[Federal Register Volume 76, Number 162 (Monday, August 22, 2011)]
[Rules and Regulations]
[Pages 52259-52263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-21164]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9545]
RIN 1545-BG75


Interest and Penalty Suspension Provisions Under Section 6404(g) 
of the Internal Revenue Code

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 the 
suspension of interest, penalties, additions to tax, or additional 
amounts under section 6404(g) of the Internal Revenue Code. The final 
regulations explain the general rules for suspension and exceptions to 
those general rules, and incorporate a special rule from Notice 2007-
93, 2007-48 IRB 1072, regarding the effective date of the changes to 
section 6404(g) made by the Small Business and Work Opportunity Tax Act 
of 2007. The final

[[Page 52260]]

regulations affect taxpayers who file timely individual income tax 
returns and who fail to receive notification from the IRS of additional 
tax liability within the time period prescribed by section 6404(g).

DATES: Effective Date: These regulations are effective on August 22, 
2011.
    Applicability date: Section 301.6404-4(a)(5) applies to notices 
under section 6404(g)(1)(A) that are provided by the IRS on or after 
November 26, 2007, and that relate to individual Federal income tax 
returns that were timely filed before that date.

FOR FURTHER INFORMATION CONTACT: Nathan Rosen, (202) 622-3630 (not a 
toll-free number).

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, and 
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. 
Section 8242 of the Small Business and Work Opportunity Tax Act of 
2007, Public Law 110-28 (121 Stat. 190, 200), extended the eighteen-
month period within which the IRS can, without suspension of interest, 
contact a taxpayer regarding possible adjustments to the taxpayer's 
liability to thirty-six months, effective for notices provided after 
November 25, 2007.
    On June 21, 2007, the Treasury Department and the IRS published in 
the Federal Register a notice of proposed rulemaking and notice of 
public hearing (REG-149036-04), 2007-34 IRB 411 (72 FR 34199), 
corrected at (72 FR 41045) (July 26, 2007), under section 6404(g). The 
proposed regulations provided guidance regarding the suspension of 
interest, penalties, additions to tax, or additional amounts under 
section 6404(g). No comments were received in response to the notice of 
proposed rulemaking and no public hearing was requested or held. 
Therefore, the proposed regulations are adopted as amended by this 
Treasury decision. The revisions are discussed in this preamble.
    On June 21, 2007, the Treasury Department and the IRS also 
published a separate set of temporary regulations (TD 9333), 2007-33 
IRB 350 (72 FR 34176), corrected at 72 FR 41022, and a notice of 
proposed rulemaking by cross-reference to temporary regulations (REG-
149036-04), 2007-33 IRB 365 (72 FR 34204), corrected at 72 FR 41045, 
under section 6404(g) concerning the suspension of interest, penalties, 
additions to tax, or additional amounts with respect to listed 
transactions or undisclosed reportable transactions. Those temporary 
and proposed regulations are not the subject of this Treasury decision, 
and were published as final regulations on June 16, 2010 (TD 9488), 
2010-28 IRB 51 (75 FR 33992).

Explanation of Revisions

    The final regulations include new Sec.  301.6404-4(a)(5) to address 
the matters that were the subject of Notice 2007-93. In general, 
section 6404(g) provides that 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 18-month period (36-month period, in the case of notices provided 
after November 25, 2007, subject to the provisions of Sec.  301.6404-
4(a)(5)) 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 18-month 
period (or 36-month period) and ends 21 days after the IRS provides the 
notice. This suspension rule applies separately with respect to each 
item or adjustment.
    Notice 2007-93 set forth a special rule for notices under section 
6404(g)(1) that (i) are provided by the IRS on or after November 26, 
2007, and (ii) relate to individual Federal income tax returns that 
were timely filed before that date. Under the special rule:
    1. If, as of November 25, 2007, the 18-month notification deadline 
had passed and the IRS had not provided notice to the taxpayer, the 
suspension described in section 6404(g)(1)(A) would begin on the day 
after the close of the 18-month period. The suspension would end 21 
days after the date on which the notice was provided.
    2. In all other cases, the suspension would begin on the day after 
the close of the 36-month notification period described in section 
6404(g)(1)(A) and end 21 days after the date on which the notice was 
provided.
    The final regulations incorporate substantially without change the 
special rule of Notice 2007-93 at Sec.  301.6404-4(a)(5).
    In addition, Sec.  301.6404-4(b)(2) was revised to remove the 
reference to section 6501(c)(1) and the meaning of fraud, as fraud is 
not defined in section 6501(c)(1) but is instead generally described 
under case law and other guidance. Thus, fraud for purposes of Sec.  
301.6404-4(b)(2) has the same meaning as that provided in case law and 
other guidance.
    Finally, minor editorial changes were made to clarify the terms of 
section 6404(g) and to modify a reference to official IRS forms.

Effect on Other Documents

    The following publication is obsolete as of August 22, 2011:
    Notice 2007-93 (2007-48 IRB 1072).

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 
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, 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 business.

Drafting Information

    The principal author of these regulations is Nathan Rosen of the 
Office of Associate Chief Counsel (Procedure and Administration).

List of Subjects in 26 CFR Part 301

    Income taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 301 is amended as follows:

[[Page 52261]]

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 301.6404-0 is amended as follows:


0
1. Revise the introductory text.


0
2. Revise entries for Sec.  301.6404-4(a) and (b)(1) through (b)(4).


0
3. Revise entries for Sec.  301.6404-4(c) and (d).
    The revisions read 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 when the 
Internal Revenue Service does not timely 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 returns and other documents as notice.
    (iv) Joint return after filing separate return.
    (3) Separate application.
    (4) Duration of suspension period.
    (5) Certain notices provided on or after November 26, 2007.
    (i) Eighteen-month period has closed.
    (ii) All other cases.
    (6) Examples.
    (7) Notice of liability and the basis for the liability.
    (i) In general.
    (ii) Tax attributable to TEFRA partnership items.
    (iii) Examples.
    (8) Providing notice.
    (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.
    (ii) Effect of gross misstatement.
* * * * *
    (c) Special rules.
    (1) Tentative carryback and refund adjustments.
    (2) Election under section 183(e).
    (i) In general.
    (ii) Example.
    (d) Effective/applicability date.


Sec.  301.6404-0T  [Removed]

0
 Par. 3. Section 301.6404-0T is removed.


0
Par. 4. Section 301.6404-4 is amended as follows:


0
1. Add paragraphs (a) and (b)(1) through (b)(4).


0
2. Add paragraph (c).


0
3. Paragraph (d) is amended by adding a second sentence.
    The additions and revisions read as follows:


Sec.  301.6404-4  Suspension of interest and certain penalties when the 
Internal Revenue Service does not timely 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 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 the imposition of 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 to exist and that is properly allocable to the suspension 
period. The notice described in this paragraph (a) is timely if 
provided before the close of the 18-month period (36-month period in 
the case of notices provided after November 25, 2007, subject to the 
provisions of paragraph (a)(5)) 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 returns and other documents as notice.--(A) 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 with respect to the items reported on the amended 
return.

    (B) Example. An individual taxpayer timely files a Federal 
income tax return for taxable year 2008 on April 15, 2009. On 
January 19, 2010, the taxpayer mails to the IRS an amended return 
reporting an additional item of income and an increased tax 
liability for taxable year 2008. The IRS receives the amended return 
on January 21, 2010. The amended return will be treated for purposes 
of this paragraph (a) as filed on January 21, 2010, the date the IRS 
received it. Pursuant to paragraph (a)(2)(iii) of this section, the 
amended return serves as the notice described in paragraph (a)(1) of 
this section with respect to the item reported on the amended 
return. Accordingly, because the filing of the amended return and 
the provision of notice occur simultaneously, no suspension of any 
interest, penalty, addition to tax or additional amount will occur 
under this paragraph (a) with respect to the item reported on the 
amended return.

    (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) after the filing of a separate 
return unless each spouse's separate return, if required to be filed, 
was timely.
    (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 18-month period (36-month period, in the case of notices provided 
after November 25, 2007, subject to the provisions of paragraph (a)(5)) 
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 21 days after the earlier of the date on which the IRS 
mails the

[[Page 52262]]

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 tax liability.
    (5) Certain notices provided on or after November 26, 2007. If the 
IRS provides the notice described in paragraph (a)(1) of this section 
to a taxpayer on or after November 26, 2007, and the notice relates to 
an individual Federal income tax return that was timely filed before 
that date, the following rules will apply:
    (i) Eighteen-month period has closed. If, as of November 25, 2007, 
the 18-month period described in paragraph (a)(1) of this section has 
closed and the IRS has not provided the taxpayer with the notice 
described in that paragraph (a)(1), the suspension described in 
paragraph (a)(1) of this section will begin on the day after the close 
of the 18-month period. The suspension will end on the date that is 21 
days after the notice is provided.
    (ii) All other cases. In all other cases, the suspension described 
in paragraph (a)(1) of this section will begin on the day after the 
close of the 36-month period described in that paragraph (a)(1) and end 
on the date that is 21 days after the notice described in paragraph 
(a)(1) of this section is provided.
    (6) Examples. The following examples, which assume that no 
exceptions in section 6404(g)(2) to the general rule of suspension 
apply, illustrate the rules of this paragraph (a).

    Example 1.  An individual taxpayer timely files a Federal income 
tax return for taxable year 2005 on April 17, 2006. On December 11, 
2007, the taxpayer mails to the IRS an amended return reporting an 
additional item of income and an increased tax liability for taxable 
year 2005. The IRS receives the amended return on December 13, 2007. 
On January 16, 2008, 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 any interest, penalty, addition to tax, or additional amount 
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's disallowance of the 
deduction begins on October 17, 2007, so the IRS will suspend any 
interest, penalty, addition to tax, and additional amount with 
respect to the disallowed deduction and additional tax liability 
from that date through February 6, 2008, which is 21 days after the 
IRS provided notice of the additional tax liability and the basis 
for that liability. The suspension period in this example begins 18 
months after filing the return (not 36 months) because, as of 
November 25, 2007, the 18-month period beginning on the date the 
return was filed had closed without the IRS giving notice of the 
additional liability. Thus, under the rules in paragraph (a)(5) of 
this section, the suspension period begins 18 months from the April 
17, 2006 return filing date.

    Example 2.  An individual taxpayer files a Federal income tax 
return for taxable year 2008 on April 15, 2009. The taxpayer 
consents to extend the time within which the IRS may assess any tax 
due on the return until June 30, 2013. On December 20, 2012, the IRS 
provides a notice to the taxpayer specifically stating the 
taxpayer's liability and the basis for the liability. The suspension 
period for the liability identified by the IRS begins on April 15, 
2012, so the IRS will suspend any interest, penalty, addition to 
tax, and additional amount with respect to that liability from that 
date through January 10, 2013, which is 21 days after the IRS 
provided notice of the additional tax liability and the basis for 
that liability.

    (7) 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 need not incorporate all of the information 
necessary to satisfy the notice requirement within a single document or 
provide all of the information at the same time. Documents that may 
contain information sufficient to constitute notice, either alone or in 
conjunction with other documents, include, but are not limited to, 
statutory notices of deficiency; examination reports (for example, Form 
4549, Income Tax Examination Changes or Form 886-A, Explanation of 
Items); Form 870, Waiver of Restriction 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 partnership 
procedures) 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 
(FPAA); examination reports (for example, Form 4605-A or Form 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)(7).

    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 to 
disallow the charitable contribution deduction resulting in a 
deficiency of $1,000 and informs A that A may file a written protest 
of the proposed disallowance with the Office of Appeals within 30 
days. The letter includes as an attachment a copy of the revenue 
agent's report that states, ``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)(7).

    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 timely 
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 with a 60-day letter proposing to adjust P's income by $10,000. 
The IRS previously had 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

[[Page 52263]]

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 18 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).

    (8) Providing notice.--(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 to any penalty imposed by 
section 6651.
    (2) Fraud. Paragraph (a) of this section does not apply to any 
interest, penalty, addition to tax, or additional amount for a year 
involving a false or fraudulent return. If a taxpayer files a 
fraudulent return for a particular year, paragraph (a) of this section 
may apply to any other tax year of the taxpayer that does not involve 
fraud. Fraud affecting a particular 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 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 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)(2)(A) and (B); or
    (C) a misstatement to which the penalty under section 6702(a) 
applies.
    (ii) Effect of gross misstatement. If a gross misstatement occurs, 
then paragraph (a) of this section does not apply to any interest, 
penalty, addition to tax, or additional amount 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.
* * * * *
    (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).--(i) In general. If a taxpayer 
elects under section 183(e) to defer the determination of whether the 
presumption that an activity is engaged in for profit applies, the 18-
month (or 36-month) notification period described in paragraph (a)(1) 
of this section will be tolled for the period to which the election 
applies. If the 18-month (or 36-month) notification period has passed 
as of the date the section 183(e) 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 and will resume the day after 
the tolling period ends. 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.

    (ii)
    Example. In taxable year 2007, taxpayer begins training and 
showing horses. On January 4, 2011, the taxpayer elects under 
section 183(e) to defer the determination of whether the horse-
related activity will be presumed (under section 183(d)) to be 
engaged in for profit. Accordingly, under section 183(e)(1), a 
determination of whether the section 183(d) presumption applies will 
not occur before the close of the 2013 taxable year. Assume that in 
2014, the IRS is considering issuing a notice of deficiency for 
taxable year 2009 regarding tax deductions claimed for the horse-
related activity. Pursuant to paragraph (c)(2)(i) of this section, 
the 36-month notification period under paragraph (a)(1) of this 
section will be tolled with respect to taxable year 2009 for the 
period to which the section 183(e) election applies. This tolling of 
the notification period begins on January 4, 2011 (the date the 
taxpayer made the section 183(e) election) and ends on the later of 
April 15, 2014, or the date the taxpayer's return for taxable year 
2013 is filed.

    (d) Effective/applicability date. * * * Paragraphs (a), (b)(1) 
through (b)(4), and (c) are effective on August 22, 2011.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
    Approved: July 15, 2011.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-21164 Filed 8-19-11; 8:45 am]
BILLING CODE 4830-01-P