[Federal Register Volume 63, Number 251 (Thursday, December 31, 1998)]
[Rules and Regulations]
[Pages 72182-72183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-34360]



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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8803]
RIN 1545-AW83


Retention of Income Tax Return Preparers' Signatures

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final and temporary regulations that 
provide income tax return preparers with two alternative means of 
meeting the requirement that a preparer retain the manually signed (by 
the preparer) copy of the return or claim. The regulations are 
necessary to inform preparers of the two alternatives and provide 
preparers with the guidance needed to comply with the alternatives. The 
text of the 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: Effective Date: These regulations are effective December 31, 
1998.
    Applicability Date: For dates of applicability, see Sec. 1.6695-
1T(g) of these regulations.

FOR FURTHER INFORMATION CONTACT: Marc C. Porter (202) 622-4940 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) relating to the penalty for failure to sign an income tax 
return under section 6695(b) of the Internal Revenue Code. Section 
6695(b) provides that any person who is an income tax return preparer 
with respect to a return or claim for refund, who is required by 
regulations prescribed by the Secretary to sign the return or claim, 
and who fails to comply with those regulations, must pay a penalty of 
$50 for such failure, unless it is shown that the failure is due to 
reasonable cause and not willful neglect. The maximum penalty imposed 
with respect to documents filed during a calendar year will not exceed 
$25,000.
    Section 7701(a)(36)(A) provides that, in general, the term ``income 
tax return preparer'' means any person who prepares for compensation, 
or who employs one or more persons to prepare for compensation, any 
return of tax or claim for refund imposed by subtitle A. For purposes 
of the preceding sentence, the preparation of a substantial portion of 
a return or claim is treated as if it were the preparation of such 
return or claim.
    Section 1.6695-1(b)(1) and (c) generally provides that an income 
tax return preparer, with respect to a return or claim for refund, must 
manually sign the return or claim (which may be a photocopy) in the 
appropriate space provided on the return or claim after it is completed 
and before it is presented to the taxpayer (or nontaxable entity) for 
signature.
    Section 1.6695-1(b)(4)(i) provides that the manual signature 
requirement may be satisfied by a photocopy of a copy of the return or 
claim for refund if the copy is manually signed by the income tax 
return preparer after completion of its preparation. The taxpayer may 
file a photocopy of this manually signed return with the IRS, see Rev. 
Proc. 78-370 (1978-2 C.B. 335). 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 of a partnership 
which is a preparer), must retain the manually signed copy of the 
return or claim.

Explanation of Provisions

    The regulations provide that, if an income tax return preparer 
presents for a taxpayer's signature a return or claim for refund that 
has a copy of the preparer's manual signature, the preparer may either 
retain a photocopy of the manually signed copy of the return or claim 
for refund or use an electronic storage system meeting the requirements 
of section 4 of Rev. Proc. 97-22, (1997-1 C.B. 652) or procedures 
subsequently prescribed by the Commissioner, to store and produce a 
copy of the return or claim manually signed by the preparer.

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 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, and because the regulations do not 
impose a collection of information on small entities, the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) does not apply. 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 
business.
    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.

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 is amended by adding 
an entry in numerical order to read as follows:

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

    Section 1.6695-1T also issued under 26 U.S.C. 6695(b) * * *
    Par. 2. Section 1.6695-1 is amended by revising paragraph (b)(4)(i) 
to read as follows:


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

* * * * *
    (b) * * *
    (4)(i) [Reserved]. For further guidance on acceptable methods of 
meeting the manual signature requirement of paragraphs (b)(1) and (2) 
of this section, see Sec. 1.6695-1T(b)(4)(i).
* * * * *
    Par. 3. Section 1.6695-1T is added to read as follows:


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

    (a) through (b)(3) [Reserved]. For further guidance, see 
Sec. 1.6695-1(a) through (b)(3).
    (b)(4)(i) The manual signature requirement of Sec. 1.6695-1(b)(1) 
and (2) may be satisfied by a photocopy of a copy of the return or 
claim for refund which copy is manually signed by the preparer after 
completion of its preparation. After a copy of the return or claim for 
refund is signed by the preparer and before it is photocopied, no 
person other than the preparer may alter any entries on the copy other 
than to correct arithmetical errors discernible on the return or claim 
for refund. 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

[[Page 72183]]

partner of a partnership which is a preparer), must retain the manually 
signed copy of the return or claim for refund. In the alternative, for 
a return or claim for refund presented to a taxpayer for signature 
after December 31, 1998 and for returns or claims for refund retained 
on or before that date, the person required to retain the manually 
signed copy of the return or claim for refund may choose to retain a 
photocopy of the manually signed copy of the return or claim for 
refund, or use an electronic storage system to store and produce a copy 
of the manually signed return or claim for refund. For purposes of this 
paragraph (b)(4)(i), an electronic storage system must meet the 
electronic storage system requirements prescribed in section 4 of Rev. 
Proc. 97-22 (1997-1 C.B. 652)(see Sec. 601.601(d)(2) of this chapter) 
or procedures subsequently prescribed by the Commissioner. A record of 
any arithmetical errors corrected must be retained and made available 
upon request by the person required to retain the manually signed copy 
of the return or claim for refund.
    (b)(4)(ii) through (f) [Reserved]. For further guidance, see 
Sec. 1.6695-1(b)(4)(ii) through (f).
    (g) Effective date. This section applies to income tax returns and 
claims for refund presented to a taxpayer for signature after December 
31, 1998 and for returns or claims for refund retained on or before 
December 31, 1998. This section expires on December 31, 2001.

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.

    Approved: December 17, 1998.
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 98-34360 Filed 12-30-98; 8:45 am]
BILLING CODE 4830-01-P