[Federal Register Volume 63, Number 122 (Thursday, June 25, 1998)]
[Rules and Regulations]
[Pages 34594-34596]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-16840]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 8773]
RIN 1545-AV62
EIC Eligibility Requirements
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Temporary regulations.
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SUMMARY: This document contains temporary regulations that provide
guidance to taxpayers who have been denied the earned income credit
(EIC) as a result of the deficiency procedures and wish to claim the
EIC in a subsequent year. The temporary regulations apply to taxpayers
claiming the EIC for taxable years beginning after December 31, 1997,
where the taxpayer's EIC claim was denied for a taxable year beginning
after December 31, 1996. The text of these temporary regulations also
serves as the text of 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: Effective date: June 25, 1998.
Applicability dates: For dates of applicability, see Sec. 1.32-
3T(f) of these regulations.
FOR FURTHER INFORMATION CONTACT: Karin Loverud at 202-622-6060 (not a
toll-free number).
[[Page 34595]]
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 1545-1575. Responses to this collection of information
are mandatory. An agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless it
displays a valid control number assigned by the Office of Management
and Budget.
For further information concerning this collection of information,
and 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 amendments to the Income Tax Regulations (26
CFR part 1) providing guidance relating to the requirement that
taxpayers who are denied the EIC for a taxable year demonstrate their
eligibility to claim the EIC in a subsequent taxable year. This
requirement is described in section 32(k)(2), which was added by
section 1085(a)(1) of the Taxpayer Relief Act of 1997 (Public Law 105-
34, 111 Stat. 788).
Section 32(k)(2) pertains to taxpayers who are denied the EIC as a
result of the deficiency procedures under subchapter B of chapter 63
(the deficiency procedures). A taxpayer who has been denied the EIC for
any taxable year as a result of the deficiency procedures is ineligible
to claim the EIC for a subsequent taxable year unless the taxpayer
provides information required by the Secretary demonstrating
eligibility for the EIC. If the taxpayer demonstrates eligibility for
the EIC, the taxpayer is not required to provide this information in
the future unless the IRS again denies the EIC as a result of the
deficiency procedures.
If the taxpayer fails to provide the required information or the
information provided does not demonstrate eligibility for the EIC, the
requirements of section 32(k)(2) are not satisfied. In such
circumstances, the IRS can treat the failure to meet these requirements
as a mathematical or clerical error.
In the case of deficiencies attributable to certain mathematical
and clerical errors, enumerated in section 6213(g), the IRS is
authorized to make a summary assessment, without following the normal
deficiency procedures. In the case of EIC claims, mathematical and
clerical errors can include both errors that apply generally to all
returns and certain errors specific to the EIC. For example,
mathematical and clerical errors include situations in which (1) a
taxpayer fails to provide a correct taxpayer identification number
required under section 32, or (2) a taxpayer who claims the EIC with
respect to net earnings from self-employment fails to pay the proper
amount of self-employment tax on the net earnings. As noted above, the
IRS is now authorized to treat failure to meet the requirements of
section 32(k)(2) as a mathematical or clerical error.
Ineligibility for the EIC under these new rules is subject to
review by the courts.
The new provision applies to taxpayers who are denied the EIC on
their return for any taxable year beginning after 1996.
Explanation of Provisions
A taxpayer who has been denied the EIC, in whole or in part, as a
result of deficiency procedures is ineligible to file a return claiming
the EIC subsequent to the denial until the taxpayer provides evidence
of eligibility for the EIC. Deficiency procedures include
administrative procedures (other than procedures related to
mathematical or clerical errors) that result in an assessment of a
deficiency in tax, whether or not a notice of deficiency is issued. To
demonstrate current eligibility, the regulations require the taxpayer
to complete Form 8862, Information To Claim Earned Income Credit After
Disallowance. Form 8862 contains a series of questions designed to
assist the IRS in determining whether the taxpayer is eligible to claim
the EIC under section 32 for the subsequent taxable year. A taxpayer
fails to demonstrate eligibility if, for example, the form is
incomplete or any item of information on the form is incorrect or
inconsistent with any item on the return. If the taxpayer properly
demonstrates eligibility for the EIC, the taxpayer is not required to
submit Form 8862 in the future unless the IRS again denies the EIC as a
result of the deficiency procedures.
The regulations require the taxpayer to attach Form 8862 to the
first income tax return on which the taxpayer claims the EIC after the
EIC has been denied as a result of the deficiency procedures. The EIC
is denied as a result of the deficiency procedures when an assessment
of a deficiency is made (other than as a mathematical or clerical error
under section 6213(b)(1)).
The Treasury Department and the IRS anticipate that the
Commissioner of Internal Revenue may require taxpayers to provide
documentary evidence in addition to Form 8862. Whether or not the
Commissioner requires taxpayers to provide documentary evidence in
addition to Form 8862, the Commissioner may choose to examine any
return claiming the EIC for which Form 8862 is required.
The regulations provide that if the taxpayer fails to properly
complete Form 8862 or does not demonstrate eligibility for the EIC, the
provisions of section 32(k)(2) are not satisfied. In such
circumstances, the IRS can deny the EIC as a mathematical or clerical
error under section 6213(g)(2)(J) [(K)] (relating to the omission of
information required by section 32(k)(2)). If a taxpayer's claim for
the EIC is denied under section 6213(g)(2)(J) [(K)], the taxpayer must
attach Form 8862 to the next return for which the EIC is claimed.
The regulations provide that if two individuals marry after one has
been denied the EIC as a result of the deficiency procedures, the
eligibility requirements apply when they file a joint return and claim
the EIC. For example, two unmarried taxpayers have qualifying children
and claim the EIC. The taxpayers subsequently marry. For a taxable year
preceding the marriage, one of the taxpayers was denied the EIC under
the deficiency procedures and has not established eligibility for a
subsequent year. In this situation, if they claim the EIC for the
taxable year in which they marry, the demonstration of eligibility
rules will apply.
Special Analyses
It has been determined that these regulations are not a significant
regulatory action as defined in Executive Order 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
does not apply to these regulations.
[[Page 34596]]
It is hereby certified that these regulations will not have a
significant economic impact on a substantial number of small entities.
This certification is based upon the fact that the underlying statute
applies only to individuals. Therefore, a Regulatory Flexibility
Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is
not required.
Pursuant to section 7805(f), these temporary regulations will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small business.
Drafting Information
The principal author of these regulations is Karin Loverud of the
Office of the Associate Chief Counsel (Employee Benefits and Exempt
Organizations), IRS. 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 part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.32-3T is added to read as follows:
Sec. 1.32-3T Eligibility requirements (temporary).
(a) In general. A taxpayer who has been denied the earned income
credit (EIC), in whole or in part, as a result of the deficiency
procedures under subchapter B of chapter 63 (deficiency procedures) is
ineligible to file a return claiming the EIC subsequent to the denial
until the taxpayer demonstrates eligibility for the EIC in accordance
with paragraph (c) of this section. If a taxpayer demonstrates
eligibility for a taxable year in accordance with paragraph (c) of this
section, the taxpayer need not comply with those requirements for any
subsequent taxable year unless the Service again denies the EIC as a
result of the deficiency procedures.
(b) Denial of the EIC as a result of the deficiency procedures. For
purposes of this section, denial of the EIC as a result of the
deficiency procedures occurs when a tax on account of the EIC is
assessed as a deficiency (other than as a mathematical or clerical
error under section 6213(b)(1)).
(c) Demonstration of eligibility. In the case of a taxpayer to whom
paragraph (a) of this section applies, and except as otherwise provided
by the Commissioner, no claim for the EIC filed subsequent to the
denial is allowed unless the taxpayer properly completes Form 8862,
Information To Claim Earned Income Credit After Disallowance,
demonstrating eligibility for the EIC, and otherwise is eligible for
the EIC. If any item of information on Form 8862 is incorrect or
inconsistent with any item on the return, the taxpayer will be treated
as not demonstrating eligibility for the EIC. The taxpayer must attach
Form 8862 to the taxpayer's first income tax return on which the
taxpayer claims the EIC after the EIC has been denied as a result of
the deficiency procedures.
(d) Failure to demonstrate eligibility. If a taxpayer to whom
paragraph (a) of this section applies fails to satisfy the requirements
of paragraph (c) of this section with respect to a particular taxable
year, the IRS can deny the EIC as a mathematical or clerical error
under section 6213(g)(2)(J) [(K)].
(e) Special rule where one spouse denied EIC. The eligibility
requirements set forth in this section apply to taxpayers filing a
joint return where one spouse was denied the EIC for a taxable year
prior to marriage and has not established eligibility as either an
unmarried or married taxpayer for a subsequent taxable year.
(f) Effective date. This section applies to returns claiming the
EIC for taxable years beginning after December 31, 1997, where the EIC
was denied for a taxable year beginning after December 31, 1996.
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. In Sec. 602.101, paragraph (c) is amended by adding an
entry to the table in numerical order to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
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Current OMB
CFR part or section where identified and described control No.
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1.32-3T.................................................... 1545-1575
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Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
Approved: May 18, 1998.
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 98-16840 Filed 6-24-98; 8:45 am]
BILLING CODE 4830-01-U