[Federal Register Volume 63, Number 244 (Monday, December 21, 1998)]
[Proposed Rules]
[Pages 70357-70359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33344]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-120168-97]
RIN 1545-AW73


Preparer Due Diligence Requirements for Determining Earned Income 
Credit Eligibility

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations and notice of public hearing.

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SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations relating to 
the due diligence requirements in determining eligibility for the 
earned income credit for paid preparers of federal income tax returns 
or claims for refund. The text of those regulations also serves as the 
text of these proposed regulations. This document also provides notice 
of a public hearing on these proposed regulations.

DATES: Written comments must be received by March 22, 1999. Outlines of

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topics to be discussed at the public hearing scheduled for Thursday, 
May 20, 1999, at 10 a.m. must be received by Thursday, April 29, 1999.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-120168-97), room 
5226, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-
120168-97), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC. Alternatively, taxpayers may submit 
comments electronically via the Internet by selecting the ``Tax Regs'' 
option on the IRS Home Page, or by submitting comments directly to the 
IRS Internet site at http://www.irs.ustreas.gov/prod/tax_regs/
comments.html. The public hearing will be held in room 2615 of the 
Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, 
DC.

FOR FURTHER INFORMATION CONTACT: Concerning submissions, LaNita Van 
Dyke, (202) 622-7190; concerning the regulations, Marc C. Porter, (202) 
622-4940 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collection of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of Treasury, Office of Information and Regulatory Affairs, 
Washington, DC 20503, with copies to the Internal Revenue Service, 
Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224. 
Comments on the collection of information should be received by 
February 19, 1999. Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the Internal Revenue Service, 
including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of service to provide information.
    The collection of information in this proposed regulation is in 
Sec. 1.6695-2T. This information is required by the IRS to determine 
preparer due diligence compliance. This information will be used to 
avoid the imposition of the penalty imposed by section 6695(g) of the 
Internal Revenue Code. The collection of information is mandatory. The 
likely recordkeepers are individuals, business or other for profit 
institutions, and small businesses or organizations.
    The collection of information in Sec. 1.6695-2T is generally 
satisfied by completing: (1) the required information on the Checklist 
published in Notice 97-65 or the Form 8867, Paid Preparer's Earned 
Income Credit Checklist; and (2) the required Worksheet information on 
the Earned Income Credit Worksheet contained in the instructions to the 
Form 1040. The burden for the Checklist requirement is reflected in the 
burden estimate for Form 8867. The burden for the Worksheet requirement 
is reflected in the burden estimate for the Earned Income Credit 
Worksheet contained in the instructions to the Form 1040. Preparers may 
also choose to record the information necessary to complete the 
Checklist and Worksheet in their paper or electronic files (alternative 
method).
    The information collections in this regulation were originally 
included in Notice 97-65 and have been approved by the Office of 
Management and Budget under control number 1545-1570.
    The collection of information for preparers who choose to record 
the information required by the regulations in alternative paper or 
electronic form is as follows:
    Estimated total annual recordkeeping burden: 507,136 hours.
    Estimated average annual burden hours per recordkeeper: 5 hours 4 
minutes (40 minutes per return or claim for refund, 7.6 returns per 
preparer).
    Estimated number of recordkeepers: 100,000.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books and records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background and Explanation of Provisions

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
part 1) relating to section 6695. The temporary regulations set forth 
due diligence requirements that paid preparers of federal income tax 
returns or claims for refund involving the Earned Income Credit (EIC) 
must meet to avoid imposition of the penalty under section 6695(g) for 
taxable years beginning after December 31, 1996. The text of those 
regulations also serves as the text of these proposed regulations. The 
preamble to the temporary regulations explains the amendments.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in EO 12866. Therefore, 
a regulatory assessment is not required. It also has been determined 
that section 553(b) of the Administrative Procedure Act (5 U.S.C. 
chapter 5) does not apply to these regulations. Further, it is hereby 
certified, pursuant to sections 603(a) and 605(b) of the Regulatory 
Flexibility Act, that the collection of information in these 
regulations will not have a significant economic impact on a 
substantial number of small entities. This certification is based upon 
the fact that the amount of time necessary to record and retain the 
required information will be minimal for those income tax return 
preparers that choose to use the Alternative Eligibility Record and 
Alternative Computation Record. Therefore, a Regulatory Flexibility 
Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is 
not required. Pursuant to section 7805(f) of the Internal Revenue Code, 
this notice of proposed rulemaking will be submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on their impact.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments (a signed original and 
eight (8) copies) that are submitted timely to the IRS. The IRS and 
Treasury specifically request comments on the

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clarity of the proposed rule and how it may be made easier to 
understand. All comments will be available for public inspection and 
copying.
    A public hearing has been scheduled for May 20, 1999, beginning at 
10 a.m. in room 2615 of the Internal Revenue Building, 1111 
Constitution Avenue, NW., Washington, DC. Due to building security 
procedures, visitors must enter at the 10th Street entrance, located 
between Constitution and Pennsylvania Avenues, NW. In addition, all 
visitors must present photo identification to enter the building. 
Because of access restrictions, visitors will not be admitted beyond 
the immediate entrance area more than 15 minutes before the hearing 
starts. For information about having your name placed on the building 
access list to attend the hearing, see the FOR FURTHER INFORMATION 
CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written 
comments and an outline of the topics to be discussed and the time to 
be devoted to each topic (signed original and eight (8) copies) by 
April 29, 1999. A period of 10 minutes will be allotted to each person 
for making comments. An agenda showing the scheduling of the speakers 
will be prepared after the deadline for receiving outlines has passed. 
Copies of the agenda will be available free of charge at the hearing.

Drafting Information

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

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

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

    Authority: 26 U.S.C. 7805 * * * Section 1.6695-2 also issued 
under 26 U.S.C. 6695(g). * * *

    Par. 2. Section 1.6695-2 is added to read as follows:


Sec. 1.6695-2  Preparer due diligence requirements for determining 
earned income tax credit eligibility.

    [The text of proposed Sec. 1.6695-2 is the same as the text of 
Sec. 1.6695-2T published elsewhere in this issue of the Federal 
Register].
David S. Mader,
Acting Deputy Commissioner of Internal Revenue.
[FR Doc. 98-33344 Filed 12-18-98; 8:45 am]
BILLING CODE 4830-01-U