[Federal Register Volume 72, Number 5 (Tuesday, January 9, 2007)]
[Rules and Regulations]
[Pages 902-905]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-22645]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9309]
RIN 1545-BD40


Qualified Amended Returns

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations that state the rules 
relating to qualified amended returns by providing circumstances that 
end the period within which a taxpayer may file an amended return that 
constitutes a qualified amended return. The IRS uses qualified amended 
returns to determine whether an underpayment exists that is potentially 
subject to the accuracy-related penalty on underpayments. Among other 
things, these final regulations provide that the period for filing a 
qualified amended return is terminated once the IRS has served a John 
Doe summons on a third party with respect to the taxpayer's tax 
liability. In addition, for taxpayers who have claimed tax benefits 
from undisclosed listed transactions, the regulations provide that the 
period for filing a qualified amended return is terminated once the IRS 
requests information related to the transaction that is required to be 
included on a list under section 6112 from any person who made a tax 
statement to or for the benefit of the taxpayer, or any person who gave 
material aid, assistance, or advice to the taxpayer. The regulations 
also provide that the date on which published guidance is issued 
announcing a settlement initiative for a listed transaction in which 
penalties, in whole or in part, are compromised or waived is an 
additional date by which a taxpayer must file a qualified amended 
return.

DATES: Effective Date: These regulations are effective January 9, 2007. 
Applicability Dates: For dates of applicability, see Sec.  1.6664-
1(b)(3).

FOR FURTHER INFORMATION CONTACT: Laura Urich Daly, 202-622-4940 (not a 
toll-free number).

[[Page 903]]


SUPPLEMENTARY INFORMATION:

Background

    This document contains Final Regulations under 26 CFR part 1 
relating to qualified amended returns. Temporary regulations (TD 9186) 
relating to qualified amended returns were published in the Federal 
Register (70 FR 10037) on March 2, 2005. A notice of proposed 
rulemaking (REG-122847-04) cross-referencing the temporary regulations 
was published in the Federal Register (70 FR 10062) for the same day. A 
correction (70 FR 36345) and a correcting amendment (70 FR 36344) to 
the regulations were published in the Federal Register on June 23, 
2005, and a correction to the correction was published in the Federal 
Register (70 FR 43635) on July 28, 2005. No written or electronic 
comments were received from the public in response to the notice of 
proposed rulemaking and no public hearing was requested or held. The 
proposed regulations are adopted as amended by this Treasury decision, 
and the corresponding temporary regulations are removed. The revisions 
are discussed below.

Explanation of Revisions

    The final regulations clarify the applicability date of the 
regulations. Under the Special Rules section, the sentence in the 
proposed and temporary regulations regarding disclosure pursuant to 
Sec.  1.6011-4 was removed in these final regulations because it could 
be incorrectly interpreted to provide relief from the section 6707A 
penalty. These final regulations are not intended to have any effect 
upon the applicability of the section 6707A penalty. In addition, 
examples one, four, five, six, and seven in the proposed and temporary 
regulations were further clarified. Finally, example eight in the 
proposed and temporary regulations was removed as unnecessary.
    No other substantive revisions were made to the proposed and 
temporary regulations or the corrections to those regulations. These 
final regulations do, however, include revisions to the table of 
contents to the regulations under section 6664.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 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) does not apply to these regulations, and because the 
regulation does 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, the 
notice of proposed rulemaking preceding this regulation was submitted 
to the Chief Counsel for Advocacy of the Small Business Administration 
for comment on its impact on small businesses.

Drafting Information

    The principal author of this regulation is Laura Urich Daly, Office 
of the Associate Chief Counsel (Procedure & Administration), 
Administrative Provisions and Judicial Practice Division.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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


0
Par. 2. Section 1.6664-0 is amended by adding entries for Sec. Sec.  
1.6664-1(b)(3) and 1.6664-2(c)(3)(i), (ii) and (5), and revising the 
entry for Sec.  1.6664-2(c)(4) to read as follows:


Sec.  1.6664-0  Table of contents.

* * * * *


Sec.  1.6664-1  Accuracy-related and fraud penalties; definitions, 
effective date and special rules.

* * * * *
    (b) * * *
    (3) Qualified amended returns.


Sec.  1.6664-2  Underpayment.

* * * * *
    (c) * * *
    (3) * * *
    (i) General rule.
    (ii) Undisclosed listed transactions.
    (4) Special rules.
    (5) Examples.
* * * * *

0
Par. 3. Section 1.6664-1 is amended by:
0
1. Revising the section heading.
0
2. Adding paragraph (b)(3).
    The revision and addition read as follows:


Sec.  1.6664-1  Accuracy-related and fraud penalties; definitions, 
effective date and special rules.

* * * * *
    (b) * * *
    (3) Qualified amended returns. Sections 1.6664-2(c)(1), (c)(2), 
(c)(3)(i)(A), (c)(3)(i)(B), (c)(3)(i)(C), (c)(3)(i)(D)(2), 
(c)(3)(i)(E), and (c)(4) are applicable for amended returns and 
requests for administrative adjustment filed on or after March 2, 2005. 
Sections 1.6664-2(c)(3)(i)(D)(1) and (c)(3)(ii)(B) and (C) are 
applicable for amended returns and requests for administrative 
adjustment filed on or after April 30, 2004. The applicability date for 
Sec.  1.6664-2(c)(3)(ii)(A) varies depending upon which event occurs 
under Sec.  1.6664-2(c)(3)(i). For purposes of Sec.  1.6664-
2(c)(3)(ii)(A), the date described in Sec.  1.6664-2(c)(3)(i)(D)(1) is 
applicable for amended returns and requests for administrative 
adjustment filed on or after April 30, 2004. For purposes of Sec.  
1.6664-2(c)(3)(ii)(A), the dates described in Sec.  1.6664-
2(c)(3)(i)(A), (B), (C), (D)(2), and (E) are applicable for amended 
returns and requests for administrative adjustment filed on or after 
March 2, 2005. Section 1.6664-2(c)(1) through (c)(3), as contained in 
26 CFR part 1 revised as of April 1, 2004 and as modified by Notice 
2004-38, 2004-1 C.B. 949, applies with respect to returns and requests 
for administrative adjustment filed on or after April 30, 2004 and 
before March 2, 2005. Section 1.6664-2(c)(1) through (3), as contained 
in 26 CFR part 1 revised as of April 30, 2004, applies with respect to 
returns and requests for administrative adjustment filed before April 
30, 2004.


Sec.  1.6664-1T  [Removed]

0
Par. 4. Section 1.6664-1T is removed.

0
Par. 5. Section 1.6664-2(c) is revised to read as follows:


Sec.  1.6664-2  Underpayment.

* * * * *
    (c) Amount shown as the tax by the taxpayer on his return--(1) 
Defined. For purposes of paragraph (a) of this section, the amount 
shown as the tax by the taxpayer on his return is the tax liability 
shown by the taxpayer on his return, determined without regard to the 
items listed in paragraphs (b)(1), (2), and (3) of this section, except 
that it is reduced by the excess of--
    (i) The amounts shown by the taxpayer on his return as credits for 
tax withheld under section 31 (relating to tax withheld on wages) and 
section 33 (relating to tax withheld at source on nonresident aliens 
and foreign corporations), as payments of estimated tax, or as any 
other payments made by the taxpayer with respect to a taxable year 
before filing the return for such taxable year, over

[[Page 904]]

    (ii) The amounts actually withheld, actually paid as estimated tax, 
or actually paid with respect to a taxable year before the return is 
filed for such taxable year.
    (2) Effect of qualified amended return. The amount shown as the tax 
by the taxpayer on his return includes an amount shown as additional 
tax on a qualified amended return (as defined in paragraph (c)(3) of 
this section), except that such amount is not included if it relates to 
a fraudulent position on the original return.
    (3) Qualified amended return defined--(i) General rule. A qualified 
amended return is an amended return, or a timely request for an 
administrative adjustment under section 6227, filed after the due date 
of the return for the taxable year (determined with regard to 
extensions of time to file) and before the earliest of--
    (A) The date the taxpayer is first contacted by the Internal 
Revenue Service (IRS) concerning any examination (including a criminal 
investigation) with respect to the return;
    (B) The date any person is first contacted by the IRS concerning an 
examination of that person under section 6700 (relating to the penalty 
for promoting abusive tax shelters) for an activity with respect to 
which the taxpayer claimed any tax benefit on the return directly or 
indirectly through the entity, plan or arrangement described in section 
6700(a)(1)(A);
    (C) In the case of a pass-through item (as defined in Sec.  1.6662-
4(f)(5)), the date the pass-through entity (as defined in Sec.  1.6662-
4(f)(5)) is first contacted by the IRS in connection with an 
examination of the return to which the pass-through item relates;
    (D)(1) The date on which the IRS serves a summons described in 
section 7609(f) relating to the tax liability of a person, group, or 
class that includes the taxpayer (or pass-through entity of which the 
taxpayer is a partner, shareholder, beneficiary, or holder of a 
residual interest in a REMIC) with respect to an activity for which the 
taxpayer claimed any tax benefit on the return directly or indirectly.
    (2) The rule in paragraph (c)(3)(i)(D)(1) of this section applies 
to any return on which the taxpayer claimed a direct or indirect tax 
benefit from the type of activity that is the subject of the summons, 
regardless of whether the summons seeks the production of information 
for the taxable period covered by such return; and
    (E) The date on which the Commissioner announces by revenue ruling, 
revenue procedure, notice, or announcement, to be published in the 
Internal Revenue Bulletin (see Sec.  601.601(d)(2) of this chapter), a 
settlement initiative to compromise or waive penalties, in whole or in 
part, with respect to a listed transaction. This rule applies only to a 
taxpayer who participated in the listed transaction and for the taxable 
year(s) in which the taxpayer claimed any direct or indirect tax 
benefits from the listed transaction. The Commissioner may waive the 
requirements of this paragraph or identify a later date by which a 
taxpayer who participated in the listed transaction must file a 
qualified amended return in the published guidance announcing the 
listed transaction settlement initiative.
    (ii) Undisclosed listed transactions. An undisclosed listed 
transaction is a transaction that is the same as, or substantially 
similar to, a listed transaction within the meaning of Sec.  1.6011-
4(b)(2) (regardless of whether Sec.  1.6011-4 requires the taxpayer to 
disclose the transaction) and was neither previously disclosed by the 
taxpayer within the meaning of Sec.  1.6011-4 or Sec.  1.6011-4T, nor 
disclosed under Announcement 2002-2 (2002-1 C.B. 304), (see Sec.  
601.601(d)(2)(ii) of this chapter) by the deadline therein. In the case 
of an undisclosed listed transaction for which a taxpayer claims any 
direct or indirect tax benefits on its return (regardless of whether 
the transaction was a listed transaction at the time the return was 
filed), an amended return or request for administrative adjustment 
under section 6227 will not be a qualified amended return if filed on 
or after the earliest of--
    (A) The dates described in paragraph (c)(3)(i) of this section;
    (B) The date on which the IRS first contacts any person regarding 
an examination of that person's liability under section 6707(a) with 
respect to the undisclosed listed transaction of the taxpayer; or
    (C) The date on which the IRS requests, from any person who made a 
tax statement to or for the benefit of the taxpayer or from any person 
who gave the taxpayer material aid, assistance, or advice as described 
in section 6111(b)(1)(A)(i) with respect to the taxpayer, the 
information required to be included on a list under section 6112 
relating to a transaction that was the same as, or substantially 
similar to, the undisclosed listed transaction, regardless of whether 
the taxpayer's information is required to be included on that list.
    (4) Special rules. (i) A qualified amended return includes an 
amended return that is filed to disclose information pursuant to Sec.  
1.6662-3(c) or Sec.  1.6662-4(e) and (f) even though it does not report 
any additional tax liability. See Sec.  1.6662-3(c), Sec.  1.6662-4(f), 
and Sec.  1.6664-4(c) for rules relating to adequate disclosure.
    (ii) The Commissioner may by revenue procedure prescribe the manner 
in which the rules of paragraph (c) of this section regarding qualified 
amended returns apply to particular classes of taxpayers.
    (5) Examples. The following examples illustrate the provisions of 
paragraphs (c)(3) and (c)(4) of this section:

    Example 1. T, an individual taxpayer, claimed tax benefits on 
its 2002 Federal income tax return from a transaction that is 
substantially similar to the transaction identified as a listed 
transaction in Notice 2002-65, 2002-2 C.B. 690 (Partnership Entity 
Straddle Tax Shelter). T did not disclose his participation in this 
transaction on a Form 8886, ``Reportable Transaction Disclosure 
Statement,'' as required by Sec.  1.6011-4. On June 30, 2004, the 
IRS requested from P, T's material advisor, an investor list 
required to be maintained under section 6112. The section 6112 
request, however, related to the type of transaction described in 
Notice 2003-81, 2003-2 C.B. 1223 (Tax Avoidance Using Offsetting 
Foreign Currency Option Contracts). T did not participate in (within 
the meaning of Sec.  1.6011-4(c)) a transaction described in Notice 
2003-81. T may file a qualified amended return relating to the 
transaction described in Notice 2002-65 because T did not claim a 
tax benefit with respect to the listed transaction described in 
Notice 2003-81, which is the subject of the section 6112 request.
    Example 2. The facts are the same as in Example 1, except that 
T's 2002 Federal income tax return reflected T's participation in 
the transaction described in Notice 2003-81. As of June 30, 2004, T 
may not file a qualified amended return for the 2002 tax year.
    Example 3. (i) Corporation X claimed tax benefits from a 
transaction on its 2002 Federal income tax return. In October 2004, 
the IRS and Treasury Department identified the transaction as a 
listed transaction. In December 2004, the IRS contacted P concerning 
an examination of P's liability under section 6707(a) (as in effect 
prior to the amendment to section 6707 by section 816 of the 
American Jobs Creation Act of 2004 (the Jobs Act), Public Law 108-
357 (118 Stat. 1418)). P is the organizer of a section 6111 tax 
shelter (as in effect prior to the amendment to section 6111 by 
section 815 of the Jobs Act) who provided representations to X 
regarding tax benefits from the transaction, and the IRS has 
contacted P about the failure to register that transaction. Three 
days later, X filed an amended return.
    (ii) X's amended return is not a qualified amended return, 
because X did not disclose the transaction before the IRS contacted 
P. X's amended return would have been a qualified amended return if 
it was submitted prior to the date on which the IRS contacted P.

[[Page 905]]

    Example 4. The facts are the same as in Example 3 except that, 
instead of contacting P concerning an examination under section 
6707(a), in December 2004, the IRS served P with a John Doe summons 
described in section 7609(f) relating to the tax liability of 
participants in the type of transaction for which X claimed tax 
benefits on its return. X cannot file a qualified amended return 
after the John Doe summons has been served regardless of when, or 
whether, the transaction becomes a listed transaction.
    Example 5. On November 30, 2003, the IRS served a John Doe 
summons described in section 7609(f) on Corporation Y, a credit card 
company. The summons requested the identity of, and information 
concerning, United States taxpayers who, during the taxable years 
2001 and 2002, had signature authority over Corporation Y's credit 
cards issued by, through, or on behalf of certain offshore financial 
institutions. Corporation Y complied with the summons, and 
identified, among others, Taxpayer B. On May 31, 2004, before the 
IRS first contacted Taxpayer B concerning an examination of Taxpayer 
B's Federal income tax return for the taxable year 2002, Taxpayer B 
filed an amended return for that taxable year, that showed an 
increase in Taxpayer B's Federal income tax liability. Under 
paragraph (c)(3)(i)(D) of this section, the amended return is not a 
qualified amended return because it was not filed before the John 
Doe summons was served on Corporation Y.
    Example 6. The facts are the same as in Example 5. Taxpayer B 
continued to maintain the offshore credit card account through 2003 
and filed an original tax return for the 2003 taxable year claiming 
tax benefits attributable to the existence of the account. On March 
21, 2005, Taxpayer B filed an amended return for the taxable year 
2003, that showed an increase in Taxpayer B's Federal income tax 
liability. Under paragraph (c)(3)(i)(D) of this section, the amended 
return is not a qualified amended return because it was not filed 
before the John Doe summons for 2001 and 2002 was served on 
Corporation Y, and the return reflects benefits from the type of 
activity that is the subject of the John Doe summons.
    Example 7. (i) On November 30, 2003, the IRS served a John Doe 
summons described in section 7609(f) on Corporation Y, a credit card 
company. The summons requested the identity of, and information 
concerning, United States taxpayers who, during the taxable years 
2001 and 2002, had signature authority over Corporation Y's credit 
cards issued by, through, or on behalf of certain offshore financial 
institutions. Taxpayer C did not have signature authority over any 
of Corporation Y's credit cards during either 2001 or 2002 and, 
therefore, was not a person described in the John Doe summons.
    (ii) In 2003, Taxpayer C first acquired signature authority over 
a Corporation Y credit card issued by an offshore financial 
institution. Because Taxpayer C did not have signature authority 
during 2001 or 2002 over a Corporation Y credit card issued by an 
offshore financial institution, and was therefore not covered by the 
John Doe summons served on November 30, 2003, Taxpayer C's ability 
to file a qualified amended return for the 2003 taxable year is not 
limited by paragraph (c)(3)(i)(D) of this section.
* * * * *


Sec.  1.6664-2T  [Removed]

0
Par. 6. Section 1.6664-2T is removed.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: December 21, 2006.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E6-22645 Filed 1-8-07; 8:45 am]
BILLING CODE 4830-01-P