[Federal Register Volume 67, Number 112 (Tuesday, June 11, 2002)]
[Proposed Rules]
[Pages 39915-39917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14670]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-115285-01]
RIN-1545-AY84


Low-Income Taxpayer Clinics--Definition of Income Tax Return 
Preparer

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed regulations that exclude 
certain Low-Income Taxpayer Clinics (LITCs) that qualify for grants 
under section 7526 of the Internal Revenue Code from the definition of 
income tax return preparer under section 7701(a)(36). These proposed 
regulations also exclude certain persons who are employed by, or 
volunteer for, such clinics.

DATES: Written or electronically generated comments and requests for a 
public hearing must be received by September 9, 2002.

ADDRESSES: Send submissions to: CC:ITA:RU (REG-115285-01), 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:ITA:RU (REG-115285-01), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington, DC. Alternatively, taxpayers may submit comments 
electronically via the IRS Internet site at: www.irs.gov/regs.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Brinton T. Warren, at (202) 622-4940; concerning submissions of 
comments and requests for a public hearing, Treena Garrett of the 
Regulations Unit at (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed amendments to the Regulations on 
Procedure and Administration (26 CFR part 301) relating to the 
definition of the term income tax return preparer under section 
7701(a)(36) of the Internal Revenue Code (Code). These proposed 
regulations exclude certain qualified Low-Income Taxpayer Clinics 
(LITCs) from the definition of income tax return preparer and exclude 
certain persons who are employed by, or volunteer at, such clinics.
    Section 7701(a)(36), defining the term income tax return preparer, 
was enacted by section 1203 of the Tax Reform Act of 1976, Public Law 
94-455 (90 Stat. 1520) (1976) (TRA 1976). TRA 1976 also enacted many of 
the provisions of sections 6694 and 6695, which impose penalties for 
certain acts and omissions by income tax return preparers.
    The preparer penalties enacted by TRA 1976 reflect the concern of 
Congress with improper practices within the commercial tax services 
industry. See H. R. Rep. No. 94-658, 94th Cong. 1st Sess. 274 (1976), 
1976-3 (Vol. 2) C.B. 966. Consistent with the commercial focus of the 
legislative history, the definition of an income tax

[[Page 39916]]

return preparer requires that the tax return or claim for refund be 
prepared ``for compensation.'' Persons who do not receive compensation 
are not income tax return preparers for purposes of section 7701(a)(36) 
regardless of the extent to which they are involved with the 
preparation of a return or claim for refund.
    Section 3601(a) of the Internal Revenue Service Restructuring and 
Reform Act of 1998, Public Law 105-206 (112 Stat. 685) (1998) (RRA 
1998), added section 7526 of the Code, which provides for grants to 
qualified LITCs. Qualified LITCs represent taxpayers in controversies 
with the IRS and operate programs to inform individuals for whom 
English is a second language (ESL taxpayers) about their rights and 
responsibilities as taxpayers (ESL outreach). Qualified LITCs are 
either clinical programs run by accredited educational institutions 
that allow students to represent low-income taxpayers, or tax-exempt 
organizations that provide representation to low-income taxpayers.
    Under section 7526(b)(1)(A)(i), a qualified LITC may not charge 
more than a nominal fee for its authorized services (except for 
reimbursement of actual costs incurred). These proposed regulations do 
not address the definition of a nominal fee. The Treasury Department 
and the IRS specifically request comments on whether the final 
regulations, or other guidance, should define a nominal fee and, if so, 
the factors that should be considered in defining a nominal fee. In 
addition, although the Treasury Department and the IRS believe that a 
qualified LITC is not authorized by statute to provide return 
preparation assistance other than as described below, these regulations 
do not address the qualification of an LITC under section 7526 of the 
Code.
    The Treasury Department and the IRS recognize that in the course of 
representing a taxpayer in a controversy with the IRS, a qualified LITC 
may provide assistance with a tax return or claim for refund that is 
related directly to that controversy. The Treasury Department and the 
IRS also recognize that as an ancillary part of a qualified LITC's ESL 
outreach program, the LITC may provide assistance with a tax return or 
claim for refund that will be treated as return preparation assistance. 
The Treasury Department and the IRS believe that such return 
preparation assistance should not cause the LITC, or its employees or 
volunteers, to be treated as income tax return preparers unless the 
LITC is compensated for such assistance. Accordingly, these proposed 
regulations specify when an LITC will be treated as having prepared a 
tax return or claim of refund for compensation for purposes of section 
7701(a)(36).
    The Treasury Department and the IRS expect that LITCs will follow 
the practices specified in sections 6694 and 6695 as the preferred 
practice for their operations even if they are not income tax return 
preparers within the meaning of section 7701(a)(36). For example, 
section 6695(a), in conjunction with section 6107(a), requires that an 
income tax return preparer furnish the taxpayer a completed copy of a 
tax return or claim for refund not later than the time the return or 
claim is presented to the taxpayer for signature.

Explanation of Provisions

    The proposed regulations clarify that qualified LITCs, as defined 
by section 7526, and employees and volunteers of such LITCs, that 
provide assistance with a tax return or claim for refund will not be 
treated as income tax return preparers if two requirements are 
satisfied.
    First, any such return preparation assistance must be (i) directly 
related to a controversy with the IRS for which the LITC is providing 
assistance or (ii) an ancillary part of an LITC's ESL outreach program. 
Second, the LITC cannot charge a separate fee or vary a fee based on 
whether the LITC provides assistance with a return of tax or claim for 
refund, or charge more than a nominal fee for its services.

Proposed Effective Date

    The regulations, as proposed, would apply on the date of 
publication of a Treasury decision adopting these rules as final 
regulations in the Federal Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
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, and, because 
these 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 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 written (preferably a signed 
original and 8 copies) and electronic comments that are submitted 
timely to the IRS. The IRS and Treasury Department request comments on 
the clarity of the proposed rules and how they can be made easier to 
understand. All comments will be available for public inspection and 
copying. A public hearing will be scheduled if requested in writing by 
any person that timely submits comments. If a public hearing is 
scheduled, notice of the date, time, and place for the public hearing 
will be published in the Federal Register.

Drafting Information

    The principal author of the regulations is Brinton T. Warren of the 
Office of Associate Chief Counsel (Procedure and Administration), 
Administrative Provisions and Judicial Practice Division.

List of Subjects in 26 CFR Part 301

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

Proposed Amendment to the Regulations

    Accordingly, 26 CFR part 301 is proposed to be amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

    Paragraph 1. The authority citation for part 301 continues to read 
in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Par. 2. Section 301.7701-15 is amended by:
    1. Removing the language ``and'' from the end of paragraph 
(a)(7)(iii).
    2. Removing the period at the end of paragraph (a)(7)(iv) and 
adding a semicolon in its place.
    3. Adding paragraphs (a)(7)(v), (a)(7)(vi), (a)(8)(i) and 
(a)(8)(ii).
    The additions read as follows:


Sec. 301.7701-15  Income tax return preparer.

* * * * *
    (a) * * *
    (7) * * *
    (v) Any individual who provides tax assistance as part of a 
qualified Low-Income Taxpayer Clinic (LITC), as defined by section 
7526, subject to the requirements of paragraphs (a)(8)(i) and (ii) of 
this section; and
    (vi) Any organization that is a qualified Low-Income Taxpayer 
Clinic

[[Page 39917]]

(LITC), as defined by section 7526, subject to the requirements of 
paragraphs (a)(8)(i) and (ii) of this section. (8)(i) Paragraphs 
(a)(7)(v) and (a)(7)(vi) of this section apply only if any assistance 
with a return of tax or claim for refund under subtitle A of the 
Internal Revenue Code is directly related to a controversy with the 
Internal Revenue Service for which the qualified LITC is providing 
assistance, or is an ancillary part of an LITC program to inform 
individuals for whom English is a second language about their rights 
and responsibilities under the Internal Revenue Code.
    (ii) Notwithstanding paragraph (a)(8)(i) of this section, 
paragraphs (a)(7)(v) and (a)(7)(vi) of this section do not apply if an 
LITC charges a separate fee or varies a fee based on whether the LITC 
provides assistance with a return of tax or claim for refund under 
subtitle A of the Internal Revenue Code, or if the LITC charges more 
than a nominal fee for its services.
* * * * *
    Par. 3. Effective date. This amendment is applicable on the date 
the final regulations are published in the Federal Register.

Robert E. Wenzel,
 Deputy Commissioner of Internal Revenue.
[FR Doc. 02-14670 Filed 6-10-02; 8:45 am]
BILLING CODE 4830-01-P