level 
determination of any penalty, addition to tax, or additional amount that 
relates to an adjustment to a partnership item. Consistent agreements 
must be identical to the original settlement (that is, the settlement 
upon which the offered settlement terms are based). A consistent 
agreement must mirror the original settlement and may not be limited to 
selected items from the original settlement. Once a partner has settled 
a partnership item, or a partnership-level determination of any penalty, 
addition to tax, or additional amount that relates to an adjustment to a 
partnership item, that partner may not subsequently request settlement 
terms consistent with a settlement that contains the previously settled 
item. The requirement for consistent settlement terms applies only if--
    (i) The items were partnership items (or a partnership-level 
determination of any related penalty, addition to tax, or additional 
amount) for the partner entering into the original settlement 
immediately before the original settlement; and
    (ii) The items are partnership items (or a partnership-level 
determination of any related penalty, addition to tax, or additional 
amount) for the partner requesting the consistent settlement at the time 
the partner files the request.
    (2) Effect of consistent agreement. Consistent settlement terms are 
reflected in a consistent agreement. A consistent agreement is not a 
settlement agreement that gives rise to further consistent settlement 
rights because it is required to be given without volitional agreement 
of the Secretary. Therefore, a consistent agreement required to be 
offered to a requesting taxpayer is not a settlement agreement under 
section 6224(c)(2) or paragraph (c)(3) of this section which starts a 
new period for requesting consistent settlement terms. For all other 
purposes of the Internal Revenue Code, however, (e.g., binding effect 
under section 6224(c)(1) and conversion to nonpartnership items under 
section 6231(b)(1)(C)), a consistent agreement is treated as a 
settlement agreement.
    (c) Time and manner of requesting consistent settlements--(1) In 
general. A partner desiring settlement terms consistent with the terms 
of any settlement agreement entered into between any other partner and 
the Internal Revenue Service shall submit a written statement to the 
Internal Revenue Service office that entered into the settlement.
    (2) Contents of statement. Except as otherwise provided in 
instructions to the taxpayer from the Internal Revenue Service, the 
written statement described in paragraph (c)(1) of this section shall--
    (i) Identify the statement as a request for consistent settlement 
terms under section 6224(c)(2);
    (ii) Contain the name, address, and taxpayer identification number 
of the partnership and of the partner requesting the settlement offer 
(and, in the case of an indirect partner, of the pass-thru partner 
through which the indirect partner holds an interest);
    (iii) Identify the earlier agreement to which the request refers; 
and
    (iv) Be signed by the partner making the request.
    (3) Time for filing request. The statement shall be filed not later 
than the later of--

[[Page 232]]

    (i) The 150th day after the day on which the notice of final 
partnership administrative adjustment is mailed to the tax matters 
partner; or
    (ii) The 60th day after the day on which the settlement agreement 
was entered into.
    (d) Examples. The following examples illustrate the principles of 
this section:

    Example 1. The Internal Revenue Service seeks to disallow a $100,000 
loss reported by Partnership P $20,000 of which was allocated to partner 
X, and $10,000 of which was allocated to partner Y. The Internal Revenue 
Service agrees to a settlement with X in which the Internal Revenue 
Service allows $12,000 of the loss, accepts the treatment of all other 
partnership items on the partnership return, and imposes a penalty for 
negligence related to the $8,000 loss disallowance. Partner Y requests 
settlement terms consistent with the settlement made between X and the 
Internal Revenue Service. The items are partnership items (or a related 
penalty) for X immediately before X enters into the settlement agreement 
and are partnership items (or a related penalty) for Y at the time of 
the request. The Internal Revenue Service must offer Y settlement terms 
allowing a $6,000 loss, a negligence penalty on the $4,000 disallowance, 
and otherwise reflecting the treatment of partnership items on the 
partnership return.
    Example 2. F files inconsistently with Partnership P and reports the 
inconsistency. The Internal Revenue Service notifies F that it will 
treat all partnership items arising from P as nonpartnership items with 
respect to F. Later, the Internal Revenue Service enters into a 
settlement with F on these items. The Internal Revenue Service is not 
required to offer the other partners of P settlement terms consistent 
with the settlement reached between F and the Internal Revenue Service 
because the items arising from P are not partnership items with respect 
to F.
    Example 3. G, a partner in Partnership P, filed suit under section 
6228(b) after the Internal Revenue Service failed to allow an 
administrative adjustment request with respect to a partnership item 
arising from P for a taxable year. Under section 6231(b)(1)(B), the 
partnership items of G for the partnership taxable year became 
nonpartnership items as of the date G filed suit. After G filed suit, 
another partner and the Internal Revenue Service entered into a 
settlement agreement with respect to items arising from P in that year. 
G is not entitled to consistent settlement terms because, at the time of 
the settlement, the items arising from P are no longer partnership items 
with respect to G.

    (e) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6224(c)-3T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50552, Oct. 4, 2001]



Sec.  301.6225-1  Partnership adjustment by the Internal Revenue Service.

    (a) Imputed underpayment based on partnership adjustments--(1) In 
general. In the case of any partnership adjustments (as defined in Sec.  
301.6241-1(a)(6)) by the Internal Revenue Service (IRS), if the 
adjustments result in an imputed underpayment (as determined in 
accordance with paragraph (b) of this section), the partnership must pay 
an amount equal to such imputed underpayment in accordance with 
paragraph (a)(2) of this section. If the adjustments do not result in an 
imputed underpayment (as described in paragraph (f) of this section), 
such adjustments must be taken into account by the partnership in the 
adjustment year (as defined in Sec.  301.6241-1(a)(1)) in accordance 
with Sec.  301.6225-3. Partnership adjustments may result in more than 
one imputed underpayment pursuant to paragraph (g) of this section. Each 
imputed underpayment determined under this section is based solely on 
partnership adjustments with respect to a single taxable year.
    (2) Partnership pays the imputed underpayment. An imputed 
underpayment (determined in accordance with paragraph (b) of this 
section and included in a notice of final partnership adjustment (FPA) 
under section 6231(a)(3)) must be paid by the partnership in the same 
manner as if the imputed underpayment were a tax imposed for the 
adjustment year in accordance with Sec.  301.6232-1. The FPA will 
include the amount of any imputed underpayment, as modified under Sec.  
301.6225-2 if applicable, unless the partnership waives its right to 
such FPA under section 6232(d)(2). See Sec.  301.6232-1(d)(2). For the 
alternative to payment of the imputed underpayment by the partnership, 
see Sec.  301.6226-1. If a partnership pays an imputed underpayment, the 
partnership's expenditure for the imputed underpayment is taken into 
account by the partnership in accordance with

[[Page 233]]

Sec.  301.6241-4. For interest and penalties with respect to an imputed 
underpayment, see section 6233.
    (3) Imputed underpayment set forth in notice of proposed partnership 
adjustment. An imputed underpayment set forth in a notice of proposed 
partnership adjustment (NOPPA) under section 6231(a)(2) is determined in 
accordance with paragraph (b) of this section without regard to any 
modification under Sec.  301.6225-2. Modifications under Sec.  301.6225-
2, if allowed by the IRS, may change the amount of an imputed 
underpayment set forth in the NOPPA and determined in accordance with 
paragraph (b) of this section. Only the partnership adjustments set 
forth in a NOPPA are taken into account for purposes of determining an 
imputed underpayment under this section and for any modification under 
Sec.  301.6225-2.
    (b) Determination of an imputed underpayment--(1) In general. In the 
case of any partnership adjustment by the IRS, an imputed underpayment 
is determined by-
    (i) Grouping the partnership adjustments in accordance with 
paragraph (c) of this section and, if appropriate, subgrouping such 
adjustments in accordance with paragraph (d) of this section;
    (ii) Netting the adjustments in accordance with paragraph (e) of 
this section;
    (iii) Calculating the total netted partnership adjustment in 
accordance with paragraph (b)(2) of this section;
    (iv) Multiplying the total netted partnership adjustment by the 
highest rate of Federal income tax in effect for the reviewed year under 
section 1 or 11; and
    (v) Increasing or decreasing the product that results under 
paragraph (b)(1)(iv) of this section by--
    (A) Any amounts treated as net positive adjustments (as defined in 
paragraph (e)(4)(i) of this section) under paragraph (e)(3)(ii) of this 
section; and
    (B) Except as provided in paragraph (e)(3)(ii) of this section, any 
amounts treated as net negative adjustments (as defined in paragraph 
(e)(4)(ii) of this section) under paragraph (e)(3)(ii) of this section.
    (2) Calculation of the total netted partnership adjustment. For 
purposes of determining an imputed underpayment under paragraph (b)(1) 
of this section, the total netted partnership adjustment is the sum of 
all net positive adjustments in the reallocation grouping described in 
paragraph (c)(2) of this section and the residual grouping described in 
paragraph (c)(5) of this section.
    (3) Adjustments to items for which tax has been collected under 
chapters 3 and 4 of the Internal Revenue Code. A partnership adjustment 
is disregarded for purposes of calculating the imputed underpayment 
under paragraph (b) of this section to the extent that the IRS has 
collected the tax required to be withheld under chapter 3 or chapter 4 
(as defined in Sec.  301.6241-6(b)(2)(ii) and (iii)) that is 
attributable to the partnership adjustment. See Sec.  301.6241-6(b)(3) 
for rules that apply when a partnership pays an imputed underpayment 
that includes a partnership adjustment to an amount subject to 
withholding (as defined in Sec.  301.6241-6(b)(2)(i)) under chapter 3 or 
chapter 4 for which such tax has not yet been collected.
    (4) Treatment of adjustment as zero for purposes of calculating the 
imputed underpayment. If the effect of one partnership adjustment is 
reflected in one or more other partnership adjustments, the IRS may 
treat the one adjustment as zero solely for purposes of calculating the 
imputed underpayment.
    (c) Grouping of partnership adjustments--(1) In general. To 
determine an imputed underpayment under paragraph (b) of this section, 
partnership adjustments are placed into one of four groupings. These 
groupings are the reallocation grouping described in paragraph (c)(2) of 
this section, the credit grouping described in paragraph (c)(3) of this 
section, the creditable expenditure grouping described in paragraph 
(c)(4) of this section, and the residual grouping described in paragraph 
(c)(5) of this section. Adjustments in groupings may be placed in 
subgroupings, as appropriate, in accordance with paragraph (d) of this 
section. The IRS may, in its discretion, group adjustments in a manner 
other than the manner described in this paragraph (c) when such grouping 
would appropriately reflect the facts and circumstances. For requests to 
modify the groupings, see Sec.  301.6225-2(d)(6).

[[Page 234]]

    (2) Reallocation grouping--(i) In general. Any adjustment that 
allocates or reallocates a partnership-related item to and from a 
particular partner or partners is a reallocation adjustment. Except in 
the case of an adjustment to a credit (as described in paragraph (c)(3) 
of this section) or to a creditable expenditure (as described in 
paragraph (c)(4) of this section), reallocation adjustments are placed 
in the reallocation grouping. Adjustments that reallocate a credit to 
and from a particular partner or partners are placed in the credit 
grouping (see paragraph (c)(3) of this section), and adjustments that 
reallocate a creditable expenditure to and from a particular partner or 
partners are placed in the creditable expenditure grouping (see 
paragraph (c)(4) of this section).
    (ii) Each reallocation adjustment results in at least two separate 
adjustments. Each reallocation adjustment generally results in at least 
two separate adjustments. One adjustment reverses the effect of the 
improper allocation of a partnership-related item, and the other 
adjustment effectuates the proper allocation of the partnership-related 
item. Generally, a reallocation adjustment results in one positive 
adjustment (as defined in paragraph (d)(2)(iii) of this section) and one 
negative adjustment (as defined in paragraph (d)(2)(ii) of this 
section).
    (3) Credit grouping. Each adjustment to a partnership-related item 
that is reported or could be reported by a partnership as a credit on 
the partnership's return, including a reallocation adjustment, is placed 
in the credit grouping.
    (4) Creditable expenditure grouping--(i) In general. Each adjustment 
to a creditable expenditure, including a reallocation adjustment to a 
creditable expenditure, is placed in the creditable expenditure 
grouping.
    (ii) Adjustment to a creditable expenditure--(A) In general. For 
purposes of this section, an adjustment to a partnership-related item is 
treated as an adjustment to a creditable expenditure if any person could 
take the item that is adjusted (or item as adjusted if the item was not 
originally reported by the partnership) as a credit. See Sec.  1.704-
1(b)(4)(ii) of this chapter. For instance, if the adjustment is a 
reduction of qualified research expenses, the adjustment is to a 
creditable expenditure for purposes of this section because any person 
allocated the qualified research expenses by the partnership could claim 
a credit with respect to their allocable portion of such expenses under 
section 41, rather than a deduction under section 174.
    (B) Creditable foreign tax expenditures. The creditable expenditure 
grouping includes each adjustment to a creditable foreign tax 
expenditure (CFTE) as defined in Sec.  1.704-1(b)(4)(viii)(b) of this 
chapter, including any reallocation adjustment to a CFTE.
    (5) Residual grouping--(i) In general. Any adjustment to a 
partnership-related item not described in paragraph (c)(2), (3), or (4) 
of this section is placed in the residual grouping.
    (ii) Adjustments to partnership-related items that are not allocated 
under section 704(b). The residual grouping includes any adjustment to a 
partnership-related item that derives from an item that would not have 
been required to be allocated by the partnership to a reviewed year 
partner under section 704(b).
    (6) Recharacterization adjustments--(i) Recharacterization 
adjustment defined. An adjustment that changes the character of a 
partnership-related item is a recharacterization adjustment. For 
instance, an adjustment that changes a loss from ordinary to capital or 
from active to passive is a recharacterization adjustment.
    (ii) Grouping recharacterization adjustments. A recharacterization 
adjustment is placed in the appropriate grouping as described in 
paragraphs (c)(2) through (5) of this section.
    (iii) Recharacterization adjustments result in two partnership 
adjustments. In general, a recharacterization adjustment results in at 
least two separate adjustments in the appropriate grouping under 
paragraph (c)(6)(ii) of this section. One adjustment reverses the 
improper characterization of the partnership-related item, and the other 
adjustment effectuates the proper characterization of the partnership-
related item. A recharacterization adjustment results in two adjustments 
regardless of whether the amount of the partnership-related item is 
being adjusted.

[[Page 235]]

Generally, recharacterization adjustments result in one positive 
adjustment and one negative adjustment.
    (d) Subgroupings--(1) In general. If all partnership adjustments are 
positive adjustments, this paragraph (d) does not apply. If any 
partnership adjustment within any grouping described in paragraph (c) of 
this section is a negative adjustment, the adjustments within that 
grouping are subgrouped in accordance with this paragraph (d). The IRS 
may, in its discretion, subgroup adjustments in a manner other than the 
manner described in this paragraph (d) when such subgrouping would 
appropriately reflect the facts and circumstances. For requests to 
modify the subgroupings, see Sec.  301.6225-2(d)(6).
    (2) Definition of negative adjustments and positive adjustments--(i) 
In general. For purposes of this section, partnership adjustments made 
by the IRS are treated as follows:
    (A) An increase in an item of gain is treated as an increase in an 
item of income;
    (B) A decrease in an item of gain is treated as a decrease in an 
item of income;
    (C) An increase in an item of loss or deduction is treated as a 
decrease in an item of income; and
    (D) A decrease in an item of loss or deduction is treated as an 
increase in an item of income.
    (ii) Negative adjustment. A negative adjustment is any adjustment 
that is a decrease in an item of income, a partnership adjustment 
treated under paragraph (d)(2)(i) of this section as a decrease in an 
item of income, or an increase in an item of credit.
    (iii) Positive adjustment--(A) In general. A positive adjustment is 
any adjustment that is not a negative adjustment as defined in paragraph 
(d)(2)(ii) of this section.
    (B) Treatment of adjustments that cannot be allocated under section 
704(b). For purposes of determining an imputed underpayment under this 
section, an adjustment described in paragraph (c)(5)(ii) of this section 
that could result in an increase in income or decrease in a loss, 
deduction, or credit for any person without regard to any particular 
person's specific circumstances is treated, to the extent appropriate, 
either as a positive adjustment to income or to a credit.
    (3) Subgrouping rules--(i) In general. Except as otherwise provided 
in this paragraph (d)(3), an adjustment is subgrouped according to how 
the adjustment would be required to be taken into account separately 
under section 702(a) or any other provision of the Code, regulations, 
forms, instructions, or other guidance prescribed by the IRS applicable 
to the adjusted partnership-related item. A negative adjustment must be 
placed in the same subgrouping as another adjustment if the negative 
adjustment and the other adjustment would have been properly netted at 
the partnership level and such netted amount would have been required to 
be allocated to the partners of the partnership as a single partnership-
related item for purposes of section 702(a), other provision of the 
Code, regulations, forms, instructions, or other guidance prescribed by 
the IRS. For purposes of creating subgroupings under this section, if 
any adjustment could be subject to any preference, limitation, or 
restriction under the Code (or not allowed, in whole or in part, against 
ordinary income) if taken into account by any person, the adjustment is 
placed in a separate subgrouping from all other adjustments within the 
grouping.
    (ii) Subgrouping reallocation adjustments--(A) Reallocation 
adjustments in the reallocation grouping. Each positive adjustment and 
each negative adjustment resulting from a reallocation adjustment as 
described in paragraph (c)(2)(ii) of this section is placed in its own 
separate subgrouping within the reallocation grouping. For instance, if 
the reallocation adjustment reallocates a deduction from one partner to 
another partner, the decrease in the deduction (positive adjustment) 
allocated to the first partner is placed in a subgrouping within the 
reallocation grouping separate from the increase in the deduction 
(negative adjustment) allocated to the second partner. Notwithstanding 
the requirement that reallocation adjustments be placed into separate 
subgroupings, if a particular partner or group of partners has two or 
more reallocation adjustments allocable to such partner or group, such

[[Page 236]]

adjustments may be subgrouped in accordance with paragraph (d)(3)(i) of 
this section and netted in accordance with paragraph (e) of this 
section.
    (B) Reallocation adjustments in the credit grouping. In the case of 
a reallocation adjustment to a credit, which is placed in the credit 
grouping pursuant to paragraph (c)(3) of this section, the decrease in 
credits allocable to one partner or group of partners is treated as a 
positive adjustment, and the increase in credits allocable to another 
partner or group of partners is treated as a negative adjustment. Each 
positive adjustment and each negative adjustment resulting from a 
reallocation adjustment to credits is placed in its own separate 
subgrouping within the credit grouping.
    (iii) Subgroupings within the creditable expenditure grouping--(A) 
In general. Each adjustment in the creditable expenditure grouping 
described in paragraph (c)(4) of this section is subgrouped in 
accordance with paragraphs (d)(3)(i) and (iii) of this section. For 
rules related to creditable expenditures other than CFTEs, see paragraph 
(d)(3)(iii)(C) of this section.
    (B) Subgroupings for adjustments to CFTEs. Each adjustment to a CFTE 
is subgrouped based on the separate category of income to which the CFTE 
relates in accordance with section 904(d) and the regulations in part 1 
of this chapter, and to account for any different allocation of the CFTE 
between partners. Two or more adjustments to CFTEs are included within 
the same subgrouping only if each adjustment relates to CFTEs in the 
same separate category, and each adjusted partnership-related item would 
be allocated to the partners in the same ratio had those items been 
properly reflected on the partnership return for the reviewed year.
    (C) [Reserved]
    (iv) Subgrouping recharacterization adjustments. Each positive 
adjustment and each negative adjustment resulting from a 
recharacterization adjustment as described in paragraph (c)(6) of this 
section is placed in its own separate subgrouping within the residual 
grouping. If a particular partner or group of partners has two or more 
recharacterization adjustments allocable to such partner or group, such 
adjustments may be subgrouped in accordance with paragraph (d)(3)(i) of 
this section and netted in accordance with paragraph (e) of this 
section.
    (e) Netting adjustments within each grouping or subgrouping--(1) In 
general. All adjustments within a subgrouping determined in accordance 
with paragraph (d) of this section are netted in accordance with this 
paragraph (e) to determine whether there is a net positive adjustment 
(as defined in paragraph (e)(4)(i) of this section) or net negative 
adjustment (as defined in paragraph (e)(4)(ii) of this section) for that 
subgrouping. If paragraph (d) of this section does not apply because a 
grouping only includes positive adjustments, all adjustments in that 
grouping are netted in accordance with this paragraph (e). For purposes 
of this paragraph (e), netting means summing all adjustments together 
within each grouping or subgrouping, as appropriate.
    (2) Limitations on netting adjustments. Positive adjustments and 
negative adjustments may only be netted against each other if they are 
in the same grouping in accordance with paragraph (c) of this section. 
If a negative adjustment is in a subgrouping in accordance with 
paragraph (d) of this section, the negative adjustment may only net with 
a positive adjustment also in that same subgrouping in accordance with 
paragraph (d) of this section. An adjustment in one grouping or 
subgrouping may not be netted against an adjustment in any other 
grouping or subgrouping. Adjustments from one taxable year may not be 
netted against adjustments from another taxable year.
    (3) Results of netting adjustments within groupings or 
subgroupings--(i) Groupings other than the credit and creditable 
expenditure groupings. Except as described in paragraphs (e)(3)(ii) and 
(iii) of this section, each net positive adjustment (as defined in 
paragraph (e)(4)(i) of this section) with respect to a particular 
grouping or subgrouping that results after netting the adjustments in 
accordance with this paragraph (e) is included in the calculation

[[Page 237]]

of the total netted partnership adjustment under paragraph (b)(2) of 
this section. Each net negative adjustment (as defined in paragraph 
(e)(4)(ii) of this section) with respect to a grouping or subgrouping 
that results after netting the adjustments in accordance with this 
paragraph (e) is excluded from the calculation of the total netted 
partnership adjustment under paragraph (b)(2) of this section. 
Adjustments underlying a net negative adjustment described in the 
preceding sentence are adjustments that do not result in an imputed 
underpayment (as described in paragraph (f) of this section).
    (ii) Credit grouping. Any net positive adjustment or net negative 
adjustment in the credit grouping (including any such adjustment with 
respect to a subgrouping within the credit grouping) is excluded from 
the calculation of the total netted partnership adjustment. A net 
positive adjustment described in this paragraph (e)(3)(ii) is taken into 
account under paragraph (b)(1)(v) of this section. A net negative 
adjustment described in this paragraph (e)(3)(ii), including a negative 
adjustment to a credit resulting from a reallocation adjustment that was 
placed in a separate subgrouping pursuant to paragraph (d)(3)(ii)(B) of 
this section, is treated as an adjustment that does not result in an 
imputed underpayment in accordance with paragraph (f)(1)(i) of this 
section, unless the IRS determines that such net negative adjustment 
should be taken into account under paragraph (b)(1)(v) of this section.
    (iii) Treatment of creditable expenditures--(A) Creditable foreign 
tax expenditures. A net decrease to a CFTE in any CFTE subgrouping (as 
described in paragraph (d)(3)(iii) of this section) is treated as a net 
positive adjustment described in paragraph (e)(3)(ii) of this section 
and is excluded from the calculation of the total netted partnership 
adjustment under paragraph (b)(2) of this section. A net increase to a 
CFTE in any CFTE subgrouping is treated as a net negative adjustment 
described in paragraph (e)(3)(i) of this section. For rules related to 
creditable expenditures other than CFTEs, see paragraph (e)(3)(iii)(B) 
of this section.
    (B) [Reserved]
    (4) Net positive adjustment and net negative adjustment defined--(i) 
Net positive adjustment. A net positive adjustment means an amount that 
is greater than zero which results from netting adjustments within a 
grouping or subgrouping in accordance with this paragraph (e). A net 
positive adjustment includes a positive adjustment that was not netted 
with any other adjustment. A net positive adjustment includes a net 
decrease in an item of credit.
    (ii) Net negative adjustment. A net negative adjustment means any 
amount which results from netting adjustments within a grouping or 
subgrouping in accordance with this paragraph (e) that is not a net 
positive adjustment (as defined in paragraph (e)(4)(i) of this section). 
A net negative adjustment includes a negative adjustment that was not 
netted with any other adjustment.
    (f) Partnership adjustments that do not result in an imputed 
underpayment--(1) In general. Except as otherwise provided in paragraph 
(e) of this section, a partnership adjustment does not result in an 
imputed underpayment if--
    (i) After grouping, subgrouping, and netting the adjustments as 
described in paragraphs (c), (d), and (e) of this section, the result of 
netting with respect to any grouping or subgrouping that includes a 
particular partnership adjustment is a net negative adjustment (as 
described in paragraph (e)(4)(ii) of this section); or
    (ii) The calculation under paragraph (b)(1) of this section results 
in an amount that is zero or less than zero.
    (2) Treatment of an adjustment that does not result in an imputed 
underpayment. Any adjustment that does not result in an imputed 
underpayment (as described in paragraph (f)(1) of this section) is taken 
into account by the partnership in the adjustment year in accordance 
with Sec.  301.6225-3. If the partnership makes an election pursuant to 
section 6226 with respect to an imputed underpayment, the adjustments 
that do not result in that imputed underpayment that are associated with 
that imputed underpayment (as described in paragraph (g)(2)(iii)(B) of 
this section) are taken into account by the reviewed year partners in 
accordance with Sec.  301.6226-3.

[[Page 238]]

    (g) Multiple imputed underpayments in a single administrative 
proceeding--(1) In general. The IRS, in its discretion, may determine 
that partnership adjustments for the same partnership taxable year 
result in more than one imputed underpayment. The determination of 
whether there is more than one imputed underpayment for any partnership 
taxable year, and if so, which partnership adjustments are taken into 
account to calculate any particular imputed underpayment is based on the 
facts and circumstances and nature of the partnership adjustments. See 
Sec.  301.6225-2(d)(6) for modification of the number and composition of 
imputed underpayments.
    (2) Types of imputed underpayments--(i) In general. There are two 
types of imputed underpayments: A general imputed underpayment 
(described in paragraph (g)(2)(ii) of this section) and a specific 
imputed underpayment (described in paragraph (g)(2)(iii) of this 
section). Each type of imputed underpayment is separately calculated in 
accordance with this section.
    (ii) General imputed underpayment. The general imputed underpayment 
is calculated based on all adjustments (other than adjustments that do 
not result in an imputed underpayment under paragraph (f) of this 
section) that are not taken into account to determine a specific imputed 
underpayment under paragraph (g)(2)(iii) of this section. There is only 
one general imputed underpayment in any administrative proceeding. If 
there is one imputed underpayment in an administrative proceeding, it is 
a general imputed underpayment and may take into account adjustments 
described in paragraph (g)(2)(iii) of this section, if any, and all 
adjustments that do not result in that general imputed underpayment (as 
described in paragraph (f) of this section) are associated with that 
general imputed underpayment.
    (iii) Specific imputed underpayment--(A) In general. The IRS may, in 
its discretion, designate a specific imputed underpayment with respect 
to adjustments to a partnership-related item or items that were 
allocated to one partner or a group of partners that had the same or 
similar characteristics or that participated in the same or similar 
transaction or on such other basis as the IRS determines properly 
reflects the facts and circumstances. The IRS may designate more than 
one specific imputed underpayment with respect to any partnership 
taxable year. For instance, in a single partnership taxable year there 
may be a specific imputed underpayment with respect to adjustments 
related to a transaction affecting some, but not all, partners of the 
partnership (such as adjustments that are specially allocated to certain 
partners) and a second specific imputed underpayment with respect to 
adjustments resulting from a reallocation of a distributive share of 
income from one partner to another partner. The IRS may, in its 
discretion, determine that partnership adjustments that could be taken 
into account to calculate one or more specific imputed underpayments 
under this paragraph (g)(2)(iii)(A) for a partnership taxable year are 
more appropriately taken into account in determining the general imputed 
underpayment for such taxable year. For instance, the IRS may determine 
that it is more appropriate to calculate only the general imputed 
underpayment if, when calculating the specific imputed underpayment 
requested by the partnership, there is an increase in the number of the 
partnership adjustments that after grouping and netting result in net 
negative adjustments and are disregarded in calculating the specific 
imputed underpayment.
    (B) Adjustments that do not result in an imputed underpayment 
associated with a specific imputed underpayment. If the IRS designates a 
specific imputed underpayment, the IRS will designate which adjustments 
that do not result in an imputed underpayment, if any, are appropriate 
to associate with that specific imputed underpayment. If the adjustments 
underlying that specific imputed underpayment are reallocation 
adjustments or recharacterization adjustments, the net negative 
adjustment that resulted from the reallocation or recharacterization is 
associated with the specific imputed underpayment. Any adjustments that 
do not result in an imputed underpayment that are not associated with a 
specific imputed underpayment under this paragraph (g)(2)(iii)(B) are 
associated

[[Page 239]]

with the general imputed underpayment.
    (h) Examples. The following examples illustrate the rules of this 
section. For purposes of these examples, unless otherwise stated, each 
partnership is subject to the provisions of subchapter C of chapter 63 
of the Code, each partnership and its partners are calendar year 
taxpayers, all partners are U.S. persons, the highest rate of income tax 
in effect for all taxpayers is 40 percent for all relevant periods, and 
no partnership requests modification under Sec.  301.6225-2.

    (1) Example 1. Partnership reports on its 2019 partnership return 
$100 of ordinary income and an ordinary deduction of -$70. The IRS 
initiates an administrative proceeding with respect to Partnership's 
2019 taxable year and determines that ordinary income was $105 instead 
of $100 ($5 adjustment) and that the ordinary deduction was -$80 instead 
of -$70 (-$10 adjustment). Pursuant to paragraph (c) of this section, 
the adjustments are both in the residual grouping. The -$10 adjustment 
to the ordinary deduction would not have been netted at the partnership 
level with the $5 adjustment to ordinary income and would not have been 
required to be allocated to the partners of the partnership as a single 
partnership-related item for purposes of section 702(a), other provision 
of the Code, regulations, forms, instructions, or other guidance 
prescribed by the IRS. Because the -$10 adjustment to the ordinary 
deduction would result in a decrease in the imputed underpayment if 
netted with the $5 adjustment to ordinary income and because it might be 
limited if taken into account by any person, the -$10 adjustment must be 
placed in a separate subgrouping from the $5 adjustment to ordinary 
income. See paragraph (d)(3)(i) of this section. The total netted 
partnership adjustment is $5, which results in an imputed underpayment 
of $2. The -$10 adjustment to the ordinary deduction is a net negative 
amount and is an adjustment that does not result in an imputed 
underpayment which is taken into account by Partnership in the 
adjustment year in accordance with Sec.  301.6225-3.
    (2) Example 2. The facts are the same as Example 1 in paragraph 
(h)(1) of this section, except that the -$10 adjustment to the ordinary 
deduction would have been netted at the partnership level with the $5 
adjustment to ordinary income and would have been required to be 
allocated to the partners of the partnership as a single partnership-
related item for purposes of section 702(a), other provision of the 
Code, regulations, forms, instructions, or other guidance prescribed by 
the IRS. Therefore, the $5 adjustment and the -$10 adjustment must be 
placed in the same subgrouping within the residual grouping. The $5 
adjustment and the -$10 adjustments are then netted in accordance with 
paragraph (e) of this section. Such netting results in a net negative 
adjustment (as defined under paragraph (e)(4)(ii) of this section) of -
$5. Pursuant to paragraph (f) of this section, the -$5 net negative 
adjustment is an adjustment that does not result in an imputed 
underpayment. Because the only net adjustment is an adjustment that does 
not result in an imputed underpayment, there is no imputed underpayment.
    (3) Example 3. Partnership reports on its 2019 partnership return 
ordinary income of $300, long-term capital gain of $125, long-term 
capital loss of -$75, a depreciation deduction of -$100, and a tax 
credit that can be claimed by the partnership of $5. In an 
administrative proceeding with respect to Partnership's 2019 taxable 
year, the IRS determines that ordinary income is $500 ($200 adjustment), 
long-term capital gain is $200 ($75 adjustment), long-term capital loss 
is -$25 ($50 adjustment), the depreciation deduction is -$70 ($30 
adjustment), and the tax credit is $3 ($2 adjustment). Pursuant to 
paragraph (c) of this section, the adjustment to the tax credit is in 
the credit grouping under paragraph (c)(3) of this section. The 
remaining adjustments are part of the residual grouping under paragraph 
(c)(5) of this section. Pursuant to paragraph (d)(2) of this section, 
all of the adjustments in the residual grouping are positive 
adjustments. Because there are no negative adjustments, there are no 
subgroupings within the residual grouping. Under paragraph (b)(2) of 
this section, the adjustments in the residual grouping are summed

[[Page 240]]

for a total netted partnership adjustment of $355. Under paragraph 
(b)(1)(iv) of this section, the total netted partnership adjustment is 
multiplied by 40 percent (highest tax rate in effect), which results in 
$142. Under paragraph (b)(1)(v) of this section, the $142 is increased 
by the $2 credit adjustment, resulting in an imputed underpayment of 
$144.
    (4) Example 4. Partnership reported on its 2019 partnership return 
long-term capital gain of $125. In an administrative proceeding with 
respect to Partnership's 2019 taxable year, the IRS determines the long-
term capital gain should have been reported as ordinary income of $125. 
There are no other adjustments for the 2019 taxable year. This 
recharacterization adjustment results in two adjustments in the residual 
grouping pursuant to paragraph (c)(6) of this section: an increase in 
ordinary income of $125 ($125 adjustment) as well as a decrease of long-
term capital gain of $125 (-$125 adjustment). The decrease in long-term 
capital gain is a negative adjustment under paragraph (d)(2)(ii) of this 
section and the increase in ordinary income is a positive adjustment 
under paragraph (d)(2)(iii) of this section. Under paragraph (d)(3)(i) 
of this section, the adjustment to long-term capital gain is placed in a 
subgrouping separate from the adjustment to ordinary income because the 
reduction of long-term capital gain is required to be taken into account 
separately pursuant to section 702(a). The $125 decrease in long-term 
capital gain is a net negative adjustment in the long-term capital 
subgrouping and, as a result, is an adjustment that does not result in 
an imputed underpayment under paragraph (f) of this section and is taken 
into account in accordance with Sec.  301.6225-3. The $125 increase in 
ordinary income results in a net positive adjustment under paragraph 
(e)(4)(i) of this section. Because the ordinary subgrouping is the only 
subgrouping resulting in a net positive adjustment, $125 is the total 
netted partnership adjustment under paragraph (b)(2) of this section. 
Under paragraph (b)(1)(iv) of this section, $125 is multiplied by 40 
percent resulting in an imputed underpayment of $50.
    (5) Example 5. Partnership reported a $100 deduction for certain 
expenses on its 2019 partnership return and an additional $100 deduction 
with respect to the same type of expenses on its 2020 partnership 
return. The IRS initiates an administrative proceeding with respect to 
Partnership's 2019 and 2020 taxable years and determines that 
Partnership reported a portion of the expenses as a deduction in 2019 
that should have been taken into account in 2020. Therefore, for taxable 
year 2019, the IRS determines that Partnership should have reported a 
deduction of $75 with respect to the expenses ($25 adjustment in the 
2019 residual grouping). For 2020, the IRS determines that Partnership 
should have reported a deduction of $125 with respect to these expenses 
(-$25 adjustment in the 2020 residual grouping). There are no other 
adjustments for the 2019 and 2020 partnership taxable years. Pursuant to 
paragraph (e)(2) of this section, the adjustments for 2019 and 2020 are 
not netted with each other. The 2019 adjustment of $25 is the only 
adjustment for that year and a net positive adjustment under paragraph 
(e)(4)(i) of this section, and therefore the total netted partnership 
adjustment for 2019 is $25 pursuant to paragraph (b)(2) of this section. 
The $25 total netted partnership adjustment is multiplied by 40 percent 
resulting in an imputed underpayment of $10 for Partnership's 2019 
taxable year. The $25 increase in the deduction for 2020, a net negative 
adjustment under paragraph (e)(4)(ii) of this section, is an adjustment 
that does not result in an imputed underpayment for that year. 
Therefore, there is no imputed underpayment for 2020.
    (6) Example 6. On its partnership return for the 2020 taxable year, 
Partnership reported ordinary income of $100 and a capital gain of $50. 
Partnership had four equal partners during the 2020 tax year, all of 
whom were individuals. On its partnership return for the 2020 tax year, 
the capital gain was allocated to partner E and the ordinary income was 
allocated to all partners based on their interests in Partnership. In an 
administrative proceeding with respect to Partnership's 2020 taxable 
year, the IRS determines that for 2020 the capital gain allocated to E 
should have

[[Page 241]]

been $75 instead of $50 and that Partnership should have recognized an 
additional $10 in ordinary income. In the NOPPA mailed by the IRS, the 
IRS may determine pursuant to paragraph (g) of this section that there 
is a general imputed underpayment with respect to the increase in 
ordinary income and a specific imputed underpayment with respect to the 
increase in capital gain specially allocated to E.
    (7) Example 7. On its partnership return for the 2020 taxable year, 
Partnership reported a recourse liability of $100. During an 
administrative proceeding with respect to Partnership's 2020 taxable 
year, the IRS determines that the $100 recourse liability should have 
been reported as a $100 nonrecourse liability. Under paragraph 
(d)(2)(iii)(B) of this section, the adjustment to the character of the 
liability is an adjustment to an item that cannot be allocated under 
section 704(b). The adjustment therefore is treated as a $100 increase 
in income because such recharacterization of a liability could result in 
up to $100 in taxable income if taken into account by any person. The 
$100 increase in income is a positive adjustment in the residual 
grouping under paragraph (c)(5)(ii) of this section. There are no other 
adjustments for the 2020 partnership taxable year. The $100 positive 
adjustment is treated as a net positive adjustment under paragraph 
(e)(4)(i) of this section, and the total netted partnership adjustment 
under paragraph (b)(2) of this section is $100. Pursuant to paragraph 
(b)(1) of this section, the total netted partnership adjustment is 
multiplied by 40 percent for an imputed underpayment of $40.
    (8) Example 8. Partnership reports on its 2019 partnership return 
$400 of CFTEs in the general category under section 904(d). The IRS 
initiates an administrative proceeding with respect to Partnership's 
2019 taxable year and determines that the amount of CFTEs was $300 
instead of $400 (-$100 adjustment to CFTEs). No other adjustments are 
made for the 2019 taxable year. The -$100 adjustment to CFTEs is placed 
in the creditable expenditure grouping described in paragraph (c)(4) of 
this section. Pursuant to paragraph (e)(3)(iii) of this section, the 
decrease to CFTEs in the creditable expenditure grouping is treated as a 
positive adjustment to (decrease in) credits in the credit grouping 
under paragraph (c)(3) of this section. Because no other adjustments 
have been made, the $100 decrease in credits produces an imputed 
underpayment of $100 under paragraph (b)(1) of this section.
    (9) Example 9. Partnership reports on its 2019 partnership return 
$400 of CFTEs in the passive category under section 904(d). The IRS 
initiates an administrative proceeding with respect to Partnership's 
2019 taxable year and determines that the CFTEs reported by Partnership 
were general category instead of passive category CFTEs. No other 
adjustments are made. Under the rules in paragraph (c)(6) of this 
section, an adjustment to the category of a CFTE is treated as two 
separate adjustments: An increase to general category CFTEs of $400 and 
a decrease to passive category CFTEs of $400. Both adjustments are 
included in the creditable expenditure grouping under paragraph (c)(4) 
of this section, but they are included in separate subgroupings. 
Therefore, the two amounts do not net. Instead, the $400 increase to 
CFTEs in the general category subgrouping is treated as a net negative 
adjustment under paragraph (e)(3)(iii)(A) of this section and is an 
adjustment that does not result in an imputed underpayment under 
paragraph (f) of this section. The decrease to CFTEs in the passive 
category subgrouping of the creditable expenditure grouping results in a 
decrease in CFTEs. Therefore, pursuant to paragraph (e)(3)(iii)(A) of 
this section, it is treated as a positive adjustment to (decrease in) 
credits in the credit grouping under paragraph (c)(3) of this section, 
which results in an imputed underpayment of $400 under paragraph (b)(1) 
of this section.
    (10) Example 10. Partnership has two partners, A and B. Under the 
partnership agreement, $100 of the CFTE is specially allocated to A for 
the 2019 taxable year. The IRS initiates an administrative proceeding 
with respect to Partnership's 2019 taxable year and determines that $100 
of CFTE should be reallocated from A to B. Because the

[[Page 242]]

adjustment reallocates a creditable expenditure, paragraph (c)(4) of 
this section provides that it is included in the creditable expenditure 
grouping rather than the reallocation grouping. The partnership 
adjustment is a -$100 adjustment to general category CFTE allocable to A 
and an increase of $100 to general category CFTE allocable to B. 
Pursuant to paragraph (d)(3)(iii) of this section, the -$100 adjustment 
to general category CFTE and the increase of $100 to general category 
CFTE are included in separate subgroupings in the creditable expenditure 
grouping. The $100 increase in general category CFTEs, B-allocation 
subgrouping, is a net negative adjustment, which does not result in an 
imputed underpayment and is therefore taken into account by the 
partnership in the adjustment year in accordance with Sec.  301.6225-3. 
The net decrease to CFTEs in the general-category, A-allocation 
subgrouping, is treated as a positive adjustment to (decrease in) 
credits in the credit grouping under paragraph (c)(3) of this section, 
resulting in an imputed underpayment of $100 under paragraph (b)(1) of 
this section.
    (11) Example 11. Partnership has two partners, A and B. Partnership 
owns two entities, DE1 and DE2, that are disregarded as separate from 
their owner for Federal income tax purposes and are operating in and 
paying taxes to foreign jurisdictions. The partnership agreement 
provides that all items from DE1 and DE2 are allocable to A and B in the 
following manner. Items related to DE1: To A 75 percent and to B 25 
percent. Items related to DE2: To A 25 percent and to B 75 percent. On 
Partnership's 2018 return, Partnership reports CFTEs in the general 
category of $300, $100 with respect to DE1 and $200 with respect to DE2. 
Partnership allocates the $300 of CFTEs $125 and $175 to A and B 
respectively. During an administrative proceeding with respect to 
Partnership's 2018 taxable year, the IRS determines that Partnership 
understated the amount of creditable foreign tax paid by DE2 by $40 and 
overstated the amount of creditable foreign tax paid by DE1 by $80. No 
other adjustments are made. Because the two adjustments each relate to 
CFTEs that are subject to different allocations, the two adjustments are 
in different subgroupings under paragraph (d)(3)(iii)(B) of this 
section. The adjustment reducing the CFTEs related to DE1 results in a 
decrease in CFTEs within that subgrouping and under paragraph 
(e)(3)(iii)(A) of this section is treated as a decrease in credits in 
the credit grouping under paragraph (c)(3) of this section and results 
in an imputed underpayment of $80 under paragraph (b)(1) of this 
section. The increase of $40 of general category CFTE related to the DE2 
subgrouping results in an increase in CFTEs within that subgrouping and 
is treated as a net negative adjustment, which does not result in an 
imputed underpayment and is taken into account in the adjustment year in 
accordance with Sec.  301.6225-3.
    (12) Example 12. Partnership has two partners, A and B. For the 2019 
taxable year, Partnership allocated $70 of long term capital loss to B 
as well as $30 of ordinary income. In an administrative proceeding with 
respect to Partnership's 2019 taxable year, the IRS determines that the 
$30 of ordinary income and the $70 of long term capital loss should be 
reallocated from B to A. The partnership adjustments are a decrease of 
$30 of ordinary income (-$30 adjustment) allocated to B and a 
corresponding increase of $30 of ordinary income ($30 adjustment) 
allocated to A, as well as a decrease of $70 of long term capital loss 
($70 adjustment) allocated to B and a corresponding increase of $70 of 
long term capital loss (-$70 adjustment) allocated to A. See paragraph 
(c)(2)(ii) of this section. Pursuant to paragraph (d)(3)(ii)(A) of this 
section, for purposes of determining the imputed underpayment, each 
positive adjustment and each negative adjustment allocated to A and B is 
placed in its own separate subgrouping. However, notwithstanding the 
general requirement that reallocation adjustments be subgrouped 
separately, the reallocation adjustments allocated to A and B may be 
subgrouped in accordance with paragraph (d)(3)(i) of this section 
because there are two reallocation adjustments allocated to each of A 
and B, respectively. Pursuant to paragraph (d)(3)(i) of this section, 
because the partnership adjustment allocated to A would not

[[Page 243]]

have been netted at the partnership level and would not have been 
allocated to A as a single partnership-related item for purposes of 
section 702(a), other provisions of the Code, regulations, forms, 
instructions, or other guidance prescribed by the IRS, the positive 
adjustment and the negative adjustment allocated to A remain in separate 
subgroupings. For the same reasons with respect to the adjustments 
allocated to B, the positive adjustment and the negative adjustment 
allocated to B also remain in separate subgroupings. As a result, the 
reallocation grouping would have four subgroupings, one for each 
adjustment: The decrease in ordinary income allocated to B (-$30 
adjustment), the increase in ordinary income allocated to A ($30 
adjustment), the decrease in long term capital loss allocated to B ($70 
adjustment), and the increase long term capital loss allocated to A (-
$70 adjustment). Pursuant to paragraph (e) of this section, no netting 
may occur between subgroupings. Accordingly, the ordinary income 
allocated to A ($30 adjustment) and the long term capital loss allocated 
to B ($70 adjustment) are both net positive adjustments. These net 
positive adjustments are added together to determine the total netted 
partnership adjustment of $100. The total netted partnership adjustment 
is multiplied by 40 percent, which results in an imputed underpayment of 
$40. The ordinary income allocated to B (-$30 adjustment) and the long 
term capital loss allocated to A (-$70 adjustment) are net negative 
adjustments treated as adjustments that do not result in an imputed 
underpayment taken into account by the partnership pursuant to Sec.  
301.6225-3.

    (i) Applicability date--(1) In general. Except as provided in 
paragraph (i)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015 and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22T is in effect.

[T.D. 9844, 84 FR 6534, Feb. 27, 2019]



Sec.  301.6225-2  Modification of imputed underpayment.

    (a) Partnership may request modification of an imputed underpayment. 
A partnership that has received a notice of proposed partnership 
adjustment (NOPPA) under section 6231(a)(2) from the Internal Revenue 
Service (IRS) may request modification of a proposed imputed 
underpayment set forth in the NOPPA in accordance with this section and 
any forms, instructions, and other guidance prescribed by the IRS. The 
effect of modification on a proposed imputed underpayment is described 
in paragraph (b) of this section. Unless otherwise described in 
paragraph (d) of this section, a partnership may request any type of 
modification of an imputed underpayment described in paragraph (d) of 
this section in the time and manner described in paragraph (c) of this 
section. A partnership may request modification with respect to a 
partnership adjustment (as defined in Sec.  301.6241-1(a)(6)) that does 
not result in an imputed underpayment (as described in Sec.  301.6225-
1(f)(1)(ii)) as described in paragraph (e) of this section. Only the 
partnership representative may request modification under this section. 
See section 6223 and Sec.  301.6223-2 for rules regarding the binding 
authority of the partnership representative. For purposes of this 
section, the term relevant partner means any person for whom 
modification is requested by the partnership that is--
    (1) A reviewed year partner (as defined in Sec.  301.6241-1(a)(9)), 
including any pass-through partner (as defined in Sec.  301.6241-
1(a)(5)), except for any reviewed year partner that is a wholly-owned 
entity disregarded as separate from its owner for Federal income tax 
purposes; or
    (2) An indirect partner (as defined in Sec.  301.6241-1(a)(4)) 
except for any indirect partner that is a wholly-owned entity 
disregarded as separate from its owner for Federal income tax purposes.
    (b) Effect of modification-(1) In general. A modification of an 
imputed underpayment under this section that is approved by the IRS may 
result in an increase or decrease in the amount of an imputed 
underpayment set forth in the NOPPA. A modification under this section 
has no effect on the amount of any

[[Page 244]]

partnership adjustment determined under subchapter C of chapter 63 of 
the Internal Revenue Code (subchapter C of chapter 63). See paragraph 
(e) of this section for the effect of modification on adjustments that 
do not result in an imputed underpayment. A modification may increase or 
decrease an imputed underpayment by affecting the extent to which 
adjustments factor into the determination of the imputed underpayment 
(as described in paragraph (b)(2) of this section), the tax rate that is 
applied in calculating the imputed underpayment (as described in 
paragraph (b)(3) of this section), and the number and composition of 
imputed underpayments, including the placement of adjustments in 
groupings and subgroupings (if applicable) (as described in paragraph 
(b)(4) of this section), as well as to the extent of other modifications 
allowed under rules provided in forms, instructions, or other guidance 
prescribed by the IRS (as described in paragraph (b)(5) of this 
section). If a partnership requests more than one modification under 
this section, modifications are taken into account in the following 
order:
    (i) Modifications that affect the extent to which an adjustment 
factors into the determination of the imputed underpayment under 
paragraph (b)(2) of this section;
    (ii) Modification of the number and composition of imputed 
underpayments under paragraph (b)(4) of this section; and
    (iii) Modifications that affect the tax rate under paragraph (b)(3) 
of this section.
    (2) Modifications that affect partnership adjustments for purposes 
of determining the imputed underpayment. If the IRS approves 
modification with respect to a partnership adjustment, such partnership 
adjustment is excluded from the determination of the imputed 
underpayment as determined under Sec.  301.6225-1(b). This paragraph 
(b)(2) applies to modifications under--
    (i) Paragraph (d)(2) of this section (amended returns and the 
alternative procedure to filing amended returns);
    (ii) Paragraph (d)(3) of this section (tax-exempt status);
    (iii) Paragraph (d)(5) of this section (specified passive activity 
losses);
    (iv) Paragraph (d)(7) of this section (qualified investment 
entities);
    (v) Paragraph (d)(8) of this section (closing agreements), if 
applicable;
    (vi) Paragraph (d)(9) of this section (tax treaty modifications), if 
applicable; and
    (vii) Paragraph (d)(10) of this section (other modifications), if 
applicable.
    (3) Modifications that affect the tax rate--(i) In general. If the 
IRS approves a modification with respect to the tax rate applied to a 
partnership adjustment, such modification results in a reduction in tax 
rate applied to the total netted partnership adjustment with respect to 
the partnership adjustments in accordance with this paragraph (b)(3). A 
modification of the tax rate does not affect how the partnership 
adjustment factors into the calculation of the total netted partnership 
adjustment. This paragraph (b)(3) applies to modifications under--
    (A) Paragraph (d)(4) of this section (rate modification);
    (B) Paragraph (d)(8) of this section (closing agreements), if 
applicable;
    (C) Paragraph (d)(9) of this section (tax treaty modifications), if 
applicable; and
    (D) Paragraph (d)(10) of this section (other modifications), if 
applicable.
    (ii) Determination of the imputed underpayment in the case of rate 
modification. Except as described in paragraph (b)(3)(iv) of this 
section, in the case of an approved modification described under 
paragraph (b)(3)(i) of this section, the imputed underpayment is the sum 
of the total netted partnership adjustment consisting of the net 
positive adjustments not subject to rate reduction under paragraph 
(b)(3)(i) of this section (taking into account any approved 
modifications under paragraph (b)(2) of the section), plus the rate-
modified netted partnership adjustment determined under paragraph 
(b)(3)(iii) of this section, reduced or increased by any adjustments to 
credits (taking into account any modifications under paragraph (b)(4) of 
this section). The total netted partnership adjustment not subject to 
rate reduction under paragraph (b)(3)(i) of this section (taking into 
account any approved modifications under paragraph (b)(2) of the 
section) is

[[Page 245]]

determined by multiplying the partnership adjustments included in the 
total netted partnership adjustment that are not subject to rate 
modification under paragraph (b)(3)(i) of this section (including any 
partnership adjustment that remains after applying paragraph (b)(3)(iii) 
of this section) by the highest tax rate (as described in Sec.  
301.6225-1(b)(1)(iv)).
    (iii) Calculation of rate-modified netted partnership adjustment in 
the case of a rate modification. The rate-modified netted partnership 
adjustment is determined as follows--
    (A) Determine each relevant partner's distributive share of the 
partnership adjustments subject to an approved modification under 
paragraph (b)(3)(i) of this section based on how each adjustment subject 
to rate modification was allocated in the NOPPA, or if the appropriate 
allocation was not addressed in the NOPPA, how the adjustment would be 
properly allocated under subchapter K of chapter 1 of the Internal 
Revenue Code (subchapter K) to such relevant partner in the reviewed 
year (as defined in Sec.  301.6241-1(a)(8)).
    (B) Multiply each partnership adjustment determined under paragraph 
(b)(3)(iii)(A) of this section by the tax rate applicable to such 
adjustment based on the approved modification described under paragraph 
(b)(3)(i) of this section.
    (C) Add all of the amounts calculated under paragraph (b)(3)(iii)(B) 
of this section with respect to each partnership adjustment subject to 
an approved modification described under paragraph (b)(3)(i) of this 
section.
    (iv) Rate modification in the case of special allocations. If an 
imputed underpayment results from adjustments to more than one 
partnership-related item and any relevant partner for whom modification 
described under paragraph (b)(3)(i) of this section is approved has a 
distributive share of such items that is not the same with respect to 
all such items, the imputed underpayment as modified based on the 
modification types described under paragraph (b)(3)(i) of this section 
is determined as described in paragraphs (b)(3)(ii) and (iii) of this 
section except that each relevant partner's distributive share is 
determined based on the amount of net gain or loss to the partner that 
would have resulted if the partnership had sold all of its assets at 
their fair market value as of the close of the reviewed year 
appropriately adjusted to reflect any approved modification under 
paragraphs (d)(2), (3), and (5) through (10) of this section with 
respect to any relevant partner. Notwithstanding the preceding sentence, 
the partnership may request that the IRS apply the rule in paragraph 
(b)(3)(iii)(A) of this section when determining each relevant partner's 
distributive share for purposes of this paragraph (b)(3)(iv). Upon 
request by the IRS, the partnership may be required to provide the 
relevant partners' capital account calculation through the end of the 
reviewed year, a calculation of asset liquidation gain or loss, and any 
other information necessary to determine whether rate modification is 
appropriate, consistent with the rules of paragraph (c)(2) of this 
section. Any calculation by the partnership that is necessary to comply 
with the rules in this paragraph (b)(3)(iv) is not considered a 
revaluation for purposes of section 704.
    (4) Modification of the number and composition of imputed 
underpayments. Once approved by the IRS, a modification under paragraph 
(d)(6) of this section affects the manner in which adjustments are 
placed into groupings and subgroupings (as described in Sec.  301.6225-
1(c) and (d)) or whether the IRS designates one or more specific imputed 
underpayments (as described in Sec.  301.6225-1(g)). If the IRS approves 
a request for modification under this paragraph (b)(4), the imputed 
underpayment and any specific imputed underpayment affected by or 
resulting from the modification is determined according to the rules of 
Sec.  301.6225-1 subject to any other modifications approved by the IRS 
under this section.
    (5) Other modifications. The effect of other modifications described 
in paragraph (d)(10) of this section, including the order that such 
modification will be taken into account for purposes of paragraph (b)(1) 
of this section, may be set forth in forms, instructions, or other 
guidance prescribed by the IRS.

[[Page 246]]

    (c) Time, form, and manner for requesting modification--(1) In 
general. In addition to the requirements described in paragraph (d) of 
this section, a request for modification under this section must be 
submitted in accordance with, and include the information required by, 
the forms, instructions, and other guidance prescribed by the IRS. The 
partnership representative must submit any request for modification and 
all relevant information (including information required under 
paragraphs (c)(2) and (d) of this section) to the IRS within the time 
described in paragraph (c)(3) of this section. The IRS will notify the 
partnership representative in writing of the approval or denial, in 
whole or in part, of any request for modification. A request for 
modification, including a request by the IRS for information related to 
a request for modification, and the determination by the IRS to approve 
or not approve all or a portion of a request for modification, is part 
of the administrative proceeding with respect to the partnership under 
subchapter C of chapter 63 and does not constitute an examination, 
inspection, or other administrative proceeding with respect to any other 
person for purposes of section 7605(b).
    (2) Partnership must substantiate facts supporting a request for 
modification--(i) In general. A partnership requesting modification 
under this section must substantiate the facts supporting such a request 
to the satisfaction of the IRS. The documents and other information 
necessary to substantiate a particular request for modification are 
based on the facts and circumstances of each request, as well as the 
type of modification requested under paragraph (d) of this section, and 
may include tax returns, partnership operating documents, certifications 
in the form and manner required with respect to the particular 
modification, and any other information necessary to support the 
requested modification. The IRS may, in forms, instructions, or other 
guidance, set forth procedures with respect to information and documents 
supporting the modification, including procedures to require particular 
documents or other information to substantiate a particular type of 
modification, the manner for submitting documents and other information 
to the IRS, and recordkeeping requirements. Pursuant to section 
6241(10), the IRS may require the partnership to file or submit anything 
required to be filed or submitted under this section to be filed or 
submitted electronically. The IRS will deny a request for modification 
if a partnership fails to provide information the IRS determines is 
necessary to substantiate a request for modification, or if the IRS 
determines there is a failure by any person to make any required 
payment, within the time restrictions described in paragraph (c) of this 
section.
    (ii) Information to be furnished for any modification request. In 
the case of any modification request, the partnership representative 
must furnish to the IRS such information as is required by forms, 
instructions, and other guidance prescribed by the IRS or that is 
otherwise requested by the IRS related to the requested modification. 
Such information may include a detailed description of the partnership's 
structure, allocations, ownership, and ownership changes, its relevant 
partners for each taxable year relevant to the request for modification, 
as well as the partnership agreement as defined in Sec.  1.704-
1(b)(2)(ii)(h) of this chapter for each taxable year relevant to the 
modification request. In the case of any modification request with 
respect to a relevant partner that is an indirect partner, the 
partnership representative must provide to the IRS any information that 
the IRS may require relevant to any pass-through partner or wholly-owned 
entity disregarded as separate from its owner for Federal income tax 
purposes through which the relevant partner holds its interest in the 
partnership. For instance, if the partnership requests modification with 
respect to an amended return filed by a relevant partner pursuant to 
paragraph (d)(2) of this section, the partnership representative may be 
required to provide to the IRS information that would have been required 
to have been filed by pass-through partners through which the relevant 
partner holds its interest in the partnership as if those pass-through 
partners had also filed their own amended returns.

[[Page 247]]

    (3) Time for submitting modification request and information--(i) 
Modification request. Unless the IRS grants an extension of time, all 
information required under this section with respect to a request for 
modification must be submitted to the IRS in the form and manner 
prescribed by the IRS on or before 270 days after the date the NOPPA is 
mailed.
    (ii) Extension of the 270-day period. The IRS may, in its 
discretion, grant a request for extension of the 270-day period 
described in paragraph (c)(3)(i) of this section provided the 
partnership submits such request to the IRS, in the form and manner 
prescribed by forms, instructions, or other guidance prescribed by the 
IRS before expiration of such period, as extended by any prior extension 
granted under this paragraph (c)(3)(ii).
    (iii) Expiration of the 270-day period by agreement. The 270-day 
period described in paragraph (c)(3)(i) of this section (including any 
extensions under paragraph (c)(3)(ii) of this section) expires as of the 
date the partnership and the IRS agree, in the form and manner 
prescribed by form, instructions, or other guidance prescribed by the 
IRS to waive the 270-day period after the mailing of the NOPPA and 
before the IRS may issue a notice of final partnership adjustment. See 
section 6231(b)(2)(A); Sec.  301.6231-1(b)(2).
    (4) Approval of modification by the IRS. Notification of approval 
will be provided to the partnership only after receipt of all relevant 
information (including any supplemental information required by the IRS) 
and all necessary payments with respect to the particular modification 
requested before expiration of the 270-day period in paragraph (c)(3)(i) 
of this section plus any extension granted by the IRS under paragraph 
(c)(3)(ii) of this section.
    (d) Types of modification--(1) In general. Except as otherwise 
described in this section, a partnership may request one type of 
modification or more than one type of modification described in 
paragraph (d) of this section.
    (2) Amended returns by partners--(i) In general. A partnership may 
request a modification of an imputed underpayment based on an amended 
return filed by a relevant partner provided all of the partnership 
adjustments properly allocable to such relevant partner are taken into 
account and any amount due is paid in accordance with paragraph (d)(2) 
of this section. Only adjustments to partnership-related items or 
adjustments to a relevant partner's tax attributes affected by 
adjustments to partnership-related items may be taken into account on an 
amended return under paragraph (d)(2) of this section. A partnership may 
request a modification for purposes of paragraph (d)(2) of this section 
by submitting a modification request based on the alternative procedure 
to filing amended returns as described in paragraph (d)(2)(x) of this 
section. The partnership may not request an additional modification of 
any imputed underpayment for a partnership taxable year under this 
section with respect to any relevant partner that files an amended 
return (or utilizes the alternative procedure to filing amended returns) 
under paragraph (d)(2) of this section or with respect to any 
partnership adjustment allocated to such relevant partner.
    (ii) Requirements for approval of a modification request based on 
amended return. Except as otherwise provided under the alternative 
procedure described in paragraph (d)(2)(x) of this section, an amended 
return modification request under paragraph (d)(2) of this section will 
not be approved unless the provisions of this paragraph (d)(2)(ii) are 
satisfied. The partnership may satisfy the requirements of paragraph 
(d)(2) of this section by demonstrating in accordance with forms, 
instructions, and other guidance provided by the IRS that a relevant 
partner has previously taken into account the partnership adjustments 
described in paragraph (d)(2)(i) of this section, made any required 
adjustments to tax attributes resulting from the partnership adjustments 
for the years described in paragraph (d)(2)(ii)(B) of this section, and 
made all required payments under paragraph (d)(2)(ii)(A) of this 
section.
    (A) Full payment required. An amended return modification request 
under paragraph (d)(2) of this section will not be approved unless the 
relevant partner

[[Page 248]]

filing the amended return has paid all tax, penalties, additions to tax, 
additional amounts, and interest due as a result of taking into account 
all partnership adjustments in the first affected year (as defined in 
Sec.  301.6226-3(b)(2)) and all modification years (as described in 
paragraph (d)(2)(ii)(B) of this section) at the time such return is 
filed with the IRS. Except for a pass-through partner calculating its 
payment amount pursuant to paragraph (d)(2)(vi) of this section, for 
purposes of this paragraph (d)(2)(ii)(A), the term tax means tax imposed 
by chapter 1 of the Internal Revenue Code (chapter 1).
    (B) Amended returns for all relevant taxable years must be filed. 
Modification under paragraph (d)(2) of this section will not be approved 
by the IRS unless a relevant partner files an amended return for the 
first affected year and any modification year. A modification year is 
any taxable year with respect to which any tax attribute (as defined in 
Sec.  301.6241-1(a)(10)) of the relevant partner is affected by reason 
of taking into account the relevant partner's distributive share of all 
partnership adjustments in the first affected year. A modification year 
may be a taxable year before or after the first affected year, depending 
on the effect on the relevant partner's tax attributes of taking into 
account the relevant partner's distributive share of the partnership 
adjustments in the first affected year.
    (C) Amended returns for partnership adjustments that reallocate 
distributive shares. Except as described in this paragraph 
(d)(2)(ii)(C), in the case of partnership adjustments that reallocate 
the distributive shares of any partnership-related item from one partner 
to another, a modification under paragraph (d)(2) of this section will 
be approved only if all partners affected by such adjustments file 
amended returns in accordance with paragraph (d)(2) of this section. The 
IRS may determine that the requirements of this paragraph (d)(2)(ii)(C) 
are satisfied even if not all relevant partners affected by such 
adjustments file amended returns provided any relevant partners affected 
by the reallocation not filing amended returns take into account their 
distributive share of the adjustments through other modifications 
approved by the IRS (including the alternative procedure to filing 
amended returns under paragraph (d)(2)(x) of this section) or if a pass-
through partner takes into account the relevant adjustments in 
accordance with paragraph (d)(2)(vi) of this section. For instance, in 
the case of adjustments that reallocate a loss from one partner to 
another, the IRS may determine that the requirements of this paragraph 
(d)(2)(ii)(C) have been satisfied if one affected relevant partner files 
an amended return taking into account the adjustments and the other 
affected relevant partner signs a closing agreement with the IRS taking 
into account the adjustments. Similarly, in the case of adjustment that 
reallocate income from one partner to another, the IRS may determine 
that the requirements of this paragraph (d)(2)(ii)(C) have been 
satisfied to the extent an affected relevant partner meets the 
requirements of paragraph (d)(3) of this section (regarding tax-exempt 
partners) and through such modification fully takes into account all 
adjustments reallocated to the affected relevant partner.
    (iii) Form and manner for filing amended returns. A relevant partner 
must file all amended returns required for modification under paragraph 
(d)(2) of this section with the IRS in accordance with forms, 
instructions, and other guidance prescribed by the IRS. Except as 
otherwise provided under the alternative procedure described in 
paragraph (d)(2)(x) of this section, the IRS will not approve 
modification under paragraph (d)(2) of this section unless prior to the 
expiration of the 270-day period described in paragraph (c)(3) of this 
section, the partnership representative provides to the IRS, in the form 
and manner prescribed by the IRS, an affidavit from each relevant 
partner signed under penalties of perjury by such partner stating that 
all of the amended returns required to be filed under paragraph (d)(2) 
of this section has been filed (including the date on which such amended 
returns were filed) and that the full amount of tax, penalties, 
additions to tax, additional amounts, and interest was paid (including 
the date on which such amounts were paid).

[[Page 249]]

    (iv) Period of limitations. Generally, the period of limitations 
under sections 6501 and 6511 do not apply to an amended return filed 
under paragraph (d)(2) of this section provided the amended return 
otherwise meets the requirements of paragraph (d)(2) of this section.
    (v) Amended returns in the case of adjustments allocated through 
certain pass-through partners. A request for modification related to an 
amended return of a relevant partner that is an indirect partner holding 
its interest in the partnership (directly or indirectly) through a pass-
through partner that could be subject to tax imposed by chapter 1 
(chapter 1 tax) on the partnership adjustments that are properly 
allocated to such pass-through partner will not be approved unless the 
partnership--
    (A) Establishes that the pass-through partner is not subject to 
chapter 1 tax on the adjustments that are properly allocated to such 
pass-through partner; or
    (B) Requests modification with respect to the adjustments resulting 
in chapter 1 tax for the pass-through partner, including full payment of 
such chapter 1 tax for the first affected year and all modification 
years under paragraph (d)(2) of this section or in accordance with 
forms, instructions, or other guidance prescribed by the IRS.
    (vi) Amended returns in the case of pass-through partners--(A) Pass-
through partners may file amended returns. A relevant partner that is a 
pass-through partner, including a partnership-partner (as defined in 
Sec.  301.6241-1(a)(7)) that has a valid election under section 6221(b) 
in effect for a partnership taxable year, may, in accordance with forms, 
instructions, and other guidance provided by the IRS and solely for 
purposes of modification under paragraph (d)(2) of this section, take 
into account its share of the partnership adjustments and determine and 
pay an amount calculated in the same manner as the amount computed under 
Sec.  301.6226-3(e)(4)(iii) subject to paragraph (d)(2)(vi)(B) of this 
section.
    (B) Modifications with respect to upper-tier partners of the pass-
through partner. In accordance with forms, instructions, and other 
guidance provided by the IRS, for purposes of determining and 
calculating the amount a pass-through partner must pay under paragraph 
(d)(2)(vi)(A) of this section, the pass-through partner may take into 
account modifications with respect to its direct and indirect partners 
to the extent that such modifications are requested by the partnership 
requesting modification and approved by the IRS under this section.
    (vii) Limitations on amended returns--(A) In general. A relevant 
partner may not file an amended return or claim for refund that takes 
into account partnership adjustments except as described in paragraph 
(d)(2) of this section.
    (B) Further amended returns restricted. Except as described in 
paragraph (d)(2)(vii)(C) of this section, if a relevant partner files an 
amended return under paragraph (d)(2) of this section, or satisfies 
paragraph (d)(2) of this section by following the alternative procedure 
under paragraph (d)(2)(x) of this section (the alternative procedure), 
such partner may not file a subsequent amended return or claim for 
refund to change the treatment of partnership adjustments taken into 
account through amended return or the alternative procedure.
    (C) Subsequent returns in the case of changes to partnership 
adjustments or denial of modification. Notwithstanding paragraph 
(d)(2)(vii)(B) of this section, a relevant partner that has previously 
filed an amended return under paragraph (d)(2) of this section, or 
satisfied the requirements of paragraph (d)(2) of this section through 
the alternative procedure, to take partnership adjustments into account 
may, in accordance with forms, instructions, and other guidance 
prescribed by the IRS, file a subsequent return or claim for refund if a 
determination is made by a court or by the IRS that results in a change 
to the partnership adjustments taken into account in modification under 
paragraph (d)(2) of this section or a denial of modification by the IRS 
under paragraph (c)(2)(i) of this section with respect to a modification 
request under paragraph (d)(2) of this section. Such determinations 
include a court decision that changes the partnership adjustments for 
which modification was requested or a settlement between the IRS and the 
partnership pursuant to which the partnership is not liable for

[[Page 250]]

all or a portion of the imputed underpayment for which modification was 
requested. Any amended return or claim for refund filed under this 
paragraph (d)(2)(vii) is subject to the period of limitations under 
section 6511.
    (viii) Penalties. The applicability of any penalties, additions to 
tax, or additional amounts that relate to an adjustment to a 
partnership-related item is determined at the partnership level in 
accordance with section 6221(a). However, the amount of penalties, 
additions to tax, and additional amounts a relevant partner must pay 
under paragraph (d)(2)(ii)(A) of this section for the first affected 
year and for any modification year is based on the underpayment or 
understatement of tax, if any, reflected on the amended return filed by 
the relevant partner under paragraph (d)(2) of this section. For 
instance, if after taking into account the adjustments, the return of 
the relevant partner for the first affected year or any modification 
year reflects an underpayment or an understatement that falls below the 
applicable threshold for the imposition of a penalty under section 
6662(d), no penalty would be due from that relevant partner for such 
year. Unless forms, instructions or other guidance provided by the IRS 
allow for an alternative procedure for raising a partner-level defense 
(as described in Sec.  301.6226-3(d)(3)), a relevant partner may raise a 
partner-level defense by first paying the penalty, addition to tax, or 
additional amount with the amended return filed under paragraph (d)(2) 
of this section and then filing a claim for refund in accordance with 
forms, instructions, and other guidance.
    (ix) Effect on tax attributes binding. Any adjustments to the tax 
attributes of any relevant partner which are affected by modification 
under paragraph (d)(2) of this section are binding on the relevant 
partner with respect to the first affected year and all modification 
years (as defined in paragraph (d)(2)(ii)(B) of this section). A failure 
to adjust any tax attribute in accordance with this paragraph (d)(2)(ix) 
is a failure to treat a partnership-related item in a manner which is 
consistent with the treatment of such item on the partnership return 
within the meaning of section 6222. The provisions of section 6222(c) 
and Sec.  301.6222-1(c) (regarding notification of inconsistent 
treatment) do not apply with respect to tax attributes under this 
paragraph (d)(2)(ix).
    (x) Alternative procedure to filing amended returns--(A) In general. 
A partnership may satisfy the requirements of paragraph (d)(2) of this 
section by submitting on behalf of a relevant partner, in accordance 
with forms, instructions, and other guidance provided by the IRS, all 
information and payment of any tax, penalties, additions to tax, 
additional amounts, and interest that would be required to be provided 
if the relevant partner were filing an amended return under paragraph 
(d)(2) of this section, except as otherwise provided in relevant forms, 
instructions, and other guidance provided by the IRS. A relevant partner 
for which the partnership seeks modification under paragraph (d)(2)(x) 
of this section must agree to take into account, in accordance with 
forms, instructions, and other guidance provided by the IRS, adjustments 
to any tax attributes of such relevant partner. A modification request 
submitted in accordance with the alternative procedure under paragraph 
(d)(2)(x) of this section is not a claim for refund with respect to any 
person.
    (B) Modifications with respect to reallocation adjustments. A 
submission made in accordance with paragraph (d)(2)(x) of this section 
with respect to any relevant partner is treated as if such relevant 
partner filed an amended return for purposes of paragraph (d)(2)(ii)(C) 
of this section (regarding the requirement that all relevant partners 
affected by a reallocation must file an amended return to be eligible to 
for the modification under paragraph (d)(2) of this section) provided 
the submission is with respect to the first affected year and all 
modification years of such relevant partner as required under paragraph 
(d)(2) of this section.
    (3) Tax-exempt partners--(i) In general. A partnership may request 
modification of an imputed underpayment with respect to partnership 
adjustments that the partnership demonstrates to the satisfaction of the 
IRS are allocable to a relevant partner that would not owe tax by reason 
of its status as

[[Page 251]]

a tax-exempt entity (as defined in paragraph (d)(3)(ii) of this section) 
in the reviewed year (tax-exempt partner).
    (ii) Definition of tax-exempt entity. For purposes of paragraph 
(d)(3) of this section, the term tax-exempt entity means a person or 
entity defined in section 168(h)(2)(A), (C), or (D).
    (iii) Modification limited to portion of partnership adjustments for 
which tax-exempt partner not subject to tax. Only the portion of the 
partnership adjustments properly allocated to a tax-exempt partner with 
respect to which the partner would not be subject to tax for the 
reviewed year (tax-exempt portion) may form the basis of a modification 
of the imputed underpayment under paragraph (d)(3) of this section. A 
modification under paragraph (d)(3) of this section will not be approved 
by the IRS unless the partnership provides documentation in accordance 
with paragraph (c)(2) of this section to support the tax-exempt 
partner's status and the tax-exempt portion of the partnership 
adjustment allocable to the tax-exempt partner.
    (4) Modification based on a rate of tax lower than the highest 
applicable tax rate. A partnership may request modification based on a 
lower rate of tax for the reviewed year with respect to adjustments that 
are attributable to a relevant partner that is a C corporation and 
adjustments with respect to capital gains or qualified dividends that 
are attributable to a relevant partner who is an individual. In no event 
may the lower rate determined under the preceding sentence be less than 
the highest rate in effect for the reviewed year with respect to the 
type of income and taxpayer. For instance, with respect to adjustments 
that are attributable to a C corporation, the highest rate in effect for 
the reviewed year with respect to all C corporations would apply to that 
adjustment, regardless of the rate that would apply to the C corporation 
based on the amount of that C corporation's taxable income. For purposes 
of this paragraph (d)(4), an S corporation is treated as an individual.
    (5) Certain passive losses of publicly traded partnerships--(i) In 
general. In the case of a publicly traded partnership (as defined in 
section 469(k)(2)) requesting modification under this section, an 
imputed underpayment is determined without regard to any adjustment that 
the partnership demonstrates would be reduced by a specified passive 
activity loss (as defined in paragraph (d)(5)(ii) of this section) which 
is allocable to a specified partner (as defined in paragraph (d)(5)(iii) 
of this section) or qualified relevant partner (as defined in paragraph 
(d)(5)(iv) of this section).
    (ii) Specified passive activity loss. A specified passive activity 
loss carryover amount for any specified partner or qualified relevant 
partner of a publicly traded partnership is the lesser of the section 
469(k) passive activity loss of that partner which is separately 
determined with respect to such partnership--
    (A) At the end of the first affected year (affected year loss); or
    (B) At the end of--
    (1) The specified partner's taxable year in which or with which the 
adjustment year (as defined in Sec.  301.6241-1(a)(1)) of the 
partnership ends, reduced to the extent any such partner has utilized 
any portion of its affected year loss to offset income or gain relating 
to the ownership or disposition of its interest in such publicly traded 
partnership during either the adjustment year or any other year; or
    (2) If the adjustment year has not yet been determined, the most 
recent year for which the publicly traded partnership has filed a return 
under section 6031, reduced to the extent any such partner has utilized 
any portion of its affected year loss to offset income or gain relating 
to the ownership or disposition of its interest in such publicly traded 
partnership during any year.
    (iii) Specified partner. A specified partner is a person that for 
each taxable year beginning with the first affected year through the 
person's taxable year in which or with which the partnership adjustment 
year ends satisfies the following three requirements-
    (A) The person is a partner of the publicly traded partnership 
requesting modification under this section;

[[Page 252]]

    (B) The person is an individual, estate, trust, closely held C 
corporation, or personal service corporation; and
    (C) The person has a specified passive activity loss with respect to 
the publicly traded partnership.
    (iv) Qualified relevant partner. A qualified relevant partner is a 
relevant partner that meets the three requirements to be a specified 
partner (as described in paragraphs (d)(5)(iii)(A), (B), and (C) of this 
section) for each year beginning with the first affected year through 
the year described in paragraph (d)(5)(ii)(B)(2) of this section. 
Notwithstanding the preceding sentence, an indirect partner of the 
publicly traded partnership requesting modification under this section 
may also be a qualified relevant partner under this paragraph (d)(5)(iv) 
if that indirect partner meets the requirements of paragraph 
(d)(5)(iii)(B) and (C) of this section for each year beginning with the 
first affected year through the year described in paragraph 
(d)(5)(ii)(B)(2) of this section.
    (v) Partner notification requirement to reduce passive losses. If 
the IRS approves a modification request under paragraph (d)(5) of this 
section, the partnership must report, in accordance with forms, 
instructions, or other guidance prescribed by the IRS, to each specified 
partner the amount of that specified partner's reduction of its 
suspended passive activity loss carryovers at the end of the adjustment 
year to take into account the amount of any passive activity losses 
applied in connection with such modification request. In the case of a 
qualified relevant partner, the partnership must report, in accordance 
with forms, instructions, or other guidance prescribed by the IRS, to 
each qualified relevant partner the amount of that qualified relevant 
partner's reduction of its suspended passive activity loss carryovers at 
the end of the taxable year for which the partnership's next return is 
due to be filed under section 6031 to be taken into account by the 
qualified relevant partner on the partner's return for the year that 
includes the end of the partnership's taxable year for which the 
partnership's next return is due to be filed under section 6031. In the 
case of an indirect partner that is a qualified relevant partner, the 
IRS may prescribe additional guidance through forms, instructions, or 
other guidance to require reporting under this paragraph (d)(5)(v). The 
reduction in suspended passive activity loss carryovers as reported to a 
specified partner or qualified relevant partner under this paragraph 
(d)(5)(v) is a determination of the partnership under subchapter C of 
chapter 63 and is binding on the specified partners and qualified 
relevant partners under section 6223.
    (6) Modification of the number and composition of imputed 
underpayments--(i) In general. A partnership may request modification of 
the number or composition of any imputed underpayment included in the 
NOPPA by requesting that the IRS include one or more partnership 
adjustments in a particular grouping or subgrouping (as described in 
Sec.  301.6225-1(c) and (d)) or specific imputed underpayments (as 
described in Sec.  301.6225-1(g)) different from the grouping, 
subgrouping, or imputed underpayment set forth in the NOPPA. For 
example, a partnership may request under paragraph (d)(6) of this 
section that one or more partnership adjustments taken into account to 
determine a general imputed underpayment set forth in the NOPPA be taken 
into account to determine a specific imputed underpayment.
    (ii) Request for particular treatment regarding limitations or 
restrictions. A modification request under paragraph (d)(6) of this 
section includes a request that one or more partnership adjustments be 
treated as if no limitations or restrictions under Sec.  301.6225-1(d) 
apply and as a result such adjustments may be subgrouped with other 
adjustments.
    (7) Partnerships with partners that are ``qualified investment 
entities'' described in section 860--(i) In general. A partnership may 
request a modification of an imputed underpayment based on the 
partnership adjustments allocated to a relevant partner where the 
modification is based on deficiency dividends distributed as described 
in section 860(f) by a relevant partner that is a qualified investment 
entity (QIE) under section 860(b) (which includes both a regulated 
investment company (RIC) and a real estate investment

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trust (REIT)). Modification under paragraph (d)(7) of this section is 
available only to the extent that the deficiency dividends take into 
account adjustments described in Sec.  301.6225-1 that are also 
adjustments within the meaning of section 860(d)(1) or (d)(2) (whichever 
applies).
    (ii) Documentation of deficiency dividend. The partnership must 
provide documentation in accordance with paragraph (c) of this section 
of the ``determination'' described in section 860(e). Under section 
860(e)(2), Sec.  1.860-2(b)(1)(i) of this chapter, and paragraph (d)(8) 
of this section, a closing agreement entered into by the QIE partner 
pursuant to section 7121 and paragraph (d)(8) of this section is a 
determination described in section 860(e), and the date of the 
determination is the date in which the closing agreement is approved by 
the IRS. In addition, under section 860(e)(4), a determination also 
includes a Form 8927, Determination Under Section 860(e)(4) by a 
Qualified Investment Entity, properly completed and filed by the RIC or 
REIT pursuant to section 860(e)(4). To establish the date of the 
determination under section 860(e)(4) and the amount of deficiency 
dividends actually paid, the partnership must provide a copy of Form 
976, Claim for Deficiency Dividends Deductions by a Personal Holding 
Company, Regulated Investment Company, or Real Estate Investment Trust, 
properly completed by or on behalf of the QIE pursuant to section 
860(g), together with a copy of each of the required attachments for 
Form 976.
    (8) Closing agreements. A partnership may request modification based 
on a closing agreement entered into by the IRS and the partnership or 
any relevant partner, or both if appropriate, pursuant to section 7121. 
If modification under this paragraph (d)(8) is approved by the IRS, any 
partnership adjustment that is taken into account under such closing 
agreement and for which any required payment under the closing agreement 
is made will not be taken into account in determining the imputed 
underpayment under Sec.  301.6225-1. Any required payment under the 
closing agreement may include amounts of tax, including tax under 
chapters other than chapter 1, interest, penalties, additions to tax and 
additional amounts. Generally, the IRS will not approve any additional 
modification under this section with respect to a relevant partner to 
which a modification under this paragraph (d)(8) has been approved.
    (9) Tax treaty modifications. A partnership may request a 
modification under this paragraph (d)(9) with respect to a relevant 
partner's distributive share of an adjustment to a partnership-related 
item if, in the reviewed year, the relevant partner was a foreign person 
who qualified under an income tax treaty with the United States for a 
reduction or exemption from tax with respect to such partnership-related 
item. A partnership requesting modification under this section may also 
request a treaty modification under this paragraph (d)(9) regardless of 
the treaty status of its partners if, in the reviewed year, the 
partnership itself was an entity eligible for such treaty benefits.
    (10) Other modifications. A partnership may request a modification 
not otherwise described in paragraph (d) of this section, and the IRS 
will determine whether such modification is accurate and appropriate in 
accordance with paragraph (c)(4) of this section. Additional types of 
modifications and the documentation necessary to substantiate such 
modifications may be set forth in forms, instructions, or other guidance 
prescribed by the IRS.
    (e) Modification of adjustments that do not result in an imputed 
underpayment. A partnership may request modification of adjustments that 
do not result in an imputed underpayment (as described in Sec.  
301.6225-1(f)(1)(ii)) using modifications described in paragraph (d)(2) 
of this section (amended returns and the alternative procedure to filing 
amended returns), paragraph (d)(6) of this section (number and 
composition of the imputed underpayment), paragraph (d)(8) of this 
section (closing agreements), or, if applicable, paragraph (d)(10) of 
this section (other modifications).
    (f) Examples. The following examples illustrate the rules of this 
section. For purposes of these examples, each partnership is subject to 
the provisions of subchapter C of chapter 63, each partnership and its 
relevant partners are calendar year taxpayers, all relevant

[[Page 254]]

partners are U.S. persons (unless otherwise stated), the highest rate of 
income tax in effect for all taxpayers is 40 percent for all relevant 
periods, and no partnership requests modification under this section 
except as provided in the example.

    (1) Example 1. Partnership has two partners during its 2019 
partnership taxable year: P and S. P is a partnership, and S is an S 
corporation. P has four partners during its 2019 partnership taxable 
year: A, C, T and DE. A is an individual, C is a C corporation, T is a 
trust, and DE is a wholly-owned entity disregarded as separate from its 
owner for Federal income tax purposes. The owner of DE is B, an 
individual. T has two beneficiaries during its 2019 taxable year: F and 
G, both individuals. S has 3 shareholders during its 2019 taxable year: 
H, J, and K, all individuals. For purposes of this section, if 
Partnership requests modification with respect to A, B, C, F, G, H, J, 
and K, those persons are all relevant partners (as defined in paragraph 
(a) of this section). P, S, and DE are not relevant partners (as defined 
in paragraph (a) of this section) because DE is a wholly-owned entity 
disregarded as separate from its owner for Federal income tax purposes 
and modification was not requested with respect to P and S.
    (2) Example 2. The IRS initiates an administrative proceeding with 
respect to Partnership's 2019 taxable year. The IRS mails a NOPPA to 
Partnership for the 2019 partnership taxable year proposing a single 
partnership adjustment increasing ordinary income by $100, resulting in 
a $40 imputed underpayment ($100 multiplied by the 40 percent tax rate). 
Partner A, an individual, held a 20 percent interest in Partnership 
during 2019. Partnership timely requests modification under paragraph 
(d)(2) of this section based on A's filing an amended return for the 
2019 taxable year taking into account $20 of the partnership adjustment 
and paying the tax and interest due attributable to A's share of the 
increased income and the tax rate applicable to A for the 2019 tax year. 
No tax attribute in any other taxable year of A is affected by A's 
taking into account A's share of the partnership adjustment for 2019. In 
accordance with paragraph (d)(2)(iii) of this section, Partnership's 
partnership representative provides the IRS with documentation 
demonstrating that A filed the 2019 return and paid all tax and interest 
due. The IRS approves the modification and, in accordance with paragraph 
(b)(2) of this section, the $20 increase in ordinary income allocable to 
A is not included in the calculation of the total netted partnership 
adjustment (determined in accordance with Sec.  301.6225-1). 
Partnership's total netted partnership adjustment is reduced to $80 
($100 adjustment less $20 taken into account by A), and the imputed 
underpayment is reduced to $32 (total netted partnership adjustment of 
$80 after modification multiplied by 40 percent).
    (3) Example 3. The IRS initiates an administrative proceeding with 
respect to Partnership's 2019 taxable year. Partnership has two equal 
partners during its entire 2019 taxable year: an individual, A, and a 
partnership-partner, B. During all of 2019, B has two equal partners: a 
tax-exempt entity, C, and an individual, D. The IRS mails a NOPPA to 
Partnership for its 2019 taxable year proposing a single partnership 
adjustment increasing Partnership's ordinary income by $100, resulting 
in a $40 imputed underpayment ($100 total netted partnership adjustment 
multiplied by 40 percent). Partnership timely requests modification 
under paragraph (d)(3) of this section with respect to B's partner, C, a 
tax-exempt entity. In accordance with paragraph (d)(3)(iii) of this 
section, Partnership's partnership representative provides the IRS with 
documentation substantiating to the IRS's satisfaction that C held a 25 
percent indirect interest in Partnership through its interest in B 
during the 2019 taxable year, that C was a tax-exempt entity defined in 
paragraph (d)(3)(ii) of this section during the 2019 taxable year, and 
that C was not subject to tax with respect to its entire allocable share 
of the partnership adjustment allocated to B (which is $25 (50 percent x 
50 percent x $100)). The IRS approves the modification and, in 
accordance with paragraph (b)(2) of this section, the $25 increase in 
ordinary income allocated to C, through B, is not included in the

[[Page 255]]

calculation of the total netted partnership adjustment (determined in 
accordance with Sec.  301.6225-1). Partnership's total netted 
partnership adjustment is reduced to $75 ($100 adjustment less C's share 
of the adjustment, $25), and the imputed underpayment is reduced to $30 
(total netted partnership adjustment of $75, after modification, 
multiplied by 40 percent).
    (4) Example 4. The facts are the same as in Example 3 in paragraph 
(f)(3) of this section, except $10 of the $25 of the adjustment 
allocated to C is unrelated business taxable income (UBTI) as defined in 
section 512 because it is debt-financed income within the meaning of 
section 514 (no section 512 UBTI modifications apply) with respect to 
which C would be subject to tax if taken into account by C. As a result, 
the modification under paragraph (d)(3) of this section with respect to 
C relates only to $15 of the $25 of ordinary income allocated to C that 
is not UBTI. Therefore, only a modification of $15 ($25 less $10) of the 
total $100 partnership adjustment may be approved by the IRS under 
paragraph (d)(3) of this section and, in accordance with paragraph 
(b)(2) of this section, excluded when determining the imputed 
underpayment for Partnership's 2019 taxable year. The total netted 
partnership adjustment (determined in accordance with Sec.  301.6225-1) 
is reduced to $85 ($100 less $15), and the imputed underpayment is 
reduced to $34 (total netted partnership adjustment of $85, after 
modification, multiplied by 40 percent).
    (5) Example 5. The facts are the same as in Example 3 in paragraph 
(f)(3) of this section, except that Partnership also timely requests 
modification under paragraph (d)(2) of this section with respect to an 
amended return filed by B, and, in accordance with (d)(2)(iii) of this 
section, Partnership's partnership representative provides the IRS with 
documentation demonstrating that B filed the 2019 return and paid all 
tax and interest due. B reports 50 percent of the partnership 
adjustments ($50) on its amended return, and B calculates an amount 
under paragraph (d)(2)(vi)(A) of this section and Sec.  301.6226-
3(e)(4)(iii) that, pursuant to paragraph (d)(2)(vi)(B) of this section, 
takes into account the modification under paragraph (d)(3) of this 
section approved by the IRS with respect to B's partner C, a tax-exempt 
entity. B makes a payment pursuant to paragraph (d)(2)(ii)(A) of this 
section, and the IRS approves the requested modification. Partnership's 
total netted partnership adjustment is reduced by $50 (the amount taken 
into account by B). Partnership's total netted partnership adjustment 
(determined in accordance with Sec.  301.6225-1) is $50, and the imputed 
underpayment, after modification, is $20.
    (6) Example 6. The facts are the same as in Example 3 in paragraph 
(f)(3) of this section, except that in addition to the modification with 
respect to tax-exempt entity C, which reduced the imputed underpayment 
by excluding from the determination of the imputed underpayment $25 of 
the $100 partnership adjustment reflected in the NOPPA, Partnership 
timely requests modification under paragraph (d)(2) of this section with 
respect to an amended return filed by individual D, and, in accordance 
with paragraph (d)(2)(iii) of this section, Partnership's partnership 
representative provides the IRS with documentation demonstrating that D 
filed the 2019 return and paid all tax and interest due. D's amended 
return for D's 2019 taxable year takes into account D's share of the 
partnership adjustment (50 percent of B's 50 percent interest in 
Partnership, or $25) and D paid the tax and interest due as a result of 
taking into account D's share of the partnership adjustment in 
accordance with paragraph (d)(2) of this section. No tax attribute in 
any other taxable year of D is affected by D taking into account D's 
share of the partnership adjustment for 2019. The IRS approves the 
modification and the $25 increase in ordinary income allocable to D is 
not included in the calculation of the total netted partnership 
adjustment (determined in accordance with Sec.  301.6225-1). As a 
result, Partnership's total netted partnership adjustment is $50 ($100, 
less $25 allocable to C, less $25 taken into account by D), and the 
imputed underpayment, after modification, is $20.
    (7) Example 7. The IRS initiates an administrative proceeding with 
respect to Partnership's 2019 taxable year. All

[[Page 256]]

of Partnership's partners during its 2019 taxable year are individuals. 
The IRS mails a NOPPA to Partnership for the 2019 taxable year proposing 
three partnership adjustments. The first partnership adjustment is an 
increase to ordinary income of $75 for 2019. The second partnership 
adjustment is an increase in the depreciation deduction allowed for 2019 
of $25, which under Sec.  301.6225-1(d)(2)(i) is treated as a $25 
decrease in income. The third adjustment is an increase in long-term 
capital gain of $10 for 2019. Under the partnership agreement in effect 
for Partnership's 2019 taxable year, the long-term capital gain and the 
increase in depreciation would be specially allocated to B and the 
increase in ordinary income would be specially allocated to A. In 
accordance with Sec.  301.6225-1(c) and (d), the three adjustments are 
placed into three separate subgroupings within the residual grouping 
because the partnership adjustments would not have been netted at the 
partnership level and would not have been required to be allocated to 
the partners of the partnership as a single, net partnership-related 
item for purposes of section 702(a), other provisions of the Code, 
regulations, forms, instructions, or other guidance prescribed by the 
IRS. Accordingly, the total netted partnership adjustment is $85 ($75 
net positive adjustment to ordinary income plus $10 net positive 
adjustment to long term capital gain), and the imputed under payment is 
$34 ($85 multiplied by 40 percent). The net negative adjustment to 
depreciation is an adjustment that does not result in an imputed 
underpayment subject to treatment under Sec.  301.6225-3. Partnership 
requests a modification under paragraph (d)(6) of this section to 
determine a specific imputed underpayment with respect to the $75 
adjustment to ordinary income allocated to A. The specific imputed 
underpayment is with respect to $75 of the increase in income specially 
allocated to A and the general imputed underpayment is with respect to 
$10 of the increase in capital gain and the $25 increase in depreciation 
deduction specially allocated to B. If the modification is approved by 
the IRS, the specific imputed underpayment would consist of the $75 
increase in ordinary income, and thus the total netted partnership 
adjustment for the specific imputed underpayment would be $75. The 
specific imputed underpayment is thus $30 ($75 multiplied by 40 
percent). The general imputed underpayment would consist of two 
adjustments: The long term capital gain adjustment and the depreciation 
adjustment. The long term capital gain adjustment and the depreciation 
adjustment would be placed in different subgroupings under Sec.  
301.6225-1(d) because they are treated separately under section 702. 
Accordingly, the long term capital gain adjustment and the depreciation 
adjustment are not netted, and the long term capital gain adjustment 
would be a net positive adjustment while the depreciation adjustment 
would be a net negative adjustment. The long term capital gain net 
positive adjustment would be the only net positive adjustment, resulting 
in a total netted partnership adjustment of $10. The general imputed 
underpayment is $4 ($10 multiplied by 40 percent), and the net negative 
adjustment to depreciation of $25 would be an adjustment that does not 
result in an imputed underpayment under Sec.  301.6225-1(f) associated 
with the general imputed underpayment.
    (8) Example 8. Partnership has two reviewed year partners, C1 and 
C2, both of which are C corporations. The IRS mails to Partnership a 
NOPPA with two adjustments, both based on rental real estate activity. 
The first adjustment is an increase of rental real estate income of $100 
attributable to Property A. The second adjustment is an increase of 
rental real estate loss of $30 attributable to Property B. The 
Partnership did not treat the leasing arrangement with respect to 
Property A and Property B as an appropriate economic unit for purposes 
of section 469. If the $100 increase in income attributable to Property 
A and the $30 increase in loss attributable to Property B were included 
in the same subgrouping and netted, then taking the $30 increase in loss 
into account would result in a decrease in the amount of the imputed 
underpayment. Also, the $30 increased loss might be limited or 
restricted if taken into account by any person under the passive 
activity rules under section 469. For instance, under

[[Page 257]]

section 469, rental activities of the two properties could be treated as 
two activities, which could limit a partner's ability to claim the loss. 
In addition to the potential limitations under section 469, there are 
other potential limitations that might apply if the $30 loss were taken 
into account by any person. Therefore, in accordance with Sec.  
301.6225-1(d), the two adjustments are placed in separate subgroupings 
within the residual grouping, the total netted partnership adjustment is 
$100, the imputed underpayment is $40 ($100 x 40 percent), and the $30 
increase in loss is an adjustment that does not result in an imputed 
underpayment under Sec.  301.6225-1(f). Partnership requests 
modification under paragraph (d)(6) of this section, substantiating to 
the satisfaction of the IRS that C1 and C2 are publicly traded C 
corporations, and therefore, the passive activity loss limitations under 
section 469 of the Code do not apply. Partnership also substantiates to 
the satisfaction of the IRS that no other limitation or restriction 
applies that would prevent the grouping of the $100 with the $30 loss. 
The IRS approves Partnership's modification request and places the $100 
of income and the $30 loss into the subgrouping in the residual grouping 
under the rules described in Sec.  301.6225-1(c)(5). Under Sec.  
301.6225-1(e), because the two adjustments are in one subgrouping, they 
are netted together, resulting in a total netted partnership adjustment 
of $70 ($100 plus -$30) and an imputed underpayment of $28 ($70 x 40 
percent). After modification, none of the adjustments is an adjustment 
that does not result in an imputed underpayment under Sec.  301.6225-
1(f) because the $30 loss is now netted with the $100 of income in a net 
positive adjustment for the residual grouping.

    (g) Applicability date--(1) In general. Except as provided in 
paragraph (g)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6539, Feb. 27, 2019]



Sec.  301.6225-3  Treatment of partnership adjustments that do not result 
in an imputed underpayment.

    (a) In general. Partnership adjustments (as defined in Sec.  
301.6241-1(a)(6)) that do not result in an imputed underpayment (as 
described in Sec.  301.6225-1(f)) are taken into account by a 
partnership in the adjustment year (as defined in Sec.  301.6241-
1(a)(1)) in accordance with paragraph (b) of this section.
    (b) Treatment of adjustments by the partnership--(1) In general. 
Except as described in paragraphs (b)(2) through (7) of this section, a 
partnership adjustment that does not result in an imputed underpayment 
is taken into account as a reduction in non-separately stated income or 
as an increase in non-separately stated loss for the adjustment year 
depending on whether the adjustment is to a partnership-related item 
that is an item of income or loss.
    (2) Separately stated items. In the case of a partnership adjustment 
to partnership-related item that is required to be separately stated 
under section 702, the adjustment is taken into account by the 
partnership in the adjustment year as a reduction in such separately 
stated item or as an increase in such separately stated item depending 
on whether the adjustment is a reduction or an increase to the 
separately stated item.
    (3) Credits. In the case of an adjustment to a partnership-related 
item that is reported or could be reported by a partnership as a credit 
on the partnership's return for the reviewed year (as defined in Sec.  
301.6241-1(a)(8)), the adjustment is taken into account by the 
partnership in the adjustment year as a separately stated item.
    (4) Reallocation adjustments. A partnership adjustment that 
reallocates a partnership-related item to or from a particular partner 
or partners that also does not result in an imputed underpayment 
pursuant to Sec.  301.6225-1(f) is taken into account by the partnership 
in the adjustment year as a separately stated item or a non-separately 
stated item, as required by section 702. Except as provided in forms, 
instructions, and

[[Page 258]]

other guidance prescribed by the Internal Revenue Service (IRS), the 
portion of an adjustment allocated under this paragraph (b)(4) is 
allocated to adjustment year partners (as defined in Sec.  301.6241-
1(a)(2)) who are also reviewed year partners (as defined in Sec.  
301.6241-1(a)(9)) with respect to whom the amount was reallocated.
    (5) Adjustments taken into account by partners as part of the 
modification process. If, as part of modification under Sec.  301.6225-
2, a relevant partner (as defined in Sec.  301.6225-2(a)) takes into 
account a partnership adjustment that does not result in an imputed 
underpayment, and the IRS approves the modification, such partnership 
adjustment is not taken into account by the partnership in the 
adjustment year in accordance with Sec.  301.6225-1(a).
    (6) Effect of election under section 6226. If a partnership makes a 
valid election under Sec.  301.6226-1 with respect to an imputed 
underpayment, a partnership adjustment that does not result in an 
imputed underpayment and that is associated with such imputed 
underpayment as described in Sec.  301.6225-1(g) is taken into account 
by the reviewed year partners in accordance with Sec.  301.6226-3 and is 
not taken into account under this section.
    (7) Adjustments taken into account previously by partners. If, prior 
to the mailing of a notice of administrative proceeding by the IRS or 
the filing of an administrative adjustment request by the partnership, a 
partner has previously taken into account an adjustment that does not 
result in an imputed underpayment that would have been taken into 
account under this section, such partnership adjustment is not taken 
into account by such partner.
    (c) Treatment of adjustment year partners. The rules under 
subchapter K of chapter 1 of the Internal Revenue Code with respect to 
the treatment of partners apply in the case of adjustments taken into 
account by the partnership under this section.
    (d) Examples. The following examples illustrate the rules of this 
section. For purposes of these examples, unless otherwise provided, each 
partnership is subject to the provisions of subchapter C of chapter 63 
of the Internal Revenue Code, each partnership and its relevant partners 
are calendar year taxpayers, all relevant partners are U.S. persons 
(unless otherwise stated), the highest rate of income tax in effect for 
all taxpayers is 40 percent for all relevant periods, and no partnership 
requests modification.

    (1) Example 1. For all of Partnership's 2019, 2020, and 2021 
partnership taxable years, Partnership has two equal partners, A and B. 
The IRS initiates an administrative proceeding with respect to 
Partnership's 2019 partnership taxable year. The IRS mails a notice of 
proposed partnership adjustment (NOPPA) to Partnership for the 2019 
partnership taxable year proposing a recharacterization adjustment, 
changing a $100 ordinary loss to a $100 long term capital loss. Under 
Sec.  301.6225-1, this recharacterization adjustment results in two 
adjustments: A $100 increase to ordinary income (positive adjustment) 
and a -$100 decrease in long term capital gain (negative adjustment). 
Under Sec.  301.6225-1(b), the $100 positive adjustment is the total 
netted partnership adjustment, which is multiplied by the highest rate 
of 40 percent, resulting in a $40 imputed underpayment. Under Sec.  
301.6225-1(f), the -$100 negative adjustment is an adjustment that does 
not result in an imputed underpayment and is taken into account in 
accordance with this section. On March 1, 2021, the IRS mails a notice 
of final partnership adjustment (FPA), and because Partnership does not 
file a petition for readjustment with respect to the FPA, the 
adjustments are finally determined in 2021, and the adjustment year is 
determined to be 2021 pursuant to Sec.  301.6241-1(a)(1). Pursuant to 
paragraph (a) of this section, Partnership takes into account the -$100 
adjustment that does not result in an imputed underpayment on its 2021 
partnership return. In addition to the -$100 adjustment to partnership's 
2019 taxable year taken into account under this section, Partnership has 
an additional $300 in long term capital gain reportable in its 2021 
taxable year. The -$100 negative adjustment and the $300 long term 
capital gain are Partnership's only long term capital gains and losses 
for its 2021 taxable year. Because the -$100 net negative adjustment is

[[Page 259]]

an adjustment to long term capital gain, which is a separately stated 
item under section 702(a)(2), the -$100 negative adjustment must be 
taken into account in accordance with paragraph (b)(2) of this section. 
Partnership includes both the -$100 negative adjustment and the $300 in 
long term capital gain as separately stated items on its 2021 tax 
return.
    (2) Example 2. The facts are the same as in Example 1 in paragraph 
(d)(1) of this section, except that the IRS proposes a reallocation 
adjustment instead of a recharacterization adjustment. The IRS 
determines that the -$100 ordinary loss that the Partnership allocated 
equally to A and B should instead all be allocated all to A. The IRS 
mails a NOPPA for the 2019 partnership taxable year proposing a 
reallocation adjustment resulting in a $50 increase in ordinary loss 
allocated to A (negative adjustment) and a $50 decrease in ordinary loss 
allocated to B (positive adjustment). Because the adjustments are the 
result of a reallocation, they are placed in separate subgroupings 
pursuant to Sec.  301.6225-1(d). Because the adjustments are in 
different subgroupings, the adjustments are not netted under Sec.  
301.6225-1(e), resulting in a net negative adjustment of -$50 allocated 
to A and a net positive adjustment of $50 to B. Pursuant to Sec.  
301.6225-1(b), the total netted partnership adjustment includes the $50 
net positive adjustment, and the imputed underpayment is $20 ($50 total 
netted partnership adjustment x 40 percent). Pursuant to Sec.  301.6225-
1(f), the -$50 net negative adjustment is an adjustment that does not 
result in an imputed underpayment and is taken into account in 
accordance with this section. On March 1, 2021, the IRS mails an FPA, 
and because Partnership does not file a petition for readjustment with 
respect to the FPA, the adjustments are finally determined in 2021, and 
the adjustment year is determined to be 2021 pursuant to Sec.  301.6241-
1(a)(1). Pursuant to paragraph (a) of this section, Partnership takes 
into account the -$50 adjustment that does not result in an imputed 
underpayment on its 2021 partnership return. In addition to the -$50 net 
negative adjustment to partnership's 2019 taxable year taken into 
account under this section, Partnership also has an additional $300 in 
ordinary income reportable in its 2021 taxable year unrelated to the 
administrative proceeding with respect to Partnership's 2019 partnership 
taxable year. Because the -$50 net negative adjustment is due to a 
reallocation, the adjustment must be taken into account under paragraph 
(b)(4) of this section. Because the net negative adjustment was 
determined to have been entirely allocable to A, and because A was a 
reviewed year partner and is also an adjustment year partner, the net 
negative adjustment is taken into account by Partnership by allocating 
the entire adjustment to A on its 2021 tax return. The -$50 negative 
adjustment does not reduce the $300 in ordinary income.

    (e) Applicability date--(1) In general. Except as provided in 
paragraph (e)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6547, Feb. 27, 2019]



Sec.  301.6226-1  Election for an alternative to the payment 
of the imputed underpayment.

    (a) In general. A partnership may elect under this section an 
alternative to the payment by the partnership of an imputed underpayment 
determined under section 6225. In addition, a partnership making a valid 
election under paragraph (c) of this section is no longer liable for the 
imputed underpayment (as defined in Sec.  301.6241-1(a)(3)) to which the 
election applies. If a notice of final partnership adjustment (FPA) 
mailed under section 6231 includes more than one imputed underpayment 
(as described in Sec.  301.6225-1(g)), a partnership may make an 
election under this section with respect to one or more imputed 
underpayments included in the FPA.
    (b) Effect of election--(1) Reviewed year partners. If a partnership 
makes a valid election under this section with respect

[[Page 260]]

to any imputed underpayment, the reviewed year partners (as defined in 
Sec.  301.6241-1(a)(9)) must take into account their share of the 
partnership adjustments (as defined in Sec.  301.6241-1(a)(6)) that are 
associated with that imputed underpayment and are liable for any tax, 
penalties, additions to tax, additional amounts, and interest as 
described in Sec.  301.6226-3. See Sec.  301.6226-2(f) regarding the 
determination of each reviewed year partner's share of the partnership 
adjustments, including the effect of any modification approved by the 
Internal Revenue Service (IRS) under Sec.  301.6225-2.
    (2) Partnership. A partnership making a valid election under this 
section is not liable for the imputed underpayment to which the election 
applies (and no assessment of tax, levy, or proceeding in any court for 
the collection of such imputed underpayment may be made against such 
partnership). Any adjustments that do not result in an imputed 
underpayment described in Sec.  301.6225-1(f) that are associated with 
an imputed underpayment (as described in Sec.  301.6225-1(g)) for which 
an election under this section is made are not taken into account by the 
partnership in the adjustment year (as defined in Sec.  301.6241-
1(a)(1)) and instead each reviewed year partners' share of the 
adjustments determined in accordance with Sec.  301.6226-2(f) must be 
included on the statement described in Sec.  301.6226-2.
    (c) Time, form, and manner for making the election--(1) In general. 
An election under this section is valid only if all of the provisions of 
this section and Sec.  301.6226-2 (regarding statements filed with the 
IRS and furnished to reviewed year partners) are satisfied. An election 
under this section is valid until the IRS determines that the election 
is invalid. An election under this section may only be revoked with the 
consent of the IRS.
    (2) Time for making the election. An election under this section 
must be filed within 45 days of the date the FPA is mailed by the IRS. 
The time for filing such an election may not be extended.
    (3) Form and manner of the election--(i) In general. An election 
under this section must be signed by the partnership representative and 
filed in accordance with forms, instructions, and other guidance 
prescribed by the IRS and include the information specified in paragraph 
(c)(3)(ii) of this section.
    (ii) Contents of the election. An election under this section must 
include the following correct information--
    (A) The name, address, and taxpayer identification number (TIN) of 
the partnership;
    (B) The taxable year to which the election relates;
    (C) A copy of the FPA to which the election relates;
    (D) In the case of an FPA that includes more than one imputed 
underpayment, identification of the imputed underpayment to which the 
election applies;
    (E) The name and TIN (or alternative form of identification as 
prescribed by forms, instructions, or other guidance) of each reviewed 
year partner of the partnership;
    (F) The current or last address of each reviewed year partner that 
is known to the partnership; and
    (G) Any other information prescribed by the IRS in forms, 
instructions, and other guidance.
    (d) Determining an election is invalid. The IRS may determine an 
election to be invalid without first notifying the partnership or 
providing the partnership an opportunity to correct any failure to 
satisfy all of the provisions of this section and Sec.  301.6226-2. If 
an election under this section is determined by the IRS to be invalid, 
the IRS will notify the partnership and the partnership representative 
within 30 days of the determination that the election is invalid and the 
reason for the determination that the election is invalid. If the IRS 
makes a determination that an election under this section is invalid, 
section 6225 applies with respect to the imputed underpayment as if the 
election was never made, the IRS may assess the imputed underpayment 
against the partnership (without regard to the limitations under section 
6232(b)), and the partnership must pay the imputed underpayment under 
section 6225 and any penalties and interest under section 6233. The IRS 
may not determine that an election is invalid based on errors timely 
corrected by the

[[Page 261]]

partnership in accordance with Sec.  301.6226-2(d).
    (e) Binding nature of statements. The election under this section, 
which includes filing and furnishing statements described in Sec.  
301.6226-2, are actions of the partnership under section 6223 and, 
unless determined otherwise by the IRS, the partner's share of the 
adjustments and the applicability of any penalties, additions to tax, 
and additional amounts as set forth in the statement are binding on the 
partner pursuant to section 6223. Accordingly, a partner may not treat 
any partnership-related items (as defined in Sec.  301.6241-1(a)(6)(ii)) 
reflected on a statement described in Sec.  301.6226-2 on the partner's 
return inconsistently with how those items are treated on the statement 
that is filed with the IRS. See Sec.  301.6222-1(c)(2) (regarding 
partnership-related items the treatment of which a partner is bound to 
under section 6223).
    (f) Coordination with section 6234 regarding judicial review. 
Nothing in this section affects the rules regarding judicial review of a 
partnership adjustment. Accordingly, a partnership that makes an 
election under this section is not precluded from filing a petition 
under section 6234(a). See Sec.  301.6226-2(b)(3)(iii).
    (g) Applicability date--(1) In general. Except as provided in 
paragraph (g)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6548, Feb. 27, 2019]



Sec.  301.6226-2  Statements furnished to partners and filed with the IRS.

    (a) In general. A partnership that makes an election under Sec.  
301.6226-1 must furnish to each reviewed year partner (as defined in 
Sec.  301.6241-1(a)(9)) and file with the Internal Revenue Service (IRS) 
a statement that includes the items required by paragraphs (e) and (f) 
of this section with respect to each reviewed year partner's share of 
partnership adjustments (as defined in Sec.  301.6241-1(a)(6)) 
associated with the imputed underpayment for which an election under 
Sec.  301.6226-1 is made. The statements furnished to the reviewed year 
partners under this section are in addition to, and must be filed and 
furnished separate from, any other statements required to be filed with 
the IRS and furnished to partners, including any statements under 
section 6031(b). A separate statement under this section must be 
furnished to each reviewed year partner with respect to each reviewed 
year (as defined in Sec.  301.6241-1(a)(8)) subject to an election under 
Sec.  301.6226-1. A failure to furnish a correct statement in accordance 
with this section is subject to penalty under section 6722. See section 
6724(d)(2).
    (b) Time and manner for furnishing the statements to partners--(1) 
In general. The statements described in paragraph (a) of this section 
must be furnished to the reviewed year partners no later than 60 days 
after the date all of the partnership adjustments to which the statement 
relates are finally determined. The partnership adjustments are finally 
determined upon the later of:
    (i) The expiration of the time to file a petition under section 
6234; or
    (ii) If a petition under section 6234 is filed, the date when the 
court's decision becomes final.
    (2) Address used for reviewed year partners. The partnership must 
furnish the statements described in paragraph (a) of this section to 
each reviewed year partner in accordance with the forms, instructions, 
and other guidance prescribed by the IRS. If the partnership mails the 
statement, it must mail the statement to the current or last address of 
the reviewed year partner that is known to the partnership. If a 
statement is returned to the partnership as undeliverable, the 
partnership must undertake reasonable diligence to identify a correct 
address for the reviewed year partner to which the statement relates 
and, if a correct address is identified, mail the statement to the 
reviewed year partner at the correct address.
    (3) Examples. The following examples illustrate the rules of this 
paragraph (b).


[[Page 262]]


    (i) Example 1. During Partnership's 2020 taxable year, A, an 
individual, was a partner in Partnership and had an address at 123 Main 
St. On February 1, 2021, A sells his interest in Partnership and informs 
Partnership that A moved to 456 Broad St. On March 15, 2021, Partnership 
mails A's statement under section 6031(b) for the 2020 taxable year to 
456 Broad St. On June 1, 2023, A moves again but does not inform 
Partnership of A's new address. In 2023, the IRS initiates an 
administrative proceeding with respect to Partnership's 2020 taxable 
year and mails a notice of final partnership adjustment (FPA) to 
Partnership for that year that includes a single imputed underpayment. 
Partnership makes a timely election under section 6226 in accordance 
with Sec.  301.6226-1 with respect to the imputed underpayment and on 
May 31, 2024, timely mails a statement described in paragraph (a) of 
this section to A at 456 Broad St. Although the statement was mailed to 
the last address for A that was known to Partnership, it is returned to 
Partnership as undeliverable because unknown to Partnership, A had 
moved. After undertaking reasonable diligence to obtain the correct 
address of A, Partnership is unable to ascertain the correct address. 
Therefore, pursuant to paragraph (b)(2) of this section, Partnership 
properly furnished the statement to A when it mailed the statement to 
456 Broad St.
    (ii) Example 2. The facts are the same as in Example 1 in paragraph 
(b)(3)(i) of this section, except that A lives at 789 Forest Ave during 
all of 2024 and reasonable diligence would have revealed that 789 Forest 
Ave is the correct address for A, but Partnership did not undertake such 
diligence. Because the statement was returned as undeliverable and 
Partnership did not undertake reasonable diligence to obtain the correct 
address for A, Partnership failed to properly furnish the statement with 
respect to A pursuant to paragraph (b)(2) of this section.
    (iii) Example 3. Partnership is a calendar year taxpayer. The IRS 
initiates an administrative proceeding with respect to Partnership's 
2020 taxable year. On January 1, 2024, the IRS mails an FPA with respect 
to the 2020 taxable year to Partnership that includes a single imputed 
underpayment. Partnership makes a timely election under section 6226 in 
accordance with Sec.  301.6226-1 with respect to the imputed 
underpayment. Partnership timely files a petition for readjustment under 
section 6234 with the Tax Court. The IRS prevails, and the Tax Court 
sustains all of the adjustments in the FPA with respect to the 2020 
taxable year. The time to appeal the Tax Court decision expires, and the 
Tax Court decision becomes final on April 10, 2025. Under paragraph 
(b)(1)(ii) of this section, the adjustments in the FPA are finally 
determined on April 10, 2025, and Partnership must furnish the 
statements described in paragraph (a) of this section to its reviewed 
year partners and electronically file the statements with the IRS no 
later than June 9, 2025. See paragraph (c) of this section for the rules 
regarding filing the statements with the IRS.

    (c) Time and manner for filing the statements with the IRS. No later 
than 60 days after the date the partnership adjustments are finally 
determined (as described in paragraph (b)(1) of this section), the 
partnership must electronically file with the IRS the statements that 
the partnership furnishes to each reviewed year partner under this 
section, along with a transmittal that includes a summary of the 
statements filed and such other information required in forms, 
instructions, and other guidance prescribed by the IRS.
    (d) Correction of statements--(1) In general. A partnership corrects 
an error in a statement furnished under paragraph (b) of this section or 
filed under paragraph (c) of this section by filing the corrected 
statement with the IRS in the manner prescribed in paragraph (c) of this 
section and furnishing a copy of the corrected statement to the reviewed 
year partner to whom the statement relates in accordance with the forms, 
instructions, and other guidance prescribed by the IRS.
    (2) Error discovered by partnership--(i) Discovery within 60 days of 
statement due date. If a partnership discovers an error in a statement 
within 60 days of the due date for furnishing the statements to partners 
and filing the statements with the IRS (as described in paragraphs (b) 
and (c) of this section and

[[Page 263]]

Sec.  301.6226-3(e)(3)(ii)), the partnership must correct the error in 
accordance with paragraph (d)(1) of this section and does not have to 
seek consent of the IRS prior to doing so.
    (ii) Error discovered more than 60 days after statement due date. If 
a partnership discovers an error more than 60 days after the due date 
for furnishing the statements to partners and filing the statements with 
the IRS (as described in paragraphs (b) and (c) of this section and 
Sec.  301.6226-3(e)(3)(ii)), the partnership may only correct the error 
after receiving consent of the IRS in accordance with the forms, 
instructions, and other guidance prescribed by the IRS. The partnership 
may not furnish corrected statements unless it receives consent of the 
IRS to make the correction.
    (3) Error discovered by the IRS. If the IRS discovers an error in 
the statements furnished or filed under paragraphs (b) and (c) of this 
section and Sec.  301.6226-3(e)(3) or the IRS cannot determine whether 
the statements furnished or filed by the partnership are correct because 
of a failure by the partnership to comply with any requirement under 
this section or Sec.  301.6226-3(e), the IRS may require the partnership 
to correct such errors in accordance with paragraph (d)(1) of this 
section or to provide additional information as necessary. Failure by 
the partnership to correct an error or to provide information when 
required by the IRS may be treated by the IRS as a failure to properly 
furnish correct statements to partners and file the correct statements 
with the IRS as described in paragraphs (b) and (c) of this section or 
in Sec.  301.6226-3(e)(3). Whether the IRS requires the partnership to 
correct any errors discovered by the IRS or provide additional 
information is discretionary on the part of the IRS and the IRS is under 
no obligation to require the partnership to provide additional 
information or to correct any errors discovered or brought to the IRS's 
attention at any time.
    (4) Adjustments in the corrected statements taken into account by 
the reviewed year partners. The adjustments included on a corrected 
statement are taken into account by a reviewed year partner in 
accordance with Sec.  301.6226-3 for the reporting year (as defined in 
Sec.  301.6226-3(a)).
    (e) Content of the statements. Each statement described in paragraph 
(a) of this section must include the following correct information:
    (1) The name and TIN (or alternative form of identification as 
prescribed by forms, instructions, or other guidance) of the reviewed 
year partner to whom the statement is being furnished;
    (2) The current or last address of the reviewed year partner that is 
known to the partnership;
    (3) The reviewed year partner's share of items as originally 
reported for the reviewed year to the partner on statements furnished to 
the partner under section 6031(b) and, if applicable, section 6227;
    (4) The reviewed year partner's share of partnership adjustments 
determined under paragraph (f)(1) of this section;
    (5) Modifications approved by the IRS with respect to the reviewed 
year partner (or with respect to any indirect partner (as defined in 
Sec.  301.6241-1(a)(4)) that holds its interest in the partnership 
through its interest in the reviewed year partner);
    (6) The applicability of any penalty, addition to tax, or additional 
amount determined at the partnership level that relates to any 
adjustments allocable to the reviewed year partner and the adjustments 
to which the penalty, addition to tax, or additional amount relates, the 
section of the Internal Revenue Code (Code) under which each penalty, 
addition to tax, or additional amount is imposed, and the applicable 
rate of each penalty, addition to tax, or additional amount determined 
at the partnership level;
    (7) The date the statement is furnished to the reviewed year 
partner;
    (8) The partnership taxable year to which the adjustments relate; 
and
    (9) Any other information required by forms, instructions, and other 
guidance prescribed by the IRS.
    (f) Determination of each partner's share of adjustments--(1) 
Adjustments and other amounts--(i) In general. Except as described in 
paragraph (f)(1)(ii) or (iii) or (f)(2) of this section, the adjustments 
set forth in the statement described in paragraph (a) of this section 
are reported to the reviewed year

[[Page 264]]

partner in the same manner as each adjusted partnership-related item was 
originally allocated to the reviewed year partner on the partnership 
return for the reviewed year.
    (ii) Adjusted partnership-related item not reported on the 
partnership's return for the reviewed year. Except as described in 
paragraph (f)(1)(iii) of this section, if the adjusted partnership-
related item was not reported on the partnership return for the reviewed 
year, each reviewed year partner's share of the adjustments must be 
determined in accordance with how such partnership-related items would 
have been allocated under rules that apply with respect to partnership 
allocations, including under the partnership agreement.
    (iii) Adjustments that specifically allocate items. If an adjustment 
involves an allocation of a partnership-related item to a specific 
partner or in a specific manner, including a reallocation of such an 
item, the reviewed year partner's share of the adjustment set forth in 
the statement is determined in accordance with the adjustment as finally 
determined (as described in paragraph (b)(1) of this section).
    (2) Treatment of modifications disregarded. Any modifications 
approved by the IRS with respect to the reviewed year partner (or with 
respect to any indirect partner that holds its interest in the 
partnership through its interest in the reviewed year partner) under 
Sec.  301.6225-2 are disregarded for purposes of determining each 
partner's share of the adjustments under paragraph (f)(1) of this 
section.
    (g) Coordination with other provisions under subtitle A of the 
Code--(1) Statements furnished to qualified investment entities 
described in section 860. If a reviewed year partner is a qualified 
investment entity within the meaning of section 860(b) and the partner 
receives a statement described in paragraph (a) of this section, the 
partner may be able to avail itself of the deficiency dividend procedure 
described in Sec.  301.6226-3(b)(4).
    (2) Liability for tax under section 7704(g)(3). An election under 
this section has no effect on a partnership's liability for any tax 
under section 7704(g)(3) (regarding the exception for electing 1987 
partnerships from the general rule that certain publicly traded 
partnerships are treated as corporations).
    (3) Adjustments subject to chapters 3 and 4 of the Internal Revenue 
Code. A partnership that makes an election under Sec.  301.6226-1 with 
respect to an imputed underpayment must pay the amount of tax required 
to be withheld under chapter 3 or chapter 4, if any, in accordance with 
Sec.  301.6241-6(b)(4).
    (h) Applicability date--(1) In general. Except as provided in 
paragraph (h)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6549, Feb. 27, 2019]



Sec.  301.6226-3  Adjustments taken into account by partners.

    (a) Effect of taking adjustments into account on tax imposed by 
chapter 1. Except as otherwise provided in this section, the tax imposed 
by chapter 1 of the Internal Revenue Code (chapter 1 tax) for each 
reviewed year partner (as defined in Sec.  301.6241-1(a)(9)) for the 
taxable year that includes the date a statement was furnished in 
accordance with Sec.  301.6226-2 (the reporting year) is increased by 
the additional reporting year tax, or if the additional reporting year 
tax is less than zero, decreased by such amount. The additional 
reporting year tax is the aggregate of the correction amounts 
(determined in accordance with paragraph (b) of this section). In 
addition to being liable for the additional reporting year tax, a 
reviewed year partner must also calculate and pay for the reporting year 
any penalties, additions to tax, and additional amounts (as determined 
under paragraph (d) of this section). Finally, a reviewed year partner 
must also calculate and pay for the reporting year any interest (as 
determined under paragraph (c) of this section).
    (b) Determining the aggregate of the correction amounts--(1) In 
general. For

[[Page 265]]

purposes of paragraph (a) of this section, the aggregate of the 
correction amounts is the sum of the correction amounts described in 
paragraphs (b)(2) and (3) of this section. A correction amount under 
paragraph (b)(2) or (3) of this section may be less than zero, and any 
correction amount that is less than zero may reduce any other correction 
amount with the result that the aggregate of the correction amounts 
under this paragraph (b)(1) may also be less than zero. However, nothing 
in this section entitles any partner to a refund of chapter 1 tax to 
which such partner is not entitled. See paragraphs (c) and (d) of this 
section requiring a separate determination of interest and penalties, 
additions to tax, and additional amounts on the correction amount for 
each applicable taxable year (as defined in paragraph (c)(1) of this 
section) without regard to the correction amount for any other 
applicable taxable year.
    (2) Correction amount for the first affected year--(i) In general. 
The correction amount for the taxable year of the partner that includes 
the end of the reviewed year (the first affected year) is the amount by 
which the reviewed year partner's chapter 1 tax would increase or 
decrease for the first affected year if the partner's taxable income for 
such year was recomputed by taking into account the reviewed year 
partner's share of the partnership adjustments (as defined in Sec.  
301.6241-1(a)(6)) reflected on the statement described in Sec.  
301.6226-2 with respect to the partner.
    (ii) Calculation of the correction amount for the first affected 
year. The correction amount is the amount of chapter 1 tax that would 
have been imposed for the first affected year if the items as adjusted 
in the statement described in Sec.  301.6226-2 had been reported as such 
on the return for the first affected year less the sum of:
    (A) The amount of chapter 1 tax shown by the partner on the return 
for the first affected year (which includes amounts shown on an amended 
return for such year, including an amended return filed under section 
6225(c)(2) by the reviewed year partner); plus
    (B) Amounts not included in paragraph (b)(2)(ii)(A) of this section 
but previously assessed or collected (including the amounts defined in 
Sec.  1.6664-2(d) of this chapter and any amounts paid by the partner in 
accordance with Sec.  301.6225-2); less
    (C) The amount of rebates made (as defined in Sec.  1.6664-2(e) of 
this chapter).
    (iii) Formulaic expression of the correction amount for the first 
affected year. The correction amount also may be expressed as--

Correction amount = A-(B + C-D)

Where:

A = the amount of chapter 1 tax that would have been imposed had the 
          items as adjusted been properly reported on the return for the 
          first affected year;
B = the amount shown as chapter 1 tax on the return for the first 
          affected year (taking into account amended returns);
C = amounts previously assessed or collected; and
D = the amount of rebates made.

    (3) Correction amount for the intervening years--(i) In general. The 
correction amount for all taxable years after the first affected year 
and before the reporting year (the intervening years) is the aggregate 
of the correction amounts determined for each intervening year. 
Determining the correction amount for each intervening year is a year-
by-year determination. The correction amount for each intervening year 
is the amount by which the reviewed year partner's chapter 1 tax for 
such year would increase or decrease if the partner's taxable income for 
such year was recomputed by taking into account any adjustments to tax 
attributes (as defined in Sec.  301.6241-1(a)(10)) of the partner under 
paragraph (b)(3) of this section.
    (ii) Calculation of the correction amount for the intervening years. 
The correction amount for each intervening year is the amount of chapter 
1 tax that would have been imposed for the intervening year if any tax 
attribute of the partner for the intervening year had been adjusted 
after taking into account the reviewed year partner's share of the 
adjustments for the first affected year as described in paragraph (b)(2) 
of this section (and if any tax attribute of the partner for the 
intervening year had been adjusted, after taking into account any 
adjustments to tax attributes of the partner in any

[[Page 266]]

prior intervening year(s)) exceeds less the sum of--
    (A) The amount of chapter 1 tax shown by the partner on the return 
for the intervening year (which includes amounts shown on an amended 
return for such year, including an amended return filed under section 
6225(c)(2) by a reviewed year partner); plus
    (B) Amounts not included in paragraph (b)(3)(ii)(A) of this section 
but previously or collected (including the amounts defined in Sec.  
1.6664-2(d) of this chapter and any amounts paid by the partner in 
accordance with Sec.  301.6225-2); less
    (C) The amount of rebates made (as defined in Sec.  1.6664-2(e) of 
this chapter).
    (iii) Formulaic expression of the correction amount for the 
intervening years. The correction amount also may be expressed as--

Correction amount = A-(B + C-D)

Where:

A = the amount of chapter 1 tax that would have been imposed for the 
          intervening year;
B = the amount shown as chapter 1 tax on the return for the intervening 
          year (taking into account amended returns);
C = amounts previously assessed or collected; and
D = the amount of rebates made.

    (4) Coordination of sections 860 and 6226. If a qualified investment 
entity (QIE) within the meaning of section 860(b) receives a statement 
described in Sec.  301.6226-2(a) and correctly makes a determination 
within the meaning of section 860(e)(4) that one or more of the 
adjustments reflected in the statement is an adjustment within the 
meaning of section 860(d) with respect to that QIE for a taxable year, 
the QIE may distribute deficiency dividends within the meaning of 
section 860(f) for that taxable year and avail itself of the deficiency 
dividend procedures set forth in section 860. If the QIE utilizes the 
deficiency dividend procedures with respect to adjustments in a 
statement described in Sec.  301.6226-2(a), the QIE may claim a 
deduction for deficiency dividends against the adjustments furnished to 
the QIE in the statement in calculating any correction amounts under 
paragraphs (b)(2) and (3) of this section, and interest on such 
correction amounts under paragraph (c) of this section, to the extent 
that the QIE makes deficiency dividend distributions under section 
860(f) and complies with all requirements of section 860 and the 
regulations under part 1 of this chapter.
    (c) Interest--(1) Interest on the correction amounts. Interest on 
the correction amounts determined under paragraph (b) of this section is 
the aggregate of all interest calculated for each applicable taxable 
year in which there was a correction amount greater than zero at the 
rate set forth in paragraph (c)(3) of this section. For each applicable 
taxable year, interest on the correction amount is calculated from the 
due date (without extension) of the reviewed year partner's return for 
such applicable taxable year until the amount is paid. For purposes of 
this paragraph (c)(1), the term applicable taxable year means the 
reviewed year partner's taxable year affected by taking into account 
adjustments as described in paragraph (b) of this section (for instance, 
the first affected year and any intervening year in which there is a 
correction amount greater than zero). For purposes of calculating 
interest under this paragraph (c), a correction amount under paragraph 
(b)(2) or (3) of this section for an applicable taxable year that is 
less than zero does not reduce the correction amount for any other 
applicable taxable year.
    (2) Interest on penalties. Interest on any penalties, additions to 
tax, or additional amounts determined under paragraph (d) of this 
section is calculated at the rate set forth in paragraph (c)(3) of this 
section from the due date (including any extension) of the reviewed year 
partner's return for the applicable taxable year until the amount is 
paid.
    (3) Rate of interest. For purposes of paragraph (c) of this section, 
interest is calculated using the underpayment rate under section 
6621(a)(2) by substituting ``5 percentage points'' for ``3 percentage 
points'' in section 6621(a)(2)(B).
    (d) Penalties--(1) Applicability determined at the partnership 
level. In the case of a partnership that makes an election under section 
6226, the applicability of any penalty, addition to tax, and additional 
amount that relates to

[[Page 267]]

an adjustment to any partnership-related item is determined at the 
partnership level in accordance with section 6221(a). The partnership's 
reviewed year partners are liable for such penalties, additions to tax, 
and additional amounts as determined under paragraph (d)(2) of this 
section.
    (2) Amount calculated at partner level. A reviewed year partner 
calculates the amount of any penalty, addition to tax, or additional 
amount relating to the partnership adjustments taken into account under 
paragraph (b)(1) of this section as if the correction amount were an 
underpayment or understatement of the reviewed year partner for the 
first affected year or intervening year, as applicable. The calculation 
of any penalty, addition to tax, or additional amount is based on the 
characteristics of, and facts and circumstances applicable to, the 
reviewed year partner for the first affected year or intervening year, 
as applicable after taking into account the partnership adjustments 
reflected on the statement. If after taking into account the partnership 
adjustments in accordance with this section, the reviewed year partner 
does not have an underpayment, or has an understatement that falls below 
the applicable threshold for the imposition of a penalty, no penalty is 
due from that reviewed year partner under this paragraph (d)(2). For 
penalties in the case of a pass-through partner that makes a payment 
under paragraph (e)(4) of this section, see paragraph (e)(4)(iv) of this 
section.
    (3) Partner-level defenses to penalties. A reviewed year partner 
(including a pass-through partner (as defined in Sec.  301.6241-
1(a)(5))) claiming that a penalty, addition to tax, or additional amount 
that relates to a partnership adjustment reflected on a statement 
described in Sec.  301.6226-2 (or paragraph (e)(3) of this section) is 
not due because of a partner-level defense must first pay the penalty 
and file a claim for refund for the reporting year. Partner-level 
defenses are limited to those that are personal to the reviewed year 
partner (for example, a reasonable cause and good faith defense under 
section 6664(c) that is based on the facts and circumstances applicable 
to the partner).
    (e) Pass-through partners--(1) In general. Except as provided in 
paragraph (e)(6) of this section, if a pass-through partner is furnished 
a statement described in Sec.  301.6226-2 (including a statement 
described in paragraph (e)(3) of this section) with respect to 
adjustments of a partnership that made an election under Sec.  301.6226-
1 (audited partnership), the pass-through partner must file with the IRS 
a partnership adjustment tracking report in accordance with forms, 
instructions, or other guidance prescribed by the IRS on or before the 
due date described in paragraph (e)(3)(ii) of this section, and file and 
furnish statements in accordance with paragraph (e)(3) of this section. 
The pass-through partner must comply with paragraph (e) of this section 
with respect to each statement furnished to the pass-through partner.
    (2) Failure to file and furnish required documents--(i) Failure to 
timely file and furnish statements. If any pass-through partner fails to 
timely file and furnish correct statements in accordance with paragraph 
(e)(3) of this section, the pass-through partner must compute and pay an 
imputed underpayment, as well as any penalties, additions to tax, 
additional amounts, and interest with respect to the adjustments 
reflected on the statement furnished to the pass-through partner in 
accordance with paragraph (e)(4) of this section. The IRS may assess 
such imputed underpayment against such pass-through partner without 
regard to the limitations under section 6232(b). See Sec.  301.6232-
1(c)(2). A failure to furnish statements in accordance with paragraph 
(e)(3) of this section is treated as a failure to timely pay an imputed 
underpayment required under paragraph (e)(4)(i) of this section, unless 
the pass-through partner computes and pays an imputed underpayment in 
accordance with paragraph (e)(4) of this section. See section 6651(i).
    (ii) Failures relating to partnership adjustment tracking report. 
Failure to timely file the partnership adjustment tracking report as 
required in paragraph (e)(1) of this section, or filing such report 
without showing the information required under paragraph (e)(1) of this 
section, is subject to the penalty imposed by section 6698.

[[Page 268]]

    (3) Furnishing statements to partners--(i) In general. A pass-
through partner described in paragraph (e)(1) of this section must 
furnish a statement that includes the items required by paragraph 
(e)(3)(iii) of this section to each partner that held an interest in the 
pass-through partner at any time during the taxable year of the pass-
through partner to which the adjustments in the statement furnished to 
the pass-through partner relate (affected partner). The statements 
described in this paragraph (e)(3) must be filed with the IRS by the due 
date prescribed in paragraph (e)(3)(ii) of this section. Except as 
otherwise provided in paragraphs (e)(3)(ii), (iii), and (v) of this 
section, the rules applicable to statements described in Sec.  301.6226-
2 are applicable to statements described in this paragraph (e)(3).
    (ii) Time for filing and furnishing the statements. In accordance 
with forms, instructions, and other guidance prescribed by the IRS, the 
pass-through partner must file with the IRS and furnish to its affected 
partners the statements described in paragraph (e)(3) of this section no 
later than the extended due date for the return for the adjustment year 
(as defined in Sec.  301.6241-1(a)(1)) of the audited partnership. For 
purposes of this section, the extended due date is the extended due date 
under section 6081 regardless of whether the audited partnership is 
required to file a return for the adjustment year or timely files a 
request for an extension under section 6081.
    (iii) Contents of statements. Each statement described in paragraph 
(e)(3) of this section must include the following correct information--
    (A) The name and taxpayer identification number (TIN) of the audited 
partnership;
    (B) The adjustment year of the audited partnership;
    (C) The extended due date for the return for the adjustment year of 
the audited partnership (as described in paragraph (e)(3)(ii) of this 
section);
    (D) The date on which the audited partnership furnished its 
statements required under Sec.  301.6226-2(b);
    (E) The name and TIN of the partnership that furnished the statement 
to the pass-through partner if different from the audited partnership;
    (F) The name and TIN of the pass-through partner;
    (G) The pass-through partner's taxable year to which the adjustments 
reflected on the statements described in paragraph (e)(3) of this 
section relates;
    (H) The name and TIN (or alternative form of identification as 
prescribed by forms, instructions, or other guidance) of the affected 
partner to whom the statement is being furnished;
    (I) The current or last address of the affected partner that is 
known to the pass-through partner;
    (J) The affected partner's share of items as originally reported to 
such partner under section 6031(b) and, if applicable, section 6227, for 
the taxable year to which the adjustments reflected on the statement 
furnished to the pass-through partner relate;
    (K) The affected partner's share of partnership adjustments 
determined under Sec.  301.6226-2(f)(1) as if the affected partner were 
the reviewed year partner and the pass-through partner were the 
partnership;
    (L) Modifications approved by the IRS with respect to the affected 
partner that holds its interest in the audited partnership through the 
pass-through partner;
    (M) The applicability of any penalties, additions to tax, or 
additional amounts determined at the audited partnership level that 
relate to any adjustments allocable to the affected partner and the 
adjustments allocated to the affected partner to which such penalties, 
additions to tax, or additional amounts relate, the section of the 
Internal Revenue Code under which each penalty, addition to tax, or 
additional amount is imposed, and the applicable rate of each penalty, 
addition to tax, or additional amount; and
    (N) Any other information required by forms, instructions, and other 
guidance prescribed by the IRS.
    (iv) Affected partner must take into account the adjustments. A 
statement furnished to an affected partner in accordance with paragraph 
(e)(3) of this section is treated as if it were a statement described in 
Sec.  301.6226-2. An affected partner that is a pass-through partner

[[Page 269]]

must take into account the adjustments reflected on such a statement in 
accordance with this paragraph (e). An affected partner that is not a 
pass-through partner must take into account the adjustments reflected on 
such a statement in accordance with this section by treating references 
to ``reviewed year partner'' as ``affected partner''. For purposes of 
this paragraph (e)(3)(iv), an affected partner that is not a pass-
through partner takes into account the adjustments in accordance with 
this section by determining its reporting year based on the date upon 
which the audited partnership furnished its statements to its reviewed 
year partners (as described in paragraph (a) of this section). No 
addition to tax under section 6651 related to any additional reporting 
year tax will be imposed if an affected partner that is not a pass-
through partner reports and pays the additional reporting year tax 
within 30 days of the extended due date for the return for the 
adjustment year of the audited partnership (as described in paragraph 
(e)(3)(ii) of this section).
    (v) Adjustments subject to chapters 3 and 4 of the Internal Revenue 
Code. If a pass-through partner furnishes statements to its affected 
partners in accordance with paragraph (e)(3) of this section, the pass-
through partner must comply with the requirements of Sec.  301.6241-
6(b)(4), and an affected partner must comply with the requirements of 
paragraph (f) of this section. For purposes of applying both Sec.  
301.6241-6(b)(4) and paragraph (f) of this section, as appropriate, 
references to the ``partnership'' should be replaced with references to 
the ``pass-through partner''; references to the ``reviewed year 
partner'' should be replaced with references to the ``affected 
partner''; references to the statement required under paragraph (a) of 
this section and its due date should be replaced with references to the 
statement required under paragraph (e)(3) of this section and its due 
date described in paragraph (e)(3)(ii) of this section; references to 
the ``reporting year'' should be read in accordance with paragraph 
(e)(3)(iv) of this section; and references to the partnership return 
should be read as references to the return for the adjustment year of 
the audited partnership as described in paragraph (e)(3)(ii) of this 
section.
    (4) Pass-through partner pays an imputed underpayment--(i) In 
general. If a pass-through partner described in paragraph (e)(1) of this 
section does not furnish statements in accordance with paragraph (e)(3) 
of this section, the pass-through partner must compute and pay an 
imputed underpayment determined under paragraph (e)(4)(iii) of this 
section. The pass-through partner must also pay any penalties, additions 
to tax, additional amounts, and interest as determined under paragraph 
(e)(4)(iv) of this section. A failure to timely pay an imputed 
underpayment required under this paragraph (e)(4) is subject to penalty 
under section 6651(i).
    (ii) Time of payment. A pass-through partner must file a partnership 
adjustment tracking report and compute and pay the imputed underpayment 
and any penalties, additions to tax, additional amounts, and interest, 
as described in paragraph (e)(4)(i) of this section, in accordance with 
forms, instructions, and other guidance no later than the extended due 
date for the return for the adjustment year of the audited partnership.
    (iii) Computation of the imputed underpayment. The imputed 
underpayment under paragraph (e)(4)(i) of this section is computed in 
the same manner as an imputed underpayment under section 6225 and Sec.  
301.6225-1, except that adjustments reflected on the statement furnished 
to the pass-through partner under Sec.  301.6226-2 are treated as 
partnership adjustments (as defined in Sec.  301.6241-1(a)(6)) for the 
first affected year. Any modification approved by the IRS under Sec.  
301.6225-2 with respect to the pass-through partner (including any 
modifications with respect to a relevant partner (as defined in Sec.  
301.6225-2(a)) that holds its interest in the audited partnership 
through its interest in the pass-through partner) reflected on the 
statement furnished to the pass-through partner under Sec.  301.6226-2 
(or paragraph (e)(3) of this section) is taken into account in 
calculating the imputed underpayment under this paragraph (e)(4)(iii). 
Any modification that was not approved by the IRS under Sec.  301.6225-2 
may not be taken into

[[Page 270]]

account in calculating the imputed underpayment under this paragraph 
(e)(4)(iii).
    (iv) Penalties and interest--(A) Penalties. A pass-through partner 
must compute and pay any applicable penalties, additions to tax, and 
additional amounts on the imputed underpayment calculated under 
paragraph (e)(4)(iii) of this section as if such amount were an imputed 
underpayment for the pass-through partner's first affected year. See 
Sec.  301.6233(a)-1(c).
    (B) Interest. A pass-through partner must pay interest on the 
imputed underpayment calculated under paragraph (e)(4)(iii) of this 
section in accordance with paragraph (c) of this section as if such 
imputed underpayment were a correction amount for the first affected 
year.
    (v) Adjustments that do not result in an imputed underpayment. 
Adjustments taken into account under paragraph (e)(4) of this section 
that do not result in an imputed underpayment (as defined in Sec.  
301.6225-1(f)) are taken into account by the pass-through partner in 
accordance with Sec.  301.6225-3 in the taxable year of the pass-through 
partner that includes the date the imputed underpayment required under 
paragraph (e)(4)(i) of this section is paid. If, after making the 
computation described in paragraph (e)(4)(iii) of this section, no 
imputed underpayment exists and therefore no payment is required under 
paragraph (e)(4)(i) of this section, the adjustments that did not result 
in an imputed underpayment are taken into account by the pass-through 
partner in accordance with Sec.  301.6225-3 in the taxable year of the 
pass-through partner that includes the date the statement described in 
Sec.  301.6226-2 (or paragraph (e)(3) of this section) is furnished to 
the pass-through partner.
    (vi) Coordination with chapters 3 and 4. If a pass-through partner 
pays an imputed underpayment described in paragraph (e)(4)(i) of this 
section, Sec.  301.6241-6(b)(3) applies to the pass-through partner by 
substituting ``pass-through partner'' for ``partnership'' where Sec.  
301.6241-6(b)(3) refers to the partnership that pays the imputed 
underpayment.
    (5) Treatment of pass-through partners that are not partnerships--
(i) S corporations. For purposes of this paragraph (e), an S corporation 
is treated as a partnership and its shareholders are treated as 
partners.
    (ii) Trusts and estates. Except as provided in paragraph (g) of this 
section, for purposes of paragraph (e) of this section, a trust and its 
beneficiaries, and an estate and its beneficiaries are treated in the 
same manner as a partnership and its partners.
    (6) Pass-through partners subject to chapter 1 tax. A pass-through 
partner that is subject to tax under chapter 1 of the Code on the 
adjustments (or a portion of the adjustments) reflected on the statement 
furnished to such partner under Sec.  301.6226-2 (or paragraph (e)(3) of 
this section) takes the adjustments into account under this paragraph 
(e)(6) when the pass-through partner calculates and pays the additional 
reporting year tax as determined under paragraph (b) of this section and 
furnishes statements to its partners in accordance with paragraph (e)(3) 
of this section. Notwithstanding the prior sentence, a pass-through 
partner is only required to include on a statement under paragraph 
(e)(3) of this section the adjustments that would be required to be 
included on statements furnished to owners or beneficiaries under 
sections 6037 and 6034A, as applicable, if the pass-through partner had 
correctly reported the items for the year to which the adjustments 
relate. If the pass-through partner fails to comply with the 
requirements of this paragraph (e)(6), the pass-through partner must 
compute and pay an imputed underpayment, as well as any penalties, 
additions to tax, additional amounts, and interest with respect to the 
adjustments reflected on the statement furnished to such partner in 
accordance with paragraph (e)(4) of this section.
    (f) Partners subject to withholding under chapters 3 and 4. A 
reviewed year partner that is subject to withholding under Sec.  
301.6241-6(b)(4) must file an income tax return for the reporting year 
to report its additional reporting year tax and its share of any 
penalties, additions to tax, additional amounts, and interest 
(notwithstanding any filing exception in Sec.  1.6012-1(b)(2)(i) or 
Sec.  1.6012-2(g)(2)(i) of this chapter). The amount of tax paid by a 
partnership under Sec.  301.6241-6(b)(4) is allowed as a credit

[[Page 271]]

under section 33 to the reviewed year partner to the extent that the tax 
is allocable to the reviewed year partner (within the meaning of Sec.  
1.1446-3(d)(2) of this chapter) or is actually withheld from the 
reviewed year partner (within the meaning of Sec.  1.1464-1(a) or Sec.  
1.1474-3 of this chapter). The credit is allowed against the reviewed 
year partner's income tax liability for its reporting year. The reviewed 
year partner must substantiate the credit by attaching the applicable 
Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, 
or Form 8805, Foreign Partner's Information Statement of Section 1446 
Withholding Tax, to its income tax return for the reporting year, as 
well as satisfying any other requirements prescribed by the IRS in forms 
and instructions.
    (g) Treatment of disregarded entities and wholly-owned grantor 
trusts. In the case of a reviewed year partner that is a wholly-owned 
entity disregarded as separate from its owner for Federal income tax 
purposes in the reviewed year or a trust that is wholly owned by only 
one person in the reviewed year, whether the grantor or another person, 
and where the trust reports the owner's information to payors under 
Sec.  1.671-4(b)(2)(i)(A) of this chapter and that is furnished a 
statement described in Sec.  301.6226-2 (or paragraph (e)(3) of this 
section), the owner of the disregarded entity or wholly-owned grantor 
trust must take into account the adjustments reflected on that statement 
in accordance with this section as if the owner were the reviewed year 
partner.
    (h) Examples. The following examples illustrate the rules of this 
section. For purposes of these examples, unless otherwise stated, each 
partnership is subject to subchapter C of chapter 63 of the Code, each 
partnership and partner has a calendar year taxable year, no 
modifications are requested by any partnership under Sec.  301.6225-2, 
no penalties, additions to tax, or additional amounts are determined at 
the partnership level, all persons are U.S. persons, the highest rate of 
income tax in effect for is 40 percent for all relevant periods, the 
highest rate of income tax in effect for corporations is 20 percent for 
all relevant periods, and the highest rate of tax for individuals for 
capital gains is 15 percent for all relevant periods.

    (1) Example 1. On its partnership return for the 2020 tax year, 
Partnership reported ordinary income of $1,000 and charitable 
contributions of $400. On June 1, 2023, the IRS mails a notice of final 
partnership adjustment (FPA) to Partnership for Partnership's 2020 year 
disallowing the charitable contribution in its entirety and determining 
that a 20 percent accuracy-related penalty under section 6662(b) applies 
to the disallowance of the charitable contribution, and setting forth a 
single imputed underpayment with respect to such adjustments. 
Partnership makes a timely election under section 6226 in accordance 
with Sec.  301.6226-1 with respect to the imputed underpayment in the 
FPA for Partnership's 2020 year and files a timely petition in the Tax 
Court challenging the partnership adjustments. The Tax Court determines 
that Partnership is not entitled to any of the claimed $400 in 
charitable contributions and upholds the applicability of the penalty. 
The decision regarding Partnership's 2020 tax year becomes final on 
December 15, 2025. Pursuant to Sec.  301.6226-2(b), the partnership 
adjustments are finally determined on December 15, 2025. On February 2, 
2026, Partnership files the statements described under Sec.  301.6226-2 
with the IRS and furnishes to partner A, an individual who was a partner 
in Partnership during 2020, a statement described in Sec.  301.6226-2. A 
had a 25 percent interest in Partnership during all of 2020 and was 
allocated 25 percent of all items from Partnership for that year. The 
statement shows A's share of ordinary income reported on Partnership's 
return for the reviewed year of $250 and A's share of the charitable 
contribution reported on Partnership's return for the reviewed year of 
$100. The statement also shows an adjustment to A's share of the 
charitable contribution, a reduction of $100 resulting in $0 charitable 
contribution allocated to A from Partnership for 2020. In addition, the 
statement reports that a 20 percent accuracy-related penalty under 
section 6662(b) applies. A must pay the additional reporting year tax as 
determined in accordance with paragraph (b) of

[[Page 272]]

this section, in addition to A's penalties and interest. A computes his 
additional reporting year tax as follows. First, A determines the 
correction amount for the first affected year (the 2020 taxable year) by 
taking into account A's share of the partnership adjustment (-$100 
reduction in charitable contribution) for the 2020 taxable year. A 
determines the amount by which his chapter 1 tax for 2020 would have 
increased or decreased if the $100 adjustment to the charitable 
contribution from Partnership were taken into account for that year. 
There is no adjustment to tax attributes in A's intervening years as a 
result of the adjustment to the charitable contribution for 2020. 
Therefore, A's aggregate of the correction amounts is the correction 
amount for 2020, A's first affected year. In addition to the aggregate 
of the correction amounts being added to the chapter 1 tax that A owes 
for 2026, the reporting year, A must calculate a 20 percent accuracy-
related penalty on A's underpayment attributable to the $100 adjustment 
to the charitable contribution, as well as interest on the correction 
amount for the first affected year and the penalty determined in 
accordance with paragraph (c) of this section. Interest on the 
correction amount for the first affected tax year runs from April 15, 
2021, the due date of A's 2020 return (the first affected tax year) 
until A pays this amount. In addition, interest runs on the penalty from 
April 15, 2021, the due date of A's 2020 return for the first affected 
year until A pays this amount. On his 2026 income tax return, A must 
report the additional reporting year tax determined in accordance with 
paragraph (b) of this section, which is the correction amount for 2020, 
plus the accuracy-related penalty determined in accordance with 
paragraph (d) of this section, and interest determined in accordance 
with paragraph (c) of this section on the correction amount for 2020 and 
the penalty.
    (2) Example 2. On its partnership return for the 2020 tax year, 
Partnership reported an ordinary loss of $500. On June 1, 2023, the IRS 
mails an FPA to Partnership for the 2020 taxable year determining that 
$300 of the $500 in ordinary loss should be recharacterized as a long-
term capital loss. Partnership has no long-term capital gain for its 
2020 tax year. The FPA for Partnership's 2020 tax year reflects an 
adjustment of an increase in ordinary income of $300 (as a result of the 
disallowance of the recharacterization of $300 from ordinary loss to 
long-term capital loss) and an imputed underpayment related to that 
adjustment, as well as an adjustment of an additional $300 in long-term 
capital loss for 2020 which does not result in an imputed underpayment 
under Sec.  301.6225-1(f). Partnership makes a timely election under 
section 6226 in accordance with Sec.  301.6226-1 with respect to the 
imputed underpayment in the FPA and does not file a petition for 
readjustment under section 6234. Accordingly, under Sec.  301.6226-
1(b)(2) and Sec.  301.6225-3(b)(6), the adjustment year partners (as 
defined in Sec.  301.6241-1(a)(2)) do not take into account the $300 
long-term capital loss that does not result in an imputed underpayment. 
Rather, the $300 long-term capital loss is taken into account by the 
reviewed year partners. The time to file a petition expires on August 
30, 2023. Pursuant to Sec.  301.6226-2(b), the partnership adjustments 
become finally determined on August 31, 2023. On September 30, 2023, 
Partnership files with the IRS statements described in Sec.  301.6226-2 
and furnishes statements to all of its reviewed year partners in 
accordance with Sec.  301.6226-2. One partner of Partnership in 2020, B 
(an individual), had a 25 percent interest in Partnership during all of 
2020 and was allocated 25 percent of all items from Partnership for that 
year. The statement filed with the IRS and furnished to B shows B's 
allocable share of the ordinary loss reported on Partnership's return 
for the 2020 taxable year as $125. The statement also shows an 
adjustment to B's allocable share of the ordinary loss in the amount of 
-$75, resulting in a corrected ordinary loss allocated to B of $50 for 
taxable year 2020 ($125 originally allocated to B less $75 which is B's 
share of the adjustment to the ordinary loss). In addition, the 
statement shows an increase to B's share of long-term capital loss in 
the amount of $75 (B's share of the adjustment that did not result in 
the imputed underpayment with respect to Partnership). B must pay the 
additional reporting

[[Page 273]]

year tax as determined in accordance with paragraph (b) of this section. 
B computes his additional reporting year tax as follows. First, B 
determines the correction amount for the first affected year (the 2020 
taxable year) by taking into account B's share of the partnership 
adjustments (a $75 reduction in ordinary loss and an increase of $75 in 
long-term capital loss) for the 2020 taxable year. B determines the 
amount by which his chapter 1 tax for 2020 would have increased or 
decreased if the $75 adjustment to ordinary loss and the $75 adjustment 
to long-term capital loss from Partnership were taken into account for 
that year. Second, B determines if there is any increase or decrease in 
chapter 1 tax for any intervening year as a result of the adjustment to 
the ordinary and capital losses for 2020. B's aggregate of the 
correction amounts is the correction amount for 2020, B's first affected 
year plus any correction amounts for any intervening years. B is also 
liable for any interest on the correction amount for the first affected 
year and for any intervening year as determined in accordance with 
paragraph (c) of this section.
    (3) Example 3. On its partnership return for the 2020 tax year, 
Partnership, a domestic partnership, reported U.S. source dividend 
income of $2,000. On June 1, 2023, the IRS mails an FPA to Partnership 
for Partnership's 2020 year increasing the amount of U.S. source 
dividend income to $4,000 and determining that a 20 percent accuracy-
related penalty under section 6662(b) applies to the increase in U.S. 
source dividend income. Partnership makes a timely election under 
section 6226 in accordance with Sec.  301.6226-1 with respect to the 
imputed underpayment in the FPA for Partnership's 2020 year and does not 
file a petition for readjustment under section 6234. The time to file a 
petition expires on August 30, 2023. Pursuant to Sec.  301.6226-2(b), 
the partnership adjustments become finally determined on August 31, 
2023. On September 30, 2023, Partnership files the statements described 
under Sec.  301.6226-2 with the IRS and furnishes to partner C, a 
nonresident alien individual who was a partner in Partnership during 
2020 (and remains a partner in Partnership in 2023), a statement 
described in Sec.  301.6226-2. C had a 50 percent interest in 
Partnership during all of 2020 and was allocated 50 percent of all items 
from Partnership for that year. The statement shows C's share of U.S. 
source dividend income reported on Partnership's return for the reviewed 
year of $1,000 and an adjustment to U.S. source dividend income of 
$1,000. In addition, the statement reports that a 20 percent accuracy-
related penalty under section 6662(b) applies. Under Sec.  301.6241-
6(b)(4)(i), because the additional $1,000 in U.S. source dividend income 
allocated to C is an amount subject to withholding (as defined in Sec.  
301.6241-6(b)(2)), Partnership must pay the amount of tax required to be 
withheld on the adjustment. See Sec. Sec.  1.1441-1(b)(1) and 1.1441-
5(b)(2)(i)(A) of this chapter. Under Sec.  301.6241-6(b)(4)(ii), 
Partnership may reduce the amount of withholding tax it must pay because 
it has valid documentation from 2020 that establishes that C was 
entitled to a reduced rate of withholding in 2020 on U.S. source 
dividend income of 10 percent pursuant to a treaty. Partnership 
withholds $100 of tax from C's distributive share, remits the tax to the 
IRS, and files the necessary return and information returns required by 
Sec.  1.1461-1 of this chapter. On his 2023 return, C must report the 
additional reporting year tax determined in accordance with paragraph 
(b) of this section, the accuracy-related penalty determined in 
accordance with paragraph (d) of this section, and interest determined 
in accordance with paragraph (c) of this section on the correction 
amount for the first affected year, the correction amount for any 
intervening year, and the penalty. Under paragraph (f) of this section, 
C may claim the $100 withholding tax paid by Partnership pursuant to 
Sec.  301.6241-6(b)(4)(i) as a credit under section 33 against C's 
income tax liability on his 2023 return.
    (4) Example 4. On its partnership return for the 2020 tax year, 
Partnership reported ordinary income of $100 and a long-term capital 
gain of $40. Partnership had four equal partners during the 2020 tax 
year: E, F, G, and H, all of whom were individuals. On its partnership 
return for the 2020 tax year, the

[[Page 274]]

entire long-term capital gain was allocated to partner E and the 
ordinary income was allocated to all partners based on their equal (25 
percent) interest in Partnership. The IRS initiates an administrative 
proceeding with respect to Partnership's 2020 taxable year and 
determines that the long-term capital gain should have been allocated 
equally to all four partners and that Partnership should have recognized 
an additional $10 in ordinary income. On June 1, 2023, the IRS mails an 
FPA to Partnership reflecting the reallocation of the $40 long-term 
capital gain so that F, G, and H each have $10 increase in long-term 
capital gain and E has a $30 reduction in long-term capital gain for 
2020. In addition, the FPA reflects the partnership adjustment 
increasing ordinary income by $10. The FPA reflects a general imputed 
underpayment with respect to the increase in ordinary income and a 
specific imputed underpayment with respect to the increase in long-term 
capital gain allocated to F, G, and H. In addition, the FPA reflects a 
$30 partnership adjustment that does not result in an imputed 
underpayment, that is, the reduction of $30 in long-term capital gain 
with respect to E that is associated with the specific imputed 
underpayment in accordance with Sec.  301.6225-1(g)(2)(iii)(B). 
Partnership makes a timely election under section 6226 in accordance 
with Sec.  301.6226-1 with respect to the specific imputed underpayment 
relating to the reallocation of long-term capital gain. Partnership does 
not file a petition for readjustment under section 6234. The time to 
file a petition expires on August 30, 2023. Pursuant to Sec.  301.6226-
2(b), the partnership adjustments become finally determined on August 
31, 2023. Partnership timely pays the general imputed underpayment that 
resulted from the partnership adjustment to ordinary income. On 
September 30, 2023, Partnership files with the IRS statements described 
in Sec.  301.6226-2 and furnishes statements to its partners reflecting 
their share of the partnership adjustments as finally determined in the 
FPA that relate to the specific imputed underpayment, that is, the 
reallocation of long-term capital gain. The statements for F, G, and H 
each reflect a partnership adjustment of an additional $10 of long-term 
capital gain for 2020. The statement for E reflects a partnership 
adjustment of a reduction of $30 of long-term capital gain for 2020. 
Because E, F, G, and H are all individuals, all partners must report the 
additional reporting year tax as determined in accordance with paragraph 
(b) of this section in the partners' reporting year, which is 2023. They 
compute their additional reporting year tax as follows. First, they 
determine the correction amount for the first affected year (the 2020 
taxable year) by taking into account their share of the partnership 
adjustments for the 2020 taxable year. They each determine the amount by 
which their chapter 1 tax for 2020 would have increased or decreased if 
the adjustment to long-term capital gain from Partnership were taken 
into account for that year. Second, they determine if there is any 
increase or decrease in chapter 1 tax for any intervening year as a 
result of the adjustment to the long-term capital gain for 2020. Their 
aggregate of the correction amounts is the sum of the correction amount 
for 2020, their first affected year and any correction amounts for any 
intervening years. They are also liable for any interest on the 
correction amount for the first affected year and for any intervening 
year as determined in accordance with paragraph (c) of this section.
    (5) Example 5. On its partnership return for the 2020 taxable year, 
Partnership reported a long-term capital loss of $500. During an 
administrative proceeding with respect to Partnership's 2020 taxable 
year, the IRS mails a notice of proposed partnership adjustment (NOPPA) 
in which it proposes to disallow $200 of the reported $500 long-term 
capital loss, the only adjustment. Accordingly, the imputed underpayment 
reflected in the NOPPA is $80 ($200 x 40 percent). F, a C corporation 
partner with a 50 percent interest in Partnership, received 50 percent 
of all long-term capital losses for 2020. As part of the modification 
process described in Sec.  301.6225-2(d)(2), F files an amended return 
for 2020 taking into account F's share of the partnership adjustment 
($100 reduction in long-term capital loss) and pays the tax owed for

[[Page 275]]

2020, including interest. Also as part of the modification process, F 
also files amended returns for 2021 and 2022 and pays additional tax 
(and interest) for these years because the reduction in long-term 
capital loss for 2020 affected the tax due from F for 2021 and 2022. See 
Sec.  301.6225-2(d)(2). The reduction of the long-term capital loss in 
2020 did not affect any other taxable year of F. This is the only 
modification requested. The IRS approves the modification with respect 
to F and on June 1, 2023, mails an FPA to Partnership for Partnership's 
2020 year reflecting the partnership adjustment reducing the long-term 
capital loss in the amount of $200. The FPA also reflects the 
modification to the imputed underpayment based on the amended returns 
filed by F taking into account F's share of the reduction in the long-
term capital loss. Therefore, the imputed underpayment in the FPA is $40 
($100 x 40 percent). Partnership makes a timely election under section 
6226 in accordance with Sec.  301.6226-1 with respect to the imputed 
underpayment in the FPA for Partnership's 2020 year and files a timely 
petition in the Tax Court challenging the partnership adjustments. The 
Tax Court upholds the determinations in the FPA and the decision 
regarding Partnership's 2020 tax year becomes final on December 15, 
2025. Pursuant to Sec.  301.6226-2(b), the partnership adjustments are 
finally determined on December 15, 2025. On February 1, 2026, 
Partnership files the statements described under Sec.  301.6226-2 with 
the IRS and furnishes to its partners statements reflecting their shares 
of the partnership adjustment. The statement issued to F reflects F's 
share of the partnership adjustment for Partnership's 2020 taxable year 
as finally determined by the Tax Court. The statement shows F's share of 
the long-term capital loss adjustment for the reviewed year of $100, as 
well as the $100 long-term capital loss taken into account by F as part 
of the amended return modification. Accordingly, in accordance with 
paragraph (b) of this section, when F computes its correction amounts 
for the first affected year (the 2020 taxable year) and the intervening 
years (the 2021 through 2026 taxable years), F computes any increase or 
decrease in chapter 1 tax for those years using the returns for the 
2020, 2021, and 2022 taxable years as amended during the modification 
process and taking into account any chapter 1 tax paid with those 
amended returns. F also takes into account the interest paid with F's 
amended returns when determining the interest under paragraph (c) of 
this section that must be paid in the reporting year.
    (6) Example 6. Partnership has two equal partners for the 2020 tax 
year: M (an individual) and J (a partnership). For the 2020 tax year, J 
has two equal partners--K and L--both individuals. On June 1, 2023, the 
IRS mails an FPA to Partnership for Partnership's 2020 year increasing 
Partnership's ordinary income by $500,000 and asserting an imputed 
underpayment of $200,000. Partnership makes a timely election under 
section 6226 in accordance with Sec.  301.6226-1 with respect to the 
imputed underpayment in the FPA for Partnership's 2020 year and does not 
file a petition for readjustment under section 6234. The time to file a 
petition expires on August 30, 2023. Pursuant to Sec.  301.6226-2(b), 
the partnership adjustments become finally determined on August 31, 
2023. Therefore, Partnership's adjustment year is 2023, the due date of 
the adjustment year return is March 15, 2024 and the extended due date 
for the adjustment year return is September 16, 2024. On October 12, 
2023, Partnership timely files with the IRS statements described in 
Sec.  301.6226-2 and timely furnishes statements to its partners 
reflecting their share of the partnership adjustments as finally 
determined in the FPA. The statements to M and J each reflect a 
partnership adjustment of $250,000 of ordinary income. M takes her share 
of the adjustments reflected on the statements furnished by Partnership 
into account on M's return for the 2023 tax year in accordance with 
paragraph (b) of this section. On April 1, 2024, J files the adjustment 
tracking report and files and furnishes statements to K and L reflecting 
each partner's share of the adjustments reflected on the statements 
Partnership furnished to J. K and L must take their share of adjustments 
reflected on the statements furnished by J into account on their returns 
for the 2023 tax

[[Page 276]]

year in accordance with paragraph (b) of this section by treating 
themselves as reviewed year partners for purposes of paragraph (b).
    (7) Example 7. On its partnership return for the 2020 tax year, 
Partnership reported that it placed Asset, which had a depreciable basis 
of $210,000, into service in 2020 and depreciated Asset over 5 years, 
using the straight-line method. Accordingly, Partnership claimed 
depreciation of $42,000 in each year related to Asset. Partnership has 
two equal partners for the 2020 tax year: M (a partnership) and N (an S 
corporation). For the 2020 tax year, N has one shareholder, O, who is an 
individual. On June 1, 2023, the IRS mails an FPA to Partnership for 
Partnership's 2020 year. In the FPA, the IRS determines that Asset 
should have been depreciated over 7 years instead of 5 years and adjusts 
the depreciation for the 2020 tax year to $30,000 instead of $42,000 
resulting in a $12,000 adjustment. This adjustment results in an imputed 
underpayment of $4,800 ($12,000 x 40 percent). Partnership makes a 
timely election under section 6226 in accordance with Sec.  301.6226-1 
with respect to the imputed underpayment in the FPA for Partnership's 
2020 year and does not file a petition for readjustment under section 
6234. The time to file a petition expires on August 30, 2023. Pursuant 
to Sec.  301.6226-2(b), the partnership adjustments become finally 
determined on August 31, 2023. On October 12, 2023, Partnership timely 
files with the IRS statements described in Sec.  301.6226-2 and 
furnishes statements to its partners reflecting their share of the 
partnership adjustments as finally determined in the FPA. The statements 
to M and N reflect a partnership adjustment of $6,000 of ordinary income 
for the 2020 tax year. On February 1, 2024, N takes the adjustments into 
account under paragraph (e)(3) of this section by filing a partnership 
adjustment tracking report and furnishing a statement to O reflecting 
her share of the adjustments reported to N on the statement it received 
from Partnership. M does not furnish statements and instead chooses to 
calculate and pay an imputed underpayment under paragraph (e)(4) of this 
section equal to $1,200 ($6,000 x 40 percent) on the adjustments 
reflected on the statement it received from Partnership plus interest on 
the amount calculated in accordance with paragraph (e)(4)(iv)(B) of this 
section. On her 2023 return, O properly takes the adjustments into 
account under this section. Therefore, O reports and pays the additional 
reporting year tax determined in accordance with paragraph (b) of this 
section, which is the correction amount for 2020 plus any correction 
amounts for 2021 and 2022 (if the adjustments in 2020 resulted in any 
changes to the tax attributes of O in those years), and pays interest 
determined in accordance with paragraph (c) of this section on the 
correction amounts for each of those years.
    (8) Example 8. On its partnership return for the 2020 tax year, 
Partnership reported $1,000 of ordinary loss. Partnership has two equal 
partners for the 2020 tax year: P and Q, both S corporations. For the 
2020 tax year, P had one shareholder, R, an individual. For the 2020 tax 
year, Q had two shareholders, S and T, both individuals. On June 1, 
2023, the IRS mails an FPA to Partnership for Partnership's 2020 year 
determining $500 of the $1,000 of ordinary loss should be 
recharacterized as $500 of long-term capital loss and $500 of the 
ordinary loss should be disallowed. The FPA asserts an imputed 
underpayment of $400 ($1,000 x 40 percent) with respect to the $1,000 
reduction to ordinary loss and reflecting an adjustment that does not 
result in an imputed underpayment of a $500 capital loss. Partnership 
makes a timely election under section 6226 in accordance with Sec.  
301.6226-1 with respect to the imputed underpayment in the FPA for 
Partnership's 2020 year and does not file a petition for readjustment 
under section 6234. The time to file a petition expires on August 30, 
2023. Pursuant to Sec.  301.6226-2(b), the partnership adjustments 
become finally determined on August 31, 2023. On October 12, 2023, 
Partnership timely files with the IRS statements described in Sec.  
301.6226-2 and furnishes statements to its partners reflecting their 
share of the partnership adjustments as finally determined in the FPA. 
The statements to P and Q each reflect a partnership adjustment of $500 
increase in ordinary income and a $250 increase in capital loss in 
accordance with

[[Page 277]]

Sec.  301.6225-3(b)(6). P takes the adjustments into account under 
paragraph (e)(3) of this section by timely filing a partnership 
adjustment tracking report and furnishing a statement to R. Q timely 
filed a partnership adjustment tracking report, but chooses not to 
furnish statements and instead must calculate and pay an imputed 
underpayment under paragraph (e)(4) of this section as well as interest 
on the imputed underpayment determined under paragraph (e)(4)(iv)(B) of 
this section. After applying the rules set forth in Sec.  301.6225-1, Q 
calculates the imputed underpayment that it is required to pay of $200 
($500 adjustment to ordinary income x 40 percent). Q also has one 
adjustment that does not result in an imputed underpayment--the $250 
increase to capital loss. Pursuant to paragraph (e)(1) of this section, 
Q files the partnership adjustment tracking report and pay the amounts 
due under paragraph (e)(4) of this section by September 15, 2024, the 
extended due date of Partnership's return for the adjustment year, 2023. 
Pursuant to paragraph (e)(4)(v) of this section, on its 2024 return, the 
year in which Q made its payment of the imputed underpayment, Q reports 
and allocates the $250 capital loss to its shareholders for its 2024 
taxable year as a capital loss as provided in Sec.  301.6225-3.
    (9) Example 9. On its partnership return for the 2020 tax year, 
Partnership reported a $1,000 long-term capital gain on the sale of 
Stock. Partnership has two equal partners for the 2020 tax year: U (an 
individual) and V (a partnership). For the 2020 tax year, V has two 
equal partners: W (an individual) and X (a partnership). For the 2020 
tax year, X has two equal partners: Y and Z, both of which are C 
corporations. On June 1, 2023, the IRS mails a NOPPA to Partnership for 
Partnership's 2020 year proposing a $500 increase in the long-term 
capital gain from the sale of Stock and an imputed underpayment of $200 
($500 x 40 percent). On July 17, 2023, Partnership timely submits a 
request to modify the rate used in calculating the imputed underpayment 
under Sec.  301.6225-2(d)(4). Partnership submits sufficient information 
demonstrating that $375 of the $500 adjustment is allocable to 
individuals (50 percent of the $500 adjustment allocable to U and 25 
percent of the $500 adjustment allocable to W) and the remaining $125 is 
allocable to C corporations (the indirect partners Y and Z). The IRS 
approves the modification and the imputed underpayment is reduced to 
$81.25 (($375 x 15 percent) + ($125 x 20 percent)). See Sec.  301.6225-
2(b)(3). No other modifications are requested. On February 28, 2024, the 
IRS mails an FPA to Partnership for Partnership's 2020 year determining 
a $500 increase in the long-term capital gain on the sale of Stock and 
asserting an imputed underpayment of $81.25 after taking into account 
the approved modifications. Partnership makes a timely election under 
section 6226 in accordance with Sec.  301.6226-1 with respect to the 
imputed underpayment in the FPA for Partnership's 2020 year and does not 
file a petition for readjustment under section 6234. The time to file a 
petition expires on May 28, 2024. Pursuant to Sec.  301.6226-2(b), the 
partnership adjustments become finally determined on May 29, 2024. On 
July 26, 2024, Partnership timely files with the IRS statements 
described in Sec.  301.6226-2 and furnishes statements to its partners 
reflecting their share of the partnership adjustments as finally 
determined in the FPA. The statements to U and V each reflect a 
partnership adjustment of a $250 increase in long-term capital gain. V 
timely files the adjustment tracking report but fails to furnish 
statements and therefore must calculate and pay an imputed underpayment 
under paragraph (e)(4) of this section as well as interest on the 
imputed underpayment determined under paragraph (e)(4)(iv)(B) of this 
section. On February 3, 2025, V pays an imputed underpayment of $43.75 
(($125 x 20 percent for the adjustments allocable to X) + ($125 x 15 
percent for the adjustments allocable to W)) which takes into account 
the rate modifications approved by the IRS with respect to Y and Z. V 
must also pay any interest on the amount as determined in accordance 
with paragraph (e)(4)(iv)(B) of this section. V must file the adjustment 
tracking report and pay the amounts due under paragraph (e)(4) of this 
section no later than September 15, 2025, the extended due date of 
Partnership's return for the

[[Page 278]]

2024 year, which is the adjustment year.

    (i) Applicability date--(1) In general. Except as provided in 
paragraph (i)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6551, Feb. 27, 2019]



Sec.  301.6226(a)-1  Principal place of business of partnership.

    (a) In general. The principal place of a partnership's business for 
purposes of determining the appropriate district court in which a 
petition for a readjustment of partnership items may be filed is its 
principal place of business as of the date the petition is filed.
    (b) Example. The provisions of paragraph (a) of this section may be 
illustrated by the following example:

    Example. The principal place of Partnership A's business on the day 
that the notice of the final partnership administrative adjustment was 
mailed to A's tax matters partner was Cincinnati, Ohio. However, by the 
day on which a petition seeking judicial review of that adjustment was 
filed, A had moved its principal place of business to Louisville, 
Kentucky. For purposes of section 6226(a)(2), A's principal place of 
business is Louisville.

    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6226(a)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50553, Oct. 4, 2001]



Sec.  301.6226(b)-1  5-percent group.

    (a) In general. All members of a 5-percent group shall join in 
filing any petition for judicial review. The designation of a partner as 
a representative of a notice group does not authorize that partner to 
file a petition for a readjustment of partnership items on behalf of the 
notice group.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6226(b)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50553, Oct. 4, 2001]



Sec.  301.6226(e)-1  Jurisdictional requirement for bringing an action 
in District Court or United States Court of Federal Claims.

    (a) Amount to be deposited--(1) In general. The jurisdictional 
amount that the filing partner (or, in the case of a petition filed by a 
5-percent group, each member of the group, or, for civil actions 
beginning on or after April 2, 2002, in the case of a petition filed by 
a pass-thru partner, each indirect partner holding an interest through 
the pass-thru partner) shall deposit is the amount by which the tax 
liability of the partner would be increased if the treatment of the 
partnership items on the partner's return were made consistent with the 
treatment of partnership items on the partnership return, as adjusted by 
the notice of final partnership administrative adjustment. The partner 
is not required to pay other outstanding liabilities in order to deposit 
a jurisdictional amount.
    (2) Example. The provisions of paragraph (a)(1) of this section may 
be illustrated by the following example:

    Example. A files a petition for readjustment of partnership items in 
the United States Court of Federal Claims. A's tax liability would be 
increased by $4,000 if partnership items on A's return were conformed to 
the partnership return, as adjusted by the notice of final partnership 
administrative adjustment. A has an unpaid liability of $10,000 
attributable to nonpartnership items. A is required to deposit $4,000 in 
order to satisfy the jurisdictional requirement.

    (b) Deposit taken into account in computing interest. The amount 
deposited is treated as a payment of tax for purposes of chapter 67 of 
the Internal Revenue Code (relating to interest).
    (c) Deposit generally not treated as payment of tax. Except as 
provided in paragraph (b) of this section, an amount deposited under 
section 6226(e) shall not be treated as a payment of tax. Thus, the 
Internal Revenue Service may proceed against the depositor for a 
deficiency based on nonpartnership items without regard to this deposit.

[[Page 279]]

    (d) Amount deposited may be applied against assessment. If the 
restriction on assessment provided under section 6225(a) lapses with 
respect to a deficiency attributable to partnership items for a 
partnership taxable year while an amount is on deposit under section 
6226(e) in connection with a petition relating to those items, the 
Internal Revenue Service may apply the amount deposited against any such 
deficiency that is assessed.
    (e) Effective date. Except as otherwise provided in paragraph (a)(1) 
of this section, this section is applicable to civil actions beginning 
on or after October 4, 2001. For civil actions beginning prior to 
October 4, 2001, see Sec.  301.6226(e)-1T contained in 26 CFR part 1, 
revised April 1, 2001.

[T.D. 8965, 66 FR 50554, Oct. 4, 2001]



Sec.  301.6226(f)-1  Scope of judicial review.

    (a) In general. A court reviewing a notice of final partnership 
administrative adjustment has jurisdiction to determine all partnership 
items for the taxable year to which the notice relates and the proper 
allocation of such items among the partners. Thus, the review is not 
limited to the items adjusted in the notice. In addition, the court has 
jurisdiction in the partnership-level proceeding to determine any 
penalty, addition to tax, or additional amount that relates to an 
adjustment to a partnership item. However, the court does not have 
jurisdiction in the partnership-level proceeding to consider any 
partner-level defenses to any penalty, addition to tax, or additional 
amount that relates to an adjustment to a partnership item. See section 
6230(c)(4) and Sec.  301.6221-1(c) and (d).
    (b) Example. The provisions of paragraph (a) of this section may be 
illustrated by the following example:

    Example. The Internal Revenue Service issues a notice of final 
partnership administrative adjustment with respect to Partnership ABC in 
which the only item adjusted is depreciation. A petition for judicial 
review of that notice is filed. During the judicial proceeding, a 
partner of ABC, in accordance with the applicable court rules, raises an 
issue relating to the treatment of intangible drilling costs. The court 
reviewing the notice has jurisdiction to determine the intangible 
drilling cost issue in addition to the depreciation issue.

    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6226(f)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50554, Oct. 4, 2001]



Sec.  301.6227-1  Administrative adjustment request by partnership.

    (a) In general. A partnership may file a request for an 
administrative adjustment with respect to any partnership-related item 
(as defined in Sec.  301.6241-1(a)(6)(ii)) for any partnership taxable 
year. When filing an administrative adjustment request (AAR), the 
partnership must determine whether the adjustments requested in the AAR 
result in an imputed underpayment in accordance with Sec.  301.6227-2(a) 
for the reviewed year (as defined in Sec.  301.6241-1(a)(8)). If the 
adjustments requested in the AAR result in an imputed underpayment, the 
partnership must take the adjustments into account under the rules 
described in Sec.  301.6227-2(b) unless the partnership makes an 
election under Sec.  301.6227-2(c), in which case each reviewed year 
partner (as defined in Sec.  301.6241-1(a)(9)) must take the adjustments 
into account in accordance with Sec.  301.6227-3. If the adjustments 
requested in the AAR are adjustments described in Sec.  301.6225-1(f)(1) 
that do not result in an imputed underpayment (as determined under Sec.  
301.6227-2(a)), such adjustments must be taken into account by the 
reviewed year partners in accordance with Sec.  301.6227-3. A partner 
may not make a request for an administrative adjustment of a 
partnership-related item except in accordance with Sec.  301.6222-1 or 
if the partner is doing so on behalf of the partnership in the partner's 
capacity as the partnership representative designated under section 
6223. In addition, a partnership may not file an AAR solely for the 
purpose of changing the designation of a partnership representative or 
changing the appointment of a designated individual. See Sec.  301.6223-
1 (regarding designation of the partnership representative). When the 
partnership changes

[[Page 280]]

the designation of the partnership representative (or appointment of the 
designated individual) in conjunction with the filing of an AAR in 
accordance with Sec.  301.6223-1(e), the change in designation (or 
appointment) is treated as occurring prior to the filing of the AAR. For 
rules regarding a notice of change to the amount of creditable foreign 
tax expenditures see paragraph (g) of this section.
    (b) Time for filing an AAR. An AAR may only be filed by a 
partnership with respect to a partnership taxable year after a 
partnership return for that taxable year has been filed with the 
Internal Revenue Service (IRS). A partnership may not file an AAR with 
respect to a partnership taxable year more than three years after the 
later of the date the partnership return for such partnership taxable 
year was filed or the last day for filing such partnership return 
(determined without regard to extensions). Except as provided in Sec.  
301.6231-1(f), an AAR (including a request filed by a partner in 
accordance with Sec.  301.6222-1) may not be filed for a partnership 
taxable year after a notice of administrative proceeding with respect to 
such taxable year has been mailed by the IRS under section 6231.
    (c) Form and manner for filing an AAR--(1) In general. An AAR by a 
partnership, including any required statements, forms, and schedules as 
described in this section, must be filed with the IRS in accordance with 
the forms, instructions, and other guidance prescribed by the IRS, and 
must be signed under penalties of perjury by the partnership 
representative (as described in Sec. Sec.  301.6223-1 and 301.6223-2).
    (2) Contents of AAR filed with the IRS. A partnership must include 
the information described in this paragraph (c)(2) when filing an AAR 
with the IRS. In the case of a failure by the partnership to provide the 
information described in this paragraph (c)(2), the IRS may, but is not 
required to, invalidate an AAR or readjust any items that were adjusted 
on the AAR. An AAR filed with the IRS must include--
    (i) The adjustments requested;
    (ii) If a reviewed year partner is required to take into account the 
adjustments requested under Sec.  301.6227-3, statements described in 
paragraph (e) of this section, including any transmittal with respect to 
such statements required by forms, instructions, and other guidance 
prescribed by the IRS; and
    (iii) Other information prescribed by the IRS in forms, 
instructions, or other guidance.
    (d) Copy of statement furnished to reviewed year partners in certain 
cases. If a reviewed year partner is required to take into account 
adjustments requested in an AAR under Sec.  301.6227-3, the partnership 
must furnish a copy of the statement described in paragraph (e) of this 
section to the reviewed year partner to whom the statement relates in 
accordance with the forms, instructions and other guidance prescribed by 
the IRS. If the partnership mails the statement, it must mail the 
statement to the current or last address of the reviewed year partner 
that is known to the partnership. The statement must be furnished to the 
reviewed year partner on the date the AAR is filed with the IRS.
    (e) Statements--(1) Contents. Each statement described in this 
paragraph (e) must include the following correct information:
    (i) The name and TIN of the reviewed year partner to whom the 
statement is being furnished;
    (ii) The current or last address of the partner that is known to the 
partnership;
    (iii) The reviewed year partner's share of items as originally 
reported on statements furnished to the partner under section 6031(b) 
and, if applicable, section 6227;
    (iv) The reviewed year partner's share of the adjustments as 
described under paragraph (e)(2) of this section;
    (v) The date the statement is furnished to the partner;
    (vi) The partnership taxable year to which the adjustments relate; 
and
    (vii) Any other information required by forms, instructions, and 
other guidance prescribed by the IRS.
    (2) Determination of each partner's share of adjustments--(i) In 
general. Except as provided in paragraphs (e)(2)(ii) and (iii) of this 
section, each reviewed year partner's share of the adjustments requested 
in the AAR is determined in the same manner as each adjusted

[[Page 281]]

partnership-related item was originally allocated to the reviewed year 
partner on the partnership return for the reviewed year. If the 
partnership pays an imputed underpayment under Sec.  301.6227-2(b) with 
respect to the adjustments requested in the AAR, the reviewed year 
partner's share of the adjustments requested in the AAR only includes 
any adjustments that did not result in the imputed underpayment, as 
determined under Sec.  301.6227-2(a).
    (ii) Adjusted partnership-related item not reported on the 
partnership's return for the reviewed year. Except as provided in 
paragraph (e)(2)(iii) of this section, if the adjusted partnership-
related item was not reported on the partnership return for the reviewed 
year, each reviewed year partner's share of the adjustments must be 
determined in accordance with how such items would have been allocated 
under rules that apply with respect to partnership allocations, 
including under the partnership agreement.
    (iii) Allocation adjustments. If an adjustment involves allocation 
of a partnership-related item to a specific partner or in a specific 
manner, including a reallocation of an item, the reviewed year partner's 
share of the adjustment requested in the AAR is determined in accordance 
with the AAR.
    (f) Administrative proceeding for a taxable year for which an AAR is 
filed. Within the period described in section 6235, the IRS may initiate 
an administrative proceeding with respect to the partnership for any 
partnership taxable year regardless of whether the partnership filed an 
AAR with respect to such taxable year and may adjust any partnership-
related item, including any partnership-related item adjusted in an AAR 
filed by the partnership. The amount of an imputed underpayment 
determined by the partnership under Sec.  301.6227-2(a)(1), including 
any modifications determined by the partnership under Sec.  301.6227-
2(a)(2), may be re-determined by the IRS.
    (g) Notice requirement and partnership adjustments required as a 
result of a foreign tax redetermination. For special rules applicable 
when an adjustment to a partnership related item (as defined in section 
6241(2)) is required as part of a redetermination of U.S. tax liability 
under section 905(c) and Sec.  1.905-3(b) of this chapter as a result of 
a foreign tax redetermination (as defined in Sec.  1.905-3(a) of this 
chapter), see Sec.  1.905-4(b)(2)(ii) of this chapter.
    (h) Applicability date--(1) In general. Except as provided in 
paragraph (h)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6558, Feb. 27, 2019, as amended by T.D. 9922, 85 FR 
72074, Nov. 12, 2020]



Sec.  301.6227-2  Determining and accounting for adjustments requested 
in an administrative adjustment request by the partnership.

    (a) Determining whether adjustments result in an imputed 
underpayment--(1) Determination of an imputed underpayment. The 
determination of whether adjustments requested in an administrative 
adjustment request (AAR) result in an imputed underpayment in the 
reviewed year (as defined in Sec.  301.6241-1(a)(8)) and the 
determination of the amount of any imputed underpayment is made in 
accordance with the rules under Sec.  301.6225-1.
    (2) Modification of imputed underpayment for purposes of this 
section. A partnership may apply modifications to the amount of an 
imputed underpayment determined under paragraph (a)(1) of this section 
using only the provisions under Sec.  301.6225-2(d)(3) (regarding tax-
exempt partners), Sec.  301.6225-2(d)(4) (regarding modification of 
applicable tax rate), Sec.  301.6225-2(d)(5) (regarding specified 
passive activity losses), Sec.  301.6225-2(d)(6)(ii) (regarding 
limitations or restrictions in the grouping of adjustments), Sec.  
301.6225-2(d)(7) (regarding certain qualified investment entities), 
Sec.  301.6225-2(d)(9) (regarding tax treaty modifications), or as 
provided in forms, instructions, or other guidance prescribed by the IRS 
with respect to AARs. The partnership may not modify an imputed 
underpayment resulting from adjustments

[[Page 282]]

requested in an AAR except as described in this paragraph (a)(2). When 
applying modifications to the amount of an imputed underpayment under 
this paragraph (a)(2):
    (i) The partnership is not required to seek the approval from the 
Internal Revenue Service (IRS) prior to applying modifications to the 
amount of any imputed underpayment under paragraph (a)(1) of this 
section reported on the AAR; and
    (ii) As part of the AAR filed with the IRS in accordance with forms, 
instructions, and other guidance prescribed by the IRS, the partnership 
must--
    (A) Notify the IRS of any modification;
    (B) Describe the effect of the modification on the imputed 
underpayment;
    (C) Provide an explanation of the basis for such modification; and
    (D) Provide documentation to support the partnership's eligibility 
for the modification.
    (b) Adjustments resulting in an imputed underpayment taken into 
account by the partnership--(1) In general. Except in the case of a 
valid election under paragraph (c) of this section, a partnership must 
pay any imputed underpayment (as determined under paragraph (a) of this 
section) resulting from the adjustments requested in an AAR on the date 
the partnership files the AAR. For the rules applicable to the 
partnership's expenditure for an imputed underpayment, as well as any 
penalties and interest paid by the partnership with respect to an 
imputed underpayment, see Sec.  301.6241-4.
    (2) Penalties and interest. The IRS may impose a penalty, addition 
to tax, and additional amount with respect to any imputed underpayment 
determined under this section in accordance with section 6233(a)(3) 
(penalties determined from the reviewed year). In addition, the IRS may 
impose a penalty, addition to tax, and additional amount with respect to 
a failure to pay any imputed underpayment on the date an AAR is filed in 
accordance with section 6233(b)(3) (penalties with respect to the 
adjustment year return). Interest on an imputed underpayment is 
determined under chapter 67 of the Internal Revenue Code for the period 
beginning on the date after the due date of the partnership return for 
the reviewed year (as defined in Sec.  301.6241-1(a)(8)) (determined 
without regard to extension) and ending on the date the AAR is filed. 
See Sec.  301.6233(a)-1(b). In the case of any failure to pay an imputed 
underpayment on the date the AAR is filed, interest is determined in 
accordance with section 6233(b)(2) and Sec.  301.6233(b)-1(c).
    (3) Coordination with chapters 3 and 4 of the Internal Revenue 
Code--(i) Coordination when partnership pays an imputed underpayment. If 
a partnership pays an imputed underpayment resulting from adjustments 
requested in an AAR under paragraph (b)(1) of this section, the rules in 
Sec.  301.6241-6(b)(3) apply to treat the partnership as having paid the 
amount required to be withheld under chapter 3 or chapter 4 (as defined 
in Sec.  301.6241-6(b)(2)).
    (ii) Coordination when partnership elects to have adjustments taken 
into account by reviewed year partners. If a partnership elects under 
paragraph (c) of this section to have its reviewed year partners take 
into account adjustments requested in an AAR, the rules in Sec.  
301.6226-2(g)(3) apply to the partnership, and the rules in Sec.  
301.6226-3(f) apply to the reviewed year partners that take into account 
the adjustments pursuant to Sec.  301.6227-3.
    (c) Election to have adjustments resulting in an imputed 
underpayment taken into account by reviewed year partners. In lieu of 
paying an imputed underpayment under paragraph (b) of this section, the 
partnership may elect to have each reviewed year partner (as defined in 
Sec.  301.6241-1(a)(9)) take into account the adjustments requested in 
the AAR that are associated with such imputed underpayment in accordance 
with Sec.  301.6227-3. A partnership makes an election under this 
paragraph (c) at the time the AAR is filed in accordance with the forms, 
instructions, and other guidance prescribed by the IRS. If the 
partnership makes a valid election in accordance with this paragraph 
(c), the partnership is not liable for, nor required to pay, the imputed 
underpayment to which the election relates. Rather, each reviewed year 
partner must take into account their share of the adjustments requested 
in the AAR that are associated with such imputed

[[Page 283]]

underpayment in accordance with Sec.  301.6227-3. If an election is made 
under this paragraph (c) with respect to an imputed underpayment, 
modifications applied under paragraph (a)(2) of this section to such 
imputed underpayment are disregarded and all adjustments requested in 
the AAR that are associated with such imputed underpayment must be taken 
into account by each reviewed year partner in accordance with Sec.  
301.6227-3.
    (d) Adjustments not resulting in an imputed underpayment. If any 
adjustments requested in an AAR are adjustments that do not result in an 
imputed underpayment (as determined under paragraph (a) of this 
section), the partnership must furnish statements to each reviewed year 
partner and file such statements with the IRS in accordance with Sec.  
301.6227-1. Each reviewed year partner must take into account its share 
of the adjustments that do not result in an imputed underpayment 
requested in the AAR in accordance with Sec.  301.6227-3.
    (e) Applicability date--(1) In general. Except as provided in 
paragraph (e)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6559, Feb. 27, 2019]



Sec.  301.6227-3  Adjustments requested in an administrative 
adjustment request taken into account by reviewed year partners.

    (a) In general. Each reviewed year partner (as defined in Sec.  
301.6241-1(a)(9)) is required to take into account its share of 
adjustments requested in an administrative adjustment request (AAR) that 
either do not result in an imputed underpayment (as described in Sec.  
301.6225-1(f)(1)) or are associated with an imputed underpayment for 
which the partnership makes an election under Sec.  301.6227-2(c). Each 
reviewed year partner receiving a statement furnished in accordance with 
Sec.  301.6227-1(d) must take into account adjustments reflected in the 
statement in the reviewed year partner's taxable year that includes the 
date the statement is furnished (reporting year) in accordance with 
paragraph (b) of this section.
    (b) Adjustments taken into account by the reviewed year partner in 
the reporting year--(1) In general. Except as provided in paragraph (c) 
of this section, a reviewed year partner that is furnished a statement 
described in paragraph (a) of this section must treat the statement as 
if it were issued under section 6226(a)(2) and, on or before the due 
date for the reporting year must report and pay the additional reporting 
year tax (as defined in Sec.  301.6226-3(a)), if any, determined after 
taking into account that partner's share of the adjustments requested in 
the AAR in accordance with Sec.  301.6226-3. A reviewed year partner 
may, in accordance with Sec.  301.6226-3(a), reduce chapter 1 tax for 
the reporting year where the additional reporting year tax is less than 
zero. For purposes of paragraph (b) of this section, the rule under 
Sec.  301.6226-3(c)(3) (regarding the increased rate of interest) does 
not apply. Nothing in this section entitles any partner to a refund of 
tax imposed by chapter 1 of the Internal Revenue Code (chapter 1 tax) to 
which such partner is not entitled. For instance, a partnership-partner 
(as defined in Sec.  301.6241-1(a)(7)) may not claim a refund with 
respect to its share of any adjustment.
    (2) Examples. The following examples illustrate the rules of 
paragraph (b) of this section.

    (i) Example 1. In 2022, partner A, an individual, received a 
statement described in paragraph (a) of this section from Partnership 
with respect to Partnership's 2020 taxable year. Both A and Partnership 
are calendar year taxpayers and A is not claiming any refundable tax 
credit in 2020. The only adjustment shown on the statement is an 
increase in ordinary loss. Taking into account the adjustment, A 
determines that his additional reporting year tax for 2022 (the 
reporting year) is -$100 (that is, a reduction of $100.) A's chapter 1 
tax for 2022 (without regard to any additional reporting year tax) is 
$150. Applying the rules in paragraph (b)(1) of this section, A's 
chapter 1 tax for 2022 is reduced to $50 ($150 chapter 1

[[Page 284]]

tax without regard to the additional reporting year tax plus -$100 
additional reporting year tax).
    (ii) Example 2. The facts are the same as in Example 1 in paragraph 
(b)(2)(i) of this section, except A's chapter 1 tax for 2022 (without 
regard to any additional reporting year tax) is $75. Applying the rules 
in paragraph (b)(1) of this section, A's chapter 1 tax for 2022 is 
reduced by the -$100 of additional reporting year tax. Accordingly, A's 
chapter 1 tax for 2022 is -$25 ($75 chapter 1 tax without regard to any 
additional reporting year tax plus -$100 of additional reporting year 
tax), A owes no chapter 1 tax for 2022, and A may make a claim for 
refund with respect to any overpayment.

    (c) Reviewed year partners that are pass-through partners--(1) In 
general. Except as provided in paragraph (c) of this section, if a 
statement described in paragraph (a) of this section (including a 
statement described in this paragraph (c)(1)) is furnished to a reviewed 
year partner that is a pass-through partner (as defined in Sec.  
301.6241-1(a)(5)), the pass-through partner must take into account the 
adjustments reflected on that statement in accordance with Sec.  
301.6226-3(e) by treating the partnership that filed the AAR as the 
partnership that made an election under Sec.  301.6226-1. A pass-through 
partner that furnishes statements in accordance with Sec.  301.6226-
3(e)(3) must provide the information described in paragraph (c)(3) of 
this section in lieu of the information described in Sec.  301.6226-
3(e)(3)(iii) on the statements the pass-through partner furnishes to its 
partners. A pass-through partner that computes and pays an imputed 
underpayment in accordance with Sec.  301.6226-3(e)(4)(iii) may not 
apply any modifications to the amount of imputed underpayment. For 
purposes of this paragraph (c)(1), the statement furnished to the pass-
through partner by the partnership filing the AAR is treated as if it 
were a statement issued under section 6226(a)(2) and described in Sec.  
301.6226-2.
    (2) Adjustments that do not result in an imputed underpayment. If 
adjustments on a statement received by the pass-through partner under 
paragraph (a) or (c)(1) of this section do not result in an imputed 
underpayment for the pass-through partner (as described in Sec.  
301.6225-1(f)(1)), the pass-through partner must take the adjustments 
that do not result in an imputed underpayment into account in accordance 
with Sec.  301.6226-3(e)(3). The pass-through partner must take such 
adjustments into account under this paragraph (c)(2) even in situations 
where the pass-through partner pays an imputed underpayment in 
accordance with Sec.  301.6226-3(e)(4)(iii). The pass-through partner 
must provide the information described in paragraph (c)(3) of this 
section in lieu of the information described in Sec.  301.6226-
3(e)(3)(iii) on the statements the pass-through partner furnishes to its 
affected partners (as defined in Sec.  301.6226-3(e)(3)(i)).
    (3) Contents of statements. Each statement described in paragraph 
(c)(1) or (2) of this section must include the following correct 
information--
    (i) The name and taxpayer identification number (TIN) of the 
partnership that filed the AAR with respect to the adjustments reflected 
on the statements described in paragraph (c)(1) of this section;
    (ii) The adjustment year (as defined in Sec.  301.6241-1(a)(1)) of 
the partnership described in paragraph (c)(3)(i) of this section;
    (iii) The extended due date for the return for the adjustment year 
of the partnership described in paragraph (c)(3)(i) of this section (as 
described in Sec.  301.6226-3(e)(3)(ii));
    (iv) The date on which the partnership described in paragraph 
(c)(3)(i) of this section furnished its statements required under Sec.  
301.6227-1(d);
    (v) The name and TIN of the partnership that furnished the statement 
to the pass-through partner if different from the partnership described 
in paragraph (c)(3)(i) of this section;
    (vi) The name and TIN of the pass-through partner;
    (vii) The pass-through partner's taxable year to which the 
adjustments set forth in the statement described in paragraph (c)(1) of 
this section relate;
    (viii) The name and TIN of the affected partner to whom the 
statement is being furnished;
    (ix) The current or last address of the affected partner that is 
known to the pass-through partner;

[[Page 285]]

    (x) The affected partner's share of items as originally reported to 
such partner under section 6031(b) and, if applicable, section 6227, for 
the taxable year to which the adjustments reflected on the statement 
furnished to the pass-through partner relate;
    (xi) The affected partner's share of partnership adjustments 
determined under Sec.  301.6227-1(e)(2) as if the affected partner were 
the reviewed year partner and the partnership were the pass-through 
partner;
    (xii) Any other information required by forms, instructions, and 
other guidance prescribed by the IRS.
    (4) Affected partners must take into account the adjustments. A 
statement furnished to an affected partner in accordance with paragraph 
(c)(1) or (2) of this section is to be treated by the affected partner 
as if it were a statement described in paragraph (a) of this section. 
The affected partner must take into account its share of the adjustments 
reflected on such a statement in accordance with this section by 
treating references to ``reviewed year partner'' as ``affected 
partner.'' When taking into account the adjustments as described in 
Sec.  301.6226-3(e)(3)(iv), the rules under Sec.  301.6226-3(c)(3) 
(regarding the increased rate of interest) do not apply.
    (d) Applicability date--(1) In general. Except as provided in 
paragraph (d)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6560, Feb. 27, 2019]



Sec.  301.6227(c)-1  Administrative adjustment request by the tax matters 
partner on behalf of the partnership.

    (a) In general. A request for an administrative adjustment filed by 
the tax matters partner on behalf of the partnership shall be filed on 
the form prescribed by the Internal Revenue Service for that purpose in 
accordance with that form's instructions. Except as otherwise provided 
in that form's instructions, the request shall be--
    (1) Filed with the service center where the original partnership 
return was filed (but, if the notice described in section 6223(a)(1) 
(beginning of an administrative proceeding) has already been mailed to 
the tax matters partner, the statement should be filed with the Internal 
Revenue Service office that mailed such notice);
    (2) Signed by the tax matters partner; and
    (3) Accompanied by revised schedules showing the effects of the 
proposed changes on each partner and an explanation of the changes.
    (b) Denied request for treatment as a substituted return remains 
administrative adjustment request. An administrative adjustment request 
filed by the tax matters partner on behalf of the partnership for which 
substituted return treatment is requested but not granted remains an 
administrative adjustment request. Thus, for example, the tax matters 
partner may file suit under section 6228(a) if the Internal Revenue 
Service fails to take timely action on the request.
    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6227(b)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50554, Oct. 4, 2001]



Sec.  301.6227(d)-1  Administrative adjustment request filed on behalf 
of a partner.

    (a) In general. A request for an administrative adjustment on behalf 
of a partner shall be filed on the form prescribed by the Internal 
Revenue Service for that purpose in accordance with that form's 
instructions. Except as otherwise provided in that form's instructions, 
the request shall--
    (1) Be filed in duplicate, the original copy filed with the 
partner's amended income tax return (on which the partner computes the 
amount by which the partner's tax liability should be adjusted if the 
request is granted) and the other copy filed with the service center 
where the partnership return is filed (but, if the notice described in 
section

[[Page 286]]

6223(a)(1) (beginning of an administrative proceeding) has already been 
mailed to the tax matters partner, the statement should be filed with 
the Internal Revenue Service office that mailed such notice);
    (2) Identify the partner and the partnership by name, address, and 
taxpayer identification number;
    (3) Specify the partnership taxable year to which the administrative 
adjustment request applies;
    (4) Relate only to partnership items; and
    (5) Relate only to one partnership and one partnership taxable year.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6227(c)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50555, Oct. 4, 2001]



Sec.  301.6229(b)-1  Extension by agreement.

    (a) In general. Any partnership may authorize any person to extend 
the period described in section 6229(a) with respect to all partners by 
filing a statement to that effect with the service center where the 
partnership return is filed (but, if the notice described in section 
6223(a)(1) (beginning of an administrative proceeding) has already been 
mailed to the tax matters partner, the statement should be filed with 
the Internal Revenue Service office that mailed such notice). The 
statement shall--
    (1) Provide that it is an authorization for a person other than the 
tax matters partner to extend the assessment period with respect to all 
partners;
    (2) Identify the partnership and the person being authorized by 
name, address, and taxpayer identification number;
    (3) Specify the partnership taxable year or years for which the 
authorization is effective; and
    (4) Be signed by all persons who were general partners (or, in the 
case of an LLC, member-managers, as those terms are defined in Sec.  
301.6231(a)(7)-2(b)) at any time during the year or years for which the 
authorization is effective.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6229(b)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50555, Oct. 4, 2001]



Sec.  301.6229(b)-2  Special rule with respect to debtors in title 11 cases.

    (a) In general. Notwithstanding any other law or rule of law, if an 
agreement is entered into under section 6229(b)(1)(B), and the agreement 
is signed by a person who would be the tax matters partner but for the 
fact that, at the time that the agreement is executed, the person is a 
debtor in a bankruptcy proceeding under title 11 of the United States 
Code, such agreement shall be binding on all partners in the partnership 
unless the Internal Revenue Service has been notified of the bankruptcy 
proceeding in accordance with paragraph (b) of this section.
    (b) Procedures for notifying the Internal Revenue Service of a 
partner's bankruptcy proceeding. (1) The Internal Revenue Service shall 
be notified of the bankruptcy proceeding of the tax matters partner in 
accordance with the procedures set forth in Sec.  301.6223(c)-1.
    (2) In addition to the information specified in Sec.  301.6223(c)-1, 
notification that a person is (or was) a debtor in a bankruptcy 
proceeding shall include the date the bankruptcy proceeding was filed, 
the name and address of the court in which the bankruptcy proceeding 
exists (or took place), the caption of the bankruptcy proceeding 
(including the docket number or other identification number used by the 
court), and the status of the proceeding as of the date of notification.
    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6229(b)-2T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50555, Oct. 4, 2001]



Sec.  301.6229(c)(2)-1  Substantial omission of income.

    (a) Partnership return--(1) General rule. (i) If any partnership 
omits from the gross income stated in its return

[[Page 287]]

an amount properly includible therein and that amount is described in 
clause (i) of section 6501(e)(1)(A), subsection (a) of section 6229 
shall be applied by substituting ``6 years'' for ``3 years.''
    (ii) For purposes of paragraph (a)(1)(i) of this section, the term 
gross income, as it relates to a trade or business, means the total of 
the amounts received or accrued from the sale of goods or services, to 
the extent required to be shown on the return, without reduction for the 
cost of those goods or services.
    (iii) For purposes of paragraph (a)(1)(i) of this section, the term 
gross income, as it relates to any income other than from the sale of 
goods or services in a trade or business, has the same meaning as 
provided under section 61(a), and includes the total of the amounts 
received or accrued, to the extent required to be shown on the return. 
In the case of amounts received or accrued that relate to the 
disposition of property, and except as provided in paragraph (a)(1)(ii) 
of this section, gross income means the excess of the amount realized 
from the disposition of the property over the unrecovered cost or other 
basis of the property. Consequently, except as provided in paragraph 
(a)(1)(ii) of this section, an understated amount of gross income 
resulting from an overstatement of unrecovered cost or other basis 
constitutes an omission from gross income for purposes of section 
6229(c)(2).
    (iv) An amount shall not be considered as omitted from gross income 
if information sufficient to apprise the Commissioner of the nature and 
amount of the item is disclosed in the return, including any schedule or 
statement attached to the return.
    (b) Effective/applicability date. This section applies to taxable 
years with respect to which the period for assessing tax was open on or 
after September 24, 2009.

[T.D. 9511, 75 FR 78898, Dec. 17, 2010]



Sec.  301.6229(e)-1  Information with respect to unidentified partner.

    (a) In general. A partner who is not properly identified on the 
partnership return (including an indirect partner) remains an 
unidentified partner for purposes of section 6229(e) until identifying 
information is furnished as provided in Sec.  301.6223(c)-1.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6229(e)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50555, Oct. 4, 2001]



Sec.  301.6229(f)-1  Special rule for partial settlement agreements.

    (a) In general. If a partner enters into a settlement agreement with 
the Internal Revenue Service with respect to the treatment of some of 
the partnership items or partnership-level determinations of any 
penalty, addition to tax, or additional amount in dispute for a 
partnership taxable year, but one or more other partnership items or 
determinations remain in dispute, the period of limitations for 
assessing any tax attributable to the settled items shall be determined 
as if such agreement had not been entered into.
    (b) Other items remaining in dispute. Pursuant to section 6226(c), a 
partner is a party to a partnership-level judicial proceeding with 
respect to partnership items and partnership-level determinations of 
penalties, additions to tax or additional amounts. When a partner 
settles partnership items, the settled partnership items convert to 
nonpartnership items under section 6231(b)(1)(C) and will not be subject 
to any future or pending partnership-level proceeding pursuant to 
section 6226(d)(1). The remaining unsettled partnership items, as well 
as any unsettled penalty, addition to tax, or additional amount that 
relates to an adjustment to a partnership item (regardless of whether 
the partnership item to which it relates has been settled), however, 
will remain subject to determination under partnership-level 
administrative and judicial procedures. Consequently, any remaining 
unsettled items, including any unsettled penalty, addition to tax, or 
additional amount that relates to an adjustment to a partnership item, 
will be deemed to remain in dispute. Thus, the period for assessing any 
tax attributable to the settled items will be governed by the

[[Page 288]]

period for assessing any tax attributable to the remaining unsettled 
items.
    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6229(f)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50555, Oct. 4, 2001]



Sec.  301.6230(b)-1  Request that correction not be made.

    (a) In general. The request that a correction not be made under 
section 6230(b)(2) shall be in writing and shall--
    (1) State that it is a request that a correction not be made under 
section 6230(b);
    (2) Identify the partnership and the partner filing the request by 
name, address, and taxpayer identification number;
    (3) Be signed by the partner filing the request; and
    (4) Be filed with the Internal Revenue Service office that provided 
the notice of the correction of the error.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6230(b)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50556, Oct. 4, 2001]



Sec.  301.6230(c)-1  Claim arising out of erroneous computation, etc.

    (a) In general. A claim for refund under section 6230(c) shall state 
the grounds for the claim and shall be filed with the service center 
where the partner's return is filed.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6230(c)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50556, Oct. 4, 2001]



Sec.  301.6230(e)-1  Tax matters partner required to furnish names.

    (a) In general. If a notice of the beginning of an administrative 
proceeding is mailed to the tax matters partner with respect to any 
partnership taxable year, the tax matters partner shall furnish to the 
Internal Revenue Service office that issued the notice the name, 
address, profits interest, and taxpayer identification number of each 
person who was a partner in the partnership at any time during that 
taxable year if that information was not provided on the partnership 
return filed for that year.
    (b) Revised or additional information. If the tax matters partner 
discovers that any information furnished to the Internal Revenue Service 
on the partnership return or under paragraph (a) of this section was 
incorrect or incomplete, the tax matters partner shall furnish revised 
or additional information to the Internal Revenue Service within 15 days 
of discovering that the information furnished to the Internal Revenue 
Service was incorrect or incomplete.
    (c) Information required with respect to indirect partners. The 
requirements of this section for identifying information apply with 
respect to indirect partners to the extent that the tax matters partner 
has such information.
    (d) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6230(e)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50556, Oct. 4, 2001]



Sec.  301.6231-1  Notice of proceedings and adjustments.

    (a) Notices to which this section applies. In the case of any 
administrative proceeding under subchapter C of chapter 63 of the 
Internal Revenue Code (subchapter C of chapter 63), including an 
administrative proceeding with respect to an administrative adjustment 
request (AAR) filed by a partnership under section 6227, the following 
notices must be mailed to the partnership and the partnership 
representative (as described in section 6223 and Sec.  301.6223-1)--
    (1) Notice of any administrative proceeding initiated at the 
partnership level with respect to an adjustment of any partnership-
related item (as defined in Sec.  301.6241-1(a)(6)(ii)) for any 
partnership taxable year under subchapter C of chapter 63 (notice of 
administrative proceeding (NAP));

[[Page 289]]

    (2) Notice of any proposed partnership adjustment resulting from an 
administrative proceeding under subchapter C of chapter 63 (notice of 
proposed partnership adjustment (NOPPA)); and
    (3) Notice of any final partnership adjustment resulting from an 
administrative proceeding under subchapter C of chapter 63 (notice of 
final partnership adjustment (FPA)).
    (b) Time for mailing notices--(1) Notice of proposed partnership 
adjustment. A NOPPA is timely if it is mailed before the expiration of 
the period for making adjustments under section 6235(a)(1) (including 
any extensions under section 6235(b) and any special rules under section 
6235(c)).
    (2) Notice of final partnership adjustment. An FPA may not be mailed 
earlier than 270 days after the date on which the NOPPA is mailed unless 
the partnership agrees, in writing, with the Internal Revenue Service 
(IRS) to waive the 270-day period. See Sec.  301.6225-2(c)(3)(iii) for 
the effect of a waiver under this paragraph (b)(2) on the 270-period for 
requesting a modification under section 6225(c). See Sec.  301.6232-
1(d)(2) for the rules regarding a waiver of the limitations on 
assessment under Sec.  301.6232-1(c).
    (c) Last known address. A notice described in paragraph (a) of this 
section is sufficient if mailed to the last known address of the 
partnership representative and the partnership (even if the partnership 
or partnership representative has terminated its existence).
    (d) Notice mailed to partnership representative--(1) In general. A 
notice described in paragraph (a) of this section will be treated as 
mailed to the partnership representative if the notice is mailed to the 
partnership representative that is reflected in the IRS records as of 
the date the letter is mailed.
    (2) No partnership representative in effect. In any case in which no 
partnership representative designation is in effect in accordance with 
Sec.  301.6223-1(f), a notice described in paragraph (a) of this section 
mailed to ``PARTNERSHIP REPRESENTATIVE'' at the last known address of 
the partnership satisfies the requirements of this section.
    (e) Restrictions on additional FPAs after petition filed. The IRS 
may mail more than one FPA to any partnership for any partnership 
taxable year. However, except in the case of fraud, malfeasance, or 
misrepresentation of a material fact, the IRS may not mail an FPA to a 
partnership with respect to a partnership taxable year after the 
partnership has filed a timely petition for readjustment under section 
6234 with respect to an FPA issued with respect to such partnership 
taxable year.
    (f) Withdrawal of NAP or NOPPA. The IRS may, without consent of the 
partnership, withdraw any NAP or NOPPA. Except as described in Sec.  
301.6223-1(d)(2) and (e)(2), if the IRS withdraws a NAP or NOPPA under 
this paragraph (f), the NAP or NOPPA is treated as if it were never 
issued, and the withdrawn NAP or NOPPA has no effect for purposes of 
subchapter C of chapter 63. For instance, if the IRS withdraws a NAP 
with respect to a partnership taxable year, the limitation under Sec.  
301.6222-1(c)(5) regarding inconsistent treatment, and the prohibition 
under section 6227(c) on filing an AAR, after the mailing of a NAP no 
longer applies with respect to such taxable year.
    (g) Rescission of FPA. The IRS may, with the consent of the 
partnership, rescind any FPA. An FPA that is rescinded is not an FPA for 
purposes of subchapter C of chapter 63, and the partnership cannot bring 
a proceeding under section 6234 with respect to such FPA.
    (h) Applicability date--(1) In general. Except as provided in 
paragraph (h)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6561, Feb. 27, 2019]



Sec.  301.6231(a)(1)-1  Exception for small partnerships.

    (a) In general. For purposes of the exception for small partnerships 
under section 6231(a)(1)(B), the rules contained in this section shall 
apply.
    (1) 10 or fewer. The 10 or fewer limitation described in section 
6231(a)(1)(B)(i)

[[Page 290]]

is applied to the number of natural persons, C corporations, and estates 
of deceased partners that were partners at any one time during the 
partnership taxable year. Thus, for example, a partnership that at no 
time during the taxable year had more than 10 partners may be treated as 
a small partnership even if, because of transfers of interests in the 
partnership, 11 or more natural persons, C corporations, or estates of 
deceased partners owned interests in the partnership for some portion of 
the taxable year. See section 1361(a)(2) for the definition of a C 
corporation. For purposes of section 6231(a)(1)(B) and this section, a 
husband and wife (and their estates) are treated as one person.
    (2) Pass-thru partner. The exception provided in section 
6231(a)(1)(B) does not apply to a partnership for a taxable year if any 
partner in the partnership during that taxable year is a pass-thru 
partner as defined in section 6231(a)(9). For purposes of this paragraph 
(a)(2), an estate shall not be treated as a pass-thru partner.
    (3) Determination made annually. The determination of whether a 
partnership meets the requirements for the exception for small 
partnerships under section 6231(a)(1)(B) and this paragraph (a) shall be 
made with respect to each partnership taxable year. Thus, a partnership 
that does not qualify as a small partnership in one taxable year may 
qualify as a small partnership in another taxable year if the 
requirements for the exception under section 6231(a)(1)(B) and this 
paragraph (a) are met with respect to that other taxable year.
    (b) Election to have subchapter C of chapter 63 apply--(1) In 
general. Any partnership that meets the requirements set forth in 
section 6231(a)(1)(B) and paragraph (a) of this section (relating to the 
exception for small partnerships) may elect under paragraph (b)(2) of 
this section to have the provisions of subchapter C of chapter 63 of the 
Internal Revenue Code apply with respect to that partnership.
    (2) Method of election. A partnership shall make the election 
described in paragraph (b)(1) of this section by attaching a statement 
to the partnership return for the first taxable year for which the 
election is to be effective. The statement shall be identified as an 
election under section 6231(a)(1)(B)(ii), shall be signed by all persons 
who were partners of that partnership at any time during the partnership 
taxable year to which the return relates, and shall be filed at the time 
(determined with regard to any extension of time for filing) and place 
prescribed for filing the partnership return. However, for any 
partnership taxable year for which the due date of the return 
(determined without regard to extensions) is before January 2, 2002, the 
partnership may file the statement described in the preceding sentence 
on or before the date which is one year before the date specified in 
section 6229(a) for the expiration of the period of limitations with 
respect to that partnership (determined with regard to extensions of 
that period under section 6229(b)).
    (3) Years covered by election. The election shall be effective for 
the partnership taxable year to which the return relates and all 
subsequent partnership taxable years unless revoked with the consent of 
the Commissioner.
    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(a)(1)-1T contained in 26 
CFR part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50556, Oct. 4, 2001]



Sec.  301.6231(a)(2)-1  Persons whose tax liability is determined indirectly 
by partnership items.

    (a) Spouse filing joint return with individual holding a separate 
interest--(1) In general. Except as otherwise provided in this paragraph 
(a), a spouse who files a joint return with an individual holding a 
separate interest in the partnership shall be treated as a partner for 
purposes of subchapter C of chapter 63 of the Internal Revenue Code. 
Thus, the spouse who files a joint return with a partner will be 
permitted to participate in administrative and judicial proceedings.
    (2) Counting rules. A spouse who files a joint return with an 
individual holding a separate interest in the partnership shall not be 
counted as a partner for purposes of applying section 6223(b)

[[Page 291]]

(relating to special rules for partnerships with more than 100 partners) 
and section 6231(a)(1)(B) (relating to the exception for small 
partnerships).
    (3) Notice rules--(i) In general. Except as provided in paragraph 
(a)(3)(ii) of this section, for purposes of subchapter C of chapter 63 
of the Internal Revenue Code, a spouse who files a joint return with an 
individual holding a separate interest in the partnership shall be 
treated as receiving any notice received by the individual holding the 
separate interest.
    (ii) Spouse identified on partnership return or by statement. 
Paragraph (a)(3)(i) of this section shall not apply to a spouse who 
files a joint return with an individual holding a separate interest in 
the partnership if that spouse--
    (A) Is identified on the partnership return; or
    (B) Is identified as a partner entitled to notice as provided in 
Sec.  301.6223(c)-1(b).
    (4) Conversion of partnership items--(i) Individual holding a 
separate interest. A spouse who files a joint return with an individual 
holding a separate interest in the partnership shall cease to be treated 
as a partner in the partnership under paragraph (a)(1) of this section 
upon the conversion of the partnership items of the individual holding 
the separate interest in the partnership to nonpartnership items 
pursuant to section 6231(b). If each spouse holds a separate interest in 
the partnership, the previous sentence shall be applied separately with 
respect to each partnership interest.
    (ii) Spouse who files a joint return with an individual holding a 
separate interest in the partnership. A spouse who files a joint return 
with an individual holding a separate interest in the partnership shall 
cease to be treated as a partner in the partnership under paragraph 
(a)(1) of this section upon the occurrence of an event that would 
convert the partnership items of the spouse to nonpartnership items if 
the spouse were the owner of a separate interest.
    (iii) Examples. The following examples illustrate the application of 
paragraph (a)(4) of this section:

    Example 1. Husband owns a separate interest in ABC partnership and 
files a joint return with Wife. Husband files for bankruptcy. Pursuant 
to Sec.  301.6231(c)-7, upon filing for bankruptcy, the partnership 
items of the debtor convert to nonpartnership items. Thus, Husband's 
partnership items converted to nonpartnership items upon the filing of 
Husband's bankruptcy petition. Pursuant to paragraph (a)(4)(i) of this 
section, Wife is no longer treated as a partner of ABC partnership as of 
the date the partnership items of Husband converted to nonpartnership 
items.
    Example 2. Wife owns a separate interest in XYZ partnership and 
files a joint return with Husband. Husband files for bankruptcy. Because 
the filing of the bankruptcy petition by Husband is an event that would 
convert Husband's partnership items to nonpartnership items if Husband 
were the owner of a separate interest, Husband shall no longer be 
treated as a partner as of the filing of the bankruptcy petition. 
Pursuant to paragraph (a)(4)(ii) of this section, the partnership items 
of Wife are not affected by Husband's bankruptcy.

    (5) Cross-reference. See Sec.  301.6231(a)(12)-1 for special rules 
relating to spouses holding a joint interest in a partnership.
    (b) Shareholder of C corporation. A shareholder of a C corporation 
(as defined in section 1361(a)(2)) is not a partner in a partnership 
merely because the C corporation is a partner in that partnership.
    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(a)(2)-1T contained in 26 
CFR part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50557, Oct. 4, 2001]



Sec.  301.6231(a)(3)-1  Partnership items.

    (a) In general. For purposes of subtitle F of the Internal Revenue 
Code of 1954, the following items which are required to be taken into 
account for the taxable year of a partnership under subtitle A of the 
Code are more appropriately determined at the partnership level than at 
the partner level and, therefore, are partnership items:
    (1) The partnership aggregate and each partner's share of each of 
the following:
    (i) Items of income, gain loss, deduction, or credit of the 
partnership;
    (ii) Expenditures by the partnership not deductible in computing its 
taxable income (for example, charitable contributions);

[[Page 292]]

    (iii) Items of the partnership which may be tax preference items 
under section 57(a) for any partner;
    (iv) Income of the partnership exempt from tax;
    (v) Partnership liabilities (including determinations with respect 
to the amount of the liabilities, whether the liabilities are 
nonrecourse, and changes from the preceding taxable year); and
    (vi) Other amounts determinable at the partnership level with 
respect to partnership assets, investments, transactions and operations 
necessary to enable the partnership or the partners to determine--
    (A) The investment credit determined under section 46(a);
    (B) Recapture under section 47 of the investment credit;
    (C) Amounts at risk in any activity to which section 465 applies;
    (D) The depletion allowance under section 613A with respect to oil 
and gas wells; and
    (E) The application of section 751 (a) and (b);
    (2) Guaranteed payments;
    (3) Optional adjustments to the basis of partnership property 
pursuant to an election under section 754 (including necessary 
preliminary determinations, such as the determination of a transferee 
partner's basis in a partnership interest); and
    (4) Items relating to the following transactions, to the extent that 
a determination of such items can be made from determinations that the 
partnership is required to make with respect to an amount, the character 
of an amount, or the percentage interest of a partner in the 
partnership, for purposes of the partnership books and records or for 
purposes of furnishing information to a partner:
    (i) Contributions to the partnership;
    (ii) Distributions from the partnership; and
    (iii) Transactions to which section 707(a) applies (including the 
application of section 707(b)).
    (b) Factors that affect the determination of partnership items. The 
term ``partnership item'' includes the accounting practices and the 
legal and factual determinations that underlie the determination of the 
amount, timing, and characterization of items of income, credit, gain, 
loss, deduction, etc. Examples of these determinations are: The 
partnership's method of accounting, taxable year, and inventory method; 
whether an election was made by the partnership; whether partnership 
property is a capital asset, section 1231 property, or inventory; 
whether an item is currently deductible or must be capitalized; whether 
partnership activities have been engaged in with the intent to make a 
profit for purposes of section 183; and whether the partnership 
qualifies for the research and development credit under section 30.
    (c) Illustrations--(1) In general. This paragraph (c) illustrates 
the provisions of paragraph (a)(4) of this section. The determinations 
illustrated in this paragraph (c) that the partnership is required to 
make are not exhaustive; there may be additional determinations that the 
partnership is required to make which relate to a transaction listed in 
paragraph (a)(4) of this section. The critical element is that the 
partnership needs to make a determination with respect to a matter for 
the purposes stated; failure by the partnership actually to make a 
determination (for example, because it does not maintain proper books 
and records) does not prevent an item from being a partnership item.
    (2) Contributions. For purposes of its books and records, or for 
purposes of furnishing information to a partner, the partnership needs 
to determine:
    (i) The character of the amount received from a partner (for 
example, whether it is a contribution, a loan, or a repayment of a 
loan);
    (ii) The amount of money contributed by a partner;
    (iii) The applicability of the investment company rules of section 
721(b) with respect to a contribution; and
    (iv) The basis to the partnership of contributed property (including 
necessary preliminary determinations, such as the partner's basis in the 
contributed property).

To the extent that a determination of an item relating to a contribution 
can be made from these and similar determinations that the partnership 
is required to make, therefore, that item is a partnership item. To the 
extent that

[[Page 293]]

that determination requires other information, however, that item is not 
a partnership item. For example, it may be necessary to determine 
whether contribution of the property causes recapture by the 
contributing partner of the investment credit under section 47 in 
certain circumstances in which that determination is irrelevant to the 
partnership.
    (3) Distributions. For purposes of its books and records, or for 
purposes of furnishing information to a partner, the partnership needs 
to determine:
    (i) The character of the amount transferred to a partner (for 
example, whether it is a distribution, a loan, or a repayment of a 
loan);
    (ii) The amount of money distributed to a partner;
    (iii) The adjusted basis to the partnership of distributed property; 
and
    (iv) The character of partnership property (for example, whether an 
item is inventory or a capital asset).

To the extent that a determination of an item relating to a distribution 
can be made from these and similar determinations that the partnership 
is required to make, therefore, that item is a partnership item. To the 
extent that that determination requires other information, however, that 
item is not a partnership item. Such other information would include 
those factors used in determining the partner's basis for the 
partnership interest that are not themselves partnership items, such as 
the amount that the partner paid to acquire the partnership interest 
from a transferor partner if that transfer was not covered by an 
election under section 754.
    (4) Transactions to which section 707 (a) applies. For purposes of 
its books and records, the partnership needs to determine:
    (i) The amount transferred from the partnership to a partner or from 
a partner to the partnership in any transaction to which section 707(a) 
applies;
    (ii) The character of such an amount (for example, whether or not it 
is a loan; in the case of amounts paid over time for the purchase of an 
asset, what portion is interest); and
    (iii) The percentage of the capital interests and profits interests 
in the partnership owned by each partner.

To the extent that a determination of an item relating to a transaction 
to which section 707(a) applies can be made from these and similar 
determinations that the partnership is required to make, therefore, that 
item is a partnership item. To the extent that that determination 
requires other information, however, that item is not a partnership 
item. An example of such other information is the cost to the partner of 
goods sold to the partnership.
    (d) Effective date. This section shall apply with respect to 
partnership taxable years beginning after September 3, 1982. This 
section shall also apply with respect to any partnership taxable year 
ending after September 3, 1982, if with respect to that year there is an 
agreement entered into pursuant to section 407(a)(3) of the Tax Equity 
and Fiscal Responsibility Act of 1982.

[T.D. 8082, 51 FR 13214, Apr. 18, 1986; 51 FR 19062, May 27, 1986]



Sec.  301.6231(a)(5)-1  Definition of affected item.

    (a) In general. The term affected item means any item to the extent 
such item is affected by a partnership item. It includes items unrelated 
to the items reflected on the partnership return (for example, an item, 
such as the threshold for the medical expense deduction under section 
213, that varies if there is a change in an individual partner's 
adjusted gross income).
    (b) Basis in a partner's partnership interest. The basis of a 
partner's partnership interest is an affected item to the extent it is 
not a partnership item.
    (c) At-risk limitation. The application of the at-risk limitation 
under section 465 to a partner with respect to a loss incurred by a 
partnership is an affected item to the extent it is not a partnership 
item.
    (d) Passive losses. The application of the passive loss rules under 
section 469 to a partner with respect to a loss incurred by a 
partnership is an affected item to the extent it is not a partnership 
item.
    (e) Penalty, addition to tax, or additional amount--(1) In general. 
The term

[[Page 294]]

affected item includes any penalty, addition to tax, or additional 
amount provided by subchapter A of chapter 68 of the Internal Revenue 
Code of 1986 to the extent provided in this paragraph (e).
    (2) Penalty, addition to tax, or additional amount without floor. If 
a penalty, addition to tax, or additional amount that does not contain a 
floor (that is, a threshold amount of underpayment or understatement 
necessary before the imposition of the penalty, addition to tax, or 
additional amount) is imposed on a partner as the result of an 
adjustment to a partnership item, the term affected item shall include 
the penalty, addition to tax, or additional amount computed with 
reference to the portion of the underpayment that is attributable to the 
partnership item adjustment(s) to which the penalty, addition to tax, or 
additional amount applies.
    (3) Penalty, addition to tax, or additional amount containing 
floor--(i) Floor exceeded prior to adjustment. If a partner would have 
been subject to a penalty, addition to tax, or additional amount that 
contains a floor in the absence of an adjustment to a partnership item 
(that is, the partner's understatement or underpayment exceeded the 
floor even without an adjustment to a partnership item) the term 
affected item shall include only the portion of the penalty, addition to 
tax, or additional amount computed with reference to the partnership 
item (or affected item) adjustments.
    (ii) Floor not exceeded prior to adjustment. In the case of a 
penalty, addition to tax, or additional amount that contains a floor, if 
the taxpayer's understatement or underpayment does not exceed the floor 
prior to an adjustment to a partnership item but does so after such 
adjustment, the term affected item shall include the penalty, addition 
to tax, or additional amount computed with reference to the entire 
underpayment or understatement to which the penalty, addition to tax, or 
additional amount applies.
    (4) Examples. The provisions of this paragraph (e) may be 
illustrated by the following examples:

    Example 1. A, a partner of P, had an aggregate underpayment of 
$1,000 of which $100 is attributable to an adjustment to partnership 
items. A is negligent in reporting the partnership items. The accuracy-
related penalty under section 6662 for negligence computed with 
reference to the $100 underpayment attributable to the partnership item 
adjustments is an affected item.
    Example 2. B, a partner of P, understated B's income tax liability 
attributable to nonpartnership items by $6,000. An adjustment to a 
partnership item resulting from a partnership proceeding increased B's 
income tax by an additional $2,000. Prior to the adjustment, B would 
have been subject to the accuracy-related penalty under section 6662 for 
a substantial understatement of income tax with respect to the $6,000 
understatement attributable to nonpartnership items. The portion of the 
accuracy-related penalty under section 6662 computed with reference to 
the $2,000 understatement attributable to partnership items to which the 
accuracy-related penalty applies is an affected item. The portion of the 
accuracy-related penalty under section 6662 computed with reference to 
the $6,000 pre-existing understatement is not an affected item.
    Example 3. C, a partner in partnership P, understated C's income tax 
liability attributable to nonpartnership items by $4,000. As a result of 
an adjustment to partnership items, that understatement is increased to 
$10,000. Prior to the adjustment, C would not have been subject to the 
accuracy-related penalty under section 6662 for a substantial 
understatement of income tax. The accuracy-related penalty under section 
6662 computed with reference to the entire $10,000 understatement to 
which the accuracy-related penalty applies is an affected item.

    (f) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(a)(5)-1T contained in 26 
CFR part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50557, Oct. 4, 2001]



Sec.  301.6231(a)(6)-1  Computational adjustments.

    (a) Changes in a partner's tax liability--(1) In general. A change 
in the tax liability of a partner to properly reflect the treatment of a 
partnership item under subchapter C of chapter 63 of the Internal 
Revenue Code is made through a computational adjustment. A computational 
adjustment includes a change in tax liability that reflects a change in 
an affected item where that change is necessary to properly reflect the 
treatment of a partnership item, or

[[Page 295]]

any penalty, addition to tax, or additional amount that relates to an 
adjustment to a partnership item. However, if a change in a partner's 
tax liability cannot be made without making one or more partner-level 
determinations, that portion of the change in tax liability attributable 
to the partner-level determinations shall be made under the deficiency 
procedures (as described in subchapter B of chapter 63 of the Internal 
Revenue Code), except for any penalty, addition to tax, or additional 
amount that relates to an adjustment to a partnership item.
    (2) Affected items that do not require partner-level determinations. 
Changes in a partner's tax liability with respect to affected items that 
do not require partner-level determinations (such as the threshold 
amount of medical deductions under section 213 that changes as the 
result of determinations made at the partnership level) are 
computational adjustments that are directly assessed. When making 
computational adjustments, the Internal Revenue Service may assume that 
amounts the partner reported on the partner's individual return include 
all amounts reported to the partner by the partnership (on the Schedule 
K-1s attached to the partnership's original return), absent contrary 
notice to the Internal Revenue Service (for example, a ``Notice of 
Inconsistent Treatment'' pursuant to Sec.  301.6222(a)-2(c)). Such an 
assumption by the Internal Revenue Service does not constitute a 
partner-level determination. Moreover, substituting redetermined 
partnership items for the partner's previously reported partnership 
items (including partnership items included in carryover amounts) does 
not constitute a partner-level determination where the Internal Revenue 
Service otherwise accepts, for the sole purpose of determining the 
computational adjustment, all nonpartnership items (including, for 
example, nonpartnership item components of carryover amounts) as 
reported.
    (3) Affected items that require partner-level determinations. 
Changes in a partner's tax liability with respect to affected items that 
require partner-level determinations (such as a partner's at-risk amount 
to the extent it depends upon the source from which the partner obtained 
the funds that the partner contributed to the partnership) are 
computational adjustments that are subject to the deficiency procedures. 
Notwithstanding the preceding sentence, any penalty, addition to tax, or 
additional amount that relates to an adjustment to a partnership item is 
not subject to the deficiency procedures, but rather may be directly 
assessed as part of the computational adjustment that is made following 
the partnership proceeding, based on determinations in that proceeding, 
regardless of whether any partner-level determinations may be required.
    (b) Interest. A computational adjustment includes any interest due 
with respect to any underpayment or overpayment of tax attributable to 
adjustments to reflect properly the treatment of partnership items.
    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(a)(6)-1T contained in 26 
CFR part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50558, Oct. 4, 2001]



Sec.  301.6231(a)(7)-1  Designation or selection of tax matters partner.

    (a) In general. A partnership may designate a partner as its tax 
matters partner for a specific taxable year only as provided in this 
section. Similarly, the designation of a partner as the tax matters 
partner for a specific taxable year may be terminated only as provided 
in this section. If a partnership does not designate a general partner 
as the tax matters partner for a specific taxable year, or if the 
designation is terminated without the partnership designating another 
general partner as the tax matters partner, the tax matters partner is 
the partner determined under this section.
    (b) Person who may be designated tax matters partner--(1) General 
requirement. A person may be designated as the tax matters partner of a 
partnership for a taxable year only if that person--
    (i) Was a general partner in the partnership at some time during the 
taxable year for which the designation is made; or

[[Page 296]]

    (ii) Is a general partner in the partnership as of the time the 
designation is made.
    (2) Limitation on designation of tax matters partner who is not a 
United States person. If any United States person would be eligible 
under paragraph (a) of this section to be designated as the tax matters 
partner of a partnership for a taxable year, no person who is not a 
United States person may be designated as the tax matters partner of the 
partnership for that year without the consent of the Commissioner. For 
the definition of United States person, see section 7701(a)(30).
    (c) Designation of tax matters partner at time partnership return is 
filed. The partnership may designate a tax matters partner for a 
partnership taxable year on the partnership return for that taxable year 
in accordance with the instructions for that form.
    (d) Certification by current tax matters partner of selection of 
successor. If a partner properly designated as the tax matters partner 
of a partnership for a partnership taxable year under this section 
certifies that another partner has been selected as the tax matters 
partner of the partnership for that taxable year, that other partner is 
thereby designated as the tax matters partner for that year. The current 
tax matters partner shall make the certification by filing with the 
service center with which the partnership return is filed a statement 
that--
    (1) Identifies the partnership, the partner filing the statement, 
and the successor tax matters partner by name, address, and taxpayer 
identification number;
    (2) Specifies the partnership taxable year to which the designation 
relates;
    (3) Declares that the partner filing the statement has been properly 
designated as the tax matters partner of the partnership for the 
partnership taxable year and that that designation is in effect 
immediately before the filing of the statement;
    (4) Certifies that the other named partner has been selected as the 
tax matters partner of the partnership for that taxable year in 
accordance with the partnership's procedure for making that selection; 
and
    (5) Is signed by the partner filing the statement.
    (e) Designation by general partners with majority interest. The 
partnership may designate a tax matters partner for a partnership 
taxable year at any time after the filing of a partnership return for 
that taxable year by filing a statement with the service center with 
which the partnership return was filed. The statement shall--
    (1) Identify the partnership and the designated partner by name, 
address, and taxpayer identification number;
    (2) Specify the partnership taxable year to which the designation 
relates;
    (3) Declare that it is a designation of a tax matters partner for 
the taxable year specified; and
    (4) Be signed by persons who were general partners at the close of 
the year and were shown on the return for that year to hold more than 50 
percent of the aggregate interest in partnership profits held by all 
general partners as of the close of that taxable year. For purposes of 
this paragraph (e)(4), all limited partnership interests held by general 
partners shall be included in determining the aggregate interest in 
partnership profits held by such general partners.
    (f) Designation by partners with majority interest under certain 
circumstances--(1) In general. A tax matters partner may be designated 
for a partnership taxable year under this paragraph (f) only if, at the 
time the designation is made, each partner who was a general partner at 
the close of such partnership taxable year is described in one or more 
of paragraphs (f)(1)(i) through (iv) of this section as follows:
    (i) The general partner is dead, or, if the general partner is an 
entity, has been liquidated or dissolved;
    (ii) The general partner has been adjudicated by a court of 
competent jurisdiction to be no longer capable of managing his or her 
person or estate;
    (iii) The general partner's partnership items have become 
nonpartnership items under section 6231(b); or
    (iv) The general partner is no longer a partner in the partnership.
    (2) Method of making designation. A tax matters partner for a 
partnership taxable year may be designated under this paragraph (f) at 
any time after the

[[Page 297]]

filing of the partnership return for such taxable year by filing a 
written statement with the service center with which the partnership 
return was filed. The statement shall--
    (i) Identify the partnership and the designated tax matters partner 
by name, address, and taxpayer identification number;
    (ii) Specify the partnership taxable year to which the designation 
relates;
    (iii) Declare that it is a designation of a tax matters partner for 
the partnership taxable year specified; and
    (iv) Be signed by persons who were partners at the close of such 
taxable year and were shown on the return for that year to hold more 
than 50 percent of the aggregate interest in partnership profits held by 
all partners as of the close of such taxable year.
    (g) Designation of alternate tax matters partner. If an individual 
is designated as the tax matters partner of a partnership under 
paragraph (c), (d), (e), or (f) of this section, the document by which 
that individual is designated may also designate an alternate tax 
matters partner who will become tax matters partner upon the occurrence 
of one or more of the events described in paragraph (l)(1) (i) or (ii) 
of this section. The person designated as the alternate tax matters 
partner becomes the tax matters partner as of the time the designation 
of the tax matters partner is terminated under paragraph (l)(1) (i) or 
(ii) of this section. The designation of a person as the alternate tax 
matters partner shall have no effect in any other case.
    (h) Prior designations superseded. A designation of a tax matters 
partner for a partnership taxable year under paragraphs (d), (e), or (f) 
of this section shall supersede all prior designations of a tax matters 
partner for that year, including a prior designation of an alternate tax 
matters partner under paragraph (g) of this section.
    (i) Resignation of designated tax matters partner. A person 
designated as the tax matters partner of a partnership under this 
section may resign at any time by a written statement to that effect. 
The statement shall specify the partnership taxable year to which the 
resignation relates and shall identify the partnership and the tax 
matters partner by name, address, and taxpayer identification number. 
The statement shall also be signed by the resigning tax matters partner 
and shall be filed with the service center with which the partnership 
return was filed.
    (j) Revocation of designation. The partnership may revoke the 
designation of the tax matters partner for a partnership taxable year at 
any time after the filing of a partnership return for that taxable year 
by filing a statement with the service center with which the partnership 
return was filed. The statement shall--
    (1) Identify by name, address, and taxpayer identification number 
the partnership and the general partner whose designation as tax matters 
partner is being revoked;
    (2) Specify the partnership taxable year to which the revocation 
relates;
    (3) Declare that it is a revocation of a designation of the tax 
matters partner for the taxable year specified; and
    (4) Be signed by the persons described in paragraph (e)(4) of this 
section, or, if at the time that the revocation is made, each partner 
who was a general partner at the close of the partnership taxable year 
to which the revocation relates is described in one or more of 
paragraphs (f)(1) (i) through (iv) of this section, by the persons 
described in paragraph (f)(2)(iv) of this section.
    (k) When designation, etc., becomes effective--(1) In general. 
Except as otherwise provided in paragraph (k)(2) of this section, a 
designation, resignation, or revocation provided for in this section 
becomes effective on the day that the statement required by the 
applicable paragraph of this section is filed.
    (2) Notice of proceeding mailed. If a notice of beginning of an 
administrative proceeding with respect to a partnership taxable year is 
mailed before the date on which a statement of designation, resignation, 
or revocation provided for in this section with respect to that taxable 
year is filed, the Service is not required to give effect to such 
designation, resignation, or revocation until 30 days after the 
statement is filed.
    (l) Termination of designation--(1) In general. A designation of a 
tax matters partner for a taxable year under this section shall remain 
in effect until--

[[Page 298]]

    (i) The death of the designated tax matters partner;
    (ii) An adjudication by a court of competent jurisdiction that the 
individual designated as the tax matters partner is no longer capable of 
managing the individual's person or estate;
    (iii) The liquidation or dissolution of the tax matters partner, if 
the tax matters partner is an entity;
    (iv) The partnership items of the tax matters partner become 
nonpartnership items under section 6231(c) (relating to special 
enforcement areas); or
    (v) The day on which--
    (A) The resignation of the tax matters partner under paragraph (i) 
of this section;
    (B) A subsequent designation under paragraph (d), (e), or (f) of 
this section; or
    (C) A revocation of the designation under paragraph (j) of this 
section becomes effective.
    (2) Actions by the tax matters partner before termination of 
designation. The termination of the designation of a partner as the tax 
matters partner under paragraph (l)(1) of this section does not affect 
the validity of any action taken by that partner as tax matters partner 
before the designation is terminated. For example, if that tax matters 
partner had previously consented to an extension of the period for 
assessments under section 6229(b)(1)(B), that extension remains valid 
even after termination of the designation.
    (m) Tax matters partner where no partnership designation made--(1) 
In general. The tax matters partner for a partnership taxable year shall 
be determined under this paragraph (m) if--
    (i) The partnership has not designated a tax matters partner under 
this section for that taxable year; or
    (ii) The partnership has designated a tax matters partner under this 
section for that taxable year, that designation has been terminated 
under paragraph (l)(1) of this section, and the partnership has not made 
a subsequent designation under this section for that taxable year.
    (2) General partner having the largest profits interest is the tax 
matters partner. The tax matters partner for any partnership taxable 
year to which this paragraph (m) applies is the general partner having 
the largest profits interest in the partnership at the close of that 
taxable year (or where there is more than one such partner, the one of 
such partners whose name would appear first in an alphabetical listing). 
For purposes of this paragraph (m)(2), all limited partnership interests 
held by a general partner shall be included in determining that general 
partner's profits interest in the partnership. For purposes of this 
paragraph (m)(2), the general partner with the largest profits interest 
is determined based on the year-end profits interests reported on the 
Schedules K-1 filed with the partnership income tax return for the 
taxable year for which the determination is being made.
    (3) Termination of designation. A designation of a tax matters 
partner for a partnership taxable year under this paragraph (m) shall 
remain in effect until the earlier of the occurrence of one or more of 
the events described in paragraphs (l)(1) (i) through (iv) of this 
section or the day on which a designation under paragraph (d), (e), or 
(f) of this section becomes effective. If a designation of a tax matters 
partner for a partnership taxable year is terminated under this 
paragraph (m)(3) and the partnership has not subsequently designated a 
tax matters partner for that taxable year under paragraph (d), (e), or 
(f) of this section, the tax matters partner for that taxable year shall 
be determined under paragraph (m)(2) of this section, and, for purposes 
of applying paragraph (m)(2) of this section, the general partner whose 
designation was so terminated shall be treated as having no profits 
interest in the partnership for that taxable year.
    (n) Selection of tax matters partner by Commissioner when 
impracticable to apply the largest-profits-interest rule. If the 
partnership has not designated a tax matters partner under this section 
for the taxable year and it is impracticable (as determined under 
paragraph (o) of this section) to apply the largest-profits-interest 
rule of paragraph (m)(2) of this section, the Commissioner will select a 
tax matters partner as described in paragraph (p) of this section.
    (o) Impracticability of largest-profits-interest rule. It is 
impracticable to apply

[[Page 299]]

the largest-profits-interest rule of paragraph (m)(2) of this section 
if, on the date the rule is applied, any one of the following three 
conditions is met:
    (1) General partner with the largest profits interest is not 
apparent. The general partner with the largest profits interest is not 
apparent from the Schedules K-1 and is not otherwise readily 
determinable.
    (2) Each general partner is deemed to have no profits interest in 
the partnership. Each general partner is deemed to have no profits 
interest in the partnership under paragraph (m)(3) of this section 
(concerning termination of a designation under the largest-profits-
interest rule) because of the occurrence of one or more of the events 
described in paragraphs (l)(1) (i) through (iv) of this section 
(involving death, adjudication of incompetency, liquidation, and 
conversion of partnership items to nonpartnership items).
    (3) General partner with the largest profits interest is 
disqualified. The general partner with the largest profits interest 
determined under paragraph (m)(2) of this section--
    (i) Has been notified of suspension from practice before the 
Internal Revenue Service;
    (ii) Is incarcerated;
    (iii) Is residing outside the United States, its possessions, or 
territories; or
    (iv) Cannot be located or cannot perform the functions of a tax 
matters partner for any reason, except that lack of cooperation with the 
Internal Revenue Service by the general partner with the largest profits 
interest is not a basis for finding that the partner cannot perform the 
functions of a tax matters partner.
    (p) Commissioner's selection of the tax matters partner--(1) When 
the general partner with the largest profits interest is not apparent. 
If it is impracticable under paragraph (o)(1) of this section to apply 
the largest-profits-interest rule of paragraph (m)(2) of this section, 
the Commissioner will select (in accordance with the notification 
procedures set forth in paragraph (r) of this section) as the tax 
matters partner any person who was a general partner at any time during 
the taxable year under examination.
    (2) When each general partner is deemed to have no profits interest 
in the partnership. If it is impracticable under paragraph (o)(2) of 
this section to apply the largest-profits-interest rule of paragraph 
(m)(2) of this section, the Commissioner will select a partner 
(including a general or limited partner) as the tax matters partner in 
accordance with the criteria set forth in paragraph (q) of this section. 
The Commissioner will notify both the partner selected and the 
partnership of the selection, effective as of the date specified in the 
notice. For regulations applicable on or after January 26, 1999 
(reflecting statutory changes made effective July 22, 1998) and before 
January 25, 2002, see Sec.  301.6231(a)(7)-1T(p)(2).
    (2) When each general partner is deemed to have no profits interest 
in the partnership. If it is impracticable under paragraph (o)(2) of 
this section to apply the largest-profits-interest rule of paragraph 
(m)(2) of this section, the Commissioner will select a partner 
(including a general or limited partner) as the tax matters partner in 
accordance with the criteria set forth in paragraph (q) of this section. 
The Commissioner will notify, within 30 days of the selection, the 
partner selected, the partnership, and all partners required to receive 
notice under section 6223(a) of the selection of the tax matters 
partner, effective as of the date specified in the notice.
    (3) When the general partner with the largest profits interest is 
disqualified--(i) In general. Except as otherwise provided in paragraph 
(p)(3)(ii) of this section, if it is impracticable under paragraph 
(o)(3) of this section to apply the largest-profits-interest rule of 
paragraph (m)(2) of this section, the Commissioner will treat each 
general partner who fits the criteria contained in paragraph (o)(3) of 
this section as having no profits interest in the partnership for the 
taxable year and will select (in accordance with the notification 
procedures set forth in paragraph (r) of this section) a tax matters 
partner from the remaining persons who were general partners at any time 
during the taxable year.
    (ii) Partner selected if no general partner may be selected. If all 
general partners during the taxable year either are

[[Page 300]]

treated as having no profits interest in the partnership for the taxable 
year under paragraph (m)(3) of this section (concerning termination of a 
designation under the largest-profits-interest rule) or are described in 
paragraph (o)(3) of this section (general partner with the largest 
profits interest is disqualified), the Commissioner will select a 
partner (including a general or limited partner) as the tax matters 
partner in accordance with the criteria set forth in paragraph (q) of 
this section. The Commissioner will notify both the partner selected and 
the partnership of the selection, effective as of the date specified in 
the notice.
    (q) Criteria for selecting a partner as tax matters partner--(1) In 
general. The Commissioner will select a partner as the tax matters 
partner under paragraph (p) (2) or (3)(ii) of this section only if the 
partner was a partner in the partnership at the close of the taxable 
year under examination.
    (2) Criteria to be considered. The Commissioner may consider the 
following criteria in selecting a partner as the tax matters partner:
    (i) The general knowledge of the partner in tax matters and the 
administrative operation of the partnership.
    (ii) The partner's access to the books and records of the 
partnership.
    (iii) The profits interest held by the partner.
    (iv) The views of the partners having a majority interest in the 
partnership regarding the selection.
    (v) Whether the partner is a partner of the partnership at the time 
the tax-matters-partner selection is made.
    (vi) Whether the partner is a United States person (within the 
meaning of section 7701(a)(30)).
    (3) Limited restriction on subsequent designation of a tax matters 
partner by the partnership. For purposes of paragraphs (p) (2) and 
(3)(ii) of this section, the partnership cannot designate a partner who 
is not a general partner to serve as tax matters partner in lieu of a 
partner selected by the Commissioner.
    (r) Notification of partnership--(1) In general. If the Commissioner 
selects a tax matters partner under the provisions of paragraph (p)(1) 
or (p)(3)(i) of this section, the Commissioner will notify, within 30 
days of the selection, the partner selected, the partnership, and all 
partners required to receive notice under section 6223(a) of the 
selection of the tax matters partner, effective as of the date specified 
in the notice.
    (2) Limited opportunity for partnership to designate the tax matters 
partner. (i) Before the Commissioner selects a tax matters partner under 
paragraphs (p) (1) and (3)(i) of this section, the Commissioner will 
notify the partnership by mail that, after 30 days from the date of the 
notice, the Commissioner will make a determination that it is 
impracticable to apply the largest-profits-interest rule of paragraph 
(m)(2) of this section and will select the tax matters partner unless a 
prior designation is made by the partnership. This delay in making the 
determination will permit the partnership to designate a tax matters 
partner under paragraph (e) of this section (designation by general 
partners with a majority interest) or paragraph (f) of this section 
(designation by partners with a majority interest under certain 
circumstances), thereby avoiding a selection made by the Commissioner.
    (ii) During the 30-day period and prior to a tax-matters-partner 
designation by the partnership, the Commissioner will communicate with 
the partnership by sending all correspondence or notices to ``The Tax 
Matters Partner'' in care of the partnership at the partnership's 
address.
    (iii) Any subsequent designation of a tax matters partner by the 
partnership after the 30-day period will become effective as provided 
under paragraph (k)(2) of this section (concerning designations made 
after a notice of beginning of administrative proceeding is mailed).
    (s) Effective date. This section applies to all designations, 
selections, and terminations of a tax matters partner occurring on or 
after December 23, 1996, except for paragraphs (p)(2) and (r)(1), that 
are applicable on or after October 4, 2001.

[T.D. 8698, 61 FR 67459, Dec. 23, 1996, as amended by T.D. 8808, 64 FR 
3840, Jan. 26, 1999; T.D. 8965, 66 FR 50558, Oct. 4, 2001]

[[Page 301]]



Sec.  301.6231(a)(7)-2  Designation or selection of tax matters partner 
for a limited liability company (LLC).

    (a) In general. Solely for purposes of applying section 6231(a)(7) 
and Sec.  301.6231(a)(7)-1 to an LLC, only a member-manager of an LLC is 
treated as a general partner, and a member of an LLC who is not a 
member-manager is treated as a partner other than a general partner.
    (b) Definitions--(1) LLC. Solely for purposes of this section, LLC 
means an organization--
    (i) Formed under a law that allows the limitation of the liability 
of all members for the organization's debts and other obligations within 
the meaning of Sec.  301.7701-3(b)(2)(ii); and
    (ii) Classified as a partnership for Federal tax purposes.
    (2) Member. Solely for purposes of this section, member means any 
person who owns an interest in an LLC.
    (3) Member-manager. Solely for purposes of this section, member-
manager means a member of an LLC who, alone or together with others, is 
vested with the continuing exclusive authority to make the management 
decisions necessary to conduct the business for which the organization 
was formed. Generally, an LLC statute may permit the LLC to choose 
management by one or more managers (whether or not members) or by all of 
the members. If there are no elected or designated member-managers (as 
so defined in this paragraph (b)(3)) of the LLC, each member will be 
treated as a member-manager for purposes of this section.
    (c) Effective date. This section applies to all designations, 
selections, and terminations of a tax matters partner of an LLC 
occurring on or after December 23, 1996. Any other reasonable 
designation or selection of a tax matters partner of an LLC is binding 
for periods prior to December 23, 1996.

[T.D. 8698, 61 FR 67462, Dec. 23, 1996]



Sec.  301.6231(a)(12)-1  Special rules relating to spouses.

    (a) Spouses holding a joint interest--(1) In general. Except as 
otherwise provided in this section, spouses holding a joint interest in 
a partnership shall be treated as separate partners for purposes of 
subchapter C of chapter 63 of the Internal Revenue Code. Thus, both 
spouses may participate in administrative and judicial proceedings. The 
term joint interest includes tenancies in common, joint tenancies, 
tenancies by the entirety, and community property.
    (2) Identification of joint interest. For purposes of this section, 
an interest shall be treated as a joint interest in a partnership only 
if both spouses are identified on the partnership return or are 
identified as partners entitled to notice as provided in Sec.  
301.6223(c)-1(b).
    (3) Failure to identify both spouses as partners. If both spouses 
are not identified as set forth in paragraph (a)(2) of this section, 
then the partnership interest shall be treated as separately owned by 
the identified spouse.
    (4) Example. The following example illustrates the application of 
paragraph (a)(3) of this section:

    Example. Wife owns an interest in ABC Partnership and is identified 
on the Schedule K-1 of the partnership return. Wife and Husband live in 
a community property state. The partnership return of ABC partnership 
does not identify Husband, and Husband is not identified as a partner 
entitled to notice as provided in Sec.  301.6223(c)-1(b). Pursuant to 
paragraph (a)(3) of this section, the partnership interest of Wife shall 
be treated as separately owned by Wife.

    (b) Notice and counting rules--(1) In general. Except as provided in 
paragraph (b)(2) of this section, for purposes of applying section 6223 
(relating to notice to partners of proceedings) and section 
6231(a)(1)(B) (relating to the exception for small partnerships), 
spouses holding a joint interest in a partnership shall be treated as 
one partner. Except as provided in paragraph (b)(2) of this section, the 
Internal Revenue Service or the tax matters partner may send any 
required notice to either spouse.
    (2) Identified spouse entitled to notice. For purposes of applying 
section 6223 (relating to notice to partners of proceeding) for a 
partnership taxable year, an individual who holds a joint interest in a 
partnership with a spouse who is entitled to notice under section 6223 
shall be entitled to receive separate notice under section 6223 if such 
individual--

[[Page 302]]

    (i) Is identified as a partner on the partnership return for that 
taxable year; or
    (ii) Is identified as a partner entitled to notice as provided in 
Sec.  301.6223(c)-1(b).
    (c) Conversion of partnership items--(1) In general. If spouses 
holding a joint interest in a partnership are treated as separate 
partners under this section, then section 6231(b) (relating to the 
conversion of partnership items) shall be applied separately to each 
spouse.
    (2) Example. The following example illustrates the application of 
paragraph (c) of this section:

    Example. Husband and Wife own a joint interest in XYZ Partnership. 
The partnership return identifies both spouses on the Schedule K-1. 
Under this section, each spouse is treated as a separate partner. If 
Wife enters into a settlement agreement, Wife's partnership items 
convert to nonpartnership items pursuant to section 6231(b)(1)(C). 
Accordingly, Wife no longer has the right to participate in the 
partnership proceeding subsequent to entering into the settlement 
agreement. Pursuant to paragraph (c) of this section, however, the 
partnership items of Husband are not affected by the conversion of the 
partnership items of Wife, and Husband continues to have the right to 
participate in the partnership proceeding. This result is the same 
regardless of whether the partnership items are reported on a joint 
return or on separate returns.

    (d) Cross-reference. See Sec.  301.6231(a)(2)-1(a) for special rules 
relating to spouses who file joint returns with individuals holding a 
separate interest in a partnership.
    (e) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(a)(12)-1T contained in 26 
CFR part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50559, Oct. 4, 2001]



Sec.  301.6231(c)-1  Special rules for certain applications for tentative 
carryback and refund adjustments based on partnership losses, deductions, 
or credits.

    (a) Application subject to this section. This section applies in the 
case of an application under section 6411 (relating to tentative 
carryback and refund adjustments) based on losses, deductions, or 
credits of a partnership if the Commissioner, or the Commissioner's 
delegate, determines, after review of the available relevant 
information, that it is highly likely that a person described in section 
6700(a)(1) made, with respect to the partnership--
    (1) A gross valuation overstatement; or
    (2) A false or fraudulent statement with respect to the tax benefits 
to be secured by reason of holding an interest in the partnership that 
would be subject to a penalty under section 6700 (relating to penalty 
for promoting abusive tax shelters, etc.). This section applies only 
with respect to an application based upon the original reporting on the 
partner's income tax return of partnership losses, deductions, or 
credits. Thus, this section does not apply to a request for 
administrative adjustment under section 6227 through which a partner 
seeks to change the partner's reporting of partnership items on the 
partner's income tax return (or on an earlier request for administrative 
adjustment).
    (b) Determination of special enforcement area. In the case of an 
application under section 6411 described in paragraph (a) of this 
section, precluding an assessment under section 6225 that would be 
permitted under section 6213(b)(3) (relating to assessments arising out 
of tentative carryback or refund adjustments) with respect to any amount 
applied, credited, or refunded as a result of the application may 
encourage the proliferation of abusive tax shelter partnerships and make 
the eventual collection of taxes due more difficult. Consequently, the 
Secretary hereby determines that such applications present special 
enforcement considerations within the meaning of section 6231(c)(1)(E).
    (c) Assessment permitted under section 6213(b)(3). Notwithstanding 
section 6225 (relating to restrictions on assessment with respect to 
partnership items), an assessment that would be permitted under section 
6213(b)(3) with respect to any amount applied, credited, or refunded as 
a result of an application described in paragraph (a) of this section 
may be made before there is a final partnership-level determination with 
respect to the losses, deductions, or credits on which the application 
is

[[Page 303]]

based. As provided in section 6213(b)(1), the Internal Revenue Service 
shall mail notice of any such assessment to the partner filing the 
application. The notice shall also inform the partner of the partner's 
limited right to elect to treat items as nonpartnership items as 
provided in paragraph (d) of this section.
    (d) Limited right to elect to treat items as nonpartnership items--
(1) In general. A partner to whom the Internal Revenue Service mails a 
notice of suspension of action on a refund claim under paragraph (c) of 
this section may elect in accordance with this paragraph (d) to have all 
partnership items for the partnership taxable year in which the losses, 
deductions, or credits at issue arose treated as nonpartnership items.
    (2) Time and place of making election. The election shall be made by 
filing a statement with the Internal Revenue Service office that mailed 
the notice of suspension. The statement may be filed at any time--
    (i) After the date which is one year after the date on which the 
partnership return was filed for the partnership taxable year in which 
the items at issue arose; and
    (ii) Before the date on which the Internal Revenue Service mails to 
the tax matters partner the notice of final partnership administrative 
adjustment for the partnership taxable year in which the items at issue 
arose. For purposes of this paragraph (d)(2), a partnership return filed 
before the last day prescribed by law for its filing (determined without 
regard to extensions) shall be treated as filed on the last day.
    (3) Contents of the statement. The statement shall--
    (i) Be clearly identified as an election to have partnership items 
treated as nonpartnership items because of notification of an assessment 
under section 6213(b)(3);
    (ii) Identify the partnership by name, address, and taxpayer 
identification number;
    (iii) Identify the partner making the election by name, address, and 
taxpayer identification number;
    (iv) Specify the partnership taxable year to which the election 
applies; and
    (v) Be signed by the partner making the election.
    (e) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(c)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50559, Oct. 4, 2001]



Sec.  301.6231(c)-2  Special rules for certain refund claims based on losses, 
deductions, or credits from abusive tax shelter partnerships.

    (a) Claims subject to this section. This section applies in the case 
of a claim for credit or refund based on losses, deductions or credits 
of a partnership if the Commissioner, or the Commissioner's delegate, 
determines, after review of available relevant information, that it is 
highly likely that a person described in section 6700(a)(1) made, with 
respect to the partnership--
    (1) A gross valuation overstatement; or
    (2) A false or fraudulent statement with respect to the tax benefits 
to be secured by reason of holding an interest in the partnership that 
would be subject to a penalty under section 6700 (relating to penalty 
for promoting abusive tax shelters, etc.). This section applies only 
with respect to a claim that is based upon the partner's original 
reporting on the partner's income tax return of partnership losses, 
deductions, or credits. Thus, this section does not apply to a request 
for administrative adjustment under section 6227 through which a partner 
seeks to change the partner's reporting of partnership items on the 
partner's income tax return (or on an earlier request for administrative 
adjustment). For purposes of this section, any income tax return 
requesting a credit or refund shall be treated as a claim for a credit 
or refund.
    (b) Determination of special enforcement area. Granting a claim for 
credit or refund described in paragraph (a) of this section may 
encourage the proliferation of abusive tax shelter partnerships and make 
the eventual collection of taxes more difficult. Consequently, the 
Secretary hereby determines that such claims present special enforcement 
considerations within the meaning of section 6231(c)(1)(E).

[[Page 304]]

    (c) Action on refund claims suspended. In the case of a claim 
described in paragraph (a) of this section, the Internal Revenue Service 
may mail to the partner filing the claim a notice stating that no action 
will be taken on the partner's claim until the completion of the 
partnership-level proceedings. The notice shall also inform the partner 
of the partner's limited right to elect to treat items as nonpartnership 
items as provided in paragraph (d) of this section.
    (d) Limited right to elect to treat items as nonpartnership items--
(1) In general. A partner to whom the Internal Revenue Service mails a 
notice of suspension under paragraph (c) of this section may elect in 
accordance with this paragraph (d) to have all partnership items for the 
partnership taxable year in which the losses, deductions, or credits at 
issue arose treated as nonpartnership items.
    (2) Time and place of making election. The election shall be made by 
filing a statement with the Internal Revenue Service office that mailed 
the notice of suspension. The statement may be filed at any time--
    (i) After the date which is one year after the date on which the 
partnership return was filed for the partnership taxable year in which 
the items at issue arose; and
    (ii) Before the date on which the Internal Revenue Service mails to 
the tax matters partner the notice of final partnership administrative 
adjustment for the partnership taxable year in which the items at issue 
arose. For purposes of this paragraph (d)(2), a partnership return filed 
before the last day prescribed by law for its filing (determined without 
regard to extensions) shall be treated as filed on the last day.
    (3) Contents of the statement. The statement shall--
    (i) Be clearly identified as an election to have partnership items 
treated as nonpartnership items because of notification of suspension of 
action on a refund claim;
    (ii) Identify the partnership by name, address, and taxpayer 
identification number;
    (iii) Identify the partner making the election by name, address, and 
taxpayer identification number;
    (iv) Specify the partnership taxable year to which the election 
applies; and
    (v) Be signed by the partner making the election.
    (e) Effective date. This section applies with respect to any claim 
described in paragraph (a) of this section that is filed on or after 
October 4, 2001. For claims filed prior to October 4, 2001, see Sec.  
301.6231(c)-2T contained in 26 CFR part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50560, Oct. 4, 2001]



Sec.  301.6231(c)-3  Limitation on applicability of Sec. Sec.  301.6231(c)-4 
through 301.6231(c)-8.

    (a) In general. A provision of Sec. Sec.  301.6231(c)-4 through 
301.6231(c)-8 shall not apply with respect to partnership items arising 
in a partnership taxable year if, as of the date on which those items 
would otherwise begin to be treated as nonpartnership items under that 
provision--
    (1) A notice of final partnership administrative adjustment with 
respect to those items has been mailed to the tax matters partner; and
    (2) Either--
    (i) The period during which an action with respect to that final 
partnership administrative adjustment may be brought under section 6226 
has expired and no such action has been brought; or
    (ii) The decision of the court in an action brought under section 
6226 with respect to that final partnership administrative adjustment 
has become final.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(c)-3T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50560, Oct. 4, 2001]



Sec.  301.6231(c)-4  Termination and jeopardy assessment.

    (a) In general. The treatment of items as partnership items with 
respect to a partner against whom an assessment of income tax under 
section 6851 (termination assessment) or section 6861 (jeopardy 
assessment) is made will

[[Page 305]]

interfere with the effective and efficient enforcement of the internal 
revenue laws. Accordingly, partnership items of such a partner arising 
in any partnership taxable year ending with or within the partner's 
taxable year for which an assessment of income tax under section 6851 or 
6861 is made shall be treated as nonpartnership items as of the moment 
before such assessment is made.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(c)-4T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50561, Oct. 4, 2001]



Sec.  301.6231(c)-5  Criminal investigations.

    (a) In general. The treatment of items as partnership items with 
respect to a partner under criminal investigation for violation of the 
internal revenue laws relating to income tax will interfere with the 
effective and efficient enforcement of the internal revenue laws. 
Accordingly, partnership items of such a partner arising in any 
partnership taxable year ending on or before the last day of the latest 
taxable year of the partner to which the criminal investigation relates 
shall be treated as nonpartnership items as of the date on which the 
partner is notified that the partner is the subject of a criminal 
investigation and written notification is sent by the Internal Revenue 
Service that the partner's partnership items shall be treated as 
nonpartnership items. The partnership items of a partner who is notified 
that the partner is the subject of a criminal investigation shall not be 
treated as nonpartnership items under this section unless and until such 
partner is sent written notification from the Internal Revenue Service 
of such treatment.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(c)-5T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50561, Oct. 4, 2001]



Sec.  301.6231(c)-6  Indirect method of proof of income.

    (a) In general. The treatment of items as partnership items with 
respect to a partner whose taxable income is determined by use of an 
indirect method of proof of income will interfere with the effective and 
efficient enforcement of the internal revenue laws. Accordingly, 
partnership items of such a partner arising in any partnership taxable 
year ending on or before the last day of the taxable year of the partner 
for which a deficiency notice based upon an indirect method of proof of 
income is mailed to the partner shall be treated as nonpartnership items 
as of the date on which that deficiency notice is mailed to the partner.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(c)-6T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50561, Oct. 4, 2001]



Sec.  301.6231(c)-7  Bankruptcy and receivership.

    (a) Bankruptcy. The treatment of items as partnership items with 
respect to a partner named as a debtor in a bankruptcy proceeding will 
interfere with the effective and efficient enforcement of the internal 
revenue laws. Accordingly, partnership items of such a partner arising 
in any partnership taxable year ending on or before the last day of the 
latest taxable year of the partner with respect to which the United 
States could file a claim for income tax due in the bankruptcy 
proceeding shall be treated as nonpartnership items as of the date the 
petition naming the partner as debtor is filed in bankruptcy.
    (b) Receivership. The treatment of items as partnership items with 
respect to a partner for whom a receiver has been appointed in any 
receivership proceeding before any court of the United States or of any 
State or the District of Columbia will interfere with the effective and 
efficient enforcement of the internal revenue laws. Accordingly, 
partnership items of such a partner arising in any partnership taxable 
year ending on or before the last day of

[[Page 306]]

the latest taxable year of the partner with respect to which the United 
States could file a claim for income tax due in the receivership 
proceeding shall be treated as nonpartnership items as of the date a 
receiver is appointed in any receivership proceeding before any court of 
the United States or of any State or the District of Columbia.
    (c) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(c)-7T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50561, Oct. 4, 2001]



Sec.  301.6231(c)-8  Prompt assessment.

    (a) In general. The treatment of items as partnership items with 
respect to a partner on whose behalf a request for a prompt assessment 
of tax under section 6501(d) is filed will interfere with the effective 
and efficient enforcement of the internal revenue laws. Accordingly, 
partnership items of such a partner arising in any partnership taxable 
year ending with or within any taxable year of the partner with respect 
to which a request for a prompt assessment of tax is filed shall be 
treated as nonpartnership items as of the date that the request is 
filed.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(c)-8T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50561, Oct. 4, 2001]



Sec.  301.6231(d)-1  Time for determining profits interest of partners 
for purposes of sections 6223(b) and 6231(a)(11).

    (a) Partner owns interest at close of year. For purposes of section 
6223(b) (relating to special rules for partnerships with more than 100 
partners) and section 6231(a)(11) (relating to 5-percent groups), except 
as otherwise provided in this section, the profits interest held by a 
partner, directly or indirectly through one or more pass-thru partners, 
in a partnership (the source partnership) to which subchapter C of 
chapter 63 of the Internal Revenue Code applies shall be determined at 
the close of the source partnership's taxable year.
    (b) Partner does not own interest at close of year. If the entire 
direct and indirect interest of a partner in a source partnership is 
terminated by virtue of a disposition by such partner of such interest 
(or by virtue of the disposition of an interest held by one or more 
pass-thru partners through which the partner holds an interest), then 
the profits interest of such partner in the source partnership shall be 
measured as of the moment before the disposition causing such 
termination. The preceding sentence shall not apply with respect to a 
termination if subsequent to such termination and before the close of 
the source partnership's taxable year the partner acquires a direct or 
indirect interest in the source partnership.
    (c) Disposition of last remaining portion of interest is disposition 
of entire interest. If a partner (or a pass-thru partner through which a 
partner holds an interest) makes several partial dispositions of an 
interest in a source partnership during a taxable year of the source 
partnership, paragraph (b) of this section will apply with respect to 
the disposition which causes a termination of the partner's entire 
direct and indirect interest in the source partnership.
    (d) No profits interest in certain cases. If--
    (1) The interest of a partner in a partnership is entirely disposed 
of before the close of the taxable year of the partnership; and
    (2) No items of the partnership for that taxable year are required 
to be taken into account by the partner, then that partner has no 
profits interest in the partnership for that taxable year.
    (e) Examples. The provisions of this section may be illustrated by 
the following examples. Assume in all examples that there have been no 
reacquisitions prior to the close of the source partnership's taxable 
year. The examples are as follows:

    Example 1. B holds an interest in partnership P through T, a pass-
thru partner. P uses a fiscal year ending June 30 as P's taxable year; B 
and T use the calendar year as the taxable year. As of the close of P's 
taxable year ending June 30, 2002, T holds an interest

[[Page 307]]

in P and B holds an interest in P through T. The profits interest held 
by B in P through T for that year is determined as of June 30, 2002.
    Example 2. Assume the same facts as in Example 1, except that B sold 
the entire interest that B held in P through T on November 5, 2001. The 
profits interest held by B in P through T for P's taxable year ending 
June 30, 2002, is determined as of the moment before the sale on 
November 5, 2001.
    Example 3. C holds an interest in partnership P through T, a pass-
thru partner. C, P, and T all use the calendar year as the taxable year. 
T disposes of T's interest in P on June 5, 2002. The profits interest 
held by C in P through T for 2002 is determined as of the moment before 
the disposition on June 5, 2002.
    Example 4. Assume the same facts as in Example 3, except that C sold 
C's entire interest in T (and, therefore, C's entire interest that C 
held in P through T) on March 15, 2002. The profits interest held by C 
in P through T for 2002 is determined as of the moment before the sale 
on March 15, 2002.
    Example 5. On January 1, 2002, D held a 2 percent profits interest 
in partnership P. Both D and P use the calendar year as the taxable 
year. On August 1, 2002, D transfers three-fourths of D's profits 
interest in P to E. On September 1, 2002, D sells D's remaining .5 
percent profits interest in P to F. For purposes of sections 6223(b) and 
6231(a)(11), D had a .5 percent profits interest in P for 2002.
    Example 6. Assume the same facts as in Example 5, except that on 
January 1, 2002, D also held a 1 percent profits interest in partnership 
P through T, a pass-thru partner which also uses the calendar year as 
the taxable year. In addition to the sale to E on August 1, 2002, D sold 
a portion of D's interest in T on December 1, 2002, such that after the 
sale, D held a .2 percent profits interest in P through T. D made no 
other transfers of interests in either P or T. For purposes of sections 
6223(b) and 6231(a)(11), D had a .7 percent profits interest in P for 
2002.

    (f) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(d)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50562, Oct. 4, 2001]



Sec.  301.6231(e)-1  Effect of a determination with respect to 
a nonpartnership item on the determination of a partnership item.

    (a) In general. The determination of an item after it has become a 
nonpartnership item with respect to a partner is not controlling in the 
determination of that item with respect to other partners. Thus, for 
example, the determination by a court in a separate proceeding relating 
to a partner that a certain partnership expenditure was deductible does 
not bind either the Internal Revenue Service or the other partners in a 
later partnership or other proceeding.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(e)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50562, Oct. 4, 2001]



Sec.  301.6231(e)-2  Judicial decision not a bar to certain adjustments.

    (a) In general. A court decision with respect to a partner's income 
tax liability attributable to nonpartnership items shall not be a bar to 
further proceedings with respect to that partner's income tax liability 
if that partner's partnership items become nonpartnership items after 
the appropriate time to include such nonpartnership items in the earlier 
court proceeding has passed. Thus, the Internal Revenue Service could 
issue a later deficiency notice for the same taxable year with respect 
to that partner or that partner could bring a refund suit with respect 
to those items that have become nonpartnership items.
    (b) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(e)-2T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50562, Oct. 4, 2001]



Sec.  301.6231(f)-1  Disallowance of losses and credits in certain cases.

    (a) Application of section. This section applies if--
    (1) A partnership, whether domestic or foreign, that is required to 
file a return under section 6031 for a taxable year fails to file the 
return within the time prescribed; and
    (2) At any time after the close of that taxable year, either--
    (i) The tax matters partner of that partnership resides outside the 
United States; or

[[Page 308]]

    (ii) The books and records of that partnership are maintained 
outside the United States.
    (b) Computational adjustment permitted if return is not filed after 
mailing of notice. Except as otherwise provided in paragraph (c) of this 
section, if--
    (1) This section applies with respect to a partnership for a 
partnership taxable year;
    (2) The Internal Revenue Service mails notice to a partner that the 
losses and credits arising from that partnership for that year will be 
disallowed to that partner unless the partnership files a return for 
that year within 60 days after the date on which the notice is mailed; 
and
    (3) The partnership fails to file a return for that year within that 
60-day period, the Internal Revenue Service may, without conducting a 
partnership-level proceeding, mail a notice of computational adjustment 
to that partner to reflect the disallowance of any loss (including a 
capital loss) or credit arising from that partnership for that year.
    (c) Restriction on notices under paragraph (b) of this section. 
Neither the notice referred to in paragraph (b)(2) of this section nor 
the notice of computational adjustment referred to in paragraph (b) of 
this section may be mailed on a day on which--
    (1) The tax matters partner of the partnership resides within the 
United States; and
    (2) The books and records of the partnership are maintained within 
the United States. Thus, if this section applies with respect to a 
partnership for a taxable year solely because the tax matters partner of 
that partnership resided outside the United States for a period after 
the close of that taxable year and the tax matters partner later takes 
up residence within the United States, no notice may be mailed under 
paragraph (b) of this section while the tax matters partner resides 
within the United States.
    (d) No disallowance in certain circumstances. If the person to whom 
the notice referred to in paragraph (b)(2) of this section is mailed 
establishes to the satisfaction of the Internal Revenue Service--
    (1) That the losses and credits arising from the partnership for the 
year are proper; and
    (2) That the partner has made a good faith effort to have the 
partnership file the required return; the Internal Revenue Service may 
allow the losses and credits in whole or in part.
    (e) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6231(f)-1T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50563, Oct. 4, 2001]



Sec.  301.6232-1  Assessment, collection, and payment of imputed underpayment.

    (a) In general. An imputed underpayment determined under subchapter 
C of chapter 63 of the Internal Revenue Code (Code) is assessed and 
collected in the same manner as if the imputed underpayment were a tax 
imposed by subtitle A of the Code for the adjustment year (as defined in 
Sec.  301.6241-1(a)(1)) except that the deficiency procedures under 
subchapter B of chapter 63 of the Code do not apply to an assessment of 
an imputed underpayment. Accordingly, no notice under section 6212 is 
required for, and the restrictions under section 6213 do not apply to, 
the assessment of any imputed underpayment. See paragraph (c) of this 
section for limitations on assessment and paragraph (d) of this section 
for exceptions to restrictions on adjustments.
    (b) Payment of the imputed underpayment. Upon receipt of notice and 
demand from the Internal Revenue Service (IRS), an imputed underpayment 
must be paid by the partnership at the place and time stated in the 
notice. In the case of an adjustment requested in an administrative 
adjustment request (AAR) under section 6227(b)(1) that is taken into 
account by the partnership under Sec.  301.6227-2(b), payment of the 
imputed underpayment is due on the date the AAR is filed. The IRS may 
assess the amount of the imputed underpayment reflected on the AAR on 
the date the AAR is filed. For interest with respect to an imputed 
underpayment, see Sec.  301.6233(a)-1(b).
    (c) Limitation on assessment--(1) In general. Except as otherwise 
provided

[[Page 309]]

by this section or subtitle F of the Code (except for subchapter B of 
chapter 63), no assessment of an imputed underpayment may be made (and 
no levy or proceeding in any court for the collection of an imputed 
underpayment may be made, begun, or prosecuted) before--
    (i) The close of the 90th day after the day on which a notice of a 
final partnership adjustment (FPA) under section 6231(a)(3) was mailed; 
and
    (ii) If a petition for readjustment is filed under section 6234 with 
respect to such FPA, the decision of the court has become final.
    (2) Specified similar amount. The limitations under paragraph (c)(1) 
of this section do not apply in the case of a specified similar amount 
as defined in section 6232(f)(2).
    (d) Exceptions to restrictions on adjustments and assessments--(1) 
Adjustments treated as mathematical or clerical errors--(i) In general. 
A notice to a partnership that, on account of a mathematical or clerical 
error appearing on the partnership return or as a result of a failure by 
a partnership-partner (as defined in Sec.  301.6241-1(a)(7)) to comply 
with section 6222(a), the IRS has adjusted or will adjust partnership-
related items (as defined in Sec.  301.6241-1(a)(6)(ii)) to correct the 
error or to make the items consistent under section 6222(a) and has 
assessed or will assess any imputed underpayment (determined in 
accordance with Sec.  301.6225-1) resulting from the adjustment is not 
considered an FPA under section 6231(a)(3). A petition for readjustment 
under section 6234 may not be filed with respect to such notice. The 
limitations under section 6232(b) and paragraph (c) of this section do 
not apply to an assessment under this paragraph (d)(1)(i). For the 
definition of mathematical or clerical error generally, see section 
6213(g)(2). For application of mathematical or clerical error in the 
case of inconsistent treatment by a partner that fails to give notice, 
see Sec.  301.6222-1(b).
    (ii) Request for abatement--(A) In general. Except as provided in 
paragraph (d)(1)(ii)(B) of this section, a partnership that is mailed a 
notice described in paragraph (d)(1)(i) of this section may file with 
the IRS, within 60 days after the date of such notice, a request for 
abatement of any assessment of an imputed underpayment specified in such 
notice. Upon receipt of the request, the IRS must abate the assessment. 
Any subsequent assessment of an imputed underpayment with respect to 
which abatement was made is subject to the provisions of subchapter C of 
chapter 63 of the Code, including the limitations under paragraph (c) of 
this section.
    (B) Adjustments with respect to inconsistent treatment by a 
partnership-partner. If an adjustment that is the subject of a notice 
described in paragraph (d)(1)(i) of this section is due to the failure 
of a partnership-partner to comply with section 6222(a), paragraph 
(d)(1)(ii)(A) of this section does not apply, and abatement of any 
assessment specified in such notice is not available. However, prior to 
assessment, a partnership-partner that has failed to comply with section 
6222(a) may correct the inconsistency by filing an administrative 
adjustment request in accordance with section 6227 or filing an amended 
partnership return and furnishing amended statements, as appropriate.
    (iii) Partnerships that have an election under section 6221(b) in 
effect. In the case of a partnership-partner that has an election under 
section 6221(b) in effect for the reviewed year (as defined in Sec.  
301.6241-1(a)(8)), any tax resulting from an adjustment due to the 
partnership-partner's failure to comply with section 6222(a) may be 
assessed with respect to the reviewed year partners (as defined in Sec.  
301.6241-1(a)(9)) of the partnership-partner (or indirect partners of 
the partnership-partner, as defined in Sec.  301.6241-1(a)(4)). Such tax 
may be assessed in the same manner as if the tax were on account of a 
mathematical or clerical error appearing on the reviewed year partner's 
or indirect partner's return, except that the procedures under section 
6213(b)(2) for requesting an abatement of such assessment do not apply.
    (2) Partnership may waive limitations. A partnership may at any time 
by a signed notice in writing filed with the IRS waive the limitations 
under paragraph (c) of this section (whether or not an FPA under section 
6231(a)(3) has

[[Page 310]]

been mailed by the IRS at the time of the waiver).
    (e) Limit on amount of imputed underpayment where no proceeding is 
begun. If no proceeding under section 6234 is begun with respect to an 
FPA under section 6231(a)(3) before the close of the 90th day after the 
day on which such FPA was mailed, the amount for which the partnership 
is liable under section 6225 with respect to such FPA cannot exceed the 
amount determined in such FPA.
    (f) Applicability date--(1) In general. Except as provided in 
paragraph (f)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6562, Feb. 27, 2019]



Sec.  301.6233-1  Extension to entities filing partnership returns.

    (a) Entities filing a partnership return. Except as provided in 
paragraph (c)(1) of this section, the provisions of subchapter C of 
chapter 63 of the Internal Revenue Code (subchapter C) and the 
regulations thereunder shall apply with respect to any taxable year of 
an entity for which such entity files a partnership return as well as to 
such entity's items for that taxable year and to any person holding an 
interest in such entity at any time during that taxable year. Any final 
partnership administrative adjustment or judicial determination 
resulting from a proceeding under subchapter C with respect to such 
taxable year may include a determination that the entity is not a 
partnership for such taxable year as well as determinations with respect 
to all items of the entity that would be partnership items, as defined 
in section 6231(a)(3) and the regulations thereunder, if such entity had 
been a partnership in such taxable year (including, for example, any 
amounts taxable to an entity determined to be an association taxable as 
a corporation). For example, a final determination under subchapter C 
that an entity that filed a partnership return is an association taxable 
as a corporation will serve as a basis for a computational adjustment 
reflecting the disallowance of any loss or credit claimed by a purported 
partner with respect to that entity.
    (b) Partnership return filed but no entity found to exist. Paragraph 
(a) of this section shall apply where a partnership return is filed for 
a taxable year but it is determined that there is no entity for such 
taxable year. For purposes of applying paragraph (a) of this section, 
the partnership return shall be treated as if it were filed by an 
entity. However, any final partnership administrative adjustment or 
judicial determination resulting from a proceeding under subchapter C 
with respect to such taxable year may also include a determination that 
there is no entity for such taxable year.
    (c) Exceptions. Paragraph (a) of this section shall not apply to--
    (1) Entities for any taxable year in which such entity would be 
excepted from the provisions of subchapter C of the Internal Revenue 
Code under section 6231(a)(1)(B) and the regulations thereunder 
(relating to the exception for small partnerships) if such entity were a 
partnership for such taxable year; and
    (2) Entities for any taxable year for which a partnership return was 
filed for the sole purpose of making the election described in section 
761(a).
    (d) Effective dates. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec.  301.6233-1T contained in 26 CFR part 
1, revised April 1, 2001.

[T.D. 8965, 66 FR 50563, Oct. 4, 2001]



Sec.  301.6233(a)-1  Interest and penalties determined from reviewed year.

    (a) Interest and penalties with respect to the reviewed year. Except 
to the extent provided in section 6226(c), in the case of a partnership 
adjustment (as defined in Sec.  301.6241-1(a)(6)) for a reviewed year 
(as defined in Sec.  301.6241-1(a)(8)), a partnership is liable for--
    (1) Interest computed in accordance with paragraph (b) of this 
section; and
    (2) Any penalty, addition to tax, or additional amount as provided 
under paragraph (c) of this section.

[[Page 311]]

    (b) Computation of interest with respect to partnership adjustments 
for the reviewed year--(1) Interest on an imputed underpayment. The 
interest imposed on an imputed underpayment resulting from partnership 
adjustments for the reviewed year is the interest that would be imposed 
under chapter 67 of the Internal Revenue Code (Code) if the imputed 
underpayment were treated as an underpayment of tax for the reviewed 
year. The interest imposed on an imputed underpayment under paragraph 
(b) of this section begins on the day after the due date of the 
partnership return (without regard to extension) for the reviewed year 
and ends on the earlier of--
    (i) The date prescribed for payment (as described in Sec.  301.6232-
1(b));
    (ii) The due date of the partnership return (without regard to 
extension) for the adjustment year (as defined in Sec.  301.6241-
1(a)(1)); or
    (iii) The date the imputed underpayment is fully paid.
    (2) Interest on penalties with respect to the reviewed year. The 
interest imposed on any penalties, additions to tax, and additional 
amounts determined under paragraph (c) of this section is the interest 
that would be imposed under chapter 67 of the Code treating the 
partnership return for the reviewed year as the return of tax with 
respect to which such penalty, addition to tax, or additional amount is 
imposed.
    (c) Penalties with respect to partnership adjustments for the 
reviewed year--(1) In general. In accordance with section 6221(a), the 
applicability of any penalties, additions to tax, and additional amounts 
that relate to an adjustment to any partnership-related item for the 
reviewed year is determined at the partnership level as if the 
partnership had been an individual subject to tax imposed by chapter 1 
of the Code for the reviewed year, and the imputed underpayment were an 
actual underpayment of tax or understatement for such year. Nothing in 
this paragraph (c)(1) affects the application of any penalty, addition 
to tax, or additional amount that may apply to the partnership or to any 
reviewed year partner (as defined in Sec.  301.6241-1(a)(9)) or to any 
indirect partner (as defined in Sec.  301.6241-1(a)(4)) that is 
unrelated to an adjustment to a partnership-related item under 
subchapter C of chapter 63 of the Code. Except as provided in Sec.  
301.6225-2(d), a partner-level defense (as described in Sec.  301.6226-
3(d)(3)) may not be raised in a proceeding of the partnership.
    (2) Determination of the amount of accuracy-related penalty and 
fraud penalty--(i) In general. The amount of any penalty under part II 
of subchapter A of chapter 68 of the Code (accuracy-related or fraud 
penalties) that relates to any partnership adjustment for the reviewed 
year is determined in accordance with this paragraph (c)(2). If in 
determining the imputed underpayment under Sec.  301.6225-1 (or Sec.  
301.6225-2 in the case of modification), any grouping or subgrouping 
contains a negative adjustment (as defined in Sec.  301.6225-
1(d)(2)(ii)) and at least one positive adjustment (as defined in Sec.  
301.6225-1(d)(2)(iii)) that is subject to penalty, first apply the rules 
for allocating negative adjustments in paragraph (c)(2)(iii) of this 
section. Then, apply the rules in paragraph (c)(2)(ii) of this section 
to calculate penalty amounts. If there are no negative adjustments, do 
not apply the rules in paragraph (c)(2)(iii) of this section and instead 
apply only the rules in paragraph (c)(2)(ii) of this section. For all 
purposes under paragraph (c)(2) of this section, adjustments that do not 
result in the imputed underpayment (as described in Sec.  301.6225-1(f)) 
and adjustments excluded from the determination of the imputed 
underpayment under Sec.  301.6225-2(b)(2) are disregarded.
    (ii) Calculating the portion of an imputed underpayment subject to 
penalty and penalty amounts. To determine the portion of an imputed 
underpayment subject to a penalty and the amount of a particular 
penalty, apply the following steps to all adjustments subject to penalty 
remaining after application of negative adjustments (as described in 
paragraph (c)(2)(iii) of this section) and to all adjustments subject to 
penalty contained in groupings or subgroupings that do not contain a 
negative adjustment.
    (A) For purposes of applying this paragraph (c)(2)(ii)(A), disregard 
adjustments to credits or adjustments treated as adjustments to credits.

[[Page 312]]

Total all adjustments to which a particular penalty was imposed and to 
which the highest rate of tax in effect for the reviewed year under 
section 1 or 11 was applied when calculating the imputed underpayment. 
See Sec.  301.6225-1(b)(1)(iv).
    (B) Multiply the total in paragraph (c)(2)(ii)(A) of this section by 
the highest rate of tax in effect for the reviewed year under section 1 
or 11.
    (C) If the imputed underpayment was modified in accordance with 
Sec.  301.6225-2(b)(3), repeat the steps in paragraphs (c)(2)(ii)(A) and 
(B) of this section for every tax rate applied in calculating the 
imputed underpayment by substituting the applicable tax rate determined 
under Sec.  301.6225-2(b)(3) for the highest rate of tax in effect for 
the reviewed year under section 1 or 11.
    (D) Total all amounts determined after completing the steps in 
paragraphs (c)(2)(ii)(A) through (C) of this section.
    (E) Adjust the amount calculated in paragraph (c)(2)(ii)(D) of this 
section by:
    (1) Increasing by the net adjustments subject to the penalty in the 
credit grouping (as described in paragraph (c)(2)(iii)(C)(1) of this 
section) after application of paragraph (c)(2)(iii)(A) of this section; 
or
    (2) Decreasing in accordance with the rules in paragraph 
(c)(2)(iii)(C)(2) of this section by the amount of negative adjustments 
in the credit grouping if, after application of paragraph (c)(2)(iii)(A) 
of this section, only negative adjustments in the credit grouping 
remain.
    (3) The result after completing the calculation in paragraphs 
(c)(2)(ii)(E)(1) and (2) of this section is the portion of the imputed 
underpayment to which the particular penalty was imposed.
    (F) Multiply the total calculated in paragraph (c)(2)(ii)(E) of this 
section by the penalty rate applicable to the particular penalty. This 
is the total penalty amount for adjustments to which the particular 
penalty was imposed.
    (iii) Allocating negative adjustments--(A) In general. Negative 
adjustments offset positive adjustments within the same grouping or, if 
the negative adjustment is in a subgrouping, within that same 
subgrouping. For purposes of applying this paragraph (c)(2)(iii), all 
adjustments to credits and adjustments treated as adjustments to credits 
are treated as grouped in the credit grouping without regard to whether 
the adjustments were subgrouped for purposes of Sec.  301.6225-1 (or 
Sec.  301.6225-2 in the case of modification). Adjustments that do not 
result in the imputed underpayment are disregarded as provided in 
paragraph (c)(2) of this section. Negative adjustments are allocated in 
accordance with the following rules:
    (1) Negative adjustments are first applied to offset positive 
adjustments to which no penalties have been imposed.
    (2) Any amount of negative adjustments remaining after application 
of paragraph (c)(2)(iii)(A)(1) of this section are applied to offset 
adjustments to which a penalty has been imposed at the lowest penalty 
rate.
    (3) Any amount of negative adjustments remaining after application 
of paragraph (c)(2)(iii)(A)(2) of this section are applied to offset 
adjustments to which a penalty has been imposed at the next highest rate 
in ascending order of rate until no amount of negative adjustments 
remain or no positive adjustments to which a penalty has been imposed 
remain.
    (B) Allocation of negative adjustment within a penalty rate. The 
Internal Revenue Service (IRS) may provide additional guidance regarding 
the ordering or allocation of negative adjustments for purposes of 
paragraph (c)(2)(iii)(A) of this section where more than one penalty is 
imposed at the same penalty rate.
    (C) Adjustments remaining after allocation of negative adjustments--
(1) In general. For purposes of paragraph (c)(2)(ii) of this section, 
any positive adjustment to which a penalty has been imposed that has not 
been fully offset by a negative adjustment after application of 
paragraph (c)(2)(iii)(A) of this section is a net adjustment subject to 
penalty remaining after allocation of negative adjustments.
    (2) Additional rules regarding allocation of negative credit 
amounts. If, after application of paragraph (c)(2)(iii)(A) of this 
section, an amount of negative adjustments remain in the credit 
grouping, the amount of remaining negative

[[Page 313]]

adjustments may reduce the portion of the imputed underpayment that is 
subject to a penalty, but not below zero, in accordance with the 
following rules:
    (i) The amount of remaining negative adjustments in the credit 
grouping are first applied to the portion of the imputed underpayment to 
which no penalty has been imposed, as calculated in accordance with 
paragraph (c)(2)(iii)(C)(3) of this section.
    (ii) Any amount of negative adjustment in the credit grouping 
remaining after application of paragraph (c)(2)(iii)(C)(2)(i) of this 
section is applied to the portion of the imputed underpayment to which a 
penalty has been imposed at the lowest penalty rate as calculated in 
accordance with paragraph (c)(2)(ii) of this section.
    (iii) Any amount of negative adjustments in the credit grouping 
remaining after application of paragraph (c)(2)(iii)(C)(1)(ii) of this 
section is applied to the portion of the imputed underpayment to which a 
penalty has been imposed at the next highest rate in ascending order of 
rate in accordance with paragraph (c)(2)(iii) of this section until no 
negative amount remains.
    (3) Calculating the portion of the imputed underpayment to which no 
penalty was imposed before the application of negative adjustments to 
credits. To determine the portion of the imputed underpayment that is 
not subject to penalty for purposes of paragraph (c)(2)(iii)(C)(2)(i) of 
this section, apply the rules in paragraphs (c)(2)(ii)(A) through (E) of 
this section of this section but substitute adjustment to which no 
penalty was imposed for adjustments to which a particular penalty was 
imposed.
    (iv) Special rules--(A) Fraud penalties under section 6663. If any 
portion of an imputed underpayment is determined by the IRS to be 
attributable to fraud, the entire imputed underpayment is treated as 
attributable to fraud. This paragraph (c)(2)(iv)(A) does not apply to 
any portion of the imputed underpayment the partnership establishes by a 
preponderance of the evidence is not attributable to fraud.
    (B) Substantial understatement penalty under section 6662(d)--(1) In 
general. For purposes of application of the penalty under section 
6662(d) (substantial understatement of income tax), the imputed 
underpayment is treated as an understatement under section 6662(d)(2). 
To determine whether an imputed underpayment treated as an 
understatement under this paragraph (c)(2)(iv)(B)(1) is a substantial 
understatement under section 6662(d)(1), the rules of section 
6662(d)(1)(A) apply by treating the amount described in paragraph 
(c)(2)(iv)(B)(2) of this section as the tax required to be shown on the 
return for the taxable year under section 6662(d)(1)(A)(i).
    (2) Amount of tax required to be shown on the return. The amount 
described in this paragraph (c)(2)(iv)(B)(2) is the tax that would 
result by treating the net income or loss of the partnership for the 
reviewed year, reflecting any partnership adjustments as finally 
determined, as taxable income described in section 1(c) (determined 
without regard to section 1(h)).
    (C) Reportable transaction understatement under section 6662A. For 
purposes of application of the penalty under section 6662A (reportable 
transaction understatement penalty), the portion of an imputed 
underpayment attributable to an item described under section 6662A(b)(2) 
is treated as a reportable transaction understatement under section 
6662A(b).
    (D) Reasonable cause and good faith. For purposes of determining 
whether a partnership satisfies the reasonable cause and good faith 
exception under section 6664(c) or (d) with respect to a penalty under 
section 6662, section 6662A, or section 6663, the partnership is treated 
as the taxpayer. See Sec.  1.6664-4 of this chapter. Accordingly, the 
facts and circumstances taken into account to determine whether the 
partnership has established reasonable cause and good faith are the 
facts and circumstances applicable to the partnership.
    (v) Examples. The following examples illustrate the rules of 
paragraph (c) of this section. For purposes of these examples, each 
partnership has a calendar taxable year, and the highest tax rate in 
effect for all taxpayers is 40 percent for all relevant periods.


[[Page 314]]


    (A) Example 1. In an administrative proceeding with respect to 
Partnership's 2018 partnership return, the IRS makes a positive 
adjustment to ordinary income of $100. The $100 adjustment is due to 
negligence or disregard of rules or regulations under section 6662(c), 
and a 20-percent accuracy-related penalty applies under section 6662(a). 
The IRS also makes a positive adjustment to long-term capital gain of 
$300, but no penalty applies with respect to that adjustment. These are 
the only adjustments. The portion of the imputed underpayment to which 
the 20-percent penalty applies is $40 ($100 x 40 percent), and the 
penalty is $8 ($40 x 20 percent).
    (B) Example 2. The facts are the same as in Example 1 in paragraph 
(c)(2)(v)(A) of this section, except that the IRS makes a positive 
adjustment to credits of $10. The adjustment to credits is due to 
negligence or disregard of rules or regulations under section 6662(c), 
and a 20-percent accuracy-related penalty applies under section 6662(a). 
The portion of the imputed underpayment to which the 20-percent 
accuracy-related penalty applies is $50 (($100 x 40 percent) + $10), and 
the penalty is $10 ($50 x 20 percent).
    (C) Example 3. The facts are the same as in Example 2 in paragraph 
(c)(2)(v)(B) of this section, except that there is also a negative 
adjustment to ordinary income of $50 that was subgrouped under Sec.  
301.6225-1 with the $100 positive adjustment to ordinary. Because the 
$50 negative adjustment to ordinary income was subgrouped under Sec.  
301.6225-1 with the $100 positive adjustment to ordinary income, in 
determining the portion of the imputed underpayment subject to penalty, 
the $50 negative adjustment is applied to offset part of the $100 
positive adjustment to ordinary income ($100-$50 = $50). Accordingly, 
the portion of the imputed underpayment to which the 20-percent 
accuracy-related penalty applies is $30 (($50 x 40 percent) + $10), and 
the penalty is $6 ($30 x 20 percent).
    (D) Example 4. The facts are the same as in Example 3 in paragraph 
(c)(2)(v)(C) of this section, except that the $300 adjustment to long-
term capital gain is due to a gross valuation misstatement. A 40-percent 
accuracy-related penalty under section 6662(a) and (h) applies to the 
portion of the imputed underpayment attributable to the gross valuation 
misstatement. The portion of the imputed underpayment to which the 20 
percent accuracy-related penalty applies remains $30, and the 20-percent 
accuracy-related penalty remains $6. The portion of the imputed 
underpayment to which the 40-percent gross valuation misstatement 
penalty applies is $120 ($300 x 40 percent), and the gross valuation 
misstatement penalty is $48 ($120 x 40 percent). The total accuracy-
related penalty under section 6662(a) is $54.
    (E) Example 5. Partnership has four equal partners during its 2019 
taxable year: Two partners are partnerships, A and B; one partner is a 
tax-exempt entity, C; and the fourth partner is an individual, D. In an 
administrative proceeding with respect to Partnership's 2019 taxable 
year, the IRS timely mails a notice of proposed partnership adjustment 
(NOPPA) to Partnership for its 2019 taxable year proposing a single 
partnership positive adjustment to Partnership's ordinary income by 
$400,000. The $400,000 positive adjustment is due to negligence or 
disregard of rules or regulations under section 6662(c). A 20-percent 
accuracy-related penalty under section 6662(a) and (c) applies to the 
portion of the imputed underpayment attributable to the negligence or 
disregard of the rules or regulations. In the NOPPA, the IRS determines 
an imputed underpayment of $160,000 ($400,000 x 40 percent) and that the 
20-percent penalty applies to the entire imputed underpayment. The 
penalty is $32,000 ($160,000 x 20 percent). Partnership requests 
modification under Sec.  301.6225-2(d)(3) (regarding tax-exempt 
partners) with respect to the amount of additional income allocated to 
C, and the IRS approves the modification request. As a result, 
Partnership's total netted partnership adjustment under Sec.  301.6225-
1(b)(2) is $300,000 ($400,000 less $100,000 allocable to C). The imputed 
underpayment is $120,000 (($300,000) x 40 percent), and the penalty is 
$24,000 ($120,000 x 20 percent).
    (F) Example 6. The facts are the same as in Example 5 in paragraph 
(c)(2)(v)(E) of this section, except in addition to the modification 
with respect to C's

[[Page 315]]

tax-exempt status, Partnership requests a modification under Sec.  
301.6225-2(d)(2) (regarding amended returns) with respect to the 
$100,000 of additional income allocated to D. In accordance with the 
rules under Sec.  301.6225-2(d)(2), D files an amended return for D's 
2019 taxable year taking into account $100,000 of additional ordinary 
income. In addition, in accordance with Sec.  301.6225-2(d)(2)(viii), D 
takes into account on D's return the 20-percent accuracy-related penalty 
for negligence or disregard of rules or regulations that relates to the 
ordinary income adjustment. D's tax attributes for other taxable years 
are not affected. The IRS approves the modification request. As a 
result, Partnership's total netted partnership adjustment under Sec.  
301.6225-1(b)(2) is $200,000 ($400,000 less $100,000 allocable to C and 
$100,000 taken into account by D). The imputed underpayment, after 
modification, is $80,000 ($200,000 x 40 percent), and the penalty is 
$16,000 ($80,000 x 20 percent).

    (d) Applicability date--(1) In general. Except as provided in 
paragraph (d)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6563, Feb. 27, 2019]



Sec.  301.6233(b)-1  Interest and penalties with respect to 
the adjustment year return.

    (a) Interest and penalties with respect to failure to pay imputed 
underpayment on the date prescribed. In the case of any failure to pay 
an imputed underpayment on the date prescribed for such payment (as 
described in Sec.  301.6232-1(b)), a partnership is liable for--
    (1) Interest as determined under paragraph (c) of this section; and
    (2) Any penalty, addition to tax, or additional amount as determined 
under paragraph (d) of this section.
    (b) Imputed underpayments to which this section applies. This 
section applies to the portion of an imputed underpayment determined by 
the Internal Revenue Service (IRS) under section 6225(a)(1), or an 
imputed underpayment resulting from adjustments requested by a 
partnership in an administrative adjustment request under section 6227, 
that is not paid by the date prescribed for payment under Sec.  
301.6232-1(b).
    (c) Interest. Interest determined under this paragraph (c) is the 
interest that would be imposed under chapter 67 of the Internal Revenue 
Code (Code) by treating any unpaid amount of the imputed underpayment as 
an underpayment of tax imposed for the adjustment year (as defined in 
Sec.  301.6241-1(a)(1)). The interest under this paragraph (c) begins on 
the date prescribed for payment (as described in Sec.  301.6232-1(b)) 
and ends on the date payment of the imputed underpayment is made.
    (d) Penalties. If a partnership fails to pay an imputed underpayment 
by the date prescribed for payment (as described in Sec.  301.6232-
1(b)), section 6651(a)(2) applies to such failure, and any unpaid amount 
of the imputed underpayment is treated as if it were an underpayment of 
tax for purposes of part II of subchapter A of chapter 68 of the Code. 
For purposes of this section, the penalty under 6651(a)(2) is applied by 
treating the unpaid amount of the imputed underpayment as the unpaid 
amount shown as tax on a return required under subchapter A of chapter 
61 of the Code.
    (e) Applicability date--(1) In general. Except as provided in 
paragraph (e)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6565, Feb. 27, 2019]



Sec.  301.6234-1  Judicial review of partnership adjustment.

    (a) In general. Within 90 days after the date on which a notice of a 
final partnership adjustment (FPA) under

[[Page 316]]

section 6231(a)(3) with respect to any partnership taxable year is 
mailed, a partnership may file a petition for a readjustment of any 
partnership adjustment (as defined in Sec.  301.6241-1(a)(6)) reflected 
in the FPA for such taxable year (without regard to whether an election 
under section 6226 has been made with respect to any imputed 
underpayment (as defined in Sec.  301.6241-1(a)(3)) reflected in such 
FPA) with--
    (1) The Tax Court;
    (2) The district court of the United States for the district in 
which the partnership's principal place of business is located; or
    (3) The Court of Federal Claims.
    (b) Jurisdictional requirement for bringing action in district court 
or Court of Federal Claims. A petition for readjustment under this 
section with respect to any partnership adjustment may be filed in a 
district court of the United States or the Court of Federal Claims only 
if the partnership filing the petition deposits with the Internal 
Revenue Service (IRS), on or before the date the petition is filed, the 
amount of (as of the date of the filing of the petition) any imputed 
underpayment (as shown on the FPA) and any penalties, additions to tax, 
and additional amounts with respect to such imputed underpayment. If 
there is more than one imputed underpayment reflected in the FPA, the 
partnership must deposit the amount of each imputed underpayment to 
which the petition for readjustment relates and the amount of any 
penalties, additions to tax, and additional amounts with respect to each 
such imputed underpayment.
    (c) Treatment of deposit as payment of tax. Any amount deposited in 
accordance with paragraph (b) of this section, while deposited, will not 
be treated as a payment of tax for purposes of the Internal Revenue Code 
(Code). Notwithstanding the preceding sentence, an amount deposited in 
accordance with paragraph (b) of this section will be treated as a 
payment of tax for purposes of chapter 67 of the Code (relating to 
interest). Interest will be allowed and paid in accordance with section 
6611.
    (d) Effect of decision dismissing action. If an action brought under 
this section is dismissed other than by reason of a rescission of the 
FPA under section 6231(d) and Sec.  301.6231-1(g), the decision of the 
court dismissing the action is considered as its decision that the FPA 
is correct.
    (e) Amount deposited may be applied against assessment. If the 
limitations on assessment under section 6232(b) and Sec.  301.6232-1(c) 
no longer apply with respect to an imputed underpayment for which a 
deposit under paragraph (b) of this section was made, the IRS may apply 
the amount deposited against any such imputed underpayment that is 
assessed. In the case of a deposit made under this section that is in an 
amount in excess of the amount assessed against the partnership (excess 
deposit), a partnership may obtain a return of the excess deposit by 
making a request in writing in accordance with forms, instructions, or 
other guidance prescribed by the IRS.
    (f) Applicability date--(1) In general. Except as provided in 
paragraph (f)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6566, Feb. 27, 2019]



Sec.  301.6235-1  Period of limitations on making adjustments.

    (a) In general. Except as provided in section 6235(c), section 
905(c), or paragraph (d) of this section (regarding extensions), no 
partnership adjustment (as defined in Sec.  301.6241-1(a)(6)) for any 
partnership taxable year may be made after the later of the date that 
is--
    (1) 3 years after the latest of--
    (i) The date on which the partnership return for such taxable year 
was filed;
    (ii) The return due date (as defined in section 6241(3)) for the 
taxable year; or
    (iii) The date on which the partnership filed an administrative 
adjustment request with respect to such taxable year under section 6227;
    (2) The date described in paragraph (b) of this section with respect 
to a request for modification; or

[[Page 317]]

    (3) The date described in paragraph (c) of this section with respect 
to a notice of proposed partnership adjustment.
    (b) Modification requested under section 6225(c)--(1) In general. 
For purposes of paragraph (a)(2) of this section, in the case of any 
request for modification of any imputed underpayment under section 
6225(c), the date by which the Internal Revenue Service (IRS) may make a 
partnership adjustment is the date that is 270 days (plus the number of 
days of an extension of the period for requesting modification (as 
described in Sec.  301.6225-2(c)(3)(i)) agreed to by the IRS under 
section 6225(c)(7) and Sec.  301.6225-2(c)(3)(ii)) after the date on 
which everything required to be submitted to the IRS pursuant to section 
6225(c) is so submitted.
    (2) Date on which everything is required to be submitted--(i) In 
general. For purposes of paragraph (b)(1) of this section, the date on 
which everything required to be submitted to the IRS pursuant to section 
6225(c) is so submitted is the earlier of--
    (A) The date the period for requesting modification ends (including 
extensions) as described in Sec.  301.6225-2(c)(3)(i) and (ii); or
    (B) The date the period for requesting modification expires as a 
result of a waiver of the prohibition on mailing a notice of final 
partnership adjustment (FPA) under Sec.  301.6231-1(b)(2). See Sec.  
301.6225-2(c)(3)(iii).
    (ii) Incomplete submission has no effect. A determination by the IRS 
that the information submitted as part of a request for modification is 
incomplete has no effect on the applicability of paragraph (b)(2) of 
this section.
    (c) Notice of proposed partnership adjustment. For purposes of 
paragraph (a)(3) of this section, the date by which the IRS may make a 
partnership adjustment is the date that is 330 days (plus the number of 
days of an extension of the modification period (as described in Sec.  
301.6225-2(c)(3)(i)) agreed to by the IRS under section 6225(c)(7) and 
Sec.  301.6225-2(c)(3)(ii)) after the date the last notice of proposed 
partnership adjustment (NOPPA) under section 6231(a)(2) is mailed, 
regardless of whether modification is requested by the partnership under 
section 6225(c).
    (d) Extension by agreement. The periods described in paragraphs (a), 
(b), and (c) of this section (including any extension of those periods 
pursuant to this paragraph (d)) may be extended by an agreement, in 
writing, entered into by the partnership and the IRS before the 
expiration of such period.
    (e) Examples. The following examples illustrate the rules of this 
section. For purposes of these examples, each partnership has a calendar 
taxable year.

    (1) Example 1. Partnership timely files its partnership return for 
the 2020 taxable year on March 1, 2021. On September 1, 2023, 
Partnership files an administrative adjustment request (AAR) under 
section 6227 with respect to its 2020 taxable year. As of September 1, 
2023, the IRS has not initiated an administrative proceeding under 
subchapter C of chapter 63 of the Internal Revenue Code with respect to 
Partnership's 2020 taxable year. Therefore, as of September 1, 2023, 
under paragraph (a)(1) of this section, the period for making 
partnership adjustments with respect to Partnership's 2020 taxable year 
expires on September 1, 2026.
    (2) Example 2. Partnership timely files its partnership return for 
the 2020 taxable year on the due date, March 15, 2021. On February 1, 
2023, the IRS mails to Partnership and the partnership representative of 
Partnership (PR) a notice of administrative proceeding under section 
6231(a)(1) with respect to Partnership's 2020 taxable year. Assuming no 
AAR has been filed with respect to Partnership's 2020 taxable year and 
the IRS has not yet mailed a NOPPA under section 6231(a)(2) with respect 
to Partnership's 2020 taxable year, the period for making partnership 
adjustments for Partnership's 2020 taxable year expires on the date 
determined under paragraph (a)(1) of this section, March 15, 2024.
    (3) Example 3. The facts are the same as in Example 2 in paragraph 
(e)(2) of this section, except that on June 1, 2023, pursuant to 
paragraph (d) of this section, PR signs an agreement extending the 
period for making partnership adjustments under section 6235(a) for 
Partnership's 2020 taxable year to December 31, 2025. In addition, on 
June 2, 2025, the IRS mails to Partnership and PR a timely NOPPA under 
section

[[Page 318]]

6231(a)(2). Pursuant to Sec.  301.6225-2(c)(3)(i), the period for 
requesting modification expires on February 27, 2026 (270 days after 
June 2, 2025, the date the NOPPA is mailed), but PR does not submit a 
request for modification on or before this date. Under paragraph (c) of 
this section, the date for purposes of paragraph (a)(3) of this section 
is April 28, 2026, the date that is 330 days from the mailing of the 
NOPPA. Because April 28, 2026 is later than the date under paragraph 
(a)(1) of this section (December 31, 2025, as extended under paragraph 
(d) of this section), and because no modification was requested, 
paragraph (a)(2) of this section is not applicable, April 28, 2026 is 
the date on which the period for making partnership adjustments expires 
under section 6235.
    (4) Example 4. The facts are the same as in Example 3 in paragraph 
(e)(3) of this section, except that PR notifies the IRS that Partnership 
will be requesting modification. On January 5, 2026, PR and the IRS 
agree to extend the period for requesting modification pursuant to 
section 6225(c)(7) and Sec.  301.6225-2(c)(3)(ii) for 45 days--from 
February 27, 2026 to April 13, 2026. PR submits the request for 
modification to the IRS on April 13, 2026. Therefore, the date 
determined under paragraph (b) of this section is February 22, 2027, 
which is 270 days after the date everything required to be submitted was 
so submitted pursuant to paragraph (b)(2) of this section plus the 
additional 45-day extension of the period for requesting modification 
agreed to by PR and the IRS. Because February 22, 2027 is later than the 
date under paragraph (a)(1) of this section (December 31, 2025, as 
extended under paragraph (d) of this section) and the date under 
paragraph (a)(3) of this section (June 12, 2026, which is 330 days from 
the date the NOPPA was mailed plus the 45-day extension under section 
6225(c)(7)), February 22, 2027 is the date on which the period for 
making partnership adjustments expires under section 6235.
    (5) Example 5. The facts are the same as in Example 4 in paragraph 
(e)(4) of this section, except that PR does not request an extension of 
the period for requesting modification. On February 1, 2026, PR submits 
a request for modification and PR, and the IRS agree in writing to waive 
the prohibition on mailing an FPA pursuant to Sec.  301.6231-1(b)(2). 
Pursuant to Sec.  301.6225-2(c)(3)(iii), the period for requesting 
modification expires as of February 1, 2026, rather than February 27, 
2026. Accordingly, under paragraph (b)(2) of this section, the date on 
which everything required to be submitted pursuant to section 6225(c) is 
so submitted is February 1, 2026, and the 270-day period described in 
paragraph (b)(1) of this section begins to run on that date. Therefore, 
the date for purposes of paragraph (a)(2) of this section is October 29, 
2026, which is 270 days after February 1, 2026, the date on which 
everything required to be submitted under section 6225(c) is so 
submitted. Because October 29, 2026 is later than the date under 
paragraph (a)(1) of this section (December 31, 2025, as extended under 
paragraph (d) of this section) and the date under paragraph (a)(3) of 
this section (April 28, 2026), October 29, 2026 is the date on which the 
period for making partnership adjustments expires under section 6235.
    (6) Example 6. The facts are the same as in Example 5 in paragraph 
(e)(5) of this section, except PR completes its submission of 
information to support a request for modification on July 1, 2025, but 
does not execute a waiver pursuant to Sec.  301.6231-1(b)(2). Therefore, 
pursuant to paragraph (b)(2) of this section, February 27, 2026, the 
date the period requesting modification expires, is the date on which 
everything required to be submitted pursuant to section 6225(c) is so 
submitted. As a result, the 270-day period described in paragraph (b)(1) 
of this section expires on November 24, 2026. Because November 24, 2026 
is later than the date under paragraph (a)(1) of this section (December 
31, 2025, as extended under paragraph (d) of this section) and the date 
under paragraph (a)(3) of this section (April 28, 2026), November 24, 
2026 is the date on which the period for making partnership adjustments 
expires under section 6235.

    (f) Applicability date--(1) In general. Except as provided in 
paragraph (f)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.

[[Page 319]]

    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6566, Feb. 27, 2019]



Sec.  301.6241-1  Definitions.

    (a) Definitions. For purposes of subchapter C of chapter 63 of the 
Internal Revenue Code (Code) and the regulations in this part under 
sections 6221 through 6241 of the Code--
    (1) Adjustment year. The term adjustment year means the partnership 
taxable year in which--
    (i) In the case of an adjustment pursuant to the decision of a court 
in a proceeding brought under section 6234, such decision becomes final;
    (ii) In the case of an administrative adjustment request (AAR) under 
section 6227, such AAR is filed; or
    (iii) In any other case, a notice of final partnership adjustment is 
mailed under section 6231 or, if the partnership waives the restrictions 
under section 6232(b) (regarding limitations on assessment), the waiver 
is executed by the IRS.
    (2) Adjustment year partner. The term adjustment year partner means 
any person who held an interest in a partnership at any time during the 
adjustment year.
    (3) Imputed underpayment. Except as otherwise provided in this 
paragraph (a)(3), the term imputed underpayment means the amount 
determined in accordance with section 6225 of the Code, Sec.  301.6225-
1, and, if applicable, Sec.  301.6225-2. In the case of an election 
under section 6226, the term imputed underpayment means the amount 
determined in accordance with Sec.  301.6226-3(e)(4). In the case of an 
administrative adjustment request, the term imputed underpayment means 
the amount determined in accordance with Sec.  301.6227-2 or Sec.  
301.6227-3(c).
    (4) Indirect partner. The term indirect partner means any person who 
has an interest in a partnership through their interest in one or more 
pass-through partners (as defined in paragraph (a)(5) of this section) 
or through a wholly-owned entity disregarded as separate from its owner 
for Federal income tax purposes.
    (5) Pass-through partner. The term pass-through partner means a 
pass-through entity that holds an interest in a partnership. A pass-
through entity is a partnership required to file a return under section 
6031(a), an S corporation, a trust (other than a wholly-owned trust 
disregarded as separate from its owner for Federal income tax purposes), 
and a decedent's estate. For purposes of this paragraph (a)(5), a pass-
through entity is not a wholly-owned entity disregarded as separate from 
its owner for Federal income tax purposes.
    (6) Partnership adjustment--(i) In general. The term partnership 
adjustment means any adjustment to a partnership-related item and 
includes any portion of an adjustment to a partnership-related item.
    (ii) Partnership-related item. The term partnership-related item 
means--
    (A) Any item or amount with respect to the partnership (as defined 
in paragraph (a)(6)(iii) of this section) which is relevant in 
determining the tax liability of any person under chapter 1 of the Code 
(chapter 1) (as defined in paragraph (a)(6)(iv) of this section);
    (B) Any partner's distributive share of any such item or amount; and
    (C) Any imputed underpayment determined under subchapter C of 
chapter 63 of the Code (subchapter C of chapter 63).
    (iii) Item or amount with respect to the partnership. For purposes 
of paragraph (a)(6)(ii) of this section, an item or amount is with 
respect to the partnership if the item or amount is shown or reflected, 
or required to be shown or reflected, on a return of the partnership 
under section 6031 or the forms and instructions prescribed by the 
Internal Revenue Service (IRS) for the partnership's taxable year or is 
required to be maintained in the partnership's books or records. Items 
or amounts relating to any transaction with, liability of, or basis in 
the partnership are with respect to the partnership only if those items 
or amounts are described in the preceding sentence. An item or amount 
shown or required to be shown on a return of a person other than the 
partnership (or in that person's books and

[[Page 320]]

records) that results after application of the Code to a partnership-
related item based upon the person's specific facts and circumstances, 
including an incorrect application of the Code or taking into account 
erroneous facts and circumstances of the partner, is not an item or 
amount with respect to the partnership. For instance, a deduction shown 
on the return of a partner that results after applying a limitation 
under the Code (such as section 170(b)) at the partner level to a 
partnership-related item based on the partner's facts and circumstances 
is not an item or amount with respect to the partnership, even though 
the corresponding expense on the return of the partnership is an item or 
amount with respect to the partnership. Likewise, an amount on the 
return of a partner that is after either an incorrect application of a 
limitation under the Code or based on facts and circumstances of the 
partner that are erroneous, or both (such as an incorrect application of 
section 170(b)) at the partner level to a partnership-related item is 
not an item or amount with respect to the partnership. Similarly, a 
partner's adjusted basis is not with respect to the partnership because 
it is an item or amount shown in the partner's books or records that 
results after application of the Code to partnership-related items 
taking into account the facts and circumstances specific to that 
partner.
    (iv) Relevant in determining the tax liability of any person under 
chapter 1. For purposes of this section, an item or amount with respect 
to the partnership is relevant in determining the tax liability of any 
person under chapter 1 without regard to the application of subchapter C 
of chapter 63 and without regard to whether such item or amount, or an 
adjustment to such item or amount, has an effect on the tax liability of 
any particular person under chapter 1.
    (v) Examples of partnership-related items. The term partnership-
related item includes--
    (A) The character, timing, source, and amount of the partnership's 
income, gain, loss, deductions, and credits;
    (B) The character, timing, and source of the partnership's 
activities;
    (C) The character, timing, source, value, and amount of any 
contributions to, and distributions from, the partnership;
    (D) The partnership's basis in its assets, the character and type of 
the assets, and the value (or revaluation such as under Sec.  1.704-
1(b)(2)(iv)(f) or (s) of this chapter) of the assets;
    (E) The amount and character of partnership liabilities and any 
changes to those liabilities from the preceding tax year;
    (F) The category, timing, and amount of the partnership's creditable 
expenditures;
    (G) Any item or amount resulting from a partnership termination;
    (H) Any item or amount of the partnership resulting from an election 
under section 754;
    (I) Partnership allocations and any special allocations; and
    (J) The identity of a person as a partner in the partnership.
    (vi) Examples. The following examples illustrate the provisions of 
this section. For purposes of these examples, Partnership is subject to 
the provisions of subchapter C of chapter 63 and all taxpayers are 
calendar year taxpayers.

    (A) Example 1. Partnership enters into a transaction with A to 
purchase widgets for $100 in taxable year 2020. Partnership pays A $100 
for the widgets. Any deduction or expense of the Partnership for the 
purchase of the widgets is an item or amount with respect to Partnership 
because it is shown on Partnership's return and is relevant to 
determining the liability of any person under chapter 1 pursuant to 
paragraphs (a)(6)(iii) and (iv) of this section. Therefore, the 
deduction or expense is a partnership-related item. However, the income 
to A resulting from the transaction with Partnership is not an item or 
amount with respect to Partnership under paragraph (a)(6)(iii) of this 
section because although the amount of income relates to a transaction 
with Partnership and Partnership is required to show a deduction or 
expense related to the payment to A, the amount of income to A is not 
shown or required to be shown on

[[Page 321]]

Partnership's return. It is only required to be shown of the return of 
A, a person other than Partnership and requires determinations about A's 
reporting of the item. Accordingly, the amount of income shown, or 
required to be shown, by A on his return is not a partnership-related 
item.
    (B) Example 2. B loans Partnership $100 in Partnership's 2020 
taxable year. Partnership makes an interest payment to B in 2020 of $5. 
Partnership's liability relating to the loan by B to Partnership and the 
$5 of interest expense paid by the Partnership are items or amounts that 
are with respect to Partnership because they were shown on Partnership's 
return and are relevant in determining the liability of any person under 
chapter 1 pursuant to paragraphs (a)(6)(iii) and (iv) of this section. 
However, the treatment of the loan by B and the amount of interest 
income received by B are not items or amounts with respect to 
Partnership under paragraph (a)(6)(iii) of this section because although 
they relate to a transaction with or liability of Partnership and 
Partnership's treatment of the loan is shown on Partnership's return, 
B's treatment of the loan and the amount of interest income to B are 
shown, or required to be shown, on the return of B, a person other than 
Partnership and require determinations about B's reporting of the items. 
Accordingly, the loan as treated by B and the amount of interest income 
to B is not a partnership-related item.
    (C) Example 3. On its partnership return for the 2020 tax year, 
Partnership reported $200 of non-cash charitable contributions related 
to its contribution of merchandise. Partnership has two equal partners 
for the 2020 tax year: C and D, both individuals. Partnership correctly 
reports $100 in non-cash charitable contributions to both C and D for 
the 2020 taxable year. On her return for the 2020 taxable year, C 
erroneously deducts the entire $100 of non-cash charitable 
contributions, even though C's deduction for charitable contributions 
would be limited by section 170(b)(1)(A) to $50 because of C's income. 
The $100 of non-cash charitable contribution reported by Partnership to 
C is a partnership-related item. However, the amount of the deduction 
taken by C on her return for 2020 and the amount of that deduction 
allowed after application of the limitation contained in section 
170(b)(1)(A) to the $100 in non-cash charitable contributions reported 
by Partnership to C is not a partnership-related item under paragraph 
(a)(6)(ii) of this section because it is not with respect to the 
partnership.
    (D) Example 4. The facts are the same as in Example 3 in paragraph 
(a)(6)(vi)(C) of this section. On his return for the 2020 taxable year, 
D also deducts the entire $100 in charitable contributions but treats 
the charitable contributions as if they were cash contributions, instead 
of non-cash contributions. D does not file a notice of inconsistent 
treatment under section 6222. If D had treated the $100 in charitable 
contributions as non-cash contributions, D's deduction for the 
charitable contributions from Partnership would have be limited by 
section 170(b)(1)(A) due to D's income. D's deduction of the $100 in 
charitable contributions is an item or amount shown on D's return, 
derives from the charitable contributions reported by the partnership, 
and is subject to the application of the limitation under section 
170(b)(1)(A). Therefore, D's deduction is not an item or amount with 
respect to the partnership. The charitable contribution reported by the 
partnership and its character are items or amounts with respect to the 
partnership pursuant to paragraph (a)(6)(iii) of this section. An 
adjustment to the character of the contributions is a partnership 
adjustment. Because D's treatment of the charitable contributions is 
inconsistent with the treatment of that item by Partnership on its 
partnership return, the IRS may make that partnership adjustment in a 
proceeding with respect to D and determine and assess any underpayment 
that results from conforming D's treatment to the treatment of the 
contributions by Partnership and applying the limit in section 
170(b)(1)(A). See Sec.  301.6222-1(b).

    (7) Partnership-partner. The term partnership-partner means a 
partnership that holds an interest in another partnership.
    (8) Reviewed year. The term reviewed year means the partnership 
taxable

[[Page 322]]

year to which a partnership adjustment relates.
    (9) Reviewed year partner. The term reviewed year partner means any 
person who held an interest in a partnership at any time during the 
reviewed year.
    (10) Tax attribute. A tax attribute is anything that can affect the 
amount or timing of a partnership-related item (as defined in paragraph 
(a)(6)(ii) of this section) or that can affect the amount of tax due in 
any taxable year. Examples of tax attributes include, but are not 
limited to, basis and holding period, as well as the character of items 
of income, gain, loss, deduction, or credit and carryovers and 
carrybacks of such items.
    (b) Applicability date--(1) In general. Except as provided in 
paragraph (b)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6567, Feb. 27, 2019]



Sec.  301.6241-2  Bankruptcy of the partnership.

    (a) Coordination between Title 11 and proceedings under subchapter C 
of chapter 63--(1) In general. If a partnership is a debtor in a case 
under Title 11 of the United States Code (Title 11 case), the running of 
any period of limitations under section 6235 with respect to the time 
for making a partnership adjustment (as defined in Sec.  301.6241-
1(a)(6)) and under sections 6501 and 6502 with respect to the assessment 
or collection of any imputed underpayment (as defined in Sec.  301.6241-
1(a)(3)) determined under subchapter C of chapter 63 of the Internal 
Revenue Code (subchapter C of chapter 63) is suspended during the period 
the Internal Revenue Service (IRS) is prohibited by reason of the Title 
11 case from making the adjustment, assessment, or collection until--
    (i) 60 days after the suspension ends, for adjustments or 
assessments; and
    (ii) 6 months after the suspension ends, for collection.
    (2) Interaction with section 6232(b). The filing of a proof of claim 
or request for payment (or the taking of any other action) in a Title 11 
case is not be treated as an action prohibited by section 6232(b) 
(regarding limitations on assessment).
    (3) Suspension of the time for judicial review. In a Title 11 case, 
the running of the period specified in section 6234 (regarding judicial 
review of partnership adjustments) is suspended during the period during 
which the partnership is prohibited by reason of the Title 11 case from 
filing a petition under section 6234, and for 60 days thereafter.
    (4) Actions not prohibited. The filing of a petition under Title 11 
does not prohibit the following actions:
    (i) An administrative proceeding with respect to a partnership under 
subchapter C of chapter 63;
    (ii) The mailing of any notice with respect to a proceeding with 
respect to a partnership under subchapter C of chapter 63, including:
    (A) A notice of administrative proceeding;
    (B) A notice of proposed partnership adjustment; and
    (C) A notice of final partnership adjustment;
    (iii) A demand for tax returns;
    (iv) The assessment of any tax, including the assessment of any 
imputed underpayment with respect to a partnership; and
    (v) The issuance of notice and demand for payment of an assessment 
under subchapter C of chapter 63 (but see section 362(b)(9)(D) of Title 
11 of the United States Code regarding the timing of when a tax lien 
takes effect by reason of such assessment).
    (b) Applicability date--(1) In general. Except as provided in 
paragraph (b)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6569, Feb. 27, 2019]

[[Page 323]]



Sec.  301.6241-3  Treatment where a partnership ceases to exist.

    (a) Former partners take adjustments into account--(1) In general. 
If the Internal Revenue Service (IRS) determines that any partnership 
(including a partnership-partner as defined in Sec.  301.6241-1(a)(7)) 
ceases to exist (as defined in paragraph (b) of this section) before any 
partnership adjustment (as defined in Sec.  301.6241-1(a)(6)) under 
subchapter C of chapter 63 of the Internal Revenue Code (subchapter C of 
chapter 63) takes effect (as described in paragraph (c) of this 
section), the partnership adjustment is taken into account by the former 
partners (as described in paragraph (d) of this section) of the 
partnership in accordance with paragraph (e) of this section.
    (2) Partnership no longer liable for any unpaid amounts resulting 
from a partnership adjustment. A partnership that ceases to exist is no 
longer liable for any unpaid amounts resulting from a partnership 
adjustment required to be taken into account by a former partner under 
this section.
    (3) Application of this section to partnership-partners. This 
section applies to a partnership-partner and its former partners, 
regardless of whether the partnership-partner has an election under 
section 6221(b) in effect for any relevant partnership taxable year.
    (b) Cease to exist defined--(1) In general. If a partnership ceases 
to exist, the IRS will notify the partnership and the former partners 
(as defined in paragraph (d) of this section), in writing, within 30 
days of such determination using the last known address of the 
partnership and the former partners. A failure by the IRS to send a 
notification under this paragraph (b)(1) to a former partner of the 
partnership does not invalidate the determination by the IRS that the 
partnership ceases to exist. If an audited partnership (as defined in 
Sec.  301.6226-3(e)(1)) ceases to exist, the IRS will also notify the 
partnership representative for the reviewed year. For purposes of this 
section, a partnership ceases to exist if the IRS makes a determination 
that a partnership ceases to exist because:
    (i) The partnership terminates within the meaning of section 
708(b)(1); or
    (ii) The partnership does not have the ability to pay, in full, any 
amount due under the provisions of subchapter C of chapter 63 for which 
the partnership is or becomes liable. For purposes of this section, a 
partnership does not have the ability to pay if the IRS determines that 
the amount due with respect to the partnership is not collectible based 
on the information the IRS has at the time of such determination.
    (2) Exceptions. For purposes of this section, the IRS will not 
determine that a partnership ceases to exist solely because the 
partnership has--
    (i) A valid election under section 6226 in effect with respect to 
any imputed underpayment (as defined in Sec.  301.6241-1(a)(3));
    (ii) Received a statement under section 6226(a)(2) (or Sec.  
301.6226-3(e)) and has furnished statements to its partners in 
accordance with Sec.  301.6226-3(e)(3); or
    (iii) Not paid any amount required to be paid under subchapter C of 
chapter 63.
    (3) Year in which a partnership ceases to exist. If a partnership 
terminates under section 708(b)(1), the partnership ceases to exist on 
the last day of the partnership's final taxable year. If a partnership 
does not have the ability to pay, the partnership ceases to exist on the 
date that the IRS makes a determination under paragraph (b)(1) of this 
section that the partnership ceases to exist.
    (4) Limitation on IRS determination that partnership ceases to 
exist. In no event may the IRS determine that a partnership ceases to 
exist with respect to a partnership adjustment after the expiration of 
the period of limitations on collection applicable to the assessment 
made against the partnership for the amount due resulting from such 
adjustment.
    (c) Partnership adjustment takes effect--(1) Full payment of amounts 
resulting from a partnership adjustment. For purposes of this section, a 
partnership adjustment under subchapter C of chapter 63 takes effect 
when there is full payment of amounts resulting from a partnership 
adjustment. For purposes of this section, full payment of amounts 
resulting from a partnership adjustment means all amounts due under 
subchapter C of chapter 63 resulting

[[Page 324]]

from the partnership adjustment are fully paid by the partnership.
    (2) Partial payment of amount due by the partnership. If a 
partnership pays part, but not all, of any amount due resulting from a 
partnership adjustment before the partnership ceases to exist, the 
former partners (as defined in paragraph (d) of this section) of the 
partnership that has ceased to exist are not required to take into 
account any partnership adjustment to the extent amounts have been paid 
by the partnership with respect to such adjustment. The notification 
that the IRS has determined that the partnership has ceased to exist 
will include information regarding the portion of the partnership 
adjustments with respect to which appropriate amounts have not already 
been paid by the partnership and therefore must be taken into account by 
the former partners (described in paragraph (d) of this section) in 
accordance with paragraph (e) of this section.
    (d) Former partners--(1) Adjustment year partners--(i) In general. 
Except as described in paragraphs (d)(1)(ii) and (d)(2) of this section, 
the term former partners means, for a partnership that has ceased to 
exist, the partners of the partnership during the adjustment year (as 
defined in Sec.  301.6241-1(a)(1)) that corresponds to the reviewed year 
for which the adjustments were made.
    (ii) Partnership-partner ceases to exist. If the adjustment year 
partner is a partnership-partner that the IRS has determined ceased to 
exist, the partners of such partnership-partner during the partnership-
partner's taxable year that includes the end of the adjustment year of 
the partnership that is subject to a proceeding under subchapter C of 
chapter 63 are the former partners for purposes of this section. If the 
partnership-partner ceased to exist before the partnership-partner's 
taxable year that includes the end of the adjustment year of the 
partnership that is subject to a proceeding under subchapter C of 
chapter 63, the former partners for purposes of this section are the 
partners of such partnership-partner during the last partnership taxable 
year for which the a partnership return of the partnership-partner under 
section 6031 is filed.
    (2) No adjustment year partners. If there are no adjustment year 
partners of a partnership that ceases to exist, the term former partners 
means the partners of the partnership during the last taxable year for 
which a partnership return under section 6031 was filed with respect to 
such partnership. For instance, if a partnership terminates under 
section 708(b)(1) before the adjustment year and files a final 
partnership return for the partnership taxable year of such partnership, 
the former partners for purposes of this section are the partners of the 
partnership during the partnership taxable year for which a final 
partnership return is filed.
    (e) Taking adjustments into account--(1) In general. For purposes of 
paragraph (a) of this section, a former partner of a partnership that 
ceases to exist takes a partnership adjustment into account as if the 
partnership had made an election under section 6226 (regarding the 
alternative to payment of the imputed underpayment). A former partner 
must take into account the former partner's share of a partnership 
adjustment as set forth in the statement described in paragraph (e)(2) 
of this section in accordance with Sec.  301.6226-3.
    (2) Statements furnished to former partners. If a partnership is 
notified by the IRS that the partnership has ceased to exist as 
described in paragraph (b)(1) of this section, the partnership must 
furnish to each former partner a statement reflecting such former 
partner's share of the partnership adjustment required to be taken into 
account under this section and file a copy of such statement with the 
IRS in accordance with the rules under Sec.  301.6226-2, except that--
    (i) The adjustments are taken into account by the applicable former 
partner (as described in paragraph (d) of this section), rather than the 
reviewed year partners (as defined in Sec.  301.6241-1(a)(9)); and
    (ii) The partnership must furnish statements to the former partners 
and file the statements with the IRS no later than 30 days after the 
date of the notification to the partnership that the IRS has determined 
that the partnership has ceased to exist.

[[Page 325]]

    (3) Authority to issue statements. If any statements required by 
paragraph (e) of this section are not timely furnished to a former 
partner and filed with the IRS in accordance with paragraph (e)(2)(ii) 
of this section, the IRS may notify the former partner in writing of 
such partner's share of the partnership adjustments based on the 
information reasonably available to the IRS at the time such 
notification is provided. For purposes of paragraph (e) of this section, 
a notification to a former partner under this paragraph (e)(3) is 
treated the same as a statement required to be furnished and filed under 
paragraph (e)(2) of this section.
    (f) Examples. The following examples illustrate the provisions of 
this section. For purposes of the examples, all partnerships and 
partners are calendar year taxpayers and each partnership is subject to 
the provisions of subchapter C of chapter 63 of the Code (unless 
otherwise stated).

    (1) Example 1. The IRS initiates a proceeding under subchapter C of 
chapter 63 with respect to the 2020 partnership taxable year of 
Partnership. During 2023, in accordance with section 6235(b), 
Partnership extends the period of limitations on adjustments under 
section 6235(a) until December 31, 2025. On February 1, 2025, the IRS 
mails Partnership a notice of final partnership adjustment (FPA) that 
determines partnership adjustments that result in a single imputed 
underpayment. Partnership does not timely file a petition under section 
6234 and does not make a valid election under section 6226. On June 2, 
2025, the IRS mails Partnership notice and demand for payment of the 
amount due resulting from the adjustments determined in the FPA. 
Partnership fails to make a payment. On September 1, 2029, the IRS 
determines Partnership ceases to exist for purposes of this section 
because the Partnership does not have the ability to pay under paragraph 
(b)(1)(ii) of this section. Under Sec.  301.6241-1(a)(1), the adjustment 
year is 2025 and A and B, both individuals, are the only adjustment year 
partners of Partnership during 2025. Accordingly, under paragraph (d)(1) 
of this section, A and B are former partners. Therefore, A and B are 
required to take their share of the partnership adjustments determined 
in the FPA into account under paragraph (e) of this section.
    (2) Example 2. The IRS initiates a proceeding under subchapter C of 
chapter 63 with respect to the 2020 partnership taxable year of P, a 
partnership. G, a partnership that has an election under section 6221(b) 
in effect for the 2020 taxable year, is a partner of P during 2020 and 
for every year thereafter. On February 3, 2025, the IRS mails P an FPA 
that determines partnership adjustments that result in a single imputed 
underpayment. P does not timely file a petition under section 6234 and 
does not make a timely election under section 6226. On May 6, 2025, the 
IRS mails P notice and demand for payment of the amount due resulting 
from the adjustments determined in the FPA. P does not make a payment. 
On September 1, 2025, the IRS determines P ceases to exist for purposes 
of this section because P does not have the ability to pay under 
paragraph (b)(1)(ii) of this section. G terminated under section 
708(b)(1) on December 31, 2024. On September 1, 2025, the IRS determines 
that G ceased to exist in 2024 for purposes of this section in 
accordance with paragraph (b)(1)(i) of this section. J and K, 
individuals, were the only partners of G during 2024. Therefore, under 
paragraph (d)(1)(ii) of this section, J and K, the partners of G during 
G's 2024 partnership taxable year, are the former partners of G for 
purposes of this section. Therefore, J and K are required to take into 
account their share of the adjustments contained in the statement 
furnished by P to G in accordance with paragraph (e) of this section.

    (g) Applicability date--(1) In general. Except as provided in 
paragraph (g)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6569, Feb. 27, 2019]

[[Page 326]]



Sec.  301.6241-4  Payments nondeductible.

    (a) Payments nondeductible. No deduction is allowed under subtitle A 
of the Internal Revenue Code (Code) for any payment required to be made 
by a partnership under subchapter C of chapter 63 of the Code 
(subchapter C of chapter 63). Payment by a partnership of any amount 
required to be paid under subchapter C of chapter 63, including any 
imputed underpayment (as defined in Sec.  301.6241-1(a)(3)), or 
interest, penalties, additions to tax, or additional amounts with 
respect to an imputed underpayment, is treated as an expenditure 
described in section 705(a)(2)(B).
    (b) Applicability date--(1) In general. Except as provided in 
paragraph (b)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6571, Feb. 27, 2019]



Sec.  301.6241-5  Extension to entities filing partnership returns.

    (a) Entities filing a partnership return. Except as described in 
paragraph (c) of this section, an entity that files a partnership return 
for any taxable year is subject to the provisions of subchapter C of 
chapter 63 of the Internal Revenue Code (subchapter C of chapter 63) 
with respect to such taxable year even if it is determined that the 
entity filing the partnership return was not a partnership for such 
taxable year. Accordingly, any partnership-related item (as defined in 
Sec.  301.6241-1(a)(6)(ii)) and any person holding an interest in the 
entity, either directly or indirectly, at any time during that taxable 
year are subject to the provisions of subchapter C of chapter 63 for 
such taxable year.
    (b) Partnership return filed but no entity found to exist. Paragraph 
(a) of this section also applies where a partnership return is filed for 
a taxable year, but the IRS determines that no entity existed at all for 
such taxable year. For purposes of applying paragraph (a) of this 
section, the partnership return is treated as if it were filed by an 
entity.
    (c) Exceptions. Paragraph (a) of this section does not apply to--
    (1) Any taxable year for which an election under section 6221(b) is 
in effect, treating the return as if it were filed by a partnership for 
the taxable year to which the election relates; and
    (2) Any taxable year for which a valid section 761(a) election is 
made (regarding election out of subchapter K of chapter 1 of the 
Internal Revenue Code for certain unincorporated organizations).
    (d) Applicability date--(1) In general. Except as provided in 
paragraph (d)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6571, Feb. 27, 2019]



Sec.  301.6241-6  Coordination with other chapters of 
the Internal Revenue Code.

    (a) Coordination with other chapters--(1) In general. Subchapter C 
of chapter 63 of the Internal Revenue Code (subchapter C of chapter 63) 
only applies to tax imposed by chapter 1 of the Internal Revenue Code 
(Code) and not to any tax imposed (including any amount required to be 
deducted or withheld) under any chapter of the Code other than chapter 1 
of the Code (chapter 1), including chapter 2, 2A, 3, or 4 of the Code. 
Accordingly, for purposes of determining taxes imposed under chapters of 
the Code other than chapter 1, the Internal Revenue Service (IRS) may 
make an adjustment to any partnership-related item (as defined in Sec.  
301.6241-1(a)(6)(ii)) in a proceeding that is not under subchapter C of 
chapter 63. To the extent an adjustment or determination is made under 
subchapter C of chapter 63 for purposes of chapter 1 and is relevant in 
determining tax imposed under a chapter of the Code other than chapter 
1, such adjustment or determination must be

[[Page 327]]

taken into account for purposes of determining such tax.
    (2) Examples. The following examples illustrate the rules of 
paragraph (a) of this section as applied to cases in which a partnership 
has a withholding obligation under chapter 3 or chapter 4 with respect 
to income that the partnership earns. For purposes of these examples, 
each partnership is subject to the provisions of subchapter C of chapter 
63 of the Code, and the partnership and its partners are calendar year 
taxpayers.

    (i) Example 1. Partnership, a partnership created or organized in 
the United States, has two equal partners, A and B. A is a nonresident 
alien who is a resident of Country A, and B is a U.S. citizen. In 2018, 
Partnership earned $200 of U.S. source royalty income. Partnership was 
required to withhold 30 percent of the gross amount of the royalty 
income allocable to A unless Partnership had documentation that it could 
rely on to establish that A was entitled to a reduced rate of 
withholding. See Sec. Sec.  1.1441-1(b)(1) and 1.1441-5(b)(2)(i)(A) of 
this chapter. Partnership withheld $15 from the $100 of royalty income 
allocable to A based on its incorrect belief that A is entitled to a 
reduced rate of withholding under the U.S.-Country A Income Tax Treaty. 
In 2020, the IRS determines in an examination of Partnership's Form 
1042, Annual Withholding Tax Return for U.S. Source Income of Foreign 
Persons, that Partnership should have withheld $30 instead of $15 on the 
$100 of royalty income allocable to A because Partnership failed to 
obtain documentation from A establishing a valid treaty claim for a 
reduced rate of withholding. The tax imposed on Partnership for its 
failure to withhold on that income, however, is not a tax imposed by 
chapter 1. Rather, it is a tax imposed by chapter 3, which is not a 
partnership-related item under Sec.  301.6241-1(a)(6)(ii). Therefore, in 
accordance with section 6221(a), the adjustment to increase 
Partnership's withholding tax liability by $15 is not determined under 
subchapter C of chapter 63, and instead must be determined as part of 
the Form 1042 examination.
    (ii) Example 2. Partnership, a partnership created or organized in 
the United States, has two equal partners, A and B. A is a nonresident 
alien who is a resident of Country A, and B is a U.S. citizen. In 2018, 
Partnership earned $100 of U.S. source dividend income. Partnership was 
required to report the dividend income on its 2018 Form 1065, U.S. 
Return of Partnership Income, and withhold 30 percent of the gross 
amount of the dividend income allocable to A unless Partnership had 
documentation that it could rely on to establish that A was entitled to 
a reduced rate of withholding. See Sec. Sec.  1.1441-1(b)(1) and 1.1441-
5(b)(2)(i)(A) of this chapter. In 2020, in an examination of 
Partnership's Form 1042, the IRS determines that Partnership earned but 
failed to report the $100 of U.S. source dividend income in 2018. The 
adjustment to increase Partnership's dividend income by $100 is an 
adjustment to a partnership-related item. The tax imposed on Partnership 
for its failure to withhold on that income, however, is not a tax 
imposed by chapter 1; rather, it is a tax imposed by chapter 3. Pursuant 
to Sec.  301.6221(a)-1(a), only chapter 1 tax attributable to 
adjustments to partnership-related items is assessed under subchapter C 
of chapter 63. Therefore, because the tax imposed with respect to the 
adjustment is a chapter 3 tax, under paragraph (a)(1) of this section, 
the IRS may determine, assess, and collect chapter 3 tax attributable to 
an adjustment to a partnership-related item without conducting a 
proceeding under subchapter C of chapter 63. Accordingly, the IRS may 
determine the chapter 3 tax in the examination of Partnership's Form 
1042 by adjusting Partnership's withholding tax liability by an 
additional $15 for failing to withhold on the $50 of dividend income 
allocable to A. However, the IRS must initiate an administrative 
proceeding under subchapter C of chapter 63 to make any adjustments for 
purposes of chapter 1 attributable to the income. If the IRS 
subsequently initiates an administrative proceeding under subchapter C 
of chapter 63 and makes an adjustment to the same item of income, the 
portion of the dividend income allocable to A will be disregarded in the 
calculation of the total netted partnership adjustment to the extent 
that the chapter 3 tax has been

[[Page 328]]

collected with respect to such income. See Sec.  301.6225-1(b)(3).

    (b) Coordination with chapters 3 and 4--(1) In general. In the case 
of any tax imposed under chapter 3 or chapter 4 that is determined with 
respect to a partnership adjustment determined under subchapter C of 
chapter 63 for purposes of chapter 1, such tax is determined with 
respect to the reviewed year (as defined in Sec.  301.6241-1(a)(8)) and 
is imposed (or required to be deducted and withheld) with respect to the 
adjustment year (as defined in Sec.  301.6241-1(a)(1)).
    (2) Definitions. The following definitions apply for purposes of 
this paragraph (b) and the regulations under subchapter C of chapter 63.
    (i) Amount subject to withholding. The term amount subject to 
withholding means an amount subject to withholding (as defined in Sec.  
1.1441-2(a) of this chapter), a withholdable payment (as defined in 
Sec.  1.1473-1(a) of this chapter), or the allocable share of 
effectively connected taxable income (as computed under Sec.  1.1446-
2(b) of this chapter).
    (ii) Chapter 3. The term chapter 3 means sections 1441 through 1464 
of the Code, but does not include section 1443(b) of the Code.
    (iii) Chapter 4. The term chapter 4 means sections 1471 through 1474 
of the Code.
    (3) Partnership pays an imputed underpayment. If a partnership pays 
an imputed underpayment (as determined under Sec.  301.6225-1(b)) and 
the total netted partnership adjustment (as calculated under Sec.  
301.6225-1(b)(2)) includes a partnership adjustment to an amount subject 
to withholding, the partnership is treated as having paid (at the time 
that the imputed underpayment is paid) the amount required to be 
withheld with respect to that partnership adjustment under chapter 3 or 
chapter 4 for purposes of applying Sec. Sec.  1.1463-1 and 1.1474-4 of 
this chapter. See Sec.  301.6225-1(b)(3) for the coordination rule that 
applies for calculating an imputed underpayment when an adjustment is 
made to an amount subject to withholding for which tax has been 
collected under chapter 3 or chapter 4.
    (4) Partnership makes an election under section 6226 with respect to 
an imputed underpayment--(i) In general. A partnership that makes an 
election under Sec.  301.6226-1 with respect to an imputed underpayment 
must pay the amount of tax required to be withheld under chapter 3 or 
chapter 4 on the amount of any adjustment set forth in the statement 
described in Sec.  301.6226-2(a) to the extent that it is an adjustment 
to an amount subject to withholding, and the IRS has not already 
collected tax attributable to the adjustment under chapter 3 or chapter 
4. The partnership must pay the amount due under this paragraph 
(b)(4)(i) on or before the due date of the partnership return for the 
adjustment year (without regard to extension), and must make the payment 
in the manner prescribed by the IRS in forms, instructions, and other 
guidance. For the rules governing partners subject to the taxes imposed 
by chapters 3 and 4 when the partner receives a statement under Sec.  
301.6226-2, see Sec.  301.6226-3(f). See Sec.  301.6226-3(e)(3)(v) for 
the application of the rules of this paragraph (b)(4) to pass-through 
partners (as defined in Sec.  301.6241-1(a)(5)).
    (ii) Reduced rate of tax. A partnership may reduce the amount of tax 
it is required to pay under paragraph (b)(4)(i) of this section to the 
extent that it can associate valid documentation from a reviewed year 
partner pursuant to the regulations under chapter 3 or chapter 4 (other 
than pursuant to Sec.  1.1446-6 of this chapter) with the portion of the 
adjustment that would have been subject to a reduced rate of tax in the 
reviewed year. For this purpose, the partnership may rely on 
documentation that the partnership possesses that is valid with respect 
to the reviewed year (determined without regard to the expiration after 
the reviewed year of any validity period prescribed in Sec.  1.1441-
1(e)(4)(ii), Sec.  1.1446-1(c)(2)(iv)(A), or Sec.  1.1471-3(c)(6)(ii) of 
this chapter), or new documentation that the partnership obtains from 
the reviewed year partner that includes a signed affidavit stating that 
the information and representations associated with the documentation 
are accurate with respect to the reviewed year.
    (iii) Reporting requirements. A partnership required to pay tax 
under paragraph (b)(4)(i) of this section must file

[[Page 329]]

the appropriate return and issue information returns as required by 
regulations under chapter 3 or chapter 4. For return and information 
return requirements, see Sec. Sec.  1.1446-3(d)(1)(iii); 1.1461-1(b), 
(c); and 1.1474-1(c), (d) of this chapter. The partnership must file the 
return and issue information returns for the year that includes the date 
on which the partnership pays the tax required to be withheld under 
paragraph (b)(4)(i) of this section. The partnership must report the 
information on the return and information returns in the manner 
prescribed by the IRS in forms, instructions, and other guidance.
    (iv) Partners subject to withholding. A reviewed year partner that 
is subject to withholding under paragraph (b)(4)(i) of this section must 
follow the rules under Sec.  301.6226-3(f).
    (c) Applicability date--(1) In general. Except as provided in 
paragraph (c)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017, and ending after August 
12, 2018.
    (2) Election under Sec.  301.9100-22 in effect. This section applies 
to any partnership taxable year beginning after November 2, 2015, and 
before January 1, 2018, for which a valid election under Sec.  301.9100-
22 is in effect.

[T.D. 9844, 84 FR 6572, Feb. 27, 2019]



                               Collection

                           General Provisions



Sec.  301.6301-1  Collection authority.

    The taxes imposed by the internal revenue laws shall be collected by 
district directors of internal revenue. See, however, section 6304, 
relating to the collection of certain taxes under the provisions of the 
Tariff Act of 1930 (19 U.S.C. ch. 4).



Sec.  301.6302-1  Manner or time of collection of taxes.

    (a) Employment and excise taxes. For provisions relating to the 
manner or time of collection of certain employment and excise taxes and 
deposits in connection with the payment thereof, see the regulations 
relating to the particular tax.
    (b) Income taxes. (1) For provisions relating to the deposits of 
income and estimated income taxes of certain corporations, see Sec.  
1.6302-1 of this chapter (Income Tax Regulations).
    (2) For provisions relating to the deposits of tax required to be 
withheld under chapter 3 of the Code on nonresident aliens and foreign 
corporations and tax-free covenant bonds, see Sec.  1.6302-2 of this 
chapter.
    (c) Effective/applicability date. This section applies to deposits 
and payments made after December 31, 2010.

[75 FR 75904, Dec. 7, 2010]



Sec.  301.6303-1  Notice and demand for tax.

    (a) General rule. Where it is not otherwise provided by the Code, 
the district director or the director of the regional service center 
shall, after the making of an assessment of a tax pursuant to section 
6203, give notice to each person liable for the unpaid tax, stating the 
amount and demanding payment thereof. Such notice shall be given as soon 
as possible and within 60 days. However, the failure to give notice 
within 60 days does not invalidate the notice. Such notice shall be left 
at the dwelling or usual place of business of such person, or shall be 
sent by mail to such person's last known address. For further guidance 
regarding the definition of last known address, see Sec.  301.6212-2.
    (b) Assessment prior to last date for payment. If any tax is 
assessed prior to the last date prescribed for payment of such tax, 
demand that such tax be paid will not be made before such last date, 
except where it is believed collection would be jeopardized by delay.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 8939, 66 FR 2820, Jan. 
12, 2001]



Sec.  301.6305-1  Assessment and collection of certain liability.

    (a) Scope. Section 6305(a) requires the Secretary of the Treasury or 
his delegate to assess and collect amounts which have been certified by 
the Secretary of Health and Human Services as the amount of a 
delinquency determined under a court order, or an order of an 
administrative process established under State law, for support and 
maintenance of a child or of a child and the parent with whom the child 
is living. These amounts, referred to as

[[Page 330]]

``child and spousal support'', are to be collected in the same manner 
and with the same powers exercised by the Secretary of the Treasury or 
his delegate in the collection of an employment tax which would be 
jeopardized by delay. However, where the assessment is the first 
assessment against an individual for a delinquency described in this 
paragraph for a particular individual or individuals, the collection is 
to be stayed for a period of 60 days following notice and demand. In 
addition, no interest or penalties (with the exception of the penalties 
imposed by sections 6332(c)(2) and 6657) shall be assessed or collected 
on the amounts, paragraphs (4), (6) and (8) of section 6334(a) (relating 
to property exempt from levy) shall not apply; and, there shall be 
exempt from levy so much of the salary, wages, or other income of the 
individual which is subject to garnishment pursuant to a judgment 
entered by a court for the support of his or her minor children. Section 
6305(b) provides that sole jurisdiction for any action brought to 
restrain or review assessment and collection of the certified amounts 
shall be in a State court or a State administrative agency.
    (b) Assessment and collection--(1) General rule. Upon receipt of a 
certification or recertification from the Secretary of Health and Human 
Services or his delegate under section 452(b) of title IV of the Social 
Security Act as amended (relating to collection of child and spousal 
support obligations with respect to an individual), the district 
director or his delegate shall assess and collect the certified amount 
(or recertified amount). Except as provided in paragraph (c) of this 
section, the amount so certified shall be assessed and collected in the 
same manner, with the same powers, and subject to the same limitations 
as if the amount were an employment tax the collection of which would be 
jeopardized by delay. However, the provisions of subtitle F with respect 
to assessment and collection of taxes shall not apply with respect to 
assessment and collection of a certified amount where such provisions 
are clearly inappropriate to, and incompatible with, the collection of 
certified amounts generally. For example, section 6861(g) which allows 
the Secretary or his delegate to abate a jeopardy assessment if he finds 
a jeopardy does not exist will not apply.
    (2) Method of assessment. An assessment officer appointed by the 
district director pursuant to Sec.  301.6203-1 to make assessments of 
tax shall also make assessments of certified amounts. The assessment of 
a certified amount shall be made by the assessment officer signing the 
summary record of assessment. The date of assessment is the date the 
summary record is signed by the assessment officer. The summary record, 
through supporting records as necessary, shall provide--
    (i) The assessed amount;
    (ii) The name, social security number, and last known address of the 
individual owing the assessed amount. For further guidance regarding the 
definition of last known address, see Sec.  301.6212-2;
    (iii) A designation of the assessed amount as a certified amount, 
together with the date on which the amount was certified and the name, 
position, and governmental address of the officer of the Department of 
Health and Human Services who certified the amount;
    (iv) The period to which the child and spousal support obligation 
represented by the certified amount relates;
    (v) The State in which was entered the court or administrative order 
giving rise to the child and spousal support obligation represented by 
the certified amount;
    (vi) The name of the person or persons to whom the child and spousal 
support obligation represented by the certified amount is owed; and
    (vii) The name of the child or children or the parent of the child 
or children for whose benefit the child and spousal support obligation 
exists.

Upon request, the individual assessed shall be furnished a copy of 
pertinent parts of this assessment which set forth the information 
listed in subdivision (i) through (vii) of this paragraph (b)(2).
    (3) Supplemental assessments and abatements. If any assessment is 
incomplete or incorrect in any material respect, the district director 
or his delegate may make a supplemental assessment or abatement but only 
for the

[[Page 331]]

purpose of completing or correcting the original assessment. A 
supplemental assessment will not be used as a substitute for an 
additional assessment against an individual.
    (4) Method of collection. (i) The district director or his delegate 
shall make notice and demand for immediate payment of certified amounts. 
Upon failure or refusal to pay such amounts, collection by levy shall be 
lawful without regard to the 10-day waiting period provided in section 
6331(a). However, in the case of certain first assessments, paragraph 
(c)(4) of this section provides a rule for a stay of collection for 60 
days. For purposes of collection, refunds of any internal revenue tax 
owed to the individual may be offset against a certified amount.
    (ii) The district director or his delegate shall make diligent and 
reasonable efforts to collect certified amounts as if such amounts were 
taxes. He shall have no authority to compromise a proceeding by 
collection of only part of a certified amount in satisfaction of the 
full certified amount owing. However, he may arrange for payment of a 
certified amount by installments where advisable.
    (iii) The district director or his delegate may offset the amount of 
any overpayment of any internal revenue tax (as described in section 
301.6401-1) to be refunded to the person making the overpayment by the 
amount of any past-due support (as defined in the regulations under 
section 6402) owed by the person making the overpayment. The amounts 
offset under section 6402(c) may be amounts of child and spousal support 
certified (or recertified) for collection under section 6305 and this 
section or they may be amounts of past-due support of which the 
Secretary of the Treasury has been notified under section 6402(c) and 
the regulations under that section.
    (5) Credits or refunds. In the case of any overpayment of a 
certified amount, the Secretary of the Treasury or his delegate, within 
the period of limitations for credit or refund of employment taxes, may 
credit the amount of the overpayment against any liability in respect of 
an internal revenue tax on the part of the individual who made the 
overpayment and shall refund any balance to the individual. However, the 
full amount of any overpayment collected by levy upon property described 
in paragraph (c)(2) (i), (ii), or (iii) of this section shall be 
refunded to the individual. For purposes of applying this subparagraph, 
the rules of Sec.  301.6402-2 apply where appropriate.
    (6) Disposition of certified amounts collected. Any certified amount 
collected shall be deposited in the general fund of the United States, 
and the officer of the Department of Health and Human Services who 
certified the amount shall be promptly notified of its collection. There 
shall be established in the Treasury, pursuant to section 452 of title 
IV of the Social Security Act as amended, a revolving fund which shall 
be available to the Secretary of Health and Human Services or his 
delegate, without fiscal year limitation, for distribution to the States 
in accordance with the provisions of section 457 of the Act. Section 
452(c)(2) of the Act appropriates to this revolving fund out of any 
monies not otherwise appropriated, amounts equal to the certified 
amounts collected under this paragraph reduced by the amounts credited 
or refunded as overpayments of the certified amounts so collected. The 
certified amounts deposited shall be transferred at least quarterly from 
the general fund of the Treasury to the revolving fund on the basis of 
estimates made by the Secretary of the Treasury or his delegate. Proper 
adjustments shall be made in the amounts subsequently transferred to the 
extent prior estimates were in excess of or less than the amounts 
required to be transferred. See, however, paragraph (c)(1) of this 
section for the special rule requiring retention in the general fund of 
certain penalties which may be collected.
    (c) Additional limitations and conditions--(1) Interest and 
penalties. No interest, penalties or additional amounts, other than 
normal and reasonable collection costs, may be assessed or collected in 
addition to the certified amount, other than the penalty imposed by 
section 6332(c)(2) for failure to surrender property subject to levy and 
the penalty imposed by section 6657 for the tender of bad checks.

[[Page 332]]

Any such penalties and collection costs, if collected, will not be 
treated as part of the certified amount and will be retained by the 
United States as a part of its general fund. No interest shall be 
allowed or paid on any overpayment of a certified amount.
    (2) Property not exempt from levy. In addition to property not 
exempt from levy under section 6334(c) and the regulations thereunder, 
the following property shall not be exempt from a levy to collect a 
certified amount:
    (i) Unemployment benefits described in section 6334(a)(4);
    (ii) Certain annuities and pension payments described in section 
6334(a)(6); or
    (iii) Salary, wages, or other income described in section 
6334(a)(8).
    (3) Property exempt from levy. In addition to property exempt from 
levy under section 6334(a) and the regulations thereunder, other than 
property described in paragraph (c)(2) (i), (ii), or (iii) of this 
section, there shall be exempt from levy to collect a certified amount 
so much of the salary, wages, or other income of an individual as is 
withheld therefrom in garnishment pursuant to judgment entered by a 
court of competent jurisdiction for the support of minor children of the 
individual.
    (4) First assessment. In the case of a first assessment against an 
individual for a certified amount in whole or part for the benefit of a 
particular child or children or the child or children and their parent, 
the collection of the certified amount shall be stayed for the period of 
60 days immediately following notice and demand as described in section 
6303. However, no other stay of the collection of a certified amount may 
be granted. Thus, the provisions of section 6863(a), relating to bonds 
to stay collection of jeopardy assessments, shall not apply to the 
collection of certified amounts.
    (5) Priority of liens. A lien for a certified amount shall be valid 
as against a lien for taxes imposed by section 6321 only if the date of 
assessment of the certified amount precedes the date of assessment of 
the taxes. However, no amount collected by levy upon property described 
in paragraph (c)(2) (i), (ii), or (iii) of this section may be applied 
other than in whole or partial satisfaction of certified amounts. In the 
case of two liens for certified amounts, the lien for the certified 
amount which is first assessed shall be valid as against the lien for 
the certified amount which is later assessed.
    (6) Statute of limitations on collections. The periods of limitation 
on collection of taxes after assessment prescribed by section 6502 shall 
apply to the collection of certified (or recertified) amounts. Such 
periods of limitation with respect to a certified amount shall terminate 
upon recertification of the amount, and the period of limitation 
prescribed by section 6502 shall then apply and commence to run with 
respect to the recertified amount.
    (d) Review of assessments and collections--(1) Federal courts. No 
court of the United States established under article I or article III of 
the Constitution has jurisdiction of any legal or equitable action to 
restrain or review the assessment or collection of certified amounts by 
the district director or his delegate. See, however, paragraph (d)(3) of 
this section for the rule that the prohibition of this paragraph (d)(1) 
does not preclude courts established for the District of Columbia from 
exercising jurisdiction over certain actions.
    (2) Secretary of the Treasury. Neither the Secretary of the Treasury 
nor his delegate may subject to review the assessment or collection of 
certified amounts in any legal, equitable, or administrative proceeding.
    (3) State courts. This paragraph (d) does not preclude a State court 
or appropriate State agency, as the case may be, from exercising 
jurisdiction over a legal, equitable, or administrative action against 
the State by an individual to determine his liability for any certified 
amount assessed against him and collected, or to recover any such 
certified amount collected, under section 6305 and this section. For 
purposes of the preceding sentence, the term ``State'' includes the 
District of Columbia.
    (e) Internal Revenue regional service centers. For purposes of this 
section, the terms ``district director or his delegate'' and ``district 
director'' include the director of the Internal Revenue

[[Page 333]]

service center or his delegate, as the case may be.

(Sec. 7805, Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C. 
7805); sec. 2332(a) of the Omnibus Budget Reconciliation Act of 1981 (95 
Stat. 357), amending sec. 464(a) of the Social Security Act (88 Stat. 
2351))

[T.D. 7576, 43 FR 59376, Dec. 20, 1978, as amended by T.D. 7808, 47 FR 
5713, Feb. 8, 1982; T.D. 8939, 66 FR 2820, Jan. 12, 2001]

                           Receipt of Payment



Sec.  301.6311-1  Payment by check or money order.

    (a) Authority to receive--(1) In general. (i) District directors, 
Service Center directors, and Compliance Center directors (director) may 
accept checks or drafts drawn on any financial institution incorporated 
under the laws of the United States or under the laws of any State, the 
District of Columbia, or any possession of the United States, or money 
orders in payment for internal revenue taxes, provided the checks, 
drafts, or money orders are collectible in United States currency at 
par, and subject to the further provisions contained in this section. 
The director may accept the checks, drafts, or money orders in payment 
for internal revenue stamps to the extent and under the conditions 
prescribed in paragraph (a)(2) of this section. A check or money order 
in payment for internal revenue taxes or internal revenue stamps should 
be made payable to the United States Treasury. A check or money order is 
payable at par only if the full amount thereof is payable without any 
deduction for exchange or other charges. As used in this section, the 
term ``money order'' means: (a) U.S. postal, bank, express, or telegraph 
money order; (b) money order issued by a domestic building and loan 
association (as defined in section 7701(a)(19)) or by a similar 
association incorporated under the laws of a possession of the United 
States; (c) a money order issued by such other organization as the 
Commissioner may designate; and (d) a money order described in 
subdivision (ii) of this subparagraph in cases therein described. 
However, the director may refuse to accept any personal check whenever 
he or she has good reason to believe that such check will not be honored 
upon presentment.
    (ii) An American citizen residing in a country with which the United 
States maintains direct exchange of money orders on a domestic basis may 
pay his tax by postal money order of such country. For a list of such 
countries, see section 171.27 of the Postal Manual of the United States.
    (iii) If one check or money order is remitted to cover two or more 
persons' taxes, the remittance should be accompanied by a letter of 
transmittal clearly identifying--
    (a) Each person whose tax is to be paid by the remittance;
    (b) The amount of the payment on account of each such person; and
    (c) The kind of tax paid.
    (2) Payment for internal revenue stamps. The director may accept 
checks, drafts, and money orders described in paragraph (a)(1) of this 
section in payment for internal revenue stamps. However, the director 
may refuse to accept any personal check whenever he or she has good 
reason to believe that such check will not be honored upon presentment.
    (b) Checks or money orders not paid--(1) Ultimate liability. The 
person who tenders any check (whether certified or uncertified, 
cashier's, treasurer's, or other form of check or draft) or money order 
in payment for taxes or stamps is not released from his or her liability 
until the check, draft, or money order is paid; and, if the check, 
draft, or money order is not duly paid, the person shall also be liable 
for all legal penalties and additions, to the same extent as if such 
check, draft, or money order had not been tendered.
    (2) Liability of financial institutions and others. If any 
certified, treasurer's, or cashier's check, or other guaranteed draft, 
or money order, is not duly paid, the United States shall have a lien 
for the amount of such check or draft upon all assets of the financial 
institution on which drawn, or for the amount of such money order upon 
the assets of the issuer thereof. The unpaid amount shall be paid out of 
such assets in preference to any other claims against such financial 
institution or issuer except the necessary costs and expenses

[[Page 334]]

of administration and the reimbursement of the United States for the 
amount expended in the redemption of the circulating notes of such 
financial institution. In addition, the Government has the right to 
exact payment from the person required to make the payment.
    (c) Payment in nonconvertible foreign currency. For rules relating 
to payment of income taxes and taxes under the Federal Insurance 
Contributions Act in nonconvertible foreign currency, see section 6316 
and the regulations thereunder.
    (d) Financial institution. For purposes of section 6311 and this 
section, financial institution includes but is not limited to--
    (1) A bank or trust company (as defined in section 581);
    (2) A domestic building and loan association (as defined in section 
7701(a)(19));
    (3) A mutual savings bank (including but not limited to a mutual 
savings bank as defined in section 591(b));
    (4) A credit union (including both state and federal credit unions, 
and including but not limited to a credit union as defined in section 
501(c)(14)); and
    (5) A regulated investment company (as defined in section 851(a)).

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7188, 37 FR 12795, June 
29, 1972; T.D. ATF-33, 41 FR 44038, Oct. 6, 1976; T.D. 8595, 60 FR 
20899, Apr. 28, 1995; T.D. 8969, 66 FR 64743, Dec. 14, 2001]



Sec.  301.6311-2  Payment by credit card and debit card.

    (a) Authority to receive--(1) Payments by credit card and debit 
card. Internal revenue taxes may be paid by credit card or debit card as 
authorized by this section. Payment of taxes by credit card or debit 
card is voluntary on the part of the taxpayer. Only credit cards or 
debit cards approved by the Commissioner may be used for this purpose, 
only the types of tax liabilities specified by the Commissioner may be 
paid by credit card or debit card, and all such payments must be made in 
the manner and in accordance with the forms, instructions and procedures 
prescribed by the Commissioner. All references in this section to tax 
also include interest, penalties, additional amounts, and additions to 
tax.
    (2) Payments by electronic funds transfer other than payments by 
credit card and debit card. Provisions relating to payments by 
electronic funds transfer other than payments by credit card and debit 
card are contained in section 6302 and the Treasury Regulations 
promulgated pursuant to section 6302.
    (3) Definitions--(i) Credit card means any credit card as defined in 
section 103(k) of the Truth in Lending Act (15 U.S.C. 1602(k)), 
including any credit card, charge card, or other credit device issued 
for the purpose of obtaining money, property, labor, or services on 
credit.
    (ii) Debit card means any accepted card or other means of access as 
defined in section 903(1) of the Electronic Fund Transfer Act (15 U.S.C. 
1693a(1)), including any debit card or similar device or means of access 
to an account issued for the purpose of initiating electronic fund 
transfers to obtain money, property, labor, or services.
    (b) When payment is deemed made. A payment of tax by credit card or 
debit card shall be deemed made when the issuer of the credit card or 
debit card properly authorizes the transaction, provided that the 
payment is actually received by the United States in the ordinary course 
of business and is not returned pursuant to paragraph (d)(3) of this 
section.
    (c) Payment not made--(1) Continuing liability of taxpayer. A 
taxpayer who tenders payment of taxes by credit card or debit card is 
not relieved of liability for such taxes until the payment is actually 
received by the United States and is not required to be returned 
pursuant to paragraph (d)(3) of this section. This continuing liability 
of the taxpayer is in addition to, and not in lieu of, any liability of 
the issuer of the credit card or debit card or financial institution 
pursuant to paragraph (c)(2) of this section.
    (2) Liability of financial institutions. If a taxpayer has tendered 
a payment of internal revenue taxes by credit card or debit card, the 
credit card or debit card transaction has been guaranteed expressly by a 
financial institution, and the United States is not duly paid, then the 
United States shall have a

[[Page 335]]

lien for the guaranteed amount of the transaction upon all the assets of 
the institution making such guarantee. The unpaid amount shall be paid 
out of such assets in preference to any other claims whatsoever against 
such guaranteeing institution, except the necessary costs and expenses 
of administration and the reimbursement of the United States for the 
amount expended in the redemption of the circulating notes of such 
institution.
    (d) Resolution of errors relating to the credit card or debit card 
account--(1) In general. Payments of taxes by credit card or debit card 
shall be subject to the applicable error resolution procedures of 
section 161 of the Truth in Lending Act (15 U.S.C. 1666), section 908 of 
the Electronic Fund Transfer Act (15 U.S.C. 1693f), or any similar 
provisions of state or local law, for the purpose of resolving errors 
relating to the credit card or debit card account, but not for the 
purpose of resolving any errors, disputes or adjustments relating to the 
underlying tax liability.
    (2) Matters covered by error resolution procedures. (i) The error 
resolution procedures of paragraph (d)(1) of this section apply to the 
following types of errors--
    (A) An incorrect amount posted to the taxpayer's account as a result 
of a computational error, numerical transposition, or similar mistake;
    (B) An amount posted to the wrong taxpayer's account;
    (C) A transaction posted to the taxpayer's account without the 
taxpayer's authorization; and
    (D) Other similar types of errors that would be subject to 
resolution under section 161 of the Truth in Lending Act (15 U.S.C. 
1666), section 908 of the Electronic Fund Transfer Act (15 U.S.C. 
1693f), or similar provisions of state or local law.
    (ii) An error described in paragraph (d)(2)(i) of this section may 
be resolved only through the procedures referred to in paragraph (d)(1) 
of this section and cannot be a basis for any claim or defense in any 
administrative or court proceeding involving the Commissioner or the 
United States.
    (3) Return of funds pursuant to error resolution procedures. 
Notwithstanding section 6402, if a taxpayer is entitled to a return of 
funds pursuant to the error resolution procedures of paragraph (d)(1) of 
this section, the Commissioner may, in the Commissioner's sole 
discretion, effect such return by arranging for a credit to the 
taxpayer's account with the issuer of the credit card or debit card or 
any other financial institution or person that participated in the 
transaction in which the error occurred.
    (4) Matters not subject to error resolution procedures. The error 
resolution procedures of paragraph (d)(1) of this section do not apply 
to any error, question, or dispute concerning the amount of tax owed by 
any person for any year. For example, these error resolution procedures 
do not apply to determine a taxpayer's entitlement to a refund of tax 
for any year for any reason, nor may they be used to pay a refund. All 
such matters shall be resolved through administrative and judicial 
procedures established pursuant to the Internal Revenue Code and the 
rules and regulations thereunder.
    (5) Section 170 of the Truth in Lending Act not applicable. Payments 
of taxes by credit card or debit card are not subject to section 170 of 
the Truth in Lending Act (15 U.S.C. 1666i) or to any similar provision 
of state or local law.
    (e) Fees or charges. The Internal Revenue Service may not impose any 
fee or charge on persons making payment of taxes by credit card or debit 
card. This section does not prohibit the imposition of fees or charges 
by issuers of credit cards or debit cards or by any other financial 
institution or person participating in the credit card or debit card 
transaction. The Internal Revenue Service may not receive any part of 
any fees that may be charged.
    (f) Authority to enter into contracts. The Commissioner may enter 
into contracts related to receiving payments of tax by credit card or 
debit card if such contracts are cost beneficial to the Government. The 
determination of whether the contract is cost beneficial shall be based 
on an analysis appropriate for the contract at issue and at a level of 
detail appropriate to the size of the Government's investment or 
interest. The Commissioner may not pay any fee or charge or provide any 
other

[[Page 336]]

monetary consideration under such contracts for such payments.
    (g) Use and disclosure of information relating to payment of taxes 
by credit card and debit card. Any information or data obtained directly 
or indirectly by any person other than the taxpayer in connection with 
payment of taxes by a credit card or debit card shall be treated as 
confidential, whether such information is received from the Internal 
Revenue Service or from any other person (including the taxpayer).
    (1) No person other than the taxpayer shall use or disclose such 
information except as follows--
    (i) Card issuers, financial institutions, or other persons 
participating in the credit card or debit card transaction may use or 
disclose such information for the purpose and in direct furtherance of 
servicing cardholder accounts, including the resolution of errors in 
accordance with paragraph (d) of this section. This authority includes 
the following--
    (A) Processing the credit card or debit card transaction, in all of 
its stages through and including the crediting of the amount charged on 
account of tax to the United States Treasury;
    (B) Billing the taxpayer for the amount charged or debited with 
respect to payment of the tax liability;
    (C) Collecting the amount charged or debited with respect to payment 
of the tax liability;
    (D) Returning funds to the taxpayer in accordance with paragraph 
(d)(3) of this section;
    (E) Sending receipts or confirmation of a transaction to the 
taxpayer, including secured electronic transmissions and facsimiles; and
    (F) Providing information necessary to make a payment to state or 
local government agencies, as explicitly authorized by the taxpayer 
(e.g., name, address, taxpayer identification number).
    (ii) Card issuers, financial institutions or other persons 
participating in the credit card or debit card transaction may use and 
disclose such information for the purpose and in direct furtherance of 
any of the following activities--
    (A) Assessment of statistical risk and profitability;
    (B) Transfer of receivables or accounts or any interest therein;
    (C) Audit of account information;
    (D) Compliance with federal, state, or local law; and
    (E) Cooperation in properly authorized civil, criminal, or 
regulatory investigations by federal, state, or local authorities.
    (2) Notwithstanding the provisions of paragraph (g)(1) of this 
section, use or disclosure of information relating to credit card and 
debit card transactions for purposes related to any of the following is 
not authorized--
    (i) Sale of such information (or transfer of such information for 
consideration) separate from a sale of the underlying account or 
receivable (or transfer of the underlying account or receivable for 
consideration);
    (ii) Marketing for any purpose, such as, marketing tax-related 
products or services, or marketing any product or service that targets 
those who have used a credit card or debit card to pay taxes; and
    (iii) Furnishing such information to any credit reporting agency or 
credit bureau, except with respect to the aggregate amount of a 
cardholder's account, with the amount attributable to payment of taxes 
not separately identified.
    (3) Use and disclosure of information other than as authorized by 
this paragraph (g) may result in civil liability under sections 
7431(a)(2) and (h).
    (h) Effective date. This section applies to payments of taxes made 
on and after December 14, 2001.

[T.D. 8969, 66 FR 64743, Dec. 14, 2001; 67 FR 1416, Jan. 11, 2001]



Sec.  301.6312-1  Treasury certificates of indebtedness, Treasury notes, 
and Treasury bills acceptable in payment of internal revenue taxes or stamps.

    (a) Treasury certificates of indebtedness, Treasury notes, or 
Treasury bills of any series (not including interim receipts issued by 
Federal reserve banks in lieu of definitive certificates, notes, or 
bills) may be tendered at or before maturity in payment of internal 
revenue taxes due on the date (or in payment for stamps purchased on the 
date), on which the certificates, notes,

[[Page 337]]

or bills mature, or in payment of internal revenue taxes due on a 
specified prior date, but only if such certificates, notes, or bills, 
according to the express terms of their issue, are made acceptable in 
payment of such taxes or for the purchase of stamps. If the taxes for 
which the certificates, notes, or bills are tendered in payment become 
due, or the stamps are purchased, on the same date as that on which such 
certificates, notes, or bills mature, they will be accepted at par plus 
accrued interest, if any, payable with the principal (not represented by 
coupons attached) in payment of such taxes or stamps. If the taxes for 
which the certificates, notes, or bills are tendered in payment become 
due, or the stamps are purchased, on a date prior to that on which the 
certificates, notes, or bills mature, they will be accepted at the value 
specified in the terms under which such certificates, notes, or bills 
were issued. All interest coupons attached to Treasury certificates of 
indebtedness or Treasury notes shall be detached by the taxpayer before 
such certificates or notes are tendered in payment of taxes or stamps.
    (b) Receipts given by a district director for Treasury certificates 
of indebtedness, Treasury notes, or Treasury bills received in payment 
of internal revenue taxes or for stamps as provided in this section 
shall contain an adequate description of such certificates, notes, or 
bills, and a statement of the value, including accrued interest, if any, 
payable with the principal (not represented by coupons attached), at 
which accepted, and shall show that the certificates, notes, or bills 
are tendered by the taxpayer and received by the district director, 
subject to no conditions, qualification, or reservation whatsoever, in 
payment of an amount of taxes or for stamps no greater than such value. 
Any certificate, note, or bill offered in payment of internal revenue 
taxes or for stamps subject to any condition, qualification, or 
reservation, or for any greater amount than the value at which 
acceptable in payment of taxes or stamps, as specified in the terms 
under which such certificate, note, or bill was issued, shall not be 
deemed to be duly tendered and shall be returned to the taxpayer.
    (c) For the purpose of saving taxpayers the expense of transmitting 
Treasury certificates of indebtedness, Treasury notes, or Treasury bills 
to the office of the district director in whose district the taxes are 
payable, or stamps are to be purchased, taxpayers desiring to pay taxes, 
or purchase stamps, with such certificates, notes, or bills acceptable 
in payment of taxes or for the purchase of stamps may deposit such 
certificates, notes, or bills with a Federal reserve bank or branch, or 
with the Office of the Treasurer of the United States, Treasury 
Building, Washington, D.C. In such cases, the Federal reserve bank or 
branch, or the Office of the Treasurer of the United States, shall issue 
a receipt in the name of the district director, describing the 
certificates, notes, or bills by par or dollar face amount and stating 
on the face of the receipt that the certificates, notes, or bills 
represented thereby are held by the bank or branch, or the Office of the 
Treasurer of the United States, for redemption at the value specified in 
the terms under which the certificates, notes, or bills were issued, and 
for application of the proceeds in payment of taxes due or for the 
purchase of stamps on a specified date by the taxpayer named therein.
    (d) In the case of payments of tax required to be deposited with 
Government depositaries by regulations under section 6302 of the Code, 
certificates, notes, or bills referred to in paragraph (a) of this 
section may be deposited with a Federal Reserve bank or branch, or with 
the Office of the Treasurer of the United States, in part or full 
satisfaction of such tax liability. As in the case of all remittances of 
amounts so required to be deposited, each such deposit of certificates, 
notes, or bills shall be accompanied by the appropriate deposit form in 
accordance with the regulations under section 6302. In such cases, 
notwithstanding paragraphs (b) and (c) of this section, receipts for 
such certificates, notes or bills shall no longer be issued in the name 
of the district director.

[[Page 338]]



Sec.  301.6312-2  Certain Treasury savings notes acceptable in payment 
of certain internal revenue taxes.

    According to the express terms of their issue, the following series 
of Treasury savings notes are presently acceptable in payment of income 
taxes (current and back, personal and corporation taxes, and excess 
profits taxes) and estate and gift taxes (current and back):
    (a) Treasury Savings Notes, Series A,
    (b) Treasury Savings Notes, Series B,
    (c) Treasury Savings Notes, Series C.



Sec.  301.6313-1  Fractional parts of a cent.

    In the payment of any tax not payable by stamp, a fractional part of 
a cent shall be disregarded unless it amounts to one-half cent or more, 
in which case it shall be increased to one cent. Fractional parts of a 
cent shall not be disregarded in the computation of taxes.



Sec.  301.6314-1  Receipt for taxes.

    (a) In general. The district director or the director of a service 
center shall upon request, issue a receipt for each tax payment made 
(other than a payment for stamps sold and delivered). In addition, the 
district director or the director of a service center shall issue a 
receipt for each payment of 1 dollar or more made in cash, whether or 
not requested. In the case of payments made by check, the canceled check 
is usually a sufficient receipt. No receipt shall be issued in lieu of a 
stamp representing a tax, whether the payment is in cash or otherwise.
    (b) Duplicate receipt for payment of estate taxes. Upon request, the 
district director or the director of a service center will issue 
duplicate receipts to the person paying the estate tax, either of which 
will be sufficient evidence of such payment and entitle the executor to 
be credited with the amount by any court having jurisdiction to audit or 
settle his accounts. For definition of the term ``executor'', see 
section 2203.

[T.D. 7214, 37 FR 23176, Oct. 31, 1972]



Sec.  301.6315-1  Payments of estimated income tax.

    The payment of any installment of the estimated income tax (see 
sections 6015 and 6016) shall be considered payment on account of the 
income tax for the taxable year for which the estimate is made. The 
aggregate amount of the payments of estimated tax should be entered upon 
the income tax return for such taxable year as payments to be applied 
against the tax shown on such return.



Sec.  301.6316-1  Payment of income tax in foreign currency.

    Subject to the provisions of Sec. Sec.  301.6316-3 to 301.6316-5, 
inclusive, that portion of the income tax which is attributable to 
amounts received by a citizen of the United States in nonconvertible 
foreign currency may be paid in such currency--
    (a) For any taxable year beginning on or after January 1, 1955, and 
before January 1, 1964, if such amounts--
    (1) Are disbursed from funds made available to a foundation or 
commission established in a foreign country pursuant to an agreement 
made under the authority of section 32(b) of the Surplus Property Act of 
1944, as amended (50 U.S.C. App. 1641(b)(2)), or reestablished under the 
authority of the Mutual Educational and Cultural Exchange Act of 1961, 
as amended (22 U.S.C. 2451);
    (2) Constitute either a grant made for authorized purposes of the 
agreement or compensation for personal services performed in the employ 
of the foundation or commission;
    (3) Are at least 75 percent of the entire amount of the grant or 
compensation; and
    (4) Are treated as income from sources without the United States 
under the provisions of sections 861 to 864, inclusive, and Sec. Sec.  
1.861-1 to 1.864, inclusive, of this chapter (Income Tax Regulations); 
and
    (b) For any taxable year beginning on or after January 1, 1964, if 
such amounts--
    (1) Are disbursed from funds made available either to a foundation 
or commission, established pursuant to an agreement made under the 
authority of section 32(b) of the Surplus Property Act of 1944, as 
amended, or to a foundation or commission established or continued 
pursuant to an agreement made

[[Page 339]]

under the authority of the Mutual Educational and Cultural Exchange Act 
of 1961, as amended; or are paid from grants made to such citizen, or to 
a foundation or an educational or other institution, under the authority 
of the Mutual Educational and Cultural Exchange Act of 1961, as amended, 
or section 104 (h), (j), (k), (o), or (p) of the Agricultural Trade 
Development and Assistance Act of 1954, as amended (7 U.S.C. 1704 (h), 
(j), (k), (o), (p));
    (2) Constitute either a grant made for a purpose authorized under 
any such agreement or law, or compensation for personal services 
performed in the employ of any organization engaged in administering any 
program or activity pursuant to any such agreement or law;
    (3) Are at least 70 percent of the entire amount of the grant or 
compensation; and
    (4) Are treated as income from sources without the United States 
under the provisions of sections 861 to 864, inclusive, and Sec. Sec.  
1.861-1 to 1.864, inclusive, of this chapter (Income Tax Regulations).



Sec.  301.6316-2  Definitions.

    For purposes of Sec. Sec.  301.6316-1 to 301.6316-9, inclusive:
    (a) The term tax, as used in Sec. Sec.  301.6316-1, 301.6316-3, 
301.6316-4, 301.6316-5, and 301.6316-6 means the income tax imposed for 
the taxable year by chapter 1 of the Internal Revenue Code of 1954, and 
as used in Sec.  301.6316-7 means the Federal Insurance Contributions 
Act taxes imposed by chapter 21 of the Code (or by the corresponding 
provisions of the Internal Revenue Code of 1939). The term ``tax'', as 
used in Sec. Sec.  301.6316-3 and 301.6316-9 shall relate to either of 
such taxes, whichever is appropriate.
    (b) The term nonconvertible foreign currency means currency of the 
government of a foreign country which, owing to (1) monetary, exchange, 
or other restrictions imposed by the foreign country, (2) an agreement 
entered into with the United States of America, or (3) the terms and 
conditions of the U.S. Government grant, is not convertible into U.S. 
dollars or into other money which is convertible into U.S. dollars. The 
term shall not, however, include currency which, notwithstanding such 
restrictions, agreement, terms, or conditions, is in fact converted into 
U.S. dollars or into property which is readily disposable for U.S. 
dollars.
    (c) If the taxpayer computes taxable income under the accrual 
method, then the term received shall be construed to mean ``accrued.''



Sec.  301.6316-3  Allocation of tax attributable to foreign currency.

    (a) Adjusted gross income ratio. The portion of the tax which is 
attributable to amounts received in nonconvertible foreign currency 
shall, for purposes of applying Sec.  301.6316-1 to the currency of each 
foreign country, be the amount by which:
    (1) The amount which bears the same ratio to the entire tax for the 
taxable year as (i) the taxpayer's adjusted gross income received in 
that currency bears to (ii) the adjusted gross income determined under 
section 62 by taking into account the entire gross income and all 
deductions allowable under that section without distinction as to 
amounts received in foreign currency, exceeds
    (2) The total of the allowable credits against tax, and payments on 
account of tax, which are properly allocable to the amount of that 
currency included in gross income.
    (b) Example. (1) For the calendar year 1955 Mr. Jones and his wife 
filed a joint return on which the adjusted gross income is as follows, 
after amounts received in foreign currency had been properly translated 
into United States dollars for tax computation purposes:

Fulbright grant received by Mr. Jones in nonconvertible foreign   $8,000
 currency......................................................
Dividends received by Mr. Jones entitled to dividends-received       500
 credit........................................................
Compensation for personal services of Mrs. Jones...............    3,000
Net profit from business carried on by Mrs. Jones..............    2,500
                                                                --------
   Total adjusted gross income.................................   14,000
 

    (2) The following amounts are allowable as properly deductible from 
adjusted gross income, no determination being made as to whether or not 
any part of them is properly allocable to the Fulbright grant:

Deduction for personal exemptions..............................   $3,000
Charitable contributions.......................................      500
Interest expense...............................................      400
Taxes..........................................................      300
                                                                --------
   Total allowable deductions..................................    4,200
 


[[Page 340]]

    (3) For the taxable year the following amounts are allowable as 
credits against the tax, or as payments on account of the tax:

Foreign tax credit for foreign taxes paid on Fulbright grant..   $300.00
Dividends-received credit.....................................     20.00
Credit for income tax withheld upon compensation of Mrs. Jones    304.80
Payments of estimated tax (see Sec.   301.6316-
 6(b)(2) for determination of amounts):
  U.S. dollars......................................   $426.32
  Foreign currency..................................    893.88  1,320.20
                                                     -------------------
   Total allowable credits and payments.......................  1,945.00
 

    (4) The portion of the tax which is attributable to amounts received 
in nonconvertible foreign currency is $33.49, determined as follows:

Adjusted gross income.......................................  $14,000.00
Less: Allowable deductions..................................    4,200.00
                                                 -------------
    Taxable income..........................................    9,800.00
                                                 =============
Tax computed under section 2................................    2,148.00
Ratio of adjusted gross income received in nonconvertible          57.14
 foreign currency to entire adjusted gross income ($8,000 /
 $14,000) (percent).........................................
Portion of tax attributable to nonconvertible foreign          $1,227.37
 currency ($2,148 x 57.14 percent)..........................
Less:
  Credit for foreign taxes paid on Fulbright         $300.00
   grant........................................
Payment in foreign currency of estimated tax....      893.88    1,193.88
                                                 -----------------------
    Portion of tax attributable to amounts received in             83.49
     nonconvertible foreign currency........................
 



Sec.  301.6316-4  Return requirements.

    (a) Place for filing. A return of income which includes amounts 
received in foreign currency on which the tax is paid in accordance with 
Sec.  301.6316-1 shall be filed with the Director of International 
Operations, Internal Revenue Service, Washington, D.C. 20225. For the 
time for filing income tax returns, see sections 6072 and 6081 and 
Sec. Sec.  1.6072-1, 1.6081-1, and 1.6081-2 of this chapter (Income Tax 
Regulations).
    (b) Statements required. (1) A statement, prepared by the taxpayer, 
and certified by the foundation, commission, or other person having 
control of the payments made to the taxpayer in nonconvertible foreign 
currency, shall be attached to the return showing that for the taxable 
year involved the taxpayer is entitled to pay tax in foreign currency in 
accordance with section 6316 and the regulations thereunder. This 
statement shall disclose the total amount of grants or compensation 
received by the taxpayer during the taxable year under the authority of 
section 32(b) of the Surplus Property Act of 1944, as amended (50 U.S.C. 
App. 1641(b)(2)), or of the Mutual Educational and Cultural Exchange Act 
of 1961, as amended (22 U.S.C. 2451), or section 104 (h), (j), (k), (o), 
or (p) of the Agricultural Trade Development and Assistance Act of 1954, 
as amended (7 U.S.C. 1704 (h), (j), (k), (o), (p)), and the amount 
thereof paid in nonconvertible foreign currency. It shall also state 
that with respect to the grant or compensation the applicable percentage 
requirement of Sec.  301.6316-1 is satisfied.
    (2) The taxpayer shall also attach to the return a detailed 
statement showing (i) the computation, in the manner prescribed by Sec.  
301.6316-3, of the portion of the tax attributable to amounts received 
in nonconvertible foreign currency and (ii) the rates of exchange used 
in determining the tax liability in U.S. dollars. See paragraph (c) of 
Sec.  301.6316-5.



Sec.  301.6316-5  Manner of paying tax by foreign currency.

    (a) Time and place to pay. The unpaid tax required to be shown on a 
return filed in accordance with Sec.  301.6316-4, whether payable in 
whole or in part in foreign currency, is due and payable to the Director 
of International Operations, Internal Revenue Service, Washington, D.C. 
20225, at the time the return is filed. However, see paragraph (d) of 
this section with respect to the depositing of the foreign currency with 
the disbursing officer of the Department of State.
    (b) Certified statement. Every taxpayer who desires to pay tax in 
foreign currency under the provisions of Sec.  301.6316-1 shall first 
obtain the certified statement referred to in paragraph (b)(1) of Sec.  
301.6316-4.
    (c) Determination of the tax. In determining the tax payable for the 
taxable year in U.S. dollars, the taxpayer, with respect to amounts 
described in paragraph (a) of Sec.  301.6316-1, or amounts described in 
paragraph (b) of Sec.  301.6316-1 received before November 1, 1965, 
shall use the rates of exchange which most clearly reflect the correct 
tax liability in dollars, whether it be the official rate, the open 
market rate, or any

[[Page 341]]

other appropriate rate. With respect to amounts described in paragraph 
(b) of Sec.  301.6316-1 received on or after November 1, 1965, the 
taxpayer shall use the official rate of exchange in determining the tax 
payable for the taxable year in U.S. dollars. After determining the 
correct tax liability in U.S. dollars the taxpayer shall then ascertain, 
in accordance with the principles of Sec.  301.6316-3, the portion of 
the tax which is attributable to amounts received in nonconvertible 
foreign currency.
    (d) Deposit of foreign currency with disbursing officer. (1) After 
the portion of the tax which is attributable to amounts received in 
nonconvertible foreign currency is determined in U.S. dollars, the 
amount so determined shall be deposited in the same nonconvertible 
foreign currency with the disbursing officer of the Department of State 
for the foreign country where the fund is located from which the 
payments in nonconvertible foreign currency are made to the taxpayer. 
The amount of foreign currency to be deposited shall be that amount 
which, when converted at the rate of exchange used on the date of 
deposit by that disbursing officer for the acquisition of such currency 
for his official disbursements, equals the portion of the tax so 
determined in U.S. dollars.
    (2) The disbursing officer may rely upon the taxpayer for the 
determination of the amount of tax payable in foreign currency but may 
not accept any such currency for deposit until the taxpayer has 
presented for inspection the certified statement referred to in 
paragraph (b)(1) of Sec.  301.6316-4. Upon acceptance of foreign 
currency for deposit the disbursing officer shall give the taxpayer a 
receipt in duplicate showing the name and address of the depositor, the 
date of the deposit, the amount of foreign currency deposited, and its 
equivalent in U.S. dollars on the date of deposit.
    (3) Every taxpayer making a deposit of foreign currency in 
accordance with this paragraph shall attach to the return required to be 
filed in accordance with Sec.  301.6316-4, in part or full payment of 
the taxes shown thereon, the original of the receipt given by the 
disbursing officer and shall pay to the Director of International 
Operations in U.S. dollars the balance, if any, of the tax shown to be 
due. Tender of such receipt to the Director of International Operations 
shall be considered as payment of tax in an amount equal to the U.S. 
dollars represented by the receipt.
    (4) A taxpayer shall make the deposit required by this paragraph in 
ample time to permit him to attach the receipt to his return for filing 
within the time prescribed by section 6072 or 6081 and Sec. Sec.  
1.6072-1, 1.6081-1, and 1.6081-2 of this chapter (Income Tax 
Regulations).



Sec.  301.6316-6  Declarations of estimated tax.

    (a) Filing of declaration. A declaration of estimated tax in respect 
of amounts on which the tax is to be paid in foreign currency under the 
provisions of Sec.  301.6316-1 shall be filed with the Director of 
International Operations, Internal Revenue Service, Washington, D.C. 
20225, and shall have attached thereto the statements required by 
paragraph (b) (1) and (2)(i) of Sec.  301.6316-4 in respect of the tax 
return except that the statement certified by the foundation, 
commission, or other person having control of the payments to the 
taxpayer in nonconvertible foreign currency may be based upon amounts 
expected to be received by the taxpayer during the taxable year if they 
are not in fact known at the time of certification. A copy of this 
certified statement shall be retained by the taxpayer for the purpose of 
exhibiting it to the disbursing officer when making installment deposits 
of foreign currency under the provisions of paragraph (c) of this 
section. For the time for filing declarations of estimated tax, see 
sections 6073 and 6081 and Sec. Sec.  1.6073-1 to 1.6073-4, inclusive, 
and Sec. Sec.  1.6081-1 and 1.6081-2 of this chapter (Income Tax 
Regulations).
    (b) Determination of estimated tax--(1) Allocation of tax 
attributable to foreign currency. In determining the amount of estimated 
tax for purposes of this section, all items of income, deduction, and 
credit, whether or not attributable to amounts received in 
nonconvertible foreign currency, shall be taken into account. The 
portion of the estimated tax which is attributable to amounts to be 
received during the taxable year in nonconvertible foreign currency

[[Page 342]]

shall be determined consistently with the manner prescribed by Sec.  
301.6316-3.
    (2) Example. (i) For the calendar year 1955 Mr. Jones and his wife 
filed a joint declaration of estimated tax in the determination of which 
the adjusted gross income was estimated to be as follows, after amounts 
to be received in foreign currency had been properly translated into 
U.S. dollars for tax computation purposes:

Fulbright grant to be received by Mr. Jones in nonconvertible     $8,000
 foreign currency..............................................
Dividends to be received by Mr. Jones entitled to dividends-         875
 received credit...............................................
Compensation to be received by Mrs. Jones for personal services    3,000
Net profit to be derived from business carried on by Mrs. Jones    1,625
                                                                --------
   Total estimated adjusted gross income.......................   13,000
 

    (ii) The following amounts were determined to be allowable as 
properly deductible from estimated adjusted gross income, no 
determination being made as to whether or not any part of them was 
properly allocable to the Fulbright grant:

Deduction for personal exemptions..............................   $3,000
Charitable contributions.......................................      300
Interest expense...............................................      400
Taxes..........................................................      300
                                                                --------
   Total allowable deductions..................................    4,000
 

    (iii) The following estimated amounts were determined to be 
allowable as credits against the tax for the taxable year:

Foreign tax credit for foreign taxes to be paid on               $300.00
 Fulbright grant...........................................
Credit for income tax expected to be withheld upon                304.80
 compensation of Mrs. Jones................................
Dividends-received credit..................................        15.00
                                                            ------------
   Total allowable estimated credits.......................       619.80
 

    (iv) The portion of the estimated tax which is attributable to 
amounts to be received during the taxable year in nonconvertible foreign 
currency is $893.88, determined as follows:

Estimated adjusted gross income............................   $13,000.00
Less: Allowable deductions.................................     4,000.00
                                                            ------------
   Estimated taxable income................................     9,000.00
Tax computed under section 2...............................     1,940.00
Ratio of estimated adjusted gross income to be received in         61.54
 nonconvertible foreign currency to entire estimated
 adjusted gross income ($8,000 / $13,000) (percent)........
Portion of above tax attributable to nonconvertible foreign     1,193.88
 currency ($1,940 x 61.54 percent).........................
Less: Credit for foreign taxes expected to be paid on             300.00
 Fulbright grant...........................................
                                                            ------------
   Portion of estimated tax which is attributable to              893.88
   amounts to be received during the taxable year in
   nonconvertible foreign currency.........................
 

    (v) The portion of the estimated tax which is payable in U.S. 
dollars is $426.32, determined as follows:

Tax computed under section 2...............................    $1,940.00
Less: Total allowable estimated credits....................       619.80
                                                            ------------
   Total estimated tax.....................................     1,320.20
Less: Portion of estimated tax payable in foreign currency.       893.88
                                                            ------------
   Portion of estimated tax payable in U.S. dollars........       426.32
 

    (c) Payment of estimated tax. (1) The provisions of Sec.  301.6316-5 
relating to the certified statement, determination of the tax, and the 
depositing of the foreign currency shall apply for purposes of this 
section. The full amount of estimated tax payable in foreign currency, 
as determined under paragraph (b) of this section, may be deposited 
before the date prescribed for the payment thereof.
    (2) Every taxpayer making a deposit of foreign currency in 
accordance with this paragraph shall tender to the Director of 
International Operations, Internal Revenue Service, Washington, D.C. 
20225, the original of the receipt from the disbursing officer as 
payment, to the extent of the amount represented thereby in U.S. 
dollars, of the estimated tax. For the dates prescribed for the payment 
of estimated tax, see sections 6153 and 6161 and Sec. Sec.  1.6153-1 to 
1.6153-4, inclusive, and Sec.  1.6161-1 of this chapter (Income Tax 
Regulations). A taxpayer should make the deposit required by this 
paragraph in ample time to permit him to tender such receipt by the date 
prescribed for payment of the estimated tax.
    (d) Credit on return for the taxable year. The receipt given by the 
disbursing officer of the Department of State and tendered in payment of 
estimated tax under this section shall, for purposes of paragraph (a)(2) 
of Sec.  301.6316-3, be considered as payment on account of the tax for 
the taxable year. The amount so considered to be paid shall be the 
amount in U.S. dollars represented by the receipt.

[[Page 343]]



Sec.  301.6316-7  Payment of Federal Insurance Contributions Act taxes 
in foreign currency.

    (a) In general. The taxes imposed on employees and employers by 
sections 3101 and 3111, respectively, of chapter 21 of the Code (Federal 
Insurance Contributions Act) or the corresponding sections of the 
Internal Revenue Code of 1939 may, with respect to wages (as defined in 
section 3121(a) of chapter 21 of the Code or the corresponding section 
of the Internal Revenue Code of 1939) paid in nonconvertible foreign 
currency (as defined in paragraph (b) of Sec.  301.6316-2) for services 
performed on or after January 1, 1951, be paid in that currency if all 
such wages--
    (1) Are paid from funds made available to a foundation or commission 
established in a foreign country pursuant to an agreement made under the 
authority of section 32(b) of the Surplus Property Act of 1944, as 
amended (50 U.S.C. App. 1641(b)(2)), or established or continued 
pursuant to an agreement made under authority of the Mutual Educational 
and Cultural Exchange Act of 1961, as amended (22 U.S.C. 2451); and
    (2) Are paid to a U.S. citizen for services performed in the employ 
of such foundation or commission.
    (b) Return requirements--(1) Statements required. (i) A return on 
which payment of Federal Insurance Contributions Act taxes is made in 
accordance with this section shall have attached thereto a statement, 
certified by the foundation or commission filing the return, stating 
that the foundation or commission is an organization established 
pursuant to an agreement made under authority of section 32(b) of the 
Surplus Property Act of 1944, as amended, or established or continued 
pursuant to an agreement made under authority of the Mutual Educational 
and Cultural Exchange Act of 1961, as amended.
    (ii) The taxpayer shall also attach to the return a statement 
showing the rates of exchange used in determining in United States 
dollars the wages reported on the return and the taxes due with respect 
thereto. See paragraph (c)(1) of this section.
    (2) Cross references. For the place for filing returns of the 
Federal Insurance Contributions Act taxes, see Sec.  31.6091-1(c) of 
this chapter (Employment Tax Regulations). For the time for filing 
returns of the Federal Insurance Contributions Act taxes, see Sec.  
31.6071(a)-1 of this chapter (Employment Tax Regulations).
    (c) Payment of tax--(1) Determination of the tax. In determining in 
U.S. dollars the wages required to be reported on the return and the 
taxes due with respect thereto, the taxpayer shall use the rate of 
exchange which most clearly reflects the correct equivalent in dollars, 
whether it be the official rate, the open market rate, or any other 
appropriate rate.
    (2) Deposit of foreign currency with disbursing officer. (i) After 
determination is made in U.S. dollars of the Federal Insurance 
Contributions Act taxes with respect to wages paid in nonconvertible 
foreign currency, the amount so determined shall be deposited in the 
same nonconvertible foreign currency with the disbursing officer of the 
Department of State for the foreign country where the fund is located 
from which such wages were paid. The amount of the foreign currency to 
be deposited shall be that amount which, when converted at the rate of 
exchange used on the date of deposit by the disbursing officer for the 
acquisition of such currency for his official disbursements, equals the 
taxes determined in U.S. dollars.
    (ii) The disbursing officer may rely upon the taxpayer for the 
determination of the amount of tax payable in foreign currency but may 
not accept any such currency for deposit until the taxpayer has 
presented for inspection the certified statement referred to in 
paragraph (b)(1) of this section. Upon acceptance of foreign currency 
for deposit the disbursing officer shall give the taxpayer a receipt in 
duplicate showing the name and address of the depositor, the date of the 
deposit, the amount of foreign currency deposited and its equivalent in 
U.S. dollars on the date of deposit, and the kind of tax for which the 
deposit is made.
    (iii) Every taxpayer making a deposit of foreign currency in 
accordance with this paragraph shall attach to the return required to be 
filed in accordance with paragraph (b) of this section the

[[Page 344]]

original of the receipt given by the disbursing officer. Tender of such 
receipt to the Director of International Operations shall be considered 
as payment of tax in an amount equal to the U.S. dollars represented by 
the receipt.
    (iv) A taxpayer shall make the deposit required by this paragraph in 
ample time to permit it to attach the receipt to its return for filing 
within the time prescribed by Sec.  31.6071(a)-1 of this chapter 
(Employment Tax Regulations).



Sec.  301.6316-8  Refunds and credits in foreign currency.

    (a) Refunds. The refund of any overpayment of tax which has been 
paid under section 6316 in foreign currency may, in the discretion of 
the Commissioner, be made in the same foreign currency by which the tax 
was paid. The amount of any such refund made in foreign currency shall 
be the amount of the overpayment in U.S. dollars converted, on the date 
of the refund check, at the rate of exchange then used for his official 
disbursements by the disbursing officer of the Department of State in 
the country where the foreign currency was originally deposited.
    (b) Credits. Unless otherwise in the best interest of the Internal 
Revenue Service, no credit of any overpayment of tax which has been paid 
under section 6316 in foreign currency shall be allowed against any 
outstanding liability of the person making the overpayment except in 
respect of that portion or the liability which, in accordance with Sec.  
301.6316-1 or Sec.  301.6316-7, would otherwise be permitted to be paid 
in the same foreign currency.



Sec.  301.6316-9  Interest, additions to tax, etc.

    Any reference in Sec. Sec.  301.6316-1 to 301.6316-8, inclusive, to 
``tax'' shall be deemed also to refer to the interest, additions to the 
tax, additional amounts, and penalties attributable to the tax.

                             Lien for Taxes



Sec.  301.6320-1  Notice and opportunity for hearing upon filing 
of notice of Federal tax lien.

    (a) Notification--(1) In general. For a notice of Federal tax lien 
(NFTL) filed on or after January 19, 1999, the Commissioner, or his or 
her delegate (the Commissioner), will prescribe procedures to notify the 
person described in section 6321 of the filing of a NFTL not more than 
five business days after the date of any such filing. The Collection Due 
Process Hearing Notice (CDP Notice) and other notices given under 
section 6320 must be given in person, left at the dwelling or usual 
place of business of such person, or sent by certified or registered 
mail to such person's last known address, not more than five business 
days after the day the NFTL was filed. For further guidance regarding 
the definition of last known address, see Sec. 301.6212-2.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (a) as follows:
    Q-A1. Who is the person entitled to notice under section 6320?
    A-A1. Under section 6320(a)(1), notification of the filing of a NFTL 
on or after January 19, 1999, is required to be given only to the person 
described in section 6321 who is named on the NFTL that is filed. The 
person described in section 6321 is the person liable to pay the tax due 
after notice and demand who refuses or neglects to pay the tax due 
(hereinafter, referred to as the taxpayer).
    Q-A2. When will the Internal Revenue Service (IRS) provide the 
notice required under section 6320?
    A-A2. The IRS will provide this notice within five business days 
after the filing of the NFTL.
    Q-A3. Will the IRS give notification to the taxpayer for each tax 
period listed in a NFTL filed on or after January 19, 1999?
    A-A3. Yes. A NFTL can be filed for more than one tax period. The 
notification of the filing of a NFTL will specify each unpaid tax and 
tax period listed in the NFTL.
    Q-A4. Will the IRS give notification to the taxpayer of any filing 
of a NFTL for the same tax period or periods at another place of filing?
    A-A4. Yes. The IRS will notify a taxpayer when a NFTL is filed on or 
after January 19, 1999, for a tax period or periods at any recording 
office.
    Q-A5. Will the IRS give notification to the taxpayer if a NFTL is 
filed on or

[[Page 345]]

after January 19, 1999, for a tax period or periods for which a NFTL was 
filed in another recording office prior to that date?
    A-A5. Yes. The IRS will notify a taxpayer when each NFTL is filed on 
or after January 19, 1999, for a tax period or periods at any recording 
office.
    Q-A6. Will the IRS give notification to the taxpayer when a NFTL is 
refiled on or after January 19, 1999?
    A-A6. No. Section 6320(a)(1) does not require the IRS to notify the 
taxpayer of the refiling of a NFTL. A taxpayer may, however, seek 
reconsideration by the IRS office that is collecting the tax or refiling 
the NFTL, an administrative hearing before the IRS Office of Appeals 
(Appeals), or assistance from the National Taxpayer Advocate.
    Q-A7. Will the IRS give notification to a known nominee of, or a 
person holding property of, the taxpayer of the filing of the NFTL?
    A-A7. No. Such person is not the person described in section 6321 
and, therefore, is not entitled to notice, but such persons have other 
remedies. See A-B5 of paragraph (b)(2) of this section.
    Q-A8. Will the IRS give notification to the taxpayer when a 
subsequent NFTL is filed for the same period or periods?
    A-A8. Yes. If the IRS files an additional NFTL with respect to the 
same tax period or periods for which an original NFTL was filed, the IRS 
will notify the taxpayer when the subsequent NFTL is filed. Not all such 
notices will, however, give rise to a right to a CDP hearing (see 
paragraph (b) of this section).
    Q-A9. How will notification under section 6320 be accomplished?
    A-A9. The IRS will notify the taxpayer by letter. Included with this 
letter will be the additional information the IRS is required to provide 
taxpayers as well as, when appropriate, a Form 12153, Request for a Due 
Process Hearing. The IRS may effect delivery of the letter (and 
accompanying materials) in one of three ways: by delivering the notice 
personally to the taxpayer; by leaving the notice at the taxpayer's 
dwelling or usual place of business; or by mailing the notice to the 
taxpayer at his last known address by certified or registered mail.
    Q-A10. What must a CDP Notice given under section 6320 include?
    A-A10. These notices must include, in simple and nontechnical terms:
    (i) The amount of the unpaid tax.
    (ii) A statement concerning the taxpayer's right to request a CDP 
hearing during the 30-day period that commences the day after the end of 
the five business day period within which the IRS is required to provide 
the taxpayer with notice of the filing of the NFTL.
    (iii) The administrative appeals available to the taxpayer with 
respect to the NFTL and the procedures relating to such appeals.
    (iv) The statutory provisions and the procedures relating to the 
release of liens on property.
    Q-A11. What are the consequences if the taxpayer does not receive or 
accept a CDP Notice that is properly left at the taxpayer's dwelling or 
usual place of business, or sent by certified or registered mail to the 
taxpayer's last known address?
    A-A11. A CDP Notice properly sent by certified or registered mail to 
the taxpayer's last known address or left at the taxpayer's dwelling or 
usual place of business is sufficient to start the 30-day period, 
commencing the day after the end of the five business day notification 
period, within which the taxpayer may request a CDP hearing. Actual 
receipt is not a prerequisite to the validity of the CDP Notice.
    Q-A12. What if the taxpayer does not receive the CDP Notice because 
the IRS did not send that notice by certified or registered mail to the 
taxpayer's last known address, or failed to leave it at the dwelling or 
usual place of business of the taxpayer, and the taxpayer fails to 
request a CDP hearing with Appeals within the 30-day period commencing 
the day after the end of the five business day notification period?
    A-A12. A NFTL becomes effective upon filing. The validity and 
priority of a NFTL is not conditioned on notification to the taxpayer 
pursuant to section 6320. Therefore, the failure to notify the taxpayer 
concerning the filing of a NFTL does not affect the validity or priority 
of the NFTL. When the IRS determines that it failed properly to provide 
a taxpayer with a CDP Notice,

[[Page 346]]

it will promptly provide the taxpayer with a substitute CDP Notice and 
provide the taxpayer with an opportunity to request a CDP hearing. 
Substitute CDP Notices are discussed in Q&A-B3 of paragraph (b)(2) and 
Q&A-C8 of paragraph (c)(2) of this section.
    (3) Examples. The following examples illustrate the principles of 
this paragraph (a):

    Example 1. H and W are jointly and severally liable with respect to 
a jointly filed income tax return for 1996. IRS files a NFTL with 
respect to H and W in County X on January 26, 1999. This is the first 
NFTL filed on or after January 19, 1999, for their 1996 liability. H and 
W will each be notified of the filing of the NFTL.
    Example 2. Employment taxes for 1997 are assessed against ABC 
Corporation. A NFTL is filed against ABC Corporation for the 1997 
liability in County X on June 5, 1998. A NFTL is filed against ABC 
Corporation for the 1997 liability in County Y on June 17, 1999. The IRS 
will notify the ABC Corporation with respect to the filing of the NFTL 
in County Y.
    Example 3. Federal income tax liability for 1997 is assessed against 
individual D. D buys an asset and puts it in individual E's name. A NFTL 
is filed against D in County X on June 5, 1999, for D's federal income 
tax liability for 1997. On June 17, 1999, a NFTL for the same tax 
liability is filed in County Y against E, as nominee of D. The IRS will 
notify D of the filing of the NFTL in both County X and County Y. The 
IRS will not notify E of the NFTL filed in County X. The IRS is not 
required to notify E of the NFTL filed in County Y. Although E is named 
on the NFTL filed in County Y, E is not the person described in section 
6321 (the taxpayer) who is named on the NFTL.

    (b) Entitlement to a CDP hearing--(1) In general. A taxpayer is 
entitled to one CDP hearing with respect to the first filing of a NFTL 
(on or after January 19, 1999) for a given tax period or periods with 
respect to the unpaid tax shown on the NFTL if the taxpayer timely 
requests such a hearing. The taxpayer must request such a hearing during 
the 30-day period that commences the day after the end of the five 
business day period within which the IRS is required to provide the 
taxpayer with notice of the filing of the NFTL.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (b) as follows:
    Q-B1. Is a taxpayer entitled to a CDP hearing with respect to the 
filing of a NFTL for a type of tax and tax periods previously subject to 
a CDP Notice with respect to a NFTL filed in a different location on or 
after January 19, 1999?
    A-B1. No. Although the taxpayer will receive notice of each filing 
of a NFTL, under section 6320(b)(2), the taxpayer is entitled to only 
one CDP hearing under section 6320 for the type of tax and tax periods 
with respect to the first filing of a NFTL that occurs on or after 
January 19, 1999, with respect to that unpaid tax. Accordingly, if the 
taxpayer does not timely request a CDP hearing with respect to the first 
filing of a NFTL on or after January 19, 1999, for a given tax period or 
periods with respect to an unpaid tax, the taxpayer forgoes the right to 
a CDP hearing with Appeals and judicial review of the Appeals 
determination with respect to the NFTL. Under such circumstances, the 
taxpayer may request an equivalent hearing as described in paragraph (i) 
of this section.
    Q-B2. Is the taxpayer entitled to a CDP hearing when a NFTL for an 
unpaid tax is filed on or after January 19, 1999, in one recording 
office and a NFTL was previously filed for the same unpaid tax in 
another recording office prior to that date?
    A-B2. Yes. Under section 6320(b)(2), the taxpayer is entitled to a 
CDP hearing under section 6320 for each tax period with respect to the 
first filing of a NFTL on or after January 19, 1999, with respect to an 
unpaid tax, whether or not a NFTL was filed prior to January 19, 1999, 
for the same unpaid tax and tax period or periods.
    Q-B3. When the IRS provides the taxpayer with a substitute CDP 
Notice and the taxpayer timely requests a CDP hearing, is the taxpayer 
entitled to a CDP hearing before Appeals?
    A-B3. Yes. Unless the taxpayer provides the IRS a written withdrawal 
of the request that Appeals conduct a CDP hearing, the taxpayer is 
entitled to a CDP hearing before Appeals. Following the hearing, Appeals 
will issue a Notice of Determination, and the taxpayer is entitled to 
seek judicial review of that Notice of Determination.
    Q-B4. If the IRS sends a second CDP Notice under section 6320 (other 
than a substitute CDP Notice) for a tax period

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and with respect to an unpaid tax for which a section 6320 CDP Notice 
was previously sent, is the taxpayer entitled to a section 6320 CDP 
hearing based on the second CDP Notice?
    A-B4. No. The taxpayer is entitled to a CDP hearing under section 
6320 for each tax period only with respect to the first filing of a NFTL 
on or after January 19, 1999, with respect to an unpaid tax.
    Q-B5. Is a nominee of, or a person holding property of, the taxpayer 
entitled to a CDP hearing or an equivalent hearing?
    A-B5. No. Such person is not the person described in section 6321 
and is, therefore, not entitled to a CDP hearing or an equivalent 
hearing (as discussed in paragraph (i) of this section). Such person, 
however, may seek reconsideration by the IRS office collecting the tax 
or filing the NFTL, an administrative hearing before Appeals under its 
Collection Appeals Program, or assistance from the National Taxpayer 
Advocate. However, any such administrative hearing would not be a CDP 
hearing under section 6320 and any determination or decision resulting 
from the hearing would not be subject to judicial review under section 
6320. Such person also may avail himself of the administrative procedure 
included in section 6325(b)(4) or of any other procedures to which he is 
entitled.
    (3) Examples. The following examples illustrate the principles of 
this paragraph (b):

    Example 1. H and W are jointly and severally liable with respect to 
a jointly filed income tax return for 1996. The IRS files a NFTL with 
respect to H and W in County X on January 26, 1999. This is the first 
NFTL filed on or after January 19, 1999, for their 1996 liability. H and 
W are each entitled to a CDP hearing with respect to the NFTL filed in 
County X. On June 17, 1999, a NFTL for the same tax liability is filed 
against H and W in County Y. The IRS will give H and W notification of 
the NFTL filed in County Y. H and W, however, are not entitled to a CDP 
hearing or an equivalent hearing with respect to the NFTL filed in 
County Y.
    Example 2. Federal income tax liability for 1997 is assessed against 
individual D. D buys an asset and puts it in individual E's name. A NFTL 
is filed against E, as nominee of D in County X on June 5, 1999, for D's 
federal income tax liability for 1997. The IRS will give D a CDP Notice 
with respect to the NFTL filed in County X. The IRS will not notify E of 
the NFTL filed in County X. The IRS is not required to notify E of the 
filing of the NFTL in County X. Although E is named on the NFTL filed in 
County X, E is not the person described in section 6321 (the taxpayer) 
who is named on the NFTL.

    (c) Requesting a CDP hearing--(1) In general. When a taxpayer is 
entitled to a CDP hearing under section 6320, the CDP hearing must be 
requested during the 30-day period that commences the day after the end 
of the five business day period within which the IRS is required to 
provide the taxpayer with a CDP Notice with respect to the filing of the 
NFTL.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (c) as follows:
    Q-C1. What must a taxpayer do to obtain a CDP hearing?
    A-C1. (i) The taxpayer must make a request in writing for a CDP 
hearing. The request for a CDP hearing shall include the information and 
signature specified in A-C1(ii) of this paragraph (c)(2). See A-D7 and 
A-D8 of paragraph (d)(2).
    (ii) The written request for a CDP hearing must be dated and must 
include the following:
    (A) The taxpayer's name, address, daytime telephone number (if any), 
and taxpayer identification number (e.g., SSN, ITIN or EIN).
    (B) The type of tax involved.
    (C) The tax period at issue.
    (D) A statement that the taxpayer requests a hearing with Appeals 
concerning the filing of the NFTL.
    (E) The reason or reasons why the taxpayer disagrees with the filing 
of the NFTL.
    (F) The signature of the taxpayer or the taxpayer's authorized 
representative.
    (iii) If the IRS receives a timely written request for CDP hearing 
that does not satisfy the requirements set forth in A-C1(ii) of this 
paragraph (c)(2), the IRS will make a reasonable attempt to contact the 
taxpayer and request that the taxpayer comply with the unsatisfied 
requirements. The taxpayer must perfect any timely written request for a 
CDP hearing that does not satisfy the requirements set forth in A-C1(ii) 
of this paragraph (c)(2) within a

[[Page 348]]

reasonable period of time after a request from the IRS.
    (iv) Taxpayers are encouraged to use Form 12153, ``Request for a 
Collection Due Process Hearing,'' in requesting a CDP hearing so that 
the request can be readily identified and forwarded to Appeals. 
Taxpayers may obtain a copy of Form 12153 by contacting the IRS office 
that issued the CDP Notice, by downloading a copy from the IRS Internet 
site, http://www.irs.gov/pub/irs-pdf/f12153.pdf, or by calling, toll-
free, 1-800-829-3676.
    (v) The taxpayer must affirm any timely written request for a CDP 
hearing which is signed or alleged to have been signed on the taxpayer's 
behalf by the taxpayer's spouse or other unauthorized representative by 
filing, within a reasonable period of time after a request from the IRS, 
a signed, written affirmation that the request was originally submitted 
on the taxpayer's behalf. If the affirmation is filed within a 
reasonable period of time after a request, the timely CDP hearing 
request will be considered timely with respect to the non-signing 
taxpayer. If the affirmation is not filed within a reasonable period of 
time after a request, the CDP hearing request will be denied with 
respect to the non-signing taxpayer.
    Q-C2. Must the request for the CDP hearing be in writing?
    A-C2. Yes. There are several reasons why the request for a CDP 
hearing must be in writing. The filing of a timely request for a CDP 
hearing is the first step in what may result in a court proceeding. A 
written request will provide proof that the CDP hearing was requested 
and thus permit the court to verify that it has jurisdiction over any 
subsequent appeal of the Notice of Determination issued by Appeals. In 
addition, the receipt of the written request will establish the date on 
which the periods of limitation under section 6502 (relating to 
collection after assessment), section 6531 (relating to criminal 
prosecutions), and section 6532 (relating to suits) are suspended as a 
result of the CDP hearing and any judicial appeal. Moreover, because the 
IRS anticipates that taxpayers will contact the IRS office that issued 
the CDP Notice for further information or assistance in filling out Form 
12153, or to attempt to resolve their liabilities prior to going through 
the CDP hearing process, the requirement of a written request should 
help prevent any misunderstanding as to whether a CDP hearing has been 
requested. If the information requested on Form 12153 is furnished by 
the taxpayer, the written request also will help to establish the issues 
for which the taxpayer seeks a determination by Appeals.
    Q-C3. When must a taxpayer request a CDP hearing with respect to a 
CDP Notice issued under section 6320?
    A-C3. A taxpayer must submit a written request for a CDP hearing 
within the 30-day period that commences the day after the end of the 
five business day period following the filing of the NFTL. Any request 
filed during the five business day period (before the beginning of the 
30-day period) will be deemed to be filed on the first day of the 30-day 
period. The period for submitting a written request for a CDP hearing 
with respect to a CDP Notice issued under section 6320 is slightly 
different from the period for submitting a written request for a CDP 
hearing with respect to a CDP Notice issued under section 6330. For a 
CDP Notice issued under section 6330, the taxpayer must submit a written 
request for a CDP hearing within the 30-day period commencing the day 
after the date of the CDP Notice.
    Q-C4. How will the timeliness of a taxpayer's written request for a 
CDP hearing be determined?
    A-C4. The rules and regulations under section 7502 and section 7503 
will apply to determine the timeliness of the taxpayer's request for a 
CDP hearing, if properly transmitted and addressed as provided in A-C6 
of this paragraph (c)(2).
    Q-C5. Is the 30-day period within which a taxpayer must make a 
request for a CDP hearing extended because the taxpayer resides outside 
the United States?
    A-C5. No. Section 6320 does not make provision for such a 
circumstance. Accordingly, all taxpayers who want a CDP hearing under 
section 6320 must request such a hearing within the 30-day period that 
commences the day

[[Page 349]]

after the end of the five business day notification period.
    Q-C6. Where must the written request for a CDP hearing be sent?
    A-C6. The written request for a CDP hearing must be sent, or hand 
delivered (if permitted), to the IRS office and address as directed on 
the CDP Notice. If the address of that office does not appear on the CDP 
Notice, the taxpayer should obtain the address of the office to which 
the written request should be sent or hand delivered by calling, toll-
free, 1-800-829-1040 and providing the taxpayer's identification number 
(e.g., SSN, ITIN or EIN).
    Q-C7. What will happen if the taxpayer does not request a CDP 
hearing in writing within the 30-day period that commences the day after 
the end of the five business day notification period?
    A-C7. If the taxpayer does not request a CDP hearing in writing 
within the 30-day period that commences on the day after the end of the 
five-business-day notification period, the taxpayer foregoes the right 
to a CDP hearing under section 6320 with respect to the unpaid tax and 
tax periods shown on the CDP Notice. A written request submitted within 
the 30-day period that does not satisfy the requirements set forth in A-
C1(ii)(A), (B), (C), (D) or (F) of this paragraph (c)(2) is considered 
timely if the request is perfected within a reasonable period of time 
pursuant to A-C1(iii) of this paragraph (c)(2). If the request for CDP 
hearing is untimely, either because the request was not submitted within 
the 30-day period or not perfected within the reasonable period 
provided, the taxpayer will be notified of the untimeliness of the 
request and offered an equivalent hearing. In such cases, the taxpayer 
may obtain an equivalent hearing without submitting an additional 
request. See paragraph (i) of this section.
    Q-C8. When must a taxpayer request a CDP hearing with respect to a 
substitute CDP Notice?
    A-C8. A CDP hearing with respect to a substitute CDP Notice must be 
requested in writing by the taxpayer prior to the end of the 30-day 
period commencing the day after the date of the substitute CDP Notice.
    Q-C9. Can taxpayers attempt to resolve the matter of the NFTL with 
an officer or employee of the IRS office collecting the tax or filing 
the NFTL either before or after requesting a CDP hearing?
    A-C9. Yes. Taxpayers are encouraged to discuss their concerns with 
the IRS office collecting the tax or filing the NFTL, either before or 
after they request a CDP hearing. If such a discussion occurs before a 
request is made for a CDP hearing, the matter may be resolved without 
the need for Appeals consideration. However, these discussions do not 
suspend the running of the 30-day period, commencing the day after the 
end of the five business day notification period, within which the 
taxpayer is required to request a CDP hearing, nor do they extend that 
30-day period. If discussions occur after the request for a CDP hearing 
is filed and the taxpayer resolves the matter with the IRS office 
collecting the tax or filing the NFTL, the taxpayer may withdraw in 
writing the request that a CDP hearing be conducted by Appeals. The 
taxpayer can also waive in writing some or all of the requirements 
regarding the contents of the Notice of Determination.
    (3) Examples. The following examples illustrate the principles of 
this paragraph (c):

    Example 1. A NFTL for a 1997 income tax liability assessed against 
individual A is filed in County X on June 17, 1999. The IRS mails a CDP 
Notice to individual A's last known address on June 18, 1999. Individual 
A has until July 26, 1999, a Monday, to request a CDP hearing. The five 
business day period within which the IRS is required to notify 
individual A of the filing of the NFTL in County X expires on June 24, 
1999. The 30-day period within which individual A may request a CDP 
hearing begins on June 25, 1999. Because the 30-day period expires on 
July 24, 1999, a Saturday, individual A's written request for a CDP 
hearing will be considered timely if it is properly transmitted and 
addressed to the IRS in accordance with section 7502 and the regulations 
thereunder no later than July 26, 1999.
    Example 2. Same facts as in Example 1, except that individual A is 
on vacation, outside the United States, or otherwise does not receive or 
read the CDP Notice until July 19, 1999. As in Example 1, individual A 
has until July 26, 1999, to request a CDP hearing. If individual A does 
not request a CDP hearing,

[[Page 350]]

individual A may request an equivalent hearing as to the NFTL at a later 
time. The taxpayer should make a request for an equivalent hearing at 
the earliest possible time.
    Example 3. Same facts as in Example 2, except that individual A does 
not receive or read the CDP Notice until after July 26, 1999, and does 
not request a hearing by July 26, 1999. Individual A is not entitled to 
a CDP hearing. Individual A may request an equivalent hearing as to the 
NFTL at a later time. The taxpayer should make a request for an 
equivalent hearing at the earliest possible time.
    Example 4. Same facts as in Example 1, except the IRS determines 
that the CDP Notice mailed on June 18, 1999, was not mailed to 
individual A's last known address. As soon as practicable after making 
this determination, the IRS will mail a substitute CDP Notice to 
individual A at individual A's last known address, hand deliver the 
substitute CDP Notice to individual A, or leave the substitute CDP 
Notice at individual A's dwelling or usual place of business. Individual 
A will have 30 days commencing on the day after the date of the 
substitute CDP Notice within which to request a CDP hearing.

    (d) Conduct of CDP hearing--(1) In general. If a taxpayer requests a 
CDP hearing under section 6320(a)(3)(B) (and does not withdraw that 
request), the CDP hearing will be held with Appeals. The taxpayer is 
entitled under section 6320 to a CDP hearing for the unpaid tax and tax 
periods set forth in a NFTL only with respect to the first filing of a 
NFTL on or after January 19, 1999. To the extent practicable, the CDP 
hearing requested under section 6320 will be held in conjunction with 
any CDP hearing the taxpayer requests under section 6330. A CDP hearing 
will be conducted by an employee or officer of Appeals who, prior to the 
first CDP hearing under section 6320 or section 6330, has had no 
involvement with respect to the unpaid tax for the tax periods to be 
covered by the hearing, unless the taxpayer waives this requirement.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (d) as follows:
    Q-D1. Under what circumstances can a taxpayer receive more than one 
CDP hearing under section 6320 with respect to a tax period?
    A-D1. The taxpayer may receive more than one CDP hearing under 
section 6320 with respect to a tax period where the tax involved is a 
different type of tax (for example, an employment tax liability, where 
the original CDP hearing for the tax period involved an income tax 
liability), or where the same type of tax for the same period is 
involved, but where the amount of the unpaid tax has changed as a result 
of an additional assessment of tax (not including interest or penalties) 
for that period or an additional accuracy-related or filing-delinquency 
penalty has been assessed. The taxpayer is not entitled to another CDP 
hearing under section 6320 if the additional assessment represents 
accruals of interest, accruals of penalties, or both.
    Q-D2. Will a CDP hearing with respect to one tax period be combined 
with a CDP hearing with respect to another tax period?
    A-D2. To the extent practicable, a CDP hearing with respect to one 
tax period shown on the NFTL will be combined with any and all other CDP 
hearings which the taxpayer has requested.
    Q-D3. Will a CDP hearing under section 6320 be combined with a CDP 
hearing under section 6330?
    A-D3. To the extent practicable, a CDP hearing under section 6320 
will be held in conjunction with a CDP hearing under section 6330.
    Q-D4. What is considered to be prior involvement by an employee or 
officer of Appeals with respect to the unpaid tax and tax period 
involved in the hearing?
    A-D4. Prior involvement by an Appeals officer or employee includes 
participation or involvement in a matter (other than a CDP hearing held 
under either section 6320 or section 6330) that the taxpayer may have 
had with respect to the tax and tax period shown on the CDP Notice. 
Prior involvement exists only when the taxpayer, the tax and the tax 
period at issue in the CDP hearing also were at issue in the prior non-
CDP matter, and the Appeals officer or employee actually participated in 
the prior matter.
    Q-D5. How can a taxpayer waive the requirement that the officer or 
employee of Appeals have no prior involvement with respect to the tax 
and tax periods involved in the CDP hearing?
    A-D5. The taxpayer must sign a written waiver.

[[Page 351]]

    Q-D6. How are CDP hearings conducted?
    A-D6. The formal hearing procedures required under the 
Administrative Procedure Act, 5 U.S.C. 551 et seq., do not apply to CDP 
hearings. CDP hearings are much like Collection Appeal Program (CAP) 
hearings in that they are informal in nature and do not require the 
Appeals officer or employee and the taxpayer, or the taxpayer's 
representative, to hold a face-to-face meeting. A CDP hearing may, but 
is not required to, consist of a face-to-face meeting, one or more 
written or oral communications between an Appeals officer or employee 
and the taxpayer or the taxpayer's representative, or some combination 
thereof. A transcript or recording of any face-to-face meeting or 
conversation between an Appeals officer or employee and the taxpayer or 
the taxpayer's representative is not required. The taxpayer or the 
taxpayer's representative does not have the right to subpoena and 
examine witnesses at a CDP hearing.
    Q-D7. If a taxpayer wants a face-to-face CDP hearing, where will it 
be held?
    A-D7. Except as provided in A-D8 of this paragraph (d)(2), a 
taxpayer who presents in the CDP hearing request relevant, non-frivolous 
reasons for disagreement with the NFTL filing will ordinarily be offered 
an opportunity for a face-to-face conference at the Appeals office 
closest to taxpayer's residence. A business taxpayer will ordinarily be 
offered an opportunity for a face-to-face conference at the Appeals 
office closest to the taxpayer's principal place of business. If that is 
not satisfactory to the taxpayer, the taxpayer will be given an 
opportunity for a hearing by telephone or by correspondence. In all 
cases, the Appeals officer or employee will review the case file, as 
described in A-F4 of paragraph (f)(2). If no face-to-face or telephonic 
conference is held, or other oral communication takes place, review of 
the documents in the case file, as described in A-F4 of paragraph 
(f)(2), will constitute the CDP hearing for purposes of section 6320(b).
    Q-D8. In what circumstances will a face-to-face CDP conference not 
be granted?
    A-D8. A taxpayer is not entitled to a face-to-face CDP conference at 
a location other than as provided in A-D7 of this paragraph (d)(2) and 
this A-D8. If all Appeals officers or employees at the location provided 
for in A-D7 of this paragraph (d)(2) have had prior involvement with the 
taxpayer as provided in A-D4 of this paragraph (d)(2), the taxpayer will 
not be offered a face-to-face conference at that location, unless the 
taxpayer elects to waive the requirement of section 6320(b)(3). The 
taxpayer will be offered a face-to-face conference at another Appeals 
office if Appeals would have offered the taxpayer a face-to-face 
conference at the location provided in A-D7 of this paragraph (d)(2), 
but for the disqualification of all Appeals officers or employees at 
that location. A face-to-face CDP conference concerning a taxpayer's 
underlying liability will not be granted if the request for a hearing or 
other taxpayer communication indicates that the taxpayer wishes only to 
raise irrelevant or frivolous issues concerning that liability. A face-
to-face CDP conference concerning a collection alternative, such as an 
installment agreement or an offer to compromise liability, will not be 
granted unless other taxpayers would be eligible for the alternative in 
similar circumstances. For example, because the IRS does not consider 
offers to compromise from taxpayers who have not filed required returns 
or have not made certain required deposits of tax, as set forth in Form 
656, ``Offer in Compromise,'' no face-to-face conference will be granted 
to a taxpayer who wishes to make an offer to compromise but has not 
fulfilled those obligations. Appeals in its discretion, however, may 
grant a face-to-face conference if Appeals determines that a face-to-
face conference is appropriate to explain to the taxpayer the 
requirements for becoming eligible for a collection alternative. In all 
cases, a taxpayer will be given an opportunity to demonstrate 
eligibility for a collection alternative and to become eligible for a 
collection alternative, in order to obtain a face-to-face conference. 
For purposes of determining whether a face-to-face conference will be 
granted, the determination of a taxpayer's eligibility for a collection 
alternative is made

[[Page 352]]

without regard to the taxpayer's ability to pay the unpaid tax. A face-
to-face conference need not be granted if the taxpayer does not provide 
the required information set forth in A-C1(ii)(E) of paragraph (c)(2). 
See also A-C1(iii) of paragraph (c)(2).
    (3) Examples. The following examples illustrate the principles of 
this paragraph (d):

    Example 1. Individual A timely requests a CDP hearing concerning a 
NFTL filed with respect to the 1998 income tax liability assessed 
against individual A. Appeals employee B previously conducted a CDP 
hearing regarding a proposed levy for individual A's 1998 income tax 
liability. Because employee B's only prior involvement with individual 
A's 1998 income tax liability was in connection with a section 6330 CDP 
hearing, employee B may conduct the CDP hearing under section 6320 
involving the NFTL filed for the 1998 income tax liability.
    Example 2. Individual C timely requests a CDP hearing concerning a 
NFTL filed with respect to the 1998 income tax liability assessed 
against individual C. Appeals employee D previously conducted a 
Collection Appeals Program (CAP) hearing regarding a NFTL filed with 
respect to individual C's 1998 income tax liability. Because employee 
D's prior involvement with individual C's 1998 income tax liability was 
in connection with a non-CDP hearing, employee D may not conduct the CDP 
hearing under section 6320 unless individual C waives the requirement 
that the hearing will be conducted by an Appeals officer or employee who 
has had no prior involvement with respect to individual C's 1998 income 
tax liability.
    Example 3. Same facts as in Example 2, except that the prior CAP 
hearing only involved individual C's 1997 income tax liability and 
employment tax liabilities for 1998 reported on Form 941, ``Employer's 
Quarterly Federal Tax Return.'' Employee D would not be considered to 
have prior involvement because the prior CAP hearing in which she 
participated did not involve individual C's 1998 income tax liability.
    Example 4. Appeals employee F is assigned to a CDP hearing 
concerning a NFTL filed with respect to a trust fund recovery penalty 
(TFRP) assessed pursuant to section 6672 against individual E. Appeals 
employee F participated in a prior CAP hearing involving individual E's 
1999 income tax liability, and participated in a CAP hearing involving 
the employment taxes of business entity X, which incurred the employment 
tax liability to which the TFRP assessed against individual E relates. 
Appeals employee F would not be considered to have prior involvement 
because the prior CAP hearings in which he participated did not directly 
involve the TFRP assessed against individual E.
    Example 5. Appeals employee G is assigned to a CDP hearing 
concerning a NFTL filed with respect to a TFRP assessed pursuant to 
section 6672 against individual H. In preparing for the CDP hearing, 
Appeals employee G reviews the Appeals case file concerning the prior 
CAP hearing involving the TFRP assessed pursuant to section 6672 against 
individual H. Appeals employee G is not deemed to have participated in 
the previous CAP hearing involving the TFRP assessed against individual 
H by such review.

    (e) Matters considered at CDP hearing--(1) In general. Appeals will 
determine the timeliness of any request for a CDP hearing that is made 
by a taxpayer. Appeals has the authority to determine the validity, 
sufficiency, and timeliness of any CDP Notice given by the IRS and of 
any request for a CDP hearing that is made by a taxpayer. Prior to 
issuance of a determination, Appeals is required to obtain verification 
from the IRS office collecting the tax that the requirements of any 
applicable law or administrative procedure with respect to the filing of 
the NFTL have been met. The taxpayer may raise any relevant issue 
relating to the unpaid tax at the hearing, including appropriate spousal 
defenses, challenges to the appropriateness of the NFTL filing, and 
offers of collection alternatives. The taxpayer also may raise 
challenges to the existence or amount of the underlying liability, 
including a liability reported on a self-filed return, for any tax 
period specified on the CDP Notice if the taxpayer did not receive a 
statutory notice of deficiency for that tax liability or did not 
otherwise have an opportunity to dispute the tax liability. Finally, the 
taxpayer may not raise an issue that was raised and considered at a 
previous CDP hearing under section 6330 or in any other previous 
administrative or judicial proceeding if the taxpayer participated 
meaningfully in such hearing or proceeding. Taxpayers will be expected 
to provide all relevant information requested by Appeals, including 
financial statements, for its consideration of the facts and issues 
involved in the hearing.
    (2) Spousal defenses. A taxpayer may raise any appropriate spousal 
defenses

[[Page 353]]

at a CDP hearing unless the Commissioner has already made a final 
determination as to spousal defenses in a statutory notice of deficiency 
or final determination letter. To claim a spousal defense under section 
66 or section 6015, the taxpayer must do so in writing according to 
rules prescribed by the Commissioner or the Secretary. Spousal defenses 
raised under sections 66 and 6015 in a CDP hearing are governed in all 
respects by the provisions of sections 66 and section 6015 and the 
regulations and procedures thereunder.
    (3) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (e) as follows:
    Q-E1. What factors will Appeals consider in making its 
determination?
    A-E1. Appeals will consider the following matters in making its 
determination:
    (i) Whether the IRS met the requirements of any applicable law or 
administrative procedure.
    (ii) Any issues appropriately raised by the taxpayer relating to the 
unpaid tax.
    (iii) Any appropriate spousal defenses raised by the taxpayer.
    (iv) Any challenges made by the taxpayer to the appropriateness of 
the NFTL filing.
    (v) Any offers by the taxpayer for collection alternatives.
    (vi) Whether the continued existence of the filed NFTL represents a 
balance between the need for the efficient collection of taxes and the 
legitimate concern of the taxpayer that any collection action be no more 
intrusive than necessary.
    Q-E2. When is a taxpayer entitled to challenge the existence or 
amount of the tax liability specified in the CDP Notice?
    A-E2. A taxpayer is entitled to challenge the existence or amount of 
the underlying liability for any tax period specified on the CDP Notice 
if the taxpayer did not receive a statutory notice of deficiency for 
such liability or did not otherwise have an opportunity to dispute such 
liability. Receipt of a statutory notice of deficiency for this purpose 
means receipt in time to petition the Tax Court for a redetermination of 
the deficiency determined in the notice of deficiency. An opportunity to 
dispute the underlying liability includes a prior opportunity for a 
conference with Appeals that was offered either before or after the 
assessment of the liability. An opportunity for a conference with 
Appeals prior to the assessment of a tax subject to deficiency 
procedures is not a prior opportunity for this purpose.
    Q-E3. Are spousal defenses subject to the limitations imposed under 
section 6330(c)(2)(B) on a taxpayer's right to challenge the tax 
liability specified in the CDP Notice at a CDP hearing?
    A-E3. The limitations imposed under section 6330(c)(2)(B) do not 
apply to spousal defenses. When a taxpayer asserts a spousal defense, 
the taxpayer is not disputing the amount or existence of the liability 
itself, but asserting a defense to the liability which may or may not be 
disputed. A spousal defense raised under section 66 or section 6015 is 
governed by section 66 or section 6015 and the regulations and 
procedures thereunder. Any limitation under those sections, regulations, 
and procedures therefore will apply.
    Q-E4. May a taxpayer raise at a CDP hearing a spousal defense under 
section 66 or section 6015 if that defense was raised and considered 
administratively and the Commissioner has issued a statutory notice of 
deficiency or final determination letter addressing the spousal defense?
    A-E4. No. A taxpayer is precluded from raising a spousal defense at 
a CDP hearing when the Commissioner has made a final determination under 
section 66 or section 6015 in a final determination letter or statutory 
notice of deficiency. However, a taxpayer may raise spousal defenses in 
a CDP hearing when the taxpayer has previously raised spousal defenses, 
but the Commissioner has not yet made a final determination regarding 
this issue.
    Q-E5. May a taxpayer raise at a CDP hearing a spousal defense under 
section 66 or section 6015 if that defense was raised and considered in 
a prior judicial proceeding that has become final?
    A-E5. No. A taxpayer is precluded by the doctrine of res judicata 
and by the specific limitations under section 66 or section 6015 from 
raising a spousal defense in a CDP hearing under these circumstances.

[[Page 354]]

    Q-E6. What collection alternatives are available to the taxpayer?
    A-E6. Collection alternatives include, for example, a proposal to 
withdraw the NFTL in circumstances that will facilitate the collection 
of the tax liability, subordination of the NFTL, discharge of the NFTL 
from specific property, an installment agreement, an offer to 
compromise, the posting of a bond, or the substitution of other assets. 
A collection alternative is not available unless the alternative would 
be available to other taxpayers in similar circumstances. See A-D8 of 
paragraph (d)(2).
    Q-E7. What issues may a taxpayer raise in a CDP hearing under 
section 6320 if the taxpayer previously received a notice under section 
6330 with respect to the same tax and tax period and did not request a 
CDP hearing with respect to that notice?
    A-E7. The taxpayer may raise appropriate spousal defenses, 
challenges to the appropriateness of the NFTL filing, and offers of 
collection alternatives. The existence or amount of the underlying 
liability for any tax period specified in the CDP Notice may be 
challenged only if the taxpayer did not have a prior opportunity to 
dispute the tax liability. If the taxpayer previously received a CDP 
Notice under section 6330 with respect to the same tax and tax period 
and did not request a CDP hearing with respect to that earlier CDP 
Notice, the taxpayer had a prior opportunity to dispute the existence or 
amount of the underlying tax liability.
    Q-E8. How will Appeals issue its determination?
    A-E8. (i) Taxpayers will be sent a dated Notice of Determination by 
certified or registered mail. The Notice of Determination will set forth 
Appeals' findings and decisions. It will state whether the IRS met the 
requirements of any applicable law or administrative procedure; it will 
resolve any issues appropriately raised by the taxpayer relating to the 
unpaid tax; it will include a decision on any appropriate spousal 
defenses raised by the taxpayer; it will include a decision on any 
challenges made by the taxpayer to the appropriateness of the NFTL 
filing; it will respond to any offers by the taxpayer for collection 
alternatives; and it will address whether the continued existence of the 
filed NFTL represents a balance between the need for the efficient 
collection of taxes and the legitimate concern of the taxpayer that any 
collection action be no more intrusive than necessary. The Notice of 
Determination will also set forth any agreements that Appeals reached 
with the taxpayer, any relief given the taxpayer, and any actions the 
taxpayer or the IRS are required to take. Lastly, the Notice of 
Determination will advise the taxpayer of the taxpayer's right to seek 
judicial review within 30 days of the date of the Notice of 
Determination.
    (ii) Because taxpayers are encouraged to discuss their concerns with 
the IRS office collecting the tax or filing the NFTL, certain matters 
that might have been raised at a CDP hearing may be resolved without the 
need for Appeals consideration. Unless, as a result of these 
discussions, the taxpayer agrees in writing to withdraw the request that 
Appeals conduct a CDP hearing, Appeals will still issue a Notice of 
Determination. The taxpayer can, however, waive in writing Appeals' 
consideration of some or all of the matters it would otherwise consider 
in making its determination.
    Q-E9. Is there a period of time within which Appeals must conduct a 
CDP hearing or issue a Notice of Determination?
    A-E9. No. Appeals will, however, attempt to conduct a CDP hearing 
and issue a Notice of Determination as expeditiously as possible under 
the circumstances.
    Q-E10. Why is the Notice of Determination and its date important?
    A-E10. The Notice of Determination will set forth Appeals' findings 
and decisions with respect to the matters set forth in A-E1 of this 
paragraph (e)(3). The 30-day period within which the taxpayer is 
permitted to seek judicial review of Appeals' determination commences 
the day after the date of the Notice of Determination.
    Q-E11. If an Appeals officer considers the merits of a taxpayer's 
liability in a CDP hearing when the taxpayer had previously received a 
statutory notice of deficiency or otherwise had an opportunity to 
dispute the liability prior

[[Page 355]]

to the NFTL, will the Appeals officer's determination regarding those 
liability issues be considered part of the Notice of Determination?
    A-E11. No. An Appeals officer may consider the existence and amount 
of the underlying tax liability as a part of the CDP hearing only if the 
taxpayer did not receive a statutory notice of deficiency for the tax 
liability in question or otherwise have a prior opportunity to dispute 
the tax liability. Similarly, an Appeals officer may not consider any 
other issue if the issue was raised and considered at a previous hearing 
under section 6330 or in any other previous administrative or judicial 
proceeding in which the person seeking to raise the issue meaningfully 
participated. In the Appeals officer's sole discretion, however, the 
Appeals officer may consider the existence or amount of the underlying 
tax liability, or such other precluded issues, at the same time as the 
CDP hearing. Any determination, however, made by the Appeals officer 
with respect to such a precluded issue shall not be treated as part of 
the Notice of Determination issued by the Appeals officer and will not 
be subject to any judicial review. Because any decisions made by the 
Appeals officer on such precluded issues are not properly a part of the 
CDP hearing, such decisions are not required to appear in the Notice of 
Determination issued following the hearing. Even if a decision 
concerning such precluded issues is referred to in the Notice of 
Determination, it is not reviewable by the Tax Court because the 
precluded issue is not properly part of the CDP hearing.
    (4) Examples. The following examples illustrate the principles of 
this paragraph (e):

    Example 1. The IRS sends a statutory notice of deficiency to the 
taxpayer at his last known address asserting a deficiency for the tax 
year 1995. The taxpayer receives the notice of deficiency in time to 
petition the Tax Court for a redetermination of the asserted deficiency. 
The taxpayer does not timely file a petition with the Tax Court. The 
taxpayer is precluded from challenging the existence or amount of the 
tax liability in a subsequent CDP hearing.
    Example 2. Same facts as in Example 1, except the taxpayer does not 
receive the notice of deficiency in time to petition the Tax Court and 
did not have another prior opportunity to dispute the tax liability. The 
taxpayer is not precluded from challenging the existence or amount of 
the tax liability in a subsequent CDP hearing.
    Example 3. The IRS properly assesses a trust fund recovery penalty 
against the taxpayer. The IRS offers the taxpayer the opportunity for a 
conference with Appeals at which the taxpayer would have the opportunity 
to dispute the assessed liability. The taxpayer declines the opportunity 
to participate in such a conference. The taxpayer is precluded from 
challenging the existence or amount of the tax liability in a subsequent 
CDP hearing.

    (f) Judicial review of Notice of Determination--(1) In general. 
Unless the taxpayer provides the IRS a written withdrawal of the request 
that Appeals conduct a CDP hearing, Appeals is required to issue a 
Notice of Determination in all cases where a taxpayer has timely 
requested a CDP hearing. The taxpayer may appeal such determinations 
made by Appeals within the 30-day period commencing the day after the 
date of the Notice of Determination to the Tax Court.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (f) as follows:
    Q-F1. What must a taxpayer do to obtain judicial review of a Notice 
of Determination?
    A-F1. Subject to the jurisdictional limitations described in A-F2 of 
this paragraph (f)(2), the taxpayer must, within the 30-day period 
commencing the day after the date of the Notice of Determination, appeal 
the determination by Appeals to the Tax Court.
    Q-F2. With respect to the relief available to the taxpayer under 
section 6015, what is the time frame within which a taxpayer may seek 
Tax Court review of Appeals' determination following a CDP hearing?
    A-F2. If the taxpayer seeks Tax Court review not only of Appeals' 
denial of relief under section 6015, but also of relief requested with 
respect to other issues raised in the CDP hearing, the taxpayer should 
request Tax Court review within the 30-day period commencing the day 
after the date of the Notice of Determination. If the taxpayer only 
seeks Tax Court review of Appeals' denial of relief under section 6015, 
then the taxpayer should request

[[Page 356]]

Tax Court review, as provided by section 6015(e), within 90 days of 
Appeals' determination. If a request for Tax Court review is filed after 
the 30-day period for seeking judicial review under section 6320, then 
only the taxpayer's section 6015 claims may be reviewable by the Tax 
Court.
    Q-F3. What issue or issues may the taxpayer raise before the Tax 
Court if the taxpayer disagrees with the Notice of Determination?
    A-F3. In seeking Tax Court review of a Notice of Determination, the 
taxpayer can only ask the court to consider an issue, including a 
challenge to the underlying tax liability, that was properly raised in 
the taxpayer's CDP hearing. An issue is not properly raised if the 
taxpayer fails to request consideration of the issue by Appeals, or if 
consideration is requested but the taxpayer fails to present to Appeals 
any evidence with respect to that issue after being given a reasonable 
opportunity to present such evidence.
    Q-F4. What is the administrative record for purposes of Tax Court 
review?
    A-F4. The case file, including the taxpayer's request for hearing, 
any other written communications and information from the taxpayer or 
the taxpayer's authorized representative submitted in connection with 
the CDP hearing, notes made by an Appeals officer or employee of any 
oral communications with the taxpayer or the taxpayer's authorized 
representative, memoranda created by the Appeals officer or employee in 
connection with the CDP hearing, and any other documents or materials 
relied upon by the Appeals officer or employee in making the 
determination under section 6330(c)(3), will constitute the record in 
the Tax Court review of the Notice of Determination issued by Appeals.
    (g) Effect of request for CDP hearing and judicial review on periods 
of limitation and collection activity--(1) In general. The periods of 
limitation under section 6502 (relating to collection after assessment), 
section 6531 (relating to criminal prosecutions), and section 6532 
(relating to suits) are suspended until the date the IRS receives the 
taxpayer's written withdrawal of the request for a CDP hearing by 
Appeals or the determination resulting from the CDP hearing becomes 
final by expiration of the time for seeking judicial review or the 
exhaustion of any rights to appeals following judicial review. In no 
event shall any of these periods of limitation expire before the 90th 
day after the date on which the IRS receives the taxpayer's written 
withdrawal of the request that Appeals conduct a CDP hearing or the 
determination with respect to such hearing becomes final upon either the 
expiration of the time for seeking judicial review or upon exhaustion of 
any rights to appeals following judicial review.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (g) as follows:
    Q-G1. For what period of time will the periods of limitation under 
sections 6502, 6531, and 6532 remain suspended if the taxpayer timely 
requests a CDP hearing concerning the filing of a NFTL?
    A-G1. The suspension period commences on the date the IRS receives 
the taxpayer's written request for a CDP hearing. The suspension period 
continues until the IRS receives a written withdrawal by the taxpayer of 
the request for a CDP hearing or the Notice of Determination resulting 
from the CDP hearing becomes final. In no event shall any of these 
periods of limitation expire before the 90th day after the day on which 
the IRS receives the taxpayer's written withdrawal of the request that 
Appeals conduct a CDP hearing or there is a final determination with 
respect to such hearing. The periods of limitation that are suspended 
under section 6320 are those which apply to the taxes and the tax period 
or periods to which the CDP Notice relates.
    Q-G2. For what period of time will the periods of limitation under 
sections 6502, 6531, and 6532 be suspended if the taxpayer does not 
request a CDP hearing concerning the filing of a NFTL, or the taxpayer 
requests a CDP hearing, but his request is not timely?
    A-G2. Under either of these circumstances, section 6320 does not 
provide for a suspension of the periods of limitation.

[[Page 357]]

    Q-G3. What, if any, enforcement actions can the IRS take during the 
suspension period?
    A-G3. Section 6330(e), made applicable to section 6320 CDP hearings 
by section 6320(c), provides for the suspension of the periods of 
limitation discussed in paragraph (g)(1) of these regulations. Section 
6330(e) also provides that levy actions that are the subject of the 
requested CDP hearing under that section shall be suspended during the 
same period. Levy actions, however, are not the subject of a CDP hearing 
under section 6320. The IRS may levy for tax periods and taxes covered 
by the CDP Notice under section 6320 and for other taxes and periods if 
the CDP requirements under section 6330 for those taxes and periods have 
been satisfied. The IRS also may file NFTLs for tax periods or taxes not 
covered by the CDP Notice, may file a NFTL for the same tax and tax 
period stated on the CDP Notice at another recording office, and may 
take other non-levy collection actions such as initiating judicial 
proceedings to collect the tax shown on the CDP Notice or offsetting 
overpayments from other periods, or of other taxes, against the tax 
shown on the CDP Notice. Moreover, the provisions in section 6330 do not 
apply when the IRS levies for the tax and tax period shown on the CDP 
Notice to collect a state tax refund due the taxpayer, or determines 
that collection of the tax is in jeopardy. Finally, section 6330 does 
not prohibit the IRS from accepting any voluntary payments made for the 
tax and tax period stated on the CDP Notice.
    (3) Examples. The following examples illustrate the principles of 
this paragraph (g):

    Example 1. The period of limitation under section 6502 with respect 
to the taxpayer's tax period listed in the NFTL will expire on August 1, 
1999. The IRS sent a CDP Notice to the taxpayer on April 30, 1999. The 
taxpayer timely requested a CDP hearing. The IRS received this request 
on May 15, 1999. Appeals sends the taxpayer its determination on June 
15, 1999. The taxpayer timely seeks judicial review of that 
determination. The period of limitation under section 6502 would be 
suspended from May 15, 1999, until the determination resulting from that 
hearing becomes final by expiration of the time for seeking review or 
reconsideration before the Tax Court, plus 90 days.

    (h) Retained jurisdiction of Appeals--(1) In general. The Appeals 
office that makes a determination under section 6320 retains 
jurisdiction over that determination, including any subsequent 
administrative hearings that may be requested by the taxpayer regarding 
the NFTL and any collection actions taken or proposed with respect to 
Appeals' determination. Once a taxpayer has exhausted his other 
remedies, Appeals' retained jurisdiction permits it to consider whether 
a change in the taxpayer's circumstances affects its original 
determination. Where a taxpayer alleges a change in circumstances that 
affects Appeals' original determination, Appeals may consider whether 
changed circumstances warrant a change in its earlier determination.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (h) as follows:
    Q-H1. Are the periods of limitation suspended during the course of 
any subsequent Appeals consideration of the matters raised by a taxpayer 
when the taxpayer invokes the retained jurisdiction of Appeals under 
section 6330(d)(2)(A) or (d)(2)(B)?
    A-H1. No. Under section 6320(b)(2), a taxpayer is entitled to only 
one CDP hearing under section 6320 with respect to the tax and tax 
period or periods specified in the CDP Notice. Any subsequent 
consideration by Appeals pursuant to its retained jurisdiction is not a 
continuation of the original CDP hearing and does not suspend the 
periods of limitation.
    Q-H2. Is a decision of Appeals resulting from a retained 
jurisdiction hearing appealable to the Tax Court?
    A-H2. No. As discussed in A-H1, a taxpayer is entitled to only one 
CDP hearing under section 6320 with respect to the tax and tax period or 
periods specified in the CDP Notice. Only determinations resulting from 
CDP hearings are appealable to the Tax Court.
    (i) Equivalent hearing--(1) In general. A taxpayer who fails to make 
a timely request for a CDP hearing is not entitled to a CDP hearing. 
Such a taxpayer may nevertheless request an administrative hearing with 
Appeals, which is

[[Page 358]]

referred to herein as an ``equivalent hearing.'' The equivalent hearing 
will be held by Appeals and generally will follow Appeals' procedures 
for a CDP hearing. Appeals will not, however, issue a Notice of 
Determination. Under such circumstances, Appeals will issue a Decision 
Letter.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (i) as follows:
    Q-I1. What must a taxpayer do to obtain an equivalent hearing?
    A-I1. (i) A request for an equivalent hearing must be made in 
writing. A written request in any form that requests an equivalent 
hearing will be acceptable if it includes the information and signature 
required in A-I1(ii) of this paragraph (i)(2).
    (ii) The request must be dated and must include the following:
    (A) The taxpayer's name, address, daytime telephone number (if any), 
and taxpayer identification number (e.g., SSN, ITIN or EIN).
    (B) The type of tax involved.
    (C) The tax period at issue.
    (D) A statement that the taxpayer is requesting an equivalent 
hearing with Appeals concerning the filing of the NFTL.
    (E) The reason or reasons why the taxpayer disagrees with the filing 
of the NFTL.
    (F) The signature of the taxpayer or the taxpayer's authorized 
representative.
    (iii) The taxpayer must perfect any timely written request for an 
equivalent hearing that does not satisfy the requirements set forth in 
A-I1(ii) of this paragraph (i)(2) within a reasonable period of time 
after a request from the IRS. If the requirements are not satisfied 
within a reasonable period of time, the taxpayer's equivalent hearing 
request will be denied.
    (iv) The taxpayer must affirm any timely written request for an 
equivalent hearing that is signed or alleged to have been signed on the 
taxpayer's behalf by the taxpayer's spouse or other unauthorized 
representative, and that otherwise meets the requirements set forth in 
A-I1(ii) of this paragraph (i)(2), by filing, within a reasonable period 
of time after a request from the IRS, a signed written affirmation that 
the request was originally submitted on the taxpayer's behalf. If the 
affirmation is filed within a reasonable period of time after a request, 
the timely equivalent hearing request will be considered timely with 
respect to the non-signing taxpayer. If the affirmation is not filed 
within a reasonable period of time, the equivalent hearing request will 
be denied with respect to the non-signing taxpayer.
    Q-I2. What issues will Appeals consider at an equivalent hearing?
    A-I2. In an equivalent hearing, Appeals will consider the same 
issues that it would have considered at a CDP hearing on the same 
matter.
    Q-I3. Are the periods of limitation under sections 6502, 6531, and 
6532 suspended if the taxpayer does not timely request a CDP hearing and 
is subsequently given an equivalent hearing?
    A-I3. No. The suspension period provided for in section 6330(e) 
relates only to hearings requested within the 30-day period that 
commences on the day after the end of the five business day period 
following the filing of the NFTL, that is, CDP hearings.
    Q-I4. Will collection action, including the filing of additional 
NFTLs, be suspended if a taxpayer requests and receives an equivalent 
hearing?
    A-I4. Collection action is not required to be suspended. 
Accordingly, the decision to take collection action during the pendency 
of an equivalent hearing will be determined on a case-by-case basis. 
Appeals may request the IRS office with responsibility for collecting 
the taxes to suspend all or some collection action or to take other 
appropriate action if it determines that such action is appropriate or 
necessary under the circumstances.
    Q-I5. What will the Decision Letter state?
    A-I5. The Decision Letter will generally contain the same 
information as a Notice of Determination.
    Q-I6. Will a taxpayer be able to obtain Tax Court review of a 
decision made by Appeals with respect to an equivalent hearing?
    A-I6. Section 6320 does not authorize a taxpayer to appeal the 
decision of Appeals with respect to an equivalent hearing. A taxpayer 
may under certain circumstances be able to seek Tax

[[Page 359]]

Court review of Appeals' denial of relief under section 6015. Such 
review must be sought within 90 days of the issuance of Appeals' 
determination on those issues, as provided by section 6015(e).
    Q-I7. When must a taxpayer request an equivalent hearing with 
respect to a CDP Notice issued under section 6320?
    A-I7. A taxpayer must submit a written request for an equivalent 
hearing within the one-year period commencing the day after the end of 
the five-business-day period following the filing of the NFTL. This 
period is slightly different from the period for submitting a written 
request for an equivalent hearing with respect to a CDP Notice issued 
under section 6330. For a CDP Notice issued under section 6330, a 
taxpayer must submit a written request for an equivalent hearing within 
the one-year period commencing the day after the date of the CDP Notice 
issued under section 6330.
    Q-I8. How will the timeliness of a taxpayer's written request for an 
equivalent hearing be determined?
    A-I8. The rules and regulations under section 7502 and section 7503 
will apply to determine the timeliness of the taxpayer's request for an 
equivalent hearing, if properly transmitted and addressed as provided in 
A-I10 of this paragraph (i)(2).
    Q-I9. Is the one-year period within which a taxpayer must make a 
request for an equivalent hearing extended because the taxpayer resides 
outside the United States?
    A-I9. No. All taxpayers who want an equivalent hearing concerning 
the filing of the NFTL must request the hearing within the one-year 
period commencing the day after the end of the five-business-day period 
following the filing of the NFTL.
    Q-I10. Where must the written request for an equivalent hearing be 
sent?
    A-I10. The written request for an equivalent hearing must be sent, 
or hand delivered (if permitted), to the IRS office and address as 
directed on the CDP Notice. If the address of the issuing office does 
not appear on the CDP Notice, the taxpayer should obtain the address of 
the office to which the written request should be sent or hand delivered 
by calling, toll-free, 1-800-829-1040 and providing the taxpayer's 
identification number (e.g., SSN, ITIN or EIN).
    QI11. What will happen if the taxpayer does not request an 
equivalent hearing in writing within the one-year period commencing the 
day after the end of the five-business-day period following the filing 
of the NFTL?
    AI11. If the taxpayer does not request an equivalent hearing with 
Appeals within the one-year period commencing the day after the end of 
the five-business-day period following the filing of the NFTL, the 
taxpayer foregoes the right to an equivalent hearing with respect to the 
unpaid tax and tax periods shown on the CDP Notice. A written request 
submitted within the one-year period that does not satisfy the 
requirements set forth in A-I1(ii) of this paragraph (i)(2) is 
considered timely if the request is perfected within a reasonable period 
of time pursuant to A-I1(iii) of this paragraph (i)(2). If a request for 
equivalent hearing is untimely, either because the request was not 
submitted within the one-year period or not perfected within the 
reasonable period provided, the equivalent hearing request will be 
denied. The taxpayer, however, may seek reconsideration by the IRS 
office collecting the tax, assistance from the National Taxpayer 
Advocate, or an administrative hearing before Appeals under its 
Collection Appeals Program or any successor program.
    (j) Effective date. This section is applicable on or after November 
16, 2006, with respect to requests made for CDP hearings or equivalent 
hearings on or after November 16, 2006.

[T.D. 8979, 67 FR 2561, Jan. 18, 2002, as amended by T.D. 9290, 71 FR 
60839, Oct. 17, 2006]



Sec.  301.6321-1  Lien for taxes.

    If any person liable to pay any tax neglects or refuses to pay the 
same after demand, the amount (including any interest, additional 
amount, addition to tax, or assessable penalty, together with any costs 
that may accrue in addition thereto) shall be a lien in favor of the 
United States upon all property and rights to property, whether real or 
personal, tangible or intangible, belonging to such person. For

[[Page 360]]

purposes of section 6321 and this section, the term ``any tax'' shall 
include a State individual income tax which is a ``qualified tax'', as 
defined in paragraph (b) of Sec.  301.6361-4. The lien attaches to all 
property and rights to property belonging to such person at any time 
during the period of the lien, including any property or rights to 
property acquired by such person after the lien arises. Solely for 
purposes of sections 6321 and 6331, any interest in restricted land held 
in trust by the United States for an individual noncompetent Indian (and 
not for a tribe) shall not be deemed to be property, or a right to 
property, belonging to such Indian. For the method of allocating amounts 
collected pursuant to a lien between the Federal Government and a State 
or States imposing a qualified tax with respect to which the lien 
attached, see paragraph (f) of Sec.  301.6361-1. For the special lien 
for estate and gift taxes, see section 6324 and Sec.  301.6324-1

[T.D. 7577, 43 FR 59361, Dec. 20, 1978]



Sec.  301.6323(a)-1  Purchasers, holders of security interests, 
mechanic's lienors, and judgment lien creditors.

    (a) Invalidity of lien without notice. The lien imposed by section 
6321 is not valid against any purchaser (as defined in paragraph (f) of 
Sec.  301.6323(h)--1), holder of a security interest (as defined in 
paragraph (a) of Sec.  301.6323(h)--1), mechanic's lienor (as defined in 
paragraph (b) of Sec.  301.6323(h)-1), or judgment lien creditor (as 
defined in paragraph (g) of Sec.  301.6323(h)-1) until a notice of lien 
is filed in accordance with Sec.  301.6323(f)-1). Except as provided by 
section 6323, if a person becomes a purchaser, holder of a security 
interest, mechanic's lienor, or judgment lien creditor after a notice of 
lien is filed in accordance with Sec.  301.6323(f)-1, the interest 
acquired by such person is subject to the lien imposed by section 6321.
    (b) Cross references. For provisions relating to the protection 
afforded a security interest arising after tax lien filing, which 
interest is covered by a commercial transactions financing agreement, 
real property construction or improvement financing agreement, or an 
obligatory disbursement agreement, see Sec. Sec.  301.6323(c)-1, 
301.6323(c)-2, and 301.6323(c)-3, respectively. For provisions relating 
to the protection afforded to a security interest coming into existence 
by virtue of disbursements, made before the 46th day after the date of 
tax lien filing, see Sec.  301.6323(d)-1. For provisions relating to 
priority afforded to interest and certain other expenses with respect to 
a lien or security interest having priority over the lien imposed by 
section 6321, see Sec.  301.6323(e)-1. For provisions relating to 
certain other interests arising after tax lien filing, see Sec.  
301.6323(b)-1.

[T.D. 7429, 41 FR 35498, Aug. 23, 1976]



Sec.  301.6323(b)-1  Protection for certain interests even though notice filed.

    (a) Securities--(1) In general. Even though a notice of a lien 
imposed by section 6321 is filed in accordance with Sec.  301.6323(f)-1, 
the lien is not valid with respect to a security (as defined in 
paragraph (d) of Sec.  301.6323(h)-1) against--
    (i) A purchaser (as defined in paragraph (f) of Sec.  301.6323(h)-1) 
of the security who at the time of purchase did not have actual notice 
or knowledge (as defined in paragraph (a) of Sec.  301.6323(i)-1) of the 
existence of the lien;
    (ii) A holder of a security interest (as defined in paragraph (a) of 
Sec.  301.6323(h)-1) in the security who did not have actual notice or 
knowledge (as defined in paragraph (a) of Sec.  301.6323(i)-1) of the 
existence of the lien at the time the security interest came into 
existence or at the time such security interest was acquired from a 
previous holder for a consideration in money or money's worth; or
    (iii) A transferee of an interest protected under subdivision (i) or 
(ii) of this subparagraph to the same extent the lien is invalid against 
his transferor.

For purposes of subdivision (iii) of this subparagraph, no person can 
improve his position with respect to the lien by reacquiring the 
interest from an intervening purchaser or holder of a security interest 
against whom the lien is invalid.
    (2) Examples. The application of this paragraph may be illustrated 
by the following examples:


[[Page 361]]


    Example 1. On May 1, 1969, in accordance with Sec.  301.6323(f)-1, a 
notice of lien is filed with respect to A's delinquent tax liability. On 
May 20, 1969. A sells 100 shares of common stock in X corporation to B, 
who, on the date of the sale, does not have actual notice or knowledge 
of the existence of the lien. Because B purchased the stock without 
actual notice or knowledge of the lien, under subdivision (i) of 
subparagraph (1) of this paragraph, the stock purchased by B is not 
subject to the lien.
    Example 2. Assume the same facts as in example 1 except that on May 
30, 1969, B sells the 100 shares of common stock in X corporation to C 
who on May 5, 1969, had actual notice of the existence of the tax lien 
against A. Because the X stock when purchased by B was not subject to 
the lien, under subdivision (iii) of subparagraph (1) of this paragraph, 
the stock purchased by C is not subject to the lien. C succeeds to B's 
rights, even though C had actual notice of the lien before B's purchase.
    Example 3. On June 1, 1970, in accordance with Sec.  301.6323(f)-1, 
a notice of lien is filed with respect to D's delinquent tax liability. 
D owns 20 $1,000 bonds issued by the Y company. On June 10, 1970, D 
obtains a loan from M bank for $5,000 using the Y company bonds as 
collateral. At the time the loan is made M bank does not have actual 
notice or knowledge of the existence of the tax lien. Because M bank did 
not have actual notice or knowledge of the lien when the security 
interest came into existence, under subdivision (ii) of subparagraph (1) 
of this paragraph, the tax lien is not valid against M bank to the 
extent of its security interest.
    Example 4. Assume the same facts as in example 3 except that on June 
19, 1970, M bank assigns the chose in action and its security interest 
to N, who had actual notice or knowledge of the existence of the lien on 
June 1, 1970. Because the security interest was not subject to the lien 
to the extent of M bank's security interest, the security interest held 
by N is to the same extent entitled to priority over the tax lien 
because N succeeds to M bank's rights. See subdivision (iii) of 
subparagraph (1) of this paragraph.
    Example 5. On July 1, 1970, in accordance with Sec.  301.6323(f)-1, 
a notice of lien is filed with respect to E's delinquent tax liability. 
E owns ten $1,000 bonds issued by the Y company. On July 5, 1970, E 
borrows $4,000 from F and delivers the bonds to F as collateral for the 
loan. At the time the loan is made, F has actual knowledge of the 
existence of the tax lien and, therefore, holds the security interest 
subject to the lien on the bonds. On July 10, 1970, F sells the security 
interest to G for $4,000 and delivers the Y company bonds pledged as 
collateral. G does not have actual notice or knowledge of the existence 
of the lien on July 10, 1970. Because G did not have actual notice or 
knowledge of the lien at the time he purchased the security interest, 
under subdivision (ii) of subparagraph (1) of this paragraph, the tax 
lien is not valid against G to the extent of his security interest.
    Example 6. Assume the same facts as in example 5 except that, 
instead of purchasing the security interest from F on July 10, 1970, G 
lends $4,000 to F and takes a security interest in F's security interest 
in the bonds on that date. Because G became the holder of a security 
interest in a security interest after notice of lien was filed and does 
not directly have a security interest in a security, the security 
interest held by G is not entitled to a priority over the tax lien under 
the provisions of subparagraph (1) of this paragraph.

    (b) Motor vehicles--(1) In general. Even though a notice of a lien 
imposed by section 6321 is filed in accordance with Sec.  301.6323(f)-1, 
the lien is not valid against a purchaser (as defined in paragraph (f) 
of Sec.  301.6323(h)-1) of a motor vehicle (as defined in paragraph (c) 
of Sec.  301.6323(h)-1) if--
    (i) At the time of the purchase, the purchaser did not have actual 
notice or knowledge (as defined in paragraph (a) of Sec.  301.6323(i)-1) 
of the existence of the lien, and
    (ii) Before the purchaser obtains such notice or knowledge, he has 
acquired actual possession of the motor vehicle and has not thereafter 
relinquished actual possession to the seller or his agent.
    (2) Examples. The application of this paragraph may be illustrated 
by the following examples:

    Example 1. A, a delinquent taxpayer against whom a notice of tax 
lien has been filed in accordance with Sec.  301.6323(f)-1, sells his 
automobile (which qualifies as a motor vehicle under paragraph (c) of 
Sec.  301.6323(h)-1) to B, an automobile dealer. B takes actual 
possession of the automobile and does not thereafter relinquish actual 
possession to the seller or his agent. Subsequent to his purchase, B 
learns of the existence of the tax lien against A. Even though notice of 
lien was filed before the purchase, the lien is not valid against B, 
because B did not know of the existence of the lien before the purchase 
and before acquiring actual possession of the vehicle.
    Example 2. C is a wholesaler of used automobiles. A notice of lien 
has been filed with respect to C's delinquent tax liability in 
accordance with Sec.  301.6323(f)-1. Subsequent to such filing, D, a 
used automobile dealer, purchases and takes actual possession of 20

[[Page 362]]

automobiles (which qualify as motor vehicles under the provisions of 
paragraph (c) of Sec.  301.6323(h)-1) from C at an auction and places 
them on his lot for sale. C does not reacquire possession of any of the 
automobiles. At the time of his purchase, D does not have actual notice 
or knowledge of the existence of the lien against C. Even though notice 
of lien was filed before D's purchase, the lien was not valid against D 
because D did not know of the existence of the lien before the purchase 
and before acquiring actual possession of the vehicles.

    (3) Cross reference. For provisions relating to additional 
circumstances in which the lien imposed by section 6321 may not be valid 
against the purchaser of tangible personal property (including a motor 
vehicle) purchased at retail, see paragraph (c) of this section.
    (c) Personal property purchased at retail--(1) In general. Even 
though a notice of a lien imposed by section 6321 is filed in accordance 
with Sec.  301.6323(f)-1, the lien is not valid against a purchaser (as 
defined in paragraph (f) of Sec.  301.6323(h)-1) of tangible personal 
property purchased at a retail sale (as defined in subparagraph (2) of 
this paragraph (c)) unless at the time of purchase the purchaser intends 
the purchase to (or knows that the purchase will) hinder, evade, or 
defeat the collection of any tax imposed by the Internal Revenue Code of 
1954.
    (2) Definition of retail sale. For purposes of this paragraph, the 
term ``retail sale'' means a sale, made in the ordinary course of the 
seller's trade or business, of tangible personal property of which the 
seller is the owner. Such term includes a sale in customary retail 
quantities by a seller who is going out of business, but does not 
include a bulk sale or an auction sale in which goods are offered in 
quantities substantially greater than are customary in the ordinary 
course of the seller's trade or business or an auction sale of goods the 
owner of which is not in the business of selling such goods.
    (3) Example. The application of this paragraph may be illustrated by 
the following example:

    Example. A purchases a refrigerator from the M company, a retail 
appliance dealer. Prior to such purchase, a notice of lien was filed 
with respect to M's delinquent tax liability in accordance with Sec.  
301.6323(f)-1. At the time of the purchase A knows of the existence of 
the lien. However, A does not intend the purchase to hinder, evade, or 
defeat the collection of any internal revenue tax, and A does not have 
any reason to believe that the purchase will affect the collection of 
any internal revenue tax. Even though notice of lien was filed before 
the purchase, the lien is not valid against A because A in good faith 
purchased the refrigerator at retail in the ordinary course of the M 
company's business.

    (d) Personal property purchased in casual sale--(1) In general. Even 
though a notice of lien imposed by section 6321 is filed in accordance 
with Sec.  301.6323(f)-1, the lien is not valid against a purchaser (as 
defined in Sec.  301.6323(h)-1(f)) of household goods, personal effects, 
or other tangible personal property of a type described in Sec.  
301.6334-1 (which includes wearing apparel, school books, fuel, 
provisions, furniture, arms for personal use, livestock, and poultry 
(whether or not the seller is the head of a family); and books and tools 
of a trade, business, or profession (whether or not the trade, business, 
or profession of the seller)), purchased, other than for resale, in a 
casual sale for less than $1,380, effective for 2010 and adjusted each 
year based on the rate of inflation (excluding interest and expenses 
described in Sec.  301.6323(e)-1).
    (2) Limitation. This paragraph applies only if the purchaser does 
not have actual notice or knowledge (as defined in paragraph (a) of 
Sec.  301.6323(i)-1)--
    (i) Of the existence of the tax lien, or
    (ii) That the sale is one of a series of sales.

For purposes of subdivision (ii) of this subparagraph, a sale is one of 
a series of sales if the seller plans to dispose of, in separate 
transactions, substantially all of his household goods, personal 
effects, and other tangible personal property described in Sec.  
301.6334-1.
    (3) Examples. The application of this paragraph may be illustrated 
by the following examples:

    Example 1. A, an attorney's widow, sells a set of law books for $200 
to B, for B's own use. Prior to the sale a notice of lien was filed with 
respect to A's delinquent tax liability in accordance with Sec.  
301.6323(f)-1. B has no actual notice or knowledge of the tax lien. In 
addition, B does not know that the sale is one of a series of sales. 
Because the sale is a casual sale for less than $1,380 and

[[Page 363]]

involves books of a profession (tangible personal property of a type 
described in Sec.  301.6334-1, irrespective of the fact that A has never 
engaged in the legal profession), the tax lien is not valid against B 
even though a notice of lien was filed prior to the time of B's 
purchase.
    Example 2. Assume the same facts as in example 1 except that B 
purchases the books for resale in his second-hand bookstore. Because B 
purchased the books for resale, he purchased the books subject to the 
lien.
    Example 3. In an advertisement appearing in a local newspaper, G 
indicates that he is offering for sale a lawn mower, a used television 
set, a desk, a refrigerator, and certain used dining room furniture. In 
response to the advertisement, H purchases the dining room furniture for 
$200. H does not receive any information which would impart notice of a 
lien, or that the sale is one of a series of sales, beyond the 
information contained in the advertisement. Prior to the sale a notice 
of lien was filed with respect to G's delinquent tax liability in 
accordance with Sec.  301.6323(f)-1. Because H had no actual notice or 
knowledge that substantially all of G's household goods were being sold 
or that the sale is one of a series of sales, and because the sale is a 
casual sale for less than $1,380, H does not purchase the dining room 
furniture subject to the lien. The household goods are of a type 
described in Sec.  301.6334-1(a)(2) irrespective of whether G is the 
head of a family or whether all such household goods offered for sale 
exceed $8,250 in value.

    (e) Personal property subject to possessory liens. Even though a 
notice of a lien imposed by section 6321 is filed in accordance with 
Sec.  301.6323(f)-1, the lien is not valid against a holder of a lien on 
tangible personal property which under local law secures the reasonable 
price of the repair or improvement of the property if the property is, 
and has been, continuously in the possession of the holder of the lien 
from the time the possessory lien arose. For example, if local law gives 
an automobile repairman the right to retain possession of an automobile 
he has repaired as security for payment of the repair bill and the 
repairman retains continuous possession of the automobile until his lien 
is satisfied, a tax lien filed in accordance with section 6323(f)(1) 
which has attached to the automobile will not be valid to the extent of 
the reasonable price of the repairs. It is immaterial that the notice of 
tax lien was filed before the repairman undertook his work or that he 
knew of the lien before undertaking the work.
    (f) Real property tax and special assessment liens--(1) In general. 
Even though a notice of a lien imposed by section 6321 is filed in 
accordance with Sec.  301.6323(f)-1, the lien is not valid against the 
holder of another lien upon the real property (regardless of when such 
other lien arises), if such other lien is entitled under local law to 
priority over security interests in real property which are prior in 
time and if such other lien on real property secures payment of--
    (i) A tax of general application levied by any taxing authority 
based upon the value of the property;
    (ii) A special assessment imposed directly upon the property by any 
taxing authority, if the assessment is imposed for the purpose of 
defraying the cost of any public improvement; or
    (iii) Charges for utilities or public services furnished to the 
property by the United States, a State or political subdivision thereof, 
or an instrumentality of any one or more of the foregoing.
    (2) Examples. The application of this paragraph may be illustrated 
by the following examples:

    Example 1. A owns Blackacre in the city of M. A notice of lien 
affecting Blackacre is filed in accordance with Sec.  301.6323(f)-1. 
Subsequent to the filing of the notice of lien, the city of M acquires a 
lien against Blackacre to secure payment of real estate taxes. Such 
taxes are levied against all property in the city in proportion to the 
value of the property. Under local law, the holder of a lien for real 
property taxes is entitled to priority over a security interest in real 
property even though the security interest is prior in time. Because the 
real property tax lien held by the city of M secures payment of a tax of 
general application and is entitled to priority over security interests 
which are prior in time, the lien held by the city of M is entitled to 
priority over the Federal tax lien with respect to Blackacre.
    Example 2. B owns Whiteacre in N county. A notice of lien affecting 
Whiteacre is filed in accordance with Sec.  301.6323(f)-1. Subsequent to 
the filing of the notice of lien, N county constructs a sidewalk, paves 
the street, and installs water and sewer lines adjacent to Whiteacre. In 
order to defray the cost of these improvements, N county imposes upon 
Whiteacre a special assessment which under local law results in a lien 
upon Whiteacre that is entitled to priority over security interests that 
are prior in time. Because the special assessment lien is (i) entitled 
under local law to priority over security interests

[[Page 364]]

which are prior in time, and (ii) imposed directly upon real property to 
defray the cost of a public improvement, the special assessment lien has 
priority over the Federal tax lien with respect to Whiteacre.
    Example 3. C owns Greenacre in town O. A notice of lien affecting 
Greenacre is filed in accordance with Sec.  301.6323(f)-1. Town O 
furnishes water and electricity to Greenacre and periodically collects a 
fee for these services. Subsequent to the filing of the notice of lien, 
town O supplies water and electricity to Greenacre, and C fails to pay 
the charges for these services. Under local law, town O acquires a lien 
to secure charges for the services, and this lien has priority over 
security interests which are prior in time. Because the lien of town O 
(i) is for services furnished to the real property and (ii) has priority 
over earlier security interests, town O's lien has priority over the 
Federal tax lien with respect to Greenacre.

    (g) Residential property subject to a mechanic's lien for certain 
repairs and improvements--(1) In general. Even though a notice of a lien 
imposed by section 6321 is filed in accordance with Sec.  301.6323(f)-1, 
the lien is not valid against a mechanic's lienor (as defined in Sec.  
301.6323(h)-1(b)) who holds a lien for the repair or improvement of a 
personal residence if--
    (i) The residence is occupied by the owner and contains no more than 
four dwelling units; and
    (ii) The contract price on the prime contract with the owner for the 
repair or improvement (excluding interest and expenses described in 
Sec.  301.6323(e)-1) is not more than $6,890, effective for 2010 and 
adjusted each year based on the rate of inflation.
    (iii) For purposes of paragraph (g)(1)(ii) of this section, the 
amounts of subcontracts under the prime contract with the owner are not 
to be taken into consideration for purposes of computing the $6,890 
prime contract price. It is immaterial that the notice of tax lien was 
filed before the contractor undertakes his work or that he knew of the 
lien before undertaking his work.
    (2) Examples. The application of this paragraph may be illustrated 
by the following examples:

    Example 1. A owns a building containing four apartments, one of 
which he occupies as his personal residence. A notice of lien which 
affects the building is filed in accordance with Sec.  301.6323(f)-1. 
Thereafter, A enters into a contract with B in the amount of $800, which 
includes labor and materials, to repair the roof of the building. B 
purchases roofing shingles from C for $300. B completes the work and A 
fails to pay B the agreed amount. In turn, B fails to pay C for the 
shingles. Under local law, B and C acquire mechanic's liens on A's 
building. Because the contract price on the prime contract with A is not 
more than $6,890 and under local law B and C acquire mechanic's liens on 
A's building, the liens of B and C have priority over the Federal tax 
lien.
    Example 2. Assume the same facts as in Example 1, except that the 
amount of the prime contract between A and B is $7,100. Because the 
amount of the prime contract with the owner, A, is in excess of $6,890, 
the tax lien has priority over the entire amount of each of the 
mechanic's liens of B and C, even though the amount of the contract 
between B and C is $300.
    Example 3. Assume the same facts as in Example 1, except that A and 
B do not agree in advance upon the amount due under the prime contract 
but agree that B will perform the work for the cost of materials and 
labor plus 10 percent of such cost. When the work is completed, it is 
determined that the total amount due is $850. Because the prime contract 
price is not more than $6,890 and under local law B and C acquire 
mechanic's liens on A's residence, the liens of B and C have priority 
over the Federal tax lien.

    (h) Attorney's liens--(1) In general. Even though notice of a lien 
imposed by section 6321 is filed in accordance with Sec.  301.6323(f)-1, 
the lien is not valid against an attorney who, under local law, holds a 
lien upon, or a contract enforceable against, a judgment or other amount 
in settlement of a claim or of a cause of action. The priority afforded 
an attorney's lien under this paragraph shall not exceed the amount of 
the attorney's reasonable compensation for obtaining the judgment or 
procuring the settlement. For purposes of this paragraph, reasonable 
compensation means the amount customarily allowed under local law for an 
attorney's services for litigating or settling a similar case or 
administrative claim. However, reasonable compensation shall be 
determined on the basis of the facts and circumstances of each 
individual case. It is immaterial that the notice of tax lien is filed 
before the attorney undertakes his work or that the attorney knows of 
the tax lien before undertaking his work. This paragraph does not apply 
to an attorney's lien which may arise from the defense of a

[[Page 365]]

claim or cause of action against a taxpayer except to the extent such 
lien is held upon a judgment or other amount arising from the 
adjudication or settlement of a counterclaim in favor of the taxpayer. 
In the case of suits against the taxpayer, see Sec.  301.6325-1(d)(2) 
for rules relating to the subordination of the tax lien to facilitate 
tax collection.
    (2) Claim or cause of action against the United States. Paragraph 
(h)(1) of this section does not apply to an attorney's lien with respect 
to--
    (i) Any judgment or other fund resulting from the successful 
litigation or settlement of an administrative claim or cause of action 
against the United States to the extent that the United States, under 
any legal or equitable right, offsets its liability under the judgment 
or settlement against any liability of the taxpayer to the United 
States, or
    (ii) Any amount credited against any liability of the taxpayer in 
accordance with section 6402.
    (3) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example 1. A notice of lien is filed against A in accordance with 
Sec.  301.6323(f)-1. Subsequently, A is struck by an automobile and 
retains B, an attorney to institute suit on A's behalf against the 
operator of the automobile. B knows of the tax lien before he begins his 
work. Under local law, B is entitled to a lien upon any recovery in 
order to secure payment of his fee. A is awarded damages of $10,000. B 
charges a fee of $3,000 which is the fee customarly allowed under local 
law in similar cases and which is found to be reasonable under the 
circumstances of this particular case. Because, under local law, B holds 
a lien for the amount of his reasonable compensation for obtaining the 
judgment, B's lien has priority over the Federal tax lien.
    Example 2. Assume the same facts as in example 1, except that before 
suit is instituted A and the owner of the automobile settle out of court 
for $7,500. B charges a reasonable and customary fee of $1,800 for 
procuring the settlement and under local law holds a lien upon the 
settlement in order to secure payment of the fee. Because, under local 
law, B holds a lien for the amount of his reasonable compensation for 
obtaining the settlement, B has priority over the Federal tax lien.
    Example 3. In accordance with Sec.  301.6323(f)-1, a notice of lien 
in the amount of $8,000 is filed against C, a contractor. Subsequently C 
retains D, an attorney, to initiate legal proceedings to recover the 
amount allegedly due him for construction work he has performed for the 
United States. C and D enter into an agreement which provides that D 
will receive a reasonable and customary fee of $2,500 as compensation 
for his services. Under local law, the agreement will give rise to a 
lien which is enforceable by D against any amount recovered in the suit. 
C is successful in the suit and is awarded $10,000. D claims $2,500 of 
the proceeds as his fee. The United States, however, exercises its right 
of set-off and applies $8,000 of the $10,000 award to satisfy C's tax 
liability. Because the $10,000 award resulted from the successful 
litigation of a cause of action against the United States, B's contract 
for attorney's fees is not enforceable against the amount recovered to 
the extent the United States offsets its liability under the judgment 
against C's tax liability. It is immaterial that D had no notice or 
knowledge of the tax lien at the time he began work on the case.

    (i) Certain insurance contracts--(1) In general. Even though a 
notice of a lien imposed by section 6321 is filed in accordance with 
Sec.  301.6323(f)-1, the lien is not valid with respect to a life 
insurance, endowment, or annuity contract, against an organization which 
is the insurer under the contract, at any time--
    (i) Before the insuring organization has actual notice or knowledge 
(as defined in paragraph (a) of Sec.  301.6323(i)-1) of the existence of 
the tax lien,
    (ii) After the insuring organization has actual notice or knowledge 
of the lien (as defined in paragraph (a) of Sec.  301.6323(i)-1), with 
respect to advances (including contractual interest thereon as provided 
in paragraph (a) of Sec.  301.6323(e)-1) required to be made 
automatically to maintain the contract in force under an agreement 
entered into before the insuring organization had such actual notice or 
knowledge, or
    (iii) After the satisfaction of a levy pursuant to section 6332(b), 
unless and until the Internal Revenue Service delivers to the insuring 
organization a notice (for example, another notice of levy, a letter, 
etc.) executed after the date of such satisfaction, that the lien 
exists.

Delivery of the notice described in subdivision (iii) of this 
subparagraph may be made by any means, including regular mail, and 
delivery of the notice shall be effective only from the time of

[[Page 366]]

actual receipt of the notification by the insuring organization. The 
provisions of this paragraph are applicable to matured as well as 
unmatured insurance contracts.
    (2) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example 1. On May 1, 1964, the X insurance company issues a life 
insurance policy to A. On June 1, 1970, a tax assessment is made against 
A, and on June 2, 1970, a notice of lien with respect to the assessment 
is filed in accordance with Sec.  301.6323(f)-1. On July 1, 1970, 
without actual notice or knowledge of the tax lien, the X company makes 
a ``policy loan'' to A. Under subparagraph (1)(i) of this paragraph, the 
loan, including interest (in accordance with the provisions of paragraph 
(a) of Sec.  301.6323(e)-1), will have priority over the tax lien 
because X company did not have actual notice or knowledge of the tax 
lien at the time the policy loan was made.
    Example 2. On May 1, 1964, B enters into a life insurance contract 
with the Y insurance company. Under one of the provisions of the 
contract, in the event a premium is not paid, Y is to advance out of the 
cash loan value of the policy the amount of an unpaid premium in order 
to maintain the contract in force. The contract also provides for 
interest on any advances so made. On June 1, 1971, a tax assessment is 
made against B, and on June 2, 1971, in accordance with section 6323(f)-
1, a notice of lien is filed. On July 1, 1971, B fails to pay the 
premium due on that date, and Y makes an automatic premium loan to keep 
the policy in force. At the time the automatic premium loan is made, Y 
had actual knowledge of the tax lien. Under subparagraph (1)(ii) of this 
paragraph, the lien is not valid against Y with respect to the advance 
(and the contractual interest thereon), because the advance was required 
to be made automatically under an agreement entered into before Y had 
actual notice or knowledge of the tax lien.
    Example 3. On May 1, 1964, C enters into a life insurance contract 
with the Z insurance company. On January 4, 1971, an assessment is made 
against C for $5,000 unpaid income taxes, and on January 11, 1971, in 
accordance with Sec.  301.6323(f)-1, a notice of lien is filed. On 
January 29, 1971, a notice of levy with respect to C's delinquent tax is 
served on Z company. The amount which C could have had advanced to him 
from Z company under the contract on the 90th day after service of the 
notice of levy on Z company is $2,000. The Z company pays $2,000 
pursuant to the notice of levy, thereby satisfying the levy upon the 
contract in accordance with Sec.  6332(b). On February 1, 1973, Z 
company advances $500 to C, which is the increment in policy loan value 
since satisfaction of the levy of January 29, 1971. On February 5, 1973, 
a new notice of levy for the unpaid balance of the delinquent taxes, 
executed after the first levy was satisfied, is served upon Z company. 
Because the new notification was not received by Z company until after 
the policy loan was made, under paragraph (1)(iii) of this paragraph, 
the tax lien is not valid against Z company with respect to the policy 
loan (including interest thereon in accordance with paragraph (a) of 
Sec.  301.6323(e)-1).
    Example 4. On June 1, 1973, a tax assessment is made against D and 
on June 2, 1973, in accordance with Sec.  301.6323(f)-1, a notice of 
lien with respect to the assessment is filed. On July 2, 1973, D 
executes an assignment of his rights, as the insured, under an insurance 
contract to M bank as security for a loan. M bank holds its security 
interest subject to the lien because it is not an insurer entitled to 
protection under section 6323(b)(9) and did not become a holder of the 
security interest prior to the filing of the notice of lien for purposes 
of section 6323(a). It is immaterial that a notice of levy had not been 
served upon the insurer before the assignment to M bank was made.

    (j) Effective/applicability date. This section applies to any notice 
of Federal tax lien filed on or after April 4, 2011.

[T.D. 7429, 41 FR 35501, Aug. 23, 1976, as amended by T.D. 9520, 76 FR 
18385, Apr. 4, 2011; 76 FR 24813, May 3, 2011]



Sec.  301.6323(c)-1  Protection for commercial transactions 
financing agreements.

    (a) In general. Even though a notice of a lien imposed by section 
6321 is filed in accordance with Sec.  301.6323(f)-1, the lien is not 
valid with respect to a security interest which:
    (1) Comes into existence after the tax lien filing,
    (2) Is in qualified property covered by the terms of a commercial 
transactions financing agreement entered into before the tax lien 
filing, and
    (3) Is protected under local law against a judgment lien arising, as 
of the time of the tax lien filing, out of an unsecured obligation.

See paragraphs (a) and (e) of Sec.  301.6323(h)-1 for definitions of the 
terms ``security interest'' and ``tax lien filing,'' respectively. For 
purposes of this section, a judgment lien is a lien held by a judgment 
lien creditor as defined in paragraph (g) of Sec.  301.6323(h)-1.
    (b) Commercial transactions financing agreement. For purposes of 
this section,

[[Page 367]]

the term ``commercial transactions financing agreement'' means a written 
agreement entered into by a person in the course of his trade or 
business--
    (1) To make loans to the taxpayer (whether or not at the option of 
the person agreeing to make such loans) to be secured by commercial 
financing security acquired by the taxpayer in the ordinary course of 
his trade or business, or
    (2) To purchase commercial financing security, other than inventory, 
acquired by the taxpayer in the ordinary course of his trade or 
business.

Such an agreement qualifies as a commercial transactions financing 
agreement only with respect to loans or purchases made under the 
agreement before (i) the 46th day after the date of tax lien filing or, 
(ii) the time when the lender or purchaser has actual notice or 
knowledge (as defined in paragraph (a) of Sec.  301.6323(i)-1) of the 
tax lien filing, if earlier. For purposes of this paragraph, a loan or 
purchase is considered to have been made in the course of the lender's 
or purchaser's trade or business if such person is in the business of 
financing commercial transactions (such as a bank or commercial factor) 
of if the agreement is incidental to the conduct of such person's trade 
or business. For example, if a manufacturer finances the accounts 
receivable of one of his customers, he is considered to engage in such 
financing in the course of his trade or business. The extent of the 
priority of the lender or purchaser over the tax lien is the amount of 
his disbursements made before the 46th day after the date the notice of 
tax lien is filed, or made before the day (before such 46th day) on 
which the lender or purchaser has actual notice or knowledge of the 
filing of the notice of the tax lien.
    (c) Commercial financing security--(1) In general. The term 
``commercial financing security'' means--
    (i) Paper of a kind ordinarily arising in commercial transactions.
    (ii) Accounts receivable (as defined in subparagraph (2) of this 
paragraph (c)),
    (iii) Mortgages on real property, and
    (iv) Inventory.

For purposes of this subparagraph, the term ``paper of a kind ordinarily 
arising in commercial transactions'' in general includes any written 
document customarily used in commercial transactions. For example, such 
written documents include paper giving contract rights (as defined in 
subparagraph (2) of this paragraph (c)), chattel paper, documents of 
title to personal property, and negotiable instruments or securities. 
The term ``commercial financing security'' does not include general 
intangibles such as patents or copyrights. A mortgage on real estate 
(including a deed of trust, contract for sale, and similar instrument) 
may be commercial financing security if the taxpayer has an interest in 
the mortgage as a mortgagee or assignee. The term ``commercial financing 
security'' does not include a mortgage where the taxpayer is the 
mortgagor or realty owned by him. For purposes of this subparagraph, the 
term ``inventory'' includes raw materials and goods in process as well 
as property held by the taxpayer primarily for sale to customers in the 
ordinary course of his trade or business.
    (2) Definitions. For purposes of Sec. Sec.  301.6323(d)-1, 
301.6323(h)-1 and this section--
    (i) A contract right is any right to payment under a contract not 
yet earned by performance and not evidenced by an instrument or chattel 
paper, and
    (ii) An account receivable is any right to payment for goods sold or 
leased or for services rendered which is not evidenced by an instrument 
or chattel paper.
    (d) Qualified property. For purposes of paragraph (a) of this 
section, qualified property consists solely of commercial financing 
security acquired by the taxpayer-debtor before the 46th day after the 
date of tax lien filing: Commercial financing security acquired before 
such day may be qualified property even though it is acquired by the 
taxpayer after the lender received actual notice or knowledge of the 
filing of the tax lien. For example, although the receipt of actual 
notice or knowledge of the filing of the notice of the tax lien has the 
effect of ending the period within which protected disbursements may be 
made to the taxpayer, property which is acquired by the taxpayer after 
the

[[Page 368]]

lender receives actual notice or knowledge of such filing and before 
such 46th day, which otherwise qualifies as commercial financing 
security, becomes commercial financing security to which the priority of 
the lender extends for loans made before he received the actual notice 
or knowledge. An account receivable (as defined in paragraph (c)(2)(ii) 
of this section) is acquired by a taxpayer at the time, and to the 
extent, a right to payment is earned by performance. Chattel paper, 
documents of title, negotiable instruments, securities, and mortgages on 
real estate are acquired by a taxpayer when he obtains rights in the 
paper or mortgage. Inventory is acquired by the taxpayer when title 
passes to him. A contract right (as defined in paragraph (c)(2)(i) of 
this section) is acquired by a taxpayer when the contract is made. 
Identifiable proceeds, which arise from the collection or disposition of 
qualified property by the taxpayer, are considered to be acquired at the 
time such qualified property is acquired if the secured party has a 
continuously perfected security interest in the proceeds under local 
law. The term ``proceeds'' includes whatever is received when collateral 
is sold, exchanged, or collected. For purposes of this paragraph, the 
term ``identifiable proceeds'' does not include money, checks and the 
like which have been commingled with other cash proceeds. Property 
acquired by the taxpayer after the 45th day following tax lien filing, 
by the expenditure of proceeds, is not qualified property.
    (e) Purchaser treated as acquiring security interest. A person who 
purchases commercial financing security, other than inventory, pursuant 
to a commercial transactions financing agreement is treated, for 
purposes of this section, as having acquired a security interest in the 
commercial financing security. In the case of a bona fide purchase at a 
discount, a purchaser of commercial financing security who satisfies the 
requirements of this section has priority over the tax lien to the full 
extent of the security.
    (f) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. (i) On June 1, 1970, a tax is assessed against M, a tool 
manufacturer, with respect to his delinquent tax liability. On June 15, 
1970, M enters into a written financing agreement with X, a bank. The 
agreement provides that, in consideration of such sums as X may advance 
to M, X is to have a security interest in all of M's presently owned and 
subsequently acquired commercial paper, accounts receivable, and 
inventory (including inventory in the manufacturing stages and raw 
materials). On July 6, 1970, notice of the tax lien is filed in 
accordance with Sec.  301.6323(f)-1. On August 3, 1970, without actual 
notice or knowledge of the tax lien filing, X advances $10,000 to M. On 
August 5, 1970, M acquires additional inventory through the purchase of 
raw materials. On August 20, 1970, M has accounts receivable, arising 
from the sale of tools, amounting to $5,000. Under local law, X's 
security interest arising by reason of the $10,000 advance on August 3, 
1970, has priority, with respect to the raw materials and accounts 
receivable, over a judgment lien against M arising July 6, 1970 (the 
date of tax lien filing) out of an unsecured obligation.
    (ii) Because the $10,000 advance was made before the 46th day after 
the tax lien filing, and the accounts receivable in the amount of $5,000 
and the raw materials were acquired by M before such 46th day, X's 
$10,000 security interest in the accounts receivable and the inventory 
has priority over the tax lien. The priority of X's security interest 
also extends to the proceeds, received on or after the 46th day after 
the tax lien filing, from the liquidation of the accounts receivable and 
inventory held by M on August 20, 1970, if X has a continuously 
perfected security interest in identifiable proceeds under local law. 
However, the priority of X's security interest will not extend to other 
property acquired with such proceeds.
    Example 2. Assume the same facts as in example 1 except that on July 
15, 1970, X has actual knowledge of the tax lien filing. Because an 
agreement does not qualify as a commercial transactions financing 
agreement when a disbursement is made after tax lien filing with actual 
knowledge of the filing, X's security interest will not have priority 
over the tax lien with respect to the $10,000 advance made on August 3, 
1970.
    Example 3. Assume the same facts as in example 1 except that, 
instead of additional inventory, on August 5, 1970, M acquires an 
account receivable as the result of the sale of machinery which M no 
longer needs in his business. Even though the account receivable was 
acquired by taxpayer M before the 46th day after tax lien filing, the 
tax lien will have priority over X's security interest arising in the 
account receivable pursuant to the earlier written agreement because the 
account receivable was not acquired by the

[[Page 369]]

taxpayer in the ordinary course of his trade or business.
    Example 4. Pursuant to a written agreement with the N Manufacturing 
Company entered into on January 4, 1971, Y a commercial factor, 
purchases the accounts receivable arising out of N's regular sales to 
its customers. On November 1, 1971, in accordance with Sec.  
301.6323(f)-1, a notice of lien is filed with respect to N's delinquent 
tax liability. On December 6, 1971, Y, without actual notice or 
knowledge of the tax lien filing, purchases all of the accounts 
receivable resulting from N's November 1971 sales. Y has taken 
appropriate steps under local law so that the December 6, 1971, purchase 
is protected against a judgment lien arising November 1, 1971 (the date 
of tax lien filing) out of an unsecured obligation. Because the 
purchaser of commercial financing security, other than inventory, is 
treated as having acquired a security interest in commercial financing 
security, and because Y otherwise meets the requirements of this 
section, the tax lien is not valid with respect to Y's December 6, 1971, 
purchase of N's accounts receivable.

[T.D. 7429, 41 FR 35503, Aug. 23, 1976]



Sec.  301.6323(c)-2  Protection for real property construction 
or improvement financing agreements.

    (a) In general. Even though a notice of a lien imposed by section 
6321 is filed in accordance with Sec.  301.6323(f)-1, the lien is not 
valid with respect to a security interest which:
    (1) Comes into existence after the tax lien filing,
    (2) Is in qualified property covered by the terms of a real property 
construction or improvement financing agreement entered into before the 
tax lien filing, and
    (3) Is protected under local law against a judgment lien arising, as 
of the time of tax lien filing, out of an unsecured obligation.

For purposes of this section, it is immaterial that the holder of the 
security interest had actual notice or knowledge of the lien at the time 
disbursements are made pursuant to such an agreement. See paragraphs (a) 
and (e) of Sec.  301.6323(h)-1 for general definitions of the terms 
``security interest'' and ``tax lien filing.'' For purposes of this 
section, a judgment lien is a lien held by a judgment lien creditor as 
defined in paragraph (g) of Sec.  301.6323(h)-1.
    (b) Real property construction or improvement financing agreement. 
For purposes of this section, the term ``real property construction or 
improvement financing agreement'' means any written agreement to make 
cash disbursements (whether or not at the option of the party agreeing 
to make such disbursements):
    (1) To finance the construction, improvement, or demolition of real 
property if the agreement provides for a security interest in the real 
property with respect to which the construction, improvement, or 
demolition has been or is to be made;
    (2) To finance a contract to construct or improve, or demolish real 
property if the agreement provides for a security interest in the 
proceeds of the contract; or
    (3) To finance the raising or harvesting of a farm crop or the 
raising of livestock or other animals if the agreement provides for a 
security interest in any property subject to the lien imposed by section 
6321 at the time of tax lien filing, in the crop raised or harvested, or 
in the livestock or other animals raised.

For purposes of subparagraphs (1) and (2) of this paragraph (b), 
construction or improvement may include demolition. For purposes of any 
agreement described in subparagraph (3) of this paragraph (b), the 
furnishing of goods and services is treated as the disbursement of cash.
    (c) Qualified property. For purposes of this section, the term 
``qualified property'' includes only--
    (1) In the case of an agreement described in paragraph (b)(1) of 
this section, the real property with respect to which the construction 
or improvement has been or is to be made;
    (2) In the case of an agreement described in paragraph (b)(2) of 
this section, the proceeds of the contract to construct or improve real 
property; or
    (3) In the case of an agreement described in paragraph (b)(3) of 
this section, property subject to the lien imposed by section 6321 at 
the time of tax lien filing, the farm crop raised or harvested, or the 
livestock or other animals raised.
    (d) Examples. The provisions of this paragraph may be illustrated by 
the following examples:


[[Page 370]]


    Example 1. A, in order to finance the construction of a dwelling on 
a lot owned by him, mortgages the property to B. The mortgage, executed 
January 4, 2006, includes an agreement that B will make cash 
disbursements to A as the construction progresses. On February 1, 2006, 
in accordance with Sec.  301.6323(f)-1, a notice of lien is filed and 
recorded in the public index with respect to A's delinquent tax 
liability. A continues the construction, and B makes cash disbursements 
on June 15, 2006, and December 15, 2006. Under local law B's security 
interest arising by virtue of the disbursements is protected against a 
judgment lien arising February 1, 2006 (the date of tax lien filing) out 
of an unsecured obligation. Because B is the holder of a security 
interest coming into existence by reason of cash disbursements made 
pursuant to a written agreement, entered into before tax lien filing, to 
make cash disbursements to finance the construction of real property, 
and because B's security interest is protected, under local law, against 
a judgment lien arising as of the time of tax lien filing out of an 
unsecured obligation, B's security interest has priority over the tax 
lien.
    Example 2. (i) C is awarded a contract for the demolition of several 
buildings. On March 3, 2004, C enters into a written agreement with D 
which provides that D will make cash disbursements to finance the 
demolition and also provides that repayment of the disbursements is 
secured by any sums due C under the contract. On April 1, 2004, in 
accordance with Sec.  301.6323(f)-1, a notice of lien is filed with 
respect to C's delinquent tax liability. With actual notice of the tax 
lien, D makes cash disbursements to C on August 13, September 13, and 
October 13, 2004. Under local law D's security interest in the proceeds 
of the contract with respect to the disbursements is entitled to 
priority over a judgment lien arising on April 1, 2004 (the date of tax 
lien filing) out of an unsecured obligation.
    (ii) Because D's security interest arose by reason of disbursements 
made pursuant to a written agreement, entered into before tax lien 
filing, to make cash disbursements to finance a contract to demolish 
real property, and because D's security interest is valid under local 
law against a judgment lien arising as of the time of tax lien filed out 
of an unsecured obligation, the tax lien is not valid with respect to 
D's security interest in the proceeds of the demolition contract.
    Example 3. Assume the same facts as in Example 2 and, in addition, 
assume that, as further security for the cash disbursements, the March 
3, 2004, agreement also provides for a security interest in all of C's 
demolition equipment. Because the protection of the security interest 
arising from the disbursements made after tax lien filing under the 
agreement is limited under section 6323(c)(3) to the proceeds of the 
demolition contract and because, under the circumstances, the security 
interest in the equipment is not otherwise protected under section 6323, 
the tax lien will have priority over D's security interest in the 
equipment.
    Example 4. (i) On January 3, 2006, F and G enter into a written 
agreement, whereby F agrees to provide G with cash disbursements, seed, 
fertilizer, and insecticides as needed by G, in order to finance the 
raising and harvesting of a crop on a farm owned by G. Under the terms 
of the agreement F is to have a security interest in the crop, the farm, 
and all other property then owned or thereafter acquired by G. In 
accordance with Sec.  301.6323(f)-1, on January 10, 2006, a notice of 
lien is filed and recorded in the public index with respect to G's 
delinquent tax liability. On March 3, 2006, with actual notice of the 
tax lien, F makes a cash disbursement of $5,000 to G and furnishes him 
seed, fertilizer, and insecticides having a value of $10,000. Under 
local law F's security interest, coming into existence by reason of the 
cash disbursement and the furnishing of goods, has priority over a 
judgment lien arising January 10, 2006 (the date of tax lien filing and 
recording in the public index) out of an unsecured obligation.
    (ii) Because F's security interest arose by reason of a disbursement 
(including the furnishing of goods) made under a written agreement which 
was entered into before tax lien filing and which constitutes an 
agreement to finance the raising or harvesting of a farm crop, and 
because F's security interest is valid under local law against a 
judgment lien arising as of the time of tax lien filing out of an 
unsecured obligation, the tax lien is not valid with respect to F's 
security interest in the crop even though a notice of lien was filed 
before the security interest arose. Furthermore, because the farm is 
property subject to the tax lien at the time of tax lien filing, F's 
security interest with respect to the farm also has priority over the 
tax lien.
    Example 5. Assume the same facts as in Example 4 and in addition 
that on October 2, 2006, G acquires several tractors to which F's 
security interest attaches under the terms of the agreement. Because the 
tractors are not property subject to the tax lien at the time of tax 
lien filing, the tax lien has priority over F's security interest in the 
tractors.

    (e) Effective/applicability date. This section applies with respect 
to any notice of Federal tax lien filed on or after April 4, 2011.

[T.D. 7429, 41 FR 35503, Aug. 23, 1976, as amended by T.D. 9520, 76 FR 
18386, Apr. 4, 2011]

[[Page 371]]



Sec.  301.6323(c)-3  Protection for obligatory disbursement agreements.

    (a) In general. Even though a notice of a lien imposed by section 
6321 is filed in accordance with Sec.  301.6323(f)-1, the lien is not 
valid with respect to a security interest which:
    (1) Comes into existence after the tax lien filing,
    (2) Is in qualified property covered by the terms of an obligatory 
disbursement agreement entered into before the tax lien filing, and
    (3) Is protected under local law against a judgment lien arising, as 
of the time of tax lien filing, out of an unsecured obligation.

See paragraphs (a) and (e) of Sec.  301.6323(h)-1 for definitions of the 
terms ``security interest'' and ``tax lien filing.'' For purposes of 
this section, a judgment lien is a lien held by a judgment lien creditor 
as defined in paragraph (g) of Sec.  301.6323(h)-1.
    (b) Obligatory disbursement agreement. For purposes of this section 
the term ``obligatory disbursement agreement'' means a written 
agreement, entered into by a person in the course of his trade or 
business, to make disbursements. An agreement is treated as an 
obligatory disbursement agreement only with respect to disbursements 
which are required to be made by reason of the intervention of the 
rights of a person other than the taxpayer. The obligation to pay must 
be conditioned upon an event beyond the control of the obligor. For 
example, the provisions of this section are applicable where an issuing 
bank obligates itself to honor drafts or other demands for payment on a 
letter of credit and a bank, in good faith, relies upon that letter of 
credit in making advances. The provisions of this section are also 
applicable, for example, where a bonding company obligates itself to 
make payments to indemnify against loss or liability and, under the 
terms of the bond, makes a payment with respect to a loss. The priority 
described in this section is not applicable, for example, in the case of 
an accommodation endorsement by an endorser who assumes his obligation 
other than in the course of his trade or business.
    (c) Qualified property. Except as provided under paragraph (d) of 
this section, the term ``qualified property,'' for purposes of this 
section, means property subject to the lien imposed by section 6321 at 
the time of tax lien filing and, to the extent that the acquisition is 
directly traceable to the obligatory disbursement, property acquired by 
the taxpayer after tax lien filing.
    (d) Special rule for surety agreements. Where the obligatory 
disbursement agreement is an agreement insuring the performance of a 
contract of the taxpayer and another person, the term ``qualified 
property'' shall be treated as also including--
    (1) The proceeds of the contract the performance of which was 
insured, and
    (2) If the contract the performance of which was insured is a 
contract to construct or improve real property, to produce goods, or to 
furnish services, any tangible personal property used by the taxpayer in 
the performance of the insured contract.

For example, a surety company which holds a security interest, arising 
from cash disbursements made after tax lien filing under a payment or 
performance bond on a real estate construction project, has priority 
over the tax lien with respect to the proceeds of the construction 
contract and, in addition, with respect to any tangible personal 
property used by the taxpayer in the construction project if its 
security interest in the tangible personal property is protected under 
local law against a judgment lien arising, as of the time the tax lien 
was filed, out of an unsecured obligation.
    (3) Examples. This section may be illustrated by the following 
examples:

    Example 1. (i) On January 2, 1969, H, an appliance dealer, in order 
to finance the acquisition from O of a large inventory of appliances, 
enters into a written agreement with Z, a bank. Under the terms of the 
agreement, in return for a security interest in all of H's inventory, 
presently owned and subsequently acquired, Z issues an irrevocable 
letter of credit to allow H to make the purchase. On December 31, 1968 
and January 10, 1969, in accordance with Sec.  301.6323(f)-1, separate 
notices of lien are filed with respect to H's delinquent tax 
liabilities. On March 31, 1969, Z honors the letter of credit. Under 
local law, Z's security interest in both existing and after-acquired 
inventory is protected against a judgment lien arising on or after 
January 10, 1969, out of an unsecured obligation. Under local law, Z's 
security interest in the

[[Page 372]]

inventory purchased under the letter of credit qualifies as a purchase 
money security interest and is valid against persons acquiring security 
interests in or liens upon such inventory at any time.
    (ii) Because Z's security interest in H's inventory did not arise 
under a written agreement entered into before the filing of notice of 
the first tax lien on December 31, 1968, that lien is superior to Z's 
security interest except to the extent of Z's purchase money security 
interest. Because Z's interest qualifies as a purchase money security 
interest with respect to the inventory purchased under the letter of 
credit, the tax liens attach under section 6321 only to the equity 
acquired by H, and the rights of Z in the inventory so purchased as 
superior even to the lien filed on December 31, 1968, without regard to 
this section.
    (iii) Because Z's security interest arose by reason of disbursements 
made under a written agreement which was entered into before the filing 
of notice of the second tax lien on January 10, 1969, and which 
constitutes an agreement to make disbursements required to be made by 
reason of the intervention of the rights of O, a person other than the 
taxpayer, and because Z's security interest is valid under local law 
against a judgment lien arising as of the time of such tax lien filing 
on January 10, 1969, out of an unsecured obligation, the second tax lien 
is, under this section, not valid with respect to Z's security interest 
in inventory owned by H on January 10, 1969, as well as any after-
acquired inventory directly traceable to Z's disbursements (apart from 
such greater protection as Z enjoys, with respect to the latter, under 
its purchase money security interest). No protection against the second 
tax lien is provided under this section with respect to a security 
interest in any other inventory acquired by H after January 10, 1969, 
because such other inventory is neither subject to the tax lien at the 
time of tax lien filing nor directly traceable to Z's disbursements.
    Example 2. On June 1, 1971, K is awarded a contract to construct an 
office building. At the same time, S, a surety company, agrees in 
writing to insure the performance of the contract. The agreement 
provides that in the event S must complete the job as the result of a 
default by K, S will be entitled to the proceeds of the contract. In 
addition, the agreement provides that S is to have a security interest 
in all property belonging to K. On December 1, 1971, prior to the 
completion of the building, K defaults. On the same date, under Sec.  
301.6323(f)-1, a notice of lien is filed with respect to K's delinquent 
tax liability. S completes the building on June 1, 1972. Under local law 
S's security interest in the proceeds of the contract and S's security 
interest in the property of K are entitled to priority over a judgment 
lien arising December 1, 1971 (the date of tax lien filing) out of an 
unsecured obligation. Because, for purposes of an obligatory 
disbursement agreement which is a surety agreement, the security 
interest may be in the proceeds of the insured contract, S's security 
interest in the proceeds of the contract has priority over the tax lien 
even though a notice of lien was filed before S's security interest 
arose. Furthermore, because the insured contract was a contract to 
construct real property, S's security interest in any of K's tangible 
personal property used in the performance of the contract also has 
priority over the tax lien.
    Example 3. (i) On February 2, 1970, L enters into an agreement with 
M, a contractor, to construct an apartment building on land owned by L. 
Under a separate agreement, N bank agrees to furnish funds on a short-
term basis to L for the payment of amounts due to M during the course of 
construction. Simultaneously, X, a financial institution, makes a 
binding commitment to N bank and L to provide long-term financing for 
the project after its completion. Under its commitment, X is obligated 
to pay off the balance of the construction loan held by N bank upon the 
execution by L of a new promissory note secured by a mortgage deed of 
trust upon the improved property. On September 4, 1970, in accordance 
with Sec.  301.6323(f)-1, notice of lien is properly filed with respect 
to L's delinquent tax liability. On September 8, 1970. X obtains actual 
notice of the tax lien filing. On September 14, 1970, the documents 
creating X's security interest are executed and recorded, N bank's lien 
for its construction loan is released, and X makes the required 
disbursements to N bank. Under local law, X's security interest is 
protected against a judgment lien arising on September 4, 1970 (the time 
of tax lien filing) out of an unsecured obligation.
    (ii) Because X's security interest arose by reason of a disbursement 
made under a written agreement entered into before tax lien filing, 
which constitutes an agreement to make disbursements required to be made 
by reason of the intervention of the rights of N bank, a person other 
than the taxpayer, and because X's security interest is valid under 
local law against a judgment lien arising as of the time of the tax lien 
filing out of an unsecured obligation, the tax lien is not valid with 
respect to X's security interest to the extent of the disbursement to N 
bank. The obligatory disbursement is protected under section 6323(c)(4) 
even if X is not subrogated to N bank's rights or X's agreement is not 
itself a real property construction financing agreement.

[T.D. 7429, 41 FR 35504, Aug. 23, 1976]

[[Page 373]]



Sec.  301.6323(d)-1  45-day period for making disbursements.

    (a) In general. Even though a notice of a lien imposed by section 
6321 is filed in accordance with Sec.  301.6323(f)-1, the lien is not 
valid with respect to a security interest which comes into existence, 
after tax lien filing, by reason of disbursements made before the 46th 
day after the date of tax lien filing, or if earlier, before the person 
making the disbursements has actual notice or knowledge of the tax lien 
filing, but only if the security interest is--
    (1) In property which is subject, at the time of tax lien filing, to 
the lien imposed by section 6321 and which is covered by the terms of a 
written agreement entered into before tax lien filing, and
    (2) Protected under local law against a judgment lien arising, as of 
the time of tax lien filing, out of an unsecured obligation.

For purposes of subparagraph (1) of this paragraph (a), a contract right 
(as defined in paragraph (c)(2)(i) of Sec.  301.6323(c)-1) is subject, 
at the time of tax lien filing, to the lien imposed by section 6321 if 
the contract has been made by such time. An account receivable (as 
defined in paragraph (c)(2)(ii) of Sec.  301.6323(c)-1) is subject, at 
the time of tax lien filing, to the lien imposed by section 6321 if, and 
to the extent, a right to payment has been earned by performance at such 
time. For purposes of subparagraph (2) of this paragraph (a), a judgment 
lien is a lien held by a judgment lien creditor as defined in paragraph 
(g) of Sec.  301.6323(h)-1. For purposes of this section, it is 
immaterial that the written agreement provides that the disbursements 
are to be made at the option of the person making the disbursements. See 
paragraphs (a) and (e) of Sec.  301.6323(h)-1 for definitions of the 
terms ``security interest'' and ``tax lien filing,'' respectively. See 
paragraph (a) of Sec.  301.6323(i)-1 for certain circumstances under 
which a person is deemed to have actual notice or knowledge of a fact.
    (b) Examples. The application of this section may be illustrated by 
the following examples:

    Example 1. On December 1, 1967, an assessment is made against A with 
respect to his delinquent tax liability. On January 2, 1968, A enters 
into a written agreement with B whereby B agrees to lend A $10,000 in 
return for a security interest in certain property owned by A. On 
January 10, 1968, in accordance with Sec.  301.6323(f)-1 notice of the 
tax lien affecting the property is filed. On February 1, 1968, B, 
without actual notice or knowledge of the tax lien filing, disburses the 
loan to A. Under local law, the security interest arising by reason of 
the disbursement is entitled to priority over a judgment lien arising 
January 10, 1968 (the date of tax lien filing) out of an unsecured 
obligation. Because the disbursement was made before the 46th day after 
tax lien filing, because the disbursement was made pursuant to a written 
agreement entered into before tax lien filing, and because the resulting 
security interest is protected under local law against a judgment lien 
arising as of the date of tax lien filing out of an unsecured 
obligation, B's $10,000 security interest has priority over the tax 
lien.
    Example 2. Assume the same facts as in example 1 except that when B 
disburses the $10,000 to A on February 10, 1968, B has actual knowledge 
of the tax lien filing. Because the disbursement was made with actual 
knowledge of tax lien filing, B's security interest does not have 
priority over the tax lien even though the disbursement was made before 
the 46th day after the tax lien filing. Furthermore, B is not protected 
under Sec.  301.6323(a)-1(a) as a holder of a security interest because 
he had not parted with money or money's worth prior to the time the 
notice of tax lien was filed (January 10, 1968) even though he had made 
a firm commitment to A before that time.

[T.D. 7429, 41 FR 35505, Aug. 23, 1976]



Sec.  301.6323(e)-1  Priority of interest and expenses.

    (a) In general. If the lien imposed by section 6321 is not valid as 
against another lien or security interest, the priority of the other 
lien or security interest also extends to each of the following items to 
the extent that under local law the item has the same priority as the 
lien or security interest to which it relates:
    (1) Any interest or carrying charges (including finance, service, 
and similar charges) upon the obligation secured,
    (2) The reasonable charges and expenses of an indenture trustee 
(including, for example, the trustee under a deed of trust) or agent 
holding the security interest for the benefit of the holder of the 
security interest,

[[Page 374]]

    (3) The reasonable expenses, including reasonable compensation for 
attorneys, actually incurred in collecting or enforcing the obligation 
secured,
    (4) The reasonable costs of insuring, preserving, or repairing the 
property to which the lien or security interest relates,
    (5) The reasonable costs of insuring payment of the obligation 
secured (including amounts paid by the holder of the security interest 
for mortgage insurance, such as that issued by the Federal Housing 
Administration), and
    (6) Amounts paid to satisfy any lien on the property to which the 
lien or security interest relates, but only if the lien so satisfied is 
entitled to priority over the lien imposed by section 6321.
    (b) Collection expenses. The reasonable expenses described in 
paragraph (a)(3) of this section include expenditures incurred by the 
protected holder of the lien or security interest to establish the 
priority of his interest or to collect, by foreclosure or otherwise, the 
amount due him from the property subject to his lien. Accordingly, the 
amount of the encumbrance which is protected is increased by the amounts 
so expended by the holder of the security interest.
    (c) Costs of insuring, preserving, etc. The reasonable costs of 
insuring, preserving, or repairing described in paragraph (a)(4) of this 
section include expenditures by the holder of a security interest for 
fire and casualty insurance on the property subject to the security 
interest and amounts paid by the holder of the lien or security interest 
to repair the property. Such reasonable costs also include the amounts 
paid by the holder of the lien or security interest in a leasehold to 
the lessor of the leasehold to preseve the leasehold subject to the lien 
or security interest. Accordingly, the amount of the lien or security 
interest which is protected is increased by the amounts so expended by 
the holder of the lien or security interest.
    (d) Satisfaction of liens. The amounts described in paragraph (a)(6) 
of this section include expenditures incurred by the protected holder of 
a lien or security interest to discharge a statutory lien for State 
sales taxes on the property subject to his lien or security interest if 
both his lien or security interest and the sales tax lien have priority 
over a Federal tax lien. Accordingly, the amount of the lien or security 
interest is increased by the amounts so expended by the holder of the 
lien or security interest even though under local law the holder of the 
lien or security interest is not subrogated to the rights of the holder 
of the State sales tax lien. However, if the holder of the lien or 
security interest is subrogated, within the meaning of paragraph (b) of 
Sec.  301.6323(i)-1, to the rights of the holder of the sales tax lien, 
he will also be entitled to any additional protection afforded by 
section 6323(i)(2).

[T.D. 7429, 41 FR 35506, Aug. 23, 1976]



Sec.  301.6323(f)-1  Place for filing notice; form.

    (a) Place for filing. The notice of lien referred to in Sec.  
301.6323(a)-1 shall be filed as follows:
    (1) Under State laws--(i) Real property. In the case of real 
property, notice shall be filed in one office within the State (or the 
county or other governmental subdivision), as designated by the laws of 
the State, in which the property subject to the lien is deemed situated 
under the provisions of paragraph (b)(1) of this section.
    (ii) Personal property. In the case of personal property, whether 
tangible or intangible, the notice shall be filed in one office within 
the State (or the county or other governmental subdivision), as 
designated by the laws of the State, in which the property subject to 
the lien is deemed situated under the provisions of paragraph (b)(2) of 
this section.
    (2) With the clerk of the United States district court. Whenever a 
State has not by law designated one office which meets the requirements 
of subparagraph (1)(i) or (1)(ii) of this paragraph (a), the notice 
shall be filed in the office of the clerk of the U.S. district court for 
the judicial district in which the property subject to the lien is 
deemed situated under the provisions of paragraph (b) of this section. 
For example, a State has not by law designated one office meeting the 
requirements of subparagraph (1)(i) of this paragraph (a), if more than 
one office is designated within the State, county, or

[[Page 375]]

other governmental subdivision for filing notices with respect to all 
real property located in such State, county, or other governmental 
subdivision. A State has not by law designated one office meeting the 
requirements of subparagraph (1)(ii) of this paragraph (a), if more than 
one office is designated in the State, county, or other governmental 
subdivision for filing notices with respect to all of the personal 
property of a particular taxpayer. A state law that conforms to or 
reenacts a federal law establishing a national filing system does not 
constitute a designation by state law of an office for filing liens 
against personal property. Thus, if state law provides that a notice of 
lien affecting personal property must be filed in the office of the 
county clerk for the county in which the taxpayer resides and also 
adopts a federal law that requires a notice of lien to be filed in 
another location in order to attach to a specific type of property, the 
state is considered to have designated only one office for the filing of 
the notice of lien, and to protect its lien the Internal Revenue Service 
need only file its notice in the office of the county clerk for the 
county in which the taxpayer resides.
    (3) With the Recorder of Deeds of the District of Columbia. If the 
property subject to the lien imposed by section 5321 is deemed situated, 
under the provisions of paragraph (b) of this section, in the District 
of Columbia, the notice shall be filed in the office of the Recorder of 
Deeds of the District of Columbia.
    (b) Situs of property subject to lien. For purposes of paragraph (a) 
of this section, property is deemed situated as follows:
    (1) Real property. Real property is deemed situated at its physical 
location.
    (2) Personal property. Personal property, whether tangible or 
intangible, is deemed situated at the residence of the taxpayer at the 
time the notice of lien is filed.

For purposes of subparagraph (2) of this paragraph (b), the residence of 
a corporation or partnership is deemed to be the place at which the 
principal executive office of the business is located, and the residence 
of a taxpayer whose residence is not within the United States is deemed 
to be in the District of Columbia.
    (c) National filing system. The filing of federal tax liens is to be 
governed solely by the Internal Revenue Code and is not subject to any 
other federal law that may establish a national system for filing liens 
and encumbrances against a particular type of personal property. Thus, 
for example, the Service is not subject to the requirements established 
by the Federal Aviation Agency for filing liens against civil aircraft 
in Oklahoma City, Oklahoma.
    (d) Form--(1) In general. The notice referred to in Sec.  
301.6323(a)-1 shall be filed on Form 668, ``Notice of Federal Tax Lien 
Under Internal Revenue Laws''. Such notice is valid notwithstanding any 
other provision of law regarding the form or content of a notice of 
lien. For example, omission from the notice of lien of a description of 
the property subject to the lien does not affect the validity thereof 
even though State law may require that the notice contain a description 
of the property subject to the lien.
    (2) Form 668 defined. The term Form 668 means either a paper form or 
a form transmitted electronically, including a form transmitted by 
facsimile (fax) or electronic mail (e-mail). A Form 668 must identify 
the taxpayer, the tax liability giving rise to the lien, and the date 
the assessment arose regardless of the method used to file the notice of 
Federal tax lien.
    (e) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. The law of State X provides that notices of Federal tax 
lien affecting personal property are to be filed in the Office of the 
Recorder of Deeds of the county where the taxpayer resides. The laws of 
State X also provide that notices of lien affecting real property are to 
be filed with the recorder of deeds of the county where the real 
property is located. On June 1, 1970, in accordance with Sec.  
301.6323(f)-1, a notice of lien is filed in county M with respect to the 
delinquent tax liability of A. At the time the notice is filed, A is a 
resident of county M and owns real property in that county. One year 
later A moves to county N and one year after that A moves to county O. 
Because the situs of personal property is deemed to be at the residence 
of the taxpayer at the time the notice

[[Page 376]]

of lien is filed, the notice continues to be effectively filed with 
respect to A's personal property even though A no longer resides in 
county M. Furthermore, because the situs of real property is deemed to 
be at its physical location, the notice of lien also continues to be 
effectively filed with respect to A's real property.
    Example 2. B is a resident of Canada but owns personal property in 
the United States. On January 4, 1971, in accordance with Sec.  
301.6323(f)-1, a notice of lien is filed with the Office of the Recorder 
of Deeds of the District of Columbia. On January 2, 1973, B changes his 
residence to State Y in the United States. Because the residence of a 
taxpayer who is not a resident of the United States is deemed to be in 
the District of Columbia and the situs of personal property is deemed to 
be at the residence of the taxpayer at the time of filing, the lien 
continues to be effectively filed with respect to the personal property 
of B located in the United States even though B has returned to the 
United States and taken up residence in State Y and even though B has at 
no time been in the District of Columbia.
    Example 3. The law of State Z in effect before July 1, 1967, 
provides that notices of lien affecting real property are to be filed in 
the office of the recorder of deeds of the county in which the real 
property is located, but that if the real property is registered under 
the Torrens system of title registration the notice is to be filed with 
the registrar of titles rather than the recorder of deeds. The law of 
State Z in effect after June 30, 1967, provides that all notices of lien 
affecting real property are to be filed with the recorder of deeds of 
the county in which the real property is located. Accordingly, where the 
Torrens system is adopted by a county in State Z, there were before July 
1, 1967, two offices designated for filing notices of Federal tax lien 
affecting real property in the county because one office was designated 
for Torrens real property and another office was designated for non-
Torrens real property. Because State Z had not designated one office 
within the State, county, or other governmental subdivision for filing 
notices before July 1, 1967, with respect to all real property located 
in the State, county, or governmental subdivision, before July 1, 1967, 
the place for filing notices of lien under this section, affecting 
property located in counties adopting the Torrens system, was with the 
clerk of the U.S. district court for the judicial district in which the 
real property is located. However, after June 30, 1967, the place for 
filing notices of lien under this section, affecting both Torrens and 
non-Torrens real property in counties adopting the Torrens system is 
with the recorder of deeds for each such county. Notices of lien filed 
under this section with the clerk of the U.S. district court before July 
1, 1967, remain validly filed whether or not refiled with the recorder 
of deeds after the change in State law or upon refiling during the 
required refiling period.
    Example 4. The law of State W provides that notices of lien 
affecting personal property of corporations and partnerships are to be 
filed in the office of the Secretary of State. Notices of lien affecting 
personal property of any other person are to be filed in the office of 
the clerk of court for the county where the person resides. Because the 
State law designates only one filing office within State W with respect 
to personal property of any particular taxpayer, notices of lien filed 
under this section, affecting personal property, shall be filed in the 
office designated under State law.
    Example 5. The law of State F provides that notices of lien 
affecting personal property are to be filed with the clerk of the 
circuit court in the county in which the personal property is located. 
State F has conformed state law to federal law to provide that all 
instruments affecting title to an interest in any civil aircraft of the 
United States must be recorded in the Office of the Federal Aviation 
Administrator (FAA) in Oklahoma City, Oklahoma. On July 1, 1990, a tax 
lien arises against ABC airline, which owns aircraft situated in State 
F. The Internal Revenue Service files a Notice of Federal Tax Lien with 
the clerk of the circuit court in the county in which the aircraft is 
located but does not file the notice with the FAA in Oklahoma City, 
Oklahoma. Because the FAA system adopted by State F does not constitute 
a second place of filing pursuant to section 6323(f), the federal tax 
lien is validly filed.
    Example 6. Assume the same facts as Example 5 except that State F 
did not reenact or conform state law to the FAA requirements. The result 
is the same because the filing of federal tax liens is governed solely 
by the Internal Revenue Code, and is not subject to any other national 
filing system.
    (f) Effective/applicability date. This section applies with respect 
to any notice of Federal tax lien filed on or after April 4, 2011.

[T.D. 7429, 41 FR 35507, Aug. 23, 1976; 41 FR 41690, Sept. 23, 1976, as 
amended by T.D. 8234, 53 FR 47676, Nov. 25, 1988; T.D. 8557, 59 FR 
38120, July 27, 1994; T.D. 9520, 76 FR 18386, Apr. 4, 2011]



Sec.  301.6323(g)-1  Refiling of notice of tax lien.

    (a) In general--(1) Requirement to refile. In order to continue the 
effect of a notice of lien, the notice must be refiled in the place 
described in paragraph (b) of this section during the required refiling 
period (described in paragraph (c) of this section). If two or

[[Page 377]]

more notices of lien are filed with respect to a particular tax 
assessment, and each notice of lien contains a certificate of release 
that releases the lien when the required refiling period ends, the 
failure to comply with the provisions of paragraphs (b)(1)(i) and (c) of 
this section in respect to one of the notices of lien releases the lien 
and renders ineffective the refiling of any other notice of lien.
    (2) Effect of refiling. A timely refiled notice of lien is effective 
as of the date on which the notice of lien to which it relates was 
effective.
    (3) Effect of failure to refile--If the Internal Revenue Service 
fails to refile a notice of lien in the manner described in paragraphs 
(b) and (c) of this section, the notice is not effective, after the 
expiration of the required refiling period, as against any person 
described in section 6323(a), without regard to when the interest of the 
person in the property subject to the lien was acquired. If a notice of 
lien contains a certificate of release that provides that the lien is 
released at the end of the required refiling period unless the notice of 
lien is refiled, and the notice of lien is not refiled, then the lien is 
extinguished and the notice of lien is ineffective.
    (i) However, neither the failure to refile before the expiration of 
the refiling period, nor the release of the lien, shall alter or impair 
any right of the United States to property or its proceeds that is the 
subject of a levy or judicial proceeding commenced prior to the end of 
the refiling period or the release of the lien, except to the extent 
that a person acquires an interest in the property for adequate 
consideration after the commencement of the proceeding and does not have 
notice of, and is not bound by, the outcome of the proceeding.
    (ii) If a suit or levy referred to in the preceding sentence is 
dismissed or released and the property is subject to the lien at such 
time, a notice of lien with respect to the property is not effective 
after the suit or levy is dismissed or released unless refiled during 
the required refiling period.
    (4) Filing of new notice. If a notice of lien is not refiled, and 
the notice of lien contains a certificate of release that automatically 
releases the lien when the required refiling period ends, the lien is 
released as of that date and is no longer in existence. The Internal 
Revenue Service must revoke the release before it can file a new notice 
of lien. This new filing must meet the requirements of section 6323(f) 
and Sec.  301.6323(f)-1 and is effective from the date on which such 
filing is made.
    (b) Place for refiling notice of lien--(1) In general. A notice of 
lien refiled during the required refiling period (described in paragraph 
(c) of this section) shall be effective only--
    (i) If the notice of lien is refiled in the office in which the 
prior notice of lien (including a refiled notice) was filed under the 
provisions of section 6323; and
    (ii) In any case in which 90 days or more prior to the date the 
refiling of the notice of lien under subdivision (i) is completed, the 
Internal Revenue Service receives written information (in the manner 
described in subparagraph (2) of this paragraph (b)) concerning a change 
in the taxpayer's residence, if a notice of such lien is also filed in 
accordance with section 6323(f)(1)(A)(ii) in the State in which such new 
residence is located (or, if such new residence is located without the 
United States, in the District of Columbia).

A notice of lien is considered as refiled in the office in which the 
prior notice or refiled notice was filed under the provisions of section 
6323 if it is refiled in the office which, pursuant to a change in the 
applicable local law, assumed the functions of the office in which the 
prior notice or refiled notice was filed. If on or before the 90th day 
referred to in subdivision (ii) more than one written notice is received 
concerning a change in the taxpayer's residence, a notice of lien is 
required by this subdivision to be filed only with respect to the 
residence shown on the written notice received on the most recent date. 
Subdivision (ii) is applicable regardless of whether the taxpayer 
resides at the new residence on the date the refiling of notice of lien 
under subdivision (i) of this subparagraph is completed.
    (2) Notice of change of taxpayer's residence--(i) In general. Except 
as provided

[[Page 378]]

in subdivision (ii) or (iii) of this subparagraph, for purposes of this 
section, a notice of change of a taxpayer's residence will be effective 
only if it (A) is received, in writing, from the taxpayer or his 
representative by the district director or the service center director 
having jurisdiction where the original notice of lien was filed, (B) 
relates to an unpaid tax liability of the taxpayer, and (C) states the 
taxpayer's name and the address of his new residence. Although it is not 
necessary that a written notice contain the taxpayer's identifying 
number authorized by section 6109, it is preferable that it include such 
number. For purposes of this subdivision, a notice of change of a 
taxpayer's residence shown on a return or an amended return (including a 
return of the same tax) will not be effective to notify the Internal 
Revenue Service.
    (ii) Notice received before August 23, 1976. For purposes of this 
section, a notice of a change of a taxpayer's residence will also be 
effective if it (A) is received, in writing, by any office of the 
Internal Revenue Service before August 23, 1976, from the taxpayer or 
his representative, (B) relates to an unpaid tax liability of the 
taxpayer, and (C) states the taxpayer's name and the address of his new 
residence.
    (iii) By return or amended return. For purposes of this section, in 
the case of a notice of lien which relates to an assessment of tax made 
after December 31, 1966, a notice of change of a taxpayer's residence 
will also be effective if it is contained in a return or amended return 
of the same type of tax filed with the Internal Revenue Service by the 
taxpayer or his representative which on its face indicates that there is 
a change in the taxpayer's address and correctly states the taxpayer's 
name, the address of his new residence, and his identifying number 
required by section 6109.
    (iv) Other rules applicable. Except as provided in subdivisions (i), 
(ii), and (iii) of this subparagraph, no communication (either written 
or oral) to the Internal Revenue Service will be considered effective as 
notice of a change of a taxpayer's residence under this section, whether 
or not the Service has actual notice or knowledge of the taxpayer's new 
residence. For the purpose of determining the date on which a notice of 
change of a taxpayer's residence is received under this section, the 
notice shall be treated as received on the date it is actually received 
by the Internal Revenue Service without reference to the provisions of 
section 7502.
    (3) Examples. The following examples illustrate the provisions of 
this section:

    Example 1. A, a delinquent taxpayer, is a resident of State M and 
owns real property in State N. In accordance with Sec.  301.6323(f)-1, 
notices of lien are filed in States M and N. The notices of lien contain 
certificates of release that release the lien at the end of the required 
refiling period. In order to continue the effect of the notice of lien 
filed in either M or N, the Internal Revenue Service must refile, during 
the required refiling period, the notice of lien with the appropriate 
office in M as well as with the appropriate office in N.
    Example 2. B, a delinquent taxpayer, is a resident of State M. In 
accordance with Sec.  301.6323(f)-1, notice of lien is properly filed in 
that State. One year before the beginning of the required refiling 
period, B establishes his residence in State N, and B immediately 
notifies the Internal Revenue Service of his change in residence in 
accordance with the provisions of paragraph (b)(2) of this section. In 
order to continue the effect of the notice of lien filed in M, the 
Internal Revenue Service must refile, during the required refiling 
period, notices of lien with (i) the appropriate office in M, and (ii) 
the appropriate office in N, because B properly notified the Internal 
Revenue Service of his change in residence to N more than 89 days prior 
to the date refiling of the notice of lien in M is completed. Even if 
the Internal Revenue Service had acquired actual notice or knowledge of 
B's change in residence by other means, if B had not properly notified 
the Internal Revenue Service of his change in residence, the effect of 
the notice of lien in State M could have been continued without any 
refiling in State N.
    Example 3. C, a delinquent taxpayer, is a resident of State O. In 
accordance with Sec.  301.6323(f)-1, notice of lien is properly filed in 
that State. Four years before the required refiling period, C 
establishes his residence in State P, and C immediately notifies the 
Internal Revenue Service of his change in residence in accordance with 
the provisions of paragraph (b)(2) of this section. Three years before 
the required refiling period, C establishes his residence in State R, 
and again C immediately notifies the Internal Revenue Service of his 
change in residence in accordance with the provisions of paragraph (2) 
of this section. In order to continue the effect of the notice of lien 
filed in O, the Internal

[[Page 379]]

Revenue Service must refile, during the required refiling period, 
notices of lien with (i) the appropriate office in O, and (ii) the 
appropriate office in R. Refiling in R is required because the notice 
received by the Service of C's change in residence to R was the most 
recent notice received more than 89 days prior to the date refiling in O 
is completed. The notice of lien is not required to be filed in P, even 
though C properly notified the Internal Revenue Service of his change in 
residence to P, because such notice is not the most recent one received.
    Example 4. Assume the same facts as in example 3, except that C does 
not notify the Internal Revenue Service of his change in residence to R 
in accordance with the provisions of paragraph (b)(2) of this section. 
In order to continue the effect of the notice of lien filed in O, the 
Internal Revenue Service must refile, during the required refiling 
period, the notice of lien with (i) the appropriate office in O, and 
(ii) the appropriate office in P. Refiling in P is required because C 
properly notified the Internal Revenue Service of his change in 
residence to P, even though C is not a resident of P on the date 
refiling of the notice of lien in O is completed. The Internal Revenue 
Service is not required to file a notice of lien in R because C did not 
properly notify the Service of his change in residence to R.
    Example 5. D, a delinquent taxpayer, is a resident of State M and 
owns real property in States N and O. In accordance with Sec.  
301.6323(f)-1, the Internal Revenue Service files notices of lien in M, 
N, and O States. Nine years and 6 months after the date of the 
assessment shown on the notice of lien, D establishes his residence in 
P, and at that time the Internal Revenue Service receives from D a 
notification of his change in residence in accordance with the 
provisions of paragraph (b)(2) of this section. On a date which is 9 
years and 7 months after the date of the assessment shown on the notice 
of lien, the Internal Revenue Service properly refiles notices of lien 
in M, N, and O which refilings are sufficient to continue the effect of 
each of the notices of lien. The Internal Revenue Service is not 
required to file a notice of lien in P because D did not notify the 
Internal Revenue Service of his change of residence to P more than 89 
days prior to the date each of the refilings in M, N, and O was 
completed.
    Example 6. Assume the same facts as in example 5 except that the 
refiling of the notice of lien in O occurs 100 days after D notifies the 
Internal Revenue Service of hischange in residence to P in accordance 
with the provisions of paragraph (b)(2) of this section. In order to 
continue the effect of the notice of lien filed in O, in addition to 
refiling the notice of lien in O, the Internal Revenue Service must also 
refile, during the required refiling period, a notice of lien in P 
because D properly notified the Internal Revenue Service of his change 
of residence to P more than 89 days prior to the date the refiling in O 
was completed. However, the Internal Revenue Service is not required to 
refile the notice of lien in P to maintain the effect of the notices of 
lien in M and N because D did not notify the Internal Revenue Service of 
his change in residence to P more than 89 days prior to the date the 
refilings in M and N were completed.
    Example 7. E, a delinquent taxpayer, is a resident of State T. 
Because T has not designated one office in the case of personal property 
for filing notices of lien in accordance with the provisions of section 
6323(f)(1)(A)(ii), the Internal Revenue Service properly files a notice 
of lien with the clerk of the appropriate United States district court. 
However, solely as a matter of convenience for those who may have 
occasion to search for notices of lien, and not as a matter of legal 
effectiveness, the Internal Revenue Service also files notice of lien 
with the recorder of deeds of the county in T where E resides. In 
addition, the Internal Revenue Service sends a copy of the notice of 
lien to the X life insurance company to give the company actual notice 
of the notice of lien. In order to continue the effect of the notice of 
lien, the Internal Revenue Service must refile the notice of lien with 
the clerk of the appropriate United States district court during the 
required refiling period. In order to continue the effect of the notice 
of the lien, it is not necessary to refile the notice of lien with the 
Recorder of Deeds of the county where E resides, because the refiling of 
the notice of lien with the recorder of deeds does not constitute a 
proper filing for the purposes of section 6323(f). In addition, to 
continue the effect of the notice of lien under this section it is not 
necessary to send a copy of the notice of lien to the X life insurance 
company, because the sending of a notice of lien to an insurance company 
does not constitute a proper filing for the purposes of section 6323(f).

    (c) Required refiling period--(1) In general. For the purpose of 
this section, except as provided in paragraph (c)(2) of this section, 
the term required refiling period means--
    (i) The 1-year period ending 30 days after the expiration of 10 
years after the date of the assessment of the tax; and
    (ii) The 1-year period ending with the expiration of 10 years after 
the close of the preceding required refiling period for such notice of 
lien.
    (2) Examples. The following examples illustrate the provisions of 
this paragraph:


[[Page 380]]


    Example 1. On March 10, 1998, an assessment of tax is made against 
B, a delinquent taxpayer, and a lien for the amount of the assessment 
arises on that date. On July 10, 1998, in accordance with Sec.  
301.6323(f)-1, a notice of lien is filed. The notice of lien filed on 
July 10, 1998, is effective through April 9, 2008. The first required 
refiling period for the notice of lien begins on April 10, 2007, and 
ends on April 9, 2008. A refiling of the notice of lien during that 
period will extend the effectiveness of the notice of lien filed on July 
10, 1998, through April 9, 2018. The second required refiling period for 
the notice of lien begins on April 10, 2017, and ends on April 9, 2018.
    Example 2. Assume the same facts as in Example 1, except that the 
Internal Revenue Service fails to refile a notice of lien during the 
first required refiling period (April 10, 2007, through April 9, 2008). 
A notice of lien is filed on June 9, 2009, in accordance with Sec.  
301.6323(f)-1. This notice is ineffective if the original notice 
contained a certificate of release, as the certificate of release would 
have had the effect of extinguishing the lien as of April 10, 2008. The 
Internal Revenue Service could revoke the release and file a new notice 
of lien, which would be effective as of the date it was filed.

    (d) Effective/applicability date. This section applies with respect 
to any notice of Federal tax lien filed on or after April 4, 2011.

[T.D. 7429, 41 FR 35509, Aug. 23, 1976, as amended by T.D. 9520, 76 FR 
18386, Apr. 4, 2011]



Sec.  301.6323(h)-0  Scope of definitions.

    Except as otherwise provided by Sec.  301.6323(h)-1 the definitions 
provided by Sec.  301.6323(h)-1 apply for purposes of Sec. Sec.  
301.6323(a)-1 through 301.6324-1.

[T.D. 7429, 41 FR 35509, Aug. 23, 1976]



Sec.  301.6323(h)-1  Definitions.

    (a) Security interest--(1) In general. The term ``security 
interest'' means any interest in property acquired by contract for the 
purpose of securing payment or performance of an obligation or 
indemnifying against loss or liability. A security interest exists at 
any time--
    (i) If, at such time, the property is in existence and the interest 
has become protected under local law against a subsequent judgment lien 
(as provided in subparagraph (2) of this paragraph (a)) arising out of 
an unsecured obligation; and
    (ii) To the extent that, at such time, the holder has parted with 
money or money's worth (as defined in subparagraph (3) of this paragraph 
(a)).

For purposes of this subparagraph, a contract right (as defined in 
paragraph (c)(2)(i) of Sec.  301.6323(c)-1) is in existence when the 
contract is made. An account receivable (as defined in paragraph 
(c)(2)(ii) of Sec.  301.6323(c)-1) is in existence when, and to the 
extent, a right to payment is earned by performance.

A security interest must be in existence, within the meaning of this 
paragraph, at the time as of which its priority against a tax lien is 
determined. For example, to be afforded priority under the provisions of 
paragraph (a) of Sec.  301.6323(a)-1 a security interest must be in 
existence within the meaning of this paragraph before a notice of lien 
is filed.
    (2) Protection against a subsequent judgment lien. (i) For purposes 
of this paragraph, a security interest is deemed to be protected against 
a subsequent judgment lien on--
    (A) The date on which all actions required under local law to 
establish the priority of a security interest against a judgment lien 
have been taken, or
    (B) If later, the date on which all required actions are deemed 
effective, under local law, to establish the priority of the security 
interest against a judgment lien.

For purposes of this subdivision, the dates described in (A) and (B) of 
this subdivision (i) shall be determined without regard to any rule or 
principle of local law which permits the relation back of any requisite 
action to a date earlier than the date on which the action is actually 
performed. For purposes of this paragraph, a judgment lien is a lien 
held by a judgment lien creditor as defined in paragraph (g) of this 
section.
    (ii) The following example illustrates the application of paragraph 
(a)(2):

    Example. (i) Under the law of State X, a security interest in 
certificated securities, negotiable documents, or instruments may be 
perfected, and hence protected against a judgment lien, by filing or by 
the secured party taking possession of the collateral. However, a 
security interest in such intangible personal property is considered to 
be temporarily perfected for a period of 20 days

[[Page 381]]

from the time the security interest attaches, to the extent that it 
arises for new value given under an authenticated security agreement. 
Under the law of X, a security interest attaches to such collateral when 
there is an agreement between the creditor and debtor that the interest 
attaches, the debtor has rights in the property, and consideration is 
given by the creditor. Under the law of X, in the case of temporary 
perfection, the security interest in such property is protected during 
the 20-day period against a judgment lien arising, after the security 
interest attaches, out of an unsecured obligation. Upon expiration of 
the 20-day period, the holder of the security interest must perfect its 
security interest under local law.
    (ii) Because the security interest is perfected during the 20-day 
period against a subsequent judgment lien arising out of an unsecured 
obligation, and because filing or the taking of possession before the 
conclusion of the period of temporary perfection is not considered, for 
purposes of paragraph (a)(2)(i) of this section, to be a requisite 
action which relates back to the beginning of such period, the 
requirements of this paragraph are satisfied. Because filing or taking 
possession is a condition precedent to continued perfection, filing or 
taking possession of the collateral is a requisite action to establish 
such priority after expiration of the period of temporary perfection. If 
there is a lapse of perfection for failure to file or take possession, 
the determination of when the security interest exists (for purposes of 
protection against the tax lien) is made without regard to the period of 
temporary perfection.

    (3) Money or money's worth. For purposes of this paragraph, the term 
money or money's worth includes money, a security (as defined in 
paragraph (d) of this section), tangible or intangible property, 
services, and other consideration reducible to a money value. Money or 
money's worth also includes any consideration which otherwise would 
constitute money or money's worth under the preceding sentence which was 
parted with before the security interest would otherwise exist if, under 
local law, past consideration is sufficient to support an agreement 
giving rise to a security interest, and provided that the grant of the 
security interest is not a fraudulent transfer under local law or 28 
U.S.C. Sec.  3304(a)(2). A firm commitment to part with money, a 
security, tangible or intangible property, services, or other 
consideration reducible to a money value does not, in itself, constitute 
a consideration in money or money's worth. A relinquishing or promised 
relinquishment of dower, curtesy, or of a statutory estate created in 
lieu of dower or curtesy, or of other marital rights is not a 
consideration in money or money's worth. Nor is love and affection, 
promise of marriage, or any other consideration not reducible to a money 
value a consideration in money or money's worth.
    (4) Holder of a security interest. For purposes of this paragraph, 
the holder of a security interest is the person in whose favor there is 
a security interest. For provisions relating to the treatment of a 
purchaser of commercial financing security as a holder of a security 
interest, see Sec.  301.6323(c)-1(e).
    (b) Mechanic's lienor--(1) In general. The term ``mechanic's 
lienor'' means any person who under local law has a lien on real 
property (or on the proceeds of a contract relating to real property) 
for services, labor, or materials furnished in connection with the 
construction or improvement (including demolition) of the property. A 
mechanic's lienor is treated as having a lien on the later of--
    (i) The date on which the mechanic's lien first becomes valid under 
local law against subsequent purchasers of the real property without 
actual notice, or
    (ii) The date on which the mechanic's lienor begins to furnish the 
services, labor, or materials.
    (2) Example. The provisions of this paragraph may be illustrated by 
the following example:

    Example. On February 1, 1968, A lets a contract for the construction 
of an office building on property owned by him. On March 1, 1968, in 
accordance with Sec.  301.6323(f)-1, a notice of lien for delinquent 
Federal taxes owed by A is filed. On April 1, 1968, B, a lumber dealer, 
delivers lumber to A's property. On May 1, 1968, B records a mechanic's 
lien against the property to secure payment of the price of the lumber. 
Under local law, B's mechanic's lien is valid against subsequent 
purchasers of real property without notice from February 1, 1968, which 
is the date the construction contract was entered into. Because the date 
on which B's mechanic's lien is valid under local law against subsequent 
purchasers is February 1, and the date on which B begins to furnish the 
materials is April 1, the date on which B becomes a mechanic's lienor 
within the meaning of this paragraph is April 1, the later of these two 
dates. Under paragraph (a) of Sec.  301.6323(a)-1,

[[Page 382]]

B's mechanic's lien will not have priority over the Federal tax lien, 
even though under local law the mechanic's lien relates back to the date 
of the contract.

    (c) Motor vehicle. (1) The term ``motor vehicle'' means a self-
propelled vehicle which is registered for highway use under the laws of 
any State, the District of Columbia, or a foreign country.
    (2) A motor vehicle is ``registered for highway use'' at the time of 
a sale if immediately prior to the sale it is so registered under the 
laws of any State, the District of Columbia, or a foreign country. Where 
immediately prior to the sale of a motor vehicle by a dealer, the dealer 
is permitted under local law to operate it under a dealer's tag, 
license, or permit issued to him, the motor vehicle is considered to be 
registered for highway use in the name of the dealer at the time of the 
sale.
    (d) Security. The term ``security'' means any bond, debenture, note, 
or certificate or other evidence of indebtedness, issued by a 
corporation or a government or political subdivision thereof, with 
interest coupons or in registered form, share of stock, voting trust 
certificate, or any certificate of interest or participation in, 
certificate of deposit or receipt for, temporary or interim certificate 
for, or warrant or right to subscribe to or purchase, any of the 
foregoing; negotiable instrument; or money.
    (e) Tax lien filing. The term ``tax lien filing'' means the filing 
of notice of the lien imposed by section 6321 in accordance with Sec.  
301.6323(f)-1.
    (f) Purchaser--(1) In general. The term ``purchaser'' means a person 
who, for adequate and full consideration in money or money's worth (as 
defined in subparagraph (3) of this paragraph (f)), acquires an interest 
(other than a lien or security interest) in property which is valid 
under local law against subsequent purchasers without actual notice.
    (2) Interest in property. For purposes of this paragraph, each of 
the following interest is treated as an interest in property, if it is 
not a lien or security interest:
    (i) A lease of property,
    (ii) A written executory contract to purchase or lease property,
    (iii) An option to purchase or lease property and any interest 
therein, or
    (iv) An option to renew or extend a lease of property.
    (3) Adequate and full consideration in money or money's worth. For 
purposes of this paragraph, the term ``adequate and full consideration 
in money or money's worth'' means a consideration in money or money's 
worth having a reasonable relationship to the true value of the interest 
in property acquired. See paragraph (a)(3) of this section for 
definition of the term ``money or money's worth.'' Adequate and full 
consideration in money or money's worth may include the consideration in 
a bona fide bargain purchase. The term also includes the consideration 
in a transaction in which the purchaser has not completed performance of 
his obligation, such as the consideration in an installment purchase 
contract, even though the purchaser has not completed the installment 
payments.
    (4) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example 1. A enters into a contract for the purchase of a house and 
lot from B. Under the terms of the contract A makes a down payment and 
is to pay the balance of the purchase price in 120 monthly installments. 
After payment of the last installment, A is to receive a deed to the 
property. A enters into possession, which under local law protects his 
interest in the property against subsequent purchasers without actual 
notice. After A has paid five monthly installments, a notice of lien for 
Federal taxes is filed against B in accordance with Sec.  301.6323(f)-1. 
Because the contract is an executory contract to purchase property and 
is valid under local law against subsequent purchasers without actual 
notice, A qualifies as a purchaser under this paragraph.
    Example 2. C owns a residence which he leases to his son-in-law, D, 
for a period of 5 years commencing January 1, 1968. The lease provides 
for payment of $100 a year, although the fair rental value of the 
residence is $2,500 a year. The lease is recorded on December 31, 1967. 
On March 1, 1968, a notice of tax lien for unpaid Federal taxes of C is 
filed in accordance with Sec.  301.6323(f)-1. Under local law, D's 
interest is protected against subsequent purchasers without actual 
notice. However, because the rental paid by D has no reasonable 
relationship to the value of the interest in property acquired, D does 
not qualify as a purchaser under this paragraph.


[[Page 383]]


    (g) Judgment lien creditor. The term ``judgment lien creditor'' 
means a person who has obtained a valid judgment, in a court of record 
and of competent jurisdiction, for the recovery of specifically 
designated property or for a certain sum of money. In the case of a 
judgment for the recovery of a certain sum of money, a judgment lien 
creditor is a person who has perfected a lien under the judgment on the 
property involved. A judgment lien is not perfected until the identity 
of the lienor, the property subject to the lien, and the amount of the 
lien are established. Accordingly, a judgment lien does not include an 
attachment or garnishment lien until the lien has ripened into judgment, 
even though under local law the lien of the judgment relates back to an 
earlier date. If recording or docketing is necessary under local law 
before a judgment becomes effective against third parties acquiring 
liens on real property, a judgment lien under such local law is not 
perfected with respect to real property until the time of such 
recordation or docketing. If under local law levy or seizure is 
necessary before a judgment lien becomes effective against third parties 
acquiring liens on personal property, then a judgment lien under such 
local law is not perfected until levy or seizure of the personal 
property involved. The term ``judgment'' does not include the 
determination of a quasi-judicial body or of an individual acting in a 
quasi-judicial capacity such as the action of State taxing authorities.
    (h) Effective/applicability date. This section applies as of April 
4, 2011.

[T.D. 7429, 41 FR 35511, Aug. 23, 1976, as amended by T.D. 9520, 76 FR 
18387, Apr. 4, 2011]



Sec.  301.6323(i)-1  Special rules.

    (a) Actual notice or knowledge. For purposes of subchapter C 
(section 6321 and following), chapter 64 of the Code, an organization is 
deemed, in any transaction, to have actual notice or knowledge of any 
fact from the time the fact is brought to the attention of the 
individual conducting the transaction, and in any event from the time 
the fact would have been brought to the individual's attention if the 
organization had exercised due diligence. An organization exercises due 
diligence if it maintains reasonable routines for communicating 
significant information to the person conducting the transaction and 
there is reasonable compliance with the routines. Due diligence does not 
require an individual acting for the organization to communicate 
information unless such communication is part of his regular duties or 
unless he has reason to know of the transaction and that the transaction 
would be materially affected by the information.
    (b) Subrogation--(1) In general. Where, under local law, one person 
is subrogated to the rights of another with respect to a lien or 
interest, such person shall be subrogated to such rights for purposes of 
any lien imposed by section 6321 or 6324. Thus, if a tax lien imposed by 
section 6321 or 6324 is not valid with respect to a particular interest 
as against the holder of that interest, then the tax lien also is not 
valid with respect to that interest as against any person who, under 
local law, is a successor in interest to the holder of that interest.
    (2) Example. The application of this paragraph may be illustrated by 
the following example:

    Example. On February 1, 1968, an assessment is made and a tax lien 
arises with respect to A's delinquent tax liability. On February 25, 
1968, in accordance with Sec.  301.6323(f)-1, a notice of lien is 
properly filed. On March 1, 1968, A negotiates a loan from B, the 
security for which is a second mortgage on property owned by A. The 
first mortgage on the property is held by C and has priority over the 
tax lien. Upon default by A, C begins proceedings to foreclose upon the 
first mortgage. On September 1, 1968, B pays the amount of principal and 
interest in default to C in order to protect the second mortgage against 
the pending foreclosure of C's senior mortgage. Under local law, B is 
subrogated to C's rights to the extent of the payment to C. Therefore, 
the tax lien is invalid against B to the extent he became subrogated to 
C's rights even though the tax lien is valid against B's second mortgage 
on the property.

    (c) Disclosure of amount of outstanding lien. If a notice of lien 
has been filed (see Sec.  301.6323(f)-1), the amount of the outstanding 
obligation secured by the lien is authorized to be disclosed as a matter 
of public record on Form 668

[[Page 384]]

``Notice of Federal Tax Lien Under Internal Revenue Laws.'' The amount 
of the outstanding obligation secured by the lien remaining unpaid at 
the time of an inquiry is authorized to be disclosed to any person who 
has a proper interest in determining this amount. Any person who has a 
right in the property or intends to obtain a right in the property by 
purchase or otherwise will, upon presentation by him of satisfactory 
evidence be considered to have a proper interest. Any person desiring 
this information may make his request to the office of the Internal 
Revenue Service named on the notice of lien with respect to which the 
request is made. The request should clearly describe the property 
subject to the lien, identify the applicable lien, and give the reasons 
for requesting the information.

[T.D. 7429, 41 FR 35511, Aug. 23, 1976]



Sec.  301.6323(j)-1  Withdrawal of notice of federal tax lien 
in certain circumstances.

    (a) In general. The Commissioner or his delegate (Commissioner) may 
withdraw a notice of federal tax lien filed under this section, if the 
Commissioner determines that any of the conditions in paragraph (b) of 
this section exist. A notice of federal tax lien is withdrawn by the 
filing by the Commissioner of a notice of withdrawal in the office in 
which the notice of federal tax lien is filed. If a notice of withdrawal 
is filed, chapter 64 of subtitle F, relating to collection, will be 
applied as if the withdrawn notice had never been filed. A copy of the 
notice of withdrawal will be provided to the taxpayer. Upon written 
request by a taxpayer with respect to whom a notice of federal tax lien 
has been or will be withdrawn, the Commissioner will promptly make 
reasonable efforts to notify any credit reporting agency and any 
financial institution or creditor identified by the taxpayer of the 
withdrawal of such notice. The withdrawal of a notice of federal tax 
lien will not affect the underlying federal tax lien.
    (b) Conditions authorizing withdrawal. The Commissioner may 
authorize the withdrawal of a notice of federal tax lien upon 
determining that one of the following conditions exists:
    (1) Premature or not in accordance with administrative procedures. 
The filing of the notice of federal tax lien was premature or otherwise 
not in accordance with the administrative procedures of the Secretary.
    (2) Installment agreement. The taxpayer has entered into an 
agreement under section 6159 to satisfy the liability for which the lien 
was imposed by means of installment payments. Entry into an installment 
agreement may not, however, be the basis for withdrawal of a notice of 
lien if the installment agreement specifically provides that a notice of 
federal tax lien will not be withdrawn.
    (3) Facilitate collection. The withdrawal of the notice of federal 
tax lien will facilitate the collection of the tax liability for which 
the lien was imposed.
    (4) Best interests of the United States and the taxpayer--(i) In 
general. The taxpayer or the National Taxpayer Advocate (or his 
delegate) has consented to the withdrawal of the notice of federal tax 
lien, and withdrawal of the notice would be in the best interest of the 
taxpayer, as determined by the taxpayer or the National Taxpayer 
Advocate (or his delegate), and in the best interest of the United 
States, as determined by the Commissioner.
    (ii) Best interest of the taxpayer. When a taxpayer requests the 
withdrawal of notice of federal tax lien based on the best interests of 
the United States and the taxpayer, the National Taxpayer Advocate (or 
his delegate) generally will determine whether the withdrawal of the 
notice of federal tax lien is in the best interest of the taxpayer. If, 
however, a taxpayer requests the Commissioner to withdraw a notice and 
has not specifically requested the National Taxpayer Advocate (or his 
delegate) to determine the taxpayer's best interest, a finding by the 
Commissioner that the withdrawal of notice is in the best interest of 
the taxpayer will be sufficient to support withdrawal. If the 
Commissioner decides independently of a request by the taxpayer to 
withdraw a notice of federal tax lien, the taxpayer or the National 
Taxpayer Advocate (or his delegate) must consent to the withdrawal.

[[Page 385]]

    (5) Examples. The following examples illustrate the provisions of 
this paragraph (b):

    Example 1. A owes $1,000 in Federal income taxes. The IRS files a 
notice of federal tax lien to secure A's tax liability. However, the IRS 
failed to follow procedure provided by the Internal Revenue Manual (but 
not required by statute) with regard to managerial approval prior to the 
filing of a notice of federal tax lien. The Commissioner may withdraw 
the notice of federal tax lien because the filing of the notice was not 
in accordance with the Secretary's administrative procedures.
    Example 2. A owes $1,000 in federal income taxes. A enters into an 
agreement to pay the outstanding federal income tax liability in 
installments. The agreement provides that a notice of federal tax lien 
may be filed if the taxpayer defaults. A timely pays the installments 
each month and has not defaulted in any way. Eleven months after 
entering into the installment agreement, the Internal Revenue Service 
files a notice of federal tax lien. Noting that there has been no 
default, the taxpayer asks the Internal Revenue Service to withdraw the 
notice of federal tax lien. In this situation, the Commissioner may 
withdraw the notice of federal tax lien because the taxpayer has entered 
into an installment agreement.
    Example 3. A is an employee of X Corporation. A notice of federal 
tax lien has been filed to secure an outstanding tax liability against 
A. A, who has no assets and no other secured creditors, has agreed to 
pay the balance of tax due through payroll deductions at a rate higher 
than the Internal Revenue Service could obtain through a wage levy in 
order to get the notice of federal tax lien withdrawn. X Corporation has 
agreed to allow A to enter into a payroll deduction agreement. In this 
situation, the Commissioner may withdraw the notice of federal tax lien 
to facilitate collection.
    Example 4. A is owner of a farm machinery dealership against whom a 
notice of federal tax lien has been filed to secure an outstanding tax 
liability. A currently is paying the tax liability by an installment 
agreement. X Corporation has agreed to provide A with 100 tractors to 
increase A's inventory if the notice of federal tax lien is withdrawn. A 
asks the Internal Revenue Service to withdraw the notice of federal tax 
lien. The Commissioner determines that the larger inventory would enable 
A to generate additional tractor sales. Increased sales would enable A 
to increase the amount of installment payments and, consequently, reduce 
the amount of time needed to satisfy the liability. A, who has no other 
assets or secured creditors, has agreed to modify the installment 
agreement. The Commissioner may withdraw the notice of federal tax lien 
because the withdrawal is in the best interest of the taxpayer and the 
United States.

    (c) Determinations by the Commissioner. The Commissioner must 
determine whether any of the conditions authorizing the withdrawal of a 
notice of federal tax lien exist if a taxpayer submits a request for 
withdrawal in accordance with paragraph (d) of this section. The 
Commissioner may also make this determination independent of a request 
from the taxpayer based on information received from a source other than 
the taxpayer. If the Commissioner determines that conditions authorizing 
the withdrawal are not present, the Commissioner may not authorize the 
withdrawal. If the Commissioner determines conditions for withdrawal are 
present, the Commissioner may (but is not required to) authorize the 
withdrawal.
    (d) Procedures for request for withdrawal--(1) Manner. A request for 
the withdrawal of a notice of federal tax lien must be made in writing 
in accordance with procedures prescribed by the Commissioner.
    (2) Form. The written request will include the following information 
and documents--
    (i) Name, current address, and taxpayer identification number of the 
person requesting the withdrawal of notice of federal tax lien;
    (ii) A copy of the notice of federal tax lien affecting the 
taxpayer's property, if available;
    (iii) The grounds upon which the withdrawal of notice of federal tax 
lien is being requested;
    (iv) A list of the names and addresses of any credit reporting 
agency and any financial institution or creditor that the taxpayer 
wishes the Commissioner to notify of the withdrawal of notice of federal 
tax lien; and
    (v) A request to disclose the withdrawal of notice of federal tax 
lien to the persons listed in paragraph (d)(2)(iv) of this section.
    (e) Supplemental list of credit agencies, financial institutions, 
and creditors--(1) In general. If the Commissioner grants a withdrawal 
of notice of federal tax lien, the taxpayer may supplement the list in 
paragraph (d)(2)(iv) of this section. If no list was provided in the 
request to withdraw the notice of federal

[[Page 386]]

tax lien, the list in paragraph (d)(2)(iv) of this section and the 
request for notification in paragraph (d)(2)(v) of this section may be 
submitted after the notice is withdrawn.
    (2) Manner. A request to supplement the list of any credit agencies 
and any financial institutions or creditors that the taxpayer wishes the 
Commissioner to notify of the withdrawal of notice of federal tax lien 
must be made in writing in accordance with procedures prescribed by the 
Commissioner.
    (3) Form. The request must include the following information and 
documents--
    (i) Name, current address, and taxpayer identification number of the 
taxpayer requesting the notification of any credit agency or any 
financial institution or creditor of the withdrawal of notice of federal 
tax lien;
    (ii) A copy of the notice of withdrawal, if available;
    (iii) A supplemental list, identified as such, of the names and 
addresses of any credit reporting agency and any financial institution 
or creditor that the taxpayer wishes the Commissioner to notify of the 
withdrawal of notice of federal tax lien; and
    (iv) A request to disclose the withdrawal of notice of federal tax 
lien to the persons listed in paragraph (e)(3)(iii) of this section.
    (f) Effective date. This section applies on or after June 22, 2001, 
with respect to a withdrawal of any notice of federal tax lien.

[T.D. 8951, 66 FR 33465, June 22, 2001]



Sec.  301.6324-1  Special liens for estate and gift taxes; 
personal liability of transferees and others.

    (a) Estate tax. (1) A lien for estate tax attaches at the date of 
the decedent's death to every part of the gross estate, whether or not 
the property comes into possession of the duly qualified executor or 
administrator. The lien attaches to the extent of the tax shown to be 
due by the return and of any deficiency in tax found to be due upon 
review and audit. If the estate tax is not paid when due, then the 
spouse, transferee, trustee (except the trustee of an employee's trust 
which meets the requirements of section 401(a)), surviving tenant, 
person in possession of the property by reason of the exercise, 
nonexercise, or release of a power of appointment, or beneficiary, who 
receives, or has on the date of the decedent's death, property included 
in the gross estate under sections 2034 to 2042, inclusive, shall be 
personally liable for the tax to the extent of the value, at the time of 
the decedent's death, of the property.
    (2) Unless the tax is paid in full or becomes unenforceable by 
reason of lapse of time, and except as otherwise provided in paragraph 
(c) of this section, the lien upon the entire property constituting the 
gross estate continues for a period of 10 years after the decedent's 
death, except that the lien shall be divested with respect to--
    (i) The portion of the gross estate used for the payment of charges 
against the estate and expenses of its administration allowed by any 
court having jurisdiction thereof;
    (ii) Property included in the gross estate under sections 2034 to 
2042, inclusive, which is transferred by (or transferred by the 
transferee of) the spouse, transferee, trustee, surviving tenant, person 
in possession of the property by reason of the exercise, nonexercise, or 
release of a power of appointment, or beneficiary to a purchaser or 
holder of a security interest. In such case a like lien attaches to all 
the property of the spouse, transferee, trustee, surviving tenant, 
person in possession, beneficiary, or transferee of any such person, 
except the part which is transferred to a purchaser or a holder of a 
security interest. See section 6323(h) (1) and (6) and the regulations 
thereunder, respectively, for the definitions of ``security interest'' 
and ``purchaser'';
    (iii) The portion of the gross estate (or any interest therein) 
which has been transferred to a purchaser or holder of a security 
interest if payment is made of the full amount of tax determined by the 
district director pursuant to a request of the fiduciary (executor, in 
the case of the estate of a decedent dying before January 1, 1971) for 
discharge from personal liability as authorized by section 2204 
(relating to discharge of fiduciary from personal liability) but there 
is substituted a like lien upon the consideration received from the 
purchaser or holder of a security interest; and

[[Page 387]]

    (iv) Property as to which the district director has issued a 
certificate releasing a lien under section 6325(a) and the regulations 
thereunder.
    (b) Lien for gift tax. Except as provided in paragraph (c) of this 
section, a lien attaches upon all gifts made during the period for which 
the return was filed (see Sec.  25.6019-1 of this chapter) for the 
amount of tax imposed upon the gifts made during such period. The lien 
extends for a period of 10 years from the time the gifts are made, 
unless the tax is sooner paid in full or becomes unenforceable by reason 
of lapse of time. If the tax is not paid when due, the donee of any gift 
becomes personally liable for the tax to the extent of the value of his 
gift. Any part of the property comprised in the gift transferred by the 
donee (or by a transferee of the donee) to a purchaser or holder of a 
security interest is divested of the lien, but a like lien, to the 
extent of the value of the gift, attaches to all the property (including 
after-acquired property) of the donee (or the transferee) except any 
part transferred to a purchaser or holder of a security interest. See 
section 6323(h) (1) and (6) and the regulations thereunder, 
respectively, for the definitions of ``security interest'' and 
``purchaser.''
    (c) Exceptions. (1) A lien described in either paragraph (a) or 
paragraph (b) of this section is not valid against a mechanic's lienor 
(as defined in section 6323(h) (2) and the regulations thereunder) and, 
subject to the conditions set forth under section 6323(b) (relating to 
protection for certain interests even though notice filed), is not valid 
with respect to any lien or interest described in section 6323(b) and 
the regulations thereunder.
    (2) If a lien described in either paragraph (a) or paragraph (b) of 
this section is not valid against a lien or security interest (as 
defined in section 6323(h) (1) and the regulations thereunder), the 
priority of the lien or security interest extends to any item described 
in section 6323(e) (relating to priority of interest and expenses) to 
the extent that, under local law, the item has the same priority as the 
lien or security interest to which it relates.
    (d) Application of lien imposed by section 6321. The general lien 
under section 6321 and the special lien under subsection (a) or (b) of 
section 6324 for the estate or gift tax are not exclusive of each other, 
but are cumulative. Each lien will arise when the conditions precedent 
to the creation of such lien are met and will continue in accordance 
with the provisions applicable to the particular lien. Thus, the special 
lien may exist without the general lien being in force, or the general 
lien may exist without the special lien being in force, or the general 
lien and the special lien may exist simultaneously, depending upon the 
facts and pertinent statutory provisions applicable to the respective 
liens.

[T.D. 7238, 37 FR 28740, Dec. 29, 1972]



Sec.  301.6324A-1  Election of and agreement to special lien 
for estate tax deferred under section 6166 or 6166A.

    (a) Election of lien. If payment of a portion of the estate tax is 
deferred under section 6166 or 6166A (as in effect prior to its repeal 
by Economic Recovery Tax Act of 1981), an executor of a decedent's 
estate who seeks to be discharged from personal liability may elect a 
lien in favor of the United States in lieu of the bonds required by 
sections 2204 and 6165. This election is made by applying to the 
Internal Revenue Service office where the estate tax return is filed at 
any time prior to payment of the full amount of estate tax and interest 
due. The application is to be a notice of election requesting the 
special lien provided by section 6324A and is to be accompanied by the 
agreement described in paragraph (b) (1) of this section.
    (b) Agreement to lien--(1) In general. A lien under this section 
will not arise unless all parties having any interest in all property 
designated in the notice of election as property to which the lien is to 
attach sign an agreement in which they consent to the creation of the 
lien. (Property so designated need not be property included in the 
decedent's estate.) The agreement is to be attached to the notice in 
which the lien under section 6324A is elected. It must be in a form that 
is binding on all parties having any interest on the property and must 
contain the following:

[[Page 388]]

    (i) The decedent's name and taxpayer identification number as they 
appear on the estate tax return;
    (ii) The amount of the lien;
    (iii) The fair market value of the property to be subject to the 
lien as of the date of the decedent's death and the date of the election 
under this section;
    (iv) The amount, as of the date of the decedent's death and the date 
of the election, of all encumbrances on the property, including 
mortgages and any lien under section 6324B;
    (v) A clear description of the property which is to be subject to 
the lien, and in the case of property other than land, a statement of 
its estimated remaining useful life; and
    (vi) Designation of an agent (including the agent's address) for the 
beneficiaries of the estate and the consenting parties to the lien for 
all dealings with the Internal Revenue Service on matters arising under 
section 6166 or 6166A (as in effect prior to its repeal by Economic 
Recovery Tax Act of 1981), or under section 6324A.
    (2) Persons having an interest in designated property. An interest 
in property is any interest which as of the date of the election can be 
asserted under applicable local law so as to affect the disposition of 
any property designated in the agreement required under this section. 
Any person in being at the date of the election who has any such 
interest in the property, whether present or future, or vested or 
contingent, must enter into the agreement. Included among such persons 
are owners of remainder and executory interests, the holders of general 
or special powers of appointment, beneficiaries of a gift over in 
default of exercise of any such power, co-tenants, joint tenants, and 
holders of other undivided interests when the decedent held a joint or 
undivided interest in the property, and trustees of trusts holding any 
interest in the property. An heir who has the power under local law to 
caveat (challenge) a will and thereby affect disposition of the property 
is not, however, considered to be a person with an interest in property 
under section 6324A solely by reason of that right. Likewise, creditors 
of an estate are not such persons solely by reason of their status as 
creditors.
    (3) Consent on behalf of interested party. If any person required to 
enter into the agreement provided for by this paragraph either desires 
that an agent act for him or her or cannot legally bind himself or 
herself due to infancy or other incompetency, a representative 
authorized under local law to bind the interested party in an agreement 
of this nature is permitted to sign the agreement on his or her behalf.
    (4) Duties of agent designated in agreement. The Internal Revenue 
Service will contact the agent designated in the agreement under 
paragraph (b)(1) on all matters relating to continued qualification of 
the estate under section 6166 or 6166A (as in effect prior to its repeal 
by Economic Recovery Tax Act of 1981) and on all matters relating to the 
special lien arising under section 6324A. It is the duty of the agent as 
attorney-in-fact for the parties with interests in the property subject 
to the lien under section 6324A to furnish the Service with any 
requested information and to notify the Service of any event giving rise 
to acceleration of the deferred amount of tax.
    (c) Partial substitution of bond for lien. If the amount of unpaid 
estate tax plus interest exceeds the value (determined for purposes of 
section 6324A(b)(2)) of property listed in the agreement under paragraph 
(b) of this section, the Internal Revenue Service may condition the 
release from personal liability upon the executor's submitting an 
agreement listing additional property or furnishing an acceptable bond 
in the amount of such excess.
    (d) Relation of sections 6324A and 2204. The lien under section 
6324A is deemed to be a bond under section 2204 for purposes of 
determining an executor's release from personal liability. If an 
election has been made under section 6324A, the executor may not 
substitute a bond pursuant to section 2204 in lieu of that lien. If a 
bond has been supplied under section 2204, however, the executor may, by 
filing a proper notice of election and agreement, substitute a lien 
under section 6324A for any part or all of such bond.
    (e) Relation of sections 6324A and 6324. If there is a lien under 
this section on

[[Page 389]]

any property with respect to an estate, that lien is in lieu of the lien 
provided by section 6324 on such property with respect to the same 
estate.
    (f) Section 6324A lien to be in lieu of bond under section 6165. The 
lien under section 6324A is in lieu of any bond otherwise required under 
section 6165 with respect to tax to be paid in installments under 
section 6166 or section 6166A (as in effect prior to its repeal by 
Economic Recovery Tax Act of 1981).
    (g) Special rule for estates for which elections under section 6324A 
are made on or before August 30, 1980. If a lien is elected under 
section 6324A on or before August 30, 1980, the original election may be 
revoked. To revoke an election, the executor must file a notice of 
revocation containing the decedent's name, date of death, and taxpayer 
identification number with the Internal Revenue Service office where the 
original estate tax return for the decedent was filed. The notice must 
be filed on or before January 31, 1981 (or if earlier, the date on which 
the period of limitation for assessment expires).

(Approved by the Office of Management and Budget under control number 
1545-0754)

(Secs. 2032A and 7805 of the Internal Revenue Code of 1954 (90 Stat. 
1856, 68A Stat. 917; 26 U.S.C. 2032A, 7805); secs. 6324A(a) and 7805 of 
the Internal Revenue Code of 1954 (90 Stat. 1808, 68A Stat. 917; 26 
U.S.C. 6324A(a), 7805))

[T.D. 7710, 45 FR 50747, July 31, 1980, as amended by T.D. 7941, 49 FR 
4469, Feb. 7, 1984]



Sec.  301.6325-1  Release of lien or discharge of property.

    (a) Release of lien--(1) Liability satisfied or unenforceable. The 
appropriate official shall issue a certificate of release for a filed 
notice of Federal tax lien, no later than 30 days after the date on 
which he finds that the entire tax liability listed in such notice of 
Federal tax lien either has been fully satisfied (as defined in 
paragraph (a)(4) of this section) or has become legally unenforceable. 
In all cases, the liability for the payment of the tax continues until 
satisfaction of the tax in full or until the expiration of the statutory 
period for collection, including such extension of the period for 
collection as is agreed to.
    (2) Bond accepted. The appropriate official shall issue a 
certificate of release of any tax lien if he is furnished and accepts a 
bond that is conditioned upon the payment of the amount assessed 
(together with all interest in respect thereof), within the time agreed 
upon in the bond, but not later than 6 months before the expiration of 
the statutory period for collection, including any agreed upon 
extensions. For provisions relating to bonds, see sections 7101 and 7102 
and Sec. Sec.  301.7101-1 and 301.7102-1.
    (3) Certificate of release for a lien which has become legally 
unenforceable. The appropriate official shall have the authority to file 
a notice of Federal tax lien which also contains a certificate of 
release pertaining to those liens which become legally unenforceable. 
Such release will become effective as a release as of a date prescribed 
in the document containing the notice of Federal tax lien and 
certificate of release.
    (4) Satisfaction of tax liability. For purposes of paragraph (a)(1) 
of this section, satisfaction of the tax liability occurs when--
    (i) The appropriate official determines that the entire tax 
liability listed in a notice of Federal tax lien has been fully 
satisfied. Such determination will be made as soon as practicable after 
tender of payment; or
    (ii) The taxpayer provides the appropriate official with proof of 
full payment (as defined in paragraph (a)(5) of this section) with 
respect to the entire tax liability listed in a notice of Federal tax 
lien together with the information and documents set forth in paragraph 
(a)(7) of this section. See paragraph (a)(6) of this section if more 
than one tax liability is listed in a notice of Federal tax lien.
    (5) Proof of full payment. As used in paragraph (a)(4)(ii) of this 
section, the term proof of full payment means--
    (i) An internal revenue cashier's receipt reflecting full payment of 
the tax liability in question;
    (ii) A canceled check in an amount sufficient to satisfy the tax 
liability for which the release is being sought;
    (iii) A record, made in accordance with procedures prescribed by the 
Commissioner, of proper payment of the tax liability by credit or debit 
card or by electronic funds transfer; or

[[Page 390]]

    (iv) Any other manner of proof acceptable to the appropriate 
official.
    (6) Notice of a Federal tax lien which lists multiple liabilities. 
When a notice of Federal tax lien lists multiple tax liabilities, the 
appropriate official shall issue a certificate of release when all of 
the tax liabilities listed in the notice of Federal tax lien have been 
fully satisfied or have become legally unenforceable. In addition, if 
the taxpayer requests that a certificate of release be issued with 
respect to one or more tax liabilities listed in the notice of Federal 
tax lien and such liability has been fully satisfied or has become 
legally unenforceable, the appropriate official shall issue a 
certificate of release. For example, if a notice of Federal tax lien 
lists two separate liabilities and one of the liabilities is satisfied, 
the taxpayer may request the issuance of a certificate of release with 
respect to the satisfied tax liability and the appropriate official 
shall issue a release.
    (7) Taxpayer requests. A request for a certificate of release with 
respect to a notice of Federal tax lien shall be submitted in writing to 
the appropriate official. The request shall contain the information 
required in the appropriate IRS Publication.
    (b) Discharge of specific property from the lien--(1) Property 
double the amount of the liability. (i) The appropriate official may, in 
his discretion, issue a certificate of discharge of any part of the 
property subject to a Federal tax lien imposed under chapter 64 of the 
Internal Revenue Code if he determines that the fair market value of 
that part of the property remaining subject to the Federal tax lien is 
at least double the sum of the amount of the unsatisfied liability 
secured by the Federal tax lien and of the amount of all other liens 
upon the property which have priority over the Federal tax lien. In 
general, fair market value is that amount which one ready and willing 
but not compelled to buy would pay to another ready and willing but not 
compelled to sell the property.
    (ii) The following example illustrates a case in which a certificate 
of discharge may not be given under this subparagraph:

    Example. The Federal tax liability secured by a lien is $1,000. The 
fair market value of all property which after the discharge will 
continue to be subject to the Federal tax lien is $10,000. There is a 
prior mortgage on the property of $5,000, including interest, and the 
property is subject to a prior lien of $100 for real estate taxes. 
Accordingly, the taxpayer's equity in the property over and above the 
amount of the mortgage and real estate taxes is $4,900, or nearly five 
times the amount required to pay the assessed tax on which the Federal 
tax lien is based. Nevertheless, a discharge under this subparagraph is 
not permissible. In the illustration, the sum of the amount of the 
Federal tax liability ($1,000) and of the amount of the prior mortgage 
and the lien for real estate taxes ($5,000 + $100 = $5,100) is $6,100. 
Double this sum is $12,200, but the fair market value of the remaining 
property is only $10,000. Hence, a discharge of the property is not 
permissible under this subparagraph, since the Code requires that the 
fair market value of the remaining property be at least double the sum 
of two amounts, one amount being the outstanding Federal tax liability 
and the other amount being all prior liens upon such property. In order 
that the discharge may be issued, it would be necessary that the 
remaining property be worth not less than $12,200.

    (2) Part payment; interest of United States valueless--(i) Part 
payment. The appropriate official may, in his discretion, issue a 
certificate of discharge of any part of the property subject to a 
Federal tax lien imposed under chapter 64 of the Internal Revenue Code 
if there is paid over to him in partial satisfaction of the liability 
secured by the Federal tax lien an amount determined by him to be not 
less than the value of the interest of the United States in the property 
to be so discharged. In determining the amount to be paid, the 
appropriate official will take into consideration all the facts and 
circumstances of the case, including the expenses to which the 
government has been put in the matter. In no case shall the amount to be 
paid be less than the value of the interest of the United States in the 
property with respect to which the certificate of discharge is to be 
issued.
    (ii) Interest of the United States valueless. The appropriate 
official may, in his discretion, issue a certificate of discharge of any 
part of the property subject to the Federal tax lien if he determines 
that the interest of the United States in the property to be so 
discharged has no value.

[[Page 391]]

    (3) Discharge of property by substitution of proceeds of sale. The 
appropriate official may, in his discretion, issue a certificate of 
discharge of any part of the property subject to a Federal tax lien 
imposed under chapter 64 of the Internal Revenue Code if such part of 
the property is sold and, pursuant to a written agreement with the 
appropriate official, the proceeds of the sale are held, as a fund 
subject to the Federal tax liens and claims of the United States, in the 
same manner and with the same priority as the Federal tax liens or 
claims had with respect to the discharged property. This paragraph does 
not apply unless the sale divests the taxpayer of all right, title, and 
interest in the property sought to be discharged. Any reasonable and 
necessary expenses incurred in connection with the sale of the property 
and the administration of the sale proceeds shall be paid by the 
applicant or from the proceeds of the sale before satisfaction of any 
Federal tax liens or claims of the United States.
    (4) Right of substitution of value--(i) Issuance of certificate of 
discharge to property owner who is not the taxpayer. If an owner of 
property subject to a Federal tax lien imposed under chapter 64 of the 
Internal Revenue Code submits an application for a certificate of 
discharge pursuant to paragraph (b)(5) of this section, the appropriate 
official shall issue a certificate of discharge of such property after 
the owner either deposits with the appropriate official an amount equal 
to the value of the interest of the United States in the property, as 
determined by the appropriate official pursuant to paragraph (b)(6) of 
this section, or furnishes an acceptable bond in a like amount. This 
paragraph does not apply if the person seeking the discharge is the 
person whose unsatisfied liability gave rise to the Federal tax lien. 
Thus, if the property is owned by both the taxpayer and another person, 
the other person may obtain a certificate of discharge of the property 
under this paragraph, but the taxpayer may not.
    (ii) Refund of deposit and release of bond. The appropriate official 
may, in his discretion, determine that either the entire unsatisfied tax 
liability listed on the notice of Federal tax lien can be satisfied from 
a source other than the property sought to be discharged, or the value 
of the interest of the United States is less than the prior 
determination of such value. The appropriate official shall refund the 
amount deposited with interest at the overpayment rate determined under 
section 6621 or release the bond furnished to the extent that he makes 
this determination.
    (iii) Refund request. If a property owner desires an administrative 
refund of his deposit or release of the bond, the owner shall file a 
request in writing with the appropriate official. The request shall 
contain such information as the appropriate IRS Publication may require. 
The request must be filed within 120 days after the date the certificate 
of discharge is issued. A refund request made under this paragraph 
neither is required nor is effective to extend the period for filing an 
action in court under section 7426(a)(4).
    (iv) Internal Revenue Service's use of deposit if court action not 
filed. If no action is filed under section 7426(a)(4) for refund of the 
deposit or release of the bond within the 120-day period specified 
therein, the appropriate official shall, within 60 days after the 
expiration of the 120-day period, apply the amount deposited or collect 
on such bond to the extent necessary to satisfy the liability listed on 
the notice of Federal tax lien, and shall refund, with interest at the 
overpayment rate determined under section 6621, any portion of the 
amount deposited that is not used to satisfy the liability. If the 
appropriate official has not completed the application of the deposit to 
the unsatisfied liability before the end of the 60-day period, the 
deposit will be deemed to have been applied to the unsatisfied liability 
as of the 60th day.
    (5) Application for certificate of discharge. Any person desiring a 
certificate of discharge under this paragraph (b) shall submit an 
application in writing to the appropriate official. The application 
shall contain the information required by the appropriate IRS 
Publication. For purposes of this paragraph (b), any application for 
certificate of discharge made by a property owner who is not the 
taxpayer, and any

[[Page 392]]

amount submitted pursuant to the application, will be treated as an 
application for discharge and a deposit under section 6325(b)(4) unless 
the owner of the property submits a statement, in writing, that the 
application is being submitted under another paragraph of section 6325 
and not under section 6325(b)(4), and the owner in writing waives the 
rights afforded under paragraph (b)(4), including the right to seek 
judicial review.
    (6) Valuation of interest of United States. For purposes of 
paragraphs (b)(2) and (b)(4) of this section, in determining the value 
of the interest of the United States in the property, or any part 
thereof, with respect to which the certificate of discharge is to be 
issued, the appropriate official shall give consideration to the value 
of the property and the amount of all liens and encumbrances thereon 
having priority over the Federal tax lien. In determining the value of 
the property, the appropriate official may, in his discretion, give 
consideration to the forced sale value of the property in appropriate 
cases.
    (c) Estate or gift tax liability fully satisfied or provided for--
(1) Certificate of discharge. If the appropriate official determines 
that the tax liability for estate or gift tax has been fully satisfied, 
he may issue a certificate of discharge of any or all property from the 
lien imposed thereon. If the appropriate official determines that the 
tax liability for estate or gift tax has been adequately provided for, 
he may issue a certificate discharging particular items of property from 
the lien. If a lien has arisen under section 6324B (relating to special 
lien for additional estate tax attributable to farm, etc., valuation) 
and the appropriate official determines that the liability for 
additional estate tax has been fully secured in accordance with Sec.  
20.6324B-1(c) of this chapter, the appropriate official may issue a 
certificate of discharge of the real property from the section 6324B 
lien. The issuance of such a certificate is a matter resting within the 
discretion of the appropriate official, and a certificate will be issued 
only in case there is actual need therefor. The primary purpose of such 
discharge is not to evidence payment or satisfaction of the tax, but to 
permit the transfer of property free from the lien in case it is 
necessary to clear title. The tax will be considered fully satisfied 
only when investigation has been completed and payment of the tax, 
including any deficiency determined, has been made.
    (2) Application for certificate of discharge. An application for a 
certificate of discharge of property from the lien for estate or gift 
tax should be filed with the appropriate official responsible for the 
collection of the tax. It should be made in writing under penalties of 
perjury and should explain the circumstances that require the discharge, 
and should fully describe the particular items for which the discharge 
is desired. Where realty is involved each parcel sought to be discharged 
from the lien should be described on a separate page and each such 
description submitted in duplicate. In the case of an estate tax lien, 
the application should show the applicant's relationship to the estate, 
such as executor, heir, devisee, legatee, beneficiary, transferee, or 
purchaser. If the estate or gift tax return has not been filed, a 
statement under penalties of perjury may be required showing (i) the 
value of the property to be discharged, (ii) the basis for such 
valuation, (iii) in the case of the estate tax, the approximate value of 
the gross estate and the approximate value of the total real property 
included in the gross estate, (iv) in the case of the gift tax, the 
total amount of gifts made during the calendar year and the prior 
calendar years subsequent to the enactment of the Revenue Act of 1932 
and the approximate value of all real estate subject to the gift tax 
lien, and (v) if the property is to be sold or otherwise transferred, 
the name and address of the purchaser or transferee and the 
consideration, if any, paid or to be paid by him.
    (3) For provisions relating to transfer certificates in the case of 
nonresident estates, see Sec.  20.6325-1 of this chapter (Estate Tax 
Regulations).
    (d) Subordination of lien--(1) By payment of the amount 
subordinated. The appropriate official may, in his discretion, issue a 
certificate of subordination of a lien imposed under chapter 64 of the 
Internal Revenue Code upon any

[[Page 393]]

part of the property subject to the lien if there is paid over to the 
appropriate officialr an amount equal to the amount of the lien or 
interest to which the certificate subordinates the lien of the United 
States. For this purpose, the tax lien may be subordinated to another 
lien or interest on a dollar-for-dollar basis. For example, if a notice 
of a Federal tax lien is filed and a delinquent taxpayer secures a 
mortgage loan on a part of the property subject to the tax lien and pays 
over the proceeds of the loan to a appropriate official after an 
application for a certificate of subordination is approved, the 
appropriate official will issue a certificate of subordination. This 
certificate will have the effect of subordinating the tax lien to the 
mortgage.
    (2) To facilitate tax collection--(i) In general. The appropriate 
official may, in his discretion, issue a certificate of subordination of 
a lien imposed under chapter 64 of the Internal Revenue Code upon any 
part of the property subject to the lien if the appropriate official 
believes that the subordination of the lien will ultimately result in an 
increase in the amount realized by the United States from the property 
subject to the lien and will facilitate the ultimate collection of the 
tax liability.
    (ii) Examples. The provisions of this subparagraph may be 
illustrated by the following examples:

    Example 1. A, a farmer needs money in order to harvest his crop. A 
Federal tax lien, notice of which has been filed, is outstanding with 
respect to A's property. B, a lending institution is willing to make the 
necessary loan if the loan is secured by a first mortgage on the farm 
which is prior to the Federal tax lien. Upon examination, the 
appropriate official believes that ultimately the amount realizable from 
A's property will be increased and the collection of the tax liability 
will be facilitated by the availability of cash when the crop is 
harvested and sold. In this case, the appropriate official may, in his 
discretion, subordinate the tax lien on the farm to the mortgage 
securing the crop harvesting loan.
    Example 2. C owns a commercial building which is deteriorating and 
in unsalable condition. Because of outstanding Federal tax liens, 
notices of which have been filed, C is unable to finance the repair and 
rehabilitation of the building. D, a contractor, is willing to do the 
work if his mechanic's lien on the property is superior to the Federal 
tax liens. Upon examination, the appropriate official believes that 
ultimately the amount realizable from C's property will be increased and 
the collection of the tax liability will be facilitated by arresting 
deterioration of the property and restoring it to salable condition. In 
this case, the appropriate official may, in his discretion, subordinate 
the tax lien on the building to the mechanic's lien.
    Example 3. E, a manufacturer of electronic equipment, obtains 
financing from F, a lending institution, pursuant to a security 
agreement, with respect to which a financing statement was duly filed 
under the Uniform Commercial Code on June 1, 1970. On April 15, 1971, F 
gains actual notice or knowledge that notice of a Federal tax lien had 
been filed against E on March 31, 1971, and F refuses to make further 
advances unless its security interest is assured of priority over the 
Federal tax lien. Upon examination, the appropriate official believes 
that ultimately the amount realizable from E's property will be 
increased and the collection of the tax liability will be facilitated if 
the work in process can be completed and the equipment sold. In this 
case, the appropriate official may, in his discretion, subordinate the 
tax lien to F's security interest for the further advances required to 
complete the work.
    Example 4. Suit is brought against G by H, who claims ownership of 
property the legal title to which is held by G. A Federal tax lien 
against G, notice of which has previously been filed, will be 
enforceable against the property if G's title is confirmed. Because 
section 6323(b)(8) is inapplicable, J, an attorney, is unwilling to 
defend the case for G unless he is granted a contractual lien on the 
property, superior to the Federal tax lien. Upon examination, the 
appropriate official believes that the successful defense of the case by 
G will increase the amount ultimately realizable from G's property and 
will facilitate collection of the tax liability. In this case, the 
appropriate official may, in his discretion, subordinate the tax lien to 
J's contractual lien on the disputed property to secure J's reasonable 
fees and expenses.

    (3) Subordination of section 6324B lien. The appropriate official 
may issue a certificate of subordination with respect to a lien imposed 
by section 6324B if the appropriate official determines that the 
interests of the United States will be adequately secured after such 
subordination. For example, A, a qualified heir of qualified real 
property, needs to borrow money for farming purposes. If the current 
fair market value of the real property is $150,000, the amount of the 
claim to which the special lien is to be subordinated is $40,000, the 
potential liability for additional tax (as defined in section

[[Page 394]]

2032A(c)) is less than $55,000, and there are no other facts to indicate 
that the interest of the United States will not be adequately secured, 
the appropriate official may issue a certificate of subordination. The 
result would be the same if the loan were for bona fide purposes other 
than farming.
    (4) Application for certificate of subordination. Any person 
desiring a certificate of subordination under this paragraph shall 
submit an application therefor in writing to the appropriate official 
responsible for the collection of the tax. The application shall contain 
such information as the appropriate official may require.
    (e) Nonattachment of lien. If the appropriate official determines 
that, because of confusion of names or otherwise, any person (other than 
the person against whom the tax was assessed) is or may be injured by 
the appearance that a notice of lien filed in accordance with Sec.  
301.6323(f)-1 refers to such person, the appropriate official may issue 
a certificate of nonattachment. Such certificate shall state that the 
lien, notice of which has been filed, does not attach to the property of 
such person. Any person desiring a certificate of nonattachment under 
this paragraph shall submit an application therefor in writing to the 
appropriate official responsible for the collection of the tax. The 
application shall contain such information as the appropriate official 
may require.
    (f) Effect of certificate--(1) Conclusiveness. Except as provided in 
subparagraphs (2) and (3) of this paragraph, if a certificate is issued 
under section 6325 by the appropriate official and the certificate is 
filed in the same office as the notice of lien to which it relates (if 
the notice of lien has been filed), the certificate shall have the 
following effect--
    (i) In the case of a certificate of release issued under paragraph 
(a) of this section, the certificate shall be conclusive that the tax 
lien referred to in the certificate is extinguished;
    (ii) In the case of a certificate of discharge issued under 
paragraph (b) or (c) of this section, the certificate shall be 
conclusive that the property covered by the certificate is discharged 
from the tax lien;
    (iii) In the case of a certificate of subordination issued under 
paragraph (d) of this section, the certificate shall be conclusive that 
the lien or interest to which the Federal tax lien is subordinated is 
superior to the tax lien; and
    (iv) In the case of a certificate of nonattachment issued under 
paragraph (e) of this section, the certificate shall be conclusive that 
the lien of the United States does not attach to the property of the 
person referred to in the certificate.
    (2) Revocation of certificate of release or nonattachment--(i) In 
general. If the appropriate official determines that either--
    (a) A certificate of release or a certificate of nonattachment of 
the general tax lien imposed by section 6321 was issued erroneously or 
improvidently, or
    (b) A certificate of release of such lien was issued in connection 
with a compromise agreement under section 7122 which has been breached,

and if the period of limitation on collection after assessment of the 
tax liability has not expired, the appropriate official may revoke the 
certificate and reinstate the tax lien. The provisions of this 
subparagraph do not apply in the case of the lien imposed by section 
6324 relating to estate and gift taxes.
    (ii) Method of revocation and reinstatement. The revocation and 
reinstatement described in subdivision (i) of this subparagraph is 
accompanied by--
    (a) Mailing notice of the revocation to the taxpayer at his last 
known address (see Sec.  301.6212-2 for further guidance regarding the 
definition of last known address); and
    (b) Filing notice of the revocation of the certificate in the same 
office in which the notice of lien to which it relates was filed (if the 
notice of lien has been filed).
    (iii) Effect of reinstatement--(a) Effective date. A tax lien 
reinstated in accordance with the provisions of this subparagraph is 
effective on and after the date the notice of revocation is mailed to 
the taxpayer in accordance with the provisions of subdivision (ii)(a) of 
this subparagraph, but the reinstated lien is not effective before the

[[Page 395]]

filing of notice of revocation, in accordance with the provisions of 
subdivision (ii)(b) of this subparagraph, if the filing is required by 
reason of the fact that a notice of the lien had been filed.
    (b) Treatment of reinstated lien. As of the effective date of 
reinstatement, a reinstated lien has the same force and effect as a 
general tax lien imposed by section 6321 which arises upon assessment of 
a tax liability. The reinstated lien continues in existence until the 
expiration of the period of limitation on collection after assessment of 
the tax liability to which it relates. The reinstatement of the lien 
does not retroactively reinstate a previously filed notice of lien. The 
reinstated lien is not valid against any holder of a lien or interest 
described in Sec.  301.6323(a)-1 until notice of the reinstated lien has 
been filed in accordance with the provisions of Sec.  301.6323(f)-1 
subsequent to or concurrent with the time the reinstated lien became 
effective.
    (iv) Example. The provisions of this subparagraph may be illustrated 
by the following example:

    Example. On March 1, 1967, an assessment of an unpaid Federal tax 
liability is made against A. On March 1, 1968, notice of the Federal tax 
lien, which arose at the time of assessment, is filed. On April 1, 1968, 
A executes a bona fide mortgage on property belonging to him to B. On 
May 1, 1968, a certificate of release of the tax lien is erroneously 
issued and is filed by A in the same office in which the notice of lien 
was filed. On June 3, 1968, the lien is reinstated in accordance with 
the provisions of this subparagraph. On July 1, 1968, A executes a bona 
fide mortgage on property belonging to him to C. On August 1, 1968, a 
notice of the lien which was reinstated is properly filed in accordance 
with the provisions of Sec.  301.6323(f)-1. The mortgages of both B and 
C will have priority over the rights of the United States with respect 
to the tax liability in question. Because a reinstated lien continues in 
existence only until the expiration of the period of limitation on 
collection after assessment of the tax liability to which the lien 
relates, in the absence of any extension or suspension of the period of 
limitation on collection after assessment, the reinstated lien will 
become unenforceable by reason of lapse of time after February 28, 1973.

    (3) Certificates void under certain conditions. Notwithstanding any 
other provisions of subtitle F of the Internal Revenue Code, any lien 
for Federal taxes attaches to any property with respect to which a 
certificate of discharge has been issued if the person liable for the 
tax reacquires the property after the certificate has been issued. Thus, 
if property subject to a Federal tax lien is discharged therefrom and is 
later reacquired by the delinquent taxpayer at a time when the lien is 
still in existence, the tax lien attaches to the reacquired property and 
is enforceable against it as in the case of after-acquired property 
generally.
    (g) Filing of certificates and notices. If a certificate or notice 
described in this section may not be filed in the office designated by 
State law in which the notice of lien imposed by section 6321 (to which 
the certificate or notice relates) is filed, the certificate or notice 
is effective if filed in the office of the clerk of the United States 
district court for the judicial district in which the State office where 
the notice of lien is filed is situated.
    (h) As used in this section, the term appropriate official means 
either the official or office identified in the relevant IRS Publication 
or, if such official or office is not so identified, the Secretary or 
his delegate.
    (i) Effective/applicability date. This section applies to any 
release of lien or discharge of property that is requested after January 
31, 2008.

(Secs. 6324B (90 Stat. 1861, 26 U.S.C. 6324B) and 7805 (68A Stat. 917, 
26 U.S.C. 7805))

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7429, 41 FR 35512, Aug. 
23, 1976; T.D. 7847, 47 FR 50857, Nov. 10, 1982; T.D. 8939, 66 FR 2821, 
Jan. 12, 2001; 73 FR 5742, T.D. 9378, Jan. 31, 2008; T.D. 9378, 73 FR 
9672, Feb. 22, 2008]



Sec.  301.6326-1  Administrative appeal of the erroneous filing of notice 
of federal tax lien.

    (a) In general. Any person may appeal to the district director of 
the district in which a notice of federal tax lien was filed on the 
property or rights to property of such person for a release of lien 
alleging an error in the filing of notice of lien. Such appeal may be 
used only for the purpose of correcting the erroneous filing of a notice 
of lien, not to challenge the underlying deficiency that led to the 
imposition of a lien. If

[[Page 396]]

the district director determines that the Internal Revenue Service has 
erroneously filed the notice of any federal tax lien, the district 
director shall expeditiously, and, to the extent practicable, within 14 
days after such determination, issue a certificate of release of lien. 
The certificate of release of such lien shall include a statement that 
the filing of notice of lien was erroneous.
    (b) Appeal alleging an error in the filing of notice of lien. For 
purposes of paragraph (a) of this section, an appeal of the filing of 
notice of federal tax lien must be based on any one of the following 
allegations:
    (1) The tax liability that gave rise to the lien, plus any interest 
and additions to tax associated with said liability, was satisfied prior 
to the filing of notice of lien;
    (2) The tax liability that gave rise to the lien was assessed in 
violation of the deficiency procedures set forth in section 6213 of the 
Internal Revenue Code;
    (3) The tax liability that gave rise to the lien was assessed in 
violation of title 11 of the United States Code (the Bankruptcy Code); 
or
    (4) The statutory period for collection of the tax liability that 
gave rise to the lien expired prior to the filing of notice of federal 
tax lien.
    (c) Notice of federal tax lien that lists multiple liabilities. When 
a notice of federal tax lien lists multiple liabilities, a person may 
appeal the filing of notice of lien with respect to one or more of the 
liabilities listed in the notice, if the notice was erroneously filed 
with respect to such liabilities. If a notice of federal tax lien was 
erroneously filed with respect to one or more liabilities listed in the 
notice, the district director shall issue a certificate of release with 
respect to such liabilities. For example, if a notice of federal tax 
lien lists tax liabilities for years 1980, 1981 and 1982, and the entire 
liabilities for 1981 and 1982 were paid prior to the filing of notice of 
lien, the taxpayer may appeal the filing of notice of lien with respect 
to the 1981 and 1982 liabilities and the district director must issue a 
certificate of release with respect to the 1981 and 1982 liabilities.
    (d) Procedures for appeal--(1) Manner. An appeal of the filing of 
notice of federal tax lien shall be made in writing to the district 
director (marked for the attention of the Chief, Special Procedures 
Function) of the district in which the notice of federal tax lien was 
filed.
    (2) Form. The appeal shall include the following information and 
documents:
    (i) Name, current address, and taxpayer identification number of the 
person appealing the filing of notice of federal tax lien;
    (ii) A copy of the notice of federal tax lien affecting the 
property, if available; and
    (iii) The grounds upon which the filing of notice of federal tax 
lien is being appealed.
    (A) If the ground upon which the filing of notice is being appealed 
is that the tax liability in question was satisfied prior to the filing, 
proof of full payment as defined in paragraph (e) of this section must 
be provided.
    (B) If the ground upon which the filing of notice is being appealed 
is that the tax liability that gave rise to lien was assessed in 
violation of the deficiency procedures set forth in section 6213 of the 
Internal Revenue Code, the appealing party must explain how the 
assessment was erroneous.
    (C) If the ground upon which the filing of notice is being appealed 
is that the tax liability that gave rise to the lien was assessed in 
violation of title 11 of the United States Code (the Bankruptcy Code), 
the appealing party must provide the following:
    (1) The identity of the court and the district in which the 
bankruptcy petition was filed; and
    (2) The docket number and the date of filing of the bankruptcy 
petition.
    (3) Time. An administrative appeal of the erroneous filing of notice 
of federal tax lien shall be made within 1 year after the taxpayer 
becomes aware of the erroneously filed tax lien.
    (e) Proof of full payment. As used in paragraph (d)(2)(iii) of this 
section, the term ``proof of full payment'' means:
    (1) An internal revenue cashier's receipt reflecting full payment of 
the tax liability in question prior to the date the federal tax lien 
issue was filed;
    (2) A canceled check to the Internal Revenue Service in an amount 
which was sufficient to satisfy the tax liability for which release is 
being sought; or

[[Page 397]]

    (3) Any other manner of proof acceptable to the district director.
    (f) Exclusive remedy. The appeal established by section 6326 of the 
Internal Revenue Code and by this section shall be the exclusive 
administrative remedy with respect to the erroneous filing of a notice 
of federal tax lien.
    (g) Effective date. The provisions of this section are effective 
July 7, 1989.

[T.D. 8250, 54 FR 19569, May 8, 1989. Redesignated at 56 FR 19948, May 
1, 1991]



               Seizure of Property for Collection of Taxes



Sec.  301.6330-1  Notice and opportunity for hearing prior to levy.

    (a) Notification--(1) In general. Except as specified in paragraph 
(a)(2) of this section, the Commissioner, or his or her delegate (the 
Commissioner), will prescribe procedures to provide persons upon whose 
property or rights to property the IRS intends to levy (hereinafter 
referred to as the taxpayer) on or after January 19, 1999, notice of 
that intention and to give them the right to, and the opportunity for, a 
pre-levy Collection Due Process (CDP) hearing with the Internal Revenue 
Service (IRS) Office of Appeals (Appeals). This pre-levy Collection Due 
Process Hearing Notice (CDP Notice) must be given in person, left at the 
dwelling or usual place of business of the taxpayer, or sent by 
certified or registered mail, return receipt requested, to the 
taxpayer's last known address. For further guidance regarding the 
definition of last known address, see Sec.  301.6212-2.
    (2) Exceptions--(i) state tax refunds. Section 6330(f) does not 
require the Commissioner to provide the taxpayer with notification of 
the taxpayer's right to a CDP hearing prior to issuing a levy to collect 
state tax refunds owing to the taxpayer. However, the Commissioner will 
prescribe procedures to give the taxpayer notice of the right to, and 
the opportunity for, a CDP hearing with Appeals with respect to any such 
levy issued on or after January 19, 1999, within a reasonable time after 
the levy has occurred. The notification required to be given following a 
levy on a state tax refund is referred to as a post-levy CDP Notice.
    (ii) Jeopardy. Section 6330(f) does not require the Commissioner to 
provide the taxpayer with notification of the taxpayer's right to a CDP 
hearing prior to a levy when there has been a determination that 
collection of the tax is in jeopardy. However, the Commissioner will 
prescribe procedures to provide notice of the right to, and the 
opportunity for, a CDP hearing with Appeals to the taxpayer with respect 
to any such levy issued on or after January 19, 1999, within a 
reasonable time after the levy has occurred. The notification required 
to be given following a jeopardy levy also is referred to as post-levy 
CDP Notice.
    (3) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (a) as follows:
    Q-A1. Who is the person to be notified under section 6330?
    A-A1. Under section 6330(a)(1), a pre-levy or post-levy CDP Notice 
is required to be given only to the person whose property or right to 
property is intended to be levied upon, or, in the case of a levy made 
on a state tax refund or a jeopardy levy, the person whose property or 
right to property was levied upon. The person described in section 
6330(a)(1) is the same person described in section 6331(a)--i.e., the 
person liable to pay the tax due after notice and demand who refuses or 
neglects to pay (referred to here as the taxpayer). A pre-levy or post-
levy CDP Notice therefore will be given only to the taxpayer.
    Q-A2. Will the IRS give notification to a known nominee of, a person 
holding property of, or a person who holds property subject to a lien 
with respect to, the taxpayer of the IRS' intention to issue a levy?
    A-A2. No. Such a person is not the person described in section 
6331(a)(1), but such persons have other remedies. See A-B5 of paragraph 
(b)(2) of this section.
    Q-A3. Will the IRS give notification for each tax and tax period it 
intends to include or has included in a levy issued on or after January 
19, 1999?
    A-A3. Yes. The notification of an intent to levy or of the issuance 
of a jeopardy or state tax refund levy will specify each tax and tax 
period that will be or was included in the levy.

[[Page 398]]

    Q-A4. Will the IRS give notification to a taxpayer with respect to 
levies for a tax and tax period issued on or after January 19, 1999, 
even though the IRS had issued a levy prior to January 19, 1999, with 
respect to the same tax and tax period?
    A-A4. Yes. The IRS will provide appropriate pre-levy or post-levy 
notification to a taxpayer regarding the first levy it intends to issue 
or has issued on or after January 19, 1999, with respect to a tax and 
tax period, even though it had issued a levy with respect to that same 
tax and tax period prior to January 19, 1999.
    Q-A5. When will the IRS provide this notice?
    A-A5. Beginning on January 19, 1999, the IRS will give a pre-levy 
CDP Notice to the taxpayer of the IRS' intent to levy on property or 
rights to property, other than in state tax refund and jeopardy levy 
situations, at least 30 days prior to the first such levy with respect 
to a tax and tax period. If the taxpayer has not received a pre-levy CDP 
Notice and the IRS levies on a state tax refund or issues a jeopardy 
levy on or after January 19, 1999, the IRS will provide a post-levy CDP 
Notice to the taxpayer within a reasonable time after that levy.
    Q-A6. What must a pre-levy CDP Notice include?
    A-A6. Pursuant to section 6330(a)(3), a pre-levy CDP Notice must 
include, in simple and nontechnical terms:
    (i) The amount of the unpaid tax.
    (ii) Notification of the right to request a CDP hearing.
    (iii) A statement that the IRS intends to levy.
    (iv) The taxpayer's rights with respect to the levy action, 
including a brief statement that sets forth--
    (A) The statutory provisions relating to the levy and sale of 
property;
    (B) The procedures applicable to the levy and sale of property;
    (C) The administrative appeals available to the taxpayer with 
respect to the levy and sale and the procedures relating to those 
appeals;
    (D) The alternatives available to taxpayers that could prevent levy 
on the property (including installment agreements); and
    (E) The statutory provisions and the procedures relating to the 
redemption of property and the release of liens on property.
    Q-A7. What must a post-levy CDP Notice include?
    A-A7. A post-levy CDP Notice must include, in simple and 
nontechnical terms:
    (i) The amount of the unpaid tax.
    (ii) Notification of the right to request a CDP hearing.
    (iii) A statement that the IRS has levied upon the taxpayer's state 
tax refund or has made a jeopardy levy on property or rights to property 
of the taxpayer, as appropriate.
    (iv) The taxpayer's rights with respect to the levy action, 
including a brief statement that sets forth--
    (A) The statutory provisions relating to the levy and sale of 
property;
    (B) The procedures applicable to the levy and sale of property;
    (C) The administrative appeals available to the taxpayer with 
respect to the levy and sale and the procedures relating to those 
appeals;
    (D) The alternatives available to taxpayers that could prevent any 
further levies on the taxpayer's property (including installment 
agreements); and
    (E) The statutory provisions and the procedures relating to the 
redemption of property and the release of liens on property.
    Q-A8. How will this pre-levy or post-levy notification under section 
6330 be accomplished?
    A-A8. The IRS will notify the taxpayer by means of a pre-levy CDP 
Notice or a post-levy CDP Notice, as appropriate. The additional 
information the IRS is required to provide, together with Form 12153, 
Request for a Collection Due Process Hearing, will be included with the 
CDP Notice.
    (i) The IRS may effect delivery of a pre-levy CDP Notice (and 
accompanying materials) in one of three ways:
    (A) By delivering the notice personally to the taxpayer.
    (B) By leaving the notice at the taxpayer's dwelling or usual place 
of business.

[[Page 399]]

    (C) By mailing the notice to the taxpayer at the taxpayer's last 
known address by certified or registered mail, return receipt requested.
    (ii) The IRS may effect delivery of a post-levy CDP Notice (and 
accompanying materials) in one of three ways:
    (A) By delivering the notice personally to the taxpayer.
    (B) By leaving the notice at the taxpayer's dwelling or usual place 
of business.
    (C) By mailing the notice to the taxpayer at the taxpayer's last 
known address by certified or registered mail.
    Q-A9. What are the consequences if the taxpayer does not receive or 
accept the notification which was properly left at the taxpayer's 
dwelling or usual place of business, or properly sent by certified or 
registered mail, return receipt requested, to the taxpayer's last known 
address?
    A-A9. Notification properly sent to the taxpayer's last known 
address or left at the taxpayer's dwelling or usual place of business is 
sufficient to start the 30-day period within which the taxpayer may 
request a CDP hearing. See paragraph (c) of this section for when a 
request for a CDP hearing must be filed. Actual receipt is not a 
prerequisite to the validity of the CDP Notice.
    Q-A10. What if the taxpayer does not receive the CDP Notice because 
the IRS did not send that notice by certified or registered mail to the 
taxpayer's last known address, or failed to leave it at the dwelling or 
usual place of business of the taxpayer, and the taxpayer fails to 
request a CDP hearing with Appeals within the 30-day period commencing 
the day after the date of the CDP Notice?
    A-A10. When the IRS determines that it failed properly to provide a 
taxpayer with a CDP Notice, it will promptly provide the taxpayer with a 
substitute CDP Notice and provide the taxpayer with an opportunity to 
request a CDP hearing. Substitute CDP Notices are discussed in Q&A-B3 of 
paragraph (b)(2) and Q&A-C8 of paragraph (c)(2) of this section.
    (4) Examples. The following examples illustrate the principles of 
this paragraph (a):

    Example 1. Prior to January 19, 1999, the IRS issues a continuous 
levy on a taxpayer's wages and a levy on that taxpayer's fixed right to 
future payments. The IRS is not required to release either levy on or 
after January 19, 1999, until the requirements of section 6343(a)(1) are 
met. The taxpayer is not entitled to a CDP Notice or a CDP hearing under 
section 6330 with respect to either levy because both levy actions were 
initiated prior to January 19, 1999.
    Example 2. The same facts as in Example 1, except the IRS intends to 
levy upon a taxpayer's bank account on or after January 19, 1999. The 
taxpayer is entitled to a pre-levy CDP Notice with respect to this 
proposed new levy.

    (b) Entitlement to a CDP hearing--(1) In general. A taxpayer is 
entitled to one CDP hearing with respect to the unpaid tax and tax 
periods covered by the pre-levy or post-levy CDP Notice provided to the 
taxpayer. The taxpayer must request the CDP hearing within the 30-day 
period commencing on the day after the date of the CDP Notice.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (b) as follows:
    Q-B1. Is the taxpayer entitled to a CDP hearing where a levy for 
state tax refunds is issued on or after January 19, 1999, even though 
the IRS had previously issued other levies prior to January 19, 1999, 
seeking to collect the taxes owed for the same period?
    A-B1. Yes. The taxpayer is entitled to a CDP hearing under section 
6330 for the type of tax and tax periods set forth in the state tax 
refund levy issued on or after January 19, 1999.
    Q-B2. Is the taxpayer entitled to a CDP hearing when the IRS, more 
than 30 days after issuance of a CDP Notice under section 6330 with 
respect to the unpaid tax and periods, provides subsequent notice to 
that taxpayer that the IRS intends to levy on property or rights to 
property of the taxpayer for the same tax and tax periods shown on the 
CDP Notice?
    A-B2. No. Under section 6330, only the first pre-levy or post-levy 
CDP Notice with respect to the unpaid tax and tax periods entitles the 
taxpayer to request a CDP hearing. If the taxpayer does not timely 
request a CDP hearing with Appeals following that first notification, 
the taxpayer foregoes the right to a CDP hearing with Appeals and 
judicial review of Appeals' determination with

[[Page 400]]

respect to levies relating to that tax and tax period. The IRS generally 
provides additional notices or reminders (reminder notifications) to the 
taxpayer of its intent to levy when no collection action has occurred 
within 180 days of a proposed levy. Under such circumstances, a taxpayer 
may request an equivalent hearing as described in paragraph (i) of this 
section.
    Q-B3. When the IRS provides a taxpayer with a substitute CDP Notice 
and the taxpayer timely requests a CDP hearing, is the taxpayer entitled 
to a CDP Hearing before Appeals?
    A-B3. Yes. Unless the taxpayer provides the IRS a written withdrawal 
of the request that Appeals conduct a CDP hearing, the taxpayer is 
entitled to a CDP hearing before Appeals. Following the hearing, Appeals 
will issue a Notice of Determination, and the taxpayer is entitled to 
seek judicial review of that Notice of Determination.
    Q-B4. If the IRS sends a second CDP Notice under section 6330 (other 
than a substitute CDP Notice) for a tax period and with respect to an 
unpaid tax for which a CDP Notice under section 6330 was previously 
sent, is the taxpayer entitled to a section 6330 CDP hearing based on 
the second CDP Notice?
    A-B4. No. The taxpayer is entitled to only one CDP hearing under 
section 6330 with respect to the tax and tax period. The taxpayer must 
request the CDP hearing within 30 days of the date of the first CDP 
Notice provided for that tax and tax period.
    Q-B5. Will the IRS give pre-levy or post-levy CDP Notices to known 
nominees of, persons holding property of, or persons holding property 
subject to a lien with respect to the taxpayer?
    A-B5. No. Such person is not the person described in section 6331(a) 
and is, therefore, not entitled to a CDP hearing or an equivalent 
hearing (as discussed in paragraph (i) of this section). Such person, 
however, may seek reconsideration by the IRS office collecting the tax, 
assistance from the National Taxpayer Advocate, or an administrative 
hearing before Appeals under its Collection Appeals Program. However, 
any such administrative hearing would not be a CDP hearing under section 
6330 and any determination or decision resulting from the hearing would 
not be subject to judicial review.
    (3) Example. The following example illustrates the principles of 
this paragraph (b):

    Example. Federal income tax liability for 1997 is assessed against 
individual D. D buys an asset and puts it in individual E's name. The 
IRS gives D a CDP Notice of intent to levy with respect to the 1997 tax 
liability. The IRS will not notify E of its intent to levy. The IRS is 
not required to notify E of its intent to levy although E holds property 
of individual D. E is not the taxpayer.

    (c) Requesting a CDP hearing--(1) In general. When a taxpayer is 
entitled to a CDP hearing under section 6330, the CDP hearing must be 
requested during the 30-day period that commences the day after the date 
of the CDP Notice.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (c) as follows:
    Q-C1. What must a taxpayer do to obtain a CDP hearing?
    A-C1. (i) The taxpayer must make a request in writing for a CDP 
hearing. The request for a CDP hearing shall include the information and 
signature specified in A-C1(ii) of this paragraph (c)(2). See A-D7 and 
A-D8 of paragraph (d)(2).
    (ii) The written request for a CDP hearing must be dated and must 
include the following:
    (A) The taxpayer's name, address, daytime telephone number (if any), 
and taxpayer identification number (e.g., SSN, ITIN or EIN).
    (B) The type of tax involved.
    (C) The tax period at issue.
    (D) A statement that the taxpayer requests a hearing with Appeals 
concerning the proposed levy.
    (E) The reason or reasons why the taxpayer disagrees with the 
proposed levy.
    (F) The signature of the taxpayer or the taxpayer's authorized 
representative.
    (iii) If the IRS receives a timely written request for CDP hearing 
that does not satisfy the requirements set forth in A-C1(ii) of this 
paragraph (c)(2), the IRS will make a reasonable attempt to contact the 
taxpayer and request that the taxpayer comply with the unsatisfied 
requirements. The taxpayer

[[Page 401]]

must perfect any timely written request for a CDP hearing that does not 
satisfy the requirements set forth in A-C1(ii) of this paragraph (c)(2) 
within a reasonable period of time after a request from the IRS.
    (iv) Taxpayers are encouraged to use Form 12153, ``Request for a 
Collection Due Process Hearing,'' in requesting a CDP hearing so that 
the request can be readily identified and forwarded to Appeals. 
Taxpayers may obtain a copy of Form 12153 by contacting the IRS office 
that issued the CDP Notice, by downloading a copy from the IRS Internet 
site, http://www.irs.gov/pub/irs-pdf/f12153.pdf, or by calling, toll-
free, 1-800-829-3676.
    (v) The taxpayer must affirm any timely written request for a CDP 
hearing which is signed or alleged to have been signed on the taxpayer's 
behalf by the taxpayer's spouse or other unauthorized representative by 
filing, within a reasonable period of time after a request from the IRS, 
a signed, written affirmation that the request was originally submitted 
on the taxpayer's behalf. If the affirmation is filed within a 
reasonable period of time after a request, the timely CDP hearing 
request will be considered timely with respect to the non-signing 
taxpayer. If the affirmation is not filed within a reasonable period of 
time after a request, the CDP hearing request will be denied with 
respect to the non-signing taxpayer.
    Q-C2. Must the request for the CDP hearing be in writing?
    A-C2. Yes. There are several reasons why the request for a CDP 
hearing must be in writing. The filing of a timely request for a CDP 
hearing is the first step in what may result in a court proceeding. A 
written request will provide proof that the CDP hearing was requested 
and thus permit the court to verify that it has jurisdiction over any 
subsequent appeal of the Notice of Determination issued by Appeals. In 
addition, the receipt of the written request will establish the date on 
which the periods of limitation under section 6502 (relating to 
collection after assessment), section 6531 (relating to criminal 
prosecutions), and section 6532 (relating to suits) are suspended as a 
result of the CDP hearing and any judicial appeal. Moreover, because the 
IRS anticipates that taxpayers will contact the IRS office that issued 
the CDP Notice for further information or assistance in filling out Form 
12153, or to attempt to resolve their liabilities prior to going through 
the CDP hearing process, the requirement of a written request should 
help prevent any misunderstanding as to whether a CDP hearing has been 
requested. If the information requested on Form 12153 is furnished by 
the taxpayer, the written request also will help to establish the issues 
for which the taxpayer seeks a determination by Appeals.
    Q-C3. When must a taxpayer request a CDP hearing with respect to a 
CDP Notice issued under section 6330?
    A-C3. A taxpayer must submit a written request for a CDP hearing 
within the 30-day period commencing the day after the date of the CDP 
Notice issued under section 6330. This period is slightly different from 
the period for submitting a written request for a CDP hearing with 
respect to a CDP Notice issued under section 6320. For a CDP Notice 
issued under section 6320, a taxpayer must submit a written request for 
a CDP hearing within the 30-day period commencing the day after the end 
of the five business day period following the filing of the notice of 
federal tax lien (NFTL).
    Q-C4. How will the timeliness of a taxpayer's written request for a 
CDP hearing be determined?
    A-C4. The rules and regulations under section 7502 and section 7503 
will apply to determine the timeliness of the taxpayer's request for a 
CDP hearing, if properly transmitted and addressed as provided in A-C6 
of this paragraph (c)(2).
    Q-C5. Is the 30-day period within which a taxpayer must make a 
request for a CDP hearing extended because the taxpayer resides outside 
the United States?
    A-C5. No. Section 6330 does not make provision for such a 
circumstance. Accordingly, all taxpayers who want a CDP hearing under 
section 6330 must request such a hearing within the 30-day period 
commencing the day after the date of the CDP Notice.
    Q-C6. Where must the written request for a CDP hearing be sent?

[[Page 402]]

    A-C6. The written request for a CDP hearing must be sent, or hand 
delivered (if permitted), to the IRS office and address as directed on 
the CDP Notice. If the address of that office does not appear on the CDP 
Notice, the taxpayer should obtain the address of the office to which 
the written request should be sent or hand delivered by calling, toll-
free, 1-800-829-1040 and providing the taxpayer's identification number 
(e.g., SSN, ITIN or EIN).
    Q-C7. What will happen if the taxpayer does not request a CDP 
hearing in writing within the 30-day period commencing on the day after 
the date of the CDP Notice issued under section 6330?
    A-C7. If the taxpayer does not request a CDP hearing in writing 
within the 30-day period that commences on the day after the date of the 
CDP Notice, the taxpayer foregoes the right to a CDP hearing under 
section 6330 with respect to the unpaid tax and tax periods shown on the 
CDP Notice. A written request submitted within the 30-day period that 
does not satisfy the requirements set forth in A-C1(ii)(A), (B), (C), 
(D) or (F) of this paragraph (c)(2) is considered timely if the request 
is perfected within a reasonable period of time pursuant to A-C1(iii) of 
this paragraph (c)(2). If the request for CDP hearing is untimely, 
either because the request was not submitted within the 30-day period or 
not perfected within the reasonable period provided, the taxpayer will 
be notified of the untimeliness of the request and offered an equivalent 
hearing. In such cases, the taxpayer may obtain an equivalent hearing 
without submitting an additional request. See paragraph (i) of this 
section.
    Q-C8. When must a taxpayer request a CDP hearing with respect to a 
substitute CDP Notice?
    A-C8. A CDP hearing with respect to a substitute CDP Notice must be 
requested in writing by the taxpayer prior to the end of the 30-day 
period commencing the day after the date of the substitute CDP Notice.
    Q-C9. Can taxpayers attempt to resolve the matter of the proposed 
levy with an officer or employee of the IRS office collecting the tax 
liability stated on the CDP Notice either before or after requesting a 
CDP hearing?
    A-C9. Yes. Taxpayers are encouraged to discuss their concerns with 
the IRS office collecting the tax, either before or after they request a 
CDP hearing. If such a discussion occurs before a request is made for a 
CDP hearing, the matter may be resolved without the need for Appeals 
consideration. However, these discussions do not suspend the running of 
the 30-day period within which the taxpayer is required to request a CDP 
hearing, nor do they extend that 30-day period. If discussions occur 
after the request for a CDP hearing is filed and the taxpayer resolves 
the matter with the IRS office collecting the tax, the taxpayer may 
withdraw in writing the request that a CDP hearing be conducted by 
Appeals. The taxpayer can also waive in writing some or all of the 
requirements regarding the contents of the Notice of Determination.
    (3) Examples. The following examples illustrate the principles of 
this paragraph (c):

    Example 1. The IRS mails a CDP Notice of intent to levy to 
individual A's last known address on June 24, 1999. Individual A has 
until July 26, 1999, a Monday, to request a CDP hearing. The 30-day 
period within which individual A may request a CDP hearing begins on 
June 25, 1999. Because the 30-day period expires on July 24, 1999, a 
Saturday, individual A's written request for a CDP hearing will be 
considered timely if it is properly transmitted and addressed to the IRS 
in accordance with section 7502 and the regulations thereunder no later 
than July 26, 1999.
    Example 2. Same facts as in Example 1, except that individual A is 
on vacation, outside the United States, or otherwise does not receive or 
read the CDP Notice until July 19, 1999. As in Example 1, individual A 
has until July 26, 1999, to request a CDP hearing. If individual A does 
not request a CDP hearing, individual A may request an equivalent 
hearing as to the levy at a later time. The taxpayer should make a 
request for an equivalent hearing at the earliest possible time.
    Example 3. Same facts as in Example 2, except that individual A does 
not receive or read the CDP Notice until after July 26, 1999, and does 
not request a hearing by July 26, 1999. Individual A is not entitled to 
a CDP hearing. Individual A may request an equivalent hearing as to the 
levy at a later time. The taxpayer should make a request for an 
equivalent hearing at the earliest possible time.

[[Page 403]]

    Example 4. Same facts as in Example 1, except the IRS determines 
that the CDP Notice mailed on June 24, 1999, was not mailed to 
individual A's last known address. As soon as practicable after making 
this determination, the IRS will mail a substitute CDP Notice to 
individual A at individual A's last known address, hand deliver the 
substitute CDP Notice to individual A, or leave the substitute CDP 
Notice at individual A's dwelling or usual place of business. Individual 
A will have 30 days commencing on the day after the date of the 
substitute CDP Notice within which to request a CDP hearing.

    (d) Conduct of CDP hearing--(1) In general. If a taxpayer requests a 
CDP hearing under section 6330(a)(3)(B) (and does not withdraw that 
request), the CDP hearing will be held with Appeals. The taxpayer is 
entitled to only one CDP hearing under section 6330 with respect to the 
unpaid tax and tax periods shown on the CDP Notice. To the extent 
practicable, the CDP hearing requested under section 6330 will be held 
in conjunction with any CDP hearing the taxpayer requests under section 
6320. A CDP hearing will be conducted by an employee or officer of 
Appeals who, prior to the first CDP hearing under section 6320 or 
section 6330, has had no involvement with respect to the tax for the tax 
periods to be covered by the hearing, unless the taxpayer waives this 
requirement.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (d) as follows:
    Q-D1. Under what circumstances can a taxpayer receive more than one 
pre-levy CDP hearing under section 6330 with respect to a tax period?
    A-D1. The taxpayer may receive more than one CDP pre-levy hearing 
under section 6330 with respect to a tax period where the tax involved 
is a different type of tax (for example, an employment tax liability, 
where the original CDP hearing for the tax period involved an income tax 
liability), or where the same type of tax for the same period is 
involved, but where the amount of the unpaid tax has changed as a result 
of an additional assessment of tax (not including interest or penalties) 
for that period or an additional accuracy-related or filing-delinquency 
penalty has been assessed. The taxpayer is not entitled to another CDP 
hearing under section 6330 if the additional assessment represents 
accruals of interest, accruals of penalties, or both.
    Q-D2. Will a CDP hearing with respect to one tax period be combined 
with a CDP hearing with respect to another tax period?
    A-D2. To the extent practicable, a CDP hearing with respect to one 
tax period shown on a CDP Notice will be combined with any and all other 
CDP hearings which the taxpayer has requested.
    Q-D3. Will a CDP hearing under section 6330 be combined with a CDP 
hearing under section 6320?
    A-D3. To the extent it is practicable, a CDP hearing under section 
6330 will be held in conjunction with a CDP hearing under section 6320.
    Q-D4. What is considered to be prior involvement by an employee or 
officer of Appeals with respect to the tax and tax period or periods 
involved in the hearing?
    A-D4. Prior involvement by an Appeals officer or employee includes 
participation or involvement in a matter (other than a CDP hearing held 
under either section 6320 or section 6330) that the taxpayer may have 
had with respect to the tax and tax period shown on the CDP Notice. 
Prior involvement exists only when the taxpayer, the tax and the tax 
period at issue in the CDP hearing also were at issue in the prior non-
CDP matter, and the Appeals officer or employee actually participated in 
the prior matter.
    Q-D5. How can a taxpayer waive the requirement that the officer or 
employee of Appeals have no prior involvement with respect to the tax 
and tax period or periods involved in the CDP hearing?
    A-D5. The taxpayer must sign a written waiver.
    Q-D6. How are CDP hearings conducted?
    A-D6. The formal hearing procedures required under the 
Administrative Procedure Act, 5 U.S.C. 551 et seq., do not apply to CDP 
hearings. CDP hearings are much like Collection Appeal Program (CAP) 
hearings in that they are informal in nature and do not require the 
Appeals officer or employee and the taxpayer, or the taxpayer's 
representative, to hold a face-to-face

[[Page 404]]

meeting. A CDP hearing may, but is not required to, consist of a face-
to-face meeting, one or more written or oral communications between an 
Appeals officer or employee and the taxpayer or the taxpayer's 
representative, or some combination thereof. A transcript or recording 
of any face-to-face meeting or conversation between an Appeals officer 
or employee and the taxpayer or the taxpayer's representative is not 
required. The taxpayer or the taxpayer's representative does not have 
the right to subpoena and examine witnesses at a CDP hearing.
    Q-D7. If a taxpayer wants a face-to-face CDP hearing, where will it 
be held?
    A-D7. Except as provided in A-D8 of this paragraph (d)(2), a 
taxpayer who presents in the CDP hearing request relevant, non-frivolous 
reasons for disagreement with the proposed levy will ordinarily be 
offered an opportunity for a face-to-face conference at the Appeals 
office closest to taxpayer's residence. A business taxpayer will 
ordinarily be offered an opportunity for a face-to-face conference at 
the Appeals office closest to the taxpayer's principal place of 
business. If that is not satisfactory to the taxpayer, the taxpayer will 
be given an opportunity for a hearing by telephone or by correspondence. 
In all cases, the Appeals officer or employee will review the case file, 
as described in A-F4 of paragraph (f)(2). If no face-to-face or 
telephonic conference is held, or other oral communication takes place, 
review of the documents in the case file, as described in A-F4 of 
paragraph (f)(2), will constitute the CDP hearing for purposes of 
section 6330(b).
    Q-D8. In what circumstances will a face-to-face CDP conference not 
be granted?
    A-D8. A taxpayer is not entitled to a face-to-face CDP conference at 
a location other than as provided in A-D7 of this paragraph (d)(2) and 
this A-D8. If all Appeals officers or employees at the location provided 
for in A-D7 of this paragraph (d)(2) have had prior involvement with the 
taxpayer as provided in A-D4 of this paragraph (d)(2), the taxpayer will 
not be offered a face-to-face conference at that location, unless the 
taxpayer elects to waive the requirement of section 6330(b)(3). The 
taxpayer will be offered a face-to-face conference at another Appeals 
office if Appeals would have offered the taxpayer a face-to-face 
conference at the location provided in A-D7 of this paragraph (d)(2), 
but for the disqualification of all Appeals officers or employees at 
that location. A face-to-face CDP conference concerning a taxpayer's 
underlying liability will not be granted if the request for a hearing or 
other taxpayer communication indicates that the taxpayer wishes only to 
raise irrelevant or frivolous issues concerning that liability. A face-
to-face CDP conference concerning a collection alternative, such as an 
installment agreement or an offer to compromise liability, will not be 
granted unless other taxpayers would be eligible for the alternative in 
similar circumstances. For example, because the IRS does not consider 
offers to compromise from taxpayers who have not filed required returns 
or have not made certain required deposits of tax, as set forth in Form 
656, ``Offer in Compromise,'' no face-to-face conference will be granted 
to a taxpayer who wishes to make an offer to compromise but has not 
fulfilled those obligations. Appeals in its discretion, however, may 
grant a face-to-face conference if Appeals determines that a face-to-
face conference is appropriate to explain to the taxpayer the 
requirements for becoming eligible for a collection alternative. In all 
cases, a taxpayer will be given an opportunity to demonstrate 
eligibility for a collection alternative and to become eligible for a 
collection alternative, in order to obtain a face-to-face conference. 
For purposes of determining whether a face-to-face conference will be 
granted, the determination of a taxpayer's eligibility for a collection 
alternative is made without regard to the taxpayer's ability to pay the 
unpaid tax. A face-to-face conference need not be granted if the 
taxpayer does not provide the required information set forth in A-
C1(ii)(E) of paragraph (c)(2). See also A-C1(iii) of paragraph (c)(2).
    (3) Examples. The following examples illustrate the principles of 
this paragraph (d):

    Example 1. Individual A timely requests a CDP hearing concerning a 
proposed levy for

[[Page 405]]

the 1998 income tax liability assessed against individual A. Appeals 
employee B previously conducted a CDP hearing regarding a NFTL filed 
with respect to individual A's 1998 income tax liability. Because 
employee B's only prior involvement with individual A's 1998 income tax 
liability was in connection with a section 6320 CDP hearing, employee B 
may conduct the CDP hearing under section 6330 involving the proposed 
levy for the 1998 income tax liability.
    Example 2. Individual C timely requests a CDP hearing concerning a 
proposed levy for the 1998 income tax liability assessed against 
individual C. Appeals employee D previously conducted a Collection 
Appeals Program (CAP) hearing regarding a NFTL filed with respect to 
individual C's 1998 income tax liability. Because employee D's prior 
involvement with individual C's 1998 income tax liability was in 
connection with a non-CDP hearing, employee D may not conduct the CDP 
hearing under section 6330 unless individual C waives the requirement 
that the hearing will be conducted by an Appeals officer or employee who 
has had no prior involvement with respect to individual C's 1998 income 
tax liability.
    Example 3. Same facts as in Example 2, except that the prior CAP 
hearing only involved individual C's 1997 income tax liability and 
employment tax liabilities for 1998 reported on Form 941, ``Employer's 
Quarterly Federal Tax Return.'' Employee D would not be considered to 
have prior involvement because the prior CAP hearing in which she 
participated did not involve individual C's 1998 income tax liability.
    Example 4. Appeals employee F is assigned to a CDP hearing 
concerning a proposed levy for a trust fund recovery penalty (TFRP) 
assessed pursuant to section 6672 against individual E. Appeals employee 
F participated in a prior CAP hearing involving individual E's 1999 
income tax liability, and participated in a CAP hearing involving the 
employment taxes of business entity X, which incurred the employment tax 
liability to which the TFRP assessed against individual E relates. 
Appeals employee F would not be considered to have prior involvement 
because the prior CAP hearings in which he participated did not directly 
involve the TFRP assessed against individual E.
    Example 5. Appeals employee G is assigned to a CDP hearing 
concerning a proposed levy for a TFRP assessed pursuant to section 6672 
against individual H. In preparing for the CDP hearing, Appeals employee 
G reviews the Appeals case file concerning the prior CAP hearing 
involving the TFRP assessed pursuant to section 6672 against individual 
H. Appeals employee G is not deemed to have participated in the previous 
CAP hearing involving the TFRP assessed against individual H by such 
review.

    (e) Matters considered at CDP hearing--(1) In general. Appeals will 
determine the timeliness of any request for a CDP hearing that is made 
by a taxpayer. Appeals has the authority to determine the validity, 
sufficiency, and timeliness of any CDP Notice given by the IRS and of 
any request for a CDP hearing that is made by a taxpayer. Prior to 
issuance of a determination, Appeals is required to obtain verification 
from the IRS office collecting the tax that the requirements of any 
applicable law or administrative procedure with respect to the proposed 
levy have been met. The taxpayer may raise any relevant issue relating 
to the unpaid tax at the hearing, including appropriate spousal 
defenses, challenges to the appropriateness of the proposed levy, and 
offers of collection alternatives. The taxpayer also may raise 
challenges to the existence or amount of the underlying liability, 
including a liability reported on a self-filed return, for any tax 
period specified on the CDP Notice if the taxpayer did not receive a 
statutory notice of deficiency for that tax liability or did not 
otherwise have an opportunity to dispute the tax liability. Finally, the 
taxpayer may not raise an issue that was raised and considered at a 
previous CDP hearing under section 6320 or in any other previous 
administrative or judicial proceeding if the taxpayer participated 
meaningfully in such hearing or proceeding. Taxpayers will be expected 
to provide all relevant information requested by Appeals, including 
financial statements, for its consideration of the facts and issues 
involved in the hearing.
    (2) Spousal defenses. A taxpayer may raise any appropriate spousal 
defenses at a CDP hearing unless the Commissioner has already made a 
final determination as to spousal defenses in a statutory notice of 
deficiency or final determination letter. To claim a spousal defense 
under section 66 or section 6015, the taxpayer must do so in writing 
according to rules prescribed by the Commissioner or the Secretary. 
Spousal defenses raised under sections 66 and 6015 in a CDP hearing are 
governed in all respects by the provisions of sections 66 and section 
6015 and the regulations and procedures thereunder.

[[Page 406]]

    (3) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (e) as follows:
    Q-E1. What factors will Appeals consider in making its 
determination?
    A-E1. Appeals will consider the following matters in making its 
determination:
    (i) Whether the IRS met the requirements of any applicable law or 
administrative procedure.
    (ii) Any issues appropriately raised by the taxpayer relating to the 
unpaid tax.
    (iii) Any appropriate spousal defenses raised by the taxpayer.
    (iv) Any challenges made by the taxpayer to the appropriateness of 
the proposed collection action.
    (v) Any offers by the taxpayer for collection alternatives.
    (vi) Whether the proposed collection action balances the need for 
the efficient collection of taxes and the legitimate concern of the 
taxpayer that any collection action be no more intrusive than necessary.
    Q-E2. When is a taxpayer entitled to challenge the existence or 
amount of the tax liability specified in the CDP Notice?
    A-E2. A taxpayer is entitled to challenge the existence or amount of 
the underlying liability for any tax period specified on the CDP Notice 
if the taxpayer did not receive a statutory notice of deficiency for 
such liability or did not otherwise have an opportunity to dispute such 
liability. Receipt of a statutory notice of deficiency for this purpose 
means receipt in time to petition the Tax Court for a redetermination of 
the deficiency determined in the notice of deficiency. An opportunity to 
dispute the underlying liability includes a prior opportunity for a 
conference with Appeals that was offered either before or after the 
assessment of the liability. An opportunity for a conference with 
Appeals prior to the assessment of a tax subject to deficiency 
procedures is not a prior opportunity for this purpose.
    Q-E3. Are spousal defenses subject to the limitations imposed under 
section 6330(c)(2)(B) on a taxpayer's right to challenge the tax 
liability specified in the CDP Notice at a CDP hearing?
    A-E3. The limitations imposed under section 6330(c)(2)(B) do not 
apply to spousal defenses. When a taxpayer asserts a spousal defense, 
the taxpayer is not disputing the amount or existence of the liability 
itself, but asserting a defense to the liability which may or may not be 
disputed. A spousal defense raised under section 66 or section 6015 is 
governed by section 66 or section 6015 and the regulations and 
procedures thereunder. Any limitation under those sections, regulations, 
and procedures therefore will apply.
    Q-E4. May a taxpayer raise at a CDP hearing a spousal defense under 
section 66 or section 6015 if that defense was raised and considered 
administratively and the Commissioner has issued a statutory notice of 
deficiency or final determination letter addressing the spousal defense?
    A-E4. No. A taxpayer is precluded from raising a spousal defense at 
a CDP hearing when the Commissioner has made a final determination 
(under section 66 or section 6015) as to spousal defenses in a final 
determination letter or statutory notice of deficiency. However, a 
taxpayer may raise spousal defenses in a CDP hearing when the taxpayer 
has previously raised spousal defenses, but the Commissioner has not yet 
made a final determination regarding this issue.
    Q-E5. May a taxpayer raise at a CDP hearing a spousal defense under 
section 66 or section 6015 if that defense was raised and considered in 
a prior judicial proceeding that has become final?
    A-E5. No. A taxpayer is precluded by the doctrine of res judicata 
and by the specific limitations under section 66 or section 6015 from 
raising a spousal defense in a CDP hearing under these circumstances.
    Q-E6. What collection alternatives are available to the taxpayer?
    A-E6. Collection alternatives include, for example, a proposal to 
withhold the proposed levy or future collection action in circumstances 
that will facilitate the collection of the tax liability, an installment 
agreement, an offer to compromise, the posting of a bond, or the 
substitution of other assets. A collection alternative is not available 
unless the alternative would be available

[[Page 407]]

to other taxpayers in similar circumstances. See A-D8 of paragraph 
(d)(2).
    Q-E7. What issues may a taxpayer raise in a CDP hearing under 
section 6330 if the taxpayer previously received a notice under section 
6320 with respect to the same tax and tax period and did not request a 
CDP hearing with respect to that notice?
    A-E7. The taxpayer may raise appropriate spousal defenses, 
challenges to the appropriateness of the proposed collection action, and 
offers of collection alternatives. The existence or amount of the 
underlying liability for any tax period specified in the CDP Notice may 
be challenged only if the taxpayer did not have a prior opportunity to 
dispute the tax liability. If the taxpayer previously received a CDP 
Notice under section 6320 with respect to the same tax and tax period 
and did not request a CDP hearing with respect to that earlier CDP 
Notice, the taxpayer had a prior opportunity to dispute the existence or 
amount of the underlying tax liability.
    Q-E8. How will Appeals issue its determination?
    A-E8. (i) Taxpayers will be sent a dated Notice of Determination by 
certified or registered mail. The Notice of Determination will set forth 
Appeals' findings and decisions. It will state whether the IRS met the 
requirements of any applicable law or administrative procedure; it will 
resolve any issues appropriately raised by the taxpayer relating to the 
unpaid tax; it will include a decision on any appropriate spousal 
defenses raised by the taxpayer; it will include a decision on any 
challenges made by the taxpayer to the appropriateness of the collection 
action; it will respond to any offers by the taxpayer for collection 
alternatives; and it will address whether the proposed collection action 
represents a balance between the need for the efficient collection of 
taxes and the legitimate concern of the taxpayer that any collection 
action be no more intrusive than necessary. The Notice of Determination 
will also set forth any agreements that Appeals reached with the 
taxpayer, any relief given the taxpayer, and any actions the taxpayer or 
the IRS are required to take. Lastly, the Notice of Determination will 
advise the taxpayer of the taxpayer's right to seek judicial review 
within 30 days of the date of the Notice of Determination.
    (ii) Because taxpayers are encouraged to discuss their concerns with 
the IRS office collecting the tax, certain matters that might have been 
raised at a CDP hearing may be resolved without the need for Appeals 
consideration. Unless, as a result of these discussions, the taxpayer 
agrees in writing to withdraw the request that Appeals conduct a CDP 
hearing, Appeals will still issue a Notice of Determination, but the 
taxpayer can waive in writing Appeals' consideration of some or all of 
the matters it would otherwise consider in making its determination.
    Q-E9. Is there a period of time within which Appeals must conduct a 
CDP hearing or issue a Notice of Determination?
    A-E9. No. Appeals will, however, attempt to conduct a CDP hearing 
and issue a Notice of Determination as expeditiously as possible under 
the circumstances.
    Q-E10. Why is the Notice of Determination and its date important?
    A-E10. The Notice of Determination will set forth Appeals' findings 
and decisions with respect to the matters set forth in A-E1 of this 
paragraph (e)(3). The 30-day period within which the taxpayer is 
permitted to seek judicial review of Appeals' determination commences 
the day after the date of the Notice of Determination.
    Q-E11. If an Appeals officer considers the merits of a taxpayer's 
liability in a CDP hearing when the taxpayer had previously received a 
statutory notice of deficiency or otherwise had an opportunity to 
dispute the liability prior to the issuance of a notice of intention to 
levy, will the Appeals officer's determination regarding those liability 
issues be considered part of the Notice of Determination?
    A-E11. No. An Appeals officer may consider the existence and amount 
of the underlying tax liability as a part of the CDP hearing only if the 
taxpayer did not receive a statutory notice of deficiency for the tax 
liability in question or otherwise have a prior opportunity to dispute 
the tax liability.

[[Page 408]]

Similarly, an Appeals officer may not consider any other issue if the 
issue was raised and considered at a previous hearing under section 6320 
or in any other previous administrative or judicial proceeding in which 
the person seeking to raise the issue meaningfully participated. In the 
Appeals officer's sole discretion, however, the Appeals officer may 
consider the existence or amount of the underlying tax liability, or 
such other precluded issues, at the same time as the CDP hearing. Any 
determination, however, made by the Appeals officer with respect to such 
a precluded issue shall not be treated as part of the Notice of 
Determination issued by the Appeals officer and will not be subject to 
any judicial review. Because any decisions made by the Appeals officer 
on such precluded issues are not properly a part of the CDP hearing, 
such decisions are not required to appear in the Notice of Determination 
issued following the hearing. Even if a decision concerning such 
precluded issues is referred to in the Notice of Determination, it is 
not reviewable by the Tax Court because the precluded issue is not 
properly part of the CDP hearing.
    (4) Examples. The following examples illustrate the principles of 
this paragraph (e):

    Example 1. The IRS sends a statutory notice of deficiency to the 
taxpayer at his last known address asserting a deficiency for the tax 
year 1995. The taxpayer receives the notice of deficiency in time to 
petition the Tax Court for a redetermination of the asserted deficiency. 
The taxpayer does not timely file a petition with the Tax Court. The 
taxpayer is precluded from challenging the existence or amount of the 
tax liability in a subsequent CDP hearing.
    Example 2. Same facts as in Example 1, except the taxpayer does not 
receive the notice of deficiency in time to petition the Tax Court and 
did not have another prior opportunity to dispute the tax liability. The 
taxpayer is not precluded from challenging the existence or amount of 
the tax liability in a subsequent CDP hearing.
    Example 3. The IRS properly assesses a trust fund recovery penalty 
against the taxpayer. The IRS offers the taxpayer the opportunity for a 
conference with Appeals at which the taxpayer would have the opportunity 
to dispute the assessed liability. The taxpayer declines the opportunity 
to participate in such a conference. The taxpayer is precluded from 
challenging the existence or amount of the tax liability in a subsequent 
CDP hearing.

    (f) Judicial review of Notice of Determination--(1) In general. 
Unless the taxpayer provides the IRS a written withdrawal of the request 
that Appeals conduct a CDP hearing, Appeals is required to issue a 
Notice of Determination in all cases where a taxpayer has timely 
requested a CDP hearing. The taxpayer may appeal such determinations 
made by Appeals within the 30-day period commencing the day after the 
date of the Notice of Determination to the Tax Court.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (f) as follows:
    Q-F1. What must a taxpayer do to obtain judicial review of a Notice 
of Determination?
    A-F1. Subject to the jurisdictional limitations described in A-F2 of 
this paragraph (f)(2), the taxpayer must, within the 30-day period 
commencing the day after the date of the Notice of Determination, appeal 
the determination by Appeals to the Tax Court.
    Q-F2. With respect to the relief available to the taxpayer under 
section 6015, what is the time frame within which a taxpayer may seek 
Tax Court review of Appeals' determination following a CDP hearing?
    A-F2. If the taxpayer seeks Tax Court review not only of Appeals' 
denial of relief under section 6015, but also of relief with respect to 
other issues raised in the CDP hearing, the taxpayer should request Tax 
Court review within the 30-day period commencing the day after the date 
of the Notice of Determination. If the taxpayer only seeks Tax Court 
review of Appeals' denial of relief under section 6015, the taxpayer 
should request review by the Tax Court, as provided by section 6015(e), 
within 90 days of Appeals' determination. If a request for Tax Court 
review is filed after the 30-day period for seeking judicial review 
under section 6330, then only the taxpayer's section 6015 claims may be 
reviewable by the Tax Court.
    Q-F3. What issue or issues may the taxpayer raise before the Tax 
Court if the taxpayer disagrees with the Notice of Determination?

[[Page 409]]

    A-F3. In seeking Tax Court review of a Notice of Determination, the 
taxpayer can only ask the court to consider an issue, including a 
challenge to the underlying tax liability, that was properly raised in 
the taxpayer's CDP hearing. An issue is not properly raised if the 
taxpayer fails to request consideration of the issue by Appeals, or if 
consideration is requested but the taxpayer fails to present to Appeals 
any evidence with respect to that issue after being given a reasonable 
opportunity to present such evidence.
    Q-F4. What is the administrative record for purposes of Tax Court 
review?
    A-F4. The case file, including the taxpayer's request for hearing, 
any other written communications and information from the taxpayer or 
the taxpayer's authorized representative submitted in connection with 
the CDP hearing, notes made by an Appeals officer or employee of any 
oral communications with the taxpayer or the taxpayer's authorized 
representative, memoranda created by the Appeals officer or employee in 
connection with the CDP hearing, and any other documents or materials 
relied upon by the Appeals officer or employee in making the 
determination under section 6330(c)(3), will constitute the record in 
the Tax Court review of the Notice of Determination issued by Appeals.
    (g) Effect of request for CDP hearing and judicial review on periods 
of limitation and collection activity--(1) In general. The periods of 
limitation under section 6502 (relating to collection after assessment), 
section 6531 (relating to criminal prosecutions), and section 6532 
(relating to suits) are suspended until the date the IRS receives the 
taxpayer's written withdrawal of the request for a CDP hearing by 
Appeals or the determination resulting from the CDP hearing becomes 
final by expiration of the time for seeking judicial review or the 
exhaustion of any rights to appeals following judicial review. In no 
event shall any of these periods of limitation expire before the 90th 
day after the date on which the IRS receives the taxpayer's written 
withdrawal of the request that Appeals conduct a CDP hearing or the 
Notice of Determination with respect to such hearing becomes final upon 
either the expiration of the time for seeking judicial review or upon 
exhaustion of any rights to appeals following judicial review.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (g) as follows:
    Q-G1. For what period of time will the periods of limitation under 
section 6502, section 6531, and section 6532 remain suspended if the 
taxpayer timely requests a CDP hearing concerning a pre-levy or post-
levy CDP Notice?
    A-G1. The suspension period commences on the date the IRS receives 
the taxpayer's written request for a CDP hearing. The suspension period 
continues until the IRS receives a written withdrawal by the taxpayer of 
the request for a CDP hearing or the Notice of Determination resulting 
from the CDP hearing becomes final upon either the expiration of the 
time for seeking judicial review or upon exhaustion of any rights to 
appeals following judicial review. In no event shall any of these 
periods of limitation expire before the 90th day after the day on which 
there is a final determination with respect to such hearing. The periods 
of limitation that are suspended under section 6330 are those which 
apply to the taxes and the tax period or periods to which the CDP Notice 
relates.
    Q-G2. For what period of time will the periods of limitation under 
section 6502, section 6531, and section 6532 be suspended if the 
taxpayer does not request a CDP hearing concerning the CDP Notice, or 
the taxpayer requests a CDP hearing, but his request is not timely?
    A-G2. Under either of these circumstances, section 6330 does not 
provide for a suspension of the periods of limitation.
    Q-G3. What, if any, enforcement actions can the IRS take during the 
suspension period?
    A-G3. Section 6330(e) provides for the suspension of the periods of 
limitation discussed in paragraph (g)(1) of these regulations. Section 
6330(e) also provides that levy actions that are the subject of the 
requested CDP hearing under that section shall be suspended

[[Page 410]]

during the same period. The IRS, however, may levy for other taxes and 
periods not covered by the CDP Notice if the CDP requirements under 
section 6330 for those taxes and periods have been satisfied. The IRS 
also may file NFTLs for tax periods and taxes, whether or not covered by 
the CDP Notice issued under section 6330, and may take other non-levy 
collection actions such as initiating judicial proceedings to collect 
the tax shown on the CDP Notice or offsetting overpayments from other 
periods, or of other taxes, against the tax shown on the CDP Notice. 
Moreover, the provisions in section 6330 do not apply when the IRS 
levies for the tax and tax period shown on the CDP Notice to collect a 
state tax refund due the taxpayer, or determines that collection of the 
tax is in jeopardy. Finally, section 6330 does not prohibit the IRS from 
accepting any voluntary payments made for the tax and tax period stated 
on the CDP Notice.
    (3) Examples. The following examples illustrate the principles of 
this paragraph (g):

    Example 1. The period of limitation under section 6502 with respect 
to the taxpayer's tax period listed in the CDP Notice will expire on 
August 1, 1999. The IRS sent a CDP Notice to the taxpayer on April 30, 
1999. The taxpayer timely requested a CDP hearing. The IRS received this 
request on May 15, 1999. Appeals sends the taxpayer its determination on 
June 15, 1999. The taxpayer timely seeks judicial review of that 
determination. The period of limitation under section 6502 would be 
suspended from May 15, 1999, until the determination resulting from that 
hearing becomes final by expiration of the time for seeking review or 
reconsideration before the Tax Court, plus 90 days.
    Example 2. Same facts as in Example 1, except the taxpayer does not 
seek judicial review of Appeals' determination. Because the taxpayer 
requested the CDP hearing when fewer than 90 days remained on the period 
of limitation, the period of limitation will be extended to October 13, 
1999 (90 days from July 15, 1999).

    (h) Retained jurisdiction of Appeals--(1) In general. The Appeals 
office that makes a determination under section 6330 retains 
jurisdiction over that determination, including any subsequent 
administrative hearings that may be requested by the taxpayer regarding 
levies and any collection actions taken or proposed with respect to 
Appeals' determination. Once a taxpayer has exhausted his other 
remedies, Appeals' retained jurisdiction permits it to consider whether 
a change in the taxpayer's circumstances affects its original 
determination. Where a taxpayer alleges a change in circumstances that 
affects Appeals' original determination, Appeals may consider whether 
changed circumstances warrant a change in its earlier determination.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (h) as follows:
    Q-H1. Are the periods of limitation suspended during the course of 
any subsequent Appeals consideration of the matters raised by a taxpayer 
when the taxpayer invokes the retained jurisdiction of Appeals under 
section 6330(d)(2)(A) or (B)?
    A-H1. No. Under section 6330(b)(2), a taxpayer is entitled to only 
one CDP hearing under section 6330 with respect to the tax and tax 
periods specified in the CDP Notice. Any subsequent consideration by 
Appeals pursuant to its retained jurisdiction is not a continuation of 
the original CDP hearing and does not suspend the periods of limitation.
    Q-H2. Is a decision of Appeals resulting from a retained 
jurisdiction hearing appealable to the Tax Court?
    A-H2. No. As discussed in A-H1, a taxpayer is entitled to only one 
CDP hearing under section 6330 with respect to the tax and tax period or 
periods specified in the CDP Notice. Only determinations resulting from 
CDP hearings are appealable to the Tax Court.
    (i) Equivalent hearing--(1) In general. A taxpayer who fails to make 
a timely request for a CDP hearing is not entitled to a CDP hearing. 
Such a taxpayer may nevertheless request an administrative hearing with 
Appeals, which is referred to herein as an ``equivalent hearing.'' The 
equivalent hearing will be held by Appeals and generally will follow 
Appeals procedures for a CDP hearing. Appeals will not, however, issue a 
Notice of Determination. Under such circumstances, Appeals will issue a 
Decision Letter.
    (2) Questions and answers. The questions and answers illustrate the 
provisions of this paragraph (i) as follows:

[[Page 411]]

    Q-I1. What must a taxpayer do to obtain an equivalent hearing?
    A-I1. (i) A request for an equivalent hearing must be made in 
writing. A written request in any form that requests an equivalent 
hearing will be acceptable if it includes the information and signature 
required in A-I1(ii) of this paragraph (i)(2).
    (ii) The request must be dated and must include the following:
    (A) The taxpayer's name, address, daytime telephone number (if any), 
and taxpayer identification number (e.g., SSN, ITIN or EIN).
    (B) The type of tax involved.
    (C) The tax period at issue.
    (D) A statement that the taxpayer is requesting an equivalent 
hearing with Appeals concerning the levy.
    (E) The reason or reasons why the taxpayer disagrees with the 
proposed levy.
    (F) The signature of the taxpayer or the taxpayer's authorized 
representative.
    (iii) The taxpayer must perfect any timely written request for an 
equivalent hearing that does not satisfy the requirements set forth in 
A-I1(ii) of this paragraph (i)(2) within a reasonable period of time 
after a request from the IRS. If the requirements are not satisfied 
within a reasonable period of time, the taxpayer's equivalent hearing 
request will be denied.
    (iv) The taxpayer must affirm any timely written request for an 
equivalent hearing that is signed or alleged to have been signed on the 
taxpayer's behalf by the taxpayer's spouse or other unauthorized 
representative, and that otherwise meets the requirements set forth in 
A-I1(ii) of this paragraph (i)(2), by filing, within a reasonable period 
of time after a request from the IRS, a signed written affirmation that 
the request was originally submitted on the taxpayer's behalf. If the 
affirmation is filed within a reasonable period of time after a request, 
the timely equivalent hearing request will be considered timely with 
respect to the non-signing taxpayer. If the affirmation is not filed 
within a reasonable period of time, the equivalent hearing request will 
be denied with respect to the non-signing taxpayer.
    Q-I2. What issues will Appeals consider at an equivalent hearing?
    A-I2. In an equivalent hearing, Appeals will consider the same 
issues that it would have considered at a CDP hearing on the same 
matter.
    Q-I3. Are the periods of limitation under sections 6502, 6531, and 
6532 suspended if the taxpayer does not timely request a CDP hearing and 
is subsequently given an equivalent hearing?
    A-I3. No. The suspension period provided for in section 6330(e) 
relates only to hearings requested within the 30-day period that 
commences the day following the date of the pre-levy or post-levy CDP 
Notice, that is, CDP hearings.
    Q-I4. Will collection action be suspended if a taxpayer requests and 
receives an equivalent hearing?
    A-I4. Collection action is not required to be suspended. 
Accordingly, the decision to take collection action during the pendency 
of an equivalent hearing will be determined on a case-by-case basis. 
Appeals may request the IRS office with responsibility for collecting 
the taxes to suspend all or some collection action or to take other 
appropriate action if it determines that such action is appropriate or 
necessary under the circumstances.
    Q-I5. What will the Decision Letter state?
    A-I5. The Decision Letter will generally contain the same 
information as a Notice of Determination.
    Q-I6. Will a taxpayer be able to obtain Tax Court review of a 
decision made by Appeals with respect to an equivalent hearing?
    A-I6. Section 6330 does not authorize a taxpayer to appeal the 
decision of Appeals with respect to an equivalent hearing. A taxpayer 
may under certain circumstances be able to seek Tax Court review of 
Appeals' denial of relief under section 6015. Such review must be sought 
within 90 days of the issuance of Appeals' determination on those 
issues, as provided by section 6015(e).
    Q-I7. When must a taxpayer request an equivalent hearing with 
respect to a CDP Notice issued under section 6330?
    A-I7. A taxpayer must submit a written request for an equivalent 
hearing

[[Page 412]]

within the one-year period commencing the day after the date of the CDP 
Notice issued under section 6330. This period is slightly different from 
the period for submitting a written request for an equivalent hearing 
with respect to a CDP Notice issued under section 6320. For a CDP Notice 
issued under section 6320, a taxpayer must submit a written request for 
an equivalent hearing within the one-year period commencing the day 
after the end of the five-business-day period following the filing of 
the NFTL.
    Q-I8. How will the timeliness of a taxpayer's written request for an 
equivalent hearing be determined?
    A-I8. The rules and regulations under section 7502 and section 7503 
will apply to determine the timeliness of the taxpayer's request for an 
equivalent hearing, if properly transmitted and addressed as provided in 
A-I10 of this paragraph (i)(2).
    Q-I9. Is the one-year period within which a taxpayer must make a 
request for an equivalent hearing extended because the taxpayer resides 
outside the United States?
    A-I9. No. All taxpayers who want an equivalent hearing must request 
the hearing within the one-year period commencing the day after the date 
of the CDP Notice issued under section 6330.
    Q-I10. Where must the written request for an equivalent hearing be 
sent?
    A-I10. The written request for an equivalent hearing must be sent, 
or hand delivered (if permitted), to the IRS office and address as 
directed on the CDP Notice. If the address of the issuing office does 
not appear on the CDP Notice, the taxpayer should obtain the address of 
the office to which the written request should be sent or hand delivered 
by calling, toll-free, 1-800-829-1040 and providing the taxpayer's 
identification number (e.g., SSN, ITIN or EIN).
    Q-I11. What will happen if the taxpayer does not request an 
equivalent hearing in writing within the one-year period commencing the 
day after the date of the CDP Notice issued under section 6330?
    A-I11. If the taxpayer does not request an equivalent hearing with 
Appeals within the one-year period commencing the day after the date of 
the CDP Notice issued under section 6330, the taxpayer foregoes the 
right to an equivalent hearing with respect to the unpaid tax and tax 
periods shown on the CDP Notice. A written request submitted within the 
one-year period that does not satisfy the requirements set forth in A-
I1(ii) of this paragraph (i)(2) is considered timely if the request is 
perfected within a reasonable period of time pursuant to A-I1(iii) of 
this paragraph (i)(2). If a request for equivalent hearing is untimely, 
either because the request was not submitted within the one-year period 
or not perfected within the reasonable period provided, the equivalent 
hearing request will be denied. The taxpayer, however, may seek 
reconsideration by the IRS office collecting the tax, assistance from 
the National Taxpayer Advocate, or an administrative hearing before 
Appeals under its Collection Appeals Program or any successor program.
    (j) Effective date. This section is applicable on or after November 
16, 2006 with respect to requests made for CDP hearings or equivalent 
hearings on or after November 16, 2006.

[T.D. 8980, 67 FR 2551, Jan. 18, 2002, as amended by T.D. 9291, 71 FR 
60831, Oct. 17, 2006]



Sec.  301.6331-1  Levy and distraint.

    (a) Authority to levy--(1) In general. If any person liable to pay 
any tax neglects or refuses to pay the tax within 10 days after notice 
and demand, the district director to whom the assessment is charged (or, 
upon his request, any other district director) may proceed to collect 
the tax by levy. The district director may levy upon any property, or 
rights to property, whether real or personal, tangible or intangible, 
belonging to the taxpayer. The district director may also levy upon 
property with respect to which there is a lien provided by section 6321 
or 6324 for the payment of the tax. For exemption of certain property 
from levy, see section 6334 and the regulations thereunder. As used in 
section 6331 and this section, the term ``tax'' includes any interest, 
additional amount, addition to tax, or assessable penalty, together with 
costs and expenses. Property subject to a Federal tax lien which has 
been sold or

[[Page 413]]

otherwise transferred by the taxpayer may be seized while in the hands 
of the transferee or any subsequent transferee. However, see provisions 
under sections 6323 and 6324 (a)(2) and (b) for protection of certain 
transferees against a Federal tax lien. Levy may be made by serving a 
notice of levy on any person in possession of, or obligated with respect 
to, property or rights to property subject to levy, including 
receivables, bank accounts, evidences of debt, securities, and salaries, 
wages, commissions, or other compensation. A levy on a bank reaches any 
interest that accrues on the taxpayer's balance under the terms of the 
bank's agreement with the depositor during the 21-day holding period 
provided for in section 6332(c). Except as provided in Sec.  301.6331-
1(b)(1) with regard to a levy on salary or wages, a levy extends only to 
property possessed and obligations which exist at the time of the levy. 
Obligations exist when the liability of the obligor is fixed and 
determinable although the right to receive payment thereof may be 
deferred until a later date. For example, if on the first day of the 
month a delinquent taxpayer sold personal property subject to an 
agreement that the buyer remit the purchase price on the last day of the 
month, a levy made on the buyer on the 10th day of the month would reach 
the amount due on the sale, although the buyer need not satisfy the levy 
by paying over the amount to the district director until the last day of 
the month. Similarly, a levy only reaches property in the possession of 
the person levied upon at the time the levy is made together with 
interest that accrues during the 21-day holding period provided for in 
section 6332(c). For example, a levy made on a bank with respect to the 
account of a delinquent taxpayer is satisfied if the bank surrenders the 
amount of the taxpayer's balance at the time the levy is made. The levy 
has no effect upon any subsequent deposit made in the bank by the 
taxpayer. Subsequent deposits may be reached only by a subsequent levy 
on the bank.
    (2) Jeopardy cases. If the district director finds that the 
collection of any tax is in jeopardy, he or she may make notice and 
demand for immediate payment of such tax and, upon failure or refusal to 
pay such tax, collection thereof by levy shall be lawful without regard 
to the 10-day period provided in section 6331(a), the 30-day period 
provided in section 6331(d), or the limitation on levy provided in 
section 6331(g)(1).
    (3) Bankruptcy or receivership cases. During a bankruptcy proceeding 
or a receivership proceeding in either a Federal or a State court, the 
assets of the taxpayer are in general under the control of the court in 
which such proceeding is pending. Taxes cannot be collected by levy upon 
assets in the custody of a court, whether or not such custody is 
incident to a bankruptcy or receivership proceeding, except where the 
proceeding has progressed to such a point that the levy would not 
interfere with the work of the court or where the court grants 
permission to levy. Any assets which under applicable provisions of law 
are not under the control of the court may be levied upon, for example, 
property exempt from court custody under State law or the bankrupt's 
earnings and property acquired after the date of bankruptcy. However, 
levy upon such property is not mandatory and the Government may rely 
upon payment of taxes in the proceeding.
    (4) Certain types of compensation--(i) Federal employees. Levy may 
be made upon the salary or wages of any officer or employee (including 
members of the Armed Forces), or elected or appointed official, of the 
United States, the District of Columbia, or any agency or 
instrumentality of either, by serving a notice of levy on the employer 
of the delinquent taxpayer. As used in this subdivision, the term 
``employer'' means (a) the officer or employee of the United States, the 
District of Columbia, or of the agency or instrumentality of the United 
States or the District of Columbia, who has control of the payment of 
the wages, or (b) any other officer or employee designated by the head 
of the branch, department, agency, or instrumentality of the United 
States or of the District of Columbia as the party upon whom service of 
the notice of levy may be made. If the head of such branch, department, 
agency or instrumentality designates

[[Page 414]]

an officer or employee other than one who has control of the payment of 
the wages, as the party upon whom service of the notice of levy may be 
made, such head shall promptly notify the Commissioner of the name and 
address of each officer or employee so designated and the scope or 
extent of his authority as such designee.
    (ii) State and municipal employees. Salaries, wages, or other 
compensation of any officer, employee, or elected or appointed official 
of a State or Territory, or of any agency, instrumentality, or political 
subdivision thereof, are also subject to levy to enforce collection of 
any Federal tax.
    (iii) Seamen. Notwithstanding the provisions of section 12 of the 
Seamen's Act of 1915 (46 U.S.C. 601), wages of seamen, apprentice 
seamen, or fishermen employed on fishing vessels are subject to levy. 
See section 6334(c).
    (5) Noncompetent Indians. Solely for purposes of sections 6321 and 
6331, any interest in restricted land held in trust by the United States 
for an individual noncompetent Indian (and not for a tribe) shall not be 
deemed to be property, or a right to property, belonging to such Indian.
    (b) Continuing levies and successive seizures--(1) Continuing effect 
of levy on salary and wages. A levy on salary or wages has continuous 
effect from the time the levy originally is made until the levy is 
released pursuant to section 6343. For this purpose, the term salary or 
wages includes compensation for services paid in the form of fees, 
commissions, bonuses, and similar items. The levy attaches to both 
salary or wages earned but not yet paid at the time of the levy, 
advances on salary or wages made subsequent to the date of the levy, and 
salary or wages earned and becoming payable subsequent to the date of 
the levy, until the levy is released pursuant to section 6343. In 
general, salaries or wages that are the subject of a continuing levy and 
are not exempt from levy under section 6334(a)(8) or (9), are to be paid 
to the district director, the service center director, or the compliance 
center director (director) on the same date the payor would otherwise 
pay over the money to the taxpayer. For example, if an individual 
normally is paid on the Wednesday following the close of each work week, 
a levy made upon his or her employer on any Monday would apply to both 
wages due for the prior work week and wages for succeeding work weeks as 
such wages become payable. In such a case, the levy would be satisfied 
if, on the first Wednesday after the levy and on each Wednesday 
thereafter until the employer receives a notice of release from levy 
described in section 6343, the employer pays over to the director wages 
that would otherwise be paid to the employee on such Wednesday (less any 
exempt amount pursuant to section 6334).
    (2) Successive seizures. Whenever any property or rights to property 
upon which a levy has been made are not sufficient to satisfy the claim 
of the United States for which the levy is made, the district director 
may thereafter, and as often as may be necessary, proceed to levy in 
like manner upon any other property or rights to property subject to 
levy of the person against whom such claim exists or on which there is a 
lien imposed by section 6321 or 6324 (or the corresponding provision of 
prior law) for the payment of such claim until the amount due from such 
person, together with all costs and expenses, is fully paid.
    (c) Service of notice of levy by mail. A notice of levy may be 
served by mailing the notice to the person upon whom the service of a 
notice of levy is authorized under paragraph (a)(1) of this section. In 
such a case the date and time the notice is delivered to the person to 
be served is the date and time the levy is made. If the notice is sent 
by certificated mail, return receipt requested, the date of delivery on 
the receipt is treated as the date the levy is made. If, after receipt 
of a notice of levy, an officer or other person authorized to act on 
behalf of the person served signs and notes the date and time of receipt 
on the notice of levy, the date and time so the contrary, the date and 
time of delivery.
    Any person may, upon written notice to the district director having 
audit jurisdiction over such person, have all notices of levy by mail 
sent to one designated office. After such a notice is received by the 
district director, notices

[[Page 415]]

of levy by mail will be sent to the designated office until a written 
notice withdrawing the request or a written notice designating a 
different office is received by the district director.
    (d) Effective date. These regulations are effective December 10, 
1992.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7139, 36 FR 15041, Aug. 
12, 1971; T.D. 7620, 44 FR 27987, May 14, 1979; T.D. 7874, 48 FR 10061, 
Mar. 10, 1983; T.D. 8558, 59 FR 38903, Aug. 1, 1994]



Sec.  301.6331-2  Procedures and restrictions on levies.

    (a) Notice of intent to levy--(1) In general. Levy may be made upon 
the salary, wages, or other property of a taxpayer for any unpaid tax no 
less than 30 days after the district director, the service center 
director, or the compliance center director (director) has notified the 
taxpayer in writing of the intent to levy. The notice must be given in 
person, be left at the dwelling or usual place of business of the 
taxpayer, or be sent by registered or certified mail to the taxpayer's 
last known address. For further guidance regarding the definition of 
last known address, see Sec.  301.6212-2. The notice of intent to levy 
is separate from, but may be given at the same time as, the notice and 
demand described in Sec.  301.6331-1.
    (2) Content of Notice. The notice of intent to levy is to contain a 
brief statement in nontechnical terms including the following 
information--
    (i) The Internal Revenue Code provisions and the procedures relating 
to levy and sale of property;
    (ii) The administrative appeals available with respect to the levy 
and sale of property and the procedures relating to such appeals;
    (iii) The alternatives available that could prevent levy on the 
property (including the use of an installment agreement under section 
6159); and
    (iv) The Internal Revenue Code provisions and the procedures 
relating to redemption of property and release of liens on property.
    (b) Uneconomical levy--(1) In general. No levy may be made on 
property if the director estimates that the anticipated expenses with 
respect to the levy and sale will exceed the fair market value of the 
property. The estimate is to be made on an aggregate basis for all of 
the items that are anticipated to be seized pursuant to the levy. 
Generally, no levy should be made on individual items of insignificant 
monetary value. For the definition of fair market value, see Sec.  
301.6325-1(b)(1)(i). See Sec.  301.6341-1 concerning the expenses of 
levy and sale.
    (2) Time of estimate. The estimate, which may be formal or informal, 
is to be made at the time of the seizure or within a reasonable period 
of time prior to a seizure. The estimate may be based on earlier 
estimates of fair market value and anticipated expenses of the same or 
similar property.
    (3) Examples. The following examples illustrate the application of 
this paragraph (b):

    Example 1. A director anticipates that the taxpayer has only one 
item of property that can be seized and sold. This item is estimated to 
have a fair market value of $250.00. The director also estimates that 
the costs of seizure and sale will total $300.00 if this item is seized. 
The director is prohibited from levying on this one item of the 
taxpayer's property because the costs of seizure and sale are estimated 
to exceed the property's fair market value.
    Example 2. The facts are the same as in Example 1 except that the 
director anticipates that the taxpayer has 10 items of property that can 
be seized and sold. Each of those items is estimated to have a fair 
market value of $250.00. The director also estimates that the costs of 
seizure and sale will total $300.00 regardless of how many of those 
items are seized. The director is prohibited from levying on only one 
item of the taxpayer's property because the costs of seizure and sale 
are estimated to exceed the fair market value of the single item of 
property. The director, however, would not be prohibited from levying on 
two or more items of the taxpayer's property because the aggregate fair 
market value of the seized property would exceed the estimated costs of 
seizure and sale.
    Example 3. The taxpayer has three items of property, A, B, and C. 
The director anticipates that the value of items A, B, and C depends on 
their being sold as a unit. The director estimates that due to high 
anticipated costs of storing or maintaining item B prior to the sale, 
the aggregate fair market value of items A, B, and C will not exceed the 
anticipated expenses of seizure and sale if all three items are seized. 
Accordingly, the director is prohibited from levying on items A, B, and 
C.

[[Page 416]]

    Example 4. The facts are the same as in Example 3 except that the 
director does not anticipate that the value of items A, B, and C depends 
on those items being sold as a unit. If the director estimates that the 
aggregate fair market value of items A and C exceeds the aggregate 
anticipated costs of the seizure and sale of those two items, items A 
and C can be seized and sold. The director is prohibited from levying on 
item B because the high cost of storing or maintaining item B is 
estimated to exceed the fair market value of item B.

    (c) Restriction on levy on date of appearance. Except for continuing 
levies on salaries or wages described in Sec.  301.6331-1(b)(1), no levy 
may be made on any property of a person on the day that person, or an 
officer or employee of that person, is required to appear in response to 
a summons served for the purpose of collecting any underpayment of tax 
from that person. For purposes of this paragraph (c), the date on which 
an appearance is required is the date fixed by an officer or employee of 
the Internal Revenue Service pursuant to section 7605 or the date (if 
any) fixed as the result of a judicial proceeding instituted under 
sections 7604 and 7402(b) seeking the enforcement of the summons.
    (d) Jeopardy. Paragraphs (a) and (c) of this section do not apply to 
a levy if the director finds, for purposes of Sec.  301.6331-1(a)(2), 
that the collection of tax is in jeopardy.
    (e) Effective date. These regulations are effective December 10, 
1992.

[T.D. 8558, 59 FR 38903, Aug. 1, 1994, as amended by T.D. 8939, 66 FR 
2821, Jan. 12, 2001]



Sec.  301.6331-3  Restrictions on levy while offers to compromise are pending.

    Cross-reference. For provisions relating to the making of levies 
while an offer to compromise is pending, see Sec.  301.7122-1.

[T.D. 9027, 67 FR 77417, Dec. 18, 2002]



Sec.  301.6331-4  Restrictions on levy while installment agreements 
are pending or in effect.

    (a) Prohibition on levy--(1) In general. No levy may be made to 
collect a tax liability that is the subject of an installment agreement 
during the period that a proposed installment agreement is pending with 
the Internal Revenue Service (IRS), for 30 days immediately following 
the rejection of a proposed installment agreement, during the period 
that an installment agreement is in effect, and for 30 days immediately 
following the termination of an installment agreement. If, within the 30 
days following the rejection or termination of an installment agreement, 
the taxpayer files an appeal with the IRS Office of Appeals, no levy may 
be made while the rejection or termination is being considered by 
Appeals. This section will not prohibit levy to collect the liability of 
any person other than the person or persons named in the installment 
agreement.
    (2) When a proposed installment agreement becomes pending. A 
proposed installment agreement becomes pending when it is accepted for 
processing. The IRS may not accept a proposed installment agreement for 
processing following reference of a case involving the liability that is 
the subject of the proposed installment agreement to the Department of 
Justice for prosecution or defense. The proposed installment agreement 
remains pending until the IRS accepts the proposal, the IRS notifies the 
taxpayer that the proposal has been rejected, or the proposal is 
withdrawn by the taxpayer. If a proposed installment agreement that has 
been accepted for processing does not contain sufficient information to 
permit the IRS to evaluate whether the proposal should be accepted, the 
IRS will request the taxpayer to provide the needed additional 
information. If the taxpayer does not submit the additional information 
that the IRS has requested within a reasonable time period after such a 
request, the IRS may reject the proposed installment agreement.
    (3) Revised proposals of installment agreements submitted following 
rejection. If, following the rejection of a proposed installment 
agreement, the taxpayer makes a good faith revision of the proposal and 
submits the revision within 30 days of the date of rejection, the 
provisions of this section shall apply to that revised proposal.
    (4) Exceptions. Paragraph (a)(1) of this section shall not prohibit 
levy if the taxpayer files a written notice with the IRS that waives the 
restriction on levy

[[Page 417]]

imposed by this section, the IRS determines that the proposed 
installment agreement was submitted solely to delay collection, or the 
IRS determines that collection of the tax to which the installment 
agreement or proposed installment agreement relates is in jeopardy.
    (b) Other actions by the IRS while levy is prohibited--(1) In 
general. The IRS may take actions other than levy to protect the 
interests of the Government with regard to the liability identified in 
an installment agreement or proposed installment agreement. Those 
actions include, for example--
    (i) Crediting an overpayment against the liability pursuant to 
section 6402;
    (ii) Filing or refiling notices of Federal tax lien; and
    (iii) Taking action to collect from any person who is not named in 
the installment agreement or proposed installment agreement but who is 
liable for the tax to which the installment agreement relates.
    (2) Proceedings in court. Except as otherwise provided in this 
paragraph (b)(2), the IRS will not refer a case to the Department of 
Justice for the commencement of a proceeding in court, against a person 
named in an installment agreement or proposed installment agreement, if 
levy to collect the liability is prohibited by paragraph (a)(1) of this 
section. Without regard to whether a person is named in an installment 
agreement or proposed installment agreement, however, the IRS may 
authorize the Department of Justice to file a counterclaim or third-
party complaint in a refund action or to join that person in any other 
proceeding in which liability for the tax that is the subject of the 
installment agreement or proposed installment agreement may be 
established or disputed, including a suit against the United States 
under 28 U.S.C. 2410. In addition, the United States may file a claim in 
any bankruptcy proceeding or insolvency action brought by or against 
such person. If a person named in an installment agreement is joined in 
a proceeding, the United States obtains a judgment against that person, 
and the case is referred back to the IRS for collection, collection will 
continue to occur pursuant to the terms of the installment agreement.
    (c) Statute of limitations--(1) Suspension of the statute of 
limitations on collection. The statute of limitations under section 6502 
for collection of any liability shall be suspended during the period 
that a proposed installment agreement relating to that liability is 
pending with the IRS, for 30 days immediately following the rejection of 
a proposed installment agreement, and for 30 days immediately following 
the termination of an installment agreement. If, within the 30 days 
following the rejection or termination of an installment agreement, the 
taxpayer files an appeal with the IRS Office of Appeals, the statute of 
limitations for collection shall be suspended while the rejection or 
termination is being considered by Appeals. The statute of limitations 
for collection shall continue to run if an exception under paragraph 
(a)(4) of this section applies and levy is not prohibited with respect 
to the taxpayer.
    (2) Waivers of the statute of limitations on collection. The IRS may 
continue to request, to the extent permissible under section 6502 and 
Sec.  301.6159-1, that the taxpayer agree to a reasonable extension of 
the statute of limitations for collection.
    (d) Cross-reference. For provisions relating to the making of levies 
while an installment agreement is pending or in effect, see Sec.  
301.6159-1.
    (e) Effective/applicability date. Paragraphs (a), (b), and (c) are 
applicable beginning December 18, 2002. Paragraph (d) is applicable 
beginning November 25, 2009.

[T.D. 9027, 67 FR 77417, Dec. 18, 2002, as amended by T.D. 9473, 74 FR 
61530, Nov. 25, 2009]



Sec.  301.6332-1  Surrender of property subject to levy.

    (a) Requirement--(1) In general. Except as otherwise provided in 
Sec.  301.6332-2, relating to levy in the case of life insurance and 
endowment contracts, and in Sec.  301.6332-3, relating to property held 
by banks, any person in possession of (or obligated with respect to) 
property or rights to property subject to levy and upon which a levy has 
been made shall, upon demand of the district director, surrender the 
property or rights (or

[[Page 418]]

discharge the obligation) to the district director, except that part of 
the property or rights (or obligation) which, at the time of the demand, 
is actually or constructively under the jurisdiction of a court because 
of an attachment or execution under any judicial process.
    (2) Levy on bank deposits held in offices outside the United States. 
Notwithstanding subparagraph (1) of this paragraph (a), if a levy has 
been made upon property or rights to property subject to levy which a 
bank engaged in the banking business in the United States or a 
possession of the United States is in possession of (or obligated with 
respect to), the Commissioner shall not enforce the levy with respect to 
any deposits held in an office of the bank outside the United States or 
a possession of the United States, unless the notice of levy specifies 
that the district director intends to reach such deposits. The notice of 
levy shall not specify that the district director intends to reach such 
deposits unless the district director believes--
    (i) That the taxpayer is within the jurisdiction of a U.S. court at 
the time the levy is made and that the bank is in possession of (or 
obligated with respect to) deposits of the taxpayer in an office of the 
bank outside the United States or a possession of the United States; or
    (ii) That the taxpayer is not within the jurisdiction of a U.S. 
court at the time the levy is made, that the bank is in possession of 
(or obligated with respect to) deposits of the taxpayer in an office 
outside the United States or a possession of the United States, and that 
such deposits consist, in whole or in part, of funds transferred from 
the United States or a possession of the United States in order to 
hinder or delay the collection of a tax imposed by the Code. For 
purposes of this subparagraph, the term ``possession of the United 
States'' includes Guam, the Midway Islands, the Panama Canal Zone, the 
Commonwealth of Puerto Rico, American Samoa, the Virgin Islands, and 
Wake Island.
    (b) Enforcement of levy--(1) Extent of personal liability. Any 
person who, upon demand of the district director, fails or refuses to 
surrender any property or right to property subject to levy is liable in 
his own person and estate in a sum equal to the value of the property or 
rights not so surrendered, together with costs and interest. The 
liability, however, may not exceed the amount of the taxes for the 
collection of which the levy was made. Interest is to be computed at the 
annual rate referred to in regulations under section 6621 from the date 
of the levy, or, in the case of a continuing levy on salary or wages 
(see section 6331(d)(3)), from the date the person would otherwise have 
been obligated to pay over the wages or salary to the taxpayer. Any 
amount recovered, other than cost, will be credited against the tax 
liability for the collection of which the levy was made.
    (2) Penalty for violation. In addition to the personal liability 
described in subparagraph (1) of this paragraph (b), any person who is 
required to surrender property or rights to property and who fails or 
refuses to surrender them without reasonable cause is liable for a 
penalty equal to 50 percent of the amount recoverable under section 
6332(d)(1). No part of the penalty described in this subparagraph shall 
be credited against the tax liability for the collection of which the 
levy was made. The penalty described in this subparagraph is not 
applicable in cases where bona fide dispute exists concerning the amount 
of the property to be surrendered pursuant to a levy or concerning the 
legal effectiveness of the levy. However, if a court in a later 
enforcement suit sustains the levy, then reasonable cause would usually 
not exist to refuse to honor a later levy made under similar 
circumstances.
    (c) Effect of honoring levy--(1) In general. Any person in 
possession of, or obligated with respect to, property or rights to 
property subject to levy and upon which a levy has been made who, upon 
demand by the district director, surrenders the property or rights to 
property, or discharges the obligation, to the district director, or who 
pays a liability described in paragraph (b)(1) of this section, is 
discharged from any obligation or liability to the delinquent taxpayer 
and any other person with respect to the property or rights to property 
arising from the surrender or payment.

[[Page 419]]

    (2) Exception for certain incorrectly surrendered property. Any 
person who surrenders to the Internal Revenue Service property or rights 
to property not properly subject to levy in which the delinquent 
taxpayer has no apparent interest is not relieved of liability to a 
third party who has an interest in the property. However, if the 
delinquent taxpayer has an apparent interest in property or rights to 
property, a person who makes a good faith determination that such 
property or rights to property in his or her possession has been levied 
upon by the Internal Revenue Service and who surrenders the property to 
the United States in response to the levy is relived of liability to a 
third party who has an interest in the property or rights to property, 
even if it is subsequently determined that the property was not properly 
subject to levy.
    (3) Remedy. In situations described in paragraphs (c)(1) and (c)(2) 
of this section, taxpayers and third parties who have an interest in 
property surrendered in response to a levy may secure from the Internal 
Revenue Service the administrative relief provided for in section 
6343(b) or may bring suit to recover the property under section 7426.
    (4) Examples. The provisions of this paragraph (c) may be 
illustrated by the following examples:

    Example 1. M Bank is served with a notice of levy for an unpaid tax 
liability due from A in the amount of $2,000. M Bank holds $2,000 in a 
checking account in the names of A or B or C. Although all of the 
deposits into the account were made by B and C, A has an unrestricted 
right to withdraw the funds from the account. M Bank surrenders the 
entire account to the district director at the end of the holding period 
provided in section 6332(c). Under paragraph (c)(1) of this section, M 
Bank is not liable to B or C for any amount, even if B or C prove that 
the funds in the account did not belong to A, because A's unrestricted 
right to withdraw the funds is an interest which in subject to levy. B 
or C may, however, seek the return of the funds from the United States 
as provided in sections 6343(b) and 7426 of the Internal Revenue Code.
    Example 2. A is indebted to B for $400. Unbeknownst to A, B has 
assigned his right to receive payment to C. A is served with a notice of 
levy for an unpaid tax liability due from B for $400. A, acting with no 
knowledge of the assignment to C, surrenders $400 to the district 
director. A is discharged from his obligation to pay B, the taxpayer. 
Under paragraph (c)(2) of this section, because B had an apparent 
interest in the funds that A owed to B, and because A determined in good 
faith that those funds had been levied upon, A is also discharged from 
any liability to C, even though the money is not properly subject to 
levy. C may, however, seek return of the payment from the United States 
as provided in sections 6343(b) and 7426 of the Internal Revenue Code.
    Example 3. M Bank is served with a notice of levy for an unpaid tax 
liability due from ``John H. Smith, Sr.'' in the amount of $5,000. M 
Bank fails to read the notice of levy carefully. When searching its 
records, M Bank finds the name of ``John H. Smith, Jr.'' and looks no 
further. M Bank surrenders $5,000 from John H. Smith, Jr.'s checking 
account to the district director. M Bank is not discharged from 
liability under section 6332(e) of the Internal Revenue Code because the 
delinquent taxpayer (John H. Smith, Sr.) had no apparent interest in the 
account of John H. Smith, Jr. (Generally, John H. Smith Jr. may seek 
return of the payment from the United States as provided in sections 
6343 and 7426 of the Internal Revenue Code.)
    Example 4. M Bank is served with a notice of levy for an unpaid tax 
liability due from ``Robert A. Jones'' in the amount of $5,000. M Bank 
searches its records and identifies four separate accounts of $1,000 
each in the name of ``Robert A. Jones.'' All four accounts list 
different addresses and social security identification numbers. M Bank 
surrenders all four accounts totalling $4,000 in response to the levy. M 
Bank could not in good faith have determined that all four accounts were 
levied upon. Therefore, M Bank is not discharged from liability to any 
person other than the taxpayer whose account was levied upon.

    (5) Effective date. Paragraph (c) of this section is effective 
January 11, 1993. However, persons surrendering property to the Internal 
Revenue Service may rely on the regulations with respect to levies 
issued after November 10, 1988.
    (d) Person defined. The term ``person,'' as used in section 6332(a) 
and this section, includes an officer or employee of a corporation or a 
member or employee of a partnership, who is under a duty to surrender 
the property or rights to property or to discharge the obligation. In 
the case of a levy upon the salary or wages of an officer, employee, or 
elected or appointed official of the United States, the District of 
Columbia, or any agency or instrumentality of either, the term 
``person'' includes the officer or employee of the

[[Page 420]]

United States, of the District of Columbia, or of such agency or 
instrumentality who is under a duty to discharge the obligation. As to 
the officer or employee who is under such duty, see paragraph (a)(4)(i) 
of Sec.  301.6331-1.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7317, Apr. 
13, 1972; T.D. 7620, 44 FR 27988, May 14, 1979; T.D. 8466, 58 FR 17, 
Jan. 4, 1993; T.D.8467, 58 FR 3829, Jan. 12, 1993]



Sec.  301.6332-2  Surrender of property subject to levy in the case 
of life insurance and endowment contracts.

    (a) In general. This section provides special rules relating to the 
surrender of property subject to levy in the case of life insurance and 
endowment contracts. The provisions of Sec.  301.6332-1 which relate 
generally to the surrender of property subject to levy apply, to the 
extent not inconsistent with the special rules set forth in this 
section, to a levy in the case of life insurance and endowment 
contracts.
    (b) Effect of service of notice of levy--(1) In general. (i) A 
notice of levy served by a district director on an insuring organization 
with respect to a life insurance or endowment contract issued by the 
organization shall constitute--
    (A) A demand by the district director for the payment of the cash 
loan value of the contract adjusted in accordance with paragraph (c) of 
this section, and
    (B) The exercise of the right of the person against whom the tax is 
assessed to the advance of such cash loan value.
    (ii) It is unnecessary for the district director to surrender the 
contract document to the insuring organization upon which the levy is 
made. However, the notice of levy will include a certification by the 
district director that a copy of the notice of levy has been mailed to 
the person against whom the tax is assessed at his last known address. 
For further guidance regarding the definition of last known address, see 
Sec.  301.6212-2. At the time of service of the notice of levy, the levy 
is effective with respect to the cash loan value of the insurance 
contract, subject to the condition that if the levy is not satisfied or 
released before the 90th day after the date of service, the levy can be 
satisfied only by payment of the amount described in paragraph (c) of 
this section. Other than satisfaction or release of the levy, no event 
during the 90-day period subsequent to the date of service of the notice 
of levy shall release the cash loan value from the effect of the levy. 
For example, the termination of the policy by the taxpayer or by the 
death of the insured during such 90-day period shall not release the 
levy. For the rules relating to the time when the insuring organization 
is to pay over the required amount, see paragraph (c) of this section.
    (2) Notification of amount subject to levy--(i) Full payment before 
the 90th day. In the event that the unpaid liability to which the levy 
relates is satisfied at any time during the 90-day period subsequent to 
the date of service of the notice of levy, the district director will 
promptly give the insuring organization written notification that the 
levy is released.
    (ii) Notification after the 90th day. In the event that notification 
is not given under subdivision (i) of this subparagraph, the district 
director will, promptly following the 90th day after service of the 
notice of levy, give the insuring organization written notification of 
the current status of all accounts listed on the notice of levy, and of 
the total payments received since service of the notice of levy. This 
notification will be given to the insuring organization whether or not 
there has been any change in the status of the accounts.
    (c) Satisfaction of levy--(1) In general. The levy described in 
paragraph (b) of this section with respect to a life insurance or 
endowment contract shall be deemed to be satisfied if the insuring 
organization pays over to the district director the amount which the 
person against whom the tax is assessed could have had advanced to him 
by the organization on the 90th day after service of the notice of levy 
on the organization. However, this amount is increased by the amount of 
any advance (including contractual interest thereon), generally called a 
policy loan, made to the person on or after the date the organization 
has actual notice or knowledge, within the meaning of section 
6323(i)(1), of the existence of the tax lien with respect to which the 
levy is made. The insuring organization

[[Page 421]]

may, nevertheless, make an advance (including contractual interest 
thereon), generally called an automatic premium loan, made automatically 
to maintain the contract in force under an agreement entered into before 
the organization has such actual notice or knowledge. In any event, the 
amount paid to the district director by the insuring organization is not 
to exceed the amount of the unpaid liability shown on the notification 
described in paragraph (b)(2) of this section. The amount, determined in 
accordance with the provisions of this section, subject to the levy 
shall be paid to the district director by the insuring organization 
promptly after receipt of the notification described in paragraph (b)(2) 
of this section. The satisfaction of a levy with respect to a life 
insurance or endowment contract will not discharge the contract from the 
tax lien. However, see section 6323(b)(9)(C) and the regulations 
thereunder concerning the liability of an insurance company after 
satisfaction of a levy with respect to a life insurance or endowment 
contract. If the person against whom the tax is assessed so directs, the 
insuring organization, on a date before the 90th day after service of 
the notice of levy, may satisfy the levy by paying over an amount 
computed in accordance with the provisions of this subparagraph 
substituting such date for the 90th day. In the event of termination of 
the policy by the taxpayer or by the death of the insured on a date 
before the 90th day after service of the notice of levy, the amount to 
be paid over to the district director by the insuring organization in 
satisfaction of the levy shall be an amount computed in accordance with 
the provisions of this subparagraph substituting the date of termination 
of the policy or the date of death for the 90th day.
    (2) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. On March 5, 1968, a notice of levy for an unpaid income 
tax assessment due from A in the amount of $3,000 is served on the X 
Insurance Company with respect to A's life insurance policy. On March 5, 
1968, the cash loan value of the policy is $1,500. On April 9, 1968, A 
does not pay a premium due on the policy in the amount of $200. Under an 
automatic premium advance provision contained in the policy originally 
issued in 1960, X advances the premium out of the cash value of the 
policy. As of June 3, 1968 (the 90th day after service of the notice of 
levy), pursuant to the provisions of the policy, the amount of accrued 
charges upon the automatic premium advance in the amount of $200 for the 
period April 9, 1968, through June 3, 1968, is $2. On June 5, 1968, the 
district director gives written notification to X indicating that A's 
unpaid tax assessment is $2,500. Under this section, X is required to 
pay to the district director, promptly after receipt of the June 5, 
1968, notification, the sum of $1,298 ($1,500 less $200 less $2), which 
is the amount A could have had advanced to him by X on June 3, 1968.
    Example 2. Assume the same facts as in example 1 except that on May 
10, 1968, A requests and X grants an advance in the amount of $1,000. X 
has actual notice of the existence of the lien by reason of the service 
of the notice of levy on March 5, 1968. This advance is not required to 
be made automatically under the policy and reduces the amount of the 
cash value of the policy. For the use of the $1,000 advance during the 
period May 10, 1968, through June 3, 1968, X charges A the sum of $3. 
Under this section, X is required to pay to the district director, 
promptly after receipt of the June 5, 1968, notification, the sum of 
$1,298. This $1,298 amount is composed of the $295 amount ($1,500 less 
$200 less $2 less $1,000 less $3) A could have had advanced to him by X 
on June 3, 1968, plus the $1,000 advance plus the charges in the amount 
of $3 with respect thereto.
    Example 3. Assume the same facts as in example 1 except that the 
insurance contract does not contain an automatic premium advance 
provision. The contract does provide that, upon default in the payment 
of premiums, the policy shall automatically be converted to paid-up term 
insurance with no cash or loan value. A fails to make the premium 
payment of $200 due on April 9, 1968. After expiration of a grace period 
to make the premium payment, the X Insurance Company applies the cash 
loan value of $1,500 to effect the conversion. Since the service of the 
notice of levy constitutes the exercise of A's right to receive the cash 
loan value and the amount applied to effect the conversion is not an 
automatic advance to A to maintain the policy in force, the conversion 
of the policy is not an event which will release the cash loan value 
from the effect of the levy. Therefore, X Insurance Company is required 
to pay to the district director, promptly after receipt of the June 5, 
1968 notification, the sum of $1,500.

    (d) Other enforcement proceedings. The satisfaction of the levy 
described in paragraph (b) of this section by an insuring organization 
shall be without

[[Page 422]]

prejudice to any civil action for the enforcement of any Federal tax 
lien with respect to a life insurance or endowment contract. Thus, this 
levy procedure is not the exclusive means of subjecting the life 
insurance and endowment contracts of the person against whom a tax is 
assessed to the collection of his unpaid assessment. The United States 
may choose to foreclose the tax lien in any case where it is 
appropriate, as, for example, to reach the cash surrender value (as 
distinguished from cash loan value) of a life insurance or endowment 
contract.
    (e) Cross references. (1) For provisions relating to priority of 
certain advances with respect to a life insurance or endowment contract 
after satisfaction of a levy pursuant to section 6332(b), see section 
6323(b)(9) and the regulations thereunder.
    (2) For provisions relating to the issuance of a certificate of 
discharge of a life insurance or endowment contract subject to a tax 
lien, see section 6325(b) and the regulations thereunder.

[T.D. 7180, 37 FR 7317, Apr. 13, 1972, as amended by T.D. 8939, 66 FR 
2821, Jan. 12, 2001]



Sec.  301.6332-3  The 21-day holding period applicable to 
property held by banks.

    (a) In general. This section provides special rules relating to the 
surrender, after 21 days, of deposits subject to levy which are held by 
banks. The provisions of Sec.  301.6332-1 which relate generally to the 
surrender of property subject to levy apply, to the extent not 
inconsistent with the special rules set forth in this section, to a levy 
on property held by banks.
    (b) Definition of bank. For purposes of this section, the term 
``bank'' means--
    (1) A bank or trust company or domestic building and loan 
association incorporated and doing business under the laws of the United 
States (including laws relating to the District of Columbia) or of any 
State, a substantial part of the business of which consists of receiving 
deposits and making loans and discounts, or of exercising fiduciary 
powers similar to those permitted to national banks under authority of 
the Comptroller of the Currency, and which is subject by law to 
supervision and examination by State or Federal authority having 
supervision over banking institutions;
    (2) Any credit union the member accounts of which are insured in 
accordance with the provisions of title II of the Federal Credit Union 
Act, 12 U.S.C. 1781 et seq.; and
    (3) A corporation which, under the laws of the State of its 
incorporation, is subject to supervision and examination by the 
Commissioner of Banking or other officer of such State in charge of the 
administration of the banking laws of such State.
    (c) 21-day holding period--(1) In general. When a levy is made on 
deposits held by a bank, the bank shall surrender such deposits (not 
otherwise subject to an attachment or execution under judicial process) 
only after 21 calendar days after the date the levy is made. The 
district director may request an extension of the 21-day holding period 
pursuant to paragraph (d)(2) of this section. During the prescribed 
holding period, or any extension thereof, the levy shall be released 
only upon notification to the bank by the district director of a 
decision by the Internal Revenue Service to release the levy. If the 
bank does not receive such notification from the district director 
within the prescribed holding period, or any extension thereof, the bank 
must surrender the deposits, including any interest thereon as 
determined in accordance with paragraph (c)(2) of this section (up to 
the amount of the levy), on the first business day after the holding 
period, or any extension thereof, expires. See Sec.  301.6331-1(c) to 
determine when a levy served by mail is made.
    (2) Payment of interest on deposits. When a bank surrenders levied 
deposits at the end of the 21-day holding period (or at the end of any 
longer period that has been requested by the district director), the 
bank must include any interest that has accrued on the deposits prior to 
and during the holding period, and any extension thereof, under the 
terms of the bank's agreement with its depositor, but the bank must not 
surrender an amount greater than the amount of the levy. If the deposits 
are held in a noninterest bearing account at the time the levy is made, 
the bank need not include any interest on the

[[Page 423]]

deposits at the end of the holding period, or any extension thereof, 
under this paragraph. Interest that accrues on deposits and is 
surrendered to the district director at the end of the holding period, 
or any extension thereof, is treated as a payment to the bank's 
customer.
    (3) Transactions affecting accounts. A levy on deposits held by a 
bank applies to those funds on deposit at the time the levy is made, up 
to the amount of the levy, and is effective as of the time the levy is 
made. No withdrawals may be made on levied upon deposits during the 21-
day holding period, or any extension thereof.
    (4) Waiver of 21-day holding period. A depositor may waive the 21-
day holding period by notifying the bank of the depositor's intention to 
do so. Where more than one depositor is listed as the owner of a levied 
account, all depositors listed as owners of the account must agree to a 
waiver of the 21-day holding period. If the 21-day holding period is 
waived, the bank must include with the surrendered deposits a 
notification to the district director of the waiver.
    (5) Examples. The provisions of this paragraph (c) may be 
illustrated by the following examples:

    Example 1. On April 2, 1992, a notice of levy for an unpaid income 
tax assessment due from A in the amount of $10,000 is served on X Bank 
with respect to A's savings account. At the time the notice of levy is 
served, X Bank holds $5,000 in A's interest-bearing savings account. On 
April 24, 1992, (the first business day after the 21-day holding period) 
X Bank must surrender $5,000 plus any interest that accrued on the 
account under the terms of A's contract with X Bank up through April 23, 
1992, (the last day of the holding period).
    Example 2. The facts are the same as in Example 1 except that on 
April 3, 1992, A deposits an additional $5,000 into the account. On 
April 24, 1992, X Bank must still surrender only $5,000 plus the 
interest which accrued thereon until the end of the holding period, 
because the notice of levy served on April 2, 1992, attached only to 
those funds on deposit at the time the notice was served and not to any 
subsequent deposits.
    Example 3. The facts are the same as in Example 1 except that at the 
time the notice of levy is served on X Bank, A's savings account 
contains $50,000. On April 24, 1992, X Bank must surrender $10,000, 
which is the amount of the levy. The levy will not apply to any interest 
that accrues on the deposit during the 21-day holding period, because 
the entire amount of the levy is satisfied by the deposits existing at 
the time the levy is served.
    Example 4. The facts are the same as in Example 1 except that the 
amount of the levy is $5,002. Under the terms of A's contract with the 
bank, the account will earn more than $2 of interest during the 21-day 
holding period. On April 24, 1992, X Bank must surrender $5,002 to the 
district director. The remaining interest which accrued during the 21-
day holding period is not subject to the levy.
    Example 5. On September 3, 1992, A opens a $5,000 six-month 
certificate of deposit account with X Bank. Under the terms of the 
account, the depositor must forfeit up to 30 days of interest on the 
account in the event of early withdrawal. On January 4, 1993, a notice 
of levy for an unpaid income tax assessment due from A in the amount of 
$10,000 is served with respect to A's certificate of deposit account. On 
January 26, 1993, the bank must surrender $5,000 plus the interest which 
accrued on the account through January 25, 1993, minus the penalty of 30 
days of interest as provided in the deposit agreement.
    Example 6. Same facts as in Example 5 except that the notice of levy 
is served on X Bank on February 15, 1993. The certificate matures on 
March 2, 1993. On March 8, X Bank must surrender $5,000 plus the 
interest that accrued on the certificate without any reduction for 
penalties.

    (d) Notification to the district director of errors with respect to 
levied upon bank accounts--(1) In general. If a depositor believes that 
there is an error with respect to the levied upon account which the 
depositor wishes to have corrected, the depositor shall notify the 
district director to whom the assessment is charged by telephone to the 
telephone number listed on the face of the notice of levy in order to 
enable the district director to conduct an expeditious review of the 
alleged error. The district director may require any supporting 
documentation necessary to the review of the alleged error. The 
notification by telephone provided for in this section does not 
constitute or substitute for the filing by a third party of a written 
request under Sec.  301.6343-1(b)(2) for the return of property 
wrongfully levied upon.
    (2) Disputes regarding the merits of the underlying assessment. This 
section does not constitute an additional procedure for an appeal 
regarding the merits of an underlying assessment. However, if in the 
judgment of the district director

[[Page 424]]

a genuine dispute regarding the merits of an underlying assessment 
appears to exist, the district director may request an extension of the 
21-day holding period.
    (3) Notification of errors from sources other than the depositor. 
The district director may take action to release the levy on the bank 
account based on information obtained from a source other than the 
depositor, including the bank in which the account is maintained.
    (e) Effective date. These provisions are effective with respect to 
levies issued on or after January 4, 1993.

[T.D. 8466, 58 FR 18, Jan. 4, 1993]



Sec.  301.6333-1  Production of books.

    If a levy has been made or is about to be made on any property or 
rights to property, any person, having custody or control of any books 
or records containing evidence or statements relating to the property or 
rights to property subject to levy, shall, upon demand of the internal 
revenue officer who has made or is about to make the levy, exhibit such 
books or records to such officer.



Sec.  301.6334-1  Property exempt from levy.

    (a) Enumeration. In addition to exemptions allowed as a matter of 
Internal Revenue Service policy, there shall be exempt from levy--
    (1) Wearing apparel and school books. Such items of wearing apparel 
and such school books as are necessary for the taxpayer or for members 
of his family. Expensive items of wearing apparel, such as furs, which 
are luxuries and are not necessary for the taxpayer or for members of 
his family, are not exempt from levy.
    (2) Fuel, provisions, furniture, and personal effects. So much of 
the fuel, provisions, furniture, and personal effects in the taxpayer's 
household, and of the arms for personal use, livestock, and poultry of 
the taxpayer, that does not exceed $6,250 in value.
    (3) Books and tools of a trade, business or profession. So many of 
the books and tools necessary for the trade, business, or profession of 
an individual taxpayer as do not exceed in the aggregate $3,125 in 
value.
    (4) Unemployment benefits. Any amount payable to an individual with 
respect to his unemployment (including any portion thereof payable with 
respect to dependents) under an unemployment compensation law of the 
United States, of any State, or of the District of Columbia or of the 
Commonwealth of Puerto Rico.
    (5) Undelivered mail. Mail, addressed to any person, which has not 
been delivered to the addressee.
    (6) Certain annuity and pension payments. Annuity or pension 
payments under the Railroad Retirement Act (45 U.S.C. chapter 9), 
benefits under the Railroad Unemployment Insurance Act (45 U.S.C. 
chapter 11), special pension payments received by a person whose name 
has been entered on the Army, Navy, Air Force, and Coast Guard Medal of 
Honor roll (38 U.S.C. 562), and annuities based on retired or retainer 
pay under chapter 73 of title 10 of the United States Code.
    (7) Workmen's compensation. Any amount payable to an individual as 
workmen's compensation (including any portion thereof payable with 
respect to dependents) under a workmen's compensation law of the United 
States, any State, the District of Columbia, or the Commonwealth of 
Puerto Rico.
    (8) Judgments for support of minor children. If the taxpayer is 
required under any type of order or decree (including an interlocutory 
decree or a decree of support pendente lite) of a court of competent 
jurisdiction, entered prior to the date of levy, to contribute to the 
support of that taxpayer's minor children, so much of that taxpayer's 
salary, wages, or other income as is necessary to comply with such order 
or decree. The taxpayer must establish the amount necessary to comply 
with the order or decree. The Service is not required to release a levy 
until such time as it is established that the amount to be released from 
levy actually will be applied in satisfaction of the support obligation. 
The Service may make arrangements with a delinquent taxpayer to 
establish a specific amount of such taxpayer's salary, wage, or other 
income for each pay period that shall be exempt from levy, for purposes 
of complying with a support obligation. If the

[[Page 425]]

taxpayer has more than one source of income sufficient to satisfy the 
support obligation imposed by the order or decree, the amount exempt 
from levy, at the discretion of the Service, may be allocated entirely 
to one salary, wage or source of other income or be apportioned between 
the several salaries, wages, or other sources of income.
    (9) Minimum exemption for wages, salary, and other income. Amounts 
payable to or received by the taxpayer as wages or salary for personal 
services, or as other income, to the extent provided in Sec.  301.6334-2 
through Sec.  301.6334-4.
    (10) Certain service-connected disability payments. Any amount 
payable to an individual as a service-connected (within the meaning of 
section 101(16) of title 38, United States Code (U.S.C.)) disability 
benefit under--
    (i) Subchapters II (wartime disability compensation), III (wartime 
death compensation), IV (peacetime disability compensation), V 
(peacetime death compensation), or VI (general compensation provisions) 
of chapter 11 of title 38, U.S.C.; or
    (ii) Chapters 13 (dependency and indemnity compensation for service 
commenced deaths), 21 (specially adapted housing for disabled veterans), 
23 (burial benefits), 31 (vocational rehabilitation), 32 (post-Vietnam 
era veterans' educational assistance), 34 (veterans' educational 
assistance), 35 (survivors' and dependents' educational assistance), 37 
(home, condominium, and mobile home loans), or 39 (automobiles and 
adaptive equipment for certain disabled veterans and members of the 
armed forces) of title 38, U.S.C.
    (11) Certain public assistance payments. Any amount payable to an 
individual as a recipient of public assistance under--
    (i) Title IV or title XVI (relating to supplemental security income 
for the aged, blind, and disabled) of the Social Security Act (42 U.S.C. 
301 et seq.); or
    (ii) State or local government public assistance or public welfare 
programs for which eligibility is determined by a needs or income test.
    (12) Assistance under Job Training Partnership Act. Any amount 
payable to a participant under the Job Training Partnership Act (29 
U.S.C. 1501 et. seq.) from funds appropriated pursuant to such Act.
    (13) Residences exempt in small deficiency cases and principal 
residences and certain business assets exempt in absence of certain 
approval or jeopardy--(i) Residences in small deficiency cases. If the 
amount of the levy does not exceed $5,000, any real property used as a 
residence of the taxpayer or any real property of the taxpayer (other 
than real property which is rented) used by any other individual as a 
residence.
    (ii) Principal residences and certain business assets. Except to the 
extent provided in section 6334(e), the principal residence (within the 
meaning of section 121) of the taxpayer and tangible personal property 
or real property (other than real property which is rented) used in the 
trade or business of an individual taxpayer.
    (b) Appraisal. The internal revenue officer seizing property of the 
type described in section 6334(a) shall appraise and set aside to the 
owner the amount of such property declared to be exempt. If the taxpayer 
objects at the time of the seizure to the valuation fixed by the officer 
making the seizure, such officer shall summon three disinterested 
individuals who shall make the valuation.
    (c) Other property. No other property or rights to property are 
exempt from levy except the property specifically exempted by section 
6334(a). No provision of a State law may exempt property or rights to 
property from levy for the collection of any Federal tax. Thus, property 
exempt from execution under State personal or homestead exemption laws 
is, nevertheless, subject to levy by the United States for collection of 
its taxes.
    (d) Levy allowed on principal residence. The Service will seek 
approval, in writing, by a judge or magistrate of a district court of 
the United States prior to levy of property that is owned by the 
taxpayer and used as the principal residence of the taxpayer, the 
taxpayer's spouse, the taxpayer's former spouse, or the taxpayer's minor 
child.
    (1) Nature of judicial proceeding. The Government will initiate a 
proceeding for judicial approval of levy on a principal residence by 
filing a petition with the appropriate United States District

[[Page 426]]

Court demonstrating that the underlying liability has not been 
satisfied, the requirements of any applicable law or administrative 
procedure relevant to the levy have been met, and no reasonable 
alternative for collection of the taxpayer's debt exists. The petition 
will ask the court to issue to the taxpayer an order to show cause why 
the principal residence property should not be levied and will also ask 
the court to issue a notice of hearing.
    (2) The taxpayer will be granted a hearing to rebut the Government's 
prima facie case if the taxpayer files an objection within the time 
period required by the court raising a genuine issue of material fact 
demonstrating that the underlying tax liability has been satisfied, that 
the taxpayer has other assets from which the liability can be satisfied, 
or that the Service did not follow the applicable laws or procedures 
pertaining to the levy. The taxpayer is not permitted to challenge the 
merits underlying the tax liability in the proceeding. Unless the 
taxpayer files a timely and appropriate objection, the court would be 
expected to enter an order approving the levy of the principal residence 
property.
    (3) Notice letter to be issued to certain family members. If the 
property to be levied is owned by the taxpayer but is used as the 
principal residence of the taxpayer's spouse, the taxpayer's former 
spouse, or the taxpayer's minor child, the Government will send a letter 
to each such person providing notice of the commencement of the 
proceeding. The letter will be addressed in the name of the taxpayer's 
spouse or ex-spouse, individually or on behalf of any minor children. If 
it is unclear who is living in the principal residence property and/or 
what such person's relationship is to the taxpayer, a letter will be 
addressed to ``Occupant''. The purpose of the letter is to provide 
notice to the family members that the property may be levied. The family 
members may not be joined as parties to the judicial proceeding because 
the levy attaches only to the taxpayer's legal interest in the subject 
property and the family members have no legal standing to contest the 
proposed levy.
    (e) Levy allowed on certain business assets. The property described 
in section 6334(a)(13)(B)(ii) shall not be exempt from levy if--
    (1) An Area Director of the Service personally approves (in writing) 
the levy of such property; or
    (2) The Secretary finds that the collection of tax is in jeopardy. 
An Area Director may not approve a levy under paragraph (e)(1) unless 
the Area Director determines that the taxpayer's other assets subject to 
collection are insufficient to pay the amount due, together with 
expenses of the proceeding. When other assets of an individual taxpayer 
include permits issued by a State and required under State law for the 
harvest of fish or wildlife in the taxpayer's trade or business, the 
taxpayer's other assets also include future income that may be derived 
by such taxpayer from the commercial sale of fish or wildlife under such 
permit.
    (f) Levy allowed on certain specified payments. Any payment 
described in section 6331(h)(2)(B) or (C) shall not be exempt from levy 
if the Secretary approves the levy thereon under section 6331(h).
    (g) Inflation adjustment. For any calendar year beginning after 
1999, each dollar amount referred to in paragraphs (a)(2) and (3) of 
this section will be increased by an amount equal to the dollar amount 
multiplied by the cost-of-living adjustment determined under section 
1(f)(3) for the calendar year (using the language ``calendar year 1998'' 
instead of ``calendar year 1992'' in section 1(f)(3)(B)). If any dollar 
amount as adjusted is not a multiple of $10, the dollar amount will be 
rounded to the nearest multiple of $10 (rounding up if the amount is a 
multiple of $5).
    (h) Effective date. This section is generally effective with respect 
to levies made on or after July 1, 1989. However, any reasonable attempt 
by a taxpayer to comply with the statutory amendments addressed by the 
regulations in this section prior to February 21, 1995, will be 
considered as meeting the requirements of the regulations in this 
section. In addition, paragraph (a)(11)(i) of this section is applicable 
with respect to levies issued after December 31, 1996. Paragraphs 
(a)(2), (a)(3), (a)(8), (a)(13), (d), (e), (f), (g) and

[[Page 427]]

(h) of this section apply as of March 7, 2005.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7319, Apr. 
13, 1972; T.D. 7182, 37 FR 7887, Apr. 21, 1972; T.D. 7620, 44 FR 27988, 
May 14, 1979; T.D. 8568, 59 FR 53088, Oct. 21, 1994; T.D. 8725, 62 FR 
39117, July 22, 1997; T.D. 9189, 70 FR 10885, Mar. 7, 2005]



Sec.  301.6334-2  Wages, salary, and other income.

    (a) In general. Under section 6334 (a)(9) and (d) certain amounts 
payable to or received by a taxpayer as wages, salary, or other income 
are exempt from levy. This section describes the income of a taxpayer 
that is eligible for the exemption from levy (paragraph (b) of this 
section) and how exempt amounts are to be paid to the taxpayer 
(paragraph (c) of this section). Section 301.6334-3 describes that sum 
that will be exempt from levy for each of the taxpayer's pay periods. 
Pay periods are described in Sec.  301.6334-3. For the amounts exempt 
from levy, see Sec.  301.6334-3.
    (b) Eligible taxpayer income. Only wages, salary, or other income 
payable to the taxpayer after the levy is made on the payor may be 
exempt from levy under section 6334(a)(9). No amount of wages, salary, 
or other income that is paid to the taxpayer before levy is made on the 
payor will be so exempt from levy under section 6334(a)(9). The 
provisions of this paragraph (b) may be illustrated by the following 
example:

    Example. Delinquent taxpayer A, an individual, is employed by the M 
Corporation and is paid wages on Friday of each week. Accordingly, A is 
paid wages on Friday, February 16, 1990. On Saturday, February 17, A 
deposits these wages into his personal checking account at Bank N. On 
Tuesday, February 20, a notice of levy is served on the M Corporation 
and also on Bank N. Amounts payable to A as wages on Friday, February 
23, 1990, and any payday thereafter may be exempt from levy under 
section 6334(a)(9). No amount of wages A deposited in his account at 
Bank N on February 17, 1990, is exempt from levy under section 
6334(a)(9).

    (c) Payment of exempt amounts to taxpayer--(1) From wages, salary, 
or income from other sources where levy on all sources not made. In the 
case of a taxpayer who has more than one source of wages, salary, or 
other income, the district director may elect to levy on only one or 
more sources while leaving other sources of income free from levy. If 
the wages, salary, or other income that the district director leaves 
free from levy equal or exceed the amount to which the taxpayer is 
entitled as an exemption from levy under section 6334(a)(9), computed in 
accordance with Sec.  301.6334-3 (and are not otherwise exempt), the 
district director may treat no amount of the taxpayer's wages, salary, 
or other income on which the district director elects to levy as exempt 
from levy. In such a case, the district director must notify the 
employer or other person upon whom the levy is served that no amount of 
the taxpayer's wages, salary, or other income is exempt from levy. The 
employer or other person upon whom the levy is served may rely on such 
notification in paying over amounts pursuant to the levy. In the absence 
of such notification from the district director, however, the employer 
or other person upon whom the levy is served must determine the amount 
exempt from levy pursuant to Sec.  301.6334-3 as if that employer or 
other person upon whom the levy is served is the only source of wages, 
salary, or other income. Amounts not exempt from levy are to be paid to 
the district director in accordance with the terms of the levy. The 
provisions of this paragraph (c)(1) may be illustrated by the following 
example:

    Example. Delinquent taxpayer C is an employee of O Corporation and 
is paid wages totalling $450 on Friday of each week. C also performs 
services for P Corporation and is paid a salary of $250 on Friday of 
each week. On Tuesday, February 20, 1990, a levy is served on O 
Corporation with respect to the wages payable to C. A levy is not served 
on P Corporation. C's filing status is single and C is entitled to 1 
personal exemption. Under Sec.  301.6334-3, C is entitled to an 
exemption from levy under 6334(a)(9) totalling $101.92 for each weekly 
pay period. However, because levy has not been made on C's salary paid 
by the P Corporation ($250 per week) and that salary exceeds the weekly 
amount ($101.92) to which C is entitled as exempt from levy, the 
district director may treat no amount of C's wages paid by the O 
Corporation as exempt from levy. If the district director requires such 
treatment, the district director must notify O Corporation that no 
amount of C's wages is exempt from levy and O Corporation may rely on 
such notification; in

[[Page 428]]

the absence of such notification O Corporation must treat $101.92 as 
exempt from levy.

    (2) Where sources not levied upon are less than exempt amount. If 
the taxpayer's income upon which the district director does not levy is 
less than the amount to which the taxpayer is entitled as exempt from 
levy, then an additional amount, determined to be exempt from levy 
pursuant to Sec.  301.6334-3, may be paid to the taxpayer from the 
sources of wages, salary, or other income upon which levy has been made. 
In such a case, the district director must designate those wages, 
salary, or other income from which the exempt amount is to be paid to 
the taxpayer, and must notify the employer or other person upon whom the 
levy is served of the amount of the taxpayer's wages, salary, or other 
income that is exempt from levy. The employer or other person may rely 
on such notification in paying over amounts pursuant to the levy. In the 
absence of such notification from the district director, the employer or 
other person upon whom the levy is served must determine the amount 
exempt from levy pursuant to Sec.  301.6334-3 as if that employer or 
other person upon whom the levy is served is the only source of wages, 
salary, or other income. Amounts not exempt from levy are to be paid to 
the district director in accordance with the terms of the levy. The 
provisions of this paragraph (c)(2) may be illustrated by the following 
example:

    Example. Delinquent taxpayer C is an employee of O Corporation and 
is paid wages totalling $50 on Friday of each week. C also performs 
services for P Corporation and is paid a salary of $75 on Friday of each 
week. On Tuesday, February 20, 1990, a levy is served on P Corporation 
with respect to the wages and salary of C. C's filing status is single 
and C is entitled to 1 personal exemption. Under Sec.  301.6334-3, C is 
entitled to an exemption from levy under section 6334(a)(9) totalling 
$101.92 for each weekly pay period. The district director may notify P 
Corporation that only $51.92 of C's wages is exempt from levy and P 
Corporation may rely on such notification; in the absence of such 
notification, P Corporation must treat the entire $75 salary as exempt 
from levy.

    (d) Effective date. These provisions are effective with respect to 
levies made on or after July 1, 1989. However, any reasonable attempt by 
a taxpayer to comply with the statutory amendments addressed by these 
regulations prior to February 21, 1995 will be considered as meeting the 
requirements of these regulations.

[T.D. 8568, 59 FR 53088, Oct. 21, 1994]



Sec.  301.6334-3  Determination of exempt amount.

    (a) Individuals paid on weekly basis. In the case of any individual 
who is paid or receives all of his or her wages, salary, and other 
income on a weekly basis, the amount of wages, salary, and other income 
payable to or received by him or her during any week that is exempt from 
levy under section 6334(a)(9) is the exempt amount.
    (b) Term defined. The term exempt amount means an amount equal to--
    (1) The sum of--
    (i) The standard deduction (including additional standard deductions 
on account of age or blindness); and
    (ii) The aggregate amount of the deductions for personal exemptions 
allowed the taxpayer under section 151 in the taxable year in which such 
levy occurs;
    (2) Divided by 52.
    (c) Written and properly verified statement. Unless the taxpayer 
submits to the employer for forwarding to the district director a 
written and properly verified statement (as described in Sec.  301.6334-
4) specifying the facts necessary to determine the proper amount under 
paragraphs (b)(1) (i) and (ii) of this section, paragraphs (b)(1) (i) 
and (ii) of this section must be applied as if the taxpayer were a 
married individual filing a separate return with only 1 personal 
exemption.
    (d) Individuals paid on basis other than weekly--(1) In general. In 
the case of an individual who is paid or receives wages, salary, and 
other income other than on a weekly basis, the amount payable to that 
individual during any applicable pay period that is exempt from levy 
under section 6334(a)(9) is the amount that as nearly as possible will 
result in the same total exemption from levy for such individual over 
that period of time other than weekly as that to which the individual 
would have been entitled under paragraph (b) of this section if, during 
such period of

[[Page 429]]

time, the individual were paid or received such wages, salary, and other 
income on a regular weekly basis.
    (2) Specific pay periods other than weekly. In the case of wages, 
salary, or other income paid to an individual on the basis of an 
established calendar period regularly used by the employer or other 
person levied upon for payroll or payment purposes, the exempt amount of 
wages, salary, and other income payable to or received by an individual 
during an applicable pay period other than weekly equals--
    (i) The sum of--
    (A) The standard deduction (including additional standard deductions 
on account of age or blindness); and
    (B) The aggregate amount of the deductions for personal exemptions 
allowed the taxpayer under section 151 in the taxable year in which such 
levy occurs;
    (ii) Divided by--
    (A) 260 in the case of a daily pay period;
    (B) 26 in the case of a bi-weekly pay period;
    (C) 24 in the case of a semi-monthly pay period; and
    (D) 12 in the case of a monthly pay period.
    (3) Nonspecific pay periods. In the case of wages, salary, or other 
income paid to an individual on a one-time or a recurrent but irregular 
basis and which is not paid on the basis of an established calendar 
period regularly used by the employer or other person levied upon for 
payroll or payment purposes, the exempt amount of wages, salary, and 
other income payable to or received by an individual equals the exempt 
amount defined in paragraph (b) of this section multiplied by the number 
(but not more than 52) of full weeks (consisting of seven calendar days) 
to which such payment is attributable. The provisions of this paragraph 
(d)(3) may be illustrated by the following example:

    Example. Taxpayer A's exempt amount per week (as determined under 
paragraph (b) of this section) is $100. Taxpayer A is hired by 
Corporation X to perform a specific task for Corporation X at a flat fee 
of $1,500 which is to be paid at the completion of the task. Taxpayer A 
completes the task in 10 weeks. The total exempt amount is $1,000 and 
$500 is subject to levy.

    (e) Levies continuing into following years. The exempt amount is 
computed on the basis of the standard deduction (including additional 
standard deductions on account of age or blindness) for the taxpayer's 
filing status and the amount of the deduction for a personal exemption 
in effect in the taxable year in which the original notice of levy is 
served. Unless the taxpayer submits a new verified statement in 
accordance with Sec.  301.6334-4, the exempt amount remains the same for 
pay periods following the pay period in which the notice of levy is 
served even if there is a change in the taxpayer's factual situation or 
a change by operation of law (such as by indexing or otherwise) to the 
standard deduction or personal exemption amounts.
    (f) Effective date. These provisions are effective with respect to 
levies made on or after July 1, 1989. However, any reasonable attempt by 
a taxpayer to comply with the statutory amendments addressed by these 
regulations prior to February 21, 1995 will be considered as meeting the 
requirements of these regulations.

[T.D. 8568, 59 FR 53089, Oct. 21, 1994]



Sec.  301.6334-4  Verified statements.

    (a) In general. For purposes of Sec. Sec.  301.6334-2 and 301.6334-
3, the amount of wages, salary, or other income that is exempt from levy 
must be determined on the basis of a written and properly verified 
statement submitted by the taxpayer to his or her employer for 
submission to the district director specifying the facts necessary to 
determine the standard deduction and the aggregate amount of the 
deductions for personal exemptions allowed the taxpayer under section 
151 in the taxable year in which the levy is served. In the absence of 
submission of such statement, the amount that is exempt from levy must 
be determined as if the taxpayer were a married individual filing a 
separate return with only 1 personal exemption.
    (b) Content of statement. The statement in paragraph (a) of this 
section must be a written statement signed under penalty of perjury, and 
dated, containing the following information--
    (1) The filing status of the taxpayer as either:

[[Page 430]]

    (i) Single;
    (ii) Married filing a joint return;
    (iii) Married filing a separate return;
    (iv) Head of household; or
    (v) Qualifying widow or widower with dependent child;
    (2) The name, relationship, and Social Security Number of each 
individual whom the taxpayer can claim as a personal exemption on the 
taxpayer's income tax return; and
    (3) Any additional standard deductions that the taxpayer can claim 
on account of age (65 or older) or blindness on the taxpayer's income 
tax return.
    (c) Submission of verified statement--(1) Obligation of employer. An 
employer upon whom a notice of levy for wages, salary, or other income 
of a taxpayer is served must promptly notify the taxpayer of the fact 
that a notice of levy has been served. Unless otherwise indicated on the 
face of the notice of levy, the employer must request the taxpayer to 
provide the employer with a written statement signed under penalty of 
perjury, and dated, containing the information set forth in paragraph 
(b) of this section, and this statement must be submitted by the 
employer to the district director. The employer must submit this 
statement to the district director at the time the employer first 
responds to the notice of levy.
    (2) Submission by taxpayer. The taxpayer must provide the employer 
upon whom the notice of levy has been served with a verified statement 
complying with paragraph (b) of this section. Unless the taxpayer 
provides a verified statement, the amount that is exempt from levy must 
be determined as if the taxpayer were a married individual filing a 
separate return with only 1 personal exemption.
    (3) Additional statements. A taxpayer may submit a verified 
statement to his or her employer at any time. Except as otherwise 
provided in paragraph (d) of this section, such verified statement will 
be effective for any payment of wages, salary, or other income made 
after the date of submission and will replace any previously submitted 
verified statement. The employer must provide the district director with 
the statement on the next occasion on which the employer responds to the 
notice of levy.
    (d) Effect of verified statement--(1) A verified statement submitted 
by an employee is effective upon receipt by the employer, and the 
employer is required to compute the exempt amount on the basis of the 
information contained in the verified statement unless notified to the 
contrary by the Internal Revenue Service.
    (2) The Internal Revenue Service may find that a verified statement 
submitted by an employee contains a materially incorrect statement, or 
it may determine, after written request to the employee for verification 
of information contained in the verified statement, that it lacks 
sufficient information to determine whether the verified statement is 
correct. If the Internal Revenue Service so finds or determines, and 
notifies the employer in writing that the verified statement is 
defective, upon receipt of such notice the employer shall consider the 
verified statement to be defective for purposes of computing the exempt 
amount.
    (3) If the Internal Revenue Service notifies the employer that the 
verified statement is defective, the Internal Revenue Service will, 
based upon its finding, advise the employer that the employer is to 
compute the exempt amount as if no verified statement had been submitted 
by the employee or will describe upon what basis the exempt amount is to 
be computed. The Internal Revenue Service will also specify which 
Internal Revenue Service office to contact for further information.
    (4) In addition to any notice furnished to the employer for the 
employer's use, the Internal Revenue Service will provide the employer 
with a copy for the employee of each notice it furnishes the employer.
    (5) The employer must promptly furnish the employee with a copy of 
any Internal Revenue Service notice with respect to a verified statement 
submitted by the employee.
    (6) Once paragraph (d)(3) of this section applies, the employer must 
continue to compute the exempt amount on the basis of the written notice 
from the Internal Revenue Service until the Internal Revenue Service by 
written notice advises the employer to compute the exempt amount on the 
basis of

[[Page 431]]

a new verified statement (as described in paragraph (d)(7) of this 
section) and revokes its earlier written notice.
    (7) Once paragraph (d)(3) of this section applies, the employee may 
submit a new verified statement together with a written explanation of 
any circumstances of the employee which have changed since the Internal 
Revenue Service's earlier written notice, or any other circumstances or 
reasons as justification or support for the claims made by the employee 
on the new verified statement. The employee may submit the new verified 
statement and written explanation either--
    (i) To the Internal Revenue Service office specified in the notice 
furnished to the employer under paragraph (d)(3) of this section; or
    (ii) To the employer, who must forward the new verified statement 
and written explanation to the Internal Revenue Service office specified 
in the notice earlier furnished to the employer on the next occasion on 
which the employer responds to the notice of levy.
    (e) Effective date. These provisions are effective with respect to 
levies made on or after July 1, 1989. However, any reasonable attempt by 
a taxpayer to comply with the statutory amendments addressed by these 
regulations prior to February 21, 1995 will be considered as meeting the 
requirements of these regulations.

[T.D. 8568, 59 FR 53090, Oct. 21, 1994]



Sec.  301.6335-1  Sale of seized property.

    (a) Notice of seizure. As soon as practicable after seizure of 
property, the internal revenue officer seizing the property shall give 
notice in writing to the owner of the property (or, in the case of 
personal property, to the possessor thereof). The written notice shall 
be delivered to the owner (or to the possessor, in the case of personal 
property) or left at his usual place of abode or business if he has such 
within the internal revenue district where the seizure is made. If the 
owner cannot be readily located, or has no dwelling or place of business 
within such district, the notice may be mailed to his last known 
address. Such notice shall specify the sum demanded and shall contain, 
in the case of personal property, a list sufficient to identify the 
property seized and, in the case of real property, a description with 
reasonable certainty of the property seized.
    (b) Notice of sale. (1) As soon as practicable after seizure of the 
property, the district director shall give notice of sale in writing to 
the owner. Such notice shall be delivered to the owner or left at his 
usual place of abode or business if located within the internal revenue 
district where the seizure is made. If the owner cannot be readily 
located, or has no dwelling or place of business within such district, 
the notice may be mailed to his last known address. For further guidance 
regarding the definition of last known address, see Sec.  301.6212-2. 
The notice shall specify the property to be sold, and the time, place, 
manner, and conditions of the sale thereof, and shall expressly state 
that only the right, title, and interest of the delinquent taxpayer in 
and to such property is to be offered for sale. The notice shall also be 
published in some newspaper published in the county wherein the seizure 
is made or in a newspaper generally circulated in that county. For 
example, if a newspaper of general circulation in a county but not 
published in that county will reach more potential bidders for the 
property to be sold than a newspaper published within the county, or if 
there is a newspaper of general circulation within the county but no 
newspaper published within the county, the district director may cause 
public notice of the sale to be given in the newspaper of general 
circulation within the county. If there is no newspaper published or 
generally circulated in the county, the notice shall be posted at the 
post office nearest the place where the seizure is made, and in not less 
than two other public places.
    (2) The district director may use other methods of giving notice of 
sale and of advertising seized property in addition to those referred to 
in subparagraph (1) of this paragraph (b), when he believes that the 
nature of the property to be sold is such that a wider or more 
specialized advertising coverage will enhance the possibility of 
obtaining a higher price for the property.

[[Page 432]]

    (3) Whenever levy is made without regard to the 10-day period 
provided in section 6331(a) (relating to cases in which collection is in 
jeopardy), a public notice of sale of the property seized shall not be 
made within such 10-day period unless section 6336 (relating to 
perishable goods) is applicable.
    (c) Time, place, manner, and conditions of sale. The time, place, 
manner, and conditions of the sale of property seized by levy shall be 
as follows:
    (1) Time and place of sale. The time of sale shall not be less than 
10 days nor more than 40 days from the time of giving public notice 
under section 6335(b) (see paragraph (b) of this section). The place of 
sale shall be within the county in which the property is seized, except 
that if it appears to the district director under whose supervision the 
seizure was made that substantially higher bids may be obtained for the 
property if the sale is held at a place outside such county, he may 
order that the sale be held in such other place. The sale shall be held 
at the time and place stated in the notice of sale.
    (2) Adjournment of sale. When it appears to the district director 
that an adjournment of the sale will best serve the interest of the 
United States or that of the taxpayer, the district director may 
adjourn, or cause the internal revenue officer conducting the sale to 
adjourn, the sale from time to time, but the date of the sale shall not 
be later than one month after the date fixed in the original notice of 
sale.
    (3) Determinations relating to minimum price--(i) Minimum price. 
Before the sale of property seized by levy, the district director shall 
determine a minimum price, taking into account the expenses of levy and 
sale, for which the property shall be sold. The internal revenue officer 
conducting the sale may either announce the minimum price before the 
sale begins, or defer announcement of the minimum price until after the 
receipt of the highest bid, in which case, if the highest bid is greater 
than the minimum price, no announcement of the minimum price shall be 
made.
    (ii) Purchase by the United States. Before the sale of property 
seized by levy, the district director shall determine whether the 
purchase of property by the United States at the minimum price would be 
in the best interest of the United States. In determining whether the 
purchase of property would be in the best interest of the United States, 
the district director may consider all relevant facts and circumstances 
including for example--
    (a) Marketability of the property;
    (b) Cost of maintaining the property;
    (c) Cost of repairing or restoring the property;
    (d) Cost of transporting the property;
    (e) Cost of safeguarding the property;
    (f) Cost of potential toxic waste cleanup; and
    (g) Other factors pertinent to the type of property.
    (iii) Effective date. This paragraph (c)(3) applies to 
determinations relating to minimum price made on or after December 17, 
1996.
    (4) Disposition of property at sale--(i) Sale to highest bidder at 
or above minimum price. If one or more persons offer to buy the property 
for at least the amount of the minimum price, the property shall be sold 
to the highest bidder.
    (ii) Property deemed sold to United States at minimum price. If no 
one offers at least the amount of the minimum price for the property and 
the Secretary has determined that it would be in the best interest of 
the United States to purchase the property for the minimum price, the 
property shall be declared to be sold to the United States for the 
minimum price.
    (iii) Release to owner. If the property is not declared to be sold 
under paragraph (c)(4)(i) or (ii) of this section, the property shall be 
released to the owner of the property and the expense of the levy and 
sale shall be added to the amount of tax for the collection of which the 
United States made the levy. Any property released under this paragraph 
(c)(4)(iii) shall remain subject to any lien imposed by subchapter C of 
chapter 64 of subtitle F of the Internal Revenue Code.
    (iv) Effective date. This paragraph (c)(4) applies to dispositions 
of property at sale made on or after December 17, 1996.
    (5) Offering of property--(i) Sale of indivisible property. If any 
property levied upon is not divisible, so as to enable the district 
director by sale of a part

[[Page 433]]

thereof to raise the whole amount of the tax and expenses of levy and 
sale, the whole of such property shall be sold. For application of 
surplus proceeds of sale, see section 6342(b).
    (ii) Separately, in groups, or in the aggregate. The seized property 
may be offered for sale--
    (a) As separate items, or
    (b) As groups of items, or
    (c) In the aggregate, or
    (d) Both as separate items (or in groups) and in the aggregate. In 
such cases, the property shall be sold under the method which produces 
the highest aggregate amount.

The district director shall select whichever of the foregoing methods of 
offering the property for sale as, in his opinion, is most feasible 
under all the facts and circumstances of the case, except that if the 
property to be sold includes both real and personal property, only the 
personal property may be grouped for the purpose of offering such 
property for sale. However, real and personal property may be offered 
for sale in the aggregate, provided the real property, as separate 
items, and the personal property as a group, or as groups, or as 
separate items, are first offered separately.
    (iii) Condition of title and of property. Only the right, title, and 
interest of the delinquent taxpayer in and to the property seized shall 
be offered for sale, and such interest shall be offered subject to any 
prior outstanding mortgages, encumbrances, or other liens in favor of 
third parties which are valid as against the delinquent taxpayer and are 
superior to the lien of the United States. All seized property shall be 
offered for sale ``as is'' and ``where is'' and without recourse against 
the United States. No guaranty or warranty, express or implied, shall be 
made by the internal revenue officer offering the property for sale, as 
to the validity of the title, quality, quantity, weight, size, or 
condition of any of the property, or its fitness for any use or purpose. 
No claim shall be considered for allowance or adjustment or for 
rescission of the sale based upon failure of the property to conform 
with any representation, express or implied.
    (iv) Terms of payment. The property shall be offered for sale upon 
whichever of the following terms is fixed by the district director in 
the public notice of sale:
    (a) Payment in full upon acceptance of the highest bid, without 
regard to the amount of such bid, or
    (b) If the aggregate price of all property purchased by a successful 
bidder at the sale is more than $200, an initial payment of $200 or 20 
percent of the purchase price, whichever is the greater, and payment of 
the balance (including all costs incurred for the protection or 
preservation of the property subsequent to the sale and prior to final 
payment) within a specified period, not to exceed 1 month from the date 
of the sale.
    (6) Method of sale. The district director shall sell the property 
either--
    (i) At public auction, at which open competitive bids shall be 
received, or
    (ii) At public sale under sealed bids. The following rules, in 
addition to the other rules provided in this paragraph, shall be 
applicable to public sale under sealed bids:
    (a) Invitation to bidders. Bids shall be solicited through a public 
notice of sale.
    (b) Form for use by bidders. A bid shall be submitted on a form 
which will be furnished by the district director upon request. The form 
shall be completed in accordance with the instructions thereon.
    (c) Remittance with bid. If the total bid is $200 or less, the full 
amount of the bid shall be submitted therewith. If the total bid is more 
than $200, 20 percent of such bid or $200, whichever is greater, shall 
be submitted therewith. (In the case of alternative bids submitted by 
the same bidder for items of property offered separately, or in groups, 
or in the aggregate, the bidder shall remit the full amount of the 
highest alternative bid submitted, if that bid is $200 or less. If the 
highest alternative bid submitted is more than $200, the bidder shall 
remit 20 percent of the highest alternative bid or $200, whichever is 
greater.) Such remittance shall be by a certified, cashier's, or 
treasurer's check drawn on any bank or trust company incorporated under 
the laws of the United States or under the laws of any State, Territory, 
or possession of the United States, or by a U.S.

[[Page 434]]

postal, bank, express, or telegraph money order.
    (d) Time for receiving and opening bids. Each bid shall be submitted 
in a securely sealed envelope. The bidder shall indicate in the upper 
left hand corner of the envelope his name and address and the time and 
place of sale as announced in the public notice of sale. A bid will not 
be considered unless it is received by the internal revenue officer 
conducting the sale prior to the opening of the bids. The bids will be 
opened at the time and place stated in the notice of sale, or at the 
time fixed in the announcement of the adjournment of the sale.
    (e) Consideration of bids. The public notice of sale shall specify 
whether the property is to be sold separately, by groups, or in the 
aggregate or by a combination of these methods, as provided in 
subparagraph (4)(ii) of this paragraph. If the notice specifies an 
alternative method, bidders may submit bids under one or more of the 
alternatives. In case of error in the extension of prices in any bid, 
the unit price will govern. The internal revenue officer conducting the 
sale shall have the right to waive any technical defects in a bid. In 
the event two or more highest bids are equal in amount, the internal 
revenue officer conducting the sale shall determine the successful 
bidder by drawing lots. After the opening, examination, and 
consideration of all bids, the internal revenue officer conducting the 
sale shall announce the amount of the highest bid or bids and the name 
of the successful bidder or bidders. Any remittance submitted in 
connection with an unsuccessful bid shall be returned at the conclusion 
of the sale.
    (f) Withdrawal of bids. A bid may be withdrawn on written or 
telegraphic request received from the bidder prior to the time fixed for 
opening the bids. A technical defect in a bid confers no right on the 
bidder for the withdrawal of his bid after it has been opened.
    (7) Payment of bid price. All payments for property sold under this 
section shall be made by cash or by a certified, cashier's, or 
treasurer's check drawn on any bank or trust company incorporated under 
the laws of the United States or under the laws of any State, Territory, 
or possession of the United States, or by a U.S. postal, bank, express, 
or telegraph money order. If payment in full is required upon acceptance 
of the highest bid, the payment shall be made at such time. If deferred 
payment is permitted, the initial payment shall be made upon acceptance 
of the bid, and the balance shall be paid on or before the date fixed 
for payment thereof. Any remittance submitted with a successful sealed 
bid shall be applied toward the purchase price.
    (8) Delivery and removal of personal property. Responsibility of the 
United States for the protection or preservation of seized personal 
property shall cease immediately upon acceptance of the highest bid. The 
risk of loss is on the purchaser of personal property upon acceptance of 
his bid. Possession of any personal property shall not be delivered to 
the purchaser until the purchase price has been paid in full. If payment 
of part of the purchase price for personal property is deferred, the 
United States will retain possession of such property as security for 
the payment of the balance of the purchase price and, as agent for the 
purchaser, will cause the property to be cared for until the purchase 
price has been paid in full or the sale is declared null and void for 
failure to make full payment of the purchase price. In such case, all 
charges and expenses incurred in caring for the property after the 
acceptance of the bid shall be borne by the purchaser.
    (9) Default in payment. If payment in full is required upon 
acceptance of the bid and is not then and there paid, the internal 
revenue officer conducting the sale shall forthwith proceed again to 
sell the property in the manner provided in section 6335(e) and this 
section. If the conditions of the sale permit part of the payment to be 
deferred, and if such part is not paid within the prescribed period, 
suit may be instituted against the purchaser for the purchase price or 
such part thereof as has not been paid, together with interest at the 
rate of 6 percent per annum from the date of the sale; or, in the 
discretion of the district director, the sale may be declared by the 
district director to be null and void for failure to make full payment 
of the purchase

[[Page 435]]

price and the property may again be advertised and sold as provided in 
subsections (b), (c), and (e) of section 6335 and this section. In the 
event of such readvertisement and sale, any new purchaser shall receive 
such property or rights to property free and clear of any claim or right 
of the former defaulting purchaser, of any nature whatsoever, and the 
amount paid upon the bid price by such defaulting purchaser shall be 
forfeited to the United States.
    (10) Stay of sale of seized property pending Tax Court decision. For 
restrictions on sale of seized property pending Tax Court decision, see 
section 6863(b)(3) and Sec.  301.6863-2.
    (d) Right to request the sale of seized property--(1) In general. 
The owner of any property seized by levy may request that the district 
director sell such property within 60 days after such request, or within 
any longer period specified by the owner. The district director must 
comply with such a request unless the district director determines that 
compliance with the request is not in the best interests of the Internal 
Revenue Service and notifies the owner of such determination within the 
60 day period, or any longer period specified by the owner.
    (2) Procedures to request the sale of seized property--(i) Manner. A 
request for the sale of seized property shall be made in writing to the 
group manager of the revenue officer whose signature is on Levy Form 
668-B. If the owner does not know the group manager's name or address, 
the owner may send the request to the revenue officer, marked for the 
attention of his or her group manager.
    (ii) Form. The request for sale of seized property within 60 days, 
or such longer period specified by the owner, shall include:
    (A) The name, current address, current home and work telephone 
numbers and any convenient times to be contacted, and taxpayer 
identification number of the owner making the request;
    (B) A description of the seized property that is the subject of the 
request;
    (C) A copy of the notice of seizure, if available;
    (D) The period within which the owner is requesting that the 
property be sold; and
    (E) The signature of the owner or duly authorized representative. 
For purposes of these regulations, a duly authorized representative is 
any attorney, certified public accountant, enrolled actuary, or any 
other person permitted to represent the owner before the Internal 
Revenue Service who is not disbarred or suspended from practice before 
the Internal Revenue Service and who has written power of attorney 
executed by the owner.
    (3) Notification to owner. The group manager shall respond in 
writing to a request for sale of seized property as soon as practicable 
after receipt of such request and in no event later than 60 days after 
receipt of the request, or, if later, the date specified by the owner 
for the sale.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7319, Apr. 
13, 1972; T.D. 8398, 57 FR 7546, Mar. 3, 1992; T.D. 8691, 61 FR 66217, 
Dec. 17, 1996; T.D. 8939, 66 FR 2821, Jan. 12, 2001]



Sec.  301.6336-1  Sale of perishable goods.

    (a) Appraisal of certain seized property. If the district director 
determines that any property seized by levy is liable to perish or 
become greatly reduced in price or value by keeping, or that such 
property cannot be kept without great expense, he shall appraise the 
value of such property and return it to the owner if the owner complies 
with the conditions prescribed in paragraph (b) of this section or, if 
the owner does not comply with such conditions, dispose of the property 
in accordance with paragraph (c) of this section.
    (b) Return to owner. If the owner of the property can be readily 
found, the district director shall give him written notice of his 
determination of the appraised value of the property. However, if the 
district director determines that the circumstances require immediate 
action, he may give the owner an oral notice of his determination of the 
appraised value of the property, which notice shall be confirmed in 
writing prior to sale. The property shall be returned to the owner if, 
within the time specified in the notice, the owner--

[[Page 436]]

    (1) Pays to the district director an amount equal to the appraised 
value, or
    (2) Gives an acceptable bond as prescribed by section 7101 and Sec.  
301.7101-1. Such bond shall be in an amount not less than the appraised 
value of the property and shall be conditioned upon the payment of such 
amount at such time as the district director determines to be 
appropriate in the circumstances.
    (c) Immediate sale. If the owner does not pay the amount of the 
appraised value of the seized property within the time specified in the 
notice, or furnish bond as provided in paragraph (b) of this section 
within such time, the district director shall as soon as practicable 
make public sale of the property in accordance with the following terms 
and conditions--
    (1) Notice of sale. If the owner can readily be found, a notice 
shall be given to him. A notice of sale also shall be posted in two 
public places in the county in which the property is to be sold. The 
notice shall specify the time and place of sale, the property to be 
sold, and the manner and conditions of sale. The district director may 
give such other notice and in such other manner as he deems advisable 
under the circumstances.
    (2) Sale. The property shall be sold at public auction to the 
highest bidder.
    (3) Terms. The purchase price shall be paid in full upon acceptance 
of the highest bid. The payment shall be made in cash, or by a 
certified, cashier's or treasurer's check drawn on any bank or trust 
company incorporated under the laws of the United States or under the 
laws of any State, Territory, or possession of the United States, or by 
a U.S. postal, bank, express, or telegraph money order.



Sec.  301.6337-1  Redemption of property.

    (a) Before sale. Any person whose property has been levied upon 
shall have the right to pay the amount due, together with costs and 
expenses of the proceeding, if any, to the district director at any time 
prior to the sale of the property. Upon such payment the district 
director shall restore such property to the owner and all further 
proceedings in connection with the levy on such property shall cease 
from the time of such payment.
    (b) Redemption of real estate after sale--(1) Period. The owner of 
any real estate sold as provided in section 6335, his heirs, executors, 
or administrators, or any person having any interest therein, or a lien 
thereon, or any person in their behalf, shall be permitted to redeem the 
property sold, or any particular tract of such property, at any time 
within 120 days after the sale thereof.
    (2) Price. Such property or tract of property may be redeemed upon 
payment to the purchaser, or in case he cannot be found in the county in 
which the property to be redeemed is situated, then to the district 
director for the internal revenue district in which the property is 
situated, for the use of the purchaser, his heirs, or assigns, the 
amount paid by such purchaser and interest thereon at the rate of 20 
percent per annum. In case real and personal property (or several tracts 
of real property) are purchased in the aggregate, the redemption price 
of the real property (or of each of the several tracts) shall be 
determined on the basis of the ratio, as of the time of sale, of the 
value of the real property (or tract) to the value of the total property 
purchased. For this purpose the minimum price or the highest bid price, 
whichever is higher, offered for the property separately or in groups 
shall be treated as the value.
    (c) Record. When any real property is redeemed, the district 
director shall cause entry of the fact to be made upon the record of 
sale kept in accordance with section 6340, and such entry shall be 
evidence of such redemption. The party who redeems the property shall 
notify the district director of the internal revenue district in which 
the property is situated of the date of such redemption and of the 
transfer of the certificate of sale, the amount of the redemption price, 
and the name of the party to whom such redemption price was paid.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7319, Apr. 
13, 1972]

[[Page 437]]



Sec.  301.6338-1  Certificate of sale; deed of real property.

    (a) Certificate of sale. In the case of property sold as provided in 
section 6335 (relating to sale of seized property), the district 
director shall give to the purchaser a certificate of sale upon payment 
in full of the purchase price. A certificate of sale of real property 
shall set forth the real property purchased, for whose taxes the same 
was sold, the name of the purchaser, and the price paid therefor.
    (b) Deed to real property. In the case of any real property sold as 
provided in section 6335 and not redeemed in the manner and within the 
time prescribed in section 6337, the district director shall execute (in 
accordance with the laws of the State in which the real property is 
situated pertaining to sales of real property under execution) to the 
purchaser of such real property at the sale or his assigns, upon 
surrender of the certificate of sale, a deed of the real property so 
purchased, reciting the facts set forth in the certificate.
    (c) Deed to real property purchased by the United States. If real 
property is declared purchased by the United States at a sale pursuant 
to section 6335, the district director shall at the proper time execute 
a deed therefor and shall, without delay, cause the deed to be duly 
recorded in the proper registry of deeds.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7319, Apr. 
13, 1972]



Sec.  301.6339-1  Legal effect of certificate of sale of personal property 
and deed of real property.

    (a) Certificate of sale of property other than real property. In all 
cases of sale pursuant to section 6335 of property (other than real 
property), the certificate of such sale--
    (1) As evidence. Shall be prima facie evidence of the right of the 
officer to make such sale, and conclusive evidence of the regularity of 
his proceedings in making the sale; and
    (2) As conveyance. Shall transfer to the purchaser all right, title, 
and interest of the party delinquent in and to the property sold; and
    (3) As authority for transfer of corporate stock. If such property 
consists of corporate stocks, shall be notice, when received, to any 
corporation, company, or association of such transfer, and shall be 
authority to such corporation, company, or association to record the 
transfer on its books and records in the same manner as if the stocks 
were transferred or assigned by the party holding the stock certificate, 
in lieu of any original or prior certificate, which shall be void, 
whether canceled or not; and
    (4) As receipts. If the subject of sale is securities or other 
evidences of debt, shall be a good and valid receipt to the person 
holding the certificate of sale as against any person holding or 
claiming to hold possession of such securities or other evidences of 
debt; and
    (5) As authority for transfer of title to motor vehicle. If such 
property consists of a motor vehicle, shall be notice, when received, to 
any public official charged with the registration of title to motor 
vehicles, of such transfer and shall be authority to such official to 
record the transfer on his books and records in the same manner as if 
the certificate of title to such motor vehicle were transferred or 
assigned by the party holding the certificate of title, in lieu of any 
original or prior certificate, which shall be null and void, whether 
canceled or not.
    (b) Deed to real property. In the case of the sale of real property 
pursuant to section 6335--
    (1) Deed as evidence. The deed of sale given pursuant to section 
6338 shall be prima facie evidence of the facts therein stated; and
    (2) Deed as conveyance of title. If the proceedings of the district 
director as set forth have been substantially in accordance with the 
provisions of law, such deed shall be considered and operate as a 
conveyance of all the right, title, and interest the party delinquent 
had in and to the real property thus sold at the time the lien of the 
United States attached thereto.
    (c) Effect of junior encumbrances. A certificate of sale of personal 
property given or a deed to real property executed pursuant to section 
6338 discharges the property from all liens, encumbrances, and titles 
over which the lien of the United States, with respect to which the levy 
was made, has priority. For example, a mortgage on real

[[Page 438]]

property executed after a notice of a Federal tax lien has been filed is 
extinguished when the district director executes a deed to the real 
property to a purchaser thereof at a sale pursuant to section 6335 
following the seizure of the property by the United States. The proceeds 
of such a sale are distributed in accordance with priority of the liens, 
encumbrances, or titles. See section 6342(b) and the regulations 
thereunder for provisions relating to the distribution of surplus 
proceeds. See section 7426(a)(2) and the regulations thereunder for 
judicial procedures with respect to surplus proceeds.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7320, Apr. 
13, 1972]



Sec.  301.6340-1  Records of sale.

    (a) Requirement. Each district director shall keep a record of all 
sales under section 6335 of real property situated within his district 
and of redemptions of such property. The records shall set forth (1) the 
tax for which any such sale was made, the dates of seizure and sale, the 
name of the party assessed and all proceedings in making such sale, the 
amount of expenses, the names of the purchasers, the date of the deed, 
and, in the case of redemption of the property, (2) the date of such 
redemption and of the transfer of the certificate of sale, the amount of 
the redemption price, and the name of the party to whom such redemption 
price was paid.
    (b) Copy as evidence. A copy of such record, or any part thereof, 
certified by the district director shall be evidence in any court of the 
truth of the facts therein stated.



Sec.  301.6341-1  Expense of levy and sale.

    The district director shall determine the expenses to be allowed in 
all cases of levy and sale. Such expenses shall include the expenses of 
protection and preservation of the property during the period subsequent 
to the levy, as well as the actual expenses incurred in connection with 
the sale thereof. In case real and personal property (or several tracts 
of real property) are sold in the aggregate, the district director shall 
properly apportion the expenses to the real property (or to each tract).



Sec.  301.6342-1  Application of proceeds of levy.

    (a) Collection of liability. Any money realized by proceedings under 
subchapter D, chapter 64, of the Code or by sale of property redeemed by 
the United States (if the interest of the United States in the property 
was a lien arising under the provisions of the Internal Revenue Code), 
is applied in the manner specified in subparagraphs (1), (2), and (3) of 
this paragraph (a). Money realized by proceedings under subchapter D, 
chapter 64, of the Code includes money realized by seizure, by sale of 
seized property, or by surrender under section 6332 (except money 
realized by the imposition of a 50 percent penalty pursuant to section 
6332(c)(2)).
    (1) Expense of levy and sale. First, against the expenses of the 
proceedings or sale, including expenses allowable under section 6341 and 
amounts paid by the United States to redeem property.
    (2) Specific tax liability on seized property. If the property 
seized and sold is subject to a tax imposed by any internal revenue law 
which has not been paid, the amount remaining after applying 
subparagraph (1) of this paragraph (a), shall then be applied against 
such tax liability (and, if such tax was not previously assessed, it 
shall then be assessed);
    (3) Liability of delinquent taxpayer. The amount, if any, remaining 
after applying subparagraphs (1) and (2) of this paragraph (a), shall 
then be applied against the liability in respect of which the levy was 
made or the sale of redeemed property was conducted.
    (b) Surplus proceeds. Any surplus proceeds remaining after the 
application of paragraph (a) of this section shall, upon application and 
satisfactory proof in support thereof, be credited or refunded by the 
district director to the person or persons legally entitled thereto. The 
delinquent taxpayer is the person entitled to the surplus proceeds 
unless another person establishes a superior claim thereto.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7320, Apr. 
13, 1972]



Sec.  301.6343-1  Requirement to release levy and notice of release.

    (a) In general. A district director, service center director, or 
compliance

[[Page 439]]

center director (director) must promptly release a levy upon all, or 
part of, property or rights to property levied upon and must promptly 
notify the person upon whom the levy was made of such a release, if the 
director determines that any of the conditions in paragraph (b) of this 
section (conditions requiring release) exist. The director must make a 
determination whether any of the conditions requiring release exist if a 
taxpayer submits a request for release of levy in accordance with 
paragraph (c) or (d) of this section; however, the director may make 
this determination based upon information received from a source other 
than the taxpayer. The director may require any supporting documentation 
as is reasonably necessary to determine whether a condition requiring 
release exists.
    (b) Conditions requiring release. The director must release the levy 
upon all or a part of the property or rights to property levied upon if 
he or she determines that one of the following conditions exists--
    (1) Liability satisfied or unenforceable--(i) General rule. The 
liability for which the levy was made is satisfied or the period of 
limitations provided in section 6502 (and any period during which the 
period of limitations is suspended as provided by law) has lapsed. A 
levy is considered made on the date on which the notice of seizure 
provided in section 6335(a) is given. A levy that is made within the 
period of limitations provided in section 6502 does not become 
unenforceable simply because the person who receives the levy does not 
surrender the subject property within the period of limitations. In this 
case, the liability remains enforceable to the extent of the value of 
the levied upon property. However, a levy made outside the period of 
limitations (normally ten years without suspensions) must be released 
unless--
    (A) The taxpayer agreed in writing to extend the period of 
limitations as provided in section 6502(a)(2) and Sec.  301.6502-1; or
    (B) A proceeding in court to collect the liability has begun within 
the period of limitations.
    (ii) Special situations. A continuing levy on salary or wages made 
under section 6331(e) must be released at the end of the period of 
limitations in section 6502. However, a levy on a fixed and determinable 
right to payment which right includes payments to be made after the 
period of limitations expires does not become unenforceable upon the 
expiration of the period of limitations and will not be released under 
this condition unless the liability is satisfied.
    (2) Release will facilitate collection. The release of the levy will 
facilitate collection of the liability. A director has the discretion to 
release the levy in all situations, including those where the proceeds 
from the sale will not fully satisfy the tax liabilities of the 
taxpayer, under terms and conditions as he or she determines are 
warranted.
    (i) Example. The following example illustrates the provisions of 
this paragraph (b)(2):

    Example. A and B each own machines which, when used together, 
produce widgets. A owes delinquent federal taxes. A notice of federal 
tax lien is properly filed against all property or rights to property 
belonging to A. A's machine is seized to satisfy A's delinquent tax 
liability. The fair market value of A's property is greater than the 
expenses of seizure and sale, but less than the amount of A's tax 
liability. A and B find a buyer who wants to buy both machines together. 
The buyer will only buy the machines together. A's property has a 
greater value as part of the package than it does by itself. The larger 
value, as shown in the sale contract, is enough to pay A's tax liability 
in full. In this situation a release of the levy will facilitate 
collection because the sale of both machines can be completed and A's 
liability will be paid in full at the settlement.

    (ii) Compliance with other conditions. The director may find that 
collection will be facilitated by the taxpayer's compliance with 
conditions other than immediate payment, such as:
    (A) The delinquent taxpayer delivers a satisfactory arrangement, 
which is accepted by the director, for placing property in escrow to 
secure the payment of the liability (including the expenses of the levy) 
which is the basis of the levy.
    (B) The delinquent taxpayer delivers an acceptable bond to the 
director conditioned upon the payment of the liability (including the 
expenses of levy) which is the basis of the levy. This

[[Page 440]]

bond shall be in the form provided in section 7101 and Sec.  301.7101-1.
    (C) There is paid to the director an amount determined by the 
director to be equal to the interest of the United States in the seized 
property or the part of the seized property to be released.
    (D) The delinquent taxpayer executes an agreement to extend the 
statute of limitations in accordance with section 6502(a)(2) and Sec.  
301.6502-1.
    (iii) Expenses of sale exceed the government's interest. If the 
director determines that the value of the United States' interest in the 
seized property does not exceed the expenses of sale of the property, a 
release of the levy will be deemed to facilitate collection of the 
liability even though the fair market value of property which has been 
seized exceeds the expenses of seizure and sale.
    (3) Installment agreement. The taxpayer has entered into an 
agreement under section 6159 to satisfy the liability by means of 
installment payments, unless the agreement provides otherwise. However, 
the director is not required to release the levy under this condition if 
a release of the levy will jeopardize the secured creditor status of the 
United States, e.g., where there is an intervening judgment lien 
creditor and a notice of tax lien has not been filed.
    (4) Economic hardship--(i) General rule. The levy is creating an 
economic hardship due to the financial condition of an individual 
taxpayer. This condition applies if satisfaction of the levy in whole or 
in part will cause an individual taxpayer to be unable to pay his or her 
reasonable basic living expenses. The determination of a reasonable 
amount for basic living expenses will be made by the director and will 
vary according to the unique circumstances of the individual taxpayer. 
Unique circumstances, however, do not include the maintenance of an 
affluent or luxurious standard of living.
    (ii) Information from taxpayer. In determining a reasonable amount 
for basic living expenses the director will consider any information 
provided by the taxpayer including--
    (A) The taxpayer's age, employment status and history, ability to 
earn, number of dependents, and status as a dependent of someone else;
    (B) The amount reasonably necessary for food, clothing, housing 
(including utilities, home-owner insurance, home-owner dues, and the 
like), medical expenses (including health insurance), transportation, 
current tax payments (including federal, state, and local), alimony, 
child support, or other court-ordered payments, and expenses necessary 
to the taxpayer's production of income (such as dues for a trade union 
or professional organization, or child care payments which allow the 
taxpayer to be gainfully employed);
    (C) The cost of living in the geographic area in which the taxpayer 
resides;
    (D) The amount of property exempt from levy which is available to 
pay the taxpayer's expenses;
    (E) Any extraordinary circumstances such as special education 
expenses, a medical catastrophe, or natural disaster; and
    (F) Any other factor that the taxpayer claims bears on economic 
hardship and brings to the attention of the director.
    (iii) Good faith requirement. In addition, in order to obtain a 
release of a levy under this subparagraph, the taxpayer must act in good 
faith. Examples of failure to act in good faith include, but are not 
limited to, falsifying financial information, inflating actual expenses 
or costs, or failing to make full disclosure of assets.
    (5) Fair market value exceeds liability. The fair market value of 
the property exceeds the liability for which the levy was made and 
release of the levy on a part of the property can be made without 
hindering the collection of the liability. The following example 
illustrates the provisions of this paragraph (b)(5):

    Example. The Internal Revenue Service levies upon ten widgets which 
belong to the taxpayer to satisfy the taxpayer's outstanding tax 
liabilities. Subsequent to the levy, the taxpayer establishes that 
market conditions have increased the aggregate fair market value of 
widgets so that the value of seven widgets equals the aggregate 
anticipated expenses of sale and seizure and the tax liabilities for 
which the levy was made. The director must release three widgets from 
the levy and return them to the taxpayer.


[[Page 441]]


    (c) Request for release of levy--(1) Information to be submitted by 
taxpayer. A taxpayer who wishes to obtain a release of a levy must 
submit a request for release in writing or by telephone to the district 
director for the Internal Revenue district in which the levy was made. 
The taxpayer making the request must provide the following information--
    (i) The name, address, and taxpayer identification number of the 
taxpayer;
    (ii) A description of the property levied upon;
    (iii) The type of tax and the period for which the tax is due;
    (iv) The date of the levy and the originating Internal Revenue 
district, if known; and
    (v) A statement of the grounds upon which the request for release of 
the levy is based.
    (2) Time for submission. Except in extraordinary circumstances, a 
request for release of a levy must be made more than five days prior to 
a scheduled sale of the property to which the levy relates.
    (3) Determination by director--(i) When required. The director must 
promptly make a determination concerning release prior to sale in all 
cases where a request for release of a levy is made except those where 
the request for release is made five or fewer days prior to a scheduled 
sale of the property to which the levy relates.
    (ii) Time for making required determination. The determination will 
be made, generally, within 30 days of a request for release made 30 or 
more days prior to a scheduled sale of the property to which the levy 
relates. If a request for release is made less than 30 days prior to the 
scheduled sale but more than 5 days before the scheduled sale, a 
determination must be made prior to the scheduled sale. If necessary the 
director may postpone the scheduled sale in order to make this 
determination.
    (iii) Discretionary determination. The director has the discretion, 
but is not required, to make a determination concerning release prior to 
sale in cases where a request for release of a levy is made five or 
fewer days prior to a scheduled sale of the property to which the levy 
relates.
    (4) Notification to taxpayer of determination. The director must 
promptly notify the taxpayer if the levy is released. If the director 
determines that none of the conditions requiring release of the levy 
exist, the director must promptly notify the taxpayer of the decision 
not to release the levy and the reason why the levy is not being 
released.
    (d) Expedited determination with respect to certain business 
property--(1) General procedure--(i) Submission by taxpayer. If a levy 
is made on essential business property as is described in paragraph 
(d)(2) of this section, the taxpayer may obtain an expedited 
determination of whether any of the conditions requiring release of the 
levy exist. In order to obtain an expedited determination, the taxpayer 
must submit, within the time frame specified in paragraph (c)(2) of this 
section, the information required in paragraph (c)(1) of this section 
and include with the information an explanation of why the property 
levied upon qualifies for an expedited determination of whether a 
condition requiring release of the levy exists.
    (ii) Time for making required determination. The director must make 
such a determination by the later of 10 business days from the time the 
director receives the request for release, or 10 business days from the 
time the director receives any necessary supporting documentation, if 10 
or more business days remain before a scheduled sale of the property to 
which the levy relates. An expedited determination concerning release 
must be made prior to sale in all cases where a request for release of a 
levy is made within the time frame specified in paragraph (c)(2) of this 
section. If necessary the director may postpone the scheduled sale in 
order to make this determination.
    (iii) Discretionary determination. The director has the discretion, 
but is not required, to make an expedited determination concerning 
release in cases where the taxpayer does not submit, within the time 
frame specified in paragraph (c)(2) of this section, the information 
required in paragraph (c)(1) of this section and include with the 
information an explanation of why the property levied upon qualifies for 
an

[[Page 442]]

expedited determination of whether a condition requiring release of the 
levy exists.
    (2) Essential business property defined. For purposes of this 
section, essential business property means tangible personal property 
used in carrying on the trade or business of the taxpayer which when 
levied upon prevents the taxpayer from continuing to carry on the trade 
or business.
    (3) Seizure of perishable goods. The provisions of this paragraph do 
not apply in the case of a seizure of perishable goods. Those seizures 
are governed by the provisions of section 6336 and Sec.  301.6336-1.
    (e) Effect of a release of levy. If property has not yet been 
surrendered to the director in response to a levy, a release of the levy 
under section 6343(a) will relieve the possessor of any obligation to 
surrender the property. Otherwise, a release of a levy under section 
6343(a) will cause the property to be returned to the custody of the 
person or persons legally entitled thereto. The release of a levy on any 
property under this section does not prevent any subsequent levy on the 
property. Section 301.6343-2, dealing with return of wrongfully levied 
upon property, is subject to section 6402 which prohibits the Internal 
Revenue Service from refunding a payment of money that has been 
deposited in the Treasury and credited to the taxpayer's liability 
unless there is an overpayment.
    (f) Effective date. This section is effective as of December 30, 
1994.

[T.D. 8587, 59 FR 35, Jan. 3, 1995]



Sec.  301.6343-2  Return of wrongfully levied upon property.

    (a) Return of property--(1) General rule. If the Internal Revenue 
Service (IRS) determines that property has been wrongfully levied upon, 
the IRS may return--
    (i) The specific property levied upon;
    (ii) An amount of money equal to the amount of money levied upon; or
    (iii) An amount of money equal to the amount of money received by 
the United States from a sale of the property.
    (2) Time of return. If the United States is in possession of 
specific property, the property may be returned at any time. An amount 
equal to the amount of money levied upon or received from a sale of the 
property may be returned at any time before the expiration of 9 months 
from the date of the levy. When a request described in paragraph (b) of 
this section is filed for the return of property before the expiration 
of 9 months from the date of levy, an amount of money may be returned 
after a reasonable period of time subsequent to the expiration of the 9-
month period if necessary for the investigation and processing of such 
request.
    (3) Specific property. In general the specific property levied upon 
will be returned whenever possible. For this purpose, money that is 
specifically identifiable, as in the case of a coin collection which may 
be worth substantially more than its face value, is treated as specific 
property.
    (4) Purchase by United States. For purposes of paragraph (a)(1)(iii) 
of this section, if property is declared purchased by the United States 
at a sale pursuant to section 6335(e), the United States is treated as 
having received an amount of money equal to the minimum price determined 
by the IRS before the sale or, if larger, the amount received by the 
United States from the resale of the property.
    (b) Request for return of property. A written request for the return 
of property wrongfully levied upon must be given to the IRS official, 
office and address specified in IRS Publication 4528, ``Making an 
Administrative Wrongful Levy Claim Under Internal Revenue Code (IRC) 
Section 6343(b),'' or any successor publication. The relevant IRS 
publications may be downloaded from the IRS internet site at http://
www.irs.gov. Under this section, a request for the return of property 
wrongfully levied upon is not effective if it is given to an office 
other than the office listed in the relevant publication. The written 
request must contain the following information--
    (1) The name and address of the person submitting the request;
    (2) A detailed description of the property levied upon;
    (3) A description of the claimant's basis for claiming an interest 
in the property levied upon; and

[[Page 443]]

    (4) The name and address of the taxpayer, the originating IRS 
office, and the date of the levy as shown on the notice of levy form, or 
levy form, or, in lieu thereof, a statement of the reasons why such 
information cannot be furnished.
    (c) Inadequate request. A request for the return of property 
wrongfully levied upon will not be considered adequate unless it is a 
written request containing the information required by paragraph (b) of 
this section. However, unless a notification is mailed by the IRS to the 
claimant within 30 days of receipt of the request to inform the claimant 
of the inadequacies, any written request will be considered adequate. If 
the IRS timely notifies the claimant of the inadequacies of his request, 
the claimant has 30 days from the receipt of the notification of 
inadequacy to supply in writing any omitted information. Where the 
omitted information is so supplied within the 30-day period, the request 
will be considered to be adequate from the time the original request was 
made for purposes of determining the applicable period of limitation 
upon suit under section 6532(c).
    (d) Payment of interest. Interest is paid at the overpayment rate 
established under section 6621--
    (1) In the case of money returned under paragraph (a)(1)(ii) of this 
section, from the date the IRS received the money to a date (to be 
determined by the IRS) preceding the date of return by not more than 30 
days; or
    (2) In the case of money returned under paragraph (a)(1)(iii) of 
this section, from the date of the sale of the property to a date (to be 
determined by the IRS) preceding the date of return by not more than 30 
days.
    (e) Effective/applicability date. These regulations are effective on 
July 8, 2008.

[T.D. 8587, 59 FR 37, Jan. 3, 1995, as amended by T.D. 9344, 72 FR 
39739, July 20, 2007; T.D. 9410, 73 FR 38916, July 8, 2008]



Sec.  301.6343-3  Return of property in certain cases.

    (a) In general. If money has been levied upon and applied toward the 
taxpayer's liability, or property has been levied upon and sold, and the 
receipts have been applied toward the taxpayer's liability, or property 
has been levied upon and purchased by the United States and the United 
States still possesses the property, and the Commissioner determines 
that any of the conditions in paragraph (c) of this section exist, the 
Commissioner may return--
    (1) An amount of money equal to the amount of money levied upon;
    (2) An amount of money equal to the amount of money received by the 
United States from a sale of the property; or
    (3) The specific property levied upon and purchased by the United 
States.
    (b) Return of levied upon property in possession of the Internal 
Revenue Service (IRS) pending sale under section 6335. Other than as 
provided in Sec.  301.6343-1(b) or in paragraph (d) of this section, the 
Commissioner, in his or her discretion, may return levied upon property 
that is in the possession of the United States pending sale under 
section 6335.
    (c) Conditions authorizing the return of property. The Commissioner 
may return property upon determining that one of the following 
conditions exist:
    (1) Premature or not in accordance with administrative procedures. 
The levy was premature or otherwise not in accordance with the 
administrative procedures of the Secretary.
    (2) Installment agreement. Subsequent to the levy, the taxpayer 
enters into an agreement under section 6159 to satisfy the liability for 
which the levy was made by means of installment payments. If, however, 
the agreement specifically provides that already levied upon property 
will not be returned under section 6343(d), the Commissioner may not 
grant a request for return of property under this paragraph (c)(2).
    (3) Facilitate collection. The return of property will facilitate 
the collection of the tax liability for which the levy was made.
    (4) Best interests of the United States and the taxpayer--(i) In 
general. The taxpayer or the National Taxpayer Advocate (or his or her 
delegate) has consented to the return of property, and the return of 
property would be in the

[[Page 444]]

best interest of the taxpayer, as determined by the National Taxpayer 
Advocate (or his or her delegate), and in the best interest of the 
United States, as determined by the Commissioner.
    (ii) Best interest of the taxpayer. The National Taxpayer Advocate 
(or his or her delegate) generally will determine whether the return of 
property is in the best interest of the taxpayer. If, however, a 
taxpayer requests the Commissioner to return property and has not 
specifically requested the National Taxpayer Advocate (or his or her 
delegate) to determine the taxpayer's best interest, a finding by the 
Commissioner that the return of property is in the best interest of the 
taxpayer will be sufficient to support the return of property. Only the 
National Taxpayer Advocate (or his or her delegate) may determine that a 
return of property is not in the best interest of the taxpayer.
    (5) Examples. The following examples illustrate the provisions of 
this paragraph (c):

    Example 1. A owes $1,000 in Federal income taxes. The IRS levies on 
a broker with respect to a money market account belonging to the 
taxpayer and receives payment from the broker which it applies to the 
taxpayer's outstanding liability. However, the IRS failed to follow 
procedure provided by the Internal Revenue Manual (but not required by 
statute) with regard to managerial approval prior to the making of the 
levy. The Commissioner may return an amount of money equal to the amount 
of money the IRS levied upon and applied toward the taxpayer's tax 
liability.
    Example 2. B owes $1,000 in Federal income taxes. The IRS levies on 
a bank with respect to a savings account belonging to the taxpayer and 
receives funds from the bank, which it applies to the taxpayer's 
liability. Subsequent to the levy, B enters into an installment 
agreement, under which B will pay timely installments to satisfy the 
entire liability. The installment agreement does not by its terms 
preclude the return of levied upon property. The revenue officer 
verifies that B is financially capable of paying the entire liability, 
including accruals, in the agreed-upon installment payments. The 
Commissioner may return an amount of money equal to the amount of money 
levied upon and applied toward the taxpayer's liability.
    Example 3. C owns a house that is deteriorating and in unsalable 
condition. C is in the process of renovating the house for sale when the 
IRS levies upon C's bank account for the payment of a $20,000 
outstanding Federal tax liability and receives funds in the amount of 
$3,000, which it applies toward C's liability. A notice of federal tax 
lien is the only lien encumbrancing the house. C requests that an amount 
of money equal to the amount seized from the bank account be returned so 
that C can complete the renovations on the house. Without the funds, C 
will be unable to complete the renovations and sell the house. Upon 
examination, the Commissioner determines that the IRS will be able to 
collect the entire tax liability if C's house is restored to salable 
condition. If the National Taxpayer Advocate, or the Commissioner in 
lieu of the National Taxpayer Advocate, determines that the return of 
the seized money is in the taxpayer's best interest, the Commissioner 
may return an amount of money equal to the amount seized from the bank 
account, in the best interest of the taxpayer and the United States.

    (d) Best Interests of the United States and the taxpayer to release 
levy and return of property where levy made in violation of law--(1) In 
general. If the IRS makes a levy in violation of the law, it is in the 
best interests of the United States and the taxpayer to release the levy 
and the IRS will return to the taxpayer any property obtained pursuant 
to the levy. For example, the IRS will release the levy and return the 
taxpayer's property if the levy was made--
    (i) Without giving the requisite thirty-day notice of the right to a 
hearing under section 6330;
    (ii) During the pendency of a proceeding for refund of divisible tax 
in violation of section 6331(i);
    (iii) Before investigation of the status of levied upon property in 
violation of section 6331(j);
    (iv) During the pendency of an offer-in-compromise in violation of 
section 6331(k)(1); or
    (v) During the period an offer to enter into an installment 
agreement is pending (or for 30 days following the rejection of an 
offer, or, if the rejection is timely appealed, during the period that 
the appeal is pending) or during the period an installment agreement is 
in effect (or during the 30 days following a termination or, if a timely 
appeal of termination is filed, during the period the appeal is pending) 
in violation of section 6331(k)(2).
    (2) Property may not be credited to outstanding liability without 
the taxpayer's permission. When the release of a levy

[[Page 445]]

and the return of property are required under this paragraph (d), the 
property or the proceeds from the sale of the property received by the 
IRS pursuant to the levy must be returned to the taxpayer unless the 
taxpayer requests otherwise. The property or proceeds of sale may not be 
credited to any outstanding tax liability of the taxpayer, including the 
one with respect to which the IRS made the levy, without the written 
permission of the taxpayer.
    (e) Time of return. Levied upon property in possession of the IRS 
(other than money) may be returned under paragraphs (c) and (d) of this 
section at any time. An amount of money equal to the amount of money 
levied upon or received from a sale of property may be returned at any 
time before the expiration of 9 months from the date of the levy. When a 
request for the return of money filed in accordance with paragraph (h) 
of this section is filed before the expiration of the 9-month period, or 
a determination to return an amount of money is made before the 
expiration of the 9-month period, the money may be returned within a 
reasonable period of time after the expiration of the 9-month period if 
additional time is necessary for investigation or processing.
    (f) Purchase by the United States. For purposes of paragraph (a)(2) 
of this section, if property is declared purchased by the United States 
at a sale pursuant to section 6335(e)(1)(C), the United States will be 
treated as having received an amount of money equal to the minimum price 
determined by the Commissioner before the sale.
    (g) Determinations by the Commissioner. The Commissioner must 
determine whether any of the conditions authorizing the return of 
property exists if a taxpayer submits a request for the return of 
property in accordance with paragraph (h) of this section. The 
Commissioner also may make this determination independently. If the 
Commissioner determines that conditions authorizing the return of 
property are not present, the Commissioner may not authorize the return 
of property. If the Commissioner determines that conditions authorizing 
the return of property are present, the Commissioner may (but is not 
required to, unless the reason for the return of property is that the 
levy was made in violation of law and is governed by paragraph (d) of 
this section) authorize the return of property. If the Commissioner 
decides independently to return property under paragraph (c)(4) of this 
section based on the best interests of the taxpayer and the United 
States, the taxpayer or the National Taxpayer Advocate (or his or her 
delegate) must consent to the return of property.
    (h) Procedures for request for the return of property--(1) Manner. A 
request for the return of property must be made in writing to the 
address on the levy form.
    (2) Form. The written request must include the following 
information--
    (i) The name, current address, and taxpayer identification number of 
the person requesting the return of money (or property purchased by the 
United States);
    (ii) A description of the property levied upon;
    (iii) The date of the levy; and
    (iv) A statement of the grounds upon which the return of money is 
being requested (or property purchased by the United States).
    (i) No interest. No interest will be paid on any money returned 
under this section.
    (j) Administrative collection upon default. If the Commissioner 
returns property under this section, and the taxpayer fails to pay the 
previously assessed liability for which the levy was made on the 
returned property, the Commissioner may administratively collect the 
liability. Collection may include levying again on the returned property 
as long as statutory and administrative requirements are followed.
    (k) Effective date. This section is applicable on July 14, 2005.

[T.D. 9213, 70 FR 40670, July 14, 2005]



Sec.  301.6361-1  Collection and administration of qualified taxes.

    (a) In general. In the case of any State which has in effect a State 
agreement (as defined in paragraph (a) of Sec.  301.6361-4), the 
Commissioner of Internal Revenue shall collect and administer each 
qualified tax (as defined in paragraph (b) of Sec.  301.6361-4) of such

[[Page 446]]

State. No fee or other charge shall be imposed upon any State for the 
collection or administration of any qualified tax of such State or any 
other State. In any such case of collection and administration of 
qualified taxes, the provisions of subtitle F (relating to procedure and 
administration), subtitle G (relating to the Joint Committee on 
Taxation), and chapter 24 (relating to the collection of income tax at 
source on wages), and the provisions of regulations thereunder, insofar 
as such provisions relate to the collection and administration of the 
taxes imposed on the income of individuals by chapter 1 (and the civil 
and criminal sanctions provided by subtitle F, or by title 18 of the 
United States Code (relating to crimes and criminal procedure), with 
respect to such collection and administration) shall apply to the 
collection and administration of qualified taxes as if such taxes were 
imposed by chapter 1, except to the extent that the application of such 
provisions (and sanctions) are modified by regulations issued under 
subchapter E (as defined in paragraph (d) of Sec.  301.6361-4). Any 
extension of time which is granted for the making of a payment, or for 
the filing of any return, which relates to any Federal tax imposed by 
subtitle A (or by subtitle C with respect to filing a return) shall 
constitute automatically an extension of the same amount of time for the 
making of the corresponding payment or for the filing of the 
corresponding return relating to any qualified tax.
    (b) Returns of qualified taxes. Every individual, estate, or trust 
which has liability for one or more qualified taxes for a taxable year--
    (1) Shall file a Federal income tax return at the time prescribed 
pursuant to section 6072(a) (whether or not such return is required by 
section 6012), and shall file therewith on the prescribed form a return 
under penalties of perjury for each tax which is--
    (i) A qualified resident tax imposed by a State of which the 
taxpayer was a resident, as defined in Sec.  301.6362-6, for any part of 
the taxable year;
    (ii) A qualified nonresident tax imposed by a State within which was 
located the source or sources from which the taxpayer derived, while not 
a resident of such State and while not exempt from liability for the tax 
by reason of a reciprocal agreement between such State and the State of 
which he is a resident, 25 percent or more of his aggregate wage and 
other business income, as defined in paragraph (c) of Sec.  301.6362-5, 
for the taxable year; or
    (iii) A qualified resident or nonresident tax with respect to which 
any amount was currently collected from the taxpayer's income (including 
collection by withholding on wages or by payment of estimated income 
tax), as provided in paragraph (f) of Sec.  301.6362-6, for any part of 
the taxable year; and
    (2) Shall declare (in addition to the declaration required with 
respect to the return of the Federal income tax and in the place and 
manner prescribed by form or instructions thereto) under penalties of 
perjury that, to the best of the knowledge and belief of the taxpayer 
(or, in the case of an estate or trust, of the fiduciary who executes 
the Federal income tax return), he has no liability for any qualified 
tax for the taxable year other than any such liabilities returned with 
the Federal income tax return (pursuant to subparagraph (1) of this 
paragraph (b)). Such declaration shall constitute a return indicating no 
liability with respect to each qualified tax other than any such tax for 
which liability is so returned. A Federal income tax return form which 
is filed but which does not contain such declaration shall constitute a 
Federal income tax return only if the taxpayer in fact has no liability 
for any qualified State tax for the taxable year.
    (c) Credits--(1) Credit for tax of another State or political 
subdivision--(i) In general. A credit allowable under a qualified tax 
law against the tax imposed by such law for a taxpayer's tax liability 
to another State or a political subdivision of another State shall be 
allowed if the requirements of subdivision (ii) of this subparagraph are 
met, and if the credit meets the requirements of paragraph (c) of Sec.  
301.6362-4. Such credit shall be allowed without regard to whether the 
tax imposed by the other State or subdivision thereof is a qualified 
tax, and without regard to whether such tax has been paid.
    (ii) Substantiation of tax liability for which a credit is allowed. 
If the liability

[[Page 447]]

which gives rise to a credit of the type described in subdivision (i) of 
this subparagraph is with respect to a qualified tax, then the fact of 
such liability shall be substantiated by filing the return on which such 
liability is reported. If such liability is not with respect to a 
qualified tax, then the Commissioner may require a taxpayer who claims 
entitlement to such a credit to complete a form to be submitted with his 
return of the qualified tax against which the credit is claimed. On such 
form the taxpayer shall identify each of the other States (the 
liabilities to which were not substantiated as provided in the first 
sentence of this subdivision) or political subdivisions to which the 
taxpayer reported a liability for a tax giving rise to the credit, 
furnish the name or description of each such tax, state the amount of 
the liability so reported with respect to each such tax and the 
beginning and ending dates of the taxable period for which such 
liability was reported, and provide such other information as is 
requested in the form or in the instructions thereto. In addition, the 
taxpayer shall agree on such form to notify the Commissioner in the 
event that the amount of any tax liability (or portion thereof) which is 
claimed as giving rise to a credit of the type described in subdivision 
(i) of this subparagraph is changed or adjusted, whether as a result of 
an amended return filed by the taxpayer, a determination by the 
jurisdiction imposing the tax, or in any other manner.
    (2) Credit or withheld qualified tax. An individual from whose wages 
an amount is withheld on account of a qualified tax shall receive a 
credit for such amount against his aggregate liability for all such 
qualified taxes and the Federal income tax for the taxable year, whether 
or not such tax has been paid over to the Federal Government by the 
employer. The credit shall operate in the manner provided by section 
31(a) of the Code and the regulations thereunder with respect to Federal 
income tax withholding.
    (d) Collection of qualified taxes at source on wages--(1) In 
general. Except as otherwise provided in subparagraph (2) of this 
paragraph, every employer making payment of wages to an employee 
described in such subparagraph shall deduct and withhold upon such wages 
the amount prescribed with respect to the qualified tax designated in 
such subparagraph. The amounts prescribed for withholding with respect 
to each such qualified tax shall be published in Circular E (Employer's 
Tax Guide) or other appropriate Internal Revenue Service publications. 
See paragraph (f)(1) of Sec.  301.6362-7 with respect to civil and 
criminal penalties to which an employer shall be subject with respect to 
his responsibilities relating to qualified taxes.
    (2) Specific withholding requirements. An employer shall deduct and 
withhold upon an employee's wages the amount prescribed with respect to 
a qualified tax with respect to which such employee is subject to the 
current collection provisions pursuant to paragraph (f) of Sec.  
301.6362-6, unless:
    (i) In the case of a qualified resident tax, the employee's services 
giving rise to the wages are performed in another State, and such other 
State or a political subdivision thereof imposes a nonresident tax on 
such employee with respect to which the withholding amount exceeds the 
prescribed withholding amount with respect to such qualified resident 
tax, and the State imposing such qualified resident tax grants a credit 
against it for such nonresident tax.
    (ii) In the case of a qualified nonresident tax, either:
    (A) Residents of the State in which the employee resides are exempt 
from liability for the qualified nonresident tax imposed by the State 
from sources within which his wage income is derived, by reason of an 
interstate compact or agreement to which the two States are parties, or
    (B) The State in which the employee resides imposes a qualified 
resident tax on such employee with respect to which the prescribed 
withholding amounts exceed the prescribed withholding amounts with 
respect to the qualified nonresident tax imposed by the State from 
sources within which his wage income is derived, and the State in which 
he resides grants a credit against its qualifed resident tax for such 
qualified nonresident tax.

If the nonresident tax described in subdivision (i) of this subparagraph 
is a

[[Page 448]]

qualified nonresident tax imposed by a State, then the reference in such 
subdivision to the State in which the services are performed shall be 
construed as a reference to the State from sources within which the wage 
income is derived, within the meaning of paragraph (d)(1) of Sec.  
301.6362-5.
    (3) Forms, procedures, and returns relating to withholding with 
respect to qualified taxes--(i) Forms W-4 and W-4P. Forms W-4 
(Employee's Withholding Allowance Certificate) and W-4P (Annuitant's 
Request for Income Tax Withholding), shall include information as to the 
State in which the employee resides, and shall be used for purposes of 
withholding with respect to both Federal and qualified taxes. An 
employee shall show on his Form W-4 the State in which he resides for 
purposes of this paragraph, and shall file a new Form W-4 within 10 days 
after he changes his State of residence. An employee who fails to meet 
either of the requirements set forth in the preceding sentence, with the 
intent to evade the withholding tax imposed with respect to a qualifed 
tax, shall be subject to the penalty provided in section 7205 of the 
Code. An employer shall be responsible for determining the State within 
which are located the sources from which the employee's wage income is 
derived for purposes of this paragraph; and, if the employee does not 
file a Form W-4, the employer shall assume for such purposes that the 
employee resides in that State. When an employer and an employee enter 
into a voluntary withholding agreement pursuant to Sec.  31.3402(p)-1, 
the employer shall withhold the amount prescribed with respect to the 
qualified resident tax imposed by the State in which the employee 
resides, as indicated on Form W-4. Similarly, if an annuitant requests 
withholding with respect to his annuity payments pursuant to section 
3402 (o)(1)(B) of the Code, the payer shall withhold the whole dollar 
amount specified by the annuitant with respect to a qualified resident 
tax, provided that the combined withholding with respect to Federal and 
qualified taxes on each annuity payment shall be a whole dollar amount 
not less than $5, and that the net amount of any annuity payment 
received by the payee shall not be reduced to less than $10.
    (ii) Forms W-2 and W-2P. Forms W-2 (Wage and Tax Statement) and W-2P 
(the corresponding form for annuities) shall show:
    (A) The total amount withheld with respect to the Federal income 
tax;
    (B) The total amount withheld with respect to qualified taxes;
    (C) The name of each State imposing a qualified tax in which the 
employee (or annuitant) resided during the taxable year, as shown on 
Form W-4 (or W-4P);
    (D) The name of each State imposing a qualified nonresident tax 
within which were located sources from which the employee's wage income 
was derived during a period of the taxable year in which he was not 
shown as a resident of such State on Form W-4, and the amount of the 
employee's wage income so derived; and
    (E) The name of each State or locality that imposes an income tax 
which is not a qualified tax and with respect to which the employer 
withheld on the employee's wage income for the taxable year, and the 
amount of wage income with respect to which the employer so withheld.
    (iii) Requirements relating to deposit and payment of withheld tax. 
Rules relating to the deposit and remittance of withheld Federal income 
and FICA taxes, including those prescribed in section 6302 of the Code 
and the regulations thereunder, shall apply also to amounts withheld 
with respect to qualified taxes. Thus, an employer's liability with 
respect to the deposit and payment of withheld taxes shall be for the 
combined amount of withholding with respect to Federal and qualified 
taxes. The Federal Tax Deposit form shall separately indicate:
    (A) The combined total amount of Federal income, FICA, and qualified 
taxes withheld;
    (B) The combined total amount of qualified taxes withheld; and
    (C) The total amount of qualified taxes withheld with respect to 
each electing State.

Data indicating the total amount of tax deposits processed by the 
Internal Revenue Service with respect to the qualified taxes of an 
electing State will

[[Page 449]]

be available to that State upon request on as frequent as a weekly 
basis. These data will be available no later than 10 working days after 
the end of the calendar week in which the deposits were processed by the 
Service.
    (iv) Employment tax returns. Forms 941 (Employer's Quarterly Federal 
Tax Return), 941-E (Quarterly Return of Withheld Income Tax), 941-M 
(Employer's Monthly Federal Tax Return), 942 (Employer's Quarterly Tax 
Return for Household Employees), and 943 (Employer's Annual Tax Return 
for Agricultural Employees), shall indicate the total amount withheld 
with respect to each qualified tax, as directed by such forms or their 
instructions.
    (e) Criminal penalties. A criminal offense committed with respect to 
a qualified tax shall be treated as a separate offense from a similar 
offense committed with respect to the Federal tax. Thus, for example, if 
a taxpayer willfully attempts to evade both the Federal tax and a 
qualified tax by failing to report a portion of his income, he shall be 
considered as having committed two criminal offenses, each subject to a 
separate penalty under section 7201. See also Sec.  301.6362-7(f) with 
respect to criminal penalties.
    (f) Allocation of amounts collected with respect to tax and criminal 
fines--(1) In general. The aggregate amount that has been collected from 
a taxpayer (including amounts collected by withholding) in respect of 
liability for both one or more qualified taxes and the Federal income 
tax for a taxable year shall be allocated among the Federal Government 
and the States imposing qualified taxes for which the taxpayer is liable 
in the proportion which the taxpayer's liability for each such tax bears 
to his aggregate liability for such year to all of such taxing 
jurisdictions with respect to such taxes. A reallocation shall be made 
either when an amount is collected from the taxpayer or his employer or 
is credited or refunded to the taxpayer, subsequent to the making of the 
initial allocation, or when a determination is made by the Commissioner 
that an error was made with respect to a previous allocation. However, 
any such allocation or reallocation shall not affect the amount of a 
taxpayer's or employer's liability to either jurisdiction, or the amount 
of the assessment and collection which may be made with respect to a 
taxpayer or employer. Accordingly, such allocations and reallocations 
shall not be taken into consideration for purposes of the application of 
statutes of limitation or provisions relating to interest, additions to 
tax, penalties, and criminal sanctions. See example 4 in subparagraph 
(4) of this paragraph (e). In addition, any such allocation or 
reallocation shall not affect the amount of the deduction to which a 
taxpayer is entitled under section 164 for a year in which he made 
payment (including payments made by withholding) of an amount which was 
designated as being in respect of his liability for a qualified tax. 
However, to the extent that an amount which was paid by a taxpayer and 
designated as being in respect of his liability for a qualified tax is 
allocated or reallocated in such a manner as to apply it toward the 
taxpayer's liability for the Federal income tax, such allocation or 
reallocation shall be treated as a refund to the taxpayer of an amount 
paid in respect of a State income tax, and shall be included in the 
gross income of the taxpayer to the extent appropriate under section 111 
and the regulations thereunder in the year in which the allocation or 
reallocation is made. See section 451 and the regulations thereunder. 
Similarly, to the extent that an amount which was paid by a taxpayer and 
designated as being in respect of his Federal income tax liability is 
allocated or reallocated in such a manner as to apply it toward his 
liability for a qualified tax, such allocation or reallocation shall be 
treated as a payment made by the taxpayer in respect of a State income 
tax, and shall be deductible under section 164 in the year in which the 
allocation or reallocation is made. The Internal Revenue Service shall 
notify the taxpayer in writing of any allocation or reallocation of tax 
liabilities in a proportion other than that of the respective tax 
liabilities shown on the taxpayer's returns.
    (2) Amounts of collections and liabilities. For purposes of this 
paragraph the aggregate amount that has been collected from a taxpayer 
or his employer in respect of tax liability shall include

[[Page 450]]

the amounts of interest provided in chapter 67, and additions to tax and 
assessable penalties provided in chapter 68, which are collected with 
respect to such tax; but shall not include criminal fines provided in 
chapter 75, or in title 18 of the United States Code, which are 
collected with respect to offenses relating to such tax. (See 
subparagraph (3) of this paragraph (e) with respect to the treatment of 
such criminal fines.) However, for purposes of this paragraph, the 
amount of the taxpayer's liability for each tax shall exclude his 
liability for such interest additions to tax, and assessable penalties 
with respect to such tax, and his liability for criminal fines imposed 
with respect to offenses relating to such tax. For purposes of this 
paragraph, the amount of the taxpayer's liability for each tax shall be 
computed by taking credits into account, except that there shall be no 
reduction for any amounts paid on account of such liability, whether by 
means of withholding, estimated tax payment, or otherwise.
    (3) Special rules relating to criminal fines. (i) Except as 
otherwise provided in subdivision (ii) of this subparagraph, when a 
criminal charge is brought against a taxpayer with respect to a taxable 
year pursuant to chapter 75, or to title 18 of the United States Code, 
or to a corresponding provision of a qualified tax law, alleging that an 
offense was committed against the United States with respect to the 
Federal income tax or against a State with respect to a qualified tax, 
and an amount of money is collected by the Federal Government as a fine 
as a result of such charge, then the Federal Government shall remit an 
amount to each State, if any, which is an affected jurisdiction. The 
amount remitted to each such State shall bear the same proportion to the 
total amount collected as a fine as the taxpayer's liability with 
respect to the qualified taxes of that State bears to the aggregate of 
the taxpayer's income tax liabilities to all affected jurisdictions for 
the taxable year, as determined under subparagraphs (1) and (2) of this 
paragraph (e). For purposes of this subparagraph, an affected 
jurisdiction is (A) a jurisdiction with respect to the tax of which a 
criminal charge described in the preceding sentence was brought for the 
taxable year, or (B) a jurisdiction with respect to the Federal income 
tax or the qualified tax of which the acts or omissions alleged in such 
a criminal charge would constitute the basis for the bringing of a 
criminal charge for the same taxable year. However, in no case shall the 
amount received by an affected State, or the amount of the excess of the 
amount received by the Federal Government over the amount of its 
remissions to States, with respect to a fine exceed the maximum fine 
prescribed by statute for the offense against that jurisdiction with 
respect to which a criminal charge was brought, or with respect to which 
the bringing of a criminal charge could have been supported on the basis 
of the acts or omissions alleged in a criminal charge brought. For 
purposes of this subparagraph, the amount collected as a fine as a 
result of a criminal charge shall include amounts paid in settlement of 
an actual or potential liability for a fine, amounts paid pursuant to a 
conviction and amounts paid pursuant to a plea of guilty or nolo 
contendere.
    (ii) If a criminal charge described in the first sentence of 
subdivision (i) of this subparagraph is actually brought with respect to 
the income tax of every affected jurisdiction with respect to the 
taxable year, and if a Court adjudicates on the merits the taxpayer's 
liability for a fine to each such jurisdiction, and includes in its 
decree a direction of the amount, if any, to be paid as a fine to each 
such jurisdiction, then that decree shall govern the allocation of the 
amount of money collected by the Federal Government as a fine with 
respect to the taxable year.
    (4) Examples. The application of this paragraph may be illustrated 
by the following examples:

    Example 1. The total combined amount of State X qualified tax and 
Federal income tax collected from A, a resident of State X, for the 
taxable year is $5,100. The amounts of A's liabilities for such taxes 
for that year are $800 to State X and $4,000 to the Federal Government. 
Since A's tax liability to State X is one-sixth of the combined tax 
liability ($4,800), one-sixth ($50) of the amount to be refunded to A 
($300) is chargeable against State X's account, and five-sixths ($250) 
is chargeable against the Federal Government's account.

[[Page 451]]

    Example 2. Assume the same facts as in example 1 except that the 
total amount collected from A is $4,500. Since A's liabilities for the 
State X tax and the Federal tax are one-sixth and five-sixths, 
respectively, of the combined tax liability, the Federal Government 
shall pay over to State X one-sixth ($750) of the amount actually 
collected from A, and the Federal Government shall retain five-sixths 
($3,750).
    Example 3. The total amount of State X qualified tax, State Y 
qualified tax, and Federal income tax collected from B, a resident of 
State X who is employed in State Y, for the taxable year is $5,500. The 
amounts of B's liabilities for such taxes for that year are: $250 for 
the State X tax (after allowance of a credit for State Y's qualified 
tax), $750 for the State Y tax, and $4,000 for the Federal tax. Since 
B's liability for the State X tax ($250) is 5 percent of the combined 
tax liability ($5,000), his liability for the State Y tax ($750) is 15 
percent of such combined liability, and his liability for the Federal 
tax ($4,000) is 80 percent of such combined liability, the total amount 
to be refunded to B ($500) shall be chargeable in the following manner: 
5 percent ($25) against State X's account, 15 percent ($75) against 
State Y's account, and 80 percent ($400) against the Federal 
Government's account.
    Example 4. C is liable for $2,000 in Federal income tax and $500 in 
State X qualified tax (a resident tax) for the taxable year. However, on 
his Federal income tax return for such year, C erroneously described 
himself as a resident of State Y (which does not have a qualified tax), 
and he filed with such return his declaration to the effect that he had 
no qualified tax liability for the year. Accordingly, C paid only $2,000 
for his Federal tax liability, and such amount was retained in the 
account of the Federal Government. Subsequently, C's error is 
discovered. The amount collected by the Federal Government from C for 
such year must be allocated between the Federal Government and State X 
in proportion to C's tax liability to both. Accordingly, the Federal 
Government must pay over to State X the amount of $400 (which is \1/5\ 
($500/$2,500) of the $2,000 collected). If the Federal Government 
collects from C the additional $500 owed, it will retain $400 of such 
amount and pay the remaining $100 to State X. Similarly, if the Federal 
Government collects from C any interest, or any additions to tax or 
assessable penalties under chapter 68, \4/5\ of the amount of such 
collections shall be retained by the Federal Government and \1/5\ of 
such amount shall be paid over to State X. However, notwithstanding the 
allocation of the funds between the taxing jurisdictions, C's liability 
for the $500 retains its character as a liability for State X tax. 
Therefore, any interest, additions to tax, or assessable penalities 
imposed with respect to the State X tax shall be imposed with respect to 
C's full $500 liability for such tax, notwithstanding the fact that 
amounts collected with respect to such items shall be allocated \4/5\ to 
the Federal Government.
    Example 5. A criminal charge is brought against D pursuant to 
chapter 75, alleging that he willfully evaded the payment of Federal 
income tax by failing to report interest income derived from obligations 
of the United States. D enters a plea of non contendere to the charge 
and pays $2,500 as a fine to the Federal Government. The act alleged in 
the criminal charge would not support the bringing of a criminal charge 
under a State law corresponding to chapter 75, or to title 18 of the 
United States Code, with respect to the qualified tax of any State; 
accordingly, the United States is the only affected jurisdiction, and no 
remittances shall be made to any State with respect to the amount 
collected by the Federal Government as a fine.
    Example 6. A criminal charge is brought against E pursuant to 
chapter 75, alleging that he willfully attempted to evade the assessment 
of liability for both Federal income tax and the qualified tax of State 
X by filing false and fraudulent income tax returns. E's case is settled 
upon the condition that he pay a fine in the amount of $5,000. As 
determined pursuant to subparagraph (2) of this paragraph, E's 
liabilities for the taxable year are in the amounts of $7,200 to the 
Federal Government and $800 to State X. Accordingly, after the Federal 
Government collects the fine, $500 ($5,000 + $800 x $8,000) is remitted 
to State X.
    Example 7. Assume the same facts as in example 6, except that E is 
tried and convicted on both charges, and pursuant to court decree he 
pays to the United States a fine of $6,000 with respect to each charge, 
or a total of $12,000. Because a criminal charge was brought with 
respect to each affected jurisdiction, and the allocation of the total 
amount paid as a fine was specifically imposed by a court decree, the 
direction of the Court shall govern the allocation. Accordingly, after 
the Federal Government collects the fines it pays over $6,000 to the 
account of State X.

[T.D. 7577, 43 FR 59361, Dec. 20, 1978]



Sec.  301.6361-2  Judicial and administrative proceedings; 
Federal representation of State interests.

    (a) Civil proceedings--(1) General rule. Any person shall have the 
same right to bring or contest a civil action, and to obtain a review 
thereof, with respect to a qualified tax (including the current 
collection thereof) in the same court or courts which would be available 
to him, and pursuant to the same

[[Page 452]]

requirements and procedures to which he would be subject, under chapter 
76 (relating to judicial proceedings), and under title 28 of the United 
States Code (relating to the judiciary and judicial procedure), if the 
tax were imposed by section 1 or chapter 24 of the Internal Revenue 
Code. For purposes of this section, the term ``person'' includes the 
Federal Government. Except as provided in subparagraph (2) of this 
paragraph (a), to the extent that the preceding sentence provides 
judicial procedures (including review procedures) with respect to any 
matter, such procedures shall replace civil judicial procedures under 
State law.
    (2) Exception. The right or power of the courts of any State to pass 
on matters involving the constitution of such State is unaffected by any 
provision of this paragraph; however, the jurisdiction of a State court 
in such matters shall not extend beyond the issue of constitutionality. 
Thus, if in a case involving the validity of a qualified tax statute 
under the State constitution, the State court holds such statute 
constitutional, such court shall not proceed to decide the amount of the 
tax liability.
    (b) Criminal proceedings. Only the Federal Government shall have the 
right to bring a criminal action with respect to a qualified tax 
(including the current collection thereof). Such an action shall be 
brought in the same court or courts which would be available to the 
Federal Government, and pursuant to the same requirements and procedures 
to which the Federal Government would be subject, if the tax were 
imposed by section 1 or chapter 24 of the Internal Revenue Code.
    (c) Administrative proceedings. Any person shall have the same 
rights in administrative proceedings of the Internal Revenue Service 
with respect to a qualified tax (including the current collection 
thereof) which would be available to him, and shall be subject to the 
same administrative requirements and procedures to which he would be 
subject, if the tax were imposed by section 1 or chapter 24 of the 
Internal Revenue Code.
    (d) United States representation of State interests--(1) General 
rule. Except as provided in subparagraphs (2) and (3) of this paragraph 
(d), the Federal Government shall appear on behalf of any State the 
qualified tax of which it collects (or did collect for the year in 
issue), and shall represent such State's interests in any administrative 
or judicial proceeding, either civil or criminal in nature, which 
relates to the administration and collection of such qualified tax, in 
the same manner as it represents the interests of the United States in 
corresponding proceedings involving Federal income tax matters.
    (2) Exceptions. The Federal Government shall not so represent a 
State's interests either--
    (i) In proceedings in a State court involving the constitution of 
such State, to the extent of such constitutional issue, or
    (ii) In proceedings in any court involving the relationship between 
the United States and the State, to the extent of the issue pertaining 
to such relationship, if either:
    (A) The proceeding is one which is initiated by the United States 
against the State, or by the State against the United States, and no 
individual (except in his official capacity as a governmental official) 
is an original party to the proceeding, or
    (B) The proceeding is not one described in (A), but the State elects 
to represent its own interests to the extent permissible under this 
subdivision.
    (3) Finality of Federal administrative determinations. State and 
local government officials and employees may not review Federal 
administrative determinations concerning tax liabilities of, refunds 
owed to, or criminal prosecutions of, individuals with respect to 
qualified taxes. See, however, Sec.  301.6363-3 relating to State 
administration of a qualified tax with respect to transition years. If 
requested by an electing State, the Commissioner or his delegate may, 
under terms and conditions set forth in an agreement with such State, 
permit such State to carry on operations supplementary to the Federal 
administration of the State's qualified tax (including supplemental 
audits or examinations of tax returns by State audit personnel), but all 
administrative determinations shall be made by the Federal Government 
without review by the State. An agreement

[[Page 453]]

which permits supplemental audits or examinations of tax returns by 
State audit personnel shall provide that the audits and examinations 
shall be conducted under the supervision and control of the Commissioner 
or his delegate, who shall have the authority to determine which returns 
shall be audited and when the audits shall occur. Also, such agreements 
shall provide that the results of any such supplemental audit shall be 
referred to the Commissioner or his delegate for final administrative 
determination. The Commissioner or his delegate shall, to the extent 
permitted by law, allow an electing State reasonable access to tax 
returns and other appropriate records and information relating to its 
qualified tax for the purpose of conducting any such supplemental 
operations. In addition, the Secretary or his delegate shall permit an 
electing State to inspect the workpapers which are compiled in the 
course of verification by the Treasury Department of the correctness of 
the accounting by which the amounts of the actual net collections 
attributable to the electing State's qualified taxes are determined.

[T.D. 7577, 43 FR 59364, Dec. 20, 1978]



Sec.  301.6361-3  Transfers to States.

    (a) Periodic transfers. In general, amounts collected by the Federal 
Government which are allocable to qualified taxes (including criminal 
fines which are required to be paid to a State, as determined under 
paragraph (f)(3) of Sec.  301.6361-1) shall be promptly transferred to 
each State imposing such a tax. Transfers of such amounts, based on 
percentages of estimated Federal collections, shall be made not less 
frequently than every third business day unless the State agrees to 
accept transfers at less frequent intervals.
    (b) Determination of amounts of transfers. The amounts allocable to 
the qualified taxes of each State for purposes of periodic transfer 
shall be determined as a percentage of the estimated aggregate net 
individual income tax collections made by the Federal Government. For 
purposes of this paragraph, the ``aggregate net individual income tax 
collections'' shall include amounts collected on account of the Federal 
individual income tax and all qualified taxes by all means (including 
withholding, tax returns, and declarations of estimated tax), and shall 
be reduced to the extent of any liability to taxpayers for credits or 
refunds by reason of overpayments of such taxes. The percentage of the 
estimated amount of such collections which is allocated to each State 
shall be based on an estimate which is to be made by the Office of Tax 
Analysis prior to the beginning of each calendar year as to what portion 
of the estimated aggregate net individual income tax collections for the 
forthcoming year will be attributable to the qualified taxes of that 
State. Each State will be notified prior to the beginning of each 
calendar year of the amount which it is estimated that the State will 
receive by application of that percentage for the year. However, the 
Office of Tax Analysis shall, from time to time throughout the calendar 
year, revise the percentage estimates when such a revision is, in the 
opinion of that office necessary to conform such estimates to the actual 
receipts. When such a revision is made, the payments to the State will 
be adjusted accordingly.
    (c) Adjustment of difference between actual collections and periodic 
transfers. At least once annually the Secretary or his delegate shall 
determine the difference between the aggregate amount of the actual net 
collections made (taking into account credits, refunds, and amounts 
received by withholding with respect to which a tax return is not filed) 
which is attributable to each State's qualified taxes during the 
preceding year and the aggregate amount actually transferred to such 
State based on estimates during such year. The amount of such 
difference, as so determined, shall be a charge against, or an addition 
to, the amounts otherwise determined to be payable to the State.
    (d) Recipient of transferred funds. All funds transferred pursuant 
to section 6361(c) and paragraph (a) of this section shall be 
transferred by the Federal Government to the State official designated 
by the Governor to receive such funds in the State agreement pursuant to 
paragraph (d)(5) of Sec.  301.6363-1, unless the Governor notifies the 
Secretary or his delegate in writing of the

[[Page 454]]

designation of a different State official to receive the funds.

[T.D. 7577, 43 FR 59365, Dec. 20, 1978]



Sec.  301.6361-4  Definitions.

    For purposes of the regulations in this part under subchapter E of 
chapter 64 of the Internal Revenue Code of 1954, relating to collection 
and administration of State individual income taxes--
    (a) State agreement. The term ``State agreement'' means an agreement 
between a State and the Federal Government which was entered into 
pursuant to section 6363 and the regulations thereunder, and which 
provides for the Federal collection and administration of the qualified 
tax or taxes of that State.
    (b) Qualified tax. The term ``qualified tax'' means a tax which is a 
``qualified State individual income tax'', as defined in section 6362 
(including subsection (f)(1) thereof, which requires that a State 
agreement be in effect) and the regulations thereunder.
    (c) Chapters and subtitles. References in regulations in this part 
under subchapter E to chapters and subtitles are to chapters and 
subtitles of the Internal Revenue Code of 1954, unless otherwise 
indicated.
    (d) Subchapter E. The term ``subchapter E'' means subchapter E of 
chapter 64 of the Internal Revenue Code of 1954, relating to collection 
and administration of State individual income taxes, as amended from 
time to time.

[T.D. 7577, 43 FR 59365, Dec. 20, 1978]



Sec.  301.6361-5  Effective date of section 6361.

    Section 6361 shall take effect on the first January 1 which is more 
than 1 year after the first date on which at least one State has filed a 
notice of election with the Secretary or his delegate to enter into a 
State agreement. For purposes of this section, a notice of election 
shall be deemed to have been filed by a State only if there is no defect 
in either the State's notice of election or the State's tax law of which 
the Secretary notified the Governor pursuant to paragraph (c) of Sec.  
301.6363-1, and which has not been retroactively cured under the 
provisions of such paragraph.

[T.D. 7577, 43 FR 59365, Dec. 20, 1978]



Sec.  301.6362-1  Types of qualified tax.

    (a) In general. A qualified tax may be either a ``qualified resident 
tax'' within the meaning of paragraph (b) of this section, or a 
``qualified nonresident tax'' within the meaning of paragraph (c) of 
this section.
    (b) Qualified resident tax. A tax imposed by a State on the income 
of individuals, estates, and trusts which are residents of such State 
within the meaning of section 6362(e) and Sec.  301.6362-6 shall be a 
``qualified resident tax'' if it is either:
    (1) A tax based on Federal taxable income which meets the 
requirements of section 6362 (b), (e), and (f), and of Sec. Sec.  
301.6362-2, 301.6362-6, and 301.6362-7; or
    (2) A tax which is a percentage of the Federal tax and which meets 
the requirements of section 6362 (c), (e), and (f), and of Sec. Sec.  
301.6362-3, 301.6362-6, and 301.6362-7.
    (c) Qualified nonresident tax. A tax imposed by a State on the wage 
and other business income of individuals who are not residents of such 
State within the meaning of section 6362(e)(1) and paragraph (b) of 
Sec.  301.6362-6 shall be a ``qualified nonresident tax'' if it meets 
the requirements of section 6362 (d), (e), and (f), and of Sec. Sec.  
301.6362-5, 301.6362-6, and 301.6362-7.

[T.D. 7577, 43 FR 59366, Dec. 20, 1978]



Sec.  301.6362-2  Qualified resident tax based on taxable income.

    (a) In general. A tax meets the requirements of section 6362(b) and 
this section only if it is imposed on the amount of the taxable income, 
as defined in section 63, of the individual, estate, or trust, 
adjusted--
    (1) By subtracting an amount equal to the amount of the taxpayer's 
interest on obligations of the United States which was included in his 
gross income for the taxable year;
    (2) By adding an amount equal to the amount of the taxpayer's net 
State income tax deduction, as defined in paragraph (a) of Sec.  
301.6362-4, for the taxable year;

[[Page 455]]

    (3) By adding an amount equal to the amount of the taxpayer's net 
tax-exempt income, as defined in paragraph (b) of Sec.  301.6362-4, for 
the taxable year; and
    (4) If a credit is allowed against the tax in accordance with 
paragraph (b)(3) of this section for sales tax imposed by the State or a 
political subdivision thereof, by adding an amount equal to the amount 
of the taxpayer's deduction under section 164(a)(4) for such sales tax.

The tax may provide for either a single rate or multiple rates which 
vary with the amount of taxable income, as adjusted.
    (b) Permitted adjustments. A tax which otherwise meets the 
requirements of paragraph (a) of this section shall not be deemed to 
fail to meet such requirements solely because it provides for one or 
more of the following adjustments:
    (1) A credit meeting the requirements of paragraph (c) of Sec.  
301.6362-4 is allowed against the tax for the taxpayer's income tax 
liability to another State or a political subdivision thereof.
    (2) A tax is imposed on the amount taxed under section 56 (relating 
to the minimum tax for tax preferences).
    (3) A credit is allowed against the tax for all or a portion of any 
general sales tax imposed by the State or a political subdivision 
thereof with respect to sales either to the taxpayer or to one or more 
of his dependents.
    (c) Method of making mandatory adjustments. The mandatory 
adjustments provided in paragraph (a) of this section shall be made 
directly to taxable income. Except as provided in paragraph (c)(2) of 
Sec.  301.6362-4, no account shall be taken of any reduction or increase 
in the Federal adjusted gross income which would result from the 
exclusion from, or inclusion in, gross income of the items which are the 
subject of the adjustments. Thus, for example, when for purposes of the 
calculation the taxpayer's Federal taxable income is adjusted to reflect 
the exclusion from gross income of interest on obligations of the United 
States, no change shall be made in the amount of the taxpayer's 
deduction for medical expenses, or in the amount of his charitable 
contribution base, even though such amounts would ordinarily depend upon 
the amount of adjusted gross income.

[T.D. 7577, 43 FR 59366, Dec. 20, 1978]



Sec.  301.6362-3  Qualified resident tax which is a percentage of Federal tax.

    (a) In general. A tax meets the requirements of section 6362(c) and 
this section only if:
    (1) The tax is imposed as a single specified percentage of the 
excess of the taxes imposed by chapter 1 over the sum of the credits 
allowable under part IV of subchapter A of chapter 1 (other than the 
credits allowable under sections 31 and 39), and
    (2) The amount of the tax is decreased by the amount of the decrease 
in such liability which would result from excluding from the taxpayer's 
gross income an amount equal to the amount of interest on obligations of 
the United States which was included in his gross income for the taxable 
year.
    (b) Permitted adjustments. A tax which otherwise meets the 
requirements of paragraph (a) of this section shall not be deemed to 
fail to meet such requirements solely because it provides for one or 
more of the following three adjustments:
    (1) The amount of a taxpayer's liability for tax is increased by the 
amount of the increase in such liability which would result from 
including in such taxpayer's gross income all of the following:
    (i) An amount equal to the amount of his net State income tax 
deduction, as defined in paragraph (a) of Sec.  301.6362-4, for the 
taxable year,
    (ii) An amount equal to the amount of his net tax-exempt income, as 
defined in paragraph (b) of Sec.  301.6362-4, for the taxable year, and
    (iii) If a credit is allowed against the tax under paragraph (b)(3) 
of this section for sales tax imposed by the State or a political 
subdivision thereof, an amount equal to the amount of his deduction 
under section 164(a)(4) for such sales tax.
    (2) A credit meeting the requirements of paragraph (c) of Sec.  
301.6362-4 is allowed against the tax for the income

[[Page 456]]

tax of another State or a political subdivision thereof.
    (3) A credit is allowed against the tax for all or a portion of any 
general sales tax imposed by the State or a political subdivision 
thereof with respect to sales either to the taxpayer or to one or more 
of his dependents.
    (c) Method of making adjustments. Except as specifically provided in 
paragraphs (a)(2) and (b)(1) of this section and in paragraph (c)(2) of 
Sec.  301.6362-4, no account shall be taken of any reduction or increase 
in the Federal adjusted gross income which would result from the 
exclusion from, or inclusion in, gross income of the items which are the 
subject of the adjustments provided in those paragraphs. Thus, for 
example, when for purposes of the calculation the taxpayer's Federal 
income tax liability is adjusted to reflect the exclusion from gross 
income of interest on obligations of the United States, no change shall 
be made in the amount of the taxpayer's deduction for medical expenses, 
or in the amount of his charitable contribution base, even though such 
amounts would ordinarily depend upon the amount of adjusted gross 
income. Also, when calculating the adjusted Federal tax liability to 
which the rate of the State tax is to be applied, no adjustment shall be 
made in the amount of any credit against Federal tax to which a taxpayer 
is entitled.

[T.D. 7577, 43 FR 59366, Dec. 20, 1978]



Sec.  301.6362-4  Rules for adjustments relating to qualified resident taxes.

    (a) Net State income tax deduction. For purposes of section 6362 
(b)(1)(B) and (c)(3)(B), and Sec. Sec.  301.6362-2 and 301.6362-3, the 
``net State income tax deduction'' shall be the excess (if any) of (1) 
the amount deducted from income under section 164(a)(3) as taxes paid to 
a State or to a political subdivision thereof, over (2) the amounts 
included in income as recoveries of prior income taxes which were paid 
to a State or to a political subdivision thereof and which had been 
deducted under section 164(a)(3).
    (b) Net tax-exempt income. For purposes of section 6362 (b)(1)(C) 
and (c)(3)(A) and Sec. Sec.  301.6362-2 and 301.6362-3, the ``net tax-
exempt income'' shall be the excess (if any) of:
    (1) The sum of (i) the interest on obligations described in section 
103 (a)(1) other than obligations of the State imposing the tax and the 
political subdivisions thereof, and (ii) the interest on obligations 
described in such section of such State and the political subdivisions 
thereof which under the law of the State is subject to the tax; over
    (2) The sum of (i) the amount of deductions allocable to the 
interest described in subparagraph (1) (i) or (ii) of this paragraph 
(b), which is disallowed pursuant to section 265 and the regulations 
thereunder, and (ii) the amount of the adjustment to basis allocable to 
such obligations which is required to be made for the taxable year under 
section 1016(a) (5) or (6).

For purposes of subparagraph (1)(ii) of this paragraph (b), a State may, 
at its option, subject to the tax the interest from all, none, or some 
of its section 103(a)(1) obligations and those of its political 
subdivisions. For example, a State may subject to tax all of such 
obligations other than those which it or its political subdivisions 
issued prior to a specified date, which may be the date that subchapter 
E became applicable to the State.
    (c) Credits for taxes of other jurisdictions--(1) In general. A 
State tax law that provides for a credit, pursuant to section 6362(b)(2) 
(B) or (C) or section 6362(c)(4), and paragraph (b)(1) of Sec.  
301.6362-2 or paragraph (b)(2) of Sec.  301.6362-3, for income tax of 
another State or a political subdivision thereof shall provide that, in 
the case of each taxpayer, the amount of the credit shall equal the 
amount of his liability with respect to such other jurisdiction's tax 
for the taxable year which runs concurrently with, or which ends in, the 
taxable year used by the taxpayer for purposes of the State tax which 
provides for the credit. Such a credit may be allowed with respect to 
every income tax (whether or not qualified) imposed on the taxpayer by 
another State or a political subdivision thereof, or only with respect 
to certain of such taxes. However, for purposes of this paragraph, the 
amount which is

[[Page 457]]

treated as being the amount of the taxpayer's liability with respect to 
any such tax imposed by another jurisdiction shall not exceed the amount 
of liability for such tax which is both--
    (A) Reported to the taxing authorities responsible for collecting 
such other jurisdiction's tax, and
    (B) Substantiated pursuant to the requirements of paragraph 
(c)(1)(ii) of Sec.  301.6361-1.
    (2) Limitation. The amount of any credit allowed for the taxable 
year pursuant to this paragraph shall not exceed the product of the 
amount of the resident tax against which the credit is allowed, as 
computed without subtracting any such credit, multiplied by a fraction 
the numerator of which is the amount of income subject to tax by both 
the State imposing the resident tax against which the credit is allowed 
and the other jurisdiction whose tax is being credited, and the 
denominator of which is the amount of income subject to tax by the State 
imposing the resident tax against which the credit is allowed. For 
purposes of the preceding sentence, ``income subject to tax'' means the 
amount of the taxpayer's adjusted gross income which is taken into 
account for purposes of computing tax liability; in the case of a 
qualified resident tax, an appropriate modification shall be made to 
take into account any adjustments which are made pursuant to paragraph 
(a)(1) and (3) of Sec.  301.6362-2, or pursuant to paragraph (a)(2) or 
(b)(1)(ii) of Sec.  301.6362-3.
    (3) Examples. The application of this paragraph may be illustrated 
by the following examples:

    Example 1. (i) A, a calendar-year, cash-basis taxpayer, is a 
resident of State X throughout the taxable year. For such year, his 
adjusted gross income for Federal income tax purposes consists of 
$24,000, consisting of $3,000 derived from employment in State X, $5,000 
derived from employment in State Y. $15,000 derived from employment in 
State Z, and $1,000 in interest income from United States savings bonds. 
In addition, he received net tax-exempt income in the amount of $2,000. 
For the taxable year, he incurs liabilities of $200 for the State Y 
nonresident income tax, and $1,400 for the State Z nonresident income 
tax. State X, which has in effect a State agreement for the taxable 
year, imposes a resident tax against which credits are allowed for the 
nonresident taxes imposed by States Y and Z. Without taking any such 
credits into account, however, the amount of A's liability for such 
resident tax would be $1,500. A properly reports his nonresident income 
tax liabilities to States Y and Z at the same time that he files his 
return with respect to the State X tax, and he substantiates on such 
return his liabilities to States Y and Z.
    (ii) The amount of A's income subject to tax in State X is $25,000 
(his adjusted gross income of $24,000, minus the United States savings 
bond income of $1,000, plus the net tax-exempt income of $2,000). The 
amount of the credit allowable against the State X resident tax for the 
amount of A's liability with respect to the State Y nonresident tax is 
calculated as follows: The maximum amount of credit is the actual amount 
of his liability to Y, or $200. Under subparagraph (2) of this 
paragraph, the amount of the credit is limited to $300 ($1,500 x $5,000/
$25,000). Thus, such limit has no effect, and the full $200 is allowable 
as a credit against A's liability for the resident tax of State X. The 
amount of the credit allowable against the State X resident tax for the 
amount of A's liability with respect to the State Z nonresident tax is 
calculated as follows: The maximum amount of the credit is the actual 
amount of his liability to Z, or $1,400. Under subparagraph (2) of this 
paragraph, the amount of the credit is limited to $900 (1,500 x $15,000/
$25,000). Thus, such limit has the effect of reducing to $900 the amount 
of the credit allowable for tax of State Z against A's liability for the 
resident tax of State X.
    Example 2. (i) B, a calendar-year, cash-basis taxpayer, is a 
resident of State X employed in State Y through March 14, 1977. On March 
15, 1977, B becomes a resident of State Z and remains a resident of such 
State through the remainder of 1977. For 1977, the amount of B's 
adjusted gross income for Federal income tax purposes is $20,000, 
consisting of $6,000 derived from employment in State Y which B held 
during the period of his residence in State X, $12,000 derived from 
employment in State Z which B held during the period of his residence in 
State Z, and $2,000 in interest income from various bank accounts. 
During 1977, B has no interest income from United States obligations, 
and no tax-exempt income. For 1977, B incurs a liability of $200 to 
State Y on account of its nonresident income tax imposed with respect to 
his $6,000 of income derived from sources within that State. State Z, 
which has in effect a State agreement for 1977, imposes a resident 
income tax on B which, if B had been a resident of State Z for all 1977, 
would amount to $1,200 prior to the allowance of any credits under this 
paragraph. However, by reason of paragraph (e)(1) of Sec.  301.6362-6, 
B's liability for the resident tax of State Z, before taking into 
account

[[Page 458]]

credits allowed under this paragraph, is reduced to $960 ($1,200 x \292/
365\, or \4/5\). Furthermore, State Z allows a credit for the 
nonresident tax imposed by State Y.
    (ii) The amount of the credit allowable against the State Z resident 
tax for the amount of B's liability with respect to the State Y 
nonresident tax is calculated as follows: The maximum amount of the 
credit is the amount of his actual liability to State Y, or $200. Under 
subparagraph (2) of this paragraph, the amount of the credit is limited 
to $288 ($960 x $6,000/$20,000). Thus, such limit has no effect, and the 
full $200 is allowable as a credit for tax of State Y against B's 
liability for the resident tax of State Z.

[T.D. 7577, 43 FR 59367, Dec. 20, 1978]



Sec.  301.6362-5  Qualified nonresident tax.

    (a) In general. A tax meets the requirements of section 6362(d) and 
this section only if:
    (1) The tax is imposed by a State which simultaneously imposes a 
resident tax meeting the requirements of section 6362(b) and Sec.  
301.6362-2 or of section 6362(c) and Sec.  301.6362-3;
    (2) The tax is required to be computed in accordance with either the 
method prescribed in paragraph (b) of this section or another method of 
which the Secretary or his delegate approves upon submission by the 
State of the laws pertaining to the tax;
    (3) The tax is imposed only on the wage and other business income 
derived from sources within such State (as defined in paragraph (d) of 
this section), of all individuals each of whom derives 25 percent or 
more of his aggregate wage and other business income for the taxable 
year from sources within such State while he is neither (i) a resident 
of such State within the meaning of section 6362(e) and Sec.  301.6362-
6, nor (ii) exempt from liability for the tax by reason of a reciprocal 
agreement between such State and the State of which he is a resident 
within the meaning of those provisions;
    (4) The amount of the tax imposed with respect to any individual 
does not exceed the amount of tax for which such individual would be 
liable under the qualified resident tax imposed by such State if he were 
a resident of the State for the period during which he earned wage or 
other business income from sources within the State, and if his taxable 
income for such period were an amount equal to the sum of the zero 
bracket amount (within the meaning of section 63(d) and determined as if 
he had been a resident of the State for such period) and the excess of:
    (i) The amount of his wage and other business income derived from 
sources within the State, over
    (ii) That portion of the sum of the zero bracket amount and the 
nonbusiness deductions (i.e., all deductions from adjusted gross income 
allowable in computing taxable income) taken into account for purposes 
of the State's qualified resident tax which bears the same ratio to such 
sum as the amount described in subdivision (i) of this subparagraph 
bears to his total adjusted gross income for the year; and
    (5) For purposes of the tax, wage or other business income is 
considered as being the income of the individual whose income it is for 
purposes of section 61.
    (b) Approved method of computing liability for qualified nonresident 
tax. A tax satisfies the requirement of paragraph (a)(2) of this section 
if the amount of the tax is computed either as a percentage of the 
excess of the amount described in paragraph (a)(4)(i) of this section 
over the amount described in paragraph (a)(4)(ii) of this section, or by 
application of progressive rates to such excess.
    (c) Definition of wage and other business income. For purposes of 
section 6362(d) and this section, the term ``wage and other business 
income'' means the following types of income:
    (1) Wages, as defined in section 3401(a) and the regulations 
thereunder, but for these purposes:
    (i) The amount of wages shall exclude amounts which are treated as 
wages under section 3402 (o) or (p) (relating to supplemental 
unemployment compensation benefits, annuity payments, and voluntary 
withholding agreements), and amounts which are treated as disability 
payments to the extent that they are excluded from gross income for 
Federal income tax purposes, pursuant to section 105(d), and
    (ii) The amount of wages shall be reduced by those expenses which 
are directly related to the earning of such wages and with respect to 
which deductions are properly claimed from gross

[[Page 459]]

income in computing adjusted gross income;
    (2) Net earnings from self-employment, as defined in section 
1402(a); and
    (3) The distributive share of income of any trade or business 
carried on by a trust, estate, or electing small business corporation 
(as defined in section 1371(a) and the regulations thereunder), to the 
extent that such share:
    (i) Is includible in the gross income of the taxpayer for the 
taxable year, and
    (ii) Would constitute net earnings from self-employment if the trade 
or business were carried on by a partnership.

For purposes of this subparagraph, ``distributive share'' includes the 
income of a trust or estate which is taxable to the taxpayer as a 
beneficiary under applicable Federal income tax rules, and the 
undistributed taxable income of an electing small business corporation 
which is taxable to the taxpayer as a shareholder under section 1373.
    (d) Income derived from sources within a State--(1) Income 
attributable primarily to services. Except as otherwise provided by 
Federal statute (see paragraphs (h), (i), and (j) of Sec.  301.6362-7), 
wage income and other business income (net earnings from self-employment 
or distributive shares) which is attributable more to services performed 
by the taxpayer than to a capital investment of the taxpayer shall be 
considered to have been derived from sources within a State only if the 
services of the taxpayer which give rise to the income are performed in 
such State. If for a taxable year only a portion of the taxpayer's 
services giving rise to the income from one employment, trade, or 
business is performed within a State, then it shall be presumed that the 
amount of income from such employment, trade, or business which is 
derived from sources within that State equals that portion of the total 
income derived from such employment, trade, or business for the year 
which the amount of time spent by the taxpayer for such year performing 
services with respect to that employment, trade, or business in that 
State bears to the aggregate amount of time spent by the taxpayer for 
such year performing all of such services. However, the presumption 
stated in the preceding sentence may be rebutted in the event that the 
taxpayer proves, by use of detailed records, that the correct allocation 
of his income is otherwise.
    (2) Income attributable primarily to investment. Except as otherwise 
provided by Federal statute (see paragraph (j) of Sec.  301.6362-7), 
business income (net earnings from self-employment or distributive 
shares) which is attributable more to a capital investment of the 
taxpayer than to services performed by the taxpayer shall be considered 
to have been derived from sources within the State, if any, in which the 
significant activities of the trade or business are conducted. If for 
the taxable year only a portion of the significant activities conducted 
with respect to one trade or business is conducted within a certain 
State, then the portion of the taxpayer's total income for the year from 
such trade or business which is considered to be derived from sources 
within that State shall be computed as follows:
    (i) Allocation by records. The portion of the taxpayer's total 
income from the trade or business which is considered to be derived from 
sources within the State shall be the portion which is allocable to such 
sources according to the records of the taxpayer or of the partnership, 
trust, estate, or electing small business corporation from which his 
income is derived, provided that the taxpayer establishes to the 
satisfaction of the district director, when requested to do so, that 
those records fairly and equitably reflect the income which is allocable 
to sources within the State. An allocation made pursuant to this 
subdivision shall be based on the location of the significant activities 
of the trade or business, and not on the location at which the 
taxpayer's personal services are performed.
    (ii) Allocation by formula. If the taxpayer (or the trade or 
business) does not keep records meeting the requirements of subdivision 
(i) of this subparagraph, or if the taxpayer fails to meet the burden of 
proof set forth therein, then the amount of the taxpayer's income from 
the trade or business which is considered to be derived from

[[Page 460]]

sources within the State shall be determined by multiplying the total of 
his income (as defined in paragraphs (c) (2) and (3) of this section) 
from the trade or business for the taxable year by the percentage which 
is the average of these three percentages:
    (A) Property percentage. The percentage computed by dividing the 
average of the value, at the beginning and end of the taxable year, of 
real and tangible personal property connected with the taxpayer's trade 
or business and located within the State, by the average of the value, 
at the beginning and end of the taxable year, of all such property 
located both within and without the State. For this purpose, real 
property shall include real property rented to the taxpayer in 
connection with the trade or business, or rented to the trade or 
business.
    (B) Payroll percentage. The percentage computed by dividing the 
total wages, salaries, and other compensation for personal services 
which is paid or incurred during the taxable year to employees in 
connection with the taxpayer's trade or business, and which would be 
treated as derived by such employees from sources within the State 
pursuant to subparagraph (1) of this paragraph (d), by the total of all 
such wages, salaries, and other compensation for personal services which 
is so paid or incurred without regard to whether such payments would be 
treated as derived by the employees from sources within the State. For 
purposes of this subdivision (ii), no amount paid as deferred 
compensation pursuant to a retirement plan to a former employee shall be 
taken into consideration.
    (C) Gross income percentage. The percentage computed by dividing the 
gross sales or charges for services performed by or through an agency 
located within the State by the total of all gross sales or charges for 
services performed both within and without the State. The sales or 
charges to be allocated to the State shall include all sales which are 
negotiated, and charges which are for services performed, by an 
employee, agent, agency, or independent contractor chiefly situated at, 
or working principally out of an office located within, the State.
    (3) Income attributable to real estate investment. Notwithstanding 
subparagraph (2) of this paragraph (d), income and deductions from the 
rental of real property, and gain and loss from the sale, exchange, or 
other disposition of real property, shall not be subject to allocation 
under subparagraph (2), but shall be considered as entirely derived from 
sources located within the State in which such property is located.
    (4) Treatment of losses. A loss attributable to the taxpayer's 
employment, or to his conduct of, participation in, or investment in a 
trade or business, shall be allocated in the same manner as the income 
attributable to such employment or trade or business would be allocated 
pursuant to this paragraph.
    (5) Examples. The application of this paragraph may be illustrated 
by the following examples:

    Example 1. A, an employee who earns $10,000 in wage income 
attributable to services, and who has no other wage or other business 
income, spends 60 percent of his working time performing services for 
his employer in State X, 30 percent in State Y, and 10 percent in State 
Z. In the absence of the requisite proof to the contrary, A's wage 
income is considered to have been derived 60 percent from sources 
located within State X, 30 percent within State Y, and 10 percent within 
State Z. Assuming that A is a nonresident with respect to all three 
States, and that they all impose qualified nonresident taxes, then the 
qualified nonresident tax of State X is imposed on $6,000, the qualified 
nonresident tax of State Y is imposed on $3,000, and the qualified 
nonresident tax of State Z is not imposed on any of the income because A 
did not derive at least 25 percent of his wage and other business income 
from sources located within State Z.
    Example 2. B, who earns no wage income but who has a total of 
$10,000 of other business income for the taxable year, all of which is 
net income from self-employment attributable primarily to services, 
spends 45 percent of his working time performing services in State X, 30 
percent in State Y, and 25 percent in State Z. However, the rates that B 
is able to charge for his services and the business expenses which he 
incurs vary in the different States, and he is able to prove by detailed 
records that his net income from self-employment was in fact derived 50 
percent from sources located within State X, 35 percent from sources 
located within State Y, and 15 percent from sources located within State 
Z. Assuming that B is a nonresident with respect to all three States, 
and that they all impose qualified nonresident taxes,

[[Page 461]]

then the qualified nonresident tax of State X is imposed on $5,000, the 
qualified nonresident tax of State Y is imposed on $3,500, and the 
qualified nonresident tax of State Z is not imposed on any of the income 
because B did not derive at least 25 percent of his wage and other 
business income from sources located within State Z.
    Example 3. C is a partner in a profitable business concern, in which 
he has a substantial capital investment. His net earnings from self-
employment attributable to his partnership interest are $75,000 for the 
taxable year. The fair market value of the services which C performs for 
the partnership during the taxable year is $30,000. C's income is 
therefore attributable primarily to his capital investment. The 
partnership business is carried on partially within and partially 
without State X. Neither C nor the partnership maintains records from 
which the portion of C's $75,000 income which is considered to be 
derived from sources within State X can be satisfactorily proven. As 
determined under subparagraph (2) of this paragraph, the partnership's 
``property percentage'' in State X is 70, its ``payroll percentage'' 
therein is 60, and its ``gross income percentage'' therein is 56. The 
amount of C's partnership income considered to be derived from sources 
within State X is $46,500 ($75,000 x 62 percent). This result would 
obtain even if C's services for the partnership are performed entirely 
within State X.
    Example 4. Assume the same facts as in (3), except that the records 
of the partnership of which C is a member indicate that the net profits 
of the partnership are derived 40 percent from business activities 
conducted in State X, and 60 percent from business activities conducted 
in State Y. C is requested to prove that those records fairly and 
equitably reflect the income which is allocable to sources within State 
X. The documentary evidence which he adduces in support of the 
allocation made by the records shows how such allocation results from a 
careful step-by-step tracing of the profitability of each phase and 
aspect of the partnership's operations, and shows the State in which 
each such phase and aspect of the operations is conducted. C's proof is 
satisfactory to show that the percentage allocation, and the amount of 
his partnership income considered to be derived from sources within 
State X is $30,000, or $75,000 multiplied by 40 percent. This result 
would obtain even if B's services for the partnership are performed 
entirely within State X.

[T.D. 7577, 43 FR 59367, Dec. 20, 1978]



Sec.  301.6362-6  Requirements relating to residence.

    (a) In general. A tax imposed by a State meets the requirements of 
section 6362(e) and this section if in effect it provides that:
    (1) The State of residence of an individual, estate, or trust is 
determined according to paragraph (1), (2), or (3) respectively, of 
section 6362(e), and according to paragraph (b), (c), or (d), 
respectively, of this section.
    (2) The liability for a resident tax imposed by such State upon an 
individual or trust which changes residence to another State in the 
taxable year is determined according to section 6362(e)(4) and paragraph 
(e) of this section.
    (3) The rules relating to current collection of tax apply as 
provided in section 6362(e)(5) and paragraph (f) of this section.
    (b) Residence of an individual--(1) In general. Except as otherwise 
provided in subparagraph (5) of this paragraph (b), an individual is 
treated as a resident of a State with respect to a taxable year only if:
    (i) His principal place of residence (as defined in subparagraph (2) 
of this paragraph (b)) is within such State for a period of at least 135 
consecutive days, at least 30 days of which are in such taxable year; or
    (ii) In the case of a citizen or resident of the United States who 
is not a resident of any State (determined as provided in subdivision 
(i) of this subparagraph) with respect to such taxable year, his 
domicile (as defined in subparagraph (3) of this paragraph (b)) is in 
such State for at least 30 days during such taxable year.

With respect to an individual who is a resident (determined as provided 
in subdivision (i) of this subparagraph) of more than one State during a 
taxable year, see paragraph (e) of this section.
    (2) Principal place of residence--(i) Definition. For purposes of 
subparagraph (1)(i) of this paragraph (b), and paragraph (d)(4) of this 
section, the term ``principal place of residence'' shall mean the place 
which is an individual's primary home. An individual's temporary absence 
from his primary home shall not effect a change with respect thereto. On 
the other hand, if an individual moves to another State, other than as a 
mere transient or sojourner, he shall be treated as having changed the 
location of his primary home.

[[Page 462]]

    (ii) Examples. The application of this subparagraph may be 
illustrated by the following examples:

    Example 1. A has a city home and a country home. He resides in the 
city home for 7 months of the year and uses the address of that home as 
his legal residence for purposes of driver's license, automobile 
registration, and voter registration. He resides in the country home 5 
months of the year. His city home is considered his principal place of 
residence.
    Example 2. During the taxable year, B, a construction worker, is 
employed at several different locations in different States. The 
duration of each job on which he is employed ranges from a few weeks to 
several months, and he knows when he accepts a job what its approximate 
duration will be. He owns a house in State X which he uses as his legal 
residence for purposes of driver's license, automobile registration, and 
voter registration. In addition, his family lives there during the 
entire year, and B lives there during periods between jobs. However, the 
duration of the jobs and the distance between the job-sites and his 
house require him to live in the localities of the respective job-sites 
during the period of his employment, although occasionally he returns to 
his house in State X on weekends. B's house in State X is his principal 
place of residence during all of the taxable year.
    Example 3. C, a dependent of his parents who are residents of State 
X, is a full-time student in a 4-year degree program at a college in 
State Y. During the 9-month academic year, C lives on the college 
campus, but he returns to his parents' home in State X for the summer 
recess. C gives the State Y as his residence for purposes of his 
driver's license and voter registration, but lists the address of his 
parents' home in State X as his ``permanent address'' on the records of 
the college which he attends. Although C's domicile remains at his 
parents' home in State X, his presence in State Y cannot be regarded as 
that of a mere transient or sojourner; accordingly, C's principal place 
of residence is in State Y for that portion of the taxable year during 
which he attends college.
    Example 4. D loses his job in State X, where he lived and worked for 
many years. After a series of unsuccessful attempts to find other 
employment in State X, he accepts a job in State Y. D gives up his 
apartment in State X and moves to State Y upon commencing his new job; 
however, he intends to continue to explore available employment 
opportunities in State X so that he may return there as soon as an 
opportunity to do so arises. D changes his principal place of residence 
when he moves to State Y.

    (3) Domicile defined. For purposes of subparagraph (1)(ii) of this 
paragraph (b), and paragraph (d)(4) of this section, the term 
``domicile'' shall mean an individual's fixed or permanent home. An 
individual acquires a domicile in a place by living there; even for a 
brief period of time, with no definite present intention of later 
removing therefrom. Residence without the requisite intention to remain 
indefinitely will not suffice to change domicile, nor will intention to 
change domicile effect such a change until accompanied by actual 
removal. A domicile, once acquired, is maintained until a new domicile 
is acquired.
    (4) Period of residence--(i) General rule. An individual who becomes 
a resident of a State pursuant to subparagraph (1) of this paragraph 
(b), or who is at the beginning of a taxable year a resident of a State 
pursuant to such provision, shall be treated as continuing to be a 
resident of such State through the end of the taxable year, unless, 
prior thereto, such individual becomes a resident, under the principles 
of subparagraph (1), of another State or a possession or foreign 
country. In the event that the individual becomes a resident of such 
another jurisdiction prior to the end of the taxable year, his residence 
in such State shall be treated as ending on the day prior to the day on 
which he becomes a resident of such other jurisdiction pursuant to 
subparagraph (1).
    (ii) Examples. The application of this subparagraph may be 
illustrated by the following examples:

    Example 1. A, a calendar-year taxpayer, has his principal place of 
residence in State X from the beginning of 1976 through August 1, 1976, 
when he gives up pemanently such principal place of residence. He spends 
the remainder of 1976 traveling outside of the United States, but does 
not become a resident of any other country. A is considered to be a 
resident of State X for the entire year 1976.
    Example 2. Assume the same facts as in example 1, except that A 
ceases his traveling and establishes his principal place of residence in 
State Y on November 15, 1976. Assume, also, that A maintains that 
principal place of residence for more than 135 consecutive days. Under 
these circumstances, for his taxable year 1976, A is considered to be a 
resident of State X from January 1 through November 14, and a resident 
of State Y from November 15 through December 31.


[[Page 463]]


    (5) Special rules. (i) No provision of subchapter E or the 
regulations thereunder shall be construed to require or authorize the 
treatment of a Senator, Representative, Delegate, or Resident 
Commissioner as a resident of a State other than the State which he 
represents in Congress.
    (ii) For special rules relating to members of the Armed Forces, see 
paragraph (h) of Sec.  301.6362-7.
    (6) Examples. The application of this paragraph may be illustrated 
by the following examples:

    Example 1. A, a calendar-year taxpayer, maintains his principal 
place of residence in State X from December 1, 1976, through April 15, 
1977. Assuming that A was not a resident of any other jurisdiction at 
any time during 1976, A is treated as a resident of State X for the 
entire year 1976. Such result would obtain even if A was absent from 
State X on vacation for some portion of December 1976. Moreover, such 
result would obtain even if it is assumed that A was a domiciliary of 
State Y from January 1, 1976, through April 15, 1977, because an 
individual's domicile does not determine his residence so long as 
residence in one State for the taxable year can be determined from the 
general rule stated in the first sentence of paragraph (b)(1) of this 
section.
    Example 2. Assume the same facts as in example 1 (including the fact 
of A's domicile in State Y), except that A maintained his principal 
place of residence in State Z from September 15, 1975, through January 
31, 1976, inclusive. With respect to the year 1976, A is treated as a 
resident of State Z from January 1 through November 30, and as a 
resident of State X from December 1 through December 31. A's liability 
for the qualified taxes of the respective States for 1976 shall be 
determined pursuant to the provisions in paragraph (e) of this section.

    (c) Residence of an estate. An estate of an individual is treated as 
a resident of the last State of which such individual was a resident, as 
determined under the rules of paragraph (b) of this section, prior to 
his death. However, the estate of an individual who was not a resident 
of any State (as determined without regard to the 30-day requirement in 
paragraph (b)(1) of this section) immediately prior to his death, and 
who was not a resident of any State at any time during the 3-year period 
ending on the date of his death, is not treated as a resident of any 
State. For purposes of determining the decedent's last State of 
residence, the rules of paragraph (b) shall be applied irrespective of 
whether subchapter E was in effect at the time the period of 135 
consecutive days of residence began, or whether the decedent's last 
State of residence is a State electing to enter into an agreement 
pursuant to subchapter E. The determination of the State of residence of 
an estate pursuant to this paragraph shall not be governed by any 
determination under State law as to which State is treated as the 
residence or domicile of the decedent for purposes other than its 
individual income tax (such as liability for State inheritance tax or 
jurisdiction of probate proceedings).
    (d) Residence of a trust--(1) In general. (i) The State of residence 
of a trust shall be determined by reference to the circumstances of the 
individual who, by either an inter-vivos transfer or a testamentary 
transfer, is deemed to be the ``principal contributor'' to the trust 
under the provisions of subdivision (ii) of this subparagraph.
    (ii) If only one individual has ever contributed assets to the 
trust, including the assets which were transferred to the trust at its 
inception, then such individual is the principal contributor to the 
trust. However, if on any day subsequent to the initial creation of the 
trust, such trust receives assets having a value greater than the 
aggregate value of all assets theretofore contributed to it, then the 
trust shall be deemed (for the limited purpose of determining the State 
of residence) to have been ``created'' anew, and the individual who on 
the day of such creation contributed more (in value) than any other 
individual contributed on that day shall become the principal 
contributor to the trust. When a trust is created anew, all references 
in this paragraph to the creation of the trust shall be construed as 
referring to the most recent creation. For purposes of this paragraph, 
the value of any asset shall be its fair market value on the day that it 
was contributed to the trust; any subsequent appreciation or 
depreciation in the value of the asset shall be disregarded.
    (2) Testamentary trust. A trust with respect to which a deceased 
individual is the principal contributor by reason of property passing on 
his death is

[[Page 464]]

treated as a resident of the last State of which such individual was a 
resident, as determined under the rules of paragraph (b) of this 
section, before his death. However, if such deceased individual was not 
a resident of any State (as determined without regard to the 30-day 
requirement in paragraph (b)(1) of this section) immediately prior to 
his death, and was not a resident of any State at any time during the 3-
year period ending on the date of his death, then a testamentary trust 
of which he is the principal contributor by reason of property passing 
on his death is not treated as a resident of any State. All property 
passing on the transferor's death is treated for this purpose as a 
contribution made to the trust on the date of death, regardless of when 
the property is actually paid over to the trust.
    (3) Nontestamentary trust. A trust which is not a trust described in 
subparagraph (2) of this paragraph (d), is treated as a resident of the 
State in which the principal contributor to the trust, during the 3-year 
period ending on the date of the creation of the trust, had his 
principal place of residence for an aggregate number of days longer than 
the aggregate number of days he had his principal place of residence in 
any other State. However, if the principal contributor to such a trust 
was not a resident of any State at any time during such 3-year period, 
then the trust is not treated as a resident of any State.
    (4) Special rules. If the application of the provisions of the 
foregoing subparagraphs of this paragraph results in a determination of 
more than one State of residence for a trust, or does not provide a rule 
by which the residence or nonresidence of the trust can be determined, 
then the determination of the State of residence of such trust shall be 
made according to the rules of the applicable subdivision of this 
subparagraph.
    (i) If, at the time of creation of the trust, 50 percent or more in 
value of the trust corpus consists of real property, then the trust 
shall be treated as a resident of the State in which more of the real 
property (in value) which was in the trust at such time was located than 
any other State.
    (ii) If, at the time of creation of the trust, less than 50 percent 
in value of the trust corpus consists of real property, then the trust 
shall be treated as a resident of the State in which, at such time, the 
trustee, if an individual, had his principal place of residence, or, if 
a corporation, had its principal place of business. If there were two or 
more trustees, then the foregoing sentence shall be applied by reference 
to the principal places of residence, or of business, of the majority of 
trustees who had authority to make investment and other management 
decisions for the trust.
    (iii) If, after application of the provisions of subdivisions (i) 
and (ii) of this subparagraph, the State of residence of the trust still 
cannot be ascertained, then the Commissioner of Internal Revenue shall 
determine the State of residence of such trust for purposes of qualified 
taxes. Such determination shall be made by reference to the number of 
significant contacts each State had with the trust at the time of its 
creation. Significant contacts shall include the principal place of 
residence of the principal contributor or contributors to the trust, the 
principal place of residence or business of the trustee (or trustees), 
the situs of the assets of which the trust corpus was composed, and the 
location from which management decisions emanated with respect to the 
business and investment interests of the trusts.
    (5) Examples. The application of this paragraph may be illustrated 
by the following examples:

    Example 1. A created a trust in 1950 by transferring to it certain 
stock in a corporation. At the time of such transfer, the stock had a 
fair market value of $1,000. A at all relevant times had his principal 
place of residence in State X, and accordingly the trust is treated as a 
resident of such State for qualified tax purposes. As of January 1, 
1977, the stock originally contributed by A, which was at all times the 
only property in the trust, has a fair market value of $3,000. On such 
date, B, who has had his principal place of residence in State Y for 
more than 3 years, contributes to the trust property having a fair 
market value of $1,200. For purposes of determining the identity of the 
principal contributor to the trust and the State of residence of the 
trust, the stock contributed by A in 1950 continues to be valued for 
such purposes at $1,000. Thus, the trust is

[[Page 465]]

treated as being created anew on January 1, 1977, with B as the 
principal contributor, and with State Y as its State of residence.
    Example 2. C has his principal place of residence in State X 
continuously for many years, until August 1, 1978, when he establishes 
his principal place of residence in State Y. The change of residence is 
intended to be permanent, and C has no further contact with State X 
after such change. On January 1, 1980, C creates a nontestamentary 
trust. During the 3-year period ending on such date C had his principal 
place of residence in State X for 576 days, and in State Y for 519 days. 
Therefore, the trust is treated as a resident of State X.

    (e) Liability for tax on change of residence during taxable year--
(1) In general. If, under the principles contained in paragraph (b) or 
(d) of this section, an individual or trust becomes a resident, or 
ceases to be a resident, of a State, and is also a resident of another 
jurisdiction outside of such State during the same taxable year, the 
liability of such individual or trust for the resident tax of such State 
shall be determined by multiplying the amount which would be his or its 
liability for tax (computed after allowing the nonrefundable credits 
(i.e., credits not corresponding to the credits referred to in section 
6401(b) available against the tax)) if he or it had been a resident of 
such State for the entire taxable year by a fraction, the numerator of 
which is the number of days he or it was a resident of such State during 
the taxable year, and the denominator of which is the total number of 
days in the taxable year. The preceding sentence shall not apply by 
reason of the fact that an individual is born or dies during the taxable 
year, or by reason of the fact that a trust comes into existence or 
ceases to exist during the taxable year.
    (2) Residence determined by domicile. When an individual is treated 
as a resident of a State by reason of being domiciled in such State, 
pursuant to paragraph (b)(1)(ii) of this section, then the numerator of 
the fraction provided in subparagraph (1) of this paragraph (e), shall 
be the number of days the individual was domiciled in the State during 
the taxable year.
    (3) Example. The application of this paragraph may be illustrated by 
the following example:

    Example. A, a calendar-year taxpayer, is a resident of State X 
continuously for many years prior to March 15, 1977. On such date, A 
retires and establishes a new principal place of residence in State Y. A 
earns $6,000 in 1977 prior to March 15, but receives no taxable income 
for the remainder of such year. If A had been a resident of State X for 
the entire taxable year 1977, his liability with respect to the 
qualified tax of such State (computed after allowing the nonrefundable 
credits available against the tax) would be $600. If he had been a 
resident of State Y for the entire taxable year 1977, his liability with 
respect to the qualified tax on that State (computed similarly) would be 
$400. Pursuant to the provisions in paragraph (e) of this section, A's 
liabilities for State qualified taxes for 1977 are as follows:

Liability for State X tax = $600 x 73 / 365 = $120

Liability for State Y Tax = $400 x 292 / 365 = $320.

    (f) Current collection of tax. The State tax laws shall contain 
provisions for methods of current collection with respect to individuals 
which correspond to the provisions of the Internal Revenue Code of 1954 
with respect to such current collection, including chapter 24 (relating 
to the collection of income tax at source on wages) and sections 6015, 
6073, 6153, and other provisions of the Code relating to declarations 
(and amendments thereto) and payments of estimated income tax. Except as 
otherwise provided by Federal statute (see paragraphs (h), (i), and (j) 
of Sec.  301.6362-7), in applying such provisions of the State tax laws:
    (1) In the case of a resident tax, an individual shall be subject to 
the current collection provisions if either--
    (i) He is a resident of the State within the meaning of paragraph 
(b) of this section, or
    (ii) He has his principal place of residence (as defined in 
paragraph (b)(2) of this section) within the State,

And it is reasonable to expect him to have it within the State for 30 
days or more during the taxable year.
    (2) In the case of a nonresident tax, an individual shall be subject 
to the current collection provisions if he does not meet either 
description relating to an individual in subparagraph (1) of this 
paragraph (f), if he is not exempt from liability for the tax by reason 
for a reciprocal agreement between the

[[Page 466]]

State of which he is a resident and the State imposing the tax, and if 
it is reasonable to expect him to receive wage or other business income 
derived from sources within the State imposing the tax (as defined in 
paragraph (d) of Sec.  301.6362-5) for services performed on 30 days or 
more of the taxable year.

For additional rules relating to withholding see paragraph (d) of Sec.  
301.6361-1.

[T.D. 7577, 43 FR 59369, Dec. 20, 1978]



Sec.  301.6362-7  Additional requirements.

    A State tax meets the additional requirements of section 6362(f) and 
this section only if:
    (a) State agreement must be in effect for period concerned. A State 
agreement, as defined in paragraph (a) of Sec.  301.6361-4, is in effect 
with respect to such tax for the taxable period in question.
    (b) State laws must contain certain provisions. Under the laws of 
such State, the provisions of subchapter E and the regulations 
thereunder, as in effect from time to time, are applicable for the 
entire period for which the State agreement is in effect. Any change 
made by the State in such tax (other than an adjustment in the State law 
which is made solely in order to comply with a change in the Federal Law 
or regulations) shall not apply to taxable years beginning in any 
calendar year for which the State agreement is in effect unless the 
change is enacted before November 1 of such year.
    (c) State individual income tax laws can be only of certain kinds. 
Such State does not impose any tax on the income of individuals other 
than (1) a qualified resident tax, and (2) either or both a qualified 
nonresident tax and a separate tax on income which is not wage and other 
business income as defined in paragraph (c) of Sec.  301.6362-5 and 
which is received or accrued by individuals who are domiciled in the 
State, but who are not residents of the State (as defined in paragraph 
(b) of Sec.  301.6362-6). For purposes of this paragraph, a tax imposed 
on the amount taxed under section 56 (as permitted under Sec.  301.6362-
2(b)(2)) shall be treated as an adjustment to and a part of the 
qualified resident tax. Also, tax laws which were in effect prior to the 
effective date of a State agreement and which are not repealed, but 
which are made inapplicable for the period during which the State 
agreement is in effect, shall be disregarded.
    (d) Taxable years must coincide. The taxable years of all 
individuals, estates, and trusts under such tax are required to coincide 
with their taxable years used for purposes of the taxes imposed by 
chapter 1. Accordingly, when subchapter E begins to apply to a State, a 
taxpayer whose taxable year for purposes of the Federal income tax is 
different from his taxable year for purposes of the State income tax 
which precedes the qualified tax may have one short taxable year for 
purposes of such State income tax, so that thereafter his taxable years 
for purposes of the qualified tax will coincide with the Federal taxable 
year.
    (e) Married individuals. Individuals who are married within the 
meaning of section 143 of the Code are prohibited from filing (1) a 
joint return for purposes of such State tax if they file separate 
Federal income tax returns, or (2) separate returns for purposes for 
such State tax if they file a joint Federal income tax return.
    (f) Penalties; no double jeopardy. Under the laws of such State:
    (1) Civil and criminal sanctions identical to those provided by 
subtitle F, and by title 18 of the United States Code (relating to 
crimes and criminal procedures), with respect to the taxes imposed on 
the income of individuals by chapter 1 and on the wages of individuals 
by chapter 24, apply to individuals and their employers who are subject 
to such State tax (and the collection and administration thereof, 
including the corresponding withholding tax imposed to implement the 
current collection of such State tax) as if such tax were imposed by 
chapter 1 or chapter 24, in the case of the withholding tax), except to 
the extent that the application of such sanctions is modified by 
regulations issued under subchapter E; and
    (2) No other sanctions or penalties apply with respect to any act or 
omission to act in respect of such State tax.

See also paragraph (e) of Sec.  301.6361-1 with respect to criminal 
penalties.
    (g) Partnerships, trusts, subchapter S corporations, and other 
conduit entities.

[[Page 467]]

Under the laws of such State, the State tax treatment of--
    (1) Partnerships and partners,
    (2) Trusts and their beneficiaries,
    (3) Estate and their beneficiaries,
    (4) Electing small business corporations (within the meaning of 
section 1371(a) and their shareholders, and
    (5) Any other entity and the individuals having beneficial interests 
therein (such as a cooperative corporation and its shareholders), to the 
extent that such entity is treated as a conduit for purposes of the 
taxes imposed by chapter 1, corresponds to the tax treatment provided 
therefor with respect to the taxes imposed by chapter 1. For example, a 
subchapter S corporation shall not be subject to the State's corporate 
income tax on amounts which are includible in shareholders incomes which 
are subject to that State's individual income tax, except to the extent 
that the subchapter S corporation is subject to tax under Federal law. 
Similarly, a partnership shall not be subject to the State's 
unincorporated business income tax on amounts which are includible in 
partners' incomes which are subject to that State's individual income 
tax. However, the laws of the State which set forth the provisions of 
such State individual income tax shall authorize the Commissioner of 
Internal Revenue to require that the conduit entities described in this 
paragraph (or some of them) supply information to the Federal Government 
with respect to the source of income, the State of residence, or the 
amount of income of a particular type, of an individual, estate, or 
trust holding a beneficial interest in such conduit entity.
    (h) Members of armed forces. The relief provided to any member of 
the Armed Forces by section 514 of the Soldiers' and Sailors' Civil 
Relief Act (50 U.S.C. App. section 574) is in no way diminished. 
Accordingly, for purposes of such State tax, an individual shall not be 
considered to have become a resident of a State solely because of his 
absence from his original State of residence under military order. 
Moreover, compensation for military service shall not be considered as 
income derived from a source within a State of which the individual 
earning such compensation is not a resident, within the meaning of 
paragraph (d) of Sec.  301.6362-5. The preceding sentence shall not 
apply to nonmilitary compensation. Thus, for example, if an individual 
who is serving in State X as a member of the Armed Forces, and who is 
regarded as a resident of State Y under the Soldiers' and Sailors' Civil 
Relief Act, earns nonmilitary income in State X from a part-time job, 
such nonmilitary income may be subject to a qualified nonresident tax 
imposed by State X.
    (i) Withholding on compensation of employees of railroads, motor 
carriers, airlines, and water carriers. There is no contravention of the 
provisions of section 26, 226A, or 324 of the Interstate Commerce Act, 
or of section 1112 of the Federal Aviation Act of 1958, with respect to 
the withholding of compensation to which such sections apply for 
purposes of the nonresident tax.
    (j) Income derived from interstate commerce. There is no 
contravention of the provisions of the Act of September 14, 1959 (73 
Stat. 555), with respect to the taxation of income derived from 
interstate commerce to which such statute applies.

[T.D. 7577, 43 FR 59372, Dec. 20, 1978]



Sec.  301.6363-1  State agreements.

    (a) Notice of election. If a State elects to enter into a State 
agreement it shall file notice of such election with the Secretary or 
his delegate. The notice of election shall include the following:
    (1) Statement by the Governor. A written statement by the Governor 
of the electing State:
    (i) Requesting that the Secretary enter into a State agreement, and
    (ii) Binding the Governor and his successors in office to notify the 
Secretary or his delegate immediately of the enactment, between the time 
of the filing of the notice of election and the time of the execution of 
the State agreement, of any law of that State which meets the 
description given in any of the subdivisions of subparagraph (2) of this 
paragraph (a), whether or not such law is intended to be administered by 
the United States pursuant to subchapter E.
    (2) Copy of State laws. Certified copies of all laws of that State 
described in any of the following subdivisions of this subparagraph, and 
a specification

[[Page 468]]

of laws described in subdivision (i) of this subparagraph as 
``subchapter E laws'', of laws described in subdivision (ii) as ``other 
tax laws'', of laws described in subdivision (iii) as ``non-tax laws'', 
and of laws described in subdivision (iv) as ``interstate cooperation 
laws'':
    (i) All of the State individual income tax laws (including laws 
relating to the collection or administration of such taxes or to the 
prosecution of alleged civil or criminal violations with respect to such 
taxes) which the State would expect the United States to administer 
pursuant to subchapter E if the State agreement is executed as 
requested. In order to have a valid notice, the State must have a tax 
which would meet the requirements for qualification specified in section 
6362 and the regulations thereunder if a State agreement were in effect 
with respect thereto, with no conditions attached to the effectiveness 
of such tax other than the execution of a State agreement. Such tax must 
be effective no later than the January 1 specified in the State's notice 
of election as the date as of which subchapter E is desired to become 
applicable to the electing State, except that such effective date shall 
be deferred to the date provided in the State agreement for the 
beginning of applicability of subchapter E to the State, if the latter 
date is different from the date specified in the notice of election.
    (ii) All of the State income tax laws applicable to individuals 
(including laws relating to the collection or administration of such 
taxes or to the prosecution of alleged civil or criminal violations with 
respect to such taxes) which the State would not expect the United 
States to administer but which may be in effect simultaneously (for any 
period of time) with the State agreement.
    (iii) All of the State laws other than individual income tax laws 
which provide for the making of any payments by the State based on one 
or more criteria which the State may desire to verify by reference to 
information contained in returns of qualified taxes.
    (iv) All of the State laws which may be in effect simultaneously 
(for any period of time) with the State agreement and which provide for 
cooperation or reciprocal agreement between the electing State and 
another State with respect to income taxes applicable to individuals.
    (3) Approval by legislature or authorization by constitutional 
amendment. A certified copy of an Act or Resolution of the legislature 
of the electing State in which the legislature affirmatively expresses 
its approval of the State's entry into a State agreement, or a certified 
copy of an amendment to the constitution of such State by which the 
voters of the State affirmatively authorize such entry.
    (4) Opinion by State Attorney General or judgment of highest court. 
A written statement by the State Attorney General to the effect that, in 
his opinion, no provision of the State's Constitution would be violated 
by the State law's incorporation by reference of the Federal individual 
income tax laws and regulations, as amended from time to time, by the 
Federal prosecution and trial of individuals who are alleged to have 
committed crimes with respect to the State's qualified tax (when it goes 
into effect as such), or by any other provision relating to such tax, 
considered as of the time it is being collected and administered by the 
Federal Government pursuant to subchapter E. However, if such a 
statement is not included in the notice of election, a judgment of the 
highest court of the State to the same effect may be submitted in its 
place.
    (5) Effective date. A written specification of the January as of 
which subchapter E is desired to become applicable to the electing 
State.
    (b) Rules relating to time for filing notice of election. An 
electing State must file its notice of election more than 6 months prior 
to the January 1 as of which the notice specifies that the provisions of 
subchapter E are desired to become applicable to such State. Thus, for 
example, if the date specified in the notice is January 1, 1979, the 
notice must be filed no later than June 30, 1978. However, because under 
the provisions of section 204(b) of the Federal-State Tax Collection Act 
of 1972 (86 Stat. 945), as amended by section 2116(a) of the Tax Reform 
Act of 1976

[[Page 469]]

(90 Stat. 1910), the provisions of subchapter E will initially take 
effect on the first January 1 which is more than 1 year after the first 
date on which at least one State has filed a notice of its election (see 
Sec.  301.6361-5), the notice of an election which causes subchapter E 
to initially take effect must be filed with the Secretary or his 
delegate more than 1 year prior to the January 1 as of which such notice 
specifies that the provisions of subchapter E are desired to become 
applicable to such State. Thus, for example, if such an initially 
electing State desires to elect subchapter E as of January 1, 1979, its 
notice must be filed no later than December 31, 1977. For purposes of 
this section, if the notice of election is sent by either registered or 
certified mail to the Secretary of the Treasury, Washington, D.C. 20220, 
then it shall be deemed to be filed on the date of mailing; otherwise, 
the notice of election shall be deemed to be filed when it is received 
by the Secretary or his delegate.
    (c) Procedures relating to defects in notice or tax laws. If a State 
has filed a notice of election, then the Secretary shall, within 90 days 
after the notice is filed, notify the Governor of such State in writing 
of any defect in the notice of election which prevents it from being 
valid, and of any defect in the State's tax laws which causes the tax 
submitted to fail to meet the requirements for qualification specified 
in section 6362 and the regulations thereunder, other than the fact that 
no State agreement is in effect with respect thereto. Any such defect of 
which the Secretary does not notify the Governor within such 90-day 
period is waived. The Secretary or his delegate may, in his discretion, 
permit any of such defects of which the Governor is timely notified to 
be cured retroactively to the date of the filing of the notice of 
election, by amendment of the notice or the State law. Judicial review 
of the Secretary's determination that the notice of election or the tax 
laws, or both, contain defects, may be obtained as set forth in section 
6363(d) and Sec.  301.6363-4.
    (d) Execution and contents of State agreement. If the Secretary does 
not timely notify the Governor of a defect in the notice of election or 
in the State's tax laws, as provided in paragraph (c) of this section, 
or if, as provided in such paragraph, all such defects have been cured 
retroactively, then the Secretary shall enter into a State agreement. 
The agreement shall include the following elements:
    (1) Effective date. The agreement shall specify the January 1 as of 
which subchapter E will commence to be applicable to the State. Such 
date shall be the same as that specified in the notice of election 
pursuant to paragraph (a)(5) of this section, unless the parties agree 
to a different January 1, except that in no event shall a State 
agreement executed after November 1 specify the next January 1.
    (2) Obligation of Governor to notify the United States of changes in 
pertinent State laws. The agreement shall require the Governor of the 
State, and his successors in office, to notify the Secretary or his 
delegate within 30 days of the enactment of any law of the State, after 
the execution of the agreement, of a type described in paragraph (a)(2) 
of this section.
    (3) Obligation of Governor to furnish to the United States 
information needed to administer State tax laws. The agreement shall 
require the Governor and his successors to furnish to the Secretary or 
his delegate any information needed by the Federal Government to 
administer the State tax laws. Such information shall include, for 
example, a list (which shall be maintained on a current basis) of those 
obligations of the State or its political subdivisions described in 
section 103(a)(1) from which the interest is not subject to the 
qualified taxes of the State.
    (4) Identification of State official to act as liaison with Federal 
Government. The agreement shall include a designation by the Governor of 
the State official or officials with whom the Secretary or his delegate 
should coordinate in connection with any questions or problems which may 
arise during the period for which the State agreement is effective, 
including those which may result from changes or contemplated changes in 
pertinent State laws.
    (5) Identification of State official to receive transferred funds. 
The agreement

[[Page 470]]

shall include a designation by the Governor of the State official who 
shall initially receive the funds on behalf of the State when they are 
transferred pursuant to section 6361(c) and Sec.  301.6361-3.
    (6) Other obligations. If the Secretary and the Governor both so 
agree, the agreement shall provide for additional obligations.
    (e) State agreement superseding certain other agreements. For the 
period of its effectiveness, a State agreement shall supersede an 
otherwise effective agreement entered into by the State and the 
Secretary for the withholding of State income taxes from the 
compensation of Federal employees pursuant to 5 U.S.C. 5517 (or pursuant 
to 5 U.S.C. 5516, in the case of the District of Columbia).

[T.D. 7577, 43 FR 59373, Dec. 20, 1978]



Sec.  301.6363-2  Withdrawal from State agreements.

    (a) By notification. If a State which has entered into a State 
agreement desires to withdraw from the agreement, its Governor shall 
file a notice of withdrawal with the Secretary or his delegate. A notice 
of withdrawal shall include the following documents:
    (1) Request by the Governor. A request by the Governor of the State 
that the State agreement cease to be effective with respect to taxable 
years beginning on or after a specified January 1, except as provided in 
paragraph (b)(2) of Sec.  301.6365-2 with respect to withholding in the 
case of fiscal year taxpayers.
    (2) Legislative approval of withdrawal. A certified copy of an act 
or Resolution of the legislature of the State in which the legislature 
affirmatively expresses its approval of the State's withdrawal from the 
State agreement.
    (3) Identification of State official. A written identification of 
the State official or officials with whom the Secretary or his delegate 
should coordinate in connection with the State's withdrawal from the 
State agreement.
    (b) By change in State law. If any law of a State which has entered 
into a State agreement is enacted pertaining to individual income taxes 
(including the collection or administration of such taxes, and the 
prosecution of alleged civil or criminal violations with respect to such 
taxes), and if the Secretary or his delegate determines that as a result 
of such law the State no longer has a qualified tax, then such change in 
the State law shall be treated as a notification of withdrawal from the 
agreement. The Secretary shall notify the Governor in writing when a 
change is to be so treated. Such notification shall have the same effect 
as if, on the effective date of the disqualifying change in the law, the 
Governor had filed with the Secretary or his delegate a valid and 
sufficient notice of withdrawal requesting that the State agreement 
cease to be effective with respect to taxable years beginning on or 
after the first January 1 which is more than 6 months thereafter, 
subject to the exception with respect to withholding in the case of 
fiscal-year taxpayers. However, the cessation of effectiveness may be 
deferred to a subsequent January 1 if the Governor so requests and if 
the Secretary or his delegate in his discretion determines that the date 
of cessation provided in the preceding sentence would subject the State 
or its taxpayers to undue hardship. In addition, the Governor may 
request the Secretary or his delegate to permit the State's early 
withdrawal from the agreement, pursuant to paragraph (c)(2) of this 
section. Until the date of cessation of effectiveness of the State 
agreement, the change in State law which was treated as a notification 
of withdrawal, and any other such subsequent change that would be 
similarly treated, shall not be given effect for purposes of the Federal 
collection and administration of the State taxes. Similarly, such 
changes shall not be given effect for such purposes during the period of 
litigation if the State seeks judicial review of the action of the 
Secretary or his delegate pursuant to section 6363(d) or Sec.  301.6363-
4, even if such changes are ultimately found by the court not to 
disqualify the State's qualified tax. However, a change in State law 
which would be treated as a notice of withdrawal in the absence of this 
sentence shall not be so treated if, prior to the last November 1 
preceding the January 1 on which the cessation of effectiveness of the 
State agreement is to occur, either such change in State law is 
retroactively repealed, or the State law is retroactively modified and

[[Page 471]]

the Secretary or his delegate determines that with such modification the 
State has a qualified tax.
    (c) Rules relating to time of withdrawal--(1) General rule. Except 
as provided in subparagraph (2) of this paragraph (c), a notice of 
withdrawal shall not be valid unless the January 1 specified therein is 
not earlier than the first January 1 which is more than 6 months 
subsequent to the date on which the notice is received by the Secretary 
or his delegate. Thus, for example, if the notice specifies January 1, 
1980, for withdrawal, the notice must be received no later than June 30, 
1979.
    (2) Early withdrawal. The Secretary or his delegate may, in his 
discretion and upon written request by a Governor of a State who has 
filed a notice of withdrawal, waive the 6-months requirement of section 
6363(b)(1) and subparagraph (1) of this paragraph (c), if the Secretary 
determines that:
    (i) The State will suffer a hardship if required to meet such 
requirement, and
    (ii) The early withdrawal requested by the Governor would be 
practicable from the standpoint of orderly collection of the qualified 
tax and administration of the State law by the Federal Government.

[T.D. 7577, 43 FR 59374, Dec. 20, 1978]



Sec.  301.6363-3  Transition years.

    The State may by law provide for the transition to or from a 
qualified tax to the extent necessary to prevent double taxation or 
other unintended hardships, or to prevent unintended benefits, under 
State law. Generally, such provisions shall be administered by the 
State; but, if requested to do so by the Governor of the State, the 
Secretary or his delegate may in his discretion, agree to administer 
such provisions either solely or jointly with the State.

[T.D. 7577, 43 FR 59375, Dec. 20, 1978]



Sec.  301.6363-4  Judicial review.

    (a) General rule. If the Secretary or his delegate determines 
pursuant to paragraph (c) of Sec.  301.6363-1 that a State did not file 
a valid notice of election or does not have a tax which would meet the 
requirements for qualification specified in section 6362 and the 
regulations thereunder if a State agreement were in effect with respect 
thereto, or if he determines pursuant to paragraph (b) of Sec.  
301.6363-2 that a participating State has enacted a law as a result of 
which the State no longer has a qualified tax, such State may, within 60 
days after its Governor has received notification of such determination, 
file a petition for the review of such determination with either the 
United States Court of Appeals for the circuit in which the State is 
located or the United States Court of Appeals for the District of 
Columbia. If a State files such a petition, the clerk of the court shall 
forthwith transmit a copy of the petition to the Secretary or his 
delegate, who in turn shall thereupon file in the court the record of 
proceedings on which the determination adverse to the State was based, 
as provided in section 2112 of title 28, United States Code.
    (b) Court of Appeals' jurisdiction. The court of Appeals may affirm 
or set aside, in whole or in part, the action of the Secretary or his 
delegate; and (subject to the rules delaying the effectiveness of the 
change in State law provided in paragraph (b) of Sec.  301.6363-2) the 
court may issue such other orders as may be appropriate with respect to 
taxable years which include any part of the period of litigation.
    (c) Review of Court of Appeals' judgment. The judgment of the Court 
of Appeals shall be subject to review by the Supreme Court of the United 
States upon certiorari or certification sought by either party as 
provided in section 1254 of title 28, United States Code.
    (d) Effect of final judgment. If a final judgment, rendered with 
respect to litigation involving a State's petition to review a 
determination of the Secretary or his delegate to the effect that the 
State's individual income tax laws included in its notice of election 
would not meet the requirements for qualification specified in section 
6362 and the regulations thereunder if a State agreement were in effect 
with respect thereto, includes a determination that the State's tax 
would in fact meet such requirements, then the provisions of subchapter 
E shall apply to the State with respect to taxable years beginning on or 
after the first January 1 which is more than 6 months after the date of

[[Page 472]]

such final judgment. If a final judgment, rendered with respect to 
litigation involving a State's petition to review a determination of the 
Secretary or his delegate to the effect that the State's previously-
qualified tax ceases to qualify because of a change in the State's law, 
includes a determination that the State's tax does in fact cease to 
qualify, then the provisions of subchapter E (other than section 6363) 
shall cease to apply to the State with respect to taxable years 
beginning on or after the first January 1 which is more than 6 months 
after the date of such final judgment. See paragraph (b) of Sec.  
301.6365-2 for special rules with respect to withholding in the case of 
fiscal-year taxpayers.
    (e) Expeditious treatment of judicial proceedings. Under section 
6363(d)(4), any judicial proceedings to which a State and the United 
States are parties, and which are brought pursuant to section 6363, are 
entitled to receive a preference, and to be heard and determined as 
expeditiously as possible, upon request of the Secretary or the State.

[T.D. 7577, 43 FR 59375, Dec. 20, 1978]



Sec.  301.6365-1  Definitions.

    (a) State. For purposes of subchapter E and the regulations 
thereunder, the term ``State'' shall include the District of Columbia, 
but shall not include the Commonwealth of Puerto Rico or any possession 
of the United States.
    (b) Governor. For purposes of subchapter E and the regulations 
thereunder, the term ``Governor'' shall include the Mayor of the 
District of Columbia.

[T.D. 7577, 43 FR 59375, Dec. 20, 1978]



Sec.  301.6365-2  Commencement and cessation of applicability of subchapter E 
to individual taxpayers.

    (a) General rule. Except for purposes of chapter 24 (relating to the 
collection of income tax at source on wages), whenever subchapter E 
begins or ceases to apply to any State (i.e., a State agreement begins 
or ceases to be effective) as of any January 1, such commencement or 
cessation of applicability shall apply to taxable years of individuals 
beginning on or after such date. For example, if subchapter E begins to 
apply to a particular State on January 1, 1980, it would become 
applicable for calendar year 1980 for calendar-year taxpayers in that 
State; but if a taxpayer in the State is using a fiscal year running 
from July 1 to June 30, the subchapter would begin to apply (except for 
purposes of chapter 24) to that taxpayer on July 1, 1980, for his 
taxable year ending June 30, 1981. Similarly, if the subchapter ceases 
to apply to such State on January 1, 1982, it would cease to apply to 
calendar-year taxpayers after the end of calendar year 1981; but it 
would cease to apply (except for purposes of chapter 24) to fiscal-year 
taxpayers at the end of their fiscal years which are in progress on 
January 1, 1982. The cessation of applicability of subchapter E to a 
State does not affect rights, duties, and liabilities with respect to 
any taxable year for which subchapter E does apply with respect to any 
taxpayer (or his employer).
    (b) Special rules pertaining to withholding--(1) Subchapter E 
beginning to apply. The Federal withholding system provided in chapter 
24 shall go into effect for State individual income tax purposes with 
respect to wages paid on or after the January 1 as of which subchapter E 
begins to apply to a State. If an employee is subject to a qualified tax 
imposed by the State, such withholding system shall apply to his wages 
paid on or after that January 1, without regard to whether he is a 
calendar-year or fiscal-year taxpayer. See Sec.  301.6363-3 with respect 
to transition-year rules.
    (2) Subchapter E ceasing to apply. The Federal withholding system 
provided in chapter 24 shall cease to be effective for State tax 
purposes with respect to wages paid on or after the January 1 as of 
which subchapter E ceases to apply to the State, although fiscal-year 
taxpayers of that State continue to be subject to the other provisions 
of subchapter E for the remainder of their fiscal years then in 
progress. See Sec.  301.6363-3 with respect to transition-year rules.

[T.D. 7577, 43 FR 59375, Dec. 20, 1978]

[[Page 473]]



                    Abatements, Credits, and Refunds

                          Procedure in General



Sec.  301.6401-1  Amounts treated as overpayments.

    (a) The term ``overpayment'' includes:
    (1) Any payment of any internal revenue tax which is assessed or 
collected after the expiration of the period of limitation applicable 
thereto.
    (2) Any amount allowable for a taxable year as credits under 
sections 31 (relating to tax withheld on wages), 39 (relating to certain 
uses of gasoline, special fuels, and, lubricating oil), 43 (relating to 
earned income credit), and 667(b) (relating to taxes paid by certain 
trusts) which exceeds the tax imposed by subtitle A of the Code (reduced 
by the credits allowable under subpart A of part IV of subchapter A of 
chapter 1 of the Code, other than the credits allowable under sections 
31, 39, and 43) for such year.
    (b) An amount paid as tax shall not be considered not to constitute 
an overpayment solely by reason of the fact that there was no tax 
liability in respect of which such amount was paid.

[T.D. 7204, 37 FR 17158, Aug. 25, 1972, as amended by T.D. 7537, 43 FR 
13878, Apr. 3, 1978]



Sec.  301.6402-1  Authority to make credits or refunds.

    The Commissioner, within the applicable period of limitations, may 
credit any overpayment of tax, including interest thereon, against any 
outstanding liability for any tax (or for any interest, additional 
amount, addition to the tax, or assessable penalty) owed by the person 
making the overpayment and the balance, if any, shall be refunded, 
subject to sections 6402 (c) and (d) and the regulations thereunder, to 
that person by the Commissioner.

[T.D. 8053, 50 FR 39662, Sept. 30, 1985]



Sec.  301.6402-2  Claims for credit or refund.

    (a) Requirement that claim be filed. (1) Credits or refunds of 
overpayments may not be allowed or made after the expiration of the 
statutory period of limitation properly applicable unless, before the 
expiration of such period, a claim therefor has been filed by the 
taxpayer. Furthermore, under section 7422, a civil action for refund may 
not be instituted unless a claim has been filed within the properly 
applicable period of limitation.
    (2) Except as provided in paragraph (b) of Sec.  301.6091-1 
(relating to hand-carried documents), if a taxpayer is required to file 
a claim for credit or refund using a particular form, then the claim, 
together with appropriate supporting evidence, shall be filed in a 
manner consistent with such form, form instructions, publications, or 
other guidance found on the IRS.gov Web site. If a taxpayer is filing a 
claim in response to an IRS notice or correspondence, then the claim 
must be filed in accordance with the specific instructions contained in 
the notice or correspondence regarding the manner of filing. Any other 
claim not described in the preceding sentences generally must be filed 
with the service center at which the taxpayer currently would be 
required to file a tax return for the type of tax to which the claim 
relates or via the appropriate electronic portal. For rules relating to 
interest in the case of credits or refunds, see section 6611. For rules 
treating timely mailing as timely filing, see section 7502. For rules 
relating to the time for filing a claim when the last day falls on 
Saturday, Sunday, or a legal holiday, see section 7503.
    (b) Grounds set forth in claim. (1) No refund or credit will be 
allowed after the expiration of the statutory period of limitation 
applicable to the filing of a claim therefor except upon one or more of 
the grounds set forth in a claim filed before the expiration of such 
period. The claim must set forth in detail each ground upon which a 
credit or refund is claimed and facts sufficient to apprise the 
Commissioner of the exact basis thereof. The statement of the grounds 
and facts must be verified by a written declaration that it is made 
under the penalties of perjury. A claim which does not comply with this 
paragraph will not be considered for any purpose as a claim for refund 
or credit.

[[Page 474]]

    (2) The IRS does not have the authority to refund on equitable 
grounds penalties or other amounts legally collected.
    (c) Form for filing claim. If a particular form is prescribed on 
which the claim must be made, then the claim must be made on the form so 
prescribed. For special rules applicable to refunds of income taxes, see 
Sec.  301.6402-3. For provisions relating to credits and refunds of 
taxes other than income tax, see the regulations relating to the 
particular tax. All claims by taxpayers for the refund of taxes, 
interest, penalties, and additions to tax that are not otherwise 
provided for must be made on Form 843, ``Claim for Refund and Request 
for Abatement.''
    (d) Separate claims for separate taxable periods. In the case of 
income and gift taxes, income tax withheld, taxes under the Federal 
Insurance Contributions Act, taxes under the Railroad Retirement Tax 
Act, and taxes under the Federal Unemployment Tax Act, a separate claim 
must be made for each return for each taxable period.
    (e) Proof of representative capacity. If a return is filed by an 
individual and, after his death, a refund claim is filed by his legal 
representative, certified copies of the letters testamentary, letters of 
administration, or other similar evidence must be annexed to the claim, 
to show the authority of the legal representative to file the claim. If 
an executor, administrator, guardian, trustee, receiver, or other 
fiduciary files a return and thereafter a refund claim is filed by the 
same fiduciary, documentary evidence to establish the legal authority of 
the fiduciary need not accompany the claim, provided a statement is made 
in the claim showing that the return was filed by the fiduciary and that 
the latter is still acting. In such cases, if a refund is to be paid, 
letters testamentary, letters of administration, or other evidence may 
be required, but should be submitted only upon the receipt of a specific 
request therefor. If a claim is filed by a fiduciary other than the one 
by whom the return was filed, the necessary documentary evidence should 
accompany the claim. A claim may be executed by an agent of the person 
assessed, but in such case a power of attorney must accompany the claim.
    (f) Mailing of refund check. (1) Checks in payment of claims allowed 
will be drawn in the names of the persons entitled to the money and, 
except as provided in subparagraph (2) of this paragraph (f), the checks 
may be sent direct to the claimant or to such person in care of an 
attorney or agent who has filed a power of attorney specifically 
authorizing him to receive such checks.
    (2) Checks in payment of claims which have either been reduced to 
judgment or settled in the course or as a result of litigation will be 
drawn in the name of the person or persons entitled to the money and 
will be sent to the Assistant Attorney General, Tax Division, Department 
of Justice, for delivery to the taxpayer or the counsel of record in the 
court proceeding.
    (3) For restrictions on the assignment of claims, see section 3477 
of the Revised Statutes (31 U.S.C. 203).
    (g) Misdirected direct deposit refund--(1) Definition. The term 
misdirected direct deposit refund includes any refund of an overpayment 
of tax that is disbursed as a direct deposit but is not deposited into 
the account designated on the claim for refund to receive the direct 
deposit refund.
    (2) Procedures for reporting a misdirected direct deposit refund--
(i) In general. A taxpayer or a taxpayer's authorized representative may 
report to the IRS that the taxpayer never received a direct deposit 
refund and request a replacement refund. The report must include the 
name of the taxpayer who requested the refund, the taxpayer 
identification number of the taxpayer, the taxpayer's mailing address, 
the type of return to which the refund is related, the account number 
and routing number that the taxpayer requested the refund be directly 
deposited into, and any other information necessary to locate the 
misdirected direct deposit refund.
    (ii) How to report a misdirected direct deposit refund. A reporting 
described in paragraph (g)(2)(i) of this section may be made in the 
following ways:
    (A) By calling the IRS;

[[Page 475]]

    (B) On the form prescribed by the IRS and in accordance with the 
applicable publications, instructions, or other appropriate guidance;
    (C) By contacting the Office of the Taxpayer Advocate by telephone, 
by mail, facsimile, or in person; or
    (D) By submitting the appropriate form in person at a Taxpayer 
Assistance Center.
    (3) Procedures for coordination with financial institutions--(i) 
Identification of the account that received the misdirected direct 
deposit refund. If the IRS receives a report described in paragraph 
(g)(2)(ii) of this section, the IRS will confirm that the overpayment 
was issued as a direct deposit. The IRS will confirm that the 
overpayment was not credited or offset pursuant to the law in effect 
immediately prior to the direct deposit being disbursed. If the direct 
deposit described in the report was issued, the IRS will initiate a 
refund trace to request the assistance of the Department of the 
Treasury's Bureau of the Fiscal Service. In accordance with its own 
procedures, the Bureau of the Fiscal Service coordinates with the 
financial institution that holds directly or indirectly the deposit 
account into which the refund was made, requesting from the financial 
institution such information as is necessary to identify whether the 
financial institution received the refund; whether the financial 
institution returned, or will return, the refund to the IRS, or if no 
funds are available for return; whether a deposit was made into the 
account designated on the claim for refund; and the identity of the 
deposit account owner to whom the deposit was disbursed.
    (ii) Coordination to recover the amounts transferred. Recovery of 
the misdirected direct deposit refund from a financial institution shall 
follow the procedures established by the Bureau of the Fiscal Service. 
The Bureau of the Fiscal Service shall request the return of the 
misdirected direct deposit refund from the financial institution that 
received it. The IRS may contact the financial institution directly to 
recover the misdirected direct deposit refund.
    (4) Issuance of replacement refund. When the IRS has determined that 
a misdirected direct deposit refund has occurred, the IRS will issue a 
replacement refund in the full amount of the refund that was 
misdirected. The replacement refund may be issued as a direct deposit or 
as a paper check sent to the taxpayer's last known address.
    (5) Applicability of this paragraph (g) to missing refunds. The 
provisions of paragraphs (g)(2) through (g)(3)(i) of this section should 
be used for any refund that was disbursed as a direct deposit and that 
the taxpayer reports as missing. For example, although a refund that was 
deposited into an incorrect bank account because the taxpayer transposed 
two digits in their bank account number is not considered to be a 
misdirected direct deposit refund, the provisions of paragraphs (g)(2) 
through (g)(3)(i) of this section should be used. If the application of 
these procedures results in an amount recovered by the IRS, the 
recovered amount will be refunded or credited as allowed by law.
    (h) Applicability dates. Paragraphs (a)(2), (b)(2), (c), and (d) of 
this section apply to claims for credit or refund filed on or after July 
24, 2015. Paragraphs (a)(1), (b)(1), (e), and (f) of this section apply 
to claims for credit or refund filed before, on or after July 24, 2015. 
Paragraph (g) of this section applies to reports described in paragraph 
(g)(2)(ii) of this section made after December 22, 2020.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7008, 34 FR 3673, Mar. 1, 
1969; T.D. 7188, 37 FR 12794, June 29, 1972; T.D. 7410, 41 FR 11020, 
Mar. 16, 1976; T.D. ATF-33, 41 FR 44038, Oct. 6, 1976; T.D. 7484, 42 FR 
22143, May 2, 1977; T.D. 9727, 80 FR 43951, July 24, 2015; T.D. 9940, 85 
FR 83447, Dec. 22, 2020]



Sec.  301.6402-3  Special rules applicable to income tax.

    (a) The following rules apply to a claim for credit or refund of 
income tax:--
    (1) In general, in the case of an overpayment of income taxes, a 
claim for credit or refund of such overpayment shall be made on the 
appropriate income tax return.
    (2) In the case of an overpayment of income taxes for a taxable year 
of an individual for which a Form 1040 or 1040A has been filed, a claim 
for refund shall be made on Form 1040X

[[Page 476]]

(``Amended U.S. Individual Income Tax Return'').
    (3) In the case of an overpayment of income taxes for a taxable year 
of a corporation for which a Form 1120 has been filed, a claim for 
refund shall be made on Form 1120X (``Amended U.S. Corporation Income 
Tax Return'').
    (4) In the case of an overpayment of income taxes for a taxable year 
for which a form other than Form 1040, 1040A, or 1120 was filed (such as 
Form 1041 (U.S. Fiduciary Income Tax Return) or Form 990T (Exempt 
Organization Business Income Tax Return)), a claim for credit or refund 
shall be made on the appropriate amended income tax return.
    (5) A properly executed individual, fiduciary, or corporation 
original income tax return or an amended return (on 1040X or 1120X if 
applicable) shall constitute a claim for refund or credit within the 
meaning of section 6402 and section 6511 for the amount of the 
overpayment disclosed by such return (or amended return). For purposes 
of section 6511, such claim shall be considered as filed on the date on 
which such return (or amended return) is considered as filed, except 
that if the requirements of Sec.  301.7502-1, relating to timely mailing 
treated as timely filing are met, the claim shall be considered to be 
filed on the date of the postmark stamped on the cover in which the 
return (or amended return) was mailed. A return or amended return shall 
constitute a claim for refund or credit if it contains a statement 
setting forth the amount determined as an overpayment and advising 
whether such amount shall be refunded to the taxpayer or shall be 
applied as a credit against the taxpayer's estimated income tax for the 
taxable year immediately succeeding the taxable year for which such 
return (or amended return) is filed. If the taxpayer indicates on its 
return (or amended return) that all or part of the overpayment shown by 
its return (or amended return) is to be applied to its estimated income 
tax for its succeeding taxable year, such indication shall constitute an 
election to so apply such overpayment, and no interest shall be allowed 
on such portion of the overpayment credited and such amount shall be 
applied as a payment on account of the estimated income tax for such 
year or the installments thereof.
    (6) Notwithstanding paragraph (a)(5) of this section, the Internal 
Revenue Service, within the applicable period of limitations, may credit 
any overpayment of individual, fiduciary, or corporation income tax, 
including interest thereon, against--
    (i) First, any outstanding liability for any tax (or for any 
interest, additional amount, additions to the tax, or assessable 
penalty) owed by the taxpayer making the overpayment;
    (ii) Second, in the case of an individual taxpayer, amounts of past-
due support assigned to a State under section 402(a)(26) or 471(a)(17) 
of the Social Security Act under procedures set forth in the regulations 
under section 6402(c);
    (iii) Third, past-due and legally enforceable debt under procedures 
set forth in the regulations under section 6402(d); and
    (iv) Fourth, qualifying amounts of past-due support not assigned to 
a State under procedures set forth in the regulations under section 6402 
(c).

Only the balance, if any, of the overpayment remaining after credits 
described in this paragraph (a)(6) shall be treated in the manner so 
elected.
    (b) [Reserved]
    (c) If the taxpayer is not required to show the tax on the form (see 
section 6014 and the accompanying regulations), the IRS will treat a 
properly filed income tax return as a claim for refund and such return 
will constitute a claim for refund within the meaning of section 6402 
and section 6511 for the amount of the overpayment shown by the 
computation of the tax made by the IRS on the basis of the return. For 
purposes of the limitations period of section 6511, such claim will be 
treated as filed on the date the return is treated as filed.
    (d) In any case in which a taxpayer elects to have an overpayment 
refunded to him he may not thereafter change his election to have the 
overpayment applied as a payment on account of his estimated income tax.
    (e) In the case of a nonresident alien individual or foreign 
corporation, the appropriate income tax return on which the claim for 
refund or credit is

[[Page 477]]

made must contain the tax identification number of the taxpayer required 
pursuant to section 6109 and the entire amount of income of the taxpayer 
subject to tax, even if the tax liability for that income was fully 
satisfied at source through withholding under chapters 3 or 4 of the 
Internal Revenue Code (Code). Also, if the overpayment of tax resulted 
from the withholding of tax at source under chapter 3 or 4 of the Code, 
a copy of the Form 1042-S, ``Foreign Person's U.S. Source Income subject 
to Withholding,'' Form 8805, ``Foreign Partner's Information Statement 
of Section 1446 Withholding Tax,'' or other statement (required under 
Sec.  1.1446-3(d)(2) of this chapter) required to be provided to the 
beneficial owner or partner pursuant to Sec.  1.1461-1(c)(1)(i), Sec.  
1.1474-1(d)(1)(i), or Sec.  1.1446-3(d) of this chapter must be attached 
to the return. For purposes of claiming a refund, the Form 8805 or other 
statement must include the taxpayer identification number of the 
beneficial owner or partner even if not otherwise required. No claim for 
refund or credit under chapter 65 of the Code may be made by the 
taxpayer for any amount that the payor has repaid to the taxpayer 
pursuant to reimbursement or set-off procedures (described in Sec.  
1.1461-2(a)(2),(3) or Sec.  1.1474-2(a)(3), (4) of this chapter). In 
addition, no claim for refund or credit may be made by a taxpayer for 
any amount that has been repaid to a qualified intermediary (as 
described in Sec.  1.1441-1(e)(5)(ii)) or a participating FFI (as 
described in Sec.  1.1471-1(b)(91)) pursuant to a collective refund 
filed by such entity on behalf of the taxpayer. See Sec.  1.1441-
1(e)(5)(iii) (describing a qualified intermediary agreement) and Sec.  
1.1471-4(h) (describing a collective refund). Upon request, a taxpayer 
must also submit such documentation as the IRS, may require establishing 
that the taxpayer is the beneficial owner of the income for which a 
claim for refund or credit is being made and verifying the grounds and 
facts set forth in taxpayer's claim as required by Sec.  301.6402-
2(b)(1). See Sec.  1.1474-5 for additional requirements that may apply 
in the case of a refund of tax withheld under chapter 4.
    (f) Effective/applicability date--(1) Except as provided in 
paragraph (f)(2) of this section, this section applies on or after 
January 6, 2017. (For payments made after June 30, 2014, and before 
January 6, 2017, see this section as in effect and contained in 26 CFR 
part 1, revised April 1, 2016.)
    (2) References in paragraph (e) of this section to Form 8805 or 
other statements required under Sec.  1.1446-3(d)(2) shall apply to 
partnership taxable years beginning after April 29, 2008. References in 
paragraph (e) of this section to amounts withheld under chapter 4 of the 
Code and claims made with respect to amounts withheld under chapter 4 of 
the Code shall apply to withholdable payments made after June 30, 2014.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7102, 36 FR 5498, Mar. 
24, 1971; T.D. 7234, 37 FR 28163, Dec. 21, 1972; T.D. 7293, 38 FR 32804, 
Nov. 28, 1973; T.D. 7298, 38 FR 35234, Dec. 26, 1973; T.D. 7410, 41 FR 
11020, Mar. 16, 1976; T.D. 7808, 47 FR 5714, Feb. 8, 1982; T.D. 8053, 50 
FR 39662, Sept. 30, 1985; T.D. 8734, 62 FR 53495, Oct. 14, 1997; T.D. 
9394, 73 FR 23086, Apr. 29, 2008; T.D. 9658, 79 FR 12809, Mar. 6, 2014; 
T.D. 9727, 80 FR 43951, July 24, 2015; T.D. 9808, 82 FR 2121, Jan. 6, 
2017]



Sec.  301.6402-4  Payments in excess of amounts shown on return.

    (a) If the IRS determines that the payments by the taxpayer that are 
made within the period prescribed for payment and before the filing of 
the return exceed the amount of tax shown on the return (for example, 
excessive estimated income tax payments or excessive withholding), the 
IRS may credit or refund such overpayment without awaiting examination 
of the completed return and without awaiting the filing of a claim for 
refund. The provisions of Sec. Sec.  301.6402-2 and 301.6402-3 are 
applicable to such overpayment, and taxpayers should submit claims for 
refund (if the income tax return is not itself a claim for refund, as 
provided in Sec.  301.6402-3) to protect themselves in the event the IRS 
fails to make such determination and credit or refund. The provisions of 
section 6405 (relating to reports of refunds in excess of the 
statutorily prescribed threshold referral amount to the Joint Committee 
on Taxation) do not apply to the overpayments described in this section.

[[Page 478]]

    (b) Effective/applicability date. The rules of this section apply to 
payments made on or after July 24, 2015.

[T.D. 9727, 80 FR 43951, July 24, 2015]



Sec.  301.6402-5  Offset of past-due support against overpayment.

    (a) Introduction--(1) Scope. Section 6402(c) requires the Secretary 
of the Treasury or his delegate to reduce the amount of any overpayment 
to be refunded to a person making an overpayment by the amount of past-
due support owed by that person of which the Secretary has been notified 
in accordance with section 464 of the Social Security Act. Past-due 
support shall be collected by offset under section 6402(c) and this 
section in the same manner as if it were a liability for tax imposed by 
the Internal Revenue Code of 1954 (except that a liability for tax shall 
be given priority with respect to offset arising under section 6402(a)). 
Collection by offset under section 6402(c) of this section is a 
collection procedure separate from the collection procedures provided by 
section 6305 and Sec.  301.6305-1, relating to assessment and collection 
of certain child and spousal support liabilities. The sole collection 
procedure provided by section 6402(c) and this section is that of offset 
against overpayment. Section 6305 and Sec.  301.6305-1, by contrast, 
provide for other collection procedures in addition to collection by 
offset against overpayment. Sections 6305 and 6402(c) have differing 
procedural requirements and may be used separately or in conjunction 
with each other.
    (2) General rule. An amount of past-due support qualifies for offset 
under this section if it satisfies the requirements of paragraph (b) of 
this section. A State shall submit to the Department of Health and Human 
Services a notification of liability for qualifying past-due support 
containing the information described in paragraph (c) of this section. A 
qualifying amount of past-due support owed by a taxpayer who has made an 
overpayment shall be collected in accordance with the procedures set 
forth in paragraph (d) of this section. Under paragraph (d), the balance 
of any overpayment remaining after crediting of the overpayment under 
section 6402(a) to any liability for an internal revenue tax on the part 
of the taxpayer shall be offset by the amount of past-due support of 
which the Internal Revenue Service has been notified. The amount of the 
overpayment not subject to offset for any liability for an internal 
revenue tax or for past-due support shall be promptly refunded to the 
taxpayer. Paragraph (e) of this section requires that the Internal 
Revenue Service notify the taxpayer of the amount of the offset and of 
the State to which it has been paid. Under procedures set forth in 
paragraph (f) of this section, amounts collected by offset shall be 
transferred to a special account maintained by the Bureau of Government 
Financial Operations for distribution to the States. The Internal 
Revenue Service shall make monthly collection reports to the Secretary 
of Health and Human Services or his delegate. The States shall reimburse 
the Secretary of the Treasury for the full cost of the refund offset 
under paragraph (g) of this section.
    (b) Past-due support--(1) Definition. For purposes of this section, 
the term ``past-due support'' means the amount of a delinquent 
obligation, which amount was determined under a court order, or an order 
pursuant to an administrative process established under State law, for 
support and maintenance of a child or of a child and the parent with 
whom the child is living.
    (2) Past-due support qualifying for offset. Past-due support 
qualifies for offset under section 6402(c) and this section if--
    (i) There has been as assignment of the support obligation to a 
State pursuant to section 402(a)(26) of the Social Security Act 
(relating to aid and service to needy families with children) and that 
State has made reasonable efforts to collect the amount of the 
obligation;
    (ii) The amount of past-due support is not less than $150.00;
    (iii) The past-due support has been delinquent for three months or 
longer; and
    (iv) A notification of liability for past-due support has been 
received by the Secretary of the Treasury as prescribed by paragraph (c) 
of this section.

[[Page 479]]

    (c) Notification of liability for past-due support--(1) Form. A 
State shall, by October 1 of each year, submit a notification (or 
notifications) of liability for past-due support on magnetic tape to the 
Special Collection Activities Unit.

Office of Child Support Enforcement, Department of Health and Human 
Services, 6110 Executive Boulevard, Suite 900, Rockville, Maryland 
20852, Attention: Tax Refund Offset--Tape Processing.
    (2) Content. The notification of liability for past-due support 
shall contain with respect to each taxpayer--
    (i) The name of the taxpayer who owes the past-due support;
    (ii) The social security number of that taxpayer;
    (iii) The amount of past-due support owed; and
    (iv) The alphabetical designation of the State submitting the 
notification of liability for past-due support.

The Secretary of Health and Human Services may also require such other 
information from the State submitting the notification as is necessary 
for his orderly consolidation of data for transmittal to the Internal 
Revenue Service.
    (3) Transmittal of notification to Internal Revenue Service. The 
Secretary of Health and Human Services shall, by December 1 of each 
year, consolidate and transmit to the Internal Revenue Service on 
magnetic tape the data contained in the notifications of liability for 
past-due support submitted by the participating States.
    (4) Correction of notification. If, after submitting a notification 
of liability for past-due support, a State determines that an error has 
been made with respect to the information contained in the notification, 
or if a State receives a payment or credits a payment to the account of 
a taxpayer named in this notification, the State shall promptly notify 
the Office of Child Support Enforcement of the Department of Health and 
Human Services of these corrections in accordance with any time 
limitations specified by the Office of Child Support Enforcement. That 
Office shall promptly transmit these corrections to the Internal Revenue 
Service and the Internal Revenue Service shall make the appropriate 
correction of the notification of liability for past-due support. 
However, in no case shall a State notify the Internal Revenue Service 
under this paragraph (c)(4) of an increased amount of past-due support 
owed by a taxpayer named in its notification of liability for past-due 
support. The correction notification described in this paragraph (c)(4) 
is to be submitted only for the purpose of completing or correcting the 
information contained in the notification of liability for past-due 
support.
    (d) Collection--(1) Priority of offset for outstanding tax 
liability. Under section 6402(a) and Sec.  301.6402-1, the Commissioner 
may credit any overpayment of tax against any outstanding liability for 
any tax owed by the person making the overpayment. Only the balance 
remaining after such crediting is available for offset under section 
6402(c) of this section. Thus, if a taxpayer making an overpayment has 
both an outstanding tax liability and a liability for past-due support 
subject to this section, then the entire amount of the overpayment shall 
be credited first against the outstanding tax liability under section 
6402(a) and Sec.  301.6402-1 and only the remainder, if any, of the 
overpayment will be offset by the amount of past-due support. However, 
an overpayment shall be offset by an amount of past-due support under 
section 6402(c) before any crediting of the overpayment to any future 
liability for an internal revenue tax. Thus, for example, if no 
outstanding tax liability is owed and the amount of an overpayment is 
equal to or less than the amount of past-due support, the Internal 
Revenue Service shall offset the overpayment by the amount of past-due 
support before crediting the overpayment against the taxpayer's 
estimated income tax for the succeeding taxable year under section 
6402(b).
    (2) Amounts subject to offset. The balance of any overpayment 
remaining after a crediting of the overpayment under section 6402(a) to 
any outstanding liability for tax on the part of the taxpayer shall be 
offset by the amount of past-due support of which the Internal Revenue 
Service has been notified under this section.
    (3) Amounts not subject to offset. The amount of an overpayment not 
subject

[[Page 480]]

to offset for any liability for tax or for past-due support shall be 
promptly refunded to the taxpayer.
    (e) Notice of offset. The Internal Revenue Service shall notify the 
taxpayer in writing of the amount and date of the offset for past-due 
support and of the State to which this amount of past-due support has 
been paid.
    (f) Disposition of amounts collected. Amounts collected under this 
section shall be transferred to a special account maintained by the 
Bureau of Government Financial Operations. The Internal Revenue Service 
shall advise the Secretary of Health and Human Services or his delegate 
on a monthly basis of the names and social security numbers of the 
taxpayers from whom the amounts of past-due support were collected, of 
the amounts collected from each taxpayer, and of the State on whose 
behalf each collection was made. After authorization by the Division of 
Finance of the Social Security Administration, the Bureau of Government 
Financial Operations of the Department of the Treasury shall pay to the 
participating States amounts equal to the amounts collected under this 
section.
    (g) Fee. A refund offset fee in the amount of $17.00 per offset for 
taxable year 1981, or such greater or smaller amount as the Secretary of 
the Treasury and the Secretary of Health and Human Services have agreed 
to be sufficient to reimburse the Internal Revenue Service for the full 
cost of the offset procedure, shall be billed and collected from the 
participating States by the Secretary of Health and Human Services or 
his delegate and deposited in the United States Treasury and credited to 
the appropriation accounts of the Internal Revenue Service which bore 
all or part of the costs involved in making the collection.
    (h) Effective dates. This section applies to refunds payable on or 
before January 1, 1999. For the rules applicable after January 1, 1999, 
see 31 CFR part 285.

[T.D. 7895, 48 FR 22709, May 20, 1983, as amended by T.D. 8837, 64 FR 
48548, Sept. 7, 1999]



Sec.  301.6402-6  Offset of past-due, legally enforceable debt 
against overpayment.

    (a) General rule. (1) A Federal agency (as defined in section 
6402(f)) that has entered into an agreement with the Internal Revenue 
Service with regard to its participation in the tax refund offset 
program and that is owed a past-due, legally enforceable debt may refer 
the past-due, legally enforceable debt to the Internal Revenue Service 
to be collected by Federal tax refund offset. The Service shall, after 
making appropriate credits as provided by Sec.  301.6402-3(a)(6) (i) and 
(ii), reduce the amount of any overpayment payable to a taxpayer by the 
amount of any past-due, legally enforceable debt owed to the agency and 
properly referred to the Service. This section does not apply to any 
debt subject to section 464 of the Social Security Act (past-due 
support).
    (2)(i) This section applies to OASDI overpayments provided the 
requirements of 31 U.S.C. 3720A(f)(1) and (2) are met with respect to 
such overpayments.
    (ii) For purposes of this section, ``OASDI overpayment'' means any 
overpayment of benefits made to an individual under title II of the 
Social Security Act.
    (b) Eligible Federal agencies. (1) A Federal agency is eligible to 
participate in the tax refund offset program if the agency--
    (i) Has promulgated temporary of final regulations under 31 U.S.C. 
3720A, governing the operation of the Federal tax refund offset program 
in the agency;
    (ii) Has promulgated temporary or final regulations under 31 U.S.C. 
3716, governing the operation of the administrative offset program in 
the agency; and
    (iii) Has promulgated temporary or final regulations under 5 U.S.C. 
5514(a), governing the operation of the salary offset program in the 
agency (unless the agency has certified that, relying on the most 
current information reasonably available, it will not refer to the 
Service any names of present or former Federal employees or other 
persons whose debts are subject to offset under the provisions of 5 
U.S.C. 5514(a)(1)).

[[Page 481]]

    (2) An agency prohibited by Federal law from meeting any of the 
requirements of paragraph (b)(1) or (c) of this section shall notify the 
Service in writing of the specific legal impediment to meeting these 
requirements. This notification shall be made prior to entering into an 
agreement with the Service to participate in the tax refund offset 
program. The Service will determine in writing whether the agency is 
prohibited by Federal law from meeting any of the requirements of 
paragraph (b)(1) or (c) of this section. The Service will waive in 
writing any requirement that it determines the agency is prohibited by 
Federal law from meeting.
    (c) Past-due, legally enforceable debt eligible for refund offset. 
For purposes of this section, a Federal agency may refer a past-due, 
legally enforceable debt to the Service for offset if--
    (1) Except in the case of a judgment debt or any debts specifically 
exempt from this requirement (for example, debts referred by the 
Department of Education that were pending on or after April 9, 1991, and 
referred to the Service for offset before November 15, 1992), the debt 
is referred for offset within ten years after the agency's right of 
action accrues;
    (2) The debt cannot be currently collected pursuant to the salary 
offset provisions of 5 U.S.C. 5514(a)(1);
    (3) The debt is ineligible for administrative offset under 31 U.S.C. 
3716(a) by reason of 31 U.S.C. 3716(c)(2), or cannot be currently 
collected by administrative offset under 31 U.S.C. 3716(a) by the 
referring agency against amounts payable to the taxpayer by the 
referring agency;
    (4) The agency has notified, or has made a reasonable attempt to 
notify, the taxpayer that the debt is past-due, and unless repaid within 
60 days thereafter, will be referred to the Service for offset against 
an overpayment of tax;
    (5) The agency has given the taxpayer at least 60 days to present 
evidence that all or part of the debt is not past-due or legally 
enforceable, has considered any evidence presented by the taxpayer, and 
has determined that the debt is past-due and legally enforceable;
    (6) The debt has been disclosed by the agency to a consumer 
reporting agency as authorized by 31 U.S.C. 3711(f), unless the consumer 
reporting agency would be prohibited from reporting information 
concerning the debt by reason of 15 U.S.C. 1681c, or unless the amount 
of the debt does not exceed $100;
    (7) The debt is at least $25; and
    (8) In the case of an OASDI overpayment--
    (i) The individual is not currently entitled to monthly insurance 
benefits under title II of the Social Security Act;
    (ii) The notice describes conditions under which the Department of 
Health and Human Services is required to waive recovery of the 
overpayment, as provided under section 204(b) of the Social Security 
Act; and
    (iii) If the taxpayer files for a waiver under section 204(b) of the 
Social Security Act within the 60-day notice period, the agency has 
considered the taxpayer's request.
    (d) Pre-offset notice and consideration of evidence. (1) For 
purposes of paragraph (c)(4) of this section, an agency has made a 
reasonable attempt to notify the taxpayer if the agency uses the most 
recent address information obtained from the Service pursuant to section 
6103(m) (2), (4), or (5) of the Code, unless the agency receives clear 
and concise notification from the taxpayer that notices from the agency 
are to be sent to an address different from the address obtained from 
the Service. Clear and concise notification means that the taxpayer has 
provided the agency with written notification including the taxpayer's 
name and identifying number (as defined in section 6109), the taxpayer's 
new address, and the taxpayer's intent to have agency notices sent to 
the new address.
    (2) For purposes of paragraph (c)(5) of this section, if the 
evidence presented by the taxpayer is considered by an agent of the 
agency, or other entities or persons acting on the agency's behalf, the 
taxpayer must be accorded at least 30 days from the date the agent or 
other entity or person determines that all or part of the debt is past-
due and legally enforceable to request review by an officer or employee 
of the agency of any unresolved dispute. The agency

[[Page 482]]

must then notify the taxpayer of its decision.
    (e) Referral of past-due, legally enforceable debt. A Federal agency 
must refer a past-due, legally enforceable debt to the Service in the 
time and manner prescribed by the Service. The referral must contain--
    (1) The name and identifying number (as defined in section 6109) of 
the taxpayer who is responsible for the debt;
    (2) The amount of such past-due and legally enforceable debt;
    (3) The date on which the debt became past-due;
    (4) The designation of the Federal agency or subagency referring the 
debt; and
    (5) In the case of an OASDI overpayment, a certification by the 
Secretary of Health and Human Services designating whether the amount 
payable to the agency is to be deposited in either the Federal Old-Age 
and Survivors Insurance Trust Fund or the Federal Disability Insurance 
Trust Fund, but not both.
    (f) Correction of referral. If, after referring a past-due, legally 
enforceable debt to the Service as provided by paragraph (e) of this 
section, an agency determines that an error has been made with respect 
to the information transmitted to the Service, or if an agency receives 
a payment or credits a payment to the account of a taxpayer referred to 
the Service for offset, the agency shall promptly notify the Service. 
The Service shall make the appropriate correction of its records. 
However, this paragraph (f) does not permit an agency to increase the 
amount of a past-due, legally enforceable debt or refer additional 
debtors to the Service for offset after an agency makes its original 
referral of debts for tax refund offset. The agency may refer additional 
debts to the Service for refund offset in subsequent tax refund offset 
years.
    (g) Priorities for offset. (1) An overpayment shall be reduced first 
by the amount of an outstanding liability for any tax under section 
6402(a); second, by the amount of any past-due support assigned to a 
State under section 402(a)(26) or section 471(a)(17) of the Social 
Security Act which is to be offset under section 6402(c) and the 
regulations thereunder; third, by the amount of any past-due, legally 
enforceable debt owed to a Federal agency under section 6402(d) and this 
section; and fourth, by the amount of any qualifying past-due support 
not assigned to a State which is to be offset under section 6402(c) and 
the regulations thereunder.
    (2) If a taxpayer owes more than one past-due, legally enforceable 
debt to a Federal agency or agencies, the overpayment shall be credited 
against the debts in the order in which the debts accrued. A debt shall 
be considered to have accrued at the time at which the agency determines 
that the debt became past due.
    (3) Reduction of the overpayment pursuant to section 6402 (a), (c), 
and (d) shall occur prior to crediting the overpayment to any future 
liability for an internal revenue tax. Any amount remaining after offset 
under section 6402 (a), (c), and (d) shall be refunded to the taxpayer, 
or applied to estimated tax, if elected by the taxpayer.
    (h) Post-offset notice to the taxpayer and the agency. (1) The 
Service shall notify the taxpayer in writing of the amount and date of 
the offset for a past-due, legally enforceable debt and of the Federal 
agency to which this amount has been paid or credited. For joint 
returns, see paragraph (i) of this section.
    (2) The Service shall advise each agency of the names, mailing 
addresses, and identifying numbers of the taxpayers from whom amounts of 
past-due, legally enforceable debt were collected and of the amounts 
collected from each taxpayer. If the refund from which an amount of 
past-due, legally enforceable debt is to be withheld is based upon a 
joint return, the Service shall notify the agency and furnish the names 
and addresses of each taxpayer filing the joint return.
    (i) Offset made with regard to refund based upon joint return. (1) 
In the case of an offset from a refund based on a joint return, the 
Service shall issue a notice in writing to any person who may have filed 
a joint return with the taxpayer, including the amount and date of any 
offset and the steps which the non-debtor spouse may take in order to 
secure his or her proper share of the refund (unless the non-debtor

[[Page 483]]

spouse has already taken these steps prior to offset).
    (2) If the person filing the joint return with the taxpayer owing 
the past-due, legally enforceable debt takes appropriate action to 
secure his or her proper share of a refund from which an offset was 
made, the Service shall pay the person his or her share of the refund 
and shall deduct that amount from amounts payable to the agency.
    (j) Disposition of amounts collected. Amounts collected under this 
section shall be transferred to a special account maintained by the 
Financial Management Service (FMS) for each Federal agency. If an 
erroneous payment is made to any agency, the Service shall deduct the 
amount of such payment from amounts payable to the agency.
    (k) Fees. The agency shall enter into a separate agreement with the 
Service and FMS to reimburse the Service and FMS for the full cost of 
administering the tax refund offset program. The fees shall be deducted 
from amounts collected prior to disposition. The fees shall be deposited 
in the United States Treasury and credited to the appropriation accounts 
which bore all or part of the costs involved in administering the refund 
offset procedures.
    (l) Review of offset of refunds. Any reduction of a taxpayer's 
refund made pursuant to section 6402(c) or (d) shall not be subject to 
review by any court of the United States or by the Service in an 
administrative proceeding. No action brought against the United States 
to recover the amount of this reduction shall be considered to be a suit 
for refund of tax. Any legal, equitable, or administrative action by any 
person seeking to recover the amount of the reduction of the overpayment 
must be taken against the Federal agency to which the amount of the 
reduction was paid. Any action which is otherwise available with respect 
to recoveries of overpayments of benefits under section 204 of the 
Social Security Act must be taken against the Secretary of Health and 
Human Services.
    (m) Access to and use of confidential tax information. Access to and 
use of confidential tax information in connection with the tax refund 
offset program are restricted by section 6103 of the Code. However, 
section 6103(l)(10) permits Federal officers and employees of agencies 
participating in the tax refund offset program to have access to and use 
of confidential tax information. Agencies receiving such information are 
subject to the safeguard, recordkeeping, and reporting requirements of 
section 6103(p)(4) and the regulations thereunder. The agency shall 
inform its officers and employees who access or use confidential tax 
information of the restrictions and penalties under the Internal Revenue 
Code for misuse of confidential tax information.
    (n) Effective dates. This section applies to refunds payable under 
section 6402 after April 15, 1992, and on or before January 1, 1998. For 
the rules applicable after January 1, 1998, see 31 CFR part 285.

[T.D. 8413, 57 FR 13038, Apr. 15, 1992; 57 FR 36691, Aug. 14, 1992, as 
amended by T.D. 8837, 64 FR 48548, Sept. 7, 1999]



Sec.  301.6402-7  Claims for refund and applications for tentative 
carryback adjustments involving consolidated groups that include 
insolvent financial institutions.

    (a) In general--(1) Overview. Section 6402(i) authorizes the 
Secretary to issue regulations providing for the payment of a refund 
directly to the statutory or court-appointed fiduciary of an insolvent 
corporation that was a subsidiary in a consolidated group, to the extent 
the Secretary determines that the refund is attributable to losses or 
credits of the insolvent corporation. This section provides rules for 
the payment of refunds and tentative carryback adjustments to the 
fiduciary of an insolvent financial institution that was a subsidiary in 
a consolidated group.
    (2) Notice. This section provides notice to the common parent of a 
consolidated group of which an insolvent financial institution is or was 
a member that--
    (i) The fiduciary for the institution may, in addition to the common 
parent, act as agent for the group in certain matters relating to the 
tax liability of the group in the year in which a loss arose and for the 
year to which a

[[Page 484]]

claim for refund or application for tentative carryback adjustment 
relates; and
    (ii) The Internal Revenue Service may deal directly with the common 
parent or the fiduciary (or both) as agent for the group to the extent 
provided in this section.
    (b) Definitions. For purposes of this section, the following terms 
have the meanings set forth below:
    (1) Carryback year group. A carryback year group is a consolidated 
group of which a corporation that is or becomes an insolvent financial 
institution is a member during a consolidated carryback year.
    (2) Consolidated carryback year. A consolidated carryback year is a 
consolidated return year to which a loss arising in a loss year is 
carried back.
    (3) Fiduciary. A fiduciary is--
    (i) The Federal Deposit Insurance Corporation;
    (ii) The Resolution Trust Corporation; or
    (iii) Any other entity established by federal law, or a federal 
agency, that is identified by the Commissioner in a revenue ruling or 
revenue procedure as a fiduciary for purposes of this section;

in its capacity as an authorized receiver or conservator of an insolvent 
financial institution.
    (4) Insolvent financial institution. An insolvent financial 
institution (an institution) is a bank or domestic building and loan 
association for which the fiduciary is authorized to act as a receiver 
or conservator--
    (i) On the ground that the institution is insolvent within the 
meaning of 12 U.S.C. 191, 12 U.S.C. 1821(c)(5)(A), 12 U.S.C. 
1464(d)(2)(A)(i), or 12 U.S.C. 1464(d)(2)(C)(i) or any applicable state 
law (or any successor statute which adopts a substantially similar 
standard); or
    (ii) On grounds other than insolvency, provided that the institution 
is insolvent within the meaning of paragraph (b)(4)(i) of this section 
at any time after commencement of the conservatorship or receivership.

A reference to an institution under these regulations includes, as the 
context requires, a reference to predecessors and successors of the 
institution.
    (5) Loss year. A loss year is a taxable year for which any member or 
former member of the carryback year group claims a loss that may be 
carried back.
    (6) Loss year group. A loss year group is a consolidated group of 
which a corporation that is or becomes an insolvent financial 
institution is a member during a loss year.
    (7) Procedure effective date. The procedure effective date is the 
day on which the Internal Revenue Service has processed the notice 
described in paragraph (d)(1) of this section to the extent necessary 
for all Internal Revenue Service Centers to have access to information 
indicating that--
    (i) Appropriate notice to the Internal Revenue Service has been 
filed; and
    (ii) Payments with respect to losses of an institution are to be 
paid in accordance with the procedures set forth in this section.
    (8) Definitions in Sec.  1.1502-1. Unless otherwise provided, the 
definitions contained in Sec.  1.1502-1 of this chapter apply in this 
section.
    (c) Deemed agency status of fiduciary--(1) In general. 
Notwithstanding the general treatment of a common parent as the agent of 
a group under Sec. Sec.  1.1502-77 and 1.1502-78 of this chapter, if the 
fiduciary satisfies the notice requirements of paragraph (d)(1) of this 
section, the fiduciary may also be deemed to be an agent under 
Sec. Sec.  1.1502-77 and 1.1502-78 of this chapter--
    (i) Of the loss year group (if any) for purposes of filing a 
consolidated return for the loss year;
    (ii) Of the carryback year group for purposes of filing a claim for 
refund or an application for a tentative carryback adjustment for the 
consolidated carryback year under paragraph (e) of this section and 
receiving payments of any refund or tentative carryback adjustment under 
paragraph (g) of this section; and
    (iii) Of the carryback year group, the loss year group or any other 
group of which the institution is a member for any matter pertaining to 
the determination of the refund or tentative carryback adjustment, but 
only to the extent provided in paragraph (c)(2) of this section.
    (2) Limitation. The fiduciary may act as an agent for matters 
described in

[[Page 485]]

paragraph (c)(1)(iii) of this section only to the extent--
    (i) Authorized by the district director, in his/her sole discretion, 
after receiving a written request from the fiduciary; or
    (ii) Requested by the Internal Revenue Service under paragraph 
(f)(3) of this section.
    (d) Notice requirements--(1) Notice to the Internal Revenue Service. 
To satisfy the notice requirement of this paragraph (d)(1), the 
fiduciary must file Form 56-F, Notice Concerning Fiduciary Relationship 
of Financial Institution, with the Internal Revenue Service Center 
indicated on the form. However, in its sole discretion, the Internal 
Revenue Service may treat notice to it in any other manner as satisfying 
the notice requirement under this paragraph (d)(1).
    (2) Notice to the common parent--(i) Form 56-F. The fiduciary must 
send a copy of the form 56-F filed with the Internal Revenue Service 
Center or any other notice provided to the Service under paragraph 
(d)(1) of this section to the common parent of the loss year group (if 
any) and the common parent of all carryback year groups (if different 
from the loss year group).
    (ii) Claim for refund and loss year return. If a claim for refund is 
filed by the fiduciary in accordance with paragraph (e)(1) of this 
section, the fiduciary must provide a copy of the claim for refund to 
the common parent of the carryback year group. If a loss year return is 
filed by the fiduciary in accordance with paragraph (e)(3) of this 
section, the fiduciary must provide a copy of the loss year return to 
the common parent of the loss year group (if any).
    (iii) Additional information. The fiduciary must provide to the 
affected common parent a copy of the request for agency status referred 
to in paragraphs (c)(2) (i) and (ii) of this section, and a copy of any 
additional information submitted to the Internal Revenue Service as 
agent under paragraph (c)(1)(iii) of this section.
    (e) Filing requirements of the fiduciary--(1) Claim for refund by 
the fiduciary. If the fiduciary accepts a claim for refund filed by the 
common parent, the fiduciary may claim a refund under this section by 
filing a copy of the common parent's claim for refund. If no claim for 
refund is filed by the common parent for the consolidated carryback year 
or the fiduciary does not accept a claim for refund filed by the common 
parent, the fiduciary may claim a refund under this section by filing 
its own claim for refund under section 6402, based on all information 
pertaining to the institution and all information pertaining to other 
members of the carryback year group and the loss year group to which the 
fiduciary has reasonable access. Any claim for refund filed by the 
fiduciary under this paragraph (e)(1) must contain the title ``Claim for 
refund under section 6402(i) of the Code'' at the top of the first page 
of the claim, and the following must be attached to the claim:
    (i) The name and employer identification number of the institution 
that was a member of the carryback year group;
    (ii) The name of the fiduciary;
    (iii) A schedule demonstrating that the amount of the refund claimed 
by the fiduciary is determined in accordance with paragraph (g) of this 
section;
    (iv) A representation that the institution is an insolvent financial 
institution as defined in paragraph (b)(4) of this section;
    (v) A representation that the fiduciary has satisfied the 
requirements set forth in paragraphs (d)(2)(i) and (ii) of this section; 
and
    (vi) A statement executed by an authorized representative of the 
fiduciary and any paid preparer utilized by the fiduciary that provides 
``Under penalties of perjury, I declare that I have examined the items 
listed in Sec.  301.6402-7T(e)(1)(i) through (v), including accompanying 
schedules and statements, and to the best of my knowledge and belief, 
they are true, correct, and complete. Declaration of preparer (other 
than fiduciary) is based on all information of which the preparer has 
any knowledge.''
    (2) Application for tentative carryback adjustment pursuant to 
section 6411. Notwithstanding section 6411 and Sec.  1.1502-78 of this 
chapter, an application for a tentative carryback adjustment must be 
signed by both the common parent of the carryback year group and the 
fiduciary if the payment with respect to

[[Page 486]]

the tentative carryback adjustment is not made before the procedure 
effective date (whether or not the application was filed before the 
procedure effective date). Any application for a tentative carryback 
adjustment filed under this paragraph (e)(2) must contain the title 
``Application for tentative carryback adjustment under section 6402(i) 
of the Code'' at the top of the first page of the application. In 
addition, the following must be attached to the application:
    (i) The name and employer identification number of the institution 
that was a member of the carryback year group;
    (ii) The name of the fiduciary;
    (iii) A schedule demonstrating that the amount claimed by the 
fiduciary is determined in accordance with paragraph (g) of this 
section;
    (iv) A representation that the institution is an insolvent financial 
institution as defined in paragraph (b)(4) of this section; and
    (v) A representation that the fiduciary has satisfied the 
requirements set forth in paragraph (d)(2)(i) of this section.
    (3) Loss year return by the fiduciary. If the institution is a 
member of a loss year group, and either the common parent does not file 
a loss year return or the fiduciary does not accept the loss year return 
filed by the common parent, the fiduciary may file a loss year return 
with respect to the loss year group. A loss year return can only be 
filed by the fiduciary in conjunction with the filing of a claim for 
refund under paragraph (e)(1).The return must be based on all 
information pertaining to the institution and all information pertaining 
to other members to which the fiduciary has reasonable access. Any 
return filed by the fiduciary under this paragraph (e)(3) must contain 
the title ``Loss year return under section 6402(i) of the Code'' at the 
top of the first page of the return, and the following must be attached 
to the return:
    (i) The name and employer identification number of the institution 
that is a member of the loss year group;
    (ii) The name of the fiduciary;
    (iii) A representation that the institution is an insolvent 
financial institution as defined in paragraph (b)(4) of this section; 
and
    (iv) A representation that the fiduciary has satisfied the 
requirements set forth in paragraphs (d)(2)(i) and (ii) of this section.
    (4) Additional information. If the fiduciary files additional 
information under paragraph (c)(1)(iii) of this section, the fiduciary 
must attach a representation that it has satisfied the requirements set 
forth in paragraph (d)(2)(iii) of this section.
    (5) Election to waiver carryback. Any election filed after December 
30, 1991, by the common parent of a loss year group under section 
172(b)(3) to relinquish the entire carryback period with respect to a 
consolidated net operating loss arising in a loss year is not effective 
with respect to the portion of the consolidated net operating loss 
attributable to a subsidiary that is an institution. Instead, the 
fiduciary may make the election under section 172(b)(3) with respect to 
the portion attributable to the institution after the notice described 
in paragraph (d)(1) of this section is filed. For purposes of this 
paragraph (e)(5), the portion attributable to an institution is 
determined under the principles of paragraph (g)(2)(ii) of this section.
    (f) Processing and reconciliation of information by the Internal 
Revenue Service--(1) Loss year return if the insolvent financial 
institution is a member of a loss year group. The Internal Revenue 
Service may, in its sole discretion, adjust a loss year return filed by 
the common parent of a loss year group to take into account information 
filed by the fiduciary in accordance with paragraph (e) of this section, 
or accept or adjust a loss year return for the loss year group filed by 
the fiduciary. Nothing in this section relieves the common parent of a 
loss year group of its duty to file a consolidated return taking into 
account an institution's items of income, gain, loss, deduction, and 
credit for any taxable year, or obligates the Internal Revenue Service 
to accept a return filed by the fiduciary as the return of the loss year 
group.
    (2) Claim for refund with respect to consolidated carryback year. 
The Internal Revenue Service may, in its sole discretion, adjust a claim 
for refund filed by the common parent of a carryback

[[Page 487]]

year group to take into account information filed by the fiduciary in 
accordance with paragraph (e) of this section, or accept or adjust a 
claim for refund for the carryback year group filed by the fiduciary. 
Nothing in this section obligates the Internal Revenue Service to pay a 
claim for refund, or to accept a claim for refund, filed by the 
fiduciary as a claim for refund for the carryback year group.
    (3) Additional information. In determining the amount of any refund 
that may be paid to the fiduciary under paragraph (g) of this section, 
the Internal Revenue Service may, in its sole discretion, take into 
account any information that the Internal Revenue Service deems relevant 
and may require the fiduciary to file any additional information the 
Internal Revenue Service deems appropriate.
    (g) Payment of a refund or a tentative carryback adjustment to 
fiduciary--(1) In general. If a claim for refund or an application for a 
tentative carryback adjustment is filed for the consolidated carryback 
year in accordance with paragraph (e) of this section, the Internal 
Revenue Service may, in its sole discretion, pay to the fiduciary all or 
any portion of the refund or tentative carryback adjustment that the 
Internal Revenue Service determines under this section to be 
attributable to the net operating losses of the institution. Nothing in 
this section obligates the Internal Revenue Service to pay to the 
fiduciary all or any portion of a claim for refund or application for 
tentative carryback adjustment.
    (2) Portion of refund or tentative carryback adjustment attributable 
to the net operating loss of an insolvent financial institution--(i) In 
general. The portion of a refund or tentative carryback adjustment 
attributable to a net operating loss of an institution that is carried 
to a consolidated carryback year is determined based on the absorption, 
as described in paragraph (g)(2)(iii) of this section, of the 
institution's net operating loss carried to the consolidated carryback 
year.
    (ii) Member's net operating loss. If the loss year is a consolidated 
return year, references in this section to the net operating loss of a 
member of the loss year group is a reference to the portion of the loss 
year group's consolidated net operating loss attributable to the member. 
The consolidated net operating loss for a taxable year that is 
attributable to a member is determined by a fraction, the numerator of 
which is the separate net operating loss of the member for the year of 
the loss and the denominator of which is the sum of the separate net 
operating losses for that year of all members having such losses. For 
this purpose, the separate net operating loss of a member is determined 
by computing the consolidated net operating loss by taking into account 
only the member's items of income, gain, deduction, and loss, including 
the member's losses and deductions actually absorbed by the group in the 
taxable year (whether or not absorbed by the member).
    (iii) Absorption of net operating losses. The absorption of net 
operating losses generally is determined under applicable principles of 
the Code and regulations, including the principles of section 172 and 
Sec. Sec.  1.1502-21(b) or 1.1502-21A(b) (as appropriate) of this 
chapter. Notwithstanding any contrary rule or principle of the Code or 
regulations, if an institution and another member of the carryback year 
group have net operating losses that arise in taxable years ending on 
the same date and are carried to the same consolidated carryback year, 
the carryback year group's consolidated taxable income for that year is 
treated as offset first by the loss attributable to the institution to 
the extent thereof.
    (3) Examples. For purposes of the examples in this section, all 
groups file consolidated returns, all corporations have calendar taxable 
years, the facts set forth the only corporate activity, the fiduciary 
has met the notice and filing requirements of this section, and the 
common parent has filed a return for the loss year and a claim for 
refund. The principles of this paragraph (g) are illustrated by the 
following examples.

    Example 1. Absorption of net operating losses, (a) P owns all the 
stock of S1, an insolvent financial institution, and S2, a corporation 
that is not a financial institution. For Year 1, P, S1, and S2 each have 
$50 of income, and the P group's consolidated taxable income is $150. On 
May 31 of Year 2, S1 becomes insolvent and is placed in receivership 
under the supervision of a fiduciary. For Year 2, the P

[[Page 488]]

group has a consolidated net operating loss of $200, of which $100 is 
attributable to S1 and $100 is attributable to S2.
    (b) Under paragraph (g)(2)(iii) of this section, the $150 of 
consolidated taxable income for Year 1 is offset first by the $100 
portion of the consolidated net operating loss for Year 2 attributable 
to S1. The remaining $50 is treated as offset by $50 of the $100 of 
consolidated net operating loss attributable to S2. Thus, the refund 
attributable to $100 of the loss may be payable to the fiduciary and the 
refund attributable to $50 of the loss may be payable to P. The 
remaining $50 consolidated net operating loss, available to be carried 
forward, is entirely attributable to S2.
    Example 2. Separate return net operating loss, The facts are the 
same as in Example 1, except that S1 left the P group at the end of Year 
1 and its $100 of loss in Year 2 is incurred in a separate return 
limitation year. Under paragraph (g)(2)(iii) of this section, the 
generally applicable absorption principles of section 172 and Sec.  
1.1502-21 of this chapter apply. Although S1 and S2 are carrying back 
losses to Year 1 from taxable years ending on the same date (Year 2), 
S1's loss is subject to a $50 limitation under Sec.  1.1502-21(c) of 
this chapter and only $50 of S1's loss is absorbed before S2's net 
operating loss. Therefore, the refund attributable to $50 of the net 
operating loss of S1 may be payable to the fiduciary, and the refund 
attributable to $100 of the net operating loss of S2 may be payable to 
P. The remaining $50 net operating loss of S1 is available to be carried 
forward.

    (4) Refund or tentative carryback adjustment allocation agreement. 
The determination of the portion of any refund or tentative carryback 
adjustment payable to the fiduciary under this paragraph (g) shall be 
made without regard to--
    (i) Any agreement among the members of the consolidated group; or
    (ii) Whether the fiduciary is otherwise entitled to any portion of 
the refund or tentative carryback adjustment under applicable law.
    (h) Credits, net capital losses, and subgroups--(1) Credits and net 
capital losses--(i) In general. The principles of this section also 
apply to credits and net capital losses, with appropriate adjustments to 
reflect differences between the rules applicable to net operating losses 
and those applicable to credits and net capital losses.
    (ii) Example. The principles of this paragraph (h)(1) are 
illustrated by the following example.

    Example. Net capital loss. (a) P owns all the stock of S1, an 
insolvent financial institution, and S2, a corporation that is not a 
financial institution. For Year 1, P, S1, and S2 each have $50 of 
capital gain, and the P group's consolidated capital gain net income is 
$150. On May 31 of Year 2, S1 becomes insolvent and is placed in 
receivership under the supervision of a fiduciary. For Year 2, the P 
group has a consolidated net operating loss of $100 that is attributable 
to S1, and a consolidated net capital loss of $100 that is attributable 
to S2.
    (b) Under paragraphs (g)(2)(iii) and (h)(1) of this section, the 
generally applicable absorption principles of sections 172 and 1212 and 
Sec. Sec.  1.1502-21(b) and 1.1502-22(b) of this chapter apply. 
Consequently, S2's capital loss is absorbed before S1's net operating 
loss. Therefore, the $150 of consolidated capital gain net income is 
offset first by S2's $100 capital loss and the remaining $50 by S1's net 
operating loss. The refund attributable to $50 of the net operating loss 
may be payable to the fiduciary, and the refund attributable to the $100 
of capital loss may be payable to P. The remaining $50 consolidated net 
operating loss available to be carried forward is entirely attributable 
to S1.

    (2) Insolvent financial institution subgroup--(i) In general. The 
principles of this section apply to all members included in an insolvent 
financial institution subgroup with appropriate adjustments to reflect 
differences resulting from the application to more than one corporation 
in a group. Unless otherwise determined by the Internal Revenue Service 
in its sole discretion, an insolvent financial institution subgroup is 
composed of an insolvent financial institution and those other members 
of a loss year group that, at any time during the conservatorship or 
receivership of the institution, bear the same relationship to the 
institution that the members of a group bear to their common parent 
under section 1504(a)(1).
    (ii) Examples. The principles of this paragraph (h)(2) are 
illustrated by the following examples.

    Example 1. Loss of other subgroup members. (a) S1 is a financial 
institution, and P, S2, and S3 are not financial institutions. P owns 
all the stock of S1, S1 owns all the stock of S2, and the stock of S3 is 
owned 20 percent by S2 and 80 percent by P. For Year 1, P, S1, and S2 
each have $100 of income, S3 has no income or loss, and the P group's 
consolidated taxable income is $300. On May 31 of Year 2, S1 becomes 
insolvent and is placed

[[Page 489]]

in receivership under the supervision of a fiduciary. For Year 2, the P 
group has a consolidated net operating loss of $300, of which $200 is 
attributable to S1 and $100 is attributable to S2.
    (b) S1 and S2 compose a subgroup because S2 bears the same 
relationship to S1 that the member of a group bears to its common parent 
under section 1504(a). S3 is not included in the subgroup because it is 
not connected to S1 through 80 percent stock ownership as described in 
section 1504(a).
    (c) Because S1 and S2 are members of a subgroup, a claim for refund 
under paragraph (e) of this section must be based on the aggregate 
consolidated net operating loss of both S1 and S2. Under paragraph 
(e)(5) of this section, P may not elect under section 172(b)(3) to 
relinquish the entire carryback period with respect to the $300 of 
consolidated net operating loss arising in Year 2 that is attributable 
to S1 and S2. Any refund payable under paragraph (g)(1) of this section 
with respect to the $300 loss of S1 and S2 may be paid by the Internal 
Revenue Service directly to the fiduciary.
    Example 2. Income of other subgroup members, (a) The facts are the 
same as in Example 1, except that S2 has $100 of income in Year 2 rather 
than $100 of loss. Any refund payable under paragraph (g) of this 
section with respect to the loss of S1 in Year 2 must take into account 
the income of S2, and therefore the refund will be based on a $100 loss 
of the subgroup.
    (b) Although P and S3 are not members included in the subgroup, the 
loss year return and the claim for refund filed by the fiduciary under 
paragraph (e) of this section must be completed based on all information 
to which the fiduciary has reasonable access. Under paragraph (e)(3) of 
this section, if P does not file a loss year return that is accepted by 
S1, and S1 has reasonable access to information indicating that P and S3 
have income in Year 2, S1 must take that income into account in filing 
the P group's return for Year 2 and reduce the amount of S1's loss that 
may be carried to Year 1 accordingly. However, if P or S3 has a loss in 
Year 2, any refund attributable to that loss will not be paid to the 
fiduciary.

    (i) [Reserved]
    (j) Determination of ownership. This section determines the party to 
whom a refund or tentative carryback adjustment will be paid but is not 
determinative of ownership of any such amount among current or former 
members of a consolidated group (including the institution).
    (k) Liability of the Government. Any refund or tentative carryback 
adjustment paid to the fiduciary discharges any liability of the 
Government to the same extent as payment to the common parent under 
Sec.  1.1502-77 or Sec.  1.1502-78 of this chapter. Furthermore, any 
refund or tentative carryback adjustment paid to the fiduciary is 
considered a payment to all members of the carryback year group. Any 
determination made by the Internal Revenue Service under this section to 
pay a refund or tentative carryback adjustment to a fiduciary or the 
common parent may not be challenged by the common parent, any member of 
the group, or the fiduciary.
    (l) Effective dates. This section applies to refunds and tentative 
carryback adjustments paid after December 30, 1991.

[T.D. 8387, 56 FR 67487, Dec. 31, 1991; 57 FR 6073, Feb. 20, 1992. 
Redesignated and amended by T.D. 8446, 57 FR 53034, Nov. 6, 1992; T.D. 
8677, 61 FR 33325, June 27, 1996; T.D. 8823, 64 FR 36101, July 2, 1999]



Sec.  301.6403-1  Overpayment of installment.

    If any installment of tax is overpaid, the overpayment shall first 
be applied against any outstanding installments of such tax. If the 
overpayment exceeds the correct amount of tax due, the overpayment shall 
be credited or refunded as provided in section 6402 and Sec. Sec.  
301.6402-1 to 301.6402-4, inclusive.



Sec.  301.6404-0  Table of contents.

    This section lists the paragraphs contained in Sec. Sec.  301.6404-1 
through 301.6404-4.

                      Sec.  301.6404-1 Abatements.

      Sec.  301.6404-2T Definition of ministerial act (temporary).

    (a) In general.
    (b) Ministerial act.
    (1) Definition.
    (2) Examples.
    (c) Effective date.

Sec.  301.6404-3 Abatement of penalty or addition to tax attributable to 
        erroneous written advice of the Internal Revenue Service.

    (a) General rule.
    (b) Requirements.
    (1) In general.
    (2) Advice was reasonably relied upon.
    (i) In general.
    (ii) Advice relating to a tax return.
    (iii) Amended returns.
    (iv) Advice not related to a tax return.
    (v) Period of reliance.

[[Page 490]]

    (3) Advice was in response to written request.
    (4) Taxpayer's information must be adequate and accurate.
    (c) Definitions.
    (1) Advice.
    (2) Penalty and addition to tax.
    (d) Procedures for abatement.
    (e) Period for requesting abatement.
    (f) Examples.
    (g) Effective date.

 Sec.  301.6404-4 Suspension of interest and certain penalties when the 
     Internal Revenue Service does not timely contact the taxpayer.

    (a) Suspension.
    (1) In general.
    (2) Treatment of amended returns and other documents.
    (i) Amended returns filed on or after December 21, 2005, that show 
an increase in tax liability.
    (ii) Amended returns that show a decrease in tax liability.
    (iii) Amended returns and other documents as notice.
    (iv) Joint return after filing separate return.
    (3) Separate application.
    (4) Duration of suspension period.
    (5) Certain notices provided on or after November 26, 2007.
    (i) Eighteen-month period has closed.
    (ii) All other cases.
    (6) Examples.
    (7) Notice of liability and the basis for the liability.
    (i) In general.
    (ii) Tax attributable to TEFRA partnership items.
    (iii) Examples.
    (8) Providing notice.
    (i) In general.
    (ii) Providing notice in TEFRA partnership proceedings.
    (b) Exceptions.
    (1) Failure to file tax return or to pay tax.
    (2) Fraud.
    (3) Tax shown on return.
    (4) Gross misstatement.
    (i) Description.
    (ii) Effect of gross misstatement.
    (5) Listed transactions and undisclosed reportable transactions.
    (i) In general.
    (ii) Special rule for certain listed or undisclosed reportable 
transactions.
    (A) Participant in a settlement initiative.
    (1) Participant in a settlement initiative who as of January 23, 
2006, had not reached agreement with the IRS.
    (2) Participant in a settlement initiative who, as of January 23, 
2006, had reached agreement with the IRS.
    (B) Taxpayer acting in good faith.
    (1) In general.
    (2) Presumption.
    (3) Examples.
    (C) Closed transactions.
    (c) Special rules.
    (1) Tentative carryback and refund adjustments.
    (2) Election under section 183(e).
    (i) In general.
    (ii) Example.
    (d) Effective/applicability date.

[T.D. 8299, 55 FR 14245, Apr. 17, 1990, as amended by T.D. 9488, 75 FR 
33993, June 16, 2010; T.D. 9545, 76 FR 52261, Aug. 22, 2011]



Sec.  301.6404-1  Abatements.

    (a) The district director or the director of the regional service 
center may abate any assessment, or unpaid portion thereof, if the 
assessment is in excess of the correct tax liability, if the assessment 
is made subsequent to the expiration of the period of limitations 
applicable thereto, or if the assessment has been erroneously or 
illegally made.
    (b) No claim for abatement may be filed with respect to income, 
estate, or gift tax.
    (c) Except in case of income, estate, or gift tax, if more than the 
correct amount of tax, interest, additional amount, addition to the tax, 
or assessable penalty is assessed but not paid to the district director, 
the person against whom the assessment is made may file a claim for 
abatement of such overassessment. Each claim for abatement under this 
section shall be made on Form 843. In the case of a claim filed prior to 
April 15, 1968, the claim shall be filed in the office of the internal 
revenue officer by whom the tax was assessed or with the assistant 
regional Commissioner (alcohol, tobacco, and firearms) where the 
regulations respecting the particular tax to which the claim relates 
specifically require the claim to be filed with that officer. Except as 
provided in paragraph (b) of Sec.  301.6091-1 (relating to hand-carried 
documents), in the case of a claim filed after April 14, 1968, the claim 
shall be filed (1) with the Director of International Operations if the 
tax was assessed by him, or (2) with the assistant regional Commissioner 
(alcohol, tobacco, and firearms) where the regulations respecting the 
particular tax to which the claim relates specifically require the claim 
to be filed with that officer; otherwise, the claim shall be filed with 
the service center serving

[[Page 491]]

the internal revenue district in which the tax was assessed. Form 843 
shall be made in accordance with the instructions relating to such form.
    (d) The Commissioner may issue uniform instructions to district 
directors authorizing them, to the extent permitted in such 
instructions, to abate amounts the collection of which is not warranted 
because of the administration and collection costs.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7008, 34 FR 3673, Mar. 1, 
1969; T.D. 7188, 37 FR 12794, June 29, 1972; T.D. ATF-33, 41 FR 44038, 
Oct. 6, 1976]



Sec.  301.6404-2  Abatement of interest.

    (a) In general. (1) Section 6404(e)(1) provides that the 
Commissioner may (in the Commissioner's discretion) abate the assessment 
of all or any part of interest on any--
    (i) Deficiency (as defined in section 6211(a), relating to income, 
estate, gift, generation-skipping, and certain excise taxes) 
attributable in whole or in part to any unreasonable error or delay by 
an officer or employee of the Internal Revenue Service (IRS) (acting in 
an official capacity) in performing a ministerial or managerial act; or
    (ii) Payment of any tax described in section 6212(a) (relating to 
income, estate, gift, generation-skipping, and certain excise taxes) to 
the extent that any unreasonable error or delay in payment is 
attributable to an officer or employee of the IRS (acting in an official 
capacity) being erroneous or dilatory in performing a ministerial or 
managerial act.
    (2) An error or delay in performing a ministerial or managerial act 
will be taken into account only if no significant aspect of the error or 
delay is attributable to the taxpayer involved or to a person related to 
the taxpayer within the meaning of section 267(b) or section 707(b)(1). 
Moreover, an error or delay in performing a ministerial or managerial 
act will be taken into account only if it occurs after the IRS has 
contacted the taxpayer in writing with respect to the deficiency or 
payment. For purposes of this paragraph (a)(2), no significant aspect of 
the error or delay is attributable to the taxpayer merely because the 
taxpayer consents to extend the period of limitations.
    (b) Definitions--(1) Managerial act means an administrative act that 
occurs during the processing of a taxpayer's case involving the 
temporary or permanent loss of records or the exercise of judgment or 
discretion relating to management of personnel. A decision concerning 
the proper application of federal tax law (or other federal or state 
law) is not a managerial act. Further, a general administrative 
decision, such as the IRS's decision on how to organize the processing 
of tax returns or its delay in implementing an improved computer system, 
is not a managerial act for which interest can be abated under paragraph 
(a) of this section.
    (2) Ministerial act means a procedural or mechanical act that does 
not involve the exercise of judgment or discretion, and that occurs 
during the processing of a taxpayer's case after all prerequisites to 
the act, such as conferences and review by supervisors, have taken 
place. A decision concerning the proper application of federal tax law 
(or other federal or state law) is not a ministerial act.
    (c) Examples. The following examples illustrate the provisions of 
paragraphs (b) (1) and (2) of this section. Unless otherwise stated, for 
purposes of the examples, no significant aspect of any error or delay is 
attributable to the taxpayer, and the IRS has contacted the taxpayer in 
writing with respect to the deficiency or payment. The examples are as 
follows:

    Example 1. A taxpayer moves from one state to another before the IRS 
selects the taxpayer's income tax return for examination. A letter 
explaining that the return has been selected for examination is sent to 
the taxpayer's old address and then forwarded to the new address. The 
taxpayer timely responds, asking that the audit be transferred to the 
IRS's district office that is nearest the new address. The group manager 
timely approves the request. After the request for transfer has been 
approved, the transfer of the case is a ministerial act. The 
Commissioner may (in the Commissioner's discretion) abate interest 
attributable to any unreasonable delay in transferring the case.
    Example 2. An examination of a taxpayer's income tax return reveals 
a deficiency with respect to which a notice of deficiency will be 
issued. The taxpayer and the IRS identify all agreed and unagreed 
issues, the notice is prepared and reviewed (including review by

[[Page 492]]

District Counsel, if necessary), and any other relevant prerequisites 
are completed. The issuance of the notice of deficiency is a ministerial 
act. The Commissioner may (in the Commissioner's discretion) abate 
interest attributable to any unreasonable delay in issuing the notice.
    Example 3. A revenue agent is sent to a training course for an 
extended period of time, and the agent's supervisor decides not to 
reassign the agent's cases. During the training course, no work is done 
on the cases assigned to the agent. The decision to send the revenue 
agent to the training course and the decision not to reassign the 
agent's cases are not ministerial acts; however, both decisions are 
managerial acts. The Commissioner may (in the Commissioner's discretion) 
abate interest attributable to any unreasonable delay resulting from 
these decisions.
    Example 4. A taxpayer appears for an office audit and submits all 
necessary documentation and information. The auditor tells the taxpayer 
that the taxpayer will receive a copy of the audit report. However, 
before the report is prepared, the auditor is permanently reassigned to 
another group. An extended period of time passes before the auditor's 
cases are reassigned. The decision to reassign the auditor and the 
decision not to reassign the auditor's cases are not ministerial acts; 
however, they are managerial acts. The Commissioner may (in the 
Commissioner's discretion) abate interest attributable to any 
unreasonable delay resulting from these decisions.
    Example 5. A taxpayer is notified that the IRS intends to audit the 
taxpayer's income tax return. The agent assigned to the case is granted 
sick leave for an extended period of time, and the taxpayer's case is 
not reassigned. The decision to grant sick leave and the decision not to 
reassign the taxpayer's case to another agent are not ministerial acts; 
however, they are managerial acts. The Commissioner may (in the 
Commissioner's discretion) abate interest attributable to any 
unreasonable delay caused by these decisions.
    Example 6. A revenue agent has completed an examination of the 
income tax return of a taxpayer. There are issues that are not agreed 
upon between the taxpayer and the IRS. Before the notice of deficiency 
is prepared and reviewed, a clerical employee misplaces the taxpayer's 
case file. The act of misplacing the case file is a managerial act. The 
Commissioner may (in the Commissioner's discretion) abate interest 
attributable to any unreasonable delay resulting from the file being 
misplaced.
    Example 7. A taxpayer invests in a tax shelter and reports a loss 
from the tax shelter on the taxpayer's income tax return. IRS personnel 
conduct an extensive examination of the tax shelter, and the processing 
of the taxpayer's case is delayed because of that examination. The 
decision to delay the processing of the taxpayer's case until the 
completion of the examination of the tax shelter is a decision on how to 
organize the processing of tax returns. This is a general administrative 
decision. Consequently, interest attributable to a delay caused by this 
decision cannot be abated under paragraph (a) of this section.
    Example 8. A taxpayer claims a loss on the taxpayer's income tax 
return and is notified that the IRS intends to examine the return. 
However, a decision is made not to commence the examination of the 
taxpayer's return until the processing of another return, for which the 
statute of limitations is about to expire, is completed. The decision on 
how to prioritize the processing of returns based on the expiration of 
the statute of limitations is a general administrative decision. 
Consequently, interest attributable to a delay caused by this decision 
cannot be abated under paragraph (a) of this section.
    Example 9. During the examination of an income tax return, there is 
disagreement between the taxpayer and the revenue agent regarding 
certain itemized deductions claimed by the taxpayer on the return. To 
resolve the issue, advice is requested in a timely manner from the 
Office of Chief Counsel on a substantive issue of federal tax law. The 
decision to request advice is a decision concerning the proper 
application of federal tax law; it is neither a ministerial nor a 
managerial act. Consequently, interest attributable to a delay resulting 
from the decision to request advice cannot be abated under paragraph (a) 
of this section.
    Example 10. The facts are the same as in Example 9 except the 
attorney who is assigned to respond to the request for advice is granted 
leave for an extended period of time. The case is not reassigned during 
the attorney's absence. The decision to grant leave and the decision not 
to reassign the taxpayer's case to another attorney are not ministerial 
acts; however, they are managerial acts. The Commissioner may (in the 
Commissioner's discretion) abate interest attributable to any 
unreasonable delay caused by these decisions.
    Example 11. A taxpayer contacts an IRS employee and requests 
information with respect to the amount due to satisfy the taxpayer's 
income tax liability for a particular taxable year. Because the employee 
fails to access the most recent data, the employee gives the taxpayer an 
incorrect amount due. As a result, the taxpayer pays less than the 
amount required to satisfy the tax liability. Accessing the most recent 
data is a ministerial act. The Commissioner may (in the Commissioner's 
discretion) abate interest attributable to any unreasonable error or 
delay

[[Page 493]]

arising from giving the taxpayer an incorrect amount due to satisfy the 
taxpayer's income tax liability.
    Example 12. A taxpayer contacts an IRS employee and requests 
information with respect to the amount due to satisfy the taxpayer's 
income tax liability for a particular taxable year. To determine the 
current amount due, the employee must interpret complex provisions of 
federal tax law involving net operating loss carrybacks and foreign tax 
credits. Because the employee incorrectly interprets these provisions, 
the employee gives the taxpayer an incorrect amount due. As a result, 
the taxpayer pays less than the amount required to satisfy the tax 
liability. Interpreting complex provisions of federal tax law is neither 
a ministerial nor a managerial act. Consequently, interest attributable 
to an error or delay arising from giving the taxpayer an incorrect 
amount due to satisfy the taxpayer's income tax liability in this 
situation cannot be abated under paragraph (a) of this section.
    Example 13. A taxpayer moves from one state to another after the IRS 
has undertaken an examination of the taxpayer's income tax return. The 
taxpayer asks that the audit be transferred to the IRS's district office 
that is nearest the new address. The group manager approves the request, 
and the case is transferred. Thereafter, the taxpayer moves to yet 
another state, and once again asks that the audit be transferred to the 
IRS's district office that is nearest that new address. The group 
manager approves the request, and the case is again transferred. The 
agent then assigned to the case is granted sick leave for an extended 
period of time, and the taxpayer's case is not reassigned. The 
taxpayer's repeated moves result in a delay in the completion of the 
examination. Under paragraph (a)(2) of this section, interest 
attributable to this delay cannot be abated because a significant aspect 
of this delay is attributable to the taxpayer. However, as in Example 5, 
the Commissioner may (in the Commissioner's discretion) abate interest 
attributable to any unreasonable delay caused by the managerial 
decisions to grant sick leave and not to reassign the taxpayer's case to 
another agent.

    (d) Effective dates--(1) In general. Except as provided in paragraph 
(d)(2) of this section, the provisions of this section apply to interest 
accruing with respect to deficiencies or payments of any tax described 
in section 6212(a) for taxable years beginning after July 30, 1996.
    (2) Special rules--(i) Estate tax. The provisions of this section 
apply to interest accruing with respect to deficiencies or payments of--
    (A) Estate tax imposed under section 2001 on estates of decedents 
dying after July 30, 1996;
    (B) The additional estate tax imposed under sections 2032A(c) and 
2056A(b)(1)(B) in the case of taxable events occurring after July 30, 
1996; and
    (C) The additional estate tax imposed under section 2056A(b)(1)(A) 
in the case of taxable events occurring after December 31, 1996.
    (ii) Gift tax. The provisions of this section apply to interest 
accruing with respect to deficiencies or payments of gift tax imposed 
under chapter 12 on gifts made after December 31, 1996.
    (iii) Generation-skipping transfer tax. The provisions of this 
section apply to interest accruing with respect to deficiencies or 
payments of generation-skipping transfer tax imposed under chapter 13--
    (A) On direct skips occurring at death, if the transferor dies after 
July 30, 1996; and
    (B) On inter vivos direct skips, and all taxable terminations and 
taxable distributions occurring after December 31, 1996.

[T.D. 8789, 63 FR 70013, Dec. 18, 1998]



Sec.  301.6404-3  Abatement of penalty or addition to tax attributable 
to erroneous written advice of the Internal Revenue Service.

    (a) General rule. Any portion of any penalty or addition to tax that 
is attributable to erroneous advice furnished to the taxpayer in writing 
by an officer or employee of the Internal Revenue Service (Service), 
acting in his or her official capacity, shall be abated, provided the 
requirements of paragraph (b) of this section are met.
    (b) Requirements--(1) In general. Paragraph (a) of this section 
shall apply only if--
    (i) The written advice was reasonably relied upon by the taxpayer;
    (ii) The advice was issued in response to a specific written request 
for advice by the taxpayer; and
    (iii) The taxpayer requesting advice provided adequate and accurate 
information.
    (2) Advice was reasonably relied upon--(i) In general. The written 
advice from the Service must have been reasonably relied upon by the 
taxpayer in order for

[[Page 494]]

any penalty to be abated under paragraph (a) of this section.
    (ii) Advice relating to a tax return. In the case of written advice 
from the Service that relates to an item included on a federal tax 
return of a taxpayer, if such advice is received by the taxpayer 
subsequent to the date on which the taxpayer filed such return, the 
taxpayer shall not be considered to have reasonably relied upon such 
written advice for purposes of this section, except as provided in 
paragraph (b)(2)(iii) of this section.
    (iii) Amended returns. If a taxpayer files an amended federal tax 
return that conforms with written advice received by the taxpayer from 
the Service, the taxpayer will be considered to have reasonably relied 
upon the advice for purposes of the position set forth in the amended 
return.
    (iv) Advice not related to a tax return. In the case of written 
advice that does not relate to an item included on a federal tax return 
(for example, the payment of estimated taxes), if such written advice is 
received by the taxpayer subsequent to the act or omission of the 
taxpayer that is the basis for the penalty or addition of tax, then the 
taxpayer shall not be considered to have reasonably relied upon such 
written advice for purposes of this section.
    (v) Period of reliance. If the written advice received by the 
taxpayer relates to a continuing action or series of actions, the 
taxpayer may rely on that advice until the taxpayer is put on notice 
that the advice is no longer consistent with Service position and, thus, 
no longer valid. For purposes of this section, the taxpayer will be put 
on notice that written advice is no longer valid if the taxpayer 
receives correspondence from the Service stating that the advice no 
longer represents Service position. Further, any of the following 
events, occurring subsequent to the issuance of the advice, that set 
forth a position that is inconsistent with the written advice received 
from the Service shall be deemed to put the taxpayer on notice that the 
advice is no longer valid--
    (A) Enactment of legislation or ratification of a tax treaty;
    (B) A decision of the United States Supreme Court;
    (C) The issuance of temporary or final regulations; or
    (D) The issuance of a revenue ruling, a revenue procedure, or other 
statement published in the Internal Revenue Bulletin.
    (3) Advice was in response to written request. No abatement under 
paragraph (a) of this section shall be allowed unless the penalty or 
addition to tax is attributable to advice issued in response to a 
specific written request for advice by the taxpayer. For purposes of the 
preceding sentence, a written request from a representative of the 
taxpayer shall be considered a written request by the taxpayer only if--
    (i) The taxpayer's representative is an attorney, a certified public 
accountant, an enrolled agent, an enrolled actuary, or any other person 
permitted to represent the taxpayer before the Service and who is not 
disbarred or suspended from practice before the Service; and
    (ii) The written request for advice either is accompanied by a power 
of attorney that is signed by the taxpayer and that authorizes the 
representative to represent the taxpayer for purposes of the request, or 
such a power of attorney is currently on file with the Service.
    (4) Taxpayer's information must be adequate and accurate. No 
abatement under paragraph (a) of this section shall be allowed with 
respect to any portion of any penalty or addition to tax that resulted 
because the taxpayer requesting the advice did not provide the Service 
with adequate and accurate information. The Service has no obligation to 
verify or correct the taxpayer's submitted information.
    (c) Definitions--(1) Advice. For purposes of section 6404(f) and the 
regulations thereunder, a written response issued to a taxpayer by an 
officer or employee of the Service shall constitute ``advice'' if, and 
only if, the response applies the tax laws to the specific facts 
submitted in writing by the taxpayer and provides a conclusion regarding 
the tax treatment to be accorded the taxpayer upon the application of 
the tax law to those facts.

[[Page 495]]

    (2) Penalty and addition to tax. For purposes of section 6404(f) and 
the regulations thereunder, the terms ``penalty'' and ``addition to 
tax'' refer to any liability of a particular taxpayer imposed under 
subtitle F, chapter 68, subchapter A and subchapter B of the Internal 
Revenue Code, and the liabilities imposed by sections 6038(b), 6038(c), 
6038A(d), 6038B(b), 6039E(c), and 6332(d)(2). In addition, the terms 
``penalty'' and ``addition to tax'' shall include any liability 
resulting from the application of other provisions of the Code where the 
Commissioner of Internal Revenue has designated by regulation, revenue 
ruling, or other guidance published in the Internal Revenue Bulletin 
that such provision shall be considered a penalty or addition to tax for 
purposes of section 6404(f). The terms ``penalty'' and ``addition to 
tax'' shall also include interest imposed with respect to any penalty or 
addition to tax.
    (d) Procedures for abatement. Taxpayers entitled to an abatement of 
a penalty or addition to tax pursuant to section 6404(f) and this 
section should complete and file Form 843. If the erroneous advice 
received relates to an item on a federal tax return, taxpayers should 
submit Form 843 to the Internal Revenue Service Center where the return 
was filed. If the advice does not relate to an item on a federal tax 
return, the taxpayer should submit Form 843 to the Service Center where 
the taxpayer's return was filed for the taxable year in which the 
taxpayer relied on the erroneous advice. At the top of Form 843 
taxpayers should write, ``Abatement of penalty or addition to tax 
pursuant to section 6404(f).'' Further, taxpayers must state on Form 843 
whether the penalty or addition to tax has been paid. Taxpayers must 
submit, with Form 843, copies of the following--
    (1) The taxpayer's written request for advice;
    (2) The erroneous written advice furnished by the Service to the 
taxpayer and relied on by the taxpayer; and
    (3) The report (if any) of tax adjustments that identifies the 
penalty or addition to tax and the item relating to the erroneous 
written advice.
    (e) Period for requesting abatement. An abatement of any penalty or 
addition to tax pursuant to section 6404(f) and this section shall be 
allowed only if the request for abatement described in paragraph (d) of 
this section is submitted within the period allowed for collection of 
such penalty or addition to tax, or, if the penalty or addition to tax 
has been paid, the period allowed for claiming a credit or refund of 
such penalty or addition to tax.
    (f) Examples. The following examples illustrate the application of 
section 6404(f) of the Code and the regulations thereunder:

    Example 1. In February 1989, an individual submitted a written 
request for advice to an Internal Revenue Service Center and included 
adequate and accurate information to consider the request. The question 
posed by the taxpayer concerned whether a certain amount was includible 
in income on the taxpayer's 1989 federal income tax return. An employee 
of the Service Center issued the taxpayer a written response that 
concluded that based on the specific facts submitted by the taxpayer, 
the amount was not includible in income on the taxpayer's 1989 return. 
Since the response provided a conclusion regarding the tax treatment 
accorded the taxpayer on the basis of the facts submitted, the response 
constitutes ``advice'' for purposes of section 6404(f). The taxpayer 
filed his 1989 return and, relying on the Service's advice, did not 
include the item in income. Upon examination, it was determined that the 
item should have been included in income on the taxpayer's 1989 return. 
Because the taxpayer reasonably relied upon erroneous written advice 
from the Service, any penalty or addition to tax attributable to the 
erroneous advice will be abated by the Service. However, the erroneous 
advice will not affect the amount of any taxes and interest owed by the 
taxpayer (except to the extent interest relates to a penalty or addition 
to tax attributable to the erroneous advice) due to the fact that the 
item was not included in income.
    Example 2. In March 1989, an individual submitted a written request 
to the National Office of the Internal Revenue Service regarding whether 
a certain activity constitutes a passive activity within the meaning of 
section 469 of the Code. The request did not meet the procedural 
requirements set forth by the National Office for consideration of the 
submission as a private letter ruling request and, thus, was not treated 
as such by the Service. The Service furnished the taxpayer with a 
written response that transmitted various published provisions of 
section 469 and the regulations thereunder relevant to the determination 
of whether an activity is passive within the meaning of those

[[Page 496]]

provisions. The Service also included a Publication regarding the tax 
treatment of passive activities. However, the Service's response 
contained no opinion or determination regarding whether the taxpayer's 
described activity was or was not passive under section 469. The 
Service's response is not advice within the meaning of section 6404(f), 
and cannot be relied upon for purposes of an abatement of a portion of a 
penalty or addition to tax under that section.
    Example 3. On April 1, 1989, an individual submitted a written 
request for advice to an Internal Revenue Service Center. The advice 
related to an item included on a federal tax return. The individual 
filed a federal income tax return with the appropriate Service Center on 
April 15, 1989. Subsequently, on May 1, 1989, the individual received 
advice from the Service Center concerning the written request made on 
April 1. Because the individual filed his tax return prior to the date 
on which written advice from the Service was received, the individual 
did not rely on the Service's written advice for purposes of section 
6404(f). If, however, the individual amends his tax return to conform 
with the written advice received from the Service, the individual will 
be considered to have reasonably relied upon the Service's advice.
    Example 4. Individual A, on May 1, 1989, received advice from the 
Service that concluded that interest paid by the taxpayer with respect 
to a specific loan was interest paid or accrued in connection with a 
trade or business, within the meaning of section 163(h)(2)(A) of the 
Code. The advice relates to a continuing action. Therefore, provided the 
facts submitted by the taxpayer to obtain the advice remain adequate and 
accurate (that is, the circumstances relating to the indebtedness do not 
change), Individual A may rely on the Service's advice for subsequent 
taxable years until the individual is put on notice that the advice no 
longer represents Service position and, thus, is no longer valid.
    Example 5. An individual, on June 1, 1989, received advice from the 
Service that concluded that no gain or loss would be recognized with 
respect to a transfer of property to his spouse under section 1041. The 
advice does not relate to a continuing action. Therefore, the taxpayer 
may not rely on the advice of the Service for transfers other than the 
transfer discussed in the taxpayer's written request for advice.

    (g) Effective date. Section 6404(f) shall apply with respect to 
advice requested on or after January 1, 1989.

[T.D. 8254, 54 FR 21057, May 16, 1989. Redesignated at 55 FR 14245, Apr. 
17, 1990]



Sec.  301.6404-4  Suspension of interest and certain penalties 
when the Internal Revenue Service does not timely contact the taxpayer.

    (a) Suspension--(1) In general. Except as provided in paragraph (b) 
of this section, if an individual taxpayer files a return of tax imposed 
by subtitle A on or before the due date for the return (including 
extensions) and the Internal Revenue Service does not timely provide the 
taxpayer with a notice specifically stating the amount of any increased 
liability and the basis for that liability, then the IRS must suspend 
the imposition of any interest, penalty, addition to tax, or additional 
amount, with respect to any failure relating to the return that is 
computed by reference to the period of time the failure continues to 
exist and that is properly allocable to the suspension period. The 
notice described in this paragraph (a) is timely if provided before the 
close of the 18-month period (36-month period in the case of notices 
provided after November 25, 2007, subject to the provisions of paragraph 
(a)(5)) beginning on the later of the date on which the return is filed 
or the due date of the return without regard to extensions.
    (2) Treatment of amended returns and other documents--(i) Amended 
returns filed on or after December 21, 2005, that show an increase in 
tax liability. If a taxpayer, on or after December 21, 2005, provides to 
the IRS an amended return or one or more other signed written documents 
showing an increase in tax liability, the date on which the return was 
filed will, for purposes of this paragraph (a), be the date on which the 
last of the documents was provided. Documents described in this 
paragraph (a)(2)(i) are provided on the date that they are received by 
the IRS.
    (ii) Amended returns that show a decrease in tax liability. If a 
taxpayer provides to the IRS an amended return or other signed written 
document that shows a decrease in tax liability, any interest, penalty, 
addition to tax, or additional amount will not be suspended if the IRS 
at any time proposes to adjust the changed item or items on the amended 
return or other signed written document.

[[Page 497]]

    (iii) Amended returns and other documents as notice. (A) As to the 
items reported, an amended return or one or more other signed written 
documents showing that the taxpayer owes an additional amount of tax for 
the taxable year serves as the notice described in paragraph (a)(1) of 
this section with respect to the items reported on the amended return.
    (B) Example. An individual taxpayer timely files a Federal income 
tax return for taxable year 2008 on April 15, 2009. On January 19, 2010, 
the taxpayer mails to the IRS an amended return reporting an additional 
item of income and an increased tax liability for taxable year 2008. The 
IRS receives the amended return on January 21, 2010. The amended return 
will be treated for purposes of this paragraph (a) as filed on January 
21, 2010, the date the IRS received it. Pursuant to paragraph 
(a)(2)(iii) of this section, the amended return serves as the notice 
described in paragraph (a)(1) of this section with respect to the item 
reported on the amended return. Accordingly, because the filing of the 
amended return and the provision of notice occur simultaneously, no 
suspension of any interest, penalty, addition to tax or additional 
amount will occur under this paragraph (a) with respect to the item 
reported on the amended return.
    (iv) Joint return after filing separate return. A joint return filed 
under section 6013(b) is subject to the rules for amended returns 
described in this paragraph (a)(2). The IRS will not suspend any 
interest, penalty, addition to tax, or additional amount on a joint 
return filed under section 6013(b) after the filing of a separate return 
unless each spouse's separate return, if required to be filed, was 
timely.
    (3) Separate application. This paragraph (a) shall be applied 
separately with respect to each item or adjustment.
    (4) Duration of suspension period. The suspension period described 
in paragraph (a)(1) of this section begins the day after the close of 
the 18-month period (36-month period, in the case of notices provided 
after November 25, 2007, subject to the provisions of paragraph (a)(5)) 
beginning on the later of the date on which the return is filed or the 
due date of the return without regard to extensions. The suspension 
period ends 21 days after the earlier of the date on which the IRS mails 
the required notice to the taxpayer's last known address, the date on 
which the required notice is hand-delivered to the taxpayer, or the date 
on which the IRS receives an amended return or other signed written 
document showing an increased tax liability.
    (5) Certain notices provided on or after November 26, 2007. If the 
IRS provides the notice described in paragraph (a)(1) of this section to 
a taxpayer on or after November 26, 2007, and the notice relates to an 
individual Federal income tax return that was timely filed before that 
date, the following rules will apply:
    (i) Eighteen-month period has closed. If, as of November 25, 2007, 
the 18-month period described in paragraph (a)(1) of this section has 
closed and the IRS has not provided the taxpayer with the notice 
described in that paragraph (a)(1), the suspension described in 
paragraph (a)(1) of this section will begin on the day after the close 
of the 18-month period. The suspension will end on the date that is 21 
days after the notice is provided.
    (ii) All other cases. In all other cases, the suspension described 
in paragraph (a)(1) of this section will begin on the day after the 
close of the 36-month period described in that paragraph (a)(1) and end 
on the date that is 21 days after the notice described in paragraph 
(a)(1) of this section is provided.
    (6) Examples. The following examples, which assume that no 
exceptions in section 6404(g)(2) to the general rule of suspension 
apply, illustrate the rules of this paragraph (a).

    Example 1. An individual taxpayer timely files a Federal income tax 
return for taxable year 2005 on April 17, 2006. On December 11, 2007, 
the taxpayer mails to the IRS an amended return reporting an additional 
item of income and an increased tax liability for taxable year 2005. The 
IRS receives the amended return on December 13, 2007. On January 16, 
2008, the IRS provides the taxpayer with a notice stating that the 
taxpayer has an additional tax liability based on the disallowance of a 
deduction the taxpayer claimed on his original return and did not change 
on his amended return. The date the amended return was received 
substitutes

[[Page 498]]

for the date that the original return was filed with respect to the 
additional item of tax liability reported on the amended return. Thus, 
the IRS will not suspend any interest, penalty, addition to tax, or 
additional amount with respect to the additional item of income and the 
increased tax liability reported on the amended return. The suspension 
period for the additional tax liability based on the IRS's disallowance 
of the deduction begins on October 17, 2007, so the IRS will suspend any 
interest, penalty, addition to tax, and additional amount with respect 
to the disallowed deduction and additional tax liability from that date 
through February 6, 2008, which is 21 days after the IRS provided notice 
of the additional tax liability and the basis for that liability. The 
suspension period in this example begins 18 months after filing the 
return (not 36 months) because, as of November 25, 2007, the 18-month 
period beginning on the date the return was filed had closed without the 
IRS giving notice of the additional liability. Thus, under the rules in 
paragraph (a)(5) of this section, the suspension period begins 18 months 
from the April 17, 2006 return filing date.

    Example 2. An individual taxpayer files a Federal income tax return 
for taxable year 2008 on April 15, 2009. The taxpayer consents to extend 
the time within which the IRS may assess any tax due on the return until 
June 30, 2013. On December 20, 2012, the IRS provides a notice to the 
taxpayer specifically stating the taxpayer's liability and the basis for 
the liability. The suspension period for the liability identified by the 
IRS begins on April 15, 2012, so the IRS will suspend any interest, 
penalty, addition to tax, and additional amount with respect to that 
liability from that date through January 10, 2013, which is 21 days 
after the IRS provided notice of the additional tax liability and the 
basis for that liability.

    (7) Notice of liability and the basis for the liability--(i) In 
general. Notice to the taxpayer must be in writing and specifically 
state the amount of the liability and the basis for the liability. The 
notice must provide the taxpayer with sufficient information to identify 
which items of income, deduction, loss, or credit the IRS has adjusted 
or proposes to adjust, and the reason for that adjustment. Notice of the 
reason for the adjustment does not require a detailed explanation or a 
citation to any Internal Revenue Code section or other legal authority. 
The IRS need not incorporate all of the information necessary to satisfy 
the notice requirement within a single document or provide all of the 
information at the same time. Documents that may contain information 
sufficient to constitute notice, either alone or in conjunction with 
other documents, include, but are not limited to, statutory notices of 
deficiency; examination reports (for example, Form 4549, Income Tax 
Examination Changes or Form 886-A, Explanation of Items); Form 870, 
Waiver of Restriction on Assessments and Collection of Deficiency in Tax 
and Acceptance of Overassessment; notices of proposed deficiency that 
allow the taxpayer an opportunity for review in the Office of Appeals 
(30-day letters); notices pursuant to section 6213(b) (mathematical or 
clerical errors); and notice and demand for payment of a jeopardy 
assessment under section 6861.
    (ii) Tax attributable to TEFRA partnership items. Notice to the 
partner or the tax matters partner (TMP) of a partnership subject to the 
unified audit and litigation procedures of subchapter C of chapter 63 of 
subtitle F of the Internal Revenue Code (TEFRA partnership procedures) 
that provides specific information about the basis for the adjustments 
to partnership items is sufficient notice if a partner could reasonably 
compute the specific tax attributable to the partnership item based on 
the proposed adjustments as applied to the partner's individual tax 
situation. Documents provided by the IRS during a TEFRA partnership 
proceeding that may contain information sufficient to satisfy the notice 
requirements include, but are not limited to, a Notice of Final 
Partnership Administrative Adjustment (FPAA); examination reports (for 
example, Form 4605-A or Form 886-A); or a letter that allows the 
partners an opportunity for review in the Office of Appeals (60-day 
letter).
    (iii) Examples. The following examples illustrate the rules of this 
paragraph (a)(7).

    Example 1. During an audit of Taxpayer A's 2005 taxable year return, 
the IRS questions a charitable deduction claimed on the return. The IRS 
provides A with a 30-day letter that proposes to disallow the charitable 
contribution deduction resulting in a deficiency of $1,000 and informs A 
that A may file a written protest of the proposed disallowance with the 
Office of Appeals within 30 days. The letter includes as an attachment a 
copy of the revenue agent's report that states, ``It

[[Page 499]]

has not been established that the amount shown on your return as a 
charitable contribution was paid during the tax year. Therefore, this 
deduction is not allowable.'' The information in the 30-day letter and 
attachment provides A with notice of the specific amount of the 
liability and the basis for that liability as described in this 
paragraph (a)(7).

    Example 2. Taxpayer B is a partner in partnership P, a TEFRA 
partnership for taxable year 2005. B claims a distributive share of 
partnership income on B's Federal income tax return for 2005 timely 
filed on April 17, 2006. On October 1, 2007, during the course of a 
partnership audit of P for taxable year 2005, the IRS provides P's TMP 
with a 60-day letter proposing to adjust P's income by $10,000. The IRS 
previously had provided the TMP with a copy of the examination report 
explaining that the adjustment was based on $10,000 of unreported net 
income. On October 31, 2007, P's TMP informs B of the proposed 
adjustment as required by Sec.  301.6223(g)-1(b). By accounting for B's 
distributive share of the $10,000 of unreported income from P with B's 
other income tax items, B can determine B's tax attributable to the 
$10,000 partnership adjustment. The information in the 60-day letter and 
the examination report allows B to compute the specific amount of the 
liability attributable to the adjustment to the partnership item and the 
basis for that adjustment and therefore satisfies the notice requirement 
of paragraph (a). Because the IRS provided that notice to the TMP, B's 
agent under the TEFRA partnership provisions, within 18 months of the 
April 17, 2006 filing date of B's return, any interest, penalty, 
addition to tax, or additional amount with respect to B's tax liability 
attributable to B's distributive share of the $10,000 of unreported 
partnership income will not be suspended under section 6404(g).

    (8) Providing notice--(i) In general. The IRS may provide notice by 
mail or in person to the taxpayer or the taxpayer's representative. If 
the IRS mails the notice, it must be sent to the taxpayer's last known 
address under rules similar to section 6212(b), except that certified or 
registered mail is not required. Notice is considered provided as of the 
date of mailing or delivery in person.
    (ii) Providing notice in TEFRA partnership proceedings. In the case 
of TEFRA partnership proceedings, the IRS must provide notice of final 
partnership administrative adjustments (FPAA) by mail to those partners 
specified in section 6223. Within 60 days of an FPAA being mailed, the 
TMP is required to forward notice of the FPAA to those partners not 
entitled to direct notice from the IRS under section 6223. Certain 
partners with small interests in partnerships with more than 100 
partners may form a Notice Group and designate a partner to receive the 
FPAA on their behalf. The IRS may provide other information after the 
beginning of the partnership administrative proceeding to the TMP who, 
in turn, must provide that information to the partners specified in 
Sec.  301.6223(g)-1 within 30 days of receipt. Pass-thru partners who 
receive notices and other information from the IRS or the TMP must 
forward that notice or information within 30 days to those holding an 
interest through the pass-thru partner. Information provided by the IRS 
to the TMP is deemed to be notice for purposes of this section to those 
partners specified in Sec.  301.6223(g)-1 as of the date the IRS 
provides that notice to the TMP. A similar rule applies to notice 
provided to the designated partner of a Notice Group, and to notice 
provided to a pass-thru partner. In the foregoing situations, the TMP, 
designated partner, and pass-thru partner are agents for direct and 
indirect partners. Consequently, notice to these agents is deemed to be 
notice to the partners for whom they act.
    (b) Exceptions--(1) Failure to file tax return or to pay tax. 
Paragraph (a) of this section does not apply to any penalty imposed by 
section 6651.
    (2) Fraud. Paragraph (a) of this section does not apply to any 
interest, penalty, addition to tax, or additional amount for a year 
involving a false or fraudulent return. If a taxpayer files a fraudulent 
return for a particular year, paragraph (a) of this section may apply to 
any other tax year of the taxpayer that does not involve fraud. Fraud 
affecting a particular item on a return precludes paragraph (a) of this 
section from applying to any other items on that return.
    (3) Tax shown on return. Paragraph (a) of this section does not 
apply to any interest, penalty, addition to tax, or additional amount 
with respect to any tax liability shown on a return.
    (4) Gross misstatement--(i) Description. Paragraph (a) of this 
section does not apply to any interest, penalty, addition

[[Page 500]]

to tax, or additional amount with respect to a gross misstatement. A 
gross misstatement for purposes of this paragraph (b) means:
    (A) a substantial omission of income as described in section 
6501(e)(1) or section 6229(c)(2);
    (B) a gross valuation misstatement within the meaning of section 
6662(h)(2)(A) and (B); or
    (C) a misstatement to which the penalty under section 6702(a) 
applies.
    (ii) Effect of gross misstatement. If a gross misstatement occurs, 
then paragraph (a) of this section does not apply to any interest, 
penalty, addition to tax, or additional amount with respect to any items 
of income omitted from the return and with respect to overstated 
deductions, even though one or more of the omitted items would not 
constitute a substantial omission, gross valuation misstatement, or 
misstatement to which section 6702(a) applies.
    (5) Listed transactions and undisclosed reportable transactions--(i) 
In general. The general rule of suspension under section 6404(g)(1) does 
not apply to any interest, penalty, addition to tax, or additional 
amount with respect to any listed transaction as defined in section 
6707A(c) or any undisclosed reportable transaction. For purposes of this 
section, an undisclosed reportable transaction is a reportable 
transaction described in the regulations under section 6011 that is not 
adequately disclosed under those regulations and that is not a listed 
transaction. The date that the IRS provides notice to the taxpayer 
specifically stating the taxpayer's liability regarding a listed 
transaction or an undisclosed reportable transaction and the basis for 
that liability is the controlling date for determining whether the 
transaction is a listed transaction or an undisclosed reportable 
transaction for purposes of the suspension rules under section 6404(g).
    (ii) Special rule for certain listed or undisclosed reportable 
transactions. With respect to interest relating to listed transactions 
and undisclosed reportable transactions accruing on or before October 3, 
2004, the exception to the general rule of interest suspension will not 
apply to a taxpayer who is a participant in a settlement initiative with 
respect to that transaction, to any transaction in which the taxpayer 
has acted reasonably and in good faith, or to a closed transaction. For 
purposes of this special rule, a ``participant in a settlement 
initiative,'' a ``taxpayer acting in good faith,'' and a ``closed 
transaction'' have the following meanings:
    (A) Participant in a settlement initiative--(1) Participant in a 
settlement initiative who, as of January 23, 2006, had not reached 
agreement with the IRS. A participant in a settlement initiative 
includes a taxpayer who, as of January 23, 2006, was participating in a 
settlement initiative described in Internal Revenue Service Announcement 
2005-80, 2005-2 C.B. 967. See Sec.  601.601(d)(2)(ii)(b) of this 
chapter. A taxpayer participates in the initiative by complying with 
Section 5 of the Announcement. A taxpayer is not a participant in a 
settlement initiative if, after January 23, 2006, the taxpayer withdraws 
from or terminates participation in the initiative, or the IRS 
determines that a settlement agreement will not be reached under the 
initiative within a reasonable period of time.
    (2) Participant in a settlement initiative who, as of January 23, 
2006, had reached agreement with the IRS. A participant in a settlement 
initiative is a taxpayer who, as of January 23, 2006, had entered into a 
settlement agreement under Announcement 2005-80 or any other prior or 
contemporaneous settlement initiative either offered through published 
guidance or, if the initiative was not formally published, direct 
contact with taxpayers known to have participated in a tax shelter 
promotion.
    (B) Taxpayer acting in good faith--(1) In general. The IRS may 
suspend interest relating to a listed transaction or an undisclosed 
reportable transaction accruing on or before October 3, 2004, if the 
taxpayer has acted reasonably and in good faith. The IRS's determination 
of whether a taxpayer has acted reasonably and in good faith will take 
into account all the facts and circumstances surrounding the 
transaction. The facts and circumstances include, but are not limited 
to, whether the taxpayer disclosed the transaction and the taxpayer's 
course of conduct

[[Page 501]]

after being identified as participating in the transaction, including 
the taxpayer's response to opportunities afforded to the taxpayer to 
settle the transaction, and whether the taxpayer engaged in unreasonable 
delay at any stage of the matter.
    (2) Presumption. If a taxpayer and the IRS promptly enter into a 
settlement agreement with respect to a transaction on terms proposed by 
the IRS or, in the event of atypical facts and circumstances, on terms 
more favorable to the taxpayer, and the taxpayer has complied with the 
terms of that agreement without unreasonable delay, the taxpayer will be 
presumed to have acted reasonably and in good faith except in rare and 
unusual circumstances. Rare and unusual circumstances must involve 
specific actions involving harm to tax administration. Even if a 
taxpayer does not qualify for the presumption described in this 
paragraph (b)(5)(iii)(B)(2), the taxpayer may still be granted interest 
suspension under the general facts and circumstances test set forth in 
paragraph (b)(5)(iii)(B)(1) of this section.
    (3) Examples. The following examples illustrate the rules the IRS 
uses in determining whether a taxpayer has acted reasonably and in good 
faith.

    Example 1. The taxpayer participated in a listed transaction. The 
IRS, in a letter sent directly to the taxpayer in July 2005, proposed a 
settlement of the transaction. The taxpayer informed the IRS of his 
interest in the settlement within the prescribed time period. The 
revenue agent assigned to the taxpayer's case was not able to calculate 
the taxpayer's liability under the settlement or tender a closing 
agreement to the taxpayer until March 2006. The taxpayer promptly 
executed the closing agreement and returned it to the IRS with a 
proposal for arrangements to pay the agreed-upon liability. The IRS 
agreed with the proposed arrangements for full payment. For purposes of 
the application of section 6404(g)(2)(E), the taxpayer has acted 
reasonably and in good faith. Interest accruing on or before October 3, 
2004, relating to the transaction in which the taxpayer participated 
will be suspended.
    Example 2. The facts are the same as in Example 1, except that the 
letter was sent by the IRS in February 2006, and the closing agreement 
was tendered to the taxpayer in April 2006. For purposes of the 
application of section 6404(g)(2)(E), the taxpayer has acted reasonably 
and in good faith. Interest accruing on or before October 3, 2004, 
relating to the transaction in which the taxpayer participated will be 
suspended.
    Example 3. The taxpayer participated in a listed transaction. In 
response to an offer of settlement extended by the IRS in August 2005, 
the taxpayer informed the IRS of her interest in entering into a closing 
agreement on the terms proposed by the IRS. The revenue agent assigned 
to the transaction calculated the taxpayer's liability under the 
settlement and tendered a closing agreement to the taxpayer in November 
2005. The taxpayer executed the closing agreement but failed to make any 
arrangement for payment of the agreed-upon liability stated in the 
closing agreement. Taking into account all the facts and circumstances 
surrounding the transaction, the taxpayer did not act reasonably and in 
good faith. Interest accruing on or before October 3, 2004, relating to 
the transaction in which the taxpayer participated will not be 
suspended.
    Example 4. The taxpayer participated in a listed transaction. In a 
letter sent by the IRS directly to the taxpayer in July 2005, the IRS 
extended an offer of settlement. The July 2005 letter informed the 
taxpayer that, absent atypical facts and circumstances, the taxpayer 
should not expect resolution of the tax issues on more favorable terms 
than proposed in the letter. The taxpayer declined the proposed 
settlement terms of the letter and proceeded to Appeals to present what 
the taxpayer claimed were atypical facts and circumstances. The 
administrative file did not contain sufficient information bearing on 
atypical facts and circumstances, and the taxpayer failed to provide 
additional information when requested by Appeals to explain how the 
transaction originally proposed to the taxpayer differed in structure or 
types of tax benefits claimed, from the transaction as implemented by 
the taxpayer. Appeals determined that the taxpayer's facts and 
circumstances were not significantly different from those of other 
taxpayers who participated in that listed transaction and thus, were not 
atypical. In September 2006, the taxpayer and Appeals entered into a 
closing agreement on terms consistent with those originally proposed in 
the July 2005 letter. The taxpayer has complied with the terms of that 
closing agreement. For purposes of the application of section 
6404(g)(2)(E), this taxpayer is not presumed to have acted reasonably 
and in good faith; instead, the IRS will apply the general rule to 
determine whether to suspend interest accruing on or before October 3, 
2004, relating to the transaction in which the taxpayer participated.
    Example 5. The facts are the same as in Example 4, except that 
Appeals agrees that atypical facts were present that warrant additional 
concessions by the government. A settlement is reached on terms more 
favorable to the taxpayer than those proposed in

[[Page 502]]

the July 2005 letter. For purposes of the application of section 
6404(g)(2)(E), this taxpayer is presumed to have acted reasonably and in 
good faith, and absent evidence of rare or unusual circumstances harmful 
to tax administration, is eligible for suspension of interest accruing 
on or before October 3, 2004, relating to the transaction in which the 
taxpayer participated.

    (C) Closed transactions. A transaction is considered closed for 
purposes of this clause if, as of December 14, 2005, the assessment of 
all federal income taxes for the taxable year in which the tax liability 
to which the interest relates is prevented by the operation of any law 
or rule of law, or a closing agreement under section 7121 has been 
entered into with respect to the tax liability arising in connection 
with the transaction.
    (c) Special rules--(1) Tentative carryback and refund adjustments. 
If an amount applied, credited or refunded under section 6411 exceeds 
the overassessment properly attributable to a tentative carryback or 
refund adjustment, any interest, penalty, addition to tax, or additional 
amount with respect to the excess will not be suspended.
    (2) Election under section 183(e)--(i) In general. If a taxpayer 
elects under section 183(e) to defer the determination of whether the 
presumption that an activity is engaged in for profit applies, the 18-
month (or 36-month) notification period described in paragraph (a)(1) of 
this section will be tolled for the period to which the election 
applies. If the 18-month (or 36-month) notification period has passed as 
of the date the section 183(e) election is made, the suspension period 
described in paragraph (a)(4) of this section will be tolled for the 
period to which the election applies and will resume the day after the 
tolling period ends. Tolling will begin on the date the election is made 
and end on the later of the date the return for the last taxable year to 
which the election applies is filed or is due without regard to 
extensions.
    (ii) Example. In taxable year 2007, taxpayer begins training and 
showing horses. On January 4, 2011, the taxpayer elects under section 
183(e) to defer the determination of whether the horse-related activity 
will be presumed (under section 183(d)) to be engaged in for profit. 
Accordingly, under section 183(e)(1), a determination of whether the 
section 183(d) presumption applies will not occur before the close of 
the 2013 taxable year. Assume that in 2014, the IRS is considering 
issuing a notice of deficiency for taxable year 2009 regarding tax 
deductions claimed for the horse-related activity. Pursuant to paragraph 
(c)(2)(i) of this section, the 36-month notification period under 
paragraph (a)(1) of this section will be tolled with respect to taxable 
year 2009 for the period to which the section 183(e) election applies. 
This tolling of the notification period begins on January 4, 2011 (the 
date the taxpayer made the section 183(e) election) and ends on the 
later of April 15, 2014, or the date the taxpayer's return for taxable 
year 2013 is filed.
    (d) Effective/Applicability date. Paragraph (b)(5) of these 
regulations applies to interest relating to listed transactions and 
undisclosed reportable transactions accruing before, on, or after 
October 3, 2004. Paragraphs (a), (b)(1) through (b)(4), and (c) are 
effective on August 22, 2011.

[T.D. 9488, 75 FR 33993, June 16, 2010, as amended by T.D. 9545, 76 FR 
52261, Aug. 22, 2011; 76 FR 60373, Sept. 29, 2011]



Sec.  301.6405-1  Reports of refunds and credits.

    Section 6405 requires that a report be made to the Joint Committee 
on Taxation of proposed refunds or credits in excess of $100,000 of any 
income tax (including any qualified State individual income tax 
collected by the Federal Government), war profits tax, excess profits 
tax, estate tax, or gift tax. An exception is provided under which 
refunds and credits made after July 1, 1972, and attributable to an 
election under section 165(h) to deduct a disaster loss for the taxable 
year in which the disaster occurred, may be made prior to the submission 
of such report to the Joint Committee on Taxation.

[T.D. 7577, 43 FR 59376, Dec. 20, 1978]



Sec.  301.6407-1  Date of allowance of refund or credit.

    The date on which the district director or the director of the 
regional service center, or an authorized certifying officer designated 
by either of them,

[[Page 503]]

first certifies the allowance of an overassessment in respect of any 
internal revenue tax shall be considered as the date of allowance of 
refund or credit in respect of such tax.

                      Rules of Special Application



Sec.  301.6411-1  Tentative carryback adjustments.

    For regulations under section 6411, see Sec. Sec.  1.6411-1 to 
1.6411-4, inclusive, of this chapter (Income Tax Regulations).



Sec.  301.6413-1  Special rules applicable to certain employment taxes.

    For regulations under section 6413, see Sec. Sec.  31.6413(a)-1 to 
31.6413(c)-1, inclusive, of this chapter (Employment Tax Regulations).



Sec.  301.6414-1  Income tax withheld.

    (a) For rules relating to the refund or credit of income tax 
withheld under chapter 3 of the Code on nonresident aliens and foreign 
corporations and tax-free covenant bonds, see Sec.  1.6414-1 of this 
chapter (Income Tax Regulations).
    (b) For rules relating to the refund or credit of income tax 
withheld under chapter 24 of the Code from wages, see Sec.  31.6414-1 of 
this chapter (Employment Tax Regulations).



Sec.  301.6425-1  Adjustment of overpayment of estimated income tax 
by corporation.

    For regulations under section 6425, see Sec. Sec.  1.6425-1 to 
1.6425-3, inclusive, of this chapter (Income Tax Regulations).

[T.D. 7059, 35 FR 14548, Sept. 17, 1970]



                               Limitations

                Limitations on Assessment and Collection



Sec.  301.6501(a)-1  Period of limitations upon assessment and collection.

    (a) The amount of any tax imposed by the Code (other than a tax 
collected by means of stamps) shall be assessed within 3 years after the 
return was filed. For rules applicable in cases where the return is 
filed prior to the due date thereof, see section 6501(b). In the case of 
taxes payable by stamp, assessment shall be made at any time after the 
tax became due and before the expiration of 3 years after the date on 
which any part of the tax was paid. For exceptions and additional rules, 
see subsections (b) to (g) of section 6501, and for cross references to 
other provisions relating to limitations on assessment and collection, 
see sections 6501(h) and 6504.
    (b) No proceeding in court without assessment for the collection of 
any tax shall be begun after the expiration of the applicable period for 
the assessment of such tax.



Sec.  301.6501(b)-1  Time return deemed filed for purposes 
of determining limitations.

    (a) Early return. Any return, other than a return of tax referred to 
in paragraph (b) of this section, filed before the last day prescribed 
by law or regulations for the filing thereof (determined without regard 
to any extension of time for filing) shall be considered as filed on 
such last day.
    (b) Returns of social security tax and of income tax withholding. If 
a return on or after November 13, 1966, of tax imposed by chapter 3 of 
the Code (relating to withholding of tax on nonresident aliens and 
foreign corporations and tax-free covenant bonds), or if a return of tax 
imposed by chapter 21 of the Code (relating to the Federal Insurance 
Contributions Act) or by chapter 24 of the Code (relating to collection 
of income tax at source on wages), for any period ending with or within 
a calendar year is filed before April 15 of the succeeding calendar 
year, such return shall be deemed filed on April 15 of such succeeding 
calendar year. For example, if quarterly returns of the tax imposed by 
chapter 24 of the Code are filed for the four quarters of 1955 on April 
30, July 31, and October 31, 1955, and on January 31, 1956, the period 
of limitation for assessment with respect to the tax required to be 
reported on such return is measured from April 15, 1956. However, if any 
of such returns is filed after April 15, 1956, the period of limitation 
for assessment of the tax required to be reported on that return is 
measured from the date it is in fact filed.
    (c) Returns executed by district directors or other internal revenue 
officers.

[[Page 504]]

The execution of a return by a district director or other authorized 
internal revenue officer or employee under the authority of section 
6020(b) shall not start the running of the statutory period of 
limitations on assessment and collection.



Sec.  301.6501(c)-1  Exceptions to general period of limitations 
on assessment and collection.

    (a) False return. In the case of a false or fraudulent return with 
intent to evade any tax, the tax may be assessed, or a proceeding in 
court for the collection of such tax may be begun without assessment, at 
any time after such false or fraudulent return is filed.
    (b) Willful attempt to evade tax. In the case of a willful attempt 
in any manner to defeat or evade any tax imposed by the Code (other than 
a tax imposed by subtitle A or B, relating to income, estate, or gift 
taxes), the tax may be assessed, or a proceeding in court for the 
collection of such tax may be begun without assessment, at any time.
    (c) No return. In the case of a failure to file a return, the tax 
may be assessed, or a proceeding in court for the collection of such tax 
may be begun without assessment, at any time after the date prescribed 
for filing the return. For special rules relating to filing a return for 
chapter 42 and similar taxes, see Sec. Sec.  301.6501(n)-1, 301.6501(n)-
2, and 301.6501(n)-3.
    (d) Extension by agreement. The time prescribed by section 6501 for 
the assessment of any tax (other than the estate tax imposed by chapter 
11 of the Code) may, prior to the expiration of such time, be extended 
for any period of time agreed upon in writing by the taxpayer and the 
district director or an assistant regional commissioner. The extension 
shall become effective when the agreement has been executed by both 
parties. The period agreed upon may be extended by subsequent agreements 
in writing made before the expiration of the period previously agreed 
upon.
    (e) Gifts subject to chapter 14 of the Internal Revenue Code not 
adequately disclosed on the return. If any transfer of property subject 
to the special valuation rules of section 2701 or section 2702, or if 
the occurrence of any taxable event described in section Sec.  25.2701-4 
of this chapter, is not adequately shown on a return of tax imposed by 
chapter 12 of subtitle B of the Internal Revenue Code (without regard to 
section 2503(b)), any tax imposed by chapter 12 of subtitle B of the 
Code on the transfer or resulting from the taxable event may be 
assessed, or a proceeding in court for the collection of the appropriate 
tax may be begun without assessment, at any time.
    (2) Adequately shown. A transfer of property valued under the rules 
of section 2701 or section 2702 or any taxable event described in Sec.  
25.2701-4 of this chapter will be considered adequately shown on a 
return of tax imposed by chapter 12 of subtitle B of the Internal 
Revenue Code only if, with respect to the entire transaction or series 
of transactions (including any transaction that affected the transferred 
interest) of which the transfer (or taxable event) was a part, the 
return provides:
    (i) A description of the transactions, including a description of 
transferred and retained interests and the method (or methods) used to 
value each;
    (ii) The identity of, and relationship between, the transferor, 
transferee, all other persons participating in the transactions, and all 
parties related to the transferor holding an equity interest in any 
entity involved in the transaction; and
    (iii) A detailed description (including all actuarial factors and 
discount rates used) of the method used to determine the amount of the 
gift arising from the transfer (or taxable event), including, in the 
case of an equity interest that is not actively traded, the financial 
and other data used in determining value. Financial data should 
generally include balance sheets and statements of net earnings, 
operating results, and dividends paid for each of the 5 years 
immediately before the valuation date.
    (3) Effective date. The provisions of this paragraph (e) are 
effective as of January 28, 1992. In determining whether a transfer or 
taxable event is adequately shown on a gift tax return filed prior to 
that date, taxpayers may rely on any reasonable interpretation of the 
statutory provisions. For these purposes, the provisions of the proposed

[[Page 505]]

regulations and the final regulations are considered a reasonable 
interpretation of the statutory provisions.
    (f) Gifts made after December 31, 1996, 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''), or in a statement attached 
to the 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 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)(2) 
if the return (or a statement attached to the return) provides the 
following information--
    (i) A description of the transferred property and any consideration 
received by the transferor;
    (ii) The identity of, and relationship between, the transferor and 
each transferee;
    (iii) If the property is transferred in trust, the trust's tax 
identification number and a brief description of the terms of the trust, 
or in lieu of a brief description of the trust terms, a copy of the 
trust instrument;
    (iv) Except as provided in Sec.  301.6501-1(f)(3), a detailed 
description of the method used to determine the fair market value of 
property transferred, including any financial data (for example, balance 
sheets, etc. with explanations of any adjustments) that were utilized in 
determining the value of the interest, any restrictions on the 
transferred property that were considered in determining the fair market 
value of the property, and a description of any discounts, such as 
discounts for blockage, minority or fractional interests, and lack of 
marketability, claimed in valuing the property. In the case of a 
transfer of an interest that is actively traded on an established 
exchange, such as the New York Stock Exchange, the American Stock 
Exchange, the NASDAQ National Market, or a regional exchange in which 
quotations are published on a daily basis, including recognized foreign 
exchanges, recitation of the exchange where the interest is listed, the 
CUSIP number of the security, and the mean between the highest and 
lowest quoted selling prices on the applicable valuation date will 
satisfy all of the requirements of this paragraph (f)(2)(iv). In the 
case of the transfer of an interest in an entity (for example, a 
corporation or partnership) that is not actively traded, a description 
must be provided of any discount claimed in valuing the interests in the 
entity or any assets owned by such entity. In addition, if the value of 
the entity or of the interests in the entity is properly determined 
based on the net value of the assets held by the entity, a statement 
must be provided regarding the fair market value of 100 percent of the 
entity (determined without regard to any discounts in valuing the entity 
or any assets owned by the entity), the pro rata portion of the entity 
subject to the transfer, and the fair market value of the transferred 
interest as reported on the return. If 100 percent of the value of the 
entity is not disclosed, the taxpayer bears the burden of demonstrating 
that the fair market value of the entity is properly determined by a 
method other than a method based on the net value of the assets held by 
the entity. If the entity that is the subject of the transfer owns an 
interest in another non-actively traded entity (either directly or 
through ownership of an entity), the information required in this 
paragraph (f)(2)(iv) must be provided for each entity if the information 
is relevant and material in determining the value of the interest; and
    (v) A statement describing any position taken that is contrary to 
any proposed, temporary or final Treasury regulations or revenue rulings 
published at the time of the transfer (see Sec.  601.601(d)(2) of this 
chapter).

[[Page 506]]

    (3) Submission of appraisals in lieu of the information required 
under paragraph (f)(2)(iv) of this section. The requirements of 
paragraph (f)(2)(iv) of this section will be satisfied if the donor 
submits an appraisal of the transferred property that meets the 
following requirements--
    (i) The appraisal is prepared by an appraiser who satisfies all of 
the following requirements:
    (A) The appraiser is an individual who holds himself or herself out 
to the public as an appraiser or performs appraisals on a regular basis.
    (B) Because of the appraiser's qualifications, as described in the 
appraisal that details the appraiser's background, experience, 
education, and membership, if any, in professional appraisal 
associations, the appraiser is qualified to make appraisals of the type 
of property being valued.
    (C) The appraiser is not the donor or the donee of the property or a 
member of the family of the donor or donee, as defined in section 
2032A(e)(2), or any person employed by the donor, the donee, or a member 
of the family of either; and
    (ii) The appraisal contains all of the following:
    (A) The date of the transfer, the date on which the transferred 
property was appraised, and the purpose of the appraisal.
    (B) A description of the property.
    (C) A description of the appraisal process employed.
    (D) A description of the assumptions, hypothetical conditions, and 
any limiting conditions and restrictions on the transferred property 
that affect the analyses, opinions, and conclusions.
    (E) The information considered in determining the appraised value, 
including in the case of an ownership interest in a business, all 
financial data that was used in determining the value of the interest 
that is sufficiently detailed so that another person can replicate the 
process and arrive at the appraised value.
    (F) The appraisal procedures followed, and the reasoning that 
supports the analyses, opinions, and conclusions.
    (G) The valuation method utilized, the rationale for the valuation 
method, and the procedure used in determining the fair market value of 
the asset transferred.
    (H) The specific basis for the valuation, such as specific 
comparable sales or transactions, sales of similar interests, asset-
based approaches, merger-acquisition transactions, etc.
    (4) Adequate disclosure of non-gift completed transfers or 
transactions. Completed transfers to members of the transferor's family, 
as defined in section 2032A(e)(2), that are made in the ordinary course 
of operating a business are deemed to be adequately disclosed under 
paragraph (f)(2) of this section, even if the transfer is not reported 
on a gift tax return, provided the transfer is properly reported by all 
parties for income tax purposes. For example, in the case of salary paid 
to a family member employed in a family owned business, the transfer 
will be treated as adequately disclosed for gift tax purposes if the 
item is properly reported by the business and the family member on their 
income tax returns. For purposes of this paragraph (f)(4), any other 
completed transfer that is reported, in its entirety, as not 
constituting a transfer by gift will be considered adequately disclosed 
under paragraph (f)(2) of this section only if the following information 
is provided on, or attached to, the return--
    (i) The information required for adequate disclosure under 
paragraphs (f)(2)(i), (ii), (iii) and (v) of this section; and
    (ii) An explanation as to why the transfer is not a transfer by gift 
under chapter 12 of the Internal Revenue Code.
    (5) Adequate disclosure of incomplete transfers. Adequate disclosure 
of a transfer that is reported as a completed gift on the gift tax 
return will commence the running of the period 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 Sec.  
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 to run 
when the return is filed, as determined under section 6501(b). Further, 
once the

[[Page 507]]

period of assessment for gift tax expires, the transfer will be subject 
to inclusion in the donor's gross estate for estate tax purposes only to 
the extent that a completed gift would be so included. On the other 
hand, if the transfer is reported as an incomplete gift whether or not 
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 with adequate disclosure.
    (6) Treatment of split gifts. If a husband and wife elect under 
section 2513 to treat a gift made to a third party as made one-half by 
each spouse, the requirements of this paragraph (f) will be satisfied 
with respect to the gift deemed made by the consenting spouse if the 
return filed by the donor spouse (the spouse that transferred the 
property) satisfies the requirements of this paragraph (f) with respect 
to that gift.
    (7) Examples. The following examples illustrate the rules of this 
paragraph (f):

    Example 1. (i) Facts. In 2001, 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 Sec.  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 2001 calendar year, A reports the gift to A's child of 100 
shares of common stock of XYZ Corporation with a value for gift tax 
purposes of $15,000. A specifies the date of the transfer, recites that 
the stock is publicly traded, identifies the stock exchange on which the 
stock is traded, lists the stock's CUSIP number, and lists the mean 
between the highest and lowest quoted selling prices for the date of 
transfer.
    (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, 2001, A transfers closely-held 
stock to B, A's child. A determined that the value of the transferred 
stock, on December 30, 2001, was $9,000. A made no other transfers to B, 
or any other donee, during 2001. On A's Federal gift tax return, Form 
709, for the 2001 calendar year, A provides the information required 
under paragraph (f)(2) of this section 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 is 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 redetermining the amount of the gift for purposes of 
assessing gift tax or for purposes of determining the estate tax 
liability. Therefore, the amount of the gift as reported on A's 2001 
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 2001, 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. Based on generally 
applicable valuation principles, the value of X would be determined 
based on the net value of the assets owned by X. 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. On A's Federal gift tax return, Form 709, for the 2001 
calendar year, A provides the information required under paragraph 
(f)(2) of this section including 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)).

[[Page 508]]

    Example 4. (i) Facts. A owns a 70 percent limited partnership 
interest in PS. PS owns 40 percent 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 and, based on generally 
applicable valuation principles, the value of each entity would be 
determined based on the net value of the assets owned by each entity. In 
2001, A transfers a 25 percent limited partnership interest in PS to B, 
A's child. On the Federal gift tax return, Form 709, for the 2001 
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. The 
information on the lower tiered entities is relevant and material in 
determining the value of the transferred interest in PS. Accordingly, 
because A has failed to comply with requirements of paragraph (f)(2)(iv) 
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.
    Example 5. The facts are the same as in Example 4 except that A 
submits, with the Federal tax return, an appraisal of the 25 percent 
limited partnership interest in PS that satisfies the requirements of 
paragraph (f)(3) of this section in lieu of the information required in 
paragraph (f)(2)(iv) of this section. Assuming the other requirements of 
paragraph (f)(2) of this section are satisfied, the transfer is 
considered adequately disclosed and the period for assessment for the 
transfer under section 6501 will run from the time the return is filed 
(as determined under section 6501(b) of this chapter).
    Example 6. A owns 100 percent of the stock of X Corporation, a 
company actively engaged in a manufacturing business. B, A's child, is 
an employee of X and receives an annual salary paid in the ordinary 
course of operating X Corporation. B reports the annual salary as income 
on B's income tax returns. In 2001, A transfers property to family 
members and files a Federal gift tax return reporting the transfers. 
However, A does not disclose the 2001 salary payments made to B. Because 
the salary payments were reported as income on B's income tax return, 
the salary payments are deemed to be adequately disclosed. The transfer 
of property to family members, other than the salary payments to B, 
reported on the gift tax return must satisfy the adequate disclosure 
requirements under paragraph (f)(2) of this section in order for the 
period of assessment under section 6501 to commence to run with respect 
to those transfers.

    (8) Effective date. This paragraph (f) is applicable to gifts made 
after December 31, 1996, for which the gift tax return for such calendar 
year is filed after December 3, 1999.
    (g) Listed transactions--(1) In general. If a taxpayer is required 
to disclose a listed transaction under section 6011 and the regulations 
thereunder and does not do so in the time and manner required, then the 
time to assess any tax attributable to that listed transaction for the 
taxable year(s) to which the failure to disclose relates (as defined in 
paragraph (g)(3)(iii) of this section) will not expire before the 
earlier of one year after the date on which the taxpayer makes the 
disclosure described in paragraph (g)(5) of this section or one year 
after the date on which a material advisor makes a disclosure described 
in paragraph (g)(6) of this section. In no case will the operation of 
this paragraph (g) cause the period of limitations on assessment to 
expire any earlier than the period that would have otherwise applied 
under this section determined without regard to this paragraph (g)(1).
    (2) Limitations period if paragraph (g)(5) or (g)(6) is satisfied. 
If one of the disclosure provisions described in paragraphs (g)(5) or 
(6) of this section is satisfied, then the tax attributable to the 
listed transaction may be assessed at any time before the expiration of 
the limitations period that would have otherwise applied under this 
section (determined without regard to paragraph (g)(1) of this section) 
or the period ending one year after the date that one of the disclosure 
provisions described in paragraphs (g)(5) or (6) of this section was 
satisfied, whichever is later. If both disclosure provisions are 
satisfied, the one-year period will begin on the earlier of the dates on 
which the provisions were satisfied. Paragraph (g)(1) of this section 
does not apply to any period of limitations on assessment that expired 
before the date on

[[Page 509]]

which the failure to disclose the listed transaction under section 6011 
occurred.
    (3) Definitions--(i) Listed transaction. The term listed transaction 
means a transaction described in section 6707A(c)(2) of the Code and 
Sec.  1.6011-4(b)(2) of this chapter.
    (ii) Material advisor. The term material advisor means a person 
described in section 6111(b)(1) of the Code and Sec.  301.6111-3(b) of 
this chapter.
    (iii) Taxable year(s) to which the failure to disclose relates. The 
taxable year(s) to which the failure to disclose relates are each 
taxable year that the taxpayer participated (as defined under section 
6011 and the regulations thereunder) in a transaction that was 
identified as a listed transaction and the taxpayer failed to disclose 
the listed transaction as required under section 6011. If the taxable 
year in which the taxpayer participated in the listed transaction is 
different from the taxable year in which the taxpayer is required to 
disclose the listed transaction under section 6011, the taxable year(s) 
to which the failure to disclose relates are each taxable year that the 
taxpayer participated in the transaction.
    (4) Application of paragraph with respect to pass-through entities. 
In the case of taxpayers who are partners in partnerships, shareholders 
in S corporations, or beneficiaries of trusts and are required to 
disclose a listed transaction under section 6011 and the regulations 
thereunder, paragraph (g)(1) of this section will apply to a particular 
partner, shareholder, or beneficiary if that particular partner, 
shareholder, or beneficiary does not disclose within the time and in the 
form and manner provided by section 6011 and Sec.  1.6011-4(d) and (e), 
regardless of whether the partnership, S corporation, or trust or 
another partner, shareholder, or beneficiary discloses in accordance 
with section 6011 and the regulations thereunder. Similarly, because 
paragraph (g)(1) of this section applies on a taxpayer-by-taxpayer 
basis, the failure of a partnership, S corporation, or trust that has a 
disclosure obligation under section 6011 and that does not disclose 
within the time or in the form and manner provided by Sec.  1.6011-4(d) 
and (e) will not cause paragraph (g)(1) of this section to apply to a 
partner, shareholder or beneficiary of the entity. Instead, the 
application of paragraph (g)(1) of this section to a partner, 
shareholder, or beneficiary will be determined based on whether the 
particular partner, shareholder, or beneficiary satisfied their 
disclosure obligation under section 6011 and the regulations thereunder.
    (5) Taxpayer's disclosure of a listed transaction that the taxpayer 
did not properly disclose under section 6011--(i) In general--(A) Method 
of disclosure. The taxpayer must complete the most current version of 
Form 8886, ``Reportable Transaction Disclosure Statement'' (or successor 
form), available on the date the taxpayer attempts to satisfy this 
paragraph (g)(5) in accordance with Sec.  1.6011-4(d) and the 
instructions to the Form in effect on that date. The taxpayer must 
indicate on the Form 8886 that the form is being submitted for purposes 
of section 6501(c)(10) and the tax return(s) and taxable year(s) for 
which the taxpayer is making a section 6501(c)(10) disclosure. 
Disclosure under this paragraph (g)(5) will only be effective for the 
tax return(s) and taxable year(s) that the taxpayer specifies on the 
Form 8886 that he or she is attempting to disclose for purposes of 
section 6501(c)(10). If the Form 8886 contains a line for this purpose, 
then the taxpayer must complete the line in accordance with the 
instructions to that form. Otherwise, the taxpayer must include on the 
top of Page 1 of the Form 8886, and each copy of the form, the following 
statement: ``Section 6501(c)(10) Disclosure'' followed by the tax 
return(s) and taxable year(s) for which the taxpayer is making a section 
6501(c)(10) disclosure. For example, if the taxpayer did not properly 
disclose its participation in a listed transaction the tax consequences 
of which were reflected on the taxpayer's Form 1040 for the 2005 taxable 
year, the taxpayer must include the following statement: ``Section 
6501(c)(10) Disclosure; 2005 Form 1040'' on the form. The taxpayer must 
submit the properly completed Form 8886 and a cover letter, which must 
be completed in accordance with the requirements set forth in paragraph 
(g)(5)(i)(B) of this section, to the Office of Tax Shelter Analysis 
(OTSA). The

[[Page 510]]

taxpayer is permitted, but not required, to file an amended return with 
the Form 8886 and cover letter. Separate Forms 8886 and separate cover 
letters must be submitted for each listed transaction the taxpayer did 
not properly disclose under section 6011. If the taxpayer participated 
in one listed transaction over multiple years, the taxpayer may submit 
one Form 8886 (or successor form) and cover letter and indicate on that 
form all of the tax returns and taxable years for which the taxpayer is 
making a section 6501(c)(10) disclosure. If a taxpayer participated in 
more than one listed transaction, then the taxpayer must submit separate 
Forms 8886 (or successor form) for each listed transaction, unless the 
listed transactions are the same or substantially similar, in which case 
all the listed transactions may be reported on one Form 8886.
    (B) Cover letter. (1) A cover letter to which a Form 8886 is to be 
attached must identify the tax return(s) and taxable year(s) for which 
the taxpayer is making a section 6501(c)(10) disclosure and include the 
following statement signed under penalties of perjury by the taxpayer:

Under penalties of perjury, I declare that I have examined this 
reportable transaction disclosure statement and, to the best of my 
knowledge and belief, this reportable transaction disclosure statement 
is true, correct, and complete.

    (2) If the Form 8886 is prepared by a paid preparer, in addition to 
the statement under penalties of perjury signed by the taxpayer, the 
Form 8886 must also include the following statement signed under 
penalties of perjury by the paid preparer.

Under penalties of perjury, I declare that I have examined this 
reportable transaction disclosure statement and, to the best of my 
knowledge and belief, this reportable transaction disclosure statement 
is true, correct, and complete. This declaration is based on all 
information of which I, as paid preparer, have any knowledge.

    (C) Taxpayer under examination or Appeals consideration. A taxpayer 
making a disclosure under paragraph (g)(5) of this section with respect 
to a taxable year under examination or Appeals consideration by the IRS 
must satisfy the requirements of paragraphs (g)(5)(i)(A) and (B) of this 
section and also submit a copy of the submission to the IRS examiner or 
Appeals officer examining or considering the taxable year(s) to which 
the disclosure under this paragraph (g) relates.
    (D) Date the one-year period will begin to run if paragraph (g)(5) 
satisfied. Unless an earlier expiration is provided for in paragraph 
(g)(6) of this section, the time to assess tax under this paragraph (g) 
will not expire before one year after the date on which the Secretary is 
furnished the information from the taxpayer that satisfies all of the 
requirements of paragraphs (g)(5)(i)(A) and (B) of this section and, if 
applicable, paragraph (g)(5)(i)(C) of this section. If the taxpayer does 
not satisfy all of the requirements on the same date, the one-year 
period will begin on the date that the IRS is furnished the information 
that, together with prior disclosures of information, satisfies the 
requirements of this paragraph (g)(5). For purposes of this paragraph 
(g)(5), the information is deemed furnished on the date the IRS receives 
the information.
    (ii) Exception for returns other than annual returns. The IRS may 
prescribe alternative procedures to satisfy the requirements of this 
paragraph (g)(5) in a revenue procedure, notice, or other guidance 
published in the Internal Revenue Bulletin for circumstances involving 
returns other than annual returns.
    (6) Material advisor's disclosure of a listed transaction not 
properly disclosed by a taxpayer under section 6011--(i) In general. In 
response to a written request of the IRS under section 6112, a material 
advisor with respect to a listed transaction must furnish to the IRS the 
information described in section 6112 and Sec.  301.6112-1(b) in the 
form and manner prescribed by section 6112 and Sec.  301.6112-1(e). If 
the information the material advisor furnishes identifies the taxpayer 
as a person who entered into the listed transaction, regardless of 
whether the material advisor provides the information before or after 
the taxpayer's failure to disclose the listed transaction under section 
6011, then the requirements of this paragraph (g)(6) will be satisfied 
for that taxpayer. The requirements of this

[[Page 511]]

paragraph (g)(6) will be considered satisfied even if the material 
advisor furnishes the information required under section 6112 to the IRS 
after the date prescribed in section 6708 or published guidance relating 
to section 6708.
    (ii) Paragraph (g)(6) not satisfied--(A) Information not furnished 
by a material advisor or a person permitted to act on behalf of the 
material advisor. The requirements of this paragraph (g)(6) are not 
satisfied for a taxpayer unless the information is furnished by--
    (1) A person who is a material advisor (as defined in paragraph 
(g)(3)(ii) of this section) with respect to the taxpayer,
    (2) A person who is providing the information pursuant to Sec.  
301.6112-1(d) on behalf of a dissolved or liquidated material advisor 
with respect to the taxpayer, or
    (3) a person who is providing the information on behalf of a 
material advisor with respect to the taxpayer under a designation 
agreement in accordance with Sec.  301.6112-1(f).
    (B) No written request by IRS. The requirements of this paragraph 
(g)(6) are not satisfied unless the information is furnished in response 
to a written request made by the IRS to the material advisor under 
section 6112 (except as provided in Sec.  301.6112-1(d) with respect to 
a list furnished to OTSA within 60 days after dissolution or liquidation 
of a material advisor).
    (C) Information furnished does not identify the taxpayer. The 
requirements of this paragraph (g)(6) are not satisfied for a taxpayer 
unless the information furnished identifies the taxpayer as a person who 
entered into the listed transaction.
    (iii) Date the one-year period will begin if paragraph (g)(6) is 
satisfied. Unless an earlier expiration is provided for in paragraph 
(g)(5) of this section, the time to assess tax under this paragraph (g) 
will expire one year after the date on which the material advisor 
satisfies the requirements of paragraph (g)(6)(i) of this section with 
respect to the taxpayer. For purposes of this paragraph (g)(6), 
information is deemed to be furnished on the date that, in response to a 
request under section 6112, the IRS receives the information from a 
material advisor that satisfies the requirements of paragraph (g)(6)(i) 
of this section with respect to the taxpayer.
    (7) Tax assessable under this section. If the period of limitations 
on assessment for a taxable year remains open under this section, the 
Secretary has authority to assess any tax with respect to the listed 
transaction in that year. This includes, but is not limited to, 
adjustments made to the tax consequences claimed on the return plus 
interest, additions to tax, additional amounts, and penalties that are 
related to the listed transaction or adjustments made to the tax 
consequences. This also includes any item to the extent the item is 
affected by the listed transaction even if it is unrelated to the listed 
transaction. An example of an item affected by, but unrelated to, a 
listed transaction is the threshold for the medical expense deduction 
under section 213 that varies if there is a change in an individual's 
adjusted gross income. An example of a penalty related to the listed 
transaction is the penalty under section 6707A for failure to file the 
disclosure statement reporting the taxpayer's participation in the 
listed transaction. Examples of penalties related to the adjustments 
made to the tax consequences are the accuracy-related penalties under 
sections 6662 and 6662A.
    (8) Examples. The rules of this paragraph (g) are illustrated by the 
following examples:

    Example 1. No requirement to disclose under section 6011. P, an 
individual, is a partner in a partnership that entered into a 
transaction in 2001 that was the same as or substantially similar to the 
transaction identified as a listed transaction in Notice 2000-44 (2000-2 
CB 255). P claimed a loss from the transaction on his Form 1040 for the 
tax year 2001. P filed the Form 1040 prior to June 14, 2002. P did not 
disclose his participation in the listed transaction because P was not 
required to disclose the transaction under the applicable section 6011 
regulations (TD 8961), which were effective for any transaction entered 
into before January 1, 2001 and any transaction entered into on or after 
January 1, 2001 that was reported on a return of the taxpayer filed on 
or before June 14, 2002. Although the transaction was a listed 
transaction and P did not disclose the transaction, P had no obligation 
to include on any return or statement any information with respect to a 
listed transaction within the meaning of section 6501(c)(10) because TD

[[Page 512]]

8961 only applied to corporations, not individuals. Accordingly, section 
6501(c)(10) does not apply.
    Example 2. Taxable year to which the failure to disclose relates 
when transaction is identified as a listed transaction after first year 
of participation and the transaction must be disclosed with the return 
next filed. (i) On December 30, 2003, Y, a corporation, enters into a 
transaction that at the time is not a reportable transaction. On March 
15, 2004, Y timely files its 2003 Form 1120, reporting the tax 
consequences from the transaction. On April 1, 2004, the IRS issues 
Notice 2004-31 that identifies the transaction as a listed transaction. 
Y also reports tax consequences from the transaction on its 2004 Form 
1120, which it timely filed on March 15, 2005. Y did not attach a 
completed Form 8886 to its 2004 Form 1120 and did not send a copy of the 
form to OTSA. The general three-year period of limitations on assessment 
for Y's 2003 and 2004 taxable years would expire on March 15, 2007, and 
March 17, 2008, respectively.
    (ii) The period of limitations on assessment for Y's 2003 taxable 
year was open on the date the transaction was identified as a listed 
transaction. Under the applicable section 6011 regulations (TD 9108), 
which were effective for transactions entered into before August 3, 
2007, Y should have disclosed its participation in the transaction with 
its next filed return, which was its 2004 Form 1120, but Y did not 
disclose its participation. Y's failure to disclose with the 2004 Form 
1120 relates to taxable years 2003 and 2004. Section 6501(c)(10) 
operates to keep the period of limitations on assessment open for the 
2003 and 2004 taxable years with respect to the listed transaction until 
at least one year after the date Y satisfies the requirements of 
paragraph (g)(5) of this section or a material advisor satisfies the 
requirements of paragraph (g)(6) of this section with respect to Y.
    Example 3. Taxable year to which the failure to disclose relates 
when transaction is identified as a listed transaction after the first 
year of participation and the transaction must be disclosed 90 days 
after the transaction became a listed transaction. (i) In January 2015, 
A, a calendar year taxpayer, enters into a transaction that at the time 
is not a listed transaction. A reports the tax consequences from the 
transaction on its individual income tax return for 2015 timely filed on 
April 15, 2016. The time for the IRS to assess tax against A under the 
general three-year period of limitations for A's 2015 taxable year would 
expire on April 15, 2019. A only participated in the transaction in 
2015. On March 7, 2017, the IRS identifies the transaction as a listed 
transaction. A does not file the Form 8886 with OTSA by June 5, 2017.
    (ii) The period of limitations on assessment for A's 2015 taxable 
year was open on the date the transaction was identified as a listed 
transaction. Under the current section 6011 regulations (TD 9350) which 
are effective for transactions entered into on or after August 3, 2007, 
A must disclose its participation in the transaction by filing a 
completed Form 8886 with OTSA on or before June 5, 2017, which is 90 
days after the date the transaction became a listed transaction. A did 
not disclose the transaction as required. A's failure to disclose 
relates to taxable year 2015 even though the obligation to disclose did 
not arise until 2017. Section 6501(c)(10) operates to keep the period of 
limitations on assessment open for the 2015 taxable year with respect to 
the listed transaction until at least one year after the date A 
satisfies the requirements of paragraph (g)(5) of this section or a 
material advisor satisfies the requirements of paragraph (g)(6) of this 
section with respect to A.
    Example 4. Requirements of paragraph (g)(6) satisfied. Same facts as 
Example 3, except that on April 5, 2019, the IRS hand delivers to 
Advisor J, who is a material advisor, a section 6112 request related to 
the listed transaction. Advisor J furnishes the required list with all 
the information required by section 6112 and Sec.  301.6112-1, including 
all the information required with respect to A, to the IRS on May 8, 
2019. The submission satisfies the requirements of paragraph (g)(6) even 
though Advisor J furnishes the information outside of the 20-business-
day period provided in section 6708. Accordingly, under section 
6501(c)(10), the period of limitations with respect to A's taxable year 
2015 will end on May 8, 2020, one year after the IRS received the 
required information, unless the period of limitations remains open 
under another exception. Any tax for the 2015 taxable year not 
attributable to the listed transaction must be assessed by April 15, 
2019.
    Example 5. Requirements of paragraph (g)(5) also satisfied. Same 
facts as Examples 3 and 4, except that on May 23, 2019, A files a 
properly completed Form 8886 and signed cover letter with OTSA both 
identifying that the section 6501(c)(10) disclosure relates to A's Form 
1040 for 2015. A satisfied the requirements of paragraph (g)(5) of this 
section as of May 23, 2019. Because the requirements of paragraph (g)(6) 
were satisfied first as described in Example 4, under section 
6501(c)(10) the period of limitations will end on May 8, 2020 (one year 
after the requirements of paragraph (g)(6) were satisfied) instead of 
May 23, 2020 (one year after the requirements of paragraph (g)(5) were 
satisfied). Any tax for the 2015 taxable year not attributable to the 
listed transaction must be assessed by April 15, 2019.
    Example 6. Period to assess tax remains open under another 
exception. Same facts as Examples 3, 4, and 5, except that on April 1, 
2019, A signed Form 872, consenting to extend, without restriction, its 
period of limitations on assessment for taxable year 2015 under

[[Page 513]]

section 6501(c)(4) until July 15, 2020. In that case, although under 
section 6501(c)(10) the period of limitations would otherwise expire on 
May 8, 2020, the IRS may assess tax with respect to the listed 
transaction (as well as any other item on the return covered by the Form 
872 extension) at any time up to and including July 15, 2020, pursuant 
to section 6501(c)(4). Section 6501(c)(10) operates to extend the 
assessment period but not to shorten any other applicable assessment 
period.
    Example 7. Requirements of (g)(5) not satisfied. In 2015, X, a 
corporation, enters into a listed transaction. On March 15, 2016, X 
timely files its 2015 Form 1120, reporting the tax consequences from the 
transaction. X does not disclose the transaction as required under 
section 6011 when it files its 2015 return. The failure to disclose 
relates to taxable year 2015. On February 13, 2017, X completes and 
files a Form 8886 with respect to the listed transaction with OTSA but 
does not submit a cover letter, as required. The requirements of 
paragraph (g)(5) of this section have not been satisfied. Therefore, the 
time to assess tax against X with respect to the transaction for taxable 
year 2015 remains open under section 6501(c)(10).
    Example 8. Section 6501(c)(10) applies to keep one partner's period 
of limitations on assessment open. T and S are partners in a 
partnership, TS, that enters into a listed transaction in 2015. T and S 
each receive a Schedule K-1 from TS on April 11, 2016. On April 15, 
2016, TS, T and S each file their 2015 returns. Under the applicable 
section 6011 regulations, TS, T, and S each are required to disclose the 
transaction. TS attaches a completed Form 8886 to its 2015 Form 1065 and 
sends a copy of Form 8886 to OTSA. Neither T nor S files a disclosure 
statement with their respective returns nor sends a copy to OTSA on 
April 15, 2016. On May 17, 2016, T timely files a completed Form 8886 
with OTSA pursuant to Sec.  1.6011-4(e)(1). T's disclosure is timely 
because T received the Schedule K-1 within 10 calendar days before the 
due date of the return and, thus, T had 60 calendar days to file Form 
8886 with OTSA. TS and T properly disclosed the transaction in 
accordance with the applicable regulations under section 6011, but S did 
not. S's failure to disclose relates to taxable year 2015. The time to 
assess tax with respect to the transaction against S for 2015 remains 
open under section 6501(c)(10) even though TS and T disclosed the 
transaction.
    Example 9. Section 6501(c)(10) satisfied before expiration of three-
year period of limitations under section 6501(a). Same facts as Example 
8, except that on August 26, 2016, S satisfies the requirements of 
paragraph (g)(5) of this section. No material advisor satisfied the 
requirements of paragraph (g)(6) of this section with respect to S on a 
date earlier than August 26, 2016. Under section 6501(c)(10), the period 
of time in which the IRS may assess tax against S with respect to the 
listed transaction would expire no earlier than August 26, 2017, one 
year after the date S satisfied the requirements of paragraph (g)(5). As 
the general three-year period of limitations on assessment under section 
6501(a) does not expire until April 15, 2019, the IRS will have until 
that date to assess any tax with respect to the listed transaction.
    Example 10. No section 6112 request. B, a calendar year taxpayer, 
entered into a listed transaction in 2015. B did not comply with the 
applicable disclosure requirements under section 6011 for taxable year 
2015; therefore, section 6501(c)(10) applies to keep the period of 
limitations on assessment open with respect to the tax related to the 
transaction until at least one year after B satisfies the requirements 
of paragraph (g)(5) of this section or a material advisor satisfies the 
requirements of paragraph (g)(6) of this section with respect to B. In 
June 2016, the IRS conducts a section 6700 investigation of Advisor K, 
who is a material advisor to B with respect to the listed transaction. 
During the course of the investigation, the IRS obtains the name, 
address, and TIN of all of Advisor K's clients who engaged in the 
transaction, including B. The information provided does not satisfy the 
requirements of paragraph (g)(6) with respect to B because the 
information was not provided pursuant to a section 6112 request. 
Therefore, the time to assess tax against B with respect to the 
transaction for taxable year 2015 remains open under section 
6501(c)(10).
    Example 11. Section 6112 request but the requirements of paragraph 
(g)(6) are not satisfied with respect to B. Same facts as Example 10, 
except that on January 9, 2017, the IRS sends by certified mail a 
section 6112 request to Advisor L, who is another material advisor to B 
with respect to the listed transaction. Advisor L furnishes some of the 
information required under section 6112 and Sec.  301.6112-1 to the IRS 
for inspection on January 17, 2017. The list includes information with 
respect to many clients of Advisor L, but it does not include any 
information with respect to B. The submission does not satisfy the 
requirements of paragraph (g)(6) of this section with respect to B. 
Therefore, the time to assess tax against B with respect to the 
transaction for taxable year 2015 remains open under section 
6501(c)(10).
    Example 12. Section 6112 submission made before taxpayer failed to 
disclose a listed transaction. Advisor M, who is a material advisor, 
advises C, an individual, in 2015 with respect to a transaction that is 
not a reportable transaction at that time. C files its return claiming 
the tax consequences of the transaction on April 15, 2016. The time for 
the IRS to assess tax against C under the general three-year period of 
limitations for C's 2015 taxable year would expire on April 15, 2019. 
The IRS identifies the transaction as a listed

[[Page 514]]

transaction on November 3, 2017. On December 7, 2017, the IRS hand 
delivers to Advisor M a section 6112 request related to the transaction. 
Advisor M furnishes the information to the IRS on December 29, 2017. The 
information contains all the required information with respect to 
Advisor M's clients, including C. C does not disclose the transaction on 
or before February 1, 2018, as required under section 6011 and the 
regulations under section 6011. Advisor M's submission under section 
6112 satisfies the requirements of paragraph (g)(6) of this section even 
though it occurred prior to C's failure to disclose the listed 
transaction. Thus, under section 6501(c)(10), the period of limitations 
to assess tax against C with respect to the listed transaction will end 
on December 29, 2018 (one year after the requirements of paragraph 
(g)(6) of this section were satisfied), unless the period of limitations 
remains open under another exception.
    Example 13. Transaction removed from the category of listed 
transactions after taxpayer failed to disclose. D, a calendar year 
taxpayer, entered into a listed transaction in 2015. D did not comply 
with the applicable disclosure requirements under section 6011 for 
taxable year 2015; therefore, section 6501(c)(10) applies to keep the 
period of limitations on assessment open with respect to the tax related 
to the transaction until at least one year after D satisfies the 
requirements of paragraph (g)(5) of this section or a material advisor 
satisfies the requirements of paragraph (g)(6) of this section with 
respect to D. In 2017, the IRS removes the transaction from the category 
of listed transactions because of a change in law. Section 6501(c)(10) 
continues to apply to keep the period of limitations on assessment open 
for D's taxable year 2015.
    Example 14. Taxes assessed with respect to the listed transaction. 
(i) F, an individual, enters into a listed transaction in 2015. F files 
its 2015 Form 1040 on April 15, 2016, but does not disclose his 
participation in the listed transaction in accordance with section 6011 
and the regulations under section 6011. F's failure to disclose relates 
to taxable year 2015. Thus, section 6501(c)(10) applies to keep the 
period of limitations on assessment open with respect to the tax related 
to the listed transaction for taxable year 2015 until at least one year 
after the date F satisfies the requirements of paragraph (g)(5) of this 
section or a material advisor satisfies the requirements of paragraph 
(g)(6) of this section with respect to F.
    (ii) On July 2, 2020, the IRS completes an examination of F's 2015 
taxable year and disallows the tax consequences claimed as a result of 
the listed transaction. The disallowance of a loss increased F's 
adjusted gross income. Due to the increase of F's adjusted gross income, 
certain credits, such as the child tax credit, and exemption deductions 
were disallowed or reduced because of limitations based on adjusted 
gross income. In addition, F now is liable for the alternative minimum 
tax. The examination also uncovered that F claimed two deductions on 
Schedule C to which F was not entitled. Under section 6501(c)(10), the 
IRS can timely issue a statutory notice of deficiency (and assess in due 
course) against F for the deficiency resulting from (1) disallowing the 
loss, (2) disallowing the credits and exemptions to which F was not 
entitled based on F's increased adjusted gross income, and (3) being 
liable for the alternative minimum tax. In addition, the IRS can assess 
any interest and applicable penalties related to those adjustments, such 
as the accuracy-related penalty under sections 6662 and 6662A and the 
penalty under section 6707A for F's failure to disclose the transaction 
as required under section 6011 and the regulations under section 6011. 
The IRS cannot, however, pursuant to section 6501(c)(10), assess the 
increase in tax that would result from disallowing the two deductions on 
F's Schedule C because those deductions are not related to, or affected 
by, the adjustments concerning the listed transaction.

    (9) Effective/applicability date. The rules of this paragraph (g) 
apply to taxable years with respect to which the period of limitations 
on assessment under section 6501 (including subsection (c)(10)) did not 
expire before March 31, 2015.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7838, 47 FR 44250, Oct. 
7, 1982; T.D. 8395, 57 FR 4277, Feb. 4, 1992; T.D. 8845, 64 FR 67771, 
Dec. 3, 1999; 65 FR 1059, Jan. 7, 2000; T.D. 9718, 80 FR 16976, Mar. 31, 
2015; T.D. 9718, 80 FR 23444, Apr. 28, 2015]



Sec.  301.6501(d)-1  Request for prompt assessment.

    (a) Except as otherwise provided in section 6501 (c), (e), or (f), 
any tax for which a return is required and for which:
    (1) A decedent or an estate of a decedent may be liable, other than 
the estate tax imposed by chapter 11 of the Code, or
    (2) A corporation which is contemplating dissolution, is in the 
process of dissolution, or has been dissolved, may be liable, shall be 
assessed, or a proceeding in court without assessment for the collection 
of such tax shall be begun, within 18 months after the receipt of a 
written request for prompt assessment thereof.

[[Page 515]]

    (b) The executor, administrator, or other fiduciary representing the 
estate of the decedent, or the corporation, or the fiduciary 
representing the dissolved corporation, as the case may be, shall, after 
the return in question has been filed, file the request for prompt 
assessment in writing with the district director for the internal 
revenue district in which such return was filed. The request, in order 
to be effective, must be transmitted separately from any other document, 
must set forth the classes of tax and the taxable periods for which the 
prompt assessment is requested, and must clearly indicate that it is a 
request for prompt assessment under the provisions of section 6501(d). 
The effect of such a request is to limit the time in which an assessment 
of tax may be made, or a proceeding in court without assessment for 
collection of tax may be begun, to a period of 18 months from the date 
the request is filed with the proper district director. The request does 
not extend the time within which an assessment may be made, or a 
proceeding in court without assessment years from the date the return 
was filed. This special period of limitations will not apply to any 
return filed after a request for prompt assessment has been made unless 
an additional request is filed in the manner provided herein.
    (c) In the case of a corporation the 18-month period shall not apply 
unless:
    (1) The written request notifies the district director that the 
corporation contemplates dissolution at or before the expiration of such 
18-month period; the dissolution is in good faith begun before the 
expiration of such 18-month period; and the dissolution so begun is 
completed either before or after the expiration of such 18-month period; 
or
    (2) The written request notifies the district director that a 
dissolution has in good faith been begun, and the dissolution is 
completed either before or after the expiration of such 18-month period; 
or
    (3) A dissolution has been completed at the time the written request 
is made.



Sec.  301.6501(e)-1  Omission from return.

    (a) Income taxes--(1) General rule. (i) If a taxpayer omits from the 
gross income stated in the return of a tax imposed by subtitle A of the 
Internal Revenue Code an amount properly includible therein that is in 
excess of 25 percent of the gross income so stated, the tax may be 
assessed, or a proceeding in court for the collection of that tax may be 
begun without assessment, at any time within 6 years after the return 
was filed.
    (ii) For purposes of paragraph (a)(1)(i) of this section, the term 
gross income, as it relates to a trade or business, means the total of 
the amounts received or accrued from the sale of goods or services, to 
the extent required to be shown on the return, without reduction for the 
cost of those goods or services.
    (iii) For purposes of paragraph (a)(1)(i) of this section, the term 
gross income, as it relates to any income other than from the sale of 
goods or services in a trade or business, has the same meaning as 
provided under section 61(a), and includes the total of the amounts 
received or accrued, to the extent required to be shown on the return. 
In the case of amounts received or accrued that relate to the 
disposition of property, and except as provided in paragraph (a)(1)(ii) 
of this section, gross income means the excess of the amount realized 
from the disposition of the property over the unrecovered cost or other 
basis of the property. Consequently, except as provided in paragraph 
(a)(1)(ii) of this section, an understated amount of gross income 
resulting from an overstatement of unrecovered cost or other basis 
constitutes an omission from gross income for purposes of section 
6501(e)(1)(A)(i).
    (iv) An amount shall not be considered as omitted from gross income 
if information sufficient to apprise the Commissioner of the nature and 
amount of the item is disclosed in the return, including any schedule or 
statement attached to the return.
    (2) [Reserved]
    (b) Estate and gift taxes--(1) If the taxpayer omits from the gross 
estate as stated in the estate tax return, or from the total amount of 
the gifts made during the period for which the gift tax return was filed 
(see Sec.  25.6019-1 of this

[[Page 516]]

chapter) as stated in the gift tax return, an item or items properly 
includible therein the amount of which is in excess of 25 percent of the 
gross estate as stated in the estate tax return, or 25 percent of the 
total amount of the gifts as stated in the gift tax return, the tax may 
be assessed, or a proceeding in court for the collection thereof may be 
begun without assessment, at any time within 6 years after the estate 
tax or gift tax return, as applicable, was filed.
    (2) For purposes of this paragraph (b), an item disclosed in the 
return or in any schedule or statement attached to the return in a 
manner sufficient to apprise the Commissioner of the nature and amount 
thereof shall not be taken into account in determining items omitted 
from the gross estate or total gifts, as the case may be. Further, there 
shall not be taken into account in computing the 25 percent omission 
from the gross estate stated in the estate tax return or from the total 
gifts stated in the gift tax return, any increases in the valuation of 
assets disclosed on the return.
    (c) Excise taxes--(1) In general. If the taxpayer omits from a 
return of a tax imposed under a provision of subtitle D an amount 
properly includible thereon, which amount is in excess of 25 percent of 
the amount of tax reported thereon, the tax may be assessed or a 
proceeding in court for the collection thereof may be begun without 
assessment, at any time within 6 years after the return was filed. For 
special rules relating to chapter 41, 42, 43 and 44 taxes, see 
paragraphs (c)(2), (3), (4), and (5) of this section.
    (2) Chapter 41 excise taxes. If an organization discloses an 
expenditure in its return (or in a schedule or statement attached 
thereto) in a manner sufficient to apprise the Commissioner of the 
existence and nature of the expenditure, the three-year limitation on 
assessment and collection described in section 6501(a) shall apply with 
respect to any tax under chapter 41 arising from the expenditure. If a 
taxpayer fails to so disclose an expenditure in its return (or in a 
schedule or statement attached thereto), the tax arising from the 
expenditure not so disclosed may be assessed, or a proceeding in court 
for the collection of the tax may be begun without assessment, at any 
time within 6 years after the return was filed.
    (3) Chapter 42 excise taxes. (i) If a private foundation omits from 
its annual return with respect to the tax imposed by section 4940 an 
amount of tax properly includible therein that is in excess of 25 
percent of the amount of tax imposed by section 4940 that is reported on 
the return, the tax may be assessed, or a proceeding in court for the 
collection of the tax may be begun without assessment, at any time 
within 6 years after the return was filed. If a private foundation 
discloses in its return (or in a schedule or statement attached thereto) 
the nature, source, and amount of any income giving rise to any omitted 
tax, the tax arising from the income shall be counted as reported on the 
return in computing whether the foundation has omitted more than 25 
percent of the tax reported on its return.
    (ii) If a private foundation, trust, or other organization (as the 
case may be) discloses an item in its return (or in a schedule or 
statement attached thereto) in a manner sufficient to apprise the 
Commissioner of the existence and nature of the item, the three-year 
limitation on assessment and collection described in section 6501(a) 
shall apply with respect to any tax imposed under sections 4941(a), 
4942(a), 4943(a), 4944(a), 4945(a), 4951(a), 4952(a), 4953 and 4958, 
arising from any transaction disclosed by the item. If a private 
foundation, trust, or other organization (as the case may be) fails to 
so disclose an item in its return (or in a schedule or statement 
attached thereto), the tax arising from any transaction not so disclosed 
may be assessed or a proceeding in court for the collection of the tax 
may be begun without assessment, at any time within 6 years after the 
return was filed.
    (4) Chapter 43 excise taxes. If a taxpayer discloses an item in its 
return (or in a schedule or statement attached thereto) in a manner 
sufficient to apprise the Commissioner of the existence and nature of 
the item, the three-year limitation on assessment and collection 
described in section 6501(a) shall apply with respect to any tax imposed 
under sections 4971(a), 4972, 4973,

[[Page 517]]

4974 and 4975(a), arising from any transaction disclosed by the item. If 
a taxpayer fails to so disclose an item in its return (or in a schedule 
or statement attached thereto), the tax arising from any transaction not 
so disclosed may be assessed, or a proceeding in court for the 
collection of the tax may be begun without assessment, at any time 
within 6 years after the return was filed. The applicable return for the 
tax under sections 4971, 4972, 4973 and 4974, is the return designated 
by the Commissioner for reporting the respective tax. The applicable 
return for the tax under section 4975 is the return filed by the plan 
used to report the act giving rise to the tax.
    (5) Chapter 44 excise taxes. If a real estate investment trust omits 
from its annual return with respect to the tax imposed by section 4981 
an amount of tax properly includible therein that is in excess of 25 
percent of the amount of tax imposed by section 4981 that is reported on 
the return, the tax may be assessed, or a proceeding in court for the 
collection of the tax may be begun without assessment, at any time 
within 6 years after the return was filed. If a real estate investment 
trust discloses in its return (or in a schedule or statement attached 
thereto) the nature, source, and amount of any income giving rise to any 
omitted tax, the tax arising from the income shall be counted as 
reported on the return in computing whether the trust has omitted more 
than 25 percent of the tax reported on its return.
    (d) Exception. The provisions of this section do not limit the 
application of section 6501(c).
    (e) Effective/applicability date--(1) Income taxes. Paragraph (a) of 
this section applies to taxable years with respect to which the period 
for assessing tax was open on or after September 24, 2009.
    (2) Estate, gift and excise taxes. Paragraphs (b) through (d) of 
this section continue to apply as they did prior to being removed 
inadvertently on September 28, 2009. Specifically, paragraph (b) of this 
section applies to returns filed on or after May 2, 1956, except for the 
amendment to paragraph (b)(1) of this section that applies to returns 
filed on or after December 29, 1972. Paragraph (c) of this section 
applies to returns filed on or after October 7, 1982, except for the 
amendment to paragraph (c)(3)(ii) of this section that applies to 
returns filed on or after January 10, 2001. Paragraph (d) of this 
section applies to returns filed on or after May 2, 1956.

[T.D. 9511, 75 FR 78899, Dec. 17, 2010]



Sec.  301.6501(f)-1  Personal holding company tax.

    If a corporation which is a personal holding company for any taxable 
year fails to file with its income tax return for such year a schedule 
setting forth the items of gross income described in section 543(a) 
received by the corporation during such year, and the names and 
addresses of the individuals who owned, within the meaning of section 
544, at any time during the last half of such taxable year, more than 50 
percent in value of the outstanding capital stock of the corporation, 
the personal holding company tax for such year may be assessed, or a 
proceeding in court for the collection thereof may be begun without 
assessment, at any time within 6 years after the return for such year 
was filed.



Sec.  301.6501(g)-1  Certain income tax returns of corporations.

    (a) Trusts or partnerships. If a taxpayer determines in good faith 
that it is a trust or partnership and files a return as such under 
subtitle A of the Code, and if the taxpayer is later held to be a 
corporation for the taxable year for which the return was filed, such 
return shall be deemed to be the return of the corporation for the 
purpose of section 6501.
    (b) Exempt organizations. If a taxpayer determines in good faith 
that it is an exempt organization and files a return as such under 
section 6033, and if the taxpayer is later held to be a taxable 
organization for the taxable year for which the return was filed, such 
return shall be deemed to be the return of the organization for the 
purpose of section 6501.
    (c) DISC. If a corporation determines in good faith that it is a 
DISC (as defined in section 992(a)(1)) for a taxable

[[Page 518]]

year and files a return as such pursuant to section 6011(c)(2), and if 
the corporation is thereafter held to be a corporation which is not a 
DISC for the taxable year for which the return was filed, then--
    (1) Such return shall be deemed to be the return of the corporation 
for the purpose of section 6501.
    (2) Such return if filed within the time required by section 6072(b) 
for filing a DISC return shall be deemed to be filed within the time 
required by section 6072(b) for filing of a return by a corporation 
which is not a DISC, and
    (3) Interest on underpayment and overpayments allowed by chapter 67 
of the Code and additions to the tax, additional amounts and assessable 
penalties allowed by chapter 68 of the Code, when determined by 
reference to the time for filing of a return, shall be determined by 
reference to the time required by section 6072(b) for filing of a return 
by a DISC.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7533, 43 FR 6604, Feb. 
15, 1978]



Sec.  301.6501(h)-1  Net operating loss or capital loss carrybacks.

    In the case of a deficiency attributable to the application to the 
taxpayer of a net operating loss or capital loss carryback (including 
deficiencies which may be assessed pursuant to the provisions of section 
6213(b)(2)), such deficiency may be assessed at any time before the 
expiration of the period within which a deficiency for the taxable year 
of the net operating loss or net capital loss which results in such 
carryback may be assessed. In the case of a deficiency attributable to 
the application of a net operating loss carryback, such deficiency may 
be assessed within 18 months after the date on which the taxpayer files 
in accordance with section 172(b)(3) a copy of the certification (with 
respect to such taxable year) issued under section 317 of the Trade 
Expansion Act of 1962, if later than the date prescribed by the 
preceding sentence.

[T.D. 7301, 39 FR 974, Jan. 4, 1974]



Sec.  301.6501(i)-1  Foreign tax carrybacks; taxable years beginning 
after December 31, 1957.

    With respect to taxable years beginning after December 31, 1957, a 
deficiency attributable to the application to the taxpayer of a 
carryback under section 904(d) (relating to carryback and carryover of 
excess foreign taxes), may be assessed at any time before the expiration 
of 1 year after the expiration of the period within which a deficiency 
may be assessed for the taxable year of the excess taxes described in 
section 904(d) which result in such carryback.



Sec.  301.6501(j)-1  Investment credit carryback; taxable years 
ending after December 31, 1961.

    With respect to taxable years ending after December 31, 1961, a 
deficiency attributable to the application to the taxpayer of an 
investment credit carryback may be assessed at any time before the 
expiration of the period within which a deficiency for the taxable year 
of the unused investment credit which results in such carryback may be 
assessed, or, with respect to any portion of an investment credit 
carryback from a taxable year attributable to a net operating loss or 
capital loss carryback from a subsequent taxable year, at any time 
before the expiration of the period within which a deficiency for such 
subsequent taxable year may be assessed. For purposes of this section a 
deficiency shall include a deficiency which may be assessed pursuant to 
the provisions of section 6213(b)(2), but only those arising with 
respect to applications for tentative carryback adjustments filed after 
November 2, 1966.

[T.D. 7301, 39 FR 975, Jan. 4, 1974]



Sec.  301.6501(m)-1  Tentative carryback adjustment assessment period.

    (a) Period of limitation after tentative carryback adjustment. (1) 
Under section 6501(m), in a case where an amount has been applied, 
credited, or refunded under section 6411, by reason of a net operating 
loss carryback, a capital loss carryback, an investment credit

[[Page 519]]

carryback, or a work incentive program credit carryback to a prior 
taxable year, the period described in section 6501(a) of the Code for 
assessing a deficiency for such prior taxable year is extended to 
include the period described in section 6501 (h), (j), or (o), whichever 
is applicable; except that the amount which may be assessed solely by 
reason of section 6501(m) may not exceed the amount so applied, 
credited, or refunded under section 6411, reduced by any amount which 
may be assessed solely by reason of section 6501 (h), (j), or (o), as 
the case may be.
    (2) The application of this paragraph may be illustrated by the 
following example:

    Example. Assume that M Corporation, which claims an unused 
investment credit of $50,000 for the calendar year 1968, files an 
application under section 6411 of the Code for an adjustment of its tax 
for 1965, and receives a refund of $50,000 in 1969. In 1971, it is 
determined that the amount of the unused investment credit for 1968 is 
$30,000 rather than $50,000. Moreover, it is determined that M 
Corporation would have owed $40,000 of additional tax for 1965 if it had 
properly reported certain income which it failed to include in its 1965 
return. Assuming that M Corporation filed its 1968 return on March 15, 
1969, and that the 3-year period described in section 6501(a) has not 
been extended, the period prescribed in section 6501(j) for assessing 
the excessive amount refunded, $20,000 (i.e., $50,000, original amount 
refunded less $30,000, correct amount of unused investment credit), does 
not expire until March 15, 1972, and $20,000 may be assessed on or 
before such date under section 6501(j). Under section 6501(m), M 
Corporation may be assessed on or before March 15, 1972, an amount not 
in excess of $30,000 ($50,000, the amount refunded under section 6411, 
minus $20,000, the amount which may be assessed solely by reason of 
section 6501 (j)).

    (b) Effective date. The provisions of paragraph (a) of this section 
apply only with respect to applications under section 6411 filed after 
November 2, 1966.

[T.D. 7301, 39 FR 975, Jan. 4, 1974]



Sec.  301.6501(n)-1  Special rules for chapter 42 and similar taxes.

    (a) Return filed by private foundation, plan, trust, or other 
organization. (1) A return filed by a private foundation, plan, trust, 
or other organization (as the case may be) with respect to any act 
giving rise to a tax imposed by chapter 42 (other than a tax imposed by 
section 4940), or by section 4975 shall be considered, for purposes of 
section 6501, to be the return of all persons required to file a return 
with respect to any such tax arising from such act, notwithstanding that 
all such persons have not signed the return. In the case of a private 
foundation that files a Form 990-PF (or a Form 5227 in the case of a 
nonexempt foundation described in section 4947(a)(2)), which contains 
questions with respect to such taxes, the filing of such form by such 
foundation shall constitute the filing of a return with respect to any 
such act, even though the foundation incorrectly answered such 
questions.
    (2) For purposes of section 4940, the return referred to in this 
section is the return filed by the private foundation for the taxable 
year for which the tax is imposed.
    (b) Failure of private foundation plan, trust, or other organization 
to file. The period of limitations on assessment and collection 
described in section 6501 does not begin with respect to any person 
liable for tax under chapter 42 (other than section 4940) or section 
4975 arising from a given act, where the private foundation, plan, 
trust, or other organization (as the case may be) has not filed its 
required return that reports such act for the year in which the act (or 
failure to act) giving rise to liability for such tax occurred.
    (c) Example. The provision of this section may be illustrated by the 
following example:

    Example. In 1973, D, an individual taxpayer who was a disqualified 
person under the provisions of section 4946(a)(1), participated in an 
act of self-dealing with a private foundation and incurred a tax under 
section 4941(a)(1). On May 15, 1974, the private foundation files a Form 
990-PF and answers all the questions thereon with regard to any acts of 
self-dealing (as defined in section 4941(d)) in which it may have 
engaged in 1973. Assuming that the foundation's return was not a false 
or fraudulent return nor made with the willful attempt to defeat tax, 
the period of limitations on assessment and collection under section 
6501(a) shall start with respect to any tax under section 4941(a) or 
section 4941(b) imposed on D arising out of that transaction with such 
foundation.

[T.D. 7838, 47 FR 44251, Oct. 7, 1982, as amended by T.D. 8920, 66 FR 
2171, Jan. 10, 2001]

[[Page 520]]



Sec.  301.6501(n)-2  Certain contributions to section 501(c)(3) organizations.

    If a private foundation makes a contribution to a section 501(c)(3) 
organization as provided in section 4942(g)(3), and a deficiency of tax 
of such foundation occurs due to the failure of the section 501(c)(3) 
organization to make the distribution prescribed by section 4942(g)(3), 
then such deficiency may be assessed within one year after the 
expiration of the period within which a deficiency may be assessed for 
the taxable year with respect to which the contribution was made.

[T.D. 7838, 47 FR 44251, Oct. 7, 1982]



Sec.  301.6501(n)-3  Certain set-asides described in section 4942(g)(2).

    Where a deficiency of tax of a private foundation results from the 
failure of an amount set aside by such foundation for a specific project 
to be treated as a qualifying distribution under section 
4942(g)(2)(B)(ii)(II), such deficiency may be assessed within two years 
after the expiration of the period within which a deficiency may be 
assessed for the taxable year to which the amount set aside relates.

[T.D. 7838, 47 FR 44251, Oct. 7, 1982]



Sec.  301.6502-1  Collection after assessment.

    (a) General rule. In any case in which a tax has been assessed 
within the applicable statutory period of limitations on assessment, a 
proceeding in court to collect the tax may be commenced, or a levy to 
collect the tax may be made, within 10 years after the date of 
assessment.
    (b) Agreement to extend the period of limitations on collection. The 
Secretary may enter into an agreement with a taxpayer to extend the 
period of limitations on collection in the following circumstances:
    (1) Extension agreement entered into in connection with an 
installment agreement. If the Secretary and the taxpayer enter into an 
installment agreement for the tax liability prior to the expiration of 
the period of limitations on collection, the Secretary and the taxpayer, 
at the time the installment agreement is entered into, may enter into a 
written agreement to extend the period of limitations on collection to a 
date certain. A written extension agreement entered into under this 
paragraph shall extend the period of limitations on collection until the 
89th day after the date agreed upon in the written agreement.
    (2) Extension agreement entered into in connection with the release 
of a levy under section 6343. If the Secretary has levied on any part of 
the taxpayer's property prior to the expiration of the period of 
limitations on collection and the levy is subsequently released pursuant 
to section 6343 after the expiration of the period of limitations on 
collection, the Secretary and the taxpayer, prior to the release of the 
levy, may enter into a written agreement to extend the period of 
limitations on collection to a date certain. A written extension 
agreement entered into under this paragraph shall extend the period of 
limitations on collection until the date agreed upon in the extension 
agreement.
    (c) Proceeding in court for the collection of the tax. If a 
proceeding in court for the collection of a tax is begun within the 
period provided in paragraph (a) of this section (or within any extended 
period as provided in paragraph (b) of this section), the period during 
which the tax may be collected by levy is extended until the liability 
for the tax or a judgment against the taxpayer arising from the 
liability is satisfied or becomes unenforceable.
    (d) Effect of statutory suspensions of the period of limitations on 
collection if executed collection extension agreement is in effect. (1) 
Any statutory suspension of the period of limitations on collection 
tolls the running of the period of limitations on collection, as 
extended pursuant to an executed extension agreement under paragraph (b) 
of this section, for the amount of time set forth in the relevant 
statute.
    (2) The following example illustrates the principle set forth in 
this paragraph (d):

    Example. In June of 2003, the Internal Revenue Service (IRS) enters 
into an installment agreement with the taxpayer to provide for periodic 
payments of the taxpayer's timely assessed tax liabilities. At the time 
the installment agreement is entered into, the taxpayer and the IRS 
execute a written

[[Page 521]]

agreement to extend the period of limitations on collection. The 
extension agreement executed in connection with the installment 
agreement operates to extend the period of limitations on collection to 
the date agreed upon in the extension agreement, plus 89 days. 
Subsequently, and prior to the expiration of the extended period of 
limitations on collection, the taxpayer files a bankruptcy petition 
under chapter 7 of the Bankruptcy Code and receives a discharge from 
bankruptcy a few months later. Assuming the tax is not discharged in the 
bankruptcy, section 6503(h) of the Internal Revenue Code operates to 
suspend the running of the previously extended period of limitations on 
collection for the period of time the IRS is prohibited from collecting 
due to the bankruptcy proceeding, and for 6 months thereafter. The new 
expiration date for the IRS to collect the tax is the date agreed upon 
in the previously executed extension agreement, plus 89 days, plus the 
period during which the IRS is prohibited from collecting due to the 
bankruptcy proceeding, plus 6 months.

    (e) Date when levy is considered made. The date on which a levy on 
property or rights to property is considered made is the date on which 
the notice of seizure required under section 6335(a) is given.
    (f) Effective date. This section is applicable on September 6, 2006.

[T.D. 9284, 71 FR 52445, Sept. 6, 2006]



Sec.  301.6503(a)-1  Suspension of running of period of limitation; 
issuance of statutory notice of deficiency.

    (a) General rule. (1) Upon the mailing of a notice of deficiency for 
income, estate, gift, chapter 41, 42, 43, or 44 tax under the provisions 
of section 6212, the period of limitation on assessment and collection 
of any deficiency is suspended for 90 days after the mailing of a notice 
of such deficiency if the notice of deficiency is addressed to a person 
within the States of the Union and the District of Columbia, or 150 days 
if such notice of deficiency is addressed to a person outside the States 
of the Union and the District of Columbia (not counting Saturday, 
Sunday, or a legal holiday in the District of Columbia as the 90th or 
150th day), plus an additional 60 days thereafter in either case. If a 
proceeding in respect of the deficiency is placed on the docket of the 
Tax Court, the period of limitation is suspended until the decision of 
the Tax Court becomes final, and for an additional 60 days thereafter. 
If a notice of deficiency is mailed to a taxpayer within the period of 
limitation and the taxpayer does not appeal therefrom to the Tax Court, 
the notice of deficiency so given does not suspend the running of the 
period of limitation with respect to any additional deficiency shown to 
be due in a subsequent deficiency notice.
    (2) This paragraph may be illustrated by the following example:

    Example. A taxpayer filed a return for the calendar year 1973 on 
April 15, 1974; the notice of deficiency was mailed to him (at an 
address within the United States) on April 15, 1977; and he filed a 
petition with the Tax Court on July 14, 1977. The decision of the Tax 
Court became final on November 6, 1978. The running of the period of 
limitation for assessment is suspended from April 15, 1977, to January 
5, 1979, which date is 60 days after the date (November 6, 1978), on 
which the decision became final. If in this example the taxpayer had 
failed to file a petition with the Tax Court, the running of the period 
of limitation for assessment would then be suspended from April 15, 1977 
(the date of notice), to September 12, 1977 (that is, for the 90-day 
period in which he could file a petition with the Tax Court, and for 60 
days thereafter).

    (3) For provisions relating to suspension of the running of the 
period of limitation with respect to collection of ``second tier'' 
excise taxes (as defined in section 4963) until final resolution of a 
refund proceeding described in sections 4961 and 7422 for the 
determination of the taxpayer's liability for the second tier taxes, see 
Sec.  53.4961-2 (e)(4).
    (b) Corporations joining in consolidated return. If a notice under 
section 6212(a) with respect to a deficiency in tax imposed by subtitle 
A of the Code for any taxable year is mailed to a corporation, the 
suspension of the running of the period of limitation provided in 
section 6503(a)(1) shall apply in the case of corporations with which 
such corporation made a consolidated income tax return for such taxable 
year. Under Sec.  1.1502-77(a) of this chapter (Income Tax Regulations), 
relating to consolidated returns, notices of deficiency are mailed only 
to the common parent.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7244, 37 FR 28898, Dec. 
30, 1972; T.D. 7838, 47 FR 44251, Oct. 7, 1982; T.D. 8084, 51 FR 16305, 
May 2, 1986]

[[Page 522]]



Sec.  301.6503(b)-1  Suspension of running of period of limitation; 
assets of taxpayer in control or custody of court.

    Where all or substantially all of the assets of a taxpayer are in 
the control or custody of the court in any proceeding before any court 
of the United States, or of any State of the United States, or of the 
District of Columbia, the period of limitations on collection after 
assessment prescribed in section 6502 is suspended with respect to the 
outstanding amount due on the assessment for the period such assets are 
in the control or custody of the court, and for 6 months thereafter. In 
the case of an estate of a decedent or an incompetent, the period of 
limitations on collection is suspended only for periods beginning after 
November 2, 1966, during which assets are in the control or custody of a 
court, and for 6 months thereafter.

[T.D. 7121, 36 FR 10782, June 3, 1971]



Sec.  301.6503(c)-1  Suspension of running of period of limitation; 
location of property outside the United States or removal of property 
from the United States; taxpayer outside of United States.

    (a) Property located outside, or removed from, the United States 
prior to November 3, 1966. The running of the period of limitations on 
collection after assessment prescribed in section 6502 is suspended for 
the period of time, prior to November 3, 1966, that collection is 
hindered or delayed because property of the taxpayer is situated or held 
outside the United States or is removed from the United States. The 
total suspension of time under this provision shall not in the aggregate 
exceed 6 years. In any case in which the district director determines 
that collection is so hindered or delayed, he shall make and retain in 
the files of his office a written report which shall identify the 
taxpayer and the tax liability, shall show what steps were taken to 
collect the tax liability, shall state the grounds for his determination 
that property of the taxpayer is situated or held outside, or is removed 
from, the United States, and shall show the date on which it was first 
determined that collection was so hindered or delayed. The term 
``property'' includes all property or rights to property, real or 
personal, tangible or intangible, belonging to the taxpayer. The 
suspension of the running of the period of limitations on collection 
shall be considered to begin on the date so determined by the district 
director. A copy of the report shall be mailed to the taxpayer at his 
last known address. For further guidance regarding the definition of 
last known address, see Sec.  301.6212-2.
    (b) Taxpayer outside United States after November 2, 1966. The 
running of the period of limitations on collection after assessment 
prescribed in section 6502 (relating to collection after assessment) is 
suspended for the period after November 2, 1966, during which the 
taxpayer is absent from the United States if such period is a continuous 
period of absence from the United States extending for 6 months or more. 
In a case where the running of the period of limitations has been 
suspended under the first sentence of this paragraph and at the time of 
the taxpayer's return to the United States the period of limitations 
would expire before the expiration of 6 months from the date of his 
return, the period of limitations shall not expire until after 6 months 
from the date of the taxpayer's return. The taxpayer will be deemed to 
be absent from the United States for purposes of this section if he is 
generally and substantially absent from the United States, even though 
he makes casual temporary visits during the period.

[T.D. 7121, 36 FR 10782, June 3, 1971, as amended by T.D. 8939, 66 FR 
2821, Jan. 12, 2001]



Sec.  301.6503(d)-1  Suspension of running of period of limitation; 
extension of time for payment of estate tax.

    Where an estate is granted an extension of time as provided in 
section 6161 (a)(2) or (b)(2), or under the provisions of section 6166, 
for payment of any estate tax, the running of the period of limitations 
for collection of such tax is suspended for the period of time for which 
the extension is granted.

[[Page 523]]



Sec.  301.6503(e)-1  Suspension of running of period of limitation; 
certain powers of appointment.

    Where the estate of a decedent is allowed an estate tax charitable 
deduction under the provisions of section 2055(b)(2) (with respect to 
property over which the decedent's surviving spouse was given a power of 
appointment exercisable in favor of charitable organizations) subject to 
the later disallowance of the deduction if all conditions set forth in 
section 2055(b)(2) are not complied with, the running of the period of 
limitation for assessment or collection of any estate tax imposed on the 
decedent's estate is suspended until 30 days after the expiration of the 
period for assessment or collection of the estate tax imposed on the 
estate of the decedent's surviving spouse.



Sec.  301.6503(f)-1  Suspension of running of period of limitation; 
wrongful seizure of property of third-party owner and discharge of lien 
for substitution of value.

    (a) Wrongful seizure. The running of the period of limitations on 
collection after assessment prescribed in section 6502 (relating to 
collection after assessment) shall be suspended for a period equal to a 
period beginning on the date property (including money) is wrongfully 
seized or received by the appropriate official and ending on the date 30 
days after the date on which the appropriate official returns the 
property pursuant to section 6343(b) (relating to authority to return 
property) or the date 30 days after the date on which a judgment secured 
pursuant to section 7426 (relating to civil actions by persons other 
than taxpayers) with respect to such property becomes final. The running 
of the period of limitations on collection after assessment shall be 
suspended under this section only with respect to the amount of such 
assessment which is equal to the amount of money or the value of 
specific property returned. This section applies in the case of property 
wrongfully seized or received after November 2, 1966. The following 
example illustrates the principles of this section:

    Example. On June 1, 1968 (at which time 10 months remain before the 
period of limitations on collection after assessment will expire), the 
appropriate official wrongfully seizes $1,000 in B's account in Bank X 
and properly seizes $500 in taxpayer A's account in Bank Y in an attempt 
to satisfy A's assessed tax liability of $1,500. The appropriate 
official determines that the $1,000 seized in Bank X was not the 
property of taxpayer A and, on March 1, 1969, he returns the $1,000 to 
B. As a result of the wrongful seizure, the running of the period of 
limitations on collection after assessment of the amount owed by 
taxpayer A is suspended for the 9-month period (beginning June 1, 1968, 
when the money was wrongfully seized and ending March 1, 1969, when the 
money was returned to B), plus 30 days. Therefore, the period of 
limitations on collection after assessment prescribed in section 6502 
will not expire until February 1, 1970, which is 10 months plus 30 days 
after the money was returned.
    (b) Discharge of wrongful lien for substitution of value. If a 
person other than the taxpayer submits a request in writing for a 
certificate of discharge for a filed Federal tax lien under section 
6325(b)(4), the running of the period of limitations on collection after 
assessment under section 6502 for any liability listed in such notice of 
Federal tax lien shall be suspended for a period equal to the period 
beginning on the date the appropriate official receives a deposit or 
bond in the amount specified in Sec.  301.6325-1(b)(4)(i) and ending on 
the date that is 30 days after the earlier of--
    (1) The date the appropriate official no longer holds, or is deemed 
to no longer hold, within the meaning of paragraph (b)(4)(iv) of this 
section, any amount as a deposit or bond by reason of taking such 
actions as prescribed in sections 6325(b)(4)(B) and (C); or
    (2) The date the judgment secured under section 7426(b)(5) becomes 
final.
    (c) As used in this section, the term appropriate official means 
either the official or office identified in the relevant IRS Publication 
or, if such official or office is not so identified, the Secretary or 
his delegate.
    (d) Effective/applicability date. This section applies to any 
request for a certificate of discharge made after January 31, 2008.

[T.D. 7121, 36 FR 10783, June 3, 1971. Redesignated by T.D. 7838, 47 FR 
44252, Oct. 7, 1982; 73 FR 5744, Jan. 31, 2008]

[[Page 524]]



Sec.  301.6503(g)-1  Suspension pending correction.

    The running of the periods of limitations provided in sections 6501 
and 6502 on the making of assessments, the collection by levy, or a 
proceeding in court in respect of any tax imposed by chapter 42 or 
section 507, 4971, or 4975 shall be suspended for any period described 
in section 507(g)(2) or during which the Commissioner has extended the 
time for making correction under section 4963(e)(1)(B).

[T.D. 7838, 47 FR 44252, Oct. 7, 1982, as amended by T.D. 8084, 51 FR 
16305, May 2, 1986]



Sec.  301.6503(j)-1  Suspension of running of period of limitations; 
extension in case of designated and related summonses.

    (a) General rule. The running of the applicable period of 
limitations on assessment provided for in section 6501 is suspended with 
respect to any return of tax by a corporation that is the subject of a 
designated or related summons if a court proceeding is instituted with 
respect to that summons.
    (b) Period of suspension. The period of suspension is the time 
during which the running of the applicable period of limitations on 
assessment provided for in section 6501 is suspended under section 
6503(j). If a court requires any compliance with a designated or related 
summons by ordering that any record, document, paper, object, or items 
be produced, or the testimony of any person be given, the period of 
suspension consists of the judicial enforcement period plus 120 days. If 
a court does not require any compliance with a designated or related 
summons, the period of suspension consists of the judicial enforcement 
period, and the period of limitations on assessment provided in section 
6501 shall not expire before the 60th day after the close of the 
judicial enforcement period.
    (c) Definitions--(1) A designated summons is a summons issued to a 
corporation (or to any other person to whom the corporation has 
transferred records) with respect to any return of tax by such 
corporation for a taxable period for which such corporation is being 
examined under the coordinated industry case program or any other 
successor to the coordinated examination program if--
    (i) The Division Commissioner and the Division Counsel of the Office 
of Chief Counsel (or their successors) for the organizations that have 
jurisdiction over the corporation whose tax liability is the subject of 
the summons have reviewed the summons before it is issued;
    (ii) The Internal Revenue Service (IRS) issues the summons at least 
60 days before the day the period prescribed in section 6501 for the 
assessment of tax expires (determined with regard to extensions); and
    (iii) The summons states that it is a designated summons for 
purposes of section 6503(j).
    (2) A related summons is any summons issued that--
    (i) Relates to the same return of the corporation under examination 
as the designated summons; and
    (ii) Is issued to any person, including the person to whom the 
designated summons was issued, during the 30-day period that begins on 
the day the designated summons is issued.
    (3) The judicial enforcement period is the period that begins on the 
day on which a court proceeding is instituted with respect to a 
designated or related summons and ends on the day on which there is a 
final resolution as to the summoned person's response to that summons.
    (4) Court proceeding--(i) In general. For purposes of this section, 
a court proceeding is a proceeding filed in a United States district 
court either to quash a designated or related summons under section 
7609(b)(2) or to enforce a designated or related summons under section 
7604. A court proceeding includes any collateral proceeding, such as a 
civil contempt proceeding.
    (ii) Date when proceeding is no longer pending. A proceeding to 
quash or to enforce a designated or related summons is no longer pending 
when all appeals (including review by the Supreme Court) are disposed of 
or after the expiration of the period in which an appeal may be taken or 
a request for further review (including review by the Supreme Court) may 
be made. If, however, following an enforcement order, a

[[Page 525]]

collateral proceeding is brought challenging whether the testimony given 
or production made by the summoned party fully satisfied the court order 
and whether sanctions should be imposed against the summoned party for a 
failure to so testify or produce, the proceeding to quash or to enforce 
the summons shall include the time from which the proceeding to quash or 
to enforce the summons was brought until the decision in the collateral 
proceeding becomes final. The decision becomes final on the date when 
all appeals (including review by the Supreme Court) are disposed of or 
when all appeal periods or all periods for further review (including 
review by the Supreme Court) expire. A decision in a collateral 
proceeding becomes final when all appeals (including review by the 
Supreme Court) are disposed of or when all appeal periods or all periods 
for further review (including review by the Supreme Court) expire.
    (5) Compliance--(i) In general. Compliance is the giving of 
testimony or the performance of an act or acts of production, or both, 
in response to a court order concerning the designated or related 
summons and the determination that the terms of the court order have 
been satisfied.
    (ii) Date compliance occurs. Compliance with a court order that 
wholly denies enforcement of a designated or related summons is deemed 
to occur on the date when all appeals (including review by the Supreme 
Court) are disposed of or when the period in which an appeal may be 
taken or a request for further review (including review by the Supreme 
Court) may be made expires. Compliance with a court order that grants 
enforcement, in whole or in part, of a designated or related summons, 
occurs on the date the IRS determines that the testimony given, or the 
books, papers, records, or other data produced, or both, by the summoned 
party fully satisfy the court order concerning the summons. The IRS will 
determine whether there has been full compliance within a reasonable 
time, given the volume and complexity of the records produced, after the 
later of the giving of all testimony or the production of all records 
requested by the summons or required by any order enforcing any part of 
the summons. If, following an enforcement order, collateral proceedings 
are brought challenging whether the production made by the summoned 
party fully satisfied the court order and whether sanctions should be 
imposed against the summoned party for a failing to do so, the 
suspension of the periods of limitations shall continue until the order 
enforcing any part of the summons is fully complied with and the 
decision in the collateral proceeding becomes final. A decision in a 
collateral proceeding becomes final when all appeals are disposed of, 
the period in which an appeal may be taken has expired or the period in 
which a request for further review may be made has expired.
    (6) Final resolution occurs when the designated or related summons 
or any order enforcing any part of the designated or related summons is 
fully complied with and all appeals or requests for further review are 
disposed of, the period in which an appeal may be taken has expired or 
the period in which a request for further review may be made has 
expired.
    (d) Special rules--(1) Number of summonses that may be issued--(i) 
Designated summons. Only one designated summons may be issued in 
connection with the examination of a specific taxable year or other 
period of a corporation. A designated summons may cover more than one 
year or other period of a corporation. The designated summons may 
require production of information that was previously sought in a 
summons (other than a designated summons) issued in the course of the 
examination of that particular corporation if that information was not 
previously produced.
    (ii) Related summonses. There is no restriction on the number of 
related summonses that may be issued in connection with the examination 
of a corporation. As provided in paragraph (c)(2) of this section, 
however, a related summons must be issued within the 30-day period that 
begins on the date on which the designated summons to which it relates 
is issued and must relate to the same return as the designated summons. 
A related summons may request

[[Page 526]]

the same information as the designated summons.
    (2) Time within which court proceedings must be brought. In order 
for the period of limitations on assessment to be suspended under 
section 6503(j), a court proceeding to enforce or to quash a designated 
or related summons must be instituted within the period of limitations 
on assessment provided in section 6501 that is otherwise applicable to 
the tax return.
    (3) Computation of suspension period if multiple court proceedings 
are instituted. If multiple court proceedings are instituted to enforce 
or to quash a designated or one or more related summonses concerning the 
same tax return, the period of limitations on assessment is suspended 
beginning on the date the first court proceeding is brought. The 
suspension shall end on the date that is the latest date on which the 
judicial enforcement period, plus the 120 day or 60 day period 
(depending on whether the court requires any compliance) as provided in 
paragraph (b) of this section, expires with respect to each summons.
    (4) Effect on other suspension periods--(i) In general. Suspensions 
of the period of limitations under section 6501 provided for under 
subsections 7609(e)(1) and (e)(2) do not apply to any summons that is 
issued pursuant to section 6503(j). The suspension under section 6503(j) 
of the running of the period of limitations on assessment under section 
6501 is independent of, and may run concurrent with, any other 
suspension of the period of limitations on assessment that applies to 
the tax return to which the designated or related summons relates.
    (ii) Examples. The rules of paragraph (d)(4)(i) of this section are 
illustrated by the following examples:

    Example 1. The period of limitations on assessment against 
Corporation P, a calendar year taxpayer, for its 2007 return is 
scheduled to end on March 17, 2011. (Ordinarily, Corporation P's returns 
are filed on March 15th of the following year, but March 15, 2008, was a 
Saturday, and Corporation P timely filed its return on the subsequent 
Monday, March 17, 2008, making March 17, 2011 the last day of the period 
of limitations on assessment for Corporation P's 2007 tax year.) On 
January 4, 2011, a designated summons is issued to Corporation P 
concerning its 2007 return. On March 3, 2011 (14 days before the period 
of limitations on assessment would otherwise expire with respect to 
Corporation P's 2007 return), a court proceeding is brought to enforce 
the designated summons issued to Corporation P. On June 6, 2011, the 
court orders Corporation P to comply with the designated summons. 
Corporation P does not appeal the court's order. On September 6, 2011, 
agents for Corporation P deliver material that they state are the 
records requested by the designated summons. On October 13, 2011, a 
final resolution to Corporation P's response to the designated summons 
occurs when it is determined that Corporation P has fully complied with 
the court's order. The suspension period applicable with respect to the 
designated summons issued to Corporation P consists of the judicial 
enforcement period (March 3, 2011, through October 13, 2011) and an 
additional 120-day period under section 6503(j)(1)(B), because the court 
required Corporation P to comply with the designated summons. Thus, the 
suspension period applicable with respect to the designated summons 
issued to Corporation P begins on March 3, 2011, and ends on February 
10, 2012. Under the facts of this Example 1, the period of limitations 
on assessment against Corporation P further extends to February 24, 
2012, to account for the additional 14 days that remained on the period 
of limitations on assessment under section 6501 when the suspension 
period under section 6503(j) began.
    Example 2. Assume the same facts set forth in Example 1, except that 
in addition to the issuance of the designated summons and related 
enforcement proceedings, on April 5, 2011, a summons concerning 
Corporation P's 2007 return is issued and served on individual A, a 
third party. This summons is not a related summons because it was not 
issued during the 30-day period that began on the date the designated 
summons was issued. The third-party summons served on individual A is 
subject to the notice requirements of section 7609(a). Final resolution 
of individual A's response to this summons does not occur until February 
15, 2012. Because there is no final resolution of individual A's 
response to this summons by October 5, 2011, which is six months from 
the date of service of the summons, the period of limitations on 
assessment against Corporation P is suspended under section 7609(e)(2) 
to the date on which there is a final resolution to that response for 
the purposes of section 7609(e)(2). Moreover, because final resolution 
to the summons served on individual A does not occur until after 
February 10, 2012, the end of the suspension period for the designated 
summons, the period of limitations on assessment against Corporation P 
expires 14 days after the date that the final resolution as provided for 
in section 7609(e)(2) occurs

[[Page 527]]

with respect to the summons served on individual A.

    (5) Computation of 60-day period when last day of assessment period 
falls on a weekend or holiday. For purposes of paragraph (c)(1)(ii) of 
this section, in determining whether a designated summons has been 
issued at least 60 days before the date on which the period of 
limitations on assessment prescribed in section 6501 expires, the 
provisions of section 7503 apply when the last day of the assessment 
period falls on a Saturday, Sunday, or legal holiday.
    (e) Effective/applicability date. This section is applicable on July 
31, 2009.

[T.D. 9455, 74 FR 38097, July 31, 2009]

                     Limitations on Credit or Refund



Sec.  301.6511(a)-1  Period of limitation on filing claim.

    (a) In the case of any tax (other than a tax payable by stamp):
    (1) If a return is filed, a claim for credit or refund of an 
overpayment must be filed by the taxpayer within 3 years from the time 
the return was filed or within 2 years from the time the tax was paid, 
whichever of such periods expires the later.
    (2) If no return is filed, the claim for credit or refund of an 
overpayment must be filed by the taxpayer within 2 years from the time 
the tax was paid.
    (b) In the case of any tax payable by means of a stamp, a claim for 
credit or refund of an overpayment of such tax must be filed by the 
taxpayer within 3 years from the time the tax was paid. For provisions 
relating to redemption of unsued stamps, see section 6805.
    (c) For limitations on allowance of credit or refund, special rules, 
and exceptions, see subsections (b) through (e) of section 6511. For 
limitations in the case of a petition to the Tax Court, see section 
6512. For rules as to time return is deemed filed and tax considered 
paid, see section 6513.



Sec.  301.6511(b)-1  Limitations on allowance of credits and refunds.

    (a) Effect of filing claim. Unless a claim for credit or refund of 
an overpayment is filed within the period of limitation prescribed in 
section 6511(a), no credit or refund shall be allowed or made after the 
expiration of such period.
    (b) Limit on amount to be credited or refunded. (1) In the case of 
any tax (other than a tax payable by stamp):
    (i) If a return was filed, and a claim is filed within 3 years from 
the time the return was filed, the amount of the credit or refund shall 
not exceed the portion of the tax paid within the period, immediately 
preceding the filing of the claim, equal to 3 years plus the period of 
any extension of time for filing the return.
    (ii) If a return was filed, and a claim is filed after the 3-year 
period described in subdivision (i) of this subparagraph but within 2 
years from the time the tax was paid, the amount of the credit or refund 
shall not exceed the portion of the tax paid within the 2 years 
immediately preceding the filing of the claim.
    (iii) If no return was filed, but a claim is filed, the amount of 
the credit or refund shall not exceed the portion of the tax paid within 
the 2 years immediately preceding the filing of the claim.
    (iv) If no claim is filed, the amount of the credit or refund 
allowed or made by the district director or the director of the regional 
service center shall not exceed the amount that would have been 
allowable under the preceding subdivisions of this subparagraph if a 
claim had been filed on the date the credit or refund is allowed.
    (2) In the case of a tax payable by stamp:
    (i) If a claim is filed, the amount of the credit or refund shall 
not exceed the portion of the tax paid within the 3 years immediately 
preceding the filing of the claim.
    (ii) If no claim is filed, the amount of the credit or refund 
allowed or made by the district director or the director of the regional 
service center shall not exceed the portion of the tax paid within the 3 
years immediately preceding the allowance of the credit or refund.

For provisions relating to redemption of unused stamps, see section 
6805.

[[Page 528]]



Sec.  301.6511(c)-1  Special rules applicable in case of extension 
of time by agreement.

    (a) Scope. If, within the period prescribed in section 6511(a) for 
the filing of a claim for credit or refund, an agreement extending the 
period for assessment of a tax has been made in accordance with the 
provisions of section 6501(c)(4), the special rules provided in this 
section become applicable. This section shall not apply to any claim 
filed, or credit or refund allowed if no claim is filed, either (1) 
prior to the execution of an agreement extending the period in which 
assessment may be made, or (2) more than 6 months after the expiration 
of the period within which an assessment may be made pursuant to the 
agreement or any extension thereof.
    (b) Period in which claim may be filed. Claim for credit or refund 
of an overpayment may be filed, or credit or refund may be allowed if no 
claim is filed, at any time within which an assessment may be made 
pursuant to an agreement, or any extension thereof, under section 
6501(c)(4), and for 6 months thereafter.
    (c) Limit on amount to be credited or refunded. (1) If a claim is 
filed within the time prescribed in paragraph (b) of this section, the 
amount of the credit or refund allowed or made shall not exceed the 
portion of the tax paid after the execution of the agreement and before 
the filing of the claim, plus the amount that could have been properly 
credited or refunded under the provisions of section 6511(b)(2) if a 
claim had been filed on the date of the execution of the agreement.
    (2) If no claim is filed, the amount of credit or refund allowed or 
made within the time prescribed in paragraph (b) of this section shall 
not exceed the portion of the tax paid after the execution of the 
agreement and before the making of the credit or refund, plus the amount 
that could have been properly credited or refunded under the provisions 
of section 6511(b)(2) if a claim had been filed on the date of the 
execution of the agreement.
    (d) Effective date of agreement. The agreement referred to in this 
section shall become effective when signed by the taxpayer and the 
district director or an assistant regional commissioner.



Sec.  301.6511(d)-1  Overpayment of income tax on account of bad debts, 
worthless securities, etc.

    (a)(1) If the claim for credit or refund relates to an overpayment 
of income tax on account of--
    (i) The deductibility by the taxpayer, under section 166 or section 
832(c), of a debt as a debt which became worthless, or, under section 
165(g), of a loss from the worthlessness of a security, or
    (ii) The effect that the deductibility of a debt or loss described 
in subdivision (i) of this subparagraph has on the application to the 
taxpayer of a carryover, then in lieu of the 3-year period from the time 
the return was filed in which claim may be filed or credit or refund 
allowed, as prescribed in section 6511 (a) or (b), the period shall be 7 
years from the date prescribed by law for filing the return (determined 
without regard to any extension of time for filing such return) for the 
taxable year for which the claim is made or the credit or refund allowed 
or made.
    (2) If the claim for credit or refund relates to an overpayment on 
account of the effect that the deductibility of a debt or loss, 
described in subparagraph (1) of this paragraph (a), has on the 
application to the taxpayer of a net operating loss carryback provided 
in section 172(b), the period in which claim for credit or refund may be 
filed shall be whichever of the following two periods expires later:
    (i) Seven years from the last date prescribed for filing the return 
(determined without regard to any extension of time for filing such 
return) for the taxable year of the net operating loss which results in 
such carryback, or
    (ii) The period which ends with the expiration of the period 
prescribed in section 6511(c) within which a claim for credit or refund 
may be filed with respect to the taxable year of the net operating loss 
which resulted in the carryback.
    (3) In the case of a claim for credit or refund involving items 
described in this section, the amount of the credit or refund may exceed 
the portion of the tax paid within the period provided in section 6511 
(b)(2) or (c), whichever is

[[Page 529]]

applicable, to the extent of the amount of the overpayment attributable 
to the deductibility of items described in subparagraph (1) of this 
paragraph (a). If the claim involves an overpayment based not only on 
the deductibility of items described in subparagraph (1) of this 
paragraph (a), but based also on other items, the credit or refund 
cannot exceed the sum of the following:
    (i) The amount of the overpayment which is attributable to the 
deductibility of items described in subparagraph (1) of this paragraph 
(a), and
    (ii) The balance of such overpayment up to a limit of the portion, 
if any, of the tax paid within the period provided in section 6511 
(b)(2) or (c), or within the period provided in any other applicable 
provision of law.
    (4) If the claim involves an overpayment based not only on the 
deductibility of items described in subparagraph (1) of this paragraph 
(a), but based also on other items, and if the claim with respect to any 
items is barred by the expiration of any applicable period of 
limitation, the portion of the overpayment attributable to the items not 
so barred shall be determined by treating the allowance of such items as 
the first adjustment to be made in computing such overpayment.
    (b) If a claim for credit or refund is not filed within the 
applicable period described in paragraph (a) of this section, then 
credit or refund may be allowed or made only if claim therefor is filed 
or if such credit or refund is allowed within any period prescribed in 
section 6511 (a), (b), or (c), whichever is applicable, subject to the 
provisions thereof limiting the amount of credit or refund in the case 
of a claim filed, or, if no claim was filed, in the case of credit or 
refund allowed within such applicable period as prescribed in section 
6511 (b) or (c).
    (c) The provisions of this section and section 6511(d)(1) do not 
apply to an overpayment resulting from the deductibility of a debt that 
became partially worthless during the taxable year, but only to an 
overpayment resulting from the deductibility of a debt which became 
entirely worthless during such year.
    (d) The provisions of paragraph (a) of this section with regard to 
an overpayment caused by the deductibility of a bad debt under section 
166 or section 832(c), or of a loss from the worthlessness of a security 
under section 165(g), are likewise applicable to an overpayment caused 
by the effect that the deductibility of such bad debt or loss has on the 
application to the taxpayer of a carryover or of a carryback.



Sec.  301.6511(d)-2  Overpayment of income tax on account of 
net operating loss or capital loss carrybacks.

    (a) Special period of limitation. (1) If the claim for credit or 
refund relates to an overpayment of income tax attributable to a net 
operating loss carryback (provided in section 172(b)), or a capital loss 
carryback (provided in section 1212(a)), then in lieu of the 3-year 
period from the time the return was filed in which the claim may be 
filed or credit or refund allowed, as prescribed in section 6511 (a) or 
(b), the period shall be whichever of the following two periods expires 
later:
    (i) The period which ends with the expiration of the 15th day of the 
40th month (or 39th month, in the case of a corporation) following the 
end of the taxable year of the net operating loss or net capital loss 
which resulted in the carryback; or
    (ii) The period which ends with the expiration of the period 
prescribed in section 6511(c) within which a claim for credit or refund 
may be filed with respect to the taxable year of the net operating loss 
or net capital loss which resulted in the carryback except that--
    (a) With respect to an overpayment attributable to a net operating 
loss carryback to any year on account of a certification issued to the 
taxpayer under section 317 of the Trade Expansion Act of 1962, the 
period shall not expire before the expiration of the sixth month 
following the month in which such certification is issued to the 
taxpayer, and
    (b) With respect to an overpayment attributable to the creation of, 
or an increase in, a net operating loss as a result of the elimination 
of excessive profits by a renegotiation (as defined in section 
1481(a)(1)(A)), the period shall not expire before September 1, 1959, or

[[Page 530]]

the expiration of the 12th month following the month in which the 
agreement or order for the elimination of such excessive profits becomes 
final, whichever is the later.
    (2) In the case of a claim for credit or refund involving a net 
operating loss or capital loss carryback described in subparagraph (1) 
of this paragraph (a), the amount of the credit or refund may exceed the 
portion of the tax paid within the period provided in section 6511 
(b)(2) or (c), whichever is applicable, to the extent of the amount of 
the overpayment attributable to the carryback. If the claim involves an 
overpayment based not only on a net operating loss or capital loss 
carryback described in subparagraph (1) of this paragraph (a), but based 
also on other items, the credit or refund cannot exceed the sum of the 
following:
    (i) The amount of the overpayment which is attributable to the net 
operating loss or capital loss carryback, and
    (ii) The balance of such overpayment up to a limit of the portion, 
if any, of the tax paid within the period provided in section 6511 
(b)(2) or (c), or within the period provided in any other applicable 
provision of law.
    (3) If the claim involves an overpayment based not only on a net 
operating loss or capital loss carryback described in subparagraph (1) 
of this paragraph (a), but based also on other items, and if the claim 
with respect to any items is barred by the expiration of any applicable 
period of limitation, the portion of the overpayment attributable to the 
items not so barred shall be determined by treating the allowance of 
such items as the first adjustment to be made in computing such 
overpayment. If a claim for credit or refund is not filed, and if credit 
or refund is not allowed, within the period prescribed in this 
paragraph, then credit or refund may be allowed or made only if claim 
therefor is filed, or if such credit or refund is allowed, within the 
period prescribed in section 6511 (a), (b), or (c), whichever is 
applicable, subject to the provisions thereof limiting the amount of 
credit or refund in the case of a claim filed, or if no claim was filed, 
in case of credit or refund allowed, within such applicable period. For 
the limitations on the allowance of interest for an overpayment where 
credit or refund is subject to the provisions of this section, see 
section 6611(f).
    (b)(1) Barred overpayments. If the allowance of a credit or refund 
of an overpayment of tax attributable to a net operating loss carryback 
or capital loss carryback is otherwise prevented by the operation of any 
law or rule of law (other than section 7122, relating to compromises), 
such credit or refund may be allowed or made under the provisions of 
section 6511(d)(2)(B) if a claim therefor is filed within the period 
provided by section 6511(d)(2)(A) and paragraph (a) of this section for 
filing a claim for credit or refund of an overpayment attributable to a 
carryback. Similarly, if the allowance of an application, credit, or 
refund of a decrease in the tax determined under section 6411(b) is 
otherwise prevented by the operation of any law or rule of law (other 
than section 7122), such application, credit, or refund may be allowed 
or made if an application for a tentative carryback adjustment is filed 
within the period provided in section 6411(a). Thus, for example, even 
though the tax liability (not including the net operating loss deduction 
or capital loss carryback (or the effect of such deduction or 
carryback)) for a given taxable year has previously been litigated 
before the Tax Court, credit or refund of an overpayment may be allowed 
or made despite the provisions of section 6512(a), if claim for such 
credit or refund is filed within the period provided in section 
6511(d)(2)(A) and paragraph (a) of this section. In the case of a claim 
for credit or refund of an overpayment attributable to a carryback, or 
in the case of an application for a tentative carryback adjustment, the 
determination of any court, including the Tax Court, in any proceeding 
in which the decision of the court has become final, shall be conclusive 
except with respect to the net operating loss deduction, and the effect 
of such deduction, or with respect to the determination of a short-term 
capital loss, and the effect of such short-term capital loss, to the 
extent that such deduction or short-term capital loss is affected by a 
carryback which was not in issue in such proceeding.

[[Page 531]]

    (2) For purposes of the special period of limitation for filing a 
claim for credit or refund of an overpayment of tax with respect to a 
computation year (as defined in section 1302(c)(1)) by an individual who 
has chosen to compute his tax under sections 1301 through 1305 (relating 
to income averaging), such claim is determined to relate to an 
overpayment attributable to a net operating loss carryback when such 
carryback relates to any base period year (as defined in section 
1302(c)(3)). Thus, if (i) an individual has a net operating loss for a 
taxable year subsequent to a taxable year for which he had chosen the 
benefits of income averaging, and (ii) such net operating loss carryback 
is wholly utilized in any one or more of his base period years (which 
would result in an increased amount of averageable income for such 
computation year), the special period of limitation with respect to such 
individual's computation year applies and a timely claim for credit or 
refund with respect to the computation year may be filed.

[T.D. 7196, 37 FR 13691, July 13, 1972, and T.D. 7301, 39 FR 976, Jan. 
4, 1974]



Sec.  301.6511(d)-3  Special rules applicable to credit against 
income tax for foreign taxes.

    (a) Period in which claim may be filed. In the case of an 
overpayment of income tax resulting from a credit, allowed under the 
provisions of section 901 or under the provisions of any treaty to which 
the United States is a party, for taxes paid or accrued to a foreign 
country or possession of the United States, a claim for credit or refund 
must be filed by the taxpayer within 10 years from the last date 
prescribed for filing the return (determined without regard to any 
extension of time for filing such return) for the taxable year with 
respect to which the claim is made. Such 10-year period shall be applied 
in lieu of the 3-year period prescribed in section 6511(a).
    (b) Limit on amount to be credited or refunded. In the case of a 
claim described in paragraph (a) of this section, the amount of the 
credit or refund allowed or made may exceed the portion of the tax paid 
within the period prescribed in section 6511 (b) or (c), whichever is 
applicable, to the extent of the amount of the overpayment attributable 
to the allowance of a credit against income tax referred to in paragraph 
(a) of this section.



Sec.  301.6511(d)-4  Overpayment of income tax on account of 
investment credit carryback.

    (a) Special period of limitation. (1) If the claim for credit or 
refund relates to an overpayment of income tax attributable to an 
investment credit carryback, provided in section 46(b), then in lieu of 
the 3-year period from the time the return was filed in which the claim 
may be filed or credit or refund allowed, as prescribed in section 6511 
(a) or (b), the period shall be whichever of the following 2 periods 
expires later:
    (i) The period which ends with the expiration of the 15th day of the 
40th month (or 39th month, in the case of a corporation) following the 
end of the taxable year of the unused investment credit which resulted 
in the carryback (or, with respect to any portion of an investment 
credit carryback from a taxable year attributable to a net operating 
loss carryback or a capital loss carryback from a subsequent taxable 
year, the period which ends with the expiration of the 15th day of the 
40th month (or 39th month, in the case of a corporation) following the 
end of such subsequent taxable year); or
    (ii) The period which ends with the expiration of the period 
prescribed in section 6511(c) within which a claim for credit or refund 
may be filed with respect to the taxable year of the unused investment 
credit which resulted in the carryback.
    (2) In the case of a claim for credit or refund involving an 
investment credit carryback described in subparagraph (1) of this 
paragraph, the amount of the credit or refund may exceed the portion of 
the tax paid within the period provided in section 6511 (b)(2) or (c), 
whichever is applicable, to the extent of the amount of the overpayment 
attributable to the carryback. If the claim involves an overpayment 
based not only on an investment credit carryback described in 
subparagraph (1) of this paragraph (a), but based also on other items, 
the credit or refund cannot exceed the sum of the following:

[[Page 532]]

    (i) The amount of the overpayment which is attributable to the 
investment credit carryback, and
    (ii) The balance of such overpayment up to a limit of the portion, 
if any, of the tax paid within the period provided in section 6511 
(b)(2) or (c), or within the period provided in any other applicable 
provision of law.
    (3) If the claim involves an overpayment based not only on an 
investment credit carryback described in subparagraph (1) of this 
paragraph (a), but based also on other items, and if the claim with 
respect to any items is barred by the expiration of any applicable 
period of limitation, the portion of the overpayment attributable to the 
items not so barred shall be determined by treating the allowance of 
such items as the first adjustment to be made in computing such 
overpayment. If a claim for credit or refund is not filed, and if credit 
or refund is not allowed, within the period prescribed in this 
paragraph, then credit or refund may be allowed or made only if claim 
therefor is filed, or if such credit or refund is allowed, within the 
period prescribed in section 6511 (a), (b), or (c), whichever is 
applicable, subject to the provisions thereof limiting the amount of 
credit or refund in the case of a claim filed, or if no claim was filed, 
in case of credit or refund allowed, within such applicable period. For 
the limitations on the allowance of interest for an overpayment where 
credit or refund is subject to the provisions of this section, see 
section 6611(f).
    (b) Barred overpayments. If the allowance of a credit or refund of 
an overpayment of tax attributable to an investment credit carryback is 
otherwise prevented by the operation of any law or rule of law (other 
than section 7122, relating to compromises), such credit or refund may 
be allowed or made under the provisions of section 6511(d)(4)(B) if a 
claim therefor is filed within the period provided by section 
6511(d)(4)(A) and paragraph (a) of this section for filing a claim for 
credit or refund of an overpayment attributable to a carryback. In the 
case of a claim for credit or refund of an overpayment attributable to a 
carryback, the determination of any court, including the Tax Court, in 
any proceeding in which the decision of the court has become final, 
shall not be conclusive with respect to the investment credit, and the 
effect of such credit, to the extent that such credit is affected by a 
carryback which was not in issue in such proceeding.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7301, 39 FR 977, Jan. 4, 
1974]



Sec.  301.6511(e)-1  Special rules applicable to manufactured sugar.

    (a) Use as livestock feed and for distillation of alcohol. No 
payment shall be allowed or made under section 6418 (a) unless within 2 
years after the date the right to such payment has accrued a claim 
therefor is filed by the person entitled thereto. Such right accrues as 
of the date the manufactured sugar, or article manufactured therefrom, 
is used for a purpose for which payment is allowable under section 
6418(a).
    (b) Exportation. No payment shall be allowed or made under section 
6418 (b) unless within 2 years after the date the right to such payment 
has accrued a claim therefor is filed by the person entitled thereto. 
Such right accrues as of the date the articles are exported.



Sec.  301.6511(f)-1  Special rules for chapter 42 taxes.

    (a) In general. Claims for credit or refund of an overpayment of any 
tax imposed by chapter 42 shall be filed by the taxpayer within 3 years 
from the time a return was filed by the private foundation or trust (as 
the case may be) with respect to such tax, or within 2 years from the 
time the tax was paid, whichever of such periods expire the later.
    (b) Examples. This section may be illustrated by the following 
examples:

    Example 1. In 1972, D, an individual taxpayer who was a disqualified 
person under the provisions of section 4946(a)(1), participated in an 
act of self-dealing with a private foundation and incurred a tax under 
section 4941(a)(1). The private foundation files a Form 990-PF on May 
15, 1973, and discloses thereon that it has engaged in an act of self-
dealing with D. D files a Form 4720 on July 2, 1973, and pays the amount 
of tax imposed by section 4941(a) with respect to such act of self-
dealing. For purposes of this section, the return was filed on May 15, 
1973, and any claim for credit or refund by D must be filed

[[Page 533]]

by May 17, 1976 (May 15, 1976, was a Saturday).
    Example 2. Assume the same facts as in example 1 except that D filed 
a Form 4720 on July 1, 1974, and pays the tax on that date. D must then 
file any claim for credit or refund by July 1, 1976.

[T.D. 7838, 47 FR 44252, Oct. 7, 1982]



Sec.  301.6512-1  Limitations in case of petition to Tax Court.

    (a) Effect of petition to Tax Court--(1) General rule. If a person 
having a right to file a petition with the Tax Court with respect to a 
deficiency in income, estate, gift, or excise tax imposed by subtitle A 
or B, or chapter 41, 42, 43, or 44 of the Code has filed such petition 
within the time prescribed in section 6213(a), no credit or refund of 
income tax for the same taxable year, of gift tax for the same calendar 
year or calendar quarter, of estate tax in respect of the taxable estate 
of the same decedent, or of tax imposed by chapter 41, 42, 43, or 44 
with respect to any act (or failure to act) to which such petition 
relates, in respect of which a district director or director of a 
service center (or a regional director of appeals) has determined the 
deficiency, shall be allowed or made, and no suit in any court for the 
recovery of any part of such tax shall be instituted by the taxpayer, 
except as to items set forth in paragraph (a)(2) of this section.
    (2) Exceptions. The exceptions to the rule stated in subparagraph 
(1) of this paragraph (a), are as follows:
    (i) An overpayment determined by a decision of the Tax Court which 
has become final;
    (ii) Any amount collected in excess of an amount computed in 
accordance with the decision of the Tax Court which has become final; 
and
    (iii) Any amount collected after the expiration of the period of 
limitation upon levying or beginning a proceeding in court for 
collection.
    (b) Overpayment determined by Tax Court. If the Tax Court finds that 
there is no deficiency and further finds that the taxpayer has made an 
overpayment of income tax for the same taxable year, of gift tax for the 
same calendar year or calendar quarter, of estate tax in respect of the 
taxable estate of the same decedent, or of tax imposed by chapter 41, 
42, 43, or 44 with respect to any act (or failure to act) to which such 
petition relates, in respect of which a district director, or director 
of a service center (or a regional director of appeals) has determined 
the deficiency, or finds that there is a deficiency but that the 
taxpayer has made an overpayment of such tax, the overpayment determined 
by the Tax Court shall be credited or refunded to the taxpayer when the 
decision of the Tax Court has become final. (See section 7481, relating 
to the date when a Tax Court decision becomes final.) No such credit or 
refund shall be allowed or made of any portion of the tax unless the Tax 
Court determines as part of its decision that such portion was paid--
    (1) After the mailing of the notice of deficiency, or
    (2) Within the period which would be applicable under section 
6511(b)(2), (c), (d) or (g) (see Sec. Sec.  301.6511(b)-1. 301.6511(c)-
1, 301.6511(d)-1, 301.6511(d)-2, and 301.6511(d)-3), if on the date of 
the mailing of the notice of deficiency a claim had been filed (whether 
or not filed) stating the grounds upon which the Tax Court finds that 
there is an overpayment.
    (c) Jeopardy assessments. In the case of a jeopardy assessment made 
under section 6861(a), if the amount which should have been assessed as 
determined by a decision of the Tax Court which has become final is less 
than the amount already collected, the excess payment shall be credited 
or refunded subject to a determination being made by the Tax Court with 
respect to the time of payment as stated in paragraph (b) of this 
section.
    (d) Disallowance of deficiency by reviewing court. If the amount of 
the deficiency determined by the Tax Court (in a case where collection 
has not been stayed by the filing of a bond) is disallowed in whole or 
in part by the reviewing court, then the overpayment resulting from such 
disallowance shall be credited or refunded without the making of claim 
therefor, subject to a determination being made by the Tax Court with 
respect to the time of payment as stated in paragraph (b) of this 
section. (See section 7481, relating to date Tax Court decision becomes 
final.)
    (e) Collection in excess of amount determined by Tax Court. Where 
the amount

[[Page 534]]

collected is in excess of the amount computed in accordance with the 
decision of the Tax Court which has become final, the excess payment 
shall be credited or refunded within the period of limitation provided 
in section 6511.
    (f) Collection after expiration of statutory period. Where an amount 
is collected after the statutory period of limitation upon the beginning 
of levy or a proceeding in court for collection has expired (see section 
6502, relating to collection after assessment), the taxpayer may file a 
claim for refund of the amount so collected within the period of 
limitation provided in section 6511. In any such case, the decision of 
the Tax Court as to whether the statutory period upon collection of the 
tax expired before notice of the deficiency was mailed shall, when the 
decision becomes final, be conclusive.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7838, 47 FR 44252, Oct. 
7, 1982]



Sec.  301.6513-1  Time return deemed filed and tax considered paid.

    (a) Early return or advance payment of tax. For purposes of section 
6511, a return filed before the last day prescribed by law or 
regulations for the filing thereof shall be considered as filed on such 
last day. For purposes of section 6511 (b)(2) and (c) and section 6512, 
payment of any portion of the tax made before the last day prescribed 
for payment shall be considered made on such last day. An extension of 
time for filing a return or for paying any tax, or an election to pay 
any tax in installments, shall not be given any effect in determining 
under this section the last day prescribed for filing a return or paying 
any tax.
    (b) Prepaid income tax. For purposes of section 6511 (relating to 
limitations on credit or refund) or section 6512 (relating to 
limitations in case of petition to Tax Court)--
    (1) Any tax actually deducted and withheld at the source during any 
calendar year under chapter 24 of the Code (relating to collection of 
income tax at source on wages) shall, in respect of the recipient of the 
income, be deemed to have been paid by him on the 15th day of the fourth 
month following the close of his taxable year with respect to which such 
tax is allowable as a credit under section 31 (relating to tax withheld 
on wages),
    (2) Any amount paid as estimated income tax for any taxable year 
shall be deemed to have been paid on the last day prescribed for filing 
the income tax return under section 6012 for such taxable year 
(determined without regard to any extension of time for filing such 
return), and
    (3) Any tax withheld at the source on or after November 13, 1966, 
under chapter 3 of the Code (relating to tax withheld on nonresident 
aliens and foreign corporations and tax-free covenant bonds) shall, in 
respect of the recipient of the income, be deemed to have been paid by 
such recipient on the last day prescribed for filing his income tax 
return under section 6012 for the taxable year (determined without 
regard to any extension of time for filing such return) with respect to 
which such tax is allowable as a credit under section 1462 (relating to 
withheld tax as credit to recipient of income).

Subparagraph (3) of this paragraph (b), shall apply even though the 
recipient of the income has been granted under section 6012 and the 
regulations thereunder an exemption from the requirement of making an 
income tax return for the taxable year.
    (c) Return and payment of social security taxes and income tax 
withholding. Notwithstanding paragraph (a) of this section, if a return 
(or payment) on or after November 13, 1966, of tax imposed by chapter 3 
of the Code (relating to withholding of tax on nonresident aliens and 
foreign corporations and tax-free covenant bonds), or if a return (or 
payment) of tax imposed by chapter 21 of the Code (relating to the 
Federal Insurance Contributions Act) or by chapter 24 of the Code 
(relating to the collection of income tax at source on wages), for any 
period ending with or within a calendar year is filed or paid before 
April 15 of the succeeding calendar year, for purposes of section 6511 
(relating to limitations on credit or refund) the return shall be 
considered filed, or the tax considered paid, on April 15 of such 
succeeding calendar year.
    (d) Overpayment of income tax credited to estimated tax. If a 
taxpayer elects under the provisions of section 6402(b)

[[Page 535]]

to credit an overpayment of income tax for a taxable year against 
estimated tax for the succeeding taxable year, the amount so credited 
shall be considered a payment of income tax for such succeeding taxable 
year (whether or not claimed as a credit on the estimated tax return for 
such succeeding taxable year). If the treatment of such amount as a 
payment of income tax for the succeeding taxable year results in an 
overpayment for such succeeding taxable year, the period of limitations 
applicable to such overpayment is determined by reference to that 
taxable year. An election so to credit an overpayment of income tax 
precludes the allowance of a claim for credit or refund of such 
overpayment for the taxable year in which the overpayment arises.



Sec.  301.6514(a)-1  Credits or refunds after period of limitation.

    (a) A refund of any portion of any internal revenue tax (or any 
interest, additional amount, addition to the tax, or assessable penalty) 
shall be considered erroneous and a credit of any such portion shall be 
considered void:
    (1) If made after the expiration of the period of limitation 
prescribed by section 6511 for filing claim therefor, unless prior to 
the expiration of such period claim was filed, or
    (2) In the case of a timely claim, if the credit or refund was made 
after the expiration of the period of limitation prescribed by section 
6532(a) for the filing of suit, unless prior to the expiration of such 
period suit was begun.
    (b) For procedure by the United States to recover erroneous refunds, 
see sections 6532(b) and 7405.



Sec.  301.6514(b)-1  Credit against barred liability.

    Any credit against a liability in respect of any taxable year shall 
be void if the collection of such liability would be barred by the 
applicable statute of limitations at the time such credit is made.

              Mitigation of Effect of Period of Limitations



Sec.  301.6521-1  Mitigation of effect of limitation in case of related 
employee social security tax and self-employment tax.

    (a) Section 6521 may be applied in the correction of a certain type 
of error involving both the tax on self-employment income under section 
1401 and the employee tax under section 3101 if the correction of the 
error as to one tax is, on the date the correction is authorized, 
prevented in whole or in part by the operation of any law or rule of law 
other than section 7122, relating to compromises. Examples of such law 
are sections 6212(c), 6401(a), 6501, 6511, 6512(a), 6514, 6532, 6901 
(c), (d) and (e), 7121, and 7459(e).
    (b) If the liability for either tax with respect to which the error 
was made has been compromised under section 7122, the provisions of 
section 6521 limiting the correction with respect to the other tax do 
not apply.
    (c) Section 6521 is not applicable if, on the date of the 
authorization, correction of the effect of the error is permissible as 
to both taxes without recourse to such section.
    (d) If, because an amount of wages, as defined in section 3121(a), 
is erroneously treated as self-employment income, as defined in section 
1402(b), or an amount of self-employment income is erroneously treated 
as wages, it is necessary in correcting the error to assess the correct 
tax and give a credit or refund for the amount of the tax erroneously 
paid, and if either, but not both, of such adjustments is prevented by 
any law or rule of law (other than section 7122), the amount of the 
assessment, or the amount of the credit or refund, authorized shall 
reflect the adjustment which would be made in respect of the other tax 
(either the tax on self-employment income under section 1401 or the 
employee tax under section 3101) but for the operation of such law or 
rule of law. For example, assume that during 1955 A paid $10 as tax on 
an amount erroneously treated as ``wages'', when such amount was 
actually self-employment income, and that credit or refund of the $10 is 
not

[[Page 536]]

barred. A should have paid a self-employment tax of $15 on the amount. 
If the assessment of the correct tax, that is, $15, is barred by the 
statute of limitations, no credit or refund of the $10 shall be made 
without offsetting against such $10 the $15, assessment of which is 
barred. Thus, no credit or refund in respect of the $10 can be made.
    (e) As another example, assume that during 1955 a taxpayer reports 
wages of $4,200 and net earnings from self-employment of $900. By reason 
of the limitations of section 1402(b) he shows no self-employment 
income. Assume further that by reason of a final decision by the Tax 
Court of the United States, further adjustments to the taxpayer's income 
tax liability are barred. The question of the amount of his wages, as 
defined in section 3121, was not in issue in the Tax Court litigation, 
but it is subsequently determined (within the period of limitations 
applicable under the Federal Insurance Contributions Act) that $700 of 
the $4,200 reported as wages was not for employment as defined in 
section 3121(b). Therefore, the taxpayer is entitled to the allowance of 
a refund of the $14 tax paid on such remuneration under section 3101. 
The reduction of his wages from $4,200 to $3,500 would result in the 
determination of $700 self-employment income, the tax on which is $21 
for the year. Under section 6521, the overpayment of $14 would be offset 
by the barred deficiency of $21, thus eliminating the refund otherwise 
allowable. If the facts were changed so that the taxpayer erroneously 
paid tax on self-employment income of $700, having been taxed on only 
$3,500 as wages, and within the period of limitations applicable under 
the Federal Insurance Contributions Act, it is determined that his wages 
were $4,200, the tax of $14 under section 3101, otherwise collectible, 
would be eliminated by offsetting under section 6521 the barred 
overpayment of $21. The balance of the barred overpayment, $7, cannot be 
credited or refunded.
    (f) Another illustration of the operation of section 6521 is the 
case of a taxpayer who, for 1955, is erroneously taxed on $2,500 as 
wages, the tax on which is $50, and who reports no self-employment 
income. After the period of limitations has run on the refund of the tax 
under the Federal Insurance Contributions Act, it is determined that the 
amount treated as wages should have been reported as net earnings from 
self-employment. The taxpayer's self-employment income would then be 
$2,500 and the tax thereon would be $75. Assume that the period of 
limitations applicable to subtitle A of the Code has not expired, and 
that a notice of deficiency may properly be issued. Under section 6521, 
the amount of the deficiency of $75 must be reduced by the barred 
overpayment of $50.



Sec.  301.6521-2  Law applicable in determination of error.

    The question of whether there was an erroneous treatment of self-
employment income or of wages is determined under the provisions of law 
and regulations applicable with respect to the year or other taxable 
period as to which the error was made. The fact that the error was in 
pursuance of an interpretation, either judicial or administrative, 
accorded such provisions of law and regulations at the time the action 
involved was taken is not necessarily determinative of this question. 
For example, if a later judicial decision authoritatively alters such 
interpretation so that such action is contrary to the applicable 
provisions of the law and regulations as later interpreted, the error 
comes within the scope of section 6521.

              Periods of Limitation in Judicial Proceedings



Sec.  301.6532-1  Periods of limitation on suits by taxpayers.

    (a) No suit or proceeding under section 7422(a) for the recovery of 
any internal revenue tax, penalty, or other sum shall be begun until 
whichever of the following first occurs:
    (1) The expiration of 6 months from the date of the filing of the 
claim for credit or refund, or
    (2) A decision is rendered on such claim prior to the expiration of 
6 months after the filing thereof.

Except as provided in paragraph (b) of this section, no suit or 
proceeding for the recovery of any internal revenue tax, penalty, or 
other sum may be brought after the expiration of 2 years

[[Page 537]]

from the date of mailing by registered mail prior to September 3, 1958, 
or by either registered or certified mail on or after September 3, 1958, 
by a district director, a director of an internal revenue service 
center, or an assistant regional commissioner to a taxpayer of a notice 
of disallowance of the part of the claim to which the suit or proceeding 
relates.
    (b) The 2-year period described in paragraph (a) of this section may 
be extended if an agreement to extend the running of the period of 
limitations is executed. The agreement must be signed by the taxpayer or 
by an attorney, agent, trustee, or other fiduciary on behalf of the 
taxpayer. If the agreement is signed by a person other than the 
taxpayer, it shall be accompanied by an authenticated copy of the power 
of attorney or other legal evidence of the authority of such person to 
act on behalf of the taxpayer. If the taxpayer is a corporation, the 
agreement should be signed with the corporate name followed by the 
signature of a duly authorized officer of the corporation. The agreement 
will not be effective until signed by a district director, a director of 
an internal revenue service center, or an assistant regional 
commissioner.
    (c) The taxpayer may sign a waiver of the requirement that he be 
mailed a notice of disallowance. Such waiver is irrevocable and will 
commence the running of the 2-year period described in paragraph (a) of 
this section on the date the waiver is filed. The waiver shall set 
forth:
    (1) The type of tax and the taxable period covered by the taxpayer's 
claim for refund;
    (2) The amount of the claim;
    (3) The amount of the claim disallowed;
    (4) A statement that the taxpayer agrees the filing of the waiver 
will commence the running of the 2-year period provided for in section 
6532(a)(1) as if a notice of disallowance had been sent the taxpayer by 
either registered or certified mail.

The filing of such a waiver prior to the expiration of 6 months from the 
date the claim was filed does not permit the filing of a suit for refund 
prior to the time specified in section 6532(a)(1) and paragraph (a) of 
this section.
    (d) Any consideration, reconsideration, or other action with respect 
to a claim after the mailing by registered mail prior to September 3, 
1958, or by either registered or certified mail on or after September 3, 
1958, of a notice of disallowance or after the execution of a waiver 
referred to in paragraph (c) of this section, shall not extend the 
period for bringing suit or other proceeding under section 7422(a).



Sec.  301.6532-2  Periods of limitation on suits by the United States.

    The United States may not recover any erroneous refund by civil 
action under section 7405 unless such action is begun within 2 years 
after the making of such refund. However, if any part of the refund was 
induced by fraud or misrepresentation of a material fact, the action to 
recover the erroneous refund may be brought at any time within 5 years 
from the date the refund was made.



Sec.  301.6532-3  Periods of limitation on suits by persons 
other than taxpayers.

    (a) General rule. No suit or proceeding, except as otherwise 
provided in section 6532(c)(2) and paragraph (b) of this section, under 
section 7426 and Sec.  301.7426-1 relating to civil actions by persons 
other than taxpayers, shall be begun after the expiration of 9 months 
from the date of levy or agreement under section 6325(b)(3) giving rise 
to such action.
    (b) Period when claim is filed. The 9-month period prescribed in 
section 6532(c)(1) and paragraph (a) of this section shall be extended 
to the shorter of,
    (1) 12 months from the date of filing by a third party of a written 
request under Sec.  301.6343-1(b)(2) for the return of property 
wrongfully levied upon, or
    (2) 6 months from the date of mailing by registered or certified 
mail by the district director to the party claimant of a notice of 
disallowance of the part of the request to which the action relates. A 
request which, under Sec.  301.6343-1(b)(3), is not considered adequate 
does not extend the 9-month period described in paragraph (a) of this 
section.
    (c) Examples. The provisions of this section may be illustrated by 
the following examples:


[[Page 538]]


    Example 1. On June 1, 1970, a tax is assessed against A with respect 
to his delinquent tax liability. On July 19, 1970, a levy is wrongfully 
made upon certain tangible personal property of B's which is in A's 
possession at that time. On July 20, 1970, notice of seizure is given to 
A. Thus, under section 6502(b), July 20, 1970, is the date on which the 
levy is considered to be made. Unless a request for the return of 
property is sooner made to extend the 9-month period, no suit or 
proceeding under section 7426 may be begun by B after April 20, 1971, 
which is 9 months from the date of levy.
    Example 2. Assume the same facts as in the preceding example except 
that, on August 3, 1970, B properly files a request for the return of 
his property wrongfully levied upon. Assume further that the district 
director mails, on March 1, 1971, a notice of disallowance of B's 
request for the return of the property. No suit or proceeding under 
section 7426 may be begun by B after August 3, 1971, which is 12 months 
from the date of filing a request for the return of property wrongfully 
levied upon.
    Example 3. Assume the same facts as in the preceding example except 
that the notice of disallowance of B's request for the return of 
property wrongfully levied upon is mailed to B on November 12, 1970. 
Since the 6-month period from the mailing of the notice of disallowance 
expires before the 12-month period from the date of filing the request 
for the return of property which ends on August 3, 1971, no suit or 
proceeding under section 7426 may be begun by B after May 12, 1971, 
which is 6 months from the date of mailing the notice of disallowance.

[T.D. 7305, 39 FR 9950, Mar. 15, 1974]



                                Interest

                        Interest on Underpayments



Sec.  301.6601-1  Interest on underpayments.

    (a) General rule. (1) Interest at the annual rate referred to in the 
regulations under section 6621 shall be paid on any unpaid amount of tax 
from the last date prescribed for payment of the tax (determined without 
regard to any extension of time for payment) to the date on which 
payment is received.
    (2) For provisions requiring the payment of interest during the 
period occurring before July 1, 1975, see section 6601(a) prior to its 
amendment by section 7 of the Act of Jan. 3, 1975 (Pub. L. 93-625, 88 
Stat. 2115).
    (b) Satisfaction by credits made after December 31, 1957--(1) In 
general. If any portion of a tax is satisfied by the credit of an 
overpayment after December 31, 1957, interest shall not be imposed under 
section 6601 on such portion of the tax for any period during which 
interest on the overpayment would have been allowable if the overpayment 
had been refunded.
    (2) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example 1. An examination of A's income tax returns for the calendar 
years 1955 and 1956 discloses an underpayment of $800 for 1955 and an 
overpayment of $500 for 1956. Interest under section 6601(a) ordinarily 
accrues on the underpayment of $800 from April 15, 1956, to the date of 
payment. However, the 1956 overpayment of $500 is credited after 
December 31, 1957, against the underpayment in accordance with the 
provisions of section 6402(a) and Sec.  301.6402-1. Under such 
circumstances interest on the $800 underpayment runs from April 15, 
1956, the last date prescribed for payment of the 1955 tax, to April 15, 
1957, the date the overpayment of $500 was made. Since interest would 
have been allowed on the overpayment, if refunded, from April 15, 1957, 
to a date not more than 30 days prior to the date of the refund check, 
no interest is imposed after April 15, 1957, on $500, the portion of the 
underpayment satisfied by credit. Interest continues to run, however, on 
$300 (the $800 underpayment for 1955 less the $500 overpayment for 1956) 
to the date of payment.
    Example 2. An examination of A's income tax returns for the calendar 
years 1956 and 1957 discloses an overpayment, occurring on April 15, 
1957, of $700 for 1956 and an underpayment of $400 for 1957. After April 
15, 1958, the last date prescribed for payment of the 1957 tax, the 
district director credits $400 of the overpayment against the 
underpayment. In such a case, interest will accrue upon the overpayment 
of $700 from April 15, 1957, to April 15, 1958, the due date of the 
amount against which the credit is taken. Interest will also accrue 
under section 6611 upon $300 ($700 overpayment less $400 underpayment) 
from April 15, 1958, to a date not more than 30 days prior to the date 
of the refund check. Since a refund of the portion of the overpayment 
credited against the underpayment would have resulted in interest 
running upon such portion from April 15, 1958, to a date not more than 
30 days prior to the date of the refund check, no interest is imposed 
upon the underpayment.

    (c) Last date prescribed for payment. (1) In determining the last 
date prescribed for payment, any extension of time granted for payment 
of tax (including

[[Page 539]]

any postponement elected under section 6163(a)) shall be disregarded. 
The granting of an extension of time for the payment of tax does not 
relieve the taxpayer from liability for the payment of interest thereon 
during the period of the extension. Thus, except as provided in 
paragraph (b) of this section, interest at the annual rate referred to 
in the regulations under section 6621 is payable on any unpaid portion 
of the tax for the period during which such portion remains unpaid by 
reason of an extension of time for the payment thereof.
    (2)(i) If a tax or portion thereof is payable in installments in 
accordance with an election made under section 6152(a) or 6156(a), the 
last date prescribed for payment of any installment of such tax or 
portion thereof shall be determined under the provisions of section 
6152(b) or 6156(b), as the case may be, and interest shall run on any 
unpaid installment from such last date to the date on which payment is 
received. However, in the event installment privileges are terminated 
for failure to pay an installment when due as provided by section 
6152(d) and the time for the payment of any remaining installment is 
accelerated by the issuance of a notice and demand therefor, interest 
shall run on such unpaid installment from the date of the notice and 
demand to the date on which payment is received. But see section 
6601(e)(4).
    (ii) If the tax shown on a return is payable in installments, 
interest will run on any tax not shown on the return from the last date 
prescribed for payment of the first installment. If a deficiency is 
prorated to any unpaid installments, in accordance with section 6152(c), 
interest shall run on such prorated amounts from the date prescribed for 
the payment of the first installment to the date on which payment is 
received.
    (3) If, by reason of jeopardy, a notice and demand for payment of 
any tax is issued before the last date otherwise prescribed for payment, 
such last date shall nevertheless be used for the purpose of the 
interest computation, and no interest shall be imposed for the period 
commencing with the date of the issuance of the notice and demand and 
ending on such last date. If the tax is not paid on or before such last 
date, interest will automatically accrue from such last date to the date 
on which payment is received.
    (4) In the case of taxes payable by stamp and in all other cases 
where the last date for payment of the tax is not otherwise prescribed, 
such last date for the purpose of the interest computation shall be 
deemed to be the date on which the liability for the tax arose. However, 
such last date shall in no event be later than the date of issuance of a 
notice and demand for the tax.
    (d) Suspension of interest; waiver of restrictions on assessment. In 
the case of a deficiency determined by a district director (or an 
assistant regional commissioner, appellate) with respect to any income, 
estate, gift, or chapter 41, 42, 43, or 44 tax, if the taxpayer files 
with such internal revenue officer an agreement waiving the restrictions 
on assessment of such deficiency, and if notice and demand for payment 
of such deficiency is not made within 30 days after the filing of such 
waiver, no interest shall be imposed on the deficiency for the period 
beginning immediately after such 30th day and ending on the date notice 
and demand is made. In the case of an agreement with respect to a 
portion of the deficiency, the rules as set forth in this paragraph are 
applicable only to that portion of the deficiency to which the agreement 
relates.
    (e) Income tax reduced by carryback. (1) The carryback of a net 
operating loss, net capital loss, investment credit, or a work incentive 
program (WIN) credit shall not affect the computation of interest on any 
income tax for the period commencing with the last day prescribed for 
the payment of such tax and ending with the last day of the taxable year 
in which the loss or credit arises. For example, if the carryback of a 
net operating loss, a net capital loss, an investment credit, or a WIN 
credit to a prior taxable period eliminates or reduces a deficiency in 
income tax for that period, the full amount of the deficiency will 
nevertheless bear interest at the annual rate referred to in the 
regulations under section 6621 from the last date prescribed for payment 
of

[[Page 540]]

such tax until the last day of the taxable year in which the loss or 
credit arose. Interest will continue to run beyond such last day on any 
portion of the deficiency which is not eliminated by the carryback. With 
respect to any portion of an investment credit carryback or a WIN credit 
carryback from a taxable year attributable to a net operating loss 
carryback or a capital loss carryback from a subsequent taxable year, 
such investment credit carryback or WIN credit carryback shall not 
affect the computation of interest on any income tax for the period 
commencing with the last day prescribed for the payment of such tax and 
ending with the last day of such subsequent taxable year.
    (2) Where an extension of time for payment of income tax has been 
granted under section 6164 to a corporation expecting a net operating 
loss carryback or a net capital loss carryback, interest is payable at 
the annual rate established under section 6621 on the amount of such 
unpaid tax from the last date prescribed for payment thereof without 
regard to such extension.
    (3) Where there has been an allowance of an overpayment attributable 
to a net operating loss carryback, a capital loss carryback, an 
investment credit carryback, or a WIN credit carryback and all or part 
of such allowance is later determined to be excessive, interest shall be 
computed on the excessive amount from the last day of the year in which 
the net operating loss, net capital loss, investment credit, or WIN 
credit arose until the date on which the repayment of such excessive 
amount is received. Where there has been an allowance of an overpayment 
with respect to any portion of an investment credit carryback or a WIN 
credit carryback from a taxable year attributable to a net operating 
loss carryback or a capital loss carryback from a subsequent taxable 
year and all or part of such allowance is later determined to be 
excessive, interest shall be computed on the excessive amount from the 
last day of such subsequent taxable year until the date on which the 
repayment of such excessive amount is received.
    (f) Applicable rules. (1) Any interest prescribed by section 6601 
shall be assessed and collected in the same manner as tax and shall be 
paid upon notice and demand by the district director or the director of 
the regional service center. Any reference in the Code (except in 
subchapter B, chapter 63, relating to deficiency procedures) to any tax 
imposed by the Code shall be deemed also to refer to the interest 
imposed by section 6601 on such tax. Interest on a tax may be assessed 
and collected at any time within the period of limitation on collection 
after assessment of the tax to which it relates. For rules relating to 
the period of limitation on collection after assessment, see section 
6502.
    (2) No interest under section 6601 shall be payable on any interest 
provided by such section. This paragraph (f)(2) shall not apply after 
December 31, 1982, with respect to interest accruing after such date, or 
accrued but unpaid on such date. See Sec.  301.6622-1.
    (3) Interest will not be imposed on any assessable penalty, addition 
to the tax (other than an addition to tax described in section 
6601(e)(2)(B)), or additional amount if the amount is paid within 21 
calendar days (10 business days if the amount assessed and shown on the 
notice and demand equals or exceeds $100,000) from the date of the 
notice and demand. If interest is imposed, it will be imposed only for 
the period from the date of the notice and demand to the date on which 
payment is received. This paragraph (f)(3) is applicable with respect to 
any notice and demand made after December 31, 1996.
    (4) If notice and demand is made after December 31, 1996, for any 
amount and the amount is paid within 21 calendar days (10 business days 
if the amount assessed and shown on the notice and demand equals or 
exceeds $100,000) from the date of the notice and demand, interest will 
not be imposed for the period after the date of the notice and demand.
    (5) For purposes of paragraphs (f)(3) and (4) of this section--
    (i) The term business day means any day other than a Saturday, 
Sunday, legal holiday in the District of Columbia, or a statewide legal 
holiday in the state where the taxpayer resides or where the taxpayer's 
principal place of

[[Page 541]]

business is located. With respect to the tenth business day (after 
taking into account the first sentence of this paragraph (f)(5)(i)), see 
section 7503 relating to time for performance of acts where the last day 
falls on a statewide legal holiday in the state where the act is 
required to be performed.
    (ii) The term calendar day means any day. With respect to the 
twenty-first calendar day, see section 7503 relating to time for 
performance of acts where the last day falls on a Saturday, Sunday, or 
legal holiday.
    (6) No interest shall be imposed for failure to pay estimated tax as 
required by section 59 of the Internal Revenue Code of 1939 or section 
6153 or 6154 of the Internal Revenue Code of 1954.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7238, 37 FR 28742, Dec. 
29, 1972; T.D. 7301, 39 FR 978, Jan. 4, 1974; T.D. 7384, 40 FR 49324, 
Oct. 22, 1975; T.D. 7838, 47 FR 44252, Oct. 7, 1982; T.D. 7907, 48 FR 
38230, Aug. 23, 1983; T.D. 8725, 62 FR 39117, July 22, 1997]



Sec.  301.6602-1  Interest on erroneous refund recoverable by suit.

    Any portion of an internal revenue tax (or any interest, assessable 
penalty, additional amount, or addition to tax) which has been 
erroneously refunded, and which is recoverable by a civil action 
pursuant to section 7405, shall bear interest at the annual rate 
referred to in the regulations under section 6621 from the date of the 
payment of the refund.

[T.D. 7384, 40 FR 49324, Oct. 22, 1975]

                        Interest on Overpayments



Sec.  301.6611-1  Interest on overpayments.

    (a) General rule. Except as otherwise provided, interest shall be 
allowed on any overpayment of any tax at the annual rate referred to in 
the regulations under section 6621 from the date of overpayment of the 
tax.
    (b) Date of overpayment. Except as provided in section 6401(a), 
relating to assessment and collection after the expiration of the 
applicable period of limitation, there can be no overpayment of tax 
until the entire tax liability has been satisfied. Therefore, the dates 
of overpayment of any tax are the date of payment of the first amount 
which (when added to previous payments) is in excess of the tax 
liability (including any interest, addition to the tax, or additional 
amount) and the dates of payment of all amounts subsequently paid with 
respect to such tax liability. For rules relating to the determination 
of the date of payment in the case of an advance payment of tax, a 
payment of estimated tax, and a credit for income tax withholding, see 
paragraph (d) of this section.
    (c) Examples. The application of paragraph (b) may be illustrated by 
the following examples:

    Example 1. Corporation X files an income tax return on March 15, 
1955, for the calendar year 1954 disclosing a tax liability of $1,000 
and elects to pay the tax in installments. Subsequent to payment of the 
final installment, the correct tax liability is determined to be $900.

                              Tax liability
Assessed.......................................................   $1,000
Correct liability..............................................      900
                                                                --------
Overassessment.................................................      100
 
                           Record of payments
 
Mar. 15, 1955..................................................     $500
June 15, 1955..................................................      500
 


Since the correct liability in this case is $900, the payment of $500 
made on March 15, 1955, and $400 of the payment made on June 15, 1955, 
are applied in satisfaction of the tax liability. The balance of the 
payment made on June 15, 1955 ($100) constitutes the amount of the 
overpayment, and the date on which such payment was made would be the 
date of the overpayment from which interest would be computed.
    Example 2. Corporation Y files an income tax return for the calendar 
year 1954 on March 15, 1955, disclosing a tax liability of $50,000, and 
elects to pay the tax in installments. On October 15, 1956, a deficiency 
in the amount of $10,000 is assessed and is paid in equal amounts on 
November 15 and November 26, 1956. On April 15, 1957, it is determined 
that the correct tax liability of the taxpayer for 1954 is only $35,000.

                              Tax liability
Original assessment...........................................   $50,000
Deficiency assessment.........................................    10,000
                                                               ---------
Total assessed................................................    60,000
Correct liability.............................................    35,000
                                                               ---------
Overassessment................................................    25,000
 
                           Record of payments
 
Mar. 15, 1955.................................................   $25,000
June 15, 1955.................................................    25,000
Nov. 15, 1956.................................................     5,000
Nov. 26, 1956.................................................     5,000
 


[[Page 542]]


Since the correct liability in this case is $35,000, the entire payment 
of $25,000 made on March 15, 1955, and $10,000 of the payment made on 
June 15, 1955, are applied in satisfaction of the tax liability. The 
balance of the payment made on June 15, 1955 ($15,000), plus the amounts 
paid on November 15 ($5,000), and November 26, 1956 ($5,000), constitute 
the amount of the overpayment. The dates of the overpayments from which 
interest would be computed are as follows:

------------------------------------------------------------------------
                                                              Amount of
                            Date                             overpayment
------------------------------------------------------------------------
June 15, 1955..............................................      $15,000
Nov. 15, 1956..............................................        5,000
Nov. 26, 1956..............................................        5,000
------------------------------------------------------------------------

The amount of any interest paid with respect to the deficiency of 
$10,000 is also an overpayment.

    (d) Advance payment of tax, payment of estimated tax, and credit for 
income tax withholding. In the case of an advance payment of tax, a 
payment of estimated income tax, or a credit for income tax withholding, 
the provisions of section 6513 (except the provisions of subsection (c) 
thereof), applicable in determining the date of payment of tax for 
purposes of the period of limitations on credit or refund, shall apply 
in determining the date of overpayment for purposes of computing 
interest thereon.
    (e) Refund of income tax caused by carryback. If any overpayment of 
tax imposed by subtitle A of the Code results from the carryback of a 
net operating loss, a net capital loss, an investment credit, or a work 
incentive (WIN) credit, such overpayment, for purposes of this section, 
shall be deemed not to have been made prior to the end of the taxable 
year in which the loss or credit arises, or, with respect to any portion 
of an investment credit carryback or a WIN credit carryback from a 
taxable year attributable to a net operating loss carryback or a capital 
loss carryback from a subsequent taxable year, such overpayment shall be 
deemed not to have been made prior to the close of such subsequent 
taxable year.
    (f) Refund of income tax caused by carryback of foreign taxes. For 
purposes of paragraph (a) of this section, any overpayment of tax 
resulting from a carryback of tax paid or accrued to foreign countries 
or possessions of the United States shall be deemed not to have been 
paid or accrued before the close of the taxable year under subtitle F of 
the Code in which such taxes were in fact paid or accrued.
    (g) Period for which interest allowable in case of refunds. If an 
overpayment of tax is refunded, interest shall be allowed from the date 
of the overpayment to a date determined by the district director or the 
director of the regional service center, which shall be not more than 30 
days prior to the date of the refund check. The acceptance of a refund 
check shall not deprive the taxpayer of the right to make a claim for 
any additional overpayment and interest thereon, provided the claim is 
made within the applicable period of limitation. However, if a taxpayer 
does not accept a refund check, no additional interest on the amount of 
the overpayment included in such check shall be allowed.
    (h) Period for which interest allowable in case of credits--(1) 
General rule. If an overpayment of tax is credited, interest shall be 
allowed from the date of overpayment to the due date (as determined 
under subparagraph (2) of this paragraph (h)) of the amount against 
which such overpayment is credited.
    (2) Determination of due date--(i) In general. The term ``due 
date'', as used in this section, means the last day fixed by law or 
regulations for the payment of the tax (determined without regard to any 
extension of time), and not the date on which the district director or 
the director of the regional service center makes demand for the payment 
of the tax. Therefore, the due date of a tax (other than an additional 
assessment subject to the special rule provided by subdivision (iv) of 
this subparagraph) is the date fixed for the payment of the tax or the 
several installments thereof.
    (ii) Tax payable in installments--(a) In general. In the case of a 
credit against a tax, where the taxpayer had properly elected to pay the 
tax in installments, the due date is the date prescribed for the payment 
of the installment against which the credit is applied.
    (b) Delinquent installment. If the taxpayer is delinquent in payment 
of an

[[Page 543]]

installment of tax and a notice and demand has been issued for the 
payment of the delinquent installment and the remaining installments, 
the due date of each remaining installment shall then be the date of 
such notice and demand.
    (iii) Tax or installment not yet due. If a taxpayer agrees to the 
crediting of an overpayment against tax or an installment of tax and the 
schedule of allowance is signed prior to the date on which such tax or 
installment would otherwise become due, then the due date of such tax or 
installment shall be the date on which such schedule is signed.
    (iv) Additional assessment satisfied by credit before January 1, 
1958. In the case of a credit made before January 1, 1958, against an 
additional assessment, the due date of the tax satisfied by the credit 
is the date the additional assessment was made. For purposes of this 
subdivision, the term ``additional assessment'' means a further 
assessment of a tax of the same character previously paid in part, and 
includes the assessment of a deficiency as defined in section 6211.
    (v) Interest. In the case of a credit against interest that accrues 
for any period ending prior to January 1, 1983, the due date is the 
earlier of the date of assessment of such interest or December 31, 1982. 
In the case of a credit against interest that accrues for any period 
beginning on or after December 31, 1982, such interest is due as it 
economically accrues on a daily basis, rather than when it is assessed.
    (vi) Additional amount, addition to the tax, or assessable penalty. 
In the case of a credit against an additional amount, addition to the 
tax, or assessable penalty, the due date is the earlier of the date of 
assessment or the date from which such amount would bear interest if not 
satisfied by payment or credit.
    (vii) Estimated income tax for succeeding year. If the taxpayer 
elects to have all or part of the overpayment shown by his return 
applied to his estimated tax for his succeeding taxable year, no 
interest shall be allowed on such portion of the overpayment credited 
and such amount shall be applied as a payment on account of the 
estimated tax for such year or the installments thereof.
    (i) [Reserved]
    (j) Refund of overpayment. No interest shall be allowed on any 
overpayment of tax imposed by subtitle A of the Code if such overpayment 
is refunded--
    (1) In the case of a return filed on or before the last date 
prescribed for filing the return of such tax (determined without regard 
to any extension of time for filing such return), within 45 days after 
such last date, or
    (2) After December 17, 1966, in the case of a return filed after the 
last day prescribed for filing the return, within 45 days after the date 
on which the return is filed.

However, in the case of any overpayment of tax by an individual (other 
than an estate or trust and other than a nonresident alien individual) 
for a taxable year beginning in 1974, ``60 days'' shall be substituted 
for ``45 days'' each place it appears in this paragraph.
    (k) Effective date. Paragraphs (h)(2)(v) and (h)(2)(vi) of this 
section are effective for credits made on or after August 25, 1992.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7301, 39 FR 979, Jan. 4, 
1974; T.D. 7384, 40 FR 49325, Oct. 22, 1975; T.D. 7415, 41 FR 14369, 
Apr. 5, 1976; T.D. 8524, 59 FR 10076, Mar. 3, 1994]

                     Determination of Interest Rate



Sec.  301.6621-1  Interest rate.

    (a) In general. The interest rate established under section 6621 
shall be--
    (1) On amounts outstanding before July 1, 1975, 6 percent per annum 
(or 4 percent in the case of certain extensions of time for payment of 
taxes as provided in sections 6601 (b) and (j) prior to amendment by 
section 7(b) of the Act of Jan. 3, 1975 (Pub. L. 93-625, 88 Stat. 2115), 
and certain overpayments of the unrelated business income tax as 
provided in section 514(b)(3)(D), prior to its amendment by such Act).
    (2) On amounts outstanding--

------------------------------------------------------------------------
                                                         Rate per annum
              After                     And before          (percent)
------------------------------------------------------------------------
June 30, 1975....................  Feb. 1, 1976.......                 9
Jan. 31, 1976....................  Feb. 1, 1978.......                 7
Jan. 31, 1978....................  Feb. 1, 1980.......                 6
Jan. 31, 1980....................  Feb. 1, 1982.......                12
Jan. 31, 1982....................  Jan. 1, 1983.......                20
------------------------------------------------------------------------


[[Page 544]]

    (3) On amounts outstanding after December 31, 1982, the adjusted 
rate established by the Commissioner under section 6621(b). This 
adjusted rate shall be published by the Commissioner in a Revenue 
Ruling. See Sec.  301.6622-1 for application of daily compounding in 
determining interest accruing after December 31, 1982. Because interest 
accruing after December 31, 1982, accrues at the prescribed rate per 
annum compounded daily, the effective annual percentage rate of interest 
will exceed the prescribed rate of interest.
    (b) [Reserved]
    (c) Applicability of interest rate--(1) Computation. Interest and 
additions to tax on any amount outstanding on a specific day shall be 
computed at the annual rate applicable on such day.
    (2) Additions to tax. Additions to tax under any section of the Code 
that refers to the annual rate established under this section, including 
sections 644(a)(2)(B), 4497(c)(2), 6654(a), and 6655 (a) and (g), shall 
be computed at the same rate per annum as the interest rate set forth 
under paragraph (a) of this section.
    (3) Interest. Interest provided for under any section of the Code 
that refers to the annual rate established under this section, including 
sections 47(d)(3)(G), 167(q), 6332(c)(1), 6343(c), 6601(a), 6602, 
6611(a), 7426(g), and section 1961(c)(1) or 2411 of title 28 of the 
United States Code, shall be computed at the rate per annum set forth 
under paragraph (a) of this section.
    (d) Examples. The provisions of this section may be illustrated by 
the following examples. Example 6 illustrates the computation of 
interest for interest accuring after December 31, 1982.

    Example 1. A, an individual, files an income tax return for the 
calendar year 1974 on April 15, 1975, showing a tax due of $1,000. A 
pays the $1,000 on September 1, 1975. Pursuant to section 6601(a), 
interest on the underpayment of $1,000 is computed at the rate of 6 
percent per annum from April 15, 1975, to June 30, 1975, a total of 76 
days. Interest for 63 days, from June 30, 1975, to September 1, 1975, 
shall be computed at the rate of 9 percent per annum.
    Example 2. An executor of an estate is granted, in accordance with 
section 6161(a)(2)(A), a two-year extension of time for payment of the 
estate tax shown on the estate tax return, which tax was otherwise due 
on January 15, 1974. The tax is paid on January 15, 1976. Interest on 
the underpayment shall be computed at the rate of 4 percent per annum 
from January 15, 1974, to June 30, 1975, and at the rate of 9 percent 
per annum from June 30, 1975, to January 15, 1976.
    Example 3. X, a corporation, files its 1973 corporate income tax 
return on March 15, 1974, and pays the balance of tax due shown thereon. 
On August 1, 1975, an assessment of a deficiency is made against X with 
respect to such tax. The deficiency is paid on October 1, 1975. Interest 
at the rate of 6 percent per annum is due on the deficiency from March 
15, 1974, the due date of the return, to June 30, 1975, and at the rate 
of 9 percent per annum from June 30, 1975, to October 1, 1975.
    Example 4. Y, an individual, files an amended individual income tax 
return on October 1, 1975, for the refund of an overpayment of income 
tax Y made on April 15, 1975. Interest is allowed on the overpayment to 
December 1, 1975. Pursuant to section 6611(a), interest is computed at 
the rate of 6 percent per annum from April 15, 1975, the date of 
overpayment, to June 30, 1975. Interest from June 30, 1975, to December 
1, 1975, shall be computed at the rate of 9 percent per annum.
    Example 5. A, an individual, is liable for an addition to tax under 
section 6654 for the underpayment of estimated tax from April 15, 1975 
until January 15, 1976. The addition to tax shall be computed at the 
annual rate of 6 percent per annum from April 15, 1975, to June 30, 
1975, and at the annual rate of 9 percent per annum from June 30, 1975, 
to January 15, 1976.
    Example 6. B, an individual, files an income tax return for calendar 
year 1980 on April 15, 1981, showing a tax due of $1,000. B pays the 
$1,000 on March 1, 1983. Under section 6601 (a), interest on the $1,000 
underpayment is due from April 15, 1981, to March 1, 1983. Such interest 
is computed at the rate of 12 percent per annum, simple interest from 
April 15, 1981, to January 31, 1982, and at the rate of 20 percent per 
annum, simple interest from January 31, 1982, to December 31, 1982, and 
at the rate of 16 percent per annum, compounded daily, from December 31, 
1982, to March 1, 1983. The total simple interest accrued but unpaid at 
the end of December 31, 1982, is combined with the $1,000 underpayment 
for purposes of determining the amount of daily compounded interest to 
be charged from December 31, 1982, to March 1, 1983.

[T.D. 7907, 48 FR 38230, Aug. 23, 1983; 48 FR 41018, Sept. 13, 1983; 48 
FR 41581, Sept. 16, 1983]

[[Page 545]]



Sec.  301.6621-2T  Questions and answers relating to the increased rate 
of interest on substantial underpayments attributable to certain tax motivated 
transactions (temporary).

    The following questions and answers relate to the increased rate of 
interest on substantial underpayments attributable to certain tax 
motivated transactions as provided in section 6621(d) of the Internal 
Revenue Code of 1954, as added by section 144 of the Tax Reform Act of 
1984 (Pub. L. 98-369, 98 Stat. 682):
    Q-1. What is the annual interest rate under section 6621 for 
purposes of computing the amount of interest that must be paid under 
section 6601 (relating to interest on underpayments)?
    A-1. In general, the annual interest rate for purposes of section 
6601 is the adjusted rate of interest established under section 6621 (b) 
Sec.  301.6621-1 (``adjusted rate''). If, however, a tax motivated 
underpayment (as defined in A-2 of this section) for a taxable year is 
substantial (as defined in A-7 of this section), section 6621(d) 
provides that the annual rate of interest with respect to the tax 
motivated underpayment is 120 percent of the adjusted rate (``120 
percent rate''), rounded to the nearest tenth of a percent.
    Q-2. What is a tax motivated underpayment?
    A-2. A tax motivated underpayment is the portion of a deficiency (as 
defined in section 6211) of tax imposed by subtitle A (income taxes) 
that is attributable to any of the following tax motivated transactions:
    (1) Any instance in which the value of any property, or the adjusted 
basis of any property, claimed on a return is 150 percent or more of the 
amount determined to be the correct amount of such valuation or adjusted 
basis (i.e., a valuation overstatement within the meaning of section 
6659(c)(1));
    (2) Any loss disallowed for any period by reason of section 465(a) 
or any amount included in gross income by reason of section 465(e);
    (3) Any credit disallowed for any period by reason of section 
46(c)(8) or section 48(d)(6);
    (4) Any loss disallowed for any period with respect to a straddle, 
as defined in section 1092(c), but without regard to sections 1092 (d) 
and (e);
    (5) Any use of an accounting method that may result in a substantial 
distortion of income for any period (see A-3 of this section); and
    (6) Any deduction disallowed with respect to any other tax motivated 
transactions (see A-4 of this section).
    Q-3. What accounting methods may result in a substantial distortion 
of income for any period under A-2(5) of this section?
    A-3. A deduction or credit disallowed, or income included, in any of 
the circumstances listed below shall be treated as attributable to the 
use of an accounting method that may result in a substantial distortion 
of income and shall thus be a tax motivated transaction that results in 
a tax motivated underpayment:
    (1) Any deduction disallowed for any period by reason of section 464 
or section 278(b), relating to certain expenses of farming syndicates;
    (2) In the case of a taxpayer who computes taxable income using the 
cash receipts and disbursements method of accounting, any interest 
deduction disallowed for any period by reason of section 461(g), 
relating to prepaid interest, provided the interest is not paid with 
respect to indebtedness incurred in connection with (i) the purchase, 
refinancing, or improvement of the principal residence of the taxpayer, 
or (ii) the purchase of consumer goods by the taxpayer;
    (3) Any interest deduction disallowed for any period because the 
amount of the claimed deduction was computed using a method resulting in 
an amount of interest for a period that exceeds the true cost of the 
indebtedness for the period computed by applying the effective rate of 
interest on the loan to the unpaid balance of the loan for the period 
(i.e., the economic accrual of interest for the period), provided the 
interest is not accrued with respect to indebtedness incurred in 
connection with (i) the purchase, refinancing, or improvement of the 
principal residence of the taxpayer, or (ii) the purchase of consumer 
goods by the taxpayer (see Rev. Rul. 83-84, 1983-1 C.B. 97, and sections 
163(e), 446(b), and 483);

[[Page 546]]

    (4) Any deduction disallowed for any period under section 709, 
relating to organization or syndication expenditures of a partnership;
    (5) In the case of any expenditure described in section 248(b) that 
was incurred by an S corporation, any deduction disallowed because it 
exceeds the amount allowable under section 248, relating to 
organizational expenditures;
    (6) Any deduction disallowed for any period under section 267(a), 
relating to transactions between related taxpayers;
    (7) Any deduction disallowed for any period, or any income required 
to be included for any period, under section 467, relating to certain 
payments for the use of property or services;
    (8) Any deduction disallowed for any period under section 461(i), 
relating to certain deductions of tax shelters; and
    (9) In the case of a taxpayer who computes taxable income using the 
cash receipts and disbursements method of accounting, any deduction 
disallowed for any period because (i) the expenditure resulting in the 
deduction was a deposit rather than a payment, (ii) the expenditure was 
prepaid for tax avoidance purposes and not for a business purpose, or 
(iii) the deduction resulted in a material distortion of income (see, 
e.g., Rev. Rul. 79-229, 1979-2 C.B. 210).
    Q-4. Are any transaction other than those specified in A-2 of this 
section and those involving the use of accounting methods under 
circumstances specified in A-3 of this section considered tax motivated 
transactions under A-2(6) of this section?
    A-4. Yes. Deductions disallowed under the following provisions are 
considered to be attributable to tax motivated transactions:
    (1) Any deduction disallowed for any period under section 183, 
relatiing to an activity engaged in by an individual or an S corporation 
that is not engaged in for profit, and
    (2) Any deduction disallowed for any period under section 165(c)(2), 
relating to any transaction not entered into for profit.
    Q-5. How is the amount of a tax motivated underpayment determined?
    A-5. Except as provided in A-6 of this section, the amount of a tax 
motivated underpayment is determined in the following manner:
    (1) Calculate the amount of the tax liability for the taxable year 
as if all items of income, gain, loss, deduction, or credit, had been 
reported properly on the income tax return of the taxpayer (``total tax 
liability''); and
    (2) Without taking into account any adjustments to items of income, 
gain, loss, deduction, or credit that are attributable to tax motivated 
transactions (as defined in A-2 through A-4 of this section), calculate 
the amount of the tax liability for the taxable year as if all other 
items of income, gain loss, deduction, or credit had been reported 
properly on the income tax return of the taxpayer (``tax liability 
without regard to tax motivated transactions'').
    (3) The difference between the total tax liability and the tax 
liability without regard to tax motivated transactions is the amount of 
the tax motivated underpayment.

    Example. Taxpayer A, a calendar year taxpayer, files his 1984 income 
tax return reporting $70,000 of taxable income and $23,171 of tax 
liability. On January 20, 1986, A enters into a closing agreement with 
the Internal Revenue Service that includes the following adjustments;

Section 162 deduction disallowed (not tax motivated)..........    $7,500
Loss disallowed under section 465 (tax motivated--see A-2(2)       5,000
 of this section).............................................
Section 170 deduction disallowed because of a valuation           10,000
 overstatement (tax motivated--see A-2(1) of this section)....
Loss disallowed with respect to a straddle as defined in           7,000
 section 1092(c) (tax motivated--see A-2(4) of this section)..
Other adjustments (none of which are tax motivated)...........     4,000
 


1. Reported taxable income....................................    70,000
  (Add all adjustments to items of income, gain, loss,                 +
   deduction, or credit (including tax motivated transactions     33,500
   subject to section 6621(d)))...............................
                                                               ---------
  Tax = $39,685 (``total tax liability'').....................   103,500
                                                               =========
2. Reported taxable income....................................    70,000
  (Add adjustments to items of income, gain, loss, deduction,          +
   or credit other than those with respect to items that are      11,500
   tax motivated).............................................
                                                               ---------
  Tax = $28,691 (``tax liability without regard to tax            81,500
   motivated transactions'')..................................
                                                               =========
 

    The tax motivated underpayment (i.e., the underpayment attributable 
to tax motivated transactions) is $10,994 ($39,685-$28,691). 
Accordingly, the interest on $10,994 would be computed at the 120 
percent rate.

[[Page 547]]

    The remainder of the underpayment (i.e., the underpayment not 
attributable to tax motivated transactions) is $5,520 ($28,691 (tax 
liability without regard to tax motivated items)-$23,171 (tax paid with 
return)). The interest on $5,520 would be computed at the adjusted rate.

    Q-6: How are the amounts of the tax motivated underpayment and the 
underpayment attributable to fraud or negligence determined if all or a 
portion of the taxpayer's underpayment is attributable to one or more 
tax motivated transactions and all or a portion is subject to the 
addition to tax imposed by section 6653(a)(2) (in the case of an 
underpayment attributable to negligence or intentional disregard) or 
section 6653(b)(2) (in the case of an underpayment attributable to 
fraud)?
    A-6: If all or a portion of the taxpayer's underpayment is 
attributable to tax motivated transactions, and all or a portion is 
attributable to fraudulent or negligent items (i.e., items that result 
in an underpayment subject to the addition to tax imposed by section 
6653 (a)(2) or (b)(2)), the amount of the tax motivated underpayment and 
the underpayment attributable to fraud or negligence is determined in 
the following manner:
    (1) Determine the following amounts;
    (i) The tax liability for the taxable year of the taxpayer as if all 
items of income, gain, loss, deduction, or credit had been reported 
properly on the income tax return of the taxpayer (``total tax 
liability'');
    (ii) The tax liability for the taxable year of the taxpayer as if 
all items of income, gain, loss, deduction, or credit without taking 
into account adjustments to items of income, gain, loss, deduction, or 
credit that are both (a) attributable to tax motivated transactions and 
(b) subject to section 6653(a)(2) or section 6653(b)(2), had been 
reported properly on the income tax return of the taxpayer (``tax 
liability without regard to fraudulent or negligent tax motivated 
items'');
    (iii) The tax liability for the taxable year of the taxpayer as if 
all items of income, gain, loss, deduction, or credit, without taking 
into account adjustments to items of income, gain, loss, deduction, or 
credit that are subject to section 6653(a)(2) or section 6653(b)(2), had 
been reported properly on the income tax return of the taxpayer (``tax 
liability without regard to fraudulent or negligent items'');
    (iv) The tax liability for the taxable year of the taxpayer as if 
all items of income, gain, loss, deduction, or credit, without taking 
into account adjustments to items of income, gain, loss, deduction, or 
credit that are either subject to section 6653(a)(2) or section 
6653(b)(2) or attributable to tax motivated transactions, had been 
reported properly on the income tax return of the taxpayer (``tax 
liability without regard to tax motivated or fraudulent or negligent 
items'').
    (2) The tax motivated underpayment attributable to fraudulent or 
negligent items is the excess of the total tax liability over the tax 
liability determined without regard to fraudulent or negligent tax 
motivated items ((i)-(ii)).
    (3) The tax motivated underpayment is the sum of (a) the tax 
motivated underpayment attributable to fraudulent or negligent items 
((i)-(ii)) plus (b) the excess of the tax liability without regard to 
fraudulent or negligent items over the tax liability without regard to 
tax motivated or fraudulent or negligent items ((iii)-(iv)). Interest on 
this underpayment is computed at the 120 percent rate.
    (4) The underpayment attributable to fraudulent or negligent items 
is the excess of the total tax liability over the tax liability without 
regard to fraudulent or negligent items ((i)-(iii)). The section 6653 
addition to tax is 50 percent of the interest on this underpayment 
computed at the 120 percent rate on an amount equal to the tax motivated 
underpayment attributable to fraudulent or negligent items (computed in 
(2)) and at the adjusted rate on the remainder.

    Example. Taxpayer A, a calendar year taxpayer, files his 1984 income 
tax return reporting $70,000 of taxable income and $23,171 of tax 
liability. On January 20, 1986, A enters into a closing agreement with 
the Internal Revenue Service that includes the following adjustments:

Section 162 deduction disallowed (not tax motivated but           $7,500
 fraudulent or negligent).....................................
Loss disallowed under section 465(a) (tax motivated--see A-        5,000
 2(2) of this section--and fraudulent or negligent)...........

[[Page 548]]

 
Section 170 deduction disallowed because of a valuation           10,000
 overstatement (tax motivated--see A-2(1) of this section--but
 not fraudulent or negligent..................................
Loss disallowed with respect to a straddle as defined in           7,000
 section 1092(c) (tax motivated--see A-2(4) of this section
 but not fraudulent or negligent).............................
Other adjustments (none of which are tax motivated or              4,000
 fraudulent or negligent).....................................
 

    The tax motivated underpayment is determined in the following 
manner:

(1)(i) Reported taxable income................................   $70,000
  (Add all adjustment.........................................         +
                                                                  33,500
                                                               ---------
  Tax = $39,685 (``total tax liability'').....................   103,500
                                                               =========
(ii) Reported taxable income..................................    70,000
  All adjustments other than those with respect to items that          +
   are both tax motivated and fraudulent or negligent.........    28,500
                                                               ---------
  Tax = $37,185 (``tax liability without regard to fraudulent     98,500
   or negligent, tax motivated items'').......................
                                                               =========
(iii) Reported taxable income.................................    70,000
  (All adjustments other than those with respect to items that         +
   are fraudulent or negligent)...............................    21,000
                                                               ---------
  Tax = $33,435 (``tax liability without regard fraudulent or     91,000
   negligent items'').........................................
                                                               =========
(iv) Reported taxable income..................................    70,000
  (All adjustments other than those with respect to items that   + 4,000
   are either tax motivated or fraudulent or negligent).......
                                                               ---------
  Tax = $25,091 (``tax liability without regard to tax            74,000
   motivated or fraudulent or negligent items'')..............
 

    (2) The tax motivated underpayment attributable to fraudulent or 
negligent items is $2,500 ((i))-(ii) or $39,685-$37,185).
    (3) The tax motivated underpayment is $10,844 ((2) + ((iii)-(iv)) or 
$2,500 + ($33,435-$25,091)). Interest on $10,844 is computed at the 120 
percent rate.
    (4) The underpayment attributable to fraudulent or negligent items 
is $6,250 ((i)-(iii) or $39,685-$33,435). The section 6653 addition to 
tax is 50 percent of the interest on $6,250, computed at the 120 percent 
rate on an amount equal to the tax motivated underpayment attributable 
to fraudulent or negligent items ($2,500) and at the adjusted rate on 
the remainder ($3,750).
    (5) In summary, therefore, the total underpayment is $16,514 (total 
tax liability ($39,685) less reported tax liability ($23,171)) of which 
$10,844 accrues interest at the 120 percent rate and $5,670 ($16,514-
$10,844) accrues interest at the adjusted rate. In addition, $6,250 of 
the underpayment is subject to the section 6653(a)(2) or section 
6653(b)(2) addition to tax. The underlying interest, upon which the 
addition to tax is based, is computed using the 120 percent rate for the 
portion of the underpayment subject to section 6621(d) ($2,500) and the 
adjusted rate for the portion that is not subject to section 6621(d) 
($3,750).
    Q-7. Does the 120 percent rate apply to all tax motivated 
underpayments?
    A-7. No. The 120 percent rate applies only if the tax motivated 
underpayment for the taxable year is substantial. A tax motivated 
underpayment is substantial only if it exceeds $1,000. If, for example, 
a taxpayer has a $600 underpayment attributable to a valuation 
overstatement (within the meaning of section 6659(c)(1)) and a $500 
underpayment attributable to a loss disallowed under section 465(a), the 
amount of the tax motivated underpayment is $1,100. Because the amount 
of the tax motivated underpayment is thus substantial the 120 percent 
rate applies.
    Q-8. How do carryovers affect the amount of the tax motivated 
underpayment and the amount of the underpayment attributable to 
fraudulent or negligent items?
    A-8. For purposes of A-5 and A-6 of this section, a net operating 
loss carryover, capital loss carryover, or credit carryover is treated 
as a deduction or credit in the year in which taken into account. In any 
computation of tax liability required under A-5 or A-6 of this section 
(i.e., total tax liability, tax liability without regard to tax 
motivated transactions, etc.), the amount of such deduction or credit is 
the amount of the carryover determined as if the taxpayer had properly 
reported in each taxable year all items of income, gain, loss, 
deduction, or credit affecting the amount of the carryover other than 
adjustments of a type not taken into account in such computation of tax 
liability. A net operating loss carryback, capital loss carryback, or 
credit carryback is not taken into account, however, in determining the 
amount of the tax motivated underpayment or the amount of the 
underpayment attributable to fraud or negligence for periods before the 
last date prescribed for filing the income tax return for the taxable 
year in which the

[[Page 549]]

carryback arises (determined without regard to extensions).
    Q-9. What amount is subject to the 120 percent rate if the amount of 
a taxpayer's unpaid tax for a year is less than the taxpayer's 
substantial tax motivated underpayment?
    A-9. The 120 percent rate applies with respect to the lesser of--
    (1) The amount of unpaid tax for the taxable year determined in 
accordance with Sec.  301.6601-1; or
    (2) The substantial tax motivated underpayment for the taxable year.
    Q-10. What is the effective date for the 120 percent rate?
    A-10. The 120 percent rate applies to interest accruing on a 
deficiency attributable to a substantial tax motivated underpayment 
after December 31, 1984, including interest accruing with respect to 
transactions described in A-3 and A-4 of this section, regardless of the 
date prescribed for payment of the tax.

    Example. Taxpayer A files his income tax return on April 15, 1983 
(the last date prescribed for payment of tax for taxable year 1982 under 
section 6601). In January 1985, Taxpayer A files a petition in the Tax 
Court in response to a statutory notice of deficiency for taxable year 
1982, which includes a tax motivated underpayment of $10,000. In 
September 1986, the Tax Court enters a decision for the Internal Revenue 
Service. Under section 6601, interest accrues at the adjusted rate, 
compounded daily, on tax motivated underpayments outstanding before 
January 1, 1985, and at the 120 percent rate, compounded daily, on 
amounts outstanding after December 31, 1984. The underpayment that is 
subject to the 120 percent rate includes both the $10,000 tax motivated 
underpayment and the interest that accrued on the underpayment at the 
adjusted rate from April 16, 1983, through December 31, 1984.

    Q-11. Can a taxpayer stop the running of interest on a tax motivated 
underpayment by application of a remittance?
    A-11. Yes. The running of interest on a tax liability stops on the 
date the remittance (either a payment of tax or a deposit in the nature 
of a cash bond) is received by the Internal Revenue Service, regardless 
of when the liability is assessed or the remittance is actually applied 
against the taxpayer's account. A taxpayer must make a remittance for 
both the tax liability and the interest that has accrued as of the date 
of remittance to stop the running of interest on both the tax liability 
and the accrued interest with respect to the liability. (See Rev. Proc. 
84-58.) Taxpayer cannot make partial remittances applicable only to tax 
motivated underpayments. Under A-9 of this section, the 120 percent rate 
applies to the amount of unpaid tax to the extent that amount does not 
exceed the tax motivated underpayment. Therefore, a partial remittance 
is applied first to any tax due that is not attributable to a tax 
motivated underpayment. The excess of the partial remittance over tax 
that is not attributable to a tax motivated underpayment, if any, will 
then be applied to tax due that is attributable to a tax motivated 
underpayment.
    Q-12. Does the 120 percent rate apply to interest accruing on 
interest, penalties, additional amounts, or additions to tax as provided 
in section 6601(e)(2)?
    A-12. The 120 percent rate applies only to taxes imposed by subtitle 
A (income taxes) and to interest accrued with respect to such taxes. The 
penalties, additional amounts, and additions to tax specified in section 
6601(e)(2) are not imposed by subtitle A and are not, therefore, 
included in the amount of a tax motivated underpayment. They are, 
however, included in the amount of unpaid tax for purposes of A-9 of 
this section.

    Example. Taxpayer A, for taxable year 1984, has a $10,000 tax 
motivated underpayment and a $2,000 addition to tax for a total unpaid 
tax of $12,000. If A makes a $5,000 payment of tax, he will still have a 
$10,000 tax motivated underpayment but will now have only $7,000 of 
unpaid tax. Pursuant to A-9 of this section, therefore, the 120 percent 
rate would apply to the $7,000 of unpaid tax.

(Secs. 6621(d) and 7805, Internal Revenue Code of 1954 (98 Stat. 682, 26 
U.S.C. 6621(d); 68A Stat. 917, 26 U.S.C. 7805))

[T.D. 7998, 49 FR 50391, Dec. 28, 1984]



Sec.  301.6621-3  Higher interest rate payable on large 
corporate underpayments.

    (a) In general. Section 6621 establishes the interest rate for 
purposes of computing the amount of interest that must be paid under 
section 6601, relating to interest on underpayments of tax. Section 
6621(a)(2) provides that the

[[Page 550]]

underpayment rate is the sum of the Federal short-term rate (determined 
under section 6621(b)) plus 3 percentage points. That underpayment rate 
is referred to hereinafter as the ``section 6621(a)(2) rate.'' Section 
6621(c) and this section, however, provide that the underpayment rate on 
any large corporate underpayment is the sum of the Federal short-term 
rate (determined under section 6621(b)) plus 5 percentage points. This 
higher underpayment rate is referred to hereinafter as the ``section 
6621(c) rate.'' The section 6621(c) rate applies only for periods after 
the applicable date (as determined in paragraph (c) of this section).
    (b) Large corporate underpayment--(1) Defined. For purposes of 
section 6621(c) and this section, ``large corporate underpayment'' means 
any underpayment of a tax by a C corporation for any taxable period if 
the amount of the threshold underpayment of the tax (as defined in 
paragraph (b)(2)(ii) of this section) for that taxable period exceeds 
$100,000.
    (2) Underpayment of a tax--(i) In general. As used in section 
6621(c) and this section, ``underpayment of a tax'' means the excess of 
a tax imposed by the Internal Revenue Code over the amount of such tax 
paid on or before the last date prescribed for payment. Except as 
provided in paragraph (b)(2)(ii) of this section, ``tax'' for such 
purposes includes interest, penalties, additional amounts, and additions 
to tax. See sections 6601(e)(1), 6665(a), and 6671(a). Thus, the section 
6621(c) rate generally applies to any interest, penalties, additional 
amounts, and additions to tax, as well as to the underlying tax with 
respect to which such amounts are imposed.
    (ii) Threshold underpayment of a tax. Solely for purposes of this 
section and not for any other purpose under section 6621(c) or elsewhere 
in the interpretation or administration of the federal tax laws, a 
``threshold underpayment of a tax'' is the excess of a tax imposed by 
the Internal Revenue Code (exclusive of interest, penalties, additional 
amounts, and additions to tax) for the taxable period over the amount of 
such tax paid on or before the last date prescribed for payment. Thus, 
any payments made after the last date prescribed for payment (for 
example, by way of an amended return) will not affect the existence of a 
threshold underpayment. In determining whether there is a threshold 
underpayment, different types of taxes (such as income tax and FICA tax) 
and amounts that relate to different taxable periods are not added 
together.
    (iii) When determined--(A) In general. The existence of a threshold 
underpayment of a tax and the amount of a large corporate underpayment 
are generally determined only when an assessment is made with respect to 
the taxable period. Thus, the amount of a deficiency or proposed 
deficiency set forth in a letter or notice pursuant to which the 
applicable date is determined (under paragraph (c) of this section) does 
not determine whether there is a large corporate underpayment.
    (B) Judicial determinations. Notwithstanding any prior assessment 
made with respect to a taxable period, the section 6621(c) rate does not 
apply if, after a federal court determines the taxpayer's liability for 
a period, the threshold underpayment for that taxable period does not 
exceed $100,000. See Example 3 in paragraph (d) of this section.
    (iv) Special rule. The section 6621(c) rate is not used to compute 
the interest charges that a taxpayer timely assesses against itself in 
return for using a method of tax accounting or reporting that defers the 
payment of tax, such as the interest charges relating to passive foreign 
investment companies under section 1291(c) and installment obligations 
of nondealers under section 453A(c). However, to the extent such charges 
are not paid on or before the last date prescribed for payment and 
therefore become part of an underpayment of a tax, the section 6621(c) 
rate will apply to such amounts for periods after the applicable date 
(as determined in paragraph (c) of this section).
    (3) C corporation defined. For purposes of section 6621(c)(3)(A) and 
this section, ``C corporation'' means, with respect to any taxable 
period, a corporation that is a C corporation during any part of the 
taxable period. Interest on a large corporate underpayment for a taxable 
period continues to be imposed at the

[[Page 551]]

section 6621(c) rate even if during or after the taxable period--
    (i) The taxpayer ceases to be a C corporation; or
    (ii) The underpayment becomes the liability of a successor or 
transferee that is not a C corporation.
    (4) Taxable period. For purposes of section 6621(c) and this 
section, the ``taxable period'' is the taxable year in the case of any 
tax imposed by subtitle A of the Internal Revenue Code. In the case of 
any other tax, the ``taxable period'' is the period to which the 
underpayment relates. For example, the taxable period for an 
underpayment of FICA taxes is the calendar quarter. If the underpayment 
does not relate to a particular period (for example, in the case of 
certain transactional excise taxes), the ``taxable period'' is the 
period covered by a return on which the tax is required to be shown.
    (5) Last date prescribed for payment. For purposes of this section, 
the ``last date prescribed for payment'' means the last date prescribed 
for payment as determined, without regard to any extension of time, 
under section 6601(b).
    (c) Applicable date--(1) In general. The section 6621(c) rate 
applies only to periods after the applicable date. Pursuant to the 
effective date of section 6621(c) and paragraph (e) of this section, 
however, the section 6621(c) rate will not apply prior to January 1, 
1991, even if the applicable date is prior to December 31, 1990. A 
letter or notice relating to a particular type of tax creates an 
applicable date only for that type of tax. For example, a letter or 
notice with respect to FUTA tax will not create an applicable date with 
respect to income tax for the same taxable year.
    (2) When deficiency procedures apply. The applicable date, in the 
case of any underpayment of a tax to which the deficiency procedures of 
subchapter B of chapter 63 of the Internal Revenue Code apply, is the 
30th day after the earlier of--
    (i) The date on which the Service sends the taxpayer the first 
letter of proposed deficiency that allows the taxpayer an opportunity 
for administrative review in the Service's Office of Appeals (commonly 
called a ``30-day letter''); or
    (ii) The date on which the Service sends a deficiency notice under 
section 6212 of the Internal Revenue Code (commonly called a ``90-day 
letter'').
    (3) When deficiency procedures do not apply. The applicable date, in 
the case of any underpayment of a tax to which the deficiency procedures 
do not apply, is the 30th day after the date on which the Service sends 
the first letter or notice that notifies the taxpayer of an assessment 
or proposed assessment of the tax. In the case of income taxes, for 
example, the deficiency procedures do not apply to amounts shown as due 
on the taxpayer's return if the taxpayer fails to remit the full amount 
on or before the last date prescribed for payment, and to amounts 
attributable to mathematical or clerical errors on a return (unless a 
request for abatement is filed by the taxpayer under section 6213(b)). 
Because no 30-day letter or 90-day letter is issued to the taxpayer in 
such cases, the applicable date is the 30th day after the date on which 
an assessment notice under section 6303 of the Internal Revenue Code is 
sent.
    (4) Partnership items. For purposes of section 6621(c) and this 
paragraph (c), 60-day letters and the notices described in sections 
6223(a)(1) and 6223(a)(2) (relating to administrative proceedings at the 
partnership level) are not treated as letters of proposed deficiency 
that allow the taxpayer an opportunity for administrative review in the 
Service's Office of Appeals, deficiency notices under section 6212 of 
the Internal Revenue Code, or letters or notices that notify the 
taxpayer of an assessment or proposed assessment of the tax. Thus, in 
the absence of any other letter or notice described in paragraph (c)(2) 
or (c)(3) of this section that establishes an earlier applicable date, 
the applicable date in the case of any underpayment of a tax 
attributable, in whole or in part, to a partnership item (as defined in 
section 6231(a)(3)) is the 30th day after the date on which the Service 
sends the first letter or notice that notifies the taxpayer of an 
assessment of the tax.
    (5) Exception of payment of amount shown as due--(i) In general. A 
letter of notice will be disregarded for purposes of determining the 
applicable date if the taxpayer makes a payment equal

[[Page 552]]

to the amount shown as due in the letter or notice within 30 days from 
the date that the Service sends the letter or notice.
    (ii) Special transition rule. A letter or notice sent by the Service 
prior to January 1, 1991, will be disregarded by the Service for 
purposes of determining the applicable date if the taxpayer makes a 
payment on or before January 31, 1991, equal to the amount shown as due 
in the letter or notice plus a reasonable estimate of the interest 
payable on such amount computed by applying the section 6621(a)(2) rate. 
If the taxpayer has received two or more letters or notices with respect 
to the same tax for the same taxable period and pays the amount shown as 
due in the last letter or notice sent prior to December 19, 1990, (plus 
a reasonable estimate of the interest), all of the prior letters and 
notices with respect to the same tax for the same taxable period will be 
disregarded under this paragraph (c)(5)(ii). In the case of an 
assessment notice, the payment of the amount of interest shown as due on 
the last assessment notice sent to the taxpayer prior to December 19, 
1990, will be treated as a payment of a reasonable estimate of the 
interest payable on the amount shown in that assessment notice or in any 
prior assessment notice sent with respect to the same tax for the same 
taxable period. The special transition rule in this paragraph (c)(5)(ii) 
applies even if the payment is not made within 30 days of the date on 
which the Service sent the letter or notice.
    (iii) Amount shown as due. For purposes of section 6621(c)(2)(B)(ii) 
and this paragraph (c)(5), the ``amount shown as due'' in any letter or 
notice means the total amount of tax, as well as any interest, 
penalties, additional amounts, and additions to tax that are set forth 
in the letter or notice. A deposit in the nature of a cash bond will not 
be considered a payment of the amount shown as due.
    (6) Exception for withdrawn letters and notices--(i) Letters of 
proposed deficiency. A letter of proposed deficiency will be disregarded 
for purposes of determining the applicable date if the letter of 
proposed deficiency is issued as a result of an administrative error 
either to the wrong taxpayer or for the wrong taxable period.
    (ii) Deficiency notices. A deficiency notice under section 6212 of 
the Internal Revenue Code will be disregarded for purposes of 
determining the applicable date if the deficiency notice is rescinded 
under section 6212(d).
    (iii) Assessment letters and notices. A letter or notice that 
notifies the taxpayer of an assessment or proposed assessment of tax 
will be disregarded for purposes of determining the applicable date if 
the full amount of tax assessed is subsequently abated.
    (d) Examples. The application of this section may be illustrated by 
the following examples.

    Example 1. V, a C corporation, timely files Form 941 on January 31, 
1991, for the fourth quarter of 1990. On September 1, 1992, the Service 
sends V a section 6303 notice and demand reflecting an additional FICA 
tax liability for that quarter of $90,000. Interest computed at the 
section 6621(a)(2) rate totals $15,000 as of September 1, 1992. 
Accordingly, V's underpayment of FICA tax for the fourth quarter of 1990 
exceeds $100,000. However, V's $90,000 threshold underpayment of FICA 
tax for that taxable period is less than $100,000, so that the section 
6621(c) rate will not apply to the underpayment for that taxable period.
    Example 2. (i) W, a C corporation, timely files its 1990 income tax 
return on March 15, 1991, showing a liability of $95,000, of which W 
pays only $35,000 with the return. On June 1, 1991, the Service sends W 
an assessment notice reflecting the balance due of $60,000 plus interest 
computed at the section 6621(a)(2) rate. W pays all amounts due on 
August 1, 1991. On July 1, 1993, the Service sends W a 90-day letter 
(without having sent a 30-day letter) reflecting an additional income 
tax deficiency of $85,000 for the taxable year 1990. W files a petition 
in the Tax Court within 90 days. In 1995, the Tax Court determines a 
$50,000 income tax deficiency (exclusive of interest, penalties, 
additional amounts, and additions to tax) for 1990, which the Service 
promptly assesses against W.
    (ii) As a result of the combination of the failure to timely pay the 
$60,000 of income tax reported as due on the return and the Tax Court's 
determination of an additional deficiency of $50,000, W's threshold 
underpayment of income tax for 1990 is $110,000. Because W is a C 
corporation and the threshold underpayment for 1990 exceeds $100,000, 
the section 6621(c) rate applies to W's 1990 large corporate 
underpayment for periods after the applicable date.

[[Page 553]]

    (iii) The applicable date is July 1, 1991, the 30th day after the 
date on which the Service sent W the first assessment notice.
    (iv) From March 16, 1991, through July 1, 1991, interest on W's 1990 
underpayment of income tax (including any interest, penalties, 
additional amounts, and additions to tax) is computed at the section 
6621(a)(2) rate. From July 2, 1991, such interest is computed at the 
section 6621(c) rate.
    (v) If W had paid the amount shown as due on the June 1, 1991, 
assessment notice on or before June 30, 1991, instead of on August 1, 
1991, the applicable date would have been July 31, 1993.
    (vi) Assume that W had paid the amount shown as due on the June 1, 
1991, assessment notice on or before June 30, 1991. If W had made a 
$40,000 deposit in the nature of a cash bond on July 15, 1993, the 
applicable date would be July 31, 1993. Moreover, the deposit would have 
no effect on the existence or amount of W's threshold underpayment or 
large corporate underpayment for 1990. In such a case, however, when the 
Service assesses the amount due from W in 1995, the deposit would be 
treated as a payment made as of July 15, 1993, for purposes of computing 
interest due after that date. As a result, interest would accrue after 
July 15, 1993, (at the section 6621(c) rate) only on the portion of W's 
1990 underpayment that exceeds the $40,000 deposit amount.
    Example 3. (i) X, a C corporation, filed its 1989 income tax return 
,on September 17, 1990, pursuant to an automatic extension. X enclosed 
payment of the $7,500 balance reported on the return as due (plus 
interest). On January 1, 1992, the Service sends X a written 
notification that X's 1989 income tax return is being examined. This 
written notification also contains a request that X provide supplemental 
information with respect to particular deductions totalling $1.5 
million. On July 1, 1993, the Service sends X a 30-day letter proposing 
a $450,000 deficiency (without any reference to penalties, additional 
amounts, additions to tax, and interest) with respect to 1989. On 
December 15, 1993, the Service sends X a 90-day letter asserting a 
deficiency of $300,000 (excluding penalties, additional amounts, 
additions to tax, and other interest). X does not file a Tax Court 
petition and the Service assesses the $300,000 (plus interest and 
penalties) on April 1, 1994. On April 5, 1994, X pays the full amount 
assessed. Thereafter, X timely files an administrative claim for refund 
and a refund suit in federal district court for the amounts assessed on 
April 1, 1994. On September 30, 1995, the federal district court 
determines that, exclusive of interest and penalties, X overpaid its 
1989 income tax by $250,000.
    (ii) The April 1, 1994, assessment establishes at that time that X's 
threshold underpayment of income tax for 1989 is $300,000. Because X is 
a C corporation and the threshold underpayment for 1989 exceeds 
$100,000, X's underpayment of income tax for 1989 is a large corporate 
underpayment to which the section 6621(c) rate applies for periods after 
the applicable date. X's decision to file a refund claim does not 
affect, in and of itself, either the existence of a threshold 
underpayment or the amount of X's large corporate underpayment.
    (iii) For purposes of determining the amount of interest to assess 
on April 1, 1994, the applicable date is July 31, 1993, the 30th day 
after the date on which the Service sent X a 30-day letter. The January 
1, 1992, notice of examination and request for additional information 
has no effect on the applicable date. Similarly, the September 30, 1995, 
federal district court decision has no effect on the applicable date.
    (iv) From March 16, 1990, through July 31, 1993, interest on X's 
1989 underpayment of income tax (including any interest, penalties, 
additional amounts, and additions to tax) is computed at the section 
6621(a)(2) rate. From August 1, 1993, through April 5, 1994, such 
interest is computed at the section 6621(c) rate.
    (v) Because of the federal district court's decision that X's 
underpayment, exclusive of interest and penalties, was only $50,000, X 
does not have a large corporate underpayment of income tax for 1989. 
Thus, the interest X paid with respect to the remaining $250,000 in 
taxes (exclusive of interest and penalties) becomes part of the 
overpayment and will be refunded. In addition, any interest computed at 
the section 6621(c) rate for the period from August 1, 1993, through 
April 5, 1994, should be recomputed at the section 6621(a)(2) rate and 
the difference refunded.
    Example 4. (i) Y, a C corporation, timely filed its 1989 income tax 
return on March 15, 1990, and enclosed payment of the amount reported on 
the return as due. On May 1, 1990, the Service sent to Y an assessment 
notice for $1,000 resulting from a math error on Y's return. Y did not 
request an abatement of the assessment pursuant to section 6213(b). 
Instead, Y paid the $1,000, plus interest, on July 31, 1990. On March 
31, 1992, the Service sends Y a 90-day letter showing an income tax 
deficiency for 1989 of $125,000 (exclusive of interest, penalties, 
additional amounts, and additions to tax). No 30-day letter had been 
issued previously to Y in connection with its 1989 taxable year. Y does 
not file a petition with the Tax Court, but files an amended return for 
1989 on April 15, 1992, showing $30,000 of tax due. Y pays this amount 
(plus interest from March 15, 1990, computed at the section 6621(a)(2) 
rate) with the amended return. Shortly thereafter, the Service assesses 
the $125,000 deficiency (plus interest) and credits the April 15, 1992, 
payment against the assessment.
    (ii) Y's threshold underpayment for 1989 is $125,000 notwithstanding 
Y's April 15, 1992,

[[Page 554]]

payment of $30,000. Because Y is a C corporation and the threshold 
underpayment for 1989 exceeds $100,000, Y has a large corporate 
underpayment of income tax for the taxable period 1989 to which the 
section 6621(c) rate applies for periods after the applicable date.
    (iii) Because Y paid the $1,000 amount shown as due on the math 
error assessment notice (plus interest) on or before January 31, 1991, 
the applicable date is April 30, 1992, the 30th day after the 90-day 
letter is sent.
    (iv) From March 16, 1990, through April 30, 1992, interest is 
computed on Y's underpayment of income tax (including any interest, 
penalties, additional amounts, and additions to tax) at the section 
6621(a)(2) rate. From May 1, 1992, such interest is computed at the 
section 6621(c) rate.
    (v) If Y had not paid the $1,000 amount shown as due on the math 
error assessment notice (plus interest) on or before January 31, 1991, 
the applicable date would have been May 31, 1990, and interest would be 
computed at the section 6621(c) rate beginning on January 1, 1991. If, 
however, Y had timely requested an abatement of the assessment under 
section 6213(b), the applicable date would be April 30, 1992.
    Example 5. (i) Effective January 1, 1993, Y converts from a C 
corporation to an S corporation. On January 31, 1993 Y files its 1992 
FUTA tax return and encloses a payment equal to the amount reported as 
due on the return. On March 15, 1993, Y files its 1992 income tax return 
and encloses a payment equal to the amount reported as due on the 
return. On August 1, 1993, the Service sends to Y an assessment notice 
for $150,000 of FUTA tax, plus interest, with respect to calendar year 
1992. Y pays the full amount shown as due in the assessment notice on 
August 7, 1993. On January 1, 1995, Y files an amended income tax return 
for 1992 showing $15,000 of tax due. Y pays this amount with the amended 
return. On February 10, 1995, the Service sends Y an assessment notice 
for the interest payable on the $15,000. Y pays this interest on 
February 13, 1995.
    (ii) Y's threshold underpayment of FUTA tax for 1992 is $150,000. 
Because Y was a C corporation in 1992 and the threshold underpayment of 
FUTA tax for 1992 exceeds $100,000, Y has a large corporate underpayment 
of FUTA tax. However, Y's threshold underpayment of income tax for the 
same taxable period (i.e., calendar 1992) is $15,000, so that Y does not 
have a large corporate underpayment of income tax for that year.
    (iii) Because Y pays within 30 days the amount shown as due on the 
August 1, 1993, assessment notice, there is no applicable date with 
respect to the large corporate underpayment of FUTA tax for 1992.
    (iv) All of the interest payable with respect to the 1992 
underpayments of FUTA and income taxes is computed at the section 
6621(a)(2) rate.
    (v) If Y had not paid the amount shown as due on the August 1, 1993, 
FUTA tax assessment notice within 30 days, the applicable date would 
have been August 31, 1993, (the 30th day after the assessment notice is 
sent). Thus, interest would have been computed at the section 6621(c) 
rate after that date, even though Y is not at that time a C corporation.
    (vi) If the amended 1992 income tax return Y files on January 1, 
1995, had shown $115,000 of tax due instead of $15,000, Y's threshold 
underpayment of income tax for 1992 would have been $115,000. Because Y 
was a C corporation in 1992 and the threshold underpayment of income tax 
for that year would have exceeded $100,000, Y would have a large 
corporate underpayment of income tax for that year. However, because Y 
would have paid the amount shown as due in the February 10, 1995, 
assessment notice within 30 days of when that assessment notice was 
sent, there would have been no applicable date with respect to that 
large corporate underpayment and the section 6621(c) rate would have not 
applied.
    Example 6. (i) On August 1, 1990, the Service sent to Z, a C 
corporation, an assessment notice for $200,000 of income tax, plus 
$30,000 in interest and penalties, with respect to calendar year 1988. 
Subsequent assessment notices were sent to Z on September 12, 1990, 
October 10, 1990, and November 14, 1990, each including additional 
interest. The November 14, 1990, assessment notice provided that the 
total amount of tax, interest and penalties due was $242,000. On 
December 31, 1990, Z pays $230,000. On February 13, 1991, the Service 
sends Z an assessment notice for the remaining balance (plus additional 
interest thereon). On December 31, 1991, Z pays all amounts owed as of 
that date in connection with its 1988 income tax liability.
    (ii) Z's threshold underpayment of income tax for 1988 is $200,000. 
Because Z is a C corporation and its threshold underpayment of income 
tax for 1988 exceeds $100,000, Z has a large corporate underpayment for 
1988 to which the section 6621(c) rate applies for periods after the 
applicable date.
    (iii) Notwithstanding Z's payment of $230,000 on December 31, 1990, 
the applicable date with respect to the large corporate underpayment of 
1988 income tax is August 31, 1990, the 30th day after the date on which 
the Service sent the first assessment notice.
    (iv) From March 16, 1989, to December 31, 1990, interest is computed 
on Z's underpayment of income tax (including any interest, penalties, 
additional amounts and additions to tax) at the section 6621(a)(2) rate. 
From January 1, 1991, through December 31, 1991, interest is computed on 
that underpayment at the section 6621(c) rate.

[[Page 555]]

    (v) If Z had paid on or before January 31, 1991, the full $242,000 
shown as due on the November 14, 1990, assessment notice, the applicable 
date with respect to any remaining unpaid interest would have been March 
15, 1991, the 30th day after the Service sent the February 13, 1991, 
assessment notice.
    (vi) The same result as in paragraph (v) of this Example 6 would 
apply if the November 14, 1990, assessment notice had provided that only 
$150,000 was due with respect to calendar year 1988 (as a result of a 
correction by the Service of an error in its original August 1, 1990, 
assessment, and not as a result of any payment by Z), and if Z had paid 
that $150,000 on or before January 31, 1991.

    (e) Effective date. Section 6621(c) and this section are effective 
for determining interest for periods after December 31, 1990, regardless 
of the taxable period to which the underlying tax may relate and even if 
the applicable date is prior to December 31, 1990.

[T.D. 8447, 57 FR 53554, Nov. 12, 1992; 57 FR 60846, Dec. 22, 1992]



Sec.  301.6622-1  Interest compounded daily.

    (a) General rule. Effective for interest accruing after December 31, 
1982, in computing the amount of any interest required to be paid under 
the Internal Revenue Code of 1954 or sections 1961(c)(1) or 2411 of 
title 28, United States Code, by the Commissioner or by the taxpayer, or 
in computing any other amount determined by reference to such amount of 
interest, or by reference to the interest rate established under section 
6621, such interest or such other amount shall be compounded daily by 
dividing such rate of interest by 365 (366 in a leap year) and 
compounding such daily interest rate each day.
    (b) Exception. Paragraph (a) of this section shall not apply for 
purposes of determining the amount of any addition to tax under sections 
6654 or 6655 (relating to failure to pay estimated income tax).
    (c) Applicability to unpaid amounts on December 31, 1982--(1) In 
general. The unpaid interest (or other amount) that shall be compounded 
daily includes the interest (or other amount) accrued but unpaid on 
December 31, 1982.
    (2) Illustration. The provisions of this (c) may be illustrated by 
the following example.

    Example. Individual A files a tax return for calendar year 1981 on 
April 15, 1982, showing a tax due of $10,000. A pays $10,000 on December 
31, 1982, but A does not pay any interest with respect to this 
underpayment until March 1, 1983, on which date A paid all amounts of 
interest with respect to the $10,000 underpayment of tax. On December 
31, 1982, A's unsatisfied interest liability was $1,424.66 ($10,000 x 20 
percent x 260/365 days). Interest, compounded daily, accrues on this 
unsatisfied interest obligation beginning on January 1, 1983, until 
March 1, 1983, the date the total interest obligation is satisfied. On 
March 1, 1983, the total interest obligation is $1,462.62, computed as 
follows:

------------------------------------------------------------------------
                            Item                                Amount
------------------------------------------------------------------------
Unpaid tax at December 31, 1982............................            0
Unpaid interest at December 31, 1982.......................    $1,424.66
                                                            ------------
    Total unsatisfied obligation at December 31, 1982......     1,424.66
Interest from December 31, 1982, to March 1, 1983, at 16           37.96
 percent per year compounded daily.........................
                                                            ------------
    Total due, March 1, 1983...............................     1,462.62
------------------------------------------------------------------------


[T.D. 7907, 48 FR 38231, Aug. 23, 1983]



   Additions to the Tax, Additional Amounts, and Assessable Penalties

               Additions to the Tax and Additional Amounts



Sec.  301.6651-1  Failure to file tax return or to pay tax.

    (a) Addition to the tax--(1) Failure to file tax return. In case of 
failure to file a return required under authority of--
    (i) Subchapter A, chapter 61 of the Code, relating to returns and 
records (other than sections 6015 and 6016, relating to declarations of 
estimated tax, and part III thereof, relating to information returns);
    (ii) Subchapter A, chapter 51 of the Code, relating to distilled 
spirits, wines, and beer;
    (iii) Subchapter A, chapter 52 of the Code, relating to cigars, 
cigarettes, and cigarette papers and tubes; or
    (iv) Subchapter A, chapter 53 of the Code, relating to machine guns, 
destructive devices, and certain other firearms; and

The regulations thereunder, on or before the date prescribed for filing 
(determined with regard to any extension

[[Page 556]]

of time for such filing), there shall be added to the tax required to be 
shown on the return the amount specified below unless the failure to 
file the return within the prescribed time is shown to the satisfaction 
of the district director or the director of the service center to be due 
to reasonable cause and not to willful neglect. The amount to be added 
to the tax is 5 percent thereof if the failure is for not more than 1 
month, with an additional 5 percent for each additional month or 
fraction thereof during which the failure continues, but not to exceed 
25 percent in the aggregate. The amount of any addition under this 
subparagraph shall be reduced by the amount of the addition under 
subparagraph (2) of this paragraph for any month to which an addition to 
tax applies under both subparagraphs (1) and (2) of this paragraph (a).
    (2) Failure to pay tax shown on return. In case of failure to pay 
the amount shown as tax on any return (required to be filed after 
December 31, 1969, without regard to any extension of time for filing 
thereof) specified in subparagraph (1) of this paragraph (a), on or 
before the date prescribed for payment of such tax (determined with 
regard to any extension of time for payment), there shall be added to 
the tax shown on the return the amount specified below unless the 
failure to pay the tax within the prescribed time is shown to the 
satisfaction of the district director, or, as provided in paragraph (a) 
of this section, the Assistant Regional Commissioner (Alcohol, Tobacco 
and Firearms), the director of the service center, to be due to 
reasonable cause and not to willful neglect. Except as provided in 
paragraph (a)(4) of this section, the amount to be added to the tax is 
0.5 percent of the amount of tax shown on the return if the failure is 
for not more than 1 month, with an additional 0.5 percent for each 
additional month or fraction thereof during which the failure continues, 
but not to exceed 25 percent in the aggregate.
    (3) Failure to pay tax not shown on return. In the case of failure 
to pay any amount of any tax required to be shown on a return specified 
in paragraph (a)(1) of this section that is not so shown (including an 
assessment made pursuant to section 6213(b)) within 21 calendar days 
from the date of the notice and demand (10 business days if the amount 
assessed and shown on the notice and demand equals or exceeds $100,000) 
with respect to any notice and demand made after December 31, 1996, 
there will be added to the amount stated in the notice and demand the 
amount specified below unless the failure to pay the tax within the 
prescribed time is shown to the satisfaction of the district director or 
the director of the service center to be due to reasonable cause and not 
to willful neglect. Except as provided in paragraph (a)(4) of this 
section, the amount to be added to the tax is 0.5 percent of the amount 
stated in the notice and demand if the failure is for not more than 1 
month, with an additional 0.5 percent for each additional month or 
fraction thereof during which the failure continues, but not to exceed 
25 percent in the aggregate. For purposes of this paragraph (a)(3), see 
Sec.  301.6601-1(f)(5) for the definition of calendar day and business 
day.
    (4) Reduction of failure to pay penalty during the period an 
installment agreement is in effect--(i) In general. In the case of a 
return filed by an individual on or before the due date for the return 
(including extensions)--
    (A) The amount added to tax for a month or fraction thereof is 
determined by using 0.25 percent instead of 0.5 percent under paragraph 
(a)(2) of this section if at any time during the month an installment 
agreement under section 6159 is in effect for the payment of such tax; 
and
    (B) The amount added to tax for a month or fraction thereof is 
determined by using 0.25 percent instead of 0.5 percent under paragraph 
(a)(3) of this section if at any time during the month an installment 
agreement under section 6159 is in effect for the payment of such tax.
    (ii) Effective date. This paragraph (a)(4) applies for purposes of 
determining additions to tax for months beginning after December 31, 
1999.
    (b) Month defined. (1) If the date prescribed for filing the return 
or paying tax is the last day of a calendar month, each succeeding 
calendar month or

[[Page 557]]

fraction thereof during which the failure to file or pay tax continues 
shall constitute a month for purposes of section 6651.
    (2) If the date prescribed for filing the return or paying tax is a 
date other than the last day of a calendar month, the period which 
terminates with the date numerically corresponding thereto in the 
succeeding calendar month and each such successive period shall 
constitute a month for purposes of section 6651. If, in the month of 
February, there is no date corresponding to the date prescribed for 
filing the return or paying tax, the period from such date in January 
through the last day of February shall constitute a month for purposes 
of section 6651. Thus, if a return is due on January 30, the first month 
shall end on February 28 (or 29 if a leap year), and the succeeding 
months shall end on March 30, April 30, etc.
    (3) If a return is not timely filed or tax is not timely paid, the 
fact that the date prescribed for filing the return or paying tax, or 
the corresponding date in any succeeding calendar month, falls on a 
Saturday, Sunday, or a legal holiday is immaterial in determining the 
number of months for which the addition to the tax under section 6651 
applies.
    (c) Showing of reasonable cause. (1) Except as provided in 
subparagraphs (3) and (4) of this paragraph (b), a taxpayer who wishes 
to avoid the addition to the tax for failure to file a tax return or pay 
tax must make an affirmative showing of all facts alleged as a 
reasonable cause for his failure to file such return or pay such tax on 
time in the form of a written statement containing a declaration that it 
is made under penalties of perjury. Such statement should be filed with 
the district director or the director of the service center with whom 
the return is required to be filed; Provided, That where special tax 
returns of liquor dealers are delivered to an alcohol, tobacco and 
firearms officer working under the supervision of the Regional Director, 
Bureau of Alcohol, Tobacco and Firearms, such statement may be delivered 
with the return. If the district director, the director of the service 
center, or, where applicable, the Regional Director, Bureau of Alcohol, 
Tobacco and Firearms, determines that the delinquency was due to a 
reasonable cause and not to willful neglect, the addition to the tax 
will not be assessed. If the taxpayer exercised ordinary business care 
and prudence and was nevertheless unable to file the return within the 
prescribed time, then the delay is due to a reasonable cause. A failure 
to pay will be considered to be due to reasonable cause to the extent 
that the taxpayer has made a satisfactory showing that he exercised 
ordinary business care and prudence in providing for payment of his tax 
liability and was nevertheless either unable to pay the tax or would 
suffer an undue hardship (as described in Sec.  1.6161-1(b) of this 
chapter) if he paid on the due date. In determining whether the taxpayer 
was unable to pay the tax in spite of the exercise of ordinary business 
care and prudence in providing for payment of his tax liability, 
consideration will be given to all the facts and circumstances of the 
taxpayer's financial situation, including the amount and nature of the 
taxpayer's expenditures in light of the income (or other amounts) he 
could, at the time of such expenditures, reasonably expect to receive 
prior to the date prescribed for the payment of the tax. Thus, for 
example, a taxpayer who incurs lavish or extravagant living expenses in 
an amount such that the remainder of his assets and anticipated income 
will be insufficient to pay his tax, has not exercised ordinary business 
care and prudence in providing for the payment of his tax liability. 
Further, a taxpayer who invests funds in speculative or illiquid assets 
has not exercised ordinary business care and prudence in providing for 
the payment of his tax liability unless, at the time of the investment, 
the remainder of the taxpayer's assets and estimated income will be 
sufficient to pay his tax or it can be reasonably foreseen that the 
speculative or illiquid investment made by the taxpayer can be utilized 
(by sale or as security for a loan) to realize sufficient funds to 
satisfy the tax liability. A taxpayer will be considered to have 
exercised ordinary business care and prudence if he made reasonable 
efforts to conserve sufficient assets in marketable form to satisfy his

[[Page 558]]

tax liability and nevertheless was unable to pay all or a portion of the 
tax when it became due.
    (2) In determining if the taxpayer exercised ordinary business care 
and prudence in providing for the payment of his tax liability, 
consideration will be given to the nature of the tax which the taxpayer 
has failed to pay. Thus, for example, facts and circumstances which, 
because of the taxpayer's efforts to conserve assets in marketable form, 
may constitute reasonable cause for nonpayment of income taxes may not 
constitute reasonable cause for failure to pay over taxes described in 
section 7501 that are collected or withheld from any other person.
    (3) If, for a taxable year ending on or after December 31, 1995, an 
individual taxpayer satisfies the requirement of Sec.  1.6081-4(a) of 
this chapter (relating to automatic extension of time for filing an 
individual income tax return), reasonable cause will be presumed, for 
the period of the extension of time to file, with respect to any 
underpayment of tax if--
    (i) The excess of the amount of tax shown on the individual income 
tax return over the amount of tax paid on or before the regular due date 
of the return (by virtue of tax withheld by the employer, estimated tax 
payments, and any payment with an application for extension of time to 
file pursuant to Sec.  1.6081-4 of this chapter) is no greater than 10 
percent of the amount of tax shown on the individual income tax return; 
and
    (ii) Any balance due shown on the individual income tax return is 
remitted with the return.
    (4) If, for a taxable year ending on or after December 31, 1972, a 
corporate taxpayer satisfies the requirements of Sec.  1.6081-3 (a) 
(relating to an automatic extension of time for filing a corporation 
income tax return), reasonable cause shall be presumed, for the period 
of the extension of time to file, with respect to any underpayment of 
tax if--
    (i) The amount of tax (determined without regard to any prepayment 
thereof) shown on Form 7004, or the amount of tax paid on or before the 
regular due date of the return, is at least 90 percent of the amount of 
tax shown on the taxpayer's Form 1120, and
    (ii) Any balance due shown on the Form 1120 is paid on, or before 
the due date of the return, including any extensions of time for filing.
    (d) Penalty imposed on net amount due--(1) Credits against the tax. 
The amount of tax required to be shown on the return for purposes of 
section 6651(a)(1) and the amount shown as tax on the return for 
purposes of section 6651(a)(2) shall be reduced by the amount of any 
part of the tax which is paid on or before the date prescribed for 
payment of the tax and by the amount of any credit against the tax which 
may be claimed on the return.
    (2) Partial payments. (i) The amount of tax required to be shown on 
the return for purposes of section 6651(a)(2) shall, for the purpose of 
computing the addition for any month, be reduced by the amount of any 
part of the tax which is paid after the date prescribed for payment and 
on or before the first day of such month.
    (ii) The amount of tax stated in the notice and demand for purposes 
of section 6651(a)(3) shall, for the purpose of computing the addition 
for any month, be reduced by the amount of any part of the tax which is 
paid before the first day of such month.
    (e) No addition to tax if fraud penalty assessed. No addition to the 
tax under section 6651 shall be assessed with respect to an underpayment 
of tax if a 50-percent addition to the tax for fraud is assessed with 
respect to the same underpayment under section 6653(b). See section 
6653(d).
    (f) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. (a) Under section 6072(a), income tax returns of 
individuals on a calendar year basis must be filed on or before the 15th 
day of April following the close of the calendar year. Assume an 
individual filed his income tax return for the calendar year 1969 on 
July 20, 1970, and the failure to file on or before the prescribed date 
is not due to reasonable cause. The tax shown on the return is $800 and 
a deficiency of $200 is subsequently assessed, making the tax required 
to be shown on the return, $1,000. Of this amount, $300 has been paid by 
withholding from wages and $400 has been paid as estimated tax. The 
balance due as shown on the return of $100 ($800 shown as tax on the 
return less $700 previously paid) is paid on August 21, 1970. The 
failure to pay on or before the prescribed

[[Page 559]]

date is not due to reasonable cause. There will be imposed, in addition 
to interest, an additional amount under section 6651(a)(2) of $2.50, 
which is 2.5 percent (2% for the 4 months from April 16 through August 
15, and 0.5% for the fractional part of the month from August 16 through 
August 21) of the net amount due as shown on the return of $100 ($800 
shown on the return less $700 paid on or before April 15). There will 
also be imposed an additional amount under section 6651(a)(1) of $58, 
determined as follows:

20 percent (5% per month for the 3 months from April 16 through      $60
 July 15 and 5% for the fractional part of the month from July
 16 through July 20) of the net amount due of $300 ($1,000
 required to be shown on the return less $700 paid on or before
 April 15).....................................................
Reduced by the amount of the addition imposed under section            2
 6651(a)(2) for those months...................................
                                                                --------
Addition to tax under section 6651(a)(1).......................      $50
 

    (b) A notice and demand for the $200 deficiency is issued on January 
8, 1971, but the taxpayer does not pay the deficiency until December 23, 
1971. In addition to interest there will be imposed an additional amount 
under section 6651(a)(3) of $10, determined as follows:

Addition computed without regard to limitation:
6 percent (5\1/2\% for the 11 months from January 19, 1971,          $12
 through December 18, 1971, and 0.5% for the fractional part of
 the month from December 19 through December 23) of the amount
 stated in the notice and demand ($200)........................
                                                                --------
Limitation on addition:
25 percent of the amount stated in the notice and demand ($200)      $50
Reduced by the part of the addition under section 6651(a)(1)         $40
 for failure to file attributable to the $200 deficiency (20%
 of $200)......................................................
                                                                --------
Maximum amount of the addition under section 6651(a)(3)........      $10
                                                                ========
 

    Example 2. An individual files his income tax return for the 
calendar year 1969 on December 2, 1970, and such delinquency is not due 
to reasonable cause. The balance due, as shown on the return, of $500 is 
paid when the return is filed on December 2, 1970. In addition to 
interest and the addition for failure to pay under section 6651(a)(2) of 
$20 (8 months at 0.5% per month, 4%), there will also be imposed an 
additional amount under section 6651(a)(1) of $112.50, determined as 
follows:

Penalty at 5 percent for maximum of 5 months, 25 percent of      $125.00
 $500.........................................................
Less reduction for the amount of the addition under section
 6651(a)(2):
Amount imposed under section 6651(a)(2) for the months in          12.50
 which there is also an addition for failure to file--2\1/2\
 percent for the 5 months April 16 through September 15 of the
 net amount due ($500)........................................
                                                               ---------
Addition to tax under section 6651(a)(1)......................   $112.50
                                                               =========
 

    (g) Treatment of returns prepared by the Secretary--(1) In general. 
A return prepared by the Secretary under section 6020(b) will be 
disregarded for purposes of determining the amount of the addition to 
tax for failure to file any return pursuant to paragraph (a)(1) of this 
section. However, the return prepared by the Secretary will be treated 
as a return filed by the taxpayer for purposes of determining the amount 
of the addition to tax for failure to pay the tax shown on any return 
and for failure to pay the tax required to be shown on a return that is 
not so shown pursuant to paragraphs (a)(2) and (3) of this section, 
respectively.
    (2) Effective date. This paragraph (g) applies to returns the due 
date for which (determined without regard to extensions) is after July 
30, 1996.

[T.D. 7133, 36 FR 13594, July 22, 1971, as amended by T.D. 7160, 37 FR 
2507, Feb. 2, 1972; T.D. 7260, 38 FR 4259, Feb. 12, 1973; T.D. 8651, 61 
FR 262, Jan. 4, 1996; T.D. 8703, 61 FR 69031, Dec. 31, 1996; T.D. 8725, 
62 FR 39117, July 22, 1997; T.D. 8895, 65 FR 50408, Aug. 18, 2000; T.D. 
9163, 69 FR 70550, Dec. 7, 2004]



Sec.  301.6652-1  Failure to file certain information returns.

    (a) Returns with respect to payments made in calendar years after 
1962--(1) Payments of dividends, interest, or patronage dividends 
aggregating $10 or more. In the case of each failure to file a statement 
required by--
    (i) Section 6042(a)(1), relating to information returns with respect 
to payments of dividends aggregating $10 or more in a calendar year, in 
effect with respect to payments made after December 31, 1962,
    (ii) Section 6044(a)(1), relating to information returns with 
respect to certain payments by cooperatives aggregating $10 or more in a 
calendar year, in effect with respect to payments made on or after the 
first day of the first taxable year of the cooperative beginning after 
December 31, 1962, with respect to patronage occurring on or after such 
first day, or
    (iii) Section 6049(a)(1), relating to information returns with 
respect to payments of interest aggregating $10 or more in a calendar 
year, in effect with respect to payments made after December 31, 1962, 
and the regulations

[[Page 560]]

under such section, within the time prescribed for filing such statement 
(determined with regard to any extension of time for filing), there 
shall be paid by the person failing to so file the statement $10 for 
each such statement not so filed. However, the total amount imposed on 
the delinquent person for all such failures under section 6652(a) and 
this section during any calendar year shall not exceed $25,000.
    (2) Other payments; statements with respect to tips. In the case of 
each failure--
    (i) To file a statement of a payment made to another person required 
under authority of section 6041, relating to information returns with 
respect to certain information at source, or section 6051(d), relating 
to information returns with respect to payments of wages as defined in 
section 3401(a), or section 6050(a), relating to information returns 
with respect to remuneration of certain crew members defined in section 
3121(b)(20), or
    (ii) To furnish a statement required under authority of section 
6053(b), relating to statements furnished by employers with respect to 
tips, or section 6050A(b), relating to statements furnished by fishing 
boat operators with respect to remuneration of certain crew members, 
within the time prescribed by regulations under those sections for 
filing such statements (determined with regard to any extension of time 
for filing),

There shall be paid by the person failing to so file the statement $1 
for each such statement not so filed. However, the total amount imposed 
on the delinquent person for all such failures during any calendar year 
shall not exceed $1,000.
    (b) Returns with respect to payments made in calendar years before 
1963 and to certain payments by cooperatives after 1962. In the case of 
each failure to file a statement, with respect to a payment to another 
person, required under authority of--
    (1) Section 6041, relating to information returns with respect to 
certain information at source, in effect with respect to payments made 
before 1963,
    (2) Section 6042(1), relating to information returns with respect to 
payments of corporate dividends, in effect with respect to payments made 
before 1963,
    (3) Section 6044, relating to information returns with respect to 
payments of patronage dividends, in effect with respect to payments made 
by a cooperative with respect to patronage occurring before the first 
day of the first taxable year of the cooperative beginning after 
December 31, 1962, or
    (4) Section 6051(d), relating to information returns with respect to 
payments of wages as defined in section 3401(a), in effect with respect 
to payments made before 1963,

and the regulations under such section, within the time prescribed for 
filing such statement (determined with regard to any extension of time 
for filing), there shall be paid by the person failing to so file such 
statement $1 for each such statement not so filed. However, the total 
amount imposed on the delinquent person for all such failures during any 
calendar year shall not exceed $1,000.
    (c) Returns with respect to reporting payments of wages in the form 
of group-term life insurance provided in a calendar year after December 
31, 1963. In the case of each failure to file a return required by 
section 6052(a), relating to reporting payment of wages in the form of 
group-term life insurance provided for any employee on his life in a 
calendar year after December 31, 1963, and the regulations under such 
section, within the time prescribed for filing such return (determined 
with regard to any extension of time for filing), there shall be paid by 
the person failing to so file such return $10 for each such return not 
so filed. However, the total amount imposed on the delinquent person for 
all such failures under section 6652(a) and this section during any 
calendar year shall not exceed $25,000.
    (d) Returns with respect to transfer of stock or record title 
thereto pursuant to options exercised on or after January 1, 1964. In 
the case of each failure to file a statement of the transfer of stock or 
of record title thereto as required by section 6039(a) and the 
regulations under such section within the time prescribed for filing 
such statement (determined with regard to any extension of time for 
filing), there shall be paid by the corporation failing to so file

[[Page 561]]

such statement, $10 for each such statement not so filed. However, the 
total amount imposed on the delinquent corporation for all such failures 
under section 6652(a) and this section during any calendar year shall 
not exceed $25,000.
    (e) Manner of payment. The amount imposed under subsection (a), (b), 
or (c) of section 6652 and this section on any person shall be paid in 
the same manner as tax upon the issuance of a notice and demand 
therefor.
    (f) Showing of reasonable cause. The amount imposed by subsection 
(a), (b), or (c) of section 6652 shall not apply with respect to a 
failure to file a statement within the time prescribed if it is 
established to the satisfaction of the district director or the director 
of the Internal Revenue Service Center that such failure was due to 
reasonable cause and not to willful neglect. An affirmative showing of 
reasonable cause must be made in the form of a written statement, 
containing a declaration that it is made under the penalties of perjury, 
setting forth all the facts alleged as a reasonable cause.
    (g) Alcohol and tobacco taxes. For penalties for failure to file 
certain information returns with respect to alcohol and tobacco taxes, 
see, generally, subtitle E of the Code.
    (h) Tips. For regulations under section 6652(c) in respect of 
failure to report tips, see Sec.  31.6652-1 of this chapter (Employment 
Tax Regulations).

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7001, 34 FR 1006, Jan. 
23, 1969; T.D. 7127, 36 FR 11503, June 15, 1971; T.D. 7716, 45 FR 57124, 
Aug. 27, 1980]



Sec.  301.6652-2  Failure by exempt organizations and certain nonexempt 
organizations to file certain returns or to comply with section 6104(d) 
for taxable years beginning after December 31, 1969.

    (a) Exempt organization or trust. In the case of a failure to file a 
return required by--
    (1) Section 6033, relating to returns by exempt organizations, 
trusts described in section 4947(a)(1) and nonexempt private 
foundations,
    (2) Section 6034, relating to returns by certain trusts, or
    (3) Section 6043(b), relating to returns regarding the liquidation, 
dissolution, termination, or substantial contraction of an exempt 
organization,

within the time and in the manner prescribed for filing such return 
(determined with regard to any extension of time for filing), unless it 
is shown that such failure is due to reasonable cause, there shall be 
paid by the exempt organization or trust failing to file such return $10 
for each day during which such failure continues. However, the total 
amount imposed on any exempt organization or trust under this paragraph 
for such failure with regard to any one return shall not exceed $5,000.
    (b) Managers. If an exempt organization or trust fails to file under 
section 6652(d)(1), the Commissioner may, by written demand, request 
that such organization or trust file the delinquent return within 90 
days after the date of mailing of such demand, or within such additional 
period as the Commissioner shall determine is reasonable under the 
circumstances. If such organization or trust does not so file on or 
before the date specified in such demand, there shall be paid by the 
person or persons responsible for such failure to file $10 for each day 
after such date during which such failure continues, unless it is shown 
that such failure is due to reasonable cause. However, the total amount 
imposed under this paragraph on all persons responsible for such failure 
with regard to any one return shall not exceed $5,000.
    (c) Public inspection of private foundations' annual returns--(1) In 
general. In the case of a failure to comply with the requirements of 
section 6104(d), relating to public inspection of private foundations' 
annual returns, within the time and in the manner prescribed for 
complying with section 6104(d), unless it is shown that such failure is 
due to reasonable cause, there shall be paid by the person or persons 
responsible for failing to comply with section 6104(d) $10 for each day 
during which such failure continues. However, the total amount imposed 
under this subparagraph on all persons responsible for any such failure 
with regard to any one annual return shall not exceed $5,000.
    (2) Amount imposed. The amount imposed under section 6652(d)(3) is 
$10 per day for a failure to comply with section 6104(d). For example, 
assume that

[[Page 562]]

an annual return must be filed by private foundation X on or before May 
15, 1982, for the calendar year 1981. The foundation without reasonable 
cause does not comply with section 6104(d) by publishing notice of the 
availability of the annual return until July 30, 1982. In this case, the 
person failing to comply with section 6104(d) within the prescribed time 
is required to pay $760 for complying with section 6104(d) 76 days late.
    (3) Cross reference. For the penalty for willful failure to comply 
with section 6104(d), see Sec.  301.6685-1.
    (d) Special rules. For purposes of section 6652(d) and this 
section--
    (1) Person. The term ``person'' means any officer, director, 
trustee, employee, member, or other individual whose duty it is to 
perform the act in respect of which the violation occurs.
    (2) Liability. If more than one person (as defined in subparagraph 
(1) of this paragraph (d)) is liable for a failure to file or to comply 
with section 6652(d) (2) or (3), all such persons shall be jointly and 
severally liable with respect to such failure.
    (e) Manner of payment. The amount imposed under section 6652(d) and 
this section on any exempt organization, trust, or person (as defined in 
paragraph (d)(1) of this section) shall be paid in the same manner as 
tax upon the issuance of a notice and demand therefor.
    (f) Showing of reasonable cause. No amount imposed by section 
6652(d) shall apply with respect to a failure to file or comply under 
this section if it is established to the satisfaction of the district 
director or director of the internal revenue service center that such 
failure was due to reasonable cause. An affirmative showing of 
reasonable cause must be made in the form of a written statement 
containing a declaration by the appropriate person (as defined in 
paragraph (d)(1) of this section), or in his absence, by any officer, 
director, or trustee of the organization, that the statement is made 
under the penalties of perjury, setting forth all the facts alleged as 
reasonable cause.
    (g) Group returns. If a central organization is authorized to file a 
group return on behalf of two or more of its local organizations for the 
taxable year in accordance with paragraph (d) of Sec.  1.6033-2 (Income 
Tax Regulations), the responsibility for timely filing of such a return 
is placed upon the central organization for purposes of this section. 
Consequently, the amount imposed by section 6652(d)(1) for failure to 
file the group return shall be paid by the central organization and the 
amount imposed by section 6652(d)(2) for failure to file the group 
return within the time prescribed by the Commissioner shall be paid by 
the person or persons responsible for filing the group return.
    (h) Effective date. This section shall apply for taxable years 
beginning after December 31, 1969.

[T.D. 7127, 36 FR 11503, June 15, 1971, as amended by T.D. 8026, 50 FR 
20758, May 20, 1985]



Sec.  301.6652-3  Failure to file information with respect to 
employee retirement benefit plan.

    (a) Amount imposed--(1) Annual registration statement. The plan 
administrator (within the meaning of section 414(g)) of an employee 
retirement benefit plan defined in Sec.  301.6057-1(a)(3) is liable for 
the amount imposed by section 6652(e)(1) in each case in which there is 
a failure to file information relating to the deferred vested retirement 
benefit of a plan participant, as required by section 6057(a) and Sec.  
301.6057-1, at the time and place and in the manner prescribed therefor 
(determined without regard to any extension of time for filing). The 
amount imposed by section 6652(e)(1) on the plan administrator is $1 for 
each participant with respect to whom there is a failure to file the 
required information, multiplied by the number of days during which the 
failure continues. However, the total amount imposed by section 
6652(e)(1) on the plan administrator with respect to a failure to file 
on behalf of a plan for a plan year shall not exceed $5,000.
    (2) Notification of change in status. The plan administrator (within 
the meaning of section 414(g)) of an employee retirement benefit plan 
defined in Sec.  301.6057-1(a)(3) is liable for the amount imposed by 
section 6652(e)(2) in each case in which there is a failure to file a 
notification of a change in plan status, as described in section 6057(b) 
and

[[Page 563]]

Sec.  301.6057-2, at the time and place and in the manner prescribed 
therefor (determined without regard to any extension of time for 
filing). The amount imposed by section 6652(e)(2) on the plan 
administrator is $1 for each day during which the failure to so file a 
notification of a change in plan status continues. However, the total 
amount imposed by section 6652(e)(2) on the plan administrator with 
respect to a failure to file a notification of a change in plan status 
shall not exceed $1,000.
    (3) Annual return of funded plan of deferred compensation. Under 
section 6652(f) the amount described in this subparagraph is imposed in 
each case in which there is a failure to file the annual return 
described in section 6058(a) on behalf of a plan described in Sec.  
301.6058-1(a) at the time and in the manner prescribed therefor 
(determined with regard to any extension of time for filing). The 
employer maintaining the plan is liable for the amount imposed with 
respect to a failure to so file the annual return in each case in which 
the employer must file the return under Sec.  301.6058-1(a). The plan 
administrator (within the meaning of section 414(g)) is liable for the 
amount imposed in each case in which the plan administrator must file 
the return under Sec.  301.6058-1(a). In the case of an individual 
retirement account or annuity described in section 408, the individual 
described in Sec.  301.6058-1(d)(2) who must file the annual return 
under Sec.  301.6058-1(d) is liable for the amount imposed with respect 
to a failure to so file the annual return. The amount imposed is $10 for 
each day during which the failure to file the annual return on behalf of 
a plan for a year continues. However, the total amount imposed with 
respect to a failure to file on behalf of a plan for any year shall not 
exceed $5,000.
    (4) Actuarial statement in case of mergers. The plan administrator 
(within the meaning of section 414(g)) is liable for an amount imposed 
by section 6652(f) in each case in which there is a failure to file the 
actuarial statement described in section 6058(b) at the time and in the 
manner prescribed therefor (determined with regard to any extension of 
time for filing). The amount imposed by section 6652(f) on the plan 
administrator is $10 for each day during which the failure to file the 
statement with respect to a merger, consolidation or transfer of assets 
or liabilities continues. However, the amount imposed by section 6652(f) 
on the plan administrator with respect to a failure to file the 
statement with respect to a merger, consolidation or transfer shall not 
exceed $5,000.
    (5) Information relating to certain trusts and annuity and bond 
purchase plans. Under section 6652(f) the amount described in this 
subparagraph is imposed in each case in which there is a failure to file 
a return or statement required by section 6047 at the time and in the 
manner prescribed therefor in Sec.  1.6047-1 (determined with regard to 
any extension of time for filing). The amount is imposed upon the 
trustee of a trust described in section 401(a), custodian of a custodial 
account or issuer of an annuity contract, as the case may be (see Sec.  
1.6047-1(a)(1) (i) and (ii)). The amount imposed by section 6652(f) is 
$10 for each day during which the failure to file with respect to a 
payee for a calendar year continues. However, the amount imposed with 
respect to a failure to file with respect to a payee for a calendar year 
shall not exceed $5,000.
    (b) Showing of reasonable cause. (1) No amount imposed by section 
6652(e) shall apply with respect to a failure to file information 
relating to the deferred vested retirement benefit of a plan participant 
under section 6057(a), or a failure to give notice of a change in plan 
status under section 6057(b), if it is established to the satisfaction 
of the director of the internal revenue service center at which the 
information or notice is required to be filed that the failure was due 
to reasonable cause.
    (2) No amount imposed by section 6652(f) shall apply with respect to 
a failure to file a return or statement required by section 6058 or 
6047, or a failure to provide material items of information called for 
on such a return or statement, if it is established to the satisfaction 
of the appropriate district director or the director of the internal 
revenue service center at which the return or statement is required to 
be filed that the failure was due to reasonable cause.

[[Page 564]]

    (3) An affirmative showing of reasonable cause must be made in the 
form of a written statement setting forth all the facts alleged as 
reasonable cause. The statement must contain a declaration by the 
appropriate individual that the statement is made under the penalties of 
perjury.
    (c) Joint liability. If more than one person is responsible for a 
failure to comply with sections 6057 (a) or (b) or section 6058 (a) or 
(b) or section 6047, all such persons shall be jointly and severally 
liable with respect to the failure.
    (d) Manner of payment. An amount imposed under section 6652 (e) or 
(f) and this section shall be paid in the same manner as a tax upon the 
issuance of notice and demand therefor.
    (e) Effective dates--(1) Annual registration statement. With respect 
to the annual registration statement described in section 6057(a), this 
section is effective--
    (i) In the case of a plan to which only one employer contributes, 
for plan years beginning after December 31, 1975, with respect to 
participants who separate from service covered by the plan in plan years 
beginning after that date, and
    (ii) In the case of a plan to which more than one employer 
contributes, for plan years beginning after December 31, 1977, and with 
respect to participants who complete two consecutive 1-year breaks in 
service under the plan in service computation periods beginning after 
December 31, 1974.
    (2) Notification of change in status. With respect to the 
notification of change in plan status required by section 6057(b), this 
section is effective with respect to a change in status occurring within 
plan years beginning after December 31, 1975.
    (3) Annual return of employee benefit plan. With respect to the 
annual return of employee benefit plan required by section 6058(a), this 
section is effective for plan years beginning after September 2, 1974.
    (4) Actuarial statement in case of mergers. With respect to the 
actuarial statement required by section 6058(b), this section is 
effective with respect to mergers, consolidations or transfers of assets 
or liabilities occurring after September 2, 1974.
    (5) Information relating to certain trusts and annuity and bond 
purchase plans. With respect to reports or statements required to be 
filed by section 6047 and the regulations thereunder, this section is 
effective with respect to calendar years ending after September 2, 1974.

[T.D. 7551, 43 FR 29293, July 7, 1978, and T.D. 7561, 43 FR 38006, Aug. 
25, 1978; 44 FR 24285, Apr. 25, 1979]



Sec.  301.6653-1  Failure to pay tax.

    (a) Negligence or intentional disregard of rules and regulations 
with respect to income or gift taxes. If any part of any underpayment, 
as defined in section 6653(c)(1) and paragraph (c)(1) of this section, 
of any income tax imposed by subtitle A of the Code, or gift tax imposed 
by chapter 12, subtitle B, of the Code, is due to negligence or 
intentional disregard of rules and regulations, but without intent to 
defraud, there shall be added to the tax an amount equal to 5 percent of 
the underpayment.
    (b) Fraud. (1) If any part of any underpayment of tax, as defined in 
section 6653(c) and paragraph (c) of this section, required to be shown 
on a return is due to fraud, there shall be added to the tax an amount 
equal to 50 percent of the underpayment.
    (2) If a 50 percent addition to the tax for fraud is assessed under 
section 6653(b) with respect to an underpayment--
    (i) The addition to the tax under section 6651, relating to failure 
to file a tax return, will not be assessed with respect to the same 
underpayment, and
    (ii) In the case of the income taxes imposed by subtitle A and the 
gift tax imposed by chapter 12 of subtitle B, the 5 percent addition to 
the tax under section 6653(a), relating to negligence and intentional 
disregard of rules and regulations, will not be assessed with respect to 
the same underpayment.
    (c) Definition of underpayment--(1) Income, estate, gift, and 
chapter 41, 42, 43, and 44 taxes. In the case of income, estate, gift, 
and chapter 41, 42, 43, and 44 taxes, an underpayment for purposes of 
section 6653 and this section is--

[[Page 565]]

    (i) The total amount of all deficiencies as defined in section 6211, 
if a return was filed on or before the last date (determined with regard 
to any extension of time) prescribed for filing such return, or
    (ii) The amount of the tax imposed by subtitle A or B, or chapter 
41, 42, 43, or 44, as the case may be, if a return was not filed on or 
before the last date (determined with regard to any extension of time) 
prescribed for filing such return.

However, for purposes of paragraph (c)(1)(i) of this section, any amount 
of additional tax shown on the amended return, so called, filed after 
the due date of the return is a deficiency.
    (2) Other taxes. In the case of any tax other than an income, 
estate, gift or chapter 41, 42, 43, or 44 tax, an underpayment for 
purposes of section 6653 and this section is the amount by which the tax 
imposed exceeds--
    (i) In the case of any tax with respect to which the taxpayer is 
required to file a return, the sum of (a) the amount shown as tax by the 
taxpayer upon his return filed in respect of such tax, but only if the 
return is filed on or before the last date (determined with regard to 
any extension of time) prescribed for filing such return, plus (b) any 
amount not shown on a return filed by the taxpayer which is paid in 
respect of such tax prior to the date prescribed for filing the return. 
The ``amount shown as tax by the taxpayer upon his return'' for the 
purposes of this subparagraph shall be determined without regard to any 
credit for an overpayment for any prior tax return period, and without 
regard to any adjustment made under section 6205(a), or section 6413(a), 
relating to special rules applicable to certain employment taxes.
    (ii) In the case of any tax payable by stamp, the amount paid (on or 
before the date prescribed for payment) in respect of such tax.

The amounts specified in subdivisions (i) and (ii) of this subparagraph 
shall be reduced, for purposes of determining the amount of the 
underpayment, by the amount of any rebates made. For purposes of this 
subparagraph, the term ``rebates'' means so much of an abatement, 
credit, refund, or other repayment as was made on the ground that the 
tax imposed was less than the excess of the amount specified in 
subdivision (i) or (ii) of this subparagraph, whichever is applicable, 
over any rebates previously made.
    (d) No delinquency penalty if fraud assessed. See paragraph (b)(2) 
of this section.
    (e) Failure to pay stamp tax. Any person (as defined in section 
6671(b)) who willfully fails to pay any tax payable by stamp, coupons, 
tickets, books or other devices or methods prescribed by the Code or 
regulations promulgated thereunder, or willfully attempts in any manner 
to evade or defeat any such tax or the payment thereof, shall, in 
addition to other penalties provided by law, be liable to a penalty of 
50 percent of the total amount of the underpayment of the tax.
    (f) Joint returns. No person filing a joint return shall be held 
liable for a fraud penalty except for his own personal fraudulent 
conduct. Thus, for the fraud penalty to apply to a taxpayer who files a 
joint return some part of the underpayment in such return must be due to 
the fraud of such taxpayer. A taxpayer shall not be subject to the fraud 
penalty solely by reason of the fraud of a spouse and his filing of a 
joint return with such spouse.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7320, 39 FR 28279, Aug. 
6, 1974; 39 FR 29353, Aug. 15, 1974; T.D. 7838, 47 FR 44252, Oct. 7, 
1982]



Sec.  301.6654-1  Failure by individual to pay estimated income tax.

    For regulations under section 6654, see Sec. Sec.  1.6654-1 to 
1.6654-5, inclusive, of this chapter (Income Tax Regulations).

[T.D. 7282, 38 FR 19029, July 19, 1973]



Sec.  301.6655-1  Failure by corporation to pay estimated income tax.

    (a) For regulations under section 6655, see Sec. Sec.  1.6655-1 
through 1.6655-7 of this chapter.
    (b) Effective/applicability date: This section applies to taxable 
years beginning after September 6, 2007.

[T.D. 9347, 72 FR 44366, Aug. 7, 2007]

[[Page 566]]



Sec.  301.6656-1  Abatement of penalty.

    (a) Exception for first time depositors of employment taxes--(1) 
Waiver. The Secretary will generally waive the penalty imposed by 
section 6656(a) on a person's failure to deposit any employment tax 
under subtitle C of the Internal Revenue Code if--
    (i) The failure is inadvertent;
    (ii) The person meets the requirements referred to in section 
7430(c)(4)(A)(ii) (relating to the net worth requirements applicable for 
awards of attorney's fees);
    (iii) The failure occurs during the first quarter that the person is 
required to deposit any employment tax; and
    (iv) The return of the tax is filed on or before the due date.
    (2) Inadvertent failure. For purposes of paragraph (a)(1)(i) of this 
section, the Secretary will determine if a failure to deposit is 
inadvertent based on all the facts and circumstances.
    (b) Deposit sent to Secretary. The Secretary may abate the penalty 
imposed by section 6656(a) if the first time a taxpayer is required to 
make a deposit, the amount required to be deposited is inadvertently 
sent to the Secretary rather than deposited by electronic funds 
transfer.
    (c) Effective/applicability date. This section applies to deposits 
and payments made after December 31, 2010.

[T.D. 8725, 62 FR 39118, July 22, 1997. Redesignated by T.D. 8947, 66 FR 
32542, June 15, 2001; T.D. 9507, 75 FR 75904, Dec. 7, 2010]



Sec.  301.6657-1  Bad checks.

    (a) In general. Except as provided in paragraph (b) of this section, 
if a check or money order is tendered in the payment of any amount 
receivable under the Code, and such check or money order is not paid 
upon presentment, a penalty of one percent of the amount of the check or 
money order, in addition to any other penalties provided by law shall be 
paid by the person who tendered such check or money order. If, however, 
the amount of the check or money order is less than $500, the penalty 
shall be $5 or the amount of the check or money order, whichever amount 
is the lesser. Such penalty shall be paid in the same manner as tax upon 
the issuance of a notice and demand therefor.
    (b) Reasonable cause. If payment is refused upon presentment of any 
check or money order and the person who tendered such check or money 
order establishes to the satisfaction of the district director that it 
was tendered in good faith with reasonable cause to believe that it 
would be duly paid, the penalty set forth in paragraph (a) of this 
section shall not apply.



Sec.  301.6658-1  Addition to tax in case of jeopardy.

    Upon a finding by the district director that any taxpayer violated, 
or attempted to violate, section 6851 (relating to termination of 
taxable year) there shall, in addition to all other penalties, be added 
as part of the tax 25 percent of the total amount of the tax or 
deficiency in the tax.



Sec.  301.6659-1  Applicable rules.

    (a) Additions treated as tax. Except as otherwise provided in the 
Code, any reference in the Code to ``tax'' shall be deemed also to be a 
reference to any addition to the tax, additional amount, or penalty 
imposed by chapter 68 of the Code with respect to such tax. Such 
additions to the tax, additional amounts, and penalties shall become 
payable upon notice and demand therefor and shall be assessed, 
collected, and paid in the same manner as taxes.
    (b) Additions to tax for failure to file return or pay tax. Any 
addition under section 6651 or section 6653 to a tax shall be considered 
a part of such tax for the purpose of the assessment and collection of 
such tax. For applicability of deficiency procedures to additions to the 
tax, see paragraph (c) of this section.
    (c) Deficiency procedures--(1) Addition to the tax for failure to 
file tax return. (i) Subchapter B, chapter 63, of the Code (deficiency 
procedures) applies to the additions to the income estate, gift, and 
chapter 41, 42, 43, and 44 taxes imposed by section 6651 for failure to 
file a tax return to the same extent that it applies to such taxes. 
Accordingly, if there is a deficiency (as defined in section 6211) in 
the tax (apart from the addition to the tax) where a return has

[[Page 567]]

not been timely filed, deficiency procedures apply to the addition to 
the tax under section 6651. If there is no deficiency in the tax where a 
return has not been timely filed, the addition to the tax under section 
6651 may be assessed and collected without deficiency procedures.
    (ii) The provisions of paragraph (c)(1)(i) of this section may be 
illustrated by the following examples:

    Example 1. A filed his income tax return for the calendar year 1955 
on May 15, 1956, not having been granted an extension of time for such 
filing. His failure to file on time was not due to reasonable cause. The 
return showed a liability of $1,000 and it was determined that A is 
liable under section 6651 for an addition to such tax of $50 (5 percent 
a month for 1 month). The provisions of subchapter B of chapter 63 
(deficiency procedures) do not apply to the assessment and collection of 
the addition to the tax since such provisions are not applicable to the 
tax with respect to which such addition was asserted, there being no 
statutory deficiency for purposes of section 6211.
    Example 2. Assume the same facts as in example 1 and assume further 
that a deficiency of $500 in tax and a further $25 addition to the tax 
under section 6651 is asserted against A for the calendar year 1955. 
Thus, the total addition to the tax under section 6651 is $75. Since the 
provisions of subchapter B of chapter 63 are applicable to the $500 
deficiency, they likewise apply to the $25 addition to the tax asserted 
with respect to such deficiency (but not to the $50 addition to the tax 
under example 1).

    (2) Additions to the tax for negligence or fraud. Subchapter B of 
chapter 63 (deficiency procedures) applies to all additions to the 
income, estate, gift, and chapter 41, 42, 43, and 44 taxes imposed by 
section 6653 (a) and (b) for negligence and fraud.
    (3) Additions to tax for failure to pay estimated income taxes--(i) 
Return filed by taxpayer. The addition to the tax for underpayment of 
estimated income tax imposed by section 6654 (relating to failure by 
individuals to pay estimated income tax) or section 6655 (relating to 
failure by corporations to pay estimated income tax) is determined by 
reference to the tax shown on the return if a return is filed. 
Therefore, such addition may be assessed and collected without regard to 
the provisions of subchapter B of chapter 63 (deficiency procedures) if 
a return is filed since such provisions are not applicable to the 
assessment of the tax shown on the return. Further, since the additions 
to the tax imposed by section 6654 or 6655 are determined solely by 
reference to the amount of tax shown on the return if a return is filed, 
the assertion of a deficiency with respect to any tax not shown on such 
return will not make the provisions of subchapter B of chapter 63 
(deficiency procedures) apply to the assessment and collection of any 
additions to the tax under section 6654 or 6655.
    (ii) No return filed by taxpayer. If the taxpayer has not filed a 
return and his entire income tax liability is asserted as a deficiency 
to which the provisions of subchapter B of chapter 63 apply, such 
provisions likewise will apply to any addition to such tax imposed by 
section 6654 or 6655.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7838, 47 FR 44252, Oct. 
7, 1982]

                          Assessable Penalties



Sec.  301.6671-1  Rules for application of assessable penalties.

    (a) Penalty assessed as tax. The penalties and liabilities provided 
by subchapter B, chapter 68, of the Code (sections 6671 to 6675, 
inclusive) shall be paid upon notice and demand by the district director 
or the director of the regional service center and shall be assessed and 
collected in the same manner as taxes. Except as otherwise provided, any 
reference in the Code to ``tax'' imposed thereunder shall also be deemed 
to refer to the penalties and liabilities provided by subchapter B of 
chapter 68.
    (b) Person defined. For purposes of subchapter B of chapter 68, the 
term ``person'' includes an officer or employee of a corporation, or a 
member or employee of a partnership, who as such officer, employee, or 
member is under a duty to perform the act in respect of which the 
violation occurs.



Sec.  301.6672-1  Failure to collect and pay over tax, 
or attempt to evade or defeat tax.

    Any person required to collect, truthfully account for, and pay over 
any tax imposed by the Code who willfully fails

[[Page 568]]

to collect such tax, or truthfully account for and pay over such tax, or 
willfully attempts in any manner to evade or defeat any such tax or the 
payment thereof, shall, in addition to other penalties, be liable to a 
penalty equal to the total amount of the tax evaded, or not collected, 
or not accounted for and paid over. The penalty imposed by section 6672 
applies only to the collection, accounting for, or payment over of taxes 
imposed on a person other than the person who is required to collect, 
account for, and pay over such taxes. No penalty under section 6653, 
relating to failure to pay tax, shall be imposed for any offense to 
which this section is applicable. For further guidance regarding the 
determination of the proper address for mailing the notice required 
under section 6672(b)(1), see Sec.  301.6212-2.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 8939, 66 FR 2821, Jan. 
12, 2001]



Sec.  301.6673-1  Damages assessable for instituting proceedings 
before the Tax Court merely for delay.

    Any damages awarded to the United States by the Tax Court under 
section 6673 against a taxpayer for instituting proceedings before the 
Tax Court merely for delay shall be assessed at the same time at the 
deficiency and shall be paid upon notice and demand from the district 
director or the director of the regional service center and shall be 
collected as a part of the tax.



Sec.  301.6674-1  Fraudulent statement or failure to furnish statement 
to employee.

    For regulations under section 6674, see Sec.  31.6674-1 of this 
chapter (Employment Tax Regulations).



Sec.  301.6678-1  Failure to furnish statements to payees.

    (a) In general. In the case of each failure to furnish a statement 
required--
    (1) Under section 6042(c) and Sec.  1.6042-4 to a person with 
respect to whom a return has been made under section 6042(a)(1), 
relating to information returns with respect to payment of dividends 
aggregating $10 or more in a calendar year,
    (2) Under section 6044(e) and Sec.  1.6044-5 to a person with 
respect to whom a return has been made under section 6044(a)(1), 
relating to information returns with respect to certain payments by 
cooperatives aggregating $10 or more in a calendar year,
    (3) Under section 6049(c) and Sec.  1.6049-3 to a person with 
respect to whom a return has been made under section 6049(a)(1), 
relating to information returns with respect to payments of interest 
aggregating $10 or more in a calendar year,
    (4) Under section 6039(b) and Sec.  1.6039-2 to a person with 
respect to whom a return has been made under section 6039(a), relating 
to information returns with respect to certain stock option transactions 
occurring in a calendar year, or
    (5) Under section 6052(b) and Sec.  1.6052-2 to a person with 
respect to whom a return has been made under section 6052(a), relating 
to information returns with respect to payment of wages in the form of 
group-term life insurance provided for an employee on his life, within 
the time prescribed for furnishing such statement (determined with 
regard to any extension of time for furnishing), there shall be paid by 
the person failing to so furnish the statement $10 for each such 
statement not so furnished. However, the total amount imposed on the 
delinquent person for all such failures during a calendar year shall not 
exceed $25,000.
    (b) Manner of payment. The penalty imposed under section 6678 and 
this section on any person shall be paid in the same manner as tax upon 
the issuance of a notice and demand therefor.
    (c) Showing of reasonable cause. The penalty imposed by section 6678 
shall not apply with respect to a failure to furnish a statement within 
the time prescribed if it is established to the satisfaction of the 
district director or the director of the regional service center that 
such failure was due to reasonable cause and not to willful neglect. An 
affirmative showing of reasonable cause must be made in the form of a 
written statement, containing a declaration that it is made under the 
penalties of perjury, setting forth all the facts alleged as a 
reasonable cause.

[[Page 569]]



Sec.  301.6679-1  Failure to file returns, etc. with respect to 
foreign corporations or foreign partnerships for taxable years 
beginning after September 3, 1982.

    (a) Civil penalty--(1) In general. In addition to any criminal 
penalty provided by law, each U.S. citizen, resident, or person filing a 
separate or joint information return or on whose behalf a return is 
filed, pursuant to sections 6035, 6046, or 6046A, and the regulations 
thereunder, who fails to file such a return within the time provided, or 
who files a return which does not show the required information, shall 
pay a penalty of $1,000, unless such failure is shown to be due to 
reasonable cause.
    (2) Joint return. The penalty imposed by section 6679 and this 
section shall apply to each U.S. citizen, resident, or person filing a 
joint return pursuant to the provisions of section 6035, 6046, or 6046A, 
which does not show the required information.
    (3) Showing of reasonable cause. The district director, the director 
of the Internal Revenue service center, and the director of 
International Operations are authorized to make the determination that 
such failure was due to a reasonable cause and that, accordingly, the 
penalty imposed by section 6679 shall not apply. An affirmative showing 
of reasonable cause must be made in the form of a written statement, 
containing a declaration that it is made under the penalties of perjury, 
setting forth all the facts alleged as a reasonable cause. If the 
taxpayer exercises ordinary business care and prudence and is 
nevertheless unable to furnish any item of information required under 
section 6035, 6046, or 6046A and the regulations thereunder, such 
failure shall be considered due to a reasonable cause. In determining 
the extent of a taxpayer's ability to obtain information, the percentage 
of stock owned by such taxpayer and the nature of the other interests in 
the foreign corporation will be considered.
    (b) Deficiency procedures not to apply. The penalty imposed by 
section 6679 may be assessed and collected without regard to the 
deficiency procedures provided by subchapter B of chapter 63 of the 
Code.

[32 FR 15421, Nov. 3, 1967, as amended by T.D. 7288, 38 FR 27215, Oct. 
1, 1973; T.D. 7542, 43 FR 18552, May 1, 1978; T.D. 8028, 50 FR 23409, 
June 4, 1985]



Sec.  301.6682-1  False information with respect to withholding allowances 
based on itemized deductions.

    For regulations under section 6682, see Sec.  31.6682-1 of this 
chapter (Employment Tax Regulations).

[T.D. 7109, 35 FR 16544, Oct. 23, 1970]



Sec.  301.6684-1  Assessable penalties with respect to liability 
for tax under chapter 42.

    (a) In general. If any person (as defined in section 7701(a)(1)) 
becomes liable for tax under any section of chapter 42 (other than 
section 4940 or 4948(a)), relating to private foundations, by reason of 
any act or failure to act which is not due to reasonable cause and 
either--
    (1) Such person has theretofore (at any time) been liable for tax 
under any section of such chapter (other than section 4940 or 4948(a)), 
or
    (2) Such act or failure to act is both willful and flagrant,

then such person shall be liable for a penalty equal to the amount of 
such tax.
    (b) Showing of reasonable cause. The penalty imposed by section 6684 
shall not apply to any person with respect to a violation of any section 
of chapter 42 if it is established to the satisfaction of the district 
director or director of the internal revenue service center that such 
violation was due to reasonable cause. An affirmative showing of 
reasonable cause must be made in the form of a written statement, 
containing a declaration by such person that it is made under the 
penalties of perjury, setting forth all the facts alleged as reasonable 
cause.
    (c) Willful and flagrant. For purposes of this section, the term 
``willful and flagrant'' has the same meaning as such term possesses in 
section 507(a)(2)(A) and the regulations thereunder.

[[Page 570]]

    (d) Effective date. This section shall take effect on January 1, 
1970.

[T.D. 7127, 36 FR 11504, June 15, 1971]



Sec.  301.6685-1  Assessable penalties with respect to private foundations' 
failure to comply with section 6104(d).

    (a) In general. In addition to the penalty imposed by section 7207, 
relating to fraudulent returns, statements, or other documents, any 
person (as defined in paragraph (b) of this section) who is required to 
comply with the requirements of section 6104(d), relating to public 
inspection of private foundations' annual returns, and who fails so to 
comply, if such failure is willful, shall pay a penalty of $1,000 with 
respect to each such return with respect to which there is a failure so 
to comply.
    (b) Person. For purposes of this section, the term ``person'' means 
any officer, director, trustee, employee, member, or other individual 
whose duty it is to perform the act in respect of which the failure 
occurs.
    (c) Effective date. This section shall take effect on January 1, 
1970.
    (d) Cross reference. For the amount imposed for failure to comply 
with section 6104(d), see paragraph (c) of Sec.  301.6652-2.

[T.D. 7127, 36 FR 11505, June 15, 1971, as amended by T.D. 8026, 50 FR 
20758, May 20, 1985]



Sec.  301.6686-1  Failure of DISC to file returns.

    (a) In general. In addition to the penalty imposed by section 7203 
(relating to willful failure to file a return, supply information, or 
pay tax) any person who is required to supply informatin or to file a 
return under section 6011(c) (relating to records and returns of DISC's) 
and who fails to supply such information of file such return at the time 
prescribed in sections 6072(b) and 1.6072-2(e) shall pay a penalty of 
$100 for each failure to supply information (provided that the total 
amount imposed on the delinquent person for all such failures during a 
calendar year shall not exceed $25,000) and a penalty of $1,000 with 
respect to each failure to file a return, unless it is shown that such 
failure is due to a reasonable cause.
    (b) Showing of reasonable cause. The penalty imposed by section 6686 
shall not apply to any person with respect to a failure to supply 
information, or to file a return, under section 6011(c) if it is 
established to the satisfaction of the district director or director of 
the Internal Revenue Service Center that such failure was due to 
reasonable cause. An affirmative showing of reasonable cause must be 
made in the form of a written statement, which contains a declaration by 
such person that the statement is made under the penalties of perjury, 
and sets forth all the facts alleged as reasonable cause.

[T.D. 7533, 43 FR 6604, Feb. 15, 1978]



Sec.  301.6688-1  Assessable penalties with respect to information required 
to be furnished with respect to possessions.

    (a) In general. Each individual described in section 7654(a) who is 
subject to an information reporting requirement promulgated under the 
authority of section 937(c) or 7654 and who fails to fully satisfy such 
requirement within the time prescribed for reporting such information 
must, in addition to any criminal penalty provided by law, pay a penalty 
of $1000 for each such failure. Information reporting requirements 
promulgated under the authority of sections 937(c) and 7654(e) include 
the requirement for an individual to file Form 8898, ``Statement for 
Individuals who Begin or End Bona Fide Residence in a U.S. Possession,'' 
under Sec.  1.937-1(h) of this chapter, to report that he or she became 
or ceased to be a bona fide resident of a possession.
    (b) Manner of payment. The penalty set forth in paragraph (a) of 
this section must be paid in the same manner as tax upon the issuance of 
a notice and demand for the penalty.
    (c) Reasonable cause--(1) The penalty set forth in paragraph (a) of 
this section will not apply if it is established to the satisfaction of 
the Commissioner that the failure to file the information return or 
furnish the information within the prescribed time was due to reasonable 
cause and not to willful neglect. An individual who wishes to avoid the 
penalty must make an affirmative showing of all facts alleged as a 
reasonable cause for failure to file

[[Page 571]]

the information return on time, or furnish the information on time, in 
the form of a written statement containing a declaration that it is made 
under penalties of perjury. This statement must be filed with Internal 
Revenue Service Center where Form 8898 must be filed. In determining 
whether there was reasonable cause for failure to furnish the required 
information, account will be taken of the fact that the individual was 
unable to furnish the required information in spite of the exercise of 
ordinary business care and prudence in his effort to furnish the 
information. An individual will be considered to have exercised ordinary 
business care and prudence in his effort to furnish the required 
information if he made reasonable efforts to furnish the information but 
was unable to do so because of a lack of sufficient facts on which to 
make a proper determination.
    (d) Effective/applicability date. This section applies to taxable 
years ending after April 9, 2008.

[T.D. 9391, 73 FR 19376, Apr. 9, 2008; 73 FR 27728, May 14, 2008]



Sec.  301.6689-1  Failure to file notice of redetermination 
of foreign income taxes.

    (a) Application of civil penalty. If a foreign tax redetermination 
occurs, and the taxpayer failed to notify the Internal Revenue Service 
(IRS) on or before the date and in the manner prescribed in Sec.  1.905-
4 of this chapter, or as required under section 404A(g)(2), for giving 
notice of a foreign tax redetermination, then, unless paragraph (d) of 
this section applies, there is added to the deficiency (or the imputed 
underpayment as determined under section 6225) attributable to such 
redetermination an amount determined under paragraph (b) of this 
section. Subchapter B of chapter 63 of the Internal Revenue Code 
(relating to deficiency proceedings) does not apply with respect to the 
assessment of the amount of the penalty.
    (b) Amount of the penalty. The amount of the penalty shall be equal 
to--
    (1) Five percent of the deficiency (or imputed underpayment) if the 
failure is for not more than one month; plus
    (2) An additional five percent of the deficiency (or imputed 
underpayment) for each month (or fraction thereof) during which the 
failure continues, but not to exceed in the aggregate twenty-five 
percent of the deficiency (or imputed underpayment).
    (c) Foreign tax redetermination defined. For purposes of this 
section, a foreign tax redetermination is any redetermination for which 
a notice is required under sections 905(c) or 404A(g)(2). See Sec. Sec.  
1.905-3 through 1.905-5 of this chapter for rules relating to the notice 
requirement under section 905(c).
    (d) Reasonable cause. The penalty set forth in this section shall 
not apply if it is established to the satisfaction of the IRS that the 
failure to file the notification within the prescribed time was due to 
reasonable cause and not due to willful neglect. An affirmative showing 
of reasonable cause must be made in the form of a written statement that 
sets forth all the facts alleged as reasonable cause for the failure to 
file the notification on time and that contains a declaration by the 
taxpayer that the statement is made under the penalties of perjury. This 
statement must be filed with the Internal Revenue Service Center in 
which the notification was required to be filed. The taxpayer must file 
this statement with the notice required under section 905(c) or 
404A(g)(2). If the taxpayer exercised ordinary business care and 
prudence and was nevertheless unable to file the notification within the 
prescribed time, then the delay will be considered to be due to 
reasonable cause and not willful neglect.
    (e) Applicability date. This section applies to foreign tax 
redeterminations occurring in taxable years ending on or after December 
16, 2019, and to foreign tax redeterminations of foreign corporations 
occurring in taxable years that end with or within a taxable year of a 
United States shareholder ending on or after December 16, 2019.

[T.D. 9922, 85 FR 72074, Nov. 12, 2020]



Sec.  301.6690-1  Penalty for fraudulent statement or failure to furnish 
statement to plan participant.

    (a) Penalty. Any plan administrator required by section 6057(e) and 
Sec.  301.6057-1(e) to furnish a statement of deferred vested retirement 
benefit to a plan participant is subject to a penalty

[[Page 572]]

of $50 in each case in which the administrator (1) willfully fails to 
furnish the statement to the participant in the manner, at the time, and 
showing the information required by section 6057(e) and Sec.  301.6057-
1(e), or (2) willfully furnishes a false or fraudulent statement to the 
participant. The penalty shall be assessed and collected in the same 
manner as the tax imposed on employers under the Federal Insurance 
Contributions Act.
    (b) Effective date. This section shall take effect on September 2, 
1974.

[T.D. 7561, 43 FR 38007, Aug. 25, 1978]



Sec.  301.6692-1  Failure to file actuarial report.

    (a) Penalty. In each case in which the plan administrator (within 
the meaning of section 414(g)) of a defined benefit plan to which the 
minimum funding standards of section 412 apply fails to file the 
actuarial report described in section 6059 and Sec.  301.6059-1 within 
the time prescribed, the plan administrator shall pay a penalty of 
$1,000. A failure to provide a material item of information called for 
in the actuarial report is considered a failure to file the report. For 
this purpose, the signature of an enrolled actuary (see Sec.  301.6059-
1(d)) is considered a material item of information.
    Further, for any report filed for a plan year ending after January 
25, 1982, if the actuary seeks to materially qualify a statement 
required by Sec.  301.6059-1(c) (4) or (5) there is a failure to provide 
a material item of information called for in the report. For rules 
relating to statements not considered as materially qualifying the 
required statements, see Sec.  301.6059-1(d).
    (b) Failure to make actuarial valuation. Section 412(c)(9) and the 
regulations thereunder prescribe the time for making an actuarial 
valuation of a defined benefit plan. For purposes of this section, the 
failure to base information called for in the actuarial report upon an 
actuarial valuation of the plan which is made within the time prescribed 
by section 412(c)(9) and the regulations thereunder is considered a 
failure to file the actuarial report.
    (c) Showing of reasonable cause. The penalty imposed by this section 
does not apply if it is established to the satisfaction of the 
appropriate district director or the director of the Internal Revenue 
Service Center at which the actuarial report is required to be filed 
that the failure to file the report was due to reasonable cause. An 
affirmative showing of reasonable cause must be made in the form of a 
written statement setting forth all the facts alleged as reasonable 
cause. The statement must contain a declaration by the appropriate 
individual that the statement is made under the penalties of perjury.
    (d) Joint liability. If more than one person is responsible as a 
plan administrator for a failure to file the actuarial report, all such 
persons are jointly and severally liable with respect to the failure.
    (e) Manner of payment. The penalty imposed for the failure to file 
an actuarial report shall be paid in the same manner as a tax upon the 
issuance of notice and demand therefor.
    (f) Effective dates. In the case of a plan in existence on January 
1, 1974, this section is effective beginning with the first plan year 
beginning after December 31, 1975, for which the minimum funding 
standards of section 412 apply to the plan. In the case of a plan not in 
existence on January 1, 1974, this section is effective beginning with 
the first plan year beginning after September 2, 1974, for which the 
minimum funding standards apply to the plan.

(Secs. 6059 and 7805 of the Internal Revenue Code of 1954 (88 Stat. 947, 
68A Stat. 917; 26 U.S.C. 6059, 7805))

[T.D. 7798, 46 FR 57484, Nov. 24, 1981]



Sec.  301.6693-1  Penalty for failure to provide reports and documents 
concerning individual retirement accounts or annuities.

    (a) In general--(1) Annual reports, etc. The trustee of an 
individual retirement account described in section 408(a), or the issuer 
of an individual retirement annuity described in section 408(b), who 
fails to furnish or file a report or any other document required under 
section 408(i) and Sec.  1.408-5 within the time and in the manner 
prescribed for furnishing or filing such item shall pay a penalty of $10 
for each failure unless it is shown that such failure is due to 
reasonable cause.

[[Page 573]]

    (2) Disclosure statements. The trustee of an individual retirement 
account described in section 408(a), or the issuer of an individual 
retirement annuity described in section 408(b), who fails to furnish or 
file a disclosure statement, a governing instrument, an amendment to 
either, or any other document required under section 408(i) and Sec.  
1.408-6, within the time and in the manner prescribed for furnishing or 
filing such item, shall pay a penalty of $10 for each failure unless it 
is shown that such failure is due to reasonable cause.
    (b) Showing of reasonable cause. The penalty imposed by section 6693 
shall not apply to any person with respect to a failure to furnish or 
file a report, statement, or other document within the time and in the 
manner prescribed if it is established to the satisfaction of the 
district director that such failure was due to reasonable cause. An 
affirmative showing of reasonable cause must be made in the form of a 
written statement, containing a declaration by such person that it is 
made under the penalties of perjury and setting forth all the facts 
alleged to constitute reasonable cause.
    (c) Deficiency procedures not to apply. The penalty imposed by 
section 6693 may be assessed and collected without regard to the 
deficiency procedures provided by subchapter B of chapter 63 of the 
Code.
    (d) Other penalties. The penalties of section 6693 and this section 
are in lieu of any penalty imposed by section 6652(f) for violation of 
section 6047(d), with respect to any failure to furnish or file 
described in this section.
    (e) Effective date. This section shall take effect on January 1, 
1975.

[T.D. 7730, 45 FR 72652, Nov. 3, 1980]



Sec.  301.6707-1  Failure to furnish information regarding 
reportable transactions.

    (a)(1) In general. A material advisor who is required to file a 
return under section 6111(a) of the Internal Revenue Code (Code) with 
respect to any reportable transaction who fails to file a timely return 
in accordance with Sec.  301.6111-3(e) or who files a return with false 
or incomplete information with respect to the reportable transaction 
will be subject to a penalty. A material advisor who fails to file a 
timely return or who files a false or incomplete return with respect to 
more than one reportable transaction will be subject to a separate 
section 6707 penalty for each transaction.
    (i) Reportable transactions. The amount of the penalty for failing 
to timely file a return under section 6111(a), or filing the return with 
false or incomplete information with respect to any reportable 
transaction other than a listed transaction is $50,000.
    (ii) Listed transactions. (A) In general. The amount of the penalty 
for failing to timely file a return under section 6111(a), or filing the 
return with false or incomplete information with respect to a listed 
transaction is the greater of $200,000 or 50 percent of the gross income 
derived by the material advisor with respect to aid, assistance, or 
advice that is provided with respect to the listed transaction before 
the date the return is filed under section 6111.
    (B) Intentional action or failure. If the failure or action subject 
to the penalty is with respect to a listed transaction and is 
intentional, the penalty is the greater of $200,000 or 75 percent of the 
gross income derived by the material advisor with respect to aid, 
assistance, or advice that is provided with respect to the listed 
transaction before the date the return is filed under section 6111.
    (C) Transaction that is both a listed transaction and reportable 
transaction other than a listed transaction. In the case of a penalty 
imposed under section 6707 with respect to a transaction that is both a 
listed transaction and a reportable transaction other than a listed 
transaction, the penalty under this paragraph (a)(1)(ii), and not the 
penalty under paragraph (a)(1)(i) of this section, will apply.
    (2) Gross income derived by the material advisor. For purposes of 
calculating the amount of the penalty with respect to a listed 
transaction, the gross income derived by the material advisor will be 
determined in accordance with Sec.  301.6111-3(b)(3)(ii) of this 
chapter. If a person is a material advisor with regard to more than one 
type of listed transaction, the gross income derived from each type of 
listed transaction will be considered separately and will

[[Page 574]]

not be aggregated to determine the amount of any section 6707 penalty 
for failing to make a proper return under section 6111(a). Further, only 
gross income derived from listed transactions for which the advisor is a 
material advisor under section 6111 is taken into account for purposes 
of computing the penalty.
    (b) Definitions--(1) Derive. The term ``derive'' is defined in Sec.  
301.6111-3(c)(3).
    (2) False information. For purposes of this section, the term 
``false information'' means information provided on a Form 8918, 
``Material Advisor Disclosure Statement'' (or successor form), filed 
with the Internal Revenue Service (IRS) that is untrue or incorrect when 
the Form 8918 (or successor form) was filed. False information does not 
include information provided on a Form 8918 (or successor form) filed 
with the IRS that is immaterial or that is untrue or incorrect due to a 
mistake or accident after the exercise of reasonable care.
    (3) Incomplete information. For purposes of this section, the term 
``incomplete information'' means a Form 8918 (or successor form) filed 
with the IRS that does not provide the information required under Sec.  
301.6111-3(d). A Form 8918 (or successor form) filed with the IRS will 
not be considered incomplete when the information not provided on the 
form is immaterial or was not provided due to mistake or accident after 
the exercise of reasonable care. Whether information is immaterial will 
be determined based upon the facts and circumstances surrounding each 
failure to file or filing of an incomplete return. A material advisor 
who completes the form to the best of the material advisor's ability and 
knowledge after the exercise of reasonable effort to obtain the 
information will not be considered to have filed incomplete information 
within the meaning of this section. A Form 8918 (or successor form) will 
be considered to provide incomplete information when it omits 
information required to be provided under Sec.  301.6111-3(d) or 
contains a statement that the omitted information will be provided upon 
request.
    (4) Intentional. For purposes of this section, the failure to timely 
file a return or the submission of a return with false or incomplete 
information is intentional if--
    (i) The material advisor knew of the obligation to file a return and 
knowingly did not timely file a return with the IRS; or
    (ii) The material advisor filed a return knowing that it was false 
or incomplete.
    (5) Listed transaction. The term ``listed transaction'' is defined 
in section 6707A(c)(2) of the Code and Sec.  1.6011-4(b)(2) of this 
chapter.
    (6) Material Advisor. The term ``material advisor'' is defined in 
section 6111(b)(1) of the Code and Sec.  301.6111-3(b).
    (7) Reportable transaction. The term ``reportable transaction'' is 
defined in section 6707A(c)(1) of the Code and Sec.  1.6011-4(b)(1) of 
this chapter.
    (c) Assessment of penalty--(1) Intentional failure determined based 
on all the facts and circumstances. Whether a material advisor 
intentionally failed to timely file a return or intentionally filed a 
false or incomplete return will be determined based upon all the facts 
and circumstances surrounding the non-filing or filing of a false and/or 
incomplete return. The higher penalty under the flush language of 
section 6707(b)(2) will not apply to any material advisor whose failure 
to timely file or whose furnishing of false or incomplete information 
was unintentional. The failure to timely file a return, or filing a 
return with false or incomplete information, will be considered 
unintentional if the material advisor subsequently files a true and 
complete return prior to the earlier of the date that any taxpayer files 
a Form 8886, ``Reportable Transaction Disclosure Statement'' (or 
successor form) identifying the material advisor with respect to the 
reportable transaction in question, or the date the IRS contacts the 
material advisor concerning the reportable transaction.
    (2) Individual liability in the case of more than one material 
advisor. If there is more than one material advisor who is responsible 
for filing a return under section 6111 with respect to the same 
reportable transaction, a separate penalty under section 6707 may be 
assessed against each material advisor who fails to timely file or files 
a return with false or incomplete information. The

[[Page 575]]

determination of whether the failure or action subject to the penalty is 
intentional will be made individually for each material advisor.
    (3) Designation agreements. A material advisor who is required to 
file a return under section 6111 and who is a party to a designation 
agreement within the meaning of Sec.  301.6111-3(f) is subject to a 
penalty under section 6707 if the designated material advisor fails to 
file a return timely or files a return with false or incomplete 
information. In the case of a listed transaction, if the designated 
material advisor fails to file a return timely, or files a return with 
false or incomplete information, the nondesignated material advisor who 
is a party to the designation agreement will not be treated as 
intentionally failing to file the return, or intentionally filing a 
return with false or incomplete information, unless the nondesignated 
material advisor knew or should have known that the designated material 
advisor would fail to file a true and complete return timely.
    (d) Examples. The rules of paragraphs (a) through (c) of this 
section are illustrated by the following examples:

    Example 1. Advisor A becomes a material advisor as defined under 
section 6111(b)(1) and Sec.  301.6111-3(b) in the fourth quarter of 2014 
with respect to a reportable transaction other than a listed 
transaction, and Advisor B also becomes a material advisor in the same 
quarter with respect to the same reportable transaction. Advisors A and 
B fail to timely file the Form 8918 with respect to the reportable 
transaction. Under paragraph (a)(1)(ii) of this section, the penalty for 
failure by a material advisor to timely disclose a reportable 
transaction other than a listed transaction is $50,000. Because the 
section 6707 penalty applies to each material advisor independently 
under paragraph (c)(2) of this section, Advisors A and B each are 
subject to a section 6707 penalty of $50,000.
    Example 2. Same as Example 1, except that Advisor B timely files the 
Form 8918. Advisors A and B did not enter into a designation agreement. 
Accordingly, paragraph (c)(3) of this section does not apply and only 
Advisor A is subject to a $50,000 section 6707 penalty.
    Example 3. Advisor C becomes a material advisor to Client X on 
January 5, 2015, with respect to a listed transaction. Advisor C derives 
$400,000 in gross income from his advice to Client X because he expects 
to receive that amount from Client X, even though he has not yet 
received that amount. On January 5, 2016, Advisor C becomes a material 
advisor to Client Y with respect to the same type of listed transaction. 
Advisor C derives $100,000 in gross income from his advice to Client Y 
because he expects to receive that amount from Client Y, even though he 
has not yet received that amount. At no time did Advisor C file a Form 
8918 to disclose the listed transaction. For purposes of this example, 
assume that Advisor C's failure to file a Form 8918 was unintentional. 
Therefore, under paragraph (c)(2) of this section, Advisor C is subject 
to a section 6707 penalty based on the gross income derived from Client 
X and Client Y. Accordingly, Advisor C is subject to a penalty of 
$250,000 (50 percent of $500,000, the gross income derived from Clients 
X and Y).
    Example 4. Same as Example 3, except that the gross income Advisor C 
expects to receive from his advice to Client Y (a C corporation) is 
$20,000. Because the material advisor fee threshold is not satisfied 
with respect to Client Y, Advisor C is not a material advisor to Client 
Y with respect to the listed transaction. Advisor C is, however, a 
material advisor with respect to Client X with respect to the same 
listed transaction. Therefore, Advisor C is subject to a section 6707 
penalty with respect to the failure to timely file a Form 8918 
disclosing the listed transaction. Although Advisor C provided advice 
with respect to two transactions that are the same type of listed 
transaction, Advisor C was only a material advisor with respect to 
advice provided to Client X. Therefore, under paragraph (c)(2) of this 
section Advisor C is subject to a section 6707 penalty based only on the 
gross income derived from Client X. Accordingly, Advisor C is subject to 
a penalty of $200,000 (50 percent of $400,000, the gross income derived 
from Client X).
    Example 5. Same as Example 3, except that Advisor C files a Form 
8918 disclosing the listed transaction on November 16, 2015. Because 
Advisor C becomes a material advisor to Client X on January 5, 2015, the 
Form 8918 is required to be filed on or before April 30, 2015 (the last 
day of the month that follows the end of the calendar quarter in which 
the advisor became a material advisor with regard to the reportable 
transaction). See Sec.  301.6111-3(e). Therefore, Advisor C did not 
timely file the Form 8918. Advisor C is subject to a $200,000 penalty 
under section 6707 for his unintentional failure because, as of the date 
he filed the Form 8918, the gross income Advisor C had received or 
expected to receive with respect to advice relating to a listed 
transaction that was not disclosed only included $400,000 of gross 
income for advice to Client X. By the time that Advisor C provides 
advice to Client Y on January 5, 2016, Advisor C has disclosed the 
listed transaction.
    Example 6. Same as Example 3, except that Advisor C files the Form 
8918 on February 16,

[[Page 576]]

2016, disclosing the listed transaction. Because Advisor C first becomes 
a material advisor with respect to the listed transaction on January 5, 
2015, the Form 8918 is required to be filed on or before April 30, 2015 
regardless of the fact that Advisor C is also a material advisor to a 
second client, Client Y, with respect to the same listed transaction. 
This is because under the facts of Example 3, Advisor C ``becomes'' a 
material advisor on January 5, 2015. The date on which a material 
advisor ``becomes'' a material advisor is determinative of the due date 
for the Form 8918 under Sec.  301.6111-3(e). Therefore, when Advisor C 
files the Form 8918 on February 16, 2016, the form is not timely filed 
under section 6111. Under paragraph (c)(2) of this section, Advisor C is 
subject to a penalty under section 6707 of $250,000 (50 percent of 
$500,000) because, as of the date that the Form 8918 was filed, the 
gross income that Advisor C received or expected to receive as a 
material advisor with respect to a listed transaction that was not 
disclosed included gross income for advice to both Client X ($400,000) 
and Client Y ($100,000).
    Example 7. Advisor D becomes a material advisor as defined under 
section 6111(b)(1) and Sec.  301.6111-3(b) in the first quarter of 2016 
with respect to a reportable transaction other than a listed 
transaction. Advisor D does not file a Form 8918 by April 30, 2016. The 
transaction is then identified as a listed transaction in published 
guidance on July 7, 2016. Advisor D knew that he had a new obligation to 
file a Form 8918 by October 31, 2016, and intentionally fails to file 
the Form 8918. Advisor D is subject to only one penalty, in the amount 
of the greater of $200,000, or 75 percent of the gross income he derived 
from the transaction, for intentionally failing to disclose the listed 
transaction in accordance with Sec.  301.6111-3(d)(1) and (e).
    Example 8. Same as Example 7, except that Advisor D filed a Form 
8918 disclosing the listed transaction on October 15, 2016. As a result 
of that disclosure, Advisor D is not subject to the section 6707 penalty 
amount described in Sec.  301.6707-1(a)(1)(ii). However, because Advisor 
D did not timely file a Form 8918 by April 30, 2016, the due date for 
the Form 8918 with respect to the reportable transaction for which 
Advisor D became a material advisor in the first quarter of 2016, 
Advisor D is subject to a section 6707 penalty of $50,000 as described 
in Sec.  301.6707-1(a)(1)(i). The disclosure of the listed transaction 
does not correct Advisor D's initial failure to disclose the reportable 
transaction by April 30, 2016.

    (e) Rescission authority--(1) In general. The Commissioner (or the 
Commissioner's delegate) may rescind the section 6707 penalty if--
    (i) The violation relates to a reportable transaction that is not a 
listed transaction; and
    (ii) Rescinding the penalty would promote compliance with the 
requirements of the Code and effective tax administration.
    (2) Requesting rescission. The Secretary may prescribe the 
procedures for a material advisor to request rescission of a section 
6707 penalty by guidance published in the Internal Revenue Bulletin.
    (3) Factors that weigh in favor of granting rescission. In 
determining whether rescission would promote compliance with the 
requirements of the Code and effective tax administration, the 
Commissioner (or the Commissioner's delegate) will take into account the 
following list of factors that weigh in favor of granting rescission. 
This is not an exclusive list, and no single factor will be 
determinative of whether to grant rescission in any particular case. 
Rather, the Commissioner (or the Commissioner's delegate) will consider 
and weigh all relevant factors, regardless of whether the factor is 
included in this list.
    (i) The material advisor, upon becoming aware of the failure to 
disclose a reportable transaction in accordance with section 6111 and 
the regulations thereunder, filed a complete and proper, albeit 
untimely, Form 8918 (or successor form). This factor weighs in favor of 
rescission if circumstances suggest that the material advisor did not 
delay in filing an untimely but properly completed Form 8918 (or 
successor form) until after the IRS had taken steps to identify the 
person as a material advisor with respect to the reportable transaction. 
For instance, this factor will weigh strongly in favor of rescission if 
the material advisor files the Form 8918 (or successor form) prior to 
the date the IRS contacts the material advisor concerning the reportable 
transaction. However, this factor will not weigh in favor of rescission 
if the facts and circumstances indicate that the material advisor 
delayed filing the Form 8918 (or successor form) until after a taxpayer 
files a Form 8886 (or successor form) identifying the material advisor 
with respect to the reportable transaction in question.

[[Page 577]]

    (ii) The material advisor's failure to disclose the reportable 
transaction properly was due to an unintentional mistake of fact that 
existed despite the material advisor's reasonable attempts to ascertain 
the correct facts with respect to the transaction.
    (iii) The material advisor has an established history of properly 
disclosing other reportable transactions and complying with other tax 
laws, including compliance with any requests made by the IRS under 
section 6112, if applicable.
    (iv) The material advisor demonstrates that the failure to include 
on any return or statement any information required to be disclosed 
under section 6111 arose from events beyond the material advisor's 
control.
    (v) The material advisor cooperates with the IRS by providing timely 
information with respect to the transaction at issue that the 
Commissioner (or the Commissioner's delegate) may request in 
consideration of the rescission request. In considering whether a 
material advisor cooperates with the IRS, the Commissioner (or the 
Commissioner's delegate) will take into account whether the material 
advisor meets the deadlines described in guidance published in the 
Internal Revenue Bulletin for complying with requests for additional 
information.
    (vi) Assessment of the penalty weighs against equity and good 
conscience, including whether the material advisor demonstrates that 
there was reasonable cause for, and the material advisor acted in good 
faith with respect to, the failure to timely file or to include on any 
return any information required to be disclosed under section 6111. An 
important factor in determining reasonable cause and good faith is the 
extent of the material advisor's efforts to determine whether there was 
a requirement to file the return required under section 6111. The 
presence of reasonable cause, however, will not necessarily be 
determinative of whether to grant rescission.
    (4) Absence of favorable factors weighs against rescission. The 
absence of facts establishing the factors described in paragraph (e)(3) 
of this section weighs against granting rescission. The presence or 
absence of any one of these factors, however, will not necessarily be 
determinative of whether to grant rescission; rather the determination 
will be made in consideration of all of the factors and any other facts 
and circumstances.
    (5) Factors not considered. In determining whether to grant 
rescission, the Commissioner (or the Commissioner's delegate) will not 
consider doubt as to collectability of, or liability for, the penalties 
(except that the Commissioner (or the Commissioner's delegate) may 
consider doubt as to liability to the extent it is a factor in the 
determination of reasonable cause and good faith).
    (f) Effective/applicability date. The rules of this section apply to 
returns the due date for which is after July 31, 2014.

[T.D. 9686, 79 FR 44283, July 31, 2014]



Sec.  301.6707A-1  Failure to include on any return or statement 
any information required to be disclosed under section 6011 with respect to 
a reportable transaction.

    (a) In general. Any person who fails to include on any return or 
statement any information required to be disclosed under section 6011 
with respect to a reportable transaction may be subject to a monetary 
penalty. Subject to maximum and minimum limits, the penalty for failure 
to include information with respect to any reportable transaction is 75 
percent of the decrease in tax shown on the return as a result of the 
transaction or the decrease that would have resulted from the 
transaction if it were respected for Federal tax purposes. The penalty 
for failure to include information with respect to a listed transaction 
shall not exceed $100,000 for a natural person and $200,000 for all 
other persons. The penalty for failure to include information with 
respect to any other reportable transaction shall not exceed $10,000 for 
a natural person and $50,000 for all other persons. The penalty with 
respect to any reportable transaction shall not be less than $5,000 for 
a natural person and $10,000 for all other persons. The section 6707A 
penalty is in addition to any other penalty that may be imposed.

[[Page 578]]

    (b) Definitions--(1) Reportable transaction. The term ``reportable 
transaction'' is defined in section 6707A(c)(1) of the Code and Sec.  
1.6011-4(b)(1) of this chapter.
    (2) Listed transaction. The term ``listed transaction'' is defined 
in section 6707A(c)(2) of the Code and Sec.  1.6011-4(b)(2) of this 
chapter.
    (3) Return. For purposes of this section, the term return means an 
original return, amended return, or application for tentative refund, 
except where otherwise indicated. As used in examples, the term return 
means an original return, except where otherwise indicated.
    (c) Assessment of the penalty--(1) In general. The Internal Revenue 
Service may assess a penalty under section 6707A with respect to each 
failure to disclose a reportable transaction within the time and in the 
form and manner provided by Sec. Sec.  1.6011-4(d) and 1.6011-4(e) of 
this chapter or pursuant to the time, form, and manner stated in other 
published guidance. Section 1.6011-4(e) provides, in part, that a 
taxpayer must attach a disclosure statement to the taxpayer's return for 
each taxable year for which the taxpayer participates in a reportable 
transaction. A taxpayer also must attach a disclosure statement to each 
amended return that reflects the taxpayer's participation in a 
reportable transaction and, if a reportable transaction results in a 
loss that is carried back to a prior year, a taxpayer must attach a 
disclosure statement to the taxpayer's application for tentative refund 
or amended return for that prior year. In addition, a copy of the 
disclosure statement must be sent to the IRS Office of Tax Shelter 
Analysis (OTSA) at the same time that any disclosure statement is first 
filed by the taxpayer pertaining to a particular reportable transaction. 
Nonetheless, a taxpayer who is required to disclose a transaction by 
filing Form 8886, ``Reportable Transaction Disclosure Statement,'' (or 
successor form) with a return and who is also required to disclose the 
transaction by filing that form with OTSA, is subject to only a single 
section 6707A penalty for failure to make either one or both of those 
disclosures. If section 6011 and the regulations thereunder require a 
disclosure statement to be filed at the time that a return is filed, the 
disclosure statement is considered to be timely filed if it is filed at 
the same time as the return, even if the return is filed untimely after 
its due date (including extensions).
    (2) Examples. The rules of paragraph (c)(1) of this section are 
illustrated by the following examples:

    Example 1. Taxpayer T is required to attach a Form 8886 to its 
return for the 2008 taxable year and to send a copy of the Form 8886 to 
OTSA at the time it files its return. Taxpayer T fails to attach the 
Form 8886 to its return and fails to send a copy of the Form 8886 to 
OTSA. Taxpayer T is subject to a single penalty under section 6707A for 
failure to disclose because Taxpayer T failed to comply with the 
disclosure requirements of section 6011 as described in Sec. Sec.  
1.6011-4(d) and 1.6011-4(e) of this chapter. A penalty under section 
6707A also would apply if Taxpayer T had failed to comply with only one 
of the two requirements.
    Example 2. Same as Example 1, except that Taxpayer T also 
subsequently files an amended return for 2008 that reflects Taxpayer T's 
participation in the reportable transaction described in Example 1. 
Taxpayer T fails to attach a Form 8886 to the amended return as required 
by Sec.  1.6011-4(e)(1) of this chapter. Taxpayer T is subject to an 
additional penalty under section 6707A for failing to disclose a 
reportable transaction on the amended return for 2008.
    Example 3. In November 2009, Taxpayer U participates in a reportable 
transaction resulting in a loss. On March 15, 2010, Taxpayer U files its 
2009 return, on which it reports the loss and to which it fails to 
attach a Form 8886. One month later, Taxpayer U files an amended return 
for 2008, on which it carries back the loss and to which it fails to 
attach a Form 8886. Section 1.6011-4(e)(1) of this chapter requires 
Taxpayer U to attach a Form 8886 to its amended return for the 2008 
taxable year. Taxpayer U is subject to two penalties under section 
6707A: one for the failure to attach Form 8886 to its amended return for 
2008 and another for the failure to attach Form 8886 to its 2009 return.
    Example 4. Taxpayer V participates in a nonlisted reportable 
transaction and is required to attach a Form 8886 to its return for the 
2009 taxable year that is due on March 15, 2010. Taxpayer V timely files 
its return but fails to attach the Form 8886 to its return. After the 
due date of Taxpayer V's return and without an extension of time to 
file, Taxpayer V files an amended return relating to the 2009 taxable 
year to which Taxpayer V attaches the Form 8886. Taxpayer V is subject 
to a penalty under section 6707A for failure to disclose because 
Taxpayer V failed to comply with the disclosure requirements of

[[Page 579]]

section 6011 (described in Sec.  1.6011-4(e)(1) of this chapter) by not 
attaching a Form 8886 to its original return for the 2009 taxable year 
that was timely filed on or before the due date of March 15, 2010. An 
additional penalty under section 6707A would apply if Taxpayer V had 
failed to attach a Form 8886 to its amended return.
    Example 5. Shareholder W, a shareholder in an S Corporation, 
receives a timely Schedule K-1, ``Shareholder's Share of Income, 
Deductions, Credits, etc.,'' on April 10, 2009, and determines that she 
is required to attach a Form 8886 to her individual income tax return 
for the 2008 taxable year. Shareholder W fails to attach the Form 8886 
to her 2008 individual income tax return but files a proper and complete 
Form 8886 with OTSA on June 12, 2009. Section 1.6011-4(e)(1) of this 
chapter provides that if a taxpayer who is a partner in a partnership, a 
shareholder in an S corporation, or a beneficiary of a trust receives a 
timely Schedule K-1 less than 10 calendar days before the due date of 
the taxpayer's return (including extensions) and, based on receipt of 
the timely Schedule K-1, the taxpayer determines that the taxpayer 
participated in a reportable transaction, the disclosure statement will 
not be considered late if the taxpayer discloses the reportable 
transaction by filing a disclosure statement with OTSA within 60 
calendar days after the due date of the taxpayer's return (including 
extensions). Accordingly, Shareholder W is not subject to a penalty 
under section 6707A for failure to disclose.
    Example 6. In July 2008, Taxpayer X participates in Transaction Z, a 
transaction that is not reportable as of April 15, 2009, the date 
Taxpayer X files his individual income tax return for 2008. On July 15, 
2009, Transaction Z is identified as a transaction of interest. Section 
1.6011-4(e)(2)(i) of this chapter provides that if a transaction that is 
not otherwise a reportable transaction becomes a listed transaction or a 
transaction of interest after the taxpayer has filed a tax return 
(including an amended return) reflecting the taxpayer's participation in 
the listed transaction or transaction of interest and before the end of 
the period of limitations for assessment of tax for any taxable year in 
which the taxpayer participated in the listed transaction or transaction 
of interest, then a disclosure statement must be filed with OTSA within 
90 calendar days after the date on which the transaction became a listed 
transaction or transaction of interest, regardless of whether the 
taxpayer participated in the transaction in the year the transaction 
became a listed transaction or a transaction of interest. Taxpayer X 
fails to file a Form 8886 with OTSA by October 13, 2009, 90 calendar 
days after the date that the transaction was identified as a transaction 
of interest. Accordingly, Taxpayer X is subject to a penalty under 
section 6707A.
    Example 7. Taxpayer Y is required to attach a Form 8886 to its 
return for the 2008 taxable year with respect to participation in a 
listed transaction. Taxpayer Y attaches the Form 8886 to its timely 
filed return. The Form 8886, however, does not describe all of the 
potential tax benefits expected to result from this transaction and 
states that information will be provided upon request. Because the Form 
8886 does not describe all of the potential tax benefits expected to 
result from the transaction and merely provides that the information 
will be provided upon request, the Form 8886 filed by Taxpayer Y is 
incomplete and does not satisfy the requirements set forth in Sec.  
1.6011-4(d) of this chapter. Taxpayer Y is subject to a penalty under 
section 6707A for failure to disclose in the appropriate manner.

    (d) Calculation of the penalty--(1) Decrease in tax--(i) In general. 
(A) As used in this section, the phrase decrease in tax shown on the 
return as a result of the transaction or the decrease that would have 
resulted from the transaction if it were respected for Federal tax 
purposes means the sum of:
    (1) The excess of the amount of the tax that would have been shown 
on the return if the return did not reflect the taxpayer's participation 
in the reportable transaction over the tax actually reported on the 
return reflecting participation in the reportable transaction; and
    (2) Any other tax that results from participation in the reportable 
transaction but was not reported on the taxpayer's return.
    (B) The amount of tax that would have been shown on the return if it 
did not reflect the taxpayer's participation in the reportable 
transaction includes adjustments that result mechanically from backing 
out the reportable transaction, such as tax items affected by an 
increase in adjusted gross income resulting from not participating in 
the transaction. The calculation of the penalty is unaffected by whether 
a taxpayer's tax liability is ultimately settled with the IRS for a 
different amount or whether the taxpayer subsequently reports a 
different amount of tax on an amended return, because these amounts do 
not enter into the calculation of the decrease in tax shown on the 
return (or returns) to which the penalty relates.
    (ii) Subsequently identified transactions. If the taxpayer fails to 
file, as

[[Page 580]]

required by Sec.  1.6011-4(a) of this chapter, a complete and proper 
disclosure statement disclosing participation in a listed transaction or 
transaction of interest with respect to more than one return in the time 
prescribed under Sec.  1.6011-4(e)(2)(i) of this chapter, the amount of 
the penalty will be computed by aggregating the decrease in tax shown on 
each return for which the period of limitations on assessment remains 
open.
    (iii) Penalty for failure to report to the SEC. In the case of a 
penalty imposed under section 6707A(e) for failure to disclose liability 
for certain penalties in reports to the Securities and Exchange 
Commission (SEC), the amount of the penalty will be determined under 
section 6707A(b) and this paragraph (d), regardless of whether the 
penalty that the taxpayer failed to disclose is imposed under section 
6707A, 6662A, or 6662(h).
    (iv) Minimum and maximum amount of the penalty. The limitations on 
the minimum and maximum penalty amounts described in paragraph (a) of 
this section apply separately to each failure to disclose that is 
subject to a penalty.
    (2) No tax required to be shown on return. For returns with respect 
to which disclosure is required but on which no tax is required to be 
shown (for example, returns of passthrough entities), the minimum 
penalty amount will be imposed for the failure to disclose.
    (3) Examples. The rules in paragraphs (d)(1) and (2) of this section 
are illustrated by the following examples:
    (i) Example 1. Taxpayer X, a natural person, participated in a 
listed transaction involving a Roth IRA and filed a return reflecting 
participation in the transaction. X failed to disclose participation in 
the listed transaction as required by the regulations under section 
6011. As a result of the transaction, X was liable under section 4973 
for a $10,000 excise tax for excess contributions to X's Roth IRA. On 
X's return reflecting participation in the listed transaction, X 
correctly reported $25,000 of income tax, none of which was attributable 
to the listed transaction, but failed to report the excise tax. If X had 
not participated in the listed transaction, the excise tax under section 
4973 would not have applied and X's income tax would have remained 
$25,000. There would, therefore, be no difference between the tax on the 
return as filed and the tax on the return if it did not reflect 
participation in the transaction. The excise tax, however, is another 
tax that resulted from participation in the transaction but was not 
reported on X's return, as described in paragraph (d)(1)(i)(B) of this 
section. Therefore, under paragraph (d)(1) of this section, the decrease 
in tax resulting from the listed transaction is $10,000. This amount is 
determined by adding zero (the excess of the amount of tax that would 
have been shown on X's return if the return did not reflect X's 
participation in the transaction over the tax X actually reported on the 
return reflecting X's participation in the transaction) and $10,000 (the 
amount of excise tax that resulted from participation in the transaction 
but was not reported on the return). The amount of the penalty under 
section 6707A is $7,500, which amount is 75 percent of the $10,000 
decrease in tax.
    (ii) Example 2. Taxpayer X participated in a listed transaction that 
resulted in a $40,000 decrease in the tax shown on the return reflecting 
participation in the transaction. X failed to disclose its participation 
in the transaction as required by the regulations under section 6011 and 
is, therefore, subject to a penalty under section 6707A. After weighing 
litigating hazards and other costs of litigation, the IRS Office of 
Appeals agreed to settle X's deficiency for $20,000. For purposes of 
calculating the amount of the penalty under paragraph (d)(1) of this 
section, the settlement does not affect the decrease in tax shown on X's 
return as a result of the listed transaction which remains $40,000. The 
amount of X's penalty under section 6707A is $30,000, which amount is 75 
percent of the $40,000 decrease in tax.
    (iii) Example 3. For the 2018 tax year, Taxpayer X, a natural 
person, failed to disclose participation in a reportable transaction 
that is not a listed transaction and, therefore, is subject to a penalty 
under section 6707A. After offsetting gross income with the losses 
generated in the reportable transaction, X's return reported adjusted

[[Page 581]]

gross income of $100,000. The return also reported $12,000 of medical 
expenses, $4,500 of which were deductible after applying the 7.5 percent 
floor in section 213(a) and (f). If X's return had not reflected 
participation in the reportable transaction, X's adjusted gross income 
would have been $140,000 and the deductible medical expenses would be 
limited to $1,500 ($3,000 less than the deductible amount claimed). 
Under paragraph (d)(1) of this section, the decrease in tax shown on X's 
return as a result of X's participation in the reportable transaction 
takes into account both the tax on the additional $40,000 in adjusted 
gross income had X not participated in the reportable transaction and 
the tax on the $3,000 adjustment to X's deductible medical expenses 
caused by the increase in adjusted gross income.
    (iv) Example 4. Taxpayer X, a natural person, timely filed X's 2019 
return and reported income tax of $40,000. X did not participate in a 
reportable transaction in 2019. X participated in a listed transaction 
in 2020, but failed to file a complete and proper disclosure statement 
with X's 2020 return as required by the regulations under section 6011. 
As filed, the 2020 return reports that X owes no tax and has a loss of 
$10,000. If the tax consequences of the listed transaction were not 
reflected on the 2020 return, the return would show income tax of 
$15,000 and no loss. X files an amended return for the 2019 tax year on 
which the only amendment is to carry back the $10,000 loss reported on 
the 2020 tax return to the 2019 tax year. The loss carryback reduces X's 
tax liability for 2019 by $3,000 to $37,000. X fails to file a complete 
and proper disclosure statement with the 2019 amended return as required 
by the regulations under section 6011. Two penalties under section 6707A 
apply: one for X's failure to disclose participation in a listed 
transaction reflected on the 2020 return and another for the failure to 
disclose participation in the same listed transaction reflected on the 
2019 amended return. Under paragraph (d)(1) of this section, the 
decrease in tax on the 2020 return resulting from the listed transaction 
is $15,000, which is the excess of the amount of tax that would have 
been shown on X's 2020 return if that return did not reflect X's 
participation in the listed transaction over the tax X actually reported 
on the 2020 return. The amount of the section 6707A penalty with respect 
to the 2020 return is $11,250, which amount is 75 percent of the 
decrease in tax. Under paragraph (d)(1) of this section, the decrease in 
tax on the 2019 amended return that results from the listed transaction 
is $3,000. This amount is computed by determining the excess of the 
amount of tax that would have been shown on X's 2019 amended return if 
that return did not reflect X's participation in the listed transaction 
over the tax X actually reported on the 2019 amended return reflecting 
the loss carryback resulting from X's participation in the listed 
transaction in 2020. See paragraph (c) of this section. However, because 
X is a natural person, and because 75 percent of the $3,000 decrease in 
tax is less than $5,000, which is the minimum penalty under paragraph 
(a) of this section and section 6707A(b)(3), the section 6707A penalty 
with respect to the failure to disclose the listed transaction with 
respect to the 2019 amended return is $5,000. Accordingly, X is subject 
to a $11,250 section 6707A penalty for failure to disclose participation 
in a listed transaction reflected on the 2020 return and a $5,000 
section 6707A penalty for failure to disclose participation in a listed 
transaction reflected on the 2019 amended return.
    (v) Example 5. Taxpayer X, a corporation, timely files its 2019, 
2020, and 2021 returns, each of which reflects participation in the same 
transaction. In 2023, the transaction becomes a listed transaction. When 
the transaction at issue became listed, the periods of limitations on 
assessment on X's 2020 and 2021 tax year were open, but the period of 
limitations on assessment on X's 2019 tax year was closed. Pursuant to 
Sec.  1.6011-4(a) and (e)(2)(i) of this chapter, X is required to file a 
single disclosure statement reflecting its participation in the listed 
transaction 90 calendar days after the date on which the transaction 
becomes a listed transaction. X failed to file a disclosure statement as 
required. Pursuant to paragraph (d)(1)(ii) of this section, the section

[[Page 582]]

6707A penalty is computed by aggregating the decrease in tax shown on 
the 2020 return and the decrease in tax shown on the 2021 return. 
Because the period of limitations on assessment for X's 2019 tax year 
was closed at the time the transaction became listed, the decrease in 
tax shown on the 2019 return as a result of X's participation in the 
listed transaction is not taken into account in computing the amount of 
the penalty. The decreases in tax shown on the returns as a result of 
X's participation in the transaction are $265,000 in tax year 2020 and 
$7,000 in tax year 2021. Under paragraph (d)(1) of this section, the 
total decrease in tax shown is computed by adding the decrease in tax 
for 2020 and the decrease in tax for 2021, which is $272,000. Seventy-
five percent of that amount is $204,000. Because X is a corporation, the 
maximum penalty amount is $200,000 under paragraph (a) of this section 
and section 6707A(b)(2)(A). Accordingly, X is subject to a section 6707A 
penalty of $200,000, rather than $204,000.
    (vi) Example 6. Taxpayer X, a natural person, files X's 2019 return 
reflecting participation in a reportable transaction that is not a 
listed transaction, but fails to disclose the transaction as required by 
the regulations under section 6011. The decrease in tax with respect to 
X's 2019 return as a result of participation in the reportable 
transaction is $20,000. X files an amended 2019 return to include a net 
operating loss carried forward from a prior year, which X inadvertently 
failed to include when filing the original 2019 return. The amended 
return reflects participation in the same reportable transaction, but X 
again fails to disclose the transaction as required by the regulations 
under section 6011. The decrease in tax with respect to the amended 2019 
return as a result of participation in the transaction is also $20,000. 
X is subject to two separate 6707A penalties: one for the failure to 
disclose the reportable transaction with respect to the tax benefits 
from the reportable transaction reflected on the original 2019 return 
and one for the failure to disclose the reportable transaction with 
respect to the tax benefits from the reportable transaction reflected on 
the amended 2019 return. Seventy-five percent of the $20,000 decrease in 
tax shown on the original 2019 return is $15,000 and on the amended 2019 
return is another $15,000. However, because X is a natural person, the 
amount of the penalty for failure to disclose is limited to the maximum 
amount of $10,000 under Sec.  301.6707A-1(a) and section 6707A(b)(2)(B). 
Accordingly, the amount of the section 6707A penalty for the 2019 
original return is $10,000 and the amount of the section 6707A penalty 
for the 2019 amended return is also $10,000, for a total penalty of 
$20,000.
    (vii) Example 7. Taxpayer X, a natural person, timely files X's 2019 
return on April 15, 2020, reflecting participation in a transaction that 
was not identified as a reportable transaction when X filed the return, 
the only year X participated in the transaction. In early 2021, the IRS 
identifies the transaction as a listed transaction. X fails to disclose 
the listed transaction as required by the regulations under section 
6011. In late 2021, X files an amended 2019 income tax return to claim 
deductions that had been omitted from the originally filed 2019 return. 
The amended 2019 return reflects X's participation in the listed 
transaction. X does not disclose the listed transaction when filing the 
amended 2019 return. The decrease in tax resulting from X's 
participation in the transaction is $100,000 with respect to the 
original 2019 return and $80,000 with respect to the 2019 amended 
return. Pursuant to Sec.  1.6011-4(e)(2)(i) of this chapter, X was 
required to file a disclosure statement reflecting X's participation in 
the listed transaction if the period of limitations on assessment of tax 
remained open for any taxable year in which the taxpayer participated in 
the listed transaction. When the transaction at issue became listed, the 
period of limitations on assessment on X's 2019 tax year was open. 
Pursuant to Sec.  1.6011-4(e)(1) of this chapter, X was also required to 
disclose participation in the transaction when the 2019 amended return 
was filed because the transaction was a listed transaction at that time. 
X is subject to two penalties under section 6707A: one for the failure 
to disclose participation in a listed transaction reflected on X's 
original 2019 return within 90 calendar days of

[[Page 583]]

the date the transaction became a listed transaction as required by 
Sec.  1.6011-4(e)(2)(i) of this chapter and another for the failure to 
disclose participation in the same listed transaction reflected on the 
2019 amended return. Seventy-five percent of this decrease in tax with 
respect to the original 2019 return is $75,000 (75 percent of $100,000) 
and with respect to the 2019 amended return is $60,000 (75 percent of 
$80,000). Pursuant to paragraph (d)(1)(iv) of this section, because X is 
subject to two separate penalties, the maximum penalty amount of 
$100,000 under Sec.  301.6707A-1(a) and section 6707A(b)(2)(A) applies 
separately to each penalty and does not operate to reduce the amount of 
the X's 6707A penalties.
    (viii) Example 8. Under Sec.  1.6011-4 of this chapter, Partnership 
M is required to attach a disclosure statement to its Form 1065, U.S. 
Return of Partnership Income, for the 2020 taxable year. M fails to do 
so and is, therefore, subject to a penalty under section 6707A. No tax 
is required to be shown on M's Form 1065. Pursuant to Sec.  301.6707A-
1(d)(2), M is subject to the minimum section 6707A penalty of $10,000. 
The partners of Partnership M may have separate disclosure obligations 
as required by the regulations under section 6011 and would be subject 
to separate section 6707A penalties if they fail to comply with the 
disclosure requirements.
    (ix) Example 9. In tax year 2019, Taxpayer X participated in a 
listed transaction that resulted in a $150,000 deduction. X's gross 
income for 2019 before the listed transaction deduction is $100,000. X 
uses $100,000 of the deduction resulting in zero tax liability for 2019. 
X carried over to tax year 2020 the remaining $50,000 net operating loss 
that was not used in 2019. X's gross income for tax year 2020 is 
$200,000 but as a result of the $50,000 net operating loss carryover, X 
reports $150,000 adjusted gross income. Pursuant to Sec.  1.6011-4 of 
this chapter, X is required to disclose participation in the listed 
transaction for both 2019 and 2020, but X fails to make the required 
disclosures and is therefore subject to the section 6707A penalty for 
each failure. The decrease in tax on the 2019 return is the amount of 
tax on $100,000 because that is the difference between the amount of tax 
that would have been shown on the return if it did not reflect 
participation in the listed transaction and the tax actually reported. 
No other tax resulted from X's participation in the listed transaction. 
The amount of the penalty with respect to X's failure to disclose with 
respect to 2019 will be 75 percent of the decrease in tax. The decrease 
in tax on the 2020 return is the difference between the tax shown on the 
return as filed and the tax that would be shown if the $50,000 net 
operating loss was not used, including any changes to the amount of tax 
that are only indirectly connected with the listed transaction. The 
amount of the penalty with respect to X's failure to disclose with 
respect to 2020 will be 75 percent of the decrease in tax, subject to 
the minimum and maximum penalty amount limitations.
    (x) Example 10. In tax year 2020, Taxpayer X, a natural person, 
participated in a listed transaction that resulted in a $50,000 
deduction. X also has a net operating loss carryover of $150,000 from 
2019. X uses the deduction of $50,000 and a portion of the net operating 
loss carryover resulting in zero tax liability for 2020. X carries over 
the remaining net operating loss to tax year 2021. X's gross income for 
2021 is $250,000, but as a result of the net operating loss carryover, X 
reports reduced adjusted gross income of $150,000. Pursuant to Sec.  
1.6011-4 of this chapter, X is required to disclose participation in the 
listed transaction for both 2020 and 2021, but X fails to make the 
required disclosures and is subject to the section 6707A penalty for 
each failure. The decrease in tax on the 2020 return that results from 
the reportable transaction is zero. Because X has $150,000 of a net 
operating loss carryover not attributable to the reportable transaction, 
X's tax without the benefits of the reportable transaction is the same 
as the tax shown on the 2020 return as filed. Because X is a natural 
person, the minimum penalty of $5,000 under Sec.  301.6707A-1(a) and 
section 6707A(b)(3) will apply for the failure to disclose the listed 
transaction with the 2020 return. The decrease in tax on the 2021 return 
is the difference between the tax shown on the return as filed and the 
tax that would be shown

[[Page 584]]

if X had only $50,000 of net operating loss to carry over to 2021 (i.e., 
if X had not offset $50,000 of its 2020 gross income with the deduction 
resulting from the reportable transaction and thus had used $100,000 of 
its net operating loss carryover in 2020), including any changes to the 
amount of tax that are only indirectly connected with the listed 
transaction. The amount of the penalty with respect to the disclosure 
relating to 2021 will be 75 percent of this decrease in tax, subject to 
the minimum and maximum penalty amount limitations.
    (xi) Example 11. Taxpayer X, a public corporation required to file 
periodic reports under section 13 or 15(d) of the Securities Exchange 
Act of 1934, timely filed its 2019 return reflecting tax benefits from a 
reportable transaction that is not a listed transaction and properly 
disclosed the transaction in accordance with the regulations under 
section 6011. In 2023, as a result of an examination of X's 2019 return, 
the IRS imposes a penalty under section 6662A with respect to the 
reportable transaction. The decrease in tax for purposes of paragraph 
(d)(1) of this section is $190,000. As a person who is required to file 
periodic reports under section 13 or 15(d) of the Securities Exchange 
Act of 1934, X is required, pursuant to section 6707A(e), to disclose 
the penalty imposed under section 6662A to the Securities and Exchange 
Commission in 2023, which X failed to do. X's failure to disclose the 
section 6662A penalty is treated as a failure to disclose to which 
section 6707A(b) applies. Thus, X is subject to a penalty under section 
6707A(e), which equals 75 percent of the decrease in tax resulting from 
the transaction. The decrease in tax resulting from the reportable 
transaction was $190,000, 75 percent of which is $142,500. Because X is 
a corporation and the transaction is not a listed transaction, the 
amount of the penalty is limited to $50,000 under paragraph (a) of this 
section and section 6707A(b)(2)(B). Therefore, rather than $142,500, X 
is subject to a $50,000 section 6707A penalty for failure to disclose 
the section 6662A penalty to the SEC.
    (e) Rescission authority--(1) In general. The Commissioner (or the 
Commissioner's delegate) may rescind the section 6707A penalty if--
    (i) The violation relates to a reportable transaction that is not a 
listed transaction; and
    (ii) Rescinding the penalty would promote compliance with the 
requirements of the Code and effective tax administration.
    (2) Requesting rescission. The Secretary may prescribe the 
procedures for a taxpayer to request rescission of a section 6707A 
penalty with respect to a reportable transaction other than a listed 
transaction by publishing a revenue procedure or other guidance in the 
Internal Revenue Bulletin.
    (3) Factors that weigh in favor of granting rescission. In 
determining whether rescission would promote compliance with the 
requirements of the Internal Revenue Code and effective tax 
administration, the Commissioner (or the Commissioner's delegate) will 
take into account the following list of factors that weigh in favor of 
granting rescission. This is not an exclusive list and no single factor 
will be determinative of whether to grant rescission in any particular 
case. Rather, the Commissioner (or the Commissioner's delegate) will 
consider and weigh all relevant factors, regardless of whether the 
factor is included in this list.
    (i) The taxpayer, upon becoming aware that it failed, in whole or in 
part, to disclose a reportable transaction in accordance with the 
requirements of Sec.  1.6011-4 of this chapter, filed a complete and 
proper, albeit untimely, Form 8886 (or successor form), as required by 
Sec.  1.6011-4. If the penalty is due to the taxpayer's failure to file 
Form 8886 (or successor form) with a return, in order for an untimely 
disclosure to weigh in favor of rescission, the taxpayer must file an 
amended return with the appropriate Service Center and attach a complete 
and proper Form 8886 (or successor form) to that amended return. The 
amended return filed with the untimely Form 8886 (or successor form) 
must not reflect any other changes to the return that it amends, and the 
taxpayer must, in the space provided for an explanation of changes on 
the amended return, state the reason for filing the amended return. If 
the penalty is due to the taxpayer's failure to file Form 8886 (or 
successor

[[Page 585]]

form) with OTSA, in order for an untimely disclosure to weigh in favor 
of rescission, the taxpayer must file a complete and proper Form 8886 
(or successor form) with OTSA. If the taxpayer fails to file a complete 
and proper Form 8886 (or successor form) with the return and also fails 
to file a copy of the complete and proper Form 8886 (or successor form) 
with OTSA, incurring one penalty for both failures, then the taxpayer 
must, in the manner prescribed in this paragraph (e)(3)(i), file 
complete and proper Forms 8886 with both the Service Center and OTSA in 
order for the untimely disclosures to weigh in favor of rescission. This 
factor will weigh heavily in favor of rescission provided that--
    (A) The taxpayer files the Form 8886 prior to the date the IRS first 
contacts the taxpayer (including contacts by the IRS with any 
partnership in which the taxpayer is a partner, any S corporation in 
which the taxpayer is a shareholder, or any trust in which the taxpayer 
is a beneficiary) concerning a tax examination for the tax period in 
which the taxpayer participated in the reportable transaction; and
    (B) Other circumstances suggest that the taxpayer did not delay 
filing an untimely but properly completed Form 8886 until after the IRS 
had taken steps to identify the taxpayer's participation in the 
reportable transaction in question.
    (ii) The failure, in whole or in part, to disclose in accordance 
with the requirements of Sec.  1.6011-4 of this chapter was due to an 
unintentional mistake of fact that existed despite the taxpayer's 
reasonable attempts to ascertain the correct facts with respect to the 
transaction.
    (iii) The taxpayer has an established history of properly disclosing 
other reportable transactions and complying with other tax laws.
    (iv) The taxpayer demonstrates that the failure to include on any 
return or statement any information required to be disclosed under 
section 6011 arose from events beyond the taxpayer's control.
    (v) The taxpayer cooperates with the IRS by providing timely 
information with respect to the transaction at issue that the 
Commissioner (or the Commissioner's delegate) may request in 
consideration of the rescission request. In considering whether a 
taxpayer cooperates with the IRS, the Commissioner (or the 
Commissioner's delegate) will take into account whether the taxpayer 
meets the deadlines described in Rev. Proc. 2007-21 (2007-1 CB 613) (or 
successor document) (see Sec.  601.601(d)(2)(ii)(b) of this chapter) for 
complying with requests for additional information.
    (vi) Assessment of the penalty weighs against equity and good 
conscience, including whether the taxpayer demonstrates that there was 
reasonable cause for, and the taxpayer acted in good faith with respect 
to, the failure to timely file or to include on any return any 
information required to be disclosed under section 6011. An important 
factor in determining reasonable cause and good faith is the extent of 
the taxpayer's efforts to ensure that persons who prepared the 
taxpayer's return were informed of the taxpayer's participation in the 
reportable transactions; this factor will be disregarded, however, if 
the persons who prepared the taxpayer's return were material advisors 
with respect to the reportable transaction. The presence of reasonable 
cause, however, will not necessarily be determinative of whether to 
grant rescission.
    (4) Absence of favorable factors weighs against rescission. The 
absence of facts establishing the factors described in paragraph (e)(3) 
of this section weighs against granting rescission. The absence of any 
one of these factors, however, will not necessarily be determinative of 
whether to grant rescission.
    (5) Factors not considered. In determining whether to grant 
rescission, the Commissioner (or the Commissioner's delegate) will not 
consider collectability of, or doubt as to liability for, the penalties 
(except that the Commissioner may consider doubt as to liability to the 
extent it is a factor in the determination of reasonable cause and good 
faith).
    (6) Example. The following example illustrates the rules of 
paragraph (e)(3) of this section:

    Example. In 2008, Taxpayer Z participated in a nonlisted reportable 
transaction for the

[[Page 586]]

first time. Under Sec.  1.6011-4(e)(1) of this chapter, he was required 
to attach a complete and proper Form 8886 to his 2008 return, due on 
April 15, 2009, and to file a copy of the Form 8886 with OTSA. Taxpayer 
Z timely filed his 2008 return but failed to attach a Form 8886 to his 
return or file a Form 8886 with OTSA. On June 1, 2009, Taxpayer Z 
discovered his error. On June 8, 2009, Taxpayer Z filed an amended 
return for tax year 2008 and attached a complete and proper Form 8886 
that disclosed his participation in the reportable transaction. The 
amended return reflected no changes from the original return and 
explained that the sole purpose of the amended return was to correct 
Taxpayer Z's failure to file a Form 8886 with his original return. On 
June 8, 2009, Taxpayer Z also filed a copy of the complete and proper 
Form 8886 with OTSA. The IRS later notified Taxpayer Z that he was 
subject to a penalty under section 6707A because he failed to comply 
with the disclosure requirements of section 6011 by not attaching Form 
8886 to his return for the 2008 taxable year. The IRS properly assessed 
the penalty under section 6707A and, on October 15, 2010, issued notice 
and demand. On November 1, 2010, in accordance with Rev. Proc. 2007-21, 
Taxpayer Z submitted a written request for rescission of the assessed 
penalty. The fact that Taxpayer Z filed an untimely Form 8886 shortly 
after discovery of his error but before the IRS first contacted him 
concerning his return for the 2008 taxable year will weigh heavily in 
favor of rescission.

    (f) Reports to the Securities and Exchange Commission (SEC)--(1) In 
general. Under section 6707A(e), a taxpayer who is required to file 
periodic reports under section 13 or section 15(d) of the Securities 
Exchange Act of 1934 (or is required to be consolidated with another 
person for purposes of these reports) must disclose in certain reports, 
as provided in revenue procedures or other guidance published pursuant 
to paragraph (f)(2) of this section, the requirement to pay each of the 
following penalties:
    (i) The penalty imposed by section 6707A(a) for failure to disclose 
a listed transaction.
    (ii) The accuracy-related penalty imposed by section 6662A(a) at the 
30- percent rate determined under section 6662A(c) for a reportable 
transaction understatement with respect to which the relevant facts 
affecting the tax treatment of the reportable transaction were not 
adequately disclosed in accordance with regulations prescribed under 
section 6011.
    (iii) The accuracy-related penalty imposed by section 6662(a) at the 
40-percent rate determined under section 6662(h) for a gross valuation 
misstatement, if the taxpayer (but for the exclusionary rule of section 
6662A(e)(2)(C)(ii)) would have been subject to the accuracy-related 
penalty under section 6662A(a) at the 30-percent rate determined under 
section 6662A(c).
    (iv) The penalty described in paragraph (f)(3) of this section for 
failure to disclose in periodic reports filed with the SEC the 
requirement to pay any of the penalties described in paragraphs 
(f)(1)(i) through (f)(1)(iii) or paragraph (f)(3) of this section.
    (2) Manner and content of disclosure. The Secretary may, by 
publishing a revenue procedure or other guidance in the Internal Revenue 
Bulletin, prescribe the manner in which the disclosure under paragraph 
(f)(1) of this section must be made, including identification of the 
specific SEC form and section thereof in which the taxpayer must make 
the disclosure as well as specification of the timing and contents of 
the disclosure.
    (3) Penalty for failure to disclose in SEC filings. Any taxpayer who 
is required to file periodic reports under section 13 or section 15(d) 
of the Securities Exchange Act of 1934 (or is required to file 
consolidated reports with another person) may be subject to a penalty 
under section 6707A(b) for each failure to disclose the requirement to 
pay a penalty identified in paragraphs (f)(1)(i) through (f)(1)(iii) of 
this section in the manner specified by revenue procedure or other 
guidance published in the Internal Revenue Bulletin. The taxpayer also 
may be subject to an additional penalty under section 6707A(b) for each 
failure to disclose a penalty arising under this section in the manner 
specified by revenue procedure or other guidance published in the 
Internal Revenue Bulletin. The penalty provided by this paragraph (f)(3) 
will be rescinded if the IRS rescinds in full the penalty for failing to 
disclose under section 6011 the reportable transaction underlying the 
penalty provided by this section. Otherwise, the penalty provided by 
this paragraph (f)(3) is not subject to rescission.

[[Page 587]]

    (g) Applicability date. (1) This section applies to penalties 
assessed after March 26, 2019.
    (2) For penalties assessed before March 26, 2019, Sec.  301.6707A-1 
(as contained in 26 CFR part 1, revised April 2018) shall apply.

[T.D. 9550, 76 FR 55258, Sept. 7, 2011, as amended by T.D. 9853, 84 FR 
11219, Mar. 26, 2019]



Sec.  301.6708-1  Failure to maintain lists of advisees with respect to 
reportable transactions.

    (a) In general. Any person who is required to maintain a list under 
section 6112 who, upon written request for the list, fails to make the 
list available to the Secretary within 20 business days after the date 
of the request shall be subject to a penalty in the amount of $10,000 
for each subsequent calendar day on which the person fails to furnish a 
list containing the information and in the form required by section 6112 
and its corresponding regulations. The penalty will not be imposed on 
any particular day or days for which the person establishes that the 
failure to comply on that day is due to reasonable cause.
    (b) Calculation of the 20-business-day period. The 20-business-day 
period shall begin on the first business day after the earliest of the 
date that the IRS--
    (1) Mails a request for the list required to be maintained under 
section 6112(a) by certified or registered mail to the person required 
to maintain the list;
    (2) Hand delivers the written request to the person required to 
maintain the list; or
    (3) Leaves the written request with an individual 18 years old or 
older at the usual place of business of the person required to maintain 
the list.
    (c) Making a list available. (1) A person who is required to 
maintain a list required by section 6112 may make the list available by 
mailing or delivering it to the IRS within 20 business days after the 
date of the list request. Section 7502 and the regulations thereunder 
shall apply to this section.
    (2) A person who is required to maintain a list required by section 
6112 may also make the list available to the IRS by making it available 
for inspection and copying during normal business hours, as provided by 
section 6112, or by another agreed-upon method, on an agreed-upon date 
that falls within the 20-business-day period following the list request.
    (3) Extension--(i) In general. Upon a showing of good cause by the 
person prior to the expiration of the 20-business-day period following a 
list request, the IRS may, in its discretion, agree to extend the period 
within which to make all or part of the list available. For purposes of 
this paragraph, ``good cause'' is shown if the person establishes that 
the 20-business-day deadline cannot reasonably be met despite diligent 
efforts by the person to maintain the materials constituting a list and 
to make that list available to the IRS in the time and manner required 
by the Secretary under section 6112.
    (ii) Requesting an extension. Any request for an extension of the 
20-business-day period must be made in writing to the person at the IRS 
who requested the list. The person requesting an extension must briefly 
describe the information and documents that comprise the list as 
required by section 6112; explain the circumstances that would warrant 
additional time; propose a schedule to complete the production of the 
list; state that to the best of the person's knowledge, as of the date 
of the list request, all information and records relating to the list 
under the person's possession, custody, or control had been maintained 
in accordance with procedures and policies that are consistent with 
sections 6001 and 6112 of the Internal Revenue Code; and state that the 
extension request is not being made to avoid the person's list 
maintenance obligations imposed by section 6112 and its corresponding 
regulations. The IRS may, in its discretion, grant the person's 
extension request in full or in part. The IRS will consider whether 
granting an extension may impair its ability to make a timely assessment 
against any of the participants in the transaction associated with the 
requested list. The IRS will not grant an extension if it determines 
that a significant reason for the extension request is to delay 
producing the list. A pending extension request by

[[Page 588]]

itself does not constitute reasonable cause for purposes of section 
6708.
    (4) Examples. The following examples illustrate paragraph (c)(3)(i) 
and (ii) of this section. These examples are intended to illustrate how 
the facts and circumstances in paragraph (c)(3)(i) and (ii) of this 
section may apply; in any given case, however, all of the facts and 
circumstances must be analyzed.

    Example 1. (i) Firm A is a large law firm that is a material 
advisor. Firm A conducts annual sessions to educate its professionals 
about reportable transactions and the firm's obligations related to 
those reportable transactions. Firm A instructs its professionals to 
provide information on tax engagements that involve reportable 
transactions and to provide the documents required to be maintained 
under sections 6001 and 6112 to Firm A's compliance officer for list 
maintenance purposes. Firm A's policy provides that, for each engagement 
involving a reportable transaction, one firm professional will send an 
email to the firm's compliance officer about the engagement and then 
direct a subordinate to send the documents required to be maintained to 
the firm's compliance officer. Firm A has policies and procedures in 
place to monitor compliance with these rules and to address non-
compliance.
    (ii) Firm A receives a request from the IRS for a section 6112 list. 
In compiling its list to turn over to the IRS during the 20-business-day 
period following the list request, Firm A discovers that, with respect 
to one reportable transaction, a subordinate did not provide the 
documentation required by Firm A's policy. In addition, Firm A 
experiences difficulty locating the required documents as both the 
professional and the subordinate who worked on the matter are no longer 
employed by Firm A, requiring the firm to undertake an extensive search 
for the information responsive to the list request. Firm A also seeks 
the information from the firm's clients. Despite these efforts, Firm A 
reasonably determined that it will not be able to respond timely to the 
request. Within the 20-business-day period, Firm A notifies the IRS, in 
writing, of the difficulties it is experiencing and requests an 
additional 10 business days to locate and produce the information for 
this one transaction. Within the 20-business-day period, Firm A makes 
all other required list information available to the IRS, together with 
a description of the information that is being searched for, all 
statements required by these regulations, and a proposed schedule to 
produce the missing information.
    (iii) Under these circumstances, Firm A demonstrated that it could 
not reasonably make the portion of the list relating to the one 
transaction available within the 20-business-day period and thus 
qualified for an extension. Firm A had established policies and 
procedures reasonably designed and implemented to ensure and monitor 
compliance with the requirements of section 6112 and address non-
compliance. Because the facts and circumstances indicate that Firm A 
made diligent efforts to maintain the materials constituting the list in 
a readily accessible form and as otherwise required under section 6112, 
the requested 10-business-day extension with respect to the portion of 
the list relating to the one transaction where records were not 
maintained in accordance with the firm's policies and procedures should 
be granted.
    Example 2. (i) Assume the same facts set forth in example one, 
except that, in the process of compiling the list to comply with the 
list maintenance request, Firm A first becomes aware that a firm 
professional did not send an email to the firm's compliance officer 
about a transaction subject to the list maintenance request and did not 
direct a subordinate to send to the firm's compliance officer the 
information required to be maintained with respect to the transaction. 
Assume further that Firm A had a robust section 6112 compliance 
monitoring program in place and despite this, the firm did not know that 
the professional did not follow firm policies and procedures with 
respect to this transaction. The professional who worked on the matter 
is no longer employed by Firm A, causing Firm A difficulty in locating 
the required information and in ascertaining whether the professional in 
question failed to comply with Firm A's list maintenance policies with 
respect to any other reportable transactions. Firm A is searching its 
records to locate information responsive to the list request and to 
ensure that no other reportable transactions were omitted from the list. 
Firm A estimates that it will take an additional 20 business days after 
the 20th business day to retrieve the missing information and provide 
IRS with the additional information responsive to the list request. 
Within the 20-business-day period, Firm A notifies the IRS, in writing, 
of the difficulties it is experiencing and requests an additional 20 
business days to locate and produce the information for this one 
transaction and for any other reportable transactions omitted from the 
list as a result of the inaction by the professional in question. Within 
the 20-business-day period, Firm A makes all other required list 
information available to the IRS, together with a description of the 
information that is being searched for, all statements required by these 
regulations, and a proposed schedule to produce the missing documents.
    (ii) Under these facts and circumstances, Firm A demonstrated that 
it could not reasonably, within the 20-business-day period,

[[Page 589]]

make available the portion of the list relating to one or possibly more 
transactions omitted from the list because of the inaction of the 
professional in question. Firm A therefore qualifies for an extension. 
Firm A had established policies and procedures reasonably designed and 
implemented to ensure and monitor compliance with the requirements of 
section 6112 and address non-compliance. Because the facts and 
circumstances indicate that Firm A made diligent efforts to maintain the 
materials constituting the list in a readily accessible form and as 
otherwise required under section 6112, the requested 20-business-day 
extension with respect to the portion of the list relating to the one 
known omitted transaction and to any other omitted reportable 
transactions resulting from the inaction of the professional in question 
should be granted.

    (d) Failure to make list available. A failure to make the list 
available includes any failure to furnish the requested list to the IRS 
in a timely manner and in the form required under section 6112 and its 
corresponding regulations. Examples of failures to make a list available 
include instances in which a person fails to furnish any list; furnishes 
an incomplete list; or furnishes a list, whether or not complete, after 
the time required by this section.
    (e) Computation of penalty--(1) In general. The penalty imposed by 
section 6708 accrues daily, beginning on the first calendar day after 
the expiration of the 20-business-day period following a written list 
request, and continues for each calendar day thereafter until the 
person's failure to furnish a list in the form required by section 6112 
and its corresponding regulations ends. If the list is delivered or 
mailed to the IRS outside of the 20-business-day period, the penalty 
shall not apply on the day the list is delivered to the IRS or, if the 
list is mailed, the day the list is received by the IRS.
    (2) Computation of penalty after grant of extension. If the IRS 
grants an extension of the 20-business-day period pursuant to paragraph 
(c)(3) of this section, the penalty imposed by section 6708 accrues 
daily, beginning on the first calendar day after the extension period 
expires, and continues for each calendar day thereafter until the 
person's failure to furnish a list in the form required by section 6112 
and its corresponding regulations ends. If the list is delivered or 
mailed to the IRS outside of the period of extension, the penalty shall 
not apply on the day the list is delivered to the IRS or, if the list is 
mailed, the day the list is received by the IRS.
    (3) Designation agreements and concurrent application of penalty. If 
material advisors with respect to the same reportable transaction enter 
into a designation agreement pursuant to section 6112(b)(2) and Sec.  
301.6112-1(f), separate penalties will be imposed on designated material 
advisors and nondesignated material advisors who are parties to the 
designation agreement for their respective periods of failure or 
noncompliance with a list request. A penalty will continue to accrue 
against a material advisor who is a party to a designation agreement 
until such time when a list complying with the requirements of section 
6112 and its corresponding regulations is furnished by that material 
advisor or any other material advisor who is a party to the designation 
agreement.
    (4) Example. The following example illustrates paragraph (e) of this 
section.

    Example. The IRS hand delivers a written request for the list 
required to be maintained under section 6112 to Firm B, a material 
advisor, on Friday, March 10, 2017. Firm B must make the list available 
to the IRS on or before Friday, April 7, 2017, the 20th business day 
after the request was hand delivered. If Firm B fails to make the list 
available to the IRS by that day, absent reasonable cause or the IRS's 
grant of an extension of the response time, the $10,000-per-day penalty 
begins on Saturday, April 8, 2017. The $10,000 per day penalty will 
continue for each subsequent calendar day until Firm B makes the 
complete list available, except for those days for which Firm B 
demonstrates reasonable cause. If Firm B hand delivers a complete copy 
of the requested list to the IRS on the morning of Tuesday, April 11, 
2017, absent reasonable cause or the IRS's prior grant of an extension 
for the response time, a penalty of $30,000 will be imposed upon Firm B 
(for April 8, 9, and 10). See paragraphs (g) and (h) of this section for 
an explanation of reasonable cause.

    (f) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Material advisor means a person described in section 6111 and 
Sec.  301.6111-3(b).
    (2) Business day means every calendar day other than a Saturday, 
Sunday, or

[[Page 590]]

legal holiday within the meaning of section 7503.
    (3) Reportable transaction means a transaction described in section 
6707A(c)(1) and section 1.6011-4(b)(1).
    (4) Listed transaction means a transaction described in section 
6707A(c)(2) and Sec.  1.6011-4(b)(2) of this chapter.
    (g) Reasonable cause--general applicability--(1) Overview. The 
section 6708 penalty will not be imposed for any day or days for which 
the person shows that the failure to make a complete list available to 
the IRS was due to reasonable cause. The determination of whether a 
person had reasonable cause is made on a case-by-case and day-by-day 
basis, taking into account all the relevant facts and circumstances. 
Facts and circumstances relevant to a material advisor's reasonable 
cause for failing to make available the list on a specific day include 
facts and circumstances arising after the request for the list. The 
person's showing of reasonable cause should relate to each specific day 
or days for which the person failed to make available the requested 
list. Factors establishing reasonable cause include, but are not limited 
to, factors identified in paragraphs (g) and (h) of this section.
    (2) Good-faith factors. The most important factors to establish 
reasonable cause are those that reflect the extent of the person's good-
faith efforts to comply with section 6112. The following factors, which 
are not exclusive, will be considered in determining whether a person 
has made a good-faith effort to comply with the section 6112 
requirements:
    (i) The person's efforts to determine or assess its status as a 
material advisor as defined by section 6111;
    (ii) The person's efforts to determine the information and 
documentation required to be maintained under section 6112;
    (iii) The person's efforts to meet its obligations to maintain a 
readily producible list as required by section 6112;
    (iv) The person's efforts, upon receiving the list request, to make 
the list available to the IRS within the 20-business-day period (or 
extended period) under paragraphs (a), (b), and (c)(3) of this section; 
and
    (v) The person's efforts to ensure that the list furnished to the 
IRS is accurate and complete.
    (3) Ordinary business care. The exercise of ordinary business care 
may constitute reasonable cause. To show ordinary business care, the 
person may, for example, show that the person established, and adhered 
to, procedures reasonably designed and implemented to ensure compliance 
with the section 6112 requirements. In all instances when ordinary 
business care is claimed as constituting reasonable cause, a person must 
show that the person took immediate steps, upon discovering any failure 
relating to the list, to correct the failure. A person's failure to take 
immediate steps to correct a failure related to the list upon 
discovering the failure is a factor weighing against a conclusion that 
the person exercised ordinary business care. Notwithstanding the 
occurrence of an isolated and inadvertent failure, a person still may be 
able to demonstrate that the person exercised ordinary business care, 
considering all the relevant facts and circumstances, but only if the 
person had established and adhered to procedures reasonably designed and 
implemented to ensure compliance with the section 6112 requirements.
    (4) Supervening events. A person may establish reasonable cause for 
one or more days for which, considering all the relevant facts and 
circumstances, the failure to timely furnish the list required by 
section 6112 was due solely to a supervening event beyond the person's 
control. Events beyond a person's control may include fire, flood, 
storm, or other casualty; illness; theft; or other similarly unexpected 
event that damages or impairs the person's relevant business records or 
system for processing and providing these records, or that affects the 
person's ability to maintain the section 6112 list or make it available 
to the IRS. Reasonable cause may be established only for the period that 
a person who exercised ordinary business care would need to provide the 
list from alternative records in existence, or make the list available, 
under the specific facts and circumstances.

[[Page 591]]

    (5) Reliance on opinion or advice--(i) In general. A person may rely 
on an independent tax professional's advice to establish reasonable 
cause. The reliance, however, must be reasonable and in good faith, in 
light of all the other facts and circumstances. For a person to be 
considered to have relied on the advice, the advice must have been 
received by the person before the date the list is required to be made 
available to the IRS. If the person received advice from an independent 
tax professional, the person's reliance on that advice will be 
considered reasonable only if the independent tax professional 
reasonably believed that it is more likely than not that the person does 
not have an obligation imposed by section 6112. For example, this advice 
may conclude that the person is not a material advisor; that the 
transaction upon which the person provided material aid, assistance, or 
advice is not a reportable transaction for which a list was required to 
be maintained as of the date of the advice; that the information and 
documents to be produced constitute the required list; or that the 
information or documents withheld by the person are not required to be 
produced. The advice must also take into account and consider all 
relevant facts and circumstances, not rely on unreasonable legal or 
factual assumptions, not rely on or take into account the possibility 
that a list request may not be made, and not rely on unreasonable 
representations or statements of the person seeking the advice. Advice 
from a tax professional who is not independent may be considered in 
determining reasonable cause if, in light of and in relation to all the 
other facts and circumstances, taking into account such advice is 
reasonable. However, by itself, advice from a tax professional who is 
not independent is not sufficient to establish reasonable cause. 
Independent tax professional advice is not required to establish 
reasonable cause and the failure to obtain advice from an independent 
tax professional does not preclude a finding of reasonable cause if, 
based on the totality of all of the relevant facts and circumstances, 
reasonable cause has been established.
    (ii) Independent tax professional. For purposes of this section, an 
independent tax professional is a person who is knowledgeable in the 
relevant aspects of Federal tax law and who is not a material advisor 
with respect to the specific transaction that is the subject of the list 
request. For advice related to a listed transaction, a person who is a 
material advisor with respect to any transaction that is the same as or 
substantially similar to the type of transaction that is the subject of 
the list request will not be considered an independent tax professional.
    (6) Examples. The following examples illustrate this paragraph (g). 
These examples are intended to illustrate how the facts and 
circumstances in paragraphs (g)(2) through (g)(5) of this section may 
apply; in any given case, however, all of the facts and circumstances 
must be analyzed.

    Example 1. On August 11, 2017, the IRS sends a list request via 
certified mail to Firm C, a material advisor. Firm C consists of a sole 
practitioner, X, who is away from the office on vacation on this date. X 
has arranged for a colleague, Y, to review Firm C's mail, email, and 
telephone messages daily during his absence. X returns to the office the 
day after his vacation ends, on September 5, 2017, and immediately 
contacts the IRS to notify it of his absence. Firm C makes a complete 
list available to the IRS on September 19, 2017, 10 business days after 
he has returned from vacation. Firm C establishes that X was on vacation 
at the time the list request was sent to Firm C, and Firm C promptly 
furnished the requested list in a manner and time period reflecting 
ordinary business care and prudence upon X's return to the office. Under 
these circumstances, Firm C is considered to have made a good-faith 
effort to comply with the section 6112 requirements. Firm C has 
established reasonable cause for the entire period between the 
expiration of the 20-business-day period following the list request and 
the date the list was made available to the IRS. See paragraphs (g)(2) 
and (3) of this section.
    Example 2. On March 3, 2017, the IRS hand delivers to Firm D, a 
material advisor, a list request related to a transaction believed by 
the IRS to have been implemented in November 2008 by a group of Firm D's 
clients (the advisees). Firm D's involvement in the transaction included 
implementing the transaction on behalf of some but not all of the 
advisees. Firm D timely makes the requested list available to the IRS. 
Upon review, the IRS determines that the information furnished by Firm D 
appears to be accurate, but the IRS believes that some of the 
information is incomplete because it does

[[Page 592]]

not contain information about certain individuals who were identified 
through other investigative means as Firm D's clients who may have 
engaged in the transaction. In response to a follow-up inquiry by the 
IRS, Firm D establishes, however, that it is not a material advisor with 
respect to these taxpayers. Under these circumstances, Firm D has 
furnished the list as required by section 6112. Because the list was 
complete when furnished, Firm D need not make a showing of reasonable 
cause. See paragraph (g)(1) of this section.
    Example 3. The IRS sends a list request by certified mail to Firm E, 
a material advisor. Firm E maintains the materials responsive to the 
list request on a portable data storage device. Under Firm E's 
established procedures for maintaining section 6112 lists, once the 
transaction is completed, paper documents are scanned and saved 
electronically according to Firm E's records management procedures. 
Under Firm E's records management procedures, after the scanning process 
is completed, Firm E sends the paper documents to an off-site storage 
facility. Three days before the 20th business day following the date of 
the written request, the electronic data is permanently destroyed. Firm 
E contacts the IRS representative listed as a contact person on the 
section 6112 list request to advise him that the relevant data was 
permanently destroyed. Firm E establishes that it exercised ordinary 
business care but that the data was nevertheless destroyed due to 
circumstances outside of its control. Under these circumstances, Firm E 
has reasonable cause for the period of time that Firm E cannot respond 
to the list request due to circumstances out of Firm E's control. The 
reasonable cause exception, however, will only be available to Firm E 
for the period of time that a person who exercises ordinary business 
care would need to obtain the materials that are part of the list, 
including in this case paper documents from the off-site storage 
facility, and furnish the list to the IRS. See paragraphs (g)(3) and (4) 
of section.
    Example 4. On February 2, 2017, the IRS hand delivers a list request 
to Firm F, a material advisor. Firm F filed with the IRS the disclosure 
statement required by section 6111 for the reportable transaction that 
is the subject of the list request but did not maintain the section 6112 
list documentation in a readily accessible format after filing the 
section 6111 statement. On March 3, 2017, the 20th business day (due to 
the Presidents' Day holiday) after the list request is delivered to Firm 
F, Firm F contacts the IRS to ask for additional time to comply with the 
list request, stating that it could not gather the list information 
together in 20 business days. Because Firm F is not able to show that it 
made diligent efforts to maintain the materials constituting the list in 
a readily accessible form, the IRS should not grant Firm F an extension 
of time. See paragraph (c)(3) of this section. Further, Firm F does not 
have reasonable cause because it has failed to demonstrate a good-faith 
effort to comply with the section 6112 requirements and ordinary 
business care. See paragraphs (g)(2) and (3) of this section.
    Example 5. On August 11, 2017, the IRS sends a list request, via 
certified mail, to Firm G, a material advisor. Firm G consists of a sole 
practitioner, P. Firm G maintains the materials responsive to the list 
request electronically. Generally, under Firm G's records management 
procedures, once a transaction is completed, the documents related to 
that transaction are scanned and then saved electronically consistent 
with IRS guidance on maintaining books and records in electronic form. P 
is aware of the list request but ignores it. On September 24, 2017, the 
13th calendar day after the 20-business-day period following the list 
request (due to the Labor Day holiday), P suffers a temporary but 
debilitating illness that lasts 22 days. Following the illness, P 
immediately returns to work. After returning to work, P continues to 
ignore the list request. In this situation, the facts and circumstances 
indicate that Firm G does not have reasonable cause for any day in which 
there was a failure to make the list available to the IRS, including the 
22 days due to the intervening event, because the failure was not due 
solely to the supervening event occurring on September 24, 2017. Firm G 
did not make a good-faith effort to make the list available to the IRS 
before or after the supervening event occurred. Firm G is liable for the 
$10,000 per day penalty from the first day following the expiration of 
the 20-business-day period until but not including the day that Firm G 
furnishes the list to the IRS. See paragraphs (g)(2) and (4) of this 
section.
    Example 6. On August 11, 2017, the IRS sends a list request, via 
certified mail, to Firm H, a material advisor. Firm H, consists of a 
sole practitioner, P. Firm H maintains the materials responsive to the 
list request electronically. Generally, under Firm H's records 
management procedures, once the transaction is completed, the documents 
are scanned and then saved electronically consistent with IRS guidance 
on maintaining books and records in electronic form. P is aware of the 
list request and begins compiling the documents to respond to the IRS 
within the 20-business-day period ending on September 11, 2017 (due to 
the Labor Day holiday). Before responding to the list request, P suffers 
a temporary but debilitating illness on September 3, 2017, that lasts 
through September 19, 2017. Upon returning to work on September 20, 
2017, P contacts the IRS to explain that P experienced a temporary but 
debilitating illness from September 3, 2017, through September 19, 2017,

[[Page 593]]

and that P has returned to the office and intends to furnish the list to 
the IRS within a short period of time. Firm H furnishes the list to the 
IRS on September 22, 2017. In this situation, the facts and 
circumstances indicate that Firm H has reasonable cause for the period 
from September 12, 2017 until September 21, 2017, attributable to P's 
illness. The failure to furnish the list in a timely fashion was solely 
attributable to the supervening event occurring on September 3, 2017, 
and Firm H promptly furnished the requested list in a manner and time 
period reflecting ordinary business care upon P's return to the office. 
Firm H is considered to have made a good-faith effort to comply with the 
section 6112 requirements. Firm H has established reasonable cause for 
the entire period between the expiration of the 20-business-day period 
following the list request and the date Firm H furnished the list to the 
IRS. See paragraphs (g)(2) and (4) of this section.
    Example 7. Firm I receives a list request for transactions that are 
the same or substantially similar to the listed transaction described in 
Notice 2002-21, 2002-1 CB 730. Firm I will be considered a material 
advisor with respect to a particular transaction for which it provided 
advice if the transaction is the same as or substantially similar to the 
transaction described in Notice 2002-21. Firm I, however, is unsure 
whether the transaction is the same as or substantially similar to the 
transaction described in this Notice. Firm I obtains an opinion from 
Firm L, a law firm, on this issue. P, a partner in Firm L, provided tax 
advice to clients who invested in other Notice 2002-21 transactions, 
including how to report the purported tax benefits from the transaction 
on their income tax returns, and Firm L is a material advisor with 
respect to those transactions. Because Firm L is a material advisor with 
respect to the type of transaction that is the same as or substantially 
similar to the transaction described in Notice 2002-21, Firm L is not 
considered an independent tax professional under paragraph (g)(5)(ii) of 
this section. Therefore, Firm I cannot rely on advice provided by Firm L 
to establish reasonable cause under this paragraph (g). The IRS may 
consider Firm L's advice in determining reasonable cause in light of 
other facts and circumstances, but Firm L's advice, without more, is not 
sufficient to establish reasonable cause because P is not an independent 
tax professional under paragraph (g)(5)(ii) of this section.
    Example 8. Firm J, a law firm, provides advice to various clients of 
the firm regarding the potential tax benefits of a reportable 
transaction under Sec.  1.6011-4(b)(5) of this chapter (involving a 
section 165 loss) and is a material advisor with respect to that 
transaction. Firm J also provides advice to Firm M, an accounting firm, 
regarding the same transaction. Firm M then advises various Firm M 
clients regarding this same transaction, and is a material advisor. The 
transaction is not a listed transaction. Firm N, a law firm that is not 
associated with Firm J and has not provided advice with respect to the 
same transaction to Firm M, has provided advice to its own clients 
regarding other transactions subject to Sec.  1.6011-4(b)(5) of this 
chapter, but not the particular transaction that was the subject of Firm 
J's advice to Firm M. The IRS hand delivers a list request to Firm M, 
the subject of which is the transaction regarding which Firm J provided 
advice to Firm M. Before the expiration of the 20-business-day period, 
Firm M seeks advice from Firm J and Firm N about the propriety of 
withholding certain documents related to the transaction. Because Firm J 
provided advice with respect to the particular transaction that is the 
subject of the list request, Firm J is not an independent tax 
professional under paragraph (g)(5)(ii) of this section. Although Firm N 
has provided advice on a transaction that is considered a reportable 
transaction under Sec.  1.6011-4(b)(5) of this chapter, Firm N is 
considered to be an independent tax professional under paragraph 
(g)(5)(ii) of this section because Firm N did not provide material 
assistance with respect to the particular transaction that is the 
subject of the list request.

    (h) Reasonable cause--special considerations--(1) Material advisor 
no longer in existence. If a material advisor has dissolved, been 
liquidated, or otherwise is no longer in existence, the person required 
by section 6112 to maintain the list (the ``responsible person'') is 
subject to the penalty for failing to make the list available. In 
considering whether a responsible person or successor in interest has 
reasonable cause for any failure to timely make the list available to 
the IRS, the IRS will consider all of the facts and circumstances, 
including those facts and circumstances relating to the dissolution, 
liquidation, and winding up of the original material advisor's business 
and any efforts the original material advisor made to comply with the 
section 6112 requirements before the dissolution or liquidation. When 
appropriate or applicable, due diligence, if any, performed by a 
responsible person or successor in interest will be considered, and due 
consideration will be given for acts taken by that person to minimize 
the potential for violating the section 6112 requirements.

[[Page 594]]

    (2) Review by IRS. Whether reasonable cause exists for a period of 
time will be determined based on all the relevant facts and 
circumstances, including facts and circumstances arising after the 
request for the list. If a material advisor establishes that, in its 
efforts to comply with the provisions of section 6112 and its 
corresponding regulations, it acted in good faith, as defined in 
paragraph (g)(2) of this section, the material advisor will be deemed to 
have reasonable cause for the periods of time the IRS takes to review a 
furnished list for compliance with the section 6112 requirements and to 
inform the material advisor of any identified failures in the list. If 
the material advisor does not establish that it acted in good faith the 
IRS will not consider the time it takes to review the list or inform the 
material advisor of identified failures as a factor in determining 
whether the material advisor has reasonable cause for that period.
    (3) Examples. The following examples illustrate paragraph (h)(2) of 
this section.

    Example 1. On February 2, 2017, the IRS hand delivers a list request 
to Firm O, a material advisor. On March 3, 2017, the 20th business day 
(due to the Presidents' Day holiday) after the list request is delivered 
to Firm O, Firm O sends a list to the IRS that was contemporaneously 
prepared after Firm O issued advice with respect to the reportable 
transaction and continuously maintained in accordance with the 
requirements of section 6112 and the related regulations. Before sending 
the list, a supervisor at Firm O carefully reviewed the list to verify 
that it was comprehensive and accurate. The IRS completes its review on 
March 23, 2017, and determines that the list is not complete because 
Firm O furnished a draft copy of the tax opinion, rather than the final 
document, which Firm O had mistakenly misfiled. After Firm O is notified 
of the missing information, Firm O immediately furnishes a complete copy 
of the final version of the tax opinion. Firm O made a good-faith effort 
to comply with the section 6112 requirements, including its efforts to 
ensure that the list that was furnished to the IRS was accurate and 
complete. Firm O has reasonable cause for the entire period between the 
expiration of the 20-business-day period following the list request and 
the date it furnished the complete list to the IRS.
    Example 2. On February 2, 2017, the IRS hand delivers a list request 
to Firm P, a material advisor. Firm P's involvement in the reportable 
transaction included implementing the transaction on behalf of some but 
not all of Firm P's clients. On March 3, 2017, the 20th business day 
(due to the Presidents' Day holiday) after the list request is delivered 
to Firm P, Firm P sends the list to the IRS. The IRS completes its 
review on March 23, 2017. The IRS believes the client list is incomplete 
because it does not contain information about certain individuals who 
were identified through other investigative means as clients of Firm P 
who may have engaged in the transaction. On March 27, 2017, in response 
to a follow-up inquiry by the IRS, Firm P establishes that it is not a 
material advisor with respect to these taxpayers. Therefore, the March 
3, 2017 list was complete and accurate when first furnished. Under these 
circumstances, Firm P has timely furnished the list as required by 
section 6112. Because Firm P complied with the requirements of section 
6112 no penalty applies, and Firm P does not need to establish 
reasonable cause for the period from March 4, 2017, through March 27, 
2017, when the IRS was reviewing the list.
    Example 3. On February 2, 2017, the IRS hand delivers a list request 
to Firm Q, a material advisor. On March 3, 2017, the 20th business day 
(due to the Presidents' Day holiday) after the list request is delivered 
to Firm Q, Firm Q sends the list to the IRS. Firm Q had not maintained a 
list contemporaneously after issuing the advice with respect to the 
reportable transaction, and created the list during the 20 business days 
before providing the list to the IRS. To meet the 20-business-day 
deadline, a supervisor did not review the final list before sending it 
to the IRS. The IRS completes its review on March 23, 2017, and 
determines that the list is not complete because it does not include 15 
persons for whom Firm Q acted as a material advisor with respect to the 
reportable transaction. Firm Q furnishes the additional information on 
March 27, 2017. Because Firm Q is not able to show that it made diligent 
efforts to maintain the materials constituting the list in a readily 
accessible form and that it made a reasonable effort to ensure that the 
list that was furnished to the IRS was accurate and complete, Firm Q 
cannot establish that it exhibited a good-faith effort to comply with 
the section 6112 requirements. Firm Q does not have reasonable cause for 
its failure to furnish the complete list from March 4, 2017, through 
March 26, 2017.
    Example 4. Within the 20-business-day period following a list 
request, Firm R sends four boxes of documents comprising the required 
list to the IRS using a commercial delivery service. The IRS receives 
only three of the boxes because box 4 was erroneously self-addressed 
using Firm R's office address. Box 4 arrives at Firm R's office on 
January 6, 2017, the 2nd calendar day after the 20th business day after 
the list request was made.

[[Page 595]]

Firm R immediately recognizes its clerical error, promptly contacts the 
IRS, and resends the original and unopened box 4, properly addressed, to 
the IRS together with documentation supporting the error. The IRS 
receives box 4 on January 9, 2017. Under these circumstances, Firm R has 
reasonable cause for the late delivery of box 4 because it made a good-
faith attempt to timely comply with the list request and immediately 
corrected an inadvertent error upon its discovery. As a result, no 
penalty will be imposed based on the delay in providing box 4. If, after 
inspection, the IRS determines that, even with the contents of box 4, 
the list is incomplete or defective, Firm R must establish reasonable 
cause for the incomplete nature of the list or the defect to avoid 
imposition of a penalty for the period beginning January 5, 2017, until 
but not including the day that Firm R furnishes the list to the IRS.
    Example 5. (i) Firm S is a large law firm that is a material 
advisor. Firm S conducts annual sessions to educate its professionals 
about reportable transactions and the firm's obligations related to 
those reportable transactions. Firm S instructs its professionals to 
provide information on tax engagements that involve reportable 
transactions and to provide the documents required to be maintained 
under section 6112 to Firm S's compliance officer for list maintenance 
purposes. Firm S's policy provides that, for each engagement involving a 
reportable transaction, one firm professional will send an email to the 
firm's compliance officer about the engagement and then direct a 
subordinate to send to the firm's compliance officer the documents 
required to be maintained.
    (ii) Firm S receives a request from the IRS for a section 6112 list. 
In compiling its list to turn over to the IRS during the 20-business-day 
period, Firm S asks all professionals to ensure that they have reported 
all engagements involving a reportable transaction to the firm's 
compliance officer. Before submission to the IRS, a Firm S supervisor 
reviews the list to ensure completeness. Firm S has no reason to know of 
any deficiencies, and in compiling its list, Firm S discovers no 
deficiencies.
    (iii) Upon review of the list, the IRS determines that the 
information furnished by Firm S appears to be accurate, but the IRS 
believes that some of the information is incomplete because it does not 
contain information about an individual who may have engaged in the 
transaction and who was identified through other investigative means as 
Firm S's client. In response to a follow-up inquiry by the IRS, Firm S 
immediately reviews its files and discovers that a former Firm S 
professional, who is no longer employed by Firm S, provided material 
advice to the individual with respect to carrying out a reportable 
transaction, but did not send an email to the firm's compliance officer 
about the transaction or direct a subordinate to send the documents 
required to be maintained to the firm's compliance officer. Firm S 
immediately furnishes the missing information and documents related to 
the identified omission to the IRS.
    (iv) Firm S establishes that the professional in question ordinarily 
complied with Firm S's list maintenance procedures and that Firm S had 
no reason to know of this one omission or to suspect that the 
professional had failed to report any reportable transactions to the 
firm's compliance officer in accordance with the firm's policies. Firm S 
also immediately undertakes a thorough search of its electronic and 
paper files to locate any additional reportable transactions relating to 
the professional in question that may have been omitted from the list. 
Under these circumstances, Firm S has demonstrated that it has acted in 
good faith in its efforts to comply with section 6112 and is deemed to 
have reasonable cause for the period of time the IRS took to review the 
furnished list and to inform the material advisor of the identified 
failure in the list. See paragraph (h)(2) of this section. The 
reasonable cause exception, however, will only be available to Firm S 
with respect to the omission identified by the IRS for the period of 
time that a person who exercises ordinary business care would need to 
obtain the information and documents related to the identified omission. 
See paragraph (g)(3) of this section. With respect to any other 
omissions related to the same professional and not identified by the 
IRS, the reasonable cause exception will only be available to Firm S for 
the period of time that a person who exercises ordinary business care 
would need to ascertain whether any other reportable transactions were 
omitted from the list and to obtain the information and documents 
related to any such omissions. See paragraph (g)(3) of this section.

    (i) Effective/applicability date. This section applies to all 
requests for lists required to be maintained under section 6112, 
including lists that persons were required to maintain under section 
6112(a) as in effect before October 22, 2004, made on or after April 28, 
2016.

[T.D. 9764, 81 FR 25334, Apr. 28, 2016]



Sec.  301.6708-1T  Failure to maintain list of investors 
in potentially abusive tax shelters (temporary).

    The following questions and answers issued under section 6708 of the 
Internal Revenue Code of 1954, as added by section 142 of the Tax Reform 
Act of 1984 (Pub. L. 98-369; 98 Stat. 683), relate to the penalty for 
failure to maintain a

[[Page 596]]

list of investors in potentially abusive tax shelters.
    Q-1: What penalties are provided with respect to the failure 
properly to maintain a list of persons who acquire interests in 
potentially abusive tax shelters?
    A-1: Any organizer (as defined in A-5 of Sec.  301.6112-1T) of a tax 
shelter (as defined in A-3 of Sec.  301.6112-1T) or seller (as defined 
in A-6 of Sec.  301.6112-1T) of interests in a tax shelter who fails to 
meet any requirement imposed by section 6112 regarding the requirement 
to maintain a list of persons who have acquired interests in a tax 
shelter shall pay a penalty of $50 for each investor with respect to 
whom there is such a failure, unless it is shown that the failure is due 
to reasonable cause and not due to willful neglect. For example, if an 
organizer who is required to maintain a list identifying each of 100 
persons who acquired interests in a tax shelter fails to maintain the 
list, the organizer will be liable for a penalty of $5,000 ($50 x 100 
persons), unless the organizer can show the failure was due to 
reasonable cause and not due to willful neglect. As another example, if 
a seller is required to maintain a list identifying each of 100 persons 
who acquired interests in a tax shelter from the seller and fails 
properly to maintain such list by omitting the TIN of each person, the 
seller will be liable for a penalty of $5,000 ($50 x 100 persons), 
unless the seller can show the failure was due to reasonable cause and 
not due to willful neglect.
    Q-2: If an organizer or seller properly maintains a list, but fails 
to make the list available to the Internal Revenue Service upon request, 
will the organizer or seller be subject to a penalty?
    A-2: Yes. A penalty applies if an organizer or seller fails to meet 
any requirement imposed by section 6112, including the requirement, upon 
request, to make the list available to the Internal Revenue Service as 
soon as practicable, but in any event within 10 calendar days. (See A-21 
of Sec.  301.6112-1T). The amount of the penalty is $50 for each person 
required to be on the list at the time of the request by the Internal 
Revenue Service. Assume, for example, that an organizer of a tax shelter 
properly maintains a list of 200 persons who have acquired interests in 
a tax shelter and that the Internal Revenue Service requests the 
organizer to provide the list. If the organizer fails to provide the 
list to the Internal Revenue Service as soon as practicable (as required 
by A-21 of Sec.  301.6112-1T), or in a form that enables the Internal 
Revenue Service to obtain the required information without undue delay 
or difficulty (as required by A-16 of Sec.  301.6112-1T), the organizer 
will be liable for a penalty of $10,000 ($50 x 200 persons), unless the 
organizer can show that the failure to provide the list was due to 
reasonable cause and not to willful neglect.
    Q-3: If an organizer or seller is required to maintain lists for 
more than one tax shelter in which the same person has acquired 
interests, how does the penalty apply if the organizer or seller fails 
to identify the person on each of the lists?
    A-3: A separate $50 penalty applies with respect to the list for 
each tax shelter on which the person who acquired interests is not 
identified.
    Q-4: Is there a limitation on the amount of the penalty imposed on a 
seller or organizer required to maintain a list of persons who have 
acquired interests in a tax shelter?
    A-4: Yes. The maximum penalty that may be imposed on a person for 
any calendar year may not exceed $50,000.
    Q-5: How does the calendar year limitation apply?
    A-5: A separate $50,000 limitation applies to each calendar year in 
which a failure occurs, and to each tax shelter for which a list is 
required to be maintained. See A-6 of this section for special rules for 
determining how the $50,000 limitation applies to a designated person 
who fails properly to maintain a list of investors.

    Example 1. Assume that A, an organizer of a tax shelter, fails to 
maintain and to provide to the Internal Revenue Service a list of 900 
persons who acquired interests in the tax shelter in 1986. In addition, 
assume that A again fails to maintain and to provide the list of 900 
investors upon request in 1987. A is subject to a penalty of $45,000 
(900 persons x $50) for each calendar year in which there is a failure 
to comply with the requirements of section 6112. Thus, A is subject to 
$45,000 in penalties for the failures to maintain and to

[[Page 597]]

provide the list in 1986, and $45,000 in penalties for the failures to 
maintain and to provide the list in 1987, unless A can show reasonable 
cause for the failures.
    Example 2. Assume that B, an organizer of Tax Shelter I, fails to 
provide a list of 1,500 persons who acquired interests in the tax 
shelter to the Internal Revenue Service upon request in 1987. Assume 
also that B, an organizer of Tax Shelter II, fails to provide a list of 
2,000 persons who acquired interests in Tax Shelter II to the Internal 
Revenue Service upon request in 1987. Because the $50,000 calendar year 
limitation applies separately with respect to each tax shelter for which 
a list must be maintained, B is subject to a penalty of $50,000 for 
failing to provide the list for Tax Shelter I in 1987 and a $50,000 
penalty for failing to provide the list for Tax Shelter II in 1987.

    Q-6: How does the penalty apply to a designated person?
    A-6: Separate penalties, each with its own $50,000 calendar year 
limitation, apply with respect to the portion of the list kept by the 
designated person in that person's capacity as organizer and to each 
portion of the list kept by the designated person in that person's 
capacity as the designated person with respect to each organizer and 
seller who signed the agreement under A-12 of Sec.  301.6112-1T and for 
whom the designated person is responsible for complying with the 
requirements of section 6112.

    Example. Assume that X, an organizer and seller, sells interests in 
a tax shelter directly to 750 investors in 1985. In addition, assume 
that A, an agent of X, negotiates for X sales of interests in the tax 
shelter to an additional 500 persons in 1985. If no agreement to 
designate X is made pursuant to A-11 of Sec.  301.6112-1T, X would be 
required to maintain a list of the 1,250 investors who acquired 
interests in the tax shelter (see paragraph (a) of A-8 of Sec.  
301.6112-1T) and A would be required to maintain a list of the 500 
persons who acquired interests through A (see A-10 of Sec.  301.6112-
1T). If, therefore, neither X nor A complied with the requirements of 
section 6112 in 1985, X would be liable for $50,000 in penalties ($50 x 
1,250 investors, subject to the $50,000 maximum) and A would be liable 
for $25,000 in penalties $50 x 500 investors). Assume, however, that X 
and A enter into a written agreement to designate X to maintain the list 
for the tax shelter. Pursuant to that agreement, A submits to X all of 
the required information regarding the sales to the 500 persons 
otherwise required to be maintained on A's list and provides the notice 
required by A-13 of Sec.  301.6112-1T to each person. In 1986, X fails 
to provide any list of investors to the Internal Revenue Service upon 
request. For calendar year 1986, X is liable for penalties of $50,000 in 
X's capacity as an organizer ($50 x 1,250 persons, subject to the 
$50,000 maximum). In addition, X, as the person designated to maintain 
the list for A, is liable for penalties of $25,000 for failing properly 
to maintain A's list of investors ($50 x 500 persons). A would not be 
liable for any penalties.

    Q-7: If an organizer or seller is subject to a penalty with respect 
to a tax shelter under section 6708, may the organizer or seller also be 
liable for other fines or penalties with respect to the tax shelter?
    A-7: Yes. The penalty imposed by section 6708 is in addition to any 
other penalty provided by law. If, for example, an organizer of a tax 
shelter is subject to a penalty under section 6700 for promoting an 
abusive tax shelter, the organizer also would be liable for any 
applicable penalties for failing properly to maintain a list for the tax 
shelter. Similarly, if an organizer or seller fails to furnish a list 
upon request by the Internal Revenue Service, the organizer or seller 
may be subject both to the fine under section 7203 for the willful 
failure to supply information, and to the penalty for failing properly 
to maintain a list for the tax shelter.
    Q-8: When is the penalty under section 6708 effective?
    A-8: The penalty under section 6708 applies with respect to any 
interest in a tax shelter which is required to be included on a list 
under section 6112. See A-22 of Sec.  301.6112-1T.

(Secs. 6112 and 7805, Internal Revenue Code of 1954 (98 Stat. 681; 68A 
Stat. 917; 26 U.S.C. 6112 and 7805))

[T.D. 7969, 49 FR 34204, Aug. 29, 1984]



Sec.  301.6712-1  Failure to disclose treaty-based return positions.

    (a) Penalty imposed. A taxpayer who fails in a material way to 
disclose one or more positions taken for a taxable year, as required by 
section 6114 and the regulations thereunder, is subject to a separate 
penalty for each failure to disclose a position taken with respect to 
each separate payment or separate income item in the amount of--
    (1) For a corporation taxable as such under the Code $10,000; or
    (2) For all other taxpayers, $1,000.

[[Page 598]]


The penalty imposed by this section may be imposed more than once for a 
single taxable year if a taxpayer has failed to disclose one or more 
positions taken with respect to more than one separate payment or 
separate income item and may be imposed in addition to any other penalty 
imposed by law. For this purpose, separate payments or income items of 
the same type (e.g., interest payments) received from the same ultimate 
payor (e.g., the obligor on the note) will be treated as separate 
payments or income items (and not aggregated). However, for purposes of 
determining the number of separate penalties to be imposed under this 
section, the District Director shall have the discretion to aggregate 
separate payments or income items, in whole or in part, in accordance 
with the rules for aggregation of such items for purposes of reporting, 
as described in Sec.  301.6114-1(d).
    (b) Penalty waived. Pursuant to the authority contained in section 
6712(b) of the Code, the penalty imposed by paragraph (a) of this 
section may be waived, in whole or in part, if it is established to the 
satisfaction of the Assistant Commissioner (International), the District 
Director or the Director of the Internal Revenue Service Center that the 
taxpayer's failure to disclose the required information was not due to 
willful neglect. An affirmative showing of lack of willful neglect must 
be made in the form of a written statement that sets forth all the facts 
alleged to show lack of willful neglect and contains a declaration by 
such person that the statement is made under the penalties of perjury.
    (c) Manner of payment. The penalty set forth in paragraph (a) of 
this section shall be paid in the same manner as tax upon the issuance 
of a notice and demand thereof.
    (d) Effective date. This section is effective for taxable years of 
the taxpayer for which the due date for filing returns (without 
extension) occurs after December 31, 1988.

[T.D. 8292, 55 FR 9441, Mar. 14, 1990]



Sec.  301.6721-0  Table of Contents.

    In order to facilitate the use of Sec. Sec.  301.6721-1 through 
6724-1, this Sec.  301.6721-0 lists the paragraph headings contained in 
these sections.

      Sec.  301.6721-1 Failure to file correct information returns.

    (a) Imposition of penalty.
    (1) General rule.
    (2) Failures subject to the penalty.
    (b) Reduction in the penalty when a correction is made within 
specified periods.
    (1) Correction within 30 days.
    (2) Correction after 30 days but on or before August 1.
    (3) Required filing date defined.
    (4) Penalty amount for return with multiple failures.
    (5) Examples.
    (6) Applications to returns not due on February 28 or March 15.
    (c) Exception for inconsequential errors or omissions.
    (1) In General.
    (2) Errors or omissions that are never inconsequential.
    (3) Examples.
    (d) Exception for a de minimis number of failures.
    (1) Requirements.
    (2) Calculation of the de minimis exception.
    (3) Examples.
    (4) Nonapplication to returns not due on February 28 or March 15.
    (e) Lower limitations on the $250,000 maximum penalty amount with 
respect to persons with gross receipts of not more than $5,000,000.
    (1) In general.
    (2) Gross receipts test.
    (f) Higher penalty for intentional disregard of requirement to file 
timely correct information returns.
    (1) Application of section 6721(e).
    (2) Meaning of ``Intentional disregard.''
    (3) Facts and circumstances considered.
    (4) Amount of the penalty.
    (5) Computation of the penalty; aggregate dollar amount of the items 
required to be reported correctly.
    (6) Examples.
    (g) Definitions.
    (1) Information return.
    (2) Statements.
    (3) Returns.
    (4) Other items.
    (5) Payee.
    (6) Filer.

      Sec.  301.6722-1 Failure to furnish correct payee statements.

    (a) Imposition of penalty.
    (1) General rule.
    (2) Failures subject to the penalty.
    (b) Exception for inconsequential errors or omissions.
    (1) In general.

[[Page 599]]

    (2) Errors or omissions that are never inconsequential.
    (3) Examples.
    (c) Higher penalty for intentional disregard of requirement to 
furnish timely correct payee statements.
    (1) Application of section 6722(c).
    (2) Amount of the penalty.
    (3) Computation of the penalty; aggregate dollar amount of items 
required to be shown correctly.
    (d) Definitions.
    (1) Payee.
    (2) Payee statement.
    (3) Other items.

  Sec.  301.6723-1 Failure to comply with other information reporting 
                              requirements.

    (a) Imposition of penalty.
    (1) General rule.
    (2) Failures subject to the penalty.
    (3) Exception for inconsequential errors or omissions.
    (4) Specified information reporting requirement defined.
    (b) Examples.

                   Sec.  301.6724-1 Reasonable cause.

    (a) Waiver of the penalty.
    (1) General rule.
    (2) Reasonable cause defined.
    (b) Significant mitigating factors.
    (c) Events beyond the filer's control.
    (1) In general.
    (2) Unavailability of the relevant business records.
    (3) Undue economic hardship relating to filing on magnetic media.
    (4) Actions of the Internal Revenue Service.
    (5) Actions of agent--imputed reasonable cause.
    (6) Actions of the payee or any other person.
    (d) Responsible manner.
    (1) In general.
    (2) Special rule for filers seeking a waiver pursuant to paragraph 
(c)(6) of this section.
    (e) Acting in a responsible manner--special rules for missing TINs.
    (1) In general.
    (i) Initial solicitation.
    (ii) First annual solicitation.
    (iii) Second annual solicitation.
    (iv) Additional requirements.
    (v) Failures to which a solicitation relates.
    (vi) Exceptions and limitations.
    (2) Manner of making annual solicitations--by mail or telephone.
    (i) By mail.
    (ii) By telephone.
    (f) Acting in a responsible manner--special rules for incorrect 
TINs.
    (1) In general.
    (i) Initial solicitation.
    (ii) First annual solicitation.
    (iii) Second annual solicitation.
    (iv) Additional requirements.
    (2) Manner of making annual solicitation if notified pursuant to 
section 3406(a)(1)(B) and the regulations thereunder.
    (3) Manner of making annual solicitation if notified pursuant to 
section 6721.
    (4) Failures to which a solicitation relates.
    (5) Exceptions and limitations.
    (g) Due diligence safe harbor.
    (1) In general.
    (2) Special rules relating to TINs.
    (3) Effective dates.
    (h) Transitional rules for information returns required to be filed 
(or payee statements required to be furnished) after December 31, 1989 
(without regard to extensions), and on or before April 22, 1991.
    (1) In general.
    (2) Special rule on TINs.
    (i) [Reserved]
    (j) Failures to which this section relates.
    (k) Examples.
    (l) [Reserved]
    (m) Procedure for seeking a waiver.
    (n) Manner of payment.

[T.D. 8386, 56 FR 67182, Dec. 30, 1991, as amended by T.D. 8734, 62 FR 
53496, Oct. 14, 1997]



Sec.  301.6721-1  Failure to file correct information returns.

    (a) Imposition of penalty--(1) General rule. A penalty of $50 is 
imposed for each information return (as defined in section 6724(d)(1) 
and paragraph (g) of this section) with respect to which a failure (as 
defined in section 6721(a)(2) and paragraph (a)(2) of this section) 
occurs. No more than one penalty will be imposed under this paragraph 
(a)(1) with respect to a single information return even though there may 
be more than one failure with respect to such return. The total amount 
imposed on any person for all failures during any calendar year with 
respect to all information returns shall not exceed $250,000. See 
paragraph (b) of this section for a reduction in the penalty when the 
failures are corrected within specified periods. See paragraph (c) of 
this section for an exception to the penalty for inconsequential errors 
or omissions. See paragraph (d) of this section for an exception to the 
penalty for a de minimis number of failures. See paragraph (e) of this 
section for lower limitations to the $250,000 maximum penalty. See 
paragraph (f) of this section for higher penalties when a failure is due 
to intentional disregard of the

[[Page 600]]

requirement to file timely correct information returns. See paragraph 
(a)(1) of Sec.  301.6724-1 for waiver of the penalty for a failure that 
is due to reasonable cause.
    (2) Failures subject to the penalty. The failures to which section 
6721(a) and paragraph (a)(1) of this section apply are--
    (i) A failure to file an information return on or before the 
required filing date (``failure to file timely''), and
    (ii) A failure to include all of the information required to be 
shown on the return or the inclusion of incorrect information (``failure 
to include correct information''). A failure to file timely includes a 
failure to file in the required manner, for example, on magnetic media 
or in other machine-readable form as provided under section 6011(e). 
However, no penalty is imposed under paragraph (a)(1) of this section 
solely by reason of any failure to comply with the requirements of 
section 6011(e)(2), except to the extent that such a failure occurs with 
respect to more than 250 information returns (the 250-threshold 
requirement) or in the case of a partnership with more than 100 
partners, more than 100 information returns (the 100-threshold 
requirement) (collectively, the threshold requirements). Each Schedule 
K-1 considered in applying the 100-threshold requirement will be treated 
as a separate information return. These threshold requirements apply 
separately to each type of information return required to be filed. 
Further, these threshold requirements apply separately to original and 
corrected returns. Thus, for example, if a filer files 300 returns on 
Form 1099-DIV and later files 70 corrected returns on Form 1099-DIV, the 
corrected returns may be filed either on the prescribed paper form 
(because they fall below the 250-threshold requirement) or on magnetic 
media or other machine-readable form. Filers who are required to file 
information returns on magnetic media and who file such information 
returns electronically are considered to have satisfied the magnetic 
media filing requirement. Except as provided in paragraph (c)(1) of this 
section, a failure to include correct information encompasses a failure 
to include the information required by applicable information reporting 
statutes or by any administrative pronouncements issued thereunder (such 
as regulations, revenue rulings, revenue procedures, or information 
reporting forms and form instructions). A failure to include information 
in the correct format may be either a failure to file timely an 
information return or a failure to include correct information on an 
information return. For example, an error on a magnetic media submission 
to the Internal Revenue Service that prevents processing by the Internal 
Revenue Service may constitute a failure to file timely. However, if 
information is set forth on the wrong field of the magnetic media 
submission, such an error may constitute a failure to file timely or a 
failure to include correct information, depending upon the extent of the 
failure.
    (b) Reduction in the penalty when a correction is made within 
specified periods--(1) Correction within 30 days. The penalty imposed 
under section 6721(a) for a failure to file timely or for a failure to 
include correct information shall be $15 in lieu of $50 if the failure 
is corrected on or before the 30th day after the required filing date 
(``within 30 days''). The total amount imposed on a person for all 
failures during any calendar year that are corrected within 30 days 
shall not exceed $75,000.
    (2) Correction after 30 days but on or before August 1. The penalty 
imposed under section 6721(a) for a failure to file timely or for a 
failure to include correct information shall be $30 in lieu of $50 if 
the failure is corrected after the 30-day period described in paragraph 
(b)(1) of this section but on or before August 1 of the year in which 
the required filing date occurs (``after 30 days but on or before August 
1''). (See paragraph (b)(6) of this section for an exception to the 
provisions of this paragraph (b)(2) for returns that are not due on 
February 28 or March 15.) The total amount imposed on a person for all 
failures during any calendar year corrected after 30 days but on or 
before August 1 shall not exceed $150,000.
    (3) Required filing date defined. The term ``required filing date'' 
means the date prescribed for filing an information return with the 
Internal Revenue

[[Page 601]]

Service (or the Social Security Administration in the case of Forms W-2) 
determined with regard to any extension of time for filing.
    (4) Penalty amount for return with multiple failures. If a return is 
subject to a penalty for more than one failure, and the penalty amounts 
for the failures differ, the higher penalty amount will be imposed.
    (5) Examples. The provisions of paragraphs (a) and (b) (1) through 
(4) of this section may be illustrated by the following examples. These 
examples do not take into account any possible application of the de 
minimis exception under paragraph (d) of this section, the lower small 
business limitations under paragraph (e) of this section, the penalty 
for intentional disregard under paragraph (f) of this section, or the 
reasonable cause waiver under paragraph (a) of Sec.  301.6724-1:

    Example 1. Corporation R fails to file timely 11,000 Forms 1099-MISC 
(relating to miscellaneous income) for the 1990 calendar year. Five 
thousand of these returns are filed with correct information within 30 
days, and 6,000 after 30 days but on or before August 1, 1991. For the 
same year R fails to file timely 400 Forms 1099-INT (relating to 
payments of interest) which R eventually files on September 28, 1991, 
after the period for reduction of the penalty has elapsed. R is subject 
to a penalty of $20,000 for the 400 forms which were not filed by August 
1 ($50 x 400 = $20,000), $150,000 for the 6,000 forms filed after 30 
days ($30 x 6,000 = $180,000, limited to $150,000 under paragraph (b)(2) 
of this section), and $75,000 for the 5,000 forms filed within 30 days 
($15 x 5,000 = $75,000), for a total penalty of $245,000.
    Example 2. Corporation T fails to file timely 6,000 Forms 1099-MISC 
for the 1990 calendar year. T files the 6000 Forms 1099-MISC on 
September 1, 1991. Because T does not correct the failure by August 1, 
1991, T is subject to a penalty of $250,000, the maximum penalty under 
paragraph (a) of this section. Without the limitation of paragraph (a), 
T would be subject to a $300,000 penalty ($50 x 6,000 = $300,000).
    Example 3. Corporation U files timely 300 Forms 1099-MISC on paper 
for the 1990 calendar year with correct information. Under section 
6011(e)(2) a person required to file at least 250 returns during a 
calendar year must file those returns on magnetic media. U does not 
correct its failures to file these returns on magnetic media by August 
1, 1991. It is therefore subject to a penalty for a failure to file 
timely under paragraph (a)(2) of this section. However, pursuant to 
section 6724(c) and paragraph (a)(2) of this section, the penalty for a 
failure to file timely on magnetic media applies only to the extent the 
number of returns exceeds 250. As U was required to file 300 returns on 
magnetic media, U is subject to a penalty of $2,500 for 50 returns ($50 
x 50 = $2,500).
    Example 4. Corporation V files 300 Forms 1099-MISC on paper for the 
1990 calendar year. The forms were filed on March 15, 1991, rather than 
on the required filing date of February 28, 1991. Under section 
6011(e)(2), a person required to file at least 250 returns during a 
calendar year must file those returns on magnetic media. V does not 
correctly file these returns on magnetic media by August 1, 1991. V is 
subject to a penalty of $3,750 for filing 250 of the returns late ($15 x 
250) and $2,500 for failing to file 50 returns on magnetic media ($50 x 
50) for a total penalty of $6,250.

    (6) Application to returns not due on February 28, or March 15. For 
returns that are not due on February 28 or March 15 (for example, Forms 
8300 reporting certain cash payments of $10,000 or more), the penalty is 
$15 if the failure is corrected within 30 days. If the failure is 
corrected after 30 days, the penalty is $50 rather than $30. There is no 
period during which the penalty is reduced to $30 under paragraph (b)(2) 
of this section.
    (c) Exception for inconsequential errors or omissions--(1) In 
general. An inconsequential error or omission is not considered a 
failure to include correct information. For purposes of this paragraph 
(c)(1), the term ``inconsequential error or omission'' means any failure 
that does not prevent or hinder the Internal Revenue Service from 
processing the return, from correlating the information required to be 
shown on the return with the information shown on the payee's tax 
return, or from otherwise putting the return to its intended use. See 
paragraph (g)(5) of this section for the definition of ``payee.''
    (2) Errors or omissions that are never inconsequential. Errors or 
omissions relating to the following are never inconsequential--
    (i) A taxpayer identification number;
    (ii) A surname of a payee (i.e., the person required to be furnished 
a copy of the information set forth on an information return); and
    (iii) Any monetary amounts. The Internal Revenue Service may, by 
administrative pronouncement, specify other

[[Page 602]]

types of errors or omissions that are never inconsequential.
    (3) Examples. The provisions of this paragraph (c) may be 
illustrated by the following examples, which do not take into account 
any possible application of the penalty for intentional disregard under 
paragraph (f) of this section or the reasonable cause waiver under 
paragraph (a) of Sec.  301.6724-1:

    Example 1. A filer files a Form 1099-MISC (relating to miscellaneous 
income) with the Internal Revenue Service. The Form 1099-MISC is 
complete and correct except that the word ``street'' is misspelled in 
the payee's address. The error does not prevent or hinder the Internal 
Revenue Service from processing the return, from correlating the 
information required to be shown on the return with the information 
shown on the payee's tax return, or from otherwise putting the return to 
its intended use. Therefore, no penalty is imposed under paragraph (a) 
of this section.
    Example 2. A filer files a Form 1099-MISC with the Internal Revenue 
Service. The Form 1099-MISC is complete and correct except that the 
payee's first name, William, is misspelled as ``Willaim.'' the error 
does not prevent or hinder the Internal Revenue Service from processing 
the return, from correlating the information required to be shown on the 
return with the information shown on the payee's tax return, or from 
otherwise putting the return to its intended use. See paragraph (c)(2) 
of this section. Therefore, no penalty is imposed under paragraph (a) of 
this section.
    Example 3. A filer files a Form 1099-MISC with the Internal Revenue 
Service. The Form 1099-MISC is complete and correct except that the 
payee's name, ``John Doe,'' is misspelled as ``John Ode.'' Under 
paragraph (c)(2) of this section, supplying an incorrect surname for a 
payee is never considered an inconsequential error. Therefore, a penalty 
is imposed under paragraph (a) of this section.

    (d) Exception for a de minimis number of failures--(1) Requirements. 
The penalty under paragraph (a) of this section is not imposed for a de 
minimis number of failures to include correct information if the filer 
corrects such failures on or before August 1 of the year in which the 
required filing date occurs. (See paragraph (d)(4) of this section for 
special rules relating to returns that are not due on February 28 or 
March 15.)
    (2) Calculation of the de minimis exception. The number of returns 
to which the de minimis exception applies for any calendar year shall 
not exceed the greater of 10 or one-half of one percent of the total 
number of all information returns the filer is required to file during 
the year. If the number of returns on which the filer fails to include 
correct information exceeds the number of returns to which the de 
minimis exception applies, the de minimis exception applies to those 
returns that will afford the filer the greatest reduction in penalty. 
The de minimis exception applies to failures to include correct 
information that exist after the application (if any) of the waiver for 
reasonable cause under section 6724(a) and Sec.  301.6724-1. Returns to 
which the de minimis exception applies are treated as having been 
originally filed with correct information.
    (3) Examples. The provisions of this paragraph (d) may be 
illustrated by the following examples. In each of the examples, the 
failures to file and to include correct information are subject to 
penalty under paragraph (a) of this section. The examples do not take 
into account any possible application of paragraph (f) of this section 
or the reasonable cause waiver under paragraph (a) of Sec.  301.6724-1 
of this section.

    Example 1. Corporation T files timely 10,000 Forms 1099-INT 
(relating to payments of interest) for 1990 by February 28, 1991. The 
10,000 returns are all the information returns that T is required to 
file during the 1991 calendar year. Of the returns filed, 70 contained 
incorrect information. T corrects the failures on July 12, 1991. No 
penalty is imposed for 50 of the failures (i.e., the greater of 10 or 
.005 x 10,000 = 50) even though the total failures, 70, exceed the 
number to which the de minimis exception may apply. The $30 penalty 
under paragraph (b)(2) of this section is imposed, in lieu of $50, for 
the remaining 20 failures, which were corrected after 30 days but on or 
before August 1, resulting in a total penalty of $600 ($30 x 20 = $600).
    Example 2. Corporation U files timely 9,500 Forms 1099-INT for 1990 
by February 28, 1991, the required filing date. Fifty of these returns 
contain incorrect information with respect to which U files correct 
information on August 1, 1991. U also files 500 Forms 1099-INT for 1990 
on August 30, 1991, after the required filing date. The 10,000 returns 
are all the information returns that U is required to file during the 
1991 calendar year. The calculation of the de minimis exception is based 
on the 10,000 returns required to be filed during the 1991 calendar year 
even though 500 of

[[Page 603]]

the returns filed during the year were not filed timely. Therefore, the 
number of failures for which the de minimis exception applies is 50, and 
accordingly no penalty is imposed for the 50 Forms 1099-INT that were 
corrected on August 1, 1991. However, the $50 penalty under paragraph 
(a)(1) of this section is imposed for each failure to file timely, 
resulting in a total penalty of $25,000 ($50 x 500 = $25,000).
    Example 3. Corporation V files timely 9,950 Forms 1099-INT for 1990 
by February 28, 1991. However, V fails to file timely 50 of its Forms 
1099-INT. The 10,000 returns are all the information returns that V is 
required to file during the 1991 calendar year. Upon discovering the 
error, V files the 50 returns within 30 days of February 28, 1991. The 
50 returns are complete and correct except that V fails to include the 
taxpayer identification numbers of the payees on the returns. V files 
corrected returns on August 1, 1991. Absent application of the de 
minimis exception, the penalty imposed for the failure to include 
correct information would be $1,500 ($30 x 50 = $1,500). Because the 
incorrect returns are corrected on August 1, the 50 forms are treated 
under the de minimis exception as originally filed with correct 
information, and therefore no penalty is imposed under paragraph (a) of 
this section for the failure to include correct information. 
Nevertheless, the penalty under paragraph (a) of this section is imposed 
for the failure to file timely the 50 returns because the de minimis 
exception does not apply to the penalty for the failure to file timely. 
Hence, a penalty of $750 ($15 x 50 = $750) is imposed.
    Example 4. Corporation W files timely 100 Forms 1099-DIV and files 
an additional 50 Forms 1099-DIV late, but within 30 days of February 28, 
1991. These are all the information returns that W was required to file 
during the 1991 calendar year. W discovers errors on 10 of the returns 
that were filed timely, and on 5 of the returns that were filed late. W 
corrects all the errors on August 1. The de minimis exception applies to 
10 of the corrected returns. The exception will be allocated to the 10 
returns that were filed timely with incorrect information, because that 
allocation is most favorable to W (i.e., applying the exception to a 
return filed late with incorrect information would save W $15, by 
reducing the penalty on that return from $30 to $15, but applying the 
exception to a return filed timely would save W $30, by reducing the 
penalty on that return from $30 to $0). (See paragraph (b)(4) of this 
section.)

    (4) Nonapplication to returns not due on February 28 or March 15. 
The exception for a de minimis number of failures provided in paragraph 
(d)(1) of this section does not apply to failures with respect to 
returns that are not due on February 28 or March 15 (for example, Forms 
8300 reporting certain cash payments of $10,000 or more). Nevertheless, 
the returns that are not due on February 28 or March 15 are included in 
the total number of all information returns that the filer is required 
to file during a year for purposes of calculating the number of the 
returns subject to the de minimis exception under paragraph (d)(2) of 
this section.
    (e) Lower limitations on the $250,000 maximum penalty amount with 
respect to persons with gross receipts of not more than $5,000,000--(1) 
In general. If a person meets the gross receipts test (as defined in 
paragraph (e)(2) of this section) for any calendar year, the total 
amount of the penalty imposed on such person for all failures described 
in section 6721(a)(2) and paragraph (a)(2) of this section during such 
calendar year shall not exceed $100,000. The total amount of the penalty 
imposed under paragraph (b)(1) of this section for failures corrected 
within 30 days shall not exceed $25,000 for such calendar year. The 
total amount of the penalty imposed under paragraph (b)(2) of this 
section for failures corrected after 30 days but on or before August 1 
shall not exceed $50,000 for such calendar year.
    (2) Gross receipts test. A person meets the gross receipts test for 
any calendar year if the average annual gross receipts for such person 
for the three most recent taxable years ending before such calendar year 
do not exceed $5,000,000. For purposes of determining the amount of 
gross receipts during the three most recent taxable years, the rules of 
section 448(c) (2) and (3) shall apply.
    (f) Higher penalty for intentional disregard of requirement to file 
timely correct information returns--(1) Application of section 6721(e). 
If a failure is due to intentional disregard of the requirement to file 
timely or to include correct information on a return as described in 
paragraph (g) of this section, the amount of the penalty imposed under 
paragraph (a) of this section shall be determined under paragraph (f)(4) 
of this section.
    (2) Meaning of ``intentional disregard.'' A failure is due to 
intentional disregard if it is a knowing or willful--

[[Page 604]]

    (i) Failure to file timely, or
    (ii) Failure to include correct information. Whether a person 
knowingly or willfully fails to file timely or fails to include correct 
information is determined on the basis of all the facts and 
circumstances in the particular case.
    (3) Facts and circumstances considered. The facts and circumstances 
that are considered in determining whether a failure is due to 
intentional disregard include, but are not limited to--
    (i) Whether the failure to file timely or the failure to include 
correct information is part of a pattern of conduct by the person who 
filed the return of repeatedly failing to file timely or repeatedly 
failing to include correct information;
    (ii) Whether correction was promptly made upon discovery of the 
failure;
    (iii) Whether the filer corrects a failure to file or a failure to 
include correct information within 30 days after the date of any written 
request from the Internal Revenue Service to file or to correct; and
    (iv) Whether the amount of the information reporting penalties is 
less than the cost of complying with the requirement to file timely or 
to include correct information on an information return.
    (4) Amount of the penalty. If one or more failures to file timely or 
to include correct information are due to intentional disregard of the 
requirement to file timely or to include correct information, then, with 
respect to each such failure determined under this paragraph (f)--
    (i) Paragraphs (b), (d), and (e) of this section shall not apply;
    (ii) The $250,000 limitation under paragraph (a) of this section 
shall not apply, and the penalty under this paragraph (f) shall not be 
taken into account in applying the $250,000 limitation (or any similar 
limitation under paragraph (b) or (e) of this section) to penalties not 
determined under this paragraph (f);
    (iii) The penalty imposed under paragraph (a) of this section shall 
be $100 or, if greater, the statutory percentage; and
    (iv) The term ``statutory percentage'' means--
    (A) In the case of a return other than a return required under 
section 6045(a), 6041A(b), 6050H, 6050I (for amounts received after 
November 5, 1990), 6050J, 6050K, or 6050L, 10 percent of the aggregate 
dollar amount of the items required to be reported correctly,
    (B) In the case of a return required to be filed by section 6045(a), 
6050K, or 6050L, 5 percent of the aggregate dollar amount of the items 
required to be reported correctly, or
    (C) In the case of a return required to be filed under section 
6050I(a) with respect to amounts received after November 5, 1990, for 
any transaction (or related transactions), the greater of $25,000 or the 
amount of cash (within the meaning of section 6050I(d)) received in such 
transaction to the extent the amount of such cash does not exceed 
$100,000.
    (5) Computation of the penalty; aggregate dollar amount of the items 
required to be reported correctly. The aggregate dollar amount used in 
computing the penalty under this paragraph (f) is the amount that is not 
reported or is reported incorrectly. If the intentional disregard 
relates to a dollar amount, the statutory percentage is applied to the 
difference between the dollar amount reported and the amount required to 
be reported correctly. If the intentional disregard relates to any other 
item on the return, the statutory percentage is applied to the aggregate 
amount of items required to be reported correctly. In determining the 
aggregate amount of items required to be reported correctly, no item 
shall be taken into account more than once. For example, if a filer 
willfully fails to file a Form 1099-INT on which $800 of interest and 
$160 of Federal income tax withheld (i.e., backup withholding) is 
required to be reported, only the $800 amount is taken into account in 
computing the penalty.
    (6) Examples. The provisions of this paragraph (f) may be 
illustrated by the following examples:

    Example 1. On December 1, 1990, Automobile dealer P receives $55,000 
from an individual for the purchase of an automobile in a transaction 
subject to reporting under section 6050I. The individual presents 
documents to P that identify him as ``John Doe.'' However, P completes 
the Form 8300 (relating to cash received in a trade or business)

[[Page 605]]

and reflects the name of a cartoon character as the payor. Because P 
knew at the time of filing the Form 8300 that the payor's name was not 
the name of the cartoon character, he willfully failed to include 
correct information as described under paragraph (f)(2) of this section. 
Therefore, the penalty under paragraph (f)(4) of this section is imposed 
for the intentional disregard of the requirement to include correct 
information. The amount used in computing the penalty under paragraph 
(f)(5) of this section is $55,000 (i.e., the amount required to be 
reported on the return with respect to which the payee is not correctly 
identified). The amount of the penalty determined under paragraph 
(f)(4)(ii)(C) of this section is $55,000 (i.e., the greater of $25,000 
or the amount of cash received in the transaction up to $100,000).
    Example 2. On December 1, 1990, Individual B contacts his agent, F, 
to act as his intermediary in the purchase of an automobile. B gives F 
$20,000 and requests F to purchase the automobile in F's name, which F 
does. F prepares the Form 8300 as required under section 6050I, but in 
the area designated for the name of the payor, F writes 
``confidential.'' Because F knew at the time the return was filed that 
it contained incomplete information, the penalty under paragraph (f)(4) 
of this section is imposed for the intentional disregard of the 
requirement to include correct information. The amount used in computing 
the penalty under paragraph (f)(5) of this section is $20,000 (i.e., the 
amount required to be reported on the return with respect to which the 
payee is not correctly identified). The amount of the penalty determined 
under paragraph (f)(4)(ii)(C) of this section is $25,000 (i.e., the 
greater of $25,000 or the amount of cash received in the transaction up 
to $100,000).
    Example 3. Corporation M deliberately does not include $5,000 of 
dividends on a Form 1099-DIV (relating to payments of dividends) on 
which a total of $200,000 (including the $5,000 dividends) is required 
to be reported under section 6042(a). Because the failure was 
deliberate, Corporation M's failure is due to intentional disregard of 
the requirement to include correct information. Accordingly, the amount 
of the penalty imposed under paragraph (a) is determined under paragraph 
(f)(4) of this section. Because the Form 1099-DIV is required to be 
filed under section 6042(a), under paragraph (f)(4)(ii)(A) the amount of 
the penalty with respect to such failure is 10 percent of the aggregate 
dollar amount of the items that were required to be but that were not 
reported correctly. Under paragraph (f)(5) of this section, $5,000 is 
the difference between the dollar amount reported and the amount 
required to be reported correctly. Therefore, the amount of the penalty 
is $500 ($5,000 x .10 = $500).
    Example 4. Form 8027 requires certain large food and beverage 
establishments to report certain information with respect to tips. The 
form requires (among other things) that the establishment report its 
gross receipts from food and beverage operations. Establishment A, in 
intentional disregard of the information reporting requirement, reported 
gross receipts of $1,000,000, when the correct amount was $1,500,000. 
The significance of the gross receipts reporting requirement is that 
section 6053(c)(3)(A) requires an establishment to allocate as tips 
among its employees the excess of 8 percent of its gross receipts over 
the aggregate amount reported by employees to the establishment as tips 
under section 6053(a). A's misstatement of its gross receipts caused A 
to show $80,000 on the Form 8027 as 8 percent of its gross receipts, 
rather than the correct amount of $120,000. A correctly reported the 
amount of tips reported to it by employees under section 6053(a) as 
$80,000. Thus A reported the excess of 8 percent of its gross receipts 
over tips reported to it as zero, rather than as the correct amount of 
$40,000. The requirement of reporting gross receipts is considered 
merely a step in the computation of the excess of 8 percent of gross 
receipts over tips reported to A under section 6053(a), so that the 
penalty for intentional disregard will be $4,000 (i.e., 10 percent of 
the difference between the $40,000 required to be reported as the excess 
of 8 percent of gross receipts over tips reported under section 6053(a), 
and the zero amount actually reported).

    (g) Definitions--(1) Information return. For purposes of this 
section the term ``information return'' means any statement described in 
paragraph (g)(2) of this section, any return described in paragraph 
(g)(3) of this section, and any other items described in paragraph 
(g)(4) of this section.
    (2) Statements. The statements subject to this section are the 
statements required by--
    (i) Section 6041(a) or (b) (relating to certain information at 
source, generally reported on Form 1099-MISC, ``Miscellaneous Income''; 
Form W-2, ``Wage and Tax Statement''; Form W-2G, ``Certain Gambling 
Winnings''; and Form 1099-INT, ``Interest Income'');
    (ii) Section 6042(a)(1) (relating to payments of dividends, 
generally reported on Form 1099-DIV, ``Dividends and Distributions'');
    (iii) Section 6044(a)(1) (relating to payments of patronage 
dividends, generally reported on Form 1099-PATR, ``Taxable Distributions 
Received From Cooperatives'');
    (iv) Section 6049(a) (relating to payments of interest, generally 
reported

[[Page 606]]

on Form 1099-INT or Form 1099-OID, ``Original Issue Discount'');
    (v) Section 6050A(a) (relating to reporting requirements of certain 
fishing boat operators, generally reported on Form 1099-MISC);
    (vi) Section 6050N(a) (relating to payments of royalties, generally 
reported on Form 1099-MISC);
    (vii) Section 6051(d) (relating to information returns with respect 
to income tax withheld, generally reported on Form W-2);
    (viii) Section 6050R (relating to returns relating to certain 
purchases of fish, generally reported on Form 1099-MISC);
    (ix) Section 110(d) (relating to qualified lessee construction 
allowances for short-term leases, generally reported by attaching a 
statement to an income tax return);
    (x) Section 408(i) (relating to reports with respect to individual 
retirement accounts or annuities on Form 1099-R, ``Distributions From 
Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance 
Contracts, etc.''); or
    (xi) Section 6047(d) (relating to reports by employers, plan 
administrators, etc., on Form 1099-R).
    (3) Returns. The returns subject to this section are the returns 
required by--
    (i) Section 6041A(a) or (b) (relating to returns of direct sellers, 
generally reported on Form 1099-MISC);
    (ii) Section 6043A(a) (relating to returns relating to taxable 
mergers and acquisitions);
    (iii) Section 6045(a) or (d) (relating to returns of brokers, 
generally reported on Form 1099-B, ``Proceeds From Broker and Barter 
Exchange Transactions,'' for broker transactions; Form 1099-S, 
``Proceeds From Real Estate Transactions,'' for gross proceeds from the 
sale or exchange of real estate; and Form 1099-MISC for certain 
substitute payments and payments to attorneys);
    (iv) Section 6045B(a) (relating to returns relating to actions 
affecting basis of specified securities);
    (v) Section 6050H(a) or (h)(1) (relating to mortgage interest 
received in trade or business from individuals, generally reported on 
Form 1098, ``Mortgage Interest Statement'');
    (vi) Section 6050I(a) or (g)(1) (relating to cash received in trade 
or business, etc., generally reported on Form 8300, ``Report of Cash 
Payments Over $10,000 Received In a Trade or Business'');
    (vii) Section 6050J(a) (relating to foreclosures and abandonments of 
security, generally reported on Form 1099-A, ``Acquisition or 
Abandonment of Secured Property'');
    (viii) Section 6050K(a) (relating to exchanges of certain 
partnership interests, generally reported on Form 8308, ``Report of a 
Sale or Exchange of Certain Partnership Interests'');
    (ix) Section 6050L(a) (relating to returns relating to certain 
dispositions of donated property, generally reported on Form 8282, 
``Donee Information Return'');
    (x) Section 6050P (relating to returns relating to the cancellation 
of indebtedness by certain financial entities, generally reported on 
Form 1099-C, ``Cancellation of Debt'');
    (xi) Section 6050Q (relating to certain long-term care benefits, 
generally reported on Form 1099-LTC, ``Long-Term Care and Accelerated 
Death Benefits'');
    (xii) Section 6050S (relating to returns relating to payments for 
qualified tuition and related expenses, generally reported on Form 1098-
E, ``Student Loan Interest Statement,'' or Form 1098-T, ``Tuition 
Statement'');
    (xiii) Section 6050T (relating to returns relating to credit for 
health insurance costs of eligible individuals, generally reported on 
Form 1099-H, ``Health Coverage Tax Credit (HCTC) Advance Payments'');
    (xiv) Section 6052(a) (relating to reporting payment of wages in the 
form of group-life insurance, generally reported on Form W-2);
    (xv) Section 6050V (relating to returns relating to applicable 
insurance contracts in which certain exempt organizations hold 
interests, generally reported on Form 8921, ``Applicable Insurance 
Contract Information Return'');
    (xvi) Section 6053(c)(1) (relating to reporting with respect to 
certain tips, generally reported on Form 8027, ``Employer's Annual 
Information Return of Tip Income and Allocated Tips'');

[[Page 607]]

    (xvii) Section 1060(b) (relating to reporting requirements of 
transferors and transferees in certain asset acquisitions, generally 
reported on Form 8594, ``Asset Acquisition Statement''), or section 
1060(e) (relating to information required in the case of certain 
transfers of interests in entities (effective for acquisitions after 
October 9, 1990, except any acquisition pursuant to a written binding 
contract in effect on October 9, 1990, and at all times thereafter 
before such acquisition));
    (xviii) Section 4101(d) (relating to information reporting with 
respect to fuel oils (effective for information returns required to be 
filed after November 30, 1990));
    (xix) Section 338(h)(10)(C) (relating to information required to be 
furnished to the Secretary in case of elective recognition of gain or 
loss (effective for acquisitions after October 9, 1990, except any 
acquisition pursuant to a written binding contract in effect on October 
9, 1990, and at all times thereafter before such acquisition));
    (xx) Section 264(f)(5)(A)(iv) (relating to reporting with respect to 
certain life insurance and annuity contracts);
    (xxi) Section 6050U (relating to charges or payments for qualified 
long-term care insurance contracts under combined arrangements, 
generally reported on Form 1099-R);
    (xxii) Section 6039(a) (relating to returns required with respect to 
certain options);
    (xxiii) Section 6050W (relating to information returns with respect 
to payments made in settlement of payment card and third party network 
transactions);
    (xxiv) Section 6055 (relating to information returns reporting 
minimum essential coverage); or
    (xxv) Section 6056 (relating to information returns reporting on 
offers of health insurance coverage by applicable large employer 
members).
    (4) Other items. The term information return also includes any form, 
statement, or schedule required to be filed with the Internal Revenue 
Service with respect to any amount from which tax is required to be 
deducted and withheld under chapter 3 of the Internal Revenue Code (or 
from which tax would be required to be so deducted and withheld but for 
an exemption under the Internal Revenue Code or any treaty obligation of 
the United States), generally Forms 1042-S, ``Foreign Person's U.S. 
Source Income Subject to Withholding,'' and 8805, ``Foreign Partner's 
Information Statement of Section 1446 Withholding Tax.'' The provisions 
of this paragraph (g)(4) referring to Form 8805, shall apply to 
partnership taxable years beginning after May 18, 2005, or such earlier 
time as the regulations under Sec. Sec.  1.1446-1 through 1.1446-5 of 
this chapter apply by reason of an election under Sec.  1.1446-7 of this 
chapter.
    (5) Payee. For purposes of section 6721 the term ``payee'' means any 
person who is required to receive a copy of the information set forth on 
an information return by the filer of the return as defined in section 
6724(d)(1).
    (6) Filer. For purposes of this section the term ``filer'' means a 
person that is required to file an information return as defined in 
paragraph (g)(1) of this section under the applicable information 
reporting section described in paragraph (g) (2) through (4) of this 
section.

[T.D. 8386, 56 FR 67182, Dec. 30, 1991, as amended by T.D. 8843, 64 FR 
61504, Nov. 12, 1999; T.D. 9200, 70 FR 28742, May 18, 2005; T.D. 9496, 
75 FR 49836, Aug. 16, 2010; T.D. 9504, 75 FR 64103, Oct. 18, 2010; T.D. 
9660, 79 FR 13231, Mar. 10, 2014]



Sec.  301.6722-1  Failure to furnish correct payee statements.

    (a) Imposition of penalty--(1) General rule. A penalty of $50 is 
imposed for each payee statement (as defined in section 6724(d)(2)) with 
respect to which a failure (as defined in section 6722(a) and paragraph 
(a)(2) of this section) occurs. No more than one penalty will be imposed 
under this paragraph (a) with respect to a single payee statement even 
though there may be more than one failure with respect to such 
statement. However, the penalty shall apply to failures on composite 
substitute payee statements as though each type of payment and other 
required information were furnished on separate statements. A 
``composite substitute payee statement'' is a single document created by 
a filer to reflect several types of payments made to the same payee. The 
total amount imposed on

[[Page 608]]

any person for all failures during any calendar year with respect to all 
payee statements shall not exceed $100,000. See section 6722(c) and 
paragraph (c) of this section for higher penalties when a failure is due 
to intentional disregard of the requirement to furnish timely correct 
payee statements. See paragraph (a)(1) of Sec.  301.6724-1 for a waiver 
of the penalty for a failure that is due to reasonable cause.
    (2) Failures subject to the penalty. The failures to which section 
6722(a) and paragraph (a)(1) of this section apply are--
    (i) A failure to furnish a payee statement on or before the 
prescribed date therefore to the person to whom such statement is 
required to be furnished (``failure to furnish timely''), and
    (ii) A failure to include all of the information required to be 
shown on a payee statement or the inclusion of incorrect information 
(``failure to include correct information''). A failure to furnish 
timely includes a failure to furnish a written statement to the payee in 
a statement mailing as required under sections 6042(c), 6044(e), 
6049(c), and 6050N(b), as well as a failure to furnish the statement on 
a form acceptable to the Internal Revenue Service. Except as provided in 
paragraph (b) of this section, a failure to include correct information 
encompasses a failure to include the information required by applicable 
information reporting statutes or by any administrative pronouncements 
issued thereunder (such as regulations, revenue rulings, revenue 
procedures, or information reporting forms).
    (b) Exception for inconsequential errors or omissions--(1) In 
general. An inconsequential error or omission is not considered a 
failure to include correct information. For purposes of this paragraph 
(b), the term ``inconsequential error or omission'' means any failure 
that cannot reasonably be expected to prevent or hinder the payee from 
timely receiving correct information and reporting it on his or her 
return or from otherwise putting the statement to its intended use.
    (2) Errors or omissions that are never inconsequential. Errors or 
omissions relating to the following are never inconsequential:
    (i) A dollar amount,
    (ii) The significant items in the address of a payee, which is the 
address provided by the payee to the filer,
    (iii) The appropriate form for the information provided (i.e., 
whether or not the form is an acceptable substitute for an official form 
of the Internal Revenue Service), and
    (iv) The manner of furnishing a statement required under sections 
6042(c), 6044(e), 6049(e), and 6050N(b). The Internal Revenue Service 
may, by administrative pronouncement, specify other types of errors or 
omissions that are never inconsequential.
    (3) Examples. The provisions of this paragraph (b) may be 
illustrated by the following examples which do not take into account any 
possible application of the penalty for intentional disregard under 
paragraph (c) of this section or the reasonable cause waiver under 
paragraph (a) of Sec.  301.6724-1:

    Example 1. A payor furnishes a statement with respect to a Form 
1099-MISC (relating to miscellaneous income). The payee statement is 
complete and correct, except the word ``boulevard'' is misspelled in the 
payee's address. The error cannot reasonably be expected to prevent or 
hinder the payee from timely receiving correct information and reporting 
it on his or her tax return or from otherwise putting the statement to 
its intended use. Therefore, no penalty is imposed under paragraph (a) 
of this section.
    Example 2. Assume the same facts in Example 1, except that the only 
error on the payee statement is that the payee's street address, 4821 
Grant Boulevard, is reported incorrectly as 8421 Grant Boulevard. A 
penalty is imposed under paragraph (a) of this section with respect to 
the payee statement because the error can reasonably be expected to 
prevent or hinder the payee from timely receiving correct information 
and reporting it on his or her tax return or from otherwise putting the 
statement to its intended use.

    (c) Higher penalty for intentional disregard of requirement to 
furnish timely correct payee statements--(1) Application of section 
6722(c). If a failure is due to intentional disregard of the requirement 
to furnish timely correct payee statements, the amount of the penalty 
shall be determined under paragraph (c)(2) of this section. Whether a 
failure is due to intentional disregard of the requirement to furnish 
timely correct payee statements is based upon the facts and 
circumstances surrounding

[[Page 609]]

the failure. The facts and circumstances considered include those under 
Sec.  301.6721-1(f)(3), which shall apply in determining whether a 
failure under this section is due to intentional disregard.
    (2) Amount of the penalty. If one or more failures under paragraph 
(a) of this section are due to intentional disregard of the requirement 
to furnish timely payee statements or of the requirement to include 
correct information, then, with respect to each such failure determined 
under this paragraph (c)(2)--
    (i) The $100,000 limitation under paragraph (a) of this section 
shall not apply and the penalty under this paragraph (c)(2) shall not be 
taken into account in applying the $100,000 limitation to penalties not 
determined under this paragraph (c)(2);
    (ii) The penalty imposed under paragraph (a) of this section shall 
be $100 or, if greater, the statutory percentage; and
    (iii) The term ``statutory percentage'' means--
    (A) In the case of a payee statement other than a statement required 
under section 6045(b), 6041A(e) (in respect of a return required under 
section 6041A(b)), 6050H(d), 6050J(e), 6050K(b), or 6060L(c), 10 percent 
of the aggregate dollar amount of the items required to be reported 
correctly, or
    (B) In the case of a payee statement required under section 6045(b), 
6050K(b), or 6050L(c), 5 percent of the aggregate dollar amount of the 
items required to be reported correctly.
    (3) Computation of the penalty; aggregate dollar amount of items 
required to be shown correctly. The aggregate dollar amount used in 
computing the penalty under this paragraph (c) is the amount that is not 
reported or is reported incorrectly. If the intentional disregard 
relates to a dollar amount, the statutory percentage is applied to the 
difference between the dollar amount reported and the amount required to 
be reported correctly. If the intentional disregard relates to any other 
item on the return, the statutory percentage is applied to the aggregate 
amount of items required to be reported correctly. In determining such 
amount the same item shall be counted only once. For example, if a filer 
willfully fails to furnish a Form 1099-INT on which $800 of interest and 
$160 of Federal income tax withheld (i.e., backup withholding) is 
required to be shown, only the $800 amount is taken into account in 
computing the penalty.
    (d) Definitions--(1) Payee. See Sec.  301.6721-1(g)(5) for the 
definition of ``payee.''
    (2) Payee statement. The term payee statement means any statement 
required to be furnished under--
    (i) Section 6031(b) or (c), 6034A, or 6037(b) (relating to 
statements furnished by certain pass-thru entities, generally a Schedule 
K-1 (Form 1065), ``Partner's Share of Income, Deductions, Credits, 
etc.,'' for section 6031(b) or (c), a copy of the Schedule K-1 (Form 
1041), ``Beneficiary's Share of Income, Deductions, Credits, etc.,'' for 
section 6034A, and a copy of Schedule K-1 (Form 1120S), ``Shareholder's 
Share of Income, Deductions, Credits, etc.,'' for section 6037(b));
    (ii) Section 6039(b) (relating to information required in connection 
with certain options);
    (iii) Section 6041(d) (relating to information at source, generally 
the recipient copy of Form 1099-MISC, ``Miscellaneous Income''; Form W-
2, ``Wage and Tax Statement''; Form 1099-INT, ``Interest Income''; and 
the winner's copies of Form W-2G, ``Certain Gambling Winnings'');
    (iv) Section 6041A(e) (relating to returns regarding payments of 
remuneration for services and direct sales, generally the recipient copy 
of Form 1099-MISC);
    (v) Section 6042(c) (relating to returns regarding payments of 
dividends and corporate earnings and profits, generally the recipient 
copy of Form 1099-DIV, ``Dividends and Distributions'');
    (vi) Section 6043A(b) or (d) (relating to returns relating to 
taxable mergers and acquisitions);
    (vii) Section 6044(e) (relating to returns regarding payments of 
patronage dividends, generally the recipient copy of Form 1099-PATR, 
``Taxable Distributions Received From Cooperatives'');
    (viii) Section 6045(b) or (d) (relating to returns of brokers, 
generally the recipient copy of Form 1099-B, ``Proceeds

[[Page 610]]

From Broker and Barter Exchange Transactions,'' for broker transactions; 
the transferor copy of Form 1099-S, ``Proceeds From Real Estate 
Transactions,'' for reporting proceeds from real estate transactions; 
and the recipient copy of Form 1099-MISC for certain substitute payments 
and payments to attorneys);
    (ix) Section 6045A (relating to information required in connection 
with transfers of covered securities to brokers);
    (x) Section 6045B(c) or (e) (relating to returns relating to actions 
affecting basis of specified securities);
    (xi) Section 6049(c) (relating to returns regarding payments of 
interest, generally the recipient copy of Form 1099-INT or Form 1099-
OID, ``Original Issue Discount'');
    (xii) Section 6050A(b) (relating to reporting requirements of 
certain fishing boat operators, generally the recipient copy of Form 
1099-MISC);
    (xiii) Section 6050H(d) or (h)(2) (relating to returns relating to 
mortgage interest received in trade or business from individuals, 
generally the payor copy of Form 1098, ``Mortgage Interest Statement'');
    (xiv) Section 6050I(e), (g)(4), or (g)(5) (relating to returns 
relating to cash received in trade or business, etc., generally a copy 
of Form 8300, ``Report of Cash Payments Over $10,000 Received In a Trade 
or Business'');
    (xv) Section 6050J(e) (relating to returns relating to foreclosures 
and abandonments of security, generally the borrower copy of Form 1099-
A, ``Acquisition or Abandonment of Secured Property'');
    (xvi) Section 6050K(b) (relating to returns relating to exchanges of 
certain partnership interests, generally a copy of Form 8308, ``Report 
of a Sale or Exchange of Certain Partnership Interests'');
    (xvii) Section 6050L(c) (relating to returns relating to certain 
dispositions of donated property, generally a copy of Form 8282, ``Donee 
Information Return'');
    (xviii) Section 6050N(b) (relating to returns regarding payments of 
royalties, generally the recipient copy of Form 1099-MISC);
    (xix) Section 6050P(d) (relating to returns relating to the 
cancellation of indebtedness by certain financial entities, generally 
the recipient copy of Form 1099-C, ``Cancellation of Debt'');
    (xx) Section 6050Q(b) (relating to certain long-term care benefits, 
generally the policyholder and insured copies of Form 1099-LTC, ``Long-
Term Care and Accelerated Death Benefits'');
    (xxi) Section 6050R(c) (relating to returns relating to certain 
purchases of fish, generally the recipient copy of Form 1099-MISC);
    (xxii) Section 6051 (relating to receipts for employees, generally 
the employee copy of Form W-2);
    (xxiii) Section 6052(b) (relating to returns regarding payment of 
wages in the form of group-term life insurance, generally the employee 
copy of Form W-2);
    (xxiv) Section 6053(b) or (c) (relating to reports of tips, 
generally the employee copy of Form W-2);
    (xxv) Section 6048(b)(1)(B) (relating to foreign trust reporting 
requirements, generally copies of the owner and beneficiary statements 
of Form 3520-A, ``Annual Information Return of Foreign Trust With a U.S. 
Owner'');
    (xxvi) Section 408(i) (relating to reports with respect to 
individual retirement plans on the recipient copies of Form 1099-R, 
``Distributions From Pensions, Annuities, Retirement or Profit-Sharing 
Plans, IRAs, Insurance Contracts, etc.'');
    (xxvii) Section 6047(d) (relating to reports by plan administrators 
on the recipient copies of Form 1099-R);
    (xxviii) Section 6050S(d) (relating to returns relating to qualified 
tuition and related expenses, generally the borrower copy of Form 1098-
E, ``Student Loan Interest Statement,'' or the student copy of Form 
1098-T, ``Tuition Statement'');
    (xxix) Section 264(f)(5)(A)(iv) (relating to reporting with respect 
to certain life insurance and annuity contracts);
    (xxx) Section 6050T (relating to returns relating to credit for 
health insurance costs of eligible individuals, generally the recipient 
copy of Form 1099-H, ``Health Coverage Tax Credit (HCTC) Advance 
Payments'');
    (xxxi) Section 6050U (relating to charges or payments for qualified 
long-

[[Page 611]]

term care insurance contracts under combined arrangements, generally the 
recipient copy of Form 1099-R);
    (xxxii) Section 6050W (relating to information returns with respect 
to payments made in settlement of payment card and third party network 
transactions);
    (xxxiii) Section 6055 (relating to information returns reporting 
minimum essential coverage); or
    (xxxiv) Section 6056 (relating to information returns reporting on 
offers of health insurance coverage by applicable large employer 
members).
    (3) Other items. The term payee statement also includes any form, 
statement, or schedule required to be furnished to the recipient of any 
amount from which tax is required to be deducted and withheld under 
chapter 3 of the Internal Revenue Code (or from which tax would be 
required to be so deducted and withheld but for an exemption under the 
Internal Revenue Code or any treaty obligation of the United States) 
(generally the recipient copy of Form 1042-S, ``Foreign Person's U.S. 
Source Income subject to Withholding,'' or Form 8805, ``Foreign 
Partner's Information Statement of Section 1446 Withholding Tax.'')
    (e) Effective/Applicability date. The reference in paragraph (d)(3) 
of this section to Form 8805 shall apply to partnership taxable years 
beginning after April 29, 2008.

[T.D. 8386, 56 FR 67182, Dec. 30, 1991, as amended by T.D. 9394, 73 FR 
23086, Apr. 29, 2008; T.D. 9496, 75 FR 49836, Aug. 16, 2010; T.D. 9504, 
75 FR 64104, Oct. 18, 2010; T.D. 9660, 79 FR 13231, Mar. 10, 2014]



Sec.  301.6723-1  Failure to comply with other information 
reporting requirements.

    (a) Imposition of penalty--(1) General rule. A penalty of $50 is 
imposed for each failure to comply timely with a specified information 
reporting requirement (as defined in paragraph (a)(4) of this section) 
or for each failure to include correct specified information. Multiple 
penalties are imposed with respect to a document with failures to comply 
with more than one of the requirements set forth in paragraph (a)(4) of 
this section or multiple instances of failures to comply with any one of 
these requirements. Nonetheless, if a failure that occurs with respect 
to any requirement defined in paragraph (a)(4) of this section would be 
subject to a penalty under both paragraph (a)(2)(i) and paragraph 
(a)(2)(ii) of this section, no more than one penalty is imposed for such 
failure. The total amount imposed on any person for all failures during 
any calendar year with respect to all specified information reporting 
requirements shall not exceed $100,000. See paragraph (a) of Sec.  
301.6724-1 for the waiver of the penalty for a failure that is due to 
reasonable cause.
    (2) Failures subject to the penalty. The failures to which paragraph 
(a)(1) of this section apply are--
    (i) A failure to comply timely with a specified information 
reporting requirement on or before the date prescribed therefor 
(``failure to comply timely''), and
    (ii) A failure to include all the information required by a 
specified information reporting requirement or the inclusion of 
incorrect information (``failure to include correct information'').
    (3) Exception for inconsequential errors or omissions. An 
inconsequential error or omission is not considered a failure to comply 
with a specified information reporting requirement. For purposes of 
paragraph (a)(3) of this section, an error or omission is considered 
inconsequential if it does not frustrate the purpose or use for which 
the information is intended.
    (4) Specified information reporting requirement defined. For 
purposes of section 6723 and this section, a ``specified information 
reporting requirement'' means--
    (i) The requirement to provide the notice under section 6050K(c)(1) 
(relating to the requirement that a transferor notify the partnership of 
an exchange of a partnership interest);
    (ii) Any requirement contained in the regulations under section 6109 
that a person--
    (A) Include his or her taxpayer identification number (``TIN'') on 
any return, statement, or other document (other than an information 
return or payee statement),

[[Page 612]]

    (B) Include on any return, statement, or other document (other than 
an information return or payee statement) made with respect to another 
person the TIN of such person, or
    (C) Furnish his or her TIN to another person;
    (iii) Any requirement contained in the regulations under section 215 
that a person--
    (A) Furnish his or her TIN to another person, or
    (B) Include on his or her return the TIN of another person; and
    (iv) The requirement under section 6109(e) that a person include the 
TIN of any dependent on his or her return.
    (b) Examples. The provisions of paragraph (a) of this section may be 
illustrated by the following examples which do not take into account the 
reasonable cause waiver under section 6724(a) and paragraph (a)(1) of 
Sec.  301.6724-1.

    Example 1. Individual A, who has two dependents ages 7 and 9, files 
his 1990 Form 1040 in 1991. The Form 1040 requires him to provide the 
TINs of his two dependents, which A fails to do. Because A fails to 
comply timely with two requirements to include on his return the TIN of 
another person, a $50 penalty under paragraph (a) of this section is 
imposed on A for each of the two failures, for a total penalty of $100.
    Example 2. In 1991 Individual B opens with Bank X an account which 
pays reportable interest under section 6049. When B opens the account, 
Bank X requests that B provide his TIN on a Form W-9. B does not provide 
his TIN as required by Sec.  301.6109-1(b). As a result B fails to 
comply timely with a specified information reporting requirement under 
paragraph (a) of this section for furnishing his TIN to another person. 
Therefore, a $50 penalty is imposed on B under paragraph (a) of this 
section for the failure. See section 6721(a) for the penalty to which X 
may be subject if X files a Form 1099-INT (relating to payments of 
interest) for calendar year 1991 without B's TIN. See section 
3406(a)(1)(A) which requires X to impose backup withholding on 
reportable payments of interest to B's account.
    Example 3. In 1991 Individual C is a nonresident alien with an 
account inside the U.S. with Bank Z. The account pays interest that 
would be reportable under section 6049 but for the fact that it is paid 
to a nonresident alien. Under section 6109 and Sec.  301.6109-1(b), Bank 
Z is required to request the TIN from C. C claims that he is a 
nonresident alien and that his account is not subject to information 
reporting under section 6049. Because of this, C contends he is not 
required to provide any TIN information. As a result of this discussion, 
Bank Z then requests C to provide it with a Form W-8 in order for C to 
certify that he is a nonresident alien which C fails to do. C fails to 
comply timely with a specified information reporting requirement under 
paragraph (a) of this section to furnish his TIN to another person. 
Therefore, a penalty is imposed on C under paragraph (a) of this section 
for the failure. See section 6721(a) for the penalty that may be imposed 
on Z if Z files a Form 1099-INT for calendar year 1991 without C's TIN. 
See section 3406(a)(1)(A) under which Z is required to impose backup 
withholding on reportable payment of interest to C's account.
    Example 4. In 1991 Partnership D opens with Bank Y an account that 
pays reportable interest under section 6049. When D opens the account, Y 
requests the partnership's employer identification number (EIN) on a 
Form W-9 as required under Sec.  301.6109-1(b). The partnership provides 
its EIN on the Form W-9. Y files an information return with respect to D 
for the 1991 calendar year. Subsequently, the Internal Revenue Service 
later notifies Y that D's EIN is incorrect as defined under section 3406 
and Sec.  35a.3406-1(a)(6). D fails to comply timely with a specified 
reporting requirement under paragraph (a) of this section of furnishing 
its correct EIN to another person. Therefore, a penalty is imposed on D 
under paragraph (a) of this section for the failure. See section 6721(a) 
for the penalty to which Y may be subject if Y files a Form 1099-INT for 
calendar year 1991 without D's correct EIN. See section 3406(a)(1)(B), 
which requires Y to impose backup withholding on reportable payments of 
interest to B's account when the Internal Revenue Service or a broker 
has notified Y that the EIN is incorrect.

[T.D. 8386, 56 FR 67182, Dec. 30, 1991]



Sec.  301.6724-1  Reasonable cause.

    (a) Waiver of the penalty--(1) General rule. The penalty for a 
failure relating to an information reporting requirement (as defined in 
paragraph (j) of this section) is waived if the failure is due to 
reasonable cause and is not due to willful neglect.
    (2) Reasonable cause defined. The penalty is waived for reasonable 
cause only if the filer establishes that either--
    (i) There are significant mitigating factors with respect to the 
failure, as described in paragraph (b) of this section; or

[[Page 613]]

    (ii) The failure arose from events beyond the filer's control 
(``impediment''), as described in paragraph (c) of this section.
    Moreover, the filer must establish that the filer acted in a 
responsible manner, as described in paragraph (d) of this section, both 
before and after the failure occurred. Thus, if the filer establishes 
that there are significant mitigating factors for a failure but is 
unable to establish that the filer acted in a responsible manner, the 
mitigating factors will not be sufficient to obtain a waiver of the 
penalty. Similarly, if the filer establishes that a failure arose from 
an impediment but is unable to establish that the filer acted in a 
responsible manner, the impediment will not be sufficient to obtain a 
waiver of the penalty. See paragraph (g) of this section for the 
reasonable cause safe harbor for persons who exercise due diligence.
    (b) Significant mitigating factors. In order to establish reasonable 
cause under this paragraph (b), the filer must satisfy paragraph (d) of 
this section and must show that there are significant mitigating factors 
for the failure. The mitigating factors include, but are not limited 
to--
    (1) The fact that prior to the failure the filer was never required 
to file the particular type of return or furnish the particular type of 
statement with respect to which the failure occurred, or
    (2) The fact that the filer has an established history of complying 
with the information reporting requirement with respect to which the 
failure occurred. In determining whether the filer has such an 
established history, significant consideration is given to--
    (i) Whether the filer has incurred any penalty under Sec. Sec.  
301.6721-1, 301.6722-1, or 301.6723-1 in prior years for the failure (or 
under parallel provisions of prior law), and
    (ii) If the filer has incurred any such penalty in prior years, the 
extent of the filer's success in lessening its error rate from year to 
year.
    A filer may treat as a penalty not incurred any penalty under 
sections 6721 through 6723 that was self-assessed under section 
6724(c)(3) and any penalty under section 6676(b) that was self-assessed 
under section 6676(d), prior to amendment or repeal by the Omnibus 
Budget Reconciliation Act of 1989. See paragraph (c)(5) of this section 
for the application of this paragraph (b) to failures attributable to 
the actions of a filer's agent.
    (c) Events beyond the filer's control--(1) In general. In order to 
establish reasonable cause under this paragraph (c)(1), the filer must 
satisfy paragraph (d) of this section and must show that the failure was 
due to events beyond the filer's control. Events which are generally 
considered beyond the filer's control include but are not limited to--
    (i) The unavailability of the relevant business records (as 
described in paragraph (c)(2) of this section),
    (ii) An undue economic hardship relating to filing on magnetic media 
(as described in paragraph (c)(3) of this section),
    (iii) Certain actions of the Internal Revenue Service (as described 
in paragraph (c)(4) of this section),
    (iv) Certain actions of an agent (as described in paragraph (c)(5) 
of this section), and
    (v) Certain actions of the payee or any other person providing 
necessary information with respect to the return or payee statement (as 
described in paragraph (c)(6) of this section).
    (2) Unavailability of the relevant business records. In order to 
establish reasonable cause under paragraph (c)(1) of this section due to 
the unavailability of the relevant business records, the filer's 
business records must have been unavailable under such conditions, in 
such manner, and for such period as to prevent timely compliance 
(ordinarily at least a 2-week period prior to the due date (with regard 
to extensions) of the required return or the required date (with regard 
to extensions) for furnishing the payee statement), and the 
unavailability must have been caused by a supervening event. A 
``supervening event'' includes, but is not limited to--
    (i) A fire or other casualty that damages or impairs the filer's 
relevant business records or the filer's system for processing and 
filing such records;
    (ii) A statutory or regulatory change that has a direct impact upon 
data processing and that is made so close to the time that the return or 
payee

[[Page 614]]

statement is required that, for all practical purposes, the change 
cannot be complied with; or
    (iii) The unavoidable absence (e.g., due to death or serious 
illness) of the person with the sole responsibility for filing a return 
or furnishing a payee statement.
    (3) Undue economic hardship relating to filing on magnetic media. In 
order to establish reasonable cause under paragraph (c)(1) of this 
section due to an undue economic hardship for filing on magnetic media, 
the filer must show that it failed to file on magnetic media because the 
filer lacked the necessary hardware. For purposes of this paragraph 
(c)(3), the filer will not be considered to have acted in a responsible 
manner under paragraph (d) of this section unless--
    (i) The filer attempted on a timely basis to contract out the 
magnetic media filing;
    (ii) The cost of filing on magnetic media was prohibitive as 
determined at least 45 days before the due date of the returns (without 
regard to extensions) (90 days for information returns the due date for 
which (without regard to extensions) is after December 31, 1989, and by 
or before February 28, 1991 (March 15, 1991, for Forms 1042S));
    (iii) The cost was supported by a minimum of two cost estimates from 
unrelated parties; and
    (iv) The filer filed the returns on paper. Reasonable cause will not 
ordinarily be established under this paragraph (c)(3) if a filer 
received a reasonable cause waiver in any prior year under paragraph 
(c)(1) of this section due to an undue economic hardship relating to 
filing on magnetic media.
    (4) Actions of the Internal Revenue Service. In order to establish 
reasonable cause under paragraph (c)(1) of this section due to certain 
actions of the Internal Revenue Service, a filer must show that the 
failure was due to the filer's reasonable reliance on erroneous written 
information from the Internal Revenue Service. Reasonable reliance means 
that the filer relied in good faith on the information. The filer shall 
not be considered to have relied in good faith if the Internal Revenue 
Service was not aware of all the facts when it provided the information 
to the filer. In order to substantiate reasonable cause under this 
paragraph (c)(4), the filer must provide a copy of the written 
information provided by the Internal Revenue Service and, if applicable, 
the filer's written request for the information.
    (5) Actions of agent--imputed reasonable cause. In order to 
establish reasonable cause under paragraph (c)(1) of this section due to 
actions of an agent, the filer must show the following:
    (i) The filer exercised reasonable business judgment in contracting 
with the agent to file timely correct returns or furnish timely correct 
payee statements with respect to which the failure occurred. This 
includes contracting with the agent and providing the proper information 
sufficiently in advance of the due date of the return or statement to 
permit timely filing of correct returns or timely furnishing of correct 
payee statements; and
    (ii) The agent satisfied the reasonable cause criteria set forth in 
paragraph (b) or one of the reasonable cause criteria set forth in 
paragraph (c) (2) through (6) of this section.
    (6) Actions of the payee or any other person. In order to establish 
reasonable cause under paragraph (c)(1) of this section due to the 
actions of the payee or any other person, such as a broker as defined in 
section 6045(c) providing information with respect to the return or 
payee statement, the filer must show either--
    (i) That the failure resulted from the failure of the payee, or any 
other person required to provide information necessary for the filer to 
comply with the information reporting requirements (``any other 
person''), to provide information to the filer, or
    (ii) That the failure resulted from incorrect information provided 
by the payee (or any other person) upon which information the filer 
relied in good faith. To substantiate reasonable cause under this 
paragraph (c)(6), the filer must provide documentary evidence upon 
request of the Internal Revenue Service showing that the failure was 
attributable to the payee (or any other person). See paragraph (d)(2) of 
this section for special rules relating to the

[[Page 615]]

availability of a waiver where the filer's failure relates to a taxpayer 
identification number (TIN), and the failure is attributable to actions 
of the payee described in paragraph (c)(6) (i) or (ii) of this section.
    (d) Responsible manner--(1) In general. Acting in a responsible 
manner means--
    (i) That the filer exercised reasonable care, which is that standard 
of care that a reasonably prudent person would use under the 
circumstances in the course of its business in determining its filing 
obligations and in handling account information such as account numbers 
and balances, and
    (ii) That the filer undertook significant steps to avoid or mitigate 
the failure, including, where applicable--
    (A) Requesting appropriate extensions of time to file, when 
practicable, in order to avoid the failure,
    (B) Attempting to prevent an impediment or a failure, if it was 
foreseeable,
    (C) Acting to remove an impediment or the cause of a failure, once 
it occurred, and
    (D) Rectifying the failure as promptly as possible once the 
impediment was removed or the failure was discovered. Ordinarily, a 
rectification is considered prompt if it is made within 30 days after 
the date the impediment is removed or the failure is discovered or on 
the earliest date thereafter on which a regular submission of 
corrections is made. Submissions will be considered regular only if made 
at intervals of 30 days or less. A failure may be rectified by filing or 
correcting the information return, furnishing or correcting the payee 
statement, or by providing or correcting the information to satisfy the 
specified information reporting requirement with respect to which the 
failure occurs. Paragraph (d)(ii)(D) of this section does not apply with 
respect to information the filer is prohibited from altering under 
specific information reporting rules. See Sec.  1.6045-4(i)(5) of this 
chapter.
    (2) Special rule for filers seeking a waiver pursuant to paragraph 
(c)(6) of this section. A filer seeking a waiver for reasonable cause 
pursuant to paragraph (c)(6) of this section with respect to a failure 
resulting from a missing or an incorrect TIN will be deemed to have 
acted in a responsible manner in compliance with this paragraph (d) only 
if the filer satisfies the requirements of paragraph (e) of this section 
(relating to missing TINs) or paragraph (f) of this section (relating to 
incorrect TINs), whichever is applicable.
    (e) Acting in a responsible manner--special rules for missing TINs--
(1) In general. A filer that is seeking a waiver for reasonable cause 
under paragraph (c)(6) of this section will satisfy paragraph (d)(2) of 
this section with respect to establishing that a failure to include a 
TIN or an information return resulted from the failure of the payee to 
provide information to the filer (i.e., a missing TIN) only if the filer 
makes the initial and, if required, the annual solicitations described 
in this paragraph (e) (required solicitations). For purposes of this 
section, a number is treated as a ``missing TIN'' if the number does not 
contain nine digits or includes one or more alpha characters (a 
character or symbol other than an Arabic numeral) as one of the nine 
digits. A solicitation means a request by the filer for the payee to 
furnish a correct TIN. See paragraph (f) of this section for the rules 
that a filer must follow to establish that the filer acted in a 
responsible manner with respect to providing incorrect TINs on 
information returns. See paragraph (e)(1)(vi)(A) of this section for 
alternative solicitation requirements. See paragraph (g) of this section 
for the safe harbor due diligence rules. See paragraph (h) of this 
section for the rule applicable to failures with respect to information 
returns the due date for which (without regard to extensions) is after 
December 31, 1989, and on or before April 22, 1991.
    (i) Initial solicitation. An initial solicitation for a payee's 
correct TIN must be made at the time an account is opened. The term 
``account'' includes accounts, relationships, and other transactions. 
However, a filer is not required to make an initial solicitation under 
this paragraph (e)(1)(i) with respect to a new account if the filer has 
the payee's TIN and uses that TIN for all accounts of the payee. For 
example, see Sec.  31.3406(h)-3(a) of this chapter. Further, a filer is 
not required to make an initial solicitation under this paragraph 
(e)(1)(i) with respect to accounts

[[Page 616]]

for which the filer filed an information return subject to paragraph (h) 
of this section. For purposes of this section, the initial solicitation 
requirement is deemed to have been met with respect to accounts opened 
after December 31, 1989, and on or before April 22, 1991. If the account 
is opened in person, the initial solicitation may be made by oral or 
written request, such as on an account creation document. If the account 
is opened by mail, telephone, or other electronic means, the TIN may be 
requested through such communications. If the account is opened by the 
payee's completing and mailing an application furnished by the filer 
that requests the payee's TIN, the initial solicitation requirement is 
considered met. If a TIN is not received as a result of an initial 
solicitation, the filer may be required to make additional solicitations 
(``annual solicitations'').
    (ii) First annual solicitation. Except as provided in paragraph 
(e)(1)(vi) of this section, a filer must undertake an annual 
solicitation if a TIN is not received as a result of an initial 
solicitation (or if the filer was not required to make an initial 
solicitation under paragraph (e)(1)(i) of this section and the filer has 
not received a payee's TIN). The first annual solicitation must be made 
on or before December 31 of the year in which the account is opened (for 
accounts opened before December) or January 31 of the following year 
(for accounts opened in the preceding December) (``annual solicitation 
period'').
    (iii) Second annual solicitation. If the TIN is not received as a 
result of the first annual solicitation, the filer must undertake a 
second annual solicitation. The second annual solicitation must be made 
after the expiration of the annual solicitation period and on or before 
December 31 of the year immediately succeeding the calendar year in 
which the account is opened.
    (iv) Additional requirements. After receiving a TIN, a filer must 
include that TIN on any information returns the original due date of 
which (with regard to extensions) is after the date that the filer 
receives the TIN.
    (v) Failures to which a solicitation relates. The initial and first 
annual solicitations relate to failures on returns filed for the year in 
which an account is opened. The second annual solicitation relates to 
failures on returns filed for the year immediately following the year in 
which an account is opened and for succeeding calendar years.
    (vi) Exceptions and limitations. (A) The solicitation requirements 
under this paragraph (e) do not apply to the extent an information 
reporting provision under which a return, as defined in paragraph (g) of 
Sec.  301.6721-1, is filed provides specific requirements relating to 
the manner or the time period in which a TIN must be solicited. In that 
event, the requirements of this paragraph (e) will be satisfied only if 
the filer complies with the manner and time period requirements of the 
specific information reporting provision and the provisions of this 
paragraph (e) to the extent applicable. Also, see section 3406(e) which 
provides rules on the manner and time period in which a TIN must be 
provided for certain accounts with respect to interest, dividends, 
patronage dividends, and amounts subject to broker reporting.
    (B) An annual solicitation is not required to be made for a year 
under this paragraph (e) with respect to an account if no payments are 
made to the account for such year or if no return as defined in 
paragraph (g) of Sec.  301.6721-1 is required to be filed for the 
account for the year.
    (C) If a filer fails to make one (or more) of the required 
solicitations under paragraphs (e)(1) (i), (ii), and (iii) of this 
section, the filer may satisfy the requirements of this section by--
    (1) Making two consecutive annual solicitations in subsequent years 
(``make-up solicitations''), and
    (2) Satisfying paragraph (e)(1)(iv) of this section.
    For example, a filer who has made none of the required solicitations 
may satisfy the requirements of this section by making two consecutive 
solicitations. In determining whether a filer has made two consecutive 
solicitations, years to which paragraph (e)(1)(vi)(B) of this section 
applies shall be disregarded. If a filer fails to make the initial 
solicitation under paragraph (e)(1)(i) of this section, the make-up 
solicitations described in this paragraph (e)(1)(vi)(C) may be made in 
the years

[[Page 617]]

in which the first and second annual solicitations are required to be 
made; however, the penalty will apply with respect to the year in which 
the filer failed to make the initial solicitation. The penalty will 
apply to failures with respect to years for which a required 
solicitation is not made and to failures with respect to all subsequent 
years until the filer conducts its make-up solicitations. The penalty 
will not apply with respect to the year in which the first make-up 
solicitation is made (unless it is also the year in which the filer 
fails to make its initial solicitation) if the second make-up 
solicitation is made in the following year.
    (D) A financial institution is not required to make an annual 
solicitation by mail on accounts with ``stop-mail'' or ``hold-mail'' 
instructions, provided the filer furnishes the solicitation material to 
the payee in the same manner as it furnishes other mail.
    (E) A filer is not required to make annual solicitations on accounts 
with respect to which the filer undertook two consecutive annual 
mailings by December 31, 1989, under Q/A-5 through Q/A-7B or under Q/A-
56 of Sec.  35a.9999-1 of the Temporary Employment Tax Regulations under 
the Interest and Dividend Tax Compliance Act of 1983, as provided under 
section 6676(b) (prior to its amendment by the Omnibus Budget 
Reconciliation Act of 1989).
    (F) A filer is not required to make annual solicitations by mail on 
accounts with respect to which the filer has an undeliverable address, 
i.e., where other mailings to that address have been returned to the 
filer because the address was incorrect and no new address has been 
provided to the filer.
    (G) Except as provided in paragraph (e)(1)(vi) (A) and (C) of this 
section, no more than two annual solicitations are required under this 
paragraph (e) in order for a filer to establish reasonable cause.
    (2) Manner of making annual solicitations--by mail or telephone--(i) 
By mail. A mail solicitation must include--
    (A) A letter informing the payee that he or she must provide his or 
her TIN and that he or she is subject to a $50 penalty imposed by the 
Internal Revenue Service under section 6723 if he or she fails to 
furnish his or her TIN,
    (B) A Form W-9 or an acceptable substitute form, as defined in Sec.  
31.3406 (h)-3 (a), (b), or (c) of this chapter, on which the payee may 
provide the TIN, and
    (C) A return envelope for the payee to provide the TIN which may be, 
but is not required to be, postage prepaid.
    (ii) By telephone. An annual solicitation may be made by telephone 
if the solicitation procedure is reasonably designed and carried out in 
a manner that is conducive to obtaining the TIN. An annual solicitation 
is made pursuant to this paragraph (e)(2)(ii) for a failure if the 
filer--
    (A) Completes a call to each person with a missing TIN and speaks to 
an adult member of the household, or to an officer of the business or 
the organization,
    (B) Requests the TIN of the payee,
    (C) Informs the payee that he or she is subject to a $50 penalty 
imposed by the Internal Revenue Service under section 6723 if he or she 
fails to furnish his or her TIN,
    (D) Maintains contemporaneous records showing that the solicitation 
was properly made, and
    (E) Provides such contemporaneous records to the Internal Revenue 
Service upon request.
    (f) Acting in a responsible manner--special rules for incorrect 
TINS--(1) In general. A filer that is seeking a waiver for reasonable 
cause under paragraph (c)(6) of this section will satisfy paragraph 
(d)(2) of this section with respect to establishing that a failure 
resulted from incorrect information provided by the payee or any other 
person (i.e., inclusion of an incorrect TIN) on an information return 
only if the filer makes the initial and annual solicitations described 
in this paragraph (f). See paragraph (e)(1) of this section for the 
definition of the term ``solicitation.'' See paragraph (f)(5)(i) of this 
section for alternative solicitation requirements. See paragraph (g) of 
this section for the safe harbor due diligence rules. See paragraph (h) 
of this section for the rule applicable to failures with respect to 
information returns the due date for which (without regard to 
extensions) is after December 31, 1989, and on or before April 22, 1991.

[[Page 618]]

    (i) Initial solicitation. An initial solicitation for a payee's 
correct TIN must be made at the time the account is opened. The term 
``account'' includes accounts, relationships, and other transactions. 
However, a filer is not required to make an initial solicitation under 
this paragraph (f)(1)(i) with respect to a new account if the filer has 
the payee's TIN and uses that TIN for all accounts of the payee. For 
example, see Sec.  31.3406(h)-3(a) of this chapter. Further, a filer is 
not required to make an initial solicitation under this paragraph 
(f)(1)(i) with respect to accounts for which the filer filed an 
information return subject to paragraph (h) of this section. For 
purposes of this section, the initial solicitation requirement is deemed 
to have been met with respect to accounts opened after December 31, 
1989, and on or before April 22, 1991. No additional solicitation is 
required after the filer receives the TIN unless the Internal Revenue 
Service or, in some cases, a broker notifies the filer that the TIN is 
incorrect. Following such notification the filer may be required to make 
an annual solicitation to obtain the correct TIN as provided in 
paragraph (f)(1) (ii) and (iii) of this section.
    (ii) First annual solicitation. Except as provided in paragraph 
(f)(5) of this section, a filer must undertake an annual solicitation 
only if the payor has been notified of an incorrect TIN and such account 
contains the incorrect TIN at the time of the notification. The first 
annual solicitation must be made as required by paragraph (f) (2) or (3) 
of this section, whichever applies. An account contains an incorrect TIN 
at the time of notification if the name and number combination on the 
account matches the name and number combination set forth on the notice 
from the Internal Revenue Service or a broker. A filer may be notified 
of an incorrect TIN by the Internal Revenue Service or by a broker 
pursuant to section 3406(a)(1)(B) or by a penalty notice issued by the 
Internal Revenue Service pursuant to section 6721. Except as otherwise 
provided in this section, the annual solicitation required by this 
paragraph (f) must be made on or before December 31 of the year in which 
the filer is notified of the incorrect TIN or by January 31 of the 
following year if the filer is notified of an incorrect TIN in the 
preceding December.
    (iii) Second annual solicitation. A filer must undertake a second 
annual solicitation as required by paragraph (f) (2) or (3) of this 
section, whichever applies, if the filer is notified in any year 
following the year of the notification described in paragraph (f)(1)(ii) 
of this section that the account of a payee contains an incorrect TIN, 
as described in paragraph (f)(1)(ii) of this section.
    (iv) Additional requirements. Upon receipt of a TIN, a filer must 
include that TIN on any information returns the original due date of 
which (with regard to extensions) is after the date that the filer 
receives the TIN.
    (2) Manner of making annual solicitation if notified pursuant to 
section 6721. A filer that has been notified of an incorrect TIN by a 
penalty notice or other notification pursuant to section 6721 may 
satisfy the solicitation requirement of this paragraph (f) either by 
mail, in the manner set forth in paragraph (e)(2)(i) of this section; by 
telephone, in the manner set forth in paragraph (e)(2)(ii) of this 
section; or by requesting the TIN in person.
    (3) Coordination with solicitations under section 3406(a)(1)(b). (i) 
A filer that has been notified of an incorrect TIN pursuant to section 
3406(a)(1)(B) (except filers to which Sec.  31.3406(d)-5(b)(4)(i)(A) of 
this chapter applies) will satisfy the solicitation requirement of this 
paragraph (f) only if it makes a solicitation in the manner and within 
the time period required under Sec.  31.3406(d)-5(d)(2)(i) or (g)(1)(ii) 
of this chapter, whichever applies.
    (ii) A filer that has been notified of an incorrect TIN by a notice 
pursuant to section 6721 (except filers to which Sec.  31.3406(d)-
5(b)(4)(i)(A) of this chapter applies) is not required to make the 
annual solicitation of this paragraph (f) if--
    (A) The filer has received an effective notice pursuant to section 
3406(a)(1)(B) with respect to the same payee, either during the same 
calendar year or for information returns filed for the same year; and
    (B) The filer makes a solicitation in the manner and within the time 
period required under Sec.  31.3406(d)-5(d)(2)(i) or

[[Page 619]]

(g)(1)(ii) of this chapter, whichever applies, before the filer is 
required to make the annual solicitation of this paragraph (f).
    (iii) A filer that has been notified of an incorrect TIN by a notice 
pursuant to section 6721 with respect to a fiduciary or nominee account 
to which Sec.  31.3406(d)-5(b)(4)(i)(A) of this chapter applies is 
required to make the annual solicitation of this paragraph (f).
    (4) Failures to which a solicitation relates. The initial 
solicitation relates to failures on returns filed for the year an 
account is opened and for any succeeding year that precedes the year in 
which the filer receives a notification of an incorrect TIN. The first 
and second annual solicitations relate to failures on returns filed for 
the year in which a notification of an incorrect TIN is received. The 
second solicitation also relates to failures on returns filed for 
succeeding calendar years.
    (5) Exceptions and limitations. (i) The solicitation requirements 
under this paragraph (f) do not apply to the extent that an information 
reporting provision under which a return, as defined in paragraph (g) of 
Sec.  301.6721-1, is filed provides specific requirements relating to 
the manner or the time period in which a TIN must be solicited. In that 
event, the requirements of this paragraph (f) will be satisfied only if 
the filer complies with the manner and time period requirement under the 
specific information reporting provisions and this paragraph (f), to the 
extent applicable.
    (ii) An annual solicitation is not required to be made for a year 
under this paragraph (f) with respect to an account if no payments are 
made to the account for such year or if no return as defined in 
paragraph (g) of Sec.  301.6721-1 is required to be filed for the 
account for such year.
    (iii) If a filer fails to make one (or more) of the required 
solicitations under paragraph (f)(1) (i), (ii), and (iii) of this 
section, the filer may satisfy the requirements of this section by:
    (A) Making two consecutive annual solicitations in subsequent years 
(``make-up solicitations''), and
    (B) Satisfying paragraph (f)(1)(iv) of this section.
    For example, a filer who has made none of the required solicitations 
may satisfy the requirements of this section by making two consecutive 
solicitations. In determining whether a filer has made two consecutive 
solicitations, years to which paragraph (f)(5)(ii) of this section 
applies are disregarded. If a filer fails to make the initial 
solicitation under paragraph (f)(1)(i) of this section, the make-up 
solicitations described in this paragraph (f)(5)(iii) may be made in the 
years in which the first and second annual solicitations are required to 
be made; however, the penalty will apply with respect to the year in 
which the filer failed to make the initial solicitation. The penalty 
will apply to failures in years in which a required solicitation is not 
made and to failures with respect to all subsequent years until the 
filer conducts its make-up solicitations. The penalty will not apply 
with respect to the year in which the first make-up solicitation is made 
(unless it is also the year in which the filer fails to make the initial 
solicitation) if the second make-up solicitation is made in the 
following year.
    (iv) A financial institution is not required to make an annual 
solicitation by mail on accounts with ``stop-mail'' or ``hold-mail'' 
instructions, provided the filer furnishes the solicitation material to 
the payee in the same manner as it furnishes other mail.
    (v) A filer is not required to make annual solicitations by mail on 
accounts with respect to which the filer has an undeliverable address, 
i.e., where other mailings to that address have been returned to the 
filer because the address was incorrect and no new address has been 
provided to the filer.
    (vi) In general, except as provided in paragraph (f)(5) (i) and 
(iii) of this section, no more than two annual solicitations are 
required under this paragraph (f) in order for a filer to establish 
reasonable cause. However, a filer who complies with this paragraph (f) 
during a calendar year after receiving a notice under section 6721 and 
who later during the same calendar year receives a notice pursuant to 
section 3406 may be required to undertake additional annual mailings in 
such calendar year pursuant to section 3406(a)(1)(B) in order to

[[Page 620]]

satisfy the annual solicitation requirement in paragraph (f)(3) of this 
section.
    (g) Due diligence safe harbor--(1) In general. A filer may establish 
reasonable cause with respect to a failure relating to an information 
reporting requirement as described in paragraph (j) of this section if 
the filer exercises due diligence with respect to failures described in 
sections 6721 through 6723.
    (2) Special rules relating to TINs. The following questions and 
answers provide guidance on the exercise of due diligence for an 
exception to a penalty under sections 6721 through 6723 for a failure to 
provide a correct TIN on any information return (as defined in Sec.  
301.6721-1(g)), payee statement (as defined in Sec.  301.6722-1(d)), 
document (as described in Sec.  301.6723-1(a)(4)), or the failure merely 
to provide a TIN as described in Sec.  301.6723-1(a)(4)(ii).

                              General Rule

    Q-1. Is a payor subject to a penalty for a failure to provide a 
correct TIN on an information return with respect to a reportable 
interest or dividend payment if the payee has certified, under penalties 
of perjury, that the TIN furnished to the payor is the payee's correct 
number, the payor provided that number on an information return, and the 
number is later determined not to be the payee's correct number?
    A-1. A payor is not subject to a penalty for failure to provide the 
payee's correct TIN on an information return, if the payee has 
certified, under penalties of perjury, that the TIN provided to the 
payor was his correct number, and the payor included such number on the 
information return before being notified by the Internal Revenue Service 
(IRS) (or a broker) that the number is incorrect.

Due Diligence Defined for Accounts Opened and Instruments Acquired After 
                            December 31, 1983

    Q-2. In order for a payor of a reportable interest or dividend 
payment (other than in a window transaction) to be considered to have 
exercised due diligence in furnishing the correct TIN of a payee with 
respect to an account opened or an instrument acquired after December 
31, 1983, what actions must the payor take?
    A-2. (1) In general, the payor of an account or instrument that is 
not a pre-1984 account nor a window transaction must use a TIN provided 
by the payee under penalties of perjury on information returns filed 
with the IRS to satisfy the due diligence requirement. Therefore, if a 
payor permits a payee to open an account without obtaining the payee's 
TIN under penalties of perjury and files an information return with the 
IRS with a missing or an incorrect TIN, the payor will be liable for the 
$50 penalty for the year with respect to which such information return 
is filed. However, in its administrative discretion, the IRS will not 
enforce the penalty with respect to a calendar year if the certified TIN 
is obtained after the account is opened and before December 31 of such 
year, provided that the payor exercises due diligence in processing such 
number, i.e., the payor uses the same care in processing the TIN 
provided by the payee that a reasonably prudent payor would use in the 
course of the payor's business in handling account information such as 
account numbers and balances.
    (2) Once notified by the IRS (or a broker) that a number is 
incorrect, a payor is liable for the penalty for all prior years in 
which an information return was filed with that particular incorrect 
number if the payor has not exercised due diligence with respect to such 
years. A pre-existing certified TIN does not constitute an exercise of 
due diligence after the IRS or a broker notifies the payor that the 
number is incorrect unless the payor undertakes the actions described in 
Sec.  31.3406(d)-5(d)(2)(i) of this chapter with respect to accounts 
receiving reportable payments described in section 3406(b)(1) and 
reported on information returns described in sections 6724(d)(1)(A) (i) 
through (iv).
    Q-3. Is a payor as described in A-2 liable for the penalty if the 
payor obtained a certified TIN from a payee but inadvertently processed 
the name or number incorrectly on the information return?
    A-3. Yes. The payor is liable for the penalty unless the payor 
exercised that degree of care in processing the TIN

[[Page 621]]

and name and in furnishing it on the information return that a 
reasonably prudent payor would use in the course of the payor's business 
in handling account information, such as account numbers and account 
balances.

                              Special Rules

    Q-4. With respect to an instrument transferred without the 
assistance of a broker, is a payor liable for the penalty for filing an 
information return with a missing or an incorrect TIN if the payor 
records on its books a transfer of a readily tradable instrument in a 
transaction in which the payor was not a party?
    A-4. Generally, a payor as described in Q-4 will be considered to 
have exercised due diligence with respect to a readily tradable 
instrument that is not part of a pre-1984 account with the payor if the 
payor records on its books a transfer in which the payor was not a 
party. This exception applies until the calendar year in which the payor 
receives a certified TIN from the payee.
    Q-5. Is the payor described in A-4 required to solicit the TIN of a 
payee of an account with a missing TIN in order to be considered as 
having exercised due diligence in a subsequent calendar year?
    A-5. There is no requirement on the payor to solicit the TIN in 
order to be considered to have exercised due diligence in a subsequent 
calendar year under the rule set forth in A-4.
    Q-6. Is a payor as described in Q-4 considered to have exercised due 
diligence if the payee provides a TIN to the payor (whether or not 
certified), the payor uses that number on the information return filed 
for the payee, and the number is later determined to be incorrect?
    A-6. A payor as described in Q-4 who records on its books a transfer 
in which it was not a party is considered to have exercised due 
diligence under the rule set forth in A-4 where the transfer is 
accompanied with a TIN provided that the payor uses the same care in 
processing the TIN provided by a payee that a reasonably prudent payor 
would use in the course of the payor's business in handling account 
information, such as account numbers and account balances. Thus, a payor 
will not be liable for the penalty if the payor uses the TIN provided by 
the payee on information returns that it files, even if the TIN provided 
by the payee is later determined to be incorrect. However, a payor will 
not be considered as having exercised due diligence under A-4 after the 
IRS or a broker notifies the payor that the number is incorrect unless 
the payor undertakes the required additional actions described in the 
second paragraph of A-2.
    Q-7. Is a payor liable for a penalty for filing an information 
return with a missing or an incorrect TIN with respect to a post-1983 
account or instrument if the payor could have met the due diligence 
requirements but for the fact that the payor incurred an undue hardship?
    A-7. A payor of a post-1983 account or instrument is not liable for 
a penalty under section 6721(a) for filing an information return with a 
missing or an incorrect TIN if the IRS determines that the payor could 
have satisfied the due diligence requirements but for the fact that the 
payor incurred an undue hardship. An undue hardship is an extraordinary 
or unexpected event such as the destruction of records or place of 
business of the payor by fire or other casualty (or the place of 
business of the payor's agent who under a pre-existing written contract 
had agreed to fulfill the payor's due diligence obligations with respect 
to the account subject to the penalty and there was no means for the 
obligations to be performed by another agent or the payor). Undue 
hardship will also be found to exist if the payor could have met the due 
diligence requirements only by incurring an extraordinary cost.
    Q-8. How does a payor obtain a determination from the IRS that the 
payor has met the undue hardship exception to the penalty under section 
6721(a) for the failure to include the correct TIN on an information 
return for the year with respect to which the payor is subject to the 
penalty?
    A-8. A determination of undue hardship may be established only by 
submitting a written statement to the IRS signed under penalties of 
perjury that sets forth all the facts and circumstances that make an 
affirmative

[[Page 622]]

showing that the payor could have satisfied the due diligence 
requirements but for the occurrence of an undue hardship. Thus, the 
statement must describe the undue hardship and make an affirmative 
showing that the payor either was in the process of exercising or stood 
ready to exercise due diligence when the undue hardship occurred. A 
payor may request an undue hardship determination from the district 
director or the director of the Internal Revenue Service Center where 
the payor is required to remit the penalty under section 6721(a).
    Q-9. Is a pre-1984 account or instrument of a payor that is 
exchanged for an account or instrument of another payor as a result of a 
merger of the other payor or acquisition of the accounts or instruments 
of such payor transformed into a post-1983 account or instrument if the 
merger or acquisition occurs after December 31, 1983?
    A-9. No. A pre-1984 account or instrument that is exchanged for 
another account or instrument pursuant to a statutory merger or the 
acquisition of accounts or instruments is not transformed into a post-
1983 account or instrument because the exchange occurs without the 
participation of the payee.
    Q-10. May the acquiring taxpayer described in A-9 rely upon the 
business records and past procedures of the merged payor or the payor 
whose accounts or instruments were acquired in order to establish that 
due diligence has been exercised on the acquired pre-1984 and post-1983 
accounts or instruments?
    A-10. Yes. The acquiring payor may rely upon the business records 
and past procedures of the merged payor or of the payor whose accounts 
or instruments were acquired in order to establish due diligence to 
avoid the penalty under section 6721(a) with respect to information 
returns that have been or will be filed.
    Q-11. To what extent may a payor rely on the due diligence rules set 
forth in Sec. Sec.  35a.9999-1, 35a.9999-2, and 35a.9999-3 of this 
chapter in effect prior to January 1, 2001 (see Sec. Sec.  35a.9999-1, 
35a.9999-2, and 35a.9999-3 as contained in 26 CFR part 35a, revised 
April 1, 1999).
    A-11. A payor may rely on the due diligence rules set forth in 
Sec. Sec.  35a.9999-1, 35a.9999-2, and 35a.9999-3 of this chapter in 
effect prior to January 1, 2001 (see Sec. Sec.  35a.9999-1, 35a.9999-2, 
and 35a.9999-3 as contained in 26 CFR part 35a, revised April 1, 1999) 
solely for the definitions of terms or phrases used in this paragraph 
(g)(2).
    (3) Effective dates. This paragraph (g) is effective for information 
returns (as defined in section 6724(d)(1)) required to be filed, payee 
statements (as defined in section 6724(d)(2)) required to be furnished, 
and specified information (as described in section 6724(d)(3)) required 
to be reported after December 31, 2000. See Sec.  301.6724-1(g) in 
effect prior to January 1, 2001 (see Sec.  301.6724-1(g) as contained in 
26 CFR part 301, revised April 1, 1999) for substantially similar rules 
applicable prior to January 1, 2001.
    (h) Transitional rules for information returns required to be filed 
(or payee statements required to be furnished) after December 31, 1989 
(without regard to extensions), and on or before April 22, 1991--(1) In 
general. With respect to information returns required to be filed (or 
payee statements required to be furnished) after December 31, 1989 
(without regard to extensions), and on or before April 22, 1991, a filer 
will be deemed to have satisfied reasonable cause if, with respect to 
the failure, the filer would have satisfied reasonable cause under 
sections 6721, 6722, or 6723 (prior to their amendment by the Omnibus 
Budget Reconciliation Act of 1989) and the regulations thereunder.
    (2) Special rule on TINs. With respect to information returns 
required to be filed after December 31, 1989 (without regard to 
extensions), and on or before April 22, 1991, which contain a missing or 
an incorrect TIN, a filer will be deemed to have satisfied reasonable 
cause if, at the time the account was opened, the filer--
    (i) Exercised due diligence or fulfilled the requirements of Q/A-56 
of Sec.  35a.9999-1 of this chapter, as in effect on December 31, 1989, 
as provided under section 6676(b) (prior to its repeal by the Omnibus 
Budget Reconciliation Act of 1989),
    (ii) Requested the TIN according to the regulations under the 
section requiring the filing of the information return, but if none, 
under section 6109, or

[[Page 623]]

    (iii) Would have satisfied reasonable cause under section 6676(a) 
(prior to its repeal by the Omnibus Budget Reconciliation Act of 1989).
    (i) [Reserved]
    (j) Failures to which this section relates. For purposes of this 
section, a failure relating to an information reporting requirement 
means--
    (1) A failure described under Sec.  301.6721-1(a)(2) relating to the 
failure to file timely correct information returns as defined in section 
6724(d)(1),
    (2) A failure described under Sec.  301.6722-1(a)(2) relating to the 
failure to furnish timely a correct payee statement as defined in 
section 6724(d)(2), and
    (3) A failure described under Sec.  301.6723-1(a)(2) relating to the 
failure to timely comply with and to include correct specified 
information as defined in section 6724(d)(3).
    (k) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. (i) On August 1, 1991, Individual A, an independent 
contractor, establishes a relationship (``an account'') with Institution 
L, which pays A amounts reportable under section 6041. When A opens the 
account L requests that A supply his TIN on the account creation 
document. A fails to provide his TIN. On October 1, 1991, L mails a 
solicitation for A's TIN that satisfies the requirement of paragraph 
(e)(1)(ii) of this section. A does not provide a TIN to L during 1991. L 
timely files an information return subject to section 6721, that does 
not contain A's TIN, for payments made during the 1991 calendar year 
with respect to A's account. A penalty is imposed on L pursuant to 
paragraph (a)(2) of Sec.  301.6721-1 for L's failure to file a correct 
information return because A's TIN was not shown on the return. The 
penalty will be waived, however, if L establishes that the failure was 
due to reasonable cause as defined in this section.
    (ii) To establish reasonable cause under this section, L must 
satisfy both paragraphs (c)(6) and (d) of this section. The criteria for 
obtaining a waiver under these paragraphs are as follows:
    (A) L acted in a responsible manner in attempting to satisfy the 
information reporting requirement as described in paragraph (d) of this 
section, and
    (B) L demonstrates that the failure arose from events beyond L's 
control, as described in paragraph (c)(6) of this section.
    (iii) Pursuant to paragraph (d)(2) of this section, L may 
demonstrate that it acted in a responsible manner only by complying with 
paragraph (e) of this section. Paragraph (e) of this section requires a 
filer to request a TIN at the time the account is opened (the initial 
solicitation) and, if the filer does not receive the TIN at that time, 
to solicit the TIN on or before December 31 of the year the account is 
opened (for accounts opened before December) or January 31 of the 
following year (for accounts in the preceding December) (the annual 
solicitation). Because L has performed these solicitations within the 
time and in the manner prescribed by paragraph (e) of this section, L 
has acted in a responsible manner as described in paragraph (d) of this 
section. L satisfies paragraph (c)(6) of this section because under the 
facts, L can show that the failure was caused by A's failure to provide 
a TIN, an event beyond L's control. As a result, L has established 
reasonable cause under paragraph (a)(2) of this section. Therefore, the 
penalty imposed under paragraph (a)(2) of Sec.  301.6721-1 for the 
failure on the 1991 information return is waived. See section 
3406(a)(1)(A) which requires L to impose backup withholding on 
reportable payments to A if L has not received A's TIN.
    Example 2. (i) On August 1, 1991, Individual B opens an account with 
Bank M, which pays B interest reportable under section 6049. When B 
opens the account, M requests that B supply his TIN on the account 
creation document. B provides his TIN to M. On February 28, 1992, M 
includes the TIM that B provided on the Form 1099-INT for the 1991 
calendar year. In October 1992 the Internal Revenue Service, pursuant to 
section 3406(a)(1)(B), notifies M that the 1991 return filed for B 
contains an incorrect TIN. In April 1993 a penalty is imposed on M 
pursuant to paragraph (a)(2) of Sec.  301.6721-1 for M's failure to file 
a correct information return for the 1991 calendar year, i.e., the 
return did not contain B's correct TIN. The penalty will be waived, 
however, if M establishes that the failure was due to reasonable cause 
as defined in this section.
    (ii) To establish reasonable cause under this section, M must 
satisfy the criteria in both paragraphs (c)(6) and (d) of this section. 
Pursuant to paragraph (d)(2) of this section, M can demonstrate that it 
acted in a responsible manner only if M complies with paragraph (f) of 
this section. Paragraph (f) of this section requires a filer to request 
a TIN at the time the account is opened, an initial solicitation. Under 
paragraph (f)(4) of this section the initial solicitation relates to 
failures on returns filed for the year an account is opened. Because M 
performed the initial solicitation in 1991 in the time and manner 
prescribed in paragraph (f)(1)(i) of this section and reflected the TIM 
received from B on the 1991 return as required by paragraph (f)(1)(iv) 
of this section, M has acted in a responsible manner as described in 
paragraph (d) of this section. M satisfies paragraph

[[Page 624]]

(c)(6) of this section because, under the facts, M can show that the 
failure was caused by B's failure to provide a correct TIN, an event 
beyond M's control. As a result, M has established reasonable cause 
under paragraph (a)(2) of this section. Therefore, the penalty imposed 
under paragraph (a)(2) of Sec.  301.6721-1 for the failure on the 1991 
information return is waived. See section 3406(a)(1)(B) which requires M 
to impose backup withholding on reportable payments to B if M has not 
received B's correct TIN.
    Example 3. (i) Table.

----------------------------------------------------------------------------------------------------------------
                 1991                            2/92                    10/92                     2/93
----------------------------------------------------------------------------------------------------------------
Account opened (solicits TIN)........  1991 return............  B-notice w/respect to    1992 return filed.
                                                                 1991 return.
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                 4/93                           10/93                     2/94                     4/94
----------------------------------------------------------------------------------------------------------------
6721 penalty notice for 1991 return..  B-notice w/respect to    1993 return filed......  6721 penalty notice for
                                        1992 return.                                      1992 return.
----------------------------------------------------------------------------------------------------------------

    (ii) The facts are the same as in Example 2. Under Sec.  31.3406(d)-
5(d)(2)(i) of this chapter and paragraph (f)(3) of this section, within 
15 days of the October 1992 notification of the incorrect TIN from the 
Internal Revenue Service, M solicits the correct TIN from B. B fails to 
respond. M timely files the return for 1992 with respect to the account 
setting forth B's incorrect TIN. In October 1993 the Internal Revenue 
Service notifies M pursuant to section 3406(a)(1)(B) that the 1992 
return contains an incorrect TIN. In April 1994, a penalty is imposed on 
M pursuant to paragraph (a)(1)(2) of Sec.  301.6721-1 for M's failure to 
include B's correct TIN on the return for 1992. The penalty will be 
waived, if M establishes that the failure was due to reasonable cause as 
defined in this section.
    (iii) M must satisfy the reasonable cause criteria in paragraphs 
(c)(6) and (d) of this section. M may demonstrate that it acted in a 
responsible manner as required under paragraph (d) of this section only 
by complying with paragraph (f) of this section. Paragraph (f) of this 
section requires a filer to make an initial solicitation for a TIN when 
an account is opened. Further, a filer must make an annual solicitation 
for a TIN by mail within 15 business days after the date that the 
Internal Revenue Service notifies the filer of an incorrect TIN pursuant 
to section 3406(a)(1)(B). M made the initial solicitation for the TIN in 
1991 and, after being notified of the incorrect TIN in October 1992, the 
first annual solicitation within the time and manner prescribed by 
section 31.3406(d)-5(d)(2)(i) of this chapter and paragraph (f) (1)(ii) 
and (2) of this section. M acted in a responsible manner. M satisfies 
paragraph (c)(6) of this section because, under the facts, M can show 
that the failure was caused by B's failure to provide his correct TIN, 
an event beyond M's control. As a result M has established reasonable 
cause under paragraph (a)(2) of this section. Therefore, the penalty 
imposed under paragraph (a)(2) of Sec.  301.6721-1 for the failure on 
the 1992 return is waived due to reasonable cause.
    Example 4. (i) Table.

----------------------------------------------------------------------------------------------------------------
                 1991                            2/92                    10/92                     2/93
----------------------------------------------------------------------------------------------------------------
Account opened (solicits TIN)........  1991 return filed......  B-notice w/respect to    1992 return filed.
                                                                 1991 return.
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                 4/93                           10/93                     2/94                     4/94
----------------------------------------------------------------------------------------------------------------
6721 penalty notice for 1991 return..  B-notice w/respect to    1993 return filed......  6721 penalty notice for
                                        1992 return.                                      1992 return.
----------------------------------------------------------------------------------------------------------------

    (ii) The facts are the same as in Example 3. M timely solicits B's 
TIN in October 1993, which B fails to provide. M files the return for 
1993 with the incorrect TIN. In April 1995 the Internal Revenue Service 
informs M that the 1993 return contains an incorrect TIN. M does not 
solicit a TIN from B in 1994 and files a return for 1994 with B's 
incorrect TIN. M seeks a waiver of the penalty under paragraph (a)(2) of 
Sec.  301.6721-1 for reasonable cause. M must satisfy the reasonable 
cause criteria in paragraphs (c)(6) and (d) of this section. Because M 
made the initial and two annual solicitations as required by paragraph 
(f) of this section, M has demonstrated that it acted in a responsible 
manner and is not required to solicit B's TIN in 1994. See paragraph 
(f)(5)(iv) of this section. M satisfies paragraph (c)(6) of this section 
because, under the facts, M can show that the failure was caused by B's 
failure to provide his correct TIN, an event beyond M's control. 
Therefore, M has established reasonable cause under paragraph (a)(2) of 
this section.
    Example 5. In 1992, Mortgage Finance Company N lends money to C to 
purchase property in a transaction subject to reporting under section 
6050H and to section 6721. As part of the transaction, C gives N a 
promissory note providing for repayment of principal and the payment of 
interest. At the time C incurs the obligation N requests C's TIN, as 
required under Sec.  1.6050H-2(f) of this chapter. C fails to provide 
the TIN as required by Sec.  1.6050H-2(f) of this chapter. N sends 
solicitations by mail in 1992 and 1993 for the missing TIN, which C 
fails to provide. However, for 1994 M fails to send the solicitation 
required by Sec.  1.6050H-2(f) of this chapter. N files returns for the 
1992, 1993, and 1994 calendar years pursuant to section 6050H without 
C's TIN. Although N made the initial and the first annual solicitations 
in 1992 and the second annual solicitation in 1993, N did not

[[Page 625]]

solicit the TIN in 1994 as required under section 6050H, which requires 
continued annual solicitations until the TIN is obtained. Therefore, 
under paragraph (e)(1)(vi)(A) of this section the penalty imposed under 
paragraph (a) of Sec.  301.6721-1 for the 1994 information return is not 
waived.
    Example 6. (i) Table.

----------------------------------------------------------------------------------------------------------------
                10/91                            2/92                    10/92                     2/93
----------------------------------------------------------------------------------------------------------------
Account opened. (solicits TIN).......  1991 return filed......  B-notice w/respect to    1992 return filed.
                                                                 1991 return.
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                 4/93                           10/93                    02/94                     4/94
----------------------------------------------------------------------------------------------------------------
6721 penalty notice..................  B-notice w/respect to    1993 return filed......  6721 penalty notice for
                                        1992 return.                                      1992 return.
----------------------------------------------------------------------------------------------------------------

    (ii) On October 1, 1991, Individual E opens an account with 
Institution R, which pays E amounts reportable under section 6049. When 
E opens the account, R requests that E supply his TIN on an account 
creation document, which E does. Pursuant to paragraph (f)(1)(iv) of 
this section, R uses the TIN furnished by E on the information return 
filed for the 1991 calendar year. In October 1992 the Internal Revenue 
Service notifies R pursuant to section 3406(a)(1)(B) that the 
information return filed for E for the 1991 calendar year contained an 
incorrect TIN. At the time R receives this notification, E's account 
contains the incorrect TIN. On December 31, 1992, R telephones E 
pursuant to paragraphs (f)(2) and (e)(2)(ii) of this section and 
receives different TIN information from E. R uses this information on 
the return that it files timely for E for the 1992 calendar year, i.e., 
in February 1993.
    (iii) In April 1993, the Internal Revenue Service notifies R 
pursuant to paragraph (a)(2) of Sec.  301.6721-1 that the information 
return filed for the 1991 calendar year contains an incorrect TIN. The 
penalty will be waived, however, if R establishes the failure was due to 
reasonable cause as defined in this section.
    (iv) To establish reasonable cause under this section, R must 
satisfy the criteria in both paragraphs (c)(6) and (d)(2) of this 
section. Pursuant to paragraph (d)(2) of this section, R can demonstrate 
that it acted in a responsible manner only if it complies with paragraph 
(f) of this section. R solicited E's TIN at the time the account was 
opened (initial solicitation). Under paragraphs (d)(2) and (f)(4) of 
this section, the initial solicitation relates to failures on returns 
filed for the year in which an account is opened (i.e., 1991) and for 
subsequent years until the calendar year in which the filer receivers a 
notification of an incorrect TIN pursuant to section 3406. Because E 
failed to provide the correct TIN upon request, the failure arose from 
events beyond R's control as described in paragraph (c)(6) of this 
section. Therefore, the penalty with respect to the failure on the 1991 
calendar year information return is waived due to reasonable cause.
    Example 7. (i) The facts are the same as in Example 6. In April 1994 
the Internal Revenue Service notifies R pursuant to paragraph (a)(2) of 
Sec.  301.6721-1 that the information return filed for the 1992 calendar 
year for E contained an incorrect TIN.
    (ii) To establish reasonable cause for the failure under this 
section, R must satisfy the criteria in both paragraphs (c)(6) and 
(d)(2) of this section. Pursuant to paragraph (d)(2) of this section R 
may establish that it acted in a responsible manner only by complying 
with paragraph (f) of this section. Pursuant to paragraph (f)(1)(ii) of 
this section, R must make an annual solicitation after being notified of 
an incorrect TIN if the payee's account contains the incorrect TIN at 
the time of the notification. Paragraph (f)(3) of this section provides 
that if the filer is notified pursuant to section 3406(a)(1)(B) the time 
and manner of making an annual solicitation is that required under Sec.  
31.3406(d)-5(g)(1)(ii) of this chapter. Section 31.3406(d)-5(g)(1)(ii) 
of this chapter requires R to notify E by mail within 15 business days 
after the date of the notice from the Internal Revenue Service, which R 
failed to do. As a result, R has failed to act in a responsible manner 
with respect to the failure on the 1992 information return, and the 
penalty will not be waived due to reasonable cause.

    (l) [Reserved]
    (m) Procedure for seeking a waiver. In seeking an administrative 
determination that the failure was due to reasonable cause and not 
willful neglect, the filer must submit a written statement to the 
district director or the director of the Internal Revenue Service Center 
where the returns, as defined in section 6724(d), are required to be 
filed. The statement must--
    (1) State the specific provision under which the waiver is being 
requested, i.e., paragraph (b) or under paragraph (c) (2) through (6),
    (2) Set forth all the facts alleged as the basis for reasonable 
cause,
    (3) Contain the signature of the person required to file the return, 
and
    (4) Contain a declaration that it is made under penalties of 
perjury. See Sec.  1.6061-1 of the Income Tax Regulations for the rules 
on the signing of returns.
    (n) Manner of payment. The penalty due under sections 6721 through 
6723

[[Page 626]]

shall be paid upon notice and demand by Internal Revenue Service, and in 
the same manner as a tax liability is paid.

[T.D. 8386, 56 FR 67182, Dec. 30, 1991, and amended by T.D. 8409, 57 FR 
13035, Apr. 15, 1992; T.D. 8734, 62 FR 53496, Oct. 14, 1997; T.D. 8804, 
63 FR 72189, Dec. 31, 1998; T.D. 8856, 64 FR 73413, Dec. 30, 1999; T.D. 
9055, 68 FR 22595, Apr. 29, 2003; T.D. 9136, 69 FR 41943, July 13, 2004; 
[T.D. 9699, 79 FR 63812, Oct. 27, 2014]

 Regulations Applicable to Information Returns and Payee Statements the 
Due Date for Which (Without Regard to Extensions) Is After December 31, 
                    1986, and Before January 1, 1990



                  General Provisions Relating to Stamps



Sec.  301.6801-1  Authority for establishment, alteration, and distribution.

    (a) Establishment and alteration. The Commissioner may establish, 
and from time to time alter, renew, replace, or change the form, style, 
character, material, and device of any stamp, mark, or label under any 
provision of the law relating to internal revenue.
    (b) Preparation and distribution of forms, stamps and dies. The 
Commissioner shall prepare and distribute all the instructions, 
directions, forms, blanks, and stamps; and shall provide proper and 
sufficient adhesive stamps and other stamps or dies for expressing and 
denoting the several stamp taxes.



Sec.  301.6802-1  Supply and distribution.

    (a) Postmaster General. The Commissioner shall furnish to the 
Postmaster General, without prepayment, a suitable quantity of adhesive 
stamps (other than the stamps on playing cards), coupons, tickets, or 
such other devices as may be prescribed pursuant to section 6302(b) 
(authorizing a discretionary method for collecting certain specified 
taxes) or chapter 69 of the Code, to be distributed to, and kept on sale 
by, the various postmasters in the United States in all post offices of 
the first and second classes, and such post offices of the third and 
fourth classes as are located in county seats or Postmaster General as 
necessary.
    (b) Designated depositary of the United States. The district 
director for the district in which any designated depositary of the 
United States is located shall furnish to such designated depositary, 
without prepayment, a suitable quantity of adhesive stamps to be kept on 
sale by the designated depositary.
    (c) State agents. Any person who is duly appointed and acting as 
agent of any State for the sale of stock transfer stamps of such State 
may make application to the district director for the district in which 
the State agent is located, to be designated for the purpose of being 
furnished without prepayment, for sale, stamps to be used in payment of 
the tax imposed by section 4301. The application shall contain the 
location and post office address of the State agent, and the maximum 
amount of stamps he desires to maintain on hand. A copy of the agent's 
appointment as State agent should be attached to the application.



Sec.  301.6803-1  Accounting and safeguarding.

    In cases coming within the provisions of section 6802 (2) and (3) 
and paragraphs (b) and (c) of Sec.  301.6802-1, the district director 
may require a bond in such amount as he deems advisable, conditioned for 
the faithful return, whenever so required, of all quantities or amounts 
of adhesive stamps undisposed of and for the payment monthly for all 
quantities or amounts of adhesive stamps sold or not remaining on hand. 
Such bond shall be furnished in accordance with the provisions contained 
in section 7101 and Sec.  301.7101-1.



Sec.  301.6804-1  Attachment and cancellation.

    For provisions relating to the attachment and cancellation of 
specific stamps used with respect to a particular tax, see the 
regulations relating to such tax.



Sec.  301.6805-1  Redemption of stamps.

    (a) Authorization. (1) Upon receipt of satisfactory evidence of the 
facts by the district director or director of the service center, he may 
make allowance for or redeem stamps issued under the

[[Page 627]]

authority of any internal revenue law if--
    (i) The stamps have been spoiled, destroyed, or rendered useless or 
unfit for the purpose intended, or
    (ii) The owner of the stamps has no use therefor.
    (2) If a stamp has been in use for any period of time, it may not be 
redeemed under section 6805. Similarly, no allowance shall be made for 
stamps which have been lost or stolen.
    (b) Method and conditions of allowance. Such allowance or redemption 
may be made, either by giving other stamps in lieu of the stamps so 
allowed for or redeemed, or by refunding the amount or value to the 
owner thereof, deducting therefrom, in case of repayment, the 
percentage, if any, allowed to the purchaser thereof. Claims for the 
redemption of or allowance for stamps shall be made on Form 843 and 
filed with the district director or director of the service center 
within three years from the date of the purchase of the stamps from the 
Government. The stamps for which redemption or allowance is claimed 
shall be submitted with the claim. If the stamps are destroyed or 
damaged to the extent that they cannot be presented for redemption or 
allowance, proof satisfactory to the district director or director of 
the service center that they have been destroyed or so damaged must 
accompany the claim before allowance or redemption shall be made. In any 
case where the actual date of purchase of the stamps from the Government 
cannot be established, it must be definitely shown in the claim whether 
they were so purchased within three years prior to the date of filing of 
the claim.
    (c) Time for filing claims. No claim for the redemption of, or 
allowance for, stamps shall be allowed under this section unless 
presented within 3 years after the purchase of such stamps from the 
Government.
    (d) Finality of decisions. The findings of fact in and the decision 
of the district director or director of the service center upon the 
merits of any claim presented under or authorized by this section, shall 
in the absence of fraud or mistake in mathematical calculation, be final 
and not subject to revision by any accounting officer.

[T.D. 7188, 37 FR 12795, June 29, 1972]



Sec.  301.6806-1  Posting occupational tax stamps.

    For provisions relating to the posting of specific stamps used with 
respect to a particular tax, other than a special tax under subchapter B 
of chapter 35, subchapter B of chapter 36, or subtitle E, see the 
regulations relating to such tax. For penalties for failure to post 
occupational tax stamps, see section 7273.

[T.D. 7188, 37 FR 12795, June 29, 1972]



                 Jeopardy, Bankruptcy, and Receiverships

                                Jeopardy

                       termination of taxable year



Sec.  301.6851-1  Termination of taxable year.

    For regulations under section 6851, see Sec. Sec.  1.6851-1 to 
1.6851-3, inclusive, of this chapter (Income Tax Regulations).



Sec.  301.6852-1  Termination assessments of tax in the case of flagrant 
political expenditures of section 501(c)(3) organizations.

    (a) Authority for making. Any assessment under section 6852 as a 
result of a flagrant violation by a section 501(c)(3) organization of 
the prohibition against making political expenditures must be authorized 
by the District Director.
    (b) Determination of income tax. An organization shall be subject to 
an assessment of income tax under section 6852 only if the flagrant 
violation of the prohibition against making political expenditures 
results in revocation of the organization's tax exemption under section 
501(a) because it is not described in section 501(c)(3). An organization 
subject to such an assessment is not liable for income taxes for any 
period prior to the effective date of the revocation of the 
organization's tax exemption.
    (c) Payment. Where a District Director has made a determination of 
income tax under paragraph (b) of this section or of section 4955 excise 
tax, notwithstanding any other provision of

[[Page 628]]

law, any tax will become immediately due and payable. The taxpayer is 
required to pay the amount of the assessment within 10 days after the 
District Director sends the notice and demand for immediate payment 
regardless of the filing of an administrative appeal or of a court 
petition. Regardless of filing an administrative appeal or of 
petitioning a court, enforced collection action may proceed after the 
10-day payment period unless the taxpayer posts the bond described in 
section 6863. For purposes of collection procedures such as section 6331 
(regarding levy), assessments under the authority of paragraph (a) of 
this section do not constitute situations in which the collection of 
such tax is in jeopardy and, therefore, do not suspend normal collection 
procedures.
    (d) Effective date. This section is effective December 5, 1995.

[T.D. 8628, 60 FR 62212, Dec. 5, 1995]

                          jeopardy assessments



Sec.  301.6861-1  Jeopardy assessments of income, estate, gift, 
and certain excise taxes.

    (a) Authority for making. If a district director or director of a 
service center believes that the assessment or collection of a 
deficiency in income, estate, gift, or chapter 41, 42, 43, or 44 tax 
will be jeopardized by delay, then the director is required to assess 
such deficiency immediately, together with the interest, additional 
amounts, and additions to the tax provided by law. A district director 
will make an assessment under this section if collection is determined 
to be in jeopardy because at least one of the conditions described in 
Sec.  1.6851-1(a)(1) (i), (ii), or (iii) (relating to termination 
assessments) exists. A jeopardy assessment may be made before or after 
the mailing of the notice of deficiency provided by section 6212. 
However, a jeopardy assessment for a taxable year under section 6861 
cannot be made after a decision of the Tax Court with respect to such 
taxable year has become final (see section 7481) or after the taxpayer 
has filed a petition for review of the decision of the Tax Court with 
respect to such taxable year. In the case of a deficiency determined by 
a decision of the Tax Court which has become final or with respect to 
which the taxpayer has filed a petition for review and has not filed a 
bond as provided in section 7485, assessment may be made in accordance 
with the provisions of section 6215, without regard to section 6861.
    (b) Amount of jeopardy assessment. If a notice of a deficiency is 
mailed to the taxpayer before it is discovered that delay would 
jeopardize the assessment or collection of the tax, a jeopardy 
assessment may be made in an amount greater or less than that included 
in the deficiency notice. If a deficiency is assessed on account of 
jeopardy after the decision of the Tax Court is rendered, the jeopardy 
assessment may be made only with respect to the deficiency determined by 
the Tax Court.
    (c) Jurisdiction of Tax Court. If the jeopardy assessment is made 
before the notice in respect of the tax to which the jeopardy assessment 
relates has been mailed pursuant to section 6212(a), the district 
director shall, within 60 days after the making of the assessment, send 
the taxpayer a notice of deficiency pursuant to such subsection. The 
taxpayer may file a petition with the Tax Court for a redetermination of 
the amount of the deficiency within the time prescribed in section 
6213(a). If the petition of the taxpayer is filed with the Tax Court, 
either before or after the making of the jeopardy assessment, the 
Commissioner, through his counsel, is required to notify the Tax Court 
of such assessment or of any abatement thereof, and the Tax Court has 
jurisdiction to redetermine the amount of the deficiency, together with 
all other amounts assessed at the same time in connection therewith.
    (d) Payment and collection of jeopardy assessment. After a jeopardy 
assessment has been made, the district director is required to send 
notice and demand to the taxpayer for the amount of the jeopardy 
assessment. Regardless of whether the taxpayer has filed a petition with 
the Tax Court, he is required to make payment of the amount of such 
assessment (to the extent that it has not been abated) within 10 days 
after the sending of notice and demand by the district director, unless 
before the expiration of such 10-day period he

[[Page 629]]

files with the district director a bond as provided in section 6863. 
Section 6331 provides that, if the district director makes a finding 
that the collection of the tax is in jeopardy, he may make demand for 
immediate payment of the amount of the jeopardy assessment and, in such 
case, the taxpayer shall immediately pay such amount or shall 
immediately file the bond provided in section 6863. If a petition is not 
filed with the Tax Court within the period prescribed in section 
6213(a), the district director will be so advised, and, if collection of 
the deficiency has been stayed by the timely filing of a bond as 
provided in section 6863, he should then give notice and make demand for 
payment of the amount assessed plus interest. After the Tax Court has 
rendered its decision and such decision has become final, the district 
director will be notified of the action taken. He will then send notice 
and demand for payment of the unpaid portion of the amount determined by 
the Tax Court, the collection of which has been stayed by the bond. If 
the amount of the jeopardy assessment is less than the amount determined 
by the Tax Court, the difference will be assessed and collected as part 
of the tax upon the issuance of a notice and demand therefor. If the 
amount of the jeopardy assessment is in excess of the amount determined 
by the Tax Court, the unpaid portion of such excess will be abated. If 
any part of the excess amount has been paid, it will be credited or 
refunded to the taxpayer as provided in section 6402, without the filing 
of claim therefor.
    (e) Abatement of excessive assessment. The district director or the 
director of the regional service center may, at any time before the 
decision of the Tax Court is rendered, abate a jeopardy assessment in 
whole or in part if the district director believes that such assessment 
is excessive in amount.
    (f) Abatement if jeopardy does not exist. (1) The district director 
or the director of the regional service center may abate a jeopardy 
assessment in whole or in part, if it is shown to the satisfaction of 
the district director that jeopardy does not exist. An abatement may not 
be made under this paragraph after a decision of the Tax Court in 
respect of the deficiency has been rendered or, if no petition is filed 
with such court, after the expiration of the period for filing such 
petition.
    (2) After abatement of a jeopardy assessment in whole or in part, a 
deficiency may be assessed and collected in the manner authorized by law 
as if the jeopardy assessment or part thereof so abated had not existed. 
If a notice of deficiency has been sent to the taxpayer before the 
abatement of the jeopardy assessment in whole or in part, whether such 
notice was sent before or after the making of the assessment, such 
abatement will not affect the validity of the notice or of any 
proceedings for redetermination based thereon. The period of limitation 
on the making of assessments and the beginning of levy or a proceeding 
in court for collection in respect of any deficiency shall be determined 
as if the jeopardy assessment so abated had not been made, except that 
the running of such period shall in any event be suspended for the 
period from the date of such jeopardy assessment until the expiration of 
the tenth day after the date on which such jeopardy assessment is abated 
in whole or in part. The provisions of this subparagraph may be 
illustrated by the following example:

    Example. On March 18, 1958, 28 days before the last day of the 3-
year period of limitations on assessment, a jeopardy assessment is made 
in respect of a proposed deficiency. On May 2, 1958, before the mailing 
of the notice of deficiency provided by section 6861(b), this assessment 
is abated. By virtue of this subparagraph, the last day of the period of 
limitations for the making of an assessment is June 9, 1958, that is, 
the 38th day after the date of the abatement. If the notice of 
deficiency provided for in section 6861(b) has been sent before the 
abatement, the running of the period of limitations on assessment would 
have been suspended pursuant to the provisions of the section 6503(a).

    (3) See section 7429 with respect to requesting the district 
director to review the making of the jeopardy assessment.
    (g) Special rules for chapters 42 and 43 taxes. For purposes of 
paragraph (a) of this section, the amount of a deficiency with respect 
to any tax imposed by section 4941(a), 4942(a), 4943(a), 4944(a), 
4945(a), 4951(a), 4952(a), 4955(a), 4971(a) or 4975(a) shall include the 
amount of

[[Page 630]]

additional tax imposed by section 4941(b), 4942(b), 4943(b), 4944(b), 
4945(b), 4951(b), 4952(b), 4955(b), 4971(b) or 4975(b) for failure to 
correct the act (or failure to act) which gave rise to liability for the 
initial tax.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7575, 43 FR 58817, Dec. 
18, 1978; T.D. 7838, 47 FR 44253, Oct. 7, 1982; T.D. 8084, 51 FR 16305, 
May 2, 1986; T.D. 8628, 60 FR 62213, Dec. 5, 1995]



Sec.  301.6862-1  Jeopardy assessment of taxes other than income, estate, 
gift, and certain excise taxes.

    (a) If the district director believes that the collection of any tax 
(other than income, estate, gift, chapter 41, 42, 43, or 44 tax) will be 
jeopardized by delay, the director shall, whether or not the time 
otherwise prescribed by law for filing the return or paying such tax has 
expired, immediately assess such tax, together with all interest, 
additional amounts and additions to the tax provided by law. A district 
director will make an assessment under this section if collection is 
determined to be in jeopardy because at least one of the conditions 
described in Sec.  1.6851-1(a)(1)(i), (ii), or (iii) (relating to 
termination assessments) exists. For example, assume that a taxpayer 
incurs on January 18, 1977, liability for tax imposed by section 4061, 
that the last day on which return and payment of such tax is required to 
be made is May 2, 1977, and that on January 18, 1977, the district 
director determines that collection of such tax would be jeopardized by 
delay. In such case, the district director shall immediately assess the 
tax.
    (b) The tax, interest, additional amounts, and additions to the tax 
will, upon assessment, become immediately due and payable, and the 
district director shall, without delay, issue a notice and demand for 
payment thereof in full. Upon failure or refusal to pay the amount 
demanded, collection thereof by levy shall be lawful without regard to 
the 10-day period provided in section 6331 (a). However, the collection 
of the whole or any part of the amount of the jeopardy assessment may be 
stayed by timely filing with the district director a bond as provided in 
section 6863.
    (c) See section 7429 with respect to requesting the district 
director to review the making of the jeopardy assessment.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7575, 43 FR 58817, Dec. 
18, 1978; T.D. 7838, 47 FR 44253, Oct. 7, 1982]



Sec.  301.6863-1  Stay of collection of jeopardy assessments; 
bond to stay collection.

    (a) General rule. (1) The collection of an assessment under section 
6851, 6861, or 6862 (referred to as a ``jeopardy assessment'' for 
purposes of this section), or under section 6852 (referred to as a 
political assessment for purposes of this section) of any tax may be 
stayed by filing with the district director a bond on the form to be 
furnished by the district director upon request.
    (2) The bond may be filed--
    (i) At any time before the time collection by levy is authorized 
under section 6331(a), or
    (ii) After collection by levy is authorized and before levy is made 
on any property or rights to property, or
    (iii) In the discretion of the district director, after any such 
levy has been made and before the expiration of the period of 
limitations on collection.
    (3) The bond must be in an amount equal to the portion (including 
interest thereon to the date of payment as calculated by the district 
director) of the jeopardy assessment or political assessment collection 
of which is sought to be stayed. See section 7101 and Sec.  301.7101-1, 
relating to the form of bond and the sureties thereon. The bond shall be 
conditioned upon the payment of the amount (together with interest 
thereon), the collection of which is stayed, at the time at which, but 
for the making of the jeopardy assessment, such amount would be due.
    (4) Upon the filing of a bond in accordance with this section, the 
collection of so much of the assessment as is covered by the bond will 
be stayed. The taxpayer may at any time waive the stay of collection of 
the whole or any part of the amount covered by the bond. If as a result 
of such waiver any part of the amount covered by the bond is paid, or if 
any portion of the jeopardy assessment or political assessment is abated 
by the district director,

[[Page 631]]

then the bond shall be at the request of the taxpayer be proportionately 
reduced.
    (b) Additional conditions applicable to income, estate, gift, and 
chapter 41, 42, 43 and 44 tax assessments. In the case of jeopardy 
assessment or political assessment of income, estate, gift, chapter 41, 
42, 43, or 44 tax, the bond must be conditioned upon the payment of so 
much of the amount included therein as is not abated by a decision of 
the Tax Court which has become final, together with the interest on such 
amount. If the Tax Court determines that the amount assessed is greater 
than the correct amount of the tax, the bond will be proportionately 
reduced at the request of the taxpayer after the Tax Court renders its 
decision. If the bond is given before the taxpayer has filed his 
petition with the Tax Court, it must contain a further condition that if 
a petition is not filed before the expiration of the period provided in 
section 6213(a) for the filing of such petition the amount stayed by the 
bond will be paid upon notice and demand at any time after the 
expiration of such period, together with interest thereon at the annual 
rate referred to in the regulations under section 6621 from the date of 
the jeopardy (or political assessment) notice and demand to the date of 
the notice and demand made after the expiration of the period for filing 
petition with the Tax Court.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7384, 40 FR 49325, Oct. 
22, 1975; T.D. 7575, 43 FR 58817, Dec. 18, 1978; T.D. 7838, 47 FR 44253, 
Oct. 7, 1982; T.D. 8628, 60 FR 62213, Dec. 5, 1995]



Sec.  301.6863-2  Collection of jeopardy assessment; stay of sale 
of seized property pending Tax Court decision.

    (a) General rule. In the case of an assessment under section 6851, 
6852, 6861, or 6862, any property seized for the collection of such 
assessment shall not (except as provided in paragraph (b) of this 
section) be sold until the latest of the following occurs:
    (1) The period provided in section 7429(a)(2) to request the 
district director to review the action taken expires.
    (2) The period provided in section 7429(b)(1) to file an action in 
U.S. District Court expires if a request for a redetermination is made 
to the district director.
    (3) The U.S. District Court judgment in such action becomes final, 
if a civil action is begun in accordance with section 7429(b).
    (4) In addition to the occurrences described in paragraphs (a), (1), 
(2), and (3) of this section, in the case of an assessment of income, 
estate, gift, chapter 41, 42, 43, or 44 excise taxes, until the latest 
of the following occurs:
    (i) The expiration of the period provided in section 6213(a) within 
which the taxpayer may file a petition with the Tax Court; or
    (ii) The decision of the Tax Court becomes final, if a petition for 
redetermination is filed with the Tax Court (whether before or after the 
making of the assessment).

However, notwithstanding paragraph (a)(4)(i) of this section, in the 
case of a termination assessment under section 6851, property seized may 
be sold after the due date (determined with extensions) of the 
taxpayer's return if the taxpayer does not file a return by such date. 
Furthermore, for the purposes of paragraph (a)(4)(ii) of this section, a 
petition will not operate as a further stay of the sale of the seized 
property unless the taxpayer files a bond as provided in section 7485.
    (b) Exceptions. Notwithstanding the provisions of paragraph (a) of 
this section, any property seized may be sold--
    (1) If the taxpayer files with the district director a written 
consent to the sale, or
    (2) If the district director determines that the expenses of 
conservation and maintenance of the property will greatly reduce the net 
proceeds from the sale of such property, or
    (3) If the property is of a type to which section 6336 (relating to 
sale of perishable goods) is applicable.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7575, 43 FR 58817, Dec. 
18, 1978; T.D. 8628, 60 FR 62213, Dec. 5, 1995]



Sec.  301.6867-1  Presumptions where owner of large amount of cash 
is not identified.

    (a) General rule. For purposes of section 6851 (relating to 
termination assessments) and section 6861 (relating to

[[Page 632]]

jeopardy assessments), if cash in excess of $10,000 is found in the 
physical possession of an individual who does not claim either ownership 
of that cash or ownership by some other person whose identity the 
Commissioner can readily ascertain and who acknowledges ownership of 
that cash as of the date the cash was found, then, it shall be presumed 
that--
    (1) The cash represents gross income of an unknown single 
individual; and
    (2) That the collection of tax on that income will be jeopardized by 
delay.
    (b) Rules for assessment. The Commissioner may make an assessment 
pursuant to section 6851 or section 6861, as appropriate, using the 
rules for assessment specified in this paragraph. In the case of any 
assessment resulting from the application of paragraph (a) of this 
section--
    (1) The entire amount of cash is treated as taxable income for the 
taxable year in which the cash is found;
    (2) The income is treated as taxable at the highest rate of tax 
specified in section 1 of the Internal Revenue Code; and
    (3) Except as provided in paragraph (c), the possessor of the cash 
is treated (solely with respect to that cash) as the taxpayer for 
purposes of chapters 63 and 64 and section 7429(a)(1) of the Internal 
Revenue Code.
    (c) Effect of later substitution of true owner--(1) In general. If 
an assessment resulting from the application of paragraph (a) of this 
section is later abated and replaced by an assessment against the true 
owner of the cash, the later assessment is treated for purposes of all 
laws relating to lien, levy, and collection as relating back to the date 
of the original assessment. Notwithstanding the preceding sentence, any 
notice and review provided for by section 7429 and the notice of 
deficiency issued to the true owner relative to the later assessment are 
to be made within the prescribed time limits, using the actual date of 
the later assessment against the true owner.
    (2) Example. The provisions of paragraph (c)(1) of this section may 
be illustrated by the following example:

    Example. On June 5, 1994, A is found in possession of a bag, 
containing $200,000, which A claims he was holding for a friend whose 
name A cannot remember. Because A does not claim ownership of the cash 
and does not provide the name of the true owner so that the Commissioner 
can identify the true owner and have that person acknowledge ownership 
of the cash, it is presumed that the cash represents gross income of an 
individual for calendar year 1994, and that the collection of tax on 
that gross income will be jeopardized by delay. Accordingly, on June 17, 
1994, a termination assessment under section 6851 is made against A, in 
his capacity as possessor of the cash. On June 21, 1994, the written 
statement of information provided for by section 7429(a)(1) is given to 
A. No request for review under section 7429(a)(2) is made by the true 
owner within 30 days after the day on which A was furnished the written 
statement provided for in section 7429(a)(1). Subsequently, individual B 
comes to the Service and states that he is the owner of the cash. On 
September 2, 1994, the Service determines that B was the true owner of 
the cash on June 5, 1994. On September 9, 1994, the Service abates the 
termination assessment made against A solely as possessor of cash and, 
after determining that jeopardy exists, replaces it with a termination 
assessment under section 6851 against B. The lien against B that arises 
under section 6321 is treated as arising on June 17, 1994. However, 
within 5 days after September 9, 1994, the Service must give B the 
written statement of information required by section 7429(a)(1) so that 
B can make a request for review under section 7429(a)(2). In addition, a 
notice of deficiency must be sent to B within 60 days after the later of 
the due date or the actual filing of B's tax return for 1994, as 
required by section 6851(b).

    (d) Rights of possessor of cash--(1) Action permitted. Section 6867 
provides that the possessor of cash is treated as the taxpayer for 
purposes of chapter 63 (relating to assessment) and chapter 64 (relating 
to collection) of the Internal Revenue Code. Accordingly, the possessor 
of cash may file a petition with the United States Tax Court, within the 
applicable time limits, challenging the notice of deficiency issued to 
the possessor solely in that person's capacity as possessor of cash.
    (2) Actions not permitted. Section 6867 provides that the possessor 
of cash is treated as the taxpayer solely for purposes of section 
7429(a)(1), and is entitled to the written statement of information 
provided for by that section. The possessor of cash is not treated as 
the taxpayer for purposes of sections

[[Page 633]]

7429(a)(2) and 7429(b), relating to administrative and judicial review 
of termination and jeopardy assessments, and may not maintain an action 
under section 7429 for such review. The possessor of cash is not treated 
as the taxpayer for purposes of section 7422, relating to civil actions 
for refund, or chapter 65 of the Internal Revenue Code, relating to 
abatements, credits, and refunds, and may not institute a suit for 
refund in district court after the deficiency has been collected.
    (e) Rights of true owner of cash--(1) Actions permitted. The true 
owner of cash may request administrative review under section 7429(a)(2) 
and may maintain a civil action under section 7429(b) for judicial 
review of an assessment under section 6851 or section 6861 made against 
the possessor solely in that person's capacity as possessor of cash. 
Such an action, however, must be preceded by a request for review under 
section 7429(a)(2) made by the true owner within 30 days after the day 
on which the possessor is furnished the written statement provided for 
in section 7429(a)(1). In addition, after the deficiency asserted 
against the possessor of cash has been levied upon, the true owner of 
cash may bring an action in federal district court to recover the cash, 
as provided in section 7426, relating to civil actions by persons other 
than taxpayers. See, however, section 6532(c), relating to the 9-month 
statute of limitations for suits under section 7426. In addition, the 
true owner of cash, with the permission of the court, may appear before 
the United States Tax Court in any proceeding that may be filed by the 
possessor of the cash challenging the notice of deficiency issued to the 
possessor solely in that person's capacity as possessor of the cash.
    (2) Actions not permitted. The true owner of cash may not file a 
petition with the United States Tax Court challenging the notice of 
deficiency issued to the possessor solely in that person's capacity as 
possessor of cash. Notwithstanding the preceding sentence, the true 
owner of cash may file a petition with the United States Tax Court 
challenging any notice of deficiency issued to the true owner following 
the abatement of the assessment made against the possessor of cash.
    (f) Definitions. For the purposes of this section and section 6867--
    (1) Cash. The term cash includes any cash equivalents.
    (2) Cash equivalent--(i) In general. The term cash equivalent 
includes foreign currency, any bearer obligation, and any medium of 
exchange that is of a type that has been frequently used in illegal 
activities, as listed in paragraph (f)(2)(ii) of this section.
    (ii) Specific cash equivalents. For purposes of paragraph (f)(2)(i), 
the following are also cash equivalents--
    (A) Coins;
    (B) Precious metals;
    (C) Jewelry;
    (D) Precious stones;
    (E) Postage stamps;
    (F) Traveler's checks in any form;
    (G) Negotiable instruments (including personal checks, business 
checks, official bank checks, cashier's checks, notes, and money orders) 
that are either in bearer form, endorsed without restriction, made out 
to a fictitious payee, or otherwise in such form that title thereto 
passes upon delivery;
    (H) Incomplete instruments (including personal checks, business 
checks, official bank checks, cashier's checks, notes, and money orders) 
signed but with the payee's name omitted; and
    (I) Securities or stock in bearer form or otherwise in such form 
that title thereto passes upon delivery.
    (iii) Value of cash equivalents. A cash equivalent is taken into 
account at its fair market value except in the case of a bearer 
obligation, in which case it is taken into account at its face value.
    (3) Possessor of cash. An individual is considered to be the 
possessor of cash if the cash is found on that individual's person or in 
that individual's possession or is found in any object, container, 
vehicle, or area under that individual's custody or control.
    (4) True owner of the cash. The true owner of cash is the individual 
who beneficially owns the cash on the date such cash is found in the 
physical possession of the individual described in paragraph (f)(3) of 
this section. An agent, bailee, or other custodian of the cash is not 
the true owner of cash. A true owner of cash does not include an

[[Page 634]]

individual who, subsequent to the date on which the cash is found in the 
physical possession of the individual described in paragraph (f)(3) of 
this section, obtains ownership of the cash by purchase, subrogation, 
descent, or other means.
    (g) Effective date. This section is effective with respect to cash 
found in the physical possession of an individual on or after August 3, 
1995.

[T.D. 8605, 60 FR 39654, Aug. 3, 1995]

                      Bankruptcy and Receiverships



Sec.  301.6871(a)-1  Immediate assessment of claims for income, estate, 
and gift taxes in bankruptcy and receivership proceedings.

    (a) Upon (1) the adjudication of bankruptcy of any taxpayer in any 
liquidating proceeding, (2) the filing with a court of competent 
jurisdiction or (where approval is required by the Bankruptcy Act, 11 
U.S.C. Chapters 1-14) the approval of a petition of, or the approval of 
a petition against, any taxpayer in any other proceeding under the 
Bankruptcy Act, or (3) the appointment of any receiver for any taxpayer 
in a receivership proceeding before any court of the United States or of 
any State or Territory or of the District of Columbia, the district 
director shall immediately assess any deficiency of income, estate, or 
gift tax (together with all interest, additional amounts, or additions 
to the tax provided by law), determined by him, if such deficiency has 
not heretofore been assessed in accordance with law. Such assessment 
shall be made immediately, whether or not a notice of deficiency has 
been issued, and without regard to the restrictions upon assessment 
under section 6213.
    (b) As used in this section and Sec. Sec.  301.6871(a)-2 to 
301.6873-1, inclusive, the term ``proceeding under the Bankruptcy Act'' 
includes a proceeding under chapters I to VII, inclusive, of the 
Bankruptcy Act, or under section 75 or 77 (11 U.S.C. 203, 205), or 
chapters X to XIII, inclusive, of such Act, or any other proceeding 
under the Act.



Sec.  301.6871(a)-2  Collection of assessed taxes in bankruptcy 
and receivership proceedings.

    (a) During a proceeding under the Bankruptcy Act (11 U.S.C. chapters 
1-14) or a receivership proceeding in either a Federal or State court, 
generally the assets of the taxpayer are under the control of the court 
in which such proceeding is pending, and the collection of taxes cannot 
be made by levying upon such assets. However, any assets which under 
applicable provisions of law are not under the control of the court may 
be subject to levy. See paragraph (b) of this section and Sec.  
301.6871(b)-1 with respect to claims for such taxes. See section 6873 
with respect to collection of unpaid claims.
    (b) District directors should, promptly after ascertaining the 
existence of any outstanding liability against a taxpayer in any 
proceeding under the Bankruptcy Act or in any receivership proceeding, 
and in any event within the time limited by the appropriate provisions 
of the Bankruptcy Act, or by the appropriate orders of the court in 
which such proceeding is pending, file proof of claim covering such 
liability in the court in which such proceeding is pending. Such proof 
of claim should be filed whether the unpaid taxes involved have been 
assessed or not, except in cases where the instructions of the 
Commissioner direct otherwise; for example, where the payment of the 
taxes is secured by a sufficient bond. At the same time proof of claim 
is filed with the bankruptcy or receivership court, the district 
director will send notice and demand for payment to the taxpayer, 
together with a copy of such proof of claim.
    (c) Under sections 3466 and 3467 of the Revised Statutes (31 U.S.C. 
191, 192) and section 64 of the Bankruptcy Act (11 U.S.C. 104), taxes 
are entitled to the priority over other claims therein specified, and 
the trustee, receiver, debtor in possession, or other person designated 
as in control of the assets of the debtor by the court in which the 
proceeding under the Bankruptcy Act or receivership proceeding is 
pending, may be held personally liable for failure on his part to 
protect the priority of the Government respecting taxes of which he has 
notice. Sections 75(l),

[[Page 635]]

77(e), 199, 337(2), 455, and 659(6) of the Bankruptcy Act (11 U.S.C. 
203(l), 205(e), 599, 737(2), 855, and 1059(6)) also contain provisions 
with respect to the rights of the United States relative to priority of 
payment. For the filing of returns by a trustee in bankruptcy or by a 
receiver, see section 6012(b)(3) and 28 U.S.C. 960. Bankruptcy courts 
have jurisdiction under the Bankruptcy Act to determine all disputes 
regarding the amount and validity of taxes claimed in a proceeding under 
the Bankruptcy Act. A proceeding under the Bankruptcy Act or a 
receivership proceeding does not discharge any portion of a claim of the 
United States for taxes except in the case of a proceeding under section 
77 or chapter X of the Bankruptcy Act. However, the claim may be settled 
or compromised as in other cases in court.
    (d) For the requirement that a receiver, trustee in bankruptcy, or 
other like fiduciary give notice as to his qualification as such, see 
section 6036 and the regulations thereunder.



Sec.  301.6871(b)-1  Claims for income, estate, and gift taxes in proceedings 
under the Bankruptcy Act and receivership proceedings; claim filed despite 
pendency of Tax Court proceedings.

    (a) If it is determined that a deficiency is due in respect of 
income, estate, or gift tax and the taxpayer has filed a petition with 
the Tax Court before (1) the adjudication of bankruptcy in any 
liquidating proceeding, (2) the filing with a court of competent 
jurisdiction or (where approval is required by the Bankruptcy Act, 11 
U.S.C. chapters 1-14) the approval of a petition of, or the approval of 
a petition against, any taxpayer in any other proceeding under the 
Bankruptcy Act, or (3) the appointment of a receiver, the trustee, 
receiver, debtor in possession, or other like fiduciary, may, upon his 
own motion, be made a party to the Tax Court proceeding and thereafter 
may prosecute the appeal before the Tax Court as to that particular 
determination. No petition shall be filed with the Tax Court for a 
redetermination of the deficiency after the adjudication of bankruptcy, 
the filing or (where approval is required by the Bankruptcy Act) the 
approval of a petition of, or the approval of a petition against, any 
taxpayer in any other bankruptcy proceeding, or the appointment of the 
receiver.
    (b) Even though the determination of a deficiency is pending before 
the Tax Court for redetermination, proof of claim for the amount of such 
deficiency may be filed with the court in which the proceeding under the 
Bankruptcy Act or receivership proceeding is pending without awaiting 
final decision of the Tax Court. In case of a final decision of the Tax 
Court before the payment or the disallowance of the claim in the 
proceeding under the Bankruptcy Act or receivership proceeding, a copy 
of the Tax Court's decision may be filed by the district director with 
the court in which such proceeding is pending.
    (c) While a district director is required by section 6871(a) and 
paragraph (a) of Sec.  301.6871(a)-1 to make immediate assessment of any 
deficiency, such assessment is not made as a jeopardy assessment within 
the meaning of section 6861, and consequently the provisions of that 
section do not apply to any assessment made under section 6871. 
Therefore, the notice of deficiency provided in section 6861(b) will not 
be mailed. Although such notice will not be issued, a letter will be 
sent to the taxpayer or to the trustee, receiver, debtor in possession, 
or other like fiduciary, notifying him in detail how the deficiency was 
computed, that he may furnish evidence showing wherein the deficiency is 
incorrect, and that upon request he will be granted a conference by the 
district director with respect to such deficiency. However, such letter 
will not provide for such a conference where a petition was filed with 
the Tax Court before (1) the adjudication of bankruptcy in a liquidating 
proceeding, (2) the filing with a court of competent jurisdiction or 
(where approval is required by the Bankruptcy Act), the approval of a 
petition of, or the approval of a petition against, any taxpayer in any 
other proceeding under the Bankruptcy Act, or (3) the appointment of a 
receiver.

[[Page 636]]



Sec.  301.6872-1  Suspension of running of period of limitations on assessment.

    If any fiduciary in any proceeding under the Bankruptcy Act (11 
U.S.C. chapters 1-14), including a trustee, receiver, or debtor in 
possession, or a receiver in any other court proceeding is required, 
pursuant to section 6036, to give notice in writing to the district 
director of his qualification as such, then the running of the period of 
limitations on assessment shall be suspended from the date the 
proceeding is instituted to the date such notice is received by the 
district director, and for an additional 30 days thereafter. However, 
the suspension under this section of the running of the period of 
limitation on assessment shall in no case exceed 2 years.



Sec.  301.6873-1  Unpaid claims in bankruptcy or receivership proceedings.

    (a) If any portion of the claim allowed by the court in a 
receivership proceeding, or in any proceeding under the Bankruptcy Act 
(11 U.S.C. chs. 1-14) remains unpaid after the termination of such 
proceeding, the district director will send notice and demand for 
payment thereof to the taxpayer. Such unpaid portion with interest as 
provided in section 6601 may be collected from the taxpayer by levy or 
proceeding in court within the period of limitation for collection after 
assessment. For the general rule as to such period of limitation, see 
section 6502, and for suspension of the running of the period provided 
in section 6502, see, for example, section 6503. For suspensions under 
other provisions of law, see, for example, section 11f of the Bankruptcy 
Act (11 U.S.C. 29(f)). Extension of time for the payment of such unpaid 
amount may be granted in the same manner and subject to the same 
provisions and limitations as provided in section 6161(c).
    (b) Section 6873 is applicable only where a claim for taxes is 
allowed in a receivership proceeding or in a proceeding under the 
Bankruptcy Act. Claims for taxes, interest, additional amounts, or 
additions to the tax may be collectible in equity or under other 
provisions of law although no claim was allowed in the proceeding 
because, for example, such items were not included in a proof of claim 
filed in the proceeding or no proof of claim was filed. Except in the 
case of a proceeding under section 77 or chapter X of the Bankruptcy 
Act, a tax or a liability in respect thereof is not discharged by a 
proceeding under such act, whether or not a claim is filed in such 
proceeding, and provisions suspending the running of the period of 
limitation on the collection of taxes are applicable, whether or not a 
claim is filed in such proceeding.



                       Transferees and Fiduciaries



Sec.  301.6901-1  Procedure in the case of transferred assets.

    (a) Method of collection--(1) Income, estate, and gift taxes. The 
amount for which a transferee of property of--
    (i) A taxpayer, in the case of a tax imposed by subtitle A of the 
Code (relating to income taxes),
    (ii) A decedent, in the case of the estate tax imposed by chapter 11 
of the Code, or
    (iii) A donor, in the case of the gift tax imposed by chapter 12 of 
the Code, is liable, at law or

in equity, and the amount of the personal liability of a fiduciary under 
section 3467 of the Revised Statutes, as amended (31 U.S.C. 192), in 
respect of the payment of such taxes, whether shown on the return of the 
taxpayer or determined as a deficiency in the tax, shall be assessed 
against such transferee or fiduciary and paid and collected in the same 
manner and subject to the same provisions and limitations as in the case 
of a deficiency in the tax with respect to which such liability is 
incurred, except as hereinafter provided.
    (2) Other taxes. The liability, at law or in equity, of a transferee 
of property of any person liable in respect of any other tax, in any 
case where the liability of the transferee arises on the liquidation of 
a corporation or partnership, or a corporate reorganization within the 
meaning of section 368(a), shall be assessed against such transferee and 
paid and collected in the same manner and subject to the same provisions 
and limitations as in the case of the tax with respect to which

[[Page 637]]

such liability is incurred, except as hereinafter provided.
    (3) Applicable provisions. The provisions of the Code made 
applicable by section 6901(a) to the liability of a transferee or 
fiduciary referred to in subparagraphs (1) and (2) of this paragraph 
(a), include the provisions relating to:
    (i) Delinquency in payment after notice and demand and the amount of 
interest attaching because of such delinquency;
    (ii) The authorization of distraint and proceedings in court for 
collection;
    (iii) The prohibition of claims and suits for refund; and
    (iv) In any instance in which the liability of a transferee or 
fiduciary is one referred to in subparagraph (1) of this paragraph (a), 
the filing of a petition with the Tax Court of the United States and the 
filing of a petition for review of the Tax Court's decision.

For detailed provisions relating to assessments, collections, and 
refunds, see chapters 63, 64, and 65 of the Code, respectively.
    (b) Definition of transferee. As used in this section, the term 
``transferee'' includes an heir, legatee, devisee, distributee of an 
estate of a deceased person, the shareholder of a dissolved corporation, 
the assignee or donee of an insolvent person, the successor of a 
corporation, a party to a reorganization as defined in section 368, and 
all other classes of distributees. Such term also includes, with respect 
to the gift tax, a donee (without regard to the solvency of the donor) 
and, with respect to the estate tax, any person who, under section 
6324(a)(2), is personally liable for any part of such tax.
    (c) Period of limitation on assessment. The period of limitation for 
assessment of the liability of a transferee or of a fiduciary is as 
follows:
    (1) Initial transferee. In the case of the liability of an initial 
transferee, one year after the expiration of the period of limitation 
for assessment against the taxpayer in the case of a tax imposed by 
subtitle A (relating to income taxes), the executor in the case of the 
estate tax imposed by chapter 11, or the donor in the case of the gift 
tax imposed by chapter 12, each of which for purposes of this section is 
referred to as the ``taxpayer'' (see subchapter A, chapter 66, of the 
Code).
    (2) Transferee of transferee. In the case of the liability of a 
transferee of a transferee, 1 year after the expiration of the period of 
limitation for assessment against the preceding transferee, or 3 years 
after the expiration of the period of limitation for assessment against 
the taxpayer, whichever of such periods first expires.
    (3) Court proceeding against taxpayer or last preceding transferee. 
If, before the expiration of the period specified in subparagraph (1) or 
subparagraph (2) of this paragraph (c), (whichever is applicable), a 
court proceeding against the taxpayer or last preceding transferee for 
the collection of the tax or liability in respect thereof, respectively, 
has been begun within the period of limitation for the commencement of 
such proceeding, then within one year after the return of execution in 
such proceeding.
    (4) Fiduciary. In the case of the liability of a fiduciary, not 
later than 1 year after the liability arises or not later than the 
expiration of the period for collection of the tax in respect of which 
such liability arises, whichever is the later.
    (d) Extension by agreement--(1) Extension of time for assessment. 
The time prescribed by section 6901 for the assessment of the liability 
of a transferee or fiduciary may, prior to the expiration of such time, 
be extended for any period of time agreed upon in writing by the 
transferee or fiduciary and the district director or an assistant 
regional commissioner. The extension shall become effective when the 
agreement has been executed by both parties. The period agreed upon may 
be extended by subsequent agreements in writing made before the 
expiration of the period previously agreed upon.
    (2) Extension of times for credit or refund. (i) For the purposes of 
determining the period of limitation on credit or refund to the 
transferee or fiduciary of overpayments made by such transferee or 
fiduciary or overpayments made by the taxpayer to which such transferee 
or fiduciary may be legally entitled to credit or refund, an agreement 
and any extension thereof referred to in subparagraph (1) of this

[[Page 638]]

paragraph (d), shall be deemed an agreement and extension thereof for 
purposes of section 6511(c) (relating to limitations on credit or refund 
in case of extension of time by agreement).
    (ii) For the purpose of determining the limit specified in section 
6511(c)(2) on the amount of the credit or refund, if the agreement is 
executed after the expiration of the period of limitation for assessment 
against the taxpayer with reference to whom the liability of such 
transferee or fiduciary arises, the periods specified in section 
6511(b)(2) shall be increased by the period from the date of such 
expiration to the date the agreement is executed. The application of 
this subdivision may be illustrated by the following example:

    Example. Assume that Corporation A files its income tax return on 
March 15, 1955, for the calendar year 1954, showing a liability of 
$100,000 which is paid with the return. The period within which an 
assessment may be made against Corporation A expires on March 15, 1958. 
Corporation B is a transferee of Corporation A. An agreement is executed 
on October 9, 1958, extending, beyond its normal expiration date of 
March 15, 1959, the period within which an assessment may be made 
against Corporation B. Under section 6511(c)(2) and section 
6511(b)(2)(A) the portion of an overpayment, paid before the execution 
of an agreement extending the period for assessment, may not be credited 
or refunded unless paid within three years prior to the date on which 
the agreement is executed. However, as applied to Corporation B such 3-
year period is increased under section 6901(d)(2) to include the period 
from March 15, 1958, to October 9, 1958, the date on which the agreement 
was executed.

    (e) Period of assessment against taxpayer. For the purpose of 
determining the period of limitation for assessment against a transferee 
or a fiduciary, if the taxpayer is deceased, or, in the case of a 
corporation, has terminated its existence, the period of limitation for 
assessment against the taxpayer shall be the period that would be in 
effect had the death or termination of existence not occurred.
    (f) Suspension of running of period of limitations. In the cases of 
the income, estate, and gift taxes, if a notice of liability of a 
transferee or the liability of a fiduciary has been mailed to such 
transferee or to such fiduciary under the provisions of section 6212, 
then the running of the statute of limitations shall be suspended for 
the period during which assessment is prohibited in respect of liability 
of the transferee or fiduciary (and in any event, if a proceeding in 
respect of the liability is placed on the docket of the Tax Court, until 
the decision of the Tax Court becomes final), and for 60 days 
thereafter.



Sec.  301.6902-1  Burden of proof.

    In proceedings before the Tax Court the burden of proof shall be 
upon the Commissioner to show that a petitioner is liable as a 
transferee of property of a taxpayer, but not to show that the taxpayer 
was liable for the tax.



Sec.  301.6903-1  Notice of fiduciary relationship.

    (a) Rights and obligations of fiduciary. Every person acting for 
another person in a fiduciary capacity shall give notice thereof to the 
district director in writing. As soon as such notice is filed with the 
district director such fiduciary must, except as otherwise specifically 
provided, assume the powers, rights, duties, and privileges of the 
taxpayer with respect to the taxes imposed by the Code. If the person is 
acting as a fiduciary for a transferee or other person subject to the 
liability specified in section 6901, such fiduciary is required to 
assume the powers, rights, duties, and privileges of the transferee or 
other person under that section. The amount of the tax or liability is 
ordinarily not collectible from the personal estate of the fiduciary but 
is collectible from the estate of the taxpayer or from the estate of the 
transferee or other person subject to the liability specified in section 
6901.
    (b) Manner of notice--(1) Notices filed before April 24, 2002. This 
paragraph (b)(1) applies to notices filed before April 24, 2002. The 
notice shall be signed by the fiduciary, and shall be filed with the 
Internal Revenue Service office where the return of the person for whom 
the fiduciary is acting is required to be filed. The notice must state 
the name and address of the person for whom the fiduciary is acting, and 
the nature of the liability of such person; that is, whether it is a 
liability for tax, and, if so, the type of tax, the year or years 
involved, or a liability at

[[Page 639]]

law or in equity of a transferee of property of a taxpayer, or a 
liability of a fiduciary under section 3467 of the Revised Statutes, as 
amended (31 U.S.C. 192) in respect of the payment of any tax from the 
estate of the taxpayer. Satisfactory evidence of the authority of the 
fiduciary to act for any other person in a fiduciary capacity must be 
filed with and made a part of the notice. If the fiduciary capacity 
exists by order of court, a certified copy of the order may be regarded 
as satisfactory evidence. When the fiduciary capacity has terminated, 
the fiduciary, in order to be relieved of any further duty or liability 
as such, must file with the Internal Revenue Service office with whom 
the notice of fiduciary relationship was filed written notice that the 
fiduciary capacity has terminated as to him, accompanied by satisfactory 
evidence of the termination of the fiduciary capacity. The notice of 
termination should state the name and address of the person, if any, who 
has been substituted as fiduciary. Any written notice disclosing a 
fiduciary relationship which has been filed with the Commissioner under 
the Internal Revenue Code of 1939 or any prior revenue law shall be 
considered as sufficient notice within the meaning of section 6903. Any 
satisfactory evidence of the authority of the fiduciary to act for 
another person already filed with the Commissioner or district director 
need not be resubmitted.
    (2) Notices filed on or after April 24, 2002. This paragraph (b)(2) 
applies to notices filed on or after April 24, 2002. The notice shall be 
signed by the fiduciary, and shall be filed with the Internal Revenue 
Service Center where the return of the person for whom the fiduciary is 
acting is required to be filed. The notice must state the name and 
address of the person for whom the fiduciary is acting, and the nature 
of the liability of such person; that is, whether it is a liability for 
tax, and if so, the type of tax, the year or years involved, or a 
liability at law or in equity of a transferee of property of a taxpayer, 
or a liability of a fiduciary under 31 U.S.C. 3713(b), in respect of the 
payment of any tax from the estate of the taxpayer. The fiduciary must 
retain satisfactory evidence of his or her authority to act for any 
other person in a fiduciary capacity as long as the evidence may become 
material in the administration of any internal revenue law.
    (c) Where notice is not filed. If the notice of the fiduciary 
capacity described in paragraph (b) of this section is not filed with 
the district director before the sending of notice of a deficiency by 
registered mail or certified mail to the last known address of the 
taxpayer (see section 6212), or the last known address of the transferee 
or other person subject to liability (see section 6901(g)), no notice of 
the deficiency will be sent to the fiduciary. For further guidance 
regarding the definition of last known address, see Sec.  301.6212-2. In 
such a case the sending of the notice to the last known address of the 
taxpayer, transferee, or other person, as the case may be will be a 
sufficient compliance with the requirements of the Code, even though 
such taxpayer, transferee, or other person is deceased, or is under a 
legal disability, or, in the case of a corporation, has terminated its 
existence. Under such circumstances, if no petition is filed with the 
Tax Court of the United States within 90 days after the mailing of the 
notice (or within 150 days after mailing in the case of such a notice 
addressed to a person outside the States of the Union and the District 
of Columbia) to the taxpayer, transferee, or other person, the tax, or 
liability under section 6901, will be assessed immediately upon the 
expiration of such 90-day or 150-day period, and demand for payment will 
be made. See paragraph (a) of Sec.  301.6213-1 with respect to the 
expiration of such 90-day or 150-day period.
    (d) Definition of fiduciary. The term ``fiduciary'' is defined in 
section 7701(a)(6) to mean a guardian, trustee, executor, administrator, 
receiver, conservator, or any person acting in any fiduciary capacity 
for any person.
    (e) Applicability of other provisions. This section, relating to the 
provisions of section 6903, shall not be taken to

[[Page 640]]

abridge in any way the powers and duties of fiduciaries provided for in 
other sections of the Code.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 8939, 66 FR 2821, Jan. 
12, 2001; T.D. 8989, 67 FR 20032, Apr. 24, 2002; T.D. 9040, 68 FR 4921, 
Jan. 31, 2003]



Sec.  301.6905-1  Discharge of executor from personal liability for decedent's 
income and gift taxes.

    (a) Discharge of liability. With respect to decedents dying after 
December 31, 1970, the executor of a decedent's estate may make written 
application to the applicable internal revenue officer with whom the 
estate tax return is required to be filed, as provided in Sec.  20.6091-
1 of this chapter, for a determination of the income or gift taxes 
imposed upon the decedent by subtitle A or by chapter 12 of the Code, 
and for a discharge of personal liability therefrom. If no estate tax 
return is required to be filed, then such application should be filed 
where the decedent's final income tax return is required to be filed. 
The application must be filed after the return with respect to such 
income or gift taxes is filed. Within 9 months (1 year with respect to 
the estate of a decedent dying before January 1, 1974) after receipt of 
the application, the executor shall be notified of the amount of the 
income or gift tax and, upon payment thereof, he will be discharged from 
personal liability for any deficiency in income or gift tax thereafter 
found to be due. If no such notification is received, the executor is 
discharged at the end of such 9 months (1 year with respect to the 
estate of a decedent dying before January 1, 1974) period from personal 
liability for any deficiency thereafter found to be due. The discharge 
of the executor under this section from personal liability applies only 
to him in his personal capacity and to his personal assets. The 
discharge is not applicable to his liability as executor to the extent 
of the assets of the estate in his possession or control. Further, the 
discharge does not operate as a release of any part of the property from 
the lien provided under section 6321 or the special lien provided under 
subsection (a) or (b) of section 6324.
    (b) Definition of ``executor''. For purposes of this section, the 
term ``executor'' means the executor or administrator of the decedent 
appointed, qualified, and acting within the United States.
    (c) Cross reference. For provisions concerning the discharge of the 
executor from personal liability for estate taxes imposed by chapter 11 
of the Code, see section 2204 and the regulations thereunder.

[T.D. 7238, 37 FR 28742, Dec. 29, 1972]



                                Licensing



Sec.  301.7001-1  License to collect foreign items.

    (a) In general. Any bank or agent undertaking as a matter of 
business or for profit the collection of foreign items must obtain a 
license from the district director for the district in which is located 
its principal place of business within the United States. For 
definitions of the terms ``foreign item'' and ``collection'', see 
paragraph (b) of this section.
    (b) Definitions--(1) Foreign item. The term ``foreign item'' as used 
in this section, means any item of interest upon the bonds of a foreign 
country or of a nonresident foreign corporation not having a fiscal or 
paying agent in the United States (including Puerto Rico as if a part of 
the United States), or any item of dividends upon the stock of such 
corporation.
    (2) Collection. The term ``collection'' as used in this section, 
includes the following:
    (i) The payment by the licensee of the foreign item in cash;
    (ii) The crediting by the licensee of the account of the person 
presenting the foreign item;
    (iii) The tentative crediting by the licensee of the account of the 
person presenting the foreign item until the amount of the foreign item 
is received by the licensee from abroad; and
    (iv) The receipt of foreign items by the licensee for the purpose of 
transmitting them abroad for deposits.
    (c) Application for license. Application for the license required by 
paragraph (a) of this section shall be made in writing and shall contain 
the following information:
    (1) The name and present business of the person, partnership 
(including

[[Page 641]]

names of all partners), or corporation applying for the license;
    (2) The address of the applicant's principal place of business in 
the United States and of any branch offices in the United States;
    (3) The date on which the applicant intends to commence the 
collection of foreign items; and
    (4) An estimate of the aggregate amount of annual collections of 
foreign items (in dollars).

The application shall be signed by the applicant (a partner, in the case 
of a partnership, or an officer, in the case of a corporation).
    (d) Issuance of license. The license will be issued by the district 
director in letter form without cost to the licensee.
    (e) Previous license holders. Any person who has been issued a 
license under the corresponding provision of the Internal Revenue Code 
of 1939, or any prior revenue law, is not required to renew such license 
under this section.
    (f) Returns of information as to foreign items. For provisions 
relating to the filing of returns as to foreign items, see section 
6041(b) and Sec.  1.6041-4 of this chapter (Income Tax Regulations).



                                  Bonds



Sec.  301.7101-1  Form of bond and security required.

    (a) In general. Any person required to furnish a bond under the 
provisions of the Code (other than section 6803(a)(1), relating to bonds 
required of certain postmasters before June 6, 1972, and section 7485, 
relating to bonds to stay assessment and collection of a deficiency 
pending review of a Tax Court decision), or under any rules or 
regulations prescribed under the Code, shall (except as provided in 
paragraph (d) of this section) execute such bond--
    (1) On the appropriate form prescribed by the Internal Revenue 
Service (which may be obtained from the district director), and
    (2) With satisfactory surety.

For provisions as to what will be considered ``satisfactory surety'', 
see paragraph (b) of this section. The bonds referred to in this 
paragraph shall be drawn in favor of the United States.
    (b) Satisfactory surety--(1) Approved surety company or bonds or 
notes of the United States. For purposes of paragraph (a) of this 
section, a bond shall be considered executed with satisfactory surety 
if:
    (i) It is executed by a surety company holding a certificate of 
authority from the Secretary as an acceptable surety on Federal bonds; 
or
    (ii) It is secured by bonds or notes of the United States as 
provided in 6 U.S.C. 15 (see 31 CFR part 225).
    (2) Other surety acceptable in discretion of district director. 
Unless otherwise expressly provided in the Code, or the regulations 
thereunder, a bond may, in the discretion of the district director, be 
considered executed with satisfactory surety if, in lieu of being 
executed or secured as provided in subparagraph (1) of this paragraph 
(b), it is:
    (i) Executed by a corporate surety (other than a surety company) 
provided such corporate surety establishes that it is within its 
corporate powers to act as surety for another corporation or an 
individual;
    (ii) Executed by two or more individual sureties, provided such 
individual sureties meet the conditions contained in subparagraph (3) of 
this paragraph (b);
    (iii) Secured by a mortgage on real or personal property;
    (iv) Secured by a certified, cashier's, or treasurer's check drawn 
on any bank or trust company incorporated under the laws of the United 
States or any State, Territory, or possession of the United States, or 
by a U.S. postal, bank, express or telegraph money order;
    (v) Secured by corporate bonds or stocks, or by bonds issued by a 
State or political subdivision thereof, of recognized stability; or
    (vi) Secured by any other acceptable collateral. Collateral shall be 
deposited with the district director or, in his discretion, with a 
responsible financial institution acting as escrow agent.
    (3) Conditions to be met by individual sureties. If a bond is 
executed by two or more individual sureties, the following conditions 
must be met by each such individual surety:
    (i) He must reside within the State in which the principal place of 
business or legal residence of the primary obligor is located;

[[Page 642]]

    (ii) He must have property subject to execution of a current market 
value, above all encumbrances, equal to at least the penalty of the 
bond;
    (iii) All real property which he offers as security must be located 
in the State in which the principal place of business or legal residence 
of the primary obligor is located;
    (iv) He must agree not to mortgage, or otherwise encumber, any 
property offered as security while the bond continues in effect without 
first securing the permission of the district director; and
    (v) He must file with the bond, and annually thereafter so long as 
the bond continues in effect, an affidavit as to the adequacy of his 
security, executed on the appropriate form furnished by the district 
director.

Partners may not act as sureties upon bonds of their partnership. 
Stockholders of a corporate principal may be accepted as sureties 
provided their qualifications as such are independent of their holdings 
of the stock of the corporation.
    (4) Adequacy of surety. No surety or security shall be accepted if 
it does not adequately protect the interest of the United States.
    (c) Bonds required by Internal Revenue Code of 1939. This section 
shall also apply in the case of bonds required under the Internal 
Revenue Code of 1939 (other than sections 1423(b) and 1145) or under the 
regulations under such Code.
    (d) Bonds required under subtitle E and chapter 75 of the Internal 
Revenue Code of 1954. Bonds required under subtitle E and chapter 75, 
subtitle F, of the Internal Revenue Code of 1954 (or under the 
corresponding provisions of the Internal Revenue Code of 1939) shall be 
in such form and with such surety or sureties as are prescribed in the 
regulations in subchapter E of this chapter (Alcohol, Tobacco, and Other 
Excise Taxes).

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7239, 37 FR 28628, Dec. 
28, 1972]



Sec.  301.7102-1  Single bond in lieu of multiple bonds.

    (a) In general. Except as provided in paragraph (b) of this section, 
a person who is required, or authorized, under the Code (other than 
sections 6803(a)(1) and 7485), or under any rules or regulations under 
the Code, to execute two or more bonds may, in the discretion of the 
district director, furnish a single bond in lieu of such two or more 
bonds but only if such single bond meets all the conditions and 
requirements prescribed for each of the separate bonds which it 
replaces. This section shall also apply in the case of bonds required or 
authorized under the Internal Revenue Code of 1939 (other than sections 
1423(b) and 1145) or under the regulations under such Code.
    (b) Bonds required under subtitle E and chapter 75 of the Internal 
Revenue Code of 1954. In the case of bonds required under subtitle E and 
chapter 75, subtitle F, of the Internal Revenue Code of 1954 (or under 
the corresponding provisions of the Internal Revenue Code of 1939), a 
single bond will not be accepted in lieu of two or more bonds except as 
provided in the regulations in subchapter E of this chapter (Alcohol, 
Tobacco, and Other Excise Taxes).



                   Closing Agreements and Compromises



Sec.  301.7121-1  Closing agreements.

    (a) In general. The Commissioner may enter into a written agreement 
with any person relating to the liability of such person (or of the 
person or estate for whom he acts) in respect of any internal revenue 
tax for any taxable period ending prior or subsequent to the date of 
such agreement. A closing agreement may be entered into in any case in 
which there appears to be an advantage in having the case permanently 
and conclusively closed, or if good and sufficient reasons are shown by 
the taxpayer for desiring a closing agreement and it is determined by 
the Commissioner that the United States will sustain no disadvantage 
through consummation of such an agreement.
    (b) Scope of closing agreement--(1) In general. A closing agreement 
may be executed even though under the agreement the taxpayer is not 
liable for any tax for the period to which the agreement relates. There 
may be a series of closing agreements relating to the tax liability for 
a single period.

[[Page 643]]

    (2) Taxable periods ended prior to date of closing agreement. 
Closing agreements with respect to taxable periods ended prior to the 
date of the agreement may relate to the total tax liability of the 
taxpayer or to one or more separate items affecting the tax liability of 
the taxpayer, as, for example, the amount of gross income, deduction for 
losses, depreciation, depletion, the year in which an item of income is 
to be included in gross income, the year in which an item of loss is to 
be deducted, or the value of property on a specific date. A closing 
agreement may also be entered into for the purpose of allowing a 
deficiency dividend deduction under section 547. In addition, a closing 
agreement constitutes a determination as defined by section 1313.
    (3) Taxable periods ending subsequent to date of closing agreement. 
Closing agreements with respect to taxable periods ending subsequent to 
the date of the agreement may relate to one or more separate items 
affecting the tax liability of the taxpayer.
    (4) Illustration. The provisions of this paragraph may be 
illustrated by the following example:

    Example. A owns 500 shares of stock in the XYZ Corporation which he 
purchased prior to March 1, 1913. A is considering selling 200 shares of 
such stock but is uncertain as to the basis of the stock for the purpose 
of computing gain. Either prior or subsequent to the sale, a closing 
agreement may be entered into determining the market value of such stock 
as of March 1, 1913, which represents the basis for determining gain if 
it exceeds the adjusted basis otherwise determined as of such date. Not 
only may the closing agreement determine the basis for computing gain on 
the sale of the 200 shares of stock, but such an agreement may also 
determine the basis (unless or until the law is changed to require the 
use of some other factor to determine basis) of the remaining 300 shares 
of stock upon which gain will be computed in a subsequent sale.

    (c) Finality. A closing agreement which is approved within such time 
as may be stated in such agreement, or later agreed to, shall be final 
and conclusive, and, except upon a showing of fraud or malfeasance, or 
misrepresentation of a material fact:
    (1) The case shall not be reopened as to the matters agreed upon or 
the agreement modified by any officer, employee, or agent of the United 
States, and
    (2) In any suit, action, or proceeding, such agreement, or any 
determination, assessment, collection, payment, abatement, refund, or 
credit made in accordance therewith, shall not be annulled, modified, 
set aside, or disregarded.

However, a closing agreement with respect to a taxable period ending 
subsequent to the date of the agreement is subject to any change in, or 
modification of, the law enacted subsequent to the date of the agreement 
and made applicable to such taxable period, and each closing agreement 
shall so recite.
    (d) Procedure with respect to closing agreements--(1) Submission of 
request. A request for a closing agreement which relates to a prior 
taxable period may be submitted at any time before a case with respect 
to the tax liability involved is docketed in the Tax Court of the United 
States. All closing agreements shall be executed on forms prescribed by 
the Internal Revenue Service. The procedure with respect to requests for 
closing agreements shall be under such rules as may be prescribed from 
time to time by the Commissioner in accordance with the regulations 
under this section.
    (2) Collection, credit, or refund. Any tax or deficiency in tax 
determined pursuant to a closing agreement shall be assessed and 
collected, and any overpayment determined pursuant thereto shall be 
credited or refunded, in accordance with the applicable provisions of 
law.



Sec.  301.7122-0  Table of contents.

    This section lists the major captions that appear in the regulations 
under Sec.  301.7122-1.

                      Sec.  301.7122-1 Compromises.

    (a) In general.
    (b) Grounds for compromise.
    (c) Special rules for the evaluation of offers to compromise.
    (d) Procedures for submission and consideration of offers.
    (e) Acceptance of an offer to compromise a tax liability.
    (f) Rejection of an offer to compromise.
    (g) Effect of offer to compromise on collection activity.
    (h) Deposits.

[[Page 644]]

    (i) Statute of limitations.
    (j) Inspection with respect to accepted offers to compromise.
    (k) Effective date.

[T.D. 9007, 67 FR 48029, July 23, 2002]



Sec.  301.7122-1  Compromises.

    (a) In general--(1) If the Secretary determines that there are 
grounds for compromise under this section, the Secretary may, at the 
Secretary's discretion, compromise any civil or criminal liability 
arising under the internal revenue laws prior to reference of a case 
involving such a liability to the Department of Justice for prosecution 
or defense.
    (2) An agreement to compromise may relate to a civil or criminal 
liability for taxes, interest, or penalties. Unless the terms of the 
offer and acceptance expressly provide otherwise, acceptance of an offer 
to compromise a civil liability does not remit a criminal liability, nor 
does acceptance of an offer to compromise a criminal liability remit a 
civil liability.
    (b) Grounds for compromise--(1) Doubt as to liability. Doubt as to 
liability exists where there is a genuine dispute as to the existence or 
amount of the correct tax liability under the law. Doubt as to liability 
does not exist where the liability has been established by a final court 
decision or judgment concerning the existence or amount of the 
liability. See paragraph (f)(4) of this section for special rules 
applicable to rejection of offers in cases where the Internal Revenue 
Service (IRS) is unable to locate the taxpayer's return or return 
information to verify the liability.
    (2) Doubt as to collectibility. Doubt as to collectibility exists in 
any case where the taxpayer's assets and income are less than the full 
amount of the liability.
    (3) Promote effective tax administration. (i) A compromise may be 
entered into to promote effective tax administration when the Secretary 
determines that, although collection in full could be achieved, 
collection of the full liability would cause the taxpayer economic 
hardship within the meaning of Sec.  301.6343-1.
    (ii) If there are no grounds for compromise under paragraphs (b)(1), 
(2), or (3)(i) of this section, the IRS may compromise to promote 
effective tax administration where compelling public policy or equity 
considerations identified by the taxpayer provide a sufficient basis for 
compromising the liability. Compromise will be justified only where, due 
to exceptional circumstances, collection of the full liability would 
undermine public confidence that the tax laws are being administered in 
a fair and equitable manner. A taxpayer proposing compromise under this 
paragraph (b)(3)(ii) will be expected to demonstrate circumstances that 
justify compromise even though a similarly situated taxpayer may have 
paid his liability in full.
    (iii) No compromise to promote effective tax administration may be 
entered into if compromise of the liability would undermine compliance 
by taxpayers with the tax laws.
    (c) Special rules for evaluating offers to compromise--(1) In 
general. Once a basis for compromise under paragraph (b) of this section 
has been identified, the decision to accept or reject an offer to 
compromise, as well as the terms and conditions agreed to, is left to 
the discretion of the Secretary. The determination whether to accept or 
reject an offer to compromise will be based upon consideration of all 
the facts and circumstances, including whether the circumstances of a 
particular case warrant acceptance of an amount that might not otherwise 
be acceptable under the Secretary's policies and procedures.
    (2) Doubt as to collectibility--(i) Allowable expenses. A 
determination of doubt as to collectibility will include a determination 
of ability to pay. In determining ability to pay, the Secretary will 
permit taxpayers to retain sufficient funds to pay basic living 
expenses. The determination of the amount of such basic living expenses 
will be founded upon an evaluation of the individual facts and 
circumstances presented by the taxpayer's case. To guide this 
determination, guidelines published by the Secretary on national and 
local living expense standards will be taken into account.

[[Page 645]]

    (ii) Nonliable spouses--(A) In general. Where a taxpayer is offering 
to compromise a liability for which the taxpayer's spouse has no 
liability, the assets and income of the nonliable spouse will not be 
considered in determining the amount of an adequate offer. The assets 
and income of a nonliable spouse may be considered, however, to the 
extent property has been transferred by the taxpayer to the nonliable 
spouse under circumstances that would permit the IRS to effect 
collection of the taxpayer's liability from such property (e.g., 
property that was conveyed in fraud of creditors), property has been 
transferred by the taxpayer to the nonliable spouse for the purpose of 
removing the property from consideration by the IRS in evaluating the 
compromise, or as provided in paragraph (c)(2)(ii)(B) of this section. 
The IRS also may request information regarding the assets and income of 
the nonliable spouse for the purpose of verifying the amount of and 
responsibility for expenses claimed by the taxpayer.
    (B) Exception. Where collection of the taxpayer's liability from the 
assets and income of the nonliable spouse is permitted by applicable 
state law (e.g., under state community property laws), the assets and 
income of the nonliable spouse will be considered in determining the 
amount of an adequate offer except to the extent that the taxpayer and 
the nonliable spouse demonstrate that collection of such assets and 
income would have a material and adverse impact on the standard of 
living of the taxpayer, the nonliable spouse, and their dependents.
    (3) Compromises to promote effective tax administration--(i) Factors 
supporting (but not conclusive of) a determination that collection would 
cause economic hardship within the meaning of paragraph (b)(3)(i) of 
this section include, but are not limited to--
    (A) Taxpayer is incapable of earning a living because of a long term 
illness, medical condition, or disability, and it is reasonably 
foreseeable that taxpayer's financial resources will be exhausted 
providing for care and support during the course of the condition;
    (B) Although taxpayer has certain monthly income, that income is 
exhausted each month in providing for the care of dependents with no 
other means of support; and
    (C) Although taxpayer has certain assets, the taxpayer is unable to 
borrow against the equity in those assets and liquidation of those 
assets to pay outstanding tax liabilities would render the taxpayer 
unable to meet basic living expenses.
    (ii) Factors supporting (but not conclusive of) a determination that 
compromise would undermine compliance within the meaning of paragraph 
(b)(3)(iii) of this section include, but are not limited to--
    (A) Taxpayer has a history of noncompliance with the filing and 
payment requirements of the Internal Revenue Code;
    (B) Taxpayer has taken deliberate actions to avoid the payment of 
taxes; and
    (C) Taxpayer has encouraged others to refuse to comply with the tax 
laws.
    (iii) The following examples illustrate the types of cases that may 
be compromised by the Secretary, at the Secretary's discretion, under 
the economic hardship provisions of paragraph (b)(3)(i) of this section:

    Example 1. The taxpayer has assets sufficient to satisfy the tax 
liability. The taxpayer provides full time care and assistance to her 
dependent child, who has a serious long-term illness. It is expected 
that the taxpayer will need to use the equity in his assets to provide 
for adequate basic living expenses and medical care for his child. The 
taxpayer's overall compliance history does not weigh against compromise.
    Example 2. The taxpayer is retired and his only income is from a 
pension. The taxpayer's only asset is a retirement account, and the 
funds in the account are sufficient to satisfy the liability. 
Liquidation of the retirement account would leave the taxpayer without 
an adequate means to provide for basic living expenses. The taxpayer's 
overall compliance history does not weigh against compromise.
    Example 3. The taxpayer is disabled and lives on a fixed income that 
will not, after allowance of basic living expenses, permit full payment 
of his liability under an installment agreement. The taxpayer also owns 
a modest house that has been specially equipped to accommodate his 
disability. The taxpayer's equity in the house is sufficient to permit 
payment of the liability he owes.

[[Page 646]]

However, because of his disability and limited earning potential, the 
taxpayer is unable to obtain a mortgage or otherwise borrow against this 
equity. In addition, because the taxpayer's home has been specially 
equipped to accommodate his disability, forced sale of the taxpayer's 
residence would create severe adverse consequences for the taxpayer. The 
taxpayer's overall compliance history does not weigh against compromise.

    (iv) The following examples illustrate the types of cases that may 
be compromised by the Secretary, at the Secretary's discretion, under 
the public policy and equity provisions of paragraph (b)(3)(ii) of this 
section:

    Example 1. In October of 1986, the taxpayer developed a serious 
illness that resulted in almost continuous hospitalizations for a number 
of years. The taxpayer's medical condition was such that during this 
period the taxpayer was unable to manage any of his financial affairs. 
The taxpayer has not filed tax returns since that time. The taxpayer's 
health has now improved and he has promptly begun to attend to his tax 
affairs. He discovers that the IRS prepared a substitute for return for 
the 1986 tax year on the basis of information returns it had received 
and had assessed a tax deficiency. When the taxpayer discovered the 
liability, with penalties and interest, the tax bill is more than three 
times the original tax liability. The taxpayer's overall compliance 
history does not weigh against compromise.
    Example 2. The taxpayer is a salaried sales manager at a department 
store who has been able to place $2,000 in a tax-deductible IRA account 
for each of the last two years. The taxpayer learns that he can earn a 
higher rate of interest on his IRA savings by moving those savings from 
a money management account to a certificate of deposit at a different 
financial institution. Prior to transferring his savings, the taxpayer 
submits an e-mail inquiry to the IRS at its Web Page, requesting 
information about the steps he must take to preserve the tax benefits he 
has enjoyed and to avoid penalties. The IRS responds in an answering e-
mail that the taxpayer may withdraw his IRA savings from his 
neighborhood bank, but he must redeposit those savings in a new IRA 
account within 90 days. The taxpayer withdraws the funds and redeposits 
them in a new IRA account 63 days later. Upon audit, the taxpayer learns 
that he has been misinformed about the required rollover period and that 
he is liable for additional taxes, penalties and additions to tax for 
not having redeposited the amount within 60 days. Had it not been for 
the erroneous advice that is reflected in the taxpayer's retained copy 
of the IRS e-mail response to his inquiry, the taxpayer would have 
redeposited the amount within the required 60-day period. The taxpayer's 
overall compliance history does not weigh against compromise.

    (d) Procedures for submission and consideration of offers--(1) In 
general. An offer to compromise a tax liability pursuant to section 7122 
must be submitted according to the procedures, and in the form and 
manner, prescribed by the Secretary. An offer to compromise a tax 
liability must be made in writing, must be signed by the taxpayer under 
penalty of perjury, and must contain all of the information prescribed 
or requested by the Secretary. However, taxpayers submitting offers to 
compromise liabilities solely on the basis of doubt as to liability will 
not be required to provide financial statements.
    (2) When offers become pending and return of offers. An offer to 
compromise becomes pending when it is accepted for processing. The IRS 
may not accept for processing any offer to compromise a liability 
following reference of a case involving such liability to the Department 
of Justice for prosecution or defense. If an offer accepted for 
processing does not contain sufficient information to permit the IRS to 
evaluate whether the offer should be accepted, the IRS will request that 
the taxpayer provide the needed additional information. If the taxpayer 
does not submit the additional information that the IRS has requested 
within a reasonable time period after such a request, the IRS may return 
the offer to the taxpayer. The IRS may also return an offer to 
compromise a tax liability if it determines that the offer was submitted 
solely to delay collection or was otherwise nonprocessable. An offer 
returned following acceptance for processing is deemed pending only for 
the period between the date the offer is accepted for processing and the 
date the IRS returns the offer to the taxpayer. See paragraphs 
(f)(5)(ii) and (g)(4) of this section for rules regarding the effect of 
such returns of offers.
    (3) Withdrawal. An offer to compromise a tax liability may be 
withdrawn by the taxpayer or the taxpayer's representative at any time 
prior to the IRS' acceptance of the offer to compromise. An offer will 
be

[[Page 647]]

considered withdrawn upon the IRS' receipt of written notification of 
the withdrawal of the offer either by personal delivery or certified 
mail, or upon issuance of a letter by the IRS confirming the taxpayer's 
intent to withdraw the offer.
    (e) Acceptance of an offer to compromise a tax liability. (1) An 
offer to compromise has not been accepted until the IRS issues a written 
notification of acceptance to the taxpayer or the taxpayer's 
representative.
    (2) As additional consideration for the acceptance of an offer to 
compromise, the IRS may request that taxpayer enter into any collateral 
agreement or post any security which is deemed necessary for the 
protection of the interests of the United States.
    (3) Offers may be accepted when they provide for payment of 
compromised amounts in one or more equal or unequal installments.
    (4) If the final payment on an accepted offer to compromise is 
contingent upon the immediate and simultaneous release of a tax lien in 
whole or in part, such payment must be made in accordance with the 
forms, instructions, or procedures prescribed by the Secretary.
    (5) Acceptance of an offer to compromise will conclusively settle 
the liability of the taxpayer specified in the offer. Compromise with 
one taxpayer does not extinguish the liability of, nor prevent the IRS 
from taking action to collect from, any person not named in the offer 
who is also liable for the tax to which the compromise relates. Neither 
the taxpayer nor the Government will, following acceptance of an offer 
to compromise, be permitted to reopen the case except in instances 
where--
    (i) False information or documents are supplied in conjunction with 
the offer;
    (ii) The ability to pay or the assets of the taxpayer are concealed; 
or
    (iii) A mutual mistake of material fact sufficient to cause the 
offer agreement to be reformed or set aside is discovered.
    (6) Opinion of Chief Counsel. Except as otherwise provided in this 
paragraph (e)(6), if an offer to compromise is accepted, there will be 
placed on file the opinion of the Chief Counsel for the IRS with respect 
to such compromise, along with the reasons therefor. However, no such 
opinion will be required with respect to the compromise of any civil 
case in which the unpaid amount of tax assessed (including any interest, 
additional amount, addition to the tax, or assessable penalty) is less 
than $50,000. Also placed on file will be a statement of--
    (i) The amount of tax assessed;
    (ii) The amount of interest, additional amount, addition to the tax, 
or assessable penalty, imposed by law on the person against whom the tax 
is assessed; and
    (iii) The amount actually paid in accordance with the terms of the 
compromise.
    (f) Rejection of an offer to compromise. (1) An offer to compromise 
has not been rejected until the IRS issues a written notice to the 
taxpayer or his representative, advising of the rejection, the reason(s) 
for rejection, and the right to an appeal.
    (2) The IRS may not notify a taxpayer or taxpayer's representative 
of the rejection of an offer to compromise until an independent 
administrative review of the proposed rejection is completed.
    (3) No offer to compromise may be rejected solely on the basis of 
the amount of the offer without evaluating that offer under the 
provisions of this section and the Secretary's policies and procedures 
regarding the compromise of cases.
    (4) Offers based upon doubt as to liability. Offers submitted on the 
basis of doubt as to liability cannot be rejected solely because the IRS 
is unable to locate the taxpayer's return or return information for 
verification of the liability.
    (5) Appeal of rejection of an offer to compromise--(i) In general. 
The taxpayer may administratively appeal a rejection of an offer to 
compromise to the IRS Office of Appeals (Appeals) if, within the 30-day 
period commencing the day after the date on the letter of rejection, the 
taxpayer requests such an administrative review in the manner provided 
by the Secretary.
    (ii) Offer to compromise returned following a determination that the 
offer was nonprocessable, a failure by the taxpayer

[[Page 648]]

to provide requested information, or a determination that the offer was 
submitted for purposes of delay. Where a determination is made to return 
offer documents because the offer to compromise was nonprocessable, 
because the taxpayer failed to provide requested information, or because 
the IRS determined that the offer to compromise was submitted solely for 
purposes of delay under paragraph (d)(2) of this section, the return of 
the offer does not constitute a rejection of the offer for purposes of 
this provision and does not entitle the taxpayer to appeal the matter to 
Appeals under the provisions of this paragraph (f)(5). However, if the 
offer is returned because the taxpayer failed to provide requested 
financial information, the offer will not be returned until a managerial 
review of the proposed return is completed.
    (g) Effect of offer to compromise on collection activity--(1) In 
general. The IRS will not levy against the property or rights to 
property of a taxpayer who submits an offer to compromise, to collect 
the liability that is the subject of the offer, during the period the 
offer is pending, for 30 days immediately following the rejection of the 
offer, and for any period when a timely filed appeal from the rejection 
is being considered by Appeals.
    (2) Revised offers submitted following rejection. If, following the 
rejection of an offer to compromise, the taxpayer makes a good faith 
revision of that offer and submits the revised offer within 30 days 
after the date of rejection, the IRS will not levy to collect from the 
taxpayer the liability that is the subject of the revised offer to 
compromise while that revised offer is pending.
    (3) Jeopardy. The IRS may levy to collect the liability that is the 
subject of an offer to compromise during the period the IRS is 
evaluating whether that offer will be accepted if it determines that 
collection of the liability is in jeopardy.
    (4) Offers to compromise determined by IRS to be nonprocessable or 
submitted solely for purposes of delay. If the IRS determines, under 
paragraph (d)(2) of this section, that a pending offer did not contain 
sufficient information to permit evaluation of whether the offer should 
be accepted, that the offer was submitted solely to delay collection, or 
that the offer was otherwise nonprocessable, then the IRS may levy to 
collect the liability that is the subject of that offer at any time 
after it returns the offer to the taxpayer.
    (5) Offsets under section 6402. Notwithstanding the evaluation and 
processing of an offer to compromise, the IRS may, in accordance with 
section 6402, credit any overpayments made by the taxpayer against a 
liability that is the subject of an offer to compromise and may offset 
such overpayments against other liabilities owed by the taxpayer to the 
extent authorized by section 6402.
    (6) Proceedings in court. Except as otherwise provided in this 
paragraph (g)(6), the IRS will not refer a case to the Department of 
Justice for the commencement of a proceeding in court, against a person 
named in a pending offer to compromise, if levy to collect the liability 
is prohibited by paragraph (g)(1) of this section. Without regard to 
whether a person is named in a pending offer to compromise, however, the 
IRS may authorize the Department of Justice to file a counterclaim or 
third-party complaint in a refund action or to join that person in any 
other proceeding in which liability for the tax that is the subject of 
the pending offer to compromise may be established or disputed, 
including a suit against the United States under 28 U.S.C. 2410. In 
addition, the United States may file a claim in any bankruptcy 
proceeding or insolvency action brought by or against such person.
    (h) Deposits. Sums submitted with an offer to compromise a liability 
or during the pendency of an offer to compromise are considered deposits 
and will not be applied to the liability until the offer is accepted 
unless the taxpayer provides written authorization for application of 
the payments. If an offer to compromise is withdrawn, is determined to 
be nonprocessable, or is submitted solely for purposes of delay and 
returned to the taxpayer, any amount tendered with the offer, including 
all installments paid on the offer, will be refunded without interest. 
If an offer is rejected, any amount tendered

[[Page 649]]

with the offer, including all installments paid on the offer, will be 
refunded, without interest, after the conclusion of any review sought by 
the taxpayer with Appeals. Refund will not be required if the taxpayer 
has agreed in writing that amounts tendered pursuant to the offer may be 
applied to the liability for which the offer was submitted.
    (i) Statute of limitations--(1) Suspension of the statute of 
limitations on collection. The statute of limitations on collection will 
be suspended while levy is prohibited under paragraph (g)(1) of this 
section.
    (2) Extension of the statute of limitations on assessment. For any 
offer to compromise, the IRS may require, where appropriate, the 
extension of the statute of limitations on assessment. However, in any 
case where waiver of the running of the statutory period of limitations 
on assessment is sought, the taxpayer must be notified of the right to 
refuse to extend the period of limitations or to limit the extension to 
particular issues or particular periods of time.
    (j) Inspection with respect to accepted offers to compromise. For 
provisions relating to the inspection of returns and accepted offers to 
compromise, see section 6103(k)(1).
    (k) Effective date. This section applies to offers to compromise 
pending on or submitted on or after July 18, 2002.

[T.D. 9007, 67 FR 48029, July 23, 2002; 67 FR 53879, Aug. 20, 2002]



                 Crimes, Other Offenses, and Forfeitures

                                 Crimes

                           general provisions



Sec.  301.7207-1  Fraudulent returns, statements, or other documents.

    Any person who willfully delivers or discloses to any officer or 
employee of the Internal Revenue Service any list, return, account, 
statement, or other document, known by him to be fraudulent or to be 
false as to any material matter, shall be fined not more than $1,000, or 
imprisoned not more than 1 year, or both. Any person required pursuant 
to section 6047 (b) or (c) or, section 6104(d), to furnish information 
to any officer or employee of the Internal Revenue Service or any other 
person who willfully furnishes to such officer or employee of the 
Internal Revenue Service or such other person any information known by 
him to be fraudulent or to be false as to any material matter shall be 
fined not more than $1,000, or imprisoned not more than 1 year, or both.

[T.D. 7127, 36 FR 11505, June 15, 1971, as amended by T.D. 8026, 50 FR 
20758, May 20, 1985]



Sec.  301.7209-1  Unauthorized use or sale of stamps.

    (a) Any person who buys, sells, offers for sale, uses, transfers, 
takes or gives in exchange, or pledges or gives in pledge, except as 
authorized in the Code or in regulations made pursuant thereto, any 
stamp, coupon, ticket, book, or other device prescribed by the 
Commissioner under the Code for the collection or payment of any tax 
imposed by the Code, shall, upon conviction thereof, be fined not more 
than $1,000, or imprisoned not more than 6 months, or both.
    (b) For use or resale of unused documentary stamps, see paragraph 
(c) of Sec.  43.6802-1 of this chapter (Documentary Stamp Tax 
Regulations).



Sec.  301.7214-1  Offenses by officers and employees of the United States.

    Any officer or employee of the United States acting in connection 
with any revenue law of the United States required to make a written 
report under the provisions of section 7214(a)(8) shall submit such 
report to the Commissioner, or to a regional commissioner or district 
director.



Sec.  301.7216-0  Table of contents.

    This section lists captions contained in Sec. Sec.  301.7216-1 
through 301.7216-3.

      Sec.  301.7216-1 Penalty for disclosure or use of tax return 
                              information.

    (a) In general.
    (b) Definitions.
    (c) Gramm-Leach-Bliley Act.
    (d) Effective date.

[[Page 650]]

Sec.  301.7216-2 Permissible disclosures or uses without consent of the 
                                taxpayer.

    (a) Disclosure pursuant to other provisions of the Internal Revenue 
Code.
    (b) Disclosures to the IRS.
    (c) Disclosures or uses for preparation of a taxpayer's return.
    (d) Disclosures to other tax return preparers.
    (e) Disclosure or use of information in the case of related 
taxpayers.
    (f) Disclosure pursuant to an order of a court, or an administrative 
order, demand, request, summons or subpoena which is issued in the 
performance of its duties by a Federal or State agency, the United 
States Congress, a professional association ethics committee or board, 
or the Public Company Accounting Oversight Board.
    (g) Disclosure for use in securing legal advice, Treasury 
investigations or court proceedings.
    (h) Certain disclosures by attorneys and accountants.
    (i) Corporate fiduciaries.
    (j) Disclosure to taxpayer's fiduciary.
    (k) Disclosure or use of information in preparation or audit of 
State or local tax returns or assisting a taxpayer with foreign country 
tax obligations.
    (l) Payment for tax preparation services.
    (m) Retention of records.
    (n) Lists for solicitation of tax return preparation business.
    (o) Producing statistical information in connection with tax return 
preparation business.
    (p) Disclosure or use of information for quality, peer, or conflict 
reviews.
    (q) Disclosure to report the commission of a crime.
    (r) Disclosure of tax return information due to a tax return 
preparer's incapacity or death.
    (s) Effective date.

 Sec.  301.7216-3 Disclosure or use permitted only with the taxpayer's 
                                consent.

    (a) In general.
    (b) Timing requirements and limitations.
    (c) Special rules.
    (d) Effective date.

[T.D. 9375, 73 FR 1067, Jan. 7, 2008, as amended by T.D. 9478, 75 FR 52, 
Jan. 4, 2010; T.D. 9608, 77 FR 76403, Dec. 28, 2012]



Sec.  301.7216-1  Penalty for disclosure or use of tax return information.

    (a) In general. Section 7216(a) prescribes a criminal penalty for 
tax return preparers who knowingly or recklessly disclose or use tax 
return information for a purpose other than preparing a tax return. A 
violation of section 7216 is a misdemeanor, with a maximum penalty of up 
to one year imprisonment or a fine of not more than $1,000, or both, 
together with the costs of prosecution. Section 7216(b) establishes 
exceptions to the general rule in section 7216(a) prohibiting disclosure 
and use. Section 7216(b) also authorizes the Secretary to promulgate 
regulations prescribing additional permitted disclosures and uses. 
Section 6713(a) prescribes a related civil penalty for disclosures and 
uses that constitute a violation of section 7216. The penalty for 
violating section 6713 is $250 for each prohibited disclosure or use, 
not to exceed a total of $10,000 for a calendar year. Section 6713(b) 
provides that the exceptions in section 7216(b) also apply to section 
6713. Under section 7216(b), the provisions of section 7216(a) will not 
apply to any disclosure or use permitted under regulations prescribed by 
the Secretary.
    (b) Definitions. For purposes of section 7216 and Sec. Sec.  
301.7216-1 through 301.7216-3:
    (1) Tax return. The term tax return means any return (or amended 
return) of income tax imposed by chapter 1 of the Internal Revenue Code.
    (2) Tax return preparer--(i) In general. The term tax return 
preparer means:
    (A) Any person who is engaged in the business of preparing or 
assisting in preparing tax returns;
    (B) Any person who is engaged in the business of providing auxiliary 
services in connection with the preparation of tax returns, including a 
person who develops software that is used to prepare or file a tax 
return and any Authorized IRS e-file Provider;
    (C) Any person who is otherwise compensated for preparing, or 
assisting in preparing, a tax return for any other person; or
    (D) Any individual who, as part of their duties of employment with 
any person described in paragraph (b)(2)(i)(A), (B), or (C) of this 
section performs services that assist in the preparation of, or assist 
in providing auxiliary services in connection with the preparation of, a 
tax return.
    (ii) Business of preparing returns. A person is engaged in the 
business of preparing tax returns as described in paragraph (b)(2)(i)(A) 
of this section if,

[[Page 651]]

in the course of the person's business, the person holds himself out to 
tax return preparers or taxpayers as a person who prepares tax returns 
or assists in preparing tax returns, whether or not tax return 
preparation is the person's sole business activity and whether or not 
the person charges a fee for tax return preparation services.
    (iii) Providing auxiliary services. A person is engaged in the 
business of providing auxiliary services in connection with the 
preparation of tax returns as described in paragraph (b)(2)(i)(B) of 
this section if, in the course of the person's business, the person 
holds himself out to tax return preparers or to taxpayers as a person 
who performs auxiliary services, whether or not providing the auxiliary 
services is the person's sole business activity and whether or not the 
person charges a fee for the auxiliary services. Likewise, a person is 
engaged in the business of providing auxiliary services if, in the 
course of the person's business, the person receives a taxpayer's tax 
return information from another tax return preparer pursuant to the 
provisions of Sec.  301.7216-2(d)(2).
    (iv) Otherwise compensated. A tax return preparer described in 
paragraph (b)(2)(i)(C) of this section includes any person who--
    (A) Is compensated for preparing a tax return for another person, 
but not in the course of a business; or
    (B) Is compensated for helping, on a casual basis, a relative, 
friend, or other acquaintance to prepare their tax return.
    (v) Exclusions. A person is not a tax return preparer merely because 
he leases office space to a tax return preparer, furnishes credit to a 
taxpayer whose tax return is prepared by a tax return preparer, 
furnishes information to a tax return preparer at the taxpayer's 
request, furnishes access (free or otherwise) to a separate person's tax 
return preparation Web site through a hyperlink on his own Web site, or 
otherwise performs some service that only incidentally relates to the 
preparation of tax returns.
    (vi) Examples. The application of Sec.  301.7216-1(b)(2) may be 
illustrated by the following examples:

    Example 1. Bank B is a tax return preparer within the meaning of 
paragraph (b)(2)(i)(A) of this section, and an Authorized IRS e-file 
Provider. B employs one individual, Q, to solicit the necessary tax 
return information for the preparation of a tax return; another 
individual, R, to prepare the return on the basis of the information 
that is furnished; a secretary, S, who types the information on the 
returns into a computer; and an administrative assistant, T, who uses a 
computer to file electronic versions of the tax returns. Under these 
circumstances, only R is a tax return preparer for purposes of section 
7701(a)(36), but all four employees are tax return preparers for 
purposes of section 7216, as provided in paragraph (b) of this section.
    Example 2. Tax return preparer P contracts with department store D 
to rent space in D's store. D advertises that taxpayers who use P's 
services may charge the cost of having their tax return prepared to 
their charge account with D. Under these circumstances, D is not a tax 
return preparer because it provides space, credit, and services only 
incidentally related to the preparation of tax returns.

    (3) Tax return information--(i) In general. The term tax return 
information means any information, including, but not limited to, a 
taxpayer's name, address, or identifying number, which is furnished in 
any form or manner for, or in connection with, the preparation of a tax 
return of the taxpayer. This information includes information that the 
taxpayer furnishes to a tax return preparer and information furnished to 
the tax return preparer by a third party. Tax return information also 
includes information the tax return preparer derives or generates from 
tax return information in connection with the preparation of a 
taxpayer's return.
    (A) Tax return information can be provided directly by the taxpayer 
or by another person. Likewise, tax return information includes 
information received by the tax return preparer from the IRS in 
connection with the processing of such return, including an 
acknowledgment of acceptance or notice of rejection of an electronically 
filed return.
    (B) Tax return information includes statistical compilations of tax 
return information, even in a form that cannot be associated with, or 
otherwise identify, directly or indirectly, a particular taxpayer. See 
Sec.  301.7216-2(o) for limited use of tax return information

[[Page 652]]

to make statistical compilations without taxpayer consent and to use the 
statistical compilations for limited purposes.
    (C) Tax return information does not include information identical to 
any tax return information that has been furnished to a tax return 
preparer if the identical information was obtained otherwise than in 
connection with the preparation of a tax return.
    (D) Information is considered ``in connection with tax return 
preparation,'' and therefore tax return information, if the taxpayer 
would not have furnished the information to the tax return preparer but 
for the intention to engage, or the engagement of, the tax return 
preparer to prepare the tax return.
    (ii) Examples. The application of this paragraph (b)(3) may be 
illustrated by the following examples:

    Example 1. Taxpayer A purchases computer software designed to assist 
with the preparation and filing of her income tax return. When A loads 
the software onto her computer, it prompts her to register her purchase 
of the software. In this situation, the software provider is a tax 
return preparer under paragraph (b)(2)(i)(B) of this section and the 
information that A provides to register her purchase is tax return 
information because she is providing it in connection with the 
preparation of a tax return.
    Example 2. Corporation A is a brokerage firm that maintains a Web 
site through which its clients may access their accounts, trade stocks, 
and generally conduct a variety of financial activities. Through its Web 
site, A offers its clients free access to its own tax preparation 
software. Taxpayer B is a client of A and has furnished A his name, 
address, and other information when registering for use of A's Web site 
to use A's brokerage services. In addition, A has a record of B's 
brokerage account activity, including sales of stock, dividends paid, 
and IRA contributions made. B uses A's tax preparation software to 
prepare his tax return. The software populates some fields on B's return 
on the basis of information A already maintains in its databases. A is a 
tax return preparer within the meaning of paragraph (b)(2)(i)(B) of this 
section because it has prepared and provided software for use in 
preparing tax returns. The information in A's databases that the 
software accesses to populate B's return, i.e., the registration 
information and brokerage account activity, is not tax return 
information because A did not receive that information in connection 
with the preparation of a tax return. Once A uses the information to 
populate the return, however, the information associated with the return 
becomes tax return information. If A retains the information in a form 
in which A can identify that the information was used in connection with 
the preparation of a return, the information in that form is tax return 
information. If, however, A retains the information in a database in 
which A cannot identify whether the information was used in connection 
with the preparation of a return, then that information is not tax 
return information.

    (4) Use--(i) In general. Use of tax return information includes any 
circumstance in which a tax return preparer refers to, or relies upon, 
tax return information as the basis to take or permit an action.
    (ii) Example. The application of this paragraph (b)(4) may be 
illustrated by the following example:

    Example. Preparer G is a tax return preparer as defined by paragraph 
(b)(2)(i)(A) of this section. If G determines, upon preparing a return, 
that the taxpayer is eligible to make a contribution to an individual 
retirement account (IRA), G will ask whether the taxpayer desires to 
make a contribution to an IRA. G does not ask about IRAs in cases in 
which the taxpayer is not eligible to make a contribution. G is using 
tax return information when it asks whether a taxpayer is interested in 
making a contribution to an IRA because G is basing the inquiry upon 
knowledge gained from information that the taxpayer furnished in 
connection with the preparation of the taxpayer's return.

    (5) Disclosure. The term disclosure means the act of making tax 
return information known to any person in any manner whatever. To the 
extent that a taxpayer's use of a hyperlink results in the transmission 
of tax return information, this transmission of tax return information 
is a disclosure by the tax return preparer subject to penalty under 
section 7216 if not authorized by regulation.
    (6) Hyperlink. For purposes of section 7216, a hyperlink is a device 
used to transfer an individual using tax preparation software from a tax 
return preparer's Web page to a Web page operated by another person 
without the individual having to separately enter the Web address of the 
destination page.
    (7) Request for consent. A request for consent includes any effort 
by a tax return preparer to obtain the taxpayer's

[[Page 653]]

consent to use or disclose the taxpayer's tax return information. The 
act of supplying a taxpayer with a paper or electronic form that meets 
the requirements of a revenue procedure published pursuant to Sec.  
301.7216-3(a) is a request for a consent. When a tax return preparer 
requests a taxpayer's consent, any associated efforts of the tax return 
preparer, including, but not limited to, verbal or written explanations 
of the form, are part of the request for consent.
    (c) Gramm-Leach-Bliley Act. Any applicable requirements of the 
Gramm-Leach-Bliley Act, Public Law 106-102 (113 Stat. 1338), do not 
supersede, alter, or affect the requirements of section 7216 and 
Sec. Sec.  301.7216-1 through 301.7216-3. Similarly, the requirements of 
section 7216 and Sec. Sec.  301.7216-1 through 301.7216-3 do not 
override any requirements or restrictions of the Gramm-Leach-Bliley Act, 
which are in addition to the requirements or restrictions of section 
7216 and Sec. Sec.  301.7216-1 through 301.7216-3.
    (d) Effective/applicability date. This section applies to 
disclosures or uses of tax return information occurring on or after 
January 1, 2009.

[T.D. 9375, 73 FR 1067, Jan. 7, 2008]



Sec.  301.7216-2  Permissible disclosures or uses without consent 
of the taxpayer.

    (a) Disclosure pursuant to other provisions of the Internal Revenue 
Code. The provisions of section 7216(a) and Sec.  301.7216-1 shall not 
apply to any disclosure of tax return information if the disclosure is 
made pursuant to any other provision of the Internal Revenue Code or the 
regulations thereunder.
    (b) Disclosures to the IRS. The provisions of section 7216(a) and 
Sec.  301.7216-1 shall not apply to any disclosure of tax return 
information to an officer or employee of the IRS.
    (c) Disclosures or uses for preparation of a taxpayer's return--(1) 
Updating Taxpayers' Tax Return Preparation Software. If a tax return 
preparer provides software to a taxpayer that is used in connection with 
the preparation or filing of a tax return, the tax return preparer may 
use the taxpayer's tax return information to update the taxpayer's 
software for the purpose of addressing changes in IRS forms, e-file 
specifications and administrative, regulatory and legislative guidance 
or to test and ensure the software's technical capabilities without the 
taxpayer's consent under Sec.  301.7216-3.
    (2) Tax return preparers located within the same firm in the United 
States. If a taxpayer furnishes tax return information to a tax return 
preparer located within the United States, including any territory or 
possession of the United States, an officer, employee, or member of a 
tax return preparer may use the tax return information, or disclose the 
tax return information to another officer, employee, or member of the 
same tax return preparer, for the purpose of performing services that 
assist in the preparation of, or assist in providing auxiliary services 
in connection with the preparation of, the taxpayer's tax return. If an 
officer, employee, or member to whom the tax return information is to be 
disclosed is located outside of the United States or any territory or 
possession of the United States, the taxpayer's consent under Sec.  
301.7216-3 prior to any disclosure is required.
    (3) Furnishing tax return information to tax return preparers 
located outside the United States. If a taxpayer initially furnishes tax 
return information to a tax return preparer located outside of the 
United States or any territory or possession of the United States, an 
officer, employee, or member of a tax return preparer may use tax return 
information, or disclose any tax return information to another officer, 
employee, or member of the same tax return preparer, for the purpose of 
performing services that assist in the preparation of, or assist in 
providing auxiliary services in connection with the preparation of, the 
tax return of a taxpayer by or for whom the information was furnished 
without the taxpayer's consent under Sec.  301.7216-3.
    (4) Examples. The following examples illustrate this paragraph (c):

    Example 1. Preparer P provides tax return preparation software to 
Taxpayer T for T to use in the preparation of its 2009 income tax 
return. For the 2009 tax year, and using T's tax return information 
furnished while registering for the software, P would like to update the 
tax return preparation software that T is using to account for last 
minute changes made to the tax laws for the 2009 tax

[[Page 654]]

year. P is not required to obtain T's consent to update the tax return 
preparation software. P may perform a software update regardless of 
whether the software update will affect T's particular return 
preparation activities.
    Example 2. T is a client of Firm, which is a tax return preparer. E, 
an employee at Firm's State A office, receives tax return information 
from T for use in preparing T's income tax return. E discloses the tax 
return information to P, an employee in Firm's State B office; P uses 
the tax return information to process T's income tax return. Firm is not 
required to receive T's consent under Sec.  301.7216-3 prior to E's 
disclosure of T's tax return information to P because the tax return 
information is disclosed to an employee employed by the same tax return 
preparer located within the United States.
    Example 3. Same facts as Example 2 except T's tax return information 
is disclosed to FE who is located in Firm's Country F office. FE uses 
the tax return information to process T's income tax return. After 
processing, FE returns the processed tax return information to E in 
Firm's State A office. Because FE is outside of the United States, Firm 
is required to obtain T's consent under Sec.  301.7216-3 prior to E's 
disclosure of T's tax return information to FE.
    Example 4. T, Firm's client, is temporarily located in Country F. 
She initially furnishes her tax return information to employee FE in 
Firm's Country F office for the purpose of having Firm prepare her U.S. 
income tax return. FE makes the substantive determinations concerning 
T's tax liability and forwards T's tax return information to FP, an 
employee in Firm's Country P office, for the purpose of processing T's 
tax return information. FP processes the return information and forwards 
it to Partner at Firm's State A office in the United States for review 
and delivery to T. Because T initially furnished the tax return 
information to a tax return preparer outside of the United States, T's 
prior consent for disclosure or use under Sec.  301.7216-3 was not 
required. An officer, employee, or member of Firm in the United States 
may use T's tax return information or disclose the tax return 
information to another officer, employee, or member of Firm without T's 
prior consent under Sec.  301.7216-3 as long as any disclosure or use of 
T's tax return information is within the United States. Firm is required 
to receive T's consent under Sec.  301.7216-3 prior to any subsequent 
disclosure of T's tax return information to a tax return preparer 
located outside of the United States.

    (d) Disclosures to other tax return preparers--(1) Preparer-to-
preparer disclosures. Except as limited in paragraph (d)(2) of this 
section, an officer, employee, or member of a tax return preparer may 
disclose tax return information of a taxpayer to another tax return 
preparer (other than an officer, employee, or member of the same tax 
return preparer) located in the United States (including any territory 
or possession of the United States) for the purpose of preparing or 
assisting in preparing a tax return, or obtaining or providing auxiliary 
services in connection with the preparation of any tax return, so long 
as the services provided are not substantive determinations or advice 
affecting the tax liability reported by taxpayers. A substantive 
determination involves an analysis, interpretation, or application of 
the law. The authorized disclosures permitted under this paragraph 
(d)(1) include one tax return preparer disclosing tax return information 
to another tax return preparer for the purpose of having the second tax 
return preparer transfer that information to, and compute the tax 
liability on, a tax return of the taxpayer by means of electronic, 
mechanical, or other form of tax return processing service. The 
authorized disclosures permitted under this paragraph (d)(1) also 
include disclosures by a tax return preparer to an Authorized IRS e-file 
Provider for the purpose of electronically filing the return with the 
IRS. Authorized disclosures also include disclosures by a tax return 
preparer to a second tax return preparer for the purpose of making 
information concerning the return available to the taxpayer. This would 
include, for example, whether the return has been accepted or rejected 
by the IRS, or the status of the taxpayer's refund. Except as provided 
in paragraph (c) of this section, a tax return preparer may not disclose 
tax return information to another tax return preparer for the purpose of 
the second tax return preparer providing substantive determinations 
without first receiving the taxpayer's consent in accordance with the 
rules under Sec.  301.7216-3.
    (2) Disclosures to contractors. A tax return preparer may disclose 
tax return information to a person under contract with the tax return 
preparer in connection with the programming, maintenance, repair, 
testing, or procurement of equipment or software used for purposes of 
tax return preparation only to

[[Page 655]]

the extent necessary for the person to provide the contracted services, 
and only if the tax return preparer ensures that all individuals who are 
to receive disclosures of tax return information receive a written 
notice that informs them of the applicability of sections 6713 and 7216 
to them and describes the requirements and penalties of sections 6713 
and 7216. Contractors receiving tax return information pursuant to this 
section are tax return preparers under section 7216 because they are 
performing auxiliary services in connection with tax return preparation. 
See Sec.  301.7216-1(b)(2)(i)(B) and (D).
    (3) Examples. The following examples illustrate this paragraph (d):

    Example 1. E, an employee at Firm's State A office, receives tax 
return information from T for Firm's use in preparing T's income tax 
return. E makes substantive determinations and forwards the tax return 
information to P, an employee at Processor; Processor is located in 
State B. P places the tax return information on the income tax return 
and furnishes the finished product to E. E is not required to receive 
T's prior consent under Sec.  301.7216-3 before disclosing T's tax 
return information to P because Processor's services are not substantive 
determinations and the tax return information remained in the United 
States at Processor's State B office during the entire course of the tax 
return preparation process.
    Example 2. Firm, a tax return preparer, offers income tax return 
preparation services. Firm's contract with its software provider, 
Contractor, requires Firm to periodically randomly select certain 
taxpayers' tax return information solely for the purpose of testing the 
reliability of the software sold to Firm. Under its agreement with 
Contractor, Firm discloses tax return information to Contractor's 
employee, C, who services Firm's contract without providing Contractor 
or C with a written notice that describes the requirements of and 
penalties under sections 7216 and 6713. C uses the tax return 
information solely for quality assurance purposes. Firm's disclosure of 
tax return information to C was an impermissible disclosure because Firm 
failed to ensure that C received a written notice that describes the 
requirements and penalties of sections 7216 and 6713.
    Example 3. E, an employee of Firm in State A in the United States, 
receives tax return information from T for use in preparing T's income 
tax return. After E enters T's tax return information into Firm's 
computer, that information is stored on a computer server that is 
physically located in State A. Firm contracts with Contractor, located 
in Country F, to prepare its clients' tax returns. FE, an employee of 
Contractor, uses a computer in Country F and inputs a password to view 
T's income tax information stored on the computer server in State A to 
prepare T's tax return. A computer program permits FE to view T's tax 
return information, but prohibits FE from downloading or printing out 
T's tax return information from the computer server. Because Firm is 
disclosing T's tax return information outside of the United States, Firm 
is required to obtain T's consent under Sec.  301.7216-3 prior to the 
disclosure to FE. As provided in Sec.  301.7216-3(b)(5), however, Firm 
may not obtain consent to disclose T's social security number (SSN) to a 
tax return preparer located outside of the United States or any 
territory or possession of the United States.
    Example 4. A, an employee at Firm A, receives tax return information 
from T for Firm's use in preparing T's income tax return. A forwards the 
tax return information to B, an employee at another firm, Firm B, to 
obtain advice on the issue of whether T may claim a deduction for a 
certain business expense. A is required to receive T's prior consent 
under Sec.  301.7216-3 before disclosing T's tax return information to B 
because B's services involve a substantive determination affecting the 
tax liability that T will report.

    (e) Disclosure or use of information in the case of related 
taxpayers. (1) In preparing a tax return of a second taxpayer, a tax 
return preparer may use, and may disclose to the second taxpayer in the 
form in which it appears on the return, any tax return information that 
the tax return preparer obtained from a first taxpayer if--
    (i) The second taxpayer is related to the first taxpayer within the 
meaning of paragraph (e)(2) of this section;
    (ii) The first taxpayer's tax interest in the information is not 
adverse to the second taxpayer's tax interest in the information; and
    (iii) The first taxpayer has not expressly prohibited the disclosure 
or use.
    (2) For purposes of paragraph (e)(1)(i) of this section, a taxpayer 
is related to another taxpayer if they have any one of the following 
relationships: Husband and wife, child and parent, grandchild and 
grandparent, partner and partnership, trust or estate and beneficiary, 
trust or estate and fiduciary, corporation and shareholder, or members 
of a controlled group of corporations as defined in section 1563.

[[Page 656]]

    (3) See Sec.  301.7216-3 for disclosure or use of tax return 
information of the taxpayer in preparing the tax return of a second 
taxpayer when the requirements of this paragraph are not satisfied.
    (f) Disclosure pursuant to an order of a court, or an administrative 
order, demand, request, summons or subpoena which is issued in the 
performance of its duties by a Federal or State agency, the United 
States Congress, a professional association ethics committee or board, 
or the Public Company Accounting Oversight Board. The provisions of 
section 7216(a) and Sec.  301.7216-1 will not apply to any disclosure of 
tax return information if the disclosure is made pursuant to any one of 
the following documents:
    (1) The order of any court of record, Federal, State, or local.
    (2) A subpoena issued by a grand jury, Federal or State.
    (3) A subpoena issued by the United States Congress.
    (4) An administrative order, demand, summons or subpoena that is 
issued in the performance of its duties by--
    (i) Any Federal agency as defined in 5 U.S.C. 551(1) and 5 U.S.C. 
552(f), or
    (ii) A State agency, body, or commission charged under the laws of 
the State or a political subdivision of the State with the licensing, 
registration, or regulation of tax return preparers.
    (5) A written request from a professional association ethics 
committee or board investigating the ethical conduct of the tax return 
preparer.
    (6) A written request from the Public Company Accounting Oversight 
Board in connection with an inspection under section 104 of the 
Sarbanes-Oxley Act of 2002, 15 U.S.C. 7214, or an investigation under 
section 105 of such Act, 15 U.S.C. 7215, for use in accordance with such 
Act.
    (g) Disclosure for use in securing legal advice, Treasury 
investigations or court proceedings. A tax return preparer may disclose 
tax return information--
    (1) To an attorney for purposes of securing legal advice;
    (2) To an employee of the Treasury Department for use in connection 
with any investigation of the tax return preparer (including 
investigations relating to the tax return preparer in its capacity as a 
practitioner) conducted by the IRS or the Treasury Department; or
    (3) To any officer of a court for use in connection with proceedings 
involving the tax return preparer (including proceedings involving the 
tax return preparer in its capacity as a practitioner), or the return 
preparer's client, before the court or before any grand jury that may be 
convened by the court.
    (h) Certain disclosures by attorneys and accountants. The provisions 
of section 7216(a) and Sec.  301.7216-1 shall not apply to any 
disclosure of tax return information permitted by this paragraph (h).
    (1)(i) A tax return preparer who is lawfully engaged in the practice 
of law or accountancy and prepares a tax return for a taxpayer may use 
the taxpayer's tax return information, or disclose the information to 
another officer, employee or member of the tax return preparer's law or 
accounting firm, consistent with applicable legal and ethical 
responsibilities, who may use the tax return information for the purpose 
of providing other legal or accounting services to the taxpayer. As an 
example, a lawyer who prepares a tax return for a taxpayer may use the 
tax return information of the taxpayer for, or in connection with, 
rendering legal services, including estate planning or administration, 
or preparation of trial briefs or trust instruments, for the taxpayer or 
the estate of the taxpayer. In addition, the lawyer who prepared the tax 
return may disclose the tax return information to another officer, 
employee or member of the same firm for the purpose of providing other 
legal services to the taxpayer. As another example, an accountant who 
prepares a tax return for a taxpayer may use the tax return information, 
or disclose it to another officer, employee or member of the firm, for 
use in connection with the preparation of books and records, working 
papers, or accounting statements or reports for the taxpayer. In the 
normal course of rendering the legal or accounting services to the 
taxpayer, the attorney or accountant may make the tax return information 
available to third parties, including stockholders, management, 
suppliers, or lenders, consistent with the applicable

[[Page 657]]

legal and ethical responsibilities, unless the taxpayer directs 
otherwise. For rules regarding disclosures outside of the United States, 
see Sec.  301.7216-2(c) and (d).
    (ii) A tax return preparer's law or accounting firm does not include 
any related or affiliated firms. For example, if law firm A is 
affiliated with law firm B, officers, employees and members of law firm 
A must receive a taxpayer's consent under Sec.  301.7216-3 before 
disclosing the taxpayer's tax return information to an officer, employee 
or member of law firm B.
    (2) A tax return preparer who is lawfully engaged in the practice of 
law or accountancy and prepares a tax return for a taxpayer may, 
consistent with the applicable legal and ethical responsibilities, take 
the tax return information into account, and may act upon it, in the 
course of performing legal or accounting services for a client other 
than the taxpayer, or disclose the information to another officer, 
employee or member of the tax return preparer's law or accounting firm 
to enable that other officer, employee or member to take the information 
into account, and act upon it, in the course of performing legal or 
accounting services for a client other than the taxpayer. This is 
permissible when the information is, or may be, relevant to the subject 
matter of the legal or accounting services for the other client, and 
consideration of the information by those performing the services is 
necessary for the proper performance of the services. In no event, 
however, may the tax return information be disclosed to a person who is 
not an officer, employee or member of the law or accounting firm, unless 
the disclosure is exempt from the application of section 7216(a) and 
Sec.  301.7216-1 by reason of another provision of Sec. Sec.  301.7216-2 
or 301.7216-3.
    (3) Examples. The application of this paragraph may be illustrated 
by the following examples:

    Example 1. A, a member of an accounting firm, renders an opinion on 
a financial statement of M Corporation that is part of a registration 
statement filed with the Securities and Exchange Commission. After the 
registration statement is filed, but before its effective date, B, a 
member of the same accounting firm, prepares an income tax return for N 
Corporation. In the course of preparing N's income tax return, B 
discovers that N does business with M and concludes that the information 
given by N should be considered by A to determine whether the financial 
statement opined on by A contains an untrue statement of material fact 
or omits a material fact required to keep the statement from being 
misleading. B discloses to A the tax return information of N for this 
purpose. A determines that there is an omission of material fact and 
that an amended statement should be filed. A so advises M and the 
Securities and Exchange Commission. A explains that the omission was 
revealed as a result of confidential information that came to A's 
attention after the statement was filed, but A does not disclose the 
identity of the taxpayer or the tax return information itself. Section 
7216(a) and Sec.  301.7216-1 do not apply to B's disclosure of N's tax 
return information to A and A's use of the information in advising M and 
the Securities and Exchange Commission of the necessity for filing an 
amended statement. Section 7216(a) and Sec.  301.7216-1 would apply to a 
disclosure of N's tax return information to M or to the Securities and 
Exchange Commission unless the disclosure is exempt from the application 
of section 7216(a) and Sec.  301.7216-1 by reason of another provision 
of either this section or Sec.  301.7216-3.
    Example 2. A, a member of an accounting firm, is conducting an audit 
of M Corporation, and B, a member of the same accounting firm, prepares 
an income tax return for D, an officer of M. In the course of preparing 
the return, B obtains information from D indicating that D, pursuant to 
an arrangement with a supplier doing business with M, has been receiving 
from the supplier a percentage of the amounts that the supplier invoices 
to M. B discloses this information to A who, acting upon it, searches in 
the course of the audit for indications of a kickback scheme. As a 
result, A discovers information from audit sources that independently 
indicate the existence of a kickback scheme. Without revealing the tax 
return information A has received from B, A brings to the attention of 
officers of M the audit information indicating the existence of the 
kickback scheme. Section 7216(a) and Sec.  301.7216-1 do not apply to 
B's disclosure of D's tax return information to A, A's use of D's 
information in the course of the audit, and A's disclosure to M of the 
audit information indicating the existence of the kickback scheme. 
Section 7216(a) and Sec.  301.7216-1 would apply to a disclosure to M, 
or to any other person not an employee or member of the accounting firm, 
of D's tax return information furnished to B.

    (i) Corporate fiduciaries. A trust company, trust department of a 
bank, or other corporate fiduciary that prepares a tax return for a 
taxpayer for whom it renders fiduciary, investment, or other

[[Page 658]]

custodial or management services may, unless the taxpayer directs 
otherwise--
    (1) Disclose or use the taxpayer's tax return information in the 
ordinary course of rendering such services to or for the taxpayer; or
    (2) Make the information available to the taxpayer's attorney, 
accountant, or investment advisor.
    (j) Disclosure to taxpayer's fiduciary. If, after furnishing tax 
return information to a tax return preparer, the taxpayer dies or 
becomes incompetent, insolvent, or bankrupt, or the taxpayer's assets 
are placed in conservatorship or receivership, the tax return preparer 
may disclose the information to the duly appointed fiduciary of the 
taxpayer or his estate, or to the duly authorized agent of the 
fiduciary.
    (k) Disclosure or use of information in preparation or audit of 
State or local tax returns or assisting a taxpayer with foreign country 
tax obligations. The provisions of paragraphs (c) and (d) of this 
section shall apply to the disclosure by any tax return preparer of any 
tax return information in the preparation of, or in connection with the 
preparation of, any tax return of the taxpayer under the law of any 
State or political subdivision thereof, of the District of Columbia, of 
any territory or possession of the United States, or of a country other 
than the United States. The provisions of section 7216(a) and Sec.  
301.7216-1 shall not apply to the use by any tax return preparer of any 
tax return information in the preparation of, or in connection with the 
preparation of, any tax return of the taxpayer under the law of any 
State or political subdivision thereof, of the District of Columbia, of 
any territory or possession of the United States, or of a country other 
than the United States. The provisions of section 7216(a) and Sec.  
301.7216-1 shall not apply to the disclosure or use by any tax return 
preparer of any tax return information in the audit of, or in connection 
with the audit of, any tax return of the taxpayer under the law of any 
State or political subdivision thereof, the District of Columbia, or any 
territory or possession of the United States.
    (l) Payment for tax preparation services. A tax return preparer may 
use and disclose, without the taxpayer's written consent, tax return 
information that the taxpayer provides to the tax return preparer to pay 
for tax preparation services to the extent necessary to process or 
collect the payment. For example, if the taxpayer gives the tax return 
preparer a credit card to pay for tax preparation services, the tax 
return preparer may disclose the taxpayer's name, credit card number, 
credit card expiration date, and amount due for tax preparation services 
to the credit card company, as necessary, to process the payment. Any 
tax return information that the taxpayer did not give the tax return 
preparer for the purpose of making payment for tax preparation services 
may not be used or disclosed by the tax return preparer without the 
taxpayer's prior written consent, unless otherwise permitted under 
another provision of this section.
    (m) Retention of records. A tax return preparer may retain tax 
return information of a taxpayer, including copies of tax returns, in 
paper or electronic format, prepared on the basis of the tax return 
information, and may use the information in connection with the 
preparation of other tax returns of the taxpayer or in connection with 
an examination by the Internal Revenue Service of any tax return or 
subsequent tax litigation relating to the tax return. The provisions of 
paragraph (n) of this section regarding the transfer of a taxpayer list 
also apply to the transfer of any records and related papers to which 
this paragraph applies.
    (n) Lists for solicitation of tax return preparation business. (1) A 
tax return preparer, other than a person who is a tax return preparer 
solely because the person provides auxiliary services as defined in 
Sec.  301.7216-1(b)(2)(iii), may compile and maintain a separate list 
containing solely items of tax return information. The following items 
of tax return information are permissible: The names, mailing addresses, 
email addresses, phone numbers, taxpayer entity classification 
(including ``individual'' or the specific type of business entity), and 
income tax return form number (for example, Form 1040-EZ) of taxpayers 
whose tax returns the tax return preparer has prepared or processed. The 
Internal Revenue Service may issue guidance, by publication in

[[Page 659]]

the Internal Revenue Bulletin (see Sec.  601.601(d)(2)(ii)(b) of this 
chapter), describing other types of information that may be included in 
a list compiled and maintained pursuant to this paragraph. This list may 
be used by the compiler solely to contact the taxpayers on the list for 
the purpose of providing tax information and general business or 
economic information or analysis for educational purposes, or soliciting 
additional tax return preparation services. The list may not be used to 
solicit any service or product other than tax return preparation 
services. The compiler of the list may not transfer the taxpayer list, 
or any part thereof, to any other person unless the transfer takes place 
in conjunction with the sale or other disposition of the compiler's tax 
return preparation business. Due diligence conducted prior to a proposed 
sale of a compiler's tax return preparation business is in conjunction 
with the sale or other disposition of a compiler's tax return 
preparation business and will not constitute a transfer of the list if 
conducted pursuant to a written agreement that requires confidentiality 
of the tax return information disclosed and expressly prohibits the 
further disclosure or use of the tax return information for any purpose 
other than that related to the purchase of the tax return preparation 
business. A person who acquires a taxpayer list, or a part thereof, in 
conjunction with a sale or other disposition of a tax return preparation 
business falls under the provisions of this paragraph with respect to 
the list. The term list, as used in this paragraph (n), includes any 
record or system whereby the types of information expressly authorized 
for inclusion in a taxpayer list pursuant to the terms of this paragraph 
(n) are retained. The provisions of this paragraph (n) also apply to the 
transfer of any records and related papers to which this paragraph (n) 
applies.
    (2) Examples. The following examples illustrate this paragraph (n):

    Example 1. Preparer A is a tax return preparer as defined by Sec.  
301.7216-1(b)(2)(i)(A). Preparer A's office is located in southeast 
Pennsylvania, and Preparer A prepares federal and state income tax 
returns for taxpayers who live in Pennsylvania, New Jersey, Maryland, 
and Delaware. Preparer A maintains a list of taxpayer clients containing 
the information allowed by this paragraph (n). Preparer A provides 
quarterly state income tax information updates to his individual 
taxpayer clients by email or U.S. mail. To ensure that his clients only 
receive the information updates that are relevant to them, Preparer A 
uses his list to direct his outreach efforts towards the relevant 
clients by searching his list to filter it by zip code and income tax 
return form number (Form 1040 and corresponding state income tax return 
form number). Preparer A may use the list information in this manner 
without taxpayer consent because he is providing tax information for 
educational or informational purposes and is targeting clients based 
solely upon tax return information that is authorized by this paragraph 
(n) (by zip code, which is part of a taxpayer's address, and by income 
tax return form number). Without taxpayer consent, Preparer A also may 
deliver this information to his clients by email, U.S. mail, or other 
method of delivery that uses only information authorized by this 
paragraph (n).
    Example 2. Preparer B is a tax return preparer as defined by Sec.  
301.7216-1(b)(2)(i)(A). Preparer B maintains a list of taxpayer clients 
containing the information allowed by this paragraph (n). Preparer B 
provides monthly federal income tax information updates in the form of a 
newsletter to all of her taxpayer clients by email or U.S. mail. When 
Preparer B hires a new employee who participates or assists in tax 
return preparation, she announces that hire in the newsletter for the 
month that follows the hiring. Each announcement includes a photograph 
of the new employee, the employee's name, the employee's telephone 
number, a brief listing of the employee's qualifications, and a brief 
listing of the employee's employment responsibilities. Preparer B may 
use the tax return information described in this paragraph (n) in this 
manner without taxpayer consent because she is providing tax information 
for educational or informational purposes to provide general federal 
income tax information updates. Preparer B may include the new employee 
announcements in the form described because this is considered tax 
information for informational purposes, provided the announcements do 
not contain solicitations for non-tax return preparation services. 
Without taxpayer consent, Preparer B also may deliver this information 
to her clients by email, U.S. mail, or other method of delivery that 
uses only information authorized by this paragraph (n).

    (o) Producing statistical information in connection with tax return 
preparation business. (1) A tax return preparer may use tax return 
information, subject to

[[Page 660]]

the limitations specified in this paragraph (o), to produce a 
statistical compilation of data described in Sec.  301.7216-
1(b)(3)(i)(B). The purpose for and disclosure or use of the statistical 
compilation requiring data acquired during the tax return preparation 
process must relate directly to the internal management or support of 
the tax return preparer's tax return preparation business, or to bona 
fide research or public policy discussions concerning state or federal 
taxation. A tax return preparer may not disclose the statistical 
compilation, or any part thereof, to any other person unless disclosure 
of the statistical compilation is anonymous as to taxpayer identity, 
does not disclose an aggregate figure containing data from fewer than 
ten tax returns, and is in direct support of the tax return preparer's 
tax return preparation business or of bona fide research or public 
policy discussions concerning state or federal taxation. A statistical 
compilation is anonymous as to taxpayer identity if it is in a form 
which cannot be associated with, or otherwise identify, directly or 
indirectly, a particular taxpayer. For purposes of this paragraph, 
marketing and advertising is in direct support of the tax return 
preparer's tax return preparation business provided the marketing and 
advertising is not false, misleading, or unduly influential. This 
paragraph, however, does not authorize the disclosure or use in 
marketing or advertising of any statistical compilations, or part 
thereof, that identify dollar amounts of refunds, credits, or deductions 
associated with tax returns, or percentages relating thereto, whether or 
not the data are statistical, averaged, aggregated, or anonymous. 
Disclosures made in support of fundraising activities conducted by 
volunteer return preparation programs and other organizations described 
in section 501(c) of the Internal Revenue Code (Code) in direct support 
of their tax return preparation businesses are not marketing and 
advertising under this paragraph. A tax return preparer who produces a 
statistical compilation of data described in Sec.  301.7216-
1(b)(3)(i)(B) may disclose the compilation to comply with financial 
accounting or regulatory reporting requirements whether or not the 
statistical compilation is anonymous as to taxpayer identity or 
discloses an aggregate figure containing data from fewer than ten tax 
returns.
    (2) A tax return preparer may not sell or exchange for value a 
statistical compilation of data described in Sec.  301.7216-
1(b)(3)(i)(B), in whole or in part, except in conjunction with the 
transfer of assets made pursuant to the sale or other disposition of the 
tax return preparer's tax return preparation business. The provisions of 
paragraph (n) of this section regarding the transfer of a taxpayer list 
also apply to the transfer of any statistical compilations of data to 
which this paragraph applies. A person who acquires a statistical 
compilation, or a part thereof, pursuant to the operation of this 
paragraph (o) or in conjunction with a sale or other disposition of a 
tax return preparation business is subject to the provisions of this 
paragraph with respect to the compilation.
    (3) Examples. The following examples illustrate this paragraph (o):

    Example 1. Preparer A is a tax return preparer as defined by Sec.  
301.7216-1(b)(2)(i)(A). In 2009, A used tax return information to 
produce a statistical compilation of data for both internal management 
purposes and to support A's tax return preparation business. The 
statistical compilation included an aggregate figure containing the 
information that A prepared 32 S corporation tax returns in 2009. In 
2010, A decided to embark upon a new marketing campaign emphasizing its 
experience preparing small business tax returns. In the campaign, A 
discloses the aggregate figure containing the number of S corporation 
tax returns prepared in 2009. A's disclosure does not include any 
information that can be associated with or identify any specific 
taxpayers. A may disclose the anonymous statistical compilation without 
taxpayer consent.
    Example 2. Preparer B is a tax return preparer as defined by Sec.  
301.7216-1(b)(2)(i)(A). In 2010, in support of B's tax return 
preparation business, B wants to advertise that the average tax refund 
obtained for its clients in 2009 was $2,800. B may not disclose this 
information because it contains a statistical compilation reflecting 
average refund amounts.
    Example 3. Preparer C is a tax return preparer as defined by Sec.  
301.7216-1(b)(2)(i)(A) and is a volunteer income tax assistance program. 
In 2010, in support of C's tax return preparation business, C submits a 
grant application to a charitable foundation to fund

[[Page 661]]

C's operations providing free tax return preparation services to low- 
and moderate-income families. In support of C's request, C includes 
anonymous statistical data consisting of aggregated figures containing 
data from ten or more tax returns showing that, in 2009, C provided 
services to 500 taxpayers, that 95 percent of the taxpayer population 
served by C received the Earned Income Tax Credit (EITC), and that the 
average amount of the EITC received was $3,300. Despite the fact that 
this information constitutes an average credit amount, C may disclose 
the information to the charitable foundation because disclosures made in 
support of fundraising activities conducted by volunteer income tax 
assistance programs and other organizations described in section 501(c) 
of the Code in direct support of their tax return preparation business 
are not considered marketing and advertising for purposes of Sec.  
301.7216-2(o)(1).
    Example 4. Preparer D is a tax return preparer as defined by Sec.  
301.7216-1(b)(2)(i)(A). In December 2009, D produced an anonymous 
statistical compilation of tax return information obtained during the 
2009 filing season. In 2010, D wants to disclose portions of the 
anonymous statistical compilation from aggregated figures containing 
data from ten or more tax returns in connection with the marketing of 
its financial advisory and asset planning services. D is required to 
receive taxpayer consent under Sec.  301.7216-3 before disclosing the 
tax return information contained in the anonymous statistical 
compilation because the disclosure is not being made in support of D's 
tax return preparation business.

    (p) Disclosure or use of information for quality, peer, or conflict 
reviews. (1) The provisions of section 7216(a) and Sec.  301.7216-1 
shall not apply to any disclosure for the purpose of a quality or peer 
review to the extent necessary to accomplish the review. A quality or 
peer review is a review that is undertaken to evaluate, monitor, and 
improve the quality and accuracy of a tax return preparer's tax 
preparation, accounting, or auditing services. A quality or peer review 
may be conducted only by attorneys, certified public accountants, 
enrolled agents, and enrolled actuaries who are eligible to practice 
before the Internal Revenue Service. See Department of the Treasury 
Circular 230, 31 CFR part 10. Tax return information may also be 
disclosed to persons who provide administrative or support services to 
an individual who is conducting a quality or peer review under this 
paragraph (p), but only to the extent necessary for the reviewer to 
conduct the review. Tax return information gathered in conducting a 
review may be used only for purposes of a review. No tax return 
information identifying a taxpayer may be disclosed in any evaluative 
reports or recommendations that may be accessible to any person other 
than the reviewer or the tax return preparer being reviewed. The tax 
return preparer being reviewed will maintain a record of the review, 
including the information reviewed and the identity of the persons 
conducting the review. After completion of the review, no documents 
containing information that may identify any taxpayer by name or 
identification number may be retained by a reviewer or by the reviewer's 
administrative or support personnel.
    (2) The provisions of section 7216(a) and Sec.  301.7216-1 shall not 
apply to any disclosure necessary to accomplish a conflict review. A 
conflict review is a review undertaken to comply with requirements 
established by any federal, state, or local law, agency, board or 
commission, or by a professional association ethics committee or board, 
to either identify, evaluate, or monitor actual or potential legal and 
ethical conflicts of interest that may arise when a tax return preparer 
is employed or acquired by another tax return preparer, or to identify, 
evaluate, or monitor actual or potential legal and ethical conflicts of 
interest that may arise when a tax return preparer is considering 
engaging a new client. Tax return information gathered in conducting a 
conflict review may be used only for purposes of a conflict review. No 
tax return information identifying a taxpayer may be disclosed in any 
evaluative reports or recommendations that may be accessible to any 
person other than those responsible for identifying, evaluating, or 
monitoring legal and ethical conflicts of interest. No tax return 
information identifying a taxpayer may be disclosed outside of the 
United States or a territory or possession of the United States unless 
the disclosing and receiving tax return preparers have procedures in 
place that

[[Page 662]]

are consistent with good business practices and designed to maintain the 
confidentiality of the disclosed tax return information.
    (3) Any person (including administrative and support personnel) 
receiving tax return information in connection with a quality, peer, or 
conflict review is a tax return preparer for purposes of sections 
7216(a) and 6713(a). Tax return information disclosed and used for 
purposes of a quality, peer, or conflict review shall not be disclosed 
or used for any other purpose.
    (q) Disclosure to report the commission of a crime. The provisions 
of section 7216(a) and Sec.  301.7216-1 shall not apply to the 
disclosure of any tax return information to the proper Federal, State, 
or local official in order, and to the extent necessary, to inform the 
official of activities that may constitute, or may have constituted, a 
violation of any criminal law or to assist the official in investigating 
or prosecuting a violation of criminal law. A disclosure made in the 
bona fide but mistaken belief that the activities constituted a 
violation of criminal law is not subject to section 7216(a) and Sec.  
301.7216-1.
    (r) Disclosure of tax return information due to a tax return 
preparer's incapacity or death. In the event of incapacity or death of a 
tax return preparer, disclosure of tax return information may be made 
for the purpose of assisting the tax return preparer or his legal 
representative (or the representative of a deceased tax return 
preparer's estate) in operating the business. Any person receiving tax 
return information under the provisions of this paragraph (r) is a tax 
return preparer for purposes of sections 7216(a) and 6713(a).
    (s) Effective/applicability date. Paragraphs (n), (o), and (p) of 
this section apply to disclosures or uses of tax return information 
occurring on or after December 28, 2012. All other paragraphs of this 
section apply to disclosures or uses of tax return information occurring 
on or after January 1, 2009.

[T.D. 9375, 73 FR 1069, Jan. 7, 2008, as amended by T.D. 9478, 75 FR 52, 
Jan. 4, 2010; T.D. 9608, 77 FR 76404, Dec. 28, 2012]



Sec.  301.7216-3  Disclosure or use permitted only with the taxpayer's consent.

    (a) In general--(1) Taxpayer consent. Unless section 7216 or Sec.  
301.7216-2 specifically authorizes the disclosure or use of tax return 
information, a tax return preparer may not disclose or use a taxpayer's 
tax return information prior to obtaining a written consent from the 
taxpayer, as described in this section. A tax return preparer may 
disclose or use tax return information as the taxpayer directs as long 
as the preparer obtains a written consent from the taxpayer as provided 
in this section. The consent must be knowing and voluntary. Except as 
provided in paragraph (a)(2) of this section, conditioning the provision 
of any services on the taxpayer's furnishing consent will make the 
consent involuntary, and the consent will not satisfy the requirements 
of this section.
    (2) Taxpayer consent to a tax return preparer furnishing tax return 
information to another tax return preparer. (i) A tax return preparer 
may condition its provision of preparation services upon a taxpayer's 
consenting to disclosure of the taxpayer's tax return information to 
another tax return preparer for the purpose of performing services that 
assist in the preparation of, or provide auxiliary services in 
connection with the preparation of, the tax return of the taxpayer.
    (ii) Example. The application of this paragraph (a)(2) may be 
illustrated by the following example:

    Example. Preparer P, who is located within the United States, is 
retained by Company C to provide tax return preparation services for 
employees of Company C. An employee of Company C, Employee E, works for 
C outside of the United States. To provide tax return preparation 
services for E, P requires the assistance of and needs to disclose E's 
tax return information to a tax return preparer who works for P's 
affiliate located in the country where E works. P may condition its 
provision of tax return preparation services upon E consenting to the 
disclosure of E's tax return information to the tax return preparer in 
the country where E works.

    (3) The form and contents of taxpayer consents--(i) In general. All 
consents to disclose or use tax return information must satisfy the 
following requirements--

[[Page 663]]

    (A) A taxpayer's consent to a tax return preparer's disclosure or 
use of tax return information must include the name of the tax return 
preparer and the name of the taxpayer.
    (B) If a taxpayer consents to a disclosure of tax return 
information, the consent must identify the intended purpose of the 
disclosure. Except as provided in Sec.  301.7216-3(a)(3)(iii), if a 
taxpayer consents to a disclosure of tax return information, the consent 
must also identify the specific recipient (or recipients) of the tax 
return information. If the taxpayer consents to use of tax return 
information, the consent must describe the particular use authorized. 
For example, if the tax return preparer intends to use tax return 
information to generate solicitations for products or services other 
than tax return preparation, the consent must identify each specific 
type of product or service for which the tax return preparer may solicit 
use of the tax return information. Examples of products or services that 
must be identified include, but are not limited to, balance due loans, 
mortgage loans, mutual funds, individual retirement accounts, and life 
insurance.
    (C) The consent must specify the tax return information to be 
disclosed or used by the return preparer.
    (D) If a tax return preparer to whom the tax return information is 
to be disclosed is located outside of the United States, the taxpayer's 
consent under Sec.  301.7216-3 prior to any disclosure is required. See 
Sec.  301.7216-2(c) and (d).
    (E) A consent to disclose or use tax return information must be 
signed and dated by the taxpayer.
    (ii) The form and contents of taxpayer consents with respect to 
taxpayers filing a return in the Form 1040 series--guidance describing 
additional requirements for taxpayer consents with respect to Form 1040 
series filers. The Secretary may issue guidance, by publication in the 
Internal Revenue Bulletin (see Sec.  601.601(d)(2)(ii)(b) of this 
chapter), describing additional requirements for tax return preparers 
regarding the format and content of consents to disclose and use tax 
return information with respect to taxpayers filing a return in the Form 
1040 series, e.g., Form 1040, Form 1040NR, Form 1040A, or Form 1040EZ.
    (iii) The form and contents of taxpayer consents with respect to all 
other taxpayers. A consent to disclose or use tax return information 
with respect to a taxpayer not filing a return in the Form 1040 series 
may be in any format, including an engagement letter to a client, as 
long as the consent complies with the requirements of Sec.  301.7216-
3(a)(3)(i). Additionally, the requirements of Sec.  301.7216-3(c)(1) are 
inapplicable to consents to disclose or use tax return information with 
respect to taxpayers not filing a return in the Form 1040 series. Solely 
for purposes of a consent issued under Sec.  301.7216-3(a)(3)(iii), in 
lieu of identifying specific recipients of an intended disclosure under 
Sec.  301.7216-3(a)(3)(i)(B), a consent may allow disclosure to a 
descriptive class of entities engaged by a taxpayer or the taxpayer's 
affiliate for purposes of services in connection with the preparation of 
tax returns, audited financial statements, or other financial statements 
or financial information as required by a government authority, 
municipality or regulatory body.
    (iv) Examples. The application of Sec.  301.7216-3(a)(3)(iii) may be 
illustrated by the following examples:

    Example 1. Consistent with applicable legal and ethical 
responsibilities, Preparer Z sends its client, a corporation, Taxpayer 
C, an engagement letter. Part of the engagement letter requests the 
consent of Taxpayer C for the purpose of disclosing tax return 
information to an investment banking firm to assist the investment 
banking firm in securing long term financing for Taxpayer C. The 
engagement letter includes language and information that meets the 
requirements of Sec.  301.7216-3(a)(3)(i), including: (I) Preparer Z's 
name, Taxpayer C's name, and a signature and date line for Taxpayer C; 
and (II) a statement that ``Taxpayer C authorizes Preparer Z to disclose 
the portions of Taxpayer C's 2009 tax return information to the firm 
retained by Taxpayer C necessary for the purposes of assisting Taxpayer 
C secure long term financing.'' The engagement letter satisfies the 
requirements of Sec.  301.7216-3(a)(3) for the disclosure of the 
information provided therein for the specific purpose stated.
    Example 2. Consistent with applicable legal and ethical 
responsibilities, Preparer N sends its client, a corporation, Taxpayer 
D, an engagement letter. Part of the engagement letter requests the 
consent of Taxpayer D for

[[Page 664]]

the purpose of disclosing tax return information to Preparer N's 
affiliated firms located outside of the United States for the purposes 
of preparation of Taxpayer D's 2009 tax return''. The engagement letter 
includes language and information that meets the requirements of Sec.  
301.7216-3(a)(3)(i), including: (I) Preparer N's name, Taxpayer D's 
name, and a signature and date line for Taxpayer D; (II) a statement 
that ``Taxpayer D authorizes Preparer N to disclose Taxpayer D's 2009 
tax return information to Preparer N's affiliates located outside of the 
United States for the purposes of assisting Preparer N prepare Taxpayer 
D's 2009 tax return''; and (III) a statement that, in providing consent, 
Taxpayer D acknowledges that its tax return information for 2009 will be 
disclosed to tax return preparers located abroad. The engagement letter 
satisfies the requirements of Sec.  301.7216-3(a)(3) for the disclosure 
of the information provided therein for the specific purpose stated.

    (b) Timing requirements and limitations--(1) No retroactive consent. 
A taxpayer must provide written consent before a tax return preparer 
discloses or uses the taxpayer's tax return information.
    (2) Time limitations on requesting consent in solicitation context. 
A tax return preparer may not request a taxpayer's consent to disclose 
or use tax return information for purposes of solicitation of business 
unrelated to tax return preparation after the tax return preparer 
provides a completed tax return to the taxpayer for signature.
    (3) No requests for consent after an unsuccessful request. With 
regard to tax return information for each income tax return that a tax 
return preparer prepares, if a taxpayer declines a request for consent 
to the disclosure or use of tax return information for purposes of 
solicitation of business unrelated to tax return preparation, the tax 
return preparer may not solicit from the taxpayer another consent for a 
purpose substantially similar to that of the rejected request.
    (4) No consent to the disclosure of a taxpayer's social security 
number to a return preparer outside of the United States with respect to 
a taxpayer filing a return in the Form 1040 Series--(i) In general. 
Except as provided in paragraph (b)(4)(ii) of this section, a tax return 
preparer located within the United States, including any territory or 
possession of the United States, may not obtain consent to disclose the 
taxpayer's social security number (SSN) with respect to a taxpayer 
filing a return in the Form 1040 Series, for example, Form 1040, Form 
1040NR, Form 1040A, or Form 1040EZ, to a tax return preparer located 
outside of the United States or any territory or possession of the 
United States. Thus, if a tax return preparer located within the United 
States (including any territory or possession of the United States) 
obtains consent from an individual taxpayer to disclose tax return 
information to another tax return preparer located outside of the United 
States, as provided under Sec. Sec.  301.7216-2(c) and 301.7216-2(d), 
the tax return preparer located in the United States may not disclose 
the taxpayer's SSN, and the tax return preparer must redact or otherwise 
mask the taxpayer's SSN before the tax return information is disclosed 
outside of the United States. If a tax return preparer located within 
the United States initially receives or obtains a taxpayer's SSN from 
another tax return preparer located outside of the United States, 
however, the tax return preparer within the United States may, without 
consent, retransmit the taxpayer's SSN to the tax return preparer 
located outside the United States that initially provided the SSN to the 
tax return preparer located within the United States. For purposes of 
this section, a tax return preparer located outside of the United States 
does not include a tax return preparer who is continuously and regularly 
employed in the United States or any territory or possession of the 
United States and who is in a temporary travel status outside of the 
United States.
    (ii) Exception. A tax return preparer located within the United 
States, including any territory or possession of the United States, may 
obtain consent to disclose the taxpayer's SSN to a tax return preparer 
located outside of the United States or any territory or possession of 
the United States only if the tax return preparer within the United 
States discloses the SSN to a tax return preparer outside of the United 
States through the use of an adequate data protection safeguard as 
defined by the Secretary in guidance published in the Internal Revenue 
Bulletin (see

[[Page 665]]

Sec.  601.601(d)(2)(ii)(b) of this chapter) and verifies the maintenance 
of the adequate data protection safeguards in the request for the 
taxpayer's consent pursuant to the specifications described by the 
Secretary in guidance published in the Internal Revenue Bulletin.
    (5) Duration of consent. A consent document may specify the duration 
of the taxpayer's consent to the disclosure or use of tax return 
information. If a consent agreed to by the taxpayer does not specify the 
duration of the consent, the consent to the disclosure or use of tax 
return information will be effective for a period of one year from the 
date the taxpayer signed the consent.
    (c) Special rules--(1) Multiple disclosures within a single consent 
form or multiple uses within a single consent form. A taxpayer may 
consent to multiple uses within the same written document, or multiple 
disclosures within the same written document. A single written document, 
however, cannot authorize both uses and disclosures; rather one written 
document must authorize the uses and another separate written document 
must authorize the disclosures. Furthermore, a consent that authorizes 
multiple disclosures or multiple uses must specifically and separately 
identify each disclosure or use. See Sec.  301.7216-3(a)(3)(iii) for an 
exception to this rule for certain taxpayers.
    (2) Disclosure of entire return. A consent may authorize the 
disclosure of all information contained within a return. A consent 
authorizing the disclosure of an entire return must provide that the 
taxpayer has the ability to request a more limited disclosure of tax 
return information as the taxpayer may direct.
    (3) Copy of consent must be provided to taxpayer. The tax return 
preparer must provide a copy of the executed consent to the taxpayer at 
the time of execution. The requirements of this paragraph (c)(3) may 
also be satisfied by giving the taxpayer the opportunity, at the time of 
executing the consent, to print the completed consent or save it in 
electronic form.
    (d) Effective/applicability date. This section applies to 
disclosures or uses of tax return information occurring on or after 
January 1, 2009.

[T.D. 9375, 73 FR 1073, Jan. 7, 2008, as amended by T.D. 9409, 73 FR 
37806, July 2, 2008; T.D. 9437, 73 FR 76217, Dec. 16, 2008]

                  penalties applicable to certain taxes



Sec.  301.7231-1  Failure to obtain license for collection of foreign items.

    For provisions relating to the obtaining of a license for the 
collection of foreign items, see section 7001 and Sec.  301.7001-1.



                             Other Offenses



Sec.  301.7269-1  Failure to produce records.

    Whoever fails to comply with any duty imposed upon him by section 
6018, 6036 (in the case of an executor), or 6075(a), or, having in his 
possession or control any record, file, or paper, containing or supposed 
to contain any information concerning the estate of the decedent, or, 
having in his possession or control any property comprised in the gross 
estate of the decedent, fails to exhibit the same upon request of any 
officer or employee of the Internal Revenue Service who desires to 
examine the same in the performance of his duties under chapter 11 of 
the Code (relating to estate taxes) shall be liable to a penalty of not 
exceeding $500, to be recovered with costs of suit, in a civil action in 
the name of the United States.



Sec.  301.7272-1  Penalty for failure to register.

    (a) Any person who fails to register with the district director as 
required by the Code or by regulations issued thereunder shall be liable 
to a penalty of $50 except that on and after September 3, 1958, this 
section shall not apply to persons required to register under subtitle E 
of the Code, or persons engaging in a trade or business on which a 
special tax is imposed by such subtitle.
    (b) For provisions relating to registration under sections 4101, 
4412, 4455, 4722, 4753, and 4804(d), see the regulations relating to the 
particular tax.

[[Page 666]]

For regulations under section 7011, see Sec.  301.7011-1.

                               Forfeitures

                     property subject to forfeiture



Sec.  301.7304-1  Penalty for fraudulently claiming drawback.

    Whenever any person fraudulently claims or seeks to obtain an 
allowance of drawback on goods, wares, or merchandise on which no 
internal tax shall have been paid, or fraudulently claims any greater 
allowance of drawback than the tax actually paid, he shall forfeit 
triple the amount wrongfully or fraudulently claimed or sought to be 
obtained, or the sum of $500, at the election of the district director.

                    provisions common to forfeitures



Sec.  301.7321-1  Seizure of property.

    Any property subject to forfeiture to the United States under any 
provision of the Code may be seized by the district director or 
assistant regional commissioner (alcohol, tobacco, and firearms). Upon 
seizure of property by the district director he shall notify the 
assistant regional commissioner (alcohol, tobacco, and firearms) for the 
region wherein the district is located who will take charge of the 
property and arrange for its disposal or retention under the provisions 
of law and regulations applicable thereto.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7188, 37 FR 12794, June 
29, 1972; T.D. ATF-33, 41 FR 44038, Oct. 6, 1976]



Sec.  301.7322-1  Delivery of seized property to U.S. marshal.

    Any forfeitable property which may be seized under the provisions of 
the Code may, at the option of the assistant regional commissioner 
(alcohol, tobacco, and firearms) be delivered to the U.S. marshal of the 
judicial district wherein the property was seized, and remain in the 
care and custody and under the control of such marshal, pending the 
disposal thereof as provided by law.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7188, 37 FR 12794, June 
29, 1972; T.D. ATF-33, 41 FR 44038, Oct. 6, 1976]



Sec.  301.7324-1  Special disposition of perishable goods.

    For regulations relating to the disposal of perishable goods, see 
Sec.  172.30 of this chapter (Disposition of Seized Personal Property).



Sec.  301.7325-1  Personal property valued at $2,500 or less.

    For regulations relating to the forfeiture of personal property 
valued at $2,500 or less, see part 172 of this chapter (Disposition of 
Seized Personal Property).



Sec.  301.7326-1  Disposal of forfeited or abandoned property 
in special cases.

    (a) Coin-operated gaming devices. For regulations relating to the 
disposal of coin-operated gaming devices, see Sec.  172.65 of this 
chapter (Disposition of Seized Personal Property).
    (b) Narcotics. For regulations relating to the disposal of forfeited 
narcotic drugs, see 21 CFR 302.56. For the disposal of forfeited 
marihuana, see 26 CFR (1939) 152.99 and 152.100 (Regulations under the 
Marihuana Tax Act of 1937, as amended).
    (c) Firearms. For regulations relating to the disposal of forfeited 
firearms or ammunition, see Sec.  178.166 of this chapter (Commerce in 
Firearms and Ammunition), and Sec.  179.182 of this chapter (Machine 
Guns, Destructive Devices, and Certain Other Firearms).

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7188, 37 FR 12796, June 
29, 1972]



Sec.  301.7327-1  Customs laws applicable.

    For regulations relating to the remission or mitigation of 
forfeitures, see part 172 of this chapter (Disposition of Seized 
Personal Property).



                          Judicial Proceedings

                   Civil Actions by the United States



Sec.  301.7401-1  Authorization.

    (a) In general. No civil action for the collection or recovery of 
taxes, or of any fine, penalty, or forfeiture, shall be commenced unless 
the Commissioner (or the Director, Alcohol, Tobacco and Firearms 
Division, with respect to the provisions of subtitle E of the Code), or

[[Page 667]]

the Chief Counsel for the Internal Revenue Service or his delegate 
authorizes or sanctions the proceedings and the Attorney General or his 
delegate directs that the action be commenced.
    (b) Property held by banks. The Commissioner shall not authorize or 
sanction any civil action for the collection or recovery of taxes, or of 
any fine, penalty, or forfeiture, from any deposits held in a foreign 
office of a bank engaged in the banking business in the United States or 
a possession of the United States unless the Commissioner believes--
    (1) That the taxpayer is within the jurisdiction of a U.S. court at 
the time the civil action is authorized or sanctioned and that the bank 
is in possession of (or obligated with respect to) deposits of the 
taxpayer in an office of the bank outside the United States or a 
possession of the United States; or
    (2) That the taxpayer is not within the jurisdiction of a U.S. court 
at the time the civil action is authorized or sanctioned, that the bank 
is in possession of (or obligated with respect to) deposits of the 
taxpayer in an office outside the United States or a possession of the 
United States, and that such deposits consist, in whole or in part, of 
funds transferred from the United States or a possession of the United 
States in order to hinder or delay the collection of a tax imposed by 
the Code.

For purposes of this paragraph, the term ``possession of the United 
States'' includes Guam, the Midway Islands, the Panama Canal Zone, the 
Commonwealth of Puerto Rico, American Samoa, the Virgin Islands, and 
Wake Island.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7188, 37 FR 12796, June 
29, 1972]



Sec.  301.7403-1  Action to enforce lien or to subject property 
to payment of tax.

    (a) Civil actions. In any case where there has been a refusal or 
neglect to pay any tax, or to discharge any liability in respect 
thereof, whether or not levy has been made, the Attorney General or his 
delegate, at the request of the Commissioner (or the Director, Bureau of 
Alcohol, Tobacco, and Firearms, or the Chief Counsel for the Bureau, 
with respect to the provisions of subtitle E of the Code), or the Chief 
Counsel for the Internal Revenue Service or his delegate, may direct a 
civil action to be filed in a district court of the United States to 
enforce the lien of the United States under the Code with respect to 
such tax or liability or to subject any property, of whatever nature, of 
the delinquent, or in which he has any right, title or interest, to the 
payment of such tax or liability. In any such proceeding, at the 
instance of the United States, the court may appoint a receiver to 
enforce the lien, or, upon certification by the Commissioner or the 
Chief Counsel for the Internal Revenue Service during the pendency of 
such proceedings that it is in the public interest, may appoint a 
receiver with all the powers of a receiver in equity.
    (b) Bid by the United States. If property is sold to satisfy a first 
lien held by the United States, the United States may bid at the sale a 
sum which does not exceed the amount of its lien and the expenses of the 
sale. See also 31 U.S.C. 195.

[T.D. 7305, 39 FR 9950, Mar. 15, 1974]



Sec.  301.7404-1  Authority to bring civil action for estate taxes.

    (a) If the estate tax imposed by chapter 11 of the Code is not paid 
on or before the last date prescribed for payment, the district director 
shall proceed to collect the tax under the provisions of general law; or 
appropriate proceedings in the name of the United States may be 
commenced in any court having jurisdiction to subject the property of 
the decedent to be sold under the judgment or decree of the court.
    (b) The remedy by action provided in section 7404 is not exclusive. 
The district director may proceed to collect the tax by levy, as 
provided in section 6331, on any or all property or rights to property 
of the estate, or collection may be enforced by an appropriate action 
against the executor, certain transferees, trustees, and beneficiaries 
for their personal liability. See Sec.  20.2002-1 of this chapter 
(Estate Tax Regulations).

[[Page 668]]



Sec.  301.7406-1  Disposition of judgments and moneys recovered.

    All judgments and moneys recovered or received for taxes, costs, 
forfeitures, and penalties shall be paid to the district director as 
collections of internal revenue taxes.



Sec.  301.7409-1  Action to enjoin flagrant political expenditures 
of section 501(c)(3) organizations.

    (a) Letter to organization. When the Assistant Commissioner 
(Employee Plans and Exempt Organizations) concludes that a section 
501(c)(3) organization has engaged in flagrant political intervention 
and is likely to continue to engage in political intervention that 
involves political expenditures, the Assistant Commissioner (Employee 
Plans and Exempt Organizations) shall send a letter to the organization 
providing it with the facts based on which the Service believes that the 
organization has been engaging in flagrant political intervention and is 
likely to continue to engage in political intervention that involves 
political expenditures. The organization will have 10 calendar days 
after the letter is sent to respond by establishing that it will 
immediately cease engaging in political intervention, or by providing 
the Service with sufficient information to refute the Service's evidence 
that it has been engaged in flagrant political intervention. The 
Internal Revenue Service will not proceed to seek an injunction under 
section 7409 until after the close of this 10-day response period.
    (b) Determination by Commissioner. If the organization does not 
respond within 10 calendar days to the letter under paragraph (a) of 
this section in a manner sufficient to dissuade the Assistant 
Commissioner (Employee Plans and Exempt Organizations) of the need for 
an injunction, the file will be forwarded to the Commissioner of 
Internal Revenue. The Commissioner of Internal Revenue will personally 
determine whether to forward to the Department of Justice a 
recommendation that it immediately bring an action to enjoin the 
organization from making further political expenditures. The 
Commissioner may also recommend that the court action include any other 
action that is appropriate in ensuring that the assets of the section 
501(c)(3) organization are preserved for section 501(c)(3) purposes. The 
authority of the Commissioner to make the determinations described in 
this paragraph may not be delegated to any other persons.
    (c) Flagrant political intervention. For purposes of this section, 
flagrant political intervention is defined as participation in, or 
intervention in (including the publication and distribution of 
statements), any political campaign by a section 501(c)(3) organization 
on behalf of (or in opposition to) any candidate for public office in 
violation of the prohibition on such participation or intervention in 
section 501(c)(3) and the regulations thereunder if the participation or 
intervention is flagrant.
    (d) Effective date. This section is effective December 5, 1995.

[T.D. 8628, 60 FR 62213, Dec. 5, 1995]

               Proceedings by Taxpayers and Third Parties



Sec.  301.7422-1  Special rules for certain excise taxes 
imposed by chapter 42 or 43.

    (a) Finality of refund proceeding. For purposes of sections 4941, 
4942, 4943, 4944, 4945, 4951, 4952, 4955, 4958, 4961, 4963, 4971, and 
4975, and the regulations thereunder, a decision in a suit for refund 
instituted under the provisions of this section shall be final--
    (1) Upon the expiration of the time allowed for filing a notice of 
appeal from a decision of the United States Claims Court or of the 
United States District Court, if no timely notice of appeal is filed; or
    (2) Upon the expiration of the time allowed for filing a petition 
for certiorari from a decision of the United States Claims Court, or 
from a decision of the United States District Court, which has been 
affirmed or the appeal dismissed by the United States Court of Appeals, 
if no timely petition for certiorari is filed; or
    (3) If a petition for certiorari has been filed, thirty days from 
the denial of such petition; or
    (4) Thirty days from the date of a decision of the United States 
Supreme Court if no timely petition for rehearing is filed; however, if 
a timely petition for rehearing from such a decision

[[Page 669]]

is filed, and is denied, thirty days from the denial thereof; or
    (5) If a decision is entered upon a rehearing or if a decision is 
modified or reversed as the result of a decision of a higher court, upon 
the expiration, with respect to the decision on rehearing or the 
modified or reversed decision, of periods similar to those provided in 
subparagraphs (1) through (4).
    (b) Right to bring action. With respect to any taxable event, 
payment of the full amount of first tier tax for the taxable period 
shall constitute sufficient payment in order to maintain an action under 
this section with respect to the second tier tax.
    (c) Limitation on suit for refund. No suit may be maintained under 
this section for the credit or refund of any tax imposed under section 
4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, 4958, 4971, or 4975 with 
respect to any taxable event unless--
    (1) No other suit has been maintained for credit or refund of any 
tax imposed by such sections with respect to such taxable event; and
    (2) No petition has been filed in the Tax Court with respect to a 
deficiency in any tax imposed by such sections with respect to such 
taxable event.
    (d) Final determination of issues. For purposes of this section, any 
suit for the credit or refund of any tax imposed under section 4941, 
4942, 4943, 4944, 4945, 4951, 4952, 4955, 4958, 4971, or 4975, together 
with a supplemental proceeding (if any) under section 4961 (b), with 
respect to any taxable event, shall constitute a suit to determine all 
questions with respect to any other tax imposed with respect to such 
taxable event under such sections. Consequently, failure by the parties 
to the suit to bring before the Court any question described in the 
preceding sentence shall constitute a bar to the question.
    (e) Definitions. For definitions of the terms ``taxable event,'' 
``first tier tax,'' and ``second tier tax,'' see Sec.  53.4963-1.

[T.D. 8084, 51 FR 16305, May 2, 1986, as amended by T.D. 8628, 60 FR 
62213, Dec. 5, 1995; T.D. 8920, 66 FR 2171, Jan. 10, 2001]



Sec.  301.7423-1  Repayments to officers or employees.

    The Commissioner is authorized to repay to any officer or employee 
of the United States the full amount of such sums of money as may be 
recovered against him in any court, for any internal revenue taxes 
collected by him, with the cost and expense of suit, and all damages and 
costs recovered against any officer or employee of the United States in 
any suit brought against him by reason of anything done in the official 
performance of his duties under the Code.



Sec.  301.7424-2  Intervention.

    If the United States is not a party to a civil action or suit, the 
United States may intervene in such action or suit to assert any lien 
arising under title 26 of the United States Code on the property which 
is the subject of such action or suit. The provisions of section 2410 of 
title 28 of the United States Code (except subsection (b)) and of 
section 1444 of title 28 of the United States Code shall apply in any 
case in which the United States intervenes as if the United States had 
originally been named a defendant in such action or suit. If the 
application of the United States to intervene is denied, the 
adjudication in such civil action or suit shall have no effect upon such 
lien.

[T.D. 7305, 39 FR 9951, Mar. 15, 1974]



Sec.  301.7425-1  Discharge of liens; scope and application; 
judicial proceedings.

    (a) In general. A tax lien of the United States, or a title derived 
from the enforcement of a tax lien of the United States, may be 
discharged or divested under local law only in the manner prescribed in 
section 2410 of title 28 of the United States Code or in the manner 
prescribed in section 7425 of the Internal Revenue Code. Section 7425 
(a) contains provisions relating to the discharge of a lien when the 
United States is not joined as a party in the judicial proceedings 
described in subsection (a) of section 2410 of title 28 of the United 
States Code. These judicial proceedings are plenary in nature and 
proceed on formal pleadings. Section 7425(b) contains provisions 
relating to

[[Page 670]]

the discharge of a lien or a title derived from the enforcement of a 
lien in the event of a nonjudicial sale with respect to the property 
involved. Section 7425 (c) contains special rules relating to the notice 
of sale requirements contained in section 7425(b). Section 301.7425-2 
contains rules with respect to the nonjudicial sales described in 
section 7425(b). Paragraph (a) of Sec.  301.7425-3 contains rules with 
respect to the notice of sale provisions of section 7425(c)(1). 
Paragraph (b) of Sec.  301.7425-3 contains rules relating to the consent 
to sale provisions of section 7425(c)(2). Paragraph (c) of Sec.  
301.7425-3 contains rules relating to the sale of perishable goods 
provisions of section 7425(c)(3). Paragraph (d) of Sec.  301.7425-3 
contains the requirements with respect to the contents of a notice of 
sale. Section 301.7425-4 prescribes rules with respect to the redemption 
of real property by the United States.
    (b) Effective date. The provisions of section 7425, as added by the 
Federal Tax Lien Act of 1966, are effective with respect to sales 
described in section 7425 occurring after November 2, 1966. The notice 
of sale provisions of section 7425 (c) (1) or (3) do not apply to sales 
occurring after Nobember 2, 1966, if the seller of the property 
performed an act before November 3, 1966, which act at the time of 
performance was required and effective under local law with respect to 
the sale. An example of such an act is publication of a notice of the 
sale in a local newspaper before November 3, 1966, if local law requires 
such publication before a sale and the publication is effective under 
local law. Accordingly, in such a case, it is not necessary to notify 
the Internal Revenue Service pursuant to the provisions of section 7425 
(c) (1) or (3). With respect to a notice of sale required under section 
7425 (c) (1) or (3)--
    (1) Any notice of sale given to an office of the Internal Revenue 
Service or the Treasury Department during the period November 3, 1966, 
through December 21, 1966, shall be considered as adequate;
    (2) Any notice of sale given during the period December 22, 1966, 
through January 31, 1968, which complies with the provisions of either--
    (i) Revenue Procedure 67-25, 1967-1 C.B. 626 (based on Technical 
Information Release 873, dated December 22, 1966), or
    (ii) Section 301.7425-3, shall be considered as adequate; and
    (3) Any notice of sale given after January 31, 1968, which complies 
with the provisions of Sec.  301.7425-3 shall be considered as adequate.
    (c) Judicial proceedings--(1) In general. Section 7425 (a) provides 
rules, where the United States is not joined as a party, to determine 
the effect of a judgment in any civil action or suit described in 
subsection (a) of section 2410 of title 28 of the United States Code 
(relating to joinder of the United States in certain proceedings), or a 
judicial sale pursuant to such a judgment, with respect to property on 
which the United States has or claims a lien under the provisions of 
this title. If the United States is improperly named as a party to a 
judicial proceeding, the effect is the same as if the United States were 
not joined.
    (2) Notice of lien filed when the proceeding is commenced. Where the 
United States is not properly joined as a party in the court proceeding 
and a notice of lien has been filed in accordance with section 6323 (f) 
or (g) in the place provided by law for such filing at the time the 
action or suit is commenced, a judgment or judicial sale pursuant to 
such a judgment shall be made subject to and without disturbing the lien 
of the United States.
    (3) Notice of lien not filed when the proceeding is commenced--(i) 
General rule. Where the United States is not joined as a party in the 
court proceeding and either a notice of lien has not been filed in 
accordance with section 6323 (f) or (g) in the place provided by law for 
such filing at the time the action or suit is commenced, or the law 
makes no provision for that filing, a judgment or judicial sale pursuant 
to such a judgment shall have the same effect with respect to the 
discharge or divestment of the lien of the United States as may be 
provided with respect to these matters by the local law of the place 
where the property is situated.
    (ii) Examples. The provisions of subparagraph (3) may be illustrated 
by the following examples:


[[Page 671]]


    Example 1. A, the first mortgagee of an apartment building located 
in State Y, commenced a foreclosure action on the mortgage prior to the 
time that a notice of a Federal tax lien, on that building, had been 
filed. Under the law of Y, junior liens on real property are discharged 
by a judicial sale pursuant to a judgment in a foreclosure action. 
Therefore, the Federal tax lien on the building will be discharged by 
the judicial sale. This result is the same whether the tax lien arose 
before or after the date of commencement of the foreclosure action and 
whether notice of the tax lien was filed at any time after commencement 
of the foreclosure action.
    Example 2. On January 10, 1969, B dies testate and devises Blackacre 
to C. At B's death, Blackacre is subject to a first mortgage held by D. 
Realty is subject to administration as part of a decedent's estate under 
the laws of State X. However, C takes possession of Blackacre with the 
assent of E, the executor of B's estate. On January 5, 1970, D commences 
a foreclosure action on the mortgage. Under the law of X, junior liens 
on real property are discharged by a judicial sale pursuant to a 
judgment in a foreclosure action. After commencement of the proceedings, 
an assessment for estate taxes is made and, thereafter, a notice of lien 
is filed in accordance with section 6323. The special lien on Blackacre, 
arising at the date of B's death, for estate taxes under section 6324(a) 
will be discharged by the judicial sale because there are no provisions 
for filing a notice thereof under law and junior liens are discharged by 
the sale under local law. The lien is discharged even though the 
executor failed to obtain a discharge of his personal liability under 
section 2204. Furthermore, the general lien on Blackacre under section 
6321 will be discharged by the judicial sale because the foreclosure 
action was commenced prior to the time that a notice of lien was filed.

    (4) Proceeds of a judicial sale. If a judicial sale of property 
pursuant to a judgment in any civil action or suit to which the United 
States is not a party discharges a lien of the United States arising 
under the provisions of the Internal Revenue Code of 1954, the United 
States may claim the proceeds of the sale (exclusive of costs) prior to 
the time that distribution of the proceeds is ordered. The claim of the 
United States in such a case is treated as having the same priority with 
respect to the proceeds as the lien had with respect to the property 
which was discharged from the lien by the judicial sale.

[T.D. 7430, 41 FR 35178, Aug. 20, 1976]



Sec.  301.7425-2  Discharge of liens; nonjudicial sales.

    (a) In general. Section 7425(b) contains provisions with respect to 
the effect on the interest of the United States in property in which the 
United States has or claims a lien, or a title derived from the 
enforcement of a lien, of a sale made pursuant to--
    (1) An instrument creating a lien on the property sold,
    (2) A confession of judgment on the obligation secured by an 
instrument creating a lien on the property sold, or
    (3) A statutory lien on the property sold.


For purposes of this section, such a sale is referred to as a 
``nonjudicial sale.'' The term ``nonjudicial sale'' includes, but is not 
limited to, the divestment of the taxpayer's interest in property which 
occurs by operation of law, by public or private sale, by forfeiture, or 
by termination under provisions contained in a contract for a deed or a 
conditional sales contract. Under section 7425(b)(1), if a notice of 
lien is filed in accordance with section 6323 (f) or (g), or the title 
derived from the enforcement of a lien is recorded as provided by local 
law, more than 30 days before the date of sale, and the appropriate 
district director is not given notice of the sale (in the manner 
prescribed in Sec.  301.7425-3), the sale shall be made subject to and 
without disturbing the lien or title of the United States. Under section 
7425(b)(2)(C), in any case in which notice of the sale is given to the 
district director not less than 25 days prior to the date of sale (in 
the manner prescribed in section 7425(c)(1)), the sale shall have the 
same effect with respect to the discharge or divestment of the lien or 
title as may be provided by local law with respect to other junior liens 
or other titles derived from the enforcement of junior liens. A 
nonjudicial sale pursuant to a lien which is junior to a tax lien does 
not divest the tax lien, even though notice of the nonjudicial sale is 
given to the appropriate district director. However, under the 
provisions of section

[[Page 672]]

6325(b) and Sec.  301.6325-1, a district director may discharge the 
property from a tax lien, including a tax lien which is senior to 
another lien upon the property.
    (b) Date of sale. In the case of a nonjudicial sale subject to the 
provisions of section 7425(b), in order to compute any period of time 
determined with reference to the date of sale, the date of sale shall be 
determined in accordance with the following rules:
    (1) In the case of divestment of junior liens on property resulting 
directly from a public sale, the date of sale is deemed to be the date 
the public sale is held, regardless of the date under local law on which 
junior liens on the property are divested or the title to the property 
is transferred,
    (2) In the case of divestment of junior liens on property resulting 
directly from a private sale, the date of sale is deemed to be the date 
title to the property is transferred, regardless of the date junior 
liens on the property are divested under local law, and
    (3) In the case of divestment of junior liens on property not 
resulting directly from a public or private sale, the date of sale is 
deemed to be the date on which junior liens on the property are divested 
under local law.

For provisions relating to the right of redemption of the United States, 
see section 7425(d) and Sec.  301.7425-4.
    (c) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. (i) Under the law of State M, upon entry of judgment, the 
judgment creditor obtains a statutory lien upon the real property of the 
judgment debtor, and certain procedures are provided by which the 
judgment creditor may execute by public sale upon such real property. 
These procedures provide, among other things, for notification by 
personal service or registered or certified mail to other lien 
creditors, if any, and publication of a notice of the sale in a local 
newspaper. After the expiration of a prescribed period of time after 
such notification and publication, the sheriff of the county where the 
real property is located may sell the property at public sale. After 
payment of the amount bid at the public sale, the sheriff issues to the 
purchaser a deed to the real property, and the interests of junior 
lienors in the property are divested.
    (ii) For purposes of this section, such an execution sale is a 
nonjudicial sale described in section 7425(b) because the sale is made 
pursuant to a statutory lien on the property sold. The date of sale, for 
purposes of computing a period of time determined with reference to the 
date of sale, is the date on which the public sale is held because 
junior liens on the real property are divested directly as a result of 
the public sale. This result obtains even though the junior liens are 
legally divested on a later date when the sheriff issues the deed.
    Example 2. (i) Under the law of State N, mortgages on real property 
may contain a power of sale which authorizes the mortgagee, upon breach 
by the mortgagor of one of the conditions of the mortgage, to have the 
mortgaged property sold at public sale. This public sale must be 
preceded by notice by advertisement in a local newspaper, and the time, 
place, description of the property, and other terms of the sale must be 
specified. The purchaser at such a public sale obtains a title to the 
real property which is not subject to a right of redemption by the 
mortgagor and which divests the interests of the junior lienors in the 
property.
    (ii) For purposes of this section, a sale pursuant to such a power 
of sale is a nonjudicial sale described in section 7425(b) because the 
sale is made pursuant to the mortgage instrument which created a lien on 
the property sold. The date of the sale, for purposes of computing a 
period of time determined with reference to the date of sale, is the 
date of the public sale because junior liens on the property are 
divested directly as a result of the public sale.
    Example 3. Assume the same facts as in example 2 except that the 
purchaser at the public sale obtains a title which is defeasible by the 
exercise of a right of redemption in the mortgagor. The purchaser's 
title divests the interests of junior lienors in the property as of the 
time of public sale. The interests of junior leinors in the property 
revive if the mortgagor exercises his right of redemption. The date of 
the sale, for purposes of computing a period of time determined with 
reference to the date of sale, is the date of the public sale because 
junior liens on the property are divested directly as a result of the 
public sale although such junior liens may be revived by a subsequent 
redemption by the mortgagor.
    Example 4. (i) Under the law of State O, upon breach by a mortgagor 
of real property of one of the conditions of the mortgage, the mortgagee 
may foreclose the mortgage by securing possession of the property by one 
of several procedures provided by statute. These procedures are 
generally referred to as ``strict foreclosure.'' In order for a 
foreclosure to be effective under these procedures, a certificate 
attesting the fact of entry must be recorded with the proper registrar 
of deeds within 30 days after the mortgagee enters the property. During 
the one-

[[Page 673]]

year period following the date on which the certificate of entry is 
recorded, the mortgagor or a junior lienor may redeem the property by 
paying the mortgagee the amount of the mortgage obligation. If, during 
such one-year period the property is not redeemed and the mortgagee's 
possession is continued, the interests of the mortgagor and the junior 
lienors in the property are divested as of the date such one-year period 
expires.
    (ii) For purposes of this section, such a foreclosure procedure is a 
nonjudicial sale described in section 7425(b) because it results in the 
divestment of the mortgagor's interest in the property by operation of 
law pursuant to the mortgage which created a lien on the property. In 
addition, because there is no public or private sale which directly 
results in the divestment of junior liens on the property, the date of 
sale, for purposes of computing a period of time determined with 
reference to the date of sale, is the date on which the one-year period 
following the recording of the certificate of entry expires.
    Example 5. The law of State P contains a procedure which permits a 
county to collect a delinquent tax assessment with respect to real 
property by the means of a tax sale of the property. First, a notice of 
a public auction with respect to the tax assessment on the real property 
is published in a local newspaper. At the public auction, the purchaser, 
upon payment of the delinquent taxes and interest, obtains from the 
county tax collector a tax certificate with respect to the real 
property. Because the obtaining of this tax certificate does not 
directly result in the divestment of either the owner's title or junior 
liens with respect to the property, the public auction is not a 
nonjudicial sale described in section 7425(b). At any time before a tax 
deed with respect to the property is issued by the clerk of the county 
court, the owner or any holder of a lien or other interest with respect 
to the property may obtain the tax certificate by paying the holder of 
the tax certificate the amount of the taxes, interest, and costs. After 
a date which is two years after the date on which the tax assessment 
became delinquent, the holder of the tax certificate may request the 
clerk of the county court to have the property advertised for sale. 
After advertisement of the sale, the clerk of the county court conducts 
a public sale of the real property and the purchaser obtains a tax deed. 
The interests of all junior lienors in the property are divested and the 
property is not subject to a right of redemption under the law of State 
P. For purposes of this section, this public sale is considered to be a 
nonjudicial sale described in section 7425(b) because the sale is made 
pursuant to a statutory lien on the property sold. The date of the sale, 
for purposes of computing a period of time determined with reference to 
the date of sale, is the date on which the public sale is held at which 
the purchaser obtains a tax deed as this sale directly results in the 
divestment of junior liens on the property.
    Example 6. The law of State Q contains a provision which permits a 
county to collect a delinquent tax assessment with respect to real 
property by the means of a tax sale of the property. After public notice 
is given, a ``tax sale'' of the real property is conducted. Upon payment 
of the delinquent taxes and interest, a purchaser obtains a tax 
certificate with respect to the real property. If there is no purchaser 
at the tax sale, the property is deemed to be bid in by the State. 
Because the obtaining of this tax certificate by a purchaser or State Q 
does not directly result in the divestment of either the owner's title 
or junior liens with respect to the property, the tax sale is not a 
nonjudicial sale described in section 7425(b). Following the tax sale, 
there is a three-year period during which any person having an interest 
in the property may redeem the property by paying the holder of the tax 
certificate the amount of taxes, interest, and costs. Unless, redeemed, 
the holder of the tax certificate may obtain an absolute title at the 
expiration of the period of redemption provided he serves a notice of 
the expiration of the redemption period upon the owner at least 60 days 
prior to the date of expiration. Because there is no public or private 
sale which directly results in the divestment of junior liens on the 
property, the date of sale, for purposes of computing a period of time 
determined with reference to the date of sale, is the date on which the 
holder of the tax certificate obtains absolute title.

[T.D. 7430, 41 FR 35178, Aug. 20, 1976]



Sec.  301.7425-3  Discharge of liens; special rules.

    (a) Notice of sale requirements--(1) In general. Except in the case 
of the sale of perishable goods described in paragraph (c) of this 
section, a notice (as described in paragraph (d) of this section) of a 
nonjudicial sale shall be given, in writing by registered or certified 
mail or by personal service, not less than 25 days prior to the date of 
sale (determined under the provisions of Sec.  301.7425-2(b)), to the 
Internal Revenue Service (IRS) official, office and address specified in 
IRS Publication 786, ``Instructions for Preparing a Notice of 
Nonjudicial Sale of Property and Application for Consent to Sale,'' or 
any successor publication. The relevant IRS publications may be 
downloaded from the IRS Internet site

[[Page 674]]

at http://www.irs.gov. Under this section, a notice of sale is not 
effective if it is given to an office other than the office listed in 
the relevant publication. The provisions of sections 7502 (relating to 
timely mailing treated as timely filing) and 7503 (relating to time for 
performance of acts where the last day falls on Saturday, Sunday, or a 
legal holiday) apply in the case of notices required to be made under 
this paragraph.
    (2) Postponement of scheduled sale--(i) Where notice of sale is 
given. In the event that notice of a sale is given in accordance with 
subparagraph (1) of this paragraph (a), with respect to a scheduled sale 
which is postponed to a later time or date, the seller of the property 
is required to give notice of the postponement to the IRS in the same 
manner as is required under local law with respect to other secured 
creditors. For example, assume that in State M local law requires that 
in the event of a postponement of a scheduled foreclosure sale of real 
property, an oral announcement of the postponement at the place and time 
of the scheduled sale constitutes sufficient notice to secured creditors 
of the postponement. Accordingly, if at the place and time of a 
scheduled sale in State M an oral announcement of the postponement is 
made, the Internal Revenue Service is considered to have notice of the 
postponement for the purpose of this subparagraph.
    (ii) Where notice of sale is not given. In the event that--
    (A) Notice of a nonjudicial sale would not be required under 
subparagraph (1) of this paragraph (a), if the sale were held on the 
originally scheduled date,
    (B) Because of a postponement of the scheduled sale, more than 30 
days elapse between the originally scheduled date of the sale and the 
date of the sale, and
    (C) A notice of lien with respect to the property to be sold is 
filed more than 30 days before the date of the sale, notice of the sale 
is required to be given to the IRS in accordance with the provisions of 
paragraph (a)(1) of this section. In any case in which notice of sale is 
required to be given with respect to a scheduled sale, and notice of the 
sale is not given, any postponement of the scheduled sale does not 
affect the rights of the United States under section 7425(b).
    (iii) Examples. The provisions of subdivision (ii) of this 
subparagraph may be illustrated by the following examples:

    Example 1. A nonjudicial sale of Blackacre, belonging to A, a 
delinquent taxpayer, is scheduled for December 2, 1968. As no notice of 
lien is filed applicable to Blackacre more than 30 days before December 
2, 1968, no notice of sale is given to the IRS. On December 2, 1968, the 
sale of Blackacre is postponed until January 15, 1969. A notice of lien 
with respect to Blackacre is properly filed on January 2, 1969. The sale 
of blackacre is held on January 15, 1969. Even though more than 30 days 
elapsed between the originally scheduled date of the sale (December 2, 
1968) and the date of the sale (January 15, 1969), no notice of sale is 
required to be given to the IRS because the notice of lien was not filed 
more than 30 days before the date of the sale.
    Example 2. Assume the same facts as in example 1 except that a 
notice of lien is filed on November 29, 1968, in accordance with section 
6323. Because more than 30 days elapsed between the originally scheduled 
date of the sale and the date of the sale, and the notice of lien is 
filed (on November 29, 1968) more than 30 days before the date of the 
sale (January 15, 1969), notice of the sale, in accordance with the 
provisions of subparagraph (1) of this paragraph, is required to be 
given to the distirct director.
    Example 3. A nonjudicial sale of Whiteacre, belonging to B, a 
delinquent taxpayer, is scheduled for December 2, 1968. A notice of lien 
applicable to Whiteacre is filed on November 12, 1968, in accordance 
with section 6323. As the notice of lien was not filed more than 30 days 
before December 2, 1968, no notice of sale is given to the IRS. On 
December 2, 1968, the sale of Whiteacre is postponed until December 20, 
1968. The sale of Whiteacre is held on December 20, 1968. Even though 
more than 30 days elapsed between the date notice of lien was filed 
(November 12, 1968) and the date of the sale (December 20, 1968), no 
notice of sale is required to be given to the IRS because not more than 
30 days elapsed between the date of the originally scheduled sale 
(December 2, 1968) and the date the sale was actually held (December 20, 
1968).

    (b) Consent to sale--(1) In general. Notwithstanding the notice of 
sale provisions of paragraph (a) of this section, a nonjudicial sale of 
property shall discharge or divest the property of the lien and title of 
the United States if the IRS consents to the sale of the

[[Page 675]]

property free of the lien or title. Pursuant to section 7425(c)(2), 
where adequate protection is afforded the lien or title of the United 
States, the IRS may, in its discretion, consent with respect to the sale 
of property in appropriate cases. Such consent shall be effective only 
if given in writing and shall be subject to such limitations and 
conditions as the IRS may require. However, the IRS may not consent to a 
sale of property under this section after the date of sale, as 
determined under Sec.  301.7425-2(b). For provisions relating to the 
authority of the IRS to release a lien or discharge property subject to 
a tax lien, see section 6325 and the section 6325 regulations.
    (2) Application for consent. Any person desiring the IRS's consent 
to sell property free of a tax lien or a title derived from the 
enforcement of a tax lien of the United States in the property shall 
submit to the IRS, at the office and address specified in the relevant 
IRS publications, a written application, in triplicate, declaring that 
it is made under penalties of perjury, and requesting that such consent 
be given. The application shall contain the information required in the 
case of a notice of sale, as set forth in paragraph (d)(1) of this 
section, and, in addition, shall contain a statement of the reasons why 
the consent is desired.
    (c) Sale of perishable goods--(1) In general. A notice (as described 
in paragraph (d) of this section) of a nonjudicial sale of perishable 
goods (as defined in paragraph (c)(2) of this section) shall be given in 
writing, by registered or certified mail or delivered by personal 
service, at any time before the sale, to the IRS official and office 
specified in the relevant IRS publications, at the address specified in 
such publications. Under this section, a notice of sale is not effective 
if it is given to an office other than the office listed in the relevant 
publication. If a notice of a nonjudicial sale is timely given in the 
manner described in this paragraph, the nonjudicial sale shall discharge 
or divest the tax lien, or a title derived from the enforcement of a tax 
lien, of the United States in the property. The provisions of sections 
7502 (relating to timely mailing treated as timely filing) and 7503 
(relating to time for performance of acts where the last day falls on 
Saturday, Sunday, or a legal holiday) apply in the case of notices 
required to be made under this paragraph. The seller of the perishable 
goods shall hold the proceeds (exclusive of costs) of the sale as a 
fund, for not less than 30 days after the date of the sale, subject to 
the liens and claims of the United States, in the same manner and with 
the same priority as the liens and claims of the United States had with 
respect to the property sold. If the seller fails to hold the proceeds 
of the sale in accordance with the provisions of this paragraph and if 
the IRS asserts a claim to the proceeds within 30 days after the date of 
sale, the seller shall be personally liable to the United States for an 
amount equal to the value of the interest of the United States in the 
fund. However, even if the proceeds of the sale are not so held by the 
seller, but all the other provisions of this paragraph are satisfied, 
the buyer of the property at the sale takes the property free of the 
liens and claims of the United States. In the event of a postponement of 
the scheduled sale of perishable goods, the seller is not required to 
notify the IRS of the postponement. For provisions relating to the 
authority of the IRS to release a lien or discharge property subject to 
a tax lien, see section 6325 and the regulations.
    (2) Definition of perishable goods. For the purpose of this 
paragraph, the term ``perishable goods'' means any tangible personal 
property which, in the reasonable view of the person selling the 
property, is liable to perish or become greatly reduced in price or 
value by keeping, or cannot be kept without great expense.
    (d) Content of notice of sale--(1) In general. With respect to a 
notice of sale described in paragraph (a) or (c) of this section, the 
notice will be considered adequate if it contains the information 
described in paragraph (d)(1) (i), (ii), (iii), and (iv) of this 
section.
    (i) The name and address of the person submitting the notice of 
sale;
    (ii) A copy of each notice of Federal Tax Lien (Form 668) affecting 
the property to be sold, or the following information as shown on each 
such Notice of Federal Tax Lien--

[[Page 676]]

    (A) The IRS office named thereon,
    (B) The name and address of the taxpayer, and
    (C) The date and place of filing of the notice;
    (iii) With respect to the property to be sold, the following 
information--
    (A) A detailed description, including location, of the property 
affected by the notice (in the case of real property, the street 
address, city, and State and the legal description contained in the 
title or deed to the property and, if available, a copy of the abstract 
of title),
    (B) The date, time, place, and terms of the proposed sale of the 
property, and
    (C) In the case of a sale of perishable property described in 
paragraph (c) of this section, a statement of the reasons why the 
property is believed to be perishable; and
    (iv) The approximate amount of the principal obligation, including 
interest, secured by the lien sought to be enforced and a description of 
the other expenses (such as legal expenses, selling costs, etc.) which 
may be charged against the sale proceeds.
    (2) Inadequate notice. Except as otherwise provided in this 
paragraph, a notice of sale described in paragraph (a) of this section 
that does not contain the information described in paragraph (d)(1) of 
this section shall be considered inadequate by the IRS. If the IRS 
determines that the notice is inadequate, the IRS will give written 
notification of the items of information which are inadequate to the 
person who submitted the notice. A notice of sale that does not contain 
the name and address of the person submitting such notice shall be 
considered to be inadequate for all purposes without notification of any 
specific inadequacy. In any case where a notice of sale does not contain 
the information required under paragraph (d)(1)(ii) of this section with 
respect to a Notice of Federal Tax Lien, the IRS may give written 
notification of such omission without specification of any other 
inadequacy and such notice of sale shall be considered inadequate for 
all purposes. In the event the IRS gives notification that the notice of 
sale is inadequate, a notice complying with the provisions of this 
section (including the requirement that the notice be given not less 
than 25 days prior to the sale in the case of a notice described in 
paragraph (a) of this section) must be given. However, in accordance 
with the provisions of paragraph (b)(1) of this section, in such a case 
the IRS may, in its discretion, consent to the sale of the property free 
of the lien or title of the United States even though notice of the sale 
is given less than 25 days prior to the sale. In any case where the 
person who submitted a timely notice, which indicates his name and 
address, does not receive more than 5 days prior to the date of sale 
written notification from the IRS that the notice is inadequate, the 
notice shall be considered adequate for purposes of this section.
    (3) Acknowledgment of notice. If a notice of sale described in 
paragraph (a) or (c) of this section is submitted in duplicate to the 
IRS with a written request that receipt of the notice be acknowledged 
and returned to the person giving the notice, this request will be 
honored by the IRS. The acknowledgment by the IRS will indicate the date 
and time of the receipt of the notice.
    (4) Disclosure of adequacy of notice. The IRS is authorized to 
disclose, to any person who has a proper interest, whether an adequate 
notice of sale was given under paragraph (d)(1) of this section. Any 
person desiring this information should submit to the IRS a written 
request that clearly describes the property sold or to be sold, 
identifies the applicable notice of lien, gives the reasons for 
requesting the information, and states the name and address of the 
person making the request. The request should be submitted to the IRS 
official, office and address specified in IRS Publication 4235, 
``Technical Services (Advisory) Group Addresses,'' or any successor 
publication. The relevant IRS publications may be downloaded from the 
IRS Internet site at http://www.irs.gov.
    (e) Effective/applicability date. These regulations are effective on 
July 8, 2008.

[T.D. 7430, 41 FR 35180, Aug. 20, 1976, as amended by T.D. 9344, 72 FR 
39739, July 20, 2007; T.D. 9410, 73 FR 38916, July 8, 2008]

[[Page 677]]



Sec.  301.7425-4  Discharge of liens; redemption by United States.

    (a) Right to redeem--(1) In general. In the case of a nonjudicial 
sale of real property to satisfy a lien prior to the tax lien or a title 
derived from the enforcement of a tax lien, the district director may 
redeem the property within the redemption period (as described in 
paragraph (a)(2) of this section). The right of redemption of the United 
States exists under section 7425(d) even though the district director 
has consented to the sale under section 7425(c)(2) and Sec.  301.7425-
3(b). For purposes of this section, the term ``nonjudicial sale'' shall 
have the same meaning as used in paragraph (a) of Sec.  301.7425-2.
    (2) Redemption period. For purposes of this section, the redemption 
period shall be--
    (i) The period beginning with the date of the sale (as determined 
under paragraph (b) of Sec.  301.7425-2) and ending with the 120th day 
after such date, or
    (ii) The period for redemption of real property allowable with 
respect to other secured creditors, under the local law of the place 
where the real property is located, whichever expires later. Whichever 
period is applicable, section 7425 and this section shall govern the 
amount to be paid and the procedure to be followed.
    (3) Limitations. In the event a sale does not ultimately discharge 
the property from the tax lien (whether by reason of local law or the 
provisions of section 7425(b)), the provisions of this section do not 
apply because the tax lien will continue to attach to the property after 
the sale. In a case in which the Internal Revenue Service is not 
entitled to a notice of sale under section 7425(b) and Sec.  301.7425-3, 
the United States does not have a right of redemption under section 
7425(d). However, in such a case, if a tax lien has attached to the 
property at the time of sale, the United States has the same right of 
redemption, if any, which is afforded similar creditors under the local 
law of the place in which the property is situated.
    (b) Amount to be paid--(1) In general. In any case in which a 
district director exercises the right to redeem real property under 
section 7425(d), the amount to be paid is the sum of the following 
amounts--
    (i) The actual amount paid for the property (as determined under 
paragraph (b)(2) of this section) being redeemed (which, in the case of 
a purchaser who is the holder of the lien being foreclosed, shall 
include the amount of the obligation secured by such lien to the extent 
legally satisfied by reason of the sale);
    (ii) Interest on the amount paid (described in paragraph (b)(1)(i) 
of this section) at the sale by the purchaser of the real property 
computed at the rate of 6 percent per annum for the period from the date 
of the sale (as determined under paragraph (b) of Sec.  301.7425-2) to 
the date of redemption;
    (iii) The amount, if any, equal to the excess of (A) the expenses 
necessarily incurred to maintain such property (as determined under 
paragraph (b)(3) of this section) by the purchaser (and his successor in 
interest, if any) over (B) the income from such property realized by the 
purchaser (and his successor in interest, if any) plus a reasonable 
rental value of such property (to the extent the property is used by or 
with the consent of the purchaser or his successor in interest or is 
rented at less than its reasonable rental value); and
    (iv) With respect to a redemption made after December 31, 1976, the 
amounts, if any, of a payment made by the purchaser or his successor in 
interest after the foreclosure sale to a holder of a senior lien (to the 
extent provided under paragraph (b)(4) of this section).
    (2) Actual amount paid. (i) The actual amount paid for property by a 
purchaser, other than holder of the lien being foreclosed, is the amount 
paid by him at the sale. For purposes of this subdivision, the amount 
paid by the purchaser at the sale includes deferred payments upon the 
bid price. The actual amount paid does not include costs and expenses 
incurred prior to the foreclosure sale by the purchaser except to the 
extent such expenses are included in the amount bid and paid for the 
property. For example, the actual amount paid does not normally include 
the expenses of the purchaser such as

[[Page 678]]

title searches, professional fees, or interest on debt incurred to 
obtain funds to purchase the property.
    (ii) In the case of a purchaser who is the holder of the lien being 
foreclosed, the actual amount paid is the sum of (A) the amount of the 
obligation secured by such lien to the extent legally satisfied by 
reason of the sale and (B) any additional amount bid and paid at the 
sale. For purposes of this section, a purchaser who acquires title as a 
result of a nonjudicial foreclosure sale is treated as the holder of the 
lien being foreclosed if a lien (or any interest reserved, created, or 
conveyed as security for the payment of a debt or fulfillment of other 
obligation) held by him is partially or fully satisfied by reason of the 
foreclosure sale. For example, a person whose title is derived from a 
tax deed issued under local law shall be treated as a purchaser who is 
the holder of the lien foreclosed in a case where a tax certificate, 
evidencing a lien on the property arising from the payment of property 
taxes, ripens into title. The amount paid by a purchaser at the sale 
includes deferred payments upon any portion of the bid price which is in 
excess of the amount of the lien being foreclosed. The actual amount 
paid does not include costs and expenses incurred prior to the 
foreclosure sale by the purchaser except to the extent such expenses are 
included in the amount of the lien being foreclosed which is legally 
satisfied by reason of the sale or in the amount bid and paid at the 
sale. Where the lien being foreclosed attaches to other property not 
subject to the foreclosure sale, the amount legally satisfied by reason 
of the sale does not include the amount of such lien that attaches to 
the other property. However, for purposes of the preceding sentence, the 
amount of the lien that attaches to the other property shall be 
considered to be equal to the amount by which the value of the other 
property exceeds the amount of any other senior lien on that property. 
Where, after the sale, the holder of the lien being foreclosed has the 
right to the unpaid balance of the amount due him, the amount legally 
satisfied by reason of the sale does not include the amount of such lien 
to the extent a deficiency judgment may be obtained therefor. However, 
for purposes of the preceding sentence, an amount, with respect to which 
the holder of the lien being foreclosed would otherwise have a right to 
a deficiency judgment, shall be considered to be legally satisfied by 
reason of the foreclosure sale to the extent that the holder has waived 
his right to a deficiency judgment prior to the foreclosure sale. For 
this purpose, the waiver must be in writing and legally binding upon the 
foreclosing lienholder as of the time the sale is concluded. If, prior 
to the foreclosure, payments have been made by the foreclosing 
lienholder to a holder of a superior lien, the payments are included in 
the actual amount paid to the extent they give rise to an interest which 
is legally satisfied by reason of the foreclosure sale.
    (3) Excess expenses incurred by purchaser. (i) Expenses necessarily 
incurred in connection with the property after the foreclosure sale and 
before redemption by the United States are taken into account in 
determining if there are excess expenses payable under paragraph 
(b)(1)(iii) of this section. Expenses incurred by the purchaser prior to 
the foreclosure sale are not considered under this subparagraph. (See 
paragraph (b)(2)(ii) of this section for circumstances under which such 
expenses may be included in the amount to be paid.) Expenses necessarily 
incurred in connection with the property include, for example, rental 
agent commissions, repair and maintenance expenses, utilities expenses, 
legal fees incurred after the foreclosure sale and prior to redemption 
in defending the title acquired through the foreclosure sale, and a 
proportionate amount of casualty insurance premiums and ad valorem 
taxes. Improvements made to the property are not considered as an 
expense unless the amounts incurred for such improvements are 
necessarily incurred to maintain the property.
    (ii) At any time prior to the expiration of the redemption period 
applicable under paragraph (a)(2) of this section, the district director 
may, by certified or registered mail or hand delivery, request a written 
itemized statement of the amount claimed by the purchaser or his 
successor in interest

[[Page 679]]

to be payable under paragraph (b)(1)(iii) of this section. Unless the 
purchaser or his successor in interest furnishes the written itemized 
statement within 15 days after the request is made by the district 
director, it shall be presumed that no amount is payable for expenses in 
excess of income and the Internal Revenue Service shall tender only the 
amount otherwise payable under paragraph (b)(1) of this section. If a 
purchaser or his or her successor in interest has failed to furnish the 
written itemized statement within 15 days after the request therefor is 
made by the district director, or there is a disagreement as to the 
amount properly payable under paragraph (b)(1)(iii) of this section, or 
if there were additional excess expenses that were not claimed in the 
original itemized statement, the purchaser or his or her successor in 
interest may submit a written itemized statement to the district 
director within 30 days after the date of redemption. If the purchaser 
or his or her successor in interest fails to timely submit such a 
written itemized statement, no amount shall be payable for expenses in 
excess of income.
    (4) Payments made by purchaser or his successor in interest to a 
senior lienor. (i) The amount to be paid upon a redemption by the United 
States made after December 31, 1976, shall include the amount of a 
payment made by the purchaser or his successor in interest to a holder 
of a senior lien to the extent a request for the reimbursement thereof 
(made in accordance with paragraph (b)(4)(ii) of this section) is 
approved as provided under paragraph (b)(4)(iii) of this section. This 
paragraph applies only to a payment made after the foreclosure sale and 
before the redemption to a holder of a lien that was, immediately prior 
to the foreclosure sale, superior to the lien foreclosed. A payment of 
principal or interest to a senior lienor shall be taken into account. 
Generally, the portion, if any, of a payment which is to be held in 
escrow for the payment of an expense, such as hazard insurance or real 
property taxes, is not considered under this paragraph. However, a 
payment by the escrow agent of a real property tax or special assessment 
lien, which was senior to the lien foreclosed, shall be considered to be 
a payment made by the purchaser or his successor in interest for 
purposes of this paragraph. With respect to real property taxes assessed 
after the foreclosure sale, see paragraph (b)(3)(i) of this section, 
relating to excess expenses incurred by the purchaser.
    (ii) Before the expiration of the redemption period applicable under 
paragraph (a)(2) of this section, the district director shall, in any 
case where a redemption is contemplated, send notice to the purchaser 
(or his successor in interest of record) by certified or registered mail 
or hand delivery of his right under this subparagraph to request 
reimbursement (payable in the event the right to redeem under section 
7425(d) is exercised) for a payment made to a senior lienor. No later 
than 15 days after the notice from the district director is sent, the 
request for reimbursement shall be mailed or delivered to the office 
specified in such notice and shall consist of--
    (A) A written itemized statement, signed by the claimant, of the 
amount claimed with respect to a payment made to a senior lienor, 
together with the supporting evidence requested in the notice from the 
district director, and
    (B) A waiver or other document that will be effective upon 
redemption by the United States to discharge the property from, or 
transfer to the United States, any interest in or lien on the property 
that may arise under local law with respect to the payment made to a 
senior lienor.

Upon a showing of reasonable cause, a district director may, in his 
discretion and at any time before the expiration of the applicable 
period for redemption, grant an extension for a reasonable period of 
time to submit, amend, or supplement a request for reimbursement. Unless 
a request for reimbursement is timely submitted (determined with regard 
to any extension of time granted), no amount shall be payable to the 
purchaser or his successor in interest on account of a payment made to a 
senior lienor if the right to redeem under section 7425(d) is exercised. 
A waiver or other document submitted pursuant to

[[Page 680]]

this subdivision shall be treated as effective only to the extent of the 
amount included in the redemption price under this paragraph. If the 
right to redeem is not exercised or a request for reimbursement is 
withdrawn, the district director shall, by certified or registered mail 
or hand delivery, return to the purchaser or his successor any waiver or 
other document submitted pursuant to this subdivision as soon as is 
practicable.
    (iii) A request for reimbursement submitted in accordance with 
paragraph (b)(4)(ii) of this section shall be considered to be approved 
for the total amount claimed by the purchaser, and payable in the event 
the right to redeem is exercised, unless the district director sends 
notice to the claimant, by certified or registered mail or hand 
delivery, of the denial of the amount claimed within 30 days after 
receipt of the request or 15 days before expiration of the applicable 
period for redemption, whichever is later. The notification of denial 
shall state the grounds for denial. If such notice of denial is given, 
the request for reimbursement for a payment made to a senior lienor 
shall be treated as having been withdrawn by the purchaser or his 
successor and the Internal Revenue Service shall tender only the amount 
otherwise payable under paragraph (b)(1) of this section. If a request 
for reimbursement is treated as having been withdrawn under the 
preceding sentence, payment for amounts described in this subparagraph 
may, in the discretion of the district director, be made after the 
redemption upon the resolution of the disagreement as to the amount 
properly payable under paragraph (b)(1)(iv) of this section.
    (5) Examples. The provisions of paragraph (b)(1)(i) of this section 
may be illustrated by the following examples:

    Example 1. A, a delinquent taxpayer, owns Blackacre located in State 
X upon which B holds a mortgage. After the mortgage is properly 
recorded, a notice of tax lien is filed under section 6323(f) which is 
applicable to Blackacre. Subsequently, A defaults on the mortgage and B 
forecloses on the mortgage which has an outstanding obligation in the 
amount of $100,000. At the foreclosure sale, B bids $50,000 and obtains 
title to Blackacre as a result of the sale. At the time of the 
foreclosure sale, Blackacre has a fair market value of $75,000. Under 
the laws of State X, the mortgage obligation is fully satisfied by 
operation of the foreclosure sale per se and the mortgagee cannot obtain 
a deficiency judgment. Under paragraph (b)(1)(i) of this section, the 
district director must pay $100,000 in order to redeem Blackacre.
    Example 2. Assume the same facts as in example 1 except that under 
the laws of State X, the amount bid is the amount of the obligation 
legally satisfied as a result of the foreclosure sale, and in the case 
in which the amount of the obligation exceeds the amount bid, the 
mortgagee has the right to a judgment for the deficiency computed as the 
difference between the amount of the obligation and the amount bid. B 
does not waive, prior to the foreclosure sale, his right to a deficiency 
judgment. In such a case, the district director must, under paragraph 
(b)(1)(i) of this section, pay $50,000 in order to redeem Blackacre, 
whether or not B seeks a judgment for the deficiency.
    Example 3. C, a delinquent taxpayer, owns Greenacre located in State 
Y upon which D holds a first mortgage and E holds a second mortgage. 
After the mortgages are properly recorded, a notice of tax lien is filed 
under section 6323(f) which is applicable to Greenacre. Subsequently, C 
defaults on both mortgages and E pays $5,000 to D, which is the portion 
of D's obligation which is in default. The second mortgage held by E is 
an outstanding obligation in the amount of $100,000. Under the laws of 
State Y, E may treat the amount paid to D as an addition to his second 
mortgage upon foreclosure by him. E forecloses upon the security 
interest held by him. At the foreclosure sale, E bids $50,000 and 
obtains title to Greenacre subject to D's mortgage as a result of the 
foreclosure sale. Under the laws of State Y, the mortgage obligation 
legally satisfied is the amount bid and E has the right to a judgment 
for a deficiency in the amount of $55,000 ($100,000 plus $5,000 less 
$50,000). In such a case, the district director must, under paragraph 
(b)(1)(i) of this section, pay $50,000 in order to redeem Greenacre, 
whether or not E seeks a judgment for the deficiency.
    Example 4. The law of State Z contains a procedure which permits a 
county to collect a delinquent tax assessment with respect to real 
property by the means of a ``tax sale'' of the property. Pursuant to 
this procedure, a public auction is conducted on January 15, 1970, to 
collect the delinquent property taxes assessed against Whiteacre, which 
is owned by F. At the auction, a bid of $1,000 (representing the tax, 
costs, and interest due at the time of the auction) is made by G. 
Subsequently, G pays the amount bid to the county and obtains a tax 
certificate with respect to Whiteacre. Under this tax sale procedure, 
the obtaining of the tax certificate does not directly result in the 
divestment of either F's title or any junior liens on Whiteacre. On

[[Page 681]]

January 15, 1973, the period under this tax sale procedure during which 
F could have redeemed Whiteacre expires. Further, more than 30 days 
before January 15, 1973, a notice of tax lien affecting Whiteacre is 
filed under section 6323(f) with respect to F's delinquent Federal 
income taxes. Under the state tax sale procedure, the amount which would 
be required to be paid by F to G on January 15, 1973, to redeem 
Whiteacre is $1,350 (the $1,000 amount bid, interest of $300, and costs 
of $50). However, Whiteacre is not redeemed by F under the state 
procedure and, on January 16, 1973, G obtains a tax deed to Whiteacre. 
Under the law of State Z, the issuance of the tax deed results in the 
divestment of F's title and junior liens on Whiteacre. Thus, under Sec.  
301.7425-2(b), the date of sale is January 16, 1973, for purposes of 
section 7425(b). The amount legally satisfied by reason of the sale is 
the amount G is entitled to receive, immediately prior to the expiration 
of the period for redemption under the law of State Z, if Whiteacre were 
redeemed at such time. Thus, the district director must, under paragraph 
(b)(1)(i) of this section, pay $1,350 in order to redeem Whiteacre.

    (c) Certificate of redemption--(1) In general. If a district 
director exercise the right of redemption of the United States described 
in paragraph (a) of this section, he shall apply to the officer 
designated by local law, if any, for the documents necessary to evidence 
the fact of redemption and to record title to the redeemed property in 
the name of the United States. If no such officer has been designated by 
local law or if the officer designated by local law fails to issue the 
necessary documents, the district director is authorized to issue a 
certificate of redemption for the property redeemed by the United 
States.
    (2) Filing. The district director shall, without delay, cause either 
the documents issued by the local officer or the certificate of 
redemption executed by the district director to be filed with the local 
office where certificates of redemption are generally filed. If a 
certificate of redemption is issued by the district director and if the 
State in which the real property redeemed by the United States is 
situated has no office with which certificates of redemption may be 
filed, the district director shall file the certificate of redemption in 
the office of the clerk of the United States district court for the 
judicial district in which the redeemed property is situated.
    (3) Effect of certificate of redemption. A certificate of redemption 
executed pursuant to paragraph (c)(1) of this section, shall constitute 
prima facie evidence of the regularity of the redemption. When a 
certificate of redemption is recorded, it shall transfer to the United 
States all the rights, title, and interest in and to the redeemed 
property acquired by the person, from whom the district director 
redeemed the property, by virtue of the sale of the property. Therefore, 
if under local law the purchaser takes title free of liens junior to the 
lien of the foreclosing lienholder, the United States takes title free 
of such junior liens upon redemption of the property. If a certificate 
of redemption has been erroneously prepared and filed because the 
redemption was not effective, the district director shall issue a 
document revoking such certificate of redemption and such document shall 
be conclusively binding upon the United States against a purchaser of 
the property or a holder of a lien upon the property.
    (4) Application for release of right of redemption. Upon application 
of a party with a proper interest in the real property sold in a 
nonjudicial sale described in section 7425(b) and Sec.  301.7425-2 which 
real property is subject to the right of redemption of the United States 
described in this section, the district director may, in his discretion, 
release the right of redemption with respect to the property. The 
application for the release shall be submitted in writing to a district 
director and shall contain such information as the district director may 
require. If the district director determines that the right of 
redemption of the United States is without value, no amount shall be 
required to be paid with respect to the release of the right of 
redemption.

[T.D. 7430, 41 FR 35181, Aug. 20, 1976, as amended by T.D. 8596, 60 FR 
28720, June 2, 1995]



Sec.  301.7426-1  Civil actions by persons other than taxpayers.

    (a) Actions permitted--(1) Wrongful levy--(i) In general. If a levy 
has been made on property or property has been sold pursuant to a levy, 
any person (other than the person against whom is

[[Page 682]]

assessed the tax out of which such levy arose) may bring a civil action 
against the United States in a district court of the United States based 
upon such person's claim--
    (A) That such person has an interest in, or lien on, such property 
which is senior to the interest of the United States; and
    (B) That such property was wrongfully levied upon.
    (ii) Debt owed by another Federal agency. Section 7426 and this 
paragraph (a) apply when a levy is made by the Internal Revenue Service 
on a debt owed to a taxpayer by another Federal agency. By contrast, 
section 7426 and this paragraph (a) do not apply if the Internal Revenue 
Service requests payment from another Federal agency pursuant to a 
request for setoff.
    (2) Surplus proceeds. If property has been sold pursuant to levy, 
any person (other than the person against whom is assessed the tax out 
of which such levy arose) may bring a civil action against the United 
States in a district court of the United States based upon such person's 
claim that he--
    (i) Has an interest in or lien on such property junior to that of 
the United States; and
    (ii) Is entitled to the surplus proceeds of such sale.
    (3) Substituted sale proceeds. Any person who claims to be legally 
entitled to all or any part of the amount which is held as a fund from 
the sale of property pursuant to an agreement described in section 
6325(b)(3) may bring a civil action against the United States in a 
district court of the United States to obtain the relief provided by 
section 7426 (b)(4). It is not necessary that the claimant be a party to 
the agreement which provides for the substitution of the sale proceeds 
for the property subject to the lien.
    (4) Substitution of value. A person who obtains a certificate of 
discharge under section 6325(b)(4) with respect to any property may, 
within 120 days after the day on which the certificate is issued, bring 
a civil action against the United States in a district court of the 
United States for a determination of whether the value of the interest 
of the United States (if any) in such property is less than the value 
determined by the appropriate official. A civil action under this 
provision shall be the exclusive judicial remedy for a person other than 
the taxpayer who obtains a certificate of discharge for a filed notice 
of Federal tax lien.
    (b) Adjudication--(1) Wrongful levy. If the court determines that 
property has been wrongfully levied upon, the court may--
    (i) Grant an injunction to prohibit the enforcement of such levy or 
to prohibit a sale of such property if such sale would irreparably 
injure rights in the property which are superior to the rights of the 
United States in such property; or
    (ii) Order the return of specific property if the United States is 
in possession of such property; or
    (iii) Grant a judgment for the amount of money levied upon; or
    (iv) Grant a judgment for an amount not exceeding the amount 
received by the United States from the sale of such property (which, in 
the case of property declared purchased by the United States at a sale, 
shall be the greater of the minimum amount determined pursuant to 
section 6335(e) or the amount received by the United States from the 
resale of such property).

For purposes of this paragraph, a levy is wrongful against a person 
(other than the taxpayer against whom the assessment giving rise to the 
levy is made), if (a) the levy is upon property exempt from levy under 
section 6334, or (b) the levy is upon property in which the taxpayer had 
no interest at the time the lien arose or thereafter, or (c) the levy is 
upon property with respect to which such person is a purchaser against 
whom the lien is invalid under section 6323 or 6324 (a)(2) or (b), or 
(d) the levy or sale pursuant to levy will or does effectively destroy 
or otherwise irreparably injure such person's interest in the property 
which is senior to the Federal tax lien. A levy may be wrongful against 
a holder of a senior lien upon the taxpayer's property under certain 
circumstances although legal rights to enforce his interest survive the 
levy procedure. For example, the levy may be wrongful against such a 
person if the property is an obligation which is collected pursuant to 
the levy rather than sold and nothing

[[Page 683]]

thereafter remains for the senior lienholder, or the property levied 
upon is of such a nature that when it is sold at a public sale the 
property subject to the senior lien is not available for the senior 
lienholder as a realistic source for the enforcement of his interest. 
Some of the factors which should be taken into account in determining 
whether property remains or will remain a realistic source from which 
the senior lienholder may realize collection are: (1) The nature of the 
property, (2) the number of purchasers, (3) the value of each unit sold 
or to be sold, (4) whether, as a direct result of the distraint sale, 
the costs of realizing collection from the security have or will be so 
substantially increased as to render the security substantially 
valueless as a source of collection, and (5) whether the property 
subject to the distraint sale constitutes substantially all of the 
property available as security for the payment of the indebtedness to 
the senior lienholder.
    (2) Example. The provisions of subparagraph (1) of this paragraph 
(b) may be illustrated by the following example:

    Example. On April 10, 1972, A makes a $10,000 loan to B which is 
partially secured by a $5,000 obligation owed to B by C. Under local 
law, A's security interest in the obligation owed to B by C is protected 
against a subsequent judgment lien arising out of an unsecured 
obligation. Thus, under section 6323(h)(1), A's security interest exists 
as of April 10, 1972, for purposes of determining priorities against a 
tax lien under section 6323. On April 17, 1972, an assessment of $6,000 
is made against B with respect to his delinquent Federal tax liability. 
Thereafter, notice of lien is filed pursuant to section 6323(f) with 
respect to B's delinquent tax liability. On July 10, 1972, a notice of 
levy is served upon C to reach the amount owed by him to B. C pays over 
the $5,000 obligation in satisfaction of the levy and, under local law, 
the obligation is discharged as to A. Because the levy effectively 
destroyed A's senior security interest in the obligation owed to B by C, 
the levy is wrongful as to A for purposes of section 7426. Under these 
circumstances, the levy is wrongful with respect to A even if, under 
local law. A may have a cause of action in contract against B for the 
$10,000 loan or may have a cause of action in tort against C for the 
amount of the $5,000 payment which defeated A's security interest in the 
obligation owed by C to B.

    (3) Surplus proceeds. If the court determines that the interest or 
lien of any party to an action under section 7426 was transferred to the 
proceeds of a sale of the property, the court may grant a judgment in an 
amount equal to all or any part of the amount of the surplus proceeds of 
such sale. The term ``surplus proceeds'' means those proceeds realized 
on a sale of property remaining after application of the provisions of 
section 6342(a).
    (4) Substituted sale proceeds. If the court determines that a party 
has an interest in or lien on the amount held as a fund pursuant to an 
agreement described in section 6325(b)(3), the court may grant a 
judgment in an amount equal to all or any part of the amount of such 
fund.
    (5) Substitution of value. If the court determines that the 
determination by the appropriate official of the value of the interest 
of the United States in the property exceeds the actual value of such 
interest, the court may grant a judgment ordering a refund of the amount 
deposited, or a release of the bond, to the extent that the aggregate of 
those amounts exceeds the value as determined by the court.
    (c) Effective date. Paragraph (a)(1) of this section is effective as 
of December 23, 1993.
    (d) Paragraphs (a)(4) and (b)(5) of this section apply to any 
request for a certificate of discharge made after January 31, 2008.

[T.D. 7305, 39 FR 9951, Mar. 15, 1974, as amended by T.D. 8541, 59 FR 
26601, May 23, 1994; 73 FR 5744, Jan. 31, 2008]



Sec.  301.7426-2  Recovery of damages in certain cases.

    (a) In general. In addition to remedies related to wrongful levy set 
forth in Sec.  301.7426-1(b), if a district court of the United States 
finds in any action brought under section 7426 that any officer or 
employee of the Internal Revenue Service recklessly or intentionally, or 
by reason of negligence, disregarded any provision of this title, the 
United States shall be liable to the plaintiff for damages. The 
plaintiff has a duty to mitigate damages. The total amount of damages 
recoverable under this section is the lesser of $1,000,000

[[Page 684]]

($100,000 in the case of negligence), or the sum of--
    (1) Actual, direct economic damages as defined in Sec.  301.7433-
1(b) sustained as a proximate result of the reckless, intentional, or 
negligent actions of the officer or employee, reduced by the amount of 
any damages awarded under Sec.  301.7426-1(b); and
    (2) Costs of the action as defined in Sec.  301.7433-1(c).
    (b) Administrative remedies must be exhausted. The court may not 
award a judgment for damages under paragraph (a) of this section unless 
the court determines that the plaintiff has filed an administrative 
claim pursuant to paragraph (d) of this section, and has satisfied the 
requirements of paragraph (c) of this section.
    (c) No request for damages in a district court of the United States 
prior to filing an administrative claim. (1) Except as provided in 
paragraph (c)(2) of this section, no request for damages under paragraph 
(a) of this section shall be maintained in any district court of the 
United States before the earlier of the following dates--
    (i) The date the decision is rendered on a claim filed in accordance 
with paragraph (d) of this section; or
    (ii) The date that is six months after the date an administrative 
claim is filed in accordance with paragraph (d) of this section.
    (2) If an administrative claim is filed in accordance with paragraph 
(d) of this section during the last six months of the period of 
limitations described in paragraph (f) of this section, the claimant may 
file an action in a district court of the United States any time after 
the administrative claim is filed and before the expiration of the 
period of limitations.
    (d) Procedures for an administrative claim--(1) Manner. An 
administrative claim for the lesser of $1,000,000 ($100,000 in the case 
of negligence) or actual, direct economic damages as defined in Sec.  
301.7433-1(b) shall be sent in writing to the Area Director, Attn: 
Compliance Technical Support Manager of the area in which the taxpayer 
currently resides.
    (2) Form. The administrative claim shall include--
    (i) The name, taxpayer identification number, current address and 
current home and work telephone numbers (indicating any convenient times 
to be contacted) of the person making the claim;
    (ii) The grounds, in reasonable detail, for the claim (include 
copies of any available substantiating documentation or correspondence 
with the Internal Revenue Service);
    (iii) A description of the damages incurred by the claimant filing 
the claim (include copies of any available substantiating documentation 
or evidence);
    (iv) The dollar amount of the claim, including any damages that have 
not yet been incurred but which are reasonably foreseeable (include 
copies of any available substantiating documentation or evidence); and
    (v) The signature of the claimant or duly authorized representative.
    (3) Duly authorized representative. For purposes of this paragraph 
(d), a duly authorized representative is any attorney, certified public 
accountant, enrolled actuary, or any other person permitted to represent 
the claimant before the Internal Revenue Service who is not disbarred or 
suspended from practice before the Internal Revenue Service and who has 
a written power of attorney executed to the claimant.
    (e) No liability for damages for any sum in excess of the dollar 
amount sought in the administrative claim. See Sec.  301.7433-1(f).
    (f) Period of limitations--(1) Time for filing. A civil action under 
paragraph (a) of this section must be brought in a district court of the 
United States within two years after the date the cause of action 
accrues.
    (2) Right of action accrues. A cause of action under paragraph (a) 
of this section accrues when the plaintiff has had a reasonable 
opportunity to discover all essential elements of a possible cause of 
action.
    (g) Recovery of costs under section 7430. See Sec.  301.7433-1(h).
    (h) Effective date. This section is applicable March 25, 2003.

[T.D. 9050, 68 FR 14319, Mar. 25, 2003]

[[Page 685]]



Sec.  301.7429-1  Review of jeopardy and termination assessment 
and jeopardy levy procedures; information to taxpayer.

    Not later than 5 days after the day on which an assessment is made 
under section 6851(a), 6852(a), 6861(a), or 6862, or a levy is made 
under section 6331(a) without complying with the notice before levy 
provisions of section 6331(d), the district director shall provide the 
taxpayer a written statement setting forth the information upon which 
the district director relies in authorizing such assessment or levy.

[T.D. 8453, 57 FR 58985, Dec. 14, 1992]



Sec.  301.7429-2  Review of jeopardy and termination assessment 
and jeopardy levy procedures.

    (a) Request for administrative review. Any request for the review of 
a jeopardy or termination assessment or jeopardy levy provided for by 
section 7429(a)(2) shall be filed with the district director within 30 
days after the statement described in Sec.  301.7429-1 is given to the 
taxpayer. However, if no statement is given within the 5 day period 
described in Sec.  301.7429-1, any request for review of the jeopardy or 
termination assessment or jeopardy levy shall be filed within 35 days 
after the date such assessment or levy is made. Such request shall be in 
writing, shall state fully the reasons for the request, and shall be 
supported by such evidence as will enable the district director to make 
the redetermination described in section 7429(a)(3).
    (b) Administrative review. In determining whether the assessment is 
reasonable and the amount assessed is appropriate, or whether the 
jeopardy levy is reasonable, the district director shall take into 
account not only information available at the time the assessment or 
jeopardy levy is made but also information which subsequently becomes 
available.
    (c) Abatement of assessment. For rules relating to the abatement of 
assessments made under sections 6851 and 6861 see Sec. Sec.  301.6861-
1(e), 301.6861-1(f) and 1.6851-1(d) of this chapter.

[T.D. 8453, 57 FR 58985, Dec. 14, 1992]



Sec.  301.7429-3  Review of jeopardy and termination assessment 
and jeopardy levy procedures; judicial action.

    (a) Time for bringing judicial action. An action for judicial review 
described in section 7429(b) may be instituted by the taxpayer during 
the period beginning on the earlier of--
    (1) The date the district director notifies the taxpayer of the 
determination described in section 7429(a)(3) and ending on the 90th day 
thereafter; or
    (2) The 16th day after the request described in section 7429(a)(2) 
was made by the taxpayer and ending on the 90th day thereafter.
    (b) Extension of period for judicial review. The United States 
Government may not by itself seek an extension of the 20 day period 
described in section 7429(b)(3), but it may join with the taxpayer in 
seeking such an extension.
    (c) Jurisdiction for determination. In general, the United States 
district court will have exclusive jurisdiction over any civil action 
for a determination described in section 7429(b). However, if a petition 
for a redetermination of a deficiency has been timely filed with the Tax 
Court prior to the making of an assessment or levy that is subject to 
the section 7429 review procedures, and one or more of the taxes and tax 
periods before the Tax Court as a result of the petition is also 
included in the written statement that was provided to the taxpayer, 
then the Tax Court will have jurisdiction concurrent with the district 
courts over any civil action for a judicial determination with respect 
to all the taxes and tax periods included in the written statement. In 
all other cases, the appropriate United States district court continues 
to have exclusive jurisdiction over such an action.

[T.D. 8453, 57 FR 58985, Dec. 14, 1992]



Sec.  301.7430-0  Table of contents.

    This section lists the captions that appear in Sec. Sec.  301.7430-1 
through 301.7430-6.

         Sec.  301.7430-1 Exhaustion of administrative remedies.

    (a) In general.
    (b) Requirements.
    (1) In general.

[[Page 686]]

    (2) Participates.
    (3) Tax matter.
    (4) Failure to agree to extension of time for assessments.
    (c) Revocation of a determination that an organization is described 
in section 501(c)(3).
    (d) Actions involving summonses, levies, liens, jeopardy and 
termination assessments, etc.
    (e) Exception to requirement that party pursue administrative 
remedies.
    (f) Examples.
    (g) Effective date.

Sec.  301.7430-2 Requirements and procedures for recovery of reasonable 
                          administrative costs.

    (a) Introduction.
    (b) Requirements for recovery.
    (1) Determination by the Internal Revenue Service.
    (i) Jurisdiction.
    (ii) Administrative proceeding.
    (iii) Administrative proceeding date.
    (iv) Reasonable administrative costs.
    (v) Prevailing party.
    (vi) Not unreasonably protracted.
    (vii) Procedural requirements.
    (2) Determination by court.
    (c) Procedure for recovering reasonable administrative costs.
    (1) In general.
    (2) Where request must be filed.
    (3) Contents of request.
    (i) Statements.
    (ii) Affidavit or affidavits.
    (iii) Documentation and information.
    (4) Form of request.
    (5) Period for requesting costs from the Internal Revenue Service.
    (6) Notice.
    (7) Appeal to Tax Court.
    (d) Unreasonable protraction of administrative proceeding.
    (e) Examples.

Sec.  301.7430-3 Administrative proceeding and administrative proceeding 
                                  date.

    (a) Administrative proceeding.
    (b) Collection action.
    (c) Administrative proceeding date.
    (1) General rule.
    (2) Notice of the decision of the Internal Revenue Service Office of 
Appeals.
    (3) Notice of deficiency.
    (4) First letter of proposed deficiency that allows the taxpayer an 
opportunity for administrative review in the Office of Appeals.
    (d) Examples.

            Sec.  301.7430-4 Reasonable administrative costs.

    (a) In general.
    (b) Costs described.
    (1) In general.
    (2) Representative and specially qualified representative.
    (i) Representative.
    (ii) Specially qualified representative.
    (3) Limitation on fees for a representative.
    (i) In general.
    (ii) Cost of living adjustment.
    (iii) Special factor adjustment.
    (A) In general.
    (B) Special factor.
    (C) Limited availability.
    (D) Local availability of tax expertise.
    (E) Difficulty of the issues.
    (F) Example.
    (c) Certain costs excluded.
    (1) Costs not incurred in an administrative proceeding.
    (2) Costs incurred in an administrative proceeding but not 
reasonable.
    (i) In general.
    (ii) Special rule for expert witness' fees on issue of prevailing 
market rates.
    (3) Litigation costs.
    (4) Examples.
    (d) Pro bono representation.
    (1) In general.
    (2) Requirements.
    (3) Nominal fee.
    (4) Payment when representation provided for a nominal fee.
    (5) Requirements.
    (6) Hourly rate.
    (7) Examples.

                   Sec.  301.7430-5 Prevailing party.

    (a) In general.
    (b) Position of the Internal Revenue Service.
    (c) Examples.
    (d) Substantially justified.
    (1) In general.
    (2) Position in courts of appeal.
    (3) Examples.
    (4) Included costs.
    (5) Examples.
    (6) Exception.
    (7) Presumption.
    (e) Amount in controversy.
    (f) Most significant issue or set of issues presented.
    (1) In general.
    (2) Example.
    (g) Net worth and size limitations.
    (1) Individuals.
    (2) Estates and trusts.
    (3) Others.
    (4) Special rule for charitable organizations and certain 
cooperatives.
    (5) Special rule for TEFRA partnerships.
    (6) Determining net worth.
    (h) Determination of prevailing party.
    (i) Examples.

             Sec.  301.7430-6 Effective/applicability dates.

                   Sec.  301.7430-7 Qualified offers.

    (a) In general.
    (b) Requirements for treatment as a prevailing party based upon 
having made a qualified offer.

[[Page 687]]

    (1) In general.
    (2) Liability under the last qualified offer.
    (3) Liability pursuant to the judgment.
    (c) Qualified offer.
    (1) In general.
    (2) To the United States.
    (3) Specifies the offered amount.
    (4) Designated at the time it is made as a qualified offer.
    (5) Remains open.
    (6) Last qualified offer.
    (7) Qualified offer period.
    (8) Interest as a contested issue.
    (d) [Reserved].
    (e) Examples.
    (f) Effective date.

  Sec.  301.7430-8 Administrative costs incurred in damage actions for 
        violations of section 362 or 524 of the Bankruptcy Code.

    (a) In general.
    (b) Prevailing party.
    (c) Administrative proceeding.
    (d) Costs incurred after filing of bankruptcy petition.
    (e) Time for filing claim for administrative costs.
    (f) Effective date.

[T.D. 8542, 59 FR 29360, June 7, 1994, as amended by T.D. 8725, 62 FR 
39118, July 22, 1997; T.D. 9756, 81 FR 10483, Mar. 1, 2016]



Sec.  301.7430-1  Exhaustion of administrative remedies.

    (a) In general. Section 7430(b)(1) provides that a court shall not 
award reasonable litigation costs in any civil tax proceeding under 
section 7430(a) unless the court determines that the prevailing party 
has exhausted the administrative remedies available to the party within 
the Internal Revenue Service. This section sets forth the circumstances 
in which such administrative remedies shall be deemed to have been 
exhausted.
    (b) Requirements--(1) In general. A party has not exhausted the 
administrative remedies available within the Internal Revenue Service 
with respect to any tax matter for which an Appeals office conference is 
available under Sec. Sec.  601.105 and 601.106 of this chapter (other 
than a tax matter described in paragraph (c) of this section) unless--
    (i) The party, prior to filing a petition in the Tax Court or a 
civil action for refund in a court of the United States (including the 
Court of Federal Claims), participates, either in person or through a 
qualified representative described in Sec.  601.502 of this chapter, in 
an Appeals office conference; or
    (ii) If no Appeals office conference is granted, the party, prior to 
the issuance of a statutory notice in the case of a petition in the Tax 
Court or the issuance of a notice of disallowance in the case of a civil 
action for refund in a court of the United States (including the Court 
of Federal Claims)--
    (A) Requests an Appeals office conference in accordance with 
Sec. Sec.  601.105 and 601.106 of this chapter or any successor 
published guidance; and
    (B) Files a written protest if a written protest is required to 
obtain an Appeals office conference.
    (2) Participates. For purposes of this section, a party or qualified 
representative of the party described in Sec.  601.502 of this chapter 
participates in an Appeals office conference if the party or qualified 
representative discloses to the Appeals office all relevant information 
regarding the party's tax matter to the extent such information and its 
relevance were known or should have been known to the party or qualified 
representative at the time of such conference.
    (3) Tax matter. For purposes of this section, ``tax matter'' means a 
matter in connection with the determination, collection or refund of any 
tax, interest, penalty, addition to tax or additional amount under the 
Internal Revenue Code.
    (4) Failure to agree to extension of time for assessments. Any 
failure by the prevailing party to agree to an extension of the time for 
the assessment of any tax will not be taken into account for purposes of 
determining whether the prevailing party has exhausted the 
administrative remedies available to the party within the Internal 
Revenue Service.
    (c) Revocation of a determination that an organization is described 
in section 501(c)(3). A party has not exhausted the administrative 
remedies available within the Internal Revenue Service with respect to a 
revocation of a determination that it is an organization described in 
section 501(c)(3) unless, prior to filing a declaratory judgment action 
under section 7428, the party has exhausted its administrative remedies 
in accordance with section 7428, and any

[[Page 688]]

regulations, rules, and revenue procedures thereunder.
    (d) Actions involving summonses, levies, liens, jeopardy and 
termination assessments, etc. (1) A party has not exhausted the 
administrative remedies available within the Internal Revenue Service 
with respect to a matter other than one to which paragraph (b) or (c) of 
this section applies (including summonses, levies, liens, and jeopardy 
and termination assessments) unless, prior to filing an action in a 
court of the United States (including the Tax Court and the Court of 
Federal Claims)--
    (i) The party follows all applicable Internal Revenue Service 
procedures for contesting the matter (including filing a written protest 
or claim, requesting an administrative appeal, and participating in an 
administrative hearing or conference); or
    (ii) If there are no applicable Internal Revenue Service procedures, 
the party submits to the Area Director of the area having jurisdiction 
over the dispute a written claim for relief reciting facts and 
circumstances sufficient to show the nature of the relief requested and 
that the party is entitled to the requested relief, and the Area 
Director denies the claim for relief in writing or fails to act on the 
claim within a reasonable period after the claim is received by the Area 
Director.
    (2) For purposes of paragraph (d)(1)(ii) of this section, a 
reasonable period is--
    (i) The 5-day period preceding the filing of a petition to quash an 
administrative summons issued under section 7609;
    (ii) The 5-day period preceding the filing of a wrongful levy action 
in which a demand for the return of property is made;
    (iii) The period expressly provided for administrative review of the 
party's claim by an applicable provision of the Internal Revenue Code 
that expressly provides for the pursuit of administrative remedies (such 
as the 16-day period provided under section 7429(b)(1)(B) relating to 
review of jeopardy assessment procedures); or
    (iv) The 60-day period following receipt of the claim for relief in 
all other cases.
    (e) Actions involving willful violations of the automatic stay under 
section 362 or the discharge provisions under section 524 of the 
Bankruptcy Code--(1) Section 7433 claims. A party has not exhausted 
administrative remedies within the Internal Revenue Service with respect 
to asserted violations of the automatic stay under section 362 of the 
Bankruptcy Code or the discharge provisions under section 524 of the 
Bankruptcy Code unless it files an administrative claim for damages or 
for relief from a violation of section 362 or 524 of the Bankruptcy Code 
with the Chief, Local Insolvency Unit, for the judicial district in 
which the bankruptcy petition that is the basis for the asserted 
automatic stay or discharge violation was filed pursuant to Sec.  
301.7433-2(e) and satisfies the other conditions set forth in Sec.  
301.7433-2(d) prior to filing a petition under section 7433.
    (2) Section 362(h) claims. A party has not exhausted administrative 
remedies within the Internal Revenue Service with respect to asserted 
violations of the automatic stay under section 362 of the Bankruptcy 
Code unless it files an administrative claim for relief from a violation 
of section 362 of the Bankruptcy Code with the Chief, Local Insolvency 
Unit, for the judicial district in which the bankruptcy petition that is 
the basis for the asserted automatic stay violation was filed pursuant 
to Sec.  301.7433-2(e) and satisfies the other conditions set forth in 
Sec.  301.7433-2(d) prior to filing a petition under section 362(h) of 
the Bankruptcy Code.
    (f) Exception to requirement that party pursue administrative 
remedies. If the conditions set forth in paragraph (f)(1), (f)(2), 
(f)(3), or (f)(4) of this section are satisfied, a party's 
administrative remedies within the Internal Revenue Service shall be 
deemed to have been exhausted for purposes of section 7430.
    (1) The Internal Revenue Service notifies the party in writing that 
the pursuit of administrative remedies in accordance with paragraphs 
(b), (c), and (d) of this section is unnecessary.
    (2) In the case of a petition in the Tax Court--
    (i) The party did not receive a notice of proposed deficiency (30-
day letter) prior to the issuance of the statutory notice and the 
failure to receive such

[[Page 689]]

notice was not due to actions of the party (such as a failure to supply 
requested information or a current mailing address to the Internal 
Revenue Service office or service center having jurisdiction over the 
tax matter); and
    (ii) The party does not refuse to participate in an Appeals office 
conference while the case is in docketed status.
    (3) In the case of a civil action for refund involving a tax matter 
other than a tax matter described in paragraph (e)(4) of this section, 
the party--
    (i) Participates in an Appeals office conference with respect to the 
tax matter prior to issuance of a statutory notice of deficiency with 
respect to such tax matter; or
    (ii) Did not receive written notification that an Appeals office 
conference was available prior to issuance of a notice of disallowance 
and the failure to receive such a notification was not due to the 
actions of the party (such as the failure to supply requested 
information or a current mailing address to the Internal Revenue Service 
office or service center having jurisdiction over the tax matter); or
    (iii) Did not receive either written or oral notification that an 
Appeals office conference had been granted within six months from the 
date of the filing of the claim for refund and the failure to receive 
such notice was not due to actions of the party (such as the failure to 
supply requested information or a current mailing address to the 
Internal Revenue Service office or service center having jurisdiction 
over the tax matter).
    (4) In the case of a civil action for refund involving a tax matter 
under sections 6703 or 6694--
    (i) The party did not receive a notice of proposed disallowance 
prior to issuance of a notice of disallowance and the failure to receive 
such notice was not due to actions of the party (such as the failure to 
supply requested information or a current mailing address to the 
Internal Revenue Service office or service center having jurisdiction 
over the tax matter); or
    (ii) During the six-month period following the day on which the 
party's claim for refund is filed, the party's claim for refund is not 
denied, and the Internal Revenue Service has failed to process the claim 
with due diligence.
    (g) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. Taxpayer A exchanges property held for investment for 
similar property and claims that the gain on the exchange is not 
recognized under section 1031. The Internal Revenue Service conducts a 
field examination and determines that there has not been a like-kind 
exchange. No agreement is reached on the matter and a notice of proposed 
deficiency (30-day letter) is sent to A. A does not file a request for 
an Appeals office conference. A pays the amount of the proposed 
deficiency and files a claim for refund. A notice of proposed 
disallowance is issued by the Internal Revenue Service. A does not 
request an Appeals office conference and, instead, files a civil action 
for refund in a United States District Court. A has not exhausted the 
administrative remedies available within the Internal Revenue Service.
    Example 2. Assume the same facts as in Example 1 except that, after 
receiving the notice of proposed deficiency (30-day letter), A files a 
request for an Appeals office conference. No agreement is reached at the 
conference. A pays the amount of the proposed deficiency and files a 
claim for refund. A notice of proposed disallowance is issued by the 
Internal Revenue Service. A does not request an Appeals office 
conference and files a civil action for refund in a United States 
District Court. A has exhausted the administrative remedies available 
within the Internal Revenue Service.
    Example 3. Assume the same facts as in Example 1 except A first 
requests an Appeals office conference after A's receipt of the notice of 
proposed disallowance. A is granted an Appeals office conference and A 
participates in such conference. A has exhausted the administrative 
remedies available within the Internal Revenue Service.
    Example 4. Taxpayer B receives a notice of proposed deficiency (30-
day letter) after completion of a field examination. B provided to the 
Internal Revenue Service during the examination all relevant information 
under the taxpayer's control and all relevant legal arguments supporting 
the taxpayer's position. B properly requests an Appeals office 
conference. The Appeals office, to obtain an additional period of time 
to consider the tax matter, requests that B sign Form 872 to extend the 
time for an assessment of tax, but B declines. Appeals then denies the 
request for a conference and issues a notice of deficiency. B has 
exhausted the administrative remedies available within the Internal 
Revenue Service.
    Example 5. Taxpayer C receives a notice of proposed deficiency (30-
day letter) and a written statement that C need not file a

[[Page 690]]

written protest or request an Appeals office conference since a 
conference will not be granted. C files a petition in the Tax Court 
after receiving the statutory notice of deficiency. C's administrative 
remedies within the Internal Revenue Service are deemed to have been 
exhausted.
    Example 6. On January 2, the Internal Revenue Service serves a 
summons issued under section 7609 on third-party recordkeeper D to 
produce records of taxpayer E. On January 5, notice of the summons is 
given to E. The last day on which E may file a petition in a court of 
the United States to quash the summons is January 25. Thereafter, E 
files a written claim for relief with the Internal Revenue Service 
office having jurisdiction over the matter together with a copy of the 
summons. The claim and copy are received by the Internal Revenue Service 
office on January 20. On January 25, E files a petition to quash the 
summons. E has exhausted the administrative remedies available within 
the Internal Revenue Service.
    Example 7. A notice of Federal tax lien is filed in County M on 
March 3, in the name of F. On April 2, F pays the entire liability 
thereby satisfying the lien. On May 2, F files a written claim with the 
Internal Revenue Service office having jurisdiction over the tax matter 
demanding a certificate of release of lien. Thereafter, F provides the 
Internal Revenue Service office with a copy of the notice of Federal tax 
lien and a copy of the canceled check in satisfaction of the lien, which 
are received by the district director on May 15. F's claim is deemed to 
have been filed on May 15. Accordingly, F must wait until after July 14 
(60 days following the filing of the claim for relief on May 15) to 
commence an action, in order to have exhausted the administrative 
remedies available within the Internal Revenue Service.
    Example 8. A revenue officer seizes an automobile to effect 
collection of G's liability on January 10. On January 22, H submits a 
written claim to the Internal Revenue Service office having jurisdiction 
over the tax matter claiming that H purchased the automobile from G for 
an adequate consideration before the tax lien against G arose, and 
demands immediate return of the automobile. A copy of the title 
certificate and H's canceled check are submitted with the claim. The 
claim is received by the Internal Revenue Service office on January 25. 
On January 30, H brings a wrongful levy action. H has exhausted the 
administrative remedies available within the Internal Revenue Service.
    Example 9. The Internal Revenue Service issues a revenue ruling 
which holds that ear piercing does not affect a function or structure of 
the body within the meaning of section 213 and therefore is not 
deductible. Taxpayer I deducts the costs of ear piercing and, following 
an examination, receives a notice of proposed deficiency (30-day letter) 
disallowing the treatment of these costs. Because of the revenue ruling, 
I believes a conference would not aid in the resolution of the tax 
dispute. Accordingly, I does not request an Appeals office conference. 
After receiving a statutory notice of deficiency, I files a petition in 
the Tax Court. I has not exhausted the administrative remedies available 
within the Internal Revenue Service. The issuance of a revenue ruling 
covering the same fact situation but taking a contrary position does not 
constitute notification by the Internal Revenue Service to I that the 
pursuit of administrative remedies is unnecessary. Similarly, the 
issuance to I of a private letter ruling or technical advice does not 
constitute notification by the Internal Revenue Service that the pursuit 
of administrative remedies is unnecessary.
    Example 10. Taxpayer J is assessed a penalty under section 6701 for 
aiding in the understatement of the tax liability of another person. J 
pays 15% of the penalty in accordance with section 6703 and files a 
claim for refund on June 15. J is not issued a notice of proposed 
disallowance and thus cannot participate in an Appeals office conference 
within six months of the filing of the claim for refund. J brings an 
action on December 23. J has exhausted the administrative remedies 
available within the Internal Revenue Service.
    Example 11. Taxpayer K receives a notice of proposed deficiency (30-
day letter) and neither requests nor participates in an Appeals office 
conference. The Service then issues a statutory notice of deficiency 
(90-day letter). Upon receiving the statutory notice, and after filing a 
petition with the Tax Court, K requests an Appeals office conference. K 
has not exhausted the administrative remedies available within the 
Internal Revenue Service because the request for an Appeals office 
conference was made after the issuance of the statutory notice.

    (h) Effective date. This section applies to court proceedings 
described in section 7430 filed in a court of the United States 
(including the Tax Court) after May 7, 1992.

[T.D. 8543, 59 FR 29357, June 7, 1994, as amended by T.D. 8725, 62 FR 
39118, July 22, 1997; T.D. 9050, 68 FR 14319, Mar. 25, 2003; T.D. 9050, 
68 FR 16351, Apr. 3, 2003; T.D. 9756, 81 FR 10484, Mar. 1, 2016]

[[Page 691]]



Sec.  301.7430-2  Requirements and procedures for recovery of 
reasonable administrative costs.

    (a) Introduction. Section 7430(a)(1) provides for the recovery, 
under certain circumstances, of reasonable administrative costs incurred 
in connection with an administrative proceeding before the Internal 
Revenue Service. Paragraph (b) of this section lists the requirements 
that a taxpayer must meet to be entitled to an award of reasonable 
administrative costs from the Internal Revenue Service. Paragraph (c) of 
this section describes the procedures that a taxpayer must follow to 
recover reasonable administrative costs. Paragraphs (b) and (c) apply to 
requests for administrative costs regarding all administrative 
proceedings within the Internal Revenue Service.
    (b) Requirements for recovery--(1) Determination by the Internal 
Revenue Service. The Internal Revenue Service will grant a taxpayer's 
request for recovery of reasonable administrative costs incurred in 
connection with an administrative proceeding under section 7430 and this 
section only if--
    (i) Jurisdiction. The underlying substantive issues or the issue of 
reasonable administrative costs are not, and have never been, before any 
court of the United States (including the Tax Court or United States 
Court of Federal Claims) with jurisdiction over those issues;
    (ii) Administrative proceeding. The costs were incurred in 
connection with an administrative proceeding as defined in Sec.  
301.7430-3(a);
    (iii) Administrative proceeding date. The costs were incurred on or 
after the administrative proceeding date as defined in Sec.  301.7430-
3(c);
    (iv) Reasonable administrative costs. The costs were reasonable 
administrative costs as defined in Sec.  301.7430-4;
    (v) Prevailing party. The taxpayer is a prevailing party as defined 
in Sec.  301.7430-5;
    (vi) Not unreasonably protracted. The administrative proceeding was 
not unreasonably protracted by the taxpayer as discussed in paragraph 
(d) of this section; and
    (vii) Procedural requirements. The taxpayer follows the procedures 
set forth in paragraph (c) of this section.
    (2) Determination by court. Although the Internal Revenue Service 
will not grant a request for reasonable administrative costs where the 
requirements of paragraph (b)(1)(i) of this section are not met, a 
taxpayer may file a claim for reasonable administrative costs with the 
court with jurisdiction over the judicial proceeding. The court may 
award the taxpayer reasonable administrative costs under section 
7430(a). Under section 7430(c)(4)(C)(ii), where the final determination 
with respect to the tax, interest, or penalty at issue is made by a 
court, the court determines whether the taxpayer qualifies as a 
prevailing party. Thus, where the requirements of paragraph (b)(1)(i) of 
this section are not met, the taxpayer's only possibility of obtaining 
an award of reasonable administrative costs is to obtain an award of 
these costs from the court. In the event the court awards reasonable 
administrative costs, it may also award litigation costs for the 
reasonable costs of pursuing the claim for reasonable administrative 
costs, provided the requirements under section 7430 regarding an award 
of reasonable administrative costs are satisfied with respect to these 
costs. A claim filed with the court should be made in accordance with 
the rules of the court.
    (c) Procedure for recovering reasonable administrative costs--(1) In 
general. The Internal Revenue Service will not award administrative 
costs under section 7430 unless the taxpayer files a written request to 
recover reasonable administrative costs in accordance with the 
provisions of this section.
    (2) Where request must be filed. A request required by paragraph 
(c)(1) of this section must be filed with the Internal Revenue Service 
personnel who have jurisdiction over the tax matter underlying the claim 
for the costs, except that requests with respect to administrative 
proceedings defined by Sec.  301.7430-8(c) should be made to the Chief, 
Local Insolvency Unit. However, if those persons are unknown to the 
taxpayer making the request, the taxpayer may send the request to the 
Internal Revenue Service office that considered the underlying matter.
    (3) Contents of request. The request must be in writing and must 
contain the following statements, affidavits,

[[Page 692]]

documentation, and information with regard to the taxpayer's 
administrative proceeding--
    (i) Statements. (A) A statement that the underlying substantive 
issues or the issue of reasonable administrative costs are not, and have 
never been, before any court of the United States (including the Tax 
Court or United States Court of Federal Claims) with jurisdiction over 
those issues;
    (B) A clear and concise statement of the reasons why the taxpayer 
alleges that the position of the Internal Revenue Service in the 
administrative proceeding was not substantially justified. For 
administrative proceedings commenced after July 30, 1996, if the 
taxpayer alleges that the Internal Revenue Service did not follow any 
applicable published guidance, the statement must identify all 
applicable published guidance that the taxpayer alleges that the 
Internal Revenue Service did not follow. For purposes of this paragraph 
(c)(3)(i)(B), the term applicable published guidance means final or 
temporary regulations, revenue rulings, revenue procedures, information 
releases, notices, announcements, and, if issued to the taxpayer, 
private letter rulings, technical advice memoranda, and determination 
letters. Also, for purposes of this paragraph (c)(3)(i)(B), the term 
administrative proceeding includes only those administrative proceedings 
or portions of administrative proceedings occurring on or after the 
administrative proceeding date as defined in Sec.  301.7430-3(c). For 
costs incurred after January 18, 1999, if the taxpayer alleges that the 
United States has lost in courts of appeal for other circuits on 
substantially similar issues, the taxpayer must provide, for each such 
case, the full name of the case, volume and pages of the reporter in 
which the opinion appears, the circuit in which the case was decided, 
and the year of the opinion;
    (C) A statement sufficient to demonstrate that the taxpayer has 
substantially prevailed as to the amount in controversy or with respect 
to the most significant issue or set of issues presented in the 
proceeding;
    (D) A statement that the taxpayer has not unreasonably protracted 
the portion of the administrative proceeding for which the taxpayer is 
requesting costs; and
    (E) A statement supported by a detailed affidavit executed by the 
taxpayer or the taxpayer's representative that sets forth the nature and 
amount of each specific item of reasonable administrative costs for 
which the taxpayer is seeking recovery. This statement must identify 
whether the representation is on a pro bono basis as defined in Sec.  
301.7430-4(d) and, if so, to whom payment should be made. Specifically, 
the statement must direct whether payment should be made to the 
taxpayer's representative or to the representative's employer.
    (ii) Affidavit or affidavits. (A) An affidavit executed by the 
taxpayer stating that the taxpayer meets the net worth and size 
limitations of Sec.  301.7430-5(f);
    (B) An affidavit supporting the statement described in paragraph 
(c)(3)(i)(E) of this section; and
    (C) For costs incurred after January 18, 1999, if more than $125 per 
hour (as adjusted for an increase in the cost of living pursuant to 
Sec.  301.7430-4(b)(3)) is claimed for the fees of a representative in 
connection with the administrative proceeding, an affidavit is necessary 
stating that a special factor described in Sec.  301.7430-4(b)(3) is 
applicable, such as the difficulty of the issues presented in the case 
or the lack of local availability of tax expertise. If a special factor 
is claimed based on specialized skills and distinctive knowledge as 
described in Sec.  301.7430-4(b)(2)(ii), the affidavit should state--
    (1) Why the specialized skills and distinctive knowledge were 
necessary in the representation;
    (2) That there is a limited availability of representatives 
possessing these specialized skills and distinctive knowledge; and
    (3) How the representative's education and experience qualifies the 
representative as someone with the necessary specialized skills and 
distinctive knowledge.
    (iii) Documentation and information. (A) A copy of the billing 
records of the representative for the requested fees; and

[[Page 693]]

    (B) An address at which the taxpayer wishes to receive notice of the 
determination of the Internal Revenue Service with regard to the request 
for reasonable administrative costs.
    (C) In cases of pro bono representation, time records similar to 
billing records, detailing the time spent and work completed, must be 
submitted for the requested fees.
    (4) Form of Request. No specific form is required for the request 
other than one that satisfies the requirements of paragraph (c)(3) of 
this section. Where practicable the required statements may be included 
in a single document. Similarly, where practicable, the required 
affidavits may be combined in a single affidavit to the extent they are 
to be executed by the same person.
    (5) Period for requesting costs from the Internal Revenue Service. 
To recover reasonable administrative costs pursuant to section 7430 and 
this section, the taxpayer must file a written request for costs within 
90 days after the date the final adverse decision of the Internal 
Revenue Service with respect to all tax, additions to tax, interest, and 
penalties at issue in the administrative proceeding is mailed or 
otherwise furnished to the taxpayer. For purposes of this section, 
interest means the interest that is specifically at issue in the 
administrative proceeding independent of the taxpayer's objections to 
the underlying tax, additions to tax, and penalties imposed. The final 
decision of the Internal Revenue Service for purposes of this section is 
the document that resolves the taxpayer's liability with regard to all 
tax, additions to tax, interest, and penalties at issue in the 
administrative proceeding (such as a Form 870 or closing agreement), or 
a notice of assessment for that liability (such as the notice and demand 
under section 6303), whichever is earlier mailed or otherwise furnished 
to the taxpayer. For purposes of this section, if the 90th day falls on 
a Saturday, Sunday, or a legal holiday, the 90-day period shall end on 
the next succeeding day that is not a Saturday, Sunday, or a legal 
holiday as defined by section 7503.
    (6) Notice. The Internal Revenue Service is authorized, but not 
required, to notify the taxpayer of its decision to grant or deny (in 
whole or in part) an award for reasonable administrative costs under 
section 7430 and this section by certified mail or registered mail. If 
the Internal Revenue Service does not respond on the merits to a request 
by the taxpayer for an award of reasonable administrative costs filed 
under paragraph (c)(1) of this section within 6 months after the request 
is filed, the Internal Revenue Service's failure to respond may be 
considered by the taxpayer as a decision of the Internal Revenue Service 
denying an award for reasonable administrative costs.
    (7) Appeal to Tax Court. A taxpayer may appeal a decision by the 
Internal Revenue Service denying (in whole or in part) a request for 
reasonable administrative costs under section 7430 and this section by 
filing a petition for reasonable administrative costs with the Tax 
Court. The petition must be in accordance with the Tax Court's Rules of 
Practice and Procedure and must be filed with the Tax Court after the 
Internal Revenue Service denies (in whole or in part) the taxpayer's 
request for reasonable administrative costs. Once a notice of decision 
denying (in whole or in part) an award for reasonable administrative 
costs is mailed by the Internal Revenue Service via certified mail or 
registered mail as required by paragraph (c)(6) of this section, a 
taxpayer may obtain judicial review of that decision by filing a 
petition for review with the Tax Court prior to the 91st day after the 
mailing of the notice of decision.
    (d) Unreasonable protraction of administrative proceeding. An award 
of reasonable administrative costs will not be made where the taxpayer 
unreasonably protracted the administrative proceeding. However, a 
taxpayer that unreasonably protracted only a portion of the 
administrative proceeding, but not other portions of the administrative 
proceeding, may recover reasonable administrative costs for the 
portion(s) of the administrative proceeding that the taxpayer did not 
unreasonably protract, if the requirements of paragraph (b)(1) of this 
section are otherwise satisfied.
    (e) The following examples primarily illustrate paragraph (a) of 
this section:


[[Page 694]]


    Example 1. Taxpayer A receives a notice of proposed deficiency (30-
day letter). A requests and is granted Appeals office consideration. The 
administrative file contains certain documents provided by A as 
substantiation for the tax matters at issue. Appeals determines that the 
information submitted is insufficient. Appeals then issues a notice of 
deficiency. After receiving the notice of deficiency but before the 90-
day period for filing a petition with the Tax Court has expired, and 
before filing a petition with the Tax Court, A convinces Appeals that 
the information previously submitted and reviewed by Appeals is 
sufficient and, therefore, the notice of deficiency is incorrect and A 
owes no additional tax. Pursuant to section 6212(d), the notice of 
deficiency is rescinded. Appeals then closes the case showing a zero 
deficiency and mails A a notice to this effect. Assuming that Appeals 
did not rely on any new information provided by A in rescinding the 
notice of deficiency and that all of the other requirements of section 
7430 are satisfied, A may recover reasonable administrative costs 
incurred after the date of the 30-day letter (the administrative 
proceeding date as defined in Treas. Reg. Sec.  301.7430-3(c)). To 
recover these costs, A must file a request for administrative costs with 
the Appeals office personnel who settled A's tax matter, or if that 
person is unknown to A, with the Area Director of the area that 
considered the underlying matter, within 90 days after the date of 
mailing of the Office of Appeals' final decision that A owes no 
additional tax.
    Example 2. Taxpayer B files a request for an abatement of interest 
pursuant to section 6404 and the regulations thereunder. The Area 
Director issues a notice of proposed disallowance of the abatement 
request (akin to a 30-day letter). B requests and is granted Appeals 
office consideration. No agreement is reached with Appeals and the 
Office of Appeals issues a notice of disallowance of the abatement 
request. B does not file suit in the Tax Court, but instead contacts the 
Appeals office within 180 days after the mailing date of the notice of 
disallowance of the abatement request to attempt to reverse the 
decision. B convinces the Appeals office that the notice of disallowance 
is in error. The Appeals office agrees to abate the interest and mails 
the taxpayer a notification of this decision. The mailing date of the 
notification from Appeals of the decision to abate interest commences 
the 90-day period from which the taxpayer may request administrative 
costs. Assuming that Appeals did not rely on any new information 
provided by B in reversing its notice of disallowance, and that all of 
the other requirements of section 7430 are satisfied, B may recover 
reasonable administrative costs incurred after the date the Area 
Director issued the notice of proposed disallowance of the abatement 
request (the administrative proceeding date as defined in Treas. Reg. 
Sec.  301.7430-3(c)). To recover these costs, B must file a request for 
costs with the Appeals office personnel who settled B's tax matter, or 
if that person is unknown to B, with the Area Director of the area that 
considered the underlying matter within 90 days after the date of 
mailing of the Office of Appeals' final decision that B is entitled to 
abatement of interest.
    Example 3. Taxpayer C receives a notice of proposed adjustment and 
employment tax 30-day letter. C requests and is granted Appeals office 
consideration. The administrative file contains certain documents 
provided by C to support C's position in the tax matters at issue. 
Appeals determines that the documents submitted are insufficient. 
Appeals then issues a notice of determination of worker classification. 
After receiving the notice of determination of worker classification but 
before the 90-day period for filing a petition with the Tax Court has 
expired, C convinces Appeals that the documents previously submitted and 
reviewed by Appeals adequately support its position and, therefore, C 
owes no additional employment tax. Appeals then closes the case showing 
a zero tax adjustment and mails C a no-change letter. Assuming that 
Appeals did not rely on any new information provided by C in reversing 
its notice of determination of worker classification, and that all of 
the other requirements of section 7430 are satisfied, C may recover 
reasonable administrative costs incurred after the date of the notice of 
proposed adjustment and 30-day letter (the administrative proceeding 
date as defined in Treas. Reg. Sec.  301.7430-3(c)). To recover these 
costs, C must file a request for administrative costs with the Appeals 
office personnel who settled C's tax matter, or if that person is 
unknown to C, with the Area Director of the area that considered the 
underlying matter, within 90 days after the date of mailing of the 
Office of Appeals' final decision that C owes no additional tax.

[T.D. 8542, 59 FR 29360, June 7, 1994, as amended by T.D. 8725, 62 FR 
39118, July 22, 1997; T.D. 9050, 68 FR 14320, Mar. 25, 2003; T.D. 9756, 
81 FR 10484, Mar. 1, 2016]



Sec.  301.7430-3  Administrative proceeding and administrative proceeding date.

    (a) Administrative proceeding. For purposes of section 7430, an 
administrative proceeding generally means any procedure or other action 
before the Internal Revenue Service that is commenced after November 10, 
1988. However, an administrative proceeding does not include--
    (1) Proceedings involving matters of general application, including 
hearings

[[Page 695]]

on regulations, comments on forms, or proceedings involving revenue 
rulings or revenue procedures;
    (2) Proceedings involving requests for private letter rulings or 
similar determinations;
    (3) Proceedings involving technical advice memoranda, except those 
submitted after the administrative proceeding date (as defined in 
paragraph (c) of this section); and
    (4) Proceedings in connection with collection actions (as defined in 
paragraph (b) of this section), including proceedings under section 7432 
or 7433, except proceedings brought under section 7433(e) and Sec.  
301.7433-2 or proceedings otherwise described in Sec.  301.7430-8(c). 
See Sec.  301.7430-8.
    (b) Collection action. A collection action generally includes any 
action taken by the Internal Revenue Service to collect a tax (or any 
interest, additional amount, addition to tax, or penalty, together with 
any costs in addition to the tax) or any action taken by a taxpayer in 
response to the Internal Revenue Service's act or failure to act in 
connection with the collection of a tax (including any interest, 
additional amount, addition to tax, or penalty, together with any costs 
in addition to the tax). A collection action for purposes of section 
7430 and this section includes any action taken by the Internal Revenue 
Service under Chapter 64 of Subtitle F to collect a tax. Collection 
actions also include collection due process hearings under sections 6320 
and 6330 (unless the underlying tax liability is properly at issue), and 
those actions taken by a taxpayer to remedy the Internal Revenue 
Service's failure to release a lien under section 6325 or to remedy any 
unauthorized collection action as described by section 7433, except 
those collection actions described by section 7433(e). An action or 
procedure directly relating to a claim for refund after payment of an 
assessed tax is not a collection action.
    (c) Administrative proceeding date--(1) General rule. For purposes 
of section 7430 and the regulations thereunder, the term administrative 
proceeding date means the earlier of--
    (i) The date of the receipt by the taxpayer of the notice of the 
decision of the Internal Revenue Service Office of Appeals;
    (ii) The date of the notice of deficiency; or
    (iii) The date on which the first letter of proposed deficiency that 
allows the taxpayer an opportunity for administrative review in the 
Internal Revenue Service Office of Appeals is sent.
    (2) Notice of the decision of the Internal Revenue Service Office of 
Appeals. For purposes of section 7430 and the regulations thereunder, a 
notice of the decision of the Internal Revenue Service Office of Appeals 
is the final written document, mailed or delivered to the taxpayer, that 
is signed by an individual in the Office of Appeals who has been 
delegated the authority to settle the dispute on behalf of the 
Commissioner, and states or indicates that the notice is the final 
determination of the entire case. A notice of claim disallowance issued 
by the Office of Appeals is a notice of the decision of the Internal 
Revenue Service Office of Appeals. Solely for purposes of determining 
the administrative proceeding date, a notice of deficiency issued by the 
Office of Appeals is not a notice of the decision of the Internal 
Revenue Service Office of Appeals.
    (3) Notice of deficiency. A notice of deficiency is a notice 
described in section 6212(a), including a notice rescinded pursuant to 
section 6212(d). For purposes of determining reasonable administrative 
costs under section 7430 and the regulations thereunder, the following 
will be treated as a notice of deficiency:
    (i) A notice of final partnership administrative adjustment 
described in section 6223(a)(2).
    (ii) A notice of determination of worker classification issued 
pursuant to section 7436.
    (iii) A final notice of determination denying innocent spouse relief 
issued pursuant to section 6015.
    (4) First letter of proposed deficiency that allows the taxpayer an 
opportunity for administrative review in the Office of Appeals. 
Generally, the first letter of proposed deficiency that allows the 
taxpayer an opportunity for administrative review in the Office of 
Appeals

[[Page 696]]

is the first letter issued to the taxpayer that describes the proposed 
adjustments and advises the taxpayer of the opportunity to contact the 
Office of Appeals. It also may be a claim disallowance or the first 
letter of determination that allows the taxpayer an opportunity for 
administrative review in the Office of Appeals.
    (d) Examples. The provisions of this section are illustrated by the 
following examples:

    Example 1. Taxpayer A receives a notice of proposed deficiency (30-
day letter). A files a request for and is granted an Appeals office 
conference. At the Appeals conference no agreement is reached on the tax 
matters at issue. The Office of Appeals then issues a notice of 
deficiency. Upon receiving the notice of deficiency, A does not file a 
petition with the Tax Court. Instead, A pays the deficiency and files a 
claim for refund. The claim for refund is considered by the Internal 
Revenue Service and the Area Director issues a notice of proposed claim 
disallowance. A requests and is granted Appeals office consideration. A 
convinces Appeals that A's claim is correct and Appeals allows A's 
claim. A may recover reasonable administrative costs incurred on or 
after the date of the notice of proposed deficiency (30-day letter), but 
only if the other requirements of section 7430 and the regulations 
thereunder are satisfied. A cannot recover costs incurred prior to the 
date of the 30-day letter because these costs were incurred before the 
administrative proceeding date.
    Example 2. Taxpayer B files an individual income tax return showing 
a balance due. No payment is made with the return and the Internal 
Revenue Service assesses the amount shown on the return. The Internal 
Revenue Service issues a Notice Of Intent to Levy And Notice Of Your 
Right To A Hearing pursuant to sections 6330(a) and 6331(d). B timely 
requests and is granted a Collection Due Process (CDP) hearing. In 
connection with the CDP hearing, B enters into an installment agreement 
as a collection alternative. The costs that B incurred in connection 
with the CDP hearing were not incurred in an administrative proceeding, 
but rather in a collection action. Accordingly, B may not recover those 
costs as reasonable administrative costs under section 7430 and the 
regulations thereunder.

[T.D. 8542, 59 FR 29362, June 7, 1994, as amended by T.D. 9050, 68 FR 
14320, Mar. 25, 2003; T.D. 9756, 81 FR 10485, Mar. 1, 2016]



Sec.  301.7430-4  Reasonable administrative costs.

    (a) In general. For purposes of section 7430 and the regulations 
thereunder, reasonable administrative costs are any costs described in 
paragraph (b) of this section that are incurred in connection with an 
administrative proceeding (as defined in Sec.  301.7430-3(a)) and 
incurred on or after the administrative proceeding date (as defined in 
Sec.  301.7430-3(c)).
    (b) Costs described--(1) In general. The costs described in this 
paragraph are the reasonable and necessary amount of costs incurred by 
the taxpayer to present the taxpayer's position with respect to the 
merits of the tax controversy or the recovery of reasonable 
administrative costs. These costs include--
    (i) Any administrative fees or similar charges imposed by the 
Internal Revenue Service;
    (ii) Reasonable expenses of expert witnesses;
    (iii) Reasonable costs of any study, analysis, engineering report, 
test or project that is necessary for, and incurred in preparation of, 
the taxpayer's case; and
    (iv) Reasonable fees paid or incurred for the services of a 
representative (as defined in paragraph (b)(2) of this section) in 
connection with the administrative proceeding.
    (2) Representative and specially qualified representative--(i) 
Representative. A representative is a person compensated for services 
rendered in connection with the administrative proceeding, who is 
authorized to practice before the Internal Revenue Service or the Tax 
Court.
    (ii) Specially qualified representative. For purposes of paragraphs 
(b)(3)(iii) and (c)(2)(ii) of this section, a specially qualified 
representative is a representative (as defined in paragraph (b)(2)(i) of 
this section) possessing a distinctive knowledge or a unique and 
specialized skill that is necessary to adequately represent the taxpayer 
in the proceeding. Examples of a unique and specialized skill or 
distinctive knowledge would be an identifiable practice specialty such 
as patent law or knowledge of a foreign law or language where that 
specialty or knowledge is necessary to

[[Page 697]]

adequately represent the taxpayer in the proceeding. For purposes of 
this paragraph, neither knowledge of tax law nor experience in 
representing taxpayers before the Internal Revenue Service is considered 
distinctive knowledge or a unique and specialized skill. An 
extraordinary level of general representational knowledge and ability 
that is useful in all proceedings is not considered, in and of itself, 
distinctive knowledge or a unique and specialized skill. Specially 
qualified representatives also do not include those who have a 
distinctive knowledge of the underlying subject matter of the 
controversy in circumstances where that distinctive knowledge could 
reasonably be supplied through the use of an expert, or could readily be 
obtained through literature pertaining to the subject.
    (3) Limitation on fees for a representative--(i) In general. Except 
as otherwise provided in this section, fees incurred after January 18, 
1999, and described in paragraph (b)(1)(iv) of this section that are 
recoverable under section 7430 and the regulations thereunder as 
reasonable administrative costs may not exceed $125 per hour (as 
adjusted for an increase in the cost of living and, if appropriate, a 
special factor adjustment).
    (ii) Cost of living adjustment. The Internal Revenue Service will 
make a cost of living adjustment to the $125 per hour limitation for 
fees incurred in any calendar year beginning after December 31, 1996. 
The cost of living adjustment will be an amount equal to $125 multiplied 
by the cost of living adjustment determined under section 1(f)(3) for 
the calendar year (substituting ``calendar year 1995'' for ``calendar 
year 1992'' in section 1(f)(3)(B)). If the dollar limitation as adjusted 
by this cost of living increase is not a multiple of $10, the dollar 
amount will be rounded to the nearest multiple of $10 (rounding up if 
the amount is a multiple of $5).
    (B) Percentage adjustment. For purposes of paragraph (b)(3)(ii)(A) 
of this section, the base year for determining the cost of living 
adjustment is the calendar year 1986. The cost of living adjustment for 
fees incurred in any calendar year subsequent to 1986 is the percentage 
(if any) by which the yearly average CPI--U for the calendar year 
immediately prior to the year in which the fees are incurred exceeds the 
January CPI--U for the calendar year 1986.
    (iii) Special factor adjustment--(A) In general. If the presence of 
a special factor is demonstrated by the taxpayer, the amount 
reimbursable is the amount of reasonable fees paid or incurred by the 
taxpayer in connection with the proceeding for the services of a 
representative as defined in paragraph (b)(2)(i) of this section.
    (B) Special factor. A special factor is a factor, other than an 
increase in the cost of living, that justifies an increase in the $125 
per hour limitation of section 7430(c)(1)(B)(iii). The undesirability of 
the case, the work and the ability of counsel, the results obtained, and 
customary fees and awards in other cases, are factors applicable to a 
broad spectrum of litigation and do not constitute special factors for 
the purpose of increasing the $125 per hour limitation. By contrast, the 
limited availability of a specially qualified representative for the 
proceeding, the limited local availability of tax expertise, and the 
difficulty of the issues are special factors justifying an increase in 
the $125 per hour limitation.
    (C) Limited availability. Limited availability of a specially 
qualified representative is established by demonstrating that a 
specially qualified representative for the proceeding is not available 
at the $125 per hour rate (as adjusted for an increase in the cost of 
living). The representative's special qualification must be based on 
nontax expertise. Initially, this showing may be made by submission of 
an affidavit signed by the taxpayer or by the taxpayer's counsel, that 
in a case similar to the taxpayer's, a specially qualified 
representative that practices within a reasonable distance from the 
taxpayer's principal residence or principal office would normally charge 
a client similar to the taxpayer at a rate in excess of this amount. If 
the Internal Revenue Service challenges this initial showing, the 
taxpayer may submit additional evidence to establish the limited 
availability of a specially qualified representative at the rate 
specified above.

[[Page 698]]

    (D) Limited local availability of tax expertise. Limited local 
availability of tax expertise is established by demonstrating that a 
representative possessing tax expertise is not available in the 
taxpayer's geographical area. Initially, this showing may be made by 
submission of an affidavit signed by the taxpayer, or by the taxpayer's 
counsel, that no representative possessing tax expertise practices 
within a reasonable distance from the taxpayer's principal residence or 
principal office. The hourly rate charged by representatives in the 
geographical area is not relevant in determining whether tax expertise 
is locally available. If the Internal Revenue Service challenges this 
initial showing, the taxpayer may submit additional evidence to 
establish the limited local availability of a representative possessing 
tax expertise.
    (E) Difficulty of the issues. In determining whether the difficulty 
of the issues justifies an increase in the $125 per hour limitation on 
the applicable hourly rate, the Internal Revenue Service will consider 
the following factors:
    (1) The number of different provisions of law involved in each 
issue.
    (2) The complexity of the particular provision or provisions of law 
involved in each issue.
    (3) The number of factual issues present in the proceeding.
    (4) The complexity of the factual issues present in the proceeding.
    (F) Example. The provisions of this section are illustrated by the 
following example:

    Example. Taxpayer A is represented by B, a CPA and attorney with a 
LL.M. Degree in Taxation with Highest Honors who regularly handles cases 
dealing with TEFRA partnership issues. B represents A in an 
administrative proceeding involving TEFRA partnership issues that is 
subject to the provisions of this section. Assuming A qualifies for an 
award of reasonable administrative costs by meeting the requirements of 
section 7430, the amount of the award attributable to the fees of B may 
not exceed the $125 per hour limitation (as adjusted for an increase in 
the cost of living), absent a special factor. B is not a specially 
qualified representative because extraordinary knowledge of the tax laws 
does not constitute distinctive knowledge or a unique and specialized 
skill constituting a special factor. A higher rate may be justified by 
another special factor, that is, the limited local availability of tax 
expertise or the difficulty of the issues.

    (c) Certain costs excluded--(1) Costs not incurred in an 
administrative proceeding. Costs that are not reasonable administrative 
costs for purposes of section 7430 include any costs incurred in 
connection with a proceeding that is not an administrative proceeding 
within the meaning of Sec.  301.7430-3.
    (2) Costs incurred in an administrative proceeding but not 
reasonable--(i) In general. Costs incurred in an administrative 
proceeding that are incurred on or after the administrative proceeding 
date, and that are otherwise described in paragraph (b) of this section, 
are not recoverable unless they are reasonable in both nature and 
amount. For example, costs normally included in the hourly rate of the 
representative by the custom and usage of the representative's 
profession, when billed separately, are not recoverable separate and 
apart from the representative's hourly rate. These costs typically 
include costs such as secretarial and overhead expenses. In contrast, 
costs that are normally billed separately may be reasonable 
administrative costs that may be recoverable in addition to the 
representative's hourly rate. Therefore, necessary costs incurred for 
travel; expedited mail delivery; messenger service; expenses while on 
travel; long distance telephone calls; and necessary copying fees 
imposed by the Internal Revenue Service, any court, bank or other third 
party, when normally billed separately from the representative's hourly 
rate, may be reasonable administrative costs.
    (ii) Special Rule for Expert Witness' Fees on Issue of Prevailing 
Market Rates. Under paragraph (b)(3)(iii)(C) of this section, the 
taxpayer may initially establish a limited availability of specially 
qualified representatives for the proceeding by submission of an 
affidavit signed by the taxpayer or by the taxpayer's representative. 
The Internal Revenue Service may endeavor to rebut the affidavit 
submitted on this issue by demonstrating either that a specially 
qualified representative was not necessary to represent the taxpayer in 
the proceeding, that the taxpayer's representative is not a specially 
qualified representative or that

[[Page 699]]

the prevailing rate for specially qualified representatives does not 
exceed $125 per hour (as adjusted for an increase in the cost of 
living). Unless the Internal Revenue Service endeavors to demonstrate 
that the prevailing rate for specially qualified representatives does 
not exceed $125 per hour (as adjusted for an increase in the cost of 
living), fees for expert witnesses used to establish prevailing market 
rates are not included in the term reasonable administrative costs.
    (3) Litigation costs. Litigation costs are not reasonable 
administrative costs because they are not incurred in connection with an 
administrative proceeding. Litigation costs include--
    (i) Costs incurred in connection with the preparation and filing of 
a petition with the United States Tax Court or in connection with the 
commencement of any other court proceeding; and
    (ii) Costs incurred after the filing of a petition with the United 
States Tax Court or after the commencement of any other court 
proceeding.
    (4) Examples. The provisions of this section are illustrated by the 
following examples:

    Example 1. After incurring fees for representation during the 
Internal Revenue Service's examination of A's income tax return, A 
receives a notice of proposed deficiency (30-day letter). A files a 
request for and is granted an Appeals office conference. At the 
conference no agreement is reached on the tax matters at issue. The 
Internal Revenue Service then issues a notice of deficiency. Upon 
receiving the notice of deficiency, A discontinues A's administrative 
efforts and files a petition with the Tax Court. A's costs incurred 
before the date of the mailing of the 30-day letter are not reasonable 
administrative costs because they were incurred before the 
administrative proceeding date. Similarly, A's costs incurred in 
connection with the preparation and filing of a petition with the Tax 
Court are litigation costs and not reasonable administrative costs.
    Example 2. Assume the same facts as in Example 1 except that after A 
receives the notice of deficiency, in addition to petitioning the Tax 
Court, A recontacts Appeals and A convinces Appeals that the information 
previously submitted during the review by Appeals is sufficient and, 
therefore, the notice of deficiency is incorrect and A owes no 
additional tax. The Internal Revenue Service and A agree to a stipulated 
decision in the Tax Court case to reflect Appeals' decision. The Tax 
Court enters the decision. If A seeks administrative costs, A may 
recover costs incurred after the date of the mailing of the 30-day 
letter, costs incurred in recontacting Appeals after the issuance of the 
notice of deficiency, and costs incurred up to the time the Tax Court 
petition was filed, as reasonable administrative costs, but only if the 
other requirements of section 7430 and the regulations thereunder are 
satisfied. The costs incurred before the date of the mailing of the 30-
day letter are not reasonable administrative costs because they were 
incurred before the administrative proceeding date, as set forth in 
Sec.  301.7430-3(c)(1)(iii). A's costs incurred in connection with the 
filing of a petition with the Tax Court are not reasonable 
administrative costs because those costs are litigation costs. 
Similarly, A's costs incurred after the filing of the petition are not 
reasonable administrative costs, as they are litigation costs.

    (d) Pro bono representation--(1) In general. Fees recoverable under 
section 7430 and the regulations thereunder as reasonable administrative 
costs may exceed the attorneys' fees paid or incurred by the prevailing 
party if such fees are less than the reasonable attorneys' fees because 
an individual is representing the prevailing party on a pro bono basis. 
In addition to attorneys' fees, reasonable costs incurred or paid by the 
individual providing the pro bono representation that are normally 
billed separately also may be recovered under this section. The Treasury 
Department and the Internal Revenue Service may, in revenue rulings, 
notices, or other guidance published in the Internal Revenue Bulletin, 
provide for additional rules that apply for awards of costs for pro bono 
representation for purposes of this paragraph (d).
    (2) Requirements. Pro bono representation is established by 
demonstrating--
    (i) Representation was provided for no fee or for a fee that (taking 
into account all the facts and circumstances) constitutes a nominal fee;
    (ii) The representative intended to provide representation for no 
fee or for a nominal fee from the commencement of the representation. 
Intent to provide representation for no fee or for a nominal fee may be 
demonstrated through documentation such as a retainer agreement. An 
individual will not be considered to have represented a client

[[Page 700]]

on a pro bono basis if the facts demonstrate that the individual 
anticipated a fee greater than a nominal fee or provided representation 
on a contingency fee basis. The fact that the representative intended to 
seek recovery of fees under section 7430 will not prevent the 
representative from satisfying this requirement.
    (3) Nominal fee. A nominal fee is defined as a fee that is 
insignificantly small or minimal. A nominal fee is a trivial payment, 
bearing no relation to the value of the representation provided, taking 
into account all the facts and circumstances.
    (4) Payment when representation provided at no charge or for a 
nominal fee. A prevailing party who receives representation at no charge 
or for a nominal fee and who satisfies the requirements under this 
section is eligible to receive reasonable fees in excess of the fees 
actually paid or incurred. Payment will be made to the representative or 
the representative's employer.
    (5) Recordkeeping. Contemporaneous records must be maintained, 
demonstrating the work performed and the time allocated to each task. 
These records should contain similar information to billing records.
    (6) Examples. The provisions of this section are illustrated by the 
following example:

    Example 1. Taxpayer A, an attorney, files a petition with the Tax 
Court and pays a $60 filing fee. A appears pro se in the court 
proceeding. If A prevails, he will not be entitled to an award of 
reasonable litigation costs for his services. A is rendering services on 
his own behalf, not providing pro bono representation. His lost 
opportunity costs are not compensable under section 7430. A may recover 
the filing fee as a litigation cost, but only if the other requirements 
of section 7430 and the regulations thereunder are satisfied.

[T.D. 8542, 59 FR 29363, June 7, 1994, as amended by T.D. 8725, 62 FR 
39118, July 22, 1997; T.D. 9756, 81 FR 10486, Mar. 1, 2016]



Sec.  301.7430-5  Prevailing party.

    (a) In general. For purposes of an award of reasonable 
administrative costs under section 7430 in the case of administrative 
proceedings commenced after July 30, 1996, a taxpayer is a prevailing 
party (other than by reason of section 7430(c)(4)(E)) only if--
    (1) At least one issue (other than recovery of administrative costs) 
remains in dispute as of the date that the Internal Revenue Service 
takes a position in the administrative proceeding, as described in 
paragraph (b) of this section;
    (2) The position of the Internal Revenue Service was not 
substantially justified;
    (3) The taxpayer substantially prevails as to the amount in 
controversy or with respect to the most significant issue or set of 
issues presented; and
    (4) The taxpayer satisfies the net worth and size limitations 
referenced in paragraph (f) of this section.
    (b) Position of the Internal Revenue Service. The position of the 
Internal Revenue Service in an administrative proceeding is the position 
taken by the Internal Revenue Service as of the earlier of--
    (1) The date of the receipt by the taxpayer of the notice of the 
decision of the Internal Revenue Service Office of Appeals; or
    (2) The date of the notice of deficiency or any date thereafter.
    (c) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. Taxpayer A receives a notice of proposed deficiency (30-
day letter). A pays the amount of the proposed deficiency and files a 
claim for refund. A's claim is considered and a notice of proposed claim 
disallowance is issued by the Area Director. A does not request an 
Appeals office conference and the Area Director issues a notice of claim 
disallowance. A then files suit in a United States District Court. A 
cannot recover reasonable administrative costs because the notice of 
claim disallowance is not a notice of the decision of the Internal 
Revenue Service Office of Appeals or a notice of deficiency. 
Accordingly, the Internal Revenue Service has not taken a position in 
the administrative proceeding pursuant to section 7430(c)(7)(B).
    Example 2. Taxpayer B receives a notice of proposed deficiency (30-
day letter). B disputes the proposed adjustments and requests an Appeals 
office conference. The Appeals office determines that B has no 
additional tax liability. B requests administrative costs from the date 
of the 30-day letter. B is not the prevailing party and may not recover 
administrative costs because all of the proposed adjustments in the case 
were resolved as of the date that the Internal Revenue

[[Page 701]]

Service took a position in the administrative proceeding.

    (d) Substantially justified--(1) In general. The position of the 
Internal Revenue Service is substantially justified if it has a 
reasonable basis in both fact and law. A significant factor in 
determining whether the position of the Internal Revenue Service is 
substantially justified as of a given date is whether, on or before that 
date, the taxpayer has presented all relevant information under the 
taxpayer's control and relevant legal arguments supporting the 
taxpayer's position to the appropriate Internal Revenue Service 
personnel. The appropriate Internal Revenue Service personnel are 
personnel responsible for reviewing the information or arguments, or 
personnel who would transfer the information or arguments in the normal 
course of procedure and administration to the personnel who are 
responsible.
    (2) Position in courts of appeal. Whether the United States has won 
or lost an issue substantially similar to the one in the taxpayer's case 
in courts of appeal for circuits other than the one to which the 
taxpayer's case would be appealable should be taken into consideration 
in determining whether the Internal Revenue Service's position was 
substantially justified.
    (3) Example. The provisions of this section (d) are illustrated by 
the following example:

    Example. The Internal Revenue Service, in the conduct of a 
correspondence examination of taxpayer A's individual income tax return, 
requests substantiation from A of claimed medical expenses. A does not 
respond to the request and the Internal Revenue Service issues a notice 
of deficiency. After receiving the notice of deficiency, A presents 
sufficient information and arguments to convince a tax compliance 
officer that the notice of deficiency is incorrect and that A owes no 
tax. The revenue agent then closes the case showing no deficiency. 
Although A incurred costs after the issuance of the notice of 
deficiency, A is unable to recover these costs because, as of the date 
these costs were incurred, A had not presented relevant information 
under A's control and relevant legal arguments supporting A's position 
to the appropriate Internal Revenue Service personnel. Accordingly, the 
position of the Internal Revenue Service was substantially justified at 
the time the costs were incurred.

    (4) Included costs. (i) An award of reasonable administrative costs 
shall only include costs incurred on or after the administrative 
proceeding date as defined in section 301.7430-3(c) of this chapter.
    (ii) If the Internal Revenue Service takes a position in an 
administrative proceeding, as defined in paragraph (b) of this section, 
and the position is not substantially justified, the taxpayer may be 
permitted to recover costs incurred before the position was taken, but 
not before the dates set forth in this paragraph (d)(4).
    (5) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. Pursuant to section 6672, taxpayer D receives from the 
Area Director Collection Operations (Collection) a proposed assessment 
of trust fund taxes (Trust Fund Recovery Penalty). D requests and is 
granted Appeals office consideration. Appeals considers the issues and 
decides to uphold Collection's recommended assessment. Appeals notifies 
D of this decision in writing. Collection then assesses the tax and 
notice and demand is made. D timely pays the minimum amount required to 
commence a court proceeding, files a claim for refund, and furnishes the 
required bond. Collection disallows the claim, but Appeals, on 
reconsideration, reverses its original position, thus upholding D's 
position. If Appeals' initial determination was not substantially 
justified, D may recover administrative costs incurred on or after the 
mailing of the proposed assessment of trust fund taxes, because the 
proposed assessment is the first determination letter that allows the 
taxpayer an opportunity for administrative review in the Internal 
Revenue Service Office of Appeals.
    Example 2. Taxpayer E receives a notice of proposed deficiency (30-
day letter). E pays the amount of the proposed deficiency and files a 
claim for refund. E's claim is considered and a notice of proposed 
disallowance is issued by the Area Director. E requests and is granted 
Appeals office consideration. No agreement is reached with Appeals and 
the Office of Appeals issues a notice of claim disallowance. E does not 
file suit in a United States District Court but instead contacts the 
Appeals office to attempt to reverse the decision. E convinces the 
Appeals officer that the notice of claim disallowance is in error. The 
Appeals officer then abates the assessment. E may recover reasonable 
administrative costs if the position taken in the notice of claim 
disallowance issued by the Office of Appeals was not substantially 
justified and the other requirements of section

[[Page 702]]

7430 and the regulations thereunder are satisfied. If so, E may recover 
administrative costs incurred from the mailing date of the 30-day letter 
because the requirements of paragraph (c)(2) of this section are met. E 
cannot recover the costs incurred prior to the mailing of the 30-day 
letter because they were incurred before the administrative proceeding 
date.

    (6) Exception. If the position of the Internal Revenue Service was 
substantially justified with respect to some issues in the proceeding 
and not substantially justified with respect to the remaining issues, 
any award of reasonable administrative costs to the taxpayer may be 
limited to only reasonable administrative costs attributable to those 
issues with respect to which the position of the Internal Revenue 
Service was not substantially justified. If the position of the Internal 
Revenue Service was substantially justified for only a portion of the 
period of the proceeding and not substantially justified for the 
remaining portion of the proceeding, any award of reasonable 
administrative costs to the taxpayer may be limited to only reasonable 
administrative costs attributable to that portion during which the 
position of the Internal Revenue Service was not substantially 
justified. Where an award of reasonable administrative costs is limited 
to that portion of the administrative proceeding during which the 
position of the Internal Revenue Service was not substantially 
justified, whether the position of the Internal Revenue Service was 
substantially justified is determined as of the date any cost is 
incurred.
    (7) Presumption. If the Internal Revenue Service did not follow any 
applicable published guidance in an administrative proceeding commenced 
after July 30, 1996, the position of the Internal Revenue Service, on 
those issues to which the guidance applies and for all periods during 
which the guidance was not followed, will be presumed not to be 
substantially justified. This presumption may be rebutted. For purposes 
of this paragraph (d)(7), the term applicable published guidance means 
final or temporary regulations, revenue rulings, revenue procedures, 
information releases, notices, and announcements published in the 
Internal Revenue Bulletin and, if issued to or with respect to the 
taxpayer, private letter rulings, technical advice memoranda, and 
determination letters (Sec.  601.601(d)(2) of this chapter). Also, for 
purposes of this paragraph (d)(7), the term administrative proceeding 
includes only those administrative proceedings or portions of 
administrative proceedings occurring on or after the administrative 
proceeding date as defined in Sec.  301.7430-3(c).
    (e) Amount in controversy. The amount in controversy shall include 
the amount in issue as of the administrative proceeding date as 
increased by any amounts subsequently placed in issue by any party. The 
amount in controversy is determined without increasing or reducing the 
amount in controversy for amounts of loss, deduction, or credit carried 
over from years not in issue.
    (f) Most significant issue or set of issues presented. (1) In 
general. Where the taxpayer has not substantially prevailed with respect 
to the amount in controversy the taxpayer may nonetheless be a 
prevailing party if the taxpayer substantially prevails with respect to 
the most significant issue or set of issues presented. The issues 
presented include those raised as of the administrative proceeding date 
and those raised subsequently. Only in a multiple issue proceeding can a 
most significant issue or set of issues presented exist. However, not 
all multiple issue proceedings contain a most significant issue or set 
of issues presented. An issue or set of issues constitutes the most 
significant issue or set of issues presented if, despite involving a 
lesser dollar amount in the proceeding than the other issue or issues, 
it objectively represents the most significant issue or set of issues 
for the taxpayer or the Internal Revenue Service. This may occur because 
of the effect of the issue or set of issues on other transactions or 
other taxable years of the taxpayer or related parties.
    (2) Example. The provisions of this section may be illustrated by 
the following example:

    Example. In the purchase of an ongoing business, Taxpayer F obtains 
from the previous owner of the business a covenant not to compete for a 
period of five years. On audit of F's individual income tax return for

[[Page 703]]

the year in which the business was acquired, the Internal Revenue 
Service challenges the basis assigned to the covenant not to compete and 
a deduction taken as a business expense for a seminar attended by F. 
Both parties agree that the covenant not to compete is amortizable over 
a period of five years; however, the Internal Revenue Service asserts 
that the proper basis of the covenant is $25,000, while F asserts the 
basis is $50,000 and claims a deduction of $10,000 in the year in which 
the business was acquired. F deducted $12,000 for the seminar. The 
Internal Revenue Service determines that the deduction for the seminar 
should be disallowed entirely. In the notice of deficiency, the Internal 
Revenue Service adjusts the amortization deduction to reflect the change 
to the basis of the covenant not to compete, and disallows the seminar 
expense. Thus, of the two adjustments determined for the year under 
audit, the adjustment attributable to the disallowance of the seminar is 
larger than that attributable to the covenant not to compete. Due to the 
impact on the next succeeding four years, however, the covenant not to 
compete adjustment is the most significant issue to both F and the 
Internal Revenue Service.

    (g) Net worth and size limitations--(1) Individuals. A taxpayer who 
is a natural person meets the net worth and size limitations of this 
paragraph if the taxpayer's net worth does not exceed two million 
dollars. For purposes of determining net worth, individuals filing a 
joint return, and jointly incurring administrative or litigation costs 
shall have their net worth determined jointly, with all assets and 
liabilities treated as joint for purposes of the net worth evaluation, 
and applying a joint cap of four million dollars. Individuals who file a 
joint return, but incur separate administrative or litigation costs, by 
retaining separate representation, and/or seeking individual 
administrative review or petitioning the court individually, such as 
under section 6015, shall have their net worth determined separately, 
with only those assets and liabilities reasonably attributable to each 
spouse considered against separate caps of two million dollars per 
spouse.
    (2) Estates and trusts. An estate or a trust meets the net worth and 
size limitations of this paragraph if the estate or trust's net worth 
does not exceed two million dollars. The net worth of an estate shall be 
determined as of the date of the decedent's death provided the date of 
death is prior to the date the court proceeding is commenced. The net 
worth of a trust shall be determined as of the last day of the last 
taxable year involved in the proceeding.
    (3) Others. (i) A taxpayer that is a partnership, corporation, 
association, unit of local government, or organization (other than an 
organization described in paragraph (g)(4) of this section) meets the 
net worth and size limitations of this paragraph if, as of the 
administrative proceeding date:
    (A) The taxpayer's net worth does not exceed seven million dollars; 
and
    (B) The taxpayer does not have more than 500 employees.
    (ii) A taxpayer who is a natural person and owns an unincorporated 
business is subject to the net worth and size limitations contained in 
paragraph (g)(3)(i) of this section if the tax at issue (or any 
interest, additional amount, addition to tax, or penalty, together with 
any costs in addition to the tax) relates directly to the business 
activities of the unincorporated business.
    (4) Special rule for charitable organizations and certain 
cooperatives. An organization described in section 501(c)(3) exempt from 
taxation under section 501(a), or a cooperative association as defined 
in section 15(a) of the Agricultural Marketing Act, 12 U.S.C. 1141j(a) 
(as in effect on October 22, 1986), meets the net worth and size 
limitations of this paragraph if, as of the administrative proceeding 
date, the organization or cooperative association does not have more 
than 500 employees.
    (5) Special rule for TEFRA partnership proceedings. (i) In cases 
involving partnerships subject to the unified audit and litigation 
procedures of subchapter C of chapter 63 of the Internal Revenue Code 
(TEFRA partnership cases), the TEFRA partnership meets the net worth and 
size limitations requirements of this paragraph (g) if, on the 
administrative proceeding date--
    (A) The partnership's net worth does not exceed seven million 
dollars; and
    (B) The partnership does not have more than 500 employees.
    (ii) In addition, each partner requesting fees pursuant to section 
7430 must meet the appropriate net worth and size limitations set forth 
in paragraph

[[Page 704]]

(g)(1), (g)(2), or (g)(3) of this section. For example, if a partner is 
an individual, his or her net worth must not exceed two million dollars 
as of the administrative proceeding date. If the partner is a 
corporation, its net worth must not exceed seven million dollars and it 
must not have more than 500 employees.
    (6) Determining net worth. For purposes of determining net worth 
under this paragraph (g), assets are valued based on the cost of their 
acquisition.
    (h) Determination of prevailing party. If the final decision with 
respect to the tax, interest, or penalty is made at the administrative 
level, the determination of whether a taxpayer is a prevailing party 
shall be made by agreement of the parties, or absent an agreement, by 
the Internal Revenue Service. See Sec.  301.7430-2(c)(7) regarding the 
right to appeal the decision of the Internal Revenue Service denying (in 
whole or in part) a request for reasonable administrative costs to the 
Tax Court.

[T.D. 9756, 81 FR 10487, Mar. 1, 2016]



Sec.  301.7430-6  Effective/applicability dates.

    Sections 301.7430-2 through 301.7430-6, other than Sec. Sec.  
301.7430-2(b)(2), (c)(3)(i)(B), (c)(3)(i)(E), (c)(3)(ii)(C), 
(c)(3)(iii)(C), (c)(5), (c)(7), and (e); Sec. Sec.  301.7430-3(c)(1), 
(c)(3), (c)(4), and (d); Sec. Sec.  301.7430-4(b)(3)(i), (b)(3)(ii), 
(b)(3)(iii)(B), (b)(3)(iii)(C), (b)(3)(iii)(D), (b)(3)(iii)(E), 
(b)(3)(iii)(F), (c)(2)(ii), (c)(4), and (d); and Sec. Sec.  301.7430-
5(a), (b), (c)(3), (d)(2), (d)(3), (d)(4), (d)(5), (d)(7), (f)(2), 
(g)(1), (g)(2), (g)(3), (g)(5), and (g)(6) apply to claims for 
reasonable administrative costs filed with the Internal Revenue Service 
after December 23, 1992, with respect to costs incurred in 
administrative proceedings commenced after November 10, 1988. Section 
301.7430-2(c)(5) is applicable to costs incurred and services performed 
in cases in which the petition was filed on or after March 1, 2016, 
except for the last two sentences, which are applicable March 23, 1993. 
Sections 301.7430-2(b)(2), and (c)(3)(i)(B) (except the last sentence); 
301.7430-4(b)(3)(ii), (b)(3)(iii)(C) (except the first two sentences), 
and (c)(2)(ii) (except for references to the statutory cap as $125); and 
301.7430-5(a) (except the parenthetical of 5(a) and all of 5(a)(1)), and 
the first and last sentence of (d)(7) are applicable for administrative 
proceedings commenced after July 30, 1996. Sections 301.7430-1(e), 
301.7430-2(c)(2), 7430-3(a)(4) and (b) are applicable with respect to 
actions taken by the Internal Revenue Service after July 22, 1998. The 
last sentence of Sec.  301.7430-2(c)(3)(i)(B), the first two sentences 
of Sec.  301.7430-2(b)(3)(iii)(C), Sec. Sec.  301.7430-2(c)(3)(i)(E), 
(c)(3)(ii)(C), (c)(3)(iii)(C), (c)(7), (e); 301.7430-3(c)(1), (c)(3), 
(c)(4), (d); 301.7430-4(b)(3)(i), (b)(3)(iii)(B), (b)(3)(iii)(E), 
(b)(3)(iii)(F), (c)(2)(ii) (to the extent it references the statutory 
cap as $125), (c)(4), (d); the parenthetical of Sec.  301.7430-5(a) and 
Sec. Sec.  301.7430-5(a)(1), (b), (d)(2), (d)(3), (d)(4), (d)(5), 
(d)(7), except the first and last sentences, (f)(2), (g)(1), (g)(2), 
(g)(3), (g)(5), and (g)(6) apply to costs incurred and services 
performed in cases in which the petition was filed on or after March 1, 
2016.

[T.D. 9756, 81 FR 10489, Mar. 1, 2016]



Sec.  301.7430-7  Qualified offers.

    (a) In general. Section 7430(c)(4)(E) (the qualified offer rule) 
provides that a party to a court proceeding satisfying the timely filing 
and net worth requirements of section 7430(c)(4)(A)(ii) shall be treated 
as the prevailing party if the liability of the taxpayer pursuant to the 
judgment in the proceeding (determined without regard to interest) is 
equal to or less than the liability of the taxpayer which would have 
been so determined if the United States had accepted the last qualified 
offer of the party as defined in section 7430(g). For purposes of this 
section, the term judgment means the cumulative determinations of the 
court concerning the adjustments at issue and litigated to a 
determination in the court proceeding. In making the comparison between 
the liability under the qualified offer and the liability under the 
judgment, the taxpayer's liability under the judgment is further 
modified by the provisions of paragraph (b)(3) of this section. The 
provisions of the qualified offer rule do not apply if the taxpayer's 
liability under the judgment, as modified by the provisions of paragraph 
(b)(3) of this

[[Page 705]]

section, is determined exclusively pursuant to a settlement, or to any 
proceeding in which the amount of tax liability is not in issue, 
including any declaratory judgment proceeding, any proceeding to enforce 
or quash any summons issued pursuant to the Internal Revenue Code 
(Code), and any action to restrain disclosure under section 6110(f). If 
the qualified offer rule applies to the court proceeding, the 
determination of whether the liability under the qualified offer would 
have equaled or exceeded the liability pursuant to the judgment is made 
by reference to the last qualified offer made with respect to the tax 
liability at issue in the administrative or court proceeding. An award 
of reasonable administrative and litigation costs under the qualified 
offer rule only includes those costs incurred on or after the date of 
the last qualified offer and is limited to those costs attributable to 
the adjustments at issue at the time the last qualified offer was made 
that were included in the court's judgment other than by reason of 
settlement. The qualified offer rule is inapplicable to reasonable 
administrative or litigation costs otherwise awarded to a taxpayer who 
is a prevailing party under any other provision of section 7430(c)(4). 
This section sets forth the requirements to be satisfied for a taxpayer 
to be treated as a prevailing party by reason of the taxpayer making a 
qualified offer, as well as the circumstances leading to the application 
of the exceptions, special rules, and coordination provisions of the 
qualified offer rule. Furthermore, this section sets forth the elements 
necessary for an offer to be treated as a qualified offer under section 
7430(g).
    (b) Requirements for treatment as a prevailing party based upon 
having made a qualified offer--(1) In general. In order to be treated as 
a prevailing party by reason of having made a qualified offer, the 
liability of the taxpayer for the type or types of tax and the taxable 
year or years at issue in the proceeding (as calculated pursuant to 
paragraph (b)(2) of this section), based on the last qualified offer (as 
defined in paragraph (c) of this section) made by the taxpayer in the 
court or administrative proceeding, must equal or exceed the liability 
of the taxpayer pursuant to the judgment by the court for the same type 
or types of tax and the same taxable year or years (as calculated 
pursuant to paragraph (b)(3) of this section). Furthermore, the taxpayer 
must meet the timely filing and net worth requirements of section 
7430(c)(4)(A)(ii). If all of the adjustments subject to the last 
qualified offer are settled prior to the entry of the judgment by the 
court, the taxpayer is not a prevailing party by reason of having made a 
qualified offer. The taxpayer may, however, still qualify as a 
prevailing party if the requirements of section 7430(c)(4)(A) are met. 
If one or more adjustments covered by a qualified offer (see paragraph 
(c)(3)) are settled following a ruling by the court that substantially 
resolves those adjustments, then those adjustments will not be treated 
as having been settled prior to the entry of the judgment by the court 
and instead will be treated as amounts included in the judgment as a 
result of the court's determinations. For purposes of the preceding 
sentence, rulings relating to discovery, admissibility of evidence, and 
burden of proof are not rulings that substantially resolve adjustments 
covered by a qualified offer.
    (2) Liability under the last qualified offer. For purposes of 
paragraph (b)(1) of this section, the taxpayer's liability under the 
last qualified offer is the change in the taxpayer's liability that 
would have resulted if the United States had accepted the taxpayer's 
last qualified offer on all of the adjustments that were at issue in the 
administrative or court proceeding at the time that the offer was made 
compared to the amount shown on the return or returns (or as previously 
adjusted). The portion of a taxpayer's liability that is attributable to 
adjustments raised by either party after the making of the last 
qualified offer is not included in the calculation of the liability 
under that offer. The taxpayer's liability under the last qualified 
offer is calculated without regard to adjustments that the parties have 
stipulated will be resolved in accordance with the outcome of a separate 
pending Federal, state, or other judicial or administrative proceeding. 
For example, the parties may stipulate that the taxpayer's

[[Page 706]]

liability will be resolved in accordance with the outcome of an 
alternative dispute resolution proceeding or a separate court 
proceeding, such as a probate, tort liability, or trademark action. 
Furthermore, the taxpayer's liability under the last qualified offer is 
calculated without regard to interest, unless the taxpayer's liability 
for, or entitlement to, interest is a contested issue in the 
administrative or court proceeding and is one of the adjustments 
included in the last qualified offer.
    (3) Liability pursuant to the judgment. For purposes of paragraph 
(b)(1) of this section, the taxpayer's liability pursuant to the 
judgment is the change in the taxpayer's liability resulting from 
amounts contained in the judgment as a result of the court's 
determinations, and amounts contained in settlements not included in the 
judgment, that are attributable to all adjustments that were included in 
the last qualified offer compared to the amount shown on the return or 
returns (or as previously adjusted). This liability includes amounts 
attributable to adjustments included in the last qualified offer and 
settled by the parties prior to the entry of judgment regardless of 
whether those amounts are actually included in the judgment entered by 
the court. The taxpayer's liability pursuant to the judgment does not 
include amounts attributable to adjustments that are not included in the 
last qualified offer, even if those amounts are actually included in the 
judgment entered by the court. The taxpayer's liability under the 
judgment is calculated without regard to adjustments that the parties 
have stipulated will be resolved in accordance with the outcome of a 
separate pending Federal, state, or other judicial or administrative 
proceeding. Furthermore, the taxpayer's liability pursuant to the 
judgment is calculated without regard to interest, unless the taxpayer's 
liability for, or entitlement to, interest is a contested issue in the 
administrative or court proceeding and is one of the adjustments 
included in the last qualified offer. Where adjustments raised by either 
party subsequent to the making of the last qualified offer are included 
in the judgment entered by the court, or are settled prior to the court 
proceeding, the taxpayer's liability pursuant to the judgment is 
calculated by treating the subsequently raised adjustments as if they 
had never been raised.
    (c) Qualified offer--(1) In general. A qualified offer is defined in 
section 7430(g) to mean a written offer which--
    (i) Is made by the taxpayer to the United States during the 
qualified offer period;
    (ii) Specifies the offered amount of the taxpayer's liability 
(determined without regard to interest, unless interest is a contested 
issue in the proceeding);
    (iii) Is designated at the time it is made as a qualified offer for 
purposes of section 7430(g); and
    (iv) By its terms, remains open during the period beginning on the 
date it is made and ending on the earliest of the date the offer is 
rejected, the date the trial begins, or the 90th day after the date the 
offer is made.
    (2) To the United States. (i) A qualified offer is made to the 
United States when it is delivered to the office or personnel within the 
Internal Revenue Service, Office of Appeals, Office of Chief Counsel 
(including field personnel) or Department of Justice that has 
jurisdiction over the tax matter at issue in the administrative or court 
proceeding. If those offices or persons are unknown to the taxpayer 
making the qualified offer, the taxpayer may deliver the offer to the 
appropriate office, as follows:
    (A) If the taxpayer's initial pleading in a court proceeding has 
been answered, the taxpayer may deliver the offer to the office that 
filed the answer.
    (B) If the taxpayer's petition in the Tax Court has not yet been 
answered, the taxpayer may deliver the offer to the Office of Chief 
Counsel, 1111 Constitution Avenue, NW., Washington, DC 20224.
    (C) If the taxpayer's initial pleading in any Federal court, other 
than the Tax Court, has not yet been answered, the taxpayer may deliver 
the offer to the Attorney General of the United States, 950 Pennsylvania 
Ave., NW., Washington, DC 20530-0001. For a suit brought in a United 
States district court, a copy of the offer should also be

[[Page 707]]

delivered to the United States Attorney for the district in which the 
suit was brought.
    (D) In any other situation, the taxpayer may deliver the offer to 
the office that sent the taxpayer the first letter of proposed 
deficiency which allows the taxpayer an opportunity for administrative 
review in the Internal Revenue Service Office of Appeals.
    (ii) Until an offer is received by the appropriate personnel or 
office under this paragraph (c)(2), it is not considered to have been 
made, with the following exception. If the offer is deposited in the 
United States mail, in an envelope or other appropriate wrapper, postage 
prepaid, properly addressed to the appropriate personnel or office under 
this paragraph (c)(2), the date of the United States postmark stamped on 
the cover in which the offer is mailed shall be deemed to be the date of 
receipt of that offer by the addressee. If any offer is deposited with a 
designated delivery service, as defined in section 7502(f)(2), in lieu 
of the United States mail, the provisions of section 7502(f)(1) shall 
apply in determining whether that offer qualifies for this exception.
    (3) Specifies the offered amount. A qualified offer specifies the 
offered amount if it clearly specifies the amount for the liability of 
the taxpayer, calculated as set forth in paragraph (b)(2) of this 
section. The offer may be a specific dollar amount of the total 
liability or a percentage of the adjustments at issue in the proceeding 
at the time the offer is made. This amount must be with respect to all 
of the adjustments at issue in the administrative or court proceeding at 
the time the offer is made and only those adjustments. The specified 
amount must be an amount, the acceptance of which by the United States 
will fully resolve the taxpayer's liability, and only that liability 
(determined without regard to adjustments that the parties have 
stipulated will be resolved in accordance with the outcome of a separate 
pending Federal, state, or other judicial or administrative proceeding, 
or interest, unless interest is a contested issue in the proceeding) for 
the type or types of tax and the taxable year or years at issue in the 
proceeding. In cases involving multiple tax years, if adjustments in 
different tax years arise from separate and distinct issues such that 
the resolution of issues in one or more tax years will not affect the 
taxpayer's liability in one or more of the other tax years in the 
proceeding, then a qualified offer may be made for less than all of the 
tax years involved. A qualified offer, however, must resolve all of the 
issues for the tax years covered by the offer and also must cover all 
tax years in the proceeding affected by those issues. A tax year 
(affected year) is affected by an issue if the treatment of the issue in 
another tax year involved in the proceeding necessarily affects the 
treatment of the issue in the affected year.
    (4) Designated at the time it is made as a qualified offer. An offer 
is not a qualified offer unless it designates in writing at the time it 
is made that it is a qualified offer for purposes of section 7430(g). An 
offer made at a time when one or more adjustments not included in the 
first letter of proposed deficiency which allows the taxpayer an 
opportunity for administrative review in the Internal Revenue Service 
Office of Appeals have been raised by the taxpayer and remain 
unresolved, is not considered to be a qualified offer unless 
contemporaneously or prior to the making of the offer, the taxpayer has 
provided the United States with the substantiation and legal and factual 
arguments necessary to allow for informed consideration of the merits of 
those adjustments. For example, a taxpayer will be considered to have 
provided the United States with the necessary substantiation and legal 
and factual arguments if the taxpayer (or a recognized representative of 
the taxpayer described in Sec.  601.502 of this chapter) participates in 
an Appeals office conference, participates in an Area Counsel 
conference, or confers with the Department of Justice, and at that time, 
discloses all relevant information. All relevant information includes, 
but is not limited to, the legal and factual arguments supporting the 
taxpayer's position on any adjustments raised by the taxpayer after the 
issuance of the first letter of proposed deficiency which allows the 
taxpayer

[[Page 708]]

an opportunity for administrative review in the Internal Revenue Service 
Office of Appeals. A taxpayer has disclosed all relevant information if 
the taxpayer has supplied sufficient information to allow informed 
consideration of the taxpayer's tax matter to the extent the information 
and its relevance were known or should have been known to the taxpayer 
at the time of the conference.
    (5) Remains open. A qualified offer must, by its terms, remain open 
for acceptance by the United States from the date it is made, as defined 
in paragraph (c)(2)(ii) of this section, until the earliest of the date 
it is rejected in writing by a person with authority to reject the 
offer, the date the trial begins, or the 90th day after being received 
by the United States. The offer, by its written terms, may remain open 
after the occurrence of one or more of the above-referenced events. Once 
made, the period during which a qualified offer remains open may be 
extended by the taxpayer prior to its expiration, but an extension 
cannot be used to make an offer meet the minimum period for remaining 
open required by this paragraph (c)(5).
    (6) Last qualified offer. A taxpayer may make multiple qualified 
offers during the qualified offer period. For purposes of the comparison 
under paragraph (b) of this section, the making of a qualified offer 
supersedes any previously made qualified offers. In making the 
comparison described in paragraph (b) of this section, only the 
qualified offer made most closely in time to the end of the qualified 
offer period is compared to the taxpayer's liability under the judgment.
    (7) Qualified offer period. To constitute a qualified offer, an 
offer must be made during the qualified offer period. The qualified 
offer period begins on the date on which the first letter of proposed 
deficiency which allows the taxpayer an opportunity for administrative 
review in the Internal Revenue Service Office of Appeals is sent to the 
taxpayer. For this purpose, the date of the notice of claim disallowance 
will begin the qualified offer period in a refund case. If there has 
been no notice of claim disallowance in a refund case, the qualified 
offer period begins on the date on which the answer or other responsive 
pleading is filed with the court. The qualified offer period ends on the 
date which is thirty days before the date the case is first set for 
trial. In determining when the qualified offer period ends for cases in 
the Tax Court and other Federal courts using calendars for trial, a case 
will be considered set for trial on the date scheduled for the calendar 
call. A case may be removed from a trial calendar at any time. Thus, a 
case may be removed from a trial calendar before the date that precedes 
by thirty days the date scheduled for that trial calendar. The qualified 
offer period does not end until the case remains on a trial calendar on 
the date that precedes by 30 days the scheduled date of the calendar 
call for that trial session. The qualified offer period may not be 
extended beyond the periods set forth in this paragraph (c)(7), although 
the period during which a qualified offer remains open may extend beyond 
the end of the qualified offer period.
    (8) Interest as a contested issue. To constitute a qualified offer, 
an offer must specify the offered amount of the taxpayer's liability 
(determined without regard to interest, unless interest is a contested 
issue in the proceeding), as provided in paragraphs (c)(1)(ii) and 
(c)(3) of this section. Therefore, a qualified offer generally may only 
include an offer to compromise tax, penalties, additions to the tax, and 
additional amounts. Interest may only be included in a qualified offer 
if interest is a contested issue in the proceeding. For purposes of this 
section, interest is a contested issue in the proceeding only if the 
court in which the proceeding could be brought would have jurisdiction 
to determine the amount of interest due on the underlying tax, 
penalties, additions to the tax, and additional amounts. Examples of 
proceedings in which interest might be a contested issue include 
proceedings in which the increased interest rate for large corporate 
underpayments under section 6621(c) is imposed by the Internal Revenue 
Service and interest abatement proceedings brought under section 6404. 
Interest is not a contested issue in the proceeding if the court that 
would have jurisdiction over the

[[Page 709]]

proceeding would not have jurisdiction to determine the amount or rate 
of interest, regardless of whether the taxpayer attempts to raise 
interest as an issue in the proceeding. Consequently, interest will not 
be a contested issue in the vast majority of tax cases because they 
merely involve the straightforward application of statutory interest 
under section 6601. Accordingly, in those cases, interest may not be 
included in the offer.
    (d) [Reserved]
    (e) Examples. The following examples illustrate the provisions of 
this section:

    Example 1. Definition of a judgment, The Internal Revenue Service 
(IRS) audits Taxpayer A for year X and issues a notice of proposed 
deficiency (30-day letter) proposing to disallow deductions 1, 2, 3, and 
4. A files a protest and participates in a conference with the Internal 
Revenue Service Office of Appeals (Appeals). Appeals allows deduction 1, 
and issues a statutory notice of deficiency for deductions 2, 3, and 4. 
A's petition to the United States Tax Court for year X never mentions 
deduction 2. Prior to trial, A concedes deduction 3. After the trial, 
the Tax Court issues an opinion allowing A to deduct a portion of 
deduction 4. As used in paragraph (a) of this section, the term judgment 
means the cumulative determinations of the court concerning the 
adjustments at issue in the court proceeding. Thus, the term judgment 
does not include deduction 1 because it was never at issue in the court 
proceeding. Similarly, the term judgment does not include deduction 2 
because it was not placed at issue by A in the court proceeding. 
Although deduction 3 was at issue in the court proceeding, it is not 
included in the term judgment because it was not determined by the 
court, but rather by concession or settlement. For purposes of section 
7430(c)(4)(E), the term judgment only includes the portion of deduction 
4 disallowed by the Tax Court.
    Example 2. Liability under the offer and liability under the 
judgment, Assume the same facts as in Example 1 except that A makes a 
qualified offer after the Appeals conference, which is not accepted by 
the IRS. A's offer is with respect to all adjustments at issue at that 
time. Those adjustments are deductions 2, 3, and 4. At the conclusion of 
the litigation, A's entitlement to an award based upon the qualified 
offer will depend, among other things, on a comparison of the change in 
A's liability for income tax for year X resulting from the judgment of 
the Tax Court with the change that would have resulted had the IRS 
accepted A's qualified offer. In making this comparison, the term 
judgment (as discussed in Example 1) is modified by including the 
amounts of settled or conceded adjustments that were at issue at the 
time the qualified offer was made. Any settled or conceded adjustments 
that were not at issue at the time the qualified offer was made, either 
because the settlement or concession occurred before the offer or 
because the adjustment was not raised until after the offer, are not 
included in the comparison. Thus, A's offer on deductions 2, 3, and 4 is 
compared with the change in A's liability resulting from the Tax Court's 
determination of deduction 4, and the concessions of issues 2 and 3 by 
A.
    Example 3. Offer must resolve full liability, Assume the same facts 
as in Example 2 except that A's offer after the Appeals conference 
explicitly states that it is only with respect to adjustments 2 and 3 
and not with respect to adjustment 4. Even if A's liability pursuant to 
the judgment, calculated under paragraph (b)(3) of this section as 
illustrated in Example 2, is equal to or less than it would have been 
had the IRS accepted A's offer after the Appeals conference, A is not a 
prevailing party under section 7430(c)(4)(E). A qualified offer must 
include all adjustments at issue at the time the offer is made. Since 
A's offer excluded adjustment 4, which was an adjustment at issue at the 
time the offer was made, it does not constitute a qualified offer 
pursuant to paragraph (b)(2) of this section.
    Example 4. Offer must resolve full liability, Assume the same facts 
as in Example 1, except that A makes a qualified offer that is accepted 
by the IRS. After the offer is accepted, A attempts to reduce the amount 
A will pay pursuant to the offer by applying net operating loss 
carryovers to the years in issue. Because the net operating losses were 
not at issue when the offer was made, A's offer was a qualified offer. 
Whether A is entitled to apply net operating losses to reduce the amount 
stated in the offer will depend upon the application of contract 
principles, local court rules, and, because net operating losses are at 
issue, section 6511(d) and related provisions.
    Example 5. Qualified offer rule for multiple tax years, partial 
resolution offer is a qualified offer, Taxpayer B receives a notice of 
deficiency for taxable years 2001, 2002, and 2003. For 2001, the 
statutory notice disallows business deductions. For 2002, the statutory 
notice increases income for unreported lottery winnings. For 2003, the 
statutory notice disallows a child care credit. B submits a qualified 
offer only with respect to 2002. Since the adjustments for the three tax 
years are separate and distinct, B may submit a qualified offer for a 
single year. If B's liability under the judgment is equal to or less 
than the qualified offer with respect to 2002, irrespective of 2001 and 
2003, B is a prevailing party

[[Page 710]]

for 2002 for purposes of section 7430(g). Assuming B satisfies the 
remaining requirements of section 7430, B may recover reasonable 
administrative and litigation costs that are attributable to 2002 from 
the date of the qualified offer. To qualify for any costs with respect 
to 2001 or 2003, B must satisfy the requirements of section 7430(c)(4).
    Example 6. Qualified offer rule for multiple tax years, partial 
resolution offer is not a qualified offer, Assume the same facts as in 
Example 5 except that with respect to 2002, in addition to increasing 
B's income for the unreported lottery winnings, the statutory notice 
also disallows a charitable contribution deduction. B submits a 
settlement offer that purports to be a qualified offer, but only covers 
the unreported lottery winnings. B's offer is not a qualified offer 
because it does not address the charitable contribution issue, and thus, 
does not fully resolve B's liability for 2002.
    Example 7. Qualified offer rule for multiple tax years, partial 
resolution offer is not a qualified offer, Taxpayer C receives a notice 
of deficiency for taxable years 2001, 2002, and 2003 adjusting the 
amount of a depreciation deduction due to the Internal Revenue Service's 
increase to the recovery period. C submits a settlement offer relating 
only to 2003 that purports to be a qualified offer. C's offer is not a 
qualified offer because the issue in the three tax years is not 
separable given that the treatment of the issue in one of the years 
necessarily affects the treatment of the issue in the other years, and 
C's offer only applies to one of the years in the proceeding. In cases 
involving multiple tax years with nonseparable tax issues affecting all 
tax years, an offer is not a qualified offer unless it resolves the 
liability for all tax years at issue in the administrative or judicial 
proceeding.
    Example 8. Qualified offer rule inapplicable when all issues 
settled, Taxpayer D receives a notice of proposed deficiency (30-day 
letter) proposing to disallow both a personal interest deduction in the 
amount of $10,000 (Adjustment 1), and a charitable contribution 
deduction in the amount of $2,000 (Adjustment 2), and to include in 
income $4,000 of unreported interest income (Adjustment 3). D timely 
files a protest with Appeals. At the Appeals conference, D presents 
substantiation for the charitable contribution and presents arguments 
that the interest paid was deductible mortgage interest and that the 
interest received was held in trust for Taxpayer E. At the conference, D 
also provides the Appeals officer assigned to D's case a written offer 
to settle the case for a deficiency of $2,000, exclusive of interest. 
The offer states that it is a qualified offer for purposes of section 
7430(g) and that it will remain open for acceptance by the IRS for a 
period in excess of 90 days. After considering D's substantiation and 
arguments, the Appeals Officer accepts the $2,000 offer to settle the 
case in full. Although D's offer is a qualified offer, because all three 
adjustments contained in the qualified offer were settled, the qualified 
offer rule is inapplicable.
    Example 9. Qualified offer rule inapplicable when all issues 
contained in the qualified offer are settled; subsequently raised 
adjustments ignored, Assume the same facts as in Example 8 except that 
D's qualified offer was for a deficiency of $1,800 and the IRS rejected 
that offer. Subsequently, the IRS issued a statutory notice of 
deficiency disallowing the three adjustments contained in Example 8, 
and, in addition, disallowing a home office expense in the amount of 
$5,000 (Adjustment 4). After petitioning the Tax Court, D presents the 
field attorney assigned to the case with a written offer, which is not 
designated as a qualified offer for purposes of section 7430(g), to 
settle the three adjustments that had been the subject of the qualified 
offer, plus adjustment 4, for a total deficiency of $2,500. After 
negotiating with D, a settlement is reached on the three adjustments 
that were the subject of the rejected qualified offer, for a deficiency 
of $1,800. Adjustment 4 is litigated in the Tax Court and the court 
determines that D is entitled to the full $5,000 deduction for that 
adjustment. Consequently, a decision is entered by the Tax Court 
reflecting the $1,800 settlement amount, which matches exactly the 
amount of D's only qualified offer in the case. Although the determined 
liability for adjustments 1, 2, and 3 equals that of the rejected 
qualified offer, because all three adjustments contained in the 
qualified offer were settled, the qualified offer rule is inapplicable.
    Example 10. Exclusion of adjustments made after the qualified offer 
is made, Assume the same facts as in Example 9 except the settlement is 
reached only on adjustments 1 and 2, for a liability of $1,500. 
Adjustments 3 and 4 are tried in the Tax Court and in accordance with 
the court's opinion, the taxpayer has a $300 deficiency attributable to 
adjustment 3, and a $1,550 deficiency attributable to adjustment 4. 
Consequently, a decision is entered reflecting the $1,500 settled 
amount, the $300 liability on adjustment 3, and the $1,550 liability on 
adjustment 4. The $3,350 deficiency reflected in the Tax Court's 
decision exceeds the last (and only) qualified offer made by D. For 
purposes of determining whether D is a prevailing party as a result of 
having made a qualified offer in the proceeding, the liability 
attributable to adjustment 4, which was raised after the last qualified 
offer was made, is not included in the comparison of D's liability under 
the judgment with D's offered liability under the last qualified offer. 
Thus, D's $1,800 liability under the judgment, as modified for purposes 
of the qualified offer rule comparison, is equal to D's offered 
liability under the last qualified offer. Because D's liability under 
the last qualified

[[Page 711]]

offer equals or exceeds D's liability under the judgment, as calculated 
under paragraph (b)(3) of this section, D is a prevailing party for 
purposes of section 7430. Assuming D satisfies the remaining 
requirements of section 7430, D may recover those reasonable 
administrative and litigation costs attributable to adjustment 3. To 
qualify for any further award of reasonable administrative and 
litigation costs, D must satisfy the requirements of section 
7430(c)(4)(A).
    Example 11. Qualified offer in a refund case, Taxpayer E timely 
files an amended return claiming a refund of $1,000. This refund claim 
results from several omitted deductions which, if allowed, would reduce 
E's tax liability from $10,000 to $9,000. E receives a notice of claim 
disallowance and files a complaint with the appropriate United States 
District Court. Subsequently, E makes a qualified offer for a refund of 
$500. The offer is rejected and after trial the court finds E is 
entitled to a refund of $700. The change in E's liability from the tax 
shown on the return that would have resulted from the acceptance of E's 
qualified offer is a reduction in that liability of $500. The change in 
E's liability from the tax shown on the return resulting from the 
judgment of the court is a reduction in that liability of $700. Because 
E's liability under the qualified offer exceeds E's liability under the 
judgment, E is a prevailing party for purposes of section 7430. Assuming 
E satisfies the remaining requirements of section 7430, E may recover 
those reasonable litigation costs incurred on or after the date of the 
qualified offer. To qualify for any further award of reasonable 
administrative and litigation costs E must satisfy the requirements of 
section 7430(c)(4)(A).
    Example 12. End of qualified offer period when case is removed from 
Tax Court trial calendar more than 30 days before scheduled trial 
calendar, Taxpayer F has petitioned the Tax Court in response to the 
issuance of a notice of deficiency. F receives notice that the case will 
be heard on the July trial session in F's city of residence. The 
scheduled date for the calendar call for that trial session is July 1st. 
On May 15th, F's motion to remove the case from the July trial session 
and place it on the October trial session for that city is granted. The 
scheduled date for the calendar call for the October trial session is 
October 1st. On May 31st, F delivers a qualified offer to the field 
attorney assigned to the case. On August 31st, F delivers a revised 
qualified offer to the field attorney assigned to the case. Neither 
offer is accepted. The case is tried during the October trial session, 
and at some time thereafter, a decision is entered by the court. Assume 
the judgment in the case, as calculated under paragraph (b)(3) of this 
section, is greater than the amount offered, as calculated under 
paragraph (b)(2) of this section, in the qualified offer delivered on 
May 31st, but less than the amount offered, as similarly calculated, in 
the qualified offer delivered on August 31st. Because the qualified 
offer period did not end until September 1st, and the offer of August 
31st otherwise satisfied the requirements of paragraph (c) of this 
section, the offer delivered on August 31st is a qualified offer. 
Furthermore, because the August 31st qualified offer is closer in time 
to the end of the qualified offer period than the May 31st qualified 
offer, the August 31st qualified offer is the last qualified offer made 
by F. Consequently, the August 31st offer is the qualified offer that is 
compared to the judgment for purposes of determining whether F is a 
prevailing party under section 7430(c)(4)(E). Because F's liability 
under the August 31st qualified offer equals or exceeds F's liability 
under the judgment as calculated under paragraph (b)(3) of this section, 
F is a prevailing party for purposes of section 7430.
    Example 13. End of qualified offer period when case is removed from 
Tax Court trial calendar less than 30 days before scheduled trial 
calendar, Assume the same facts as in Example 12 except that F's motion 
was granted on June 15th. Because the qualified offer period ended on 
June 1st when the case remained on the July trial session on the date 
that preceded by 30 days the scheduled date of the calendar call for 
that trial session, the offer delivered on May 31st was F's last 
qualified offer. The August 31st offer is not a qualified offer for 
purposes of this rule. Consequently, F is not a prevailing party under 
the qualified offer rule. Therefore, F must satisfy the requirements of 
section 7430(c)(4)(A) to qualify for any award of reasonable 
administrative and litigation costs.
    Example 14. When a qualified offer can be made and to whom it must 
be made, During the examination of Taxpayer G's return, the IRS issues a 
notice of deficiency without having first issued a 30-day letter. After 
receiving the notice of deficiency G timely petitions the Tax Court. The 
next day G mails an offer to the office that issued the notice of 
deficiency, which offer satisfies the requirements of paragraphs (c)(3) 
through (6) of this section. This is the only written offer made by G 
during the administrative or court proceeding, and by its terms it is to 
remain open for a period in excess of 90 days after the date of mailing 
to the office issuing the notice of deficiency. The office that issued 
the notice of deficiency transmitted the offer to the field attorney 
with jurisdiction over the Tax Court case. After answering the case, the 
field attorney refers the case to Appeals pursuant to Rev. Proc. 87-24 
(1987-1 C.B. 720). See Sec.  601.601(d)(2)(ii)(b) of this chapter. After 
careful consideration, Appeals rejects the offer and holds a conference 
with G during which some adjustments are settled. The remainder of the 
adjustments are tried in the Tax Court and G's liability resulting from 
the Tax Court's determinations, when

[[Page 712]]

added to G's liability resulting from the settled adjustments, is less 
than G's liability would have been under the offer rejected by Appeals. 
Because the Tax Court case had not yet been answered when the offer was 
sent, G properly mailed the offer to the office that issued the notice 
of deficiency. Thus, G's offer satisfied the requirements of paragraph 
(c)(2) of this section. Furthermore, even though G did not receive a 30-
day letter, G's offer was made after the beginning of the qualified 
offer period, satisfying the requirements of paragraph (c)(7) of this 
section, because the issuance of the statutory notice provided G with 
notice of the IRS's determination of a deficiency, and the docketing of 
the case provided G with an opportunity for administrative review in the 
Internal Revenue Service Office of Appeals under Rev. Proc. 87-24. See 
Sec.  601.601(d)(2)(ii)(b) of this chapter. Because G's offer satisfied 
all of the requirements of paragraph (c) of this section, the offer was 
a qualified offer and G is a prevailing party.
    Example 15. Substitution of parties permitted under last qualified 
offer, Taxpayer H receives a 30-day letter and participates in a 
conference with the Office of Appeals but no agreement is reached. 
Subsequently, H receives a notice of deficiency and petitions the Tax 
Court. Upon receiving the Internal Revenue Service's answer to the 
petition, H sends a qualified offer to the field attorney who signed the 
answer, by United States mail. The qualified offer stated that it would 
remain open for more than 90 days. Thirty days after making the offer, H 
dies and, on motion under Rule 63(a) of the Tax Court's Rules of 
Practice and Procedure by H's personal representative, I is substituted 
for H as a party in the Tax Court proceeding. I makes no qualified 
offers to settle the case and the case proceeds to trial, with the Tax 
Court issuing an opinion partially in favor of I. Even though I was not 
a party when the qualified offer was made by H, that offer constitutes a 
qualified offer because by its terms, when made, it was to remain open 
until at least the earlier of the date it is rejected, the date of 
trial, or 90 days. If the liability of I under the qualified offer, as 
determined under paragraph (b)(2) of this section, equals or exceeds the 
liability under the judgment of the Tax Court, as determined under 
paragraph (b)(3) of this section, I will be a prevailing party for 
purposes of an award of reasonable litigation costs under section 7430.
    Example 16. Qualified offer may not compromise interest unless it is 
a contested issue. Taxpayer J receives a notice of deficiency making an 
adjustment resulting in a deficiency in tax of $6,500 plus a penalty of 
$500. Interest is not a contested issue in the proceeding. Within the 
qualified offer period, J submits a written offer to settle the case for 
a deficiency of $1,000, including all taxes, penalties, and interest. 
The offer states that it is a qualified offer for purposes of section 
7430(g) and that it will remain open for acceptance by the Internal 
Revenue Service for a period of 90 days. Section 7430(g)(2)(B) and 
paragraph (c)(3) of this section state that the amount of a qualified 
offer must be without regard to interest unless interest is at issue in 
the proceeding. Since J's offer attempts to compromise interest, which 
is not a contested issue in the proceeding, it is not a qualified offer.
    Example 17. Qualified offer based on new defense or legal theory. 
Taxpayers K and L received a statutory notice of deficiency for tax year 
2005, a tax year when they were married and filed a joint income tax 
return. Taxpayer K files a separate petition claiming innocent spouse 
relief and simultaneously submits an offer purporting to be a qualified 
offer. The offer states that K is entitled to innocent spouse relief and 
offers to settle the 2005 deficiency as to K. K's innocent spouse claim 
was not raised during K and L's audit, nor was it raised during their 
appeals conference. Additionally, at no time prior to or 
contemporaneously with submitting the offer did K file with the Internal 
Revenue Service a Form 8857, Request for Innocent Spouse Relief, or 
otherwise provide the information specified in Sec.  1.6015-5(a) of this 
chapter. K's offer is not a qualified offer because K did not file a 
Form 8857 or otherwise provide substantiation or legal and factual 
arguments necessary to allow for informed consideration of the merits of 
the innocent spouse claim as required by paragraph (c)(4) of this 
section, contemporaneously with the offer or prior to making the offer.

    (f) Effective/applicability date. This section is applicable with 
respect to qualified offers made in administrative or court proceedings 
described in section 7430 after December 24, 2003, except that paragraph 
(c)(8) is effective as of March 1, 2016.

[T.D. 9106, 68 FR 74850, Dec. 29, 2003; T.D. 9106, 69 FR 4059, Jan. 28, 
2004; T.D. 9756, 81 FR 10489, Mar. 1, 2016]



Sec.  301.7430-8  Administrative costs incurred in damage actions 
for violations of section 362 or 524 of the Bankruptcy Code.

    (a) In general. The Internal Revenue Service may grant a taxpayer's 
request for recovery of reasonable administrative costs incurred in 
connection with the administrative proceeding before the Internal 
Revenue Service relating to the willful violation of section 362 or

[[Page 713]]

524 of the Bankruptcy Code only if the taxpayer is a prevailing party.
    (b) Prevailing party. A taxpayer is a prevailing party for purposes 
of this section only if--
    (1) The taxpayer satisfies the net worth and size limitations in 
paragraph (f) of Sec.  301.7430-5;
    (2) The taxpayer establishes that in connection with the collection 
of his or her federal tax an officer or employee of the Internal Revenue 
Service has willfully violated a provision of section 362 or 524 of the 
Bankruptcy Code; and
    (3) The position of the Internal Revenue Service in the proceeding 
was not substantially justified.
    (c) Administrative proceeding. For purposes of this section, an 
administrative proceeding is a proceeding related to an administrative 
claim presented to the Internal Revenue Service seeking relief from a 
violation of section 362 or 524 of the Bankruptcy Code by the Internal 
Revenue Service or recovery of damages from the Internal Revenue Service 
under Sec.  301.7433-2(e).
    (d) Costs incurred after filing of bankruptcy petition. 
Administrative costs may be recovered only if incurred on or after the 
date of filing of the bankruptcy petition that formed the basis for the 
stay on collection under Bankruptcy Code section 362 or the discharge 
injunction under Bankruptcy Code section 524, as the case might be.
    (e) Time for filing claim for administrative costs. (1) For purposes 
of this section, the taxpayer must file a claim for administrative costs 
before the Internal Revenue Service not later than 90 days after the 
date the Internal Revenue Service mails to the taxpayer, or otherwise 
notifies the taxpayer of, the decision regarding the claim for relief 
from or damages relating to a violation of the collection stay or the 
discharge injunction.
    (2) If the Internal Revenue Service denies the claim for 
administrative costs in whole or in part, the taxpayer must file a 
petition with the Bankruptcy Court for administrative costs no later 
than 90 days after the date on which the denial of the claim for 
administrative costs is mailed, or otherwise furnished, to the taxpayer. 
If the Internal Revenue Service does not respond on the merits to a 
request by the taxpayer for an award of reasonable administrative costs 
within six months after such request is filed, the Internal Revenue 
Service's failure to respond may be considered by the taxpayer as a 
denial of an award of reasonable administrative costs.
    (3) For purposes of paragraphs (e)(1) and (2) of this section, if 
the 90th day falls on a Saturday, Sunday, or a legal holiday, the 90-day 
period shall end on the next succeeding day which is not a Saturday, 
Sunday, or a legal holiday. The term legal holiday means a legal holiday 
in the District of Columbia. If the request for costs is to be filed 
with the Internal Revenue Service at an office of the Internal Revenue 
Service located outside the District of Columbia, the term legal holiday 
also means a statewide legal holiday in the state where such office is 
located.
    (f) Effective date. This section is applicable with respect to 
actions taken by the Internal Revenue Service after July 22, 1998.

[T.D. 9050, 68 FR 14320, Mar. 25, 2003]



Sec.  301.7432-1  Civil cause of action for failure to release a lien.

    (a) In general. If any officer or employee of the Internal Revenue 
Service knowingly, or by reason of negligence, fails to release a lien 
on property of the taxpayer in accordance with section 6325 of the 
Internal Revenue Code, such taxpayer may bring a civil action for 
damages against the United States in federal district court. The total 
amount of damages recoverable is the sum of:
    (1) The actual, direct economic damages sustained by the taxpayer 
which, but for the officer's or the employee's knowing or negligent 
failure to release the lien under section 6325, would not have been 
sustained; and
    (2) Costs of the action.

The amount of actual, direct economic damages that are recoverable is 
reduced to the extent such damages reasonably could have been mitigated 
by the plaintiff. An action for damages filed in federal district court 
may not be maintained unless the taxpayer has filed an administrative 
claim pursuant to paragraph (f) of this section and has waited the 
period required under paragraph (e) of this section.

[[Page 714]]

    (b) Finding of satisfaction or unenforceability. For purposes of 
this section, a finding under section 6325(a)(1) that the liability for 
the amount assessed, together with all interest in respect thereof, has 
been fully satisfied or has become legally unenforceable is treated as 
made on the earlier of:
    (1) The date on which the district director of the district in which 
the taxpayer currently resides or the district in which the lien was 
filed finds full satisfaction or legal unenforceability; or
    (2) The date on which such district director receives a request for 
a certificate of release of lien in accordance with Sec.  401.6325-1(f), 
together with any information which is reasonably necessary for the 
district director to conclude that the lien has been fully satisfied or 
is legally unenforceable.
    (c) Actual, direct economic damages--(1) Definition. Actual, direct 
economic damages are actual pecuniary damages sustained by the taxpayer 
that would not have been sustained but for an officer's or an employee's 
failure to release a lien in accordance with section 6325 of the 
Internal Revenue Code. Injuries such as inconvenience, emotional 
distress and loss of reputation are compensable only to the extent that 
they result in actual pecuniary damages.
    (2) Litigation costs and administrative costs not recoverable. 
Litigation costs and administrative costs described in this paragraph 
are not recoverable as actual, direct economic damages. Litigation costs 
may be recoverable under section 7430 (see paragraph (j) of this 
section) or, solely to the extent described in paragraph (d) of this 
section, as costs of the action.
    (i) Litigation costs. For purposes of this paragraph, litigation 
costs are any costs incurred pursuing litigation for relief from the 
failure to release a lien, including costs incurred pursuing a civil 
action in federal district court under paragraph (a) of this section. 
Litigation costs include the following:
    (A) Court costs;
    (B) Expenses of expert witnesses in connection with a court 
proceeding;
    (C) Cost of any study, analysis, engineering report, test, or 
project prepared for a court proceeding; and
    (D) Fees paid or incurred for the services of attorneys, or other 
individuals authorized to practice before the court, in connection with 
a court proceeding.
    (ii) Administrative costs. For purposes of this section, 
administrative costs are any costs incurred pursuing administrative 
relief from the failure to release a lien, including costs incurred 
pursuing an administrative claim for damages under paragraph (f) of this 
section. The term administrative costs includes:
    (A) Any administrative fees or similar charges imposed by the 
Internal Revenue Service; and
    (B) Expenses, costs, and fees described in paragraph (c)(2)(i) of 
this section incurred in pursuing administrative relief.
    (d) Costs of the action. Costs of the action recoverable as damages 
under this section are limited to the following costs:
    (1) Fees of the clerk and marshall;
    (2) Fees of the court reporter for all or any part of the 
stenographic transcript necessarily obtained for use in the case;
    (3) Fees and disbursements for printing and witnesses;
    (4) Fees for exemplification and copies of paper necessarily 
obtained for use in the case;
    (5) Docket fees; and
    (6) Compensation of court appointed experts and interpreters.
    (e) No civil action in federal district court prior to filing an 
administrative claim--(1) Except as provided in paragraph (e)(2) of this 
section, no action under paragraph (a) of this section shall be 
maintained in any federal district court before the earlier of the 
following dates:
    (i) The date a decision is rendered on a claim filed in accordance 
with paragraph (f) of this section; or
    (ii) The date 30 days after the date an administrative claim is 
filed in accordance with paragraph (f) of this section.
    (2) If an administrative claim is filed in accordance with paragraph 
(f) of this section during the last 30 days of the period of limitations 
described in paragraph (i) of this section, the taxpayer may file an 
action in federal district court anytime after the administrative claim 
is filed and before the expiration

[[Page 715]]

of the period of limitations, without waiting for 30 days to expire or 
for a decision to be rendered on the claim.
    (f) Procedures for an administrative claim--(1) Manner. An 
administrative claim for actual, direct economic damages as defined in 
paragraph (c) of this section shall be sent in writing to the district 
director (marked for the attention of the Chief, Special Procedures 
Function) in the district in which the taxpayer currently resides or the 
district in which the notice of federal tax lien was filed.
    (2) Form. The administrative claim shall include:
    (i) The name, current address, current home and work telephone 
numbers and any convenient times to be contacted, and taxpayer 
identification number of the taxpayer making the claim;
    (ii) A copy of the notice of federal tax lien affecting the 
taxpayer's property, if available;
    (iii) A copy of the request for release of lien made in accordance 
with Sec.  401.6325-1(f) of the Code of Federal Regulations, if 
applicable;
    (iv) The grounds, in reasonable detail, for the claim (include 
copies of any available substantiating documentation or correspondence 
with the Internal Revenue Service);
    (v) A description of the injuries incurred by the taxpayer filing 
the claim (include copies of any available substantiating documentation 
or evidence);
    (vi) The dollar amount of the claim, including any damages that have 
not yet been incurred but that are reasonably foreseeable (include 
copies of any available substantiating documentation or evidence); and
    (vii) The signature of the taxpayer or duly authorized 
representative.

For purposes of this paragraph, a duly authorized representative is any 
attorney, certified public accountant, enrolled actuary, or any other 
person permitted to represent the taxpayer before the Internal Revenue 
Service who is not disbarred or suspended from practice before the 
Internal Revenue Service and who has a written power of attorney 
executed by the taxpayer.
    (g) Notice of failure to release lien--An administrative claim under 
paragraph (f) of this section shall be considered a notice of failure to 
release a lien.
    (h) No action in federal district court for any sum in excess of the 
dollar amount sought in the administrative claim--No action for actual, 
direct economic damages under paragraph (a) of this section shall be 
instituted in federal district court for any sum in excess of the amount 
(already incurred and estimated) of the administrative claim filed under 
paragraph (f) of this section, except where the increased amount is 
based upon newly discovered evidence not reasonably discoverable at the 
time the administrative claim was filed, or upon allegation and proof of 
intervening facts relating to the amount of the claim.
    (i) Period of limitations--(1) Time of filing. A civil action under 
paragraph (a) of this section must be brought in federal district court 
within 2 years after the date the cause of action accrues.
    (2) Cause of action accrues. A cause of action accrues when the 
taxpayer has had a reasonable opportunity to discover all essential 
elements of a possible cause of action.
    (j) Recovery of costs under section 7430--Reasonable litigation 
costs, including attorney's fees, not recoverable under this section may 
be recoverable under section 7430. If following the Internal Revenue 
Service's denial of an administrative claim on the grounds that the 
Internal Revenue Service did not violate section 7432(a), a taxpayer 
brings a civil action for damages in a district court of the United 
States, and establishes entitlement to damages under this section, 
substantially prevails with respect to the amount of damages in 
controversy, and meets the requirements of section 7430(c)(4)(A)(iii) 
(relating to notice and net worth requirements), the taxpayer will be 
considered a ``prevailing party'' for purposes of section 7430. Such 
taxpayer, therefore, will generally be entitled to attorney's fees and 
other reasonable litigation costs not recoverable under this section. 
For purposes of the paragraph, if the Internal Revenue Service does not 
respond on the merits to an administrative claim for damages within 30 
days after the claim is filed, the Internal Revenue Service's failure to 
respond shall be considered a denial

[[Page 716]]

of the administrative claim on the grounds that the Internal Revenue 
Service did not violate section 7432(a). Administrative costs, including 
attorney's fees incurred pursuing an administrative claim under 
paragraph (f) of this section, are not recoverable under section 7430.
    (k) Effective date--This section applies with respect to civil 
actions under section 7432 filed in federal district court after January 
30, 1992.

[T.D. 8393, 57 FR 3539, Jan. 30, 1992; 57 FR 6061, Feb. 19, 1992]



Sec.  301.7433-1  Civil cause of action for certain unauthorized 
collection actions.

    (a) In general. If, in connection with the collection of a federal 
tax with respect to a taxpayer, an officer or an employee of the 
Internal Revenue Service recklessly or intentionally , or by reason of 
negligence, disregards any provision of the Internal Revenue Code or any 
regulation promulgated under the Internal Revenue Code, such taxpayer 
may bring a civil action for damages against the United States in 
federal district court. The taxpayer has a duty to mitigate damages. The 
total amount of damages recoverable is the lesser of $1,000,000 
($100,000 in the case of negligence), or the sum of:
    (1) The actual, direct economic damages sustained as a proximate 
result of the reckless or international actions of the officer or 
employee; and
    (2) Costs of the action.

An action for damages filed in federal district court may not be 
maintained unless the taxpayer has filed an administrative claim 
pursuant to paragraph (e) of this section, and has waited for the period 
required under paragraph (d) of this section.
    (b) Actual, direct economic damages--(1) Definition. Actual, direct 
economic damages are actual pecuniary damages sustained by the taxpayer 
as the proximate result of the reckless or intentional, or negligent, 
actions of an officer or an employee of the Internal Revenue Service. 
Injuries such as inconvenience, emotional distress and loss of 
reputation are compensable only to the extent that they result in actual 
pecuniary damages.
    (2) Litigation costs and administrative costs not recoverable. 
Litigation costs and administrative costs are not recoverable as actual, 
direct economic damages. Litigation costs may be recoverable under 
section 7430 (see paragraph (h) of this section) or, solely to the 
extent described in paragraph (c) of this section, as costs of the 
action.
    (i) Litigation costs. For purposes of this paragraph, litigation 
costs are any costs incurred pursuing litigation for relief from the 
action taken by the officer or employee of the Internal Revenue Service, 
including costs incurred pursuing a civil action in federal district 
court under paragraph (a) of this section. The term litigation costs 
includes the following:
    (A) Court costs;
    (B) Expenses of expert witnesses in connection with a court 
proceeding;
    (C) Cost of any study, analysis, engineering report, test, or 
project prepared for a court proceeding; and
    (D) Fees paid or incurred for the services of attorneys, or other 
individuals authorized to practice before the court, in connection with 
a court proceeding.
    (ii) Administrative costs. For purposes of this section, 
administrative costs are any costs incurred pursuing administrative 
relief from the action taken by an officer or employee of the Internal 
Revenue Service, including costs incurred pursuing an administrative 
claim for damages under paragraph (e) of this section. The term 
administrative costs includes:
    (A) Any administrative fees or similar charges imposed by the 
Internal Revenue Service; and
    (B) Expenses, costs, and fees described in paragraph (b)(2)(i) of 
this section incurred pursuing administrative relief.
    (c) Costs of the action. Costs of the action recoverable as damages 
under this section are limited to the following costs:
    (1) Fees of the clerk and marshall;
    (2) Fees of the court reporter for all or any part of the 
stenographic transcript necessarily obtained for use in the case;
    (3) Fees and disbursements for printing and witnesses;

[[Page 717]]

    (4) Fees for exemplification and copies of paper necessarily 
obtained for use in the case;
    (5) Docket fees; and
    (6) Compensation of court appointed experts and interpreters.
    (d) No civil action in federal district court prior to filing an 
administrative claim--(1) Except as provided in paragraph (d)(2) of this 
section, no action under paragraph (a) of this section shall be 
maintained in any federal district court before the earlier of the 
following dates:
    (i) The date the decision is rendered on a claim filed in accordance 
with paragraph (e) of this section; or
    (ii) The date six months after the date an administrative claim is 
filed in accordance with paragraph (e) of this section.
    (2) If an administrative claim is filed in accordance with paragraph 
(e) of this section during the last six months of the period of 
limitations described in paragraph (g) of this section, the taxpayer may 
file an action in federal district court any time after the 
administrative claim is filed and before the expiration of the period of 
limitations.
    (e) Procedures for an administrative claim--(1) Manner. An 
administrative claim for the lesser of $1,000,000 ($100,000 in the case 
of negligence) or actual, direct economic damages as defined in 
paragraph (b) of this section shall be sent in writing to the Area 
Director, Attn: Compliance Technical Support Manager of the area in 
which the taxpayer currently resides.
    (2) Form. The administrative claim shall include:
    (i) The name, current address, current home and work telephone 
numbers and any convenient times to be contacted, and taxpayer 
identification number of the taxpayer making the claim;
    (ii) The grounds, in reasonable detail, for the claim (include 
copies of any available substantiating documentation or correspondence 
with the Internal Revenue Service);
    (iii) A description of the injuries incurred by the taxpayer filing 
the claim (include copies of any available substantiating documentation 
or evidence);
    (iv) The dollar amount of the claim, including any damages that have 
not yet been incurred but which are reasonably foreseeable (include 
copies of any available substantiating documentation or evidence); and
    (v) The signature of the taxpayer or duly authorized representative.


For purposes of this paragraph, a duly authorized representative is any 
attorney, certified public accountant, enrolled actuary, or any other 
person permitted to represent the taxpayer before the Internal Revenue 
Service who is not disbarred or suspended from practice before the 
Internal Revenue Service and who has a written power of attorney 
executed by the taxpaper.
    (f) No action in federal district court for any sum in excess of the 
dollar amount sought in the administrative claim. No action for actual, 
direct economic damages under paragraph (a) of this section shall be 
instituted in federal district court for any sum in excess of the amount 
(already incurred and estimated) of the administrative claim filed under 
paragraph (e) of this section, except where the increased amount is 
based upon newly discovered evidence not reasonably discoverable at the 
time the administrative claim was filed, or upon allegation and proof of 
intervening facts relating to the amount of the claim.
    (g) Period of limitations--(1) Time for filing. A civil action under 
paragraph (a) of this section must be brought in federal district court 
within 2 years after the date the cause of action accrues.
    (2) Right of action accrues. A cause of action under paragraph (a) 
of this section accrues when the taxpayer has had a reasonable 
opportunity to discover all essential elements of a possible cause of 
action.
    (h) Recovery of costs under section 7430. Reasonable litigation 
costs, including attorney's fees, not recoverable under this section may 
be recoverable under section 7430. If following the Internal Revenue 
Service's denial of an administrative claim on the grounds that the 
Internal Revenue Service did not violate section 7433(a), a taxpayer 
brings a civil action for damages in a district court of the United 
States, and establishes entitlement to damages under

[[Page 718]]

this section, substantially prevails with respect to the amount of 
damages in controversy and meets the requirements of section 
7430(c)(4)(A)(iii) (relating to notice and net worth requirements), the 
taxpayer will be considered a ``prevailing party'' for purposes of 
section 7430. Such taxpayer, therefore, will generally be entitled to 
attorney's fees and other reasonable litigation costs not recoverable 
under this section. For purposes of this paragraph, if the Internal 
Revenue Service does not respond on the merits to an administrative 
claim for damages within six months after the claim is filed, the 
Internal Revenue Service's failure to respond shall be considered a 
denial of the claim on the grounds that the Internal Revenue Service did 
not violate section 7433(a). Administrative costs, including attorney's 
fees incurred pursuing an administrative claim under paragraph (e) of 
this section, are not recoverable under section 7430.
    (i) Effective dates. The portions of this section relating to 
reckless or intentional acts are applicable to actions taken by Internal 
Revenue Service officials after July 30, 1996. The portions of this 
section relating to negligent acts are applicable to actions taken by 
the Internal Revenue Service officials after July 22, 1998.

[T.D. 8392, 57 FR 3536, Jan. 30, 1992; 57 FR 5931, Feb. 18, 1992, as 
amended by T.D. 9050, 68 FR 14320, Mar. 25, 2003]



Sec.  301.7433-2  Civil cause of action for violation of section 362 
or 524 of the Bankruptcy Code.

    (a) In general. (1) If, in connection with the collection of a 
federal tax with respect to a taxpayer, an officer or employee of the 
Internal Revenue Service willfully violates any provision of section 362 
(relating to the automatic stay) or section 524 (relating to discharge) 
of title 11, United States Code, or any regulation promulgated under 
such provision, the taxpayer may file a petition for damages against the 
United States in Federal bankruptcy court. The taxpayer has a duty to 
mitigate damages. The total amount of damages recoverable under this 
section is the lesser of $1,000,000, or the sum of--
    (i) Actual, direct economic damages sustained as a proximate result 
of the willful actions of the officer or employee; and
    (ii) Costs of the action.
    (2) An action under this section constitutes the exclusive remedy 
under the Internal Revenue Code for violations of sections 362 and 524 
of the Bankruptcy Code. In addition, taxpayers injured by violations of 
section 362 of the Bankruptcy Code may maintain actions under section 
362(h) of the Bankruptcy Code (relating to an individual injured by a 
willful violation of the stay). However, any administrative or 
litigation costs in connection with an action under section 362(h) may 
be awarded, if at all, only under section 7430 of the Internal Revenue 
Code.
    (b) Actual, direct economic damages--(1) Definition. See Sec.  
301.7433-1(b)(1).
    (2) Litigation costs and administrative costs not recoverable as 
actual, direct economic damages. Litigation costs and administrative 
costs are not recoverable as actual, direct economic damages. These 
costs may be recoverable under section 7430 (see paragraph (h) of this 
section), or, solely to the extent described in paragraph (c) of this 
section, as costs of the action.
    (c) Costs of the action. Costs of the action recoverable as damages 
under this section are limited to the costs set forth in Sec.  301.7433-
1(c).
    (d) No civil action in federal bankruptcy court prior to filing an 
administrative claim--(1) In general. Except as provided in paragraph 
(d)(2) of this section, no action under paragraph (a)(1) of this section 
shall be maintained in any bankruptcy court before the earlier of the 
following dates--
    (i) The date the decision is rendered on a claim filed in accordance 
with paragraph (e) of this section; or
    (ii) The date that is six months after the date an administrative 
claim is filed in accordance with paragraph (e) of this section.
    (2) When administrative claim filed in last six months of period of 
limitations. If an administrative claim is filed in accordance with 
paragraph (e) of this section during the last six months of the period 
of limitations described in paragraph (g) of this section, the taxpayer 
may petition the bankruptcy court any

[[Page 719]]

time after the administrative claim is filed and before the expiration 
of the period of limitations.
    (e) Procedures for an administrative claim--(1) Manner. An 
administrative claim for the lesser of $1,000,000 or actual, direct 
economic damages as defined in paragraph (b) of this section shall be 
sent in writing to the Chief, Local Insolvency Unit, for the judicial 
district in which the taxpayer filed the underlying bankruptcy case 
giving rise to the alleged violation.
    (2) Form. The administrative claim shall include--
    (i) The name, taxpayer identification number, current address, and 
current home and work telephone numbers (with an identification of any 
convenient times to be contacted) of the taxpayer making the claim;
    (ii) The location of the bankruptcy court in which the underlying 
bankruptcy case was filed and the case number of the case in which the 
violation occurred;
    (iii) A description, in reasonable detail, of the violation (include 
copies of any available substantiating documentation or correspondence 
with the Internal Revenue Service);
    (iv) A description of the injuries incurred by the taxpayer filing 
the claim (include copies of any available substantiating documentation 
or evidence);
    (v) The dollar amount of the claim, including any damages that have 
not yet been incurred but which are reasonably foreseeable (include 
copies of any available documentation or evidence); and
    (vi) The signature of the taxpayer or duly authorized 
representative.
    (3) Duly authorized representative defined. For purposes of this 
paragraph (e), a duly authorized representative is any attorney, 
certified public accountant, enrolled actuary, or any other person 
permitted to represent the taxpayer before the Internal Revenue Service 
who is not disbarred or suspended from practice before the Internal 
Revenue Service and who has a written power of attorney executed by the 
taxpayer.
    (f) No action in bankruptcy court for any sum in excess of the 
dollar amount sought in the administrative claim. No action for actual, 
direct economic damages under paragraph (a) of this section may be 
instituted in federal bankruptcy court for any sum in excess of the 
amount (already incurred and estimated) of the administrative claim 
filed under paragraph (e) of this section, except where the increased 
amount is based upon newly discovered evidence not reasonably 
discoverable at the time the administrative claim was filed, or upon 
allegation and proof of intervening facts relating to the amount of the 
claim.
    (g) Period of limitations--(1) Time for filing. A petition for 
damages under paragraph (a) of this section must be filed in bankruptcy 
court within two years after the date the cause of action accrues.
    (2) Right of action accrues. A cause of action under paragraph (a) 
of this section accrues when the taxpayer has had a reasonable 
opportunity to discover all essential elements of a possible cause of 
action.
    (h) Recovery of litigation costs and administrative costs under 
section 7430--(1) In general. Litigation costs, as defined in Sec.  
301.7433-1(b)(2)(i), including attorneys fees, not recoverable under 
this section may be recoverable under section 7430 if a taxpayer 
challenges in whole or in part an Internal Revenue Service denial of an 
administrative claim for damages by filing a petition in the bankruptcy 
court. If, following the Internal Revenue Service's denial of an 
administrative claim for damages, a taxpayer files a petition in the 
bankruptcy court challenging that denial in whole or in part, 
substantially prevails with respect to the amount of damages in 
controversy, and meets the requirements of section 7430(c)(4)(A)(ii) 
(relating to net worth and size requirements), the taxpayer will be 
considered a prevailing party for purposes of section 7430, unless the 
Internal Revenue Service establishes that the position of the Internal 
Revenue Service in the proceeding was substantially justified. Such 
taxpayer will generally be entitled to attorneys' fees and other 
reasonable litigation costs not recoverable under this section. For 
purposes of this paragraph (h), if the Internal Revenue Service does not 
respond on the merits to an administrative claim for damages

[[Page 720]]

within six months after the claim is filed, the Internal Revenue 
Service's failure to respond will be considered a denial of the claim on 
the grounds that the Internal Revenue Service did not willfully violate 
Bankruptcy Code section 362 or 524.
    (2) Administrative costs--(i) In general. Administrative costs, as 
defined in Sec.  301.7433-1(b)(2)(ii), including attorneys' fees, not 
recoverable under this section may be recoverable under section 7430. 
See Sec.  301.7430-8.
    (ii) Limitation regarding recoverable administrative costs. 
Administrative costs may be awarded only if incurred on or after the 
date of filing of the bankruptcy petition that formed the basis for the 
stay on collection under Bankruptcy Code section 362 or the discharge 
injunction under Bankruptcy Code section 524, as the case might be.
    (i) Effective date. This section is applicable to actions taken by 
the Internal Revenue Service officials after July 22, 1998.

[T.D. 9050, 68 FR 14321, Mar. 25, 2003]

                              The Tax Court

                                procedure



Sec.  301.7452-1  Representation of parties.

    The Commissioner shall be represented by the Chief Counsel for the 
Internal Revenue Service in the same manner before the Tax Court as he 
has heretofore been represented in proceedings before such Court. The 
taxpayer shall continue to be represented in accordance with the rules 
of practice prescribed by the Court.



Sec.  301.7454-1  Burden of proof in fraud and transferee cases.

    In any proceeding involving the issue whether the petitioner has 
been guilty of fraud with intent to evade tax, the burden of proof in 
respect of such issue shall be upon the Commissioner.



Sec.  301.7454-2  Burden of proof in foundation manager, etc. cases.

    (a) Foundation manager. In any proceeding involving the issue 
whether a foundation manager as defined in section 4946(b) has 
``knowingly'' participated in an act of self-dealing within the meaning 
of section 4941, participated in an investment which jeopardizes the 
carrying out of exempt purposes within the meaning of section 4944, or 
agreed to the making of a taxable expenditure within the meaning of 
section 4945 or whether an organization manager (as defined in section 
4958(f)(2)) has ``knowingly'' participated in an excess benefit 
transaction (as defined in section 4958(c)), the burden of proof in 
respect of such issue shall be upon the Commissioner.
    (b) Trustee of a black lung benefit trust. In any proceeding 
involving the issue whether a trustee of a trust described in section 
501(c)(21) has ``knowingly'' participated in an act of self-dealing 
within the meaning of section 4951 or agreed to the making of a taxable 
expenditure within the meaning of section 4952, the burden of proof in 
respect of such issue shall be upon the Commissioner.

[T.D. 7838, 47 FR 44253, Oct. 7, 1982, as amended by T.D. 8920, 66 FR 
2171, Jan. 10, 2001]



Sec.  301.7456-1  Administration of oaths and procurement of testimony; 
production of records of foreign corporations, foreign trusts or estates 
and nonresident alien individuals.

    Upon motion and notice by the Commissioner and upon good cause shown 
therefor, the Tax Court or any division thereof shall order any foreign 
corporation, foreign trust or estate, or nonresident alien individual, 
who has filed a petition with the Tax Court, to produce, or, upon 
satisfactory proof to the Tax Court or any of its divisions that the 
petitioner is unable to produce, to make available to the Commissioner, 
and, in either case, to permit the inspection, copying, or photographing 
of, such books, records, documents, memoranda, correspondence and other 
papers, wherever situated, as the Tax Court or any of its divisions may 
deem relevant to the proceedings and which are in the possession, 
custody or control of the petitioner, or of any person directly or 
indirectly under his control or having control over him or subject to 
the same common control.



Sec.  301.7457-1  Witness fees.

    Any witness summoned for the Commissioner or whose deposition is 
taken

[[Page 721]]

under section 7456 shall receive the same fees and mileage as witnesses 
in courts of the United States. Such fees and mileage and the expense of 
taking any such deposition shall be paid by the Commissioner out of any 
moneys appropriated for the collection of internal revenue taxes, and 
may be paid in advance.



Sec.  301.7458-1  Hearings.

    Notice and opportunity to be heard upon any proceeding instituted 
before the Tax Court shall be given to the taxpayer and the 
Commissioner. If an opportunity to be heard upon the proceeding is given 
before a division of the Tax Court, neither the taxpayer nor the 
Commissioner shall be entitled to notice and opportunity to be heard 
before the Tax Court upon review, except upon a specific order of the 
chief judge.



Sec.  301.7461-1  Publicity of proceedings.

    All reports of the Tax Court and all evidence received by the Tax 
Court and its divisions, including a transcript of the stenographic 
report of the hearings, shall be public records open to the inspection 
of the public; except that after the decision of the Tax Court in any 
proceeding has become final the Tax Court may, upon motion of the 
taxpayer or the Commissioner, permit the withdrawal by the party 
entitled thereto of the originals of books, documents, and records, and 
of models, diagrams, and other exhibits, introduced in evidence before 
the Tax Court or any of its divisions; or the Tax Court may, on its own 
action, make such other disposition thereof as it deems advisable.

 declaratory judgments relating to qualification of certain retirement 
                                  plans



Sec.  301.7476-1  Declaratory judgments.

    See the regulations under section 7476 contained in part 1 of this 
chapter (Income Tax Regulations) for provisions relating to declaratory 
judgments, for provisions relating to the qualification of an employee 
as an ``interested party'', and for a requirement that the applicant for 
an advance determination by the Internal Revenue Service of the 
qualification of certain retirement plans give notice of such 
application to interested parties.

[T.D. 7421, 41 FR 20878, May 21, 1976]



Sec.  301.7477-1  Declaratory judgments relating to the value 
of certain gifts for gift tax purposes.

    (a) In general. If the adjustment(s) proposed by the Internal 
Revenue Service (IRS) will not result in any deficiency in or refund of 
the donor's gift tax liability for the calendar year, and if the 
requirements contained in paragraph (d) of this section are satisfied, 
then the declaratory judgment procedure under section 7477 is available 
to the donor for determining the amount of one or more of the donor's 
gifts during that calendar year for Federal gift tax purposes.
    (b) Declaratory judgment procedure--(1) In general. If a donor does 
not resolve a dispute with the IRS concerning the value of a transfer 
for gift tax purposes at the Examination level, the donor will be sent a 
notice of preliminary determination of value (Letter 950-G or such other 
document as may be utilized by the IRS for this purpose from time to 
time, but referred to in this section as Letter 950-G), inviting the 
donor to file a formal protest and to request consideration by the 
appropriate IRS Appeals office. See Sec. Sec.  601.105 and 601.106 of 
this chapter. Subsequently, the donor will be sent a notice of 
determination of value (Letter 3569, or such other document as may be 
utilized from time to time by the IRS for this purpose in cases where no 
deficiency or refund would result, but referred to in this section as 
Letter 3569) if--
    (i) The donor requests Appeals consideration in writing within 30 
calendar days after the mailing date of the Letter 950-G, or by such 
later date as determined pursuant to IRS procedures, and the matter is 
not resolved by Appeals;
    (ii) The donor does not request Appeals consideration within the 
time provided in paragraph (b)(1)(i) of this section; or
    (iii) The IRS does not issue a Letter 950-G in circumstances 
described in paragraph (d)(4)(iv) of this section.
    (2) Notice of determination of value. The Letter 3569 will notify 
the donor of the adjustment(s) proposed by the IRS,

[[Page 722]]

and will advise the donor that the donor may contest the determination 
made by the IRS by filing a petition with the Tax Court before the 91st 
day after the date on which the Letter 3569 was mailed to the donor by 
the IRS.
    (3) Tax Court petition. If the donor does not file a timely petition 
with the Tax Court, the IRS determination as set forth in the Letter 
3569 will be considered the final determination of value, as defined in 
sections 2504(c) and 2001(f). If the donor files a timely petition with 
the Tax Court, the Tax Court will determine whether the donor has 
exhausted available administrative remedies. Under section 7477, the Tax 
Court is not authorized to issue a declaratory judgment unless the Tax 
Court finds that the donor has exhausted all administrative remedies 
within the IRS. See paragraph (d)(4) of this section regarding the 
exhaustion of administrative remedies.
    (c) Adjustments subject to declaratory judgment procedure. The 
declaratory judgment procedures set forth in this section apply to 
adjustments involving all issues relating to the transfer, including 
without limitation valuation issues and legal issues involving the 
interpretation and application of the gift tax law.
    (d) Requirements for declaratory judgment procedure--(1) In general. 
The declaratory judgment procedure provided in this section is available 
to a donor with respect to a transfer only if all the requirements of 
paragraphs (d)(2) through (5) of this section with regard to that 
transfer are satisfied.
    (2) Reporting. The transfer is shown or disclosed on the return of 
tax imposed by chapter 12 for the calendar year during which the 
transfer was made or on a statement attached to such return. For 
purposes of this paragraph (d)(2), the term return of tax imposed by 
chapter 12 means the last gift tax return (Form 709, ``United States 
Gift (and Generation-Skipping Transfer) Tax Return'' or such other form 
as may be utilized for this purpose from time to time by the IRS) for 
the calendar year filed on or before the due date of the return, 
including extensions granted if any, or, if a timely return is not 
filed, the first gift tax return for that calendar year filed after the 
due date. For purposes of satisfying this requirement, the transfer need 
not be reported in a manner that constitutes adequate disclosure within 
the meaning of Sec.  301.6501(c)-1(e) or (f) (and thus for which, under 
Sec. Sec.  20.2001-1(b) and 25.2504-2(b) of this chapter, the period 
during which the IRS may adjust the value of the gift will not expire). 
The issuance of a Letter 3569 with regard to a transfer disclosed on a 
return does not constitute a determination by the IRS that the transfer 
was adequately disclosed, or otherwise cause the period of limitations 
on assessment to commence to run with respect to that transfer. In 
addition, in the case of a transfer that is shown on the return, the IRS 
may in its discretion defer until a later time making a determination 
with regard to such transfer. If the IRS exercises its discretion to 
defer such determination in that case, the transfer will not be 
addressed in the Letter 3569 (if any) sent to the donor currently, and 
the donor is not yet eligible for a declaratory judgment with regard to 
that transfer under section 7477.
    (3) IRS determination and actual controversy. The IRS makes a 
determination regarding the gift tax treatment of the transfer that 
results in an actual controversy. The IRS makes a determination that 
results in an actual controversy with respect to a transfer by mailing a 
Letter 3569 to the donor, thereby notifying the donor of the 
adjustment(s) proposed by the IRS with regard to that transfer and of 
the donor's rights under section 7477.
    (4) Exhaustion of administrative remedies--(i) In general. The Tax 
Court determines whether the donor has exhausted all administrative 
remedies available within the IRS for resolving the controversy.
    (ii) Appeals office consideration. For purposes of this section, the 
IRS will consider a donor to have exhausted all administrative remedies 
if, prior to filing a petition in Tax Court (except as provided in 
paragraphs (d)(4)(iii) and (iv) of this section), the donor, or a 
qualified representative of the donor described in Sec.  601.502 of this 
chapter, timely requests consideration by Appeals and participates fully 
(within the meaning of paragraph (d)(4)(vi) of this

[[Page 723]]

section) in the Appeals consideration process. A timely request for 
consideration by Appeals is a written request from the donor for Appeals 
consideration made within 30 days after the mailing date of the Letter 
950-G, or by such later date for responding to the Letter 950-G as is 
agreed to between the donor and the IRS.
    (iii) Request for Appeals office consideration not granted. If the 
donor, or a qualified representative of the donor described in Sec.  
601.502 of this chapter, timely requests consideration by Appeals and 
Appeals does not grant that request, the IRS nevertheless will consider 
the donor to have exhausted all administrative remedies within the IRS 
for purposes of section 7477 upon the issuance of the Letter 3569, 
provided that the donor, or a qualified representative of the donor 
described in Sec.  601.502 of this chapter, after the filing of a 
petition in Tax Court for a declaratory judgment pursuant to section 
7477, participates fully (within the meaning of paragraph (d)(4)(vi) of 
this section) in the Appeals office consideration if offered by the IRS 
while the case is in docketed status.
    (iv) No Letter 950-G issued. If the IRS does not issue a Letter 950-
G to the donor prior to the issuance of Letter 3569, the IRS 
nevertheless will consider the donor to have exhausted all 
administrative remedies within the IRS for purposes of section 7477 upon 
the issuance of the Letter 3569, provided that--
    (A) The IRS decision not to issue the Letter 950-G was not due to 
actions or inactions of the donor (such as a failure to supply requested 
information or a current mailing address to the Area Director having 
jurisdiction over the tax matter); and
    (B) The donor, or a qualified representative of the donor described 
in Sec.  601.502 of this chapter, after the filing of a petition in Tax 
Court for a declaratory judgment pursuant to section 7477, participates 
fully (within the meaning of paragraph (d)(4)(vi) of this section) in 
the Appeals office consideration if offered by the IRS while the case is 
in docketed status.
    (v) Failure to agree to extension of time for assessment. For 
purposes of section 7477, the donor's refusal to agree to an extension 
of the time under section 6501 within which gift tax with respect to the 
transfer at issue (if any) may be assessed will not be considered by the 
IRS to constitute a failure by the donor to exhaust all administrative 
remedies available to the donor within the IRS.
    (vi) Participation in Appeals consideration process. For purposes of 
this section, the donor or a qualified representative of the donor 
described in Sec.  601.502 of this chapter participates fully in the 
Appeals consideration process if the donor or the qualified 
representative timely submits all information related to the transfer 
that is requested by the IRS in connection with the Appeals 
consideration and discloses to the Appeals office all relevant 
information regarding the controversy to the extent such information and 
its relevance is known or should be known by the donor or the qualified 
representative during the time the issue is under consideration by 
Appeals.
    (5) Timely petition in Tax Court. The donor files a pleading with 
the Tax Court requesting a declaratory judgment under section 7477. This 
pleading must be filed with the Tax Court before the 91st day after the 
date of mailing of the Letter 3569 by the IRS to the donor. The pleading 
must be in the form of a petition subject to Tax Court Rule 211(d).
    (e) Examples. The following examples illustrate the provisions of 
this section, and assume that in each case the Tax Court petition is 
filed on or after September 9, 2009.
    These examples, however, do not address any other situations that 
might affect the Tax Court's jurisdiction over the proceeding:

    Example 1. Exhaustion of administrative remedies, The donor (D) 
timely files a Form 709, ``United States Gift (and Generation-Skipping 
Transfer) Tax Return,'' on which D reports D's completed gift of closely 
held stock. After conducting an examination, the IRS concludes that the 
value of the stock on the date of the gift is greater than the value 
reported on the return. Because the amount of D's available applicable 
credit amount under section 2505 is sufficient to cover any resulting 
tax liability, no gift tax deficiency will result from the adjustment. D 
is unable to resolve the matter with the IRS examiner. The IRS sends a 
Letter 950-G to D informing

[[Page 724]]

D of the proposed adjustment. D, within 30 calendar days after the 
mailing date of the letter, submits a written request for Appeals 
consideration. During the Appeals process, D provides to the Appeals 
office all additional information (if any) requested by Appeals relevant 
to the determination of the value of the stock in a timely fashion. The 
Appeals office and D are unable to reach an agreement regarding the 
value of the stock as of the date of the gift. The Appeals office sends 
D a notice of determination of value (Letter 3569). For purposes of 
section 7477, the IRS will consider D to have exhausted all available 
administrative remedies within the IRS, and thus will not contest the 
allegation in D's petition that D has exhausted all such administrative 
remedies.
    Example 2. Exhaustion of administrative remedies, Assume the same 
facts as in Example 1, except that D does not timely request 
consideration by Appeals after receiving the Letter 950-G. A Letter 3569 
is mailed to D more than 30 days after the mailing of the Letter 950-G 
and prior to the expiration of the period of limitations for assessment 
of gift tax. D timely files a petition in Tax Court pursuant to section 
7477. After the case is docketed, D requests Appeals consideration. In 
this situation, because D did not respond timely to the Letter 950-G 
with a written request for Appeals consideration, the IRS will not 
consider D to have exhausted all administrative remedies available 
within the IRS for purposes of section 7477 prior to filing the petition 
in Tax Court, and thus may contest any allegation in D's petition that D 
has exhausted all such administrative remedies.
    Example 3. Exhaustion of administrative remedies, D timely files a 
Form 709 on which D reports D's completed gifts of interests in a family 
limited partnership. After conducting an examination, the IRS proposes 
to adjust the value of the gifts as reported on the return. No gift tax 
deficiency will result from the adjustments, however, because D has a 
sufficient amount of available applicable credit amount under section 
2505. D declines to consent to extend the time for the assessment of 
gift tax with respect to the gifts at issue. Because of the pending 
expiration of the period of limitation on assessment within which a gift 
tax, if any, could be assessed, the IRS determines that there is not 
adequate time for Appeals consideration. Accordingly, the IRS mails to D 
a Letter 3569, even though a Letter 950-G had not first been issued to 
D. D timely files a petition in Tax Court pursuant to section 7477. 
After the case is docketed in Tax Court, D is offered the opportunity 
for Appeals to consider any dispute regarding the determination and 
participates fully in the Appeals consideration process. However, the 
Appeals office and D are unable to resolve the issue. The IRS will 
consider D to have exhausted all administrative remedies available 
within the IRS, and thus will not assert that D has not exhausted all 
such administrative remedies.
    Example 4. Legal issue, D transfers nonvested stock options to a 
trust for the benefit of D's child. D timely files a Form 709 reporting 
the transfer as a completed gift for Federal gift tax purposes and 
complies with the adequate disclosure requirements for purposes of 
triggering the commencement of the applicable statute of limitations. 
Pursuant to Sec.  301.6501(c)-1(f)(5), adequate disclosure of a transfer 
that is reported as a completed gift on the Form 709 will commence the 
running of the period of limitations for assessment of gift tax on D, 
even if the transfer is ultimately determined to be an incomplete gift 
for purposes of Sec.  25.2511-2 of this chapter. After conducting an 
examination, the IRS concurs with the reported valuation of the stock 
options, but concludes that the reported transfer is not a completed 
gift for Federal gift tax purposes. D is unable to resolve the matter 
with the IRS examiner. The IRS sends a Letter 950-G to D, who timely 
mails a written request for Appeals consideration. Assuming that the IRS 
mails to D a Letter 3569 with regard to this transfer, and that D 
complies with the administrative procedures set forth in this section, 
including the exhaustion of all administrative remedies available within 
the IRS, then D may file a petition for declaratory judgment with the 
Tax Court pursuant to section 7477.
    Example 5. Transfers in controversy, On April 16, 2007, D timely 
files a Form 709 on which D reports gifts made in 2006 of fractional 
interests in certain real property and of interests in a family limited 
partnership (FLP). However, although the gifts are disclosed on the 
return, the return does not contain information sufficient to constitute 
adequate disclosure under Sec.  301.6501(c)-1(e) or (f) for purposes of 
the application of the statute of limitations on assessment of gift tax 
with respect to the reported gifts. The IRS conducts an examination and 
concludes that the value of both the interests in the real property and 
the FLP interests on the date(s) of the transfers are greater than the 
values reported on the return. No gift tax deficiency will result from 
the adjustments because D has a sufficient amount of remaining 
applicable credit amount under section 2505. However, D does not agree 
with the adjustments. The IRS sends a Letter 950-G to D informing D of 
the proposed adjustments in the value of the reported gifts. D, within 
30 calendar days after the mailing date of the letter, submits a written 
request for Appeals consideration. The Appeals office and D are unable 
to reach an agreement regarding the value of any of the gifts. In the 
exercise of its discretion, the IRS decides to resolve currently only 
the value of the real property interests, and to defer the resolution of 
the value of the FLP interests. On May 28, 2009, the Appeals office

[[Page 725]]

sends D a Letter 3569 addressing only the value of the gifts of 
interests in the real property. Because none of the gifts reported on 
the return filed on April 16, 2007 were adequately disclosed for 
purposes of Sec.  301.6501(c)-1(e) or (f), the period of limitations 
during which the IRS may adjust the value of those gifts has not begun 
to run. Accordingly, the Letter 3569 is timely mailed. If D timely files 
a petition in Tax Court pursuant to section 7477 with regard to the 
value of the interests in the real property, then, assuming the other 
requirements of section 7477 are satisfied with regard to those 
interests, the Tax Court's declaratory judgment, once it becomes final, 
will determine the value of the gifts of the interests in the real 
property. Because the IRS has not yet put the gift tax value of the 
interests in the FLP into controversy, the procedure under section 7477 
is not yet available with regard to those gifts.

    (f) Effective/applicability date. This section applies to civil 
proceedings described in section 7477 filed in the United States Tax 
Court on or after September 9, 2009.

[T.D. 9460, 74 FR 46347, Sept. 9, 2009; 74 FR 55136, Oct. 27, 2009]

                   court review of tax court decisions



Sec.  301.7481-1  Date when Tax Court decision becomes final; 
decision modified or reversed.

    (a) Upon mandate of Supreme Court. Under section 7481(3)(A) of the 
Code, if the Supreme Court directs that the decision of the Tax Court be 
modified or reversed, the decision of the Tax Court rendered in 
accordance with the mandate of the Supreme Court shall become final upon 
the expiration of 30 days from the time it was rendered, unless within 
such 30 days either the Commissioner or the taxpayer has instituted 
proceedings to have such decision corrected to accord with the mandate, 
in which event the decision of the Tax Court shall become final when so 
corrected.
    (b) Upon mandate of the Court of Appeals. Under section 7481(3)(B) 
of the Code, if the decision of the Tax Court is modified or reversed by 
the U.S. Court of Appeals, and if--
    (i) The time allowed for filing a petition for certiorari has 
expired and no such petition has been duly filed, or
    (ii) The petition for certiorari has been denied, or
    (iii) The decision of the U.S. Court of Appeals has been affirmed by 
the Supreme Court, then the decision of the Tax Court rendered in 
accordance with the mandate of the U.S. Court of Appeals shall become 
final on the expiration of 30 days from the time such decision of the 
Tax Court was rendered, unless within such 30 days either the 
Commissioner or the taxpayer has instituted proceedings to have such 
decision corrected so that it will accord with the mandate, in which 
event the decision of the Tax Court shall become final when so 
corrected.



Sec.  301.7482-1  Courts of review; venue.

    Under section 7482(b)(2) of the Code, decisions of the Tax Court may 
be reviewed by any U.S. Court of Appeals which may be designated by the 
Commissioner and the taxpayer by stipulation in writing.



Sec.  301.7483-1  Petition for review.

    The decision of the Tax Court may be reviewed by a U.S. Court of 
Appeals as provided in section 7482 of the Code if a petition for such 
review is filed by either the Commissioner or the taxpayer within 3 
months after the decision is rendered. If, however, a petition for such 
review is so filed by one party to the proceeding, a petition for review 
of the decision of the Tax Court may be filed by any other party to the 
proceeding within 4 months after such decision is rendered.



Sec.  301.7484-1  Change of incumbent in office.

    When the incumbent of the office of Commissioner changes, no 
substitution of the name of his successor shall be required in 
proceedings pending before any appellate court reviewing the action of 
the Tax Court.

                        miscellaneous provisions



Sec.  301.7502-1  Timely mailing of documents and payments treated 
as timely filing and paying.

    (a) General rule. Section 7502 provides that, if the requirements of 
that section are met, a document or payment is deemed to be filed or 
paid on the date of the postmark stamped on the envelope or other 
appropriate wrapper

[[Page 726]]

(envelope) in which the document or payment was mailed. Thus, if the 
envelope that contains the document or payment has a timely postmark, 
the document or payment is considered timely filed or paid even if it is 
received after the last date, or the last day of the period, prescribed 
for filing the document or making the payment. Section 7502 does not 
apply in determining whether a failure to file a return or pay a tax has 
continued for an additional month or fraction thereof for purposes of 
computing the penalties and additions to tax imposed by section 6651. 
Except as provided in section 7502(e) and Sec.  301.7502-2, relating to 
the timely mailing of deposits, and paragraph (d) of this section, 
relating to electronically filed documents, section 7502 is applicable 
only to those documents or payments as defined in paragraph (b) of this 
section and only if the document or payment is mailed in accordance with 
paragraph (c) of this section and is delivered in accordance with 
paragraph (e) of this section.
    (b) Definitions--(1) Document defined. (i) The term document, as 
used in this section, means any return, claim, statement, or other 
document required to be filed within a prescribed period or on or before 
a prescribed date under authority of any provision of the internal 
revenue laws, except as provided in paragraph (b)(1)(ii), (iii), or (iv) 
of this section.
    (ii) The term does not include returns, claims, statements, or other 
documents that are required under any provision of the internal revenue 
laws or the regulations thereunder to be delivered by any method other 
than mailing.
    (iii) The term does not include any document filed in any court 
other than the Tax Court, but the term does include any document filed 
with the Tax Court, including a petition and a notice of appeal of a 
decision of the Tax Court.
    (iv) The term does not include any document that is mailed to an 
authorized financial institution under section 6302. However, see Sec.  
301.7502-2 for special rules relating to the timeliness of deposits and 
documents required to be filed with deposits.
    (2) Claims for refund--(i) In general. In the case of certain taxes, 
a return may constitute a claim for credit or refund. Section 7502 is 
applicable to the determination of whether a claim for credit or refund 
is timely filed for purposes of section 6511(a) if the conditions of 
section 7502 are met, irrespective of whether the claim is also a 
return. For rules regarding claims for refund on late filed tax returns, 
see paragraph (f) of this section. Section 7502 is also applicable when 
a claim for credit or refund is delivered after the last day of the 
period specified in section 6511(b)(2)(A) or in any other corresponding 
provision of law relating to the limit on the amount of credit or refund 
that is allowable.
    (ii) Example. The rules of paragraph (b)(2)(i) of this section are 
illustrated by the following example:

    Example. (A) Taxpayer A, an individual, mailed his 2004 Form 1040, 
``U.S. Individual Income Tax Return,'' on May 10, 2005, but no tax was 
paid at that time because the tax liability disclosed by the return had 
been completely satisfied by the income tax that had been withheld on 
A's wages. On April 15, 2008, A mails, in accordance with the 
requirements of this section, a Form 1040X, ``Amended U.S. Individual 
Income Tax Return,'' claiming a refund of a portion of the tax that had 
been paid through withholding during 2004. The date of the postmark on 
the envelope containing the claim for refund is April 15, 2008. The 
claim is received by the IRS on April 18, 2008.
    (B) Under section 6511(a), A's claim for refund is timely if filed 
within three years from May 10, 2005, the date on which A's 2004 return 
was filed. As a result of the limitations of section 6511(b)(2)(A), if 
A's claim is not filed within three years after April 15, 2005, the date 
on which A is deemed under section 6513 to have paid his 2004 tax, A is 
not entitled to any refund. Because A's claim for refund is postmarked 
and mailed in accordance with the requirements of this section and is 
delivered after the last day of the period specified in section 
6511(b)(2)(A), section 7502 is applicable and the claim is deemed to 
have been filed on April 15, 2008.

    (3) Payment defined. (i) The term payment, as used in this section, 
means any payment required to be made within a prescribed period or on 
or before a prescribed date under the authority of any provision of the 
internal revenue laws, except as provided in paragraph (b)(3)(ii), 
(iii), (iv), or (v) of this section.

[[Page 727]]

    (ii) The term does not include any payment that is required under 
any provision of the internal revenue laws or the regulations thereunder 
to be delivered by any method other than mailing. See, for example, 
section 6302(h) and the regulations thereunder regarding electronic 
funds transfer.
    (iii) The term does not include any payment, whether it is made in 
the form of currency or other medium of payment, unless it is actually 
received and accounted for. For example, if a check is used as the form 
of payment, this section does not apply unless the check is honored upon 
presentation.
    (iv) The term does not include any payment to any court other than 
the Tax Court.
    (v) The term does not include any deposit that is required to be 
made with an authorized financial institution under section 6302. 
However, see Sec.  301.7502-2 for rules relating to the timeliness of 
deposits.
    (4) Last date or last day prescribed. As used in this section, the 
term the last date, or the last day of the period, prescribed for filing 
the document or making the payment includes any extension of time 
granted for that action. When the last date, or the last day of the 
period, prescribed for filing the document or making the payment falls 
on a Saturday, Sunday or legal holiday, section 7503 applies. Therefore, 
in applying the rules of this paragraph (b)(4), the next succeeding day 
that is not a Saturday, Sunday, or legal holiday is treated as the last 
date, or the last day of the period, prescribed for filing the document 
or making the payment. Also, when the last date, or the last day of the 
period, prescribed for filing the document or making the payment falls 
within a period disregarded under section 7508 or section 7508A, the 
next succeeding day after the expiration of the section 7508 period or 
section 7508A period that is not a Saturday, Sunday, or legal holiday is 
treated as the last date, or the last day of the period, prescribed for 
filing the document or making the payment.
    (c) Mailing requirements--(1) In general. Section 7502 does not 
apply unless the document or payment is mailed in accordance with the 
following requirements:
    (i) Envelope and address. The document or payment must be contained 
in an envelope, properly addressed to the agency, officer, or office 
with which the document is required to be filed or to which the payment 
is required to be made.
    (ii) Timely deposited in U.S. mail. The document or payment must be 
deposited within the prescribed time in the mail in the United States 
with sufficient postage prepaid. For this purpose, a document or payment 
is deposited in the mail in the United States when it is deposited with 
the domestic mail service of the U.S. Postal Service. The domestic mail 
service of the U.S. Postal Service, as defined by the Domestic Mail 
Manual as incorporated by reference in the postal regulations, includes 
mail transmitted within, among, and between the United States of 
America, its territories and possessions, and Army post offices (APO), 
fleet post offices (FPO), and the United Nations, NY. (See Domestic Mail 
Manual, section G011.2.1, as incorporated by reference in 39 CFR 111.1.) 
Section 7502 does not apply to any document or payment that is deposited 
with the mail service of any other country.
    (iii) Postmark--(A) U.S. Postal Service postmark. If the postmark on 
the envelope is made by the U.S. Postal Service, the postmark must bear 
a date on or before the last date, or the last day of the period, 
prescribed for filing the document or making the payment. If the 
postmark does not bear a date on or before the last date, or the last 
day of the period, prescribed for filing the document or making the 
payment, the document or payment is considered not to be timely filed or 
paid, regardless of when the document or payment is deposited in the 
mail. Accordingly, the sender who relies upon the applicability of 
section 7502 assumes the risk that the postmark will bear a date on or 
before the last date, or the last day of the period, prescribed for 
filing the document or making the payment. See, however, paragraph 
(c)(2) of this section with respect to the use of registered mail or 
certified mail to avoid this risk. If the postmark on the envelope is 
made by the U.S. Postal Service but is not legible, the person who is 
required to file the document or make

[[Page 728]]

the payment has the burden of proving the date that the postmark was 
made. Furthermore, if the envelope that contains a document or payment 
has a timely postmark made by the U.S. Postal Service, but it is 
received after the time when a document or payment postmarked and mailed 
at that time would ordinarily be received, the sender may be required to 
prove that it was timely mailed.
    (B) Postmark made by other than U.S. Postal Service--(1) In general. 
If the postmark on the envelope is made other than by the U.S. Postal 
Service--
    (i) The postmark so made must bear a legible date on or before the 
last date, or the last day of the period, prescribed for filing the 
document or making the payment; and
    (ii) The document or payment must be received by the agency, 
officer, or office with which it is required to be filed not later than 
the time when a document or payment contained in an envelope that is 
properly addressed, mailed, and sent by the same class of mail would 
ordinarily be received if it were postmarked at the same point of origin 
by the U.S. Postal Service on the last date, or the last day of the 
period, prescribed for filing the document or making the payment.
    (2) Document or payment received late. If a document or payment 
described in paragraph (c)(1)(iii)(B)(1) is received after the time when 
a document or payment so mailed and so postmarked by the U.S. Postal 
Service would ordinarily be received, the document or payment is treated 
as having been received at the time when a document or payment so mailed 
and so postmarked would ordinarily be received if the person who is 
required to file the document or make the payment establishes--
    (i) That it was actually deposited in the U.S. mail before the last 
collection of mail from the place of deposit that was postmarked (except 
for the metered mail) by the U.S. Postal Service on or before the last 
date, or the last day of the period, prescribed for filing the document 
or making the payment;
    (ii) That the delay in receiving the document or payment was due to 
a delay in the transmission of the U.S. mail; and
    (iii) The cause of the delay.
    (3) U.S. and non-U.S. postmarks. If the envelope has a postmark made 
by the U.S. Postal Service in addition to a postmark not so made, the 
postmark that was not made by the U.S. Postal Service is disregarded, 
and whether the envelope was mailed in accordance with this paragraph 
(c)(1)(iii)(B) will be determined solely by applying the rule of 
paragraph (c)(1)(iii)(A) of this section.
    (2) Registered or certified mail. If the document or payment is sent 
by U.S. registered mail, the date of registration of the document or 
payment is treated as the postmark date. If the document or payment is 
sent by U.S. certified mail and the sender's receipt is postmarked by 
the postal employee to whom the document or payment is presented, the 
date of the U.S. postmark on the receipt is treated as the postmark date 
of the document or payment. Accordingly, the risk that the document or 
payment will not be postmarked on the day that it is deposited in the 
mail may be eliminated by the use of registered or certified mail.
    (3) Private delivery services. Under section 7502(f)(1), a service 
of a private delivery service (PDS) may be treated as an equivalent to 
United States mail for purposes of the postmark rule if the Commissioner 
determines that the service satisfies the conditions of section 
7502(f)(2). Thus, the Commissioner may, in guidance published in the 
Internal Revenue Bulletin (see Sec.  601.601(d)(2)(ii)(b) of this 
chapter), prescribe procedures and additional rules to designate a 
service of a PDS for purposes of the postmark rule of section 7502(a).
    (d) Electronically filed documents--(1) In general. A document filed 
electronically with an electronic return transmitter (as defined in 
paragraph (d)(3)(i) of this section and authorized pursuant to paragraph 
(d)(2) of this section) in the manner and time prescribed by the 
Commissioner is deemed to be filed on the date of the electronic 
postmark (as defined in paragraph (d)(3)(ii) of this section) given by 
the authorized electronic return transmitter. Thus, if the

[[Page 729]]

electronic postmark is timely, the document is considered filed timely 
although it is received by the agency, officer, or office after the last 
date, or the last day of the period, prescribed for filing such 
document.
    (2) Authorized electronic return transmitters. The Commissioner may 
enter into an agreement with an electronic return transmitter or 
prescribe in forms, instructions, or other appropriate guidance the 
procedures under which the electronic return transmitter is authorized 
to provide taxpayers with an electronic postmark to acknowledge the date 
and time that the electronic return transmitter received the 
electronically filed document.
    (3) Definitions--(i) Electronic return transmitter. For purposes of 
this paragraph (d), the term electronic return transmitter has the same 
meaning as contained in section 3.01(4) of Rev. Proc. 2000-31 (2000-31 
I.R.B. 146 (July 31, 2000))(see Sec.  601.601(d)(2) of this chapter) or 
in procedures prescribed by the Commissioner.
    (ii) Electronic postmark. For purposes of this paragraph (d), the 
term electronic postmark means a record of the date and time (in a 
particular time zone) that an authorized electronic return transmitter 
receives the transmission of a taxpayer's electronically filed document 
on its host system. However, if the taxpayer and the electronic return 
transmitter are located in different time zones, it is the taxpayer's 
time zone that controls the timeliness of the electronically filed 
document.
    (e) Delivery--(1) General rule. Except as provided in section 
7502(f) and paragraphs (c)(3) and (d) of this section, section 7502 is 
not applicable unless the document or payment is delivered by U.S. mail 
to the agency, officer, or office with which the document is required to 
be filed or to which payment is required to be made.
    (2) Exceptions to actual delivery--(i) Registered and certified 
mail. In the case of a document (but not a payment) sent by registered 
or certified mail, proof that the document was properly registered or 
that a postmarked certified mail sender's receipt was properly issued 
and that the envelope was properly addressed to the agency, officer, or 
office constitutes prima facie evidence that the document was delivered 
to the agency, officer, or office. Other than direct proof of actual 
delivery, proof of proper use of registered or certified mail, and proof 
of proper use of a duly designated PDS as provided for by paragraph 
(e)(2)(ii) of this section, are the exclusive means to establish prima 
facie evidence of delivery of a document to the agency, officer, or 
office with which the document is required to be filed. No other 
evidence of a postmark or of mailing will be prima facie evidence of 
delivery or raise a presumption that the document was delivered.
    (ii) Equivalents of registered and certified mail. Under section 
7502(f)(3), the Secretary may extend the prima facie evidence of 
delivery rule of section 7502(c)(1)(A) to a service of a designated PDS, 
which is substantially equivalent to United States registered or 
certified mail. Thus, the Commissioner may, in guidance published in the 
Internal Revenue Bulletin (see Sec.  601.601(d)(2)(ii)(b) of this 
chapter), prescribe procedures and additional rules to designate a 
service of a PDS for purposes of demonstrating prima facie evidence of 
delivery of a document pursuant to section 7502(c).
    (f) Claim for credit or refund on late filed tax return--(1) In 
general. Generally, an original income tax return may constitute a claim 
for credit or refund of income tax. See Sec.  301.6402-3(a)(5). Other 
original tax returns can also be considered claims for credit or refund 
if the liability disclosed on the return is less than the amount of tax 
that has been paid. If section 7502 would not apply to a return (but for 
the operation of paragraph (f)(2) of this section) that is also 
considered a claim for credit or refund because the envelope that 
contains the return does not have a postmark dated on or before the due 
date of the return, section 7502 will apply separately to the claim for 
credit or refund if--
    (i) The date of the postmark on the envelope is within the period 
that is three years (plus the period of any extension of time to file) 
from the day the tax is paid or considered paid (see section 6513), and 
the claim for credit

[[Page 730]]

or refund is delivered after this three-year period; and
    (ii) The conditions of section 7502 are otherwise met.
    (2) Filing date of late filed return. If the conditions of paragraph 
(f)(1) of this section are met, the late filed return will be deemed 
filed on the postmark date.
    (3) Example. The rules of this paragraph (f) are illustrated by the 
following example:

    Example. (i) Taxpayer A, an individual, mailed his 2001 Form 1040, 
``U.S. Individual Income Tax Return,'' on April 15, 2005, claiming a 
refund of amounts paid through withholding during 2001. The date of the 
postmark on the envelope containing the return and claim for refund is 
April 15, 2005. The return and claim for refund are received by the 
Internal Revenue Service (IRS) on April 18, 2005. Amounts withheld in 
2001 exceeded A's tax liability for 2001 and are treated as paid on 
April 15, 2002, pursuant to section 6513.
    (ii) Even though the date of the postmark on the envelope is after 
the due date of the return, the claim for refund and the late filed 
return are treated as filed on the postmark date for purposes of this 
paragraph (f). Accordingly, the return will be treated as filed on April 
15, 2005. In addition, the claim for refund will be treated as timely 
filed on April 15, 2005. Further, the entire amount of the refund 
attributable to withholding is allowable as a refund under section 
6511(b)(2)(A).

    (g) Effective date--(1) In general. Except as provided in paragraphs 
(g)(2) and (3) of this section, the rules of this section apply to any 
payment or document mailed and delivered in accordance with the 
requirements of this section in an envelope bearing a postmark dated 
after January 11, 2001.
    (2) Claim for credit or refund on late filed tax return. Paragraph 
(f) of this section applies to any claim for credit or refund on a late 
filed tax return described in paragraph (f)(1) of this section except 
for those claims for credit or refund which (without regard to paragraph 
(f) of this section) were barred by the operation of section 6532(a) or 
any other law or rule of law (including res judicata) as of January 11, 
2001.
    (3) Electronically filed documents. This section applies to any 
electronically filed return, claim, statement, or other document 
transmitted to an electronic return transmitter that is authorized to 
provide an electronic postmark pursuant to paragraph (d)(2) of this 
section after January 11, 2001.
    (4) Registered or certified mail as the means to prove delivery of a 
document. Section 301.7502-1(e)(2) will apply to all documents mailed 
after September 21, 2004.

[T.D. 8932, 66 FR 2258, Jan. 11, 2001, as amended by T.D. 9543, 76 FR 
52563, Aug. 23, 2011]



Sec.  301.7503-1  Time for performance of acts where last day falls 
on Saturday, Sunday, or legal holiday.

    (a) In general. Section 7503 provides that when the last day 
prescribed under authority of any internal revenue law for the 
performance of any act falls on a Saturday, Sunday, or legal holiday, 
such act shall be considered performed timely if performed on the next 
succeeding day which is not a Saturday, Sunday, or legal holiday. For 
this purpose, any authorized extension of time shall be included in 
determining the last day for performance of any act. Section 7503 is 
applicable only in case an act is required under authority of any 
internal revenue law to be performed on or before a prescribed date or 
within a prescribed period. For example, if the 2-year period allowed by 
section 6532(a)(1) to bring a suit for refund of any internal revenue 
tax expires on Thursday, November 23, 1995 (Thanksgiving Day), the suit 
will be timely if filed on Friday, November 24, 1995, in the Court of 
Federal Claims, or in a district court. Section 7503 applies to acts to 
be performed by the taxpayer (such as, the filing of any return of, and 
the payment of, any income, estate, or gift tax; the filing of a 
petition with the Tax Court for redetermination of a deficiency, or for 
review of a decision rendered by such Court; the filing of a claim for 
credit or refund of any tax) and acts to be performed by the 
Commissioner, a district director, or the director of a regional service 
center (such as, the giving of any notice with respect to, or making any 
demand for the payment of, any tax; the assessment or collection of any 
tax).
    (b) Legal holidays. For the purpose of section 7503, the term legal 
holiday includes the legal holidays in the District of Columbia as found 
in D.C. Code Ann. 28-2701. In the case of any return,

[[Page 731]]

statement, or other document required to be filed, or any other act 
required under the authority of the internal revenue laws to be 
performed, at an office of the Internal Revenue Service, or any other 
office or agency of the United States, located outside the District of 
Columbia but within an internal revenue district, the term legal holiday 
includes, in addition to the legal holidays in the District of Columbia, 
any statewide legal holiday of the state where the act is required to be 
performed. If the act is performed in accordance with law at an office 
of the Internal Revenue Service or any other office or agency of the 
United States located in a territory or possession of the United States, 
the term legal holiday includes, in addition to the legal holidays in 
the District of Columbia, any legal holiday that is recognized 
throughout the territory or possession in which the office is located.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7309, 39 FR 11537, Mar. 
29, 1974; T.D. 8681, 61 FR 42179, Aug. 14, 1996]



Sec.  301.7505-1  Sale of personal property acquired by the United States.

    (a) Sale--(1) In general. Any personal property (except bonds, 
notes, checks, and other securities) acquired by the United States in 
payment of or as security for debts arising under the internal revenue 
laws may be sold by the district director who acquired such property for 
the United States. United States savings bonds shall not be sold by the 
district director but shall be transferred to the appropriate office of 
the Treasury Department for redemption. Other bonds, notes, checks, and 
other securities shall be disposed of in accordance with instructions 
issued by the Commissioner.
    (2) Time, place, manner, and terms of sale. The time, place, manner, 
and terms of sale of personal property acquired for the United States 
shall be as follows:
    (i) Time, notice, and place of sale. The property may be sold at any 
time after it has been acquired by the United States. A public notice of 
sale shall be posted at the post office nearest the place of sale and in 
at least two other public places. The notice shall specify the property 
to be sold and the time, place, manner, and conditions of sale. In 
addition, the district director may use such other methods of 
advertising as he believes will result in obtaining the highest price 
for the property. The place of sale shall be within the internal revenue 
district where the property was originally acquired by the United 
States. However, if the district director believes that a substantially 
higher price may be obtained, the sale may be held outside his district.
    (ii) Rejection of bids and adjournment of sale. The internal revenue 
officer conducting the sale reserves the right to reject any and all 
bids and withdraw the property from the sale. When it appears to the 
internal revenue officer conducting the sale that an adjournment of the 
sale will best serve the interest of the United States, he may order the 
sale adjourned from time to time. If the sale is adjourned for more than 
30 days in the aggregate, public notice of the sale must again be given 
in accordance with subdivision (i) of this subparagraph.
    (iii) Liquidated damages. The notice shall state whether, in the 
case of default in payment of the bid price, any amount deposited with 
the United States will be retained as liquidated damages. In case 
liquidated damages are provided, the amount thereof shall not exceed 
$200.
    (3) Agreement to bid. The district director may, before giving 
notice of sale, solicit offers from prospective bidders and enter into 
agreements with such persons that they will bid at least a specified 
amount in case the property is offered for sale. In such cases, the 
district director may also require such persons to make deposits to 
secure the performance of their agreements. Any such deposit, but not 
more than $200, shall be retained as liquidated damages in case such 
person fails to bid the specified amount and the property is not sold 
for as much as the amount specified in such agreement.
    (4) Terms of payment. The property shall be offered for sale upon 
whichever of the following terms is fixed by the district director in 
the public notice of sale--
    (i) Payment in full upon acceptance of the highest bid, without 
regard to the amount of such bid, or

[[Page 732]]

    (ii) If the aggregate price of all property purchased by a 
successful bidder at the sale is more than $200, an initial payment of 
$200 or 20 percent of the purchase price, whichever is the greater, and 
payment of the balance (including all costs incurred for the protection 
or preservation of the property subsequent to the sale and prior to 
final payment) within a specified period, not to exceed one month from 
the date of the sale.
    (5) Method of sale. The property may be sold either--
    (i) At public auction, at which open competitive bids shall be 
received, or
    (ii) At public sale under sealed bids.
    (6) Sales under sealed bids. The following rules, in addition to the 
other rules provided in this paragraph, shall be applicable to public 
sales under sealed bids.
    (i) Invitation to bidders. Bids shall be solicited through a public 
notice of sale.
    (ii) Form for use by bidders. A bid shall be submitted on a form 
which will be furnished by the district director upon request. The form 
shall be completed in accordance with the instructions thereon.
    (iii) Remittance with bid. If the total bid is $200 or less, the 
full amount of the bid shall be submitted therewith. If the total bid is 
more than $200, 20 percent of such bid or $200, whichever is greater, 
shall be submitted therewith. Such remittance shall be by a certified, 
cashier's, or treasurer's check drawn on any bank or trust company 
incorporated under the laws of the United States or under the laws of 
any State, Territory, or possession of the United States, or by a U.S. 
postal, bank, express, or telegraph money order.
    (iv) Time for receiving and opening bids. Each bid shall be 
submitted in a securely sealed envelope. The bidder shall indicate in 
the upper left hand corner of the envelope his name and address and the 
time and place of sale as announced in the public notice of sale. A bid 
will not be considered unless it is received by the internal revenue 
officer conducting the sale prior to the opening of the bids. The bids 
will be opened at the time and place stated in the notice of sale, or at 
the time fixed in the announcement of the adjournment of the sale.
    (v) Consideration of bids. The internal revenue officer conducting 
the sale shall have the right to waive any technical defects in a bid. 
After the opening, examination, and consideration of all bids, the 
internal revenue officer conducting the sale shall announce the amount 
of the highest bid or bids and the name of the successful bidder or 
bidders, unless in the opinion of the officer a higher price can be 
obtained for the property than has been bid. In the event the highest 
bids are equal in amount (and unless in the opinion of the internal 
revenue officer conducting the sale a higher price can be obtained for 
the property than has been bid), the officer shall determine the 
successful bidder by drawing lots. Any remittance submitted in 
connection with an unsuccessful bid shall be returned to the bidder at 
the conclusion of the sale.
    (vi) Withdrawal of bids. A bid may be withdrawn on written or 
telegraphic request received from the bidder prior to the time fixed for 
opening the bids. A technical defect in a bid confers no right on the 
bidder for the withdrawal of his bid after it has been opened.
    (7) Payment of bid price. All payments for property sold pursuant to 
this section shall be made by cash or by a certified, cashier's, or 
treasurer's check drawn on any bank or trust company incorporated under 
the laws of the United States or under the laws of any State, Territory, 
or possession of the United States, or by a U.S. postal, bank, express, 
or telegraph money order. If payment in full is required upon acceptance 
of the highest bid, the payment shall be made at such time. If payment 
in full is not made at such time, the internal revenue officer 
conducting the sale may forthwith proceed again to sell the property in 
the manner provided in subparagraph (5) of this paragraph (a). If 
deferred payment is permitted, the initial payment shall be made upon 
acceptance of the bid, and the balance shall be paid on or before the 
date fixed for payment thereof. Any remittance submitted with a 
successful sealed bid shall be applied toward the purchase price.

[[Page 733]]

    (8) Delivery and removal of personal property. The risk of loss is 
on the purchaser of the property upon acceptance of his bid. Possession 
of any property shall not be delivered to the purchaser until the 
purchase price has been paid in full. If payment of part of the purchase 
price for the property is deferred, the United States will retain 
possession of such property as security for the payment of the balance 
of the purchase price and, as agent for the purchaser, will cause the 
property to be cared for until the purchase price has been paid in full 
or the sale is declared null and void for failure to make full payment 
of the purchase price. In such case, all charges and expenses incurred 
in caring for the property after acceptance of the bid shall be borne by 
the purchaser.
    (9) Certificate of sale. The internal revenue officer conducting the 
sale shall issue a certificate of sale to the purchaser upon payment in 
full of the purchase price.
    (b) Accounting. In case of the resale of such property, the proceeds 
of the sale shall be paid into the Treasury as internal revenue 
collections, and there shall be rendered by the district director a 
distinct account of all charges incurred in such sale. For additional 
accounting rules, see section 7809 and the instructions thereunder.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7305, 39 FR 9952, Mar. 
15, 1974]



Sec.  301.7506-1  Administration of real estate acquired by the United States.

    (a) Persons charged with. The district director for the internal 
revenue district in which the property is situated shall have charge of 
all real estate which is or shall become the property of the United 
States by judgment of forfeiture under the internal revenue laws, or 
which has been or shall be assigned, set off, or conveyed by purchase or 
otherwise to the United States in payment of debts or penalties arising 
under the laws relating to internal revenue or which has been or shall 
be vested in the United States by mortgage, or other security for 
payment of such debts, or which has been redeemed by the United States, 
or which has been or shall be acquired by the United States in payment 
of or as security for debts arising under the internal revenue laws, and 
of all trusts created for the use of the United States in payment of 
such debts due the United States.
    (b) Sale. The district director for the internal revenue district in 
which the property is situated may sell any real estate owned or held by 
the United States as aforesaid, subject to the following rules--
    (1) Property purchased at sale under levy. If the property was 
acquired as a result of being declared purchased for the United States 
at a sale under section 6335, relating to sale of seized property, the 
property shall not be sold until after the expiration of 120 days (or 1 
year in the case of such sale under levy before November 3, 1966) after 
such sale under levy.
    (2) Notice of sale. A notice of sale shall be published in some 
newspaper published or generally circulated within the county where the 
property is situated, or a notice shall be posted at the post office 
nearest the place where the property is situated and in at least two 
other public places. The notice shall specify the property to be sold 
and the time, place, manner, and conditions of sale. In addition, the 
district director may use other methods of advertising and of giving 
notice of sale if he believes such methods will enhance the possibility 
of obtaining a higher price for the property.
    (3) Time and place of sale. The time of the sale shall be not less 
than 20 days from the date of giving public notice of sale under 
subparagraph (2) of this paragraph (b). The place of sale shall be 
within the county where the property is situated. However, if the 
district director believes a substantially better price may be obtained, 
he may hold the sale outside such county.
    (4) Rejection of bids and adjournment of sale. The internal revenue 
officer conducting the sale reserves the right to reject any and all 
bids and withdraw the property from the sale. When it appears to the 
internal revenue officer conducting the sale that an adjournment of the 
sale will best serve the interest of the United States, he may order the 
sale adjourned from time to time. If the sale is adjourned for more than 
30 days in the aggregate, public notice of the sale must be given again

[[Page 734]]

in accordance with subparagraph (2) of this paragraph (b).
    (5) Liquidated damages. The notice shall state whether, in the case 
of default in payment of the bid price, any amount deposited with the 
United States will be retained as liquidated damages. In case liquidated 
damages are provided, the amount thereof shall not exceed $200.
    (6) Agreement to bid. The district director may, before giving 
notice of sale, solicit offers from prospective bidders and enter into 
agreements with such persons that they will bid at least a specified 
amount in case the property is offered for sale. In such cases, the 
district director may also require such persons to make deposits to 
secure the performance of their agreements. Any such deposit, but not 
more than $200, shall be retained as liquidated damages in case such 
person fails to bid the specified amount and the property is not sold 
for as much as the amount specified in such agreement.
    (7) Terms. The property shall be offered for sale upon whichever of 
the following terms is fixed by the district director in the public 
notice of sale:
    (i) Payments in full upon acceptance of the highest bid, or
    (ii) If the price of the property purchased by a successful bidder 
at the sale is more than $200, an initial payment of $200 or 20 percent 
of the purchase price, whichever is the greater, and payment of the 
balance within a specified period, not to exceed one month from the date 
of the sale.
    (8) Method of sale. The property may be sold either--
    (i) At public auction, at which open competitive bids shall be 
received, or
    (ii) At public sale under sealed bids.
    (9) Sales under sealed bids. The following rules, in addition to the 
other rules provided in this paragraph (b), shall be applicable at 
public sales under sealed bids:
    (i) Invitation to bidders. Bids shall be solicited through a public 
notice of sale.
    (ii) Form for use by bidders. A bid shall be submitted on a form 
which will be furnished by the district director upon request. The form 
shall be completed in accordance with the instructions thereon.
    (iii) Remittance with bid. If the total bid is $200 or less, the 
full amount of the bid shall be submitted therewith. If the total bid is 
more than $200, 20 percent of such bid or $200, whichever is greater, 
shall be submitted therewith. Such remittance shall be by a certified, 
cashier's, or treasurer's check drawn on any bank or trust company 
incorporated under the laws of the United States or under the laws of 
any State, Territory, or possession of the United States, or by a U.S. 
postal, bank, express, or telegraph money order.
    (iv) Time for receiving and opening bids. Each bid shall be 
submitted in a securely sealed envelope. The bidder shall indicate in 
the upper left hand corner of the envelope his name and address and the 
time and place of sale as announced in the public notice of sale. A bid 
shall not be considered unless it is received by the internal revenue 
officer conducting the sale prior to the opening of the bids. The bids 
will be opened at the time and place stated in the notice of sale, or at 
the time fixed in the announcement of the adjournment of the sale.
    (v) Consideration of bids. The internal revenue officer conducting 
the sale shall have the right to waive any technical defects in a bid. 
After the opening, examination, and consideration of all bids, the 
internal revenue officer conducting the sale shall announce the amount 
of the highest bid or bids and the name of the successful bidder or 
bidders, unless in the opinion of the officer a higher price can be 
obtained for the property that has been bid. In the event the highest 
bids are equal in amount (and unless in the opinion of the internal 
revenue officer conducting the sale a higher price can be obtained for 
the property than has been bid), the officer shall determine the 
successful bidder by drawing lots. Any remittance submitted in 
connection with an unsuccessful bid shall be returned to the bidder at 
the conclusion of the sale.
    (vi) Withdrawal of bids. A bid may be withdrawn on written or 
telegraphic request received from the bidder prior to the time fixed for 
opening the bids. A technical defect in a bid confers no right on the 
bidder for the withdrawal of his bid after it has been opened.

[[Page 735]]

    (10) Payment of bid price. All payments for property sold pursuant 
to this section shall be made by cash or by a certified, cashier's, or 
treasurer's check drawn on any bank or trust company incorporated under 
the laws of the United States or under the laws of any State, Territory, 
or possession of the United States, or by U.S. postal, bank, express, or 
telegraph money order. If payment in full is required upon acceptance of 
the highest bid, the payment shall be made at such time. If payment in 
full is not made at such time, the internal revenue officer conducting 
the sale may forthwith proceed again to sell the property in the manner 
provided in subparagraph (8) of this paragraph (b). If deferred payment 
is permitted, the initial payment shall be made upon acceptance of the 
bid, and the balance shall be paid on or before the date fixed for 
payment thereof. Any remittance submitted with a successful sealed bid 
shall be applied toward the purchase price.
    (11) Deed. Upon payment in full of the purchase price, the district 
director shall execute a quitclaim deed to the purchaser.
    (c) Lease. Until real estate is sold, the district director for the 
internal revenue district in which the property is situated may, in 
accordance with instructions issued by the Commissioner, lease such 
property.
    (d) Release to debtor. In cases where real estate has or may become 
the property of the United States by conveyance or otherwise, in payment 
of or as security for a debt arising under the laws relating to internal 
revenue, and such debt shall have been paid, together with the interest 
thereon (at the rate of 1 percent per month), to the United States 
within 2 years from the date of the acquisition of such real estate, the 
district director for the internal revenue district in which the 
property is located may release by deed or otherwise convey such real 
estate to the debtor from whom it was taken, or to his heirs or other 
legal representatives. If property is declared purchased by the United 
States under section 6335, then, for the purpose of this paragraph, the 
date of such declaration shall be deemed to be the date of acquisition 
of such real estate.
    (e) Accounting. The district director for the internal revenue 
district in which the property is situated shall, in accordance with 
section 7809 and the instructions thereunder, account for the proceeds 
of all sales or leases of the property and all expenses connected with 
the maintenance, sale, or lease of the property.
    (f) Authority of Commissioner. Notwithstanding the other paragraphs 
of this section, the Commissioner may, when he deems it advisable, take 
charge of and assume responsibility for any real estate to which this 
section is applicable. In such case, the Commissioner will notify in 
writing the district director for the internal revenue district in which 
the property is situated. In any case where a single parcel of real 
estate is situated in more than one internal revenue district, the 
Commissioner may designate in writing a district director who shall have 
charge of and be responsible for the entire property.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7027, 35 FR 3806, Feb. 
27, 1970; T.D. 7305, 39 FR 9953, Mar. 15, 1974]



Sec.  301.7507-1  Banks and trust companies covered.

    (a) Section 7507 applies to any national bank, or bank or trust 
company organized under State law, a substantial portion of the business 
of which consists of receiving deposits and making loans and discounts, 
and which has--
    (1) Ceased to do business by reason of insolvency or bankruptcy, or
    (2) Been released or discharged from its liability to its depositors 
for any part of their deposit claims, and the depositors have accepted 
in lieu thereof a lien upon its subsequent earnings or claims against 
its assets either (i) segregated and held by it for benefit of the 
depositors or (ii) transferred to an individual or corporate trustee or 
agent who liquidates, holds or operates the assets for the benefit of 
the depositors.
    (b) As used in this section and Sec. Sec.  301.7507-2 to 301.7507-
11, inclusive:
    (1) The term bank, unless otherwise indicated by the context, means 
any national bank, or bank or trust company organized under State law, 
within the scope of section 7507.

[[Page 736]]

    (2) The terms statute of limitations and limitations mean all 
applicable provisions of law (including section 7507) which impose, 
change, or affect the limitations, conditions, or requirements relative 
to the allowance of refunds and abatements or the assessment or 
collection of tax, as the case may be.
    (3) The term segregated assets includes transferred or trusteed 
assets, or assets set aside or earmarked, to all or a portion of which, 
or the proceeds of which, the depositors are absolutely or conditionally 
entitled.
    (4) The term ceased to do business means the bank no longer accepts 
deposits or makes loans and discounts, and is winding up its affairs and 
is in the process of liquidating its assets to pay depositors. A bank 
will not be considered to have ceased to do business on account of a 
transaction in which the bank--
    (i) Transfers assets and liabilities to a Bridge Bank in a transfer 
described in Sec.  1.597-4 of this chapter;
    (ii) Transfers assets and liabilities to any person in a transaction 
to which section 381(a) applies or in which the transferee receives 
property with a transferred basis;
    (iii) Transfers assets or liabilities to any person in a transaction 
in which Federal Financial Assistance (as defined in section 597) is 
provided to any party to the transaction, unless all the Federal 
Financial Assistance is deposit insurance under Sec.  301.7507-9(d); or
    (iv) Transfers assets or liabilities to any person in a transaction 
similar to any transaction described in paragraphs (b)(4)(i) through 
(iii) of this section. This paragraph (b)(4) applies to taxable years 
ending on or after April 22, 1992.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 8641, 60 FR 66105, Dec. 
21, 1995]



Sec.  301.7507-2  Scope of section generally.

    (a) Purpose. Section 7507 is intended to assist depositors of a bank 
which had ceased to do business by reason of insolvency to recover their 
deposits, by prohibiting collection of taxes of the bank which would 
diminish the assets necessary for payment of its depositors and also 
assist depositors of banks which are in financial difficulties but 
which, in certain conditions, continue in business.
    (b) Requisites of application. In order that section 7507 shall 
operate in a case where the bank continues business it is necessary that 
the depositors shall agree to accept, in lieu of all or a part of their 
deposit claims as such, claims against segregated assets, or a lien upon 
subsequent earnings of the bank, or both. When such an agreement exists, 
no tax diminishing such assets or earnings, or both, otherwise available 
and necessary for payment of depositors, may be collected therefrom. If, 
under such an agreement, the depositors have the right also to look to 
the unsegregated assets of the bank for recovery, in whole or in part, 
the unsegregated assets are likewise, until they exceed the amount of 
the depositors' claims chargeable thereto, unavailable for tax 
collection. Any tax of such a bank, or part of any tax, which is once 
uncollectible under section 7507, cannot thereafter be collected except 
from any residue of segregated assets remaining after claims of 
depositors against such assets have been paid.
    (c) Interest. For the purposes of section 7507, depositors' claims 
include bona fide interest, either on the deposits as such, or on the 
claims accepted in lieu of deposits as such.
    (d) Limitations on immunity. Section 7507 is not primarily intended 
for the relief of banks as such. It does not prevent tax collection, 
from assets not necessary, or not available, for payment of depositors, 
from a bank within section 7507(a), at any time within the statute of 
limitations. In other words, the immunity of such a bank is not 
complete, but ceases whenever, within the statutory period for 
collection, it becomes possible to make collection without diminishing 
assets necessary for payment of depositors. In the case of a bank within 
section 7507(b), any immunity to which the bank is entitled is absolute 
except as to segregated assets. Any tax coming within such immunity may 
never be collected. With respect to segregated assets, such a bank is 
subject to the same rule as a bank within section 7507(a), that is to 
say, after claims of depositors against segregated assets have been 
paid, any surplus is subject, within the statute of

[[Page 737]]

limitations, to collection of any tax, due at any time, the collection 
of which was suspended by the section. The section is not for the relief 
of creditors other than depositors, although it may incidentally operate 
for their benefit. See Sec.  301.7507-4 and paragraph (b) of Sec.  
301.7507-9.



Sec.  301.7507-3  Segregated or transferred assets.

    (a) In general. In a case involving segregated or transferred 
assets, it is not necessary, for application of section 7507, that the 
assets shall technically constitute a trust fund. It is sufficient that 
segregated assets be definitely separated from other assets of the bank 
and that transferred assets be definitely separated both from other 
assets of the bank and from other assets held or owned by the trustee or 
agent to whom assets of the bank have been transferred; that the bank be 
wholly or partially released from liability for repayment of deposits as 
such; and that the depositors have claims against the separated assets. 
Any excess of separated assets over the amount necessary for payment of 
such depositors will be available for tax collection after full payment 
of depositors' claims under the agreement against such assets. But see 
paragraph (a) of Sec.  301.7507-9.
    (b) Corporate transferees. Where the segregated assets are 
transferred to a separate corporate trustee or corporate agent, the 
assets and earnings therefrom are within the protection of the section, 
until full payment of depositors' claims against such assets and 
earnings, no matter by whom the stock of such corporation is held, and 
no matter whether the assets be liquidated or operated or held for 
benefit of the depositors.



Sec.  301.7507-4  Unsegregated assets.

    (a) Depositors' claims against assets. (1) Claims of depositors, to 
the extent that they are to be satisfied out of segregated assets, will 
not be considered in determining the availability of unsegregated assets 
for tax collection. If depositors have agreed to accept payment out of 
segregated assets only, collection of tax from unsegregated assets will 
not diminish the assets available and necessary for payment of the 
depositors' claims. Thus, it may be possible to collect taxes from the 
unsegregated assets of a bank although the segregated assets are immune 
under the section.
    (2) If the unsegregated assets of the bank are subject to any 
portion of the depositors' claims, such unsegregated assets will be 
within the immunity of the section only to the extent necessary to 
satisfy the claims to which such assets are subject. Taxes will still be 
collectible from the unsegregated assets to the extent of the amount by 
which the total value of such assets exceeds the liability to depositors 
to be satisfied therefrom. Therefore, if, for example, in the case of a 
bank having a tax liability, not previously immune under the section, of 
$50,000, the deposit claims against the bank are in the amount of 
$75,000, and the assets available for satisfaction of deposit claims 
amount to $100,000, the $50,000 tax is collectible to the extent of the 
$25,000 excess of assets over deposit claims. Collection is not to be 
postponed until the full amount of the tax is collectible.
    (b) Depositors' claims against earnings. Even though under a bona 
fide agreement a bank has been released from depositors' claims as to 
unsegregated assets, if all or a portion of its earnings are subject to 
depositors' claims, all assets the earnings from which, in whole or 
part, are charged with the payment of depositors' claims, will be immune 
from tax collection. But see paragraph (a) of Sec.  301.7507-5.



Sec.  301.7507-5  Earnings.

    (a) Availability for tax collection. Earnings of a bank within 
section 7507(b), whether from segregated or unsegregated assets, which 
are necessary for, applicable to, and actually used for, payment of 
depositors' claims under an agreement, are within the immunity of the 
section. If only a portion or percentage of income from segregated or 
unsegregated assets is available and necessary for payment of 
depositors' claims, the remaining income is available for tax 
collection. Earnings of the bank's first fiscal year ending after the 
making of the agreement not applicable to payment of depositors will be 
assumed to be applicable for collection of

[[Page 738]]

any tax due prior or subsequent to execution of the agreement. Earnings 
of subsequent fiscal periods from unsegregated assets not applicable to 
depositors' claims will be assumed to be applicable to payment of taxes 
as to which immunity under the section has not previously attached. 
Earnings from segregated assets are available for collection of tax, 
whether previously uncollectible under the section or not, after 
depositors' claims against such assets have been paid in full. See 
paragraph (a) of Sec.  301.7507-3 and paragraph (a) of Sec.  301.7507-9.
    (b) Tax computation. The fact that earnings of a given year may be 
wholly or partly unavailable under section 7507 for collection of taxes 
does not exempt the income for that year, or any part thereof, from tax 
liability. The section affects collectibility only, and is not concerned 
with taxability. Accordingly, the taxpayer's income tax return shall 
correctly compute the tax liability, even though in the opinion of the 
taxpayer it is immune from tax collection under the section. The tax 
shall be determined with respect to the entire gross income and not 
merely with respect to the portion of the earnings out of which tax may 
be collected. As to establishment of immunity from tax collection see 
Sec.  301.7507-7.

    Example. (1) An agreement, executed in the year 1954 between a bank 
and its depositors, provides (i) that certain assets are to be 
segregated for the benefit of the depositors who have waived (as claims 
against unsegregated assets of the bank) a percentage of the deposits; 
(ii) that 40 percent of the bank's net earnings, for years beginning 
with 1954, from unsegregated assets, shall be paid to the depositors 
until the portion of their claims waived with respect to unsegregated 
assets of the bank has been paid; and (iii) that the unsegregated assets 
shall not be subject to depositors' claims. The net income of the bank 
for the calendar year 1954 is $10,000, $4,000 produced by the 
segregated, and $6,000 produced by the unsegregated assets. Such amount 
shall be considered the net earnings for the purpose of section 7507 in 
computing the portion of the earnings to be paid to depositors. The bank 
has an outstanding tax liability for prior years of $7,000. The income 
tax liability of the bank for 1954 is 30 percent of $10,000, or $3,000, 
making a total outstanding tax liability of $10,000. The portion of the 
earnings of the bank for 1954 remaining after provision for depositors 
is $3,600 ($6,000 less 40 percent thereof, or $2,400). It will be 
assumed that of the total outstanding tax liability of $10,000, $3,600 
may be assessed and collected, leaving $6,400 to be collected from any 
excess of the segregated assets after claims of depositors against such 
segregated assets have been paid in full. No part of the $6,400 immune 
from collection from 1954 earnings may be collected thereafter from 
unsegregated assets of the bank or earnings therefrom, so that except 
for any possible surplus of the segregated assets the $6,400 is 
uncollectible.
    (2) In the year 1955, the earnings are again $10,000, $4,000 from 
segregated and $6,000 from unsegregated assets, as in 1954. However, the 
return filed shows income of $5,000 and a tax liability of $1,500. An 
investigation shows the true income to be $10,000, on which the tax is 
$3,000. The full $3,000 will be assumed to be collectible. The $600 
difference between $3,600 (the excess of earnings from unsegregated 
assets over the amount going to the depositors), and the $3,000 tax for 
1955, is not available for collection of the tax for prior years, which 
became immune as described above, but may be available for collection of 
tax for subsequent years.

    (c) No significance attaches to the selection of the years 1954 and 
1955 in the example set forth in paragraph (b) of this section. The 
rules indicated by the example are equally applicable to subsequent or 
prior years not excluded by limitations.



Sec.  301.7507-6  Abatement and refund.

    (a) An assessment or collection, no matter when made, if contrary to 
section 7507, is subject to abatement or refund within the applicable 
statutory period of limitations.
    (b) Collection from a bank within section 7507(b) which diminishes 
assets necessary for payment of depositors, if made prior to agreement 
with depositors, is not contrary to the section, and affords no ground 
for refund.
    (c) Any abatement or refund is subject to existing statutory periods 
of limitation, which periods are not suspended or extended by section 
7507. In order to secure a refund of any taxes paid for any taxable year 
during the period of immunity the bank must file claim therefor.



Sec.  301.7507-7  Establishment of immunity.

    (a) The mere allegation of insolvency, or that depositors have 
claims against segregated or other assets or

[[Page 739]]

earnings, will not of itself secure immunity from tax collection. It 
must be affirmatively established to the satisfaction of the district 
director that collection of tax will be contrary to section 7507. See 
also Sec.  301.7507-8.
    (b) Any claim, by a bank, of immunity under section 7507(b), shall 
be supported by a statement, under oath or affirmation, which shall 
show: (1) The total of depositors' claims outstanding, and (2) 
separately and in detail, the amount of each of the following, and the 
amount of depositors' claims properly chargeable against each: (i) 
Segregated or transferred assets; (ii) unsegregated assets; (iii) 
estimated future average annual earnings and profits; (iv) amount 
collectible from shareholders; and (v) any other resources available for 
payment of depositors' claims. The detail shall show the full amount of 
depositors' claims chargeable against each of the items in subdivisions 
(i) to (v), inclusive, of this subparagraph even though part or all of 
the amount chargeable against a particular item is also chargeable 
against some other item or items. There shall also be filed a copy of 
any agreement between the bank and its depositors, and any other 
agreement or document bearing on the claim of immunity. The statement 
shall show the basis, as ``book,'' ``market,'' etc., of valuation of the 
assets.



Sec.  301.7507-8  Procedure during immunity.

    (a) Statements to be filed. As long as complete or partial immunity 
is claimed, a bank within section 7507(b) shall file with each income 
tax return a statement as required by Sec.  301.7507-7, in duplicate, 
and shall also file such additional statements as the district director 
may require. Whether or not additional statements shall be required, and 
the frequency thereof, will depend on the circumstances, including the 
financial status and apparent prospects of the bank, and the time which 
is available for assessment and collection. If a copy of an agreement or 
document has once been filed, a copy of the same agreement or document 
need not again be filed with a subsequent statement, if it is shown by 
the subsequent statement, when and where and with what return the copy 
was filed. In case of amendment a copy of the amendment must be filed 
with the return for the taxable year in which the amendment is made.
    (b) Failure to file. Failure of a bank to file any required 
statement will be treated as indicating that the bank is not entitled to 
immunity.



Sec.  301.7507-9  Termination of immunity.

    (a) In general. (1) In the case of a bank within section 7507(a), 
immunity will end whenever, and to the extent that, taxes may be 
assessed and collected, within the applicable limitation periods as 
extended by section 7507, without diminishing the assets available and 
necessary for payment of depositors. Immunity of a bank within section 
7507 (b) is terminated, as to segregated assets, whenever claims of 
depositors against such assets have been paid in full. See Sec.  
301.7507-3. As to segregated assets, the termination of immunity is 
complete, and any balance remaining after payment of depositors is 
available, within statutory limitations, for collection of tax due at 
any time. However, taxes of the bank will be collectible from segregated 
assets only to the extent that the bank has a legal or equitable 
interest therein. Assets as to which there has been a complete 
conveyance for benefit of depositors, and the bank has bonafide been 
divested of all legal and equitable interest, are not available for 
collection of the bank's tax liability.
    (2) As to unsegregated assets of a bank within section 7507(b), 
immunity terminates only as to taxes thereafter becoming due. When taxes 
are once immune from collection, the immunity as to unsegregated assets 
is absolute. But see paragraph (a) of Sec.  301.7507-4.
    (b) General creditors. While the immunity from tax collection is for 
protection of depositors, and not for benefit of general creditors, in 
some cases the immunity will not end until the assets are sufficient to 
cover indebtedness of creditors generally. This situation will exist 
where under applicable law the claims of general creditors are on a 
parity with those of depositors, so that to pay depositors in full it is 
necessary to pay all creditors in full.

[[Page 740]]

    (c) Shareholder liability. In determining the sufficiency of the 
assets to satisfy the depositors' claims, shareholders' liability to the 
extent collectible shall be treated as available assets. See Sec.  
301.7507-7.
    (d) Deposit insurance. Deposit insurance payable to depositors shall 
not be treated as an asset of the bank and shall be disregarded in 
determining the sufficiency of the assets to meet the claims of 
depositors. For taxable years ending on or after April 22, 1992, deposit 
insurance does not include Federal Financial Assistance (as defined in 
section 597) and other payments described in section 597(a) prior to its 
amendment by the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 and, therefore, such payments must be taken into 
account to determine whether a bank's assets are sufficient to meet 
claims of depositors.
    (e) Notice by bank. A bank within section 7507(b), upon termination 
of immunity with respect to (1) earnings, (2) segregated or transferred 
assets, or (3) unsegregated assets, shall immediately notify the 
district director for the internal revenue district in which the 
taxpayer's returns were filed of such termination of immunity. See 
paragraph (b) of Sec.  301.7507-8.
    (f) Payment by bank. As immunity terminates with respect to any 
assets, it will be the duty of the bank, without notice from the 
district director, to make payment of taxes collectible from such 
assets.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 8641, 60 FR 66105, Dec. 
21, 1995]



Sec.  301.7507-10  Collection of tax after termination of immunity.

    If, in the case of a bank within section 7507(b), segregated assets 
(including earnings therefrom), in excess of those necessary for payment 
of outstanding deposits become available, such excess of segregated 
assets shall be applied toward satisfaction of accumulated outstanding 
taxes previously immune under the section, and not barred by the statute 
of limitations. But see Sec.  301.7507-3. Where sufficient segregated or 
unsegregated assets are available, statutory interest shall be collected 
with the tax. When unsegregated assets or earnings therefrom previously 
immune become available for tax collection, they will be available only 
for collection of taxes (including interest and other additions) 
becoming due after immunity ceases. See the example in paragraph (b) of 
Sec.  301.7507-5.



Sec.  301.7507-11  Exception of employment taxes.

    The immunity granted by section 7507 does not apply to taxes imposed 
by chapter 21 or chapter 23 of the Code.



Sec.  301.7508-1  Time for performing certain acts postponed 
by reason of service in a combat zone.

    (a) General rule. The period of time that may be disregarded for 
performing certain acts under section 7508 applies to acts described in 
section 7508(a)(1) and to other acts specified in a revenue ruling, 
revenue procedure, notice, or other guidance published in the Internal 
Revenue Bulletin (see Sec.  601.601(d)(2) of this chapter).
    (b) Effective date. This section applies to any period for 
performing an act that has not expired before December 30, 1999.

[T.D. 8911, 65 FR 78411, Dec. 15, 2000]



Sec.  301.7508A-1  Postponement of certain tax-related deadlines 
by reasons of a federally declared disaster or terroristic or military action.

    (a) Scope. This section provides rules by which the Internal Revenue 
Service (IRS) may postpone deadlines for performing certain acts with 
respect to taxes other than taxes not administered by the IRS such as 
firearms tax (chapter 32, section 4181); harbor maintenance tax (chapter 
36, section 4461); and alcohol and tobacco taxes (subtitle E).
    (b) Postponed deadlines--(1) In general. In the case of a taxpayer 
determined by the Secretary to be affected by a federally declared 
disaster (as defined in section 1033(h)(3)) or a terroristic or military 
action (as defined in section 692(c)(2)), the Secretary may specify a 
postponement period (as defined in paragraph (d)(1) of this section) of 
up to one year that may be disregarded in determining under the internal 
revenue laws, in respect of any tax liability of

[[Page 741]]

the affected taxpayer (as defined in paragraph (d)(1) of this section)--
    (i) Whether any or all of the acts described in paragraph (c) of 
this section were performed within the time prescribed;
    (ii) The amount of interest, penalty, additional amount, or addition 
to the tax; and
    (iii) The amount of credit or refund.
    (2) Effect of postponement period. When an affected taxpayer is 
required to perform a tax-related act by a due date that falls within 
the postponement period, the affected taxpayer is eligible for 
postponement of time to perform the act until the last day of the 
period. The affected taxpayer is eligible for relief from interest, 
penalties, additional amounts, or additions to tax during the 
postponement period.
    (3) Interaction between postponement period and extensions of time 
to file or pay--(i) In general. The postponement period under section 
7508A runs concurrently with extensions of time to file and pay, if any, 
under other sections of the Internal Revenue Code.
    (ii) Original due date prior to, but extended due date within, the 
postponement period. When the original due date precedes the first day 
of the postponement period and the extended due date falls within the 
postponement period, the following rules apply. If an affected taxpayer 
received an extension of time to file, filing will be timely on or 
before the last day of the postponement period, and the taxpayer is 
eligible for relief from penalties or additions to tax related to the 
failure to file during the postponement period. Similarly, if an 
affected taxpayer received an extension of time to pay, payment will be 
timely on or before the last day of the postponement period, and the 
taxpayer is eligible for relief from interest, penalties, additions to 
tax, or additional amounts related to the failure to pay during the 
postponement period.
    (4) Due date not extended. The postponement of the deadline of a 
tax-related act does not extend the due date for the act, but merely 
allows the IRS to disregard a time period of up to one year for 
performance of the act. To the extent that other statutes may rely on 
the date a return is due to be filed, the postponement period will not 
change the due date of the return.
    (5) Additional relief. The rules of this paragraph (b) demonstrate 
how the IRS generally implements section 7508A. The IRS may determine, 
however, that additional relief to taxpayers is appropriate and may 
provide additional relief to the extent allowed under section 7508A. To 
the extent that the IRS grants additional relief, the IRS will provide 
specific guidance on the scope of relief in the manner provided in 
paragraph (e) of this section.
    (c) Acts for which a period may be disregarded--(1) Acts performed 
by taxpayers. Paragraph (b) of this section applies to the following 
acts performed by affected taxpayers (as defined in paragraph (d)(1) of 
this section)--
    (i) Filing any return of income tax, estate tax, gift tax, 
generation-skipping transfer tax, excise tax (other than firearms tax 
(chapter 32, section 4181); harbor maintenance tax (chapter 36, section 
4461); and alcohol and tobacco taxes (subtitle E)), or employment tax 
(including income tax withheld at source and income tax imposed by 
subtitle C or any law superseded thereby);
    (ii) Paying any income tax, estate tax, gift tax, generation-
skipping transfer tax, excise tax (other than firearms tax (chapter 32, 
section 4181); harbor maintenance tax (chapter 36, section 4461); and 
alcohol and tobacco taxes (subtitle E)), employment tax (including 
income tax withheld at source and income tax imposed by subtitle C or 
any law superseded thereby), any installment of those taxes (including 
payment under section 6159 relating to installment agreements), or of 
any other liability to the United States in respect thereof, but not 
including deposits of taxes pursuant to section 6302 and the regulations 
under section 6302;
    (iii) Making contributions to a qualified retirement plan (within 
the meaning of section 4974(c)) under section 219(f)(3), 404(a)(6), 
404(h)(1)(B), or 404(m)(2); making distributions under section 
408(d)(4); recharacterizing contributions under section 408A(d)(6); or 
making a rollover under section 402(c), 403(a)(4), 403(b)(8), or 
408(d)(3);

[[Page 742]]

    (iv) Filing a petition with the Tax Court, or for review of a 
decision rendered by the Tax Court;
    (v) Filing a claim for credit or refund of any tax;
    (vi) Bringing suit upon a claim for credit or refund of any tax; and
    (vii) Any other act specified in a revenue ruling, revenue 
procedure, notice, announcement, news release, or other guidance 
published in the Internal Revenue Bulletin (see Sec.  601.601(d)(2) of 
this chapter).
    (2) Acts performed by the government. Paragraph (b) of this section 
applies to the following acts performed by the government--
    (i) Assessing any tax;
    (ii) Giving or making any notice or demand for the payment of any 
tax, or with respect to any liability to the United States in respect of 
any tax;
    (iii) Collecting by the Secretary, by levy or otherwise, of the 
amount of any liability in respect of any tax;
    (iv) Bringing suit by the United States, or any officer on its 
behalf, in respect of any liability in respect of any tax;
    (v) Allowing a credit or refund of any tax; and
    (vi) Any other act specified in a revenue ruling, revenue procedure, 
notice, or other guidance published in the Internal Revenue Bulletin 
(see Sec.  601.601(d)(2) of this chapter).
    (d) Definitions--(1) Affected taxpayer means--
    (i) Any individual whose principal residence (for purposes of 
section 1033(h)(4)) is located in a covered disaster area;
    (ii) Any business entity or sole proprietor whose principal place of 
business is located in a covered disaster area;
    (iii) Any individual who is a relief worker affiliated with a 
recognized government or philanthropic organization and who is assisting 
in a covered disaster area;
    (iv) Any individual whose principal residence (for purposes of 
section 1033(h)(4)), or any business entity or sole proprietor whose 
principal place of business is not located in a covered disaster area, 
but whose records necessary to meet a deadline for an act specified in 
paragraph (c) of this section are maintained in a covered disaster area;
    (v) Any estate or trust that has tax records necessary to meet a 
deadline for an act specified in paragraph (c) of this section and that 
are maintained in a covered disaster area;
    (vi) The spouse of an affected taxpayer, solely with regard to a 
joint return of the husband and wife; or
    (vii) Any individual, business entity, or sole proprietorship not 
located in a covered disaster area, but whose records necessary to meet 
a deadline for an act specified in paragraph (c) of this section are 
located in the covered disaster area;
    (viii) Any individual visiting the covered disaster area who was 
killed or injured as a result of the disaster; or
    (ix) Any other person determined by the IRS to be affected by a 
federally declared disaster (within the meaning of section 1033(h)(3)).
    (2) Covered disaster area means an area of a federally declared 
disaster (within the meaning of section 1033(h)(3)) to which the IRS has 
determined paragraph (b) of this section applies.
    (3) Postponement period means the period of time (up to one year) 
that the IRS postpones deadlines for performing tax-related acts under 
section 7508A.
    (e) Notice of postponement of certain acts. If a tax-related 
deadline is postponed under section 7508A and this section, the IRS will 
publish a revenue ruling, revenue procedure, notice, announcement, news 
release, or other guidance (see Sec.  601.601(d)(2) of this chapter) 
describing the acts postponed, the postponement period, and the location 
of the covered disaster area. Guidance under this paragraph (e) will be 
published as soon as practicable after the occurrence of a terroristic 
or military action or declaration of a federally declared disaster.
    (f) Examples. The rules of this section are illustrated by the 
following examples:

    Example 1. (i) Corporation X, a calendar year taxpayer, has its 
principal place of business in County M in State W. Pursuant to a timely 
filed request for extension of time to file, Corporation X's 2008 Form 
1120, ``U.S. Corporation Income Tax Return,'' is due on September 15, 
2009. Also due on September

[[Page 743]]

15, 2009, is Corporation X's third quarter estimated tax payment for 
2009. Corporation X's 2009 third quarter Form 720, ``Quarterly Federal 
Excise Tax Return,'' and third quarter Form 941, ``Employer's Quarterly 
Federal Tax Return,'' are due on October 31, 2009. In addition, 
Corporation X has an employment tax deposit due on September 15, 2009.
    (ii) On September 1, 2009, a hurricane strikes County M in State W. 
On September 7, 2009, certain counties in State W (including County M) 
are determined to be disaster areas within the meaning of section 
1033(h)(3) that are eligible for assistance by the Federal government 
under the Stafford Act. Also on September 7, 2009, the IRS determines 
that County M in State W is a covered disaster area and publishes 
guidance announcing that the time period for affected taxpayers to file 
returns, pay taxes, and perform other time-sensitive acts falling on or 
after September 1, 2009, and on or before November 30, 2009, has been 
postponed to November 30, 2009, pursuant to section 7508A.
    (iii) Because Corporation X's principal place of business is in 
County M, Corporation X is an affected taxpayer. Accordingly, 
Corporation X's 2008 Form 1120 will be timely if filed on or before 
November 30, 2009. Corporation X's 2009 third quarter estimated tax 
payment will be timely if made on or before November 30, 2009. In 
addition, pursuant to paragraph (c) of this section, Corporation X's 
2009 third quarter Form 720 and third quarter Form 941 will be timely if 
filed on or before November 30, 2009. However, because deposits of taxes 
are excluded from the scope of paragraph (c) of this section, 
Corporation X's employment tax deposit is due on September 15, 2009. In 
addition, Corporation X's deposits relating to the third quarter Form 
720 are not postponed. Absent reasonable cause, Corporation X is subject 
to the failure to deposit penalty under section 6656 and accrual of 
interest.
    Example 2. The facts are the same as in Example 1, except that 
because of the severity of the hurricane, the IRS determines that 
postponement of government acts is necessary. During 2009, Corporation 
X's 2005 Form 1120 is being examined by the IRS. Pursuant to a timely 
filed request for extension of time to file, Corporation X timely filed 
its 2005 Form 1120 on September 15, 2006. Without application of this 
section, the statute of limitation on assessment for the 2005 income tax 
year will expire on September 15, 2009. However, pursuant to paragraph 
(c) of this section, assessment of tax is one of the government acts for 
which up to one year may be disregarded. Because September 15, 2009, 
falls within the period in which government acts are postponed, the 
statute of limitation on assessment for Corporation X's 2005 income tax 
will expire on November 30, 2009. Because Corporation X did not timely 
file an extension of time to pay, payment of its 2005 income tax was due 
on March 15, 2006. As such, Corporation X will be subject to the failure 
to pay penalty and related interest beginning on March 15, 2006. The due 
date for payment of Corporation X's 2005 income tax preceded the 
postponement period. Therefore, Corporation X is not entitled to the 
suspension of interest or penalties during the disaster period with 
respect to its 2005 income tax liability.
    Example 3. The facts are the same as in Example 2, except that the 
examination of the 2005 taxable year was completed earlier in 2009, and 
on July 28, 2009, the IRS mailed a statutory notice of deficiency to 
Corporation X. Without application of this section, Corporation X has 90 
days (or until October 26, 2009) to file a petition with the Tax Court. 
However, pursuant to paragraph (c) of this section, filing a petition 
with the Tax Court is one of the taxpayer acts for which a period of up 
to one year may be disregarded. Because Corporation X is an affected 
taxpayer, Corporation X's petition to the Tax Court will be timely if 
filed on or before November 30, 2009, the last day of the postponement 
period.
    Example 4. (i) H and W, individual calendar year taxpayers, intend 
to file a joint Form 1040, ``U.S. Individual Income Tax Return,'' for 
the 2008 taxable year and are required to file a Schedule H, ``Household 
Employment Taxes.'' The joint return is due on April 15, 2009. H and W's 
principal residence is in County M in State Q.
    (ii) On April 2, 2009, a severe ice storm strikes County M. On April 
5, 2009, certain counties in State Q (including County M) are determined 
to be disaster areas within the meaning of section 1033(h)(3) that are 
eligible for assistance by the Federal government under the Stafford 
Act. Also on April 5, 2009, the IRS determines that County M in State Q 
is a covered disaster area and publishes guidance announcing that the 
time period for affected taxpayers to file returns, pay taxes, and 
perform other time-sensitive acts falling on or after April 2, 2009, and 
on or before June 2, 2009, has been postponed to June 2, 2009.
    (iii) Because H and W's principal residence is in County M, H and W 
are affected taxpayers. April 15, 2009, the due date for the filing of H 
and W's 2008 Form 1040 and Schedule H, falls within the postponement 
period described in the IRS published guidance. Thus, H and W's return 
will be timely if filed on or before June 2, 2009. If H and W request an 
extension of time to file under section 6081 on or before June 2, 2009, 
the extension is deemed to have been filed by April 15, 2009. Thus, H 
and W's return will be timely if filed on or before October 15, 2009.
    (iv) April 15, 2009, is also the due date for the payment due on the 
return. This date falls within the postponement period described in the 
IRS published guidance. Thus,

[[Page 744]]

the payment of tax due with the return will be timely if paid on or 
before June 2, 2009 the last day of the postponement period. If H and W 
fail to pay the tax due on the 2008 Form 1040 by June 2, 2009, and do 
not receive an extension of time to pay under section 6161, H and W will 
be subject to failure to pay penalties and accrual of interest beginning 
on June 3, 2009.
    Example 5. (i) H and W, residents of County D in State G, intend to 
file an amended return to request a refund of 2008 taxes. H and W timely 
filed their 2008 income tax return on April 15, 2009. Under section 
6511(a), H and W's amended 2008 tax return must be filed on or before 
April 16, 2012 (because April 15, 2012 falls on a Sunday, H and W's 
amended return was due to be filed on April 16, 2012).
    (ii) On April 2, 2012, an earthquake strikes County D. On April 6, 
2012, certain counties in State G (including County D) are determined to 
be disaster areas within the meaning of section 1033(h)(3) that are 
eligible for assistance by the Federal government under the Stafford 
Act. Also on April 6, 2012, the IRS determines that County D in State G 
is a covered disaster area and publishes guidance announcing that the 
time period for affected taxpayers to file returns, pay taxes, and 
perform other time-sensitive acts falling on or after April 2, 2012, and 
on or before October 2, 2012, has been postponed to October 2, 2012.
    (iii) Under paragraph (c) of this section, filing a claim for refund 
of tax is one of the taxpayer acts for which the IRS may disregard a 
period of up to one year. The postponement period for this disaster 
begins on April 2, 2012, and ends on October 2, 2012. Accordingly, H and 
W's claim for refund for 2008 taxes will be timely if filed on or before 
October 2, 2012. Moreover, in applying the lookback period in section 
6511(b)(2)(A), which limits the amount of the allowable refund, the 
period from October 2, 2012, back to April 2, 2012, is disregarded under 
paragraph (b)(1)(iii) of this section. Thus, if the claim is filed on or 
before October 2, 2012, amounts deemed paid on April 15, 2009, under 
section 6513(b), such as estimated tax and tax withheld from wages, will 
have been paid within the lookback period of section 6511(b)(2)(A).
    Example 6. (i) A is an unmarried, calendar year taxpayer whose 
principal residence is located in County W in State Q. A intends to file 
a Form 1040 for the 2008 taxable year. The return is due on April 15, 
2009. A timely files Form 4868, ``Application for Automatic Extension of 
Time to File U.S. Individual Income Tax Return.'' Due to A's timely 
filing of Form 4868, the extended filing deadline for A's 2008 tax 
return is October 15, 2009. Because A timely requested an extension of 
time to file, A will not be subject to the failure to file penalty under 
section 6651(a)(1), if A files the 2008 Form 1040 on or before October 
15, 2009. However, A failed to pay the tax due on the return by April 
15, 2009 and did not receive an extension of time to pay under section 
6161. Absent reasonable cause, A is subject to the failure to pay 
penalty under section 6651(a)(2) and accrual of interest.
    (ii) On September 30, 2009, a blizzard strikes County W. On October 
5, 2009, certain counties in State Q (including County W) are determined 
to be disaster areas within the meaning of section 1033(h)(3) that are 
eligible for assistance by the Federal government under the Stafford 
Act. Also on October 5, 2009, the IRS determines that County W in State 
Q is a covered disaster area and announces that the time period for 
affected taxpayers to file returns, pay taxes, and perform other time-
sensitive acts falling on or after September 30, 2009, and on or before 
December 2, 2009, has been postponed to December 2, 2009.
    (iii) Because A's principal residence is in County W, A is an 
affected taxpayer. Because October 15, 2009, the extended due date to 
file A's 2008 Form 1040, falls within the postponement period described 
in the IRS's published guidance, A's return is timely if filed on or 
before December 2, 2009. However, the payment due date, April 15, 2009, 
preceded the postponement period. Thus, A will continue to be subject to 
failure to pay penalties and accrual of interest during the postponement 
period.
    Example 7. (i) H and W, individual calendar year taxpayers, intend 
to file a joint Form 1040 for the 2008 taxable year. The joint return is 
due on April 15, 2009. After credits for taxes withheld on wages and 
estimated tax payments, H and W owe tax for the 2008 taxable year. H and 
W's principal residence is in County J in State W.
    (ii) On March 3, 2009, severe flooding strikes County J. On March 6, 
2009, certain counties in State W (including County J) are determined to 
be disaster areas within the meaning of section 1033(h)(3) that are 
eligible for assistance by the Federal government under the Stafford 
Act. Also on March 6, 2009, the IRS determines that County J in State W 
is a covered disaster area and publishes guidance announcing that the 
time period for affected taxpayers to file returns, pay taxes, and 
perform other time-sensitive acts falling on or after March 3, 2009, and 
on or before June 1, 2009, has been postponed to June 1, 2009.
    (iii) Because H and W's principal residence is in County J, H and W 
are affected taxpayers. April 15, 2009, the due date for filing the 2008 
joint return, falls within the postponement period described in the IRS 
published guidance. Therefore, H and W's joint return without extension 
will be timely if filed on or before June 1, 2009. Similarly, H and W's 
2008 income taxes will be timely paid if paid on or before June 1, 2009.

[[Page 745]]

    (iv) On April 30, 2009, H and W timely file Form 4868, ``Application 
for Automatic Extension of Time to File U.S. Individual Income Tax 
Return.'' H and W's extension will be deemed to have been filed on April 
15, 2009. Thus, H and W's 2008 income tax return will be timely if filed 
on or before October 15, 2009.
    (v) H and W did not request or receive an extension of time to pay. 
Therefore, the payment of tax due with the 2008 joint return will be 
timely if paid on or before June 1, 2009. If H and W fail to pay the tax 
due on the 2008 joint return by June 1, 2009, H and W will be subject to 
failure to pay penalties and accrual of interest beginning on June 2, 
2009.
    Example 8. (i) H and W, individual calendar year taxpayers, entered 
into an installment agreement with respect to their 2006 tax 
liabilities. H and W's installment agreement required H and W to make 
regularly scheduled installment payments on the 15th day of the month 
for the next 60 months. H and W's principal residence is in County K in 
State X.
    (ii) On May 1, 2009, severe flooding strikes County K. On May 5, 
2009, certain counties in State X including County K) are determined by 
the Federal government to be disaster areas within the meaning of 
section 1033(h)(3), and are eligible for assistance under the Stafford 
Act. Also on May 5, 2009, the IRS determines that County K in State X is 
a covered disaster area and publishes guidance announcing that the time 
period for affected taxpayers to file returns, pay taxes, and perform 
other time-sensitive acts falling on or after May 1, 2009 and on or 
before July 1, 2009, has been postponed to July 1, 2009.
    (iii) Because H and W's principal residence is in County K, H and W 
are affected taxpayers. Pursuant to the IRS's grant of relief under 
section 7508A, H and W's installment agreement payments that become due 
during the postponement period are suspended until after the 
postponement period has ended. H and W will be required to resume 
payments no later than August 15, 2009. Skipped payments will be tacked 
on at the end of the installment payment period. Because the installment 
agreement pertains to prior year tax liabilities, interest and penalties 
will continue to accrue. H and W may, however, be entitled to abatement 
of the failure to pay penalties incurred during the postponement period 
upon establishing reasonable cause.

    (g) Effective/applicability date. This section applies to disasters 
declared after January 15, 2009.

[T.D. 8911, 65 FR 78411, Dec. 15, 2000; 66 FR 10365, Feb. 15, 2001; T.D. 
9443, 74 FR 2371, Jan. 15, 2009; 74 FR 66915, Dec. 17, 2009]



Sec.  301.7510-1  Exemption from tax of domestic goods purchased 
for the United States.

    For any regulations under section 7510, see the applicable 
regulations with respect to the various taxes.



Sec.  301.7512-1  Separate accounting for certain collected taxes.

    (a) Scope. The provisions of section 7512 and this section apply 
to--
    (1) The following taxes imposed by subtitle C of the Code in respect 
of wages or compensation paid after February 11, 1958, for pay periods 
beginning after such date:
    (i) The employee tax imposed by section 3101 of chapter 21 (Federal 
Insurance Contributions Act),
    (ii) The employee tax imposed by section 3201 of chapter 22 
(Railroad Retirement Tax Act), and
    (iii) The income tax required to be withheld on wages by section 
3402 of chapter 24 (Collection of Income Tax at Source on Wages); and
    (2) The following taxes imposed by chapter 33 of the Code in respect 
of taxable payments made, except as otherwise specifically provided in 
this subparagraph, after February 11, 1958:
    (i) The taxes imposed by section 4231 (1), (2), and (3) on amounts 
paid for admissions, and the tax imposed by section 4231(6) on amounts 
paid for admission, refreshment, service, or merchandise, at any roof 
garden, cabaret, or other similar place, to the extent that such tax on 
amounts paid on or after January 1, 1959, is required to be collected by 
the proprietor of the roof garden, cabaret, or similar place from a 
concessionaire in such establishment,
    (ii) The taxes imposed by section 4241 on amounts paid as club dues,
    (iii) The taxes imposed by section 4251 on amounts paid for 
communications services or facilities,
    (iv) The tax imposed by section 4261 on amounts paid for 
transportation of persons and the tax imposed by section 4271 on amounts 
paid before August 1, 1958, for the transportation of property, and
    (v) The tax imposed by section 4286 on amounts collected for the use 
of safe deposit boxes.

[[Page 746]]

    (b) Requirement. If the district director determines that any person 
required to collect, account for, and pay over any tax described in 
paragraph (a) of this section has, at the time and in the manner 
prescribed by law or regulations, failed to collect, truthfully account 
for, or pay over any such tax, or make deposits, payments, or returns of 
any such tax, such person, if notified to do so by the district director 
in accordance with section 7512 and paragraph (d) of this section, 
shall--
    (1) Collect, at the times and in the manner provided by the law and 
the regulations in respect of the various taxes described in paragraph 
(a) of this section, all of the taxes described in such paragraph which 
become collectible by him after receipt of such notice;
    (2) Deposit the taxes so collected, not later than the end of the 
second banking day after collection, with a bank, as defined in section 
581, in a separate account established in accordance with paragraph (c) 
of this section; and
    (3) Keep in such account the taxes so deposited until payment 
thereof is made to the United States as required by the law and the 
regulations in respect of such taxes.

The separate accounting requirements contained in subparagraphs (1), 
(2), and (3) of this paragraph (b), are applicable, in the case of the 
taxes described in paragraph (a)(1) of this section, to taxes with 
respect to wages or compensation paid after receipt of the notice from 
the district director, irrespective of whether such wages or 
compensation was earned prior to or after receipt of the notice; and, in 
the case of the taxes described in paragraph (a)(2) of this section, to 
taxes with respect to taxable payments made after receipt of the notice 
from the district director, irrespective of whether the transactions 
with respect to which such payments were made occurred prior to or after 
receipt of the notice.
    (c) Trust fund account. The separate bank account referred to in 
paragraph (b) of this section shall be established under the 
designation, ``(Name of person required to establish account), Trustee, 
Special Fund in Trust for U.S. under section 7512, I.R.C.''. The taxes 
deposited in such account shall constitute a fund in trust for the 
United States payable only to the Internal Revenue Service on demand by 
the trustee.
    (d) Notice. Notice to any person requiring his compliance with the 
provisions of section 7512(b) and this section shall be in writing and 
shall be delivered in hand to such person by an internal revenue officer 
or employee. In the case of a trade or business carried on other than as 
a sole proprietorship, such as a corporation, partnership, or trust, 
notice delivered in hand to an officer, partner, or trustee shall be 
deemed to be notice delivered in hand to such corporation, partnership, 
or trust and to all officers, partners, trustees, and employees thereof.
    (e) Cancellation of notice. The district director may relieve a 
person to whom notice requiring separate accounting has been given 
pursuant to section 7512 and this section from further compliance with 
such separate accounting requirements whenever he is satisfied that such 
person will comply with all requirements of the Code and the regulations 
applicable, in respect of the taxes to which the notice relates, in the 
case of persons not required to comply with the provisions of section 
7512(b). Notice of cancellation of the requirement for separate 
accounting shall be made in writing and shall take effect at such time 
as is specified in the notice of cancellation.
    (f) Penalties. For criminal penalty for failure to comply with any 
provision of section 7512, see section 7215. For criminal penalties for 
failure to file return, supply information, or pay tax, for failure to 
collect or pay over tax, and for attempt to evade or defeat tax, see 
sections 7203, 7202, and 7201, respectively.



Sec.  301.7513-1  Reproduction of returns and other documents.

    (a) In general. The Commissioner, district directors, and other 
authorized officers and employees of the Internal Revenue Service may 
contract with any Federal agency or any person to have such agency or 
person process films and other photoimpressions of any return, 
statement, document, or of any card, record, or other matter, and make 
reproductions from such films and photoimpressions.

[[Page 747]]

    (b) Safeguards--(1) By private contractor. Any person entering into 
a contract with the Internal Revenue Service for the performance of any 
of the services described in paragraph (a) of this section shall agree 
to comply, and to assume responsibility for compliance by his employees, 
with the following requirements:
    (i) The films or photoimpressions, and reproductions made therefrom, 
shall be used only for the purpose of carrying out the provisions of the 
contract, and information contained in such material shall be treated as 
confidential and shall not be divulged or made known in any manner to 
any person except as may be necessary in the performance of the 
contract;
    (ii) All the services shall be performed under the supervision of 
the person with whom the contract is made or his responsible employees;
    (iii) All material received for processing and all processed and 
reproduced material shall be kept in a locked and fireproof compartment 
in a secure place when not being worked upon;
    (iv) All spoilage of reproductions made from the film or 
photoimpressions supplied to the contractor shall be destroyed, and a 
statement under the penalties of perjury shall be submitted to the 
Internal Revenue Service that such destruction has been accomplished; 
and
    (v) All film, photoimpressions, and reproductions made therefrom, 
shall be transmitted to the Internal Revenue Service by personal 
delivery, first-class mail, parcel post, or express.
    (2) By Federal agency. Any Federal agency entering into a contract 
with the Internal Revenue Service for the performance of any services 
described in paragraph (a) of this section, shall treat as confidential 
all material processed or reproduced pursuant to such contract.
    (3) Inspection. The Internal Revenue Service shall have the right to 
send its officers and employees into the offices and plants of Federal 
agencies and other contractors for inspection of the facilities and 
operations provided for the performance of any work contracted or to be 
contracted for under this section.
    (4) Criminal sanctions. For penalty provisions relating to the 
unauthorized use and disclosure of information in violation of the 
provisions of this section, see section 7213(c).
    (c) Legal status of reproductions. Section 7513 provides that any 
reproduction made in accordance with such section of any return, 
document, or other matter shall have the same legal status as the 
original and requires that any such reproduction shall, if properly 
authenticated, be admissible in evidence in any judicial or 
administrative proceeding, as if it were the original, whether or not 
the original is in existence.



Sec.  301.7514-1  Seals of office.

    (a) Establishment of seals--(1) Commissioner of Internal Revenue. 
There is hereby established in and for the office of the Commissioner of 
Internal Revenue an official seal. The seal is described as follows, and 
illustrated below: A circle within which shall appear that part of the 
seal of the Treasury Department represented by the shield and side 
wreaths. Exterior to this circle and within a circumscribed circle in 
the form of a rope shall appear in the upper part the words ``Office 
of'' and in the lower part the words ``Commissioner of Internal 
Revenue.''
[GRAPHIC] [TIFF OMITTED] TC14NO91.123

    (2) Establishment of uniform seal. (i) In addition to the seals of 
office prescribed for those offices set forth in paragraphs (a)(3) 
through (8) of this section, a uniform seal for use by any office of 
internal revenue is established. The uniform seal is described as

[[Page 748]]

follows, and is illustrated in this paragraph (a)(2)(i). A circle within 
which shall appear that part of the seal of the Treasury Department 
represented by the shield with a dark background. Exterior to this 
circle and within a circumscribed circle forming the exterior of the 
seal shall appear words describing the specific office of internal 
revenue authorized to use the seal under this section. This paragraph 
(a)(2) is effective on October 27, 1995. The uniform seal is as follows:
[GRAPHIC] [TIFF OMITTED] TC14NO91.124

    (ii) The uniform seal may be used by any office of internal revenue 
set forth in paragraphs (a) (3) through (8) of this section, and any 
other office designated by the Commissioner to use a seal, including the 
following internal revenue offices resulting from a reorganization of 
the IRS that will be implemented beginning October 1, 1995:

Office of Regional Commissioner for:
    Midstates Region (Dallas)
    Northeast Region (Manhattan)
    Southeast Region (Atlanta)
    Western Region (San Francisco)
Office of District Director for:
    Arkansas-Oklahoma District (Oklahoma City)
    Brooklyn District
    Central California District (San Jose)
    Connecticut-Rhode Island District (Hartford)
    Delaware-Maryland District (Baltimore)
    Georgia District (Atlanta)
    Gulf Coast District (New Orleans)
    Houston District
    Illinois District (Chicago)
    Indiana District (Indianapolis)
    Kansas-Missouri District (St. Louis)
    Kentucky-Tennessee District (Nashville)
    Los Angeles District
    Manhattan District
    Michigan District (Detroit)
    Midwest District (Milwaukee)
    New Jersey District (Newark)
    New England District (Boston)
    North Central District (St. Paul)
    North Florida District (Jacksonville)
    North-South Carolina District (Greensboro)
    North Texas District (Dallas)

[[Page 749]]

    Northern California District (Oakland)
    Ohio District (Cincinnati)
    Pacific-Northwest District (Seattle)
    Pennsylvania District (Philadelphia)
    Rocky Mountain District (Denver)
    South Florida District (Fort Lauderdale)
    South Texas District (Austin)
    Southern California District (Laguna Niguel)
    Southwest District (Phoenix)
    Upstate New York District (Buffalo)
    Virginia-West Virginia District (Richmond)
Office of Director of Computing Centers in:
    Detroit
    Memphis
    Martinsburg
Office of Director of Submission Processing Centers in:
    Austin
    Cincinnati
    Memphis
    Kansas City
    Ogden
Office of Director of Customer Service Centers in:
Andover
Atlanta
Austin
Baltimore
Brookhaven
Buffalo
Cincinnati
Cleveland
Dallas
Denver
Fresno
Indianapolis
Jacksonville
Kansas City
Memphis
Nashville
Ogden
Philadelphia
Pittsburgh
Portland, OR
Richmond
St. Louis
Seattle.
    (3) District Directors of Internal Revenue. (i) There is hereby 
established an official seal in and for each of the offices of District 
Director of Internal Revenue listed in subdivision (ii) of this 
subparagraph. The seal is described as follows, and one such seal is 
illustrated below: A circle within which shall appear that part of the 
seal of the Treasury Department represented by the shield and side 
wreaths. Exterior to this circle and within a circumscribed circle in 
the form of a rope shall appear in the upper part the words ``District 
Director of Internal Revenue'' and in the lower part the location of the 
office for which the seal is established.
[GRAPHIC] [TIFF OMITTED] TC14NO91.125

    (ii) The offices of District Director of Internal Revenue for which 
seals are established in subdivision (i) of this subparagraph are as 
follows:

District Director of Internal Revenue, Birmingham, Ala.
District Director of Internal Revenue, Anchorage, Alaska.
District Director of Internal Revenue, Phoenix, Ariz.
District Director of Internal Revenue, Little Rock, Ark.
District Director of Internal Revenue, Los Angeles, Calif.
District Director of Internal Revenue, San Francisco, Calif.
District Director of Internal Revenue, Denver, Colo.
District Director of Internal Revenue, Hartford, Conn.
District Director of Internal Revenue, Wilmington, Del.
District Director of Internal Revenue, Ft. Lauderdale, Fla.
District Director of Internal Revenue, Jacksonville, Fla.
District Director of Internal Revenue, Atlanta, Ga.
District Director of Internal Revenue, Honolulu, Hawaii.
District Director of Internal Revenue, Boise, Idaho.
District Director of Internal Revenue, Chicago, Ill.
District Director of Internal Revenue, Springfield, Ill.
District Director of Internal Revenue, Indianapolis, Ind.
District Director of Internal Revenue, Des Moines, Iowa.
District Director of Internal Revenue, Wichita, Kans.
District Director of Internal Revenue, Louisville, Ky.
District Director of Internal Revenue, New Orleans, La.

[[Page 750]]

District Director of Internal Revenue, Augusta, Maine.
District Director of Internal Revenue, Baltimore, Md.
District Director of Internal Revenue, Boston, Mass.
District Director of Internal Revenue, Detroit, Mich.
District Director of Internal Revenue, St. Paul, Minn.
District Director of Internal Revenue, Jackson, Miss.
District Director of Internal Revenue, St. Louis, Mo.
District Director of Internal Revenue, Helena, Mont.
District Director of Internal Revenue, Omaha, Nebr.
District Director of Internal Revenue, Portsmouth, N.H.
District Director of Internal Revenue, Newark, N.J.
District Director of Internal Revenue, Albuquerque, N. Mex.
District Director of Internal Revenue, Albany, N.Y.
District Director of Internal Revenue, Brooklyn, N.Y.
District Director of Internal Revenue, Buffalo, N.Y.
District Director of Internal Revenue, Manhattan, New York, N.Y.
District Director of Internal Revenue, Greensboro, N.C.
District Director of Internal Revenue, Fargo, N. Dak.
District Director of Internal Revenue, Cincinnati, Ohio.
District Director of Internal Revenue, Cleveland, Ohio.
District Director of Internal Revenue, Oklahoma City, Okla.
District Director of Internal Revenue, Portland, Oreg.
District Director of Internal Revenue, Philadelphia, Pa.
District Director of Internal Revenue, Pittsburgh, Pa.
District Director of Internal Revenue, Providence, R.I.
District Director of Internal Revenue, Columbia, S.C.
District Director of Internal Revenue, Aberdeen, S. Dak.
District Director of Internal Revenue, Nashville, Tenn.
District Director of Internal Revenue, Austin, Tex.
District Director of Internal Revenue, Dallas, Tex.
District Director of Internal Revenue, Houston, Tex.
District Director of Internal Revenue, Salt Lake City, Utah.
District Director of Internal Revenue, Richmond, Va.
District Director of Internal Revenue, Burlington, Vt.
District Director of Internal Revenue, Seattle, Wash.
District Director of Internal Revenue, Parkersburg, W. Va.
District Director of Internal Revenue, Milwaukee, Wis.
District Director of Internal Revenue, Cheyenne, Wyo.

    (iii) There is hereby established an official seal in and for each 
of the offices of district director of internal revenue listed in 
paragraph (a)(2)(iv) of this section. The seal is described as follows, 
and one such seal is illustrated below: A circle within which shall 
appear that part of the seal of the Treasury Department represented by 
the shield. Exterior to this circle and within a circumscribed circle in 
the form of a rope shall appear in the upper part the words ``DISTRICT 
DIRECTOR OF INTERNAL REVENUE'' and in the lower part the location of the 
office for which the seal is established.
[GRAPHIC] [TIFF OMITTED] TC14NO91.126

    (iv) The offices of district director of internal revenue for which 
seals are established in paragraph (a)(2)(iii) of this section are as 
follows:

District Director of Internal Revenue, Laguna Niguel, CA.,
District Director of Internal Revenue, Sacramento, CA.,
District Director of Internal Revenue, San Jose Dist.

    (v) There is hereby established an official seal in and for the 
office of district director of internal revenue listed in paragraph 
(a)(2)(vi) of this section.

[[Page 751]]

The seal is described as follows, and illustrated below: A circle within 
which shall appear the Internal Revenue emblem. Exterior to this circle 
and within a circumscribed circle in the form of a rope shall appear in 
the upper part the words ``DISTRICT DIRECTOR OF INTERNAL REVENUE'' and 
in the lower part the location of the office for which the seal is 
established.
[GRAPHIC] [TIFF OMITTED] TC14NO91.127

    (vi) The office of district director of internal revenue for which 
the seal is established in paragraph (a)(2)(v) of this section is as 
follows:

District Director of Internal Revenue, Las Vegas, Nevada.

    (4) Assistant Commissioner (International). There is hereby 
established in and for the office of the Assistant Commissioner 
(International) an official seal. The seal is described as follows, and 
illustrated below: A circle within which shall appear that part of the 
seal of the Treasury Department represented by the shield and side 
wreaths. Exterior to this circle and within a circumscribed circle in 
the form of a rope shall appear in the upper part the words ``ASSISTANT 
COMMISSIONER (INTERNATIONAL)'' and in the lower part ``Washington, D.C. 
Internal Revenue Service''.
[GRAPHIC] [TIFF OMITTED] TC14NO91.128

    (5) Regional Commissioners of Internal Revenue. (i) There is hereby 
established an official seal in and for each of the offices of Regional 
Commissioner of Internal Revenue listed in subdivision (ii) of this 
subparagraph. The seal is described as follows, and one such seal is 
illustrated below: A circle within which shall appear that part of the 
seal of the Treasury Department represented by the shield and side 
wreaths. Exterior to this circle and within a circumscribed circle in 
the form of a rope shall appear in the upper part the words ``Regional 
Commissioner of Internal Revenue'' and in the lower part the title of 
the region for which the seal is established.
[GRAPHIC] [TIFF OMITTED] TC14NO91.129

    (ii) The offices of the Regional Commissioner of Internal Revenue 
for

[[Page 752]]

which seals are established in subdivision (i) of this subparagraph are 
as follows:

Regional Commissioner of Internal Revenue, Central Region.
Regional Commissioner of Internal Revenue, Mid-Atlantic Region.
Regional Commissioner of Internal Revenue, Midwest Region.
Regional Commissioner of Internal Revenue, North-Atlantic Region.
Regional Commissioner of Internal Revenue, Southeast Region.
Regional Commissioner of Internal Revenue, Southwest Region.
Regional Commissioner of Internal Revenue, Western Region.

    (6) Directors of Internal Revenue Service Centers. (i) There is 
hereby established an official seal in and for each of the offices of 
Director of Internal Revenue Service Center listed in subdivision (ii) 
of this subparagraph. The seal is described as follows, and one such 
seal is illustrated below: A circle within which shall appear that part 
of the seal of the Treasury Department represented by the shield and 
side wreaths. Exterior to this circle and within a circumscribed circle 
in the form of a rope shall appear in the upper part the words 
``Director, Internal Revenue Service Center'' and in the lower part the 
name of the region and the name of the principal city in or near which 
the service center is located.
[GRAPHIC] [TIFF OMITTED] TC14NO91.130

    (ii) The offices of Director of Internal Revenue Service Center for 
which seals are established in subdivision (i) of this subparagraph are 
as follows:

Director, Internal Revenue Service Center, Central Region, Covington, 
Ky.
Director, Internal Revenue Service Center, Mid-Atlantic Region, 
Philadelphia, Pa.
Director, Internal Revenue Service Center, Midwest Region, Kansas City, 
Mo.
Director, Internal Revenue Service Center, North-Atlantic Region, 
Andover, Mass.
Director, Internal Revenue Service Center, North-Atlantic Region, 
Brookhaven, N.Y.
Director, Internal Revenue Service Center, Southeast Region, Chamblee, 
Ga.
Director, Internal Revenue Service Center, Southeast Region, Memphis, 
Tenn.
Director, Internal Revenue Service Center, Southwest Region, Austin, 
Tex.
Director, Internal Revenue Service Center, Southwest Region, Ogden, Utah
Director, Internal Revenue Service Center, Western Region, Fresno, 
Calif.

    (7) Director of Internal Revenue Computing Center. There is hereby 
established in and for the office of the Director of the Internal 
Revenue Computing Center an official seal. The seal is described as 
follows, and illustrated below: A circle within which shall appear that 
part of the seal of the Treasury Department represented by the shield. 
Exterior to this circle and within a circumscribed circle in the form of 
a rope shall appear in the upper part the words ``DIRECTOR, INTERNAL 
REVENUE SERVICE'' and in the lower part ``Detroit Computing Center 
Detroit, Michigan''.
[GRAPHIC] [TIFF OMITTED] TC14NO91.131

    (8) Director of Internal Revenue Compliance Center. There is hereby 
established in and for the office of the Director of

[[Page 753]]

the Internal Revenue Compliance Center an official seal. The seal is 
described as follows, and illustrated below: A circle within which shall 
appear that part of the seal of the Treasury Department represented by 
the shield and side wreaths. Exterior to this circle and within a 
circumscribed circle in the form of a rope shall appear in the upper 
part the words ``DIRECTOR, INTERNAL REVENUE COMPLIANCE CENTER'' and in 
the lower part ``Southwest Region Austin, Tex''.
[GRAPHIC] [TIFF OMITTED] TC14NO91.132

    (b) Custody of seal. Each seal established by this section shall be 
in the custody of the officer for whose office such seal is established.
    (c) Use of official seal. Each seal of office established by this 
section may be affixed in lieu of the seal of the Treasury Department to 
any certificate or attestation required to be made by the officer for 
whose office such seal is established in authentication of originals and 
copies of books, records, papers, writings, and documents of the 
Internal Revenue Service in the custody of such officer, for all 
purposes, including the purposes of 28 U.S.C. 1733 (b), Rule 44 of the 
Federal Rules of Civil Procedure, and Rule 27 of the Federal Rules of 
Criminal Procedure, except that--
    (1) No such seal shall be affixed to material to be published in the 
Federal Register, and
    (2) The seal of the office of a District Director of Internal 
Revenue or the Director of International Operations shall not be affixed 
to the certification of copies of books, records, papers, writings, or 
documents in his custody in any case in which, pursuant to Executive 
order, Treasury decision, or part 601 of this chapter (Statement of 
Procedural Rules), such copies may be furnished to applicants only by 
the Commissioner.
    (d) Judicial notice. In accordance with the provisions of section 
7514, judicial notice shall be taken of the seals established under this 
section.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 6933, 32 FR 15483, Nov. 
7, 1967; T.D. 6974, 33 FR 14779, Oct. 3, 1968; T.D. 7147, 36 FR 20510, 
Oct. 23, 1971; T.D. 8414, 57 FR 15015, Apr. 24, 1992; T.D. 8625, 60 FR 
54945, Oct. 27, 1995]



Sec.  301.7515-1  Special statistical studies and compilations on request.

    The Commissioner is authorized within his discretion, upon written 
request of any person and payment by such person of the cost of the work 
to be performed, to make special statistical studies and compilations 
involving data from returns, declarations, statements, or other 
documents required by the Code or regulations or from records 
established or maintained in connection with the administration and 
enforcement of the Code; to engage in any such special study or 
compilation jointly with the party or parties requesting it; and to 
furnish transcripts of any such study or compilation. The requests for 
services should be addressed to the Commissioner of Internal Revenue, 
Attention: PR, Washington, D.C. 20224. The requests should describe 
fully the nature of the study or compilation desired, giving detailed 
specifications for all tables to be prepared, and should include a 
general statement regarding the use to be made of the data requested.



Sec.  301.7516-1  Training and training aids on request.

    The Commissioner is authorized, within his discretion, upon written 
request, to admit employees and officials of any State, the Commonwealth 
of Puerto Rico, any possession of the United States, any political 
subdivision or instrumentality of any of the foregoing, the District of 
Columbia, or any foreign government to training

[[Page 754]]

courses conducted by the Internal Revenue Service, and to supply them 
with texts and other training aids. Requests for such training or 
training aids should be addressed to the Commissioner of Internal 
Revenue, Washington, D.C. 20224, Attention: A: T, except that requests 
involving officials or visitors of foreign governments should be 
addressed to the Commissioner of Internal Revenue, Washington, D.C. 
20224. Attention: C: FA. The Commissioner may require payment from the 
party or parties making the request of a reasonable fee not to exceed 
the cost of the training and training aids supplied pursuant to such 
request.



Sec.  301.7517-1  Furnishing on request of statement explaining estate 
or gift valuation.

    (a) In general. Section 7517 requires the Service to furnish to a 
taxpayer, at the request of that taxpayer, a statement explaining the 
estate, gift or generation-skipping transfer valuation of any item 
contained on a return filed by the taxpayer as to which a determination 
or proposed determination of value has been made. The request must be 
filed no later than the latest time to file a claim for refund of the 
tax which is dependent on the value with respect to which the 
determination has been made. The request should be filed with the 
district director's office that has jurisdiction over the return of the 
taxpayer.
    (b) Effective date--(1) Estates of decedents. Section 7517 applies 
to estates of decedents dying after December 31, 1976.
    (2) Gifts. Section 7517 applies to gifts made after December 31, 
1976.
    (3) Generation-skipping transfer. Section 7517 applies to any 
generation-skipping transfer subject to chapter 13.

[T.D. 7757, 46 FR 6930, Jan. 22, 1981]



             Discovery of Liability and Enforcement of Title

                       Examination and Inspection



Sec.  301.7601-1  Canvass of districts for taxable persons and objects.

    Each district director shall, to the extent he deems it practicable, 
cause officers or employees under his supervision and control to 
proceed, from time to time, through his district and inquire after and 
concerning all persons therein who may be liable to pay any internal 
revenue tax, and all persons owning or having the care and management of 
any objects with respect to which any tax is imposed.

[T.D. 7297, 38 FR 34803, Dec. 19, 1973]



Sec.  301.7602-1  Examination of books and witnesses.

    (a) In general. For the purpose of ascertaining the correctness of 
any return, making a return where none has been made, determining the 
liability of any person for any internal revenue tax (including any 
interest, additional amount, addition to the tax, or civil penalty) or 
the liability at law or in equity of any transferee or fiduciary of any 
person in respect of any internal revenue tax, collecting any such 
liability or inquiring into any offense connected with the 
administration or enforcement of the internal revenue laws, any 
authorized officer or employee of the Internal Revenue Service may 
examine any books, papers, records or other data which may be relevant 
or material to such inquiry; and take such testimony of the person 
concerned, under oath, as may be relevant to such inquiry.
    (b) Summons--(1) In general. For the purposes described in Sec.  
301.7602-1(a), the Commissioner is authorized to summon the person 
liable for tax or required to perform the act, or any officer or 
employee of such person or any person having possession, custody, or 
care of books of accounts containing entries relating to the business of 
the person liable for tax or required to perform the act, or any other 
person deemed proper, to appear before one or more officers or employees 
of the Internal Revenue Service at a time and place named in the summons 
and to produce such books, papers, records, or other data, and to give 
such testimony, under oath, as may be relevant or material to such 
inquiry; and take such testimony of the person concerned, under oath, as 
may be relevant or material to such inquiry. This summons power may be 
used in an investigation of either civil or criminal tax-related

[[Page 755]]

liability. The Commissioner may designate one or more officers or 
employees of the IRS as the individuals before whom a person summoned 
pursuant to section 6420(e)(2), 6421(g)(2), 6427(j)(2), or 7602 shall 
appear. Any such officer or employee is authorized to take testimony 
under oath of the person summoned and to receive and examine books, 
papers, records, or other data produced in compliance with the summons.
    (2) Officer or employee of the IRS. For purposes of this paragraph 
(b), officer or employee of the IRS means all officers and employees of 
the United States, who are engaged in the administration and enforcement 
of the internal revenue laws or any other laws administered by the IRS, 
and who are appointed or employed by, or subject to the directions, 
instructions, or orders of the Secretary of the Treasury or the 
Secretary's delegate. An officer or employee of the IRS, for purposes of 
this paragraph (b), shall include an officer or employee of the Office 
of Chief Counsel.
    (3) Participation of a person described in section 6103(n). For 
purposes of this paragraph (b), a person authorized to receive returns 
or return information under section 6103(n) and Sec.  301.6103(n)-1(a) 
of the regulations may receive and review books, papers, records, or 
other data produced in compliance with a summons and, in the presence 
and under the guidance of an IRS officer or employee, participate fully 
in the interview of a witness summoned by the IRS to provide testimony 
under oath. Fully participating in an interview includes, but is not 
limited to, receipt, review, and use of summoned books, papers, records, 
or other data; being present during summons interviews; questioning the 
person providing testimony under oath; and asking a summoned person's 
representative to clarify an objection or assertion of privilege.
    (c) Proscription on issuing of administrative summons when a Justice 
Department referral is in effect--(1) In general. The Commissioner may 
neither issue a summons under this title nor initiate a proceeding to 
enforce a previously issued summons by way of section 7604 with respect 
to any person whose tax liability is in issue, if a Justice Department 
referral is in effect with respect to that person for that liability.
    (2) Justice Department referral in effect. A Justice Department 
referral is in effect with respect to any person when:
    (i) The Secretary recommends, within the meaning of this paragraph, 
that the Attorney General either commence a grand jury investigation of 
or criminal prosecution of such person for any alleged offense connected 
with the administration or enforcement of the internal revenue laws, or
    (ii) The Attorney General (or Deputy Attorney General or Assistant 
Attorney General) under section 6103(h)(3)(B) requests in writing that 
the Secretary disclose a return of, or return information relating to, 
such person. The request must set forth that the need for disclosure is 
for the purpose of a grand jury investigation of or potential or pending 
criminal prosecution of such person for any alleged offense connected 
with the administration or enforcement of the internal revenue laws.

The referral is effective at the time the document recommending criminal 
prosecution or grand jury investigation is signed by the Secretary or 
upon the Secretary's receipt of the section 6103(h)(3)(B) request.
    (3) Cessation of Justice Department referral. A Justice Department 
referral ceases to be in effect with respect to a person:
    (i) When the Secretary receives written notification from the 
Attorney General that the Justice Department:
    (A) Will not prosecute that person for any offense connected with 
the administration or enforcement of the internal revenue laws that gave 
rise to the referral under paragraph (2)(i) of this section, or
    (B) Will not authorize a grand jury investigation of that person 
with respect to such offense, or
    (C) Will discontinue any grand jury investigation of that person 
with respect to such offense;
    (ii) When a final disposition with respect to a criminal proceeding 
brought against that person has been made; or
    (iii) When the Secretary receives written notification from the 
Attorney General, Deputy Attorney General, or an Assistant Attorney 
General, that

[[Page 756]]

the Justice Department will not prosecute such person for any offense 
connected with the administration or enforcement of the internal revenue 
laws, based upon a previous request for disclosure under section 
6103(h)(3)(B).
    (4) Taxable years and taxes imposed by separate chapters of the Code 
treated separately--(i) In general. For purposes of this section, each 
taxable period (or, if there is no taxable period, each taxable event) 
and each tax imposed by a separate chapter of the Code is treated 
separately.
    (ii) Examples. The following examples illustrate the application of 
this paragraph (c)(4):

    Example 1. A Justice Department referral is in effect for D's 
criminal evasion of income tax for the taxable year 1979. The Commission 
may issue a summons respecting D's 1980 criminal and/or civil tax 
liability. The Commissioner may not issue a summons respecting D's 1979 
income tax liability.
    Example 2. A referral has been made to the Department of Justice for 
the criminal prosecution of F with regard to F's income tax liability 
for the taxable year 1978. The Commissioner may issue a summons 
respecting F's gift tax liability for the taxable year 1978.
    Example 3. A referral has been made to the Department of Justice for 
a grand jury investigation respecting G's 1980 income tax liability. The 
Commissioner may issue a summons related to an investigation of G's 
liability for Federal Insurance Contribution Act (FICA) taxes for the 
taxable year 1980.
    Example 4. A referral has been made to the Department of Justice 
respecting J's criminal evasion of windfall profit tax for all quarters 
of the calendar year 1982. The Commissioner may issue a summons 
respecting J's liability for highway motor vehicle use tax covering the 
same periods.
    Example 5. A referral has been made to the Department of Justice for 
a grand jury investigation respecting L's 1983 income tax liability. The 
Commissioner may issue a summons related to the investigation of L's 
liability under sections 6700 (abusive tax shelter promoter penalty) and 
7408 of the Code for his conduct during 1983.

    (d) Applicability date. This section is applicable after September 
3, 1982, except for paragraphs (b)(1) and (2) of this section which are 
applicable on and after April 1, 2005 and paragraph (b)(3) of this 
section which applies to summons interviews conducted on or after July 
14, 2016. For rules under paragraphs (b)(1) and (2) that are applicable 
to summonses issued on or after September 10, 2002 or under paragraph 
(b)(3) that are applicable to summons interviews conducted on or after 
June 18, 2014, see 26 CFR 301.7602-1T (revised as of April 1, 2016).

[T.D. 8091, 51 FR 23053, June 25, 1986, as amended by T.D. 9015, 67 FR 
57331, Sept. 10, 2002; T.D. 9195, 70 FR 16711, Apr. 1, 2005; T.D. 9778, 
81 FR 45414, July 14, 2016]



Sec.  301.7602-2  Third party contacts.

    (a) In general. Subject to the exceptions in paragraph (f) of this 
section, no officer or employee of the Internal Revenue Service (IRS) 
may contact any person other than the taxpayer with respect to the 
determination or collection of such taxpayer's tax liability without 
giving the taxpayer reasonable notice in advance that such contacts may 
be made. A record of persons so contacted must be made and given to the 
taxpayer upon the taxpayer's request.
    (b) Third-party contact defined. Contacts subject to section 7602(c) 
and this regulation shall be called ``third-party contacts.'' A third-
party contact is a communication which--
    (1) Is initiated by an IRS employee;
    (2) Is made to a person other than the taxpayer;
    (3) Is made with respect to the determination or collection of the 
tax liability of such taxpayer;
    (4) Discloses the identity of the taxpayer being investigated; and
    (5) Discloses the association of the IRS employee with the IRS.
    (c) Elements of third-party contact explained--(1) Initiation by an 
IRS employee--(i) Explanation--(A) Initiation. An IRS employee initiates 
a communication whenever it is the employee who first tries to 
communicate with a person other than the taxpayer. Returning unsolicited 
telephone calls or speaking with persons other than the taxpayer as part 
of an attempt to speak to the taxpayer are not initiations of third-
party contacts.
    (B) IRS employee. For purposes of this section, an IRS employee 
includes all officers and employees of the IRS, the Chief Counsel of the 
IRS and the National Taxpayer Advocate, as well as a person described in 
section 6103(n), an officer or employee of such person, or a

[[Page 757]]

person who is subject to disclosure restrictions pursuant to a written 
agreement in connection with the solicitation of an agreement described 
in section 6103(n) and its implementing regulations. No inference about 
the employment or contractual relationship of such other persons with 
the IRS may be drawn from this regulation for any purpose other than the 
requirements of section 7602(c).
    (ii) Examples. The following examples illustrate this paragraph 
(c)(1):

    Example 1. An IRS employee receives a message to return an 
unsolicited call. The employee returns the call and speaks with a person 
who reports information about a taxpayer who is not meeting his tax 
responsibilities. Later, the employee makes a second call to the person 
and asks for more information. The first call is not a contact initiated 
by an IRS employee. Just because the employee must return the call does 
not change the fact that it is the other person, and not the employee, 
who initiated the contact. The second call, however, is initiated by the 
employee and so meets the first element.
    Example 2. An IRS employee wants to hire an appraiser to help 
determine the value of a taxpayer's oil and gas business. At the initial 
interview, the appraiser signs an agreement that prohibits him from 
disclosing return information of the taxpayer except as allowed by the 
agreement. Once hired, the appraiser initiates a contact by calling an 
industry expert in Houston and discusses the taxpayer's business. The 
IRS employee's contact with the appraiser does not meet the first 
element of a third-party contact because the appraiser is treated, for 
section 7602(c) purposes only, as an employee of the IRS. For the same 
reason, however, the appraiser's call to the industry expert does meet 
the first element of a third-party contact.
    Example 3. A revenue agent trying to contact the taxpayer to discuss 
the taxpayer's pending examination twice calls the taxpayer's place of 
business. The first call is answered by a receptionist who states that 
the taxpayer is not available. The IRS employee leaves a message with 
the receptionist stating only his name and telephone number, and asks 
that the taxpayer call him. The second call is answered by the office 
answering machine, on which the IRS employee leaves the same message. 
Neither of these phone calls meets the first element of a third-party 
contact because the IRS employee is trying to initiate a communication 
with the taxpayer and not a person other than the taxpayer. The fact 
that the IRS employee must either speak with a third party (the 
receptionist) or leave a message on the answering machine, which may be 
heard by a third party, does not mean that the employee is initiating a 
communication with a person other than the taxpayer. Both the 
receptionist and the answering machine are only intermediaries in the 
process of reaching the taxpayer.

    (2) Person other than the taxpayer--(i) Explanation. The phrases 
``person other than the taxpayer'' and ``third party'' are used 
interchangeably in this section, and do not include--
    (A) An officer or employee of the IRS, as defined in paragraph 
(c)(1)(i)(B) of this section, acting within the scope of his or her 
employment;
    (B) Any computer database or website regardless of where located and 
by whom maintained, including databases or web sites maintained on the 
Internet or in county courthouses, libraries, or any other real or 
virtual site; or
    (C) A current employee, officer, or fiduciary of a taxpayer when 
acting within the scope of his or her employment or relationship with 
the taxpayer. Such employee, officer, or fiduciary shall be conclusively 
presumed to be acting within the scope of his or her employment or 
relationship during business hours on business premises.
    (ii) Examples: The following examples illustrate this paragraph 
(c)(2):

    Example 1. A revenue agent examining a taxpayer's return speaks with 
another revenue agent who has previously examined the same taxpayer 
about a recurring issue. The revenue agent has not contacted a ``person 
other than the taxpayer'' within the meaning of section 7602(c).
    Example 2. A revenue agent examining a taxpayer's return speaks with 
one of the taxpayer's employees on business premises during business 
hours. The employee is conclusively presumed to be acting within the 
scope of his employment and is therefore not a ``person other than the 
taxpayer'' for section 7602(c) purposes.
    Example 3. A revenue agent examining a corporate taxpayer's return 
uses a commercial online research service to research the corporate 
structure of the taxpayer. The revenue agent uses an IRS account, logs 
on with her IRS user name and password, and uses the name of the 
corporate taxpayer in her search terms. The revenue agent later explores 
several Internet web sites that may have information relevant to the 
examination. The searches on the commercial online research service and 
Internet websites are

[[Page 758]]

not contacts with ``persons other than the taxpayer.''

    (3) With respect to the determination or collection of the tax 
liability of such taxpayer--(i) Explanation--(A) With respect to. A 
contact is ``with respect to'' the determination or collection of the 
tax liability of such taxpayer when made for the purpose of either 
determining or collecting a particular tax liability and when directly 
connected to that purpose. While a contact made for the purpose of 
determining a particular taxpayer's tax liability may also affect the 
tax liability of one or more other taxpayers, such contact is not for 
that reason alone a contact ``with respect to'' the determination or 
collection of those other taxpayers' tax liabilities. Contacts to 
determine the tax status of a pension plan under chapter 1, subchapter D 
(Deferred Compensation) of the Internal Revenue Code, are not ``with 
respect to'' the determination of plan participants'' tax liabilities. 
Contacts to determine the tax status of a bond issue under chapter 1, 
subchapter B, Part IV (Tax Exemption Requirements for State and Local 
Bonds) of the Internal Revenue Code, are not ``with respect to'' the 
determination of the bondholders' tax liabilities. Contacts to determine 
the tax status of an organization under chapter 1, subchapter F (Exempt 
Organizations) of the Internal Revenue Code, are not ``with respect to'' 
the determination of the contributors' liabilities, nor are any similar 
determinations ``with respect to'' any persons with similar 
relationships to the taxpayer whose tax liability is being determined or 
collected.
    (B) Determination or collection. A contact is with respect to the 
``determination or collection'' of the tax liability of such taxpayer 
when made during the administrative determination or collection process. 
For purposes of this paragraph (c) only, the administrative 
determination or collection process may include any administrative 
action to ascertain the correctness of a return, make a return when none 
has been filed, or determine or collect the tax liability of any person 
as a transferee or fiduciary under chapter 71 of title 26.
    (C) Tax liability. A tax liability means the liability for any tax 
imposed by title 26 of the United States Code (including any interest, 
additional amount, addition to the tax, or penalty) and does not include 
the liability for any tax imposed by any other jurisdiction nor any 
liability imposed by other Federal statutes.
    (D) Such taxpayer. A contact is with respect to the determination or 
collection of the tax liability of ``such taxpayer'' when made while 
determining or collecting the tax liability of a particular, identified 
taxpayer. Contacts made during an investigation of a particular, 
identified taxpayer are third-party contacts only as to the particular, 
identified taxpayer under investigation and not as to any other taxpayer 
whose tax liabilities might be affected by such contacts.
    (ii) Examples. The following examples illustrate the operation of 
this paragraph (c)(3):

    Example 1. As part of a compliance check on a return preparer, an 
IRS employee visits the preparer's office and reviews the preparer's 
client files to ensure that the proper forms and records have been 
created and maintained. This contact is not a third-party contact ``with 
respect to'' the preparer's clients because it is not for the purpose of 
determining the tax liability of the preparer's clients, even though the 
agent might discover information that would lead the agent to recommend 
an examination of one or more of the preparer's clients.
    Example 2. A revenue agent is assigned to examine a taxpayer's 
return, which was prepared by a return preparer. As in all such 
examinations, the revenue agent asks the taxpayer routine questions 
about what information the taxpayer gave the preparer and what advice 
the preparer gave the taxpayer. As a result of the examination, the 
revenue agent recommends that the preparer be investigated for penalties 
under section 6694 or 6695. Neither the examination of the taxpayer's 
return nor the questions asked of the taxpayer are ``with respect to'' 
the determination of the preparer's tax liabilities within the meaning 
of section 7602(c) because the purpose of the contacts was to determine 
the taxpayer's tax liability, even though the agent discovered 
information that may result in a later investigation of the preparer.
    Example 3. To help identify taxpayers in the florist industry who 
may not have filed proper returns, an IRS employee contacts a company 
that supplies equipment to florists and asks for a list of its customers 
in the past year in order to cross-check the list

[[Page 759]]

against filed returns. The employee later contacts the supplier for more 
information about one particular florist who the employee believes did 
not file a proper return. The first contact is not a contact with 
respect to the determination of the tax liability of ``such taxpayer'' 
because no particular taxpayer has been identified for investigation at 
the time the contact is made. The later contact, however, is with 
respect to the determination of the tax liability of ``such taxpayer'' 
because a particular taxpayer has been identified. The later contact is 
also ``with respect to'' the determination of that taxpayer's liability 
because, even though no examination has been opened on the taxpayer, the 
information sought could lead to an examination.
    Example 4. A revenue officer, trying to collect the trust fund 
portion of unpaid employment taxes of a corporation, begins to 
investigate the liability of two corporate officers for the section 6672 
Trust Fund Recovery Penalty (TFRP). The revenue officer obtains the 
signature cards for the corporation's bank accounts from the 
corporation's bank. The contact with the bank to obtain the signature 
cards is a contact with respect to the determination of the two 
identified corporate officers' tax liabilities because it is directly 
connected to the purpose of determining a tax liability of two 
identified taxpayers. It is not, however, a contact with respect to any 
other person not already under investigation for TFRP liability, even 
though the signature cards might identify other potentially liable 
persons.
    Example 5. The IRS is asked to rule on whether a certain pension 
plan qualifies under section 401 so that contributions to the pension 
plan are excludable from the employees' incomes under section 402 and 
are also deductible from the employer's income under section 404. 
Contacts made with the plan sponsor (and with persons other than the 
plan sponsor) are not contacts ``with respect to'' the determination of 
the tax liabilities of the pension plan participants because the purpose 
of the contacts is to determine the status of the plan, even though that 
determination may affect the participants' tax liabilities.
    Example 6(a). The IRS audits a TEFRA partnership at the partnership 
(entity) level pursuant to sections 6221 through 6233. The tax treatment 
of partnership items is at issue, but the respective tax liabilities of 
the partners may be affected by the results of the TEFRA partnership 
audit. With respect to the TEFRA partnership, contacts made with 
employees of the partnership acting within the scope of their duties or 
any partner are not section 7602(c) contacts because they are considered 
the equivalent of contacting the partnership. Contacts relating to the 
tax treatment of partnership items made with persons other than the 
employees of the partnership who are acting within the scope of their 
duties or the partners are section 7602(c) contacts with respect to the 
TEFRA partnership, and reasonable advance notice should be provided by 
sending the appropriate Letter 3164 to the partnership's tax matters 
partner (TMP). Individual partners who are merely affected by the 
partnership audit but who are not identified as subject to examination 
with respect to their individual tax liabilities need not be sent 
Letters 3164.
    Example 6(b). In the course of an audit of a TEFRA partnership at 
the partnership (entity) level, the IRS intends to contact third parties 
regarding transactions between the TEFRA partnership and specific, 
identified partners. In addition to the partnership's TMP, the specific, 
identified partners should also be provided advance notice of any third-
party contacts relating to such transactions.

    (4) Discloses the identity of the taxpayer being investigated--(i) 
Explanation. An IRS employee discloses the taxpayer's identity whenever 
the employee knows or should know that the person being contacted can 
readily ascertain the taxpayer's identity from the information given by 
the employee.
    (ii) Examples. The following examples illustrate this paragraph 
(c)(4):

    Example 1. A revenue agent seeking to value the taxpayer's 
condominium calls a real estate agent and asks for a market analysis of 
the taxpayer's condominium, giving the unit number of the taxpayer's 
condominium. The revenue agent has revealed the identity of the 
taxpayer, regardless of whether the revenue agent discloses the name of 
the taxpayer, because the real estate agent can readily ascertain the 
taxpayer's identity from the address given.
    Example 2. A revenue officer seeking to value the taxpayer's 
condominium calls a real estate agent and, without identifying the 
taxpayer's unit, asks for the sales prices of similar units recently 
sold and listing prices of similar units currently on the market. The 
revenue officer has not revealed the identity of the taxpayer because 
the revenue officer has not given any information from which the real 
estate agent can readily ascertain the taxpayer's identity.

    (5) Discloses the association of the IRS employee with the IRS. An 
IRS employee discloses his association with the IRS whenever the 
employee knows or should know that the person being contacted can 
readily ascertain the association from the information given by the 
employee.
    (d) Pre-contact notice--(1) In general. An officer or employee of 
the IRS may

[[Page 760]]

not make third-party contacts without providing reasonable notice in 
advance to the taxpayer that contacts may be made. The pre-contact 
notice may be given either orally or in writing. If written notice is 
given, it may be given in any manner that the IRS employee responsible 
for giving the notice reasonably believes will be received by the 
taxpayer in advance of the third-party contact. Written notice is deemed 
reasonable if it is--
    (i) Mailed to the taxpayer's last known address;
    (ii) Given in person;
    (iii) Left at the taxpayer's dwelling or usual place of business; or
    (iv) Actually received by the taxpayer.
    (2) Pre-contact notice not required. Pre-contact notice under this 
section need not be provided to a taxpayer for third-party contacts of 
which advance notice has otherwise been provided to the taxpayer 
pursuant to another statute, regulation or administrative procedure. For 
example, Collection Due Process notices sent to taxpayers pursuant to 
section 6330 and its regulations constitute reasonable advance notice 
that contacts with third parties may be made in order to effectuate a 
levy.
    (e) Post-contact reports--(1) Requested reports. A taxpayer may 
request a record of persons contacted in any manner that the 
Commissioner reasonably permits. The Commissioner may set reasonable 
limits on how frequently taxpayer requests need be honored. The 
requested report may be mailed either to the taxpayer's last known 
address or such other address as the taxpayer specifies in the request.
    (2) Contents of record--(i) In general. The record of persons 
contacted should contain information, if known to the IRS employee 
making the contact, which reasonably identifies the person contacted. 
Providing the name of the person contacted fully satisfies the 
requirements of this section, but this section does not require IRS 
employees to solicit identifying information from a person solely for 
the purpose of the post-contact report. The record need not contain any 
other information, such as the nature of the inquiry or the content of 
the third party's response. The record need not report multiple contacts 
made with the same person during a reporting period.
    (ii) Special rule for employees. For contacts with the employees, 
officers, or fiduciaries of any entity who are acting within the scope 
of their employment or relationship, it is sufficient to record the 
entity as the person contacted. A fiduciary, officer or employee shall 
be conclusively presumed to be acting within the scope of his employment 
or relationship during business hours on business premises. For purposes 
of this paragraph (e)(2)(ii), the term entity means any business 
(whether operated as a sole proprietorship, disregarded entity under 
Sec.  301.7701-2 of the regulations, or otherwise), trust, estate, 
partnership, association, company, corporation, or similar organization.
    (3) Post-contact record not required. A post-contact record under 
this section need not be made, or provided to a taxpayer, for third-
party contacts of which the taxpayer has already been given a similar 
record pursuant to another statute, regulation, or administrative 
procedure.
    (4) Examples. The following examples illustrate this paragraph (e):

    Example 1. An IRS employee trying to find a specific taxpayer's 
assets in order to collect unpaid taxes talks to the owner of a marina. 
The employee asks whether the taxpayer has a boat at the marina. The 
owner gives his name as John Doe. The employee may record the contact as 
being with John Doe and is not required by this regulation to collect or 
record any other identifying information.
    Example 2. An IRS employee trying to find a specific taxpayer and 
his assets in order to collect unpaid taxes talks to a person at 502 
Fernwood. The employee asks whether the taxpayer lives next door at 500 
Fernwood, as well as where the taxpayer works, what kind of car the 
taxpayer drives and whether the camper parked in front of 500 Fernwood 
belongs to the taxpayer. The person does not disclose his name. The 
employee may record the contact as being with a person at 502 Fernwood. 
If the employee then makes the same inquiries of another person on the 
street in front of 500 Fernwood, and does not learn that person's name, 
the latter contact may be reported as being with a person on the street 
in front of 500 Fernwood.
    Example 3. An IRS employee examining a return obtains loan documents 
from a bank where the taxpayer applied for a loan. After reviewing the 
documents, the employee

[[Page 761]]

talks with the loan officer at the bank who handled the application. The 
employee has contacted only one ``person other than the taxpayer.'' The 
bank and not the loan officer is the ``person other than the taxpayer'' 
for section 7602(c) purposes. The contact with the loan officer is 
treated as a contact with the bank because the loan officer was an 
employee of the bank and was acting within the scope of her employment 
with the bank.
    Example 4. An IRS employee issues a summons to a third party with 
respect to the determination of a taxpayer's liability and properly 
follows the procedures for such summonses under section 7609, which 
requires that a copy of the summons be given to the taxpayer. This 
third-party contact need not be maintained in a record of contacts 
available to the taxpayer because providing a copy of the third-party 
summons to the taxpayer pursuant to section 7609 satisfies the post-
contact recording and reporting requirement of this section.
    Example 5. An IRS employee serves a levy on a third party with 
respect to the collection of a taxpayer's liability. The employee 
provides the taxpayer with a copy of the notice of levy form that shows 
the identity of the third party. This third-party contact need not be 
maintained in a record of contacts available to the taxpayer because 
providing a copy of the notice of levy to the taxpayer satisfies the 
post-contact recording and reporting requirement of this section.

    (f) Exceptions--(1) Authorized by taxpayer--(i) Explanation. Section 
7602(c) does not apply to contacts authorized by the taxpayer. A contact 
is ``authorized'' within the meaning of this section if--
    (A) The contact is with the taxpayer's authorized representative, 
that is, a person who is authorized to speak or act on behalf of the 
taxpayer, such as a person holding a power of attorney, a corporate 
officer, a personal representative, an executor or executrix, or an 
attorney representing the taxpayer; or
    (B) The taxpayer or the taxpayer's authorized representative 
requests or approves the contact.
    (ii) No prevention or delay of contact. This section does not 
entitle any person to prevent or delay an IRS employee from contacting 
any individual or entity.
    (2) Jeopardy--(i) Explanation. Section 7602(c) does not apply when 
the IRS employee making a contact has good cause to believe that 
providing the taxpayer with either a general pre-contact notice or a 
record of the specific person contacted may jeopardize the collection of 
any tax. For purposes of this section only, good cause includes a 
reasonable belief that providing the notice or record will lead to--
    (A) Attempts by any person to conceal, remove, destroy, or alter 
records or assets that may be relevant to any tax examination or 
collection activity;
    (B) Attempts by any person to prevent other persons, through 
intimidation, bribery, or collusion, from communicating any information 
that may be relevant to any tax examination or collection activity; or
    (C) Attempts by any person to flee, or otherwise avoid testifying or 
producing records that may be relevant to any tax examination or 
collection activity.
    (ii) Record of contact. If the circumstances described in this 
paragraph (f)(2) exist, the IRS employee must still make a record of the 
person contacted, but the taxpayer need not be provided the record until 
it is no longer reasonable to believe that providing the record would 
cause the jeopardy described.
    (3) Reprisal--(i) In general. Section 7602(c) does not apply when 
the IRS employee making a contact has good cause to believe that 
providing the taxpayer with either a general pre-contact notice or a 
specific record of the person being contacted may cause any person to 
harm any other person in any way, whether the harm is physical, 
economic, emotional or otherwise. A statement by the person contacted 
that harm may occur against any person is sufficient to constitute good 
cause for the IRS employee to believe that reprisal may occur. The IRS 
employee is not required to further question the contacted person about 
reprisal or otherwise make further inquiries regarding the statement.
    (ii) Examples. The following examples illustrate this paragraph 
(f)(3):

    Example 1. An IRS employee seeking to collect unpaid taxes is told 
by the taxpayer that all the money in his and his brother's joint bank 
account belongs to the brother. The IRS employee contacts the brother to 
verify this information. The brother refuses to confirm or deny the 
taxpayer's statement. He states that he does not believe that reporting 
the contact to the taxpayer would result in harm to anyone but further 
states

[[Page 762]]

that he does not want his name reported to the taxpayer because it would 
appear that he gave information. This contact is not excepted from the 
statute merely because the brother asks that his name be left off the 
list of contacts.
    Example 2. Assume the same facts as in Example 1, except that the 
brother states that he fears harm from the taxpayer should the taxpayer 
learn of the contact, even though the brother gave no information. This 
contact is excepted from the statute because the third party has 
expressed a fear of reprisal. The IRS employee is not required to make 
further inquiry into the nature of the brothers' relationship or 
otherwise question the brother's fear of reprisal.
    Example 3. An IRS employee is examining a joint return of a husband 
and wife, who recently divorced. From reading the court divorce file, 
the IRS employee learns that the divorce was acrimonious and that the 
ex-husband once violated a restraining order issued to protect the ex-
wife. This information provides good cause for the IRS employee to 
believe that reporting contacts which might disclose the ex-wife's 
location may cause reprisal against any person. Therefore, when the IRS 
employee contacts the ex-wife's new employer to verify salary 
information provided by the ex-wife, the IRS employee has good cause not 
to report that contact to the ex-husband, regardless of whether the new 
employer expresses concern about reprisal against it or its employees.

    (4) Pending criminal investigations--(i) IRS criminal 
investigations. Section 7602(c) does not apply to contacts made during 
an investigation, or inquiry to determine whether to open an 
investigation, when the investigation or inquiry is--
    (A) Made against a particular, identified taxpayer for the primary 
purpose of evaluating the potential for criminal prosecution of that 
taxpayer; and
    (B) Made by an IRS employee whose primary duties include either 
identifying or investigating criminal violations of the law.
    (ii) Other criminal investigations. Section 7602(c) does not apply 
to contacts which, if reported to the taxpayer, could interfere with a 
known pending criminal investigation being conducted by law enforcement 
personnel of any local, state, Federal, foreign or other governmental 
entity.
    (5) Governmental entities. Section 7602(c) does not apply to any 
contact with any office of any local, state, Federal or foreign 
governmental entity except for contacts concerning the taxpayer's 
business with the government office contacted, such as the taxpayer's 
contracts with or employment by the office. The term office includes any 
agent or contractor of the office acting in such capacity.
    (6) Confidential informants. Section 7602(c) does not apply when the 
employee making the contact has good cause to believe that providing 
either the pre-contact notice or the record of the person contacted 
would identify a confidential informant whose identity would be 
protected under section 6103(h)(4).
    (7) Nonadministrative contacts--(i) Explanation. Section 7602(c) 
does not apply to contacts made in the course of a pending court 
proceeding.
    (ii) Examples. The following examples illustrate this paragraph 
(f)(7):

    Example 1. An attorney for the Office of Chief Counsel needs to 
contact a potential witness for an upcoming Tax Court proceeding 
involving the 1997 and 1998 taxable years of the taxpayer. Section 
7602(c) does not apply because the contact is being made in the course 
of a pending court proceeding.
    Example 2. While a Tax Court case is pending with respect to a 
taxpayer's 1997 and 1998 income tax liabilities, a revenue agent is 
conducting an examination of the taxpayer's excise tax liabilities for 
the fiscal year ending 1999. Any third-party contacts made by the 
revenue agent with respect to the excise tax liabilities would be 
subject to the requirements of section 7602(c) because the Tax Court 
proceeding does not involve the excise tax liabilities.
    Example 3. A taxpayer files a Chapter 7 bankruptcy petition and 
receives a discharge. A revenue officer contacts a third party in order 
to determine whether the taxpayer has any exempt assets against which 
the IRS may take collection action to enforce its federal tax lien. At 
the time of the contact, the bankruptcy case has not been closed. 
Although the bankruptcy proceeding remains pending, the purpose of this 
contact relates to potential collection action by the IRS, a matter not 
before or related to the bankruptcy court proceeding.

    (g) Effective Date. This section is applicable on December 18, 2002.

[T.D. 9028, 67 FR 77421, Dec. 18, 2002]



Sec.  301.7603-1  Service of summons.

    (a) In general--(1) Hand delivery or delivery to place of abode. 
Except as otherwise provided in paragraph (a)(2) of this

[[Page 763]]

section, a summons issued under section 6420(e)(2), 6421(g)(2), 
6427(j)(2), or 7602 shall be served by an attested copy delivered in 
hand to the person to whom it is directed, or left at such person's last 
and usual place of abode.
    (2) Summonses issued to third-party recordkeepers. A summons issued 
under section 6420(e)(2), 6421(g)(2), 6427(j)(2), or 7602 for the 
production of records (or testimony about such records) by a third-party 
recordkeeper, as described in section 7603(b)(2) and Sec.  301.7603-2, 
may also be served by certified or registered mail to the third-party 
recordkeeper's last known address, as defined in Sec.  301.6212-2. If 
service to a third-party recordkeeper is made by certified or registered 
mail, the date of service is the date on which the summons is mailed.
    (b) Persons who may serve a summons. The officers and employees of 
the Internal Revenue Service whom the Commissioner has designated to 
carry out the authority described in Sec.  301.7602-1(b) to issue a 
summons are authorized to serve a summons issued under section 
6420(e)(2), 6421(g)(2), 6427(j)(2), or 7602.
    (c) Effect of certificate of service. The certificate of service 
signed by the person serving the summons shall be evidence of the facts 
it states on the hearing of an application for the enforcement of the 
summons.
    (d) Sufficiency of description of summoned records. When a summons 
requires the production of records, it shall be sufficient if such 
records are described with reasonable certainty.
    (e) Records. For purposes of this section and Sec.  301.7603-2, the 
term records includes books, papers, or other data.
    (f) Effective/applicability date. This section is applicable on 
April 30, 2008.

[T.D. 9395, 73 FR 23344, Apr. 30, 2008]



Sec.  301.7603-2  Third-party recordkeepers.

    (a) Definitions--(1) Accountant. A person is an accountant under 
section 7603(b)(2)(F) for purposes of determining whether that person is 
a third-party recordkeeper if, on the date the records described in the 
summons were created, the person was registered, licensed, or certified 
as an accountant under the authority of any state, commonwealth, 
territory, or possession of the United States, or of the District of 
Columbia.
    (2) Attorney. A person is an attorney under section 7603(b)(2)(E) 
for purposes of determining whether that person is a third-party 
recordkeeper if, on the date the records described in the summons were 
created, the person was registered, licensed, or certified as an 
attorney under the authority of any state, commonwealth, territory, or 
possession of the United States, or of the District of Columbia.
    (3) Credit cards--(i) Person extending credit through credit cards. 
The term person extending credit through the use of credit cards or 
similar devices under section 7603(b)(2)(C) generally includes any 
person who issues a credit card. The term does not include a seller of 
goods or services who honors credit cards issued by other parties but 
who does not extend credit through the use of credit cards or similar 
devices.
    (ii) Devices similar to credit cards. An object is a device similar 
to a credit card under section 7603(b)(2)(C) only if it is physical in 
nature, such as a charge plate or similar device that may be tendered to 
obtain an extension of credit. Thus, a person who extends credit by 
requiring customers to sign sales slips without requiring the use of, or 
reference to, a physical object issued by that person is not a third-
party recordkeeper under section 7603(b)(2)(C).
    (iii) Debit cards. A debit card is not a credit card or similar 
device because a debit card is not tendered to obtain an extension of 
credit.
    (4) Enrolled agent. A person is an enrolled agent under section 
7603(b)(2)(I) for purposes of determining whether that person is a 
third-party recordkeeper if the person is enrolled as an agent 
authorized to practice before the Internal Revenue Service pursuant to 
Circular 230, 31 CFR Part 10.
    (5) Owner or developer of certain computer code and data. An owner 
or developer of computer software source code under section 
7603(b)(2)(J) is a third-party recordkeeper when summoned to produce a 
computer software source code (as defined in section 7612(d)(2)), or an 
executable code and associated data described in section 
7612(b)(1)(A)(ii), even if that person did

[[Page 764]]

not make or keep records of another person's business transactions or 
affairs.
    (b) When third-party recordkeeper status arises--(1) In general. 
Except as provided in paragraph (a)(5) of this section, a person listed 
in section 7603(b)(2) is a third-party recordkeeper for purposes of 
section 7609(c)(2)(E) and Sec.  301.7603-1 only if the summons served on 
that person seeks records (or testimony regarding such records) of a 
third party's business transactions or affairs and such recordkeeper 
made or kept the records in the capacity of a third-party recordkeeper. 
For instance, an accountant is not a third-party recordkeeper (by reason 
of being an accountant) with respect to the accountant's records of a 
sale of property by the accountant to another person. Similarly, a 
credit card issuer is not a third-party recordkeeper (by reason of being 
a person extending credit through the use of credit cards or similar 
devices) with respect to--
    (i) Records relating to non-credit card transactions, such as a cash 
sale by the issuer to a holder of the issuer's credit card; or
    (ii) Records relating to transactions involving the use of another 
issuer's credit card.
    (2) Examples. The rules of paragraph (b)(1) of this section are 
illustrated by the following examples:

    Example 1. V issues a credit card (the V card) that is honored by R, 
a retailer. When using the V card, C, a customer, signs a sales slip in 
triplicate. C, R, and V each retain one copy. Only the copy held by V is 
held by a third-party recordkeeper under section 7603(b)(2), even though 
R may issue its own credit card.
    Example 2. R, a retailer, issues its own credit card (the R card) to 
C, a customer. When C makes a credit purchase from R using the R card, C 
signs a sales slip in duplicate. C and R each retain one copy. Because R 
keeps the copy in its capacity as credit card issuer, as well as in its 
capacity as a retailer, it is a third-party recordkeeper under section 
7603(b)(2) with respect to its copy of the sales slip.

    (c) Effective/applicability date. This section is applicable on 
April 30, 2008.

[T.D. 9395, 73 FR 23345, Apr. 30, 2008]



Sec.  301.7604-1  Enforcement of summons.

    (a) In general. Whenever any person summoned under section 
6420(e)(2), 6421(f)(2), or 7602 neglects or refuses to obey such 
summons, or to produce books, papers, records, or other data, or to give 
testimony, as required, application may be made to the judge of the 
district court or to a U.S. commissioner for the district within which 
the person so summoned resides or is found for an attachment against him 
as for a contempt.
    (b) Persons who may apply for an attachment. The officers and 
employees of the Internal Revenue Service whom the Commissioner has 
designated to carry out the authority given him by Sec.  301.7602-1(b) 
to issue a summons are authorized to apply for an attachment as provided 
in paragraph (a) of this section.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7297, 38 FR 34803, Dec. 
19, 1973]



Sec.  301.7605-1  Time and place of examination.

    (a) Time and place of examination to be reasonable--(1) In general. 
The time and place of examination pursuant to the provisions of sections 
6420(e)(2), 6421(g)(2), 6427(j)(2), or 7602 of the Internal Revenue Code 
are to be fixed by an officer or employee of the Internal Revenue 
Service, and officers and employees are to endeavor to schedule a time 
and place that are reasonable under the circumstances. This section sets 
forth general criteria for the Service to apply in determining whether a 
particular time and place for an examination are reasonable under the 
circumstances. Officers and employees should exercise sound judgment in 
applying these criteria to the circumstances at hand and should balance 
convenience of the taxpayer with the requirements of sound and efficient 
tax administration.
    (2) International examinations. Except for the provisions of 
paragraph (b)(2) of this section, this section does not apply to 
examinations that fall under the jurisdiction of the Office of the 
Assistant Commissioner (International).
    (3) Criminal investigations. Except for the provisions of paragraph 
(b)(2) of

[[Page 765]]

this section, this section does not apply to criminal investigations.
    (b) Time of examination--(1) Date and time of examination. It is 
reasonable for the Service to schedule the day (or days) for an 
examination during a normally scheduled workday (or workdays) of the 
Service, during the Service's normal business hours. It is reasonable 
for the Service to schedule examinations throughout the year, without 
regard to seasonal fluctuations in the businesses of particular 
taxpayers or their representatives. However, the Service will work with 
taxpayers or their representatives to try to minimize any adverse 
effects in scheduling the date and time of an examination.
    (2) Date of appearance when summons is used. If a summons is issued 
under authority of section 7602(a)(2) of the Internal Revenue Code, or 
under the corresponding authority of sections 6420(e)(2), 6421(g)(2), or 
6427(j)(2), the date fixed for appearance before an officer or employee 
of the Service must be no less than 10 days from the date of the 
summons.
    (c) Type of examination--(1) In general. The Service will determine 
whether an examination will be an office examination (i.e., an 
examination conducted at a Service office) or a field examination (i.e., 
an examination conducted at the taxpayer's residence or place of 
business, or some other location that is not a Service office), based 
upon the complexity of the return and which form of examination will be 
more conducive to effective and efficient tax administration.
    (2) Office examination held in location other than Service office in 
case of clear need. The Service will grant a request to hold an office 
examination at a location other than a Service office in a case of clear 
need, such as when it would be unreasonably difficult for the taxpayer 
to travel to a Service office because of the taxpayer's advanced age or 
infirm physical condition, or when the taxpayer's books, records, and 
source documents are too cumbersome for the taxpayer to bring to a 
Service office.
    (d) Place of examination--(1) In general. The Service generally will 
make an initial determination of the place for an examination, including 
the Internal Revenue Service district to which an examination will be 
assigned, based upon the address shown on the return for the period 
selected for examination. Requests by taxpayers to transfer the place of 
examination will be resolved on a case-by-case basis, using the criteria 
set forth in paragraph (e) of this section.
    (2) Office examinations--(i) In general. An office examination of an 
individual or sole proprietorship generally is based on the residence of 
the individual taxpayer. An office examination of a taxpayer that is an 
entity generally is based on the location where the taxpayer entity's 
original books, records, and source documents are maintained. An office 
examination generally will take place at the closest Service office 
within the district encompassing the taxpayer's residence or at the 
closest Service office within the district where the taxpayer entity's 
books, records, and source documents are maintained. It generally is not 
reasonable for the Service to require a taxpayer to attend an 
examination at an office within an assigned district other than the 
closest Service office.
    (ii) Exception. If the office within the assigned district closest 
to an individual taxpayer's residence or the location where a taxpayer 
entity's books, records and source documents are maintained does not 
have an examination group or the appropriate personnel to conduct the 
examination, it generally is reasonable for the Service to require the 
taxpayer to attend an examination at the closest Service office within 
the assigned district that has an examination group or the appropriate 
personnel.
    (iii) Travel considerations. In scheduling office examinations, the 
Service in appropriate circumstances will take into account the distance 
a taxpayer would have to travel.
    (3) Field examinations--(i) In general. A field examination will 
generally take place at the location where the taxpayer's original 
books, records, and source documents pertinent to the examination are 
maintained. In the case of a sole proprietorship or taxpayer entity, 
this will usually be the taxpayer's principal place of business.

[[Page 766]]

    (ii) Exception for certain small businesses. If an examination is 
scheduled by the Service at the taxpayer's place of business and the 
taxpayer represents to the Service in writing that conducting the 
examination at the place of business would essentially require the 
business to close or would unduly disrupt business operations, the 
Service, upon verification, will change the place of examination to a 
Service office within the district where the taxpayer's books, records, 
and source documents are maintained.
    (iii) Site visitations. Regardless of where an examination takes 
place, the Service may visit the taxpayer's place of business or 
residence to establish facts that can only be established by direct 
visit, such as inventory or asset verification. The Service generally 
will visit for these purposes on a normal workday of the Service during 
the Service's normal duty hours.
    (e) Requests by taxpayers to change place of examination--(1) In 
general. The Service will consider, on a case-by-case basis, written 
requests by taxpayers or their representatives to change the place that 
the Service has set for an examination. In considering these requests, 
the Service will take into account the following factors--
    (i) The location of the taxpayer's current residence;
    (ii) The location of the taxpayer's current principal place of 
business;
    (iii) The location at which the taxpayer's books, records, and 
source documents are maintained;
    (iv) The location at which the Service can perform the examination 
most efficiently;
    (v) The Service resources available at the location to which the 
taxpayer has requested a transfer; and
    (vi) Other factors that indicate that conducting the examination at 
a particular location could pose undue inconvenience to the taxpayer.
    (2) Circumstances in which the Service normally will permit 
transfers. A request by a taxpayer to transfer the place of examination 
will generally be granted under the following circumstances:
    (i) Office examination--(A) If the current residence of the 
taxpayer, in the case of an individual or sole proprietorship, or the 
location where the taxpayer's books, records, and source documents are 
maintained, in the case of a taxpayer entity, is closer to a different 
Service office in the same district as the office where the examination 
has been scheduled, the Service normally will agree to transfer the 
examination to the closer Service office.
    (B) If the current residence of a taxpayer, in the case of an 
individual or sole proprietorship, or the location where a taxpayer 
entity's books, records, and source documents are maintained, is in a 
district other than the district where the examination has been 
scheduled, the Service normally will agree to transfer the examination 
to the closest Service office in the other district.
    (ii) Field examinations--(A) If a taxpayer does not reside at the 
residence where an examination has been scheduled, the Service will 
agree to transfer the examination to the taxpayer's current residence.
    (B) If, in the case of an individual, a sole proprietorship, or a 
taxpayer entity, the taxpayer's books, records, and source documents are 
maintained at a location other than the location where the examination 
has been scheduled, the Service will agree to transfer the examination 
to the location where the taxpayer's books, records, and source 
documents are maintained.
    (3) Transfer for convenience of taxpayer's representative. The 
location of the place of business of a taxpayer's representative will 
generally not be considered in determining the place for an examination. 
However, the Service in its sole discretion may determine, based on the 
factors described in paragraph (e)(1) of this section, to transfer the 
place of examination to the representative's office.
    (4) Transfer within thirteen months of expiration of limitations 
period. If any applicable period of limitations on assessment or 
collection provided in the Internal Revenue Code will expire within 
thirteen months from the date of a taxpayer's request to transfer the 
place of an examination, the Service may require, as a condition for an 
otherwise permissible transfer, that the taxpayer first agree in writing 
to extend the limitations period for up to one year.

[[Page 767]]

    (5) Transfer to office with insufficient resources. The Service is 
not required to transfer an examination to an office or district that 
does not have adequate resources to conduct the examination.
    (f) Safety of Service officers and employees. Notwithstanding any 
other provision of this regulation, officers and employees of the 
Service may decline to conduct an examination at a particular location 
if it appears that the possibility of physical danger may exist at that 
location. In these circumstances, the Service may transfer an 
examination to a Service office and take any other steps necessary to 
protect its officers and employees.
    (g) Transfers initiated by Service. Nothing in this section shall be 
interpreted as precluding the Service from initiating the transfer of an 
examination if the transfer would promote the effective and efficient 
conduct of the examination. Should a taxpayer request that such a 
transfer not be made, the Service will consider the request according to 
the principles and criteria set forth in paragraph (e) of this section.
    (h) Restrictions on examination of taxpayer. No taxpayer shall be 
subjected to unnecessary examination or investigations, and only one 
inspection of a taxpayer's books of account shall be made for each 
taxable year unless the taxpayer requests otherwise or unless an 
authorized internal revenue officer, after investigation, notifies the 
taxpayer in writing that an additional inspection is necessary. The 
inspection of a taxpayer's books of account pursuant to the procedures 
of Sec.  1.1441-4(b) (3) and (4) is not an inspection of a taxpayer's 
books of account for purposes of section 7605(b) and this section.
    (i) Restriction on examination of churches--(1) In general. This 
section imposes certain restrictions upon the examination of the books 
of account and religious activities of a church or convention or 
association of churches for the purpose of determining whether such 
organization may be engaged in activities the income from which is 
subject to tax under section 511 as unrelated business taxable income. 
The purposes of these restrictions are to protect such organizations 
from undue interference in their internal financial affairs through 
unnecessary examinations to determine the existence of unrelated 
business taxable income, and to limit the scope of examination for this 
purpose to matters directly relevant to a determination of the existence 
or amount of such income. This section also imposes additional 
restrictions upon other examinations of such organizations.
    (2) Books of account. No examination of the books of account of an 
organization which claims to be a church or a convention or association 
of churches shall be made except after the giving of notice as provided 
in this subparagraph and except to the extent necessary (i) to determine 
the initial or continuing qualification of the organization under 
section 501(c)(3); (ii) to determine whether the organization qualifies 
as one, contributions to which are deductible under section 170, 545, 
556, 642, 2055, 2106, or 2522; (iii) to obtain information for the 
purpose of ascertaining or verifying payments made by the organization 
to another person in determining the tax liability of the recipient, 
such as payments of salaries, wages, or other forms of compensation; or 
(iv) to determine the amount of tax, if any, imposed by the Code upon 
such organization. No examination of the books of account of a church or 
convention or association of churches shall be made unless the Regional 
Commissioner believes that such examination is necessary and so notifies 
the organization in writing at least 30 days in advance of examination. 
The Regional Commissioner will conclude that such examination is 
necessary only after reasonable attempts have been made to obtain 
information from the books of account by written request and the 
Regional Commissioner has determined that the information cannot be 
fully or satisfactorily obtained in that manner. In any examination of a 
church or convention or association of churches for the purpose of 
determining unrelated business income tax liability pursuant to such 
notice, no examination of the books of account of the organization shall 
be made except to the extent necessary to determine such liability.

[[Page 768]]

    (3) Religious activities. No examination of the religious activities 
of an organization which claims to be a church or convention or 
association of churches shall be made except (i) to the extent necessary 
to determine the initial or continuing qualification of the organization 
under section 501(c)(3); (ii) to determine whether the organization 
qualifies as one, contributions to which are deductible under section 
170, 545, 556, 642, 2055, 2106, or 2522; or (iii) to determine whether 
the organization is a church or convention or association of churches 
subject to the provisions of part III of subchapter F of chapter 1. The 
requirements of subparagraph (2) of this paragraph that the Regional 
Commissioner give notice prior to examination of the books of account of 
an organization do not apply to an examination of the religious 
activities of the organization for any purpose described in this 
subparagraph. Once it has been determined that the organization is a 
church or convention or association of churches, no further examination 
of its religious activities may be made in connection with determining 
its liability, if any, for unrelated business income tax.
    (4) Effective date. The provisions of this paragraph shall apply to 
audits and examinations of taxable years beginning after December 31, 
1969.
    (j) Effective date. Paragraphs (a) through (g) of this section, 
inclusive, are effective for examinations scheduled after April 2, 1993.

(Secs. 1441(c)(4) (80 Stat. 1553; 26 U.S.C. 1441(c)(4)), 3401(a)(6) (80 
Stat. 1554; 26 U.S.C. 3401(a)(6)), and 7805 (68A Stat. 917; 26 U.S.C. 
7805), Internal Revenue Code of 1954)

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7146, 36 FR 20599, Oct. 
27, 1971; T.D. 7977, 49 FR 36836, Sept. 20, 1984; T.D. 8297, 55 FR 
12346, Apr. 3, 1990; T.D. 8469, 58 FR 17519, Apr. 5, 1993]



Sec.  301.7606-1  Entry of premises for examination of taxable objects.

    Any officer or employee of the Internal Revenue Service may, in the 
performance of his duty, enter in the daytime any building or place 
where any articles or objects subject to tax are made, produced, or 
kept, so far as it may be necessary for the purpose of examining said 
articles or objects and also enter at night any such building or place, 
while open, for a similar purpose.

[T.D. 7297, 38 FR 34804, Dec. 19, 1973]



Sec.  301.7609-1  Special procedures for third-party summonses.

    (a) In general--(1) Section 7609 requires the Internal Revenue 
Service (IRS) to follow special procedures when summoning a third 
party's testimony, records, or computer software source code. Except as 
provided in Sec.  301.7609-2(b), the IRS must provide notice of a third-
party summons to any person identified in the summons, other than the 
person summoned. A person entitled to notice of a third-party summons 
may intervene in any proceeding brought to enforce the summons or may 
bring a proceeding to quash the summons, regardless of whether they 
receive notice of the summons from the IRS pursuant to section 7609(a) 
and Sec.  301.7609-2.
    (2) Neither section 7609 nor the regulations hereunder limit the 
IRS's ability to obtain information, other than by summons, through 
formal or informal procedures authorized by sections 7601 and 7602.
    (b) Cross references. See Sec.  301.7609-2 for rules relating to 
persons who must be notified of a third-party summons and exceptions to 
the notification requirements. See Sec.  301.7609-3 for rules relating 
to the rights and duties of summoned parties. See Sec.  301.7609-4 for 
rules relating to actions to quash a summons or to intervene in a 
summons enforcement proceeding. See Sec.  301.7609-5 for rules relating 
to the suspension of periods of limitations.
    (c) Records. For purposes of Sec. Sec.  301.7609-1 through 301.7609-
5, the term records includes books, papers, or other data.
    (d) Effective/applicability date. This section is applicable on 
April 30, 2008.

[T.D. 9395, 73 FR 23345, Apr. 30, 2008]



Sec.  301.7609-2  Notification of persons identified in third-party summonses.

    (a) In general--(1) Persons entitled to notice. Except as provided 
in Sec.  301.7609-2(b), the Internal Revenue Service (IRS) shall give 
notice of a third-party

[[Page 769]]

summons to any person, other than the person summoned, who is identified 
in the summons. The only persons so identified are the person with 
respect to whose liability the summons is issued and any other person 
identified in the description of summoned records or testimony. For 
example, if the IRS issues a summons to a bank with respect to the 
liability of C that requires the production of account records of A and 
B, both of whom are named in the summons, the IRS must notify A, B and C 
of the summons.
    (2) Time for providing notice. If notice is required by this 
paragraph, such notice must be given within three days of the date on 
which the summons is served on the third party, but no later than 23 
days prior to the date fixed in the summons as the date on which the 
examination of the summoned person or records is scheduled.
    (3) Methods for serving notice. Notice may be served by hand 
delivery to any person entitled to notice or by leaving notice at such 
person's last and usual place of abode. Notice also may be served by 
certified or registered mail to the person's last known address, as 
defined in Sec.  301.6212-2. If service to a person entitled to notice 
is made by certified or registered mail, the date of service is the date 
on which the notice is mailed.
    (4) Content of the notice. Notice required to be given to any person 
entitled to notice must be accompanied by a copy of the summons that has 
been served and must include an explanation of the right to bring a 
proceeding to quash the summons. The copy of the summons accompanying 
the notice is not required to contain the attestation that appears 
pursuant to section 7603 on the copy of the summons served on the 
summoned person.
    (b) Exceptions. The IRS is not required to provide notice to persons 
identified in the following third-party summonses:
    (1) Summons served on the taxpayer. The IRS is not required to 
provide notice of a summons served on the person with respect to whose 
liability the summons was issued, or any officer or employee of such 
person.
    (2) Existence of records. The IRS is not required to provide notice 
in the case of a summons issued to determine whether or not records of 
the business transactions or affairs of a person identified in the 
summons have been made or kept.
    (3) Numbered account or similar arrangement. The IRS is not required 
to provide notice in the case of a summons issued solely to determine 
the identity of a person having a numbered account or similar 
arrangement with a bank or other institution. An account is a numbered 
account or similar arrangement within the meaning of this paragraph if 
it is an account through which a person may authorize transactions 
solely through the use of a number, symbol, code name, or other device 
not involving the disclosure of the person's identity. The term person 
having a numbered account or similar arrangement includes the person who 
opened the account and any person authorized to access the account or to 
receive records or statements concerning it.
    (4) Summonses in aid of the collection of liabilities--(i) In 
general. The IRS is not required to provide notice in the case of a 
summons issued in aid of the collection of liabilities. A summons is in 
aid of the collection of liabilities within the meaning of this 
paragraph if it is issued in connection with the collection of--
    (A) An assessment or judgment against the person with respect to 
whose liability the summons is issued; or
    (B) The liability determined at law or in equity of any transferee 
or fiduciary of a person described in paragraph (b)(4)(i)(A) of this 
section.
    (ii) Examples. The rules of paragraph (b)(4) of this section are 
illustrated by the following examples:

    Example 1. A third-party summons is issued to a bank to determine 
the amount held in an account in the name of A, against whom unpaid 
income taxes have been assessed. Notice of the summons is not required 
to be given to A or any other persons identified in the summons because 
the summons is issued in connection with the collection of taxes that 
have been assessed.
    Example 2. A third-party summons is issued to determine whether 
assessments should be made against A, who is potentially liable for a 
trust fund recovery penalty under section 6672 with respect to the 
assessed but unpaid

[[Page 770]]

withholding tax liability of employer E. The summons is captioned: In 
the matter of A. Notice of the summons must be provided to A and to any 
other persons identified in the summons because the summons was issued 
with respect to A's potential, unassessed liability under section 6672.

    (5) Summonses issued by a criminal investigator. The IRS is not 
required to provide notice in the case of a summons issued by a criminal 
investigator to a person other than a third-party recordkeeper, as 
defined in section 7603(b). For purposes of section 7609(c)(2)(E), a 
summons issued by a criminal investigator is any summons issued as part 
of a criminal investigation by an IRS officer or employee having 
authority to conduct a criminal investigation and to issue a summons.
    (6) John Doe summons. The IRS is not required to provide notice in 
the case of a John Doe summons issued under section 7609(f).
    (7) Summons issued pursuant to a court order to prevent spoliation 
of evidence. The IRS is not required to provide notice in the case of a 
summons for which a court determines there is reasonable cause to 
believe the giving of notice may lead to attempts to conceal, destroy, 
or alter records relevant to the examination, to prevent communication 
of information from other persons through intimidation, bribery, or 
collusion, or to flee to avoid prosecution, testifying, or production of 
records.
    (c) Effective/applicability date. This section is applicable on 
April 30, 2008.

[T.D. 9395, 73 FR 23345, Apr. 30, 2008]



Sec.  301.7609-3  Duty of and protection for the summoned party.

    (a) Duty of the summoned party. Upon receipt of a summons, the 
summoned party must begin to assemble the summoned records. The summoned 
party must be prepared to produce the summoned records on the date on 
which the summons states that they are to be examined, regardless of the 
institution or anticipated institution of a proceeding to quash or the 
summoned party's intervention in a proceeding to quash, as allowed under 
section 7609(b)(2)(C).
    (b) Disclosing summoned party not liable--(1) In general. A summoned 
party, or an agent or employee thereof, who makes a disclosure of 
records or gives testimony as required by a summons in good faith 
reliance on the certificate of the Secretary (as defined in paragraph 
(b)(2) of this section) or an order of a court requiring production of 
records or giving of testimony, will not be liable for any claim arising 
from such disclosure brought by any customer, any party with respect to 
whose tax liability the summons was issued, or any other person.
    (2) Certificate of the Secretary. The Secretary may issue to the 
summoned party a certificate if the person with respect to whose 
liability the summons was issued expressly consents to the examination 
of the records summoned and the taking of testimony. The Secretary also 
may issue to the summoned party a certificate stating that--
    (i) The 20-day period within which a person entitled to notice of 
the summons may institute a proceeding to quash the summons has expired; 
and
    (ii) No proceeding has been instituted within that period.
    (c) Reimbursement of costs. Summoned third parties may be entitled 
to reimbursement of their costs of assembling and preparing to produce 
summoned records, to the extent allowed by section 7610 and Sec.  
301.7610-1.
    (d) Notification of suspension of periods of limitations in 
connection with a John Doe summons--(1) Requirement of notification. If 
any periods of limitations are suspended under section 7609(e)(2) and 
Sec.  301.7609-5(d) with respect to a John Doe summons described in 
section 7609(f), the summoned party is required under section 7609(i)(4) 
to provide notice of such suspension to all persons with respect to 
whose liability the summons was issued.
    (2) Content of notification. A summoned party required to notify a 
person of the suspension of the periods of limitations shall provide the 
following information to such person--
    (i) A John Doe summons was served on the summoned party seeking 
records that may be relevant to the person's tax liability;
    (ii) The date on which the summons was served;
    (iii) The tax period(s) to which the summons relates;

[[Page 771]]

    (iv) Six months have passed since service of the summons and the 
summoned party's response to the summons has not been finally resolved;
    (v) The periods of limitations under section 6501 (relating to 
assessment and collection) and section 6531 (relating to criminal 
prosecution), have been suspended; and
    (vi) The date on which suspension of the periods of limitations 
under sections 6501 and 6531 began.
    (3) Time and manner of notification. The notification must be made 
in writing and may be delivered in person, by mail sent to the address 
last known by the summoned party, or by use of any electronic means of 
transmission. Notification should be made as soon as possible after the 
suspension of the periods of limitations begins. Failure by a summoned 
party to give notice of the suspension of periods of limitations as 
required by section 7609(i)(4) does not prevent the suspension of the 
periods of limitations under section 7609(e)(2).
    (e) Effective/applicability date. This section is applicable on 
April 30, 2008.

[T.D. 9395, 73 FR 23345, Apr. 30, 2008]



Sec.  301.7609-4  Right to intervene; right to institute a proceeding to quash.

    (a) Intervention in proceeding with respect to enforcement of a 
summons. Under section 7609(b)(1), a person entitled to notice of a 
summons under section 7609(a) and Sec.  301.7609-2 is entitled to 
intervene in any proceeding brought under section 7604 with respect to 
the enforcement of that summons.
    (b) Right to institute a proceeding to quash--(1) In general. Under 
section 7609(b), a person entitled to notice of a summons under section 
7609(a) and Sec.  301.7609-2 may institute a proceeding to quash the 
summons in the United States district court for the district in which 
the summoned person resides or is found.
    (2) Requirements for a proceeding to quash. To institute a 
proceeding to quash a summons, a person entitled to notice of the 
summons must, not later than the 20th day following the day the notice 
of the summons was served on or mailed to such person--
    (i) File a petition to quash a summons in the name of the person 
entitled to notice of the summons in the proper district court;
    (ii) Notify the Internal Revenue Service (IRS) by sending a copy of 
that petition to quash by registered or certified mail to the IRS 
employee and office designated in the notice of summons to receive the 
copy; and
    (iii) Notify the summoned person by sending by registered or 
certified mail a copy of the petition to quash to the summoned person.
    (3) Failure to give timely notice. If a person entitled to notice of 
the summons fails to give proper and timely notice to either the 
summoned person or the IRS in the manner described in this paragraph, 
that person has failed to institute a proceeding to quash and the 
district court lacks jurisdiction to hear the proceeding. For example, 
if the person entitled to notice mails a copy of the petition to the 
summoned person, but fails to mail a copy of the petition to the 
designated IRS employee and office, the person entitled to notice has 
failed to institute a proceeding to quash. Similarly, if the person 
entitled to notice mails a copy of such petition to the summoned person 
but, instead of sending a copy of the petition by registered or 
certified mail to the designated IRS employee and office, the person 
entitled to notice provides the designated IRS employee and office the 
petition by some other means, the person entitled to notice has failed 
to institute a proceeding to quash.
    (4) Failure to institute a proceeding to quash. If a person entitled 
to notice fails to institute a proceeding to quash within 20 days 
following the day the notice of the summons was served on or mailed to 
such person, the IRS may examine the summoned records and take summoned 
testimony following the 23rd day after notice of the summons was served 
on or mailed to the person entitled to notice.
    (c) Presumption no notice has been mailed. Section 7609(b)(2)(B) 
permits a person entitled to notice to institute a proceeding to quash 
by filing a petition in district court and notifying both the IRS and 
the summoned person. Unless the person entitled to notice has notified 
both the IRS and the summoned person in the appropriate manner, the

[[Page 772]]

person entitled to notice has failed to institute a proceeding to quash. 
For the purpose of permitting the IRS to examine the summoned witnesses 
and records, it is presumed that the notification was not timely mailed 
if the copy of the petition was not delivered to the summoned person or 
to the person and office designated to receive the notice on behalf of 
the IRS within three days after the close of the 20-day period allowed 
for instituting a proceeding to quash.
    (d) Effective/applicability date. This section is applicable on 
April 30, 2008.

[T.D. 9395, 73 FR 23345, Apr. 30, 2008]



Sec.  301.7609-5  Suspension of periods of limitations.

    (a) In general. Except in the case of a summons that is a designated 
or related summons described in section 6503(j), the following rules 
relating to the suspension of certain periods of limitations apply to 
all third-party summonses subject to the notice requirements of section 
7609(a) and to all John Doe summonses subject to the requirements of 
section 7609(f).
    (b) Intervention in an action to enforce the summons--(1) In 
general. If a person entitled to notice of a summons under section 
7609(a) and Sec.  301.7609-2 with respect to whose liability the summons 
was issued, or such person's agent, nominee, or other person acting 
under the direction or control of the person entitled to notice, takes 
any action to intervene in a proceeding with respect to enforcement of 
such summons brought pursuant to section 7604, that person's periods of 
limitations under sections 6501 (relating to assessment and collection) 
and 6531 (relating to criminal prosecutions) for the tax period or 
periods that are the subject of the summons are suspended for the period 
during which such proceeding is pending.
    (2) Action to intervene. A person entitled to notice takes any 
action to intervene in a proceeding to enforce a summons within the 
meaning of Sec.  301.7609-4(a) on the date when a motion to intervene is 
filed with the court.
    (c) Institution of a proceeding to quash a summons--(1) In general. 
If a person entitled to notice of a summons under section 7609(a) and 
Sec.  301.7609-2 with respect to whose liability the summons was issued, 
or such person's agent, nominee, or other person acting under the 
direction or control of such person, takes any action described in Sec.  
301.7609-4(b) to institute a proceeding to quash such summons, that 
person's periods of limitations under sections 6501 and 6531 for the tax 
period or periods that are the subject of the summons are suspended for 
the period during which such proceeding is pending.
    (2) Action to institute a proceeding to quash a summons. A person 
entitled to notice takes any action to institute a proceeding to quash 
if he or she files a petition to quash the summons in any district 
court, regardless of whether the timely filing requirements of section 
7609(b)(2)(A) or the notice requirements of section 7609(b)(2)(B) are 
satisfied. For example, a person entitled to notice takes an action to 
institute a proceeding to quash a summons for purposes of this section 
if that person files a petition to quash the summons in district court 
and notifies the summoned person by sending a copy of the petition by 
registered or certified mail, but fails to mail a copy of that notice to 
the appropriate Internal Revenue Service (IRS) person and office.
    (d) Summoned party's failure to finally resolve the response to a 
summons after six months from service--(1) In general. If a third 
party's response to a summons for which the IRS was required to provide 
notice to persons identified in the summons, or to a John Doe summons 
described in section 7609(f), is not finally resolved within six months 
after the date of service of the summons, the periods of limitations are 
suspended under sections 6501 and 6531, for the person with respect to 
whose liability the summons was issued and for any person whose identity 
is sought to be obtained by a John Doe summons, for the tax period or 
periods that are the subject of the summons. The suspension shall begin 
on the date which is six months after the service of the summons and 
shall end on the date on which there is a final resolution of the 
summoned party's response to the summons.

[[Page 773]]

    (2) Example. The rules of paragraph (d)(1) of this section are 
illustrated by the following example:

    A John Doe summons is issued on April 1, 2004, to the promoter of a 
tax shelter and seeks the names of all participants in the shelter in 
order to investigate the participants' income tax liabilities for 2001 
and 2002. The district court approves service of the summons on April 
30, 2004, and the summons is served on the promoter on May 3, 2004. The 
promoter does not provide the names of the participants. The periods of 
limitations for the participants' income tax liabilities and criminal 
prosecution for 2001 and 2002 are suspended under section 7609(e)(2) 
beginning on November 3, 2004, the date which is six months after the 
date the John Doe summons was served until the date on which the 
promoter's response to the summons is finally resolved.

    (e) Definitions--(1) Agent, nominee, etc. A person is the agent, 
nominee, or other person of a person entitled to notice under section 
7609(a) and Sec.  301.7609-2, and is acting under the direction or 
control of the person entitled to notice for purposes of section 
7609(e)(1), if the person entitled to notice has the ability in fact or 
at law to cause the agent, nominee or other person, to take the actions 
permitted under section 7609(b).
    (2) Period during which a proceeding is pending--(i) Intervention in 
an enforcement proceeding. The period during which the periods of 
limitations under sections 6501 and 6531 are suspended under section 
7609(e)(1) begins on the date any person described in paragraph (b) of 
this section intervenes in an action to enforce the summons. The periods 
of limitations remain suspended until all appeals are disposed of, or 
until the expiration of the period during which an appeal may be taken 
or a request for further review may be made. The periods of limitations 
remain suspended for the period during which a proceeding is pending, 
regardless of compliance (or partial compliance) with the summons during 
that period. If, following issuance of an order to enforce a third-party 
summons, a collateral proceeding is brought challenging whether 
production made by the summoned party fully satisfied the court order 
and whether sanctions should be imposed against the summoned party for a 
failure to satisfy that order, the periods of limitations remain 
suspended until all appeals of the collateral proceeding are disposed 
of, or until the expiration of the period during which an appeal may be 
taken or a request for further review of the collateral proceeding may 
be made. Any collateral proceeding to the original proceeding shall be 
considered to be a continuation of the original proceeding.
    (ii) Proceeding to quash a summons. The period during which the 
periods of limitations under sections 6501 and 6531 are suspended under 
section 7609(e)(1) begins on the date any person described in paragraph 
(c) of this section files a petition to quash the summons in district 
court. The periods of limitations remain suspended until all appeals are 
disposed of, or until expiration of the period in which an appeal may be 
taken or a request for further review may be made. The periods of 
limitations remain suspended for the period during which a proceeding is 
pending, regardless of compliance (or partial compliance) with the 
summons during that period.
    (iii) Examples. The rules of paragraph (e)(2) are illustrated by the 
following examples:

    Example 1. A revenue agent issues a summons to A, an accountant for 
B, requiring production of records relating to B's income tax 
liabilities for 2002. The summons is served on A on March 1, 2004. B 
files a petition to quash the summons in district court on March 15, 
2004. The district court dismisses B's petition on July 1, 2004. B fails 
to appeal this decision by filing a notice of appeal within 60 days from 
the date of the district court's order of dismissal. The revenue agent 
notifies A that B did not appeal the district court's order. A turns 
over all of the records requested in the summons. The periods of 
limitations applicable to B for 2002 under sections 6501 and 6531 are 
suspended under section 7609(e)(1) from March 15, 2004, the date B filed 
a petition to quash, until August 30, 2004, the last day on which B 
could have filed a notice of appeal.
    Example 2. A revenue agent issues a summons to A, an accountant for 
B, requiring production of records relating to B's income tax 
liabilities for 2003. The summons is served on A on June 1, 2005. B 
files an untimely petition to quash the summons in district court on 
June 29, 2005. The district court dismisses B's petition on July 29, 
2005. B does not file an appeal of the district court's order. The 
periods of limitations applicable to B for 2003 under sections 6501 and

[[Page 774]]

6531 are suspended under section 7609(e)(1) from June 29, 2005, the date 
B filed an untimely petition to quash, until September 27, 2005, the 
last day on which B could have filed a notice of appeal.

    (3) Final resolution of the summoned third party's response to a 
summons. For purposes of section 7609(e)(2)(B), final resolution with 
respect to a summoned party's response to a third-party summons occurs 
when the summons or any order enforcing any part of the summons is fully 
complied with and all appeals or requests for further review are 
disposed of, the period in which an appeal may be taken has expired or 
the period in which a request for further review may be made has 
expired. The determination of whether there has been full compliance 
will be made within a reasonable time, given the volume and complexity 
of the records produced, after the later of the giving of all testimony 
or the production of all records requested by the summons or required by 
any order enforcing any part of the summons. If, following an 
enforcement order, collateral proceedings are brought challenging 
whether the production made by the summoned party fully satisfied the 
court order and whether sanctions should be imposed against the summoned 
party for a failing to do so, the suspension of the periods of 
limitations shall continue until the summons or any order enforcing any 
part of the summons is fully complied with and the decision in the 
collateral proceeding becomes final. A decision in a collateral 
proceeding becomes final when all appeals are disposed of, the period in 
which an appeal may be taken has expired or the period in which a 
request for further review may be made has expired.
    (f) Effective/applicability date. This section is applicable on 
April 30, 2008.

[T.D. 9395, 73 FR 23345, Apr. 30, 2008]



Sec.  301.7610-1  Fees and costs for witnesses.

    (a) Introduction. Section 7610 provides that the Internal Revenue 
Service may make payments to certain persons who are asked to give 
information to the Service. Under section 7610 witnesses generally will 
not be reimbursed for actual expenses incurred but instead will be paid 
in accordance with the payment rates established by regulations. 
Paragraph (b) of this section contains elaborations of certain terms 
found in section 7610 and definitions of other terms used in the 
regulations under section 7610(a)(b); and paragraphs (c) and (d) contain 
rules and rates applicable to payments under section 7610. Section 7610 
and its regulations are effective for summonses issued after February 
28, 1977, except as otherwise provided.
    (b) Definitions--(1) Directly incurred costs. Directly incurred 
costs are costs incurred solely, immediately, and necessarily as a 
consequence of searching for, reproducing, or transporting records in 
order to comply with a summons. They do not include a proportionate 
allocation of fixed costs, such as overhead, equipment depreciation, 
etc. However, where a third party's records are stored at an independent 
storage facility that charges the third party a search fee to search 
for, reproduce, or transport particular records requested, these fees 
are considered to be directly incurred by the summoned third party.
    (2) Reproduction cost. Reproduction costs are costs incurred in 
making copies or duplicates of summoned documents, transcripts, and 
other similar material.
    (3) Search costs. Search costs include only the total-cost of 
personnel time directly incurred in searching for records or information 
and the cost of retrieving information stored by computer. Salaries of 
persons locating and retrieving summoned material are not includible in 
search costs. Also, search costs do not include salaries, fees, or 
similar expenditures for analysis of material or for managerial or legal 
advice, expertise, or research, or time spent for these activities.
    (4) Third party. A third party is any person served with a summons, 
other than a person with respect to whose liability a summons is issued, 
or an officer, employee, agent, accountant, or attorney of that person.
    (5) Third party records. Third party records are books, papers, 
records, or other data in which the person with respect to whose 
liability a summons is

[[Page 775]]

issued does not have a proprietary interest at the time the summons is 
served.
    (6) Transportation costs. Transportation costs include only costs 
incurred to transport personnel to search for records or information 
requested and costs incurred solely by the need to transport the 
summoned material to the place of examination. These costs do not 
include the cost of transporting the summoned witness for appearance at 
the place of examination. See paragraph (c)(2) of this section for 
payment of travel expenses.
    (c) Conditions and rates of payments--(1) Basis for payment. Payment 
for search, reproduction, and transportation costs will be made only to 
third parties served with a summons to produce third party records or 
information and only for material requested by the summons. Payment will 
be made only for these costs that are both directly incurred and 
reasonably necessary. Search, reproduction, and transportation costs 
must be considered separately in determining whether costs are 
reasonably necessary. No payment will be made until the third party has 
satisfactorily complied with the summons and has submitted an itemized 
bill or invoice showing specific details concerning the costs to the 
Internal Revenue Service employee before whom the third party was 
summoned. If a third party charges any other person for any cost for 
which the third party is seeking payment from the Service, the amount 
charged to the other person must be subtracted from the amount the 
Internal Revenue Service must pay.
    (2) Payment rates. The following rates are established.
    (i) Search costs. (A) For the total amount of personnel time 
required to locate records or information, $8.50 per person hour for 
summonses issued after July 19, 1983. For summonses issued on or before 
such date, $5.00 per person hour.
    (B) For retrieval of information stored by computer in the format in 
which it is normally produced, actual costs, based on computer time and 
necessary supplies, except that personnel time for computer search is 
payable only under subparagraph (2)(i)(A) of this paragraph.
    (ii) Reproductions costs. (A) For copies of documents $.20 per page 
for summonses issued after July 19, 1983. For copies of documents issued 
on or before such date, $.10 per page.
    (B) For photographers, films and other materials, actual cost, 
except that personnel time is payable only under subparagraph (2)(i)(A) 
of this paragraph.
    (iii) Transportation costs. For transportation costs, actual cost, 
except that personnel time is payable only under subparagraph (2)(i)(A) 
of this paragraph.
    (d) Appearance fees and allowances--(1) In general. Under section 
7610(a)(1) and this paragraph, the Service shall pay a summoned person 
certain fees and allowances. No payments will be made until after the 
party summoned appears and has submitted any necessary receipts or other 
evidence of costs to the Service employee before whom the person was 
summoned. This paragraph is effective with respect to appearances made 
after October 26, 1978.
    (2) Attendance fees. A summoned person shall be paid an attendance 
fee for each day's attendance. A summoned person shall also be paid the 
attendance fee for the time necessarily occupied in going to and 
returning from the place of attendance at the beginning and end of the 
attendance or at any time during the attendance. The attendance fee is 
the higher of $30 per day or the amount paid under 28 U.S.C. 1821(b) to 
witnesses in attendance at courts of the United States at the time of 
the summoned person's appearance.
    (3) Travel allowances. A summoned person who travels by common 
carrier shall be paid for the actual expenses of travel on the basis of 
the means of transportation reasonably utilized and the distance 
necessarily traveled to and from the summoned person's residence by the 
shortest pratical route in going to and returning from the place of 
attendance. Such a summoned person shall utilize a common carrier at the 
most economical rate reasonably available. A receipt or other evidence 
of actual cost shall be furnished. A travel allowance equal to the 
mileage

[[Page 776]]

allowance which the Administrator of General Services has prescribed, 
under 5 U.S.C. 5704, for offical travel of employees of the Federal 
Government shall be paid to each summoned person who travels by 
privately owned vehicle. That rate is $.20 per mile as of April 20, 
1980. Computation of mileage under this paragraph shall be made on the 
basis of a uniform table of distances adopted by the Administrator of 
General Services. Toll charges for toll roads, bridges, tunnels, and 
ferries, taxicab fares between places of lodging and carrier terminals, 
and parking fees (upon presentation of a valid parking receipt) shall be 
paid in full to a summoned person incurring those expenses.
    (4) Subsistence allowances. A subsistence allowance shall be paid to 
a summoned person (other than a summoned person who is incarcerated) 
when an overnight stay is required at the place of attendance because 
the place is so far removed from the residence of the summoned person as 
to prohibit return thereto from day to day. A subsistence allowance for 
a summoned person shall be paid in an amount not to exceed the maximum 
per diem allowance prescribed by the Administrator of General Services, 
under 5 U.S.C. 5702(a), for official travel in the area of attendance by 
employees of the Federal Government. As of April 30, 1979, that maximum 
per diem allowance is $35 per day. A subsistence allowance for a 
summoned person attending in an area designated by the Administrator of 
General Services as a high-cost area shall be paid in an amount not to 
exceed the maximum actual subsistence allowance prescribed by the 
Administrator, under 5, U.S.C. 5702(c)(B), for official travel in that 
area by employees of the Federal Government. As of April 30, 1979, 
maximum rates of up to $50 per day have been prescribed by the 
Administrator for certain areas. An alien who has been paroled into the 
United States for prosecution, under section 212 (d)(5) of the 
Immigration and Nationality Act (8 U.S.C. 1182(d)(5)), or an alien who 
either has admitted belonging to a class of aliens who are deportable or 
has been determined under section 242(b) of that Act (8 U.S.C. 1252(b)) 
to be deportable, shall be ineligible to receive the fees or allowances 
provided for under section 7610(a)(1).

(Secs. 7610(a) and 7805 of the Internal Revenue Code of 1954 (26 U.S.C. 
7610(a) and 7805))

[T.D. 7899, 48 FR 32773, July 19, 1983; 48 FR 36449, Aug. 11, 1983]



Sec.  301.7611-1  Questions and answers relating to church tax inquiries 
and examinations.

                            Table of Contents

                          Question(s)/Answer(s)

Church Tax Inquiry...............................................1, 2, 3
Routine Requests.......................................................4
Third Party Records....................................................5
Scope of Section 7611............................................6, 7, 8
Notice Requirements................................................9, 10
Action After Issuance of Notice.......................................11
Procedural Time Limitations..................................12, 13, 13a
Examination of Records or Religious Activities........................14
Limitations on Period of Assessment or Proceedings for Collection 
Without Assessment....................................................15
Multiple Examinations.................................................16
Remedy for Violations of Section 7611.................................17
Effective Date........................................................18
Application to Section 4958...........................................19

                           Church Tax Inquiry

    Q-1: When may the Internal Revenue Service begin an inquiry of a 
church's tax liability?
    A-1: Under section 7611 of the Internal Revenue Code, the Internal 
Revenue Service may begin a church tax inquiry only when the appropriate 
Regional Commissioner (or higher Treasury official) reasonably believes, 
on the basis of facts and circumstances recorded in writing, that the 
organization (1) may not qualify for tax exemption as a church; (2) may 
be carrying on an unrelated trade or business (within the meaning of 
section 513); or (3) may be otherwise engaged in activities subject to 
tax. Information received by the Internal Revenue Service at its request 
may not be used to form the basis of a reasonable belief to begin a 
church tax inquiry, unless the Service's request is made within the 
procedures of section 7611, is a request permitted by these questions 
and answers to be made without application of the procedures of section 
7611, or is a request to which the procedures of section 7611 do not 
apply.

[[Page 777]]

    Q-2: What is a church tax inquiry within the meaning of section 
7611?
    A-2: A church tax inquiry is any inquiry to a church (other than a 
routine request described in Q and A-4, an inquiry described in Q and A-
5, an investigation described in Q and A-6 or an examination described 
in Qs and As 10 and 14), to serve as a basis for determining whether the 
organization qualifies for tax exemption as a church or whether it is 
carrying on an unrelated trade or business or is otherwise engaged in 
activities subject to tax. An inquiry is considered to commence when the 
Internal Revenue Service requests information or materials from a church 
of a type contained in church records. The term ``church tax inquiry'' 
does not include routine requests for information or inquiries regarding 
matters which do not primarily concern the tax status or liability of 
the church itself. See Q and A-4 with respect to routine requests 
regarding, among other things, withholding responsibilities for income 
tax or FICA (social security) tax liabilities. See Q and A-6 with 
respect to the types of investigations, other than routine requests, 
that are outside the scope of the procedures of section 7611. See Q and 
A-5 with respect to requests for third party records that are outside 
the scope of the procedures of section 7611.
    Q-3: What is a ``church'' for purposes of the church tax inquiry and 
examination procedures of section 7611?
    A-3: Solely for purposes of applying the procedures of section 7611, 
and as used in these questions and answers, the term ``church'' includes 
any organization claiming to be a church and any convention or 
association of churches. For purposes of the procedures of section 7611 
and these questions and answers a church does not include separately 
incorporated church-supported schools or other organizations 
incorporated separately from the church.

                            Routine Requests

    Q-4: What is a routine request to a church that is outside the scope 
of and does not necessitate application of the procedures set forth in 
section 7611?
    A-4: Routine requests to a church will not be considered to commence 
a church tax inquiry and will not necessitate application of the 
procedures set forth in section 7611. Routine requests for this purpose 
include (but are not limited to) questions regarding (1) the filing or 
failure to file any tax return or information return by the church; (2) 
compliance with income tax or FICA (social security) tax withholding 
responsibilities by the church; (3) any supplemental information needed 
to complete the mechanical processing of any incomplete or incorrect 
return filed by the church; (4) information necessary to process 
applications for exempt status and letter ruling requests; (5) 
information necessary to process and update periodically a church's (i) 
registrations for tax-free transactions (excise tax), (ii) elections for 
exemption from windfall profit tax, or (iii) employment tax exemption 
requests; (6) information identifying a church that is used to update 
the Cumulative List of Tax Exempt Organizations (Publication No. 78) and 
other computer files; and (7) confirmation that a specific business is 
or is not owned or operated by a church.

                           Third Party Records

    Q-5: To what extent may the Internal Revenue Service gain access to 
third party records?
    A-5: The Internal Revenue Service may request a church to provide 
information necessary to locate third-party records (for instance, bank 
records), including information regarding the church's chartered name, 
state and year of incorporation, and location of checking and savings 
accounts, without application of the procedures of section 7611.
    Records (for instance, cancelled checks or other records in the 
possession of a bank) held by third party recordkeepers, as defined in 
section 7609, are not considered church records. Thus, subject to the 
provisions set forth in section 7609 regarding third party summonses, 
access is permitted to such records without regard to the requirements 
of the procedures set forth in section 7611. The Internal Revenue 
Service is generally required, under other rules, to inform a church

[[Page 778]]

of any Internal Revenue Service requests for materials.
    Third party materials may be acquired without application of the 
procedures of section 7611; however, a determination that a church is 
not entitled to an exemption, or an assessment of tax for unrelated 
business income against a church, may not be made solely on the basis of 
third party records, without first complying with the requirements of 
two notices and offering of a conference (see Qs and As 9 and 10) 
pursuant to the procedures set forth in section 7611. This limitation 
does not apply to assessments of tax other than income tax resulting 
from loss of exemption or for unrelated business income (for instance, 
assessments of social security or other employment taxes). Third party 
bank records will not be used in a manner inconsistent with the 
procedures set forth in section 7611 or in these questions and answers.

                          Scope of Section 7611

    Q-6: What types of investigations, other than routine requests and 
requests for information necessary to locate and examine third party 
records, and examination of those records, are outside the scope of the 
procedures of section 7611?
    A-6: The church inquiry and examination procedures described in 
section 7611 do not apply to (1) any inquiry or examination relating to 
the tax liability of any person other than a church; (2) any termination 
assessment under section 6851 or 6852, or jeopardy assessment under 
section 6861; or (3) any case involving a knowing failure to file a 
return or a willful attempt to defeat or evade tax (including but not 
limited to any case involving a failure by the church to withhold or pay 
social security or other employment taxes or income tax required to be 
withheld from wages). Additionally, the church inquiry and examination 
procedures do not apply to any criminal investigations.
    The church tax inquiry and examination procedures also do not apply 
to inquiries or examinations which relate primarily to the tax status 
(including, but not limited to, social security or self-employment tax 
or income tax required to be withheld from wages) or liability of 
persons other than the church (including, but not limited to, the tax 
status or liability of a contributor or contributors to the church), 
rather than the tax status or liability of the church itself. These may 
include, but are not limited to: (1) inquiries or examinations regarding 
the inurement of church funds to a particular individual or individuals 
or to another organization, which may result in the denial of all or 
part of such individual's or organization's deduction for charitable 
contributions to a church; (2) inquiries or examinations regarding the 
assignment of income or services or contributions to a church; and (3) 
inquiries or examinations regarding a vow of poverty by an individual or 
individuals followed by a transfer of property or an assignment of 
income or services to a church. Inquiries may be made to a church 
regarding these matters without being considered to have commenced a 
church tax inquiry under section 7611, and an examination of church 
records may be made relating to these issues (including enforcement of a 
summons for access to such records) without application of the 
requirements contained in section 7611 applicable to church tax 
inquiries and examinations. Such examinations are subject to the general 
rules regarding examinations of taxpayer books and records.
    Q-7: What action may be taken if the church or its agents fail to 
respond to routine requests, or questions regarding other individuals' 
or organizations' tax liabilities?
    A-7: Repeated (two or more) failures by a church or its agents to 
reply to routine requests (see Q and A-4) will be considered by the 
appropriate Internal Revenue Service Regional Commissioner to be a 
reasonable basis for commencement of a church tax inquiry under the 
church tax inquiry and examination procedures of section 7611. The 
failure of a church to respond to repeated requests for information 
regarding individuals' or other organizations' tax liabilities (see Q 
and A-6) will be considered a reasonable basis for commencement of a 
church tax inquiry. Failure by a church to provide information necessary 
to locate third-party records (see Q and A-5) will be a

[[Page 779]]

factor, but not a conclusive factor, in determining if there is 
reasonable cause for commencing a church tax inquiry. For this purpose, 
a failure to respond to a request means either that no response has been 
made or that the response does not make a reasonable attempt to submit 
the information called for by the specific language of the request.
    Q-8: Where an inquiry or examination is outside the scope of and 
does not necessitate application of the procedures of section 7611, what 
are the limitations on the Internal Revenue Service's actions?
    A-8: Inquiries or examinations which are outside the scope of the 
procedures of section 7611 and therefore are conducted without 
application of the procedures of section 7611 (for instance, those 
addressed in Q and A-6) will be limited to the determination of facts 
and circumstances specifically relating to the tax liabilities of the 
individuals or other organizations in question. For example, in a case 
against an individual or other organization, information may be 
requested or church records examined, if pertinent, regarding amounts of 
money, property, or services transferred to the individual or 
individuals in question (including, but not limited to wages, loans, or 
noncontractual transfers), the use of church funds for personal 
expenses, or other similar matters, without having to follow the church 
tax inquiry and examination procedures. As one example, in an assignment 
of income case against an individual or other organization, information 
could be requested or church records examined if relevant to an 
individual's assignment of particular income, donation of property, or 
transfer of a business to a church. However, without following the 
church tax inquiry and examination procedures, no examination of a 
contributor or membership list in the possession of the church will be 
made, other than under the applicable procedures of section 7611, for 
the purpose of determining the overall financial structure of the 
church, merely because such structure was relevant to the church's 
qualification as a tax-exempt entity and therefore indirectly relevant 
to the validity of contributors' deductions in general. Inquiries or 
examinations regarding individuals' or other organizations' tax 
liabilities will not be used in a manner inconsistent with the 
procedures set forth in section 7611 or in these questions and answers.

                           Notice Requirements

    Q-9: What satisfies the inquiry notice requirement (first notice) 
upon commencement of a church tax inquiry?
    A-9: Upon commencing a church tax inquiry, the appropriate Regional 
Commissioner is required to provide written notice to the church of the 
beginning of the inquiry. This notice will include (1) an explanation of 
the concerns which gave rise to the inquiry and the general subject 
matter of the inquiry, which is sufficiently specific to allow the 
church to understand the particular area of church activities or 
behavior which is at issue; (2) a general explanation of the provisions 
of the Internal Revenue Code which authorize the inquiry or which may 
otherwise be involved in the inquiry; and (3) a general explanation of 
applicable administrative and constitutional provisions with respect to 
the inquiry, including the right to a conference with the Internal 
Revenue Service before an examination of church records is commenced. 
The inquiry notice (first notice) will generally request information in 
an effort to alleviate the concerns which gave rise to the inquiry.
    However, the Internal Revenue Service is not precluded from 
expanding its inquiry beyond the concerns expressed in the inquiry 
notice (first notice) as a result of facts and circumstances which 
subsequently comes to its attention (including, where appropriate, an 
expansion of an unrelated business income inquiry to include questions 
of tax-exempt status, and vice-versa).
    The inquiry notice requirement (first notice) does not require the 
Internal Revenue Service to share particular items of evidence with the 
church, or to identify its sources of information regarding church 
activities, if providing such information would be damaging to the 
inquiry or to the sources of information. For example, in an inquiry 
regarding unrelated business income, the Internal Revenue Service might 
state that its inquiry was

[[Page 780]]

prompted by a local newspaper advertisement regarding a church-owned 
business. However, the Internal Revenue Service would not be required to 
reveal the existence or identity of any so-called ``informers'' within a 
church (including present or former employees).
    Q-10: What must be done to satisfy the examination notice 
requirement (second notice) before commencing an examination of church 
records or religious activities with respect to an examination conducted 
under section 7611?
    A-10: Where an examination is conducted under section 7611, church 
records or religious activities of a church may be examined only if, at 
least 15 days prior to the examination, written notice of the proposed 
examination is provided to the church and to the appropriate Regional 
Counsel. This notice is in addition to the notice of commencement of 
inquiry (first notice) previously provided to the church.
    The notice of examination (second notice) is required to include (1) 
a copy of the church tax inquiry notice (first notice) previously 
provided to the church; (2) a description of the church records and 
activities sought to be examined; and (3) a copy of all documents which 
were collected or prepared by the Internal Revenue Service for use in 
the examination, and which are required to be disclosed under the 
Freedom of Information Act (5 U.S.C. 552) as supplemented by section 
6103 of the Code (relating to disclosure and confidentiality of tax 
return information). The documents to be supplied under this provision 
will be limited to documents specifically concerning the church whose 
records are to be examined and will not include documents relating to 
other inquiries or examinations or to Internal Revenue Service practices 
and procedures in general. Disclosure to the church will be subject to 
restrictions regarding the disclosure of the existence or identity of 
informants. Although a description of materials to be examined will be 
provided in the notice of examination (second notice), the description 
does not restrict the ability of the Internal Revenue Service to examine 
church records or religious activities which are not specifically 
mentioned in the notice of examination (second notice) but which are 
properly within the scope of the examination. Thus, the Internal Revenue 
Service is not precluded from expanding its inquiry beyond the concerns 
expressed in the examination notice (second notice) as a result of facts 
and circumstances which subsequently come to its attention (including, 
where appropriate, an expansion of an unrelated business income 
examination to include questions of tax--exempt status, and vice versa).
    At the time the notice of examination (second notice) is provided to 
the church, a copy of the same notice will be provided to the 
appropriate Regional Counsel. The Regional Counsel is then allowed 15 
days from issuance of the second notice in which to file an advisory 
objection to the examination. (This is concurrent with the 15-day period 
during which an examination of church records is prohibited pending a 
request for a conference.)
    As part of the notice of examination (second notice), the church 
will be offered an opportunity to meet with an Internal Revenue Service 
official to discuss the concerns which gave rise to the inquiry and the 
general subject matter of the inquiry. An examination will not begin 
until 15 days after the mailing of the notice of examination (second 
notice). The organization may request a conference at any time prior to 
beginning of the examination and a conference so requested will be 
scheduled within a reasonable time after the request is made.
    The purpose of the conference is to remind the church, in general 
terms, of the stages of the church tax inquiry and examination 
procedures and to discuss the relevant issues that may arise as part of 
the inquiry, in an effort to resolve the issues of tax exemption or 
liability without the necessity of an examination of church records or 
activities. Information properly excludable from a written notice of 
examination (second notice) (including information regarding the 
identity of third-party witnesses or evidence provided by such 
witnesses) is not a subject for discussion at, and will not be revealed 
during, a conference.

[[Page 781]]

    Once a conference request is timely made, an examination will begin 
only following the conference. The conference requirement may not be 
utilized to delay an examination beyond the time reasonably necessary to 
prepare for and hold the conference. The holding of one conference with 
the church will be sufficient to satisfy the requirements of section 
7611 and these questions and answers.

                     Action After Issuance of Notice

    Q-11: What action may be taken after issuance of the examination 
notice (second notice)?
    A-11: After the examination notice (second notice) is issued, the 
organization may request a conference as described in Q and A-10 (see Q 
and A-12 with respect to time for issuance of examination notice). If 
the matters of concern which gave rise to the issuance of the 
examination notice (second notice) are resolved at the conference, it 
may be determined that an examination is not necessary. If the matters 
of concern are not resolved at the conference, or if the organization 
does not request a conference, the examination will ordinarily begin.
    The examination will be conducted under the Internal Revenue 
Service's general examination procedures and the procedures of section 
7611. The outcome of such an examination will ordinarily be: (1) No 
change in tax-exempt status or tax liability; (2) no change in such 
status or liability, conditioned on compliance with a request to modify 
in future tax periods matters such as internal accounting practices and 
procedures or coupled with a caution to refrain from increasing certain 
activities limited by the Internal Revenue Code, such as lobbying 
programs aimed at influencing legislation; (3) a proposal to revoke tax-
exempt status; (4) a proposal asserting unrelated business income tax 
liability; or (5) a proposal asserting liability for other taxes.
    In certain exceptional circumstances the Internal Revenue Service 
may, in lieu of an examination, propose to revoke the organization's 
exemption based upon the facts and circumstances which form the basis 
for a reasonable belief to commence an inquiry under section 7611 and 
any other appropriate information that becomes apparent as a result of 
the inquiry, the conference, or both.
    Pursuant to section 7611(d), the Regional Counsel is required to 
approve, in writing, certain final determinations that are within the 
scope of section 7611 and adversely affect tax-exempt status or increase 
any tax liability. The Regional Counsel will review and approve (1) a 
determination that an organization is not entitled to tax-exempt status; 
(2) a determination that an organization is not entitled to receive tax-
deductible contributions; or (3) the issuance of a notice of tax 
deficiency to a church arising out of an inquiry or examination or, in 
cases where deficiency procedures are inapplicable, the assessment of 
any underpayment of tax by the church arising out of an inquiry or 
examination. The Regional Counsel will also state in writing that there 
has been substantial compliance with section 7611, when applicable.

                       Procedural Time Limitations

    Q-12: When may the notice of examination (second notice) be sent?
    A-12. The notice of examination (second notice) may be mailed to a 
church not less than 15 days after the notice of commencement of a 
church tax inquiry (first notice). Thus, at least 30 days must pass 
between the first notice and the actual examination of church records 
since an examination may not begin until 15 days after the notice of 
examination (second notice). For example, if notice of commencement of 
an inquiry is mailed to a church on March 1st, the notice of proposed 
examination may be mailed to the church no earlier than the 15th day 
after the date of the inquiry notice, or March 16th. If the notice of 
examination (second notice) was mailed March 16th, no examination of 
church records may be made prior to day 30; thus, the earliest date the 
examination may commence is March 31st. If an organization does not 
request a conference prior to day 30, the Internal Revenue Service may 
proceed to examine church records and complete its investigation or make 
a determination based on the information already in its possession.
    Q-13: What is the limitation on the amount of time the Internal 
Revenue

[[Page 782]]

Service has to complete inquiries and examinations?
    A-13: The Internal Revenue Service is required to complete any 
church inquiry or examination, and to make a final determination with 
respect thereto, not later than two years after the date on which the 
notice of examination (second notice) is mailed to the church. The 
running of this two-year period is suspended for any period during which 
(1) a judicial proceeding brought by the church or its officials or 
agents against the Internal Revenue Service with respect to the church 
tax inquiry or examination is pending or being appealed (even though 
section 7611(e)(2) describes the exclusive remedy for a violation of the 
church tax inquiry and examination procedures; see Q and A-17); (2) a 
judicial proceeding brought by the Internal Revenue Service against the 
church (or any official or agent thereof) to compel compliance with any 
reasonable request for examination of church records or religious 
activities is pending or being appealed; or (3) the Internal Revenue 
Service is unable to take actions with respect to the church tax inquiry 
or examination by reason of an order issued in a suit under section 7609 
involving access to records held by third-party recordkeepers. The two-
year period is also suspended for any period in excess of 20 days (but 
not in excess of 6 months) in which the church or its agents fail to 
comply with any reasonable request for church records or other 
information. The two-year period may be extended by mutual agreement of 
the church and the Internal Revenue Service.
    In cases where the inquiry is not followed by an examination notice 
(second notice), the inquiry must be concluded and a final determination 
made within 90 days of the date of the notice of inquiry (first notice). 
This 90-day period is suspended during any period for which the two year 
period for duration of a church examination would be suspended; except 
that the 90-day period will not be suspended because of the church's 
failure to comply with requests for information made prior to the notice 
of examination (second notice).
    Q-13a: When do the church tax inquiry and church tax examination 
periods commence and conclude?
    A-13a: A church tax inquiry commences when the church tax inquiry 
notice (first notice) is mailed. A church tax inquiry must be concluded 
not later than 90 days after the church tax inquiry notice (first 
notice) date. The period is counted from the day after the inquiry 
notice (first notice) is mailed. A church tax inquiry is concluded when 
the results of the inquiry or the notice of examination, as appropriate, 
is mailed. For example, if the inquiry notice (first notice) is mailed 
on November 1, 1985, the church tax inquiry must be concluded, in the 
absence of a permissible suspension of the period (see Q and A-13), on 
or before January 30, 1986.
    A church tax examination commences when the church tax examination 
notice (second notice) is mailed. A church tax examination must be 
concluded not later than the date which is 2 years after the examination 
notice (second notice) date. The period is counted from the day after 
the examination notice (second notice) is mailed. A church tax 
examination is concluded when the final determination is mailed. For 
example, if the examination notice is mailed November 16, 1985, the 
final determination must be made, in the absence of a permissible 
suspension of the period (see Q and A-13), on or before November 16, 
1987.

             Examination of Records or Religious Activities

    Q-14: To what extent may church records or religious activities of a 
church be examined?
    A-14: In cases conducted under section 7611, an examination of 
church records may be made only after complying with the notice 
provisions of section 7611 (see Qs and As 9, 10 and 12) unless the 
church files a written waiver of the provisions of section 7611 or a 
part thereof. In cases conducted under section 7611 where no written 
waiver has been filed, church records may be examined only to the extent 
necessary to determine the liability for, and the amount of, any Federal 
tax. This includes examinations (1) to determine

[[Page 783]]

the initial or continuing qualification of the organization whose 
records are being examined as a tax-exempt church under section 
501(c)(3); (2) to determine whether the organization qualifies to 
receive tax-deductible contributions under section 170(c); or (3) to 
determine the amount of tax (including unrelated business income tax), 
if any, which is to be imposed on the organization.
    Church records include all regularly kept church corporate and 
financial records including (but not limited to) corporate minute books, 
contributor or membership lists, and any materials which qualified as 
church books of account under section 7605(c), as in effect on December 
31, 1984. Church records include private correspondence between a church 
and its members that is in the possession of the church. However, church 
records do not include records previously filed with a public official 
or newspapers or newsletters distributed generally to church members.
    The religious activities of an organization claiming to be a church 
(see Q and A-3 for a definition of the term ``church'' as used in 
section 7611 and in these questions and answers) may be examined only to 
the extent necessary to determine if the organization actually is a 
church exempt from tax. This includes a determination of the 
organization's qualification as a church for any period.

   Limitations on Period of Assessment or Proceedings for Collection 
                           Without Assessment

    Q-15: What are the special limitations on the period of assessment 
or proceedings for collection without assessment?
    A-15: The special limitation periods for church tax liabilities are 
described below and are not be to construed to increase an otherwise 
applicable limitation period. Thus, a three-year limitation period would 
apply where a church filed a tax return before an examination was held 
and did not substantially understate income. No limitation period is to 
apply in any case of fraud, willful tax evasion, or knowing failure to 
file a return which should have been filed.
    In the case of any church tax examination with respect to the 
revocation of tax-exempt status under section 501(a), any tax imposed by 
chapter 1 (other than section 511) may be assessed, or a proceeding in 
court for collection of such tax may be begun without assessment, only 
for the three most recently completed taxable years preceding the 
examination notice date (i.e., the date the notice of examination is 
mailed to the church). If an organization is not a church exempt from 
tax under section 501(a) for any of the three years described in the 
preceding sentence, then the period of assessment will apply to the six 
most recently completed taxable years ending before the examination 
notice date.
    For examinations concerning qualification for tax-exempt status, the 
examination is limited initially to an examination of church records 
which are relevant to a determination of tax status or liability for the 
three most recently completed taxable years ending before the 
examination notice date. If it is determined that an organization is not 
a church exempt from tax for one or more of the three most recently 
completed taxable years and no return has been filed for the three years 
ending before the three most recently completed taxable years, an 
examination of relevant records may be made, as part of the same 
examination, for the six most recently completed taxable years ending 
before the examination notice date. (This assumes that no returns were 
filed for any of the three years to which the examination is to be 
extended. If a return was timely filed for any such year, the filing of 
that return determines the applicable statute of limitations for that 
year in the absence of other factors, for example, fraud, willful tax 
evasion or substantial understatement, which ordinarily would extend the 
statute of limitations.)
    For purposes of section 7611(d)(2)(A) and this question and answer, 
an organization is determined not to be a church exempt from tax for one 
or more of the three most recently completed taxable years ending before 
the

[[Page 784]]

examination notice date, when the appropriate Regional Commissioner 
approves, in writing, the completed findings of the examining agent that 
the organization is not a church exempt from tax for one or more of such 
years. Such approval may not be delegated by the Regional Commissioner 
to a subordinate official. The completed findings of the examining 
agent, as approved by the appropriate Regional Commissioner for this 
purpose, do not constitute a final revenue agent's report under section 
7611(g).
    Church records of a year earlier than the third or sixth completed 
taxable year, as applicable, may be examined if material to a 
determination of tax-exempt status during the applicable three or six 
year period.
    For examinations concerning unrelated business taxable income, where 
no return has been filed by the church, tax may be assessed or collected 
for the six most recently completed taxable years ending before the 
examination notice date. Church records of a year earlier than the sixth 
year may be examined if material to a determination of unrelated 
business income tax liability during the six year period.
    For examinations involving issues other than revocation of exempt 
status or unrelated business income (e.g., examinations relating to 
social security or other employment taxes), no limitation period is to 
apply if no return has been filed.
    The applicable limitation period may be extended by mutual agreement 
of the church and the Internal Revenue Service.

                          Multiple Examinations

    Q-16: What are the special multiple examination rules applicable to 
churches?
    A-16: The Assistant Commissioner (Employee Plans and Exempt 
Organizations) is required to approve, in writing, any second inquiry or 
examination of a church, if the second inquiry or examination is to be 
undertaken within five years of an earlier inquiry or examination and if 
the earlier inquiry or examination did not result in either (1) 
revocation of tax exemption, notice of deficiency or an assessment of 
tax, or (2) a request for any significant changes in church operational 
practices (including the adequacy or sufficiency of records maintained 
to reflect income). The Assistant Commissioner's approval is required 
only if the second inquiry or examination involves the same or similar 
issues as the earlier inquiry or examination. The 5-year period is 
counted from the examination notice date of the earlier examination or, 
if no notice of examination was mailed, the inquiry notice date of the 
earlier examination. This 5-year period is to be suspended for periods 
during which the two-year period for completion of an examination is 
suspended (as described in Q and A-13) unless the prior examination was 
actually concluded within 2 years of the notice of examination.
    In determining whether the second church tax inquiry or examination 
involves the same or similar issues as the preceding inquiry or 
examination, the substantive factual issues involved in the two 
examinations, rather than legal classifications, will govern. For 
example, where a prior examination and a current examination of 
unrelated business income involve income from different sources, the 
current examination involves different issues than the prior examination 
and the approval of the Assistant Commissioner (Employee Plans and 
Exempt Organizations) is not necessary.

                  Remedy for Violations of Section 7611

    Q-17: What remedy is available for a violation of the church inquiry 
and examination procedures?
    A-17: The exclusive remedy for any Internal Revenue Service 
violation of the church tax inquiry and examination procedures is as 
follows: Failure to comply substantially with the requirements that (1) 
two notices be sent to the church; (2) the Regional Commissioner approve 
the commencement of a church tax inquiry; or (3) an offer of a 
conference with the church be made (and a conference held if timely 
requested), will result in a stay of proceedings in a summons proceeding 
to gain access to church records (but not in dismissal of such 
proceeding), until these requirements are satisfied. The two-year 
limitation on duration of a

[[Page 785]]

church tax examination will not be suspended during stays of summons 
proceedings resulting from violations described above; however, 
violations may be corrected without regard to the otherwise applicable 
time limits prescribed under the procedures of section 7611. In 
determining whether a stay is necessary, a court must consider the good 
faith effort of the Internal Revenue Service and the effect of any 
violation of the proper examination procedures.
    Section 7611(e)(2) provides that no suit may be maintained and no 
defense may be raised, other than a stay in a summons enforcement 
proceeding, by reason of any noncompliance with the requirements of 
section 7611. Thus, failure to comply with any of these requirements may 
not be raised as a defense or affirmative ground for relief in any 
judicial proceeding including, but not limited to, a summons proceeding 
to gain access to church records; a declaratory judgment proceeding 
involving a determination of tax-exempt status under section 7428; a 
proceeding to collect unpaid tax; or a deficiency or refund proceeding. 
Additionally, failure to substantially comply with the requirements that 
two notices be sent, that the Regional Commissioner approve an inquiry, 
and that a conference be offered (and the conference held if requested) 
may not be raised as a defense or as an affirmative ground for relief in 
a summons proceeding or any other judicial proceeding other than as 
specifically set forth above. Therefore, a church or its representatives 
will not be able to litigate the issue of the reasonableness of the 
appropriate Regional Commissioner's belief in approving the commencement 
of a church tax inquiry (i.e., that the church may not be tax-exempt or 
may be engaged in taxable activities) in a summons proceeding or any 
other judicial proceeding. The church retains the right to raise any 
substantive or procedural argument which would be available to taxpayers 
generally in an appropriate proceeding.

                             Effective Date

    Q-18: What is the effective date of the church examination 
procedures?
    A-18: The procedures set forth in section 7611 apply to all tax 
inquiries and examinations beginning after December 31, 1984. The 
procedures of section 7605 will apply to any examination commenced 
before January 1, 1985. Any activities commenced after December 31, 
1984, that would constitute a new inquiry or new examination must comply 
with the procedures of section 7611.

                       Application to Section 4958

    Q-19: When do the church tax inquiry and examination procedures 
described in section 7611 apply to a determination of whether there was 
an excess benefit transaction described in section 4958?
    A-19: See Sec.  53.4958-8(b) of this chapter for rules governing the 
interaction between section 4958 excise taxes on excess benefit 
transactions and section 7611 church tax inquiry and examination 
procedures.

[T.D. 8013, 50 FR 9615, Mar. 11, 1985. Redesignated and amended by T.D. 
8077, 51 FR 6220, Feb. 21, 1986; T.D. 8628, 60 FR 62213, Dec. 5, 1995; 
T.D. 8920, 66 FR 2171, Jan. 10, 2001; 66 FR 13013, Mar. 2, 2001; T.D. 
8978, 67 FR 3099, Jan. 23, 2002; 67 FR 12472, Mar. 19, 2002]

                        General Powers and Duties



Sec.  301.7621-1  Internal revenue districts.

    For delegation to the Secretary of authority to prescribe internal 
revenue districts for the purpose of administering the internal revenue 
laws, see Executive Order No. 10289, dated September 17, 1951 (16 FR 
9499), as made applicable to the Code by Executive Order No. 10574, 
dated November 5, 1954 (19 FR 7249).



Sec.  301.7622-1  Authority to administer oaths and certify.

    The officers and employees of the Internal Revenue Service whom the 
Commissioner has designated are authorized to administer such oaths or 
affirmations and to certify to such papers as may be necessary under the 
internal revenue laws or regulations issued thereunder, except that the 
authority to certify shall not be construed as applying to those papers 
or documents

[[Page 786]]

the certification of which is authorized by separate order or directive.

(Sec. 7805, Internal Revenue Code of 1954, 68A Stat. 917; 26 U.S.C. 
7805)

[T.D. 7359, 40 FR 23743, June 2, 1975]



Sec.  301.7623-1  General rules, submitting information on underpayments 
of tax or violations of the internal revenue laws, and filing claims for award.

    (a) In general. In cases in which awards are not otherwise provided 
for by law, the Whistleblower Office may pay an award under section 
7623(a), in a suitable amount, for information necessary for detecting 
underpayments of tax or detecting and bringing to trial and punishment 
persons guilty of violating the internal revenue laws or conniving at 
the same. In cases that satisfy the requirements of section 7623(b)(5) 
and (b)(6) and in which the Internal Revenue Service (IRS) proceeds with 
an administrative or judicial action based on information provided by an 
individual, the Whistleblower Office must determine and pay an award 
under section 7623(b)(1), (2), or (3). The awards provided for by 
section 7623 and this paragraph must be paid from collected proceeds, as 
defined in Sec.  301.7623-2(d).
    (b) Eligibility to file claim for award. (1) In general. Any 
individual, other than an individual described in paragraph (b)(2) of 
this section, is eligible to file a claim for award and to receive an 
award under section 7623 and Sec. Sec.  301.7623-1 through 301.7623-4.
    (2) Ineligible whistleblowers. The Whistleblower Office will reject 
any claim for award filed by an ineligible whistleblower and will 
provide written notice of the rejection to the whistleblower. The 
following individuals are not eligible to file a claim for award or 
receive an award under section 7623 and Sec. Sec.  301.7623-1 through 
301.7623-4--
    (i) An individual who is an employee of the Department of Treasury 
or was an employee of the Department of Treasury when the individual 
obtained the information on which the claim is based;
    (ii) An individual who obtained the information through the 
individual's official duties as an employee of the Federal Government, 
or who is acting within the scope of those official duties as an 
employee of the Federal Government;
    (iii) An individual who is or was required by Federal law or 
regulation to disclose the information or who is or was precluded by 
Federal law or regulation from disclosing the information;
    (iv) An individual who obtained or had access to the information 
based on a contract with the Federal Government; or
    (v) An individual who filed a claim for award based on information 
obtained from an ineligible whistleblower for the purpose of avoiding 
the rejection of the claim that would have resulted if the claim was 
filed by the ineligible whistleblower.
    (c) Submission of information and claims for award. (1) Submitting 
information. To be eligible to receive an award under section 7623 and 
Sec. Sec.  301.7623-1 through 301.7623-4, a whistleblower must submit to 
the IRS specific and credible information that the whistleblower 
believes will lead to collected proceeds from one or more persons whom 
the whistleblower believes have failed to comply with the internal 
revenue laws. In general, a whistleblower's submission should identify 
the person(s) believed to have failed to comply with the internal 
revenue laws and should provide substantive information, including all 
available documentation, that supports the whistleblower's allegations. 
Information that identifies a pass-through entity will be considered to 
also identify all persons with a direct or indirect interest in the 
entity. Information that identifies a member of a firm who promoted 
another identified person's participation in a transaction described and 
documented in the information provided will be considered to also 
identify the firm and all other members of the firm. Submissions that 
provide speculative information or that do not provide specific and 
credible information regarding tax underpayments or violations of 
internal revenue laws do not provide a basis for an award. If documents 
or supporting evidence are known to the whistleblower but are not in the 
whistleblower's control, then the whistleblower should describe the 
documents or supporting evidence and identify

[[Page 787]]

their location to the best of the whistleblower's ability. If all 
available information known to the whistleblower is not provided to the 
IRS by the whistleblower, then the whistleblower bears the risk that 
this information might not be considered by the Whistleblower Office for 
purposes of an award.
    (2) Filing claim for award. To claim an award under section 7623 and 
Sec. Sec.  301.7623-1 through 301.7623-4 for information provided to the 
IRS, a whistleblower must file a formal claim for award by completing 
and sending Form 211, ``Application for Award for Original 
Information,'' to the Internal Revenue Service, Whistleblower Office, at 
the address provided on the form, or by complying with other claim 
filing procedures as may be prescribed by the IRS in other published 
guidance. The Form 211 should be completed in its entirety and should 
include the following information--
    (i) The date of the claim;
    (ii) The whistleblower's name;
    (iii) The whistleblower's address and telephone number;
    (iv) The whistleblower's date of birth;
    (v) The whistleblower's taxpayer identification number; and
    (vi) An explanation of how the information on which the claim is 
based came to the attention and into the possession of the 
whistleblower, including, as available, the date(s) on which the 
whistleblower acquired the information and a complete description of the 
whistleblower's present or former relationship (if any) to person(s) 
identified on the Form 211.
    (3) Under penalty of perjury. No award may be made under section 
7623(b) unless the information on which the award is based is submitted 
to the IRS under penalty of perjury. All claims for award under section 
7623 and Sec. Sec.  301.7623-1 through 301.7623-4 must be accompanied by 
an original signed declaration under penalty of perjury, as follows: ``I 
declare under penalty of perjury that I have examined this application, 
my accompanying statement, and supporting documentation and aver that 
such application is true, correct, and complete, to the best of my 
knowledge.'' This requirement precludes the filing of a claim for award 
by a person serving as a representative of, or in any way on behalf of, 
another individual. Claims filed by more than one whistleblower (joint 
claims) must be signed by each individual whistleblower under penalty of 
perjury.
    (4) Perfecting claim for award. If a whistleblower files a claim for 
award that does not include information described under paragraph (c)(2) 
of this section, does not contain specific and credible information as 
described in paragraph (c)(1) of this section, or is based on 
information that was not submitted under penalty of perjury as required 
by paragraph (c)(3) of this section, the Whistleblower Office may reject 
the claim or notify the whistleblower of the deficiencies and provide 
the whistleblower an opportunity to perfect the claim for award. If a 
whistleblower does not perfect the claim for award within the time 
period specified by the Whistleblower Office, then the Whistleblower 
Office may reject the claim. If the Whistleblower Office rejects a 
claim, then the Whistleblower Office will provide notice of the 
rejection to the whistleblower pursuant to the rules of Sec.  301.7623-
3(b)(3) or (c)(7). If the Whistleblower Office rejects a claim for the 
reasons described in this paragraph, then the whistleblower may perfect 
and resubmit the claim.
    (d) Request for assistance. (1) In general. The Whistleblower 
Office, the IRS, or IRS Office of Chief Counsel may request the 
assistance of a whistleblower or the whistleblower's legal 
representative. Any assistance shall be at the direction and control of 
the Whistleblower Office, the IRS, or the IRS Office of Chief Counsel 
assigned to the matter. See Sec.  301.6103(n)-2 for rules regarding 
written contracts among the IRS, whistleblowers, and legal 
representatives of whistleblowers.
    (2) No agency relationship. Submitting information, filing a claim 
for award, or responding to a request for assistance does not create an 
agency relationship between a whistleblower and the Federal Government, 
nor does a whistleblower or the whistleblower's legal representative act 
in any way on behalf of the Federal Government.
    (e) Confidentiality of whistleblowers. Under the informant's 
privilege, the IRS will use its best efforts to protect the identity of 
whistleblowers. In some

[[Page 788]]

circumstances, the IRS may need to reveal a whistleblower's identity, 
for example, when it is determined that it is in the best interests of 
the Government to use a whistleblower as a witness in a judicial 
proceeding. In those circumstances, the IRS will make every effort to 
notify the whistleblower before revealing the whistleblower's identity.
    (f) Effective/applicability date. This rule is effective on August 
12, 2014. This rule applies to information submitted on or after August 
12, 2014, and to claims for award under sections 7623(a) and 7623(b) 
that are open as of August 12, 2014.

[T.D. 9687, 79 FR 47264, Aug. 12, 2014]



Sec.  301.7623-2  Definitions.

    (a) Action. (1) In general. For purposes of section 7623(b) and 
Sec. Sec.  301.7623-1 through 301.7623-4, the term action means an 
administrative or judicial action.
    (2) Administrative action. For purposes of section 7623(b) and 
Sec. Sec.  301.7623-1 through 301.7623-4, the term administrative action 
means all or a portion of an Internal Revenue Service (IRS) civil or 
criminal proceeding against any person that may result in collected 
proceeds, as defined in paragraph (d) of this section, including, for 
example, an examination, a collection proceeding, a status determination 
proceeding, or a criminal investigation.
    (3) Judicial action. For purposes of section 7623(b) and Sec. Sec.  
301.7623-1 through 301.7623-4, the term judicial action means all or a 
portion of a proceeding against any person in any court that may result 
in collected proceeds, as defined in paragraph (d) of this section.
    (b) Proceeds based on. (1) In general. For purposes of section 
7623(b) and Sec. Sec.  301.7623-1 through 301.7623-4, the IRS proceeds 
based on information provided by a whistleblower when the information 
provided substantially contributes to an action against a person 
identified by the whistleblower. For example, the IRS proceeds based on 
the information provided when the IRS initiates a new action, expands 
the scope of an ongoing action, or continues to pursue an ongoing 
action, that the IRS would not have initiated, expanded the scope of, or 
continued to pursue, but for the information provided. The IRS does not 
proceed based on information when the IRS analyzes the information 
provided or investigates a matter raised by the information provided.
    (2) Examples. The provisions of paragraph (b)(1) of this section may 
be illustrated by the following examples:

    Example 1. Information provided to the IRS by a whistleblower, under 
section 7623 and Sec.  301.7623-1, identifies a taxpayer, describes and 
documents specific facts relating to the taxpayer's foreign sales in 
Country A, and, based on those facts, alleges that the taxpayer was not 
entitled to a foreign tax credit relating to its foreign sales in 
Country A. The IRS receives the information after having already 
initiated an examination of the taxpayer. The IRS's audit plan includes 
foreign tax credit issues but focuses on taxpayer's foreign sales in 
Country B and does not specifically address the taxpayer's foreign sales 
in Country A. Based on the information provided, the IRS expands the 
examination of the foreign tax credit issue to include consideration of 
the amount of foreign tax credit relating to the taxpayer's foreign 
sales in Country A. For purposes of section 7623 and Sec. Sec.  
301.7623-1 through 301.7623-4, the portion of the IRS's examination of 
the taxpayer relating to the foreign tax credit issue with respect to 
Country A is an administrative action with which the IRS proceeds based 
on the information provided by the whistleblower because the information 
provided substantially contributed to the action by causing the 
expansion of the IRS's examination.
    Example 2. Information provided to the IRS by a whistleblower, under 
section 7623 and Sec.  301.7623-1, identifies a taxpayer, describes and 
documents specific facts relating to the taxpayer's activities, and, 
based on those facts, alleges that the taxpayer owed additional taxes in 
Year 1. The IRS proceeds with an examination of the taxpayer for Year 1 
based on the information provided by the whistleblower. The IRS 
discovers that the taxpayer engaged in the same activities in Year 2 and 
expands the examination to Year 2. In the course of the examination, the 
IRS obtains, through the issuance of Information Document Requests 
(IDRs) and summonses, additional facts that are unrelated to the 
activities described in the information provided by the whistleblower. 
Based on these additional facts, the IRS expands the scope of the 
examination of the taxpayer for both Year 1 and Year 2. For purposes of 
section 7623 and Sec. Sec.  301.7623-1 through 301.7623-4, the portion 
of the IRS's examination relating to the activities described and 
documented in the information provided is an administrative action with 
which the IRS proceeds

[[Page 789]]

based on information provided by the whistleblower because the 
information provided substantially contributed to the action by causing 
the expansion of the IRS's examination of Year 1 and Year 2. The 
portions of the IRS's examination of the taxpayer in both Year 1 and 
Year 2 relating to the additional facts obtained through the issuance of 
IDRs and summonses are not actions with which the IRS proceeds based on 
the information provided by the whistleblower because the information 
provided did not substantially contribute to the action.
    Example 3. Information provided to the IRS by a whistleblower, under 
section 7623 and Sec.  301.7623-1, identifies a taxpayer, describes and 
documents specific facts relating to the taxpayer's activities, and, 
based on those facts, alleges that the taxpayer owed additional taxes in 
Year 1. The IRS receives the information after having already initiated 
an examination of the taxpayer for Year 1. During the examination, the 
information is provided to the Exam team and the Exam team uses the 
information provided to confirm the correctness of adjustments made 
based on other information. Although the whistleblower's information 
confirms the correctness of the IRS's adjustments, the IRS does not rely 
on the whistleblower's information when it makes the adjustments, nor 
does the information cause the IRS to expand the scope of its 
examination. The whistleblower's information merely supports information 
independently obtained by the IRS. For purposes of section 7623 and 
Sec. Sec.  301.7623-1 through 301.7623-4, the IRS's examination is not 
an administrative action with which the IRS proceeds based on 
information provided by the whistleblower because the information 
provided did not substantially contribute to the action.
    Example 4. Same facts as Example 3. During the examination, however, 
the Exam team identifies inconsistencies between the information 
provided by the whistleblower and other information already in the Exam 
team's possession. The Exam team uses the information provided by the 
whistleblower to make additional adjustments that it would not have made 
based solely on the other information. For purposes of section 7623 and 
Sec. Sec.  301.7623-1 through 301.7623-4, the portion of the IRS's 
examination relating to the additional adjustments is an administrative 
action with which the IRS proceeds based on information provided by the 
whistleblower because the information provided substantially contributed 
to the action.

    (c) Related action. (1) In general. For purposes of section 7623(b) 
and Sec. Sec.  301.7623-1 through 301.7623-4, the term related action 
means an action against a person other than the person(s) identified in 
the information provided and subject to the original action(s), when--
    (i) The facts relating to the underpayment of tax or violations of 
the internal revenue laws by the other person are substantially the same 
as the facts described and documented in the information provided (with 
respect to the person(s) subject to the original action);
    (ii) The IRS proceeds with the action against the other person based 
on the specific facts described and documented in the information 
provided; and
    (iii) The other, unidentified person is related to the person 
identified in the information provided. For purposes of this paragraph, 
an unidentified person is related to the person identified in the 
information provided if the IRS can identify the unidentified person 
using the information provided (without first having to use the 
information provided to identify any other person or having to 
independently obtain additional information).
    (2) Examples. The provisions of paragraph (c)(1) of this section may 
be illustrated by the following examples:

    Example 1. Information provided to the IRS by a whistleblower, under 
section 7623 and Sec.  301.7623-1, identifies a taxpayer (Taxpayer 1), 
describes and documents specific facts relating to Taxpayer 1's 
activities, and, based on those facts, alleges tax underpayments by 
Taxpayer 1. The information provided also identifies an accountant (CPA 
1) and describes and documents specific facts relating to CPA 1's 
contribution to the activities of Taxpayer 1 that the whistleblower 
alleges resulted in tax underpayments. The IRS proceeds with an 
examination of Taxpayer 1 based on the information provided by the 
whistleblower. Using the information provided, the IRS obtains CPA 1's 
client list and identifies two taxpayer/clients of CPA 1 (Taxpayer 2 and 
Taxpayer 3) that appear to have engaged in activities similar to 
Taxpayer 1. The IRS proceeds with an examination of Taxpayer 2 and finds 
that Taxpayer 2 engaged in the same activities as those described in the 
information provided with respect to Taxpayer 1. The IRS proceeds with 
an examination of Taxpayer 3 and finds that Taxpayer 3 engaged in 
different activities from those described in the information provided 
with respect to Taxpayer 1. For purposes of section 7623 and Sec. Sec.  
301.7623-1 through 301.7623-4, the examination of Taxpayer 2 is a 
related action because it satisfies the conditions of paragraph (c)(1) 
of this section. The

[[Page 790]]

examination of Taxpayer 3 is not a related action because the relevant 
facts are not substantially the same as the facts relevant to the 
examination of Taxpayer 1.
    Example 2. Same facts as Example 1. Using the information provided 
by the whistleblower, the IRS identifies a co-promoter of CPA 1 (CPA 2) 
that appears to have engaged in activities similar to CPA 1. CPA 2 is 
not a member of CPA 1's firm. The IRS subsequently obtains the client 
list of CPA 2 and identifies a taxpayer/client of CPA 2 (Taxpayer 4) 
that appears to have engaged in activities similar to Taxpayer 1. The 
IRS proceeds with an examination of Taxpayer 4 and finds that Taxpayer 4 
engaged in the same activities as those described in the information 
provided with respect to Taxpayer 1, and that CPA 2 contributed to the 
activities in the same way as described in the information provided with 
respect to CPA 1. The IRS proceeds with an examination of CPA 2's 
liability for promoter penalties under section 6700 in connection with 
the activities described in the information provided with respect to 
Taxpayer 1 and CPA 1. For purposes of section 7623 and Sec. Sec.  
301.7623-1 through 301.7623-4, the examination of CPA 2 is a related 
action because it satisfies the conditions of paragraph (c)(1) of this 
section. The examination of Taxpayer 4 is not a related action because 
Taxpayer 4 was not related to a person identified in the information 
provided. CPA 2 was not identified in the information provided and the 
IRS first had to identify CPA 2 before identifying Taxpayer 4 and 
proceeding with the examination of Taxpayer 4.
    Example 3. Same facts as Example 1. An accountant (CPA 3) is a 
member of CPA 1's firm. Using the information provided by the 
whistleblower, the IRS obtains the client list of CPA 3 and identifies a 
taxpayer/client of CPA 3 (Taxpayer 5) that appears to have engaged in 
activities similar to Taxpayer 1. The IRS proceeds with an examination 
of Taxpayer 5 and finds that Taxpayer 5 engaged in the same activities 
as those described in the information provided with respect to Taxpayer 
1, and that CPA 3 contributed to the activities in the same way as 
described in the information provided with respect to CPA 1. For 
purposes of section 7623 and Sec. Sec.  301.7623-1 through 301.7623-4, 
the examination of Taxpayer 5 is a related action because Taxpayer 5 is 
related to CPA 3, a person considered to be identified in the 
information provided under Sec.  301.7623-1(c)(1), and the facts 
relating to Taxpayer 5 are substantially the same as the facts described 
and documented in the information provided. An IRS examination of CPA 
3's liability for promoter penalties under section 6700, based on the 
facts described and documented in the information provided with respect 
to Taxpayer 1 and CPA 1, is an administrative action based on the 
information provided.
    Example 4. Information provided to the IRS by a whistleblower, under 
section 7623 and Sec.  301.7623-1, identifies a taxpayer (Taxpayer 1), 
describes and documents specific facts relating to Taxpayer 1's 
activities, and, in particular, Taxpayer 1's participation in a 
transaction. Based on those facts, the whistleblower alleges that 
Taxpayer 1 owed additional taxes. The IRS proceeds with an examination 
of Taxpayer 1 based on the information provided by the whistleblower. 
The IRS identifies the other parties to the transaction described in the 
information provided (Taxpayer 2 and Taxpayer 3). The IRS proceeds with 
examinations of Taxpayer 2 and Taxpayer 3 relating to their 
participation in the transaction described in the information provided. 
For purposes of section 7623 and Sec. Sec.  301.7623-1 through 301.7623-
4, the IRS's examinations of Taxpayer 2 and Taxpayer 3 relating to the 
activities described and documented in the information provided are 
related actions because they satisfy the conditions of paragraph (c)(1) 
of this section.

    (d) Collected proceeds. (1) In general. For purposes of section 7623 
and Sec. Sec.  301.7623-1 through 301.7623-4, the terms proceeds of 
amounts collected and collected proceeds (collectively, collected 
proceeds) include: Tax, penalties, interest, additions to tax, and 
additional amounts collected because of the information provided; 
amounts collected prior to receipt of the information if the information 
provided results in the denial of a claim for refund that otherwise 
would have been paid; and a reduction of an overpayment credit balance 
used to satisfy a tax liability incurred because of the information 
provided. Collected proceeds are limited to amounts collected under the 
provisions of title 26, United States Code.
    (2) Refund netting. (i) In general. If any portion of a claim for 
refund that is substantively unrelated to the information provided is--
    (A) Allowed, and
    (B) Used to satisfy a tax liability attributable to the information 
provided instead of refunded to the taxpayer, then the allowed but non-
refunded amount constitutes collected proceeds.
    (ii) Example. The provisions of paragraph (d)(2)(i) of this section 
may be illustrated by the following example:

    Example. Information provided to the IRS by a whistleblower, under 
section 7623 and Sec.  301.7623-1, identifies a corporate taxpayer 
(Corporation), describes and documents specific facts relating to 
Corporation's activities, and, based on those facts, alleges that

[[Page 791]]

Corporation owed additional taxes. Based on the information provided by 
the whistleblower, the IRS proceeds with an examination of Corporation 
and determines adjustments that would result in an unpaid tax liability 
of $500,000. During the examination, Corporation informally claims a 
refund of $400,000 based on adjustments to items of income and expense 
that are wholly unrelated to the information provided by the 
whistleblower. The IRS agrees to the unrelated adjustments. The IRS nets 
the adjustments and determines a tax deficiency of $100,000. Thereafter, 
Corporation makes full payment of the $100,000 deficiency. For purposes 
of section 7623 and Sec. Sec.  301.7623-1 through 301.7623-4, the 
collected proceeds include the $400,000 informally claimed as a refund 
and netted against the adjustments attributable to the information 
provided, as well as the $100,000 paid by Corporation.

    (3) Amended returns. Amounts collected based on amended returns 
constitute collected proceeds if--
    (i) The IRS proceeds based on the information provided;
    (ii) As a result, the person subject to the action(s) with which the 
IRS proceeds files amended returns; and
    (iii) The amounts collected based on the amended returns relate to 
the activities or facts described in the information provided.
    (4) Criminal fines. Criminal fines deposited into the Crime Victims 
Fund are not collected proceeds and cannot be used for payment of 
awards.
    (5) Computation of collected proceeds. (i) In general. Pursuant to 
Sec.  301.7623-4(d)(1), the IRS cannot make an award payment until there 
has been a final determination of tax. For purposes of determining the 
amount of an award under section 7623 and Sec. Sec.  301.7623-1 through 
301.7623-4, after there has been a final determination of tax as defined 
in Sec.  301.7623-4(d)(2), the IRS will compute the amount of collected 
proceeds based on all information known with respect to the taxpayer's 
account, including with respect to all tax attributes, as of the date 
the computation is made.
    (ii) Post-determination proceeds. If, based on all information known 
with respect to the taxpayer's account as of the date of the computation 
described in paragraph (d)(5)(i) of this section, there is a possibility 
that the IRS may collect additional proceeds, then the Whistleblower 
Office will continue to monitor the case. If the Whistleblower Office 
identifies additional collected proceeds, then the IRS will compute and 
pay accordingly.
    (iii) Partial collection. If the IRS does not collect the full 
amount of taxes, penalties, interest, additions to tax, and additional 
amounts assessed against the taxpayer, then any amounts that the IRS 
does collect will constitute collected proceeds in the same proportion 
that the adjustments attributable to the information provided bear to 
the total adjustments.
    (e) Amount in dispute and gross income. (1) In general. Section 
7623(b) applies with respect to any action against any taxpayer in which 
the tax, penalties, interest, additions to tax, and additional amounts 
in dispute exceed $2,000,000 but, if the taxpayer is an individual, then 
only if the taxpayer's gross income exceeds $200,000 in at least one 
taxable year subject to the action.
    (2) Amount in dispute. (i) In general. For purposes of section 
7623(b)(5) and Sec. Sec.  301.7623-1 through 301.7623-4, the term amount 
in dispute means the greater of the maximum total of tax, penalties, 
interest, additions to tax, and additional amounts that resulted from 
the action(s) with which the IRS proceeded based on the information 
provided, or the maximum total of such amounts that were stated in 
formal positions taken by the IRS in the action(s). The IRS will compute 
the amount in dispute, for purposes of award determinations described in 
Sec.  301.7623-3(c)(6), when there has been a final determination of tax 
as defined in Sec.  301.7623-4(d)(2).
    (ii) Examples. The provisions of paragraph (e)(2)(i) of this section 
may be illustrated by the following examples:

    Example 1. Information provided to the IRS by a whistleblower, under 
section 7623 and Sec.  301.7623-1, identifies a corporate taxpayer, 
describes and documents specific facts relating to the taxpayer's 
activities, and, based on those facts, alleges that the taxpayer owed 
additional taxes. The IRS proceeds with an examination of the taxpayer 
based on the information provided by the whistleblower; makes 
adjustments to items of income and expense and allows certain credits; 
and, ultimately, determines a deficiency against the taxpayer of 
$1,900,000 and issues

[[Page 792]]

the taxpayer a statutory notice of deficiency. The taxpayer petitions 
the notice to the United States Tax Court. The Tax Court sustains the 
IRS's position resulting in a deficiency of $1,900,000. Following the 
final determination of tax, the IRS computes that the total of tax, 
penalties, interest, additions to tax, and additional amounts that 
resulted from the action was $2,500,000. For purposes of section 7623 
and Sec. Sec.  301.7623-1 through 301.7623-4, the amount in dispute is 
$2,500,000.
    Example 2. Same facts as Example 1, except the IRS determines a 
deficiency of $1,500,000; the Tax Court sustains the deficiency of 
$1,500,000; and, following the final determination of tax, the IRS 
computes that the total of tax, penalties, interest, additions to tax, 
and additional amounts that resulted from the action was $1,750,000. For 
purposes of section 7623 and Sec. Sec.  301.7623-1 through 301.7623-4, 
the amount in dispute is $1,750,000.
    Example 3. Same facts as Example 1, except the IRS determines a 
deficiency of $2,100,000; the Tax Court redetermines a deficiency of 
$1,500,000; and, following the final determination of tax, the IRS 
computes that the total of tax, penalties, interest, additions to tax, 
and additional amounts that resulted from the action was $1,750,000. For 
purposes of section 7623 and Sec. Sec.  301.7623-1 through 301.7623-4, 
the amount in dispute is $2,100,000.

    (3) Gross income. For purposes of section 7623(b)(5) and Sec. Sec.  
301.7623-1 through 301.7623-4, the term gross income has the same 
meaning as provided under section 61(a). The IRS will compute the 
individual taxpayer's gross income, for purposes of award determinations 
described in Sec.  301.7623-3(c)(6), when there has been a final 
determination of tax as defined in Sec.  301.7623-4(d)(2).
    (f) Effective/applicability date. This rule is effective on August 
12, 2014. This rule applies to information submitted on or after August 
12, 2014, and to claims for award under sections 7623(a) and 7623(b) 
that are open as of August 12, 2014.

[T.D. 9687, 79 FR 47266, Aug. 12, 2014; 79 FR 57785, Sept. 26, 2014]



Sec.  301.7623-3  Whistleblower administrative proceedings and appeals 
of award determinations.

    (a) In general. The Whistleblower Office will pay awards under 
section 7623(a) and determine and pay awards under section 7623(b) in 
whistleblower administrative proceedings pursuant to the rules of this 
section. The whistleblower administrative proceedings described in this 
section are administrative proceedings pertaining to tax administration 
for purposes of section 6103(h)(4). See Sec.  301.6103(h)(4)-1 for 
additional rules regarding disclosures of return information in 
whistleblower administrative proceedings. The Whistleblower Office may 
determine awards for claims involving multiple actions in a single 
whistleblower administrative proceeding. For purposes of the 
whistleblower administrative proceedings for rejections and denials, 
described in paragraphs (b)(3), (c)(7), and (c)(8) of this section, the 
Internal Revenue Service (IRS) may rely on the whistleblower's 
description of the amount owed by the taxpayer(s). The IRS may, however, 
rely on other information as necessary (for example, when the alleged 
amount in dispute is below the $2 million threshold of section 
7623(b)(5)(B), but the actual amount in dispute is above the threshold).
    (b) Awards under section 7623(a). (1) Preliminary award 
recommendation. In cases in which the Whistleblower Office recommends 
payment of an award under section 7623(a), the Whistleblower Office will 
communicate a preliminary award recommendation under section 7623(a) and 
Sec. Sec.  301.7623-1 through 301.7623-4 to the whistleblower by sending 
a preliminary award recommendation letter that states the Whistleblower 
Office's preliminary computation of the amount of collected proceeds, 
recommended award percentage, recommended award amount (even in cases 
when the application of Sec.  301.7623-4 results in a reduction of the 
recommended award amount to zero), and a list of the factors that 
contributed to the recommended award percentage. The whistleblower 
administrative proceeding described in paragraphs (b)(1) and (2) of this 
section begins on the date the Whistleblower Office sends the 
preliminary award recommendation letter. If the whistleblower believes 
that the Whistleblower Office erred in evaluating the information 
provided, the whistleblower has 30 days from the date the Whistleblower 
Office sends the preliminary award recommendation to submit comments to 
the Whistleblower Office (this period may be extended at

[[Page 793]]

the sole discretion of the Whistleblower Office). The Whistleblower 
Office will review all comments submitted timely by the whistleblower 
(or the whistleblower's legal representative, if any) and pay an award, 
pursuant to paragraph (b)(2) of this section.
    (2) Decision letter. At the conclusion of the process described in 
paragraph (b)(1) of this section, and when there is a final 
determination of tax, as defined in Sec.  301.7623-4(d)(2), the 
Whistleblower Office will pay an award under section 7623(a) and 
Sec. Sec.  301.7623-1 through 301.7623-4. The Whistleblower Office will 
communicate the amount of the award to the whistleblower in a decision 
letter.
    (3) Rejections and denials. If the Whistleblower Office rejects a 
claim for award under section 7623(a), pursuant to Sec.  301.7623-1(b) 
or (c), or if the IRS either did not proceed based on information 
provided by the whistleblower, as defined in Sec.  301.7623-2(b), or did 
not collect proceeds, as defined in Sec.  301.7623-2(d), then the 
Whistleblower Office will not apply the rules of paragraphs (b)(1) or 
(2) of this section. The Whistleblower Office will provide written 
notice to the whistleblower of the rejection or denial of any award and, 
in the case of a rejection, the written notice will state the basis for 
the rejection.
    (c) Awards under section 7623(b). (1) Preliminary award 
recommendation. For claims under section 7623(b) other than those 
described in paragraphs (c)(7) and (c)(8) of this section (rejections 
and denials), the Whistleblower Office will prepare a preliminary award 
recommendation based on the Whistleblower Office's review of the 
administrative claim file and the application of the rules of section 
7623 and Sec. Sec.  301.7623-1 through 301.7623-4 to the facts of the 
case. See paragraph (e)(2) of this section for a description of the 
administrative claim file. The whistleblower administrative proceeding 
described in paragraphs (c)(1) through (6) of this section begins on the 
date the Whistleblower Office sends the preliminary award recommendation 
letter. The preliminary award recommendation is not a determination 
letter within the meaning of paragraph (c)(6) of this section and cannot 
be appealed to Tax Court under section 7623(b)(4) and paragraph (d) of 
this section. The preliminary award recommendation will notify the 
whistleblower that the IRS cannot determine or pay any award until there 
is a final determination of tax, as defined in Sec.  301.7623-4(d)(2).
    (2) Contents of preliminary award recommendation. The Whistleblower 
Office will communicate the preliminary award recommendation under 
section 7623(b) to the whistleblower by sending--
    (i) A preliminary award recommendation letter that describes the 
whistleblower's options for responding to the preliminary award 
recommendation;
    (ii) A summary report that states a preliminary computation of the 
amount of collected proceeds, the recommended award percentage, the 
recommended award amount (even in cases when the application of section 
7623(b)(2) or section 7623(b)(3) results in a reduction of the 
recommended award amount to zero), and a list of the factors that 
contributed to the recommended award percentage;
    (iii) An award consent form; and
    (iv) A confidentiality agreement.
    (3) Opportunity to respond to preliminary award recommendation. The 
whistleblower will have 30 days (this period may be extended at the sole 
discretion of the Whistleblower Office) from the date the Whistleblower 
Office sends the preliminary award recommendation letter to respond to 
the preliminary award recommendation in one of the following ways--
    (i) If the whistleblower takes no action, then the Whistleblower 
Office will make an award determination, pursuant to paragraph (c)(6) of 
this section;
    (ii) If the whistleblower signs, dates, and returns the award 
consent form agreeing to the preliminary award recommendation and 
waiving any and all administrative and judicial appeal rights, then the 
Whistleblower Office will make an award determination, pursuant to 
paragraph (c)(6) of this section;
    (iii) If the whistleblower signs, dates, and returns the 
confidentiality agreement, then the Whistleblower Office will provide 
the whistleblower with a detailed award report, and an opportunity to 
review documents supporting the report pursuant to paragraphs

[[Page 794]]

(c)(4) and (5) of this section, and any comments submitted by the 
whistleblower will be added to the administrative claim file; or
    (iv) If the whistleblower submits comments on the preliminary award 
recommendation to the Whistleblower Office, but does not sign, date, and 
return the confidentiality agreement, then the comments will be added to 
the administrative claim file and reviewed by the Whistleblower Office 
in making an award determination, pursuant to paragraph (c)(6) of this 
section.
    (4) Detailed report. (i) Contents of detailed report. If the 
whistleblower signs, dates, and returns the confidentiality agreement 
accompanying the preliminary award recommendation under section 7623(b), 
pursuant to paragraph (c)(3) of this section, then the Whistleblower 
Office will send the whistleblower--
    (A) A detailed report that states a preliminary computation of the 
amount of collected proceeds, the recommended award percentage, and the 
recommended award amount, and provides a full explanation of the factors 
that contributed to the recommended award percentage;
    (B) Instructions for scheduling an appointment for the whistleblower 
(and the whistleblower's legal representative, if any) to review 
information in the administrative claim file that is not protected by 
one or more common law or statutory privileges; and
    (C) An award consent form.
    (ii) Opportunity to respond to detailed report. The whistleblower 
will have 30 days (this period may be extended at the sole discretion of 
the Whistleblower Office) from the date the Whistleblower Office sends 
the detailed report to respond in one of the following ways--
    (A) If the whistleblower takes no action, then the Whistleblower 
Office will make an award determination, pursuant to paragraph (c)(6) of 
this section;
    (B) If the whistleblower requests an appointment to review 
information from the administrative claim file that is not protected 
from disclosure by one or more common law or statutory privileges, then 
a meeting will be arranged pursuant to paragraph (c)(5) of this section;
    (C) If the whistleblower does not request an appointment but does 
submit comments on the detailed report to the Whistleblower Office, then 
the comments will be added to the administrative claim file and reviewed 
by the Whistleblower Office in making an award determination pursuant to 
paragraph (c)(6) of this section; or
    (D) If the whistleblower signs, dates, and returns the award consent 
form agreeing to the preliminary award recommendation and waiving any 
and all administrative and judicial appeal rights, then the 
Whistleblower Office will make an award determination, pursuant to 
paragraph (c)(6) of this section.
    (iii) Additional rules. The detailed report is not a determination 
letter within the meaning of paragraph (c)(6) of this section and cannot 
be appealed to Tax Court under section 7623(b)(4) and paragraph (d) of 
this section. The detailed report will notify the whistleblower that the 
IRS cannot determine or pay any award until there is a final 
determination of tax, as defined in Sec.  301.7623-4(d)(2).
    (5) Opportunity to review documents supporting award report 
recommendations. Appointments for the whistleblower (and the 
whistleblower's legal representative, if any) to review information from 
the administrative claim file that is not protected from disclosure by 
one or more common law or statutory privileges will be held at the 
Whistleblower Office in Washington, DC, unless the Whistleblower Office, 
in its sole discretion, decides to hold the meeting at another location. 
At the appointment, the Whistleblower Office will provide for viewing 
the information from the administrative claim file. The Whistleblower 
Office will supervise the whistleblower's review of the information and 
the whistleblower will not be permitted to make copies of any documents 
or other information. The whistleblower will have 30 days (this period 
may be extended at the sole discretion of the Whistleblower Office) from 
the date of the appointment to submit comments on the detailed report 
and the documents reviewed at the appointment to the Whistleblower 
Office. All comments will be added to

[[Page 795]]

the administrative claim file and reviewed by the Whistleblower Office 
in making an award determination, pursuant to paragraph (c)(6) of this 
section.
    (6) Determination letter. After the whistleblower's participation in 
the whistleblower administrative proceeding, pursuant to paragraph (c) 
of this section, has concluded, and there is a final determination of 
tax, as defined in Sec.  301.7623-4(d)(2), a Whistleblower Office 
official will determine the amount of the award under section 
7623(b)(1), (2), or (3), and Sec. Sec.  301.7623-1 through 301.7623-4, 
based on the official's review of the administrative claim file. The 
Whistleblower Office will communicate the award to the whistleblower in 
a determination letter, stating the amount of the award. If, however, 
the whistleblower has executed an award consent form agreeing to the 
amount of the award and waiving the whistleblower's right to appeal the 
award determination, pursuant to section 7623(b)(4) and paragraph (d) of 
this section, then the Whistleblower Office will not send the 
whistleblower a determination letter and will make payment of the award 
as promptly as circumstances permit.
    (7) Rejections. A rejection is a determination that relates solely 
to the whistleblower and the information on the face of the claim that 
pertains to the whistleblower. If the Whistleblower Office rejects a 
claim for award under section 7623(b), pursuant to Sec.  301.7623-1(b) 
or (c), then the Whistleblower Office will not apply the rules of 
paragraphs (c)(1) through (6) of this section. The Whistleblower Office 
will send to the whistleblower a preliminary rejection letter that 
states the basis for the rejection of the claim. The whistleblower 
administrative proceeding described in this paragraph begins on the date 
the Whistleblower Office sends the preliminary rejection letter. If the 
whistleblower believes that the Whistleblower Office erred in evaluating 
the information provided, the whistleblower has 30 days from the date 
the Whistleblower Office sends the preliminary rejection letter to 
submit comments to the Whistleblower Office (this period may be extended 
at the sole discretion of the Whistleblower Office). The Whistleblower 
Office will review all comments submitted timely by the whistleblower 
(or the whistleblower's legal representative, if any) and, following 
that review, the Whistleblower Office will either provide written notice 
to the whistleblower of the rejection of the claim, including the basis 
for the rejection, or apply the rules of paragraphs (c)(1) through 
(c)(6) of this section.
    (8) Denials. A denial is a determination that relates to or 
implicates taxpayer information. If, with respect to a claim for award 
under section 7623(b), the IRS either did not proceed based on the 
information provided by the whistleblower, as defined in Sec.  301.7623-
2(b), or did not collect proceeds, as defined in Sec.  301.7623-2(d), 
then the Whistleblower Office will not apply the rules of paragraphs 
(c)(1) through (6) of this section. The Whistleblower Office will send 
to the whistleblower a preliminary denial letter that states the basis 
for the denial of the claim. The whistleblower administrative proceeding 
described in this paragraph begins on the date the Whistleblower Office 
sends the preliminary denial letter. If the whistleblower believes that 
the Whistleblower Office erred in evaluating the information provided, 
the whistleblower has 30 days from the date the Whistleblower Office 
sends the preliminary denial letter to submit comments to the 
Whistleblower Office (this period may be extended at the sole discretion 
of the Whistleblower Office). The Whistleblower Office will review all 
comments submitted timely by the whistleblower (or the whistleblower's 
legal representative, if any) and, following that review, the 
Whistleblower Office will either provide written notice to the 
whistleblower of the denial of any award, including the basis for the 
denial, or apply the rules of paragraphs (c)(1) through (c)(6) of this 
section.
    (d) Appeal of award determination. Any determination regarding an 
award under section 7623(b)(1), (2), or (3) may, within 30 days of such 
determination, be appealed to the Tax Court.
    (e) Administrative record. (1) In general. The administrative record 
comprises all information contained in the administrative claim file 
that is relevant to the award determination and

[[Page 796]]

not protected by one or more common law or statutory privileges.
    (2) Administrative claim file. The administrative claim file will 
include the following materials relating to the action(s) to which the 
determination relates--
    (i) The Form 211, ``Application for Award for Original 
Information,'' filed by the whistleblower and all information provided 
by the whistleblower (whether provided with the whistleblower's original 
submission or through a subsequent contact with the IRS).
    (ii) Copies of all debriefing notes and recorded interviews held 
with the whistleblower (and the whistleblower's legal representative, if 
any).
    (iii) Form(s) 11369, ``Confidential Evaluation Report on Claim for 
Award,'' including narratives prepared by the relevant IRS office(s), 
explaining the whistleblower's contributions to the actions and 
documenting the actions taken by the IRS in the case(s). The Form 11369 
will refer to and incorporate additional documents relating to the 
issues raised by the claim, as appropriate, including, for example, 
relevant portions of revenue agent reports, copies of agreements entered 
into with the taxpayer(s), tax returns, and activity records.
    (iv) Copies of all contracts entered into among the IRS, the 
whistleblower, and the whistleblower's legal representative (if any), 
and an explanation of the cooperation provided by the whistleblower (or 
the whistleblower's legal representative, if any) under the contract.
    (v) Any information that reflects actions by the whistleblower that 
may have had a negative impact on the IRS's ability to examine the 
taxpayer(s).
    (vi) All correspondence and documents sent by the Whistleblower 
Office to the whistleblower.
    (vii) All notes, memoranda, and other documents made by officers and 
employees of the Whistleblower Office and considered by the official 
making the award determination.
    (viii) All correspondence and documents received by the 
Whistleblower Office from the whistleblower (and the whistleblower's 
legal representative, if any) in the course of the whistleblower 
administrative proceeding.
    (ix) All other information considered by the official making the 
award determination.
    (f) Effective/applicability date. This rule is effective on August 
12, 2014. This rule applies to information submitted on or after August 
12, 2014, and to claims for award under sections 7623(a) and 7623(b) 
that are open as of August 12, 2014.

[T.D. 9687, 79 FR 47268, Aug. 12, 2014]



Sec.  301.7623-4  Amount and payment of award.

    (a) In general. The Whistleblower Office will pay all awards under 
section 7623(a) and determine and pay all awards under section 7623(b). 
For all awards under section 7623 and Sec. Sec.  301.7623-1 through 
301.7623-4, the Whistleblower Office will--
    (1) Analyze the claim by applying the rules provided in paragraph 
(c) of this section to the information contained in the administrative 
claim file to determine an award percentage; and
    (2) Multiply the award percentage by the amount of collected 
proceeds. If the award determination arises out of a single 
whistleblower administrative proceeding involving multiple actions, the 
Whistleblower Office may determine separate award percentages on an 
action-by-action basis and apply the separate award percentages to the 
collected proceeds attributable to the corresponding actions. The 
Internal Revenue Service (IRS) will pay all awards in accordance with 
the rules provided in paragraph (d) of this section. All relevant 
factors will be taken into account by the Whistleblower Office in 
determining whether an award will be paid and, if so, the amount of the 
award. No person is authorized under this section to make any offer or 
promise or otherwise bind the Whistleblower Office with respect to the 
amount or payment of an award.
    (b) Factors used to determine award percentage. (1) Positive 
factors. The application of the following non-exclusive factors may 
support increasing an award percentage under paragraphs (c)(1) or (2) of 
this section--

[[Page 797]]

    (i) The whistleblower acted promptly to inform the IRS or the 
taxpayer of the tax noncompliance.
    (ii) The information provided identified an issue or transaction of 
a type previously unknown to the IRS.
    (iii) The information provided identified taxpayer behavior that the 
IRS was unlikely to identify or that was particularly difficult to 
detect through the IRS's exercise of reasonable diligence.
    (iv) The information provided thoroughly presented the factual 
details of tax noncompliance in a clear and organized manner, 
particularly if the manner of the presentation saved the IRS work and 
resources.
    (v) The whistleblower (or the whistleblower's legal representative, 
if any) provided exceptional cooperation and assistance during the 
pendency of the action(s).
    (vi) The information provided identified assets of the taxpayer that 
could be used to pay liabilities, particularly if the assets were not 
otherwise known to the IRS.
    (vii) The information provided identified connections between 
transactions, or parties to transactions, that enabled the IRS to 
understand tax implications that might not otherwise have been 
understood by the IRS.
    (viii) The information provided had an impact on the behavior of the 
taxpayer, for example by causing the taxpayer to promptly correct a 
previously-reported improper position.
    (2) Negative factors. The application of the following non-exclusive 
factors may support decreasing an award percentage under paragraphs 
(c)(1) or (2) of this section--
    (i) The whistleblower delayed informing the IRS after learning the 
relevant facts, particularly if the delay adversely affected the IRS's 
ability to pursue an action or issue.
    (ii) The whistleblower contributed to the underpayment of tax or tax 
noncompliance identified.
    (iii) The whistleblower directly or indirectly profited from the 
underpayment of tax or tax noncompliance identified, but did not plan 
and initiate the actions that led to the underpayment of tax or actions 
described in section 7623(a)(2) .
    (iv) The whistleblower (or the whistleblower's legal representative, 
if any) negatively affected the IRS's ability to pursue the action(s), 
for example by disclosing the existence or scope of an enforcement 
activity.
    (v) The whistleblower (or the whistleblower's legal representative, 
if any) violated instructions provided by the IRS, particularly if the 
violation caused the IRS to expend additional resources.
    (vi) The whistleblower (or the whistleblower's legal representative, 
if any) violated the terms of the confidentiality agreement described in 
Sec.  301.7623-3(c)(2)(iv).
    (vii) The whistleblower (or the whistleblower's legal 
representative, if any) violated the terms of a contract entered into 
with the IRS pursuant to Sec.  301.6103(n)-2.
    (viii) The whistleblower provided false or misleading information or 
otherwise violated the requirements of section 7623(b)(6)(C) or Sec.  
301.7623-1(c)(3).
    (c) Amount of award percentage. (1) Award for substantial 
contribution. (i) In general. If the IRS proceeds with any 
administrative or judicial action based on information brought to the 
IRS's attention by a whistleblower, such whistleblower shall, subject to 
paragraphs (c)(2) and (3) of this section, receive as an award at least 
15 percent but not more than 30 percent of the collected proceeds 
resulting from the action (including any related actions) or from any 
settlement in response to such action. The amount of any award under 
this paragraph depends on the extent of the whistleblower's substantial 
contribution to the action(s). See paragraph (c)(4) of this section for 
rules regarding multiple whistleblowers.
    (ii) Computational framework. Starting the analysis at 15 percent, 
the Whistleblower Office will analyze the administrative claim file 
using the factors listed in paragraph (b)(1) of this section to 
determine whether the whistleblower merits an increased award percentage 
of 22 percent or 30 percent. The Whistleblower Office may increase the 
award percentage based on the presence and significance of positive 
factors. The Whistleblower Office will

[[Page 798]]

then analyze the contents of the administrative claim file using the 
factors listed in paragraph (b)(2) of this section to determine whether 
the whistleblower merits a decreased award percentage of 15 percent, 18 
percent, 22 percent, or 26 percent. The Whistleblower Office may 
decrease the award percentage based on the presence and significance of 
negative factors. Although the factors listed in paragraphs (b)(1) and 
(2) of this section are described as positive and negative factors, the 
Whistleblower Office's analysis cannot be reduced to a mathematical 
equation. The factors are not exclusive and are not weighted and, in a 
particular case, one factor may override several others. The presence 
and significance of positive factors may offset the presence and 
significance of negative factors. But the absence of negative factors 
does not constitute a positive factor.
    (iii) Examples. The operation of the provisions of paragraph 
(c)(1)(ii) of this section may be illustrated by the following examples. 
The examples are intended to illustrate the operation of the 
computational framework. The examples provide simplified descriptions of 
the facts relating to the claims for award, the information provided, 
and the facts relating to the underlying tax cases. The application of 
section 7623(b)(1) and paragraph (c)(1)(ii) of this section will depend 
on the specific facts of each case.

    Example 1. Facts. Whistleblower A, an employee in Corporation's 
sales department, submitted to the IRS a claim for award under section 
7623 and information indicating that Corporation improperly claimed a 
credit in tax year 2006. Whistleblower A's information consisted of 
numerous non-privileged documents relevant to Corporation's eligibility 
for the credit. Whistleblower A's original submission also included an 
analysis of the documents, as well as information about meetings in 
which the claim for credit was discussed. When interviewed by the IRS, 
Whistleblower A clarified ambiguities in the original submission, 
answered questions about Corporation's business and accounting 
practices, and identified potential sources to corroborate the 
information.
    Some of the documents provided by Whistleblower A were not included 
in Corporation's general record-keeping system and their existence may 
not have been easily uncovered through normal IRS examination 
procedures. Corporation initially denied the facts revealed in the 
information provided by Whistleblower A, which were essential to 
establishing the impropriety of the claim for credit. IRS examination of 
Corporation's return confirmed that the credit was improperly claimed by 
Corporation in tax year 2006, as alleged by Whistleblower A. Corporation 
agreed to the ensuing assessments of tax and interest and paid the 
liabilities in full.
    Analysis. In this case, Whistleblower A provided specific and 
credible information that formed the basis for action by the IRS. 
Whistleblower A provided information that was difficult to detect, 
provided useful assistance to the IRS, and helped the IRS sustain the 
assessment. Based on the presence and significance of these positive 
factors, viewed against all the specific facts relevant to Corporation's 
2006 tax year, the Whistleblower Office could increase the award 
percentage to 22 percent of collected proceeds. If, however, 
Whistleblower A's claim reflected negative factors, for example 
Whistleblower A violated instructions provided by the IRS and the 
violation caused the IRS to expend additional resources, then the 
Whistleblower Office could, based on this negative factor, reduce the 
award percentage to 18 or 15 percent (but not to lower than 15 percent 
of collected proceeds).
    Example 2. Facts. Whistleblower B, an employee of Financial Advisory 
Firm 1 (Firm 1), submitted to the IRS a claim for award under section 
7623 and information indicating that Firm 1 helped clients engage in 
activities that were intended to, and did, result in substantial tax 
underpayments. The activities were designed to avoid detection by the 
IRS, and prior IRS audits of several clients of Firm 1 had failed to 
detect underpayments of tax. Whistleblower B learned of the activities 
after being reassigned to a new position with Firm 1. Whistleblower B 
provided the information to the IRS soon after he understood the scope, 
nature and impact of the activities. The information provided consisted 
of numerous documents containing client profiles and marketing 
strategies, as well as descriptions of the transactions and structures 
used by Firm 1 and its clients to obscure the clients' identities and to 
generate the substantial tax underpayments. Whistleblower B also 
provided an analysis of the documents, as well as information about 
meetings in which the transactions and structures were discussed. When 
interviewed by the IRS, Whistleblower B clarified ambiguities in the 
original submission, answered questions about Firm 1's execution of 
specific client transactions, and identified potential sources to 
corroborate the information provided. Whistleblower B also notified the 
IRS of steps taken by Firm 1 to limit the disclosure of information 
requested by the

[[Page 799]]

IRS, enabling the IRS to obtain full disclosure of the information 
through the targeted use of summonses.
    Analysis. Ultimately, the IRS collected tax, penalties, and interest 
from Firm 1 and multiple clients. In addition, Treasury and the IRS 
issued a notice identifying the impropriety of the transactions and 
structures employed by Firm 1 and its clients. Whistleblower B provided 
specific and credible information that formed the basis for action by 
the IRS. The information provided identified transactions that were 
difficult to detect. Whistleblower B acted promptly after he understood 
the activities at issue and he provided useful assistance to the IRS. 
Whistleblower B's assistance, and the information he provided, helped 
the IRS overcome the efforts made to obscure the activities and the 
clients' identities. And the information provided by Whistleblower B 
contributed to the decision to issue the notice, which may have a 
positive effect on client behavior and save IRS resources. Based on the 
presence and significance of these positive factors, the Whistleblower 
Office could increase the award percentage to 30 percent of collected 
proceeds. If Whistleblower B directly or indirectly profited from Firm 
1's and the clients' activities resulting in the tax underpayments, then 
the Whistleblower Office could, based on this negative factor, reduce 
the award percentage to 26, 22, 18 percent or 15 percent (but not to 
lower than 15 percent of collected proceeds).

    (2) Award for less substantial contribution. (i) In general. If the 
Whistleblower Office determines that the action described in paragraph 
(c)(1) of this section is based principally on disclosures of specific 
allegations resulting from a judicial or administrative hearing; a 
government report, hearing, audit, or investigation; or the news media, 
then the Whistleblower Office will determine an award of no more than 10 
percent of the collected proceeds resulting from the action (including 
any related actions) or from any settlement in response to such action. 
If the whistleblower is the original source of the information from 
which the disclosures of specific allegations resulted, however, then 
the award percentage will be determined under paragraph (c)(1) of this 
section.
    (ii) Computational framework. The Whistleblower Office will analyze 
the administrative claim file to determine--
    (A) Whether the claim involves specific allegations regarding a tax 
underpayment or a violation of the internal revenue laws that reasonably 
may be inferred to have resulted from a judicial or administrative 
hearing; a government report, hearing, audit, or investigation; or the 
news media;
    (B) Whether the action described in paragraph (c)(1) of this section 
was based principally on the disclosure of the specific allegations; and
    (C) Whether the whistleblower was the original source of the 
information that gave rise to the specific allegations. If the 
Whistleblower Office determines that the action was based principally on 
disclosures of specific allegations, as stated in paragraph 
(c)(2)(ii)(B) of this section, and that the whistleblower was not the 
original source of the information, then, starting at 1 percent, the 
Whistleblower Office will analyze the administrative claim file using 
the factors listed in paragraph (b)(1) of this section to determine 
whether the whistleblower merits an increased award percentage of 4 
percent, 7 percent, or 10 percent. The Whistleblower Office will then 
determine whether the whistleblower merits a decreased award percentage 
of zero, 1 percent, 4 percent, or 7 percent using the factors listed in 
paragraph (b)(2) of this section. The Whistleblower Office may increase 
the award percentage based on the presence and significance of positive 
factors and may decrease (to zero) the award percentage based on the 
presence and significance of negative factors. Like the analysis 
described in paragraph (c)(1)(ii) of this section, the Whistleblower 
Office's analysis cannot be reduced to a mathematical equation. The 
factors are not exclusive and are not weighted and, in a particular 
case, one factor may override several others. The presence and 
significance of positive factors may offset the presence and 
significance of negative factors. But the absence of negative factors 
does not constitute a positive factor.
    (iii) Example. The operation of the provisions of paragraph 
(c)(2)(ii) of this section may be illustrated by the following example. 
The example is intended to illustrate the operation of the computational 
framework. The example provides a simplified description of the facts 
relating to the claim for award, the information provided, and

[[Page 800]]

the facts relating to the underlying tax case(s). The application of 
section 7623(b)(2) and paragraph (c)(2)(ii) of this section will depend 
on the specific facts of each case.

    Example. Facts. Whistleblower A submitted to the IRS a claim for 
award under section 7623 and information indicating that Taxpayer B was 
the defendant in a criminal prosecution for embezzlement. Whistleblower 
A's information further indicated that evidence presented at Taxpayer 
B's trial revealed Taxpayer B's efforts to conceal the embezzled funds 
by depositing them in bank accounts of entities controlled by Taxpayer 
B. Taxpayer B's failure to pay tax on the embezzled funds was not 
explicitly stated during the judicial hearing, but could be reasonably 
inferred from the facts and circumstances, including Taxpayer B's 
efforts to conceal the funds.
    Analysis. In this case, Whistleblower A's information is based 
principally on disclosures of specific allegations resulting from a 
judicial hearing. Absent information demonstrating that the 
investigation leading to the embezzlement charge was based on 
information provided by Whistleblower A, section 7623(b)(2) and 
paragraph (c)(2) of this section apply to the determination of 
Whistleblower A's award. In this case, there is no reason for the 
Whistleblower Office to increase the applicable award percentage above 1 
percent, the starting point for its analysis, given the absence of 
positive factors. Accordingly, Whistleblower A may receive an award of 1 
percent of collected proceeds.

    (3) Reduction in award and denial of award. (i) In general. If the 
Whistleblower Office determines that a claim for award is brought by a 
whistleblower who planned and initiated the actions, transaction, or 
events (underlying acts) that led to the underpayment of tax or actions 
described in section 7623(a)(2), then the Whistleblower Office may 
appropriately reduce the amount of the award percentage that would 
otherwise result under section 7623(b)(1) and paragraph (c)(1) of this 
section or section 7623(b)(2) and paragraph (c)(2) of this section, as 
applicable. The Whistleblower Office will deny an award if the 
whistleblower is convicted of criminal conduct arising from his or her 
role in planning and initiating the underlying acts.
    (ii) Threshold determination. A whistleblower planned and initiated 
the underlying acts if the whistleblower--
    (A) Designed, structured, drafted, arranged, formed the plan leading 
to, or otherwise planned, an underlying act,
    (B) Took steps to start, introduce, originate, set into motion, 
promote or otherwise initiate an underlying act, and
    (C) Knew or had reason to know that an underpayment of tax or 
actions described in section 7623(a)(2) could result from planning and 
initiating the underlying act.
    (D) The whistleblower need not have been the sole person involved in 
planning and initiating the underlying acts. A whistleblower who merely 
furnishes typing, reproducing, or other mechanical assistance in 
implementing one or more underlying acts will not be treated as 
initiating any underlying act. A whistleblower who is a junior employee 
acting at the direction, and under the control, of a senior employee 
will not be treated as initiating any underlying act.
    (E) If the Whistleblower Office determines that a whistleblower has 
satisfied this initial threshold of planning and initiating, the 
Whistleblower Office will then reduce the award amount based on the 
extent of the whistleblower's planning and initiating, pursuant to 
paragraph (c)(3)(iii) of this section.
    (iii) Computational framework. After determining the award 
percentage that would otherwise result from the application of section 
7623(b)(1) and paragraph (c)(1) of this section or section 7623(b)(2) 
and paragraph (c)(2) of this section, as applicable, the Whistleblower 
Office will analyze the administrative claim file to make the threshold 
determination described in paragraph (c)(3)(ii) of this section. If the 
whistleblower is determined to have planned and initiated the underlying 
acts, then the Whistleblower Office will reduce the award based on the 
extent of the whistleblower's planning and initiating. The Whistleblower 
Office's analysis and the amount of the appropriate reduction determined 
in a particular case cannot be reduced to a mathematical equation. To 
determine the appropriate award reduction, the Whistleblower Office 
will--

[[Page 801]]

    (A) Categorize the whistleblower's role as a planner and initiator 
as primary, significant, or moderate; and
    (B) Appropriately reduce the award percentage that would otherwise 
result from the application of section 7623(b)(1) and paragraph (c)(1) 
of this section or section 7623(b)(2) and paragraph (c)(2) of this 
section, as applicable, by 67 percent to 100 percent in the case of a 
primary planner and initiator, by 34 percent to 66 percent in the case 
of a significant planner and initiator, or by 0 percent to 33 percent in 
the case of a moderate planner and initiator. If the whistleblower is 
convicted of criminal conduct arising from his or her role in planning 
and initiating the underlying acts, then the Whistleblower Office will 
deny an award without regard to whether the Whistleblower Office 
categorized the whistleblower's role as a planner and initiator as 
primary, significant, or moderate.
    (iv) Factors demonstrating the extent of a whistleblower's planning 
and initiating. The application of the following non-exclusive factors 
may support a determination of the extent of a whistleblower's planning 
and initiating of the underlying acts--
    (A) The whistleblower's role as a planner and initiator. Was the 
whistleblower the sole decision-maker or one of several contributing 
planners and initiators? To what extent was the whistleblower acting 
under the direction and control of a supervisor?
    (B) The nature of the whistleblower's planning and initiating 
activities. Was the whistleblower involved in legitimate tax planning 
activities? Did the whistleblower take steps to hide the actions at the 
planning stage? Did the whistleblower commit any identifiable misconduct 
(legal, ethical, etc.)?
    (C) The extent to which the whistleblower knew or should have known 
that tax noncompliance could result from the course of conduct.
    (D) The extent to which the whistleblower acted in furtherance of 
the noncompliance, including, for example, efforts to conceal or 
disguise the transaction.
    (E) The whistleblower's role in identifying and soliciting others to 
participate in the actions reported, whether as parties to a common 
transaction or as parties to separate transactions.
    (v) Examples. The operation of the provisions of paragraphs 
(c)(3)(ii) and (iii) of this section may be illustrated by the following 
examples. These examples are intended to illustrate the operation of the 
computational framework. The examples provide simplified descriptions of 
the facts relating to the claim for award, the information provided, and 
the facts relating to the underlying tax case. The application of 
section 7623(b)(3) and paragraph (c)(3) of this section will depend on 
the specific facts of each case.

    Example 1. Facts. Whistleblower A is employed as a junior associate 
in a law firm and is responsible for performing research and drafting 
activities for, and under the direction and control of, partners of the 
law firm. Whistleblower A performed research on financial products for 
Partner B that Partner B used in advising a client (Corporation 1) on a 
financial strategy. After Corporation 1 executed the strategy, 
Whistleblower A submitted a claim for award under section 7623 along 
with information about the strategy to the IRS. The IRS initiated an 
examination of Corporation 1 based on Whistleblower A's information, 
determined deficiencies in tax and penalties, and ultimately assessed 
and collected the tax and penalties as determined.
    Analysis. Whistleblower A did nothing to design or set into motion 
Corporation 1's activities. Whistleblower A did not know or have reason 
to know that an underpayment of tax or actions described in section 
7623(a)(2) could result from the research and drafting activities. 
Accordingly, as a threshold matter, Whistleblower A was not a planner 
and initiator of Corporation 1's strategy, and the award that would 
otherwise be determined based on the application of section 7623(b)(1) 
and paragraph (c)(1) of this section is not subject to reduction under 
section 7623(b)(3) and paragraph (c)(3) of this section.
    Example 2. Facts. Whistleblower C is employed in the human resources 
department of a corporation (Corporation 2). Corporation 2 tasked 
Whistleblower C with hiring a large number of temporary employees to 
meet Corporation 2's seasonal business demands. Whistleblower C 
organized, scheduled, and conducted job fairs and job interviews to hire 
the seasonal employees. Whistleblower C was not responsible for, had no 
knowledge of, and played no part in, classifying the seasonal employees 
for Federal income tax purposes. Whistleblower C later discovered, 
however, that Corporation 2 classified the seasonal employees as 
independent contractors. After

[[Page 802]]

discovering the misclassification, Whistleblower C submitted a claim for 
award under section 7623 along with non-privileged information 
describing the employee misclassification to the IRS. The IRS initiated 
an examination of Corporation 2 based on Whistleblower C's information, 
determined deficiencies in tax and penalties, and ultimately assessed 
and collected the tax and penalties as determined.
    Analysis. The award that would otherwise be determined based on the 
application of section 7623(b)(1) and paragraph (c)(1) of this section 
would not be subject to a reduction under section 7623(b)(3) and 
paragraph (c)(3) of this section because Whistleblower C did not satisfy 
the requirements of the threshold determination of a planner and 
initiator. Whistleblower C did not know and had no reason to know that 
her actions could result in an underpayment of tax or actions described 
in section 7623(a)(2) or that Corporation 2 would misclassify the 
employees as independent contractors.
    Example 3. Facts. Whistleblower D is employed as a supervisor in the 
finance department of a corporation (Corporation 3) and is responsible 
for planning Corporation 3's overall financial strategy. Pursuant to the 
overall financial strategy, Whistleblower D and others at Corporation 3, 
in good faith but incorrectly, planned tax-advantaged transactions. 
Whistleblower D and others at Corporation 3 prepared documents needed to 
execute the transactions. After Corporation 3 executed the transactions, 
Whistleblower D reached the conclusion that the tax consequences claimed 
were incorrect and Whistleblower D submitted a claim for award under 
section 7623 along with non-privileged information about the 
transactions to the IRS. The IRS initiated an examination of Corporation 
3 based on Whistleblower D's information, determined deficiencies in tax 
and penalties, and ultimately assessed and collected the tax and 
penalties as determined.
    Analysis. The award that would otherwise be determined based on the 
application of section 7623(b)(1) and paragraph (c)(1) of this section 
would be subject to an appropriate reduction under section 7623(b)(3) 
and paragraph (c)(3) of this section because Whistleblower D satisfies 
the requirements of the threshold determination of a planner and 
initiator. Whistleblower D planned the transactions, prepared the 
necessary documents, and knew that an underpayment of tax could result 
from the transactions. Whistleblower D was not the sole planner and 
initiator of Corporation 3's transactions. Whistleblower D did nothing 
to conceal Corporation 3's activities. Corporation 3 had a good faith 
basis for claiming the disallowed tax benefits. On the basis of those 
facts, Whistleblower D was a moderate-level planner and initiator. 
Accordingly, the Whistleblower Office will exercise its discretion to 
reduce Whistleblower D's award by 0 to 33 percent.
    Example 4. Facts. Same facts as Example 3, except that Whistleblower 
D independently planned a high-risk tax avoidance transaction and 
prepared draft documents to execute the transaction. Whistleblower D 
presented the transaction, along with the draft documents, to 
Corporation 3's Chief Financial Officer. Without the further involvement 
of Whistleblower D, Corporation 3's Chief Financial Officer, Chief 
Executive Officer, and Board of Directors subsequently approved the 
execution of the transaction. After Corporation 3 executed the 
transaction, Whistleblower D submitted a claim for award under section 
7623 along with non-privileged information about the transaction to the 
IRS. The IRS initiated an examination of Corporation 3 based on 
Whistleblower D's information, determined deficiencies in tax and 
penalties, and ultimately assessed and collected the tax and penalties 
as determined.
    Analysis. The award that would otherwise be determined based on the 
application of section 7623(b)(1) and paragraph (c)(1) of this section 
would be subject to an appropriate reduction under section 7623(b)(3) 
and paragraph (c)(3) of this section because Whistleblower D satisfies 
the requirements of the threshold determination of a planner and 
initiator. Whistleblower D planned the transaction, prepared the 
necessary documents, and knew that an underpayment of tax or actions 
described in section 7623(a)(2) could result from the transaction. 
Working independently, Whistleblower D designed and took steps to 
effectuate the transaction while knowing that the planning and 
initiating of the transaction was likely to result in tax noncompliance. 
Whistleblower D, however, did not approve the execution of the 
transaction by Corporation 3 and, therefore, was not a decision-maker. 
On the basis of these facts, Whistleblower D was a significant-level 
planner and initiator. Accordingly, the Whistleblower Office will 
exercise its discretion to reduce Whistleblower D's award by 34 to 66 
percent.
    Example 5. Facts. Whistleblower E is a financial planner. 
Whistleblower E designed a financial product that the IRS identified as 
an abusive tax avoidance transaction. Whistleblower E marketed the 
transaction to taxpayers, facilitated their participation in the 
transaction, and, initially, took steps to disguise the transaction. 
After several taxpayers had participated in the transaction, 
Whistleblower E submitted a claim for award under section 7623 along 
with non-privileged information to the IRS about the transaction and the 
participating taxpayers. The IRS initiated an examination of the 
identified taxpayers based on Whistleblower E's information, determined 
deficiencies in tax and penalties, and ultimately assessed and

[[Page 803]]

collected the tax and penalties as determined. Whistleblower E was not 
criminally prosecuted.
    Analysis. The award that would otherwise be determined based on the 
application of section 7623(b)(1) and paragraph (c)(1) of this section 
would be subject to an appropriate reduction under section 7623(b)(3) 
and paragraph (c)(3) of this section because Whistleblower E satisfies 
the requirements of the threshold determination of a planner and 
initiator. Whistleblower E designed the financial product, marketed and 
facilitated its use by taxpayers, and knew that an underpayment of tax 
or actions described in section 7623(a)(2) could result from the 
transaction. Whistleblower E was the sole designer of the transaction, 
solicited clients to participate in the transaction, and facilitated and 
attempted to conceal their participation in the transaction. 
Whistleblower E knew that the planning and initiating of the taxpayers' 
participation in the transaction was likely to result in an underpayment 
of tax or actions described in section 7623(a)(2). On the basis of these 
facts, Whistleblower E was a primary-level planner and initiator. 
Accordingly, the Whistleblower Office will exercise its discretion to 
reduce Whistleblower E's award by 67 to 100 percent.

    (4) Multiple whistleblowers. If two or more independent claims 
relate to the same collected proceeds, then the Whistleblower Office may 
evaluate the contribution of each whistleblower to the action(s) that 
resulted in collected proceeds. The Whistleblower Office will determine 
whether the information submitted by each whistleblower would have been 
obtained by the IRS as a result of the information previously submitted 
by any other whistleblower. If the Whistleblower Office determines that 
multiple whistleblowers submitted information that would not have been 
obtained based on a prior submission, then the Whistleblower Office will 
determine the amount of each whistleblower's award based on the extent 
to which each whistleblower contributed to the action(s). The aggregate 
award amount in cases involving two or more independent claims that 
relate to the same collected proceeds will not exceed the maximum award 
amount that could have resulted under section 7623(b)(1) or section 
7623(b)(2), as applicable, subject to the award reduction provisions of 
section 7623(b)(3), if a single claim had been submitted.
    (d) Payment of Award. (1) In general. The IRS will pay any award 
determined under section 7623 and Sec. Sec.  301.7623-1 through 
301.7623-4 to the whistleblower(s) that filed the corresponding claim 
for award. Payment of an award will be made as promptly as the 
circumstances permit, but not until there has been a final determination 
of tax with respect to the action(s), as defined in paragraph (d)(2) of 
this section, the Whistleblower Office has determined the award, and all 
appeals of the Whistleblower Office's determination are final or the 
whistleblower has executed an award consent form agreeing to the amount 
of the award and waiving the whistleblower's right to appeal the 
determination.
    (2) Final determination of tax. (i) In general. For purposes of 
Sec. Sec.  301.7623-1 through 301.7623-4, a final determination of tax 
means that the proceeds resulting from the action(s) subject to the 
award determination have been collected and either the statutory period 
for filing a claim for refund has expired or the taxpayer(s) subject to 
the action(s) and the IRS have agreed with finality to the tax or other 
liabilities for the period(s) at issue and the taxpayer(s) have waived 
the right to file a claim for refund. A final determination of tax does 
not preclude a subsequent final determination of tax if the IRS proceeds 
based on the information provided following the payment, denial, or 
rejection of an award.
    (ii) Example. The provisions of paragraph (d)(2)(i) of this section, 
regarding subsequent final determination of tax, may be illustrated by 
the following example:

    Example. Information provided to the IRS by a whistleblower, under 
section 7623 and Sec.  301.7623-1, identifies a taxpayer (Corporation 
1), describes and documents specific facts relating to Corporation 1's 
activities, and, based on those facts, alleges that Corporation 1 owed 
additional taxes in Year 1. The Whistleblower Office processes the 
incoming claim and provides the information to an IRS Operating Division 
(Operating Division 1). Operating Division 1 reviews the claim and the 
allegations and ultimately decides not to proceed with an action against 
Corporation 1. Operating Division 1 conveys its determination not to 
proceed with an action against Corporation 1 to the Whistleblower Office 
on a Form 11369 along with all of the relevant supporting documents. The 
Whistleblower Office provides written notice to the whistleblower, 
denying any award

[[Page 804]]

pursuant to Sec.  301.7623-3(c)(8), and the whistleblower does not 
appeal the notice to Tax Court within 30 days.
    Two months after the Whistleblower Office denies the award, the 
Whistleblower Office recognizes a potential connection between the 
information provided and a recently-initiated, ongoing, examination of a 
second taxpayer by a second IRS Operating Division (Operating Division 
2). The Whistleblower Office provides the information to Operating 
Division 2. Operating Division 2 evaluates the information and proceeds 
with an action against Taxpayer 2 based on the information provided. 
Ultimately, Operating Division 2 assesses and collects taxes resulting 
from the action and totaling $3 million. Following the conclusion of the 
whistleblower's participation in a whistleblower administrative 
proceeding described in Sec.  301.7623-3(c) and the expiration of the 
statutory period for filing a claim for refund by Taxpayer 2, the 
Whistleblower Office determines the amount of the award and communicates 
the award to the whistleblower in a determination letter. The 
whistleblower may appeal the notice to the Tax Court within 30 days.

    (3) Joint Whistleblowers. If multiple whistleblowers jointly submit 
a claim for award, the IRS will pay any award in equal shares to the 
joint whistleblowers unless the joint whistleblowers specify a different 
allocation in a written agreement, signed by all the joint 
whistleblowers and notarized, and submitted with the claim for award. 
The aggregate award payment in cases involving joint whistleblowers will 
be within the award percentage range of section 7623(b)(1) or section 
7623(b)(2), as applicable, and subject to the award reduction provisions 
of section 7623(b)(3).
    (4) Deceased Whistleblower. If a whistleblower dies before or during 
the whistleblower administrative proceeding, the Whistleblower Office 
may substitute an executor, administrator, or other legal representative 
on behalf of the deceased whistleblower for purposes of conducting the 
whistleblower administrative proceeding.
    (5) Tax treatment of award. All awards are includible in gross 
income and subject to current Federal tax reporting and withholding 
requirements.
    (e) Effective/applicability date. This rule is effective on August 
12, 2014. This rule applies to information submitted on or after August 
12, 2014, and to claims for award under section 7623(b) that are open as 
of August 12, 2014.

[T.D. 9687, 79 FR 47270, Aug. 12, 2014]



Sec.  301.7624-1  Reimbursement to State and local law enforcement agencies.

    (a) In general. The Internal Revenue Service may reimburse a State 
or local law enforcement agency for expenses, such as salaries, overtime 
pay, per diem, and similar reasonable expenses, incurred in an 
investigation in which information is furnished to the Service that 
substantially contributes to the recovery of Federal taxes imposed with 
respect to illegal drug or related money laundering activities. The 
amount of reimbursement that may be paid shall not exceed the limits 
specified in paragraphs (e)(2) and (e)(3) of this section.
    (b) Information that substantially contributes to recovery of 
taxes--(1) Definition. The Service generally will consider that 
information furnished by a State or local law enforcement agency 
substantially contributed to the recovery of taxes with respect to 
illegal drug or related money laundering activities provided the 
information was not already in the possession of the Service at the time 
the information is furnished by the State or local law enforcement 
agency, and
    (i) Concerns a taxpayer who is not under examination or 
investigation by the Service at the time the information is furnished or 
has not already been selected by the Service for examination or 
investigation in the near future, or
    (ii) Concerns a taxpayer who is under examination or has been 
selected for examination at the time the information is furnished but 
the information furnished would not normally have been discovered in the 
course of an ordinary investigation or examination by the Service. Also, 
information will generally be considered as substantially contributing 
to the recovery of taxes if it leads to the discovery of hidden assets 
owned by the taxpayer which are used to satisfy the taxpayer's assessed 
but otherwise uncollectible Federal tax liability with respect to 
illegal drug or related money laundering activities.

For purposes of this paragraph (b), information includes, but is not 
limited

[[Page 805]]

to, tax years of violations, aliases, addresses, social security numbers 
and/or employer identification numbers, financial data (bank accounts, 
assets, etc.) and their location, and any documentation that 
substantiates allegations concerning tax liability (books and records) 
and its location.
    (2) Examples:

    Example 1. A local police department's narcotics division has been 
gathering information on a suspected local drug dealer for approximately 
six months. Because this person is very cautious when handling 
narcotics, the local police have been unsuccessful in catching this 
person in possession of drugs. Rather than drop the case, the narcotics 
detective turns over to the local IRS Criminal Investigation Division 
(CID) office information concerning this person. At the time the 
information is furnished, the Service is unaware of this person's 
suspected involvement in drugs and has no reason to suspect that this 
person's Federal income tax returns are incorrect. Upon examination of 
this person's returns for three open years, the Service determines that 
additional Federal income taxes and civil penalties of approximately 
$20,000 per year are due because of unreported income from drug dealing. 
Because the taxpayer was not under examination and was not reasonably 
anticipated to have been examined prior to receipt of the information, 
the Service will consider that the information furnished by the local 
police department substantially contributed to the recovery of 
approximately $60,000 in taxes with respect to illegal drug activities.
    Example 2. Assume the same facts as example 1 except that at the 
time the information is turned over to the Service, the Service was 
already aware of the extent of this person's involvement in drug 
dealing, either through information developed in the course of 
examinations of other taxpayers or through information received from 
other sources, and had already selected this person's returns for 
examination although the person had not yet been contacted by the 
Service. In this case, the information provided by the local police 
department did not substantially contribute to the recovery of taxes 
from this person because the information was already known to the 
Service.
    Example 3. A state or local police officer is conducting ordinary 
traffic patrol. The officer stops a vehicle for speeding and reckless 
driving. The officer recognizes the driver as a known narcotics dealer. 
In the vehicle is a brief case containing $75,000 in cash, but no trace 
of narcotics is found. The driver claims the cash was won in a high 
stakes poker game. The officer arrests the driver for traffic violations 
and takes the briefcase into custody for safe keeping. The local police 
department cannot seize the money because they cannot tie it to a 
narcotics transaction. Instead, they immediately inform the local CID 
office of their find. At the time this information is furnished to the 
Service, there is an unpaid assessed liability of $300,000 in Federal 
taxes and penalties owed by the dealer with respect to illegal drug 
activities that the Service has been unable to collect. Therefore, the 
Service immediately seizes the $75,000 in cash in partial payment of the 
tax liability. The Service will consider that the information furnished 
by the police department substantially contributed to the recovery of 
$75,000 in taxes with respect to drug related activities.
    Example 4. Through information furnished by a reliable informant, a 
local police department learns that a known racketeer and suspected drug 
dealer maintains a second set of books and records in a safe at home. 
The local police obtain a search warrant and find a set of books 
revealing that this person has been using a legitimate business 
operation to launder money derived from both prostitution and drug 
dealing. At the time these records are turned over to the local CID 
office, the taxpayer is already under examination for tax evasion. 
However, based on the information contained in this second set of books, 
the Service is able to collect additional taxes and civil penalties in 
the amount of $1 million in connection with these illegal activities. 
The Service will consider that this information substantially 
contributed to the recovery of $1 million in taxes with respect to money 
laundering in connection with illegal drug activities because, even 
though the taxpayer was already under examination, the information 
provided by the local police would normally not have been discovered by 
the Service in the course of an ordinary investigation.

    (c) Application for reimbursement. An agency that intends to apply 
for reimbursement under the provisions of this section must indicate 
this intent to the Service at the time the information is first provided 
to the Service. A final application for reimbursement of expenses must 
be submitted on Form 211A, State or Local Law Enforcement Application 
for Reimbursement, to the Chief, Criminal Investigation Division of the 
Internal Revenue Service district in which the taxpayer is located. 
Copies of Forms 9061, DAG-71, or other claim for an equitable share of 
asset forfeitures in the case must also be furnished with Form 211A.
    (d) Time for filing application for reimbursement. An application 
for reimbursement may be filed by an agency at the time the information 
is first

[[Page 806]]

provided or as soon as practicable after submitting information to the 
Service. However, it must be filed not later than 30 days after the 
Service notifies the agency pursuant to section 7624(b) of the amount of 
taxes collected as a result of the information provided. If an 
application for reimbursement is filed by more than one agency with 
respect to taxes recovered from a taxpayer, the Service will use 
discretion in determining an equitable amount of reimbursement allocated 
to each agency based on all relevant factors. In no event, however, 
shall the aggregate of the amounts paid by the Service to two or more 
agencies exceed the amount specified in paragraph (e)(3) of this 
section.
    (e) Amount and payment of reimbursement--(1) De minimis rule. No 
reimbursement shall be paid under section 7624 or this section to a 
State or local law enforcement agency in any case where the taxes 
recovered total less than $50,000.
    (2) Taxes recovered. For purposes of section 7624 and this section, 
the terms ``taxes'' recovered and ``sum'' recovered mean additional 
Federal taxes, civil penalties, and additions to tax collected (less any 
subsequent refund to the taxpayer) with respect to illegal drug or 
related money laundering activities, but not additional interest or 
criminal fines that may be collected.
    (3) Limitation on reimbursement. The amount of reimbursement payable 
under section 7624 and this section shall not exceed 10 percent of any 
taxes recovered.
    (4) No duplicate reimbursement. A State or local law emforcement 
agency shall not receive reimbursement under section 7624 or this 
section for any expenses incurred in the investigation of a taxpayer 
which have been or will be reimbursed under any other program or 
arrangement including, but not limited to, Federal or State forfeiture 
programs, State revenue laws, or Federal and State equitable sharing 
arrangements.
    (5) Time of payment. No payment of any reimbursement under this 
section will be made to a State or local law enforcement agency before 
the later of final expiration of the applicable period of limitations 
for filing a claim for refund by the taxpayer of the taxes recovered as 
provided in subchapter B of chapter 66 of the Code or the determination 
of the taxpayer's tax liability, as defined in section 1313(a). However, 
reimbursement may be made earlier but only if the agency provides 
adequate indemnification against loss by the Service due to a refund to 
the taxpayer of Federal taxes recovered.
    (6) Applicability. The provisions of section 7624 apply only to 
State and local law enforcement agencies within the United States and 
the District of Columbia.
    (f) Effective date. This section applies with respect to information 
first provided to the Service by a State or local law enforcement agency 
after February 16, 1989.

[T.D. 8255, 54 FR 21054, May 16, 1989, as amended by 57 FR 2840, Jan. 
24, 1992. Redesignated by T.D. 8415, 57 FR 15017, Apr. 24, 1992]

           Supervision of Operations of Certain Manufacturers



Sec.  301.7641-1  Supervision of operations of certain manufacturers.

    For regulations under section 7641, except the provisions thereof 
relating to the manufacture of opium suitable for smoking purposes, see 
subparts E, F, G, and H or part 45 of this chapter (Miscellaneous Stamp 
Tax Regulations). For regulations relating to the manufacture of opium 
suitable for smoking purposes, see 26 CFR (1939) 150 (Narcotics 
Regulations 3, 3 FR 1402) as made applicable to section 7641 by Treasury 
Decision 6091, approved August 16, 1954 (19 FR 5167).

                               Possessions



Sec.  301.7654-1  Coordination of U.S. and Guam individual income taxes.

    (a) Application of section--(1) Scope. Section 7654 and this section 
set forth the general procedures to be followed by the Government of the 
United States and the Government of Guam in the division between the two 
governments of revenue derived from collections of the income taxes 
imposed for any taxable year beginning after December 31, 1972, with 
respect to any individual described in subparagraph (2) of this 
paragraph (a), and paragraph (e)

[[Page 807]]

of this section. To the extent that section 7654 and this section are 
inconsistent with the provisions of section 30 of the Organic Act of 
Guam (48 U.S.C. 1421h), relating to duties and taxes to be covered into 
the treasury of Guam and held in account for the Government of Guam, 
such section 30 is superseded.
    (2) Individuals covered. Paragraph (b) of this section applies only 
to an individual who, for a taxable year, is described in paragraph 
(a)(2) of Sec.  1.935-1 of this chapter (Income Tax Regulations) and has 
(or in the case of a joint return, such individual and his spouse 
have)--
    (i) Adjusted gross income of $50,000 or more, and
    (ii) Gross income of $5,000 or more from sources within the 
jurisdiction (either the United States or Guam) other than the 
jurisdiction with which the individual is required to file his income 
tax return under paragraph (b) of Sec.  1.935-1 of this chapter.

For the determination of gross income and adjusted gross income see 
sections 61 and 62, and the regulations thereunder, or, when applicable, 
the corresponding provisions as made applicable in Guam by the Guam 
Territorial income tax (48 U.S.C. 1421i). For purposes of this 
paragraph, gross income consisting of compensation for military or naval 
service shall be taken into account notwithstanding section 514 of the 
Soldiers' and Sailors' Civil Relief Act of 1940 (50 App. U.S.C. 574). 
However, see paragraph (e) of this section.
    (b) Allocation of tax. (1) Net collections of income taxes imposed 
for each taxable year beginning after December 31, 1972, with respect to 
each individual described in paragraph (a)(2) of this section for such 
year shall be divided between the United States and Guam by the 
Commissioner of Internal Revenue and the Commissioner of Revenue and 
Taxation of Guam as follows:
    (i) Net collections attributable to income from sources within the 
United States shall be covered into the Treasury of the United States.
    (ii) Net collections attributable to income from sources within Guam 
shall be covered into the treasury of Guam, and
    (iii) Net collections not described in subdivision (i) or (ii) of 
this subparagraph (i.e., net collections attributable to income from 
sources other than within the United States or Guam) shall be covered 
into the treasury of the jurisdiction (either the United States or Guam) 
with which the individual is required to file his return under paragraph 
(b) of Sec.  1.935-1 of this chapter for such year.
    (2) The amount of tax of any individual for a taxable year which 
shall be allocated to Guam for purposes of determining the portion of 
the net collections from such individual which shall be covered into the 
treasury of Guam by the United States for such year shall be that amount 
which bears the same ratio to such amount of tax as the adjusted gross 
income of that individual for such year which is allocable to sources in 
Guam bears to the total adjusted gross income of such individual for 
such year. For purposes of such allocation by the United States, the 
adjusted gross income of the taxpayer shall be determined by taking into 
account any compensation of any member of the Armed Forces for services 
performed in Guam the withheld tax on which is paid into the treasury of 
Guam pursuant to paragraph (e) of this section. The amount of tax of any 
individual for any taxable year which shall be allocated to the United 
States for purposes of determining the portion of the net collections 
from such individual which shall be covered into the Treasury of the 
United States by Guam for such year shall be that amount which bears the 
same ratio to such amount of tax as the adjusted gross income of that 
individual for such year which is allocable to sources in the United 
States bears to the total adjusted gross income of such individual for 
such year.
    (c) Definitions and special rules. For purposes of this section--
    (1) Net collections. (i) In determining net collections for a 
taxable year, appropriate adjustment between the two jurisdictions shall 
be made on a proportionate basis for underpayments of income taxes for 
such taxable year, credits allowed against the income tax for such 
taxable year (other than the credit for taxes withheld under section 
3402

[[Page 808]]

on wages), and refunds made of income taxes paid with respect to such 
taxable year. Thus, if a net operating loss results in a carryback to an 
earlier taxable year which gives rise to a refund for that earlier year, 
an adjustment must be made based upon the proportion which the amount of 
tax covered by one jurisdiction into the treasury of the other 
jurisdiction for that earlier year bears to the total amount of tax paid 
for that earlier year, even though the loss may have resulted from 
activities in one jurisdiction and the income, against which the loss 
was offset, was earned in the other jurisdiction. Similar adjustments 
must be made for foreign tax credit carrybacks even though different 
jurisdictions are involved. If, for example, an individual pays income 
tax of $30,000 to the United States for 1974 and $10,000 of such tax is 
covered into the treasury of Guam, and if for 1975 such individual has a 
net operating loss attributable to a trade or business carried on in the 
United States which loss is carried back to 1974 and gives rise to a 
refund of $15,000 by the United States, Guam must cover into the 
Treasury of the United States the amount of $5,000 which is the 
adjustment based upon the refund ($15,000 x $10,000/$30,000 = $5,000).
    (ii) Tax withheld from the compensation of any member of the Armed 
Forces described in paragraph (a)(2) of this section which is paid to 
Guam pursuant to section 7654(d) and paragraph (e) of this section shall 
be taken into account in determining the amount required to be covered 
into the treasury of Guam under paragraph (b)(1)(ii) of this section.
    (iii) For purposes of this subparagraph, any underpayment of tax is 
treated as attributable on a pro rata basis to income from sources 
within the United States, Guam, and sources other than within the United 
States or Guam, respectively, and is divided between the United States 
and Guam under the rules in paragraph (b) of this section.
    (2) Income taxes. The term ``income taxes'' means--
    (i) With respect to taxes imposed by the United States, the income 
taxes imposed by chapter 1 of the Code, and
    (ii) With respect to taxes imposed by Guam, the Guam Territorial 
income tax (48 U.S.C. 1421i).
    (3) Source rules. The determination of the source of income shall be 
based on the principles contained in sections 861 through 863, and the 
regulations thereunder, or, when applicable, in those sections as made 
applicable in Guam by the Guam Territorial income tax. For such purposes 
the provisions of section 514 of the Soldiers' and Sailors' Civil Relief 
Act of 1940 (50 App. U.S.C. 574) relating to the determination of the 
source of income of members of the Armed Forces shall not be taken into 
account. For purposes of this subparagraph, the provisions in section 
935(c) treating Guam as part of the United States, and vice versa, do 
not apply. For definition of the terms ``United States'' and ``Guam'' 
(see section 7701(a)(9) of the Code and section 2 of the Organic Act of 
Guam (48 U.S.C. 1421).
    (d) Information return. Each individual described in paragraph 
(a)(2) of this section for a taxable year who is required by paragraph 
(b)(1) of Sec.  1.935-1 of this chapter to file his return of income for 
such year with the United States shall timely file a properly executed 
Form 5074 (Allocation of Individual Income Tax to Guam) by attaching 
such form to his income tax return. Each individual described in 
paragraph (a)(2) of this section for a taxable year who is required by 
paragraph (b)(1) of Sec.  1.935-1 of this chapter to file his return of 
income for such year with Guam shall timely file such information as may 
be required by the Commissioner of Revenue and Taxation with respect to 
his income derived from sources within the United States. See section 
6688 and Sec.  301.6688-1 for the penalty for failure to comply with 
this paragraph.
    (e) Military personnel in Guam. The Commissioner of Internal Revenue 
shall arrange to pay to Guam the amount of the taxes deducted and 
withheld by the United States under section 3402 from wages paid to 
members of the Armed Forces who are stationed in Guam but who have no 
income tax liability to Guam with respect to such wages by reason of 
section 514 of the Soldiers' and Sailors' Civil Relief Act

[[Page 809]]

of 1940 (50 App. U.S.C. 574). Section 514 of that Act provides in effect 
that for purposes of the taxation of income by Guam a person shall not 
be deemed to have lost a residence or domicile in the United States 
solely by reason of being absent therefrom in compliance with military 
or naval orders and the compensation for military or naval service of 
such a person who is not a resident of, or domiciled in, Guam shall not 
be deemed income for services performed within, or from sources within, 
Guam. Any amount paid to Guam under this paragraph in respect of a 
member of the Armed Forces described in paragraph (a)(2) of this section 
shall be taken into account in determining the amount required to be 
covered into the treasury of Guam under paragraph (b)(1)(ii) of this 
section. For purposes of this paragraph, the term ``Armed Forces of the 
United States'' has the meaning provided by Sec.  301.7701-8 of this 
chapter. This paragraph does not apply to wages for services performed 
in Guam by members of the Armed Forces of the United States which are 
not compensation for military or naval service. In determining the 
amount of tax to be covered into the treasury of Guam under this 
paragraph with respect to remuneration for services performed in Guam by 
members of the Armed Forces of the United States, the special procedure 
agreed upon with the Department of Defense in 1951 shall not apply to 
remuneration paid after December 31, 1974. Under that procedure the tax 
withheld under section 3402 upon such remuneration for services 
performed in Guam during April and October of each year was to be 
projected for the appropriate six-month period of which the base month 
is a part, thereby arriving at an estimated figure for semiannual 
withholding tax to be covered over.
    (f) Transfers of funds. The transfers of funds between the United 
States and Guam required to effectuate the provisions of this section 
shall be made when convenient for the two governments, but not less 
frequently than once in each calendar year. In complying with paragraph 
(b) of this section, only net balances will be transferred between the 
two governments. Further, amounts transferred pursuant to paragraph (b) 
of this section may be determined on the basis of estimates rather than 
the actual amounts derived from information furnished by taxpayers, 
except that the net collections for 1973 and every third calendar year 
thereafter are to be transferred on the basis of the information 
furnished by taxpayers pursuant to paragraph (d) of this section. In 
order to facilitate the transfer of funds pursuant to this section, the 
Commissioner of Internal Revenue and the Commissioner of Revenue and 
Taxation of Guam shall exchange such information, including copies of 
income tax returns, as will ensure that the provisions of section 7654 
and this section are being properly implemented.

[T.D. 7385, 40 FR 50265, Oct. 29, 1975]



                               Definitions



Sec.  301.7701-1  Classification of organizations for federal tax purposes.

    (a) Organizations for federal tax purposes--(1) In general. The 
Internal Revenue Code prescribes the classification of various 
organizations for federal tax purposes. Whether an organization is an 
entity separate from its owners for federal tax purposes is a matter of 
federal tax law and does not depend on whether the organization is 
recognized as an entity under local law.
    (2) Certain joint undertakings give rise to entities for federal tax 
purposes. A joint venture or other contractual arrangement may create a 
separate entity for federal tax purposes if the participants carry on a 
trade, business, financial operation, or venture and divide the profits 
therefrom. For example, a separate entity exists for federal tax 
purposes if co- owners of an apartment building lease space and in 
addition provide services to the occupants either directly or through an 
agent. Nevertheless, a joint undertaking merely to share expenses does 
not create a separate entity for federal tax purposes. For example, if 
two or more persons jointly construct a ditch merely to drain surface 
water from their properties, they have not created a separate entity for 
federal tax purposes. Similarly, mere co-ownership of property that is 
maintained, kept in repair,

[[Page 810]]

and rented or leased does not constitute a separate entity for federal 
tax purposes. For example, if an individual owner, or tenants in common, 
of farm property lease it to a farmer for a cash rental or a share of 
the crops, they do not necessarily create a separate entity for federal 
tax purposes.
    (3) Certain local law entities not recognized. An entity formed 
under local law is not always recognized as a separate entity for 
federal tax purposes. For example, an organization wholly owned by a 
State is not recognized as a separate entity for federal tax purposes if 
it is an integral part of the State. Similarly, tribes incorporated 
under section 17 of the Indian Reorganization Act of 1934, as amended, 
25 U.S.C. 477, or under section 3 of the Oklahoma Indian Welfare Act, as 
amended, 25 U.S.C. 503, are not recognized as separate entities for 
federal tax purposes.
    (4) Single owner organizations. Under Sec. Sec.  301.7701-2 and 
301.7701-3, certain organizations that have a single owner can choose to 
be recognized or disregarded as entities separate from their owners.
    (b) Classification of organizations. The classification of 
organizations that are recognized as separate entities is determined 
under Sec. Sec.  301.7701-2, 301.7701-3, and 301.7701-4 unless a 
provision of the Internal Revenue Code (such as section 860A addressing 
Real Estate Mortgage Investment Conduits (REMICs)) provides for special 
treatment of that organization. For the classification of organizations 
as trusts, see Sec.  301.7701-4. That section provides that trusts 
generally do not have associates or an objective to carry on business 
for profit. Sections 301.7701-2 and 301.7701-3 provide rules for 
classifying organizations that are not classified as trusts.
    (c) Cost sharing arrangements. A cost sharing arrangement that is 
described in Sec.  1.482-7 of this chapter, including any arrangement 
that the Commissioner treats as a CSA under Sec.  1.482-7(b)(5) of this 
chapter, is not recognized as a separate entity for purposes of the 
Internal Revenue Code. See Sec.  1.482-7 of this chapter for the rules 
regarding CSAs.
    (d) Domestic and foreign business entities. See Sec.  301.7701-5 for 
the rules that determine whether a business entity is domestic or 
foreign.
    (e) State. For purposes of this section and Sec.  301.7701-2, the 
term State includes the District of Columbia.
    (f) Effective/applicability dates. Except as provided in the 
following sentence, the rules of this section are applicable as of 
January 1, 1997. The rules of paragraph (c) of this section are 
applicable on January 5, 2009.

[T.D. 8697, 61 FR 66588, Dec. 18, 1996, as amended by T.D. 9153, 69 FR 
49810, Aug. 12, 2004; T.D. 9246, 71 FR 4816, Jan. 30, 2006; T.D. 9441, 
74 FR 390, Jan. 5, 2009; T.D. 9568, 76 FR 80136, Dec. 22, 2011]



Sec.  301.7701-2  Business entities; definitions.

    (a) Business entities. For purposes of this section and Sec.  
301.7701-3, a business entity is any entity recognized for federal tax 
purposes (including an entity with a single owner that may be 
disregarded as an entity separate from its owner under Sec.  301.7701-3) 
that is not properly classified as a trust under Sec.  301.7701-4 or 
otherwise subject to special treatment under the Internal Revenue Code. 
A business entity with two or more members is classified for federal tax 
purposes as either a corporation or a partnership. A business entity 
with only one owner is classified as a corporation or is disregarded; if 
the entity is disregarded, its activities are treated in the same manner 
as a sole proprietorship, branch, or division of the owner. But see 
paragraphs (c)(2)(iii) through (vi) of this section for special rules 
that apply to an eligible entity that is otherwise disregarded as an 
entity separate from its owner.
    (b) Corporations. For federal tax purposes, the term corporation 
means--
    (1) A business entity organized under a Federal or State statute, or 
under a statute of a federally recognized Indian tribe, if the statute 
describes or refers to the entity as incorporated or as a corporation, 
body corporate, or body politic;
    (2) An association (as determined under Sec.  301.7701-3);
    (3) A business entity organized under a State statute, if the 
statute describes or refers to the entity as a joint-stock company or 
joint-stock association;
    (4) An insurance company;
    (5) A State-chartered business entity conducting banking activities, 
if any of

[[Page 811]]

its deposits are insured under the Federal Deposit Insurance Act, as 
amended, 12 U.S.C. 1811 et seq., or a similar federal statute;
    (6) A business entity wholly owned by a State or any political 
subdivision thereof, or a business entity wholly owned by a foreign 
government or any other entity described in Sec.  1.892-2T;
    (7) A business entity that is taxable as a corporation under a 
provision of the Internal Revenue Code other than section 7701(a)(3); 
and
    (8) Certain foreign entities--(i) In general. Except as provided in 
paragraphs (b)(8)(ii) and (d) of this section, the following business 
entities formed in the following jurisdictions:

American Samoa, Corporation
Argentina, Sociedad Anonima
Australia, Public Limited Company
Austria, Aktiengesellschaft
Barbados, Limited Company
Belgium, Societe Anonyme
Belize, Public Limited Company
Bolivia, Sociedad Anonima
Brazil, Sociedade Anonima
Bulgaria, Aktsionerno Druzhestvo.
Canada, Corporation and Company
Chile, Sociedad Anonima
People's Republic of China, Gufen Youxian Gongsi
Republic of China (Taiwan), Ku-fen Yu-hsien Kung-szu
Colombia, Sociedad Anonima
Costa Rica, Sociedad Anonima
Cyprus, Public Limited Company
Czech Republic, Akciova Spolecnost
Denmark, Aktieselskab
Ecuador, Sociedad Anonima or Compania Anonima
Egypt, Sharikat Al-Mossahamah
El Salvador, Sociedad Anonima
Estonia, Aktsiaselts
European Economic Area/European Union, Societas Europaea
Finland, Julkinen Osakeyhtio/Publikt Aktiebolag
France, Societe Anonyme
Germany, Aktiengesellschaft
Greece, Anonymos Etairia
Guam, Corporation
Guatemala, Sociedad Anonima
Guyana, Public Limited Company
Honduras, Sociedad Anonima
Hong Kong, Public Limited Company
Hungary, Reszvenytarsasag
Iceland, Hlutafelag
India, Public Limited Company
Indonesia, Perseroan Terbuka
Ireland, Public Limited Company
Israel, Public Limited Company
Italy, Societa per Azioni
Jamaica, Public Limited Company
Japan, Kabushiki Kaisha
Kazakstan, Ashyk Aktsionerlik Kogham
Republic of Korea, Chusik Hoesa
Latvia, Akciju Sabiedriba
Liberia, Corporation
Liechtenstein, Aktiengesellschaft
Lithuania, Akcine Bendroves
Luxembourg, Societe Anonyme
Malaysia, Berhad
Malta, Public Limited Company
Mexico, Sociedad Anonima
Morocco, Societe Anonyme
Netherlands, Naamloze Vennootschap
New Zealand, Limited Company
Nicaragua, Compania Anonima
Nigeria, Public Limited Company
Northern Mariana Islands, Corporation
Norway, Allment Aksjeselskap
Pakistan, Public Limited Company
Panama, Sociedad Anonima
Paraguay, Sociedad Anonima
Peru, Sociedad Anonima
Philippines, Stock Corporation
Poland, Spolka Akcyjna
Portugal, Sociedade Anonima
Puerto Rico, Corporation
Romania, Societate pe Actiuni
Russia, Otkrytoye Aktsionernoy Obshchestvo
Saudi Arabia, Sharikat Al-Mossahamah
Singapore, Public Limited Company
Slovak Republic, Akciova Spolocnost
Slovenia, Delniska Druzba
South Africa, Public Limited Company
Spain, Sociedad Anonima
Surinam, Naamloze Vennootschap
Sweden, Publika Aktiebolag
Switzerland, Aktiengesellschaft
Thailand, Borisat Chamkad (Mahachon)
Trinidad and Tobago, Limited Company
Tunisia, Societe Anonyme
Turkey, Anonim Sirket
Ukraine, Aktsionerne Tovaristvo Vidkritogo Tipu
United Kingdom, Public Limited Company
United States Virgin Islands, Corporation
Uruguay, Sociedad Anonima
Venezuela, Sociedad Anonima or Compania Anonima

    (ii) Clarification of list of corporations in paragraph (b)(8)(i) of 
this section--(A) Exceptions in certain cases. The following entities 
will not be treated as corporations under paragraph (b)(8)(i) of this 
section:
    (1) With regard to Canada, a Nova Scotia Unlimited Liability Company 
(or any other company or corporation all of whose owners have unlimited 
liability pursuant to federal or provincial law).
    (2) With regard to India, a company deemed to be a public limited 
company solely by operation of section 43A(1)

[[Page 812]]

(relating to corporate ownership of the company), section 43A(1A) 
(relating to annual average turnover), or section 43A(1B) (relating to 
ownership interests in other companies) of the Companies Act, 1956 (or 
any combination of these), provided that the organizational documents of 
such deemed public limited company continue to meet the requirements of 
section 3(1)(iii) of the Companies Act, 1956.
    (3) With regard to Malaysia, a Sendirian Berhad.
    (B) Inclusions in certain cases. With regard to Mexico, the term 
Sociedad Anonima includes a Sociedad Anonima that chooses to apply the 
variable capital provision of Mexican corporate law (Sociedad Anonima de 
Capital Variable).
    (iii) Public companies. For purposes of paragraph (b)(8)(i) of this 
section, with regard to Cyprus, Hong Kong, and Jamaica, the term Public 
Limited Company includes any Limited Company that is not defined as a 
private company under the corporate laws of those jurisdictions. In all 
other cases, where the term Public Limited Company is not defined, that 
term shall include any Limited Company defined as a public company under 
the corporate laws of the relevant jurisdiction.
    (iv) Limited companies. For purposes of this paragraph (b)(8), any 
reference to a Limited Company includes, as the case may be, companies 
limited by shares and companies limited by guarantee.
    (v) Multilingual countries. Different linguistic renderings of the 
name of an entity listed in paragraph (b)(8)(i) of this section shall be 
disregarded. For example, an entity formed under the laws of Switzerland 
as a Societe Anonyme will be a corporation and treated in the same 
manner as an Aktiengesellschaft.
    (b)(9) Business entities with multiple charters. (i) An entity 
created or organized under the laws of more than one jurisdiction if the 
rules of this section would treat it as a corporation with reference to 
any one of the jurisdictions in which it is created or organized. Such 
an entity may elect its classification under Sec.  301.7701-3, subject 
to the limitations of those provisions, only if it is created or 
organized in each jurisdiction in a manner that meets the definition of 
an eligible entity in Sec.  301.7701-3(a). The determination of a 
business entity's corporate or non-corporate classification is made 
independently from the determination of whether the entity is domestic 
or foreign. See Sec.  301.7701-5 for the rules that determine whether a 
business entity is domestic or foreign.
    (ii) Examples. The following examples illustrate the rule of this 
paragraph (b)(9):

    Example 1. (i) Facts. X is an entity with a single owner organized 
under the laws of Country A as an entity that is listed in paragraph 
(b)(8)(i) of this section. Under the rules of this section, such an 
entity is a corporation for Federal tax purposes and under Sec.  
301.7701-3(a) is unable to elect its classification. Several years after 
its formation, X files a certificate of domestication in State B as a 
limited liability company (LLC). Under the laws of State B, X is 
considered to be created or organized in State B as an LLC upon the 
filing of the certificate of domestication and is therefore subject to 
the laws of State B. Under the rules of this section and Sec.  301.7701-
3, an LLC with a single owner organized only in State B is disregarded 
as an entity separate from its owner for Federal tax purposes (absent an 
election to be treated as an association). Neither Country A nor State B 
law requires X to terminate its charter in Country A as a result of the 
domestication, and in fact X does not terminate its Country A charter. 
Consequently, X is now organized in more than one jurisdiction.
    (ii) Result. X remains organized under the laws of Country A as an 
entity that is listed in paragraph (b)(8)(i) of this section, and as 
such, it is an entity that is treated as a corporation under the rules 
of this section. Therefore, X is a corporation for Federal tax purposes 
because the rules of this section would treat X as a corporation with 
reference to one of the jurisdictions in which it is created or 
organized. Because X is organized in Country A in a manner that does not 
meet the definition of an eligible entity in Sec.  301.7701-3(a), it is 
unable to elect its classification.
    Example 2. (i) Facts. Y is an entity that is incorporated under the 
laws of State A and has two shareholders. Under the rules of this 
section, an entity incorporated under the laws of State A is a 
corporation for Federal tax purposes and under Sec.  301.7701-3(a) is 
unable to elect its classification. Several years after its formation, Y 
files a certificate of continuance in Country B as an unlimited company. 
Under the laws of Country B, upon filing a certificate of continuance, Y 
is treated as organized in Country B. Under the

[[Page 813]]

rules of this section and Sec.  301.7701-3, an unlimited company 
organized only in Country B that has more than one owner is treated as a 
partnership for Federal tax purposes (absent an election to be treated 
as an association). Neither State A nor Country B law requires Y to 
terminate its charter in State A as a result of the continuance, and in 
fact Y does not terminate its State A charter. Consequently, Y is now 
organized in more than one jurisdiction.
    (ii) Result. Y remains organized in State A as a corporation, an 
entity that is treated as a corporation under the rules of this section. 
Therefore, Y is a corporation for Federal tax purposes because the rules 
of this section would treat Y as a corporation with reference to one of 
the jurisdictions in which it is created or organized. Because Y is 
organized in State A in a manner that does not meet the definition of an 
eligible entity in Sec.  301.7701-3(a), it is unable to elect its 
classification.
    Example 3. (i) Facts. Z is an entity that has more than one owner 
and that is recognized under the laws of Country A as an unlimited 
company organized in Country A. Z is organized in Country A in a manner 
that meets the definition of an eligible entity in Sec.  301.7701-3(a). 
Under the rules of this section and Sec.  301.7701-3, an unlimited 
company organized only in Country A with more than one owner is treated 
as a partnership for Federal tax purposes (absent an election to be 
treated as an association). At the time Z was formed, it was also 
organized as a private limited company under the laws of Country B. Z is 
organized in Country B in a manner that meets the definition of an 
eligible entity in Sec.  301.7701-3(a). Under the rules of this section 
and Sec.  301.7701-3, a private limited company organized only in 
Country B is treated as a corporation for Federal tax purposes (absent 
an election to be treated as a partnership). Thus, Z is organized in 
more than one jurisdiction. Z has not made any entity classification 
elections under Sec.  301.7701-3.
    (ii) Result. Z is organized in Country B as a private limited 
company, an entity that is treated (absent an election to the contrary) 
as a corporation under the rules of this section. However, because Z is 
organized in each jurisdiction in a manner that meets the definition of 
an eligible entity in Sec.  301.7701-3(a), it may elect its 
classification under Sec.  301.7701-3, subject to the limitations of 
those provisions.
    Example 4. (i) Facts. P is an entity with more than one owner 
organized in Country A as a general partnership. Under the rules of this 
section and Sec.  301.7701-3, an eligible entity with more than one 
owner in Country A is treated as a partnership for federal tax purposes 
(absent an election to be treated as an association). P files a 
certificate of continuance in Country B as an unlimited company. Under 
the rules of this section and Sec.  301.7701-3, an unlimited company in 
Country B with more than one owner is treated as a partnership for 
federal tax purposes (absent an election to be treated as an 
association). P is not required under either the laws of Country A or 
Country B to terminate the general partnership in Country A, and in fact 
P does not terminate its Country A partnership. P is now organized in 
more than one jurisdiction. P has not made any entity classification 
elections under Sec.  301.7701-3.
    (ii) Result. P's organization in both Country A and Country B would 
result in P being classified as a partnership. Therefore, since the 
rules of this section would not treat P as a corporation with reference 
to any jurisdiction in which it is created or organized, it is not a 
corporation for federal tax purposes.

    (c) Other business entities. For federal tax purposes--
    (1) The term partnership means a business entity that is not a 
corporation under paragraph (b) of this section and that has at least 
two members.
    (2) Wholly owned entities--(i) In general. Except as otherwise 
provided in this paragraph (c), a business entity that has a single 
owner and is not a corporation under paragraph (b) of this section is 
disregarded as an entity separate from its owner.
    (ii) Special rule for certain business entities. If the single owner 
of a business entity is a bank (as defined in section 581, or, in the 
case of a foreign bank, as defined in section 585(a)(2)(B) without 
regard to the second sentence thereof), then the special rules 
applicable to banks under the Internal Revenue Code will continue to 
apply to the single owner as if the wholly owned entity were a separate 
entity. For this purpose, the special rules applicable to banks under 
the Internal Revenue Code do not include the rules under sections 
864(c), 882(c), and 884.
    (iii) Tax liabilities of certain disregarded entities--(A) In 
general. An entity that is disregarded as separate from its owner for 
any purpose under this section is treated as an entity separate from its 
owner for purposes of--
    (1) Federal tax liabilities of the entity with respect to any 
taxable period for which the entity was not disregarded;
    (2) Federal tax liabilities of any other entity for which the entity 
is liable; and
    (3) Refunds or credits of Federal tax.

[[Page 814]]

    (B) Examples. The following examples illustrate the application of 
paragraph (c)(2)(iii)(A) of this section:

    Example 1. In 2006, X, a domestic corporation that reports its taxes 
on a calendar year basis, merges into Z, a domestic LLC wholly owned by 
Y that is disregarded as an entity separate from Y, in a state law 
merger. X was not a member of a consolidated group at any time during 
its taxable year ending in December 2005. Under the applicable state 
law, Z is the successor to X and is liable for all of X's debts. In 
2009, the Internal Revenue Service (IRS) seeks to extend the period of 
limitations on assessment for X's 2005 taxable year. Because Z is the 
successor to X and is liable for X's 2005 taxes that remain unpaid, Z is 
the proper party to sign the consent to extend the period of 
limitations.
    Example 2. The facts are the same as in Example 1, except that in 
2007, the IRS determines that X miscalculated and underreported its 
income tax liability for 2005. Because Z is the successor to X and is 
liable for X's 2005 taxes that remain unpaid, the deficiency may be 
assessed against Z and, in the event that Z fails to pay the liability 
after notice and demand, a general tax lien will arise against all of 
Z's property and rights to property.

    (iv) Special rule for employment tax purposes--
    (A) In general. Except as provided in paragraph (c)(2)(iv)(C) of 
this section, paragraph (c)(2)(i) of this section (relating to certain 
wholly owned entities) does not apply to taxes imposed under Subtitle 
C--Employment Taxes and Collection of Income Tax (Chapters 21, 22, 23, 
23A, 24, and 25 of the Internal Revenue Code).
    (B) Treatment of entity. Except as provided in paragraph 
(c)(2)(iv)(C) of this section, an entity that is disregarded as an 
entity separate from its owner for any purpose under this section is 
treated as a corporation with respect to taxes imposed under Subtitle 
C--Employment Taxes and Collection of Income Tax (Chapters 21, 22, 23, 
23A, 24, and 25 of the Internal Revenue Code). For special rules 
regarding the application of certain employment tax exceptions, see 
Sec. Sec.  31.3121(b)(3)-1(d), 31.3127-1(b), and 31.3306(c)(5)-1(d) of 
this chapter.
    (C) Special rules. (1) Paragraphs (c)(2)(iv)(A) and (B) of this 
section do not apply to withholding requirements imposed by section 3406 
(backup withholding). Thus, in the case of an entity that is disregarded 
as an entity separate from its owner for any purpose under this section, 
the owner is subject to the withholding requirements imposed by section 
3406 (backup withholding).
    (2) Paragraph (c)(2)(i) of this section applies to taxes imposed 
under subtitle A of the Code, including Chapter 2--Tax on Self-
Employment Income. Thus, an entity that is treated in the same manner as 
a sole proprietorship under paragraph (a) of this section is not treated 
as a corporation for purposes of employing its owner; instead, the 
entity is disregarded as an entity separate from its owner for this 
purpose and is not the employer of its owner. The owner will be subject 
to self-employment tax on self-employment income with respect to the 
entity's activities. Also, if a partnership is the owner of an entity 
that is disregarded as an entity separate from its owner for any purpose 
under this section, the entity is not treated as a corporation for 
purposes of employing a partner of the partnership that owns the entity; 
instead, the entity is disregarded as an entity separate from the 
partnership for this purpose and is not the employer of any partner of 
the partnership that owns the entity. A partner of a partnership that 
owns an entity that is disregarded as an entity separate from its owner 
for any purpose under this section is subject to the same self-
employment tax rules as a partner of a partnership that does not own an 
entity that is disregarded as an entity separate from its owner for any 
purpose under this section.
    (D) Example. The following example illustrates the application of 
paragraph (c)(2)(iv) of this section:

    Example. (i) LLCA is an eligible entity owned by individual A and is 
generally disregarded as an entity separate from its owner for Federal 
tax purposes. However, LLCA is treated as an entity separate from its 
owner for purposes of subtitle C of the Internal Revenue Code. LLCA has 
employees and pays wages as defined in sections 3121(a), 3306(b), and 
3401(a).
    (ii) LLCA is subject to the provisions of subtitle C of the Internal 
Revenue Code and related provisions under 26 CFR subchapter C, 
Employment Taxes and Collection of Income Tax at Source, parts 31 
through 39. Accordingly, LLCA is required to perform such

[[Page 815]]

acts as are required of an employer under those provisions of the 
Internal Revenue Code and regulations thereunder that apply. All 
provisions of law (including penalties) and the regulations prescribed 
in pursuance of law applicable to employers in respect of such acts are 
applicable to LLCA. Thus, for example, LLCA is liable for income tax 
withholding, Federal Insurance Contributions Act (FICA) taxes, and 
Federal Unemployment Tax Act (FUTA) taxes. See sections 3402 and 3403 
(relating to income tax withholding); 3102(b) and 3111 (relating to FICA 
taxes), and 3301 (relating to FUTA taxes). In addition, LLCA must file 
under its name and EIN the applicable Forms in the 94X series, for 
example, Form 941, ``Employer's Quarterly Employment Tax Return,'' Form 
940, ``Employer's Annual Federal Unemployment Tax Return;'' file with 
the Social Security Administration and furnish to LLCA's employees 
statements on Forms W-2, ``Wage and Tax Statement;'' and make timely 
employment tax deposits. See Sec. Sec.  31.6011(a)-1, 31.6011(a)-3, 
31.6051-1, 31.6051-2, and 31.6302-1 of this chapter.
    (iii) A is self-employed for purposes of subtitle A, chapter 2, Tax 
on Self-Employment Income, of the Internal Revenue Code. Thus, A is 
subject to tax under section 1401 on A's net earnings from self-
employment with respect to LLCA's activities. A is not an employee of 
LLCA for purposes of subtitle C of the Internal Revenue Code. Because 
LLCA is treated as a sole proprietorship of A for income tax purposes, A 
is entitled to deduct trade or business expenses paid or incurred with 
respect to activities carried on through LLCA, including the employer's 
share of employment taxes imposed under sections 3111 and 3301, on A's 
Form 1040, Schedule C, ``Profit or Loss for Business (Sole 
Proprietorship).''

    (v) Special rule for certain excise tax purposes--(A) In general. 
Paragraph (c)(2)(i) of this section (relating to certain wholly owned 
entities) does not apply for purposes of--
    (1) Federal tax liabilities imposed by Chapters 31, 32 (other than 
section 4181), 33, 34, 35, 36 (other than section 4461), 38, and 49 of 
the Internal Revenue Code, or any floor stocks tax imposed on articles 
subject to any of these taxes;
    (2) Collection of tax imposed by Chapters 33 and 49 of the Internal 
Revenue Code;
    (3) Registration under sections 4101, 4222, 4412;
    (4) Claims of a credit (other than a credit under section 34), 
refund, or payment related to a tax described in paragraph 
(c)(2)(v)(A)(1) of this section or under section 6426 or 6427; and
    (5) Assessment and collection of an assessable payment imposed by 
section 4980H and reporting required by section 6056.
    (B) Treatment of entity. An entity that is disregarded as an entity 
separate from its owner for any purpose under this section is treated as 
a corporation with respect to items described in paragraph (c)(2)(v)(A) 
of this section.
    (C) Example. The following example illustrates the provisions of 
this paragraph (c)(2)(v):

    Example. (i) LLCB is an eligible entity that has a single owner, B. 
LLCB is generally disregarded as an entity separate from its owner. 
However, under paragraph (c)(2)(v) of this section, LLCB is treated as 
an entity separate from its owner for certain purposes relating to 
excise taxes.
    (ii) LLCB mines coal from a coal mine located in the United States. 
Section 4121 of chapter 32 of the Internal Revenue Code imposes a tax on 
the producer's sale of such coal. Section 48.4121-1(a) of this chapter 
defines a ``producer'' generally as the person in whom is vested 
ownership of the coal under state law immediately after the coal is 
severed from the ground. LLCB is the person that owns the coal under 
state law immediately after it is severed from the ground. Under 
paragraph (c)(2)(v)(A)(1) of this section, LLCB is the producer of the 
coal and is liable for tax on its sale of such coal under chapter 32 of 
the Internal Revenue Code. LLCB must report and pay tax on Form 720, 
``Quarterly Federal Excise Tax Return,'' under its own name and taxpayer 
identification number.
    (iii) LLCB uses undyed diesel fuel in an earthmover that is not 
registered or required to be registered for highway use. Such use is an 
off-highway business use of the fuel. Under section 6427(l), the 
ultimate purchaser is allowed to claim an income tax credit or payment 
related to the tax imposed on diesel fuel used in an off-highway 
business use. Under paragraph (c)(2)(v) of this section, for purposes of 
the credit or payment allowed under section 6427(l), LLCB is the person 
that could claim the amount on its Form 720 or on a Form 8849, ``Claim 
for Refund of Excise Taxes.'' Alternatively, if LLCB did not claim a 
payment during the time prescribed in section 6427(i)(2) for making a 
claim under section 6427, Sec.  1.34-1 of this chapter provides that B, 
the owner of LLCB, could claim the income tax credit allowed under 
section 34 for the nontaxable use of diesel fuel by LLCB.
    (iv) Assume the same facts as in paragraph (c)(2)(v)(C) Example (i) 
and (ii) of this section.

[[Page 816]]

If LLCB does not pay the tax on its sale of coal under chapter 32 of the 
Internal Revenue Code, any notice of lien the Internal Revenue Service 
files will be filed as if LLCB were a corporation.

    (vi) Special rule for reporting under section 6038A--(A) In general. 
An entity that is disregarded as an entity separate from its owner for 
any purpose under this section is treated as an entity separate from its 
owner and classified as a corporation for purposes of section 6038A if--
    (1) The entity is a domestic entity; and
    (2) One foreign person has direct or indirect sole ownership of the 
entity.
    (B) Definitions--(1) Indirect sole ownership. For purposes of 
paragraph (c)(2)(vi)(A)(2) of this section, indirect sole ownership 
means ownership by one person entirely through one or more other 
entities disregarded as entities separate from their owners or through 
one or more grantor trusts, regardless of whether any such disregarded 
entity or grantor trust is domestic or foreign.
    (2) Entity disregarded as separate from its owner. For purposes of 
paragraph (c)(2)(vi)(B)(1) of this section, an entity disregarded as an 
entity separate from its owner is an entity described in paragraph 
(c)(2)(i) of this section.
    (3) Grantor trust. For purposes of paragraph (c)(2)(vi)(B)(1) of 
this section, a grantor trust is any portion of a trust that is treated 
as owned by the grantor or another person under subpart E of subchapter 
J of chapter 1 of the Code.
    (C) Taxable year. The taxable year of an entity classified as a 
corporation for section 6038A purposes pursuant to paragraph 
(c)(2)(vi)(A) of this section is--
    (1) The same as the taxable year of the foreign person described in 
paragraph (c)(2)(vi)(A)(2) of this section, if that foreign person has a 
U.S. income tax or information return filing obligation for its taxable 
year; or
    (2) The calendar year, if paragraph (c)(2)(vi)(C)(1) of this section 
does not apply, unless otherwise provided in forms, instructions, or 
published guidance.
    (d) Special rule for certain foreign business entities--(1) In 
general. Except as provided in paragraph (d)(3) of this section, a 
foreign business entity described in paragraph (b)(8)(i) of this section 
will not be treated as a corporation under paragraph (b)(8)(i) of this 
section if--
    (i) The entity was in existence on May 8, 1996;
    (ii) The entity's classification was relevant (as defined in Sec.  
301.7701-3(d)) on May 8, 1996;
    (iii) No person (including the entity) for whom the entity's 
classification was relevant on May 8, 1996, treats the entity as a 
corporation for purposes of filing such person's federal income tax 
returns, information returns, and withholding documents for the taxable 
year including May 8, 1996;
    (iv) Any change in the entity's claimed classification within the 
sixty months prior to May 8, 1996, occurred solely as a result of a 
change in the organizational documents of the entity, and the entity and 
all members of the entity recognized the federal tax consequences of any 
change in the entity's classification within the sixty months prior to 
May 8, 1996;
    (v) A reasonable basis (within the meaning of section 6662) existed 
on May 8, 1996, for treating the entity as other than a corporation; and
    (vi) Neither the entity nor any member was notified in writing on or 
before May 8, 1996, that the classification of the entity was under 
examination (in which case the entity's classification will be 
determined in the examination).
    (2) Binding contract rule. If a foreign business entity described in 
paragraph (b)(8)(i) of this section is formed after May 8, 1996, 
pursuant to a written binding contract (including an accepted bid to 
develop a project) in effect on May 8, 1996, and all times thereafter, 
in which the parties agreed to engage (directly or indirectly) in an 
active and substantial business operation in the jurisdiction in which 
the entity is formed, paragraph (d)(1) of this section will be applied 
to that entity by substituting the date of the entity's formation for 
May 8, 1996.
    (3) Termination of grandfather status--(i) In general. An entity 
that is not treated as a corporation under paragraph (b)(8)(i) of this 
section by reason

[[Page 817]]

of paragraph (d)(1) or (d)(2) of this section will be treated 
permanently as a corporation under paragraph (b)(8)(i) of this section 
from the earliest of:
    (A) The effective date of an election to be treated as an 
association under Sec.  301.7701-3;
    (B) A termination of the partnership under section 708(b)(1)(B) 
(regarding sale or exchange of 50 percent or more of the total interest 
in an entity's capital or profits within a twelve month period);
    (C) A division of the partnership under section 708(b)(2)(B); or
    (D) The date any person or persons, who were not owners of the 
entity as of November 29, 1999, own in the aggregate a 50 percent or 
greater interest in the entity.
    (ii) Special rule for certain entities. For purposes of paragraph 
(d)(2) of this section, paragraph (d)(3)(i)(B) of this section shall not 
apply if the sale or exchange of interests in the entity is to a related 
person (within the meaning of sections 267(b) and 707(b)) and occurs no 
later than twelve months after the date of the formation of the entity.
    (e) Effective/applicability date. (1) Except as otherwise provided 
in this paragraph (e), the rules of this section apply as of January 1, 
1997, except that paragraph (b)(6) of this section applies on or after 
January 14, 2002, to a business entity wholly owned by a foreign 
government regardless of any prior entity classification, and paragraph 
(c)(2)(ii) of this section applies to taxable years beginning after 
January 12, 2001. The reference to the Finnish, Maltese, and Norwegian 
entities in paragraph (b)(8)(i) of this section is applicable on 
November 29, 1999. The reference to the Trinidadian entity in paragraph 
(b)(8)(i) of this section applies to entities formed on or after 
November 29, 1999. Any Maltese or Norwegian entity that becomes an 
eligible entity as a result of paragraph (b)(8)(i) of this section in 
effect on November 29, 1999, may elect by February 14, 2000, to be 
classified for Federal tax purposes as an entity other than a 
corporation retroactive to any period from and including January 1, 
1997. Any Finnish entity that becomes an eligible entity as a result of 
paragraph (b)(8)(i) of this section in effect on November 29, 1999, may 
elect by February 14, 2000, to be classified for Federal tax purposes as 
an entity other than a corporation retroactive to any period from and 
including September 1, 1997. However, paragraph (d)(3)(i)(D) of this 
section applies on or after October 22, 2003.
    (2) Paragraph (c)(2)(iii) of this section applies on and after 
September 14, 2009. For rules that apply before September 14, 2009, see 
26 CFR part 301, revised as of April 1, 2009.
    (3)(i) General rule. Except as provided in paragraph (e)(3)(ii) of 
this section, the rules of paragraph (b)(9) of this section apply as of 
August 12, 2004, to all business entities existing on or after that 
date.
    (ii) Transition rule. For business entities created or organized 
under the laws of more than one jurisdiction as of August 12, 2004, the 
rules of paragraph (b)(9) of this section apply as of May 1, 2006. These 
entities, however, may rely on the rules of paragraph (b)(9) of this 
section as of August 12, 2004.
    (4) The reference to the Estonian, Latvian, Liechtenstein, 
Lithuanian, and Slovenian entities in paragraph (b)(8)(i) of this 
section applies to such entities formed on or after October 7, 2004, and 
to any such entity formed before such date from the date any person or 
persons, who were not owners of the entity as of October 7, 2004, own in 
the aggregate a 50 percent or greater interest in the entity. The 
reference to the European Economic Area/European Union entity in 
paragraph (b)(8)(i) of this section applies to such entities formed on 
or after October 8, 2004.
    (5)(i) Except as provided in this paragraph (e)(5), paragraph 
(c)(2)(iv) of this section applies with respect to wages paid on or 
after January 1, 2009.
    (ii) Paragraph (c)(2)(iv)(B) applies with respect to wages paid on 
or after September 14, 2009. For rules that apply before September 14, 
2009, see 26 CFR part 301 revised as of April 1, 2009.
    (iii) Paragraph (c)(2)(iv)(C)(1) of this section applies with 
respect to wages paid on or after November 1, 2011. For rules that apply 
before November 1, 2011, see 26 CFR part 301, revised as of April 1, 
2011. However, taxpayers may apply paragraph (c)(2)(iv)(C)(1) of this 
section with respect to wages paid on or after January 1, 2009.

[[Page 818]]

    (6)(i) Except as provided in this paragraph (e)(6), paragraph 
(c)(2)(v) of this section applies to liabilities imposed and actions 
first required or permitted in periods beginning on or after January 1, 
2008.
    (ii) Paragraphs (c)(2)(v)(B) and (c)(2)(v)(C) Example (iv) of this 
section apply on and after September 14, 2009.
    (iii) Paragraph (c)(2)(v)(A)(5) of this section applies for periods 
after December 31, 2014.
    (iv) References to Chapter 49 in paragraph (c)(2)(v) of this section 
apply to taxes imposed on amounts paid on or after July 1, 2012.
    (7) The reference to the Bulgarian entity in paragraph (b)(8)(i) of 
this section applies to such entities formed on or after January 1, 
2007, and to any such entity formed before such date from the date that, 
in the aggregate, a 50 percent or more interest in such entity is owned 
by any person or persons who were not owners of the entity as of January 
1, 2007. For purposes of the preceding sentence, the term interest 
means--
    (i) In the case of a partnership, a capital or profits interest; and
    (ii) In the case of a corporation, an equity interest measured by 
vote or value.
    (8) Paragraph (c)(2)(iv)(C)(2) of this section applies on the later 
of--
    (i) August 1, 2016; or
    (ii) The first day of the latest-starting plan year beginning after 
May 4, 2016, and on or before May 4, 2017, of an affected plan (based on 
the plans adopted before, and the plan years in effect as of, May 4, 
2016) sponsored by an entity that is disregarded as an entity separate 
from its owner for any purpose under this section. For rules that apply 
before the applicability date of paragraph (c)(2)(iv)(C)(2) of this 
section, see 26 CFR part 301 revised as of April 1, 2016. For the 
purposes of this paragraph (e)(8)--
    (A) An affected plan includes any qualified plan, health plan, or 
section 125 cafeteria plan if the plan benefits participants whose 
employment status is affected by paragraph (c)(2)(iv)(C)(2) of this 
section;
    (B) A qualified plan means a plan, contract, pension, or trust 
described in paragraph (A) or (B) of section 219(g)(5) (other than 
paragraph (A)(iii)); and
    (C) A health plan means an arrangement described under Sec.  1.105-5 
of this chapter.
    (9) Reporting required under section 6038A. Paragraph (c)(2)(vi) of 
this section applies to taxable years of entities beginning after 
December 31, 2016, and ending on or after December 13, 2017.

[T.D. 8697, 61 FR 66589, Dec. 18, 1996, as amended by T.D. 8844, 64 FR 
66583, Nov. 29, 1999; T.D. 9012, 67 FR 49864, Aug. 1, 2002; T.D. 9093, 
68 FR 60298, Oct. 22, 2003; T.D. 9153, 69 FR 49810, Aug. 12, 2004; T.D. 
9183, 70 FR 9221, Feb. 25, 2005; T.D. 9197, 70 FR 19698, Apr. 14, 2005; 
T.D. 9235, 70 FR 74658, Dec. 16, 2005; T.D. 9246, 71 FR 4817, Jan. 30, 
2006; T.D. 9356, 72 FR 45893, Aug. 16, 2007; T.D. 9388, 73 FR 15065, 
Mar. 21, 2008; T.D. 8697, 73 FR 18442, Apr. 4, 2008; 73 FR 21415, Apr. 
21, 2008; T.D. 9433, 73 FR 72346, Nov. 28, 2008; T.D. 9462, 74 FR 46904, 
Sept. 14, 2009; T.D. 9553, 76 FR 66182, Oct. 26, 2011; T.D. 9554, 76 FR 
67365, Nov. 1, 2011; T.D. 9596, 77 FR 37807, June 25, 2012; T.D. 9655, 
79 FR 8601, Feb. 12, 2014; T.D. 9670, 79 FR 36206, June 26, 2014; T.D. 
9766, 81 FR 26694, May 4, 2016; T.D. 9796, 81 FR 89851, Dec. 13, 2016; 
T.D. 9869, 84 FR 31479, July 2, 2019]



Sec.  301.7701-3  Classification of certain business entities.

    (a) In general. A business entity that is not classified as a 
corporation under Sec.  301.7701-2(b) (1), (3), (4), (5), (6), (7), or 
(8) (an eligible entity) can elect its classification for federal tax 
purposes as provided in this section. An eligible entity with at least 
two members can elect to be classified as either an association (and 
thus a corporation under Sec.  301.7701-2(b)(2)) or a partnership, and 
an eligible entity with a single owner can elect to be classified as an 
association or to be disregarded as an entity separate from its owner. 
Paragraph (b) of this section provides a default classification for an 
eligible entity that does not make an election. Thus, elections are 
necessary only when an eligible entity chooses to be classified 
initially as other than the default classification or when an eligible 
entity chooses to change its classification. An entity whose 
classification is determined under the default classification retains 
that classification (regardless of any changes in the members' liability 
that occurs at any time during the time that the entity's classification 
is relevant as defined in paragraph (d) of

[[Page 819]]

this section) until the entity makes an election to change that 
classification under paragraph (c)(1) of this section. Paragraph (c) of 
this section provides rules for making express elections, including a 
rule under which a domestic eligible entity that elects to be classified 
as an association consents to be subject to the dual consolidated loss 
rules of section 1503(d). Paragraph (d) of this section provides special 
rules for foreign eligible entities. Paragraph (e) of this section 
provides special rules for classifying entities resulting from 
partnership terminations and divisions under section 708(b). Paragraph 
(f) of this section sets forth the effective date of this section and a 
special rule relating to prior periods.
    (b) Classification of eligible entities that do not file an 
election--(1) Domestic eligible entities. Except as provided in 
paragraph (b)(3) of this section, unless the entity elects otherwise, a 
domestic eligible entity is--
    (i) A partnership if it has two or more members; or
    (ii) Disregarded as an entity separate from its owner if it has a 
single owner.
    (2) Foreign eligible entities--(i) In general. Except as provided in 
paragraph (b)(3) of this section, unless the entity elects otherwise, a 
foreign eligible entity is--
    (A) A partnership if it has two or more members and at least one 
member does not have limited liability;
    (B) An association if all members have limited liability; or
    (C) Disregarded as an entity separate from its owner if it has a 
single owner that does not have limited liability.
    (ii) Definition of limited liability. For purposes of paragraph 
(b)(2)(i) of this section, a member of a foreign eligible entity has 
limited liability if the member has no personal liability for the debts 
of or claims against the entity by reason of being a member. This 
determination is based solely on the statute or law pursuant to which 
the entity is organized, except that if the underlying statute or law 
allows the entity to specify in its organizational documents whether the 
members will have limited liability, the organizational documents may 
also be relevant. For purposes of this section, a member has personal 
liability if the creditors of the entity may seek satisfaction of all or 
any portion of the debts or claims against the entity from the member as 
such. A member has personal liability for purposes of this paragraph 
even if the member makes an agreement under which another person 
(whether or not a member of the entity) assumes such liability or agrees 
to indemnify that member for any such liability.
    (3) Existing eligible entities--(i) In general. Unless the entity 
elects otherwise, an eligible entity in existence prior to the effective 
date of this section will have the same classification that the entity 
claimed under Sec. Sec.  301.7701-1 through 301.7701-3 as in effect on 
the date prior to the effective date of this section; except that if an 
eligible entity with a single owner claimed to be a partnership under 
those regulations, the entity will be disregarded as an entity separate 
from its owner under this paragraph (b)(3)(i). For special rules 
regarding the classification of such entities prior to the effective 
date of this section, see paragraph (h)(2) of this section.
    (ii) Special rules. For purposes of paragraph (b)(3)(i) of this 
section, a foreign eligible entity is treated as being in existence 
prior to the effective date of this section only if the entity's 
classification was relevant (as defined in paragraph (d) of this 
section) at any time during the sixty months prior to the effective date 
of this section. If an entity claimed different classifications prior to 
the effective date of this section, the entity's classification for 
purposes of paragraph (b)(3)(i) of this section is the last 
classification claimed by the entity. If a foreign eligible entity's 
classification is relevant prior to the effective date of this section, 
but no federal tax or information return is filed or the federal tax or 
information return does not indicate the classification of the entity, 
the entity's classification for the period prior to the effective date 
of this section is determined under the regulations in effect on the 
date prior to the effective date of this section.
    (c) Elections--(1) Time and place for filing--(i) In general. Except 
as provided in paragraphs (c)(1) (iv) and (v) of this section, an 
eligible entity may elect to be classified other than as provided

[[Page 820]]

under paragraph (b) of this section, or to change its classification, by 
filing Form 8832, Entity Classification Election, with the service 
center designated on Form 8832. An election will not be accepted unless 
all of the information required by the form and instructions, including 
the taxpayer identifying number of the entity, is provided on Form 8832. 
See Sec.  301.6109-1 for rules on applying for and displaying Employer 
Identification Numbers.
    (ii) Further notification of elections. An eligible entity required 
to file a Federal tax or information return for the taxable year for 
which an election is made under Sec.  301.7701-3(c)(1)(i) must attach a 
copy of its Form 8832 to its Federal tax or information return for that 
year. If the entity is not required to file a return for that year, a 
copy of its Form 8832 (``Entity Classification Election'') must be 
attached to the Federal income tax or information return of any direct 
or indirect owner of the entity for the taxable year of the owner that 
includes the date on which the election was effective. An indirect owner 
of the entity does not have to attach a copy of the Form 8832 to its 
return if an entity in which it has an interest is already filing a copy 
of the Form 8832 with its return. If an entity, or one of its direct or 
indirect owners, fails to attach a copy of a Form 8832 to its return as 
directed in this section, an otherwise valid election under Sec.  
301.7701-3(c)(1)(i) will not be invalidated, but the non-filing party 
may be subject to penalties, including any applicable penalties if the 
Federal tax or information returns are inconsistent with the entity's 
election under Sec.  301.7701-3(c)(1)(i). In the case of returns for 
taxable years beginning after December 31, 2002, the copy of Form 8832 
attached to a return pursuant to this paragraph (c)(1)(ii) is not 
required to be a signed copy.
    (iii) Effective date of election. An election made under paragraph 
(c)(1)(i) of this section will be effective on the date specified by the 
entity on Form 8832 or on the date filed if no such date is specified on 
the election form. The effective date specified on Form 8832 can not be 
more than 75 days prior to the date on which the election is filed and 
can not be more than 12 months after the date on which the election is 
filed. If an election specifies an effective date more than 75 days 
prior to the date on which the election is filed, it will be effective 
75 days prior to the date it was filed. If an election specifies an 
effective date more than 12 months from the date on which the election 
is filed, it will be effective 12 months after the date it was filed. If 
an election specifies an effective date before January 1, 1997, it will 
be effective as of January 1, 1997. If a purchasing corporation makes an 
election under section 338 regarding an acquired subsidiary, an election 
under paragraph (c)(1)(i) of this section for the acquired subsidiary 
can be effective no earlier than the day after the acquisition date 
(within the meaning of section 338(h)(2)).
    (iv) Limitation. If an eligible entity makes an election under 
paragraph (c)(1)(i) of this section to change its classification (other 
than an election made by an existing entity to change its classification 
as of the effective date of this section), the entity cannot change its 
classification by election again during the sixty months succeeding the 
effective date of the election. However, the Commissioner may permit the 
entity to change its classification by election within the sixty months 
if more than fifty percent of the ownership interests in the entity as 
of the effective date of the subsequent election are owned by persons 
that did not own any interests in the entity on the filing date or on 
the effective date of the entity's prior election. An election by a 
newly formed eligible entity that is effective on the date of formation 
is not considered a change for purposes of this paragraph (c)(1)(iv).
    (v) Deemed elections--(A) Exempt organizations. An eligible entity 
that has been determined to be, or claims to be, exempt from taxation 
under section 501(a) is treated as having made an election under this 
section to be classified as an association. Such election will be 
effective as of the first day for which exemption is claimed or 
determined to apply, regardless of when the claim or determination is 
made, and will remain in effect unless an election is made under 
paragraph (c)(1)(i) of this

[[Page 821]]

section after the date the claim for exempt status is withdrawn or 
rejected or the date the determination of exempt status is revoked.
    (B) Real estate investment trusts. An eligible entity that files an 
election under section 856(c)(1) to be treated as a real estate 
investment trust is treated as having made an election under this 
section to be classified as an association. Such election will be 
effective as of the first day the entity is treated as a real estate 
investment trust.
    (C) S corporations. An eligible entity that timely elects to be an S 
corporation under section 1362(a)(1) is treated as having made an 
election under this section to be classified as an association, provided 
that (as of the effective date of the election under section 1362(a)(1)) 
the entity meets all other requirements to qualify as a small business 
corporation under section 1361(b). Subject to Sec.  301.7701-
3(c)(1)(iv), the deemed election to be classified as an association will 
apply as of the effective date of the S corporation election and will 
remain in effect until the entity makes a valid election, under Sec.  
301.7701-3(c)(1)(i), to be classified as other than an association.
    (vi) Examples. The following examples illustrate the rules of this 
paragraph (c)(1):

    Example 1. On July 1, 1998, X, a domestic corporation, purchases a 
10% interest in Y, an eligible entity formed under Country A law in 
1990. The entity's classification was not relevant to any person for 
federal tax or information purposes prior to X's acquisition of an 
interest in Y. Thus, Y is not considered to be in existence on the 
effective date of this section for purposes of paragraph (b)(3) of this 
section. Under the applicable Country A statute, all members of Y have 
limited liability as defined in paragraph (b)(2)(ii) of this section. 
Accordingly, Y is classified as an association under paragraph 
(b)(2)(i)(B) of this section unless it elects under this paragraph (c) 
to be classified as a partnership. To be classified as a partnership as 
of July 1, 1998, Y must file a Form 8832 by September 14, 1998. See 
paragraph (c)(1)(i) of this section. Because an election cannot be 
effective more than 75 days prior to the date on which it is filed, if Y 
files its Form 8832 after September 14, 1998, it will be classified as 
an association from July 1, 1998, until the effective date of the 
election. In that case, it could not change its classification by 
election under this paragraph (c) during the sixty months succeeding the 
effective date of the election.
    Example 2. (i) Z is an eligible entity formed under Country B law 
and is in existence on the effective date of this section within the 
meaning of paragraph (b)(3) of this section. Prior to the effective date 
of this section, Z claimed to be classified as an association. Unless Z 
files an election under this paragraph (c), it will continue to be 
classified as an association under paragraph (b)(3) of this section.
    (ii) Z files a Form 8832 pursuant to this paragraph (c) to be 
classified as a partnership, effective as of the effective date of this 
section. Z can file an election to be classified as an association at 
any time thereafter, but then would not be permitted to change its 
classification by election during the sixty months succeeding the 
effective date of that subsequent election.

    (2) Authorized signatures--(i) In general. An election made under 
paragraph (c)(1)(i) of this section must be signed by--
    (A) Each member of the electing entity who is an owner at the time 
the election is filed; or
    (B) Any officer, manager, or member of the electing entity who is 
authorized (under local law or the entity's organizational documents) to 
make the election and who represents to having such authorization under 
penalties of perjury.
    (ii) Retroactive elections. For purposes of paragraph (c)(2)(i) of 
this section, if an election under paragraph (c)(1)(i) of this section 
is to be effective for any period prior to the time that it is filed, 
each person who was an owner between the date the election is to be 
effective and the date the election is filed, and who is not an owner at 
the time the election is filed, must also sign the election.
    (iii) Changes in classification. For paragraph (c)(2)(i) of this 
section, if an election under paragraph (c)(1)(i) of this section is 
made to change the classification of an entity, each person who was an 
owner on the date that any transactions under paragraph (g) of this 
section are deemed to occur, and who is not an owner at the time the 
election is filed, must also sign the election. This paragraph 
(c)(2)(iii) applies to elections filed on or after November 29, 1999.
    (3) Consent to be subject to section 1503(d)--(i) Rule. A domestic 
eligible

[[Page 822]]

entity that elects to be classified as an association consents to be 
treated as a dual resident corporation for purposes of section 1503(d) 
(such an entity, a domestic consenting corporation), for any taxable 
year for which it is classified as an association and the condition set 
forth in Sec.  1.1503(d)-1(c)(1) of this chapter is satisfied.
    (ii) Transition rule--deemed consent. If, as a result of the 
applicability date (see paragraph (c)(3)(iii) of this section) relating 
to paragraph (c)(3)(i) of this section, a domestic eligible entity that 
is classified as an association has not consented to be treated as a 
domestic consenting corporation pursuant to paragraph (c)(3)(i) of this 
section, then the domestic eligible entity is deemed to consent to be so 
treated as of its first taxable year beginning on or after December 20, 
2019. The first sentence of this paragraph (c)(3)(ii) does not apply if 
the domestic eligible entity elects, on or after December 20, 2018 and 
effective before its first taxable year beginning on or after December 
20, 2019, to be classified as a partnership or disregarded entity such 
that it ceases to be a domestic eligible entity that is classified as an 
association. For purposes of the election described in the second 
sentence of this paragraph (c)(3)(ii), the sixty month limitation under 
paragraph (c)(1)(iv) of this section is waived.
    (iii) Applicability date. The sixth sentence of paragraph (a) of 
this section and paragraph (c)(3)(i) of this section apply to a domestic 
eligible entity that on or after December 20, 2018 files an election to 
be classified as an association (regardless of whether the election is 
effective before December 20, 2018). Paragraph (c)(3)(ii) of this 
section applies as of December 20, 2018.
    (d) Special rules for foreign eligible entities--(1) Definition of 
relevance--(i) General rule. For purposes of this section, a foreign 
eligible entity's classification is relevant when its classification 
affects the liability of any person for federal tax or information 
purposes. For example, a foreign entity's classification would be 
relevant if U.S. income was paid to the entity and the determination by 
the withholding agent of the amount to be withheld under chapter 3 of 
the Internal Revenue Code (if any) would vary depending upon whether the 
entity is classified as a partnership or as an association. Thus, the 
classification might affect the documentation that the withholding agent 
must receive from the entity, the type of tax or information return to 
file, or how the return must be prepared. The date that the 
classification of a foreign eligible entity is relevant is the date an 
event occurs that creates an obligation to file a federal tax return, 
information return, or statement for which the classification of the 
entity must be determined. Thus, the classification of a foreign entity 
is relevant, for example, on the date that an interest in the entity is 
acquired which will require a U.S. person to file an information return 
on Form 5471.
    (ii) Deemed relevance--(A) General rule. For purposes of this 
section, except as provided in paragraph (d)(1)(ii)(B) of this section, 
the classification for Federal tax purposes of a foreign eligible entity 
that files Form 8832, ``Entity Classification Election'', shall be 
deemed to be relevant only on the date the entity classification 
election is effective.
    (B) Exception. If the classification of a foreign eligible entity is 
relevant within the meaning of paragraph (d)(1)(i) of this section, then 
the rule in paragraph (d)(1)(ii)(A) of this section shall not apply.
    (2) Entities the classification of which has never been relevant. If 
the classification of a foreign eligible entity has never been relevant 
(as defined in paragraph (d)(1) of this section), then the entity's 
classification will initially be determined pursuant to the provisions 
of paragraph (b)(2) of this section when the classification of the 
entity first becomes relevant (as defined in paragraph (d)(1)(i) of this 
section).
    (3) Special rule when classification is no longer relevant. If the 
classification of a foreign eligible entity is not relevant (as defined 
in paragraph (d)(1) of this section) for 60 consecutive months, then the 
entity's classification will initially be determined pursuant to the 
provisions of paragraph (b)(2) of this section when the classification 
of the foreign eligible entity becomes relevant (as defined in paragraph 
(d)(1)(i)

[[Page 823]]

of this section). The date that the classification of a foreign entity 
is not relevant is the date an event occurs that causes the 
classification to no longer be relevant, or, if no event occurs in a 
taxable year that causes the classification to be relevant, then the 
date is the first day of that taxable year.
    (4) Effective date. Paragraphs (d)(1)(ii), (d)(2), and (d)(3) of 
this section apply on or after October 22, 2003.
    (e) Coordination with section 708(b). Except as provided in Sec.  
301.7701-2(d)(3) (regarding termination of grandfather status for 
certain foreign business entities), an entity resulting from a 
transaction described in section 708(b)(1)(B) (partnership termination 
due to sales or exchanges) or section 708(b)(2)(B) (partnership 
division) is a partnership.
    (f) Changes in number of members of an entity--(1) Associations. The 
classification of an eligible entity as an association is not affected 
by any change in the number of members of the entity.
    (2) Partnerships and single member entities. An eligible entity 
classified as a partnership becomes disregarded as an entity separate 
from its owner when the entity's membership is reduced to one member. A 
single member entity disregarded as an entity separate from its owner is 
classified as a partnership when the entity has more than one member. If 
an elective classification change under paragraph (c) of this section is 
effective at the same time as a membership change described in this 
paragraph (f)(2), the deemed transactions in paragraph (g) of this 
section resulting from the elective change preempt the transactions that 
would result from the change in membership.
    (3) Effect on sixty month limitation. A change in the number of 
members of an entity does not result in the creation of a new entity for 
purposes of the sixty month limitation on elections under paragraph 
(c)(1)(iv) of this section.
    (4) Examples. The following examples illustrate the application of 
this paragraph (f):

    Example 1. A, a U.S. person, owns a domestic eligible entity that is 
disregarded as an entity separate from its owner. On January 1, 1998, B, 
a U.S. person, buys a 50 percent interest in the entity from A. Under 
this paragraph (f), the entity is classified as a partnership when B 
acquires an interest in the entity. However, A and B elect to have the 
entity classified as an association effective on January 1, 1998. Thus, 
B is treated as buying shares of stock on January 1, 1998. (Under 
paragraph (c)(1)(iv) of this section, this election is treated as a 
change in classification so that the entity generally cannot change its 
classification by election again during the sixty months succeeding the 
effective date of the election.) Under paragraph (g)(1) of this section, 
A is treated as contributing the assets and liabilities of the entity to 
the newly formed association immediately before the close of December 
31, 1997. Because A does not retain control of the association as 
required by section 351, A's contribution will be a taxable event. 
Therefore, under section 1012, the association will take a fair market 
value basis in the assets contributed by A, and A will have a fair 
market value basis in the stock received. A will have no additional gain 
upon the sale of stock to B, and B will have a cost basis in the stock 
purchased from A.
    Example 2. (i) On April 1, 1998, A and B, U.S. persons, form X, a 
foreign eligible entity. X is treated as an association under the 
default provisions of paragraph (b)(2)(i) of this section, and X does 
not make an election to be classified as a partnership. A subsequently 
purchases all of B's interest in X.
    (ii) Under paragraph (f)(1) of this section, X continues to be 
classified as an association. X, however, can subsequently elect to be 
disregarded as an entity separate from A. The sixty month limitation of 
paragraph (c)(1)(iv) of this section does not prevent X from making an 
election because X has not made a prior election under paragraph 
(c)(1)(i) of this section.
    Example 3. (i) On April 1, 1998, A and B, U.S. persons, form X, a 
foreign eligible entity. X is treated as an association under the 
default provisions of paragraph (b)(2)(i) of this section, and X does 
not make an election to be classified as a partnership. On January 1, 
1999, X elects to be classified as a partnership effective on that date. 
Under the sixty month limitation of paragraph (c)(1)(iv) of this 
section, X cannot elect to be classified as an association until January 
1, 2004 (i.e., sixty months after the effective date of the election to 
be classified as a partnership).
    (ii) On June 1, 2000, A purchases all of B's interest in X. After 
A's purchase of B's interest, X can no longer be classified as a 
partnership because X has only one member. Under paragraph (f)(2) of 
this section, X is disregarded as an entity separate from A when A 
becomes the only member of X. X, however, is not treated as a new entity 
for purposes of paragraph (c)(1)(iv) of this section. As a result, the 
sixty month limitation of paragraph (c)(1)(iv) of this section continues 
to apply to X, and X cannot elect to be classified as an association 
until January

[[Page 824]]

1, 2004 (i.e., sixty months after January 1, 1999, the effective date of 
the election by X to be classified as a partnership).

    (5) Effective date. This paragraph (f) applies as of November 29, 
1999.
    (g) Elective changes in classification--(1) Deemed treatment of 
elective change--(i) Partnership to association. If an eligible entity 
classified as a partnership elects under paragraph (c)(1)(i) of this 
section to be classified as an association, the following is deemed to 
occur: The partnership contributes all of its assets and liabilities to 
the association in exchange for stock in the association, and 
immediately thereafter, the partnership liquidates by distributing the 
stock of the association to its partners.
    (ii) Association to partnership. If an eligible entity classified as 
an association elects under paragraph (c)(1)(i) of this section to be 
classified as a partnership, the following is deemed to occur: The 
association distributes all of its assets and liabilities to its 
shareholders in liquidation of the association, and immediately 
thereafter, the shareholders contribute all of the distributed assets 
and liabilities to a newly formed partnership.
    (iii) Association to disregarded entity. If an eligible entity 
classified as an association elects under paragraph (c)(1)(i) of this 
section to be disregarded as an entity separate from its owner, the 
following is deemed to occur: The association distributes all of its 
assets and liabilities to its single owner in liquidation of the 
association.
    (iv) Disregarded entity to an association. If an eligible entity 
that is disregarded as an entity separate from its owner elects under 
paragraph (c)(1)(i) of this section to be classified as an association, 
the following is deemed to occur: The owner of the eligible entity 
contributes all of the assets and liabilities of the entity to the 
association in exchange for stock of the association.
    (2) Effect of elective changes--(i) In general. The tax treatment of 
a change in the classification of an entity for federal tax purposes by 
election under paragraph (c)(1)(i) of this section is determined under 
all relevant provisions of the Internal Revenue Code and general 
principles of tax law, including the step transaction doctrine.
    (ii) Adoption of plan of liquidation. For purposes of satisfying the 
requirement of adoption of a plan of liquidation under section 332, 
unless a formal plan of liquidation that contemplates the election to be 
classified as a partnership or to be disregarded as an entity separate 
from its owner is adopted on an earlier date, the making, by an 
association, of an election under paragraph (c)(1)(i) of this section to 
be classified as a partnership or to be disregarded as an entity 
separate from its owner is considered to be the adoption of a plan of 
liquidation immediately before the deemed liquidation described in 
paragraph (g)(1)(ii) or (iii) of this section. This paragraph (g)(2)(ii) 
applies to elections filed on or after December 17, 2001. Taxpayers may 
apply this paragraph (g)(2)(ii) retroactively to elections filed before 
December 17, 2001, if the corporate owner claiming treatment under 
section 332 and its subsidiary making the election take consistent 
positions with respect to the federal tax consequences of the election.
    (3) Timing of election--(i) In general. An election under paragraph 
(c)(1)(i) of this section that changes the classification of an eligible 
entity for federal tax purposes is treated as occurring at the start of 
the day for which the election is effective. Any transactions that are 
deemed to occur under this paragraph (g) as a result of a change in 
classification are treated as occurring immediately before the close of 
the day before the election is effective. For example, if an election is 
made to change the classification of an entity from an association to a 
partnership effective on January 1, the deemed transactions specified in 
paragraph (g)(1)(ii) of this section (including the liquidation of the 
association) are treated as occurring immediately before the close of 
December 31 and must be reported by the owners of the entity on December 
31. Thus, the last day of the association's taxable year will be 
December 31 and the first day of the partnership's taxable year will be 
January 1.
    (ii) Coordination with section 338 election. A purchasing 
corporation that makes a qualified stock purchase of an eligible entity 
taxed as a corporation may make an election under section

[[Page 825]]

338 regarding the acquisition if it satisfies the requirements for the 
election, and may also make an election to change the classification of 
the target corporation. If a taxpayer makes an election under section 
338 regarding its acquisition of another entity taxable as a corporation 
and makes an election under paragraph (c) of this section for the 
acquired corporation (effective at the earliest possible date as 
provided by paragraph (c)(1)(iii) of this section), the transactions 
under paragraph (g) of this section are deemed to occur immediately 
after the deemed asset purchase by the new target corporation under 
section 338.
    (iii) Application to successive elections in tiered situations. When 
elections under paragraph (c)(1)(i) of this section for a series of 
tiered entities are effective on the same date, the eligible entities 
may specify the order of the elections on Form 8832. If no order is 
specified for the elections, any transactions that are deemed to occur 
in this paragraph (g) as a result of the classification change will be 
treated as occurring first for the highest tier entity's classification 
change, then for the next highest tier entity's classification change, 
and so forth down the chain of entities until all the transactions under 
this paragraph (g) have occurred. For example, Parent, a corporation, 
wholly owns all of the interest of an eligible entity classified as an 
association (S1), which wholly owns another eligible entity classified 
as an association (S2), which wholly owns another eligible entity 
classified as an association (S3). Elections under paragraph (c)(1)(i) 
of this section are filed to classify S1, S2, and S3 each as disregarded 
as an entity separate from its owner effective on the same day. If no 
order is specified for the elections, the following transactions are 
deemed to occur under this paragraph (g) as a result of the elections, 
with each successive transaction occurring on the same day immediately 
after the preceding transaction S1 is treated as liquidating into 
Parent, then S2 is treated as liquidating into Parent, and finally S3 is 
treated as liquidating into Parent.
    (4) Effective date. Except as otherwise provided in paragraph 
(g)(2)(ii) of this section, this paragraph (g) applies to elections that 
are filed on or after November 29, 1999. Taxpayers may apply this 
paragraph (g) retroactively to elections filed before November 29, 1999 
if all taxpayers affected by the deemed transactions file consistently 
with this paragraph (g).
    (h) Effective date--(1) In general. Except as otherwise provided in 
this section, the rules of this section are applicable as of January 1, 
1997.
    (2) Prior treatment of existing entities. In the case of a business 
entity that is not described in Sec.  301.7701-2(b) (1), (3), (4), (5), 
(6), or (7), and that was in existence prior to January 1, 1997, the 
entity's claimed classification(s) will be respected for all peri0ods 
prior to January 1, 1997, if--
    (i) The entity had a reasonable basis (within the meaning of section 
6662) for its claimed classification;
    (ii) The entity and all members of the entity recognized the federal 
tax consequences of any change in the entity's classification within the 
sixty months prior to January 1, 1997; and
    (iii) Neither the entity nor any member was notified in writing on 
or before May 8, 1996, that the classification of the entity was under 
examination (in which case the entity's classification will be 
determined in the examination).
    (3) Deemed elections for S corporations. Paragraph (c)(1)(v)(C) of 
this section applies to timely S corporation elections under section 
1362(a) filed on or after July 20, 2004. Eligible entities that filed 
timely S elections before July 20, 2004 may also rely on the provisions 
of the regulation.

    Editorial Note: For Federal Register citations affecting Sec.  
301.7701-3, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  301.7701-4  Trusts.

    (a) Ordinary trusts. In general, the term ``trust'' as used in the 
Internal Revenue Code refers to an arrangement created either by a will 
or by an inter vivos declaration whereby trustees take title to property 
for the purpose of protecting or conserving it for the beneficiaries 
under the ordinary rules applied in chancery or probate courts. Usually 
the beneficiaries of such a

[[Page 826]]

trust do no more than accept the benefits thereof and are not the 
voluntary planners or creators of the trust arrangement. However, the 
beneficiaries of such a trust may be the persons who create it and it 
will be recognized as a trust under the Internal Revenue Code if it was 
created for the purpose of protecting or conserving the trust property 
for beneficiaries who stand in the same relation to the trust as they 
would if the trust had been created by others for them. Generally 
speaking, an arrangement will be treated as a trust under the Internal 
Revenue Code if it can be shown that the purpose of the arrangement is 
to vest in trustees responsibility for the protection and conservation 
of property for beneficiaries who cannot share in the discharge of this 
responsibility and, therefore, are not associates in a joint enterprise 
for the conduct of business for profit.
    (b) Business trusts. There are other arrangements which are known as 
trusts because the legal title to property is conveyed to trustees for 
the benefit of beneficiaries, but which are not classified as trusts for 
purposes of the Internal Revenue Code because they are not simply 
arrangements to protect or conserve the property for the beneficiaries. 
These trusts, which are often known as business or commercial trusts, 
generally are created by the beneficiaries simply as a device to carry 
on a profit-making business which normally would have been carried on 
through business organizations that are classified as corporations or 
partnerships under the Internal Revenue Code. However, the fact that the 
corpus of the trust is not supplied by the beneficiaries is not 
sufficient reason in itself for classifying the arrangement as an 
ordinary trust rather than as an association or partnership. The fact 
that any organization is technically cast in the trust form, by 
conveying title to property to trustees for the benefit of persons 
designated as beneficiaries, will not change the real character of the 
organization if the organization is more properly classified as a 
business entity under Sec.  301.7701-2.
    (c) Certain investment trusts--(1) An ``investment'' trust will not 
be classified as a trust if there is a power under the trust agreement 
to vary the investment of the certificate holders. See Commissioner v. 
North American Bond Trust, 122 F. 2d 545 (2d Cir. 1941), cert. denied, 
314 U.S. 701 (1942). An investment trust with a single class of 
ownership interests, representing undivided beneficial interests in the 
assets of the trust, will be classified as a trust if there is no power 
under the trust agreement to vary the investment of the certificate 
holders. An investment trust with multiple classes of ownership 
interests ordinarily will be classified as a business entity under Sec.  
301.7701-2; however, an investment trust with multiple classes of 
ownership interests, in which there is no power under the trust 
agreement to vary the investment of the certificate holders, will be 
classified as a trust if the trust is formed to facilitate direct 
investment in the assets of the trust and the existence of multiple 
classes of ownership interests is incidental to that purpose.
    (2) The provisions of paragraph (c)(1) of this section may be 
illustated by the following examples:

    Example 1. A corporation purchases a portfolio of residential 
mortgages and transfers the mortgages to a bank under a trust agreement. 
At the same time, the bank as trustee delivers to the corporation 
certificates evidencing rights to payments from the pooled mortgages; 
the corporation sells the certificates to the public. The trustee holds 
legal title to the mortgages in the pool for the benefit of the 
certificate holders but has no power to reinvest proceeds attributable 
to the mortgages in the pool or to vary investments in the pool in any 
other manner. There are two classes of certificates. Holders of class A 
certificates are entitled to all payments of mortgage principal, both 
scheduled and prepaid, until their certificates are retired; holders of 
class B certificates receive payments of principal only after all class 
A certificates have been retired. The different rights of the class A 
and class B certificates serve to shift to the holders of the class A 
certificates, in addition to the earlier scheduled payments of 
principal, the risk that mortgages in the pool will be prepaid so that 
the holders of the class B certificates will have ``call protection'' 
(freedom from premature termination of their interests on account of 
prepayments). The trust thus serves to create investment interests with 
respect to the mortgages held by the trust that differ significantly 
from direct investment in the mortgages. As a consequence, the existence 
of multiple classes of trust ownership is not incidental to any purpose 
of the trust to

[[Page 827]]

facilitate direct investment, and, accordingly, the trust is classified 
as a business entity under Sec.  301.7701-2.
    Example 2. Corporation M is the originator of a portfolio of 
residential mortgages and transfers the mortgages to a bank under a 
trust agreement. At the same time, the bank as trustee delivers to M 
certificates evidencing rights to payments from the pooled mortgages. 
The trustee holds legal title to the mortgages in the pool for the 
benefit of the certificate holders, but has no power to reinvest 
proceeds attributable to the mortgages in the pool or to vary 
investments in the pool in any other manner. There are two classes of 
certificates. Holders of class C certificates are entitled to receive 90 
percent of the payments of principal and interest on the mortgages; 
class D certificate holders are entitled to receive the other ten 
percent. The two classes of certificates are identical except that, in 
the event of a default on the underlying mortgages, the payment rights 
of class D certificate holders are subordinated to the rights of class C 
certificate holders. M sells the class C certificates to investors and 
retains the class D certificates. The trust has multiple classes of 
ownership interests, given the greater security provided to holders of 
class C certificates. The interests of certificate holders, however, are 
substantially equivalent to undivided interests in the pool of 
mortgages, coupled with a limited recourse guarantee running from M to 
the holders of class C certificates. In such circumstances, the 
existence of multiple classes of ownership interests is incidental to 
the trust's purpose of facilitating direct investment in the assets of 
the trust. Accordingly, the trust is classified as a trust.
    Example 3. A promoter forms a trust in which shareholders of a 
publicly traded corporation can deposit their stock. For each share of 
stock deposited with the trust, the participant receives two 
certificates that are initially attached, but may be separated and 
traded independently of each other. One certificate represents the right 
to dividends and the value of the underlying stock up to a specified 
amount; the other certificate represents the right to appreciation in 
the stock's value above the specified amount. The separate certificates 
represent two different classes of ownership interest in the trust, 
which effectively separate dividend rights on the stock held by the 
trust from a portion of the right to appreciation in the value of such 
stock. The multiple classes of ownership interests are designed to 
permit investors, by transferring one of the certificates and retaining 
the other, to fulfill their varying investment objectives of seeking 
primarily either dividend income or capital appreciation from the stock 
held by the trust. Given that the trust serves to create investment 
interests with respect to the stock held by the trust that differ 
significantly from direct investment in such stock, the trust is not 
formed to facilitate direct investment in the assets of the trust. 
Accordingly, the trust is classified as a business entity under Sec.  
301.7701-2.
    Example 4. Corporation N purchases a portfolio of bonds and 
transfers the bonds to a bank under a trust agreement. At the same time, 
the trustee delivers to N certificates evidencing interests in the 
bonds. These certificates are sold to public investors. Each certificate 
represents the right to receive a particular payment with respect to a 
specific bond. Under section 1286, stripped coupons and stripped bonds 
are treated as separate bonds for federal income tax purposes. Although 
the interest of each certificate holder is different from that of each 
other certificate holder, and the trust thus has multiple classes of 
ownership, the multiple classes simply provide each certificate holder 
with a direct interest in what is treated under section 1286 as a 
separate bond. Given the similarity of the interests acquired by the 
certificate holders to the interests that could be acquired by direct 
investment, the multiple classes of trust interests merely facilitate 
direct investment in the assets held by the trust. Accordingly, the 
trust is classified as a trust.

    (d) Liquidating trusts. Certain organizations which are commonly 
known as liquidating trusts are treated as trusts for purposes of the 
Internal Revenue Code. An organization will be considered a liquidating 
trust if it is organized for the primary purpose of liquidating and 
distributing the assets transferred to it, and if its activities are all 
reasonably necessary to, and consistent with, the accomplishment of that 
purpose. A liquidating trust is treated as a trust for purposes of the 
Internal Revenue Code because it is formed with the objective of 
liquidating particular assets and not as an organization having as its 
purpose the carrying on of a profit-making business which normally would 
be conducted through business organizations classified as corporations 
or partnerships. However, if the liquidation is unreasonably prolonged 
or if the liquidation purpose becomes so obscured by business activities 
that the declared purpose of liquidation can be said to be lost or 
abandoned, the status of the organization will no longer be that of a 
liquidating trust. Bondholders' protective committees, voting trusts, 
and other agencies formed to protect the

[[Page 828]]

interests of security holders during insolvency, bankruptcy, or 
corporate reorganization proceedings are analogous to liquidating trusts 
but if subsequently utilized to further the control or profitable 
operation of a going business on a permanent continuing basis, they will 
lose their classification as trusts for purposes of the Internal Revenue 
Code.
    (e) Environmental remediation trusts. (1) An environmental 
remediation trust is considered a trust for purposes of the Internal 
Revenue Code. For purposes of this paragraph (e), an organization is an 
environmental remediation trust if the organization is organized under 
state law as a trust; the primary purpose of the trust is collecting and 
disbursing amounts for environmental remediation of an existing waste 
site to resolve, satisfy, mitigate, address, or prevent the liability or 
potential liability of persons imposed by federal, state, or local 
environmental laws; all contributors to the trust have (at the time of 
contribution and thereafter) actual or potential liability or a 
reasonable expectation of liability under federal, state, or local 
environmental laws for environmental remediation of the waste site; and 
the trust is not a qualified settlement fund within the meaning of Sec.  
1.468B-1(a) of this chapter. An environmental remediation trust is 
classified as a trust because its primary purpose is environmental 
remediation of an existing waste site and not the carrying on of a 
profit-making business that normally would be conducted through business 
organizations classified as corporations or partnerships. However, if 
the remedial purpose is altered or becomes so obscured by business or 
investment activities that the declared remedial purpose is no longer 
controlling, the organization will no longer be classified as a trust. 
For purposes of this paragraph (e), environmental remediation includes 
the costs of assessing environmental conditions, remedying and removing 
environmental contamination, monitoring remedial activities and the 
release of substances, preventing future releases of substances, and 
collecting amounts from persons liable or potentially liable for the 
costs of these activities. For purposes of this paragraph (e), persons 
have potential liability or a reasonable expectation of liability under 
federal, state, or local environmental laws for remediation of the 
existing waste site if there is authority under a federal, state, or 
local law that requires or could reasonably be expected to require such 
persons to satisfy all or a portion of the costs of the environmental 
remediation.
    (2) Each contributor (grantor) to the trust is treated as the owner 
of the portion of the trust contributed by that grantor under rules 
provided in section 677 and Sec.  1.677(a)-1(d) of this chapter. Section 
677 and Sec.  1.677(a)-1(d) of this chapter provide rules regarding the 
treatment of a grantor as the owner of a portion of a trust applied in 
discharge of the grantor's legal obligation. Items of income, deduction, 
and credit attributable to an environmental remediation trust are not 
reported by the trust on Form 1041, but are shown on a separate 
statement to be attached to that form. See Sec.  1.671-4(a) of this 
chapter. The trustee must also furnish to each grantor a statement that 
shows all items of income, deduction, and credit of the trust for the 
grantor's taxable year attributable to the portion of the trust treated 
as owned by the grantor. The statement must provide the grantor with the 
information necessary to take the items into account in computing the 
grantor's taxable income, including information necessary to determine 
the federal tax treatment of the items (for example, whether an item is 
a deductible expense under section 162(a) or a capital expenditure under 
section 263(a)) and how the item should be taken into account under the 
economic performance rules of section 461(h) and the regulations 
thereunder. See Sec.  1.461-4 of this chapter for rules relating to 
economic performance.
    (3) All amounts contributed to an environmental remediation trust by 
a grantor (cash-out grantor) who, pursuant to an agreement with the 
other grantors, contributes a fixed amount to the trust and is relieved 
by the other grantors of any further obligation to make contributions to 
the trust, but remains liable or potentially liable under the applicable 
environmental

[[Page 829]]

laws, will be considered amounts contributed for remediation. An 
environmental remediation trust agreement may direct the trustee to 
expend amounts contributed by a cash-out grantor (and the earnings 
thereon) before expending amounts contributed by other grantors (and the 
earnings thereon). A cash-out grantor will cease to be treated as an 
owner of a portion of the trust when the grantor's portion is fully 
expended by the trust.
    (4) The provisions of this paragraph (e) may be illustrated by the 
following example:

    Example. (a) X, Y, and Z are calendar year corporations that are 
liable for the remediation of an existing waste site under applicable 
federal environmental laws. On June 1, 1996, pursuant to an agreement 
with the governing federal agency, X, Y, and Z create an environmental 
remediation trust within the meaning of paragraph (e)(1) of this section 
to collect funds contributed to the trust by X, Y, and Z and to carry 
out the remediation of the waste site to the satisfaction of the federal 
agency. X, Y, and Z are jointly and severally liable under the federal 
environmental laws for the remediation of the waste site, and the 
federal agency will not release X, Y, or Z from liability until the 
waste site is remediated to the satisfaction of the agency.
    (b) The estimated cost of the remediation is $20,000,000. X, Y, and 
Z agree that, if Z contributes $1,000,000 to the trust, Z will not be 
required to make any additional contributions to the trust, and X and Y 
will complete the remediation of the waste site and make additional 
contributions if necessary.
    (c) On June 1, 1996, X, Y, and Z each contribute $1,000,000 to the 
trust. The trust agreement directs the trustee to spend Z's 
contributions to the trust and the income allocable to Z's portion 
before spending X's and Y's portions. On November 30, 1996, the trustee 
disburses $2,000,000 for remediation work performed from June 1, 1996, 
through September 30, 1996. For the six-month period ending November 30, 
1996, the interest earned on the funds in the trust was $75,000, which 
is allocated in equal shares of $25,000 to X's, Y's, and Z's portions of 
the trust.
    (d) Z made no further contributions to the trust. Pursuant to the 
trust agreement, the trustee expended Z's portion of the trust before 
expending X's and Y's portion. Therefore, Z's share of the remediation 
disbursement made in 1996 is $1,025,000 ($1,000,000 contribution by Z 
plus $25,000 of interest allocated to Z's portion of the trust). Z takes 
the $1,025,000 disbursement into account under the appropriate federal 
tax accounting rules. In addition, X's share of the remediation 
disbursement made in 1996 is $487,500, and Y's share of the remediation 
disbursement made in 1996 is $487,500. X and Y take their respective 
shares of the disbursement into account under the appropriate federal 
tax accounting rules.
    (e) The trustee made no further remediation disbursements in 1996, 
and X and Y made no further contributions in 1996. From December 1, 
1996, to December 31, 1996, the interest earned on the funds remaining 
in the trust was $5,000, which is allocated $2,500 to X's portion and 
$2,500 to Y's portion. Accordingly, for 1996, X and Y each had interest 
income of $27,500 from the trust and Z had interest income of $25,000 
from the trust.

    (5) This paragraph (e) is applicable to trusts meeting the 
requirements of paragraph (e)(1) of this section that are formed on or 
after May 1, 1996. This paragraph (e) may be relied on by trusts formed 
before May 1, 1996, if the trust has at all times met all requirements 
of this paragraph (e) and the grantors have reported items of ,income 
and deduction consistent with this paragraph (e) on original or amended 
returns. For trusts formed before May 1, 1996, that are not described in 
the preceding sentence, the Commissioner may permit by letter ruling, in 
appropriate circumstances, this paragraph (e) to be applied subject to 
appropriate terms and conditions.
    (f) Effective date. The rules of this section generally apply to 
taxable years beginning after December 31, 1960. Paragraph (e)(5) of 
this section contains rules of applicability for paragraph (e) of this 
section. In addition, the last sentences of paragraphs (b), (c)(1), and 
(c)(2) Example 1 and Example 3 of this section are effective as of 
January 1, 1997.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 8080, 51 FR 9952, Mar. 
24, 1986; T.D. 8668, 61 FR 19191, May 1, 1996; T.D. 8697, 61 FR 66592, 
Dec. 18, 1996]



Sec.  301.7701-5  Domestic and foreign business entities.

    (a) Domestic and foreign business entities. A business entity 
(including an entity that is disregarded as separate from its owner 
under Sec.  301.7701-2(c)) is domestic if it is created or organized as 
any type of entity (including, but not limited to, a corporation, 
unincorporated association, general partnership, limited partnership, 
and limited liability company) in the United

[[Page 830]]

States, or under the law of the United States or of any State. 
Accordingly, a business entity that is created or organized both in the 
United States and in a foreign jurisdiction is a domestic entity. A 
business entity (including an entity that is disregarded as separate 
from its owner under Sec.  301.7701-2(c)) is foreign if it is not 
domestic. The determination of whether an entity is domestic or foreign 
is made independently from the determination of its corporate or non-
corporate classification. See Sec. Sec.  301.7701-2 and 301.7701-3 for 
the rules governing the classification of entities.
    (b) Examples. The following examples illustrate the rules of this 
section:

    Example 1. (i) Facts. Y is an entity that is created or organized 
under the laws of Country A as a public limited company. It is also an 
entity that is organized as a limited liability company (LLC) under the 
laws of State B. Y is classified as a corporation for Federal tax 
purposes under the rules of Sec. Sec.  301.7701-2, and 301.7701-3.
    (ii) Result. Y is a domestic corporation because it is an entity 
that is classified as a corporation and it is organized as an entity 
under the laws of State B.
    Example 2. (i) Facts. P is an entity with more than one owner 
organized under the laws of Country A as an unlimited company. It is 
also an entity that is organized as a general partnership under the laws 
of State B. P is classified as a partnership for Federal tax purposes 
under the rules of Sec. Sec.  301.7701-2, and 301.7701-3.
    (ii) Result. P is a domestic partnership because it is an entity 
that is classified as a partnership and it is organized as an entity 
under the laws of State B.

    (c) Effective date--(1) General rule. Except as provided in 
paragraph (c)(2) of this section, the rules of this section apply as of 
August 12, 2004, to all business entities existing on or after that 
date.
    (2) Transition rule. For business entities created or organized 
under the laws of more than one jurisdiction as of August 12, 2004, the 
rules of this section apply as of May 1, 2006. These entities, however, 
may rely on the rules of this section as of August 12, 2004.

[T.D. 9246, 71 FR 4817, Jan. 30, 2006]



Sec.  301.7701-6  Definitions; person, fiduciary.

    (a) Person. The term person includes an individual, a corporation, a 
partnership, a trust or estate, a joint-stock company, an association, 
or a syndicate, group, pool, joint venture, or other unincorporated 
organization or group. The term also includes a guardian, committee, 
trustee, executor, administrator, trustee in bankruptcy, receiver, 
assignee for the benefit of creditors, conservator, or any person acting 
in a fiduciary capacity.
    (b) Fiduciary--(1) In general. Fiduciary is a term that applies to 
persons who occupy positions of peculiar confidence toward others, such 
as trustees, executors, and administrators. A fiduciary is a person who 
holds in trust an estate to which another has a beneficial interest, or 
receives and controls income of another, as in the case of receivers. A 
committee or guardian of the property of an incompetent person is a 
fiduciary.
    (2) Fiduciary distinguished from agent. There may be a fiduciary 
relationship between an agent and a principal, but the word agent does 
not denote a fiduciary. An agent having entire charge of property, with 
authority to effect and execute leases with tenants entirely on his own 
responsibility and without consulting his principal, merely turning over 
the net profits from the property periodically to his principal by 
virtue of authority conferred upon him by a power of attorney, is not a 
fiduciary within the meaning of the Internal Revenue Code. In cases when 
no legal trust has been created in the estate controlled by the agent 
and attorney, the liability to make a return rests with the principal.
    (c) Effective date. The rules of this section are effective as of 
January 1, 1997.

[T.D. 8697, 61 FR 66593, Dec. 18, 1996]



Sec.  301.7701-7  Trusts--domestic and foreign.

    (a) In general. (1) A trust is a United States person if--
    (i) A court within the United States is able to exercise primary 
supervision over the administration of the trust (court test); and

[[Page 831]]

    (ii) One or more United States persons have the authority to control 
all substantial decisions of the trust (control test).
    (2) A trust is a United States person for purposes of the Internal 
Revenue Code (Code) on any day that the trust meets both the court test 
and the control test. For purposes of the regulations in this chapter, 
the term domestic trust means a trust that is a United States person. 
The term foreign trust means any trust other than a domestic trust.
    (3) Except as otherwise provided in part I, subchapter J, chapter 1 
of the Code, the taxable income of a foreign trust is computed in the 
same manner as the taxable income of a nonresident alien individual who 
is not present in the United States at any time. Section 641(b). Section 
7701(b) is not applicable to trusts because it only applies to 
individuals. In addition, a foreign trust is not considered to be 
present in the United States at any time for purposes of section 
871(a)(2), which deals with capital gains of nonresident aliens present 
in the United States for 183 days or more.
    (b) Applicable law. The terms of the trust instrument and applicable 
law must be applied to determine whether the court test and the control 
test are met.
    (c) The court test--(1) Safe harbor. A trust satisfies the court 
test if--
    (i) The trust instrument does not direct that the trust be 
administered outside of the United States;
    (ii) The trust in fact is administered exclusively in the United 
States; and
    (iii) The trust is not subject to an automatic migration provision 
described in paragraph (c)(4)(ii) of this section.
    (2) Example. The following example illustrates the rule of paragraph 
(c)(1) of this section:

    Example. A creates a trust for the equal benefit of A's two 
children, B and C. The trust instrument provides that DC, a State Y 
corporation, is the trustee of the trust. State Y is a state within the 
United States. DC administers the trust exclusively in State Y and the 
trust instrument is silent as to where the trust is to be administered. 
The trust is not subject to an automatic migration provision described 
in paragraph (c)(4)(ii) of this section. The trust satisfies the safe 
harbor of paragraph (c)(1) of this section and the court test.

    (3) Definitions. The following definitions apply for purposes of 
this section:
    (i) Court. The term court includes any federal, state, or local 
court.
    (ii) The United States. The term the United States is used in this 
section in a geographical sense. Thus, for purposes of the court test, 
the United States includes only the States and the District of Columbia. 
See section 7701(a)(9). Accordingly, a court within a territory or 
possession of the United States or within a foreign country is not a 
court within the United States.
    (iii) Is able to exercise. The term is able to exercise means that a 
court has or would have the authority under applicable law to render 
orders or judgments resolving issues concerning administration of the 
trust.
    (iv) Primary supervision. The term primary supervision means that a 
court has or would have the authority to determine substantially all 
issues regarding the administration of the entire trust. A court may 
have primary supervision under this paragraph (c)(3)(iv) notwithstanding 
the fact that another court has jurisdiction over a trustee, a 
beneficiary, or trust property.
    (v) Administration. The term administration of the trust means the 
carrying out of the duties imposed by the terms of the trust instrument 
and applicable law, including maintaining the books and records of the 
trust, filing tax returns, managing and investing the assets of the 
trust, defending the trust from suits by creditors, and determining the 
amount and timing of distributions.
    (4) Situations that cause a trust to satisfy or fail to satisfy the 
court test. (i) Except as provided in paragraph (c)(4)(ii) of this 
section, paragraphs (c)(4)(i) (A) through (D) of this section set forth 
some specific situations in which a trust satisfies the court test. The 
four situations described are not intended to be an exclusive list.
    (A) Uniform Probate Code. A trust meets the court test if the trust 
is registered by an authorized fiduciary or fiduciaries of the trust in 
a court within the United States pursuant to a state

[[Page 832]]

statute that has provisions substantially similar to Article VII, Trust 
Administration, of the Uniform Probate Code, 8 Uniform Laws Annotated 1 
(West Supp. 1998), available from the National Conference of 
Commissioners on Uniform State Laws, 676 North St. Clair Street, Suite 
1700, Chicago, Illinois 60611.
    (B) Testamentary trust. In the case of a trust created pursuant to 
the terms of a will probated within the United States (other than an 
ancillary probate), if all fiduciaries of the trust have been qualified 
as trustees of the trust by a court within the United States, the trust 
meets the court test.
    (C) Inter vivos trust. In the case of a trust other than a 
testamentary trust, if the fiduciaries and/or beneficiaries take steps 
with a court within the United States that cause the administration of 
the trust to be subject to the primary supervision of the court, the 
trust meets the court test.
    (D) A United States court and a foreign court are able to exercise 
primary supervision over the administration of the trust. If both a 
United States court and a foreign court are able to exercise primary 
supervision over the administration of the trust, the trust meets the 
court test.
    (ii) Automatic migration provisions. Notwithstanding any other 
provision in this section, a court within the United States is not 
considered to have primary supervision over the administration of the 
trust if the trust instrument provides that a United States court's 
attempt to assert jurisdiction or otherwise supervise the administration 
of the trust directly or indirectly would cause the trust to migrate 
from the United States. However, this paragraph (c)(4)(ii) will not 
apply if the trust instrument provides that the trust will migrate from 
the United States only in the case of foreign invasion of the United 
States or widespread confiscation or nationalization of property in the 
United States.
    (5) Examples. The following examples illustrate the rules of this 
paragraph (c):

    Example 1. A, a United States citizen, creates a trust for the equal 
benefit of A's two children, both of whom are United States citizens. 
The trust instrument provides that DC, a domestic corporation, is to act 
as trustee of the trust and that the trust is to be administered in 
Country X, a foreign country. DC maintains a branch office in Country X 
with personnel authorized to act as trustees in Country X. The trust 
instrument provides that the law of State Y, a state within the United 
States, is to govern the interpretation of the trust. Under the law of 
Country X, a court within Country X is able to exercise primary 
supervision over the administration of the trust. Pursuant to the trust 
instrument, the Country X court applies the law of State Y to the trust. 
Under the terms of the trust instrument the trust is administered in 
Country X. No court within the United States is able to exercise primary 
supervision over the administration of the trust. The trust fails to 
satisfy the court test and therefore is a foreign trust.
    Example 2. A, a United States citizen, creates a trust for A's own 
benefit and the benefit of A's spouse, B, a United States citizen. The 
trust instrument provides that the trust is to be administered in State 
Y, a state within the United States, by DC, a State Y corporation. The 
trust instrument further provides that in the event that a creditor sues 
the trustee in a United States court, the trust will automatically 
migrate from State Y to Country Z, a foreign country, so that no United 
States court will have jurisdiction over the trust. A court within the 
United States is not able to exercise primary supervision over the 
administration of the trust because the United States court's 
jurisdiction over the administration of the trust is automatically 
terminated in the event the court attempts to assert jurisdiction. 
Therefore, the trust fails to satisfy the court test from the time of 
its creation and is a foreign trust.

    (d) Control test--(1) Definitions--(i) United States person. The 
term United States person means a United States person within the 
meaning of section 7701(a)(30). For example, a domestic corporation is a 
United States person, regardless of whether its shareholders are United 
States persons.
    (ii) Substantial decisions. The term substantial decisions means 
those decisions that persons are authorized or required to make under 
the terms of the trust instrument and applicable law and that are not 
ministerial. Decisions that are ministerial include decisions regarding 
details such as the bookkeeping, the collection of rents, and the 
execution of investment decisions. Substantial decisions include, but 
are not limited to, decisions concerning--

[[Page 833]]

    (A) Whether and when to distribute income or corpus;
    (B) The amount of any distributions;
    (C) The selection of a beneficiary;
    (D) Whether a receipt is allocable to income or principal;
    (E) Whether to terminate the trust;
    (F) Whether to compromise, arbitrate, or abandon claims of the 
trust;
    (G) Whether to sue on behalf of the trust or to defend suits against 
the trust;
    (H) Whether to remove, add, or replace a trustee;
    (I) Whether to appoint a successor trustee to succeed a trustee who 
has died, resigned, or otherwise ceased to act as a trustee, even if the 
power to make such a decision is not accompanied by an unrestricted 
power to remove a trustee, unless the power to make such a decision is 
limited such that it cannot be exercised in a manner that would change 
the trust's residency from foreign to domestic, or vice versa; and
    (J) Investment decisions; however, if a United States person under 
section 7701(a)(30) hires an investment advisor for the trust, 
investment decisions made by the investment advisor will be considered 
substantial decisions controlled by the United States person if the 
United States person can terminate the investment advisor's power to 
make investment decisions at will.
    (iii) Control. The term control means having the power, by vote or 
otherwise, to make all of the substantial decisions of the trust, with 
no other person having the power to veto any of the substantial 
decisions. To determine whether United States persons have control, it 
is necessary to consider all persons who have authority to make a 
substantial decision of the trust, not only the trust fiduciaries.
    (iv) Safe harbor for certain employee benefit trusts and investment 
trusts. Notwithstanding the provisions of this paragraph (d), the trusts 
listed in this paragraph (d)(1)(iv) are deemed to satisfy the control 
test set forth in paragraph (a)(1)(ii) of this section, provided that 
United States trustees control all of the substantial decisions made by 
the trustees of the trust--
    (A) A qualified trust described in section 401(a);
    (B) A trust described in section 457(g);
    (C) A trust that is an individual retirement account described in 
section 408(a);
    (D) A trust that is an individual retirement account described in 
section 408(k) or 408(p);
    (E) A trust that is a Roth IRA described in section 408A;
    (F) A trust that is an education individual retirement account 
described in section 530;
    (G) A trust that is a voluntary employees' beneficiary association 
described in section 501(c)(9);
    (H) A group trust described in Rev. Rul. 81-100 (1981-1 C.B. 326) 
(See Sec.  601.601(d)(2) of this chapter);
    (I) An investment trust classified as a trust under Sec.  301.7701-
4(c), provided that the following conditions are satisfied--
    (1) All trustees are United States persons and at least one of the 
trustees is a bank, as defined in section 581, or a United States 
Government-owned agency or United States Government-sponsored 
enterprise;
    (2) All sponsors (persons who exchange investment assets for 
beneficial interests with a view to selling the beneficial interests) 
are United States persons; and
    (3) The beneficial interests are widely offered for sale primarily 
in the United States to United States persons;
    (J) Such additional categories of trusts as the Commissioner may 
designate in revenue procedures, notices, or other guidance published in 
the Internal Revenue Bulletin (see Sec.  601.601(d)(2)(ii)(b)).
    (v) Examples. The following examples illustrate the rules of 
paragraph (d)(1) of this section:

    Example 1. Trust is a testamentary trust with three fiduciaries, A, 
B, and C. A and B are United States citizens, and C is a nonresident 
alien. No persons except the fiduciaries have authority to make any 
decisions of the trust. The trust instrument provides that no 
substantial decisions of the trust can be made unless there is unanimity 
among the fiduciaries. The control test is not satisfied because United 
States persons do not control all the substantial decisions of the 
trust. No substantial decisions can be made without C's agreement.

[[Page 834]]

    Example 2. Assume the same facts as in Example 1, except that the 
trust instrument provides that all substantial decisions of the trust 
are to be decided by a majority vote among the fiduciaries. The control 
test is satisfied because a majority of the fiduciaries are United 
States persons and therefore United States persons control all the 
substantial decisions of the trust.
    Example 3. Assume the same facts as in Example 2, except that the 
trust instrument directs that C is to make all of the trust's investment 
decisions, but that A and B may veto C's investment decisions. A and B 
cannot act to make the investment decisions on their own. The control 
test is not satisfied because the United States persons, A and B, do not 
have the power to make all of the substantial decisions of the trust.
    Example 4. Assume the same facts as in Example 3, except A and B may 
accept or veto C's investment decisions and can make investments that C 
has not recommended. The control test is satisfied because the United 
States persons control all substantial decisions of the trust.
    Example 5. X, a foreign corporation, conducts business in the United 
States through various branch operations. X has United States employees 
and has established a trust as part of a qualified employee benefit plan 
under section 401(a) for these employees. The trust is established under 
the laws of State A, and the trustee of the trust is B, a United States 
bank governed by the laws of State A. B holds legal title to the trust 
assets for the benefit of the trust beneficiaries. A plan committee 
makes decisions with respect to the plan and the trust. The plan 
committee can direct B's actions with regard to those decisions and 
under the governing documents B is not liable for those decisions. 
Members of the plan committee consist of United States persons and 
nonresident aliens, but nonresident aliens make up a majority of the 
plan committee. Decisions of the plan committee are made by majority 
vote. In addition, X retains the power to terminate the trust and to 
replace the United States trustee or to appoint additional trustees. 
This trust is deemed to satisfy the control test under paragraph 
(d)(1)(iv) of this section because B, a United States person, is the 
trust's only trustee. Any powers held by the plan committee or X are not 
considered under the safe harbor of paragraph (d)(1)(iv) of this 
section. In the event that X appoints additional trustees including 
foreign trustees, any powers held by such trustees must be considered in 
determining whether United States trustees control all substantial 
decisions made by the trustees of the trust.

    (2) Replacement of any person who had authority to make a 
substantial decision of the trust--(i) Replacement within 12 months. In 
the event of an inadvertent change in any person that has the power to 
make a substantial decision of the trust that would cause the domestic 
or foreign residency of the trust to change, the trust is allowed 12 
months from the date of the change to make necessary changes either with 
respect to the persons who control the substantial decisions or with 
respect to the residence of such persons to avoid a change in the 
trust's residency. For purposes of this section, an inadvertent change 
means the death, incapacity, resignation, change in residency or other 
change with respect to a person that has a power to make a substantial 
decision of the trust that would cause a change to the residency of the 
trust but that was not intended to change the residency of the trust. If 
the necessary change is made within 12 months, the trust is treated as 
retaining its pre-change residency during the 12-month period. If the 
necessary change is not made within 12 months, the trust's residency 
changes as of the date of the inadvertent change.
    (ii) Request for extension of time. If reasonable actions have been 
taken to make the necessary change to prevent a change in trust 
residency, but due to circumstances beyond the trust's control the trust 
is unable to make the modification within 12 months, the trust may 
provide a written statement to the district director having jurisdiction 
over the trust's return setting forth the reasons for failing to make 
the necessary change within the required time period. If the district 
director determines that the failure was due to reasonable cause, the 
district director may grant the trust an extension of time to make the 
necessary change. Whether an extension of time is granted is in the sole 
discretion of the district director and, if granted, may contain such 
terms with respect to assessment as may be necessary to ensure that the 
correct amount of tax will be collected from the trust, its owners, and 
its beneficiaries. If the district director does not grant an extension, 
the trust's residency changes as of the date of the inadvertent change.
    (iii) Examples. The following examples illustrate the rules of 
paragraphs (d)(2)(i) and (ii) of this section:


[[Page 835]]


    Example 1. A trust that satisfies the court test has three 
fiduciaries, A, B, and C. A and B are United States citizens and C is a 
nonresident alien. All decisions of the trust are made by majority vote 
of the fiduciaries. The trust instrument provides that upon the death or 
resignation of any of the fiduciaries, D, is the successor fiduciary. A 
dies and D automatically becomes a fiduciary of the trust. When D 
becomes a fiduciary of the trust, D is a nonresident alien. Two months 
after A dies, B replaces D with E, a United States person. Because D was 
replaced with E within 12 months after the date of A's death, during the 
period after A's death and before E begins to serve, the trust satisfies 
the control test and remains a domestic trust.
    Example 2. Assume the same facts as in Example 1 except that at the 
end of the 12-month period after A's death, D has not been replaced and 
remains a fiduciary of the trust. The trust becomes a foreign trust on 
the date A died unless the district director grants an extension of the 
time period to make the necessary change.

    (3) Automatic migration provisions. Notwithstanding any other 
provision in this section, United States persons are not considered to 
control all substantial decisions of the trust if an attempt by any 
governmental agency or creditor to collect information from or assert a 
claim against the trust would cause one or more substantial decisions of 
the trust to no longer be controlled by United States persons.
    (4) Examples. The following examples illustrate the rules of this 
paragraph (d):

    Example 1. A, a nonresident alien individual, is the grantor and, 
during A's lifetime, the sole beneficiary of a trust that qualifies as 
an individual retirement account (IRA). A has the exclusive power to 
make decisions regarding withdrawals from the IRA and to direct its 
investments. The IRA's sole trustee is a United States person within the 
meaning of section 7701(a)(30). The control test is satisfied with 
respect to this trust because the special rule of paragraph (d)(1)(iv) 
of this section applies.
    Example 2. A, a nonresident alien individual, is the grantor of a 
trust and has the power to revoke the trust, in whole or in part, and 
revest assets in A. A is treated as the owner of the trust under 
sections 672(f) and 676. A is not a fiduciary of the trust. The trust 
has one trustee, B, a United States person, and the trust has one 
beneficiary, C. B has the discretion to distribute corpus or income to 
C. In this case, decisions exercisable by A to have trust assets 
distributed to A are substantial decisions. Therefore, the trust is a 
foreign trust because B does not control all substantial decisions of 
the trust.
    Example 3. A trust, Trust T, has two fiduciaries, A and B. Both A 
and B are United States persons. A and B hire C, an investment advisor 
who is a foreign person, and may terminate C's employment at will. The 
investment advisor makes the investment decisions for the trust. A and B 
control all other decisions of the trust. Although C has the power to 
make investment decisions, A and B are treated as controlling these 
decisions. Therefore, the control test is satisfied.
    Example 4. G, a United States citizen, creates a trust. The trust 
provides for income to A and B for life, remainder to A's and B's 
descendants. A is a nonresident alien and B is a United States person. 
The trustee of the trust is a United States person. The trust instrument 
authorizes A to replace the trustee. The power to replace the trustee is 
a substantial decision. Because A, a nonresident alien, controls a 
substantial decision, the control test is not satisfied.

    (e) Effective date--(1) General rule. Except for the election to 
remain a domestic trust provided in paragraph (f) of this section and 
except as provided in paragraph (e)(3) of this section, this section is 
applicable to taxable years ending after February 2, 1999. This section 
may be relied on by trusts for taxable years beginning after December 
31, 1996, and also may be relied on by trusts whose trustees have 
elected to apply sections 7701(a)(30) and (31) to the trusts for taxable 
years ending after August 20, 1996, under section 1907(a)(3)(B) of the 
Small Business Job Protection Act of 1996, (the SBJP Act) Public Law 
104-188, 110 Stat. 1755 (26 U.S.C. 7701 note).
    (2) Trusts created after August 19, 1996. If a trust is created 
after August 19, 1996, and before April 5, 1999, and the trust satisfies 
the control test set forth in the regulations project REG-251703-96 
published under section 7701(a)(30) and (31) (1997-1 C.B. 795) (See 
Sec.  601.601(d)(2) of this chapter), but does not satisfy the control 
test set forth in paragraph (d) of this section, the trust may be 
modified to satisfy the control test of paragraph (d) by December 31, 
1999. If the modification is completed by December 31, 1999, the trust 
will be treated as satisfying the control test of paragraph (d) for 
taxable years beginning after December 31, 1996, (and for taxable years 
ending after August 20, 1996, if the election under section

[[Page 836]]

1907(a)(3)(B) of the SBJP Act has been made for the trust).
    (3) Effective date of safe harbor for certain employee benefit 
trusts and investment trusts. Paragraphs (d)(1)(iv) and (v) Examples 1 
and 5 of this section apply to trusts for taxable years ending on or 
after August 9, 2001. Paragraphs (d)(1)(iv) and (v) Examples 1 and 5 of 
this section may be relied on by trusts for taxable years beginning 
after December 31, 1996, and also may be relied on by trusts whose 
trustees have elected to apply sections 7701(a)(30) and (31) to the 
trusts for taxable years ending after August 20, 1996, under section 
1907(a)(3)(B) of the SBJP Act.
    (f) Election to remain a domestic trust--(1) Trusts eligible to make 
the election to remain domestic. A trust that was in existence on August 
20, 1996, and that was treated as a domestic trust on August 19, 1996, 
as provided in paragraph (f)(2) of this section, may elect to continue 
treatment as a domestic trust notwithstanding section 7701(a)(30)(E). 
This election is not available to a trust that was wholly-owned by its 
grantor under subpart E, part I, subchapter J, chapter 1, of the Code on 
August 20, 1996. The election is available to a trust if only a portion 
of the trust was treated as owned by the grantor under subpart E on 
August 20, 1996. If a partially-owned grantor trust makes the election, 
the election is effective for the entire trust. Also, a trust may not 
make the election if the trust has made an election pursuant to section 
1907(a)(3)(B) of the SBJP Act to apply the new trust criteria to the 
first taxable year of the trust ending after August 20, 1996, because 
that election, once made, is irrevocable.
    (2) Determining whether a trust was treated as a domestic trust on 
August 19, 1996--(i) Trusts filing Form 1041 for the taxable year that 
includes August 19, 1996. For purposes of the election, a trust is 
considered to have been treated as a domestic trust on August 19, 1996, 
if: the trustee filed a Form 1041, ``U.S. Income Tax Return for Estates 
and Trusts,'' for the trust for the period that includes August 19, 1996 
(and did not file a Form 1040NR, ``U.S. Nonresident Alien Income Tax 
Return,'' for that year); and the trust had a reasonable basis (within 
the meaning of section 6662) under section 7701(a)(30) prior to 
amendment by the SBJP Act (prior law) for reporting as a domestic trust 
for that period.
    (ii) Trusts not filing a Form 1041. Some domestic trusts are not 
required to file Form 1041. For example, certain group trusts described 
in Rev. Rul. 81-100 (1981-1 C.B. 326) (See Sec.  601.601(d)(2) of this 
chapter) consisting of trusts that are parts of qualified retirement 
plans and individual retirement accounts are not required to file Form 
1041. Also, a domestic trust whose gross income for the taxable year is 
less than the amount required for filing an income tax return and that 
has no taxable income is not required to file a Form 1041. Section 
6012(a)(4). For purposes of the election, a trust that filed neither a 
Form 1041 nor a Form 1040NR for the period that includes August 19, 
1996, will be considered to have been treated as a domestic trust on 
August 19, 1996, if the trust had a reasonable basis (within the meaning 
of section 6662) under prior law for being treated as a domestic trust 
for that period and for filing neither a Form 1041 nor a Form 1040NR for 
that period.
    (3) Procedure for making the election to remain domestic--(i) 
Required Statement. To make the election, a statement must be filed with 
the Internal Revenue Service in the manner and time described in this 
section. The statement must be entitled ``Election to Remain a Domestic 
Trust under Section 1161 of the Taxpayer Relief Act of 1997,'' be signed 
under penalties of perjury by at least one trustee of the trust, and 
contain the following information--
    (A) A statement that the trust is electing to continue to be treated 
as a domestic trust under section 1161 of the Taxpayer Relief Act of 
1997;
    (B) A statement that the trustee had a reasonable basis (within the 
meaning of section 6662) under prior law for treating the trust as a 
domestic trust on August 19, 1996. (The trustee need not explain the 
reasonable basis on the election statement.);
    (C) A statement either that the trust filed a Form 1041 treating the 
trust as a domestic trust for the period that includes August 19, 1996, 
(and that the trust did not file a Form 1040NR for

[[Page 837]]

that period), or that the trust was not required to file a Form 1041 or 
a Form 1040NR for the period that includes August 19, 1996, with an 
accompanying brief explanation as to why a Form 1041 was not required to 
be filed; and
    (D) The name, address, and employer identification number of the 
trust.
    (ii) Filing the required statement with the Internal Revenue 
Service. (A) Except as provided in paragraphs (f)(3)(ii)(E) through (G) 
of this section, the trust must attach the statement to a Form 1041. The 
statement may be attached to either the Form 1041 that is filed for the 
first taxable year of the trust beginning after December 31, 1996 (1997 
taxable year), or to the Form 1041 filed for the first taxable year of 
the trust beginning after December 31, 1997 (1998 taxable year). The 
statement, however, must be filed no later than the due date for filing 
a Form 1041 for the 1998 taxable year, plus extensions. The election 
will be effective for the 1997 taxable year, and thereafter, until 
revoked or terminated. If the trust filed a Form 1041 for the 1997 
taxable year without the statement attached, the statement should be 
attached to the Form 1041 filed for the 1998 taxable year.
    (B) If the trust has insufficient gross income and no taxable income 
for its 1997 or 1998 taxable year, or both, and therefore is not 
required to file a Form 1041 for either or both years, the trust must 
make the election by filing a Form 1041 for either the 1997 or 1998 
taxable year with the statement attached (even though not otherwise 
required to file a Form 1041 for that year). The trust should only 
provide on the Form 1041 the trust's name, name and title of fiduciary, 
address, employer identification number, date created, and type of 
entity. The statement must be attached to a Form 1041 that is filed no 
later than October 15, 1999.
    (C) If the trust files a Form 1040NR for the 1997 taxable year based 
on application of new section 7701(a)(30)(E) to the trust, and satisfies 
paragraph (f)(1) of this section, in order for the trust to make the 
election the trust must file an amended Form 1040NR return for the 1997 
taxable year. The trust must note on the amended Form 1040NR that it is 
making an election under section 1161 of the Taxpayer Relief Act of 
1997. The trust must attach to the amended Form 1040NR the statement 
required by paragraph (f)(3)(i) of this section and a completed Form 
1041 for the 1997 taxable year. The items of income, deduction and 
credit of the trust must be excluded from the amended Form 1040NR and 
reported on the Form 1041. The amended Form 1040NR for the 1997 taxable 
year, with the statement and the Form 1041 attached, must be filed with 
the Philadelphia Service Center no later than the due date, plus 
extensions, for filing a Form 1041 for the 1998 taxable year.
    (D) If a trust has made estimated tax payments as a foreign trust 
based on application of section 7701(a)(30)(E) to the trust, but has not 
yet filed a Form 1040NR for the 1997 taxable year, when the trust files 
its Form 1041 for the 1997 taxable year it must note on its Form 1041 
that it made estimated tax payments based on treatment as a foreign 
trust. The Form 1041 must be filed with the Philadelphia Service Center 
(and not with the service center where the trust ordinarily would file 
its Form 1041).
    (E) If a trust forms part of a qualified stock bonus, pension, or 
profit sharing plan, the election provided by this paragraph (f) must be 
made by attaching the statement to the plan's annual return required 
under section 6058 (information return) for the first plan year 
beginning after December 31, 1996, or to the plan's information return 
for the first plan year beginning after December 31, 1997. The statement 
must be attached to the plan's information return that is filed no later 
than the due date for filing the plan's information return for the first 
plan year beginning after December 31, 1997, plus extensions. The 
election will be effective for the first plan year beginning after 
December 31, 1996, and thereafter, until revoked or terminated.
    (F) Any other type of trust that is not required to file a Form 1041 
for the taxable year, but that is required to file an information return 
(for example, Form 5227) for the 1997 or 1998 taxable year must attach 
the statement to the trust's information return for the 1997 or 1998 
taxable year. However, the statement must be attached to an information 
return that is filed no later

[[Page 838]]

than the due date for filing the trust's information return for the 1998 
taxable year, plus extensions. The election will be effective for the 
1997 taxable year, and thereafter, until revoked or terminated.
    (G) A group trust described in Rev. Rul. 81-100 consisting of trusts 
that are parts of qualified retirement plans and individual retirement 
accounts (and any other trust that is not described above and that is 
not required to file a Form 1041 or an information return) need not 
attach the statement to any return and should file the statement with 
the Philadelphia Service Center. The trust must make the election 
provided by this paragraph (f) by filing the statement by October 15, 
1999. The election will be effective for the 1997 taxable year, and 
thereafter, until revoked or terminated.
    (iii) Failure to file the statement in the required manner and time. 
If a trust fails to file the statement in the manner or time provided in 
paragraphs (f)(3)(i) and (ii) of this section, the trustee may provide a 
written statement to the district director having jurisdiction over the 
trust setting forth the reasons for failing to file the statement in the 
required manner or time. If the district director determines that the 
failure to file the statement in the required manner or time was due to 
reasonable cause, the district director may grant the trust an extension 
of time to file the statement. Whether an extension of time is granted 
shall be in the sole discretion of the district director. However, the 
relief provided by this paragraph (f)(3)(iii) is not ordinarily 
available if the statute of limitations for the trust's 1997 taxable 
year has expired. Additionally, if the district director grants an 
extension of time, it may contain terms with respect to assessment as 
may be necessary to ensure that the correct amount of tax will be 
collected from the trust, its owners, and its beneficiaries.
    (4) Revocation or termination of the election--(i) Revocation of 
election. The election provided by this paragraph (f) to be treated as a 
domestic trust may only be revoked with the consent of the Commissioner. 
See sections 684, 6048, and 6677 for the federal tax consequences and 
reporting requirements related to the change in trust residence.
    (ii) Termination of the election. An election under this paragraph 
(f) to remain a domestic trust terminates if changes are made to the 
trust subsequent to the effective date of the election that result in 
the trust no longer having any reasonable basis (within the meaning of 
section 6662) for being treated as a domestic trust under section 
7701(a)(30) prior to its amendment by the SBJP Act. The termination of 
the election will result in the trust changing its residency from a 
domestic trust to a foreign trust on the effective date of the 
termination of the election. See sections 684, 6048, and 6677 for the 
federal tax consequences and reporting requirements related to the 
change in trust residence.
    (5) Effective date. This paragraph (f) is applicable beginning on 
February 2, 1999.

[T.D. 8813, 64 FR 4970, Feb. 2, 1999, as amended by T.D. 8962, 66 FR 
41779, Aug. 9, 2001]



Sec.  301.7701-8  Military or naval forces and Armed Forces 
of the United States.

    The term ``military or naval forces of the United States'' and the 
term ``Armed Forces of the United States'' each includes all regular and 
reserve components of the uniformed services which are subject to the 
jurisdiction of the Secretary of Defense, the Secretary of the Army, the 
Secretary of the Navy, or the Secretary of the Air Force. The terms also 
include the Coast Guard. The members of such forces include commissioned 
officers and the personnel below the grade of commissioned officer in 
such forces.



Sec.  301.7701-9  Secretary or his delegate.

    (a) The term Secretary or his delegate means the Secretary of the 
Treasury, or any officer, employee, or agency of the Treasury Department 
duly authorized by the Secretary (directly, or indirectly by one or more 
redelegations of authority) to perform the function mentioned or 
described in the context, and the term ``or his delegate'' when used in 
connection with any other official of the United States shall be 
similarly construed.

[[Page 839]]

    (b) In any case in which a function is vested by the Internal 
Revenue Code of 1954 or any other statute in the Secretary or his 
delegate, and Treasury regulations or Treasury decisions approved by the 
Secretary or his delegate provide that such function may be performed by 
the Commissioner, assistant commissioner, regional commissioner, 
assistant regional commissioner, district director, director of a 
regional service center, or by a designated officer or employee in the 
office of any such officer, such provision in the regulations or 
Treasury decision shall constitute a delegation by the Secretary of the 
authority to perform such function to the designated officer or 
employee. If such authority is delegated to any officer or employee 
performing services under the supervision and control of the 
Commissioner, such provision in the regulations or Treasury decision 
shall constitute a delegation by the Secretary to the Commissioner of 
the authority to perform such function and a redelegation thereof by the 
Commissioner to the designated officer or employee.
    (c) An officer or employee, including the Commissioner, authorized 
by regulations or Treasury decision to perform a function shall have 
authority to redelegate the performance of such function to any officer 
or employee performing services under his supervision and control, 
unless such power to so redelegate is prohibited or restricted by proper 
order or directive. The Commissioner may also redelegate authority to 
perform such function to other officers or employees under his 
supervision and control and, to the extent he deems proper, may 
authorize further redelegation of such authority.
    (d) The Commissioner may prescribe such limitations as he deems 
proper on the extent to which any officer or employee under his 
supervision and control shall perform any such function, but, in the 
case of an officer or employee designated in regulations or Treasury 
decision as authorized to perform such function, such limitations shall 
not render invalid any performance by such officer or employee of the 
function which, except for such limitations, such officer or employee is 
authorized to perform by such regulations or Treasury decision in effect 
at the time the function is performed.



Sec.  301.7701-10  District director.

    The term district director means the district director of internal 
revenue for an internal revenue district. The term also includes the 
Assistant Commissioner (International).

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 8411, 57 FR 15241, Apr. 
27, 1992]



Sec.  301.7701-11  Social security number.

    For purposes of this chapter, the term social security number means 
the taxpayer identifying number of an individual or estate which is 
assigned pursuant to section 6011(b) or corresponding provisions of 
prior law, or pursuant to section 6109, and in which nine digits are 
separated by hyphens as follows: 000-00-0000. Such term does not include 
a number with a letter as a suffix which is used to identify an 
auxiliary beneficiary under the social security program. The terms 
``account number'' and ``social security number'' refer to the same 
number.

[T.D. 7306, 39 FR 9947, Mar. 15, 1974]



Sec.  301.7701-12  Employer identification number.

    For purposes of this chapter, the term employer identification 
number means the taxpayer identifying number of an individual or other 
person (whether or not an employer) which is assigned pursuant to 
section 6011 (b) or corresponding provisions of prior law, or pursuant 
to section 6109, and in which nine digits are separated by a hyphen, as 
follows: 00-0000000. The terms ``employer identification number'' and 
``identification number'' (defined in Sec.  31.0-2(a)(11) of this 
chapter (Employment Tax Regulations)) refer to the same number.

[T.D. 7306, 39 FR 9947, Mar. 15, 1974]



Sec.  301.7701-13  Pre-1970 domestic building and loan association.

    (a) In general. For taxable years beginning after October 16, 1962, 
and before July 12, 1969, the term ``domestic building and loan 
association'' means a domestic building and loan association,

[[Page 840]]

a domestic savings and loan association, a Federal savings and loan 
association, and any other savings institution chartered and supervised 
as a savings and loan or similar association under Federal or State law 
which meets supervisory test (described in paragraph (b) of this 
section), the business operations test (described in paragraph (c) of 
this section), and each of the various assets tests (described in 
paragraphs (d), (e), (f), and (h) of this section). For the definition 
of the term ``domestic building and loan association'', for taxable 
years beginning after July 11, 1969, see Sec.  301.7701-13A.
    (b) Supervisory test. A domestic building and loan association must 
be either (1) an insured institution within the meaning of section 
401(a) of the National Housing Act (12 U.S.C. 1724 (a)) or (2) subject 
by law to supervision and examination by State or Federal authority 
having supervision over such associations. An ``insured institution'' is 
one the accounts of which are insured by the Federal Savings and Loan 
Insurance Corporation.
    (c) Business operations test--(1) In general. An association must 
utilize its assets so that substantially all of its business consists of 
acquiring the savings of the public and investing in the loans described 
in subparagraphs (6) through (10) of paragraph (d) of this section. The 
requirement of this paragraph is referred to in this section as the 
business operations test. The business of acquiring the savings of the 
public and investing in the prescribed loans includes ancillary or 
incidental activities which are directly and primarily related to such 
acquisition and investment, such as advertising for savings, appraising 
property on which loans are to be made by the association, and 
inspecting the progress of construction in connection with construction 
loans. Even though an association meets the supervisory test in 
paragraph (b) and all the assets tests described in paragraphs (d) 
through (h) of this section, it will nevertheless not qualify as a 
domestic building and loan association if any substantial part of its 
business consists of activities which are not directly and primarily 
related to such acquisition and investment, such as brokering mortgage 
paper, selling insurance, or subdividing real estate. However, an 
association will meet the business operations test for a taxable year if 
it meets the requirements of both subparagraphs (2) and (3) of this 
paragraph (c), relating respectively to acquiring the savings of the 
public, and investing in loans.
    (2) Acquiring the savings of the public. The requirement that 
substantially all of an association's business (other than investing in 
loans) must consist of acquiring the savings of the public ordinarily 
will be considered to be met if savings are acquired in all material 
respects in conformity with the rules and regulations of the Federal 
Home Loan Bank Board or substantially equivalent rules of a State law or 
supervisory authority. In addition, such requirement will be considered 
to be met if more than 85 percent of the dollar amount of the total 
deposits and withdrawable shares of the association are held during the 
taxable year by the general public as opposed to amounts deposited by 
family or related business groups or persons who are officers or 
directors of the association. The percentage specified in this 
subparagraph shall be computed as of the close of the taxable year, or 
at the option of the taxpayer, on the basis of the average of the 
amounts of deposits held during the year. Such average shall be 
determined by computing the percentage specified either as of the close 
of each month, as of the close of each quarter, or semiannually during 
the taxable year and by using the yearly average of the monthly, 
quarterly, or semiannual percentages obtained.
    (3) Investing in loans--(i) In general. The requirement that 
substantially all of an association's business (other than acquiring the 
savings of the public) must consist of investing in the loans described 
in subparagraphs (6) through (10) of paragraph (d) of this section 
ordinarily will be considered to be met for a taxable year if the 
association meets both the gross income test described in subdivision 
(ii) of this subparagraph, and the sales activity test described in 
subdivision (iii) of this subparagraph. However, if an association does 
not meet the requirements of both subdivisions (ii) and (iii) of this 
subparagraph, it will nevertheless meet

[[Page 841]]

the investing in loans requirement if it is able to demonstrate that 
substantially all its business (other than acquiring the savings of the 
public) consisted of investing in the prescribed loans. Transactions 
which are necessitated by exceptional circumstances and which are not 
undertaken as recurring business activities for profit will not be 
considered a substantial part of an association's business. Thus, for 
example, an association would meet the investing in loans requirement if 
it can establish that it failed to meet the gross income test because of 
receipt of a non-recurring item of income due to exceptional 
circumstances, or it failed to meet the sales activity test because of 
sales made to achieve necessary liquidity to meet abnormal withdrawals 
from savings accounts. For the purposes of this subparagraph, however, 
the acquisition of loans in anticipation of their sale to other 
financial institutions does not constitute ``investing'' in loans, even 
though such acquisition and sale resulted from an excess of demand for 
loans over savings capital in the association's area.
    (ii) Gross income test. The gross income test is met if more than 85 
percent of the gross income of an association consists of:
    (a) Interest or dividends on assets defined in subparagraph (2), 
(3), or (4) of paragraph (d) of this section,
    (b) Interest on loans defined in subparagraphs (6) through (10) of 
paragraph (d) of this section,
    (c) Income attributable to the portion of property used in the 
association's business as defined in paragraph (d)(5) of this section,
    (d) Premiums, discounts, commissions, or fees (including late 
charges and penalties) on loans defined in subparagraphs (6) through 
(10) of paragraph (d) of this section which have at some time been held 
by the association, or for which firm commitments have been issued,
    (e) Gain or loss on the sale of governmental obligations defined in 
paragraph (d)(3) of this section, or
    (f) Income, gain, or loss attributable to foreclosed property (as 
defined in paragraph (j)(1) of this section), but not including such 
income, gain, or loss which, pursuant to section 595 and the regulations 
thereunder, is not included in gross income.

For the purposes of this subparagraph, gross income shall be computed 
without regard to gains or losses on the sale of the portion of property 
used in the association's business (described in paragraph (d)(5) of 
this section), without regard to gains or losses on the rented portion 
of property used as the principal or branch office of the association 
(described in such paragraph), and without regard to gains or losses on 
the sale of participations and loans (other than governmental 
obligations defined in paragraph (d)(3) of this section). Examples of 
types of income which would cause an association to fail to meet the 
gross income test, if in the aggregate they exceed 15 percent of gross 
income, are the excess of gains over losses on sale of real estate 
(other than foreclosed property); rental income (other than on 
foreclosed property and the portion of property used in the 
association's business); premiums, commissions, and fees (other than 
commitment fees) on loans which have never been held by the association; 
and insurance brokerage fees.
    (iii) Sales activity test: in general. The sales activity test is 
met for a taxable year if the association meets both the sales of whole 
loans test described in subdivision (iv) of this subparagraph, and the 
sales of whole loans and participations test described in subdivision 
(v) of this subparagraph. For the purposes of this subdivision and 
subdivisions (iv), (v), and (vi) of this subparagraph:
    (a) The term loan means loan as defined in paragraph (j)(1) of this 
section, other than foreclosed property defined in such paragraph and 
governmental obligations defined in paragraph (d)(3) of this section.
    (b) The amount of a loan shall be determined in accordance with the 
rules contained in paragraph (l) (1) and (2)(ii) of this section.
    (c) The term loans acquired for investment during the taxable year 
means the amount of loans outstanding as of the close of the taxable 
year, reduced (but not below zero) by the amount of loans outstanding as 
of the beginning of such year, and increased by the lesser of (1) the 
amount of repayments made on

[[Page 842]]

loans during the taxable year or (2) an amount equal to 20 percent of 
the amount of loans outstanding as of the beginning of the taxable year. 
For this purpose, repayments do not include repayments on loans to the 
extent such loans are refinanced by the association.
    (d) The term sales of participations means sales by an association 
of interests in loans, which sales meet the requirements of the 
regulations of the Federal Home Loan Bank Board relating to sales of 
participations, or which meet substantially equivalent requirements of 
State law or regulations relating to sales of participations.
    (e) The term sales of whole loans means sales of loans other than 
sales of participations as defined in subdivision (d) of this 
subdivision, but in determining the amount of sales of whole loans, the 
following sales shall be disregarded: Sales of loans made to other 
financial institutions pursuant to an arrangement whereunder the 
association simultaneously enters in a bona fide agreement to repurchase 
such loans within a period of 18 months from the time of sale if such 
arrangement conforms to the rules and regulations of applicable 
supervisory authorities; sales made to the Federal Savings and Loan 
Insurance Corporation or to a corporation defined in paragraph (d)(4) of 
this section (relating to deposit insurance company securities); and 
sales made in the course of liquidation of the association pursuant to 
Federal or State law.
    (iv) Sales of whole loans test. The sales of whole loans test is met 
for a taxable year if the amount of sales of whole loans during the 
taxable year does not exceed the greater of (a) 15 percent of the amount 
of loans acquired for investment during the taxable year, or (b) 20 
percent of the amount of loans outstanding at the beginning of the 
taxable year. However, the 20 percent of beginning loans limitation 
specified in subdivision (b) of the previous sentence shall be reduced 
by the number of percentage points (rounded to the nearest one hundredth 
of a percentage point) which is equal to the sum of the 2 percentages 
obtained by dividing, for each of the 2 preceding taxable years, the 
amount of sales of whole loans during each such taxable year by the 
amount of loans outstanding at the beginning of such taxable year. For 
example, if the amounts of sales of whole loans made by a calendar year 
association in 1965 and 1966 were 3 percent and 4 percent, respectively, 
of loans outstanding at the beginning of each such year, the amount of 
sales of whole loans allowed under such subdivision (b) for 1967 would 
be an amount equal to 13 percent (20 percent minus 7 percentage points) 
of loans outstanding at the beginning of 1967. In computing the 
reduction to the 20 percent of beginning loans limitation specified in 
such subdivision (b), sales of whole loans made before January 1, 1964, 
shall not be taken into account.
    (v) Sales of whole loans and participations test. The sales of whole 
loans and participations test is met if the sum of the amount of sales 
of whole loans and the amount of sales of participations during the 
taxable year does not exceed 100 percent of the amount of loans acquired 
for investment during the taxable year.
    (vi) Sales activity tests: special rules--(a) Carryover of sales. 
The amount specified in subdivision (iv)(a) of this subparagraph as the 
maximum amount of sales of whole loans shall be increased by the amount 
by which 15 percent of the amount of loans acquired for investment by 
the association during the 2 preceding taxable years exceeds the amount 
of sales of whole loans made during such preceding taxable years; and 
the amount specified in subdivision (v) of this subparagraph as the 
maximum amount of sales of whole loans and participations shall be 
increased by the amount by which the amount of loans acquired for 
investment by the association during the 2 preceding taxable years 
exceeds the sum of the amount of sales of whole loans and participations 
made during such preceding taxable years. For example, if 15 percent of 
the amount of loans acquired for investment in 1965 and 1966 exceeded 
the amount of sales of whole loans during such years by $250,000, the 
amount of sales of whole loans permitted in 1967 under subdivision 
(iv)(a) of this subparagraph would be increased by $250,000.

[[Page 843]]

    (b) Use of preceding year's base. If the amount of loans acquired 
for investment by the association during the preceding taxable year 
exceeds such amount for the current taxable year, the 15 percent 
limitation provided in subdivision (iv)(a) of this subparagraph and the 
100 percent limitation provided in subdivision (v) of this subparagraph 
shall be based upon such preceding taxable year's amount. However, the 
maximum amount of sales of whole loans permitted under subdivision 
(iv)(a) and the maximum amount of sales of whole loans and 
participations permitted under subdivision (v) in any taxable year shall 
be reduced by the amount of the increase in such sales allowed for the 
preceding taxable year solely by reason of the application of the 
provisions of the previous sentence. For example, assuming no carryover 
of sales under subdivision (a) of this subdivision, if the amount of 
loans acquired for investment by a calendar year association was 
$1,000,000 in 1965, under subdivision (iv)(a) of this subparagraph the 
association could make sales of whole loans in 1966 of $150,000 (15 
percent of $1,000,000) even though the amount of its loans acquired for 
investment during 1966 was only $800,000. However, the amount of sales 
of whole loans permitted in 1967 under subdivision (iv)(a) of this 
subparagraph would be reduced to the extent that the amount of the sales 
of whole loans made by the association during 1966 exceeded $120,000 (15 
percent of $800,000).
    (vii) Examples illustrating sales activity test. The provisions of 
subdivisions (iii) through (vi) of this subparagraph may be illustrated 
by the following examples in each of which it is assumed that the 
association is a calendar year taxpayer which is operated in all 
material respects in conformity with applicable rules and regulations of 
Federal or State supervisory authorities.

    Example 1. X Association made sales of whole loans in 1964 and 1965 
which were 10 percent and 7 percent, respectively, of the amounts of 
loans outstanding at the beginning of each such year, and which were 25 
percent and 17 percent, respectively, of the amounts of loans acquired 
for investment in each such year. The amount of X's loans outstanding at 
the beginning of 1966 was $1 million, and the amount of its loans 
acquired for investment for such year was $300,000. The maximum amount 
of sales of whole loans which X may make under the percentage of 
beginning loans limitation for 1966 is $30,000, which is 3 percent (20 
percent reduced by the sum of 10 percent and 7 percent) of $1 million. 
The maximum amount of sales of whole loans permitted under the 
percentage of loans acquired for investment limitation for 1966 is 
$45,000 (15 percent of $300,000). X may therefore sell whole loans in an 
amount up to $45,000 in 1966 and meet the sales of whole loans test. It 
is assumed that the amount of loans acquired for investment in 1965 did 
not exceed $300,000, so that the preceding year's base cannot be used to 
increase the amount of sales permitted in 1966.
    Example 2. Assume the same facts as in the previous example, except 
that the amount of loans acquired for investment in the preceding year 
(1965) was $320,000. Since such amount is greater than the $300,000 
amount of loans acquired for investment in 1966, X may base its 15 
percent limitation for 1966 on the $320,000 amount and sell whole loans 
in an amount up to $48,000 (15 percent of $320,000) and still meet the 
sales of whole loans test. However, to the extent that the amount of 
sales of whole loans exceeds $45,000 (15 percent of the $300,000 amount 
of loans acquired for investment in 1966), the maximum amount of sales 
computed under the percentage of loans acquired for investment 
limitation (but not the 20 percent of beginning loans limitation) for 
1967 must be reduced.
    Example 3. Y Association made no sales of whole loans in 1964 and 
1965, and made sales of participations in the 2 years in amounts which, 
in the aggregate, were $50,000 less than the amounts of loans acquired 
for investment for such years. At the beginning of 1966 the amount of 
Y's loans outstanding was $1 million, and the amount of its loans 
acquired for investment in such year was $100,000. Although the maximum 
amount of sales of whole loans which Y could make under the sales of 
whole loans test is $200,000 (20 percent of $1 million), nevertheless, 
in order to meet the sales of whole loans and participations test, the 
sum of the amounts of sales of whole loans and sales of participations 
may not exceed $150,000 (100 percent of the $100,000 amount of loans 
acquired for investment in 1966 plus a carryover of sales from the 
previous two years of $50,000). It is assumed that the amount of loans 
acquired for investment in 1965 did not exceed $100,000, so that the 
preceding year's base cannot be used to increase the amount of sales 
permitted in 1966.

    (viii) Reporting requirements. In the case of income tax returns for 
taxable years ending after October 31, 1964, there shall be filed with 
the return a statement showing the amount of gross

[[Page 844]]

income for the taxable year in each of the categories described in 
subdivision (ii) of this subparagraph; and, for the taxable year and the 
two preceding taxable years, the amount of loans (described in 
subdivision (iii)(a) of this subparagraph) outstanding at the beginning 
of the year and at the end of the year, the amount of repayments on 
loans (not including repayments on loans to the extent such loans are 
refinanced by the association), the amount of sales of whole loans, and 
the amount of sales of participations.
    (4) Effective date. The provisions of subparagraphs (1) through (3) 
of this paragraph (c), are applicable to taxable years ending after 
October 31, 1964. However, at the option of the taxpayer, for a taxable 
year beginning before November 1, 1964, and ending after October 31, 
1964, the provisions of subparagraphs (1) through (3) of this paragraph 
(except the 20 percent of beginning loans limitation specified in 
subdivision (iv)(b) of subparagraph (3) of this paragraph (c)) shall 
apply only to the part year falling after October 31, 1964, as if such 
part year constituted a taxable year. In such case, the following rules 
shall apply:
    (i) The amount of the ``loans acquired for investment'' for such 
part year shall be equal to the loans acquired for investment during the 
entire taxable year within which falls such part year, multiplied by a 
fraction the numerator of which is the number of days in such part year 
and the denominator of which is the number of days in such entire 
taxable year.
    (ii) The increase in sales of whole loans and participations 
permitted by subdivision (vi) of subparagraph (3) of this paragraph (c), 
(relating to carryover of sales and use of preceding year's base) shall 
be the amount of such increase computed under such subdivision, 
multiplied by the fraction specified in subdivision (i) of this 
subparagraph.

If, treating the part year as a taxable year, the association meets all 
the requirements of this paragraph for such part year it will be 
considered to have met the business operations test for the entire 
taxable year, providing it operated in all material respects in 
conformity with applicable rules and regulations of Federal or State 
supervisory authorities for the entire taxable year. The 20 percent of 
beginning loans limitation specified in subdivision (iv)(b) of 
subparagraph (3) of this paragraph (c), shall be applied only on the 
basis of a taxable year and not the part year. For taxable years 
beginning after October 16, 1962, and ending before November 1, 1964, an 
association will be considered to have met the business operations test 
if it operated in all material respects in conformity with applicable 
rules and regulations of Federal or State supervisory authorities.
    (d) 90 percent of assets test--(1) In general. At least 90 percent 
of the amount of the total assets of a domestic building and loan 
association must consist of the assets defined in subparagraphs (2) 
through (10) of this paragraph (d). For purposes of this paragraph, it 
is immaterial whether the association originated the loans defined in 
subparagraphs (6) through (10) of this paragraph (d), or purchased or 
otherwise acquired them in whole or in part from another. See paragraph 
(j) of this section for definition of certain terms used in this 
paragraph, and paragraph (k) of this section for the determination of 
amount and character of loans.
    (2) Cash. The term ``cash'' means cash on hand, and time or demand 
deposits with, or withdrawable accounts in, other financial 
institutions.
    (3) Governmental obligations. The term ``governmental obligations'' 
means obligations of the United States, a State or political subdivision 
of a State, and stock or obligations of a corporation which is an 
instrumentality of the United States, a State, or political subdivision 
of a State.
    (4) Deposit insurance company securities. The term ``deposit 
insurance company securities'' means certificates of deposit in, or 
obligations of, a corporation organized under a State law which 
specifically authorizes such corporation to insure the deposits or share 
accounts of member associations.
    (5) Property used in the association's business--(i) In general. The 
term ``property used in the association's business'' means land, 
buildings, furniture, fixtures, equipment, leasehold interests, 
leasehold improvements, and

[[Page 845]]

other assets used by the association in the conduct of its business of 
acquiring the savings of the public and investing in the loans defined 
in subparagraphs (6) through (10) of this paragraph (d). Real property 
held for the purpose of being used primarily as the principal or branch 
office of the association constitutes property used in the association's 
business so long as it is reasonably anticipated that such property will 
be occupied for such use by the association, or that construction work 
preparatory to such occupancy will be commenced thereon, within 2 years 
after acquisition of the property. Stock of a wholly owned subsidiary 
corporation which has as its exclusive activity the ownership and 
management of property more than 50 percent of the fair rental value of 
which is used as the principal or branch office of the association 
constitutes property used in such business. Real property held by an 
association for investment or sale, even for the purpose of obtaining 
mortgage loans thereon, does not constitute property used in the 
association's business.
    (ii) Property rented to others. Except as provided in the second 
sentence of subdivision (i) of this subparagraph, property or a portion 
thereof rented by the association to others does not constitute property 
used in the association's business. However, if the fair rental value of 
the rented portion of a single piece of real property (including 
appurtenant parcels) used as the principal or branch office of the 
association constitutes less than 50 percent of the fair rental value of 
such piece of property, or if such property has an adjusted basis of not 
more than $150,000, the entire property shall be considered used in such 
business. If such rented portion constitutes 50 percent or more of the 
fair rental value of such piece of property, and such property has an 
adjusted basis of more than $150,000, an allocation of its adjusted 
basis is required. The portion of the total adjusted basis of such piece 
of property which is deemed to be property used in the association's 
business shall be equal to an amount which bears the same ratio to such 
total adjusted basis as the amount of the fair rental value of the 
portion used as the principal or branch office of the association bears 
to the total fair rental value of such property. In the case of all 
property other than real property used or to be used as the principal or 
branch office of the association, if the fair rental value of the rented 
portion thereof constitutes less than 15 percent of the fair rental 
value of such property, the entire property shall be considered used in 
the association's business. If such rented portion constitutes 15 
percent or more of the fair rental value of such property, an allocation 
of its adjusted basis (in the same manner as required for real property 
used as the principal or branch office) is required.
    (6) Passbook loan. The term ``passbook loan'' means a loan to the 
extent secured by a deposit, withdrawable share, or savings account in 
the association, or share of a member of the association, with respect 
to which a distribution is allowable as a deduction under section 591.
    (7) Home loan. The term ``home loan'' means a loan secured by an 
interest in--
    (i) Improved residential real property consisting of a structure or 
structures containing, in the aggregate, no more than 4 family units.
    (ii) An individually owned family unit in a multiple-unit structure, 
the owner of which unit owns an undivided interest in the underlying 
real estate and the common elements of such structure (so-called 
condominium type).

Or a construction loan or improvement loan for such property. A 
construction loan made for the purpose of financing more than one 
structure (so-called tract financing) constitutes a home loan, providing 
no individual structure contains more than 4 family units and it is 
contemplated that, as soon as possible after completion of construction, 
the structures will become property described in subdivision (i) of this 
subparagraph. A construction loan secured by a structure containing more 
than 4 family units constitutes a home loan only if the structure has 
been committed to a plan of individual apartment ownership described in 
subdivision (ii) of this subparagraph and such plan is held out and 
advertised as such.

[[Page 846]]

A loan secured by a cooperative apartment building containing more than 
4 family units does not constitute a home loan.
    (8) Church loan. The term ``church loan'' means a loan secured by an 
interest in real property which is used primarily for church purposes, 
or a construction loan or improvement loan for such property. For the 
purposes of this subparagraph, the term ``church purposes'' means the 
ministration of sacerdotal functions, the conduct of religious worship 
and closely associated activities designed primarily to provide 
fellowship among members of the congregation, or the instruction of 
religion. Thus, a parish hall would normally qualify as property used 
primarily for church purposes, whereas a building used primarily to 
furnish education, other than the instruction of religion, would not.
    (9) Multifamily loan. The term ``multifamily loan'' means a loan, 
other than one defined in subparagraph (7) of this paragraph (d), 
(relating to a home loan), secured by an interest in improved 
residential real property or a construction loan or improvement loan for 
such property.
    (10) Nonresidential real property loan. The term ``nonresidential 
real property loan'' means a loan, other than one defined in 
subparagraph (7), (8), or (9) of this paragraph (d), (relating 
respectively to a home loan, church loan, and multifamily loan) secured 
by an interest in real property, or a construction loan or improvement 
loan for such property.
    (e) 18 percent of assets test. Not more than 18 percent of the 
amount of the total assets of a domestic building and loan association 
may consist of assets other than those defined in subparagraphs (2) 
through (9) of paragraph (d) of this section. Thus, the sum of the 
amounts of the nonresidential real property loans and the assets other 
than those defined in paragraph (d) of this section may not exceed 18 
percent of total assets.
    (f) 36 or 41 percent of assets test--(1) 36 percent test. Unless 
subparagraph (2) of this paragraph (f), applies, not more than 36 
percent of the amount of the total assets of a domestic building and 
loan association may consist of assets other than those defined in 
subparagraphs (2) through (8) of paragraph (d) of this section. Thus, 
unless subparagraph (2) of this paragraph (f), applies, the sum of the 
amounts of multifamily loans, nonresidential real property loans, and 
assets other than those defined in paragraph (d) of this section may not 
exceed 36 percent of total assets.
    (2) 41 percent test. If this subparagraph applies, not more than 41 
percent of the amount of the total assets of a domestic building and 
loan association may consist of assets other than those defined in 
subparagraphs (2) through (8) of paragraph (d) of this section. Thus, if 
this subparagraph applies, the sum of the amounts of multifamily loans, 
nonresidential real property loans, and assets other than those defined 
in paragraph (d) of this section may not exceed 41 percent of total 
assets. See section 593(b)(5) and the regulations thereunder for the 
effect of application of this subparagraph on the allowable addition to 
the reserves for bad debts.
    (g) Taxable years for which 41 percent of assets test applies--(1) 
First taxable year. For an association's first taxable year beginning 
after October 16, 1962, subparagraph (2) of paragraph (f) applies.
    (2) Second taxable year. For an association's second taxable year 
beginning after October 16, 1962, subparagraph (2) of paragraph (f) 
applies if such association met all the requirements of paragraphs (b) 
through (e), (h), and either subparagraph (1) or (2) of paragraph (f) 
for its first taxable year.
    (3) Years other than first and second taxable years. For any taxable 
year of an association beginning after October 16, 1962, other than its 
first and second taxable years beginning after such date, subparagraph 
(2) of paragraph (f) applies if such association met either--
    (i) The requirements of paragraphs (b) through (e), (f)(1), and (h) 
of this section for the immediately preceding taxable year, or
    (ii) The requirements of paragraphs (b) through (e), (f)(2), and (h) 
of this section for the immediately preceding taxable year, and the 
requirements of paragraphs (b) through (e), (f)(1), and (h) of this 
section for the second preceding taxable year.

[[Page 847]]


Thus, in years other than its first and second taxable years beginning 
after October 16, 1962, an association may apply the 41 percent of 
assets test for 2 consecutive years, but only if it met the 36 percent 
test (and all other tests) for the year previous to the 2 consecutive 
years.
    (4) Examples. The provisions of paragraph (f) and this paragraph may 
be illustrated by the following examples in each of which it is assumed 
that the association at all times meets all the requirements of 
paragraphs (b) through (e) and (h) of this section and files its returns 
on a calendar year basis.

    Example 1. An association has 41 percent of its assets invested in 
assets other than those defined in subparagraphs (2) through (8) of 
paragraph (d) of this section as of the close of 1963 and 1964. Because 
1963 is its first taxable year beginning after October 16, 1962, the 41 
percent of assets test applies, and the association therefore qualifies 
as a domestic building and loan association for 1963. Because 1964 is 
its second taxable year beginning after such date and the 41 percent of 
assets test applied for its first taxable year, the 41 percent of assets 
test applies for 1964 and it therefor qualifies for such year.
    Example 2. An association has 36 percent of its assets invested in 
assets other than those defined in subparagraphs (2) through (8) of 
paragraph (d) of this section as of the close of 1964, and 41 percent as 
of the close of 1965, 1966, and 1967. The association qualifies in 1965 
because, as a result of having met the 36 percent of assets test for the 
immediately preceding taxable year (1964), the 41 percent of assets test 
applies to 1965. It qualifies in 1966 because as a result of having met 
the 41 percent of assets test in the immediately preceding taxable year 
(1965) and the 36 percent of assets test in the second preceding taxable 
year (1964), the 41 percent of assets test applies to 1966. The 
association would not qualify in 1967, however, because, although it met 
the 41 percent of assets test for the immediately preceding taxable year 
(1966), it did not meet the 36 percent of assets test in the second 
preceding taxable year (1965), and therefore the 41 percent of assets 
test does not apply to 1967.
    Example 3. An association has more than 41 percent of its assets 
invested in assets other than those defined in subparagraphs (2) through 
(8) of paragraph (d) of this section as of the close of 1963, and 41 
percent invested in such assets as of the close of 1964. The association 
does not qualify in either year. It does not qualify in 1963 because it 
exceeded the 41 percent limitation, and it does not qualify in 1964 
because the 41 percent of assets test does not apply to 1964 since the 
association did not meet either the 41 percent of assets test or the 36 
percent of assets test in the prior year (1963).

    (h) 3 percent of assets test. Not more than 3 percent of the amount 
of the total assets of a domestic building and loan association may 
consist of stock of any corporation, unless such stock is property which 
is defined in paragraph (d) of this section. The stock which constitutes 
property defined in such paragraph (d) is:
    (1) Stock representing a withdrawable account in another financial 
institution;
    (2) Stock of a corporation which is an instrumentality of the United 
States or of a State or political subdivision thereof;
    (3) Stock which was security for a loan and which, by reason of 
having been bid in at foreclosure or otherwise having been reduced to 
ownership or possession of the association, is a loan within the 
definition of such term in paragraph (j)(1) of this section; and
    (4) Stock of a wholly owned subsidiary corporation which has as its 
exclusive activity the ownership and management of property more than 50 
percent of the fair rental value of which is used as the principal or 
branch office of the association.
    (i) [Reserved]
    (j) Definition of certain terms. For purposes of this section--
    (1) Loan. The term ``loan'' means debt, as the term ``debt'' is used 
in section 166 and the regulations thereunder. The term ``loan'' also 
includes a redeemable ground rent (as defined in section 1055(c)) which 
is owned by the taxpayer, and any property (referred to in this section 
as ``foreclosed property'') which was security for the payment of any 
indebtedness and which has been bid in at foreclosure, or otherwise been 
reduced to ownership or possession of the association by agreement or 
process of law, whether or not such property was acquired subsequent to 
December 31, 1962.
    (2) Secured. A loan will be considered as ``secured'' only if the 
loan is on the security of any instrument (such as a mortgage, deed of 
trust, or land contract) which makes the interest of the debtor in the 
property described therein specific security for the payment of

[[Page 848]]

the loan, provided that such instrument is of such a nature that, in the 
event of default, the interest of the debtor in such property could be 
subjected to the satisfaction of the loan with the same priority as a 
mortgage or deed of trust in the jurisdiction in which the property is 
situated.
    (3) Interest. The word ``interest'' means an interest in real 
property which, under the law of the jurisdiction in which such property 
is situated, constitutes either (i) an interest in fee in such property, 
(ii) a leasehold interest in such property extending or renewable 
automatically for a period of at least 30 years, or at least 10 years 
beyond the date scheduled for the final payment on a loan secured by an 
interest in such property, (iii) a leasehold interest in property 
described in paragraph (d)(7)(i) of this section (relating to certain 
home loans) extending for a period of at least 2 years beyond the date 
scheduled for the final payment on a loan secured by an interest in such 
property or (iv) a leasehold interest in such property held subject to a 
redeemable ground rent defined in section 1055(c).
    (4) Real property. The term ``real property'' means any property 
which, under the law of the jurisdiction in which such property is 
situated, constitutes real property.
    (5) Improved real property. The term ``improved real property'' 
means--
    (i) Land on which is located any building of a permanent nature 
(such as a house, apartment house, office building, hospital, shopping 
center, warehouse, garage, or other similar permanent structure), 
provided that the value of such building is substantial in relation to 
the value of such land;
    (ii) Any building lot or site which, by reason of installations and 
improvements that have been completed in keeping with applicable 
governmental requirements and with general practice in the community, is 
a building lot or site ready for the construction of any building of a 
permanent nature within the meaning of subdivision (i) of this 
subparagraph; or
    (iii) Real property which, because of its state of improvement, 
produces sufficient income to maintain such real property and retire the 
loan in accordance with the terms thereof.
    (6) Construction loan. The term ``construction loan'' means a loan, 
the proceeds of which are to be disbursed to the borrower (either by the 
association or a third party) as construction work progresses on real 
property which is security for the loan, which property is, or from the 
proceeds of such loan will become, improved real property.
    (7) Improvement loan. The term ``improvement loan'' means a loan 
which, by its terms and conditions, requires that the proceeds of the 
loan be used for altering, repairing, or improving real property. If 
more than 85 percent of the proceeds of a single loan are to be used for 
such purposes, the entire loan will qualify. If 85 percent or less of 
the proceeds of a loan are to be used for such purposes, an allocation 
of its adjusted basis is required. Examples of loans which constitute 
improvement loans are loans made for the purpose of painting a house, 
adding a new room to a house, remodeling the lobby of an apartment 
building, and purchasing and installing storm windows, storm doors, and 
awnings. Examples of loans which do not constitute improvement loans are 
loans made for the purpose of purchasing draperies, and removable 
appliances, such as refrigerators, ranges, and washing machines. It is 
not necessary that a loan be secured by the real property which is 
altered, repaired, or improved.
    (8) Residential real property. The term ``residential real 
property'' means real property which consists of one or more family 
units. A family unit is a building or portion thereof which contains 
complete living facilities which are to be used on other than a 
transient basis by only one family consisting of one or more persons. 
Thus, an apartment which is to be used on other than a transient basis 
by one family, which contains complete facilities for living, sleeping, 
eating, cooking, and sanitation constitutes a family unit. Hotels, 
motels, dormitories, fraternity and sorority houses, rooming houses, 
hospitals, sanitariums, rest homes, and parks and courts for mobile 
homes do not normally constitute residential real property.

[[Page 849]]

    (k) Amount and character of loans--(1) Treatment at time of 
determination--(i) In general. The amount of a loan, as of the time the 
determination required by subparagraph (3) of this paragraph (k), is 
made, shall be treated for the purposes of this section as being 
secured:
    (a) First by the portion of property, if any, defined in 
subparagraph (6), (7), or (8) of paragraph (d) of this section to the 
extent of the loan value thereof;
    (b) Next by the portion of property, if any, defined in subparagraph 
(9) of paragraph (d) of this section to the extent of the loan value 
thereof; and
    (c) Next by the portion of property, if any, defined in subparagraph 
(10) of paragraph (d) of this section to the extent of the loan value 
thereof.

To the extent that the amount of a loan exceeds the amount treated as 
being secured by property defined in subparagraphs (6) through (10) of 
paragraph (d) of this section, such loan shall be treated as property 
not defined in paragraph (d) of this section. If the loan value of any 
one category of property defined in paragraph (d) of this section 
exceeds 85 percent of the amount of the loan for which it is security 
then the entire loan shall be treated as a loan secured by such 
property.
    (ii) Loans of $40,000 or less. Notwithstanding the provisions of 
subdivision (i) of this subparagraph, in the case of loans amounting to 
$40,000 or less as of the time of a determination, made on the security 
of property which is a combination of two or more categories or property 
defined in subparagraph (6) through (10) of paragraph (d) of this 
section, all such loans for any taxable year may, at the option of the 
association, be treated for the purposes of this section as being 
secured by the category of property the loan value of which constitutes 
the largest percentage of the total loan value of the property except to 
the extent that the loan is treated as property not defined in paragraph 
(d) of this section.
    (iii) Home loans of $20,000 or less. Notwithstanding the provisions 
of subdivisions (i) and (ii) of this subparagraph, if a loan amounting 
to $20,000 or less as of the time of a determination, is secured partly 
by property of a category described in subparagraph (7) of paragraph (d) 
of this section (relating to a home loan), the amount of the loan shall, 
for the purposes of this section, be treated as a loan described in such 
subparagraph except to the extent that the loan is treated as property 
not defined in paragraph (d) of this section.
    (2) Treatment subsequent to time of determination. The amount of a 
loan outstanding as of any time subsequent to the time of a 
determination shall be treated, for the purposes of this section, as 
being secured by each of the categories of property in the same ratio 
that the amount which was treated as being secured by each category bore 
to the total amount of the loan at the time as of which the 
determination was last made with respect to such loan.
    (3) Time of determination--(i) In general. The determination of the 
amount of a loan which is treated as being secured by each of the 
categories of property shall be made:
    (a) As of the time a loan is made;
    (b) As of the time a loan is increased;
    (c) As of the time any portion of the property which was security 
for the loan is released; and
    (d) As of any time required by applicable Federal or State 
regulatory authorities for reappraisal or reanalysis of such loans.
    (ii) Special rule. In the case of loans outstanding with respect to 
which no event described in subdivision (i) of this subparagraph has 
occurred in a taxable year beginning on or after October 17, 1962, the 
determination of the amounts of such loans which are treated as being 
secured by each of the categories of property may be made, at the option 
of the association, as of the close of the first taxable year beginning 
on or after such date, providing the determinations with respect to all 
such loans are made as of such date.
    (4) Loan value. The loan value of property which is security for a 
loan is the maximum amount at the time as of which the determination is 
made which the association is permitted to lend on such property under 
the rules and regulations of applicable Federal and State regulatory 
authorities. Such loan value shall not exceed the fair market value of 
such property at such time as determined under such rules and 
regulations. However, in the case of loans

[[Page 850]]

made incidentally with and as a part of a bona fide salvage operation, 
the loan value of the security property shall be considered to be the 
face amount of the loan where the loan can be shown by the association 
to have been made for the primary purpose of recovering the investment 
of the association, and where such salvage operation is in conformity 
with rules and regulations of applicable Federal or State regulatory 
authorities.
    (5) Examples. The following examples, in each of which it is assumed 
that X Savings and Loan Association files its return on a calendar year 
basis, illustrate the application of the rules in this paragraph:

    Example 1. On July 1, 1963, X makes a single loan of $1 million to M 
Corporation which loan is secured by real property which is a 
combination of homes, apartments, and stores. As of the time the loan is 
made X determines that the loan values of the categories of property are 
as follows:

------------------------------------------------------------------------
                 Category of property                      Loan value
------------------------------------------------------------------------
Home.................................................           $400,000
Multifamily..........................................            420,000
Nonresidential real property.........................            240,000
                                                      ------------------
   Total.............................................          1,060,000
------------------------------------------------------------------------


As of the time the loan is made, therefore, the $1,000,000 loan is 
treated under subparagraph (1)(i) of this paragraph as being secured as 
follows:

------------------------------------------------------------------------
                                                   Amount of  Percentage
                 Category of loan                     loan     of total
------------------------------------------------------------------------
Home loan........................................   $400,000          40
Multifamily loan.................................    420,000          42
Nonresidential real property loan................    180,000          18
                                                  ------------
   Total.........................................  1,000,000         100
------------------------------------------------------------------------

Assuming that the $1 million loan to M was reduced to $900,000 as of the 
close of 1963, that there were no increases in the amount of the loan 
and no releases of property which was security for the loan, and that 
there was no regulatory requirement to reappraise or reanalyze the loan, 
such loan will be considered under subparagraph (2) of this paragraph to 
be secured, as of the close of 1963, as follows:

----------------------------------------------------------------------------------------------------------------
                                                          Percentage as of       Amount as of Dec. 31, 1963
                                                                last       -------------------------------------
                        Category                            determination
                                                            July 1, 1963
----------------------------------------------------------------------------------------------------------------
Home....................................................                40           $360,000   (40% x $900,000)
Multifamily.............................................                42            378,000   (42% x $900,000)
Nonresidential real property............................                18            162,000   (18% x $900,000)
                                                         -------------------------------------
   Total................................................  ................            900,000  .................
----------------------------------------------------------------------------------------------------------------

    Example 2. X makes a loan of $40,000 secured by a building which 
contains a store on the first floor and four family units on the upper 
floors. The loan value of the part of the building used as a store is 
$21,000 and the loan value of the residential portion is $23,000. The 
loan will be treated under subdivision (i) of subparagraph (1) of this 
paragraph as a loan secured by residential real property containing four 
or fewer family units to the extent of $23,000, and by nonresidential 
property to the extent of $17,000, as of the time the loan is made. 
However, if X exercises the option to treat all loans of $40,000 or less 
in accordance with subdivision (ii) of subparagraph (1) of this 
paragraph, this loan would be treated as a home loan to the extent of 
the full $40,000 because the loan value of the residential portion is 
larger than the loan value of the nonresidential part.

    (l) Computation of percentages--(1) In general. The percentages 
specified in paragraphs (d) through (h) of this section shall, except as 
provided in subparagraph (3) of this paragraph (l), be computed by 
comparing the amount of the assets described in each paragraph as of the 
close of the taxable year with the total amount of assets as of the 
close of the taxable year. The amount of the assets in any category and 
the total amount of assets shall be determined with reference to their 
adjusted basis under Sec.  1.1011-1, or by such other method as is in 
accordance with sound accounting principles, provided such method is 
used in valuing all the assets in a taxable year.
    (2) Treatment of certain assets and reserves. For purposes of this 
paragraph (l):
    (i) Reserves for bad debts established pursuant to section 593, or 
corresponding provisions of prior law, and

[[Page 851]]

the regulations thereunder shall not constitute a reduction of total 
assets, but shall be treated as a surplus or net worth item.
    (ii) The adjusted basis of a ``loan in process'' does not include 
the unadvanced portion of such loan.
    (iii) Advances made by the association for taxes, insurance, etc., 
on loans shall be treated as being in the same category as the loan with 
respect to which the advances are made (irrespective of whether the 
advances are secured by the property securing the loan).
    (iv) Interest receivable included in gross income shall be treated 
as being in the same category as the loan or asset with respect to which 
it is earned.
    (v) The unamortized portion of premiums paid on mortgage loans 
acquired by the association shall be considered part of the acquisition 
cost of such loans.
    (vi) Prepaid Federal Savings and Loan Insurance Corporation premiums 
shall be treated as being governmental obligations defined in paragraph 
(d)(3) of this section.
    (vii) Accounts receivable (other than accrued interest receivable), 
and prepaid expenses and deferred charges other than those referred to 
in subdivision (v) or (vi) of this subparagraph, shall be disregarded 
both as separate categories and in the computation of total assets.
    (viii) Foreclosed property (as defined in paragraph (j)(1) of this 
section) shall be treated as having the same character as the loan for 
which it was given as security.
    (3) Alternative method. At the option of the taxpayer, the 
percentages specified in paragraphs (d) through (h) of this section may 
be computed on the basis of the average assets outstanding during the 
taxable year. Such average shall be determined by making the computation 
provided in subparagraph (1) of this paragraph (l), either as of the 
close of each month, as of the close of each quarter, or semiannually 
during the taxable year and by using the yearly average of the monthly, 
quarterly, or semiannual percentages obtained for each category. The 
method selected must be applied uniformly for the taxable year to all 
categories of assets, but the method may be changed from year to year.
    (4) Acquisition of certain assets. For the purpose of the annual 
computation of percentages under subparagraph (1) of this paragraph 
(l)--
    (i) Assets which, within a 60-day period beginning in one taxable 
year of the taxpayer and ending in the next year, are acquired directly 
or indirectly through borrowing and then repaid or disposed of within 
such period, shall be considered assets other than those defined in 
paragraph (d) of this section, unless both the acquisition and 
disposition are established to the satisfaction of the district director 
to have been for bona fide purposes; and
    (ii) The amount of cash shall not include amounts received directly 
or indirectly from another financial institution (other than a Federal 
Home Loan Bank or a similar institution organized under State law) to 
the extent of the amount of cash which an association has on deposit or 
holds as a withdrawable account in such other financial institution.
    (5) Reporting requirements. In the case of income tax returns for 
taxable years ending after October 31, 1964, there shall be filed with 
the return a statement showing the amount of assets as of the close of 
the taxable year in each of the categories defined in paragraph (d), and 
in the category described in paragraph (h) of this section, and a brief 
description and amount of all other assets. If the alternative method of 
computing percentages under subparagraph (3) of this paragraph (l) is 
selected, such statement shall show such information as of the end of 
each month, each quarter, or semiannually and the manner of calculating 
the averages. With respect to taxable years beginning after October 16, 
1962, and ending before November 1, 1964, taxpayers shall maintain 
adequate records to establish to the satisfaction of the district 
director that it meets the various assets tests specified in this 
section.
    (6) Example. The principles of this paragraph may be illustrated by 
the following example in which a description of the assets, the 
subparagraph of paragraph (d) in which the assets are

[[Page 852]]

defined, the amount of the assets, and the percentage of the total 
assets included in the calculation are set forth.

                           Savings and Loan Association Assets as of December 31, 1964
----------------------------------------------------------------------------------------------------------------
                                                               Described in
                            Item                              paragraph (d),         Amount          Percentage
                                                               subparagraph
----------------------------------------------------------------------------------------------------------------
1. Cash.....................................................             (2)            $1,000,000             1
2. Governmental obligations \1\.............................             (3)             8,000,000             8
3. Deposit insurance company securities.....................             (4)             1,000,000             1
  Loans outstanding: \2\
4. Home.....................................................             (7)            59,000,000            59
5. Church...................................................             (8)             1,000,000             1
6. Multifamily..............................................             (9)            20,000,000            20
7. Nonresidential real property.............................            (10)             5,000,000             5
8. Passbook.................................................             (6)             1,000,000             1
9. Other....................................................  ..............             2,000,000             2
  Fixed assets (less depreciation reserves):
10. Used in the association's business......................             (5)             1,000,000             1
11. Rented to others........................................  ..............               500,000            .5
12. Land held for investment................................  ..............               500,000            .5
                                                                             -----------------------------------
13. Total assets included for purposes of this paragraph....  ..............           100,000,000        100.0%
                                                                             ----------------------=============
14. Accounts receivable.....................................  ..............               100,000  (disregarded
                                                                                                               )
15. Prepaid expenses (other than prepaid FSLIC premiums)....  ..............             1,000,000  (disregarded
                                                                                                               )
16. Deferred charges........................................  ..............             1,000,000  (disregarded
                                                                                                               )
                                                                             ----------------------
17. Total assets............................................  ..............          102,100,000
----------------------------------------------------------------------------------------------------------------
\1\ Prepaid FSLIC premiums treated as governmental obligations.
\2\ Not including unadvanced portion of loans in process, but including interest receivable and advances with
  respect to loans.
 
The computation of the percentages of assets in the various categories for the purpose of determining whether
  the percentage of assets tests in the paragraphs in this section are met as of the close of the year are as
  follows:


----------------------------------------------------------------------------------------------------------------
   Test and paragraph                               Items considered                                Percentage
----------------------------------------------------------------------------------------------------------------
90 percent test (d)      the sum of items 1 through 8 and 10 item--13 (total included assets)     = 97 percent
18 percent test (e)      the sum of items 7, 9, 11, and 12--item 13 (total included assets)       = 8 percent
36 percent test (f)      the sum of items 6, 7, 9, 11, and 12--item 13 (total included assets)    = 28 percent
3 percent test (h)       0--item 13 (total included assets)                                       = 0 percent
 
----------------------------------------------------------------------------------------------------------------
At the option of the association, the computations listed above could have been made as of the close of each
  month, each quarter, or semiannually, and averaged for the entire year.

    (m) Taxable years beginning before October 17, 1962. For taxable 
years beginning before October 17, 1962, the term ``domestic building 
and loan association'' means a domestic building and loan association, a 
domestic savings and loan association, and a Federal savings and loan 
association substantially all the business of which is confined to 
making loans to members.

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7622, 44 FR 28661, May 
16, 1979]



Sec.  301.7701-13A  Post-1969 domestic building and loan association.

    (a) In general. For taxable years beginning after July 11, 1969, the 
term ``domestic building and loan association'' means a domestic 
building and loan association, a domestic savings and loan association, 
a Federal savings and loan association, and any other savings 
institution chartered and supervised as a savings and loan or similar 
association under Federal or State law which meets the supervisory test 
(described in paragraph (b) of this section), the business operations 
test (described in paragraph (c) of this section), and the assets test 
(described in paragraph (d) of this section). For the definition of the 
term ``domestic building and loan association'' for taxable years 
beginning after October 16, 1962, and before July 12, 1969, see Sec.  
301.7701-13.
    (b) Supervisory test. A domestic building and loan association must 
be either (1) an insured institution within the

[[Page 853]]

meaning of section 401(a) of the National Housing Act (12 U.S.C. 
1724(a)) or (2) subject by law to supervision and examination by State 
or Federal authority having supervision over such associations. An 
``insured institution'' is one the accounts of which are insured by the 
Federal Savings and Loan Insurance Corporation.
    (c) Business operations test--(1) In general. An association must 
utilize its assets so that its business consists principally of 
acquiring the savings of the public and investing in loans. The 
requirement of this paragraph is referred to in this section as the 
business operations test. The business of acquiring the savings of the 
public and investing in loans includes ancillary or incidental 
activities which are directly and primarily related to such acquisition 
and investment, such as advertising for savings, appraising property on 
which loans are to be made by the association, and inspecting the 
progress of construction in connection with construction loans. Even 
though an association meets the supervisory test described in paragraph 
(b) of this section and the assets test described in paragraph (d) of 
this section, it will nevertheless not qualify as a domestic building 
and loan association if it does not meet the requirements of both 
paragraphs (2) and (3) of this paragraph (c), relating, respectively, to 
acquiring the savings of the public and investing in loans.
    (2) Acquiring the savings of the public. The requirement that an 
association's business (other than investing in loans) must consist 
principally of acquiring the savings of the public ordinarily will be 
considered to be met if savings are acquired in all material respects in 
conformity with the rules and regulations of the Federal Home Loan Bank 
Board or substantially equivalent rules of a State law or supervisory 
authority. Alternatively, such requirement will be considered to be met 
if more than 75 percent of the dollar amount of the total deposits, 
withdrawable shares, and other obligations of the association are held 
during the taxable year by the general public, as opposed to amounts 
deposited or held by family or related business groups or persons who 
are officers or directors of the association. However, the preceding 
sentence shall not apply if the dollar amount of other obligations of 
the association outstanding during the taxable year exceeds 25 percent 
of the dollar amount of the total deposits, withdrawable shares, and 
other obligations of the association outstanding during such year. For 
purposes of this paragraph, the term ``other obligations'' means notes, 
bonds, debentures, or other obligations, or other securities (except 
capital stock), issued by an association in conformity with the rules 
and regulations of the Federal Home Loan Bank Board or substantially 
equivalent rules of a State law or supervisory authority. The term 
``other obligations'' does not include an advance made by a Federal Home 
Loan Bank under the authority of section 10 or 10b of the Federal Home 
Loan Bank Act (12 U.S.C. 1430, 1430b) as amended and supplemented. Both 
percentages specified in this paragraph shall be computed either as of 
the close of the taxable year or, at the option of the taxpayer, on the 
basis of the average of the dollar amounts of the total deposits, 
withdrawable shares, and other obligations of the association held 
during the taxable year. Such averages shall be determined by computing 
each percentage specified either as of the close of each month, as of 
the close of each quarter, or semiannually during the taxable year and 
by using the yearly average of the monthly, quarterly, or semiannual 
percentages obtained. The method selected must be applied uniformly for 
the taxable year to both percentages, but the method may be changed from 
year to year.
    (3) Investing in loans--(i) In general. The requirement that an 
association's business (other than acquiring the savings of the public) 
must consist principally of investing in loans will be considered to be 
met for a taxable year only if more than 75 percent of the gross income 
of the association consists of--
    (a) Interest or dividends on assets defined in paragraphs (1), (2), 
and (3) of paragraph (e) of this section,
    (b) Interest on loans,

[[Page 854]]

    (c) Income attributable to the portion of property used in the 
association's business, as defined in paragraph (e)(11) of this section,
    (d) So much of the amount of premiums, discounts, commissions, or 
fees (including late charges and penalties) on loans which have at some 
time been held by the association, or for which firm commitments have 
been issued, as is not in excess of 20 percent of the gross income of 
the association,
    (e) Net gain from sales and exchanges of governmental obligations, 
as defined in paragraph (e)(2) of this section, or
    (f) Income, gain or loss attributable to foreclosed property, as 
defined in paragraph (e)(9) of this section, but not including such 
income, gain or loss which, pursuant to section 595 and the regulations 
thereunder, is not included in gross income.

Examples of types of income which would cause an association to fail to 
meet the requirements of this paragraph if, in the aggregate, they equal 
or exceed 25 percent of gross income, are: The excess of gains over 
losses from sales of real property (other than foreclosed property); 
rental income (other than on foreclosed property and the portion of 
property used in the association's business); premiums, commissions, and 
fees (other than commitment fees) on loans which have never been held by 
the association; and insurance brokerage fees.
    (ii) Computation of gross income. For purposes of this paragraph, 
gross income is computed without regard to--
    (a) Gain or loss on the sale or exchange of the portion of property 
used in the association's business as defined in paragraph (e)(11) of 
this section.
    (b) Gain or loss on the sale or exchange of the rented portion of 
property used as the principal or branch office of the association, as 
defined in paragraph (e)(11) of this section, and
    (c) Gains or losses on sales of participations, and loans, other 
than governmental obligations defined in paragraph (e)(2) of this 
section.


For purposes of this paragraph, gross income is also computed without 
regard to items of income which an association establishes arise out of 
transactions which are necessitated by exceptional circumstances and 
which are not undertaken as recurring business activities for profit. 
Thus, for example, an association would meet the investing in loans 
requirement if it can establish that it would otherwise fail to meet 
that requirement solely because of the receipt of a nonrecurring item of 
income due to exceptional circumstances. For this purpose, transactions 
necessitated by an excess of demand for loans over savings capital in 
the association's area are not to be deemed to be necessitated by 
exceptional circumstances. For purposes of paragraph (c)(3)(ii)(c) of 
this section, the term ``sales of participations'' means sales by an 
association of interests in loans, which sales meet the requirements of 
the regulations of the Federal Home Loan Bank Board relating to sales of 
participations, or which meet substantially equivalent requirements of 
State law or regulations relating to sales of participations.
    (iii) Reporting requirement. In the case of income tax returns for 
taxable years beginning after July 11, 1969, there is required to be 
filed with the return a statement showing the amount of gross income for 
the taxable year in each of the categories described in paragraph 
(c)(3)(i) of this section.
    (d) 60 percent of assets test. At least 60 percent of the amount of 
the total assets of a domestic building and loan association must 
consist of the assets defined in paragraph (e) of this section. The 
percentage specified in this paragraph is computed as of the close of 
the taxable year or, at the option of the taxpayer, may be computed on 
the basis of the average assets outstanding during the taxable year. 
Such average is determined by making the appropriate computation 
described in this section either as of the close of each month, as of 
the close of each quarter, or semiannually during the taxable year and 
by using the yearly average of the monthly, quarterly, or semiannual 
percentage obtained for each category of assets defined in paragraph (e) 
of this section. The method selected must be applied uniformly for the 
taxable year to all categories of assets, but the method may be changed 
from year to year. For purposes of this paragraph, it is immaterial 
whether the association

[[Page 855]]

originated the loans defined in paragraphs (4) through (8) and (10) of 
paragraph (e) of this section or purchased or otherwise acquired them in 
whole or in part from another. See paragraph (f) of this section for 
definition of certain terms used in this paragraph and in paragraph (e) 
of this section, and for the determination of amount and character of 
loans.
    (e) Assets defined. The assets defined in this paragraph are--
    (1) Cash. The term ``cash'' means cash on hand, and time or demand 
deposits with, or withdrawable accounts in, other financial 
institutions.
    (2) Governmental obligations. The term ``governmental obligations'' 
means--
    (i) Obligations of the United States,
    (ii) Obligations of a State or political subdivision of a State, and
    (iii) Stock or obligations of a corporation which is an 
instrumentality of the United States, a State, or a political 
subdivision of a State,

other than obligations the interest on which is excludable from gross 
income under section 103 and the regulations thereunder.
    (3) Deposit insurance company securities. The term ``deposit 
insurance company securities'' means certificates of deposit in, or 
obligations of, a corporation organized under a State law which 
specifically authorizes such corporation to insure the deposits or share 
accounts of member associations.
    (4) Passbook loan. The term ``passbook loan'' means a loan to the 
extent secured by a deposit, withdrawable share, or savings account in 
the association, or share of a member of the association, with respect 
to which a distribution is allowable as a deduction under section 591.
    (5) Residential real property loan. [Reserved]
    (6) Church loan. [Reserved]
    (7) Urban renewal loan. [Reserved]
    (8) Institutional loan. [Reserved]
    (9) Foreclosed property. [Reserved]
    (10) Educational loan. [Reserved]
    (11) Property used in the association's business--(i) In general. 
The term ``property used in the association's business'' means land, 
buildings, furniture, fixtures, equipment, leasehold interests, 
leasehold improvements, and other assets used by the association in the 
conduct of its business of acquiring the savings of the public and 
investing in loans. Real property held for the purpose of being used 
primarily as the principal or branch office of the association 
constitutes property used in the association's business so long as it is 
reasonably anticipated that such property will be occupied for such use 
by the association, or that construction work preparatory to such 
occupancy will be commenced thereon, within 2 years after acquisition of 
the property. Stock of a wholly owned subsidiary corporation which has 
as its exclusive activity the ownership and management of property more 
than 50 percent of the fair rental value of which is used as the 
principal or branch office of the association constitutes property used 
in such business. Real property held by an association for investment or 
sale, even for the purpose of obtaining mortgage loans thereon, does not 
constitute property used in the association's business.
    (ii) Property rented to others. Except as provided in the second 
sentence of paragraph (11)(i) of this paragraph (e), property or a 
portion thereof rented by the association to others does not constitute 
property used in the association's business. However, if the fair rental 
value of the rented portion of a single piece of real property 
(including appurtenant parcels) used as the principal or branch office 
of the association constitutes less than 50 percent of the fair rental 
value of such piece of property, or if such property has an adjusted 
basis of not more than $150,000, the entire property shall be considered 
used in such business. If such rented portion constitutes 50 percent or 
more of the fair rental value of such piece of property, and such 
property has an adjusted basis of more than $150,000, an allocation of 
its adjusted basis is required. The portion of the total adjusted basis 
of such piece of property which is deemed to be property used in the 
association's business shall be equal to an amount which bears the same 
ratio to such total adjusted basis as the amount of the fair rental 
value of the portion used as the principal or branch office of the 
association bears to the total fair rental value of such property. In 
the case of all property

[[Page 856]]

other than real property used or to be used as the principal or branch 
office of the association, if the fair rental value of the rented 
portion thereof constitutes less than 15 percent of the fair rental 
value of such property, the entire property shall be considered used in 
the association's business. If such rented portion constitutes 15 
percent or more of the fair rental value of such property, an allocation 
of its adjusted basis (in the same manner as required for real property 
used as the principal or branch office) is required.
    (12) Regular or residual interest in a REMIC--(i) In general. If for 
any calendar quarter at least 95 percent of a REMIC's assets (as 
determined in accordance with Sec.  1.860F-4(e)(1)(ii) or Sec.  1.6049-
7(f)(3) of this chapter) are assets defined in paragraph (e)(1) through 
(e)(11) of this section, then for that calendar quarter all the regular 
and residual interests in that REMIC are treated as assets defined in 
this paragraph (e). If less than 95 percent of a REMIC's assets are 
assets defined in paragraph (e)(1) through (e)(11) of this section, the 
percentage of each REMIC regular or residual interest treated as an 
asset defined in this paragraph (e) is equal to the percentage of the 
REMIC's assets that are assets defined in paragraph (e)(1) through 
(e)(11) of this section. See Sec. Sec.  1.860F-4(e)(1)(ii)(B) and 
1.6049-7(f)(3) of this chapter for information required to be provided 
to regular and residual interest holders if the 95 percent test is not 
met.
    (ii) Loans secured by manufactured housing. For purposes of 
paragraph (e)(12)(i) of this section, a loan secured by manufactured 
housing treated as a single family residence under section 25(e)(10) is 
an asset defined in paragraph (e)(1) through (e)(11) of this section.
    (f) Special rules. [Reserved]

[T.D. 7622, 44 FR 28661, May 16, 1979; 44 FR 29048, May 18, 1979, as 
amended by T.D. 8458, 57 FR 61313, Dec. 24, 1992]



Sec.  301.7701-14  Cooperative bank.

    For taxable years beginning after October 16, 1962, the term 
``cooperative bank'' means an institution without capital stock 
organized and operated for mutual purposes without profit which meets 
the supervisory test, the business operations test, and the various 
assets tests specified in paragraphs (d) through (h) of Sec.  301.7701-
13, employing the rules and definitions of paragraphs (j) through (l) of 
that section. In applying paragraphs (b) through (l) of such section any 
references to an ``association'' or to a ``domestic building and loan 
association'' shall be deemed to be a reference to a cooperative bank.



Sec.  301.7701-15  Tax return preparer.

    (a) In general. A tax return preparer is any person who prepares for 
compensation, or who employs one or more persons to prepare for 
compensation, all or a substantial portion of any return of tax or any 
claim for refund of tax under the Internal Revenue Code (Code).
    (b) Definitions--(1) Signing tax return preparer. A signing tax 
return preparer is the individual tax return preparer who has the 
primary responsibility for the overall substantive accuracy of the 
preparation of such return or claim for refund.
    (2) Nonsigning tax return preparer--(i) In general. A nonsigning tax 
return preparer is any tax return preparer who is not a signing tax 
return preparer but who prepares all or a substantial portion of a 
return or claim for refund within the meaning of paragraph (b)(3) of 
this section with respect to events that have occurred at the time the 
advice is rendered. In determining whether an individual is a nonsigning 
tax return preparer, time spent on advice that is given after events 
have occurred that represents less than 5 percent of the aggregate time 
incurred by such individual with respect to the position(s) giving rise 
to the understatement shall not be taken into account. Notwithstanding 
the preceding sentence, time spent on advice before the events have 
occurred will be taken into account if all facts and circumstances show 
that the position(s) giving rise to the understatement is primarily 
attributable to the advice, the advice was substantially given before 
events occurred primarily to avoid treating the person giving the advice 
as a tax return preparer, and the advice given before events occurred 
was confirmed after events had occurred for purposes

[[Page 857]]

of preparing a tax return. Examples of nonsigning tax return preparers 
are tax return preparers who provide advice (written or oral) to a 
taxpayer (or to another tax return preparer) when that advice leads to a 
position or entry that constitutes a substantial portion of the return 
within the meaning of paragraph (b)(3) of this section.
    (ii) Examples. The provisions of this paragraph (b)(2) are 
illustrated by the following examples:

    Example 1. Attorney A, an attorney in a law firm, provides legal 
advice to a large corporate taxpayer regarding a completed corporate 
transaction. The advice provided by A is directly relevant to the 
determination of an entry on the taxpayer's return, and this advice 
leads to a position(s) or entry that constitutes a substantial portion 
of the return. A, however, does not prepare any other portion of the 
taxpayer's return and is not the signing tax return preparer of this 
return. A is considered a nonsigning tax return preparer.
    Example 2. Attorney B, an attorney in a law firm, provides legal 
advice to a large corporate taxpayer regarding the tax consequences of a 
proposed corporate transaction. Based upon this advice, the corporate 
taxpayer enters into the transaction. Once the transaction is completed, 
the corporate taxpayer does not receive any additional advice from B 
with respect to the transaction. B did not provide advice with respect 
to events that have occurred and is not considered a tax return 
preparer.
    Example 3. The facts are the same as Example 2, except that Attorney 
B provides supplemental advice to the corporate taxpayer on a phone call 
after the transaction is completed. Attorney B did not provide advice 
before the corporate transaction occurred with the primary intent to 
avoid being treated as a tax return preparer. The time incurred on this 
supplemental advice by B represented less than 5 percent of the 
aggregate amount of time spent by B providing tax advice on the 
position. B is not considered a tax return preparer.

    (3) Substantial portion. (i) Only a person who prepares all or a 
substantial portion of a return or claim for refund shall be considered 
to be a tax return preparer of the return or claim for refund. A person 
who renders tax advice on a position that is directly relevant to the 
determination of the existence, characterization, or amount of an entry 
on a return or claim for refund will be regarded as having prepared that 
entry. Whether a schedule, entry, or other portion of a return or claim 
for refund is a substantial portion is determined based upon whether the 
person knows or reasonably should know that the tax attributable to the 
schedule, entry, or other portion of a return or claim for refund is a 
substantial portion of the tax required to be shown on the return or 
claim for refund. A single tax entry may constitute a substantial 
portion of the tax required to be shown on a return. Factors to consider 
in determining whether a schedule, entry, or other portion of a return 
or claim for refund is a substantial portion include but are not limited 
to--
    (A) the size and complexity of the item relative to the taxpayer's 
gross income; and
    (B) the size of the understatement attributable to the item compared 
to the taxpayer's reported tax liability.
    (ii)(A) For purposes of applying the rules of paragraph (b)(3)(i) of 
this section to a nonsigning tax return preparer within the meaning of 
paragraph (b)(2) of this section only, the schedule or other portion is 
not considered to be a substantial portion if the schedule, entry, or 
other portion of the return or claim for refund involves amounts of 
gross income, amounts of deductions, or amounts on the basis of which 
credits are determined that are--
    (1) Less than $10,000; or
    (2) Less than $400,000 and also less than 20 percent of the gross 
income as shown on the return or claim for refund (or, for an 
individual, the individual's adjusted gross income).
    (B) If more than one schedule, entry or other portion is involved, 
all schedules, entries or other portions shall be aggregated in applying 
the de minimis rule in paragraph (b)(3)(ii)(A) of this section.
    (C) The de minimis rule in paragraph (b)(3)(ii)(A) of this section 
shall not apply to a signing tax return preparer within the meaning of 
paragraph (b)(1) of this section.
    (iii) A tax return preparer with respect to one return is not 
considered to be a tax return preparer of another return merely because 
an entry or entries reported on the first return may affect an entry 
reported on the other

[[Page 858]]

return, unless the entry or entries reported on the first return are 
directly reflected on the other return and constitute a substantial 
portion of the other return. For example, the sole preparer of a 
partnership return of income or small business corporation income tax 
return is considered a tax return preparer of a partner's or a 
shareholder's return if the entry or entries on the partnership or small 
business corporation return reportable on the partner's or shareholder's 
return constitute a substantial portion of the partner's or 
shareholder's return.
    (iv) Examples. The provisions of this paragraph (b)(3) are 
illustrated by the following examples:

    Example 1. Accountant C prepares a Form 8886, ``Reportable 
Transaction Disclosure Statement'', that is used to disclose reportable 
transactions. C does not prepare the tax return or advise the taxpayer 
regarding the tax return reporting position of the transaction to which 
the Form 8886 relates. The preparation of the Form 8886 is not directly 
relevant to the determination of the existence, characterization, or 
amount of an entry on a tax return or claim for refund. Rather, the Form 
8886 is prepared by C to disclose a reportable transaction. C has not 
prepared a substantial portion of the tax return and is not considered a 
tax return preparer under section 6694.
    Example 2. Accountant D prepares a schedule for an individual 
taxpayer's Form 1040, ``U.S. Individual Income Tax Return'', reporting 
$4,000 in dividend income and gives oral or written advice about 
Schedule A, which results in a claim of a medical expense deduction 
totaling $5,000, but does not sign the tax return. D is not a nonsigning 
tax return preparer because the total aggregate amount of the deductions 
is less than $10,000.

    (4) Return and claim for refund--(i) Return. For purposes of this 
section, a return of tax is a return (including an amended or adjusted 
return) filed by or on behalf of a taxpayer reporting the liability of 
the taxpayer for tax under the Code, if the type of return is identified 
in published guidance in the Internal Revenue Bulletin. A return of tax 
also includes any information return or other document identified in 
published guidance in the Internal Revenue Bulletin and that reports 
information that is or may be reported on another taxpayer's return 
under the Code if the information reported on the information return or 
other document constitutes a substantial portion of the taxpayer's 
return within the meaning of paragraph (b)(3) of this section.
    (ii) Claim for refund. For purposes of this section, a claim for 
refund of tax includes a claim for credit against any tax that is 
included in published guidance in the Internal Revenue Bulletin. A claim 
for refund also includes a claim for payment under section 6420, 6421, 
or 6427.
    (c) Mechanical or clerical assistance. A person who furnishes to a 
taxpayer or other tax return preparer sufficient information and advice 
so that completion of the return or claim for refund is largely a 
mechanical or clerical matter is considered a tax return preparer, even 
though that person does not actually place or review placement of 
information on the return or claim for refund. See also paragraph (b)(3) 
of this section.
    (d) Qualifications. A person may be a tax return preparer without 
regard to educational qualifications and professional status 
requirements.
    (e) Outside the United States. A person who prepares a return or 
claim for refund outside the United States is a tax return preparer, 
regardless of the person's nationality, residence, or the location of 
the person's place of business, if the person otherwise satisfies the 
definition of tax return preparer. Notwithstanding the provisions of 
Sec.  301.6109-1(g), the person shall secure an employer identification 
number if the person is an employer of another tax return preparer, is a 
partnership in which one or more of the general partners is a tax return 
preparer, is a firm in which one or more of the equity holders is a tax 
return preparer, or is an individual not employed by another tax return 
preparer.
    (f) Persons who are not tax return preparers. (1) The following 
persons are not tax return preparers:
    (i) An official or employee of the Internal Revenue Service (IRS) 
performing official duties.
    (ii) Any individual who provides tax assistance under a Volunteer 
Income Tax Assistance (VITA) program established by the IRS, but only 
with respect to those returns prepared as part of the VITA program.

[[Page 859]]

    (iii) Any organization sponsoring or administering a VITA program 
established by the IRS, but only with respect to that sponsorship or 
administration.
    (iv) Any individual who provides tax counseling for the elderly 
under a program established pursuant to section 163 of the Revenue Act 
of 1978, but only with respect to those returns prepared as part of that 
program.
    (v) Any organization sponsoring or administering a program to 
provide tax counseling for the elderly established pursuant to section 
163 of the Revenue Act of 1978, but only with respect to that 
sponsorship or administration.
    (vi) Any individual who provides tax assistance as part of a 
qualified Low-Income Taxpayer Clinic (LITC), as defined by section 7526, 
subject to the requirements of paragraphs (f)(2) and (3) of this 
section, but only with respect to those returns and claims for refund 
prepared as part of the LITC program.
    (vii) Any organization that is a qualified LITC, as defined by 
section 7526, subject to the requirements of paragraphs (f)(2) and (3) 
of this section.
    (viii) An individual providing only typing, reproduction, or other 
mechanical assistance in the preparation of a return or claim for 
refund.
    (ix) An individual preparing a return or claim for refund of a 
taxpayer, or an officer, a general partner, member, shareholder, or 
employee of a taxpayer, by whom the individual is regularly and 
continuously employed or compensated or in which the individual is a 
general partner.
    (x) An individual preparing a return or claim for refund for a 
trust, estate, or other entity of which the individual either is a 
fiduciary or is an officer, general partner, or employee of the 
fiduciary.
    (xi) An individual preparing a claim for refund for a taxpayer in 
response to--
    (A) A notice of deficiency issued to the taxpayer; or
    (B) A waiver of restriction on assessment after initiation of an 
audit of the taxpayer or another taxpayer if a determination in the 
audit of the other taxpayer affects, directly or indirectly, the 
liability of the taxpayer for tax.
    (xii) A person who prepares a return or claim for refund for a 
taxpayer with no explicit or implicit agreement for compensation, even 
if the person receives an insubstantial gift, return service, or favor.
    (2) Paragraphs (f)(1)(vi) and (vii) of this section apply only if 
any assistance with a return of tax or claim for refund is directly 
related to a controversy with the IRS for which the qualified LITC is 
providing assistance or is an ancillary part of an LITC program to 
inform individuals for whom English is a second language about their 
rights and responsibilities under the Code.
    (3) Notwithstanding paragraph (f)(2) of this section, paragraphs 
(f)(1)(vi) and (f)(1)(vii) of this section do not apply if an LITC 
charges a separate fee or varies a fee based on whether the LITC 
provides assistance with a return of tax or claim for refund under the 
Code or if the LITC charges more than a nominal fee for its services.
    (4) For purposes of paragraph (f)(1)(ix) of this section, the 
employee of a corporation owning more than 50 percent of the voting 
power of another corporation, or the employee of a corporation more than 
50 percent of the voting power of which is owned by another corporation, 
is considered the employee of the other corporation as well.
    (5) For purposes of paragraph (f)(1)(x) of this section, an estate, 
guardianship, conservatorship, committee, or any similar arrangement for 
a taxpayer under a legal disability (such as a minor, an incompetent, or 
an infirm individual) is considered a trust or estate.
    (6) Examples. The mechanical assistance exception described in 
paragraph (f)(1)(viii) of this section is illustrated by the following 
examples:

    Example 1. A reporting agent received employment tax information 
from a client from the client's business records. The reporting agent 
did not render any tax advice to the client or exercise any discretion 
or independent judgment on the client's underlying tax positions. The 
reporting agent processed the client's information, signed the return as 
authorized by the client pursuant to Form 8655, Reporting Agent 
Authorization, and

[[Page 860]]

filed the client's return using the information supplied by the client. 
The reporting agent is not a tax return preparer.
    Example 2. A reporting agent rendered tax advice to a client on 
determining whether its workers are employees or independent contractors 
for Federal tax purposes. For compensation, the reporting agent received 
employment tax information from the client, processed the client's 
information and filed the client's return using the information supplied 
by the client. The reporting agent is a tax return preparer.

    (g) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78463, Dec. 22, 2008, as amended by T.D. 9436, 74 FR 
5107, Jan. 29, 2009]



Sec.  301.7701-16  Other terms.

    For a definition of the term ``withholding agent'' see Sec.  1.1441-
7(a). Any other terms that are defined in section 7701 and that are not 
defined in Sec. Sec.  301.7701-1 to 301.7701-15, inclusive, shall, when 
used in this chapter, have the meanings assigned to them in section 
7701.

(Secs. 1441(c)(4) (80 Stat. 1553; 26 U.S.C. 1441(c)(4)), 3401(a)(6) (80 
Stat. 1554; 26 U.S.C. 3401(a)(6)), and 7805 (68A Stat. 917; 26 U.S.C. 
7805), Internal Revenue Code of 1954)

[T.D. 7977, 49 FR 36836, Sept. 20, 1984]



Sec.  301.7701-17T  Collective-bargaining plans and agreements (temporary).

    Q-1: How did the Tax Reform Act of 1984 (TRA of 1984) change the 
laws with respect to plans that are maintained pursuant to collective 
bargaining agreements?
    A-1: (a) Many of the requirements and rules applicable to deferred 
compensation and welfare benefit plans are different for plans 
maintained pursuant to a collective bargaining agreement. Prior to the 
TRA of 1984, the Internal Revenue Code provided no clear definition of 
an employee representative or whether there is a collective bargaining 
agreement between such employee representative and one or more 
employers.
    (b) Section 526(c) of the TRA of 1984 added a new condition under a 
new section 7701(a)(46) that must be satisfied in order for a plan to be 
considered to be a plan maintained pursuant to a collective bargaining 
agreement between employee representatives and one or more employers for 
purposes of the Code after March 31, 1984. If more than one-half of the 
membership of an organization is comprised of owners, officers, and 
executives of employers covered by the plan, then such organization is 
not an employee representative for purposes of determining whether a 
plan is to be treated as maintained pursuant to a collective bargaining 
agreement between employee representatives and one or more employers. 
Whether an individual is an owner, officer or executive is to be 
determined separately with respect to each employer. Additionally, 
section 7701(a)(46) provides that the Internal Revenue Service shall 
make the determination for purposes of the Code as to whether there is a 
collective bargaining agreement between employee representatives and one 
or more employers.
    Q-2: If an organization does not fail to be an employee 
representative under the 50 percent or less test of section 7701(a)(46), 
is a plan maintained pursuant to an agreement between such organization 
and one or more employers necessarily treated, under the Code, as a plan 
maintained pursuant to a collective bargaining agreement between an 
employee representative and one or more employers?
    A-2: (a) No.
    (b) Specific Code provisions generally require other conditions than 
that in section 7701(a)(46) to be satisfied in order for a plan to be 
considered to be collectively-bargained. For example, in order for a 
plan to be described in section 413(a), the Secretary of Labor must find 
that the plan is maintained pursuant to a collective bargaining 
agreement between employee representatives and one or more employers.
    (c) Even if (1) the finding in the example in the preceding 
paragraph (b) is made by the Secretary of Labor, (2) the union has been 
recognized as exempt under section 501(c)(5), and (3) the percentage 
condition in section 7701(a)(46) is satisfied, the Internal Revenue 
Service has the authority, pursuant to section 7701(a)(46), to determine 
whether

[[Page 861]]

there is a collective bargaining agreement under the Code.

[T.D. 8073, 51 FR 4337, Feb. 4, 1986]



Sec.  301.7701-18  Definitions; spouse, husband and wife, 
husband, wife, marriage.

    (a) In general. For federal tax purposes, the terms spouse, husband, 
and wife mean an individual lawfully married to another individual. The 
term husband and wife means two individuals lawfully married to each 
other.
    (b) Persons who are lawfully married for federal tax purposes--(1) 
In general. Except as provided in paragraph (b)(2) of this section 
regarding marriages entered into under the laws of a foreign 
jurisdiction, a marriage of two individuals is recognized for federal 
tax purposes if the marriage is recognized by the state, possession, or 
territory of the United States in which the marriage is entered into, 
regardless of domicile.
    (2) Foreign marriages. Two individuals who enter into a relationship 
denominated as marriage under the laws of a foreign jurisdiction are 
recognized as married for federal tax purposes if the relationship would 
be recognized as marriage under the laws of at least one state, 
possession, or territory of the United States, regardless of domicile.
    (c) Persons who are not lawfully married for federal tax purposes. 
The terms spouse, husband, and wife do not include individuals who have 
entered into a registered domestic partnership, civil union, or other 
similar formal relationship not denominated as a marriage under the law 
of the state, possession, or territory of the United States where such 
relationship was entered into, regardless of domicile. The term husband 
and wife does not include couples who have entered into such a formal 
relationship, and the term marriage does not include such formal 
relationships.
    (d) Applicability date. The rules of this section apply to taxable 
years ending on or after September 2, 2016.

[T.D. 9785, 81 FR 60616, Sept. 2, 2016]



Sec.  301.7701(b)-0  Outline of regulation provision for section 7701(b)-1 
through (b)-9.

    This section lists the paragraphs contained in Sec. Sec.  
301.7701(b)-1 through 301.7701(b)-9.

                   Sec.  301.7701(b)-1 Resident alien.

    (a) Scope.
    (b) Lawful permanent resident.
    (1) Green card test.
    (2) Rescission of resident status.
    (3) Administrative or judicial determination of abandonment of 
resident status.
    (c) Substantial presence test.
    (1) In general.
    (2) Determination of presence.
    (i) Physical presence.
    (ii) United States.
    (3) Current year.
    (4) Thirty-one day minimum.
    (d) Application of section 7701(b) to the possessions and 
territories.
    (1) Application to aliens.
    (2) Non-application to citizens.
    (e) Examples.

            Sec.  301.7701(b)-2 Closer connection exception.

    (a) In general.
    (b) Foreign country.
    (c) Tax home.
    (1) Definition.
    (2) Duration and nature of tax home.
    (d) Closer connection to a foreign country.
    (1) In general.
    (2) Permanent home.
    (e) Special rule.
    (f) Closer connection exception unavailable.
    (g) Filing requirements.

   Sec.  301.7701(b)-3 Days of presence in the United States that are 
                excluded for purposes of section 7701(b).

    (a) In general.
    (b) Exempt individuals.
    (1) In general.
    (2) Foreign government-related individual.
    (i) In general.
    (ii) Definition of international organization.
    (iii) Full-time diplomatic or consular status.
    (3) Teacher or trainee.
    (4) Student.
    (5) Professional athlete.
    (6) Substantial compliance.
    (7) Limitation on teacher or trainee and student exemptions.
    (i) Teacher or trainee limitation in general.
    (ii) Special teacher or trainee limitation for section 872(b)(3) 
compensation.
    (iii) Limitation on student exemption.
    (iv) Transition rule.

[[Page 862]]

    (v) Examples.
    (8) Immediate family.
    (c) Medical condition.
    (1) In general.
    (2) lntent to leave the United States.
    (3) Preexisting medical condition.
    (4) Examples.
    (d) Days in transit.
    (e) Regular commuters from Mexico or Canada.
    (1) General rule.
    (2) Definitions.
    (3) Examples.
    (f) Determination of excluded days applies beyond year of 
determination.

               Sec.  301.7701(b)-4 Residency time periods.

    (a) First year of residency.
    (b) Last year of residency.
    (1) General rule.
    (2) Exceptions.
    (c) Rules relating to residency starting date and residency 
termination date.
    (1) De minimis presence.
    (2) Proration.
    (3) Residency starting date for certain individuals.
    (i) In general.
    (ii) Determination of presence.
    (iii) Thirty-one day period.
    (iv) Period of continuous presence.
    (v) Election procedure.
    (A) Filing requirements.
    (B) Election on behalf of a dependent child.
    (C) Statement.
    (vi) Penalty for failure to comply with filing requirements.
    (A) General rule.
    (B) Exception.
    (d) Examples.
    (e) No lapse.
    (1) Residency in prior year.
    (2) Residency in following year.
    (3) Special rule.
    (4) Example.

           Sec.  301.7701(b)-5 Coordination with section 877.

    (a) General rule.
    (b) Tax imposed.
    (c) Example.

                    Sec.  301.7701(b)-6 Taxable year.

    (a) In general.
    (b) Examples.

       Sec.  301.7701(b)-7 Coordination with income tax treaties.

    (a) Consistency requirement.
    (1) Application.
    (2) Computation of tax liability.
    (3) Other Internal Revenue Code purposes.
    (4) Special rules for S corporations. [Reserved]
    (b) Filing requirements.
    (c) Contents of statement.
    (1) In general.
    (i) Returns due after December 15, 1997.
    (ii) Earlier returns.
    (2) Controlled foreign corporation shareholders.
    (3) S corporation shareholders. [Reserved]
    (d) Relationship to section 6114(a) treaty-based return positions.
    (e) Examples.

                  Sec.  301.7701(b)-8 Procedural rules.

    (a) Who must file.
    (1) Closer connection exception.
    (2) Exempt individuals and individuals with a medical condition.
    (3) De minimis presence and residency starting and termination 
dates.
    (b) Contents of statement.
    (1) Closer connection exception.
    (i) Returns due after December 15, 1997.
    (ii) Earlier returns.
    (2) Exempt individuals and individuals with a medical condition.
    (i) Returns due after December 15, 1997.
    (ii) Earlier returns.
    (3) De minimis presence and residency starting and termination 
dates.
    (c) How to file.
    (d) Penalty for failure to file statement.
    (1) General rule.
    (2) Exception.
    (e) Filing requirement disregarded.

Sec.  301.7701(b)-9 Effective dates of Sec. Sec.  301.7701(b)-1 through 
                             301.7701(b)-7.

    (a) In general.
    (b) Special rules.
    (1) Green card test-residency starting date.
    (2) Substantial presence test-years included.
    (3) Professional athletes.
    (4) Procedural rules and filing requirements.

[T.D. 8411, 57 FR 15241, Apr. 27, 1992; 58 FR 17516, Apr. 5, 1993, as 
amended by T.D. 8733, 62 FR 53386, Oct. 14, 1997]



Sec.  301.7701(b)-1  Resident alien.

    (a) Scope. Section 301.7701(b)-1(b) provides rules for determining 
whether an alien individual is a lawful permanent resident of the United 
States. Section 301.7701(b)-1(c) provides rules for determining if an 
alien individual satisfies the substantial presence test. Section 
301.7701(b)-2 provides rules for determining when an alien individual 
will be considered to maintain a tax home in a foreign country and to 
have a closer connection to that foreign country. Section 301.7701(b)-3 
provides rules for determining if an individual is an exempt individual 
because of his or her status as a foreign government-related

[[Page 863]]

individual, teacher, trainee, student, or professional athlete. Section 
301.7701(b)-3 also provides rules for determining whether an individual 
may exclude days of presence in the United States because the individual 
was unable to leave the United States because of a medical condition. 
Section 301.7701(b)-4 provides rules for determining an individual's 
residency starting and termination dates. Section 301.7701(b)-5 provides 
rules for applying section 877 to a nonresident alien individual. 
Section 301.7701(b)-6 provides rules for determining the taxable year of 
an alien. Section 301.7701(b)-7 provides rules for determining the 
effect of these regulations on rules in tax conventions to which the 
United States is a party. Section 301.7701(b)-8 provides procedural 
rules for establishing that an individual is a nonresident alien. 
Section 301.7701(b)-9 provides the effective dates of section 7701(b) 
and the regulations under that section. Unless the context indicates 
otherwise, the regulations under Sec. Sec.  301.7701(b)-1 through 
301.7701(b)-9 apply for purposes of determining whether a United States 
citizen is also a resident of the United States. (This determination may 
be relevant, for example, to the application of section 861(a)(1) which 
treats income from interest-bearing obligations of residents as income 
from sources within the United States.) The regulations do not apply and 
Sec. Sec.  1.871-2 and 1.871-5 of this chapter continue to apply for 
purposes of the bona fide residence test of section 911. See Sec.  
1.911-2(c) of this chapter. For purposes of determining whether an 
individual is a resident of the United States for estate and gift tax 
purposes, see Sec.  20.0-1(b)(1) and (2) and Sec.  25.2501-1(b) of this 
chapter, respectively.
    (b) Lawful permanent resident--(1) Green card test. An alien is a 
resident alien with respect to a calendar year if the individual is a 
lawful permanent resident at any time during the calendar year. A lawful 
permanent resident is an individual who has been lawfully granted the 
privilege of residing permanently in the United States as an immigrant 
in accordance with the immigration laws. Resident status is deemed to 
continue unless it is rescinded or administratively or judicially 
determined to have been abandoned.
    (2) Rescission of resident status. Resident status is considered to 
be rescinded if a final administrative or judicial order of exclusion or 
deportation is issued regarding the alien individual. For purposes of 
this paragraph, the term ``final judicial order'' means an order that is 
no longer subject to appeal to a higher court of competent jurisdiction.
    (3) Administrative or judicial determination of abandonment of 
resident status. An administrative or judicial determination of 
abandonment of resident status may be initiated by the alien individual, 
the Immigration and Naturalization Service (INS), or a consular officer. 
If the alien initiates this determination, resident status is considered 
to be abandoned when the individual's application for abandonment (INS 
Form I-407) or a letter stating the alien's intent to abandon his or her 
resident status, with the Alien Registration Receipt Card (INS Form I-
151 or Form I-551) enclosed, is filed with the INS or a consular 
officer. If INS replaces any of the form numbers referred to in this 
paragraph or Sec.  301.7701(b)-2(f), refer to the comparable INS 
replacement form number. For purposes of this paragraph, an alien 
individual shall be considered to have filed a letter stating the intent 
to abandon resident status with the INS or a consular office if such 
letter is sent by certified mail, return receipt requested (or a foreign 
country's equivalent thereof). A copy of the letter, along with proof 
that the letter was mailed and received, should be retained by the alien 
individual. If the INS or a consular officer initiates this 
determination, resident status will be considered to be abandoned upon 
the issuance of a final administrative order of abandonment. If an 
individual is granted an appeal to a federal court of competent 
jurisdiction, a final judicial order is required.
    (c) Substantial presence test--(1) In general. An alien individual 
is a resident alien if the individual meets the substantial presence 
test. An individual satisfies this test if he or she has been present in 
the United States on at least 183 days during a three year

[[Page 864]]

period that includes the current year. For purposes of this test, each 
day of presence in the current year is counted as a full day. Each day 
of presence in the first preceding year is counted as one-third of a day 
and each day of presence in the second preceding year is counted as one-
sixth of a day. For purposes of this paragraph, any fractional days 
resulting from the above calculations will not be rounded to the nearest 
whole number. (See Sec.  301.7701(b)-9(b)(2) for transitional rules for 
calendar years 1985 and 1986.)
    (2) Determination of presence--(i) Physical presence. For purposes 
of the substantial presence test, an individual shall be treated as 
present in the United States on any day that he or she is physically 
present in the United States at any time during the day. (But see Sec.  
301.7701(b)-3 relating to days of presence that may be excluded.)
    (ii) United States. For purposes of section 7701(b) and the 
regulations thereunder, the term United States when used in a 
geographical sense includes the states and the District of Columbia. It 
also includes the territorial waters of the United States and the seabed 
and subsoil of those submarine areas which are adjacent to the 
territorial waters of the United States and over which the United States 
has exclusive rights, in accordance with international law, with respect 
to the exploration and exploitation of natural resources. It does not 
include the possessions and territories of the United States or the air 
space over the United States.
    (3) Current year. The term current year means any calendar year for 
which an alien individual is determining his or her resident status.
    (4) Thirty-one day minimum. If an individual is not physically 
present for more than 30 days during the current year, the substantial 
presence test will not be applied for that year even if the three-year 
total is 183 or more days. For purposes of the substantial presence 
test, it is irrelevant that an individual was not present for more than 
30 days in the first or second year preceding the current year.
    (d) Application of section 7701(b) to the possessions and 
territories--(1) Application to aliens for purposes of mirror systems. 
Section 7701(b) provides the basis for determining whether an alien 
individual is a resident of a United States possession or territory that 
administers income tax laws that are identical (except for the 
substitution of the name of the possession or territory for the term 
``United States'' where appropriate) to those in force in the United 
States, for purposes of applying such laws with respect to income tax 
liability incurred to such possession or territory.
    (2) Non-application for bona fide resident determination. Section 
7701(b) does not provide the basis for determining whether an individual 
(including an alien individual) is a bona fide resident of a United 
States possession or territory for Federal income tax purposes. For the 
applicable rules for making this determination, see section 937(a) and 
Sec.  1.937-1 of this chapter.
    (e) Examples. This section may be illustrated by the following 
examples:

    Example 1. B, an alien individual, is present in the United States 
for 122 days in the current year. He was present in the United States 
for 122 days in the first preceding calendar year and for 122 days in 
the second preceding calendar year. In determining his status for the 
current year, B counts all 122 days in the United States in the current 
year plus \1/3\ of the 122 days in the United States in the first 
preceding calendar year (40\2/3\ days) and \1/6\ of the 122 days in the 
United States during the second preceding calendar year (20\1/3\ days). 
The total of 122 + 40\2/3\ + 20\1/3\ equals 183 days. B meets the 
substantial presence test and is a resident alien for the current year.
    Example 2. C, an alien individual, is present in the United States 
for 25 days during the current year. She was present in the United 
States for 365 days during the first preceding year and 365 days during 
the second preceding year. The substantial presence test does not apply 
because C is present in the United States for fewer than 31 days during 
the current year.
    Example 3. D, an alien individual, is present in the United States 
for 170 days during the current year. He was present in the United 
States for 30 days during the first preceding year and 30 days during 
the second preceding year. In determining his status for the current 
year, D counts all 170 days in the United States in the current year 
plus \1/3\ of the 30 days in the United States in the first preceding 
calendar year (10 days) and \1/6\ of the 30 days in the United States 
during the second preceding calendar year (5 days). The total of 170 + 
10 + 5 equals 185 days. D meets

[[Page 865]]

the substantial presence test and is a resident alien for the current 
year notwithstanding the fact that he was present in the United States 
for fewer than 31 days in each of the two preceding years.

[T.D. 8411, 57 FR 15242, Apr. 27, 1992; 57 FR 28612, June 26, 1992; 57 
FR 37190, Aug. 18, 1992, as amended by T.D. 9194, 70 FR 18947, Apr. 11, 
2005; T.D. 9391, 73 FR 19377, Apr. 9, 2008]



Sec.  301.7701(b)-2  Closer connection exception.

    (a) In general. An alien individual who meets the substantial 
presence test may nevertheless be considered a nonresident alien for the 
current year if the following conditions are satisfied--
    (1) The individual is present in the United States for fewer than 
183 days in the current year;
    (2) The individual maintains a tax home in a foreign country during 
the current year; and
    (3) Except as provided in paragraph (e) of this section, the 
individual has a closer connection during the current year to a single 
foreign country in which he or she maintains a tax home than to the 
United States.
    (b) Foreign country. For purposes of section 7701(b) and the 
regulations thereunder, the term ``foreign country'' when used in a 
geographical sense includes any territory under the sovereignty of the 
United Nations or a government other than that of the United States. It 
includes the territorial waters of the foreign country (determined in 
accordance with the laws of the United States), and the seabed and 
subsoil of those submarine areas which are adjacent to the territorial 
waters of the foreign country and over which the foreign country has 
exclusive rights, in accordance with international law, with respect to 
the exploration and exploitation of natural resources. It also includes 
the possessions and territories of the United States.
    (c) Tax home--(1) Definition. For purposes of section 7701 (b) and 
the regulations under that section, the term ``tax home'' has the same 
meaning that it has for purposes of section 162(a)(2) (relating to 
travel expenses while away from home). Thus, an individual's tax home is 
considered to be located at the individual's regular or principal (if 
more than one regular) place of business. If the individual has no 
regular or principal place of business because of the nature of the 
business, or because the individual is not engaged in carrying on any 
trade or business within the meaning of section 162(a), then the 
individual's tax home is the individual's regular place of abode in a 
real and substantial sense.
    (2) Duration and nature of tax home. The tax home maintained by the 
alien individual must be in existence for the entire current year. The 
tax home must be located in the same foreign country for which the 
individual is claiming to have the closer connection described in 
paragraph (d) of this section.
    (d) Closer connection to a foreign country--(1) In general. For 
purposes of section 7701(b) and the regulations under that section, an 
alien individual will be considered to have a closer connection to a 
foreign country than the United States if the individual or the 
Commissioner establishes that the individual has maintained more 
significant contacts with the foreign country than with the United 
States. In determining whether an individual has maintained more 
significant contacts with a foreign country than the United States, the 
facts and circumstances to be considered include, but are not limited 
to, the following--
    (i) The location of the individual's permanent home;
    (ii) The location of the individual's family;
    (iii) The location of personal belongings, such as automobiles, 
furniture, clothing and jewelry owned by the individual and his or her 
family;
    (iv) The location of social, political, cultural or religious 
organizations with which the individual has a current relationship;
    (v) The location where the individual conducts his or her routine 
personal banking activities;
    (vi) The location where the individual conducts business activities 
(other than those that constitute the individual's tax home);
    (vii) The location of the jurisdiction in which the individual holds 
a driver's license;

[[Page 866]]

    (viii) The location of the jurisdiction in which the individual 
votes;
    (ix) The country of residence designated by the individual on forms 
and documents; and
    (x) The types of official forms and documents filed by the 
individual, such as Form 1078 (Certificate of Alien Claiming Residence 
in the United States), Form W-8 (Certificate of Foreign Status) or Form 
W-9 (Payer's Request for Taxpayer ldentification Number).
    (2) Permanent home. For purposes of paragraph (d)(1)(i) of this 
section, it is immaterial whether a permanent home is a house, an 
apartment, or a furnished room. It is also immaterial whether the home 
is owned or rented by the alien individual. It is material, however, 
that the dwelling be available at all times, continuously, and not 
solely for stays of short duration.
    (e) Special Rule. An alien individual may demonstrate in one year 
that he or she has a closer connection to two foreign countries (but no 
more than two) if he or she satisfies all of the following conditions--
    (1) The individual maintains a tax home beginning on the first day 
of the current year in one foreign country;
    (2) The individual changes his or her tax home during the current 
year to a second foreign country;
    (3) The individual continues to maintain his or her tax home in the 
second foreign country for the remainder of the current year;
    (4) The individual has a closer connection to each foreign country 
than to the United States for the period during which the individual 
maintains a tax home in that foreign country; and
    (5) The individual is subject to taxation as a resident pursuant to 
the internal laws of either foreign country for the entire year or 
subject to taxation as a resident in both foreign countries for the 
period during which the individual maintains a tax home in each foreign 
country.
    (f) Closer connection exception unavailable. An alien individual who 
has personally applied, or taken other affirmative steps, to change his 
or her status to that of a permanent resident during the current year or 
has an application pending for adjustment of status during the current 
year will not be eligible for the closer connection exception. 
Affirmative steps to change status to that of a permanent resident 
include, but are not limited to, the following--
    (1) The filing of Immigration and Naturalization Form I-508 (Waiver 
of Immunities) by the alien;
    (2) The filing of Immigration and Naturalization Form I-485 
(Application for Status as Permanent Resident) by the alien;
    (3) The filing of Immigration and Naturalization Form I-130 
(Petition for Alien Relative) on behalf of the alien;
    (4) The filing of Immigration and Naturalization Form I-140 
(Petition for Prospective Immigrant Employee) on behalf of the alien;
    (5) The filing of Department of Labor Form ETA-750 (Application for 
Alien Employment Certification) on behalf of the alien; or
    (6) The filing of Department of State Form OF-230 (Application for 
Immigrant Visa and Alien Registration) by the alien.
    (g) Filing requirements. See Sec.  3O1.7701(b)-8 with regard to the 
statement that must be filed by an alien individual claiming the closer 
connection exception.

[T.D. 8411, 57 FR 15244, Apr. 27, 1992; 57 FR 28612, June 26, 1992; 57 
FR 37190, Aug. 18, 1992; 58 FR 17516, Apr. 5, 1993]



Sec.  301.7701(b)-3  Days of presence in the United States that are excluded 
for purposes of section 7701(b).

    (a) In general. In computing days of presence in the United States, 
an alien is considered to be present if the individual is physically 
present in the United States at any time during the day (see Sec.  
301.7701(b)-1(c)(2)(i)). However, for purposes of section 7701(b) and 
the regulations under that section, the following days shall be excluded 
and will not count as days of presence in the United States--
    (1) Any day that an individual is present in the United States as an 
exempt individual;
    (2) Any day that an individual is prevented from leaving the United 
States because of a medical condition that arose while the individual 
was present in the United States;

[[Page 867]]

    (3) Any day that an individual is in transit between two points 
outside the United States; and
    (4) Any day on which a regular commuter residing in Canada or Mexico 
commutes to and from employment in the United States.
    (b) Exempt individuals--(1) In general. An exempt individual is an 
individual who is either a--
    (i) Foreign government-related individual as defined in paragraph 
(b)(2) of this section;
    (ii) Teacher or trainee as defined in paragraph (b)(3) of this 
section;
    (iii) Student as defined in paragraph (b)(4) of this section; or
    (iv) Professional athlete as defined in paragraph (b)(5) of this 
section.
    (2) Foreign government-related individual--(i) In general. A foreign 
government-related individual is an individual (and that individual's 
immediate family) who is temporarily present in the United States--
    (A) As a full-time employee of an international organization;
    (B) By reason of diplomatic status; or
    (C) By reason of a visa that the Secretary of the Treasury or his or 
her delegate (after consultation with the Secretary of State when 
appropriate) determines represents full-time diplomatic or consular 
status. An individual described in this paragraph shall be considered to 
be temporarily present in the United States if the individual is not a 
lawful permanent resident as described in Sec.  301.7701(b)-1(b)(1), 
regardless of the actual amount of time that the individual is present 
in the United States.
    (ii) Definition of international organization. The term 
``international organization'' means any public international 
organization that has been designated by the President by Executive 
Order as being entitled to enjoy the privileges, exemptions, and 
immunities provided for in the International Organizations Act (22 
U.S.C. 288). An individual described in paragraph (b)(2)(i) of this 
section will be a full-time employee of an international organization if 
that individual's employment with the organization is consistent with an 
employment schedule of a person with a standard full-time work schedule 
with the organization.
    (iii) Full-time diplomatic or consular status. An individual is 
considered to have full-time diplomatic or consular status if--
    (A) The individual has been accredited by a foreign government 
recognized de jure or de facto by the United States;
    (B) The individual intends to engage primarily in official 
activities for that foreign government while in the United States; and
    (C) The individual has been recognized by the President, or by the 
Secretary of State, or by a consular officer acting on behalf of the 
Secretary of State, as being entitled to such status.
    (3) Teacher or trainee. A teacher or trainee includes any individual 
(and that individual's immediate family), other than a student, who is 
admitted temporarily to the United States as a nonimmigrant under 
section 101(a)(15) (J) (relating to the admission of teachers and 
trainees into the United States) or section 101(a)(15)(Q) (relating to 
the admission of participants in international cultural exchange 
programs) of the Immigration and Nationality Act (8 U.S.C. 1101(a)(15) 
(J), (Q)) and who substantially complies with the requirements of being 
admitted.
    (4) Student. A student is any individual (and that individual's 
immediate family) who is admitted temporarily to the United States as a 
nonimmigrant under section 101(a)(15)(F) or (M) (relating to the 
admission of students into the United States) or as a student under 
section 101(a)(15)(J) (relating to the admission of teachers and 
trainees into the United States) or section 101(a)(15)(Q) (relating to 
the admission of participants in international cultural exchange 
programs) of the Immigration and Nationality Act (8 U.S.C. 1101(a)(15) 
(F), (J), (M), (Q)) who substantially complies with the requirements of 
being admitted. For rules concerning taxation of certain nonresident 
students or trainees, see section 871(c) and Sec.  1.871-9(a) of this 
chapter.
    (5) Professional athlete. A professional athlete is an individual 
who is temporarily present in the United States to compete in a 
charitable sports event described in section 274(l)(1)(B). For

[[Page 868]]

purposes of computing the days of presence in the United States, only 
days on which the athlete actually competes in a charitable sports event 
described in section 274(l)(1)(B) shall be excluded. Thus, days on which 
the individual is present to practice for the event, to perform 
promotional or other activities related to the event, or to travel 
between events shall be included for purposes of the substantial 
presence test.
    (6) Substantial compliance. An individual described in paragraph (b) 
(3) or (4) of this section will be deemed to comply substantially with 
the visa requirements relevant to residence for tax purposes if the 
individual has not engaged in activities that are prohibited by the 
Immigration and Nationality Act and the regulations thereunder and could 
result in the loss of F, J or M visa status. An individual will not be 
deemed to comply substantially with the visa requirements relevant to 
residence for tax purposes merely by showing that the individual's visa 
has not been revoked. An independent determination of substantial 
compliance may be made by the Internal Revenue Service for any 
individual claiming to be an exempt individual under paragraph (b) (3) 
or (4) of this section. For example, if an individual with an F visa 
(student visa) is found to have accepted unauthorized employment or to 
have maintained a course of study that is not considered by the Internal 
Revenue Service to be full-time, the individual will not be considered 
to comply substantially with the individual's visa requirements 
regardless of whether the individual's visa has been revoked.
    (7) Limitation on teacher or trainee and student exemptions--(i) 
Teacher or trainee limitation in general. Except as otherwise provided, 
an individual shall not exclude days of presence as a teacher or trainee 
if the individual has been exempt as a teacher, trainee, or student for 
any part of two of the six preceding calendar years.
    (ii) Special teacher or trainee limitation for section 872(b)(3) 
compensation. If--
    (A) A teacher or trainee receives compensation in the current year 
and all of that compensation is described in section 872(b)(3);
    (B) That individual was present in the United States as a teacher or 
trainee in any prior year within the last 6 years; and
    (C) During each prior year (within the 6 year period) in which the 
individual was present as a teacher or trainee, the individual received 
compensation all of which was described in section 872(b)(3);

Then that individual shall include days of presence as a teacher or 
trainee in the current year only if the individual has been exempt as a 
teacher, trainee, or student for any part of four of the six preceding 
calendar years.
    (iii) Limitation on student exemption. An individual will not be 
able to exclude days of presence as a student if the individual has been 
exempt as a teacher, trainee, or student for any part of more than five 
calendar years, unless it is established to the satisfaction of the 
district director that the individual does not intend to reside 
permanently in the United States and has substantially complied with the 
requirements of the student visa providing for the individual's 
temporary presence in the United States. For purposes of this paragraph 
(b)(7), the facts and circumstances to be considered in determining if 
an individual has demonstrated an intent to reside permanently in the 
United States include (but are not limited to)--
    (A) Whether the individual has maintained a closer connection with a 
foreign country as described in Sec.  301.7701(b)-2; and
    (B) Whether the individual has taken affirmative steps within the 
meaning of paragraph (f) of Sec.  301.7701(b)-2 to adjust the 
individual's status from nonimmigrant to lawful permanent resident.
    (iv) Transition rule. The rules in this paragraph (b)(7) relating to 
stated periods of exempt status apply only for those stated periods that 
occur after 1984. Thus, for example, an alien who is present as a 
student during the calendar years 1982-1990 will not be subject to the 
five year rule for students until 1990.
    (v) Examples. The following examples illustrate the application of 
paragraphs (b)(7) (i) and (ii) of this section:


[[Page 869]]


    Example 1. B is temporarily present in the United States during the 
current year as a teacher, within the meaning of section 101(a)(15)(J) 
of the Immigration and Nationality Act. B does not receive compensation 
described in section 872(b)(3) in the current year. B has been treated 
as an exempt student for the past three years. Although this is the 
first year that B is seeking to be exempt as a teacher, he will not be 
considered an exempt individual for the year because he has been exempt 
as a student for at least two of the past six years.
    Example 2. C is temporarily present in the United States during the 
current year as a teacher and receives compensation described in section 
872(b)(3) in the current year. C has been treated as an exempt teacher 
for the past two years but C's compensation for those years was not 
described in section 872(b)(3). C will not be considered an exempt 
individual for the current year because she has been exempt as a teacher 
for at least two of the past six years.
    Example 3. The facts are the same as in Example 2, except that all 
of C's compensation for the two preceding years was described in section 
872(b)(3). C will be considered to be an exempt individual for the 
current year because she has not been exempt as a student, teacher or 
trainee for four of the six preceding calendar years.
    Example 4. D is temporarily present in the United States during the 
current year as a teacher, within the meaning of section 101(a)(15)(J) 
of the Immigration and Nationality Act. D does not receive compensation 
described in section 872(b)(3) in the current year. D entered the United 
States in December of the second preceding year and intends to remain in 
the United States until June of the current year. D will not be 
considered an exempt individual for the current year because he has been 
exempt as a teacher for at least two of the past six years.

    (8) Immediate family. The immediate family of an exempt individual 
includes the individual's spouse and unmarried children (whether by 
blood or adoption) but only if the spouse's or unmarried children's visa 
status are derived from and dependent on the visa classification of the 
exempt individual. For the purposes of this paragraph, the term 
unmarried children means those children who are under 21 years of age, 
who reside regularly in the household of the exempt individual, and who 
are not members of some other household. The immediate family of an 
exempt individual does not include the attendants, servants, and 
personal employees of that individual.
    (c) Medical condition--(1) In general. An individual will not be 
considered present on any day that the individual intends to leave and 
is unable to leave the United States because of a medical condition or 
medical problem that arose while the individual was present in the 
United States. A day of presence will not be excluded if the individual, 
who was initially prevented from leaving, is subsequently able to leave 
the United States and then remains in the United States beyond a 
reasonable period for making arrangements to leave the United States. A 
day will also not be excluded if the medical condition arose during a 
prior stay in the United States (whether or not days of presence during 
the prior stay were excluded) and the alien returns to the United States 
for treatment of the medical condition or medical problem that arose 
during the prior stay.
    (2) Intent to leave the United States. For purposes of paragraph 
(c)(1) of this section, whether an individual intends to leave the 
United States on a particular day will be determined based on all the 
facts and circumstances. Thus, if at the time an individual's medical 
condition or medical problem arose, the individual was present in the 
United States for a definite purpose which by its nature could be 
accomplished within the United States during a period of time that would 
not cause the individual to be a resident under the substantial presence 
test, the individual may be able to establish that he or she intended to 
leave the United States. However, if the individual's purpose is of such 
a nature that an extended period of time would be required for its 
accomplishment (sufficient to cause the individual to be a resident 
under the substanial presence test), the individual would not be able to 
establish the requisite intent to leave the United States. If the 
individual is present in the United States for no particular purpose or 
a purpose by its nature that does not require a specific period of time 
to accomplish, the determination of whether the individual has the 
requisite intent to leave the United States will depend on all

[[Page 870]]

the surrounding facts and circumstances. In the case of an individual 
adjudicated mentally incompetent, proof of intent to leave the United 
States may be determined by analyzing the incompetent's pattern of 
behavior prior to the adjudication of incompetence. Generally, an 
individual will be presumed to have intended to leave during a period of 
illness if the individual leaves the United States within a reasonable 
period of time (time to make arrangements to leave) after becoming 
physically able to leave.
    (3) Pre-existing medical condition. A medical condition or problem 
will not be considered to arise while the individual is present in the 
United States, if the condition or problem existed prior to the 
individual's arrival in the United States, and the individual was aware 
of the condition or problem, regardless of whether the individual 
required treatment for the condition or problem when the individual 
entered the United States.
    (4) Examples. The following examples illustrate the application of 
this paragraph (c):

    Example 1. B is in a serious automobile accident in the United 
States on March 25. B intended to leave the United States on March 31 
(as evidenced by an airline ticket), but was unable to leave on that 
date as a result of the injuries suffered in the accident. B recovered 
from the injuries and was able to leave and did leave the United States 
on May 31. B's presence in the United States during the period from 
April 1 through May 31 will not be counted as days of presence in the 
United States.
    Example 2. The facts are the same as in Example 1, except that B's 
return flight (as evidenced by an airline ticket) was scheduled for May 
31. Because B did not intend to leave the United States until May 31, B 
may not exclude any days of presence in the United States.

    (d) Days in transit. An alien individual may exclude days of 
presence in the United States if the individual is in transit between 
two foreign points, and is physically present in the United States for 
fewer than 24 hours. For purposes of this paragraph, an individual will 
be considered to be in transit if the individual pursues activities that 
are substantially related to completing his or her travel to a foreign 
point of destination. For example, an alien who travels between airports 
in the United States in order to change planes en route to the 
individual's destination will be considered to be in transit. However, 
if the individual attends a business meeting while he or she is present 
in the United States, whether or not that meeting is within the confines 
of the airport, the individual will not be considered to be in transit. 
For purposes of this paragraph, the term ``foreign point'' means any 
areas that are not included within the definition of the term ``United 
States'' provided in Sec.  301.7701(b)-1(c)(2)(ii).
    (e) Regular commuters from Mexico or Canada--(1) General rule. An 
alien individual will not be considered to be present in the United 
States on days that the individual commutes to the United States from 
the individual's residence in Mexico or Canada if the individual 
regularly commutes from Mexico or Canada. An alien individual will be 
considered to commute regularly if the individual commutes to the 
individual's location of employment or self-employment in the United 
States from his or her residence in Mexico or Canada on more than 75% of 
the workdays during the working period.
    (2) Definitions. (i) The term commutes means to travel to employment 
or self-employment and to return to one's residence within a 24-hour 
period.
    (ii) The term workdays means days on which the individual works in 
the United States or Canada or Mexico.
    (iii) The term working period means the period beginning with the 
first day in the current year on which the individual is physically 
present in the United States for purposes of engaging in employment or 
self-employment and ending on the last day in the current year on which 
the individual is physically present in the United States for purposes 
of engaging in that employment or self-employment. If the nature of the 
employment or self-employment is such that it requires the individual to 
be present in the United States only on a seasonal or cyclical basis, 
the working period will begin with the first day of the season or cycle 
on which the individual is present in the United States for purposes of 
engaging in that employment or self-employment and

[[Page 871]]

end on the last day of the season or cycle on which the individual is 
present in the United States for the purpose of engaging in that 
employment or self-employment. Thus, there may be more than one working 
period in a calendar year and a working period may begin in one calendar 
year and end in the following calendar year.
    (3) Examples. The following examples illustrate the operation of 
this paragraph (e):

    Example 1. B lives in Mexico and is employed by Corporation X in its 
office in Mexico. B was temporarily assigned to X's office in the United 
States. B's employment in the United States office began on February 1, 
1988, and continued through June 1, 1988. On June 2, B resumed his 
employment in Mexico. On 59 days in the period beginning on February 1, 
1988, and ending on June 1, 1988, B travelled each morning from his 
residence in Mexico to X Corporation's United States office for the 
purpose of engaging in his employment with X Corporation. B returned to 
his residence in Mexico on each of those evenings. On seven days in the 
period from February 1, 1988, through June 1, 1988, B worked in X's 
Mexico office. B is not considered to have been present in the United 
States on any of the days that he travelled to X's United States office 
for the purpose of engaging in employment with Corporation X because he 
commuted to his place of employment within the United States on more 
than 75% of the workdays during the working period (59 workdays in the 
United States/66 workdays in the working period = 89.4%).
    Example 2. C, who lives in Canada, contracted with a resort located 
in the United States to provide snow-skiing instructions for the 
resort's customers for two skiing seasons, the first beginning on 
November 15, 1987, and ending on March 15, 1988, and the second 
beginning on November 15, 1988, and ending on March 15, 1989. On 90 days 
in each of the two skiing seasons, C travelled in the morning from 
Canada to the resort to provide skiing instructions pursuant to the 
contract. C returned to Canada on each of those evenings. On 20 days 
during each of the two skiing seasons, C worked in Canada. C is not 
considered to have been present in the United States on any of the days 
that she travelled to the United States to provide ski instructions in 
either the first working period beginning on November 15, 1987, and 
ending on March 15, 1988, or the second working period beginning on 
November 15, 1988, and ending on March 15, 1989, because she commuted to 
her employment within the United States on more than 75% of the workdays 
during each of the working periods (90 workdays in the United States/110 
workdays in the working period = 81.8%).
    Example 3. D, who lives in Canada, is the sole proprietor of a 
wholesale lumber business with offices in both the United States and 
Canada. Beginning on January 4, 1988, and ending on February 12, 1988, D 
commuted to work in his United States office on 30 days. Beginning on 
February 15, 1988, and ending on March 25, 1988, D commuted to work in 
his Canadian office on 30 days. Beginning on March 28, 1988, and ending 
on May 27, 1988, D commuted to work in his United States office on 45 
days. Subsequent to May 27, D did not commute to the United States on 
any other days in 1988. D is considered to have been present in the 
United States on each day that he travelled to his office in the United 
States because D did not commute to the United States office on more 
than 75% of the workdays during the working period beginning on January 
4, 1988, and ending on May 27, 1988 (75 workdays in the United States/
105 workdays in the working period = 71.4%).

    (f) Determination of excluded days applies beyond year of 
determination. If a day of presence is excluded under this section, then 
that day shall not be taken into account in the current year or the 
first or second preceding year.

[T.D. 8411, 57 FR 15245, Apr. 27, 1992; 57 FR 28612, June 26, 1992; 57 
FR 37190, Aug. 18, 1992, as amended by T.D. 8733, 62 FR 53386, Oct. 14, 
1997]



Sec.  301.7701(b)-4  Residency time periods.

    (a) First year of residency. An alien individual who was not a 
United States resident during the preceding calendar year and who is a 
United States resident for the current year will begin to be a resident 
for tax purposes on the alien's residency starting date. The residency 
starting date for an alien who meets the substantial presence test is 
the first day during the calendar year on which the individual is 
present in the United States. The residency starting date for an alien 
who meets the lawful permanent resident test (green card test), 
described in paragraph (b)(1) of Sec.  301.7701(b)-1, is the first day 
during the calendar year in which the individual is physically present 
in the United States as a lawful permanent resident. The residency 
starting date for an alien who satisfies both the substantial presence 
test and the green card test will be the earlier of the first day the 
individual is physically present in the United States as a lawful 
permanent resident of the United States or

[[Page 872]]

the first day during the year that the individual is present for 
purposes of the substantial presence test. (See Sec.  301.7701(b)-
9(b)(1) for the transitional rule relating to the residency starting 
date of an alien individual who was a lawful permanent resident in 1984. 
See also Sec.  301.7701(b)-3 for days that may be excluded.)
    (b) Last year of residency--(1) General rule. An alien individual 
who is a United States resident during the current year but who is not a 
United States resident at any time during the following calendar year 
will cease to be a resident for tax purposes on the individual's 
residency termination date. Generally, the residency termination date 
will be the last day of the calendar year.
    (2) Exceptions. Notwithstanding paragraph (b)(1) of this section, 
the residency termination date for an alien individual who meets the 
substantial presence test is the last day during the calendar year that 
the individual is physically present in the United States if the 
individual establishes that, for the remainder of the calendar year, the 
individual's tax home was in a foreign country and he or she maintained 
a closer connection (within the meaning of Sec.  301.7701(b)-2(d)) to 
that foreign country than to the United States. Similarly, the residency 
termination date for an alien who meets the green card test is the first 
day during the calendar year that the alien is no longer a lawful 
permanent resident if the individual establishes that, for the remainder 
of the calendar year, his or her tax home was in a foreign country and 
he or she maintained a closer connection to that foreign country than to 
the United States. The residency termination date for an alien who 
satisfies both the substantial presence test and the green card test for 
the current year, will be the later of the first day the individual is 
no longer a lawful permanent resident of the United States or the last 
day the individual was physically present in the United States if the 
alien establishes that, for the remainder of the calendar year, his or 
her tax home was in a foreign country and he or she maintained a closer 
connection to that foreign country than to the United States. It is 
immaterial whether the individual's tax home was in the United States, 
or that the individual had a closer connection to the United States than 
to the foreign country, prior to the date of his or her departure from 
the United States or the date on which the individual was no longer a 
lawful permanent resident, whichever is applicable.
    (c) Rules relating to residency starting date and residency 
termination date--(1) De minimis presence. An alien individual may be 
present in the United States for up to 10 days without triggering the 
residency starting date (for purposes of the substantial presence test) 
or extending the residency termination date (for purposes of the 
substantial presence test) if the individual is able to establish that, 
during that period, the individual's tax home was in a foreign country 
and he or she maintained a closer connection to that foreign country 
than to the United States. Days from more than one period of presence 
may be disregarded for purposes of determining an individual's residency 
starting date or termination date so long as the total is not more than 
10 days. However, an individual may not disregard any days that occur in 
a period of consecutive days of presence, if all the days that occur 
during that period cannot be excluded. An individual must include days 
of presence for purposes of determining whether the individual meets the 
substantial presence test even though the days may be disregarded for 
purposes of determining the individual's residency starting date or 
residency termination date.
    (2) Proration. If an individual's residency starting date does not 
fall on the first day of the tax year, or the individual's residency 
termination date does not fall on the last day of the tax year, the 
individual's income tax liability should be calculated in accordance 
with Sec.  1.871-13 of this chapter dealing with the taxation of 
individuals who change residence status during the taxable year.
    (3) Residency starting date for certain individuals--(i) In general. 
If an alien individual (who otherwise does not meet the substantial 
presence test or the green card test for the current year) is physically 
present in the United States for at least 31 consecutive days during

[[Page 873]]

the current year, and also for a period of continuous presence beginning 
with the first day of that thirty-one day period (see paragraph 
(c)(3)(iii) of this section), then the individual may elect to be 
treated as a resident during the current year. The individual's 
residency starting date shall be the first day of that thirty-one day 
period, if--
    (A) The individual was not a resident of the United States under the 
substantial presence test or the green card test in the year preceding 
the current year; and
    (B) The individual is a resident of the United States in the 
subsequent year under the substantial presence test (whether or not the 
individual is also a resident of the United States under the green card 
test).
    (ii) Determination of presence. Except as otherwise provided in 
paragraph (c)(3)(iii) of this section, an individual shall be treated as 
present in the United States on any day that the individual is 
physically present in the United States at any time during the day.
    (iii) Thirty-one day period. For purposes of this paragraph (c)(3), 
the term thirty-one day period means any period of 31 consecutive days 
during which an individual is physically present in the United States 
during each day of the period.
    (iv) Period of continuous presence. For purposes of this paragraph 
(c)(3), the term continuous presence means a period of presence in the 
United States that includes 75 percent of the days in the current year 
beginning with (and including) the first day of the individual's thirty-
one day period of presence. Only for purposes of the continuous presence 
requirement, an individual will be deemed to be present in the United 
States for up to 5 days on which the individual is absent from the 
United States. These days will not be deemed to be days of presence for 
purposes of the thirty-one day period of presence requirement. If an 
individual is present for more than one thirty-one day period of 
presence and satisfies the continuous presence requirement with regard 
to each period, the individual's residency starting date shall be the 
first day of the first thirty-one day period of presence. If an 
individual is present for more than one thirty-one day period of 
presence but satisfies the continuous presence requirement only for a 
later thirty-one day period, the individual's residency starting date 
shall be the first day of the later thirty-one day period of presence. 
For purposes of this paragraph (c)(3), days of presence that are 
otherwise excluded under section 7701(b)(3)(D)(i) and Sec.  301.7701(b)-
3(a)(1) (exempt individual), (a)(2) (medical condition), (a)(3) (in 
transit between two foreign points), and (a)(4) (regular commuter) shall 
not be counted as days of presence for purposes of either the thirty-one 
day period or continuous presence requirement.
    (v) Election procedure--(A) Filing requirements. An alien individual 
shall make an election to be treated as a resident under paragraph 
(c)(3) of this section by attaching a statement (described in paragraph 
(c)(3)(v)(C) of this section) to the individual's income tax return 
(Form 1040) for the taxable year for which the election is to be in 
effect (the election year). The alien individual may not make this 
election until such time as he has satisfied the substantial presence 
test for the year following the election year. If an alien individual 
has not satisfied the substantial presence test for the year following 
the election year as of the due date (not including extensions) of the 
tax return for the election year, the alien individual may request an 
extension of time for filing the return until a reasonable period after 
he or she has satisfied such test, provided that the individual pays 
with his or her extension application the amount of tax he or she 
expects to owe for the election year computed as if he or she were a 
nonresident alien throughout the election year. An election made under 
paragraph (c)(3) of this section may not be revoked without the approval 
of the Commissioner or his delegate.
    (B) Election on behalf of a dependent child. An individual may make 
an election on behalf of a dependent child (as defined in paragraphs (1) 
and (2) of section 152(a), without regard to section 152(b)(3)) if the 
individual is qualified to make an election on his or her own behalf, 
the child qualifies to make an election under this paragraph (c)(3),

[[Page 874]]

and the child is not required by section 6012 to file a United States 
income tax return for the year for which the election is to be 
effective.
    (C) Statement. The statement required by paragraph (c)(3)(v)(A) of 
this section shall include the name and address of the alien individual 
and contain a signed declaration that the election is being made. If the 
individual is also making an election on behalf of any dependent 
children, then the statement must include the required information with 
respect to those children. The statement must specify--
    (1) That the alien individual was not a resident in the year 
immediately preceding the election year;
    (2) That the alien individual is a resident under the substantial 
presence test in the year following the election year;
    (3) The individual's number of days of presence in the United States 
during the year following the election year;
    (4) The date or dates of the alien individual's thirty-one day 
period of presence and period of continuous presence in the United 
States during the election year; and
    (5) The date or dates of absence from the United States during the 
election year that are deemed to be days of presence.
    (vi) Penalty for failure to comply with filing requirements--(A) 
General rule. If an individual fails to comply with the election 
procedure of paragraph (c)(3)(v) of this section, the individual must 
file his or her income tax return for the current year as a nonresident 
alien.
    (B) Exception. The penalty described in paragraph (c)(3)(vi)(A) of 
this section shall not apply if the individual can show by clear and 
convincing evidence that he or she took reasonable actions to become 
aware of the filing requirements and significant affirmative steps to 
comply with the requirements. An individual who requests an extension of 
time to file his or her income tax return pursuant to paragraph 
(c)(3)(v) of this section will be considered to have taken significant 
affirmative steps to comply with the requirement that the individual pay 
his or her tax determined as if the individual were a nonresident alien 
if the individual paid with his or her extension application at least 90 
percent of the amount of the tax the individual actually owed for the 
election year computed as if he or she were a nonresident alien 
throughout the election year.
    (d) Examples. The following examples illustrate the operation of 
this section:

    Example 1. B, a citizen of foreign country X, is an alien who has 
never before been a United States resident for tax purposes. B comes to 
the United States on January 6, 1985, to attend a business meeting and 
returns to country X on January 10, 1985. B is able to establish a 
closer connection to country X for the period January 6-10. On March 1, 
1985, B moves to the United States and resides here until August 20, 
1985, when he returns to country X. On December 12, 1985, B comes to the 
United States for pleasure and stays here until December 16, 1985 when 
he returns to country X. B is able to establish a closer connection to 
country X for the period December 12-16. B is not a United States 
resident for tax purposes during the following year and can establish a 
closer connection to country X for the remainder of calendar year 1985. 
B is a resident of the United States under the substantial presence test 
because B is present in the United States for 183 days (5 days in 
January plus 173 days for the period March 1-August 20 plus 5 days in 
December). B's residency starting date is March 1, 1985, and his 
residency termination date is August 20, 1985.
    Example 2. The facts are the same as in Example 1, except that B 
remains in the United States until December 17, 1985, and is able to 
establish a closer connection to country X for the period December 18 
through 31. B's residency termination date is December 17, 1985.
    Example 3. C, a citizen of foreign country Y, is an alien who has 
never before been a United States resident for tax purposes. C comes to 
the United States for the first time on February 10, 1985, and attends a 
business conference until February 24, 1985, when she returns to country 
Y. On April 20, 1985, C enters the United States as a lawful permanent 
resident. On November 10, 1985, C ceases to be a lawful permanent 
resident but stays on in the United States until November 20, 1985 when 
she returns to country Y. On December 8, 1985, C comes to the United 
States and stays here until December 17, 1985 when she returns to 
country Y. She can establish a closer connection to country Y for that 
period. C is not a resident of the United States during the following 
calendar year and can establish a closer connection to country Y for the 
remainder of calendar year 1985. C qualifies as a United States resident 
under both the green card test and the substantial presence test. C's 
residency starting date

[[Page 875]]

under the green card test is April 20, 1985. Under the substantial 
presence test, C's residency starting date is February 10, 1985, because 
she is present for more than ten days in February and cannot take 
advantage of the de minimis presence rule. Therefore, C's residency 
starting date is February 10, 1985. C's residency termination date under 
the green card test is November 10, 1985. Her residency termination date 
under the substantial presence test is November 20, because B can 
disregard ten days of presence in December. Thus, her residency 
termination date is November 20, 1985, the later of her residency 
termination date under the substantial presence test or the green card 
test.
    Example 4. The facts are the same as in Example 3, except that C is 
initially present in the United States on business from February 5 to 
February 9, 1985. C is able to establish a closer connection to country 
Y for that period. C may take advantage of only ten days of de minimis 
presence and may exclude days from a continuous period of presence only 
if she can exclude all the days that occur during that period. Thus, C 
may choose either of the following periods of residency: residency 
starting date February 5, 1985, and residency termination date November 
20, 1985, or residency starting date April 20, 1985, and residency 
termination date December 17, 1985.
    Example 5. D, a citizen of foreign country Z, is an alien who has 
never before been a United States resident for tax purposes. D comes to 
the United States on November 1, 1985 and is present in the United 
States on 31 consecutive days (from November 1 through December 1, 
1985). D returns to country Z on December 1 and does not come back to 
the United States until December 17, 1985. He remains in the United 
States for the rest of the year. During 1986, D is a resident of the 
United States under the substantial presence test. D may elect to be 
treated as a resident of the United States for 1985 because he was 
present in the United States in 1985 for a 31 consecutive day period of 
presence (November 1 through December 1, 1985) and for at least 75 
percent of the days following (and including) the first day of D's 31 
consecutive day period of presence (46 total days of presence in the 
United States/61 days in the period from November 1 through December 31 
= 75.4%). If D makes the election to be treated as a resident, his 
residency starting date will be November 1, 1985.
    Example 6. The facts are the same as in Example 5, except that D is 
absent from the United States on December 24, 25, 29, 30 and 31. D may 
make the election to be treated as a resident for 1985 because up to 
five days of absence will be deemed to be days of presence for purposes 
of the continuous presence requirement.
    Example 7. F, a citizen of foreign country M, is an alien individual 
who has never before been a United States resident for tax purposes. F 
comes to the United States on January 1, 1985 and remains in the United 
States through January 31, 1985, when she returns to country M. F comes 
back to the United States on October 1, 1985 and is present in the 
United States through November 1, 1985. From November 1, 1985 through 
December 31, 1985, F is present in the United States for 38 days. 
Although F satisfies two 31 consecutive day periods of presence, 
(January 1 through January 31 and October 1 through November 1), she 
satisfies the continuous presence requirement only with regard to the 
later period of presence (69 total days of presence/92 days in the 
period from October 1 through December 31 = 75%). Thus, if F makes the 
election to be treated as a resident, his residency starting date is 
October 1, 1985.

    (e) No lapse--(1) Residency in prior year. An alien individual who 
was a United States resident during any part of the preceding calendar 
year and who is a United States resident for any part of the current 
year will be considered to be taxable as a resident at the beginning of 
the current year. For purposes of this paragraph (e)(1), it is 
immaterial whether an individual is considered to be a resident under 
the substantial presence test or the green card test.
    (2) Residency in following year. An alien individual who is a United 
States resident for any part of the current year and who is also a 
United States resident for any part of the following year (regardless of 
whether the individual has a closer connection to a foreign country than 
the United States during the current year) will be taxable as a resident 
through the end of the current year. For purposes of this paragraph 
(e)(2), it is immaterial whether an individual is considered to be a 
resident under the substantial presence test or the green card test.
    (3) Special rule. If an individual meets the green card test for the 
current year but is not physically present in the United States during 
the current year, then the individual's residency starting date shall be 
the first day of the following year.
    (4) Example. The following example illustrates the application of 
this paragraph (e).

    Example. B, an alien individual who is a citizen of foreign country 
M, comes to the United States for the first time on May 1, 1985, and 
remains in the United States until November 5, 1985, when he returns to 
country

[[Page 876]]

M. B comes back to the United States on March 5, 1986 as a lawful 
permanent resident and remains in the United States until September 10, 
1986, when he ceases to be a lawful permanent resident and returns to 
country M. B is not a resident in calendar year 1987. B's United States 
residency in calendar year 1985 continues through December 31, 1985, 
because he is a United States resident in the following calendar year. 
In calendar year 1986, B's United States residency is deemed to begin on 
January 1, 1986 because B qualified as a resident in the preceding 
calendar year. Thus, B's residency period in the United States begins on 
May 1, 1985, and ends on September 10, 1986.

[T.D. 8411, 57 FR 15247, Apr. 27, 1992; 57 FR 28612, June 26, 1992]



Sec.  301.7701(b)-5  Coordination with section 877.

    (a) General rule. An alien individual will be subject to United 
States income tax in the manner provided by section 877, regardless of 
whether the individual has a tax avoidance motive, if--
    (1) The alien individual is a resident alien of the United States 
for at least three consecutive calendar years (the initial residency 
period) beginning after December 31, 1984;
    (2) The period of residence for each of the three consecutive 
calendar years includes at least 183 days;
    (3) The alien is once again taxed as a nonresident (including an 
individual taxed as a nonresident) under Sec.  301.7701(b)-7(a)(1); and
    (4) The alien then becomes a resident of the United States before 
the close of the third calendar year beginning after the individual's 
residency termination date in the initial residency period.
    (b) Tax imposed. The tax provided for under paragraph (a) of this 
section will be imposed for the intervening period of nonresidency only 
if the amount of tax would exceed the amount of tax that would be 
imposed under section 871, relating to the taxation of nonresident 
aliens.
    (c) Example. The following example illustrates the application of 
this section.

    Example. B, a citizen of foreign country F, enters the United States 
on April 1, 1985, as a lawful permanent resident. On August 1, 1987, B 
ceases to be a lawful permanent resident and returns to country F. B 
meets the initial residency period requirement because he is a resident 
of the United States for at least 183 days in each of three consecutive 
years (1985, 1986 and 1987). B returns to the United States on October 
5, 1990, as a lawful permanent resident. Because B became a resident of 
the United States before the close of the third calendar year (1990) 
beginning after the close of the initial residency period (August 1, 
1987), he is subject to tax under section 877(b) for the intervening 
period of nonresidency, August 2, 1987 through October 4, 1990, if the 
amount of the tax imposed under section 877 is more than the tax imposed 
under section 871.

[T.D. 8411, 57 FR 15250, Apr. 27, 1992]



Sec.  301.7701(b)-6  Taxable year.

    (a) In general. An alien individual who has not established a fiscal 
year as his or her taxable year prior to the period that the individual 
is subject to United States income tax as a resident or a nonresident 
shall adopt the calendar year as his or her taxable year. An alien who 
has established a fiscal year in a foreign country prior to the period 
that the individual is subject to United States income tax may adopt the 
calendar year as his or her taxable year for United States income tax 
purposes without requesting a change in accounting period. An individual 
will be considered to have established a fiscal year (whether in the 
United States or a foreign country) if the annual accounting period on 
which the individual computes his or her income is a fiscal year, the 
individual keeps his or her books in accordance with that fiscal year, 
and the requirements of section 441 and Sec.  1.441-1(b) of this chapter 
are otherwise satisfied. An alien who has established a fiscal year and 
is a resident alien during the calendar year will be treated as a 
resident alien with respect to any portion of his or her taxable year 
(beginning with the individual's residency starting date and ending with 
the individual's residency termination date) that falls within such 
calendar year. Once the individual has established either a fiscal or 
calendar year taxable year for any period for which the individual is 
subject to United States income tax, the individual may not change that 
taxable year without the approval of the Secretary. See section 442.
    (b) Examples. The following examples illustrate the operation of 
this section:


[[Page 877]]


    Example 1. B, a citizen and resident of foreign country F, was 
engaged in a United States business during 1982 and filed a return on a 
fiscal year basis. B's fiscal year runs from October 1 to September 30. 
B comes to the United States on March 8, 1985 and remains in the United 
States until October 10, 1985, when he returns to country F. B maintains 
a closer connection to and his tax home in Country F for the remainder 
of calendar year 1985. B, who is not a United States resident at any 
time in 1986, is a United States resident for the period that begins on 
March 8, 1985, and ends on October 10, 1985. B has adopted a fiscal year 
taxable year for purposes of computing his United States income tax 
liability. For his fiscal year that ends on September 30, 1985, B will 
be taxed as a United States resident for the period that begins on March 
8, 1985 and ends on September 30, 1985. For his fiscal year that ends on 
September 30, 1986, B will only be taxed as a United States resident for 
the period that begins on October 1, 1985 and ends on October 10, 1985.
    Example 2. The facts are the same as in Example 1, except that B's 
1982 business was a country F business established on a fiscal year 
basis and at no time prior to 1985 was B subject to United States income 
tax. B may adopt a calendar year as his taxable year for United States 
income tax purposes without requesting a change of accounting period. B 
continues to use a fiscal year as his taxable year. For his fiscal year 
that ends on September 30, 1985, B will be taxed as a United States 
resident for the period that begins on March 8, 1985 and ends September 
30, 1985. For his fiscal year that ends on September 30, 1986, B will be 
taxed as a United States resident for the period that begins on October 
1, 1985 and ends on October 10, 1985.
    Example 3. The facts are the same as in Example 1, except that B's 
1982 business was a country F business established on a fiscal year 
basis and at no time prior to 1985 was B subject to United States income 
tax. B may adopt a calendar year as his taxable year for United States 
income tax purposes without requesting a change of accounting period. B 
adopts a calendar year as his taxable year for 1985. For his calendar 
year taxable year ending on December 31, 1985, B will be taxed as a 
United States resident for the period that begins on March 8, 1985, and 
ends on October 10, 1985.

[T.D. 8411, 57 FR 15250, Apr. 27, 1992; 57 FR 28612, June 26, 1992, as 
amended by T.D. 8996, 67 FR 35012, May 17, 2002]



Sec.  301.7701(b)-7  Coordination with income tax treaties.

    (a) Consistency requirement--(1) Application. The application of 
this section shall be limited to an alien individual who is a dual 
resident taxpayer pursuant to a provision of a treaty that provides for 
resolution of conflicting claims of residence by the United States and 
its treaty partner. A ``dual resident taxpayer'' is an individual who is 
considered a resident of the United States pursuant to the internal laws 
of the United States and also a resident of a treaty country pursuant to 
the treaty partner's internal laws. If the alien individual determines 
that he or she is a resident of the foreign country for treaty purposes, 
and the alien individual claims a treaty benefit (as a nonresident of 
the United States) so as to reduce the individual's United States income 
tax liability with respect to any item of income covered by an 
applicable tax convention during a taxable year in which the individual 
was considered a dual resident taxpayer, then that individual shall be 
treated as a nonresident alien of the United States for purposes of 
computing that individual's United States income tax liability under the 
provisions of the Internal Revenue Code and the regulations thereunder 
(including the withholding provisions of section 1441 and the 
regulations under that section in cases in which the dual resident 
taxpayer is the recipient of income subject to withholding) with respect 
to that portion of the taxable year the individual was considered a dual 
resident taxpayer.
    (2) Computation of tax liability. If an alien individual is a dual 
resident taxpayer, then the rules on residency provided in the 
convention shall apply for purposes of determining the individual's 
residence for all purposes of that treaty.
    (3) Other Code purposes. Generally, for purposes of the Internal 
Revenue Code other than the computation of the individual's United 
States income tax liability, the individual shall be treated as a United 
States resident. Therefore, for example, the individual shall be treated 
as a United States resident for purposes of determining whether a 
foreign corporation is a controlled foreign corporation under section 
957 or whether a foreign corporation is a foreign personal holding 
company under section 552. In addition, the application of paragraph 
(a)(2) of this section does not

[[Page 878]]

affect the determination of the individual's residency time periods 
under Sec.  301.7701(b)-4.
    (4) Special rules for S corporations. [Reserved]
    (b) Filing requirements. An alien individual described in paragraph 
(a) of this section who determines his or her U.S. tax liability as if 
he or she were a nonresident alien shall make a return on Form 1040NR on 
or before the date prescribed by law (including extensions) for making 
an income tax return as a nonresident. The individual shall prepare a 
return and compute his or her tax liability as a nonresident alien. The 
individual shall attach a statement (in the form required in paragraph 
(c) of this section) to the Form 1040NR. The Form 1040NR and the 
attached statement, shall be filed with the Internal Revenue Service 
Center, Philadelphia, PA 19255. The filing of a Form 1040NR by an 
individual described in paragraph (a) of this section may affect the 
determination by the Immigration and Naturalization Service as to 
whether the individual qualifies to maintain a residency permit.
    (c) Contents of statement--(1) In general--(i) Returns due after 
December 15, 1997. The statement filed by an individual described in 
paragraph (a)(1) of this section, for a return relating to a taxable 
year for which the due date (without extensions) is after December 15, 
1997, must be in the form of a fully completed Form 8833 (Treaty-Based 
Return Position Disclosure Under Section 6114 or 7701(b)) or appropriate 
successor form. See section 6114 and Sec.  301.6114-1 for rules relating 
to other treaty-based return positions taken by the same taxpayer.
    (ii) Earlier returns. For returns relating to taxable years for 
which the due date for filing returns (without extensions) is on or 
before December 15, 1997, the statement filed by the individual 
described in paragraph (a)(1) of this section must contain the 
information in accordance with paragraph (c)(1) of this section in 
effect prior to December 15, 1997 (see Sec.  301.7701(b)-7(c)(1) as 
contained in 26 CFR part 301, revised April 1, 1997).
    (2) Controlled foreign corporation shareholders. If the taxpayer who 
claims a treaty benefit as a nonresident of the United States is a 
United States shareholder in a controlled foreign corporation (CFC), as 
defined in section 957 or section 953(c), and there are no other United 
States shareholders in that CFC, then for purposes of paragraph (c)(1) 
of this section, the approximate amount of subpart F income (as defined 
in section 952) that would have been included in the taxpayer's income 
may be determined based on the audited foreign financial statements of 
the CFC.
    (3) S corporation shareholders. [Reserved]
    (d) Relationship to section 6114(a) treaty-based return positions. 
The statement required by paragraph (b) of this section will be 
considered disclosure for purposes of section 6114 and Sec.  301.6114-
1(a), but only if the statement is in the form required by paragraph (c) 
of this section. If the taxpayer fails to file the statement required by 
paragraph (b) of this section on or before the date prescribed in 
paragraph (b) of this section, the taxpayer will be subject to the 
penalties imposed by section 6712. See section 6712 and Sec.  301.6712-
1.
    (e) Examples. The following examples illustrate the application of 
this section:

    Example 1. B, an alien individual, is a resident of foreign country 
X, under X's internal law. Country X is a party to an income tax 
convention with the United States. B is also a resident of the United 
States under the Internal Revenue Code. B is considered to be a resident 
of country X under the convention. The convention does not specifically 
deal with characterization of foreign corporations as controlled foreign 
corporations or the taxability of United States shareholders on 
inclusions of subpart F income, but it provides, in an ``Other Income'' 
article similar to Article 21 of the 1981 draft of the United States 
Model Income Tax Convention (U.S. Model), that items of income of a 
resident of country X that are not specifically dealt with in the 
convention shall be taxable only in country X. B owns 80% of the one 
class of stock of foreign corporation R. The remaining 20% is owned by 
C, a United States citizen who is unrelated to B. In 1985, corporation 
R's only income is interest that is foreign personal holding company 
income under Sec.  1.954A-2 of this chapter. Because the United States-X 
income tax convention does not deal with characterization of foreign 
corporations as controlled foreign corporations, United States internal 
income tax law applies.

[[Page 879]]

Therefore, B and C are United States shareholders within the meaning of 
Sec.  1.951-1(g) of this chapter, corporation R is a controlled foreign 
corporation within the meaning of Sec.  1.957-1 of this chapter, and 
corporation R's income is included in C's income as subpart F income 
under Sec.  1.951-1 of this chapter. B may avoid current taxation on his 
share of the subpart F inclusion by filing as a nonresident (i.e., by 
following the procedure in Sec.  301.7701(b)-7(b)).
    Example 2. The facts are the same as in Example 1, except that B 
also earns United States source dividend income. The United States-X 
income tax convention provides that the rate of United States tax on 
United States source dividends paid to residents of country X shall not 
exceed 15 percent of the gross amount of the dividends. B's United 
States tax liability with respect to the dividends would be smaller if 
he were treated as a resident alien, subject to tax on a net basis 
(i.e., after the allowance of deductions) than if he were treated as a 
nonresident alien. If, however, B chooses to file as a nonresident in 
order to claim treaty benefits with respect to his share of R's subpart 
F income, his overall United States tax liability, including the portion 
attributable to the dividends, must be determined as if he were a 
nonresident alien.
    Example 3. C, a married alien individual with three children, is a 
resident of foreign country Y, under Y's internal law. Country Y is a 
party to an income tax convention with the United States. C is also a 
resident of the United States under the Internal Revenue Code. C is 
considered to be a resident of country Y under the convention. The 
convention specifically covers, among other items of income, personal 
services income, dividends and interest. C is sent by her country Y 
employer to work in the United States from January 1, 1985 until 
December 31, 1985. During 1985, C also earns United States source 
dividends and interest and incurs mortgage interest expenses on her 
personal residence. The United States-Y treaty provides that 
remuneration for personal services performed in the United States by a 
country Y resident is exempt from United States tax if, among other 
things, the individual performing such services is present in the United 
States for a period that is not in excess of 183 days. The treaty 
provides that the rate of United States tax on United States source 
dividends paid to residents of Y shall not exceed 15 percent of the 
gross amount of the dividends and it exempts residents of Y from United 
States tax on United States source interest. In filing her 1985 tax 
return, C may choose to file either as a resident alien without claiming 
any treaty benefits or as a nonresident alien if she desires to claim 
any treaty benefit. C files as a nonresident (i.e. by following the 
procedure described in Sec.  301.7701(b)-7(b)). Because C does not 
satisfy the requirements of the United States-Y treaty with regard to 
exempting personal services income from United States tax, C will be 
taxed on her personal services income at graduated rates under section 1 
of the Code pursuant to section 871(b) of the Code. She will not be 
entitled to deduct her mortgage interest expenses or to claim more than 
one personal exemption because she is taxed as a nonresident alien under 
the Code by virtue of her decision to claim treaty benefits, and section 
873 of the Code denies nonresidents the deduction for personal residence 
mortgage interest expense and generally limits them to only one personal 
exemption. C will be subject to a tax of 15 percent of the gross amount 
of her dividend income under section 871(a) of the Code as modified by 
the treaty, and she will be exempt from tax on her interest income. C is 
not entitled to file a joint return with her spouse even if he is a 
resident alien under the Code for 1985.
    Example 4. The facts are the same as in Example 3, except that C 
does not choose to claim treaty benefits with respect to any items of 
income covered by the treaty (i.e., she files as a resident). Therefore, 
she is taxed as a resident under the Code and pays tax at graduated 
rates on her personal services income, dividends, and interest. In 
addition, she is entitled to deduct her mortgage interest expenses and 
to take personal exemptions for her spouse and three children. C will be 
entitled to file a joint return with her spouse if he is a resident 
alien for 1985 or, if he is a nonresident alien, C and her spouse may 
elect to file a joint return pursuant to section 6013.

[T.D. 8411, 57 FR 15251, Apr. 27, 1992; 57 FR 28612, June 26, 1992, as 
amended by T.D. 8733, 62 FR 53387, Oct. 14, 1997]



Sec.  301.7701(b)-8  Procedural rules.

    (a) Who must file--(1) Closer connection exception. An alien 
individual who otherwise meets the substantial presence test must file a 
statement to explain the basis of the individual's claim that he or she 
is able to satisfy the closer connection exception described in Sec.  
301.7701(b)-2.
    (2) Exempt individuals and individuals with a medical condition. An 
alien individual must file a statement to explain the basis of the 
individual's claim that he or she is able to exclude days of presence in 
the United States because the individual--
    (i) Is an exempt individual as described in Sec.  301.7701(b)-
3(b)(3) (teacher/trainee) or (b)(4) (student);

[[Page 880]]

    (ii) Is an exempt individual described in Sec.  301.7701 (b)-3(b)(5) 
(professional athlete); or
    (iii) Has a medical condition or problem as described in Sec.  
301.7701(b)-3(c).
    (3) De minimis presence and residency starting and termination 
dates. A statement must be filed by an individual who is seeking to 
establish--
    (i) That a period of de minimis presence of ten or fewer days should 
be disregarded for purposes of the individual's residency starting or 
termination date; or
    (ii) A residency termination date.
    (b) Contents of statement--(1) Closer connection exception--(i) 
Returns due after December 15, 1997. The statement filed by an 
individual described in paragraph (a)(1) of this section, for a return 
relating to a taxable year for which the due date (without extensions) 
is after December 15, 1997, must be in the form of a fully completed 
Form 8840 (Closer Connection Exception Statement) or appropriate 
successor form.
    (ii) Earlier returns. For returns relating to taxable years for 
which the due date for filing returns (without extensions) is on or 
before December 15, 1997, the statement filed by the individual 
described in paragraph (a)(1) of this section must contain the 
information in accordance with paragraph (b)(1) of this section in 
effect prior to December 15, 1997 (see Sec.  301.7701(b)-8(b)(1) as 
contained in 26 CFR part 301, revised April 1, 1997).
    (2) Exempt individuals and individuals with a medical condition--(i) 
Returns due after December 15, 1997. The statement filed by an 
individual described in paragraph (a)(2) of this section, for a return 
relating to a taxable year for which the due date (without extensions) 
is after December 15, 1997, must be in the form of a fully completed 
Form 8843 (Statement for Exempt Individuals and Individuals with a 
Medical Condition) or appropriate successor form.
    (ii) Earlier returns. For returns relating to taxable years for 
which the due date for filing returns (without extensions) is on or 
before December 15, 1997, the statement filed by the individual 
described in paragraph (a)(2) of this section must contain the 
information in accordance with paragraph (b)(2) of this section in 
effect prior to December 15, 1997 (see Sec.  301.7701(b)-8(b)(2) as 
contained in 26 CFR part 301, revised April 1, 1997).
    (3) De minimis presence and residency starting and termination 
dates. The statement filed by an individual described in paragraph 
(a)(3) of this section shall be dated, signed by the individual seeking 
to exclude de minimis presence for purposes of the individual's 
residency starting or termination date or to establish a residency 
termination date, and verified by a declaration that the statement is 
made under the penalty of perjury. The statement shall contain the 
information described in paragraphs (b)(1) (i), (ii) and (iii) of this 
section and the following information (as applicable)--
    (i) The first day that the individual was present in the United 
States during the current year;
    (ii) The last day that the individual was present in the United 
States during the current year;
    (iii) Dates of de minimis presence that the individual is seeking to 
exclude from his or her residency starting or termination dates;
    (iv) Sufficient facts to establish that the individual has 
maintained his or her tax home in and a closer connection to a foreign 
country during a period of de minimis presence;
    (v) Sufficient facts to establish that the individual has maintained 
his or her tax home in and a closer connection to a foreign country 
following the individual's last day of presence in the United States 
during the current year or following the abandonment or rescission of 
the individual's status as a lawful permanent resident during the 
current year;
    (vi) Date that the individual's status as a lawful permanent 
resident was abandoned or rescinded; and
    (vii) Sufficient facts (including copies of relevant documents) to 
establish that the individual's status as lawful permanent resident has 
been abandoned or rescinded.
    (c) How to file. Individuals described in paragraph (a) of this 
section who are required to make a return on Form 1040 or 1040NR 
pursuant to paragraph (a) or

[[Page 881]]

(b) of Sec.  1.6012-1 of this chapter must attach the statement 
described in paragraph (b) of this section to their return for the 
taxable year for which the statement is relevant. An individual who is 
not required to file either Form 1040 or l040NR must file the statement 
with the Internal Revenue Service Center, Philadelphia, PA 19255 on or 
before the date prescribed by law (including extensions) for making an 
income tax return as a nonresident for the calendar year for which the 
statement applies. The statement may be signed and filed for the 
taxpayer by the taxpayer's agent in accordance with Sec.  1.6061-1 of 
this chapter.
    (d) Penalty for failure to file statement--(1) General rule. If an 
individual is required to file a statement pursuant to paragraph (a)(1), 
(a)(2)(ii), (a)(2)(iii) or (a)(3) of this section and fails to file such 
statement on or before the date prescribed by paragraph (c) of this 
section, the individual will not be eligible for the closer connection 
exception described in Sec.  301.7701(b)-2 and will be required to 
include all days of presence in the United States (calculated without 
the benefit of Sec. Sec.  301.7701(b)-3(b)(5), 301.7701(b)-3(c), and 
301.7701(b)-4(c)(1)) for purposes of the substantial presence test and 
for determining the individual's residency starting and termination 
dates. If an individual is considered to be a resident because of this 
paragraph and the individual is also a resident of a country with which 
the United States has an income tax convention pursuant to that 
convention, the individual shall be treated in the manner provided in 
Sec.  301.7701(b)-7 (a) (relating to the treatment of individuals who 
are dual residents).
    (2) Exception. The penalty described in paragraph (d)(1) of this 
section shall not apply if the individual can show by clear and 
convincing evidence that he or she took reasonable actions to become 
aware of the filing requirements and significant affirmative steps to 
comply with those requirements.
    (e) Filing requirement disregarded. Notwithstanding paragraph (d) of 
this section, the Secretary or his or her delegate may in their sole 
discretion, when it is in the best interest of the government to do so 
and based on all of the facts and circumstances, disregard the 
individual's failure to file timely the statement described in paragraph 
(a) of this section in determining the individual's days of presence in 
the United States.

[T.D. 8411, 57 FR 15252, Apr. 27, 1992; 57 FR 28612, June 26, 1992; 57 
FR 37190, Aug. 18, 1992, as amended by T.D. 8733, 62 FR 53387, Oct. 14, 
1997]



Sec.  301.7701(b)-9  Effective/applicability dates of Sec. Sec.  301.7701(b)-1 
through 301.7701(b)-7.

    (a) In general. Except as indicated in paragraph (b) of this 
section, Sec. Sec.  301.7701(b)-1 through 301.7701(b)-7 apply to taxable 
years beginning after December 31, 1984. For the rules applicable to 
earlier taxable years, see Sec. Sec.  1.871-2 through 1.871-5 of this 
chapter.
    (b) Special rules--(1) Green card test-residency starting date. If 
an alien was a lawful permanent resident throughout 1984 (regardless of 
whether the individual was physically present in the United States), or 
was physically present in the United States at any time during 1984 
while a lawful permanent resident, the individual will be considered to 
have been a resident of the United States during 1984 for purposes of 
applying the provisions of section 7701(b)(2)(A) and Sec.  301.7701(b)-4 
such that the individual will, if he meets the substantial presence or 
green card test in 1985, be considered a resident of the United States 
as of January 1, 1985, regardless of when the individual was first 
present in the United States in 1985.
    (2) Substantial presence test-years included. For purposes of 
applying the substantial presence test for calendar years 1985 and 1986, 
days of presence in 1984 will only be counted for aliens who had been 
residents under prior law (Sec. Sec.  1.871-2 through 1.871-5 of this 
chapter) at the end of calendar year 1984. Days of presence in 1983 will 
only be counted for aliens who had been residents under prior law at the 
end of both calendar year 1983 and 1984.
    (3) Professional athletes. For purposes of applying the substantial 
presence test, only days of presence in the United States after October 
22, 1986,

[[Page 882]]

shall be excluded for individuals described in Sec.  301.7701(b)-3(b)(5) 
(professional athletes).
    (4) Procedural rules and filing requirements. The procedural rules 
and filing requirements described in Sec. Sec.  301.7701(b)-7(b) and 
301.7701(b)-8 shall apply to taxable years beginning after December 31, 
1991.
    (5) Possessions and territories. For purposes of applying section 
7701(b) and the regulations under that section, Sec.  301.7701(b)-1(d) 
applies to taxable years ending after April 9, 2008.

[T.D. 8411, 57 FR 15253, Apr. 27, 1992, as amended by T.D. 9391, 73 FR 
19377, Apr. 9, 2008]



Sec.  301.7701(i)-0  Outline of taxable mortgage pool provisions.

    This section lists the major paragraphs contained in Sec. Sec.  
301.7701(i)-1 through 301.7701(i)-4.

       Sec.  301.7701(i)-1 Definition of a taxable mortgage pool.

    (a) Purpose.
    (b) In general.
    (c) Asset composition tests.
    (1) Determination of amount of assets.
    (2) Substantially all.
    (i) In general.
    (ii) Safe harbor.
    (3) Equity interests in pass-through arrangements.
    (4) Treatment of certain credit enhancement contracts.
    (i) In general.
    (ii) Credit enhancement contract defined.
    (5) Certain assets not treated as debt obligations.
    (i) In general.
    (ii) Safe harbor.
    (A) In general.
    (B) Payments with respect to a mortgage defined.
    (C) Entity treated as not anticipating payments.
    (d) Real estate mortgages or interests therein defined.
    (1) In general.
    (2) Interests in real property and real property defined.
    (i) In general.
    (ii) Manufactured housing.
    (3) Principally secured by an interest in real property.
    (i) Tests for determining whether an obligation is principally 
secured.
    (A) The 80 percent test.
    (B) Alternative test.
    (ii) Obligations secured by real estate mortgages (or interests 
therein), or by combinations of real estate mortgages (or interests 
therein) and other assets.
    (A) In general.
    (B) Example.
    (e) Two or more maturities.
    (1) In general.
    (2) Obligations that are allocated credit risk unequally.
    (3) Examples.
    (f) Relationship test.
    (1) In general.
    (2) Payments on asset obligations defined.
    (3) Safe harbor for entities formed to liquidate assets.
    (g) Anti-avoidance rules.
    (1) In general.
    (2) Certain investment trusts.
    (3) Examples.

       Sec.  301.7701(i)-2 Special rules for portions of entities.

    (a) Portion defined.
    (b) Certain assets and rights to assets disregarded.
    (1) Credit enhancement assets.
    (2) Assets unlikely to service obligations.
    (3) Recourse.
    (c) Portion as obligor.
    (1) In general.
    (2) Example.

  Sec.  301.7701(i)-3 Effective dates and duration of taxable mortgage 
                          pool classification.

    (a) Effective dates.
    (b) Entities in existence on December 31, 1991.
    (1) In general.
    (2) Special rule for certain transfers.
    (3) Related debt obligation.
    (4) Example.
    (c) Duration of taxable mortgage pool classification.
    (1) Commencement and duration.
    (2) Testing day defined.

         Sec.  301.7701(i)-4 Special rules for certain entities.

    (a) States and municipalities.
    (1) In general.
    (2) Governmental purpose.
    (3) Determinations by the Commissioner.
    (b) REITs. [Reserved]
    (c) Subchapter S corporations.
    (1) In general.
    (2) Portion of an S corporation treated as a separate corporation.

[T.D. 8610, 60 FR 40088, Aug. 7, 1995]



Sec.  301.7701(i)-1  Definition of a taxable mortgage pool.

    (a) Purpose. This section provides rules for applying section 
7701(i), which defines taxable mortgage pools. The purpose of section 
7701(i) is to prevent income generated by a pool of real estate 
mortgages from escaping Federal

[[Page 883]]

income taxation when the pool is used to issue multiple class mortgage-
backed securities. The regulations in this section and in Sec. Sec.  
301.7701(i)-2 through 301.7701(i)-4 are to be applied in accordance with 
this purpose. The taxable mortgage pool provisions apply to entities or 
portions of entities that qualify for REMIC status but do not elect to 
be taxed as REMICs as well as to certain entities or portions of 
entities that do not qualify for REMIC status.
    (b) In general. (1) A taxable mortgage pool is any entity or portion 
of an entity (as defined in Sec.  301.7701(i)-2) that satisfies the 
requirements of section 7701(i)(2)(A) and this section as of any testing 
day (as defined in Sec.  301.7701(i)-3(c)(2)). An entity or portion of 
an entity satisfies the requirements of section 7701(i)(2)(A) and this 
section if substantially all of its assets are debt obligations, more 
than 50 percent of those debt obligations are real estate mortgages, the 
entity is the obligor under debt obligations with two or more 
maturities, and payments on the debt obligations under which the entity 
is obligor bear a relationship to payments on the debt obligations that 
the entity holds as assets.
    (2) Paragraph (c) of this section provides the tests for determining 
whether substantially all of an entity's assets are debt obligations and 
for determining whether more than 50 percent of its debt obligations are 
real estate mortgages. Paragraph (d) of this section defines real estate 
mortgages for purposes of the 50 percent test. Paragraph (e) of this 
section defines two or more maturities and paragraph (f) of this section 
provides rules for determining whether debt obligations bear a 
relationship to the assets held by an entity. Paragraph (g) of this 
section provides anti-avoidance rules. Section 301.7701(i)-2 provides 
rules for applying section 7701(i) to portions of entities and Sec.  
301.7701(i)-3 provides effective dates. Section 301.7701(i)-4 provides 
special rules for certain entities. For purposes of the regulations 
under section 7701(i), the term entity includes a portion of an entity 
(within the meaning of section 7701(i)(2)(B)), unless the context 
clearly indicates otherwise.
    (c) Asset composition tests--(1) Determination of amount of assets. 
An entity must use the Federal income tax basis of an asset for purposes 
of determining whether substantially all of its assets consist of debt 
obligations (or interests therein) and whether more than 50 percent of 
those debt obligations (or interests) consist of real estate mortgages 
(or interests therein). For purposes of this paragraph, an entity 
determines the basis of an asset with the assumption that the entity is 
not a taxable mortgage pool.
    (2) Substantially all--(i) In general. Whether substantially all of 
the assets of an entity consist of debt obligations (or interests 
therein) is based on all the facts and circumstances.
    (ii) Safe harbor. Notwithstanding paragraph (c)(2)(i) of this 
section, if less than 80 percent of the assets of an entity consist of 
debt obligations (or interests therein), then less than substantially 
all of the assets of the entity consist of debt obligations (or 
interests therein).
    (3) Equity interests in pass-through arrangements. The equity 
interest of an entity in a partnership, S corporation, trust, REIT, or 
other pass-through arrangement is deemed to have the same composition as 
the entity's share of the assets of the pass-through arrangement. For 
example, if an entity's stock interest in a REIT has an adjusted basis 
of $20,000, and the assets of the REIT consist of equal portions of real 
estate mortgages and other real estate assets, then the entity is 
treated as holding $10,000 of real estate mortgages and $10,000 of other 
real estate assets.
    (4) Treatment of certain credit enhancement contracts--(i) In 
general. A credit enhancement contract (as defined in paragraph 
(c)(4)(ii) of this section) is not treated as a separate asset of an 
entity for purposes of the asset composition tests set forth in section 
7701(i)(2)(A)(i), but instead is treated as part of the asset to which 
it relates. Furthermore, any collateral supporting a credit enhancement 
contract is not treated as an asset of an entity solely because it 
supports the guarantee represented by that contract.
    (ii) Credit enhancement contract defined. For purposes of this 
section, a

[[Page 884]]

credit enhancement contract is any arrangement whereby a person agrees 
to guarantee full or partial payment of the principal or interest 
payable on a debt obligation (or interest therein) or on a pool of such 
obligations (or interests), or full or partial payment on one or more 
classes of debt obligations under which an entity is the obligor, in the 
event of defaults or delinquencies on debt obligations, unanticipated 
losses or expenses incurred by the entity, or lower than expected 
returns on investments. Types of credit enhancement contracts may 
include, but are not limited to, pool insurance contracts, certificate 
guarantee insurance contracts, letters of credit, guarantees, or 
agreements whereby an entity, a mortgage servicer, or other third party 
agrees to make advances (regardless of whether, under the terms of the 
agreement, the payor is obligated, or merely permitted, to make those 
advances). An agreement by a debt servicer to advance to an entity out 
of its own funds an amount to make up for delinquent payments on debt 
obligations is a credit enhancement contract. An agreement by a debt 
servicer to pay taxes and hazard insurance premiums on property securing 
a debt obligation, or other expenses incurred to protect an entity's 
security interests in the collateral in the event that the debtor fails 
to pay such taxes, insurance premiums, or other expenses, is a credit 
enhancement contract.
    (5) Certain assets not treated as debt obligations--(i) In general. 
For purposes of section 7701(i)(2)(A), real estate mortgages that are 
seriously impaired are not treated as debt obligations. Whether a 
mortgage is seriously impaired is based on all the facts and 
circumstances including, but not limited to: the number of days 
delinquent, the loan-to-value ratio, the debt service coverage (based 
upon the operating income from the property), and the debtor's financial 
position and stake in the property. However, except as provided in 
paragraph (c)(5)(ii) of this section, no single factor in and of itself 
is determinative of whether a loan is seriously impaired.
    (ii) Safe harbor--(A) In general. Unless an entity is receiving or 
anticipates receiving payments with respect to a mortgage, a single 
family residential real estate mortgage is seriously impaired if 
payments on the mortgage are more than 89 days delinquent, and a multi-
family residential or commercial real estate mortgage is seriously 
impaired if payments on the mortgage are more than 59 days delinquent. 
Whether an entity anticipates receiving payments with respect to a 
mortgage is based on all the facts and circumstances.
    (B) Payments with respect to a mortgage defined. For purposes of 
paragraph (c)(5)(ii)(A) of this section, payments with respect to a 
mortgage mean any payments on the mortgage as defined in paragraph 
(f)(2)(i) of this section if those payments are substantial and 
relatively certain as to amount and any payments on the mortgage as 
defined in paragraph (f)(2) (ii) or (iii) of this section.
    (C) Entity treated as not anticipating payments. With respect to any 
testing day (as defined in Sec.  301.7701(i)-3(c)(2)), an entity is 
treated as not having anticipated receiving payments on the mortgage as 
defined in paragraph (f)(2)(i) of this section if 180 days after the 
testing day, and despite making reasonable efforts to resolve the 
mortgage, the entity is not receiving such payments and has not entered 
into any agreement to receive such payments.
    (d) Real estate mortgages or interests therein defined--(1) In 
general. For purposes of section 7701(i)(2)(A)(i), the term real estate 
mortgages (or interests therein) includes all--
    (i) Obligations (including participations or certificates of 
beneficial ownership therein) that are principally secured by an 
interest in real property (as defined in paragraph (d)(3) of this 
section);
    (ii) Regular and residual interests in a REMIC; and
    (iii) Stripped bonds and stripped coupons (as defined in section 
1286(e) (2) and (3)) if the bonds (as defined in section 1286(e)(1)) 
from which such stripped bonds or stripped coupons arose would have 
qualified as real estate mortgages or interests therein.
    (2) Interests in real property and real property defined--(i) In 
general. The definition of interests in real property set forth in Sec.  
1.856-3(c) of this chapter and

[[Page 885]]

the definition of real property set forth in Sec.  1.856-3(d) of this 
chapter apply to define those terms for purposes of paragraph (d) of 
this section.
    (ii) Manufactured housing. For purposes of this section, the 
definition of real property includes manufactured housing, provided the 
properties qualify as single family residences under section 25(e)(10) 
and without regard to the treatment of the properties under state law.
    (3) Principally secured by an interest in real property--(i) Tests 
for determining whether an obligation is principally secured. For 
purposes of paragraph (d)(1) of this section, an obligation is 
principally secured by an interest in real property only if it satisfies 
either the test set out in paragraph (d)(3)(i)(A) of this section or the 
test set out in paragraph (d)(3)(i)(B) of this section.
    (A) The 80 percent test. An obligation is principally secured by an 
interest in real property if the fair market value of the interest in 
real property (as defined in paragraph (d)(2) of this section) securing 
the obligation was at least equal to 80 percent of the adjusted issue 
price of the obligation at the time the obligation was originated (that 
is, the issue date). For purposes of this test, the fair market value of 
the real property interest is first reduced by the amount of any lien on 
the real property interest that is senior to the obligation being 
tested, and is reduced further by a proportionate amount of any lien 
that is in parity with the obligation being tested.
    (B) Alternative test. An obligation is principally secured by an 
interest in real property if substantially all of the proceeds of the 
obligation were used to acquire, improve, or protect an interest in real 
property that, at the origination date, is the only security for the 
obligation. For purposes of this test, loan guarantees made by Federal, 
state, local governments or agencies, or other third party credit 
enhancement, are not viewed as additional security for a loan. An 
obligation is not considered to be secured by property other than real 
property solely because the obligor is personally liable on the 
obligation.
    (ii) Obligations secured by real estate mortgages (or interests 
therein), or by combinations of real estate mortgages (or interests 
therein) and other assets--(A) In general. An obligation secured only by 
real estate mortgages (or interests therein), as defined in paragraph 
(d)(1) of this section, is treated as an obligation secured by an 
interest in real property to the extent of the value of the real estate 
mortgages (or interests therein). An obligation secured by both real 
estate mortgages (or interests therein) and other assets is treated as 
an obligation secured by an interest in real property to the extent of 
both the value of the real estate mortgages (or interests therein) and 
the value of so much of the other assets that constitute real property. 
Thus, under this paragraph, a collateralized mortgage obligation may be 
an obligation principally secured by an interest in real property. This 
section is applicable only to obligations issued after December 31, 
1991.
    (B) Example. The following example illustrates the principles of 
this paragraph (d)(3)(ii):

    Example. At the time it is originated, an obligation has an adjusted 
issue price of $300,000 and is secured by a $70,000 loan principally 
secured by an interest in a single family home, a fifty percent co-
ownership interest in a $400,000 parcel of land, and $80,000 of stock. 
Under paragraph (d)(3)(ii)(A) of this section, the obligation is treated 
as secured by interests in real property and under paragraph 
(d)(3)(i)(A) of this section, the obligation is treated as principally 
secured by interests in real property.

    (e) Two or more maturities--(1) In general. For purposes of section 
7701(i)(2)(A)(ii), debt obligations have two or more maturities if they 
have different stated maturities or if the holders of the obligations 
possess different rights concerning the acceleration of or delay in the 
maturities of the obligations.
    (2) Obligations that are allocated credit risk unequally. Debt 
obligations that are allocated credit risk unequally do not have, by 
that reason alone, two or more maturities. Credit risk is the risk that 
payments of principal or interest will be reduced or delayed because of 
a default on an asset that supports the debt obligations.
    (3) Examples. The following examples illustrate the principles of 
this paragraph (e):


[[Page 886]]


    Example 1. (i) Corporation M transfers a pool of real estate 
mortgages to a trustee in exchange for Class A bonds and a certificate 
representing the residual beneficial ownership of the pool. All Class A 
bonds have a stated maturity of March 1, 2002, but if cash flows from 
the real estate mortgages and investments are sufficient, the trustee 
may select one or more bonds at random and redeem them earlier.
    (ii) The Class A bonds do not have different maturities. Each 
outstanding Class A bond has an equal chance of being redeemed because 
the selection process is random. The holders of the Class A bonds, 
therefore, have identical rights concerning the maturities of their 
obligations.
    Example 2. (i) Corporation N transfers a pool of real estate 
mortgages to a trustee in exchange for Class C bonds, Class D bonds, and 
a certificate representing the residual beneficial ownership of the 
pool. The Class D bonds are subordinate to the Class C bonds so that 
cash flow shortfalls due to defaults or delinquencies on the real estate 
mortgages are borne first by the Class D bond holders. The terms of the 
bonds are otherwise identical in all relevant aspects except that the 
Class D bonds carry a higher coupon rate because of the subordination 
feature.
    (ii) The Class C bonds and the Class D bonds share credit risk 
unequally because of the subordination feature. However, neither this 
difference, nor the difference in interest rates, causes the bonds to 
have different maturities. The result is the same if, in addition to the 
other terms described in paragraph (i) of this Example 2, the Class C 
bonds are accelerated as a result of the issuer becoming unable to make 
payments on the Class C bonds as they become due.

    (f) Relationship test--(1) In general. For purposes of section 
7701(i)(2)(A)(iii), payments on debt obligations under which an entity 
is the obligor (liability obligations) bear a relationship to payments 
(as defined in paragraph (f)(2) of this section) on debt obligations an 
entity holds as assets (asset obligations) if under the terms of the 
liability obligations (or underlying arrangement) the timing and amount 
of payments on the liability obligations are in large part determined by 
the timing and amount of payments or projected payments on the asset 
obligations. For purposes of the relationship test, any payment 
arrangement, including a swap or other hedge, that achieves a 
substantially similar result is treated as satisfying the test. For 
example, any arrangement where the timing and amount of payments on 
liability obligations are determined by reference to a group of assets 
(or an index or other type of model) that has an expected payment 
experience similar to that of the asset obligations is treated as 
satisfying the relationship test.
    (2) Payments on asset obligations defined. For purposes of section 
7701(i)(2)(A)(iii) and this section, payments on asset obligations 
include--
    (i) A payment of principal or interest on an asset obligation, 
including a prepayment of principal, a payment under a credit 
enhancement contract (as defined in paragraph (c)(4)(ii) of this 
section) and a payment from a settlement at a discount (other than a 
substantial discount);
    (ii) A payment from a settlement at a substantial discount, but only 
if the settlement is arranged, whether in writing or otherwise, prior to 
the issuance of the liability obligations; and
    (iii) A payment from the foreclosure on or sale of an asset 
obligation, but only if the foreclosure or sale is arranged, whether in 
writing or otherwise, prior to the issuance of the liability 
obligations.
    (3) Safe harbor for entities formed to liquidate assets. Payments on 
liability obligations of an entity do not bear a relationship to 
payments on asset obligations of the entity if--
    (i) The entity's organizational documents manifest clearly that the 
entity is formed for the primary purpose of liquidating its assets and 
distributing proceeds of liquidation;
    (ii) The entity's activities are all reasonably necessary to and 
consistent with the accomplishment of liquidating assets;
    (iii) The entity plans to satisfy at least 50 percent of the total 
issue price of each of its liability obligations having a different 
maturity with proceeds from liquidation and not with scheduled payments 
on its asset obligations; and
    (iv) The terms of the entity's liability obligations (or underlying 
arrangement) provide that within three years of the time it first 
acquires assets to be liquidated the entity either--
    (A) Liquidates; or

[[Page 887]]

    (B) Begins to pass through without delay all payments it receives on 
its asset obligations (less reasonable allowances for expenses) as 
principal payments on its liability obligations in proportion to the 
adjusted issue prices of the liability obligations.
    (g) Anti-avoidance rules--(1) In general. For purposes of 
determining whether an entity meets the definition of a taxable mortgage 
pool, the Commissioner can disregard or make other adjustments to a 
transaction (or series of transactions) if the transaction (or series) 
is entered into with a view to achieving the same economic effect as 
that of an arrangement subject to section 7701(i) while avoiding the 
application of that section. The Commissioner's authority includes 
treating equity interests issued by a non-REMIC as debt if the entity 
issues equity interests that correspond to maturity classes of debt.
    (2) Certain investment trusts. Notwithstanding paragraph (g)(1) of 
this section, an ownership interest in an entity that is classified as a 
trust under Sec.  301.7701-4(c) will not be treated as a debt obligation 
of the trust.
    (3) Examples. The following examples illustrate the principles of 
this paragraph (g):

    Example 1. (i) Partnership P, in addition to its other investments, 
owns $10,000,000 of mortgage pass-through certificates guaranteed by 
FNMA (FNMA Certificates). On May 15, 1997, Partnership P transfers the 
FNMA Certificates to Trust 1 in exchange for 100 Class A bonds and 
Certificate 1. The Class A bonds, under which Trust 1 is the obligor, 
have a stated principal amount of $5,000,000 and bear a relationship to 
the FNMA Certificates (within the meaning of Sec.  301.7701(i)-1(f)). 
Certificate 1 represents the residual beneficial ownership of the FNMA 
Certificates.
    (ii) On July 5, 1997, with a view to avoiding the application of 
section 7701(i), Partnership P transfers Certificate 1 to Trust 2 in 
exchange for 100 Class B bonds and Certificate 2. The Class B bonds, 
under which Trust 2 is the obligor, have a stated principal amount of 
$5,000,000, bear a relationship to the FNMA Certificates (within the 
meaning of Sec.  301.7701(i)-1(f)), and have a different maturity than 
the Class A bonds (within the meaning of Sec.  301.7701(i)-1(e)). 
Certificate 2 represents the residual beneficial ownership of 
Certificate 1.
    (iii) For purposes of determining whether Trust 1 is classified as a 
taxable mortgage pool, the Commissioner can disregard the separate 
existence of Trust 2 and treat Trust 1 and Trust 2 as a single trust.
    Example 2. (i) Corporation Q files a consolidated return with its 
two wholly-owned subsidiaries, Corporation R and Corporation S. 
Corporation R is in the business of building and selling single family 
homes. Corporation S is in the business of financing sales of those 
homes.
    (ii) On August 10, 1998, Corporation S transfers a pool of its real 
estate mortgages to Trust 3, taking back Certificate 3 which represents 
beneficial ownership of the pool. On September 25, 1998, with a view to 
avoiding the application of section 7701(i), Corporation R issues bonds 
that have different maturities (within the meaning of Sec.  301.7701(i)-
1(e)) and that bear a relationship (within the meaning of Sec.  
301.7701(i)-1(f)) to the real estate mortgages in Trust 3. The holders 
of the bonds have an interest in a credit enhancement contract that is 
written by Corporation S and collateralized with Certificate 3.
    (iii) For purposes of determining whether Trust 3 is classified as a 
taxable mortgage pool, the Commissioner can treat Trust 3 as the obligor 
of the bonds issued by Corporation R.
    Example 3. (i) Corporation X, in addition to its other assets, owns 
$110,000,000 in Treasury securities. From time to time, Corporation X 
acquires pools of real estate mortgages, which it immediately uses to 
issue multiple-class debt obligations.
    (ii) On October 1, 1996, Corporation X transfers $20,000,000 in 
Treasury securities to Trust 4 in exchange for Class C bonds, Class D 
bonds, Class E bonds, and Certificate 4. Trust 4 is the obligor of the 
bonds. The different classes of bonds have the same stated maturity 
date, but if cash flows from the Trust 4 assets exceed the amounts 
needed to make interest payments, the trustee uses the excess to retire 
the classes of bonds in alphabetical order. Certificate 4 represents the 
residual beneficial ownership of the Treasury securities.
    (iii) With a view to avoiding the application of section 7701(i), 
Corporation X reserves the right to replace any Trust 4 asset with real 
estate mortgages or guaranteed mortgage pass-through certificates. In 
the event the right is exercised, cash flows on the real estate 
mortgages and guaranteed pass-through certificates will be used in the 
same manner as cash flows on the Treasury securities. Corporation X 
exercises this right of replacement on February 1, 1997.
    (iv) For purposes of determining whether Trust 4 is classified as a 
taxable mortgage pool, the Commissioner can treat February 1, 1997, as a 
testing day (within the meaning of Sec.  301.7701(i)-3(c)(2)). The 
result is the same if Corporation X has an obligation, rather than a 
right, to replace the Trust 4 assets

[[Page 888]]

with real estate mortgages and guaranteed pass-through certificates.
    Example 4. (i) Corporation Y, in addition to its other assets, owns 
$1,900,000 in obligations secured by personal property. On November 1, 
1995, Corporation Y begins negotiating a $2,000,000 loan to individual 
A. As security for the loan, A offers a first deed of trust on land 
worth $1,700,000.
    (ii) With a view to avoiding the application of section 7701(i), 
Corporation Y induces A to place the land in a partnership in which A 
will have a 95 percent interest and agrees to accept the partnership 
interest as security for the $2,000,000 loan. Thereafter, the loan to A, 
together with the $1,900,000 in obligations secured by personal 
property, are transferred to Trust 5 and used to issue bonds that have 
different maturities (within the meaning of Sec.  301.7701(i)-1(e)) and 
that bear a relationship (within the meaning of Sec.  301.7701(i)-1(f)) 
to the $1,900,000 in obligations secured by personal property and the 
loan to A.
    (iii) For purposes of determining whether Trust 5 is a taxable 
mortgage pool, the Commissioner can treat the loan to A as an obligation 
secured by an interest in real property rather than as an obligation 
secured by an interest in a partnership.
    Example 5. (i) Corporation Z, in addition to its other assets, owns 
$3,000,000 in notes secured by interests in retail shopping centers. 
Partnership L, in addition to its other assets, owns $20,000,000 in 
notes that are principally secured by interests in single family homes 
and $3,500,000 in notes that are principally secured by interests in 
personal property.
    (ii) On December 1, 1995, Partnership L asks Corporation Z for two 
separate loans, one in the amount of $9,375,000 and another in the 
amount of $625,000. Partnership L offers to collateralize the $9,375,000 
loan with $10,312,500 of notes secured by interests in single family 
homes and the $625,000 loan with $750,000 of notes secured by interests 
in personal property. Corporation Z has made similar loans to 
Partnership L in the past.
    (iii) With a view to avoiding the application of section 7701(i), 
Corporation Z induces Partnership L to accept a single $10,000,000 loan 
and to post as collateral $7,500,000 of the notes secured by interests 
in single family homes and all $3,500,000 of the notes secured by 
interests in personal property. Ordinarily, Corporation Z would not make 
a loan on these terms. Thereafter, the loan to Partnership L, together 
with the $3,000,000 in notes secured by interests in retail shopping 
centers, are transferred to Trust 6 and used to issue bonds that have 
different maturities (within the meaning of Sec.  301.7701(i)-1(e)) and 
that bear a relationship (within the meaning of Sec.  301.7701(i)-1(f)) 
to the loans secured by interests in retail shopping centers and the 
loan to Partnership L.
    (iv) For purposes of determining whether Trust 6 is a taxable 
mortgage pool, the Commissioner can treat the $10,000,000 loan to 
Partnership L as consisting of a $9,375,000 obligation secured by 
interests in real property and a $625,000 obligation secured by 
interests in personal property. Under Sec.  301.7701(i)-1(d)(3)(ii)(A), 
the notes secured by single family homes are treated as $7,500,000 of 
interests in real property. Under Sec.  301.7701(i)-1(d)(3)(i)(A), 
$7,500,000 of interests in real property are sufficient to treat a 
$9,375,000 obligation as principally secured by an interest in real 
property ($7,500,000 equals 80 percent of $9,375,000).

[T.D. 8610, 60 FR 40088, Aug. 7, 1995; 60 FR 49754, Sept. 27, 1995]



Sec.  301.7701(i)-2  Special rules for portions of entities.

    (a) Portion defined. Except as provided in paragraph (b) of this 
section and Sec.  301.7701(i)-1, a portion of an entity includes all 
assets that support one or more of the same issues of debt obligations. 
For this purpose, an asset supports a debt obligation if, under the 
terms of the debt obligation (or underlying arrangement), the timing and 
amount of payments on the debt obligation are in large part determined, 
either directly or indirectly, by the timing and amount of payments or 
projected payments on the asset or a group of assets that includes the 
asset. Indirect payment arrangements include, for example, a swap or 
other hedge, or arrangements where the timing and amount of payments on 
the debt obligations are determined by reference to a group of assets 
(or an index or other type of model) that has an expected payment 
experience similar to that of the assets. For purposes of this 
paragraph, the term payments includes all proceeds and receipts from an 
asset.
    (b) Certain assets and rights to assets disregarded--(1) Credit 
enhancement assets. An asset that qualifies as a credit enhancement 
contract (as defined in Sec.  301.7701(i)-1(c)(4)(ii)) is not included 
in a portion as a separate asset, but is treated as part of the assets 
in the portion to which it relates under Sec.  301.7701(i)-1(c)(4)(i). 
An asset that does not qualify as a credit enhancement contract (as 
defined in Sec.  301.7701(i)-1(c)(4)(ii)), but that nevertheless serves 
the same function as a credit enhancement contract, is not included in a 
portion as a separate asset or otherwise.

[[Page 889]]

    (2) Assets unlikely to service obligations. A portion does not 
include assets that are unlikely to produce any significant cash flows 
for the holders of the debt obligations. This paragraph applies even if 
the holders of the debt obligations are legally entitled to cash flows 
from the assets. Thus, for example, even if the sale of a building would 
cause a series of debt obligations to be redeemed, the building is not 
included in a portion if it is not likely to be sold.
    (3) Recourse. An asset is not included in a portion solely because 
the holders of the debt obligations have recourse to the holder of that 
asset.
    (c) Portion as obligor--(1) In general. For purposes of section 
7701(i)(2)(A)(ii), a portion of an entity is treated as the obligor of 
all debt obligations supported by the assets in that portion.
    (2) Example. The following example illustrates the principles of 
this section:

    Example. (i) Corporation Z owns $1,000,000,000 in assets including 
an office complex and $90,000,000 of real estate mortgages.
    (ii) On November 30, 1998, Corporation Z issues eight classes of 
bonds, Class A through Class H. Each class is secured by a separate 
letter of credit and by a lien on the office complex. One group of the 
real estate mortgages supports Class A through Class D, another group 
supports Class E through Class G, and a third group supports Class H. It 
is anticipated that the cash flows from each group of mortgages will 
service its related bonds.
    (iii) Each of the following constitutes a separate portion of 
Corporation Z: the group of mortgages supporting Class A through Class 
D; the group of mortgages supporting Class E through Class G; and the 
group of mortgages supporting Class H. No other asset is included in any 
of the three portions notwithstanding the lien of the bonds on the 
office complex and the fact that Corporation Z is the issuer of the 
bonds. The letters of credit are treated as incidents of the mortgages 
to which they relate.
    (iv) For purposes of section 7701(i)(2)(A)(ii), each portion 
described above is treated as the obligor of the bonds of that portion, 
notwithstanding the fact that Corporation Z is the legal obligor with 
respect to the bonds.

[T.D. 8610, 60 FR 40091, Aug. 7, 1995]



Sec.  301.7701(i)-3  Effective dates and duration of taxable 
mortgage pool classification.

    (a) Effective dates. Except as otherwise provided, the regulations 
under section 7701(i) are effective and applicable September 6, 1995.
    (b) Entities in existence on December 31, 1991--(1) In general. For 
transitional rules concerning the application of section 7701(i) to 
entities in existence on December 31, 1991, see section 675(c) of the 
Tax Reform Act of 1986.
    (2) Special rule for certain transfers. A transfer made to an entity 
on or after September 6, 1995, is a substantial transfer for purposes of 
section 675(c)(2) of the Tax Reform Act of 1986 only if--
    (i) The transfer is significant in amount; and
    (ii) The transfer is connected to the entity's issuance of related 
debt obligations (as defined in paragraph (b)(3) of this section) that 
have different maturities (within the meaning of Sec.  301.7701-1(e)).
    (3) Related debt obligation. A related debt obligation is a debt 
obligation whose payments bear a relationship (within the meaning of 
Sec.  301.7701-1(f)) to payments on debt obligations that the entity 
holds as assets.
    (4) Example. The following example illustrates the principles of 
this paragraph (b):

    Example. On December 31, 1991, Partnership Q holds a pool of real 
estate mortgages that it acquired through retail sales of single family 
homes. Partnership Q raises $10,000,000 on October 25, 1996, by using 
this pool to issue related debt obligations with multiple maturities. 
The transfer of the $10,000,000 to Partnership Q is a substantial 
transfer (within the meaning of Sec.  301.7701(i)-3(b)(2)).

    (c) Duration of taxable mortgage pool classification--(1) 
Commencement and duration. An entity is classified as a taxable mortgage 
pool on the first testing day that it meets the definition of a taxable 
mortgage pool. Once an entity is classified as a taxable mortgage pool, 
that classification continues through the day the entity retires its 
last related debt obligation.
    (2) Testing day defined. A testing day is any day on or after 
September 6, 1995, on which an entity issues a related debt obligation 
(as defined in

[[Page 890]]

paragraph (b)(3) of this section) that is significant in amount.

[T.D. 8610, 60 FR 40092, Aug. 7, 1995]



Sec.  301.7701(i)-4  Special rules for certain entities.

    (a) States and municipalities--(1) In general. Regardless of whether 
an entity satisfies any of the requirements of section 7701(i)(2)(A), an 
entity is not classified as a taxable mortgage pool if--
    (i) The entity is a State, territory, a possession of the United 
States, the District of Columbia, or any political subdivision thereof 
(within the meaning of Sec.  1.103-1(b) of this chapter), or is 
empowered to issue obligations on behalf of one of the foregoing;
    (ii) The entity issues the debt obligations in the performance of a 
governmental purpose; and
    (iii) The entity holds the remaining interests in all assets that 
support those debt obligations until the debt obligations issued by the 
entity are retired.
    (2) Governmental purpose. The term governmental purpose means an 
essential governmental function within the meaning of section 115. A 
governmental purpose does not include the mere packaging of debt 
obligations for re-sale on the secondary market even if any profits from 
the sale are used in the performance of an essential governmental 
function.
    (3) Determinations by the Commissioner. If an entity is not 
described in paragraph (a)(1) of this section, but has a similar 
purpose, then the Commissioner may determine that the entity is not 
classified as a taxable mortgage pool.
    (b) REITs. [Reserved]
    (c) Subchapter S corporations--(1) In general. An entity that is 
classified as a taxable mortgage pool may not elect to be an S 
corporation under section 1362(a) or maintain S corporation status.
    (2) Portion of an S corporation treated as a separate corporation. 
An S corporation is not treated as a member of an affiliated group under 
section 1361(b)(2)(A) solely because a portion of the S corporation is 
treated as a separate corporation under section 7701(i).

[T.D. 8610, 60 FR 40092, Aug. 7, 1995]



Sec.  301.7704-2  Transition provisions.

    See the regulations under section 7704 contained in part 1 of this 
chapter for a definition of the ``substantial new line of business'' 
that an ``existing'' publicly traded partnership cannot enter without 
forfeiting its partnership status under the transition provisions 
applicable to section 7704.

[T.D. 8450, 57 FR 58710, Dec. 11, 1992]



Sec.  301.7705-1  Certified professional employer organization.

    (a) In general. The definitions set forth in this section apply for 
purposes of this section, Sec. Sec.  31.3511-1 and 301.7705-2, and 
sections 3302(h), 3303(a)(4), 6053(c)(8), and 7528(b)(4).
    (b) Definitions--(1) Certified professional employer organization 
(CPEO) means a person that applies to be certified as a CPEO in 
accordance with Sec.  301.7705-2(a) and has been certified by the 
Internal Revenue Service (IRS) as meeting the requirements of Sec.  
301.7705-2. For purposes of Sec.  301.7705-2(g)(2), the term CPEO also 
includes the person before it applied for certification and while its 
application is pending with the IRS. For all other purposes, a person is 
a CPEO as of the effective date of its certification (as specified in 
the certification notice described in Sec.  301.7705-2(a)(2)) and until 
its certification is revoked by the IRS (as described in Sec.  301.7705-
2(n)) or, if earlier and applicable, until the CPEO voluntarily 
terminates its certification in the time and manner prescribed by the 
Commissioner in further guidance.
    (2) CPEO applicant means a person that has applied to be certified 
as a CPEO in accordance with Sec.  301.7705-2(a) and whose application 
is pending with the IRS.
    (3) CPEO contract means a service contract between a CPEO and a 
customer that is in writing and provides that, with respect to an 
individual providing services to the customer, the CPEO will--
    (i) Assume responsibility for payment of wages to the individual, 
without regard to the receipt or adequacy

[[Page 891]]

of payment from the customer for the services;
    (ii) Assume responsibility for reporting, withholding, and paying 
any applicable federal employment taxes with respect to the individual's 
wages, without regard to the receipt or adequacy of payment from the 
customer for the services;
    (iii) Assume responsibility for any employee benefits that the 
service contract may require the CPEO to provide to the individual, 
without regard to the receipt or adequacy of payment from the customer 
for such benefits;
    (iv) Assume responsibility for recruiting, hiring, and firing the 
individual in addition to the customer's responsibility for recruiting, 
hiring, and firing the individual;
    (v) Maintain employee records relating to the individual; and
    (vi) Agree to be treated as a CPEO for purposes of section 3511 with 
respect to the individual.
    (4) Certified public accountant (CPA) means a certified public 
accountant who--
    (i) With respect to a CPEO applicant or CPEO, is independent of the 
CPEO applicant or CPEO (as prescribed by the American Institute of 
Certified Public Accountants' Professional Standards, Code of 
Professional Conduct, and its interpretations and rulings);
    (ii) Is not currently under suspension or disbarment from practice 
before the IRS;
    (iii) Is duly qualified to practice as a CPA in any state;
    (iv) Files with the IRS a written declaration that he or she is 
currently qualified to practice as a CPA in any state; and
    (v) Meets such other requirements as the Commissioner may prescribe 
in further guidance.
    (5) Covered employee means, with respect to a customer, any 
individual (other than a self-employed individual, as defined in 
paragraph (b)(14) of this section) who performs services for the 
customer and who is covered by a CPEO contract between the CPEO and the 
customer.
    (6) Customer--(i) In general. Except as provided in paragraph 
(b)(6)(ii) of this section, a customer is any person who enters into a 
CPEO contract with a CPEO.
    (ii) Persons who are not customers. A provider of payroll services 
that uses its own EIN for filing federal employment tax returns on 
behalf of its clients (or that used its own EIN immediately prior to 
entering into a service contract with the CPEO) is not a customer, even 
if it has entered into a service contract with the CPEO that meets all 
of the requirements for a CPEO contract described in paragraph (b)(3) of 
this section other than being a contract between a CPEO and a customer.
    (7) Federal employment taxes mean the taxes imposed by subtitle C of 
the Internal Revenue Code.
    (8) Guidance includes guidance published in the Federal Register or 
Internal Revenue Bulletin, as well as administrative guidance such as 
forms, instructions, publications, or other guidance on the irs.gov 
website.
    (9) Partnership means a business entity (as described in Sec.  
301.7701-2(a)) that is classified as a partnership for federal tax 
purposes under Sec. Sec.  301.7701-1, 301.7701-2, and 301.7701-3. 
Accordingly, any references to a managing member or general partner of a 
partnership mean a managing member or general partner of an entity that 
is classified as a partnership for federal tax purposes.
    (10) Precursor entity--(i) In general. A precursor entity means, 
with respect to a CPEO applicant, any related entity of the CPEO 
applicant that is or was a provider of payroll services that--
    (A) Has made a substantial asset transfer to the CPEO applicant 
during the calendar year in which the CPEO applicant applies for 
certification or any of the three preceding calendar years or plans to 
make such a substantial asset transfer while the application for 
certification is pending or in the 12-month period following the date of 
the CPEO applicant's application for certification; or
    (B) Has ceased operations or dissolved during the calendar year in 
which the CPEO applicant applied for certification or any of the three 
preceding calendar years.

[[Page 892]]

    (ii) Related. For purposes of this paragraph (b)(10), a provider of 
payroll services is considered a related entity of a CPEO applicant if 
it is a related entity within the meaning of paragraph (b)(12) of this 
section or if it would be or would have been such a related entity based 
on the ownership and responsible individuals of the provider of payroll 
services at the time of its substantial asset transfer, ceasing of 
operations, or dissolution, as applicable, and the ownership and 
responsible individuals of the CPEO applicant at the time of its 
application.
    (11) Provider of payroll services means a person that provides 
federal employment tax administration, payroll services, or other 
similar federal employment tax-related compliance services to clients, 
including, but not limited to, collecting, reporting, and paying federal 
employment taxes with respect to wages or compensation paid by the 
person to individuals performing services for the clients. A provider of 
payroll services includes, but is not limited to, a CPEO.
    (12) Related entity means, with respect to a CPEO applicant or CPEO, 
any person that meets one or more of the following criteria:
    (i) The person is a member of a controlled group of which the CPEO 
applicant or CPEO is also a member. Additionally, CPEO applicants and 
CPEOs that, but for their status as disregarded entities would 
separately be members of a controlled group, are treated as members of a 
controlled group for purposes of this paragraph (b)(12)(i). For purposes 
of this paragraph (b)(12)(i), controlled group has the meaning given to 
such term by sections 414(b) and (c) and Sec. Sec.  1.414(b)-1 and 
1.414(c)-1 through 1.414(c)-6 of this chapter, except that--
    (A) With respect to a person that is not a provider of payroll 
services ``more than 50 percent'' will be substituted for ``at least 80 
percent'' each place it appears in section 1563(a) (which is cross-
referenced in section 414(b) and Sec.  1.414(c)-2 of this chapter); and
    (B) With respect to a person that is a provider of payroll services, 
``more than 5 percent'' will be substituted for ``at least 80 percent'' 
each place it appears in section 1563(a) and Sec.  1.414(c)-2 of this 
chapter; or
    (ii) The person is a provider of payroll services and--
    (A) A majority of the directors or a majority of the officers (as 
described in paragraph (b)(13)(ii) of this section) of the CPEO 
applicant or CPEO are directors or officers (as described in paragraph 
(b)(13)(ii) of this section), respectively, of the provider of payroll 
services; or
    (B) An individual is a responsible individual of both the provider 
of payroll services and the CPEO applicant or CPEO by reason of 
paragraph (b)(13)(i) of this section.
    (13) Responsible individual means, with respect to a CPEO applicant 
or CPEO, (or, for purposes of paragraph (b)(10)(ii) or (b)(12)(ii) of 
this section, a provider of payroll services), the following 
individuals:
    (i) Any individual who owns, directly or indirectly, applying the 
constructive ownership rules of section 1563(e) with respect to stock 
ownership and substituting the term ``interest'' for the term ``stock'' 
and the term ``partnership'' for the term ``corporation'' used in that 
section, as appropriate for purposes of determining whether an interest 
in a partnership is indirectly owned by any person, 33 percent or more 
of--
    (A) In the case of a corporation, the total combined voting power of 
all classes of stock entitled to vote of such corporation or the total 
value of shares of all classes of stock of such corporation; or
    (B) In the case of a partnership, the capital interest or profits 
interest of such partnership.
    (ii) Any individual who is a director or an officer. For purposes of 
this paragraph (b)(13)(ii), a director is a voting member of the 
governing body (that is, the board of directors or equivalent 
controlling body authorized under state law to make governance decisions 
on behalf of the organization), and the officers are determined by 
reference to the organizing document, bylaws, or resolutions of the 
governing body, or otherwise designated consistent with state law. 
Officers may include individuals such as a president, vice-president, 
secretary, and treasurer.

[[Page 893]]

    (iii) Any individual who, regardless of title, has ultimate 
responsibility for implementing the decisions of the organization's 
governing body. An individual who serves with the title of chief 
executive officer, executive director, and/or president has this 
ultimate responsibility. An individual with this ultimate responsibility 
may include an individual who is not treated as an employee of the 
organization. If this ultimate responsibility resides with two or more 
individuals (for example, co-presidents), who may exercise such 
responsibility in concert or individually, then each such individual is 
a responsible individual.
    (iv) Any individual who, regardless of title, has ultimate 
responsibility for supervising the management, administration, or 
operation of the organization. An individual who serves with the title 
of chief operating officer has this ultimate responsibility. An 
individual with this ultimate responsibility may include an individual 
who is not treated as an employee of the organization. If this ultimate 
responsibility resides with two or more individuals, who may exercise 
such responsibility in concert or individually, then each such 
individual is a responsible individual.
    (v) Any individual who, regardless of title, has ultimate 
responsibility for managing the organization's finances. An individual 
who serves with the title of chief financial officer or treasurer has 
this ultimate responsibility. An individual with this ultimate 
responsibility may include an individual who is not treated as an 
employee of the organization. If this ultimate responsibility resides 
with two or more individuals who may exercise the responsibility in 
concert or individually, then each such individual is a responsible 
individual.
    (vi) In the case of a partnership, any individual who is a managing 
member or general partner.
    (vii) In the case of a sole proprietorship, the sole proprietor.
    (viii) In the case of a disregarded entity owned by a corporation or 
partnership, the responsible individuals of that corporation or 
partnership.
    (ix) In the case of a disregarded entity owned by an individual, the 
individual owner.
    (x) Any other individual with primary responsibility for the 
organization's federal employment tax compliance.
    (14) Self-employed individual means an individual with net earnings 
from self-employment (as defined in section 1402(a) without regard to 
the exceptions thereunder) derived from providing services covered by a 
CPEO contract, whether such net earnings from self-employment are 
derived from providing services as a non-employee to a customer of the 
CPEO, from the individual's own trade or business as a sole proprietor 
customer of the CPEO, or as an individual who is a partner in a 
partnership that is a customer of the CPEO, but only with regard to such 
net earnings.
    (15) Substantial asset transfer means any transfer of 35 percent or 
more of the value of the operating assets of the person making the 
transfer, whether through one or a series of transactions and whether 
accomplished through sale, lease, gift, assignment, succession, merger, 
consolidation, corporate separation, or any other means. For purposes of 
this paragraph (b)(15), operating assets include both tangible and 
intangible resources related to the conduct of the person's trade or 
business, including, but not limited to, such intangible assets as 
contracts, agreements, receivables, employees, and goodwill (which 
includes the value of a trade or business based on expected continued 
customer patronage due to its name, reputation, or any other factors). 
In the case of a contract described in section 7705(e)(2) or a service 
agreement described in Sec.  31.3504-2(b)(2) of this chapter entered 
into by a provider of payroll services, even if the contract or 
agreement is not sold, gifted, assigned, or otherwise formally 
transferred to a CPEO applicant, it will be considered transferred from 
the provider of payroll services to the CPEO applicant if the CPEO 
applicant reports, withholds, or pays, under its employer identification 
number (EIN), any applicable federal employment taxes with respect to 
the wages of any individuals covered by the contract or agreement.
    (16) Work site means a physical location at which an individual 
regularly

[[Page 894]]

performs services for a customer of a CPEO or, if there is no such 
location, the location from which the customer assigns work to the 
individual. A work site may not be the individual's residence or a 
telework site unless the customer requires the individual to work at 
that site. For purposes of this paragraph (b)(16), work sites that are 
contiguous locations will be treated as a single physical location and 
thus a single work site, and noncontiguous locations will be treated as 
separate physical locations and thus separate work sites, except as 
provided in the next sentence. A CPEO customer may treat noncontiguous 
locations as a single physical location and thus a single work site if 
each of the locations is separated by less than 35 miles from every 
other location in the single work site and all locations in the single 
work site operate in the same industry. For purposes of the preceding 
sentence, the determination of the industry of a work site is based on 
the nature of the CPEO customer's work at that work site, irrespective 
of work performed by other entities at the same site. When treating 
noncontiguous locations as a single physical location and thus a single 
work site, one noncontiguous location cannot be included in more than 
one work site. For example, assume there are three noncontiguous 
locations, A, B, and C, operating in the same industry and that B is 20 
miles east from A and C is 20 miles east from B. A CPEO customer would 
not be permitted to treat these three locations as a single work site 
but would be permitted to treat either A and B as a single work site or 
B and C as a single work site.
    (17) Work site employee--(i) In general. A work site employee means, 
with respect to a customer, a covered employee who performs services for 
such customer at a work site where at least 85 percent of the 
individuals performing services for the customer are covered employees 
of the customer.
    (ii) Self-employed individuals. Solely for purposes of determining 
whether the 85 percent threshold described in paragraph (b)(17)(i) of 
this section is met, a self-employed individual described in paragraph 
(b)(14) of this section is treated as a covered employee if such 
individual would be a covered employee but for the exclusion of self-
employed individuals from the definition of covered employee in 
paragraph (b)(5) of this section.
    (iii) Excluded employees. In determining whether the 85 percent 
threshold described in paragraph (b)(17)(i) of this section is met, an 
individual who is an excluded employee described in section 414(q)(5) is 
not treated as either an individual providing services or a covered 
employee.
    (iv) Treatment for calendar quarter. A covered employee will be 
considered a work site employee for the entirety of a calendar quarter 
if the employee qualifies as a work site employee at any time during 
that quarter.C
    (v) Separate determination for each work site. The determination of 
whether a covered employee is a work site employee is made separately 
with regard to each work site at which the covered employee regularly 
provides services and for each customer for which the covered employee 
is providing services. A covered employee may be determined to be a work 
site employee of more than one work site during a calendar quarter.
    (vi) Good faith determination respected. A CPEO's determination that 
a covered employee is a work site employee will be respected if the CPEO 
has made a good faith determination that the covered employee meets the 
requirements of section 7705(e), this paragraph (b)(17), and any further 
guidance related to work site employee determinations.
    (c) Applicability date. The rules in this section apply on and after 
May 3, 2019.

[T.D. 9860, 84 FR 24382, May 28, 2019]



Sec.  301.7705-2  CPEO certification process.

    (a) Application requirement and certification--(1) Application. To 
be certified as a certified professional employer organization (CPEO), a 
person must submit a properly completed and executed application for 
certification as a CPEO in the time and manner prescribed by, and 
providing such information as required by, this section and any further 
guidance issued by the Commissioner. In addition, the applicant's 
responsible

[[Page 895]]

individuals must submit such information as is specified in this section 
and further guidance.
    (2) Notice. A CPEO applicant will be notified by the Internal 
Revenue Service (IRS) whether its application for certification has been 
approved or denied, and, if approved, the effective date of 
certification. If the IRS denies the application, the IRS will inform 
the CPEO applicant of the reason(s) for denial. If the IRS denies an 
application for certification, or if the CPEO applicant withdraws an 
application for certification, the CPEO applicant may reapply for 
certification in such time and manner, and must include such 
information, as the Commissioner may prescribe in further guidance.
    (3) Public disclosure of certification. If the IRS approves a CPEO 
applicant's application for certification, the IRS will make available 
to the public the name and address of the CPEO, as well as the effective 
date of its certification, in the time and manner described in further 
guidance.
    (4) Effective date of certification. A CPEO's certification will be 
effective as of the effective date of certification specified in the 
notice described in paragraph (a)(2) of this section and in the public 
disclosure described in paragraph (a)(3) of this section and will 
continue in effect until the effective date of the revocation of the 
CPEO's certification, if any, as described in paragraph (n) of this 
section or, if earlier, the date that the CPEO voluntarily terminates 
its certification in the time and manner prescribed by the Commissioner 
in further guidance.
    (b) Requirements for certification. To receive and maintain 
certification, a CPEO applicant or CPEO must meet the requirements 
described in this section, as well as any additional requirements the 
Commissioner may prescribe in further guidance. In addition, any 
precursor entities, related entities, and responsible individuals of the 
CPEO applicant or CPEO must meet any requirements applicable to them 
described in this section and in further guidance. The IRS may deny an 
application for certification or revoke or suspend a CPEO's 
certification if a CPEO applicant or CPEO, or one or more of its 
precursor entities, related entities, or responsible individuals, fails 
to meet any applicable requirement described in this section or other 
applicable guidance, and the IRS will do so if the IRS determines, in 
its sole discretion, that such failure presents a material risk to the 
IRS's collection of federal employment taxes. In determining whether one 
or more failures to meet the requirements described in this section 
presents a material risk to the IRS's collection of federal employment 
taxes, the IRS generally will consider all relevant facts and 
circumstances, including the size, scope, nature, significance, 
recurrence, and timing of and reason for the failure and, in the case of 
a CPEO, any prior failures of the CPEO to meet the requirements of this 
section.
    (c) Suitability--(1) In general. The IRS may deny an application for 
certification or revoke or suspend a CPEO's certification for any of the 
following reasons:
    (i) The CPEO applicant or CPEO, or any of its precursor entities, 
related entities, or responsible individuals, has failed to pay any 
applicable federal, state, or local taxes or file any required federal, 
state, or local tax or information returns in a timely and accurate 
manner, unless the failure is determined to be due to reasonable cause 
and not due to willful neglect.
    (ii) The CPEO applicant or CPEO, or any of its precursor entities, 
related entities, or responsible individuals, has been charged with or 
convicted of any criminal offense under the laws of the United States or 
of a state or political subdivision thereof, or is the subject of an 
active IRS criminal investigation.
    (iii) The CPEO applicant or CPEO, or any of its precursor entities, 
related entities, or responsible individuals, has been sanctioned, or 
had a license, registration, or accreditation (including a license, 
registration, or accreditation relating to its status or ability to 
operate as a professional employer organization) denied, suspended, or 
revoked, by a court of competent jurisdiction, licensing board, 
assurance or other professional organization, or federal or state 
agency, court, body, board, or other authority for any misconduct that 
involves dishonesty, fraud, or breach of trust or that otherwise bears

[[Page 896]]

upon the suitability of the CPEO applicant or CPEO to perform its 
professional functions (including, but not limited to, any civil or 
criminal penalty described in 42 U.S.C. 503(k)(1)(D) imposed by state 
law).
    (iv) The CPEO applicant or CPEO, or any of its precursor entities, 
related entities, or responsible individuals, is listed on any sanctions 
list compiled by the Office of Foreign Assets Control (OFAC) within the 
Department of Treasury, including, but not limited to, the OFAC 
Consolidated Sanctions List and the OFAC Specially Designated Nationals 
List.
    (v) The CPEO applicant or CPEO, or any of its precursor entities, 
related entities, or responsible individuals, fails to demonstrate a 
history of financial responsibility, which the IRS may assess by checks 
on credit history and other similar indicators.
    (vi) The CPEO applicant or CPEO and the responsible individuals of 
the CPEO applicant or CPEO fail to demonstrate adequate collective 
knowledge or experience with respect to:
    (A) Federal or state employment tax reporting, depositing, and 
withholding requirements;
    (B) Handling of and accounting for payroll, tax payments, and other 
funds on behalf of others;
    (C) Effective recordkeeping systems;
    (D) Retention of qualified personnel and legal advisors as needed; 
and
    (E) General business and risk management.
    (vii) The CPEO applicant or CPEO, or any of its responsible 
individuals, gives false or misleading information (including by 
intentionally omitting relevant information), or participates in any way 
in the giving of false or misleading information, to the IRS, knowing, 
or having reason to know, that the information is false or misleading. 
For the purpose of this paragraph (c)(1)(vii), ``information'' includes 
(but is not limited to) facts or other matters contained in testimony, 
federal tax returns, and financial statements and opinions regarding 
such statements; applications for certification (and all accompanying 
documentation); affidavits, declarations, assertions, attestations, 
statements, and agreements; and periodic verifications that the 
requirements of this section continue to be met; and any other 
information that is required to be provided by this section, section 
3511(g), Sec.  31.3511-1 of this chapter, or further guidance.
    (2) Must be a business entity or sole proprietorship--(i) In 
general. A CPEO must be a business entity described in Sec.  301.7701-
2(a) or a sole proprietorship. Accordingly, a CPEO may not be an entity 
classified as a trust under Sec.  301.7701-4.
    (ii) Ownership by a United States person. In addition, a sole 
proprietorship or a business entity that is disregarded as an entity 
separate from its owner for federal tax purposes under Sec. Sec.  
301.7701-2 and 301.7701-3 (without regard to the special rule in Sec.  
301.7701-2(c)(2)(iv) that provides that such entities are corporations 
for federal employment tax purposes) must be wholly owned directly 
(including through one or more disregarded entities organized in the 
United States, in the case of a business entity) by a United States 
person (as defined in section 7701(a)(30)).
    (iii) Treatment as separate member of a controlled group. Except as 
provided in paragraph (h) of this section, a CPEO applicant or CPEO that 
otherwise qualifies as a member of a controlled group (within the 
meaning of sections 414(b) and (c) and Sec. Sec.  1.414(b)-1 and 
1.414(c)-1 through 1.414(c)-6 of this chapter) but for its status as an 
entity disregarded as separate from its owner for federal tax purposes 
under Sec. Sec.  301.7701-2 and 301.7701-3, is treated as a separate 
member of a controlled group for purposes of this section, Sec.  
301.7705-1, section 3511, Sec.  31.3511-1 of this chapter, and section 
7705.
    (3) Authorization to investigate suitability. A CPEO applicant or 
CPEO, and each of its responsible individuals, must take such actions as 
are necessary to authorize the IRS to investigate the accuracy of 
statements and submissions, including waiving confidentiality and 
privilege when necessary (i.e., in situations in which the IRS is 
otherwise unable to obtain or confirm information necessary to evaluate 
a CPEO applicant's or CPEO's qualification for certification), and to 
conduct comprehensive background

[[Page 897]]

checks, including, but not limited to, Federal Bureau of Investigation 
or other similar criminal background checks, checks on tax compliance, 
professional experience (including through the contact of third-party 
references), credit history, and professional sanctions. In addition, a 
CPEO applicant or CPEO, and any of its responsible individuals, must 
provide the IRS with such additional information as the IRS may request 
to facilitate such background investigations. Each responsible 
individual of a CPEO applicant or CPEO must also submit fingerprints in 
the time and manner and under the circumstances prescribed by the 
Commissioner in further guidance.
    (d) Business location--(1) State of organization. A CPEO applicant 
or CPEO must be created or organized in the United States or under the 
law of the United States or of any state.
    (2) Business location in the United States. A CPEO applicant or CPEO 
must have one or more established, physical business locations in the 
United States at which regular operations of an activity that 
constitutes a trade or business within the United States (within the 
meaning of section 864(b)) take place and at which a significant portion 
of its CPEO-related functions are carried on and administrative records 
are kept.
    (3) United States responsible individuals. A majority of the CPEO 
applicant's or CPEO's responsible individuals must be citizens or 
residents of the United States.
    (4) Use of financial institution. A CPEO applicant or CPEO must use 
only financial institutions described in section 265(b)(5) to hold 
substantially all of its cash and cash equivalents, receive payments 
from customers, and pay wages and federal employment taxes.
    (e) Financial statements--(1) CPEOs. By the last day of the sixth 
month after the end of each fiscal year, and beginning with the first 
fiscal year that ends after the CPEO's effective date of certification, 
a CPEO must cause to be prepared and provided to the IRS--
    (i) A copy of its annual audited financial statements for the fiscal 
year;
    (ii) An opinion of a certified public accountant (CPA) that such 
financial statements are presented fairly and in accordance with 
generally accepted accounting principles (GAAP); and
    (iii) A statement in the Note to the Financial Statements covered by 
the CPA opinion that the CPEO's annual audited financial statements 
reflect positive working capital or, only if the CPEO satisfies the 
requirements of paragraph (e)(3) of this section, reflect negative 
working capital, with such statement in either case setting forth in 
detail a calculation of the CPEO's working capital as reflected in the 
annual audited financial statements (a working capital statement).
    (2) CPEO applicants--(i) In general. A CPEO applicant must cause to 
be prepared and provided to the IRS, with its application, a copy of its 
annual audited financial statements, an opinion with respect to such 
financial statements, and a working capital statement (each as described 
in paragraph (e)(1) of this section) for the most recently completed 
fiscal year as of the date it applies for certification. Notwithstanding 
the preceding sentence, if a CPEO applicant applies for certification 
before the last day of the sixth month following its most recently 
completed fiscal year, and the audit of the financial statements for 
that fiscal year has not yet been completed at the time of application, 
a CPEO applicant must provide to the IRS, with its application, the 
financial statements, opinion, and working capital statement described 
in paragraph (e)(1) of this section for the immediately preceding fiscal 
year, if any, and must subsequently provide to the IRS the financial 
statements, opinion, and working capital statement for the most recently 
completed fiscal year by the last day of the sixth month after such 
fiscal year ends. In addition, for any fiscal year that ends after the 
CPEO applicant applies for certification and on or before the effective 
date of certification, if applicable, the CPEO applicant must provide 
the audited financial statements, opinion, and working capital statement 
by the last day of the sixth month after such fiscal year ends. The 
obligation to provide the annual audited financial statements described 
in the

[[Page 898]]

preceding sentence continues to apply even if the CPEO applicant is 
certified as a CPEO prior to the date the annual audited financial 
statements are provided.
    (ii) Newly established CPEO applicants. In addition to the 
requirements in paragraph (e)(2)(i) of this section, a CPEO applicant 
that was not operating as a provider of payroll services for all or part 
of its most recently completed fiscal year as of the date it applies for 
certification must provide a copy of the annual audited financial 
statements of any precursor entity, if one exists, an opinion with 
respect to such financial statements, and a working capital statement 
(each as described in paragraph (e)(1) of this section) for the 
precursor entity's most recently completed fiscal year as of the date of 
the application for certification in such time and manner as the 
Commissioner may prescribe in further guidance, as well as such 
additional information as the Commissioner may prescribe in further 
guidance.
    (3) Exception to positive working capital requirement. A CPEO 
applicant or CPEO with annual audited financial statements for a fiscal 
year that do not reflect positive working capital will not fail to meet 
the requirements of paragraph (e)(1)(iii) of this section if--
    (i) The CPEO applicant or CPEO has negative working capital for no 
more than two consecutive fiscal quarters of that fiscal year, as 
demonstrated by the financial statements (for the final fiscal quarter 
in the fiscal year) and the statements described in paragraph (f)(1)(ii) 
of this section (for any other fiscal quarter), as applicable;
    (ii) The CPEO applicant or CPEO, or its CPA, provides, in such time 
and manner as the Commissioner may prescribe in further guidance, an 
explanation to the IRS describing the reason for the failure; and
    (iii) The IRS determines, in its sole discretion, that the failure 
does not present a material risk to the IRS's collection of federal 
employment taxes.
    (4) Completed fiscal year. For purposes of this paragraph (e), a 
fiscal year will be considered completed once the last day of that 
fiscal year has ended, regardless of whether the CPEO applicant or CPEO 
was in operation or certified for all 12 months of the fiscal year or 
the fiscal year consisted of fewer than 12 months.
    (f) Quarterly assertions and attestations--(1) CPEOs. By the last 
day of the second month after the end of each calendar quarter, and 
beginning with the first calendar quarter that ends after the CPEO's 
effective date of certification, a CPEO must provide the following to 
the IRS:
    (i) An assertion, signed by a responsible individual under penalties 
of perjury, stating that the CPEO has withheld and made deposits of all 
federal employment taxes (other than taxes imposed by chapter 23 of the 
Code) as required by subtitle C for such calendar quarter and an 
examination level attestation from a CPA stating that such assertion is 
fairly stated in all material respects.
    (ii) A statement signed by a responsible individual under penalties 
of perjury verifying that the CPEO has positive working capital (as 
determined in accordance with GAAP) at the end of the most recently 
completed fiscal quarter, as well as such additional financial 
information that the Commissioner may specify in further guidance.
    (2) Exceptions--(i) Immaterial failures. A CPEO will not fail to 
meet the requirements of paragraph (f)(1)(i) of this section if the CPA 
examination level attestation indicates that the CPEO has failed to 
withhold or make deposits in certain immaterial respects, provided 
that--
    (A) The attestation provides a summary of the immaterial failures 
that were found;
    (B) The attestation states that the failures were immaterial and 
isolated and do not reflect a meaningful lapse in compliance with 
federal employment tax withholding and deposit requirements; and
    (C) The IRS determines, in its sole discretion, that the isolated 
and immaterial failures identified by the CPA do not present a material 
risk to the IRS's collection of federal employment taxes.
    (ii) Negative working capital. A CPEO with negative working capital 
at the end of a fiscal quarter will not fail to meet the requirements of 
paragraph (f)(1)(ii) of this section if--

[[Page 899]]

    (A) The CPEO does not have negative working capital at the end of 
the two fiscal quarters immediately preceding such fiscal quarter, as 
demonstrated by the annual audited financial statements described in 
paragraph (e)(1) of this section, if available, or the statements 
described in paragraph (f)(1)(ii) of this section;
    (B) The CPEO provides an explanation to the IRS describing the 
reason for such negative working capital in such time and manner as the 
Commissioner may prescribe in further guidance; and
    (C) The IRS determines, in its sole discretion, that the negative 
working capital does not present a material risk to the IRS's collection 
of federal employment taxes.
    (3) CPEO applicants--(i) In general. By the last day of the second 
month after the end of each calendar quarter, beginning with the most 
recently completed calendar quarter as of the date of a CPEO applicant's 
application for certification and ending with the most recently 
completed calendar quarter as of the effective date of certification (if 
applicable), a CPEO applicant must provide to the IRS the assertion, 
examination level attestation, and working capital statement described 
in paragraph (f)(1) of this section, subject to the exceptions described 
in paragraph (f)(2) of this section (though substituting ``CPEO 
applicant'' for ``CPEO'').
    (ii) Newly established CPEO applicants. A CPEO applicant that was 
not operating as a provider of payroll services during the most recently 
completed calendar quarter as of the date of its application for 
certification or during any calendar quarter that ends while its 
application for certification is pending must provide to the IRS the 
assertion, examination level attestation, and working capital statement 
described in paragraph (f)(1) of this section with respect to any 
precursor entity, if applicable, in such time and manner as the 
Commissioner may prescribe in further guidance, as well as such 
additional information as the Commissioner may prescribe in further 
guidance.
    (g) Bond--(1) In general. A CPEO must post a bond (or bonds, as 
described in paragraph (g)(3) of this section) from a qualified surety 
(as described in paragraph (g)(6) of this section) for the payment of 
federal employment taxes, issued in the form and containing the terms 
prescribed by the Commissioner in this paragraph (g) and in further 
guidance and in an amount described in paragraph (g)(2) of this section.
    (2) Bond amount--(i) In general. The amount of the bond (or bonds, 
as described in paragraph (g)(3) of this section) must be, for each 
period beginning on April 1 of any calendar year and ending on March 31 
of the following calendar year (or, in the case of a newly certified 
CPEO, beginning with the effective date of certification and ending on 
the subsequent March 31) (the bond period), at least equal to the 
greater of--
    (A) Five percent of the CPEO's liability under section 3511 (or, if 
applicable, the liability described in paragraph (g)(2)(ii) of this 
section) during the calendar year preceding the beginning of the bond 
period, but not more than $1,000,000; or
    (B) $50,000.
    (ii) Amount of bond in first and second year as a CPEO. If a CPEO 
does not have any liability under section 3511 for all or a portion of a 
preceding calendar year because the CPEO was not certified as a CPEO for 
all or a portion of that preceding calendar year, the liability applied 
for purposes of paragraph (g)(2)(i)(A) of this section for the entirety 
or portion of the preceding calendar year during which the CPEO was not 
certified will be the federal employment tax liability of the CPEO, and 
of any precursor entity of the CPEO described in Sec.  301.7705-
1(b)(10)(i)(A), that results from one or more service agreements 
described in Sec.  31.3504-2(b)(2) of this chapter. With respect to the 
federal employment tax liability of such precursor entity during a 
preceding calendar year, for purposes of paragraph (g)(2)(i)(A) of this 
section, the liability will be applied only to the extent it results 
from service agreements that have been transferred or are intended to be 
transferred by the precursor entity to the CPEO at the time the bond 
amount is determined. For purposes of this paragraph

[[Page 900]]

(g)(2)(ii), an entity is considered a precursor entity of a CPEO 
described in Sec.  301.7705-1(b)(10)(i)(A) if it was determined to be 
its precursor entity under that section at the time it was a CPEO 
applicant.
    (iii) One continuous obligation. The bond, any riders thereto, and 
any strengthening bonds posted to satisfy the requirements of this 
section are considered one continuous obligation of the surety for 
unpaid tax liabilities accrued by the CPEO under subtitle C from the 
effective date of the bond until the bond is superseded or cancelled.
    (3) Increase in bond amount--(i) In general. A CPEO must determine 
if an increase in the bond amount is necessary for each new bond period. 
If a CPEO's liability under section 3511 (or, if applicable, the 
liability described in paragraph (g)(2)(ii) of this section) for the 
preceding calendar year results in a minimum required bond amount 
specified in paragraph (g)(2) of this section that exceeds the current 
amount of the bond, the CPEO must increase the amount of its bond with 
respect to the new bond period in order to meet the minimum required 
bond amount specified in paragraph (g)(2) of this section. To increase 
the bond amount, a CPEO may amend an existing bond through the use of a 
rider, or post a strengthening, superseding, or new bond, where 
applicable, and in such time and manner as the Commissioner may 
prescribe in further guidance.
    (ii) To reflect adjustment or assessment. Subject to the limit in 
paragraph (g)(2)(i)(A) of this section, if, during the bond period, the 
CPEO or the IRS determines that the applicable federal employment tax 
liability for the preceding calendar year was higher than the amount 
reported and paid and on which the bond amount for the bond period was 
based (and the applicable party makes an adjustment or assessment 
reflecting such determination), a CPEO must increase the amount of its 
bond to meet the minimum required bond amount specified in paragraph 
(g)(2) of this section through the use of a rider, or by posting a 
strengthening, superseding, or new bond in such time and manner as the 
Commissioner may prescribe in further guidance.
    (4) Cancellation--(i) Notice. A bond required under this paragraph 
(g) must provide that it may be cancelled by the surety only after the 
surety gives written notice of such cancellation to the IRS and the CPEO 
in such time and manner as the Commissioner may prescribe in further 
guidance.
    (ii) New or superseding bond required. If a CPEO either receives 
notice of cancellation from the surety provider of its bond, or gives 
notice to the IRS of the CPEO's intent to cancel the bond, the CPEO must 
post a new or superseding bond for the minimum required bond amount 
specified in paragraph (g)(2) of this section in such time and manner as 
the Commissioner may prescribe in further guidance.
    (iii) Ongoing liability. A bond required under this paragraph (g) 
must provide that, if a surety cancels the bond without issuing a 
superseding bond to the CPEO, the surety will, notwithstanding the 
cancellation, remain liable for all federal employment tax liability 
accrued by the CPEO during the period beginning with the effective date 
of the first bond issued by the surety to the CPEO in any consecutive 
series of bonds issued by that surety prior to cancellation and ending 
with the cancellation of the bond (the total bond period), up to the 
penal amount of the bond at the time of the cancellation. A cancelling 
surety will remain liable as described in this paragraph (g)(4)(iii) for 
federal employment tax liability accrued during the total bond period up 
to the penal amount of the bond for as long as the Commissioner may 
assess and collect taxes for such period under sections 6501 and 6502.
    (5) No posting of collateral--(i) In general. Except as provided in 
paragraph (g)(5)(iii) of this section, a CPEO must meet the bond 
requirements of this paragraph (g) without posting collateral.
    (ii) Surety's retention of the right to seek collateral by itself 
not a violation of paragraph (g)(5)(i) of this section. A surety's 
retention of the right to seek collateral, as long as no collateral is 
actually required by the surety or posted by the CPEO, does not violate 
the rule in paragraph (g)(5)(i).
    (iii) Exceptions to no collateral requirement. The Commissioner may 
provide

[[Page 901]]

exceptions to the rule in paragraph (g)(5)(i) of this section in further 
guidance published in the Internal Revenue Bulletin.
    (6) Requirements for surety. Any surety that issues a bond required 
by this paragraph (g) to a CPEO must be a surety company that holds a 
certificate of authority from the Secretary as an acceptable surety on 
federal bonds and meets such other requirements as the Commissioner may 
prescribe in further guidance.
    (7) Bond definitions--(i) Rider. A rider is an amendment to an 
existing bond that increases the bond amount. The rider must apply to 
liabilities that arise on or after the effective date of the bond that 
the rider amends. The surety remains liable under the existing bond, as 
amended by the rider, for the assessment and collection periods 
applicable to the CPEO under sections 6501 and 6502, respectively, with 
respect to any taxable period that occurs during the term of the bond 
unless and until the bond is superseded.
    (ii) Strengthening bond. A strengthening bond is an additional bond 
posted in the incremental amount of the increase so that the 
strengthening bond together with the existing bond equal the total 
minimum required bond amount specified in paragraph (g)(2) of this 
section. The strengthening bond must apply to liabilities that arise on 
or after the effective date of the bond it strengthens. Both the 
strengthening bond and the bond it strengthens must remain in effect, 
and the surety remains liable under both bonds for the assessment and 
collection periods applicable to the CPEO under sections 6501 and 6502, 
respectively, with respect to any taxable period that occurs during the 
term of the bonds, unless and until the bonds are superseded.
    (iii) New bond. A new bond is a bond posted for the total required 
bond amount, and a new bond may only be posted upon the CPEO's initial 
certification or immediately following cancellation of an existing bond. 
In the case of a cancellation of an existing bond, the effective date of 
the new bond must be no later than the effective date of the 
cancellation of the existing bond, and the surety providing the existing 
(now cancelled) bond remains liable for liabilities that accrued during 
the term of the cancelled bond for the assessment and collection periods 
applicable to the CPEO under sections 6501 and 6502, respectively, with 
respect to any taxable period that occurred during the term of that 
bond.
    (iv) Superseding bond. A superseding bond is a bond posted for the 
total minimum required bond amount specified in paragraph (g)(2) of this 
section, not just for an incremental increase. Upon execution of the 
superseding bond, the superseded bond is no longer in effect, and the 
surety that provided the superseded bond is no longer liable under the 
superseded bond. The superseding bond must apply to liabilities that 
arise on or after the effective date of the superseded bond.
    (h) Controlled group. All CPEO applicants and CPEOs that are members 
of a controlled group within the meaning of sections 414(b) and (c), and 
Sec. Sec.  1.414(b)-1 and 1.414(c)-1 through 1.414(c)-6 of this chapter, 
will be treated as a single CPEO applicant or CPEO for purposes of 
paragraphs (e) (other than (e)(1)(iii)), (f) (other than (f)(1)(ii)), 
and (g) of this section.
    (i) Consents to disclose. To receive and maintain certification, a 
CPEO applicant or CPEO must provide such consents for the IRS to 
disclose confidential tax information to its customers, and to other 
persons as necessary to carry out the purposes of these regulations, 
that relates to its certification and obligations to report, deposit, 
and pay federal employment taxes as the Commissioner may require in 
further guidance.
    (j) Periodic verification. A CPEO must periodically verify that it 
continues to meet the requirements of this section in the time and 
manner prescribed by the Commissioner in further guidance.
    (k) Notification of material changes. A CPEO applicant or CPEO must 
notify the IRS, in the time and manner prescribed by the Commissioner in 
further guidance, of any change that materially affects the continuing 
accuracy of any agreement or information that was previously made or 
provided to the IRS.

[[Page 902]]

    (l) Accrual method of accounting. A CPEO must compute its taxable 
income using an accrual method of accounting or, if applicable, another 
method that the Commissioner provides for in further guidance.
    (m) Compliance with reporting obligations--(1) In general. A CPEO 
must agree to make reports to the IRS and to its clients as provided in 
section 3511(g) and Sec.  31.3511-1 of this chapter, including filing 
all federal employment tax returns and information returns as required.
    (2) Filing on magnetic media. A CPEO must file all returns, 
schedules, reports, and other forms and documents on magnetic media when 
required by section 3511(g) and Sec.  31.3511-1 of this chapter, other 
Treasury regulations, or other guidance.
    (n) Suspension and revocation--(1) In general. The IRS may suspend 
or revoke the certification of any CPEO, in the time and manner and 
under the circumstances prescribed by the Commissioner in this section 
and in further guidance, as a result of one or more failures to meet any 
of the requirements for CPEOs described in this section, section 
3511(g), Sec.  31.3511-1 of this chapter, and any further guidance and 
will suspend or revoke certification if the IRS determines, in its sole 
discretion, that such failure(s) present a material risk to the IRS's 
collection of federal employment taxes. See paragraph (b) of this 
section for the factors the IRS will consider in determining whether one 
or more failures to meet any of the requirements described in this 
section presents a material risk to the IRS's collection of federal 
employment taxes.
    (2) Suspension. Section 3511 will not apply to any contract 
described in section 7705(e)(2) into which the CPEO enters while its 
certification is suspended.
    (3) Revocation. If an organization's certification as a CPEO is 
revoked, the organization will not be considered a CPEO for purposes of 
section 3511 unless and until it again applies to be certified as a CPEO 
in accordance with paragraph (a) of this section and is again certified 
by the IRS as meeting the requirements of this section. An organization 
whose certification as a CPEO has been revoked may not reapply to be 
certified as a CPEO until one year has passed after the effective date 
of its revocation.
    (4) Disclosure of suspension and revocation--(i) Notification by the 
CPEO. An organization whose certification as a CPEO has been suspended 
or revoked must notify its customers of such suspension or revocation in 
the time and manner prescribed by the Commissioner in further guidance.
    (ii) Disclosure by the IRS. If the IRS suspends or revokes an 
organization's certification as a CPEO, the IRS will make available to 
the public the fact of such suspension or revocation in the time and 
manner described in further guidance. The IRS may also separately notify 
the organization's customers of such suspension or revocation.
    (o) Applicability date. The rules in this section apply on and after 
May 3, 2019.

[T.D. 9860, 84 FR 24382, May 28, 2019]



                              General Rules

                  Application of Internal Revenue Laws



Sec.  301.7803-1  Security bonds covering personnel of 
the Internal Revenue Service.

    For regulations relating to the procurement of security bonds 
covering designated personnel of the Internal Revenue Service between 
January 1, 1956, and June 6, 1972, see 31 CFR part 226.

(Sec. 7805 of the Internal Revenue Code of 1954 (68A Stat. 917; 26 
U.S.C. 7805))

[T.D. 7239, 37 FR 28628, Dec. 28, 1972]



Sec.  301.7805-1  Rules and regulations.

    (a) Issuance. The Commissioner, with the approval of the Secretary, 
shall prescribe all needful rules and regulations for the enforcement of 
the Code (except where this authority is expressly given by the Code to 
any person other than an officer or employee of the Treasury 
Department), including all rules and regulations as may be necessary by 
reason of any alteration of law in relation to internal revenue.
    (b) Retroactivity. The Commissioner, with the approval of the 
Secretary, may prescribe the extent, if any, to

[[Page 903]]

which any regulation or Treasury decision relating to the internal 
revenue laws shall be applied without retroactive effect. The 
Commissioner may prescribe the extent, if any, to which any ruling 
relating to the internal revenue laws, issued by or pursuant to 
authorization from him, shall be applied without retroactive effect.
    (c) Preparation and distribution of regulations, forms, stamps, and 
other matters. The Commissioner, under the direction of the Secretary, 
shall prepare and distribute all the instructions, regulations, 
directions, forms, blanks, stamps, and other matters pertaining to the 
assessment and collection of internal revenue.



Sec.  301.7811-1  Taxpayer assistance orders.

    (a) Authority To Issue--(1) In general. When an application for a 
taxpayer assistance order (TAO) is filed by the taxpayer or the 
taxpayer's authorized representative in the form, manner and time 
specified in paragraph (b) of this section, the National Taxpayer 
Advocate (NTA) may issue a TAO if, in the determination of the NTA, the 
taxpayer is suffering or is about to suffer a significant hardship as a 
result of the manner in which the internal revenue laws are being 
administered by the Internal Revenue Service (IRS), including action or 
inaction on the part of the IRS.
    (2) The National Taxpayer Advocate defined. The term National 
Taxpayer Advocate includes any designee of the NTA, such as a Local 
Taxpayer Advocate.
    (3) Issuance without a written application. The NTA may issue a TAO 
in the absence of a written application by the taxpayer under section 
7811(a).
    (4) Significant hardship--(i) Determination required. Before a TAO 
may be issued, the NTA is required to make a determination regarding 
significant hardship.
    (ii) Term defined. The term significant hardship means a serious 
privation caused or about to be caused to the taxpayer as the result of 
the particular manner in which the revenue laws are being administered 
by the IRS. Significant hardship includes situations in which a system 
or procedure fails to operate as intended or fails to resolve the 
taxpayer's problem or dispute with the IRS. A significant hardship also 
includes, but is not limited to:
    (A) An immediate threat of adverse action;
    (B) A delay of more than 30 days in resolving taxpayer account 
problems;
    (C) The incurring by the taxpayer of significant costs (including 
fees for professional representation) if relief is not granted; or
    (D) Irreparable injury to, or a long-term adverse impact on, the 
taxpayer if relief is not granted.
    (iii) A delay of more than 30 days in resolving taxpayer account 
problems is further defined. A delay of more than 30 days in resolving 
taxpayer account problems exists under the following conditions:
    (A) When a taxpayer does not receive a response by the date promised 
by the IRS; or
    (B) When the IRS has established a normal processing time for taking 
an action and the taxpayer experiences a delay of more than 30 days 
beyond the normal processing time.
    (iv) Examples of significant hardship. The provisions of this 
section are illustrated by the following examples:

    Example 1. Immediate threat of adverse action. The IRS serves a levy 
on A's bank account. A needs the bank funds to pay for a medically 
necessary surgical procedure that is scheduled to take place in one 
week. If the levy is not released, A will lack the funds necessary to 
have the procedure. A is experiencing an immediate threat of adverse 
action.
    Example 2. Delay of more than 30 days. B files a Form 4506, 
``Request for a Copy of Tax Return.'' B does not receive the photocopy 
of the tax return after waiting more than 30 days beyond the normal time 
for processing. B is experiencing a delay of more than 30 days.
    Example 3. Significant costs. The IRS sends XYZ, Inc. a notice 
requesting payment of the outstanding employment taxes and penalties 
owed by XYZ, Inc. The notice indicates that XYZ, Inc. has small 
employment tax balances with respect to 12 employment tax quarters 
totaling $10X. XYZ, Inc. provides documentation to the IRS which it 
contends shows that if all payments were applied to each quarter 
correctly, there would be no balance due. The IRS requests additional 
records and documentation. Because there are 12 quarters involved, to 
comply with this request XYZ, Inc. asserts that it will need to hire an 
accountant, who estimates he will

[[Page 904]]

charge at least $5X to organize all the records and provide a detailed 
analysis of how to apply the deposits and payments. XYZ, Inc. is facing 
significant costs.
    Example 4. Irreparable injury. D has arranged with a bank to 
refinance his mortgage to lower his monthly payment. D is unable to make 
the current monthly payment. Unless the monthly payment amount is 
lowered, D will lose his residence to foreclosure. The IRS refuses to 
subordinate the Federal tax lien, as permitted by section 6325(d), or 
discharge the property subject to the lien, as permitted by section 
6325(b). As a result, the bank will not allow D to refinance. D is 
facing an irreparable injury if relief is not granted.

    (5) Distinction between significant hardship and the issuance of a 
TAO. A finding that a taxpayer is suffering or about to suffer a 
significant hardship as a result of the manner in which the internal 
revenue laws are being administered by the IRS will not automatically 
result in the issuance of a TAO. After making a determination of 
significant hardship, the NTA must determine whether the facts and the 
law support relief for the taxpayer. In cases where any IRS employee is 
not following applicable published administrative guidance (including 
the Internal Revenue Manual), the NTA shall construe the factors taken 
into account in determining whether to issue a TAO in the manner most 
favorable to the taxpayer.
    (b) Generally. A TAO is an order by the NTA to the IRS. The IRS will 
comply with a TAO unless it is appealed and then modified or rescinded 
by the NTA, the Commissioner, or the Deputy Commissioner. If a TAO is 
modified or rescinded by the Commissioner or the Deputy Commissioner, a 
written explanation of the reasons for the modification or rescission 
must be provided to the NTA. The NTA may not make a substantive 
determination of any tax liability. A TAO is also not intended to be a 
substitute for an established administrative or judicial review 
procedure, but rather is intended to supplement existing procedures if a 
taxpayer is about to suffer or is suffering a significant hardship. A 
request for a TAO shall be made on a Form 911, ``Request for Taxpayer 
Advocate Service Assistance (And Application for Taxpayer Assistance 
Order)'' (or other specified form) or in a written statement that 
provides sufficient information for the Taxpayer Advocate Service (TAS) 
to determine the nature of the harm or the need for assistance. A 
taxpayer's right to administrative or judicial review will not be 
diminished or expanded in any way as a result of the taxpayer's seeking 
assistance from TAS.
    (c) Contents of taxpayer assistance orders. After establishing that 
the taxpayer is facing significant hardship and determining that the 
facts and law support relief to the taxpayer, the NTA may issue a TAO 
ordering the IRS within a specified time to--
    (1) Release a levy. Release levied property (to the extent that the 
IRS may by law release such property); or
    (2) Take certain other actions. Cease any action, take any action as 
permitted by law, or refrain from taking any action with respect to a 
taxpayer pursuant to--
    (i) Chapter 64 (relating to collection);
    (ii) Chapter 70, subchapter B (relating to bankruptcy and 
receiverships);
    (iii) Chapter 78 (relating to discovery of liability and enforcement 
of title); or
    (iv) Any other provision of the internal revenue laws specifically 
described by the NTA in the TAO.
    (3) Expedite, review, or reconsider an action at a higher level. 
Although the NTA may not make the substantive determination, a TAO may 
be issued to require the IRS to expedite, reconsider, or review at a 
higher level an action taken with respect to a determination or 
collection of a tax liability.
    (4) Examples. The following examples assume the existence of 
significant hardship:

    Example 1. J contacts a Local Taxpayer Advocate because a wage levy 
is causing financial difficulties. The NTA determines that the levy 
should be released as it is causing economic hardship (within the 
meaning of section 6343(a)(1)(D) and Sec.  301.6343-1(b)(4)). The NTA 
may issue a TAO ordering the IRS to release the levy in whole or in part 
by a specified date.
    Example 2. The IRS rejects K's offer in compromise. K files a Form 
911, ``Request for Taxpayer Advocate Service Assistance (And Application 
for Taxpayer Assistance Order).'' The NTA discovers facts that support 
acceptance of the offer in compromise. The NTA may issue a TAO ordering 
the IRS to reconsider its rejection of the offer or to review

[[Page 905]]

the rejection of the offer at a higher level. The TAO may include the 
NTA's analysis of and recommendation for resolving the case.
    Example 3. L files a protest requesting Appeals consideration of 
IRS's proposed denial of L's request for innocent spouse relief. Appeals 
advises L that it is going to issue a Final Determination denying the 
request for innocent spouse relief. L files a Form 911, ``Request for 
Taxpayer Advocate Service Assistance (And Application for Taxpayer 
Assistance Order).'' The NTA reviews the administrative record and 
concludes that the facts support granting innocent spouse relief. The 
NTA may issue a TAO ordering Appeals to refrain from issuing a Final 
Determination and reconsider or review at a higher level its decision to 
deny innocent spouse relief. The TAO may include the NTA's analysis of 
and recommendation for resolving the case.

    (d) Issuance. A TAO may be issued to any office, operating division, 
or function of the IRS. A TAO shall apply to persons performing services 
under a qualified tax collection contract (as defined in section 
6306(b)) to the same extent and in the same manner as the order applies 
to IRS employees. A TAO will not be issued to IRS Criminal Investigation 
division (CI), or any successor IRS division responsible for the 
criminal investigation function, if the action ordered in the TAO could 
reasonably be expected to impede a criminal investigation. CI will 
determine whether the action ordered in the TAO could reasonably be 
expected to impede an investigation. Generally, a TAO may not be issued 
to the Office of Chief Counsel.
    (e) Suspension of statutes of limitations--(1) In general. The 
running of the applicable period of limitations for any action which is 
the subject of a taxpayer assistance order shall be suspended for the 
period beginning on the date the Ombudsman receives an application for a 
taxpayer assistance order in the form, manner, and time specified in 
paragraph (b) of this section and ending on the date on which the 
Ombudsman makes a determination with respect to the application, and for 
any additional period specified by the Ombudsman in an order issued 
pursuant to a taxpayer's application. For the purpose of computing the 
period suspended, all calendar days except the date of receipt of the 
application shall be included.
    (2) Date of decision. The ``date on which the Ombudsman makes a 
decision with respect to the application'' is the date on which the 
taxpayer's request for a taxpayer assistance order is denied, or 
agreement is reached with the involved function of the Service, or a 
taxpayer assistance order is issued (except that when the taxpayer 
assistance order is reviewed by an official who may modify or rescind 
the taxpayer assistance order as provided in paragraph (d) of this 
section, the decision date is the date on which such review is 
completed).
    (3) Periods suspended. The periods of limitations which are 
suspended under section 7811(d) are those which apply to the taxable 
periods to which the application for a taxpayer assistance order relate 
or the taxable periods specifically indicated in the terms of a taxpayer 
assistance order.

    Example 1. On August 31, 1989, the Internal Revenue Service levies 
on funds in the taxpayer's checking account. On September 1, 1989 (at 
which time 7 months remain before the period of limitations on 
collection after assessment will expire on April 1, 1990) the Ombudsman 
receives the taxpayer's written application for a taxpayer assistance 
order. Subsequently, on September 6, 1989, the Ombudsman determines that 
the levy has caused a significant hardship and the Internal Revenue 
Service function which served the levy agrees to release the levy. The 
levy is released. As a result of the application and the decision by the 
Ombudsman and the involved function of the Service resolving the 
hardship, the statute of limitations on collection after assessment is 
suspended from the date the Ombudsman received the application, 
September 1, 1989, until the date on which the decision was made to 
release the levy, September 6, 1989. Therefore, the statute of 
limitations on collection after assessment will not expire until after 
April 6, 1990, which is 7 months plus 5 days after the date on which the 
application for a taxpayer assistance order was received by the 
Ombudsman.
    Example 2. The facts are the same as in example 1 except that the 
Internal Revenue Service function which served the levy does not agree 
to release the levy, and the Ombudsman, having made a determination that 
the levy is causing a significant hardship, issues a taxpayer assistance 
order on September 6, 1989, in which the levy is ordered to be released 
and specifies that the statute of limitations on collection after 
assessment is

[[Page 906]]

suspended for an additional 15 days. The period of limitations on 
collection after assessment will therefore not expire until after April 
21, 1990, which is 7 months and 20 days (5 days plus 15 days) after the 
application for the taxpayer assistance order was received by the 
Ombudsman.
    Example 3. The facts are the same as in example 2 except that the 
Ombudsman does not specifically suspend the statute of limitations on 
collection after assessment for an additional number of days in the 
taxpayer assistance order, but rather the function seeks modification or 
rescission of the taxpayer assistance order and the appropriate official 
charged with that responsibility completes his consideration of the 
assistance order on September 8, 1989. The period of limitations on 
collection after assessment will therefore not expire until after April 
8, 1990, which is 7 months and 7 days after the application for the 
taxpayer assistance order was received by the Ombudsman.

    (4) Absence of a written application. The statute of limitations is 
not suspended in cases where the Ombudsman issues an order in the 
absence of a written application for relief by the taxpayer or the 
taxpayer's duly authorized representative.
    (f) Effective/applicability date. These regulations are applicable 
for TAOs issued on or after April 1, 2011, except that paragraph (e) of 
this section is applicable beginning March 20, 1992.

[T.D. 8246, 54 FR 11700, Mar. 22, 1989, as amended by T.D. 8403, 56 FR 
9977, Mar. 23, 1992; T.D. 9519, 76 FR 18060, Apr. 1, 2011]

                        Miscellaneous Provisions



Sec.  301.9000-1  Definitions when used in Sec. Sec.  301.9000-1 
through 301.9000-6.

    (a) IRS records or information means any material (including copies 
thereof) contained in the files (including paper, electronic or other 
media files) of the Internal Revenue Service (IRS), any information 
relating to material contained in the files of the IRS, or any 
information acquired by an IRS officer or employee, while an IRS officer 
or employee, as a part of the performance of official duties or because 
of that IRS officer's or employee's official status with respect to the 
administration of the internal revenue laws or any other laws 
administered by or concerning the IRS. IRS records or information 
includes, but is not limited to, returns and return information as those 
terms are defined in section 6103(b)(1) and (2) of the Internal Revenue 
Code (Code), tax convention information as defined in section 6105 of 
the Code, information gathered during Bank Secrecy Act and money 
laundering investigations, and personnel records and other information 
pertaining to IRS officers and employees. IRS records and information 
also includes information received, generated or collected by an IRS 
contractor pursuant to the contractor's contract or agreement with the 
IRS. The term does not include records or information obtained by IRS 
officers and employees, solely for the purpose of a federal grand jury 
investigation, while under the direction and control of the United 
States Attorney's Office. The term IRS records or information 
nevertheless does include records or information obtained by the IRS 
before, during, or after a Federal grand jury investigation if the 
records or information are obtained--
    (1) At the administrative stage of a criminal investigation (prior 
to the initiation of the grand jury);
    (2) From IRS files (such as transcripts or tax returns); or
    (3) For use in a subsequent civil investigation.
    (b) IRS officers and employees means all officers and employees of 
the United States appointed by, employed by, or subject to the 
directions, instructions, or orders of the Commissioner or IRS Chief 
Counsel and also includes former officers and employees.
    (c) IRS contractor means any person, including the person's current 
and former employees, maintaining IRS records or information pursuant to 
a contract or agreement with the IRS, and also includes former 
contractors.
    (d) A request is any request for testimony of an IRS officer, 
employee or contractor or for production of IRS records or information, 
oral or written, by any person, which is not a demand.
    (e) A demand is any subpoena or other order of any court, 
administrative agency or other authority, or the Congress, or a 
committee or subcommittee of the Congress, and any notice of deposition 
(either upon oral examination

[[Page 907]]

or written questions), request for admissions, request for production of 
documents or things, written interrogatories to parties, or other notice 
of, request for, or service for discovery in a matter before any court, 
administrative agency or other authority.
    (f) An IRS matter is any matter before any court, administrative 
agency or other authority in which the United States, the Commissioner, 
the IRS, or any IRS officer or employee acting in an official capacity, 
or any IRS officer or employee (including an officer or employee of IRS 
Office of Chief Counsel) in his or her individual capacity if the United 
States Department of Justice or the IRS has agreed to represent or 
provide representation to the IRS officer or employee, is a party and 
that is directly related to official business of the IRS or to any law 
administered by or concerning the IRS, including, but not limited to, 
judicial and administrative proceedings described in section 6103(h)(4) 
and (l)(4) of the Internal Revenue Code.
    (g) An IRS congressional matter is any matter before the Congress, 
or a committee or subcommittee of the Congress, that is related to the 
administration of the internal revenue laws or any other laws 
administered by or concerning the IRS, or to IRS records or information.
    (h) A non-IRS matter is any matter that is not an IRS matter or an 
IRS congressional matter.
    (i) A testimony authorization is a written instruction or oral 
instruction memorialized in writing within a reasonable period by an 
authorizing official that sets forth the scope of and limitations on 
proposed testimony and/or disclosure of IRS records or information 
issued in response to a request or demand for IRS records or 
information. A testimony authorization may grant or deny authorization 
to testify or disclose IRS records or information and may make an 
authorization effective only upon the occurrence of a precedent 
condition, such as the receipt of a consent complying with the 
provisions of section 6103(c) of the Internal Revenue Code. To authorize 
testimony means to issue the instruction described in this paragraph 
(i).
    (j) An authorizing official is a person with delegated authority to 
authorize testimony and the disclosure of IRS records or information.

[T.D. 9178, 70 FR 7397, Feb. 14, 2005]



Sec.  301.9000-2  Considerations in responding to a request or demand 
for IRS records or information.

    (a) Situations in which disclosure shall not be authorized. 
Authorizing officials shall not permit testimony or disclosure of IRS 
records or information in response to requests or demands if testimony 
or disclosure of IRS records or information would--
    (1) Violate a Federal statute including, but not limited to, 
sections 6103 or 6105 of the Internal Revenue Code (Code), the Privacy 
Act of 1974 (5 U.S.C. 552a), or a rule of procedure, such as the grand 
jury secrecy rule, Fed. R. Crim. P. 6(e);
    (2) Violate a specific Federal regulation, including, but not 
limited to, 31 CFR 103.53;
    (3) Reveal classified national security information, unless properly 
declassified;
    (4) Reveal the identity of an informant; or
    (5) Reveal investigatory records or information compiled for law 
enforcement purposes that would permit interference with law enforcement 
proceedings or would disclose investigative techniques and procedures, 
the effectiveness of which could thereby be impaired.
    (b) Assertion of privileges. Any applicable privilege or protection 
under law may be asserted in response to a request or demand for 
testimony or disclosure of IRS records or information, including, but 
not limited to, the following--
    (1) Attorney-client privilege;
    (2) Attorney work product doctrine; and
    (3) Deliberative process (executive) privilege.
    (c) Non-IRS matters. If any person makes a request or demand for IRS 
records or information in connection with a non-IRS matter, authorizing 
officials shall take into account the following additional factors in 
responding to the request or demand--

[[Page 908]]

    (1) Whether the requester is a Federal agency, or a state or local 
government or agency thereof;
    (2) Whether the demand was issued by a Federal or state court, 
administrative agency or other authority;
    (3) The potential effect of the case on the administration of the 
internal revenue laws or any other laws administered by or concerning 
the IRS;
    (4) The importance of the legal issues presented;
    (5) Whether the IRS records or information are available from other 
sources;
    (6) The IRS's anticipated commitment of time and anticipated 
expenditure of funds necessary to comply with the request or demand;
    (7) The number of similar requests and their cumulative effect on 
the expenditure of IRS resources;
    (8) Whether the request or demand allows a reasonable time for 
compliance (generally, at least fifteen business days);
    (9) Whether the testimony or disclosure is appropriate under the 
rules of procedure governing the case or matter in which the request or 
demand arises;
    (10) Whether the request or demand involves expert witness 
testimony;
    (11) Whether the request or demand is for the testimony of an IRS 
officer, employee or contractor who is without personal knowledge of 
relevant facts;
    (12) Whether the request or demand is for the testimony of a 
presidential appointee or senior executive and whether the testimony of 
a lower-level official would suffice;
    (13) Whether the procedures in Sec.  301.9000-5 have been followed; 
and
    (14) Any other relevant factors that may be brought to the attention 
of the authorizing official.

[T.D. 9178, 70 FR 7397, Feb. 14, 2005]



Sec.  301.9000-3  Testimony authorizations.

    (a) Prohibition on disclosure of IRS records or information without 
testimony authorization. Except as provided in paragraph (b) of this 
section, when a request or demand for IRS records or information is 
made, no IRS officer, employee or contractor shall testify or disclose 
IRS records or information to any court, administrative agency or other 
authority, or to the Congress, or to a committee or subcommittee of the 
Congress without a testimony authorization. However, an IRS officer, 
employee or contractor may appear in person to advise that he or she is 
awaiting instructions from an authorizing official with respect to the 
request or demand.
    (b) Exceptions. No testimony authorization is required in the 
following circumstances--
    (1) To respond to a request or demand for IRS records or information 
by the attorney or other government representative representing the IRS 
in a particular IRS matter;
    (2) To respond solely in writing, under the direction of the 
attorney or other government representative, to requests and demands in 
IRS matters, including, but not limited to, admissions, document 
production, and written interrogatories to parties;
    (3) To respond to a request or demand issued to a former IRS 
officer, employee or contractor for expert or opinion testimony if the 
testimony sought from the former IRS officer, employee or contractor 
involves general knowledge (such as information contained in published 
procedures of the IRS or the IRS Office of Chief Counsel) gained while 
the former IRS officer, employee or contractor was employed or under 
contract with the IRS; or
    (4) If a more specific procedure established by the Commissioner 
governs the disclosure of IRS records or information. These procedures 
include, but are not limited to, those relating to: procedures pursuant 
to Sec.  601.702(d) of this chapter; Freedom of Information Act requests 
pursuant to 5 U.S.C. 552; Privacy Act of 1974 requests pursuant to 5 
U.S.C. 552a; disclosures to state tax agencies pursuant to section 
6103(d) of the Internal Revenue Code (Code); and disclosures to the 
United States Department of Justice pursuant to an ex parte order under 
section 6103(i)(1) of the Code.
    (c) Disclosures of IRS records or information with or without 
testimony authorization must be permitted under other applicable law. 
Any disclosure of IRS records or information that is otherwise 
permissible under this section must not be prohibited under applicable 
law. For example, in a case in

[[Page 909]]

which returns and return information may be disclosed, the disclosure 
must be authorized under section 6103, even if any required testimony 
authorization is obtained. If tax convention information (as defined 
under section 6105) may be disclosed, in deciding whether the disclosure 
is authorized, the authorizing official must coordinate the disclosure 
with the U.S. Competent Authority.

[T.D. 9178, 70 FR 7397, Feb. 14, 2005]



Sec.  301.9000-4  Procedure in the event of a request or demand 
for IRS records or information.

    (a) Purpose and scope. This section prescribes procedures to be 
followed by IRS officers, employees and contractors upon receipt of a 
request or demand in matters in which a testimony authorization is or 
may be required.
    (b) Notification of the Disclosure Officer. Except as provided in 
paragraphs (c), (d), and (e) of this section, an IRS officer, employee 
or contractor who receives a request or demand for IRS records or 
information for which a testimony authorization is or may be required 
shall notify promptly the disclosure officer servicing the IRS 
officer's, employee's or contractor's geographic area. The IRS officer, 
employee or contractor shall await instructions from the authorizing 
official concerning the response to the request or demand. An IRS 
officer, employee, or contractor who receives a request or demand in one 
of the following matters should not notify the disclosure officer, but 
should follow the instructions in paragraph (c), (d), or (e) of this 
section, as applicable:
    (1) United States Tax Court cases.
    (2) Personnel matters, labor relations matters, government contract 
matters, matters related to informant claims or matters related to the 
rules of Bivens v. Six Unknown Named Agents of Federal Bureau of 
Narcotics, 403 U.S. 388 (1971) (Bivens matters), or matters under the 
Federal Tort Claims Act (FTCA).
    (3) IRS congressional matters.
    (c) Requests or demands in United States Tax Court cases. An IRS 
officer, employee or contractor who receives a request or demand for IRS 
records or information on behalf of a petitioner in a United States Tax 
Court case shall notify promptly the IRS Office of Chief Counsel 
attorney assigned to the case. The IRS Office of Chief Counsel attorney 
shall notify promptly the authorizing official. The IRS officer, 
employee or contractor who received the request or demand shall await 
instructions from the authorizing official.
    (d) Requests or demands in personnel, labor relations, government 
contract, Bivens or FTCA matters, or matters related to informant 
claims. An IRS officer, employee or contractor who receives a request or 
demand, on behalf of an appellant, grievant, complainant or 
representative, for IRS records or information in a personnel, labor 
relations, government contract, Bivens or FTCA matter, or matter related 
to informant claims, shall notify promptly the IRS Associate Chief 
Counsel (General Legal Services) attorney assigned to the case. If no 
IRS Associate Chief Counsel (General Legal Services) attorney is 
assigned to the case, the IRS officer, employee or contractor shall 
notify promptly the IRS Associate Chief Counsel (General Legal Services) 
attorney servicing the geographic area. The IRS Associate Chief Counsel 
(General Legal Services) attorney shall notify promptly the authorizing 
official. The IRS officer, employee or contractor who received the 
request or demand shall await instructions from the authorizing 
official.
    (e) Requests or demands in IRS congressional matters. An IRS 
officer, employee or contractor who receives a request or demand in an 
IRS congressional matter shall notify promptly the IRS Office of 
Legislative Affairs. The IRS officer, employee or contractor who 
received the request or demand shall await instructions from the 
authorizing official.
    (f) Opposition to a demand for IRS records or information in IRS and 
non-IRS matters. If, in response to a demand for IRS records or 
information, an authorizing official has not had a sufficient 
opportunity to issue a testimony authorization, or determines that the 
demand for IRS records or information should be denied, the authorizing 
official shall request the government attorney or other representative 
of the government to oppose the demand and

[[Page 910]]

respectfully inform the court, administrative agency or other authority, 
by appropriate action, that the authorizing official either has not yet 
issued a testimony authorization, or has issued a testimony 
authorization to the IRS officer, employee or contractor that denies 
permission to testify or disclose the IRS records or information. If the 
authorizing official denies authorization in whole or in part, the 
government attorney or other representative of the government shall 
inform the court, administrative agency or other authority of the 
reasons the authorizing official gives for not authorizing the testimony 
or the disclosure of the IRS records or information or take other action 
in opposition as may be appropriate (including, but not limited to, 
filing a motion to quash or a motion to remove to Federal court).
    (g) Procedure in the event of an adverse ruling. In the event the 
court, administrative agency, or other authority rules adversely with 
respect to the refusal to disclose the IRS records or information 
pursuant to the testimony authorization, or declines to defer a ruling 
until a testimony authorization has been received, the IRS officer, 
employee or contractor who has received the request or demand shall, 
pursuant to this section, respectfully decline to testify or disclose 
the IRS records or information.
    (h) Penalties. Any IRS officer or employee who discloses IRS records 
or information without following the provisions of this section or Sec.  
301.9000-3, may be subject to administrative discipline, up to and 
including dismissal. Any IRS officer, employee or contractor may be 
subject to applicable contractual sanctions and civil or criminal 
penalties, including prosecution under 5 U.S.C. 552a(i), for willful 
disclosure in an unauthorized manner of information protected by the 
Privacy Act of 1974, or under section 7213 of the Internal Revenue Code, 
for willful disclosure in an unauthorized manner of return information.
    (i) No creation of benefit or separate privilege. Nothing in 
Sec. Sec.  301.9000-1 through 301.9000-3, this section, and Sec. Sec.  
301.9000-5 and 301.9000-6, creates, is intended to create, or may be 
relied upon to create, any right or benefit, substantive or procedural, 
enforceable at law by a party against the United States. Nothing in 
these regulations creates a separate privilege or basis to withhold IRS 
records or information.

[T.D. 9178, 70 FR 7397, Feb. 14, 2005]



Sec.  301.9000-5  Written statement required for requests or demands 
in non-IRS matters.

    (a) Written statement. A request or demand for IRS records or 
information for use in a non-IRS matter shall be accompanied by a 
written statement made by or on behalf of the party seeking the 
testimony or disclosure of IRS records or information, setting forth--
    (1) A brief description of the parties to and subject matter of the 
proceeding and the issues;
    (2) A summary of the testimony, IRS records or information sought, 
the relevance to the proceeding, and the estimated volume of IRS records 
involved;
    (3) The time that will be required to present the testimony (on both 
direct and cross examination);
    (4) Whether any of the IRS records or information is a return or is 
return information (as defined in section 6103(b) of the Internal 
Revenue Code (Code)), or tax convention information (as defined in 
section 6105(c)(1) of the Code), and the statutory authority for the 
disclosure of the return or return information (and, if no consent to 
disclose pursuant to section 6103(c) of the Code accompanies the request 
or demand, the reason consent is not necessary);
    (5) Whether a declaration of an IRS officer, employee or contractor 
under penalties of perjury pursuant to 28 U.S.C. 1746 would suffice in 
lieu of deposition or trial testimony;
    (6) Whether deposition or trial testimony is necessary in a 
situation in which IRS records may be authenticated without testimony 
under applicable rules of evidence and procedure;
    (7) Whether IRS records or information are available from other 
sources; and
    (8) A statement that the request or demand allows a reasonable time 
(generally at least fifteen business days) for compliance.
    (b) Permissible waiver of statement. The requirement of a written 
statement in paragraph (a) of this section may be

[[Page 911]]

waived by the authorizing official for good cause.

[T.D. 9178, 70 FR 7397, Feb. 14, 2005]



Sec.  301.9000-6  Examples.

    The following examples illustrate the provisions of Sec. Sec.  
301.9000-1 through 301.9000-5:

    Example 1. A taxpayer sues a practitioner in state court for 
malpractice in connection with the practitioner's preparation of a 
Federal income tax return. The taxpayer subpoenas an IRS employee to 
testify concerning the IRS employee's examination of the taxpayer's 
Federal income tax return. The taxpayer provides the statement required 
by Sec.  301.9000-5. This is a non-IRS matter. A testimony authorization 
would be required for the IRS employee to testify. (In addition, the 
taxpayer would be required to execute an appropriate consent under 
section 6103(c) of the Code). The IRS would oppose the IRS employee's 
appearance in this case because the IRS is a disinterested party with 
respect to the dispute and would consider the commitment of resources to 
comply with the subpoena inappropriate.
    Example 2. In a state judicial proceeding concerning child support, 
the child's custodial parent subpoenas for a deposition an IRS agent who 
is examining certain post-divorce Federal income tax returns of the non-
custodial parent. This is a non-IRS matter. The custodial parent submits 
with the subpoena the statement required by Sec.  301.9000-5 stating as 
the reason for the lack of taxpayer consent to disclosure that the non-
custodial parent has refused to provide the consent (both a consent from 
the taxpayer complying with section 6103(c) and a testimony 
authorization would be required prior to the IRS agent testifying at the 
deposition). If taxpayer consent is obtained, the IRS may provide a 
declaration or certified return information of the taxpayer. A 
deposition would be unnecessary under the circumstances.
    Example 3. The chairperson of a congressional committee requests the 
appearance of an IRS employee before the committee and committee staff 
to submit to questioning by committee staff concerning the procedures 
for processing Federal employment tax returns. This is an IRS 
congressional matter. Even though questioning would not involve the 
disclosure of returns or return information, the questioning would 
involve the disclosure of IRS records or information; therefore, a 
testimony authorization would be required. The IRS employee must contact 
the IRS Office of Legislative Affairs for instructions before appearing.
    Example 4. The IRS opens a criminal investigation as to the tax 
liabilities of a taxpayer. This is an IRS matter. During the criminal 
investigation, the IRS refers the matter to the United States Department 
of Justice, requesting the institution of a Federal grand jury to 
investigate further potential criminal tax violations. The United States 
Department of Justice approves the request and initiates a grand jury 
investigation. The grand jury indicts the taxpayer. During the 
taxpayer's trial, the taxpayer subpoenas an IRS special agent for 
testimony regarding the investigation. The records and information 
collected during the administrative stage of the investigation, 
including the taxpayer's tax returns from IRS files, are IRS records and 
information. A testimony authorization is required for the IRS special 
agent to testify regarding this information. However, no IRS testimony 
authorization is required regarding the information collected by the IRS 
special agent when the IRS special agent was acting under the direction 
and control of the United States Attorney's Office in the Federal grand 
jury investigation. That information is not IRS records or information 
within the meaning of Sec.  301.9000-1(a). Disclosure of that 
information should be coordinated with the United States Attorney's 
Office.
    Example 5. The United States Department of Justice attorney 
representing the IRS in a suit for refund requests testimony from an IRS 
revenue agent. This is an IRS matter. A testimony authorization would 
not be required for the IRS revenue agent to testify because the 
testimony was requested by the government attorney.
    Example 6. In response to a request by the taxpayer's counsel to 
interview an IRS revenue agent who was involved in a case at the 
administrative level, the United States Department of Justice attorney 
representing the IRS in a suit for refund asks that the IRS revenue 
agent be made available to be interviewed. This is an IRS matter. A 
testimony authorization would be required for the IRS revenue agent to 
testify because the testimony was first requested by taxpayer's counsel.
    Example 7. A state assistant attorney general, acting in accordance 
with a recommendation from his state's department of revenue, is 
prosecuting a taxpayer under a state criminal law proscribing the 
intentional failure to file a state income tax return. The assistant 
attorney general serves an IRS employee with a subpoena to testify 
concerning the taxpayer's Federal income tax return filing history. This 
is a non-IRS matter. This is also a state judicial proceeding pertaining 
to tax administration within the meaning of section 6103(h)(4) and 
(b)(4). As such, the requirements of section 6103(h)(4) apply. A 
testimony authorization would be required for the testimony demand in 
the subpoena.
    Example 8. A former IRS revenue agent is requested to testify in a 
divorce proceeding. The request seeks testimony explaining the

[[Page 912]]

meaning of entries appearing on one party's transcript of account, which 
is already in the possession of the parties. This is a non-IRS matter. 
No testimony authorization is required because the testimony requested 
from the former IRS employee involves general knowledge gained while the 
former IRS revenue agent was employed with the IRS.
    Example 9. A Department of Justice attorney requests an IRS employee 
to testify in a refund suit involving Taxpayer A. The testimony may 
include tax convention information, as defined in section 6105, which 
was originally obtained by the IRS from a treaty partner in connection 
with a tax case against Taxpayer B. While no testimony authorization is 
necessary, because the testimony is being requested by government 
counsel in a tax matter, the IRS employee may not testify (or otherwise 
disclose IRS records or information) without coordinating with the U.S. 
Competent Authority, as disclosure of tax convention information is 
governed by section 6105. The disclosure must also meet the requirements 
in section 6103(h)(4).
    Example 10. In a state court tort action, Defendant subpoenas IRS 
for Plaintiff's federal income tax returns for particular taxable years. 
This is a non-IRS matter. The Disclosure Officer instructs Defendant 
that the IRS has established procedures for obtaining copies of Federal 
income tax returns. Section 601.702(d)(1) of this chapter establishes 
the procedures for obtaining Federal tax returns by requiring written 
requests for copies of tax returns using IRS Form 4506, ``Request for 
Copy of Tax Return.'' At Defendant's request, Plaintiff executes Form 
4506, naming Defendant's counsel as designee, and the form is properly 
submitted to IRS. A testimony authorization would not be required to 
disclose Plaintiff's returns to Defendant's counsel.

[T.D. 9178, 70 FR 7397, Feb. 14, 2005]



Sec.  301.9000-7  Effective date.

    These regulations are applicable on February 14, 2005.

[T.D. 9178, 70 FR 7397, Feb. 14, 2005]



Sec.  301.9001  Statutory provisions; Outer Continental Shelf Lands Act 
Amendments of 1978.

    Section 302 of the Outer Continental Shelf Lands Act Amendments of 
1978 (92 Stat. 629) provides as follows:

    Sec. 302. (a) There is hereby established in the Treasury of the 
United States an Offshore Oil Pollution Compensation Fund in an amount 
not to exceed $200,000,000, except that such limitation shall be 
increased to the extent necessary to permit any moneys recovered or 
collected which are referred to in subsection (b)(2) of this section to 
be paid into the Fund. The Fund shall be administered by the Secretary 
\1\ and the Secretary of the Treasury as specified in this title. The 
Fund may sue and be sued in its own name.
---------------------------------------------------------------------------

    \1\ ``Secretary'' wherever used in this section means the Secretary 
of Transportation.

    (b) The Fund shall be composed of--
    (1) All fees collected pursuant to subsection (d) of this section; 
and
    (2) All other moneys recovered or collected on behalf of the Fund 
under section 308 or any other provision of this title.
    (c) The Fund shall be immediately available for--
    (1) Removal costs described in section 301(22):
    (2) The processing and settlement claims under section 307 of this 
title (including the costs of assessing injury to, or destruction of, 
natural resources); and
    (3) Subject to such amounts as are provided in appropriation Acts, 
all administrative and personnel costs of the Federal Government 
incident to the administration of this title, including, but not limited 
to, the claims settlement activities and adjudicatory and judicial 
proceedings, whether or not such costs are recoverable under section 308 
of this title.
    The Secretary is authorized to promulgate regulations designating 
the person or persons who may obligate available money in the Fund for 
such purposes.
    (d)(1) The Secretary shall levy and the Secretary of the Treasury 
shall collect a fee of not to exceed 3 cents per barrel on oil obtained 
from the Outer Continental Shelf, which shall be imposed on the owner of 
the oil when such oil is produced.
    (2) The Secretary of the Treasury, after consulting with the 
Secretary, may promulgate reasonable regulations relating to the 
collection of the fees authorized by paragraph (1) of this subsection 
and, from time to time, the modification thereof. Any modification shall 
become effective on the date specified in the regulation making such 
modification, but no earlier than the ninetieth day following the date 
such regulation is published in the Federal Register. Any modification 
of the fee shall be designed to insure that the Fund is maintained at a 
level of not less than $100,000,000 and not more than $200,000,000. No 
regulation that sets or modifies fees, whether or not in effect, may be 
stayed by any court pending completion of judicial review of such 
regulation.
    (3)(A) Any person who fails to collect or pay any fee as required by 
any regulation promulgated under paragraph (2) of this subsection shall 
be liable for a civil penalty not to exceed $10,000, to be assessed by 
the Secretary of the Treasury, in addition to the fee

[[Page 913]]

required to be collected or paid and the interest on such fee at the 
rate such fee would have earned if collected or paid when due and 
invested in special obligations of the United States in accordance with 
subsection (e)(2) of this section. Upon the failure of any person so 
liable to pay any penalty, fee, or interest upon demand, the Attorney 
General may, at the request of the Secretary of the Treasury, bring an 
action in the name of the Fund against that person for such amount.
    (B) Any person who falsifies records or documents required to be 
maintained under any regulation promulgated under this subsection shall 
be subject to prosecution for a violation of section 1001 of title 18, 
United States Code.
    (4) The Secretary of the Treasury may, by regulation, designate the 
reasonably necessary records and documents to be kept by persons from 
whom fees are to be collected pursuant to paragraph (1) of this 
subsection, and the Secretary of the Treasury and the Comptroller 
General of the United States shall have access to such records and 
documents for the purpose of audit and examination.
    (e)(1) The Secretary shall determine the level of funding required 
for immediate access in order to meet potential obligations of the Fund.
    (2) The Secretary of the Treasury may invest any excess in the Fund 
above the level determined under paragraph (1) of this subsection, in 
interest-bearing special obligations of the United States. Such special 
obligations may be redeemed at any time in accordance with the terms of 
the special issue and pursuant to regulations promulgated by the 
Secretary of the Treasury. The interest on, and the proceeds from the 
sale of, any obligations held in the Fund shall be deposited in and 
credited to the Fund.
    (f) If at any time the moneys available in the Fund are insufficient 
to meet the obligations of the Fund, the Secretary shall issue to the 
Secretary of the Treasury notes or other obligations in the forms and 
denominations, bearing the interest rates and maturities, and subject to 
such terms and conditions as may be prescribed by the Secretary of the 
Treasury. Redemption of such notes or other obligations shall be made by 
the Secretary from moneys in the Fund. Such notes or other obligations 
shall bear interest at a rate determined by the Secretary of the 
Treasury, taking into consideration the average market yield on 
outstanding marketable obligations of comparable maturity. The Secretary 
of the Treasury shall purchase any notes or other obligations issued 
under this subsection and, for that purpose, he is authorized to use as 
a public debt transaction the proceeds from the sale of any securities 
issued under the Second Liberty Bond Act. The purpose for which 
securities may be issued under that Act are extended to include any 
purchase of such notes or other obligations. The Secretary of the 
Treasury may at any time sell any of the notes or other obligations 
acquired by him under this subsection. All redemptions, purchases, and 
sales by the Secretary of the Treasury of such notes or other 
obligations shall be treated as public debt transactions of the United 
States.

(Sec. 302(d) of the Outer Continental Shelf Lands Act Amendments of 1978 
(92 Stat. 672) and sec. 7805 of the Internal Revenue Code of 1954 (68A 
Stat. 917; 26 U.S.C. 7805))

[T.D. 7697, 45 FR 33974, May 21, 1980]



Sec.  301.9001-1  Collection of fee.

    (a) Imposition of fee--(1) In general. Under section 302(d) of the 
Outer Continental Shelf Lands Act Amendments of 1978 (Act), the Internal 
Revenue Service is authorized to collect a fee of not more than 3 cents 
per barrel on oil that is obtained from the Outer Continental Shelf. 
This fee is established by the Commandant, United States Coast Guard, 
and is imposed on the owner of the oil as defined in paragraph (a)(2) of 
this section. The barrels subject to the fee shall be those barrels 
reported by the owner of the oil (Sec.  301.9001-1 (a)(2)), or a person 
authorized to act for the owner, on the monthly royalty reports, Form 9-
153, filed with the U.S. Geological Survey as required by 30 CFR 250.94. 
For the purpose of computing this fee, the owner of the oil shall 
measure the Outer Continental Shelf oil production by employing the 
criteria of the U.S. Geological Survey contained in 30 CFR 250.60 and 
Outer Continental Shelf Gulf of Mexico Order 13. No reduction in the 
amount due will be permitted by reason of theoretical or actual oil lost 
in transit. To ensure that the Fund is maintained at a level of not less 
than $100,000,000 and not more than $200,000,000, the Commandant, United 
States Coast Guard, may modify the amount of this fee.
    (2) Owner of oil. For the purposes of Sec. Sec.  301.9001-1, 
301.9001-2, and 301.9001-3, the owner of oil is the person in whom is 
vested ownership of the oil as it is produced at the wellhead without 
regard to the existence of contractual arrangements for the sale or 
other disposition of the oil between such a person and third parties. 
Under this rule, the Federal government entitlement to

[[Page 914]]

royalty oil does not constitute ownership of oil by the Federal 
government at the time of production.
    (3) Example. The provisions of paragraph (a)(2) of this section may 
be illustrated by the following example:

    Example. X is the owner of oil produced on the Outer Continental 
Shelf. During one reporting period, 10,000 barrels of oil were obtained 
from this location. X will use a portion of this oil to make a royalty 
payment to the United States government. X also has a contract with Y to 
sell Y the remaining barrels of oil. For the purpose of the Act, X is 
the owner of the oil and must pay a fee of 3 cents per barrel on all 
10,000 barrels of oil.

    (4) Cross-references. See Sec.  301.9001-2(a) for the definition of 
barrel, Sec.  301.9001-2(b) for the definition of oil, and Sec.  
301.9001-2(c) for the definition of person.
    (5) Effective Date. The provisions of Sec. Sec.  301.9001-1, 
301.9001-2, and 301.9001-3 are effective on July 25, 1979, at 7:00 a.m., 
local time. If, however, the established practice has been to gauge oil 
production at a time other than 7:00 a.m., the effective date is July 
25, 1979, at the time production has been gauged.
    (b) Collection of fee. The Internal Revenue Service shall collect 
the fee imposed by section 302(d) of the Act. Administrative procedures 
for the collection of this fee shall be prescribed from time to time by 
the Commissioner. The Commissioner may designate the reasonably 
necessary records and documents to be kept by the person or persons from 
whom the fee is collected. See also the regulations under 33 CFR 135.103 
for additional rules relating to the implementation of the Act.
    (c) Time and place for payment of the fee--(1) In general. Payment 
of the fee shall be made in accordance with the rules established in 
paragraph (c)(2), (3) and (4) of this section. When a deposit is 
required by these rules, it must be filed with the Internal Revenue 
Service Center, Austin, Texas 73301 using Form 6008, Fee Deposit for 
Offshore Oil. Adjustments required in the amount paid during the 
calendar quarter to reflect the actual amount due for the quarter shall 
be made on Form 6009, Quarterly Report of Fees Due. Form 6009 must be 
filed on or before the last day of the month following the end of the 
calendar quarter with the Austin Service Center. The rules under section 
7502, relating to the treatment of timely mailing as timely filing and 
paying, and section 7503, relating to the time for performance of acts 
where the last day falls on Saturday, Sunday, or legal holiday are 
applicable to the filing of Form 6009.
    (2) $100 or less of fees. If the owner of oil is liable in any 
calendar quarter for $100 or less of fees, the owner or a person 
authorized to act for the owner may either deposit this amount or pay 
the full amount of the fee when Form 6009 is filed.
    (3) More than $100 of fees. If the owner of oil is liable in the 
first or second month of the calendar quarter for more than $100 of fees 
and is not required to make a semimonthly deposit (see paragraph (c)(4) 
of this section), the owner or a person authorized to act for the owner 
must deposit the amount on or before the last day of the following month 
following the month of production.
    (4) More than $2000 of fees. The owner of oil who is liable for more 
than $2000 of fees for any month of a calendar quarter must deposit fees 
for the following quarter (regardless of amount) on a semimonthly basis. 
The deposit must be made on or before the ninth day following the 
semimonthly period for which it is reportable. The first deposit for a 
month may be reasonably estimated when an accounting of oil production 
is normally done by the month. Under these circumstances, the second for 
that month deposit should be adjusted to reflect the total barrels 
produced in that month.
    (d) Responsibility for payment of fee--(1) In general. Form 6009, 
Quarterly Report of Fees Due, must be filed and the fee must be paid 
either by the owner of the oil (Sec.  301.9001-1(a)(2)) or by a person 
authorized to act for the owner of the oil under an acceptable power of 
attorney filed with the Austin Service Center. For the purposes of the 
regulations at Sec. Sec.  301.9001-1, 301.9001-2, and 301.9001-3, an 
operating agreement between the operator of the oil-producing facility 
and the owner of oil is considered an acceptable power of attorney if 
the operating agreement specifically states that the operator is 
authorized to pay

[[Page 915]]

the fee imposed by section 302(d) of the Outer Continental Shelf Lands 
Act Amendments of 1978.
    (2) Example. The provisions of this paragraph may be illustrated by 
the following example:

    Example. W, X, Y, and Z are oil companies that own equal interests 
in oil produced on the Outer Continental Shelf. W was selected to be the 
operator of the offshore facility. Additionally, X, Y, and Z authorized 
W to file Form 6009 and to pay the fee imposed by section 302(d) of the 
Act on the oil produced at this facility. Pursuant to this 
authorization, W paid a fee of $16,600. Since the ownership of the oil 
is divided equally among W, X, Y, and Z, each company's share of the fee 
is $4,150.

    (e) Penalty and Interest. Failure to collect or pay the fee shall 
result in a civil penalty assessed by the Secretary of the Treasury. The 
amount of the penalty is not to exceed $10,000 in addition to the fee 
and the interest on the unpaid fee that would have been earned if paid 
when due and invested in the special Treasury securities which are to be 
purchased by the fund. The computation of the rate of interest to be 
levied on underpayment of fees shall be based on the average interest 
rate earned by the interest-bearing special obligations of the United 
States in the fund for each calendar quarter for which there is 
underpayment. Unless it can be shown that the failure to collect or pay 
the fee is due to reasonable cause and not due to the willful neglect, 
the amount of the penalty is the lesser of--
    (1) $10,000 or
    (2) The amount of the fee.

(Sec. 302(d) of the Outer Continental Shelf Lands Act Amendments of 1978 
(92 Stat. 672) and sec. 7805 of the Internal Revenue Code of 1954 (68A 
Stat. 917: 26 U.S.C. 7805))

[T.D. 7697, 45 FR 33975, May 21, 1980]



Sec.  301.9001-2  Definitions.

    The terms enumerated in this section are to be defined for the 
purposes of Sec. Sec.  301.9001-1, 301.9001-2, and 301.9001-3 in the 
following manner:
    (a) ``Barrel'' means 42 United States gallons at 60 degrees 
Fahrenheit.
    (b) ``Oil'' means petroleum, including crude oil or any fraction or 
residue therefrom, and natural gas condensate, except that the term does 
not include natural gas.
    (c) ``Person'' means an individual, firm, corporation, association, 
partnership, consortium, joint venture, or governmental entity.
    (d) ``Outer Continental Shelf'' means all submerged lands lying 
seaward and outside of the area of lands beneath navigable waters as 
defined in section 1301 of title 43 and of which the subsoil and seabed 
appertain to the United States and are subject to its jurisdiction and 
control;

(Sec. 302(d) of the Outer Continental Shelf Lands Act Amendments of 1978 
(92 Stat. 672) and sec. 7805 of the Internal Revenue Code of 1954 (68A 
Stat. 917; 26 U.S.C. 7805))

[T.D. 7697, 45 FR 33976, May 21, 1980]



Sec.  301.9001-3  Cross reference.

    See the Coast Guard regulations under 33 CFR parts 135 and 136 for 
rules relating to the implementation of the Act.

(Sec. 302(d) of the Outer Continental Shelf Lands Act Amendments of 1978 
(92 Stat. 672) and sec. 7805 of the Internal Revenue Code of 1954 (68A 
Stat. 917; 26 U.S.C. 7805))

[T.D. 7697, 45 FR 33976, May 21, 1980]



Sec.  301.9100-0  Outline of regulations.

    This section lists the paragraphs in Sec. Sec.  301.9100-1 through 
301.9100-3.

         Sec.  301.9100-1 Extensions of time to make elections.

    (a) Introduction.
    (b) Terms.
    (c) General standards for relief.
    (d) Exceptions.
    (e) Effective dates.

                 Sec.  301.9100-2 Automatic extensions.

    (a) Automatic 12-month extension.
    (1) In general.
    (2) Elections eligible for automatic 12-month extension.
    (b) Automatic 6-month extension.
    (c) Corrective action.
    (d) Procedural requirements.
    (e) Examples.

                   Sec.  301.9100-3 Other extensions.

    (a) In general.
    (b) Reasonable action and good faith.
    (1) In general.
    (2) Reasonable reliance on a qualified tax professional.
    (3) Taxpayer deemed to have not acted reasonably or in good faith.

[[Page 916]]

    (c) Prejudice to the interests of the Government.
    (1) In general.
    (i) Lower tax liability.
    (ii) Closed years.
    (2) Special rules for accounting method regulatory elections.
    (3) Special rules for accounting period regulatory elections.
    (d) Effect of amended returns.
    (1) Second examination under section 7605(b).
    (2) Suspension of the period of limitations under section 6501(a).
    (e) Procedural requirements.
    (1) In general.
    (2) Affidavit and declaration from taxpayer.
    (3) Affidavits and declarations from other parties.
    (4) Other information.
    (5) Filing instructions.
    (f) Examples.

[T.D. 8742, 62 FR 68169, Dec. 31, 1997]



Sec.  301.9100-1  Extensions of time to make elections.

    (a) Introduction. The regulations under this section and Sec. Sec.  
301.9100-2 and 301.9100-3 provide the standards the Commissioner will 
use to determine whether to grant an extension of time to make a 
regulatory election. The regulations under this section and Sec.  
301.9100-2 also provide an automatic extension of time to make certain 
statutory elections. An extension of time is available for elections 
that a taxpayer is otherwise eligible to make. However, the granting of 
an extension of time is not a determination that the taxpayer is 
otherwise eligible to make the election. Section 301.9100-2 provides 
automatic extensions of time for making regulatory and statutory 
elections when the deadline for making the election is the due date of 
the return or the due date of the return including extensions. Section 
301.9100-3 provides extensions of time for making regulatory elections 
that do not meet the requirements of Sec.  301.9100-2.
    (b) Terms. The following terms have the meanings provided below--
    Election includes an application for relief in respect of tax; a 
request to adopt, change, or retain an accounting method or accounting 
period; but does not include an application for an extension of time for 
filing a return under section 6081.
    Regulatory election means an election whose due date is prescribed 
by a regulation published in the Federal Register, or a revenue ruling, 
revenue procedure, notice, or announcement published in the Internal 
Revenue Bulletin (see Sec.  601.601(d)(2) of this chapter).
    Statutory election means an election whose due date is prescribed by 
statute.
    Taxpayer means any person within the meaning of section 7701(a)(1).
    (c) General standards for relief. The Commissioner in exercising the 
Commissioner's discretion may grant a reasonable extension of time under 
the rules set forth in Sec. Sec.  301.9100-2 and 301.9100-3 to make a 
regulatory election, or a statutory election (but no more than 6 months 
except in the case of a taxpayer who is abroad), under all subtitles of 
the Internal Revenue Code except subtitles E, G, H, and I.
    (d) Exceptions. Notwithstanding the provisions of paragraph (c) of 
this section, an extension of time will not be granted--
    (1) For elections under section 4980A(f)(5); or
    (2) For elections that are expressly excepted from relief or where 
alternative relief is provided by a statute, a regulation published in 
the Federal Register, or a revenue ruling, revenue procedure, notice, or 
announcement published in the Internal Revenue Bulletin (see Sec.  
601.601(d)(2) of this chapter).
    (e) Effective dates. In general, this section and Sec. Sec.  
301.9100-2 and 301.9100-3 apply to all requests for an extension of time 
submitted to the Internal Revenue Service (IRS) on or after December 31, 
1997. However, the automatic 12-month and 6-month extensions provided in 
Sec.  301.9100-2 apply to elections for which corrective action is taken 
on or after December 31, 1997. For other requests for an extension of 
time, see Sec. Sec.  301.9100-1T through 301.9100-3T in effect prior to 
December 31, 1997 (Sec. Sec.  301.9100-1T through 301.9100-3T as 
contained in the 26 CFR part 1 edition revised as of April 1, 1997).

[T.D. 8742, 62 FR 68169, Dec. 31, 1997]



Sec.  301.9100-2  Automatic extensions.

    (a) Automatic 12-month extension--(1) In general. An automatic 
extension of

[[Page 917]]

12 months from the due date for making a regulatory election is granted 
to make elections described in paragraph (a)(2) of this section provided 
the taxpayer takes corrective action as defined in paragraph (c) of this 
section within that 12-month extension period. For purposes of this 
paragraph (a), the due date for making a regulatory election is the 
extended due date of the return if the due date of the election is the 
due date of the return or the due date of the return including 
extensions and the taxpayer has obtained an extension of time to file 
the return. This extension is available regardless of whether the 
taxpayer timely filed its return for the year the election should have 
been made.
    (2) Elections eligible for automatic 12-month extension. The 
following regulatory elections are eligible for the automatic 12-month 
extension described in paragraph (a)(1) of this section--
    (i) The election to use other than the required taxable year under 
section 444;
    (ii) The election to use the last-in, first-out (LIFO) inventory 
method under section 472;
    (iii) The 15-month rule for filing an exemption application for a 
section 501(c)(9), 501(c)(17), or 501(c)(20) organization under section 
505;
    (iv) The 15-month rule for filing an exemption application for a 
section 501(c)(3) organization under section 508;
    (v) The election to be treated as a homeowners association under 
section 528;
    (vi) The election to adjust basis on partnership transfers and 
distributions under section 754;
    (vii) The estate tax election to specially value qualified real 
property (where the Internal Revenue Service (IRS) has not yet begun an 
examination of the filed return) under section 2032A(d)(1);
    (viii) The chapter 14 gift tax election to treat a qualified payment 
right as other than a qualified payment under section 2701(c)(3)(C)(i); 
and
    (ix) The chapter 14 gift tax election to treat any distribution 
right as a qualified payment under section 2701(c)(3)(C)(ii).
    (b) Automatic 6-month extension. An automatic extension of 6 months 
from the due date of a return excluding extensions is granted to make 
regulatory or statutory elections whose due dates are the due date of 
the return or the due date of the return including extensions provided 
the taxpayer timely filed its return for the year the election should 
have been made and the taxpayer takes corrective action as defined in 
paragraph (c) of this section within that 6-month extension period. This 
paragraph (b) does not apply to regulatory or statutory elections that 
must be made by the due date of the return excluding extensions.
    (c) Corrective action. For purposes of this section, corrective 
action means taking the steps required to file the election in 
accordance with the statute or the regulation published in the Federal 
Register, or the revenue ruling, revenue procedure, notice, or 
announcement published in the Internal Revenue Bulletin (see Sec.  
601.601(d)(2) of this chapter). For those elections required to be filed 
with a return, corrective action includes filing an original or an 
amended return for the year the regulatory or statutory election should 
have been made and attaching the appropriate form or statement for 
making the election. Taxpayers who make an election under an automatic 
extension (and all taxpayers whose tax liability would be affected by 
the election) must file their return in a manner that is consistent with 
the election and comply with all other requirements for making the 
election for the year the election should have been made and for all 
affected years; otherwise, the IRS may invalidate the election.
    (d) Procedural requirements. Any return, statement of election, or 
other form of filing that must be made to obtain an automatic extension 
must provide the following statement at the top of the document: ``FILED 
PURSUANT TO Sec.  301.9100-2''. Any filing made to obtain an automatic 
extension must be sent to the same address that the filing to make the 
election would have been sent had the filing been timely made. No 
request for a letter ruling is required to obtain an automatic 
extension. Accordingly, user fees do not apply to taxpayers taking 
corrective

[[Page 918]]

action to obtain an automatic extension.
    (e) Examples. The following examples illustrate the provisions of 
this section:

    Example 1. Automatic 12-month extension. Taxpayer A fails to make an 
election described in paragraph (a)(2) of this section when filing A's 
1997 income tax return on March 16, 1998, the due date of the return. 
This election does not affect the tax liability of any other taxpayer. 
The applicable regulation requires that the election be made by 
attaching the appropriate form to a timely filed return including 
extensions. In accordance with paragraphs (a) and (c) of this section, A 
may make the regulatory election by taking the corrective action of 
filing an amended return with the appropriate form by March 15, 1999 (12 
months from the March 16, 1998 due date of the return). If A obtained a 
6-month extension to file its 1997 income tax return, A may make the 
regulatory election by taking the corrective action of filing an amended 
return with the appropriate form by September 15, 1999 (12 months from 
the September 15, 1998 extended due date of the return).
    Example 2. Automatic 6-month extension. Taxpayer B fails to make an 
election not described in paragraph (a)(2) of this section when filing 
B's 1997 income tax return on March 16, 1998, the due date of the 
return. This election does not affect the tax liability of any other 
taxpayer. The applicable regulation requires that the election be made 
by attaching the appropriate form to a timely filed return including 
extensions. In accordance with paragraphs (b) and (c) of this section, B 
may make the regulatory election by taking the corrective action of 
filing an amended return with the appropriate form by September 15, 1998 
(6 months from the March 16, 1998 due date of the return).

[T.D. 8742, 62 FR 68170, Dec. 31, 1997]



Sec.  301.9100-3  Other extensions.

    (a) In general. Requests for extensions of time for regulatory 
elections that do not meet the requirements of Sec.  301.9100-2 must be 
made under the rules of this section. Requests for relief subject to 
this section will be granted when the taxpayer provides the evidence 
(including affidavits described in paragraph (e) of this section) to 
establish to the satisfaction of the Commissioner that the taxpayer 
acted reasonably and in good faith, and the grant of relief will not 
prejudice the interests of the Government.
    (b) Reasonable action and good faith--(1) In general. Except as 
provided in paragraphs (b)(3)(i) through (iii) of this section, a 
taxpayer is deemed to have acted reasonably and in good faith if the 
taxpayer--
    (i) Requests relief under this section before the failure to make 
the regulatory election is discovered by the Internal Revenue Service 
(IRS);
    (ii) Failed to make the election because of intervening events 
beyond the taxpayer's control;
    (iii) Failed to make the election because, after exercising 
reasonable diligence (taking into account the taxpayer's experience and 
the complexity of the return or issue), the taxpayer was unaware of the 
necessity for the election;
    (iv) Reasonably relied on the written advice of the Internal Revenue 
Service (IRS); or
    (v) Reasonably relied on a qualified tax professional, including a 
tax professional employed by the taxpayer, and the tax professional 
failed to make, or advise the taxpayer to make, the election.
    (2) Reasonable reliance on a qualified tax professional. For 
purposes of this paragraph (b), a taxpayer will not be considered to 
have reasonably relied on a qualified tax professional if the taxpayer 
knew or should have known that the professional was not--
    (i) Competent to render advice on the regulatory election; or
    (ii) Aware of all relevant facts.
    (3) Taxpayer deemed to have not acted reasonably or in good faith. 
For purposes of this paragraph (b), a taxpayer is deemed to have not 
acted reasonably and in good faith if the taxpayer--
    (i) Seeks to alter a return position for which an accuracy-related 
penalty has been or could be imposed under section 6662 at the time the 
taxpayer requests relief (taking into account any qualified amended 
return filed within the meaning of Sec.  1.6664-2(c)(3) of this chapter) 
and the new position requires or permits a regulatory election for which 
relief is requested;
    (ii) Was informed in all material respects of the required election 
and related tax consequences, but chose not to file the election; or
    (iii) Uses hindsight in requesting relief. If specific facts have 
changed since the due date for making the election

[[Page 919]]

that make the election advantageous to a taxpayer, the IRS will not 
ordinarily grant relief. In such a case, the IRS will grant relief only 
when the taxpayer provides strong proof that the taxpayer's decision to 
seek relief did not involve hindsight.
    (c) Prejudice to the interests of the Government--(1) In general. 
The Commissioner will grant a reasonable extension of time to make a 
regulatory election only when the interests of the Government will not 
be prejudiced by the granting of relief. This paragraph (c) provides the 
standards the Commissioner will use to determine when the interests of 
the Government are prejudiced.
    (i) Lower tax liability. The interests of the Government are 
prejudiced if granting relief would result in a taxpayer having a lower 
tax liability in the aggregate for all taxable years affected by the 
election than the taxpayer would have had if the election had been 
timely made (taking into account the time value of money). Similarly, if 
the tax consequences of more than one taxpayer are affected by the 
election, the Government's interests are prejudiced if extending the 
time for making the election may result in the affected taxpayers, in 
the aggregate, having a lower tax liability than if the election had 
been timely made.
    (ii) Closed years. The interests of the Government are ordinarily 
prejudiced if the taxable year in which the regulatory election should 
have been made or any taxable years that would have been affected by the 
election had it been timely made are closed by the period of limitations 
on assessment under section 6501(a) before the taxpayer's receipt of a 
ruling granting relief under this section. The IRS may condition a grant 
of relief on the taxpayer providing the IRS with a statement from an 
independent auditor (other than an auditor providing an affidavit 
pursuant to paragraph (e)(3) of this section) certifying that the 
interests of the Government are not prejudiced under the standards set 
forth in paragraph (c)(1)(i) of this section.
    (2) Special rules for accounting method regulatory elections. The 
interests of the Government are deemed to be prejudiced except in 
unusual and compelling circumstances if the accounting method regulatory 
election for which relief is requested--
    (i) Is subject to the procedure described in Sec.  1.446-1(e)(3)(i) 
of this chapter (requiring the advance written consent of the 
Commissioner);
    (ii) Requires an adjustment under section 481(a) (or would require 
an adjustment under section 481(a) if the taxpayer changed to the method 
of accounting for which relief is requested in a taxable year subsequent 
to the taxable year the election should have been made);
    (iii) Would permit a change from an impermissible method of 
accounting that is an issue under consideration by examination, an 
appeals office, or a federal court and the change would provide a more 
favorable method or more favorable terms and conditions than if the 
change were made as part of an examination; or
    (iv) Provides a more favorable method of accounting or more 
favorable terms and conditions if the election is made by a certain date 
or taxable year.
    (3) Special rules for accounting period regulatory elections. The 
interests of the Government are deemed to be prejudiced except in 
unusual and compelling circumstances if an election is an accounting 
period regulatory election (other than the election to use other than 
the required taxable year under section 444) and the request for relief 
is filed more than 90 days after the due date for filing the Form 1128, 
Application to Adopt, Change, or Retain a Tax Year (or other required 
statement).
    (d) Effect of amended returns--(1) Second examination under section 
7605(b). Taxpayers requesting and receiving an extension of time under 
this section waive any objections to a second examination under section 
7605(b) for the issue(s) that is the subject of the relief request and 
any correlative adjustments.
    (2) Suspension of the period of limitations under section 6501(a). A 
request for relief under this section does not suspend the period of 
limitations on assessment under section 6501(a). Thus, for relief to be 
granted, the IRS may require the taxpayer to consent under section 
6501(c)(4) to an extension of the period of limitations on assessment 
for

[[Page 920]]

the taxable year in which the regulatory election should have been made 
and any taxable years that would have been affected by the election had 
it been timely made.
    (e) Procedural requirements--(1) In general. Requests for relief 
under this section must provide evidence that satisfies the requirements 
in paragraphs (b) and (c) of this section, and must provide additional 
information as required by this paragraph (e).
    (2) Affidavit and declaration from taxpayer. The taxpayer, or the 
individual who acts on behalf of the taxpayer with respect to tax 
matters, must submit a detailed affidavit describing the events that led 
to the failure to make a valid regulatory election and to the discovery 
of the failure. When the taxpayer relied on a qualified tax professional 
for advice, the taxpayer's affidavit must describe the engagement and 
responsibilities of the professional as well as the extent to which the 
taxpayer relied on the professional. The affidavit must be accompanied 
by a dated declaration, signed by the taxpayer, which states: ``Under 
penalties of perjury, I declare that I have examined this request, 
including accompanying documents, and, to the best of my knowledge and 
belief, the request contains all the relevant facts relating to the 
request, and such facts are true, correct, and complete.'' The 
individual who signs for an entity must have personal knowledge of the 
facts and circumstances at issue.
    (3) Affidavits and declarations from other parties. The taxpayer 
must submit detailed affidavits from the individuals having knowledge or 
information about the events that led to the failure to make a valid 
regulatory election and to the discovery of the failure. These 
individuals must include the taxpayer's return preparer, any individual 
(including an employee of the taxpayer) who made a substantial 
contribution to the preparation of the return, and any accountant or 
attorney, knowledgeable in tax matters, who advised the taxpayer with 
regard to the election. An affidavit must describe the engagement and 
responsibilities of the individual as well as the advice that the 
individual provided to the taxpayer. Each affidavit must include the 
name, current address, and taxpayer identification number of the 
individual, and be accompanied by a dated declaration, signed by the 
individual, which states: ``Under penalties of perjury, I declare that I 
have examined this request, including accompanying documents, and, to 
the best of my knowledge and belief, the request contains all the 
relevant facts relating to the request, and such facts are true, 
correct, and complete.''
    (4) Other information. The request for relief filed under this 
section must also contain the following information--
    (i) The taxpayer must state whether the taxpayer's return(s) for the 
taxable year in which the regulatory election should have been made or 
any taxable years that would have been affected by the election had it 
been timely made is being examined by a district director, or is being 
considered by an appeals office or a federal court. The taxpayer must 
notify the IRS office considering the request for relief if the IRS 
starts an examination of any such return while the taxpayer's request 
for relief is pending;
    (ii) The taxpayer must state when the applicable return, form, or 
statement used to make the election was required to be filed and when it 
was actually filed;
    (iii) The taxpayer must submit a copy of any documents that refer to 
the election;
    (iv) When requested, the taxpayer must submit a copy of the 
taxpayer's return for any taxable year for which the taxpayer requests 
an extension of time to make the election and any return affected by the 
election; and
    (v) When applicable, the taxpayer must submit a copy of the returns 
of other taxpayers affected by the election.
    (5) Filing instructions. A request for relief under this section is 
a request for a letter ruling. Requests for relief should be submitted 
in accordance with the applicable procedures for requests for a letter 
ruling and must be accompanied by the applicable user fee.
    (f) Examples. The following examples illustrate the provisions of 
this section:


[[Page 921]]


    Example 1. Taxpayer discovers own error. Taxpayer A prepares A's 
1997 income tax return. A is unaware that a particular regulatory 
election is available to report a transaction in a particular manner. A 
files the 1997 return without making the election and reporting the 
transaction in a different manner. In 1999, A hires a qualified tax 
professional to prepare A's 1999 return. The professional discovers that 
A did not make the election. A promptly files for relief in accordance 
with this section. Assume paragraphs (b)(3) (i) through (iii) of this 
section do not apply. Under paragraph (b)(1)(i) of this section, A is 
deemed to have acted reasonably and in good faith because A requested 
relief before the failure to make the regulatory election was discovered 
by the IRS.
    Example 2. Reliance on qualified tax professional. Taxpayer B hires 
a qualified tax professional to advise B on preparing B's 1997 income 
tax return. The professional was competent to render advice on the 
election and B provided the professional with all the relevant facts. 
The professional fails to advise B that a regulatory election is 
necessary in order for B to report income on B's 1997 return in a 
particular manner. Nevertheless, B reports this income in a manner that 
is consistent with having made the election. In 2000, during the 
examination of the 1997 return by the IRS, the examining agent discovers 
that the election has not been filed. B promptly files for relief in 
accordance with this section, including attaching an affidavit from B's 
professional stating that the professional failed to advise B that the 
election was necessary. Assume paragraphs (b)(3) (i) through (iii) of 
this section do not apply. Under paragraph (b)(1)(v) of this section, B 
is deemed to have acted reasonably and in good faith because B 
reasonably relied on a qualified tax professional and the tax 
professional failed to advise B to make the election.
    Example 3. Accuracy-related penalty. Taxpayer C reports income on 
its 1997 income tax return in a manner that is contrary to a regulatory 
provision. In 2000, during the examination of the 1997 return, the IRS 
raises an issue regarding the reporting of this income on C's return and 
asserts the accuracy-related penalty under section 6662. C requests 
relief under this section to elect an alternative method of reporting 
the income. Under paragraph (b)(3)(i) of this section, C is deemed to 
have not acted reasonably and in good faith because C seeks to alter a 
return position for which an accuracy-related penalty could be imposed 
under section 6662.
    Example 4. Election not requiring adjustment under section 481(a). 
Taxpayer D prepares D's 1997 income tax return. D is unaware that a 
particular accounting method regulatory election is available. D files 
D's 1997 return without making the election and uses another permissible 
method of accounting. The applicable regulation provides that the 
election is made on a cut-off basis (without an adjustment under section 
481(a)). In 1998, D requests relief under this section to make the 
election under the regulation. If D were granted an extension of time to 
make the election, D would pay no less tax than if the election had been 
timely made. Assume that paragraphs (c)(2) (i), (iii), and (iv) of this 
section do not apply. Under paragraph (c)(2)(ii) of this section, the 
interests of the Government are not deemed to be prejudiced because the 
election does not require an adjustment under section 481(a).
    Example 5. Election requiring adjustment under section 481(a). The 
facts are the same as in Example 4 of this paragraph (f) except that the 
applicable regulation provides that the election requires an adjustment 
under section 481(a). Under paragraph (c)(2)(ii) of this section, the 
interests of the Government are deemed to be prejudiced except in 
unusual or compelling circumstances.
    Example 6. Under examination by the IRS. A regulation permits an 
automatic change in method of accounting for an item on a cut-off basis. 
Taxpayer E reports income on E's 1997 income tax return using an 
impermissible method of accounting for the item. In 2000, during the 
examination of the 1997 return by the IRS, the examining agent notifies 
E in writing that its method of accounting for the item is an issue 
under consideration. Any change from the impermissible method made as 
part of an examination is made with an adjustment under section 481(a). 
E requests relief under this section to make the change pursuant to the 
regulation for 1997. The change on a cut-off basis under the regulation 
would be more favorable than if the change were made with an adjustment 
under section 481(a) as part of an examination. Under paragraph 
(c)(2)(iii) of this section, the interests of the Government are deemed 
to be prejudiced except in unusual and compelling circumstances because 
E seeks to change from an impermissible method of accounting that is an 
issue under consideration in the examination on a basis that is more 
favorable than if the change were made as part of an examination.

[T.D. 8742, 62 FR 68171, Dec. 31, 1997]



Sec.  301.9100-4T  Time and manner of making certain elections 
under the Economic Recovery Tax Act of 1981.

    (a) Miscellaneous elections--(1) Elections to which this paragraph 
applies. This paragraph applies to the following elections provided 
under the Economic Recovery Tax Act of 1981:

[[Page 922]]



----------------------------------------------------------------------------------------------------------------
                                                    Description of
Section of Act          Section of code                election                 Availability of election
----------------------------------------------------------------------------------------------------------------
201(a)........  168(b)(3).....................  Different recovery     Property placed in service after 1980.
                                                 period.
201(a)........  168(d)(2)(A)..................  Inclusion in income    Property placed in service after 1980.
                                                 of entire proceeds
                                                 of disposition.
201(a)........  168(e)(2).....................  Exclusion of property  Property placed in service after 1980.
                                                 from recovery system.
201(a)........  168(f)(2)(C)..................  Different recovery     Property placed in service after 1980.
                                                 period for property
                                                 used outside U.S..
202(a)........  179...........................  Expensing certain      Taxable years beginning after 1981.
                                                 depreciable property.
237...........  474...........................  For small business to  Taxable years beginning after 1981.
                                                 use one inventory
                                                 pool when LIFO is
                                                 elected.
266(a)........  ..............................  Deferral of            Taxable years ending after June 30, 1980.
                                                 commencement of
                                                 amortization period
                                                 for motor carrier
                                                 operating authority.
508(c)........  ..............................  Application of title   Property held on June 23, 1981.
                                                 V of the Act to all
                                                 regulated futures
                                                 contracts or
                                                 positions held on
                                                 June 23, 1981.
509...........  ..............................  Application of Code    Property held during taxable year that
                                                 sec. 1256 and          includes June 23, 1981.
                                                 extension of time
                                                 for payment of tax
                                                 for all regulated
                                                 futures contracts
                                                 held at any time
                                                 during taxable year
                                                 that includes June
                                                 23, 1981.
----------------------------------------------------------------------------------------------------------------

    (2) Time for making elections--(i) In general. Except as otherwise 
provided in this paragraph (a)(2), the elections specified in paragraph 
(a)(1) of this section shall be made by the later of--
    (A) The due date (taking extensions into account) of the income tax 
return for the taxable year for which the election is to be effective, 
or
    (B) April 15, 1982.
    (ii) No extension of time for payment. Payments of tax due shall be 
made in accordance with chapter 62 of the Code.
    (iii) Elections under section 508(c) or 509 of the Act. Elections 
under section 508(c) or 509 of the Act shall be made by the due date 
(taking extensions into account) of the income tax return for the 
taxable year for which the election is to be effective.
    (3) Manner of making elections. The elections specified in paragraph 
(a)(1) of this section shall be made by attaching a statement to the 
income tax return (or amended return) for the taxable year for which the 
election is made. Except as otherwise provided in the return or in the 
instructions accompanying the return for the taxable year, the statement 
shall--
    (i) Contain the name, address, and taxpayer identification number of 
the electing taxpayer,
    (ii) Identify the election,
    (iii) Indicate the section of the Code (or, if the provision is not 
codified, the section of the Act) under which the election is being 
made,
    (iv) Specify the period for which the election is being made and the 
property to which the election is to apply, and
    (v) Provide any information required by the relevant statutory 
provisions and any information necessary to show that the taxpayer is 
entitled to make the election.
    (b) Designation of principal campaign committee. This paragraph 
applies to the designation of a principal campaign committee under 
section 527(h) of the Code, as added by section 128 of the Act. 
References in this section to ``elections'' include designations under 
section 527(h). Under that provision a candidate for Congress may 
designate one committee as the candidate's principal campaign committee. 
The political organization taxable income of that committee shall be 
taxed at the appropriate rates under section 11(b); that income is 
ordinarily taxed at the highest rate specified in section 11(b). The 
candidate shall designate the principal campaign committee by filing a 
statement of designation with the income tax return of the committee for 
the first taxable year of the committee ending after 1981 for which the 
designation is to be effective. The return and the statement shall be 
filed by the due date (taking extensions into account) of the return. 
The rules of section 21 (relating to effects of changes in rates during 
a taxable year) shall apply in the case of any taxable year beginning 
before 1982 for which a designation is made. The statement of 
designation

[[Page 923]]

shall be signed by the candidate and shall--
    (1) Contain the name, address, and taxpayer identification number of 
the candidate and of the committee,
    (2) Identify the statement as a designation under section 527(h) of 
the Code, and
    (3) Designate the committee as the principal campaign committee of 
the candidate.

The candidate shall attach to the statement a copy of the statement of 
designation filed with the Federal Election Commission.
    (c) Election to be treated as a qualified fund for purposes of the 
research credit. This paragraph applies to the election provided under 
section 44F(e)(4) of the Code, as added by section 221(a) of the Act. 
The election to be treated as a qualified fund for purposes of the 
research credit may be made effective as of any date after June 30, 
1981, and before January 1, 1986. An organization shall make this 
election by filing with the service center with which it files its 
annual return a statement signed by a person authorized to act on behalf 
of the organization. That statement shall--
    (1) Contain the name, address, and taxpayer identification number of 
the electing organization and of the organization that established and 
maintains the electing organization,
    (2) Identify the election as an election under section 44F(e)(4) of 
the Code,
    (3) Specify the date on which the election is to become effective 
(in the case of elections filed before February 1, 1982, not earlier 
than the date that is 7 months before the date on which the election is 
filed; in the case of elections filed after January 31, 1982, not 
earlier than the date on which the election is filed), and
    (4) Provide all information necessary to show that the organization 
is entitled to make the election.
    (d) Election to treat qualified subchapter S trust as grantor trust. 
This paragraph applies to the election provided under section 1371(g)(2) 
of the Code, as added by section 234(b) of the Act. The election to 
treat a qualified subchapter S trust as a grantor trust described in 
section 1371(e)(1)(A) of the Code is available for taxable years 
beginning after 1981. The beneficiary of the trust (or the legal 
representative of the beneficiary) shall make this election by signing 
and filing with the service center with which the subchapter S 
corporation files its income tax return a statement that--
    (1) Contains the name, address, and taxpayer identification number 
of the beneficiary, the trust, and the subchapter S corporation,
    (2) Identifies the election as an election under section 1371(g)(2) 
of the Code,
    (3) Specifies the date on which the election is to become effective 
(not earlier than 60 days before the date on which the election is 
filed), and
    (4) Provides all information necessary to show that the beneficiary 
is entitled to make the election.

Note that this election does not itself constitute an election as to the 
status of the corporation; the corporation must make the election 
provided in section 1372(a) to be treated as an electing small business 
corporation.
    (e) Election to have Code section 422A apply to options granted 
before 1981. This paragraph applies to the election provided under 
section 251(c)(1)(B) of the Act to have Code section 422A apply to 
certain options granted before 1981. A corporation may make only one 
election under this provision. Thus, a corporation that makes an 
election under this provision with respect to certain options granted 
before 1981 may not make any subsequent election under this provision 
with respect to other options granted before 1981. An election under 
this provision shall be made no later than the due date (taking 
extensions into account) of the income tax return of the corporation for 
its first taxable year during which either an option subject to the 
election or an option subject to the rules of section 422A of the Code 
is exercised. In any event, no election under this provision will be 
permitted after the due date (taking extensions into account) of the 
income tax return for the taxable year including December 31, 1982. A 
corporation shall make this election by attaching to its income tax 
return (or amended return) a statement that--

[[Page 924]]

    (1) Contains the name, address, and taxpayer identification number 
of the corporation,
    (2) Identifies the election as an election under section 
251(c)(1)(B) of the Economic Recovery Tax Act of 1981,
    (3) Specifies the options to which the election applies, and
    (4) Provides all information necessary to show that the corporation 
is entitled to make the election.
    (f) Election to increase basis of property on which additional 
estate tax is imposed. This paragraph applies to the election provided 
under section 1016(c) of the Code, as amended by section 421(g) of the 
Act. The election to increase the basis of property on which additional 
estate tax is imposed is available with respect to the estates of 
decedents dying after 1981. The qualified heir shall make this election 
by filing with the Form 706-A (Additional Estate Tax Return) a statement 
that--
    (1) Contains the name, address, and taxpayer identification number 
of the qualified heir and of the estate,
    (2) Identifies the election as an election under section 1016(c) of 
the Code,
    (3) Specifies the property with respect to which the election is 
made, and
    (4) Provides any additional information required by the instructions 
accompanying Form 706-A.

A qualified heir making an election under this paragraph must pay 
interest on the additional estate tax from the date that is 9 months 
after the date of the decedent's death to the date of the payment of the 
additional estate tax.
    (g) Revocation of elections. Elections under paragraph (f) of this 
section are irrevocable. Other elections made under this section may be 
revoked only with the consent of the Commissioner. An application for 
consent to revoke an election shall be signed by the applicant and filed 
with the service center with which the election was filed and shall--
    (1) Contain the name, address, and taxpayer identification number of 
all parties identified in connection with the election,
    (2) Identify the election being revoked by reference to the section 
of the Code or Act under which the election was made,
    (3) Specify the scope of the election, and
    (4) Explain why the applicant seeks to revoke the election.
    (h) Additional information required. If later regulations issued 
under the section of the Code or Act under which the election was made 
require the furnishing of information in addition to that which was 
furnished with the statement of election and an office of the Internal 
Revenue Service requests the taxpayer to provide the additional 
information, the taxpayer shall furnish the additional information in a 
statement filed with that office of the Internal Revenue Service within 
60 days after the request is made. This statement shall also--
    (1) Contain the name, address, and taxpayer identification numbers 
of all parties identified in connection with the election,
    (2) Identify the election by reference to the section of the Code or 
Act under which the election was made, and
    (3) Specify the scope of the election.

If the additional information is not provided within 60 days after the 
request is made, the election may, at the discretion of the 
Commissioner, be held invalid.
    (i) Effective date. This section applies to elections made after 
August 12, 1981.

[T.D. 7793, 46 FR 54538, Nov. 3, 1981. Redesignated by T.D. 8435, 57 FR 
43895, Sept. 23, 1992. Amended by T.D. 9481, 75 FR 17857, Apr. 8, 2010]



Sec.  301.9100-5T  Time and manner of making certain elections 
under the Tax Equity and Fiscal Responsibility Act of 1982.

    (a) Miscellaneous elections--(1) Elections to which this paragraph 
applies. This paragraph applies to the following elections provided 
under the Tax Equity and Fiscal Responsibility Act of 1982.

----------------------------------------------------------------------------------------------------------------
                                                                                             Availability of
            Section of act                 Section of code      Description of election          election
----------------------------------------------------------------------------------------------------------------
201(c)...............................  58(i)(1)...............  Optional 10-year write   Taxable years beginning
                                                                 off of certain tax       after Dec. 31, 1982.
                                                                 preferences.
201(c)(1)............................  58(i)(4)...............  Intangible drilling and  Taxable years beginning
                                                                 development costs.       after Dec. 31, 1982.

[[Page 925]]

 
205(a)...............................  48(q)..................  Reduced investment       Generally to period
                                                                 credit in lieu of        beginning after Dec.
                                                                 basis adjustment.        31, 1982.
256(f)...............................  820....................  Insurance company        Contracts which took
                                                                 revocation of election   effect in 1980 or
                                                                 under section 820.       1981.
----------------------------------------------------------------------------------------------------------------

    (2) Time for making elections--(i) In general. Except as otherwise 
provided in paragraph (a)(2) of this section, the elections specified in 
paragraph (a)(1) of this section shall be made by the later of--
    (A) The due date (taking extensions into account) of the income tax 
return for the taxable year for which the election is to be effective, 
or
    (B) April 15, 1983.
    (ii) No extensions of time for payment. Payments of tax due shall be 
made in accordance with chapter 62 of the Code.
    (iii) Election by insurance companies relating to repeal of section 
820. Elections under section 256(f) of the Act, relating to special rule 
allowing reinsured insurance company to revoke an election under section 
820, must be made before March 5, 1983.
    (3) Manner of making elections. The elections specified in paragraph 
(a)(1) of this section shall be made by attaching a statement to the 
income tax return (or amended return) for the taxable year for which the 
election is made. Except as otherwise provided in the return or in the 
instructions accompanying the return for the taxable year, the statement 
shall--
    (i) Contain the name, address, and taxpayer identification number of 
the electing taxpayer,
    (ii) Identify the election,
    (iii) Indicate the section of the Code (or, if the provision is not 
codified, the section of the Act) under which the election is being 
made,
    (iv) Specify the period for which the election is being made and the 
property to which the election is to apply, and
    (v) Provide any information required by the relevant statutory 
provisions and any information necessary to show that the taxpayer is 
entitled to make the election.
    (b) Special rules for reduced investment credit in lieu of basis 
adjustment--(1) Appropriate return. For purposes of section 48(q) of the 
Code and paragraph (a) (2)(i)(A) and (3) of this section the term 
``income tax return for the taxable year for which the election is 
effective'' with respect to any property is the tax return for the 
taxable year in which such property is placed in service, or in the case 
of property to which an election under section 46(d) (relating to 
qualified progress expenditures) applies, the appropriate return is the 
return for the first taxable year for which qualified progress 
expenditures were taken into account with respect to such property.
    (2) Applicability of election. In general, the election under 
section 48(q) is applicable to periods beginning after December 31, 1982 
under rules similar to the rules of section 48(m) of the Code. However, 
the election does not apply to property excepted by section 205(c)(1)(B) 
of the Act.
    (c) Election by a reinsurer to make installment payments of taxes 
owed resulting from the repeal of section 820. This paragraph applies to 
the election by an insurance company provided under section 256(e) of 
the Act. A reinsurer that is a calendar year tax-payer shall be 
considered to have made an election under section 256(e) of the Act if 
by March 15, 1983 it files its income tax return (or an application on 
Form 7004 for an automatic extension of time to file its income tax 
return), with the statement required to be filed under this paragraph 
attached and, unless the reinsurer is making a further election under 
section 256(e)(2)(B) of the Act, pays one-third of the amount described 
in section 256(e)(1) of the Act by March 15, 1983. A reinsurer making an 
election under section 256(e)(2)(B) of the Act must pay one-sixth of the 
amount described in section 256(e)(1) of the Act by March 15, 1983 and 
one-sixth of such amount by June 15, 1983. The statement required to be 
filed under this paragraph shall--
    (1) Contain the name, address, and tax-payer identification number 
of the corporation,
    (2) Identify the election as an election under section 256(e) of the 
Act, and section 256(e)(2)(B) if applicable, and

[[Page 926]]

    (3) Provide all information necessary to show the taxpayer is 
entitled to make the election.

For provisions relating to the use of authorized financial institutions 
in depositing the taxes, see Sec.  1.6302-1.
    (d) [Reserved]
    (e) Additional information required. If later regulations issued 
under the section of the Code or Act under which the election was made 
require the furnishing of information in addition to that which was 
furnished with the statement of election and an office of the Internal 
Revenue Service requests the taxpayer to provide the additional 
information, the taxpayer shall furnish the additional information in a 
statement filed with that office of the Internal Revenue Service within 
60 days after the request is made. This statement shall also--
    (1) Contain the name, address, and taxpayer identification numbers 
of all parties identified in connection with the election,
    (2) Identify the election by reference to the section of the Code or 
Act under which the election was made, and
    (3) Specify the scope of the election.

If the additional information is not provided within 60 days after the 
request is made, the election may, at the discretion of the 
Commissioner, be held invalid.
    (f) Effective date. This section applies to elections made after 
September 3, 1982.

[T.D. 7870, 48 FR 1486, Jan. 13, 1983. Redesignated by T.D. 8435, 57 FR 
43895, Sept. 23, 1992, as amended by T.D. 8952, 66 FR 33832, June 26, 
2001]



Sec.  301.9100-6T  Time and manner of making certain elections 
under the Deficit Reduction Act of 1984.

    (a) Miscellaneous elections--(1) Elections to which this paragraph 
applies. This paragraph applies to the following elections provided 
under the Deficit Reduction Act of 1984 (the Act):

                       Table 1 to Paragraph (a)(1)

------------------------------------------------------------------------
  Section of     Section of      Description of        Availability of
     act            code            election              election
------------------------------------------------------------------------
31(a) and      168(j)(4)(E)(  Election by certain   Generally for
 31(g)(16).     ii).           501(c)(12)            property placed in
                               organizations to be   service after May
                               treated as taxable    23, 1983, or leased
                               organizations and     after such date.
                               to have certain
                               arbitrage profits
                               taxed.
31(f)........  46(e)(4)(C)..  Election by section   Generally for
                               593 organizations     property placed in
                               not to apply          service after Nov.
                               section 46(e)(4)(A).  5, 1983, or leased
                                                     after such date.
41(a)........  1282(b)(2)...  Election to have      Taxable years ending
                               section 1281 apply    after July 18,
                               to all short-term     1984, with respect
                               obligations           to obligations
                               acquired on or        acquired after such
                               after the first day   date.
                               of the first
                               taxable year to
                               which the election
                               relates (but not to
                               obligations
                               acquired before
                               July 19, 1984).
41(a)........  1283(c)(2)...  Election to have       Do.
                               section 1283(c)(1)
                               not apply to all
                               obligations
                               acquired on or
                               after the first day
                               of the first
                               taxable year to
                               which the election
                               relates (but not to
                               obligations
                               acquired before
                               July 19, 1984).
113..........  48(r)........  Election by all       Property placed in
                               persons having an     service after Mar.
                               ownership interest    15, 1984.
                               in a sound
                               recording to treat
                               such recording as 3-
                               yr. recovery
                               property.
431(e)(2)....  46(c) (8) and  Election to apply     Generally to
                (9),           the investment tax    property placed in
                48(d)(6),      credit at risk        service between
                47(d) (1)      rules as modified     Feb. 18, 1981, and
                and (2).       by the Tax Reform     July 19, 1984.
                               Act of 1984 to all
                               transactions
                               covered by sec.
                               211(f) of the
                               Economic Recovery
                               Tax Act of 1981.
712(l)(7)(B).  304..........  Election to apply     Stock acquired after
                               certain technical     Aug. 31, 1982, and
                               corrections of sec.   before June 19,
                               304 to all            1984.
                               transfers covered
                               by the changes made
                               to sec. 304 by the
                               Tax Equity and
                               Fiscal
                               Responsibility Act
                               of 1982.
712(l)(7)(C)(  304..........  Election with         Generally to
 ii).                          respect to bank       transfers to bank
                               holding companies     holding companies
                               to apply certain      formed pursuant to
                               technical             application filed
                               corrections of sec.   with Federal
                               304 to stock          Reserve Board
                               acquired after June   before June 18,
                               18, 1984.             1984.
1066.........  163(d).......  Elections to treat    With respect to S
                               certain income from   corporation taxable
                               S corporations, for   years beginning in
                               purposes of sec.      1983 or 1984.
                               163(d), as such
                               income would have
                               been treated prior
                               to the Subchapter S
                               Revision Act of
                               1982.

[[Page 927]]

 
1078.........  .............  Election to exclude   Payments in taxable
                               from gross income     years beginning
                               payments from U.S.    after Dec. 31,
                               Forest Service as     1979.
                               result of
                               restricting
                               motorized traffic
                               in the boundary
                               waters canoe area.
------------------------------------------------------------------------

    (2) Time for making elections--(i) In general. Except as otherwise 
provided in this paragraph (a)(2), the elections specified in paragraph 
(a)(1) of this section shall be made by the later of--
    (A) The due date (taking extensions into account) of the tax return 
for the first taxable year for which the election is to be effective, or
    (B) April 15, 1985 (in which case the election generally must be 
made by amended return).
    (ii) No extension of time for payment. Payments of tax due shall be 
made in accordance with chapter 62 of the Code.
    (iii) [Reserved]
    (iv) Time for making the election to exclude from gross income 
payments received from the U.S. Forest Service as a result of the 
restriction of motorized traffic in the Boundary Waters Canoe Area. 
Elections under section 1078 of the Act shall be made by the later of 
the expiration of the period for making a claim for credit or refund of 
the tax imposed by chapter 1 of the Code for the taxable year in which 
the reinvestment of the payment occurred, or July 18, 1985. Amended 
returns for years after the year for which the election is made must be 
filed if making this election affects the tax liability for such years.
    (3) Manner of making elections--(i) In general. The elections 
specified in paragraph (a)(1) of this section shall be made by attaching 
a statement to the tax return for the taxable year in which the election 
is made. If because of paragraph (a)(2)(i)(B) the election may be filed 
after the due date of the tax return for the first taxable year for 
which the election is to be effective, such election must be attached to 
a tax return or amended return for the taxable year to which the 
election relates. Except as otherwise provided in the return or in the 
instructions accompanying the return for the taxable year, the statement 
shall--
    (A) Contain the name, address, and taxpayer identification number of 
the electing taxpayer,
    (B) Identify the election,
    (C) Indicate the section of the Code (or, if the provision is not 
codified, the section of the Act) under which the election is made,
    (D) Specify, as applicable, the period for which the election is 
being made and/or the property or other items to which the election is 
to apply, and
    (E) Provide any information required by the relevant statutory 
provisions and any information necessary to show that the taxpayer is 
entitled to make the election.
    (ii) Special rules for making the election with respect to sound 
recordings. The election under section 48(r), as amended by section 113 
of the Act, shall be made separately for each sound recording and must 
be made by all persons having an ownership interest in the sound 
recording. In the case of an ownership interest held by a partnership or 
an S corporation, the partnership or S corporation shall make the 
election. Each person making the election shall do so in accordance with 
paragraph (a) (2) and (3) of this section, and shall identify in the 
statement described in paragraph (a)(3) of this section the persons with 
ownership interests in the sound recording, and shall state that each 
such person is making the election with respect to that sound recording.
    (iii) Special rules for making the election with respect to 
redemption through use of related corporations. For either election 
available under section 712(l)(7) of the Act (relating to redemptions 
through related corporations) to be effective, such election must be 
made jointly by both the issuing and acquiring corporations. The 
election is made jointly when both the issuing and acquiring 
corporations make the election in accordance with paragraph (a) (2) and 
(3) of this section.

[[Page 928]]

    (iv) Special rules for making the election for investment tax credit 
at risk rules. The election under section 431(e)(2) of the Act is made 
by filing an amended return for the first taxable year ending after 
February 18, 1981, during which taxable year property, to which the 
amendments made by section 211(f) of the Economic Recovery Tax Act of 
1981 apply, was placed in service. If that taxable year is a closed 
year, the election is made by filing an amended return for the first 
succeeding open taxable year, but in such event this election can be 
made only if the aggregate amount of the investment tax credit that 
would have been allowable in the closed years had the election been 
effective for those years is greater than or equal to the amount of the 
investment tax credits actually claimed in the closed years. In the case 
of partnerships and S corporations, the election under section 431(e) is 
made, respectively, at the partner or the shareholder level. Any 
election made under section 431(e) shall apply to all property of the 
taxpayer to which the amendments made by section 211(f) of the Economic 
Recovery Tax Act of 1981 apply. Amended returns must be filed for any 
year the tax liability for which is affected by making this election.
    (4) Revocation. The elections under Act sections 31(a), 31(g)(16), 
31(f), 113, 431(e)(2), and 712(l)(7) (B) and (C)(ii) are irrevocable. 
Elections under Act sections 41(a) (Code sections 1282(b)(2) and 
1283(c)(2)), 1066, and 1078 are revocable only with the consent of the 
Commissioner.
    (b) Church or qualified church-controlled organization's election of 
exemption from social security taxes under chapter 21--(1) In general. 
This paragraph applies to the election under section 3121(w) of the 
Code, as added by section 2603(b) of the Act, by a church or qualified 
church-controlled organization (as defined in section 3121(w)(3)) that 
service performed in the employ of such church or organization shall be 
excluded from employment for purposes of title II of the Social Security 
Act and chapter 21 of the Internal Revenue Code. Any election made under 
section 3121(w) shall apply to all services performed on or after 
January 1, 1984, by employees of such church or organization (whether or 
not they were employees on that date or on the date the election is 
made). Employees of the electing church or organization are subject to 
the provisions of chapter 2 of the Code (relating to the tax on self-
employment income) as amended by section 2603 (c)(2) and (d)(2) of the 
Act for service performed for such church or organization on or after 
January 1, 1984.
    (2) Time for making the election. Any election under section 3121(w) 
by a church or qualified church-controlled organization for which a 
quarterly employment tax return for the tax imposed under section 3111 
is due (or would be due but for the election) on October 31, 1984, must 
be made on or before October 30, 1984. Any election under section 
3121(w) by a church or organization for which the first quarterly 
employment tax return for the tax imposed under section 3111 is due (or 
would be due but for this election) after October 31, 1984, must be made 
on or before the day before the first date that such tax return would be 
due from the church or organization (disregarding any extension of such 
due date). A purported election filed after the date prescribed in this 
paragraph (b)(2) shall be void.
    (3) Manner of making the election. To make an election under section 
3121(w), a church or qualified church-controlled organization must 
certify that it is opposed for religious reasons to the payment of the 
tax imposed by section 3111 (relating to the employer tax) of the Code. 
The election and certification are made by executing and filing Form 
8274 in accordance with the form and its instructions. The form shall be 
signed by an official authorized to sign tax returns for the church or 
organization. Where tax imposed by section 3111 is reported (or would be 
reported but for this election) with respect to more than one church or 
organization on a single quarterly employment tax return, and the 
election under section 3121(w) is made, then all of the churches and 
organizations covered by the last such return filed before such election 
was made for which the time for making the election has not expired 
shall be covered by the election unless

[[Page 929]]

specifically excluded by stating such exclusion in the election.
    (4) Refunds of FICA taxes paid. Where a church or qualified church-
controlled organization makes a timely election under section 3121(w), a 
refund, without interest, shall be made to such church or organization 
of any taxes paid under sections 3101 and 3111 with respect to service 
performed after December 31, 1983, covered by the election. However, the 
refund will be made only if the church or organization agrees on its 
claim for the refund to pay to each employee covered by the election the 
portion of the refund attributable to the tax imposed on the wages of 
the employee by section 3101. The employee may not receive any other 
refund of such taxes. The claim for refund shall be made by the church 
or organization by filing Form 843 with the service center where the 
Form 941 on which the taxes subject to refund was filed. Form 843 shall 
be executed in accordance with the form and its instructions, and also 
in accordance with the instructions to Form 8274 that relate to Form 
843.
    (5) Irrevocability of election except by Commissioner. An election 
under section 3121 shall be irrevocable by the electing church or 
organization. The Commissioner, however, shall permanently revoke the 
election if the church or organization fails to furnish the information 
required under section 6051 to the Internal Revenue Service for a period 
of 2 years or more and also fails to furnish such information within 60 
days after a written request therefor is made by the Internal Revenue 
Service.
    (c) Election to issue taxable student loan bonds. This paragraph 
applies to the election by an issuer to issue taxable student loan bonds 
under section 625(c) of the Act. The election is available for 
obligations issued after December 31, 1983, and is made by filing a 
statement and necessary attachments with the Internal Revenue Service 
Center, Philadelphia, PA 19255, prior to the issuance of such taxable 
bonds. The statement shall identify the election as made under section 
625(c) of the Tax Reform Act of 1984 and shall contain the name, address 
and taxpayer identification number of the issuer, and the total purchase 
price, face amount and interest rate of the issue, bond issuance costs, 
amounts allocated to reasonably required reserve or replacement funds, 
and the date of issue. The issuer shall attach to the statement of 
election a copy of previous Internal Revenue Service correspondence 
relating to the tax exempt status of the issuing authority and a 
statement containing the total purchase price, face amount, interest 
rate, bond issuance costs, amounts allocated to reasonably required 
reserve or replacement funds, and the date of issuance of outstanding 
tax exempt issues of student loan bonds of the issuer. With respect to 
outstanding tax exempt issues of student loan bonds of the issuer issued 
after December 31, 1982, the issuer may alternatively attach copies of 
the Form 8038 filed with respect to such issues. Each taxable student 
loan bond must state on its face that the interest paid on such bond is 
subject to federal income taxation. An election with respect to an issue 
is irrevocable once made.
    (d) [Reserved]
    (e) Election not to claim the credit for alcohol used as fuel. The 
election under section 40(f) (as added by section 474(k) of the Act) not 
to claim the alcohol fuels credit is available for taxable years 
beginning after December 31, 1983, and shall be made for the taxable 
year in which such credit is determined by not claiming such credit on 
an original return or amended return at any time before the expiration 
of the 3-year period beginning on the last date prescribed by law for 
filing the return for the taxable year (determined without regard for 
extensions). The election may be revoked within the 3-year period by 
filing an amended return and claiming the credit on the return.
    (f) Protective election to adopt LIFO method--(1) Time for making 
the election. A protective election in connection with the enactment of 
section 95 of the Act to adopt the LIFO method of accounting for 
inventory under section 472 of the Code can only be made for the 
taxpayer's first taxable year beginning after July 18, 1984, and must be 
made on or before the due date (including extensions) of the tax return 
for

[[Page 930]]

such taxable year. Once made, the election is irrevocable unless the 
Commissioner authorizes the use of another inventory method (see Sec.  
1.472-5).
    (2) Manner for making a protective election. The protective election 
is made by completing all line items on a current Form 970 and 
indicating that the election is a protective election filed in 
connection with the enactment of section 95 of the Tax Reform Act of 
1984. The Form 970 must be attached to the taxpayer's income tax return 
for the taxable year for which the protective election is made. The LIFO 
method adopted under the protective election must be consistent in all 
respects with the taxpayer's LIFO method used in the taxpayer's most 
recently completed taxable year for which the LIFO method was used. In 
completing the current Form 970, the taxpayer shall specify the method 
of inventory valuation that the taxpayer would have used, the opening 
LIFO inventory for the taxable year for which the protective election is 
made, and the section 481 adjustment that would be required, as if the 
taxpayer were not on the LIFO method for the taxable year immediately 
preceding the taxable year for which the protective election is made.
    (g) Election by an estate or trust to recognize gain or loss on the 
distribution of property (other than cash) to a beneficiary. This 
paragraph applies to the election made by a trust or estate to recognize 
gain or loss on the distribution of property (other than cash) to a 
beneficiary under section 643(d) of the Code as amended by section 81 of 
the Act. The election is available for distributions made after June 1, 
1984, in taxable years ending after such date. The election must be made 
by the fiduciary who is required to make the return of the estate or 
trust under section 641 and Sec.  1.641(b)-2. The election shall be made 
by such fiduciary on the tax return of the estate or trust for the 
taxable year with respect to which the distribution of property was made 
and must be filed by the due date (including extensions) of such return. 
Until the Form 1041, U.S. Fiduciary Income Tax Return is revised, the 
election should be made by including the gain or loss on the Schedule D 
(or other appropriate schedule, if applicable) of the Form 1041 and 
attaching the statement described in paragraph (a)(3) of this section to 
the tax return on which the election is made and including on that 
statement the name and taxpayer identification number of the 
distributee. For distributions made after June 1, 1984, and before July 
18, 1984, the election must be filed by the later of the due date 
(including extentions) of the tax return of the estate or trust for the 
taxable year with respect to which the distribution was made or January 
1, 1985. For those distributions, the fiduciary may make the election in 
the manner described above on a tax return, or amended return, for the 
year with respect to which the distribution was made. An election under 
section 643(d) may be revoked only with the consent of the Commissioner. 
The request for revocation of an election should be made by the 
fiduciary in the form of a ruling request and must contain the 
information required by regulations and revenue procedures pertaining 
thereto.
    (h) Election to treat a stapled foreign entity as a subsidiary. This 
paragraph applies to the election, provided under section 136(c)(6) of 
the Act, to treat a foreign corporation which was a stapled entity with 
a domestic corporation as of June 30, 1983, as being owned (to the 
extent of its stapled interests) by the domestic corporation with which 
it is stapled. This treatment, if so elected, is in lieu of the 
treatment prescribed in section 269B(a)(1) of the Code, as added by the 
Act. This election may be made by the domestic corporation with which 
the foreign entity is stapled. The election may not be made by the 
foreign entity or by shareholders of the domestic corporation. This 
election must be made no later than January 14, 1985, and may be revoked 
only with the consent of the Commissioner. This election shall be 
effective after December 31, 1986. The domestic corporation shall make 
this election by filing with the service center with which the domestic 
corporation files its income tax return a statement that--
    (1) Contains the name, address, and taxpayer identification number 
of the domestic corporation,

[[Page 931]]

    (2) Identifies the election as made under section 136(c)(6) of the 
Tax Reform Act of 1984, and,
    (3) Identifies the foreign entity and the interests in the foreign 
entity which constitute stapled interests with respect to the stock of 
the domestic corporation, and specifies the date on which those 
interests became stapled interests.

If this election is not made, the foreign corporation (interests in 
which were stapled interests as of June 30, 1983) will be treated as a 
domestic corporation, effective January 1, 1987, under section 
269B(a)(1) of the Code.
    (i) Election to treat certain section 1248 amounts as included in 
gross income under section 951(a)(1)(A). This paragraph applies to the 
elections, provided under section 133(d)(3) of the Act, to treat amounts 
included in the gross income of any person as a dividend by reason of 
section 1248 (a) or (f) after October 9, 1975, and before July 19, 1985, 
as an amount included in the gross income of such person under section 
951(a)(1)(A). The election with respect to transactions to which section 
1248(a) applies may be made by the foreign corporation described in 
section 1248(a) (or its successor in interest). The election with 
respect to transactions to which section 1248(f) applies may be made by 
the domestic corporation described in section 1248(f)(1) (or its 
successor in interest). Neither election may be made by an affected 
shareholder of any such corporation (unless the shareholder is the 
successor in interest). This election must be made no later than January 
14, 1985, and shall apply with respect to all transactions to which 
section 1248 (a) or (f) applies that occurred after October 9, 1975, and 
before July 19, 1984. Once made, the election may be revoked only with 
the consent of the Commissioner. A foreign corporation shall make this 
election by filing the statement described in this paragraph with the 
Internal Revenue Service Center, Philadelphia, PA 19255. A domestic 
corporation shall make this election by filing the statement described 
in this paragraph with the service center with which the domestic 
corporation files its income tax return. In either case, the statement 
shall--
    (1) Contain the name, address, and taxpayer identification number 
(if any) of the corporation making the election,
    (2) Identify the election as made under section 133(d)(3) of the Tax 
Reform Act of 1984, and
    (3) Identify all of the transactions (including the date of each 
transaction), shareholders involved in those transactions, and amounts 
to which the election applies.
    (j) Special election for computing investment company taxable 
income. This paragraph applies to the election by a regulated investment 
company provided under section 1071(b) of the Act, which added section 
852(b)(2)(F) to the Code. Under section 852(b)(2)(F), the taxable income 
of a regulated investment company shall be computed without regard to 
section 454(b) (relating to short-term obligations issued on a discount 
basis) if the company so elects. The election may be made only for 
taxable years beginning after December 31, 1978. A regulated investment 
company shall make the election by computing taxable income without 
regard to section 454(b) on its return for the first taxable year for 
which it desires the election to apply and shall attach the statement 
described in paragraph (a)(3) of this section to the return on which the 
election is made. A regulated investment company shall make the election 
by the time set forth in paragraph (a)(2) of this section. Once made, 
the election applies to the first taxable year for which it is made and 
to all subsequent taxable years and cannot be revoked without the 
consent of the Commissioner.
    (k) Election of extension of time for payment of estate tax for 
interests in certain holding companies. An election under section 
6166(b)(8), as added by section 1021(a) of the Act, or under section 
1021(d)(2) of the Act, shall be made by including on the notice of 
election under section 6166 required by Sec.  20.6166-1(b) a statement 
that an election is being made under section 6166(b)(8) or section 
1021(d)(2) of the Act (whichever is applicable) and the facts which 
formed the basis for the executor's conclusion that the estate qualified 
for such election. If a taxpayer makes an election described in this 
paragraph (k), then the special 4-percent interest

[[Page 932]]

rate of section 6601(j) and the 5-year deferral of principal payments of 
section 6166(a)(3) are not available. Thus, the first installment of tax 
is due on the date prescribed by section 6151(a) and subsequent 
installments bear interest at the rate determined under section 6621. If 
the executor makes an election described in this paragraph (k) and the 
notice of election under section 6166 fails to state the amount of tax 
to be paid in installments or the number of installments, then the 
election is presumed to be for the maximum amount so payable and for 
payment thereof in 10 equal annual installments, beginning on the date 
prescribed in section 6151(a). The elections described under this 
paragraph (k) are available for estates of decedents dying after July 
18, 1984.
    (l) Subchapter S election by commodities dealers and options 
dealers. This paragraph applies to a commodities dealer or options 
dealer referred to in section 102(d)(3) of the Act (relating to the 
election by such a dealer to be an S corporation) whose taxable year is 
the calendar year and that was a small business corporation (as defined 
in section 1361(b) of the Code) as of January 1, 1984. The election by 
such a dealer under section 102(d)(3) of the Act shall be made in the 
manner prescribed by section 1362 and the regulations thereunder, except 
that the election under section 102(d)(3) must be made before October 2, 
1984. In addition to making the election in the manner prescribed under 
such section 1362 and the regulations thereunder, the commodities dealer 
or options dealer must indicate on Form 2553 that the election is made 
under section 102(d)(3) of the Act. Although section 102(d)(3) of the 
Act applies to dealers not covered by this paragraph, and such dealers 
may make an election under such section 102(d)(3), guidelines for making 
such an election are not provided in this paragraph and are forthcoming.
    (m) Election with respect to treatment of S termination year. For 
the election provided under section 1362(e)(3), as amended by section 
721(h) of the Act, see Sec.  18.1362-4 of this chapter.
    (n) Election to be an S corporation; certain short taxable years. 
For the election provided under section 1362(b), as amended by section 
721(l) of the Act, see Sec.  18.1362-1(b) of this chapter.
    (o) Election with respect to subchapter S passive investment income 
rules. For the election provided under section 721(i) of the Act which 
amends section 6(b) of the Subchapter S Revision Act of 1982, see Sec.  
18.1362-5 of this chapter.
    (p) Election with respect to subchapter S distributions during 
certain post-termination transition periods. For the election provided 
under section 1371(e), as amended by section 721(o) of the Act, see 
Sec.  18.1371-1 of this chapter.
    (q) No elections for closed year. Any election under this section 
which is allowed to be made by filing an amended return may only be made 
if the period for making a claim for refund or credit with respect to 
the taxable year for which such election is to be effective has not 
expired. This paragraph shall not apply to the election under paragraph 
(a)(2)(iv) of this section with respect to the election under section 
1078 of the Act.
    (r) Additional information required. Later regulations or revenue 
procedures issued under provisions of the Code or Act covered by this 
section may require the furnishing of information in addition to that 
which was furnished with the statement of election described herein. In 
such event the later regulations or revenue procedures will provide 
guidance with respect to the furnishing of such additional information.

[T.D. 7976, 49 FR 35487, Sept. 10, 1984; T.D. 7976, 49 FR 43640, Oct. 
31, 1984; 49 FR 43951, Nov. 1, 1984, as amended by T.D. 8062, 50 FR 
46004, Nov. 6, 1985. Redesignated by T.D. 8435, 57 FR 43895, Sept. 23, 
1992; T.D. 9172, 70 FR 296, Jan. 4, 2005: T.D. 9911, 85 FR 64394, Oct. 
13, 2020]



Sec.  301.9100-7T  Time and manner of making certain elections 
under the Tax Reform Act of 1986.

    (a) Miscellaneous elections--(1) Elections to which this paragraph 
applies. This paragraph applies to the elections set forth below 
provided under the Tax Reform Act of 1986 (the Act). General rules 
regarding the time for making the elections are provided in paragraph 
(a)(2) of this section. General rules regarding the manner for making 
the elections are provided in paragraph

[[Page 933]]

(a)(3) of this section. Special rules regarding the time and manner for 
making certain elections are contained in paragraphs (a) through (i) of 
this section. If a special rule applies to one of the elections listed 
below, a cross-reference to the special rule is shown in brackets at the 
end of the description of the ``Availability of Election.'' Paragraph 
(j) of this section provides that additional information with respect to 
elections may be required by future regulations or revenue procedures.

----------------------------------------------------------------------------------------------------------------
     Section of Act           Section of Code          Description of Election        Availability of Election
----------------------------------------------------------------------------------------------------------------
201(a).................  168(b)(5)................  Election to depreciate         Property placed in service
                                                     property using the straight    after 12-31-86. Election
                                                     line method of recovery with   must be made for taxable
                                                     respect to one or more         year in which property is
                                                     classes of property for any    placed in service. Election
                                                     taxable year                   shall apply to all property
                                                                                    in the class placed in
                                                                                    service during the taxable
                                                                                    year for which the election
                                                                                    is made.
201(a).................  168(f)(1)................  Election to exclude certain    Property placed in service
                                                     property from the              after 12-31-86. Election
                                                     accelerated cost recovery      must be made for taxable
                                                     system                         year in which property is
                                                                                    placed in service.
201(a).................  168(g)(7)................  Election to use alternative    Property placed in service
                                                     depreciation system with       after 12-31-86. Election
                                                     respect to one or more         must be made for taxable
                                                     classes of property for any    year in which property is
                                                     taxable year (except for       placed in service. Except
                                                     residential rental or non-     for residential rental or
                                                     residential real property      non-residential real
                                                     where the election may be      property, election shall
                                                     made separately with respect   apply to all property in the
                                                     to each property)              class placed in service
                                                                                    during the taxable year for
                                                                                    which the election is made.
201(a), 1802(a)........  168(h)(6)(F)(ii), 168(j)   Election by a tax-exempt       Property placed in service
                          (as in effect before       controlled entity to treat     after 9-27-85, but can apply
                          October 22, 1986).         any gain recognized by the     to property placed in
                                                     tax-exempt parent on any       service before such date if
                                                     disposition of an interest     the tax-exempt controlled
                                                     in the tax-exempt controlled   entity so elects. [See
                                                     entity (and to treat any       paragraph (a)(3)(ii) of this
                                                     dividends or interest          section.]
                                                     received or accrued from the
                                                     tax-exempt controlled
                                                     entity) as unrelated
                                                     business taxable income
                                                     under Code section 511 in
                                                     order for the tax-exempt
                                                     controlled entity to not be
                                                     treated as a tax-exempt
                                                     entity (or as a successor to
                                                     a tax-exempt entity)
203(a)(1)(B)...........  .........................  Election to apply Act section  Property placed in service
                                                     201 (including all elections   after 7-31-86 and before 1-1-
                                                     within section 201)            87.
204(e).................  .........................  Election to have Act section   (i) Property placed in
                                                     201 either (i) not apply to    service during 1987 or 1988;
                                                     any property placed in         or (ii) property placed in
                                                     service during 1987 or 1988    service during 1985 or 1986.
                                                     which is replacement
                                                     property for property lost,
                                                     damaged or destroyed in a
                                                     flood which occurred 11-3-85
                                                     through 11-7-85 and which
                                                     was declared a natural
                                                     disaster area by the
                                                     President of the United
                                                     States, or (ii) apply to all
                                                     such replacement property
                                                     placed in service during
                                                     1985 or 1986
243(a).................  .........................  Election to begin the 60       Bus operating authorities
                                                     month amortization period      held on 11/19/82, or
                                                     with the first month of the    acquired after that date
                                                     taxpayer's first taxable       under a written contract
                                                     year beginning after 11-19-    that was binding on that
                                                     82 in lieu of the 11-19-82     date.
                                                     date or the bus operating
                                                     authority acquisition date
243(b).................  .........................  Election to begin the 60       Freight forwarder operating
                                                     month amortization period on   authorities held at the
                                                     the first month of the         beginning of the 60 month
                                                     taxpayer's first taxable       period applicable to the
                                                     year beginning after the       taxpayer (i.e., the
                                                     deregulation month in lieu     deregulation date or the
                                                     of the deregulation month      first month of the first
                                                                                    taxable year beginning after
                                                                                    the deregulation date).
243 (a), (b)...........  .........................  Election by a qualified        For bus operating
                                                     corporate taxpayer to          authorities: authorities
                                                     allocate a portion of the      held on 11/19/82, or
                                                     cost basis of a qualified      acquired after that date
                                                     acquiring corporation in the   under a written contract
                                                     stock of an acquired           that was binding on that
                                                     corporation to the basis of    date. For freight
                                                     the authority                  forwarders: authorities held
                                                                                    at the beginning of the 60-
                                                                                    month period applicable to
                                                                                    the taxpayer.

[[Page 934]]

 
252(a).................  42(f)(1).................  Election concerning beginning  Buildings placed in service
                                                     of credit period for low-      after 12-31-86 and before 1-
                                                     income housing credit          1-90 (before 1-1-91 for
                                                                                    buildings described in Code
                                                                                    section 42(n)(2)(B)). [See
                                                                                    paragraph (b) of this
                                                                                    section.]
252(a).................  42(g)(1).................  Election concerning qualified  Buildings placed in service
                                                     low-income housing project     after 12-31-86 and before 1-
                                                     to either satisfy the 20-50    1-90 (before 1-1-91 for
                                                     or the 40-60 occupancy test    buildings described in Code
                                                                                    section 42(n)(2)(B)). [See
                                                                                    paragraph (b) of this
                                                                                    section.]
252(a).................  42(i)(2).................  Election to reduce eligible    Buildings placed in service
                                                     basis by outstanding balance   after 12-31-86 and before 1-
                                                     of Federal loan subsidy        1-90 (before 1-1-91 for
                                                                                    buildings described in Code
                                                                                    section 42(n)(2)(B)). [See
                                                                                    paragraph (b) of this
                                                                                    section.]
252(a).................  42(j)(5).................  Election to have certain       Buildings placed in service
                                                     partnerships treated as the    after 12-31-86 and before 1-
                                                     taxpayer eligible for low-     1-90 (before 1-1-91 for
                                                     income housing credit          buildings described in Code
                                                                                    section 42(n)(2)(B) [See
                                                                                    paragraph (b) of this
                                                                                    section.]
311(d)(2)..............  .........................  Revocation of prior election   Election for taxable years
                                                     under Code section 631(a).     beginning before 1-1-87 may
                                                                                    be revoked for taxable years
                                                                                    ending after 12-31-86.
411(b)(1)..............  263(i)...................  For intangible drilling and    Costs paid or incurred after
                                                     development costs paid or      12-31-86 in taxable years
                                                     incurred with respect to an    ending after such date. [See
                                                     oil, gas, or geothermal well   paragraph (a)(2)(iii) of
                                                     located outside the United     this section.]
                                                     States, election to include
                                                     such costs in adjusted basis
                                                     for purposes of computing
                                                     the amount of any deduction
                                                     under Code section 611
                                                     (without regard to section
                                                     613).
411(b)(2)..............  616(d)...................  For expenditures paid or       Costs paid or incurred after
                                                     incurred with respect to the   12-31-86 in taxable years
                                                     development of a mine or       ending after such date. [See
                                                     other natural deposit (other   paragraph (a)(2)(iv) of this
                                                     than an oil, gas, or           section.]
                                                     geothermal well) located
                                                     outside the United States,
                                                     election to include such
                                                     expenditures paid or
                                                     incurred during the taxable
                                                     year for which made in
                                                     adjusted basis for purposes
                                                     of computing the amount of
                                                     any deduction under Code
                                                     section 611 (without regard
                                                     to section 613)
411(b)(2)..............  617(h)...................  For expenditures paid or       Costs paid or incurred after
                                                     incurred before the            12-31-86 in taxable years
                                                     development stage for the      ending after such date. [See
                                                     purpose of ascertaining the    paragraph (a)(2)(v) of this
                                                     existence, location, extent    section.]
                                                     or quality of any deposit of
                                                     ore or other mineral deposit
                                                     (other than an oil, gas or
                                                     geothermal well) located
                                                     outside the United States,
                                                     election to include all such
                                                     expenditures, paid or
                                                     incurred during the taxable
                                                     year with respect to any
                                                     such deposit, in adjusted
                                                     basis for purposes of
                                                     computing the amount of any
                                                     deduction under Code section
                                                     611 (without regard to
                                                     section 613)
501(a).................  469(j)(9)................  Election to increase basis of  Taxable years beginning after
                                                     property by amount of          12-31-86. [See paragraph
                                                     disallowed credit for          (a)(3)(iii) of this
                                                     purposes of determining gain   section.]
                                                     or loss from a disposition
                                                     of property used in a
                                                     passive activity
614(b).................  1059(c)(4)...............  Election to determine whether  Dividends declared after July
                                                     a dividend is extraordinary    18, 1986 in taxable years
                                                     by reference to the fair       ending after such date.
                                                     market value of the share of
                                                     stock with respect to which
                                                     the dividend was received
644(d).................  216(b)(3)................  Election by a cooperative      Taxable years beginning after
                                                     housing corporation to         12-31-86. [See paragraph
                                                     allocate real estate taxes     (a)(3)(iv) of this section.]
                                                     or interest or both to each
                                                     tenant-stockholder's
                                                     dwelling unit in a manner
                                                     which reasonably reflects
                                                     the cost to the corporation
                                                     of the tenant-stockholder's
                                                     dwelling unit

[[Page 935]]

 
646....................  .........................  Election by an entity to be    The election is effective
                                                     treated as a trust under the   beginning on the first day
                                                     Internal Revenue Code if       of the first taxable year
                                                     such entity was created in     beginning after October 22,
                                                     1906 as a common law trust     1986 and following the year
                                                     and governed by the trust      in which the election is
                                                     laws of the State of           made. Such election must be
                                                     Minnesota, receives            made by the board of
                                                     royalties from iron ore        trustees of such entity and
                                                     leases, and income interests   must be accompanied by a
                                                     in the entity are publicly     written agreement signed by
                                                     traded on a national stock     the board of trustees of the
                                                     exchange                       entity.
651....................  4982(e)(4)...............  Election by a regulated        Calendar years beginning
                                                     investment company to use      after 12-31-86. [See
                                                     taxable years ending on 11-    paragraph (a)(2)(vi) of this
                                                     30 or 12-31 for purposes of    section.]
                                                     computing capital gain net
                                                     income under Code section
                                                     4982
701(a).................  56(f)(3)(B)..............  Election to have amount of     Taxable years beginning after
                                                     net book income be equal to    12-31-86.
                                                     amount of earnings and
                                                     profits
801(a).................  448(d)(4)................  Election of common parent of   Taxable years beginning after
                                                     an affiliated group that all   12-31-86.
                                                     members of such group be
                                                     treated as one taxpayer if
                                                     substantially all the
                                                     activities of all members of
                                                     the affiliated group involve
                                                     performance of services in
                                                     the same field
801(d)(2)..............  .........................  Election to continue using     Loans, leases and related
                                                     the cash method of             party transactions entered
                                                     accounting for loans, leases   into before 9-26-85.
                                                     and related party
                                                     transactions
802....................  474......................  Election by certain small      Taxable years beginning after
                                                     businesses to use the          12-31-86. [See paragraph
                                                     simplified dollar-value LIFO   (a)(3)(v) of this section.]
                                                     method
803(a).................  263A(d)(3)...............  Election to have rules of      Unless consent is obtained
                                                     Code section 263A (relating    from the Commissioner, the
                                                     to capitalization and          first taxable year beginning
                                                     inclusion in inventory costs   after 12-31-86 during which
                                                     of certain expenses) not       the taxpayer engages in a
                                                     apply to any plant or animal   farming business. [See
                                                     produced in any farming        paragraph (c) of this
                                                     business conducted by the      section.]
                                                     electing taxpayer
806(e)(2)(C)...........  .........................  Election to have net income    Partner and shareholder
                                                     for the short taxable year     taxable years beginning
                                                     of a partnership or S          after 12-31-86 with or
                                                     corporation which results      within which the short
                                                     from the required change in    taxable year created under
                                                     accounting period included     section 806 of the Act ends.
                                                     entirely in income for such    [See paragraph (d) of this
                                                     short taxable year             section.]
                                                    Election to reduce             Short taxable years of
                                                     partnership or S corporation   partnerships or S
                                                     income for the short taxable   corporations beginning after
                                                     year resulting from a          12-31-86. [See paragraph (e)
                                                     required change in             of this section.]
                                                     accounting period under
                                                     section 806 of the Act by an
                                                     unamortized adjustment
                                                     amount existing as of
                                                     October 22, 1986, where such
                                                     adjustment was required to
                                                     effectuate a previous
                                                     accounting period change
                                                     under Rev. Proc. 72-51, 1972-
                                                     2 C.B. 832 or Rev. Proc. 83-
                                                     25, 1983-1 C.B. 689
811(a).................  453C(b)(2)(B)............  Election to compute adjusted   Taxable years ending after 12-
                                                     bases using depreciation       31-86 with respect to
                                                     deduction used under Code      dispositions made after 2-28-
                                                     section 312(k)                 86.
811(a).................  453C(e)(4)...............  Election to have Code section  Taxable years ending after 12-
                                                     453C not apply to              31-86 with respect to
                                                     obligations arising from       dispositions made after 2-28-
                                                     sales of timeshares and        86. [See paragraph
                                                     unimproved residential lots    (a)(3)(vi) of this section.]
                                                     to invidividuals
905(a).................  165(l)(1)................  Election to treat amount of    Taxable years beginning after
                                                     reasonably estimated loss on   12-31-81. [See the cross--
                                                     a deposit in insolvent or      reference in paragraph (f)
                                                     bankrupt qualified financial   of this section.]
                                                     institution as a loss
                                                     described in Code section
                                                     165(c)(3) and incurred in
                                                     the taxable year
905(c).................  .........................  Election to apply Code         Taxable years beginning after
                                                     section 451(f) (relating to    12-31-82 and before 1-1-87.
                                                     treatment of interest on
                                                     frozen deposits in certain
                                                     financial institutions)
1301(b)................  141(b)(9)................  Election by issuer of tax-     Bonds issued after 8-15-86.
                                                     exempt bonds to treat a        [See paragraph (g) of this
                                                     portion of an issue as a       section.]
                                                     qualified 501(c)(3) bond if
                                                     such portion would have
                                                     qualified as a 501(c)(3)
                                                     bond had it been issued
                                                     separately
1301(b)................  142(d)(1)................  Election by issuer of tax-     Bonds issued after 8-15-86.
                                                     exempt bonds for residential   [See paragraph (g) of this
                                                     rental property to satisfy     section.]
                                                     either the 20-50 or the 40-
                                                     60 occupancy test

[[Page 936]]

 
1301(b)................  142(d)(4)(B).............  Election by issuer of tax-     Bonds issued after 8-15-86.
                                                     exempt bonds for residential   [See paragraph (g) of this
                                                     rental property to treat the   section.]
                                                     project as a deep rent
                                                     skewed project
1301(b)................  143(k)(9)(D)(iii)........  Election to treat limited      Bonds issued after 8-15-86
                                                     equity cooperative housing     and before 1-1-89. [See
                                                     as residential rental          paragraph (g) of this
                                                     property and not as owner-     section.]
                                                     occupied housing
1301(b)................  145(d)...................  Election by issuer of tax-     Bonds issued after 8-15-86.
                                                     exempt bonds to have Code      [See paragraph (g) of this
                                                     section 145 not apply to the   section.]
                                                     issue if the issue is an
                                                     issue of exempt facility
                                                     bonds or qualified
                                                     redevelopment bonds, to
                                                     which the volume cap applies
1301(b)................  147(b)(4)(A).............  Election by issuer of          Bonds issued after 8-15-86.
                                                     qualified 501(c)(3) bonds to   [See paragraph (g) of this
                                                     have such bonds treated as     section.]
                                                     meeting the limitation on
                                                     maturity requirements of
                                                     Code section 147(b)(1) if
                                                     the requirements of section
                                                     147(b)(4)(B) are met
1704(b)................  .........................  Election to revoke prior       Remuneration received in
                                                     election under Code section    taxable years ending on or
                                                     1402(e) (relating to           after October 22, 1986. [See
                                                     exemption from social          paragraph (h) of this
                                                     security taxes for certain     section.]
                                                     clergy)
1801(a)................  168(i) (as in effect       Election to make finance       Personal property leased
                          before October 22, 1986).  leasing rules inapplicable     under certain lease
                                                     to property which would        agreements effective on or
                                                     otherwise be subject to them   after 1-1-84. [See paragraph
                                                     under the transitional rules   (a)(3)(vii) of this
                                                     of section 12(c)(1) of the     section.]
                                                     Tax Reform Act of 1984
1804(e)(4).............  .........................  Election by a common parent    Groups which include a
                                                     of an affiliated group to      corporation which on 6-22-84
                                                     apply amendments made by the   is a member of the group
                                                     Tax Reform Act of 1984 for     which files a consolidated
                                                     taxable years beginning        return for such
                                                     after 12-31-83                 corporation's taxable year
                                                                                    which includes 6-22-84.
1807(a)(7).............  468B.....................  Election to treat a qualified  Generally, liabilities
                                                     payment made to a court-       arising out of personal
                                                     ordered fund as a payment      injury, death or property
                                                     made to a designated           damage that are incurred
                                                     settlement fund                after 7-18-84 under law in
                                                                                    effect before the enactment
                                                                                    of Code section 461(h).
                                                                                    Election is made for the
                                                                                    taxable year in which
                                                                                    qualified payments are made
                                                                                    to a designated settlement
                                                                                    fund.
1809(e)(2).............  48(b)(2).................  Election by lessee and lessor  Property originally placed in
                                                     not to apply the rule of       service after 4-11-84 (as
                                                     Code section 48(b)(2)          determined under Code
                                                     concerning the date leased     section 48(b) prior to its
                                                     property is treated as         amendment by section
                                                     originally placed in service   114(a)of the Tax Reform Act
                                                                                    of 1984). [See paragraph
                                                                                    (a)(3)(viii) of this
                                                                                    section.]
1810(1)(4).............  7701(b)..................  Election to be treated as a    Taxable years beginning after
                                                     resident alien                 December 31, 1984. [See
                                                                                    paragraph (a)(3)(ix) of this
                                                                                    section.]
1879(p)(1).............  83(c)(3).................  Election to treat certain      Transfers of stock described
                                                     stock acquired upon the        in section 1879(p)(1) of the
                                                     exercise of nonqualified       Act. [See paragraph
                                                     stock options as subject to    (a)(2)(vii) and(a)(3)(x) of
                                                     a substantial risk of          this section.]
                                                     forfeiture by reason of Code
                                                     section 83(c)(3) even though
                                                     the transfer of stock
                                                     pursuant to such exercise
                                                     occurred before 1-1-82, the
                                                     effective date of section
                                                     83(c)(3)
1882(c)................  3121(w)(2)...............  Election to revoke prior       Remuneration paid after 12-31-
                                                     election under Code section    86 unless such electing
                                                     3121(w) (relating to           church or church-controlled
                                                     exemption from social          organization had withheld
                                                     security taxes for certain     and paid over all employment
                                                     churches and qualified         taxes due, as if such
                                                     church-controlled              election had never been in
                                                     organizations)                 effect during the period
                                                                                    from the stated effective
                                                                                    date of the election being
                                                                                    revoked through 12-31-86.
                                                                                    [See paragraph (i) of this
                                                                                    section.]
----------------------------------------------------------------------------------------------------------------

    (2) Time for making elections--(i) In general. Except as otherwise 
provided in this section, the elections specified in paragraph (a)(1) of 
this section shall be made by the later of--
    (A) The due date (taking extensions into account) of the tax return 
for the first taxable year for which the election is to be effective, or

[[Page 937]]

    (B) April 15, 1987 (in which case the election generally must be 
made by amended return).
    (ii) No extension of time for payment. Payments of tax due shall be 
made in accordance with chapter 62 of the Code.
    (iii) Time for making the election with respect to foreign 
intangible drilling costs. With respect to the election under Act 
section 411(b)(1) (Code section 263(i)(2)(A)), the election shall be 
made on a property-by-property basis for each oil, gas, or geothermal 
property (as defined in Code section 614). The election shall be made by 
the due date (taking extensions into account) of the income tax return 
for the first taxable year in which the taxpayer pays or incurs any cost 
with respect to the development of such property for which the election 
is available.
    (iv) Time for making the election with respect to foreign 
development expenditures. With respect to the election under Act section 
411(b)(2) (Code section 616(d)(2)(A)), the election shall be made for 
each mine or other natural deposit not later than the time prescribed by 
law for filing the income tax return (taking extensions into account) 
for the taxable year to which such election is applicable.
    (v) Time for making the election with respect to foreign exploration 
expenditures. With respect to the election under Act section 411(b)(2) 
(Code section 617(h)(2)(A)), the election may be made at any time before 
the expiration of the period prescribed for filing a claim for credit or 
refund of the tax imposed by chapter 1 of the Code for the first taxable 
year for which the taxpayer desires the election to be applicable.
    (vi) Time for making certain elections by regulated investment 
companies. The election under Act section 651 (Code section 4982(e)(4)) 
shall be made on a statement attached to the form prescribed by the 
Internal Revenue Service which is used to report and pay the excise tax 
liability under section 4982. The election shall be filed on or before 
the later of--
    (A) March 15 of the first calendar year beginning after the end of 
the first excise tax period for which the election is to be effective, 
or
    (B) If the regulated investment company has been granted an 
extension of time to file a return for the excise tax under Code section 
4982 for such excise tax period, the due date (including extensions 
thereof) for such return.

The statement of election under section 4982(e)(4) shall be attached to 
the prescribed form regardless of whether the regulated investment 
company is liable for the excise tax imposed by section 4982 for the 
excise tax period in question.
    (vii) Time for making the election with respect to certain 
nonqualified stock options. The election under section 1879(p)(1) of the 
Act (Code section 83(c)(3)) shall be made--
    (A) By April 21, 1987, in any case in which the operation of any law 
or rule of law on or before such date would prevent the credit or refund 
of any overpayment of tax resulting from such election, and
    (B) By no later than any date after April 21, 1987 on which the 
operation of any law or rule of law would prevent the credit or refund 
of any overpayment of tax resulting from such election.
    (3) Manner of making elections--(i) In general. Except as otherwise 
provided in this section, the elections specified in paragraph (a)(1) of 
this section shall be made by attaching a statement to the tax return 
for the taxable year for which the election is to be effective. If 
because of paragraph (a)(2)(i)(B) of this section the election may be 
filed after the due date of the tax return for the first taxable year 
for which the election is to be effective, such statement must be 
attached to a tax return or amended return for the taxable year to which 
the election relates. Except as otherwise provided in the return or in 
the instructions accompanying the return for the taxable year, the 
statement shall--
    (A) Contain the name, address and taxpayer identification number of 
the electing taxpayer,
    (B) Identify the election,
    (C) Indicate the section of the Code (or, if the provision is not 
codified, the section of the Act) under which the election is made,
    (D) Specify, as applicable, the period for which the election is 
being made

[[Page 938]]

and/or the property or other items to which the election is to apply, 
and
    (E) Provide any information required by the relevant statutory 
provisions and any information necessary to show that the taxpayer is 
entitled to make the election.
    (ii) Special rules for making the transitional rule elections with 
respect to certain tax-exempt controlled entities. The irrevocable 
election under Act sections 201(a) and 1802(a) (Code sections 
168(h)(6)(F)(ii) and 168(j), as in effect before October 22, 1986), 
shall be made by the tax-exempt controlled entity at the time and in the 
manner described in paragraphs (a)(2) and (a)(3)(i) of this section. A 
copy of the election statement filed by the tax-exempt controlled entity 
shall also be attached to the Federal tax returns (e.g., Form 990 or 
5500) of each of the tax-exempt shareholders or beneficiaries of the 
controlled entity.
    (iii) Special rule for making the election with respect to gain or 
loss from a disposition of property used in a passive activity. The 
election under Act section 501(a) (Code section 469(j)(9)) shall be made 
on the form prescribed by the Internal Revenue Service for computing the 
taxpayer's passive activity loss and credit for the taxable year in 
which the property is disposed.
    (iv) Special rules for making the election with respect to 
cooperative housing corporations. The election under Act section 644(d) 
(Code section 216(b)(3)(B)(ii)) may be made by a cooperative housing 
corporation with respect to its real estate taxes or interest or both. 
The election is available for any taxable year beginning after December 
31, 1986, if the cooperative housing corporation has, by January 31 of 
the year following the first calendar year that includes any period to 
which the election applies, furnished to each tenant-stockholder during 
that period a written statement showing the amount of the allocation (or 
allocations) under section 216(b)(3)(B)(i) attributable to such tenant-
stockholder's dwelling unit (or units) for that period. Any cooperative 
housing corporation making the election shall do so in accordance with 
paragraphs (a) (2) and (3) of this section and shall identify in the 
statement described in paragraph (a)(3) of this section whether the 
election is for real estate taxes or interest or both.
    (v) Special rules for making the election with respect to the 
simplified dollar-value LIFO method. The election under Act section 802 
(Code section 474) may be made only if the taxpayer files with the 
taxpayer's income tax return for the taxable year as of the close of 
which the method is first to be used a statement of the taxpayer's 
election to use the simplified dollar-value LIFO inventory method. The 
statement shall be on Form 970 pursuant to the instructions to the form 
and to the requirements of the regulations under section 474, or in such 
other manner as may be acceptable to the Commissioner.
    (vi) Special rules for making the election to have section 453C not 
apply to obligations arising from sales of timeshares and unimproved 
residential lots to individuals. The election under Act section 811(a) 
(Code section 453C(e)(4)) to have section 453C not apply to obligations 
arising from sales of timeshares and unimproved residential lots to 
individuals may be made with respect to any obligation, or with respect 
to a class of such obligations. In the case of an election made with 
respect to a class of obligations, such election shall describe the 
class of obligations with such specificity as to make the class readily 
identifiable.
    (vii) Special rules for making certain finance leasing transitional 
rule elections. The election relating to finance leases under Act 
section 1801(a)(1) (Code section 168(i) as in effect before October 22, 
1986) shall be made by the lessor under a lease agreement subject to the 
finance lease rules of section 168(i) of the Code, as in effect before 
October 22, 1986, by noting this election in the books and records 
relating to the lease agreement within 12 months after February 5, 1987.
    (viii) Special rules for making the election relating to the date 
leased property is treated as originally placed in service. The election 
under Act section 1809(e)(2) (Code section 48(b)(2)) must be made 
jointly by the lessee and the lessor. The election is made jointly when 
both the lessee and the lessor make the election in accordance with 
paragraphs

[[Page 939]]

(a)(2) and (a)(3)(i) of this section. In addition to the other 
information required to be provided under paragraph (a)(3)(i) of this 
section, the statement described therein shall include a copy of the 
lease agreement and shall be signed by both the lessee and the lessor.
    (ix) Special rules for making the election to be treated as a 
resident alien. The election under Act section 1810(l)(4) (Code section 
7701(b)) to be treated as a resident under Code section 7701(b) shall be 
made by an alien individual by attaching a statement to the individual's 
income tax return (Form 1040), for the taxable year for which the 
election is to be in effect (the election year). The alien individual 
may not make this election until such time as he has satisfied the 
substantial presence test of Code section 7701(b)(1)(A)(ii) for the year 
following the election year. If an alien individual has not satisfied 
the substantial presence test for the year following the election year 
as of the due date (without regard to extensions) of the tax return for 
the election year, the alien individual may request an extension of time 
for filing the return until after he has satisfied such test, provided 
that he pays with his extension application the amount of tax he expects 
to owe for the election year, computed as if he were a non-resident 
alien throughout the election year. The statement shall include the name 
and address of the alien individual and contain a signed declaration 
that the election is being made. It must specify--
    (A) That the alien individual was not a resident in the year 
immediately preceding the election year;
    (B) That the alien individual is a resident in the year immediately 
following the election year under the substantial presence test and the 
individual's number of days of presence in the United States during such 
year;
    (C) The date or dates of the alien individual's 31 consecutive day 
period of presence and continuous presence in the United States during 
the election year; and
    (D) The date or dates of absence from the United States during the 
election year that are deemed to be days of presence.
    (x) Special rules for making the election with respect to the 
treatment of the exercise of certain nonqualified stock options. The 
election under Act section 1879(p)(1) (Code section 83(c)(3)) is made by 
filing on Form 1040X a claim for credit or refund of the overpayment of 
tax resulting from the election. In order to satisfy the requirements of 
Sec.  301.6402-2(b)(1) (relating to grounds set forth in claim), the 
claim for credit or refund must set forth)--
    (A) The date on which the option was granted,
    (B) The name of the corporation which granted the option,
    (C) The date on which the stock was transferred pursuant to the 
exercise of the option,
    (D) The fair market value of such stock on December 4, 1973,
    (E) The fair market value on July 1, 1974 of the stock received upon 
the reorganization of the corporation which granted the option, and
    (F) The date on which the taxpayer sold substantially all of the 
stock received in such reorganization. The taxpayer shall file a single 
claim for credit or refund of the entire overpayment of tax resulting 
from the election under Act section 1879(p)(1).
    (4) Revocation--(i) Irrevocable elections. The elections described 
in this section under:

------------------------------------------------------------------------
             Act Sections                         Code Sections
------------------------------------------------------------------------
201(a)                                  168(b)(5), 168(f)(1), 168(g)(7),
                                         168(h)(6)(F)(ii)
203(a)(1)(B), 252(a)                    42(f)(1), 42(g)(1), 42(i)(2),
                                         42(j)(5)
411(b)(1)                               263(i)
411(b)(2)(A)                            616(d)(2)(A)
501(a)                                  469(j)(9)
801(d)(2), 905(c), 1301(b)              141(b)(9), 142(d)(1),
                                         142(d)(4)(B) 143(k)(9)(D)(iii),
                                         145(d), 147(b)(4)(A)
1704(b), 1802(a)                        168(j) as in effect before
                                         October 22, 1986
1804(e)(4), 1879(p)(1)                  83(c)(3)
1882(c)                                 3121(w)(2)
------------------------------------------------------------------------


are irrevocable.
    (ii) Elections revocable with the consent of the Commissioner. The 
elections described in this section under:

[[Page 940]]



------------------------------------------------------------------------
               Act Sections                         Code Sections
------------------------------------------------------------------------
204(e), 243(a), 243(b), 243(a)(b),          617(h)(2)(A)
 411(b)(2)(B)
614(b)                                      1059(c)(4)
644(d)                                      216(b)(3)
646, 651                                    4982(e)(4)(B)
701(a)                                      56(f)(3)(B)
801(a)                                      448(d)(4)
802                                         474
803(a)                                      263A(d)(3)
806(e)(2)(C) and the election described in  453C(b)(2)(B)(i), 453C(e)(4)
 H.R. Rep. No. 99-841 at II-320, 811(a)
905(a)                                      165(l)(1)
1801(a)                                     168(i) as in effect before
                                             October 22, 1986
1807(a)(7)                                  468B)
1809(e)(2)                                  48(b)(2)
1810(l)(4)                                  7701(b)
------------------------------------------------------------------------


are revocable only with the consent of the Commissioner.
    (iii) Freely revocable election. The election described in this 
section under Act section 311(d)(2) is freely revocable.
    (b) Elections with respect to the low-income housing credit. The 
elections under Act section 252(a) (Code sections 42(f)(1), 42(g)(1), 
42(i)(2), and 42(j)(5)) must be made for the taxable year in which the 
project is placed in service and shall be made in the certification 
required to be filed pursuant to section 42(l)(1).
    (c) Election to have the rules of section 263A (relating to 
capitalization and inclusion in inventory costs of certain expenses) not 
apply to any plant or animal produced in any farming business conducted 
by the electing taxpayer--(1) In general. This paragraph applies to the 
election under Act section 803(a) (Code section 263A(d)(3)) to have the 
rules of section 263A (relating to capitalization and inclusion in 
inventory costs of certain expenses) not apply to any plant or animal 
produced in any farming business conducted by the electing taxpayer. The 
election is available to taxpayers engaged in the business of farming, 
including producers of agricultural crops, livestock, nursery stock, 
sod, trees bearing fruit, nuts or other crops, and ornamental trees (for 
purposes of section 263A, an evergreen tree that is more than 6 years 
old at the time it is severed from the roots shall not be treated as an 
ornamental tree). The election is not available to a corporation, 
partnership, or tax shelter that is required to use the accrual method 
of accounting under section 447 or section 448(a)(3), or farming 
syndicates (as defined in section 464(c)), or with respect to the 
planting, cultivation, maintenance or development of pistachio trees. In 
addition, the election does not apply with respect to costs incurred for 
the planting, cultivation, maintenance or development of any citrus or 
almond grove incurred during the 4-taxable-year period beginning with 
the taxable year in which such grove was planted. If a citrus or almond 
grove is planted in more than one taxable year, the portion of the grove 
planted in one taxable year is treated as a separate grove for this 
purpose.
    (2) Time and manner of making the election. Unless consent is 
obtained from the Commissioner, the election may only be made for the 
taxpayer's first taxable year that begins after December 31, 1986, and 
during which the taxpayer engages in a farming business. The election 
shall be made on the Schedule E, F or other schedule required to be 
attached to the income tax return for the first taxable year for which 
the election is effective. In the case of a partnership or S 
corporation, the election must be made at the partner or shareholder 
level.
    (3) Election treated as if made if certain requirements satisfied. A 
taxpayer eligible to make the election under section 263A(d)(3) shall be 
treated as having made the election if such taxpayer reports income and 
expense, in accordance with the rules under the election on a timely 
filed income tax return.
    (4) Revocation. Once the election is made, it is revocable only with 
the consent of the Commissioner.
    (5) Special rules for treatment of expenses. If the election is 
made, the plant or animal produced is treated as section 1245 property 
and gain is recaptured (treated as ordinary income) in the amount of 
deductions which, but for the election, would have been required to be 
capitalized with respect to the plant or animal. If the taxpayer or a 
related person makes the election, a non-accelerated method of 
depreciation (as defined in section 168(g)(2)) shall be applied to all 
property used predominantly in any farming business of the taxpayer or 
related person and placed in service in any taxable year during

[[Page 941]]

which the election is in effect. For purposes of this election, related 
party means: (i) The members of the taxpayer's family (defined for this 
purpose to include the spouse of the taxpayer and any of his or her 
children who have not reached the age of 18 as of the last day of the 
taxable year); (ii) any corporation (including an S corporation) 50 
percent or more of the value of which is owned directly or indirectly 
(through the application of section 318) by the taxpayer or members of 
the taxpayer's family; (iii) any corporation that is a member of the 
same controlled group (within the meaning of section 1563) as the 
taxpayer; and (iv) any partnership if 50 percent or more of the value of 
the interests in such partnership is owned directly or indirectly 
(through the application of section 318) by the taxpayer or members of 
the taxpayer's family.
    (d) Election with respect to the treatment of net income for the 
short taxable year resulting from a required change in accounting 
period. This paragraph applies to the election under section 
806(e)(2)(C) of the Act. Net income for the short taxable year resulting 
from a required change in accounting period under the provisions of 
section 806 of the Act which is to be included ratably in the partners' 
and S corporation shareholders' income for the first four taxable years 
(including the short taxable year) beginning after December 31, 1986, or 
included entirely in income for the short taxable year at the election 
of the partner or shareholder, shall be taken into account in accordance 
with section 702 (with respect to partners) and section 1366 (with 
respect to S corporation shareholders).
    (e) Election with respect to reducing partnership or S corporation 
income for the short taxable year resulting from a required change in 
accounting period under section 806 of the Act by an unamortized 
adjustment amount existing as of October 22, 1986--(1) In general. This 
paragraph applies to the election described in H.R. Rep. No. 99-841 at 
II-320.
    (2) Partnerships or S corporations that make the election to reduce 
income for the short taxable year by an unamortized adjustment amount 
existing as of October 22, 1986. Where a partnership or S corporation 
elects to reduce its income for the short taxable year required under 
the provisions of section 806 of the Act by the unamortized adjustment 
amount existing as of October 22, 1986, in accordance with paragraph (a) 
of this section, the income for the short taxable year (reduced by the 
unamortized adjustment amount) may then be subject to the election, 
under section 806(e)(2)(C) of the Act, by partners and S corporation 
shareholders to include all the net income for the short taxable year 
entirely in income for the partners' or shareholders' taxable year with 
or within which the short taxable year ends.
    (3) Partnerships or S corporations that do not make the election to 
reduce income for the short taxable year by an unamortized adjustment 
amount existing as of October 22, 1986. Where a partnership or S 
corporation does not elect to reduce its income for the short taxable 
year created by the provisions of section 806 of the Act by the 
unamortized adjustment amount existing as of October 22, 1986, as 
provided in paragraph (a) of this section, the short taxable year 
required under the provisions of section 806 of the Act shall be 
considered one taxable year for purposes of amortizing the adjustment 
amount under the requirements of Rev. Proc. 72-51, 1972-2 C.B. 832, or 
Rev. Proc. 83-25, 1983-1 C.B. 689. The net income of the partnership or 
S corporation after reduction by the adjustment amount for the short 
taxable year may then be subject to the election under section 
806(e)(2)(C) of the Act by partners or S corporation shareholders to 
include all the net income for the short taxable year entirely in income 
for the partners' or shareholders' taxable year with or within which the 
short taxable year of the partnership or S corporation ends.
    (f) Cross-reference. See Sec.  301.9100-8(d) for rules on both the 
election under section 905(a) of the Act, relating to section 165(l)(1), 
and the related election under section 165(l)(5), added by section 
1009(d) of the Technical and Miscellaneous Revenue Act of 1988, 102 
Stat. 3342. An election under section 165(l) is available only to 
qualified individuals and, in general, applies to reasonably estimated 
losses on deposits in

[[Page 942]]

an insolvent or bankrupt financial institution.
    (g) Elections with respect to certain bonds. The elections under Act 
section 1301(b) (Code sections 141(b)(9), 142(d)(1), 142(d)(4)(B), 
143(k)(9)(D)(iii), 145(d), and 147(b)(4)(A)) must be made in the bond 
indenture or a related document (as defined in Sec.  1.103-13(b)(8)) on 
or before the date of issue. With respect to obligations issued on or 
before March 9, 1987 these elections must be made on or before March 9, 
1987 and need not be made in the bond indenture or a related document, 
but must be made in writing and retained as part of the issuer's books 
and records.
    (h) Revocation of the election for exemption from social security 
taxes by certain clergy--(1) In general. This paragraph applies to the 
election under Act section 1704(b) to revoke an election under section 
1402(e)(1) of the Code by a duly ordained, commissioned, or licensed 
minister of a church, a member of a religious order (other than a member 
of a religious order who has taken a vow of poverty as a member of such 
order), or a Christian Science practitioner. Only elections which are 
effective for the taxable year containing October 22, 1986 may be 
revoked under this paragraph.
    (2) Time for revoking the election. The election shall be revoked by 
filing Form 2031 before the date on which the individual becomes 
entitled to benefits under sections 202(a) or 223 of the Social Security 
Act (without regard to sections 202(j)(1) or 223(b) of such Act), and 
not later than the due date of the Federal income tax return (including 
any extension thereof) for the individual's first taxable year beginning 
after October 22, 1986.
    (3) Manner of revoking the election. To revoke an election under 
section 1402(e)(1), the individual shall file Form 2031 in accordance 
with the instructions accompanying that form. The revocation shall be 
made effective, as designated by the individual on the form, either with 
respect to the individual's first taxable year ending on or after 
October 22, 1986, or with respect to the individual's first taxable year 
beginning after October 22, 1986.
    (4) Special rules for payment of self-employment taxes with respect 
to certain taxable years ending on or after October 22, 1986--(i) 
Elections filed after the due date of the Federal income tax return. If 
Form 2031 is filed on or after the due date of the Federal income tax 
return (including any extension thereof) for the individual's first 
taxable year ending on or after October 22, 1986, and the election made 
therein is effective with respect to that taxable year, Form 2031 shall 
be accompanied by an amended Federal income tax return for such taxable 
year together with payment in full of an amount equal to the total of 
the taxes that would have been imposed by section 1401 of the Code with 
respect to all of the individual's income derived in that taxable year 
which would have constituted net earnings from self-employment for 
purposes of chapter 2 of subtitle A of the Code (notwithstanding 
paragraph (4) or (5) of section 1402(c)) but for the exemption under 
section 1402(e)(1).
    (ii) Elections filed before the due date of the Federal income tax 
return. If Form 2031 is filed before the due date of the Federal income 
tax return (including any extension thereof) for the individual's first 
taxable year ending on or after October 22, 1986, and the election is 
effective with respect to that taxable year, payment in full of an 
amount equal to the total of the taxes that would have been imposed by 
section 1401 of the Code with respect to all of the individual's income 
derived in that taxable year which would have constituted net earnings 
from self-employment for purposes of chapter 2 of subtitle A of the Code 
(notwithstanding paragraph (4) or (5) of section 1402(c)) but for the 
exemption under section 1402(e)(1) shall be made:
    (A) In the case of Forms 2031 that are filed on or before the date 
on which the individual's Federal income tax return for such first 
taxable year is filed, with the individual's Federal income tax return 
for such taxable year; and
    (B) In the case of Forms 2031 that are filed after the date on which 
the individual's Federal income tax return for such first taxable year 
is filed, with an amended Federal income tax return for that taxable 
year filed on or before the due date for the individual's Federal income 
tax return (including any extension thereof) for such taxable year.

[[Page 943]]

    (iii) Interest on amounts paid after the due date of the Federal 
income tax return. If any amount of tax imposed by section 1401 for an 
individual's taxable year with respect to which an election under this 
paragraph (h) is effective is paid after the due date of the 
individual's Federal income tax return (without regard to extensions) 
for such taxable year, interest will be assessed on such tax from the 
due date of such return (without regard to extensions) to the date on 
which such tax is paid.
    (5) Revocability of the revocation of the election. Once having 
filed Form 2031, the individual may not thereafter file an application 
for an exemption under section 1402(e)(1).
    (6) Effective date of this provision. This provision shall apply 
with respect to remuneration received in the taxable years for which the 
individual designates the revocation to be effective, as described in 
paragraph (h)(3) of this section, and with respect to monthly insurance 
benefits payable under title II of the Social Security Act on the basis 
of the wages and self-employment income of any individual for months in 
or after the calendar year in which such individual's application for 
revocation is effective (and lump-sum death payments payable under such 
title on the basis of such wages and self-employment income in the case 
of deaths occurring in or after such calendar year).
    (i) Revocation of the election for exemption from social security 
taxes by certain churches on qualified church-controlled organizations--
(1) In general. This paragraph applies to the election under Act section 
1882 (Code section 3121 (w)(2)) to revoke an election under section 
3121(w) by a church or qualified church-controlled organization (as 
defined in section 3121(w)(3)).
    (2) Time and manner of revoking the election. The revocation 
described in this paragraph (i) shall be made by filing a Form 941 on or 
before the due date for filing Form 941 (without regard to extensions) 
for the first quarter for which the revocation is to be effective, 
accompanied by payment in full of the taxes that would be due for that 
quarter had there been no election under section 3121(w). See paragraph 
(i)(4) of this section for the effective date of revocations made under 
this paragraph (i).
    (3) Revocability of the revocation of the election. Once an election 
under section 3121(w) is revoked under this paragraph (i), a new 
election under section 3121(w) may not be made.
    (4) Effective date of this paragraph. A revocation made under this 
paragraph (i) shall be effective for the quarter of the calendar year 
covered by the Form 941 on which the revocation is made in accordance 
with paragraph (i)(2) of this section and all subsequent quarters. 
However, no revocation shall be effective prior to January 1, 1987 
unless such electing church or church-controlled organization had 
withheld and paid over all employment taxes due, as if such election had 
never been in effect, during the period from the effective date of the 
election being revoked through December 31, 1986.
    (j) Additional information required. Later regulations or revenue 
procedures issued under provisions of the Code or Act covered by this 
section may require the furnishing of information in addition to that 
which was furnished with the statement of election described in this 
section. In such event, the later regulations or revenue procedures will 
provide guidance with respect to the furnishing of such additional 
information.

[T.D. 8124, 52 FR 3624, Feb. 5, 1987; 52 FR 8405, Mar. 17, 1987; 52 FR 
10085, Mar. 30, 1987, as amended by T.D. 8180, 53 FR 6147, Mar. 1, 1988; 
T.D. 8267, 54 FR 38980, Sept. 22, 1989. Redesignated and amended by T.D. 
8435, 57 FR 43895, 43896, Sept. 23, 1992; T.D. 8513, 58 FR 68764, 68765, 
Dec. 29, 1993; T.D. 8530, 59 FR 12844, Mar. 18, 1994; T.D. 8644, 60 FR 
66926, Dec. 27, 1995]



Sec.  301.9100-8  Time and manner of making certain elections 
under the Technical and Miscellaneous Revenue Act of 1988.

    (a) Miscellaneous elections--(1) Elections to which this paragraph 
applies. This paragraph applies to the elections set forth below 
provided under the Technical and Miscellaneous Revenue Act of 1988, 102 
Stat. 3342 (the Act). General rules regarding the time for making the 
elections are provided in paragraph (a)(2) of this section. General 
rules regarding the manner for making the elections are provided in

[[Page 944]]

paragraph (a)(3) of this section. Special rules regarding the time and 
manner for making certain elections are contained in paragraphs (a) 
through (i) of this section. In this paragraph (a)(1), a cross-reference 
to a special rule applicable to an election is shown in brackets at the 
end of the description of the ``Availability of Election.'' Paragraph 
(j) of this section lists certain elections provided under the Act that 
are not addressed in this section. Paragraph (k) of this section 
provides that additional information with respect to elections may be 
required by future regulations or revenue procedures.

------------------------------------------------------------------------
                                      Description of    Availability of
 Section of act   Section of code        election           election
------------------------------------------------------------------------
1002 (a)(11)(A)  168(b)(2)........  Election to        For property
                                     depreciate         placed in
                                     property using     service after
                                     the 150 percent    December 31,
                                     declining          1986, the
                                     balance method     election must be
                                     for one or more    made for the
                                     classes of         taxable year in
                                     property for any   which the
                                     taxable year.      property is
                                                        placed in
                                                        service. For
                                                        taxable years
                                                        ending before
                                                        January 1, 1989,
                                                        taxpayers have
                                                        until January
                                                        22, 1990, to
                                                        amend their
                                                        returns to elect
                                                        the 150 percent
                                                        declining
                                                        balance method,
                                                        regardless of
                                                        whether the
                                                        taxpayer had
                                                        used or elected
                                                        to use a
                                                        different method
                                                        for property
                                                        placed in
                                                        service during
                                                        those taxable
                                                        years. The
                                                        election will
                                                        apply to all
                                                        property in the
                                                        class placed in
                                                        service during
                                                        the taxable year
                                                        for which the
                                                        election is
                                                        made.
1002(a)(23)(B).  168(d)(3)(B).....  Election to        Available for
                                     disregard          property placed
                                     property placed    in service in
                                     in service and     taxable years
                                     disposed of in     beginning on or
                                     the same taxable   before March 31,
                                     year in applying   1988. Election
                                     the 40 percent     will apply to
                                     test to            all property
                                     determine if the   placed in
                                     mid-quarter        service and
                                     convention         disposed of
                                     applies.           during the
                                                        taxable year for
                                                        which the
                                                        election is
                                                        made.
1002(l)(1)(A)..  42(b)(2)(A)(ii)..  Election to use    Available for
                                     the applicable     qualified
                                     percentage for a   buildings placed
                                     month other than   in service after
                                     the month in       December 31,
                                     which a building   1987, and with
                                     is placed in       respect to which
                                     service.           either a binding
                                                        agreement is
                                                        made as to the
                                                        allocable credit
                                                        dollar amount or
                                                        tax-exempt bonds
                                                        are issued. [See
                                                        paragraph (b) of
                                                        this section.]
1002(l)(2)(B)..  42(f)(1).........  Election to defer  Available for
                                     the beginning of   qualified
                                     the credit         buildings placed
                                     period for the     in service after
                                     low-income         December 31,
                                     housing credit.    1986.
1002(l)(4).....  42(d)(3)(B)......  Election to        Available for
                                     exclude excess     qualified
                                     costs of           buildings placed
                                     disproportionate   in service after
                                     units.             December 31,
                                                        1986.
1002(l)(12)....  42(g)(3)(B)(i)...  Election to        Available for
                                     aggregate          qualified
                                     buildings in a     buildings placed
                                     low-income         in service after
                                     housing project    December 31,
                                     to satisfy the     1986.
                                     minimum set-
                                     aside
                                     requirement
                                     elected under
                                     section 42(g)(1)
                                     of the Code.
1002(l)(19)(B).  42(i)(2)(B)......  Election to        Available for
                                     reduce eligible    qualified
                                     basis by           buildings placed
                                     outstanding        in service after
                                     balance of         December 31,
                                     Federal loan       1986.
                                     subsidy or
                                     proceeds of tax-
                                     exempt
                                     obligation.
1005(c)(11)....  469,163..........  Election to treat  Available for
                                     certain            investment
                                     carryovers of      interest that is
                                     disallowed         disallowed for
                                     investment         the last taxable
                                     interest expense   year beginning
                                     as passive         before January
                                     activity           1, 1987, and is
                                     deductions for     properly
                                     the first          allocable to a
                                     taxable year       passive activity
                                     beginning after    for the first
                                     December 31,       taxable year
                                     1986.              beginning after
                                                        December 31,
                                                        1986. [See
                                                        paragraph (c) of
                                                        this section.]
1006(d)(15)....  382..............  As a general       Available to any
                                     rule, a firm       loss corporation
                                     commitment         to which the
                                     underwriter of     general rule
                                     an offering of a   would otherwise
                                     loss               apply. The
                                     corporation's      election is to
                                     stock made         be made by
                                     before September   filing a
                                     19, 1986           statement with
                                     (January 1,        the District
                                     1989, for an       Director with
                                     institution        whom the loss
                                     described in       corporation
                                     section 591) is    would file its
                                     not treated as     Federal income
                                     acquiring          tax return. The
                                     underwritten       statement must
                                     stock if it is     identify the
                                     disposed of        election as an
                                     pursuant to the    election under
                                     offering on or     section
                                     before 60 days     1006(d)(15) of
                                     after the          the Act and must
                                     initial            (1) contain the
                                     offering. The      taxpayer's name,
                                     loss corporation   address, and
                                     may elect not to   employee
                                     apply the          identification
                                     general rule.      number, (2)
                                                        identify the
                                                        transaction to
                                                        which the
                                                        election
                                                        relates, (3)
                                                        represent that
                                                        the conditions
                                                        for making the
                                                        election have
                                                        been satisfied,
                                                        and (4) be
                                                        signed by a
                                                        person
                                                        authorized to
                                                        sign the Federal
                                                        income tax
                                                        return of the
                                                        loss
                                                        corporation.

[[Page 945]]

 
1006(j)(1)(C)..  171(e)...........  Election to        Available for
                                     reduce interest    obligations
                                     payments           acquired after
                                     received on        October 22,
                                     certain bonds by   1986, and before
                                     allocable bond     January 1, 1988.
                                     premium in
                                     accordance with
                                     section 171(e)
                                     of the Code.
1006(t)(18)(B).  860F(e)..........  Election not       Available for
                                     treat a REMIC      REMICs with a
                                     (real estate       start-up date
                                     mortgage           (as defined in
                                     investment         section
                                     conduit) as a      860G(a)(9) of
                                     partnership for    the Code, as in
                                     purposes of        effect on
                                     determining who    November 9,
                                     may sign the       1988) before
                                     REMIC return.      November 10,
                                                        1988. The
                                                        election is made
                                                        by attaching a
                                                        statement to the
                                                        amended tax
                                                        return for tax
                                                        year 1987 or to
                                                        the tax return
                                                        for the first
                                                        taxable year for
                                                        which the
                                                        election is to
                                                        be effective.
1008(c)(4)(A)..  460(b)(3)........  Election not to    Effective as if
                                     discount an        included in the
                                     amount received    Tax Reform Act
                                     or accrued after   of 1986 (1986
                                     completion of a    Act) (available
                                     contract to its    for contracts
                                     value as of the    entered into
                                     completion of      after February
                                     the contract for   28, 1986). The
                                     purposes of        election must be
                                     applying the       made on a
                                     look-back method.  contract-by-
                                                        contract basis
                                                        by attaching a
                                                        statement to the
                                                        tax return for
                                                        the first year
                                                        after completion
                                                        in which the
                                                        taxpayer
                                                        includes in
                                                        income any
                                                        adjustments to
                                                        the contract
                                                        price or deducts
                                                        any adjustments
                                                        to contract
                                                        costs (or, if
                                                        later, the first
                                                        tax return filed
                                                        after October
                                                        23, 1989).
1009(d)........  165(1)...........  Election to treat  Available for
                                     amount of          taxable years
                                     reasonably         beginning after
                                     estimated loss     December 31,
                                     on a deposit in    1981. [See
                                     an insolvent or    paragraph (d) of
                                     bankrupt           this section.]
                                     qualified
                                     financial
                                     institution as a
                                     loss described
                                     in either
                                     section 165(c)
                                     (2) or (3) of
                                     the Code and
                                     incurred in the
                                     taxable year for
                                     which the
                                     election is made.
1010(f)(1).....  831(b)(2)(A).....  Election for       Available for
                                     insurance          taxable years
                                     companies other    beginning after
                                     than life to use   December 31,
                                     alternative tax    1986.
                                     under certain
                                     circumstances.
1010(f)(2).....  835(a)...........  Election for an    Available for
                                     interinsurer or    taxable years
                                     reciprocal         beginning after
                                     underwirter        December 31,
                                     mutual insurance   1986.
                                     company subject
                                     to section
                                     831(a) of the
                                     Code to be
                                     subject to
                                     section 835(b)
                                     limitation.
1011(a)........  219(g)(4)........  Election to treat  Available to a
                                     a married          married
                                     individual as      individual who
                                     not married for    (1) was an
                                     purposes of        active
                                     certain            participant
                                     contributions      during 1987, (2)
                                     made to an         lived apart from
                                     individual         the other spouse
                                     retirement plan    during the
                                     for 1987.          entire 1987
                                                        calendar year,
                                                        (3) filed a
                                                        separate income
                                                        tax return for
                                                        1987, (4) had
                                                        adjusted gross
                                                        income of not
                                                        more than
                                                        $35,000 for
                                                        1987, and (5)
                                                        made a
                                                        contribution to
                                                        an individual
                                                        retirement plan
                                                        for 1987.
1012(d)(4).....  865(f)...........  Election to treat  Shareholder-level
                                     an affiliate and   election,
                                     its wholly-owned   available,
                                     subsidiaries as    subject to
                                     one corporation.   certain
                                                        conditions, to
                                                        United States
                                                        residents
                                                        selling stock in
                                                        an affiliate
                                                        which is a
                                                        foreign
                                                        corporation.
                                                        Available for
                                                        taxable years
                                                        beginning after
                                                        December 31,
                                                        1986.
1012(d)(6).....  865(g)(3)........  Election to treat  Shareholder-level
                                     a corporation      election,
                                     and its wholly-    available only
                                     owned              to individual
                                     subsidiaries as    bona fide
                                     one corporation.   residents of
                                                        Puerto Rico, if
                                                        the corporate
                                                        group is engaged
                                                        in active trade
                                                        or business in
                                                        Puerto Rico and
                                                        meets a gross
                                                        income test.
                                                        Available for
                                                        taxable years
                                                        beginning after
                                                        December 31,
                                                        1986.
1012(d)(8).....  865(h)(2)........  Election to apply  Taxpayer election
                                     treaty source      for treatment of
                                     rule to treat      gain on the
                                     gain from a sale   disposition of
                                     of an intangible   certain stocks
                                     or of stock in a   and intangibles.
                                     foreign            Available for
                                     corporation as     taxable years
                                     foreign source.    beginning after
                                                        December 31,
                                                        1986.
1012(1)(2).....  245(a)(10).......  Election to apply  Available to
                                     treaty source      corporations for
                                     rules to treat     distributions
                                     dividends          out of earnings
                                     received from a    and profits for
                                     qualified 10-      taxable years
                                     percent owned      beginning after
                                     foreign            December 31,
                                     corporation as     1986.
                                     foreign source.

[[Page 946]]

 
1012(n)(3).....  936..............  Election to        Corporate-level
                                     reduce the         election,
                                     amount of          available for
                                     qualified          any taxable year
                                     possession         beginning in
                                     source             1987 or 1988.
                                     investment
                                     income for
                                     certain
                                     corporations
                                     that fail the 75
                                     percent active
                                     trade or
                                     business income
                                     requirement of
                                     section
                                     936(a)(2)(B) of
                                     the Code due to
                                     section 1231(d)
                                     of the 1986 Act.
1012(bb)(4)....  904(g)(10).......  Election to apply  Available
                                     treaty source      generally
                                     rules (in lieu     beginning July
                                     of rules in        18, 1984 (the
                                     section 904(g)     amendment is to
                                     of the Code) to    take effect as
                                     treat an amount    if included in
                                     derived from a     the amendment
                                     U.S.-owned         made in section
                                     foreign            121 of the Tax
                                     corporation as     Reform Act of
                                     foreign source.    1984).
1014(c)(1).....  664(b)...........  Election by a      Available for
                                     beneficiary of a   taxable years
                                     trust to which     beginning after
                                     section 664 of     December 31,
                                     the Code applies   1986, provided
                                     to obtain          the trust was
                                     certain benefits   required to
                                     of section         change its
                                     1403(c)(2) of      taxable year
                                     the 1986 Act,      under section
                                     relating to the    1403(a) of the
                                     ratable            1986 Act.
                                     inclusion of       Election is made
                                     certain income     by attaching a
                                     over 4 taxable     statement to an
                                     years.             amended return
                                                        for the trust
                                                        beneficiary's
                                                        first taxable
                                                        year beginning
                                                        after December
                                                        31, 1986.
                                                        Amended return
                                                        must be filed on
                                                        or before
                                                        January 22,
                                                        1990. If no such
                                                        election is
                                                        filed, the
                                                        benefits of
                                                        section
                                                        1403(c)(2) are
                                                        waived.
1014(c)(2).....  652, 662.........  Election by any    Available for
                                     trust              taxable years
                                     beneficiary        beginning after
                                     (other than a      December 31,
                                     beneficiary of a   1986. Election
                                     trust to which     is made by
                                     section 664 of     attaching a
                                     the Code           statement to an
                                     applies), to       amended return
                                     waive the          for the trust
                                     benefits of        beneficiary's
                                     section            first taxable
                                     1403(c)(2) of      year beginning
                                     the 1986 Act.      after December
                                                        31, 1986.
                                                        Amended return
                                                        must be filed on
                                                        or before
                                                        January 22,
                                                        1990.
1014(d)(3)(B),   643(g)(2)........  Election to have   Available for
 1014(d)(4).                         certain payments   taxable years
                                     of estimated tax   beginning after
                                     made by a trust    December 31,
                                     or estate          1986. In the
                                     treated as paid    case of an
                                     by the             estate, the
                                     beneficiary.       election is
                                                        available only
                                                        for a taxable
                                                        year reasonably
                                                        expected to be
                                                        the estate's
                                                        last taxable
                                                        year. Election
                                                        must be made by
                                                        the fiduciary of
                                                        the trust or
                                                        estate on or
                                                        before the 65th
                                                        day after the
                                                        close of the
                                                        taxable year for
                                                        which the
                                                        election is
                                                        made. The
                                                        election must be
                                                        made by that
                                                        date by filing
                                                        Form 1041-T with
                                                        the Internal
                                                        Revenue Service
                                                        Center where the
                                                        trust's return
                                                        for such taxable
                                                        year is required
                                                        to be filed. The
                                                        trust's return
                                                        (or amended
                                                        return) for that
                                                        year must
                                                        include a copy
                                                        of the Form 1041-
                                                        T.
2004(j)(1).....  1503(e)..........  Election, made by  Available to an
                                     an affiliated      affiliated group
                                     group filing a     filing a
                                     consolidated       consolidated
                                     return upon the    return in which
                                     disposition of     a member
                                     intragroup stock   disposes of
                                     on or before       intragroup stock
                                     December 15,       on or before
                                     1987, to reduce    December 15,
                                     the disposing      1987.
                                     member's basis
                                     in the
                                     indebtedness of
                                     the subsidiary
                                     member whose
                                     stock has been
                                     disposed of, in
                                     lieu of taking
                                     into account as
                                     negative basis
                                     the
                                     ``unrecaptured
                                     amount''
                                     allocable to the
                                     stock disposed
                                     of.
2004(m)(5).....  384..............  Election to have   Available when
                                     amendments (to     the acquisition
                                     the limitation     date is before
                                     on use of          March 31, 1988.
                                     preacquisition     Election must be
                                     losses to offset   made not later
                                     corporate built-   than the later
                                     in gains) made     of the due date
                                     by section         (including
                                     2004(m) of the     extensions) for
                                     Act not apply in   filing the
                                     any case where     return for the
                                     the acquisition    taxable year of
                                     date is before     the acquiring
                                     March 31, 1988.    corporation in
                                                        which the
                                                        acquisition date
                                                        occurs or March
                                                        10, 1989.
4004(a)........  42(j)(5)(B)......  Election to have   Available for
                                     certain            qualified
                                     partnerships not   buildings placed
                                     treated as the     in service after
                                     taxpayer to        December 31,
                                     which the low-     1986, and owned
                                     income housing     by partnerships
                                     credit is          with 35 or more
                                     allowable.         partners. [See
                                                        paragraph (b) of
                                                        this section.]

[[Page 947]]

 
4008(b)........  41(h)............  Election to have   Available in any
                                     the research       taxable year
                                     credit under       beginning after
                                     secction 41 of     December 31,
                                     the Code not       1988. The
                                     apply for any      election is made
                                     taxable year.      by not claiming
                                                        the research
                                                        credit on an
                                                        original return,
                                                        or by filing an
                                                        amended return
                                                        on which no
                                                        research credit
                                                        is claimed, at
                                                        any time before
                                                        the expiration
                                                        of the 3-year
                                                        period beginning
                                                        on the last day
                                                        prescribed by
                                                        law for filing
                                                        the return for
                                                        the taxable year
                                                        (determined
                                                        without regard
                                                        to extensions).
                                                        The election may
                                                        be revoked
                                                        within the above-
                                                        described 3-year
                                                        period by filing
                                                        an amended
                                                        return on which
                                                        the credit is
                                                        claimed.
5012(e)(4).....  7002A(c)(3) 72(e)  Election to        Available for
                                     recognize gain     contracts
                                     on exchange of     entered into
                                     life insurance     after June 20,
                                     contracts to       1988, and before
                                     avoid the          November 6,
                                     characterization   1988, which are
                                     of life            exchanged before
                                     insurance          February 10,
                                     contract as a      1989.
                                     modified
                                     endowment
                                     contract.
5031(a)........  7520(a)..........  Election to use    Available in
                                     120 percent of     cases where the
                                     the Applicable     valuation date
                                     Federal Midterm    occurs on or
                                     rate for either    after May 1,
                                     of the two         1989. The
                                     months preceding   election is made
                                     a valuation date   by attaching a
                                     in valuing         statement to the
                                     certain            last income,
                                     interests          estate, or gift
                                     transferred to     tax return filed
                                     charity for        before the due
                                     which an income,   date, or if a
                                     estate, or gift    timely return is
                                     tax charitable     not filed, the
                                     deduction is       first return
                                     allowable.         filed after the
                                                        due date. The
                                                        statement shall
                                                        contain the
                                                        following: (1) A
                                                        statement that
                                                        an election
                                                        under section
                                                        7520(a) is being
                                                        made; (2) the
                                                        transferor's
                                                        name and
                                                        taxpayer
                                                        identification
                                                        number as they
                                                        appear on the
                                                        return; (3) a
                                                        description of
                                                        the interest
                                                        being valued;
                                                        (4) the
                                                        recipients,
                                                        beneficiaries,
                                                        or donees of the
                                                        transferred
                                                        interest; (5)
                                                        the date of the
                                                        transfer; (6)
                                                        the Applicable
                                                        Federal Midterm
                                                        rate that is
                                                        used to value
                                                        the transferred
                                                        interest and the
                                                        month to which
                                                        the rate
                                                        pertains.
5033(a)(2).....  2056(d)..........  Election to treat  Available in the
                                     a trust for the    case of estates
                                     benefit of a       of decedents
                                     surviving spouse   dying after
                                     who is not a       November 11,
                                     U.S. citizen as    1988. The
                                     a Qualified        election is made
                                     Domestic Trust,    by the executor
                                     transfers to       on the last
                                     which are          Federal estate
                                     deductible under   tax return filed
                                     section 2056(a)    by the executor
                                     of the Code.       before the due
                                                        date of the
                                                        return, or if a
                                                        timely return is
                                                        not filed by the
                                                        executor, on the
                                                        first estate tax
                                                        return filed by
                                                        the executor
                                                        after the due
                                                        date. However,
                                                        elections made
                                                        on or after May
                                                        5, 1991, may not
                                                        be made on any
                                                        return filed
                                                        more than one
                                                        year after the
                                                        time prescribed
                                                        for filing the
                                                        return
                                                        (including
                                                        extensions).
6006(a)........  1(i)(7)..........  Election to        Available for
                                     include certain    taxable years
                                     unearned income    beginning after
                                     of a child on      December 31,
                                     the parent's       1988. The
                                     return.            election must be
                                                        made in the
                                                        manner
                                                        prescribed by
                                                        the appropriate
                                                        forms for the
                                                        parent's return
                                                        for the year for
                                                        which the
                                                        election is
                                                        effective. The
                                                        election must be
                                                        made by the due
                                                        date (taking
                                                        extensions into
                                                        account) of such
                                                        tax return.
6011...........  121(d)(9)........  Election to        Election may be
                                     exclude gain on    made for a sale
                                     the sale of a      or exchange
                                     principal          after September
                                     residence by       30, 1988, by a
                                     certain            taxpayer who
                                     incapacitated      becomes
                                     taxpayers age 55   physically or
                                     or over.           mentally
                                                        incapable of
                                                        self-care and
                                                        meets the
                                                        required use
                                                        rule provided in
                                                        section
                                                        121(d)(9) of the
                                                        Code. For the
                                                        time and manner
                                                        of making the
                                                        election see
                                                        Sec.   1.121-4
                                                        of the Income
                                                        Tax Regulations.
6026(a)........  263A(h)..........  Election for       Available for the
                                     certain authors,   first taxable
                                     photographers,     year ending
                                     and artists to     after November
                                     apply the          10, 1988. An
                                     exemption from     eligible
                                     the uniform        taxpayer will be
                                     capitalization     treated as
                                     rules for the      having made the
                                     first taxable      election if the
                                     year ending        taxpayer reports
                                     after November     income and
                                     10, 1988.          expenses for the
                                                        first taxable
                                                        year ending
                                                        after November
                                                        10, 1988 in
                                                        accordance with
                                                        the exemption
                                                        from section
                                                        263A of the
                                                        Code.

[[Page 948]]

 
6026(b)(1).....  263A(d)(1).......  Revocation of      Election for any
                                     prior election     taxable year
                                     under section      beginning before
                                     263A(d)(3) of      January 1, 1989,
                                     the Code           may be revoked
                                     (relating to the   for the first
                                     capitalization     taxable year
                                     of certain         beginning after
                                     expenses for the   December 31,
                                     production of      1988.
                                     animals).
6026(c)........  263A(d)(3)(B)....  Election by        Available without
                                     eligible           the consent of
                                     taxpayers not to   the Commissioner
                                     have section       for the first
                                     263A of the Code   taxable year
                                     apply to costs     beginning after
                                     incurred in the    December 31,
                                     planting,          1986, during
                                     cultivation,       which the
                                     maintenance, or    taxpayer engages
                                     development of     in the planting,
                                     pistachio trees.   cultivation,
                                                        maintenance, or
                                                        development of
                                                        pistachio trees.
                                                        Consent must be
                                                        obtained from
                                                        the Commissioner
                                                        for the election
                                                        to be made for
                                                        any subsequent
                                                        taxable year.
6152(a),         2056(b)(7)(C)(ii)  Election to treat  Available in the
 6152(c)(3).                         a survivor         case of estates
                                     annuity payable    of decedents
                                     to a surviving     dying after
                                     spouse that is     December 31,
                                     otherwise          1981, and in no
                                     deductible under   event will the
                                     section            time for making
                                     2056(b)(7)(C) of   the election
                                     the Code as a      expire before
                                     nondeductible      November 11,
                                     terminable         1990. [See
                                     interest.          paragraph (e) of
                                                        this section.]
6152(b),         2523(f)(6)(B)....  Election to treat  Available in the
 6152(c)(3).                         a joint and        case of
                                     survivor annuity   transfers made
                                     in which the       after December
                                     donee spouse has   31, 1981, and in
                                     a survivorship     no event will
                                     interest that is   the time for
                                     otherwise          making the
                                     deductible under   election expire
                                     section            before November
                                     2523(f)(6)(A) of   11, 1990. [See
                                     the Code as a      paragraph (f) of
                                     nondeductible      this section.]
                                     terminable
                                     interest.
6152(c)(2).....  2056(b)(7)(C)(ii)  Election to treat  Available to
                  , 2523(f)(6)(B).   as deductible      estates of
                                     for estate or      decedents dying
                                     gift tax           after December
                                     purposes under     31, 1981, or to
                                     sections           transfers made
                                     2056(b)(7)(C) or   after December
                                     2523(f)(6) of      31, 1981, where:
                                     the Code,          (1) the estate
                                     respectively, a    or gift tax
                                     survivor's         return was filed
                                     annuity payable    prior to
                                     to a surviving     November 11,
                                     spouse reported    1988; (2) the
                                     on an estate or    annuity was not
                                     gift tax return    deducted on the
                                     filed prior to     return as
                                     November 11,       qualified
                                     1988, as a         terminable
                                     nondeductible      interest
                                     terminable         property under
                                     interest.          sections
                                                        2056(b)(7) or
                                                        2523(f) of the
                                                        Code; and (3)
                                                        the executor or
                                                        donor elects to
                                                        treat the
                                                        interest as a
                                                        deductible
                                                        terminable
                                                        interest under
                                                        sections
                                                        2056(b)(7)(C) or
                                                        2523(f)(6) prior
                                                        to November 11,
                                                        1990. [See
                                                        paragraph (g) of
                                                        this section.]
6180(b)(1).....  142(i)(2)........  Election by a      Available for
                                     nongovernmental    bonds issued
                                     owner of a         after November
                                     highspeed          10, 1988. [See
                                     intercity rail     paragraph (h) of
                                     facility not to    this section.]
                                     claim any
                                     deduction under
                                     section 167 or
                                     168 of the Code
                                     and any credit
                                     under subtitle
                                     A, in order for
                                     the facility to
                                     be described in
                                     section
                                     142(a)(11).
6181(c)(2).....  148(f)(4)(A).....  One-time election  Available for
                                     by the issuer of   bonds
                                     tax-exempt bonds   outstanding as
                                     outstanding as     of November 11,
                                     of November 11,    1988. The
                                     1988, other than   election must be
                                     private activity   made in writing
                                     bonds, to apply    on the later of
                                     the amendments     March 21, 1990,
                                     made by section    or the first
                                     148(b) of the      date any payment
                                     Code to amounts    is required
                                     deposited after    under section
                                     such date in       148(f) of the
                                     bona fide debt     Code. The
                                     service funds.     election should
                                                        be retained as
                                                        part of the
                                                        issuer's books
                                                        and records (as
                                                        defined in Sec.
                                                         1.103-10(b)(2)(
                                                        vi) of the
                                                        regulations) of
                                                        the bond issue
                                                        to which it
                                                        relates.
6277...........  382, 383.........  Election by a      Available for
                                     loss corporation   ownership
                                     that otherwise     changes
                                     qualifies for      described in
                                     the exception of   section
                                     section            621(f)(5) of the
                                     621(f)(5) of the   1986 Act, if a
                                     1986 Act not to    petition was
                                     apply that         filed with the
                                     exception. That    court before
                                     exception          August 14, 1986.
                                     provides for the   The election is
                                     inapplicability,   to be made by
                                     in certain         filing a
                                     situations, of     statement with
                                     the amendments     the District
                                     to sections 382    Director with
                                     and 383 of the     whom the loss
                                     Code made by the   corporation
                                     1986 Act           would file its
                                     (relating to       Federal income
                                     limitation of      tax return. The
                                     corporate          statement must
                                     attributes after   identify the
                                     an ownership       election as an
                                     change). That      election under
                                     exception          section 6277 of
                                     applies with       the Act and must
                                     respect to a       (1) contain the
                                     loss               taxpayer's name,
                                     corporation's      address, and
                                     ownership change   employee
                                     resulting from a   identification
                                     reorganization     number, (2)
                                     described in       identify the
                                     section            transaction to
                                     368(a)(1)(G) of    which the
                                     the Code or from   election
                                     an exchange of     relates, (3)
                                     debt for stock     represent that
                                     in a title 11 or   the conditions
                                     similar case if    for making the
                                     a petition was     election have
                                     filed with the     been satisfied,
                                     court before       and (4) be
                                     August 14, 1986.   signed by a
                                                        person
                                                        authorized to
                                                        sign the Federal
                                                        income tax
                                                        return of the
                                                        loss
                                                        corporation.

[[Page 949]]

 
8007(a)(1).....  3127.............  Election to be     An individual
                                     exempted from      employer and an
                                     the taxes          employee, both
                                     imposed by         of whom are
                                     sections 3101      members of a
                                     and 3111 of the    recognized
                                     Code.              religious sect
                                                        or a division
                                                        thereof
                                                        described in
                                                        section
                                                        1402(g)(1) of
                                                        the Code and
                                                        adherents of
                                                        established
                                                        tenets or
                                                        teachings of
                                                        such sect or
                                                        division, may,
                                                        if both qualify
                                                        and make
                                                        elections,
                                                        obtain
                                                        exemptions from
                                                        the taxes
                                                        imposed by
                                                        sections 3101
                                                        and 3111. [See
                                                        paragraph (i) of
                                                        this section.]
------------------------------------------------------------------------

    (2) Time for making elections--(i) In general. Except as otherwise 
provided in this section, the elections described in paragraph (a)(1) of 
this section must be made by the later of--
    (A) The due date (taking into account any extensions of time to file 
obtained by the taxpayer) of the tax return for the first taxable year 
for which the election is effective, or
    (B) January 22, 1990 (in which case the election generally must be 
made by amended return).
    (ii) No extension of time for payment. Payments of tax due must be 
made in accordance with chapter 62 of the Code.
    (3) Manner of making elections. Except as otherwise provided in this 
section, the elections described in paragraph (a)(1) of this section 
must be made by attaching a statement to the tax return for the first 
taxable year for which the election is to be effective. If such tax 
return is filed prior to the making of the election, the statement must 
be attached to an amended tax return of the first taxable year for which 
the election is to be effective. Except as otherwise provided in the 
return or in the instructions accompanying the return for the taxable 
year, the statement must--
    (i) Contain the name, address and taxpayer identification number of 
the electing taxpayer;
    (ii) Identify the election;
    (iii) Indicate the section of the Code (or, if the provision is not 
codified, the section of the Act) under which the election is made;
    (iv) Specify, as applicable, the period for which the election is 
being made and the property or other items to which the election is to 
apply; and
    (v) Provide any information required by the relevant statutory 
provisions and any information requested in applicable forms and 
instructions, such as the information necessary to show that the 
taxpayer is entitled to make the election.

Notwithstanding the foregoing, an amended return need not be filed for 
an election made prior to October 23, 1989, if the taxpayer made the 
election in a reasonable manner.
    (4) Revocation--(i) Irrevocable elections. The elections described 
in this section that are made under the following sections of the Act 
are irrevocable: 1002(a)(11)(A) (Code section 168(b)(2)), 
1002(a)(23)(B), 1002(l)(1)(A) (Code section 42(b)(2)(A)(ii)), 1002 
(l)(2)(B) (Code section 42(f)(1)), 1005(c)(11), 1008(c)(4)(A) (Code 
section 460(b)(3)), 1014(c)(1), 1014(c)(2), 1014(d)(3)(B) and 1014(d)(4) 
(Code section 643(g)(2)), 2004(m)(5), 4004(a) (Code section 
42(j)(5)(B)), 5033(a)(2) (Code section 2056A(d)), 6006(a) (Code section 
1(i)(7)), 6026(a) (Code section 263A(h)), 6026(b)(1) (Code section 
263A(d)(1)), 6152(a) and 6152(c)(3) (Code section 2056(b)(7)(C)(ii)), 
6152(b) and 6152(c)(3) (Code section 2523(f)(6)(B)), 6152(c)(2) (Code 
sections 2056(b)(7)(C)(ii) and 2523(f)(6)(B)), and 6180(b)(1) (Code 
section 142(i)(2)).
    (ii) Elections revocable with the consent of the Commissioner. The 
elections described in this section that are made under the following 
sections of the Act are revocable only with the consent of the 
Commissioner: 1006(d)(15), 1006(j)(1)(C), 1006(t)(18)(B), 1009(d) (Code 
section 165(l)), 1010(f)(1) (Code section 831(b)(2)(A)), 1010(f)(2) 
(Code section 835(a)), 1012(d)(4) (Code section 865(f)), 1012(d)(6) 
(Code section 865(g)(3)), 1012(d)(8) (Code section 865(h)(2)), 
1012(l)(2) (Code section 245(a)(10)), 1012(n)(3), 1012(bb)(4) (Code 
section 904(g)(10)), 2004(j)(1), 5031(a) (Code section 7520(a)), 6026(c) 
(Code section 263A(d)(3)(B)), and 6277.

[[Page 950]]

    (iii) Freely revocable elections. The election described in this 
section that is made under section 6011 of the Act is revocable without 
the consent of the Commissioner. (See section 121(c) of the Code and 
Sec.  1.121-4 of the regulations.)
    (b) Elections with respect to the low-income housing credit. The 
elections under sections 42(d)(3)(B), 42(f)(1), 42(g)(3)(B)(i), 
42(i)(2)(B), and 42(j)(5)(B) of the Code generally must be made for the 
taxable year in which the building is placed in service, or the 
succeeding taxable year if the section 42(f)(1) election is made to 
defer the start of the credit period, and must be made in the 
certification required to be filed pursuant to section 42(l) (1) and 
(2), as amended by the Act. The election under section 42(j)(5)(B) of 
the Code must be made by the later of the due date of the certification 
or January 22, 1990. The election under section 42(b)(2)(A)(ii) must be 
made in accordance with the requirements of Notice 89-1, 1989-2 I.R.B. 
10.
    (c) Election to treat certain carryovers of disallowed investment 
interest expense as passive activity deductions. The requirements of 
paragraphs (a) (2) and (3) of this section do not apply to an election 
under section 1005(c)(11) of the Act. Instead, the election must be made 
at the time and in the manner prescribed in Notice 89-36, 1989-13 I.R.B. 
6. Thus, the election must be made before the filing deadline specified 
in Notice 89-36 by amending previously filed returns to reflect any 
change in the computation of tax liability that results from the 
election.
    (d) Election with respect to the treatment of reasonably estimated 
losses in an insolvent or bankrupt financial institution--(1) In 
general. This paragraph (d) applies to an election under section 905(a) 
of the 1986 Act, and to an election under section 1009(d) of the Act, 
both relating to section 165(l) of the Code. If--
    (i) As of the close of the taxable year, it can reasonably be 
estimated that there is a loss on a deposit (within the meaning of 
section 165(l)(4)) of a qualified individual (as defined in section 
165(l)(2)) in a qualified financial institution (as defined in section 
165(l)(3)), and
    (ii) Such loss is on account of the bankruptcy or insolvency of such 
institution, then the qualified individual may elect under either 
section 165(l)(1) or (5) (but not both), to treat the amount (subject to 
the applicable limitations if under section 165(l)(5)) so estimated for 
that taxable year as a loss described in either section 165(c)(3), 
relating to casualty losses, or section 165(c)(2), relating to 
transactions entered into for profit, and incurred during the taxable 
year.

The election will apply to all losses of the qualified individual on 
deposits in the institution with respect to which an election is made. 
For additional information and examples of the application of the 
election rules, see Notice 89-28, 1989-12 I.R.B. 72.
    This paragraph (d) includes the procedural and the principal 
substantive rules first issued in Notice 89-28. For specific rules 
relating to an election under section 165(1)(5), see paragraph (d)(2) of 
this section.
    (2) Specific rules relating to the section 165(1)(5) election--(i) 
Applicability. An election under section 165(1)(5) of the Code may be 
made only if no part of the taxpayer's deposits in the financial 
institution is federally insured. Generally, this requirement will be 
met only in cases in which none of the deposits in the financial 
institution are federally insured.
    (ii) Dollar limitations. An election under section 165(1)(5) of the 
Code is limited to $20,000 ($10,000 in the case of a separate return by 
a married individual) in aggregate losses on deposits in any one 
financial institution. The applicable dollar limit must be reduced by 
the amount of any insurance proceeds that can reasonably be expected to 
be received under any state law.
    (3) Time and manner of determining loss and making the election--(i) 
Year of election and determination of loss. A qualified individual may 
make an election under section 165(1) of the Code either for the first 
taxable year in which a reasonable estimate of the loss can be made or 
for a later taxable year that is prior to the taxable year in which the 
loss is sustained. The amount of the loss is determined by the 
difference between a taxpayer's basis in the deposits

[[Page 951]]

and the amount that is reasonably estimated to be recovered, taking into 
account all facts and circumstances reasonably available to the taxpayer 
as of the date the election is made. A reasonable estimate might be 
based, for example, on the percentage of total deposits likely to be 
recovered by the depositors according to a determination made by the 
regulatory authority or trustee having responsibility over the 
institution. In addition, the taxpayer's basis in the deposits must be 
reduced to the extent that a loss is claimed.
    (ii) Time and manner of making election. A qualified individual may 
make an election under section 165(1) of the Code on--
    (A) The income tax return for the taxable year with respect to which 
the taxpayer made a reasonable estimate of the loss;
    (B) An amended income tax return for a taxable year described in 
paragraph (d)(3)(ii)(A) of this section, if the period prescribed for 
filing a claim for refund or credit for that taxable year has not yet 
expired; or, if applicable,
    (C) An amended income tax return for a taxable year (beginning after 
December 31, 1981) described in paragraph (d)(3)(ii)(A) of this section, 
whether or not the claim for refund or credit is barred by another 
provision of law, but only if the amended return is properly filed on or 
before November 9, 1989.
    (iii) Information to include with election. The election should 
include any information requested in the applicable forms and 
instructions (e.g., Form 4684, Casualties and Thefts). If the applicable 
form(s) and instructions do not make reference to or request information 
concerning this election, the taxpayer should, on an appropriate line or 
space clearly indicate the name of the financial institution, include 
the following language: ``Insolvent Financial Institution Election,'' 
and include the calculation of the reasonably estimated loss claimed.
    (4) Revocability of the election--(i) In general. If a taxpayer 
desires to revoke an election under section 165(l) of the Code, the 
taxpayer must request, in writing, the consent of the Secretary setting 
forth the pertinent facts surrounding the election and the reasons for 
requesting a revocation.
    (ii) Exception. With respect to an election made under section 
165(l)(1) of the Code prior to November 9, 1989, a qualified individual 
may revoke such election without securing the prior consent of the 
Secretary but only if the taxpayer makes an election under section 
165(l)(5) by November 9, 1989, in the manner prescribed in paragraph 
(d)(3) of this section.
    (5) Effective date. Paragraph (d) of this section is generally 
effective for elections made under section 165(1) of the Code on or 
after November 10, 1988. However, an election filed prior to February 
24, 1989, that is made in any reasonable manner will be effective.
    (e) Election to treat a survivor annuity payable to a surviving 
spouse as a nondeductible terminable interest. Where the time for making 
the election under section 2056(b)(7)(C)(ii) of the Code to treat the 
survivor annuity as nondeductible otherwise expires before November 11, 
1990, the election may be made before November 11, 1990, by filing with 
the Service Center where the original return was filed supplemental 
information under Sec.  20.6081-1(c) of the Estate Tax Regulations 
containing:
    (1) A statement that the election under section 2056(b)(7)(C)(ii) of 
the Code is being made;
    (2) The applicable revised schedules;
    (3) A recomputation of the tax due; and
    (4) Payment of any additional tax due.
    (f) Election to treat a joint and survivor annuity in which the 
donee spouse has a survivor interest as a nondeductible terminable 
interest. Where the time for making the election under section 
2523(f)(6)(B) of the Code to treat the interest as nondeductible 
otherwise expires before November 11, 1990, the election may be made 
before November 11, 1990, by filing with the appropriate Service Center 
an original return (or an amended return if an original return was 
filed) containing:
    (1) A statement that the election under section 2523(f)(6)(B) is 
being made;
    (2) A recomputation of the tax due; and
    (3) Payment of any additional tax due.

[[Page 952]]

    (g) Election to treat survivor's annuity payable to the surviving 
spouse as qualified terminable interest property deductible under 
sections 2056(b)(7)(C) or 2523(f)(6) of the Code in the case of a return 
filed prior to November 11, 1988. (1) In the case of an estate tax 
election under section 2056(b)(7)(C) the election is made by filing with 
the Service Center where the estate tax return was filed supplemental 
information under Sec.  20.6081-1(c) of the Estate Tax Regulations (and 
timely claim for refund under section 6511 of the Code, if applicable) 
containing:
    (i) A statement that the election under section 6152(c)(2) of the 
Technical and Miscellaneous Revenue Act of 1988 is being made;
    (ii) The applicable revised schedules; and
    (iii) A recomputation of the estate's tax liability showing the 
amount of any refund due.
    (2) In the case of a gift tax election under section 2523(f)(6) of 
the Code, the election is made by filing with the Service Center where 
the original return was filed an amended return (and timely claim for 
refund under section 6511, if applicable) containing:
    (i) A statement that the election under section 6152(c)(2) of the 
Technical and Miscellaneous Revenue Act of 1988 is being made;
    (ii) The applicable revised schedules; and
    (iii) A recomputation of the gift tax liability showing the amount 
of any refund due.
    (h) Elections with respect to certain nongovernmentally owned rail 
facilities--(1) In general. This paragraph applies to the election under 
section 6180(b)(1) of the Act (Code section 142(i)(2)) not to claim a 
deduction under section 167 or 168 of the Code or any credit with 
respect to certain bond-financed property. An electing owner that is not 
a governmental unit must make the election at the time the loan 
agreement with the issuer of the bond is executed. The election must be 
signed by the owner and include--
    (i) A description of the property with respect to which the election 
is being made;
    (ii) The name, address, and taxpayer identification number of the 
issuing authority;
    (iii) The name, address, and taxpayer identification number of the 
electing owner; and
    (iv) The date and face amount of the issue used to provide the 
property.
    (2) Other requirements. The electing owner must provide a copy of 
the election to the issuing authority and to any person purchasing the 
facilities during the period the bonds are outstanding or within 6 years 
after the last bond that is part of the issue is retired. The electing 
owner, purchaser, and all successors in interest to the electing owner 
or purchaser must each retain the original election document or a copy 
thereof in its records until 6 years after the later of the date the 
last bond that is part of the issue is retired or the date such owner, 
purchaser or successor in interest ceases to own the facilities. The 
issuer must retain a copy of the election until 6 years after the date 
the last bond that is part of the issue is retired. In addition, while 
the facilities are nongovernmentally owned, any publicly recorded 
document with respect to the facilities must state that neither the 
electing owner, nor any person purchasing the facilities during the 
period the bonds are outstanding or within 6 years after the date the 
last bond that is part of the issue is retired, nor any successor in 
interest to the electing owner or such purchaser, may claim any 
deduction under section 167 or 168 of the Code or any credit with 
respect to the facilities.
    (3) Election is binding on purchasers and successors. The election 
is binding at all times on any person purchasing the facilities during 
the period the bonds are outstanding or within 6 years after the date 
the last bond that is part of the issue is retired and on all successors 
in interest to the electing owner and such purchaser.
    (i) Election under section 3127 of the Code to be exempted from the 
taxes imposed by sections 3111 and 3101--(1) Application for exemption. 
To be exempt from the taxes imposed under section 3111 and 3101 of the 
Code with regard to wages paid after December 31, 1988, an individual 
who is an employer and his

[[Page 953]]

or her employee must each file an application on the prescribed form 
with the Internal Revenue Service office designated in the instructions 
relating to the application for exemption.
    (2) Approval of application for exemption. The application for 
exemption by the individual employer or the employee will be approved 
only if:
    (i) The application contains or is accompanied by the evidence 
described in section 1402(g)(1)(A) of the Code and a waiver described in 
section 1402(g)(1)(B);
    (ii) The Secretary of Health and Human Services makes the findings 
described in section 1402(g)(1) (C), (D), and (E) with respect to the 
religious sect or division described in section 1402(g)(1) of which the 
individual employer and employee are members; and
    (iii) No benefit or other payment referred to in section 
1402(g)(1)(B) became payable (or, but for sections 203 or 222(b) of the 
Social Security Act, would have become payable) to the employee filing 
the application at or before the time of the filing.
    (3) Effective period of exemption. The election provided in 
paragraph (h)(1) of this section will apply with respect to wages paid 
by such individual employer during the period commencing with the first 
day of the first calendar quarter, after the quarter in which such 
application is filed, throughout which such individual employer or 
employee meets the applicable requirements specified in paragraphs 
(h)(2) and (h)(3).
    (4) Termination of election. The exemption granted under section 
3127 of the Code will end on the last day of the calendar quarter 
preceding the first calendar quarter thereafter in which:
    (i) Such individual employer or the employee involved ceases to meet 
the applicable requirements of paragraphs (h)(2) and (h)(3), or
    (ii) The sect or division thereof of which such individual employer 
or employee is a member is found by the Secretary of Health and Human 
Services to have failed to meet the requirements of section 3127(b)(2).
    (5) Both the individual employer and employee must qualify and 
elect. The exemption from the taxes imposed under sections 3101 and 3111 
of the Code is applicable only if both the individual employer and the 
employee qualify and make the election under the provisions of section 
3127.
    (j) Certain elections not addressed in this section. Elections under 
the Act that are not addressed in this section include:
    (1) An election relating to the effective date of certain source 
rules under section 861(a) of the Code (section 1012(g)(1) of the Act);
    (2) An election relating to transitional rules for interest 
allocation under 864(e) of the Code (section 1012(h)(7) of the Act);
    (3) An election relating to the chain deficit rules under section 
952(c)(1)(C) of the Code (section 1012(i)(25) of the Act);
    (4) An election relating to the definition of a passive foreign 
investment company in section 1296 of the Code (section 1012(p)(27) of 
the Act);
    (5) An election by a shareholder of a qualified electing fund under 
section 1291(d)(2)(B) of the Code (section 1012(p)(28) of the Act);
    (6) An election to be treated as a qualified electing fund under 
section 1295 of the Code (section 6127 of the Act);
    (7) An election relating to treatment of an insurance branch as a 
separate corporation under section 964(d) of the Code (section 6129 of 
the Act);
    (8) An election relating to certain regulated futures contracts and 
nonequity options under section 988(c)(1)(D) of the Code (section 
6130(b) of the Act);
    (9) An election relating to certain qualified funds under section 
988(c)(1)(E) of the Code (section 6130(b) of the Act);
    (10) An election under section 952(c)(1)(B) of the Code to apply 
section 953(a) without regard to the same country exception (section 
6131(a) of the Act);
    (11) An election relating to treatment of a foreign insurance 
company as a domestic corporation under section 953(d) of the Code 
(section 6135 of the Act).

Guidance concerning the elections described in this paragraph (j) will 
generally be provided in regulations to be issued under the relevant 
Code sections. With respect to certain elections

[[Page 954]]

described in this paragraph (j), preliminary guidance has been 
published. See Notice 88-125, 1988-52 I.R.B. 4, for guidance with 
respect to the election described in paragraph (j)(6) of this section, 
relating to the qualified electing fund election. See Notice 88-124, 
1988-51 I.R.B. 6, for guidance with respect to the elections described 
in paragraph (j) (8) and (9) of this section, relating to section 
988(c)(1) (D) and (E) of the Code.
    (k) Additional information required. Later regulations or revenue 
procedures issued under provisions of the Code or Act covered by this 
section may require the furnishing of information in addition to that 
which was furnished with the statement of election described in this 
section. In that event, the later regulations or revenue procedures will 
provide guidance with respect to the furnishing of additional 
information.

[T.D. 8267, 54 FR 38980, Sept. 22, 1989; 54 FR 41243, 41364, Oct. 6, 
1989. Redesignated and amended by T.D. 8435, 57 FR 43895, 43896, Sept. 
23, 1992; 57 FR 47373, Oct. 15, 1992]



Sec.  301.9100-9T  Election by a bank holding company to forego 
grandfather provision for all property representing pre-June 30, 1968, 
activities.

    (a) In general. For purposes of sections 1101 through 1103 and 6158 
of the Code, a bank holding company may elect under section 1103(g) to 
have the determination of whether property is prohibited property or is 
property eligible to be distributed without recognition of gain under 
section 1101(b)(1) made under the Bank Holding Company Act (12 U.S.C. 
1841 et seq.) as if the Act did not contain the proviso of section 
4(a)(2) thereof.
    (b) Manner of making election. The election under section 1103(g) 
shall be made in a written statement filed with the Federal Reserve 
Board indicating that by resolution of its board of directors, the bank 
holding company is electing to apply the provisions of section 1103(g). 
In addition, the bank holding company shall indicate on its income tax 
return for each taxable year in which the election applies to a 
distribution or sale of property (in the manner specified in the 
Internal Revenue Service's instructions for the preparation of the 
return) that it has made the election under section 1103(g). The 
election shall be considered to be made on the date on which the written 
statement is received by the Federal Reserve Board.
    (c) Scope of election. The election under section 1103(g) applies to 
all determinations of whether property is prohibited property or is 
property eligible to be distributed without recognition of gain under 
section 1101(b)(1).
    (d) Election; binding effect. An election made under section 1103(g) 
is irrevocable.
    (e) Final certification. An election under section 1103(g) shall not 
apply unless the final certification referred to in section 1101(e) or 
section 6158(c)(2), as the case may be, includes a certification by the 
Federal Reserve Board that the bank holding company has disposed of 
either all banking property or all nonbanking property (including 
property described in the proviso of section 4(a)(2) of the Bank Holding 
Company Act).
    (f) Conditional certification. A certification by the Federal 
Reserve Board under section 1101 (a)(1)(B), 1101 (b)(1)(B), 1101 
(c)(2)(C), 1101 (c)(3)(C), or 6158(a) that is conditioned upon the bank 
holding company's making an election under section 1103(g) shall not be 
considered to be made before the distribution or sale unless the 
certification and the election are made before the distribution or sale.

[T.D. 7570, 43 FR 52057, Nov. 8, 1978. Redesignated by T.D. 8435, 57 FR 
43896, Sept. 23, 1992]



Sec.  301.9100-10T  Election by certain family-owned bank holding companies 
to divest all banking or nonbanking property.

    (a) In general. For purposes of sections 1101 through 1103 and 6158 
of the Code, a bank holding company may elect under section 1103(h) to 
have the determination of whether property is prohibited property or is 
property eligible to be distributed without recognition of gain under 
section 1101(b)(1) made under the Bank Holding Company Act (12 U.S.C. 
1841 et seq.) as if the Act did not contain clause (ii) of section 4(c) 
thereof.
    (b) Manner of making election. The election under section 1103(h) 
shall be

[[Page 955]]

made in a written statement filed with the Federal Reserve Board 
indicating that by resolution of its board of directors, the bank 
holding company is electing to apply, the provisions of section 1103(h). 
In addition, the bank holding company shall indicate on its income tax 
return for each taxable year in which the election applies to a 
distribution or sale of property (in the manner specified in the 
Internal Revenue Service's instructions for the preparation of the 
return) that it has made the election under section 1103(h). The 
election shall be considered to be made on the date on which the written 
statement is received by the Federal Reserve Board.
    (c) Scope of election. The election under section 1103(h) applies to 
all determinations of whether property is prohibited property or is 
property eligible to be distributed without recognition of gain under 
section 1101(b)(1).
    (d) Election; binding effect. An election made under section 1103(h) 
is irrevocable.
    (e) Final certification. An election under section 1103(h) shall not 
apply unless the final certification referred to in section 1101(e) or 
section 6158(c)(2), as the case may be, includes a certification by the 
Federal Reserve Board that the bank holding company has disposed of 
either all banking property or all nonbanking property.
    (f) Conditional certification. A certification by the Federal 
Reserve Board under section 1101 (a)(1)(B), 1101 (b)(1)(B), 1101 
(c)(2)(C), 1101 (c)(3)(C), or 6158(a) that is conditioned upon the bank 
holding company's making an election under section 1103(h) shall note 
considered to be made before the distribution or sale unless the 
certification and the election are made before the distribution or sale.

[T.D. 7570, 43 FR 52057, Nov. 8, 1978. Redesignated by T.D. 8435, 57 FR 
43896, Sept. 23, 1992]



Sec.  301.9100-11T  Election by a qualified bank holding corporation to pay 
in installments the tax attributable to sales under 
the Bank Holding Company Act.

    (a) In general. Under section 6158(a) of the Code, a qualified bank 
holding corporation may elect to pay in installments the tax under 
chapter I of the Code attributable to the sale of bank property or 
prohibited property (as those terms are defined in section 6158(f) (2) 
and (3)) if--
    (1) It meets the conditions described in paragraph (b) of this 
section, and
    (2) It files an election in accordance with the rules set forth in 
paragraph (c) of this section.
    (b) Conditions. (1) The sale of bank property or prohibited property 
must take place after July 7, 1970.
    (2) The Federal Reserve Board must certify before the sale of the 
bank property or prohibited property that the divestiture of such 
property is necessary or appropriate to effectuate section 4 or the 
policies of the Bank Holding Company Act (12 U.S.C. 1841 et seq.).
    (3) If bank property is sold, the qualified bank holding corporation 
(or a corporation having control of it or a subsidiary of it) must not 
have--
    (i) Previously elected to apply section 6158 to a sale of prohibited 
property, or
    (ii) Previously distributed prohibited property under section 
1101(a).
    (4) If prohibited property is sold, the qualified bank holding 
corporation (or a corporation having control of it or a subsidiary of 
it) must not have--
    (i) Previously elected to apply section 6158 to a sale of bank 
property, or
    (ii) Previously distributed bank property under section 1101(b).
    (5) The qualified bank holding corporation must not have elected to 
return the income from the sale under the installment provisions of 
section 453.
    (c) Time and manner of making election. (1) Except as provided in 
paragraph (c)(2) of this section, a qualified bank holding corporation 
shall make the election under section 6158(a) by--
    (i) Attaching a statement to its income tax return for the taxable 
year in which the prohibited property or bank property is sold showing 
the tax computation under paragraph (f) of this section and the amount 
of the installment paid with the return, and
    (ii) Entering the amount of the installment payment followed by the 
words ``computed under section 6158'' in the appropriate place on the 
tax return.

[[Page 956]]

    (2) If the qualified bank holding corporation filed its income tax 
return for the year of sale before February 6, 1979 (without electing 
under section 6158(a)), then it shall make the election under section 
6158(a) by attaching a statement to its claim for credit or refund 
(amended tax return) for its overpayment of income tax attributable to 
the application of section 6158 showing the tax computation under 
paragraph (f) of this section and entering the amount of the credit or 
refund followed by the words ``attributable to the application of 
section 6158'' in the appropriate place on the claim. In order for the 
election to be effective, the claim must be filed before the earlier 
of--
    (i) The expiration of the period of limitation for the filing of the 
claim, or
    (ii) February 6, 1979.
    (d) Scope of election. An election under section 6158 will apply 
only to the particular sale or sales of property with respect to which 
the election is being made.
    (e) Special rule for certifying sales. For purposes of section 
6158(a) and paragraph (b)(2) of this section, in the case of a sale 
which takes place after July 7, 1970, and before January 1, 1977, a 
certification by the Federal Reserve Board shall be treated as made 
before the sale if application for such certification was made before 
January 1, 1977.
    (f) Tax attributable to sales. The tax under chapter I of the Code 
attributable to sales with respect to which an election under section 
6158 has been made shall be the amount, if any, by which the tax under 
chapter I on the taxable income of the qualified bank holding 
corporation (computed without regard to section 6158) for the taxable 
year during which the sales occur exceeds the greater of--
    (1) The tax under chapter I for such year on the taxable income of 
the corporation exclusive of gains on sales of property with respect to 
which an election under section 6158 has been made, or
    (2) The tax under chapter I for such year on the taxable income of 
the corporation exclusive of gains and losses on all sales of the type 
of property (either bank property or prohibited property) with respect 
to which an election under section 6158 has been made.

[T.D. 7570, 43 FR 52057, Nov. 8, 1978. Redesignated by T.D. 8435, 57 FR 
43896, Sept. 23, 1992]



Sec.  301.9100-12T  Various elections under the Tax Reform Act of 1976.

    (a) Elections covered by temporary rules. The sections of the 
Internal Revenue Code of 1954, or of the Tax Reform Act of 1976, to 
which this section applies and under which an election or notification 
may be made pursuant to the procedures described in paragraphs (b) and 
(d) are as follows:

                                               (1) FIRST CATEGORY
----------------------------------------------------------------------------------------------------------------
                 Section                       Description of election            Availability of election
----------------------------------------------------------------------------------------------------------------
167(o) of Code...........................  Substantially rehabilitated      Additions to capital account
                                            historic property.               occurring after June 30, 1976, and
                                                                             before July 1, 1981.
172(b)(3)(E) of Code.....................  Forego of carryback period.....  Any taxable year ending after
                                                                             December 31, 1975.
402(e)(4)(L) of Code.....................  Lump sum distributions from      Distributions and payments made
                                            qualified plans.                 after December 31, 1975, in taxable
                                                                             years beginning after such date.
812(b)(3) of Code........................  Forego of carryback period by    Any taxable year ending after
                                            life insurance companies.        December 31, 1975
819A of Code.............................  Contiguous country branches of   All taxable years beginning after
                                            domestic life insurance          December 31, 1975.
                                            companies.
825(d)(2) of Code........................  Forego of carryback period by    Any taxable year ending after
                                            mutual insurance companies.      December 31, 1975.
911(e) of Code...........................  Foregoing of benefits of         All taxable years beginning after
                                            section 911.                     December 31, 1975.
----------------------------------------------------------------------------------------------------------------
 
                                               (2) SECOND CATEGORY
----------------------------------------------------------------------------------------------------------------
185(d) of Code...........................  Amortization of railroad         All taxable years beginning after
                                            grading and tunnel bores.        December 31, 1974.
1057 of Code.............................  Transfer to foreign trusts etc.  Any transfer of property after
                                                                             October 2, 1975.
----------------------------------------------------------------------------------------------------------------


[[Page 957]]

    (b) Time for making election or serving notice--(1) Category (1). A 
taxpayer may make an election under any section referred to in paragraph 
(a)(1) of this section for the first taxable year for which the election 
is required to be made or for the taxable year selected by the taxpayer 
when the choice of the taxable year is optional. The election must be 
made by the later of the time, including extensions thereof, prescribed 
by law for filing income tax returns for such taxable year or March 8, 
1977.
    (2) Category (2). A taxpayer may make an election under any section 
referred to in paragraph (a)(2) for the first taxable year for which the 
election is allowed or for the taxable year selected by the taxpayer 
when the choice of the taxable year is optional. The election must be 
made (i) for any taxable year ending before December 31, 1976, for which 
a return has been filed before January 31, 1977, by filing an amended 
return, provided that the period of limitation for filing claim for 
credit or refund of overpayment of tax, determined from the time the 
return was filed, has not expired or (ii) for all other years by filing 
the income tax return for the year for which the election is made not 
later than the time, including extensions thereof, prescribed by law for 
filing income tax returns for such year.
    (c) Certain other elections. The elections described in this 
paragraph shall be made in the manner and within the time prescribed 
herein and in paragraph (d) of this section.
    (1) The following elections under the Tax Reform Act of 1976 shall 
be made:
    (i) Section 207(c)(3) of Act; change from static value method of 
accounting; all taxable years beginning after December 31, 1976.


by filing Form 3115 with the National Office of the Internal Revenue 
Service before October 5, 1977.

    (ii) Section 604 of Act; travel expenses of State legislators; all 
taxable years beginning before January 1, 1976.


by filing an amended return for any taxable year for which the period 
for assessing or collecting a deficiency has not expired before October 
4, 1976, by the last day for filing a claim for refund or credit for the 
taxable year but in no event shall such day be earlier than October 4, 
1977.

    (iii) Section 804(e)(2) of Act; retroactive applications of 
amendments to property described in section 50(a) of Code; certain 
taxable years beginning before January 1, 1975.


by filing amended returns before October 5, 1977, for all taxable years 
to which applicable for which the period of limitation for filing claim 
for credit or refund for overpayment of tax has not expired.

    (iv) Section 1608(d)(2) of Act; election as a result of 
determination as defined in section 859(c) of the Code; determinations 
made after October 4, 1976.


by filing a statement with the district director for the district in 
which the taxpayer maintains its principal place of business within 60 
days after such determination.

    (v) Section 2103 of Act; treatment of certain 1972 disaster losses. 
Any taxable year in which payment is received or indebtedness is 
foregiven.


by filing a return for the taxable year or an amended return by the last 
day for making a claim for credit or refund for the taxable year but in 
no event shall such day be earlier than October 4, 1977.
    (2) [Reserved]
    (3) The election provided for in section 167(e)(3) of the Code shall 
be made in accordance with Sec.  1.167(e)-1(d) except that the election 
shall be applicable for the first taxable year of the taxpayer beginning 
after December 31, 1975.
    (d) Manner of making election. Unless otherwise provided in the 
return or in a form accompanying a return for the taxable year, the 
elections described in paragraphs (a) and (c) (except paragraphs 
(c)(1)(i), and (c)(5)) shall be made by a statement attached to the 
return (or amended return) for the taxable year. The statement required 
when making an election pursuant to this section shall indicate the 
section under which the election is being made and shall set forth 
information to identify the election, the period for which it applies, 
and the taxpayer's basis or entitlement for making the election.

[[Page 958]]

    (e) Effect of election--(1) Consent to revoke required. Except where 
otherwise provided by statute or except as provided in subparagraph (2) 
of this paragraph, an election to which this section applies made in 
accordance with this section shall be binding unless consent to revoke 
the election is obtained from the Commissioner. An application for 
consent to revoke the election will not be accepted before the 
promulgation of the permanent regulations relating to the section of the 
Code or Act under which the election is made. Such regulations will 
provide a reasonable period of time within which taxpayers will be 
permitted to apply for consent to revoke the election.
    (2) Revocation without consent. An election to which this section 
applies, made in accordance with this section, may be revoked without 
the consent of the Commissioner not later than 90 days after the 
permanent regulations relating to the section of the Code or Act under 
which the election is made are filed with the Office of the Federal 
Register, provided such regulations grant taxpayers blanket permission 
to revoke that election within such time without the consent of the 
Commissioner. Such blanket permission to revoke an election will be 
provided by the permanent regulations in the event of a determination by 
the Secretary or his delegate that such regulations contain provisions 
that may not reasonably have been anticipated by taxpayers at the time 
of making such election.
    (f) Furnishing of supplementary information required. If the 
permanent regulations which are issued under the section of the Code or 
Act referred to in this section to which the election relates require 
the furnishing of information in addition to that which was furnished 
with the statement of election filed pursuant to paragraph (d) of this 
section, the taxpayer must furnish such additional information in a 
statement addressed to the district director, or the director of the 
regional service center, with whom the election was filed. This 
statement must clearly identify the election and the taxable year for 
which it was made. If such information is not provided the election may, 
at the discretion of the Commissioner, be held invalid.

(Sec. 191(b), Internal Revenue Code of 1954 (90 Stat. 1916, 26 U.S.C. 
191(b))

[T.D. 7459, 42 FR 1469, Jan. 7, 1977]

    Editorial Note: For Federal Register citations affecting Sec.  
301.9100-12T, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  301.9100-14T  Individual's election to terminate taxable year 
when case commences.

    (a) Scope. The regulations prescribed in this section provide rules 
for making the election under section 1398(d)(2) to terminate the 
taxable year of an individual taxpayer.
    (b) Availability of election. This election is available to an 
individual taxpayer in a case commenced after March 24, 1981, under 
chapter 7 (relating to liquidations) or chapter 11 (relating to 
reorganizations) of title 11 of the United States Code. If the case is 
dismissed, the taxpayer cannot make the election, and an election 
previously made will be void. For purposes of this section, a 
partnership is not treated as an individual. If the taxpayer making the 
election is married (within the meaning of section 143), the election is 
available to the taxpayer's spouse, but only if the spouse is eligible 
to file, and does file, a joint return with the taxpayer for the taxable 
year ended as a result of the election.
    (c) Effect of election. The election terminates the taxable year of 
the taxpayer (and of a spouse who joins in the election) on the day 
before the commencement date of the case. A new taxable year begins on 
the commencement date and (unless terminated earlier) ends on the date 
on which the taxpayer's taxable year in which the case commenced would 
have ended if the election had not been made.
    (d) Time and manner. A taxpayer to whom the election is available 
makes the election by filing a return for the short taxable year ending 
the day before commencement of the case (the ``first short taxable 
year'') on or before the 15th day of the fourth full month following the 
end of that first short taxable year. The spouse of such a taxpayer 
makes the election by making a

[[Page 959]]

joint return with the taxpayer for that first short taxable year within 
the time prescribed in the preceding sentence. To facilitate processing, 
the taxpayer should write ``Section 1398 Election'' at the top of the 
return. A taxpayer may also make the election by attaching a statement 
of election to an application for extension of time for filing a return 
that satisfies the requirements under section 6081 for the first short 
taxable year. The application for extension must be submitted under 
section 6081 on or before the due date of the return for the first short 
taxable year. The statement must state that the taxpayer elects under 
section 1398(d)(2) to close his or her taxable year as of the day before 
commencement of the case. If the taxpayer's spouse elects to close his 
or her taxable year, the spouse must join in the application for 
extension and in the statement of election. If a joint return is not 
filed for the first short taxable year, the election of the spouse made 
with the application is void.
    (e) Irrevocability of election. The election is irrevocable.
    (f) Subsequent bankruptcy case of debtor's spouse. If a case under 
chapter 7 or chapter 11 of title 11 of the United States Code commences 
with respect to the spouse of a debtor to whom an election under this 
section was available, the spouse can make an election under this 
section even if the spouse's case commences in the same taxable year in 
which the debtor's case commences. The spouse can make the election 
whether or not the spouse previously joined in the debtor's election. If 
the spouse joined in the debtor's election, or if the debtor did not 
make the election, the debtor may join in the spouse's election, 
assuming the debtor is otherwise eligible to file a joint return with 
the spouse.
    (g) Examples.

    Example. (1) Assume that husband and wife are calendar-year 
taxpayers, that a bankruptcy case involving only the husband commences 
on March 1, 1982, and that a bankruptcy case involving only the wife 
commences on October 10, 1982.
    (2) If the husband does not make an election, his taxable year would 
not be affected; i.e., it does not terminate on February 28. If the 
husband does make an election, his first short taxable year would be 
January 1 through February 28; his second short taxable year would begin 
March 1. The tax return for his first short taxable year would be due on 
June 15. The wife could join in the husband's election, but only if they 
file a joint return for the taxable year January 1 through February 28.
    (3) The wife could elect to terminate her taxable year on October 9. 
If she did, and if the husband had not made an election or if the wife 
had not joined in the husband's election, she would have two taxable 
years in 1982--the first from January 1 through October 9, and the 
second from October 10 through December 31. The tax return for her first 
short taxable year would be due on February 15, 1983. If the husband had 
not made an election to terminate his taxable year on February 28, the 
husband could join in an election by his wife, but only if they file a 
joint return for the taxable year January 1 through October 9. If the 
husband had made an election but the wife had not joined in the 
husband's election, the husband could not join in an election by the 
wife to terminate her taxable year on October 9, since they could not 
file a joint return for such year.
    (4) If the wife makes the election relating to her own bankruptcy 
case, and had joined the husband in making an election relating to his 
case, she would have two additional taxable years with respect to her 
1982 income and deductions--the second short taxable year would be March 
1 through October 9, and the third short taxable year would be October 
10 through December 31. The husband could join in the wife's election if 
they file a joint return for the second short taxable year. If the 
husband joins in the wife's election, they could file joint returns for 
the short taxable year ending December 31, but would not be required to 
do so.

[T.D. 7775, 46 FR 25292, May 6, 1981; 46 FR 30495, June 9, 1981. 
Redesignated by T.D. 8435, 57 FR 43896, Sept. 23, 1992]



Sec.  301.9100-15T  Election to use retroactive effective date.

    (a) Scope. The regulations prescribed in this section provide rules 
for making the election to use a retroactive effective date under 
section 7(f) of the Bankruptcy Tax Act of 1980.
    (b) Availability of election. The election is available to the 
debtor (or debtors) in a case under title 11 of the United States Code 
(or a receivership, foreclosure, or similar proceeding in a Federal or 
State court) that commences after September 30, 1979, and before January 
1, 1981. The court must approve the election. For purposes of this 
paragraph (b), a receivership, foreclosure, or similar proceeding before 
a

[[Page 960]]

Federal or State agency involving a financial institution to which 
section 585 or 593 applies shall be treated as a proceeding before a 
court.
    (c) Effect of election--(1) In general. An election under this 
section changes the effective date of certain amendments to the Code 
made by the Bankruptcy Tax Act of 1980. The amendments affected by an 
election under this section are listed in paragraph (c) (2) and (3) of 
this section. If the election is made, all of the amendments listed in 
paragraph (c) (2) and (3) of this section apply to all transactions in 
the case (or similar proceeding) and to all parties in respect of all 
transactions in the case (or similar proceeding). Thus, the debtor may 
not elect to have only certain of the amendments apply to transactions 
in the case (or similar proceeding) and may not elect to have the 
amendments apply only to certain transactions in the case (or similar 
proceeding). An election under this section will not make the amendments 
listed in paragraph (c) (2) and (3) applicable to transactions occurring 
prior to commencement of the case (or similar proceeding) or 
transactions not in the case (or similar proceeding).
    (2) Amendments affected. An election under this section changes the 
effective date of the amendments to the following sections:
    (i) 111, relating to recovery of bad debts, prior taxes, and 
delinquency amounts,
    (ii) 302, relating to the repeal of special treatment for certain 
railroad redemptions,
    (iii) 312, relating to the effect of debt discharge on earnings and 
profits,
    (iv) 337, relating to the application of the 12-month liquidation 
rule,
    (v) 351, relating to certain transfers to controlled corporations,
    (vi) 354 (other than the amendment made by section 6(i)(2) of the 
Bankruptcy Tax Act of 1980), 355, 357, 368, and 381, relating to 
corporate reorganizations,
    (vii) 382, relating to special limitations on net operating loss 
carryover,
    (viii) 542, relating to the personal holding company tax, and
    (ix) 703, relating to elections of partnerships.
    (3) Other amendments affected in part. Subject to the transitional 
rule of section 7(a)(2) of the Bankruptcy Tax Act of 1980, an election 
under this section changes the effective date of the amendments to 
sections 108 and 1017, relating to the tax treatment of discharge of 
indebtedness.
    (4) Substitution of effective dates. The election under this section 
changes the effective date of the amendments listed in paragraph (c) (2) 
and (3) of this section by substituting ``September 30, 1979'' for 
``December 31 1980'' wherever it appears in section 7(a), (c), and (d) 
of the Bankruptcy Tax Act of 1980.
    (d) Time and manner--(1) Time and place. A debtor makes the election 
under this section by filing the written statement and evidence of court 
approval required under paragraph (d) (2) and (3) of this section on or 
before November 2, 1981, with the District Director or the Director of 
the Internal Revenue Service Center with whom an income tax return for 
the debtor would be filed if it were due on the date the election is 
filed. The election shall be considered to be made on the date on which 
the written statement and evidence of court approval is filed. The 
debtor should attach a copy of the statement and evidence of court 
approval to the next income tax return filed on or after the date the 
election is made.
    (2) Statement. The written statement must be signed by the debtor 
(or a person duly authorized to sign the income tax return of the 
debtor) and must contain the following:
    (i) The name, address, and taxpayer identification number of the 
debtor,
    (ii) A statement that the debtor is making the election under 
section 7(f) of the Bankruptcy Tax Act of 1980, and
    (iii) Information (including the date of commencement) sufficient to 
identify the bankruptcy case or similar proceeding.
    (3) Evidence of court approval. The evidence of court approval (or 
of approval of an agency in certain proceedings described in paragraph 
(b) of this section) must be a copy of an order or other document 
properly signed by the judge or other presiding officer. In addition to 
information identifying the debtor and the case or proceeding over which

[[Page 961]]

the officer presides, the order or other document must state that the 
court (or agency, as the case may be) approves the election of the 
debtor under section 7(f) of the Bankruptcy Tax Act of 1980.
    (e) Revocability. An election under this section may be revoked only 
with the consent of the Commissioner. A request for revocation can be 
made only with approval of the court (or agency).

[T.D. 7775, 46 FR 25292, May 6, 1981. Redesignated by T.D. 8435, 57 FR 
43896, Sept. 23, 1992]



Sec.  301.9100-16T  Election to accrue vacation pay.

    (a) In general. Section 463 provides that taxpayers whose taxable 
income is computed under an accrual method of accounting may elect 
without the consent of the Commissioner, to deduct certain amounts with 
respect to vacation pay which, because of contingencies, would not 
otherwise be deductible. Such election must apply to the liability for 
all vacation pay accounts maintained by the taxpayer within a single 
trade or business if the liability is contingent when vacation pay is 
earned.
    (b) Time for making election. (1) In the case of a taxpayer who 
established or maintained a vacation pay account pursuant to I.T. 3956 
and who continued to maintain such account pursuant to section 97 of the 
Technical Amendments Act of 1958, as amended, for its last taxable year 
ending before January 1, 1973, the election must be made for each trade 
or business for which such account was maintained on or before the later 
of (i) July 21, 1975, or (ii) the due date for filing the income tax 
return (determined with regard to any extensions of time granted the 
taxpayer for filing such return) for the first taxable year beginning 
after December 31, 1973. The election pursuant to this paragraph shall 
be effective with respect to an account described in this paragraph 
(b)(1) for taxable years ending after December 31, 1972. Failure to file 
such election shall constitute a change in the method of accounting for 
vacation pay for the first taxable year ending after December 31, 1972. 
Such change in accounting method will be considered a change initiated 
by the taxpayer.
    (2) In the case of a trade or business of a taxpayer to which 
paragraph (b)(1) does not apply, the election provided for in this 
section may be made for any taxable year beginning after December 31, 
1973, by making the election not later than (i) July 21, 1975, or (ii) 
the due date for filing the income tax return (determined with regard to 
any extensions of time granted the taxpayer for filing such return) for 
the first taxable year for which the election is made.
    (3) A taxpayer who elects under section 463 to treat vacation pay as 
provided in this section and who wishes to revoke such election may only 
do so with the consent of the Commissioner. Such revocation shall 
constitute a change in the method of accounting.
    (c) Manner of making election. (1) Except as otherwise provided in 
paragraph (c)(2) of this section, the election provided for in this 
section must be made by means of a statement attached to a timely filed 
income tax return. The statement shall indicate that the taxpayer is 
electing to apply the provisions of section 463, and shall contain the 
following information:
    (i) The taxpayer's name and a description of each vacation pay plan 
to which the election is to apply.
    (ii) A schedule with appropriate explanations showing--
    (A) In the case of a vacation pay account established or maintained 
pursuant to I.T. 3956 and section 97 of the Technical Amendments Act of 
1958, as amended,
    (1) The balance of each such vacation pay account maintained by the 
taxpayer, and
    (2) The amount, determined as if the taxpayer had maintained a 
vacation pay account for the last taxable year ending before January 1, 
1973, representing the taxpayer's liability for vacation pay earned by 
employees, before the close of the taxable year and payable during such 
taxable year or within 12 months following the close of such taxable 
year.
    (B) In the case of other vacation pay accounts, the amount of the 
closing balances the taxpayer would have had for the taxpayer's 3 
taxable years immediately preceding the taxable year for which the 
election was made, had

[[Page 962]]

the taxpayer maintained an account representing the taxpayer's liability 
for vacation pay earned by the employees before the close of the taxable 
year and payable during the taxable year or within 12 months following 
the close of the taxable year throughout the 3 immediately preceding 
taxable years.
    (iii) The amounts accrued and deducted for prior years for vacation 
pay but not paid at the close of the taxable year preceding the year for 
which the election is made.
    (2) Where a taxpayer has filed its return for a taxable year 
beginning after December 31, 1973 prior to July 21, 1975, and has not 
made the election pursuant to this section, the election may be made by 
filing an amended return (showing adjustments, in any) for such year and 
attaching the statement required by paragraph (c)(1) of this section on 
or before July 21, 1975.
    (d) The time for making the election may be illustrated by the 
following examples:

    Example (1). X, whose taxable year begins on February 1, files, its 
return based on the accrual method of accounting. X has continuously 
accrued and deducted for income tax purposes contingent amounts of 
vacation pay, pursuant to I.T. 3956. Pursuant to section 463 and these 
regulations, in order for X to continue accruing and deducting its 
vacation pay amounts, X must elect to account for vacation pay under 
section 463 by attaching the election to its timely filed return for its 
taxable year ending on January 31, 1975, or if X has already filed such 
return by July 21, 1975, without such election, by filing the election 
statement with an amended return by July 21, 1975. If X does not make 
the election under section 463, X will be treated as having initiated a 
change in its method of accounting for vacation pay in its taxable year 
ending on January 31, 1973.
    Example (2). Y, a calendar year taxpayer files its returns based on 
the accrual method of accounting. Y deducted its vacation pay amounts 
only when paid since such amounts were contingent when earned and Y was 
not entitled to the benefits of I.T. 3956, Y may elect for its taxable 
year ending on December 31, 1974, to deduct certain amounts with respect 
to contingent vacation pay which were not otherwise deductible, by 
filing an election pursuant to these regulations with its timely filed 
income tax return for such year or if such return was already filed by 
[insert date 90 days after publication of this document as a Treasury 
decision], without such election, by filing the election with an amended 
return filed by July 21, 1975. If Y does not make the election for its 
taxable year ending on December 31, 1974, Y may make the election with 
respect to any subsequent taxable year by filing an election with its 
return for such year.

[T.D. 7353, 40 FR 17554, Apr. 21, 1975; 40 FR 25590, June 17, 1975. 
Redesignated by T.D. 8435, 57 FR 43896, Sept. 23, 1992]



Sec.  301.9100-17T  Procedure applicable to certain elections.

    (a) Elections covered by temporary rules. The sections of the 
Internal Revenue Code of 1954, or of the Tax Reform Act of 1969, to 
which paragraph (b) of this section applies and under which an election 
or notification may be made pursuant to the procedures prescribed in 
such paragraph are as follows:

----------------------------------------------------------------------------------------------------------------
                 Section                       Description of election            Availability of election
----------------------------------------------------------------------------------------------------------------
(1) First category:
  231(d)(2) of Act......................  Moving expenses.................  Expenses paid or incurred before
                                                                             July 1, 1970, if employee was
                                                                             notified of move by employer on or
                                                                             before Dec. 19, 1969.
  503(c)(2) of Act......................  Carved-out mineral production     All mineral production payments
                                           payments.                         carved out of mineral properties
                                                                             after beginning of last taxable
                                                                             year ending before Aug. 7, 1969.
  516(d)(3) of Act......................  Contingent payments by            Payments made in taxable years
                                           transferee of franchise,          ending after Dec. 31, 1969, and
                                           trademark, or trade name.         beginning before Jan. 1, 1980, on
                                                                             transfers made before Jan. 1, 1970.
  642(c)(1) of Code.....................  Charitable contributions of       Amounts paid in any taxable year
                                           estates or trusts paid in         beginning after Dec. 31, 1969.
                                           following year.
  1251(b)(4) of Code....................  No additions to excess            Any taxable year beginning after
                                           deductions account of taxpayers   Dec. 31, 1969.
                                           electing to compute taxable
                                           income from farming in certain
                                           manner.
(2) Second category:
  184(b) of Code........................  Amortization of qualified         Any taxable year beginning after
                                           railroad rolling stock.           Dec. 31, 1969, in which rolling
                                                                             stock was placed in service (or
                                                                             succeeding taxable year).
(3) Third category:
  504(d)(2) of Act......................  Notification not to have sec.     Exploration expenditures paid or
                                           615(e) election treated as a      incurred after Dec. 31, 1969.
                                           sec. 617(a) election.
----------------------------------------------------------------------------------------------------------------


[[Page 963]]

    (b) Manner of making election or serving notice--(1) In general. (i) 
Except as provided in subparagraph (2) of this paragraph, a taxpayer may 
make an election under any section referred to in paragraph (a) (1) or 
(2) of this section for the first taxable year for which the election is 
required to be made or for the taxable year selected by the taxpayer 
when the choice of a taxable year is optional. The election must be made 
not later than (a) the time, including extensions thereof, prescribed by 
law for filing the income tax return for such taxable year or (b) 90 
days after the date on which the regulations in this section are filed 
with the Office of the Federal Register, whichever is later.
    (ii) The election shall be made by a statement attached to the 
return (or an amended return) for the taxable year, indicating the 
section under which the election is being made and setting forth 
information to identify the election, the period for which it applies, 
and the facility, property, or amounts to which it applies.
    (2) Additional time for certain elections. An election under section 
503(c)(2) of the Act or section 642(c)(1) of the Code must be made in 
accordance with subparagraph (1) of this paragraph but not later than 
(i) the time, including extensions thereof, prescribed by law for filing 
the income tax return for the taxable year following the taxable year 
for which the election is made or (ii) 90 days after the date on which 
the regulations in this section are filed with the Office of the Federal 
Register, whichever is later.
    (3) Notification as to section 615(e) election. (i) The notification 
referred to in paragraph (a)(3) of this section in respect of an 
election under section 615(e) which was made before the date on which 
the regulations in this section are filed with the Office of the Federal 
Register shall be made in a statement attached to the taxpayer's income 
tax return for the first taxable year in which expenditures are paid or 
incurred after December 31, 1969, which would be deductible by the 
taxpayer under section 617 if he so elects. The statement shall indicate 
the first taxable year for which such election was effective and the 
district director, or the director of the regional service center, with 
whom the election was filed.
    (ii) The notification referred to in paragraph (a)(3) of this 
section, in respect of an election under section 615(e) which is made on 
or after the date on which the regulations in this section are filed 
with the Office of the Federal Register, shall be made in the statement 
of election required by paragraph (a)(2) of Sec.  15.1-1 of this chapter 
(Temporary Income Tax Regulations Relating to Exploration Expenditures 
in the Case of Mining).
    (iii) The serving of notice pursuant to this subparagraph shall not 
preclude the subsequent making of an election under section 617(a). A 
failure to serve notice pursuant to this subparagraph shall be treated 
as an election under section 617(a) and paragraph (a)(1) of Sec.  15.1-1 
of this chapter with respect to exploration expenditures paid or 
incurred after December 31, 1969, whether or not the taxpayer 
subsequently revokes his election under section 615(e) with respect to 
exploration expenditures paid or incurred before January 1, 1970.
    (iv) For rules relating to the revocation of an election under 
section 615(e), including such an election which is treated pursuant to 
this subparagraph as an election under section 617(a), see paragraph (a) 
of Sec.  15.1-2 of this chapter (T.D. 6907, C.B. 1967-1, 531, 535).
    (c) Effect of election--(1) Revocations--(i) Consent to revoke 
required. Except as provided in subdivision (ii) of this subparagraph, 
an election made in accordance with paragraph (b)(1) of this section 
shall be binding unless consent to revoke the election is obtained from 
the Commissioner. An application for consent to revoke the election will 
not be accepted before the promulgation of the permanent regulations 
relating to the section of the Code or Act under which the election is 
made. Such regulations will provide a reasonable period of time within 
which taxpayers will be permitted to apply for consent to revoke the 
election.
    (ii) Revocation without consent. An election made in accordance with 
paragraph (b)(1) of this section may be revoked without the consent of 
the Commissioner not later than 90 days after the permanent regulations 
relating to

[[Page 964]]

the section of the Code or Act under which the election is made are 
filed with the Office of the Federal Register, provided such regulations 
grant taxpayers blanket permission to revoke that election within such 
time without the consent of the Commissioner. Such blanket permission to 
revoke an election will be provided by the permanent regulations in the 
event of a determination by the Secretary or his delegate that such 
regulations contain provisions that may not reasonably have been 
anticipated by taxpayers at the time of making such election.
    (iii) Election treated as tentative. Until the expiration of the 
reasonable period referred to in subdivision (i) of this subparagraph or 
the 90-day period referred to in subdivision (ii) of this subparagraph, 
an election under section 433(d)(2) of the Act will be considered a 
tentative election, subject to revocation under the provisions of such 
subdivisions.
    (iv) Place for filing revocations. A revocation under subdivision 
(i) or (ii) of this subparagraph shall be made by filing a statement to 
that effect with the district director, or the director of the regional 
service center, with whom the election was filed.
    (2) Termination without consent. An election which is made in 
accordance with paragraph (b)(1) of this section under a section 
referred to in paragraph (a)(2) of this section and is not revoked 
pursuant to subparagraph (1) of this paragraph may, without the consent 
of the Commissioner, be terminated at any time after making the election 
by filing a statement to that effect with the district director, or the 
director of the regional service center, with whom the election was 
filed. This statement giving notice of termination must be filed before 
the beginning of the month specified in the statement for which the 
termination is to be effective. If pursuant to this subparagraph the 
taxpayer terminates an election made under any such section, he may not 
thereafter make a new election under that section with respect to the 
facility, property, or equipment to which the termination relates.
    (d) Furnishing of supplementary information required. If the 
permanent regulations which are issued under the section of the Code or 
Act referred to in paragraph (a) (1) or (2) of this section to which the 
election relates require the furnishing of information in addition to 
that which was furnished with the statement of election filed pursuant 
to paragraph (b)(1) of this section, the taxpayer must furnish such 
additional information in a statement addressed to the district 
director, or the director of the regional service center, with whom the 
election was filed. This statement must clearly identify the election 
and the taxable year for which it was made.
    (e) Other elections. Elections under the following sections of the 
Code may not be made pursuant to paragraph (b)(1) of this section but 
are to be made under regulations, whether temporary or permanent, which 
will be issued under amendments made by the Act. If necessary, such 
regulations will provide a reasonable period of time within which 
taxpayers will be permitted to make elections under these sections for 
taxable years ending before the date on which such regulations are filed 
with the Office of the Federal Register:

------------------------------------------------------------------------
              Section                            Description
------------------------------------------------------------------------
167(k)(1).........................  Expenditures to rehabilitate low-
                                     income rental housing.
167(l)(4).........................  Post-1969 property of certain
                                     utilities representing growth in
                                     capacity.
170(b)(1)(D)(iii).................  Special limitation with respect to
                                     contributions of certain capital
                                     gain property.
453(c)............................  Revocation of election to report
                                     income on installment basis.
507(b)(1)(B)(ii)..................  Notice of termination of private
                                     foundation status.
1564(a)(2)........................  Allowance of certain amounts to
                                     component member of controlled
                                     group of corporations.
4942(h)(2)........................  Deficient distributions of private
                                     foundations for prior taxable
                                     years.
4943(c)(4)(E).....................  Determination of holdings of a
                                     private foundation in a business
                                     enterprise where substantial
                                     contributors hold more than 15
                                     percent of voting stock.
------------------------------------------------------------------------

    (f) Cross reference. For temporary regulations under sections 57(c) 
and 163(d)(7) of the code, relating to elections with respect to net 
leases of real property, see Sec.  12.8 of the regulations in this part 
(Temporary Income Tax Regulations Under the Revenue Act of 1971).

(83 Stat. 487, 85 Stat. 522, 523; 26 U.S.C. 1 nt., 57(c)(4), 163(d)(7))

[T.D. 7032, 35 FR 4330, Mar. 11, 1970]

[[Page 965]]


    Editorial Note: For Federal Register citations affecting Sec.  
301.9100-17T, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  301.9100-18T  Election to include in gross income in year of transfer.

    (a) In general. Under section 83(b) of the Internal Revenue Code of 
1954 any person who performs services in connection with which property 
is transferred which at the time of transfer is not transferable by the 
transferee and is subject to a substantial risk of forfeiture may elect 
to include in his gross income for the taxable year in which such 
property is transferred, the excess of the fair market value of such 
property at the time of transfer (determined without regard to any 
restriction other than a restriction which by its terms will never 
lapse) over the amount (if any) paid for such property. If this election 
is made section 33(a) does not apply with respect to such property, and 
any subsequent appreciation in the value of the property is not taxable 
as compensation. However, if the property is later forfeited, no 
deduction is allowed to any person with respect to such forfeiture. This 
election is not necessary in the case of property which is transferred 
subject only to a restriction which by its terms will never lapse.
    (b) Manner of making election. The election referred to in paragraph 
(a) of this section is made by filing two copies of a written statement 
with the internal revenue officer with whom the person who performed the 
services files his return.
    (c) Additional copies. The person who performed the services shall 
also submit a copy of the statement referred to in paragraph (b) of this 
section to the person for whom the services are performed, and, in 
addition, if the person who performs the services in connection with 
which restricted property is transferred and the transferee of such 
property are not the same person, the person who performs the services 
shall submit a copy of such statement to the transferee of the property.
    (d) Content of statement. The statement shall indicate that it is 
being made under section 83(b) of the Code, and shall contain the 
following information:
    (1) The name, address, taxpayer identification number and the 
taxable year (For example, ``Calendar year 1969'' or ``Fiscal year 
ending May 31, 1970'') of the person who performed the services;
    (2) A description of each property with respect to which the 
election is being made;
    (3) The date or dates on which the property is transferred;
    (4) The nature of the restriction or restrictions to which the 
property is subject;
    (5) The fair market value at the time of transfer (determined 
without regard to any restriction other than a restriction which by its 
terms will never lapse) of each property with respect to which the 
election is being made; and
    (6) The amount (if any) paid for such property.
    (e) Time for making election. The statement referred to in paragraph 
(b) of this section shall be filed not later than 30 days after the date 
the property was transferred (or, if later, January 29, 1970). Any 
statement filed before February 15, 1970, may be amended not later than 
30 days after the publication of this Treasury decision in the Federal 
Register in order to make it conform to the requirements of paragraph 
(d) of this section (January 17, 1970).
    (f) Revocability of election. An election under section 83(b) may 
not be revoked except with the consent of the Commissioner.

[T.D. 7021, 35 FR 626, Jan. 17, 1970; 35 FR 889, Jan. 22, 1970. 
Redesignated by T.D. 8435, 57 FR 43895, Sept. 23, 1992]



Sec.  301.9100-19T  Election relating to passive investment income 
of electing small business corporations.

    (a) In general. Section 3(a) of the Act of April 14, 1966 (Pub. L. 
89-389) amends section 1372(e)(5) of the Internal Revenue Code of 1954 
(relating to passive investment income of electing small business 
corporations). This amendment, which applies to taxable years of 
electing small business corporations ending after April 14, 1966, 
provides, in general, that an election of a small business corporation 
under section 1372(a) of the Code shall not terminate

[[Page 966]]

for a taxable year of the corporation in which it has gross receipts 
more than 20 percent of which is passive investment income, if--
    (1) Such taxable year is the first taxable year in which the 
corporation commenced the active conduct of any trade or business or the 
next succeeding taxable year; and
    (2) The amount of passive investment income for such taxable year is 
less than $3,000.

Section 3(b) of the Act of April 14, 1966, provides that the amendment 
made by section 3(a) thereof shall also apply to taxable years of a 
corporation beginning after December 31, 1962, and ending before April 
15, 1966, if the corporation elects to have the amendment apply to such 
years, and all persons (or their personal representatives) who were 
shareholders of such corporation at any time during any of such years 
consent to such election and the application of the amendment. This 
section prescribes the time for, and manner of, making such election and 
consents, and also extends the time within which certain new 
shareholders may consent to an election under section 1372(a) of the 
Code.
    (b) Application of amendment to taxable years beginning after 
December 31, 1962, and ending before April 15, 1966--(1) In general. An 
election by a corporation under section 1372(a) of the Code shall not be 
treated as terminated under section 1372(e)(5) of the Code for any 
taxable year of the corporation beginning after December 31, 1962, and 
ending before April 15, 1966, if--
    (i) Such taxable year is the first taxable year in which the 
corporation commenced the active conduct of any trade or business, or 
the next succeeding taxable year;
    (ii) The amount of passive investment income for such taxable year 
is less than $3,000;
    (iii) The corporation makes an election, within such time and in 
such manner as provided in subparagraph (2) of this paragraph; and
    (iv) All persons (or their personal representatives) who were 
shareholders of the corporation at any time during any taxable year of 
the corporation beginning after December 31, 1962, and ending before 
April 15, 1966, consent to such election, within such time and in such 
manner as provided in subparagraph (3) of this paragraph.

If an election by a corporation under section 1372(a) of the Code is not 
treated as terminated for a taxable year of the corporation as a result 
of an election and consents under this paragraph, such election under 
section 1372(a) of the Code shall be treated as being in effect with 
respect to all subsequent taxable years of the corporation unless it is 
otherwise terminated or revoked for any such subsequent year pursuant to 
section 1372(e) of the Code.
    (2) Election by corporation. An election by a corporation pursuant 
to subparagraph (1)(iii) of this paragraph shall be filed with the 
district director with whom the corporation was required to file its 
return of income (see section 6037 of the Code and the regulations 
thereunder) for the earliest of its taxable years beginning after 
December 31, 1962, and ending before April 15, 1966, for which an 
election terminated under section 1372(e)(5) of the Code. Such election 
shall be filed within 3 years after the date prescribed by law (not 
including any extension thereof) on which such return was required to be 
filed, or within 90 days from February 28, 1967, whichever is later. 
(However, credit or refund of any overpayment attributable to the 
election may not be allowed or made if claim therefor has not been filed 
within the time prescribed by law; and, see subparagraph (3) of this 
paragraph providing that the statutory period for assessment of certain 
deficiencies against shareholders may not have expired on the date the 
election and consents under this paragraph are filed.) Such election 
shall be in the form of a statement, signed by a person authorized to 
sign the corporation's return of income, which shall expressly provide 
that the corporation elects the application of section 1372(e)(5) of the 
Internal Revenue Code, as amended by Pub. L. 89-389, with respect to its 
taxable years beginning after December 31, 1962, and ending before April 
15, 1966. The statement shall set forth the name, address, and employer 
identification number of the

[[Page 967]]

corporation; the internal revenue officer with whom the corporation's 
returns of income have been filed for each of its taxable years 
beginning after December 31, 1962; the names and addresses of all 
persons who have been shareholders of the corporation at any time during 
each of its taxable years beginning after December 31, 1962; 
computations showing the amount of the corporation's overpayment or 
deficiency of tax for any taxable year which is attributable to the 
election under this paragraph; and computations showing each 
shareholder's portion of the undistributed taxable income (determined as 
provided in section 1373(b) of the Code) or net operating loss 
(determined as provided in section 1374(c) of the Code) for each taxable 
year of the corporation beginning after December 31, 1962, unless such 
computations were made on the corporation's returns of income for each 
of such years. In order for an election under this paragraph to be 
effective, it must be accompanied by the consents of certain 
shareholders as provided in subparagraph (3) of this paragraph.
    (3) Consents by shareholders. An election by a corporation pursuant 
to this paragraph must be accompanied by the consent of each person who 
was a shareholder of the corporation at any time during any taxable year 
of the corporation beginning after December 31, 1962, and ending before 
April 15, 1966. This includes persons who may not be shareholders on the 
date the election is filed. Where stock of the corporation was owned by 
a husband and wife as community property (or the income from which was 
community property), or was owned by tenants in common, joint tenants, 
or tenants by the entirety, each person who had a community interest in 
such stock and each tenant in common, joint tenant, and tenant by the 
entirety must consent to the election. The consent of a minor shall be 
made by the minor or by his legal guardian, or by his natural guardian 
if no legal guardian has been appointed. The consent of an estate shall 
be made by the executor or administrator thereof. If a person who is 
required to file a consent under this subparagraph is deceased, the 
executor or administrator of such person's estate, or other person 
charged with the property of such person, shall file the required 
consent. The consent of each shareholder shall be in the form of a 
statement signed by the shareholder in which he states that he consents 
to the election by the corporation under this paragraph. Each of such 
statements shall set forth the name and address of the corporation and 
of the shareholder; the number of shares of stock of the corporation 
owned by such shareholder at any time during any taxable year of the 
corporation beginning after December 31, 1962; the date (or dates) on 
which such stock was acquired, and, if disposed of, the date (or dates) 
of disposition; and the internal revenue officer with whom the 
shareholder's income tax returns have been filed for each of such 
taxable years in which he owned any such stock. In addition, a consent 
under this paragraph is not effective unless (i) the statutory period 
for assessment of any deficiency for each taxable year for which there 
would be a deficiency attributable to the election and consents under 
this paragraph has not expired on the date the election and consents 
under this paragraph are filed, and (ii) there is included in, or 
attached to, the statement of consent a written consent that the 
statutory period for assessment of any deficiency for any taxable year 
(to the extent that such deficiency is attributable to the election and 
consents under this paragraph) shall not expire before the expiration of 
1 year after the date the election and consents under this paragraph are 
filed. Each of the statements of consent under this subparagraph shall 
be filed with the corporation's election under this paragraph. The 
consents of all shareholders may be incorporated in one statement.
    (4) Election and consents are binding. The election and consents 
under this paragraph are binding and may not be withdrawn.
    (c) New shareholders. Section 1372(e)(1) of the Code provides that 
an election by a corporation under section 1372(a) of the Code shall 
terminate if certain new shareholders do not consent to such election 
within the time prescribed by regulations. New shareholders of a 
corporation which makes

[[Page 968]]

an election under paragraph (b) of this section may not have consented 
to the corporation's election under section 1372(a) of the Code within 
such prescribed time as a result of a termination of such election under 
section 1372(e)(5) of the Code prior to the enactment of Pub. L. 89-389. 
Therefore, notwithstanding the provisions of section 1372(e)(1) of the 
Code, and the regulations thereunder, an election by a corporation under 
section 1372(a) of the Code shall not be treated as terminated for the 
failure of any new shareholder to file a timely consent under section 
1372(e)(1) of the Code, for any of the taxable years of the corporation 
between and including the earliest taxable year determined under 
subparagraph (1) of this paragraph, and the taxable year during which 
the corporation files an election under paragraph (b) of this section, 
if--
    (1) The corporation's election under section 1372(a) of the Code 
would have terminated for a taxable year under section 1372(e)(5) of the 
Code in the event it had not made an election under paragraph (b) of 
this section, and
    (2) A proper consent under section 1372(e)(1) of the Code is filed 
by such new shareholder with the corporation's election under paragraph 
(b) of this section.

[T.D. 6912, 32 FR 3343, Feb. 28, 1967. Redesignated by T.D. 8435, 57 FR 
43896, Sept. 23, 1992]



Sec.  301.9100-20T  Election to treat certain distributions as made 
on the last day of the taxable year.

    (a) In general. Section 233(b) of the Revenue Act of 1964 (78 Stat. 
112) amends the Internal Revenue Code of 1954 by adding to section 1375 
a new subsection (e) (relating to certain distributions after close of 
taxable year). Section 1375(e) provides that a corporation, with the 
consent of its shareholders, may elect, for purposes of chapter 1 of the 
Code, to treat a distribution of money made after the close of the 
taxable year as made, and as received by its shareholders, on the last 
day of such taxable year if the following conditions are satisfied:
    (1) The corporation makes a distribution of money to its 
shareholders on or before the 15th day of the third month following the 
close of a taxable year with respect to which it was an electing small 
business corporation within the meaning of section 1371(b);
    (2) Such distribution is made pursuant to a resolution of the 
corporation's board of directors, adopted before the close of such 
taxable year, to distribute to its shareholders all or a part of the 
proceeds of one or more sales of capital assets, or of property 
described in section 1231(b), made during such taxable year; and
    (3) Each shareholder on the day such distribution is received--
    (i) Owns the same proportion of the stock of the corporation on such 
day as he owned on the last day of such taxable year, and
    (ii) Consents to such election. Section 1375(e) applies only with 
respect to taxable years of corporations beginning after December 31, 
1957.
    (b) Time and manner for making election--(1) Taxable years ending 
after February 26, 1964. For taxable years ending after February 26, 
1964, an election under section 1375(e) with respect to a taxable year 
shall be made by attaching to the corporation income tax return for such 
taxable year, filed not later than the time (including extensions 
thereof) prescribed by law, the following documents:
    (i) A statement that the corporation elects the application of 
section 1375(e) and the date and amount of each distribution to which 
the election applies;
    (ii) A copy of the resolution of the board of directors referred to 
in paragraph (a)(2) of this section; and
    (iii) A statement of the consent of each shareholder of the 
corporation containing the information required by, and filed in the 
manner provided in, paragraph (c) of this section.
    (2) Taxable years beginning after December 31, 1957, and ending on 
or before February 26, 1964. For taxable years beginning after December 
31, 1957, and ending on or before February 26, 1964, an election under 
section 1375(e) with respect to a taxable year shall be made on or 
before June 25, 1964, by either attaching the documents described in 
subparagraph (1) of this paragraph to its income tax return for such 
taxable year, or by filing such documents with the district director 
with whom the corporation has filed, or intends to file,

[[Page 969]]

its income tax return for such taxable year.
    (3) Election is binding. An election under subparagraph (1) or (2) 
of this paragraph is binding and may not be withdrawn.
    (c) Shareholders' consent. The consent of a shareholder to an 
election under section 1375(e) shall be in the form of a statement 
signed by the shareholder in which such shareholder consents to the 
election of the corporation. Such shareholder's consent is binding and 
may not be withdrawn after a valid election is made by the corporation. 
Each person who is a shareholder of the electing corporation must 
consent to the election; thus, where stock of the corporation is owned 
by a husband and wife as community property (or the income from which is 
community property), or is owned by tenants in common, joint tenants, or 
tenants by the entirety, each person having a community interest in such 
stock and each tenant in common, joint tenant, and tenant by the 
entirety must consent to the election. The consent of a minor shall be 
made by the minor or by his legal guardian, or his natural guardian if 
no legal guardian has been appointed. The consent of an estate shall be 
made by the executor or administrator thereof. The statement shall set 
forth the name, address, and account number of the corporation and of 
the shareholder, the date the distribution is received, the number and 
proportion of the shares of stock of the corporation owned by him on the 
date the distribution is received, and the number and proportion of such 
shares owned by him on the last day of the taxable year of the 
corporation with respect to which the election is made. The consents of 
all shareholders may be incorporated in one statement.

[T.D. 6719, 29 FR 4771, Apr. 3, 1964. Redesignated by T.D. 8435, 57 FR 
43896, Sept. 23, 1992]



Sec.  301.9100-21  References to other temporary elections 
under various tax acts.

    Regulations regarding elections under various other tax acts are 
found at the following sections in title 26 of the Code of Federal 
Regulations:

------------------------------------------------------------------------
          Section of 26 CFR                 Description of election
------------------------------------------------------------------------
5c.168(f)(8)-2......................  Election to characterize
                                       transaction as a section
                                       168(f)(8) lease, under the
                                       Economic Recovery Tax Act of
                                       1981.
5c.1256-1...........................  Election with respect to property
                                       held on June 23, 1981, under
                                       section 508(c) of the Economic
                                       Recovery Tax Act of 1981.
5c.1256-2...........................  Election with respect to taxable
                                       years beginning before June 23,
                                       1981, and ending after June 22,
                                       1981, under section 509 of the
                                       Economic Recovery Tax Act of
                                       1981.
7.48-1..............................  Election to have investment credit
                                       for movie and television films
                                       determined in accordance with
                                       previous litigation, under the
                                       Tax Reform Act of 1976.
7.48-2..............................  Election of forty-percent method
                                       of determining investment credit
                                       for movie and television films
                                       placed in service in a taxable
                                       year beginning before January 1,
                                       1975, under the Tax Reform Act of
                                       1976.
7.48-3..............................  Election to apply the amendments
                                       made by sections 804 (a) and (b)
                                       of the Tax Reform Act of 1976 to
                                       property described in section
                                       50(a) of the Code.
7.57(d)-1...........................  Election with respect to straight
                                       line recovery of intangibles,
                                       under the Tax Reform Act of 1976.
11.402(a)(4)(B)-1...................  Election to treat an amount as a
                                       lump sum distribution, under the
                                       Employee Retirement Income
                                       Security Act of 1974.
11.410-1............................  Election by church to have
                                       participation, vesting, funding,
                                       etc., provisions apply, under the
                                       Employee Retirement Income
                                       Security Act of 1974.
11.412(c)-7.........................  Election to treat certain
                                       retroactive plan amendments as
                                       made on the first day of the plan
                                       year, under the Employee
                                       Retirement Income Security Act of
                                       1974.
11.412(c)-11........................  Election with respect to bonds,
                                       under the Employee Retirement
                                       Income Security Act of 1974.
11.415(c)(4)-1......................  Special elections for section
                                       403(b) annuity contracts
                                       purchased by educational
                                       institutions, hospitals and home
                                       health service agencies, under
                                       the Employee Retirement Income
                                       Security Act of 1974.
12.4................................  Election of Class Life Asset
                                       Depreciation Range System (ADR),
                                       under the Revenue Act of 1971.
12.7................................  Election to be treated as a DISC,
                                       under the Revenue Act of 1971.
12.8................................  Elections with respect to net
                                       leases of real property, under
                                       the Revenue Act of 1971.
12.9................................  Election to postpone determination
                                       with respect to the presumption
                                       described in section 183(d),
                                       under the Revenue Act of 1971.
15.1-1..............................  Elections to deduct, relating to
                                       exploration expenditures in the
                                       case of mining.
15.1-2..............................  Revocation of election to deduct,
                                       relating to exploration
                                       expenditures in the case of
                                       mining.
15.1-3..............................  Elections as to methods of
                                       recapture, relating to
                                       exploration expenditures in the
                                       case of mining.

[[Page 970]]

 
18.1361-1...........................  Election to treat qualified
                                       subchapter S trust as a trust
                                       described in section
                                       1361(c)(2)(A)(i), under the
                                       Subchapter S Revision Act of
                                       1982.
18.1362-1...........................  Election to be an S corporation,
                                       under the Subchapter S Revision
                                       Act of 1982.
18.1362-3...........................  Revocation of election, under the
                                       Subchapter S Revision Act of
                                       1982.
18.1362-5...........................  Election not to have new passive
                                       income rules apply during 1982,
                                       under the Subchapter S Revision
                                       Act of 1982.
18.1371-1...........................  Election to treat distributions as
                                       dividends during certain post-
                                       termination transition periods,
                                       under the Subchapter S Revision
                                       Act of 1982.
18.1377-1...........................  Election to terminate year, under
                                       the Subchapter S Revision Act of
                                       1982.
18.1379-2...........................  Special rules for all elections,
                                       consents, and refusals, under the
                                       Subchapter S Revision Act of
                                       1982.
22.0................................  Certain estate taxes elections
                                       under the Economic Recovery Tax
                                       Act of 1981.
23.1................................  Election and eligibility to treat
                                       interests in property held
                                       jointly on December 31, 1976, as
                                       qualified joint interests, under
                                       the Revenue Act of 1978.
------------------------------------------------------------------------


[T.D. 8435, 57 FR 43894, Sept. 23, 1992]



Sec.  301.9100-22  Time, form, and manner of making the election 
under section 1101(g)(4) of the Bipartisan Budget Act of 2015 for returns 
filed for partnership taxable years beginning after November 2, 2015 
and before January 1, 2018.

    (a) Election. Pursuant to section 1101(g)(4) of the Bipartisan 
Budget Act of 2015, Public Law 114-74 (BBA), a partnership may elect at 
the time and in such form and manner as described in this section for 
amendments made by section 1101 of the BBA, except section 6221(b) as 
added by the BBA, to apply to any return of the partnership filed for an 
eligible taxable year as defined in paragraph (d) of this section. An 
election is valid only if made in accordance with this section. Once 
made, an election may only be revoked with the consent of the Internal 
Revenue Service (IRS). An election is not valid if it frustrates the 
purposes of section 1101 of the BBA. A partnership may not request an 
extension of time under Sec.  301.9100-3 for an election described in 
this section.
    (b) Election on notification by the IRS--(1) Time for making the 
election. Except as described in paragraph (c) of this section, an 
election under this section must be made within 30 days of the date of 
notification to a partnership, in writing, that a return of the 
partnership for an eligible taxable year has been selected for 
examination (a notice of selection for examination).
    (2) Form and manner of making the election--(i) In general. The 
partnership makes an election under this section by providing a written 
statement with the words ``Election under Section 1101(g)(4)'' written 
at the top that satisfies the requirements of paragraph (b)(2) of this 
section to the individual identified in the notice of selection for 
examination as the IRS contact regarding the examination.
    (ii) Statement requirements. A statement making an election under 
this section must be in writing and be dated and signed by the tax 
matters partner, as defined under section 6231(a)(7) (prior to amendment 
by the BBA), and the applicable regulations, or an individual who has 
the authority to sign the partnership return for the taxable year under 
section 6063, the regulations thereunder, and applicable forms and 
instructions. The fact that an individual dates and signs the statement 
making the election described in this paragraph (b) shall be prima facie 
evidence that the individual is authorized to make the election on 
behalf of the partnership. A statement making an election must include--
    (A) The partnership's name, taxpayer identification number, and the 
partnership taxable year for which the election described in this 
paragraph (b) is being made;
    (B) The name, taxpayer identification number, address, and daytime 
telephone number of the individual who signs the statement;
    (C) Language indicating that the partnership is electing application 
of section 1101(c) of the BBA for the partnership return for the 
eligible taxable year identified in the notice of selection for 
examination;
    (D) The information required to properly designate the partnership 
representative as defined by section 6223 as amended by the BBA, which 
must include the name, taxpayer identification number, address, and 
daytime telephone number of the partnership

[[Page 971]]

representative and any additional information required by applicable 
regulations, forms and instructions, and other guidance issued by the 
IRS;
    (E) The following representations--
    (1) The partnership is not insolvent and does not reasonably 
anticipate becoming insolvent before resolution of any adjustment with 
respect to the partnership taxable year for which the election described 
in this paragraph (b) is being made;
    (2) The partnership has not filed, and does not reasonably 
anticipate filing, voluntarily a petition for relief under title 11 of 
the United States Code;
    (3) The partnership is not subject to, and does not reasonably 
anticipate becoming subject to, an involuntary petition for relief under 
title 11 of the United States Code; and
    (4) The partnership has sufficient assets, and reasonably 
anticipates having sufficient assets, to pay a potential imputed 
underpayment with respect to the partnership taxable year that may be 
determined under subchapter C of chapter 63 of the Internal Revenue Code 
as amended by the BBA; and
    (F) A representation, signed under penalties of perjury, that the 
individual signing the statement is duly authorized to make the election 
described in this paragraph (b) and that, to the best of the 
individual's knowledge and belief, all of the information contained in 
the statement is true, correct, and complete.
    (iii) Notice of Administrative Proceeding. Upon receipt of the 
election described in this paragraph (b), the IRS will promptly mail a 
notice of administrative proceeding to the partnership and the 
partnership representative, as required under section 6231(a)(1) as 
amended by the BBA. Notwithstanding the preceding sentence, the IRS will 
not mail the notice of administrative proceeding before the date that is 
30 days after receipt of the election described in paragraph (b) of this 
section.
    (c) Election for the purpose of filing an administrative adjustment 
request (AAR) under section 6227 as amended by the BBA--(1) In general. 
A partnership that has not been issued a notice of selection for 
examination as described in paragraph (b)(1) of this section may make an 
election with respect to a partnership return for an eligible taxable 
year for the purpose of filing an AAR under section 6227 as amended by 
the BBA. Once an election under this paragraph (c) is made, all of the 
amendments made by section 1101 of the BBA, except section 6221(b) as 
added by the BBA, apply with respect to the partnership taxable year for 
which such election is made.
    (2) Time for making the election. No election under this paragraph 
(c) may be made before January 1, 2018.
    (3) Form and manner of making an election. An election under this 
paragraph (c) must be made in the manner prescribed by the IRS for that 
purpose in accordance with applicable regulations, forms and 
instructions, and other guidance issued by the IRS.
    (4) Effect of filing an AAR before January 1, 2018. Except in the 
case of an election made in accordance with paragraph (b) of this 
section, an AAR filed on behalf of a partnership before January 1, 2018, 
is deemed for purposes of paragraph (d)(2) of this section, to be an AAR 
filed under section 6227(c) (prior to amendment by the BBA) or an 
amended return of partnership income, as applicable.
    (d) Eligible taxable year--(1) In general. For purposes of this 
section, the term eligible taxable year means any partnership taxable 
year beginning after November 2, 2015 and before January 1, 2018, except 
as provided in paragraph (d)(2) of this section.
    (2) Exception if AAR or amended return filed or deemed filed. 
Notwithstanding paragraph (d)(1) of this section, a partnership taxable 
year is not an eligible taxable year for purposes of this section if for 
the partnership taxable year--
    (i) The tax matters partner has filed an AAR under section 6227(c) 
(prior to amendment by the BBA),
    (ii) The partnership is deemed to have filed an AAR under section 
6227(c) (prior to the amendment by the BBA) in accordance with paragraph 
(c)(4) of this section, or
    (iii) An amended return of partnership income has been filed or has 
been deemed to be filed under paragraph (c)(4) of this section.
    (e) Applicability date. These regulations are applicable to returns 
filed for

[[Page 972]]

partnership taxable years beginning after November 2, 2015 and before 
January 1, 2018.

[T.D. 9839, 83 FR 39350, Aug. 9, 2018]



PART 302_TAXES UNDER THE INTERNATIONAL CLAIMS SETTLEMENT ACT, 
AS AMENDED AUGUST 9, 1955--Table of Contents



Sec.
302.1 Statutory provisions and Executive order; section 212 of the 
          International Claims Settlement Act, and Executive Order 
          10644.
302.1-1 Definitions.
302.1-2 Application of regulations.
302.1-3 Protection of internal revenue prior to tax determination.
302.1-4 Computation of taxes.
302.1-5 Payment of taxes.
302.1-6 Interest and penalties.
302.1-7 Claims for credit or refund.

    Authority: Sec. 7805, I.R.C. 1954; 68A Stat. 917; 26 U.S.C. 7805, 
and sec. 212 of the International Claims Settlement Act of 1949, as 
added by the Act of Aug. 9, 1955, Pub. L. 285, 84th Cong., 69 Stat. 562.

    Source: T.D. 6470, 25 FR 6470, July 9, 1960, unless otherwise noted.



Sec.  302.1  Statutory provisions and Executive order; section 212 
of the International Claims Settlement Act, and Executive Order 10644.

    Sec. 212. (a) The vesting in any officer or agency designated by the 
President under this title of any property or the receipt by such 
designee of any earnings, increment, or proceeds thereof shall not 
render inapplicable any Federal, State, Territorial, or local tax for 
any period before or after such vesting.
    (b) The officer or agency designated by the President under this 
title shall, notwithstanding the filing of any claim or the institution 
of any suit under this title, pay any tax incident to any such property, 
or the earnings, increment, or proceeds thereof, at the earliest time 
appearing to him to be not contrary to the interest of the United 
States. The former owner shall not be liable for any such tax accruing 
while such property, earnings, increment, or proceeds are held by such 
designee, unless they are returned pursuant to this title without 
payment of such tax by the designee. Every such tax shall be paid by the 
designee to the same extent, as nearly as may be deemed practicable, as 
though the property had not been vested, and shall be paid only out of 
the property, or earnings, increment, or proceeds thereof, to which they 
are incident or out of other property acquired from the same former 
owner, or earnings, increment, or proceeds thereof. No tax liability may 
be enforced from any property or the earnings, increment, or proceeds 
thereof while held by the designee except with his consent. Where any 
property is transferred otherwise than pursuant to section 207(a) or 
207(b) hereof, the designee may transfer the property free and clear of 
any tax, except to the extent of any lien for a tax existing and 
perfected at the date of vesting, and the proceeds of such transfer 
shall, for tax purposes, replace the property in the hands of the 
designee.
    (c) Subject to the provisions of subsection (b) of this section, the 
manner of computing any Federal taxes, including without limitation by 
reason of this enumeration, the applicability in such computation of 
credits, deductions, and exemptions to which the former owner is or 
would be entitled, and the time and manner of any payment of such taxes 
and the extent of any compliance by the designee with provisions of 
Federal law and regulations applicable with respect to Federal taxes, 
shall be in accordance with regulations prescribed by the Secretary of 
the Treasury to effectuate this section. Statutes of limitations on 
assessments, collection, refund, or credit of Federal taxes shall be 
suspended with respect to any vested property or the earnings, 
increment, or proceeds thereof, while vested and for six months 
thereafter; but no interest shall be paid upon any refund with respect 
to any period during which the statute of limitations is so suspended.
    (d) The word ``tax'' as used in this section shall include, without 
limitation by reason of this enumeration, any property, income, excess-
profits, war-profits, excise, estate, and employment tax, import duty, 
and special assessment; and also any interest, penalty, additional 
amount, or addition thereto not arising from any act, omission, neglect, 
failure, or delay on the part of the designee.

[Section 212, International Claims Settlement Act of 1949, as added by 
Act of August 9, 1955 (Pub. L. 585, 84th Cong., 69 Stat. 562)]

      EXECUTIVE ORDER 10644, APPROVED NOVEMBER 7, 1955 (20 FR 8363)

    By virtue of the authority vested in me by title II of the 
International Claims Settlement Act of 1949, as added by Public Law 285, 
84th Congress, approved August 9, 1955 (69 Stat. 562), and by section 
301 of title 3 of the United States Code, and as President of the United 
States, it is ordered as follows:
    Section 1. The Attorney General, and, as designated by the Attorney 
General for this purpose, any Assistant Attorney General are hereby 
designated and empowered to perform the functions conferred by the said 
title II of the International Claims Settlement Act of 1949 upon the 
President, and the functions

[[Page 973]]

conferred by that title upon any designee of the President.
    Sec. 2. The Attorney General is hereby designated as the officer in 
whom property shall vest under the said title II.
    Sec. 3. As used in this order, the term ``functions'' includes 
duties, powers, responsibilities, authority, and discretion, and the 
term ``perform'' may be construed to include ``exercise''.



Sec.  302.1-1  Definitions.

    (a) General. When used in the regulations in this part, the terms 
defined in this section shall have the meaning so assigned to them. A 
term not defined herein shall have the meaning, if compatible with the 
context, imputed thereto under the internal revenue laws.
    (b) Attorney General. The term ``Attorney General'' includes the 
officer in whom property is vested pursuant to title II of the 
International Claims Settlement Act of 1949, as amended. The term also 
includes the officer, including any Assistant Attorney General 
designated by the Attorney General for this purpose, designated and 
empowered pursuant to Executive Order No. 10644 to perform the functions 
conferred by title II upon the President of the United States and the 
functions conferred by such title upon the designee of the President.
    (c) Commissioner. The term ``Commissioner'' means the Commissioner 
of Internal Revenue.
    (d) Person. The term ``person'' includes a natural person, 
partnership, association, other unincorporated body, corporation, or 
body politic, having or claiming an interest in vested property or 
liable or charged with liability for internal revenue tax in connection 
with such property.
    (e) Former owner. The term ``former owner'' means the owner 
immediately prior to vesting and any successor in interest by 
inheritance, devise, bequest, or operation of law, of such owner.
    (f) Property. The term ``property'' means any property, right, or 
interest, including earnings, increment, or proceeds thereof.
    (g) Act. The term ``Act'' means the International Claims Settlement 
Act of 1949, as amended by the Act of August 9, 1955 (Pub. L. 285, 84th 
Cong., 69 Stat. 562).
    (h) Tax. The term ``tax'' includes, but is not limited to, any 
property, income, excess-profits, war-profits, excise, estates, and 
employment tax, import duty, and special assessment; and also any 
interest, penalty, additional amount, or addition thereto not arising 
from any act, omission, neglect, failure, or delay on the part of the 
Attorney General.



Sec.  302.1-2  Application of regulations.

    (a) Property covered. The regulations in this part are applicable in 
connection with property vested in the Attorney General pursuant to 
section 202 (a) of the Act and in connection with the net proceeds of 
any property described under section 202(b) of such Act which was vested 
in the Attorney General after December 17, 1941, pursuant to the Trading 
With the Enemy Act, as amended (40 Stat. 411).
    (b) Taxes covered. The regulations in this part are applicable to 
any internal revenue tax with respect to (1) property vested in the 
Attorney General or any action or transaction incidental to such 
property, or (2) any person whose property is so vested or any action or 
transaction of such person, whether the tax is applicable in respect of 
the period of vesting or any other period.



Sec.  302.1-3  Protection of internal revenue prior to tax determination.

    (a) Suits and claims for return of vested property--(1) General. The 
provisions of this paragraph apply in cases where there has been neither 
a final nor a tentative determination of internal revenue tax liability. 
See paragraphs (e) and (f) of Sec.  302.1-4. In such cases vested 
property (including property vested pursuant to section 202(a) of the 
Act which is subject to divestment by reason of its ownership by a 
natural person) shall not be returned or divested except in accordance 
with this paragraph.
    (2) Notice to Commissioner--(i) Suits for recovery. Where suit for 
the return of vested property has been instituted pursuant to section 
207(a) of the Act, the Attorney General shall within a reasonable time 
after answer has been filed or after beginning of the trial of

[[Page 974]]

the case notify the Commissioner in writing of the property involved and 
the name, address, citizenship, residence, and business organization of 
the claimant, and any other pertinent information.
    (ii) Return without suit. Where the Attorney General has determined 
that pursuant to section 207(b) of the Act vested property is to be 
returned to the claimant, the Attorney General shall notify the 
Commissioner in writing in the manner prescribed in subdivision (i) of 
this subparagraph at least 90 days prior to any return of such property.
    (3) Return of property--(i) By divestment. Where the Attorney 
General has determined that property vested pursuant to section 202(a) 
of the Act was directly owned by a natural person, the Attorney General 
shall not divest himself of such property and restore it to its blocked 
status prior to vesting unless there has been a determination of tax 
liability pursuant to Sec.  302.1-4 and a payment of such tax pursuant 
to Sec.  302.1-5.
    (ii) Without security. Where vested property is the subject of a 
suit or proceeding pursuant to the Act, it may be returned without 
security prior to determination of applicable internal revenue taxes and 
prior to the judgment of the court or to the publication of the order of 
the Attorney General directing such return to the following described 
claimants under conditions hereinafter stated:
    (a) Residents and domestic enterprises. In the case of claimants who 
at the time of return are (1) individuals permanently resident in the 
United States since December 7, 1941, or (2) corporations or other 
business enterprises organized under the laws of the United States, or 
any State, Territory, or possession thereof, or the District of 
Columbia, or doing business in the United States, the Attorney General 
may without notice to the Commissioner return the property at any time.
    (b) Non-residents, etc. In the case of claimants who at the time of 
return are (1) individuals not permanently resident in the United States 
since December 7, 1941, or (2) nondomestic corporations or other 
nondomestic enterprises not doing business within the United States, the 
property may be returned not less than 90 days after notice by the 
Attorney General to the Commissioner in a case within subparagraph 
(2)(i) of this paragraph, or not less than 60 days after notice in a 
case within subparagraph (2)(ii) of this paragraph (a), unless within 
such time the Attorney General is advised otherwise by the Commissioner.
    (iii) When security required. Except as provided in subdivisions (i) 
and (ii) of this subparagraph, vested property shall not be released 
prior to determination of tax liability without security satisfactory to 
the Commissioner, but determination of tax liability will be expedited 
in order that the release of the property or of the security shall not 
be unnecessarily delayed.
    (4) Security. When security is required under subparagraph (3)(iii) 
of this paragraph (a), it shall be such of the following as the 
Commissioner considers necessary:
    (i) Bond. A bond of the claimant conditioned upon payment of the 
full amount of internal revenue taxes determined to be due, filed with 
the district director in such amount, and with such sureties, as the 
Commissioner deems necessary. Only surety companies holding a 
certificate of authority from the Secretary of the Treasury may be used.
    (ii) Collateral security. Collateral authorized by law deposited by 
the claimant in lieu of surety conditioned upon the payment of the full 
amount of internal revenue taxes determined to be due.
    (iii) Reservation of assets. Monies, or if the monies are 
insufficient, so much of the other property involved, to be reserved by 
the Attorney General, as will be sufficient in the judgment of the 
Attorney General to cover any internal revenue tax liability determined 
by the Commissioner.
    (b) Vested property subject to debt claims--(1) Notice to 
Commissioner. With respect to vested property available for the payment 
of debt claims pursuant to section 208 of the Act, and with respect to 
which debt claims have been filed, prior to the allowance of any such 
claims the Attorney General shall in writing notify the Commissioner of 
the property involved, the citizenship, residence, business organization 
and other

[[Page 975]]

necessary information concerning the debtor and the aggregate of debt 
claims filed in respect thereof.
    (2) Action by Commissioner. Upon receipt of the notice provided in 
subparagraph (1) of this paragraph (b), the Commissioner shall, as soon 
as practicable and not later than 120 days after receipt of notice, 
unless the time is extended by the Commissioner after notice to the 
Attorney General, (i) determine the taxes payable by the Attorney 
General in respect of the debtor, or (ii) advise the Attorney General of 
the provision, if any, to be made by him for payment of taxes with 
respect of the debtor.



Sec.  302.1-4  Computation of taxes.

    (a) Detail of employees of the Internal Revenue Service. The 
Commissioner will detail for the assistance of the Attorney General such 
employees of the Internal Revenue Service as may be necessary to make 
the computations under the regulations in this part promptly and 
accurately.
    (b) Relationship of Attorney General and former owner. In the 
computation of tax liability under the regulations in this part, except 
as otherwise provided herein, the vesting of property shall not be 
considered as affecting the ownership thereof; and any act of the 
Attorney General in respect of such property (including the collection 
or operation thereof and any investment, sale, or other disposition and 
any payment or other expenditure) shall be considered as the act of the 
owner. Nevertheless, except as otherwise provided in the Act or the 
regulations in this part, insofar as taxes are incident to the vested 
property during the period of vesting, they shall be payable by the 
Attorney General, except that to the extent of the value of any of the 
property returned to the former owner the latter shall be liable for 
such tax not paid by the Attorney General. While tax incident to 
nonvested property is collectible out of both vested and nonvested 
property, the nonvested property will be regarded as the primary source 
of collection of such tax. In determining the amount of liability to be 
paid out of property not vested by the Attorney General a computation 
shall be made covering the taxpayer's full period of liability, but 
without regard to the vested property, or the income received by, or the 
operations of, the Attorney General. The amount so computed shall be 
first asserted against and collected so far as practicable from the 
taxpayer or out of his property which is not vested. Such part of the 
total tax liability as is not paid by the taxpayer or collected out of 
property not vested shall be asserted against the vested property. See 
Sec.  302.1-5, relating to payment of taxes, and Sec.  302.1-7, relating 
to claims for credit or refund.
    (c) Laws applicable to computations. Except as otherwise 
specifically provided in the regulations in this part, the computation 
under the regulations in this part of any internal revenue tax liability 
shall be in accordance with the internal revenue laws and regulations 
applicable thereto, including all amendments of such laws or regulations 
enacted or promulgated prior to determination of the tax.
    (d) Periods for which computations made. The amount of income, 
declared value excess profits, excess profits, capital stock, 
employment, and excise taxes under the internal revenue laws will be 
computed for each taxable year or period during all or part of which 
property is vested prior to the return of the property. In the case of a 
return of property prior to computation of tax, see Sec.  302.1-3. Where 
vesting occurs during a taxable year or taxable period, any return filed 
or computation made covering vested or nonvested property should 
nevertheless be for the entire year or period. See paragraph (b) of this 
section. Unless facts are available indicating a liability for taxes for 
a taxable year or period occurring wholly prior or subsequent to the 
period of vesting of the property by the Attorney General, the 
computations under the regulations in this part, both tentative and 
final, will be made only in respect of years and periods during all or 
part of which the property is held by the Attorney General.
    (e) Tentative computation. In order that the return of property or 
other appropriate action may not be delayed until the amount of taxes 
payable is finally computed and paid, a tentative computation of such 
amount will be made in every case, unless there are

[[Page 976]]

circumstances appearing to make such action inappropriate. Such 
circumstances would include (1) return of the property in accordance 
with Sec.  302.1-3, (2) notice to the Commissioner by the person to whom 
the property is returnable or by the Attorney General that such person 
or the Attorney General, as the case may be, prefers that the return of 
the property be postponed until the amount of such taxes can be finally 
computed or (3) belief on the part of the Commissioner that a final 
computation will not unduly delay the return of, or other appropriate 
action with respect to, the property. In making any such tentative 
computation of income, profits, or estate tax, the gross income or the 
gross estate, as the case may be, as shown by the records of the 
Attorney General (excluding therefrom items exempt from taxation) shall 
be considered as the taxable or net income or taxable or net estate, 
respectively, unless a tax return has been filed or facts are available 
upon which a more accurate computation can be made. In any case in which 
a duly authorized officer or employee of the Internal Revenue Service 
has otherwise computed the amount of taxes payable in respect of any 
period, such computation will be accepted as a tentative computation, 
unless the facts clearly indicate that a more accurate computation can 
be made.
    (f) Final computation--(1) General. A final computation of the 
amount of taxes payable by the person to whom property is returnable, or 
out of property to be returned, will be made as soon as practicable in 
every case. In any case in which the amount shown by a tentative 
computation has been paid, refund or credit of any amount paid in excess 
of the amount properly due will be made in accordance with the final 
computation, even though a claim therefor has not been filed, if the 
period of limitation applicable to the filing of such claim has not 
expired. However, if it is desired to protect the right to any credit or 
refund determined to be due, a claim for credit or refund should be 
filed. The sufficiency of any such claim in respect of any amount paid 
in accordance with a tentative computation under the regulations in this 
part will not be questioned solely because facts upon which a more 
accurate computation could be made are not available or cannot be 
established at the time such claim is filed. Any such claim in respect 
of an amount paid in accordance with a final computation must, however, 
clearly set forth in detail under penalties of perjury all the facts 
relied upon in support of the claim and must conform to the regulations 
applicable to an ordinary claim for refund or credit. See Sec.  302.1-7 
relating to claims for credit or refunds.
    (2) Information required--(i) Income and profit taxes. The following 
information submitted under penalties of perjury by or for the taxpayer 
is necessary in each case for a final computation, for each taxable year 
for which the computation is to be made:
    (a) All income (other than income received by the Attorney General) 
from sources within the United States, or if no such income has been 
received, then a statement to that effect, except that in the case of a 
citizen or resident of the United States, income from sources without as 
well as within the United States must be shown.
    (b) If a return of such income has been made, then the following 
data in respect of such return:
    (1) The taxable year for which the return was made and the tax 
(whether income, declared value excess profits, or excess profits tax) 
paid;
    (2) The name of the taxpayer for whom the return was made;
    (3) The name of the agent or other person (if any) by whom such 
return was made;
    (4) The office of the district director in which such return was 
filed.
    (c) Such other facts as may be required, from time to time, by the 
Commissioner.
    (ii) Other taxes. Except as otherwise provided in subdivision (i) of 
this subparagraph, in order to make a final computation of the amount of 
any internal revenue tax payable by return in any case, the usual return 
should be filed, together with the supporting documents required by the 
regulations pertaining to the tax.
    (g) Tax returns--(1) General. In many cases allowance of deductions 
and credits is contingent upon the making of a

[[Page 977]]

return in accordance with the applicable internal revenue law. The 
submission of evidence relative to income or profits tax in accordance 
with subdivisions (a) and (c) of paragraph (f)(2)(i) of this section 
will be considered as the making of the return required by any such law, 
only (i) for any taxable period, ending on or before December 31, 1946, 
during all or part of which all or part of the property of the taxpayer 
was held by the Attorney General, or (ii) for any taxable period ending 
within one year from the date of the first return to the taxpayer of any 
part of the property held by the Attorney General, whichever period ends 
later. In all other cases a return will be required in accordance with 
the applicable internal revenue law and regulations. In the case of 
returns where property is vested during a taxable year or period, see 
paragraph (d) of this section.
    (2) Estates and trusts. In the case of estates and trusts the 
fiduciaries shall file returns, including information returns as 
required by section 147 of the Internal Revenue Code of 1939 or section 
6041 of the Internal Revenue Code of 1954.
    (3) Income tax forms to be used--(i) General. In the case of 
taxpayers engaged in trade or business in the United States Forms 1040B 
and 1120, as may be appropriate, shall be used. Where the taxpayer is 
not engaged in trade or business in the United States, Form M797 may be 
used in lieu of Forms 1040NB, 1040NB--a, and 1120NB.
    (ii) Definition. When used in subdivision (i) of this subparagraph, 
the term ``engaged in trade or business in the United States'' includes 
the managing and renting of real estate in the United States by an agent 
of the Attorney General or of the former owner duly authorized to 
execute rental agreements and to pay all taxes and charges incident to 
the repair and maintenance of such property, but does not include the 
mere renting or leasing of property under agreement requiring the lessee 
or occupant to pay taxes and to make repairs or improvements.



Sec.  302.1-5  Payment of taxes.

    (a) Pursuant to tentative computations. The amount of taxes shown by 
a tentative computation, shall be paid by the Attorney General or the 
taxpayer, as the case may be, to the district director as soon as 
practicable after the tentative computation has been made. It will not 
be necessary, however, for the payment by the Attorney General to be 
made prior to the return of property if an amount sufficient to cover 
all internal revenue taxes is retained from the property by the Attorney 
General.
    (b) Pursuant to final computations. Upon a final computation of 
internal revenue taxes properly payable, the amount thereof remaining 
unpaid shall be paid by the Attorney General to the district director as 
soon as practicable after the final computation has been made, or, in 
case the property has been returned to the former owner, by such owner. 
If the final computation shows that the full amount of internal revenue 
taxes properly payable is less than the amount previously paid, the 
difference shall be credited or refunded in accordance with the 
provisions of the regulations in this part and other applicable 
regulations. A final computation will not prohibit a subsequent 
recomputation if it is determined that the amount shown by the final 
computation is erroneous.
    (c) Deficiency procedure. The Attorney General shall pay internal 
revenue taxes without regard to the provisions of law relating to the 
sending of a deficiency notice by certified or registered mail or to 
notice and demand.



Sec.  302.1-6  Interest and penalties.

    (a) Liability for interest and civil penalties. Under subsection (d) 
of section 212 of the Act there is no liability for interest or penalty 
on account of any act or failure of the Attorney General. Such 
subsection is not applicable to interest or penalties payable in respect 
of any act or failure during the period prior to the vesting of the 
property by the Attorney General, or after the return of the property, 
or during the period during which the property was vested by the 
Attorney General on account of an act or ommission of any person other 
than the Attorney General.
    (b) Adjustment. In case of any assessment or collection, or credit 
or refund, of interest or a civil penalty contrary

[[Page 978]]

to section 212 (c) or (d) of the Act, proper adjustment shall be made.



Sec.  302.1-7  Claims for credit or refund.

    (a) Time for filing claims. Claims for credit or refund must be 
filed within the period prescribed by section 322 of the Internal 
Revenue Code of 1939 or by section 6511 of the Internal Revenue Code of 
1954, as modified by section 212(c) of the Act. Any such claim must 
contain a detailed statement under penalties of perjury of all the facts 
relied upon in support of the claim and should be filed with the 
district director of the district in which the tax was paid. See 
paragraph (f)(1) of Sec.  302.1-4 relating to final computation.
    (b) Attorney General acting for taxpayer. Any act of the Attorney 
General for, or on behalf of, a taxpayer in respect of any claim under 
the regulations in this part will be considered as the act of such 
taxpayer, unless such taxpayer notifies the Commissioner in writing, by 
the filing of a claim for refund or credit or otherwise, that he does 
not ratify such act. See paragraph (b) of Sec.  302.1-4 relating to 
relationship of Attorney General and former owner.
    (c) Refund payable to Attorney General. All refund of taxes paid by 
the Attorney General shall be made directly to that official.



PART 303_TAXES UNDER THE TRADING WITH THE ENEMY ACT--Table of Contents



Sec.
303.1 Statutory provisions; section 36, Trading With the Enemy Act.
303.1-1 Definitions.
303.1-2 Application of part.
303.1-3 Protection of internal revenue prior to tax determination.
303.1-4 Computation of taxes.
303.1-5 Payment of taxes.
303.1-6 Interest and penalties.
303.1-7 Claims for refund or credit.

    Authority: Sec. 7805, I.R.C. 1954; 68A Stat. 917; 26 U.S.C. 7805, 
and sec. 36 of the Trading With the Enemy Act, as added by the Act of 
Aug. 8, 1946, Pub. L. 671, 79th Cong., 60 Stat. 929; 50 U.S.C. App. 36.

    Source: T.D. 6459, 25 FR 2953, Apr. 7, 1960, unless otherwise noted.



Sec.  303.1  Statutory provisions; section 36, Trading With the Enemy Act.

    Sec. 36 (a) The vesting in or transfer to the Alien Property 
Custodian of any property or interest (other than any property or 
interest acquired by the United States prior to December 18, 1941), or 
the receipt by him of any earnings, increment, or proceeds thereof shall 
not render inapplicable any Federal, State, Territorial, or local tax 
for any period prior or subsequent to the date of such vesting or 
transfer, nor render applicable the exemptions provided in title II of 
the Social Security Act with respect to service performed in the employ 
of the United States Government or of any instrumentality of the United 
States.
    (b) The Alien Property Custodian shall, notwithstanding the filing 
of any claim or the institution of any suit under this Act, pay any tax 
incident to any such property or interest, or the earnings, increment, 
or proceeds thereof, at the earliest time appearing to him to be not 
contrary to the interest of the United States. The former owner shall 
not be liable for any such tax accruing while such property, interest, 
earnings, increment, or proceeds are held by the Alien Property 
Custodian, unless they are returned pursuant to this Act without payment 
of such tax by the Alien Property Custodian. Every such tax shall be 
paid by the Alien Property Custodian to the same extent, as nearly as 
may be deemed practicable, as though the property or interest had not 
been vested in or transferred to the Alien Property Custodian, and shall 
be paid only out of the property or interest, or earnings, increment, or 
proceeds thereof, to which they are incident or out of other property or 
interests acquired from the same former owner, or earnings, increment, 
or proceeds thereof. No tax liability may be enforced from any property 
or interest or the earnings, increment, or proceeds thereof while held 
by the Alien Property Custodian except with his consent. Where any 
property or interest is transferred, otherwise than pursuant to section 
9(a) or 32 hereof, the Alien Property Custodian may transfer the 
property or interest free and clear of any tax, except to the extent of 
any lien for a tax existing and perfected at the date of vesting, and 
the proceeds of such transfer shall, for tax purposes, replace the 
property or interest in the hands of the Alien Property Custodian.
    (c) Subject to the provisions of subsection (b) hereof, the manner 
of computing any Federal taxes, including without limitation by reason 
of this enumeration, the applicability in such computation of credits, 
deductions, and exemptions to which the former owner is or would be 
entitled, and the time and manner of any payment of such taxes and the 
extent of any compliance by the Custodian with provisions of Federal law 
and

[[Page 979]]

regulations applicable with respect to Federal taxes, shall be in 
accordance with the regulations prescribed by the Commissioner of 
Internal Revenue with the approval of the Secretary of the Treasury to 
effectuate this section. Statutes of limitations on assessment, 
collection, refund, or credit of Federal taxes shall be suspended with 
respect to any vested property or interest, or the earnings, increment 
or proceeds thereof, while vested and for six months thereafter; but no 
interest shall be paid upon any refund with respect to any period during 
which the statute of limitations is so suspended.
    (d) The word ``tax'' as used in this section shall include, without 
limitation by reason of this enumeration, any property, income, excess-
profits, war-profits, excise, estate and employment tax, import duty, 
and special assessment; and also any interest, penalty, additional 
amount, or addition thereto not arising from any act, omission, neglect, 
failure, or delay on the part of the Custodian.
    (e) Any tax exemption accorded to the Alien Property Custodian by 
specific provision of existing law shall not be affected by this 
section.

[Section 36 as added by the Act of August 8, 1946 (Pub. L. 671, 79th 
Cong., 60 Stat 929)]

Executive Order 9788, approved October 14, 1946 (3 CFR 1943-1948 Comp., 
                                 p. 575)

    By virtue of the authority vested in me by the Constitution and 
statutes, including the Trading With the Enemy Act of October 6, 1917, 
40 Stat. 411, as amended, and the First War Powers Act, 1941, 55 Stat. 
838, as amended, and as President of the United States, it is hereby 
ordered, in the interest of the internal management of the Government, 
as follows:
    1. The Office of Alien Property Custodian in the Office for 
Emergency Management of the Executive Office of the President, 
established by Executive Order No. 9095 of March 11, 1942, is hereby 
terminated; and all authority, rights, privileges, powers, duties, and 
functions vested in such Office or in the Alien Property Custodian or 
transferred or delegated thereto are hereby vested in or transferred or 
delegated to the Attorney General, as the case may be, and shall be 
administered by him or under his direction and control by such offices 
and agencies of the Department of Justice as he may designate.
    2. All property or interests vested in or transferred to the Alien 
Property Custodian or seized by him, and all proceeds thereof, which are 
held or administered by him on the effective date of this order are 
hereby transferred to the Attorney General.
    3. All personnel, property, records, and funds of the Office of 
Alien Property Custodian are hereby transferred to the Department of 
Justice.
    4. This order supersedes all prior Executive orders to the extent 
that they are in conflict with this order.
    5. This order shall become effective on October 15, 1946.



Sec.  303.1-1  Definitions.

    (a) General. When used in this part, the terms defined in this 
section shall have the meaning so assigned to them. A term not defined 
in this section shall have the meaning, if compatible with the context, 
imputed thereto under the Internal Revenue Code of 1954.
    (b) Attorney General. The term ``Attorney General'' includes the 
Alien Property Custodian whose functions were transferred to the 
Attorney General pursuant to Executive Order 9788 (3 CFR 1943-1948 
Comp., p. 575), and any other officers and agencies to which such 
functions are transferred or assigned pursuant to such Executive Order, 
or otherwise.
    (c) Commissioner. The term ``Commissioner'' means the Commissioner 
of Internal Revenue.
    (d) Person. The term ``person'' includes an individual, a trust, 
estate, partnership, company, or corporation, and any entity having or 
claiming an interest in vested property or liable or charged with 
liability for internal revenue tax in connection with such property.
    (e) Former owner. The term ``former owner'' means the owner 
immediately prior to vesting and any successor in interest by 
inheritance, devise, bequest, or operation of law, of such owner.
    (f) Trading With the Enemy Act. The term ``Trading With the Enemy 
Act'' includes all amendments of such Act, and all orders, rules, and 
regulations issued or prescribed under such Act or any such amendment.
    (g) Property. The term ``property'' includes money, the proceeds of 
property, income, dividends, interest, annuities, and other earnings, 
but does not include any property or interest or any of the foregoing 
which vested in the Attorney General or was otherwise acquired by the 
United States prior to December 18, 1941.
    (h) Property vested by or in the Attorney General. The terms 
``property vested by the Attorney General'' and

[[Page 980]]

``property vested in the Attorney General'' include property conveyed, 
transferred, assigned, delivered, or paid to or held or controlled by or 
vested in the Attorney General, under the Trading With the Enemy Act.
    (i) Engaged in trade or business in the United States. The term 
``engaged in trade or business in the United States'' includes the 
managing and renting of real estate in the United States by an agent of 
the Attorney General or of the former owner duly authorized to execute 
rental agreements and to pay all taxes and charges incident to the 
repair and maintenance of such property, but does not include the mere 
renting or leasing of property under an agreement requiring the lessee 
or occupant to pay taxes and to make repairs or improvements.
    (j) Tax. The term ``tax'' has the meaning stated in section 36(d) of 
the Trading With the Enemy Act as added by the Act of August 8, 1946.



Sec.  303.1-2  Application of part.

    (a) Property covered. This part is applicable in connection with 
property vested in the Attorney General on and after December 18, 1941. 
It is not applicable in connection with property or interest in property 
so vested or acquired by the United States prior to December 18, 1941, 
which property or interest is governed by Treasury Decision 4168, 
approved June 21, 1928, as amended by Treasury Decision 4254, approved 
January 7, 1929, and Treasury Decision 4514, approved January 18, 1935 
(26 CFR (1938 ed.) 452.1-452.10).
    (b) Taxes covered. Except as otherwise provided by specific 
exemption applicable with respect to the Alien Property Custodian, this 
part applies in the circumstances therein indicated, to any internal 
revenue tax applicable in respect of (1) property vested in the Attorney 
General or any action or transaction incidental to such property, or (2) 
any person whose property is so vested or any action or transaction of 
such person, whether the tax is applicable in respect of the period of 
vesting or any other period. Federal employment taxes are applicable 
with respect to wages paid to a person not a regular Government 
employee, permanent or temporary, for services immediately connected 
with the operation of an enterprise under control of the Attorney 
General such as might be rendered to a private operator.



Sec.  303.1-3  Protection of internal revenue prior to tax determination.

    (a) Suits and claims for return of vested property--(1) General. The 
provisions of this paragraph apply in cases where there has been neither 
a final nor a tentative determination of internal revenue tax liability. 
See paragraphs (e) and (f) of Sec.  303.1-4. In such cases vested 
property shall not be returned except in accordance with this paragraph.
    (2) Notice to Commissioner--(i) Suits for recovery. Where suit for 
the return of vested property has been instituted under section 9 of the 
Act, within a reasonable time after answer has been filed or after 
beginning of the trial of the case, the Attorney General shall, in 
writing, notify the Commissioner of the property involved and the name, 
address, citizenship, residence, and business organization of the 
claimant, and any other pertinent information.
    (ii) Return without suit. At least 90 days prior to any return of 
vested property pursuant to section 32 of the Act the Attorney General 
shall in writing notify the Commissioner in the manner prescribed in 
subdivision (i) of this subparagraph.
    (3) Return of property--(i) Without security. Vested property, the 
subject of a suit or proceeding pursuant to the Trading With the Enemy 
Act, may be returned without security prior to determination of 
applicable internal revenue taxes and prior to the judgment of the court 
or publication of the order of the Attorney General directing such 
return, to the following described claimants under the conditions 
hereinafter stated:
    (a) Residents and domestic enterprises. In the case of claimants who 
at the time of return are (1) individuals permanently resident in the 
United States since December 7, 1941, or (2) corporations or other 
business enterprises organized under the laws of the United States, or 
any State, Territory, or possession thereof, or the District of 
Columbia, or doing business in the United

[[Page 981]]

States, the Attorney General may return the property at any time without 
notice to the Commissioner of such return.
    (b) Nonresidents, etc. In the case of claimants who at the time of 
return are (1) individuals not permanently resident of the United States 
since December 7, 1941, or (2) nondomestic corporations or other 
nondomestic business enterprises not doing business within the United 
States, the property may be returned not less than 90 days after notice 
by the Attorney General to the Commissioner in a case within 
subparagraph (2)(i) of this paragraph (a), or not less than 60 days 
after notice in a case within subparagraph (2)(ii) of this paragraph 
(a), unless within such time the Attorney General is advised otherwise 
by the Commissioner.
    (ii) When security required. Except as provided in subdivision (i) 
of this subparagraph vested property shall not be released prior to 
determination of tax liability without security satisfactory to the 
Commissioner, but determination of tax liability will be expedited in 
order that release of the property or of the security shall not be 
unnecessarily delayed.
    (4) Security. Security when required shall be such of the following 
as shall, in the judgment of the Commissioner, be appropriate:
    (i) Bond. A bond of the claimant conditioned upon payment of the 
full amount of internal revenue taxes determined to be due, filed with 
the district director in such amount, and with such sureties, as the 
Commissioner deems necessary. Only surety companies holding a 
certificate of authority from the Secretary of the Treasury may be used.
    (ii) Collateral security. Collateral authorized by law deposited by 
the claimant in lieu of surety conditioned upon the payment of the full 
amount of internal revenue taxes determined to be due.
    (iii) Reservation of assets. Moneys, or if the moneys are 
insufficient, so much of the other property involved, to be reserved by 
the Attorney General, as will be sufficient in the judgment of the 
Attorney General to cover any internal revenue tax liability determined 
by the Commissioner.
    (b) Vested property subject to debt claims--(1) Notice to 
Commissioner. With respect to vested property available for the payment 
of debt claims under section 34 of the Act, and with respect to which 
debt claims have been filed, prior to the allowance of any such claims 
the Attorney General shall, in writing, notify the Commissioner of the 
property involved, the citizenship, residence, business organization, 
and other necessary information concerning the debtor and the aggregate 
of debt claims filed in respect thereof.
    (2) Action by Commissioner. Upon receipt of the notice provided in 
subparagraph (1) of this paragraph (a), the Commissioner shall, as soon 
as practicable and not later than 120 days after receipt of notice, 
unless the time is extended by the Commissioner after notice to the 
Attorney General--
    (i) Determine the taxes payable by the Attorney General in respect 
of the debtor, or
    (ii) Advise the Attorney General of the provision, if any, to be 
made by him for payment of taxes in respect of the debtor.



Sec.  303.1-4  Computation of taxes.

    (a) Detail of employees of the Internal Revenue Service. The 
Commissioner will detail for the assistance of the Attorney General such 
employees of the Internal Revenue Service as may be necessary to make 
the computations under this part promptly and accurately.
    (b) Relationship of Attorney General and former owner. In the 
computation of tax liability under this part, except as otherwise 
provided in this part, the vesting of property shall not be considered 
as affecting the ownership thereof; and any act of the Attorney General 
in respect of such property (including the collection or operation 
thereof and any investment, sale, or other disposition and any payment 
or other expenditure) shall be considered as the act of the owner. 
Nevertheless, except as otherwise provided in the Act or this part, 
insofar as taxes are incident to vested property during the period of 
vesting, they shall be payable by the Attorney General, except that to 
the extent of the value of any of the property returned to the former 
owner the latter

[[Page 982]]

shall be liable for such tax not paid by the Attorney General. While tax 
incident to nonvested property is collectible out of both vested and 
nonvested property, the nonvested property will be regarded as the 
primary source of collection of such tax. In determining the amount of 
the liability to be paid out of property not vested by the Attorney 
General a computation shall be made covering the taxpayer's full period 
of liability, but without regard to the vested property, or the income 
received by, or the operations of, the Attorney General. The amount so 
computed shall be first asserted against and collected so far as 
practicable from the taxpayer or out of his property which is not 
vested. Such part of the total tax liability as is not paid by the 
taxpayer or collected out of property not vested shall be asserted 
against the vested property. See Sec.  303.1-5, relating to payment of 
taxes, and Sec.  303.1-7, relating to claims for refund or credit.
    (c) Laws applicable to computation. Except as otherwise specifically 
provided in this part, the computation under this part of any internal 
revenue tax liability shall be in accordance with the internal revenue 
laws and regulations applicable thereto, including all amendments of 
such laws or regulations enacted or promulgated prior to determination 
of the tax.
    (d) Periods for which computations made. The amount of income, 
employment, and excise taxes under the internal revenue laws will be 
computed for each taxable year or period during all or part of which 
property is vested prior to the return of the property. In the case of a 
return of property prior to computation of tax, see Sec.  303.1-3. Where 
vesting occurs during a taxable year or taxable period, any return filed 
or computation made covering vested or nonvested property should 
nevertheless be for the entire year or period. See paragraph (b) of this 
section. Unless facts are available indicating a liability for taxes for 
a taxable year or period occurring wholly prior or subsequent to the 
period of vesting of the property by the Attorney General, the 
computations under this part, both tentative and final, will be made 
only in respect of years and periods during all or part of which the 
property is held by the Attorney General.
    (e) Tentative computation. In order that the return of property or 
other appropriate action may not be delayed until the amount of taxes 
payable is finally computed and paid, a tentative computation of such 
amount will be made in every case, unless there are circumstances 
appearing to make such action inappropriate. Such circumstances would 
include (1) return of the property in accordance with Sec.  303.1-3, (2) 
notice to the Commissioner of Internal Revenue by the person to whom the 
property is returnable or by the Attorney General that such person or 
the Attorney General, as the case may be, prefers that the return of the 
property be postponed until the amount of such taxes can be finally 
computed, or (3) belief on the part of the Commissioner that a final 
computation will not unduly delay the return of, or other appropriate 
action with respect to, the property. In making any such tentative 
computation of income or estate tax, the gross income or the gross 
estate, as the case may be, as shown by the records of the Attorney 
General (excluding therefrom items exempt from taxation) shall be 
considered as the taxable income or taxable estate, respectively, unless 
a tax return has been filed or facts are available upon which a more 
accurate computation can be made. In any case in which a duly authorized 
officer or employee of the Internal Revenue Service has otherwise 
computed the amount of taxes payable in respect of any period, such 
computation will be accepted as a tentative computation, unless the 
facts clearly indicate that a more accurate computation can be made.
    (f) Final computation--(1) General. A final computation of the 
amount of taxes payable by the person to whom property is returnable, or 
out of property to be returned, will be made as soon as practicable in 
every case. In any case in which the amount shown by a tentative 
computation has been paid, refund or credit of any amount paid in excess 
of the amount properly due will be made in accordance with the final 
computation, even though a claim therefor has not been filed, if the 
period of limitation applicable to the

[[Page 983]]

filing of such claim has not expired. However, if it is desired to 
protect the right to any credit or refund determined to be due, a claim 
for credit or refund should be filed. The sufficiency of any such claim 
in respect of an amount paid in accordance with a tentative computation 
under this part will not be questioned solely because facts upon which a 
more accurate computation could be made are not available or cannot be 
established at the time such claim is filed. Any such claim in respect 
of an amount paid in accordance with a final computation must, however, 
clearly set forth in detail under the penalties of perjury all the facts 
relied upon in support of the claim and must conform to the regulations 
applicable to an ordinary claim for refund or credit. See Sec.  
301.6402-2 of this chapter and Sec.  303.1-7, relating to claims for 
refund or credit.
    (2) Information required--(i) Income taxes. The following 
information submitted under the penalties of perjury by or for the 
taxpayer is necessary in each case for a final computation, for each 
taxable year for which the computation is to be made:
    (a) All income (other than income received by the Attorney General) 
from sources within the United States, or if no such income has been 
received, then a statement to that effect, except that in the case of a 
citizen or resident of the United States, income from sources without as 
well as within the United States must be shown.
    (b) If a return of such income has been made, then the following 
data in respect of such return:
    (1) The taxable year for which the return was made and the tax paid;
    (2) The name of the taxpayer for whom the return was made;
    (3) The name of the agent or other person (if any) by whom such 
return was made;
    (4) The office of the district director in which the return was 
filed.
    (c) Such other facts as may be required, from time to time, by the 
Commissioner.
    (ii) Other taxes. Except as otherwise provided in subdivision (i) of 
this subparagraph, in order to make a final computation of the amount of 
any internal revenue tax payable by return in any case, the usual return 
should be filed, together with the supporting documents required by the 
regulations pertaining to the tax.
    (g) Tax returns--(1) General. In many cases allowance of deductions 
and credits is contingent upon the making of a return in accordance with 
the applicable internal revenue law. The submission of evidence relative 
to income tax in accordance with subdivisions (a) and (c) of paragraph 
(f)(2)(i) of this section will be considered as the making of the return 
required by any such law, only (i) for any taxable period, ending on or 
before December 31, 1946, during all or part of which all or part of the 
property of the taxpayer was held by the Attorney General, or (ii) for 
any taxable period ending within one year from the date of the first 
return to the taxpayer, of any part of the property held by the Attorney 
General, whichever period ends later. In all other cases a return will 
be required in accordance with the applicable internal revenue laws and 
regulations. In the case of returns where property is vested during a 
taxable year or period, see paragraph (d) of this section.
    (2) Estates and trusts. In the case of estates and trusts the 
fiduciaries shall file returns, including information returns as 
required by section 6041 of the Internal Revenue Code of 1954.
    (3) Income tax forms to be used. In the case of taxpayers engaged in 
trade or business in the United States Forms 1040B and 1120, as may be 
appropriate, shall be used. Where the taxpayer is not engaged in trade 
or business in the United States, Form M797 may be used in lieu of Forms 
1040NB, 1040NB--a and 1120NB.



Sec.  303.1-5  Payment of taxes.

    (a) Pursuant to tentative computations. The amount of taxes shown by 
a tentative computation shall be paid by the Attorney General or the 
taxpayer, as the case may be, to the district director as soon as 
practicable after the tentative computation has been made. It will not 
be necessary, however, for the payment by the Attorney General to be 
made prior to the return of property if an amount sufficient to cover 
all internal revenue taxes is retained from the property by the Attorney 
General.

[[Page 984]]

    (b) Pursuant to final computations. Upon a final computation of 
internal revenue taxes properly payable, the amount thereof remaining 
unpaid shall be paid by the Attorney General to the district director as 
soon as practicable after the final computation has been made, or, in 
case the property has been returned to the former owner, by such owner. 
If the final computation shows that the full amount of internal revenue 
taxes properly payable is less than the amount previously paid, the 
difference shall be credited or refunded in accordance with the 
provisions of these and other applicable regulations. A final 
computation will not prohibit a subsequent recomputation if it is 
determined that the amount shown by the final computation is erroneous.
    (c) Deficiency procedure. The Attorney General shall pay internal 
revenue taxes without regard to the provisions of law relating to the 
sending of a deficiency notice by certified or registered mail or to 
notice and demand.



Sec.  303.1-6  Interest and penalties.

    (a) Liability for interest and civil penalties. Under subsection (d) 
of section 36 of the Trading With the Enemy Act there is no liability 
for interest or penalty on account of any act or failure of the Attorney 
General. Such subsection is not applicable to interest or penalties 
payable in respect of any act or failure during the period prior to the 
vesting of the property by the Attorney General, or after the return of 
the property, or during the period during which the property was vested 
by the Attorney General on account of an act or omission of any person 
other than the Attorney General.
    (b) Adjustment. In case of any assessment or collection, or credit 
or refund, of interest or a civil penalty contrary to the provisions of 
section 36 (c) or (d), proper adjustment shall be made.



Sec.  303.1-7  Claims for refund or credit.

    (a) Claims for refund or credit must be filed within the period 
prescribed by section 6511 of the Internal Revenue Code of 1954 as 
modified by section 36(c) of the Trading With the Enemy Act. Any such 
claim must contain a detailed statement under the penalties of perjury 
of all the facts relied upon in support of the claim and should be filed 
with the district director for the district in which the tax was paid. 
See paragraph (f)(1) of Sec.  303.1-4, relating to final computation.
    (b) Any act of the Attorney General for, or on behalf of, a taxpayer 
in respect of any claim under this part will be considered as the act of 
such taxpayer, unless such taxpayer notifies the Commissioner of 
Internal Revenue in writing, by the filing of a claim for refund or 
credit or otherwise, that he does not ratify such act. See paragraph (b) 
of Sec.  303.1-4, relating to relationship of Attorney General and 
former owner.
    (c) All refund of taxes paid by the Attorney General shall be made 
directly to that official.

                           PART 304 [RESERVED]



PART 305_TEMPORARY PROCEDURAL AND ADMINISTRATIVE TAX REGULATIONS 
UNDER THE INDIAN TRIBAL GOVERNMENTAL TAX STATUS ACT OF 1982--Table of Contents



Sec.
305.7701-1 Definition of Indian tribal government.
305.7871-1 Indian tribal governments treated as States for certain 
          purposes.

    Authority: Sec. 7805 (68A Stat. 917, 26 U.S.C. 7805) Internal 
Revenue Code of 1954.

    Source: T.D. 7952, 49 FR 19303, May 7, 1984, unless otherwise noted.



Sec.  305.7701-1  Definition of Indian tribal government.

    (a) Definition. A governing body of a tribe, band, pueblo, 
community, village, or group of native American Indians, or Alaska 
Natives, qualifies as an Indian tribal government upon determination by 
the Internal Revenue Service that the governing body exercises 
governmental functions. Designation of a governing body as an Indian 
tribal government will be by revenue procedure. If a governing body is 
not currently designated by the applicable revenue procedure as an 
Indian tribal government, and such governing body believes that it 
qualifies for such designation, the governing body may apply for a 
ruling from Internal Revenue Service. In order to qualify as an

[[Page 985]]

Indian tribal government, for purposes of section 7701(a)(40) and this 
section, such governing body must receive a favorable ruling from the 
Internal Revenue Service. The request for a ruling shall be made in 
accordance with all applicable procedural rules set forth in the 
Statement of Procedural Rules (26 CFR part 601) and any applicable 
revenue procedures relating to the submission of ruling requests. The 
request shall be submitted to the Internal Revenue Service, Associate 
Chief Counsel (Technical), Attention: CC:IND:S, room 6545, 1111 
Constitution Avenue, NW., Washington, D.C. 20224.
    (b) Effective date. The provisions of this section are effective 
after December 31, 1982.



Sec.  305.7871-1  Indian tribal governments treated as States 
for certain purposes.

    (a) In general. An Indian tribal government, as defined in section 
7701 (a)(40) and the regulations thereunder, shall be treated as a 
State, and a subdivision of an Indian tribal government, as determined 
under section 7871(d) and paragraph (e) of this section, shall be 
treated as a political subdivision of a State, under the following 
sections and regulations thereunder--
    (1) Section 170 (relating to income tax deductions for charitable, 
etc., contributions and gifts), sections 2055 and 2106(a)(2) (relating 
to estate tax deductions for transfers of public, charitable, and 
religious uses), and section 2522 (relating to gift tax deductions for 
charitable and similar gifts), for purposes of determining whether and 
in what amount any contribution or transfer to or for the use of an 
Indian tribal government (or subdivision thereof) is deductible;
    (2) Section 164 (relating to deductions for taxes);
    (3) Section 511(a)(2)(B) (relating to the taxation of colleges and 
universities which are agencies or instrumentalities of governments or 
their political subdivisions);
    (4) Section 37(e)(9)(A) (relating to certain public retirement 
systems);
    (5) Section 41(c)(4) (defining ``State'' for purposes of credit for 
contributions to candidates for public offices);
    (6) Section 117(b)(2)(A) (relating to scholarships and fellowship 
grants);
    (7) Section 403(b)(1)(A)(ii) (relating to the taxation of 
contributions of certain employers for employee annuities);
    (8) Chapter 41 of the Code (relating to tax on excess expenditures 
to influence legislation); and
    (9) Subchapter A of chapter 42 of the Code (relating to private 
foundations).
    (b) Special rule for excise tax provisions. An Indian tribal 
government shall be treated as a State, and a subdivision of an Indian 
tribal government shall be treated as a political subdivision of a 
State, for purposes of any exemption from, credit or refund of, or 
payment with respect to, an excise tax imposed on a transaction under--
    (1) Chapter 31 of the Code (relating to tax on special fuels);
    (2) Chapter 32 of the Code (relating to manufacturers excise taxes);
    (3) Subchapter B of chapter 33 of the Code (relating to 
communications excise tax); and
    (4) Subchapter D of chapter 36 of the Code (relating to tax on use 
of certain highway vehicles), if, in addition to satisfying all 
requirements applicable to a similar transaction involving a State (or 
political subdivision thereof) under the Code, the transaction involves 
the exercise of an essential governmental function of the Indian tribal 
government, as defined in paragraph (d) of this section.
    (c) Special rule for tax-exempt bonds. An Indian tribal government 
shall be treated as a State and a subdivision of an Indian tribal 
government shall be treated as a political subdivision of a State for 
purposes of any obligation issued by such government or subdivision 
under section 103 (relating to interest on certain governmental 
obligations) if such obligation is part of an issue substantially all of 
the proceeds of which are to be used in the exercise of an essential 
governmental function, as defined in paragraph (d) of this section. For 
purposes of section 7871 and this section, the ``substantially all'' 
test is the same as that provided in Sec.  1.103-8(a)(1)(i). An Indian 
tribal government shall not be treated as a State and a subdivision of 
an Indian tribal government shall not be treated as a

[[Page 986]]

political subdivision of a State, however, for issues of the following 
private activity bonds--
    (1) An industrial development bond (as defined in section 
103(b)(2));
    (2) An obligation described in section 103(l)(1)(A) (relating to 
scholarship bonds); or
    (3) A mortgage subsidy bond (as defined in section 103A(b)(1), 
without regard to section 103A(b)(2)).
    (d) Essential governmental function. For purposes of section 7871 
and this section, an essential governmental function of an Indian tribal 
government (or portion thereof) is a function of a type which is--
    (1) Eligible for funding under 25 U.S.C. 13 and the regulations 
thereunder;
    (2) Eligible for grants or contracts under 25 U.S.C. 450 (f), (g), 
and (h) and the regulations thereunder; or
    (3) An essential governmental function under section 115 and the 
regulations thereunder when conducted by a State or political 
subdivision thereof.
    (e) Treatment of subdivisions of Indian tribal governments as 
political subdivisions. A subdivision of an Indian tribal government 
shall be treated as a political subdivision of a State for purposes of 
section 7871 and this section if the Internal Revenue Service determines 
that the subdivision has been delegated the right to exercise one or 
more of the substantial governmental functions of the Indian tribal 
government. Designation of a subdivision of an Indian tribal government 
as a political subdivision of a State will be by revenue procedure. If a 
subdivision of an Indian tribal government is not currently designated 
by the applicable revenue procedure as a political subdivision of a 
State, and such subdivision believes that it qualifies for such 
designation, the subdivision may apply for a ruling from the Internal 
Revenue Service. In order to qualify as a political subdivision of a 
State, for purposes of section 7871 and this section, such subdivision 
must receive a favorable ruling from the Internal Revenue Service. The 
request for a ruling shall be made in accordance with all applicable 
procedural rules set forth in the Statement of Procedural Rules (26 CFR 
part 601) and any applicable revenue procedures relating to submission 
of ruling requests. The request shall be submitted to the Internal 
Revenue Service, Associate Chief Counsel (Technical), Attention: 
CC:IND:S, Room 6545, 1111 Constitution Ave., NW., Washington, D.C. 
20224.
    (f) Effective dates--(1) In general. Except as provided in paragraph 
(f)(2) of this section, the provisions of this section are effective 
after December 31, 1982.
    (2) Specific effective dates. Specific provisions of this section 
are effective as follows:
    (i) Provisions relating to chapter 1 of the Internal Revenue Code of 
1954 (other than section 103 and section 37(e)(9)(A)) shall apply to 
taxable years beginning after December 31, 1982, and before January 1, 
1985;
    (ii) Provisions relating to section 37(e)(9)(A) shall apply to 
taxable years beginning after December 31, 1982, and before January 1, 
1984;
    (iii) Provisions relating to section 103 shall apply to obligations 
issued after December 31, 1982, and before January 1, 1985;
    (iv) Provisions relating to chapter 11 of the Code shall apply to 
estates of decedents dying after December 31, 1982, and before January 
1, 1985;
    (v) Provisions relating to chapter 12 of the Code shall apply to 
gifts made after December 31, 1982, and before January 1, 1985; and
    (vi) Provisions relating to taxes imposed by subtitle D of the Code 
shall take effect on January 1, 1983 and shall cease to apply at the 
close of December 31, 1984.

                        PARTS 306	399 [RESERVED]



PART 400_TEMPORARY REGULATIONS UNDER THE FEDERAL TAX LIEN ACT OF 1966--
Table of Contents



Sec.
400.1-1 Refiling of notice of tax lien.
400.2-1 Discharge of property by substitution of proceeds of sale; 
          subordination of lien.
400.4-1 Notice required with respect to a nonjudicial sale.
400.5-1 Redemption by United States.

    Authority: Sec. 7805, Internal Revenue Code of 1954; 68A Stat. 917; 
26 U.S.C. 7805.

[[Page 987]]



Sec.  400.1-1  Refiling of notice of tax lien.

    (a) Scope. This section provides rules with respect to the 
provisions contained in section 6323(g), relating to the refiling of a 
notice of lien arising under section 6321. In general, section 6323(g) 
contains new rules requiring the Internal Revenue Service to refile a 
notice of lien during the 1-year period ending 30 days after the 
expiration of the normal 6-year statutory period for collection of an 
assessed tax liability, and each succeeding period of 6 years, in order 
to maintain the effectiveness of a notice of lien. These provisions in 
section 6323 were added by section 101(a) of the Federal Tax Lien Act of 
1966 (80 Stat. 1125), effective after November 2, 1966.
    (b) Requirement to refile. In order to continue the effect of a 
notice of lien, the notice must be refiled in the place described in 
paragraph (c) of this section during the required refiling period 
(described in paragraph (d) of this section). In the event that two or 
more notices of lien are filed with respect to a particular tax 
assessment, the failure to comply with the provisions of paragraphs 
(c)(1)(i) and (d) of this section in respect of one of the notices of 
lien does not affect the effectiveness of the refiling of the other 
notice or notices of lien. Thus, except for the filing of a notice of 
lien required by paragraph (c)(1)(ii) of this section relating to a 
change of residence, the validity of any refiling of a notice of lien is 
not affected by the refiling or non-refiling of any other notice of 
lien. The effectiveness of a timely refiled notice of lien relates back 
to the date on which the notice of lien was effective before the 
refiling. If the district director fails to refile a notice of lien in 
the manner described in paragraphs (c) and (d) of this section, the 
notice of lien is not effective, after the expiration of the required 
refiling period, as against any person without regard to when the 
interest of the person in the property subject to the lien was acquired. 
However, the failure of the district director to refile a notice of lien 
during the required refiling period will not affect the effectiveness of 
the notice with respect to (1) property which is the subject matter of a 
suit, to which the United States is a party, commenced prior to the 
expiration of the required refiling period, or (2) property which has 
been levied upon by the United States prior to the expiration of the 
required refiling period. Failure to refile a notice of lien does not 
affect the existence of the lien. If a notice of lien is not refiled, 
and if the lien is still in existence, the Internal Revenue Service may 
nevertheless file a new notice of lien either on the form prescribed for 
the filing of a notice of lien or on the form prescribed for refiling a 
notice of lien. This new filing must meet the requirements of section 
6323(f) and is effective from the date on which such filing is made. 
Upon written request of any person who has a proper interest, any 
district director may issue a certificate of release of lien if notice 
of the lien has not been refiled within the required refiling period and 
the entire liability for the tax has been satisfied or has become 
unenforceable as a matter of law. Such request should be sent to the 
district director for the internal revenue district shown on the notice 
of lien. For provisions relating to certificates of release of lien, see 
section 6325.
    (c) Place for refiling notice of lien--(1) In general. A notice of 
lien refiled during the required refiling period (described in paragraph 
(d) of this section) shall be effective only--
    (i) If the notice of lien is refiled in the office in which the 
prior notice of lien (including a refiled notice) was filed under the 
provisions of section 6323; and
    (ii) In any case in which 90 days or more prior to the date the 
refiling of the notice of lien under subdivision (i) of this 
subparagraph is completed, the Internal Revenue Service receives written 
information (in the manner described in subparagraph (2) of this 
paragraph (b)) concerning a change in the taxpayer's residence, if a 
notice of such lien is also filed in accordance with section 
6323f)(1)(A)(ii) in the State in which such new residence is located 
(or, if such new residence is located without the United States, in the 
District of Columbia). If on or before such 90th day more than one 
written notice is received concerning a change in the taxpayer's 
residence, a notice of lien is required by this subdivision to be filed 
only with respect to the residence

[[Page 988]]

shown on the written notice received on the most recent date. This 
subdivision is applicable regardless of whether the taxpayer resides at 
the new residence on the date the refiling of notice of lien under 
subdivision (i) of this subparagraph is completed.
    (2) Notice of change of taxpayer's residence--(i) In general. Except 
as provided in subdivision (ii) of this subparagraph, for purposes of 
this section, a notice of change of a taxpayer's residence will be 
effective only if it is received, in writing, by the Internal Revenue 
Service from the taxpayer or his representative, relates to an unpaid 
tax liability of the taxpayer, and states the taxpayer's name and 
address of his new residence. Although it is not necessary that a 
written notice contain the taxpayer's identifying number authorized by 
section 6109, it is preferable that it include such number. For purposes 
of this subdivision, a notice of change of a taxpayer's residence shown 
on a return or an amended return (including a return of the same tax) 
will not be effective to notify the Internal Revenue Service.
    (ii) By return or amended return. For purposes of this section, in 
the case of a notice of lien which relates to an assessment of tax made 
after December 31, 1966, a notice of change of a taxpayer's residence 
will also be effective if it is contained in a return or amended return 
of the same type of tax filed with the Internal Revenue Service by the 
taxpayer which on its face indicates that there is a change in the 
taxpayer's address and correctly states the taxpayer's name, address of 
his new residence, and his identifying number required by section 6109.
    (iii) Other rules applicable. Other than the means specified in 
subdivisions (i) and (ii) of this subparagraph, no communication (either 
written or oral) to the Internal Revenue Service will be considered 
effective as notice of a change of a taxpayer's residence under this 
section, whether or not the Service has actual notice of the taxpayer's 
residence. For the purpose of determining the date on which a notice of 
change of a taxpayer's residence is received under this section, the 
notice shall be treated as received on the date it is actually received 
by the Internal Revenue Service without reference to the provisions of 
section 7502.
    (3) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. A, a delinquent taxpayer, is a resident of M State and 
owns real property in N State. Notices of lien are properly filed in M 
and N States. In order to continue the effect of the notice of lien 
filed in M State, the Internal Revenue Service must refile, during the 
required refiling period, the notice of lien with the appropriate office 
in M State but is not required to refile the notice of lien with the 
appropriate office in N State. Similarly, in order to continue the 
effect of the notice of lien filed in N State, the Internal Revenue 
Service must refile, during the required refiling period, the notice of 
lien with the appropriate office in N State but is not required to 
refile the notice of lien with the appropriate office in M State.
    Example 2. B, a delinquent taxpayer, is a resident of M State. 
Notice of lien is properly filed in that State. One year before the 
required refiling period, B establishes his residence in N State, and B 
immediately notifies the Internal Revenue Service of his change in 
residence in accordance with the provisions of paragraph (c)(2) of this 
section. In order to continue the effect of the notice of lien filed in 
M State, the Internal Revenue Service must refile, during the required 
refiling period, notices of lien with (i) the appropriate office in M 
State, and (ii) the appropriate office in N State because B properly 
notified the Internal Revenue Service of his change in residence to N 
State more than 89 days prior to the date refiling of the notice of lien 
in M State is completed. If B did not notify the Internal Revenue 
Service of his change in residence to N State in accordance with the 
provisions of paragraph (c)(2) of this section, the Internal Revenue 
Service would not be required to file a notice of lien in N State, even 
if the Internal Revenue Service had actual notice of B's change in 
residence to N State. In this latter case, in order to continue the 
effect of the notice of lien filed in M State, the Internal Revenue 
Service must refile, during the required refiling period, the notice of 
lien only with the appropriate office in M State.
    Example 3. C, a delinquent taxpayer, is a resident of O State. 
Notice of lien is properly filed in that State. Four years before the 
required refiling period, C establishes his residence in P State, and C 
immediately notifies the Internal Revenue Service of his change in 
residence in accordance with the provisions of paragraph (c)(2) of this 
section. Three years before the required refiling period, C establishes 
his residence in R State,

[[Page 989]]

and again C immediately notifies the Internal Revenue Service of his 
change in residence in accordance with the provisions of paragraph 
(c)(2) of this section. In order to continue the effect of the notice of 
lien filed in O State, the Internal Revenue Service must refile, during 
the required refiling period, notices of lien with (i) the appropriate 
office in O State, and (ii) the appropriate office in R State since the 
notice received by the Service of C's change in residence to R State was 
the most recent notice received more than 89 days prior to the date 
refiling in O State is completed. The notice of lien is not required to 
be filed in P State, even though C properly notified the Internal 
Revenue Service of his change in residence to P State, because such 
notice is not the most recent one received.
    Example 4. Assume the same facts as in example 3, except that C does 
not notify the Internal Revenue Service of his change in residence to R 
State in accordance with the provisions of paragraph (c)(2) of this 
section. In order to continue the effect of the notice of lien filed in 
O State, the Internal Revenue Service must refile, during the required 
refiling period, the notice of lien with (i) the appropriate office in O 
State, and (ii) the appropriate office in P State because C properly 
notified the Internal Revenue Service of his change in residence to P 
State, even though C is not a resident of P State on the date refiling 
of the notice of lien in O State is completed. The Internal Revenue 
Service is not required to file a notice of lien in R State because C 
did not properly notify the Service of his change in residence to R 
State.
    Example 5. D, a delinquent taxpayer, is a resident of M State and 
owns real property in N and O States. The Internal Revenue Service 
properly files notices of lien in M, N, and O States. Five years and 6 
months after the date of the assessment shown on the notice of lien, D 
establishes his residence in P State, and at that time the Internal 
Revenue Service received from D a notification of his change in 
residence in accordance with the provisions of paragraph (c)(2) of this 
section. On a date which is 5 years and 7 months after the date of the 
assessment shown on the notice of lien, the Internal Revenue Service 
properly refiles notices of lien in M, N, and O States which refilings 
continue the effect of each of the notices of lien. The Internal Revenue 
Service is not required to file a notice of lien in P State because D 
did not notify the Internal Revenue Service of his change of residence 
to P State more than 89 days prior to the date each of the refilings in 
M, N, and O States was completed.
    Example 6. Assume the same facts as in example 5 except that the 
refiling of the notice of lien in O State occurs 100 days after D 
notifies the Internal Revenue Service of his change in residence to P 
State in accordance with the provisions of paragraph (c)(2) of this 
section. In order to continue the effect of the notice of lien filed in 
O State, in addition to refiling the notice of lien in O State, the 
Internal Revenue Service must also file, during the required refiling 
period, a notice of lien in P State because D properly notified the 
Internal Revenue Service of his change of residence to P State more than 
89 days prior to the date the refiling in O State was completed. 
However, in order to maintain the effect of the refilings in M and N 
States, the Internal Revenue Service is not required to file, during the 
required refiling period, the notice of lien in P State since D did not 
notify the Internal Revenue Service of his change in residence to P 
State more than 89 days prior to the date the refilings in M and N 
States were completed.
    Example 7. E, a delinquent taxpayer, is a resident of T State. 
Because T State has not designated one office in the case of personal 
property for filing notices of lien in accordance with the provisions of 
section 6323(f)(1)(A)(ii), the Internal Revenue Service properly files a 
notice of lien with the clerk of the appropriate United States district 
court. However, solely as a matter of convenience for those who may have 
occasion to search for notices of lien, and not as a matter of legal 
effectiveness, the Internal Revenue Service also files notice of lien 
with the recorder of deeds of the county in T State where E resides. In 
addition, the Internal Revenue Service sent a copy of the notice of lien 
to the X Life Insurance Company to give the Company actual notice of the 
notice of lien. In order to continue the effect of the notice of lien, 
the Internal Revenue Service must refile, during the required refiling 
period, the notice of lien with the clerk of the appropriate U.S. 
district court. It is not necessary in order to continue the effect of 
the notice of the lien to refile the notice of lien with the recorder of 
deeds of the county where E resides because the refiling of the notice 
of lien with the recorder of deeds does not constitute a proper filing 
for the purposes of section 6323(f). In addition, it is not necessary to 
continue the effect of the notice of lien under this section to send a 
copy of the notice of lien to the X Life Insurance Company because the 
sending of a notice of lien to an insurance company does not constitute 
a filing for the purposes of section 6323 and, thus, a refiling with an 
insurance company is not required under this section.

    (d) Required refiling period--(1) In general. For the purpose of 
this section, except as provided in subparagraph (2) of this paragraph 
(d), the term ``required refiling period'' means--
    (i) The 1-year period ending 30 days after the expiration of 6 years 
after the date of the assessment of the tax, and

[[Page 990]]

    (ii) The 1-year period ending with the expiration of 6 years after 
the close of the preceding required refiling period for such notice of 
lien.
    (2) Tax assessments made before January 1, 1962. If the assessment 
of the tax is made before January 1, 1962, the first required refiling 
period shall be the calendar year 1967. Thus, to maintain the 
effectiveness of any notice of lien on file which relates to a lien 
which arose before January 1, 1962, the Internal Revenue Service will 
refile the notice of lien during the calendar year 1967. The second 
required refiling period for any such notice of lien is the calendar 
year 1973.
    (3) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example 1. On March 1, 1963, an assessment of tax is made against B, 
a delinquent taxpayer, and a lien for the amount of the assessment 
arises on that date. On July 1, 1963, a notice of lien is properly 
filed. The notice of lien filed on July 1, 1963, is effective up to and 
including March 31, 1969. The first required refiling period for the 
notice of lien begins on April 1, 1968, and ends on March 31, 1969. A 
refiling of the notice of lien during that period will extend the 
effectiveness of the notice of lien filed on July 1, 1963, up to and 
including March 31, 1975. The second required refiling period for the 
notice of lien begins on April 1, 1974, and ends on March 31, 1975.
    Example 2. Assume the same facts as in example 1, except that the 
Internal Revenue Service fails to refile a notice of lien during the 
first required refiling period (Apr. 1, 1968, through Mar. 31, 1969). 
However, a notice of lien which meets the requirements of section 
6323(f) is filed on June 2, 1971. Because of this filing, the notice of 
lien filed on June 2, 1971, is effective as of June 2, 1971. That notice 
must itself be refiled during the 1-year period ending on March 31, 
1975, if it is to continue in effect after March 31, 1975. As in example 
1, the second required refiling period for the notice of lien begins on 
April 1, 1974, and ends on March 31, 1975.
    Example 3. On April 1, 1960, an assessment of tax is made against B, 
a delinquent taxpayer, and a tax lien for the amount of the assessment 
arises on that date. On June 1, 1962, a notice of lien is properly 
filed. Because the assessment of tax was made before January 1, 1962, 
the notice of lien filed on June 1, 1962, is effective up to and 
including December 31, 1967. The first required refiling period for the 
notice of lien is the calendar year 1967. A refiling of the notice of 
lien during 1967 will extend the effectiveness of the notice of lien 
filed on June 1, 1962, up to and including December 31, 1973. The second 
required refiling period for the notice of lien is the calendar year 
1973.

[T.D. 6932, 32 FR 14835, Oct. 18, 1967]



Sec.  400.2-1  Discharge of property by substitution of proceeds of sale; 
subordination of lien.

    (a) Scope. This section provides rules under the provisions in 
section 6325(b)(3) which relate to the discharge of property from a tax 
lien by substitution therefor of a lien on the proceeds of the sale of 
the property, and in section 6325(d) which relate to the subordination 
of a tax lien. Section 6325 was amended by section 103(a) of the Federal 
Tax Lien Act of 1966 (80 Stat. 1133), effective after November 2, 1966.
    (b) Discharge of property by substitution of proceeds of sale. 
Pursuant to section 6325(b)(3), a district director may, in his 
discretion, issue a certificate of discharge of any part of the property 
subject to any lien imposed under chapter 64 of the Code if part of the 
property is sold and, pursuant to a written agreement with the district 
director, the proceeds of the sale are held, as a fund subject to the 
lien of the United States, in the same manner and with the same priority 
as the liens and claims had with respect to the discharged property. In 
order for the provisions of this paragraph to apply, the sale must 
divest the taxpayer of all right, title, and interest in the property 
sought to be discharged. Any person desiring a certificate of discharge 
under this paragraph shall submit an application in writing to the 
district director responsible for the collection of the tax. The 
application shall contain such information as the district director may 
require. Any reasonable and necessary expenses incurred in connection 
with the sale of the property and the administration of the sale 
proceeds shall be paid by the applicant or from the proceeds of the sale 
before satisfaction of any claims and liens.
    (c) Subordination of lien--(1) By payment of the amount of 
subordination. Pursuant to section 6325(d)(1), a district director may, 
in his discretion, issue a certificate of subordination of any lien 
imposed under chapter 64 of the Code upon any part of the property 
subject to the lien if there is paid over

[[Page 991]]

to the district director an amount equal to the amount of the lien or 
interest to which the certificate subordinates the lien of the United 
States. Under this provision, the tax lien may be subordinated to 
another lien or interest on a dollar-for-dollar basis. For example, if a 
notice of a Federal tax lien is filed and a delinquent taxpayer secures 
a mortgage on a part of the property subject to the tax lien and pays 
over the amount of the principal of the debt secured by the mortgage to 
a district director after an application for a certificate of 
subordination is approved, the district director will issue a 
certificate of subordination. This certificate will have the effect of 
subordinating the tax lien to the mortgage.
    (2) To facilitate tax collection--(i) In general. Pursuant to 
section 6325(d)(2), a district director may, in his discretion, issue a 
certificate of subordination of any lien imposed under chapter 64 of the 
Code upon any part of the property subject to the lien if the district 
director believes that the subordination of the lien will ultimately 
result in an increase in the amount realizable by the United States from 
the property subject to the lien and will facilitate the ultimate 
collection of the tax liability.
    (ii) Example. The provisions of this subparagraph may be illustrated 
by the following example:

    Example. A, a farmer, needs money in order to harvest his crop. 
However, a Federal tax lien, notice of which has been filed, is 
outstanding with respect to A's property. B, a lending institution is 
willing to make the necessary loan if the loan is secured by a first 
mortgage on the farm which is prior to the Federal tax lien. Upon 
examination, the district director believes that ultimately the amount 
realizable from A's property will be increased and the collection of the 
tax liability will be facilitated by the availability of cash when the 
crop is harvested and sold. In this case, the district director may, in 
his discretion, subordinate the tax lien on the farm to the mortgage 
securing the crop harvesting loan.

    (3) Application for certificate of subordination. Any person 
desiring a certificate of subordination under this paragraph shall 
submit an application in writing to the district director responsible 
for the collection of the tax. The application shall contain such 
information as the district director may require.

[T.D. 6944, 33 FR 732, Jan. 20, 1968]



Sec.  400.4-1  Notice required with respect to a nonjudicial sale.

    (a) Scope and application of this section--(1) In general. Section 
109 of the Federal Tax Lien Act of 1966 (80 Stat. 1141) amended the 
Internal Revenue Code of 1954 by adding a new section 7425, relating to 
the discharge of liens. A tax lien of the United States, or a title 
derived from the enforcement of a tax lien of the United States, may be 
discharged or divested under local law only in the manner prescribed in 
section 2410 of title 28 of the United States Code or section 7425 of 
the Internal Revenue Code. Section 7425(a) contains provisions relating 
to the discharge of a lien or a title derived from the enforcement of a 
lien in the judicial proceedings described in subsection (a) of section 
2410 of title 28 of the United States Code. These judicial proceedings 
are plenary in nature and proceed on formal pleadings. Section 7425(b) 
contains provisions relating to the discharge of a lien or a title 
derived from the enforcement of a lien in the event of a nonjudicial 
sale with respect to the property involved. Section 7425(c) contains 
special rules relating to the notice of sale requirements contained in 
section 7425(b). Paragraph (b) of this section of the regulations 
contains rules with respect to the nonjudicial sales described in 
section 7425(b). Paragraph (c) of this section of the regulations 
contains rules with respect to the notice of sale provisions of section 
7425(c)(1). Paragraph (d) of this section of the regulations contains 
rules relating to the consent to sale provisions of section 7425(c)(2). 
Paragraph (e) of this section of the regulations contains rules relating 
to the sale of perishable goods provisions of section 7425(c)(3). 
Paragraph (f) of this section of the regulations contains the 
requirements with respect to the contents of a notice of sale.
    (2) Effective date of this section. The provisions of section 7425, 
as added by the Federal Tax Lien Act of 1966, are effective with respect 
to sales occurring after November 2, 1966. The notice of sale provisions 
of section 7425(c) (1)

[[Page 992]]

or (3) do not apply to sales occurring after November 2, 1966, if the 
seller of the property performed an act before November 3, 1966, which 
act at the time of performance was required and effective under local 
law with respect to the sale. An example of such an act is publication 
of a notice of the sale in a local newspaper before November 3, 1966, if 
local law requires such publication before a sale and the publication is 
effective under local law. Accordingly, in such a case, it is not 
necessary to notify the Internal Revenue Service pursuant to the 
provisions of section 7425(c) (1) or (3). With respect to a notice of 
sale required under section 7425(c) (1) or (3)--
    (i) Any notice of sale given to an office of the Internal Revenue 
Service or the Treasury Department during the period November 3, 1966, 
through December 21, 1966, shall be considered as adequate;
    (ii) Any notice of sale given during the period December 22, 1966, 
through January 31, 1968, which complies with provisions of either
    (a) Revenue Procedure 67-25, 1967-20 I.R.B. 42 (based on Technical 
Information Release 873, dated December 22, 1966), or
    (b) This section

shall be considered as adequate; and
    (iii) Any notice of sale given after January 31, 1968, which 
complies with the provisions of this section shall be considered as 
adequate.
    (b) Nonjudicial sale--(1) In general. Section 7425(b) contains 
provisions with respect to the effect on the interest of the United 
States in property in which the United States has or claims a lien, or a 
title derived from the enforcement of a lien, when a sale is made 
pursuant to--
    (i) An instrument creating a lien on the property sold,
    (ii) A confession of judgment on the obligation secured by an 
instrument creating a lien on the property sold, or
    (iii) A statutory lien on the property sold.

For purposes of this section, such a sale is referred to as a 
``nonjudicial sale.'' The term ``nonjudicial sale'' includes, but is not 
limited to, the divestment of the taxpayer's title to property which 
occurs by operation of law, as well as those which result from a public 
or private sale. Under section 7425(b)(1), if a notice of lien is filed 
in accordance with section 6323(f) or (g), or the title derived from the 
enforcement of a lien is recorded as provided by local law, more than 30 
days before the date of sale, and the appropriate district director is 
not given notice of the sale (in the manner prescribed in paragraph (c) 
of this section), the sale shall be made subject to and without 
disturbing the lien or title of the United States. Under section 
7425(b)(2)(C), in any case in which notice of the sale is given to the 
district director not less than 25 days prior to the date of sale (in 
the manner prescribed in section 7425(c)(1)), the sale shall have the 
same effect with respect to the discharge or divestment of the lien or 
title as may be provided by local law with respect to other junior 
liens. A nonjudicial sale pursuant to a lien which is junior to a tax 
lien does not divest the tax lien, even though notice of the nonjudicial 
sale is given to the appropriate district director. However, under the 
provisions of section 6325(b), Sec.  301.6325-1 of this chapter 
(Regulations on Procedure and Administration), and Sec.  400.2-1, a 
district director may discharge the property from a tax lien, including 
a tax lien which is senior to another lien upon the property. In the 
case of a nonjudicial sale subject to the provisions of section 7425(b), 
in order to compute any period of time determined with reference to the 
date of sale, the date of sale shall be determined in accordance with 
the following rules:
    (iv) In the case of divestment of junior liens on property resulting 
directly from a public sale, the date of sale is deemed to be the date 
the public sale is held, regardless of the date under local law on which 
junior liens on the property are divested or the title to the property 
is transferred,
    (v) In the case of divestment of junior liens on property resulting 
directly from a private sale, the date of sale is deemed to be the date 
title to the property is transferred, regardless of the date junior 
liens on the property are divested under local law, and

[[Page 993]]

    (vi) In the case of divestment of junior liens on property not 
resulting directly from a public or private sale, the date of sale is 
deemed to be the date on which junior liens on the property are divested 
under local law.

For provisions relating to the right of redemption of the United States, 
see section 7425(d) and Sec.  400.5-1.
    (2) Examples. The provisions of subparagraph (1) of this paragraph 
(b), may be illustrated by the following examples:

    Example 1. Under the law of M State upon entry of judgment, the 
judgment creditor obtains a statutory lien upon the real property of the 
judgment debtor, and certain procedures are provided by which the 
judgment creditor may execute by public sale upon such real property. 
These procedures provide, among other things, for notification by 
personal service or registered or certified mail to other lien 
creditors, if any, and publication of a notice of the sale in a local 
newspaper. After the expiration of a prescribed period of time after 
such notification and publication, the sheriff of the county where the 
real property is located may sell the property at public sale. After 
payment of the amount bid at the public sale, the sheriff issues to the 
purchaser a deed to the real property, and the interests of junior 
lienors in the property are divested. For purposes of this section, such 
an execution sale is a nonjudicial sale described in section 7425(b) 
since the sale is made pursuant to a statutory lien on the property 
sold. The date of sale, for purposes of computing a period of time 
determined with reference to the date of sale, is the date on which the 
public sale is held, since junior liens on the real property are 
divested directly as a result of the public sale. This result obtains 
even though the junior liens are legally divested on a later date when 
the sheriff issues the deed.
    Example 2. Under the law of N State, mortgages on real property may 
contain a power of sale which authorizes the mortgagee, upon breach by 
the mortgagor of one of the conditions of the mortgage, to have the 
mortgaged property sold at public sale. This public sale must be 
preceded by notice by advertisement in a local newspaper, and the time, 
place, description of the property, and other terms of the sale must be 
specified. The purchaser at such a public sale obtains a title to the 
real property which is not subject to a right of redemption by the 
mortgagor and which divests the interests of the junior lienors in the 
property. For purposes of this section, a sale pursuant to such a power 
of sale is a nonjudicial sale described in section 7425(b) since the 
sale is made pursuant to the mortgage instrument which created a lien on 
the property sold. The date of the sale, for purposes of computing a 
period of time determined with reference to the date of sale, is the 
date of the public sale since junior liens on the property are divested 
directly as a result of the public sale.
    Example 3. Under the law of O State, upon breach by a mortgagor of 
real property of one of the conditions of the mortgage, the mortgagee 
may foreclose the mortgage by securing possession of the property by one 
of several procedures provided by statute. These procedures are 
generally referred to as ``strict foreclosure.'' In order for a 
foreclosure to be effective under these procedures, a certificate 
attesting the fact of entry must be recorded with the proper registrar 
of deeds within 30 days after the mortgagee enters the property. During 
the 1-year period following the date on which the certificate of entry 
is recorded, the mortgagor or a junior lienor may redeem the property by 
paying the mortgagee the amount of the mortgage obligation. If, during 
such 1-year period the property is not redeemed and the mortgagee's 
possession is continued, the interests of the mortgagor and the junior 
lienors in the property are divested. For purposes of this section, such 
a foreclosure procedure is a nonjudicial sale described in section 
7425(b) since it results in the divestment of the mortgagor's interest 
in the property by operation of law pursuant to the mortgage which 
created a lien on the property. In addition, since there is no public or 
private sale which directly results in the divestment of junior liens on 
the property, the date of sale, for purposes of computing a period of 
time determined with reference to the date of sale, is the date on which 
the 1-year period following the recording of the certificate of entry 
expires.
    Example 4. The law of P State contains a procedure which permits a 
county to collect a delinquent tax assessment with respect to real 
property by the means of a tax sale of the property. First, a notice of 
a public auction with respect to the tax assessment on the real property 
is published in a local newspaper. At the public auction, the purchaser, 
upon payment of the delinquent taxes and interest, obtains from the 
county tax collector a tax certificate with respect to the real 
property. Since the obtaining of this tax certificate does not directly 
result in the divestment of either the owner's title or junior liens 
with respect to the property, the public auction is not a nonjudicial 
sale described in section 7425(b). At any time before a tax deed with 
respect to the property is issued by the clerk of the county court, the 
owner or any holder of a lien or other interest with respect to the 
property may obtain the tax certificate by paying the holder of the tax 
certificate the amount of the taxes, interest, and costs. After a date 
which is two

[[Page 994]]

years after the date on which the tax assessment became delinquent, the 
holder of the tax certificate may request the clerk of the county court 
to have the property advertised for sale. After advertisement of the 
sale, the clerk of the county court conducts a public sale of the real 
property and the purchaser obtains a tax deed. The interests of all 
junior lienors in the property are divested and the property is not 
subject to a right of redemption under the law of P State. For purposes 
of this section, this public sale is considered to be a nonjudicial sale 
described in section 7425(b) since the sale is made pursuant to a 
statutory lien on the property sold. The date of the sale, for purposes 
of computing a period of time determined with reference to the date of 
sale, is the date on which the public sale is held at which the 
purchaser obtains a tax deed as this sale directly results in the 
divestment of junior liens on the property.

    (c) Notice of sale requirements--(1) In general. Except in the case 
of the sale of perishable goods described in paragraph (e) of this 
section, a notice (as described in paragraph (f) of this section) of a 
nonjudicial sale shall be given, in writing by registered or certified 
mail or by personal service, not less than 25 days prior to the date of 
sale (determined under the provisions of paragraph (b)(1) (iv), (v), and 
(vi) of this section), to the district director (marked for the 
attention of the chief, special procedures section) for the internal 
revenue district in which the sale is to be conducted. Thus, under this 
section, a notice of sale is not effective if it is given to a district 
director other than the district director for the internal revenue 
district in which the sale is to be conducted. The provisions of 
sections 7502 (relating to timely mailing treated as timely filing) and 
7503 (relating to time for performance of acts where last day falls on 
Saturday, Sunday, or legal holiday) apply in the case of notices 
required to be made under this section.
    (2) Postponement of scheduled sale-- (i) Where notice of sale is 
given. In the event that notice of a sale is given in accordance with 
subparagraph (1) of this paragraph (c), with respect to a scheduled sale 
which is postponed to a later time or date, the seller of the property 
is required to give notice of the postponement to the district director 
in the same manner as is required under local law with respect to other 
secured creditors. For example, assume that in M State local law 
requires that in the event of a postponement of a scheduled foreclosure 
sale of real property, an oral announcement of the postponement at the 
place and time of the scheduled sale constitutes sufficient notice to 
secured creditors of the postponement. Accordingly, if at the place and 
time of a scheduled sale in M State an oral announcement of the 
postponement is made, the Internal Revenue Service is considered to have 
notice of the postponement for the purpose of this subparagraph.
    (ii) Where notice of sale is not given. In the event that--
    (a) Notice of a nonjudicial sale would not be required under 
subparagraph (1) of this paragraph (c), if the sale were held on the 
originally scheduled date,
    (b) Because of a postponement of the scheduled sale, more than 30 
days elapse between the originally scheduled date of the sale and the 
date of the sale, and
    (c) A notice of lien with respect to the property to be sold is 
filed more than 30 days before the date of the sale,

notice of the sale is required to be given to the district director in 
accordance with the provisions of subparagraph (1) of this paragraph 
(c). In any case in which notice of sale is required to be given with 
respect to a scheduled sale, and notice of the sale is not given, any 
postponement of the scheduled sale does not affect the rights of the 
United States under section 7425(b).
    (iii) Examples. The provisions of subdivision (ii) of this 
subparagraph may be illustrated by the following examples:

    Example 1. A nonjudicial sale of Blackacre, belonging to A, a 
delinquent taxpayer, is scheduled for December 2, 1968. As no notice of 
lien is filed applicable to Blackacre more than 30 days before December 
2, 1968, no notice of sale is given to the district director. On 
December 2, 1968, the sale of Blackacre is postponed until January 15, 
1969. A notice of lien with respect to Blackacre is properly filed on 
January 2, 1969. The sale of Blackacre is held on January 15, 1969. Even 
though more than 30 days elapsed between the originally scheduled date 
of the sale (Dec. 2, 1968) and the date of the sale (Jan. 15, 1969), no 
notice of sale is required to be given to the district director since 
the notice of

[[Page 995]]

lien was not filed more than 30 days before the date of the sale.
    Example 2. Assume the same facts as in example 1 except that the 
notice of lien is properly filed on November 29, 1968. Since more than 
30 days elapsed between the originally scheduled date of the sale and 
the date of the sale, and the notice of lien is filed (on Nov. 29, 1968) 
more than 30 days before the date of the sale (Jan. 15, 1969), notice of 
the sale, in accordance with the provisions of subparagraph (1) of this 
paragraph, is required to be given to the district director.
    Example 3. A nonjudicial sale of Whiteacre, belonging to B, a 
delinquent taxpayer, is scheduled for December 2, 1968. A notice of lien 
applicable to Whiteacre is filed on November 12, 1968. As the notice of 
lien was not filed more than 30 days before December 2, 1968, no notice 
of sale is given to the district director. On December 2, 1968, the sale 
of Whiteacre is postponed until December 20, 1968. The sale of Whiteacre 
is held on December 20, 1968. Even though more than 30 days elapsed 
between the date notice of lien was filed (Nov. 12, 1968) and the date 
of the sale (Dec. 20, 1968), no notice of sale is required to be given 
to the district director since not more than 30 days elapsed between the 
date of the originally scheduled sale (Dec. 2, 1968) and the date the 
sale was actually held (Dec. 20, 1968).

    (d) Consent to sale--(1) In general. Notwithstanding the notice of 
sale provisions of paragraph (c) of this section, a nonjudicial sale of 
property shall discharge or divest the property of the lien or title of 
the United States if the district director for the internal revenue 
district in which the sale occurs consents to the sale of the property 
free of the lien or title. Pursuant to section 7425(c)(2), where 
adequate protection is afforded the lien or title of the United States, 
a district director may, in his discretion, consent with respect to the 
sale of property in appropriate cases. Such consent shall be effective 
only if given in writing and shall be subject to such limitations and 
conditions as the district director may require. However, a district 
director may not consent to a sale of property under this section after 
the date of sale, as determined under paragraph (b)(1) (iv), (v), and 
(vi) of this section. For provisions relating to the authority of the 
district director to discharge property subject to a tax lien in the 
case where the proceeds of the sale are held as a fund subject to the 
liens and claims of the United States, see section 6325(b)(3) and Sec.  
400.2-1.
    (2) Application for consent. Any person desiring a district 
director's consent to sell property free of a tax lien or a title 
derived from the enforcement of a tax lien of the United States in the 
property shall submit to the district director for the internal revenue 
district in which the sale is to occur a written application in 
triplicate, declaring it is made under penalties of perjury, requesting 
that such consent be given. The application shall contain the 
information required in the case of a notice of sale, as set forth in 
paragraph (f)(1) of this section, and, in addition, shall contain a 
statement of the reasons why the consent is desired.
    (e) Sale of perishable goods--(1) In general. A notice (as described 
in paragraph (f) of this section) of a nonjudicial sale of perishable 
goods (as defined in subparagraph (2) of this paragraph (e)) shall be 
given in writing, by registered or certified mail or delivered by 
personal service, at any time before the sale to the district director 
(marked for the attention of the chief, special procedures section) for 
the internal revenue district in which the sale is to be conducted. If a 
notice of a nonjudicial sale is timely given in the manner described in 
this paragraph, the nonjudicial sale shall discharge or divest the tax 
lien, or a title derived from the enforcement of a tax lien, of the 
United States in the property. The provisions of sections 7502 (relating 
to timely mailing treated as timely filing) and 7503 (relating to time 
for performance of acts where last day falls on Saturday, Sunday, or 
legal holiday) apply in the case of notices required to be made under 
this paragraph. For example, where the sale of perishable goods is 
scheduled for 1 p.m. on November 1, 1968, and the notice is mailed by 
certified mail to the district director at 10 a.m. on November 1, 1968, 
the notice shall be considered as timely given for purposes of this 
paragraph. The seller of the perishable goods shall hold the proceeds 
(exclusive of costs) of the sale as a fund, for not less than 30 days 
after the date of the sale, subject to the liens and claims of the 
United States, in the same manner and with the same priority as the 
liens and

[[Page 996]]

claims of the United States had with respect to the property sold. If 
the seller fails to hold the proceeds of the sale in accordance with the 
provisions of this paragraph, the seller shall be personally liable to 
the United States for an amount equal to the value of the interest of 
the United States in the fund. However, even if the proceeds of the sale 
are not so held by the seller, but all the other provisions of this 
paragraph are satisfied, the buyer of the property at the sale takes the 
property free of the liens and claims of the United States. In the event 
of a postponement of the scheduled sale of perishable goods, the seller 
is not required to notify the district director of the postponement. For 
provisions relating to the authority of the district director to 
discharge property subject to a tax lien in the case where the proceeds 
of the sale are held as a fund subject to the liens and claims of the 
United States, see section 6325(b)(3) and Sec.  400.2-1.
    (2) Definition of perishable goods. For the purpose of this 
paragraph, the term ``perishable goods'' means any personal property 
which, in the reasonable view of the person selling the property, is 
liable to perish or become greatly reduced in price or value by keeping, 
or cannot be kept without great expense.
    (f) Content of notice of sale--(1) In general. With respect to a 
notice of sale described in paragraph (c) or (e) of this section, the 
notice will be considered adequate if it contains the information 
described in subdivisions (i), (ii), (iii), and (iv) of this 
subparagraph.
    (i) The name and address of the person submitting the notice of 
sale.
    (ii) A copy of each Notice of Federal Tax Lien (Form 668) affecting 
the property to be sold, or the following information as shown on each 
such Notice of Federal Tax Lien:
    (a) The internal revenue district named thereon,
    (b) The name and address of the taxpayer, and
    (c) The date and place of filing of the notice.
    (iii) With respect to the property to be sold, the following 
information:
    (a) A detailed description, including location, of the property 
affected by the notice (in the case of real property, the street 
address, city, and State and the legal description contained in the 
title or deed to the property and, if available, a copy of the abstract 
of title);
    (b) The date, time, place, and terms of the proposed sale of the 
property; and
    (c) In the case of a sale of perishable property described in 
paragraph (e) of this section, a statement of the reasons why the 
property is believed to be perishable.
    (iv) The approximate amount of the principal obligation, including 
interest, secured by the lien sought to be enforced and a description of 
the other expenses (such as legal expenses, selling costs, etc.) which 
may be charged against the sale proceeds.
    (2) Inadequate notice. Except as otherwise provided in this 
subparagraph, a notice of sale described in paragraph (c) of this 
section which does not contain the information described in subparagraph 
(1) of this paragraph (f), will not be considered adequate by a district 
director. If a district director determines that the notice is 
inadequate, he will give written notification of the items of 
information which are inadequate to the person who submitted the notice. 
In such event a notice complying with the provisions of this section 
(including the requirement that the notice be given 25 days prior to the 
sale in the case of a notice described in paragraph (c) of this section) 
must be given. However, in accordance with the provisions of paragraph 
(d)(1) of this section, in such a case the district director may, in his 
discretion, consent to the sale of the property free of the lien or 
title of the United States even though notice of the sale is not given 
25 days prior to the sale. In any case in which the person who submitted 
a timely notice does not receive, more than 5 days prior to the date of 
the sale, written notification from the district director that the 
notice is inadequate, the notice shall be considered adequate for the 
purposes of this section.
    (3) Acknowledgment of notice. If a notice of sale described in 
paragraph (c) or (e) of this section is submitted in duplicate to the 
district director with a

[[Page 997]]

written request that receipt of the notice be acknowledged and returned 
to the person giving the notice, this request will be honored by the 
district director. The acknowledgment by the district director will 
indicate the date and time of the receipt of the notice.
    (4) Disclosure of adequacy of notice. The district director for the 
internal revenue district in which the sale was held is authorized to 
disclose, to any person who has a proper interest, whether an adequate 
notice of sale was given under subparagraph (1) of this paragraph (f). 
Any person desiring this information should submit to the district 
director a written request which clearly describes the property sold, 
identifies the applicable notice of lien, gives the reasons for 
requesting the information, and states the name and address of the 
person making the request.

[T.D. 6944, 33 FR 734, Jan. 20, 1968; 33 FR 916, Jan. 25, 1968]



Sec.  400.5-1  Redemption by United States.

    (a) Scope. The purpose of this section is to prescribe rules with 
respect to the provisions contained in section 7425(d), relating to 
redemption of real property by the United States. Section 109 of the 
Federal Tax Lien Act of 1966 (80 Stat. 1141) amended the Internal 
Revenue Code of 1954 by adding a new section 7425, relating to the 
discharge of tax liens, effective after November 2, 1966.
    (b) Right to redeem--(1) In general. In the case of a nonjudicial 
sale of real property to satisfy a lien prior to the tax lien, the 
district director may redeem the property within the redemption period 
(as described in subparagraph (2) of this paragraph (b)). The right of 
redemption of the United States exists under section 7425(d) even though 
the district director has consented to the sale under section 7425(c)(2) 
and paragraph (d) of Sec.  400.4-1. For purposes of this section, the 
term ``nonjudicial sale'' shall have the same meaning as when used in 
paragraph (b)(1) of Sec.  400.4-1.
    (2) Redemption period. For purposes of this section, the redemption 
period shall be--
    (i) The period beginning with the date of the sale (as determined 
under paragraph (b)(1)(iv), (v), and (vi) of Sec.  400.4-1) and ending 
with the 120th day after such date, or
    (ii) The period for redemption of real property allowable, with 
resepct to other secured creditors, under local law of the place where 
the real property is located,whichever is longer.
    (3) Limitations. In the event a sale does not ultimately discharge 
the property from the tax lien (whether by reason of local law or the 
provisions of section 7425(b)), the provisions of this section do not 
apply since the tax lien will continue to attach to the property after 
the sale. In a case in which the Internal Revenue Service is not 
entitled to a notice of sale under section 7425(b) and Sec.  400.4-1, 
the United States does not have a right of redemption under section 
7425(d). However, in such a case, if a tax lien has attached to the 
property at the time of sale, the United States has the same right of 
redemption, if any, which is afforded to any secured creditor under the 
local law of the place in which the property is situated.
    (c) Amount to be paid--(1) In general. In any case in which a 
district director exercises the right to redeem real property, the 
amount to be paid is the sum of the following amounts--
    (i) The actual amount paid for the property being redeemed (which, 
in the case of a purchaser who is the holder of the lien being 
foreclosed, shall include the amount of the obligation secured by such 
lien to the extent legally satisfied by reason of the sale);
    (ii) Interest on the amount paid (described in subdivision (i) of 
this subparagraph) at the sale by the purchaser of the real property 
computed at the rate of 6 percent per annum for the period from the date 
of the sale (as determined under paragraphs (b)(1)(iv), (v), and (vi) of 
Sec.  400.4-1) to the date of redemption; and
    (iii) The amount, if any, equal to the excess of (a) the expenses 
necessarily incurred in connection with such property by the purchaser, 
over (b) the income from such property realized by the purchaser plus a 
reasonable rental value of such property (to the extent the property is 
used by or with the consent of the purchaser, or is rented at less than 
its reasonable rental value).

[[Page 998]]

    (2) Examples. The provisions of subparagraph (1)(i) of this 
paragraph (b), may be illustrated by the following examples:

    Example 1. A, a delinquent taxpayer, owns Blackacre located in X 
State upon which B holds a mortgage. After the mortgage is properly 
recorded, a notice of tax lien is filed which is applicable to 
Blackacre. Subsequently, A defaults on the mortgage and B forecloses on 
the mortgage which has an outstanding obligation in the amount of 
$100,000. At the foreclosure sale, B bids $50,000 and obtains title to 
Blackacre as a result of the sale. At the time of the foreclosure sale, 
Blackacre has a fair market value of $75,000. Under the laws of X State, 
the mortgage obligation is fully satisfied as a result of the 
foreclosure sale and the mortgagee cannot obtain a deficiency judgment. 
Under subparagraph (1)(i) of this paragraph, the district director must 
pay $100,000 in order to redeem Blackacre.
    Example 2. Assume the same facts as in example 1, except that under 
the laws of X State, the fair market value of the property foreclosed is 
the amount of the obligation legally satisfied as a result of the 
foreclosure sale, and in a case in which the amount of the obligation 
exceeds the amount of the fair market value of the property, the 
mortgagee has the right to a judgment for the deficiency computed as the 
difference between the obligation and the fair market value of the 
property. In such a case the district director must, under subparagraph 
(1)(i) of this paragraph, pay $75,000 in order to redeem Blackacre, 
whether or not B seeks a judgment for the deficiency.
    Example 3. Assume the same facts as in example 1, except that under 
the laws of X State, the amount bid is the amount of the obligation 
legally satisfied as a result of the foreclosure sale, and in the case 
in which the amount of the obligation exceeds the amount bid, the 
mortgagee has the right to a judgment for the deficiency computed as the 
difference between the amount of the obligation and the amount bid. In 
such a case, the district director must under subparagraph (1)(i) of 
this paragraph, pay $50,000 in order to redeem Blackacre, whether or not 
B seeks a judgment for the deficiency.

    (d) Certificate of redemption--(1) In general. If a district 
director exercises the right of redemption of the United States 
described in paragraph (b) of this section, he shall apply to the 
officer designated by local law, if any, for the documents necessary to 
evidence the fact of redemption and to record title to the redeemed 
property in the name of the United States. If no such officer has been 
designated by local law or if the officer designated by local law fails 
to issue the necessary documents, the district director is authorized to 
issue a certificate of redemption for the property redeemed by the 
United States.
    (2) Filing. The district director shall, without delay, cause either 
the documents issued by the local officer or the certificate of 
redemption executed by the district director, described in subparagraph 
(1) of this paragraph (d), to be duly recorded in the proper registry of 
deeds. If a certificate of redemption is issued by the district director 
and if the State in which the real property redeemed by the United 
States is situated has not by law designated an office in which the 
certificate of redemption may be recorded, the district director shall 
file the certificate of redemption in the office of the clerk of the 
U.S. district court for the judicial district in which the redeemed 
property is situated.
    (3) Effect of certificate of redemption. A certificate of redemption 
executed pursuant to subparagraph (1) of this paragraph (d), shall 
constitute prima facie evidence of the regularity of the redemption. 
When a certificate of redemption is recorded, it shall transfer to the 
United States all the rights, title, and interest in and to the redeemed 
property acquired by the person from whom the district director redeemed 
the property by virtue of the sale of the property.
    (4) Application for release of right of redemption. Upon application 
of a party with a proper interest in the real property sold in a 
nonjudicial sale described in section 7425(b) and paragraph (b) of Sec.  
400.4-1, which real property is subject to the right of redemption of 
the United States described in this section, the district director may, 
in his discretion, release the right of redemption with respect to the 
property. The application for the release shall be submitted in writing 
to a district director and shall contain such information as the 
district director may require. If the district director determines that 
the right of redemption of the United States is without value, no amount

[[Page 999]]

shall be required to be paid with respect to the release of the right of 
redemption.

[T.D. 6944, 33 FR 737, Jan. 20, 1968]

                           PART 402 [RESERVED]



PART 403_DISPOSITION OF SEIZED PERSONAL PROPERTY--Table of Contents



                     Subpart A_Scope of Regulations

Sec.
403.1 Personal property seized by the Internal Revenue Service.
403.2 Personal property seized by the Bureau of Alcohol, Tobacco and 
          Firearms.
403.3 Forms prescribed.

                          Subpart B_Definitions

403.5 Meaning of terms.

                   Subpart C_Seizures and Forfeitures

403.25 Personal property subject to seizure.
403.26 Forfeiture of seized personal property.
403.27 Type and conditions of cost bond.
403.28 Corporate surety bonds.
403.29 Deposit of collateral.
403.30 Special disposition of perishable goods.

            Subpart D_Remission or Mitigation of Forfeitures

403.35 Laws applicable.
403.36 Interest claimed.
403.37 Form of the petition.
403.38 Contents of the petition.
403.39 Time of filing petition.
403.40 Place of filing.
403.41 Discontinuance of administrative proceedings.
403.42 Return of defective petition.
403.43 Final action.
403.44 Acquisition for official use and sale for account of petitioner 
          in the case of an allowed petition.
403.45 Re-appraisal of property involved in an allowed petition.

                       Subpart E_Appraiser's Fees

403.50 Rate of compensation.

           Subpart F_Administrative Sale of Personal Property

403.55 Alternative methods of sale.
403.56 All bids on unit basis.
403.57 Conditions of sale.
403.58 Acceptable forms of payment.
403.59 [Reserved]
403.60 Purchaser entitled to bill of sale.
403.61 Sale on open, competitive bids.
403.62 Sale on sealed, competitive bids.

      Subpart G_Disposal of Forfeited Coin-Operated Gaming Devices

403.65 Authority for destruction.

    Authority: Sec. 7805, 68A Stat. 917; 26 U.S.C. 7805.

    Source: T.D. 7433, 41 FR 39312, Sept. 15, 1976, unless otherwise 
noted.



                     Subpart A_Scope of Regulations



Sec.  403.1  Personal property seized by the Internal Revenue Service.

    Regulations in this part relate to personal property seized by 
officers of the Internal Revenue Service as subject to forefeiture as 
being involved, used, or intended to be used, as the case may be in any 
violation of the internal revenue laws other than chapters 51 (distilled 
spirits), 52 (tobacco) and 53 (firearms), of the Internal Revenue Code 
of 1954 (I.R.C.).

(Sec. 7325, 68A Stat. 870, as amended (26 U.S.C. 7325, (1), (4)); sec. 
7326, 72 Stat. 1429, as amended (26 U.S.C. 7326 (a)))

[T.D. 7433, 41 FR 39312, Sept. 15, 1976, as amended by T.D. 7525, 42 FR 
64344. Dec. 23, 1977]



Sec.  403.2  Personal property seized by the Bureau of Alcohol, 
Tobacco and Firearms.

    Regulations in 27 CFR part 72 relate to personal property seized by 
officers of the Bureau of Alcohol, Tobacco and Firearms, as subject to 
forfeiture as being involved, used, or intended to be used, as the case 
may be, in any violation of chapters 51 (distilled spirits), 52 
(tobacco) and 53 (firearms), of the I.R.C., as well as certain other 
federal laws. (Treasury Dept. Order No. 221 (June 6, 1972), 37 FR 11696; 
Treasury Dept. Order No. 221-3 (December 24, 1974), 40 FR 1084; Treasury 
Dept. Order No. 221-3 (Revision 2) (Jan. 14, 1977), 42 FR 3725.)

(Sec. 7325, 68A Stat. 870, as amended (26 U.S.C. 7325 (1), (4)); sec. 
7326, 72 Stat. 1429, as amended (26 U.S.C. 7326 (a)))

[T.D. 7433, 41 FR 39312, Sept. 15, 1976, as amended by T.D. 7525, 42 FR 
64344, Dec. 23, 1977]

[[Page 1000]]



Sec.  403.3  Forms prescribed.

    The Commissioner of Internal Revenue or his delegate is authorized 
to prescribe all forms required by or necessary for the administration 
of this part. Information required by this part shall be furnished in 
accordance with the instructions issued with respect thereto.



                          Subpart B_Definitions



Sec.  403.5  Meaning of terms.

    As used in this part, and unless the context otherwise requires, the 
following terms shall have the meanings set forth in this section. In 
this part words in the plural form shall include the singular, and vice 
versa, and words importing the masculine gender shall include the 
feminine. The terms ``includes'' and ``including'' do not exclude things 
not enumerated which are in the same general class.
    (a) Appraised value. The value placed upon seized property by the 
appraisers pursuant to Sec.  403.26(a)(2) for the purpose of determining 
whether the property may be forfeited administratively.
    (b) Equity. For purposes of subpart D of this part, the petitioner's 
interest in the subject personal property at the time of final 
administrative action on the petition, but not including:
    (1) Any unearned finance charges accruing from the later of the date 
of seizure or the date of default;
    (2) any amount rebatable on account of paid insurance premiums;
    (3) attorney's fees for collection;
    (4) any amount identified as dealer's reserve; or
    (5) any amount in the nature of liquidated damages that may have 
been agreed upon by the buyer and the petitioner.



                   Subpart C_Seizures and Forfeitures



Sec.  403.25  Personal property subject to seizure.

    Personal property may be seized by the Commissioner of Internal 
Revenue or his delegate for forfeiture to the United States when 
involved, used, or intended to be used, in violation of the internal 
revenue laws, other than chapters 51 (distilled spirits), 52 (tobacco) 
and 53 (firearms) of the I.R.C. (Sec. 7321, 68A Stat. 869; 26 U.S.C. 
7321.)

(Sec. 7325, 68A Stat. 870, as amended (26 U.S.C. 7325 (1), (4)); sec. 
7326, 72 Stat. 1429, as amended (26 U.S.C. 7326(a))

[T.D. 7433, 41 FR 39312, Sept. 15, 1976, as amended by T.D. 7525, 42 FR 
64344, Dec. 23, 1977]



Sec.  403.26  Forfeiture of seized personal property.

    (a) Administrative forfeiture. (1) Personal property seized as 
subject to forfeiture under the internal revenue laws and this part 
which has an appraised value of $2,500.00 or less shall be forfeited to 
the United States in administrative forfeiture proceedings except as 
otherwise provided in this section.
    (2) If the Commissioner or his delegate seizes personal property 
which is forfeitable under the internal revenue laws and this part and 
which in his opinion is valued at $2,500.00 or less, he shall cause a 
list containing a particular description of the seized property to be 
prepared in duplicate and an appraisal thereof to be made by three sworn 
appraisers, selected by the Commissioner or his delegate, who shall be 
respectable and disinterested citizens of the United States residing 
within the internal revenue district wherein the seizure was made. Such 
list and appraisement shall be properly attested by the Commissioner or 
his delegate and such appraisers.
    (3) If such forfeitable personal property is found by the appraisers 
to be of the value of $2,500.00 or less, the Commissioner or his 
delegate shall publish a notice once a week for three consecutive weeks, 
in some newspaper of the judicial district where property was seized, 
describing the articles and stating the time, place, and cause of their 
seizure, and requiring any person claiming them to appear and make such 
claim within 30 days from the date of the first publication of such 
notice.
    (4) Any person claiming the personal property so seized, within the 
time specified in the notice, may file with the District Director of the 
internal revenue district in which the property was seized a claim, 
stating his interest in the articles seized, and may execute

[[Page 1001]]

a bond to the United States in the penal sum of $250, conditioned that, 
in case of condemnation of the articles so seized, the obligors shall 
pay all the costs and expenses of the proceedings to obtain such 
condemnation. The District Director shall transmit such claim, together 
with the duplicate list or description of the property seized, to the 
United States Attorney for the district in which such property was 
seized. Both the claim and the cost bond should be executed in 
quadruplicate.
    (b) Judicial condemnation. Personal property seized as subject to 
forfeiture under the internal revenue laws and this part which has an 
appraised value of more than $2,500 and such seized property which has 
an appraised value of $2,500 or less with respect to which a bond has 
been filed pursuant to paragraph (a)(4) of this section, shall be 
forfeited to the United States in judicial condemnation proceedings, as 
authorized by the Director, General Legal Services Division, Office of 
Chief Counsel, Internal Revenue Service, or his delegate.

(Sec. 7323, 7325, 7326, 7401, 68A Stat. 869, 870, 873, 72 Stat. 1429, as 
amended; (26 U.S.C. 7323, 7325, 7326(a), 7401))

[T.D. 7433, 41 FR 39312, Sept. 15, 1976, as amended by T.D. 7525, 42 FR 
64344, Dec. 23, 1977]



Sec.  403.27  Type and conditions of cost bond.

    The cost bond filed by a claimant pursuant to Sec.  403.26(a)(4) 
shall be a corporate surety bond. However, upon a showing to the 
satisfaction of the Commissioner or his delegate that such claimant is 
unable to furnish a corporate surety bond, such claimant may file a cost 
bond with individual sureties acceptable to the Commissioner or his 
delegate or, in lieu of such cost bond with corporate or individual 
sureties, he may deposit collateral pursuant to Sec.  403.29.



Sec.  403.28  Corporate surety bonds.

    A corporate surety bond may be filed only if the surety company 
issuing such bond holds a certificate of authority from the Secretary of 
the Treasury certifying that such company is an acceptable surety on 
Federal bonds, subject to the limitations prescribed by Treasury 
Department Circular 570 as amended.

(Sec. 6, 61 Stat. 648, as amended, sec. 7101, 68A Stat. 847, as amended; 
(6 U.S.C. 6, 26 U.S.C. 7101))



Sec.  403.29  Deposit of collateral.

    Cash, postal money orders, certified or cashiers' or treasurers' 
checks, and bonds or notes of the United States, or other obligations 
which are unconditionally guaranteed as to both interest and principal 
by the United States, may be pledged and deposited by claimants as 
collateral security in lieu of corporate surety bonds in accordance with 
the provisions of Treasury Department Circular No. 154, revised (31 CFR 
part 225).

(Sec. 15, 61 Stat. 650, sec. 7101, 68A Stat. 847, as amended; (6 U.S.C. 
15, 26 U.S.C. 7101))



Sec.  403.30  Special disposition of perishable goods.

    The proceedings to enforce forfeiture of perishable goods shall, as 
is the case with proceedings to enforce forfeiture of nonperishable 
goods, be in the nature of proceedings in rem in the United States 
District Court for the district wherein such seizure is made. When any 
seized property is liable to perish or become greatly reduced in price 
or value by keeping, or when it cannot be kept without great expense, 
the Commissioner or his delegate shall advise the owner, when known, of 
the seizure thereof. The owner of the seized property may apply to the 
District Director of the internal revenue district in which the property 
was seized to examine the property at any time prior to referral of the 
property to the U.S. Marshal for disposition. If, in the opinion of the 
Commissioner or his delegate it is necessary that such property be sold 
to prevent waste or expense, the Commissioner or his delegate shall 
cause the property to be appraised in accordance with the procedures set 
forth in Sec.  403.26(a)(2). The owner shall have such property returned 
to him upon giving a corporate surety bond pursuant to Sec.  403.28 in 
an amount equal to the appraised value of the property, to abide the 
final order, decree, or judgment of the court having cognizance of the 
case. The bond shall be

[[Page 1002]]

conditioned to pay the amount of the appraised value to the Commissioner 
or his delegate, the U.S. Marshal, or otherwise, as may be ordered and 
directed by the court. The bond shall be filed by the Commissioner or 
his delegate with the U.S. Attorney for the district in which the 
proceedings may be commenced. If the owner of such property neglects or 
refuses to give such bond within a reasonable time considering the 
condition of the property, the Commissioner or his delegate shall 
request the U.S. Marshal to proceed to sell the property at public sale 
as soon as practicable and to pay the proceeds of sale, less reasonable 
costs of the seizure and sale, to the court to abide its final order, 
decree, or judgment.

(Sec. 7322, 7323, 7324, 68A Stat. 869, 870, as amended; (26 U.S.C. 7322, 
7323, 7324))



            Subpart D_Remission or Mitigation of Forfeitures



Sec.  403.35  Laws applicable.

    Remission or mitigation of forfeitures shall be governed by the 
customs laws applicable to remission or mitigation of penalties as 
contained in 19 U.S.C. 1613 and 19 U.S.C. 1618.

(Sec. 613, 46 Stat. 756, as amended, sec. 618, 46 Stat. 757, as amended, 
sec. 7327, 68A Stat. 871; (19 U.S.C. 1613, 1618, 26 U.S.C. 7327))



Sec.  403.36  Interest claimed.

    Any person claiming an interest in property seized by an officer of 
the Internal Revenue Service as subject to administrative forfeiture 
under this part may file a petition addressed to the District Director 
of the internal revenue district in which the property was seized for 
remission or mitigation of the forfeiture of such property.



Sec.  403.37  Form of the petition.

    There is no standardized form provided or required by the Department 
of the Treasury for use in filing a petition for remission or mitigation 
of forfeiture. However, the petition should be typewritten on legal size 
paper; and must be executed under oath, prepared in triplicate, and 
addressed to the District Director of the internal revenue district in 
which the property was seized. All copies of original documents 
submitted as exhibits in support of allegations of the petition should 
be certified as true and accurate copies of originals. Each copy of the 
petition must contain a complete set of exhibits.



Sec.  403.38  Contents of the petition.

    (a) Description of the property. The petition should contain such a 
description of the property and such facts of the seizure as will enable 
the Commissioner or his delegate to identify the property.
    (b) Statement regarding knowledge of seizure. In the event the 
petition is filed for the restoration of the proceeds derived from sale 
of the property pursuant to an administrative forfeiture, it should 
contain, or be supported by, satisfactory proof that the petitioner did 
not know and could not have known of the seizure prior to the 
declaration of forfeiture. (See also Sec.  403.39)
    (c) Interest of petitioner. The petition should clearly and 
concisely indicate the nature and amount of his interest in the property 
on the date the petition is filed, and the facts relied upon to show 
that the petitioner was not willfully negligent and did not intend that 
the property be involved or used in violation of the internal revenue 
laws. Such petition may allege such other circumstances which in the 
opinion of the petitioner would justify the remission or mitigation of 
the forfeiture.
    (d) Petitioner innocent party. If the petitioner did not commit the 
act which caused the seizure of his property, the petition should state 
how the property came into the possession of the person whose act did 
cause the seizure, and it should also state that the petitioner had no 
knowledge or reason to believe that the property would be involved or 
used in violation of the internal revenue laws. If the petitioner knows, 
at the time he files the petition, that the person in whose possession 
the seized property was at the time of the seizure had a record or 
reputation for committing commercial crimes, the petitioner should state 
in the petition whether the petitioner knew of such record or reputation 
before the petitioner acquired his interest in the property or before 
such other person came into possession of the property, whichever

[[Page 1003]]

occured later. For purposes of this paragraph, the term ``commercial 
crimes'' includes, but is not limited to any of the following federal or 
state crimes:
    (1) Offenses against the revenue laws; burglary; counterfeiting, 
forgery; kidnapping; larceny; robbery; illegal sale or possession of 
deadly weapons; prostitution (including soliciting, procuring, 
pandering, white slaving, keeping house of ill fame, and like offenses); 
extortion; swindling and confidence games; and attempting to commit, 
conspiring to commit, or compounding any of the foregoing crimes. 
Addiction to narcotic drugs and use of marijuana will be treated as 
commercial crimes.
    (2) [Reserved]
    (e) Documents supporting claim. The petition should be accompanied 
by copies, certified by the petitioner under oath as correct, of 
contracts, bills of sale, chattel mortgages, reports of investigators or 
credit reporting agencies, affidavits, and any other documents that 
would support the claims made in the petition.
    (f) Costs. The petition should contain an undertaking to pay any 
costs assessed as a condition of allowance of the petition. Such costs 
include but are not limited to all expenses incurred in seizing and 
storing the property; the costs borne or to be borne by the United 
States; the taxes, if any, payable by the petitioner or imposed in 
respect of the property to which the petition relates; the penalty, if 
any, asserted by the Internal Revenue Service; and, if the property has 
been sold, or is in the course of being sold, the expenses incurred 
relating to such sale.



Sec.  403.39  Time of filing petition.

    A complete petition for remission or mitigation must be filed before 
the expiration of three months after the sale or other disposition of 
the property with respect to which the petition is filed. For purposes 
of this part, the term ``sale or other disposition'' includes 
acquisition of the property for official use.

(Sec. 613, 46 Stat. 756, sec. 306, 49 Stat. 880; (19 U.S.C. 1613, 40 
U.S.C. 304(k)))



Sec.  403.40  Place of filing.

    The petition should be filed in triplicate with the District 
Director for the internal revenue district in which the property was 
seized.



Sec.  403.41  Discontinuance of administrative proceedings.

    If the petition is filed prior to sale or other disposition of the 
property, proceedings to effect such sale or other disposition will be 
discontinued until the petition is either allowed or denied.



Sec.  403.42  Return of defective petition.

    If the petition is defective in some correctable respect, the 
original of the petition will be returned by letter to the petitioner 
who will be allowed to submit a corrected petition, in triplicate, 
within a reasonable time.



Sec.  403.43  Final action.

    (a) Petitions for remission or mitigation of forfeiture. (1) The 
Commissioner or his delegate shall either allow or deny any petition 
filed pursuant to these regulations. Such allowance or denial will 
constitute final action. If he allows the petition, the Commissioner or 
his delegate shall state the conditions, if any, of the allowance.
    (2) If he allows the petition, the Commissioner or his delegate may 
order the property returned to the petitioner, sold for the account of 
the petitioner, or, pursuant to agreement with the petitioner, acquired 
for official use.
    (3) The Commissioner or his delegate shall notify the petitioner of 
the allowance or denial of the petition and, in the case of allowance, 
the conditions, if any, under which the Commissioner or his delegate 
allowed the petition.
    (b) Offers in compromise of liability to forfeiture. The 
Commissioner or his delegate shall accept or reject any offer in 
compromise of the liability to forfeiture of personal property seized 
pursuant to Sec.  403.25 and such acceptance or rejection shall be a 
final action with respect to the offer.



Sec.  403.44  Acquisition for official use and sale for account of petitioner 
in the case of an allowed petition.

    (a) Acquisition for official use. The seized property may be 
purchased by

[[Page 1004]]

the United States pursuant to agreement and retained for official use. 
Where the petitioner is the owner, the purchase price is the appraised 
value of the property less all costs. Where the petitioner is a 
creditor, the purchase price is the smaller of:
    (1) The petitioner's equity, or (2) the appraised value of the 
property less the amount of all costs.
    (b) Sale for account of petitioner. If the petitioner elects not to 
comply with the conditions, if any, set for the return of the property, 
the Commissioner or his delegate is authorized to sell the property. If 
the petitioner is the owner of the property, there is deducted from the 
proceeds of the sale all costs incident to the seizure, forfeiture, and 
sale. The Commissioner or his delegate shall pay to the petitioner, out 
of the proper appropriation, an amount equal to the balance, if any. 
Where the petitioner is a creditor, there is deducted from the proceeds 
of the sale all costs incident to the seizure, forfeiture, and sale, and 
the Commissioner or his delegate shall pay to the petitioner, out of the 
proper appropriation, an amount equal to the smaller of: (1) The 
balance, if any, or (2) the equity of the petitioner.



Sec.  403.45  Re-appraisal of property involved in an allowed petition.

    In determining the nature and extent of the relief to be afforded a 
petitioner pursuant to Sec.  403.44 the value of the property with 
respect to which the petition has been allowed is the value of such 
property as determined by the appraisal thereof made pursuant to Sec.  
403.26(a)(2) but if the petitioner desires re-appraisal of the property, 
after notification as to the conditions of allowances of the petition, 
and makes written request therefor, undertaking in such request to pay, 
or to be liable for, the total costs of such re-appraisal, the property 
shall be re-appraised in the manner in which the original appraisal was 
made, and the conditions of allowance of the petition shall be modified 
to the extent required by such re-appraisal.



                       Subpart E_Appraiser's fees



Sec.  403.50  Rate of compensation.

    Each appraiser selected under Sec.  403.26(a)(2) shall receive as 
compensation a reasonable fee not to exceed $15.00 per hour or portion 
thereof for the performance of such appraiser's duties in appraising 
property seized as subject to forfeiture under the internal revenue laws 
and this part.

Because this regulation is nonsubstantive, liberalizing and essentially 
procedural, it is found unnecessary to issue it with notice and public 
procedure under subsection (b) of section 553 of title 5 of the United 
States Code or subject to the effective date limitation of subsection 
(d) of that section.

[T.D. 7695, 45 FR 27932, Apr. 25, 1980]



           Subpart F_Administrative Sale of Personal Property



Sec.  403.55  Alternative methods of sale.

    When personal property forfeited administratively is to be sold, the 
Commissioner or his delegate shall cause a notice of sale to be placed 
in a newspaper of general circulation published in the judicial district 
wherein the seizure was made. The sale shall occur not less than 10 days 
from the date of the publication of the notice. At the discretion of the 
Commissioner or his delegate the forfeited personal property may be sold 
at public auction to the highest bidder on open, competitive bids, or 
sold to the highest bidder on sealed, competitive bids.

(Sec. 7325, 68A Stat. 870, as amended; (26 U.S.C. 7325))



Sec.  403.56  All bids on unit basis.

    All competitive bids shall be on a unit basis. Thus, for example, if 
a number of forfeited automobiles are advertised for sale at the same 
date, hour and place, whether or not in the same notice of sale, a 
separate individual bid is required as to each automobile. The 
Commissioner or his delegate will not accept one blanket bid to cover 
the entire group of automobiles offered for sale.

[[Page 1005]]



Sec.  403.57  Conditions of sale.

    (a) No recourse. All personal property to be sold shall be offered 
for sale ``as is'' and without recourse against the United States.
    (b) No guarantee. No guarantee or warranty, expressed or implied, 
shall be given or understood in respect of any forfeited property 
offered for sale.
    (c) No sale. (1) The United States reserves the right to reject any 
bids.
    (2) In a case in which all bids are rejected the Commissioner or his 
delegate shall re-advertise the property for sale in the manner 
prescribed in Sec.  403.55.
    (d) One bid. When only one bid is received for a single unit of 
property such bid shall be the highest bid received for such property.

(Sec. 7325, 68A Stat. 870, as amended (26 U.S.C. 7325 (1), (4)); sec. 
7326, 72 Stat. 1429, as amended (26 U.S.C. 7326(a)))

[T.D. 7433, 41 FR 39312, Sept. 15, 1976, as amended by T.D. 7525, 42 FR 
64344, Dec. 23, 1977]



Sec.  403.58  Acceptable forms of payment.

    The only acceptable forms of payment shall be cash, cashier's check, 
certified check, or postal money order, in the amount of the accepted 
bid.



Sec.  403.59  [Reserved]



Sec.  403.60  Purchaser entitled to bill of sale.

    Each purchaser of administratively forfeited property is entitled to 
receive a suitable bill of sale.



Sec.  403.61  Sale on open, competitive bids.

    If forfeited property is to be sold at public auction to the highest 
bidder on open, competitive bids, the notice of sale shall so specify, 
and state the date, hour, and place of such sale.



Sec.  403.62  Sale on sealed, competitive bids.

    If the property is to be sold to the highest bidder on sealed, 
competitive bids, the notice of sale shall so specify, and shall state 
the date, hour, and place of sale, and the date, hour, and place prior 
to the sale when and where prospective bidders may view the property and 
obtain necessary information. All sealed bids must be filed with the 
district director of the internal revenue district in which the property 
was seized before the sale. No bids will be accepted after the sale 
starts. At the appointed date, hour, and place of sale, all sealed bids 
timely filed shall be open in the presence of all bidders attending the 
sale, who shall have the privilege of inspecting the bids if they so 
desire.



      Subpart G_Disposal of Forfeited Coin-Operated Gaming Devices



Sec.  403.65  Authority for destruction.

    The Commissioner or his delegate is authorized to order the 
destruction of any coin-operated gaming device as defined in I.R.C. 
section 4462 upon which a tax is imposed by I.R.C. section 4461, after 
the expiration of three months from the date of consummation of 
administrative forfeiture under any provision of I.R.C.

(Sec. 7326, 72 Stat. 1429, as amended (26 U.S.C. 7326))



PART 404_TEMPORARY REGULATIONS ON PROCEDURE AND ADMINISTRATION 
UNDER THE TAX REFORM ACT OF 1976--Table of Contents



Sec.
404.6048-1 [Reserved]
404.6334(d)-1 Minimum exemption from levy for wages, salary, or other 
          income.

    Authority: Sec. 7805, Internal Revenue Code of 1954 (68A Stat. 917; 
26 U.S.C. 7805).



Sec.  404.6048-1  [Reserved]



Sec.  404.6334(d)-1  Minimum exemption from levy for wages, salary, 
or other income.

    (a) In general. Under section 6331(a), if an individual liable for 
any tax neglects or refuses to pay such tax within 10 days after notice 
and demand, the tax may be collected by levy upon property or rights to 
property belonging to such individual, including amounts payable to or 
received by him as wages, salary, or other income. Under section 
6331(d)(3), a levy upon wages or salary is continuous from the

[[Page 1006]]

date the levy is first made until the liability giving rise to the levy 
is satisfied or becomes unforceable by reason of lapse of time. Under 
section 6334(a)(9), however, certain amounts payable to or received by 
an individual as wages or salary for personal services, or as income 
from other sources, are exempt from levy. Under section 6334(d), amounts 
so exempt are determined by taking into account (1) the individual's 
payroll period, i.e., the basis (whether weekly, biweekly, semimonthly, 
monthly or otherwise) on which the individual is paid or receives wages, 
salary, or other income, and (2) the number of certain other persons 
dependent upon the individual for their support during each such payroll 
period. Paragraph (b) of this section prescribes rules for determining 
an individual's payroll period. Paragraph (c) of this section contains 
rules relating to the minimum amount of wages, salary, or other income 
which is exempt from levy for each such payroll period, and the 
additional amount which is exempt for each person who is claimed as a 
dependent of the individual pursuant to paragraph (d) of this section.
    (b) Determination of payroll period. For purposes of determining the 
amount of wages, salary, or other income exempt from levy pursuant to 
section 6334(a)(9) and this section--
    (1) Regularly used calendar periods. In the case of a levy on wages, 
etc. paid on the basis of an established calendar period regularly used 
by the employer for payroll purposes (e.g., weekly, biweekly, 
semimonthly, or monthly), that period shall be used as the individual's 
payroll period.
    (2) Remuneration paid on an irregular basis. In the case of a levy 
on wages, etc. not paid on the basis of an established calendar period 
regularly used by an employer for payroll purposes, the first day of the 
individual's payroll period shall be that day following the day upon 
which the wages, salary, or other income become payable to or are 
received by the individual, and the last day of the payroll period shall 
be that day upon which such wages, salary, or other income next become 
payable to or are received by him.
    (c) Determination of exempt amount. For each payroll period 
determined pursuant to paragraph (b) of this section, amounts exempt 
from levy pursuant to section 6334(a)(9) and this section are as 
follows:
    (1) If such payroll period is weekly: $50, plus $15 for each person 
who is claimed as a dependent pursuant to paragraph (d) of this section.
    (2) If such payroll period is biweekly: $100, plus $30 for each 
person who is claimed as a dependent pursuant to paragraph (d) of this 
section.
    (3) If such payroll period is semimonthly: $108.33, plus $32.50 for 
each person who is claimed as a dependent pursuant to paragraph (d) of 
this section.
    (4) If such payroll period is monthly: $216.67, plus $65 for each 
person who is claimed as a dependent pursuant to paragraph (d) of this 
section.
    (5) If such payroll period is not weekly, biweekly, semimonthly or 
monthly: a proportionate amount based upon the sum of an annual 
exemption of $2,600 plus $780 for each person who is claimed as a 
dependent pursuant to paragraph (d) of this section.
    (d) Dependent exemption--(1) Dependent defined. For purposes of this 
section, a person is a dependent of an individual for any payroll period 
of such individual, if--
    (i) Over half of such person's support for such payroll period was 
received from the individual, and
    (ii) Such person is the spouse of the individual, or bears a 
relationship to the individual specified in section 152(a) (1) through 
(9) (relating to definition of dependent), and
    (iii) Such person is not a minor child of the individual with 
respect to whom amounts are exempt from levy under section 6334(a)(8) 
(relating to exemption from levy for judgments for support of minor 
children) at any time during such payroll period.

For purposes of subdivision (ii) of this subparagraph, ``payroll 
period'' shall be substituted for ``taxable year'' each place it appears 
in section 152(a)(9).
    (2) Claim for dependent exemption. No amount prescribed by paragraph 
(c) of this section as being exempt from levy for each person who is 
claimed as a dependent pursuant to this paragraph shall be so exempt 
unless there is delivered to the employer or other person

[[Page 1007]]

upon whom notice of levy is served a written statement, signed by the 
individual seeking such exemption and containing a declaration that it 
is made under the penalties of perjury, which identifies, by name and by 
relationship to such individual, each person for whom a dependent 
exemption is claimed.
    (e) Cross references. (1) For the requirement for notice of intent 
to levy on salary or wages, see section 6331(d)(1).
    (2) For the continuing effect of a levy on salary or wages, see 
section 6331(d)(3).
    (3) For other property exempt from levy, see section 6334 and Sec.  
301.6334-1.
    (f) Effective date. The regulations prescribed by this section shall 
apply with respect to levies on wages, salary, and other income made 
after February 28, 1977.

(Sec. 6334(d) (90 Stat. 1709; 68A Stat. 917; 26 U.S.C. 6334))

[T.D. 7468, 42 FR 12042, Mar. 2, 1977]

                        PARTS 405	419 [RESERVED]



PART 420_TEMPORARY REGULATIONS ON PROCEDURE AND ADMINISTRATION 
UNDER THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974--Table of Contents



    Source: T.D. 7347, 40 FR 12075, Mar. 17, 1975, unless otherwise 
noted.



Sec.  420.0-1  Certain existing plans may elect new provisions.

    (a) In general. The plan administrator (as defined in section 
414(g)) of a plan that was in existence on January 1, 1974, may elect to 
have the provisions of the Code relating to participation, vesting, 
funding, and form of benefit (as in effect from time to time) apply to a 
plan year selected by the plan administrator which begins after 
September 2, 1974, but before the otherwise applicable effective dates 
determined under section 1017 (b) or (c), 1021, or 1024 of the Employee 
Retirement Income Security Act of 1974, and to all subsequent plan 
years. The provisions referred to are the amendments to the Code made by 
sections 1011, 1012, 1013, 1015, 1016(a) (1) through (11) and (13) 
through (27), 1021, and 1022(b) of the Employee Retirement Income 
Security Act of 1974.
    (b) Election is irrevocable. Any election made under this section, 
once made, shall be irrevocable.
    (c) Procedure and time for making election. An election under this 
section shall be made by attaching a statement to either the annual 
return required under section 6058(a) (or an amended return) with 
respect to the plan which is filed for the first plan year for which the 
election is effective or to a written request for a determination letter 
relating to the qualification of the plan under section 401 (a), 403(a), 
or 405(a) of the Code and, if trusteed, the exempt status under section 
501(a) of the Code of a trust constituting a part of the plan. If the 
election is made with a written request for a determination letter, the 
election may be conditioned upon issuance of a favorable determination 
letter, and will become irrevocable upon issuance of such letter. The 
statement shall indicate that the election is made under section 1017 
(d) of the Employee Retirement Income Security Act of 1974 and the first 
plan year for which the election is effective.

(Sec. 1017(d), Employee Retirement Income Security Act of 1974, 88 Stat. 
934)

                        PARTS 421	499 [RESERVED]

[[Page 1009]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  Table of OMB Control Numbers
  List of CFR Sections Affected

[[Page 1011]]



                    Table of CFR Titles and Chapters




                      (Revised as of April 1, 2021)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--599)
        VI  National Capital Planning Commission (Parts 600--699)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Department of Housing and Urban Development (Parts 
                2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)

[[Page 1012]]

     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600--3699)

[[Page 1013]]

    XXVIII  Department of Justice (Parts 3800--3899)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  U.S. International Development Finance Corporation 
                (Parts 4300--4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
     XXXVI  Department of Homeland Security (Parts 4600--4699)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)

[[Page 1014]]

     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
    XCVIII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Parts 10000--10049)
        CI  National Mediation Board (Part 10101)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Agricultural Marketing Service (Federal Grain 
                Inspection Service, Fair Trade Practices Program), 
                Department of Agriculture (Parts 800--899)

[[Page 1015]]

        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  (Parts 1600--1699) [Reserved]
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  (Parts 2200--2299) [Reserved]
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

[[Page 1016]]

         L  Rural Business-Cooperative Service, Rural Housing 
                Service, and Rural Utilities Service, Department 
                of Agriculture (Part 5001)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Agricultural Marketing Service (Fair Trade Practices 
                Program), Department of Agriculture (Parts 200--
                299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1300--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  (Parts 500--599) [Reserved]
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  (Parts 900--999) [Reserved]
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)

[[Page 1017]]

        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research, Department of the 
                Treasury (Parts 1600--1699)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--1199)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)

[[Page 1018]]

      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  National Technical Information Service, Department of 
                Commerce (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399) [Reserved]

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  U.S. Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599) [Reserved]

[[Page 1019]]

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  United States Agency for Global Media (Parts 500--599)
       VII  U.S. International Development Finance Corporation 
                (Parts 700--799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millennium Challenge Corporation (Parts 1300--1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

[[Page 1020]]

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) [Reserved]
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)

[[Page 1021]]

      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--899)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900--999)
        VI  Office of the Assistant Secretary, Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--799)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

[[Page 1022]]

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)

[[Page 1023]]

        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of Investment Security, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Department of Defense, Defense Logistics Agency (Parts 
                1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army, Department 
                of Defense (Parts 200--399)
        IV  Great Lakes St. Lawrence Seaway Development 
                Corporation, Department of Transportation (Parts 
                400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education

[[Page 1024]]

         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Career, Technical, and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599) 
                [Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799) 
                [Reserved]
            Subtitle C--Regulations Relating to Education
        XI  (Parts 1100--1199) [Reserved]
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
        VI  [Reserved]
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  U.S. Copyright Office, Library of Congress (Parts 
                200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  National Institute of Standards and Technology, 
                Department of Commerce (Parts 400--599)

[[Page 1025]]

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)
        IX  Federal Permitting Improvement Steering Council (Part 
                1900)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
   62--100  [Reserved]
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
  103--104  (Parts 103-001--104-099) [Reserved]
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
  129--200  [Reserved]

[[Page 1026]]

            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
   II--III  [Reserved]
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--699)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1099)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare

[[Page 1027]]

        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
        IX  Denali Commission (Parts 900--999)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Administration for Children and Families, Department 
                of Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission of Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Parts 2300--2399)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)

[[Page 1028]]

       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)
        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)
         V  The First Responder Network Authority (Parts 500--599)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199) [Reserved]
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)

[[Page 1029]]

        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399) 
                [Reserved]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)

[[Page 1030]]

        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 1031]]





           Alphabetical List of Agencies Appearing in the CFR




                      (Revised as of April 1, 2021)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     5, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, VIII, IX, X, XI; 9, 
                                                  II
Agricultural Research Service                     7, V
Agriculture, Department of                        2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  Agricultural Marketing Service                  7, I, VIII, IX, X, XI; 9, 
                                                  II
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  National Institute of Food and Agriculture      7, XXXIV
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force, Department of                          32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
   Compliance Board
[[Page 1032]]

Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI; 38, II
Army, Department of                               32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase from People Who Are
  Federal Acquisition Regulation                  48, 19
Career, Technical, and Adult Education, Office    34, IV
     of
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazard Investigation Board    40, VI
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X, XIII
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce, Department of                           2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II; 37, IV
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Technical Information Service          15, XI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Secretary of Commerce, Office of                15, Subtitle A
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense, Department of                            2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III; 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54

[[Page 1033]]

  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy, Department of                             32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
Denali Commission                                 45, IX
Disability, National Council on                   5, C; 34, XII
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Career, Technical, and Adult Education, Office  34, IV
       of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Policy, National Commission for        1, IV
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             2, IX; 5, XXIII; 10, II, 
                                                  III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99
  National Drug Control Policy, Office of         2, XXXVI; 21, III
  National Security Council                       32, XXI; 47, II
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II

[[Page 1034]]

Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       5, XXXVII; 11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Agency                    5, LXXX; 12, XII
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Permitting Improvement Steering Council   40, IX
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission of                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F

[[Page 1035]]

  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X, XIII
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 5, XXXVI; 6, I; 8, 
                                                  I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Independent Counsel, Offices of                   28, VI
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII

[[Page 1036]]

Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior, Department of                           2, XIV
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Safety and Enforcement Bureau, Bureau of        30, II
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Development Finance Corporation,    5, XXXIII; 22, VII
     U.S.
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
Investment Security, Office of                    31, VIII
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice, Department of                            2, XXVIII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor, Department of                              2, XXIX; 5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV

[[Page 1037]]

  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I, VI
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Libraries and Information Science, National       45, XVII
     Commission on
Library of Congress                               36, VII
  Copyright Royalty Board                         37, III
  U.S. Copyright Office                           37, II
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Military Compensation and Retirement              5, XCIX
     Modernization Commission
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   2, XXII; 45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV, VI
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Geospatial-Intelligence Agency           32, I
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II; 37, IV
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          5, CI; 29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI; 47, II
National Technical Information Service            15, XI
National Telecommunications and Information       15, XXIII; 47, III, IV, V
   Administration
[[Page 1038]]

National Transportation Safety Board              49, VIII
Natural Resource Revenue, Office of               30, XII
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy, Department of                               32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, IV, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Privacy and Civil Liberties Oversight Board       6, X
Procurement and Property Management, Office of    7, XXXII
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Contracts, Department of Labor             41, 50
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Utilities Service                           7, XVII, XVIII, XLII
Safety and Environmental Enforcement, Bureau of   30, II
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of, and     32, XXIV; 47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State, Department of                              2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6

[[Page 1039]]

Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Tennessee Valley Authority                        5, LXIX; 18, XIII
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury, Department of the                       2, X; 5, XXI; 12, XV; 17, 
                                                  IV; 31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection                   19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
Truman, Harry S. Scholarship Foundation           45, XVIII
United States Agency for Global Media             22, V
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
U.S. Copyright Office                             37, II
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs, Department of                   2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 1041]]







                      Table of OMB Control Numbers



The OMB control numbers for chapter I of title 26 were consolidated into 
Sec. Sec.  601.9000 and 602.101 at 50 FR 10221, Mar. 14, 1985. At 61 FR 
58008, Nov. 12, 1996, Sec.  601.9000 was removed. Section 602.101 is 
reprinted below for the convenience of the user.



PART 602_OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT--Table of Contents





Sec.  602.101  OMB Control numbers.

    (a) Purpose. This part collects and displays the control numbers 
assigned to collections of information in Internal Revenue Service 
regulations by the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act of 1980. The Internal Revenue Service intends 
that this part comply with the requirements of Sec. Sec.  1320.7(f), 
1320.12, 1320.13, and 1320.14 of 5 CFR part 1320 (OMB regulations 
implementing the Paperwork Reduction Act), for the display of control 
numbers assigned by OMB to collections of information in Internal 
Revenue Service regulations. This part does not display control numbers 
assigned by the Office of Management and Budget to collections of 
information of the Bureau of Alcohol, Tobacco, and Firearms.
    (b) Display.

------------------------------------------------------------------------
                                                             Current OMB
     CFR part or section where identified and described      control No.
------------------------------------------------------------------------
1.1(h)-1(e)................................................    1545-1654
1.25-1T....................................................    1545-0922
                                                               1545-0930
1.25-2T....................................................    1545-0922
                                                               1545-0930
1.25-3T....................................................    1545-0922
                                                               1545-0930
1.25-4T....................................................    1545-0922
1.25-5T....................................................    1545-0922
1.25-6T....................................................    1545-0922
1.25-7T....................................................    1545-0922
1.25-8T....................................................    1545-0922
1.25A-1....................................................    1545-1630
1.28-1.....................................................    1545-0619
1.31-2.....................................................    1545-0074
1.32-2.....................................................    1545-0074
1.32-3.....................................................    1545-1575
1.36B-5....................................................    1545-2232
1.37-1.....................................................    1545-0074
1.37-3.....................................................    1545-0074
1.41-2.....................................................    1545-0619
1.41-3.....................................................    1545-0619
1.41-4A....................................................    1545-0074
1.41-4 (b) and (c).........................................    1545-0074
1.41-8(b)..................................................    1545-1625
1.41-8(d)..................................................    1545-0732
1.41-9.....................................................    1545-0619
1.42-1T....................................................    1545-0984
                                                               1545-0988
1.42-5.....................................................    1545-1357
1.42-6.....................................................    1545-1102
1.42-8.....................................................    1545-1102
1.42-10....................................................    1545-1102
1.42-13....................................................    1545-1357
1.42-14....................................................    1545-1423
1.42-17....................................................    1545-1357
1.42-18....................................................    1545-2088
1.43-3(a)(3)...............................................    1545-1292
1.43-3(b)(3)...............................................    1545-1292
1.44B-1....................................................    1545-0219
1.45D-1....................................................    1545-1765
1.45G-1....................................................    1545-2031
1.46-1.....................................................    1545-0123
                                                               1545-0155
1.46-3.....................................................    1545-0155
1.46-4.....................................................    1545-0155
1.46-5.....................................................    1545-0155
1.46-6.....................................................    1545-0155
1.46-8.....................................................    1545-0155
1.46-9.....................................................    1545-0155
1.46-10....................................................    1545-0118
1.47-1.....................................................    1545-0155
                                                               1545-0166
1.47-3.....................................................    1545-0155
                                                               1545-0166
1.47-4.....................................................    1545-0123
1.47-5.....................................................    1545-0092
1.47-6.....................................................    1545-0099
1.48-3.....................................................    1545-0155
1.48-4.....................................................    1545-0155
                                                               1545-0808
1.48-5.....................................................    1545-0155
1.48-6.....................................................    1545-0155
1.48-12....................................................    1545-0155
                                                               1545-1783
1.50A-1....................................................    1545-0895
1.50A-2....................................................    1545-0895
1.50A-3....................................................    1545-0895
1.50A-4....................................................    1545-0895
1.50A-5....................................................    1545-0895
1.50A-6....................................................    1545-0895
1.50A-7....................................................    1545-0895
1.50B-1....................................................    1545-0895
1.50B-2....................................................    1545-0895
1.50B-3....................................................    1545-0895
1.50B-4....................................................    1545-0895
1.50B-5....................................................    1545-0895
1.51-1.....................................................    1545-0219

[[Page 1042]]

 
                                                               1545-0241
                                                               1545-0244
                                                               1545-0797
1.52-2.....................................................    1545-0219
1.52-3.....................................................    1545-0219
1.56(g)-1..................................................    1545-1233
1.57-5.....................................................    1545-0227
1.58-1.....................................................    1545-0175
1.59-1.....................................................    1545-1903
1.61-2.....................................................    1545-0771
1.61-4.....................................................    1545-0187
1.61-15....................................................    1545-0074
1.62-2.....................................................    1545-1148
1.63-1.....................................................    1545-0074
1.66-4.....................................................    1545-1770
1.67-2T....................................................    1545-0110
1.67-3.....................................................    1545-1018
1.67-3T....................................................    1545-0118
1.71-1T....................................................    1545-0074
1.72-4.....................................................    1545-0074
1.72-6.....................................................    1545-0074
1.72-9.....................................................    1545-0074
1.72-17....................................................    1545-0074
1.72-17A...................................................    1545-0074
1.72-18....................................................    1545-0074
1.74-1.....................................................    1545-1100
1.79-2.....................................................    1545-0074
1.79-3.....................................................    1545-0074
1.83-2.....................................................    1545-0074
1.83-5.....................................................    1545-0074
1.83-6.....................................................    1545-1448
1.103-10...................................................    1545-0123
                                                               1545-0940
1.103A-2...................................................    1545-0720
1.105-4....................................................    1545-0074
1.105-5....................................................    1545-0074
1.105-6....................................................    1545-0074
1.108-4....................................................    1545-1539
1.108-5....................................................    1545-1421
1.108-7....................................................    1545-2155
1.108(i)-1.................................................    1545-2147
1.108(i)-2.................................................    1545-2147
1.110-1....................................................    1545-1661
1.117-5....................................................    1545-0869
1.118-2....................................................    1545-1639
1.119-1....................................................    1545-0067
1.120-3....................................................    1545-0057
1.121-1....................................................    1545-0072
1.121-2....................................................    1545-0072
1.121-3....................................................    1545-0072
1.121-4....................................................    1545-0072
                                                               1545-0091
1.121-5....................................................    1545-0072
1.127-2....................................................    1545-0768
1.132-2....................................................    1545-0771
1.132-5....................................................    1545-0771
1.132-9(b).................................................    1545-1676
1.141-1....................................................    1545-1451
1.141-12...................................................    1545-1451
1.142-2....................................................    1545-1451
1.142(f)(4)-1..............................................    1545-1730
1.148-0....................................................    1545-1098
1.148-1....................................................    1545-1098
1.148-2....................................................    1545-1098
                                                               1545-1347
1.148-3....................................................    1545-1098
                                                               1545-1347
1.148-4....................................................    1545-1098
                                                               1545-1347
1.148-5....................................................    1545-1098
                                                               1545-1490
1.148-6....................................................    1545-1098
                                                               1545-1451
1.148-7....................................................    1545-1098
                                                               1545-1347
1.148-8....................................................    1545-1098
1.148-11...................................................    1545-1098
                                                               1545-1347
1.149(e)-1.................................................    1545-0720
1.150-1....................................................    1545-1347
1.151-1....................................................    1545-0074
1.152-3....................................................    1545-0071
                                                               1545-1783
1.152-4....................................................    1545-0074
1.152-4T...................................................    1545-0074
1.162-1....................................................    1545-0139
1.162-2....................................................    1545-0139
1.162-3....................................................    1545-0139
1.162-4....................................................    1545-0139
1.162-5....................................................    1545-0139
1.162-6....................................................    1545-0139
1.162-7....................................................    1545-0139
1.162-8....................................................    1545-0139
1.162-9....................................................    1545-0139
1.162-10...................................................    1545-0139
1.162-11...................................................    1545-0139
1.162-12...................................................    1545-0139
1.162-13...................................................    1545-0139
1.162-14...................................................    1545-0139
1.162-15...................................................    1545-0139
1.162-16...................................................    1545-0139
1.162-17...................................................    1545-0139
1.162-18...................................................    1545-0139
1.162-19...................................................    1545-0139
1.162-20...................................................    1545-0139
1.162-24...................................................    1545-2115
1.162-27...................................................    1545-1466
1.163-5....................................................    1545-0786
                                                               1545-1132
1.163-8T...................................................    1545-0995
1.163-10T..................................................    1545-0074
1.163-13...................................................    1545-1491
1.163(d)-1.................................................    1545-1421
1.165-1....................................................    1545-0177
1.165-2....................................................    1545-0177
1.165-3....................................................    1545-0177
1.165-4....................................................    1545-0177
1.165-5....................................................    1545-0177
1.165-6....................................................    1545-0177
1.165-7....................................................    1545-0177
1.165-8....................................................    1545-0177
1.165-9....................................................    1545-0177
1.165-10...................................................    1545-0177
1.165-11...................................................    1545-0074
                                                               1545-0177
                                                               1545-0786
1.165-12...................................................    1545-0786
1.166-1....................................................    1545-0123
1.166-2....................................................    1545-1254
1.166-4....................................................    1545-0123
1.166-10...................................................    1545-0123
1.167(a)-5T................................................    1545-1021
1.167(a)-7.................................................    1545-0172
1.167(a)-11................................................    1545-0152
                                                               1545-0172
1.167(a)-12................................................    1545-0172
1.167(d)-1.................................................    1545-0172
1.167(e)-1.................................................    1545-0172
1.167(f)-11................................................    1545-0172
1.167(l)-1.................................................    1545-0172
1.168(d)-1.................................................    1545-1146
1.168(i)-1.................................................    1545-1331
1.168-5....................................................    1545-0172
1.169-4....................................................    1545-0172

[[Page 1043]]

 
1.170-1....................................................    1545-0074
1.170-2....................................................    1545-0074
1.170-3....................................................    1545-0123
1.170A-1...................................................    1545-0074
1.170A-2...................................................    1545-0074
1.170A-4(A)(b).............................................    1545-0123
1.170A-8...................................................    1545-0074
1.170A-9...................................................    1545-0052
                                                               1545-0074
1.170A-11..................................................    1545-0074
                                                               1545-0123
                                                               1545-1868
1.170A-12..................................................    1545-0020
                                                               1545-0074
1.170A-13..................................................    1545-0074
                                                               1545-0754
                                                               1545-0908
                                                               1545-1431
1.170A-13(f)...............................................    1545-1464
1.170A-14..................................................    1545-0763
1.170A-15..................................................    1545-1953
1.170A-16..................................................    1545-1953
1.170A-17..................................................    1545-1953
1.170A-18..................................................    1545-1953
1.171-4....................................................    1545-1491
1.171-5....................................................    1545-1491
1.172-1....................................................    1545-0172
1.172-13...................................................    1545-0863
1.173-1....................................................    1545-0172
1.174-3....................................................    1545-0152
1.174-4....................................................    1545-0152
1.175-3....................................................    1545-0187
1.175-6....................................................    1545-0152
1.179-2....................................................    1545-1201
1.179-3....................................................    1545-1201
1.179-5....................................................    1545-0172
                                                               1545-1201
1.179B-1T..................................................    1545-2076
1.179C-1...................................................    1545-2103
1.179C-1T..................................................    1545-2103
1.180-2....................................................    1545-0074
1.181-1....................................................    1545-2059
1.181-2....................................................    1545-2059
1.181-3....................................................    1545-2059
1.182-6....................................................    1545-0074
1.183-1....................................................    1545-0195
1.183-2....................................................    1545-0195
1.183-3....................................................    1545-0195
1.183-4....................................................    1545-0195
1.190-3....................................................    1545-0074
1.194-2....................................................    1545-0735
1.194-4....................................................    1545-0735
1.195-1....................................................    1545-1582
1.197-1T...................................................    1545-1425
1.197-2....................................................    1545-1671
1.199-6....................................................    1545-1966
1.213-1....................................................    1545-0074
1.215-1T...................................................    1545-0074
1.217-2....................................................    1545-0182
1.243-3....................................................    1545-0123
1.243-4....................................................    1545-0123
1.243-5....................................................    1545-0123
1.248-1....................................................    1545-0172
1.261-1....................................................    1545-1041
1.263(a)-1.................................................    1545-2248
1.263(a)-3.................................................    1545-2248
1.263(a)-5.................................................    1545-1870
1.263(e)-1.................................................    1545-0123
1.263A-1...................................................    1545-0987
1.263A-1T..................................................    1545-0187
1.263A-2...................................................    1545-0987
1.263A-3...................................................    1545-0987
1.263A-8(b)(2)(iii)........................................    1545-1265
1.263A-9(d)(1).............................................    1545-1265
1.263A-9(f)(1)(ii).........................................    1545-1265
1.263A-9(f)(2)(iv).........................................    1545-1265
1.263A-9(g)(2)(iv)(C)......................................    1545-1265
1.263A-9(g)(3)(iv).........................................    1545-1265
1.265-1....................................................    1545-0074
1.265-2....................................................    1545-0123
1.266-1....................................................    1545-0123
1.267(f)-1.................................................    1545-0885
1.268-1....................................................    1545-0184
1.274-1....................................................    1545-0139
1.274-2....................................................    1545-0139
1.274-3....................................................    1545-0139
1.274-4....................................................    1545-0139
1.274-5....................................................    1545-0771
1.274-5A...................................................    1545-0139
                                                               1545-0771
1.274-5T...................................................    1545-0074
                                                               1545-0172
                                                               1545-0771
1.274-6....................................................    1545-0139
                                                               1545-0771
1.274-6T...................................................    1545-0074
                                                               1545-0771
1.274-7....................................................    1545-0139
1.274-8....................................................    1545-0139
1.279-6....................................................    1545-0123
1.280C-4...................................................    1545-1155
1.280F-3T..................................................    1545-0074
1.280G-1...................................................    1545-1851
1.281-4....................................................    1545-0123
1.302-4....................................................    1545-0074
1.305-3....................................................    1545-0123
1.305-5....................................................    1545-1438
1.307-2....................................................    1545-0074
1.312-15...................................................    1545-0172
1.316-1....................................................    1545-0123
1.331-1....................................................    1545-0074
1.332-4....................................................    1545-0123
1.332-6....................................................    1545-2019
1.336-2....................................................    1545-2125
1.336-4....................................................    1545-2125
1.337(d)-1.................................................    1545-1160
1.337(d)-2.................................................    1545-1160
                                                               1545-1774
1.337(d)-4.................................................    1545-1633
1.337(d)-5.................................................    1545-1672
1.337(d)-6.................................................    1545-1672
1.337(d)-7.................................................    1545-1672
1.338-2....................................................    1545-1658
1.338-5....................................................    1545-1658
1.338-10...................................................    1545-1658
1.338-11...................................................    1545-1990
1.338(h)(10)-1.............................................    1545-1658
1.338(i)-1.................................................    1545-1990
1.351-3....................................................    1545-2019
1.355-5....................................................    1545-2019
1.362-2....................................................    1545-0123
1.362-4....................................................    1545-2247
1.367(a)-1T................................................    1545-0026
1.367(a)-2T................................................    1545-0026
1.367(a)-3.................................................    1545-0026
                                                               1545-1478
1.367(a)-3T................................................    1545-2183
1.367(a)-6T................................................    1545-0026
1.367(a)-7.................................................    1545-2183
1.367(a)-7T................................................    1545-2183
1.367(a)-8.................................................    1545-1271
                                                               1545-2056
                                                               1545-2183
1.367(b)-1.................................................    1545-1271

[[Page 1044]]

 
1.367(b)-3T................................................    1545-1666
1.367(d)-1T................................................    1545-0026
1.367(e)-1.................................................    1545-1487
1.367(e)-2.................................................    1545-1487
1.368-1....................................................    1545-1691
1.368-3....................................................    1545-2019
1.371-1....................................................    1545-0123
1.371-2....................................................    1545-0123
1.374-3....................................................    1545-0123
1.381(b)-1.................................................    1545-0123
1.381(c)(4)-1..............................................    1545-0123
                                                               1545-0152
                                                               1545-0879
1.381(c)(5)-1..............................................    1545-0123
                                                               1545-0152
1.381(c)(6)-1..............................................    1545-0123
                                                               1545-0152
1.381(c)(8)-1..............................................    1545-0123
1.381(c)(10)-1.............................................    1545-0123
1.381(c)(11)-1(k)..........................................    1545-0123
1.381(c)(13)-1.............................................    1545-0123
1.381(c)(17)-1.............................................    1545-0045
1.381(c)(22)-1.............................................    1545-1990
1.381(c)(25)-1.............................................    1545-0045
1.382-1T...................................................    1545-0123
1.382-2....................................................    1545-0123
1.382-2T...................................................    1545-0123
1.382-3....................................................    1545-1281
                                                               1545-1345
1.382-4....................................................    1545-1120
1.382-6....................................................    1545-1381
1.382-8....................................................    1545-1434
1.382-9....................................................    1545-1120
                                                               1545-1260
                                                               1545-1275
                                                               1545-1324
1.382-11...................................................    1545-2019
1.382-91...................................................    1545-1260
                                                               1545-1324
1.383-1....................................................    1545-0074
                                                               1545-1120
1.401-1....................................................    1545-0020
                                                               1545-0197
                                                               1545-0200
                                                               1545-0534
                                                               1545-0710
1.401(a)-11................................................    1545-0710
1.401(a)-20................................................    1545-0928
1.401(a)-31................................................    1545-1341
1.401(a)-50................................................    1545-0710
1.401(a)(9)-1..............................................    1545-1573
1.401(a)(9)-3..............................................    1545-1466
1.401(a)(9)-4..............................................    1545-1573
1.401(a)(9)-6..............................................    1545-2234
1.401(a)(31)-1.............................................    1545-1341
1.401(b)-1.................................................    1545-0197
1.401(f)-1.................................................    1545-0710
1.401(k)-1.................................................    1545-1039
                                                               1545-1069
                                                               1545-1669
                                                               1545-1930
1.401(k)-2.................................................    1545-1669
1.401(k)-3.................................................    1545-1669
1.401(k)-4.................................................    1545-1669
1.401(m)-3.................................................    1545-1699
1.401-14...................................................    1545-0710
1.402(c)-2.................................................    1545-1341
1.402(f)-1.................................................    1545-1341
                                                               1545-1632
1.402A-1...................................................    1545-1992
1.403(b)-1.................................................    1545-0710
1.403(b)-3.................................................    1545-0996
1.403(b)-7.................................................    1545-1341
1.403(b)-10................................................    1545-2068
1.404(a)-12................................................    1545-0710
1.404A-2...................................................    1545-0123
1.404A-6...................................................    1545-0123
1.408-2....................................................    1545-0390
1.408-5....................................................    1545-0747
1.408-6....................................................    1545-0203
                                                               1545-0390
1.408-7....................................................    1545-0119
1.408(q)-1.................................................    1545-1841
1.408A-2...................................................    1545-1616
1.408A-4...................................................    1545-1616
1.408A-5...................................................    1545-1616
1.408A-7...................................................    1545-1616
1.410(a)-2.................................................    1545-0710
1.410(d)-1.................................................    1545-0710
1.411(a)-11................................................    1545-1471
                                                               1545-1632
1.411(d)-4.................................................    1545-1545
1.411(d)-6.................................................    1545-1477
1.412(c)(1)-2..............................................    1545-0710
1.412(c)(2)-1..............................................    1545-0710
1.412(c)(3)-2..............................................    1545-0710
1.414(c)-5.................................................    1545-0797
1.414(r)-1.................................................    1545-1221
1.415-2....................................................    1545-0710
1.415-6....................................................    1545-0710
1.417(a)(3)-1..............................................    1545-0928
1.417(e)-1.................................................    1545-1471
                                                               1545-1724
1.417(e)-1T................................................    1545-1471
1.419A(f)(6)-1.............................................    1545-1795
1.422-1....................................................    1545-0820
1.430(f)-1.................................................    1545-2095
1.430(g)-1.................................................    1545-2095
1.430(h)(2)-1..............................................    1545-2095
1.432(e)(9)-1T.............................................    1545-2260
1.436-1....................................................    1545-2095
1.441-2....................................................    1545-1748
1.442-1....................................................    1545-0074
                                                               1545-0123
                                                               1545-0134
                                                               1545-0152
                                                               1545-0820
                                                               1545-1748
1.443-1....................................................    1545-0123
1.444-3T...................................................    1545-1036
1.444-4....................................................    1545-1591
1.446-1....................................................    1545-0074
                                                               1545-0152
1.446-4(d).................................................    1545-1412
1.448-1(g).................................................    1545-0152
1.448-1(h).................................................    1545-0152
1.448-1(i).................................................    1545-0152
1.448-2....................................................    1545-1855
1.448-2T...................................................    1545-0152
                                                               1545-1855
1.451-1....................................................    1545-0091
1.451-4....................................................    1545-0123
1.451-6....................................................    1545-0074
1.451-7....................................................    1545-0074
1.453-1....................................................    1545-0152
1.453-2....................................................    1545-0152
1.453-8....................................................    1545-0152
                                                               1545-0228
1.453A-1...................................................    1545-0152
                                                               1545-1134
1.453A-3...................................................    1545-0963
1.454-1....................................................    1545-0074
1.455-2....................................................    1545-0152
1.455-6....................................................    1545-0123

[[Page 1045]]

 
1.456-2....................................................    1545-0123
1.456-6....................................................    1545-0123
1.456-7....................................................    1545-0123
1.457-8....................................................    1545-1580
1.458-1....................................................    1545-0879
1.458-2....................................................    1545-0152
1.460-1....................................................    1545-1650
1.460-6....................................................    1545-1031
                                                               1545-1572
                                                               1545-1732
1.461-1....................................................    1545-0074
1.461-2....................................................    1545-0096
1.461-4....................................................    1545-0917
1.461-5....................................................    1545-0917
1.463-1T...................................................    1545-0916
1.465-1T...................................................    1545-0712
1.466-1T...................................................    1545-0152
1.466-4....................................................    1545-0152
1.468A-3...................................................    1545-1269
                                                               1545-1378
                                                               1545-1511
1.468A-3(h), 1.468A-7, and 1.468A-8(d).....................    1545-2091
1.468A-4...................................................    1545-0954
1.468A-7...................................................    1545-0954
                                                               1545-1511
1.468A-8...................................................    1545-1269
1.468B-1...................................................    1545-1631
1.468B-1(j)................................................    1545-1299
1.468B-2(k)................................................    1545-1299
1.468B-2(l)................................................    1545-1299
1.468B-3(b)................................................    1545-1299
1.468B-3(e)................................................    1545-1299
1.468B-5(b)................................................    1545-1299
1.468B-9...................................................    1545-1631
1.469-1....................................................    1545-1008
1.469-2T...................................................    1545-0712
                                                               1545-1091
1.469-4T...................................................    1545-0985
                                                               1545-1037
1.469-7....................................................    1545-1244
1.471-2....................................................    1545-0123
1.471-5....................................................    1545-0123
1.471-6....................................................    1545-0123
1.471-8....................................................    1545-0123
1.471-11...................................................    1545-0123
                                                               1545-0152
1.472-1....................................................    1545-0042
                                                               1545-0152
1.472-2....................................................    1545-0152
1.472-3....................................................    1545-0042
1.472-5....................................................    1545-0152
1.472-8....................................................    1545-0028
                                                               1545-0042
                                                               1545-1767
1.475(a)-4.................................................    1545-1945
1.481-4....................................................    1545-0152
1.481-5....................................................    1545-0152
1.482-1....................................................    1545-1364
1.482-4....................................................    1545-1364
1.482-7....................................................    1545-1364
                                                               1545-1794
1.482-9(b).................................................    1545-2149
1.501(a)-1.................................................    1545-0056
                                                               1545-0057
1.501(c)(3)-1..............................................    1545-0056
1.501(c)(9)-5..............................................    1545-0047
1.501(c)(17)-3.............................................    1545-0047
1.501(e)-1.................................................    1545-0814
1.501(r)-3.................................................    1545-0047
1.501(r)-4.................................................    1545-0047
1.501(r)-6.................................................    1545-0047
1.503(c)-1.................................................    1545-0047
                                                               1545-0052
1.505(c)-1T................................................    1545-0916
1.506-1....................................................    1545-2268
1.507-1....................................................    1545-0052
1.507-2....................................................    1545-0052
1.508-1....................................................    1545-0052
                                                               1545-0056
1.509(a)-3.................................................    1545-0047
1.509(a)-4.................................................    1545-2157
1.509(a)-5.................................................    1545-0047
1.509(c)-1.................................................    1545-0052
1.512(a)-1.................................................    1545-0687
1.512(a)-4.................................................    1545-0047
                                                               1545-0687
1.521-1....................................................    1545-0051
                                                               1545-0058
1.527-2....................................................    1545-0129
1.527-5....................................................    1545-0129
1.527-6....................................................    1545-0129
1.527-9....................................................    1545-0129
1.528-8....................................................    1545-0127
1.529A-2...................................................    1545-2293
1.529A-5...................................................    1545-2262
1.529A-6...................................................    1545-2262
1.529A-7...................................................    1545-2262
1.533-2....................................................    1545-0123
1.534-2....................................................    1545-0123
1.542-3....................................................    1545-0123
1.545-2....................................................    1545-0123
1.545-3....................................................    1545-0123
1.547-2....................................................    1545-0045
                                                               1545-0123
1.547-3....................................................    1545-0123
1.561-1....................................................    1545-0044
1.561-2....................................................    1545-0123
1.562-3....................................................    1545-0123
1.563-2....................................................    1545-0123
1.564-1....................................................    1545-0123
1.565-1....................................................    1545-0043
                                                               1545-0123
1.565-2....................................................    1545-0043
1.565-3....................................................    1545-0043
1.565-5....................................................    1545-0043
1.565-6....................................................    1545-0043
1.585-1....................................................    1545-0123
1.585-3....................................................    1545-0123
1.585-8....................................................    1545-1290
1.597-2....................................................    1545-1300
1.597-4....................................................    1545-1300
1.597-6....................................................    1545-1300
1.597-7....................................................    1545-1300
1.611-2....................................................    1545-0099
1.611-3....................................................    1545-0007
                                                               1545-0099
                                                               1545-1784
1.612-4....................................................    1545-0074
1.612-5....................................................    1545-0099
1.613-3....................................................    1545-0099
1.613-4....................................................    1545-0099
1.613-6....................................................    1545-0099
1.613-7....................................................    1545-0099
1.613A-3...................................................    1545-0919
1.613A-3(e)................................................    1545-1251
1.613A-3(l)................................................    1545-0919
1.613A-5...................................................    1545-0099
1.613A-6...................................................    1545-0099
1.614-2....................................................    1545-0099
1.614-3....................................................    1545-0099
1.614-5....................................................    1545-0099
1.614-6....................................................    1545-0099
1.614-8....................................................    1545-0099
1.617-1....................................................    1545-0099

[[Page 1046]]

 
1.617-3....................................................    1545-0099
1.617-4....................................................    1545-0099
1.631-1....................................................    1545-0007
1.631-2....................................................    1545-0007
1.641(b)-2.................................................    1545-0092
1.642(c)-1.................................................    1545-0092
1.642(c)-2.................................................    1545-0092
1.642(c)-5.................................................    1545-0074
1.642(c)-6.................................................    1545-0020
                                                               1545-0074
                                                               1545-0092
1.642(g)-1.................................................    1545-0092
1.642(i)-1.................................................    1545-0092
1.645-1....................................................    1545-1578
1.663(b)-2.................................................    1545-0092
1.664-1....................................................    1545-0196
1.664-1(a)(7)..............................................    1545-1536
1.664-1(c).................................................    1545-2101
1.664-2....................................................    1545-0196
1.664-3....................................................    1545-0196
1.664-4....................................................    1545-0020
                                                               1545-0196
1.665(a)-0A through
1.665(g)-2A................................................    1545-0192
1.666(d)-1A................................................    1545-0092
1.671-4....................................................    1545-1442
1.671-5....................................................    1545-1540
1.701-1....................................................    1545-0099
1.702-1....................................................    1545-0074
1.703-1....................................................    1545-0099
1.704-2....................................................    1545-1090
1.706-1....................................................    1545-0074
                                                               1545-0099
                                                               1545-0134
1.706-1T...................................................    1545-0099
1.706-4(f).................................................    1545-0123
1.707-3(c)(2)..............................................    1545-1243
1.707-5(a)(7)(ii)..........................................    1545-1243
1.707-6(c).................................................    1545-1243
1.707-8....................................................    1545-1243
1.708-1....................................................    1545-0099
1.732-1....................................................    1545-0099
                                                               1545-1588
1.736-1....................................................    1545-0074
1.743-1....................................................    1545-0074
                                                               1545-1588
1.751-1....................................................    1545-0074
                                                               1545-0099
                                                               1545-0941
1.752-2....................................................    1545-1905
1.752-5....................................................    1545-1090
1.752-7....................................................    1545-1843
1.754-1....................................................    1545-0099
1.755-1....................................................    1545-0099
1.761-2....................................................    1545-1338
1.801-1....................................................    1545-0123
                                                               1545-0128
1.801-3....................................................    1545-0123
1.801-5....................................................    1545-0128
1.801-8....................................................    1545-0128
1.804-4....................................................    1545-0128
1.811-2....................................................    1545-0128
1.812-2....................................................    1545-0128
1.815-6....................................................    1545-0128
1.818-4....................................................    1545-0128
1.818-5....................................................    1545-0128
1.818-8....................................................    1545-0128
1.819-2....................................................    1545-0128
1.822-5....................................................    1545-1027
1.822-6....................................................    1545-1027
1.822-8....................................................    1545-1027
1.822-9....................................................    1545-1027
1.826-1....................................................    1545-1027
1.826-2....................................................    1545-1027
1.826-3....................................................    1545-1027
1.826-4....................................................    1545-1027
1.826-6....................................................    1545-1027
1.831-3....................................................    1545-0123
1.832-4....................................................    1545-1227
1.832-5....................................................    1545-0123
1.848-2(g)(8)..............................................    1545-1287
1.848-2(h)(3)..............................................    1545-1287
1.848-2(i)(4)..............................................    1545-1287
1.851-2....................................................    1545-1010
1.851-4....................................................    1545-0123
1.852-1....................................................    1545-0123
1.852-4....................................................    1545-0123
                                                               1545-0145
1.852-6....................................................    1545-0123
                                                               1545-0144
1.852-7....................................................    1545-0074
1.852-9....................................................    1545-0074
                                                               1545-0123
                                                               1545-0144
                                                               1545-0145
                                                               1545-1783
1.852-11...................................................    1545-1094
1.853-3....................................................    1545-2035
1.853-4....................................................    1545-2035
1.854-2....................................................    1545-0123
1.855-1....................................................    1545-0123
1.856-2....................................................    1545-0123
                                                               1545-1004
1.856-6....................................................    1545-0123
1.856-7....................................................    1545-0123
1.856-8....................................................    1545-0123
1.857-8....................................................    1545-0123
1.857-9....................................................    1545-0074
1.858-1....................................................    1545-0123
1.860-2....................................................    1545-0045
1.860-4....................................................    1545-0045
                                                               1545-1054
                                                               1545-1057
1.860E-1...................................................    1545-1675
1.860E-2(a)(5).............................................    1545-1276
1.860E-2(a)(7).............................................    1545-1276
1.860E-2(b)(2).............................................    1545-1276
1.860G-2...................................................    1545-2110
1.861-2....................................................    1545-0089
1.861-3....................................................    1545-0089
1.861-4....................................................    1545-1900
1.861-8....................................................    1545-0126
1.861-8(e)(6) and (g)......................................    1545-1224
1.861-9T...................................................    1545-0121
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1.861-18...................................................    1545-1594
1.863-1....................................................    1545-1476
1.863-3....................................................    1545-1476
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1.863-3A...................................................    1545-0126
1.863-4....................................................    1545-0126
1.863-7....................................................    1545-0132
1.863-8....................................................    1545-1718
1.863-9....................................................    1545-1718
1.864-4....................................................    1545-0126
1.871-1....................................................    1545-0096
1.871-6....................................................    1545-0795
1.871-7....................................................    1545-0089
1.871-10...................................................    1545-0089
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1.874-1....................................................    1545-0089
1.881-4....................................................    1545-1440
1.882-4....................................................    1545-0126
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1.884-0....................................................    1545-1070
1.884-1....................................................    1545-1070
1.884-2....................................................    1545-1070
1.884-2T...................................................    1545-0126
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1.884-4....................................................    1545-1070
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1.897-3....................................................    1545-0123
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1.901-2A...................................................    1545-0746
1.901-3....................................................    1545-0122
1.902-1....................................................    1545-0122
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1.904-5....................................................    1545-0121
1.904-7....................................................    1545-2104
1.904-7T...................................................    1545-2104
1.904(f)-1.................................................    1545-0121
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1.904(f)-2.................................................    1545-0121
1.904(f)-3.................................................    1545-0121
1.904(f)-4.................................................    1545-0121
1.904(f)-5.................................................    1545-0121
1.904(f)-6.................................................    1545-0121
1.904(f)-7.................................................    1545-1127
1.905-2....................................................    1545-0122
1.905-3T...................................................    1545-1056
1.905-4T...................................................    1545-1056
1.905-5T...................................................    1545-1056
1.911-1....................................................    1545-0067
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1.911-2....................................................    1545-0067
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1.911-3....................................................    1545-0067
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1.911-4....................................................    1545-0067
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1.911-5....................................................    1545-0067
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1.911-6....................................................    1545-0067
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1.911-7....................................................    1545-0067
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1.913-13...................................................    1545-0067
1.921-1T...................................................    1545-0190
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1.921-2....................................................    1545-0884
1.927(a)-1T................................................    1545-0935
1.927(d)-2T................................................    1545-0935
1.931-1....................................................    1545-0074
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1.934-1....................................................    1545-0782
1.935-1....................................................    1545-0074
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1.936-4....................................................    1545-0215
1.936-5....................................................    1545-0704
1.936-6....................................................    1545-0215
1.936-7....................................................    1545-0215
1.936-10(c)................................................    1545-1138
1.937-1....................................................    1545-1930
1.952-2....................................................    1545-0126
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1.954-1....................................................    1545-1068
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1.1014-4...................................................    1545-0184
1.1015-1...................................................    1545-0020
1.1017-1...................................................    1545-1539
1.1031(d)-1T...............................................    1545-1021
1.1033(a)-2................................................    1545-0184
1.1033(g)-1................................................    1545-0184
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1.1042-1T..................................................    1545-0916
1.1044(a)-1................................................    1545-1421
1.1045-1...................................................    1545-1893
1.1060-1...................................................    1545-1658
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1.1071-4...................................................    1545-0184
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1.1092(b)-1T...............................................    1545-0644
1.1092(b)-2T...............................................    1545-0644
1.1092(b)-3T...............................................    1545-0644
1.1092(b)-4T...............................................    1545-0644
1.1092(b)-5T...............................................    1545-0644
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1.1242-1...................................................    1545-0184
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1.1244(e)-1................................................    1545-0123
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1.1245-1...................................................    1545-0184
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1.1248-7...................................................    1545-0074
1.1248(f)-2................................................    1545-2183
1.1248(f)-3T...............................................    1545-2183
1.1250-1...................................................    1545-0184
1.1250-2...................................................    1545-0184
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1.1250-4...................................................    1545-0184
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1.1251-2...................................................    1545-0074
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1.1251-4...................................................    1545-0184
1.1252-1...................................................    1545-0184
1.1252-2...................................................    1545-0184
1.1254-1(c)(3).............................................    1545-1352
1.1254-4...................................................    1545-1493
1.1254-5(d)(2).............................................    1545-1352
1.1258-1...................................................    1545-1452
1.1272-3...................................................    1545-1353
1.1273-2(f)(9).............................................    1545-1353
1.1273-2(h)(2).............................................    1545-1353
1.1274-3(d)................................................    1545-1353
1.1274-5(b)................................................    1545-1353
1.1274A-1(c)...............................................    1545-1353
1.1275-2...................................................    1545-1450
1.1275-3...................................................    1545-0887
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1.1287-1...................................................    1545-0786
1.1291-9...................................................    1545-1507
1.1291-10..................................................    1545-1304
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1.1294-1T..................................................    1545-1002
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1.1295-1...................................................    1545-1555
1.1295-3...................................................    1545-1555
1.1298-3...................................................    1545-1507
1.1301-1...................................................    1545-1662
1.1311(a)-1................................................    1545-0074
1.1361-1...................................................    1545-0731
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1.1361-3...................................................    1545-1590
1.1361-5...................................................    1545-1590
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1.1362-5...................................................    1545-1308
1.1362-6...................................................    1545-1308
1.1362-7...................................................    1545-1308
1.1362-8...................................................    1545-1590
1.1363-2...................................................    1545-1906
1.1366-1...................................................    1545-1613
1.1367-1(f)................................................    1545-1139
1.1368-1(f)(2).............................................    1545-1139
1.1368-1(f)(3).............................................    1545-1139
1.1368-1(f)(4).............................................    1545-1139
1.1368-1(g)(2).............................................    1545-1139
1.1374-1A..................................................    1545-0130
1.1377-1...................................................    1545-1462
1.1378-1...................................................    1545-1748
1.1383-1...................................................    1545-0074
1.1385-1...................................................    1545-0074
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1.1388-1...................................................    1545-0118
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1.1397E-1..................................................    1545-1908
1.1398-1...................................................    1545-1375
1.1398-2...................................................    1545-1375
1.1402(a)-2................................................    1545-0074
1.1402(a)-5................................................    1545-0074
1.1402(a)-11...............................................    1545-0074
1.1402(a)-15...............................................    1545-0074
1.1402(a)-16...............................................    1545-0074
1.1402(b)-1................................................    1545-0171
1.1402(c)-2................................................    1545-0074
1.1402(e)(1)-1.............................................    1545-0074
1.1402(e)(2)-1.............................................    1545-0074
1.1402(e)-1A...............................................    1545-0168
1.1402(e)-2A...............................................    1545-0168
1.1402(e)-3A...............................................    1545-0168
1.1402(e)-4A...............................................    1545-0168
1.1402(e)-5A...............................................    1545-0168
1.1402(f)-1................................................    1545-0074
1.1402(h)-1................................................    1545-0064
1.1411-10(g)...............................................    1545-2227
1.1441-1...................................................    1545-1484
1.1441-2...................................................    1545-0795
1.1441-3...................................................    1545-0165
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1.1502-9A..................................................    1545-0121
1.1502-13..................................................    1545-0123
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1.1502-20..................................................    1545-1774
1.1502-21..................................................    1545-1237
1.1502-21T.................................................    1545-0123
1.1502-31..................................................    1545-1344
1.1502-32..................................................    1545-1344
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1.1502-33..................................................    1545-1344
1.1502-35..................................................    1545-1828
1.1502-36..................................................    1545-2096
1.1502-47..................................................    1545-0123
1.1502-75..................................................    1545-0025
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1.1502-76..................................................    1545-1344
1.1502-76T.................................................    1545-2019
1.1502-77..................................................    1545-1699
1.1502-77A.................................................    1545-0123
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1.1502-77B.................................................    1545-1699
1.1502-78..................................................    1545-0582
1.1502-95..................................................    1545-1218
1.1502-95A.................................................    1545-1218
1.1502-96..................................................    1545-1218
1.1503-2...................................................    1545-1583
1.1503-2A..................................................    1545-1083
1.1503(d)-1................................................    1545-1946
1.1503(d)-3................................................    1545-1946
1.1503(d)-4................................................    1545-1946
1.1503(d)-5................................................    1545-1946
1.1503(d)-6................................................    1545-1946
1.1552-1...................................................    1545-0123
1.1561-3...................................................    1545-0123
1.1563-1...................................................    1545-0123
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1.1563-3...................................................    1545-0123
1.5000A-3..................................................    1545-0074
1.5000A-4..................................................    1545-0074
1.5000C-2..................................................    1545-0096
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1.5000C-3..................................................    1545-0096
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1.5000C-4..................................................    1545-1223
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1.6001-1...................................................    1545-0058
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1.6011-2...................................................    1545-0055
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1.6011-3...................................................    1545-0238
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1.6011-4...................................................    1545-1685
1.6012-1...................................................    1545-0067
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1.6012-2...................................................    1545-0047
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1.6012-3...................................................    1545-0047
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1.6013-6...................................................    1545-0074
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1.6015-5...................................................    1545-1719
1.6015(a)-1................................................    1545-0087
1.6015(b)-1................................................    1545-0087
1.6015(d)-1................................................    1545-0087
1.6015(e)-1................................................    1545-0087
1.6015(f)-1................................................    1545-0087
1.6015(g)-1................................................    1545-0087
1.6015(h)-1................................................    1545-0087
1.6015(i)-1................................................    1545-0087
1.6017-1...................................................    1545-0074
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1.6031(a)-1................................................    1545-1583
1.6031(b)-1T...............................................    1545-0099
1.6031(c)-1T...............................................    1545-0099
1.6032-1...................................................    1545-0099
1.6033-2...................................................    1545-0047
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1.6035-2...................................................    1545-0704
1.6037-1...................................................    1545-0130
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1.6038-2...................................................    1545-1617
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1.6038-3...................................................    1545-1617
1.6038A-2..................................................    1545-1191
1.6038A-3..................................................    1545-1191
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1.6038B-1..................................................    1545-1617
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1.6038B-1T.................................................    1545-0026
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1.6038B-2..................................................    1545-1617
1.6039-2...................................................    1545-0820
1.6041-1...................................................    1545-0008
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1.6041-2...................................................    1545-0008
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1.6041-3...................................................    1545-1148
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                                                               1545-0367
                                                               1545-0387
                                                               1545-0957
1.6041-5...................................................    1545-0295
                                                               1545-0367
                                                               1545-0387
                                                               1545-0957
1.6041-6...................................................    1545-0008
                                                               1545-0115
1.6041-7...................................................    1545-0112
                                                               1545-0295
                                                               1545-0350
                                                               1545-0367
                                                               1545-0387
                                                               1545-0441
                                                               1545-0957
1.6042-1...................................................    1545-0110
1.6042-2...................................................    1545-0110
                                                               1545-0295
                                                               1545-0367
                                                               1545-0387
                                                               1545-0957
1.6042-3...................................................    1545-0295
                                                               1545-0367
                                                               1545-0387
                                                               1545-0957
1.6042-4...................................................    1545-0110
1.6043-1...................................................    1545-0041
1.6043-2...................................................    1545-0041
                                                               1545-0110
                                                               1545-0295
                                                               1545-0387
1.6043-3...................................................    1545-0047
1.6044-1...................................................    1545-0118
1.6044-2...................................................    1545-0118
1.6044-3...................................................    1545-0118
1.6044-4...................................................    1545-0118
1.6044-5...................................................    1545-0118
1.6045-1...................................................    1545-0715
                                                               1545-1705
1.6045-1(c)(3)(xi)(C)......................................    1545-2186
1.6045-1(n)(5).............................................    1545-2186
1.6045A-1..................................................    1545-2186
1.6045-2...................................................    1545-0115
1.6045-4...................................................    1545-1085
1.6046-1...................................................    1545-0704
                                                               1545-0794
                                                               1545-1317
1.6046-2...................................................    1545-0704
1.6046-3...................................................    1545-0704
1.6046A....................................................    1545-1646
1.6047-1...................................................    1545-0119
                                                               1545-0295
                                                               1545-0387
1.6047-2...................................................    1545-2234
1.6049-1...................................................    1545-0112
                                                               1545-0117
                                                               1545-0295
                                                               1545-0367
                                                               1545-0387
                                                               1545-0597
                                                               1545-0957
1.6049-2...................................................    1545-0117
1.6049-3...................................................    1545-0117
1.6049-4...................................................    1545-0096
                                                               1545-0112
                                                               1545-0117
                                                               1545-1018
                                                               1545-1050
1.6049-5...................................................    1545-0096
                                                               1545-0112

[[Page 1051]]

 
                                                               1545-0117
1.6049-6...................................................    1545-0096
1.6049-7...................................................    1545-1018
1.6050A-1..................................................    1545-0115
1.6050B-1..................................................    1545-0120
1.6050D-1..................................................    1545-0120
                                                               1545-0232
1.6050E-1..................................................    1545-0120
1.6050H-1..................................................    1545-0901
                                                               1545-1380
1.6050H-2..................................................    1545-0901
                                                               1545-1339
                                                               1545-1380
1.6050I-2..................................................    1545-1449
1.6050J-1T.................................................    1545-0877
1.6050K-1..................................................    1545-0941
1.6050S-1..................................................    1545-1678
1.6050S-2..................................................    1545-1729
1.6050S-3..................................................    1545-1678
1.6050S-4..................................................    1545-1729
1.6052-1...................................................    1545-0008
1.6052-2...................................................    1545-0008
1.6055-1...................................................    1545-2252
1.6055-2...................................................    1545-2252
1.6060-1...................................................    1545-0074
1.6060-1(a)(1).............................................    1545-1231
1.6061-1...................................................    1545-0123
1.6062-1...................................................    1545-0123
1.6063-1...................................................    1545-0123
1.6065-1...................................................    1545-0123
1.6071-1...................................................    1545-0123
                                                               1545-0810
1.6072-1...................................................    1545-0074
1.6072-2...................................................    1545-0123
                                                               1545-0807
1.6073-1...................................................    1545-0087
1.6073-2...................................................    1545-0087
1.6073-3...................................................    1545-0087
1.6073-4...................................................    1545-0087
1.6074-1...................................................    1545-0123
1.6074-2...................................................    1545-0123
1.6081-1...................................................    1545-0066
                                                               1545-0148
                                                               1545-0233
                                                               1545-1057
                                                               1545-1081
1.6081-2...................................................    1545-0148
                                                               1545-1036
                                                               1545-1054
1.6081-3...................................................    1545-0233
1.6081-4...................................................    1545-0188
                                                               1545-1479
1.6081-6...................................................    1545-0148
                                                               1545-1054
1.6081-7...................................................    1545-0148
                                                               1545-1054
1.6091-3...................................................    1545-0089
1.6107-1...................................................    1545-0074
                                                               1545-1231
1.6109-1...................................................    1545-0074
1.6109-2...................................................    1545-2176
1.6115-1...................................................    1545-1464
1.6151-1...................................................    1545-0074
1.6153-1...................................................    1545-0087
1.6153-4...................................................    1545-0087
1.6161-1...................................................    1545-0087
1.6162-1...................................................    1545-0087
1.6164-1...................................................    1545-0135
1.6164-2...................................................    1545-0135
1.6164-3...................................................    1545-0135
1.6164-5...................................................    1545-0135
1.6164-6...................................................    1545-0135
1.6164-7...................................................    1545-0135
1.6164-8...................................................    1545-0135
1.6164-9...................................................    1545-0135
1.6302-1...................................................    1545-0257
1.6302-2...................................................    1545-0098
                                                               1545-0257
1.6411-1...................................................    1545-0098
                                                               1545-0135
                                                               1545-0582
1.6411-2...................................................    1545-0098
                                                               1545-0582
1.6411-3...................................................    1545-0098
                                                               1545-0582
1.6411-4...................................................    1545-0582
1.6414-1...................................................    1545-0096
1.6425-1...................................................    1545-0170
1.6425-2...................................................    1545-0170
1.6425-3...................................................    1545-0170
1.6654-1...................................................    1545-0087
                                                               1545-0140
1.6654-2...................................................    1545-0087
1.6654-3...................................................    1545-0087
1.6655(e)-1................................................    1545-1421
1.6662-3(c)................................................    1545-0889
1.6662-4(e) and (f)........................................    1545-0889
1.6662-6...................................................    1545-1426
1.6694-1...................................................    1545-0074
1.6694-2...................................................    1545-0074
1.6694-2(c)................................................    1545-1231
1.6694-2(c)(3).............................................    1545-1231
1.6694-3(e)................................................    1545-1231
1.6695-1...................................................    1545-0074
                                                               1545-1385
1.6696-1...................................................    1545-0074
                                                               1545-0240
1.6851-1...................................................    1545-0086
                                                               1545-0138
1.6851-2...................................................    1545-0086
                                                               1545-0138
1.7476-1...................................................    1545-0197
1.7476-2...................................................    1545-0197
1.7519-2T..................................................    1545-1036
1.7520-1...................................................    1545-1343
1.7520-2...................................................    1545-1343
1.7520-3...................................................    1545-1343
1.7520-4...................................................    1545-1343
1.7701(l)-3................................................    1545-1642
1.7872-15..................................................    1545-1792
1.9100-1...................................................    1545-0074
1.9101-1...................................................    1545-0008
2.1-4......................................................    1545-0123
2.1-5......................................................    1545-0123
2.1-6......................................................    1545-0123
2.1-10.....................................................    1545-0123
2.1-11.....................................................    1545-0123
2.1-12.....................................................    1545-0123
2.1-13.....................................................    1545-0123
2.1-20.....................................................    1545-0123
2.1-22.....................................................    1545-0123
2.1-26.....................................................    1545-0123
3.2........................................................    1545-0123
4.954-1....................................................    1545-1068
4.954-2....................................................    1545-1068
5.6411-1...................................................    1545-0042
                                                               1545-0074
                                                               1545-0098
                                                               1545-0129
                                                               1545-0172
                                                               1545-0582
                                                               1545-0619
5c.44F-1...................................................    1545-0619
5c.128-1...................................................    1545-0123

[[Page 1052]]

 
5c.305-1...................................................    1545-0110
5c.442-1...................................................    1545-0152
5f.103-1...................................................    1545-0720
5f.6045-1..................................................    1545-0715
6a.103A-2..................................................    1545-0123
                                                               1545-0720
6a.103A-3..................................................    1545-0720
7.465-1....................................................    1545-0712
7.465-2....................................................    1545-0712
7.465-3....................................................    1545-0712
7.465-4....................................................    1545-0712
7.465-5....................................................    1545-0712
7.936-1....................................................    1545-0217
7.999-1....................................................    1545-0216
7.6039A-1..................................................    1545-0015
7.6041-1...................................................    1545-0115
11.410-1...................................................    1545-0710
11.412(c)-7................................................    1545-0710
11.412(c)-11...............................................    1545-0710
12.7.......................................................    1545-0190
12.8.......................................................    1545-0191
12.9.......................................................    1545-0195
14a.422A-1.................................................    1545-0123
15A.453-1..................................................    1545-0228
16A.126-2..................................................    1545-0074
16A.1255-1.................................................    1545-0184
16A.1255-2.................................................    1545-0184
18.1371-1..................................................    1545-0130
18.1378-1..................................................    1545-0130
18.1379-1..................................................    1545-0130
18.1379-2..................................................    1545-0130
20.2010-2..................................................    1545-0015
20.2011-1..................................................    1545-0015
20.2014-5..................................................    1545-0015
                                                               1545-0260
20.2014-6..................................................    1545-0015
20.2016-1..................................................    1545-0015
20.2031-2..................................................    1545-0015
20.2031-3..................................................    1545-0015
20.2031-4..................................................    1545-0015
20.2031-6..................................................    1545-0015
20.2031-7..................................................    1545-0020
20.2031-10.................................................    1545-0015
20.2032-1..................................................    1545-0015
20.2032A-3.................................................    1545-0015
20.2032A-4.................................................    1545-0015
20.2032A-8.................................................    1545-0015
20.2039-4..................................................    1545-0015
20.2051-1..................................................    1545-0015
20.2053-3..................................................    1545-0015
20.2053-9..................................................    1545-0015
20.2053-10.................................................    1545-0015
20.2055-1..................................................    1545-0015
20.2055-2..................................................    1545-0015
                                                               1545-0092
20.2055-3..................................................    1545-0015
20.2056(b)-4...............................................    1545-0015
20.2056(b)-7...............................................    1545-0015
                                                               1545-1612
20.2056A-2.................................................    1545-1443
20.2056A-3.................................................    1545-1360
20.2056A-4.................................................    1545-1360
20.2056A-10................................................    1545-1360
20.2106-1..................................................    1545-0015
20.2106-2..................................................    1545-0015
20.2204-1..................................................    1545-0015
20.2204-2..................................................    1545-0015
20.6001-1..................................................    1545-0015
20.6011-1..................................................    1545-0015
20.6018-1..................................................    1545-0015
                                                               1545-0531
20.6018-2..................................................    1545-0015
20.6018-3..................................................    1545-0015
20.6018-4..................................................    1545-0015
                                                               1545-0022
20.6036-2..................................................    1545-0015
20.6060-1(a)(1)............................................    1545-1231
20.6061-1..................................................    1545-0015
20.6065-1..................................................    1545-0015
20.6075-1..................................................    1545-0015
20.6081-1..................................................    1545-0015
                                                               1545-0181
                                                               1545-1707
20.6091-1..................................................    1545-0015
20.6107-1..................................................    1545-1231
20.6161-1..................................................    1545-0015
                                                               1545-0181
20.6161-2..................................................    1545-0015
                                                               1545-0181
20.6163-1..................................................    1545-0015
20.6166-1..................................................    1545-0181
20.6166A-1.................................................    1545-0015
20.6166A-3.................................................    1545-0015
20.6324A-1.................................................    1545-0754
20.7520-1..................................................    1545-1343
20.7520-2..................................................    1545-1343
20.7520-3..................................................    1545-1343
20.7520-4..................................................    1545-1343
22.0.......................................................    1545-0015
25.2511-2..................................................    1545-0020
25.2512-2..................................................    1545-0020
25.2512-3..................................................    1545-0020
25.2512-5..................................................    1545-0020
25.2512-9..................................................    1545-0020
25.2513-1..................................................    1545-0020
25.2513-2..................................................    1545-0020
                                                               1545-0021
25.2513-3..................................................    1545-0020
25.2518-2..................................................    1545-0959
25.2522(a)-1...............................................    1545-0196
25.2522(c)-3...............................................    1545-0020
                                                               1545-0196
25.2523(a)-1...............................................    1545-0020
                                                               1545-0196
25.2523(f)-1...............................................    1545-0015
25.2701-2..................................................    1545-1241
25.2701-4..................................................    1545-1241
25.2701-5..................................................    1545-1273
25.2702-5..................................................    1545-1485
25.2702-6..................................................    1545-1273
25.6001-1..................................................    1545-0020
                                                               1545-0022
25.6011-1..................................................    1545-0020
25.6019-1..................................................    1545-0020
25.6019-2..................................................    1545-0020
25.6019-3..................................................    1545-0020
25.6019-4..................................................    1545-0020
25.6060-1(a)(1)............................................    1545-1231
25.6061-1..................................................    1545-0020
25.6065-1..................................................    1545-0020
25.6075-1..................................................    1545-0020
25.6081-1..................................................    1545-0020
25.6091-1..................................................    1545-0020
25.6091-2..................................................    1545-0020
25.6107-1..................................................    1545-1231
25.6151-1..................................................    1545-0020
25.6161-1..................................................    1545-0020
25.7520-1..................................................    1545-1343
25.7520-2..................................................    1545-1343
25.7520-3..................................................    1545-1343
25.7520-4..................................................    1545-1343
26.2601-1..................................................    1545-0985
26.2632-1..................................................    1545-0985
                                                               1545-1892

[[Page 1053]]

 
26.2642-1..................................................    1545-0985
26.2642-2..................................................    1545-0985
26.2642-3..................................................    1545-0985
26.2642-4..................................................    1545-0985
26.2642-6..................................................    1545-1902
26.2652-2..................................................    1545-0985
26.2654-1..................................................    1545-1902
26.2662-1..................................................    1545-0015
                                                               1545-0985
26.2662-2..................................................    1545-0985
26.6060-1(a)(1)............................................    1545-1231
26.6107-1..................................................    1545-1231
31.3102-3..................................................    1545-0029
                                                               1545-0059
                                                               1545-0065
31.3121(b)(19)-1...........................................    1545-0029
31.3121(d)-1...............................................    1545-0004
31.3121(i)-1...............................................    1545-0034
31.3121(r)-1...............................................    1545-0029
31.3121(s)-1...............................................    1545-0029
31.3121(v)(2)-1............................................    1545-1643
31.3302(a)-2...............................................    1545-0028
31.3302(a)-3...............................................    1545-0028
31.3302(b)-2...............................................    1545-0028
31.3302(e)-1...............................................    1545-0028
31.3306(c)(18)-1...........................................    1545-0029
31.3401(a)-1...............................................    1545-0029
31.3401(a)(6)..............................................    1545-1484
31.3401(a)(6)-1............................................    1545-0029
                                                               1545-0096
                                                               1545-0795
31.3401(a)(7)-1............................................    1545-0029
31.3401(a)(8)(A)-1 ........................................    1545-0029
                                                               1545-0666
31.3401(a)(8)(C)-1 ........................................    1545-0029
31.3401(a)(15)-1...........................................    1545-0182
31.3401(c)-1...............................................    1545-0004
31.3402(b)-1...............................................    1545-0010
31.3402(c)-1...............................................    1545-0010
31.3402(f)(1)-1............................................    1545-0010
31.3402(f)(2)-1............................................    1545-0010
                                                               1545-0410
31.3402(f)(3)-1............................................    1545-0010
31.3402(f)(4)-1............................................    1545-0010
31.3402(f)(4)-2............................................    1545-0010
31.3402(f)(5)-1............................................    1545-0010
                                                               1545-1435
31.3402(h)(1)-1............................................    1545-0029
31.3402(h)(3)-1............................................    1545-0010
                                                               1545-0029
31.3402(h)(4)-1............................................    1545-0010
31.3402(i)-(1).............................................    1545-0010
31.3402(i)-(2).............................................    1545-0010
31.3402(k)-1...............................................    1545-0065
31.3402(l)-(1).............................................    1545-0010
31.3402(m)-(1).............................................    1545-0010
31.3402(n)-(1).............................................    1545-0010
31.3402(o)-2...............................................    1545-0415
31.3402(o)-3...............................................    1545-0008
                                                               1545-0010
                                                               1545-0415
                                                               1545-0717
31.3402(p)-1...............................................    1545-0415
                                                               1545-0717
31.3402(q)-1...............................................    1545-0238
                                                               1545-0239
31.3404-1..................................................    1545-0029
31.3405(c)-1...............................................    1545-1341
31.3406(a)-1...............................................    1545-0112
31.3406(a)-2...............................................    1545-0112
31.3406(a)-3...............................................    1545-0112
31.3406(a)-4...............................................    1545-0112
31.3406(b)(2)-1............................................    1545-0112
31.3406(b)(2)-2............................................    1545-0112
31.3406(b)(2)-3............................................    1545-0112
31.3406(b)(2)-4............................................    1545-0112
31.3406(b)(2)-5............................................    1545-0112
31.3406(b)(3)-1............................................    1545-0112
31.3406(b)(3)-2............................................    1545-0112
31.3406(b)(3)-3............................................    1545-0112
31.3406(b)(3)-4............................................    1545-0112
31.3406(b)(4)-1............................................    1545-0112
31.3406(c)-1...............................................    1545-0112
31.3406(d)-1...............................................    1545-0112
31.3406(d)-2...............................................    1545-0112
31.3406(d)-3...............................................    1545-0112
31.3406(d)-4...............................................    1545-0112
31.3406(d)-5...............................................    1545-0112
31.3406(e)-1...............................................    1545-0112
31.3406(f)-1...............................................    1545-0112
31.3406(g)-1...............................................    1545-0096
                                                               1545-0112
                                                               1545-1819
31.3406(g)-2...............................................    1545-0112
31.3406(g)-3...............................................    1545-0112
31.3406(h)-1...............................................    1545-0112
31.3406(h)-2...............................................    1545-0112
31.3406(h)-3...............................................    1545-0112
31.3406(i)-1...............................................    1545-0112
31.3501(a)-1T..............................................    1545-0771
31.3503-1..................................................    1545-0024
31.3504-1..................................................    1545-0029
31.3511-1..................................................    1545-2266
31.6001-1..................................................    1545-0798
31.6001-2..................................................    1545-0034
                                                               1545-0798
31.6001-3..................................................    1545-0798
31.6001-4..................................................    1545-0028
31.6001-5..................................................    1545-0798
31.6001-6..................................................    1545-0029
                                                               1459-0798
31.6011(a)-1...............................................    1545-0029
                                                               1545-0034
                                                               1545-0035
                                                               1545-0059
                                                               1545-0074
                                                               1545-0256
                                                               1545-0718
                                                               1545-2097
31.6011(a)-2...............................................    1545-0001
                                                               1545-0002
31.6011(a)-3...............................................    1545-0028
31.6011(a)-3A..............................................    1545-0955
31.6011(a)-4...............................................    1545-0034
                                                               1545-0035
                                                               1545-0718
                                                               1545-1413
                                                               1545-2097
31.6011(a)-5...............................................    1545-0028
                                                               1545-0718
                                                               1545-2097
31.6011(a)-6...............................................    1545-0028
31.6011(a)-7...............................................    1545-0074
31.6011(a)-8...............................................    1545-0028
31.6011(a)-9...............................................    1545-0028
31.6011(a)-10..............................................    1545-0112
31.6011(b)-1...............................................    1545-0003
31.6011(b)-2...............................................    1545-0029
31.6051-1..................................................    1545-0008
                                                               1545-0182
                                                               1545-0458
                                                               1545-1729
31.6051-2..................................................    1545-0008
31.6051-3..................................................    1545-0008

[[Page 1054]]

 
31.6053-1..................................................    1545-0029
                                                               1545-0062
                                                               1545-0064
                                                               1545-0065
                                                               1545-1603
31.6053-2..................................................    1545-0008
31.6053-3..................................................    1545-0065
                                                               1545-0714
31.6053-4..................................................    1545-0065
                                                               1545-1603
31.6060-1(a)(1)............................................    1545-1231
31.6065(a)-1...............................................    1545-0029
31.6071(a)-1...............................................    1545-0001
                                                               1545-0028
                                                               1545-0029
31.6071(a)-1A..............................................    1545-0955
31.6081(a)-1...............................................    1545-0008
                                                               1545-0028
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31.6301(c)-1AT.............................................    1545-0035
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31.6302(c)-2...............................................    1545-0001
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31.6302(c)-2A..............................................    1545-0955
31.6302(c)-3...............................................    1545-0257
31.6402(a)-2...............................................    1545-0256
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31.6413(a)-1...............................................    1545-0029
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31.6413(a)-2...............................................    1545-0029
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31.6413(c)-1...............................................    1545-0029
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32.1.......................................................    1545-0029
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32.2.......................................................    1545-0029
35a.3406-2.................................................    1545-0112
35a.9999-5.................................................    1545-0029
36.3121(l)(1)-1............................................    1545-0137
36.3121(l)(1)-2............................................    1545-0137
36.3121(l)(3)-1............................................    1545-0123
36.3121(1)(7)-1............................................    1545-0123
36.3121(1)(10)-1...........................................    1545-0029
36.3121(1)(10)-3...........................................    1545-0029
36.3121(1)(10)-4...........................................    1545-0257
40.6060-1(a)(1)............................................    1545-1231
40.6107-1..................................................    1545-1231
40.6302(c)-3(b)(2)(ii).....................................    1545-1296
40.6302(c)-3(b)(2)(iii)....................................    1545-1296
40.6302(c)-3(e)............................................    1545-1296
40.6302(c)-3(f)(2)(ii).....................................    1545-1296
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41.6060-1(a)(1)............................................    1545-1231
41.6071(a)-1...............................................    1545-0143
41.6081(a)-1...............................................    1545-0143
41.6091-1..................................................    1545-0143
41.6107-1..................................................    1545-1231
41.6109-1..................................................    1545-0143
41.6151(a)-1...............................................    1545-0143
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41.6161(a)(1)-1............................................    1545-0143
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44.6060-1(a)(1)............................................    1545-1231
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48.4081-4(b)(2)(ii)........................................    1545-1270
48.4081-4(b)(3)(i).........................................    1545-1270
48.4081-4(c)...............................................    1545-1270
48.4081-6(c)(1)(ii)........................................    1545-1270
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48.6416(b)(5)-1............................................    1545-0723
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48.6416(e)-1...............................................    1545-0023
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48.6416(f)-1...............................................    1545-0023
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49.4251-2..................................................    1545-1075
49.4251-4(d)(2)............................................    1545-1628
49.4253-3..................................................    1545-0023
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49.4264(b)-1...............................................    1545-0023
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49.4271-1(d)...............................................    1545-0685
49.5000B-1.................................................    1545-2177
51.2(f)(2)(ii).............................................    1545-2209
51.7.......................................................    1545-2209
52.4682-1(b)(2)(iii).......................................    1545-1153
52.4682-2(b)...............................................    1545-1153
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52.4682-2(d)...............................................    1545-1153
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52.4682-3(c)(2)............................................    1545-1153
52.4682-3(g)...............................................    1545-1153
52.4682-4(f)...............................................    1545-0257
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52.4682-5(d)...............................................    1545-1361
52.4682-5(f)...............................................    1545-1361
53.4940-1..................................................    1545-0052
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54.4980B-6.................................................    1545-1581
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54.4980B-8.................................................    1545-1581
54.4980F-1.................................................    1545-1780
54.6011-1..................................................    1545-0575
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54.6060-1(a)(1)............................................    1545-1231
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54.9812-1T.................................................    1545-2165
54.9815-1251T..............................................    1545-2178
54.9815-2711T..............................................    1545-2179
54.9815-2712T..............................................    1545-2180
54.9815-2714T..............................................    1545-2172
54.9815-2715...............................................    1545-2229
54.9815-2719AT.............................................    1545-2181
54.9815-2719T..............................................    1545-2182
55.6001-1..................................................    1545-0123
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55.6060-1(a)(1)............................................    1545-1231
55.6061-1..................................................    1545-0999
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56.6060-1(a)(1)............................................    1545-1231
56.6081-1..................................................    1545-1049
56.6107-1..................................................    1545-1231
56.6161-1..................................................    1545-0257
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57.2(e)(2)(i)..............................................    1545-2249
145.4051-1.................................................    1545-0745
145.4052-1.................................................    1545-0120
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156.6060-1(a)(1)...........................................    1545-1231
156.6081-1.................................................    1545-1049
156.6107-1.................................................    1545-1231
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157.6001-1.................................................    1545-1824
157.6011-1.................................................    1545-1824
157.6060-1(a)(1)...........................................    1545-1231
157.6081-1.................................................    1545-1824
157.6107-1.................................................    1545-1231
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301.6011-2.................................................    1545-0225
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301.6011(g)-1..............................................    1545-2079
301.6017-1.................................................    1545-0090
301.6034-1.................................................    1545-0092
301.6036-1.................................................    1545-0013
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301.6047-1.................................................    1545-0367
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301.6058-1.................................................    1545-0710
301.6059-1.................................................    1545-0710
301.6103(c)-1..............................................    1545-1816
301.6103(n)-1..............................................    1545-1841
301.6103(p)(2)(B)-1........................................    1545-1757
301.6104(a)-1..............................................    1545-0495
301.6104(a)-5..............................................    1545-0056
301.6104(a)-6..............................................    1545-0056
301.6104(b)-1..............................................    1545-0094
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301.6104(d)-1..............................................    1545-1655
301.6104(d)-2..............................................    1545-1655
301.6104(d)-3..............................................    1545-1655
301.6109-1.................................................    1545-0003
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301.6111-1T................................................    1545-0865
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301.6111-2.................................................    1545-0865
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301.6112-1T................................................    1545-0865
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301.6222(b)-3..............................................    1545-0790
301.6223(b)-1..............................................    1545-0790
301.6223(c)-1..............................................    1545-0790
301.6223(e)-2..............................................    1545-0790
301.6223(g)-1..............................................    1545-0790
301.6223(h)-1..............................................    1545-0790
301.6224(b)-1..............................................    1545-0790
301.6224(c)-1..............................................    1545-0790
301.6224(c)-3..............................................    1545-0790
301.6227(c)-1..............................................    1545-0790
301.6227(d)-1..............................................    1545-0790
301.6229(b)-2..............................................    1545-0790
301.6230(b)-1..............................................    1545-0790
301.6230(e)-1..............................................    1545-0790
301.6231(a)(1)-1...........................................    1545-0790
301.6231(a)(7)-1...........................................    1545-0790
301.6231(c)-1..............................................    1545-0790
301.6231(c)-2..............................................    1545-0790
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301.9100-4T................................................    1545-0016
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301.9100-6T................................................    1545-0872
301.9100-7T................................................    1545-0982
301.9100-8.................................................    1545-1112
301.9100-11T...............................................    1545-0123
301.9100-12T...............................................    1545-0026
                                                               1545-0074
                                                               1545-0172
                                                               1545-1027
301.9100-14T...............................................    1545-0046
301.9100-15T...............................................    1545-0046
301.9100-16T...............................................    1545-0152
302.1-7....................................................    1545-0024
305.7701-1.................................................    1545-0823
305.7871-1.................................................    1545-0823
420.0-1....................................................    1545-0710
Part 509...................................................    1545-0846
Part 513...................................................    1545-0834
Part 514...................................................    1545-0845
Part 521...................................................    1545-0848
601.104....................................................    1545-0233
601.105....................................................    1545-0091
601.201....................................................    1545-0019
                                                               1545-0819
601.204....................................................    1545-0152
601.401....................................................    1545-0257
601.504....................................................    1545-0150
601.601....................................................    1545-0800
601.602....................................................    1545-0295
                                                               1545-0387
                                                               1545-0957
601.702....................................................    1545-0429
------------------------------------------------------------------------


[T.D. 8011, 50 FR 10222, Mar. 14, 1985]

    Editorial Note: For Federal Register citations affecting Sec.  
602.101, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.

[[Page 1059]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2016 are enumerated in the following list. Entries indicate the 
nature of the changes effected. Page numbers refer to Federal Register 
pages. The user should consult the entries for chapters, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.govinfo.gov. For changes to this volume of the 
CFR prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 
1964-1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. 
The ``List of CFR Sections Affected 1986-2000'' is available at 
www.govinfo.gov.

                                  2016

26 CFR
                                                                   81 FR
                                                                    Page
Chapter I
300.1 (b) and (d) revised..........................................86960
300.2 (b) and (d) revised..........................................86960
300.13 (b) added; (d) revised......................................52767
300.13T Removed....................................................52767
301 Authority citation amended.......................25334, 27322, 51797
    Technical correction...........................................45012
301.6011-2 (b)(1) amended..........................................91768
301.6103(j)(1)-1 (b)(1)(xviii), (xix), (xx) and (b)(7) added; (e) 
        revised.....................................................9767
301.6103(j)(1)-1T Removed...........................................9768
    Added..........................................................89006
301.6114-1 (c)(1)(ix) added; (e) revised...........................55145
301.6708-1 Added...................................................25334
301.7430-0 Amended.................................................10483
301.7430-1 (b)(1)(ii)(A), (d)(1)(i), (ii) and (2) introductory 
        text revised...............................................10484
    (f)(2)(i), (3)(ii), (iii), (4)(i) and (g) Examples 6 through 9 
amended............................................................10490
301.7430-2 (a), (c)(3)(ii)(C), (5) and (e) revised; (c)(3)(i)(B), 
        (E) and (7) amended; (c)(3)(iii)(C) added..................10484
    (b)(2), (c)(4) and (6) amended.................................10490
301.7430-3 (b), (c)(1), (3) and (d) revised; (c)(4) added..........10485
301.7430-4 (b)(2)(ii) and (3)(iii)(C) amended; (b)(3)(iii)(D) 
        redesignated as (b)(3)(iii)(F); (b)(3)(i), (iii)(B), new 
        (F) and (c)(4) revised; new (b)(3)(iii)(D), (E) and (d) 
        added......................................................10486
    (b)(3)(ii), (c)(2)(i) and (ii) amended.........................10490
301.7430-5 Revised.................................................10487
    (h) amended....................................................10490
301.7430-6 Revised.................................................10489
301.7430-7 (c)(8) and (e) Examples 16 and 17 added; (f) revised....10489
301.7602-1 (b)(3) added; (d) revised...............................45414
301.7602-1T Removed................................................45414
301.7701-2 (c)(2)(iv)(C)(2) revised; (e)(8) added..................26694
    (a) amended; (c)(2)(vi) and (e)(9) added.......................89851
301.7701-2T Added..................................................26694
    (e)(8)(ii) correctly revised...................................43488
301.7701-18 Added..................................................60616
301.7705-1T Added..................................................27322
301.7705-2T Added..................................................27322
301.9100-22T Added.................................................51797

                                  2017

26 CFR
                                                                   82 FR
                                                                    Page
Chapter I
300.4 (b) and (d) revised..........................................33012

[[Page 1060]]

301 Authority citation technical correction........................29733
301.1474-1 (c) revised..............................................2192
301.6402-3 (e) and (f) revised......................................2121
301.6402-3T Removed.................................................2122

                                  2018

26 CFR
                                                                   83 FR
                                                                    Page
Chapter I
301.6221(b)-1 Added...................................................31
301.6223-1 Added...................................................39344
301.6223-2 Added...................................................39349
301.9100-22 Added..................................................39350
301.9100-22T Removed...............................................39351

                                  2019

26 CFR
                                                                   84 FR
                                                                    Page
Chapter I
300.0 (b)(10) removed; (b)(11), (12), and (13) redesignated as new 
        (b)(10), (11), and (12)....................................20804
300.5 (b) and (d) revised..........................................20804
300.6 (b) and (d) revised..........................................20804
300.10 Removed; new section redesignated from 300.11; new (b) and 
        new (d) revised............................................20804
300.11 Redesignated as 300.10; new section redesignated from 
        300.12.....................................................20804
300.12 Redesignated as 300.11; new section redesignated from 
        300.13.....................................................20804
300.13 Redesignated as 300.12......................................20804
301 Authority citation amended.........................6530, 9239, 24382
    Technical correction...........................................46681
301.6035-1 Removed..................................................9239
301.6048-1 Removed..................................................9239
301.6096-2 Removed..................................................9239
301.6103(j)(1)-1 (b)(2)(iii)(I), (3)(v), (xxv) through (xxx), and 
        (e) revised; (b)(2)(iii)(K), (L), (M), (3)(xxxi) through 
        (xxxv), (6)(i)(C), (D), and (E) added......................14011
301.6103(j)(1)-1T Removed..........................................14011
301.6109-4 (b)(2)(ii), (iii), (3), and (c) revised.................31720
301.6221(a)-1 Added.................................................6531
301.6222-1 Added....................................................6531
301.6223-1 Correction: (e)(1) amended..............................46440
301.6225-1 Added....................................................6534
301.6225-2 Added....................................................6539
301.6225-3 Added....................................................6547
301.6226-1 Added....................................................6548
301.6226-2 Added....................................................6549
301.6226-3 Added....................................................6551
301.6227-1 Added....................................................6558
301.6227-2 Added....................................................6559
301.6227-3 Added....................................................6560
301.6231-1 Added....................................................6561
301.6232-1 Added....................................................6562
301.6233(a)-1 Added.................................................6563
301.6233(b)-1 Added.................................................6565
301.6234-1 Added....................................................6566
301.6235-1 Added....................................................6566
301.6241-1 Added....................................................6567
301.6241-1T Removed.................................................9239
301.6241-2 Added....................................................6569
301.6241-3 Added....................................................6569
301.6241-4 Added....................................................6571
301.6241-5 Added....................................................6571
301.6241-6 Added....................................................6572
301.6245-1T Removed.................................................9239
301.6501(o)-1 Removed...............................................9239
301.6501(o)-2 Removed...............................................9239
301.6501(o)-3 Removed...............................................9239
301.6511(d)-7 Removed...............................................9239
301.6511(g)-1 Removed...............................................9239
301.6707A-1 (d), (e), and (f) redesignated as (e), (f), and (g); 
        (b)(3) and new (d) added; (c)(1), new (e), new (3)(i), and 
        new (f) amended; new (g) revised...........................11219
301.6723-1A Removed.................................................9239
301.7701-2 (c)(2)(iv)(C)(2) revised; (e)(8) amended................31479
301.7701-2T Removed................................................31480
301.7705-1 Added...................................................24382
301.7705-1T Removed................................................24389
301.7705-2 Added...................................................24382
301.7705-2T Removed................................................24389
404.6048-1 Removed..................................................9239

                                  2020

26 CFR
                                                                   85 FR
                                                                    Page
Chapter I
300.3 (b)(1) and (d) revised; eff. 4-27-20.........................14572
300.12 (b) and (d) revised.........................................43436
301 Authority citation amended..............................72074, 83447
301.6011-2 (b)(1) amended..........................................74047
301.6227-1 (g) added...............................................72074
301.6402-2 (g) redesignated as (h); new (g) added; new (h) heading 
        revised; (h) amended.......................................83447
301.6689-1 Added...................................................72074

[[Page 1061]]

301.6689-1T Removed................................................72075
301.7701-3 (a) amended; (c)(3) added...............................19857
301.9100-6T (a)(1) table and (4) amended; (a)(2)(iii) and (3)(v) 
        removed....................................................64394

                                  2021

 (No regulations published from January 1, 2021, through April 1, 2021)


                                  [all]