[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33365-33370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16376]


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DEPARTMENT OF THE TREASURY
26 CFR Parts 301 and 602

[TD 8680]
RIN 1545-AU41


Extensions of Time to Make Elections

AGENCY: Internal Revenue Service (IRS), Treasury.


[[Page 33366]]


ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations concerning 
extensions of time for making certain elections under the Internal 
Revenue Code (Code). The regulations provide the standards that the 
Commissioner will use to grant taxpayers extensions of time for making 
these elections. The text of these temporary regulations also serves as 
the text of the proposed regulations set forth in the notice of 
proposed rulemaking on this subject in the Proposed Rules section of 
this issue of the Federal Register.

DATES: These regulations are effective June 27, 1996.
    For dates of applicability, see Sec. 301.9100-1T(h) of these 
regulations.

FOR FURTHER INFORMATION CONTACT: Robert A. Testoff at (202) 622-4960 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    These regulations are being issued without prior notice and public 
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). 
For this reason, the collection of information contained in these 
regulations has been reviewed and, pending receipt and evaluation of 
public comments, approved by the Office of Management and Budget under 
control number 1545-1488. Responses to this collection of information 
are required to obtain an extension of time for making an election.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number.
    For further information concerning this collection of information, 
where to submit comments on the collection of information and the 
accuracy of the estimated burden, and suggestions for reducing this 
burden, please refer to the preamble to the cross-referencing notice of 
proposed rulemaking published in the Proposed Rules section of this 
issue of the Federal Register.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains temporary regulations amending the 
Regulations on Procedure and Administration (26 CFR part 301) 
concerning extensions of time for making certain elections. The 
regulations provide the standards that the Commissioner will use to 
grant taxpayers extensions of time for making these elections. These 
standards provide relief to taxpayers who reasonably and in good faith 
fail to make a timely election when granting relief will not prejudice 
the interests of the government. The regulations provide a means by 
which taxpayers can be in the same position they would have been in had 
they made their elections in a timely fashion.

Explanation of Provisions

    These temporary regulations provide the standards the Commissioner 
will use to determine whether to grant an extension of time to make an 
election when the deadline for making the election is prescribed by 
regulation, revenue ruling, revenue procedure, notice, or announcement 
published in the Federal Register or the Internal Revenue Bulletin 
(regulatory election). Under section 6081(a), these regulations also 
provide an automatic extension of time to make an election when the 
deadline for making the election is prescribed by statute (statutory 
election) and the deadline for making the election is the due date of 
the return or the due date of the return including extensions. These 
regulations adopt and revise the standards for relief provided in Rev. 
Proc. 92-85, 1992-2 C.B. 490.

Automatic Extensions

    Rev. Proc. 92-85 provides an automatic 12-month extension for 
certain regulatory elections listed in Appendix A of that revenue 
procedure. The temporary regulations continue the automatic 12-month 
extension and update the list of eligible regulatory elections.
    Rev. Proc. 92-85 also provides an automatic 6-month extension for 
statutory elections when the deadline for making the election is 
prescribed as the due date of the return or the due date of the return 
including extensions. The temporary regulations expand the automatic 6-
month extension to include regulatory elections.

Other Extensions

    Rev. Proc. 92-85 provides relief for certain regulatory elections 
that do not qualify for relief under the automatic extensions. Rev. 
Proc. 92-85 requires a taxpayer to demonstrate that (1) it acted 
reasonably and in good faith and (2) granting relief will not prejudice 
the interests of the government. The temporary regulations continue to 
provide extensions for such regulatory elections upon a showing of 
reasonable action and good faith and no prejudice to the interests of 
the government.
    The temporary regulations adopt the standards for reasonable action 
and good faith in Rev. Proc. 92-85. The regulations provide that a 
taxpayer is deemed to have acted reasonably and in good faith if: (1) 
the taxpayer applies for relief before the failure to make the 
regulatory election is discovered by the IRS; (2) the taxpayer 
inadvertently failed to make the election because of intervening events 
beyond its control; (3) the taxpayer failed to make the election 
because after exercising reasonable diligence the taxpayer was unaware 
of the necessity for the election; (4) the taxpayer reasonably relied 
on written advice of the IRS; or (5) the taxpayer relied on a qualified 
tax professional, including a professional employed by the taxpayer, 
and the professional failed to make or advise the taxpayer to make the 
election. However, a taxpayer is deemed to have not acted reasonably 
and in good faith if: (1) the taxpayer is requesting relief for an 
election to alter a return position for which an accuracy-related 
penalty could have been imposed under section 6662; (2) the taxpayer 
was fully informed of the required election and related tax 
consequences and chose not to file the election; or (3) the taxpayer 
uses hindsight in requesting relief.
    The temporary regulations adopt the standards for prejudice to the 
interests of the government in Rev. Proc. 92-85. The regulations 
provide that the interests of the government are deemed to be 
prejudiced if granting relief would result in a taxpayer having a lower 
tax liability than the taxpayer would have had if the regulatory 
election had been timely made. In addition, the interests of the 
government are ordinarily deemed to be prejudiced if the tax year in 
which the election should have been made or any affected tax years are 
closed by the statute of limitations.

Accounting Method and Period Elections

    Rev. Proc. 92-85 provides limited relief (ordinarily not to exceed 
90 days from the deadline for filing Form 3115, Application for Change 
in Accounting Method) for requests to change an accounting method 
subject to the procedure described in Sec. 1.446-1(e)(3)(i) (requiring 
the advance written consent of the Commissioner). The temporary 
regulations continue this limited relief. Rev. Proc. 92-85 provides an 
automatic 12-month extension for the election to use the last-in, 
first-out (LIFO) inventory method under section 472 and also provides 
relief for the section 472

[[Page 33367]]

election beyond the automatic 12-month extension. Rev. Proc. 92-85 is 
otherwise inapplicable to accounting method regulatory elections, 
except for three specific elections listed in Appendix B of that 
revenue procedure.
    The temporary regulations provide relief for all accounting method 
regulatory elections. For example, relief will now be available for 
elections under sections 197 (amortization of goodwill and certain 
other intangibles) and 468A (special rules for nuclear decommissioning 
costs).
    The temporary regulations provide additional rules regarding what 
constitutes prejudice to the interests of the government for accounting 
method regulatory elections. The temporary regulations provide that the 
interests of the government are deemed to be prejudiced except in 
unusual and compelling circumstances if: (1) the election requires an 
adjustment under section 481(a); (2) the taxpayer is under examination, 
requests relief to change from an impermissible method of accounting, 
and granting relief will provide the taxpayer a more favorable method 
of accounting or more favorable terms and conditions than the taxpayer 
would receive if the change is made as part of the examination; or (3) 
the election 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.
    Rev. Proc. 92-85 provides an automatic 12-month extension for 
elections to use other than the required taxable year under section 
444. Rev. Proc. 92-85 also provides limited relief (ordinarily not to 
exceed 90 days from the deadline for filing Form 1128, Application to 
Adopt, Change, or Retain a Tax Year) for accounting period regulatory 
elections subject to Rev. Proc. 87-32, 1987-2 C.B. 396. Rev. Proc. 92-
85 is otherwise inapplicable to accounting period regulatory elections. 
The temporary regulations extend the limited relief for elections 
subject to Rev. Proc. 87-32 to all other accounting period regulatory 
elections except for the section 444 election, and provide relief for 
the section 444 election beyond the automatic 12-month extension.

Effect on Other Documents

    Rev. Proc. 92-85, 1992-2 C.B. 490, as modified and clarified by 
Rev. Proc. 93-28, 1993-2 C.B. 344, is obsolete as of June 27, 1996.
    Rev. Proc. 92-20, 1992-1 C.B. 685, is modified as of June 27, 1996 
to the extent that the provisions of this regulation apply to 
applications for relief with respect to requests to change an 
accounting method subject to the procedures of Rev. Proc. 92-20.
    Rev. Proc. 87-32, 1987-2 C.B. 396, is modified as of June 27, 1996 
to the extent that the provisions of this regulation apply to 
applications for relief with respect to requests to change an 
accounting period subject to the procedures of Rev. Proc. 87-32.

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, 
these temporary regulations will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on their 
impact on small businesses.

Drafting Information

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

List of Subjects

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 301 and 602 are amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

    Paragraph 1. The authority citation for part 301 is amended by 
adding entries in numerical order to read as follows:

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

    Par. 2. Sections 301.9100-1T through 301.9100-3T are added to read 
as follows:


Sec. 301.9100-1T  Extensions of time to make elections (temporary).

    (a)-(c) [Reserved].
    (d) Introduction. The regulations under this section and 
Secs. 301.9100-2T through 301.9100-3T 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 Secs. 301.9100-2T through 301.9100-3T 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 and the granting of an extension of time is not a determination 
that the taxpayer is otherwise eligible to make the election. Section 
301.9100-2T 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 301.9100-3T provides extensions of time for making 
regulatory elections that do not meet the requirements of 
Sec. 301.9100-2T.
    (e) 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 deadline 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.
    Statutory election means an election whose deadline is prescribed 
by statute.
    Taxpayer means any person within the meaning of section 7701(a)(1).
    (f) General standards for relief. The Commissioner in the 
Commissioner's discretion may grant a reasonable extension of time 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, 
provided the taxpayer demonstrates to the satisfaction of the 
Commissioner that----
    (1) The taxpayer acted reasonably and in good faith; and
    (2) Granting relief will not prejudice the interests of the 
government.

[[Page 33368]]

    (g) Exceptions. Notwithstanding the provisions of paragraph (f) of 
this section, an extension of time will not be granted--
    (1) For elections under section 4980A(f)(5);
    (2) For elections required to be made prior to November 20, 1970, 
in the case of an election----
    (i) Required to be made in or with the taxpayer's original income 
tax return;
    (ii) Required to be exercised by filing a claim for credit or 
refund, unless the election is required to be exercised on or before a 
date that precedes the date of expiration of the period of limitations 
provided in section 6511;
    (iii) Required to be filed in a petition to the Tax Court;
    (iv) To change a previous election;
    (v) To change an accounting method as described in Secs. 1.77-1 of 
this chapter and 1.446-1 of this chapter;
    (vi) To change an accounting period as described in Sec. 1.442-1 of 
this chapter; or
    (vii) To change the method of treating bad debts as described in 
Sec. 1.166-1 of this chapter; or
    (3) 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.
    (h) Effective dates. In general, this section and Secs. 301.9100-2T 
through 301.9100-3T are effective for all requests for relief being 
considered by the IRS on June 27, 1996 and for all requests for relief 
submitted on or after June 27, 1996. However, the automatic 12-month 
extension and the automatic 6-month extension provided in 
Sec. 301.9100-2T are effective for elections whose due dates are on or 
after June 27, 1996.


Sec. 301.9100-2T  Automatic extensions (temporary).

    (a) Automatic 12-month extension--(1) In general. An automatic 
extension of 12 months from the original deadline 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.
    (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 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 deadlines are prescribed as the 
due date of the return or the due date of the return including 
extensions in the case of a taxpayer that timely filed its return for 
the year the election should have been made, provided the taxpayer 
takes corrective action as defined in paragraph (c) of this section 
within that 6-month extension period. This extension does not apply, 
however, 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 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. For those 
elections not required to be filed with a return, corrective action 
means taking the steps required to file the election in accordance with 
the statute, the regulation published in the Federal Register, or the 
revenue ruling, revenue procedure, notice, or announcement published in 
the Internal Revenue Bulletin. Taxpayers who make an election under an 
automatic extension (and all taxpayers whose tax liability would be 
affected by the election) must report their income 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 Service 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. 301.9100-2T''. 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 action to obtain an automatic extension.
    (e) The following example illustrates the rules of this section:

    Example. Taxpayer A fails to make a certain election when filing 
A's 1996 income tax return on March 17, 1997, 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, A may make the regulatory election by filing an 
amended return with the appropriate form by September 15, 1997 (6 
months from the March 17, 1997, due date).


Sec. 301.9100-3T  Other extensions (temporary).

    (a) In general. Requests for extensions of time for regulatory 
elections that do not meet the requirements of Sec. 301.9100-2T 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 that the taxpayer acted reasonably and in good faith, and 
granting 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 IRS;
    (ii) Inadvertently 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

[[Page 33369]]

taxpayer was unaware of the necessity for the election;
    (iv) Reasonably relied on the written advice of the 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 fully informed 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 original deadline for making the election 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--
(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 years to which the regulatory 
election applies 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 tax year in which the regulatory election should have 
been made or any tax 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 requirements of paragraph (c)(1)(i) of this section are 
satisfied.
    (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 is--
    (i) Subject to the procedure described in Sec. 1.446-1(e)(3)(i) of 
this chapter (requiring the advance written consent of the 
Commissioner), and the request for relief under this section is filed 
more than 90 days after the deadline for filing the Form 3115, 
Application for Change in Accounting Method;
    (ii) Not an election described in paragraph (c)(2)(i) of this 
section and 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) Not an election described in paragraph (c)(2)(i) of this 
section, the taxpayer is under examination and requests relief under 
this section to change from an impermissible method of accounting, and 
granting relief will provide the taxpayer a more favorable method of 
accounting or more favorable terms and conditions than the taxpayer 
would receive if the change from the impermissible method is made as 
part of the examination; or
    (iv) Not an election described in paragraph (c)(2)(i) of this 
section and the election 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 deadline 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 the tax year in which the regulatory election should have been made 
and any tax 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, to the best 
of my knowledge and belief, the facts presented herein 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 income tax return preparer, any 
individual (including an employee of the taxpayer) who made a 
substantial

[[Page 33370]]

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, 
to the best of my knowledge and belief, the facts presented herein 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 tax year in which the regulatory election should have been made or 
any tax 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 income tax return for any taxable year for which the 
taxpayer requests an extension and any return affected by the election; 
and
    (v) When applicable, the taxpayer must submit a copy of the income 
tax 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:

    Example 1. Taxpayer discovers own error. Taxpayer A prepares A's 
1996 income tax return. A is unaware that a particular regulatory 
election is available to report a transaction in a particular 
manner. A files the 1996 return without making the election and 
reporting the transaction in a different manner. In 1998, A hires a 
qualified tax professional to prepare A's 1998 return. The 
professional discovers that A did not make the election. A promptly 
files for relief in accordance with this section. Assuming 
paragraphs (b)(3)(i) through (iii) of this section do not apply, A 
is deemed to have acted reasonably and in good faith.
    Example 2. Reliance on qualified tax professional. Taxpayer B 
hires a qualified tax professional to advise B on preparing B's 1996 
income tax return and provides the professional with all the 
information requested. The professional fails to advise B that a 
regulatory election is necessary in order for B to report income on 
B's 1996 return in a particular manner. Nevertheless, B reports this 
income in a manner that is consistent with having made the election. 
In 1999, during the examination of the 1996 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. 
Assuming paragraphs (b)(3)(i) through (iii) of this section do not 
apply, B is deemed to have acted reasonably and in good faith.
    Example 3. Accuracy-related penalty. Taxpayer C reports income 
on its 1996 income tax return in a manner that contravenes a 
statutory provision. C was aware of the statutory provision that 
prohibited the manner in which C reported this income, but did not 
provide adequate disclosure of the return position within the 
meaning of Sec. 1.6662-3(c) of this chapter. In 1999, during the 
examination of the 1996 return, the IRS raises an issue regarding 
the reporting of this income on C's return. 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 1996 income tax return. D is unaware 
that a particular accounting method regulatory election is 
available. D files the 1996 return using another method of 
accounting. In 1998, D hires a qualified tax professional to prepare 
D's 1998 return. The professional discovers that D did not make the 
election. D promptly files for relief in accordance with this 
section. Assume the applicable regulation provides that the election 
does not require an adjustment under section 481(a) and the election 
is not subject to the procedure described in Sec. 1.446-1(e)(3)(i) 
of this chapter. Further assume that 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. Under paragraph (c) of this section, 
the interests of the government are not deemed to be prejudiced.
    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. A regulation permits an automatic 
change from an impermissible method of accounting on a cut-off 
basis. Any change to this method made as part of an examination is 
made with a section 481(a) adjustment. Taxpayer E reports income on 
E's 1996 income tax return using the impermissible method of 
accounting. In 1999, during the examination of the 1996 return by 
the IRS, the examining agent questions the propriety of E's method 
of accounting. E requests relief under this section to make the 
change pursuant to the regulation for 1996. E will receive less 
favorable terms and conditions if the change in method of accounting 
is made with a section 481(a) adjustment by the examining agent than 
if the change is made on a cut-off basis pursuant to the regulation. 
Under paragraph (c)(2)(iii) of this section, the interests of the 
government are deemed to be prejudiced except in unusual and 
compelling circumstances

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. Section 602.101(c) is amended by adding the following 
entries in numerical order to the table:


Sec. 602.101  OMB Control numbers

* * * * *
    (c) * * *

------------------------------------------------------------------------
                                                             Current OMB
     CFR part or section where identified and described        control  
                                                                number  
------------------------------------------------------------------------
                                                                        
                  *        *        *        *        *                 
Sec.  301.9100-2T..........................................    1545-1488
Sec.  301.9100-3T..........................................    1545-1488
                                                                        
                                                                        
                  *        *        *        *        *                 
------------------------------------------------------------------------

Margaret Milner Richardson,
Commissioner of Internal Revenue.
    Approved:
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 96-16376 Filed 6-26-96; 8:45 am]
BILLING CODE 4830-01-U