[Federal Register Volume 72, Number 119 (Thursday, June 21, 2007)]
[Proposed Rules]
[Pages 34199-34203]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-12082]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-149036-04]
RIN 1545-BG75


Application of Section 6404(g) of the Internal Revenue Code 
Suspension Provisions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document proposes regulations for the suspension of 
interest, penalties, additions to tax, or additional amounts under 
section 6404(g) of the Internal Revenue Code (Code) that explain the 
general rules for suspension as well as exceptions to those general 
rules. The proposed regulations reflect changes to the law made by the 
Internal Revenue Service

[[Page 34200]]

Restructuring and Reform Act of 1998, the American Jobs Creation Act of 
2004, the Gulf Opportunity Zone Act of 2005, and the Tax Relief and 
Health Care Act of 2006. The proposed regulations affect individual 
taxpayers who file timely income tax returns with respect to whom the 
IRS does not timely provide a notice specifically stating an additional 
tax liability and the basis for that liability. This document also 
provides a notice of public hearing on the proposed regulations.

DATES: Written or electronic comments must be received by September 19, 
2007. Outlines of topics to be discussed at the public hearing 
scheduled for October 11, 2007, at 10 a.m. must be received by 
September 20, 2007.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-149036-04), room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
149036-04), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at http://www.regulations.gov (IRS REG-149036-04). 
The public hearing will be held in the Internal Revenue Building, 1111 
Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Stuart Spielman, (202) 622-7950; concerning submissions of comments, 
the hearing, or to be placed on the building access list to attend the 
hearing, Richard Hurst, (202) 622-7180 (not toll-free numbers) or 
[email protected].

SUPPLEMENTARY INFORMATION: 

Background

    This document amends the Procedure and Administration Regulations 
(26 CFR part 301) by adding rules relating to the suspension of 
interest, penalties, additions to tax, or additional amounts under 
section 6404(g). Section 6404(g) was added to the Code by section 3305 
of the Internal Revenue Service Restructuring and Reform Act of 1998, 
Public Law 105-206 (112 Stat. 685, 743) (RRA 98), effective for taxable 
years ending after July 22, 1998. Section 6404(g) was amended by 
section 903(c) of the American Jobs Creation Act of 2004, Public Law 
108-357 (118 Stat. 1418, 1652) (AJCA), enacted on October 22, 2004; by 
section 303 of the Gulf Opportunity Zone Act of 2005, Public Law 109-
135 (119 Stat. 2577, 2608-09) (GOZA), enacted on December 21, 2005; by 
section 426(b) of the Tax Relief and Health Care Act of 2006, Public 
Law 109-432 (120 Stat. 2922, 2975), enacted on December 20, 2006; and 
by section 8242 of the Small Business and Work Opportunity Tax Act of 
2007, Public Law 110-28 (121 Stat. 112, 200), enacted on May 25, 2007. 
The Treasury Department and the Internal Revenue Service are aware that 
questions have been raised regarding the effective date of the changes 
made by the Small Business and Work Opportunity Act of 2007 and are 
considering further guidance. These regulations are prescribed under 
section 7805.

Explanation of Provisions

General Rule

    If an individual taxpayer files a Federal income tax return on or 
before the due date for that return (including extensions), and if the 
IRS does not timely provide a notice to that taxpayer specifically 
stating the taxpayer's liability and the basis for that liability, then 
the IRS must suspend any interest, penalty, addition to tax, or 
additional amount with respect to any failure relating to the return 
that is computed by reference to the period of time the failure 
continues and that is properly allocable to the suspension period. A 
notice is timely if provided before the close of the eighteen-month 
period (thirty-six month period, in the case of notices provided after 
November 25, 2007) beginning on the later of the date on which the 
return is filed or the due date of the return without regard to 
extensions. The suspension period begins on the day after the close of 
the eighteen-month period (or thirty-six month period) and ends twenty-
one days after the IRS provides the notice. This suspension rule 
applies separately with respect to each item or adjustment.

Amended Returns

    The proposed regulations provide guidance on applying section 
6404(g) to amended returns and other signed documents that show an 
increased tax liability, as well as to amended returns that show a 
decreased tax liability. If, on or after December 21, 2005, a taxpayer 
provides to the IRS an amended return or other signed written document 
showing an additional tax liability, then the eighteen-month period (or 
thirty-six month period) does not begin to run with respect to the 
items that gave rise to the additional tax liability until that return 
or other signed written document is provided to the IRS. This rule is 
mandated by GOZA section 303(b). Except as provided in GOZA section 
303(b), the filing of an amended return has no effect on the running of 
the eighteen-month period (or thirty-six month period) under section 
6404(g). Accordingly, if a taxpayer files an amended return or other 
signed written document showing a decrease in tax liability and the IRS 
at any time proposes to adjust the changed item or items, any interest, 
penalty, addition to tax, or additional amount with respect to the 
changed item or items on the amended return or other signed written 
document will not be suspended. If married taxpayers file a return 
claiming a change in filing status to married filing jointly, the 
general rule authorizing suspension will not apply unless each spouse's 
separate return, if required to be filed, was timely. An amended return 
or other written document is provided to the IRS for purposes of these 
proposed regulations when it is received by the IRS.

Notice of Liability and the Basis for Liability

    Notice to the taxpayer must be in writing and specifically state 
the amount of the liability and the basis for the liability. The notice 
must provide the taxpayer with sufficient information to identify which 
items of income, deduction, loss, or credit the IRS has adjusted or 
proposes to adjust, and the reason for that adjustment. Administrative 
proceedings pertaining to adjustments to partnership items of 
partnerships subject to the unified audit and litigation procedures of 
Subchapter C of Chapter 63 of Subtitle F of the Internal Revenue Code 
(TEFRA) occur at the partnership level. Each partner has the right to 
participate in partnership-level administrative proceedings. The tax 
matters partner (TMP) of a TEFRA partnership has a fiduciary 
relationship to the partners and must provide the partners with 
information concerning significant administrative proceedings and 
actions within 30 days of the action or the receipt of information 
concerning the partnership matter. TEFRA partnership administrative 
proceedings at the partnership level concern the treatment of 
partnership items and the partners' allocable shares of those items 
rather than the specific tax liability of each partner attributable to 
the partnership items. Partners can, however, compute the specific tax 
attributable to adjustments to partnership items based on their 
interests in the partnership, so notice to the TMP concerning the 
treatment of partnership items constitutes notice to the partners under 
section 6404(g).

[[Page 34201]]

Exceptions to the General Rule for Suspension

    The general rule for suspension does not apply to (1) Any penalty 
imposed by section 6651 for failing to file a tax return or for failing 
to pay tax; (2) any interest, penalty, addition to tax, or additional 
amount in a case involving fraud; (3) any interest, penalty, addition 
to tax, or additional amount with respect to any tax liability shown on 
a return; (4) any interest, penalty, addition to tax, or additional 
amount with respect to any gross misstatement; (5) any interest, 
penalty, addition to tax, or additional amount with respect to any 
reportable transaction not meeting the disclosure requirement of 
section 6664(d)(2)(A) or any listed transaction as defined in section 
6707A(c); and (6) any criminal penalty.
    The proposed regulations limit the exception pertaining to a case 
involving fraud to the taxpayer and the taxable year in issue. The 
proposed regulations also provide that the exception in section 6404(g) 
for ``a case involving fraud'' means that fraud on the return with 
respect to any item will preclude suspension under section 6404(g) with 
respect to all items on the return.
    AJCA section 903(b) added subparagraph (D), pertaining to gross 
misstatements, to section 6404(g)(2), effective for taxable years 
beginning after December 31, 2003. The proposed regulations define 
``gross misstatement'' as the reporting of any item on the original or 
any amended return if that item is attributable to a gross valuation 
misstatement as defined in section 6662(h), a substantial omission of 
income as described in section 6501(e)(1) or section 6229(c), or a 
frivolous position or a desire to delay or impede the administration of 
the Federal income tax laws as described in section 6702.

Special Rules

    Section 6404(g)(2)(C) provides that interest suspension does not 
apply to any tax liability shown on a return. Consistent with this 
exception, any interest, penalty, addition to tax, or additional amount 
with respect to an erroneous tentative carryback or refund adjustment 
will not be suspended because the disallowance of the erroneous 
tentative carryback or refund adjustment does not change the tax 
liability originally shown on the taxpayer's return. An election under 
section 183(e) to defer the determination as to whether the presumption 
applies that an activity is engaged in for profit tolls the 
notification period and the suspension period described in section 
6404(g)(1), in that the election calls for the IRS to defer proposing 
adjustments regarding the activity.

Proposed Effective Date

    The regulations, as proposed, apply as of 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 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 
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 Internal Revenue Code, these 
regulations have been submitted to the Chief Counsel for Advocacy of 
the Small Business Administration for comment on its impact on small 
business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or 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 made available for public inspection and copying.
    A public hearing has been scheduled for October 11, 2007, beginning 
at 10 a.m. in the Auditorium, Internal Revenue Building, 1111 
Constitution Avenue, NW., Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. 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 30 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 or 
electronic comments on September 19, 2007, 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 September 20, 2007. A period of ten 
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 Stuart Spielman of the 
Office of Associate Chief Counsel (Procedure and Administration).

List of Subjects in 26 CFR Part 301

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

Proposed Amendments 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 301.6404-0 is amended as follows:
    1. The introductory text is revised.
    2. Entries are added for Sec.  301.6404-4.
    The addition reads as follows:


Sec.  301.6404-0  Table of contents.

    This section lists the paragraphs contained in Sec. Sec.  301.6404-
1 through 301.6404-4.
* * * * *
Sec.  301.6404-4 Suspension of interest and certain penalties where 
the Internal Revenue Service does not contact the taxpayer.

    (a) Suspension.
    (1) In general.
    (2) Treatment of amended returns and other documents.
    (i) Amended returns filed on or after December 21, 2005, that 
show an increase in tax liability.
    (ii) Amended returns that show a decrease in tax liability.
    (iii) Amended return and other documents as notice.
    (iv) Joint return after filing separate return.
    (3) Separate application.
    (4) Duration of suspension period.
    (5) Example.
    (6) Notice of liability and the basis for the liability.
    (i) In general.
    (ii) Tax attributable to TEFRA partnership items.
    (iii) Examples.
    (7) Providing notice by the IRS.

[[Page 34202]]

    (i) In general.
    (ii) Providing notice in TEFRA partnership proceedings.
    (b) Exceptions.
    (1) Failure to file tax return or to pay tax.
    (2) Fraud.
    (3) Tax shown on return.
    (4) Gross misstatement.
    (i) Description.
    (5) [Reserved].
    (c) Special rules.
    (1) Tentative carryback and refund adjustments.
    (2) Election under section 183(e).
    (d) Effective/applicability date.

    Par. 3. Section 301.6404-4 is added to read as follows:


Sec.  301.6404-4  Suspension of interest and certain penalties where 
the Internal Revenue Service does not contact the taxpayer.

    (a) Suspension--(1) In general. Except as provided in paragraph (b) 
of this section, if an individual taxpayer files a return of tax 
imposed by subtitle A on or before the due date for the return 
(including extensions) and the Internal Revenue Service (IRS) does not 
timely provide the taxpayer with a notice specifically stating the 
amount of any increased liability and the basis for that liability, 
then the IRS must suspend any interest, penalty, addition to tax, or 
additional amount with respect to any failure relating to the return. 
This suspension is computed by reference to the period of time the 
failure continues to exist. The notice described in this paragraph 
(a)(1) is timely if provided before the close of the eighteen-month 
period (thirty-six month period in the case of notices provided after 
November 25, 2007) beginning on the later of the date on which the 
return is filed or the due date of the return without regard to 
extensions.
    (2) Treatment of amended returns and other documents--(i) Amended 
returns filed on or after December 21, 2005, that show an increase in 
tax liability. If a taxpayer, on or after December 21, 2005, provides 
to the IRS an amended return or one or more other signed written 
documents showing an increase in tax liability, the date on which the 
return was filed will, for purposes of this paragraph (a), be the date 
on which the last of the documents was provided. Documents described in 
this paragraph (a)(2)(i) are provided on the date that they are 
received by the IRS.
    (ii) Amended returns that show a decrease in tax liability. If a 
taxpayer provides to the IRS an amended return or other signed written 
document that shows a decrease in tax liability, any interest, penalty, 
addition to tax, or additional amount will not be suspended if the IRS 
at any time proposes to adjust the changed item or items on the amended 
return or other signed written document.
    (iii) Amended return and other documents as notice. As to the items 
reported, an amended return or one or more other signed written 
documents showing that the taxpayer owes an additional amount of tax 
for the taxable year serves as the notice described in paragraph (a)(1) 
of this section.
    (iv) Joint return after filing separate return. A joint return 
filed under section 6013(b) is subject to the rules for amended returns 
described in this paragraph (a)(2). The IRS will not suspend any 
interest, penalty, addition to tax, or additional amount on a joint 
return filed under section 6013(b) unless each spouse, if required to 
file a return, filed a timely separate return.
    (3) Separate application. This paragraph (a) shall be applied 
separately with respect to each item or adjustment.
    (4) Duration of suspension period. The suspension period described 
in paragraph (a)(1) of this section begins the day after the close of 
the eighteen-month period (thirty-six month period, in the case of 
notices provided after November 25, 2007) beginning on the later of the 
date on which the return is filed or the due date of the return without 
regard to extensions. The suspension period ends twenty-one days after 
the earlier of the date on which the IRS mails the required notice to 
the taxpayer's last known address, the date on which the required 
notice is hand-delivered to the taxpayer, or the date on which the IRS 
receives an amended return or other signed written document showing an 
increased liability.
    (5) Example. The following example illustrates the rules of this 
paragraph (a):

    Example. An individual taxpayer timely files an income tax 
return for taxable year 2004 on the due date of the return, April 
15, 2005. On December 11, 2006, the taxpayer mails to the IRS an 
amended return reporting an additional item of income and an 
increased tax liability for taxable year 2004. The IRS receives the 
amended return on December 13, 2006. On January 16, 2007, the IRS 
provides the taxpayer with a notice stating that the taxpayer has an 
additional tax liability based on the disallowance of a deduction 
the taxpayer claimed on his original return and did not change on 
his amended return. The date the amended return was received 
substitutes for the date that the original return was filed with 
respect to the additional item of tax liability reported on the 
amended return. Thus, the IRS will not suspend interest, penalties, 
additions to tax, or additional amounts with respect to the 
additional item of income and the increased tax liability reported 
on the amended return. The suspension period for the additional tax 
liability based on the IRS' disallowance of the deduction begins on 
October 15, 2006, so the IRS will suspend interest, penalties, 
additions to tax, and additional amounts with respect to the 
disallowed deduction and additional tax liability from that date 
through February 6, 2007, which is twenty-one days after the IRS 
provided notice of the additional tax liability and the basis for 
that liability.

    (6) Notice of liability and the basis for the liability--(i) In 
general. Notice to the taxpayer must be in writing and specifically 
state the amount of the liability and the basis for the liability. The 
notice must provide the taxpayer with sufficient information to 
identify which items of income, deduction, loss, or credit the IRS has 
adjusted or proposes to adjust, and the reason for that adjustment. 
Notice of the reason for the adjustment does not require a detailed 
explanation or a citation to any Internal Revenue Code section or other 
legal authority. The IRS does not have to incorporate all the 
information necessary to satisfy the notice requirement within a single 
document or provide all the information at the same time. Documents 
that may contain information sufficient to qualify as notice, either 
alone or in conjunction with other documents, include, but are not 
limited to, statutory notices of deficiency, examination reports (for 
example, Forms 4549 ``Income Tax Examination Changes,'' Forms 886-A 
``Explanation of Items''), Forms 870 ``Waiver of Restrictions on 
Assessments and Collection of Deficiency in Tax and Acceptance of 
Overassessment,'' notices of proposed deficiency that allow the 
taxpayer an opportunity for review in the Office of Appeals (30-day 
letters), notices pursuant to section 6213(b) (mathematical or clerical 
errors), and notice and demand for payment of a jeopardy assessment 
under section 6861.
    (ii) Tax attributable to TEFRA partnership items. Notice to the 
partner or the tax matters partner (TMP) of a partnership subject to 
the Unified Audit and Litigation Procedures of subchapter C of chapter 
63 of subtitle F of the Internal Revenue Code (TEFRA) that provides 
specific information about the basis for the adjustments to partnership 
items is sufficient notice if a partner could reasonably compute the 
specific tax attributable to the partnership item based on the proposed 
adjustments as applied to the partner's individual tax situation. 
Documents provided by the IRS during a TEFRA partnership proceeding 
that may contain information sufficient to satisfy the notice 
requirements include, but are not limited to, a Notice of Final 
Partnership Administrative Adjustment,

[[Page 34203]]

examination reports (for example, Forms 4549, Forms 886-A), or a letter 
that allows the partners an opportunity for review in the Office of 
Appeals (60-day letter).
    (iii) Examples. The following examples illustrate the rules of this 
paragraph (a)(6).

    Example 1. During an audit of Taxpayer A's 2005 taxable year 
return, the IRS questions a charitable deduction claimed on the 
return. The IRS provides A with a ``30-day letter'' that proposes a 
deficiency of $1,000 based on the disallowance of the charitable 
deduction and informs A that A may file a written protest of the 
proposed deficiency to the Office of Appeals within 30 days. The 
letter includes as an attachment a copy of the revenue agent's 
report that states that ``It has not been established that the 
amount shown on your return as a charitable contribution was paid 
during the tax year. Therefore, this deduction is not allowable.'' 
The information in the 30-day letter and attachment provides A with 
notice of the specific amount of the liability and the basis for 
that liability as described in this paragraph (a).
    Example 2. Taxpayer B is a partner in partnership P, a TEFRA 
partnership for taxable year 2005. B claims a distributive share of 
partnership income on B's Federal income tax return for 2005 filed 
on April 17, 2006. On October 1, 2007, during the course of a 
partnership audit of P for taxable year 2005, the IRS provides P's 
TMP a ``60-day letter'' proposing to adjust P's income by $10,000. 
The IRS had previously provided the TMP with a copy of the 
examination report explaining that the adjustment was based on 
$10,000 of unreported net income. On October 31, 2007, P's TMP 
informs B of the proposed adjustment as required by Sec.  
301.6223(g)-1(b). By accounting for B's distributive share of the 
$10,000 of unreported income from P with B's other income tax items, 
B can determine B's tax attributable to the $10,000 partnership 
adjustment. The information in the 60-day letter and the examination 
report allows B to compute the specific amount of the liability 
attributable to the adjustment to the partnership item and the basis 
for that adjustment and therefore satisfies the notice requirement 
of paragraph (a). Because the IRS provided that notice to the TMP, 
B's agent under the TEFRA partnership provisions, within eighteen 
months of the April 17, 2006, filing date of B's return, any 
interest, penalty, addition to tax, or additional amount with 
respect to B's tax liability attributable to B's distributive share 
of the $10,000 of unreported partnership income will not be 
suspended under section 6404(g).

    (7) Providing notice by the IRS--(i) In general. The IRS may 
provide notice by mail or in person to the taxpayer or the taxpayer's 
representative. If the IRS mails the notice, it must be sent to the 
taxpayer's last known address under rules similar to section 6212(b), 
except that certified or registered mail is not required. Notice is 
considered provided as of the date of mailing or delivery in person.
    (ii) Providing notice in TEFRA partnership proceedings. In the case 
of TEFRA partnership proceedings, the IRS must provide notice of final 
partnership administrative adjustments (FPAA) by mail to those partners 
specified in section 6223. Within 60 days of an FPAA being mailed, the 
TMP is required to forward notice of the FPAA to those partners not 
entitled to direct notice from the IRS under section 6223. Certain 
partners with small interests in partnerships with more than 100 
partners may form a Notice Group and designate a partner to receive the 
FPAA on their behalf. The IRS may provide other information after the 
beginning of the partnership administrative proceeding to the TMP who, 
in turn, must provide that information to the partners specified in 
Sec.  301.6223(g)-1 within 30 days of receipt. Pass-thru partners who 
receive notices and other information from the IRS or the TMP must 
forward that notice or information within 30 days to those holding an 
interest through the pass-thru partner. Information provided by the IRS 
to the TMP is deemed to be notice for purposes of this section to those 
partners specified in Sec.  301.6223(g)-1 as of the date the IRS 
provides that notice to the TMP. A similar rule applies to notice 
provided to the designated partner of a Notice Group, and to notice 
provided to a pass-thru partner. In the foregoing situations, the TMP, 
designated partner, and pass-thru partner are agents for direct and 
indirect partners. Consequently, notice to these agents is deemed to be 
notice to the partners for whom they act.
    (b) Exceptions--(1) Failure to file tax return or to pay tax. 
Paragraph (a) of this section does not apply and interest will not be 
suspended with respect to any penalty imposed by section 6651.
    (2) Fraud. Paragraph (a) of this section does not apply and 
interest will not be suspended with respect to any interest, penalty, 
addition to tax, or additional amount in a case involving fraud. Fraud 
has the same meaning in this paragraph (b) as in section 6501(c)(1) and 
is not attributed from one taxpayer to another taxpayer. If a taxpayer 
files a fraudulent return for one year, paragraph (a) of this section 
may apply to any other tax year of the taxpayer that does not involve 
fraud. Fraud affecting one item on a return precludes paragraph (a) of 
this section from applying to any other items on that return.
    (3) Tax shown on return. Paragraph (a) of this section does not 
apply and interest will not be suspended with respect to any interest, 
penalty, addition to tax, or additional amount with respect to any tax 
liability shown on a return.
    (4) Gross misstatement--(i) Description. Paragraph (a) of this 
section does not apply and interest will not be suspended with respect 
to any interest, penalty, addition to tax, or additional amount with 
respect to a gross misstatement. A gross misstatement for purposes of 
this paragraph (b) means--
    (A) A substantial omission of income as described in section 
6501(e)(1) or section 6229(c)(2);
    (B) A gross valuation misstatement within the meaning of section 
6662(h); or
    (C) A misstatement to which the penalty under section 6702(a) 
applies.
    (ii) If a gross misstatement occurs, then interest will not be 
suspended with respect to any items of income omitted from the return 
and with respect to overstated deductions, even though one or more of 
the omitted items would not constitute a substantial omission, gross 
valuation misstatement, or misstatement to which section 6702(a) 
applies.
    (5) [Reserved].
    (c) Special rules--(1) Tentative carryback and refund adjustments. 
If an amount applied, credited, or refunded under section 6411 exceeds 
the overassessment properly attributable to a tentative carryback or 
refund adjustment, any interest, penalty, addition to tax, or 
additional amount with respect to the excess will not be suspended.
    (2) Election under section 183(e). If a taxpayer elects under 
section 183(e) to defer the determination as to whether the presumption 
applies that an activity is engaged in for profit, the 18-month (or 36-
month) notification period described in paragraph (a)(1) of this 
section or, if that period has passed as of the date the election is 
made, the suspension period described in paragraph (a)(4) of this 
section will be tolled for the period to which the election applies. 
Tolling will begin on the date the election is made and end on the 
later of the date the return for the last taxable year to which the 
election applies is filed or is due without regard to extensions.
    (d) Effective/applicability date. The rules of this section apply 
as of the date of publication of a Treasury decision adopting these 
rules as final regulations in the Federal Register.

Kevin M. Brown,
Deputy Commissioner for Services and Enforcement.
 [FR Doc. E7-12082 Filed 6-20-07; 8:45 am]
BILLING CODE 4830-01-P