[Federal Register Volume 59, Number 124 (Wednesday, June 29, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15665]


[[Page Unknown]]

[Federal Register: June 29, 1994]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8549]
RIN 1545-AL49

 

Preparer Penalties--Manual Signature Requirement

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations providing that 
persons who prepare U.S. fiduciary income tax returns for compensation 
may, under certain conditions, satisfy the manual signature 
requirements by using a facsimile signature. The final regulations will 
reduce the burden on preparers of U.S. fiduciary income tax returns. 
The final regulations also incorporate the new $50 penalty amount, with 
a $25,000 maximum per person with respect to each calendar year, 
imposed by section 6695(a), (b), and (c). Prior to the Omnibus Budget 
and Reconciliation Act of 1989 (OBRA), the penalty amount was $25. 
Finally, the final regulations incorporate the amendment to section 
6695(e) by OBRA changing the $100 penalty for failure to file correct 
information returns and the $5 penalty for each failure to put a 
required item on a return to $50 for each of the two described failures 
(with a $25,000 maximum per person with respect to each calendar year).

 EFFECTIVE DATE: These regulations are effective June 28, 1994.

 FOR FURTHER INFORMATION CONTACT: Robert A. Walker, (202) 622-3640 (not 
a toll-free call).

 SUPPLEMENTARY INFORMATION:

 Paperwork Reduction Act

     The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the requirements of the Paperwork Reduction Act (44 
U.S.C. 3504(h)) under control number 1545-1385. The estimated annual 
burden per recordkeeper varies from 30 to 60 minutes depending on 
individual circumstances, with an estimated average of 45 minutes.
     Comments concerning the accuracy of this burden estimate and 
suggestions for reducing this burden should be sent to the Internal 
Revenue Service, Attn: IRS Reports Clearance Officer, PC:FP, 
Washington, DC 20224, and to the Office of Management and Budget, Attn: 
Desk Officer for the Department of the Treasury, Office of Information 
and Regulatory Affairs, Washington, DC 20503.

 Background

     The IRS published a notice of proposed rulemaking in the Federal 
Register on April 22, 1993 (58 FR 21548), proposing amendments to rules 
under section 6695 of the Internal Revenue Code (Code). No comments 
were received in response to the notice of proposed rulemaking. 
Accordingly, except for minor stylistic changes, the proposed 
regulations are adopted as final regulations by this Treasury decision.

 Explanation of Provisions

     Section 645 of the Code, which was enacted as part of the Tax 
Reform Act of 1986, generally requires trusts to use a calendar taxable 
year for years beginning after 1986. Section 1.6695-1(b)(1) of the 
Income Tax regulations requires an individual, who is an income tax 
preparer with respect to an income tax return or a claim for refund of 
income tax, to manually sign the return or claim. These two 
requirements, taken together, impose a potential hardship for income 
tax preparers responsible for the preparation of large numbers of Forms 
1041 (U.S. Fiduciary Income Tax Returns).
     The IRS responded to this potential hardship in Notice 88-48, 
1988--1 C.B. 531 (for 1987 Forms 1041), and Notice 89-48, 1989-1 C.B. 
688 (for post-1987 Forms 1041). Under these Notices, pending the 
revision of regulations under section 6695(b), the IRS authorized the 
use of a facsimile signature by a preparer (i.e., a failure-to-sign 
penalty would not be imposed) if certain conditions were satisfied. 
First, the preparer had to submit to the IRS, with the Forms 1041 
bearing the preparer's facsimile signature, a letter manually signed by 
the preparer (a) listing the taxpayer's name and identification number 
on each Form 1041 bearing the facsimile signature, and (b) containing a 
declaration, under penalties of perjury, that the facsimile signature 
appearing on each return is the signature used by the preparer to sign 
the return. Second, after the facsimile signature is affixed, no person 
other than the preparer could alter entries of the Form 1041 other than 
to correct arithmetic errors. Third, a manually signed copy of the 
letter to the IRS, together with a record of any arithmetic errors that 
were corrected, must be retained and made available to the IRS upon 
request.
     The final regulations amend Sec. 1.6695-1(b) to permit preparers 
of fiduciary returns to use a facsimile signature, instead of a manual 
signature, to sign returns under the same conditions contained in the 
two Notices. These conditions are substantially similar to those under 
which preparers of returns for nonresident alien individual taxpayers 
are permitted to use a facsimile signature to sign a return or claim 
for refund. The rules for nonresident alien taxpayers appear in 
Sec. 1.6695-1(b)(4)(iii). Unlike those rules, however, the final 
regulations do not extend permission for preparers to use a facsimile 
signature on fiduciary claims for refund.
     Additionally, the final regulations amend the current regulations 
to reflect the changes made in OBRA to the amounts of the preparer 
penalties imposed by sections 6695 (a), (b), (c), and (e).

 Special Analyses

     It has been determined that this Treasury decision is not a 
significant regulatory action as defined in EO 12866. Therefore, a 
regulatory assessment is not required. It has also been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to 
these regulations, and, therefore, a Regulatory Flexibility Analysis is 
not required. Pursuant to section 7805(f) of the Internal Revenue Code, 
the notice of proposed rulemaking preceding these regulations was 
submitted to the Small Business Administration for comment on its 
impact on small business.

 Drafting Information

     The principal author of these regulations is Robert A. Walker of 
the Office of Assistant Chief Counsel (General Litigation). However, 
other personnel from the IRS and Treasury Department participated in 
their development.

 List of Subjects

 26 CFR Part 1

     Income taxes, Reporting and recordkeeping requirements.

 26 CFR Part 602

     Reporting and recordkeeping requirements.

 Adoption of Amendments to the Regulations

     Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAXES

    Paragraph 1.  The authority citation for part 1 is amended by 
adding the following citation:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.6695-1 also issued under 26 U.S.C. 6695(b) * * *

    Par. 2. Section 1.6695-1 is amended by:
    1. Revising paragraph (a)(1), introductory text.
    2. Revising paragraph (b)(1).
    3. Revising paragraphs (b)(4) (iv) and (v).
    4. Adding paragraph (b)(4)(vi).
    5. Revising paragraph (b)(5), introductory text.
    6. Revising paragraphs (c)(1), introductory text and paragraph 
(c)(3).
    7. Revising paragraph (e).


Sec. 1.6695-1  Other assessable penalties with respect to the 
preparation of income tax returns for other persons.

    (a) Failure to furnish copy to taxpayer. (1) A person who is an 
income tax return preparer of any return of tax under subtitle A of the 
Internal Revenue Code or claim for refund of tax under subtitle A of 
the Internal Revenue Code and who fails to satisfy the requirements 
imposed by section 6107(a) and Sec. 1.6107-1 (a) and (c) to furnish a 
copy of the return or claim for refund to the taxpayer (or nontaxable 
entity), shall be subject to a penalty of $50 for such failure, with a 
maximum penalty of $25,000 per person imposed with respect to each 
calendar year, unless it is shown that the failure is due to reasonable 
cause and not due to willful neglect. Thus, no penalty may be imposed 
under section 6695(a) and this paragraph (a)(1) upon a person who is an 
income tax return preparer solely by reason of--
* * * * *
    (b) Failure to sign return. (1) An individual who is an income tax 
return preparer with respect to a return of tax under subtitle A of the 
Internal Revenue Code or claim for refund of tax under subtitle A of 
the Internal Revenue Code shall manually sign the return or claim for 
refund (which may be a photocopy) in the appropriate space provided on 
the return or claim for refund after it is completed and before it is 
presented to the taxpayer (or nontaxable entity) for signature. Except 
as provided in paragraphs (b)(4) (iii) and (iv) of this section, an 
individual preparer may not satisfy this requirement by use of a 
facsimile signature stamp or signed gummed label. If the preparer is 
unavailable for signature, another preparer shall review the entire 
preparation of the return or claim for refund, and then shall manually 
sign the return or claim for refund.
* * * * *
    (4) * * *
    (iv) A preparer of a fiduciary return may satisfy the manual 
signature requirement of paragraphs (b) (1) and (2) of this section by 
a facsimile signature only if the preparer submits to the Internal 
Revenue Service with the returns bearing the preparer's facsimile 
signature a letter, manually signed by the preparer, identifying by 
taxpayer name and identification number each return bearing the 
facsimile signature and declaring under penalties of perjury that the 
facsimile signature appearing on these returns is the signature used by 
the preparer to sign these documents. After the facsimile signature is 
affixed, no person other than the preparer may alter any entries on the 
return other than to correct arithmetical errors discernable on the 
return. The employer of the preparer or the partnership in which the 
preparer is a partner, or the preparer (if not employed or engaged by a 
preparer and not a partner in a partnership which is a preparer), shall 
retain a manually signed copy of the letter submitted to the Internal 
Revenue Service with the returns. A record of any arithmetical errors 
corrected shall be retained by the person required to keep the manually 
signed letter and that person shall make the record available to the 
Internal Revenue Service upon request. The preparer of a fiduciary 
claim for refund may not satisfy the manual signature requirement of 
paragraphs (b) (1) and (2) of this section by a facsimile signature.
    (v) Any items required to be retained and kept available for 
inspection under paragraph (b)(4) (i), (ii), (iii), or (iv) of this 
section shall be retained and kept available for inspection for the 
same period that the material described in Sec. 1.6107-1(b) must be 
retained and kept available for inspection.
    (vi) If the district director, service center director, or 
compliance center director (director) determines that a preparer or 
preparers have abused the permissive signature rules of this paragraph 
(b)(4), such as by altering the return or claim for refund after 
signature (in contravention of paragraph (b)(4)(i) of this section), by 
altering information on the return or claim for refund after 
attestation (in contravention of paragraph (b)(4)(ii) of this section), 
or by failing to comply with the provisions of paragraph (b)(4) (iii) 
or (iv) of this section, then the director may, by written notice, 
prospectively deny to the preparer or preparers the right to use the 
permissive signature rules of this paragraph (b)(4).
    (5) An individual required by this paragraph (b) to sign a return 
or claim for refund shall be subject to a penalty of $50 for each 
failure to sign, with a maximum of $25,000 per person imposed with 
respect to each calendar year, unless it is shown that the failure is 
due to reasonable cause and not due to willful neglect. For purposes of 
this paragraph (b), reasonable cause is a cause which arises despite 
ordinary care and prudence exercised by the individual preparer. Thus, 
no penalty may be imposed under section 6695(b) and this paragraph (b) 
upon a person who is an income tax return preparer solely by reason 
of--
* * * * *
    (c) Failure to furnish identifying number. (1) A person who is an 
income tax return preparer of any return of tax under subtitle A of the 
Internal Revenue Code or claim for refund of tax under subtitle A of 
the Internal Revenue Code and who fails to satisfy the requirement of 
section 6109(a)(4) and Sec. 1.6109-2(a) to furnish one or more 
identifying numbers of preparers on a return or claim for refund shall 
be subject to a penalty of $50 for each failure, with a maximum of 
$25,000 per person imposed with respect to each calendar year, unless 
it is shown that the failure is due to reasonable cause and not due to 
willful neglect. Thus, no penalty may be imposed under section 6695(c) 
and this paragraph (c)(1) upon a person who is an income tax return 
preparer solely by reason of--
* * * * *
    (3) No more than one penalty of $50 may be imposed under section 
6695(c) and paragraph (c)(1) of this section with respect to a single 
return or claim for refund.
* * * * *
    (e) Failure to file correct information returns. A person who is 
subject to the reporting requirements of section 6060 and Sec. 1.6060-1 
and who fails to satisfy these requirements shall pay a penalty of $50 
for each such failure, with a maximum of $25,000 per person imposed for 
each calendar year, unless such failure was due to reasonable cause and 
not due to willful neglect.
* * * * *

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    Par. 3. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.

    Par. 4. The table in Sec. 602.101(c) is amended by revising the 
entry for Sec. 1.6695-1 to read as follows:

``1.6695-1----1545-0074, 1545-1385''.
Margaret Milner Richardson,
Commissioner of Internal Revenue.

    Approved: June 10, 1994.

Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-15665 Filed 6-28-94; 8:45 am]
BILLING CODE 4830-01-U