[Federal Register Volume 74, Number 27 (Wednesday, February 11, 2009)]
[Rules and Regulations]
[Pages 6829-6831]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-2827]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9445]
RIN 1545-BF21


Procedures for Administrative Review of a Determination That an 
Authorized Recipient Has Failed To Safeguard Tax Returns or Return 
Information

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations regarding 
administrative review procedures for certain government agencies and 
other authorized recipients of returns or return information whose 
receipt of returns and return information may be suspended or 
terminated because they do not maintain proper safeguards. The 
regulations provide guidance to responsible IRS personnel and 
authorized recipients as to these administrative procedures.

DATES: Effective Date: These regulations are effective on February 11, 
2009.
    Applicability Date: These regulations apply to all authorized 
recipients of returns and return information that are subject to the 
safeguard requirements set forth in section 6103(p)(4) on or after 
February 11, 2009.

FOR FURTHER INFORMATION CONTACT: Wendy L. Kribell, (202) 622-4570 (not 
a toll-free number).

Background

    This document contains final regulations amending the Procedure and 
Administration Regulations (26 CFR Part 301) under section 6103(p)(4), 
(p)(7), and (q) of the Internal Revenue Code (Code). Section 6103 
protects returns and return information from disclosure except to 
certain government agencies and other authorized recipients, including 
State tax agencies as provided in section 6103(d). Section 6103(p)(4) 
provides that certain authorized recipients must establish procedures 
satisfactory to the IRS for safeguarding the returns and return 
information. The IRS reviews, on a regular basis, safeguards 
established by these authorized recipients. If the IRS determines that 
an authorized recipient has failed to maintain adequate safeguards or 
has made any unauthorized inspections or disclosures of returns or 
return information, section 6103(p)(4) authorizes the IRS to terminate 
or suspend disclosure of returns and return information to the 
authorized recipient until the IRS is satisfied that adequate steps 
have been taken to ensure adequate safeguards or prevent additional 
unauthorized inspections or disclosures.
    Section 6103(p)(7) requires the Secretary to prescribe regulations 
providing for administrative review of an IRS determination that a 
State tax agency has failed to meet the safeguarding requirements. 
Former Sec.  301.6103(p)(7)-1 contained procedures to allow State tax 
agencies, prior to a suspension or termination of disclosure, to appeal 
a preliminary finding by the IRS of inadequate safeguards or

[[Page 6830]]

unauthorized disclosure, or to establish that the agency had taken 
steps to prevent a recurrence of the violation. Section 6103(q) further 
authorizes the Secretary to prescribe such other regulations as are 
necessary to carry out the provisions of section 6103 generally.
    On February 24, 2006, the Treasury Department and IRS published in 
the Federal Register proposed regulations (REG-157271-05, 71 FR 9487) 
and temporary regulations (TD 9252, 71 FR 9449) to extend the 
administrative review procedure for State tax agencies to ``any'' 
authorized recipient specified in section 6103(p)(4), and to include 
unauthorized inspection within the IRS's scope of review (in addition 
to inadequate safeguards and unauthorized disclosure). Two written 
comments were received, and no public hearing was requested or held. 
After consideration of the comments received, the proposed regulations 
are adopted as final regulations, and the corresponding temporary 
regulations are removed. See Sec.  601.601(d)(2)(ii)(b).

Explanation and Summary of Comments

    The first commentator suggested that the final regulations 
expressly provide that the IRS may give written notice of its intention 
to terminate or suspend disclosure via facsimile or electronic mail. 
This suggestion was not adopted because nothing in the regulations 
precludes a written notice from being delivered electronically. Not 
specifying the means by which written notice is conveyed would also 
afford greater flexibility in providing notice as other means might 
evolve.
    The second commentator suggested that the proposed regulations 
would legalize the misuse of returns and return information and thereby 
discourage taxpayers from seeking tax advice. This suggestion is 
unwarranted. Section 6103 protects returns and return information from 
disclosure except to authorized recipients. Section 6103(p)(4) requires 
certain authorized recipients to establish procedures for safeguarding 
returns and return information. If the authorized recipient fails to 
maintain adequate safeguards or has made any unauthorized inspections 
or disclosures, additional disclosures to that recipient may be 
suspended or terminated until the IRS is satisfied that adequate steps 
have been taken to ensure adequate safeguards or prevent additional 
unauthorized inspections or disclosures. Prior to these final 
regulations, procedures were available pursuant to section 6103(p)(7) 
to allow State tax agencies, prior to a suspension or termination of 
disclosure, to appeal a preliminary finding of inadequate safeguards or 
unauthorized disclosure, or to establish that the agency had taken 
steps to prevent a recurrence of the violation. The purpose of these 
final regulations is to extend these administrative review procedures 
from State tax agencies to all authorized recipients described in 
section 6103(p)(4) and to include a preliminary finding of unauthorized 
inspection within the scope of review. The extension of these 
provisions to all authorized recipients enhances the protections 
afforded to returns and return information.

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 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. 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, the 
notice of proposed rulemaking preceding these regulations 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 these regulations is Wendy L. Kribell, 
Office of the Associate Chief Counsel (Procedure & Administration).

List of Subjects in 26 CFR Part 301

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

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR Part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 continues to read in 
part as follows:

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

0
Par. 2. Section 301.6103(p)(4)-1 is added to read as follows:


Sec.  301.6103(p)(4)-1  Procedures relating to safeguards for returns 
or return information.

    For security guidelines and other safeguards for protecting returns 
and return information, see guidance published by the Internal Revenue 
Service. For procedures for administrative review of a determination 
that an authorized recipient has failed to safeguard returns or return 
information, see Sec.  301.6103(p)(7)-1.


Sec.  301.6103(p)(4)-1T   [Removed]

0
Par. 3. Section 301.6103(p)(4)-1T is removed.
0
Par. 4. Section 301.6103(p)(7)-1 is added to read as follows:


Sec.  301.6103(p)(7)-1   Procedures for administrative review of a 
determination that an authorized recipient has failed to safeguard 
returns or return information.

    (a) In general. Notwithstanding any section of the Internal Revenue 
Code (Code), the Internal Revenue Service (IRS) may terminate or 
suspend disclosure of returns and return information to any authorized 
recipient specified in section (p)(4) of section 6103, if the IRS 
determines that:
    (1) The authorized recipient has allowed an unauthorized inspection 
or disclosure of returns or return information and that the authorized 
recipient has not taken adequate corrective action to prevent the 
recurrence of an unauthorized inspection or disclosure; or
    (2) The authorized recipient does not satisfactorily maintain the 
safeguards prescribed by section 6103(p)(4), and has made no adequate 
plan to improve its system to maintain the safeguards satisfactorily.
    (b) Notice of IRS's intention to terminate or suspend disclosure. 
Prior to terminating or suspending authorized disclosures, the IRS will 
notify the authorized recipient in writing of the IRS's preliminary 
determination and of the IRS's intention to discontinue disclosure of 
returns and return information to the authorized recipient. Upon so 
notifying the authorized recipient, the IRS, if it determines that tax 
administration otherwise would be seriously impaired, may suspend 
further disclosures of returns and return information to the authorized 
recipient pending a final determination by the Commissioner or a Deputy 
Commissioner described in paragraph (d)(2) of this section.
    (c) Authorized recipient's right to appeal. An authorized recipient 
shall have 30 days from the date of receipt of a notice described in 
paragraph (b) of

[[Page 6831]]

this section to appeal the preliminary determination described in 
paragraph (b) of this section. The appeal shall be made directly to the 
Commissioner.
    (d) Procedures for administrative review. (1) To appeal a 
preliminary determination described in paragraph (b) of this section, 
the authorized recipient shall send a written request for a conference 
to: Commissioner of Internal Revenue (Attention: SE:S:CLD:GLD), 1111 
Constitution Avenue, NW., Washington, DC 20224. The request must 
include a complete description of the authorized recipient's present 
system of safeguarding returns or return information received by the 
authorized recipient (and its authorized contractors or agents, if 
any). The request must state the reason or reasons the authorized 
recipient believes that such system or practice (including 
improvements, if any, to such system or practice expected to be made in 
the near future) is or will be adequate to safeguard returns or return 
information.
    (2) Within 45 days of the receipt of the request made in accordance 
with the provisions of paragraph (d)(1) of this section, the 
Commissioner or Deputy Commissioner personally shall hold a conference 
with representatives of the authorized recipient, after which the 
Commissioner or Deputy Commissioner shall make a final determination 
with respect to the appeal.
    (e) Effective/applicability date. This section applies to all 
authorized recipients of returns and return information that are 
subject to the safeguard requirements set forth in section 6103(p)(4) 
on or after February 11, 2009.


Sec.  301.6103(p)(7)-1T   [Removed]

0
Par. 5. Section 301.6103(p)(7)-1T is removed.

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
    Approved: January 13, 2009.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
 [FR Doc. E9-2827 Filed 2-10-09; 8:45 am]
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